Alsea, S.A.B. de C.V.
Annual Report 2001

Plain-text annual report

with people for people annual report 2001 is leader in developing and operating quick service restaurants of recognized brands, operates Domino’s Pizza in Mexico and Brazil, and El Pan Caliente in Mexico. The operation of its multi-units is supported by the distribution division, DIA, and the bread division, Alysa. The stock is traded in the Mexican Stock Exchange under the symbol ALSEA*. Contents Strategic plan Financial highlights Message to our shareholders Corporate governance Board of Directors Domino’s Pizza Mexico Domino’s Pizza Brazil El Pan Caliente Alysa DIA Human resources Systems and processes Management’s discussion and analysis Main officers Consolidated financial statements 1 2 4 8 11 12 16 18 19 20 24 25 26 28 29 Alsea, S.A. de C. V. Yucatán 23 Col. Hipódromo Condesa 06170, México D.F. Phone: 5241.7100 Fax: 5241.7048 www.alsea.com.mx with people for people annual report 2001 is leader in developing and operating quick service restaurants of recognized brands, operates Domino’s Pizza in Mexico and Brazil, and El Pan Caliente in Mexico. The operation of its multi-units is supported by the distribution division, DIA, and the bread division, Alysa. The stock is traded in the Mexican Stock Exchange under the symbol ALSEA*. Contents Strategic plan Financial highlights Message to our shareholders Corporate governance Board of Directors Domino’s Pizza Mexico Domino’s Pizza Brazil El Pan Caliente Alysa DIA Human resources Systems and processes Management’s discussion and analysis Main officers Consolidated financial statements 1 2 4 8 11 12 16 18 19 20 24 25 26 28 29 Alsea, S.A. de C. V. Yucatán 23 Col. Hipódromo Condesa 06170, México D.F. Phone: 5241.7100 Fax: 5241.7048 www.alsea.com.mx mission and vision corporate structure information for shareholders Raison d’être To develop, manage and control the businesses of the Group by employing a synergy and critical mass model to improve our human and material resources. Where we want to go Be of the highest quality and most profitable quick service restaurant operator. our values Operadora DP de México, Dobrasil, S.A. de C.V. develops Para Servirle a Usted, S.A. de C.V. develops and operates and operates the brand in Brazil S.A. de C.V. develops and the brand in Mexico since 1989 since 1997 through 12 company- operates the brand El Pan Caliente through 425 stores, out of which 283 owned stores. through 14 company-owned stores are property of Alsea and 142 are franchises. since 2000. Distribuidor Internacional Alysa, S.A. de C.V. manufactures, de Alimentos, S.A. de C.V. . distributes and sells wholesale frozen is devoted to the foodservice business dough since 2001, with two production and the production of pizza dough since plants. 1992. Its five distribution centers give it national coverage. service and customer focus excellence and integral development respect, integrity and austerity vigilant on quality and productivity innovation and creativity efficiency, commitment and teamwork All our activities are We encourage the development Our people are required to respect ethical Our definition of quality is to do things We encourage creativity, as it is an We call for responsible, focused on identifying and of our people and their families to and moral principles, being congruent in well with the first try, using our resources important part of the foundations needed committed people capable of thoughts, words and actions. Our motto “work and savings” comes to life with austerity, which is understood as the rational and efficient use of company resources. meeting our customers’ expand their knowledge, skills and excellence. of our efforts. needs: they are the reason capabilities as we strive for ser at all times promoting collaboration and teamwork. for development and ongoing making things happen, who are and internationally competitive. capabilities and superior results. known as a company with innovating the-art technology in order to exceed our improvement. We particularly want to be customers’ expectations and be nationally fully with the best processes, and state-of- iv ce Independent Auditors Investor Relations PricewaterhouseCoopers Lizette Chang Mariano Escobedo 573 lchang@alsea.com.mx Col. Rincón del Bosque Phone: 5241.7158 11580, México, D.F. Phone: 5263.6000 Fax: 5263.6010 Fax: 5241.7048 Information on Alsea’s stock and medium-term promissory note Alsea, S.A. de C.V. trades its single series shares in the Mexican Stock Exhange as of June 25, 1999, under the ticker symbol Alsea*. The Company’s promissory note, whose public offer in the Mexican Stock Exchange took place on August 25, 2000, is under the ticker symbol Alsea P00. Reference symbols for Reference symbols for the the stock medium-term promissory note Bloomberg ALSEA* Bloomberg ALSEA Reuters ALSEA.MX Reuters ALEFL00P=MX Infosel ALSEA* Infosel ALSEA 2 . x m m o c . 3 o n e l i i m : n g i s e d Customer satisfaction and operating excellence Customers always come first for us. We strive to meet their needs and go beyond their expectations and the competition’s through product, service, and appearance, giving them great value for their money. Our quality, efficiency and productivity abide by international performance standards. Marketing leadership Our goal is to be the leaders in our area, by operating brands and concepts that have proven successful in order to consolidate our position. strategic plan 2002-2006 Preferred employer We promote a comprehensive development of our human resources by offering integral remuneration that encourages retention. We want to be the preferred employer of our market. Strategic partners Our goal is to jointly grow with our suppliers and commercial partners. We strive to maximize benefits for our franchisers, franchisees and associates. Shareholders’ value Our objective is to increase our shareholders’ equity by striving to reach the highest productivity and profitability levels. 1 financial highlights graphs financial highlights Figures expressed in thousands of pesos as of December, 2001. 2,3 3 4,5 3 2 2,184,090 3 1 8,0 2 9 322,737 303,399 1,580,286 1,057,227 s 536,009 e l a s t e N 201,192 119.616 A D T B E I 7 9 8 9 9 9 0 0 1 0 7 9 8 9 9 9 0 0 1 0 CAGR=45% CAGR=28% 890,260 8 4 7,4 3 8 819,739 447,691 385,417 y t i u q e l s ’ r e d o h e r a h S 4 5 1 431 343 265 197 s e r o t s l a t o T 7 9 8 9 9 9 0 0 1 0 7 9 8 9 9 9 0 0 1 0 CAGR=23% CAGR=23% 2 Figures expressed in thousands of pesos as of December, 2001. Same store sales Net sales Gross profit Operating profit Net profit 2001 -1.5% 2000 2.1% 1999 7.3% 1998 25.7% CAGR 1997 01 / 97 23.0% $ 2,344,532 $ 2,184,090 $ 1,580,286 $ 1,057,227 $ 536,009 1,248,681 1,184,745 207,852 29,382 (1) 234,658 100,622 836,594 240,838 146,910 540,594 157,332 86,614 242,484 92,336 45% 51% 22% 69,921 -19% EBITDA $ 318,029 $ 322,737 $ 303,399 $ 201,192 $ 119,616 28% Capital expenditures Cash flow 115,428 214,252 281,277 498,671 328,160 194,136 282,714 138,114 356,267 -24% 81,227 27% Total assets $ 1,395,537 $ 1,513,009 $ 1,228,155 $ 901,429 $ 518,671 Total liabilities Total debt with cost Shareholder’s equity 475,116 210,289 874,438 607,527 299,258 890,260 405,450 194,961 819,739 453,123 274,536 447,691 133,191 28,251 385,417 Earnings per share* $ 0.24 $ 0.83 $ 1.27 $ 0.83 $ Dividends per share* Book value* 0.34 7.22 0.00 7.32 0.00 6.76 0.19 4.29 0.34 0.00 1.85 Outstanding shares* 120,755,627 121,702,227 121,335,370 104,389,370 208,114,000 Employees* Total stores* 6,893 451 6,834 431 5,655 343 3,835 265 2,013 197 *Except for data per share, employee data and total stores. (1) The decrease of net profit in 2001 is a result of the process of restructuring that includes clearing expense accounts and non recurrent items in order to improve productivity mainly in the distribution division. See details in the MD&A. 28% 37% 65% 23% -8% - 41% - 36% 23% 3 message to our shareholders To our shareholders, 2001 was an important year for Alsea, as it laid new foundations for the Company’s future growth. We continued with our institutionalization efforts, restructured our Board of Directors and its intermediate parts to ensure that the objectives, set for the Executive Office and management approved by the new Board of Directors with regards to our 2002-2006 strategic plan, were fulfilled. This new plan focuses on five strategic areas: • Meet customers needs and be excellent operators. • Be the leaders in our industry and sector. • Be the preferred employer. • Be the best commercial partners. • Create value for our shareholders. Based on these strategic areas and on the objectives set for each of them, we reevaluated prof- itability and perspective of each of our business units. We concluded that the Domino’s Pizza divi- sion in Mexico and Brazil would be our current main business and the development of quick serv- ice multiunits would be Alsea’s main objective, with the support of its food manufacturing and distribution areas. We are currently in negotiations to develop in Mexico other leading brands with proven worldwide success. This would enable us to capitalize on our domestic experience and infrastructure. With these foundations, we aligned our organizational structure, our coordination processes and models with our strategies in order to guarantee our goal fulfillment. Each alignment operates under Alsea’s synergy scheme, that brings us together with a model of shared services, which will perma- nently optimize and make our processes, systems, and structures more efficient. 4 tobethe highest quality and more profitable quick service restaurant operator We are currently in negotiations to develop in Mexico other leading brands with proven world- Our business model ensures the best operating implementation in terms of for the bakery industry. With this partnership we created a new subsidiary of Alysa, which will man- wide success. This would product, service and image to strengthen our customer care. We seek to imple- ufacture and distribute frozen dough, and will allow us to serve new customers, with a better prod- ment more efficient models in order to standardize and simplify our store oper- uct, higher volume, efficiency and market presence. This partnership will ensure the replenishment enable us to capitalize on ations, strengthening internal controls and increasing profitability, based on of El Pan Caliente units with a better product, which is of the highest quality for our customers. our domestic experience technology that optimizes processes and give us accurate and timely informa- We made a series of strategic decisions that had a negative impact on the Company’s financial tion for decision-making. statements, and are shown in the income statement under other expenses. These results amount to and infrastructure. Consolidated sales amounted to $2,344 million pesos, representing a compound $76.2 million pesos due to closing and relocation of stores and distribution centers, technology annual growth of 45% since 1997, ending 2001 with a total of 451 stores. investments, and items directly linked to the restructuring undergone by our distribution division, Sales for the Domino’s Pizza System increased by 10.5%; ending the year with 425 units out of such as the cancellation of non-productive customers and the respective estimation of bad debt. which 283 are company-owned stores and 142 are franchises. This was a consolidation year for this We are confident that the decisions made to align Alsea’s long-term strategic plan will direct us subsidiary, made evident by its leadership in the market and the closing of some of our competitors towards a profitable continuous growth. We want to thank our customers, employees, franchisees, business. We served over 23 million orders and sold 25.9 million pizza units. We have proven suc- franchisers, suppliers, and shareholders for your trust; we reiterate our commitment to maintain our cess with our customers, who identify us as the leading home delivery pizza brand, with the high- position as leaders. est quality and a 30-minute delivery guarantee or free pizza. During 2001, our Brazil division joined efforts to enter the regional market, positioning the brand and placing Domino’s Pizza as the leading pizza delivery company in the city of Rio de Janeiro. We adapted our menus to cater to our Brazilian consumers. Furthermore, we adapted the variables of Domino’s Pizza Brazil to our international standards achieving more efficient operations, as we fos- tered future growth with a solid structure. We ended the year with 12 company-owned stores oper- ating under a home delivery concept with a 30-minute guarantee or free order. Our 30.2% same store sales prove we are on the right track. We closed 2001 with a total of 14 El Pan Caliente stores located in high-traffic areas. During the year, we worked on our business model to determine its future growth potential. Throughout the year, we redefined our distribution division customer portfolio focusing exclusive- ly on those multiunit chains that have a minimum of 50 units and manage a complete catalogue of centralized purchases by volume. This change will ensure a productive and profitable division. Even without the 36 customers we no longer serve, the division grew 4.3% in real terms, servicing 772 businesses twice a week in 116 cities throughout the country. As of November, DIA is the sole Burger King distributor, which reaffirms our position as a leading distributor with exceptional logistics and service capabilities. In August 2001 we formed a partnership with Puratos de Mexico, a Puratos Group subsidiary, who is Alberto Torrado Martínez Cosme Torrado Martínez one of the leaders in the manufacturing and distribution of frozen dough, improvers, mixes, and fillings Chairman of the Board of Directors Chief Executive Officer 6 7 corporate governance auditing committee planning and finance committee To the Board of Directors of ALSEA, S.A. de C.V. To the Board of Directors of ALSEA, S.A. de C.V. In compliance with the provisions of Article 14 of the Stock Exchange Law, and on behalf of the Auditing In compliance with the provisions of Article 14 of the Stock Exchange Law, and on behalf of the Planning and Committee, I am pleased to submit a report on the activities for the year ending December 31, 2001. We conduct- Finance Committee, I am pleased to submit a report on the activities for the year ending December 31, 2001. We ed our audits in compliance with auditing standards contained in the Corporate Code of Best Practices. conducted our audits in compliance with auditing standards contained in the Corporate Code of Best Practices. Furthermore, the Company’s Statutory Auditor attended the Board of Directors’ meetings to which he was sum- Furthermore, the Company’s Statutory Auditor attended the Board of Directors’ meetings to which he was sum- moned under the terms of the above-mentioned law. moned under the terms of the above-mentioned law. To fulfill the responsibilities of this Committee we carried out the following activities: To fulfill the responsibilities of this Committee we carried out the following activities: 1. After a process of analysis and evaluation, we advised the Board of Directors to hire the firm that conducted our 2001 1. We set general criteria to develop Alsea’s 2002-2006 Strategic Plan, to be implemented as January 2, 2002. independent audit. Simultaneously, we began the authorization process of communication, follow-up (control journal) and evaluation plans. 2. During the interviews with the independent auditor, we made sure they met independence requirements and rotated 2. We set the general provisions to create the 2002 business plan. their supervising staff. We also revised the procedures and scope of their auditing procedures, as well as their com- 3. We reviewed the 2002 business plans of each of Alsea’s companies to validate them before they were presented to ments on internal control. the Board of Directors. The Board authorized said budgets during the first 15 days of December, 2001. 3. We reviewed the Company’s financial statements as of December, 2001, the report of independent auditors, and the 4. We defined financing policies that apply to all of Alsea’s companies. accounting principles on which they were based. After listening to the statements made by the independent auditors, 5. We revised the financial forecasts up to 2006, which will be presented quarterly to the Committee, making the nec- we advised the Board of Directors to put them under consideration at the Shareholders’ Meeting. essary adjustments. 4. We had a few meetings with the internal auditors to review and approve the scope of their work and the detailed audit- 6. We asked to present a model to evaluate the criteria followed on investment projects in each of the companies. ing programs carried out throughout the year. They filled us in on their main observations, management comments, The moment said model is presented, the Committee will determine the basis on which to create the correspon- and steps taken to implement said programs. ding policies. 5. The Committee was promptly informed by the Management of any relevant, unusual or related operations. As a result, 7. We are currently working on a stock exchange trading plan, for which we have reviewed a number of presentations we were given some recommendations that are now on their way to implementation. that contain general information on this issue. 6. We held meetings with the Company’s legal advisors and legal department to assess our legal status. We reviewed different aspects such as corporate documentation, government authorizations, disputes, contingencies, environmen- tal issues, etc. There were no significant observations. José Manuel Canal Hernando Auditing Committee President Salvador Cerón Aguilar Planning and Finance Committee President 8 9 assessment and compensation committee To the Board of Directors of ALSEA, S.A. de C.V. As suggested in the Management Code of Best Practices, the Assessment and Compensation Committee presented to the Board of Directors the following items for their approval, all of them being approved: 1. Alsea’s Organizational Chart with names and positions of the main executives and key staff. 2. A Performance Evaluation Model with evaluation criteria by area and individual. 3. A Compensation Package complemented by a salary pay band and benefits. 4. Criteria, tools, and regular evaluation of our management’s individual performance. 5. Administrative strategies and policies for the 2002 High Executive Compensation Plan, 2002. Francisco Gama Cruz Assessment and Compensation Committee President board of directors Honorary Chairman Alberto Torrado Monge 1C Chairman Alberto Torrado Martínez 1B Directors José Manuel Canal Hernando 2 A Salvador Cerón Aguilar 2 B Francisco Gama Cruz 2 A C Marcelo Rivero Garza 2 B Federico Tejado Bárcena 3 Armando Torrado Martínez 3 C Cosme Torrado Martínez 3 A Secretary Xavier Mangino Dueñas 2 Auditor Maximino Manuel Sañudo Bolaños 2 10 11 1 Proprietary 2 Independent Committees A Auditing B Planning and Finance Committees’ Secretaries Mario Sánchez Martínez José Rivera Río Rocha 3 Related Proprietary C Assessment and Compensation Ricardo García Luna Domino’s Pizza We also renewed our menu by introducing Canelazos instead of Pantasticos. Buy a Dominator, get Free Wings . We repositioned two of our exclusive products by putting them together in an irresistible promotion. To develop the Domino’s Pizza Mexico Domino’s Pizza System and become During this period, the Domino’s Pizza System opened 27 stores, remodeled 34 units, relocated 20 and closed 8, ending the year the best choice with 425 operating stores, which translates into a compound for customers annual growth of 22% in terms of number of stores since 1997. 67% of these stores are company-owned and the remaining 33% at any time. belong to our franchisees. Sales in our company-owned stores with more than a year in operation had a –2.0% growth. Domino’s Pizza’s 10.5% total sales growth in 2001 was driven by the advertising campaigns launched throughout this period. Advertising strengthened our leadership position in the eyes of our competitors. Our nationwide coverage helped us deliver 23.7 million orders in 103 cities throughout Mexico’s 32 states, confirming our leadership and solid position before our competitors in the quick service industry, causing some of them to close stores and even withdraw from the market. exceptional people making the world’s pizza best 16,768,029 25,903,876 22,967,646 Number of sold pizzas 7,666,799 10,101,467 97 C A G R = 98 3 6 % 99 00 0 1 12 13 Pizza Maniacs For almost two months, these offers made our customers place order after order. Domino’s Think Large. Once again, our affordable priced pizza encouraged our customers to think large. Joana Maldonado Store Manager, Armando Torrado Domino’s Pizza Mexico Officer. 14 Number of Stores in the Domino’s Pizza System, Mexico 18 90 91 44 85 92 93 94 110 130 124 151 194 255 335 409 425 95 96 97 98 99 00 0 1 283 Company-owned (228 delivery and 55 express) 142 Franchises (101 delivery and 41 express) Our customers dial direct from anywhere in the country and their call goes to the nearest store 01800 552 22 22 Sales contributions from stores offering home delivery represented 90% of our income, which is why the “home delivery” concept is key to our business focus. Furthermore, having twice as many stores as our competitors makes us unquestionable leaders being the only country, outside the United States, in which Domino’s Pizza International has 425 outlets. Domino’s Pizza has developed its strategy based on three fundamental aspects: brand building, high quality standards and operating performance. This successful business model was created 40 years ago and operates in over 7,200 stores in 63 countries. In terms of customer service, during 2001, we developed a store evaluation system completely focused on customer satisfaction, which will be assessed as of the first Cheddar Pizza. During this promotion, our customers enjoyed a new flavor on our pizzas. quarter of 2002. Likewise, in July we developed and successfully implemented our From November 14th to the 17th we held our 12th National Convention in Single Number. Our customers dial 01 800 552 22 22 from anywhere in the coun- Ixtapa, Zihuatanejo based on a “You make Domino’s” concept, with a motiva- try and their call goes right to the closest store based on their dialing area. tional and teamwork objective. Over 500 people from the Domino’s team We changed our measuring system of pizza units sold to a standard pizza attended the convention. We also offered time management courses and moti- measurement based on the average selling area. This year we sold 25.9 million vational workshops. Through our incentives plan, called The Big People Club, pizza unit, representing a 12.8% growth against last year. If we consider that one pizza we awarded over 60 prizes, which included three houses, six brand new autos unit is for three people, this means 77 million Mexicans ate Domino’s Pizza in 2001. and four used cars and cash scholarships. Sergio Tuyub, International Manager of the Year. 12 thNational Convention, Ixtapa, Zihuatanejo. 15 sua pizza em 30 minutos ouseu pedido grátis To develop the Domino’s Pizza Brazil Domino’s Pizza Massa Fina. Catering the pizza to the brazilian market. 12 company-owned stores with delivery service Humaita store, Rio de Janeiro, Brazil. Pizza Festa. Promotion for our large and medium pizzas, the second one cost half price. During the year we worked towards improving the main operating and financial variables of our Domino’s Pizza Brazil stores. We increased same store sales, reduced raw material and labor costs, we also increased orders; which resulted in a more profitable and efficient operation. Today, Domino’s Pizza is known in Rio de Janeiro for its product, excellent service, which is reliable and guaranteed, and a remarkable brand image. We made great regional efforts for brand positioning, and our greatest achievement was to position Domino’s Pizza as the leader in home delivery in this city. This is very significant, as there are many traditional competitors, and because of the importance this entity represents for the Brazilian market in terms of volume. To reach our goal, we changed our menu to cater to regional preferences, and also established communication with our customers through direct mail and other advertising resources. Again, the relocation of one of the stores and the remodeling of the remaining units was fundamental to make our leadership and brand image more noticible. In 2001 we delivered 492,563 orders, representing a 75.3% increase against last Gonzalo J. Ovalle Safe Delivery Expert, Federico Tejado Domino’s Pizza Brazil Officer. System in Brazil 2001 was a very significant year for Domino’s Pizza Brazil. A year year, and we sold 530,301 pizza units, which represents a 91% growth compared and become after Alsea took over the operations, sales rocketed by 65.7% with the year 2000 results. against last year’s. During this period, we closed the only two In all, Domino’s Pizza Brazil ended the year with an experienced team capable of the best choice existing franchised stores and opened 5 more units, ending the supporting future growth, and with excellent operating, administrative, marketing, for customers year with 12 company-owned stores. Same store sales increased development, and training structures. This will allow healthy and profitable growth in 30.2%, which reflects the great opportunities awaiting Domino’s the great opportunity that this country represents. at any time. Pizza in Brazil. 16 El Pan Caliente Alysa Exceptional people To be a team committed to meeting the supply needs of our customers by manufacturing the partnership between Puratos de Mexico and Alsea. Alysa manufac- Alysa is a new subsidiary created in August, 2001 after starting a best frozen dough tures and distributes frozen dough to the bakery industry in Mexico. through an efficient Alysa is the frozen dough manufacturer with the production capacity to serve dif- and responsible use ferent segments of the Mexican market. Our partnership with Puratos ensures the supply of our El Pan Caliente units, as we learn from their experience and knowl- of resources. edge in the United States and European markets, where frozen bread has had a offering quality During this period we had two store openings, remodeled 11 units greater penetration than before. oven-hot bread and closed one, to end the year with 14 operating stores. Outlets Puratos is an European company present in 57 countries, and has been operating in Mexico since were remodeled with a new image and the two new openings were 1977. Puratos handles frozen dough, bakery ingredients, chocolates and fruit fillings. close to you. located in urban areas. In the past few years, bakery frozen dough have become an excellent option for bread-selling stores. We represent an advantage for our customers, as we solve the increasing problem of lack Stores that have been in operation for more than a year registered a –22.9% sales growth. In the year of manual labor. We allow for better cost control, we save money in storage space and manu- 2001, El Pan Caliente increased its total income by 12.5% in real terms. This represented only 0.6% of facturing equipment, and standardize quality and product specification. This way, they are able to Alsea’s consolidated sales. offer customers a product that comes straight from the oven, all day long. This year alone, we provided 1.1 million orders and served 4.1 million pieces of bread, that is a As a result of our partnership, Alysa has established its commercial strategy and is focused on 32.8% increase in units sold. servicing El Pan Caliente owned bakery chain and bakeries inside supermarket chains. Throughout the year, we focused on validating our convenience store business model, and found Alysa has 261 employees and two production plants located in Zapopan, Jalisco and Tizayuca, that this type of concept is highly successful in high traffic areas where customer flow is guaranteed; Hidalgo. Both have made significant changes and have specialized in the products they manufacture that is to say, shopping centers, bus stations, subway stations in Mexico City, etc. Our current chal- in order to operate their production lines more efficiently. Their monthly production capacity amounts lenge is to prove this business model can successfully work in urban locations, where we feel we to 15 million pieces of bread, after an investment of $4 million pesos in 2001. We are currently using can have a substantial growth potential. 70% of their total capacity. 18 19 Distribuidor Internacional de Alimentos complete and on time Average monthly deliveries 1800 2,700 4,000 3,780 98 99 00 0 1 To be a team committed to meet DIA is the leading food distributor. This division supports operation the supply needs in all of our stores. During the year we redefined DIA’s customer of our customers, portfolio strategy, and focused exclusively on those customers that due to their number of units, geographic distribution and product enabling them to standardization, require the type of service DIA has to offer. This is focus on their Burger King’s case, for whom DIA is a sole distributor since this past November. This confirms DIA’s position as a leading distribu- business. tor with great planning and service capabilities. This is why sales in our distribution division increased 4.3% in real terms. DIA’s contribution to the company’s total income was 29.9%, basically driven by its sales to the Domino’s Pizza and Burger King System. We are sure that the changes made will make this a more profitable and productive division, and will help us serve our customers better. This year we serviced to 772 business locations, twice a week, throughout 116 cities in the country. In 2001, our distribution network was consolidated nationwide, strengthening our northern opera- tions, fully integrating our Tijuana distribution center, and rendering better service to those customers who used to be served by our Hermosillo center. Moreover, our Cancun distribution center will con- tinue providing service to hotels and restaurant chains in the region. Likewise, we standardized our administrative and operating processes focusing on daily inven- tory and storage control systems, product quality, and customer service, altogether showing immediate benefits. 20 nationwide coverage with five distribution centers and 74 trucks in our fleet 3 4 Distribution centers 5 1 Tijuana 2 Hermosillo 3 Monterrey 4 Mexico City 5 Cancun 2 1 22 Average monthly boxes sold 319,456 591,129 413,249 638,940 98 99 00 0 1 Distribution Center, Tlahuac, Mexico City. During the year, we invested $19.8 million pesos in two mass production lines, one in Mexico City and the other in Monterrey. These investments were aimed at improving quality while increasing our pieces-per-hour ratio production capacity by 73.2%. Based on strategic decisions taken during the third quarter, we started a process to clear accounts which resulted in non recurrent extraordi- nary items in terms of amortization of leased real estate expenses, and the identification of stock shortages, shrinkage, expired products, inventories of customers we will no longer serve and their respective accounts receivable, all of which amounted to $38.9 millon pesos. During the fourth quarter, DIA invested 50% of Cool Cargo’s capital stock, which is a trans- Reyna Blancas Production Assistant, Héctor Orrico Distribution and Logistics Officer, Francisco Venegas Operator. portation company that will be devoted to the management of merchandise from one distribution center to the other, from our suppliers’ plants to our distribution centers; and from the border of the country we are importing from to our distribution centers. The goal here is to take advantage of all efficiency and profitability opportunities for DIA and keep a tight mer- chandise control in order to guarantee quality for our customers. DIA continues to be a key division that adds great competitive advantages for its customers. With such service capacity and quality standards, we will concentrate on promoting prof- itable and productive operations. human resources systems and processes During 2001 we strengthened our management and According to our philosophy “With people, for people”, Human administrative staff, living up to be the preferred employer, and grow in an Resources developed a number of programs focused on employee continuous improvement. Following our strategic plan, we worked very hard to assess our compensation systems in high and middle organizational levels. The results we obtained integral way. showed that our salaries and benefits are within market standards. This will help us keep our personnel and reduce turnover. We also implemented a Performance Evaluation Program to regulate the professional growth and performance of employees, achieving objective and standardized evaluations, linked to the training Margarita Noyola Marketing Assistant , Ricardo García Human Resources Officer. needed for each position. Alignment of processes Within Domino’s Pizza System, we are pioneers in “distance education” as a source of training. In December 2001 we concluded a jointly study with We offered the first interactive course, Seminar for Supervisors, through which we trained 40% of PricewaterhouseCoopers to restructuct our administrative, financial, and our supervising personnel nationwide. human resource processes of each business division to operate in line with We also carried out our safe-driving program “Seguridad Deb-vida” with the help of Mexico City’s the “Alsea Synergy” scheme, which will be implemented in 2002. Department of Traffic Safety and Education, and managed to drop by 33% our safe delivery experts accident rate. Intranet In 2001, the Pizza University gave 59 courses to a total of 959 managers, supervisors and trainers. We set up an Intranet as an internal communication tool, where we publish Our 22 trainers permanently give additional training courses to each region and division to meet the detailed financial information at different levels, that is to say, by branch, standards set by Domino’s Pizza International. These programs are aimed at providing better by region or nationwide. service to our customers. Number of employees by division Domino’s Pizza Mexico Domino’s Pizza Brazil El Pan Caliente Alysa DIA Total 6,012 197 70 261 353 6,893 87.2% 2.9% 1.0% 3.8% 5.1% 100%% Store sales automatic registration Another one of our big achievements is the automatic and daily recording of our stores’ income. The record of transactions is immediate. It is directly linked to the administration, finance and accounting system. Dialing one number across the country 01-800-552-2222 This has been a very successful service concept that identifies the origin of our customers’ call by means of an intelligent central system, and routes the call to the caller’s nearest store. As of the day it was launched, July 2nd, 2001 this new technology received 2.3 million calls for our company-owned stores. 25 management’s discussion & analysis Alsea’s total sales increased 7.3% in real terms. This growth was basically nurtured by a This year we made changes to the income records with 10.5% increase in total regards to our advertising fund, which was formerly assigned to one of Alsea’s subsidiaries, and is now in sales in the Domino’s hands of the national advertising trust fund, created for distribution centers and the relocation of our corporate headquarters. It also encompasses internet investments made to create a B2B portal, an estimation of bad debt, and the cancellation of non- strategic and non-profitable customers in the distribution division, as well as pinpointing items relat- ed to our reorganization process meant to increase productivity in that area. Pizza System Mexico, this purpose. This is why our 53.2% gross margin was Our net income, which includes a benefit of $1.9 million pesos of tax consolidation similar to last slightly below our previous 54.2%. year’s, was affected throughout 2001 in the amount of $96.6 million pesos corresponding to non- which contributed Operating expenses in 2001 represented 44.4% of 67.3% to the year’s sales, in contrast with 43.5% in the previous year. To this respect, the variable expenses of registered savings total income. amounted to $4.7 million pesos, as a result of a smaller recurrent items, and by the end of the year amounted to $28.2 million pesos. The balance sheet has ratios of 1.63 for liquidity, 1.27 for acid test, 0.52 for leverage, and 0.23 for liabilities with cost to shareholders’ equity. The company fulfills all the covenants it has with- in its financial structure because of the debt issued. On the other hand, the company has remark- balanced by higher labor costs at store level. Fixed expenses grew 12.1% compared to last inventories from 36 to 27 days, and its accounts payable were also modified for the benefit of its contribution to the advertising fund which was counter- ably managed its working capital, as it decreased its accounts receivable from 21 to 14 days, its year’s, mainly due to incentives given to management and administrative staff, and to an adjust- suppliers, from 73 to 50 days. ment above inflation to store-level salaries. Additionally, we had non-recurrent expenses in 2001 During 2001, the company reduced its liabilities with cost by $88.9 million pesos, amounting to $20.4 million pesos, out of which $14.4 million pesos were used by our systems paid its shareholders $41.0 million pesos in dividends in the month of July, and department to evaluate and implement projects, and modify processes; minor expenses derived invested $122.2 million pesos in fixed assets, all with cash flow generated by its from our partnership with Puratos de Mexico; and the remaining $6.0 million pesos were used to own operations. Furthermore, the company did not significantly reduce its cash by make a payment to Domino’s Pizza International. the end of this period when compared to the year 2000. The above explains an operating income of 8.9% in terms of sales, which represents a 1.8% drop against the previous year. Excluding all non-recurrent items affecting our operations, the operating income for 2001 would have been 10.0%. In 2001, the comprehensive cost of financing represented 1.7% of sales, a 7.4% decline, amount- ing to $3.3 million pesos. Throughout 2001, we went into a process to clear out our accounts in terms of other expenses, which accounted for $76.2 million pesos. This figure includes the closing and relocation of stores and 26 Ricardo Ibarra Regional Manager, José Rivera Río Administration and Finance main officers Chief Executive Officer Domino's Pizza Mexico Domino's Pizza Brazil Cosme Alberto Torrado Martínez Armando Torrado Martínez Federico Tejado Bárcena El Pan Caliente Juan Manuel Toledo Luna Distribution and Logistics Héctor Orrico Ornelas Alysa Francisco Moreno Navarro Administration and Finance José Rivera Río Rocha Human Resources Ricardo García Luna Systems, Processes & Information Salvador Rocha Cito Strategic Planning Juan Carlos Jallath Hernández Internal Control and Synergy Mario Sánchez Martínez Víctor Hernández Salas Purchasing Legal Gabriela Hernández Rodríguez 28 consolidated financial statements Alsea S. A. de C. V. and Subsidiaries December 31, 2001 and 2000 Contents External auditor’s report Statutory auditor’s report Balance sheet Statement of income Statement of changes in financial position Statement of changes in stockholders’ equity Notes to the financial statements 30 31 32 34 35 36 38 Alsea S. A. de C. V. and Subsidiaries External Auditors’ Report (Translation from the original issued in Spanish) Mexico City, February 15, 2002 To the Stockholders of Alsea, S.A. de C.V. Alsea S. A. de C. V. and Subsidiaries Statutory Auditor’s Report (Translation from the original issued in Spanish) Mexico City, February 15, 2002 To the General Stockholders Meeting of Alsea, S.A. de C.V. 1. We have examined the consolidated balance sheets of Alsea, S.A. de C.V. and subsidiaries as of December 31, 2001 and 2000, In my capacity as statutory auditor, and in compliance with the provisions of article 166 of the Corporations Law and of the and the related statements of income, of changes in stockholders’ equity and of changes in financial position for the year then company’s by-laws, I hereby submit my report on the veracity, sufficiency and reasonability of the financial information presented ended. Such financial statements are the responsibility of the company’s management. Our responsibility is to express an to you by the Board of Directors concerning the company’s operations for the year ended December 31, 2001. opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in Mexico. Those standards require that we directors and administrators all information and documentation I considered it necessary to examine. My review was carried out I have attended all shareholders’ and Board of Directors’ meetings to which I have been summoned, and I have obtained from plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material in accordance with generally accepted auditing standards. misstatement and that they were prepared in accordance with accounting principles generally accepted in Mexico. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures contained in the financial statements. In my opinion, the accounting and reporting policies and procedures followed by the company and its subsidiaries and considered An audit also includes assessing the accounting principles used and significant estimates made by management, as well as by management in preparing the financial information to be submitted to the stockholders are adequate and sufficient, and were evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. applied on a basis consistent with that of the previous year. Therefore, said information accurately, reasonably and sufficiently reflects the financial position of Alsea, S.A. de C.V. and its subsidiaries at December 31, 2001, the consolidated results of its 2. In our opinion, the aforementioned consolidated financial statements present fairly, in all material respects, the financial operations and the changes in stockholders’ equity and in its financial position for the year ended, in accordance with generally position of Alsea, S.A. de C.V. and subsidiaries as of December 31, 2001 and 2000, and the consolidated results of its accepted accounting principles. operations and the changes in its stockholders’ equity and in its financial position for the years then ended, in conformity with generally accepted accounting principles. Original signed by Juan Manuel Cárdenas Audit Partner Original signed by Maximino Manuel Sañudo Bolaños Statutory Auditor 30 31 Alsea S. A. de C. V. and Subsidiaries Consolidated Balance Sheet Thousands of Mexican pesos of December 31, 2001 purchasing power Assets CURRENT ASSETS: Cash and investments in securities Accounts receivable: Customers, less reserve for doubtful accounts of Ps10,527 in 2001 and Ps1,829 in 2000 Related parties (Note 3) Value added tax, income tax recoverable Others Inventories (Note 4) Prepaid advertising Other advance payments Total current assets LAND, EQUIPMENT AND LEASEHOLD IMPROVEMENTS - Net (Note 6) OTHER ASSETS: Patents and trademarks, less amortization of Ps50,466 in 2001 and Ps42,008 in 2000 (Note 1g) Installation expenses, less amortization of Ps8,774 in 2001 and Ps7,204 in 2000 (Note 1h) Expenses for placement of promissory notes - Net (Note 1i.) Others Intangible assets for retirement compensation (Note 9) EXCESS OF COST OVER NET BOOK VALUE OF THE SHARES OF SUBSIDIARIES (Note 7) December 31, 2001 2000 Ps 93,918 Ps 102,651 89,362 4,836 88,707 15,129 198,034 83,538 455 6,980 128,877 4,131 138,154 21,536 292,698 100,369 4,959 2,499 382,925 503,176 779,703 760,262 134,657 137,900 36,220 1,233 9,890 53 39,287 2,087 11,661 119 50,856 58,517 Liability and Stockholders’ Equity SHORT-TERM LIABILITIES: Short-term documents payable (Note 8) Current portion of medium-term promissory note payable (Note 8) Current portion of long-term note payable (Note 8) Suppliers Accounts payable and accrued expenses Taxes payable Related parties (Note 3) Dividends payable Employees’ statutory profit sharing Total short-term liabilities LONG-TERM LIABILITIES: Medium-term promissory note payable (Note 8) Long-term documents payable (Note 8) Deferred income tax (Note 11) Income tax payable Retirement compensation reserve (Note 9) Total long-term liabilities Total liabilities STOCKHOLDERS’ EQUITY (Note 10): Capital stock Legal reserve Net premium of shares Retained earnings Reserve for acquisition of own shares Effects of converting the foreign entity Total majority stockholders’ equity Total minority interest Total stockholders’ equity COMMITMENTS AND CONTINGENCIES (Notes 6, 8, 10 and 12) December 31, 2001 2000 Ps 560 34,795 152,100 26,453 18,183 2,789 234,880 100,000 74,934 56,936 7,924 442 240,236 475,116 355,939 5,025 208,471 264,676 49,231 (8,904) 874,438 45,983 920,421 Ps 2,032 86,982 31,971 202,027 26,805 16,739 58 29 1,405 368,048 104,403 73,871 60,917 288 239,479 607,527 357,808 208,471 281,324 51,327 (8,670) 890,260 15,222 905,482 Ps 1,395,537 Ps 1,513,009 Ps 1,395,537 Ps 1,513,009 The accompanying twelve notes are an integral part of these financial statements. Mr. José Rivera Río Rocha General Finance Director Mr. Cosme A. Torrado Martínez General Director Mr. Abel Barrera Fermín Corporate Controller 32 33 Alsea S. A. de C. V. and Subsidiaries Consolidated Statement of Income (Note 3b.) Thousands of Mexican pesos of December 31, 2001 purchasing power Alsea S. A. de C. V. and Subsidiaries Consolidated Statements of Changes in Financial Position Thousands of Mexican pesos of December 31, 2001 purchasing power Net sales Cost of sales Gross profit Operating expenses Operating income Comprehensive financing cost: Interest paid - Net Exchange loss - Net Gain (loss) on monetary position Other (expenses) income - Net Income before the following items Provisions for (Note 11): Income tax Employees’ statutory profit sharing Income before special item and equity in income of associate company Equity in income of associate company (Note 5) Income before special item Benefit from tax consolidation Consolidated net income for the year Income of majority interest (Loss) income of minority interest Consolidated net income for the year Net income per ordinary share (Note 1r.) Year ended December 31, 2001 2000 Ps 2,344,532 (1,095,851) Ps 2,184,090 (999,345) 1,248,681 1,184,745 (1,040,829) (950,087) 207,852 234,658 (39,220) (2,190) 589 (40,821) (76,213) (35,969) (3,718) (4,415) (44,102) 221 90,818 190,777 (62,929) (1,628) (64,557) (86,795) (1,302) (88,097) 26,261 102,680 26,261 1,924 28,185 29,382 (1,197) 28,185 0.24 Ps Ps Ps Ps (367) 102,313 2,446 104,759 100,622 4,137 104,759 0.83 Ps Ps Ps Ps Operations: Consolidated income before special item Items not affecting resources: Depreciation and amortization Amortization of the excess of book value over the cost of shares of subsidiaries Equity of associate company Deferred income tax Retirement compensation reserve Net variation in working capital, except cash and notes payable Resources generated by operations before special item Tax benefit from consolidation Resources (used) generated by operations Financing: Capital stock increase - Net Net premium on placement of shares Repurchase of own shares Promissory note and documents payable Minority interest - Net Dividends paid Year ended December 31, 2001 2000 Ps 26,261 Ps 102,313 105,332 82,467 4,845 (3,981) 220 74,076 206,753 1,924 208,677 (3,965) (88,970) 31,958 (41,005) 5,612 367 2,112 (1,310) (9,320) 182,241 2,446 184,687 837 5,646 (2,283) 104,299 8,115 Resources generated by financing activities (101,982) 116,614 Investment: Acquisition of land, equipment and leasehold improvements - Net Acquisition of patents and trademarks - Net Excess of cost over book value of shares of subsidiaries Installation expenses and other assets Incorporating of associate company Incorporating of subsidiary Effects of conversion of financial statements of foreign subsidiaries Excess of book value over cost of shares of subsidiary Resources used in investment activities (Decrease) Increase in cash and investments in securities Cash and investments in securities at beginning of year (255,493) (1,141) (15,883) (13,743) 5,976 (87,023) (3,239) (143) (199) (27,549) (234) 2,959 (115,428) (280,284) (8,733) 102,651 21,017 81,634 Cash and investments in securities at end of year Ps 93,918 Ps 102,651 The accompanying twelve notes are an integral part of these financial statements. The accompanying twelve notes are an integral part of these financial statements. Mr. José Rivera Río Rocha General Finance Director Mr. Cosme A. Torrado Martínez General Director Mr. Abel Barrera Fermín Corporate Controller Mr. José Rivera Río Rocha General Finance Director Mr. Cosme A. Torrado Martínez General Director Mr. Abel Barrera Fermín Corporate Controller 34 35 Alsea S. A. de C. V. and Subsidiaries Consolidated Statement of Changes in Stockholders’ Equity (Note 10) Thousands of Mexican pesos of December 31, 2001 purchasing power Capital stock Legal reserve Net Premium of shares Retained earnings Holding company Subsidiaries companies Total Reserve for acquisition of own shares Effects of converting the foreign entity Total mayority interest Minority interest Total Balance as of January1, 2000 Ps 356,971 Ps 202,825 Ps 33,882 Ps 199,796 Ps 233,678 Ps 33,918 (Ps 7,647) Ps 819,745 Ps 2,966 Ps 822,711 Variation in 2000: Accrued effect of recognizing deferred income tax Net income for the year Effects of conversion of financial statements of foreign subsidiaries Comprehensive income (Note 1p.) Capital stock increase Increase in the reserve for repurchase of own shares Repurchase of own shares Effect in capital stock increase in a subsidiary 1,448 (611) 5,646 4,942 (38,226) (33,284) (3,574) 104,196 100,622 1,368 65,970 67,338 (1,023) (1,023) (2,363) (17,329) (19,692) 19,692 (2,283) (33,284) 100,622 (1,023) 66,315 7,094 (2,894) (33,284) 4,137 104,759 (4) (1,027) 4,133 8,123 70,448 7,094 (2,894) 8,123 Balances as of December 31, 2000 357,808 – 208,471 32,887 248,437 281,324 51,327 (8,670) 890,260 15,222 905,482 Variation in 2001: Net income for the year Effects of conversion of financial statements of foreign subsidiaries Comprehensive income (Note 1p.) Legal reserve creation Dividends paid Repurchase of own shares Effect in capital stock increase in a subsidiary Ps 5,025 (1,869) (4,433) 33,815 29,382 29,382 (1,197) 28,185 (4,433) (5,025) 33,815 29,382 (5,025) (41,005) (41,005) (234) (234) (234) (234) 29,148 (1,197) 27,951 (2,096) (41,005) (3,965) (41,005) (3,965) 31,958 31,958 Balances as of December 31, 2001 Ps 355,939 Ps 5,025 Ps 208,471 Ps 23,429 Ps 241,247 Ps 264,676 Ps 49,231 (Ps 8,904) Ps 874,438 Ps 45,983 Ps 920,421 36 37 The accompanying twelve notes are an integral part of these financial statements. Mr. José Rivera Río Rocha General Finance Director Mr. Cosme A. Torrado Martínez General Director Mr. Abel Barrera Fermín Corporate Controller Alsea S. A. de C. V. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2001 and 2000 (Monetary amounts expressed in thousands of pesos of December 31, 2001 purchasing power) Note 1 Summary of significant accounting policies: Alsea, S. A. de C. V. (ALSEA) is mainly engaged in investing in shares The accompanying consolidated financial statements include those of of companies involved in the production and distribution of pizzas of ALSEA and those of the following subsidiaries: Company Operations Shareholding percentages 2000 2001 Holds the shares of the following subsidiaries: DP6LTDA, (DP6) A company established in Brazil which the Domino’s Pizza stores are grouped (acquired on April 1, 2000) 99.99% 99.99% De Libra, Ltda (DE LIBRA) A company established in Brazil which the Domino’s Pizza stores are grouped 99.99% Holds the shares of the following subsidiary: Adue, Ltda. (ADUE) A company established in Brazil which the Domino’s Pizza stores are grouped Sistema Integral de Administración, S. A. de C. V. (SIA) Renders administrative services, mainly to related parties Asesores de Franquicias Profesionales, S. A. de C. V. (ASESORES) Renders administrative services, mainly to related parties 60% – – – – 99.99% 99.99% the Domino’s Pizza brand, and in the distribution of food stuffs in Distribution Division general. Company Domino’s Division Operations Operadora D.P. de México, S. A. de C. V. (OPERADORA) (1) Parent company under which the Domino’s Pizza stores are grouped (acquired on December 1, 1999) Holds the shares of the following subsidiaries: Shareholding percentage 2001 2000 99.99% 99.99% Cofrasur, S. A. de C. V. (COFRASUR) (1) Company administrating the Domino’s Pizza stores in Cancún, Quintana Roo – 99.99% Sistema Integral de Administración, S. A. de C. V. (SIA) Renders administrative services, mainly to related parties Asesores de Franquicias Profesionales, S. A. de C. V. (ASESORES) Renders administrative services, mainly to related parties Coframet, S. A. de C. V. (COFRAMET) Holding company mainly engaged in producing and distributing fast food (started operating in 1999) Holds the shares of the following subsidiaries: 99.99% 99.99% – – 99.99% 99.99% Optimización de Recursos Administrativos, S. A. de C. V. (ORA) Renders administrative services, mainly to related parties – 99.99% Distribuidor Internacional de Alimentos, S. A. de C. V. (DIA) Holds the shares of the following subsidiaries: Distributes and sells food products 99.99% 99.99% Optimización de Recursos Administrativos, S. A. de C. V. (ORA) Renders administrative services, mainly to related parties Cool Cargo, S. A. de C. V. (COOL) Distributes food products Fabricación de especialidades en Congelados, S. A. de C. V. (FABRECO) (before Exim del Caribe, S. A. de C. V.) Imports, exports, stores, sells and distributes all types of goods and services Bread Division 99.99% 50% – – 99.99% 99.99% Para Servirle a Usted, S. A. de C. V. (SERVIRLE) Sells homemade bread (acquired on October 2, 2000) Alsea, Lys, Asociados, S. A. de C. V. (ALYSA) Produces, sells and distributes frozen bread 99.99% 99.99% 50% – Pizza Jal, S. A. de C. V. (PIZZAJAL) Grupo Franja, S. A. de C. V. (FRANJA) (2) Grupo Dopsa, S. A. de C. V. (DOPSA) (2) Dobrasil, S. A. de C. V. (DOBRASIL) Corporative company under which the Domino’s Pizza stores are grouped (was acquired on February 15, 1999) 50% 50% (1) Companies merged on December 31, 2001, surviving Operadora DP (2) Companies merged on December 31, 2001, surviving Franja On January 1, 2001 becomes effective the agreement between On December 31, 2001 ALSEA and OPERADORA made a share sale Corporative company under which the Domino’s Pizza stores are grouped (acquired on August 1, 2000) Corporative company under which the Domino’s Pizza stores are grouped (acquired on December 1, 1999) Holding company which holds the shares of companies engaged in the production and distribution of fast food. 99.99% 99.99% ALSEA and OPERADORA on January 2, 2001 about the shares sale of agreement with the shares of DOBRASIL, therefore as from this date SIA and ASESORES, therefore as from January 1, 2001 SIA and DOBRASIL are not direct subsidiary of ALSEA to be controlled by – 99.99% ASESORES are not direct subsidiaries of ALSEA to be controlled by OPERADORA. OPERADORA. 99.99% 99.99% On December 1, 2001 ALSEA and DIA made a share sale agreement 31, 2001, COFRAMET agreed to the merger of DOPSA into FRANJA with the shares of ORA, therefore as from this date ORA is not a direct (surviving company). Therefore, as from December 31, 2001, FRANJA subsidiary of ALSEA to be controlled by DIA. is the surviving company, taking over all the rights and obligations of At the general extraordinary shareholders’ meeting held on December DOPSA. 38 39 At the general extraordinary shareholders’ meeting held on December f. Land, equipment and leasehold improvements are expressed at of 65, respectively, are recognized as costs of the years in which and those items that for specific disposition of certain statements 31, 2001, ALSEA agreed to the merger of COFRASUR into restated value, determined by applying NCPI factors to the their services are rendered, based on actuarial studies under the should be shown in the stockholders’ equity and are not paid in OPERADORA (surviving company). Therefore, as from December 31, acquisition cost. projected unit cost method. See Note 9. capital, capital reduction or capital distribution and it is restated by 2001, OPERADORA is the surviving company, taking over all the rights applying NCPI. and obligations of COFRASUR. The company capitalizes in construction in process the compre- Other compensations based on seniority to which employees are At the general extraordinary shareholders’ meeting held on January 1, process. Federal Labor Law, are charged to income in the year in which they Statement B-4 “Comprehensive Income”, which requires that 2000, ALSEA agreed to the merger of TORRQUIN and COFRAVAL into become payable. those specifics items that are part of capital gain (loss) during the OPERADORA (surviving company). Depreciation and amortization are calculated by the straight-line year should be shown in the Statement of Changes in the hensive financing cost of loans used to finance constructions in entitled in the event of dismissal or death, in accordance with the As from January 1, 2001 the company adopted the guidelines of method, based on the estimated useful lives of the assets, on both l. Transactions in foreign currencies are recorded at the rates of Stockholders’ Equity under the concept of comprehensive income Therefore, as from January 1, 2000, OPERADORA is the surviving acquisition and on restatement increases. See Note 6. exchange in effect on the dates on which transactions are entered or loss, therefore in order to make 2000 statement comparable, it company, taking over all the rights and obligations of the merged into. Assets and liabilities in foreign currency are stated in local was restructured. companies (COFRAVAL and TORRQUIN), and holds the shares of g. Patents and trademarks represent payments made for the rights to currency at the rates of exchange in effect at the balance sheet COFRASUR and COFRAMET. use the Domino’s Pizza brand name, effective up to 2025, and are date. Differences arising from fluctuations in exchange rates q. The effect of conversion of the foreign entities corresponds to the restated into Mexican pesos of purchasing power by applying NCPI between the dates on which transactions are entered into and difference resulting from the conversion of assets, liabilities and The accompanying consolidated financial statements were prepared in factors. These payments are amortized against income at the those on which they are settled, or the balance sheet date, are results of the foreign entities at the closing exchange rate on the accordance with generally accepted accounting principles, and are annual rate of 5%. charged to income. See Note 2. balance sheet date. This effect is recorded in stockholders’ equity expressed in thousands of Mexican pesos of December 31, 2001 and was restated by applying NCPI factors. See Note 5. purchasing power denoted by the symbol Ps. h. Installation expenses are expressed at restated value, determined m. Capital stock, legal reserve, reserve for acquisition of own shares by applying NCPI factors to acquisition cost, and correspond and retained earnings represent the value of said items in terms of r. The income per share is the result of dividing the net income for Below is a summary of the most significant accounting policies basically to costs and expenses pertaining to the opening of new purchasing power at the end of the most recent period, and are the year by the weighted average of current shares in the period. followed in preparing the consolidated financial statements, including sales outlets in different areas. These expenses are amortized by determined by applying the NCPI to historical figures. At December 31, 2001 and 2000, the weighted average of current the concepts, methods and criteria used in recognizing the effects of the straight-line method at the annual rate of 5%. At December 31, shares was 121,176,981 and 121,616,939, respectively. inflation on the financial information: 2001 and 2000, the Domino’s Pizza division has 283 and 277 points n. The net premium on placement of shares (see point d. above) a. All important consolidated intercompany balances and operations their normal price, and is restated by applying NCPI factors. preparing the financial statements, management prepare certain have been eliminated in consolidation. i. Expenses incurred in placing medium-term notes in the securities accounting estimates that will make it possible to determine, albeit b. Investments in securities are stated at market value. measured in terms of the NCPI, on net monthly monetary assets quantifiable at the date of issuance of the financial statements. markets are amortized over the lifetime of the notes. See Note 8. o. The result on monetary position represents the effects of inflation, approximately, the future effect of events that are not accurately of sale in Mexico, respectively. represents the excess of the payment for subscribed shares over s. Generally accepted accounting principles require that when j. Income Tax, Asset Tax and Employees’ Statutory Profit Sharing is and liabilities, expressed in constant pesos at year-end. Actual transactions could differ from said estimates. c. Inventories and cost of sales are originally valued by the last-in first- recorded under the full-scope method of assets and liabilities, out method, and are restated to replacement cost applying factors which recognizes deferred income taxes for all differences p. Comprehensive income or loss includes net income or loss for the derived from the National Consumer Price Index (NCPI); values so between accounting and tax values of assets and liabilities year plus the gain or loss from holding non monetary assets, the determined do not exceed market value. See Note 4. (temporary differences). As from December 31, 2000, the effects effect of conversion of financial statements of foreign subsidiaries d. Expenses incurred in registering and placing shares in stock derived from the unamortized tax losses amounting to Ps4,942. markets are recorded as prepaid expenses when placements are The subsidiaries company’s also determined these effects on an made, are applied to the premium on the placement of shares net individual basis that gave rise to a deferred liability of Ps38,226 and of income tax, which forms part of contributed capital. reduced stockholders’ equity. See Note 11. of the initial adoption gave rise to a deferred income tax asset e. The excess of cost over the net book value of the shares of k. Compensation upon retirement (seniority premiums and pension subsidiary companies is amortized over a period of nine years. See plans) to which employees are entitled upon termination of Note 7. employment after 15 years of service and when they reach the age 40 41 Note 2 Foreign currency position: Note 4 Inventories: a. At December 31, 2001 and 2000, ALSEA and its subsidiaries had the following monetary assets and liabilities, in thousands of US Food and beverages Containers and packaging Advances to suppliers Others dollars: Assets Liabilities Net short position Dollar exchange rate Reserve for obsolete inventories December 31, 2001 2000 December 31, 2001 February 15, 2002 US 2,052 (3,900) (9,969) US 243 Ps 9.1692 Ps 9.0838 Note 5 (US 1,848) (US 9,726) Equity in shares of associate company abroad in 2000: December 31, 2001 2000 Ps 70,818 878 13,807 Ps 78,209 10,540 13 11,607 85,503 100,369 (1,965) – Ps 83,538 Ps 100,369 b. Operating lease: The company has signed straight leasing agreements with different lessors for each of its points of sale. Agreements are for DP6 Acquisition value DP6 book value at April 1, 2000 (acquisition date) renewable periods from one to five years. The lease value Accumulated amortization increases on the basis of inflation determined by the Banco de Mexico, calculated as per factors pertaining to the prior year’s NCPI. At December 31, 2001, the charge to income for this item COOL Acquisition value Book value was Ps53,450 (Ps47,280 in 2000). Note 7 21,393 21,393 (6,810) 14,583 – 14,583 (6,810) 14,583 (1,215) 13,368 50 (93) 143 Ps 50,856 Ps 58,517 Excess of cost over the net Note 8 book value of shares of Notes and documents payable: subsidiaries: b. Below is a summary of the main operations carried out, in As from the second quarter of 2000, DOBRASIL holds 99.99% of the The excess of cost over the net book value of shares of subsidiaries is thousands of US dollars: shares of DP6 Ltd., a company established in Sao Paulo, Brazil, which as follows: Year ended December 31, US 2001 51,011 1,690 6,840 55 US 2000 32,915 4,537 5,978 Purchase of foodstuffs Purchase of assets Royalties Opening rights owns Domino’s Pizza stores in that country. Therefore it was shown as an associate company and recognizes its equity as an associated company until March 31, 2000. Note 6 Land, equipment and c. At December 31, 2001, the company had contracted no hedging leasehold improvements: coverage against exchange risks. Note 3 Balances and operations with related parties: a. Balances Receivable: Fast Food Road, S. A. de C. V. Asesores Publicitarios de Franquicias, S. A. de C. V. Payable: Servimet December 31, 2001 2000 Ps 4,836 Ps 3,742 389 Ps 4,836 Ps 4,131 a. Fixed assets are as follows: Annual depreciation rate December 31, 2001 2000 Building Store equipment Leasehold improvements Transportation equipment Computer equipment Production equipment Office furniture and equipment Accrued depreciation and amortization: Land Advances for the acquisition of fixed 5% 10% 5% 25% 30% 10% 10% Ps 84,067 (1) Ps 71,774 (1) 276,948 (1) 253,612 (1) 311,874 313,916 113,886 93,121 70,036 66,932 119,626 (1) 76,912 18,066 994,503 16,653 892,920 (249,022) 745,481 (160,521) 732,399 33,730 (1) 27,863 (1) Ps 58 assets 492 – Ps 779,703 Ps 760,262 b. During the years ended December 31, 2001 and 2000, the main transaction with related parties was the expense incurred for (1) Fixed assets securing bank loans. See Note 8. freight, amounting to Ps78,261 and Ps74,144 respectively. December 31, 2001 2000 Ps 40,245 (13,485) Ps 40,245 (8,904) 26,760 31,341 7,025 7,025 FABRECO Net acquisition value Accumulated amortization SERVIRLE Acquisition value SERVIRLE book value at October 2, 2000 (acquisition date) (6,418) (6,418) Accumulated amortization DOPSA Net acquisition value 607 (607) – 607 – 607 11,272 11,272 Accumulated amortization (2,343) (1,140) FRANJA Acquisition value FRANJA book value at August 2, 2000 (acquisition date) Accumulated amortization PIZZAJAL Acquisition value Book value of purchased shares 8,929 931 (188) 743 (80) 663 10,132 931 (188) 743 – 743 Ps 36,352 Ps 42,823 3,150 (929) 2,221 3,150 (929) 2,221 Stockholding participation (50%) (1,110) (1,110) Accumulated amortization 1,111 (118) 993 1,111 – 1,111 a. Balances: Notes payable - Medium-term notes at the interbank compensation interest rate plus 2.08 to 4.00 points, maturing in August 2004 (ALSEA) (I) Medium-term notes payable at the interbank compensation interest rate plus 2.25 to 2.9 points, maturing in April and November 2001 (ALSEA) (2) December 31, 2001 2000 Ps 100,560 Ps 105,480 85,905 Current portion of medium-term notes payable (560) (86,982) Medium-term notes payable Ps 100,000 Ps 104,403 Documents payable - Documents payable sundry individuals derived from the purchase of FRANJA, maturing in April 2001 (COFRAMET) to Note payable to Activo Financiero, S.A. de C.V., maturing in January 2001 at the annual interest rate of 28% on unpaid balances (PIZZAJAL) Note payable to Activo Financiero, S.A. de C.V., maturing in January 2001 at the annual interest rate of 28% on unpaid balances (PIZZAJAL) Ps 466 1,044 522 Short-term documents payable Ps – Ps 2,032 Medium-term note payable to INVEX, at the interbank compensation rate plus 3.00 points, maturing in January 2002 (ALSEA) Loan from Inverlat S. A., secured with store equipment, at the interbank interest rate plus 2.5 points, maturing in June 2003 (OPERADORA DP) Ps 20,881 Ps 10,103 17,401 42 43 Loan with mortgage guarantee from Inverlat, S.A. at the interbank interest rate plus 2.5 points, maturing in July 2005 (OPERADORA DP) Loan from Banco Bilbao Vizcaya, S.A. at the interbank interest rate plus 2.5 points, maturing in June 2004 (OPERADORA DP) Loan from Banco Bilbao Vizcaya, S.A. at the interbank interest rate plus 2.5 points, maturing in June 2004 (OPERADORA DP) Note issued to Saputo Cheese, Ltd. in US dollars, subject to 7.5% interest rate, maturing in March 2001 (DIA) Opening of a Banco Inverlat, S. A. current account loan with a mortgage guarantee on the land owned by DIA, at the interbank compensation rate plus 2.5 points, maturing in February 2004 (DIA) Opening of a Banco Invex, S.A. current account loan, at the Interbank compensation rate plus the points specified in each Note payable, which in no case may exceed 10 points, maturing in May 2001 (DIA) Loan from INVEX, S.A. secured with production Equipment, subject to interbank compensation rate plus 2.75 points maturing in January 2004 (DIA) Opening of a BBVA Bancomer, S.A. current account loan, at the interbank compensation rate plus 1.75 points maturing in July 2005 (DIA) Loan from Invex, S.A. at the interbank interest rate plus 2.75 points, maturing in December 2004 (DIA) Loan from Bancrecer, S.A. at the interbank interest rate plus 1.75 points, maturing in June 2003 (DIA) Note payable to Activo Financiero, S.A. de C.V., maturing in February 2003 at the interbank interest rate plus 6 points (PIZZAJAL) December 31, 2001 2000 - The current asset less inventories to current liability ratio must not - Certain stockholders must hold at least 51% of the ALSEA, S.A. de be less than 1.00, and the short-term portion of the medium-term C.V. shares. note is not considered a current liability. - Consolidated financial statements must be submitted on a Note 9 Compensation upon retirement: 12,153 14,007 - The total liability to stockholders’ equity ratio must not exceed 0.75 quarterly and annual basis. In the year ended December 31, 2001 and 2000, the subsidiaries SIA, 11,364 15,661 7,651 10,440 1,192 11,239 17,130 9,130 5,000 29,000 11,000 10,000 2,219 times. ORA and ASESORES applied the provisions of Statement D-3 of - The operating income plus depreciation and amortization to gross (2) The current asset/current liability ratio should not be less than 1.50 accounting principles generally accepted “Labor Obligations”. financial expenses payable should not be less than 3.50 times. The times, and the short-term portion of the medium-term note is not Established compensation upon retirement (pension and seniority last 12 months should be considered. considered to form part of current liabilities. premium) is mainly based on the years of service rendered and the - The operating income plus depreciation and amortization to short- - The current asset less inventory/current liability ratio should not be employee’s age, as well as on his/her salary at the date of retirement. term cost liability ratio must not be less than 1.25 times. The last less than 1.25 times, and the short-term portion of the medium- 12 months should be considered. Additionally, when the medium- term note is not considered to form part of current liabilities. The obligations and costs corresponding to these benefits are term note payable is classified as short term, it should not be - The total liability/stockholders’ equity ratio should not exceed 0.75 recognized based on actuarial studies carried out by independent considered in the determination of this ratio. times. experts using the projected unit cost method. - No dividends may be paid in cash if this affects compliance with - The operating profit plus depreciation and amortization to accrued the current limitations. Additionally, in the last year this provision is gross financial disbursements ratio should be at least 3.50 times. The company has not set up a trust to cover these benefits, and the in effect, at least the current balance after paying dividends should - The operating profit plus depreciation and amortization to short- amounts and any other financial data of the consolidated actuarial be kept in the cash and temporary investment account. term liability should not be less than 1.25 times. calculations are summarized below: - The company may reduce its capital stock exclusively for the - The capital stock may not be reduced. purpose of the Fund for Acquisition of Own Shares, duly authorized - Fixed assets may not be sold unless the proceeds are reinvested by the Board of Stockholders, provided it complies with all current in the acquisition of other fixed assets in the same period or the limitations. immediately following period. - The company may not sell fixed assets without reinvesting the - No liens may be placed on the assets of ALSEA and its present or proceeds in the acquisitions of other fixed assets in the same future subsidiaries. period or the immediately following period, when the accrued - The balance of the “Accounts receivable from related parties” amount of said assets exceeds 10% of the net book value of the account or any other balance sheet account containing amounts total of fixed assets, as shown in the balance sheet for the payable by related parties may not exceed Ps5,000. immediately preceding year end, except with previous consent - Investments and/or annual financing support for projects outside from the stockholders. Mexico in which ALSEA may participate through subsidiaries may - ALSEA and its present or future subsidiaries may place no liens on not exceed Ps10,000 without the consent of the shareholders. their assets, except when 1) contracting new loans for equipment - Certain shareholders must hold at least 51% of the ALSEA shares for new stores, 2) contracting new loans for the acquisition and /or - All the provisions established in the Master Franchising agreement construction of new distribution centers for up to Ps80,000 and with DPI must be complied with. 3) for the acquisition of new assets under financial leasing. - No cash dividends may be paid when they affect compliance with - The balance of the “Accounts receivable from related parties” the aforementioned limitations. account in the balance sheet or any other account holding amounts - Consolidated financial statements must be presented on a payable by related parties may not exceed Ps5,000. quarterly and annual basis. - Annual ALSEA investments and/or financial support for projects Projected benefits obligations Variations in assumptions and experience adjustments Intangible assets Accumulated benefits obligations Plan assets December 31, 2001 2000 Ps 480 Ps 315 (91) 389 53 442 – (146) 169 119 288 – Liabilities recorded in books Ps 442 Ps 288 Net cost for the period Labor cost Finance cost Amortizations Ps 182 13 22 Ps 137 8 23 Ps 217 Ps 168 Discount rate Increase salaries rate 4.5% annual 1% annual Current portion of long-term documents payable (34,795) (31,971) Long-term documents payable Ps 74,934 Ps 73,871 b. Financial limitations and obligations: located outside of Mexico, of its own or held through subsidiaries, At the date of issuance of these financial statements, all financial (1) The current asset to current liabilities ratio must not be lower than may not exceed Ps30,000 without the consent of the stockholders. limitations and obligations have been complied with. 1.25 times and the short term portion of the medium-term note is - All obligations specified in the Master Franchise Agreement with not considered a current liability. Domino´s Pizza International, Inc. (DPI). must be complied with. 44 45 Number of chares Description Amount Below is an analysis of acquisition of own shares at December 31, 2001: Note 10 Stockholders’ equity: Capital stock - 17,900,000 Issuance of shares for placement in the Mexican Stock Exchange (2,191,600) Acquisition of own shares 35,800 (4,383) 241,512 114,427 At a number of general ordinary and extraordinary stockholders’ 120,755,627 meeting held in 2001 and 2000, the stockholders agreed on the Restatement increase following: Capital stock Ps 355,939 a. At the general extraordinary stockholders’ meeting held on July 2, In the event of a capital reduction, the excess of stockholders’ equity 2001, the stockholders agreed to paid dividends of Ps41,005 over capital contributions, the latter restated as per the procedures (Ps40,000 nominal pesos) that will be charged to retained earnings. established in the Mexican Income Tax Law (ITL), is accorded the b. At the general ordinary stockholders’ meeting held on March 29, 2000, the stockholders agreed to increase the capital stock by Retained earnings - same tax treatment as dividends. Ps1,448 (Ps1,316 nominal pesos) by issuing 657,857 ordinary Dividends paid from retained earnings which have not previously been shares, of a single series, Class II, with no par value. The taxed are subject to 35% tax payable by the company in 2002 over the Date of acquisition August 99 September 99 November 99 March 00 May 00 June 00 November 00 February 01 May 01 June 01 August 01 October 01 November 01 December 01 Restatement effect Shares 529,000 20,000 49,000 231,000 159,000 28,000 14,000 21,000 808,600 152,000 88,000 10,000 50,000 32,000 2,191,600 Par value Ps 1,058 40 98 462 318 56 28 42 1,617 304 176 20 100 64 4,383 348 Ps 4,731 Average price of acquisition date Market value December 31, 2001 February 15, 2002 11.74 11.00 11.10 9.11 9.09 9.01 6.90 5.10 4.13 4.08 4.00 4.00 3.77 3.58 3.50 3.50 3.50 3.50 3.50 3.50 3.50 3.50 3.50 3.50 3.50 3.50 3.50 3.50 3.90 3.90 3.90 3.90 3.90 3.90 3.90 3.90 3.90 3.90 3.90 3.90 3.90 3.90 stockholders also agreed to declare a premium on share dividend multiplied by 1.5385. From 2002 onwards, this tax may be Available own repurchased shares are reclassified as contributed and In accordance with the current IT Law, ALSEA determined as individual subscription amounting to Ps5,646 (Ps5,131 nominal). credited against the company’s tax liability for the three years earned capital. company a tax loss of Ps19,149 in 2001, and a taxable income of immediately following that in which the tax is paid. The After Tax Ps620 in 2000. The 2000 taxable income was amortized against tax c. At the general ordinary stockholders’ meeting held on October 26, Earning Account (CUFIN) corresponding to the period in which the tax At December 31, 2001, the company has a balance of Ps49,231 for the losses of prior years. 2000, the stockholders agreed to increase the reserve for is credited must be decreased by a gross-up amount equivalent to the temporary repurchase of its own shares. acquisition of own shares, affecting said reserve by Ps19,692 dividends distributed. (Ps17,310 nominal) applied from retained earnings. Note 11 At December 31, 2001, ALSEA and its subsidiaries have unamortized tax losses amounting to Ps20,115, which can be restated by applying At December 31, 2001, the restated tax value of Reinvested After Tax Income tax (IT), Asset tax (AT) and NCPI factors, and can be applied to future taxable income over the The minimum fixed capital with no withdrawal rights is represented Earning Account (CUFINRE) amounts to Ps82,194. employees’ statutory profit sharing next ten years. by Class I shares, while the variable portion of capital stock is represented by Class II shares, which at no time should exceed ten Contingency - (ESPS): At December 31, 2001 and 2000, the main temporary differences on times the amount of the minimum capital with no withdrawal As previously mentioned, at the October 26, 2000 ordinary general As from 1999, the company and its subsidiaries determine IT and AT which deferred IT is recognized are analyzed as follows: rights. stockholders’ meeting, it was agreed, in accordance with the under the consolidation regime. provisions of Article 14-bis of the Securities Market Law and Circular At December 31, 2001, the subscribed fixed and variable capital is 11-16 issued by the National Banking and Securities Commission, to For the year ended December 31, 2001 and 2000, the company and its represented by 120,755,627 common nominative shares, with no increase the reserve for the acquisition of own shares amounting to subsidiaries had a taxable income of Ps101,978 and Ps245,791 par value, as shown below: Ps19,692 (Ps17,310 nominal pesos). (nominal), respectively. Consolidated IT was determined based on the As of December 31, 2001 the company had acquired 2,191,600 own the tax result given the different book/tax treatment of acquisitions and shareholding in each of its subsidiaries. The book result differs from shares temporally which represents 1.8% of capital stock. cost of sales, restated depreciation, patents and trademarks and the Income tax rate December 31, 2001 2000 Inventories Property, plant and equipment - Net Patents and trademarks Prepaid expenses Provisions Tax loss carryforward Ps 84,958 30,577 73,586 6,418 (12,750) (20,115) Ps 100,369 34,372 52,365 3,171 (765) (13,475) 162,674 35% 176,037 35% 56,936 61,613 Tax to be offset (696) Liability deferred IT Ps 56,936 Ps 60,917 Number of shares Description Amount 124,969,370 Subscribed fixed portion of the Ps249,939 capital stock (20,580,000) Subscribed but not paid portion (41,160) of the capital stock 104,389,370 Fixed portion of the capital stock 208,779 subscribed and paid 657,857 Variable portion of the capital stock 1,316 subscribed and paid difference in the recognition of the effects of inflation, which is determined differently for book and tax purposes. The accounting benefit from tax consolidation corresponds to the overstatement of IT and AT provisions recorded by each individual subsidiary and IT arising for the entire group. 46 47 IT charged to results for the period arose at a single subsidiary. Below of collections from subfranchises, as per instructions of OPERADORA, is an analysis of the IT provision charged to results: which is the trustor and which made the initial contribution and Current IT Deferred IT 2001 2000 Ps 66,910 (3,981) Ps 84,683 2,112 Ps 62,929 Ps 86,795 appointed and instructed the trustee concerning its duties. Invex, S.A. de C.V., Institución de Banca Múltiple, Grupo Financiero INVEX, as trust beneficiary opened a credit line for the principal amount of up to Ps40,000 for the trustee, in the terms and conditions contained in the aforementioned agreement; and Bankboston S.A., Institución de Employee statutory profit sharing was determined at 10% of the base, Banca Múlitple, trust division, as trustee has been handling the funds calculated as per the special rules established in the ITL. prior to receiving authorization from the trustor. Note 12 As of December 31, 2001 it has an account payable with INVEX for Commitments and contingencies: Ps7,000 due to the credit line above mentioned. Commitments Contingencies On December 15, OPERADORA (subsidiary company) signed an ALSEA and subsidiaries are involved in a number of lawsuits arising irrevocable advertising trust agreement to contract television airtime in from the normal course of their business operations. The company’s the year 2001, amounting to Ps40,000, payable at the time the service management and legal advisors are of the opinion that these matters is rendered. The trust is known as “Trust F/025 Domino’s Pizza”. will be resolved favorably. However, if they are not, this will not “Bankboston, S.A., Institución de Banca Múltiple (Trustee) holds substantially affect the consolidated financial situation or the ownership of the capital and with it the administration of the fund and consolidated result of operations of ALSEA and subsidiaries. Mr. José Rivera Río Rocha General Finance Director Mr. Cosme A. Torrado Martínez General Director Mr. Abel Barrera Fermín Corporate Controller 48 mission and vision corporate structure information for shareholders Raison d’être To develop, manage and control the businesses of the Group by employing a synergy and critical mass model to improve our human and material resources. Where we want to go Be of the highest quality and most profitable quick service restaurant operator. our values Operadora DP de México, Dobrasil, S.A. de C.V. develops Para Servirle a Usted, S.A. de C.V. develops and operates and operates the brand in Brazil S.A. de C.V. develops and the brand in Mexico since 1989 since 1997 through 12 company- operates the brand El Pan Caliente through 425 stores, out of which 283 owned stores. through 14 company-owned stores are property of Alsea and 142 are franchises. since 2000. Distribuidor Internacional Alysa, S.A. de C.V. manufactures, de Alimentos, S.A. de C.V. . distributes and sells wholesale frozen is devoted to the foodservice business dough since 2001, with two production and the production of pizza dough since plants. 1992. Its five distribution centers give it national coverage. service and customer focus excellence and integral development respect, integrity and austerity vigilant on quality and productivity innovation and creativity efficiency, commitment and teamwork All our activities are We encourage the development Our people are required to respect ethical Our definition of quality is to do things We encourage creativity, as it is an We call for responsible, focused on identifying and of our people and their families to and moral principles, being congruent in well with the first try, using our resources important part of the foundations needed committed people capable of thoughts, words and actions. Our motto “work and savings” comes to life with austerity, which is understood as the rational and efficient use of company resources. meeting our customers’ expand their knowledge, skills and excellence. of our efforts. needs: they are the reason capabilities as we strive for ser at all times promoting collaboration and teamwork. for development and ongoing making things happen, who are and internationally competitive. capabilities and superior results. known as a company with innovating the-art technology in order to exceed our improvement. We particularly want to be customers’ expectations and be nationally fully with the best processes, and state-of- iv ce Independent Auditors Investor Relations PricewaterhouseCoopers Lizette Chang Mariano Escobedo 573 lchang@alsea.com.mx Col. Rincón del Bosque Phone: 5241.7158 11580, México, D.F. Phone: 5263.6000 Fax: 5263.6010 Fax: 5241.7048 Information on Alsea’s stock and medium-term promissory note Alsea, S.A. de C.V. trades its single series shares in the Mexican Stock Exhange as of June 25, 1999, under the ticker symbol Alsea*. The Company’s promissory note, whose public offer in the Mexican Stock Exchange took place on August 25, 2000, is under the ticker symbol Alsea P00. Reference symbols for Reference symbols for the the stock medium-term promissory note Bloomberg ALSEA* Bloomberg ALSEA Reuters ALSEA.MX Reuters ALEFL00P=MX Infosel ALSEA* Infosel ALSEA 2 . x m m o c . 3 o n e l i i m : n g i s e d with people for people annual report 2001 is leader in developing and operating quick service restaurants of recognized brands, operates Domino’s Pizza in Mexico and Brazil, and El Pan Caliente in Mexico. The operation of its multi-units is supported by the distribution division, DIA, and the bread division, Alysa. The stock is traded in the Mexican Stock Exchange under the symbol ALSEA*. Contents Strategic plan Financial highlights Message to our shareholders Corporate governance Board of Directors Domino’s Pizza Mexico Domino’s Pizza Brazil El Pan Caliente Alysa DIA Human resources Systems and processes Management’s discussion and analysis Main officers Consolidated financial statements 1 2 4 8 11 12 16 18 19 20 24 25 26 28 29 Alsea, S.A. de C. V. Yucatán 23 Col. Hipódromo Condesa 06170, México D.F. Phone: 5241.7100 Fax: 5241.7048 www.alsea.com.mx 

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