(3) | Percentage is based on 600,000,000 Shares.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 5 to the Audited 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. 96 million, Ps. 157 million and Ps. 139 million for the years ended December 31, 2007, 2008 and 2009, 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., 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 Ps. 3 million, Ps. 2 million and Ps. 10 million for the years ended December 31, 2007, 2008 and 209, respectively, for such transportation.
We purchased feed and packaging materials from enterprises owned by Robinson Bours Stockholders, the family of Enrique Robinson Bours and the family of Juan Bautista Robinson Bours. The cost of such purchases was Ps. 193 million, Ps. 428 million and Ps. 415 million for the years ended December 31, 2007, 2008 and 2009, respectively. Our accounts payable to related parties totaled Ps. 50 million and Ps. 68 million as of December 31, 2008 and 2009, respectively. These transactions took place among companies owned by the same set of stockholders. See Note 5 to the Audited 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. C. | Interests of Experts and Counsel |
Not applicable. ITEM 8. | Financial Information |
After the conversion of L Shares to B Shares, the Control TrustA. | Consolidated Statements and the Family Trust own the same number of Shares (496,500,000 Shares or 82.75% of outstanding Shares). However, these Shares are all now Series B Shares.In November 2008, the Robinson Bours family created a third trust with 102,000,000 Shares, which were taken from one of the existing trusts. The purpose of this new trust is to serve as collateral for the Company’s loan indebtedness. The three trusts together accounted for 496,500,000 Shares outstanding on December 31, 2008 and there has been no change in the position of each holder.
Apart from the ownership set forth above, at the end of March 2009, Fidelity Low Priced Stock Fund and Fidelity Management & Research Co. each owned 4.7% of our Common Stock; equal to a total of 2,325,000 ADS’s for each respectively.
In November 1998, in accordance with rules established by the CNBV, we established a reserve in the amount of Ps.180.0 million in nominal pesos, for the repurchase of Shares. At the end of 2008, the Company had repurchased zero Shares.
During our stockholders’ meeting of April 22, 2009, we capped the share repurchase program for 2009 to a maximum amount of Ps.165.6 million. As of May 29, 2009, we had repurchased a total of 92,000 shares.
The following table sets forth the estimated percentages of the Shares held in México and other Countries as of December 31, 2008.
Other Financial Information |
| | | | | | | | México | | | 84.8 | % | Other Countries | | | 15.2 | % |
As of March 31, 2009, from the 100% of the total shares of the Company, we accounted for approximately 49 shareholders in the NYSE and 65 in the BMV.
Our Audited Consolidated Financial Statements are included in Item 18. The financial statements were audited by independent registered public accounting firms and are accompanied by their audit reports. B. | Related Party 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 5 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. 63.5 million, Ps.95.8 million and Ps. 156.9 million for the years ended December 31, 2006, 2007 and 2008, 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 Ps.4.2 million, Ps.3.2 million and Ps. 2.1 for the years ended December 31, 2006, 2007 and 2008, respectively, for such transportation.
We purchased feed and packaging materials from enterprises owned by Robinson Bours Stockholders, the family of Enrique Robinson Bours and the family of Juan Bautista Robinson Bours. The cost of such purchases was Ps.251.9 million, Ps.192.8 million and Ps.427.7 million for the years ended December 31, 2006, 2007 and 2008, respectively.
Our accounts payable to related parties totaled Ps.26.8 million and Ps. 50.3 million as of ended December 31, 2007 and 2008, respectively. These transactions took place among companies owned by the same set of stockholders. See Note 5 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.On August 28, 2008, we announced that the Company’s Board of Directors, as per the Audit Committee’s recommendation, approved the selection of KPMG Cárdenas Dosal, S.C. as the Company’s independent auditor, effective as of August 27, 2008.
C. | Interests of Experts and Counsel | The Audited Consolidated Financial Statements have been prepared in accordance with Mexican FRS, which differ in certain respects from U.S. GAAP. Note 21 to the Audited Consolidated Financial Statements provides a description of the principal differences between Mexican FRS and U.S. GAAP as they relate to us and a reconciliation to U.S. GAAP of Consolidated stockholders’ equity, consolidated net income, a consolidated statement of stockholders’ equity and a consolidated cash flow statement under U.S. GAAP as of December 31, 2008 and 2009, and for the years ended December 31, 2007, 2008 and 2009. Not applicable.
ITEM 8. | Financial Information |
A. | Consolidated Statements and Other Financial Information |
Our Consolidated Financial Statements are included in Item 18. The financial statements were audited by independent registered public accounting firms and are accompanied by their audit reports.
On August 28, 2008, we announced that the Company’s Board of Directors, as per the Audit Committee’s recommendation, approved the selection of KPMG Cárdenas Dosal, S.C. as the Company’s independent auditor, effective as of August 27, 2008.
The financial statements include a consolidated balance sheet, consolidated statements of operations, consolidated statements of changes in stockholders’ equity, consolidated statements of changes in financial position, and consolidated statement of cash flows and notes relating to the consolidated financial statements.
The Consolidated Financial Statements have been prepared in accordance with Mexican FRS, which differ in certain respects from U.S. GAAP. Note 21 to the Consolidated Financial Statements provides a description of the principal differences between Mexican FRS and U.S. GAAP as they relate to us and a reconciliation to U.S. GAAP of Consolidated stockholders’ equity, and consolidated net income, a consolidated statement of changes in stockholders’ equity and a consolidated cash flow statement under U.S. GAAP as of December 31, 2007 and 2008, and for the years ended December 31, 2006, 2007 and 2008.
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 the Company’s consolidated financialAudited Consolidated Financial positions and consolidated results of operations. 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. In 2006, 2007, 2008 and 2008,2009, we declared and paid cash dividends at nominal values of Ps.353.9, Ps. 353.9, Ps. 353.94 and Ps. 353.9 respectively (Ps. 378.1 and Ps.363.7 in constant Mexican pesos as at December 31 of 2006 and 2007 respectively).250.0 million, respectively.
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 of approximately the 20.0% 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 5.0% 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 20.0% 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 FRS. Significant Changes in Accounting Practices New Accounting pronouncementsRecently issued accounting standards
The most importantCINIF has issued the following Mexican FRS, applicable for years beginning on or after January 1, 2010 or 2011, as indicated. | (a) | Mexican FRS B-5 “Segment information”- Mexican FRS B-5 is effective as of January 1, 2011. Changes from superseded Bulletin B-5 “Segment Information” include the following: |
The information to be disclosed by operating segment is that which is regularly used by senior management. The FRS does not require primary or secondary segment reporting, nor does it require segment reporting for products and services (economic segments), geographical areas or homogenous groups. Disclosure of information on the consolidated entity’s products or services, geographical areas and principal clients and suppliers is required. Mexican FRS B-5 does not require that the entity’s business areas be subject to different risks to qualify as operating segments. Mexican FRS B-5 allows business areas in pre-operating stages to be catalogued as operating segments. Mexican FRS B-5 requires disclosure by segment, revenue and interest expense as well all other components of comprehensive financial results (CFR). In specific cases, the FRS B-5 permits disclosure of net interest income. Mexican FRS B-5 requires disclosure of the liability amounts included in the usual operating segment information normally used by senior management in making the entity's operating decisions. Management is in the process of evaluating the effects of this new accounting pronouncements that came into effect after December 31, 2007 are:Mexican FRS.
| Þ(b) | Mexican FRS B-10C-1 “Cash and cash equivalents”-, (Effects of inflation). As a result of the adoption of this Mexican FRS atC-1 supersedes Bulletin C-1 “Cash” and is effective as of January 1, 2008,2010. The principal changes from the stockholders' equity accounts were reclassified as shown onformer standard include the consolidated statement of stockholders' equity. We present the 2007 and 2006 consolidated financial statements in constant pesos at December 31, 2007, the last date on which the comprehensive method for recognizing the effects of inflation was used.following: |
| Þ | Mexican FRS D-3, (Employee Benefits). As a result of the adoption of this FRS, in 2008 the intangible asset of Ps. 28.3 million, previously recognized in the consolidated balance sheet as of December 31, 2007, and the labor obligation minimum liability adjustment of Ps. 2.5 million, previously recognized in the consolidated statement of stockholders equity as of December 31, 2007, were eliminated. Furthermore, amortization of unamortized items resulted in an approximate gain of Ps. 0.8 million during 2008.Mexican FRS C-1 requires the presentation of restricted cash and cash equivalents under the balance sheet caption “Cash and cash equivalents.” |
| Þ | Mexican FRS D-4, (Taxes on income). Effective January 1, 2008, the asset and liability method became the only approved method to calculate deferred taxes. Therefore, we wrote off the Ps. 288.6 million of additional liability determined under the stockholders’ equity method in 2007 against retained earnings.Mexican FRS C-1 replaces the term “demand temporary investments” with “available demand investments.” |
| Þ | Mexican FRS B-2, (Statement of Cash Flow). As a result of the adoption of this FRS in 2008, the indirect method was used for the calculation of consolidated cash flows in 2008 while the consolidated statements of change in the financial position in 2006 and 2007 are presented as issued.Mexican FRS C-1 provides that, to be identified as cash equivalents, the investments should be highly liquid, e.g. those with original maturities of three months or less when purchased. |
The CINIF has issuedMexican FRS C-1 defines the following FRS, effective for fiscal years beginning after December 31, 2008:terms: acquisition cost, restricted cash and cash equivalents, highly liquid investments, net realizable value, nominal value and fair value. | Þ | FRS B-7 “Business acquisitions”, FRS B-8 “Consolidated and combined financial statements”, FRS C-7 “Investments in associates and other permanent investments” and FRS C-8 “Intangible assets”.
| Management estimates that initially, Mexican FRS will have an effect on the presentation of primary investment securities with original maturities of more than three months when purchased.On January 2009, the Mexican Banking and Securities Commission (Comisión Nacional Bancaria y de Valores,“CNBV”) published certain amendments to the Rules for Public Companies and other Participants in the Mexican Securities Market (Disposiciones de Carácter General Aplicables a las Emisoras de Valores y a otros Participantes del Mercado de Valores) that require public companies to report financial information in accordance with the International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”), effective as of 2012. Early adoption is permitted. We consider that the initial effects of these new FRS’s will not be material. For more detail see Note 2-xadopt IFRS in 2012 and Note 20we have delivered to the Consolidated Financial Statements.CNBV a schedule with detailed activities.
ITEM 9. | The Offer and Listing |
A. | Offer and Listing Details |
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 through 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 asis our 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.Bank.
As of April 30, 2009,2010, there were 7,574,9917,381,416 ADSs outstanding, representing 15.1%14.8% of the total Shares outstanding, which were held by approximately 5038 holders.
The following tables set forth for each year from 20042005 to 2008,2009, for each quarter from 20072008 and 20082009 and for each complete month from December 20082009 to May 2009,2010, the high, low 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)
| | | | | | | | | | 2004 | | | 13.35 | | | | 8.50 | | | | 13.10 | | 2005 | | | 20.70 | | | | 12.22 | | | | 17.25 | | 2006 | | | 23.70 | | | | 15.70 | | | | 23.66 | | 2007 | | | 30.96 | | | | 20.00 | | | | 28.60 | | 2008 | | | 30.15 | | | | 14.21 | | | | 15.99 | |
New York Stock Exchange
(U.S.$ per ADS)
| | | | | | | | | | 2004 | | | 14.19 | | | | 8.8 | | | | 14.19 | | 2005 | | | 23.02 | | | | 12.87 | | | | 19.50 | | 2006 | | | 29.00 | | | | 16.33 | | | | 29.00 | | 2007 | | | 35.11 | | | | 24.10 | | | | 31.81 | | 2008 | | | 33.34 | | | | 12.75 | | | | 14.50 | |
Mexican Stock Exchange
(Nominal pesos per Share)
| | | | | | | | | | First Quarter 2007 | | | 28.00 | | | | 20.00 | | | | 25.80 | | Second Quarter 2007 | | | 30.08 | | | | 25.89 | | | | 28.60 | | Third Quarter 2007 | | | 30.96 | | | | 24.00 | | | | 29.50 | | Fourth Quarter 2007 | | | 29.02 | | | | 23.00 | | | | 27.01 | | First Quarter 2008 | | | 30.15 | | | | 25.00 | | | | 26.13 | | Second Quarter 2008 | | | 26.50 | | | | 23.99 | | | | 24.99 | | Third Quarter 2008 | | | 25.60 | | | | 22.76 | | | | 22.76 | | Fourth Quarter 2008 | | | 22.00 | | | | 14.21 | | | | 15.99 | |
New York Stock Exchange
(U.S.$ per ADS)
| | | | | | | | | | First Quarter 2007 | | | 30.75 | | | | 24.10 | | | | 28.34 | | Second Quarter 2007 | | | 33.55 | | | | 28.51 | | | | 32.25 | | Third Quarter 2007 | | | 35.11 | | | | 27.14 | | | | 32.06 | | Fourth Quarter 2007 | | | 32.61 | | | | 26.04 | | | | 30.77 | | First Quarter 2008 | | | 33.34 | | | | 27.39 | | | | 29.12 | | Second Quarter 2008 | | | 31.24 | | | | 27.56 | | | | 29.60 | | Third Quarter 2008 | | | 31.00 | | | | 21.59 | | | | 24.38 | | Fourth Quarter 2008 | | | 24.60 | | | | 12.75 | | | | 14.50 | |
(Nominal pesos per Share)Mexican Stock Exchange (Nominal pesos per Share) | | | The New York Stock Exchange (U.S.$ per ADS) | | Year | | High | | | Low | | | Close | | | High | | | Low | | | Close | | 2005 | | | 20.70 | | | | 12.22 | | | | 17.25 | | | | 23.02 | | | | 12.87 | | | | 19.50 | | 2006 | | | 23.70 | | | | 15.70 | | | | 23.66 | | | | 29.00 | | | | 16.33 | | | | 29.00 | | 2007 | | | 30.96 | | | | 20.00 | | | | 28.60 | | | | 35.11 | | | | 24.10 | | | | 31.81 | | 2008 | | | 30.15 | | | | 14.21 | | | | 15.99 | | | | 33.34 | | | | 12.75 | | | | 14.50 | | 2009 | | | 26.00 | | | | 11.85 | | | | 25.00 | | | | 23.16 | | | | 9.03 | | | | 23.00 | |
| | | | | | | | | | December 2008 | | | 18.00 | | | | 14.21 | | | | 15.99 | | January 2009 | | | 16.99 | | | | 14.01 | | | | 15.64 | | February 2009 | | | 18.00 | | | | 13.03 | | | | 13.03 | | March 2009 | | | 14.69 | | | | 11.85 | | | | 13.80 | | April 2009 | | | 17.48 | | | | 13.00 | | | | 17.48 | | May 2009 | | | 20.00 | | | | 16.00 | | | | 19.12 | |
New York Stock Exchange
(U.S.$ per ADS)Mexican Stock Exchange (Nominal pesos per Share) | | | The New York Stock Exchange (U.S.$ per ADS) | | Period | | High | | | Low | | | Close | | | High | | | Low | | | Close | | First Quarter 2008 | | | 30.15 | | | | 25.00 | | | | 26.13 | | | | 33.34 | | | | 27.39 | | | | 29.12 | | Second Quarter 2008 | | | 26.50 | | | | 23.99 | | | | 24.99 | | | | 31.24 | | | | 27.56 | | | | 29.60 | | Third Quarter 2008 | | | 25.60 | | | | 22.76 | | | | 22.76 | | | | 31.00 | | | | 21.59 | | | | 24.38 | | Fourth Quarter 2008 | | | 22.00 | | | | 14.21 | | | | 15.99 | | | | 24.60 | | | | 12.75 | | | | 14.50 | | First Quarter 2009 | | | 18.00 | | | | 11.85 | | | | 13.80 | | | | 15.30 | | | | 9.03 | | | | 11.35 | | Second Quarter 2009 | | | 25.00 | | | | 13.00 | | | | 23.84 | | | | 22.57 | | | | 11.60 | | | | 21.30 | | Third Quarter 2009 | | | 24.92 | | | | 21.99 | | | | 22.90 | | | | 22.40 | | | | 20.00 | | | | 21.00 | | Fourth Quarter 2009 | | | 26.00 | | | | 21.00 | | | | 25.00 | | | | 23.16 | | | | 18.90 | | | | 23.00 | |
| | | | | | | | | | December 2008 | | | 16.50 | | | | 12.75 | | | | 14.50 | | January 2009 | | | 15.30 | | | | 12.00 | | | | 13.50 | | February 2009 | | | 15.29 | | | | 9.60 | | | | 11.70 | | March 2009 | | | 12.70 | | | | 9.03 | | | | 11.35 | | April 2009 | | | 15.00 | | | | 11.58 | | | | 15.00 | | May 2009 | | | 18.50 | | | | 15.20 | | | | 17.89 | |
Mexican Stock Exchange (Nominal pesos per Share) | | | The New York Stock Exchange (U.S.$ per ADS) | | Period | | High | | | Low | | | Close | | | High | | | Low | | | Close | | December 2009 | | | 25.05 | | | | 24.30 | | | | 25.00 | | | | 23.16 | | | | 22.44 | | | | 23.00 | | January 20010 | | | 25.45 | | | | 24.00 | | | | 24.00 | | | | 23.99 | | | | 21.50 | | | | 21.50 | | February 2010 | | | 23.30 | | | | 21.20 | | | | 22.99 | | | | 21.62 | | | | 19.70 | | | | 21.51 | | March 2010 | | | 24.35 | | | | 21.00 | | | | 22.76 | | | | 22.60 | | | | 19.82 | | | | 22.15 | | April 2010 | | | 22.60 | | | | 21.00 | | | | 22.60 | | | | 22.09 | | | | 20.41 | | | | 22.00 | | May 2010 | | | 24.50 | | | | 20.93 | | | | 22.88 | | | | 22.74 | | | | 19.93 | | | | 21.10 | |
Not applicable. Trading on the Mexican Stock Exchange The Mexican Stock Exchange (the “Exchange”), founded in 1894 and located in MéxicoMexico City, is the only stock exchange in México. Founded in 1894.Mexico. Since 2008, the Mexican Stock Exchange has been a public company, The 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., MéxicoMexico 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.Mexico.
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.Mexico. There are several foreign brokerage houses authorized to operate in México.Mexico. 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%10.0% 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%10.0% and less of 30%30.0% 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 of one or more transactions resulting in the ownership of more than 30%30.0% but less than 50%50.0% of capital stock. |
In June 2006, the Ley del Mercado de Valores (“Securities“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, were: | 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) Defines and assigns specific duties to the General Director or CEO.
d) Defines more precisely and widely the duties of the Board of Directors.
e) Assign more ample responsibilities to the audit committee. | · | Defines more specifically the concept of “Control” or “Controlled” |
| f)· | Defines and assigns specific duties to the General Director or CEO. |
| · | Defines more precisely and widely the duties of the Board of Directors. |
| · | Assign more ample responsibilities to the audit committee. |
| · | The Statutory Auditor no longer exists for Public Companies, his duties were assumed by the Audit Committee. |
Not applicable. Not applicable. Not applicable. ITEM 10. | Additional Information |
Not applicable. B. | 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. An English translation of our bylaws was submitted with our annual report for year 2006 and is incorporated by reference herein and 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(sociedad anónima de capital variable)variable) under the laws of México.Mexico. To fully comply with Mexican laws, the Company modified its name to Industrias Bachoco, S.A.B. de C.V. (sociedad(sociedad anónima bursatil de capital variable)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. TheShares, and converting 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 consists of 12 underlying Shares, but they are all 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%51.0% of the Series B Shares at any time outstanding. See “—Foreign Investment Legislation” in this Item. Registration and Transfer Series B Shares 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.
In accordance with Article 130 of the Ley General de Sociedades Mercantiles (“Mexican Corporations 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%10.0% 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%10.0% 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 violateviolates 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%10.0% 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 23, 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 Corporations 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 Corporations 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%20.0% (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%10.0% 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%50.0%. 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%75.0% 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%50.0% 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%95.0% 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. 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 Corporation Law. Stockholders with a right to vote, including a limited right to vote, and who hold at least 20%20.0% 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%5.0% (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%10.0% (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%10.0% (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 MéxicoMexico 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 Corporations 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%25.0% (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. |
Besides 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 MéxicoMexico and on the dates that the board determines. Meetings previously scheduled in accordance with a schedule pre approvedpre-approved by the board do not need to be called. Meetings must be called by at least 25%25.0% 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 or the Alternate Secretary of the Board or the President of the Audit Committee. Members of the board must be notified via e maile-mail or in writing at least five calendar days in advance of a meeting.
DividendDividends 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, 2008,2009, our legal reserve fund was equal to at least 20%20.0% 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 Shares participate in any distribution to the extent that such 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 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 Shares of capital stock have been fully paid. Generally, a reduction of capital stock may be effected to absorb losses, to redeem Shares, or to release stockholders from payments not made. A reduction of capital stock to redeem Shares is effected by reimbursing holders of Shares pro rata or by lot. Stockholders may also approve the redemption of fully paid Shares with retained earnings. Such redemption would be affected by a repurchase of Shares on the Mexican Stock Exchange (in the case of Shares listed thereon). 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 Shares and 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.
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%100.0% 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%49.0% of the capital stock. Mexican and non-Mexican nationals will be entitled to hold and to exercise the rights of holders. The Robinson Bours Stockholders have advised us that they intend to maintain a control position. Pursuant to our bylaws, foreigners may only own Shares up to 49%49.0%. Other Provisions Fixed and Variable Capital.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 shareholders’ equity must be registered in the Equity Variations Book that the Company will keep for such purpose. Repurchase in the Eventevent of Delistingdelisting. . 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 had been unable to acquire 100%100.0% 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 MéxicoMexico City. Therefore, our stockholders are restricted to the courts of MéxicoMexico City. Duration;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 Corporations 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%25.0% of the voting capital stock vote against the issuance of these Shares, such issuance can notcannot 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 corporation 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 Againstagainst 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%5.0% (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 of Directors. 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 Article 35 of the Mexican Securities Market Law for more detail. Related Party Transactions
See “Related Party Transactions” included in Item 7 to this Annual Report. None. 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 Government 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%100.0% 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%49.0% of the capital stock. Mexican and non-Mexican nationals will be entitled to hold and to exercise the rights of holders. The Robinson Bours Stockholders have advised us that they intend to maintain a control position of his shares.Shares. Pursuant to our bylaws, foreigners may only own Shares up to 49%49.0% of such Series.
The following is a general summary of the principal U.S. federal income 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%10.0% 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. |
If a partnership holds Shares or ADSs, the tax treatment of a partner will generally depend upon the status of the partner and upon the activities of the partnership. A partner of a partnership considering the purchase of Shares or ADSs should consult its own independent tax advisor regarding the U.S. federal income tax consequences of investing in Shares or ADSs through a partnership. Except where specifically described below, this discussion assumes that we are not a passive foreign investment company, or PFIC, for U.S. federal income tax purposes. See “—Passive Foreign Investment Company Rules.” This summary is based on the federal income tax laws and regulations of the United States and México,Mexico, judicial decisions, published rulings and administrative pronouncements, all as in effect on the date hereof, and all of which are subject to change (and some changes may have retroactive effect) and different interpretations. Further, this discussion does not address U.S. federal estate and gift tax or the alternative minimum tax consequences of holding Shares or ADSs or the indirect consequences to holders or equity interests in partnerships (or any other entity treated as a partnership for U.S. federal income tax purposes) that own Shares or ADSs. In addition, this discussion does not address the non-U.S., non-Mexican, state or local tax consequences of holding Shares or ADSs. 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 MéxicoMexico (the “Tax Treaty”) took effect on January 1, 1994. The Tax Treaty was amended by a second Protocol signed September 8, 1994. The second Protocol entered into force on October 2, 2005. The Tax Treaty was amended by a third 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 MéxicoMexico 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 material 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 byprovided the U.S. Holder elects to deduct (rather than credit) all foreign income taxes for that year 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. A U.S. Holder will be entitled, subject to a number of complex limitations and conditions, to claim a U.S. foreign tax credit in respect of any Mexican income taxes withheld on dividends received on Shares or ADSs. U.S. Holders who do not elect to claim a credit for any foreign income taxes paid during the taxable year may instead claim a deduction in respect of such Mexican income taxes. Dividends received with respect to Shares or ADSs will be treated as foreign source income, subject to various classifications and other limitations. For purposes of the U.S. foreign tax credit limitation foreign source income is separated into different “baskets,” and the credit for foreign taxes on income in any basket is limited to the U.S. federal income tax allocable to such income. Dividendsdividends paid with respect to Shares or ADSs generally will constitute “passive category income” in most cases.income.” The U.S. Treasury Department has expressed concerns that parties to whom depositary shares such as the ADSs are released may be taking actions that are inconsistent with the claiming of foreign tax credits by U.S. Holders of such ADSs. Accordingly, the analysis of the creditability of Mexican income taxes described above could be affected by future actions that may be taken by the U.S. Treasury Department. The rules relating to computing foreign tax credits or deducting foreign taxes are extremely complex, and U.S. Holders are urged to consult their own independent tax advisors regarding the availability of foreign tax credits with respect to any Mexican income taxes withheld. 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%15.0% if such dividends represent “qualified dividend income.” Dividends paid on the ADSs will be treated as qualified dividend income if (i) the ADSs are readily tradable on an established securities market in the United States and (ii) we were not in the year prior to the year in which the dividend was paid, and are not in the year in which the dividend is paid, a PFIC. Under current guidance recently issued by the Internal Revenue Service (“IRS”), the ADSs should qualify as readily tradable on an established securities market in the United States so long as they are listed on the New York Stock Exchange, but no assurances can be given that the ADSs will be or remain readily tradable under future guidance.
Based on existing guidance, it is not entirely clear whether dividends received with respect to Shares will be treated as qualified dividend income, because the Shares are not themselves listed on a U.S. exchange. In addition, 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%75.0% of its gross income is passive income, or (2) on average at least 50%50.0% 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, among other things, dividends, interest, royalties, rents and gains from commodities and securities transactions. The determination as to whether a non-U.S. corporation is a PFIC is based on the application of complex U.S. federal income tax rules, which are suffering from different interpretations. In addition, 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%25.0% interest by value is taken into account.
Based on current estimates of our income and assets, we do not believe that we were classified for our most recently-ended taxable year, or will be classified for our current taxable year, as 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%125.0% 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. U.S. Holders should also be aware that recently enacted legislation may broaden the current IRS Form 8621 filing requirements or impose an additional annual filing requirement for U.S. persons owning shares of a PFIC. The legislation does not describe what information would be required to be included in either situation, but grants the Secretary of the U.S. Treasury Department power to make this determination. 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.ADSs and the application of recently enacted legislation to their particular situation. 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 and Information Reporting,” 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 and Information Reporting
In general, dividends on Shares or ADSs, and payments of the proceeds of a sale or other taxable disposition of Shares or ADSs, paid within the United States, by the U.S. payor or through certain U.S.-related financial intermediaries to a U.S. Holder are subject to information reporting and may be subject to backup withholding at a current rate of 28%28.0%, (30.0% starting in 2010), unless the holder (i) establishes that it is a corporation or other exempt recipient or (ii) with respect to backup withholding, provides an accurate taxpayer identification number and certifies that it is a U.S. person and that no loss of exemption from backup withholding has occurred. Payments made within the United States, by a U.S. payor or through certain U.S.-related financial intermediaries to a Non-U.S. Holder will not be subject to backup withholding tax and information reporting requirements if an appropriate certification is provided by the holder to the payor or intermediary and the payor or intermediary does not have actual knowledge or a reason to know that the certificate is incorrect. Backup withholding is not an additional tax. The amount of any backup withholding withheld from a payment to a U.S. Holder will be allowed as a credit against the U.S. Holder’s U.S. federal income tax liability, provided that the required information is timely furnished to the IRS. A U.S. Holder generally may obtain a refund of any amounts withheld under the backup withholding rules that exceed its U.S. federal income tax liability by filing a timely refund claim with the IRS.
In addition, U.S. Holders should be aware that recently enacted legislation imposes new reporting requirements with respect to the holding of foreign financial assets, including stock of foreign issuers, if the aggregate value of all of such assets exceeds $50,000. U.S. Holders should consult their own tax advisors regarding the application of the information reporting rules to our common shares and the application of the recently enacted legislation to their particular situation. 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 MéxicoMexico is a party of. 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%25.0% of our capital stock during the twelve-month period preceding such sale or disposition will not be subject to Mexican tax, unless (i) 50%50.0% or more of the fair market value of our assets consist of “immovable property” (as defined in the Tax Treaty) situated in México,Mexico, or (ii) such gains are attributable to a permanent establishment or fixed base of such U.S. resident in México.Mexico.
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%5.0.0% 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%20.0% 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 MéxicoMexico (a “Mexican Resident”) if he or she has established his or her home in México,Mexico, 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.Mexico. A Mexican citizen is presumed to be a resident of MéxicoMexico for tax purposes unless such person can demonstrate otherwise. If a person is deemed to have a permanent establishment or fixed base in MéxicoMexico for tax purposes, such permanent person shall be required to pay taxes in MéxicoMexico 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%15.0%, (16.0% for 2010), valued added tax. F. | Dividends and Paying Agents |
Not applicable. Not applicable. 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.Ciudad Industrial, Celaya, Guanajuato, 38010, México,Mexico, for any inspection required. Part of this information is available on our web page, at www.bachoco.com.mx. Not applicable.
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 cost and 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, most recently in the second half of 2008.See Risk Factors under Item 3. All of our sales are priced in Mexican pesos but we have significant costs and expenses in U.S. dollars. A significant portion of our feed cost is priced in U.S. dollars, and other purchases may be influenced by U.S. dollar prices. A devaluation of the peso will accordingly affect our earnings. In addition, the Mexican peso exchange rate can directly and indirectly impact our results of operations and financial position in several respects, including potential economic recession in México resulting from a devalued peso.71 In 2006, we experienced a total foreign gain of Ps.40.8 million, due to the net position of our liabilities and assets.
In 2007, we experienced a small foreign exchange loss of Ps.3.4Ps. 3 million sincebecause the Mexican peso demonstrated low volatility during the year.was very stable. During 2008, we experienced a loss of Ps. 1.5 billion in our net interest position and the impact on the valuation of our financial instruments, was a loss of Ps. 1,529.3 million, mainly due to negative results in our exchange rate derivative instruments and grain hedge positions,positions. This loss was partially offset by our foreign exchange gain of Ps.160.2Ps.160 million. In 2009, we had a foreign exchange loss of Ps. 38 million because of the slightly decreased volatility of the Mexican peso. The net interest expense and the valuation effects of our financial instrument totaled Ps. 95 million as of December 31, 2009. We manage our exchange rate exposure primarily through management of our financial structure, specifically by maintaining most of our debt through long termlong-term debt instruments. As part of our normal operations, we purchase financial derivative instruments in order to ensure greater certainty in our purchases of U.S. dollars. 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. The main risk that the Company faces with the use of these derivative instruments is the volatility in the exchange rate of the peso against the U.S. dollar. During 20062007 and 2007,2008, we have observedfollowed different strategies with respect to derivatives which involveinvolved call and put options in U.S. dollars. Even though In 2009, we did not have debt denominated in U.S. dollars as of December 31, 2008, given our hedge positions, our comprehensive financial cost was strongly affected by the abrupt depreciation of the Mexican peso against the US dollar, especially during the second half of 2008.
At December 31, 2008, we maintained positions in several financial instrument derivatives.dollars. For details, please see Note 10 to our Audited Consolidated Financial Statements.
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. In order to mitigate our foreign exchange risk, we have established a Risk Committee which meets at least once a month and approves the guidelines and policies for entering into these operations. We also works with independent consultants whom make evaluations of our positions and provides us with consulting services. Said companies do not sell any financial instruments to us. Based on our derivatives position in March 2009,2010, we estimate that a hypothetical 10.0%5.0% devaluation of the Mexican peso against the U.S. dollar would result in gains of Ps. 1.4 million, while a 5.0% appreciation would result in losses of Ps.514.1Ps. 74.6 million.
Interest Rates Our earnings may also be affected by changes in interest rates due to the impact those changes have on our variable rate debt instruments. As of March 2009,2010, we had borrowings of approximately Ps.616.8Ps. 863 million pursuant to variable rate debt instruments, representing approximately 3.3%4.3% of our total assets. Based on our position on December 31, 2008,2009, 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. 3.14.8 million per annum. Any such increase would likely be partially offset by an increase in interest income due to our 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. The percentage of grain purchased from domestic markets was 35.0%, 30.1%, 31.3%, 36.4% and 36.4%48.0 in 2004, 2005, 2006 and 2007 and 2008 respectively. In 20082009, we purchased approximately 48.0%50.0% of our grain requirements from local sources. During 2008,2009, grain reached new historically high prices worldwide, due principally to strong demand and alternative uses of grain such as ethanol production. Soybean meal prices also increased, particularlywere more stable, especially in the second half of the year, as a result of strong demand coupled with lower supply than expected worldwide. Towards the end of 2008, the situation began to change as corn and soybean meal prices started to decline.year. Based on results for 2008,2009, we estimate that a hypothetical variation of 10.0% in the cost of our feed ingredients would have an impact of 6.6%6.8% on total cost of sales.
ITEM 12. | Description of Securities Other Than Equity Securities |
Not applicable. Not applicable.
Not applicable.
D. | American Depository Receipts |
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 |
Disclosure 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, 2008.2009. 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. Management’s Annual Report on Internal Control over Financial Reporting The Company’s management is responsible for establishing and maintaining 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 Mexican FRS. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Effective control over financial reporting cannot, and does not, provide absolute assurance of achieving our control objectives. Also, 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, 2008.2009. 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, 2008,2009, the Company’s internal control over financial reporting is effective based on those criteria.
The effectiveness of the Company’s internal control over financial reporting as of December 31, 2008,2009, has been audited by KPMG Cádenas Dosal S.C., an independent registered public accounting firm, as stated in their report which appears herein. Changes in Internal Controls 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. Attestation Report of the Independent Registered Public Accounting Firm The Board of Directors and stockholders’ of Stockholders
Industrias Bachoco, S.A.B.S. A. B. de C.V.C. V.: We have audited Industrias Bachoco, S.A.B. de C.V.’s internal control over financial reporting as of December 31, 2008,2009, based on criteria established in Internal Control—IntegratedControl-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria)(COSO). Industrias Bachoco, S.A.B. de C.V.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States of America)States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, andrisk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. A 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 Mexican Financial Reporting Standards, including the reconciliation to U.S. generally accepted accounting principles, in accordance with Item 18 of Form 20-F.principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with Mexican Financial Reporting Standards, including the reconciliation to U.S. generally accepted accounting principles, in accordance with Item 18 of Form 20-F, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. 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. In our opinion, Industrias Bachoco, S.A.B. de C.V. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008,2009, based on criteria established in Internal Control-Integrated Framework issued by the COSO criteria.Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States of America),States) and with auditing standards generally accepted in Mexico, the consolidated balance sheetsheets of Industrias Bachoco, S.A.B. de C.V. and subsidiaries as of December 31, 2008 and 2009, and the related consolidated statements of income, changes inoperations, stockholders’ equity, and cash flows for the yearyears then ended December 31, 2008 and our report dated June 19, 200918, 2010 expressed an unqualified opinion thereon.on those consolidated financial statements. Queretaro, Mexico, June 25, 2010. | Demetrio Villa Michel | | KPMG Cárdenas Dosal, S.C. | | | June 25, 2009 | Demetrio Villa Michel |
ITEM 16.A. 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 its duties. ITEM 16.B. 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 16.C. Principal Accountant Fees and Services Audit and Non-Audit Fees The following table sets forth the fees billed to us by our independent auditors, Mancera, S.C., and KPMG Cárdenas Dosal, S.C. independent registered public accounting firm. The following amounts werefirm and paid in 2007 and 2008; allby us. All the amounts are in nominal thousand pesos, prior to taxes: | | | | | KPMG, Cárdenas Dosal S.C. | | | | | | KPMG Cárdenas Dosal, S.C. | | | | Thousands of Mexican pesos, year ended December 31, | | | Thousands of Mexican pesos, year ended December 31, | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Audit fees | | Ps. 4,456.2 | | | Ps. 3,067.3 | | | | — | | | Ps. 2,573.5 | | | Ps. | 3,067 | | | Ps. | 488 | | | Ps. | 2,573 | | | Ps. | 4,308 | | Tax fees | | | 953.5 | | | | 261.5 | | | | — | | | | — | | | | 261 | | | | 50 | | | | — | | | | — | | Other fees | | | — | | | | 267.0 | | | | — | | | | — | | | Audit Related fees | | | | 267 | | | | — | | | | — | | | | — | | Total fees | | | | | | | | | — | | | | | | Ps. | 3,595 | | | Ps. | 488 | | | Ps. | 2,573 | | | Ps. | 4,308 | |
Audit fees in the above table are the aggregate fees billed by Mancera, S.C., and KPMG Cárdenas Dosal, S.C. directlyand paid by us in connection with the audit of our annual financial statements and statutory and regulatory audits for the years 20072008 and 2008.2009. The total 2009 and 2008 audit fees to be paid to KPMG Cárdenas Dosal, S.C. amountsis Ps. 5,285.0 million.4,678 thousand, and Ps. 5,285 thousand respectively. Tax fees for 2007, in the above table are fees billed by Mancera, S.C. for servicesAudit related to tax refund claims.
Other fees in the table above are fees related to services such as reviewing Security and Exchange Commission requirements and other services.
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 16.D. Exemptions from the Listing Standards for Audit Committees Not applicable.According to the New York Stock Exchange’s Listing Standards for Audit Committees of a Foreign Private Issuer; Ricardo Aguirre, a member of our audit committee, currently does not meet the independence standards set forth in Rule 10A-3b(1)(ii)(B) of the Exchange Act. Therefore, with respect to Mr. Aguirre, we rely on the exemption provided in Rule 10A-3(b)(1)(iv)(D) of the Exchange Act because Mr. Aguirre (i) represents the Company's controlling shareholders, (ii) only has observer status on, and is not a voting member or the chair of, the Company's audit committee and (iii) is not an executive officer of the Company. Our reliance on such exemption does not materially adversely affect the ability of our audit committee to act independently and to satisfy the other requirements of Rule 10A-3(b).
ITEM 16.E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Not applicable.The table below sets forth information about the repurchase of our Shares on the Mexican Stock Exchange:
Month of 2009 | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of the Repurchase Plan | Maximum Number of Shares that May Yet Be Purchased under the Plan(1)(2) | On February 24th | 123,200 | Ps. 13.52 | 123,200 | 23,064,430.25 | From March 10th through March 23th | 24,200 | Ps. 11.87 | 24,200 | 26,248,328.80 | Total | 147,400 | Ps. 13.25 | 147,400 | |
1. | The Share repurchase plan was initially approved in 1998 and is renewed annually at our annual general stockholders meeting. The Shares repurchased as set forth above were repurchased pursuant to the repurchase plan approved during our annual general stockholders meeting held on April 23, 2008. The reserve approved for repurchases amounted to Ps. 313,560,000. The plan remained in effect until April 22, 2009. |
2. | The maximum number of Shares remaining for repurchase is an estimate calculated by dividing the amount remaining for repurchase, after such repurchase has been made, by the average price paid per Share. |
All Shares repurchased by us as set forth in the chart above were resold during the same fiscal year 2009. During fiscal year 2010, we have not made any repurchases of Shares to date. For additional information, see note 15-d to the Audited Consolidated Financial Statements. ITEM 16.F. Changes in Registrant’s Certifying Accountant Not applicable.
ITEM 16.G. Corporate Governance Comparison of our Corporate Governance Rules and the Rules of the NYSE Applicable to U.S. Registered Companies On November 4, 2003, the SEC approved final corporate governance standards for companies listed on hethe NYSE (“NYSE Corporate Governance Standards”). According to such standards, 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 NYSE Corporate Governance Standards: | · | 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 Interim Written Annual Affirmation each time a change occurs in the Board of Directors or the Audit Committee.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. |
Pursuant to Section 303A.11 of the NYSE Corporate Governance Standards, we are required to disclose any significant ways in which our corporate governance practices differ from those required to be followed by domestic 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 the NYSE listing standards is set forth below:
NYSE Corporate Governance Rules for Domestic Issuers
| | Our Corporate Governance Practices | | | | Director Independence. Majority of board of directors must be independent. “Controlled companies,” which would include our company if it were a U.S. issuer, are exempt from this requirement. | | Pursuant to the Mexican Securities Market Law and our bylaws, our stockholders are required to appoint a board of directors of between five and 20 members, 25% of whom must be independent. Our board of directors is not required to make a determination as to the independence of our directors. | | | | A director is not independent if such director is: | | Under Article 14 Bis of the Mexican Securities Market Law, a director is not independent if such director is: | | | | (i) a person who the board determines has a material direct or indirect relationship with the company, its parent or a consolidated subsidiary; | | (i) an employee or officer of the company (one-year cooling off period); | | | | (ii) an employee, or an immediate family member of an executive officer, of the company, its parent or a consolidated subsidiary, other than employment as interim chairman or CEO; | | (ii) a stockholder that, without being an employee or officer of the company, has influence or authority over the company’s officers; | | | | (iii) a person who receives, or whose immediate family member receives, more than $100,000 per year in direct compensation from the company, its parent or a consolidated subsidiary, other than director and committee fees or deferred compensation for prior services only (and other than compensation for service as interim chairman or CEO or received by an immediate family member for service as a non-executive employee); | | (iii) a consultant, or partner or employee of a consultant, to the company or its affiliates, where the income from the company represents 10% or more of the overall income of such consultant; | | | | (iv) a person who is affiliated with or employed, or whose immediate family member is affiliated with or employed in a professional capacity, by a present or former internal or external auditor of the company, its parent or a consolidated subsidiary; | | (iv) an important client, supplier, debtor or creditor (or a partner, director or employee thereof). A client and supplier is considered important where its sales to or purchases from the company represent more than 10% of the client’s or supplier’s total sales or purchases. A debtor or creditor is considered important whenever its sales to or purchases from to the company represent more than 15% of the debtor’s or creditor’s total sales or purchases; |
NYSE Corporate Governance Rules for Domestic Issuers
| | Our Corporate Governance Practices | | | | (v) an executive officer, or an immediate family member of an executive officer, of another company whose compensation committee’s membership includes an executive officer of the listed company, its parent or a consolidated subsidiary; or | | (v) an employee of a non-profit entity that receives contributions from the company that represent more than 15% of the total contributions received; | | | | (vi) an executive officer or employee of a company, or an immediate family member of an executive officer of a company, that makes payments to, or receives payments from, the listed company, its parent or a consolidated subsidiary for property or services in an amount which, in any single fiscal year, exceeds the greater of $1 million or 2% of such other company’s consolidated gross revenues (charities are not included, but any such payments must be disclosed in the company’s proxy (or, if no proxy is prepared, its Form 10-K / Annual Report)). | | (vi) a CEO or other high ranking officer of another company in which the issuer’s CEO or other high ranking officer is a member of the board of directors; or | | | | (vii) “Immediate family member” includes a person’s spouse, parents, children, siblings, mothers and fathers-in-law, sons and daughters-in-law and anyone (other than domestic employees) who shares the person’s home. Individuals who are no longer immediate family members due to legal separation, divorce or death (or incapacity) are excluded. §303A.02(b) | | (vii) a “family member” related to any of the persons mentioned above in (i) through (vi). “Family member” includes a person’s spouse, concubine or other relative of up to three degrees of consanguinity and affinity, in the case of (i) and (ii) above, and a spouse, concubine or other relative of up to one degree of consanguinity or affinity in the case of (iii) through (vi) above. | | | | Executive Sessions. Non-management directors must meet regularly in executive sessions without management. Independent directors should meet alone in an executive session at least once a year. §303A.03 | | There is no similar requirement under our bylaws or applicable Mexican law. | | | | Audit committee. Audit committee satisfying the independence and other requirements of Rule 10A-3 under the Exchange Act and the more stringent requirements under the NYSE standards is required. §§303A.06, 303A.07 | | The members of our audit committee are independent as independence is defined by Rule 10A-3. | | | | | | Our audit committee complies with the requirements of the Mexican Securities Market Law and has the following attributes: |
NYSE Corporate Governance Rules for Domestic Issuers
| | Our Corporate Governance Practices | | | | | | · We have a three-member audit committee, which is composed of one proprietary director and two proprietary independent directors. · The president of the audit committee and one additional member are independent. Under the Mexican Securities Market Law, the president and the majority of the members of the audit committee must be independent. | | | | | | · Our audit committee operates pursuant to a written charter adopted by our board of directors. See Item 6 for a detailed description of the duties of our audit committee. | | | | | | · Pursuant to our bylaws and Mexican law, our audit committee submits an annual report regarding its activities to our board of directors. | | | | Nominating/corporate governance committee. Nominating/corporate governance committee of independent directors is required. The committee must have a charter specifying the purpose, duties and evaluation procedures of the committee. “Controlled companies,” which would include our company if it were a U.S. issuer, are exempt from these requirements. §303A.04 | | We are not required to have a nominating/corporate governance committee, and it is not expressly recommended by the Mexican Code of Best Corporate Practices. | | | | Compensation committee. Compensation committee of independent directors is required, which must approve executive officer compensation. The committee must have a charter specifying the purpose, duties and evaluation procedures of the committee. “Controlled companies,” which would include our company if it were a U.S. issuer, are exempt from this requirement. §303A.05 | | We are not required to have a compensation committee. As recommended by the Mexican Code of Best Corporate Practices, we have an evaluation mechanism for assisting the board of directors in approving executive officer compensation. | | | | Equity compensation plans. Equity compensation plans require stockholder approval, subject to limited exemptions. §303A.08 | | Stockholder approval is not expressly required under Mexican law or our bylaws for the adoption and amendment of an equity-compensation plan. However, regulations of the Mexican Banking and Securities Commission require stockholder approval under certain circumstances. We currently do not have any equity-compensation plans in place. |
NYSE Corporate Governance Rules for Domestic Issuers
| | Our Corporate Governance Practices | | | | Code of Ethics. Corporate governance guidelines and a code of business conduct and ethics is required, with disclosure of any waiver for directors or executive officers. §303A.10 | | We have adopted a code of ethics, which has been accepted by to our chief executive officer, chief financial officer, controller and persons performing similar functions, as well as to other officers and employees. We are required by Item 16B of Form 20-F to disclose any waivers granted to our chief executive officer, chief financial officer, principal accounting officer and persons performing similar functions. We have no such waivers in place. |
PART III ITEM 17. | Financial Statements |
Not applicable. ITEM 18. | Financial Statements |
See the Consolidated Audited Financial Statements including notes, incorporated herein by reference. Index of Exhibits Documents filed as exhibits to this Annual Report: Exhibit No. | | Description | 1.1 | | | An English translation of the Bylaws (estatutos sociales)(estatutos sociales) of Industrias Bachoco, S.A. de C.V. dated June 29, 2007 (incorporated by reference to Exhibit 1.1 on Form 20-F filed with the U.S. Securities and Exchange Commission on June 29, 2007 (File No. 333-07950)). | | | | | 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. de C.V. | 12.1 | | | Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | 12.2 | | | Certification of the Chief Financial 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 30, 200928, 2010
INDUSTRIAS BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES | | | Consolidated Financial Statements | | | As ofINDUSTRIAS BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES
Consolidated Financial Statements
At December 31, 2008 and 2009 and for the years ended December 31, 2007, 2008 and 2009
(with Independent Registered Public Accounting Firm)
December 31, 2007 and 2008
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, 2006, 2007, 2008 and 20082009
Content
Reports of Independent Registered Public Accounting Firms | F-3 | Consolidated Financial Statements: | | Balance Sheets | F-6 | Statements of Operations | F-7 | Statements of Changes in Stockholders’ Equity | F-8 | Statements of Changes in Financial Position | F-10 | Statements of Changes in Cash Flows | F-9 | Notes to the Consolidated Financial Statements | F-11 |
Report of Independent Registered Public Accounting Firm
Consolidated Financial Statements:The Board of Directors and Stockholders
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 (the Company) as of December 31, 2008 and 2009, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. Balance Sheets | F-4 | Statements of Operations | F-5 | Statements of Changes in Stockholders’ Equity | F-6 | Statements of Changes in Financial Position | F-7 | Statements of Changes in Cash Flows | F-8 | Notes to the Consolidated Financial Statements | F-9 |
F-2We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States) and with auditing standards generally accepted in Mexico. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Industrias Bachoco, S. A. B. de C. V. and subsidiaries as of December 31, 2008 and 2009, and the results of their operations and their cash flows for the years then ended, in conformity with Mexican Financial Reporting Standards.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
As disclosed in note 2x to the consolidated financial statements, a new Mexican Financial Reporting Standard was adopted on January 1, 2008.
ToThe accompanying consolidated balance sheets as of December 31, 2009 and the related consolidated statements of operations and cash flows have been translated into United States dollars solely for the convenience of the reader. We have audited the translation and, in our opinion, such consolidated financial statements expressed in thousands of pesos, have been translated into thousands of United States dollars on the basis set forth in note 2v to the consolidated financial statements. Such translation should not be filed no later thanconstrued as a representation that the fifteenth calendar day followingpeso amounts could have been or could be converted into United States dollars at such rate.
Mexican Financial Reporting Standards vary in certain significant respects from generally accepted accounting principles in the prescribed due dateUnited States of this Annual Report.America. Information relating to the nature and effect of such differences is presented in note 21 to the consolidated financial statements.
INDUSTRIAS BACHOCO, S.A.B. DE C. V. AND SUBSIDIARIES
Consolidated Balance SheetsWe also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Industrias Bachoco, S.A.B. de C.V.’s internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated June 18, 2010 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
December 31, 2007 and 2008 | KPMG CARDENAS DOSAL, S. C. | | | | Demetrio Villa Michel |
(Thousands of mexican pesos-note 2x)Queretaro, Mexico
June 25, 2010
| | | | | | | | (Thousands of U.S. dollars) (note 2v) | | | | 2007 | | | 2008 | | | 2008 | | | | | | | | | | | | Assets | | | | | | | | | | | | | | | | | | | | Current assets: | | | | | | | | | | Cash and investments (note 3) | | $ | 3,039,876 | | | | 1,998,247 | | | | 144,643 | | Accounts receivable: | | | | | | | | | | | | | Trade, net (note 4) | | | 765,502 | | | | 892,207 | | | | 64,582 | | Value added and other recoverable taxes | | | 440,945 | | | | 456,732 | | | | 33,061 | | | | | | | | | | | | | | | Total accounts receivable | | | 1,206,447 | | | | 1,348,939 | | | | 97,643 | | | | | | | | | | | | | | | Inventories, net (note 6a) | | | 3,329,340 | | | | 3,973,615 | | | | 287,630 | | Biological current assets (note 6b) | | | 108,502 | | | | 139,844 | | | | 10,123 | | Derivative financial instruments (note 10a) | | | 123,503 | | | | 126,164 | | | | 9,132 | | Prepaid expenses and other current assets | | | 129,582 | | | | 154,285 | | | | 11,168 | | Land and building available for sale | | | - | | | | 22,771 | | | | 1,648 | | | | | | | | | | | | | | | Total currents assets | | | 7,937,250 | | | | 7,763,865 | | | | 561,987 | | | | | | | | | | | | | | | Property, plant and equipment, net (note 7) | | | 10,256,239 | | | | 10,689,235 | | | | 773,741 | | Biological non-current assets (note 6b) | | | 575,413 | | | | 681,577 | | | | 49,336 | | Intangible assets from labor obligations (note 14) | | | 28,341 | | | | - | | | | - | | Goodwill, net (note 8) | | | 300,848 | | | | 300,848 | | | | 21,777 | | Other assets | | | 18,333 | | | | 19,446 | | | | 1,408 | | | | | | | | | | | | | | | Total assets | | $ | 19,116,424 | | | | 19,454,971 | | | | 1,408,249 | |
| | | | | | | | | | Liabilities and stockholders' equity | | | | | | | | | | | | | | | | | | | | Current liabilities: | | | | | | | | | | Notes payable to banks (note 9a) | | $ | 40,000 | | | | 40,000 | | | | 2,895 | | Current installmet of long-term debt (note 9b) | | | 18,844 | | | | 194,235 | | | | 14,059 | | Account payable | | | 1,138,011 | | | | 1,651,930 | | | | 119,575 | | Related parties (note 5) | | | 26,819 | | | | 50,336 | | | | 3,644 | | Other taxes payable and other accruals (note 12) | | | 243,429 | | | | 328,602 | | | | 23,786 | | Derivative financial instruments (note 10a) | | | - | | | | 919,026 | | | | 66,524 | | | | | | | | | | | | | | | Total current liabilities | | | 1,467,103 | | | | 3,184,129 | | | | 230,483 | | | | | | | | | | | | | | | Long-term liabilities: | | | | | | | | | | | | | Long term debt, excluding current installmens (note 9b) | | | 50,757 | | | | 391,657 | | | | 28,350 | | Deferred income tax (note 16e) | | | 2,375,025 | | | | 1,719,076 | | | | 124,435 | | Labor obligations (note 14) | | | 96,373 | | | | 80,690 | | | | 5,841 | | | | | | | | | | | | | | | Total liabilities | | | 3,989,258 | | | | 5,375,552 | | | | 389,109 | | | | | | | | | | | | | | | Commitments and contingencies (note 11) | | | | | | | | | | | | | | | | | | | | | | | | | | Stockholders' equity (note 15): | | | | | | | | | | | | | Majority interest: | | | | | | | | | | | | | Capital stock | | | 2,294,927 | | | | 2,294,927 | | | | 166,118 | | Additional paid-in capital | | | 743,674 | | | | 743,674 | | | | 53,831 | | Reserve for repurchase of shares | | | 159,455 | | | | 159,455 | | | | 11,542 | | Retained earnings | | | 14,250,225 | | | | 11,720,612 | | | | 848,398 | | Net majority interest income (loss) of the year | | | 1,270,941 | | | | (879,048 | ) | | | (63,630 | ) | Minimun liability adjustment of labor obligations (note 14) | | | (2,512 | ) | | | - | | | | - | | Deficit from restatement of stockholders' equity | | | (3,735,254 | ) | | | - | | | | - | | Derivative financial instruments (note 10c) | | | 98,922 | | | | - | | | | - | | | | | | | | | | | | | | | Total majority interest | | | 15,080,378 | | | | 14,039,620 | | | | 1,016,259 | | | | | | | | | | | | | | | Minority interest | | | 46,788 | | | | 39,799 | | | | 2,881 | | | | | | | | | | | | | | | Total stockholders' equity | | | 15,127,166 | | | | 14,079,419 | | | | 1,019,140 | | | | | | | | | | | | | | | Subsequent event (note 19) | | | | | | | | | | | | | | | | | | | | | | | | | | Total liabilities and stockholders' equity | | $ | 19,116,424 | | | | 19,454,971 | | | | 1,408,249 | |
See accompanying notes to consolidated financial statements
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, 2007, and the related consolidated statements of income, stockholders’ equity and changes in financial position for the year ended December 31, 2007. 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 audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit 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, 2007, and the consolidated results of their operations, stockholders´equity and changes in financial position for the year ended December 31, 2007, in conformity with Mexican Financial Reporting Standards which differ in certain respects from U.S. generally accepted principles (see Note 21). We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Industrias Bachoco, S.A.B. de C.V.'s internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated June 27 2008 expressed an unqualified opinion thereon. Mexico, D.F., June 27, 2008. | Francisco José Sánchez González Mancera, S.C., a member practice of Ernst & Young Global |
INDUSTRIAS BACHOCO, S.A.B. DE C. V. AND SUBSIDIARIES Consolidated Balance Sheets December 31, 2008 and 2009 (Thousands of pesos) | | | | | | | | (Thousands of | | | | | | | | | | U.S. dollars) | | | | | | | | | | (note 2v) | | | | 2008 | | | 2009 | | | 2009 | | | | | | | | | | | | Assets | | | | | | | | | | | | | | | | | | | | Current assets: | | | | | | | | | | Cash and investments (note 3) | | $ | 1,998,247 | | | | 2,550,968 | | | | 195,028 | | Accounts receivable: | | | | | | | | | | | | | Trade, net (note 4) | | | 892,207 | | | | 903,609 | | | | 69,083 | | Value added and other recoverable taxes | | | 456,732 | | | | 482,469 | | | | 36,886 | | | | | | | | | | | | | | | Total accounts receivable | | | 1,348,939 | | | | 1,386,078 | | | | 105,969 | | | | | | | | | | | | | | | Inventories, net (note 6a) | | | 3,973,615 | | | | 3,613,212 | | | | 276,239 | | Biological current assets (note 6b) | | | 139,844 | | | | 156,460 | | | | 11,962 | | Derivative financial instruments (note 10a) | | | 126,164 | | | | 11,272 | | | | 862 | | Prepaid expenses and other current assets | | | 154,285 | | | | 155,219 | | | | 11,867 | | Property, plant and equipment available for sale | | | 22,771 | | | | 29,991 | | | | 2,293 | | | | | | | | | | | | | | | Total currents assets | | | 7,763,865 | | | | 7,903,200 | | | | 604,220 | | | | | | | | | | | | | | | Property, plant and equipment, net (note 7) | | | 10,689,235 | | | | 10,910,126 | | | | 834,107 | | Biological non-current assets (note 6b) | | | 681,577 | | | | 743,609 | | | | 56,851 | | Goodwill, net (note 8) | | | 300,848 | | | | 300,848 | | | | 23,001 | | Other assets | | | 19,446 | | | | 20,096 | | | | 1,536 | | | | | | | | | | | | | | | Total assets | | $ | 19,454,971 | | | | 19,877,879 | | | | 1,519,715 | | | | | | | | | | | | | | | Liabilities and stockholders' equity | | | | | | | | | | | | | | | | | | | | | | | | | | Current liabilities: | | | | | | | | | | | | | Notes payable to banks (note 9a) | | $ | 40,000 | | | | 234,296 | | | | 17,913 | | Current installments of long-term debt (note 9b) | | | 194,235 | | | | 357,569 | | | | 27,337 | | Accounts payable | | | 1,651,930 | | | | 1,653,988 | | | | 126,451 | | Related parties (note 5) | | | 50,336 | | | | 67,613 | | | | 5,169 | | Other taxes payable and other accruals (note 12) | | | 328,602 | | | | 437,770 | | | | 33,468 | | Derivative financial instruments (note 10a) | | | 919,026 | | | | - | | | | - | | | | | | | | | | | | | | | Total current liabilities | | | 3,184,129 | | | | 2,751,236 | | | | 210,338 | | | | | | | | | | | | | | | Long term liabilities: | | | | | | | | | | | | | Long term debt, excluding current installments (note 9b) | | | 391,657 | | | | 371,970 | | | | 28,438 | | Deferred income tax (note 16e) | | | 1,719,076 | | | | 2,021,581 | | | | 154,555 | | Labor obligations (note 14) | | | 80,690 | | | | 94,629 | | | | 7,235 | | | | | | | | | | | | | | | Total liabilities | | | 5,375,552 | | | | 5,239,416 | | | | 400,566 | | | | | | | | | | | | | | | Commitments and contingencies (note 11) | | | | | | | | | | | | | | | | | | | | | | | | | | Stockholders' equity (note 15): | | | | | | | | | | | | | Controlling interest | | | | | | | | | | | | | Capital stock | | | 2,294,927 | | | | 2,294,927 | | | | 175,453 | | Additional paid-in capital | | | 743,674 | | | | 744,753 | | | | 56,938 | | Reserve for repurchase of shares | | | 159,455 | | | | 159,455 | | | | 12,191 | | Retained earnings | | | 11,720,612 | | | | 10,591,519 | | | | 809,749 | | Net controlling interest (loss) income of the year | | | (879,048 | ) | | | 797,600 | | | | 60,979 | | | | | | | | | | | | | | | Total contolling interest | | | 14,039,620 | | | | 14,588,254 | | | | 1,115,310 | | | | | | | | | | | | | | | Non-controlling interest | | | 39,799 | | | | 50,209 | | | | 3,839 | | | | | | | | | | | | | | | Total stockholders' equity | | | 14,079,419 | | | | 14,638,463 | | | | 1,119,149 | | | | | | | | | | | | | | | Total liabilities and stockholders' equity | | $ | 19,454,971 | | | | 19,877,879 | | | | 1,519,715 | |
See accompanying notes to consolidated financial statements. INDUSTRIAS BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31, 2006, 2007, 2008 and 20082009
(Thousands of mexican pesos-note 2x,pesos, except per share amount)
| | | | | | | | | | | | (Thousands of | | | | | | | | | | | | | | U.S. dollars) | | | | | | | | | | | | | (Thousands of U.S. dollars) (note 2v) | | | | | | | | | | | | (note 2v) | | | | 2006 | | | 2007 | | | 2008 | | | 2008 | | | 2007 | | | 2008 | | | 2009 | | | 2009 | | | | | | | | | | | | | | | | | | | | | | | | | | | Net revenues | | $ | 15,550,965 | | | | 18,219,647 | | | | 20,125,321 | | | 1,456,773 | | | $ | 18,219,647 | | | 20,125,321 | | | 23,262,850 | | | 1,778,505 | | Cost of sales (note 5) | | | (12,052,986 | ) | | | (14,477,861 | ) | | | (17,482,468 | ) | | | (1,265,470 | ) | | Cost of sales (note 5b) | | | | (14,477,861 | ) | | | (17,482,468 | ) | | | (19,326,759 | ) | | | (1,477,580 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Gross profit | | | 3,497,979 | | | | 3,741,786 | | | | 2,642,853 | | | | 191,303 | | | 3,741,786 | | | 2,642,853 | | | 3,936,091 | | | 300,925 | | Selling, general and administrative expenses (note 5) | | | 2,071,553 | | | | 2,245,522 | | | | 2,412,788 | | | | 174,650 | | | Selling, general and administrative expenses (note 5b) | | | | 2,245,522 | | | | 2,412,788 | | | | 2,522,291 | | | | 192,836 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Operating income | | | 1,426,426 | | | | 1,496,264 | | | | 230,065 | | | | 16,653 | | | | 1,496,264 | | | | 230,065 | | | | 1,413,800 | | | | 108,089 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Other income (expense), net (note 17) | | | 18,427 | | | | 69,571 | | | | (20,958 | ) | | | (1,517 | ) | | | 69,571 | | | | (20,958 | ) | | | (65,189 | ) | | | (4,984 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Comprehensive financial results: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Interest income | | | 302,910 | | | | 363,016 | | | | 173,694 | | | | 12,573 | | | 363,016 | | | 173,694 | | | 170,655 | | | 13,047 | | Valuation effects of financial instruments (note 10) | | | - | | | | (44,137 | ) | | | (1,666,821 | ) | | | (120,653 | ) | | (44,137 | ) | | (1,666,821 | ) | | (174,603 | ) | | (13,349 | ) | Interest and financial expenses | | | (131,852 | ) | | | (141,578 | ) | | | (36,202 | ) | | | (2,620 | ) | | | (141,578 | ) | | | (36,202 | ) | | | (91,326 | ) | | | (6,982 | ) | Net interest income (expense) and valuation effects of financial instruments | | | 171,058 | | | | 177,301 | | | | (1,529,329 | ) | | | (110,700 | ) | | | 177,301 | | | | (1,529,329 | ) | | | (95,274 | ) | | | (7,284 | ) | Foreign exchange gain (loss), net | | | 40,782 | | | | (3,351 | ) | | | 160,166 | | | | 11,594 | | | Foreign exchange (loss) gain, net | | | (3,351 | ) | | 160,166 | | | (37,934 | ) | | (2,900 | ) | Monetary position loss | | | (150,438 | ) | | | (154,814 | ) | | | - | | | | - | | | | (154,814 | ) | | | - | | | | - | | | | - | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Comprehensive financial results, net | | | 61,402 | | | | 19,136 | | | | (1,369,163 | ) | | | (99,106 | ) | | | 19,136 | | | | (1,369,163 | ) | | | (133,208 | ) | | | (10,184 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Income (loss) before income taxes and minority interest | | | 1,506,255 | | | | 1,584,971 | | | | (1,160,056 | ) | | | (83,970 | ) | | Income (loss) before income taxes, and non-controlling interest | | | | 1,584,971 | | | | (1,160,056 | ) | | | 1,215,403 | | | | 92,921 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Income tax benefit (expense) (note 16d) | | | (599,126 | ) | | | (312,745 | ) | | | 274,019 | | | | 19,835 | | | Income tax expense (benefit) (note 16d) | | | | 312,745 | | | | (274,019 | ) | | | 406,358 | | | | 31,067 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net consolidated net income (loss) | | | 907,129 | | | | 1,272,226 | | | | (886,037 | ) | | | (64,135 | ) | | Net consolidated income (loss) | | | | 1,272,226 | | | | (886,037 | ) | | | 809,045 | | | | 61,854 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net majority interest income (loss) | | | 906,186 | | | | 1,270,941 | | | | (879,048 | ) | | | (63,630 | ) | | Minority interest | | | 943 | | | | 1,285 | | | | (6,989 | ) | | | (505 | ) | | Net controlling interest income (loss) | | | 1,270,941 | | | (879,048 | ) | | 797,600 | | | 60,979 | | Non-controlling interest income (loss) | | | | 1,285 | | | | (6,989 | ) | | | 11,445 | | | | 875 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Consolidated net income (loss) | | $ | 907,129 | | | | 1,272,226 | | | | (886,037 | ) | | | (64,135 | ) | | $ | 1,272,226 | | | | (886,037 | ) | | | 809,045 | | | | 61,854 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Weighted average outstanding (shares in thousands) | | | 599,571 | | | | 600,000 | | | | 600,000 | | | | 600,000 | | | | 600,000 | | | | 600,000 | | | | 600,000 | | | | 600,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net majority interest income (loss) per share | | $ | 1.51 | | | | 2.12 | | | | (1.46 | ) | | | (0.11 | ) | | Net controlling interest income (loss) per share | | | $ | 2.12 | | | | (1.46 | ) | | | 1.33 | | | | 0.10 | |
See accompanying notes to consolidated financial statements.
INDUSTRIAS BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended December 31, 2006, 2007, 2008 and 20082009
(Thousand of mexican pesos-note 2x,pesos, except per share amount) | | Number of | | | | | | | | | | | | | | | Net majority | | | Minimun | | | Deficit from | | | | | | | | | | | | | | | | shares of | | | | | | | | | | | | | | | interest | | | liability | | | restatement | | | | | | | | | | | | | | | | capital | | | | | | | | | Reserve for | | | | | | income | | | adjustment | | | of | | | Derivative | | | | | | | | | Total | | | | stock | | | Capital | | | Additional | | | repurchase of | | | Retained | | | (loss) of the | | | of labor | | | stockholders' | | | financial ins- | | | Total majority | | | Minority | | | stockholders' | | | | (thousands) | | | stock | | | paid in capital | | | shares | | | earnings | | | year | | | obligations | | | equity | | | truments | | | interest | | | interest | | | equity | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balances as of December 31, 2005 | | | 599,080 | | | $ | 2,294,682 | | | | 726,070 | | | | 159,455 | | | | 12,177,287 | | | | 1,908,535 | | | | (3,336 | ) | | | (3,713,627 | ) | | | (92,374 | ) | | | 13,456,692 | | | | 46,366 | | | | 13,503,058 | | Transfer of prior year's net income based on stockholders' meeting held on April 2006 | | | - | | | | - | | | | - | | | | - | | | | 1,908,535 | | | | (1,908,535 | ) | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | Sales of repurchased shares | | | 920 | | | | 245 | | | | 17,604 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 17,849 | | | | - | | | | 17,849 | | Cash dividends paid (note 15b) | | | - | | | | - | | | | - | | | | - | | | | (378,075 | ) | | | - | | | | - | | | | - | | | | - | | | | (378,075 | ) | | | - | | | | (378,075 | ) | Comprehensive income, net of taxes (note 2o) | | | - | | | | - | | | | - | | | | - | | | | - | | | | 906,186 | | | | 2,420 | | | | (40,288 | ) | | | 92,744 | | | | 961,062 | | | | (940 | ) | | | 960,122 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balances as of December 31, 2006 | | | 600,000 | | | | 2,294,927 | | | | 743,674 | | | | 159,455 | | | | 13,707,747 | | | | 906,186 | | | | (916 | ) | | | (3,753,915 | ) | | | 370 | | | | 14,057,528 | | | | 45,426 | | | | 14,102,954 | | Transfer of prior year's net income based on stockholders' meeting held on April 2007 | | | - | | | | - | | | | - | | | | - | | | | 906,186 | | | | (906,186 | ) | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | Cash dividends paid (note 15b) | | | - | | | | - | | | | - | | | | - | | | | (363,708 | ) | | | - | | | | - | | | | - | | | | - | | | | (363,708 | ) | | | - | | | | (363,708 | ) | Comprehensive income, net of taxes (note 2o) | | | - | | | | - | | | | - | | | | - | | | | - | | | | 1,270,941 | | | | (1,596 | ) | | | 18,661 | | | | 98,552 | | | | 1,386,558 | | | | 1,362 | | | | 1,387,920 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balances as of December 31, 2007 | | | 600,000 | | | | 2,294,927 | | | | 743,674 | | | | 159,455 | | | | 14,250,225 | | | | 1,270,941 | | | | (2,512 | ) | | | (3,735,254 | ) | | | 98,922 | | | | 15,080,378 | | | | 46,788 | | | | 15,127,166 | | Transfer of prior year's net income based on stockholders' meeting held on April 2008 | | | - | | | | - | | | | - | | | | - | | | | 1,270,941 | | | | (1,270,941 | ) | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | Cash dividends paid (note 15b) | | | - | | | | - | | | | - | | | | - | | | | (353,880 | ) | | | - | | | | - | | | | - | | | | - | | | | (353,880 | ) | | | - | | | | (353,880 | ) | Write-off of additional deferred tax liability (note 16) | | | - | | | | - | | | | - | | | | - | | | | 288,580 | | | | - | | | | - | | | | - | | | | - | | | | 288,580 | | | | - | | | | 288,580 | | Reclasification of deficit from restatement of stockholders' equity (note 2x) | | | - | | | | - | | | | - | | | | - | | | | (3,735,254 | ) | | | - | | | | - | | | | 3,735,254 | | | | - | | | | - | | | | - | | | | - | | Comprehensive loss, net of taxes (note 2o) | | | - | | | | - | | | | - | | | | - | | | | - | | | | (879,048 | ) | | | 2,512 | | | | - | | | | (98,922 | ) | | | (975,458 | ) | | | (6,989 | ) | | | (982,447 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balances as of December 31, 2008 | | | 600,000 | | | $ | 2,294,927 | | | | 743,674 | | | | 159,455 | | | | 11,720,612 | | | | (879,048 | ) | | | - | | | | - | | | | - | | | | 14,039,620 | | | | 39,799 | | | | 14,079,419 | |
See accompanying notes to consolidated financial statements.
INDUSTRIAS BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES
Consolidated Statements of Changes in Financial Position
(Thousands of mexican pesos-note 2x)
Years ended December 31, 2006 and 2007
| | 2006 | | | 2007 | | | | | | | | | Operating activities: | | | | | | | Net income | | $ | 907,129 | | | | 1,272,226 | | Add charges to operations not requiring funds: | | | | | | | | | Depreciation | | | 537,383 | | | | 571,393 | | Deferred income tax | | | 346,110 | | | | 169,716 | | Labor obligations, net period cost | | | 37,464 | | | | 42,112 | | | | | | | | | | | Funds provided by operations | | | 1,828,086 | | | | 2,055,447 | | | | | | | | | | | Changes in operating assets and liabilities: | | | | | | | | | Accounts receivable | | | (51,435 | ) | | | (336,083 | ) | Inventories and biological assets | | | (535,933 | ) | | | (1,140,124 | ) | Prepaid expenses and others current assets | | | (11,081 | ) | | | (31,463 | ) | Accounts payable | | | 364,813 | | | | 300,566 | | Related parties | | | 6,002 | | | | 14,169 | | Taxes payable and other accruals | | | (73,193 | ) | | | (45,534 | ) | Labor obligations, plan contributions | | | (27,576 | ) | | | (32,617 | ) | Derivative financial instruments | | | (6,407 | ) | | | (35,769 | ) | | | | | | | | | | Funds provided by operating activities | | | 1,493,276 | | | | 748,592 | | | | | | | | | | | Financing activities: | | | | | | | | | Proceeds from of long-term debt | | | - | | | | 40,000 | | Proceeds from notes payable to bank | | | - | | | | 40,000 | | Payment of long-term debt and notes payable to bank | | | (104,836 | ) | | | (13,963 | ) | Constant pesos effect on notes payable to banks and long-term debt | | | (6,081 | ) | | | (1,638 | ) | Cash dividends paid | | | (378,075 | ) | | | (363,708 | ) | Sales of Company's own shares, net | | | 17,849 | | | | - | | | | | | | | | | | Funds used in financing activities | | | (471,143 | ) | | | (299,309 | ) | | | | | | | | | | Investing activities: | | | | | | | | | Acquisition of property, plan and equipment, net | | | (856,227 | ) | | | (991,737 | ) | Other assets | | | (2,060 | ) | | | (1,561 | ) | | | | | | | | | | Funds used in investing activities | | | (858,287 | ) | | | (993,298 | ) | | | | | | | | | | Net increase (decrease) in cash and investments | | | 163,846 | | | | (544,015 | ) | Cash and investments at beginning of year | | | 3,420,045 | | | | 3,583,891 | | | | | | | | | | | Cash and investments at end of year | | $ | 3,583,891 | | | | 3,039,876 | |
| | Number of | | | | | | | | | | | | | | | Net controlling | | | Minimun | | | Deficit from | | | | | | | | | | | | | | | | shares of | | | | | | | | | | | | | | | interest | | | liability | | | restatement | | | Derivative | | | | | | | | | | | | | capital | | | | | | | | | Reserve for | | | | | | income | | | adjustment | | | of | | | financial ins- | | | Total | | | | | | Total | | | | stock | | | Capital | | | Additional | | | repurchase of | | | Retained | | | (loss) of the | | | of labor | | | stockholders' | | | truments | | | controlling | | | Non-controlling | | | stockholders' | | | | (thousands) | | | stock | | | paid-in capital | | | shares | | | earnings | | | year | | | obligations | | | equity | | | effects | | | interest | | | interest | | | equity | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balances as of December 31, 2006 | | | 600,000 | | | $ | 2,294,927 | | | | 743,674 | | | | 159,455 | | | | 13,707,747 | | | | 906,186 | | | | (916 | ) | | | (3,753,915 | ) | | | 370 | | | | 14,057,528 | | | | 45,426 | | | | 14,102,954 | | Transfer of prior year's net income based on stockholders' meeting held on April 2007 | | | - | | | | - | | | | - | | | | - | | | | 906,186 | | | | (906,186 | ) | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | Cash dividends paid (note 15b) | | | - | | | | - | | | | - | | | | - | | | | (363,708 | ) | | | - | | | | - | | | | - | | | | - | | | | (363,708 | ) | | | - | | | | (363,708 | ) | Comprehensive income, net of taxes (note 2o) | | | - | | | | - | | | | - | | | | - | | | | - | | | | 1,270,941 | | | | (1,596 | ) | | | 18,661 | | | | 98,552 | | | | 1,386,558 | | | | 1,362 | | | | 1,387,920 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balances as of December 31, 2007 | | | 600,000 | | | | 2,294,927 | | | | 743,674 | | | | 159,455 | | | | 14,250,225 | | | | 1,270,941 | | | | (2,512 | ) | | | (3,735,254 | ) | | | 98,922 | | | | 15,080,378 | | | | 46,788 | | | | 15,127,166 | | Transfer of prior year's net income based on stockholders' meeting held on April 2008 | | | - | | | | - | | | | - | | | | - | | | | 1,270,941 | | | | (1,270,941 | ) | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | Cash dividends paid (note 15b) | | | - | | | | - | | | | - | | | | - | | | | (353,880 | ) | | | - | | | | - | | | | - | | | | - | | | | (353,880 | ) | | | - | | | | (353,880 | ) | Write-off of additional deferred tax liability (note 16e) | | | - | | | | - | | | | - | | | | - | | | | 288,580 | | | | - | | | | - | | | | - | | | | - | | | | 288,580 | | | | - | | | | 288,580 | | Reclasification of deficit from restatement of stockholders' equity (note 2c) | | | - | | | | - | | | | - | | | | - | | | | (3,735,254 | ) | | | - | | | | - | | | | 3,735,254 | | | | - | | | | - | | | | - | | | | - | | Comprehensive loss, net of taxes (note 2o) | | | - | | | | - | | | | - | | | | - | | | | - | | | | (879,048 | ) | | | 2,512 | | | | - | | | | (98,922 | ) | | | (975,458 | ) | | | (6,989 | ) | | | (982,447 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balances as of December 31, 2008 | | | 600,000 | | | | 2,294,927 | | | | 743,674 | | | | 159,455 | | | | 11,720,612 | | | | (879,048 | ) | | | - | | | | - | | | | - | | | | 14,039,620 | | | | 39,799 | | | | 14,079,419 | | Transfer of prior year's net loss based on stockholders' meeting held on April 2009 | | | - | | | | - | | | | - | | | | - | | | | (879,048 | ) | | | 879,048 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | Cash dividends paid (note 15b) | | | - | | | | - | | | | - | | | | - | | | | (250,045 | ) | | | - | | | | - | | | | - | | | | - | | | | (250,045 | ) | | | - | | | | (250,045 | ) | Cash dividends paid to non-controlling interest | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (1,035 | ) | | | (1,035 | ) | Repurchase of shares (note 15d) | | | - | | | | - | | | | 1,079 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 1,079 | | | | - | | | | 1,079 | | Comprehensive income, net of taxes (note 2o) | | | - | | | | - | | | | - | | | | - | | | | - | | | | 797,600 | | | | - | | | | - | | | | - | | | | 797,600 | | | | 11,445 | | | | 809,045 | | Balances as of December 31, 2009 | | | 600,000 | | | $ | 2,294,927 | | | | 744,753 | | | | 159,455 | | | | 10,591,519 | | | | 797,600 | | | | - | | | | - | | | | - | | | | 14,588,254 | | | | 50,209 | | | | 14,638,463 | |
See accompanying notes to consolidated financial statements.
INDUSTRIAS BACHOCO, S.A.B DE C.V. AND SUBSIDIARIES
Consolidated Statement of Cash Flows
Year ended December 31, 2008 and 2009
(Thousand mexicanof pesos)
| | | | | Thousands of | | | | | | | | U.S. dollars | | | | | | | | | Thousands of | | | | | | | (note 2v) | | | | | | | | | U.S. dollars | | | | | | | | | | | | | | | | (note 2v) | | | | 2008 | | | 2008 | | | 2008 | | | 2009 | | | 2009 | | Cash flows from operating activities: | | | | | | | | | | | | | | | | Loss before income taxes and minority interest | | $ | (1,160,056 | ) | | | (83,970 | ) | | (Loss) income before income taxes and non-controlling interest | | | $ | (1,160,056 | ) | | | 1,215,403 | | | | 92,921 | | Items relating to investing activities: | | | | | | | | | | | | | | | | | | | | | Valuation effects of financial instruments | | | 1,666,821 | | | | 120,653 | | | Depreciation and amortization | | | 616,358 | | | | 44,615 | | | 616,358 | | | 662,630 | | | 50,660 | | Loss on sale of plant and equipment | | | 49,485 | | | | 3,582 | | | 49,485 | | | 88,187 | | | 6,742 | | Interest income | | | (173,694 | ) | | | (12,573 | ) | | (173,694 | ) | | (170,655 | ) | | (13,047 | ) | Item relating to financing activities: | | | | | | | | | | | | | | | | | | | | | Interest expense | | | 36,202 | | | | 2,620 | | | | 36,202 | | | | 91,326 | | | | 6,982 | | | | | | | | | | | | | | | | | | | | | | | Subtotal | | | 1,035,116 | | | | 74,927 | | | (631,705 | ) | | 1,886,891 | | | 144,258 | | | | | | | | | | | | | | | | | | | | | | | Derivative financial instruments | | | (747,795 | ) | | | (54,129 | ) | | 919,026 | | | (804,134 | ) | | (61,478 | ) | Accounts receivable, net | | | (151,635 | ) | | | (10,976 | ) | | (151,635 | ) | | (11,402 | ) | | (872 | ) | Recoverable taxes and other assets | | | 52,972 | | | | 3,834 | | | 52,972 | | | (22,432 | ) | | (1,715 | ) | Inventories and biological assets | | | (784,442 | ) | | | (56,781 | ) | | (784,442 | ) | | 281,755 | | | 21,541 | | Prepaid expenses and other current assets | | | (24,703 | ) | | | (1,788 | ) | | (24,703 | ) | | (934 | ) | | (71 | ) | Trade accounts payable, taxes payable and other accruals | | | 596,229 | | | | 43,158 | | | 596,229 | | | 110,092 | | | 8,417 | | Income taxes paid | | | (147,426 | ) | | | (10,671 | ) | | (147,426 | ) | | (107,158 | ) | | (8,193 | ) | Accounts payable to related parties | | | 23,517 | | | | 1,702 | | | 23,517 | | | 17,277 | | | 1,321 | | Labor obligations | | | 15,170 | | | | 1,098 | | | 15,170 | | | 13,939 | | | 1,066 | | Deferred tax related to derivative financial instruments in stockholders' equity | | | (23,204 | ) | | | (1,679 | ) | | Derivative financial instruments in stockholders' equity | | | (122,126 | ) | | - | | | - | | Assets available for sale | | | 2,159 | | | | 156 | | | | 2,159 | | | | (7,220 | ) | | | (552 | ) | | | | | | | | | | | | | | | | | | | | | | Net cash used in operating activities | | | (154,042 | ) | | | (11,149 | ) | | Net cash (used in) provided by operating activities | | | | (252,964 | ) | | | 1,356,674 | | | | 103,722 | | | | | | | | | | | | | | | | | | | | | | | Cash flows from investing activities: | | | | | | | | | | | | | | | | | | | | | Acquisition of property, plant and equipment | | | (1,156,168 | ) | | | (83,690 | ) | | (1,156,168 | ) | | (988,250 | ) | | (75,554 | ) | Proceeds from sale of plant and equipment | | | 57,329 | | | | 4,150 | | | 57,329 | | | 16,542 | | | 1,265 | | Increase in other non-current assets | | | (1,113 | ) | | | (80 | ) | | (1,113 | ) | | (650 | ) | | (50 | ) | Interest collected | | | 173,694 | | | | 12,573 | | | | 173,694 | | | | 170,655 | | | | 13,047 | | | | | | | | | | | | | | | | | | | | | | | Net cash used in investing activities | | | (926,258 | ) | | | (67,047 | ) | | | (926,258 | ) | | | (801,703 | ) | | | (61,292 | ) | | | | | | | | | | | | | | | | | | | | | | Cash to be (obtained from) applied in financing activities | | | | (1,179,222 | ) | | | 554,971 | | | | 42,430 | | | | | | | | | | | | | | | | Cash flows from financing activities: | | | | | | | | | | | | | | | | | | | | | Equity component of derivative financial instruments | | | (98,922 | ) | | | (7,160 | ) | | Additional paid-in capital | | | - | | | 1,079 | | | 82 | | Dividends paid | | | (353,880 | ) | | | (25,615 | ) | | (353,880 | ) | | (250,045 | ) | | (19,117 | ) | Dividends paid to non-controlling interest | | | - | | | (1,035 | ) | | (79 | ) | Proceeds from loans | | | 535,100 | | | | 38,733 | | | 535,100 | | | 1,044,611 | | | 79,864 | | Interest paid | | | (33,339 | ) | | | (2,414 | ) | | (33,339 | ) | | (90,192 | ) | | (6,895 | ) | Asset tax recovery | | | 8,521 | | | | 616 | | | 8,521 | | | - | | | - | | Principal payments on loans | | | (18,809 | ) | | | (1,361 | ) | | | (18,809 | ) | | | (706,668 | ) | | | (54,027 | ) | | | | | | | | | | | | | | | | | | | | | | Net cash provided by financing activities | | | 38,671 | | | | 2,799 | | | Net cash provided by (used in) financing activities | | | | 137,593 | | | | (2,250 | ) | | | (172 | ) | | | | | | | | | | | | | | | | | | | | | | Net decrease in cash and investments | | | (1,041,629 | ) | | | (75,397 | ) | | Net (decrease) increase in cash and investments | | | (1,041,629 | ) | | 552,721 | | | 42,258 | | | | | | | | | | | | | | | | | | | | | | | Cash and investments: | | | | | | | | | | | | | | | | | | | | | At beginning of year | | | 3,039,876 | | | | 220,040 | | | | 3,039,876 | | | | 1,998,247 | | | | 152,770 | | | | | | | | | | | | | | | | | | | | | | | At end of year | | $ | 1,998,247 | | | | 144,643 | | | At end of year (note 3) | | | $ | 1,998,247 | | | | 2,550,968 | | | | 195,028 | |
See accompanying notes to consolidated financial statements. INDUSTRIAS BACHOCO, S.A.B DE C.V. AND SUBSIDIARIES
Consolidated Statement of Changes in Financial Position
(Thousands of pesos)
Years ended December 31, 2007
Operating activities: | | | | Net income | | $ | 1,272,226 | | Add charges to operations not requiring funds: | | | | | Depreciation and amortization | | | 571,393 | | Deferred income tax | | | 169,716 | | Labor obligations, net period cost | | | 42,112 | | | | | | | Funds provided by operations | | | 2,055,447 | | | | | | | Changes in operating assets and liabilities: | | | | | Accounts receivable | | | (336,083 | ) | Inventories and biological assets | | | (1,140,124 | ) | Prepaid expenses and others current assets | | | (31,463 | ) | Accounts payable | | | 300,566 | | Related parties | | | 14,169 | | Taxes payable and other accruals | | | (45,534 | ) | Labor obligations, plan contributions | | | (32,617 | ) | Derivative financial instruments | | | (35,769 | ) | | | | | | Funds provided by operating activities | | | 748,592 | | | | | | | Financing activities: | | | | | Proceeds from of long-term debt | | | 40,000 | | Proceeds from notes payable to banks | | | 40,000 | | Payment of long-term debt and notes payable to banks | | | (13,963 | ) | Constant pesos effect on notes payable to banks | | | (1,638 | ) | Cash dividends paid | | | (363,708 | ) | | | | | | Funds used in financing activities | | | (299,309 | ) | | | | | | Investing activities: | | | | | Acquisition of property, plan and equipment, net | | | (991,737 | ) | Investment in securities | | | (12,001 | ) | Other assets | | | (1,561 | ) | | | | | | Funds used in investing activities | | | (1,005,299 | ) | | | | | | Net decrease in cash and equivalents | | | (556,016 | ) | Cash and equivalents at beginning of year | | | 3,189,887 | | | | | | | Cash and equivalents at end of year | | | 2,633,871 | | Investment in securities | | | 406,005 | | | | | | | Cash and investment at end of year | | $ | 3,039,876 | |
See accompanying notes to consolidated financial statements. INDUSTRIAS BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Years ended December 31, 2006, 2007, 2008 and 20082009
(Thousands of Mexican pesos, note 2x, except per share amounts)
(1) | Organization, business activity and Business Activity-significant transactions- |
Organization and business activity-
Industrias Bachoco, S.A.B. de C.V. and subsidiaries (collectively referred to as “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). Bachoco S.A.B. de C.V. is the controlling company of a group of subsidiaries.
In June 2006,On March 26, 2010, Bachoco’s Finance Director and Controller Director authorized the new Securities Trading Act came into effect, which, among other provisions, established that corporations listed onissuance of the consolidated 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 June 25, 2009, the accompanyingFinancial Reporting Standards (Mexican FRS) financial statements and related notes at December 31, 2008 and 2009 and each of the two years then ended. The accompanying consolidated financial statements consist of those Mexican FRS consolidated financial statements and notes, as supplemented by the accompanying US GAAP disclosures presented in Note 21. These final consolidated financial statements were authorized for issuance herein by Bachoco’s Financial Director and Controller Director on June 18, 2010 with consideration of subsequent events through that date.
Significant transactions-
In July 2009, Bachoco, S.A. de C.V. (subsidiary) acquired a poultry processing plant located in the Company’s Finance Director, Daniel Salazar Ferrer,state of Nuevo Leon, with a production capacity of 9,000 chickens per hour. The transaction consisted of the acquisition of property, plant and equipment for an amount of $321,984 and inventory in stock for an amount of $142,537. In addition to reducing costs, the Audit Committee, Boardgoal of Directorsthis acquisition, is to increase the production capacity and Stockholders’ meeting approval.diversifying.
In September 2009, Campi Alimentos, S.A. de C.V. (subsidiary) acquired a poultry feed processing plant also located in the state of Nuevo Leon, with a production capacity of 12,000 tons per month. The transaction consisted of the acquisition of property, plant and equipment, for an amount of $114,904. As in the aforementioned July 2009 acquisition, the Company expanded its animal balanced feed production capacity for internal consumption.
(2) | Accounting Policies and Practices- |
The preparation of consolidated financial statements requires management to make a number of estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant items subject to such estimates and assumptions include, but are nonot limited to, the carrying amount of property, plant and equipment, and goodwill; valuation allowances for receivables, inventories and deferred income tax assets; valuation of primary investment securities and financial instruments; and assets and labor obligations related to employee benefits. Actual results could differ from those estimates and assumptions. The current environment has increased the degree of uncertainty inherent in those estimates and assumptions.
For disclosure purposes, “thousands pesos” or “$” means thousands of Mexican pesos, and “thousands dollars” or “US dollars” means thousands of U.S. dollars, except per share amounts.
INDUSTRIAS BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Years ended December 31, 2006, 2007 and 2008
(Thousands of Mexican pesos note 2x, except per share amounts)dollars.
The Company’s consolidated financial statements are prepared in accordance with Mexican Financial Reporting Standards (Mexican FRS) in effect as of the balance sheet date (see note 2x).date. The significant accounting policies and practices observedfollowed by the Company in the preparation of the accompanying consolidated financial statements are described below:
The consolidated financial statements include the financial statements of the Company and all of its majority-owned and controlled subsidiaries.
The ownership interests of other stockholders in such subsidiaries are shown as minoritynon-controlling interest.
Intercompany balances, investments and significant transactions between consolidated entities have been eliminated in consolidation.
The results of operations of the subsidiaries were included in the Company’s consolidated financial statements as at the acquisition or inception month.
The consolidation was based on the audited financial statements of the issuing companies as of December 31, 2007, 2008 and 2009, which have been prepared in accordance with Mexican FRS.
The accompanying consolidated financial statements include the following consolidated subsidiaries as of December 31, 2006, 2007, 2008 and 2008:2009:
| | Percentage equity interest | | | Percentage equity interest | | | | 2006 | | | 2007 | | | 2008 | | | 2007 | | | 2008 | | | 2009 | | Acuícola Bachoco, S.A. de C.V.(1) | | | 100 | | | | 100 | | | | 100 | | | | 100 | | | | 100 | | | | - | | Aviser, S.A. de C.V. | | | 100 | | | | 100 | | | | 100 | | | | 100 | | | | 100 | | | | 100 | | Bachoco, S.A. de C.V. (“BSACV”) (Consolidated) | | | 100 | | | | 100 | | | | 100 | | | Bachoco, S.A. de C.V. (“BSACV”) | | | | 100 | | | | 100 | | | | 100 | | Bachoco Comercial, S.A. de C.V. | | | - | | | | 100 | | | | 100 | | | | 100 | | | | 100 | | | | 100 | | Campi Alimentos, S.A. de C.V.(1) | | | 100 | | | | 100 | | | | 100 | | | | 100 | | | | 100 | | | | 100 | | Huevo y Derivados, S.A. de C.V. | | | 97 | | | | 97 | | | | 97 | | | | 97 | | | | 97 | | | | 97 | | Operadora de Servicios de Personal, S.A. de C.V. | | | 100 | | | | 100 | | | | 100 | | | | 100 | | | | 100 | | | | 100 | | Pecuarius Laboratorios, S.A. de C.V. | | | 64 | | | | 64 | | | | 64 | | | | 64 | | | | 64 | | | | 64 | | Secba, S.A. de C.V. | | | 100 | | | | 100 | | | | 100 | | | | 100 | | | | 100 | | | | 100 | | Sepetec, S.A de C.V. | | | 100 | | | | 100 | | | | 100 | | | | 100 | | | | 100 | | | | 100 | | Servicios de Personal Administrativo, S.A. de C.V. | | | 100 | | | | 100 | | | | 100 | | | | 100 | | | | 100 | | | | 100 | | Induba Pavos, S.A. de C.V. | | | 100 | | | | 100 | | | | 100 | | | | 100 | | | | 100 | | | | 100 | |
The main subsidiaries of the group are as follows:
- Bachoco, S.A. de C.V. (“BSACV”) (Consolidated)
INDUSTRIAS BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Years ended December 31, 2006, 2007(includes four subsidiaries which are 50% owned, and 2008
(Thousands of Mexican pesos note 2x, except per share amounts)
This companywhich BSACV has control). BSACV is engaged in breeding, processing and marketing of poultry (chicken and eggs).
- Campi Alimentos, S.A. de C.V. (Campi) (1) - Acuícola Bachoco S.A. de C.V. (Acuícola) (1) These companies
Campi and Acuícola are engaged in producing and marketing of balanced animal feed.
(1) At the ordinary and extraordinary general stockholders’ meeting held on March 20, 2009, the shareholders agreed to the merger through incorporation of Acuícola Bachoco, S.A. de C.V. (the acquiree entity) with Campi Alimentos, S.A. de C.V. (the acquiror entity). The merger became effective as of March 31, 2009, so that as of that date, Acuicola, as the acquired corporation, no longer exists. Pursuant to the Ley General de Sociedades Mercantiles (General Corporation and Partnership Law) when the merger became effective, total assets and liabilities, rights, obligations and responsibilities of the merged corporation became part of the acquiring corporation without reservation or limitation.
- Aviser, S.A. de C.V. - Operadora de Servicios de Personal, S.A. de C.V. - Secba, S.A. de C.V. - Sepetec, S.A. de C.V. - Servicios de Personal Administrativo, S.A. de C.V.
These companies are engaged in providing administrative and operative services to their related parties.
On December 2006 andIn July 2007, the subsidiaries Induba Pavos, S.A. de C.V. andsubsidiary Bachoco Comercial, S.A. de C.V. were incorporated, respectively. Both entities havewas incorporated. It is owned 100% ownership from their holding company, Industrias Bachoco, S.A.B. de C.V. These entities areby the Company. The entity is engaged in the import and trading of turkey.turkey sales operation.
Revenues are recognized when each of the following criteria is met:
- There is evidence of an arrangement. - Delivery of goods has occurred. - The seller fixes or determines the prices with the buyer. - Collectability is reasonably certain.
The Company’s products are sold to a large number of customers without significant concentrations with any of them.
Based on management analysis and estimates, the Company provides for doubtful receivables (reported under selling expenses).
| c) | Recognition of the effects of inflation on financial information- | c) Recognition of the effects of inflation-
The accompanying consolidated financial statements have been prepared in accordance with Mexican FRS in effect as of the balance sheet date and include the recognition of the effects of inflation on financial information through December 31, 2007, based on the Mexican National Consumer Price Index (NCPI) published by Banco de México (central bank) (see note 2x).
INDUSTRIAS BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Years ended December 31, 2006, 2007 and 2008
(Thousands of Mexican pesos note 2x, except per share amounts)
Cumulative inflation percentages of the current and three preceding years and the indexes used in recognizing inflation through such year are as follows:
December 31 | | NCPI | | | Inflation | | | NCPI | | | Inflation | | | | | | | Yearly | | | Cumulative | | | | | | Yearly | | | Cumulative | | | | | | | | | | | | | | | | | | | | | 2009 | | | | 138.541 | | | | 3.57 | % | | | 14.48 | % | 2008 | | | 133.761 | | | | 6.53 | % | | | 18.84 | % | | | 133.761 | | | | 6.52 | % | | | 15.01 | % | 2007 | | | 125.564 | | | | 3.76 | % | | | 11.56 | % | | | 125.564 | | | | 3.75 | % | | | 11.56 | % | 2006 | | | 121.015 | | | | 4.05 | % | | | 7.51 | % | | | 121.015 | | | | 4.05 | % | | | 7.51 | % | 2005 | | | 116.301 | | | | 3.33 | % | | | 3.33 | % | |
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 bulletinBulletin B-10 “Accounting Recognition of the Effects of Inflation on Financial Information” (as modified), which is applicable to financial statements for periods beginning on or after January 1, 1997, disallows the use of appraisals.appraisals on fixed assets. Based on such amendment, the Company restated the appraised value at December 31, 1996, and the acquisitions of property, plant and equipment acquisitions since January 1, 1997, until December 31, 2007, are carried at cost adjusted by applying factors derived from the NCPI.
- Stockholders’ equity
Until December 31, 2007, the date inon which the economic environment movedturned to a non-inflationary environment in conformity with FRS B-10 “Effects of Inflation”, capital stock, additional paid-in capital, reserve for stock repurchase of Company’s own shares, retained earnings and other capital accounts were restated using adjustment factors obtainedderived from the NCPI. The amounts thus obtained in this manner represented the constant value of the stockholders’ investment.equity.
- Net monetary position gain (loss)loss
Until December 31, 2007, the net monetary position gain (loss)loss represented the impact of inflation on monetary assets and liabilities at the beginning of each month updated by inflation factors through year-end. The monetary position gain (loss) of each year isloss was included in the statements of operations as a part of the comprehensive financial result (See note 2x).
INDUSTRIAS BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Years ended December 31, 2006, 2007 and 2008
(Thousands of Mexican pesos note 2x, except per share amounts)results.
- Deficit from restatement of stockholders’ equity
Until December 31, 2007, 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, mainly 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 (see note 2x).NCPI. In 2008, such amount was reclassified to retained earnings.
d) Cash and cash equivalents-
Cash and investmentscash equivalents consist primarily of bank deposits and checking accounts in foreign currencies. At the date of the consolidated financial statements, interest income and foreign exchange gains and losses are included in the statements of operations, under comprehensive financial results.
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e) | Primary investment securities- |
All rights and obligations arising from primary investment securities are recognized on the balance sheet and the companyCompany classifies its investment securities depending on the purpose for which the securities were acquired: (i) held-to-maturity, (ii) trading or (ii) trading.(iii) available for sale. Investments in these instruments are reflectedincluded on the line-item “current primary investment securitiessecurities” within cash and investments”investments (see note 3). In turn, the balance of debt securities with due dates less than one year is reported under current liabilities.
Trading securities are bought and held principally for the purpose of selling them in the near term. Held-to-maturity debt securities are securities in which the Company has the ability and intent to hold the security until maturity. All securities not included in trading or held-to-maturity are classified as available-for-sale.
Trading securities, except held-to-maturity securities, are recorded at fair value, determined by using quoted market prices.where peso-denominated debt securities are taken from the bank statements which are based on the information of the local price vendors, while US-denominated debt securities are based on diversified sources. Held-to-maturity securities are reportedrecorded at amortized cost. Changes in the carrying amounts of trading securities, including the related costs and yields are included in earnings under comprehensive financial results. Gains or losses arising from changes in the fair value of available-for-sale securities (less the corresponding yield) non functional currency denominated and foreign exchange gain or loss, in the case of equity securities, as well as the related monetary position gain or loss, as applicable, are reported as a comprehensive income (loss) item within stockholders’ equity.
Furthermore, where evidence exists that a financial asset held-to-maturity shall not be recovered in full, the expected loss (impairment) is recognized in the statement of operations.
INDUSTRIAS BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Years ended December 31, 2006, 2007 and 2008
(Thousands of Mexican pesos note 2x, except per share amounts)
| f) | Allowance for doubtful accounts- |
The CompanyCompany’s policy is to record an allowance for doubtful accounts for balances which are not likely to be recovered. In establishing the required allowance, management considers historical losses, to take into account current market condition and ourconditions, customers’ financial condition, the amount of receivables in dispute originated by price differences and the current receivable aging and current payment patterns. Past due balances over 60 days are reviewed individually for collectibility.
| g) | Inventories, agricultural products and biological assets- |
- Inventories
At December 31, 2008 and 2009, inventories are stated at the lower of historical cost determined by the average cost method, or market (replacement cost), provided that replacement cost is not less than net realizable value.
Inventories at December 31, 2007, are valued using the average cost method and restated based on the NCPI. The stated value of inventories is not in excess of net realizable value.
-Agriculture
The financial statements recognize the requirements of Mexican FRSBulletin E-1, “Agriculture”, which establishes the rules for recognizing, measuring, presenting and disclosing biological assets and agricultural products.
Mexican FRSBulletin 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 ofless any impairment loss.
The allowance for decline in the productivity of breeder chickens and pigs is estimated based on their expected future life, under the straight-line method.
Agricultural products are live chickens, processed chickens, commercial eggs and pigs available for sale. The Company’s biological assets are comprised of poultry in their different stages, incubatable eggs and breeder pigs.
Broiler chicks less than six and a half 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. INDUSTRIAS BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Years ended December 31, 2006, 2007 and 2008
(Thousands of Mexican pesos note 2x, except per share amounts)
Broilers more than six and a half weeks old through their date of sale are valued at fair value net ofless 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 oflees 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 Mexican FRSBulletin E-1, biological assets and agricultural products were classified as either current or non-current assets based on their availability for sale and the business operating cycle.
Cost of sales represents the replacement cost of inventories at the time of sale, increased, as applicable, for reductions in the replacement cost or net realizable value of inventories during the year and, through 2007, is expressed in thousands of constant pesos as of December 31, 2007.
The Company records the necessary allowances for inventory impairment arising from damaged, obsolete or slow-moving inventories.inventories or any other reason indicating that the carrying amount will exceed its market value.
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h) | Property, plant and equipment- |
Property, plant and equipment are initially recorded at acquisition cost and through December 31, 2007, adjusted for inflation by using factors derived from the NCPI (see note 2c).
As ofFrom January 1, 2007, acquisitions of assets under construction or installation include the related comprehensive financial results as part of the value of assets. During 2007, 2008 and 2009, no comprehensive financing costs have been capitalized, as a result of the adoption of MexFRSMexican FRS D-6 “Capitalization of the Comprehensive Cost of Financing”, in which is defined the capitalization of the comprehensive financing cost incurred during the construction or installation of property, plant and equipment in process, which is subsequently restated by applying factors based on the NCPI. The amount of comprehensive financing cost to be capitalized is determined by applying the weighted average interest rate of financing to the weighted average of the investments in qualifying assets made during the qualifying period. In the case of foreign currency denominated financing, comprehensive financing cost includes the related exchange gains or losses. During 2007 the Company didcriteria not capitalize any amount due to its immateriality; and during 2008, no comprehensive financial results have been capitalized, as the criteria mentioned above were notbeing met.
INDUSTRIAS BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Years ended December 31, 2006, 2007 and 2008
(Thousands of Mexican pesos note 2x, except per share amounts)
Depreciation of property, plant and equipment is calculated on the straight-line method over the estimated useful lives of the assets, determined by management (see note 7).
Leasehold improvements are amortized over the useful life of the improvement or the related contract term, whichever is shorter.
Minor repairs and maintenance costs are expensed as incurred.
| i) | Impairment of property, plant and equipment and goodwill- |
The Company periodically evaluates the values of long-lived assets of property, plant and equipment and goodwill, to determine whether there is an indication of potential impairment. Recoverability of assets to be held and used is measured by comparison of the carrying amount of an asset against future cash flowflows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated net revenues, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of, are reported in the balance sheets at the lower of net carrying amount or realizable value. The assets and liabilities of a group classified as available for sale are presented separately on the consolidated balance sheet.
Leased property, plant and equipment arrangements are recognized as capital leases ifif: a) the ownership of the leased asset is transferred to the lessee upon termination of the lease; b) the agreement includes an option to purchase the asset at a reduced price; c) the term of the lease is basicallysubstantially the same as the remaining useful life of the leased asset; or d) the present value of minimum lease payments is basicallysubstantially the same as the market value of the leased asset, net of any benefit or scrap value.
When the risks and benefits inherent to the ownership of the leased asset remain mostly with the lessor, such leases are classified as operating leases, and accruedthe lease expense is charged to results of operations as incurred.
The Company classified its leases as operating leases at December 31, 2007, 2008 and 2008.2009.
Goodwill represents the difference between the purchase price and the fair value of the netidentifiable assets acquired in a business combination at the purchase date.
Goodwill is recorded initially at acquisition cost and untilthrough December 31, 2007, was restated using adjustment factors derived from the NCPI. Goodwill is subject to annual impairment testing. INDUSTRIAS BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Years ended December 31, 2006, 2007 and 2008
(Thousands of Mexican pesos note 2x, except per share amounts)
At December 31, 20072008 and 2008,2009, there was no impairment loss in the value of goodwill shown in the consolidated balance sheet.sheets.
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l) | Liabilities, provisions, contingent liabilities and commitments- |
Liability provisions are recognized when the following three conditions are met: (i) the Company has current obligations (legal or assumed) derived from past events, (ii) it is probable that the liability will give rise to a future cash disbursement for its settlement and (iii) the liability can be reasonably estimated. Liabilities for loss contingencies are recorded when is probable that a liability has been incurred and the amount thereof can be reasonably estimated. When a reasonable estimation cannot be made, qualitative disclosure is provided in the notes to the consolidated financial statements. Contingent revenues, earnings or assets are not recognized until realization is assured.
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.
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 in the Company 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 (up to 5%) when the employee has more than 10 years’ seniority.
- Defined benefit plan: This fund consists solely of Companythe Company’s 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. INDUSTRIAS BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Years ended December 31, 2006, 2007 and 2008
(Thousands of Mexican pesos note 2x, except per share amounts)
Termination benefits for reasons other than restructuring and retirement to which employees are entitled are charged to operations for each year, based on actuarial computations using the projected unit credit method and projected salaries. At December 31, 20082009 and for purposes of recognizing benefits upon retirement, the remaining average service life of employees entitled to plan benefits approximates 19.6619.33 years (note(see note 14).
In 2008, as a result of the adoption of this Mexican FRS D-3, the intangible asset of $28,341 reflected in the consolidated balance sheet and the labor obligation minimum liability adjustment of $2,512 reflected in consolidated statements of stockholders’ equity as of December 31, 2007, were eliminated against labor obligations and the consolidated statement of operations, respectively. Furthermore, for 2008, amortization of unamortized items resulted in an approximate gain of $845.
The actuarial profit or loss is recognized directly in the consolidated statements of operations for the period as it is accrued (benefits due to termination) and is amortized based on the remaining labor life of the employees that are expected to receive benefits from the plan (retirement benefits).
| n) | Comprehensive financial results (CFR)- |
The CFR includes interest income and expense, foreign exchange gains and losses and valuation of financial instruments, including derivatives, and through 2007, monetary position gains and losses.
Transactions in foreign currency are recorded at the exchange rate prevailing on the date of execution or settlement. Foreign currency assets and liabilities are translated at the exchange rate in force at the consolidated balance sheet date. Exchange differences arising from assets and liabilities denominated in foreign currencies are reported in the consolidated statements of operations for the year.
| o) | Comprehensive income (loss)- |
Comprehensive income (loss) consists of the net income or loss for the year, plus the resultresults from holding non-monetary assets, the tax effect of the items which are recorded directly in stockholders’ equity, the effective portion of the unrealized gain or loss on cash flow hedges, the minimum liability adjustment of labor obligations and the minority interest as required by Mexican FRSBulleting B-4 Comprehensive Income.“Comprehensive Income”.
| p) | Derivative financial instruments- |
Irrespective of their use and either issuance or holding purpose, the Company recognizes all derivative instruments as either assets or liabilities on the balance sheet at their respective fair values. Fair values are determined based on known market prices such as Chicago Board of Trade (CBOT) and, when not listed in a market, (OTC), based on valuation techniques and inputs usually accepted in the financial sector.
Changes in the fair value of financial instruments not designated and/or not qualifying under strict hedge accounting criteria are recognized within earnings for the year in which such changes occur, as derivatives effects under comprehensive financial results.
INDUSTRIAS BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Years ended December 31, 2006, 2007 and 2008
(Thousands of Mexican pesos note 2x, except per share amounts)
In the case of operations with options on futures not designated and/or do not qualify under strict hedge accounting criteria, premiums paid or received in connection with options are initially recognized respectively as assets or liabilities within derivative instruments; withwhile subsequent changes in their fair value are recognized within income of the year in which such changes occur as derivatives effects under comprehensive financial results.
| q) | Derivative Financialfinancial Instruments, designated and Risk Hedging activities-qualified as hedging instruments for one or more risks- |
As of December 31, 2008
The Company uses selected financial derivative instruments to protect itself against adverse price fluctuations in agriculture commodities, such as corn and sorghum. SaidThose agriculture commodities derivative instruments include futures and options on futures which are listed on the CBOT, as well as options on futures accessed through ASERCA (Farming Marketing Support and Services, a dependent entity ascribed to Mexico’s Secretary of Farming and Agriculture), who functions as counterparty and that is a dependent entity of the Mexican Government’s unit that belongs to the Secretary of Farming, Livestock, Rural Development, Fishing and Food (SAGARPA, SecretariaSecretaría de Agricultura, Ganaderia y Desarrollo Rural, Pesca y Alimentación), through which, a commodities-related price hedging program (the “Farming by Contract”) scheme is offered to both farmers and agro-business entities such as the Company. The ASERCA program has two participating modalities: (i) 0% of the payment of the option’s premium and 100% of the benefit with a 60% discount on the amount of the initial premium, or (ii) a 50% of the payment of the option’s premium, and 100% of the benefit.
Designation ofWhen the derivates offered through ASERCAderivatives are acquired to hedge risks, and accomplish with hedge accounting, the hedging relationship is documented every time derivatives are contracted to hedgefor each hedged price risk and when these hedging relationships meet all of the hedge accounting requirements. Saidrisk. This documentation includes a description of the objective or hedge strategy, the nature of the hedged item position, the risk(s) to be hedged, the designated derivatives and how the initial effectiveness testing assessment will be performed, as well as the subsequent measurement of its retrospective effectiveness, which applies to each established hedge relationship.
INDUSTRIAS BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Years ended December 31, 2006, 2007 and 2008
(Thousands of Mexican pesos note 2x, except per share amounts)
Formal hedgehedging derivatives designated derivatives thatinto a hedging relationship, follow special hedge accounting recognition, withfor fair value changes based on each corresponding hedge accounting model: (1) Fluctuations in fair value type of hedges, require that both the derivative and the hedged item are to be valued at fair value and recognized in the statement of operations;operations, adjusting the carrying value of hedge item; (2) in the case of a cash flow hedge,hedges, only the effective portion of the derivative is temporarily recognized in comprehensive income (equity) and recycled to operations when the effects of the hedged item affects operations as cost of good sold, interest, etc., while the ineffective portion is immediately recognized within operations.
The Company needs to revokediscontinues hedge accounting in the following cases: when the derivative has expired, has been sold, is cancelled or exercised, or when the derivative does not achieve the required level of accumulated effectiveness as to compensate for the changes in the fair value or cash flows of the hedged item, when the hedged item is prepaid or when at the Company’s discretion, the entityCompany decides to cancel the hedge relationship.relationship on a discretionary basis.
Certain financial derivative instruments are entered into to hedge on or more exposures from anthe user’s economic perspective, andbut are neither designated nor qualify for hedge accounting purposes, hence these derivatives are treated accounting wise, as trading derivatives that is, with fluctuations in the fair value of these derivatives recognized within comprehensive financing operations.financial result.
In the case of hedges with options on futures or combinations of these options, which are designated and qualifying under hedge accounting models, the premiums paid and received through these derivative financial instruments are initially recognized as assets or liabilities within derivative financial instruments in the consolidated balance sheet, with subsequent changes in their fair values recognized in the comprehensive financial resultsresult in the case of fair value hedges, while under cash flow hedge model, these changes are recognized within the other comprehensive income (OCI) account of stockholders’ equity, in the case of cash flow hedges.
The Company has established an Investments and Risk Committee which sets the guidelines and strategies to be followed in terms of the use of investments and derivatives use.
INDUSTRIAS BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Years ended December 31, 2006, 2007 and 2008
(Thousands of Mexican pesos note 2x, except per share amounts)
At December 31, 2007
Derivative Financial hedging instruments
The Company uses derivative financial instruments to hedge certain risks and reduce its financial risks exposure.
The Company is exposed to exchange rate (Mexican Peso-U.S. dollars) fluctuations and fluctuations in the price of grains (corn and sorghum) within its normal course of business. The Company manages these risks through a program that includes the use of derivative financial instruments (FDI).
Company’s policy is to establish a 25 to 30% range of protection on the total amount of its annual needs for U.S. dollars. It also uses OTC (non-listed) options and futures agreements exchange rate variability in its short-tern U.S. dollar cash out flow needs, considering these as a forecasted transaction under the cash flow hedge model. Basically, the Company generally uses FDIs for hedging intention, unless they are not designated or do not meet accounting requirements for hedging purposes. These instruments are signed with well-positioned financial institutions.
The FDIs are factored in and documented according to the accounting compliance established in FRS Financial Reporting Standard (FRS) C-10 “Financial instruments, derivates and hedging operations” (Mexican GAAP) which is very similar to US GAAP equivalent (SFAS-133 “Accounting for Derivative Instruments and Hedging Activities”.
INDUSTRIAS BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Years ended December 31, 2006, 2007 and 2008
(Thousands of Mexican pesos note 2x, except per share amounts)
The Company has entered into agreements on the following types of FDI:
Options
When options are acquired through a premium payment, these FDI grant the buyer the right, albeit not the obligation to buy (purchased Call) or sell (purchased Put) a price of a commodity or an exchange rate (U.S. dollars parity level against the Mexican Peso in this case) at a fixed price or exchange rate known as the Option’s strike price or level of exercise, at a certain date on which the option contract matures or expires. In the case of entering as the issuer or seller of the same options, the Company is obligated to sell (sold Put) or to buy (sold Call) if the buyer exercises the sold option. More than 90% of the cases in which Bachoco contracts combinations of bought and sold options do not involve the payment of a net premium and these instruments were neither designated nor qualify for being designated as hedges under one of the permissible hedge accounting models.
During 2007, the Company entered into bought options under the program offered by ASERCA in order to hedge the risk of lower prices on certain grains prices such as corn, sorghum and wheat it contracts associated to the Farming Contract program. Under this program, the Company agrees the terms to buy certain amount of physical grain volumes and abide by the price established in U.S. dollars for each Metric Ton that must be paid against delivery of future productions that domestic farmers will supply on certain crop dates. ASERCA provides the Company with Put-type of options upon presenting said agreements that allows it to hedge if CBOT prices fall below those agreed upon prices with the local farms. By participating in this government sponsored program, the Company receives 50% of subsidy on the option’s market premium from ASERCA (if the price goes up) or a loan that will be recovered by ASERCA (if the price goes down). The results of using these financial derivative instruments ensures that the Company obtains protection from falling prices in regard to the price it contractually agreed to pay binding farmers as firm commitments to them.
INDUSTRIAS BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Years ended December 31, 2006, 2007 and 2008
(Thousands of Mexican pesos note 2x, except per share amounts)
Futures
Futures are contracts that bind two entities to exchange a commodity good, and index, exchange rate or a value (grain prices, in this specific case) at a future date, at an established amount, quality and price. Different from options, this type of contracts do not consider premium payments or receptions and can simply exist symmetrically as a corporate profit or loss when taken long futures positions in the event that the price of the grain in the market happens to be higher than the agreed price (profit) or the market price is lower than the amount established in the agreement (loss). The Company contracted futures through New Age (FIMAT) in fiscal year 2007. FIMAT is a broker that specializes in Futures and Options on Futures listed in organized markets such as CBOT. The Company is required to keep a deposit or margin requirement that guarantees its open position on futures contracts, which generates market interests and represents a safeguard that ensures the honoring of the signed agreement. This margin account is debited or credited on a daily basis by New Age, based on market settlement prices as of the closing time, impacting with respective losses or gains. When the market moves against the Company’s open position, the margin account is consumed and additional margin requirements (intraday margin calls) are needed to be established otherwise, the position is closed with a realized loss.
Effectiveness testing
In order to access special hedge accounting requirements, both prospective assessment and retrospective effectiveness testing of the hedging relationship (hedge item and designated hedge instrument) is needed. Said effectiveness is measured on a periodic basis. In the case of cash flow hedges, an instrument in which the variability in the present value changes in the contractual or expected cash flows of the hedged item attributable to the hedged risk are satisfactorically offset by the hedge instrument (FDI), it is then considered that the hedge relationship is highly effective (a either period by period or cumulative dollar offset in the range of 80% to 125% is to be considered as to meet hedge effectiveness goals).
FRS C-10 establishes that the effective portion of a profit or loss obtained from a cash flow hedging derivative is recognized in the comprehensive profit (OCI, within stockholders equity), net of deferred taxes, while the ineffective portion is recognized directly in the earnings.
| r) | Income taxes (Income Tax(income tax (IT), Asset Tax (AT), Flat Rate Business Taxflat rate business tax (IETU)), and employee statutory profit sharing (ESPS)- |
IT, IETU and ESPS payable for the year are determined in conformity with the tax provisions in effect.
Deferred IT IETU and, from January 1, 2008, deferred ESPS, are accounted for under the asset and liability method. Deferred tax and ESPS assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and in the case of IT, and IETU, for tax loss credit carryforward and tax credits.credit carryforwards. Deferred tax and ESPS assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax and ESPS assets and liabilities of a change in tax rates is recognized in income during the period coveringthat includes the enactment date.
INDUSTRIAS BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Years ended December 31, 2006, 2007 and 2008
(Thousands of Mexican pesos note 2x, except per share amounts)
At December 31, 2007, a deferred income tax liability was determined by treating the stockholders’ equity as a single temporary item greater than the amount determined by using the asset and liability method, and thus, the Company recognized an additional deferred tax liability of $288,580 in 2007 to account for this difference.
Effective January 1, 2008, Mexican FRS D-4 “Tax on earnings” supersedes Bulletin D-4 and Circular 54. Mexican FRS D-4 establishes the asset and liability method as the only method in determining deferred taxes. Therefore, the Company wrote-off $288,580 against retained earnings, which relates to the additional deferred tax liability previously determined as at December 31, 2007 under the stockholders’ equity method.
Until December 31, 2007, deferred ESPS was recognized only for timing differences arising from the reconciliation of book income to income for profit sharing purposes, for which it was reasonably estimated that a future liability or benefit would arise and there was no indication that the liabilities or benefits would not materialize.
| s) | Statement of operations- |
The Mexican FRS B-3 “Statement of Operations”, that came into effect in 2007, states that costs and expenses in the Company’s statement of operations are presented based on their function, since such classification allows for an accurate evaluation of both operating income and gross profit margins.
Although Mexican FRS B-3 “Statement of Operations”, does not require the presentation of operating income, this caption is shown in the income statement, since operating income is an important indicator used to evaluate the Company’s performance. Operating income consists of revenues as well as operating costs and expenses and thus excludes other income (expenses).
INDUSTRIAS BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Years ended December 31, 2006, 2007 and 2008
(Thousands of Mexican pesos note 2x, except per share amounts)
The presentation of the statement of operations for the year ended December 31, 2006, is in accordance with the presentation used in 2007 and 2008.
| t) | Net majority interest income (loss) per share- |
Net majority interest income (loss) per share has been computed based on majority interest net income (loss) and on the weighted average number of shares outstanding, as established in Mexican FRSBulletin B-14 “Profit per Share”.
| u)t) | Financial information by segments- |
Mexican FRSBulletin B-5, “Financial Information by Segments”, establishes the rules for disclosing financial information by segment.
Financial information by segment is prepared based on a management’s approach, in conformity with Mexican FRSBulleting 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 segment is disclosed in note 18.
Certain captions shown in the 2008 financial statements as originally issued have been reclassified for uniformity of presentation with the 2009 financial statements. The changes in these reclassifications were recognized retrospectively at December 31, 2008, in conformity with Mexican FRS B-1.
v) | Convenience translation- |
United States dollarthousands dollars amounts as shown in the accompanying consolidated balance sheet as of December 31, 2008,2009, as well as in the consolidated statements of operations and cash flows for the year ended December 31, 2008,2009, 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 $13.815$13.08 to one U.S. dollar, which was the exchange rate at December 31, 2008.2009. 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 rate.
Certain captions shown in the 2007 financial statements as originally issued have been reclassified for uniformity of presentation with the 2008 financial statements. The changes in these reclassifications were recognized retrospectively in the accompanying statement of operations at December 31, 2007, in conformity with Mexican FRS B-1, “Accounting Changes and Error Corrections”.
INDUSTRIAS BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Years ended December 31, 2006, 2007 and 2008
(Thousands of Mexican pesos note 2x, except per share amounts)
At December 31, 2007, according with Mexican FRS C-2 “Financial Securities”, the valuation effect of financial securities is disclosed in a specific line-item in the consolidated statement of operations.
| | 2007 | | | | | | Interest income | | $ | 318,879 | | Reclassified | | | 363,016 | |
INDUSTRIAS BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Years ended December 31, 2006, 2007 and 2008
(Thousands of Mexican pesos note 2x, except per share amounts)
| x) | New accounting pronouncements- |
The Mexican Board forof Research and Development of Financial Reporting Standards (Consejo Mexicano para la Investigación y Desarrollo de Normas de Información Financiera or CINIF) has issued the following Mexican FRS, effective for years beginning on and after December 31, 2007. EarlyJanuary 1, 2009, with the respective prospective or retrospective application is not permitted.being specified in each case.
| (a) | Mexican FRS B-10 “Effects of inflation" B-7 “Business combinations”– Mexican FRS B-10 supersedes Bulletin B-10 "RecognitionB-7 and establishes, among other things, general rules for the initial valuation and recognition at the acquisition date of net assets, regarding that all business combinations should be accounted for using the effectspurchase method. The provisions of inflationthis Mexican FRS became effective for acquisitions effected on the financial information" and its five amendment documents, as well as the related circulars and Interpretation of Financial Reporting Standards (IFRS) 2. The principal considerations established byor after January 1, 2009. Any accounting change resulting from this Mexican FRS are:is to be applied on a prospective basis. |
| (i) | Recognition of the effects of inflation – An entity operates in a) an inflationary economic environment when cumulative inflation over the immediately preceding 3-year period is equal to or greater than 26%; and b) non-inflationary economic environment, when inflation over the aforementioned period is less than 26%. | The initial application of this standard did not have effects.
For case a), the comprehensive recognition of the effects of inflation is required, (similarly to Bulletin B-10 being superseded). For case b), the effects of inflation are not recognized; however, at the effective date of this FRS and when an entity ceases to operate in an inflationary economic environment, the restatement effects determined through the last period in which the entity operated in an inflationary economic environment (in this case 2008), must be kept and shall be reclassified on the same date and using the same procedure as that of the corresponding assets, liabilities and stockholders' equity. Should the entity once more operate in an inflationary economic environment, the cumulative effects of inflation not recognized in the periods where the environment was deemed as non-inflationary should be recognized retrospectively.
| (ii) | Price index – the use of the National Consumer Price Index (NCPI) or the change in the value of the Investment Unit (UDI) may be used for determining the inflation for a given period. |
| (iii) | Valuation of inventories and of foreign machinery and equipment – The possibility of using replacement costs for inventories and specific indexation for foreign machinery and equipment is no longer allowed. |
| (iv) | Equity adjustment for non-monetary Assets – On the effective date of this FRS, the unrealized portion of the equity adjustment for non monetary assets, which is maintained in stockholders' equity, should be identified to be reclassified to earnings of the year when the originating item is realized. The realized portion or when is not practical to identify the unrealized portion, the realized and unrealized portions should be reclassified to retained earnings. |
INDUSTRIAS BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Years ended December 31, 2006, 2007 and 2008
(Thousands of Mexican pesos note 2x, except per share amounts)
| (v) | Monetary Position Gains or Losses (included in Deficit/Excess in Equity Restatement) will be reclassified to retained earnings on the effective date of this FRS. |
As a result of the adoption of this FRS, at January 1, 2008 the stockholders' equity accounts were reclassified as shown on the consolidated statement of stockholders' equity.
The 2007 consolidated financial statements are presented expressed in constant pesos at December 31, 2007, the date on which the comprehensive method for recognizing the effects of inflation was last used.
| (b) | Mexican FRS D-3 “Employee benefits”-B-8 “Consolidated or combined financial statements”–Mexican FRS D-3B-8 supersedes Bulletin D-3 "Labor Obligations",B-8 “Consolidated and combined financial statements and valuation of investments in shares” and establishes general rules for the sections applicable to Employee Statutory Profit Sharing (ESPS)preparation and presentation of Bulletin D-4consolidated and IFRS 4. The principal considerations established by this FRS are:combined financial statements, and related disclosures. Amendments include: |
| (i) | Elimination of the recognition of an additional liability and the related intangible asset or any comprehensive item as a separate element of stockholders' equity. |
| (ii) | Employee benefits are classified in four principal categories; direct short-term and long term, termination and post-employment benefits. Mexican FRS D-3 establishes a maximum five-year period for amortizing unrecognized/unamortized items while actuarial gains or losses may be recognized as earned or incurred. Unlike termination benefits, post-employment benefits actuarial gains or losses may be immediately recognized in results of operations or amortized over the expected service life of the employees. |
| (iii) | The use of nominal rates and the incorporation of the term salary increases due to promotions. |
| (iv) | ESPS, including deferred ESPS, shall be presented in the statement of operations as ordinary operations, preferably within "other income and expenses". Furthermore, Mexican FRS D-3 establishes that the asset and liability method should be used for determining deferred ESPS; any effects arising from the change in method shall be recognized in retained earnings, without restatement of prior years’ financial statements. |
INDUSTRIAS BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES
Notes to the Consolidated Financial StatementsYears ended December 31, 2006, 2007 and 2008
(Thousands of Mexican pesos note 2x, except per share amounts) | (i.) | Requires consolidation of special purpose entities (SPEs) when controlled. |
In 2008, as a result of the adoption | (ii.) | The possibility, under certain conditions, of presenting unconsolidated financial statements. |
| (iii.) | Consideration is given to the existence of potential voting rights that might be exercised or converted in favor of the entity in its capacity as holding Company and that may change its involvement in decision-making at the time of assessing the existence of control. |
The initial application of this Mexican FRS, the intangible asset of $28,341 reflectedstandard did not cause effects in the consolidated balance sheet and the labor obligation minimum liability adjustment of $2,512 reflected in consolidated statements of stockholders equity as of December 31, 2007, were eliminated. Furthermore, for 2008, amortization of unamortized items resulted in an approximate gain of $845.adoption or retrospectively.
| (c) | Mexican FRS D-4 “Taxes on income”-C-8 “Intangible assets”– Mexican FRS D-4C-8 supersedes Bulletin D-4 "C-8 Accounting for income“Intangible Assets” and asset taxes and employee statutory profit sharing" and Circulars 53 and 54. The principal considerations established by this Mexican FRS are:establishes, among other things, primarily the following revisions: |
| (i) | the accounting treatmentRedefinition of ESPS (current and deferred)intangible assets, establishing that separability is transferred to Mexican FRS D-3, as mentioned in paragraph (a) above. |
| (ii) | Deferred income tax liabilities at December 31, 2007 were determined by considering the stockholders’ equity as a temporary liability, which resulted in an amount that surpassed the amount determined by the assets and liabilities method. Consequently, the Company recognized an additional liability in the amount of $288,580 in 2007, to recognize the greater amount of the deferred taxes determined by the assets and liabilities method and the amount determined by considering the stockholders’ equity asnot the only temporary item.condition for the intangible asset to be identifiable. |
Effective January 1, 2008, the asset and liability method is the only acceptable method to determine deferred taxes. Therefore, the Company write-off $288,580 that relates to the additional deferred tax liability determined under the stockholders’ equity method in 2007.
INDUSTRIAS BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Years ended December 31, 2006, 2007 and 2008
(Thousands of Mexican pesos note 2x, except per share amounts)
| (d)(ii) | The acquisition cost must be considered for the initial valuation, identifying whether it is an individual acquisition, business combination or it is internally generated. Additionally, future financial benefits should be generated. |
| (iii) | Subsequent outlays for research and developments in progress should be recorded as expenses if they are part of the research phase or recorded as an intangible asset if they meet the criteria to be recognized as such; |
| (iv) | The presumption that the useful life of an intangible asset may not exceed twenty years was eliminated. |
The initial application of this standard did not cause effects in the adoption or retrospectively.
| x) | Mexican FRS B-2 “Statement of cash flows”- From January 1, 2008, Mexican FRS B-2 supersedes Bulletin B-12 "Statement of changes in financial position" and paragraph 33 of Bulletin B-16. The principal considerations established by this Mexican FRS are shown below: |
| (i) | Instead of the statement of changes in financial position, the financial statements shall include the statements of cash flows for all the periods presented comparatively with those of the current year, except for financial statements of periods prior to 2008; |
| (ii) | Cash inflows and cash outflows are reported in nominal currency units, thus not including the effects of inflation; |
| (iii) | Two alternative preparation methods (direct and indirect) are established, without stating preference for either method. Furthermore, cash flows from operating activities are to be reported first, followed by cash flows from investing activities, and lastly by cash flows from financing activities; |
| (iv) | Captions of principal items are to be reported gross, with certain exceptions and require disclosure of the composition of items considered cash equivalents. |
Accordingly, the Company presents its consolidated statement of changes in financial position for 2007 and 2006 as issued and the consolidated statementstatements of cash flows for 2008 and 2009 under the indirect method.
(3) | Cash and investments- |
Consolidated cash and investments as of December 31, 20072008 and 20082009 consist of:
| | 2008 | | | 2009 | | | | | | | | | Cash and bank accounts | | $ | 228,589 | | | | 178,749 | | Current primary investment securities (note 10 b) | | | 1,545,737 | | | | 2,363,949 | | Unrestricted cash and investments | | | 1,774,326 | | | | 2,542,698 | | | | | | | | | | | Restricted cash | | | 223,921 | | | | 8,270 | | | | | | | | | | | Total cash and investments | | $ | 1,998,247 | | | | 2,550,968 | |
| | 2007 | | | 2008 | | | | | | | | | Cash and bank accounts | | $ | 221,539 | | | | 228,589 | | | | | | | | | | | Current primary investment securities (note 10 b) | | | 2,818,337 | | | | 1,545,737 | | | | | | | | | | | Restricted investments | | | - | | | | 223,921 | | | | | | | | | | | | | $ | 3,039,876 | | | | 1,998,247 | |
Restricted investments correspond to margin calls to cover future derivative commitments.
INDUSTRIAS BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES
NotesRestricted cash corresponds to margin calls to cover future derivative commitments, due to adverse market movements associated with the Consolidated Financial Statements
Years endedunderlying prices for which the Company had an open position as of December 31, 2006, 20072008 and 2008
(Thousands of Mexican pesos note 2x, except per share amounts)2009.
(4) | Trade receivablereceivables, net- |
Trade receivables at December 31, 20072008 and 2008,2009 amounting $892,207 and $903,609, respectively, are shown net of an allowance forof doubtful accounts for $36,154$28,320 and $28,320,$29,801, respectively.
The companies mentioned below are considered affiliates, since the Company’s stockholders are also stockholders in such companies.
| a) | A summary of related party accounts payable as of December 31, is as follows: |
| | Relation | | 2007 | | | 2008 | | | 2008 | | | 2009 | | Vimifos, S.A. de C.V. | | Affiliate | | $ | 21,311 | | | $ | 39,496 | | | $ | 39,496 | | | $ | 43,749 | | Frescopack, S.A. de C.V. | | | | 715 | | | | 8,767 | | Maquinaria Agrícola, S.A. de C.V. | | Affiliate | | | 3,382 | | | | 4,858 | | | | 4,858 | | | | 5,570 | | Llantas y Accesorios, S.A. de C.V. | | Affiliate | | | 1,688 | | | | 3,953 | | | | 3,953 | | | | 4,418 | | Pulmex 2000, S.A. de C.V. | | Affiliate | | | - | | | | 905 | | | | 905 | | | | 4,077 | | Frescopack, S.A. de C.V. | | Affiliate | | | - | | | | 715 | | | Autos y Tractores de Culiacán, S.A. de C.V. | | | | 106 | | | | 855 | | Camiones y Tractocamiones de Sonora, S.A. de C.V. | | Affiliate | | | - | | | | 149 | | | | 149 | | | | 108 | | Autos y Tractores de Culiacán, S.A. de C.V. | | Affiliate | | | - | | | | 106 | | | Autos y Accesorios, S.A. de C.V. | | Affiliate | | | 438 | | | | 76 | | | | 76 | | | | 53 | | Distribuidora Automotriz de los Mochis, S.A. de C.V. | | | | 28 | | | | 16 | | Alfonso R Bours, S.A. de C.V. | | Affiliate | | | - | | | | 48 | | | | 48 | | | | - | | Distribuidora Automotriz de los Mochis, S.A. de C.V. | | Affiliate | | | - | | | | 28 | | | Qualyplast, S.A. de C.V. | | Affiliate | | | - | | | | 2 | | | | 2 | | | | - | | | | | | $ | 26,819 | | | $ | 50,336 | | | $ | 50,336 | | | $ | 67,613 | |
At December 31, 20072008 and 2008,2009, balances due to related parties correspond to unsecured current accounts denominated in thousands of pesos that bear no interest and are payable within 30 days.
| b) | F-32
b) For the years ended December 31, 2006, 2007, and 2008 and 2009, the Company had the following transactions with related parties: |
Purchases of feed, raw materials and packing supplies | | 2006 | | | 2007 | | | 2008 | | | | | | | | | | | | Vimifos, S.A. de C.V. | | $ | 251,931 | | | | 192,188 | | | | 283,912 | | Frescopack, S.A. de C.V. | | | - | | | | - | | | | 128,176 | | Pulmex 2000, S.A. de C.V. | | | - | | | | - | | | | 15,619 | | Qualiplast, S.A. de C.V. | | | - | | | | 634 | | | | 22 | | | | | | | | | | | | | | | Purchases of vehicles, tires and spare parts | | | | | | | | | | | | | Maquinaria Agrícola, S.A. de C.V. | | | 17,585 | | | | 47,155 | | | | 54,502 | | Autos y Tractores de Culiacán, S.A. de C.V. | | | - | | | | - | | | | 26,665 | | Llantas y Accesorios, S.A. de C.V. | | | 12,289 | | | | 23,349 | | | | 22,426 | | Autos y Accesorios, S.A. de C.V. | | | 33,585 | | | | 14,985 | | | | 21,729 | | Camiones y Tractocamiones de Sonora, S.A. de C.V. | | | - | | | | - | | | | 14,501 | | Distribuidora Automotriz de los Mochis, S.A. de C.V. | | | - | | | | 8,095 | | | | 13,687 | | Alfonso R. Bours, S.A. de C.V. | | | - | | | | 2,171 | | | | 3,356 | | | | | | | | | | | | | | | Airplane leasing expenses | | | | | | | | | | | | | Taxis Aéreos del Noroeste, S.A. de C.V. | | | 4,196 | | | | 3,153 | | | | 2,106 | |
INDUSTRIAS BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Years ended December 31, 2006, 2007 and 2008
(Thousands of Mexican pesos note 2x, except per share amounts)Purchases of feed, raw materials and packing supplies | | 2007 | | | 2008 | | | 2009 | | | | | | | | | | | | Vimifos, S.A. de C.V. | | $ | 192,188 | | | | 283,912 | | | | 261,385 | | Frescopack, S.A. de C.V. | | | - | | | | 128,176 | | | | 136,609 | | Pulmex 2000, S.A. de C.V. | | | - | | | | 15,619 | | | | 17,307 | | Qualiplast, S.A. de C.V. | | | 634 | | | | 22 | | | | 21 | | | | | | | | | | | | | | | Purchases of vehicles, tires and spare parts | | | | | | | | | | | | | | | | | | | | | | | | | | Maquinaria Agrícola, S.A. de C.V. | | | 47,155 | | | | 54,502 | | | | 56,502 | | Llantas y Accesorios, S.A. de C.V. | | | 23,349 | | | | 22,426 | | | | 30,848 | | Autos y Tractores de Culiacán, S.A. de C.V. | | | - | | | | 26,665 | | | | 19,555 | | Autos y Accesorios, S.A. de C.V. | | | 14,985 | | | | 21,729 | | | | 11,849 | | Distribuidora Automotriz de los Mochis, S.A. de C.V. | | | 8,095 | | | | 13,687 | | | | 11,093 | | Camiones y Tractocamiones de Sonora, S.A. de C.V. | | | - | | | | 14,501 | | | | 8,391 | | Alfonso R. Bours, S.A. de C.V. | | | 2,171 | | | | 3,356 | | | | 847 | | | | | | | | | | | | | | | Airplane leasing expenses | | | | | | | | | | | | | | | | | | | | | | | | | | Taxis Aéreos del Noroeste, S.A. de C.V. | | | 3,153 | | | | 2,106 | | | | 9,810 | |
Purchases transactions with related parties are made at market prices, which are similar to those that would be used in arms-length transactions.
(6) | Inventories and biological assets- |
| a) | Inventories consist of the following: |
| | 2007 | | | 2008 | | Raw materials and byproducts | | $ | 2,004,691 | | | $ | 2,232,409 | | Medicine, materials and spare parts | | | 369,337 | | | | 457,106 | | Finished feed | | | 56,608 | | | | 71,841 | | | | | 2,430,636 | | | | 2,761,356 | | Agricultural products: | | | | | | | | | Live chicken | | | 667,022 | | | | 921,061 | | Processed chicken | | | 177,719 | | | | 228,619 | | Commercial egg | | | 22,551 | | | | 24,383 | | Turkey | | | 28,339 | | | | 35,113 | | Beef | | | 2,708 | | | | 2,445 | | Others | | | 365 | | | | 638 | | | | | 898,704 | | | | 1,212,259 | | Total | | $ | 3,329,340 | | | $ | 3,973,615 | |
INDUSTRIAS BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Years ended December 31, 2006, 2007 and 2008
(Thousands of Mexican pesos note 2x, except per share amounts) | | 2008 | | | 2009 | | | | | | | | | Raw materials and byproducts | | $ | 2,232,409 | | | $ | 1,769,251 | | Restricted raw material (sorghum) (note 9a) | | | - | | | | 24,584 | | | | | 2,232,409 | | | | 1,793,835 | | | | | | | | | | | Medicine, materials and spare parts | | | 457,106 | | | | 480,459 | | Finished feed | | | 71,841 | | | | 57,613 | | | | | 2,761,356 | | | | 2,331,907 | | Agricultural products: | | | | | | | | | Live chicken | | | 921,061 | | | | 889,415 | | Processed chicken | | | 228,619 | | | | 339,965 | | Commercial egg | | | 24,383 | | | | 27,441 | | Turkey | | | 35,113 | | | | 21,567 | | Beef | | | 2,445 | | | | 1,493 | | Others | | | 638 | | | | 1,424 | | | | | 1,212,259 | | | | 1,281,305 | | Total | | $ | 3,973,615 | | | $ | 3,613,212 | |
| b) | Biological assets at December 31, 20072008 and 20082009 consist of the following: |
| | 2007 | | | 2008 | | | 2008 | | | 2009 | | Current biological assets: | | | | | | | | | | | | | Breeder pigs | | $ | 32,464 | | | $ | 40,709 | | | $ | 40,709 | | | $ | 45,808 | | Incubatable eggs for fattening | | | 76,038 | | | | 99,135 | | | Incubatable eggs | | | | 99,135 | | | | 110,652 | | Total current biological assets | | $ | 108,502 | | | | 139,844 | | | $ | 139,844 | | | $ | 156,460 | | | | | | | | | | | | | | | | | | | Non-current biological assets: | | | | | | | | | | | | | | | | | Laying and breeder hens | | $ | 202,214 | | | $ | 248,877 | | | $ | 248,877 | | | $ | 252,415 | | Breeder pigs | | | 27,280 | | | | 28,040 | | | | 28,040 | | | | 31,409 | | Laying hens | | | 577,043 | | | | 681,114 | | | Hens in production | | | | 681,114 | | | | 818,415 | | Allowance for productivity declines | | | (231,124 | ) | | | (276,454 | ) | | | (276,454 | ) | | | (358,630 | ) | | | | | | | | | | | | | | | | | | Total non-current biological assets | | $ | 575,413 | | | $ | 681,577 | | | $ | 681,577 | | | $ | 743,609 | |
The change in the historical value of biological assets and agricultural products to be measured at their fair value presented increases of $10,879 in 2006; $10,882 in 2007;2007 and $16,358 in 2008.2008; in 2009, shows a decrease of $7,214. Such effects were included in the results of operations each year.
(7) | Property, plant and equipment- |
| a) | Property, plant and equipment at December 31consists of the following: |
| | Useful lives (years) | | | 2007 | | | 2008 | | Buildings, farm structures and equipment | | | 7-27 | | | $ | 13,987,063 | | | $ | 14,914,390 | | Office, furniture and equipment | | | 3 | | | | 227,183 | | | | 237,727 | | Transportation equipment | | | 6 | | | | 1,162,747 | | | | 1,207,229 | | | | | | | | | 15,376,993 | | | | 16,359,346 | | Accumulated depreciation | | | | | | | (6,702,709 | ) | | | (7,164,781 | ) | Net | | | | | | | 8,674,284 | | | | 9,194,565 | | Land | | | | | | | 856,486 | | | | 897,273 | | Construction in progress and advance payments | | | | | | | 725,469 | | | | 597,397 | | Total | | | | | | $ | 10,256,239 | | | $ | 10,689,235 | |
INDUSTRIAS BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Years ended December 31, 2006, 2007 and 2008
(Thousands of Mexican pesos note 2x, except per share amounts) | | Useful lives (years) | | | 2008 | | | 2009 | | Buildings, farm structures and equipment | | | 7-27 | | | $ | 14,914,390 | | | $ | 15,823,099 | | Office, furniture and equipment | | | 3 | | | | 237,727 | | | | 238,607 | | Transportation equipment | | | 6 | | | | 1,207,229 | | | | 1,219,437 | | | | | | | | | 16,359,346 | | | | 17,281,143 | | Accumulated depreciation and amortization | | | | | | | (7,164,781 | ) | | | (7,700,155 | ) | Net | | | | | | | 9,194,565 | | | | 9,580,988 | | Land | | | | | | | 897,273 | | | | 937,478 | | Construction in progress and advance payments | | | | | | | 597,397 | | | | 391,660 | | | | | | | | | | | | | | | Total | | | | | | $ | 10,689,235 | | | $ | 10,910,126 | |
| b) | Depreciation and amortization expense for the years ended December 31, 2006, 2007, 2008 and 2008,2009, amounted to $537,383, $571,393, $616,358, and $616,358,$662,630, respectively. |
| c) | Certain property, plant and equipment guarantee part of the loans mentioned in note 9. |
| d) | As of December 31, 2008, the construction in progress amount of $443,734, has been placed in service in 2009. |
| e) | As of December 2009, the construction in progress amount of $347,516, corresponds mainly to investments in feeding plants which are expected to be placed in service in 2010. |
In 1999, goodwill was derived from the purchase of the shares of Campi Alimentos, S.A. de C.V. in the amount of $367,135.$359,564. At December 31, 2005 (the last year of amortization), accumulated amortization aggregatesaggregated to $66,287.$58,716. In 2006, 2007, 2008 and 2008,2009, goodwill was not amortized, but subject to impairment test on an annual basis, as a result of the adoption of Mexican FRS B-7 “Business Acquisitions”(see note 2k).
(9) | Notes payable to banks and long-term debt- |
| a) | Short-term notes payable to banks consist of the following: |
| | 2007 | | | 2008 | | Unsecured notes payable to banks: | | | | | | | Denominated in pesos, interest rate: TIIE(1) FIRA(2) rate less 3.00 points | | $ | 40,000 | | | $ | 40,000 | |
The weighted average interest rate on short-term notes payable at December 31, 2007 and 2008 was 4.93% and 5.73%, respectively. Average interest rates on short-term notes for the years ended December 31, 2007 and 2008 were 4.68% and 5.28%, respectively.
| b) | Long-term notes payable to banks, as of December 31, consist of the following: |
| | 2007 | | | 2008 | | | | | | | | | Secured by equipment: | | | | | | | Denominated in pesos, payable in monthly installments through December 2010, at CETES(3) rate plus 2 points. | | $ | 30,400 | | | $ | 20,500 | | | | | | | | | | | Secured by shares of the Company, and the subsidiaries as collaterals (note 11f): | | | | | | | | | Determined in pesos, payable in six quarterly installments beginning in August 2009 and maturing in November 2010 at a rate of TIIE (1) plus 5 points. | | | - | | | | 500,000 | | | | | | | | | | | Unsecured: | | | | | | | | | Denominated in Mexican pesos, at TIIE(1) FIRA(2) rate less 3.30 points, with minimum rate of 2.90%, through December, 2010 | | | 5,541 | | | | 4,112 | | Denominated in Mexican pesos, at TIIE(1) FIRA(2) rate less 1.10 points, with minimum rate of 0.875 points, through December, 2012 and June 2013. | | | 33,660 | | | | 61,280 | | | | | | | | | | | Total | | | 69,601 | | | | 585,892 | | Less current installments | | | (18,844 | ) | | | (194,235 | ) | | | | | | | | | | Total long-term debt, excluding current installments | | $ | 50,757 | | | $ | 391,657 | |
| | 2008 | | | 2009 | | Unsecured notes payable to banks (i) (ii): | | | | | | | Denominated in pesos, interest rate: TIIE(1) FIRA(2) rate less 3 points | | $ | 40,000 | | | | 40,000 | | Denominated in pesos, interest rate: TIIE(1) FIRA(2) rate plus .75 points | | | - | | | | 40,000 | | Denominated in pesos, interest rate: TIIE(1) rate plus 2 points | | | - | | | | 133,400 | | Secured by sorghum deposit certificates (iii) (iv): | | | | | | | | | Denominated in pesos, maturity on February 11, 2010, with appraisal 85% and interest rate of 9%. | | | - | | | | 20,896 | | | | | | | | | | | Short-term notes payable total | | $ | 40,000 | | | | 234,296 | |
INDUSTRIAS BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES | (i) | The weighted average interest rate on short-term unsecured notes payable at December 31, 2008 and 2009 was 5.73% and 6.03%, respectively. |
Notes to the Consolidated Financial Statements
Years | (ii) | Average interest rates on short-term unsecured notes for the years ended December 31, 2006, 2007 and 2008 and 2009 were 5.28% and 5.73%, respectively. |
(Thousands of Mexican pesos note 2x, except per share amounts)
| (iii) | At December 31, 2009, unused sorghum deposit certificates lines of credit amounted to $179,174. In 2009, the Company was not required to pay any fee for unused lines of credit. |
| (iv) | The book value of raw material securing obligation amounted to $24,584, as of December 31, 2009. |
(1) TIIE = Interbank Equilibrium Rate (2) FIRA = Fideicomisos InstituidosFideicomiso Instituido en Relación con la Agricultura
b) Long-term notes payable to banks, as of December 31, consist of the following:
| | 2008 | | | 2009 | | | | | | | | | Secured by equipment: | | | | | | | Denominated in pesos, payable in monthly installments through December 2010, at CETES (3) rate plus 2 points. | | $ | 20,500 | | | $ | 10,500 | | | | | | | | | | | Secured by shares of the Company, and the subsidiaries as collaterals: | | | | | | | | | Denominated in pesos, payable in six quarterly installments beginning in August 2009 and maturing in November 2010 at a rate of TIIE (1) plus 5 points (4). | | | 500,000 | | | | - | | | | | | | | | | | Unsecured: | | | | | | | | | | | | | | | | | | Denominated in pesos, maturing in December 2010 at TIIE (1) FIRA (2) rate less 3.30 points, with minimum rate of 2.90%. | | | 4,112 | | | | 1,789 | | Denominated in pesos, maturing in April 2012 and June 2013 at TIIE (1) FIRA (2) rate less 1.10 points and 0.875 points. | | | 61,280 | | | | 46,000 | | Denominated in pesos, maturity in June 2011 at TIIE (1) FIRA(2) rate plus 2 points. | | | - | | | | 137,500 | | Denominated in pesos, maturity in 2014 at TIIE (1) rate plus 3.5 points. | | | - | | | | 33,750 | | Denominated in pesos, with maturity in July 2011, at TIIE (1) rate plus 2 points. | | | - | | | | 500,000 | | Total | | | 585,892 | | | | 729,539 | | Less current installments | | | (194,235 | ) | | | (357,569 | ) | | | | | | | | | | Long-term debt, excluding current installments | | $ | 391,657 | | | $ | 371,970 | |
| (i) | Weighted average interest rate on long-term debt at December 31, 2008 and 2009 was 12.92% and 6.76%, respectively. |
| (ii) | The average interest rate of the Company’s total long-term debt for the years ended December 31, 2008 and 2009 was 8.45%, and 8.88%, respectively. |
(1) TIIE = Interbank Equilibrium Rate (2) FIRA = Fideicomiso Instituido en Relación con la Agricultura (3) CETE = Treasury Bills
Weighted average interest rates on long-term(4) During 2009, the Company made an anticipated payment of the entire loan, with funds obtained from a debt at December 31, 2007 and 2008 were 7.80% and 12.92%, respectively. The weighted average interest rate on the Company’s total long-term debt for the years ended December 31, 2007 and 2008 was 7.92%, and 8.45%, respectively.substitution with another bank.
| (iii) | The weighted average interest rate of the Company’s total debt at December 31, 2007 and 2008 and 2009 was 6.75% and 12.46% and 6.59%, respectively. |
| c) | At December 31, 20072008 and 2008,2009, unused lines of credit amounted $956,050to $1,182,574 and $1,182,574,$823,320, respectively. In 20072008 and 2008,2009, the Company did not pay any fee for unused lines of credit. |
| d) | The book value of assets collateralizing long-term debt was $137,857 at December 31, 2007 and $129,350 at December 31, 2008.2008 and $120,844 at December 31, 2009. |
| e) | Maturities of long-term debt as of December 31, 2008,2009, are as follows: |
Year | | Amount | | | Amount | | | | | | | | | 2010 | | $ | 360,902 | | | 2011 | | | 15,280 | | | $ | 333,405 | | 2012 | | | 11,540 | | | | 19,040 | | 2013 | | | 3,935 | | | | 12,025 | | 2014 | | | | 7,500 | | | | $ | 391,657 | | | $ | 371,970 | |
Interest expense on loans for the years ended December 31, 2007, 2008 and 2008,2009, aggregated to $6,885, $16,040 and $16,040,$66,989, respectively.
Bank loans establish certain affirmative and negative covenants. As of December 31, 2009 and June 25, 2009,18, 2010, the Company was in compliance with all these covenants. The Company estimates that the covenants will be in compliance during 2010.
INDUSTRIAS BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Years ended December 31, 2006, 2007 and 2008
(Thousands of Mexican pesos note 2x, except per share amounts)
(10-a) | Financial Instruments and hedging activities as at December 31, 2008-2008 and 2009- |
Derivatives for trading purposes (neither designated ornor qualified asfor hedges accounting treatment)
The Company maintains a portfolio of explicit FDI,Financial Derivative Instruments (FDI), which arewere neither designated ornor qualified as hedges under Bulletin C-10 and, therefore, their related changes in fair value were recognized as valuation effects of financial instruments within Comprehensive Financial Results (CFR), in the results of operations. The related amount forof the open balance as of December 31, 2008 and 2009, was $(919,026)$919,026 and $(3,137), respectively, and arose from the following derivative instruments, shown on the following pages.pages:
INDUSTRIAS BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Years endedAs at December 31, 2006, 2007 and 20082008:
(Thousands of Mexican pesos note 2x, except per share amounts)
OTC1 foreign currency option structures – finance counter-party in private agreements:
| | | | | | | | | | Effects on the results of operations | | Counter-party | | Instrument | | Underlying6 | | Notional | | Maturity | | CFR/loss (gain) | | | | | | | | | | | | | | Merril Lynch5 | | TARNs2 | | Exchange rate | | 5,500 | | April-July 2009 | | $ | 753,705 | | Capital | | | | MXP/USD | | US$ | | | | | | | Services Inc (OTC) | | | | | | | | | | | | | | | | KO FWD3 | | Exchange rate MXP/USD | | 2,000 US$ | | January- May 2009 | | | (19,478 | ) | | | | | | | | | | | | | | | | | Call Spread | | Exchange rate | | 84,000 | | January 2009 | | | (30,639 | ) | | | | | MXP/USD | | US$ | | | | | | | | | | | | | | | | | | | | | | | European Call | | Exchange rate | | 1,500 | | March 2009 | | | (34 | ) | | | | | MXP/USD | | US$ | | | | | | | | | | | | | | | | | | | | | Banamex | | European Call | | Exchange rate | | 3,000 | | January through March 2009 | | | (586 | ) | (OTC) | | | | MXP/USD | | US$ | | | | | | | | | | | | | | | | | | | | | | | European Put | | Exchange rate | | 2,000 | | February through March 2009 | | | 17 | | | | | | MXP/USD | | US$ | | | | | | | | | | | | | | | | | | | | | | | Call Digital | | Exchange rate | | 600 | | January through March 2009 | | | 584 | | | | | | MXP/USD | | US$ | | | | | | | | | | | | | | | | | | | | | | | TARNs | | Exchange rate | | 21,000 | | January and April 2009 | | | 59,480 | | | | | | MXP/USD | | US$ | | | | | | | | | | | | | | | | | | | | | Barclays | | TARFs4 | | Exchange rate | | 2,000 | | November 2009 | | | 96,235 | | Capital | | | | MXP/USD | | US$ | | | | | | | (OTC) | | | | | | | | | | | $ | 859,284 | |
| | | | | | | | | | Effects on the results of operations | | Counter-party | | Instrument | | Underlying6 | | Notional | | Maturity | | RIF | | | | | | | | | | | | | | Merril Lynch5 | | TARNs2 | | Exchange rate | | 5,500 | | April through July | | | | Capital | | | | MXP/USD | | US$ | | 2009 | | $ | 753,705 | | Services Inc | | | | | | | | | | | | | | (OTC) | | KO FWD3 | | Exchange rate | | 2,000 | | January and May | | | | | | | | | MXP/USD | | US$ | | 2009 | | | (19,478 | ) | | | | | | | | | | | | | | | | | Call Spread | | Exchange rate | | 84,000 | | January | | | | | | | | | MXP/USD | | US$ | | 2009 | | | (30,639 | ) | | | | | | | | | | | | | | | | | European Call | | Exchange rate | | 1,500 | | March | | | | | | | | | MXP/USD | | US$ | | 2009 | | | (34 | ) | | | | | | | | | | | | | | Banamex (OTC) | | European Call | | Exchange rate MXP/USD | | 3,000 US$ | | January through March | | | | | | | | | | | | | | 2009 | | | (586 | ) | | | | | | | | | | | | | | | | | European Put | | Exchange rate MXP/USD | | 2,000 US$ | | February through March | | | | | | | | | | | | | | 2009 | | | 17 | | | | | | | | | | | | | | | | | | Call Digital | | Exchange rate MXP/USD | | 600 US$ | | January though March | | | | | | | | | | | | | | 2009 | | | 584 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | TARNs | | Exchange rate | | 21,000 | | January and April | | | | | | | | | MXP/USD | | US$ | | 2009 | | | 59,480 | | | | | | | | | | | | | | | | Barclays | | TARFs4 | | Exchange rate | | 2,000 | | November | | | | | Capital | | | | MXP/USD | | US$ | | 2009 | | | 96,235 | | (OTC) | | | | | | | | | | | | | | | | | | | | | | | | | $ | 859,284 | |
1Over the Counter (OTC): refers to privately agreed operations (outside of the standardized or organized futures & options exchange markets such as CBOT) with other financial or non-financial parties. 2 Target Redemption Notes: Options structure on MXP/USD exchange rates that provide the Company with limited earnings when the Mexican peso appreciates, and an unlimited loss when the U.S. dollar appreciates before the Mexican peso. 4Target Redemption Forward: this is an option structure on MXP/USD exchange rates that provide the Company with limited earnings when the Mexican peso appreciates, and unlimited losses when the U.S. dollar appreciates before the Mexican peso. 5See note 3, collaterals established by Bachoco’s broker. 6MXP means Thousands of Mexican Peso and USD means Thousands of U.S. dollars. INDUSTRIAS BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Years ended December 31, 2006, 2007 and 2008
(Thousands of Mexican pesos note 2x, except per share amounts)
Derivatives on prices of farming goods (commodities):
| | | | | | | | Effects on the results of operations | | Counter-party | | Instrument | | Underlying | | Maturity | | CFR/loss (gain) | | | | | | | | | | | | Cargill | | Swap | | Corn | | January 2009 | | $ | 16,862 | | (OTC) | | | | | | | | | | | | | Swap | | Soy bean | | January 2009 | | | 3,285 | | | | | | | | | | | | | New Edge7 | | Futures | | Corn | | March 2009 | | | 12,001 | | | | | | | | | | | | | | | Futures | | Soy bean | | March 2009 | | | (13,151 | ) | | | | | | | | | | | | | | Call | | Corn | | March 2009 | | | (727 | ) | | | | | | | | | | | | | | Puts | | Corn | | March 2009 | | | 41,472 | | | | | | | | | | $ | 59,742 | |
| | | | | | | | Effects on the result of operations | | Counter-party | | Instrument | | Underlying | | Maturity | | RIF | | | | | | | | | | | | Cargill | | Swap | | Corn | | January 2009 | | $ | 16,862 | | (OTC) | | | | | | | | | | | | | Swap | | Soy bean | | January 2009 | | | 3,285 | | | | | | | | | | | | | New Edge7 | | Futures | | Corn | | March 2009 | | | 12,001 | | | | | | | | | | | | | | | Futures | | Soy bean | | March 2009 | | | (13,151 | ) | | | | | | | | | | | | | | Call | | Corn | | March 2009 | | | (727 | ) | | | | | | | | | | | | | | Puts | | Corn | | March 2009 | | | 41,472 | | | | | | | | | | | | | | | | | | | | | $ | 59,742 | |
____________________
7New Edge is the broker or the commission agents for the futures or options on the futures, that the Company used to enter into these operation in this listed CBOT market on corn and soybeans forwards. See note 3, collaterals established by the broker for Bachoco.
As at December 31, 2009:
OTC1 foreign currency option structures – finance counter-party in private agreements:
Counter- party | | Instrument | | Underlaying7 | | Notional | | Maturity | | Effects on the results of operations CFR/loss (gain) | | | | | | | | | | | | | | Morgan Stanley | | Collar2 | | Exchange rate MXP/USD | | 1,000 US$ | | May 2010 | | $ | (2,537 | ) | | | | | | | | | | | | | | | | KO collars2 | | Exchange rate MXP/USD | | 1,000 US$ | | March 2010 | | | (185 | ) | | | | | | | | | | | | | | | | KO collars2 | | Exchange rate MXP/USD | | 2,000 US$ | | July 2010 | | | 8 | | | | | | | | | | | | | | | | | KO put spread4 | | Exchange rate MXP/USD | | 1,000 US$ | | March 2010 | | | (256 | ) | | | | | | | | | | | | | | | | Call spread3 | | Exchange rate MXP/USD | | 1,000 US$ | | March 2010 | | | (902 | ) | | | | | | | | | | | | | | UBS | | Knock out-5 knock in | | Exchange rate MXP/USD | | 2,000 US$ | | January 2010 | | | (45 | ) | | | | | | | | | | | | | | | | Forward | | Exchange rate MXP/USD | | 2,000 US$ | | July 2010 | | | 1,026 | | | | | | | | | | | | | | | | | | | | | | | | | $ | (2,891 | ) |
1Over the Counter (OTC): refers to privately agreed operations (outside of the standardized or organized futures & options exchange markets such as CBOT) with other financial or non-financial parties. 2Knock Out Collars: Option combination in which the Company acquires at both, a minimum and a maximum exchange rate. The maximum limit no longer applies if the referenced exchange rate is equal or greater than the Knock Out upper level. 3Call Spread: A hedging instrument against decreases in the exchange rate. It is compounded by a long call with certain strike, and a short call with a greater strike. 4KO Put Spread: Option combination that the Company entered into, at the same time as it took a long position in a long Collar and a long position in a Call Spread. It hedges a certain rank in the exchange rate value, generally low values. 5Knock out – knock in:: Option combination that hedges up to a certain level of the exchange rate, and from another level of the exchange rate respectively. 6See note 3, collaterals established by Bachoco’s broker. 7MXP means Thousands of Mexican Peso and USD means Thousands of U.S. dollars.
Derivatives on prices of farming goods (Commodities):
Counter-party | | Instrument | | Underlaying | | Maturity 2010 | | Effects on the results of operations CFR/ loss (gain) | | | | | | | | | | | | Cargill | | Swap | | Corn | | March | | $ | (445 | ) | (OTC) | | | | | | | | | | | New Edge 7 | | Futures | | Corn | | March | | | (409 | ) | | | Futures | | Corn | | March | | | (361 | ) | | | Futures | | Corn | | March | | | (1,360 | ) | | | Futures | | Corn | | March | | | 4,162 | | | | Futures | | Corn | | March | | | (215 | ) | | | Futures | | Corn | | March | | | (314 | ) | | | Futures | | Corn | | March | | | (98 | ) | | | Puts on futures | | Corn | | March | | | (159 | ) | | | Puts on futures | | Corn | | March | | | (337 | ) | | | Puts on futures | | Corn | | March | | | (311 | ) | | | Puts on futures | | Corn | | March | | | 104 | | | | Puts on futures | | Corn | | March | | | (503 | ) | | | | | | | | | $ | (246 | ) |
7 New Edge is the broker or the commission agents for the futures or options on the futures, that the Company used to enter into these operation in this listed CBOT market on corn and soybeans forwards. See note 3, collaterals established by the broker for Bachoco.
Derivatives that are designated and qualify for hedging purposes attributable to (i) one or more risks included in identified hedged items which are already recognized on the balance sheet or (ii) associated to risk exposures not yet recognized on the balance sheet.
In regard to the positions on FDI that the Company enters into and that arewere designated and qualify for hedge accounting purposes on one or more financial risks, its fair value amounted to a total of $126,164 and $8,135 at December 31, 2008.2008 and 2009, respectively. Following are the details on the derivative instruments found accessing special hedge accounting models, their notional dimension, risks and effects, either on the balance sheets or in the statements of operations. The derivatives mentioned below fundamentally offset the effects of the hedged items within the statement of operations, as long as they continue to qualify and be designated for hedge purposes: INDUSTRIAS BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Years ended December 31, 2006, 2007 and 2008
(Thousands of Mexican pesos note 2x, except per share amounts) purposes as follows:
Fair value hedges:hedges (FVH): The Company entered into several firm commitments that are contractual agreements with domestic farmers, to purchase expected volumes of grain crops at a USD-denominated fixed price including basis locks. These agreements were carried as to access hedging instruments under the “farming by contract” program sponsored by ASERCA. These firm commitments are designated as hedged items due to they create off-balance sheet grain price and foreign exchange risk exposures as well. The ASERCA Put options offering, only hedge the fair value risk of the grain fixed price, hence are designated as fair value hedges under the Fair Value Hedge accounting model, asmodel. These options are used to hedge against a downside risk, where both effective effects from the derivatederivative (based on intrinsic value changes only, excluding extrinsic value) and from the hedge item for such hedged risk, are taken to earnings, where both compensate. The effective changes in the fair value of these firm commitments attributable to price risk, are allocated within the balance sheet as current assets (losses) or liabilities (gains) until contractual volumes of grain are recognized as inventory, then the same ASERCA put options in their correspondent volume, are re-designated as to hedge the fair value of commodity inventories in accordance with the fair value hedge accounting model, that is, adjusting the book value of such inventory against earnings, up to when these inventories of grain (corn and sorghum) impact earnings as cost of goods sold, then all pending derivatederivative effects allocated as current assets or liabilities coming from the firm commitment period, are then recycled to cost of good sold, as to adjust this for fair value hedging effects. Options listed on corn future, effective at December 31, 2008:
| | | | | | | | | | | | | | | | | | | | effects on | | | | | | | | | | | comprehensive | | | | | | | | | | | financial | | Counter-party | | Instrument | | Underlying | | Term | | Effective offsetting effects on cost of sales | | | Instrument | | Underlaying | | Maturity | | results/loss (gain) | | | | | | | | | | | | | | | | | | | | | ASERCA | | Puts | | Corn | | March And May | | | | | Puts | | Corn | | March and May 2009 | | $ | (126,164 | ) | | | | | | | 2009 | | $ | (126,164 | ) | |
Options listed on corn future, effective at December 31, 2009:
Counter-party | | Instrument | | Underlaying | | Maturity | | Effective offsetting effects on comprehensive financial results/loss (gain) | | | | | | | | | | | | ASERCA | | Puts | | Corn | | March and May 2010 | | $ | (8,135 | ) |
Option type of derivatives entered under the ASERCA program are under the 0% modality for payment of the premium and a 100% benefit with a 60% discount over the initial premium amount.
Hedging effects on the price of grain associated with firm commitments and grain inventories denominated in the Company’s non-functional currency (USD), that are recognized at their fair value due to the price risk only, under the fair value hedge accounting model. INDUSTRIAS BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES
NotesDue to the Consolidated Financial Statements
Years ended December 31, 2006, 2007effects of the 2008 and 2008
(Thousands of Mexican pesos note 2x, except per share amounts)
As2009 grain price variations, the worldwide recession worsened during 2008, international grain prices also experienced a deep downside, hence turned effectivehedging effects arising from the ASERCA Put options held, designated to hedge fixed grain firm commitments, with fair value changes effects onlinked to the corn & sorghum8prices, while bothaccording to the fair value hedge model, were under firm commitments and/or inventory, were taken torecognized in the consolidated balance sheet as a current liability or as an adjustment to the inventory, fair value hedge adjustment (lowering this) or fair value adjustments recognized as current liabilities on the balance sheetboth with correspondent offsetting effects against the option’s intrinsic only value changes within comprehensive financial result in the consolidated statement of operations.
| 8 | The sorghum maintainsSorghum price is not listed in an agriculture exchange, but its price-as feeding substitute for corn (which is negotiated and listed in the CBOT) – has a high correlation with the futures prices of corn; therefore, corn prices are usually used as a sound proxy the hedge sorghum related price of corn, however, unlike said corn, it is not traded or listed in commodity organized/listed futures market.exposure. |
At December 31, 2008:
Grain purchase firm commitments subject to fair value hedge relationshipsrelationship9:
Description of
the contract
| | Designated derivative
and hedged risk
| | Changes in the fair value
recognized within the financial
statements as short term
liability
| | | | | | | | Sorghum purchase agreements | | ASERCA Puts that hedge the fair value of
these firm commitments, due to falling grain prices.
| | $ | (87,586 | ) |
Description of the contract | | Re-designated derivatives and hedged items | | Changes in the fair value, recognized within the balance sheet | | | | | | | | Sorghum Purchases agreements | | ASERCA Puts that hedge the fair value of these firm commitments, due to falling of grain prices. | | $ | (38,578 | ) |
Grain inventories adjusted to fair value hedge:
Description | | Re-designated derivatives and hedged items | | Changes in the fair value, recognized as fair value adjustment to the book value of grain inventory within current assets. | | | Description of the contract | | | Designated derivative and hedged risk | | Changes in the fair value, recognized within the balance sheet | | | | | | | | | | | | | Sorghum and corn inventories | | ASERCA Puts that were re-designated as to hedge the fair value of commodity grain inventories from losing fair value, attributable to lower grain prices. | | $ | (38,578 | ) | | ASERCA Puts that were re-designated as to hedge the fair value of commodity grain inventories from losing fair value, attributable to lower grain prices. | | $ | (87,586 | ) |
| 9 | These represent contracts the Company enters into with an unrelated party that can beenbe executed through legal means and specify the amount the Company expects to exchange, the fixed price, the currency and the transaction schedule, among other important aspects. |
INDUSTRIAS BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Years endedAt December 31, 2006, 2007 and 2008
(Thousands of Mexican pesos note 2x, except per share amounts)2009:
Grain inventories adjusted to fair value hedge10:
Description | | Risk covered and secondary assigned | | Changes in the fair value of the firm commitment recognized within the balance sheet | | | | | | | | Firm commitments with a fix price and USD denominated to Sorghum and corn purchases agreements | | ASERCA Puts that were re-designated as to hedge the fair value of Commodity grain inventories from losing fair value, attributable to lower grain prices | | $ | (8,135 | ) |
(10-b) | 10 | These represent contracts the Company enters into with an unrelated party that can be executed through legal means and specify the amount the Company expects to exchange, the fixed price, the currency and the transaction schedule, among other important aspects. |
(10-b) | Investment in primary financial securities at December 31, 20072008 and 2008-2009- |
The Company keeps investments in primary financial debt instruments at December 31, 20072008 and 2008,2009, both in U.S. dollars and Mexican pesos, as follows:
| | 2007 | | | 2008 | | | 2008 | | | 2009 | | For trading purposes | | Book value | | | Fair value | | | Average interest rates | | | Book value | | | Fair value | | | Interest10 rate | | | For trading | | | Book value | | | Fair value | | | Interest11 rates | | | Book value | | | Fair value | | | Interest11 rate | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Mexican peso denominated debt securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Government issued | | | 1,097,304 | | | | 1,097,304 | | | | | | | 564,055 | | | | 564,055 | | | | 8.30 | % | | $ | 564,055 | | | | 564,055 | | | | 8.30 | % | | $ | 778,700 | | | | 778,700 | | | | 4.63 | % | Bank issued | | | 1,276,109 | | | | 1,276,109 | | | | | | | 669,884 | | | | 669,884 | | | | 8.95 | % | | | 669,884 | | | | 669,884 | | | | 8.95 | % | | | 1,259,987 | | | | 1,259,987 | | | | 4.79 | % | Commercial paper | | | 436,491 | | | | 436,491 | | | | | | | 109,330 | | | | 109,330 | | | | 9.28 | % | | | 109,330 | | | | 109,330 | | | | 9.28 | % | | | 81,899 | | | | 81,899 | | | | 8.34 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | 2,809,904 | | | | 2,809,904 | | | | 6.99 | % | | $ | 1,343,269 | | | | 1,343,269 | | | | | | | $ | 1,343,269 | | | | 1,343,269 | | | | | | | $ | 2,120,586 | | | | 2,120,586 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | U.S dollars denominated debt securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Bank issued | | | 8,433 | | | | 8,433 | | | | | | | | - | | | | - | | | | - | | | $ | - | | | | - | | | | - | | | $ | 69,718 | | | | 69,718 | | | | 6.63 | % | Commercial paper | | | - | | | | - | | | | - | | | | 167,169 | | | | 167,169 | | | | 5.31 | % | | | 167,169 | | | | 167,169 | | | | 5.31 | % | | | 125,230 | | | | 125,230 | | | | 6.41 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | 8,433 | | | | 8,433 | | | | 0.69 | % | | $ | 167,169 | | | | 167,169 | | | | | | | $ | 167,169 | | | | 167,169 | | | | | | | $ | 194,948 | | | | 194,948 | | | | | |
11 Average interest rate in the category | | 2008 | | | 2008 | | Held to maturity | | Paid price when bought | | | Impairment | | | Expected recovery amount | | | Interest rate | | | Paid price when bought | | | Impairment | | | Expected recovery amount | | | Interest rate | | | | | | | | | | | | | | | | | | | | | | | | | | | Mexican peso denominated debt securities: | | | | | | | | | | | | | | Pesos: | | | | | | | | | | | | | | Commercial paper | | $ | 48,415 | | | $ | 13,116 | | | | 35,299 | | | | 8.2 | % | | $ | 48,415 | | | | 13,116 | | | | 35,299 | | | | 8.2 | % |
10 Average interest rate in the company | | 2009 | | Held to maturity | | Paid price when bought | | | Impairment | | | Expected recovery amount | | | Interest rate | | | | | | | | | | | | | | | Pesos: | | | | | | | | | | | | | Commercial paper | | $ | 48,415 | | | | - | | | | 48,415 | | | | 8.2 | % |
Due to the financial crisis experienced in most economies around the World at the end of 2008, several securities were no longer traded actively in the financial markets, hence the Company decided to access INIF 16 “Transfer of accounting category of financial instruments carried for trading purposes”, hence Commercial Paper was transferred to the Held To Maturity category starting October 1, 2008. An impairment effect of $13,116 was immediately recognized considering that these non guaranteed debt securities will not recover their initial paid-in-value. Impairment was recognized in the Comprehensive Resultsfinancial results within earnings.
INDUSTRIAS BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Years ended December 31, 2006, 2007 and 2008
(Thousands of Mexican pesos note 2x, except per share amounts)
(10-c) | Financial instruments and hedging operations at December 31, 2007- |
The Company has entered into contracts with Merrill Lynch, JP Morgan and FIMAT USA, LLC, to hedge U.S. dollar exchange rates, corn and sorghum for the Company’s projected cash expenditures for the period from January through December 2007.
Following is a summary of these instruments at December 31, 2007:
Instruments | Type (future) Call or Put) | | Position Profile assumed | | Notional amount | | | Fair value | | | Other compre hensive income (equity) | | | Ineffectiveness effects (earnings) | | Futures on Soybean | | | Short | | $ | 2,469 | | | $ | (3,442 | ) | | $ | (3,442 | ) | | $ | - | | Futures on Soybean | | | Long | | | 2,379 | | | | 4,424 | | | | 4,424 | | | | - | | Future on Corn | | | Short | | | 167 | | | | (420 | ) | | | (420 | ) | | | - | | Future on Corn | | | Long | | | 553 | | | | 1,424 | | | | 1,424 | | | | - | | Options on Soybean | Call | | Long | | | 1,890 | | | | 1,947 | | | | 1,947 | | | | - | | Options on Soybean | Put | | Long | | | 3,480 | | | | (255 | ) | | | (255 | ) | | | - | | Options on Corn | Call | | Long | | | 2,870 | | | | 3,815 | | | | 3,815 | | | | - | | Options on Corn | Put | | Short | | | 5,380 | | | | (226 | ) | | | (226 | ) | | | - | | Options on Corn futures under ASERCA program | Put | | Long | | | 48,438 | | | | 99,310 | | | | 99,310 | | | | - | | Embedded derivatives on the price of corn | | | Long | | | 16,356 | | | | 15,549 | | | | 15,549 | | | | - | | Exchange rate options | Call | | Long | | | 49,500 | | | | 9,424 | | | | - | | | | 9,424 | | Exchange rate options | Put | | Long | | | 7,500 | | | | 429 | | | | - | | | | 429 | | Exchange rate options | Call | | Short | | | 8,500 | | | | (15,632 | ) | | | - | | | | (15,632 | ) | Exchange rate options | Put | | Short | | | 85,000 | | | | (3,871 | ) | | | - | | | | (3,871 | ) | Exchange rate forward | Call | | Long | | | 147,500 | | | | 21,246 | | | | - | | | | 21,246 | | Exchange rate forward | Put | | Short | | | 120,000 | | | | (10,219 | ) | | | - | | | | (10,219 | ) | | | | | | | | | | | 123,503 | | | | 122,126 | | | | 1,377 | | Deferred tax effects | | | | | | | | | | (23,466 | ) | | | (23,204 | ) | | | - | | Net total after deferred tax effects | | | | | | | | | | 100,037 | | | | 98,922 | | | | 1,377 | |
As part of the exchange hedge strategy, the Company, includes the use of financial derivative instruments to reduce exchange rate fluctuations associated with forecasted grain purchase operations. The Company has short-tem call and put options whose fair value amount as of 2007 ascending to 277,000 U.S. dollars and liabilities in the amount of 225,000 U.S. dollars. The Company recognized a net payment in the amount of $8,097 in 2007 in its comprehensive financial results.
(11) | Commitments and contingencies- |
| (a) | The Company has entered into operating leases for certain offices, production sites, and automotive and computer equipment. Most leases contain renewal options. These agreements have terms between one and five years. Rental expense under these leases was as follows: |
INDUSTRIAS BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Years ended December 31, 2006, 2007 and 2008
(Thousands of Mexican pesos note 2x, except per share amounts)
Year ended December 31, | | Amount | | | Amount | | | | | | | | | 2006 | | $ | 124,028 | | | 2007 | | | 153,165 | | | $ | 153,165 | | 2008 | | $ | 167,871 | | | | 167,871 | | 2009 | | | | 177,292 | |
| (b) | There is a contingent liability arising from the labor obligations mentioned in note 2m. |
| (c) | The Company is involved in a number of lawsuits and claims arising in the normal course of business. ItIn the opinion of management, it is expected that the final outcome of these matters will not have significant adverse effects on the Company’s consolidated financial position and results of operations. |
| (d) | In accordance with Mexican tax law, the tax authorities are entitled to examine transactions carried out during the five years prior to the most recent income tax return filed. |
| (e) | The Company has agreed contracts to supply grain from third parties as part of the normal course of operations. |
| (f) | In accordance with the Income Tax Law, companies carrying out transactions with related parties are subject to certain requirements as to the determination of prices, which should be similar to those that would be used in arms-length transactions. |
| (f) | One of the bank loans mentioned in note 9 is guaranteed by third parties through their shares in the Company, which shares are held in a trust. In the event of a reduction in the value of the qualified shares, Bachoco or the shareholders will directly or indirectly, through its subsidiaries or affiliates, assume the obligation to make additional contributions, or make cash deposits to cover the difference. | Should the tax authorities examine the transactions and reject the related-party prices, they could assess additional taxes plus the related inflation adjustment and interest in addition to penalties of up to 100% of the omitted taxes.
(12) | Other taxes payable and other accruals- |
An analysis of other taxes payable and other accruals presented in the financial statements is as follows:
| | 2007 | | | 2008 | | | | | | | | | Expenses payable | | $ | 91,981 | | | | 76,787 | | IMSS (1) | | | 29,408 | | | | 30,234 | | SAR (2) | | | 5,303 | | | | 6,721 | | INFONAVIT (3) | | | 21,765 | | | | 22,786 | | Other accounts payable | | | 39,005 | | | | 99,037 | | Trade advances | | | 38,204 | | | | 33,422 | | Employee statutory profit sharing | | | 5,756 | | | | 34,355 | | Salaries payable | | | 4,514 | | | | 10,804 | | Tax payable | | | 4,128 | | | | 5,485 | | Payroll taxes | | | 2,637 | | | | 6,107 | | Interest payable | | | 728 | | | | 2,864 | | | | | | | | | | | Total | | $ | 243,429 | | | | 328,602 | |
INDUSTRIAS BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Years ended December 31, 2006, 2007 and 2008
(Thousands of Mexican pesos note 2x, except per share amounts) | | 2008 | | | 2009 | | | | | | | | | Other accounts payable | | $ | 99,037 | | | $ | 158,535 | | Expenses payable | | | 76,787 | | | | 94,855 | | Trade advances | | | 33,422 | | | | 53,693 | | Employee statutory profit sharing | | | 34,355 | | | | 38,149 | | IMSS (1) | | | 30,234 | | | | 33,847 | | INFONAVIT (3) | | | 22,786 | | | | 28,724 | | Payroll taxes | | | 6,107 | | | | 13,035 | | SAR (2) | | | 6,721 | | | | 6,020 | | Taxes payable | | | 5,485 | | | | 5,465 | | Salaries payable | | | 10,804 | | | | 4,313 | | Interests payable | | | 2,864 | | | | 1,134 | | | | | | | | | | | Total | | $ | 328,602 | | | $ | 437,770 | |
(1) IMSS (a Government health care institution): contributions are made by the Company and by its employees in accordance with applicable regulations. The Company is required to pay this contribution on a monthly basis, along with the Company’s own contribution to the social security fund.basis.
(2) SAR (a Government institution for employee retirement savings): Contributions are made by the Company based on applicable regulations as a percentage of the employees’ salary. The Company has a duty to pay these contributions to the government every two months.
(3) INFONAVIT (a Government institution that provides mortgages to employees): The Company is required to make contributions to this entity based on approximately 5% of the employees’ salaries, subject to certain limits. The Company has a duty to pay these contributions every two months.
(13) | Foreign currency position- |
| a) | A summary of the Company’s monetary assets and liabilities denominated in U.S. dollars (the only foreign currency) translated into reporting currency, as of December 31, 20072008 and 20082009, were as follows: |
| | | | | | 2007 | | | 2008 | | Assets: | | | | | | | Cash and investments | | $ | 380,344 | | | $ | 451,957 | | Other accounts | | | - | | | | 3,958 | | Advances to suppliers (included in inventories and property, plant and equipment) | | | 404,936 | | | | 433,333 | | | | | 785,280 | | | | 889,248 | | Liabilities: | | | | | | | | | Accounts payable | | | (154,358 | ) | | | (342,993 | ) | | | | | | | | | | Net assets | | $ | 630,922 | | | $ | 546,255 | |
| | Pesos | | | | 2008 | | | 2009 | | Assets: | | | | | | | Cash and investments | | $ | 451,957 | | | $ | 203,756 | | Other accounts | | | 3,958 | | | | 3,753 | | Advances to suppliers (included in inventories and property, plant and equipment) | | | 433,333 | | | | 368,099 | | | | | 889,248 | | | | 575,608 | | Liabilities: | | | | | | | | | Accounts payable | | | (923,866 | ) | | | (892,691 | ) | | | | | | | | | | Net liability | | $ | (34,618 | ) | | $ | (317,083 | ) |
INDUSTRIAS BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Years ended December 31, 2006, 2007 and 2008
(Thousands of Mexican pesos note 2x, except per share amounts)
| b) | As of December 31, 20072008 and 2008,2009, the exchange rate was $ 10.91$13.81 and $ 13.815$13.08, per US dollar, respectively. At March 27, 2009,26, 2010, date of issuance of the statutory audit report,consolidated financial statements the exchange rate was $14.21$12.50 per US dollar. |
| a)(a) | Labor obligations at December 31, 2008 and 2009 |
The Company has a defined benefit pension plan covering the non unionized personnel. The benefits are based on years of service and the employee’s compensation. The Company makes annual contributions to the plan equal to the maximum amount that can be deducted for income tax purposes based on the projected unit credit method.
Cash flows-
Plan contributions and benefits paid were as follows:
| | Benefits 2008 | | | | | | | | | | | | | | Termination | | | Retirement | | | Total | | | | | | | | | | | | Plan contributions | | $ | - | | | | 17,450 | | | | 17,450 | | Benefits paid | | | 21,489 | | | | 2,865 | | | | 24,354 | |
| | Plan Contributions | | | Benefits paid | | | | 2008 | | | 2009 | | | | 2008 | * | | 2009 | | | | | | | | | | | | | | | | Termination | | $ | - | | | | - | | | | 21,489 | | | | - | | Retirement | | | 17,450 | | | | 17,436 | | | | 2,865 | | | | 2,382 | | | | | | | | | | | | | | | | | | | Total | | $ | 17,450 | | | | 17,436 | | | | 24,354 | | | | 2,382 | |
* The amount of payments reported in 2008 consider those charged to the net liabilities and fund.
The cost, obligations and other elements of the pension, seniority premium and severance compensation plans for reasons other than restructuring, mentioned in note 2m, have been determined based on computations prepared by independent actuaries at December 31, 2008.2008 and 2009. The components of the net periodic cost for the yearyears ended December 31, 2008 and 2009, were as follows:
INDUSTRIAS BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Years ended December 31, 2006, 2007 and 2008
(Thousands of Mexican pesos note 2x, except per share amounts)
| | Benefits 2008 | | | Benefits | | | | | | | | | | | | | Termination | | | Retirement | | | | Termination | | | Retirement | | | Total | | | 2008 | | | 2009 | | | 2008 | | | 2009 | | | | | | | | | | | | | | | | | | | | | | | | Net periodic cost: | | | | | | | | | | | | | | | | | | | | | | Service cost | | $ | 13,122 | | | | 18,539 | | | | 31,661 | | | $ | 13,122 | | | | 13,898 | | | | 18,539 | | | | 16,187 | | Interest cost | | | 5,324 | | | | 19,880 | | | | 25,204 | | | | 5,324 | | | | 6,220 | | | | 19,880 | | | | 20,043 | | Return on plan assets | | | - | | | | (18,683 | ) | | | (18,683 | ) | | | - | | | | - | | | | (18,683 | ) | | | (19,307 | ) | Net actuarial loss (gain) | | | 7,012 | | | | (380 | ) | | | 6,632 | | | | 7,012 | | | | 7,171 | | | | (380 | ) | | | (1,982 | ) | Prior service cost (2007 unamortized items): | | | | | | | | | | | | | | Prior service cost: | | | | | | | | | | | | | | | | | | Amortization of prior service cost and plan modifications | | | - | | | | 1,885 | | | | 1,885 | | | | - | | | | - | | | | 1,885 | | | | 1,885 | | Amortization of transition liability | | | 4,828 | | | | 5,448 | | | | 10,276 | | | | 4,828 | | | | 4,828 | | | | 5,448 | | | | 5,448 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net periodic cost | | $ | 30,286 | | | | 26,689 | | | | 56,975 | | | $ | 30,286 | | | | 32,117 | | | | 26,689 | | | | 22,274 | |
The present value of benefit obligations of the plans atal December 31, 2008 and 2009, is as follows:
| | Benefits 2008 | | | Benefits | | | | Termination | | | Retirement | | | Total | | | Termination | | | Retirement | | | | | | | | | | | | | 2008 | | | 2009 | | | 2008 | | | 2009 | | Accumulated benefit obligation (ABO) | | $ | 52,131 | | | | 138,077 | | | | 190,208 | | | | | | | | | | | | | | | | | Accumulated Benefit obligation (ABO) | | | $ | 52,131 | | | | 64,328 | | | | 138,077 | | | | 151,796 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Projected benefit obligation (PBO) | | | 70,915 | | | | 210,319 | | | | 281,234 | | | | 70,915 | | | | 76,988 | | | | 210,319 | | | | 240,968 | | Plan assets at fair value | | | - | | | | (188,815 | ) | | | (188,815 | ) | | | - | | | | - | | | | (188,815 | ) | | | (223,778 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Projected benefit obligation over plan assets | | | 70,915 | | | | 21,504 | | | | 92,419 | | | | 70,915 | | | | 76,988 | | | | 21,504 | | | | 17,190 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Unrecognized items: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Transition liability | | | (18,370 | ) | | | (21,793 | ) | | | (40,163 | ) | | | (18,370 | ) | | | (13,542 | ) | | | (21,793 | ) | | | (16,345 | ) | Plan modifications | | | - | | | | (25,437 | ) | | | (25,437 | ) | | | - | | | | - | | | | (25,437 | ) | | | (23,552 | ) | Actuarial gains | | | - | | | | 53,871 | | | | 53,871 | | | | - | | | | - | | | | 53,871 | | | | 53,890 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Projected liability, net | | $ | 52,545 | | | | 28,145 | | | | 80,690 | | | $ | 52,545 | | | | 63,446 | | | | 28,145 | | | | 31,183 | |
| | Benefits | | | | 2008 | | | 2009 | | | | | | | | | Discount rate (net of inflation) | | | 9.75 | % | | | 9.50 | % | Rate of compensation increase* | | | 4.50 | % | | | 4.50 | % | Expected return on plan assets | | | 9.75 | % | | | 9.75 | % | Amortization period of unrecognized items (applicable to retirement benefit) | | 19.66 years | | | 19.33 years | |
* Salary increases, including past practice, trends in the market and compensation scheme (average salary increase earned if performance is satisfactory). INDUSTRIAS BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Years ended December 31, 2006, 2007 and 2008
(Thousands of Mexican pesos note 2x, except per share amounts)
FollowingBelow is an itemized analysis of the determination of benefitsbenefit obligations of the plan at December 31, 2008:
| | Retirement benefits | | | | | | | | | | | | | | Seniority premium | | | Pension plan | | | Total | | Defined benefits obligations: | | | | | | | | | | Obligation because of defined benefits at the beginning of year | | $ | 32,095 | | | | 199,333 | | | | 231,428 | | Current labor cost | | | 2,658 | | | | 15,880 | | | | 18,538 | | Interest cost | | | 2,743 | | | | 17,137 | | | | 19,880 | | Actuarial gains and losses | | | (3,187 | ) | | | (51,298 | ) | | | (54,485 | ) | Benefits paid | | | (1,329 | ) | | | (3,713 | ) | | | (5,042 | ) | Defined benefits obligations at end of year | | | 32,980 | | | | 177,339 | | | | 210,319 | |
Following is an itemized analysis of the determination regarding the plan’s assets at December 31, 2008:2008 and 2009:
| | Retirement benefits | | | | | | | | | | | | | | Seniority premium | | | Pension plan | | | Total | | Plan assets: | | | | | | | | | | Plan asset at the beginning of year | | $ | - | | | | 182,017 | | | | 182,017 | | Yield expected | | | - | | | | (8,475 | ) | | | (8,475 | ) | Company contributions | | | - | | | | 17,450 | | | | 17,450 | | Benefits | | | - | | | | (2,177 | ) | | | (2,177 | ) | Plan assets at end of year | | | - | | | | 188,815 | | | | 188,815 | |
| | Retirement benefits 2008 | | | | Seniority premium | | | Pension plan | | | Total | | Defined benefit obligations: | | | | | | | | | | Obligations of defined benefits at the beginning of year | | $ | 32,095 | | | | 199,333 | | | | 231,428 | | Current labor cost | | | 2,658 | | | | 15,880 | | | | 18,538 | | Interest cost | | | 2,743 | | | | 17,137 | | | | 19,880 | | Actuarial gain and losses | | | (3,187 | ) | | | (51,298 | ) | | | (54,485 | ) | Benefits paid | | | (1,329 | ) | | | (3,713 | ) | | | (5,042 | ) | Defined benefit obligations at end of year | | $ | 32,980 | | | | 177,339 | | | | 210,319 | |
| | Retirement benefits 2009 | | | | Seniority premium | | | Pension plan | | | Total | | Defined benefit obligations: | | | | | | | | | | Obligation of defined benefits at the beginning of year | | $ | 32,980 | | | | 177,339 | | | | 210,319 | | Current labor cost | | | 3,034 | | | | 13,153 | | | | 16,187 | | Interest cost | | | 3,130 | | | | 16,913 | | | | 20,043 | | Actuarial gain and losses | | | 1,439 | | | | (2,836 | ) | | | (1,397 | ) | Benefits paid | | | (1,801 | ) | | | (2,383 | ) | | | (4,184 | ) | Defined benefit obligations at end of year | | $ | 38,782 | | | | 202,186 | | | | 240,968 | |
Below is the determination of plan assets at 31 December 2008 and 2009:
| | Retirement benefits 2008 | | | | Seniority premium | | | Pension plan | | | Total | | Plan assets: | | | | | | | | | | Plan asset at the beginning of year | | $ | - | | | | 182,017 | | | | 182,017 | | Yield expected | | | - | | | | (8,475 | ) | | | (8,475 | ) | Company contributions | | | - | | | | 17,450 | | | | 17,450 | | Benefits paid | | | - | | | | (2,177 | ) | | | (2,177 | ) | Plan assets at and of year | | $ | - | | | | 188,815 | | | | 188,815 | |
| | Retirement benefits 2009 | | | | Seniority premium | | | Pension plan | | | Total | | Plan assets: | | | | | | | | | | Plan asset at the beginning of year | | $ | - | | | | 188,815 | | | | 188,815 | | Yield expected | | | | | | | 19,307 | | | | 19,307 | | Actuarial gains and losses | | | - | | | | 602 | | | | 602 | | Company contributions | | | - | | | | 17,436 | | | | 17,436 | | Benefits paid | | | - | | | | (2,382 | ) | | | (2,382 | ) | Plan assets at and of year | | $ | - | | | | 223,778 | | | | 223,778 | |
Following is a detailed description of the current amounts and the amounts for the previous four annual periods derived from the defined benefit obligations, the reasonable value of the plan’s assets and the adjustments on the plan assets and liabilities, based on experience:
| | Seniority premium* | | | | | | | | | | | | | | | | | | | | 2004 | | | 2005 | | | 2006 | | | 2007 | | | 2008 | | Defined benefits obligations | | $ | 36,238 | | | | 46,546 | | | | 49,097 | | | | 56,601 | | | | 59,086 | | Plan assets | | | - | | | | - | | | | - | | | | - | | | | - | | Plan situation | | $ | 36,238 | | | | 46,546 | | | | 49,097 | | | | 56,601 | | | | 59,086 | |
INDUSTRIAS BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Years ended December 31, 2006, 2007 and 2008
(Thousands of Mexican pesos note 2x, except per share amounts) | | Seniority premium* | | | | | | | | | | | | | | | | | | | | 2005 | | | 2006 | | | 2007 | | | 2008 | | | 2009 | | Defined benefit obligations | | $ | 46,546 | | | | 49,097 | | | | 56,601 | | | | 59,086 | | | | 66,711 | | Plan assets | | | - | | | | - | | | | - | | | | - | | | | - | | | | | | | | | | | | | | | | | | | | | | | Plan status | | $ | 46,546 | | | | 49,097 | | | | 56,601 | | | | 59,086 | | | | 66,711 | |
| | Pension plan | | | | | | | | | | | | | | | | | | | | 2004 | | | 2005 | | | 2006 | | | 2007 | | | 2008 | | Defined benefits obligations | | $ | 130,860 | | | | 152,360 | | | | 189,355 | | | | 199,333 | | | | 177,339 | | Plan assets | | | (96,085 | ) | | | (130,747 | ) | | | (160,421 | ) | | | (182,017 | ) | | | (188,815 | ) | | | | | | | | | | | | | | | | | | | | | | Plan status | | $ | 34,775 | | | | 21,613 | | | | 28,934 | | | | 17,316 | | | | (11,476 | ) |
| * | The results of Seniority Premiumseniority premium include retirement and termination, due to the fact that this division did not exist in prior years in accordance with the Bulletin D-3. |
| | Benefits | | | | 2007 | | | 2008 | | | | | | | | | Discount rate (net of inflation) | | | 5.25 | % | | | 9.75 | % | Rate of compensation increase | | | 1.00 | % | | | 4.50 | % | Expected return on plan assets | | | 6.25 | % | | | 9.75 | % | Amortization period of unrecognized items (applicable to retirement benefit) | | 19.2 years | | | 19.66 years | |
| | Pension plan | | | | | | | | | | | | | | | | | | | | 2005 | | | 2006 | | | 2007 | | | 2008 | | | 2009 | | Defined benefit obligations | | $ | 152,360 | | | | 189,355 | | | | 199,333 | | | | 177,339 | | | | 202,186 | | Plan assets | | | (130,747 | ) | | | (160,421 | ) | | | (182,017 | ) | | | (188,815 | ) | | | (223,778 | ) | | | | | | | | | | | | | | | | | | | | | | Plan status | | $ | 21,613 | | | | 28,934 | | | | 17,316 | | | | (11,476 | ) | | | (21,592 | ) |
The distribution of assets listed by category and the related budget at the end of 2006, 2007, 2008 and 2008,2009, are analyzed as follows:
| | Assets to ended year | | | | | | | | | | | | | | | | 2006 | | | 2007 | | | 2008 | | | 2007 | | | 2008 | | | 2009 | | | | | | | | | | | | | | | | | | | | | Fixed rate investment | | | 74 | % | | | 77 | % | | | 77 | % | | | 77 | % | | | 77 | % | | | 75 | % | Variable rate investment | | | 26 | % | | | 23 | % | | | 23 | % | | | 23 | % | | | 23 | % | | | 25 | % | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | | 100 | % | | | 100 | % | | | 100 | % | | | 100 | % | | | 100 | % | | | 100 | % |
The distribution of the assets reflects the strategy that was used to optimize the return rate on the plan and the fund's results, within the framework of an appropriate risk level.
INDUSTRIAS BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Years ended December 31, 2006, 2007 and 2008
(Thousands of Mexican pesos note 2x, except per share amounts)
| b) | Labor obligations at December 31, 20072007- |
An analysis of the net period cost, reserve amounts and the assumptions considered in the pension plan, the seniority premium and severance obligationobligations at December 31, 2007 is as follows: | | Pension plan | | | Seniority premium | | | Severance | | | | | | | | | | | | | | | | | | | | | | | 2006 | | | 2007 | | | 2006 | | | 2007 | | | 2006 | | | 2007 | | Net periodic cost: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Labor cost | | $ | 11,791 | | | | 15,429 | | | | 3,781 | | | | 4,361 | | | | 9,475 | | | | 9,191 | | Return on plan assets | | | (8,395 | ) | | | (10,090 | ) | | | - | | | | - | | | | - | | | | - | | Amortization of unrecognized prior past service costs | | | 2,429 | | | | 2,239 | | | | 3,757 | | | | 1,215 | | | | 1,530 | | | | 4,250 | | | | | | | | | | | | | | | | | | | | | | | | | | | Interest cost | | | 7,864 | | | | 8,890 | | | | 2,298 | | | | 2,348 | | | | 1,993 | | | | 1,765 | | | | | | | | | | | | | | | | | | | | | | | | | | | Net periodic cost | | | 13,689 | | | | 16,468 | | | | 9,836 | | | | 7,924 | | | | 12,998 | | | | 15,206 | | | | | | | | | | | | | | | | | | | | | | | | | | | Loss from early extinguishment of obligations | | $ | - | | | | - | | | | - | | | | - | | | | 941 | | | | 2,514 | |
INDUSTRIAS BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Years ended December 31, 2006, 2007 and 2008
(Thousands of Mexican pesos note 2x, except per share amounts)
| | Pension plan | | | Seniority premium | | | Severance | | | | | | | | | | | | | | | | | | | | | | | 2006 | | | 2007 | | | 2006 | | | 2007 | | | 2006 | | | 2007 | | Labor obligations: | | | | | | | | | | | | | | | | | | | Accumulated benefit obligation | | $ | 160,280 | | | | 186,865 | | | | 33,063 | | | | 36,306 | | | | 31,936 | | | | 38,567 | | Current benefit obligation | | | 99,220 | | | | 124,592 | | | | 28,202 | | | | 30,821 | | | | 31,036 | | | | 38,567 | | Projected benefit obligation | | | 189,355 | | | | 199,333 | | | | 49,098 | | | | 56,601 | | | | 36,053 | | | | 42,895 | | Plan assets | | | (160,421 | ) | | | (182,017 | ) | | | - | | | | - | | | | - | | | | - | | Unrecognized prior service cost | | | (22,971 | ) | | | (20,959 | ) | | | (6,930 | ) | | | (6,283 | ) | | | - | | | | - | | Transition liability | | | - | | | | - | | | | - | | | | - | | | | (27,913 | ) | | | (23,198 | ) | Unrecognized net gains | | | 36,756 | | | | 48,415 | | | | (15,784 | ) | | | (21,490 | ) | | | 7,223 | | | | (455 | ) | Unrecognized changes or improvements | | | (28,545 | ) | | | (27,322 | ) | | | 104 | | | | - | | | | - | | | | - | | Net projected benefit obligation | | | 14,174 | | | | 17,450 | | | | 26,488 | | | | 28,828 | | | | 15,363 | | | | 19,242 | | Unfunded accumulated benefit obligation | | | 4,624 | | | | 15,960 | | | | 33,063 | | | | 36,307 | | | | 31,936 | | | | 38,567 | | Current net liability over net projected liability in some subsidiaries | | | - | | | | 4,049 | | | | 6,575 | | | | 7,479 | | | | 16,573 | | | | 19,325 | | | | | | | | | | | | | | | | | | | | | | | | | | | Additional liability | | | - | | | | (4,049 | ) | | | (6,575 | ) | | | (7,479 | ) | | | (16,573 | ) | | | (19,325 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Intangible assets | | | - | | | | 4,049 | | | | 5,659 | | | | 5,967 | | | | 16,573 | | | | 18,325 | | Minimum labor obligation liability adjustment | | $ | - | | | | - | | | | 916 | | | | 1,512 | | | | - | | | | 1,000 | |
| | Pension plan | | | Seniority Premium | | | Severance | | | | | | | | | | | | | | | | | | | | | | | 2006 | | | 2007 | | | 2006 | | | 2007 | | | 2006 | | | 2007 | | Change in benefit obligation: | | | | | | | | | | | | | | | | | | | Benefit obligation at beginning of year | | $ | 152,360 | | | | 189,355 | | | | 46,546 | | | | 49,097 | | | | 42,671 | | | | 36,053 | | Service cost | | | 11,791 | | | | 15,429 | | | | 3,781 | | | | 4,361 | | | | 9,475 | | | | 9,191 | | Interest cost | | | 7,864 | | | | 8,890 | | | | 2,298 | | | | 2,348 | | | | 1,992 | | | | 1,765 | | Actuarial differences | | | 8,518 | | | | (12,587 | ) | | | 2,339 | | | | 6,379 | | | | (6,077 | ) | | | 9,726 | | Benefits paid | | | (1,554 | ) | | | (1,754 | ) | | | (5,867 | ) | | | (5,584 | ) | | | (8,803 | ) | | | (13,840 | ) | Changes to plan not applied | | | - | | | | - | | | | - | | | | - | | | | (3,205 | ) | | | - | | Increase for plan improvement | | | 10,376 | | | | - | | | | - | | | | - | | | | - | | | | - | | Projected benefit obligation at end of year | | $ | 189,355 | | | | 199,333 | | | | 49,097 | | | | 56,601 | | | | 36,053 | | | | 42,895 | |
INDUSTRIAS BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Years ended December 31, 2006, 2007 and 2008
(Thousands of Mexican pesos note 2x, except per share amounts)
| | Pension plan | | | | 2006 | | | 2007 | | Changes in plan assets: | | | | | | | Plan assets at beginning of the year | | $ | 130,742 | | | | 160,421 | | Actual return on plan assets | | | 8,395 | | | | 10,090 | | Employer contribution | | | 14,039 | | | | 13,193 | | Actuarial differences | | | 8,799 | | | | 67 | | Benefit paid | | | (1,554 | ) | | | (1,754 | ) | | | | | | | | | | Fair value of plan assets at end of year | | | 160,421 | | | | 182,017 | | | | | | | | | | | Funded status | | | (28,934 | ) | | | (17,316 | ) | Unrecognized net actuarial loss (gain) | | | (36,758 | ) | | | (48,415 | ) | Unrecognized prior service cost (benefit) | | | 22,971 | | | | 20,959 | | | | | | | | | | | Net amount recognized | | $ | (42,721 | ) | | | (44,772 | ) |
The Company used December, 2006 and 2007 measurement date for pension plan, seniority premium, and December 31, 2006 and 2007 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 information about the expected cash flow for the pension benefit plan and seniority premium is as follows:
| | Pension plan | | | Seniority premium | | | Severance | | Expected benefit payment | | | | | | | | | | 2008 | | $ | 6,972 | | | | 6,395 | | | | 8,215 | | 2009 | | | 8,222 | | | | 6,857 | | | | 7,431 | | 2010 | | | 9,482 | | | | 7,145 | | | | 7,002 | | 2011 | | | 10,859 | | | | 7,282 | | | | 6,651 | | 2012 | | | 11,957 | | | | 7,369 | | | | 6,303 | | 2013-2017 | | | 76,959 | | | | 37,704 | | | | 27,856 | | Total | | | | | | | | | | | | | | | $ | 124,451 | | | | 72,752 | | | | 63,458 | |
The above table reflects the total benefits expected to be paid from the plan. | | Pension | | | Seniority | | | | | | | plan | | | premium | | | Severance | | | | | | | | | | | | Net periodic cost: | | | | | | | | | | Labor cost | | $ | 15,429 | | | | 4,361 | | | | 9,191 | | Return on plan assets | | | (10,090 | ) | | | - | | | | - | | Amortization of unrecognized prior past service cost | | | 2,239 | | | | 1,215 | | | | 4,250 | | Interest cost | | | 8,890 | | | | 2,348 | | | | 1,765 | | | | | | | | | | | | | | | Net periodic cost | | | 16,468 | | | | 7,924 | | | | 15,206 | | | | | | | | | | | | | | | Loss from early extinguishment of obligations | | $ | - | | | | - | | | | 2,514 | |
INDUSTRIAS BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Years ended December 31, 2006, 2007 and 2008
(Thousands of Mexican pesos note 2x, except per share amounts)
(15) | Stockholders’ Equity- |
| a) | In April 1997, Bachoco hadAs of December 31, 2007, 2008 and 2009, the Company’s capital stock is represented by 600,000,000 “B” shares with a stock splitpar value of $1 peso each. All shares issued 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” sharesoutstanding have limited voting rights. |
In September 2006, the Company split 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 issued and outstanding have voting rights.
| | In 2006, 2007, 2008 and 2008,2009, the Company declared and paid cash dividends at nominal values of $353,880, $353,880 and $353,880,$250,045, respectively ($378,075 and $363,708363,708 in constant pesos as at December 31, 2006 and 2007), or $0.59, $0.59 and $0.59,$0.42, respectively, per share in nominal pesos, respectively. pesos. |
| | The Mexican Corporation ActLaw 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, 2007, 2008 and 2008,2009, included in retained earnings, was $ 209,399. |
| | 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 $180,000 ($303,861 expressed in constant Mexican pesos at December 31, 2007) through the appropriation of retained earnings in 1998. During 2005, the Company repurchased 920 thousand shares for an amount of $11,462. During 2006, 2007 and 2008 no shares were repurchased.repurchased or sold. In 2005 and 2006,2009, the Company repurchased and sold 800 thousand and 920147 thousand of shares, respectively, previously repurchased;shares. The repurchase value was for $1,880 and the sales value was for $2,954 and $17,849, respectively. In 2007 and 2008, no shares were sold. $2,959, resulting in a gain of $1,079 recorded as additional paid in capital. |
INDUSTRIAS BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Years ended December 31, 2006, 2007 and 2008
(Thousands of Mexican pesos note 2x, except per share amounts)
| e) | The Company is required to pay taxes on dividends distributed to stockholders only to the extent that 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 2007, 2008 and 2008,2009, pretax income (loss) of BSACV, represented betweenapproximately 90%, 94% and 94%98%, respectively of Bachoco’s consolidated pretax income (loss). |
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.
| | From 1999 through 2001, under Mexican income tax law, corporate taxpayers were extended with the option of deferring payment of a portion of their annual corporate income tax, so that the tax payablerate 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.
| | Stockholders contribution restated as provided for by the tax law, aggregating $1,999,574,$2,070,958, may be refunded to stockholders tax-free, to the extent that such contribution equals or exceeds stockholders’ equity. |
(16) | Income Tax (IT), Asset Tax (AT), and Flat Rate Business Tax (IETU)- |
Under the current tax legislation, companies must pay the greater of their IT or IETU. If IETU is payable, the payment will be considered final i.e. not subject to recovery in subsequent years.
The Company and each of its subsidiaries file separate income tax returns. Bachoco, S.A. de C.V. BSACV, the Company’s principal operating subsidiary, is subject to 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 such regime is exclusive for companies that obtain no more than 10% of their total revenues from the production of processed products, with which ruleproducts; BSACV has complied.
complied with this criteria.
INDUSTRIAS BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES
NotesIn 2009, a tax reform was authorized by which, beginning in 2010, the tax rate is increased from 19% to 21% in the Consolidated Financial Statements
Years ended December 31, 2006, 2007simplified regime and 2008
(Thousandsfrom 28% to 30% in the general regime. The result of Mexican pesos note 2x, except per share amounts)this change is recognized in 2009, as a charge of $188,754, which is reflected in deferred taxes under the item “Adjustment to deferred tax assets and liabilities for enacted changes in tax laws and rates”.
The simplified regime establishes that the taxable base for income tax is determined on revenues collected net of deductions paid (cash basis). The tax rate for this regime was 16% in 2005 and 2006, and 19% from 2007.2007 to 2009 and 21% for 2010 and thereafter.
The income tax reforms passed in December 2004 include the elimination, as from January 2005, of the purchase deduction so as to permit only the deduction of cost of sales. This reform is not applicable for BSACV, since it is subject to taxes under the simplified regime.
The changes in tax rates enacted in 2006 from 16% to 19% in 2007 resulted in a charge of $336,376 in the consolidated statement of operations.
| b) | Flat Rate Business Tax (IETU)- |
On October 1, 2007, new laws were published and a number of tax laws were revised. This new lawLaw came into effect on January 1, 2008.
The IETU rate is 17.5% for 2010 and thereafter (16.5% for 2008 and 17% for 2009) based on cash flows and limits certain deductions.
IETU credits are derived mainly from the unamortized negative IETU base, and salaries creditstaxes for IT purposes and social security contributions, as well as credits derived from the deduction of certain investments, such as inventories and fixed assets.
The IETU is required to be paid only when it is greater than the IT. To determine the IETU payable, income tax paid in a given period shall first be subtracted from the current IT of the same period and the difference shall be the IETU payable.
If negative IETU base is determined because deductions exceed income, there will be no IETU payable. The amount of negative base multiplied by the IETU rate results in a IETU credit, which may be applied against income taxIT for the same year or, if applicable, against IETU payable in the next ten years.
In 2007, a new law was enacted that resulted in the derogation of the Asset TaxAT Law beginning on January 1, 2008. In 2007, the asset tax rate was payable at 1.25% and liabilities were no longer deductible from the asset tax base. Until December 31, 2006, the applicable rate was 1.8% and the asset tax was payable on the average value of most assets, net of certain liabilities. The asset tax in 2006 and 2007 amounted to $28,267 and $27,189, respectively. In each of the two years, the Companythis amount was credited these amounts against the income taxIT paid.
INDUSTRIAS BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Years ended December 31, 2006, 2007 and 2008
(Thousands of Mexican pesos note 2x, except per share amounts)
At December 31, 2008,2009, the Company had $4,494$4,654 in asset taxAsset Tax credits and such recoverable AT will expire, as follows:
| | Asset tax restated at | | | | Asset tax restated at | | | | | December 31, | | Year of | | December 31, | | Year of | Base year | | 2008 | | expiration | | 2009 | | expiration | | | | | | | | | | 2005 | | $ | 1,137 | | 2015 | | $ | 1,490 | | 2015 | 2006 | | | 3,357 | | 2016 | | | 3,164 | | 2016 | | | | | | | | | | | | | | $ | 4,494 | | | | $ | 4,654 | | |
| d) | Income tax charged to operations- |
For the years ended December 31, 2006, 2007, 2008 and 2008,2009, income tax charged (credited) to results of operations was as follows:
| | 2007 | | | 2008 | | | 2009 | | | | | | | | | | | | Current income tax | | $ | 143,029 | | | | 78,559 | | | | 103,482 | | Flat rate business tax | | | - | | | | 108 | | | | 371 | | Deferred income tax | | | 169,716 | | | | (352,686 | ) | | | 302,505 | | | | | | | | | | | | | | | Total income tax expense (benefit) | | $ | 312,745 | | | | (274,019 | ) | | | 406,358 | |
Income tax and employee statutory profit sharing expense (benefit) attributable to income (loss) before income taxes differed from the amounts computed by applying the Mexican statutory rates of 19% IT and 10% employee statutory profit sharing to income (loss), as a result of the items shown below:
| | 2006 | | | 2007 | | | 2008 | | | | | | | | | | | | Current income tax | | $ | 250,519 | | | | 143,029 | | | | 78,559 | | Flat Rate Business Tax | | | - | | | | - | | | | 108 | | Deferred income tax | | | 348,607 | | | | 169,716 | | | | (352,686 | ) | | | | | | | | | | | | | | Total income tax expense (benefit) | | $ | 599,126 | | | | 312,745 | | | | (274,019 | ) |
| | 2008 | | | 2009 | | | | IT | | | ESPS | | | IT | | | ESPS | | | | | | | | | | | | | | | Computed “expected” tax expense (benefit) | | $ | (220,411 | ) | | | (116,006 | ) | | | 230,927 | | | | 121,540 | | Add ESPS expense | | | - | | | | 3,298 | | | | - | | | | 3,300 | | Increase (decrease) in income taxes resulting from: | | | | | | | | | | | | | | | | | Effects of inflation, net | | | (69,435 | ) | | | - | | | | (50,596 | ) | | | - | | Non-deductible expenses | | | 3,646 | | | | 251 | | | | 4,538 | | | | 183 | | Adjustment to deferred tax assets and liabilities for enacted changes in tax laws and rates | | | - | | | | - | | | | 188,754 | | | | - | | Subsidiaries not subject to labor obligations | | | - | | | | 147,174 | | | | - | | | | (92,661 | ) | Effect of companies outside simplified regime | | | (31,413 | ) | | | - | | | | 38,163 | | | | - | | Change in the valuation allowance for deferred tax assets | | | 23,402 | | | | - | | | | 8,130 | | | | - | | Other, net | | | 20,192 | | | | (1,736 | ) | | | (13,558 | ) | | | 639 | | | | | | | | | | | | | | | | | | | IT and ESPS expense (benefit) | | $ | (274,019 | ) | | | 32,981 | | | | 406,358 | | | | 33,001 | |
Based on the financial projections of taxable income, in each of the next four years the Company estimated that it will pay income tax (IT); therefore, deferred tax effects as of December 31, 20072008 and 20082009 have been recorded reflecting the IT basis.
INDUSTRIAS BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Years ended December 31, 2006, 2007 and 2008
(Thousands of Mexican pesos note 2x, except per share amounts)
The componentcomponents of the Company’s deferred income tax assets and liabilities are as follows:
| | 2007 | | | 2008 | | Deferred tax assets: | | | | | | | Account payable | | $ | 196,460 | | | | 393,725 | | Labor obligations | | | 6,697 | | | | 15,851 | | ESPS payable | | | 1,385 | | | | 9,168 | | Effects on derivative financial instruments | | | - | | | | 150,644 | | Recoverable AT | | | 4,613 | | | | 4,494 | | Tax loss carry forwards | | | - | | | | 165,121 | | | | | | | | | | | Total gross deferred tax assets | | | 209,155 | | | | 739,003 | | Less valuation allowance | | | 4,613 | | | | 28,015 | | Net deferred tax assets | | | 204,542 | | | | 710,988 | | | | | | | | | | | Deferred tax liabilities: | | | | | | | | | Inventories | | | 420,993 | | | | 711,742 | | Accounts receivables | | | 396,437 | | | | 308,543 | | Fixed assets | | | 1,450,073 | | | | 1,394,687 | | Effects on financial instruments | | | 23,204 | | | | - | | Other deductions | | | - | | | | 15,092 | | Other accruals | | | 280 | | | | - | | Additional liability from stockholders’ equity | | | 288,580 | | | | - | | | | | | | | | | | Total gross deferred tax liabilities | | | 2,579,567 | | | | 2,430,064 | | | | | | | | | | | Net deferred tax liability | | $ | 2,375,025 | | | | 1,719,076 | |
At December 31, 2007, the deferred income tax liability determined by treating stockholders’ equity as a single temporary item is greater than the amount determined by using the asset and liability method, and thus, the Company recognized an additional liability of $288,580 in 2007 to account for this difference. | | 2008 | | | 2009 | | Deferred tax assets: | | | | | | | Accounts payable | | $ | 398,744 | | | | 438,174 | | Labor obligations | | | 17,598 | | | | 24,350 | | ESPS payable | | | 9,202 | | | | 11,349 | | Effects on derivative financial instruments | | | 150,644 | | | | - | | Recoverable AT | | | 4,494 | | | | 4,654 | | Tax loss carryforwards | | | 165,121 | | | | 89,698 | | Total gross deferred tax assets | | | 745,803 | | | | 568,225 | | | | | | | | | | | Less valuation allowance | | | 28,015 | | | | 36,145 | | Net deferred tax assets | | | 717,788 | | | | 532,080 | | | | | | | | | | | Deferred tax liabilities: | | | | | | | | | Inventories | | | 836,458 | | | | 838,854 | | Accounts receivable | | | 186,104 | | | | 170,667 | | Property, Plant and equipment, net | | | 1,397,637 | | | | 1,525,593 | | Other deductions | | | 16,665 | | | | 16,261 | | Effects on derivative financial instruments | | | - | | | | 2,286 | | | | | | | | | | | Total gross deferred tax liabilities | | | 2,436,864 | | | | 2,553,661 | | | | | | | | | | | Net deferred tax liability | | $ | 1,719,076 | | | | 2,021,581 | |
Effective January 1, 2008, the Company adopted Mexican FRS D-4 which“Tax on earnings” supersedes Bulletin D-4 and Circular 54. Mexican FRS D-4 and establishes the asset and liability method as the only acceptable method to determine deferred taxes. Therefore, the Company wrote-off $288,580 thatagainst retained earnings, which relates to the additional deferred tax liability previously determined as at December 31, 2007 under the stockholdersstockholders’ equity method in 2007.method.
The valuation allowance for deferred tax assets as of January 1, 2008 and 2009 amounted to $4,613 and $28,015, respectively. The net change in the total valuation allowance for the years ended December 31, 2008 and 2009, was an increase of $23,402 and $8,130 respectively. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. INDUSTRIAS BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Years ended December 31, 2006, 2007 and 2008
(Thousands of Mexican pesos note 2x, except per share amounts)assessment.
The significant items that gave rise to the difference between the effective income tax rate (current and deferred taxes) and the current yearstatutory income tax determined at the statutory rate, are as follows: | | 2006 | | | 2007 | | | 2008 | | | 2007 | | | 2008 | | | 2009 | | | | % | | | % | | | % | | | % | | | % | | | % | | Statutory income tax rate | | | 16.00 | | | | 19.00 | | | | (19.00 | ) | | | 19.00 | | | | (19.00 | ) | | | 19.00 | | Effect of companies outside simplified regime | | | 4.42 | | | | 4.13 | | | 2.33 | | | | 4.13 | | | 2.33 | | | | 3.14 | | Effect of non-taxable items | | | (3.04 | ) | | | (3.40 | ) | | | (6.95 | ) | | Effect due to change in tax rate from 16% to 19% in 2007 | | | 22.40 | | | | - | | | | - | | | Effect of non-taxable items and other | | | | (3.40 | ) | | | (6.95 | ) | | | (4.24 | ) | Effect due to change in IT rate from 19% to 21% starting in 2010 | | | | - | | | | - | | | | 15.53 | | | | | | | | | | | | | | | | | | | | | | | | | | | Effective income tax rate | | | 39.78 | | | | 19.73 | | | | (23.62 | ) | | | 19.73 | | | | (23.62 | ) | | | 33.43 | |
| f) | Tax loss carryforwards- |
As of December 31, 2008,2009, the Company has tax loss carryforwards restated in accordance with the current Mexican Tax Law, which can be used to offset future taxable income in the next ten years, as follows:
Tax loss carryforwards as adjusted by inflation trough December 31, 2008 | | | Tax loss carryforwards as adjusted by inflation through December 31, 2009 | | Tax loss carryforwards as adjusted by inflation through December 31, 2009 | | | | Year of | | Restated | | | Year of | | Restated | | Base year | | expiration | | amount | | | expiration | | Amount | | | | | | | | | | | | | 2001 | | 2011 | | $ | 181 | | | 2005 | | 2015 | | | 241 | | | 2007 | | 2017 | | | 6,227 | | | 2017 | | $ | 5,951 | | 2008 | | 2018 | | | 835,987 | | | 2018 | | | 376,543 | | 2009 | | | 2019 | | | 17,538 | | | | | | | | | | | | | | | | | | | $ | 842,636 | | | | | $ | 400,032 | |
As of December 31, 20072008 and 2008,2009, the tax value of the Company’s equity, which will not be subject to taxation, comprised the following:
INDUSTRIAS BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Years ended December 31, 2006, 2007 and 2008
(Thousands of Mexican pesos note 2x, except per share amounts)
| | 2007 | | | 2008 | | | 2008 | | | 2009 | | | | | | | | | | | | | | | Restated contribution capital (CUCA) | | $ | 1,877,344 | | | | 1,999,574 | | | $ | 1,999,574 | | | | 2,070,958 | | Net tax profit account (CUFIN) and net reinvested tax profit account (CUFINRE) | | | 2,574,183 | | | | 2,535,424 | | | | 2,535,424 | | | | 2,622,015 | | | | | | | | | | | | | | | | | | | Total | | $ | 4,451,527 | | | | 4,534,998 | | | $ | 4,534,998 | | | | 4,692,973 | |
(17) | Other income (expense), net- |
As of December 31, 2006, 2007, 2008 and 2008,2009, other income and expense net, were as follows:
| | 2006 | | | 2007 | | | 2008 | | Other income: | | | | | | | | | | Sales of waste animals, raw material, by- products and other | | $ | 206,528 | | | | 276,094 | | | | 187,911 | | Tax incentives | | | 32,379 | | | | 73,054 | | | | 44,899 | | Other | | | - | | | | - | | | | 8,106 | | | | | | | | | | | | | | | Total other income | | | 238,907 | | | | 349,148 | | | | 240,916 | | | | | | | | | | | | | | | Other expense: | | | | | | | | | | | | | Cost of waste animals, raw material, by- products and other | | | (182,324 | ) | | | (261,703 | ) | | | (200,960 | ) | Employee statutory profit sharing | | | (4,362 | ) | | | (4,828 | ) | | | (32,981 | ) | Other | | | (33,794 | ) | | | (13,046 | ) | | | (27,933 | ) | | | | | | | | | | | | | | Total other expense | | | (220,480 | ) | | | (279,577 | ) | | | (261,874 | ) | | | | | | | | | | | | | | Total other income (expense), net | | $ | 18,427 | | | | 69,571 | | | | (20,958 | ) |
| | 2007 | | | 2008 | | | 2009 | | Other income: | | | | | | | | | | Sales of waste animals, raw material, by-products and others | | $ | 276,094 | | | | 187,911 | | | | 139,555 | | Tax incentives | | | 73,054 | | | | 44,899 | | | | 5,496 | | Others | | | - | | | | 8,106 | | | | - | | | | | | | | | | | | | | | Total other income | | | 349,148 | | | | 240,916 | | | | 145,051 | | | | | | | | | | | | | | | Other expense: | | | | | | | | | | | | | Cost of waste animals, raw material, by- products and other | | | (261,703 | ) | | | (200,960 | ) | | | (162,957 | ) | Employee statutory profit sharing | | | (4,828 | ) | | | (32,981 | ) | | | (33,001 | ) | Others | | | (13,046 | ) | | | (27,933 | ) | | | (14,282 | ) | | | | | | | | | | | | | | Total other expense | | | (279,577 | ) | | | (261,874 | ) | | | (210,240 | ) | | | | | | | | | | | | | | Total other income (expense), net | | $ | 69,571 | | | | (20,958 | ) | | | (65,189 | ) |
Employee statutory profit sharing
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, statutory profit sharing in an aggregate amount equal to 10% of such subsidiary’s taxable income subject to certain adjustments.
INDUSTRIAS BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Years ended December 31, 2006, 2007 and 2008
(Thousands of Mexican pesos note 2x, except per share amounts)
Employee statutory profit sharing is recorded as part of the other expense caption.
(18) | Segment financial information- |
The segments to be reported are organized by product line. Inter-segment transactions have been eliminated. Our Poultry segment is comprised of our chicken and egg products due to their similarity in risks and to the fact that egg sales represent approximately 10% of total revenue for the years ended on December 31, 2006, 2007 and 2008.benefits. The information included under “Others” corresponds to pigs, balanced animal feed and other non-significant sub-products. The required disclosures are shown below:segment information is as follows:
| | As of and for the year ended at December 31, 2006 | | | | | Poultry | | | Others | | | Total | | | As of and for the year ended at December 31, 2007 | | | | | | | | | | | | | Poultry | | | Others | | | Total | | Net revenues | | $ | 13,486,020 | | | | 2,064,945 | | | | 15,550,965 | | | $ | 15,885,828 | | | | 2,333,819 | | | | 18,219,647 | | Cost of sales | | | (10,220,870 | ) | | | (1,832,116 | ) | | | (12,052,986 | ) | | | (12,353,458 | ) | | | (2,124,403 | ) | | | (14,477,861 | ) | Gross profit | | | 3,265,150 | | | | 232,829 | | | | 3,497,979 | | | | 3,532,370 | | | | 209,416 | | | | 3,741,786 | | Interest income | | | 288,932 | | | | 13,978 | | | | 302,910 | | | | 348,167 | | | | 14,849 | | | | 363,016 | | Valuation effects of financial instruments | | | | (44,137 | ) | | | - | | | | (44,137 | ) | Interest and financial expenses | | | (129,506 | ) | | | (2,346 | ) | | | (131,852 | ) | | | (133,913 | ) | | | (7,665 | ) | | | (141,578 | ) | Monetary position loss | | | (150,438 | ) | | | - | | | | (150,438 | ) | | | (151,035 | ) | | | (3,779 | ) | | | (154,814 | ) | Income taxes | | | (567,933 | ) | | | (31,193 | ) | | | (599,126 | ) | | | (280,792 | ) | | | (31,953 | ) | | | (312,745 | ) | Net majority interest income | | | 826,642 | | | | 79,544 | | | | 906,186 | | | Net controlling interest income | | | | 1,203,149 | | | | 67,792 | | | | 1,270,941 | | Property, plant and equipment, net | | | 9,576,266 | | | | 259,629 | | | | 9,835,895 | | | | 9,986,129 | | | | 270,110 | | | | 10,256,239 | | Goodwill, net | | | | 212,833 | | | | 88,015 | | | | 300,848 | | Total assets | | | 16,833,872 | | | | 725,367 | | | | 17,559,239 | | | | 18,264,882 | | | | 851,542 | | | | 19,116,424 | | Total liabilities | | | (3,321,636 | ) | | | (134,649 | ) | | | (3,456,285 | ) | | | 3,798,656 | | | | 190,602 | | | | 3,989,258 | | Capital expenditures | | | 856,227 | | | | - | | | | 856,227 | | | | 987,322 | | | | 4,415 | | | | 991,737 | | Expenses not requiring cash disbursement: | | | | | | | | | | | | | | | | | | | | | | | | | Depreciation | | | 523,720 | | | | 13,663 | | | | 537,383 | | | Depreciation and amortization | | | | 556,188 | | | | 15,205 | | | | 571,393 | |
| | As of and for the year ended at December 31, 2008 | | | | Poultry | | | Others | | | Total | | Net revenues | | $ | 17,594,994 | | | | 2,530,327 | | | | 20,125,321 | | Cost of sales | | | (15,171,145 | ) | | | (2,311,323 | ) | | | (17,482,468 | ) | Gross profit | | | 2,423,849 | | | | 219,004 | | | | 2,642,853 | | Interest income | | | 168,283 | | | | 5,411 | | | | 173,694 | | Valuation effects of financial instruments | | | (1,666,821 | ) | | | - | | | | (1,666,821 | ) | Interest and financial expenses | | | (16,691 | ) | | | (19,511 | ) | | | (36,202 | ) | Income taxes | | | 292,563 | | | | (18,544 | ) | | | 274,019 | | Net controlling interest (loss) income | | | (939,068 | ) | | | 60,020 | | | | (879,048 | ) | Property, plant and equipment, net | | | 10,422,423 | | | | 266,812 | | | | 10,689,235 | | Goodwill, net | | | 212,833 | | | | 88,015 | | | | 300,848 | | Total assets | | | 18,386,409 | | | | 1,068,562 | | | | 19,454,971 | | Total liabilities | | | 5,039,205 | | | | 336,347 | | | | 5,375,552 | | Capital expenditures | | | 1,140,843 | | | | 15,325 | | | | 1,156,168 | | Expenses not requiring cash disbursement: | | | | | | | | | | | | | Depreciation and amortization | | | 594,704 | | | | 21,654 | | | | 616,358 | |
| | As of and for the year ended at December 31, 2009 | | | | Poultry | | | Others | | | Total | | Net revenues | | $ | 20,567,944 | | | | 2,694,906 | | | | 23,262,850 | | Cost of sales | | | (16,900,540 | ) | | | (2,426,219 | ) | | | (19,326,759 | ) | Gross profit | | | 3,667,404 | | | | 268,687 | | | | 3,936,091 | | Interest income | | | 149,160 | | | | 21,495 | | | | 170,655 | | Valuation effects of financial instruments | | | (174,603 | ) | | | - | | | | (174,603 | ) | Interest and financial expenses | | | (77,052 | ) | | | (14,274 | ) | | | (91,326 | ) | Income taxes | | | (370,734 | ) | | | (35,624 | ) | | | (406,358 | ) | Net controlling interest income | | | 702,344 | | | | 95,256 | | | | 797,600 | | Property, plant and equipment, net | | | 10,497,525 | | | | 412,601 | | | | 10,910,126 | | Goodwill | | | 212,833 | | | | 88,015 | | | | 300,848 | | Total assets | | | 18,706,330 | | | | 1,171,549 | | | | 19,877,879 | | Total liabilities | | | 4,817,238 | | | | 422,178 | | | | 5,239,416 | | Capital expenditures | | | 857,772 | | | | 130,478 | | | | 988,250 | | Expenses not requiring cash disbursement: | | | | | | | | | | | | | Depreciation and amortization | | | 621,324 | | | | 41,306 | | | | 662,630 | |
INDUSTRIAS BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Years ended December 31, 2006, 2007 and 2008
(Thousands of Mexican pesos note 2x, except per share amounts)
| | As of and for the year ended at December 31, 2007 | | | | Poultry | | | Others | | | Total | | Net Revenues | | $ | 15,885,828 | | | | 2,333,819 | | | | 18,219,647 | | Cost of sales | | | (12,353,458 | ) | | | (2,124,403 | ) | | | (14,477,861 | ) | Gross profit | | | 3,532,370 | | | | 209,416 | | | | 3,741,786 | | Interest income | | | 348,167 | | | | 14,849 | | | | 363,016 | | Valuation effects of financial instruments | | | (44,137 | ) | | | - | | | | (44,137 | ) | Interest and financial expenses | | | (133,913 | ) | | | (7,665 | ) | | | (141,578 | ) | Loss on net monetary position | | | (151,035 | ) | | | (3,779 | ) | | | (154,814 | ) | Income taxes | | | (280,792 | ) | | | (31,953 | ) | | | (312,745 | ) | Majority net income | | | 1,203,149 | | | | 67,792 | | | | 1,270,941 | | Property, plant and equipment, net | | | 9,986,129 | | | | 270,110 | | | | 10,256,239 | | Total assets | | | 18,264,882 | | | | 851,542 | | | | 19,116,424 | | Total liabilities | | | 3,798,656 | | | | 190,602 | | | | 3,989,258 | | Capital expenditures | | | 987,322 | | | | 4,415 | | | | 991,737 | | Expenses not requiring cash disbursement: | | | | | | | | | | | | | Depreciation | | | 556,188 | | | | 15,205 | | | | 571,393 | |
| | As of and for the year ended at December 31, 2008 | | | | Poultry | | | Others | | | Total | | Net Revenues | | $ | 17,594,994 | | | | 2,530,327 | | | | 20,125,321 | | Cost of sales | | | (15,171,145 | ) | | | (2,311,323 | ) | | | (17,482,468 | ) | Gross profit | | | 2,423,849 | | | | 219,004 | | | | 2,642,853 | | Interest income | | | 168,283 | | | | 5,411 | | | | 173,694 | | Valuation effects of financial instruments | | | (1,666,821 | ) | | | - | | | | (1,666,821 | ) | Interest and financial expenses | | | (16,691 | ) | | | (19,511 | ) | | | (36,202 | ) | Income taxes | | | 292,563 | | | | (18,544 | ) | | | 274,019 | | Majority net (loss) income | | | (939,068 | ) | | | 60,020 | | | | (879,048 | ) | Property, plant and equipment, net | | | 10,422,423 | | | | 266,812 | | | | 10,689,235 | | Total assets | | | 18,386,409 | | | | 1,068,562 | | | | 19,454,971 | | Total liabilities | | | 5,039,205 | | | | 336,347 | | | | 5,375,552 | | Capital expenditures | | | 1,140,843 | | | | 15,325 | | | | 1,156,168 | | Expenses not requiring cash disbursement:: | | | | | | | | | | | | | Depreciation | | | 594,704 | | | | 21,654 | | | | 616,358 | |
INDUSTRIAS BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Years ended December 31, 2006, 2007 and 2008
(Thousands of Mexican pesos note 2x, except per share amounts)
Revenues from our poultry segment are analyzed as follows:
| | Year ended at December 31, 2006 | | | | hens | | | Eggs | | | Total | | | | | | | | | | | | Net revenues | | $ | 12,053,293 | | | | 1,432,727 | | | | 13,486,020 | | | | | | | | | | | | | | | | | Year ended at December 31, 2007 | | | | hens | | | Eggs | | | Total | | | | | | | | | | | | | | | Net revenues | | $ | 14,135,242 | | | | 1,750,586 | | | | 15,885,828 | | | | | | | | | | | | | | | | | Year ended at December 31, 2008 | | | | hens | | | Eggs | | | Total | | | | | | | | | | | | | | | Net revenues | | $ | 15.486,614 | | | | 2,108,380 | | | | 17,594,994 | |
F-61 | | As of and for year ended at December 31, 2007 | | | | Chicken | | | Eggs | | | Total | | | | | | | | | | | | Net revenues | | $ | 14,135,242 | | | | 1,750,586 | | | | 15,885,828 | | | | | | | | | | | | | | | | | As of and for year ended at December 31, 2008 | | | | Chicken | | | Eggs | | | Total | | | | | | | | | | | | | | | Net revenues | | $ | 15,486,614 | | | | 2,108,380 | | | | 17,594,994 | | | | | | | | | | | | | | | | | As of and for year ended at December 31, 2009 | | | | Chicken | | | Eggs | | | Total | | | | | | | | | | | | | | | Net revenues | | $ | 18,211,109 | | | | 2,356,835 | | | | 20,567,944 | |
INDUSTRIAS BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Years ended December 31, 2006, 2007 and 2008
(Thousands of Mexican pesos note 2x, except per share amounts)
The Official Federal Gazette granted a tax credit to the Company corresponding to Technological Research and Development on February 27, 2009 for fiscal year 2008 in the amount of $58,122.
(20) | Recently issued accounting standards- |
The CINIF has issued the following Mexican FRS, effectiveapplicable for years beginning on or after December 31, 2008. Early application is not permittedJanuary 1, 2010 or .2011, as indicated.
| (a) | Mexican FRS B-7 “Business acquisitions”B-5 –“Segment information”- Mexican FRS B-7 supersedesB-5 is effective as of January 1, 2011. Changes as compared to superseded Bulletin B-7 and establishes, among other things,B-5 “Segment Information” include the general rules for the initial valuation and recognition at the acquisition date of net assets, stressing that all business acquisitions should be accounted under the purchase method.following: |
Management considers that the initial effects of this new FRS will not be material. | · | The information to be disclosed by operating segment is that regularly used by senior management and it does not require the segmentation into primary and secondary information, nor is it to be referred to segments identified based on products or services (economic segments), geographical areas and homogeneous groups. Additionally, disclosure of information on the whole entity’s products or services geographical areas and principal clients and suppliers is required. |
| · | Mexican FRS B-5 does not require that the entity's business areas be subject to different risks to qualify as operating segments. |
| (b)· | FRS B-8 “Consolidated and combined financial statements”-Mexican FRS B-8 supersedes Bulletin B-8 "Consolidated and combined financial statements and valuation of permanent investmentsB-5 allows business areas in shares" and establishes the general rules for the preparation and presentation of consolidated and combined financial statements and related disclosures. Amendments include: pre-operating stage to be catalogued as operating segments. |
| (i)· | The obligation to consolidate special purpose entities (SPEs) when controlled.Mexican FRS B-5 requires disclosure by segment and separately, revenue and interest expense as well as all other components of comprehensive financial results (CFR). In specific cases, the FRS B-5 permits disclosure of net interest income. |
| (ii)· | The possibility, under certain rules,Mexican FRS B-5 requires disclosure of presenting unconsolidating financial statements when the parent is,liability amounts included in turn, a subsidiary with no minority interest or when the minority stockholders do not object tousual operating segment information normally used by senior management in making the fact that consolidated financial statements are not issued.entity's operating decisions. |
Management is in process to evaluate the effects of this new Mexican FRS.
| (iii) | Consideration is given to the existence of potential voting rights that might be exercised or converted in favor of the entity as parent and that may change its involvement in decision making at the time of assessing the existence of control. |
| (iv) | Additionally, regulations relating to the valuation of permanent investments have been transferred to a different bulletin. |
Management estimates that the initial effects of this new FRS will be immaterial.
| (c)(b) | FRS C-7 “Investments in associates and other permanent investments”-Mexican FRS C-7 sets forth the rules to account for investments in associatesC-1 “Cash and cash equivalents”- Mexican FRS C-1 supersedes Bulletin C-1 “Cash” and is effective as well as other permanent investments where there is no control, joint control or significant influence.of January 1, 2010. The principal changes with respect to the former standard include the following:
|
INDUSTRIAS BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Years ended December 31, 2006, 2007 and 2008
(Thousands of Mexican pesos note 2x, except per share amounts)
| (i)· | Equity methodMexican FRS C-1 requires the presentation of accounting is required for SPEs where significant influence is exercised.cash and cash equivalents, restricted, within the balance sheet caption of "Cash and cash equivalents". |
| (ii)· | ConsiderationThe term “demand temporary investments” is given to the existence of potential voting rights that might be exercised or converted in favor of the entity as parent and that may change its involvement in decision making at the time of assessing the existence of significant influence.replaced by “available demand investments”. |
| (iii)· | A specific procedureTo be identified as cash equivalents, the investments should be highly liquid, for example those with original maturities of three months or less when purchased. |
| · | Mexican FRS C-1 includes the definition of the terms: acquisition cost, restricted cash and a limit for recognizing the associated entity's losses are provided.cash equivalents, highly liquid investments, net realizable value, nominal value and fair value. |
Management estimates that the initial effects of this new Mexican FRS will not be material.
| (d) | FRS C-8 “Intangible assets”- Mexican FRS C-8 supersedes Bulletin C-8 and establishes general rules for the initial and subsequent recognition of intangible assets acquired individually, either through the acquisition of a business or arising internally during the normal course of the entity's operations. Main changes include:
|
| (i) | The definition of intangible assets is narrowed to establish that separability is not the only condition for the intangible asset to be identifiable; |
| (ii) | Subsequent outlays for research and development projects in progress should be expensed as earned if they are part of the research phase or as an intangible asset if they meet the criteria to be recognized as such; | have an effect in the presentation of the primary investment securities with original maturities of more than three months when purchased.(20) | Reporting Requirement for Public Companies - - |
On January 2009, the Mexican Banking and Securities Commission (Comisión Nacional Bancaria y de Valores,“CNBV”) published certain amendments to the Rules for Public Companies and other Participants in the Mexican Securities Market (Disposiciones de Carácter General Aplicables a las Emisoras de Valores y a otros Participantes del Mercado de Valores”) that require public companies to report financial information in accordance with the International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”), effective as of 2012. Early adoption is permitted. The Company will adopt IFRS in 2012. (21) | Differences between Mexican Financial Reporting Standards and United States Generally Accepted Accounting Principles |
The Company’s consolidated financial statements are prepared in accordance with Mexican Financial Reporting Standards (“MexFRS”), which differ in certain respects from accounting principles generally accepted in the United States (“U.S. GAAP”).
The principal differences between MexFRS and U.S. GAAP, as they relate to us, are described below with an explanation, where appropriate, of the method used to determine the adjustments that affect income and stockholders’ equity, or additional disclosures as applicable. Effects of inflation
MexFRS B-10 “Effects of inflation" (applicable for years beginning on or after January 1, 2008), supersedes Bulletin B-10 of MexFRS "Recognition of the effects of inflation on the financial information", and its fifth amendment documents as well as the related circulars and Mexican Interpretation of Financial Reporting Standards 2. The main consideration established by this MexFRS is the recognition of the effects of inflation when an entity operates in an inflationary economic environment (defined as when cumulative inflation over the immediately preceding 3-year period is equal to or greater than 26%) applicable as from January 1, 2008. Therefore, the last restatement factor applied to financial statements for the year ended December 2006 was 1.0376, which corresponds to the annual rate of inflation from December 31, 2007 to December 31, 2007, based on the Mexican National Consumer Price Index (NCPI) published by Banco de Mexico.
The reconciliation to U.S. GAAP does not include the reversal of the adjustments to the financial statements for the effects related to the inflation required under MexFRS because the application of MexFRS B-10 represents a comprehensive measure of the effects of price level changes in the Mexican economy and, as such, it is considered a more meaningful presentation than historical cost base over financial reporting for both Mexican and U.S. accounting purposes as permitted by the “Securities and Exchange Commission” (SEC). Cash flow information
MexFRS B-2 “Statement of cash flows”- Beginning January 1, 2008, MexFRS B-2 supersedes Bulletin B-12 "Statement of changes in financial position" and paragraph 33 of Bulletin B-16. The principal considerations established by this MexFRS follow: (i)Instead of presenting the statement of changes in financial position, the financial statements shall include the statements of cash flows for all periods presented comparatively with those of the current year, except for financial statements of periods prior to January 1, 2008; (ii) Cash inflows and cash outflows are reported in nominal currency units, thus not including the effects of inflation; (iii) Two alternative preparation methods (direct and indirect) are established, without stating preference for either method. Furthermore, cash flows from operating activities are to be reported first, followed by cash flows from investing activities and lastly by cash flows from financing activities; (iv) Captions of principal items are to be reported gross, with certain exceptions and require disclosure of the composition of items considered cash equivalents.
For U.S. GAAP purposes, FASB ASC Topic 230 “Statement of Cash Flows” (SFAS 95, Statement of Cash Flows), does not provide guidance with respect to inflation adjusted financial statements. As at December 31, 2007, in accordance with MexFRS, changes in current and long-term debt due to re-expression in constant pesos, including the effect of exchange differences, was presented in the statement of changes in financial position within the financing activities section. Also, under U.S. GAAP, non-cash investing activities are not reported in the Statement of Cash Flows, including the capitalization of debt; whereas under MexFRS, up to December 31, 2007, non-cash transactions affecting the financial structure of an entity, such as converting debt into equity, must have been presented separately in the statement of changes in financial position. This difference between US GAAP and MexFRS does not have any effect in the Company’s financial statements due to the absence of non-cash transactions settled in any of the years presented in such financial statements.
As of the date of this report, certain reclassifications were made to the U.S. GAAP cash flow statement to the 2007 figures to conform to the 2008 presentations. At December 31, 2007, 2008 and 2009, investments in primary financial securities disclosed in note 10b with a maturity of more than three months that amount to $406,005, $468,003 and $151,841 respectively, and restricted cash amounting to $0, $223,921 and $8,270, respectively, are being reclassified for U.S. GAAP purposes from the line-item “cash and investments” to “investment securities” and “restricted cash”, respectively, within investing activities, since such investments and restricted cash do not meet the definition of cash equivalents according to FASB ASC Topic 230 Statement of cash flows (SFAS 95 Statement of cash flows).
Consolidated statements of cash flows derived from information prepared in accordance with U.S. GAAP would be as presented in the following page:
Cash Flow Information | | Years ended December 31, | | | | 2007 | | | 2008 | | | 2009 | | OPERATING ACTIVITIES: | | | | | | | | | | Net income (loss) under U.S. GAAP | | $ | 1,263,168 | | | $ | (876,358 | ) | | $ | 798,440 | | Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | | | | | | | | | | | | | Depreciation | | | 575,306 | | | | 620,041 | | | | 667,354 | | Deferred income tax | | | 168,405 | | | | (341,925 | ) | | | 291,459 | | Impairment on investment securities | | | - | | | | 13,116 | | | | - | | Unrealized loss (gain) on derivative financial Instruments | | | - | | | | 887,174 | | | | (785,398 | ) | Loss on net monetary position | | | 154,765 | | | | - | | | | - | | Loss on sale of plant and equipment | | | - | | | | 49,485 | | | | 88,186 | | Labor obligations, net period cost | | | 44,619 | | | | 48,345 | | | | 46,682 | | | | | 2,206,263 | | | | 399,878 | | | | 1,106,723 | | Changes in assets and liabilities: | | | | | | | | | | | | | Accounts receivable | | $ | (375,590 | ) | | $ | (165,763 | ) | | $ | (44,359 | ) | Inventories and biological assets | | | (1,419,495 | ) | | | ( 768,084 | ) | | | 274,541 | | Prepaid expenses and other accounts receivable | | | (74,556 | ) | | | (24,703 | ) | | | (934 | ) | Accounts payable | | | 338,084 | | | | 513,919 | | | | 2,058 | | Related parties payable | | | 14,944 | | | | 23,517 | | | | 17,277 | | Other taxes payable and other accruals | | | (35,827 | ) | | | 93,694 | | | | 109,168 | | Labor obligations, net | | | (37,610 | ) | | | (41,805 | ) | | | (40,452 | ) | Derivative financial instruments | | | (36,131 | ) | | | (122,126 | ) | | | - | | Cash flows provided by (used in) operating activities to next page | | $ | 580,082 | | | $ | (90,973 | ) | | $ | 1,424,022 | |
| | Years ended December 31, | | | | 2007 | | | 2008 | | | 2009 | | Cash flows provided by (used in) operating activities from previous page | | $ | 580,082 | | | $ | (90,973 | ) | | $ | 1,424,022 | | INVESTING ACTIVITIES: | | | | | | | | | | | | | Acquisition of property, plant and Equipment | | $ | (998,622 | ) | | $ | (1,156,168 | ) | | $ | (988,250 | ) | Proceeds from sale of property, plant and Equipment | | | - | | | | 57,329 | | | | 16,541 | | Restricted cash | | | - | | | | (223,921 | ) | | | 215,651 | | Investment securities | | | (12,001 | ) | | | (61,998 | ) | | | 316,162 | | Other assets | | | (2,216 | ) | | | (1,112 | ) | | | (650 | ) | Cash flows used in investing activities | | $ | (1,012,839 | ) | | $ | (1,385,870 | ) | | $ | (440,546 | ) | | | | | | | | | | | | | | FINANCING ACTIVITIES: | | | | | | | | | | | | | Proceeds from issuance of notes payable to Banks | | $ | 80,000 | | | $ | 535,100 | | | $ | 1,044,611 | | Repayment of long-term debt and notes payable | | | (12,529 | ) | | | (18,809 | ) | | | (706,668 | ) | Cash dividends paid | | | (363,708 | ) | | | (353,880 | ) | | | (250,045 | ) | Dividends paid to non-controlling interest | | | - | | | | - | | | | (1,035 | ) | Additional paid-in capital | | | - | | | | - | | | | 1,079 | | Cash flows (used in) provided by financing activities | | | (296,237 | ) | | | 162,411 | | | | 87,942 | | Effect of inflation accounting | | | 172,978 | | | | - | | | | - | | Net (decrease) increase in cash and Investments | | | (556,016 | ) | | | (1,314,432 | ) | | | 1,071,418 | | Cash and cash equivalents at beginning of year | | | 3,189,887 | | | | 2,633,871 | | | | 1,319,439 | | Cash and cash equivalents at end of year | | $ | 2,633,871 | | | $ | 1,319,439 | | | $ | 2,390,857 | |
Supplemental disclosure of cash flows information:
| | Years ended December 31, | | | | 2007 | | | 2008 | | | 2009 | | Interest paid during the year | | $ | (140,850 | ) | | $ | (33,339 | ) | | $ | (90,192 | ) | Payment of valuation effects of financial instruments | | | (44,137 | ) | | | (747,795 | ) | | | 177,740 | | Income taxes paid during the year | | $ | (143,029 | ) | | $ | (147,426 | ) | | $ | (107,158 | ) |
Agriculture:
The Company follows the requirements of the MexFRS bulletin E-1, Agriculture, which establishes the rules for recognizing, valuing, presenting and disclosing biological assets and agricultural products.
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 accordance with U.S. GAAP, under FASB ASC 905 Topic “Agriculture”, sub-topic 330 Inventory (SOP 85-3 Accounting by Agricultural Producers and Agricultural Cooperatives) biological assets and agricultural products are to be valued at cost. Accordingly, the reconciliation between MexFRS and U.S. GAAP income (loss) for 2007, 2008 and 2009 includes a reversal of the unrealized gain on valuation of biological assets and agricultural products at fair value, which shows a decrease of $(10,882), $(16,358) and an increase of $7,214, respectively.
Capitalized interest:
Under MexFRS D-6 starting January 1, 2007, capitalized interest is comprehensively measured in order to include: (i) the interest expense, plus (ii) any foreign exchange fluctuations, and less (iii) the related monetary position result, which was applicable until December 31, 2007, because of the adoption of the new MexFRS B-10 that came into effect on January 1, 2008. Although the Company adopted the policy of capitalizing the comprehensive result of financing on assets under construction, as a result of MexFRS D-6, during 2007, 2008 and 2009, there were no construction projects identified with interest expense related to debt, as described in Note 2h.
Under U.S. GAAP, interest expense incurred during the qualifying construction period must be considered as an additional cost of qualifying constructed assets to be capitalized in property, plant and equipment and depreciated over the lives of the related assets. The amount of the capitalized interest for U.S. GAAP purposes was determined by applying the weighted average interest rate of financing. During 2008 and 2009, there were no qualifying construction projects. Deferred income tax and deferred employee statutory profit sharing:
Under MexFRS, the Company determines deferred income taxes in a manner similar to U.S. GAAP, using the asset and liability method, by applying the enacted statutory income tax rate. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and for operating loss and tax credit carryforwards. The effect on deferred taxes of a change in tax rates is recognized in results of operations in the period that includes the enactment date. For MexFRS presentation purposes, deferred tax assets and liabilities are long-term items, while under U.S. GAAP, deferred tax assets and liabilities should be classified as short-term or long-term items depending on the nature of the caption that gives rise to such deferred tax assets and liabilities.
Under U.S. GAAP, as of December 31, 2008 and 2009, the long term deferred tax liability is $1,747,322 and $1,814,053 respectively. Short term deferred tax liability is $262,010 and $486,738 as of December 31, 2008 and 2009, respectively.
The deferred tax adjustment included in the net income (loss) and stockholders’ equity reconciliations includes the effect of deferred taxes on all U.S. GAAP adjustments reflected in the reconciliation from MexFRS to U.S. GAAP. Under U.S. GAAP, the Company recognizes a deferred tax liability associated with profits originated during the simplified regime that have not paid income tax previously, but would be subject to taxation upon future distributions under the Mexican tax law. Due to the accounting change under MexFRS in 2008, this concept generates a reconciling difference to U.S. GAAP. The deferred tax liability under this concept amounted $284,226 and $274,953 as of December 31, 2008 and 2009, respectively. The Company is required to pay Employee Statutory Profit Sharing (ESPS) in accordance with Mexican labor law. On January 1, 2008, the Company adopted MexFRS D-3 “Employee Benefits” which supersedes Bulletin D-3 “Labor Obligations”, the sections applicable to ESPS of Bulletin D-4 and Mexican Interpretation of Financial Reporting Standards 4. In accordance with this MexFRS, deferred ESPS is determined under the asset and liability method at the statutory rate of 10%. This methodology is similar to the approach under FASB ASC Topic 740 “Income Taxes” (SFAS 109 Accounting for Income Taxes).
Under MexFRS, as described in Note 2r), until December 31, 2007 the deferred ESPS consequences were determined only on temporary non-recurring differences with a known turnaround time.
The Company’s reconciliations between MexFRS and U.S. GAAP do not include deferred ESPS since there is no amount to be booked.
Under MexFRS, beginning January 1, 2007, current ESPS is recorded within other expenses, net. In prior years, such effects were presented as equivalents to income tax. Under U.S. GAAP, ESPS is classified as selling, general and administrative expenses.
Severance indemnities
On January 1, 2008, the Company adopted MexFRS D-3 “Labor Obligations”. This MexFRS requires among other things, that employee benefits should be classified in four main categories; direct short-term and long term, termination and post-employment benefits. MexFRS D-3 establishes a maximum five-year period for amortizing unrecognized/unamortized items while actuarial gains or losses may be recognized as earned or incurred. Unlike termination benefits, post-employment benefit actuarial gains or losses may be immediately recognized in results of operations or amortized over the expected service life of the employees. Under U.S. GAAP, FASB ASC Topic 712 “Compensation-Non retirement Postemployment Benefits” (SFAS 112, Employers' Accounting for Post-employment Benefits) required that a liability for certain termination benefits provided under an ongoing benefit arrangement such as statutorily mandated severance indemnities should be recognized in results of operations when the employers’ obligations relates to rendered services, the likelihood of future settlement is probable and the liability can be reasonably estimated. Therefore, as of December 31, 2007, 2008 and 2009, the amounts of past service cost amortized under MexFRS was $(2,507), $4,828 and $4,828, respectively. Such amounts have been reversed for U.S. GAAP since these amounts had been already recognized in the results of operations under U.S. GAAP. These amounts were included in the U.S. GAAP reconciliation of income and equity.
FASB ASC Topic 715 “Compensation-Retirement Benefits” (SFAS 158 Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an Amendment of SFAS No. 87, 88, 106 and 132 R):
Due to the revision of MexFRS D-3, effective January 1, 2008, companies must now amortize transition obligations/benefits, over a maximum period of 5 years. This change has resulted in an increase in net periodic pension cost under MexFRS which is being reversed for US GAAP purposes.
Effective December 31, 2006, the Company adopted the recognition and disclosure provisions of FASB ASC Topic 715 “Compensation-Retirement Benefits”, (SFAS 158, mentioned above). Statement 158 requires companies to recognize the funded status of defined benefit pension and other postretirement plans as a net asset or liability and to recognize changes in that funded or unfunded status in the year in which the changes occur through accumulated other comprehensive income to the extent those changes are included in the net periodic cost. The funded status reported on the balance sheet as of December 31, 2007, 2008 and 2009 under FASB ASC Topic 715 “Compensation-Retirement Benefits” was measured as the difference between the fair value of plan assets and the projected benefit obligation on a plan-by-plan basis. The components of the plan funded status that is reflected in the consolidated statement of financial position as of December 31, 2008 and 2009 are as follows: | | 2008 | | | | Pension plan | | | Seniority premium | | | Severance | | | Total | | Projected benefit obligation | | $ | 177,339 | | | | 59,085 | | | $ | 44,810 | | | $ | 281,234 | | Market value of plan assets | | | (188,814 | ) | | | - | | | | - | | | | (188,814 | ) | (Funded) unfunded defined benefit plan (asset) liability | | $ | (11,475 | ) | | | 59,085 | | | $ | 44,810 | | | $ | 92,420 | |
| | 2009 | | | | Pension plan | | | Seniority premium | | | Severance | | | Total | | Projected benefit obligation | | $ | 202,186 | | | | 66,711 | | | $ | 49,059 | | | $ | 317,956 | | Market value of plan assets | | | (223,778 | ) | | | - | | | | - | | | | (223,778 | ) | (Funded) unfunded defined benefit plan (asset) liability | | $ | (21,592 | ) | | | 66,711 | | | $ | 49,059 | | | $ | 94,178 | |
The asset allocations of the Company’s pension benefits as of December 31, 2008 and 2009 measurement dates were as follows:
| | Pension benefits (Level 2) | | | | 2008 | | | 2009 | | Asset category: | | | | | | | | | Debt securities | | $ | 188,814 | | | $ | 223,778 | | Total | | $ | 188,814 | | | $ | 223,778 | |
Effects of inflation accounting on U.S. GAAP adjustments:
For the 2007 reconciliation of net income between MexFRS and U.S. GAAP purposes, the Company recognized the effects of the inflation on adjustments described throughout this Note. No inflations effects are recognized in the financial statements since January 1, 2008 because of the new MexFRS B-10 “Efects of inflation” mentioned above.
Goodwill:
Beginning January 1, 2005, due to the adoption of MexFRS B-7, goodwill is no longer amortized, but rather is subject to annual impairment test, and also in interim periods when impairment indicators are noted. For U.S. GAAP purposes, goodwill is reviewed for impairment at least annually in accordance with the provisions of FASB ASC Topic 350, “Intangibles – Goodwill and Other” (SFAS 142, Goodwill and Other Intangible Assets). Up to December 31, 2004, the Company recognized an accumulated effect (increase in equity) of $58,716 due to the reversal of amortization of goodwill recognized under MexFRS, restoring the goodwill amount in order to comply with U.S. GAAP. The goodwill impairment test is a two-step test. Under the first step, the fair value of the reporting unit is compared with its carrying value (including goodwill). If the fair value of the reporting unit is less than its carrying value, an indication of goodwill impairment exists for the reporting unit and the enterprise must perform step two of the impairment test (measurement). Under step two, an impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of that goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation and the residual fair value after this allocation is the implied fair value of the reporting unit goodwill. Fair value of the reporting unit is determined using a discounted cash flow analysis. If the fair value of the reporting unit exceeds its carrying value, step two does not need to be performed. The Company performs its annual impairment review of goodwill at December 31, and when a triggering event occurs between annual impairment tests. In 2007, 2008 and 2009, no triggering events occurred and the annual impairment test did not reflect any impairment concern. Reporting comprehensive income:
For U.S. GAAP reconciliation purposes, the Company has adopted the FASB ASC Topic 220 “Comprehensive Income” (SFAS 130, Reporting Comprehensive Income), which establishes rules for reporting and disclosure of comprehensive income and its components. Comprehensive income consists of current year net income (loss) plus (less) the change in stockholders’ equity resulting from transactions and other events and circumstances from non-owner sources. For the 2007, 2008 and 2009 fiscal years the components of comprehensive income are the net income (loss), the changes in fair value of the effective portion of derivative financial instruments, and the effect of labor obligation under FASB ASC Topic 715 “Compensation-Retirement Benefits” (SFAS 158).
Impairment of long-lived assets:
Under US GAAP, an impairment test on long-lived assets requires a two-step process to determine the amount of any impairment loss to be recognized when events and circumstances indicated that the carrying amount may not be recoverable. The first step of this test requires the determination of whether the carrying amount of the long-lived asset is recoverable through the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset (asset group). The second step requires the determination of the amount of impairment loss to be recognized by comparing the carrying amount of the asset (asset group) to its fair value. Mexican FRS does not require a two-step impairment evaluation process for long-lived assets but rather, a direct comparison is made between the recoverable amount (higher of value in use and fair value less cost to sale) and carrying value. No impairment losses on long-lived assets have been recorded in 2007, 2008 and 2009. Valuation and Qualifying accounts:
Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. Write-off’s for 2007, 2008 and 2009 were as follows: | | Balance at beginning of period | | | Charged to cost and expenses | | | Deductions | | | Balance at end of period | | Allowance for doubtful accounts | 2009 | | $ | 28,320 | | | $ | 12,647 | | | $ | (11,166) | | | $ | 29,801 | | | 2008 | | $ | 36,154 | | | $ | 7,637 | | | $ | (15,471) | | | $ | 28,320 | | | 2007 | | $ | 31,852 | | | $ | 8,791 | | | $ | (4,489) | | | $ | 36,154 | |
The Company does not have any off-balance-sheet credit exposure related to its customers. Investment Securities
All rights and obligations arising from primary investment securities are recognized on the balance sheet and the company classifies its investment securities depending on the purpose for which the securities were acquired: (i) held-to-maturity, (ii) trading, or (iii) available for sale. Investments in these instruments are reflected on the line-item “current primary investment securities” within cash and investments, denominated in Mexican peso and US dollar.
Trading securities, except held-to-maturity, are recorded at fair value, where peso-denominated debt securities are taken from the bank statements which are based on the information of the local price vendors, while US-denominated debt securities are based on diversified sources. Held-to-maturity securities are recorded at amortized cost. Changes in the carrying amounts of trading securities, including the related costs and yields are included under comprehensive financial results. Gains or losses arising from changes in the fair value of available-for-sale securities (less the corresponding yield) non functional currency denominated and foreign exchange gain or loss, in the case of equity securities, as well as the related monetary position gain or loss, as applicable, are reported as a comprehensive income (loss) item within stockholders’ equity.
Furthermore, where evidence exists that a financial asset held-to-maturity shall not be recovered in full, the expected loss (impairment) is recognized in the statement of operations.
At December 31, 2007, 2008 and 2009, primary investments securities disclosed in note 10b with a maturity of more than three months that amount to $406,005, $468,003 and $151,841, respectively, and restricted cash amounting to $0, $223,921 and $8,270 respectively are reclassified for U.S. GAAP purposes from the line-item “cash and investments” to “investment securities” and “restricted cash”, respectively, within investing activities, since such investments and restricted cash do not meet the definition of cash equivalents according to FASB ASC Topic 230 Statement of Cash Flows (SFAS 95). Investment Securities:
Investments securities described in note 10b includes $468,003 and $151,841 in 2008 and 2009, respectively, with a maturity of more than 90 days which do not meet the definition of cash equivalents according to SFAS 95, consequently such amounts are presented within investing activities in the consolidated statement of cash flows.
Due to the financial crisis experienced in most economies around the World, several securities were no longer traded actively in the financial markets, hence the Company, in accordance with FASB ASC Topic 320 “Investment-Debt and Equity Securities” (SFAS 115 Accounting for certain investment in debt and equity securities), transferred Commercial Paper classified as trading securities to the Held-To-Maturity category starting October 1, 2008.
The portion of unrealized holding gain or loss at the date of the transfer, which was already recognized in financial results, was not reversed. At December 31, 2008, an impairment effect of $13,116 was immediately recognized in the Comprehensive Results within earnings considering that these non guaranteed debt securities will not recover their initial paid-in value. Derivative Financial Instruments and Risk Hedging Activities
The Company accounts for derivatives and hedging activities in accordance with FASB ASC Topic 815, “Derivatives and Hedging” (SFAS 133 Accounting for Derivative Instruments and Certain Hedging Activities, as amended), which requires entities to recognize all derivative instruments as either assets or liabilities in the balance sheet at their respective fair values. For derivatives designated into qualified fair value hedging relationships, changes in the fair value are either offset through earnings against the change in fair value of the hedged item attributable to the risk being hedged or if a qualified cash flow hedging relationship is designated, the effective portion changes on the fair value of the derivatives are recognized in accumulated other comprehensive income. Amounts are reclassified from accumulated other comprehensive income into earnings when the hedged item is recognized in earnings affecting the same revenue or expense item where the hedged item impacts.
The Company enters into hedge transactions denominated in foreign currencies, buying and selling options. These derivatives are not designated as hedging instruments for financial reporting purposes, thus the changes in their fair values are recorded in earnings each period.
Relative to grain usage, the Company enters into derivative contracts designated as hedges of either forecasted transactions (cash flow hedges) or firm commitments not recognized as assets or liabilities in the balance sheet (fair value hedges). However, derivatives not designated under a hedging relationship or those do not qualify under strict hedge accounting criteria, are accounted for as trading instruments with changes in fair value recorded in earnings each period.
For all qualifying hedging relationships, the Company formally documents the hedging relationship, including its risk-management objective and strategy for undertaking the hedge, the hedging instrument, the hedged item, the nature of the risk being hedged, how the hedging instrument’s effectiveness in offsetting the hedged risk will be assessed prospectively and retrospectively, and a description of the method of measuring ineffectiveness. For derivative instruments that are designated and qualify as part of a cash-flow hedging relationship, the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged items affects net income, in the case of grain prices, this is taken within cost of good sold. Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recorded in earnings each period.
For derivative instruments that are designated and qualify for a hedge relationship under the fair value hedge accounting model, the Company recognizes the changes in fair value of the derivative directly in earnings each period, as well as the changes in fair value attributable to the hedged risk of the hedged item, that is grain firm commitments (off-balance sheet executory contracts) which latter become recognized assets (grain inventory).
The Company discontinues hedge accounting prospectively when it determines that the derivative is no longer effective in offsetting changes in fair value or in the cash flows of the hedged risk, or if the derivative expires or is sold, terminated, or exercised, or if the derivative is no longer designated as a hedging instrument because it is no longer probable that a forecasted transaction will occur, or if management determines that designation of the derivative as a hedging instrument is no longer appropriate.
In all situations in which hedge accounting is discontinued and the derivative instrument remains outstanding, the Company continues to carry the derivative instrument at its fair value on the balance sheet and recognizes any subsequent changes in its fair value within current earnings. When it is probable that a forecasted transaction will not occur, the Company discontinues hedge accounting and recognizes immediately in gains and losses that were accumulated in other comprehensive income related to the hedging relationship.
On January 1, 2009, the Company adopted the provisions of SFAS 161, Disclosures about Derivative Instruments and Hedging Activities (included in Topic 815-10: Derivatives and Hedging – Overall), which amends the disclosure requirements for derivative instruments and hedging activities. The amended disclosures require entities to provide information to enable users of the financial statements to understand how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for under ASC Topic 815 “Derivatives and Hedging”, and how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows.
The Company has implemented fair value hedge relationships with firm commitments as hedged item, using bought options on grain futures. Hedge accounting for these relationships does require the recognition of either an asset (gain) or a liability (loss) attributable to the hedged risk (intrinsic changes only) on the balance sheet against current earnings where the changes in the fair value hedge derivatives effects are also recognized and do compensate.
When the same bought options on corn grain futures are redesigned as to hedge a portion of corn/sorghum inventories, once these became recognized assets, the changes in these inventory’s portion fair values (attributable to price decreases only) adjust the carrying value of such grain inventories against current earnings, where the changes in fair value of the designated derivatives offset in current earnings these decreases in the inventories’ fair value, at those times when the price of corn was lower against predefined strike prices. The cash flow statement is affected when the derivatives’ cash flow from early exercises or those that end up with intrinsic value are collected from ASERCA. During 2009, the Company took long positions in 2,591 put option contracts on corn futures listed in the CBOT (each conveys 5,000 bushels), which gave the right to the Company for selling 840,552 metric tons at certain strike price, 3,709 of these put option contracts reached their maturity during 2009 and provided to the Company a realized gain at correspondent expirations of $5.5 millions of dollars , which was recognized in current earnings into cost of goods sold. DerivativeFinancial Instruments and Risk Hedging Activities:
As of December 31, 2009 and 2008, the Company used commodity derivatives to manage its exposure to commodity prices, and foreign exchange rate derivatives. The Company does not enter into derivative instruments for any purpose other than hedging its exposure to these commodity prices and foreign currency exchange rate fluctuations, however, derivatives that did not qualify for hedge accounting were accounted as trading instruments. By the end of 2008, the Company did establish a Corporate Policy associated to the use of foreign exchange derivatives, where instruments entered in the amount of up to 30 Million USD are approved by the Risk Committee, while entering into an amount higher that this amount does require Board’s approval.
By using derivative financial instruments to hedge exposures to changes in commodity prices and exchange rate fluctuations, the Company exposes itself to credit risk and market risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is positive, the counterparty owes the Company, which creates credit risk for the Company. When the fair value of a derivative contract is negative, the Company owes the counterparty and, therefore, the Company is not exposed to the counterparty’s credit risk in those circumstances. Positive fair value derivatives are carried as financial assets on the balance sheet, while negative fair values are presented as current liabilities on the balance sheet.
The Company maintains a commodity-price-risk management strategy that uses derivative instruments to minimize significant, unanticipated earnings fluctuations caused by commodity-price volatility. The manufacturing of the Company’s products requires a significant volume of grain. Price fluctuations in grain cause market values of grain inventory to differ from its cost and cause the actual purchase price of the grain to differ from the anticipated price.
As of December 31, 2009 and 2008, the Company has periodically entered into grain futures and options on futures (F&O) contracts traded at the CBOT (Chicago Board of Trade) through New Edge, a F&O broker on behalf of the Company, to economically hedge a portion of its anticipated purchases of grains, against the risk associated with fluctuations in market prices. These F&O contracts were not designated as hedges; thus, changes in fair value were recognized directly in earnings each period.
Also, the Company has entered into options on futures of corn, as to hedge the downward changes in the prices of grains, corn and sorghum, when the pricing of these are fixed through firm commitments, based on a Mexican Government sponsored program named “Agricultura por Contrato” managed by ASERCA (Apoyos y Servicios a la Comercialización Agropecuaria), a governmental entity ascribed to Mexico’s Secretary of Farming and Agriculture (SAGARPA, Secretaría de Agricultura, Ganadería, Desarrollo Rural, Pesca y Alimentación). This program basically represents a subsidy to the Company, through which, a commodities-related price hedging program scheme is offered to both farmers and agro-business entities such as the Company. The ASERCA program has two participating modalities: (i) 0% of the payment of the option’s premium and 100% of the benefit with a 60% discount on the amount of the initial premium, or (ii) 50% of the payment of the option’s premium, and 100% of the benefit in the payment of the premium of the bought options.
Also, in this program ASERCA plays the role of the intermediary between the Company and the CBOT, but stands as the counterparty. These are put options on futures listed at the CBOT and are designated as fair value hedging relationships. The changes in the fair value of these options and the fair value of the hedged item (firm commitments) are recognized in earnings. Changes in the fair value of the hedged item attributable to the hedged risk, that were recognized within the consolidated balance sheet as either an asset or liability from the grain firm commitment’s valuation or as an adjustment to the carrying value of the inventory when the edged item is the grain inventory during the hedging relationship, where the firm commitment’s fair value effects are subsequently reclassified as hedge adjustments to cost of goods sold when the related inventory layer affect earnings as cost of goods sold.
As of December 31, 2008 and 2009, the Company had entered into foreign currency exchange rate derivatives, traded with the following financial institutions as of December 31, 2008: Banco Nacional de Mexico, Merrill Lynch Capital Services and Barclays Bank PIC; and as of December 31, 2009: UBS Group and Morgan Stanley. These structured derivatives were not designated as hedges, hence changes in the fair value for these instruments were recognized in earnings each period. Likewise, the Company entered into over-the-counter (OTC) grain derivatives with Cargill Incorporated and New Edge which were not designated as hedges and consequently, the changes in their fair values were also recognized in earnings each period.
As of December 31, 2008 and 2009, the Company had not established any current hedging relationship under the cash flow hedge model; hence there is no derivatives effect in other comprehensive income as of this date.
Fair Value Measurements and the Fair Value Option of Financial Instruments:
The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
When feasible, the Company uses quoted market prices to determine fair values. Where quoted market prices are not available, the fair value is internally derived based upon valuation methodologies with respect to the amount and timing of future cash flows and estimated discount rates adjusted for both counterparty and entity’s own risk. However, considerable judgment is required in interpreting market data to develop estimates of fair value, so the estimates including both counterparty and entity’s own risk adjustment are not necessarily indicative of the amounts that could be realized or would be paid in a current market exchange, but those are proxy estimates. The effect of using different market assumptions or estimation methodologies could be material to the estimated fair values. Fair value information presented herein is based on information available as of December 31, 2009 and 2008. Fair values vary from period to period based on changes in a wide range of risk factors, including interest rates, credit quality, and market perceptions of value and as existing assets and liabilities run off and new transactions are entered into.
The following methods and assumptions were used to estimate the fair value of each class of financial instruments:
Cash, trade accounts receivable, other account receivables, other assets (nonderivatives), trade accounts payable, due to affiliated company, and accrued expenses (nonderivatives): The carrying amounts, at face value or cost plus accrued interest, reported in the consolidated balance sheets equal or approximate fair values, due to the short maturity of these instruments.
Investment securities: The Company classifies its investment securities depending on the purpose for which the securities were acquired, its holding period objective and the Company’s ability to hold them until maturity as either: (i) trading, (ii) held-to-maturity or (iii) available for sale. Trading securities are recognized at fair value, determined by using quoted market prices multiplied by the quantity held when quoted market prices are available. Held-to-maturity securities are reported at amortized cost.
Futures and Options on Futures of Grains: Exchange listed futures and options on futures are valued using the closing (settlement) price observed at the CBOT on the last business day of the year.
Currency exchange rate options: The fair value of these over-the-counter options is determined using option pricing models that value the potential for the option to become “in the money” through changes in currency exchange rate prices during the remaining term of the derivative. Inputs to that option pricing model reflect observable market data, including implied volatility determined by reference to exchange traded options on futures.
Interest rate swaps and cross currency swaps: The fair value of these derivatives is estimated calculating the expected future cash flows at present value for both “legs”, paying and receiving, to define the difference between them as the fair value.
Note payables to banks, long and short term debt: The fair value of the Company’s long-term debt is measured using quoted offered-side prices when quoted market prices are available. If quoted market prices are not available, the fair value is determined by discounting the future cash flows of each instrument at rates that reflect, among other things, market interest rates and the Company’s credit standing. For long-term debt measurements, where there are not rates currently observable in publicly traded debt markets of similar terms to companies with comparable credit, the Company uses market interest rates and adjusts that rate for all necessary risks, including its own credit risk. In determining an appropriate spread to reflect its credit standing, the Company considers credit default swap spreads, bond yields of other long-term debt offered by the Company, and interest rates currently offered to the Company for similar debt instruments of comparable maturities by the Company’s bankers as well as other banks that regularly compete to provide financing to the Company.
In accordance to FASB ASC Topic 825 “Financial Instrumetns” (SFAS 107 Disclosures about Fair Value of Financial Instruments), the following table presents both the carrying and estimated fair value of assets and liabilities considered financial instruments under this Statement. Others items like short and long term debt not carried and recognized originally at fair value are also presented in the table at their fair value. The disclosure excludes leases, pension and benefit obligations, as well as insurance policy reserve. Also as required, the disclosures excludes the effect of taxes, any premium or discount that could result from offering for sale at one time the entire holdings of a particular instrument, excess fair value associated with deposit with no fixed maturity and other expenses that would be incurred in a market transaction.
According to the FASB ASC Topic 825 (FASB 107), certain items are excluded from this table, such as receivables and payables that arises from the ordinary course of business. | | 2008 | | | 2009 | | | | Carrying Amount | | | Fair value | | | Carrying amount | | | Fair value | | Cash | | $ | 228,589 | | | $ | 228,589 | | | $ | 178,749 | | | $ | 178,749 | | Investment Securities | | | 1,510,438 | | | | 1,510,438 | | | | 2,315,534 | | | | 2,315,534 | | | | | | | | | | | | | | | | | | | Short term debt | | | (234,235 | ) | | | (279,262 | ) | | | (591,865 | ) | | | (662,392 | ) | Long term debt | | | (391,657 | ) | | | (345,474 | ) | | | (371,970 | ) | | | (345,128 | ) |
Fair Value Hierarchy:
FASB ASC Topic 820 “Fair Value Measurements and Disclosures” (FASB 157) defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. FASB ASC Topic 820 (FASB 157) also establishes a framework for measuring fair value and expands disclosures about fair value measurements.
The Company adopted FASB ASC Topic 820 (SFAS 157) on January 1, 2008 for fair value measurements of financial assets and financial liabilities and for fair value measurements of nonfinancial items that are recognized or disclosed at fair value in the financial statements on a recurring basis. On January 1, 2009, the Company adopted the provisions of FASB ASC Topic 820 (SFAS 157) for fair value measurements of nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis. FASB ASC Topic 820 (SFAS 157) establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:
· | Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgement. |
· | Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Assets and liabilities utilizing Level 2 inputs include investment securities that are not actively traded and derivative contracts. |
· | Level 3 inputs for the asset or liability are unobservable and significant to the overall fair value measurement. |
The level in the fair value hierarchy within which a fair measurement in its entirety falls is based on the lowest level input that is significant to the fair value measurement in its entirety.
The hierarchy requires the use of observable market data when available. In the case of investment securities, the instruments are classified in Level 2. The CBOT derivatives (counterparties New Edge and ASERCA) are classified in Level 1. Currency options and OTC grain derivatives (Cargill) are classified in Level 2.
The following fair value hierarchy table presents assets and liabilities that are measured at fair value on a recurring basis at December 31, 2008 and 2009 (including only items that are required to be measured at fair value, items for which the fair value option has be elected, are not presented due that the Company did not elect the Fair Value Option):
At December 31, 2008 | | Total asset/ liabilities at Fair Value | | | Quoted prices in active markets for identical assets (Level 1) | | | Significant other observable inputs (Level 2) | | | Significant Unobservable Inputs (Level 3) | | Assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Primary investment Securities | | $ | 1,510,438 | | | | - | | | | 1,510,438 | | | | - | | Derivative instruments | | | 125,261 | | | | 125,261 | | | | - | | | | - | | | | | | | | | | | | | | | | | | | Total | | $ | 1,635,699 | | | | 125,261 | | | | 1,510,438 | | | | - | | | | | | | | | | | | | | | | | | | Liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Derivative instruments | | | (886,272 | ) | | | (39,595 | ) | | | (846,677 | ) | | | - | | | | | | | | | | | | | | | | | | | Total | | $ | (886,272 | ) | | | (39,595 | ) | | | (846,677 | ) | | | - | |
At December 31, 2009 | | Total asset/ liabilities at Fair Value | | | Quoted prices in active markets for identical assets (Level 1) | | | Significant other observable inputs (Level 2) | | | Significant Unobservable Inputs (Level 3) | | Assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Trading securities | | $ | 2,315,662 | | | | - | | | | 2,315,662 | | | | - | | | | | | | | | | | | | | | | | | | Derivative instruments | | | 11,272 | | | | 8,381 | | | | 2,891 | | | | - | | | | | | | | | | | | | | | | | | | Total | | $ | 2,326,934 | | | | 8,381 | | | | 2,318,553 | | | | - | |
At December 31, 2009, fair value measurements of held to maturity securities that are measured at fair value on a nonrecurring basis amounted to $48,415.
Fair Value Option
FASB ASC Topic 825-10 (Statement 159) provides entities with an option to measure many financial instruments and certain other items at fair value. Under ASC Topic 825-10 (SFAS 159), unrealized gains and losses on items for which the fair value option has been elected are reported in earnings at each reporting period. This fair value option must be applied on an instrument-by-instrument basis with changes in fair value reported in earnings. After initial adoption, the election can be made at the acquisition of an eligible financial asset, financial liability, or firm commitment or when certain specified reconsideration events occur. The fair value election may not be revoked once an election is made. The adoption of Statement 159 did not have an impact to the Company’s financial position and results of operations, as the Company did not elect the fair value option for eligible items.
Income taxes
a) | Tax rate reconciliation: |
All income (loss) before income tax and related income tax expense (benefit) are from Mexican sources.
Income tax (IT) expense (benefit) attributable to income (loss) before income taxes differed from the amounts computed by applying the Mexican statutory rate of 19% to income (loss), as a result of the items shown below:
| | 2008 | | | 2009 | | | | IT | | | IT | | | | | | | | | Computed “expected” tax expense (benefit) | | $ | (216,527 | ) | | | 226,813 | | Increase (decrease) in income taxes resulting from: | | | | | | | | | Effects of inflation, net | | | (69,435 | ) | | | (50,596 | ) | Non-deductible expenses | | | 3,646 | | | | 4,538 | | Adjustment to deferred tax assets and liabilities for enacted changes in tax laws and rates | | | - | | | | 192,614 | | Effect of companies outside simplified regime | | | (31,413 | ) | | | 38,163 | | Change in the valuation allowance of deferred tax assets | | | 23,402 | | | | 8,130 | | Reversal of deferred tax liability related to simplified regime | | | (4,354 | ) | | | (9,273 | ) | Other, net | | | 31,424 | | | | (15,078 | ) | | | | | | | | | | IT expense (benefit) | | $ | (263,257 | ) | | | 395,311 | |
Based on the financial projections of taxable income, the Company estimated that it will pay income tax (IT) in future years; therefore, deferred income tax effects as of December 31, 2008 and 2009 have been accounted for reflecting the IT basis.
The tax effects of temporary differences that give rise to significant portions of deferred tax assets and liabilities at December 31, 2008 and 2009, are presented below:
| | 2008 | | | 2009 | | Deferred tax assets: | | | | | | | Accounts payable | | $ | 398,744 | | | | 438,174 | | Labor obligations | | | 20,883 | | | | 24,224 | | ESPS payable | | | 9,202 | | | | 11,349 | | Effects on derivative financial instruments | | | 144,592 | | | | - | | Recoverable AT | | | 4,494 | | | | 4,654 | | Tax loss carryforwards | | | 165,121 | | | | 89,698 | | Total gross deferred tax assets | | | 743,036 | | | | 568,099 | | | | | | | | | | | Less valuation allowance | | | 28,015 | | | | 36,145 | | Net deferred tax assets | | | 715,021 | | | | 531,954 | | | | | | | | | | | Deferred tax liabilities: | | | | | | | | | Inventories | | | 815,227 | | | | 816,903 | | Accounts receivable | | | 186,104 | | | | 170,667 | | Property, plant and equipment, net | | | 1,422,131 | | | | 1,551,675 | | Other deductions | | | 16,665 | | | | 16,261 | | Effects on derivative financial instruments | | | - | | | | 2,286 | | Additional deferred income tax liability related to simplified regime | | | 284,226 | | | | 274,953 | | | | | | | | | | | Total deferred tax liabilities | | | 2,724,353 | | | | 2,832,745 | | | | | | | | | | | Net deferred tax liability | | $ | 2,009,332 | | | | 2,300,791 | |
The valuation allowance for deferred tax assets as of January 1, 2008 and 2009 amounted to $4,613 and $28,015, respectively. The net change in the total valuation allowance for the years ended December 31, 2008 and 2009, was an increase of $23,402 and $8,130 respectively. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The valuation allowance at December 31, 2009 was primarily related to state tax loss carryforwards and labor obligations that, in the judgment of management, are not more likely that not to be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment.
Taxable income of the Company for the year ended December 31, 2009 was $1,182,307. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that the Company will realize the benefits of these deductible differences, net of the existing valuation allowance at December 31, 2009. The amount of the deferred tax asset considered realizable, however, could be reduced in the near future if estimates of future taxable income during the carryforward period are reduced.
Accounting for uncertainty in income taxes:
In July 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48 “Accounting for Uncertainty in Income Taxes, an interpretation of Statement of Financial Accounting Standards No.109”(included in FASB ASC Topic 740 Income taxes – Overall) (FIN 48). On January 1, 2007, the Company adopted FIN 48, which clarifies the accounting for uncertain tax positions. This interpretation requires that an entity recognizes in the consolidated financial statements the effect of income tax positions, only if that positions are more likely than not of being sustained upon examination, based on the technical merits of the position. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The adoption of FIN 48 on January 1, 2007 did not have any effect on the Company’s consolidated financial statements. The Company’s accounting policy is to accrue interest and penalties related to unrecognized tax benefits, if and when required, as a component of other income (expense), in the consolidated statements of operations.
As of January 1, 2007 and for the years ended December 31, 2007, 2008 and 2009, the Company did not have any unrecognized tax benefits and thus no interest and penalties related to unrecognized tax benefits were recorded. In addition, the Company does not expect that the amount of unrecognized tax benefits will change significantly within the next 12 months. The income tax returns of the Company and its Mexican subsidiaries remain subject to examination by the Mexican tax authorities for the tax years beginning in 2005.
Recently Issued Accounting Standards:
The FASB issued ASU 2009-16, Transfers and Servicing (Topic 860): Accounting for Transfers of Financial Assets (FASB Statement No. 166, Accounting for Transfers of Financial Assets—an amendment of FASB Statement No. 140) in December 2009. ASU 2009-16 removes the concept of a qualifying special-purpose entity (“QSPE”) from ASC Topic 860, Transfers and Servicing, and the exception from applying ASC 810-10 to QSPEs, thereby requiring transferors of financial assets to evaluate whether to consolidate transferees that previously were considered QSPEs. Transferor-imposed constraints on transferees whose sole purpose is to engage in securitization or asset-backed financing activities are evaluated in the same manner under the provisions of the ASU as transferor-imposed constraints on QSPEs were evaluated under the provisions of Topic 860 prior to the effective date of the ASU when determining whether a transfer of financial assets qualifies for sale accounting. The ASU also clarifies the Topic 860 sale-accounting criteria pertaining to legal isolation and effective control and creates more stringent conditions for reporting a transfer of a portion of a financial asset as a sale. The ASU is effective for periods beginning after December 15, 2009, and may not be early adopted. The Company expects that the adoption of ASU 2009-16 will not have a material impact on its consolidated financial statements.
The FASB issued ASU 2009-17, Consolidations (Topic 810): Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities (FASB Statement No. 167, Amendments to FASB Interpretation No. 46(R)) in December 2009. ASU 2009-17, which amends the Variable Interest Entity ("VIE") Subsections of ASC Topic 810-10, Consolidation – Overall, revises the test for determining the primary beneficiary of a VIE from a primarily quantitative risks and rewards calculation based on the VIE’s expected losses and expected residual returns to a primarily qualitative analysis based on identifying the party or related-party group (if any) with (a) the power to direct the activities that most significantly impact the VIE’s economic performance and (b) the obligation to absorb losses of, or the right to receive benefits from, the VIE that could potentially be significant to the VIE. The ASU requires kick-out rights and participating rights to be ignored in evaluating whether a variable interest holder meets the power criterion unless those rights are unilaterally exercisable by a single party or related party group. The ASU also revises the criteria for determining whether fees paid by an entity to a decision maker or another service provider are a variable interest in the entity and revises the Topic 810 scope characteristic that identifies an entity as a VIE if the equity-at-risk investors as a group do not have the right to control the entity through their equity interests to address the impact of kick-out rights and participating rights on the analysis.
Finally, the ASU adds a new requirement to reconsider whether an entity is a VIE if the holders of the equity investment at risk as a group lose the power, through the rights of those interests, to direct the activities that most significantly impact the VIE’s economic performance, and requires a company to reassess on an ongoing basis whether it is deemed to be the primary beneficiary of a VIE. ASU 2009-17 is effective for periods beginning after December 15, 2009 and may not be early adopted. The Company expects that the adoption of ASU 2009-17 will not have a material impact on its consolidated financial statements.
Business and credit concentrations:
The Company’s products are sold to a large number of customers without significant concentration with any of them; likewise, there is no significant supplier concentration.
Summary of adjustments to reconcile MexFRS and U.S. GAAP:
The following is a summary of net income (loss) adjusted to take into account certain material differences between MexFRS and U.S. GAAP:
| | Years ended December 31, | | | | 2007 | | | 2008 | | | 2009 | | Net income (loss) as reported under MexFRS | | $ | 1,272,226 | | | $ | (886,037 | ) | | $ | 809,045 | | Adjustments to reconcile net income (loss) to U.S. GAAP: | | | | | | | | | | | | | Biological assets and agricultural products valuation at fair value | | | (10,882 | ) | | | (16,358 | ) | | | 7,214 | | Interest cost capitalized | | | 6,885 | | | | - | | | | - | | Depreciation of capitalized interest | | | (3,913 | ) | | | (3,683 | ) | | | (4,724 | ) | Severance cost | | | (2,507 | ) | | | 4,828 | | | | 4,828 | | Pensions and labor liabilities | | | - | | | | 3,802 | | | | 2,882 | | Deferred income tax on US GAAP adjustments | | | 1,310 | | | | (15,116 | ) | | | 1,774 | | Effect of inflation accounting on U.S. GAAP adjustments | | | 49 | | | | - | | | | - | | Fair value credit valuation adjustment effect | | | - | | | | 31,852 | | | | (31,852 | ) | Additional deferred income tax liability related to simplified regime | | | - | | | | 4,354 | | | | 9,273 | | Less: non-controlling interest income (loss) | | | (1,285 | ) | | | 6,989 | | | | (11,445 | ) | Net controlling interest income (loss) under U.S. GAAP | | $ | 1,261,883 | | | $ | (869,369 | ) | | $ | 786,995 | | Other comprehensive income, net of tax | | | 120,335 | | | | (61,836 | ) | | | 4,469 | | Comprehensive income (loss) | | | 1,382,218 | | | | (931,205 | ) | | | 791,464 | | Weighted average number of shares outstanding (thousands) | | | 600,000 | | | | 600,000 | | | | 600,000 | | Net income (loss) per basic and diluted share | | $ | 2.10 | | | $ | (1.45 | ) | | $ | 1.31 | |
Classification differences:
There are certain other classification differences between MexFRS and U.S. GAAP, which are as follows:
| - | Employee statutory profit sharing expenses are classified as other expenses under MexFRS and as selling, general and administrative expenses under U.S. GAAP. |
| - | Tax incentives are presented as other income under MexFRS and as a reduction of selling, general and administrative expenses under U.S. GAAP. |
The reconciliation of the controlling interest between MexFRS and U.S. GAAP is as follows:
| | Years ended December 31 | | | | 2008 | | | 2009 | | Controlling interest' equity as reported under MexFRS | | $ | 14,039,620 | | | $ | 14,588,254 | | Adjustments to reconcile controlling interest’ equity to U.S. GAAP: | | | | | | | | | | | | | | | | | | Biological assets and agricultural products valuation at fair value | | | (111,742 | ) | | | (104,528 | ) | Accumulated differences between the financing cost capitalized for MexFRS and U.S. GAAP purposes | | | 94,481 | | | | 94,481 | | Accumulated depreciation on capitalized interest | | | (24,278 | ) | | | (29,002 | ) | Severance cost | | | (18,370 | ) | | | (13,542 | ) | Pensions and labor liabilities | | | 6,641 | | | | 13,992 | | Reversal of accumulated amortization of goodwill | | | 58,716 | | | | 58,716 | | Deferred income taxes on U.S. GAAP adjustments | | | ( 6,030 | ) | | | (4,256 | ) | Additional deferred income tax liability related to simplified regime | | | ( 284,226 | ) | | | (274,953 | ) | Fair value credit valuation adjustment effect | | | 31,852 | | | | - | | | | | | | | | | | Controlling interest’ equity as reported under U.S. GAAP | | $ | 13,786,664 | | | $ | 14,329,162 | |
The effects of the above adjustments do not have any impact on non-controlling interest.
The consolidated statements of stockholders’ equity in accordance with U.S. GAAP is as follows: | | Capital stock | | | Additional Paid in- capital | | | Reserve for repurchase of shares | | | Retained Earnings | | | Accumulated Other comprehensive income | | | Comprehensive income | | | Total controlling interest’ equity | | | Non – controlling interest | | | Total stockholders’ equity | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance at December 31, 2006 | | $ | 2,294,927 | | | $ | 743,674 | | | $ | 159,455 | | | $ | 14,646,098 | | | $ | (3,790,915 | ) | | $ | | | | $ | 14,053,239 | | | $ | 45,426 | | | $ | 14,098,665 | | Cash dividends paid | | | - | | | | - | | | | - | | | | (363,708 | ) | | | - | | | | - | | | | (363,708 | ) | | | - | | | | (363,708 | ) | Comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net income for the year | | | - | | | | - | | | | - | | | | 1,261,883 | | | | - | | | | 1,261,883 | | | | 1,261,883 | | | | 1,362 | | | | 1,263,168 | | Components of other comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Deficit from restatement of stockholders’ equity | | | - | | | | - | | | | - | | | | - | | | | - | | | | 18,661 | | | | 18,661 | | | | - | | | | 18,661 | | Derivative financial instruments | | | - | | | | - | | | | - | | | | - | | | | - | | | | 98,552 | | | | 98,552 | | | | - | | | | 98,552 | | Other comprehensive income SFAS 158 effect | | | - | | | | - | | | | - | | | | - | | | | - | | | | 3,122 | | | | 3,122 | | | | - | | | | 3,122 | | Other comprehensive income, net of taxes | | | | | | | | | | | | | | | | | | | 120,335 | | | | 120,335 | | | | | | | | - | | | | | | Comprehensive income | | | | | | | | | | | | | | | | | | | | | | $ | 1,382,218 | | | | | | | | | | | | | | Balance at December 31, 2007 | | $ | 2,294,927 | | | $ | 743,674 | | | $ | 159,455 | | | $ | 15,544,273 | | | $ | (3,670,580 | ) | | | | | | $ | 15,071,749 | | | $ | 46,788 | | | $ | 15,118,537 | | Cash dividends paid | | | - | | | | - | | | | - | | | | (353,880 | ) | | | - | | | | - | | | | (353,880 | ) | | | - | | | | (353,880 | ) | Comprehensive income (loss): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net loss for the year | | | - | | | | - | | | | - | | | | (869,369 | ) | | | - | | | | (869,369 | ) | | | (869,369 | ) | | | (6,989 | ) | | | (876,358 | ) | Components of other comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Deficit from holding of non monetary assets | | | - | | | | - | | | | - | | | | (3,735,254 | ) | | | 3,735,254 | | | | - | | | | - | | | | - | | | | | | Derivative financial instruments (net of deferred income tax effect of $23,204) | | | - | | | | - | | | | - | | | | | | | | - | | | | (98,922 | ) | | | (98,922 | ) | | | - | | | | (98,922 | ) | Other comprehensive income SFAS 158 effect | | | - | | | | - | | | | - | | | | | | | | - | | | | 37,086 | | | | 37,086 | | | | - | | | | 37,086 | | Other comprehensive loss, net of taxes | | | | | | | | | | | | | | | | | | | (61,836 | ) | | | (61,836 | ) | | | | | | | - | | | | | | Comprehensive loss | | | | | | | | | | | | | | | | | | | | | | $ | (931,205 | ) | | | | | | | | | | | | | Balance at December 31, 2008 | | $ | 2,294,927 | | | $ | 743,674 | | | $ | 159,455 | | | $ | 10,585,770 | | | $ | 2,838 | | | | | | | $ | 13,786,664 | | | $ | 39,799 | | | $ | 13,826,463 | | Cash dividends paid | | | - | | | | - | | | | - | | | | (250,045 | ) | | | - | | | | | | | | (250,045 | ) | | | - | | | | (250,045 | ) | Cash dividends paid to non-controlling interest | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (1,035 | ) | | | (1,035 | ) | Comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net income for the year | | | - | | | | - | | | | - | | | | 786,995 | | | | - | | | | 786,995 | | | | 786,995 | | | | 11,445 | | | | 798,440 | | Components of other comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Other comprehensive income SFAS 158 effect | | | - | | | | - | | | | - | | | | - | | | | | | | | 4,469 | | | | | | | | | | | | | | Other comprehensive loss, net of taxes | | | | | | | | | | | | | | | | | | | 4,469 | | | | 4,469 | | | | 4,469 | | | | - | | | | 4,469 | | Gain on sale of repurchased shares | | | - | | | | 1,079 | | | | - | | | | - | | | | - | | | | | | | | 1,079 | | | | - | | | | 1,079 | | Comprehensive income | | | | | | | | | | | | | | | | | | | | | | $ | 791,464 | | | | | | | | | | | | | | Balance at December 31, 2009 | | $ | 2,294,927 | | | $ | 744,753 | | | $ | 159,455 | | | $ | 11,122,720 | | | $ | 7,307 | | | | | | | $ | 14,329,162 | | | $ | 50,209 | | | $ | 14,379,371 | |
INDUSTRIAS BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Years ended December 31, 2006, 2007, 2008 and 20082009
(Thousands of Mexican pesos, note 2x, except per share amounts)
| (iii) | Greater detail is provided to account for the exchange of an asset, in accordance with the provisions of international standards and other FRS; |
| (iv) | The presumption that an intangible asset may not exceed a useful life of twenty years was eliminated; |
Management estimates that the initial effects of this new FRS will not be material.
|