Annual Reports

  • 20-F (Jun 30, 2014)
  • 20-F (Mar 25, 2014)
  • 20-F (Mar 25, 2013)
  • 20-F (Oct 20, 2011)
  • 20-F (Apr 13, 2011)
  • 20-F (Apr 15, 2010)

 
Quarterly Reports

 
8-K

 
Other

Anheuser-Busch InBev S.A. 10-K 2008
ex99.htm

 
Exhibit 99

 
GRUPO MODELO, S. A. B. DE C. V. AND SUBSIDIARIES
 
AUDITED CONSOLIDATED
FINANCIAL STATEMENTS
 
DECEMBER 31, 2007 AND 2006





 
 

 



Mexico City, March 12, 2008


To the Stockholders of
Grupo Modelo, S. A. B. de C. V.:


We have audited the consolidated balance sheets of Grupo Modelo, S. A. B. de C. V. and subsidiaries as of December 31, 2007, and the related consolidated statements of income, of changes in stockholders' equity and of changes in financial position for the year then, ended which, as described in Note 18, have been prepared on the basis of accounting with Mexican financial information standards. These consolidated financial statements are the responsibility of the Company’s Management.  Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in United States of America.  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the financial information standards used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

As described in Note 18 to financial statements, the Company’s financial statements have been prepared on the basis of Mexican financial information standards. These accounting principles differ in some instances from accounting principles generally accepted in the United States of America.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Grupo Modelo, S. A. B. de C. V. and subsidiaries as of December 31, 2007, and the results of their operations, and their cash flows for the years then ended, in conformity with Mexican financial information standards. Financial statements as of December 31, 2006 are presented just for comparative proposes.

 
PricewaterhouseCoopers, S. C.
C.P. José A. Salazar Tapia,


 
 

 
GRUPO MODELO, S. A. B. DE C. V. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2007 AND 2006

Amounts expressed in thousands of pesos of December 31, 2007 purchasing power
 
ASSETS
 
2007
   
2006
 
             
CURRENT:
           
Cash and marketable securities
  $ 20,716,601     $ 22,923,116  
Accounts and notes receivable (Note 3)
    5,413,848       3,724,554  
Inventories (Note 4)
    9,504,555       6,961,732  
Prepaid expenses and other current items
    2,632,200       2,213,179  
Total current assets
    38,267,204       35,822,581  
Long-term accounts and notes receivable (Note 3)
    1,724,593       1,437,690  
Investment in shares of associated companies (Note 5)
    4,177,386       3,360,961  
PROPERTY, PLANT AND EQUIPMENT (Note 6)
    79,031,553       76,171,558  
Accumulated depreciation
    (26,721,013 )     (25,126,654 )
      52,310,540       51,044,904  
Other assets (Note 7)
    3,244,524       2,491,059  
Total assets
  $ 99,724,247     $ 94,157,195  
                 
LIABILITIES
               
                 
CURRENT:
               
Suppliers
  $ 3,379,443     $ 3,106,180  
Employees’ Profit Sharing (Note 12c)
    1,301,728       1,301,040  
Excise tax on production and services payable
    1,301,447       1,078,730  
Accounts payable and other accumulated expenses
    1,661,419       945,206  
Income Tax
    19,231       -  
Total current liabilities
    7,663,268       6,431,156  
Deferred tax and employees’ profit sharing (Note 12c.)
    8,365,711       8,363,936  
Barton beers, Ltd (Note 17)
    1,684,014       -  
Contingencies and commitments (Note 9)
    -       -  
Labor obligations upon retirement (Note 8)
    -       -  
Total liabilities
    17,712,993       14,795,092  
                 
STOCKHOLDERS' EQUITY
               
                 
Capital stock (Note 10)
    16,377,411       16,377,411  
Premium on share subscription
    1,090,698       1,090,698  
                 
RETAINED EARNINGS (Notes 11 and 12):
               
Legal reserve
    3,213,558       2,767,938  
Reserve for acquisition of own shares
    242,596       688,923  
Not applied
    39,622,514       38,022,112  
Net income for the year, as per the income statement
    9,503,111       8,997,526  
      52,581,779       50,476,499  
Accumulated effect of deferred tax
    (5,472,843 )     (5,472,843 )
Adjustment to capital for labor obligations upon retirement
    (464,807 )     (430,181 )
Deficit in the restatement of stockholders’ equity
    (1,051,534 )     (1,044,944 )
Total majority stockholders’ equity
    63,060,704       60,996,640  
                 
MINORITY INTEREST:
               
Anheuser-Busch Companies, Inc.
    18,942,919       18,215,618  
Other investors
    7,631       149,845  
Total minority interest
    18,950,550       18,365,463  
Total stockholders' equity
    82,011,254       79,362,103  
Total liabilities and stockholders’ equity
  $ 99,724,247     $ 94,157,195  

The accompanying nineteen notes are an integral part of these consolidated financial statements, which were authorized for issuance on February 20, 2008 by the officers specified at the foot of the financial statements and the notes thereto.
 
 
Ing. Carlos Fernández González   Dr. Juan José Suárez Coppel
Board President and General Director Vice President of Management and Finance
 

 
GRUPO MODELO, S. A. B. DE C. V. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006

Amounts expressed in thousands of pesos of December 31, 2007 purchasing power
 
   
2007
   
2006
 
             
NET BEER SALES
  $ 67,222,320     $ 52,686,602  
OTHER INCOME
    5,672,309       6,277,186  
      72,894,629       58,963,788  
COST OF SALES
    32,591,030       26,602,205  
Gross profit
    40,303,599       32,361,583  
                 
OPERATING EXPENSES:
               
Sales and distribution
    15,184,587       11,441,772  
Administrative
    4,531,161       4,059,171  
      19,715,748       15,500,943  
Operating profit
    20,587,851       16,860,640  
                 
OTHER (EXPENSES) – Net
    (466,444 )     (605,676 )
                 
COMPREHENSIVE FINANCING RESULT:
               
Interest earned – Net
    1,442,608       1,287,970  
Exchange profit (loss) – Net
    87,591       115,807  
Loss on monetary position
    (868,786 )     (958,700 )
      661,413       445,077  
Profit before provisions
    20,782,820       16,700,041  
                 
PROVISIONS FOR (Note 12):
               
Income, asset and unique rate tax
    5,513,981       4,962,626  
Consolidated net income for the year
  $ 15,268,839     $ 11,737,415  
Majority interest profit
  $ 9,503,111     $ 8,997,526  
                 
MINORITY INTEREST PARTICIPATION:
               
Anheuser-Busch Companies, Inc.
  $ 2,845,534     $ 2,721,721  
Other investors
    2,920,194       18,169  
Minority net income
  $ 5,765,728     $ 2,739,890  
Earnings per share (Amounts in Mexican pesos, attributable to majority interest)
  $ 2.9302     $ 2.7670  
                 

The accompanying nineteen notes are an integral part of these consolidated financial statements, which were authorized for issuance on February 20, 2008 by the officers specified at the foot of the financial statements and the notes thereto.

 
Ing. Carlos Fernández González  Dr. Juan José Suárez Coppel
Board President and General Director  Vice President of Management and Finance

 
 

 
GRUPO MODELO, S. A. B. DE C. V. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006

Amounts expressed in thousands of December 31, 2007 purchasing power
 
 
                
Retained earnings
                               
   
Capital
stock
   
Premium on share subscription
   
Legal
reserve
   
Reserve for acquisition
of own shares
   
Not applied
   
For the
year
   
Accumulated effect of deferred
tax
   
Adjustment capital for labor obligations at retirement
   
Deficit in the restatement of stockholders' equity
   
Minority interest
   
Total
 
                                                                   
Balances January 1, 2006
  $ 16,377,411     $ 1,090,698     $ 2,378,292     $ 688,923     $ 34,884,119     $ 7,872,001     $ (5,472,843 )   $ (532,627 )   $ (750,007 )   $ 17,000,930     $ 73,536,897  
                                                                                         
Application of 2005 profit as agreed at the
General Ordinary Stockholders’ Meeting of April 24, 2006 as follows:
                                                                                       
 
                                                                                       
To retained earnings
                                    7,872,001       (7,872,001 )                                        
To legal reserve
                    389,646               (389,646 )                                                
Dividend payment at the rate 1.25 of Mexican pesos per outstanding share
                                    (4,344,362 )                                             (4,344,362 )
                                                                                         
Dividend payment to minority stockholders’
                                                                            (1,315,834 )     (1,315,834 )
                                                                                         
Comprehensive income (Note 11)
                                            8,997,526               102,446       (294,937 )     2,680,367       11,485,402  
                                                                                         
                                                                                         
Balances at December 31, 2006
    16,377,411       1,090,698       2,767,938       688,923       38,022,112       8,997,526       (5,472,843 )     (430,181 )     (1,044,944 )     18,365,463       79,362,103  
                                                                                         
Application of 2006 profit as agreed at the
General Ordinary Stockholders’ Meeting of
April 23, 2007 as follows:
                                                                                       
 
                                                                                       
To retained earnings
                                    8,997,526       (8,997,526 )                                        
To legal reserve
                    445,620               (445,620 )                                                
Share’s acquisition
                            (446,327 )                                                     (446,327 )
Dividend payment at the rate 2.08 of Mexican pesos per outstanding share
                                    (6,951,504 )                                             (6,951,504 )
                                                                                         
Dividend payment to minority stockholders’ and others
                                                                            (2,247,319 )     (2,247,319 )
                                                                                         
Comprehensive income (Note 11)
                                            9,503,111               (34,626 )     (6,590 )     2,832,406       12,294,301  
                                                                                         
Balances at December 31, 2007
  $ 16,377,411     $ 1,090,698     $ 3,213,558     $ 242,596     $ 39,622,514     $ 9,503,111     $ (5,472,843 )   $ (464,807 )   $ (1,051,534 )   $ 18,950,550     $ 82,011,254  
 

The accompanying nineteen notes are an integral part of these consolidated financial statements, which were authorized for issuance on February 20, 2008 by the officers specified at the foot of the financial statements and the notes thereto.


Ing. Carlos Fernández González  Dr. Juan José Suárez Coppel
Board President and General Director  Vice President of Management and Finance


 
 

 

GRUPO MODELO, S. A. B. DE C. V. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006

Amounts expressed in thousands of pesos of December 31, 2007 purchasing power


OPERATING:
 
2007
   
2006
 
             
Consolidated net income for the year
  $ 15,268,839     $ 11,737,415  
                 
ITEMS APPLIED TO INCOME NOT REQUIRING THE USE OF RESOURCES:
               
Depreciation and amortization for the year
    3,352,292       2,991,703  
Allowance for impairment of fixed assets and investment in shares of associated companies
    103,597       106,755  
Net effect of labor obligations upon retirement
    60,933       -  
Increase (Decrease) in deferred tax payable and employees’ profit sharing liabilities
    23,489       144,603  
Equity in income of associated companies, net of dividends received
    (353,862 )     (372,181 )
      18,455,288       14,608,295  
                 
FUNDS PROVIDED BY (USED IN):
               
(Increase) in inventories
    (2,639,277 )     (1,088,710 )
(Increase) in accounts and notes receivable
    (1,976,196 )     (278,286 )
Decrease (increase) in prepaid expenses and other current items
    (419,021 )     176,889  
Increase in suppliers, sundry creditors and accumulated liabilities
    989,475       582,356  
Increase in excise tax on production and services payable
    222,717       -  
Income tax
    19,231       -  
Increase in employees’ profit sharing payable
    688       285,570  
Funds provided by operations
    14,652,905       14,286,114  
                 
FINANCING:
               
                 
Dividend payment
    (6,951,504 )     (4,344,362 )
Dividend payment to minority stockholders
    (2,247,319 )     (1,315,834 )
Net effect of Barton Beers Ltd.
    (1,246,046 )     -  
Own shares reacquisition
    (446,327 )     -  
Labor obligations upon retirement
    -       (826 )
      (10,891,196 )     (5,661,022 )
                 
INVESTMENT:
               
                 
Acquisition of property, plant and equipment, net
    (4,385,903 )     (4,637,025 )
Increase in other assets
    (710,960 )     (524,442 )
Acquisition of shares of associated companies
    (495,917 )     (27,257 )
Increase in deferred expenses
    (375,444 )     -  
Cash and marketable securities of associated companies
    -       448,544  
      (5,968,224 )     (4,740,180 )
Increase in cash and marketable securities
    (2,206,515 )     3,884,912  
                 
Balance at beginning of year
    22,923,116       19,038,204  
                 
Balance at end of year
  $ 20,716,601     $ 22,923,116  

The accompanying nineteen notes are an integral part of these consolidated financial statements, which were authorized for issuance on February 20, 2008 by the officers specified at the foot of the financial statements and the notes thereto.

 
 
Ing. Carlos Fernández González  Dr. Juan José Suárez Coppel
Board President and General Director Vice President Management and Finance
 

 
 

 

GRUPO MODELO, S. A. B. DE C. V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2007 AND 2006

Amounts expressed in thousands of pesos of December 31, 2007 purchasing power

1. INCORPORATION AND CORPORATE PURPOSE:

a)
Grupo Modelo, S. A. B. de C. V. and Subsidiaries (the Group) is mainly engaged in the production and sale of beer, which began in 1925.

b)
The consolidated financial statements included the financial information of Crown Imports; this company was constituted by the association between Grupo Modelo and Barton Beers, LTD.

c)
Grupo Modelo, S. A. B. de C. V. is mainly engaged in holding 76.75% of the common stock of Diblo S. A. de C. V., whose business purpose is holding real estate and investing in shares of subsidiaries (until 2006, includes buildings) mainly involved in the production, distribution and sale of beer in Mexico and abroad.  The most important subsidiaries, on the basis of their operations and stockholders’ equity, are as follows:

 
 
Percentage of shareholding
 
in the shares comprising
 
the capital stock
Breweries:
 
Cervecería Modelo, S. A. de C. V.
  100
Compañía Cervecera de Zacatecas, S. A. de C. V.
  100
Compañía Cervecera del Trópico, S. A. de C. V.
  100
Cervecería Modelo de Guadalajara, S. A. de C. V.
  100
Cervecería Modelo del Noroeste, S. A. de C. V.
  100
Cervecería Modelo de Torreón, S. A. de C. V.
  100
Cervecería del Pacífico, S. A. de C. V.
  100
Compañía Cervecera de Coahuila, S. A. de C. V.
  100
   
Transformation of barley to malt:
 
Cebadas y Maltas, S. A. de C. V.
 100
GModelo Agriculture, Inc.
 100
Extractos y Maltas, S. A. de C. V.
 100
   
 
Percentage of shareholding
 
in the shares comprising
 
the capital stock
Machinery manufacturer:
 
Inamex de Cerveza y Malta, S. A. de C. V.
100
   
Manufacturer of beer cans and crown tops:
 
Envases y Tapas Modelo, S. A. de C. V.
100
   
Distributors of beer and other products:
 
Las Cervezas Modelo del Occidente, S. A. de C. V.
100
Las Cervezas Modelo del Centro, S. A. de C. V.
100
Distribuidora de Cervezas Modelo en el Norte, S. A. de C. V.
100
Las Cervezas Modelo en el Pacífico, S. A. de C. V.
100
Las Cervezas Modelo del Noreste, S. A. de C. V.
100
Las Cervezas Modelo en Morelos, S. A. de C. V.
100
Las Cervezas Modelo en San Luis Potosí, S. A. de C. V.
100
Las Cervezas Modelo del Sureste, S. A. de C. V.
100
Distribuidora de Cervezas Modelo en Chihuahua, S. A. de C. V.
100
Las Cervezas Modelo del Estado de México, S. A. de C. V.
100
Las Cervezas Modelo del Altiplano, S. A. de C. V.
100
Las Cervezas Modelo en Baja California, S. A. de C. V.
100
Las Cervezas Modelo en Sonora, S. A. de C. V.
100
Las Cervezas Modelo en Campeche, S. A. de C. V.
100
Las Cervezas Modelo en la zona Metropolitana, S. A. de C. V.
100
Las Cervezas Modelo en Zacatecas, S. A. de C. V.
100
Las Cervezas Modelo en Hidalgo, S. A. de C. V.
100
Las Cervezas Modelo en Nuevo León, S. A. de C. V.
100

 
 
 

 

 
Distributors of beer and other products abroad:
 
GModelo Corporation, Inc. (holder of 50% of Crown Import, LLC)
100
Procermex, Inc.
100
GModelo Europa, S. A. U.
100
Eurocermex, S. A.
100

2. ACCOUNTING POLICIES:

The Group accounting policies used in preparing these consolidated financial statements comply with the requirements for reasonable presentation set forth by Mexican Financial Information Standards (NIF) and are expressed in thousands of pesos of December 31, 2007 purchasing power through application of National Consumer Price Index (NCPI) factors.  Those standards require that the Group’s Management make certain estimates and assumptions in determining the valuation of some items included in the consolidated financial statements.
Following is a summary of the most significant accounting policies, methods and criteria for recognizing the effects of inflation on the financial information:

a)
Consolidation - The Group prepares consolidated financial statements, which include the financial position and the results of the companies in which Diblo, S. A. de C. V. has control and direct or indirect shareholding of more than 50% of the common stock. All significant balances and transactions between consolidated companies have been eliminated for consolidation purposes. Consolidation was performed based on the audited financial statements of most of the subsidiaries.

b)
Marketable securities - Investments in marketable securities correspond to financial instruments related to the Group’s business purpose and financial instruments available for sale, and are valued at their fair value, which is similar to their market value. The fair value is the amount at which a financial asset may be exchanged, and a financial liability may be liquidated, between interested and willing parties in a free market transaction.

c)
Derivative financial instruments - The main financial risks for the Company pertain to exchange fluctuations (dollar-peso) and until 2006, for the price of natural gas, which are covered by contracting derivative instruments (Over-the-Counter) with different parties. This item is recorded as assets and liabilities at their reasonable value. Gains or losses on those investments are recorded directly in income for the year. See Note 16.

d)
Inventories and cost of sales - This item is originally recorded through the last-in-first-out method and is subsequently restated to replacement cost. Values thus determined do not exceed market value. See Note 4.

e)
Investment in shares of associates - Permanent investment in shares are recorded at acquisition cost and are valued by applying the equity method. Equity in the net income of associated companies that manufacture materials used in the production of beer is included in the of income statement as a reduction in cost of sales.

f)
Property, plant and equipment - These items are recorded at acquisition cost, restated by applying inflation factors derived from the NCPI according to the antiquity of the erogation.

g)
Construction in progress and advances to suppliers - These items are recorded at the amount of the expenditures made, and are restated by applying NCPI factors based on the ageing of the expenditure.

h)
Depreciation - This item is calculated based on the restated values of property, plant and equipment, based on the probable useful life as determined by independent appraisers and the technical department of the Group. Annual depreciation rates are shown in Note 6.

i)
Deferred expenses and intangible assets - Intangible assets are recognized in the balance sheets provided they are identifiable, they generate expected economic benefits, and there is control over said benefits. These items are restated by applying NCPI factors based on expenditure ageing. Licenses and permits represent payments made to exploit a patent or registration issued by the owner of said items. They are recorded at acquisition value, which at the date of the consolidated financial statements is similar to market.

j)
Amortization - The original amount and restatement increment for installation, organization and intangible asset expenses are amortized by the straight-line method. The rate used for accounting purposes (between 5% and 10%) is determined based on expected future economic benefits.

k)
Long-lived assets - The Group’s Management has carried out a study to determine the recoverable value of long-lived assets, tangible and intangible, in order to determine if there is indication of significant impairment in those assets, no impairment was determined at the date of the consolidated financial statements.

l)
Labor obligations upon retirement - The effects of seniority premiums to which employees are entitled after 15 years of service and obligations for compensation at the end of employment established in retirement plans established for

 
 

 

 
employees are recorded as cost for the years in which said services are rendered, based on actuarial studies performed by independent experts, and are recorded based on the guidelines of Statement D-3, “Labor Obligations” and the amendments thereto.
 
m)
Deferred income tax, employees’ profit sharing and unique rate tax - To determine deferred income tax and unique rate tax, the Group uses the comprehensive asset-and-liability method, which consists of applying the income tax rate to all temporary differences of assets and liabilities at the date of the consolidated financial statements. Deferred Statutory Profit Sharing only arises on non-recurring temporary items. See Note 12c.

n)
Stockholders’ equity - The capital stock, legal reserve, contributions for future capital increases and retained earnings represent the value of those items in terms of December 31, 2006 purchasing power and are restated by applying NCPI factors to historical amounts.

 
Premium on share subscription - This item represents the excess difference between payment of subscribed shares and the theoretical value of those shares at the time of subscription, and is restated by applying NCPI factors.
 
 
Deficit in the restatement of stockholders’ equity - The balance of this account represents the sum of the items “Cumulative gain or loss from holding non-monetary assets” and “Cumulative monetary gain or loss”, described below:
 
 
Cumulative gains or loss from holding non-monetary assets - This item represents the cumulative change in the value of non-monetary assets due to causes other than inflation. It is determined only when the specific cost method is used, since those costs are compared to restatements determined using the NCPI. If the specific costs are higher than the indexes, there is a gain from holding non-monetary assets; otherwise, there is a loss.
 
 
Cumulative monetary gain or loss - This item is the net effect arising on the initial restatement of the financial statement figures.

o)
Gains or loss on monetary position - This account represents the effect of inflation on monetary assets and liabilities, even when they continue to have the same nominal value. When monetary assets exceed monetary liabilities, a monetary loss is generated, since although assets maintain their nominal value, they lose purchasing power. When liabilities are greater, a profit arises, since they are settled with money of lower purchasing power. Those effects are charged or credited to income statement and form part of comprehensive financing income.

p)
Comprehensive income - This item represents the net profit for the year, non-monetary assets result, the gain (loss) for the translation of the subsidiaries located abroad, plus any items which, in accordance with the provisions of other statements, must be recorded directly in stockholders’ equity and do not qualify as capital contributions or reductions.

q)
Earnings per share - Earnings per share attributable to the majority interest were calculated based on the average of common shares outstanding.

r)
Foreign currencies - Transactions in foreign currencies are recorded at the rates of exchange prevailing on the dates they are entered into and/or settled. Assets and liabilities denominated in such currencies are stated at the Mexican peso equivalents resulting from applying the rates prevailing on the balance sheet dates. Exchange differences arising from fluctuations in the exchange rates between the transactions and settlement dates, or the balance sheet date, are debited or credited to income. See Note 14.

s)
Translation of the financial information of subsidiaries located abroad - Conversion to Mexican pesos, used as the basis for consolidation, was carried out based on the guidelines of Statement B-15, “Transactions in Foreign Currency and Conversion of Financial Statements of Foreign Operations”, was performed on the following bases: a) monetary items at the exchange rate in effect for the year-end close, purchase exchange rate $10.8727 ($10.76 in 2006) to the US dollar, b) non-monetary items at historical exchange rate, c) income-loss items at average exchange rate for each month of the year, and d) the effect of conversion is recorded under comprehensive financing income-loss. The financial statements in Mexican pesos are restated at the year-end close by applying the provisions of Statement B-10.

t)
Classification of ordinary and non ordinary transactions - The company adopted the provisions of NIF B-3 “Income Statement” standard, which became effective January 1, 2007.  Revenues, costs and expenses were classified in ordinary and non ordinary.  Special and extraordinary items were eliminated. Legal profit sharing was reclassified from income taxes to other expense and treated as a non ordinary expense and amounted to $1,286,134 during the year. For comparison purposes, the $1,302,232 registered in 2006 was reclassified.


 
 

 

3. ACCOUNTS AND NOTES RECEIVABLE:

This account is made up as follows:

Item
 
2007
   
2006
 
Trade accounts receivable
  $ 6,385,207     $ 4,844,032  
Sundry debtors
    549,300       340,262  
Salesmen
    18,941       15,765  
      6,953,448       5,200,059  
Less - Allowance for doubtful accounts
    (340,186 )     (335,879 )
      6,613,262       4,864,180  
Recoverable taxes
    418,645       215,745  
Non-consolidated related companies (See Note 13)
    72,061       49,914  
Officers and employees
    34,473       32,405  
      7,138,441       5,162,244  
Less - Current accounts and notes receivable
    (5,413,848 )     (3,724,554 )
Long-term accounts and notes receivable
  $ 1,724,593     $ 1,437,690  

4. INVENTORIES:

This account is made up as follows:

Item
 
2007
   
2006
 
Containers and packaging
  $ 3,420,158     $ 2,379,733  
Finished goods and work in process
    2,200,284       1,541,802  
Raw materials
    1,568,482       1,533,641  
Merchandise in transit and advances to suppliers
    1,542,303       867,004  
Spare parts and accessories
    702,465       652,305  
Advertising articles
    206,960       129,173  
      9,640,652       7,103,658  
Less- Allowance for slow-moving inventories
    (136,097 )     (141,926 )
    $ 9,504,555     $ 6,961,732  
 
5. INVESTMENT IN SHARES OF ASSOCIATED COMPANIES:
 
a)
The balance of this account is made up as follows:
 
 
Companies
 
Shareholding
percentage in
shares comprising
the capital stock
   
2007
   
2006
 
Dirección de Fábricas, S. A. de C. V. (holder
of glass manufacturing companies)
    41     $ 3,454,482     $ 3,102,917  
Manantiales la Asunción, S. A. P. I. de C. V.
 
  60
      445,141       -  
Gondi, S. A. de C. V.
 
 7
      214,318       226,366  
Investments abroad
 
 40-81
      85,067       125,748  
              4,199,008       3,455,031  
Other
            47,837       53,484  
              4,246,845       3,508,515  
Less - Allowance for decline in book value
            (69,459 )     (147,554 )
            $ 4,177,386     $ 3,360,961  

b)
The amount of the investment in shares of associated companies includes the equity in the net income of those entities amounting to $525,770 ($611,620 in 2006) of profit.


 
 

 

6. PROPERTY, PLANT AND EQUIPMENT, NET:

a) The balance of this account is made up as follows:

   
 
      2007    
 2006
 
Item
 
Annual
percentage of
depreciation
rate
   
Historical
cost - net
   
Restatement -
net
   
Total
net value
   
 Total
net value
 
Land
   
-
    $ 1,620,065     $ 3,236,266     $ 4,856,331     $ 5,032,597  
Machinery and equipment
   
5
      14,301,114       7,947,178       22,248,292       23,051,551  
Transportation equipment
 
12 to 25
      2,522,857       344,500       2,867,357       3,103,914  
Buildings and constructions
   
2
      6,875,008       6,730,890       13,605,898       14,543,722  
Computer equipment
   
25
      506,973       41,263       548,236       584,053  
Furniture and other equipment
   
7
      1,646,293       91,438       1,737,731       476,486  
Antipollution equipment
   
5
      538,773       317,032       855,805       902,937  
Construction in progress
                                       
advances to suppliers
   
-
      5,378,716       212,174       5,590,890       3,349,644  
 
          $ 33,389,799     $ 18,920,741     $ 52,310,540     $ 51,044,904  

Depreciation for the year amounted to $3,120,777 ($2,897,764 in 2006).


b)
The Group’s Management estimates that completion of construction in process and advances to suppliers will require an additional investment of approximately $6,589,782 (2,030,782 in 2006) to be applied to the construction of warehouses, offices, the acquisition and installation of new production lines.  This work is expected to conclude in 2008 and 2010 in each case.

7. OTHER ASSETS:

The balance of this account is made up as follows:

Item
 
2007
   
 2006
 
Deferred expenses
  $ 2,548,044     $ 2,213,858  
Goodwill and other intangible assets
    1,400,201       658,834  
      3,948,245       2,872,692  
Less - Acumulated amortization
    (1,086,522 )     (850,002 )
      2,861,723       2,022,690  
Intangible assets for labor obligations upon retirement (See Note 8)
    382,801       468,369  
    $ 3,244,524     $ 2,491,059  

8. LABOR OBLIGATIONS UPON RETIREMENT:

The Group has a pension and seniority premium plan to cover obligations established by its labor contracts and the Mexican Federal Labor Law. Those compensations are payable only after employees have worked a certain number of years.

-
As of the date of the consolidated financial statements, the amount of the accrued liability for labor obligations upon retirement is analyzed as follows:

Description
 
2007
   
 2006
 
             
Obligations for current benefits
  $ 5,641,434     $ 5,378,502  
Additional amount of projected benefits
    420,039       418,284  
Obligations for projected benefits
    6,061,473       5,796,786  
Plan assets (trust fund)
    (5,911,297 )     (5,693,805 )
      150,176       102,981  
Items to be amortized over a period of 13 to 19 years:
               
For adjustments to assumptions
    (636,434 )     (548,890 )
For past services
    (537,999 )     (575,680 )
Projected net assets
    (1,024,257 )     (1,021,589 )
Additional liability made of:
               
Intangible assets
    382,801       468,369  
Adjustment to capital
    641,456       553,220  
Accrued liability
  $ -     $ -  

 
 

 

-
The intangible assets and the adjustment to capital derived from subsidiaries in which the trust funds and the net current liability are less than the obligations for current benefits.

-
Contributions to the trusts that manage the plan assets in the year amounted to $227,365 ($301,411 in 2006).  In the year, payments made by the trusts to beneficiaries amounted to $311,510 ($352,280 in 2006).

-
The net cost for the year amounted to $267,644 ($300,585 in 2006), and was determined in the same manner as projected benefit obligations at an estimated real rate of return of 5%, and an average increase in salaries of 1.5% in both periods.

 
-
Severance payments of $397,153 ($478,981 in 2006), were made in the year.
 
 
9. CONTINGENCIES AND COMMITMENTS:
 
a)
Various lawsuits are currently outstanding for different reasons. In the opinion of the Group’s officers and lawyers, these matters will be resolved favorably. In any event, the result of the lawsuits will not substantially affect the consolidated financial position or the consolidated results of operations.

b)
As of the date of the consolidated financial statements, there are outstanding commitments for the purchase of inventories, machinery and equipment in the amount of approximately 264 million U.S. dollars (169 million U.S. dollars in 2006).

c)
In 2000 and 2001, operating lease agreements were signed for air transportation equipment, with mandatory terms of 10 and 7 years and monthly lease payments of 170,000 U.S. dollars and 24,000 U.S. dollars, respectively.

10. COMMON STOCK:

As of December 31, 2007, the common stock consisted of 3,243,118,032 (3,251,759,632 in 2006) shares, with no par value, divided as follows:

Description
   
Amount
 
Fixed capital:
     
Series A Class I shares - Without withdrawal rights, comprised of 1,459,389,728 fully subscribed and paid-in common voting shares; these shares must always comprise at least 56.10% of the total shares of the common stock with voting rights, and may be acquired directly or indirectly only by Mexican individuals or corporations (historical value)
  $ 785,996  
Variable capital:
       
Series B Class II shares - Comprised of 1,142,017,984 fully subscribed and paid-in common voting shares, which in no case may comprise more than 43.90% of the total voting and are not subject to ownership subscription limitations (historical value)
    1,085,855  
Series C Class II shares - Comprised of 641,710,320 (650,351,920 in 2006) fully subscribed and paid-in nonvoting shares, which in no case may comprise more than 20% of the common stock (historical value)
    967,801  
      2,839,652  
Effect of restatement
    13,537,759  
    $ 16,377,411  

11. COMPREHENSIVE INCOME:

The Group’s comprehensive income for the year is made up as follows:

Description
 
2007
   
2006
 
Consolidated net income for the year
  $ 12,359,433     $ 11,737,415  
Adjustment to capital for labor obligations upon retirement
    (42,978 )     133,411  
Result from holding non-monetary assets
    (22,154 )     (385,424 )
Comprehensive income
  $ 12,249,301     $ 11,485,402  


 
 

 

12.
INCOME, ASSET AND UNIQUE RATE TAX, EMPLOYEES’ PROFIT SHARING AND RESTRICTIONS ON PROFITS:

a)
On January 1, 2005, modifications to the Law of ISR were approved that consist of the annual reduction of the rate of the tax until arriving at 28% in 2007 (29% in 2006); additionally on October 1, 2007, the new Special Unique Rate Tax Law (IETU Tax Law, due to its name in Spanish) was approved and it will become effective on January 1, 2008. . The IETU at the end of the period calculates applying the rate of the 17.5% (16.5% and 17% for 2008 and 2009, respectively) to a utility determined with base in cash flow, this utility is determined through diminishing of the totality of the income perceived by the taxed activities, the deductions authorized. Of the previous result the calls are diminished IETU credits, according to establishes the effective legislation.
 
 
In the 2007 and 2006 Group it determined a tax utility of $12,852,242 and $12,299,813 respectively. With base in his fiscal financial projections and, one determined that the tax that essentially will pay in the future, except some subsidiaries, will be the income tax. Of the subsidiaries that are subject to the IETU, the deferred tax was recognized corresponding and the relative one to the income tax was cancelled.
 
b)
The income tax and asset tax provision as of December 31 are as follows:

Item
 
2007
   
 2006
 
Income currently payable
  $ 5,448,081     $ 5,008,701  
Asset tax
    55,358       62,103  
Deferred income tax
    (20,569 )     (108,178 )
Deferred IETU tax
    31,111       .  
    $ 5,513,981     $ 4,962,626  

c)
Deferred taxes and employees’ profit sharing - The principal temporary differences giving rise to deferred taxes at the date of these consolidated financial statements are analyzed as follows:

Item    
2007
     
2006
 
Fixed assets and other assets
  $ 7,058,912     $ 6,629,619  
Inventories
    552,663       803,784  
Labor obligations upon retirement
    274,602       289,912  
Other
    410,406       606,867  
Subtotal
    8,296,583       8,330,182  
Tax credits corresponding to:
               
Recoverable asset tax
    (60,869 )     (80,359 )
Total deferred tax liability
    8,235,714       8,249,823  
Deferred employees’ profit sharing
    98,886       114,113  
Deferred IETU tax
    31,111       -  
Total deferred income, asset, unique rate tax and
               
employees’ profit sharing liability
  $ 8,365,711     $ 8,363,936  

d)
Asset tax is calculated by applying the rate of 1.25% (1.8% in 2006) to the net amount of certain assets (certain liabilities in 2006) and is paid only when asset tax exceeds income tax of the year.

e)
Employees’ profit sharing is calculated by applying the rate of 10% to amount determined in accordance with the special rules set forth in the Income Tax Law. The employees’ profit sharing provision charged to income is made up as follows:

Item
 
2007
   
2006
 
Current employees’ profit sharing
  $ 1,317,330     $ 1,331,444  
Deferred employees’ profit sharing
    (31,196 )     (29,212 )
    $ 1,286,134     $ 1,302,232  

f)
The combined statutory rates for income tax and employee’s profit sharing are 28% (29% in 2006), and differ from the effective rate of 26.5% (29.7% in 2006), due mainly to the effects of tax consolidation and non-deductible expenses.

g)
At the date of the consolidated financial statements, asset tax amount to $221,314 ($295,899 in 2006), which can be recovered in the following ten years to the extent income tax exceeds asset tax in any of those years.

 
-
Certain subsidiaries incurred in no income tax, and therefore the asset tax for the year is considered an account receivable for those companies in which there is certainty that said amount can be credited against income tax in future years.  This item is shown in the consolidated balance sheet, together with deferred tax, as provided by Statement D-4.  The accumulated balance of this item amount to $60,869 ($80,359 in 2006).

 
-
Asset tax incurred by subsidiaries where there is no certainty that the tax can be recovered, and it exceeds income tax, was charged directly to income for the year, and amounted to $55,358 ($62,103 in 2006).

 
 

 

 
h)
Grupo Modelo S. A. B. de C. V., together with its direct and indirect subsidiaries, is authorized by the tax authorities to determine income tax on a consolidated basis specified in the Income Tax Law. The main considerations in the tax consolidations are as follows:

 
-
The consolidation percentage is the average shareholding, which is applied to each of the subsidiaries, and is 100% for the parent company from 2006 onwards. Subsidiaries’ tax loss carryforwards included in the determination of the consolidated tax result and corresponding to tax years 1999 to 2004, and which are to be applied against tax profits generated in the year, are considered at the consolidating percentage multiplied by the 0.60 factor.

 
-
Any companies in which the direct or indirect equity percentage does not exceed 50% may not be included in the consolidation process.

 
-
Individual tax losses of the parent or subsidiaries which are not applied in accordance with the law must be added to the consolidated profit of the year in which they expire.

i)
At the date of the consolidated balance sheet, there were tax losses generated by subsidiaries before the incorporation in the tax consolidation that will affect the consolidated tax result by $10,715 ($17,377 in 2006) at the time these subsidiaries generate taxable income, and which may be offset against future tax profits after have been restated. Tax losses from prior years in the amount of $12,293 ($12,452 in 2006) have been offset in the year vs. historical losses of prior years.

j)
Retained earnings are subject to income tax payable by the company in the event of a distribution (in cash or assets), which is considered to be a final payment on the basis of the following:

 
-
Dividends paid out from the After-tax Income Account (CUFIN) are not subject to income tax.  Any amount paid in excess is subject to 28% income tax on the result of multiplying the dividend paid by the factor of 1.3889 (1.4085 in 2006); the corresponding tax may be credited against the company’s income tax determined in the current year or over the following two years.  Dividends paid are not subject to any withholding tax.

 
-
In the year, dividends in the amount of $6,763,660 ($4,064,700 in 2006), have been declared to majority stockholders, which were paid from the CUFIN.

 
-
At of the date of the consolidated financial statements, the CUFIN balance is $31,511,118 ($22,035,982 in 2006).

k)
In the event of a capital reduction, the excess of stockholders’ equity over the Tax Account Contributed Capital, the latter restated in accordance with the procedures established in the Income Tax Law, is accorded the same tax treatment as dividends.

13. TRANSACTIONS WITH NON-CONSOLIDATED RELATED COMPANIES:

The principal transactions entered into with non-consolidated related companies are analyzed as follows:

Description
 
2007
   
 2006
 
Purchases of:
           
Containers and packaging
  $ 7,135,515     $ 7,099,443  
Machinery
    -       2,313  
    $ 7,135,515     $ 7,101,756  
Sales of:
               
Recyclable materials
  $ 165,373     $ 194,692  
Machinery and maintenance services
    26,737       3,944  
    $ 192,110     $ 198,636  

14. FOREIGN-CURRENCY POSITION AND TRANSACTIONS:

a)
As of the consolidated balance-sheet date, the Group had the following position in thousand U.S. dollars:

Description
 
2007
   
2006
 
Assets
    463,016       334,799  
Liabilities
    138,288       90,163  
                 

b)
These currencies are valued at the following exchange rates:
   
Assets
   
Liabilities
 
At the exchange rate of $10.8727 pesos exchange rate
           
for assets and $10.8688 for liabilities to the US dollar
  $ 5,034,255     $ 1,503,030  

 
 

 
 
 
-
The exchange rate as of the date of the consolidated financial statements was $10.7653 for assets and liabilities.

c)
At the date of the consolidated financial statements, there were inventories amounting to 68,652,000 U.S. dollars (61,998,000 U.S. dollars in 2006), which for the most part can only be acquired abroad.

d)
During the year, the following operations were carried out in U.S. dollars (thousands):

Description
 
2007
   
2006
 
Exports of finished goods
    2,762,116       1,471,860  
Exports of packaging and other materials
    43,012       41,908  
Collection of royalties
    9,595       177,938  
      2,814,723       1,691,706  
Freight, advertising, taxes and duties, and other items
    694,963       316,718  
Purchase of inventories
    548,977       211,087  
Purchase of machinery and payment of other services
    177,476       62,910  
Purchase of spare parts
    56,912       10,322  
      1,478,328       601,037  
Net
    1,336,395       1,090,669  

15. SEGMENT INFORMATION:

Segment data is analyzed as follows:

2007:
 
Income
   
Consolidated
net profit
   
Identifiable
assets
 
Domestic
  $ 42,146,358     $ 8,016,141     $ 92,991,364  
Exports
    30,748,271       7,252,698       6,732,883 (1)
    $ 72,894,629     $ 15,268,839     $ 99,724,247  
2006:
                       
Domestic
  $ 41,610,400     $