Unassociated Document
As
filed with the Securities and Exchange Commission on June 29,
2007
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
20-F
o
|
REGISTRATION
STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE
ACT
OF 1934
|
OR
o
|
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
For
the fiscal year ended December 31, 2006
OR
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
For
the transition period from ____________ to ___________
o
|
SHELL
COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE
ACT OF 1934
|
Commission
File Number: 333-7480
INDUSTRIAS
BACHOCO, S.A.B. DE C.V.
(Exact
name of Registrant as specified in its charter)
Bachoco
Industries
(Translation
of Registrant’s name into English)
The
United Mexican States
(Jurisdiction
of incorporation
or
organization)
|
Avenida
Tecnológico No. 401
Ciudad
Industrial C.P. 38010
Celaya,
Guanajuato, México
(Address
of principal executive offices)
Securities
registered or to be registered pursuant to Section 12(b) of the
Act:
Title
of each class
|
|
Name
of each exchange on which registered
|
American
Depositary Shares, each representing twelve Series B
Shares.
|
|
New
York Stock Exchange
|
Securities
registered or to be registered pursuant to Section 12(g) of the Act:
None
Securities
for which there is a reporting obligation pursuant to Section 15(d) of the
Act:
None
Indicate
the number of outstanding Shares of each of the issuer’s classes of capital or
common stock as of the close of the period covered by the annual
report:
Series
B
Capital Stock: 600,000,000
Shares
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined
in
Rule 405 of the Securities Act.
Yes o
No
x
If
this
report is an annual or transition report, indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or 15(d)
of
the Securities Exchange Act of 1934.
Yes x No
o
Indicate
by check mark whether the registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements
for
the past 90 days:
Yes x No
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
one):
Large
accelerated filer o
|
Accelerated
filer x
|
Non-accelerated
filer o
|
Indicate
by check mark which financial statement item the registrant has elected to
follow:
Item
17
o Item
18 x
If
this
is an annual report, indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No
x
TABLE
OF CONTENTS
|
|
|
Page
|
|
|
|
|
ITEM
1.
|
|
IDENTITY
OF
DIRECTORS,
SENIOR
MANAGEMENT
AND
ADVISERS
|
1
|
ITEM
2.
|
|
OFFER
STATISTICS
AND
EXPECTED
TIMETABLE
|
1
|
ITEM
3.
|
|
|
1
|
ITEM
4.
|
|
INFORMATION
ON
THE
COMPANY
|
10
|
ITEM
5.
|
|
OPERATING
AND
FINANCIAL
REVIEW
AND
PROSPECTS
|
25
|
ITEM
6.
|
|
DIRECTORS,
SENIOR
MANAGEMENT
AND
EMPLOYEES
|
39
|
ITEM
7.
|
|
MAJOR
STOCKHOLDERS
AND
RELATED
PARTY
TRANSACTIONS
|
46
|
ITEM
8.
|
|
|
48
|
ITEM
9.
|
|
|
51
|
ITEM
10.
|
|
|
54
|
ITEM
11.
|
|
QUANTITATIVE
AND
QUALITATIVE
DISCLOSURES
ABOUT
MARKET
RISK
|
69
|
ITEM
12.
|
|
DESCRIPTION
OF
SECURITIES
OTHER
THAN
EQUITY
SECURITIES
|
71
|
|
|
|
|
PART
II
|
|
|
|
ITEM
13.
|
|
DEFAULT,
DIVIDEND
ARREARAGES
AND
DELINQUENCIES
|
71
|
ITEM
14.
|
|
MATERIAL
MODIFICATIONS
TO
THE
RIGHTS
OF
SECURITY
HOLDERS
AND
USE
OF
PROCEEDS
|
71
|
ITEM
15.
|
|
|
71
|
ITEM
16.
|
|
|
72
|
ITEM
16A.
|
|
AUDIT
COMMITTEE
FINANCIAL
EXPERT
|
72
|
ITEM
16B.
|
|
|
72
|
ITEM
16C.
|
|
PRINCIPAL
ACCOUNTANT
FEES
AND
SERVICES
|
72
|
ITEM
16D.
|
|
EXEMPTIONS
FROM
THE
LISTING
STANDARDS
FOR
AUDIT
COMMITTEES
|
73
|
ITEM
16E.
|
|
PURCHASES
OF
EQUITY
SECURITIES
BY
THE
ISSUER
AND
AFFILIATED
PURCHASERS
|
73
|
|
|
|
|
PART
III
|
|
|
|
ITEM
17.
|
|
|
73
|
|
|
|
73
|
ITEM
19.
|
|
|
74
|
Industrias
Bachoco, S.A.B. de C.V. is a holding company with no operations other than
holding the stock of its subsidiaries. On April 2, 2007, we changed our name
from Industrias Bachoco S.A. de C.V. to Industrias Bachoco, S.A.B. de C.V.
by
operation of law and amended article one of our bylaws. Its principal operating
subsidiary is Bachoco, S.A. de C.V. (“BSACV”), which owns the principal
operating assets of Industrias Bachoco, S.A.B. de C.V. and
accounted for 93.4% of consolidated total assets on December 31, 2006.
References herein to “Bachoco,” “we,” “us,” “our,” “its” or the “Company” are,
unless the context requires otherwise, to Industrias Bachoco, S.A.B. de C.V.
and
its consolidated subsidiaries as a whole.
We
are
incorporated under the laws of the United Mexican States (México), and all of
our operations are in México. Our principal executive offices are located at
Avenida Tecnológico No. 401, Ciudad Industrial C.P. 38010, Celaya, Guanajuato,
México, and our telephone number is (011) (52) (461) 618-3555.
Presentation
of Information
We
publish our financial statements in Mexican pesos and present our financial
statements in accordance with generally accepted accounting principles in México
(“Mexican GAAP”). Mexican GAAP requires restatement of all financial statements
to constant pesos as of the date of the most recent balance sheet presented.
Except as otherwise indicated, all data in both the financial statements
included below in Item 18 (which together with the attached notes
constitute the “Consolidated Financial Statements”) and the selected financial
information included throughout this Form 20-F (this “Annual Report”) have
been restated in constant pesos as of December 31, 2006.
Mexican
GAAP differs in certain respects from generally accepted accounting principles
in the United States (“U.S. GAAP”). For a discussion of certain significant
differences between Mexican GAAP and U.S. GAAP as they relate to us, together
with a reconciliation of operating income, net income and total stockholders’
equity to U.S. GAAP, and a condensed statement of cash flows under U.S. GAAP,
see Note 17 to the Consolidated Financial Statements. The effect of price-level
restatement under Mexican GAAP has not been reversed in the reconciliation
to
U.S. GAAP. See Note 17 to the Consolidated Financial Statements.
References
herein to “U.S. dollars,” “U.S.$” or “$” are to the lawful currency of the
United States. References herein to “pesos” or “Ps.” are to the lawful currency
of México. This Annual Report contains translations of certain peso amounts into
U.S. dollars at specified rates solely for the convenience of the reader. Unless
otherwise indicated, such U.S. dollar amounts have been translated from pesos
at
an exchange rate of Ps.10.7995 to U.S.$1.00, the exchange rate on December
29,
2006.
As
used
herein, the term “tonnes” refers to metric tons of 1,000 kilograms (equal to
2,204.6 pounds) and the term “billion” refers to one thousand million
(1,000,000,000). One square meter is equivalent to 10.764 square
feet.
Market
Data
This
Annual Report contains certain statistical information regarding the Mexican
chicken, beef, egg, balanced feed (or “feed”) and swine markets and our market
share. We have obtained this information from a variety of sources, including
the producers’ associations Unión
Nacional de Avicultores (“UNA”),
Consejo
Nacional Agropecuario (“CNA”);
Consejo
Mexicano de Porcicultura (“CMP”),
as well as Banco
de México (“Mexican
Central Bank”), Secretaría
de Agricultura, Ganadería, Desarrollo Rural, Pesca y Alimentos (“Ministry
of Agriculture, Livestock, Rural Development, Fishing and Food” or “SAGARPA”)
and publications of the U.S. Department of Agriculture (“USDA”). The producers’
associations rely principally on data provided by their members. Information
for
which no source is cited was prepared by us on the basis of our knowledge of
the
Mexican chicken, egg, feed and swine
markets and the wide variety of information available regarding these markets.
The methodology and terminology used by different sources are not always
consistent, and data from different sources are not readily
comparable.
Forward-Looking
Statements
We
may
from time to time make written or oral forward-looking statements in our
periodic reports to the Securities and Exchange Commission on Forms 20-F and
6-K, in our annual report to stockholders, in offering circulars and
prospectuses, in press releases and other written materials and in oral
statements made by one of our officers, directors or employees to analysts,
institutional investors, representatives of the media and others.
Examples
of such forward-looking statements include, but are not limited to: (i)
projections of revenues, income (or loss), earnings (or loss) per Share, capital
expenditures, dividends, capital structure or other financial items or ratios;
(ii) statements of our plans, objectives or goals or those of our management,
including those relating to new contracts; (iii) statements about future
economic performance; and (iv) statements of assumptions underlying such
statements. Words such as “believe,” “anticipate,” “plan,” “expect,” “intend,”
“target,” “estimate,” “project,” “predict,” “forecast,” “guideline,” “should”
and similar expressions are intended to identify forward-looking statements
but
are not the exclusive means of identifying such statements.
Forward-looking
statements involve inherent risks and uncertainties, and a number of unexpected
changes could cause actual results to deviate from our plans, objectives,
expectations, estimates and intentions. We recognize that the accuracy of our
predictions and our ability to follow through on our intentions depend on
factors beyond our control. The potential risks are many and varied, but include
unexpected changes in:
|
·
|
economic,
weather and political conditions;
|
|
·
|
competitive
conditions; and
|
|
·
|
demand
for chicken, eggs, feed and swine.
|
PART
I
ITEM
1.
|
Identity
of Directors, Senior Management and
Advisers
|
Not
applicable.
ITEM
2.
|
Offer
Statistics and Expected
Timetable
|
Not
applicable.
Selected
Financial Data
The
information set forth below is derived from Bachoco’s Consolidated Financial
Statements, which are included in Item 18. In this disclosure, we explain
the figures and year-to-year changes in our Consolidated Financial
Statements.
In
preparing the Consolidated Financial Statements, we followed Mexican GAAP,
which
differs in certain respects from U.S. GAAP. Note 17 to the Consolidated
Financial Statements provides a description of the main differences between
Mexican GAAP and U.S. GAAP as they relate to us; a reconciliation to U.S. GAAP
of total stockholders’ equity, net income and operating income, and a condensed
statement of cash flows under U.S. GAAP as of December 31, 2005 and 2006 and
for
the years ended December 31, 2004, 2005 and 2006. Our financial statements
were
prepared pursuant to Bulletin B-10, as amended, and Bulletin B-12, issued by
the
Mexican Institute of Public Accountants, which became effective on January
1,
1990.
Bulletin
B-10 is designed to account for the effects of inflation on financial
disclosures by requiring us to:
|
·
|
restate
non-monetary assets at current replacement cost or by using the Mexican
National Consumer Price Index (“NCPI”), except for the biological assets
(see Note 4 of the Financial
Statement);
|
|
·
|
restate
non-monetary liabilities using the
NCPI;
|
|
·
|
restate
the components of stockholders’ equity using the NCPI;
and
|
|
·
|
record
gains or losses in purchasing power that result from the monetary
liabilities or assets that we hold.
|
Bulletin
B-10 also requires restatement of all financial statements in constant pesos
as
of the date of the most recent balance sheet presented. Except as otherwise
indicated, we have restated all financial information taken from the financial
statements or derived from them, as explained below, in constant pesos as of
December 31, 2006. Bulletin B-12 requires that the statement of changes in
financial position reconcile the differences between the restated historical
balance sheet and the current balance sheet. The effects of price-level
restatement under Mexican GAAP have not been reversed in the reconciliation
to
U.S. GAAP. See Note 17 to the Consolidated Financial Statements.
|
|
|
As
of and for the year ended December 31,
|
|
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2006(2)
|
|
|
|
|
(millions
of constant pesos as of December 31, 2006)(1)
|
|
|
(millions
of U.S. dollars)
|
|
Income
Statement Data
|
|
|
|
|
|
|
|
Mexican
GAAP:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenues
|
|
Ps.
|
12,180.5
|
|
Ps.
|
12,159.5
|
|
Ps.
|
14,299.2
|
|
Ps.
|
15,051.9
|
|
Ps.
|
14,987.6
|
|
|
1,387.8
|
|
Cost
of sales
|
|
|
9,035.5
|
|
|
9,891.6
|
|
|
11,596.5
|
|
|
10,827.2
|
|
|
11,616.3
|
|
|
1,075.6
|
|
Gross
profit
|
|
|
3,145.0
|
|
|
2,267.9
|
|
|
2,702.7
|
|
|
4,224.7
|
|
|
3,371.3
|
|
|
312.2
|
|
Operating
income
|
|
|
1,460.5
|
|
|
488.8
|
|
|
917.9
|
|
|
2,291.9
|
|
|
1,374.7
|
|
|
127.3
|
|
Comprehensive
financing income (loss)
|
|
|
16.9
|
|
|
141.5
|
|
|
(
76.9
|
)
|
|
(
71.3
|
)
|
|
59.2
|
|
|
5.5
|
|
Majority
net income
|
|
|
1,741.0
|
|
|
610.2
|
|
|
759.7
|
|
|
1,839.3
|
|
|
873.4
|
|
|
80.9
|
|
Majority
net income per Share(3)
|
|
|
2.90
|
|
|
1.02
|
|
|
1.27
|
|
|
3.07
|
|
|
1.46
|
|
|
0.13
|
|
Majority
net income per ADS(4)
|
|
|
34.82
|
|
|
12.20
|
|
|
15.19
|
|
|
36.79
|
|
|
17.47
|
|
|
1.62
|
|
Dividends
per Share(5)
|
|
|
0.55
|
|
|
0.58
|
|
|
0.44
|
|
|
0.42
|
|
|
0.59
|
|
|
0.05
|
|
Weighted
average Shares outstanding (thousands)
|
|
|
595,796
|
|
|
598,738
|
|
|
599,260
|
|
|
599,694
|
|
|
599,571
|
|
|
599,571
|
|
U.S.
GAAP:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenues
|
|
Ps.
|
12,180.5
|
|
Ps.
|
12,183.8
|
|
Ps.
|
14,322.0
|
|
Ps.
|
15,024.8
|
|
Ps.
|
14,977.1
|
|
|
1,386.8
|
|
Cost
of sales
|
|
|
9,035.5
|
|
|
9,891.6
|
|
|
11,596.5
|
|
|
10,827.2
|
|
|
11,616.3
|
|
|
1,075.6
|
|
Gross
profit
|
|
|
3,144.9
|
|
|
2,292.2
|
|
|
2,725.5
|
|
|
4,197.6
|
|
|
3,360.8
|
|
|
311.2
|
|
Operating
income
|
|
|
1,476.0
|
|
|
528.2
|
|
|
953.9
|
|
|
2,258.7
|
|
|
1,336.8
|
|
|
123.8
|
|
Comprehensive
financing income (loss)
|
|
|
12.9
|
|
|
131.6
|
|
|
(
68.3
|
)
|
|
(
59.4
|
)
|
|
67.6
|
|
|
6.3
|
|
Majority
net income
|
|
Ps.
|
1,761.2
|
|
Ps.
|
569.0
|
|
Ps.
|
796.0
|
|
Ps.
|
1,824.7
|
|
Ps.
|
863.1
|
|
|
79.9
|
|
Majority
net income per Share(3)
|
|
|
2.94
|
|
|
0.95
|
|
|
1.33
|
|
|
3.0
|
|
|
5.8
|
|
|
0.5
|
|
Majority
net income per ADS(4)
|
|
|
35.22
|
|
|
11.38
|
|
|
15.92
|
|
|
36.5
|
|
|
35.0
|
|
|
3.2
|
|
Dividends
per Share(5)
|
|
|
0.55
|
|
|
0.58
|
|
|
0.44
|
|
|
0.42
|
|
|
0.59
|
|
|
0.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement
of Financial Position Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mexican
GAAP:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
Ps.
|
1,994.5
|
|
Ps.
|
1,774.8
|
|
Ps.
|
2,513.9
|
|
Ps.
|
3,296.0
|
|
Ps.
|
3,454.1
|
|
|
319.8
|
|
Total
assets
|
|
|
13,599.4
|
|
|
14,029.7
|
|
|
14,531.8
|
|
|
15,392.0
|
|
|
16,923.1
|
|
|
1,567.0
|
|
Short-term
debt(6)
|
|
|
138.4
|
|
|
65.7
|
|
|
107.2
|
|
|
96.4
|
|
|
9.4
|
|
|
0.9
|
|
Long-term
debt
|
|
|
86.2
|
|
|
105.0
|
|
|
78.0
|
|
|
54.0
|
|
|
34.2
|
|
|
3.2
|
|
Stockholders’
equity
|
|
|
11,141.1
|
|
|
11,377.5
|
|
|
11,693.1
|
|
|
13,013.5
|
|
|
13,592.0
|
|
|
1,258.6
|
|
U.S.
GAAP:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
Ps.
|
1,994.5
|
|
Ps.
|
1,774.8
|
|
Ps.
|
2,513.9
|
|
Ps.
|
3,296.0
|
|
Ps.
|
3,454.1
|
|
|
319.8
|
|
Total
assets
|
|
Ps.
|
13,657.5
|
|
Ps.
|
14,048.3
|
|
Ps.
|
14,531.8
|
|
Ps.
|
15,980.5
|
|
Ps.
|
16,945.2
|
|
|
1,569.1
|
|
Short-term
debt(6)
|
|
|
138.4
|
|
|
65.7
|
|
|
107.2
|
|
|
96.4
|
|
|
9.4
|
|
|
0.9
|
|
Long-term
debt
|
|
|
86.2
|
|
|
105.0
|
|
|
78.0
|
|
|
54.0
|
|
|
34.2
|
|
|
3.2
|
|
Stockholders’
equity
|
|
|
11,144.6
|
|
|
11,346.2
|
|
|
11,704.7
|
|
|
13,010.0
|
|
|
13,544.1
|
|
|
1,254.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected
Operating Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
volume (thousands of tonnes):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chicken
|
|
|
665.4
|
|
|
655.4
|
|
|
733.0
|
|
|
773.0
|
|
|
773.7
|
|
|
|
|
Eggs
|
|
|
131.7
|
|
|
132.1
|
|
|
138.1
|
|
|
140.6
|
|
|
143.4
|
|
|
|
|
Swine
|
|
|
9.0
|
|
|
8.5
|
|
|
9.1
|
|
|
9.6
|
|
|
8.9
|
|
|
|
|
Balanced
Feed
|
|
|
324.7
|
|
|
316.2
|
|
|
320.7
|
|
|
389.6
|
|
|
484.4
|
|
|
|
|
Gross
margin (%)
|
|
|
25.8
|
%
|
|
18.7
|
%
|
|
18.9
|
%
|
|
28.1
|
%
|
|
22.5
|
%
|
|
|
|
Operating
margin (%)
|
|
|
12.0
|
%
|
|
4.0
|
%
|
|
6.4
|
%
|
|
15.2
|
%
|
|
9.2
|
%
|
|
|
|
Net
margin (%)
|
|
|
14.3
|
%
|
|
5.0
|
%
|
|
5.3
|
%
|
|
12.2
|
%
|
|
5.8
|
%
|
|
|
|
Total
employees
|
|
|
18,306
|
|
|
18,495
|
|
|
18,896
|
|
|
20,432
|
|
|
21,035
|
|
|
|
|
(1) |
Except
per share and per ADS amounts and operating
data.
|
(2) |
Peso
amounts have been translated into U.S. dollars, solely for the convenience
of the reader, at the rate of Ps.10.7995 per U.S.
dollar.
|
(3) |
Net
income per share has been computed based on the weighted average
number of
common Shares outstanding.
|
(4) |
Net
income per ADS has been computed by multiplying net income per share
by
twelve, to reflect the ratio of twelve Shares per
ADS.
|
(5) |
Dividends
per share have been computed by dividing the total amount of dividends
paid (in constant pesos as of December 31, 2006) by the weighted
average
Shares outstanding.
|
(6) |
Includes
notes payable to banks and current portion of long term
debt.
|
Exchange
Rates
The
Mexican peso remained stable during the first four months of 2002. Its
volatility increased, however, during the rest of the year. Growth in the
Mexican economy was sluggish in 2002 and the beginning of 2003, and the peso
depreciated by 12.2% against the U.S. dollar between December 31, 2001 and
December 31, 2002.
The
Mexican peso showed high levels of volatility during the first four months
of
2003; it appreciated and remained stable during the middle of the year and
in
the last four months of the year the Mexican peso increased in its volatility.
Overall, the peso declined in 2003.
In
2004,
the Mexican peso showed volatility for the first four months of the year with
a
general trend to depreciate with respect to the U.S. dollar. In the following
months, the Mexican peso fluctuated around the same exchange rate level before
finishing the year stronger against the dollar as compared to the exchange
rate
at the end of 2003.
During
2005, the Mexican peso continued showing volatility mainly at the beginning
and
at the end of the year, with a general trend to appreciate with respect to
the
U.S. dollar. At the end of 2005, the Mexican peso finished stronger against
the
U.S. dollar.
During
2006, the Mexican economy showed signs of stability with an annual inflation
rate of 4.1%. After showing volatility during the first part of the year, the
Mexican peso showed a reasonably stable peso-dollar exchange rate with a final
depreciation of 1.6%, compared with the exchange rate at the end of
2005.
The
following table sets forth for the periods indicated the high, low, average
and
year-end exchange rates for the purchase and sale of U.S. dollars (presented
in
each case as the average between such purchase and sale rates):
|
|
Exchange
Rate(1)
(in
current pesos per U.S. dollar)
|
|
Year
Ended December 31,
|
|
High
|
|
Low
|
|
Average(2)
|
|
Year
End
|
|
2002
|
|
|
10.43
|
|
|
9.00
|
|
|
9.66
|
|
|
10.43
|
|
2003
|
|
|
11.41
|
|
|
10.11
|
|
|
10.79
|
|
|
11.24
|
|
2004
|
|
|
11.64
|
|
|
10.81
|
|
|
11.29
|
|
|
11.15
|
|
2005
|
|
|
11.41
|
|
|
10.41
|
|
|
10.89
|
|
|
10.63
|
|
2006
|
|
|
11.46
|
|
|
10.43
|
|
|
10.91
|
|
|
10.80
|
|
|
(1) |
The
exchange rates are the noon buying rates in New York City for cable
transfers in pesos as certified for customs purposes by the Federal
Reserve Bank of New York (the “noon buying
rate”).
|
|
(2) |
Average
of month-end rates for each period
shown.
|
|
|
Exchange
Rate(1)
(in
current pesos per U.S. dollar)
|
|
Period
|
|
High
|
|
Low
|
|
December
2006
|
|
|
10.99
|
|
|
10.77
|
|
January
2007
|
|
|
11.09
|
|
|
10.77
|
|
February
2007
|
|
|
11.16
|
|
|
10.92
|
|
March
2007
|
|
|
11.18
|
|
|
11.01
|
|
April
2007
|
|
|
11.03
|
|
|
10.92
|
|
May
2007
|
|
|
10.93
|
|
|
10.74
|
|
|
(1) |
The
exchange rates are the noon buying rates in New York City for cable
transfers in pesos as certified for customs purposes by the Federal
Reserve Bank of New York.
|
On
June
27, 2007, the exchange rate for cable transfers in pesos as certified for
customs purposes by the Federal Reserve Bank of New York was Ps.10.867 per
$1.00
US dollar.
Risk
Factors
Risks
Relating to México, Other Emerging Market Countries and the U.S.
Economy
México
has experienced adverse economic conditions
|
·
|
In
2002, México’s
gross domestic product, or GDP, increased by 0.9% and the inflation
rate
was 5.7%.
|
|
·
|
In
2003, GDP increased by 1.3% and the inflation rate was 3.98%.
|
|
·
|
In
2004, México’s GDP increased by 4.4% and the inflation rate was 5.19%.
|
|
·
|
In
2005, México’s GDP improved and increased by 3.0%, and the inflation rate
was 3.33%, lower than expected.
|
|
·
|
In
2006, GDP increased by 4.8% while the inflation rate was
4.05%.
|
Should
the Mexican economy fall into a recession or if inflation and interest rates
increase significantly, consumers may find it difficult to pay for the products
we offer. This and other effects of recession or increased inflation and
interest rates could have adverse consequences on our business, financial
condition and results of operations.
Depreciation
or fluctuation of the peso relative to the U.S. dollar could adversely affect
our financial condition and results of operations
The
single largest component of our cost of sales, our feed, is comprised partially
of ingredients we purchase in the United States, where prices are denominated
in
U.S. dollars. In addition, the prices of ingredients we purchase in México may
be influenced by U.S. commodity markets. Therefore, should the peso fall
relative to the U.S. dollar, both the cost of our operations and our debt
payments would increase. Any future depreciation or devaluation of the peso
may
result in further net foreign exchange losses.
|
·
|
In
2003, the peso depreciated against the U.S. dollar by 7.3% at
year-end, and the average value of the peso against the U.S. dollar
during
2003 was 10.5% lower than in 2002.
|
|
·
|
In
2004, the Mexican peso appreciated with respect to the U.S. dollar
by 0.8%
at year end, whereas the average value of the Mexican peso against
the
U.S. dollar was 4.4% lower, since the peso appreciated at the end
of the
year.
|
|
·
|
In
2005, the Mexican peso appreciated with respect to the U.S. dollar
by 4.9%
at the end of the year and also the average value of the Mexican
peso was
3.6% higher.
|
|
·
|
In
2006, the Mexican peso was reasonably stable in its peso-dollar exchange
rate with a final depreciation of 1.6%, compared to the end of 2005.
The
average value of the Mexican peso was 0.10% lower than the average
of
2005.
|
Severe
devaluation or depreciation of the peso may also result in disruption of the
international foreign exchange markets and may limit our ability to transfer
or
to convert pesos into U.S. dollars for the purpose of making timely payments
of
interest and principal on our indebtedness. While the Mexican government does
not currently restrict, and for many years has not restricted, the right or
ability of Mexican or foreign persons or entities to convert pesos into U.S.
dollars or to transfer other currencies out of México, the government could
institute restrictive exchange rate policies in the future. Currency
fluctuations will probably continue to affect our revenues and
expenses.
Furthermore,
fluctuations in the exchange rate between the peso and the U.S. dollar will
also
affect the U.S. dollar equivalent of the peso price of our Shares (the “Shares”
or “Series B Shares”) in the Mexican Stock Exchange and the price of American
Depository Shares (“ADSs”) on the New York Stock Exchange. Because we pay cash
dividends in pesos, exchange rate fluctuations will affect the U.S. dollar
amounts received by holders of American Depository Receipts (“ADRs”) upon
conversion of such cash dividends by the Depositary.
High
levels of inflation and high interest rates in México could adversely affect our
financial condition and results of operations
México
has experienced high levels of inflation and high domestic interest rates in
the
past. The annual rate of inflation, as measured by changes in the National
Consumer Price Index was 5.7% in 2002, 3.98% in 2003, 5.19% in 2004, 3.33%
in
2005 and 4.05% in 2006. Inflation for the first four months of 2006 was 0.96%
according to the Mexican Central Bank.
According
to Banamex, the average interest rates on 28-day Mexican treasury bills, or
Cetes,
was
6.23%, 6.82%, 9.20% and 7.19% during 2003, 2004, 2005 and 2006 respectively.
On
May 21, 2007, the 28-day Cetes
rate was
7.23%. High interest rates in México could adversely affect our costs. Our
earnings may also be affected by changes in interest rates due to the impact
those changes have on our variable-rate debt instruments and beneficed by the
interest we earn in our cash balance.
Political
events in México could affect Mexican economic policy and our
operations
In
July
2006, we had presidential election, where Felipe Calderón was elected as the new
President of México. President Calderón’s election initially met resistance from
members of the political opposition in the form of legal challenges and
protests. These protests could return as President Calderón seeks to enact his
legislative agenda. We cannot predict the impact that future protests may have
on the Mexican government or on business conditions in México. Although
President Calderón’s party, the Parido
Accíon Nacional,
or PAN,
obtained a plurality of the seats in the Mexican Congress after the election,
no
party succeeded in securing a majority in either chamber of the Mexican
Congress. The absence of a clear majority by a single party and the lack of
alignment between the president-elect and the legislature are likely to continue
until the next Congressional election in 2009. This situation may result in
government gridlock and political uncertainty, which could have an adverse
effect on our business, financial position and results of operations. We cannot
provide any assurance that future political developments in México, over which
we have no control, will not have an adverse effect on our financial position
or
results of operations.
Developments
in other emerging market countries
may adversely affect our business or the market price of our
securities
The
market value of securities of Mexican companies is, to varying degrees, affected
by economic and market conditions in other emerging market countries. Although
economic conditions in such countries may differ significantly from economic
conditions in México, investors’ reactions to developments in any of these other
countries may have an adverse effect on the market value of securities of
Mexican issuers. We cannot assure you that the market value of our securities
will not be adversely affected by events elsewhere, especially in emerging
markets.
Developments
in the U.S. economy may adversely affect our business
Economic
conditions in México are heavily influenced by the condition of the U.S. economy
due to various factors, including commercial trade pursuant to the North
American Free Trade Agreement (“NAFTA”), U.S. investment in México and
emigration from México to the United States. Events and conditions affecting the
U.S. economy may adversely affect our business, results of operations, prospects
and financial condition.
Risks
Relating to our Organization
The
chicken industry is characterized by long-term price declines and cyclical
periods
The
Mexican chicken industry, like the chicken industry in other countries, has
been
characterized by a long-term decline in prices in real terms. The industry
has
undergone cyclical periods of higher prices and profitability, followed by
overproduction, leading to periods of lower prices and
profitability. Real
prices for eggs and swine in México have also declined over the long term and
have varied cyclically. The market that we serve is subject to volatility with
respect to supply, which affects prices. We cannot assure you that future
cyclicality, excess supply and downturns in real prices will not adversely
affect our results.
The
price of feed ingredients is subject to significant volatility
The
largest single component of our cost of sales is the cost of ingredients used
to
prepare feed, including sorghum, soybean meal, corn, fish meal, meat meal and,
for certain chicken products, marigold extract. The price of most of our feed
ingredients is subject to significant volatility resulting from weather, the
size of harvests, transportation and storage costs, governmental agricultural
policies, currency exchange rates and other factors. Given the long-term
declining trends in real chicken prices, we may experience difficulty or delays
in passing any increase in grain costs to customers. Accordingly, increases
in
the prices of the main ingredients used in the preparation of feed may have
a
material adverse effect on our margins and results of operations. Since we
purchase many feed ingredients in U.S. dollars, from time to time we may acquire
financial instruments to protect us against exchange rate fluctuations that
may
affect future purchases of feed ingredients.
Our
operations depend on raising animals and meat processing, which are subject
to
risks such as disease, contamination and adverse weather
conditions
Our
operations involve raising animals and are subject to a variety of risks,
including disease, contamination and adverse weather conditions. Chickens,
in
particular, are susceptible to infections by a variety of microbiological
agents. Since 1983, the avian influenza virus (“AIV”) has been widespread in the
United States and in México. During 2003, AIV was widespread in Asian countries
and the United States. México, to avoid having the disease spread from the
United States, imposed certain restrictions on the importation of chicken from
affected U.S. states. The AIV was still present in Asian countries and the
United States. At the present México has been eliminating some restrictions on
the importation of chicken from certain U.S. states as the sanitary conditions
in those states improve. In 2004 and 2005, AIV was still present in Asian
countries and the United States. During 2004 and 2005, México has been
eliminating some restrictions on the importation of chicken from certain U.S.
states as the sanitary conditions in those states improve. In October 2005,
México lifted importation restrictions on all U.S. states, except for 11
counties in the state of Texas.
In
the
past we have experienced limited outbreaks of various diseases that have
resulted in higher mortality rates.
During
2005, there was an ample diffusion on the media worldwide of the widespread
of a
particular strain of AIV (H5N1), mainly in Asia and some European countries,
which affected consumption of chicken in those countries. At the present time,
this strain has not been found in the United States or in Latin
America.
Meat
and
eggs are subject to contamination during processing and distribution. We do
not
believe that contamination of individual shipments during distribution would
have a material adverse effect on our operations. Contamination during
processing, however, could affect a larger number of our poultry products and
therefore could have a more significant impact on operations.
In
2002,
we experienced a loss of chickens at our Peninsula Complex due to the effects
of
Hurricane Isidore. Future hurricanes or other adverse weather conditions could
result in additional losses of inventory and damage to our plants and equipment.
Our facilities near México’s coast are most vulnerable to the risk of severe
weather
The
use of nutritional supplements and the possibility of contamination expose
us to
risk of loss of consumer confidence in the chicken industry
To
reduce
contamination, we use specialized feedstock and nutritional supplements that
have been approved by the Mexican government and meet international industry
standards. We cannot assure you, however, that in the future we will not be
materially adversely affected by claims or consumer concerns arising out of
the
use of these products in raising our animals.
Our
sales
are entirely dependent on consumer preferences, and the loss of consumer
confidence in the products sold by Mexican meat and egg producers as a result
of
disease, contamination or other reasons, even if not related to our own
products, could have a material adverse effect on the results of our
operations.
We
face significant competition from other chicken producers in all of our
geographic markets and product lines
We
are
México’s largest chicken producer, but we face significant competition from
other producers in all of the markets in which we sell our products. In 2006,
we
accounted for approximately 29.9% of total chicken production in México. There
are two other major vertically integrated chicken producers in México, which
together with Bachoco account for more than 50.0% of Mexican chicken production,
with the balance distributed among approximately two hundred small- and
medium-sized integrated and non-integrated producers.
Each
of
the two other major companies has substantial financial resources and strengths
in particular product lines and regions. We expect to continue to face strong
competition in every market, as our existing or new competitors are likely
to
broaden their product lines and extend their geographic coverage. Accordingly,
we cannot assure you that our performance will not be adversely affected by
increased competition.
We
face increased competition from U.S. producers
In
January 2003, import quotas and most tariffs on poultry, eggs and swine were
eliminated through NAFTA. Poultry producers in the United States have developed
extremely low-cost production methods and have been successful in exporting
primarily frozen and value-added poultry to other countries, especially in
periods of overcapacity in the United States. As tariff barriers decline under
NAFTA, U.S. producers can be expected to increase exports to México, which could
have a material adverse effect on our performance.
In
July
2003, the Mexican government imposed temporary restrictions on chicken leg
quarters imported from the U.S. and both governments confirmed this safeguard
in
July 2003. The safeguard consists of a five-year limited poultry import measure.
The measure, which became effective in 2003, includes quotas and an initial
tariff of 98.8% on chicken leg quarters that will slowly decrease until it
reaches 0% in 2008.
We
are a holding company with no substantial operations and depend on our
subsidiaries for cash flow
We
are a
holding company with no substantial operations and, consequently, we are
dependent on dividends and other payments from subsidiaries for virtually all
of
our cash flow, including cash flow to pay taxes, service debt, make equity
investments, finance the growth of subsidiaries and pay dividends to
stockholders. Together with Mexican law, our ability to pay dividends may,
in
the future, be limited by financial covenants in debt instruments that we,
or
our subsidiaries, may acquire.
Risks
Relating to the ADS, and the Shares in the Mexican
Market
The
Robinson Bours family controls our management and their interests may differ
from other security holders
Certain
members of the Robinson Bours family hold the power to elect a majority of
the
members of our Board of Directors and have the power to determine the outcome
of
certain other actions requiring the approval of our stockholders, including
whether or not dividends are to be paid and the amount of such dividends. The
Robinson Bours family has established two Mexican trusts, which they control
(“Control Trust”), that together hold 496,500,000 Shares
outstanding on December 31, 2006.
Future
sales of Shares by the controlling stockholders may affect prevailing market
prices for the ADSs and the Shares trading at the Mexican
Market.
The
prevailing market prices for the ADSs and Shares could decline if
either:
|
·
|
the
Robinson Bours family were to sell substantial amounts of their Shares,
whether
|
|
|
indirectly,
through the Mexican trusts through which they hold Shares;
or
|
|
·
|
the
perception arose that such a sale could
occur.
|
The
protections afforded to minority stockholders in México are different from those
in the United States
Under
Mexican law, the protections afforded to minority stockholders are different
from those in the United States. In particular, the law concerning fiduciary
duties of directors is not well developed, there is no procedure for class
actions or stockholder derivative actions, and there are different procedural
requirements for bringing stockholder lawsuits. As a result, in practice it
may
be more difficult for our minority stockholders of Bachoco to enforce their
rights against us or our directors or our controlling stockholder than it would
be for stockholders of a U.S. company.
Our
bylaws restrict the ability of non-Mexican stockholders to invoke the protection
of their governments with respect to their rights as
stockholders
As
required by Mexican law, our bylaws provide that non-Mexican stockholders shall
be considered as Mexicans with respect to their ownership interests in Bachoco
and shall be deemed to have agreed not to invoke the protection of their
governments in certain circumstances. Under this provision, a non-Mexican
stockholder is deemed to have agreed not to invoke the protection of its own
government by asking such government to interpose a diplomatic claim against
the
Mexican government with respect to the stockholder’s rights as a stockholder,
but is not deemed to have waived any other rights it may have, including any
rights under the U.S. securities laws, with respect to its investment in
Bachoco. If you invoke such governmental protection in violation of this
agreement, your Shares could be forfeited to the Mexican
government.
Our
bylaws may only be enforced in México
Our
bylaws provide that legal actions relating to the execution, interpretation
or
performance of the bylaws may be brought only in Mexican courts. As a result,
it
may be difficult for non-Mexican stockholders to enforce their stockholder
rights pursuant to the bylaws.
It
may be difficult to enforce civil liabilities against us or our directors,
officers and controlling persons
We
are
organized under the laws of México, and most of our directors, officers and
controlling persons reside outside the United States. In addition, all of our
assets and their assets are located in México. As a result, it may be difficult
for investors to affect service of process within the United States on such
persons or to enforce judgments against them. This pertains also to any action
based on civil liabilities under the U.S. federal securities laws. There is
doubt as to the enforceability against such persons in México, whether in
original actions or in actions to enforce judgments of U.S. courts, of
liabilities based solely on the U.S. federal securities laws.
Non-Mexican
stockholders may not be entitled to participate in future preemptive rights
offerings
Under
Mexican law and our bylaws, if we issue new Shares for cash as part of a capital
increase, we must grant our stockholders the right to purchase a sufficient
number of Shares to maintain their existing ownership percentage in the Company
(“preemptive rights”). We can allow holders of ADSs in the United States to
exercise preemptive rights in any future capital increase only in one of the
following two circumstances:
|
·
|
we
file a registration statement with the Securities and Exchange Commission
with respect to that future issuance of Shares;
or
|
|
·
|
the
offering qualifies for an exemption from the registration requirements
of
the Securities Act.
|
We
make
no promises that we will file a registration statement with the Securities
and
Exchange Commission to allow holders of ADSs in the United States to participate
in a preemptive rights offering. As a result, the equity interests of such
holders in the Company may be diluted proportionately. In addition, under
current Mexican law, it is not practicable for the depositary to sell preemptive
rights and distribute the proceeds from such sales to ADS holders.
Corporate
disclosure and accounting in México may differ from other
countries
There
may
be less, or different, publicly available information about issuers of
securities in México than is regularly published by or about issuers of
securities in other countries with highly developed capital markets. In
addition, due to country-by-country differences in accounting and other
reporting principles and standards, our corporate disclosures may differ in
content from disclosures made under other principles and standards, such as
U.S.
GAAP.
ITEM
4.
|
Information
on the Company
|
General
Our
legal
name is Industrias Bachoco, S.A.B. de C.V., and we frequently refer to ourselves
commercially as Bachoco. We were incorporated in México on April 17, 1980. Our
headquarters are located at Avenida Tecnológico No. 401, Ciudad Industrial
38010, Celaya, Guanajuato, México, telephone (011)(52)(461) 618-3500. We have
four principal product lines: chicken, table eggs, balanced feed and swine
and
other lines. All of our production and sales are made in México.
We
are
the largest poultry producer in México. In 2006, we produced more
than 8.0
million chickens per week and accounted for approximately 29.9%
of
total chicken production in México. As a vertically integrated producer, we
control virtually all aspects of the production and distribution process, which
enables us to exercise cost controls and to maintain high standards of quality,
service and efficiency. With over 700 production and distribution facilities
dispersed throughout México, our operations include the following:
|
·
|
preparing
balanced feed;
|
|
·
|
breeding,
hatching and growing chickens; and
|
|
·
|
processing,
packaging and distributing chicken
products.
|
Sales
of
chicken products accounted for 77.6% of our net revenues in 2006. Please also
see the table under Item 5. “General—Results of Operations for the Years Ended
December 31, 2005 and 2006.”
We
are
also a significant producer of commercial balanced feed. We sell our feed both
through distributors and directly to small producers. During 2006, we sold
approximately 480,000 tonnes of balanced feed to external customers, which
amounted to 9.0% of our total revenues for that year.
Currently
Bachoco is the second largest producer of table eggs products. In 2006, we
sold
approximately 143,000 tons. Table egg sales accounted for 9.2% of our net
revenues in 2006.
As
part
of our other product lines we also sell swine on the hoof to meat packers for
pork product production. In 2006, sales of swine and other lines accounted
for
4.2% of our net revenues.
The
remaining portion of our net revenues in 2006 consisted of miscellaneous
poultry-related products.
The
following table sets forth, for each of the periods presented, the volume of
chicken, balanced feed, table eggs and swine that we sold:
|
|
Bachoco
Sales Volume
(in
thousands of tonnes)
|
|
|
|
Year
Ended December 31,
|
|
|
|
2002
|
|
2003
|
|
2004
|
|
2005
|
|
2006
|
|
|
|
|
|
Chicken
|
|
|
665.4
|
|
|
655.5
|
|
|
733.0
|
|
|
773.0
|
|
|
773.7
|
|
Eggs
|
|
|
131.7
|
|
|
132.1
|
|
|
138.1
|
|
|
140.6
|
|
|
143.4
|
|
Swine(1)
|
|
|
9.0
|
|
|
8.5
|
|
|
9.1
|
|
|
9.6
|
|
|
8.9
|
|
Balanced
Feed
|
|
|
324.7
|
|
|
316.2
|
|
|
320.7
|
|
|
389.6
|
|
|
484.4
|
|
(1)
Swine are the only product sold by the ton in the swine and other lines product
line.
In
the
Mexican poultry industry few producers operate in multiple regions. We believe
we have the broadest geographic market coverage in the Mexican poultry industry
and that we are one of the largest poultry suppliers in the México City
metropolitan region (which accounts for a significant portion of overall Mexican
chicken consumption). We currently compete in every major product category
and
channel of distribution for poultry products within the regions that we serve.
We expect to continue to do so in order to meet growing consumer demand and
needs.
Background
and Ownership Structure
Founded
in 1952 by the Robinson Bours family as a small commercial table egg operation
in the state of Sonora, we grew by expanding our existing facilities and
acquiring additional facilities from other poultry producers. In 1974, we
established operations in Celaya, located in the agricultural region of Bajio,
to begin serving the México City metropolitan region. Beginning in 1988, our
management recognized the potential for growth in Mexican chicken consumption,
as well as the advantages of a large, vertically integrated operation.
As
a
result, we began to seek opportunities for geographic expansion and to increase
production capacity and market share. We extended our market coverage
(particularly in 1993 and 1994) by purchasing fixed assets and inventory from
major regional producers that faced financial difficulties. Following each
acquisition, we made substantial investments to apply our production and
distribution methods and reap the benefits of vertical integration and economies
of scale, improving the performance of the acquired facilities.
In
April
1995, Robinson Bours stockholders created a trust (the “Control Trust”), the
principal purpose of which was to hold a controlling interest in our Series
B
Shares. Before September 2006, our common stock (“Common Stock”) consisted of
Series B Shares and Series L Shares of limited voting stock (“Series L Shares”)
(collectively, the “Old Shares”). The Old Shares were grouped into units. Each
Unit (the “Unit” or “UBL”) consisted of one Series B Share and one Series L
Share. Each B Unit (“B Unit” or “UBB”) consists of two Series B Shares.
In
September 1997, we made an initial public offering of Units representing 17.25%
of the outstanding Old Shares. Following such offering, the Control Trust held
Units and B Units representing 68.0% of the outstanding Series B Shares.
In
September 2006, we separate the UBL and UBB units trading on the Mexican
Exchange into their component L and B Shares. The Series L Shares was converted
into Series B Shares, on a one -to -one basis, thereby creating a single Share
class, the Series B Shares, which represent our entire Common Stock This change
did not modify the face value of the Shares. These Shares are trading on the
Mexican stock market. The ADS still consist of twelve underlying Shares, but
they are all Series B Shares, with full rights.
As
of
December 31, 2006, the Robinson Bours Stockholders owned B Shares representing
82.75% of the Series B Shares outstanding. As a result, the Robinson Bours
Stockholders continue to have the power to control the Company.
Members
of the Robinson Bours family, together with certain of our executive officers,
hold a majority of the seats on our Board of Directors.
In
April
2002, Javier Robinson Bours Castelo assumed the position of Chairman of the
Board of Directors, replacing Enrique Robinson Bours Almada.
In
November 1998, we approved a stock repurchase plan (the “Repurchase Plan”),
which allows us to repurchase up to 3% of the total Shares outstanding and
trading on the Mexican
Stock Exchange (Bolsa
Mexicana de Valores),
in
accordance with Mexican securities laws. To execute the Repurchase Plan, we
created a reserve of Ps.292.9 million (expressed in constant pesos as of
December 31, 2006), which reduced retained earnings on our balance sheet. As
of
May 31, 2007, currently we had repurchased zero Shares.
During
2003, we implemented two important projects to expand the facilities at our
Northwest Complex and Yucatán Peninsula Complex to increase production capacity
in our chicken business. Both of these projects were completed by the end of
the
third quarter of 2004. These
facilities are ideally suited for the expansion projects due to their sanitary
status and their geographical location. Both complexes were expanded to increase
capacity by approximately 50%, which will increase opportunities for potential
future exports as well as for meeting consumer demand in those regions and
in
other regions in México. The new facilities in both complexes have been equipped
with the best technology available.
In
July
2004, we reached an agreement for renting the farms of UPAVAT and UPATEC, a
small producer of table eggs in the state of Puebla, south of México City, with
a capacity of about 0.75 million of lying hens. This operation allows us to
start the production of table eggs in southern México.
On
June
29, 2005 we acquired certain assets of Grupo Sanjor, a private poultry company
located in the Yucatan Peninsula, with production of approximately 300 thousand
chickens per week and 100 thousand table egg laying hens, which allow us to
reinforce our leadership in this region of the country.
In
December 2006, we acquired most of the assets and working capital of “Del
Mezquital” to start a new complex in the State of Sonora, located in northern
México, close to the border of the United States.
In
February 2007, we reached a business agreement with “Grupo Libra” a Company in
Northeast of México that includes the buying of all their working capital and
long term rent agreement of their facilities to strengthen our national
presence.
Business
Strategy
Over
the
past decade, we have substantially increased our chicken production,
establishing ourselves in every major product category and distribution channel
for chicken and expanding to cover a geographic market in México that is more
widespread than any other chicken producer. We have also increased the
efficiency of our production process and built a reputation for the freshness
of
our chicken products and quality of our customer service.
The
Mexican poultry industry has experienced considerable consolidation in recent
years, in which we have participated. We continue to evaluate possible
acquisitions of other poultry producers or production facilities from time
to
time and may pursue certain opportunities consistent with our business
strategy.
The
key
elements of our business strategy are as follows:
|
·
|
Increased
market penetration through expanded distribution. We
have an extensive distribution network, supported by our own
transportation fleet, superior knowledge of existing wholesale channels
and strategically located cold storage warehouses and facilities.
We have
substantially increased our distribution routes during the past years.
We
plan to continue to develop and improve our distribution network
and
systems in every product category and throughout our expanded geographic
coverage in México.
|
|
·
|
Increased
service and market responsiveness. We
seek to remain a leader in the Mexican poultry market by maintaining
high
standards of customer service and continuing to be responsive to
the
changing needs of varying market segments. As part of this strategy,
we
have structured our operations in such a way as to enable us to vary
the
size, weight, color and presentation of our chicken products, depending
upon the particular demands of the market segment. In addition, we
have
decentralized order and sales services from our headquarters to our
cold
storage warehouses and facilities, which serve as midpoints in the
distribution chain to wholesalers and local customers. This strategy
allows us to stay closer to our customer base and to better cultivate
growing customer segments, such as food-service operators, supermarkets
and food wholesale clubs.
|
|
·
|
Low-cost
production and operating efficiency. We
are among México’s lowest-cost producers and distributors of chicken, due
in part to economies of scale and vertically integrated operations.
We
pursue on-going programs to increase operating efficiencies and reduce
operating costs.
|
|
·
|
Continued
brand differentiation. We
have developed a brand image for premium fresh chicken and table
eggs in
México. Building on the success of our branded products to date, we
seek
to continue to promote our brand name through billboards, packaging,
special publicity campaigns and through development of brand loyalty
among
wholesale and retail distributors.
|
Capital
Expenditures
Over
the
last three years, we have financed our capital expenditures with resources
generated by our operations. We made the following capital expenditures during
the last three years:
|
·
|
In
2004, we made capital expenditures of Ps.471.2 million net, with
which
we:
|
|
|
continued
to update our transportation fleet, farms, processing plants and
feed
mills;
|
|
|
improved
and expanded our distribution
network;
|
|
|
increased
capacity projects in our Northwest and Yucatán Peninsula Complex;
and
|
|
|
increased
production capacity of table eggs in our Northwest Complex, at Mexicali,
near the border with the U.S.
|
|
·
|
In
2005, we made capital expenditures of Ps.805.3 million net, with
which
we:
|
|
|
continued
to update our transportation fleet, farms, processing plants and
feed
mills
|
|
|
increased
the capacity and updated our rendering plants, which expenditures
continue
to the present; and
|
|
· |
made
the acquisition of certain assets of Grupo Sanjor.
|
|
·
|
In
2006, we made capital expenditures of Ps.863.2 million net, with
which
we:
|
|
|
continued
to update our transportation fleet, farms, processing plants and
feed
mills, which expenditures continue to the
present;
|
|
|
increased
capacity, mainly for the production of live chickens and;
|
|
|
building
of a new feed mill in the state of
Aguascalientes.
|
Business
Overview
Chicken
Market
Mexican
consumers value distinct characteristics in their chicken. Virtually all chicken
sold by us and other major chicken producers in México is fresh. Fresh chicken
is a central ingredient in many traditional Mexican dishes and it is the leading
meat consumed in México according to data from UNA. Traditionally, value-added
chicken, such as heat-and-serve products, frozen dinners, chicken nuggets and
other similar foods, have found limited acceptance among Mexican consumers
due
to historical consumer preferences for fresh chicken.
In
recent
years, the value-added chicken line is growing rapidly; we participate
significantly in the market and try to lead the supplying of these products.
According to UNA value-added chicken products currently account for
approximately 6.0% of the chicken sold in México.
Mexican
consumers also generally prefer chicken with pronounced yellow skin
pigmentation, a characteristic found mainly in our public-market and
supermarket-broiler chicken products that we attain by including marigold
extract in our chicken feed. We have also noticed an increased demand for
smaller, whole, fresh chicken from various fast-food outlets, principally
chicken roasting shops (rosticerías
and
asaderos),
which
have developed rapidly in recent years.
According
to data obtained from the UNA, total Mexican chicken consumption per capita
increased by 15.0% from 2002 to 2006. Chicken is the leading meat consumed
in
México, and it accounted for approximately 33.4% of all meat produced in México
in 2006. The following table sets forth total Mexican production of chicken,
pork and beef for 2002 to 2006:
Mexican
Production of Chicken, Beef and Pork
(in
thousands of tonnes)(1)
|
|
2002
|
|
2003
|
|
2004
|
|
2005
|
|
2006
|
|
Chicken
|
|
|
2,187
|
|
|
2,290
|
|
|
2,390
|
|
|
2,498
|
|
|
2,592
|
|
Beef
|
|
|
1,451
|
|
|
1,496
|
|
|
1,543
|
|
|
1,559
|
|
|
1,602
|
|
Swine
|
|
|
1,085
|
|
|
1,100
|
|
|
1,150
|
|
|
1,088
|
|
|
1,102
|
|
The
Mexican chicken industry, like chicken industries in other countries, is
characterized by a long-term decline in real prices in real terms in conjunction
with cyclical periods of higher profitability leading to overproduction followed
by periods of lower prices and lower profitability. In 2002, chicken prices
increased slightly by approximately 2.5% over 2001, as a result of the worldwide
increase in the cost of feed ingredients at the end of the year. In 2003,
chicken prices decreased by approximately 4.0% over 2002, mainly due to an
oversupply in domestic production that was present mainly in the second half
of
the year and a decrease in the purchasing power of the average consumer. In
2004, chicken prices increased by approximately 6.7%, mainly as a result of
an
increase in the cost of the main feed ingredients worldwide, and a more
normalized supply in México during the second half of the year. In 2005, chicken
prices decreased by approximately 1.7%, mainly as a result of a decrease in
the
cost of the main feed ingredients worldwide, and a strong oversupply during
the
last quarter of the year. We believe that Mexican chicken prices may decline
further in real terms and that prices for chicken may also vary cyclically.
In
2006 prices declined 3.6% when compared to the previous year mainly as a result
of an oversupply in the Mexican poultry market at the beginning of
2006.
We
believe that changes in Mexican chicken consumption correlate closely with
changing chicken prices and their effect on consumer purchasing power. Chicken
per capita consumption increased 3.1% in 2002, 4.9% in 2003, 3.3% 2004, 3.5%
in
2005 and 2.6% in 2006.
Chicken
Products
Six
main
product categories exist for fresh chicken in México: live, public market,
rotisserie, supermarket broiler, chicken parts and value-added
products.
“Live”
chicken
is delivered alive to small independent slaughtering operations or to
wholesalers that contract with independent slaughtering operations for
processing. The freshly slaughtered chicken is then sold to chicken shops and
other specialized retailers for sale to consumers and in some areas is sold
directly to consumers by the slaughterhouse. According to UNA, live chicken
accounts for approximately 27.0% by volume of the chicken sold by producers
in
México.
“Public
Market”
chicken
is a whole broiler presented uneviscerated, generally sold within 48 hours
after
slaughter in public markets throughout México, but primarily concentrated in the
México City metropolitan region. According to UNA, public market chicken
accounts for approximately 24.0% by volume of the chicken sold by producers
in
México.
“Rotisserie”
chicken
is a whole broiler presented eviscerated and ready to cook. Rotisserie chicken
is sold by wholesalers and directly by producers to small shops, stands
(rosticerías
or
asaderos)
and
supermarkets, which cook the chicken and sell it whole and freshly cooked to
the
end-consumer, providing an economical form of fast-food. According to UNA,
rotisserie chicken accounts for approximately 26.0% by volume of the chicken
sold by producers in México.
“Supermarket
Broiler”
chicken
is a fresh whole broiler presented with the edible viscera packed separately.
In
most cases it is sold directly by producers to supermarkets and, in some
regions, to other independent food shops. Mexican consumers’ preference for
freshness requires regular deliveries of chicken to supermarkets and other
food
shops. According to UNA, supermarket broiler chicken accounts for approximately
7.0% of the volume of the chicken sold by producers in México.
“Chicken
Parts” refers
to
cut-up fresh chicken parts sold wrapped in trays or in bulk principally to
supermarket chains, the fast-food industry and other institutional food-service
providers. Producers generally sell directly to the supermarket chains and
deliver the chicken directly to the outlet. Sales to the institutional market
often require customized cutting and presentation. According to UNA, chicken
parts account for approximately 10.0% by volume of the chicken sold by producers
in México.
“Value-added
Products”
refers
mainly to cut-up fresh chicken parts with a value-added treatment like
marinating, either sold wrapped in trays or in bulk principally to supermarket
chains. Producers generally sell directly to the supermarket chains and deliver
the chicken directly to the store. Sales to the institutional market often
require customized cutting and presentation. According to UNA, chicken parts
account for approximately 6% by volume of the chicken sold by producers in
México.
We
sell
value-added chicken products to supermarkets and other retailers. The following
table sets forth, for the periods indicated, the sales volume in tonnes and
as a
percentage of the total volume of chicken sold for each of our principal lines
of chicken products:
|
|
Year
Ended December 31,
|
|
|
|
2002
|
|
2003
|
|
2004
|
|
2005
|
|
2006
|
|
|
|
Volume
|
|
%
of Total
|
|
Volume
|
|
%
of Total
|
|
Volume
|
|
%
of Total
|
|
Volume
|
|
%
of Total
|
|
Volume
|
|
%
of Total
|
|
|
|
(thousands
of tonnes, except percentages)
|
|
Public
Market and Rotisserie
|
|
|
307.1
|
|
|
46.2
|
|
|
288.1
|
|
|
44.0
|
|
|
319.1
|
|
|
43.5
|
|
|
349.6
|
|
|
45.2
|
|
|
344.3
|
|
|
44.5
|
|
Supermarket
Broiler, Chicken Parts and Other(1)
|
|
|
191.6
|
|
|
28.8
|
|
|
194.9
|
|
|
29.7
|
|
|
219.6
|
|
|
30.0
|
|
|
219.1
|
|
|
28.4
|
|
|
228.2
|
|
|
29.5
|
|
Live
|
|
|
166.7
|
|
|
25.0
|
|
|
172.5
|
|
|
26.3
|
|
|
194.4
|
|
|
26.5
|
|
|
204.3
|
|
|
26.4
|
|
|
201.2
|
|
|
26.0
|
|
Total
|
|
|
665.4
|
|
|
100.0
|
%
|
|
655.5
|
|
|
100.0
|
%
|
|
733.1
|
|
|
100.0
|
%
|
|
773.0
|
|
|
100.0
|
%
|
|
773.7
|
|
|
100.0
|
%
|
(1) “Other”
comprises sales of value-added poultry products, viscera and other
products.
Our
product mix varies from region to region, reflecting different consumption
and
distribution patterns. Based on market demand, we believe that fresh, rather
than frozen, chicken will continue to dominate the Mexican market. Furthermore,
we believe that consumer demand for value-added fresh chicken products, such
as
rotisserie chicken, supermarket broilers and chicken parts, will increase over
time. Accordingly, we continue to focus principally on producing fresh chicken,
including value-added fresh chicken products.
Chicken
Marketing, Sales and Distribution
We
have
developed an extensive distribution system that we believe is the largest and
most modern of any chicken or egg producer in México. We use various
distribution channels in every major product category to service different
market segments. We use our own fleet to transport the majority of rotisserie
chickens, supermarket broilers and other chicken products to our customers.
We
try to cooperate with existing distribution channels and do not compete with
wholesale distributors, except in areas where we supply our own distribution
capacity where needed for market penetration.
We
distribute products from our nine processing plants (located in Celaya,
Culiacán, Puebla, Lagos de Moreno, Coatzacoalcos, Mérida, Gómez Palacio,
Monterrey and Hermosillo) to our cold-storage facilities and warehouses, which
serve as a midpoint in distribution to wholesalers and local customers. From
our
cold-storage facilities, we service wholesalers (who in turn deliver to their
customers) and transport certain products directly to supermarkets and
food-service operations. Our distribution infrastructure includes 60
cold-storage warehouses and facilities and a large fleet of vehicles. The
decentralized sales force permits us to remain attuned to developments in the
regions we serve and to develop close relationships with customers.
We
have
expanded our distribution network, which now covers almost all of
México:
|
· |
In
2002, we consolidated our presence in the northeastern part of the
country, mainly in the state of Nuevo León, due to the consolidation of
acquisitions, made at the end of
2001.
|
|
· |
During
2003, we implemented two important projects to expand the facilities
at
our Northwest Complex and Peninsula Complex to increase production
capacity in our chicken business. These facilities are ideally suited
for
the expansion projects due to their sanitary status and their geographical
location. Both complexes were expanded in the third quarter of 2004
by
approximately 50%, which increased opportunities for future exports
as
well as for meeting consumer demand in those regions and in other
regions
in México.
|
|
· |
During
2004, we finished our projects to expand the facilities at our Northwest
Complex and Peninsula Complex.
|
|
· |
In
2005, we acquired assets of Grupo Sanjor, a private producer of chicken
and table eggs located in the Yucatán Peninsula.
|
|
· |
At
the end of 2006, we acquired assets of “Del Mezquital,” a private broiler
producer located in the state of
Sonora.
|
|
· |
At
the beginning of 2007, we reached a business agreement with “Grupo Libra,”
a chicken producer located in northeast
México.
|
In
the
following paragraphs, we provide a description of our marketing, sales and
distribution strategies for each of our major chicken products.
|
· |
Live
Chicken
-
We sell live chicken primarily to wholesalers, which contract out
the
processing to independent slaughterhouses and then resell the processed
product as public market chicken. To a lesser extent, we sell to
small
independent slaughterhouses in the southeast, where live chicken
continues
to be the standard for consumption. Additionally, customers can purchase
live chicken directly from us on our farms. However, we believe that
the
market as a whole is moving away from live
chicken.
|
|
· |
Public
Market Chicken
-
We believe that we are the largest producer of public market chicken
in
México. We regularly sell to more than 50 of the approximately 200
whole
fresh chicken wholesalers operating in the México City region. Most of our
wholesale customers rely primarily on us for public market chicken,
although we have no exclusive supply agreements. Our principal focus
in
this market has been to provide superior distribution and service
to
selected wholesalers in order to maintain and further develop loyalty.
Public market chicken is ordinarily sold to consumers without any
packaging or other identification of the producer, but our distribution
system encourages wholesalers to sell to retailers from our own “Bachoco”
trailers, reinforcing our reputation for freshness and efficiency
of
service and fostering brand loyalty among retailers. We believe we
have
developed excellent relationships with the wholesalers we
serve.
|
|
· |
Rotisserie
Chicken
-We sell rotisserie chicken directly to rosticerías,
asaderos
and supermarkets. We attribute the growth in our sales of rotisserie
chicken in large part to the rapid growth of the market for freshly
cooked
chicken sold by rosticerías
and
asaderos
and in the rotisserie sections of supermarkets. We expect this market
to
continue to grow because of an ever-increasing consumer demand for
convenient, low-priced and high-quality fast food. Success in supplying
rotisserie chicken depends on consistency and good service, and only
larger producers with more modern processing facilities and distribution
capacity can compete in this market. We expect to expand sales of
rotisserie chicken by leveraging our increasingly developed transportation
and distribution network.
|
|
· |
Supermarket
Broiler Chicken
-
We sell supermarket broilers, as well as chicken parts and eggs,
directly
to the principal supermarkets, convenience store chains and wholesale
clubs in México. In order to build consumer loyalty for our supermarket
broiler chicken, we emphasize our brand image as well as our superior
service, reinforced by frequent delivery to ensure freshness. Each
chain
negotiates purchases centrally, but we deliver directly to every
point of
sale, ordinarily at least once every 48 hours. We believe that we
lead the
market in frequency of deliveries to
supermarkets.
|
|
· |
Chicken
Parts
-
We sell chicken parts principally to supermarkets, using the same
marketing strategy that we use for supermarket broiler chicken. We
are
also an important supplier of chicken parts to the growing franchise
fast-food and institutional food-service industries. We continue
to
develop custom-cutting processes to help meet demand from fast-food
and
institutional customers for a wider variety of chicken
parts.
|
|
· |
Value-Added
Products
-Mexican consumers have a greater preference for fresh chicken than
their
U.S. counterparts. Frozen, heat and serve and other further processed
poultry products make up only a small proportion of total Mexican
poultry
consumption today. Demand for these kinds of fresh products is growing
rapidly. The potential for substantial growth in this market is large
and
we believe that our distribution network, our large market share
for
supermarket chicken sales, our brand name and our experience in a
wide
range of existing Mexican distribution channels will be important
competitive strengths in this area.
|
Sales
of
our fresh value-added products increased approximately 12% over 2005 sales.
We
are moving to produce and introduce various value-added products in México,
which we have developed in accordance with Mexican customer preferences. We
will
continue to do so, as this market grows.
Table
Eggs
According
with the UNA, México has the largest per capita consumption of table eggs in the
world with 22.1 kilograms per capita a year. Mexican egg consumption per capita
increased 8.3% from 2002 to 2006. This high level of consumption is due in
part
to the fact that eggs are among the cheapest sources of protein in
México.
The
Mexican table egg industry is more fragmented than the chicken industry but
has
experienced some degree of consolidation in recent years, including acquisitions
made by us. According to UNA, the ten largest producers of table eggs in México
now account for approximately 43.0% of the market.
Eggs
in
México have traditionally been distributed in large 360-egg cases through
wholesalers to retailers. The retailers, which are typically small grocery
shops, sell the eggs by weight to consumers. At present, approximately 21%
of
the eggs sold in México are sold in packaged form, 9% are sold in processed form
and approximately 70% are sold in bulk to wholesalers. The sales
trend in
recent
years has been moving towards packaged and processed egg sales. We expect that
the convenience, the development of brand loyalty and the growth of supermarket
chains will contribute to the continuance of this trend toward packaged eggs.
Bachoco
is the second largest producer of table eggs in México with 8% of the market. We
sell both brown and white eggs. We are the largest producer of brown eggs in
México. Our marketing efforts for egg products focus on increasing our brand
recognition.
The
branded carton of brown eggs is a premium product in the Mexican market. We
believe that brown eggs are less vulnerable to price fluctuations than white
or
unbranded eggs, because consumers perceive them to be of higher quality. Brown
eggs command a small premium over white eggs.
In
some
regions, however, we have reallocated part of our production from brown eggs
to
white eggs due to local market preferences.
Our
marketing strategy in the eggs business is to gradually move from bulk to
packaged white eggs. Packaged eggs are less vulnerable to price fluctuation
and
create brand loyalty.
In
2004,
we started to build new farms to increase production capacity of table eggs
in
our Northwest Complex, at Mexicali, near the U.S. border. We completed this
project in the second half of 2005.
We
have
designed our egg distribution system to transport eggs from our laying farms
at
Celaya, Los Mochis, Ciudad Obregón, Mexicali, Tecamachalco and La Laguna regions
to customers in all sales regions. We sell packaged eggs directly to all of
the
principal supermarket chains in México, with daily deliveries directly to their
outlets.
Seasonality
Our
sales
are moderately seasonal, with the highest levels of sales, in general, in the
second and fourth quarter due to higher chicken consumption during the holiday
season and lower sales levels earlier in the year during Lent (particularly
in
the week prior to Easter).
Balanced
Feed
According
to Consejo
Nacional de Fabricantes de Alimento Balanceado y de la Nutricion Animal,
A.C)
(”CONAFAB”) , Mexican production of balanced feed increased from 21.2 million
tonnes in 2000 to 24.6 million tonnes in 2005. In 2005, México was ranked the
fourth largest producer of feed in the world and the second largest in Latin
America.
Local
production is composed of commercial and integrated manufacturers. Commercial
manufacturers produce for the market, while integrated manufacturers mostly
produce for themselves and occasionally for other producers. Integrated
producers account for approximately 64.4% of total production. Imports of feed
come almost entirely from the United States and represent approximately 1.4%
of
the total consumption in México.
We
entered the feed business as a result of our acquisition of Grupo Campi at
the
end of 1999. We sell to small livestock producers and through a network of
small
distributors located mainly in central and southern México. We have benefited
from economies of scale and synergies derived from producing feed both for
our
own internal consumption and for sale to third parties. Currently, we have
four
feed plants dedicated to produce balanced feed to third parties. We estimate
that our balanced feed business comprises approximately 5.4% of the market
share
of the commercial (non-integrated) balanced feed business in
México.
Swine
We
purchase breeder swine live from the United States and breed them at facilities
in Navojoa. We then raise swine to maturity at our farms in Celaya and three
other locations in México. Mature swine is sold on the hoof to Mexican swine
meat packers for the production of pork products. In 2002, our swine prices
decreased by 21.3% as a result of an oversupply in the swine market due
primarily to increased imports from the United States. In 2003, swine prices
began to recover, increasing by7.0%, due mostly to the fact that there was
very
modest growth in domestic production and imports. In 2004, our swine prices
increased by more than 20.0% as a result of an increase in the cost of feed
ingredients and a more normalized supply and imports, and, during 2005, our
swine prices decreased 9.0% due to larger supplies in the Mexican market which
continued in 2006 where prices went down about 11.9%. Traditionally, Mexicans
consume less swine and swine products than chicken and eggs.
Raw
Materials
We
purchase our breeding stock for broilers and layers from high-quality suppliers.
All of our breeder swine currently come from one supplier, but we have changed
suppliers from time to time and have numerous alternative sources of
supply.
The
largest single component of our cost of sales is the cost of ingredients used
in
the preparation of feed including, principally, sorghum, soy meal, corn, fish
meal, meat meal, and for certain chicken products, marigold extract. The price
of these ingredients is subject to significant volatility resulting from
weather, the size of harvests, transportation and storage costs, governmental
agricultural policies, currency exchange rates and other factors. To reduce
the
potential adverse effect of grain price fluctuations, we vary the composition
of
our feed to take advantage of current market prices for the various types of
ingredients used.
Under
NAFTA, the government eliminated the tariff on sorghum effective January 1,
1994, and eliminated tariffs on all other grains that we use, except corn,
on
January 1, 2003. Corn tariffs will be eliminated by 2008. We expect these
developments to lower our cost of production as the cost of our ingredients
more
closely tracks prices in the international commodity markets.
At
present, we take advantage of lower-cost feed ingredients from Mexican sources,
when available. In 2006, we obtained approximately 31.3% of our total grain
needs from the domestic market. We believe that the quality of local feed
ingredients, particularly sorghum, is superior to that of imported feed
ingredients. In addition, the use of local feed ingredients allows us to save
on
transportation costs and import duties. However, in southern México where Grupo
Campi’s complexes are located, domestic crops and feed ingredients are not
available. As such, these complexes use mainly imported grain. We may, from
time
to time, engage in hedging of our feed costs in the future.
Competition
Chicken
According
to the UNA, we are México’s largest chicken producer. We face significant
competition from other producers in all of the markets in which we sell our
products. When combined with our two largest vertically integrated competitors,
we account for approximately 54.0% of total Mexican poultry production; the
balance is distributed among approximately two hundred small- and medium-sized
integrated and non-integrated producers. The major producers, including Bachoco,
have substantial cost advantages over smaller, non-integrated producers arising
from economies of scale and control of feed preparation. To varying degrees,
each of these companies has substantial financial resources and strengths in
particular product lines and regions. We believe, however, that we have
substantial competitive strengths over our competitors, including a broader
range of chicken products and broader geographic coverage.
Furthermore,
there are considerable barriers to entry into large-scale chicken production
and
distribution in México, including, among others, the consumer preference for
fresh chicken, the weaknesses of transportation infrastructure and varying
regional consumer preferences among the various product categories. The channels
for distribution of chicken products, in particular, are highly specialized
and
varied, and they call for in-depth experience in market practices.
Nonetheless,
we expect that we will continue to face strong competition in every market
and
that existing or new competitors are likely to broaden their product lines
and
to extend their geographic coverage.
Poultry
producers in the United States have developed low-cost production techniques
and
have been successful in exporting primarily frozen and value-added poultry
to
other countries, especially in periods of overcapacity in the United States.
As
tariff barriers have declined under NAFTA, we have experienced increased
competition from U.S. poultry producers. According to UNA, in 2006, imports
of
poultry products increased 17.6% in volume over imports in 2005. This increase
was caused in part by a strong demand in México, and the elimination of
temporary bans of imports by sanitary and health authorities. Mechanically
de-boned poultry accounted for approximately 40.0% of the imports.
We
expect
that competition from U.S. exporters will continue to increase. However, Mexican
consumer acceptance of frozen poultry products is still low, and we do not
anticipate significant growth in the near future.
Table
Eggs
We
are
one of the largest producers of table eggs in México, with approximately 6.2% of
total Mexican egg production at the end of 2006.
Balanced
Feed
Of
the
registered producers of feed in México, integrated firms produce approximately
64.4% of total production for their internal use, and the remaining 35.6% is
produced for sale to third parties. We estimate a market share of approximately
5.4% in our feed product line.
Swine
The
Mexican swine industry is highly fragmented, and no producer has more than
15.0%
of the market. On December 31, 2006, we had less than 1.0% of the Mexican market
share in swine. U.S. producers already compete in this market in México because
tariff barriers on swine are moderate.
Mexican
Regulation
Mexican
Import Regulation and Price Controls
As
required by NAFTA, the Mexican government eliminated all permanent quotas and
tariffs on poultry, table eggs and swine in January 2003. With certain specific
exceptions described below, there are now no quotas or tariffs on imports of
poultry, eggs and swine from the United States. We expect the elimination of
these trade protections to stabilize the level of imports over time and to
permit improved private control over imports, which may result in increased
competition from importers.
The
pre-2003 scheme of quotas and tariffs, which has now been eliminated, was as
follows:
|
· |
The
quota for chicken was 120.3 thousand tonnes, which represents 5.7%
of
national consumption. Above the quota, imports were taxed ad
valorem
at
49.4%.
|
|
· |
Within
the chicken quota, there were sub-quotas for whole chicken (16.6
thousand
tonnes), poultry parts (31.6 thousand tonnes), whole turkeys, turkey
parts, and de-boned chicken. Imports above the quota were also taxed
at
49.4%. There was no quota amount for value-added chicken; all imports
were
taxed at 49.4%.
|
|
· |
The
quota for eggs was 8.2 thousand tonnes, which is less than 1% of
national
consumption. Imports above the amount were taxed at 9.5% ad
valorem.
|
|
· |
Imports
of swine were subject to a quota of 80.3 thousand tonnes of fresh,
frozen
and chilled meat, but were also taxed 2% on amounts below the quota.
Amounts above the quota were taxed at 10% in
2002.
|
Import
limits and short-term tariffs that remain after January 2003 are as
follows:
The
Mexican government has put in place a number of short-term tariffs and import
limits on poultry, eggs and swine:
|
· |
In
January 2003, the Mexican government announced a temporary safeguard
to
stabilize the flow of poultry imports, which
included an initial tariff of 98.8% on imports of chicken leg quarters.
This safeguard will decrease annually until it reaches 0% in 2008.
All
other chicken products from the United States, including whole chicken,
chicken parts other than leg quarters and eggs, remain
tariff-free.
|
|
· |
According
to the safeguard, for 2006 the tariff in effect was 39.5% for imports
of
chicken leg quarters above the quota of 103
tonnes.
|
In
addition to NAFTA, México has entered into free trade agreements with several
other countries including Chile, Europe, Colombia and Venezuela. Although such
agreements may result in lower tariffs on our own products, we believe that
imports from such countries will not increase substantially in the future due
to
high transportation and distribution costs.
Antitrust
Regulations
The
Ley
Federal de Competencia Económica
(“Mexican Economic Competition Law”), which took effect on June 22, 1993,
regulates monopolies and monopolistic practices. Under this law, all companies
(including Bachoco) are required to notify the Comisión
Federal de Competencia
(“Federal Competition Commission”) of all proposed transactions exceeding
specified threshold amounts as set forth in the Mexican Economic Competition
Law. The Federal Competition Commission can impose conditions on, and prevent
or
unwind, any such transactions by Mexican companies. We have complied with all
requirements under this law.
Environmental
and Sanitary Regulation
Our
operations are subject to Mexican federal and state laws and regulations
relating to the protection of the environment. The principal laws are
Ley
General de Equilibrio Ecológico y Protección Ambiental (General
Law of Ecological Balance and Environmental Protection—the “Environmental Law”)
and Ley
de Aguas Nacionales (“National
Waters Law”). The Secretaría
del Medio Ambiente y Recursos Naturales
(Ministry of Environment and Natural Resources, or “Semarnat”) administers the
Environmental Law, and Comisión
Nacional del Agua (“National
Water Commission”) administers the National Waters Law.
The
Environmental Law regulates water pollution, air pollution, noise control and
hazardous substances. Semarnat can bring administrative and criminal proceedings
against companies that violate environmental laws, and after certain
administrative procedures, it also has the power to close non-complying
facilities. Every company in México is required to provide Semarnat with
periodic reports regarding compliance with the Environmental Law and the
regulations thereunder.
The
level
of environmental regulation in México has increased in recent years, and
enforcement of the law is improving. We expect this trend to continue and to
intensify with international agreements between México and the United
States.
In
particular, Mexican environmental laws set forth standards for water discharge
that are applicable to poultry processing operations. Our processing plants
have
water treatment facilities that comply
with Mexican environmental standards. We are implementing other investment
projects in anticipation of stricter environmental requirements in the future.
We do not expect that compliance with those Mexican federal environmental laws
or Mexican state environmental laws will have a material effect on our financial
condition or performance.
The
production, distribution and sale of chicken, eggs and swine are subject to
Mexican federal and state sanitary regulations. The principal legislation is
Ley
General de Salud
(“General Health Law”) and Ley
Federal de Sanidad Animal (“Federal
Animal Health Law”). The Federal Animal Health Law was enacted in 1993, and,
since then, we have been working closely with Mexican authorities to develop
regulatory standards and inspection methods for chicken processing. Currently,
Mexican authorities do not monitor production or inspect products to the same
degree as sanitary authorities in other countries, such as the USDA in the
United States. However, we believe that we are in compliance with all applicable
sanitary regulations.
Organizational
Structure
We
are a
holding company with no operations other than holding the stock of our
subsidiaries, all of which are incorporated in México, and engaging in
transactions with our subsidiaries. Our principal operating subsidiary is BSACV,
which owns our principal operating assets, and which accounted for 93.4% of
consolidated total assets as of December 31, 2006, and 88.1% of our consolidated
revenues for the year ended December 31, 2006. All of our subsidiaries are
directly owned by us in the percentage listed below. None of these subsidiaries
have any subsidiaries of their own.
The
following table shows our main subsidiaries as of December 31, 2004, 2005 and
2006:
|
|
Percentage
Equity Interest
|
|
|
|
2004
|
|
2005
|
|
2006
|
|
Acuícola
Bachoco, S.A. de C.V.
|
|
|
100
|
|
|
100
|
|
|
100
|
|
Aviser,
S.A. de C.V.
|
|
|
100
|
|
|
100
|
|
|
100
|
|
Bachoco,
S.A. de C.V. (“BSACV”)
|
|
|
100
|
|
|
100
|
|
|
100
|
|
Campi
Alimentos, S.A. de C.V.
|
|
|
100
|
|
|
100
|
|
|
100
|
|
Huevo
y Derivados, S.A. de C.V.
|
|
|
97
|
|
|
97
|
|
|
97
|
|
Operadora
de Servicios de Personal, S.A. de C.V.
|
|
|
100
|
|
|
100
|
|
|
100
|
|
Pecuarius
Laboratorios, S.A. de C.V.
|
|
|
64
|
|
|
64
|
|
|
64
|
|
Secba,
S.A. de C.V.
|
|
|
100
|
|
|
100
|
|
|
100
|
|
Sepetec,
S. A. de C.V.
|
|
|
100
|
|
|
100
|
|
|
100
|
|
Servicios
de Personal Administrativo, S.A. de C.V.
|
|
|
100
|
|
|
100
|
|
|
100
|
|
Induba
Pavos, S.A. de C.V.
|
|
|
-
|
|
|
-
|
|
|
100
|
|
In
November 2004, the Company acquired all the Shares of Secba, S.A. de C.V. from
a
related party for Ps.15 million. As of the date of acquisition, the figures
of
Secba, S.A. de C.V. have been consolidated with the Company’s figures. The
excess of the purchase price paid over the book value of this investment
amounted to Ps.0.3 million, which was recorded in other income.
Induba
Pavos, S.A. de C.V. was created in December 2006 and is a 100% owned subsidiary
of Bachoco.
Property,
Plants and Equipment
Our
production and storage facilities are located throughout the regions we serve
in
order to ensure freshness and minimize transportation time and costs. The most
extensive facilities are grouped in nine complexes that include farms and
processing plants. The largest of our complexes is in Celaya, where we have
broiler grow-out farms, a broiler processing plant and egg production farms.
The
complex at Culiacán includes broiler grow-out farms and a broiler processing
plant, as do the complexes located in Puebla, Lagos de Moreno, Coatzacoalcos,
Mérida, Hermosillo and Monterrey. There are smaller egg production farms at Los
Mochis, Ciudad Obregón and Mexicali. In Gómez Palacio, Durango, we have a
complex which consists of broiler grow-out farms, a broiler processing plant
and
egg production farms representing nearly half of our total egg production
capacity.
The
following table summarizes the types and number of each type of our production
facilities as March 2007:
Bachoco
Production Facilities
Type
|
|
Number
|
|
Chicken
breeding farms
|
|
|
159
|
|
Broiler
grow-out farms
|
|
|
479
|
|
Broiler
processing plants
|
|
|
9
|
|
Egg
incubation plants
|
|
|
21
|
|
Egg
production farms
|
|
|
100
|
|
Swine
breeding farms
|
|
|
1
|
|
Swine
grow-out farms
|
|
|
12
|
|
Feed
mills
|
|
|
17
|
|
Further
process plants
|
|
|
4
|
|
On
September 22, 2002, Hurricane Isidore hit the Yucatán Peninsula and affected
approximately 60% of our chicken growing farms in the region. The remainder
of
our facilities in the area, including a poultry processing plant, feed mills,
breeder farms and incubator plants, suffered minor damages. The chicken growing
farms in this region represented approximately 7% of our total capacity in
our
chicken business. We were able to divert products from our other facilities
to
maintain a consistent level of service to our customers in this
region.
The
Company repaired its Peninsula Complex on schedule and by the end of 2003 the
complex had returned to the level of capacity maintained prior to sustaining
the
damage caused by Hurricane Isidore. In 2003, the Company implemented projects
to
expand the facilities at the Peninsula Complex as well as the Northwest Complex.
Both complexes were expanded to increase capacity by approximately 50% by the
third quarter of 2004. These projects were financed with internal resources
generated by our own operations.
On
September 16, 2006, Hurricane Lane, hit the southern part of the state of
Sinaloa affecting some of our chicken growing farms in that region. We were
able
to keep a proper supply to our customers in that region from our other
complexes.
We
operate 17 feed mills for our own chickens, feed sales to third parties and
egg
and swine operations. The total production capacity of our feed plants is
approximately 365,000 tonnes per month. We estimate that we are the largest
producer of animal feed in México.
Our
other
facilities include two poultry manure-processing plants. Our headquarters are
located in Celaya Guanajuato, México, and we have 60 sales centers throughout
the regions we serve. While we own most of our facilities, we lease a limited
number of farms and sales centers. We also employ a network of contract
growers.
Our
fleet
of trucks carries feed from feed mills to farms, live chicken from farms to
processing plants, day-old chickens from egg incubation plants to farms, eggs
from farms to distribution centers and, ultimately, products from distribution
centers to customers.
ITEM
5.
|
Operating
and Financial Review and
Prospects
|
The
following discussion should be read in conjunction with our Consolidated
Financial Statements. The Consolidated Financial Statements have been prepared
in accordance with Mexican GAAP, which differs in certain respects from U.S.
GAAP. Note 17 to the Consolidated Financial Statements provides a description
of
the principal differences between Mexican GAAP and U.S. GAAP, as they relate
to
us, and a reconciliation to U.S. GAAP of total stockholders’ equity, net income
and operating income, a consolidated statement of changes in stockholders’
equity and a condensed statement of cash flows under U.S. GAAP as of December
31, 2005 and 2006 and for the years ended December 31, 2004, 2005 and
2006.
In
accordance with Mexican GAAP rules on price-level restatement of financial
statements, the financial statements included with this disclosure recognize
certain effects of inflation. In addition, the financial statements and, unless
otherwise specified, the other financial data included herein are restated
in
constant pesos as of December 31, 2006. The effects of price-level restatement
in accordance with Mexican GAAP have not been reversed in the reconciliation
to
U.S. GAAP.
General
In
the
following discussion we describe various trends and how they affected our
results of operations for the years ended December 31, 2004, 2005 and
2006.
Mexican
Economic Conditions
In
2004,
the Mexican economy showed signs of recovery; GDP growth was 4.4%, which was
better than initial expectations. Interest rates on 28-day Cetes
increased to an average of 6.8% for the year and an average of 8.5% in the
last
month of the year. Inflation increased to a rate of 5.2%, and the peso
appreciated against the U.S. dollar by 0.8% at year-end.
In
2005,
the Mexican economy was stable and GDP increased by 3.0%; the inflation rate
was
3.3%, and rates on 28-day Cetes
increased to an average of 9.2% for the year and an average of 8.2% during
December 2005. The peso appreciated against the U.S. dollar by 4.9% at
year-end.
In
2006,
the Mexican economy showed signs of volatility during the first part of the
year, before the president election. After the election the economy showed
stability with an annual inflation rate of 4.1% and a reasonably stable
peso-dollar exchange rate with a final depreciation of the peso against the
dollar of 1.6%, as compared to the end of 2005. Rates on 28-day Cetes
decreased to an average of 7.2% for the year.
In
addition to the effects that the Mexican economy has on our business and results
of operations, Mexican political events may significantly affect our operations
and the performance of Mexican securities generally. See Item 3, “Key
Information—Risk Factors.” A downturn in México’s economic conditions, civil
unrest or other adverse social, political or economic developments in or
affecting México could adversely affect our business, results of operations,
financial condition, ability to obtain financing and prospects for future
business.
The
Mexican economy and financial and securities markets are, to varying degrees,
influenced by economic conditions in other countries. Economic or financial
conditions in one country or region may undermine investors’ confidence in other
countries, such as México, and decrease the attractiveness of securities
investments in such countries. See Item 3, “Key Information — Risk
Factors.”.
Effects
of Economic Conditions on the Company
Mexican
economic conditions have had an important impact on México’s chicken market.
Feed costs constitute a substantial portion of the cost of goods sold and are
priced with reference to U.S. dollars. We use financial instruments to mitigate
the cost of goods sold in currencies other than Mexican pesos. See Note 2-q
of
the Consolidated Financial Statements. In 2003, average producer prices
increased significantly by 10.6%, due primarily to an increase in raw materials
prices during most of the year. In 2004, average producer prices increased
by
6.7%, due mainly to strong increases in the cost of feed ingredients, in
particular soybean meal, and a moderate increase of supply in the Mexican
market. In 2005, average producer prices decreased by approximately 1.7%, mainly
as a result of a decrease in the cost of the main feed ingredients worldwide,
and a strong oversupply during the last quarter of the year. In 2006 average
producer prices decreased by approximately 3.0% mainly from oversupply
conditions in the market during the first part of the year and as market
conditions return to more normalized levels as compared with the first three
quarters of 2005.
As
of
December 31, 2006, we have an outstanding total indebtedness of Ps.43.6 million
all denominated in Mexican pesos. In 2006, we had foreign exchange gain of
Ps.39.3 million due to fluctuations of the peso against the U.S. dollar, as
compared to a foreign exchange loss of Ps.60.0 million in 2005 and a foreign
exchange gain of Ps.48.4 million in 2004.
Any
erosion of the purchasing power of Mexican consumers may adversely affect demand
for our products and, as a result, our net revenues and profitability. Inflation
and changing prices affect our ability to raise prices as well as consumer
demand, supplier prices and other costs and expenses, consumer purchasing power
and competitive factors, all of which in turn affect our net revenues and
operating results. Peso devaluations and high inflation levels could further
adversely affect our operations and financial position.
Volume
of Chicken Sold
The
volume of our chicken sold decreased by 1.5% in 2003, increased by 11.8% in
2004, increased by 5.5% in 2005 and increased 0.1% in 2006.
The
decrease in volume in 2003 was mainly due to the effects of Hurricane Isidore
on
our Peninsula Complex during most of the year.
The
increase in 2004 was due mainly to the completion of growing projects in our
Northwest and Peninsula complexes, and productivity improvements in the rest
of
our operations.
The
increase in 2005 was due mainly to productivity improvements achieved by the
Company and the Sanjor acquisition in the second quarter of the
year.
The
increase in 2006 was due mainly to productivity improvements, offset by the
negative effects Hurricane Lane on our Northwest Complex during the second
half
of the year, and a reduction in yield as the Company moves to offering
value-added products.
Trends
in Product Prices
Our
results of operations are significantly affected by the cyclical and volatile
nature of Mexican prices for chicken, feed, eggs and swine.
In
2003,
the Company was affected by higher feed ingredient costs and oversupply
conditions due to an increase in domestic production. The continued weakness
of
the Mexican economy affected the purchasing power of customers, and as a result
the Company was unable to increase its prices. During 2003, our chicken prices
decreased 2.7% primarily as a result of oversupply conditions in the domestic
chicken market as well as a decrease in consumer purchasing power.
In
2004,
our chicken prices increased by 6.4%, mainly as a result of an increase in
the
cost of our main feed ingredients which pushed the prices up in the industry,
a
moderate supply of chicken in the Mexican market, mainly in the second part
of
the year, and our commercial and marketing strategies.
In
2005,
our chicken prices increased 1.6%, as a result of a strong demand in the first
three quarters of the year, partially compensated by weak prices in the last
quarter of the year.
In
2006,
our chicken prices decreased 3.7% due to oversupply in the market, in the first
part of the year, and a lower more normalized historical demand compared to
2005.
Prices
for feed tend to follow trends in prices of feed ingredients, which we discuss
below.
In
2003,
egg prices increased by 17.5% mainly due to a reduced supply of this product
in
the market.
In
2004,
our egg prices increased by 7.3% mainly due to an increase in the price of
feed
ingredients and a moderate supply during the first part of the year in the
Mexican market.
In
2005,
our egg prices decreased by 15.7% as a result of continued oversupply conditions
in the Mexican market due to domestic production.
In
2006,
our egg prices increased 3.9% compared to 2005, as a result of a more stable
supply.
Bachoco
continues to work to improve its sales mix by introducing a packaged product
with brand identification with better profit margins.
In
2003,
swine prices began to recover, increasing by 7.0%, due mostly to very modest
growth in domestic production and imports.
In
2004,
our swine price increased by 25.8% as there was only a moderate supply in the
Mexican market.
In
2005,
our swine prices decreased by 9.0% as imports into México increased.
In
2006,
our swine prices declined 11.9% as a result of greater competition from imports
and a more fragmented Mexican market.
We
believe that, among other factors, industry price competition may continue
to
exert downward pressure on real chicken prices, and that prices for chicken,
feed, eggs and swine are also likely to remain volatile and subject to cyclical
variation. Due to the time needed to complete the chicken growth cycle, chicken
producers generally cannot adjust production to respond immediately to cyclical
variations, and, accordingly, in times of oversupply, prices may decline due
to
overproduction.
Trends
in Prices of Feed Ingredients
The
single largest component of our cost of sales is the cost of ingredients used
to
prepare feed, including sorghum, soybean meal, corn, fish meal, meat meal and,
for certain chicken products, marigold extract. The prices of these feed
ingredients are subject to significant volatility due to a number of variables,
including, among other factors, weather, harvest size, transportation and
storage costs, government agricultural policies and currency exchange rates.
The
price at which we may obtain feed ingredients from Mexican producers relative
to
U.S. producers is also subject to volatility depending on these
variables.
At
present, Mexican feed prices tend to parallel U.S. and international prices.
In
2002, the percentage of grain purchased from local markets fell to 30%, with
the
remaining imported primarily from the United States. In 2003, the percentage
of
grain purchased from domestic markets was 38%. In 2004, it was approximately
35%, in 2005 it was 30% and in 2006 it was 31.3%.
Due
to
low inventories worldwide at the end of 2003 and during most of 2004, soybean
meal reached historically high prices worldwide. Consequently, the price of
other sources of protein, including grain, increased. As a result, the cost
of
our feed increased substantially. It was not possible for us to pass these
increases to our customers, leading us to poor results during the first part
of
the year. In the second part of the year, mainly in the last quarter, prices
resumed more normalized levels, allowing us to improve our results. In 2005,
prices of our raw materials were on the average lower compared to 2004; during
the year prices were rather constant with a slight trend to increase during
the
second part of the year.
During
the second part of 2006, international corn prices increased significantly
as a
result of lower inventories and increases in alternative uses of corn, such
as
ethanol production.
In
recent
years, reductions in tariffs under NAFTA have generally resulted in reductions
of our costs of importing feed ingredients.
Acquisitions
& Dispositions
Our
operations have been affected during the periods we discuss herein, by a series
of acquisitions and production arrangements that we have made in recent
years:
|
·
|
During
2002, our acquisitions contributed to the expansion and consolidation
of
our leadership position in the egg and chicken industries in México.
Through these acquisitions, we expanded our distribution network
throughout almost the entire country and increased our market presence
in
both La Laguna and the northeastern regions of México. We financed these
acquisitions through our own working capital
resources.
|
|
·
|
During
2003, we implemented two important projects to expand the facilities
at
our Northwest Complex and Peninsula Complex to increase production
capacity in our chicken business. Both complexes were expanded to
increase
capacity by approximately 50% and were completed by the third quarter
of
2004.
|
|
·
|
In
July 2004, we reached an agreement for renting the facilities of
UPAVAT
and UPATEC, a small producer of table eggs in the state of Puebla,
south
of México City, with a annual capacity of about 0.7 million of lying
hens.
|
|
·
|
In
November 2004, the Company acquired all the shares of Secba, S.A.
de C.V.,
from a related party for Ps.15.0 million. As of the date of the
acquisition, the figures of Secba, S.A. de C.V. have been consolidated
with the Company’s figures. The excess of the purchase price paid over the
book value of this investment amounted to Ps. 0.3 million and was
recognized in other income.
|
|
·
|
In
June 2005, the Company acquired certain assets of Sanjor, a private
poultry company located in the Yucatán Peninsula, with production of
approximately 300 thousand chickens per week and 100 thousand table
egg
laying hens, which allow us to reinforce our leadership in this region
of
the country.
|
|
·
|
In
December 2006, the company starting operations at a new complex in
the
state of Sonora by acquiring the farms from and leasing the processing
plant and feed mill of “Del Mezquital Alimentos” in accordance with our
strategic plans.
|
|
·
|
In
February 2007, the Company reached a business agreement with “Grupo Libra”
a company located in northeast México. The agreement establishes a rent
scheme of the facilities, which include breeders and chicken farms
with a
capacity of approximately 3.0 million chickens per cycle, along with
a
slaughter plant, and a processing center. In addition, Bachoco acquired
all of Grupo Libra’s working capital and
brands.
|
Summary
of Results of Operations
The
following table sets forth selected components of our results of operations
as a
percentage of net revenues for each of the periods indicated:
|
|
Year
Ended December 31,
|
|
|
|
2004
|
|
2005
|
|
2006
|
|
|
|
(percentage
of net revenues)
|
|
Net
revenues
|
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
Cost
of sales
|
|
|
(81.1
|
)
|
|
(71.9
|
)
|
|
(77.5
|
)
|
Gross
profit
|
|
|
18.9
|
|
|
28.1
|
|
|
22.5
|
|
Selling,
general and administrative expenses
|
|
|
(12.5
|
)
|
|
(12.8
|
)
|
|
(13.3
|
)
|
Operating
income
|
|
|
6.4
|
|
|
15.2
|
|
|
9.2
|
|
Comprehensive
financing (cost) income
|
|
|
(0.5
|
)
|
|
(0.5
|
)
|
|
0.4
|
|
Income
tax, asset tax and employee profit sharing
|
|
|
(0.8
|
)
|
|
(2.4
|
)
|
|
(3.9
|
)
|
Net
income
|
|
|
5.3
|
|
|
12.2
|
|
|
5.8
|
|
The
following table sets forth, for each of the periods indicated, our net revenues
of chicken, feed, eggs, swine and other products as a percentage of total net
revenues in each period:
|
|
|
Year
Ended December 31,
|
|
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
|
|
(percentage
of net revenues)
|
|
Chicken
|
|
|
78.5
|
%
|
|
80.1
|
%
|
|
77.6
|
%
|
Feed
|
|
|
6.6
|
%
|
|
7.2
|
%
|
|
9.0
|
%
|
Eggs
|
|
|
10.9
|
%
|
|
8.7
|
%
|
|
9.2
|
%
|
Swine
and Others
|
|
|
4.0
|
%
|
|
4.0
|
%
|
|
4.2
|
%
|
Total
|
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
Results
of Operations for the Years Ended December 31, 2005 and
2006
General
In
2006,
the Mexican economy showed signs of stability: GDP grew by 4.8%, an annual
inflation was 4.1% and the peso-dollar exchange rates was reasonably stable
with
a final depreciation of 1.6% of the peso against the dollar at the end of the
year, as compared to 2005.
According
to UNA, the production volume of the Mexican chicken industry grew approximately
3.7% in 2006. Consumer preference for healthier products, income increases
per
capita, and chicken as a low-cost protein alternative to other meat sources,
have all had a favorable effect on per capita poultry consumption in the
country.
With
respect to the egg industry, domestic production increased by almost 1.3%,
which
contributed to the excess supply in the market during the year.
We
were
able to increase our sales volume in all our main product lines. We sold our
entire production and achieved an operating margin of 9.2%.
Net
revenues
Consolidated
net revenues during 2006 amounted to Ps.15.0 billion, compared to $15.1 billion
reported in 2005 a 0.4% decrease. This was mostly due to decrease in the sales
of chicken, our main product line.
Our
chicken sales decrease by 3.5% due to an decrease in price of 3.6%, while volume
increased smoothly by 0.1%, mainly as a result of conditions going back to
normal, compared to the previous year.
Our
revenues from egg sales increased by 5.9% in 2006, as a result of a 3.9% price
increase, and 1.9 % increase in volume, due to more stable supply and prices
in
the year throughout the industry.
In
2006,
there was a significant growth in sales of 25.4% of balanced feed, while the
volume achieved 24.3% compared to 2005. This was the result of focused
strategies that Bachoco has implemented in this line of business.
We
recognized Ps.10.5 million in our 2006 revenue as a result of fair valuing
part
of the Company’s inventories, see Note 2-i, and 4-b in our audited financial
statements.
Cost
of sales
The
consolidated cost of sales in 2006 was Ps.11.6 billion, representing an increase
over 2005 of Ps.0.79 billion, or 7.3%, as a result of higher costs in raw
materials, particularly during the second half of the year.
Gross
profit
Bachoco’s
gross profit reached Ps.3.4 billion during 2006, a decrease of 20.2% compared
with the previous year. Gross profit, as a percentage of net sales, was 22.5%,
compared to 28.1% reached in 2005. The decline was mostly due to cost increase
and a decrease in sales.
Sales,
general and administrative expenses
Sales
and
administrative expenses in 2006 amounted to Ps.2.0 billion. This represents
an
increase of only 3.3% over 2005 and is mainly attributable to sales expenses
due
mainly to delivering product to more points of sales.
Operating
income
Consolidated
operating income in 2006 totaled Ps.1.4 billion, a decrease of 40% over the
previous year’s results, largely due a lower gross profit and higher operating
expenses. The operating margin for the year was 9.2% compared to 15.2% in
2005.
Comprehensive
cost of financing
Comprehensive
financing income (cost) represents the net effect of interest expense, interest
income, foreign exchange gain (loss) and gain (loss) on net monetary position,
which arises from the effect of inflation on the average net balance of monetary
assets and liabilities. Comprehensive financing cost had a positive impact
(gain) of Ps.59.2 million in 2006 compared with a cost of Ps. 71.3 million
in
2005.
This
change was due mainly to a net gain in foreign exchange of Ps. 39.1 million
achieved through greater efficiency in buying US dollars needed for our normal
operations and a larger net interest income due to higher level of cash,
partially offset by a higher loss on net monetary positions since the inflation
rate was higher in 2006.
Other
income, net
Other
income, net represented a net gain of Ps.22.0 million in 2006 as compared to
a
net expense of Ps.21.7 million in 2005. Other income, net in both 2006 and
2005
was attributable mainly to sales of used equipment, income from government
supports and miscellaneous services. It represented a net gain of Ps.22.0
million in 2006 as compared to a net expense of Ps.21.7 million in 2005. This
variation was mainly due to better results of used equipment less amount of
obsolete inventories and larger government supports.
Income
before provision for income tax, asset tax, employee profit sharing
Income
before provision for income tax, asset tax, employee profit sharing and
cumulative effect of accounting change decreased in 2006, from Ps.2,199.0
million to Ps.1,455.9 million, due primarily to a decrease in operating income.
Net
income
Net
income for 2006 decreased to Ps.874.3 million compared to Ps.1,841.1 million
reached in 2005. This result includes a Ps.324.2 million decrease due to
deferred taxes as a result of rate changes in the taxation of the Mexican
agricultural and livestock sector, in place as of 2007. This change had no
effect on the Company’s cash flow.
Results
of Operations for the Years Ended December 31, 2004 and
2005
General
In
2005,
the Mexican economy showed signs of stability: GDP grew by 3.0%, the annual
inflation increased by 3.3%, and the Mexican peso appreciated against the U.S.
dollar by 4.9% at year-end.
According
to UNA,
the
production volume of the Mexican chicken industry grew approximately 4.5% in
2005. This increase in supply in the chicken industry, combined with the
stability of the Mexican economy, and a stable cost of main raw materials,
resulted in an increase in our chicken prices, mostly during the first nine
months of the year.
With
respect to the egg industry, domestic production increased by almost 3.6%,
which
contributed to the excess supply in the market during the year.
In
spite
of a significant increase in the supply, we were able to increase our sales
volume in all our main product lines; we sold our entire production and achieved
an operating margin of 15.2%.
Net
revenues
Consolidated
net revenues during 2005 amounted to Ps.15.0 billion, an increase of
Ps.0.8 billion (or 5.3%), from Ps.14.3 billion in 2004. This increase was
mostly due to increases in the sales of all our main product lines, which
resulted from increases in volume and prices of those lines.
Our
chicken sales increased by 7.2% due to an increase in price of 1.6% and in
volume of 5.5%. This increase was due mainly to productivity improvements
achieved by the Company and the Sanjor acquisition in the second quarter of
this
past year.
Our
revenues from egg sales decreased by 14.1% in 2005, as a result of a 15.7%
price
decrease, partially offset by an increase of 1.9% in sales volume. This
reduction in price was mainly due to oversupply conditions in the Mexican market
during most of the year.
There
was
a significant growth in sales of 14.0% of balanced feed, while the volume
achieved 21.5% compared to 2004. This was the result of focused strategies
that
Bachoco has implemented in this line of business.
We
recognized Ps.27.1 million in our 2005 revenue as a result of fair valuing
part
of the Company’s inventories, see
Note
4-b.
Cost
of sales
The
consolidated cost of sales in 2005 was Ps.10.8 billion, representing a decrease
over 2004 of Ps.08 billion, or 6.6%, as a result of lower costs of our main
feed
supplies compared to 2004, and also the Company’s ongoing efforts to improve
efficiency in all its processes.
Gross
profit
Bachoco’s
gross profit reached Ps.4.2 billion during 2005, a significant improvement
when
compared with Ps.2.7 billion reached in 2004. Gross profit, as a percentage
of
net sales, was 28.1%, compared to 18.9% reached in 2004. The increase in our
gross profit and profit margins resulted mainly from a decline in costs and
an
increase in volume sold.
Sales,
general and administrative expenses
Sales
and
administrative expenses in 2005 amounted to Ps.1.9 billion. This represents
an
increase of only 8.3% over 2004. The increase was used to market and distribute
the larger volume sold of our products. As a percentage of net revenues,
selling, general and administrative expenses increased to 12.8% in 2005,
compared to 12.5% in 2004.
Operating
income
Consolidated
operating income in 2005 totaled Ps.2.3 billion, an increase of 149.7% over
the
previous year, as a result of an increase in sales and a decrease in the cost
of
sales. The operating margin was 15.2% in 2005 compared to 6.4% in
2004.
Comprehensive
cost of financing
Comprehensive
cost of financing had negative impact (loss) of Ps.71.3 million, as a result
of
a foreign exchange loss, loss in the monetary position and financial expenses
that were partially offset by larger financial products.
Other
income, net
Other
income net represented a net expense of Ps.21.6 million in 2005 as compared
to a
net income of Ps.33.2 million in 2004. Other income net in both 2005 and 2004
was attributable mainly to sales of used equipment, income from government
supports and miscellaneous services.
Income
before provision for income tax, asset tax, employee profit
Income
before provision for income tax, asset tax, employee profit sharing and
cumulative effect of accounting change increased more than double reached in
2004, from Ps.874.2 million in 2004 to Ps.2,198.9 million in 2005, due primarily
to an increase in operating income.
Net
income
Net
income for 2005 increased more than twice, to Ps.1,841.1 million compared to
Ps.759.8 million in 2004. The increase was mainly due to better operating
results. We increased our net income in 2005 by Ps.18.8 million derived from
the
elimination of goodwill amortization.
Income
Tax, Asset Tax and Employee Profit Sharing, Year 2006
For
a
more detailed discussion on this topic, please see Note 14 of our Consolidated
Financial Statements. We and each of our subsidiaries file individual tax
returns and may be subject to different tax regimes.
In
December 2004, a reduction in the 33% general income tax rate was approved,
so
that the rate was 30% in 2005, and 29% in 2006 and will be 28% in 2007 and
succeeding years.
The
Simplified Regime taxed corporate income at a rate of 35% for 2002, with a
gradual yearly decrease of one percent, until the tax rate was reduced to 29%
in
2006; however, companies subject to the New Simplified Regime also received
reductions on the above corporate rates, so that companies under this regime
had
an effective tax rate of 16% for 2004, 2005 and 2006.
As
of
January 1, 2006, the tax rate for taxpayers that pay income tax under the New
Simplified Regime was determined by applying the reduction of 44.83% in 2006,
to
the regular income tax rates of 29%, resulting in the fixed rate of
16%.
In
2006
changes were made to Mexican Law that will increase the tax rate from 16% to
19%
for 2007. This charge resulted in a charge of Ps.324.2 millions to income,
reflected in deferred taxes.
In
addition to income tax, we, along with our subsidiaries, are also subject to
an
alternative minimum tax known as “asset tax,” which is assessed on the average
value of most assets, net of certain liabilities. The general asset tax rate
is
1.8%; BSACV is subject to a 0.9% rate pursuant to the New Simplified Regime
(unchanged from the Simplified Regime). We benefit from special rules that
exclude a number of assets from the asset tax and from tax incentives in
connection with certain of our investments. We (together with our subsidiaries)
are subject to asset tax if the amount of asset tax exceeds the computed income
tax liability. Asset tax can be credited against income tax in subsequent years
(up to ten years). The asset tax in 2004, 2005 and 2006 amounted to Ps.13.7
millions, Ps.20.6 million and Ps.27.2 million, respectively. In each of the
three years we credited against these amounts the income tax paid in such years
of Ps.11.5 million, Ps.17.6 million and Ps.24.8 million, respectively.
As
of
December 31, 2006, we had Ps.13.4 million in asset tax credits.
In
2006,
we recognized a total income tax and asset tax charge of Ps.577.4 million,
compared to a total income and asset tax charge of Ps.354.5 million in 2005
and
Ps.111.2 million in 2004, due to larger deferred tax due to the tax rate
increase for 2007. (See Note 14 of the Financial Statements).
Neither
Industrias Bachoco, S.A.B. de C.V. nor BSACV have employees, but each of our
other subsidiaries is required under Mexican law to pay employees, in addition
to their compensation and benefits, profit sharing in an aggregate amount equal
to 10% of such subsidiary’s taxable income subject to certain adjustments. (See
Note 14-e of the Financial Statements).
Liquidity
and Capital Resources
Our
working capital (current assets less current liabilities) increased
year-over-year from Ps.4.9 billion on December 31, 2005 to Ps.5.5 billion on
December 31, 2006. We believe that our working capital is sufficient for our
present requirements. The
ratio
of current assets to current liabilities on December 31, 2006 was 5.9.
Cash
and
cash equivalents were Ps.3.5 billion on December 31, 2006, representing an
increase of Ps.157.9 million from the previous year primarily due to cash
generated by operations.
Inventories
were Ps.2.1 billion as of December 31, 2006, representing an increase of
Ps.438.8 million from the previous year.
Total
debt, including the current portion of long-term debt, equaled Ps.43.6 million
as of December 31, 2006, a decrease of Ps.106.9 million from December 31, 2005.
Stockholders’
equity increased to Ps.13.6 billion on December 31, 2006 from Ps.13.0 billion
on
December 31, 2005.
Long-term
debt on December 31, 2006 represented 0.3% of our capitalization, as compared
to
0.4% on December 31, 2005.
In
2006,
capital investments amounted to Ps.863.2 million, all of which were financed
from resources generated from our own operations. These capital investments
were
used mainly to finance productivity projects, production growing capabilities
and infrastructure maintenance to keep facilities in good operating conditions.
We
are a
holding company with no significant operations of our own. We will have
distributable profits and cash to pay dividends only to the extent that we
receive dividends from our subsidiaries, principally BSACV. The amount of
dividends payable by our subsidiaries and us is also subject to general
limitations under Mexican corporate law.
We
expect
to finance our capital expenditures and debt service obligations from our
current liquidity and capital resources, cash flows and from additional
borrowings from our existing sources of debt financing, although we will also
consider other sources of debt financing if they are available on advantageous
terms. For a discussion of our use of hedging instruments, please see Item
8
below.
Our
major
categories of indebtedness included the following:
|
· |
As
of December 31, 2006, we did not have notes payable to banks.
|
|
· |
Long-term
debt to banks, as of December 31, 2006, was Ps.34.2 million outstanding
(excluding current portion). The weighted average interest rate on
long-term debt was 9.26%.
|
The
following table summarizes certain contractual liabilities as of December 31,
2006. The table does not include short-term debt, accounts payable or pension
liabilities.
|
|
Payments
Due by Period
(millions
of constant pesos as of December 31, 2006)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual
Obligations
|
|
Total
|
|
2008
|
|
2009
|
|
2010
|
|
2011
|
|
2012
|
|
Long-term
debt
|
|
|
Ps.34.3
|
|
|
Ps.
10.1
|
|
|
Ps.
11.9
|
|
|
Ps.
12.3
|
|
|
Ps.0.0
|
|
|
Ps.0.0
|
|
Operating
leases
|
|
|
63.8
|
|
|
18.1
|
|
|
14.6
|
|
|
11.3
|
|
|
10.3
|
|
|
9.5
|
|
Total
|
|
|
Ps.98.1
|
|
|
Ps.
28.2
|
|
|
Ps.
26.5
|
|
|
Ps.
23.6
|
|
|
Ps.10.3
|
|
|
Ps.9.5
|
|
Off-Balance
Sheet Arrangements
We
do not
have any off-balance sheet arrangements of the type that we are required to
disclose under Item 5.E of Form 20-F.
Reconciliation
to U.S. GAAP
The
principal differences between Mexican GAAP and U.S. GAAP, as they relate to
us,
concern (i) deferred income taxes, (ii) capitalization of financing costs,
(iii)
biological assets and agricultural products valuation at fair value, and (iv)
the amortization of goodwill. Goodwill amortization is not required for fiscal
years beginning January 2005, due to the new Statement B-7 issued by the Mexican
Institute of Public Accountants (see Note 17 to the Consolidated Financial
Statements for a detailed description). Each of these differences also affects
our balance sheet.
Our
consolidated net income under U.S. GAAP was Ps.796.0 million in 2004, Ps.1,824.8
million in 2005 and Ps.863.1 million
in 2006, compared to Ps.759.8 million, Ps.1,841.1 million
and Ps.874.3 million, respectively, under Mexican GAAP. For further explanation,
please see Note 17 to the Consolidated Financial Statements.
Bachoco
has applied Statement of Financial Accounting Standards (SFAS) No.109,
Accounting
For Income Taxes, for
all
periods presented. In the Company’s case the application of the rule did not
generated a reconciling difference in 2004, 2005 and 2006, therefore, there
is
no difference between Mexican and US GAAP in those years.
The
Company also adopted the requirements of Statement 144 on January 1, 2002 and
has not identified any impairment adjustments to the carrying value of its
long
lived assets.
Use
of Estimates in Certain Accounting Policies
In
preparing our financial statements, we make estimates concerning a variety
of
matters. Some of these matters are highly uncertain, and the estimates involve
judgments based on the information available to us. The discussion below
identifies matters for which the financial presentation would be materially
affected (a) if we relied on different estimates that we could reasonably use,
or (b) if in the future we change our estimates in response to changes that
are
reasonably likely to occur.
The
discussion below addresses only those estimates that we consider most important
based on the degree of uncertainty and the likelihood of a material impact
if we
used a different estimate. There are many other areas in which we use estimates
about uncertain matters, but the reasonably likely effect of changed or
different estimates would not be material to our financial
presentation.
Estimated
Useful Lives of Property, Plant and Equipment
We
estimate the useful lives of our property, plant and equipment in order to
determine the amount of depreciation expense to be recorded in each period.
The
current estimates of useful lives are based on estimates made by an independent
appraiser in 1996. Those estimates have been adjusted when applicable, based
on
historical experience with similar assets that we own. Accumulated depreciation
expense for property, plant and equipment in 2006 amounted to Ps.6,037.2
million. As applied to our 2006 financial results, the depreciation was Ps.517.9
million, or 3.5% of our net revenues. For further explanation, see Notes 2
and 5
to the Consolidated Financial Statements.
Allowance
for Productivity Declines
In
estimating the inventory value of our breeder birds, swine and layers, we make
allowances for productivity declines. We estimate such allowances based on
expected future production and deduct them from inventories. The estimates
of
future production are based on standards for the breeder line and the
performance of the most recent flocks. We refer to the standards provided by
the
company that sells us the breeder line in question. Each company that sells
breeder lines publishes its own particular standards for its proprietary breeder
line.
Inventory
Valuation
Since
January 1, 2003, for Mexican GAAP purposes, our inventories are valued using
market prices. According to Bulletin E-1, biological assets and agricultural
products (the latter at the time of their harvesting) are to be valued at their
fair value, net of estimated costs at point of sale. Also, the Bulletin
establishes that, whenever the fair value cannot be determined in a reliable,
verifiable and objective manner, the assets are to be valued at their production
cost, net of accumulated impairment.
Poultry
being fattened (less than 6.5 weeks old), incubatable eggs, pigs and laying
hens, are valued at production cost since it is not possible to determine their
fair value in a reliable, verifiable and objective manner.
Poultry
being fattened from age 6.5 weeks to the time birds are ready for sale is valued
at fair value net of estimated costs at point of sale, considering the sales
price per kilogram of processed chicken at the date of valuation.
Laying
hens are depreciated based on eggs produced using an estimated factor for
productive useful life.
Processed
chicken and commercial eggs are valued at their fair value net of costs at
point
of sale, considering the sales price per kilogram of processed chicken and
commercial eggs at the time such items are considered agricultural products;
from this date, the valuation is considered to be cost up to the time of sale,
not in excess of net realizable value.
For
more
details, see “Inventories and biological assets” in Note 4 of the Consolidated
Financial Statements.
Allowance
for Doubtful Accounts
We
periodically and systematically review the aging and collection of our accounts
receivable. As a result of this procedure, we set up an allowance for doubtful
accounts of Ps.30.7 million in 2006 that represents 0.2% of our total annual
sales. See Note 2-h of our Consolidated Financial Statements.
Pension
Plan
Pension
benefits are based on the salary of workers in their final three years of
service, the number of years worked and their age at retirement. See note 2-o
in
our Consolidated Financial Statements.
ITEM
6.
|
Directors,
Senior Management and
Employees
|
Directors
The
Board
of Directors is responsible for the management of our business. The Board of
Directors consists of an odd number of directors, never fewer than five, and
corresponding alternate directors, each of whom is elected for a term of one
year.
Before
September 2006, holders of Series B Shares elected directors and alternate
directors at a general ordinary stockholders’ meeting, while holders of Series L
Shares had the right to appoint or elect two directors and two alternate
directors to the Board of Directors.
Since
September 2006, we have only Series B Shares with full voting
rights.
Alternate
directors are authorized to serve on the Board of Directors in place of
directors who are unable to attend meetings or otherwise participate in the
activities of the Board of Directors
The
following table identifies our directors, alternate directors, Honorary Chairman
of the board and Secretary of the board as of June 2006, their positions and
their years of service:
Name
|
|
Position
|
|
Years
as a Member of the Board of
Director
|
Enrique
Robinson Bours Almada
|
|
Honorary
Chairman of the board
|
|
53
|
Francisco
Javier R. Bours Castelo
|
|
Chairman
of the board and Proprietary Shareholder Director
|
|
25
|
Cristóbal
Mondragón Fragoso
|
|
Secretary
of the Board
|
|
11
|
Mario
Javier Robinson Bours Almada
|
|
Proprietary
Shareholder Director
|
|
53
|
Juan
Bautista Salvador Robinson Bours
|
|
Proprietary
Shareholder Director
|
|
53
|
Arturo
Bours Griffith
|
|
Proprietary
Shareholder Director
|
|
13
|
Jesús
Enrique Robinson Bours Muñoz
|
|
Proprietary
Shareholder Director
|
|
13
|
Ricardo
Aguirre Borboa
|
|
Proprietary
Shareholder Director
|
|
13
|
Octavio
Robinson Bours Griffith
|
|
Proprietary
Shareholder Director
|
|
10
|
Jesús
Rodolfo Robinson Bours Muñoz
|
|
Proprietary
Shareholder Director
|
|
5
|
José
Eduardo Robinson Bours Castelo
|
|
Alternate
Director
|
|
13
|
Juan
Salvador Robinson Bours Martínez
|
|
Alternate
Director
|
|
13
|
José
Francisco Robinson Bours Griffith
|
|
Alternate
Director
|
|
13
|
Guillermo
Pineda Cruz
|
|
Alternate
Independent Director
|
|
13
|
Avelino
Fernández Salido
|
|
Independent
Director
|
|
4
|
Humberto
Schwarzbeck Noriega
|
|
Independent
Director
|
|
4
|
Enrique
Robinson Bours, Mario Javier Robinson Bours and Juan Bautista Salvador Robinson
Bours are brothers. Francisco Javier R. Bours Castelo and José Eduardo Robinson
Bours Castelo are sons of Mario Javier Robinson Bours. Arturo Bours Griffith,
José Francisco Bours Griffith and Octavio Robinson Bours are nephews of Enrique
Robinson Bours, Mario Javier Robinson Bours and Juan Bautista Salvador Robinson
Bours. Jesús Enrique Robinson Bours Muñoz and Jesús Rodolfo Robinson Bours Muñoz
are sons of Enrique Robinson Bours. Juan Salvador Robinson Bours Martínez is the
son of Juan Bautista Salvador Robinson Bours. Guillermo Pineda Cruz is the
son-in-law of Enrique Robinson Bours, and Ricardo Aguirre Borboa is the
son-in-law of Juan Bautista Salvador Robinson Bours.
Our bylaws
provide for the creation of an executive committee of the Board of Directors,
which may exercise certain of the board’s powers in full, subject to certain
limitations.
In
April
2002, we announced the retirement of Mr. Enrique Robinson Bours Almada, Chairman
of the board and co-founder of the Company. Mr. Bours led the Company for 50
years. The board named as his successor Mr. Javier Robinson Bours Castelo,
Mr.
Enrique Robinson Bours’s nephew. Mr. Bours Castelo has been at Bachoco for 25
years as a member of the board and served as Vice-Chairman for nine years.
Mr.
Bours Castelo was named Chairman of the board in 2002.
In
order
to fully comply with current Mexican Corporate and Securities Market Laws as
well as other recent regulatory amendments in the various markets in which
Bachoco’s Shares are traded, we appointed a new Board of Directors at our
ordinary stockholders’ meeting held on April 30, 2003. We ratified our Board of
Directors at our stockholders’ meeting held on April 25, 2007.
Our
board, as of June 2007, is composed of the following members:
Proprietary
Shareholder Directors:
Francisco
Javier R. Bours Castelo
Mario
Javier Robinson Bours Almada
Juan
Bautista S. Robinson Bours Almada
Jesús
Enrique Robinson Bours Muñoz
Jesús
Rodolfo Robinson Bours Muñoz
Arturo
Bours Griffith
Octavio
Robinson Bours Griffith
Ricardo
Aguirre Borboa
Alternate
Directors:
José
Eduardo Robinson Bours Castelo
Juan
Salvador Robinson Bours Martínez
José
Francisco Robinson Bours Griffith
Guillermo
Pineda Cruz
Independent
Directors:
Avelino
Fernández Salidos
Humberto
Schwarzbeck Noriega
Life
Honorary Chairman of the Board:
Enrique
Robinson Bours Almada
Francisco
Javier R. Bours Castelo, Chairman
of the Board of Directors, has been a member of the board for 25 years, and
has
been Chairman since April 2002. Before that, he was Vice-Chairman for several
years. Mr. Bours holds a degree in Civil Engineering from the
Instituto Tecnológico y de Estudios Superiores Monterrey (ITESM).
He currently serves as Chairman of the boards of directors of the following
companies: Grupo Megacable, S.A. de C.V., Congeladora Horticola, S.A. de C.V.,
Inmobiliaria of Trento S.A. de C.V., Acuicola Boca S.A. de C.V., Agriexport
S.A.
de C.V., Industrias Boca, S.A. de C.V., and Promotora Empresarial del Noroeste,
S.A. de C.V.
Mario
Javier Robinson Bours Almada,
Proprietary Shareholder Director, has been a member of the board for 53 years,
and is a co-founder of Industrias Bachoco S.A.B. de C.V.
Juan
Bautista S. Robinson Bours Almada,
Proprietary Shareholder Director, has been a member of the board for 53 years
and is a co-founder of Industrias Bachoco S.A.B. de C.V.
Jesús
Enrique Robinson Bours Muñoz,
Proprietary Shareholder Director, has been a member of the board for 13 years,
having previously served as Production Director and Divisional Manager. Mr.
Robinson Bours holds a degree in Engineering from the University of Arizona.
He
is also a member of the Board of Directors of San Luis Corporación S.A. de C.V.,
and Megacable S.A. de C.V.
Jesús
Rodolfo Robinson Bours Muñoz,
Proprietary Shareholder Director, has been a member of the board for 5 years.
Mr. Robinson Bours previously served in the Company as Production Manager in
the
Northwest and Bajio divisions, Commercial Manager in Northwest Division and
Purchasing Manager at the Bajio Division. Mr. Robinson Bours holds a degree
in
Agricultural Engineering from the University of Arizona. He has business
experience in agriculture and raising livestock with Agrícola Monte Cristo S.A.
de C.V., Agrícola Río Yaqui S.P.R. de R.L., Agrícola Nacapul S.P.R. de R.L. and
Ganadera Cocoreña S.P.R. de R.L.
Arturo
Bours Griffith,
Proprietary Shareholder Director, has been a member of the board for 13 years.
Mr. Bours Griffith completed professional studies at the University of Arizona.
He is also Chairman of the board of Qualyplast, S.A. de C.V., and a member
of
the board of Megacable, S.A. de C.V., Promotora Empresarial del Noroeste, S.A.
de C.V., and Taxis Aereos del Noroeste, S.A. de C.V.
Octavio
Robinson Bours Griffith,
Proprietary Shareholder Director, has been a member of the board for 10 years.
Mr. Robinson Bours holds a degree in Agricultural Engineering from the
Instituto
Tecnológico y de Estudios Superiores de Monterrey (ITESM).
He has experience in producing swine, and is also a member of the board of
Choya, S.A. de C.V., and Granos Santa Fe, S.A. de C.V.
Ricardo
Aguirre Borboa,
Proprietary Shareholder Director, was also an Independent Director until April
2007. Mr. Aguirre has been a member of the board for 13 years. He is also a
member of the Board of Directors of the newspaper El
Debate
and he
holds a degree in Agricultural Engineering from the
Instituto Tecnológico y de Estudios Superiores de Monterrey
(ITESM).
He has experience in agriculture and pork production. Mr. Aguirre Borboa is
also
member of the board of Gasolinera Servicios del Valle del Fuerte S.A. de C.V.,
Periódico el Debate de los Mochis, and Tepeyac Produce, Inc.
José
Eduardo Robinson Bours Castelo,
Alternate Director, has been a member of the board for 13 years. Mr. Robinson
Bours holds a degree in Industrial Engineering from the Instituto
Tecnológico y de Estudios Superiores de Monterrey (ITESM).
He was previously Commercial Director of Industrias
Bachoco,
a
Senator of the Mexican Congress and is currently governor of the state of
Sonora.
Juan
Salvador Robinson Bours Martínez,
Alternate Director, has been a member of the board for 13 years, and has served
Bachoco as Purchasing Manager. Mr. Robinson Bours holds a degree in Industrial
Engineering from the Instituto
Tecnológico y de Estudios Superiores de Monterrey
(ITESM).
His other appointments include Chairman of the board and CEO of Llantas y
Accesorios, S.A. de C.V.
José
Francisco Robinson Bours Griffith,
Alternate Director, has been a member of the board for 13 years. He holds a
degree in Civil Engineering from the
Universidad Autónoma de Guadalajara. Mr.
Robinson Bours has worked at Bachoco as Engineering Manager, and is currently
dedicated to agricultural operations.
Guillermo
Pineda Cruz,
Alternate Director, has been a member of the board for 13 years. He is also
a
member of the Board of Directors of Banamex and was a regional member of the
Board of Directors of Grupo Financiero Serfín, Inverlat and Inverméxico. Mr.
Pineda holds a degree in Civil Engineering from the Instituto
Tecnológico y de Estudios Superiores de Monterrey
(ITESM)
and a master’s degree in Business Administration from the Instituto
Tecnológico. y de Estudios Superiores de Sonora
(ITSON).
He co-founded Edificadora Pi-Bo, S.A. de C.V. in 1983 and is its President
and
CEO.
Avelino
Fernández Salido,
Independent Director, was named a member of the board on April 30, 2003. He
is
also a member of the board of Banco Nacional de México, BBVA Bancomer, and Banca
Serfín. His business experience is in the marketing of grains.
Humberto
Schwarzbeck Noriega,
Independent Director, was named a member of the board on April 30, 2003. He
holds a degree in economics from the Instituto
Tecnológico y de Estudios Superiores de Monterrey
(ITESM).
He is currently CEO of Yeso Industrial de Navojoa S.A. de C.V. and Chairman
of
the Board of Promotora de Manufacturas S.A. de C.V.
Executive
Officers
Our
executive officers as of December 31, 2006 are set forth in the table
below:
Name
|
|
Position
|
|
Age
|
Cristóbal
Mondragón Fragoso
|
|
Chief
Executive Officer
|
|
61
|
Daniel
Salazar Ferrer
|
|
Chief
Financial Officer
|
|
42
|
David
Gastélum Cazares
|
|
Director
of Sales
|
|
55
|
José
Luis López Lepe
|
|
Director
of Personnel
|
|
59
|
Rodolfo
Ramos Arvizu
|
|
Technical
Director
|
|
49
|
Ernesto
Salmón Castelo
|
|
Director
of Operations
|
|
45
|
Andres
Morales Astiazaran
|
|
Director
of Marketing and Value-added Products
|
|
38
|
Cristóbal
Mondragón Fragoso,
Chief
Executive Officer and Secretary of the Board of Directors, joined us in 1982
and
assumed his current position in 2001. Previously, Mr. Mondragón served as
Administration Manager, as Manager of Corporate Finance and as Chief Financial
Officer. Before joining us, Mr. Mondragón worked as an accountant for three
years. Later he joined La Hacienda, S.A. de C.V., where he held the positions
of
Auditor, Accountant, Head of Processing Systems, Audit Manager, Administration
Manager and Comptroller. Mr. Mondragón holds an Accounting degree from
Universidad Nacional Autónoma de México (UNAM).
Daniel
Salazar Ferrer,
Chief
Financial Officer, joined
us
in 2000 and assumed his current position in January 2003. Previously, Mr.
Salazar worked for four years as Chief Financial Officer at Grupo Covarrubias
and as Comptroller at Negromex, a company of Grupo Desc. Mr. Salazar holds
an
Accounting degree from Universidad
Tecnológica de México and
a
master’s degree in Business Administration from
Instituto Tecnológico de Estudios Superiores de Monterrey
(ITESM).
David
Gastélum Cazares,
Director of Sales, joined us in 1979 and assumed his current position in 1992.
Previously, Mr. Gastélum served as a pullet salesman in the states of Sonora and
Sinaloa, National Sales Manager of Live Animals and Eggs, Manager of the
Northwest Division, Manager of the México City Division and National Sales
Manager. Before joining us, Mr. Gastelúm worked at La Hacienda, S.A. de C.V. as
Technical Advisor and as Area Officer for the Southeast Division. Mr. Gastélum
holds a degree in Veterinary Medicine from the school of Veterinary Medicine
of
Universidad
Nacional Autónoma de México
(UNAM).
José
Luis López Lepe, Director
of Personnel, joined us in 1993. Previously, Mr. López worked as a teacher in
several institutions as well as with Grupo Condumex, where he was Director
of
Personnel. Mr. López holds a degree in Physics and Chemistry from the
Escuela
Normal Superior
and a
degree in Business Administration from Instituto
Tecnológico Autónomo de México.
Rodolfo
Ramos Arvizu, Technical
Director, joined us in 1980. Previously, Mr. Ramos held positions in the Egg
Quality Control Training Program and in Poultry Management as well as serving
as
Supervisor of the Commercial Egg Production Training Program, Manager of Raw
Material Purchasing and as a Director of Production. Mr. Ramos holds a degree
in
Agricultural Engineering from
Instituto Tecnológico de Estudios Superiores de Monterrey
(ITESM).
Ernesto
Salmón Castelo, Director
of Operations, joined us in 1991 and assumed his current position in 2000.
Previously, Mr. Salmón worked for Gamesa, S.A. de C.V. and for us as Sales
Manager in Sonora, Northwestern Distribution Manager, Manager of the Processing
Plant in Celaya, Southeastern Division Manager and Bajio Division Manager.
Mr.
Salmón holds a degree in Chemical Engineering from Instituto Tecnológico
de Sonora
and a
master’s degree in Business Administration from
Instituto Tecnológico de Estudios Superiores de Monterrey
(ITESM).
Andrés
Morales Astiazaran, Director
of Marketing and Value-added Products since July 2006. Before join us, Mr.
Morales worked during 4 years as Sales and Marketing Vice President in
Smithfield Foods a U.S. Company with offices in Sonora, Mexico. Previously
Mr.
Morales worked for Bachoco as Marketing Manager, Manager of the Northeast
division and then as National Manager of Bachoco. Mr. Morales holds an
accounting degree from Instituto
Tecnológico de Monterrey (ITESM) and
marketing courses by the universities of Northwestern University (Kellog),
University of Chicago, ITESM and the IPADE (D1).
Statutory
Auditor
According
with the Mexican market security law, the Statutory Auditor is not required
for
public companies since June 2006. The activities of the Statutory Auditor will
be performed by the Audit Committee.
Audit
Committee
In
January 2001, a Mexican Commission of Business Leaders (Consejo
Coordinador Empresarial), with
the
support of the Comisión
Nacional Bancaria y de Valores
(Mexican
Banking and Securities Commission, or “CNBV”), issued a Código
de Mejores Prácticas Corporativas
(“Code
of Best Practices”) for publicly traded Mexican companies, recommending certain
actions with respect to various areas of corporate governance. Subsequently,
the
Securities Market Law was amended, effective June 2006, to require that all
publicly traded Mexican companies have an audit committee.
The
mandate of the Audit Committee is to establish and monitor procedures and
controls in order to ensure that the financial information we distribute is
useful, appropriate and reliable and accurately reflects our financial position.
In particular, pursuant to our bylaws and Mexican law, among others, the Audit
Committee must do the following:
(a) |
Submit
an annual report to the Board of
Directors;
|
(b) |
Provide
the Board of Directors with its opinion on the matters that pertain
to the
Auditing Committee, in accordance with the Securities Market
Law;
|
(c) |
Inform
the Board of Directors of the current condition of the internal controls
and internal auditing system of the Company or of the entities it
controls, including any irregularities
detected;
|
(d) |
Require
the relevant directors and other employees of the Company, or of
the
entities it controls, to provide reports relative to the preparation
of
the financial information or any other kind of reports or information
it
deems appropriate to perform its duties;
|
(e) |
Receive
observations formulated by shareholders, Board members, relevant
officers,
employees and, in general, any third party with regard to the matters
under his duties, as well as carry out the actions that, in its judgment,
may be appropriate in connection with such observations;
|
(f) |
Inform
the Board of Directors of any material irregularities detected as
a result
of the performance of its duties and, as applicable, inform the Board
of
Directors of the corrective actions taken, or otherwise propose the
actions that should be taken;
|
(g) |
Call
Shareholders Meetings and cause the items it deems pertinent to be
inserted into the agendas of such Shareholders’Meetings,
and
|
(h) |
Assist
the Board of Directors in selecting candidates for audit and reviewing
the
scope and terms of the auditor’s engagement, as well as evaluate the
performance of the entity that provides the external auditing services
and
analyze the report, opinions, statements and other information prepared
and signed by the external auditor.
|
In
order
to fully comply with current Mexican Corporate and Securities Market Laws as
well as other recent regulatory amendments in the various markets in which
Bachoco’s Shares are traded, we named an audit committee during our annual
ordinary stockholders’ meeting on April 30, 2003.
There
were changes in the audit committee during the ordinary stockholder’s meeting
held on April 25, 2007; Mr. Francisco Javier R. Bours Castelo is no longer
member of the audit committee and the audit committee is now comprised for
the
following members:
Avelino
Fernández Salido (President)
Humberto
Schwarzbeck Noriega
Ricardo
Aguirre Borboa
Mr.
Ricardo Aguirre Borboa represents the controlling shareholders and has no voting
rights in the audit committee.
Compensation
of Directors and Officers
For
the
year ended December 31, 2006, we paid approximately Ps.30.3 million in aggregate
compensation to our directors and executive officers, for services they rendered
in their respective capacities.
Board
Practices
In
2001,
we began to review our board practices to bring them into compliance with the
recent requirements for companies listed on the Mexican Stock Exchange. As
a
result of this review, we have changed the composition of our board and
appointed an audit committee. See “Directors” and “Audit Committee.”
Employees
As
of
December 31, 2004, 2005 and 2006, we had approximately 18,896, 20,432 and 21,035
employees, respectively.
In
2006,
approximately 78% of our employees were members of labor unions. Labor relations
with our employees are governed by 59 separate collective labor agreements,
each
relating to a different group of employees and negotiated on behalf of each
such
group by a different labor union. As is typical in México, wages are
renegotiated every year while other terms and conditions of employment are
renegotiated every two years. We seek to attract dependable and responsible
employees to train at each of our plants and facilities. We offer our employees
attractive salary and benefit packages, including a pension and savings
plan.
We
believe that we have good relations with our employees. We have not experienced
significant work stoppages as a result of labor problems.
Share
Ownership
To
the
best of our knowledge, no individual director or managers holds share ownership
of more than one percent our Shares. At this time, we have not developed a
share
options plan for our employees.
Comparison
of our Corporate Governance Rules and the Rules of the NYSE Applicable to U.S.
Companies
On
November 4, 2003, the SEC approved the final corporate governance rules of
the
NYSE. According to such rules, foreign private issuers are subject to a more
limited set of requirements regarding corporate governance than those imposed
on
U.S. domestic issuers. As a foreign private issuer, we must comply with four
rules imposed by the NYSE:
· |
prior
to July 31, 2005, we must comply with the requirements set forth
by the
SEC concerning audit committees;
|
· |
we
must submit an annual Written Affirmation to the NYSE and an Interrim
Written Annual Affirmation each time a change occurs in the Board
of
Directors or the Audit Committee.
|
· |
our
CEO must promptly notify the NYSE in writing after any executive
officer
becomes aware of any material non-compliance with any of the applicable
NYSE corporate governance rules;
and
|
· |
we
must provide a brief description disclosing any significant ways
in which
our corporate governance practices differ from those followed by
U.S.
companies under NYSE listing
standards.
|
A
brief
description disclosing the significant ways in which our corporate governance
practices differ from those followed by U.S. companies under NYSE listing
standards is available in our webpage www.bachoco.com.mx/english/inversionistas/corporate.asp.
ITEM
7.
|
Major
Stockholders and Related Party
Transactions
|
Before
September 2006, our Common Stock consisted of 450,000,000 Series B Shares
and
150,000,000 Series L Shares. Holders of Series B Shares were entitled to
one
vote at any general meeting of our stockholders for each Series B Share held.
Holders of Series L Shares were entitled to one vote for each Series L Share
held, but only with respect to certain matters. We had UBL units consisting
of
one Series B Share and one Series L Share and UBB units consisting of two
Series
B Shares.
During
the extraordinary meeting hold on April 26, 2006 Shareholders approved the
Company’s a plan to convert the Series L Shares into Series B Shares, with full
voting rights, as well as the dissolution of UBL and UBB units into their
components Shares.
This
process was completed in September 2006, and included two steps: separating
the
UBL and UBB units trading on the Mexican Exchange into their component Shares
and converting the Series L Shares into Series B Shares, thereby creating
a
single share class, the Series B Shares. These Shares are trading on the
Mexican
stock market. The ADS which trade on the NYSE still consist of twelve underlying
Shares, but they are all Series B Shares, with full voting rights.
In
April
1995, the Robinson Bours Stockholders created the Control Trust to hold certain
Units owned by members of the Robinson Bours family. The Robinson Bours
Stockholders, through the Control Trust and a separate trust established
in
connection with our 1997 initial public offering (the “Family
Trust”).
Before
September 2006, the Control Trust and the Family Trust was:
Title
of Class
|
|
Identity
of Group
|
|
Amount
Owned
|
|
Percent
of Class
|
|
|
|
|
|
|
|
|
|
Series
B(1)
|
|
|
Control
Trust and Family Trust
|
|
|
398,250,000
|
|
|
88.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Series
L(2)
|
|
|
Control
Trust and Family Trust
|
|
|
98,250,000
|
|
|
65.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
All
Classes(3)
|
|
|
Control
Trust and Family Trust
|
|
|
496,500,000
|
|
|
82.8
|
%
|
(1)
|
Percentage
is based on 450,000,000 Series B Shares, including 300,000,000
Shares not
registered under Section 12 of the Securities and Exchange Act
of
1934.
|
(2)
|
Percentage
is based on 150,000,000 Series L Shares.
|
(3) |
Percentage is based on 600,000,000
Shares. |
As
of
December 31, 2006 the Control Trust and the Family Trust owned 496,500,000
Shares outstanding, (82.75%), all Series B Shares.
Apart
from the ownership set forth above, at the end of March 2007, Fidelity Low
Priced Stock Fund and Fidelity Management & Research Co. each own 5.0% of
our Common Stock.
In
November 1998, in accordance with rules established by the CNBV, we established
a reserve in the amount of Ps.180.0 million (Ps.292.9 million in constant
pesos
as of December 31, 2006 purchasing power) for the repurchase of Shares. At
the end of 2006, the Company had repurchased zero Shares.
During
our stockholders’ meeting of April 25, 2007, we capped the share repurchase
program for 2007 to a maximum amount of Ps.321.6 million. As of May 24, 2007,
we
had repurchased zero Shares.
The
following table sets the percentages of the Shares held in México and in all
other countries as of December 31, 2006.
Year
|
|
Amount
Owned
|
|
México
|
|
|
85.2
|
%
|
Other
Countries
|
|
|
14.8
|
%
|
From
the
100% of the total Shares of the Company we accounted for approximately 45
shareholders in the NYSE and 81 in the BMV.
Interest
of Management in Certain Transactions
It
is our
policy not to engage in any transaction with or for the benefit of any
stockholder or member of the Board of Directors, or any entity controlled
by
such a person or in which such a person has a substantial economic interest,
unless (i) the transaction is related to our business and (ii) the price
and
other terms are at least as favorable to us as those that could be obtained
on
an arm’s-length basis from a third party.
We
have
engaged in a variety of transactions with entities owned by members of the
Robinson Bours family, all of which we believe were consistent with this
policy
and not material to our business and results of operations. All of these
transactions are described below. See Note 3 to the Consolidated Financial
Statements. We expect to engage in similar transactions in the
future.
We
regularly purchase vehicles and related equipment from distributors owned
by
various members of the Robinson Bours family. The total amount spent on such
purchases was Ps.40.6 million, Ps.56.4 million and Ps.61.1 million for the
years
ended December 31, 2004, 2005 and 2006, respectively. The distribution of
vehicles and related equipment is a highly competitive aspect of business
in the
areas in which we operate. We are not dependent on affiliated distributors
and
are able to ensure that the pricing and service we obtain from affiliated
distributors are competitive with those available from other
suppliers.
The
Robinson Bours Stockholders own Taxis Aéreos del Noroeste, S.A. de C.V. (“TAN”),
an air transport company that provides transportation for members of the
Board
of Directors to and from meetings at our headquarters in Celaya. We paid
TAN
Ps.2.9 million, Ps.4.5 million and Ps.4.0 million for the years ended December
31, 2004, 2005 and 2006, respectively, for such transportation.
We
purchased feed and packaging materials from enterprises owned by the family
of
Enrique Robinson Bours and the family of Juan Bautista Robinson Bours. The
cost
of such purchases was Ps.210.7 million, Ps.187.0 million and Ps.242.8 million
for the years ended December 31, 2004, 2005 and 2006, respectively.
Our
accounts payable to related parties totaled Ps.6.4 million and Ps.12.2 million
as of ended December 31, 2005 and 2006, respectively. These transactions
took
place among companies owned by the same set of stockholders. See Note 3 to
the
Consolidated Financial Statements.
Neither
we nor our subsidiaries have loaned any money to any of our directors or
officers, controlling shareholders or entities controlled by these
parties.
ITEM
8.
|
Financial
Information
|
Our
Consolidated Financial Statements are included in Item 18. The financial
statements were audited by an independent registered public accounting firm
and
are accompanied by an audit report.
The
financial statements include a consolidated balance sheet, consolidated
statements of income, consolidated statements of changes in stockholders’
equity, and consolidated statements of changes in financial position and
Notes
relating to the Consolidated Financial Statements.
The
Consolidated Financial Statements have been prepared in accordance with Mexican
GAAP, which differs in certain respects from U.S. GAAP. Note 17 to the
Consolidated Financial Statements provides a description of the principal
differences between Mexican GAAP and U.S. GAAP as they relate to us and a
reconciliation to U.S. GAAP of total stockholders’ equity, operating income and
net income, a consolidated statement of changes in stockholders’ equity and a
condensed cash flow statement under U.S. GAAP as of December 31, 2005 and
2006,
and for the years ended December 31, 2004, 2005 and 2006.
Legal
Proceedings
We
are a
party to certain legal proceedings in the ordinary course of our business.
We
believe that none of these proceedings, individually or in the aggregate,
is
likely to have a material adverse effect on us.
Dividends
Policy
Pursuant
to Mexican law and our bylaws, the declaration, amount and payment of annual
dividends are determined by a majority vote of the shareholders, generally
but
not necessarily on the recommendation of the Board of Directors.
We
declared and paid dividends in nominal pesos of Ps.238.9 million in 2004,
Ps.239.1 million in 2005 and Ps.353.9 million in 2006.
Although
there can be no assurance as to the amount or timing of future dividends,
we
expect to pay an annual dividend pro rata to holders of outstanding Shares
in an
amount up to approximately 20% of the prior year’s net income. The declaration
and payment of dividends will depend on our results of operations, financial
condition, cash requirements, future prospects and other factors deemed relevant
by the Board of Directors and the shareholders, including debt instruments
which
may limit our ability to pay dividends.
Because
we are a holding company with no significant operations of our own, we will
have
distributable profits and cash to pay dividends only to the extent that we
receive dividends from our subsidiaries, principally BSACV. Accordingly,
there
can be no assurance that we will pay dividends or of the amount of any such
dividends. BSACV, our principal operating subsidiary, could, in the future,
enter into loan agreements containing covenants whose terms limit its ability
to
pay dividends under certain circumstances.
Mexican
law requires that 5% of our net income each year (after profit sharing and
other
deductions required by Mexican law) be allocated to a legal reserve fund
until
such fund reaches an amount equal to at least 20% of our capital stock. Mexican
corporations may pay dividends only out of earnings (including retained earnings
after all losses have been absorbed or paid up) and only after such allocation
to the legal reserve fund. The level of earnings available for the payment
of
dividends is determined under Mexican GAAP.
Significant
Changes in Accounting Practices
Treatment
of biological assets
On
January 1, 2003, the Company adopted the requirements of the new Bulletin
E-1
under Mexican GAAP. The Bulletin changes the way biological assets, including
animals like chicken and swine, are treated under Mexican GAAP. Starting
in
January 2003, changes in the fair market value of these assets must be included
as a potential profit in a company’s financial statements before they are
harvested. We have to estimate the potential profit for these animals at
a
reasonable market price minus expected costs and operating expenses. That
estimate may be higher or lower than the actual profits realized. The effect
of
Bulletin E-1 may be positive or negative for any particular period, depending
on
the price and inventories of animals in that period. For a more detailed
description please see Note 2-i and Note 4 to our Consolidated Financial
Statements.
Business
acquisitions
Goodwill
represents the difference between the purchase price and the fair value of
the
net assets acquired at the purchase date.
On
January 1, 2005, we adopted the requirements of Mexican accounting bulletin
B-7,
Business Acquisitions, issued by the Mexican Institute of Public Accountants.
The Company has valued all of its business acquisitions using the purchase
method and, since 2005, no longer amortizes its goodwill. Through December
31,
2004, goodwill was being amortized using the straight-line method over a
twenty-year period. See Note 2-l to our Consolidated Financial
Statements.
Financial
instruments
In
order
to reduce our financial risks, we use derivative financial instruments as
hedges
against certain risks. As of January 1, 2005, due to the adoption of Mexican
accounting bulletin C-10, “Accounting for Derivative Instruments and Hedging
Activities”, issued by the IMCP in April 2004, we modified its accounting
policies for valuing and recognizing these instruments.
The
derivatives are recognized in conformity with the regulations established
in
Mexican accounting bulletin C-10 (Mexican GAAP) and Statement of Financial
Accounting Standard (SFAS) 133, “Accounting for Derivative Instruments and
Hedging Activities”, and its related interpretations (US GAAP).
We
entered into the following agreements involving derivative financial
instruments:
|
a)
|
Options,
that are derivatives that give the buyer the right, albeit not
the
obligation, to buy or sell an asset (in this case dollars) at an
established exercise price, known as the strike price, at a defined
date
in exchange for the payment of a
premium
|
|
b)
|
Futures,
that are contracts that obligate two entities to exchange an asset
or
value (in this case grain) at a future date for a pre-established
and
agreed quantity, quality and price.
|
The
effectiveness of our hedges is determined at the time the derivatives are
designated as hedges and is assessed on a regular basis. An instrument is
considered highly effective when the changes in the primary position cash
flow
are offset on a period-by-period or cumulative basis by a range of between
80%
and 125%.
In
conformity with bulletin C-10 and SFAS 133, paragraph 30, the effective portion
of a loss or gain on a cash flow hedge is recorded in comprehensive income
net
of related income taxes (stockholders’ equity) while the ineffective portion is
recorded in results of operations.
Also,
in
conformity with SFAS 133, we followed G-20, as a supplement to FRS, in regards
to the measurement of effectiveness, “Cash flow hedges: assessing and measuring
the effectiveness of a purchased option used in a cash flow hedge”
See
Note
2 q to our audited financial statements.
Labor
obligations
In
January 2004, the Mexican Institute issued the revised accounting Bulletin
D-3,
Labor
Obligations.
The
revised Bulletin establishes the overall rules for the valuation, presentation
and disclosure of so-called “other post-retirement benefits and the reduction
and early extinguishment of such benefits,” thus nullifying the provisions of
Circular 50. Bulletin D-3 also provides rules applicable to employee termination
pay. The observance of these new rules is mandatory for fiscal years beginning
on or after January 1, 2005. See Note 2-o to our audited financial
statements.
New
Accounting pronouncements
On
December 22, 2006, the issuing council of the Mexican Financial Reporting
Standards Research and Development Board (Consejo Mexicano para la Investigación
y Desarrollo de Normas de Información Financiera, A.C. or CINIF) issued
Financial Reporting Standard (FRS) B-3, Statements of Operations; FRS B-13,
Subsequent Events; FRS C-13, Related Parties, and FRS D-6, Capitalization
of the
Comprehensive Cost of Financing, each of which come into force in the year
beginning on January 1, 2007. For a detailed discussion see note 16 in our
audited financial statements.
ITEM
9.
|
The
Offer and Listing
|
On
September 19, 1997, Bachoco commenced trading on the Mexican Stock Exchange
through Units (each comprised of one Series B Share and one Series L Share),and
on the New York Stock Exchange thought American Depositary Shares (“ADSs,” each
comprised of six Units). The ADSs are evidenced by American Depositary Receipts
(“ADRs”) issued
by
The Bank of New York, as Depositary under a Deposit Agreement among the Company,
the Depositary and the holders from time to time of ADRs.
In
September 2006, the Company separated the UBL and UBB units into their
components, and converted their Series L Shares into Series B Shares, on
a one
to one basis. Consequently, now all our Common Stock Shares are Series B
Shares
with full voting rights. This change had not modified the face value of the
Shares.
On
December 31, 2006, there were 7,413,497 ADSs outstanding, representing 14.8%
of
the total Shares outstanding, which were held by five holders (including
the
Depositary Trust Company) with registered addresses in the United
States.
The
following tables set forth for each year from 2002 to 2006, for each quarter
from 2005 and 2006 and for each complete month from December 2006 to May
2007,
the high, low and period and close prices of the Shares on the Mexican Stock
as
reported by the Mexican Stock Exchange and the high, low and close price
of the
ADSs on the NYSE as reported by the New York Stock Exchange.
Mexican
Stock Exchange
(Nominal
pesos per Share)
|
|
Year
|
|
High
|
|
Low
|
|
Close
|
|
2002
|
|
|
8.00
|
|
|
5.49
|
|
|
7.25
|
|
2003
|
|
|
9.65
|
|
|
7.00
|
|
|
9.45
|
|
2004
|
|
|
13.35
|
|
|
8.50
|
|
|
13.10
|
|
2005
|
|
|
20.70
|
|
|
12.22
|
|
|
17.25
|
|
2006
|
|
|
23.70
|
|
|
15.70
|
|
|
23.66
|
|
New
York Stock Exchange
(U.S.$
per ADS)
|
|
Year
|
|
High
|
|
Low
|
|
Close
|
|
2002
|
|
|
10.00
|
|
|
7.15
|
|
|
8.52
|
|
2003
|
|
|
10.78
|
|
|
7.73
|
|
|
10.45
|
|
2004
|
|
|
14.19
|
|
|
8.8
|
|
|
14.19
|
|
2005
|
|
|
23.02
|
|
|
12.87
|
|
|
19.50
|
|
2006
|
|
|
29.00
|
|
|
16.33
|
|
|
29.00
|
|
Mexican
Stock Exchange
(Nominal
pesos per Share)
|
|
Period
|
|
High
|
|
Low
|
|
Close
|
|
First
Quarter 2005
|
|
|
14.00
|
|
|
12.22
|
|
|
13.5
|
|
Second
Quarter 2005
|
|
|
14.80
|
|
|
13.50
|
|
|
14.76
|
|
Third
Quarter 2005
|
|
|
20.70
|
|
|
14.75
|
|
|
19.77
|
|
Fourth
Quarter 2005
|
|
|
19.74
|
|
|
15.95
|
|
|
17.25
|
|
First
Quarter 2006
|
|
|
17.25
|
|
|
15.70
|
|
|
15.95
|
|
Second
Quarter 2006
|
|
|
19.10
|
|
|
15.85
|
|
|
18.50
|
|
Third
Quarter 2006
|
|
|
20.00
|
|
|
16.90
|
|
|
20.00
|
|
Fourth
Quarter 2006
|
|
|
23.66
|
|
|
18.70
|
|
|
23.66
|
|
New
York Stock Exchange
(U.S.$
per ADS)
|
|
Period
|
|
High
|
|
Low
|
|
Close
|
|
First
Quarter 2005
|
|
|
15.25
|
|
|
12.87
|
|
|
14.70
|
|
Second
Quarter 2005
|
|
|
16.53
|
|
|
14.51
|
|
|
16.50
|
|
Third
Quarter 2005
|
|
|
23.00
|
|
|
16.57
|
|
|
21.69
|
|
Fourth
Quarter 2005
|
|
|
21.85
|
|
|
17.14
|
|
|
19.50
|
|
First
Quarter 2006
|
|
|
19.58
|
|
|
16.33
|
|
|
17.43
|
|
Second
Quarter 2006
|
|
|
20.90
|
|
|
17.30
|
|
|
18.29
|
|
Third
Quarter 2006
|
|
|
22.45
|
|
|
17.97
|
|
|
22.25
|
|
Fourth
Quarter 2006
|
|
|
29.00
|
|
|
20.65
|
|
|
29.00
|
|
Mexican
Stock Exchange
(Nominal
pesos per Share)
|
|
Month
|
|
High
|
|
Low
|
|
Close
|
|
December
2006
|
|
|
23.66
|
|
|
20.00
|
|
|
23.66
|
|
January
2007
|
|
|
24.16
|
|
|
22.80
|
|
|
24.16
|
|
February
2007
|
|
|
28.00
|
|
|
23.97
|
|
|
26.80
|
|
March
2007
|
|
|
27.24
|
|
|
25.80
|
|
|
26.80
|
|
April
2007
|
|
|
27.95
|
|
|
26.50
|
|
|
27.95
|
|
May
2007
|
|
|
28.76
|
|
|
27.63
|
|
|
28.49
|
|
New
York Stock Exchange
(U.S.$
per ADS)
|
|
Period
|
|
High
|
|
Low
|
|
Close
|
|
December
2006
|
|
|
29.00
|
|
|
21.82
|
|
|
29.00
|
|
January
2007
|
|
|
27.05
|
|
|
25.95
|
|
|
26.33
|
|
February
2007
|
|
|
30.75
|
|
|
26.55
|
|
|
28.80
|
|
March
2007
|
|
|
29.64
|
|
|
26.77
|
|
|
28.99
|
|
April
2007
|
|
|
30.70
|
|
|
28.51
|
|
|
30.68
|
|
May
2007
|
|
|
32.24
|
|
|
30.06
|
|
|
32.24
|
|
Trading
on the Mexican Stock Exchange
The
Mexican Stock Exchange, located in México City, is the only stock exchange in
México. Founded in 1894, the Mexican Stock Exchange is organized as a
corporation whose Shares are held by brokerage houses, which are currently
the
only entities allowed to own them. These brokerage houses are currently the
only
entities authorized to trade on the floor of the Mexican Stock Exchange.
Trading
on the Mexican Stock Exchange takes place principally through an automated
inter-dealer quotation system known as SENTRA, which is open for trading
between
the hours of 8:30 a.m. and 3:00 p.m., México City time, each business day. Each
trading day is divided into six trading sessions with ten-minute periods
separating each session. Trades in securities listed on the Mexican Stock
Exchange can, subject to certain requirements, also be realized off the
Exchange. Due primarily to Mexican tax considerations, however, most
transactions in listed securities are effected through the Exchange. The
Mexican
Stock Exchange operates a system of automatic suspension of trading in Shares
of
a particular issuer as a means of controlling excessive price volatility,
but
under current regulations this system does not apply to securities such as
the
Units that are directly or indirectly (for example, through ADSs) quoted
on a
stock exchange outside México.
Settlement
is effected two business days after a share transaction on the Mexican Stock
Exchange. Deferred settlement, even by mutual agreement, is not permitted
without the approval of the CNBV. Most securities traded on the Mexican Stock
Exchange are on deposit with S.D.
Indeval Institución para el Depósito de Valores, S.A. de C.V., (Central
Securities Depository for the Mexican Securities Market, or “Indeval”), a
privately owned central securities depositary that acts as a clearing house,
depositary, custodian and registrar for Mexican Stock Exchange transactions,
eliminating the need for physical transfer of securities.
The
Mexican Stock Exchange is one of Latin America’s largest exchanges in terms of
market capitalization, but it remains relatively small and illiquid compared
to
major world markets, and is therefore subject to greater volatility. There
is no
formal over-the-counter market for securities in México.
The
market value of securities of Mexican companies is, to varying degrees, affected
by economic and market conditions in other emerging market
countries.
Market
Regulation
The
predecessor of the CNBV was established in 1946 to regulate stock market
activity. The Ley
del Mercado de Valores
(“Securities Market Law”) of 1975, as amended, regulates the securities markets
and brokerage houses and sets standards for the registration of brokers in
the
Intermediaries Section of the Registro
Nacional de Valores e Intermediarios
(National Registry of Securities and Intermediaries, or “RNVI”), such
registration being a prerequisite to becoming a member of the Mexican Stock
Exchange. Prior
to
registration in the RNVI, a brokerage house must be authorized by the Ministry
of Finance upon the recommendation of the CNBV. Legislative provisions under
NAFTA allow foreign securities firms in a NAFTA country to establish and
control
brokerage firms in México. There are several foreign brokerage houses authorized
to operate in México. In addition, a number of other foreign brokerage firms
have submitted preliminary applications to be authorized to operate on the
Mexican Stock Exchange. The Securities Market Law also empowers the CNBV
to
regulate the public offering and trading of securities. The governing committee
of the CNBV is composed of representatives of the Ministry of Finance, the
Mexican Central Bank, the
Comisión Nacional de Seguros y Fianzas
(“National Insurance and Bonding Commission”), the Comisión
Nacional del Sistema de Ahorro para el Retiro
(“National Retirement Savings Fund Commission”) and the CNBV.
Under
the
Mexican Securities Market Law, the CNBV must be notified before stockholders
of
a company listed on the Mexican Stock Exchange effect one or more simultaneous
or successive transactions resulting in the transfer of 10% or more of such
company’s capital stock. The holders of the Shares being transferred in the
transactions are also obligated to inform the CNBV of the results of the
transactions within three days of completion of the last transaction, or
that
the transactions have not been completed. The CNBV will notify the Mexican
Stock
Exchange of such transactions, without specifying the names of the parties
involved.
The
CNBV
and the Mexican Stock Exchange must also be notified in the event of any
of the
following contingencies:
|
·
|
on
the following day of operation if any stockholder of a company
listed on
the Mexican Stock Exchange effects one or more transactions resulting
in
the ownership of more than 10% and less of 30% of capital
stock;
|
|
·
|
on
the following day of operation if any Related Person increases
his
ownership of the stock of a company;
and
|
|
·
|
at
least 15 days before the operation becomes effective if any stockholder
of
a company listed on the Mexican Stock Exchange undertakes in a
Public
Offering one or more transactions resulting in the ownership of
more than
30% but less than 50% of capital
stock.
|
In
June
2006, the
Ley del Mercado de Valores
(“Securities Market Law”) was updated. Our bylaws were also updated accordingly,
which are available in an English version, in our web page.
Some
of
the changes, among others are:
a) We
had to
change our name from “Industrias Bachoco S.A. de C.V.” to “Industrias Bachoco,
S.A.B. de C.V.”
b) Defines
more specifically the concept of “Control” or “Controlled”
c) Define
and assigns specific duties to the General Director or CEO.
d) Define
more precisely and wide the duties of the Board of Directors.
e) Assign
more ample responsibilities to the audit committee.
f) The
Statutory Auditor no longer exists for Public Companies, his duties were
assumed
by the Audit Committee.
ITEM
10.
|
Additional
Information
|
Memorandum
and Articles of Association
Information
regarding the memorandum and articles of association was included in the
Initial
Registration Form F-1, submitted in September 1997. In April 2002, we made
changes to our bylaws, which were reported in our annual report for year
2002.
In December 2003 and January 2007 we made further changes, the most important
are summarized below, (English version of our bylaws is also available on
our
web page www.bachoco.com.mx).
Aside
from these changes, the information contained in the Initial Registration
Form
F-1 is applicable to this Annual Report.
The
discussion set forth below contains information concerning our capital stock
and
a brief summary of the material provisions of the bylaws and applicable Mexican
law. This summary does not purport to be complete and is qualified in its
entirety by reference to the bylaws and the applicable provisions of Mexican
law.
General
The
Company was incorporated on April 17, 1980 as a variable capital corporation
(sociedad anónima de capital variable) under the laws of México. To fully comply
with Mexican laws, the Company modified its name to Industrias Bachoco, S.A.B.
de C.V. (sociedad anónima bursatil de capital variable) in April,
2007.
In
1995,
our stockholders authorized the issuance of up to 15,525,000 additional Series
B
Shares and 15,525,000 additional Series L Shares, all constituting fixed
capital, to be issued in connection with the global offering of Shares that
took
place on September 19, 1997 (the “Global Offering”).
On
April
21, 1997 we restructured our capital by (i) declaring a four-to-one stock
split
of the 106,678,125 Series B Shares and 35,559,375 Series L Shares outstanding,
(ii) converting 7,762,500 Series L Shares (on a post-split basis) into Series
B
Shares and (iii) combining all of the 434,475,000 Series B Shares and
134,475,000 Series L Shares outstanding (in each case, on a post-split basis)
into 134,475,000 Units and 150,000,000 B Units. Each Unit consisted of one
Series B Share and one Series L Share. Holders of Units were entitled to
exercise all the rights of holders of the Series B Shares and Series L Shares
underlying their Units. Each B Unit consisted of two Series B Shares. B Units
entitle the holders thereof to exercise all the rights of holders of the
Series
B Shares underlying such B Units. Immediately prior to the Global Offering,
our
outstanding capital stock consisted of 434,475,000 Series B Shares and
134,475,000 Series L Shares, all of which were duly authorized, validly issued
and are fully paid and non-assessable.
Originally
for a period of 10 years after the Global Offering, the Series B Shares will
be
issuable only in the form of Units and B Units, and the Series L Shares only
in
the form of Units. Commencing 10 years from the date of the Global Offering,
Units will automatically separate into their component Series B Shares and
Series L Shares, B Units will automatically separate into their component
Series
B Shares, and each Series L Share underlying the Units will automatically
convert into one Series B Share.
During
the annual shareholders meeting held on April 26, 2006, shareholders approved
to
proceed with the anticipated conversion of the Series L Shares into Series
B
Shares, which have full voting rights.
This
conversion was effective in September 2006 and included two steps: separating
the UBL and UBB units currently trading on the Mexican Stock Exchange into
their
component Shares. The Series L Shares were converted into Series B Shares
(on a
one-to-one basis), thereby created a single share class, the Series B Shares,
which represents all of our Common Stock. These Shares are currently trading
on
the Mexican Stock Market. Each ADS still consist of 12 underlying Shares,
but
they are all be Series B Shares.
The
Series B Shares had full voting rights and the Series L Shares had limited
voting rights. Nevertheless the Series B Shares and the Series L Shares had
the
same economic rights. Each Series B Share entitled the holder thereof to
one
vote at any general meeting of the stockholders. The Series L Shares were
entitled to vote only with respect to certain limited matters as described
under
“—Voting Rights and Stockholders’ Meetings.”
The
Robinson Bours Stockholders have advised us that they intend to ensure that
the
Control Trust will hold at least 51% of the Series B Shares at any time
outstanding. See “—Foreign Investment Legislation.”
Registration
and Transfer
Shares
B
are evidenced by certificates in registered form, which may have dividend
coupons attached. We maintain a registry and, in accordance with Mexican
law, we
recognize as stockholders only those holders listed in the stock registry.
Stockholders may hold their Shares in the form of physical certificates (which,
together with notations made in our stock registry, evidence ownership of
the
Shares) or through book entries with institutions that have accounts with
Indeval.
Indeval
is the holder of record in respect of Shares held through it. Accounts may
be
maintained at Indeval by brokerage houses, banks and other entities approved
by
the CNBV. Ownership of Shares maintained at Indeval is evidenced through
Indeval’s records and through lists kept by Indeval participants. See
“Description of American Depositary Receipts.”
In
accordance with Article 130 of the Ley
General de Sociedades Mercantiles (“Mexican
Companies Law”), the Board of Directors must authorize any transfer of stock, or
any securities based on such stock, when the number of Shares sought to be
transferred in one act or a succession of acts, without limit of time or
from
one group of interrelated stockholders or stockholders who act in concert,
constitutes 10% or more of the voting stock issued by the Company. If the
Board
of Directors refuses to authorize such a transfer, the board must designate
one
or more purchasers of the stock, who must pay the interested party the
prevailing price on the Mexican Stock Exchange. The Board must issue its
resolution within three months of the date on which it receives the relevant
request for authorization and in any case, must consider: (i) the criteria
that
are in the best interests of the Company, the Company’s operations and the
long-term vision of the activities of the Company and its Subsidiaries; (ii)
that no shareholder of the Company is excluded, other than the person that
intends to acquire control of the financial benefits that may result from
the
application of the terms of this clause; (iii) that the taking of the Control
of
the Company is not restricted in an absolute manner; (iv) that the provisions
of
the Securities Market Law, with respect to acquisition public offerings,
are not
contravened; and (v) that the exercise of the patrimonial rights of the acquirer
are not rendered without effect..
If
any
person participates in a transaction that would have resulted in the acquisition
of 10% or more voting stock of the Company without having obtained the board’s
prior approval, they must pay the Company a fine equal to the market value
of
the Shares.
Any
person who participates in an act that violate the terms of Article 130
discussed in the preceding paragraph will be obligated to pay the Company
a fine
in an amount equal to the value of the Shares owned directly or indirectly
by
the stockholder, or the value of the Shares involved in the prohibited
transaction, if such person does not own Shares issued by the Company. In
the
case of a prohibited transaction that would have resulted in the acquisition
of
10% or more of the voting stock of the Company, the fine will be equal to
the
market value of those Shares, provided that board authorization was not obtained
in advance.
According
to our bylaws, a majority of the members of the Board of Directors must
authorize in writing, by a resolution made at a Board of Directors’ meeting, any
change in the control of the Company. Our Board of Directors has the right
to
decide if a person or a group of persons is acting for the purpose of acquiring
control of the Company.
“Control”
or “Controlled” means (i) to directly or indirectly impose decisions at the
general meetings of shareholders, stockholders or equivalent bodies or to
appoint or remove the majority of the directors, managers or equivalent
officers; (ii) to hold title to the rights that directly or indirectly allow
the
exercise of votes with respect to more than fifty percent of the capital
stock;
or (iii) to directly or indirectly direct the management, the strategy or
the
principal policies of the Company, whether through the ownership of securities,
by contract or otherwise.
Voting
Rights and Stockholders’ Meetings
Each
Series B Share entitles the holder thereof to one vote at any general meeting
of
the stockholders. Holders are currently entitled to elect all members of
the
Board of Directors.
Our
bylaws provide that the Board of Directors shall consist of at least five
members and no more than twenty one. Our board was reformed during our ordinary
shareholders meeting held on April 25, 2007, and now consists of eight
proprietary shareholder Directors and two independent Directors. The
stockholders also appointed four alternate Shareholders Directors to the
Board
of Directors.
General
stockholders’ meetings may be ordinary or extraordinary meetings. Extraordinary
general meetings are meetings called to consider the matters specified in
Article 182 of the Mexican Companies Law and the bylaws, including
changes in the fixed portion of the capital stock and other amendments to
the
bylaws, liquidation, merger, transformation from one type of corporate form
to
another, change in nationality and changes of corporate purposes.
General
meetings called to consider all other matters, including election of the
directors, are ordinary meetings. An ordinary general meeting of the Company
must be held at least annually during the four months following the end of
the
preceding fiscal year to consider certain matters specified in Article 181
and
182 of the Mexican Companies Law, including, principally, the election of
directors, the approval of the report of the Board of Directors regarding
their
company’s performance, the company’s financial statements for the preceding
fiscal year and the allocation of the profits and losses of the preceding
year,
and to approve the transactions that the Company or the entities that the
Company controls intend to carry out, in terms of article 47 of the Securities
Market Law, in one fiscal year, when such transactions represent 20% (twenty
percent) or more of the consolidated assets of the Company, based on the
figures
corresponding to the closing of the immediately preceding quarter, independently
of the manner in which such transactions are carried out, whether simultaneously
or successively, but which due to their characteristics, may be considered
as a
single transaction. Holders of Shares, may vote at such Meetings.
Before
September 2006, any holder of Series L Shares representing 10% or more of
the
outstanding capital stock had the right to appoint one member and one alternate
member of the Board of Directors during a Shareholders meeting.
Under
our
bylaws, the quorum on first call for a general ordinary meeting is at least
50%.
If a quorum is not available on first call, a second meeting may be called
at
which action may be taken by a majority of those present, regardless of the
number of Shares represented at the meeting. On a second call, Ordinary General
Shareholders’ Meetings will be considered validly held regardless of the number
of common or ordinary Shares represented therein and the resolutions of such
Meetings will be valid when passed by majority vote of the Common Stock
therein.
The
quorum on first call for a general extraordinary meeting or a special meeting
is
75% of the outstanding Shares with voting rights on the matters to be addressed
in that meeting. If a quorum is not available on first call, a second meeting
may be called, provided that at least 50% of the outstanding Shares with
voting
rights on the matters to be addressed in that meeting are
represented.
Our
bylaws require
the approval of holders of at least 95% of the outstanding Shares and the
approval of the CNBV for the amendment of the controlling stockholders’
obligation under the bylaws to
repurchase Shares and certain other provisions in the event of delisting.
See
“—Other Provisions—Repurchase in the Event of Delisting.”
For
more
detail see our bylaws on our webpage at www.bachoco.com.mx
Holders
of ADRs are entitled to instruct the Depositary as to the exercise of the
voting
rights. See “Description of American Depositary Receipts—Voting of Deposited
Securities.”
According
to our bylaws, stockholders with a right to vote may ask to postpone a vote
on
any matters on which they believe they do not have enough information as
defined
by Article 199 of the Mexican Companies Law. Stockholders with a right to
vote,
including a limited right to vote, and who hold at least 20% of the capital
stock, may legally object to the decisions of a general
stockholders’ meeting,
with respect to matters in which they have rights, without
the percentage established under article 201 of the General Law of Business
Entities being applicable in such case.
Moreover,
holders of Shares having voting rights, including limited or restricted voting
rights or holders of Shares without voting rights that jointly or individually
represent 5% (five percent) or more of the capital stock, may directly exercise
the action of liability against the members and secretary of the Board of
Directors, as well as against the relevant directors or executive officers.
The
exercise of such action will not be subject to the compliance with the
requirements set forth under articles 161 and 163 of the General Law of Business
Entities.
The
Board
of Directors, or its President or Secretary or the judicial authority, as
applicable, must issue notices of calls of Shareholders’ Meetings. In addition,
shareholders that jointly or separately represent at least 10% (ten percent)
of
the capital of the Company, may request the President of the Board of Directors
or the President of the Audit Committee to call a General Shareholder’s Meeting,
without the percentage indicated under article 184 of the General Law of
Business Entities being applicable for such purpose. If the notice of meeting
is
not issued within fifteen days after the date of the corresponding request,
a
Civil or District Judge of the Company’s domicile will issue such notice at the
request of the interested parties that represent the requesting 10% (ten
percent) of the capital, who must present their stock certificates for such
purpose.
At
least
15 days prior to the meeting, notice of the meeting must be published in
the
Diario Oficial de la Federación (“Official Gazette”) or in a newspaper of
general circulation in México City. Stockholders’ meetings may be held without
such publication provided that 100.0% of the outstanding Shares with voting
rights on the matters to be addressed by such meeting are
represented.
From
the
moment that a call for a stockholders’ meeting is made public, all the
information related to the meeting must be available to the stockholders.
In
order to attend a stockholders’ meeting, a stockholder must request and obtain
an admission card by furnishing, at least 24 hours before the time set for
holding the stockholders’ meeting, appropriate evidence of ownership of Shares
in us and depositing such Shares with our corporate secretary or with an
institution authorized to accept such deposit. If so entitled to attend the
meeting, a stockholder may be represented by proxy signed before two witnesses.
Additionally, the stockholder may be represented at the stockholders’ meetings
by a person named by proxy, on a printed form that we issue, which, under
Mexican law, must identify our Company and indicate clearly the matters to
be
addressed in the meeting, with enough space for the instructions that the
stockholder specifies. We are obliged to make information on the upcoming
meeting available to the intermediaries in the stock market, for the time
specified in Article 173 of the Mexican Law, in order to give the intermediaries
time to send it to the stockholders they represent. The Secretary of the
Board
of Directors must verify that this requirement is met and report on this
matter
at the stockholders’ meeting. See “—Registration and Transfer.”
Members
of the Board
Under
the
Mexican Companies Law, a Board of Directors must conform to the following
requirements:
|
(i) |
The
Board of Directors will be integrated by a minimum of 5 (five)
and a
maximum of 21 (twenty-one) principal
members.
|
|
(ii) |
At
least 25% (twenty-five percent) of the members of the Board of
Directors
must be independent, in accordance with the terms of article 24
of the
Securities Market Law.
|
|
(iii) |
For
each principal member, a substitute will be appointed, in the
understanding that the substitutes of independent Board members
must also
be independent.
|
Apart
from satisfying all of the requirements mentioned above, failure to meet
these
standards for any reason will not constitute grounds for judicial action
challenging any act, contract, or agreement undertaken by the board, an
intermediate committee or other delegated authority. Furthermore, such standards
will not be mandatory for the validity or existence of such acts.
The
Board
of Directors must meet at least every three months at our address or any
other
place in México and on the dates that the board determines. Meetings previously
scheduled in accordance with a schedule pre-approved by the board do not
need to
be called. Meetings must be called by at least 25% of the members of the
Board
of Directors, the Chairman of the Board of Directors, the Vice-Chairman of
the
Board of Directors, the Secretary the alternate Secretary of the board or
the
President of the Audit Committee. Members of the board must be notified via
e-mail or in writing at least five calendar days in advance of a meeting.
.
Statutory
Auditor
According
with the Mexican market law, the Statutory Auditor is not required for public
companies since June 2006. The activities of the Statutory Auditor will be
performed by the Audit Committee.
Dividend
and Distributions
At
the
annual ordinary general stockholders’ meeting, the Board of Directors submits
our financial statements for the previous fiscal year, together with a report
thereon by the board, to the holders of Series B Shares for their consideration.
The holders of Series B Shares, once they have approved the financial
statements, determine the allocation of our net profits, if any, for the
preceding year. They are required by law to allocate 5% of such net profits
to a
legal reserve, which is not thereafter available for distribution until the
amount of the legal reserve equals 20% of our historical capital stock (before
giving effect to the restatement thereof in constant pesos). As of December
31,
2006, our legal reserve fund was equal to at least 20% of our paid-in capital
stock. Amounts in excess of those allocated to the legal reserve fund may
be
allocated to other reserve funds as the stockholders determine, including
a
reserve for the repurchase of our Shares. The remaining balance of net profits,
if any, is available for distribution as dividends. No dividends may be paid,
however, unless losses for prior fiscal years have been paid or
absorbed.
Holders
of Series B Shares and, accordingly, holders of ADSs will have equal rights,
on
a per Share basis, to dividends and other distributions, including any
distributions we make upon liquidation. Partially paid Units or Shares
participate in any distribution to the extent that such Units or Shares have
been paid at the time of the distribution or, if not paid, only with respect
to
the proportion paid.
Changes
in Capital Stock
An
increase of capital stock may generally be affected through the issuance
of new
Units or Shares for payment in cash or in kind, by capitalization of
indebtedness or by capitalization of certain items of stockholders’ equity. An
increase of capital stock generally may not be realized until all previously
issued and subscribed Units or Shares of capital stock have been fully paid.
Generally, a reduction of capital stock may be effected to absorb losses,
to
redeem Units or Shares, or to release stockholders from payments not made.
A
reduction of capital stock to redeem Units or Shares is effected by reimbursing
holders of Units or Shares pro rata or by lot. Stockholders may also approve
the
redemption of fully paid Units or Shares with retained earnings. Such redemption
would be affected by a repurchase of Units or Shares on the Mexican Stock
Exchange (in the case of Units or Shares listed thereon) and would be subject
to
the limitation that the Series L Shares may not at any time represent more
than
25% of our capital stock.
Except
under limited circumstances, the bylaws require
that any capital increase affected pursuant to a capital contribution be
represented by new Series B Shares.
The
fixed
portion of our capital stock may only be increased or decreased by resolution
of
a general extraordinary meeting and an amendment to the bylaws, whereas the
variable portion of our capital stock may be increased or decreased by
resolution of a general ordinary meeting. See “Other Provisions—Fixed and
Variable Capital.”
No
resolution by the stockholders is required for decreases in capital stock
resulting from exercise of our right to withdraw variable Shares or from
our
repurchase of our own Shares or for increases in capital stock resulting
from
our sale of Shares we previously purchased. See “Other Provisions—Purchase by
the Company of its Shares” and “Other Provisions—Appraisal Rights.”
Preemptive
Rights
Except
in
certain limited circumstances, in the event of a capital increase through
the
issuance of new Shares for payment in cash or in kind, a holder of existing
Shares of a given Series at the time of the capital increase has a preferential
right to subscribe for a sufficient number of new Shares of the same Series
to
maintain the holder’s existing proportionate holdings of Shares of that Series
or, in the event of a capital increase through the issuance of limited-voting
or
non-voting stock only, to subscribe for a sufficient number of the Shares
to be
issued to maintain the holder’s existing proportionate holdings of our capital
stock. Preemptive rights must be exercised within 15 days following the
publication of notice of the capital increase in the Diario
Oficial de la Federación (Official
Gazette) or
following the date of the stockholders’ meeting at which the capital increase
was approved if all stockholders were represented at such meeting; otherwise,
such rights will lapse. Under Mexican law, preemptive rights cannot be waived
in
advance by a stockholder, except under limited circumstances, and cannot
be
represented by an instrument that is negotiable separately from the
corresponding share. The Robinson Bours Stockholders, including the Selling
Stockholders, have waived all preemptive rights with respect to the Series
B
Shares and Series L Shares comprised in the Units underlying the ADSs being
offered in the Global Offering. Holders of ADRs that are U.S. citizens or
are
located in the United States may be restricted in their ability to participate
in the exercise of preemptive rights. See “Description of American Depositary
Receipts—Dividends, Other Distributions and Rights.”
Foreign
Investment Legislation
Ownership
by foreigners of Shares of Mexican companies is regulated by the Ley
de Inversión Extranjera
(“Foreign Investment Law”) and by the Reglamento
de la Ley para Promover la Inversión Mexicana y Regular la Inversión Extranjera
(“Foreign
Investment Regulations”). The Ministry of Commerce and Industrial Development
and the Foreign Investment Commission are responsible for the administration
of
the Foreign Investment Law.
The
Foreign Investment Law reserves certain economic activities exclusively for
the
Mexican state and certain other activities exclusively for Mexican individuals
or Mexican corporations, and limits the participation of foreign investors
to
certain percentages in regard to enterprises engaged in activities specified
therein. Foreign investors may own up to 100% of the capital stock of Mexican
companies or entities, except for companies (i) engaged in reserved activities
as referred to above or (ii) with assets exceeding an amount to be established
annually by the Foreign Investment Commission, in which case an approval
from
the Foreign Investment Commission will be necessary in order for foreign
investment to exceed 49% of the capital stock. Mexican and non-Mexican nationals
will be entitled to hold and to exercise the rights of a holder of the Units,
the Series B Shares and the Series L Shares. The Robinson Bours Stockholders
have advised us that they intend to maintain a control position directly
in the
form of B Units. Pursuant to our bylaws,
foreigners may only own Series B Shares up to 49% of such series.
Other
Provisions
Fixed
and Variable Capital. As
a
sociedad
anónima de capital variable,
we are
permitted to issue Shares constituting fixed capital and Shares constituting
variable capital. The issuance of variable capital Shares, unlike the issuance
of fixed capital Shares, does not require an amendment of the bylaws, although
it does require approval at a general ordinary stockholders’
meeting.
In
no
case may the capital of the Company be decreased to less than the minimum
required by law and any decrease in the capital must be registered in the
Capital Variations Book that the Company will keep for such purpose.
Repurchase
in the Event of Delisting.
In the
event of cancellation of the registration of the Company’s Shares in such
Registry, whether at the request of the Company or by a resolution of the
National Securities and Banking Commission under applicable law, the Company
agrees to make a public offering for the acquisition of the total number
of the
Shares registered prior to the cancellation. The Company must contribute
to a
trust for at least six months, the necessary resources to purchase at the
same
price of the public offering, the Shares of the investors that did not attend
or
did not accept such offer, in case that after the public offering for purchase
has been made and prior to the cancellation of the registration of the Shares
that represent the capital stock of the Company or of other securities issued
based on such Shares in the National Securities Registry, the Company has
been
unable to acquire 100% (one hundred percent) of the paid in capital stock.
Forfeiture
of Shares. As
required by Mexican law, our bylaws provide
that our current and future foreign stockholders are formally bound to the
Mexican Secretaría
de Relaciones Exteriores (“Ministry
of Foreign Relations”) to consider themselves as Mexican nationals with respect
to our Shares that they may acquire or of which they may be owners, and with
respect to the property, rights, concessions, participations or interests
that
we may own or rights and obligations that are based on contracts to which
we are
party with the Mexican authorities, and not to invoke the protection of their
government under penalty, should they do so, of forfeiting to the Mexican
State
the corporate participation that they may have acquired. In the opinion of
Galicia & Robles, S.C., our special Mexican counsel, under this provision a
non-Mexican stockholder (including a non-Mexican holder of ADSs) is deemed
to
have agreed not to invoke the protection of his own government by requesting
such government to interpose a diplomatic claim against the Mexican government
with respect to the stockholder’s rights as a stockholder, but is not deemed to
have waived any other rights it may have with respect to its investment in
us,
including any rights under U.S. securities laws. If the stockholder should
invoke such governmental protection in violation of this agreement, its Shares
could be forfeited to the Mexican State. Mexican law requires that such a
provision be included in the bylaws of
all
Mexican corporations unless such bylaws prohibit
ownership of capital stock by foreign investors.
Exclusive
Jurisdiction. Our
bylaws provide
that legal actions relating to any conflict between our stockholders and
us, or
among the stockholders in connection with matters related to us, may be brought
only in courts in México City. Therefore, our stockholders are restricted to the
courts of México City.
Duration.
The
duration of our existence under our bylaws is indefinite.
Repurchase
of our own Shares. We
may
repurchase our Shares on the Mexican Stock Exchange at any time at the then
prevailing market price. Any repurchases will be charged to the Stockholders
Equity as long as these Shares belong to the same Company or to the Capital
Stock in the event that we convert these Shares to treasury stock, and in
this
last case no resolution of the stockholders’ meeting is required. At each annual
ordinary Stockholder’s Meeting, the maximum amount of resources that may be used
to repurchase Shares will be expressly defined. The Board of Directors will
name
the persons responsible for the operation of the repurchase process. The
Shares
that belong to the Treasury Stock or us can be resold among the public
stockholders; in the latter case, no resolution of a stockholders meeting
is
necessary for an increase in capital. The economic and voting rights
corresponding to such repurchased Shares may not be exercised during the
period
in which such Shares are owned by us, and such Shares are not deemed to be
outstanding for purposes of calculating any quorum or vote at any stockholders’
meeting during such period.
Non-Subscribed
Shares. With
prior authorization of the CNBV, we may issue non-subscribed Shares provided
that such Shares will be held by a depositary institution and that there
is
compliance with the conditions of Article 53 of the Ley
del Mercado de Valores (“Mexican
Securities Law”). In any extraordinary stockholders’ meeting at which this
issuance of non-subscribed Shares is approved, the preference rights established
by Article 132 of the Mexican Companies Law must be respected. With a quorum
at
the meeting, the approval of the issuance will take effect, even with respect
to
stockholders that were not present at the meeting, such that we will be free
to
issue these Shares with no prior publication. When a minority of stockholders
representing at least 25% of the voting capital stock, vote against the issuance
of these Shares, such issuance can not be made. Any stockholder that votes
against this issuance at the stockholders’ meeting will have the right to
request that we sell its Shares before issuing the new non-subscribed Shares.
In
such event, we will have the obligation to sell first the Shares belonging
to
such stockholders, at the same price that the non-subscribed Shares are to
be
offered to the public.
Stockholder
Conflicts of Interest. Under
Mexican law, any stockholder that has a conflict of interest with respect
to any
transaction must abstain from voting thereon at the relevant stockholders’
meeting. A stockholder that votes on a business transaction in which its
interest conflicts with that of ours may be liable for damages if the
transaction would not have been approved without such stockholder’s
vote.
Board
Member Conflicts of Interest. Under
Mexican law, any member of the Board of Directors who has a conflict of interest
with us in any transaction must disclose such fact to the other members of
the
Board of Directors and abstain from voting. Any member of the Board of Directors
who violates such provision may be liable for damages caused to us.
Additionally, members of the Board of Directors and statutory auditors may
not
represent other stockholders at any stockholders’ meeting.
Appraisal
Rights. Whenever
the stockholders approve a change of corporate purpose, a change in our
nationality or transformation from one type of corporate form to another,
any
stockholder entitled to vote on such change or transformation who has voted
against it has the right to withdraw from us and receive the amount calculated
as specified under Mexican law attributable to its Shares, provided such
stockholder exercises its right to withdraw within 15 days following the
adjournment of the meeting at which the change or transformation was approved.
Under Mexican law, the amount that a withdrawing stockholder is entitled
to
receive is equal to its proportionate interest in our capital stock according
to
the most recent balance sheet that has been approved by an ordinary general
meeting of stockholders.
Actions
Against Directors. Under
Mexican law, holders
of Shares having voting rights, including limited or restricted voting rights
or
holders of Shares without voting rights that jointly or individually represent
5% (five percent) or more of the capital stock, may directly exercise the
action
of liability against the members and secretary of the Board of Directors,
as
well as against the relevant directors or executive officers. The exercise
of
such action, among others, will be subject to the compliance with the
requirements set forth under the Mexican Law.
Audit
Committee
Under
our
bylaws, the Board of Directors is required to create an Audit Committee under
the terms and conditions outlined below:
The
Audit
Committee will consist of members of the board. The President of the audit
committee and a majority of the audit committee members must be independent,
as
independence is defined under the Mexican Securities Market Law.
The
mandate of the audit committee is to establish and monitor procedures and
controls in order to ensure that the financial information we distribute
is
useful, appropriate and reliable and accurately reflects our financial position.
In particular, pursuant to our bylaws and Mexican law, among others, the
Audit
Committee must do the following:
|
· |
Submit
an annual report to the Board of
Directors;
|
|
· |
Provide
the Board of Directors with its opinion on the matters that pertain
to the
Auditing Committee, in accordance with the Securities Market
Law;
|
|
· |
Inform
the Board of Directors of the current condition of the internal
controls
and internal auditing system of the Company, or of the entities
it
controls, including any irregularities
detected;
|
|
· |
Require
the relevant directors and other employees of the Company or of
the
entities it controls, to provide reports relative to the preparation
of
the financial information or any other kind of reports or information
it
deems appropriate to perform its duties;
|
|
· |
Receive
observations formulated by shareholders, Board members, relevant
officers,
employees and, in general, any third party with regard to the matters
under his duties, as well as carry out the actions that, in its
judgment,
may be appropriate in connection with such observations;
|
|
· |
Inform
the Board of Directors of any material irregularities detected
as a result
of the performance of its duties and, as applicable, inform the
Board of
Directors of the corrective actions taken or propose the actions
that
should be taken;
|
|
· |
Call
Shareholders Meetings and cause the items it deems pertinent to
be
inserted into the agendas of such Shareholder’s Meetings, and
|
|
· |
Assist
the Board of Directors in selecting candidates for audit and reviewing
the
scope and terms of the auditor’s engagement, as well as evaluate the
performance of the entity that provides the external auditing services
and
analyze the report, opinions, statements and other information
prepared
and signed by the external auditor.
|
See
the
Article 35 of the Mexican Security Market Law for more detail.
Transactions
that depart from the ordinary course of business, and which would be entered
into by and between subsidiaries of the Company and its stockholders, with
persons who form part of the management of the Company’s subsidiaries or with
those with whom such persons maintain monetary ties or, if applicable, have
a
family relationship of consanguinity or affinity up to the second degree,
a
spouse or concubine; which represent the purchase or sale of 10% or more
of
assets; the granting of guaranties in an amount in excess of 30% of assets,
as
well as transactions other than the foregoing which represent more than 1%
of
the Company’s assets, shall be submitted for the opinion of the Company’s audit
committee and for approval by the Company’s Board of Directors.
Material
Contracts
Not
applicable.
Exchange
Controls
Ownership
by foreigners of Mexican companies is regulated by the Foreign Investment
Law
and by the Foreign Investment Regulations. The Ministry of Commerce and
Industrial Development and the Foreign Investment Commission are responsible
for
the administration of the Foreign Investment Law.
The
Foreign Investment Law reserves certain economic activities exclusively for
the
Mexican State and certain other activities exclusively for Mexican individuals
or Mexican corporations and limits the participation of foreign investors
to
certain percentages in regard to enterprises engaged in activities specified
therein. Foreign investors may own 100% of the capital stock of Mexican
companies or entities, except for companies (i) engaged in reserved activities
as referred to above or (ii) with assets exceeding an amount to be established
annually by the Foreign Investment Commission in which case an approval from
the
Foreign Investment Commission shall be necessary in order for foreign investment
to exceed 49% of the capital stock. Mexican and non-Mexican nationals will
be
entitled to hold and to exercise the rights of a holder of the Units, the
Series
B Shares and the Series L Shares. The Robinson Bours Stockholders have advised
us that they intend to maintain a control position directly in the form of
B
Units. Pursuant to our bylaws, foreigners may only own Series B Shares up
to 49%
of such Series.
Taxation
The
following is a general summary of the principal U.S. federal tax consequences
and the principal Mexican federal tax consequences of the acquisition, ownership
and disposition of Shares or ADSs. This summary does not purport to address
all
material tax consequences that may be relevant to holders of Shares or ADSs,
and
does not take into account the specific circumstances of any particular
investors, some of which (such as tax-exempt entities, banks, insurance
companies, broker-dealers, traders in securities that elect to use a
mark-to-market method of accounting for their securities holdings, regulated
investment companies, real estate investment trusts, partnerships and other
pass-through entities, investors liable for the U.S. alternative minimum
tax,
investors that own or are treated as owning 10% or more of our voting stock,
investors that hold Shares or ADSs as part of a straddle, hedge, conversion
transaction or other integrated transaction and U.S. Holders (as defined
below)
whose functional currency is not the U.S. dollar) may be subject to special
tax
rules. In addition, this summary is based in part upon the representations
of
the Depositary and the assumption that each obligation in the deposit agreement,
and in any related agreement, will be performed in accordance with its
terms.
For
purposes of this discussion, a “U.S. Holder” is any beneficial owner of Shares
or ADSs that, for U.S. federal income tax purposes, is:
|
1.
|
an
individual who is a citizen or resident of the United
States;
|
|
2.
|
a
corporation (or other entity taxable as a corporation for U.S.
federal
income tax purposes) organized in or under the laws of the United
States,
any state thereof, or the District of
Columbia;
|
|
3.
|
an
estate the income of which is subject to U.S. federal income tax
without
regard to its source; or
|
|
4.
|
a
trust that is subject to the primary supervision of a U.S. court
and the
control of one or more U.S. persons, or that has a valid election
in
effect under applicable Treasury regulations to be treated as a
U.S.
person.
|
This
summary is based on the federal income tax laws and regulations of the United
States and México, judicial decisions, published rulings and administrative
pronouncements, all as in effect on the date hereof, and all of which are
subject to change, (which changes may have retroactive effect) and different
interpretations. Prospective purchasers of Shares or ADSs should consult
their
own tax advisors as to the U.S., Mexican or other tax consequences of the
purchase, ownership and disposition of Shares or ADSs, including, in particular,
the effect of any non-U.S., non-Mexican, state or local tax laws.
A
Convention for the Avoidance of Double Taxation and the Prevention of Fiscal
Evasion with Respect to Taxes on Income, and a Protocol thereto, between
the
United States and México (the “Tax Treaty”) took effect on January 1, 1994. The
Tax Treaty was amended by a second Protocol signed November 26, 2002, the
provisions of which took effect in part on September 1, 2003, and in part
on
January 1, 2004. The United States and México have also entered into an
agreement concerning the exchange of information with respect to tax
matters.
In
general, for U.S. federal income tax purposes, holders of ADRs evidencing
ADSs
will be treated as the beneficial owners of the Shares represented by those
ADSs.
U.S.
Federal Income Taxation
U.S.
Holders
The
following discussion is a summary of the principal U.S. federal income tax
consequences to holders of our Shares and of ADSs that are U.S. Holders and
that
hold those Shares or ADSs as capital assets (generally, for investment
purposes).
Taxation
of Dividends
Cash
dividends paid with respect to the Shares constituting the Shares or Shares
represented by ADSs to the extent paid out of our earnings and profits (as
determined under U.S. federal income tax principles) will be included in
the
gross income of a U.S. Holder as ordinary income on the day on which the
dividends are received by the U.S. Holder, in the case of Shares, or the
Depositary, in the case of Shares represented by ADSs, and will not be eligible
for the dividends-received deduction allowed to corporations under the Internal
Revenue Code of 1986, as amended (the “Code”). We do not currently maintain
calculations of our earnings and profits under U.S. federal income tax
principles. Because these calculations are not made, distributions should
be
presumed to be taxable dividends for U.S. federal income tax
purposes.
Dividends
paid in pesos will be included in the gross income of a U.S. Holder in a
U.S.
dollar amount calculated by reference to the exchange rate in effect on the
day
they are received by the U.S. Holder, in the case of Share, or the Depositary,
in the case of Share represented by ADSs (regardless of whether such pesos
are
in fact converted into U.S. dollars on such date). If such dividends are
converted into U.S. dollars on the date of receipt by the U.S. Holder or
the
Depositary, as the case may be, the U.S. Holder generally should not be required
to recognize foreign currency gain or loss in respect of the dividends. U.S.
Holders should consult their own tax advisors regarding the treatment of
foreign
currency gain or loss, if any, on any pesos received which are converted
into
U.S. dollars on a date subsequent to receipt.
Subject
to certain exceptions for short-term and hedged positions, and provided that
we
are not a passive foreign investment company (as discussed below), dividends
received by certain U.S. Holders (including individuals) prior to January
1,
2011 with respect to the Shares or ADSs will be subject to U.S. federal income
taxation at a maximum rate of 15%. However, the U.S. Treasury Department
has
announced its intention to promulgate rules pursuant to which shareholders
(and
intermediaries) will be permitted to rely on certifications from issuers
to
establish that dividends qualify for the reduced rate of U.S. federal income
taxation. Because such procedures have not yet been issued, we are not certain
that we will be able to comply with them. U.S. Holders of Shares or ADSs
should
consult their own tax advisors regarding the availability of the reduced
rate in
the light of their own particular circumstances.
Distributions
to U.S. Holders of additional Shares with respect to their Shares or ADSs
that
are made as part of a pro rata distribution to all of our stockholders generally
will not be subject to U.S. federal income tax. If holders of the ADSs are
restricted in their ability to participate in the exercise of preemptive
rights,
the preemptive rights may give rise to a deemed distribution to holders of
the
Shares under Section 305 of the Code. Any deemed distributions will be taxable
as a dividend in accordance with the general rules of the income tax treatment
of dividends discussed above.
Taxation
of Capital Gains
Gain
or
loss recognized by a U.S. Holder on the sale or other taxable disposition
of
Shares or ADSs generally will be subject to U.S. federal income taxation
as
capital gain or loss in an amount equal to the difference between such U.S.
Holder’s adjusted tax basis in the Shares or ADSs and the amount realized on the
disposition. A U.S. Holder generally will have an adjusted tax basis in a
Shares
or an ADS equal to its U.S. dollar cost. Gain or loss recognized by a U.S.
Holder on the sale or other disposition of Shares or ADSs will generally
be
long-term gain or loss if, at the time of disposition, the U.S. Holder has
held
the Shares or ADSs for more than one year.
Certain
U.S. Holders, including individuals, are eligible for preferential rates
of U.S.
federal income tax in respect of long-term capital gains. The deduction of
a
capital loss is subject to limitations under the Code.
Gain
realized by a U.S. Holder on a sale or other disposition of Shares or ADSs
generally will be treated as U.S. source income for U.S. foreign tax credit
purposes. Consequently, if any Mexican withholding tax is imposed on the
sale or
disposition of the Shares, a U.S. holder that does not receive significant
foreign source income from other sources may not be able to derive effective
U.S. foreign tax credit benefits in respect of these Mexican taxes. U.S.
holders
should consult their own tax advisors regarding the application of the foreign
tax credit rules to their investment in, and disposition of, the Shares or
ADSs.
Deposits
and withdrawals of Shares by U.S. Holders in exchange for ADSs will not result
in the realization of gain or loss for U.S. federal income tax
purposes.
Passive
Foreign Investment Company Rules
A
non-U.S. corporation generally will be classified as a passive foreign
investment company (a “PFIC”) for U.S. federal income tax purposes in any
taxable year in which, after applying look-through rules, either (1) at least
75% of its gross income is passive income, or (2) on average at least 50%
of the
gross value of its assets is attributable to assets that produce passive
income
or are held for the production of passive income. Passive income for this
purpose generally includes dividends, interest, royalties, rents and gains
from
commodities and securities transactions. The PFIC determination is made annually
and generally is based on the value of a non-U.S. corporation’s assets
(including goodwill) and composition of its income. In determining whether
we
are a PFIC, a pro rata portion of the income and assets of each subsidiary
in
which we own, directly or indirectly, at least a 25% interest by value is
taken
into account.
We
do not
believe that we are a PFIC for U.S. federal income tax purposes, and we intend
to continue our operations in such a manner that we will not become a PFIC
in
the future, although no assurances can be made regarding determination of
our
PFIC status in the current or any future taxable year. If we are treated
as a
PFIC for any taxable year, a U.S. Holder would be subject to special rules
(and
may be subject to increased tax liability) with respect to (a) any gain realized
on the sale or other disposition of Units or ADSs, and (b) any “excess
distribution” made by us to the U.S. Holder (generally, any distribution during
a taxable year in which distributions to the U.S. Holder on the Units or
ADSs
exceed 125% of the average annual distributions the U.S. Holder received
on the
Units or ADSs during the preceding three taxable years or, if shorter, the
U.S.
Holder’s holding period for the Units or ADSs). Under those rules, (a) the gain
or excess distribution would be allocated ratably over the U.S. Holder’s holding
period for the Units or ADSs, (b) the amount allocated to the taxable year
in
which the gain or excess distribution is realized and to taxable years before
the first day on which we became a PFIC would be taxable as ordinary income,
(c)
the amount allocated to each prior year in which the Issuer was a PFIC would
be
subject to U.S. federal income tax at the highest tax rate in effect for
that
year and (d) the interest charge generally applicable to underpayments of
U.S.
federal income tax would be imposed in respect of the tax attributable to
each
prior year in which we were treated as a PFIC. In addition, a U.S. Holder
generally would be required to annually file IRS Form 8621 to disclose ownership
of an equity interest in a PFIC. Moreover, dividends that a U.S. Holder receives
from us will not be eligible for the reduced U.S. federal income tax rates
described above if we are a PFIC either in the taxable year of the distribution
or the preceding taxable year (and instead will be taxable at rates applicable
to ordinary income).
Prospective
investors should consult their own tax advisors regarding the potential
application of the PFIC rules to Shares or ADSs.
Non-U.S.
Holders
The
following discussion is a summary of the principal U.S. federal income tax
consequences to beneficial holders of Shares or ADSs that are neither U.S.
Holders nor partnerships for U.S. federal income tax purposes (“Non-U.S.
Holders”).
Subject
to the discussion below under “U.S. Backup Withholding,” a Non-U.S. Holder of
Shares or ADSs will not be subject to U.S. federal income or withholding
tax on
gain realized on the sale of Shares or ADSs, unless (i) such gain is effectively
connected with the conduct by such Non-U.S. Holder of a trade or business
in the
United States (and, if an applicable tax treaty requires, is attributable
to a
U.S. permanent establishment or fixed base of such Non-U.S. Holder) or (ii)
in
the case of gain realized by an individual Non-U.S. Holder, such holder is
present in the United States for 183 days or more in the taxable year of
the
sale and certain other conditions are met.
U.S.
Backup Withholding
A
U.S.
Holder of Shares or ADSs may, under certain circumstances, be subject to
“backup
withholding” with respect to certain payments to such U.S. Holder, such as
dividends paid by us or the proceeds of a sale of Shares or ADSs, unless
such
U.S. Holder (i) is a corporation or comes within certain other exempt
categories, and demonstrates this fact when so required or (ii) provides
a
correct taxpayer identification number, certifies that it is a U.S. person
and
that it is not subject to backup withholding and otherwise complies with
applicable requirements of the backup withholding rules. Any amount withheld
under these rules will be creditable against the U.S. Holder’s U.S. federal
income tax liability provided that the U.S. Holder timely files the appropriate
forms with the U.S. Internal Revenue Service. While Non-U.S. Holders generally
are exempt from backup withholding, a Non-U.S. Holder may, in certain
circumstances, be required to comply with certain information and identification
procedures in order to prove this exemption.
Mexican
Taxation
Taxation
of Dividends
Dividends,
either in cash or in any other form, paid with respect to the Shares
constituting the Shares or the ADSs will not be subject to Mexican withholding
tax.
Taxation
of Capital Gains
Gain
on
the sale or other disposition of ADSs by holders who are not Mexican Residents
(as defined below) will not be subject to Mexican income tax. Deposits of
Shares
in exchange for ADSs and withdrawals of Shares in exchange for ADSs will
not
give rise to Mexican income tax.
Gain
on
the sale of Shares by a holder who is not a Mexican Resident (as defined
below)
will not be subject to Mexican tax if the transaction is carried out through
the
Mexican Stock Exchange or other securities markets approved by the Mexican
Ministry of Finance, and provided certain requirements set forth by the Mexican
Income Tax Law are complied with. Sales or other dispositions of Shares made
in
other circumstances generally would be subject to Mexican tax, except to
the
extent that a holder is eligible for benefits under an income tax treaty
to
which México is a party. Under the Tax Treaty, gain on the sale or other
disposition of Shares by a U.S. resident (if eligible for benefits under
the Tax
Treaty) who is a holder of less than 25% of our capital stock during the
twelve-month period preceding such sale or disposition will not be subject
to
Mexican tax, unless (i) 50% or more of the fair market value of our assets
consist of “immovable property” (as defined in the Tax Treaty) situated in
México, or (ii) such gains are attributable to a permanent establishment or
fixed base of such U.S. resident in México.
For
a
holder that is not a Mexican Resident and that does not meet the requirements
referred to above, gross income realized on the sale of Shares will be subject
to a 5% Mexican withholding tax if the transaction is carried out through
the
Mexican Stock Exchange. Alternatively, a holder that is not a Mexican Resident
can choose to be subject to a 20% withholding rate on the net gain obtained,
as
calculated pursuant to Mexican Income Tax Law provisions.
The
Mexican tax rules governing the taxation of gains of holders who are not
Mexican
Residents on dispositions of their Shares or ADSs were amended during 2002.
Holders who are not Mexican Residents who disposed of their Shares or ADSs
during 2003 should consult their own Mexican tax advisors on the Mexican
tax
treatment of such dispositions.
For
purposes of Mexican taxation (Ley
del Impuesto sobre la renta),
an
individual is a resident of México (a “Mexican Resident”) if he or she has
established his or her home in México, unless he or she has resided in another
country for more than 183 days, whether consecutive or not, during a calendar
year and can demonstrate that he or she has become a resident of that country
for tax purposes. A legal entity is a Mexican Resident if it has been
incorporated under Mexican law. A company is also considered to be a Mexican
Resident if its headquarters are located in México. A Mexican citizen is
presumed to be a resident of México for tax purposes unless such person can
demonstrate otherwise. If a person is deemed to have a permanent establishment
or fixed base in México for tax purposes, such permanent person shall be
required to pay taxes in México on income attributable to such permanent
establishment or fixed base, in accordance with applicable tax
laws.
Other
Mexican Taxes
There
are
no Mexican inheritance, succession or similar taxes applicable to the ownership,
transfer or disposition of ADSs or Shares by holders that are not Mexican
Residents; provided, however, that gratuitous transfers of Shares may in
certain
circumstances cause a Mexican federal tax to be imposed on the recipient.
There
is no Mexican stamp, issue, registration or similar taxes or duties payable
by
holders of ADSs or Shares. Brokerage fees on securities transactions carried
out
through the Mexican Stock Exchange are subject to a 15% valued added
tax.
Documents
on Display
The
documents concerning us which are referred to in this document are available
at
the our company headquarters, located at Ave. Tecnológico No.401, Cd.
Industrial, Celaya, Guanajuato, 38010, México, for any inspection required. Part
of this information is available on our web page, at www.bachoco.com.mx.
ITEM
11.
|
Quantitative
and Qualitative Disclosures About Market
Risk
|
In
the
normal course of our business, we hold or issue various financial instruments
that expose us to financial risks involving fluctuations in currency exchange
rates and interest rates. Also, we are exposed to commodity price risk in
connection with fluctuations in the prices for our feed ingredients
Currency
Fluctuation
Our
exposure to market risk associated with changes in foreign currency exchange
rates relates primarily to expenses which are denominated in U.S. dollars.
Since
we have liabilities denominated in U.S. dollars, we are exposed to foreign
exchange losses when the peso declines in value against the U.S. dollar.
The
peso has been subject to significant volatility in the past and may be subject
to significant fluctuations in the future.
No
assurance can be given as to the future valuation of the Mexican peso and
how
further movements in the peso could affect our future earnings.
We
manage
our exchange rate exposure primarily through management of our financial
structure, specifically by maintaining most of our debt through long-term
debt
instruments. We engage in only limited hedging of our exposure to foreign
exchange risk, since hedging instruments have historically not been economically
feasible. We plan over a six-month period into the future and, depending
on the
expected uncertainty for that period, decide if it is economically advisable
to
purchase or sell any hedging instrument.
During
2005 and 2006, we have observed different strategies with respect to derivatives
which involve call and put options in U.S. dollars.
At
December 31, 2006, we maintained positions in several financial instrument
derivatives. For details, please see Note 8 to our Consolidated Financial
Statements.
Interest
Rates
Based
on
our position on December 31, 2006, we estimate that a hypothetical interest
rate
variation of 0.5% on our Mexican peso denominated debt would result in increased
interest expenses of approximately Ps.0.2 million per annum. Any such increase
would likely be offset by an increase in interest income due to our significant
cash and cash equivalent position.
Feed
Ingredients
The
largest single component of our
cost
of
sales is the cost of ingredients used to prepare feed, including, principally,
sorghum, soy
meal,
corn,
fish
meal, meat
meal
and,
for
certain chicken products, marigold extract. The price of these ingredients
is
subject to significant volatility resulting,
among
other factors, from weather, the size of harvests, transportation and storage
costs, governmental agricultural policies and currency exchange rates. In
order
to reduce the potential adverse effect of grain price fluctuations,
we
vary
the
composition of our feed to take advantage of current market prices for the
various types of ingredients used.
However,
this trend reversed in 2000, when only 45.0% of feed ingredients were purchased
from local sources. The change occurred mainly because grain for the acquired
Grupo Campi complexes is supplied from international markets due to a lack
of
domestic supply in southern México. In general, costs of domestic feed
ingredients tend to follow the international markets, although cost adjustments
do not occur simultaneously. In 2001, we purchased approximately 40.6% of
grain
from local sources, while in 2002 we purchased approximately 30.1% of grain
from
local sources. In 2003 the percentage of grain purchased from domestic markets
was 38.3%, in 2004 it was 35.0%, in 2005 it was 30.1% and in 2006 it was
approximately 31.3%.
ITEM
12.
|
Description
of Securities Other Than Equity
Securities
|
Not
applicable.
PART
II
ITEM
13.
|
Default,
Dividend Arrearages and
Delinquencies
|
None.
ITEM
14.
|
Material
Modifications to the Rights of Security Holders and Use of
Proceeds
|
None.
ITEM
15.
|
Controls
and Procedures
|
We
carried out an evaluation under the supervision and with the participation
of
our management, including our Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures as of December 31, 2006. There are inherent limitations
to the effectiveness of any system of disclosure controls and procedures,
including the possibility of human error and the circumvention or overriding
of
the controls and procedures. Accordingly, even effective disclosure controls
and
procedures can only provide reasonable assurance of achieving their control
objectives. Based upon and as of the date of our evaluation, our Chief Executive
Officer and Chief Financial Officer concluded that the disclosure controls
and
procedures are effective to provide reasonable assurance that information
required to be disclosed in the reports we file and submit under the Securities
Exchange Act is recorded, processed, summarized and reported as and when
required.
The
Company’s management is responsible for establishing and maintaining effective
internal control over financial reporting as defined in Rules 13a-15(f) under
the Securities Exchange Act of 1934. The Company’s internal control over
financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted
accounting principles.
Because
of its inherent limitations, internal control over financial reporting may
not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may
become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
Management
assessed the effectiveness of the Company’s internal control over financial
reporting as of December 31, 2006. In making this assessment, management
used
the criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) in Internal Control—Integrated Framework. Based on
this assessment, management concluded that, as of December 31, 2006, the
Company’s internal control over financial reporting is effective based on those
criteria.
There
has
been no change in our internal control over financial reporting in the period
covered by this annual report that has materially affected, or is reasonably
likely to materially affect, our internal control over financial
reporting.
ITEM
16A. Audit
Committee Financial Expert
Currently,
no member of our audit committee possesses all the characteristics included
in
the definition of an “audit committee financial expert” within the meaning of
this Item 16A. We consider that the combined financial expertise of the members
of our audit committee meet much of this requirement. Our audit committee
has
the authority and appropriate funding to obtain outside advice, as it deems
necessary, to carry out his duties.
ITEM
16B. Code
of Ethics
We
have
adopted a code of ethics, as defined in Item 16B of Form 20-F under the
Securities Exchange Act of 1934, as amended. Our code of ethics applies to
our
Chief Executive Officer, Chief Financial Officer, controller and
persons performing similar functions, as well as to other officers and
employees. Our code of ethics is available free of charge upon request through
our website www.bachoco.com.mx.
If we
amend the provisions of our code of ethics that apply to our Chief Executive
Officer, Chief Financial Officer, controller and persons performing similar
functions, or if we grant any waiver of such provisions, we will disclose
such
amendment or waiver on our website at the same address.
ITEM
16C. Principal
Accountant Fees and Services
Audit
and Non-Audit Fees
The
following table sets forth the fees billed to us by our independent auditors,
Ernst & Young Mexico, independent public accountants, during the fiscal
years ended December 31, 2005 and 2006:
|
|
Year
ended December 31,
|
|
|
|
2005
|
|
2006
|
|
|
|
|
|
Audit
fees
|
|
Ps. |
2,429,000
|
|
Ps. |
2,724,350
|
|
Audit-related
fees
|
|
|
—
|
|
|
—
|
|
Tax
fees
|
|
|
433,999
|
|
|
872,006
|
|
All
other fees
|
|
|
—
|
|
|
—
|
|
Total
fees
|
|
Ps. |
2,862,999
|
|
Ps. |
3,596,356
|
|
Audit
fees in the above table are the aggregate fees billed by Ernst & Young
Mexico, in connection with the audit of our annual financial statements and
statutory and regulatory audits.
Tax
fees
in the above table are fees billed by Ernst & Young Mexico for services
related to tax refund claims.
Audit
Committee Approval Policies and Procedures
Our
audit
committee has not established pre-approval policies and procedures for the
engagement of our independent auditors for services. Our audit committee
expressly approves on a case-by-case basis any engagement of our independent
auditors for audit and non-audit services provided to our subsidiaries or
to
us.
ITEM
16D. Exemptions
from the Listing Standards for Audit Committees
Not
applicable.
ITEM
16E. Purchases
of Equity Securities by the Issuer and Affiliated
Purchasers
Not
applicable.
PART
III
ITEM
17.
|
Financial
Statements
|
Not
applicable.
ITEM
18.
|
Financial
Statements
|
See
the
Audited Financial Statements including notes, incorporated herein by
reference.
Documents
filed as exhibits to this Annual Report:
Exhibit
No.
|
|
Description
|
|
|
|
1.1
|
|
An
English translation of the Bylaws (estatutos
sociales)
of Industrias Bachoco, S.A.B. de C.V. dated December 6,
2006.
|
|
|
|
2.1
|
|
Form
of Amended and Restated Deposit Agreement, among Industrias Bachoco,
S.A.
de C.V., the Depositary and each Owner and Beneficial Owner from
time to
time of American Depositary Receipts issued thereunder, including
the form
of American Depositary Receipt (incorporated by reference to Exhibit
1.1
on Form F-6 filed with the U.S. Securities and Exchange Commission
on
August 18, 2006 (File No. 333-07480)).
|
|
|
|
2.2
|
|
Trust
Agreement, dated April 1, 1995, among Banco Internacional, S.A.,
Institución de Banca Múltiple, Grupo Financiero Prime Internacional, as
trustee, and the stockholders of the Company named therein, together
with
an English translation, (incorporated by reference on our registration
statement on Form F-1 filed with the U.S. Securities and Exchange
Commission on August 22, 1997 (File No. 333-7472)).
|
|
|
|
2.3
|
|
Trust
Agreement, dated August 20, 1997, among Banco Internacional, S.A.,
Institución de Banca Múltiple, Grupo Financiero Bital, as trustee, and the
stockholders of the Company named therein, together with an English
translation, (incorporated by reference on our registration statement
on
Form F-1 filed with the U.S. Securities and Exchange Commission
on August
22, 1997 (File No. 333-7472)).
|
|
|
|
8.1
|
|
Subsidiaries
of Industrias Bachoco S.A.B. de C.V.
|
|
|
|
12.1
|
|
Certification
of the Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
12.2
|
|
Certification
of the Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
13.1
|
|
Certification
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
SIGNATURE
The
registrant hereby certifies that it meets all of the requirements for filing
on
Form 20-F and that it has duly caused and authorized the undersigned to sign
this annual report on its behalf.
|
|
|
|
INDUSTRIAS
BACHOCO, S.A.B. de C.V.
|
|
|
|
|
By: |
/s/
DANIEL
SALAZAR FERRER |
|
Daniel
Salazar Ferrer
Chief
Financial Officer
|
|
|
Date:
June 29, 2007
|
|
INDUSTRIAS
BACHOCO, S.A.B. DE C.V. AND
SUBSIDIARIES
|
|
Consolidated
Financial Statements
|
|
As
of
December
31, 2005 and 2006
With
Report of Independent Registered Public
Accounting
Firm
|
INDUSTRIAS
BACHOCO, S.A.B. DE C.V.
AND
SUBSIDIARIES
Consolidated
Financial Statements
As
of
December
31, 2005 and 2006
Content
Report
of Independent Registered Public Accounting Firm
|
|
F-1
|
|
|
|
Consolidated
Financial Statements:
|
|
|
|
|
|
Balance
Sheets
|
|
F-2
|
|
|
|
Statements
of Income
|
|
F-3
|
|
|
|
Statements
of Changes in Stockholders’ Equity
|
|
F-4
|
|
|
|
Statements
of Changes in Financial Position
|
|
F-5
|
|
|
|
Notes
to the Financial Statements
|
|
F-6
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the
Stockholders of
Industrias
Bachoco, S.A.B. de C.V.
We
have
audited the accompanying consolidated balance sheets of Industrias Bachoco,
S.A.B. de C.V. and subsidiaries as of December 31, 2005 and 2006, and the
related consolidated statements of income, stockholders’ equity and changes in
financial position for each of the three years in the period ended December
31,
2006. These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States of America). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. We were not engaged
to perform an audit of the Company's internal control over financial reporting.
Our audits included consideration of internal control over financial reporting
as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining,
on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In
our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Industrias Bachoco,
S.A.B. de C.V. and subsidiaries at December 31 2005 and 2006, and the
consolidated results of their operations and their changes in financial position
for each of the three years in the period ended December 31, 2006, in conformity
with Mexican Financial Reporting Standards which differ in certain respects
from
U.S. generally accepted principles (see Note 17).
|
Mancera,
S.C.
A
Member Practice of
Ernst
& Young Global
Francisco
José Sánchez González
|
Mexico
City, Mexico
June
26,
2007
INDUSTRIAS
BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES
Consolidated
balance sheets
(Thousands
of constant Mexican pesos as of December 31, 2006)
|
|
December
31,
|
|
|
|
|
|
|
|
(Thousands
of U.S. dollars )
|
|
|
|
|
|
|
|
(Note
2)
|
|
|
|
2005
|
|
2006
|
|
2006
|
|
ASSETS
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
Ps |
3,296,142
|
|
Ps |
3,454,052
|
|
$
|
319,834
|
|
Accounts
receivable:
|
|
|
|
|
|
|
|
|
|
|
Trade,
net
|
|
|
493,488
|
|
|
520,315
|
|
|
48,180
|
|
Value
added and other recoverable taxes
|
|
|
295,772
|
|
|
318,517
|
|
|
29,494
|
|
Total
accounts receivable
|
|
|
789,260
|
|
|
838,832
|
|
|
77,674
|
|
Inventories,
net -Note 4
|
|
|
1,704,692
|
|
|
2,143,519
|
|
|
198,483
|
|
Biological
current assets -Note 4
|
|
|
72,622
|
|
|
88,575
|
|
|
8,202
|
|
Prepaid
expenses and other current assets
|
|
|
83,885
|
|
|
56,609
|
|
|
5,242
|
|
Total
current assets
|
|
|
5,946,601
|
|
|
6,581,587
|
|
|
609,435
|
|
|
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, net -Note 5
|
|
|
9,172,262
|
|
|
9,517,510
|
|
|
881,292
|
|
Biological
non-current assets -Note 4
|
|
|
469,001
|
|
|
496,456
|
|
|
45,970
|
|
Intangible
assets-Note 12
|
|
|
40,023
|
|
|
21,427
|
|
|
1,984
|
|
Goodwill,
net -Note 6
|
|
|
289,950
|
|
|
289,949
|
|
|
26,848
|
|
Other
assets
|
|
|
14,179
|
|
|
16,164
|
|
|
1,497
|
|
TOTAL
ASSETS
|
|
Ps |
15,932,015
|
|
Ps |
16,923,093
|
|
$
|
1,567,026
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
|
Notes
payable to banks -Note 7
|
|
Ps |
74,762
|
|
Ps |
-
|
|
$
|
-
|
|
Current
portion of long-term debt -Note 7
|
|
|
21,682
|
|
|
9,356
|
|
|
866
|
|
Accounts
payable
|
|
|
455,509
|
|
|
807,105
|
|
|
74,735
|
|
Related
parties -Note 3
|
|
|
6,407
|
|
|
12,192
|
|
|
1,129
|
|
Income
tax
|
|
|
57,858
|
|
|
43,746
|
|
|
4,051
|
|
Other
taxes payable and other accruals -Note 10
|
|
|
291,178
|
|
|
234,749
|
|
|
21,737
|
|
Derivative
financial instruments- Note 8
|
|
|
105,985
|
|
|
10,426
|
|
|
965
|
|
Total
current liabilities
|
|
|
1,013,381
|
|
|
1,117,574
|
|
|
103,483
|
|
Long-term
liabilities:
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt -Note 7
|
|
|
54,018
|
|
|
34,208
|
|
|
3,168
|
|
Deferred
income tax -Note 14
|
|
|
1,763,051
|
|
|
2,102,982
|
|
|
194,730
|
|
Labor
obligations -Note 12
|
|
|
87,703
|
|
|
76,305
|
|
|
7,066
|
|
TOTAL
LIABILITIES
|
|
|
2,918,153
|
|
|
3,331,069
|
|
|
308,447
|
|
COMITMENTS
AND CONTINGENCIES -Note
9
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’
EQUITY -Note 13
|
|
|
|
|
|
|
|
|
|
|
Majority
stockholders’ equity:
|
|
|
|
|
|
|
|
|
|
|
Capital
stock
|
|
|
2,211,549
|
|
|
2,211,785
|
|
|
204,804
|
|
Paid-in
capital
|
|
|
699,766
|
|
|
716,732
|
|
|
66,367
|
|
Reserve
for repurchase company stock
|
|
|
153,678
|
|
|
153,678
|
|
|
14,230
|
|
Retained
earnings
|
|
|
11,736,122
|
|
|
13,211,136
|
|
|
1,223,310
|
|
Net
majority income for the year
|
|
|
1,839,392
|
|
|
873,356
|
|
|
80,870
|
|
Minimum
seniority premium liability adjustment -Note 12
|
|
|
(3,215
|
)
|
|
(883
|
)
|
|
(82
|
)
|
Deficit
from restatement of stockholders’ equity
|
|
|
(3,579,088
|
)
|
|
(3,617,916
|
)
|
|
(335,007
|
)
|
Derivative
financial instruments-Note 8
|
|
|
(89,027
|
)
|
|
357
|
|
|
33
|
|
Total
majority stockholders' equity
|
|
|
12,969,177
|
|
|
13,548,245
|
|
|
1,254,525
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority
interest
|
|
|
44,685
|
|
|
43,779
|
|
|
4,054
|
|
Total
stockholders' equity
|
|
|
13,013,862
|
|
|
13,592,024
|
|
|
1,258,579
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
Ps |
15,932,015
|
|
Ps |
16,923,093
|
|
$
|
1,567,026
|
|
See
accompanying notes.
INDUSTRIAS
BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES
Consolidated
statements of income
(Thousands
of constant Mexican pesos, except per share amounts, as of
December
31, 2006)
|
|
Years
ended December 31,
|
|
|
|
|
|
|
|
|
|
(Thousands
of U.S. dollars)
|
|
|
|
|
|
|
|
|
|
(Note
2)
|
|
|
|
2004
|
|
2005
|
|
2006
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenues
|
|
Ps |
14,299,667
|
|
Ps |
15,052,368
|
|
Ps |
14,987,576
|
|
$
|
1,387,802
|
|
Cost
of sales
|
|
|
(11,596,917
|
)
|
|
(10,827,550
|
)
|
|
(11,616,324
|
)
|
|
(1,075,635
|
)
|
Gross
profit
|
|
|
2,702,750
|
|
|
4,224,818
|
|
|
3,371,252
|
|
|
312,167
|
|
Selling,
general and administrative expenses
|
|
|
(1,784,854
|
)
|
|
(1,932,886
|
)
|
|
(1,996,504
|
)
|
|
(184,870
|
)
|
Operating
income
|
|
|
917,896
|
|
|
2,291,932
|
|
|
1,374,748
|
|
|
127,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
financing income (cost):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
109,502
|
|
|
305,047
|
|
|
291,936
|
|
|
27,032
|
|
Interest
expense and other financing costs
|
|
|
(130,646
|
)
|
|
(201,914
|
)
|
|
(127,075
|
)
|
|
(11,767
|
)
|
Net
interest income (expense)
|
|
|
(21,144
|
)
|
|
103,133
|
|
|
164,861
|
|
|
15,265
|
|
Foreign
exchange gain (loss), net
|
|
|
48,440
|
|
|
(60,003
|
)
|
|
39,305
|
|
|
3,639
|
|
Loss
on net monetary position
|
|
|
(104,164
|
)
|
|
(114,423
|
)
|
|
(144,988
|
)
|
|
(13,425
|
)
|
|
|
|
(76,868
|
)
|
|
(71,293
|
)
|
|
59,178
|
|
|
5,479
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
ordinary income (expense), net
|
|
|
33,187
|
|
|
(21,689
|
)
|
|
21,963
|
|
|
2,034
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income tax, asset tax, and employee profits sharing
|
|
|
874,215
|
|
|
2,198,950
|
|
|
1,455,889
|
|
|
134,810
|
|
Income
tax and asset tax -Note 14
|
|
|
(111,237
|
)
|
|
(354,507
|
)
|
|
(577,421
|
)
|
|
(53,467
|
)
|
Employee
profits sharing -Note 14
|
|
|
(3,201
|
)
|
|
(3,332
|
)
|
|
(4,204
|
)
|
|
(389
|
)
|
NET
INCOME
|
|
Ps |
759,777
|
|
Ps |
1,841,111
|
|
Ps |
874,264
|
|
$
|
80,954
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Majority
net income
|
|
|
755,681
|
|
|
1,839,392
|
|
|
873,356
|
|
|
80,870
|
|
Minority
net income
|
|
|
4,096
|
|
|
1,719
|
|
|
908
|
|
|
84
|
|
NET
INCOME
|
|
Ps |
759,777
|
|
Ps |
1,841,111
|
|
Ps |
874,264
|
|
$
|
80,954
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding
(in
thousands)
|
|
|
599,260
|
|
|
599,694
|
|
|
599,571
|
|
|
599,771
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
MAJORITY INCOME PER SHARE
|
|
Ps |
1.27
|
|
Ps |
3.07
|
|
Ps |
1.46
|
|
$
|
0.13
|
|
See
accompanying notes.
INDUSTRIAS
BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES
Consolidated
statements of changes in stockholders’ equity
Years
ended December 31, 2004, 2005 and 2006
(Thousands
of constant Mexican pesos as of
December
31, 2006)
|
|
Number
of shares of capital stock
(thousands)
|
|
Capital
stock
|
|
Paid-in
capital
|
|
Reserve
for
repurchase
of Company stock
|
|
Retained
earnings
|
|
Net
income
for the year
|
|
Minimum
labor
obligations
liability
adjustment
|
|
Deficit
from restatement of
stockholders’
equity
|
|
Derivative
financial instru-ments
|
|
Total
majority stockholders’ equity
|
|
Minority
interest
|
|
Total
stockholders’
equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2003
|
|
|
600,000
|
|
Ps |
2,211,798
|
|
Ps |
683,455
|
|
Ps |
190,049
|
|
Ps |
10,894,939
|
|
Ps |
605,322
|
|
Ps |
(
2,052
|
)
|
Ps |
(
3,252,406
|
)
|
Ps |
-
|
|
Ps |
11,331,105
|
|
Ps |
46,778
|
|
Ps |
11,377,883
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfer
of prior year’s net income
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
605,322
|
|
|
(605,322
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Repurchase
of stock
|
|
|
(2,220
|
)
|
|
(616
|
)
|
|
-
|
|
|
(25,324
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(25,940
|
)
|
|
-
|
|
|
(25,940
|
)
|
Sales
of repurchased stock
|
|
|
1,420
|
|
|
395
|
|
|
13,464
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
13,859
|
|
|
-
|
|
|
13,859
|
|
Cash
dividends paid
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(265,655
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(265,655
|
)
|
|
-
|
|
|
(265,655
|
)
|
Comprehensive
income, net of tax
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
755,681
|
|
|
(964
|
)
|
|
(160,764
|
)
|
|
-
|
|
|
595,881
|
|
|
(2,562
|
)
|
|
593,319
|
|
Balance
at December 31, 2004
|
|
|
599,200
|
|
|
2,211,577
|
|
|
696,919
|
|
|
164,725
|
|
|
11,234,606
|
|
|
755,681
|
|
|
(1,088
|
)
|
|
(3,413,170
|
)
|
|
-
|
|
|
11,649,250
|
|
|
44,216
|
|
|
11,693,466
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfer
of prior year’s net income
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
755,681
|
|
|
(755,681
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Repurchase
of stock
|
|
|
(920
|
)
|
|
(242
|
)
|
|
-
|
|
|
(11,047
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(11,289
|
)
|
|
-
|
|
|
(11,289
|
)
|
Sales
of repurchased stock
|
|
|
800
|
|
|
214
|
|
|
2,847
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
3,061
|
|
|
-
|
|
|
3,061
|
|
Cash
dividends paid
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(254,165
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(254,165
|
)
|
|
-
|
|
|
(254,165
|
)
|
Comprehensive
income, net of tax
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,839,392
|
|
|
(2,127
|
)
|
|
(165,918
|
)
|
|
(89,027
|
)
|
|
1,582,320
|
|
|
469
|
|
|
1,582,789
|
|
Balance
at December 31, 2005
|
|
|
599,080
|
|
|
2,211,549
|
|
|
699,766
|
|
|
153,678
|
|
|
11,736,122
|
|
|
1,839,392
|
|
|
(3,215
|
)
|
|
(3,579,088
|
)
|
|
(89,027
|
)
|
|
12,969,177
|
|
|
44,685
|
|
|
13,013,862
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfer
of prior year’s net income
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,839,392
|
|
|
(1,839,392
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Sales
of repurchased stock
|
|
|
920
|
|
|
236
|
|
|
16,966
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
17,202
|
|
|
-
|
|
|
17,202
|
|
Cash
dividends paid
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(364,378
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(364,378
|
)
|
|
-
|
|
|
(364,378
|
)
|
Comprehensive
income, net of tax
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
873,356
|
|
|
2,332
|
|
|
(38,828
|
)
|
|
89,384
|
|
|
926,244
|
|
|
(906
|
)
|
|
925,338
|
|
Balance
at December 31, 2006 (Note 13)
|
|
|
600,000
|
|
Ps |
2,211,785
|
|
Ps |
716,732
|
|
Ps |
153,678
|
|
Ps |
13,211,136
|
|
Ps |
873,356
|
|
Ps |
(883
|
)
|
Ps |
(3,617,916
|
)
|
Ps |
357
|
|
Ps |
13,548,245
|
|
Ps |
43,779
|
|
Ps |
13,592,024
|
|
See
accompanying notes.
INDUSTRIAS
BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES
Consolidated
statements of changes in financial position
(Thousands
of constant Mexican pesos as of December 31, 2006)
|
|
Years
ended December 31,
|
|
|
|
|
|
|
|
|
|
(Thousands
of U.S. dollars) (Note 2)
|
|
|
|
2004
|
|
2005
|
|
2006
|
|
2006
|
|
Operating
activities
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
Ps |
759,777
|
|
Ps |
1,841,111
|
|
Ps |
874,264
|
|
$
|
80,954
|
|
Adjustments
to reconcile net income to resources provided by operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
451,885
|
|
|
479,784
|
|
|
517,914
|
|
|
47,957
|
|
Deferred
income tax
|
|
|
87,021
|
|
|
1,029
|
|
|
333,571
|
|
|
30,888
|
|
Goodwill
amortization
|
|
|
18,840
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Labor
obligations, net period cost
|
|
|
21,268
|
|
|
39,038
|
|
|
36,107
|
|
|
3,343
|
|
|
|
|
1,338,791
|
|
|
2,360,962
|
|
|
1,761,856
|
|
|
163,142
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
118,724
|
|
|
(183,564
|
)
|
|
(49,572
|
)
|
|
(4,590
|
)
|
Inventories
and biological assets
|
|
|
(45,887
|
)
|
|
(339,988
|
)
|
|
(516,517
|
)
|
|
(47,828
|
)
|
Prepaid
expenses and other current assets
|
|
|
30,641
|
|
|
(33,272
|
)
|
|
27,276
|
|
|
2,526
|
|
Accounts
payable
|
|
|
17,814
|
|
|
(24,602
|
)
|
|
351,596
|
|
|
32,557
|
|
Related
parties
|
|
|
3,746
|
|
|
(162
|
)
|
|
5,785
|
|
|
536
|
|
Taxes
payable and other accruals
|
|
|
15,867
|
|
|
132,955
|
|
|
(70,541
|
)
|
|
(6,532
|
)
|
Labor
obligations, plan
contributions
|
|
|
(9,193
|
)
|
|
(25,202
|
)
|
|
(26,577
|
)
|
|
(2,461
|
)
|
Derivative
financial instruments
|
|
|
-
|
|
|
-
|
|
|
(6,175
|
)
|
|
(572
|
)
|
Resources
provided by operating activities
|
|
|
1,470,503
|
|
|
1,887,127
|
|
|
1,477,131
|
|
|
136,778
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from issuance of long-term debt
|
|
|
4,381
|
|
|
179
|
|
|
-
|
|
|
-
|
|
Proceeds
from issuance of notes payable to banks
|
|
|
334,277
|
|
|
170,014
|
|
|
-
|
|
|
-
|
|
Repayment
of long-term debt and notes payable
|
|
|
(315,790
|
)
|
|
(198,898
|
)
|
|
(101,037
|
)
|
|
(9,356
|
)
|
Constant
pesos effect on notes payable to banks and long
term-debt
|
|
|
(8,423
|
)
|
|
(5,971
|
)
|
|
(5,861
|
)
|
|
(543
|
)
|
Cash
dividends paid
|
|
|
(265,655
|
)
|
|
(254,165
|
)
|
|
(364,378
|
)
|
|
(33,740
|
)
|
Sales
(repurchases) of Company’s own stock, net
|
|
|
(12,081
|
)
|
|
(8,227
|
)
|
|
17,202
|
|
|
1,593
|
|
Resources
used in financing activities
|
|
|
(263,291
|
)
|
|
(297,068
|
)
|
|
(454,074
|
)
|
|
(42,046
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition
of property, plant and equipment, net
|
|
|
(471,194
|
)
|
|
(805,259
|
)
|
|
(863,162
|
)
|
|
(79,926
|
)
|
Other
assets
|
|
|
3,128
|
|
|
(2,611
|
)
|
|
(1,985
|
)
|
|
(184
|
)
|
Resources
used in investing activities
|
|
|
(468,066
|
)
|
|
(807,870
|
)
|
|
(865,147
|
)
|
|
(80,110
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase in cash and cash equivalents
|
|
|
739,146
|
|
|
782,189
|
|
|
157,910
|
|
|
14,622
|
|
Cash
and cash equivalents at beginning of year
|
|
|
1,774,807
|
|
|
2,513,953
|
|
|
3,296,142
|
|
|
305,212
|
|
Cash
and cash equivalents at end of year
|
|
Ps |
2,513,953
|
|
Ps |
3,296,142
|
|
Ps |
3,454,052
|
|
$
|
319,834
|
|
See
accompanying notes.
INDUSTRIAS
BACHOCO, S.A.B. DE C.V.
AND
SUBSIDIARIES
Notes
to the consolidated financial statements
Years
ended December 31, 2004, 2005 and 2006
(Thousands
of constant Mexican pesos as of
December
31, 2006, except per share amounts)
1.
Organization
and Business Activity
Industrias
Bachoco, S.A.B. de C.V. and subsidiaries (collectively “Bachoco” or the
“Company”) was incorporated on February 8, 1980 and it is engaged in breeding,
processing and marketing of poultry (chicken and eggs), swine and other products
(principally balanced animal feed). Industrias Bachoco, S.A.B. de C.V. is the
controlling company of a group of subsidiaries.
In
June
2006, the new Securities Trading Act came into effect, which, among other
provisions, established that corporations listed on the Mexican stock exchange
must change their entity names from variable capital stock corporation (S.A.
de
C.V.) to variable capital stock market corporation(S. A. B. de
C.V.).
As
of
February 1, 2007, the Company’s name is Industrias Bachoco, S.A.B. de C.V., in
compliance with the aforementioned law.
On
March
22, 2007, the accompanying financial statements and these notes were authorized
by the Company’s Finance Director, for their issuance.
2.
Accounting Policies and Practices
The
Company’s consolidated financial statements are prepared in accordance with
Mexican Financial Reporting Standards. The significant accounting policies
and
practices observed by the Company in the preparation of the financial statements
are described below:
a)
Adoption of Mexican Financial Reporting Standards (FRS)
On
June
1, 2004, the Mexican Institute of Public Accountants (IMCP) formally handed
over
the responsibility for accounting standardization in Mexico to the Mexican
Council for Financial Reporting Research and Development (Consejo
Mexicano para la Investigación y Desarrollo de Normas de Información Financiera,
A.C.
or
CINIF).
The
generally accepted accounting principles (GAAP) and bulletins previously issued
by the Mexican Institute of Public Accountants were adopted by the CINIF and
incorporated into the Financial Reporting Standards (FRS), or as applicable,
Interpretations to Financial Reporting Standards. The FRS are understood to
encompass the new standards and interpretations issued by the CINIF plus the
bulletins previously issued by the IMCP and adopted by the CINIF. As such,
any
of the documents comprising the FRS will hereinafter be referred to by their
original name or rather, either as “FRS” or as “Mexican accounting bulletin”, as
the case may be.
The
new
Mexican Financial Reporting Standards include the following:
a)
The
new FRS and their interpretations issued by the CINIF.
b)
Those
bulletins previously issued by the Accounting Principles Board of the Mexican
Institute of Public Accountants that have not been modified, replaced or
abolished by the new FRS.
Changes
in FRS are effective in 2006, and the primary changes established by them are
as
follows:
FRS
A-3 User Needs and the Objective of Financial Statements
FRS
A-3
establishes that the statement of changes in financial position will be
substituted by a statement of cash flows whenever so required by the specific
standards.
FRS
A-5 Basic Elements of Financial Statements
FRS
A-5
includes a new classification of revenues and expenses as either ordinary or
non-ordinary. Ordinary revenues and expenses derive from common transactions
or
events carried out for the entity’s own business purposes, regardless of its
frequency. Non-ordinary revenues and expenses derive from unusual transactions
or events, both frequent and infrequent.
FRS
A-7 Preparation and Disclosure
The
financial statements must disclose the date authorized for the issuance of
the
financial statements and the names of the Company officers or governing bodies
that authorize their issuance.
FRS
B-1 Accounting Changes and Corrections of Errors
FRS
B-1
establishes that changes in internal accounting policies and reclassifications
and corrections of errors must be recognized retrospectively, so that both
the
basic financial statements for the most recent period presented and those
presented for comparison purposes are adjusted as if the new policy,
classification or corrections had always been applied.
b)
Consolidation
The
consolidated financial statements include the accounts of the Company and all
of
its majority-owned subsidiaries. The Company has no investments in
variable-interest entities. The ownership interests of other stockholders in
such subsidiaries are shown as minority interest. Intercompany balances,
investments and transactions have been eliminated in consolidation.
The
accompanying consolidated financial statements include the following
consolidated subsidiaries as of December 31, 2004, 2005 and 2006:
|
|
Percentage
equity interest
|
|
|
|
2004
|
|
2005
|
|
2006
|
|
|
|
%
|
|
%
|
|
%
|
|
Acuícola
Bachoco, S.A. de C.V.
|
|
|
100
|
|
|
100
|
|
|
100
|
|
Aviser,
S.A. de C.V.
|
|
|
100
|
|
|
100
|
|
|
100
|
|
Bachoco,
S.A. de C.V. (“BSACV”)
|
|
|
100
|
|
|
100
|
|
|
100
|
|
Campi
Alimentos, S.A. de C.V.
|
|
|
100
|
|
|
100
|
|
|
100
|
|
Huevo
y Derivados, S.A. de C.V.
|
|
|
97
|
|
|
97
|
|
|
97
|
|
Operadora
de Servicios de Personal, S.A. de C.V.
|
|
|
100
|
|
|
100
|
|
|
100
|
|
Pecuarius
Laboratorios, S.A. de C.V.
|
|
|
64
|
|
|
64
|
|
|
64
|
|
Secba,
S.A. de C.V.
|
|
|
100
|
|
|
100
|
|
|
100
|
|
Sepetec,
S. A. de C.V.
|
|
|
100
|
|
|
100
|
|
|
100
|
|
Servicios
de Personal Administrativo, S.A. de C.V.
|
|
|
100
|
|
|
100
|
|
|
100
|
|
Induba
Pavos, S.A. de C.V.
|
|
|
-
|
|
|
-
|
|
|
100
|
|
Induba
Pavos, S.A. de C.V. was created in December 2006 and is a 100% owned subsidiary
of Bachoco.
c)
Revenue recognition
Revenues
are recognized at the time ownership of the products sold is transferred to
the
customer, which occurs when shipped merchandise is received and accepted by
the
customer.
Revenues
are recognized when each of the following criteria is met:
·
There is
evidence of an arrangement.
·
Delivery
has occurred.
·
The
seller fixes or determines the prices with the buyer.
·
Collectability
is reasonably certain.
The
Company recognizes revenues upon delivery of the product.
d)
Recognition of the effects of inflation on financial
information
The
financial information recognizes the effects of inflation and therefore the
amounts shown in the accompanying financial statements and in these notes are
expressed in thousands of Mexican pesos with purchasing power at December 31,
2006. The restatement factor applied to the financial statements for the years
ended December 31, 2004 and 2005 was 1.0752 and 1.0405, respectively, which
corresponds to the annual rate of inflation from December 31, 2004 and December
31, 2005, respectively, through December 31, 2006, based on the Mexican National
Consumer Price Index (NCPI) published by Banco de Mexico.
A
summary
of the key inflation accounting concepts and procedures is as
follows:
· Property,
plant and equipment
Property,
plant and equipment were carried at replacement cost, determined annually by
an
independent appraiser, through 1996. The fifth amendment to bulletin B-10 (as
modified), which is applicable to financial statements for periods beginning
on
or after January 1, 1997, disallows the use of appraisals. Based on such
amendment, the Company restated the appraised value at December 31, 1996 and
property, plant and equipment purchases since January 1, 1997 are carried at
cost adjusted by the NCPI.
Capital
stock, paid-in capital, reserve for stock repurchase of Company’s own shares and
retained earnings were restated using adjustment factors obtained from the
NCPI.
· Net
monetary gain (loss)
The
net
monetary gain (loss) represents the impact of inflation on monetary assets
and
liabilities. The net monetary gain (loss) of each year is included in the
statements of income as a part of the comprehensive financing income (cost).
·
Deficit
from restatement of stockholders’ equity
The
deficit from restatement of stockholders’ equity comprises the accumulated
monetary position loss at the time the provisions of bulletin B-10 were first
applied and the subsequent gain or loss from holding nonmonetary assets,
principally inventories. Deficit from restatement of stockholders’ equity is
originated when the replacement cost of these assets is lower than the cost
of
these assets restated by the NCPI.
e)
Statement of Changes in Financial Position
Mexican
accounting bulletin B-12, Statement
of Changes in Financial Position,
specifies the appropriate presentation of the statement of changes in financial
position based on financial statements restated in constant Mexican pesos in
accordance with bulletin B-10. bulletin B-12 identifies the sources and
applications representing differences between beginning and ending financial
statement balances in constant Mexican pesos. The bulletin also requires that
monetary and foreign exchange gains and losses not be treated as non-cash items
in the determination of resources provided by operating activities.
f)
Estimates in financial statements
The
preparation of financial statements in conformity with FRS requires the use
of
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
g)
Cash and cash equivalents
Cash
and
cash equivalents consist primarily of bank deposits and highly liquid
investments with original maturities of less than 90 days. Such investments
are
stated at acquisition cost plus accrued interest, similar to market
value.
h)
Allowance for doubtful accounts
The
Company policy is to record an allowance for doubtful accounts for balances
which are not likely to be recovered. Management considers that such accounts
are those which are more than 60 days overdue or in litigation.
As
a
result of this procedure, accounts receivable at December 31, 2005 and 2006
are
presented net of the allowance for doubtful accounts of Ps. 36,329 and Ps.
30,698, respectively.
i)
Inventories and biological assets
Inventories
are recognized at historical acquisition cost and are valued using the
average-cost method.
Inventories
are restated using the specific-cost method. The stated value of inventories
is
not in excess of net realizable value. Cost of sales is restated to Mexican
pesos with purchasing power at year-end by applying the same method as for
inventories. The deficit from restatement of stockholders’ equity is comprised
of the difference between the increase in the specific value of inventories
and
cost of sales, and the increase as measured based solely on the
NCPI.
The
allowance for decline in the productivity of breeder chickens and pigs is
estimated based on expected future production.
The
financial statements recognize the requirements of Mexican accounting bulletin
E-1,
Agriculture,
which
establishes the rules for recognizing, valuing, presenting and disclosing
biological assets and agricultural products, as well as the tax treatment to
be
applied to government subsidies related to a biological asset.
Bulletin
E-1 requires biological assets and agricultural products (the latter at the
time
of harvesting) to be valued at their fair value, net of the estimated costs
at
the point of sale. bulletin E-1 also establishes that whenever the fair value
cannot be determined in a reliable, verifiable and objective manner, the assets
are to be valued at their production cost, net of accrued impairment
loss.
The
Company’s biological assets consist of poultry in different stages, incubatable
eggs and breeder pigs. Agricultural products are processed chicken, commercial
eggs and commercial pigs.
Broiler
chicks less than six weeks old, incubatable eggs, breeder pigs and laying hens
are valued at production cost since it is not possible to determine their fair
value in a reliable, verifiable and objective manner.
Broilers
more than six week old through their date of sale are valued at fair value
net
of estimated point-of-sale costs, considering the price per kilogram of
processed chicken at the valuation date.
Processed
chicken and commercial eggs are valued at fair value net of estimated
point-of-sale costs, considering the price per kilogram of processed chicken
and
commercial eggs at the time such items are considered as agricultural products.
From such date through the date of sale, the fair value is considered to be
the
cost of processed chicken or commercial eggs, not in excess of net realizable
value.
The
Company is exposed to financial risks due to changes in the price of chicken.
The Company estimates that the price of chicken will not fall significantly
in
the future; consequently, the Company has not entered into any derivative
agreement or any other type of agreement to offset the risk of a drop in the
price of chicken.
The
Company reviews periodically the price of chicken so as to evaluate the need
for
a financial instrument to offset such risk.
In
conformity with bulletin E-1, biological assets and agricultural products were
classified as either current or non-current assets depending on their
availability and the business cycle.
j)
Property, plant and equipment
Property,
plant and equipment are carried at cost and then restated based on adjustment
factors derived from the NCPI.
Depreciation
of property, plant and equipment is computed on restated values using the
straight-line method, based on the estimated useful lives of the related assets
(see Note
5).
The
value
of property, plant and equipment is reviewed whenever there are indications
of
impairment in their value. The related loss is determined based on the recovery
amount of the related asset, which is defined as the higher of the asset’s net
selling price and its value in use. An impairment loss is recognized if the
net
carrying amount of the asset exceeds the recovery value.
The
Company’s policy is to not capitalize its comprehensive financing cost for
constructions in process.
k)
Intangible assets
The
Company capitalizes software development for internal use when the product
under
development has reached technological feasibility. Software development costs
incurred before the technology is deemed viable are charged to development
expenses.
Internal
and external costs incurred during the development phase are
capitalized.
Costs
incurred during the preliminary phase and post-implementation and operational
stages are expensed as incurred.
Intangible
assets are amortized on restated values using the straight-line method based
on
the estimated useful lives of the related assets. Intangible assets with
indefinite useful lives are not amortized.
The
value
of intangible assets with definite useful lives is reviewed whenever there
are
indications of impairment. The related loss is determined based on the recovery
value of the related asset, which is defined as the difference between the
asset’s net selling price and its value in use. An impairment loss is recognized
if the net carrying amount of the asset exceeds its recovery value.
Intangibles
with indefinite useful lives that are not yet available for use and intangibles
that are in use but whose amortization period exceeds 20 years from the date
they were available for use are tested for impairment at the end of each
year.
l)
Goodwill
Goodwill
represents the difference between the purchase price and the fair value of
the
net assets acquired at the purchase date.
On
January 1, 2005, the Company adopted the requirements of Mexican accounting
bulletin B-7, Business
Acquisitions,
issued
by the Mexican Institute of Public Accountants. The Company has valued all
of
its business acquisitions using the purchase method and, since 2005, no longer
amortizes its goodwill. Through December 31, 2004, goodwill was being amortized
using the straight-line method over a twenty-year period.
Goodwill
is recorded initially at acquisition cost and then restated using adjustment
factors derived from the NCPI. Goodwill is considered an intangible asset with
an indefinite useful life and is therefore subject to annual impairment testing
in conformity with Mexican accounting bulletin C-15.
m)
Foreign exchange differences
Transactions
denominated in foreign currency are recorded at the prevailing exchange rate
on
the day of the related transactions. Foreign currency denominated monetary
assets and liabilities are translated at the prevailing exchange rate at the
balance sheet date. Such exchange differences are charged or credited to
operations.
See
Note
11 for the Company’s foreign currency position at the end of each year and the
exchange rates used to translate balances denominated in foreign currency.
n)
Liabilities, provisions, contingent liabilities and
commitments
Liability
provisions are recognized whenever: (i) the Company has current obligations
(legal or assumed) derived from past events, (ii) the liability will most likely
give rise to a future cash disbursement for its settlement and (iii) the
liability can be reasonably estimated.
If
the
effect of the time value of money is material, provision amounts are determined
as the present value of the expected disbursements to settle the obligation.
The
discount rate is determined on a pre-tax basis and reflects current market
conditions at the balance sheet date and, where appropriate, the risks specific
to the liability. Where discounting is used, the increase in the provision
due
to the passage of time is recognized as an interest expense.
Contingent
liabilities are recognized only when it is probable they will give rise to
a
future cash disbursement for their settlement. Also, commitments are only
recognized when it is probable they will generate a loss.
o)
Pension plan, seniority premiums and severance benefits
The
IMCP
issued the revised Mexican accounting bulletin D-3, Labor Obligations, which
came into force on January 1, 2005. The revised bulletin establishes the overall
rules for the valuation, presentation and disclosure of “other post-retirement
benefits” and the reduction and early extinguishment of such benefits. Bulletin
D-3 also modifies the rules applicable to employee severance
benefits.
Bachoco
has a retirement plan in which all non-union workers participate. Pension
benefits are determined based on the salary of workers in their final three
years of service, the number of years worked and their age at retirement; this
plan includes:
·
Defined
contribution plan: This fund consists of employee and Company contributions.
The
employee contribution percentage ranges from 1% to 5%. The Company contribution
ranges from 1% to 2% in the case of employees with less than 10 years’
seniority, and the same contribution percentage as the employee (5%) when
the
employee has more than 10 years’ seniority.
· Defined
benefit plan: This fund consists solely of Company contributions and covers
the
Company's labor obligations with each employee.
Seniority
premiums and severance payments are paid to workers as required by Mexican
labor
law.
The
Company recognizes the liability for pension benefits, seniority premiums and
termination benefits (severance payments), based on independent actuarial
computations using the projected unit-credit method and financial hypotheses
net
of inflation.
p)
Comprehensive income
Comprehensive
income consists of the net income or loss for the year, plus the result from
holding non-monetary assets, the effect of deferred taxes applied directly
to
stockholders’ equity, the effective portion of the unrealized gain or loss on
cash flow hedges and the minimum liability adjustment for labor obligations
as
required by Mexican accounting bulletin B-4, Comprehensive Income.
q)
Derivative financial instruments acquired for hedging
purposes
In
order
to reduce its financial risks, the Company uses derivative financial instruments
as hedges against certain risks. As of January 1, 2005, due to the adoption
of
Mexican accounting bulletin C-10, “Accounting for Derivative Instruments and
Hedging Activities”, issued by the IMCP in April 2004, the Company modified its
accounting policies for valuing and recognizing these instruments.
In
the
normal course of business, the Company is exposed to foreign currency exchange
risks. The Company mitigates these risks through a program that includes the
use
of derivative financial instruments.
The
Company’s policy establishes a range of hedging from 25% to 30% of its total
U.S. dollar denominated transactions. The Company uses options and futures
contracts to mitigate its exposure to exchange rate fluctuations on its
short-term cash flows denominated in U.S. dollars (forecasted transaction).
These instruments are not used for speculative purposes and the counterparties
with which they are contracted are major financial institutions.
The
derivatives are recognized in conformity with the regulations established in
Mexican accounting bulletin C-10 (Mexican GAAP) and Statement of Financial
Accounting Standard (SFAS) 133, “Accounting for Derivative Instruments and
Hedging Activities”, and its related interpretations (US GAAP). The Company use
derivatives as hedge accounting for forecasted transaction.
The
Company has entered into the following agreements involving derivative financial
instruments:
Options
Options
are derivatives that give the buyer the right, albeit not the obligation, to
buy
or sell an asset (in this case dollars) at an established exercise price, known
as the strike
price,
at a
defined date in exchange for the payment of a premium. The issuer of the option
is obligated to buy or sell when the option is exercised by the buyer. When
the
right that is acquired is the right to sell, the option is known as a put,
when
it is to buy, it is known as a call. In Bachoco’s case, the options entered into
are of the European type; that is, they can only be exercised at the maturity
date. The options entered into by Bachoco do not involve the payment of a
premium, as the instruments consist of both call and put options and the
combination of the premiums payable and receivable is equal to zero. Under
this
plan, Bachoco acts as both the buyer and the seller and assumes rights (when
it
purchases) and obligations (when it sells) from these contracts.
Futures
Futures
are contracts that obligate two entities to exchange an asset or value (in
this
case grain) at a future date for a pre-established and agreed quantity, quality
and price. In this type of contract, there is no premium payment, as there
is
only a gain or a loss for the Company when the market price of the grain exceeds
the strike price (gain) or the market price falls below the price agreed to
in
the contract (loss). The Company engaged in futures contracts during 2005 and
2006. The Company holds deposits with some of its counterparties to guarantee
the execution of its futures contracts. Such deposits bear market interest
at
market rates.
Assessment
of effectiveness
The
effectiveness of the Company’s hedges is determined at the time the derivatives
are designated as hedges and is assessed on a regular basis. The effectiveness
of the Company’s hedges is determined at the time the financial derivatives are
designated as hedges and is assessed on a periodic basis. Hedges considered
as
highly effective are those in which the fair value or cash flows of the hedged
item are offset on a period-by-period or cumulative basis by changes in the
fair
value or cash flows of the financial derivative itself within a range of 80%
and
125%.
In
conformity with bulletin C-10 and SFAS 133, paragraph 30, the effective portion
of a loss or gain on a cash flow hedge is recorded in comprehensive income
net
of related income taxes (stockholders’ equity) while the ineffective portion is
recorded in results of operations.
Also,
in
conformity with SFAS 133, Implementation Issue No. G20, “Cash flow hedges:
assessing and measuring the effectiveness of a purchased option used in a cash
flow hedge”, when designating a purchased option (including a combination of
options that comprise either a net purchased option or a zero cost collar)
as
hedging the exposure to variability in expected future cash flows attributable
to a particular rate or price (in this case exchange rate) beyond a specified
level, an entity documents that the assessment of effectiveness will be based
on
total changes in the option's cash flows (that is, the assessment will include
the hedging instrument's entire change in fair value—its entire gain or loss),
rather than documenting that the assessment of effectiveness will be based
on
only the changes in the hedging instrument's intrinsic value as permitted by
paragraph 63(a). For this type of instrument, the hedging ratio may to be
considered perfectly effective and, consequently, there will be no recognition
of ineffectiveness in income, provided the following criteria are
met:
1.
The
critical terms of the hedging instrument (such as notional amount, underlying
and maturity date, etc.) completely match the related terms of the hedged
forecasted transaction.
2.
The
strike price (or prices) of the hedging option (or combination of options)
matches the specified level (or levels) beyond (or within) which the Company’s
exposure is being hedged.
3.
The
hedging instrument’s inflows (outflows) at its maturity date completely offset
the change in the hedged transaction’s cash flows for the risk being hedged.
4.
The
hedging instrument can only be exercised on a single date (its maturity
date).
The
Company followed G-20, as a supplement to FRS, in regards to the measurement
of
effectiveness.
The
Company meets with these criteria for zero cost collar derivative financial
instruments and therefore, the Company’s contracts of this type of instrument
are valued at their fair value at the beginning and later on a monthly basis,
until their maturity. These instruments are recorded in other comprehensive
income at their fair value as of December 31, 2006, and rather than being
reclassified to results of operations they are cancelled upon their maturity,
as
they are considered perfectly effective in accordance with G20.
For
derivatives other than zero cost collar or those that are combination of call
option, the Company determines the effective portion for such derivatives and
records it in other comprehensive income, while the ineffective portion is
recorded in income, as is established in bulletin C-10 and SFAS
133.
r)
Deferred taxes
The
Company determines deferred taxes temporary differences in balance sheet
accounts for financial and tax reporting purposes, using the enacted income
tax
rate at the time the financial statements are issued, or the enacted rate that
will be in effect at the time the temporary differences giving rise to deferred
tax assets and liabilities are expected to be recovered or settled.
The
possibility of recovering deferred tax assets is evaluated periodically and,
if
necessary, a valuation allowance is created for those assets that are unlikely
to be recovered.
Deferred
employee profit sharing is determined only on temporary differences in the
reconciliation of current year net income to taxable income for employee profit
sharing purposes, provided there is no indication that the related liability
or
asset will not be realized in the future.
Asset
tax
is a minimum income tax and any amount paid is recognized as a deferred income
tax asset since it can be credited against future tax obligation for a period
up
to 10 years.
s)
Concentration of risk
The
Company invests a portion of its surplus cash in cash deposits in financial
institutions with credit ratings and has established guidelines related to
diversification and maturities that the Company believes maintains safety and
liquidity. The Company has not experienced any losses on its cash equivalents.
The Company does not believe it has significant concentrations of credit risks
in its accounts receivable, because the Company’s customer base is
geographically diverse, thus spreading the credit risk.
t)
Net income per share
Net
majority income per share has been computed based on majority net income and
on
the weighted average number of shares outstanding, as established in Mexican
accounting bulletin B-14.
u)
Financial information by segments
Requirements
of bulletin B-5, Financial
Information by Segments,
issued
by the IMCP, went into effect in April 2003. This bulletin establishes the
rules
for disclosing financial information by segment.
Financial
information by segment is prepared based on a management’s approach, in
conformity with bulletin B-5, considering a segment to be an operating component
that is subject to risks and benefits that are different from other business
segments.
The
financial information by activity is disclosed in Note 15.
v)
Convenience translation
United
States dollar amounts as of December 31, 2006, shown in the accompanying
consolidated financial statements, have been included solely for the convenience
of the reader and are translated from Mexican pesos to US dollars as a matter
of
arithmetic computation only, at an exchange rate of Ps 10.7995 to one U.S.
dollar, which was the exchange rate at December 31, 2006. Such translation
should not be construed as a representation that the Mexican peso amounts could
have been or could be converted into U.S. dollars at this or any other rate.
Figures shown in US Dollars do not represent the translation of the financial
statements in accordance with US GAAP (SFAS 52).
3.
Related Parties
a)
A
summary of related party accounts payable as of December 31, is as
follows:
|
|
Relation
|
|
2005
|
|
2006
|
|
Llantas
y Accesorios, S.A. de C.V.
|
|
|
Affiliate
|
|
Ps |
56
|
|
Ps |
54
|
|
Maquinaria
Agrícola, S.A. de C.V.
|
|
|
Affiliate
|
|
|
123
|
|
|
2,932
|
|
Vilifies,
S.A. de C.V.
|
|
|
Affiliate
|
|
|
6,177
|
|
|
8,900
|
|
Autos
y Accesorios, S.A. de C.V.
|
|
|
Affiliate
|
|
|
51
|
|
|
306
|
|
|
|
|
|
|
Ps |
6,407
|
|
Ps |
12,192
|
|
All
of
these companies are considered as related parties, as the Company’s main
shareholders are also directly or indirectly, shareholders of these companies.
b)
For
the years ended December 31, 2004, 2005 and 2006, the Company had the following
transactions with related parties:
|
|
2004
|
|
2005
|
|
2006
|
|
Airplane
leasing expenses
|
|
Ps |
2,936
|
|
Ps |
4,517
|
|
Ps |
4,044
|
|
Purchases
of vehicles, tires and spare parts
|
|
|
40,629
|
|
|
56,443
|
|
|
61,160
|
|
Purchases
of feed, raw materials and
Packing
supplies
|
|
|
210,733
|
|
|
187,023
|
|
|
242,804
|
|
4.
Inventories and biological assets
a)
Inventories consist of the following:
|
|
2005
|
|
2006
|
|
Raw
materials and byproducts
|
|
Ps |
674,911
|
|
Ps |
1,047,763
|
|
Medicine,
materials and spare parts
|
|
|
299,880
|
|
|
343,485
|
|
Finished
feed
|
|
|
34,370
|
|
|
41,147
|
|
|
|
|
1,009,161
|
|
|
1,432,395
|
|
Agricultural
products:
|
|
|
|
|
|
|
|
Live
chicken
|
|
|
495,640
|
|
|
545,378
|
|
Processed
chicken
|
|
|
180,755
|
|
|
142,022
|
|
Commercial
egg
|
|
|
19,136
|
|
|
23,724
|
|
|
|
|
695,531
|
|
|
711,124
|
|
Total
|
|
Ps |
1,704,692
|
|
Ps |
2,143,519
|
|
b)
Biological assets at December 31, 2005 and 2006 consist of the
following:
|
|
2005
|
|
2006
|
|
Current
biological assets:
|
|
|
|
|
|
Breeder
pigs
|
|
Ps |
18,031
|
|
Ps |
23,877
|
|
Incubatable
eggs for fattening
|
|
|
54,591
|
|
|
64,698
|
|
Total
current biological assets
|
|
|
72,622
|
|
|
88,575
|
|
|
|
|
|
|
|
|
|
Non-current
biological assets:
|
|
|
|
|
|
|
|
Laying
and breeder hens
|
|
|
150,833
|
|
|
167,626
|
|
Incubatable
eggs for laying hens
|
|
|
7,205
|
|
|
7,435
|
|
Pigs
|
|
|
31,047
|
|
|
24,317
|
|
Laying
hens
|
|
|
493,925
|
|
|
502,167
|
|
Allowance
for productivity declines
|
|
|
(214,009
|
)
|
|
(205,089
|
)
|
Total
non-current biological assets
|
|
|
469,001
|
|
|
496,456
|
|
Total
inventories and biological assets
|
|
Ps |
2,246,315
|
|
Ps |
2,728,550
|
|
The
change in the historical value of biological assets and agricultural products
to
be presented at their fair value was Ps. 22,745 in 2004 (decrease), Ps. 27,055
in 2005 (increase) and Ps. 10,485 in 2006 (increase). In 2004, 2005 and 2006,
the effects were included as part of the caption Net revenue.
5.
Property, Plant and Equipment
a)
Property, plant and equipment consists of the following as of December
31:
|
|
Useful
lives
(years)
|
|
2005
|
|
2006
|
|
Land
|
|
|
-
|
|
Ps |
772,752
|
|
Ps |
782,181
|
|
Buildings,
farm structures and equipment
|
|
|
7-27
|
|
|
12,405,970
|
|
|
12,789,890
|
|
Office,
furniture and equipment
|
|
|
3
|
|
|
244,576
|
|
|
248,537
|
|
Transportation
equipment
|
|
|
6
|
|
|
1,183,938
|
|
|
1,117,900
|
|
|
|
|
|
|
|
14,607,236
|
|
|
14,938,508
|
|
Accumulated
depreciation
|
|
|
|
|
|
(5,678,268
|
)
|
|
(6,037,179
|
)
|
Net
|
|
|
|
|
|
8,928,968
|
|
|
8,901,329
|
|
Construction
in progress
|
|
|
|
|
|
243,294
|
|
|
616,181
|
|
Total
|
|
|
|
|
Ps |
9,172,262
|
|
Ps |
9,517,510
|
|
b)
Depreciation expense for the years ended December 31, 2004, 2005 and 2006,
was Ps
451,885, Ps 479,784 and Ps 517,914, respectively.
6.
Goodwill
In
1999,
goodwill was derived from the purchase of the shares of Grupo Campi, S.A. de
C.V. in the amount of Ps. 353,836. At December 31, 2005 and 2006, accumulated
amortization aggregates Ps. 63,886. As mentioned in Note 2 l), in 2005 and
2006,
goodwill was not amortized derived from the adoption of bulletin B-7,
Business
Acquisitions.
Amortization
expense charged to results of operations for the year ended December 31, 2004
was Ps. 18,840.
7.
Notes Payable to Banks and Long-term Debt
a)
Notes
payable to banks and long-term debt, as of December 31, consists of the
following:
|
|
2005
|
|
2006
|
|
Unsecured
notes payable to banks:
|
|
|
|
|
|
Denominated
in Mexican pesos, interest
rate
2005 and 2006: TIIE FIRA rate
less
2.9 points.
|
|
Ps |
38,344
|
|
Ps |
-
|
|
Denominated
in Mexican pesos, interest
rate:
TIIE FIRA rate less 1.05 points
|
|
|
36,418
|
|
|
-
|
|
Total
notes payable to bank
|
|
Ps |
74,762
|
|
Ps |
-
|
|
The
weighted average interest rate on short-term notes payable at December 31,
2004,
2005 and 2006 was 7.1%, 6.87% and 5.32%, respectively. Average interest rates
on
short-term debt for the years ended December 31, 2004, 2005 and 2006 were 4.93%,
7.74% and 5.25%, respectively.
|
|
2005
|
|
2006
|
|
Long-term
debt to banks:
|
|
|
|
|
|
Secured
by equipment:
Denominated
in Mexican pesos,
repayable
in monthly installments:
Through
2010, at CETES rate plus 2 points
|
|
Ps |
49,738
|
|
Ps |
39,600
|
|
Maturing
in 2006, fix rate of 10.45%
|
|
|
21,682
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Unsecured:
|
|
|
|
|
|
|
|
Denominated
in Mexican pesos, at TIIE FIRA
rate
less 3.30 points, with minimum rate of 2.90%,
through
2010
|
|
|
4,280
|
|
|
3,964
|
|
Total
|
|
|
75,700
|
|
|
43,565
|
|
Less
current portion
|
|
|
(21,682
|
)
|
|
(9,356
|
)
|
Total
long-term debt
|
|
Ps |
54,018
|
|
Ps |
34,208
|
|
Weighted
average interest rates on long-term debt at December 31, 2004, 2005 and 2006
were 10.31%, 9.89% and 8.58%, respectively. The weighted average interest rate
on the Company’s total long term debt for the years ended as of December 31,
2004, 2005 and 2006 was 9.35%, 11.35% and 9.26%, respectively.
The
weighted average interest rate of the Company’s total debt at December 31, 2004,
2005 and 2006 was 8.90%, 8.38% y 6.67%, respectively.
b)
At
December 31, 2005 and 2006, unused lines of credit totaled Ps 1,012,804 and
Ps
805,634, respectively. In 2004, 2005 and 2006, the Company did not pay any
fee
for unused lines of credit.
c)
The
book value of assets collateralizing long-term debt was Ps 244,765 at December
31, 2005 and Ps 140,169 at December 31, 2006.
d)
Maturities of long-term debt as of December 31, 2006 are as
follows:
Year
|
|
Amount
|
|
2008
|
|
|
10,065
|
|
2009
|
|
|
11,855
|
|
2010
|
|
|
12,288
|
|
|
|
Ps |
34,208
|
|
8.
Financial Instruments Acquired for Hedging Purposes
The
Company has entered into contracts with Banamex Citigroup, Merrill Lynch, JP
Morgan and Fimat, to hedge U.S. dollar exchange rates for the Company’s
projected cash expenditures for the period from January through December 2007.
Such contracts represent a long position of USD 214 million (equal to 33% of
Bachoco’s estimated purchases for the year) at an average exchange rate of $
11.00 pesos per dollar. The contracts establish that Bachoco shall not have
to
pay the counterparties a premium for the acquisition of these options since
the
transactions were carried out under zero-cost options, whereby Bachoco buys
and
sells options and premiums payable and receivable, respectively, are the
same.
A
summary
of instruments that qualify as cash flow hedges as of December 31, 2005 and
2006
is as follows:
2005
|
|
|
|
Position
|
|
Notional
Amount
|
|
Fair
value
|
|
Other
comprehensive
Income
|
|
Ineffective
portion (income)
|
|
Derivatives
financial Instruments
|
|
Type
|
|
Exchange
rate options
|
|
|
Call
|
|
|
Short
|
|
Ps |
220,500
|
|
Ps |
30,596
|
|
Ps |
30,596
|
|
|
-
|
|
Exchange
rate options
|
|
|
Call
|
|
|
Long
|
|
|
311,781
|
|
|
(49,601
|
)
|
|
(49,601
|
)
|
|
-
|
|
Exchange
rate options
|
|
|
Put
|
|
|
Short
|
|
|
408,925
|
|
|
(102,603
|
)
|
|
(102,603
|
)
|
|
-
|
|
Exchange
rate options
|
|
|
Put
|
|
|
Long
|
|
|
302,716
|
|
|
19,902
|
|
|
19,902
|
|
|
-
|
|
Bean
and soy futures
|
|
|
|
|
|
Short
|
|
|
3,315
|
|
|
(1,957
|
)
|
|
(1,957
|
)
|
|
-
|
|
Bean
and soy futures
|
|
|
|
|
|
Long
|
|
|
3,133
|
|
|
274
|
|
|
274
|
|
|
-
|
|
Corn
futures
|
|
|
|
|
|
Short
|
|
|
717
|
|
|
38
|
|
|
38
|
|
|
-
|
|
Corn
futures
|
|
|
|
|
|
Long
|
|
|
633
|
|
|
(311
|
)
|
|
(311
|
)
|
|
-
|
|
Bean
and soy options
|
|
|
Call
|
|
|
Short
|
|
|
1,100
|
|
|
344
|
|
|
344
|
|
|
-
|
|
Bean
and soy options
|
|
|
Call
|
|
|
Long
|
|
|
1,035
|
|
|
42
|
|
|
42
|
|
|
-
|
|
Bean
and soy options
|
|
|
Put
|
|
|
Short
|
|
|
1,678
|
|
|
(41
|
)
|
|
(41
|
)
|
|
-
|
|
Bean
and soy options
|
|
|
Put
|
|
|
Long
|
|
|
|
|
|
(200
|
)
|
|
(200
|
)
|
|
-
|
|
Corn
options
|
|
|
Call
|
|
|
Short
|
|
|
770
|
|
|
(67
|
)
|
|
(67
|
)
|
|
-
|
|
Corn
options
|
|
|
Call
|
|
|
Long
|
|
|
735
|
|
|
247
|
|
|
247
|
|
|
-
|
|
Corn
options
|
|
|
Put
|
|
|
Short
|
|
|
2,077
|
|
|
(376
|
)
|
|
(376
|
)
|
|
-
|
|
Corn
options
|
|
|
Put
|
|
|
Long
|
|
|
|
|
|
(3
|
)
|
|
(3
|
)
|
|
-
|
|
Peso
future
|
|
|
|
|
|
Short
|
|
|
|
|
|
(131
|
)
|
|
(131
|
)
|
|
-
|
|
Peso
options
|
|
|
Call
|
|
|
Short
|
|
|
|
|
|
(2,138
|
)
|
|
(2,138
|
)
|
|
-
|
|
Peso
options
|
|
|
Put
|
|
|
Short
|
|
|
|
|
|
(2
|
)
|
|
(2
|
)
|
|
-
|
|
Peso
options
|
|
|
Put
|
|
|
Long
|
|
|
|
|
|
2
|
|
|
2
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Ps |
(105,985
|
)
|
Ps |
(105,985
|
)
|
|
-
|
|
Deferred
tax effect
|
|
|
|
|
|
|
|
|
|
|
|
16,958
|
|
|
16,958
|
|
|
-
|
|
Total
net of taxes
|
|
|
|
|
|
|
|
|
|
|
Ps |
(89,027
|
)
|
Ps |
(89,027
|
)
|
|
-
|
|
2006
|
|
|
|
Position
|
|
Notional
Amount
|
|
Fair
value
|
|
Other
comprehensive income
|
|
Ineffective
portion
(income)
|
|
Derivatives
financial Instruments
|
|
Type
|
|
Exchange
rate options
|
|
|
Call
|
|
|
Short
|
|
Ps |
155,860
|
|
Ps |
(23,469
|
)
|
Ps |
(3,972
|
)
|
$
|
(19,497
|
)
|
Exchange
rate options
|
|
|
Call
|
|
|
Long
|
|
|
212,193
|
|
|
20,591
|
|
|
4,528
|
|
|
16,063
|
|
Exchange
rate options
|
|
|
Put
|
|
|
Short
|
|
|
77,400
|
|
|
(45,677
|
)
|
|
(115
|
)
|
|
(45,562
|
)
|
Exchange
rate options
|
|
|
Put
|
|
|
Long
|
|
|
154,960
|
|
|
29,445
|
|
|
-
|
|
|
29,445
|
|
Bean
and soy future
|
|
|
|
|
|
Long
|
|
|
3,066
|
|
|
2,065
|
|
|
-
|
|
|
2,065
|
|
Corn
future
|
|
|
|
|
|
Long
|
|
|
9,489
|
|
|
3,671
|
|
|
-
|
|
|
3,671
|
|
Bean
and soy future
|
|
|
Call
|
|
|
Long
|
|
|
600
|
|
|
227
|
|
|
-
|
|
|
227
|
|
Bean
and soy future
|
|
|
Put
|
|
|
Short
|
|
|
1,125
|
|
|
(208
|
)
|
|
-
|
|
|
(208
|
)
|
Corn
future
|
|
|
Call
|
|
|
Long
|
|
|
2,860
|
|
|
3,185
|
|
|
-
|
|
|
3,185
|
|
Corn
future
|
|
|
Put
|
|
|
Short
|
|
|
7,990
|
|
|
(256
|
)
|
|
-
|
|
|
(256
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,426
|
)
|
|
441
|
|
|
(10,867
|
)
|
Deferred
tax effect
|
|
|
|
|
|
|
|
|
|
|
|
1,981
|
|
|
(84
|
)
|
|
|
|
Total
net of taxes
|
|
|
|
|
|
|
|
|
|
|
Ps |
(8,445
|
)
|
Ps |
357
|
|
$
|
(10,867
|
)
|
The
Company has entered into short-term hedges through “put” and “call” options to
cover its assets in the amount of $ 532,281 thousand in 2005 and $ 367 thousand
in 2006, and its liabilities in the amount of $ 708,733 thousand and $ 233
thousand in 2005 and 2006, respectively. These contracts represented a net
(credit) debit of Ps.114,986,
Ps.
149,738 and Ps. 67,941 to results of operations of 2004, 2005 and 2006,
respectively, under the caption Comprehensive cost of financing.
9.
Commitments and contingencies
a)
The
Company has entered into operating leases for certain offices, production sites,
automotive and computer equipment. Most leases contain renewal options. Rental
expense was as follows:
Year
ended December 31,
|
|
Amount
|
|
2004
|
|
Ps |
30,712
|
|
2005
|
|
|
31,959
|
|
2006
|
|
|
29,411
|
|
b)
Future
minimum annual rental payments under existing operating leases with initial
terms in excess of one year as of December 31, 2006, are as follow:
Year
ended December 31,
|
|
Amount
|
|
2007
|
|
Ps |
24,053
|
|
2008
|
|
|
18,104
|
|
2009
|
|
|
14,617
|
|
2010
|
|
|
11,349
|
|
2011
|
|
|
10,288
|
|
2012
and thereafter
|
|
|
9,502
|
|
Total
|
|
Ps |
87,913
|
|
10.
Other taxes payable and other accruals
An
analysis of other taxes payable and other accruals presented in the financial
statements is as follows:
|
|
2005
|
|
2006
|
|
Expenses
payable
|
|
Ps |
135,518
|
|
Ps |
130,853
|
|
Interest
payable
|
|
|
1,404
|
|
|
937
|
|
Tax
payable
|
|
|
3,930
|
|
|
3,118
|
|
Salaries
payable
|
|
|
3,114
|
|
|
2,588
|
|
Withholding
taxes
|
|
|
18,401
|
|
|
14,198
|
|
Social
security fees
|
|
|
28,965
|
|
|
25,157
|
|
Employee
profit sharing
|
|
|
3,926
|
|
|
5,063
|
|
Trade
advances
|
|
|
62,666
|
|
|
31,722
|
|
Other
accounts payable
|
|
|
33,254
|
|
|
21,113
|
|
Total
|
|
Ps |
291,178
|
|
Ps |
234,749
|
|
11.
Foreign Currency Position
a)
A
summary of the Company’s assets and liabilities denominated in U.S. dollars (the
only foreign currency) as of December 31:
|
|
(Thousands
U.S. dollars)
|
|
|
|
2005
|
|
2006
|
|
Assets:
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
26,251
|
|
$
|
23,775
|
|
Advances
to suppliers (included in inventories and property,
plant and equipment)
|
|
|
21,424
|
|
|
38,939
|
|
|
|
|
47,675
|
|
|
62,714
|
|
Liabilities:
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
(6,415
|
)
|
|
(15,976
|
)
|
|
|
|
|
|
|
|
|
Net
long position
|
|
$
|
41,260
|
|
$
|
46,738
|
|
b)
As of
December 31, 2005 and 2006, the exchange rate was Ps 10.71 and Ps 10.82 per
dollar, respectively.
c)
Assets
from foreign origin included in the consolidated balance sheets as of December
31, 2005 and 2006, were:
|
|
(Thousands
of U.S. dollars)
|
|
|
|
2005
|
|
2006
|
|
Inventories
|
|
$
|
16,969
|
|
$
|
20,654
|
|
Property,
plant and equipment
|
|
|
140,109
|
|
|
140,093
|
|
d)
Imported raw materials, in thousands of U.S. dollars, were $ 443,473 in 2004,
$
416,974
in 2005 and $ 483,278 in 2006. Interest expense, in thousands of U.S. dollars
from debt denominated in U.S. dollars was $ 235 in 2004 and $ 5 in 2005. During
2006, the Company had no interest expense, as the debt in foreign currency
had
been settled.
12.
Labor Obligations
An
analysis of the net period cost, reserve amounts and the assumptions considered
in the pension plan, the seniority premium and severance obligation at December
31 is as follows:
|
|
Pension
plan
|
|
Seniority
Premium
|
|
Severance
|
|
|
|
2004
|
|
2005
|
|
2006
|
|
2004
|
|
2005
|
|
2006
|
|
2005
|
|
2006
|
|
Net
period cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Labor
cost
|
|
Ps |
9,465
|
|
Ps |
10,407
|
|
Ps |
11,364
|
|
Ps |
3,153
|
|
Ps |
3,177
|
|
Ps |
3,644
|
|
Ps |
8,812
|
|
Ps |
9,132
|
|
Return
on plan assets
|
|
|
(5,555
|
)
|
|
(7,102
|
)
|
|
(8,091
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Amortization
of unrecognized prior past service costs
|
|
|
2,483
|
|
|
2,600
|
|
|
2,341
|
|
|
2,975
|
|
|
3,314
|
|
|
3,621
|
|
|
4,417
|
|
|
1,475
|
|
Interest
cost
|
|
|
6,877
|
|
|
7,620
|
|
|
7,579
|
|
|
1,870
|
|
|
2,014
|
|
|
2,215
|
|
|
1,809
|
|
|
1,920
|
|
Net
period cost
|
|
Ps |
13,270
|
|
Ps |
13,525
|
|
Ps |
13,193
|
|
Ps |
7,998
|
|
Ps |
8,505
|
|
Ps |
9,480
|
|
Ps |
15,038
|
|
Ps |
12,527
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from early extinguishment
of obligations
|
|
Ps |
-
|
|
Ps |
-
|
|
Ps |
-
|
|
Ps |
-
|
|
Ps |
-
|
|
Ps |
-
|
|
Ps |
1,970
|
|
Ps |
907
|
|
|
|
Pension
plan
|
|
Seniority
Premium
|
|
Severance
|
|
|
|
2005
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
2006
|
|
Labor
Obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
benefit obligation
|
|
Ps |
136,829
|
|
Ps |
154,473
|
|
Ps |
33,309
|
|
Ps |
31,865
|
|
Ps |
37,474
|
|
Ps |
30,779
|
|
Current
benefit obligation
|
|
|
84,865
|
|
|
95,625
|
|
|
28,428
|
|
|
27,180
|
|
|
35,800
|
|
|
30,779
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected
benefit obligation
|
|
|
146,840
|
|
|
182,495
|
|
|
44,860
|
|
|
47,319
|
|
|
41,125
|
|
|
34,747
|
|
Plan
assets
|
|
|
(126,005
|
)
|
|
(154,609
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Unrecognized
prior service cost
|
|
|
(24,079
|
)
|
|
(22,139
|
)
|
|
(7,302
|
)
|
|
(6,679
|
)
|
|
(31,320
|
)
|
|
(26,902
|
)
|
Unrecognized
net gains
|
|
|
35,470
|
|
|
35,426
|
|
|
(13,999
|
)
|
|
(15,213
|
)
|
|
52
|
|
|
6,961
|
|
Unrecognized
changes or improvements
|
|
|
(18,752
|
)
|
|
(27,511
|
)
|
|
(2,425
|
)
|
|
100
|
|
|
-
|
|
|
-
|
|
Net
projected benefit obligation
|
|
|
13,474
|
|
|
13,662
|
|
|
21,134
|
|
|
25,527
|
|
|
9,857
|
|
|
14,806
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unfunded
accumulated benefit obligation
|
|
Ps |
13,016
|
|
Ps |
4,456
|
|
Ps |
33,309
|
|
Ps |
31,865
|
|
Ps |
37,474
|
|
Ps |
30,779
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
net liability over net projected liability
in some subsidiaries
|
|
|
3,448
|
|
|
-
|
|
|
12,173
|
|
|
6,337
|
|
|
27,617
|
|
|
15,973
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
liability
|
|
|
(3,448
|
)
|
|
-
|
|
|
(12,173
|
)
|
|
(6,337
|
)
|
|
(27,617
|
)
|
|
(15,973
|
)
|
Intangible
assets
|
|
|
3,448
|
|
|
-
|
|
|
9,493
|
|
|
5,454
|
|
|
27,082
|
|
|
15,973
|
|
Minimum
labor obligation liability adjustment
|
|
Ps |
-
|
|
Ps |
-
|
|
Ps |
2,680
|
|
Ps |
883
|
|
Ps |
535
|
|
Ps |
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit
obligation at beginning of year
|
|
Ps |
140,703
|
|
Ps |
146,840
|
|
Ps |
38,963
|
|
Ps |
44,860
|
|
Ps |
37,601
|
|
Ps |
41,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
|
10,407
|
|
|
11,364
|
|
|
3,177
|
|
|
3,644
|
|
|
8,812
|
|
|
9,132
|
|
Interest
cost
|
|
|
7,620
|
|
|
7,579
|
|
|
2,014
|
|
|
2,215
|
|
|
1,809
|
|
|
1,920
|
|
Actuarial
differences
|
|
|
(10,360
|
)
|
|
8,210
|
|
|
5,363
|
|
|
2,254
|
|
|
52
|
|
|
(5,857
|
)
|
Benefits
paid
|
|
|
(1,530
|
)
|
|
(1,498
|
)
|
|
(4,657
|
)
|
|
(5,654
|
)
|
|
(7,149
|
)
|
|
(8,484
|
)
|
Changes
to plan not applied
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(3,089
|
)
|
Increase
for plan improvement
|
|
|
-
|
|
|
10,000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Projected
benefit obligation at end of year
|
|
Ps |
146,840
|
|
Ps |
182,495
|
|
Ps |
44,860
|
|
Ps |
47,319
|
|
Ps |
41,125
|
|
Ps |
34,747
|
|
|
|
Pension
plan
|
|
|
|
2005
|
|
2006
|
|
Changes
in plan assets:
|
|
|
|
|
|
Plan
assets at beginning of the year
|
|
Ps |
103,311
|
|
Ps |
126,005
|
|
|
|
|
|
|
|
|
|
Actual
return on plan assets
|
|
|
7,102
|
|
|
8,091
|
|
Employer
contribution
|
|
|
13,395
|
|
|
13,530
|
|
Actuarial
differences
|
|
|
3,727
|
|
|
8,481
|
|
Benefit
paid
|
|
|
(1,530
|
)
|
|
(1,498
|
)
|
Fair
value of plan assets at end of year
|
|
Ps |
126,005
|
|
Ps |
154,609
|
|
|
|
|
|
|
|
|
|
Funded
status
|
|
Ps |
(20,835
|
)
|
Ps |
(27,886
|
)
|
Unrecognized
net actuarial loss (gain)
|
|
|
(35,470
|
)
|
|
(35,426
|
)
|
Unrecognized
prior service cost (benefit)
|
|
|
24,079
|
|
|
22,139
|
|
Net
amount recognized
|
|
Ps |
(32,226
|
)
|
Ps |
(41,173
|
)
|
The
Company used December 31, 2004, 2005 and 2006 measurement date for pension
plan,
seniority premium, and December 31, 2005 and 2006 for the severance
plan.
The
transition liability, the prior service cost and plan changes, and actuarial
differences assumptions will be amortized over a period ranging from 21 to
25
years (the average remaining working life of employees).
The
asset
allocation for the Company’s pension plan at the end of 2004, 2005 and 2006 and
the target allocation for 2007 by asset category are as follows:
|
|
Percentage
of plan at year end
|
|
Target
allocation
|
|
|
|
2004
|
|
2005
|
|
2006
|
|
2007
|
|
Fixed-income
securities
|
|
|
79
|
%
|
|
75
|
%
|
|
74
|
%
|
|
75
|
%
|
Fixed-variable
income securities
|
|
|
21
|
%
|
|
25
|
%
|
|
26
|
%
|
|
25
|
%
|
Target
asset allocations reflect its investment strategy of maximizing the rate of
return on plan assets and the resulting funded status, within an appropriate
level of risk.
The
rates
considered in the actuarial study were in 2003, 2004 and 2005 are as
follows:
|
|
2004
|
|
2005
|
|
2006
|
|
Labor
obligations discount
|
|
|
5.50
|
%
|
|
5.25
|
%
|
|
5.00
|
%
|
Future
salary increases
|
|
|
1.50
|
%
|
|
1.00
|
%
|
|
1.00
|
%
|
Return
on assets
|
|
|
6.50
|
%
|
|
6.25
|
%
|
|
6.25
|
%
|
The
information about the expected cash flow for the pension benefit plant and
seniority premium is as follows:
|
|
|
|
|
|
|
|
Pension
plan
|
|
Seniority
premium
|
|
Expected
benefit payment:
|
|
|
|
|
|
2007
|
|
Ps |
5,885
|
|
Ps |
5,668
|
|
2008
|
|
|
6,612
|
|
|
5,821
|
|
2009
|
|
|
7,558
|
|
|
5,877
|
|
2010
|
|
|
8,478
|
|
|
5,913
|
|
2011
|
|
|
9,526
|
|
|
5,918
|
|
2012-2015
|
|
|
47,560
|
|
|
23,983
|
|
Total
|
|
Ps |
85,619
|
|
Ps |
53,180
|
|
The
above
table reflects the total benefits expected to be paid from the
plan.
13.
Stockholders’ Equity
a)
In
April 1997, Bachoco had a stock split and created so-called “BL” units, which
consist of one series “B” share and one series “L” share, and so-called “BB”
units, which consist of two series “B” shares. Series “L” shares have limited
voting rights. This change did not modify
the face
value of the shares.
Until
December 31, 2005, our financial statements disclosed net income per unit,
based
on the weighted average of units outstanding (299,630 units in 2004 and 299,847
units in 2005). Starting in 2006, our disclosure has been changed to net income
per share, based on the weighted average of shares outstanding. All per share
information has been retroactively adjusted for comparison
purposes.
In
September 2006, the Company separated the BL units into B and L shares and
converted the series L shares into series B shares; consequently only one series
remains (series B). All shares ussued and outstanding shares have voting
rights.
b)
In
2004, 2005 and 2006, the Company declared and paid cash dividends at nominal
values of Ps 238,935, Ps 239,098 and Ps 353,880, respectively (Ps 265,655,
Ps
254,165 and Ps 364,525, in constant Mexican pesos) or Ps 0.40, Ps 0.40 and
Ps
0.59, respectively, per share in nominal pesos.
c)
The
Mexican Corporation Act requires that at least 5% of each year’s net income be
appropriated to increase the legal reserve until such reserve is equal to 20%
of
capital stock issued and outstanding. The balance of the legal reserve at
December 31, 2005 and 2006, included in retained earnings, was Ps
198,282.
d)
The
Company approved a stock repurchase plan in 1998, in conformity with the Mexican
Securities Trading Act, providing a stock repurchase reserve for that purpose
of
Ps 180,000 (Ps 292,853 expressed in constant Mexican pesos) through the
appropriation of retained earnings in 1998. During 2004 and 2005, the Company
repurchased 2,220 thousand, 920 thousand shares for Ps 25,324, and Ps 11,047
respectively. During 2006, no shares were repurchased. In 2004, 2005 and 2006,
the Company sold 1,420 thousand, 800 thousand and 920 thousand of shares,
respectively, previously repurchased; the sales value of latter was for Ps
13,464, Ps 2,847 and Ps
16,966, respectively.
e)
The
Company is required to pay taxes on dividends distributed to stockholders only
to the extent the payment made exceeds the balance of the net tax profit account
(CUFIN), which is used to control earnings on which income tax has already
been
paid.
Income
tax paid on dividends refers to a tax payable by corporate entities and not
by
individuals.
The
Company obtains the majority of its revenues and net profit from Bachoco, S.A.
de C.V. (BSACV). For the years 2004 through 2006, pretax income of BSACV,
represented between 90% and 92% of Bachoco’s consolidated pretax income.
Dividends
on which BSACV has paid income tax will be credited to the Company’s “CUFIN”
account and, accordingly, no further income tax will be paid when such amounts
are distributed as dividends to the Company’s stockholders.
f)
From
1999 through December 31, 2001, under Mexican income tax law, corporate
taxpayers were extended the option of deferring payment of a portion of their
annual corporate income tax, so that the tax payable will represent 30% of
taxable income. The earnings on which taxpayers opted to defer payment of a
portion of corporate income tax had to be controlled in the so-called “net
reinvested tax profit account” (CUFINRE).
Since
the
Company opted for this tax deferral, earnings will be considered to be
distributed first from the CUFINRE and any excess will be paid from the “net tax
profit account” balance (“CUFIN”) so as to pay the 5% deferred tax. The
option to defer a portion of the annual corporate income tax was eliminated
effective January 1, 2002.
14.
Income Tax, Asset Tax and Employee Profit Sharing
a)
The
Company and each of its subsidiaries file separate income tax returns. BSACV,
the Company’s principal operating subsidiary, is subject to payment of corporate
income tax under the provisions of the simplified regime, which is applicable
to
companies engaged exclusively in agriculture, cattle-raising, fishing, forestry
and certain other activities the
income tax law establishes that are exclusive when the companies obtain no
more
than 10% of their revenues from the production of processed products,
with
which rule BSACV has complied.
The
simplified regime establishes that the taxable base for income tax is determined
on revenues collected net of deductions paid. The tax rate for this regime
was
16% in 2004, 2005 and 2006.
The
income tax reforms passed in December 2004 include the elimination, as from
beginning in the 2005 fiscal year, of the taxable deduction of purchases so
as
to permit only the deduction of cost of sales. This reform is only applicable
to
the subsidiary Campi Alimentos S.A. de C.V. as it pays taxes under the general
regime, while for BSACV it is not applicable, due to the fact that it pays
taxes
under the simplified regime.
In
2006
changes were made to Mexican tax law that as of 2007, will increase the tax
rate
from 16% to 19%. This change resulted in a charge of Ps. 324,190 to income,
reflected in deferred taxes under “change in rates”.
b)
In
addition to income tax, the Company and its subsidiaries are also subject to
an
alternative minimum tax known as the asset tax, which is assessed on the average
value of most assets, net of certain liabilities. The general asset tax rate
is
1.8%. Asset Tax Law permits companies that have the right to reduce their income
tax to reduce the asset tax in the same proportion; therefore, BSACV is subject
to a 0.9% rate and to special rules excluding many assets from the determination
of asset tax and a tax incentive derived from the investment in assets. The
asset tax in 2004, 2005 and 2006 amounted to Ps 13,706, Ps 20,642 and Ps 27,243,
respectively. In each of the three years the Company credited against these
amounts the income tax paid in such years of
Ps
11,493, Ps 17,579 and Ps 24,836, respectively.
The
Company and its subsidiaries are required to pay asset tax if the amount of
asset tax exceeds the computed income tax liability. Asset tax paid can be
credited against income tax in subsequent years (up to ten years). At December
31, 2006, the Company had Ps 13,449 in asset tax credits.
c)
For
the years ended December 31, 2004, 2005 and 2006, income tax charged (credited)
to results of operations was as follows:
|
|
2004
|
|
2005
|
|
2006
|
|
Current
year income tax
|
|
Ps |
22,003
|
|
Ps |
350,415
|
|
Ps |
241,443
|
|
Current
year asset tax
|
|
|
2,213
|
|
|
3,063
|
|
|
2,407
|
|
Deferred
income tax
|
|
|
87,021
|
|
|
1,029
|
|
|
333,571
|
|
Total
income tax
|
|
Ps |
111,237
|
|
Ps |
354,507
|
|
Ps |
577,421
|
|
The
component of the Company’s deferred income tax (assets) and liabilities are as
follows:
|
|
2005
|
|
2006
|
|
Assets:
|
|
|
|
|
|
Accounts
payable
|
|
Ps |
1,082
|
|
Ps |
2,922
|
|
Tax
loss carry forward for simplified regime in force through December
31,
2001
|
|
|
8,809
|
|
|
5,896
|
|
|
|
|
9,891
|
|
|
8,818
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
Inventories
|
|
|
252,310
|
|
|
364,215
|
|
Accounts
receivable
|
|
|
4,891
|
|
|
(46,601
|
)
|
Fixed
assets
|
|
|
1,191,268
|
|
|
1,190,296
|
|
Effect
due to change in tax rate
|
|
|
-
|
|
|
324,190
|
|
Additional
liability from stockholders’ equity
|
|
|
324,473
|
|
|
279,700
|
|
|
|
|
1,772,942
|
|
|
2,111,800
|
|
Total
deferred income tax liability, net
|
|
Ps |
1,763,051
|
|
Ps |
2,102,982
|
|
At
December 31, 2005 and 2006, the deferred income tax liability determined by
considering earned capital as a temporary difference results in an additional
liability of Ps. 324,473 in 2005 and Ps. 279,700.
The
most
significant items that gave rise to a difference between the total amount of
current year income tax and the current year deferred tax determined at the
statutory rate are as follows:
|
|
2004
|
|
2005
|
|
2006
|
|
|
|
%
|
|
%
|
|
%
|
|
Statutory
income tax rate
|
|
|
16.50
|
|
|
16.00
|
|
|
16.00
|
|
Effect
of companies outside simplified regime
|
|
|
3.0
|
|
|
2.3
|
|
|
4.42
|
|
Effect
of non-taxable items
|
|
|
(
5.6
|
)
|
|
(
2.2
|
)
|
|
(
3.04
|
)
|
Benefit
derived from change in law effective in
2002 and changes in tax rate
|
|
|
(
1.2
|
)
|
|
-
|
|
|
-
|
|
Effect
due to change in tax rate from 16% to 19%
in 2007
|
|
|
|
|
|
|
|
|
22.27
|
|
Effective
income tax rate
|
|
|
12.7
|
|
|
16.1
|
|
|
39.65
|
|
The
effect
of
non-taxable book items is comprised basically of the effects of inflation
recognized in the financial statements and non-deductible expenses considered
to
be permanent items.
d)
At
December 31, 2005 and 2006, the tax value of the Company’s equity, which will
not be subject to taxation, is comprised of the following:
|
|
2005
|
|
2006
|
|
Restated
contributed capital (CUCA)
|
|
Ps |
1,809,437
|
|
Ps |
1,809,331
|
|
Net
tax profit (CUFIN) and net reinvested tax
profit (CUFINRE)
|
|
|
1,568,368
|
|
|
2,312,668
|
|
Total
|
|
Ps |
3,377,805
|
|
Ps |
4,121,999
|
|
e)
The
Company and BSACV have no employees, but each of the subsidiaries of the Company
that has employees is required under Mexican law to pay employees, in addition
to their compensation and benefits, profit sharing in an aggregate amount equal
to 10% of such subsidiary’s taxable income subject to certain
adjustments.
15.
Financial information by segments
The
segments to be reported are focused by product line. Inter-segment transactions
have been eliminated. Our Poultry segment is comprised of our chicken and egg
products. The information included under “Others” corresponds to pigs, balanced
animal feed and other sundry sub-products. The required disclosures are shown
below:
|
|
As
of and for the year ended December 31, 2004
|
|
|
|
Poultry
|
|
Others
|
|
Total
|
|
Net
revenues
|
|
Ps |
12,786,184
|
|
Ps |
1,513,483
|
|
Ps |
14,299,667
|
|
Cost
of sales
|
|
|
(10,196,871
|
)
|
|
(1,400,046
|
)
|
|
(11,596,917
|
)
|
Gross
profit
|
|
|
2,589,313
|
|
|
113,437
|
|
|
2,702,750
|
|
Interest
income
|
|
|
129,314
|
|
|
(19,812
|
)
|
|
109,502
|
|
Interest
expense and other financing costs
|
|
|
(126,680
|
)
|
|
(3,966
|
)
|
|
(130,646
|
)
|
Loss
on net monetary position
|
|
|
(104,164
|
)
|
|
-
|
|
|
(104,164
|
)
|
Income
tax and asset tax
|
|
|
(80,984
|
)
|
|
(30,253
|
)
|
|
(111,237
|
)
|
Majority
net income
|
|
|
711,016
|
|
|
44,665
|
|
|
755,681
|
|
Property,
plant and equipment, net
|
|
|
8,633,030
|
|
|
213,757
|
|
|
8,846,787
|
|
Total
assets
|
|
|
13,930,758
|
|
|
534,533
|
|
|
14,465,291
|
|
Total
liabilities
|
|
|
(2,629,970
|
)
|
|
(141,855
|
)
|
|
(2,771,825
|
)
|
Capital
expenditures
|
|
|
471,194
|
|
|
-
|
|
|
471,194
|
|
Expenses
not requiring cash disbursement:
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
441,529
|
|
|
10,356
|
|
|
451,885
|
|
Amortization
of goodwill
|
|
|
13,328
|
|
|
5,512
|
|
|
18,840
|
|
|
|
As
of and for the year ended December 31, 2005
|
|
|
|
Poultry
|
|
Others
|
|
Total
|
|
Net
revenues
|
|
Ps |
13,368,616
|
|
Ps |
1,683,752
|
|
Ps |
15,052,368
|
|
Cost
of sales
|
|
|
(9,388,090
|
)
|
|
(1,439,460
|
)
|
|
(10,827,550
|
)
|
Gross
profit
|
|
|
3,980,526
|
|
|
244,292
|
|
|
4,224,818
|
|
Interest
income
|
|
|
293,030
|
|
|
12,017
|
|
|
305,047
|
|
Interest
expense and other financing costs
|
|
|
(201,553
|
)
|
|
(361
|
)
|
|
(201,914
|
)
|
Loss
on net monetary position
|
|
|
(114,423
|
)
|
|
-
|
|
|
(114,423
|
)
|
Income
tax and asset tax
|
|
|
(323,397
|
)
|
|
(31,110
|
)
|
|
(354,507
|
)
|
Majority
net income
|
|
|
1,763,825
|
|
|
75,567
|
|
|
1,839,392
|
|
Property,
plant and equipment, net
|
|
|
8,963,728
|
|
|
208,534
|
|
|
9,172,262
|
|
Total
assets
|
|
|
15,262,534
|
|
|
669,481
|
|
|
15,932,015
|
|
Total
liabilities
|
|
|
(2,735,610
|
)
|
|
(182,543
|
)
|
|
(2,918,153
|
)
|
Capital
expenditures
|
|
|
805,259
|
|
|
-
|
|
|
805,259
|
|
Expenses
not requiring cash disbursement:
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
471,666
|
|
|
8,118
|
|
|
479,784
|
|
|
|
As
of and for the year ended December 31, 2006
|
|
|
|
Poultry
|
|
Others
|
|
Total
|
|
Net
revenues
|
|
Ps |
12,997,441
|
|
Ps |
1,990,135
|
|
Ps |
14,987,576
|
|
Cost
of sales
|
|
|
(9,850,583
|
)
|
|
(1,765,741
|
)
|
|
(
11,616,324
|
)
|
Gross
profit
|
|
|
3,146,858
|
|
|
224,394
|
|
|
3,371,252
|
|
Interest
income
|
|
|
278,464
|
|
|
13,472
|
|
|
291,936
|
|
Interest
expense and other financing costs
|
|
|
(124,814
|
)
|
|
(2,261
|
)
|
|
(127,075
|
)
|
Loss
on net monetary position
|
|
|
(144,988
|
)
|
|
-
|
|
|
(144,988
|
)
|
Income
tax and asset tax
|
|
|
(547,358
|
)
|
|
(30,063
|
)
|
|
(577,421
|
)
|
Majority
net income
|
|
|
796,694
|
|
|
76,662
|
|
|
873,356
|
|
Property,
plant and equipment, net
|
|
|
9,267,287
|
|
|
250,223
|
|
|
9,517,510
|
|
Total
assets
|
|
|
16,224,005
|
|
|
699,088
|
|
|
16,923,093
|
|
Total
liabilities
|
|
|
(3,201,298
|
)
|
|
(129,771
|
)
|
|
(
3,331,069
|
)
|
Capital
expenditures
|
|
|
863,162
|
|
|
|
|
|
863,162
|
|
Expenses
not requiring cash disbursement:
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
504,746
|
|
|
13,168
|
|
|
517,914
|
|
Revenues
from our poultry segment are analized as follows:
|
|
As
of and for the year ended December 31, 2004
|
|
|
|
Chicken
|
|
Egg
|
|
Total
|
|
Net
revenues
|
|
Ps |
11,231,040
|
|
Ps |
1,555,144
|
|
Ps |
12,786,184
|
|
|
|
|
|
|
As
of and for the year ended December 31, 2005
|
|
|
|
Chicken
|
|
|
Egg
|
|
|
Total
|
|
Net
revenues
|
|
Ps |
12,064,265
|
|
Ps |
1,304,352
|
|
Ps |
13,368,616
|
|
|
|
|
|
|
As
of and for the year ended December 31, 2006
|
|
|
|
Chicken
|
|
|
Egg
|
|
|
Total
|
|
Net
revenues
|
|
Ps |
11,616,620
|
|
Ps |
1,380,821
|
|
Ps |
12,997,441
|
|
16.
New accounting Pronouncements
On
December 22, 2006, the issuing council of the Mexican Financial Reporting
Standards Research and Development Board (Consejo
Mexicano para la Investigación y Desarrollo de Normas de Información Financiera,
A.C.
or
CINIF) issued Financial Reporting Standard (FRS) B-3, Statements
of Operations;
FRS
B-13, Subsequent
Events;
FRS
C-13, Related
Parties,
and FRS
D-6, Capitalization
of the Comprehensive Cost of Financing,
each of
which come into force in the year beginning on January 1, 2007.
FRS
B-3 Statements of Operations
A
new
approach is included to identify revenues, costs and expenses as either ordinary
and extraordinary and eliminate the special and extraordinary item
classification. Employee profit sharing is no longer recognized in the tax
section of the income statement but instead will be presented as an
expense.
The
accumulated effect of accounting changes at the beginning of the year is
eliminated from the statement of income, since, based on FRS B-1, Accounting
Changes and Error Corrections, any
effect derived from the first application of the FRS affecting the financial
information from prior years must be recognized in retained earnings and not
in
the income or loss of the current period.
FRS
B-13 Subsequent Events
FRS
B-13
establishes that certain events such as the restructuring of assets and
liabilities, the waiver of creditors to exercise rights, the date authorized
for
the issuance of the financial statements and the responsible officer shall
be
disclosed in the notes to the financial statements and recognized in the period
in which they took place.
FRS
C-13 Related Parties
The
definition of related parties is broadened and now covers any: joint business
involving either: 1) the reporting entity 2) immediate family members of key
management personnel or directors or 3) funds derived from labor obligation
plans.
FRS
D-6 Capitalization of the comprehensive cost of financing
It
is now
obligatory to capitalize the comprehensive cost of financing (under bulletin
C-4,
Inventories,
and
bulletins C-6 and B-10, such capitalization was optional).
This
FRS
establishes the conditions necessary for the capitalization of comprehensive
cost of financing, as well as guidelines for determining when such
capitalization must be suspended and concluded.
Considerations
regarding the result of valuing financial instruments acquired for hedging
purposes are also included.
17.
Differences Between Mexican and United States Generally
Accepted Accounting
Principles
These
consolidated financial statements are prepared in accordance with "Mexican
GAAP", which differ in certain respects from United States generally accepted
accounting principles ("U.S. GAAP").
The
accompanying reconciliations to U.S. GAAP do not include the reversal of the
adjustments to the financial statements for the effects of inflation required
under bulletin B-10, as amended, because the application of bulletin B-10
represents a comprehensive measure of the effects of price level changes in
the
Mexican economy and, as such, is considered a more meaningful presentation
than
historical cost based financial reporting for both Mexican and U.S. accounting
principles.
To
determine the net effect on the consolidated financial statements of recognizing
U.S. GAAP adjustments, it is necessary to recognize the effects of applying
Mexican GAAP inflation accounting provisions (described in Note 2) to the U.S.
GAAP adjustments.
The
principal differences between Mexican GAAP and U.S. GAAP, as they relate to
the
Company, are described below together with an explanation, where appropriate,
of
the method used to determine the adjustments that affect consolidated operating
income, net income, stockholders’ equity and changes in financial position for
each of the three years ended December 31, 2004, 2005 and 2006.
Agriculture
Effective
January 1, 2003, the Company adopted the requirements of the Mexican accounting
bulletin E-1, Agriculture,
which
establishes the rules for recognizing, valuing, presenting and disclosing
biological assets and agricultural products; it also establishes the treatment
to be given to government subsidies on biological assets.
This
bulletin establishes that biological assets and the agricultural products (the
latter at the time of their harvesting) are to be valued at their fair value,
net of estimated costs at point of sale. Also, the bulletin establishes that
whenever the fair value cannot be determined in a reliable, verifiable and
objective manner, the assets are to be valued at their production cost, net
of
accumulated impairment, if any.
In
conformity with U.S. GAAP, under SOP 85-3 biological assets and agricultural
products are to be valued at cost. Accordingly, the reconciliation between
Mexican GAAP and U.S. GAAP for 2004, 2005 and 2006 includes a reversal of the
unrealized (gain) loss on valuation of biological assets and agricultural
products at fair value, which gave rise to an increase of Ps. 22,745,
and
decrease of Ps (27,055)
and
Ps.
(10,485),
respectively including as reconciling item, the Company’s biological assets and
agricultural products which have been valued at their average production cost,
which approximates replacement cost, not in excess of net realizable
value.
Capitalized
financing cost
Under
Mexican GAAP, until December 31 2006, capitalization of comprehensive financing
cost on assets under construction or in the pre-operating stage is allowed
but
not required. During 2004, 2005 and 2006 Bachoco has elected not to capitalize
such comprehensive financing cost. Beginning in 2007, the capitalization of
comprehensive cost of financing is obligatory under Mex GAAP when the assets
comply with certain characteristics to be considered qualifying assets. Under
U.S. GAAP when financing is in Mexican pesos, the monetary gain is included
in
this computation; when financing is denominated in U.S. dollars, only the
interest is capitalized and exchange losses are not included as capitalized
costs. The amount of interest or net financing cost capitalized for U.S. GAAP
purposes was determined by reference to the Companies average cost of
outstanding debt and to construction in progress during the years presented.
The
Company also included in the reconciliation table the effect of the additional
depreciation expense related to the capitalized interest.
Deferred
income tax and employee profit sharing
The
Company follows the requirements of Mexican accounting bulletin D-4,
“Accounting
for Income Tax, Asset Tax and Employee Profit Sharing”, issued
by
the Mexican Institute. Bulletin D-4 requires the recognition of deferred taxes
on all temporary differences in balance sheet accounts for financial and tax
reporting purposes, using the enacted income tax rate at the date of the
financial statements.
For
U.S.
GAAP purposes, Bachoco has applied Statement of Financial Accounting Standards
(SFAS) No. 109, Accounting
for Income Taxes”,
for all
periods presented, which requires that deferred income taxes be determined
using
the liability method for all temporary differences between financial reporting
amounts and the tax basis of assets and liabilities, and that deferred taxes
on
such differences be measured at the enacted income tax rates for the year in
which such taxes are expected to be payable or refundable.
In
the
Company’s case the application of both rules did not generate a reconciling
difference in 2004, 2005 and 2006; therefore, there is no difference between
Mexican and US GAAP in those years.
In
addition, as described in Note 14e), under Mexican labor law, the Company is
required to pay employee profit sharing. As of December 31, 2004, 2005 and
2006,
the Company did not recognize deferred employee profit sharing, due to its
immateriality. Employee profit sharing expense should be included in operating
expenses for US GAAP presentation purposes.
The
deferred tax adjustment included in net income and stockholders’ equity
reconciliations represent the effect of deferred taxes on other U.S. GAAP
adjustments reflected in the respective summaries.
As
of
December 31 2005 and 2006, the deferred tax liability is Ps 1,770,775 and
Ps
2,095,535, respectively, for US GAAP purposes. Current deferred tax liability
is
Ps
247,310 and 632,986 for 2005 and 2006 respectively. Under US GAAP, the balance
sheet classification is based on the classification of the underlying item
which
gives rise to the deferred income taxes. Under Mexican GAAP, the balance sheet
classification is non-current.
Business
combinations
The
FASB
issued SFAS No. 141, “Business
Combinations”
(Statement 141), and No. 142, “Goodwill
and Other Intangible Assets”.
Statement 141 requires that the purchase method of accounting be used for all
business combinations initiated after June 30, 2001. Statement 141 also includes
guidance on the initial recognition and measurement of goodwill and other
intangible assets arising from business combinations completed after June 30,
2001. SFAS 142 prohibits the amortization of goodwill and intangible assets
with
indefinite useful lives. Statement 142 requires that these assets be reviewed
for impairment at least annually. Intangible assets with finite lives will
continue to be amortized over their estimated useful lives.
For
US
GAAP and Mex GAAP reconciliation purposes, the Company adopted the provisions
of
SFAS 142 on January 1, 2002, and consequently ceased amortizing goodwill. As
of
that date, the Company has performed annual impairment tests, determining that
no impairment of goodwill existed.
Under
Mexican GAAP, for 2004 goodwill was amortized using the straight-line method
over a period of 20 years. In 2004, the reconciliation shows the amount of
goodwill amortization not performed for U.S. GAAP purposes in the amount of
Ps.
18,840.
Effective
January 1, 2005, the Company adopted the requirements of Mexican accounting
bulletin B-7, Business Acquisitions, issued by the Mexican Institute of Public
Accountants. bulletin B-7 addresses the financial accounting and reporting
for
business and entity acquisitions and requires that all business combinations
be
accounted for using the purchase method. Since goodwill is no longer amortized,
it should be evaluated for impairment at the end of each year. As a result
of
the adoption of this bulletin, the difference between Mexican GAAP and U.S.
GAAP
has been eliminated.
Minority
interest
In
conformity with Mexican GAAP, minority interest is not added back in the
company’s income statement, also it is included as a component of stockholders’
equity and is presented immediately after the caption total majority
stockholders’ equity and minority interest in net income is not eliminated from
net income. For U.S. GAAP purposes, minority interest is excluded from the
Company’s net income and from stockholders’ equity and included as a separate
caption in the balance sheet. At December 31, 2005 and 2006, total minority
interest under US GAAP aggregates Ps. 44,685 and Ps. 43,779, respectively;
in
addition, minority interest shown in the statements of income decreases net
income under US GAAP for the years ended December 31, 2004, 2005 and 2006 by
Ps.
4,096, Ps. 1,719 and Ps.908, respectively.
Reporting
comprehensive income
For
US
GAAP reconciliation purposes, the Company has adopted the SFAS No. 130,
“Reporting
Comprehensive Income”
SFAS
130, which establishes rules for reporting and disclosure of comprehensive
income and its components. SFAS 130 requires the minimum additional pension
liability adjustment, the deficit from restatement of stockholders’ equity to
reflect inflation effects, deferred taxes on the difference between indexed
cost
and replacement cost and the effective portion of changes in the market value
of
cash flow hedges, to be included in other comprehensive income. The U.S. GAAP
statements of changes in stockholders’ equity include the disclosure
requirements of SFAS 130.
Total
other comprehensive income items under US GAAP are comprised of the result
from
holding non-monetary assets net of taxes and the effective portion of changes
in
the value of financial instruments. At December 31, 2006, these items aggregate
Ps.
(4,888,206) and Ps. 357 , respectively, giving rise to a decrease in
stockholders’ equity.
Derivative
financial instruments acquired for hedging purposes
SFAS
No.
133, as amended “Accounting
for Derivative Instruments and Hedging Activities”
requires
the Company to recognize all derivatives on the balance sheet at fair value.
Derivatives that are not hedges must be adjusted to fair value through income.
If the derivative is a hedge, depending on the nature of the hedge, changes
in
the fair value of derivatives are either offset against the change in fair
value
of assets, liabilities, or firm commitments through earnings or recognized
in
other comprehensive income until the hedged item is recognized in earnings.
The
ineffective portion of a derivate’s change in fair value will be immediately
recognized in earnings. There is no difference between US and Mexican GAAP
for
2006 and 2005.
Disclosures
about Fair Value of Financial Instruments
In
accordance with SFAS No. 107, “Disclosures
about Fair Value of Financial Instruments”,
information is provided about the fair value of certain financial instruments
for which it is practicable to estimate that value. The carrying amounts of
cash
and cash equivalents, accounts receivable, accounts payable, notes payable
and
accrued liabilities approximate their fair values, due to the short maturity
of
these instruments. The fair value of long-term debt, based on quoted market
prices for the same or similar issues or on the current rates offered to the
Company for debt of the same remaining maturities, approximates their carrying
amounts.
Impairment
of Assets
FASB
issued SFAS No. 144, “Accounting
for the Impairment or Disposal of Long-Lived Assets”
addresses financial accounting and reporting for the impairment or disposal
of
long-lived assets. SFAS
144
is effective for fiscal years that begun after December 15, 2001. For US GAAP
and Mex GAAP reconciliation purposes, the Company adopted the requirements
of
Statement 144 on January 1, 2002 and has not identified any impairment
adjustments to the carrying value of its long lived assets.
Recent
Accounting Pronouncements in the US
FIN
48
FASB
Interpretation No. 48, (FIN 48) “Accounting for Uncertainty in Income Taxes” an
interpretation of FASB Statement No. 109. FIN 48 clarifies the accounting for
uncertainty in income taxes recognized under SFAS No. 109, “Accounting for
Income Taxes”. FIN 48 prescribes a comprehensive model for how a company should
recognize, measure, present, and disclose in its financial statements uncertain
tax positions that the company has taken or expects to take on a tax return
or
payment. This interpretation shall be effective for fiscal years beginning
after
December 15, 2006. The Company has not determined the effect, if any, this
new
pronouncement will have on its financial statements.
SFAS
158
SFAS
158,
“Employers’ Accounting for Defined Benefit Pension and Other Postretirement
Plans, an amendment of FASB Statements no. 87, 88, 106 and 132(R)” requires (1)
recognition on the balance sheet of an asset for a defined benefit plan’s
overfunded status or a liability for a plan’s underfunded status, (2)
measurement of a defined benefit plan’s assets and its obligations that
determine its funded status as of the end of the employer’s fiscal year, and (3)
recognition of the changes in the funded status of a defined benefit
postretirement plan as a component of other comprehensive income in the year
the
changes occur.
The
requirement to recognize the funded status of a defined benefit plan and the
disclosure requirements are effective for fiscal years ending after December
15,
2006. The requirement to measure the defined benefit plan assets and benefit
obligations as of the date of the employer’s fiscal year-end will be effective
for the fiscal years ending after December 15, 2008.
In
2006
the Company adopted SFAS 158 and recognized additional pension liabilities
of
approximately $ 33,647. The Company also increased its stockholders’ equity by
approximately Ps 883 on an after-tax basis due the extinguishment of the minimum
labor obligations liability adjustment.
The
incremental effects of adopting of statement 158 o the Company’s statement of
financial position at December 31, 2006 are presented in the following
table:
|
|
Prior
adopting SFAS 158
|
|
Effect
of adopting SFAS 158
|
|
As
reported at December 31, 2006
|
|
Net
projected benefit obligation (pension)
|
|
Ps |
13,662
|
|
Ps |
14,224
|
|
Ps |
27,886
|
|
Net
projected benefit obligation (seniority premium)
|
|
|
25,527
|
|
|
21,792
|
|
|
47,319
|
|
Net
projected benefit obligation (Severance)
|
|
|
34,747
|
|
|
-
|
|
|
34,747
|
|
Minimum
labor obligation liability adjustment
(Seniority premium)
|
|
|
883
|
|
|
883
|
|
|
-
|
|
|
|
|
|
|
Ps |
35,133
|
|
Ps |
109,952
|
|
As
of
December 31, the defined benefit plan’s funded status is as
follows:
|
|
2006
|
|
|
|
Pension
plan
|
|
Seniority
premium
|
|
Severance
|
|
Total
|
|
Projected
benefit obligation
|
|
Ps |
182,495
|
|
Ps |
47,319
|
|
Ps |
34,747
|
|
Ps |
264,561
|
|
Market
value of plan assets
|
|
|
154,609
|
|
|
-
|
|
|
-
|
|
|
154,609
|
|
Under-funded
defined benefit plan
|
|
Ps |
27,886
|
|
Ps |
47,319
|
|
Ps |
34,747
|
|
Ps |
109,952
|
|
SFAS
157 - Fair Value Measurements
In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements
(SFAS 157). This Statement defines fair value, establishes a framework for
measuring fair value, and expands disclosures about fair value measurements.
SFAS 157 applies under other accounting pronouncements that require or permit
fair value measurement. The provisions of SFAS 157 are effective for
financial statements issued for fiscal years beginning after November 15,
2007 and interim periods within those fiscal years.
SFAS
159 “Fair Value Option for Financial Assets and Financial
Liabilities”,
Statement
159 “Fair Value Option for Financial Assets and Financial Liabilities” (FVO),
issued in February 2007, allows entities to voluntarily close to measure many
financial assets and financial liabilities at fair value through earnings.
The
FVO Statement is effective as of the beginning of fiscal year starting after
November 15, 2007. The fair value election is made on an
instrument-by-instrument basis, is irrevocable, and results in all subsequent
changes in the fair value of elected items being reported in earnings. Upon
initial adoption, Statement 159 provides entities with a one-time chance to
elect the fair value option for existing eligible items, including Available
For
Sale and held-to-maturity securities. The Company is currently evaluating the
effect the adoption of FASB 159, but does not expect it to have a material
impact.
Cash
flow information
Under
Mexican GAAP, the Company presents consolidated statements of changes in
financial position, as described in Note 2.
In
accordance with Mexican GAAP, the change in current and long-term debt due
to
restatements in constant Mexican pesos, including the effect of exchange
differences, is presented in the statements of changes in financial position
in
the financing activities section.
The
gain
from monetary position and the exchange gain or loss are not presented in the
operating activities section as reconciling adjustments, as they are included
in
the respective monetary asset or liability line. Statement of Financial
Accounting Standards No. 95 (“SFAS 95”), “Statement
of Cash Flows”,
does
not provide guidance with respect to price-level restated financial
statements.
The
Company has adopted, for its U.S. GAAP presentation of cash flow information,
the guidance issued by the AICPA SEC Regulations Committee’s International
Practices Task Force in its meeting held on November 24, 1998, requiring foreign
registrants that file price level adjusted financial statements to provide
cash
flow statements that show separately the effects of inflation on cash flows.
|
|
Years
ended December 31,
|
|
Cash
Flow Information
|
|
2004
|
|
2005
|
|
2006
|
|
|
|
|
|
|
|
|
|
OPERATING
ACTIVITIES:
|
|
|
|
|
|
|
|
Net
income
|
|
Ps |
795,980
|
|
Ps |
1,824,801
|
|
Ps |
863,125
|
|
Adjustments
to reconcile net income to net
cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
454,196
|
|
|
482,545
|
|
|
521,267
|
|
Deferred
income tax
|
|
|
94,608
|
|
|
(2,049
|
)
|
|
318,991
|
|
Loss
(gain) on net monetary position
|
|
|
104,558
|
|
|
114,124
|
|
|
144,397
|
|
Labor
obligations, net period cost
|
|
|
21,268
|
|
|
39,038
|
|
|
56,048
|
|
|
|
|
1,470,610
|
|
|
2,458,459
|
|
|
1,903,828
|
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
67,791
|
|
|
(207,073
|
)
|
|
(82,222
|
)
|
Inventories
and biological assets
|
|
|
(324,577
|
)
|
|
(581,503
|
)
|
|
(752,177
|
)
|
Prepaid
expenses and other accounts receivable
|
|
|
27,324
|
|
|
(35,587
|
)
|
|
24,578
|
|
Accounts
payable
|
|
|
41,685
|
|
|
(9,296
|
)
|
|
378,108
|
|
Related
parties
|
|
|
3,987
|
|
|
51
|
|
|
6,178
|
|
Other
taxes payable and other accruals
|
|
|
43,765
|
|
|
142,661
|
|
|
(58,297
|
)
|
Labor
obligations, net
|
|
|
(33,713
|
)
|
|
(56,356
|
)
|
|
(25,140
|
)
|
Derivative
Financial instruments
|
|
|
|
|
|
|
|
|
(5,644
|
)
|
Cash
flows provided by operating activities
|
|
|
1,296,872
|
|
|
1,711,356
|
|
|
1,389,212
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from issuance of notes payable to
banks
|
|
|
213,914
|
|
|
170,193
|
|
|
-
|
|
Repayment
of long-term debt and notes Payable
|
|
|
(199,470
|
)
|
|
(204,869
|
)
|
|
(103,436
|
)
|
Cash
dividends paid
|
|
|
(265,655
|
)
|
|
(254,165
|
)
|
|
(364,378
|
)
|
Repurchase
(sale) of stock
|
|
|
(12,080
|
)
|
|
(8,227
|
)
|
|
17,202
|
|
Cash
flows used in financing activities
|
|
|
(263,291
|
)
|
|
(297,068
|
)
|
|
(450,612
|
)
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
Acquisition
of property, plant and equipment
|
|
|
(480,200
|
)
|
|
(817,106
|
)
|
|
(871,539
|
)
|
Other
assets
|
|
|
3,128
|
|
|
(2,611
|
)
|
|
(2,597
|
)
|
Cash
flows used in investing activities
|
|
|
(477,072
|
)
|
|
(819,717
|
)
|
|
(874,136
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of inflation accounting
|
|
|
182,637
|
|
|
187,618
|
|
|
93,446
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
( decrease ) increase in cash
|
|
|
|
|
|
|
|
|
|
|
and
cash equivalents
|
|
|
739,146
|
|
|
782,189
|
|
|
157,910
|
|
Cash
and cash equivalents at beginning of
the year
|
|
|
1,774,807
|
|
|
2,513,953
|
|
|
3,296,142
|
|
Cash
and cash equivalents at end of year
|
|
Ps |
2,513,953
|
|
Ps |
3,296,142
|
|
Ps |
3,454,052
|
|
Summary
of adjustments to reconcile Mexican GAAP and U.S. GAAP
The
following is a summary of net income adjusted to take into account certain
material differences between Mexican GAAP and U.S. GAAP.
|
|
Years
ended December 31,
|
|
|
|
2004
|
|
2005
|
|
2006
|
|
Net
income as reported under Mexican GAAP
|
|
Ps |
759,777
|
|
Ps |
1,841,111
|
|
Ps |
874,264
|
|
Adjustments
to reconcile net income to U.S.
GAAP:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Biological
assets and agricultural products
valuation at fair value
|
|
|
22,745
|
|
|
(27,055
|
)
|
|
(10,485
|
)
|
Interest
cost capitalized
|
|
|
9,006
|
|
|
11,848
|
|
|
8,377
|
|
Depreciation
of capitalized interest
|
|
|
(2,310
|
)
|
|
(2,761
|
)
|
|
(3,353
|
)
|
Labor
obligations
|
|
|
-
|
|
|
-
|
|
|
(19,941
|
)
|
Deferred
income tax on US GAAP adjustments
|
|
|
(7,588
|
)
|
|
3,078
|
|
|
14,580
|
|
Amortization
of goodwill
|
|
|
18,840
|
|
|
-
|
|
|
-
|
|
Effect
of inflation accounting on U.S.
GAAP adjustments
|
|
|
(393
|
)
|
|
299
|
|
|
591
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority
interest
|
|
|
(4,096
|
)
|
|
(1,719
|
)
|
|
(908
|
)
|
Net
income under U.S. GAAP
|
|
Ps |
795,980
|
|
Ps |
1,824,801
|
|
Ps |
863,125
|
|
Weighted
average number of shares outstanding
(thousands)
|
|
|
599,260
|
|
|
599,694
|
|
|
599,571
|
|
Net
income per share
|
|
Ps |
1.33
|
|
Ps |
3.04
|
|
Ps |
1.44
|
|
After
the
adjustments for the depreciation of capitalized interest, the reclassification
of employee profit sharing, the non amortization of goodwill (except for 2004)
and biological assets and agricultural products valuation at fair value,
operating income under U.S. GAAP would be Ps 953,971, Ps 2,258,784 and Ps
1,336,765 in 2004, 2005 and 2006, respectively.
Total
assets under U.S. GAAP were Ps 15,980,969 at December, 31 2005 and Ps
16,945,159 at December 31, 2006. The difference in total assets between Mexican
GAAP and U.S. GAAP is comprised of the foreign exchange loss and the monetary
gain on financing in U.S. dollars capitalized in assets under construction
net
of accumulated depreciation, biological assets and agricultural products
valuation at fair value, the extinguishment of intangible asset of labor
obligations due to SFAS 112 adoption and the amortization of
goodwill.
The
reconciliation
of the stockholders’ equity between Mexican GAAP and US GAAP
is as
follows:
|
|
Years
ended December 31
|
|
|
|
2005
|
|
2006
|
|
Majority
stockholders' equity as reported under Mexican GAAP
|
|
Ps |
12,969,177
|
|
Ps |
13,548,245
|
|
Adjustments
to reconcile majority stockholders’ equity
to U.S. GAAP:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Biological
assets and agricultural products valuation at
fair value
|
|
|
(70,955
|
)
|
|
(81,440
|
)
|
Accumulated
differences between the financing cost capitalized
for Mexican GAAP and U.S. GAAP purposes
|
|
|
76,046
|
|
|
84,423
|
|
Accumulated
depreciation on the above items
|
|
|
(12,725
|
)
|
|
(16,078
|
)
|
Net
period cost due SFAS 112
|
|
|
-
|
|
|
(19,941
|
)
|
Deferred
income taxes on U.S. GAAP adjustments
|
|
|
(7,724
|
)
|
|
7,447
|
|
Accumulated
amortization of goodwill
|
|
|
56,589
|
|
|
56,589
|
|
|
|
|
|
|
|
|
|
Other
comprehensive loss due SFAS 158 adoption
|
|
|
-
|
|
|
(35,133
|
)
|
Majority
stockholders’ equity as reported under U.S. GAAP
|
|
Ps |
13,010,408
|
|
Ps |
13,544,112
|
|
The
effects of the above adjustments do not have any impact on minority
interest.
The
consolidated
statements of changes in stockholders’ equity in accordance with U.S.
GAAP
is as
follows:
|
|
Capital
stock
|
|
Paid
in-capital
|
|
Stock
repurchase reserve
|
|
Retained
earnings
|
|
Other
comprehensive income
|
|
Comprehensive
income
|
|
Total
stockholders’ equity
|
|
Balance
at December 31, 2003
|
|
Ps |
2,211,798
|
|
Ps |
683,455
|
|
Ps |
190,049
|
|
Ps |
12,750,058
|
|
Ps |
(4,488,731
|
)
|
Ps |
-
|
|
Ps |
11,346,629
|
|
Repurchase
of stock
|
|
|
(616
|
)
|
|
-
|
|
|
(25,324
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(25,940
|
)
|
Sales
of repurchased stock
|
|
|
395
|
|
|
13,464
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
13,859
|
|
Cash
dividends paid
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(265,655
|
)
|
|
-
|
|
|
-
|
|
|
(265,655
|
)
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income for the year
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
795,980
|
|
|
-
|
|
|
795,980
|
|
|
795,980
|
|
Components
of other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
from holding of non monetary assets
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(160,764
|
)
|
|
(160,764
|
)
|
|
(160,764
|
)
|
Minimum
seniority premium liability adjustment
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
963
|
|
|
963
|
|
|
963
|
|
Other
comprehensive income, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(159,801
|
)
|
|
|
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ps |
636,179
|
|
|
|
|
Balance
at December 31, 2004
|
|
Ps |
2,211,577
|
|
|
696,919
|
|
|
164,725
|
|
|
13,280,383
|
|
|
(4,648,532
|
)
|
|
|
|
|
11,705,072
|
|
Repurchase
of stock
|
|
|
(242
|
)
|
|
|
|
|
(11,047
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(11,289
|
)
|
Sales
of repurchased stock
|
|
|
214
|
|
|
2,847
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
3,061
|
|
Cash
dividends paid
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(254,165
|
)
|
|
-
|
|
|
-
|
|
|
(254,165
|
)
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income for the year
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,824,801
|
|
|
-
|
|
|
1,824,801
|
|
|
1,824,801
|
|
Components
of other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
from holding of non monetary assets
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(165,918
|
)
|
|
(165,918
|
)
|
|
(165,918
|
)
|
Derivative
financial instruments
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(89,027
|
)
|
|
(89,027
|
)
|
|
(89,027
|
)
|
Minimum
labor obligations liability adjustment
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(2,127
|
)
|
|
(2,127
|
)
|
|
(2,127
|
)
|
Other
comprehensive income, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(257,072
|
)
|
|
|
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ps |
1,567,729
|
|
|
|
|
Balance
at December 31, 2005
|
|
Ps |
2,11,549
|
|
Ps |
699,766
|
|
Ps |
153,678
|
|
Ps |
14,851,019
|
|
Ps |
(4,905,604
|
)
|
|
|
|
Ps |
13,010,408
|
|
Sales
of repurchased stock
|
|
|
236
|
|
|
16,966
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
17,202
|
|
Cash
dividends paid
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(364,378
|
)
|
|
-
|
|
|
-
|
|
|
(364,378
|
)
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income for the year
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
863,125
|
|
|
-
|
|
|
863,125
|
|
|
863,125
|
|
Components
of other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
from holding of non monetary assets
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(38,828
|
)
|
|
(38,828
|
)
|
|
(38,828
|
)
|
Minimum
labor obligations liability adjustment
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2,332
|
|
|
2,332
|
|
|
2,332
|
|
Derivative
financial instruments
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
89,384
|
|
|
89,384
|
|
|
89,384
|
|
Other
comprehensive income, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52,888
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
916,013
|
|
|
|
|
Other
comprehensive income SFAS 158 adoption
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
(35,133
|
)
|
|
-
|
|
|
(35,133
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2006
|
|
Ps |
2,211,785
|
|
Ps |
716,732
|
|
Ps |
153,678
|
|
Ps |
15,349,766
|
|
$
|
(4,887,849
|
)
|
|
|
|
Ps |
13,544,112
|
|