Annual Report 2010
To u c h i n g p e o p l e ,
e n r i c h i n g m o m e n t s
Our Manifestum
Life is a collection of good
moments
that we add to every day. They start
when the sun rises, when they tell us
good morning. It is the , it is , a ,
light
coffee
song
it is a when a promise is kept,
smile
when we with friends.
celebrate
It is a place to , to make life something
dream
special. It is where an are a
innovation
passion
motor for change and for our
impulse
society
where there is always room for others.
( ).
Domino’s Pizza
Starbucks
Burger King
Chili’s
Grill & Bar
California
Pizza Kitchen
P.F. Chang’s
China Bistro
This is where we life, where we
celebrate
add
tastes and emotions, colors and textures,
where every becomes a , every
moment becomes better for you.
contact
smile
Touching people, enriching moments
2
Annual Report 2010
Financial Highlights(1)
(1) Figures in million pesos, expressed in nominal pesos for 2008, 2009 and 2010, and purchasing power as of
December 31, 2007 for the other periods; except per share data, number of units and employees.
(2) EBITDA: Operating income before depreciation and amortization.
(3) ROIC is defined as the operating income after taxes divided by the invested capital - net (total assets - cash
and cash equivalents - liabilities without cost).
(4) ROE is defined as net profit divided by major shareholder’s equity.
(5) ROA is defined as net profit divided by total assets.
(6) CAGR is defined as compound annual growth rate from 2006 to 2010.
(7) For comparative purposes, the number of shares was adjusted based on the split of 4 to 1 carried out in 2007.
Net Sales
Gross Profit
Operating Expenses
Operating Income
EBITDA (2)
Consolidated Net Profit
Total Assets
Cash
Liabilities with Cost
Major Shareholder’s Equity
ROIC(3)
ROE(4)
ROA(5)
Stock Price(7)
Earnings per Share(7)
Dividend paid per Share(7)
Book Value per Share(7)
Shares Outstanding (million)(7)
Number of Units
Employees
(3.2)
(10.1)
2.7
8.7
7.1
%CAGR(6)
10
% 09
% 08
% 07
% 06
%
10.5
10.3
11.9
(6.9)
(0.1)
(8.7)
8,996.0
100.0
8,587.1
100.0
7,786.8
100.0
6,985.4
100.0
6,026.4
100.0
5,857.2
5,529.1
328.1
1,003.1
159.0
65.1
61.5
3.6
11.2
1.8
5,420.6
5,085.6
335.1
1,000.3
107.0
63.1
59.2
3.9
11.6
1.2
5,005.5
4,546.4
459.1
1,032.1
139.5
64.3
58.4
5.9
13.3
1.8
4,661.7
3,946.0
715.7
1,153.0
489.1
66.7
56.5
10.2
16.5
7.0
3,959.9
3,523.8
436.1
1,007.4
228.6
65.7
58.5
7.2
16.7
3.8
6,110.5
100.0
5,808.8
100.0
6,399.7
100.0
5,295.7
100.0
4,040.5
100.0
640.2
1,597.5
2,865.3
10.5
26.1
46.9
463.2
1,302.1
2,908.6
8.0
22.4
50.1
661.9
1,790.2
2,997.1
10.3
28.0
46.8
5.7%
5.1%
2.6%
12.93
0.25
0.40
4.73
605.2
1,206
22,127
6.8%
3.4%
1.8%
10.09
0.17
0.07
4.84
601.4
1,171
19,981
9.6%
4.4%
2.4%
6.23
0.21
0.23
4.85
618.0
1,135
21,024
209.3
1,033.5
2,997.5
14.9%
16.7%
10.5%
15.30
0.77
0.11
4.84
618.8
989
19,200
4.0
19.5
56.6
244.3
610.9
2,653.9
6.0
15.1
65.7
9.6%
9.1%
6.2%
14.72
0.38
0.28
4.26
623.2
865
16,797
6
2
0
6
,
5
8
9
6
,
7
8
7
7,
7
8
5
8
,
6
9
9
8
,
7
0
0
,
1
3
5
1
,
1
2
3
0
,
1
0
0
0
,
1
3
0
0
,
1
9
2
2
9
8
4
9
3
1
7
0
1
9
5
1
5
6
8
9
8
9
5
3
1
,
1
1
7
1
,
1
6
0
2
,
1
06
07
08
09
10
06
07
08
09
10
06
07
08
09
10
06
07
08
09
10
NET SALES
EBITDA(2)
CONSOLIDATED
NET PROFIT
NumBER
OF uNITS
Touching people, enriching moments
1
ALSEA IS THE LEADING QUICK SERVICE RESTAURANT
(QSR) AND CASUAL DINING OPERATOR IN LATIN AMERICA,
OPERATING BRANDS OF PROVEN SUCCESS SUCH AS
DOMINO’S PIzzA, STARBUCKS, BURGER KING,
CHILI’S GRILL & BAR, CALIFORNIA PIzzA KITCHEN
AND P.F. CHANG’S CHINA BISTRO.
Its multi-unit operation is backed by its Shared Services
Center, including the supply chain through DIA, real estate
and development services, as well as administrative
services such as finance, human resources and technology.
Strategic planning
MissiOn
COmmITTED TEAm ALWAYS EXCEEDING OuR
CuSTOmERS’ EXPECTATIONS
“Touching people, enriching moments”
PrinciPles
sTrATeGic AreAs
The customer is our priority
Serve our customers with respect,
passion and innovation.
respect and loyalty to our people
and the company
Create a working environment of harmony
and respect, without preferences.
Personal excellence and commitment
Always act honestly and fairly without
putting our self-interest ahead.
results orientation
Always take decisions oriented to the
wellbeing of the company and our
customers.
sA1. customers
Exceed customer expectations with
an unforgettable experience.
sA2. Our people
Personal and professional development
of our team.
sA3. strategic Partners
Synergy and Critical Mass.
sA4. results
Ensure the profitable and sustainable
growth of the company.
sA5. community
To be recognized by our consumers
as a socially responsible company.
2
Annual Report 2010
605 units
mEX
COL
584
21
361 units
mEX
ARG
CHILE
300
30
31
196 units
mEX
ARG
CHILE
COL
109
51
30
6
31 units
mEX
31
9 units
mEX
4 units
mEX
9
4
impulse
dreams
1,206
Units in Mexico
and South America
For 20 years we been part of our consumers lifes, offering
the best service and providing memorable experiences
through our brands.
Touching people, enriching moments
3
Dear Shareholders:
The year 2010 was a time for celebration and recognition for Alsea. We celebrated the 20th
anniversary of Domino’s Pizza in Mexico, and the first 10 years of Alsea as a public traded company.
That celebration and recognition would not have been possible without the participation of each one
of our employees, clients, strategic partners and shareholders who have placed their trust in us, and
who have contributed to the Company’s growth.
During these 20 years of operation, we have managed to turn Domino’s Pizza into the largest
restaurant chain in Mexico, with 584 stores and more than 7,300 employees. Alsea has diversified its
operations over the last 10 years, becoming the largest multi-brand operator in the region, with six
brands operating in the Fast Food, Cafeteria and Casual Dining segments, with a total of 1,206 stores
in the different formats, a presence in four countries, and human capital of more than 22,000 people,
who in 2010 alone enabled us to serve more than 180 million consumers.
In addition to celebrating this anniversary, we are celebrating the launch of our new corporate identity
with a change in our strategic planning and our new slogan: “Touching people, enriching moments.”
In this annual report you will see how this new identity defines a culture of innovative organization
that always strives to exceed our clients’ expectations. I am certain that this new identity will help
generate greater empathy on the part of Alsea and its brands with our consumers.
During the year, Alsea made important changes to its organizational structure, resulting in new
opportunities for our people to grow, as well as ensuring professional and competitive management in
the Company’s operations, which allows us to reach our projected growth rates. Also in 2010, we created
1,526 new jobs, and as always, we continued to promote a better quality of life for our employees.
.
4
Annual Report 2010
434.6%
total return for the
shareholder (1) (2)
48.6%
growth
Net Income
1,206
units in mexico
and South America
22,127
employees
180,000,000
custumers served
4
countries
6
brands
(1) Includes dividend payments
(2) From June 1999 to Dicember 2010
Leadership
Proactivity
Results
Despite a difficult basis of comparison due to the additional week of operations in 2009, and a
challenging environment for consumption, in 2010 revenues rose 4.8%, to 8,996.0 million pesos in
net sales. This growth was a consequence of the net opening of 59 corporate units, and the 3.8%
increase in same-store sales.
Our operations in South America in 2010 confirmed the success of diversifying our portfolio and
participating in Latin American markets, a region where we experienced sales growth of 28.6%. This
segment represented a share of 20.1% in the Company’s consolidated sales at the end of the year.
For the second consecutive year, Burger King in Argentina had the best results in our South America
portfolio, with significant growth in the profitability of the business, driven mainly by a significant
increase in same-store sales. Also in Argentina, Starbucks increased the number of units to more than
double, rising from 14 to 30 units at the close of 2010.
Another segment that continues making significant gains and presenting attractive growth opportunities
is the Casual Dining segment, which we began in 2005 with the acquisition of nine units from one of the
two franchisees of Chili’s Grill & Bar in Mexico. At the close of 2010, in addition to the Chili’s brand, Alsea
is operating the globally successful concepts of California Pizza Kitchen and P.F. Chang’s China Bistro. The
latter experienced significant expansion in the number of units opened during the year as a result of its
excellent acceptance in the Mexican market. We have no doubt that the potential in the Casual Dining
segment will continue to be an important factor for Alsea’s growth and expansion.
Touching people, enriching moments
5
During the year, net income was 159.0 million pesos, which is a growth of 48.6% over the prior year.
We also locked in an important refinancing of our corporate debt thanks to the issuance of local
unsecured bond in the Mexican Market, and the restructuring of bank credits. All of this caused a
reduction in the average cost of debt and improved the maturity profile.
As a result, we ended the year with a solid financial position that allowed us to renegotiate Alsea’s
financial covenants so that in June 2011, the net debt to EBITDA ratio will remain less than 2.0x, interest
coverage at more than 5.0x, and the obligation of total liabilities to shareholders’ equity will disappear.
This solid financial structure will allow us to take on our commitments and projects for 2011.
In 2010, we paid our shareholders a dividend of $0.4020 pesos per share. I am also pleased to inform
you that the total return generated by Alsea’s shares since the time it was first listed on the Mexican
Stock Exchange is 434.6%.
NEW CORPORATE IDENTITY
As part of the mentioned change to our corporate identity, I would like to tell you about the five
strategic areas that support Alsea’s planning and growth, whose mission is to have a committed
team that focuses on providing our consumers with a unique experience each time they visit.
“Touching people, enriching moments.”
SA1. Customers: To exceed the expectations of our clients through an unequalled experience.
SA2. Our people: To promote the personal and professional development of our team.
SA3. Strategic Partners: To support the creation of synergies and critical mass between Alsea’s
business units, and also with our providers and associates.
SA4. Results: To ensure the Company’s profitable and sustained growth through a culture that is
committed to high performance.
SA5. Community: To be recognized by our consumers as a socially responsible company.
6
Annual Report 2010
Commitment
Sustainability
Social Responsibility
We would like to make special mention of the results we achieved in social responsibility. In 2010, we
performed more than 10,500 hours of volunteer work in different social projects. We also continued
reinforcing one of the main pillars of growth for our employees with 3,092,916 hours of training,
thus also strengthening one of our strategic areas by betting on the personal and professional
development of everyone who works at Alsea.
I would like to thank all of our employees, clients, strategic partners and shareholders for continuing
with us on our journey in 2010. I am extremely pleased to be able to share our achievements during
the year with you, as they show that we are a company that looks toward the future. The year 2011
presents significant growth opportunities that will allow us to reaffirm our leadership position,
supported by our characteristic creativity and vision. With this, we will give you, our shareholders, the
return that you expect on your investment.
Respectfully,
Fabián Gosselin
Chief Executive Officer
Touching people, enriching moments
7
S t a r b u c k s c e l e b ra t e d t h e o p e n i n g o f it s
3 0 0 t h u n it i n M e x i c o, s e l
i o n c u p s o f c o f f e e i n 2 0 10.
l
m i
i n g m o re t h a n 5 0
l
l
P.F. C h a n g’s C hin a B istro c ele b ra t e d its first birt h
d ru n nin g , a n
0 1 0 w it h 4 u nits u p a n
a s u al D in nin g
clo sin g 2
d e r of t h e A sia n C
b e c o m in g t h e le a
d s.
b ra n
d
a y,
d
T h e b e s t t i m e s ,
w i t h t h e b e s t c o m p a n y
At Do mino’s Pizza Mexico th e strateg y
“ Re inve nting ou r Pizza ” ge n e rated a n increa se of
n ea rly 30% in th e nu mbe r of o rde rs p la ced.
i f o rn i a P i z z a K it c h e n w a s d i s t i n g u i s h e d
b y t h e i m p ro v e m e n t o f it s m e n u; t h e K u n g Pa o S p a g u e t t i
I n 2 0 10 C a l
b e c a m e o n e o f t h e t o p d i s h e s .
8
Annual Report 2010
A t B u rg e r K i n g , d u r i n g 2 0 10 w e s o l d m o re t h a n
i o n W h o o p e rs i n t h e i r m o re t h a n 1 , 0 24
l
l
4. 3 m i
w a y s o f m a k i n g it.
C h i
i
l
l & Ba r a t t h e c l o s e o f 2010,
i n c re a s e d m o re t h a n 10% t h e n u m b e r o f
l
’s G ri
i e nt s a t t e n d e d.
c l
With 6 brands of proven success and presence in 4 countries within
Latin America, Alsea has positioned itself as the largest multi-brand
portfolio operator. We specialize in creating moments of quality and
care for our consumers.
180
MILLION CLIENTS
SERVED IN 2010
T h e b e s t t i m e s ,
w i t h t h e b e s t c o m p a n y
Touching people, enriching moments
9
10
Annual Report 2010
The professional and personal development of each employee
is the basis of our most important asset - the human factor.
3,092,916
TRAINING HOURS DURING THE yEAR
Employees
Passion
Committed
employees
Touching people, enriching moments
11
12
Annual Report 2010
The Shared Services Center ensures the appropriate management
of our brands, creating the synergy and critical mass necessary
to operate in the countries where we are presence.
IN THE DISTRIBUTION SEGMENT (DIA), SALES TO THIRD
PARTIES REPRESENTED
12% OF ALSEA
CONSOLIDATED SALES
Touching people, enriching moments
13
4.8%
Growth in The
Company’s
Cosolidated
Sales.
14
Annual Report 2010
The Company’s profitable and sustained growth, as well as a
return on shareholders’ investment, is our main focus.
434.6%
TOTAL RETURN TO THE SHAREHOLDER (1)
(1999-2010)
(1) Includes dividend payment
Touching people, enriching moments
15
16
Annual Report 2010
20,00060,0007 years15,000trees plantedtoys donatedhelping two generations of “Mano Amiga Chalco” with integral educationchildren fed thanks to our different programsMore than Our commitment is to mexico, acting as a
responsible corporate citizen toward our
shareholders, employees, consumers and
providers, for the develop and growth of the
communities in which we operate.
ALSEA AND ITS EMPLOyEES PROVIDED MORE THAN
10,500
HOURS OF VOLUNTEER
WORK TO DIFFERENT
SOCIAL ACTIVITIES.
improving our community
Touching people, enriching moments
17
AUDiT cOMMiTTee
José Manuel Canal Hernando
CHAIRmAN
Marcelo Rivero Garza
mEmBER
Sergio Mario Larraguivel Cuervo
mEmBER
Pablo Wolf Grossmann
TECHNICAL SECRETARY
cOrPOrATe GOvernAnce cOMMiTTee
Salvador Cerón Aguilar
CHAIRmAN
Sergio Mario Larraguivel Cuervo
mEmBER
Salvador Alva Gómez
mEmBER
Roberto Rodríguez Elvira
TECHNICAL SECRETARY
Board of Directors 2010
cHAirMAn
Alberto Torrado Martínez
CHAIRmAN OF THE BOARD OF DIRECTORS
sHAreHOlDer BOArD AnD sTAFF MeMBers
Alberto Torrado Martínez
CHAIRmAN OF THE BOARD OF DIRECTORS
Cosme Torrado Martínez
APPOINTED DIRECTOR, LATIN AmERICA
Armando Torrado Martínez
mANAGING DIRECTOR, CASuAL DINING
Fabián Gerardo Gosselin Castro
CHIEF EXCECuTIVE OFFICER
Federico Tejado Bárcena
mANAGING DIRECTOR, STARBuCKS mEXICO
inDePenDenT BOArD MeMBers
José Manuel Canal Hernando
INDEPENDENT CONSuLTANT
Marcelo Rivero Garza
CHIEF EXCECuTIVE OFFICER, GRuPO JumEX
Salvador Cerón Aguilar
PRESIDENT, STF CONSuLTING GROuP
Sergio Mario Larraguivel Cuervo
CHIEF EXCECuTIVE OFFICER, ANESLA S.A. DE C.V.
Salvador Alva Gómez
CHIEF EXCECuTIVE OFFICER, NOVO CAPITAL S.A. DE C.V.
secreTAries
Guillermo Díaz de Rivera Álvarez
PARTNER DÍAZ DE RIVERA Y mANGINO S.C..
Xavier Mangino Dueñas
PARTNER DÍAZ DE RIVERA Y mANGINO S.C.
18
Annual Report 2010
management’s Discussion and Analysis
CONSOLIDATED RESuLTS FOR THE YEAR 2010
The following table shows a condensed Income Statement in millions of pesos (except EPS). The margin for each
item represents net sales, as well as the percentage change for the year ended December 31, 2010, in comparison
with the same period of 2009:
% NET SALES BY BRAND
Net Sales
Gross Income
EBITDA(1)
Operating Income
Net Income
EPS(2)
2010
mARGIN %
2009
mARGIN % CHANGE %
$
8,996.0
100.0% $
8,587.1
100.0%
5,857.2
1,003.1
328.1
159.0
0.2485
65.1%
11.2%
3.6%
1.8%
N.A.
5,420.6
1,000.3
335.1
107.0
0.1695
63.1%
11.6%
3.9%
1.2%
N.A.
4.8%
8.1%
0.3%
(2.1)%
48.6%
46.6%
(1) EBITDA is defined as operating income before depreciation and amortization.
(2) EPS is earnings per share of the last 12 months.
SALES
Net sales increased 4.8% to 8,996.0 million pesos for full-year 2010, in comparison with 8,587.1 million pesos
during the prior year. This increase reflects the growth in sales of Food and Beverages Mexico, and Food and
Beverages South America, mainly due to the expansion in the number of units and growth of 3.8% in same-
store sales. Those positive effects were partially offset due to the negative effect of one additional week of
operations in 2009, and to a lesser extent to the decrease in the distributor’s revenues from third parties.
DOmINO’S PIZZA
STARBuCKS
BuRGER KING
CHILI’S GRILL & BAR
26%
26%
26%
7%
CALIFORNIA PIZZA KITCHEN 2%
PF CHANG’S CHINA BISTRO
1%
DIA
12%
% NET SALES BY SEGmENT
QSR
CASuAL DINING
DIA
78%
10%
12%
NET SALES
17%
29%
.
4
6
2
0
6
,
.
4
5
8
9
6
,
10% 5%
.
0
6
9
9
8
,
.
11%
8
6
8
7
7
,
1
.
7
8
5
8
,
Growth in the brands’ sales was due to the net increase of 59 corporate units in 2010, as well as to the 3.8%
growth in same-store sales, the majority of which is attributable to the continuing growth in same-store
sales of the Starbucks brand, operations in Argentina, and the Casual Dining brands, which was offset by the
decrease in same-store sales of some of the brands in Mexico and Colombia.
06
07
08
09
10
GROSS INCOmE
In the 12 months ended December 31, 2010, gross income increased 436.6 million pesos to 5,857.2 million
pesos, with gross margin of 65.1%, in comparison with the 63.1% recorded in 2009. The 200 base point
increase in gross margin is attributed to the decrease in the cost of materials, due mainly to the appreciation
of the Mexican peso against the United States dollar, for which the average exchange rate for 2010 was 12.63
pesos per dollar, in comparison with the 13.49 pesos per dollar in 2009, and to the operating efficiencies
achieved during the year, and to the effect on the mix of Alsea’s business portfolio in which the business units
with the greatest sales growth are those that currently have a lower cost as a percentage of sales.
436.6
million pesos
more than in 2009
200 bps increase in
gross margin
OPERATING EXPENSES
Operating expenses (excluding depreciation and amortization) increased 2.5% as a percentage of sales,
rising from 51.5% during full-year 2009 to 54.0% in 2010. The foregoing was mainly due to the effect of the
comparative basis of 2009 as a result of the margin created by the additional week of operations (53rd week),
and to the increase in labor expenses. To a lesser extent, operating expenses increased due to the increase
in advertising expenses for the value strategy of Domino’s Pizza México, to higher local taxes in operations in
Argentina due to growth in revenues there, and to the increased costs of electricity, diesel and gas. Those effects
were partially offset with the margin resulting from the increase in the number of units, growth in same-store
sales, and the operating efficiencies created during the year.
Touching people, enriching moments
19
EBITDA of 1,003.1
million pesos
EBITDA
EBITDA grew 0.3% to 1,003.1 million pesos in 2010, in comparison with 1,000.3 million pesos in the prior year.
This increase was due to the positive variation of 8.1% in gross income and to the 8.7% increase in operating
expenses. EBITDA margin fell 0.4%, dropping from 11.6% in full-year 2009, to 11.2% in full-year 2010.
OPERATING INCOmE
Operating income for full-year 2010 decreased 7.0 million pesos, closing at 328.1 million pesos, in comparison
with the 335.1 million pesos in the same period in 2009. This was due mainly to the increase of 9.9 million
pesos in depreciation and amortization, which was a consequence of asset depreciation at new units, and
amortization of pre-operating expenses related to unit openings.
159.0
million pesos
of Net Income
48.6%
over 2009
NET INCOmE
Consolidated net income in the year increased 52.0 million pesos over 2009, due mainly to the increase of
60.4 million pesos in other products, to the decrease of 31.9 million pesos in discontinued operations, to the
decrease of 41.0 million pesos in the all-in result of financing, and to the 8.3 million pesos increase in the
stake in results of associated companies. Those variations were partially offset due to the 82.7 million pesos
increase in income taxes, and to the decrease of 7.0 million pesos in operating income.
EARNINGS PER SHARE
Earnings per share “EPA”(2) for the 12 months ended December 31, 2010 increased to 0.2485 pesos, in
comparison with 0.1695 pesos for the 12 months ended December 31, 2009.
EARNINGS PER SHARE
0.38
0.77
06
07
08
09
10
0.21
0.17
0.25
RESuLTS BY SEGmENT
Net sales and EBITDA are shown below by business segment in million pesos, for full-year 2010 and 2009.
NET SALES BY SEGmENT
Food and Beverages – Mexico
$
Food and Beverages – South America
Distribution
Intercompany Operations(3)
Consolidated Net Sales
% CONT.
2009
% CONT.
% VAR.
2010
6,111.2
1,810.6
2,973.9
67.9% $
6,032.0
20.1%
33.1%
1,407.7
3,065.5
(1,899.7)
(21.1)%
(1,918.0)
$
8,996.0
100.0% $
8,587.1
70.2%
16.4%
35.7%
(22.3)%
100.0%
1.3%
28.6%
(3.0)%
(1.0)%
4.8%
EBITDA BY SEGmENT
2010 % CONT. MARGIN
2009 % CONT. MARGIN % VAR.
Food and Beverages – Mexico
$
701.4
69.9%
11.5% $
696.8
69.7%
Food and Beverages – South America
Distribution
Others(3)
130.9
146.3
24.5
13.1%
14.6%
2.4%
7.2%
4.9%
N.A.
67.2
171.5
64.8
6.7%
17.1%
6.4%
11.6%
4.8%
0.7%
94.7%
5.6% (14.7)%
N.A.
(62.2)%
Consolidated EBITDA
$
1,003.1
100.0%
11.2% $
1,000.3
100.0%
11.6%
0.3%
(3) For the purpose of information by segment, these operations were included in each respective segment.
20
Annual Report 2010
Food and Beverages – mexico
Sales for full-year 2010 increased 1.3% to 6,111.2 million pesos, in comparison with 6,032.0 million pesos in 2009.
This favorable variation of 79.1 million pesos is mainly attributable to the net opening of 37 corporate units of
the different brands over the last 12 months, and to the growth in same-store sales of some of the brands in
Mexico. The foregoing was partially offset by one less week of revenues in 2010, against the comparative basis
of 53 weeks in 2009.
NET SALES
FOOD AND BEVERAGES
mEXICO
cAGr
6.5%
.
7
8
3
7
5
,
.
7
8
8
3
5
,
.
0
7
4
7
4
,
.
0
2
3
0
6
,
2
.
1
1
1
,
6
06
07
08
09
10
NET SALES
FOOD AND BEVERAGES
SOuTH AmERICA
cAGr
51.2%
.
6
0
1
8
,
1
.
7
7
0
4
,
1
.
0
2
7
9
8
.
1
4
6
07
08
09
10
.
6
6
4
3
06
4 Distribution Centers
3,569 weekly deliveries
EBITDA increased 0.7% during full-year 2010, reaching 701.4 million pesos, in comparison with the 696.8 million
pesos reported in the same period of the prior year. That increase is mainly attributable to the improved gross
margin due to appreciation of the peso against the dollar. This effect was partially offset by the decrease in
same-store sales of some brands in Mexico.
Food and Beverages – South America
The Food and Beverages – South America division, represented 20.1% of Alsea’s consolidated sales, and at the
end of 2010 was comprised of Burger King operations in Argentina, Chile and Colombia, as well as Domino’s
Pizza Colombia and Starbucks Argentina, with a total of 138 units. Sales in this segment increased by 28.6% to
1,810.6 million pesos, in comparison with 1,407.7 million pesos from the prior year. This positive variation of 402.9
million pesos was mainly due to the increase in same-store sales in the South America division, and to the net
opening of 22 units over the last 12 months.
EBITDA for Food and Beverages – South America increased 94.7% at the close of 2010, reaching 130.9 million
pesos, in comparison with 67.2 million pesos in 2009. EBITDA margin grew 2.4%, closing at 7.2%. Those increases
can be attributed mainly to the margin obtained from the growth in same-store sales, the increase in the number
of units in operation, the decrease in the cost of sales arising from appreciation of the different currencies
against the United States dollar in the countries where the company has operations, and to the decrease from
the effect of new businesses as a consequence of consolidation of the brands in different countries.
Distribution
Net sales during full-year 2010 decreased 3.0% to 2,973.9 million pesos, in comparison with 3,065.5 million
pesos in full-year 2009. The foregoing is attributable to one less week in sales in comparison with the prior
year, and to a lesser extent to the decrease in sales from Domino’s Pizza and Burger King in Mexico, which was
partially offset by growth in the number of units served in the last 12 months, and to the growth in same-store
sales of the other brands it serves, supplying a total of 1,344 stores at December 31, 2010, compared with 1,305
stores in the prior year, which is an increase of 3.0%. Sales to third parties decreased 6.2% to 1,065.0 million
pesos, mainly due to the decrease in sales to Burger King franchise and Domino’s Pizza sub-franchise holders
in Mexico.
EBITDA decreased 25.2 million pesos during full-year 2010 to 146.3 million pesos, in comparison with 171.5
million pesos in 2009, which represented a decrease of 14.7%. The 4.9% EBITDA margin had a negative change
of 0.7 percentage points in comparison with the same period of the prior year. This variation was mainly due
to the loss of margin as a consequence of one less operating week in 2010 in comparison with the 53 weeks
in 2009, to an effect in the business mix and to discounts granted to the Domino’s Pizza chain in Mexico, as a
consequence of the support given to the brand’s value strategy, which is focused on creating a higher number
of orders.
NON-OPERATING RESuLTS
All-In Cost of Financing
The all-in cost of financing in 2010 decreased to 90.7 million pesos, compared with 131.7 million pesos in the
same period of the prior year. That improvement of 41.0 million pesos can be attributed to the decrease of 30.1
million pesos in net interest paid arising from the lower cost of debt, which is a consequence of the refinancing
that was done with the issuance of unsecured local bonds (Cebur’s) in December 2009 and March 2010, and to
the decrease of 10.9 million pesos in exchange rate losses.
31%
over 2009
Other Expenses and Products - Net
This line showed a positive variation of 60.4 million pesos in comparison with the same period of the prior year,
because in 2010 the interest and actualizations arising from recovery of VAT balances receivable for the months
of May to December 2007 were recognized in March, and to the profit from the sale of the minority stake in
Starbucks in Brazil. These variations were partially offset by recognition of the credit recovery to the salary of
one of our service providers, the provision of expenses related to the lawsuit with Italianni’s, and to the write-off
of assets due to the close of units during 2010.
60.4 million pesos
of favorable variation
Touching people, enriching moments
21
Taxes on earnings
Taxes on earnings of 127.7 million pesos increased 82.7 million pesos in comparison with the same period of the
prior year. That variation can be attributed mainly because of the 55.9% increase in the income before taxes,
as well as the variation on the effective rate arising from the loss before taxes in some subsidiaries in which
the deferred tax was not recognized during the period and also to the effect generated by operations in South
America do to the fact that in Argentina the tax rate it´s higher than in Mexico.
BALANCE SHEET
Store Equipment, Improvements to Leased Locations and Properties, Brand use Rights, Goodwill
and Pre-Operations
The increase of 59.2 million pesos in this line was due to the acquisition of assets and opening of new units as
a part of the expansion program over the last 12 months. These effects were partially offset by the amortization
and depreciation of assets in accordance with accounting policies, and to a lesser extent to the write-off of
assets due to unit closures.
761.9
million pesos
of CAPEX for 2010
During the 12 months ended December 31, 2010, Alsea made capital investments of 761.9 million pesos, of
which 695.6 million pesos, equal to 91.3% of total investments, were earmarked for unit openings, equipment
refurbishing and remodeling existing units for the different brands that the Company operates. The remaining
66.3 million pesos was earmarked for other items, notably replacement of DIA’s machinery and equipment,
process improvement projects, and software licenses.
Clients
The increase of 43.8 million pesos in the “Clients” account is mainly attributable to the gap in recovery in DIA’s
portfolio with some clients. This created a variation in the number of days in the portfolio, going from 7 days in
2009, to 8 days by the close of 2010.
reTUrn
of favorable balance from
VAT for the period
may to December 2007
Taxes Recoverable – Net
The decrease in the taxes receivable line - net of taxes payable, of 66.3 million pesos at December 31, 2010, is
mainly attributable to the recovery of VAT receivable by OFA, and to a lesser extent to the increase in income
tax payable. This was partially offset by the increase in VAT balances receivable from the different brands in the
portfolio.
Deferred Income Tax
Deferred income tax increased from 457.8 million pesos at December 31, 2009, to 535.1 million pesos at December
31, 2010. This increase of 77.3 million pesos occurred mainly as a consequence of recognition of tax losses, and
to the effect of the differences in financial depreciation rates and tax rates.
7 days
of providers
Providers
Providers increased from 559.1 million pesos at December 31, 2009, to 679.8 million pesos at December 31, 2010.
This variation of 120.7 million pesos was created principally by a larger number of units in operation, and as a
consequence of a better negotiating process, which translates into an increase of 7 provider days, having risen
from 34 to 41 days over the last 12 months.
Decrease of
85.6
million pesos
Other accounts payable
Other accounts payable decreased from 502.5 million pesos at December 31, 2009, to 416.9 million pesos at
December 31, 2010. This variation of 85.6 million pesos is mainly attributable to paying expenses related to
recovery of balances receivable for application of the 0% VAT rate on the sale of OFA foods, which in turn was
offset by the provision for expenses related to the lawsuit against Italianni’s.
22
Annual Report 2010
Bank Debt and unsecured Local Bonds
At December 31, 2010, Alsea’s total bank debt increased by 295.4 million pesos, closing at 1,597.5 million pesos,
in comparison with 1,302.1 million pesos on the same date of the previous year. The Company’s net consolidated
debt compared with 2009 increased 118.4 million pesos, closing at 957.3 million pesos on December 31, 2010,
compared with the 838.9 million at the close of 2009. This increase is mainly attributable to the Company’s
capital investment needs.
DEBT STRuCTuRE
14%
86%
At December 31, 2010, 85.6% of the debt was long term, and on that same date 97.2% of the debt was
denominated in Mexican pesos, 1.0% in Chilean pesos, and 1.8% in Colombian pesos.
LONG TERm DEBT
SHORT TERm DEBT
1,368
229
The following table shows the amount of total debt in millions of pesos at December 31, 2010, as well as the
maturity dates by year and the percentage of each one:
*Numbers in million pesos
Considers a TIIE of 4.9%
DEBT STRuCTuRE
mATuRITIES BY YEAR
BANK
Santander
HSBC
BBVA
Santander
Santander
Chile-Citi(1)
Colombia-Santander(2)
CREDIT
SPREAD
BALANCE
4Q-10
2011
$ 340
0.20% $
136
$ 68
$ 300
1.50% $
300
$ 30
$ 450
0.10% $
$ 150
0.15% $
56
60
$ 56
$ 30
$ 300
1.50% $
300
-
$
$
32
29
7.99%(3) $
5.31%(3) $
Cebur Alsea 09
$ 300
2.15% $
Cebur Alsea 10
$ 400
1.75% $
2012
$ 68
$ 30
-
$ 30
-
-
$ 300
16
29
300
400
$ 16
$ 29
-
-
-
-
-
$ 400
-
-
-
-
-
-
2013
-
$ 30
-
-
2014
-
2015
-
$ 105
$ 105
-
-
-
-
$ 100
$ 100
$ 100
Maturities
Total Debt
$ 229 14% $ 428 27% 530 33% 205 13% 205 13%
$
1,597
$1,368
$ 940
$ 410
$ 205
$ -
(1) Credit in Chilean pesos.
(2) Credit in Colombian pesos.
(3) Considers the credit rate for each country plus the spread applicable.
Share Repurchase Program
At December 31, 2010, the Company had an approximate balance in the repurchase fund of 12.6 million pesos
for approximately 143.2 million shares, at an average price of 11.37 pesos per share. During the 12 months ended
December 31, 2010, the Company repurchased 3.9 million net shares, for approximately 62.1 million pesos.
Similarly, the average daily repurchase transaction was 6.7% of the shares traded on the market.
3.9 million
shares
repurchased
Financial Ratios
At December 31, 2010, the financial restrictions established in the Company’s credit contracts were as follows: the
net debt to EBITDA ratio for the last 12 months was 0.95x, the total liabilities to shareholders’ equity ratio was
0.96x, and the 12-month EBITDA to 12-month interest paid ratio was 9.3x.
All Covenants
were complied
during the year
The Net Return on Invested Capital (“ROIC”)(4) decreased from 6.7% to 5.7% over the 12 months ended December
31, 2010, due mainly to the comparative effect of the 53rd week in 2009. The Return on Equity (“ROE”)(5) for the 12
months ended December 31, 2010 was 5.1% in comparison with 3.4% for the same period in the prior year, mainly
as a consequence of the increase in net income, and a slight drop in shareholders’ equity due to the declaration
and payment of a dividend in the amount of 246.0 million pesos.
Touching people, enriching moments 23
28.1%
in the share Price
closed at $12.93
Stock market Indicators
ALSEA* closed 2010 with 605.2 million shares in circulation at a price of 12.93 pesos per share, which is a 28.1%
increase over the 10.09 pesos per share at the close of 2009 and with a share float in circulation of 37.5%. The
Company´s value between EBITDA for the last twelve months was 9.0 times. The average daily trading during
2010 was of 1.4 million shares.
Average trading per day of
170,000 shares.
market maker
Casa de Bolsa UBS, which was hired in the last quarter of 2008, was kept as the Market Maker for the full year
in 2010. During 2010, of the 346.5 million shares traded in the market, the market maker figure traded 12.4%,
attaining 42.9 million shares traded, which is equal to average trading per day of 170,000 shares.
74% of the
Company´s needs in uS
dollars were hedged
Hedge Profile
The Chief Financial Officer, in conjunction with the Corporate Finance Director, manages risk as a function of:
mitigation of present and future risk, no diverting resources from operations, and the expansion plan, and having
certain future cash flows with which a strategy can be formed regarding the cost of debt. The instruments will
only be used for hedging purposes.
During 2010, hedge derivatives in US dollars matured for 83.8 million dollars, at an average rate of 12.63 pesos
per dollar. As a result of this coverage, there was an exchange rate loss of 1.1 million pesos. For 2011 Alsea has
hedges to purchase dollars for approximately 51.5 million US dollars, with an average exchange rate of 12.14 pesos
per dollar.
24
Annual Report 2010
Key Numbers
BRAND
uNITS 2010
uNITS 2009
VARIATION
% VAR. ANNuAL
Domino´s Pizza Mexico
Domino´s Pizza Colombia
Starbucks Mexico
Starbucks Argentina
Burger King Mexico
Burger King Argentina
Burger King Chile
Burger King Colombia
Chili’s Grill & Bar
California Pizza Kitchen
P.F. Chang´s China Bistro
Total Corporate
Starbucks Chile
Starbucks Brazil
Total Associated(6) (7)
Domino’s Pizza Sub-Franchisees
TOTAL uNITS
420
21
300
30
109
51
30
6
31
9
4
1,011
31
0
31
164
1,206
425
22
266
14
108
45
32
3
29
7
1
952
30
24
54
165
1,171
(5)
(1)
34
16
1
6
(2)
3
2
2
3
59
1
(24)
(23)
(1)
35
(1.2)%
(4.5)%
12.8%
114.6%
0.9%
13.3%
(6.3)%
100.0%
6.9%
28.6%
300.0%.
6.2%
3.3%
(100)%
(42.6)%
(0.6)%
3.0%
(4) ROIC is defined as operating income after taxes (last 12 months) over net operating investment (total assets – cash and short-term investments – no-cost
liabilities).
(5) ROE is defined as net earnings (last 12 months) over shareholders’ equity.
(6) Associated units are defined as all operations that are recognized using the equity method.
(7) The decrease of 23 units from the total of associated units is due to the sale of the minority stake in Starbucks Brazil operations.
Touching people, enriching moments 25
Audit Committee’s Annual Report
To the Board of Directors of ALSEA, S.A.B. de C.V.:
February 16, 2011
In compliance with Articles 42 and 43 of the Stock Market Law and Regulation of the Audit Committee, this
report is on our activities during the year ended December 31, 2010. In performing our work, we have considered
the recommendations established in the Code of Best Corporate Practices, and according to a work program
developed based on the Committee’s Regulation, we met at least once every quarter to undertake the activities
described below:
I. RISK ASSESSmENT
With Management, and Internal and External Auditors, we reviewed the critical risk factors that may affect the
Company’s operations, and we determined that they have been appropriately defined and managed.
II. INTERNAL CONTROL
We determined that Management, in compliance with its responsibilities in matters of internal control, has
established the appropriate policies and procedures. We also followed up on comments and observations that the
Internal and External Auditors made in that regard while performing their work.
III. EXTERNAL AuDIT
We recommended that the Board of Directors hire auditors from outside of the Group and its subsidiaries for fiscal
year 2010. To that end, we verified their independence and compliance with the requirements established by law.
We jointly analyzed their focus and work program.
We maintained constant and direct communication regarding the progress of their work, their observations, and
we took note of their comments from their review of the yearly financial statements. We were informed in a timely
manner of their conclusions and reports on the yearly financial statements, and we implemented the observations
and recommendations that they made during the course of their work.
We authorized the fees paid to the external auditors for auditing and other allowed services, ensuring that their
independence from the company was not interfered with in any way.
Considering Management’s viewpoints, we evaluated their services for the prior year, and we began the evaluation
process for fiscal year 2010.
IV. INTERNAL AuDIT
In order to maintain its independence and objectivity, the Internal Audit Department reports to the Audit Committee.
We carried out the following activities:
We reviewed and approved its annual schedule of activities in a timely manner. Internal Audit participated in the
process of identifying risks, and establishing and verifying controls in preparation of the report.
We received periodic reports on progress in the approved work program, possible variations, and the causes of
those variations.
We followed up on the observations and suggestions made, and their timely implementation.
V. FINANCIAL INFORmATION, ACCOuNTING POLICIES AND REPORTS TO THIRD PARTIES
We reviewed the process of preparing the Company’s quarterly and yearly financial statements with those
responsible for their preparation, and we recommended that the Board of Directors approve and authorize their
publication. As part of this process, we considered the opinions and observations of the external auditors, and
we verified that the criteria, accounting policies and information used by Management to prepare the financial
information is adequate and sufficient, and has been applied consistently with the prior year; consequently, the
information presented by Management reasonably reflects the financial situation, the operating results, and
changes to the Company’s financial situation for the year ended December 31, 2010.
26
Annual Report 2010
We also reviewed the quarterly reports prepared by Management to be presented to the shareholders and general
public, and we verified that these reports were prepared using the same accounting criteria used in preparation
of the annual report. Our review included verification that there is an integral procedure that provides reasonable
security regarding the content of the reports. In conclusion, we recommended that the Board authorize publication.
Our review also included the reports and any other financial information required by the Regulatory Entities in Mexico.
We approved the incorporation into the Company’s accounting policies of the new accounting procedures that took
effect in 2010, issued by the entity responsible for accounting rules in Mexico.
We received periodic reports of advances in the process that the Company is undertaking to adopt international
accounting standards, pursuant to the terms of the circular issued in that regard by the National Securities and
Exchange Commission. We concluded that the advances to date will allow compliance with the mentioned rules.
VI. COmPLIANCE WITH REGuLATIONS, LEGAL mATTERS AND CONTINGENCIES
We confirmed the existence and reliability of the controls established by the Company to ensure compliance with
the different legal provisions that it must adhere to, ensuring that these controls are adequately disclosed in the
financial information.
We periodically reviewed the Company’s various tax, legal and labor contingencies, and we monitored the efficiency
of the procedure established to identify and follow up on those contingencies, as well as their adequate disclosure
and reporting.
VII. ADmINISTRATIVE ISSuES
The Committee held regular meetings with Management so that we would be informed of the Company’s progress,
activities, and relevant and unusual events. We also met with the external and internal auditors to discuss the
development of their work, limitations they might face, and to facilitate any private communication that they might
wish to have with the Committee.
Where appropriate, we requested the support and opinion of independent experts. We are not aware of any
significant breaches to the operating policies, the internal control system, and accounting reporting policies.
We held executive meetings with the exclusive participation of Committee members, and during those meetings
agreements and recommendations for Management were established.
The Chairman of the Audit Committee reported to the Board of Directors on a quarterly basis on the activities
performed.
The work that we performed was duly documented in minutes prepared for each meeting, which minutes were
reviewed and approved in a timely manner by Committee members.
Sincerely,
Chairman of the Audit Committee
José manuel Canal Hernando
Touching people, enriching moments 27
Corporate Gobernance Committee Report
To the Board of Directors of ALSEA, S.A.B. DE C.V.:
February 16, 2011
In compliance with Articles 42 and 43 of the new Securities Market Law, and on behalf of the Corporate Governance
Committee, I present you with my report on the activities that we performed during the year ended December 31,
2010. While carrying out our work we considered the recommendations in the Code of Best Corporate Practices.
To comply with the responsibilities of this Committee, we performed the following activities:
1. During this period we did not receive any requests for exemption in accordance with the provisions of Article
28, Section III, subsection (f) of the new Stock Market Law, thus it was not necessary to make any type of
recommendation in this regard.
2. Management reported to this Committee that it continues with the process of selecting the most appropriate
hedge instrument for the countries in which Alsea is present. The mandate of the Committee’s members will be
shared in the Committee’s next session.
3. The CEO’s Report was revised with the variations vs. budget for each quarter and for fiscal year 2010, with
the impacts of each of Alsea’s companies. The purpose of this exercise was to validate the changes and to
present the principal variations to the Board of Directors. This entity expresses its concern regarding the results
at Domino’s Pizza Mexico and Burger King Mexico, and suggests that the measures necessary to revert the
situation at both business units be taken. The Committee recommends approval of that report.
4. The quarterly results were presented for the 2010 Stock Trading Plan and the 2011 Stock Trading Plan, and
both were approved. The quarterly metrics will be reviewed and adjusted where applicable on a quarterly basis
during fiscal year 2011.
5. The updated Shareholder’s Cost at the close of each quarter in 2010 was presented to us, using the methodology
authorized by the Board of Directors, and the Board approved continued use of the rate of 16.0%.
28
Annual Report 2010
6. The summary of risk management operations was presented to us on a quarterly basis, through forward
exchange rates (peso-dollar) used during the year. Those operations were conducted as authorized, complying
with the objective of hedging the exchange rate risks in operations, based on the authorized budget.
7. Analysis of the optimal capital structure considering current market conditions was presented. Using the
authorized methodology, it was determined that the optimal structure is leverage of 47.9.%.
8. The results of evaluation of relevant directives in 2010 were presented. The Committee requests an executive
summary that contains the methodology of that evaluation, as well as the amounts to distribute for that purpose.
9. The Human Capital Model 2011-2013 was presented. This Committee recommends emphasizing the focus on
the client and on the results of management in all areas of the model.
10. The Compensation and Recognition Strategy 2011-2013 was presented by the Human Resources Corporate
Board. This Committee recommends approval of that strategy, with the following comments: In relation to
the Performance Bonus for Store Managers, the recommendation is to clarify the difference between bonus-
based compensation, and variable compensation. In matters of Performance Evaluation, the recommendation
is to emphasize the consequences in the event of a breach. In relation to the Performance Bonus, the
recommendation is to review the parameters under which the bonus of each employee is defined, always
seeking to reward people with the best performance. Finally, in the matter of the Directors’ Retention Bonus,
the recommendation is to review the candidates who are eligible for that bonus, as well as to find a way to
reward high-performance/high-potential employees.
Lastly, I would like to mention that as part of the activities that we performed, including preparation of this report,
we have at all times listened to and considered the viewpoints of senior managers, and no significant differences
of opinion were noted.
Chairman of Corporate Governance Committee
Salvador Cerón Aguilar
Touching people, enriching moments 29
Touching people,
enriching moments
Alsea, S.A.B. de C.V. and Subsidiaries
Consolidated Financial Statements
December 31, 2010 and 2009
CONTENTS
Independent Auditors’ Report
Consolidated Financial Statements:
Balance Sheets
Statements of Income
Statements of Cash Flows
Statements of Changes in Stockholders’ Equity
Notes to the Consolidated Financial Statements
29
30
32
33
34
36
30
Annual Report 2010
Independent Auditors’ Report
To the Board of Directors and Stockholders
Alsea, S.A.B. de C.V. and Subsidiaries:
(Thousands of mexican pesos)
We have audited the accompanying consolidated balance sheets of Alsea, S. A. B. de C. V. and Subsidiaries
as of December 31, 2010 and 2009 and the related consolidated statements of income, stockholders’ equity
and cash flows for the years then ended. These financial statements are the responsibility of the Company´s
management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in Mexico. Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement and are prepared in accordance with Mexican Financial
Reporting Standards (FRS). 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 reporting 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 explained in note 18(e), as a result of a court resolutions issued in December 2009 and November 2010,
Alsea was sentenced to comply with the terms of the share purchase agreement explained in such note.
The management and the Company’s legal counsels believe, that there are sufficient elements to obtain
a favorable resolution to the Company’s interests and therefore, no provision has been recognized in the
financial statements at December 31, 2010 and 2009.
As mentioned in note 1 (b), in May 2009, the Company was notified of the favorable final judgment that allows
Operadora de Franquicias Alsea, S. A. de C. V. (subsidiary company) to tax the sale of prepared foods at the
rate of 0%, established by the Value Added Tax (VAT) law. During 2010 and 2009, refunds related to favorable
balances from 2006 and 2007 were obtained, whose accessories were recorded as other income (see note 14).
As mentioned in note 8, in 2009 one of the subsidiaries recognized in other expense for the year an impairment
loss of one of the brands operated by the Company by $ 30,000 (see note 14).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects,
the financial position of Alsea, S. A. B. de C. V. and Subsidiaries as of December 31, 2010 and 2009, and the
results of its operations, the changes in its stockholders’ equity and cash flows for the years then ended, in
conformity with Mexican Financial Reporting Standards.
KPMG CARDENAS DOSAL, S. C.
Jaime Sánchez-Mejorada Fernández
February 25, 2011.
Touching people, enriching moments 31
Consolidated Balance Sheets
ALSEA, S.A.B. DE C.V. AND SuBSIDIARIES
December 31, 2010 and 2009
(Thousands of mexican pesos)
Assets
Current assets:
Cash
Accounts receivable, net:
Customers, less allowance for doubtful accounts
of $3,805 in 2010 and $13,662 in 2009
Value added tax and other recoverable taxes
Other
Inventories, net (note 5)
Prepaid expenses
Total current assets
Investment in shares of associated companies (note 6)
2010
2009
$
640,203
463,214
207,224
163,442
218,037
321,341
39,482
32,705
352,438
336,870
147,679
117,786
1,605,063
1,435,358
20,783
25,033
Store equipment, leasehold improvements and property, net (note 7)
2,942,044
2,897,678
Goodwill of subsidiary companies, net (note 8)
189,979
189,979
Intangible assets, less accumulated amortization of $862,139
in 2010 and $712,496 in 2009 (note 9)
817,410
802,621
Deferred income tax and employee’s statutory profit
sharing, and for reinvestment of profits (note 16)
Discontinued operations (note 2(c))
535,087
457,832
88
308
$
6,110,454
5,808,809
32
Annual Report 2010
Liabilities and Stockholders’ Equity
Current liabilities:
2010
2009
Current installments of long-term debt (note 10)
$
229,524
593,316
Suppliers
Associated companies (note 4)
Accounts payable and other accrued liabilities
Accruals (note 12)
Income tax and employee’s statutory profit sharing
Income tax arising from tax consolidation (note 16)
Total current liabilities
Long-term debt, excluding current installments (note 10)
Debt stock exchange (note 11)
Other liabilities
Income tax arising from tax consolidation (note 16)
Labor obligations (note 15)
Discontinued operations (note 2(c))
Total liabilities
Stockholders’ equity (note 17):
Controlling interest:
Capital stock
Additional paid-in capital
Retained earnings
Repurchased shares reserve
Currency translation adjustment in foreign subsidiaries
and associated companies
Total Controlling interest
Non-controlling interest
Total stockholders’ equity
Commitments and contingent liabilities (note 18)
See accompanying notes to consolidated financial statements.
679,773
559,149
58,523
52,334
26,031
62,515
364,592
440,015
46,267
62,670
2,606
3,891
1,433,619
1,747,587
668,000
408,787
700,000
300,000
37,498
50,621
127,720
147,077
32,184
21,605
464
769
2,999,485
2,676,446
527,657
525,722
1,241,208
1,236,603
728,371
832,576
391,432
335,875
(23,340)
(22,187)
2,865,328
2,908,589
245,641
223,774
3,110,969
3,132,363
$
6,110,454
5,808,809
Lic. Fabián Gosselin Castro
General Director
Lic. Diego Gaxiola Cuevas
Chief Financial Officer
C.P. Alejandro Villarruel morales
Corporate Controller
Touching people, enriching moments 33
Consolidated Statements of Income
ALSEA, S.A.B. DE C.V. AND SuBSIDIARIES
years ended December 31, 2010 and 2009
(Thousands of Mexican pesos)
Net sales
Cost of sales
Gross profit
Operating expenses
Operating income
Other income (expenses), net (note 14)
Comprehensive financing result (note 13)
2010
2009
$
8,995,993
8,587,081
3,138,808
3,166,461
5,857,185
5,420,620
5,529,103
5,085,550
328,082
335,070
45,481
(14,916)
(90,680)
(131,719)
Equity in the results of operations of associated companies (note 6)
3,833
(4,493)
Income from continuing operations, before income tax
and non-controlling interest
Income taxes (note 16)
Income before discontinued operations
Loss from discontinued operations, net (note 2(c))
Consolidated net income
Non-controlling interest
Net controlling interest income
Net earning per share (note 2(x))
See accompanying notes to consolidated financial statements.
286,716
183,942
127,749
45,086
158,967
138,856
-
(31,896)
158,967
106,960
7,764
3,212
151,203
103,748
0.25
0.17
$
$
Lic. Fabián Gosselin Castro
General Director
Lic. Diego Gaxiola Cuevas
Chief Financial Officer
C.P. Alejandro Villarruel morales
Corporate Controller
34
Annual Report 2010
Consolidated Statements of Cash Flows
ALSEA, S.A.B. DE C.V. AND SuBSIDIARIES
years ended December 31, 2010 and 2009
(Thousands of Mexican pesos)
Operating activities:
Income from continuing operations before income tax
and non-controlling interest
Items relating to investing activities:
Depreciation and amortization
Effects from associated companies, net
Gain or loss on sale of fixed assets
Interest income
Valuation effects of financial instruments
Impairment loss
Items relating to financing activities - Interest expense
Subtotal
Customers
Inventories
Suppliers
Taxes payable
Other assets and liabilities
Net cash provided by operating activities
Investing activities:
Interest received
Store equipment, leasehold improvements and property
Trademark rigths and preoperating items
Investment in shares of subsidiaries and associated companies
Desincorporation of subsidiary
Net cash used in investment activities
Cash surplus to be applied in financing activities
Financing activities:
Bank loans received and payment of loans, net
Debt stock exchange
Interest paid
Dividends paid
Non-controlling interest contribution (reduction)
Disposition (repurchase) of shares
Net cash provided by financing activities
Net increase (decrease) in cash
Effects of changes in cash value
Cash:
At beginning of year
At end of year
See accompanying notes to consolidated financial statements.
2010
2009
$
286,716
183,942
675,033
665,167
(3,833)
32,008
15,468
-
-
107,693
4,493
28,740
15,265
(5,535)
30,000
137,754
1,113,085
1,059,826
(43,782)
(15,568)
120,625
(138,744)
(98,029)
937,587
(15,468)
(513,405)
(232,973)
(12,122)
(3,447)
(24,929)
24,654
22,420
280,848
(166,782)
1,196,037
(15,265)
(123,447)
(443,524)
(642)
12,852
(777,415)
(570,026)
160,172
626,011
(107,887)
400,000
(104,385)
(245,958)
14,103
62,097
17,970
178,142
(1,153)
(791,191)
300,000
(134,639)
(41,834)
(18,743)
(118,035)
(804,442)
(178,431)
(20,218)
463,214
640,203
661,863
463,214
$
Lic. Fabián Gosselin Castro
General Director
Lic. Diego Gaxiola Cuevas
Chief Financial Officer
C.P. Alejandro Villarruel morales
Corporate Controller
Touching people, enriching moments 35
Consolidated Statements of Changes in Stockholders’ Equity
ALSEA, S.A.B. DE C.V. AND SuBSIDIARIES
years ended December 31, 2010 and 2009
(Thousands of Mexican pesos)
Balances as of December 31, 2008
$
534,017
1,228,880
80,482
1,045,339
1,125,821
110,322
(1,969)
2,997,071
232,722
3,229,793
Capital
stock
Additional
paid-in
capital
Retained earnings
Legal
reserve
Retained
earnings
Total
Repurchased
shares
reserve
Cumulative
translation
effect from
foreign
entities
Total
controlling
interest
Non-
controlling
interest
stockholders’
Total
equity
-
(8,217)
-
-
-
(78)
-
-
-
-
-
-
-
14,306
-
-
-
(6,583)
-
-
525,722
1,236,603
86,921
745,655
832,576
335,875
(22,187)
2,908,589
223,774
3,132,363
-
1,935
-
-
-
-
-
-
-
-
4,605
-
-
-
$
527,657
1,241,208
92,108
636,263
728,371
391,432
(23,340)
2,865,328
245,641
3,110,969
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
6,439
(6,439)
(5,535)
(5,535)
(349,599)
(349,599)
349,599
(41,859)
(41,859)
5,187
(5,187)
55,557
(9,450)
(9,450)
(245,958)
(245,958)
78
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(124,124)
(132,341)
(132,341)
-
(12,160)
(12,160)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
14,306
(5,535)
-
-
-
(6,583)
(41,859)
57,492
-
-
4,605
(9,450)
(245,958)
-
-
-
-
-
-
-
-
-
-
-
-
-
14,103
14,306
(5,535)
-
-
-
(6,583)
(41,859)
14,103
57,492
-
4,605
(9,450)
(245,958)
103,748
103,748
(20,218)
83,530
3,212
86,742
151,203
151,203
(1,153)
150,050
7,764
157,814
Non-controlling interest decrease (note 2(b))
Repurchased shares (note 17)
Appropriation to legal reserve
Payment of premium for share subscription (note 17)
Valuation of financial instruments (nota 2(f))
Repurchased shares cancellation (note 17)
Increase in the repurchased shares reserve
Acquisition of non-controlling interest of subsidiaries in
Colombia (note 1(g) and (h))
Dividends declared in shares ($0.069 per share) (note 17)
Comprehensive income
Balances as of December 31, 2009
Non-controlling interest increase (note 2(b)
Repurchased shares (note 17)
Appropriation to legal reserve
Payment of premium for share subscription (note 17)
Repurchased shares cancellation (note 17)
Dividends declared in shares ($0.402 per share) (note 17)
Comprehensive income
Balances as of December 31, 2010
See accompanying notes to consolidated financial statements.
36
Annual Report 2010
Payment of premium for share subscription (note 17)
14,306
Non-controlling interest decrease (note 2(b))
Repurchased shares (note 17)
Appropriation to legal reserve
Valuation of financial instruments (nota 2(f))
Repurchased shares cancellation (note 17)
Increase in the repurchased shares reserve
Acquisition of non-controlling interest of subsidiaries in
Colombia (note 1(g) and (h))
Dividends declared in shares ($0.069 per share) (note 17)
Comprehensive income
Balances as of December 31, 2009
Non-controlling interest increase (note 2(b)
Repurchased shares (note 17)
Appropriation to legal reserve
Repurchased shares cancellation (note 17)
Dividends declared in shares ($0.402 per share) (note 17)
Comprehensive income
Balances as of December 31, 2010
See accompanying notes to consolidated financial statements.
Capital
stock
Additional
paid-in
capital
(8,217)
(78)
1,935
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(6,583)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Balances as of December 31, 2008
$
534,017
1,228,880
80,482
1,045,339
1,125,821
110,322
(1,969)
2,997,071
232,722
3,229,793
Retained earnings
Legal
reserve
Retained
earnings
Total
Repurchased
shares
reserve
Cumulative
translation
effect from
foreign
entities
Total
controlling
interest
Non-
controlling
interest
Total
stockholders’
equity
525,722
1,236,603
86,921
745,655
832,576
335,875
(22,187)
2,908,589
223,774
3,132,363
Payment of premium for share subscription (note 17)
4,605
-
-
-
-
(9,450)
(9,450)
(245,958)
(245,958)
151,203
151,203
-
-
-
-
-
-
-
-
-
-
-
-
6,439
(6,439)
-
-
(124,124)
-
-
-
78
-
-
-
-
-
-
-
(5,535)
(5,535)
-
-
(349,599)
(349,599)
349,599
-
-
(41,859)
(41,859)
103,748
103,748
-
-
-
-
-
-
-
-
-
-
-
-
-
(12,160)
(12,160)
(132,341)
-
14,306
(5,535)
-
-
(6,583)
(41,859)
-
-
-
-
-
-
-
-
(132,341)
-
14,306
(5,535)
-
-
(6,583)
(41,859)
(20,218)
83,530
3,212
86,742
-
-
-
-
5,187
(5,187)
-
-
55,557
-
-
-
-
-
-
-
-
-
-
-
-
14,103
57,492
-
4,605
(9,450)
(245,958)
-
-
-
-
-
14,103
57,492
-
4,605
(9,450)
(245,958)
(1,153)
150,050
7,764
157,814
$
527,657
1,241,208
92,108
636,263
728,371
391,432
(23,340)
2,865,328
245,641
3,110,969
Lic. Fabián Gosselin Castro
General Director
Lic. Diego Gaxiola Cuevas
Chief Financial Officer
C.P. Alejandro Villarruel morales
Corporate Controller
Touching people, enriching moments 37
Notes to the Consolidated Financial Statements
ALSEA, S.A.B. DE C.V. AND SuBSIDIARIES
December 31, 2010 and 2009
(Thousands of Mexican pesos)
These financial statements have been translated from the Spanish language original and for the convenience of
foreign/English-speaking readers.
On February 25, 2011, the Board of Directors authorized the issuance of the accompanying consolidated financial
statements and the notes thereto. In accordance with the General Corporations Law and the Company’s bylaws, the
stockholders are empowered to modify the financial statements after their issuance. The accompanying financial
statements will be submitted for approval at the next Stockholders’ Meeting. The consolidated financial statements
have been prepared in accordance with the Mexican Financial Reporting Standards (FRS) in force at the balance
sheet date (note 2(z)).
(1) Description of business and significant transactions-
Description of business-
Alsea, S. A. B. de C.V. and Subsidiaries (Alsea or the Company) are mainly engaged in operating fast-food
stores and restaurants, “QSR” and casual restaurants, “Casual Dining”. In Mexico, Alsea operates Domino’s
Pizza, Starbucks Coffee, Burger King, Chili’s Grill & Bar, California Pizza Kitchen and since October 2009, P.F.
Chang’s. The operation of its multi-units is supported by its Shared Service Center, which includes a supply
chain through its distribution division (DIA), real estate and development services, as well as administrative
services such as financial, human resources and technology. In Chile and Argentina, Alsea operates the Burger
King trademark, and since 2007, it operates Starbucks Coffee in those countries in association with Starbucks
Coffee International. In Colombia, the Company operates the Domino’s Pizza and Burger King trademarks since
June and November 2008, respectively.
Significant operations-
a) Sale of non-controlling interest in Starbucks Brazil-
In April 2006, Alsea, S. A. B. de C. V., through its subsidiary Operadora Internacional Alsea, S. A. de C. V. (OIA), and
in conjunction with a group of partners, signed a joint venture agreement with Starbucks Corporation (SBC) for
the creation of a company denominated Starbucks Brasil Comércio de Cafes LTDA, to operate Starbucks Coffee
in Brazil, with OIA holding 11.06% of the new company’s shares.
In August 2010, and as part of a growth strategy in that country, Alsea sold its own non-controlling interest in
Starbucks Brazil to Starbucks Corporation (SBC), recognizing in the other income caption, the gain arising from
the difference between the compensation received and the book value of the shares.
b) Satisfactory conclusion regarding refund of favorable VAT balances-
In August 2009, through its subsidiary Operadora de Franquicias Alsea, S. A. de C. V., (OFA), Alsea obtained a
refund of the favorable VAT balances corresponding to the period from October 2006 to April 2007.
In March 2010, Alsea received a notification of the ruling issued by the second collegiate court for civil and
administrative matters, which concludes the impugnation procedure initiated by the Revenue Administration
Service (SAT) against the resolution issued by the tenth district judge in Tampico, Tamaulipas, and in May
2010, through its subsidiary Operadora de Franquicias Alsea, S. A. de C. V. (OFA), Alsea obtained a refund of the
favorable VAT balances corresponding to the period from May to December 2007.
The resources obtained include the historical favorable balances and the respective accessories, which have
been recorded in the results for the year (see note 14).
c) Placement of debt stock exchange-
In December 2009 and March 2010, Alsea successfully placed debt stock exchange for an amount of $300
and $400 million pesos, respectively, in the Mexican stock market. HSBC Casa de Bolsa, S. A. de C. V. and Grupo
Financiero HSBC acted as underwriters in the placement.
38
Annual Report 2010
The term of the unsecured notes is for three years as from issuance thereof, maturing in December 2012 and
March 2013, respectively. The notes bear interest at a 28 day TIIE (Average Interbank Interest Rate) coupon rate,
plus 2.15 and 1.75 percentage points, respectively.
These issues are part of the debt stock exchange program authorized by Alsea’s Board of Directors for up
to $700 million pesos. With the March 2010 issue, the total amount authorized for said program has been
completed.
d)
e)
The net resources obtained from said issues were mainly used to prepay bank liabilities, so as to improve the
debt maturities profile, while at the same time decrease the cost thereof.
Liquidation of subsidiary Dobrasil, S. A. de C. V. and Operadora y Procesadora de Pollo, S. A. C. V.-
At the Stockholders’ Meeting held on December 31, 2010 and by unanimous consent of shareholders, the
subsidiary companies Dobrasil, S. A. de C. V. and Operadora y Procesadora de Pollo, S. A. de C. V. started its
liquidation process in accordance with Article 229 Section III of the General Corporations Law.
Agreement with P.F. Chang’s China Bistro, Inc.-
In May 2009, Alsea made an arrangement with P.F. Chang’s China Bistro, Inc. “PFCB” to develop the concept of
P.F. Chang restaurants in Mexico under an exclusivity agreement that covers the entire Mexican territory. As part
of the arrangement, Alsea will open 30 P.F. Chang’s units throughout the country over the next ten years. The
first restaurant started operating in October 2009.
The Company has contracted different commitments in relation to the arrangement established in the
agreement for the acquired brand (see note 2(m)).
f) Call option for Starbucks Coffee International-
In January 2009, Starbucks Coffee International, “SCI” confirmed that it will not exercise its purchase option this
year, under which it has the right to increase its equity interest in Starbucks Coffee Mexico from 18% to 50%.
Under the respective agreement, SCI’s the next and last date to exercise said call option is September 2012.
g) Acquisitions in Colombia-
In June 2008, the Company concluded the acquisition of 75% of the capital stock of Dominalco, S. A. (Domino’s
Pizza Colombia or Dominalco); an additional 19.9% was subsequently acquired in December 2009. With the
above acquisitions, Alsea now has 95% of the capital stock of Dominalco. Domino’s Pizza Colombia has been
operating in that country for 20 years and it presently has 21 stores in four cities, Bogota, Medellin, Cali and
Pereira.
This business acquisition was recognized by the purchase method. The cost of the acquired entity was
determined based on the cash paid. In addition, the excess of the cost of the acquired entity over the net
assets acquired and assumed liabilities was reassigned to net assets.
The operating income of the acquired company is included in the consolidated financial statements since the
acquisition date.
h) Development of the Burger King trademark in Colombia-
In October 2008, continuing with the expansion strategy in Latin America, through a subsidiary in which Alsea
holds 84.9% of equity, an agreement was reached with Burger King Corp. to develop the Burger King brand in
the Bogota territory in Colombia. Subsequently, in December 2009, the Company acquired a 9.9% of equity in
Operadora Alsea in Colombia, S. A. (Burger King Colombia or Opalcol). The remaining 5.2% of equity is held by
the actual partners of Alsea in Domino’s Pizza Colombia. The agreement considers a plan to develop 20 Burger
King units over the next five years.
Touching people, enriching moments 39
i) Contract termination agreement of the master franchise of “Popeye’s” trademark-
In September 2008, the Company reached an agreement with AFC Enterprises, Inc. Popeye’s Chicken &
Biscuits, to finalize the master franchise agreement for operating the “Popeye’s” brand in Mexico. The ten
Popeye’s stores stopped operating in the second quarter of 2009, and as a result, certain assets and liabilities
are in process of being realized and liquidated, respectively (see note 2 (c)).
j)
Incorporation of Servicios múltiples Empresariales ACD, S. A. de C. V. SOFOm. ENR. (hereinafter SOFOm)-
In December 2009, the subsidiary Operadora y Procesadora de Pollo, S. A. de C. V. (OPP), was spined off
through the division of a portion of its assets, liabilities and equity to be contributed as a whole to a company
called “SOFOM”. The spin off was performed based on the subsidiary’s audited financial statements of “OPP”.
The variable portion of the capital stock of “OPP” was reduced through the cancellation of 95,327,000 common,
nominative shares with a par value of $1.00 each. The proportion of the Company’s interest in the capital stock
of “SOFOM” will be the same as it is currently in “OPP”.
(2) summary of significant accounting policies-
The preparation of the financial statements requires management to make a number of estimates and assumptions
that affect the recorded amounts of assets and liabilities and the disclosure of contingent assets and liabilities at
the date of the financial statements, as well as the disclosure of recorded income and expenses during the reporting
period. Significant items subject to such estimates and assumptions include the carrying amount of property, plant
and equipment, intangibles and goodwill; valuation allowances for receivables, inventories and deferred income
tax assets, valuation of financial instruments and assets and liabilities related to employee benefits. Actual results
could differ from those estimates and assumptions.
For disclosure purposes in the notes to the financial statements, when reference is made to pesos,“$” or MXP, the
currency is thousands of Mexican pesos, and when reference is made to dollars, the currency is the US dollars.
Significant accounting policies applied in preparing the financial statements follow:
(a) Recognition of the effects of inflation-
The accompanying consolidated financial statements have been prepared in accordance with Mexican
Financial Reporting Standards (FRS) in effect as of the balance sheet date, and include the recognition of the
effects of inflation on the financial information through December 31, 2007, based on the National Consumer
Price Index (NCPI) published by Banco de Mexico (Central Bank).
Cumulative inflation percentages of the last three years as of December 31 of each year, including the reporting
year, are shown on the following page.
Period
2010
2009
2008
NCPI
144.639
138.541
133.761
Inflation
Yearly
4.40%
3.57%
6.52%
Cumulative
15.19%
14.48%
15.01%
(b) Principles of consolidation-
The consolidated financial statements include the financial statements of Alsea, S. A. B. de C. V. and those
of the subsidiaries in which it holds or controls more than a 50% of their equity. The significan balances and
operations between group companies have been eliminated in preparing the consolidated financial statements.
The consolidation was performed based on the audited financial statements of the subsidiary companies.
40
Annual Report 2010
The main operating subsidiaries are as follows:
Shareholding percentage main activity
2010
2009
Operating:
Café Sirena, S. de R. L. de C. V.
82.00%
82.00% Starbucks Coffee stores
Operadora de Franquicias
Alsea, S. A. de C. V.
Operadora y Procesadora de
Productos de Panificación,
S.A de C.V.
99.99%
99.99% Burger King stores
99.99%
99.99% Domino´s Pizza stores
Gastrosur, S. A. de C. V.
99.99%
99.99% Chili’s Grill & Bar restaurants
Grupo Calpik, S.A.P.I. de C. V.
65.00%
65.00% California Pizza Kitchen restaurants
Especialistas en Restaurantes de
Comida Estilo Asiática,
S. A. de C. V.
Distribuidora e Importadora
Alsea, S. A. de C. V.
99.99%
99.99% P.F. Chang’s restaurants
99.99%
99.99% Food distribution
Fast Food Sudamericana, S. A.
99.99%
99.99% Burger King stores in Argentina
Starbucks Coffee
Argentina, S. R. L.
Fast Food Chile, S. A.
Dominalco, S. A.
82.00%
82.00% Starbucks Coffee stores in Argentina
99.99%
99.99% Burger King stores in Chile
95.00%
95.00% Domino’ Pizza stores in Colombia
Operadora Alsea en Colombia, S. A.
95.00%
95.00% Burger King stores in Colombia
Associated companies:
Starbucks Coffee Chile, S. A.
18.00%
18.00% Starbucks Coffee stores in Chile.
Starbucks Brasil Comércio de
Cafés, Ltda.*
-
11.06% Starbucks Coffee stores in Brazil.
The investment in shares of associated companies was valued through the equity method (see note 6).
*
In August 2010, Alsea sold its non-controlling interest in Starbucks Brazil (see note 1(a)).
(c) Discontinued operations-
As of December 31, 2009, the process for discontinuing the “Popeye’s” brand was concluded, remaining certain
assets and liabilities in the process of realization (see note 1 (i)).
During development and up to completion of the discontinuing process, fixed assets sales made amounting to
$12,327, leaving some assets available for sale. Retained earnings applied to income as of December 31, 2009
as a discontinuation result amounting to ($31,896).
The effect of the aforementioned operation was included in the consolidated statements of income as a
discontinued operation.
Following is the condensed financial information on the discontinued operation as of December 31, 2010 and
2009:
Touching people, enriching moments
41
Balance Sheet
Current assets
Fixed assets
Other assets
Liabilities
Results
Income
Costs
Operating expenses
Loss after tax on profits
$
$
$
2010
2009
-
88
-
(464)
(376)
-
-
-
-
-
308
-
(769)
(461)
17,056
6,760
18,202
(31,896)
(d) Translation of foreign currency of foreign subsidiaries-
To consolidate the financial statements of the Company’s foreign subsidiaries that operate independently
(located in Argentina, Chile, Colombia and Brazil) and which represent 20% and 16% of net consolidated
income as of December 31, 2010 and 2009, the Companies applied the same accounting policies of their
holding company. The financial statements on consolidated foreign operations are translated into the reporting
currency, identifying initially if the functional and the recording currency of the foreign operation are different,
and subsequently the translation is made from the functional currency to the reporting currency, using the
historical exchange rate or the exchange rate at the end of the year or the exchange rate at the year-end close
and the inflationary index of the country of origin, depending on whether the financial information derives from
a non-inflationary or an inflationary economic environment.
(e) Cash and cash equivalents-
Cash and cash equivalents include bank deposits, foreign currencies and other similar marketable items, as well
as deposits in transit. At the date of the consolidated financial statements, interest earned and valuation gains
or losses are included in the results of the year as part of the comprehensive financing result.
(f) Derivative financial instruments-
Alsea uses derivative financial instruments (DFI) denominated forwards and swaps, to mitigate present and
future risks, arising from adverse fluctuations in exchange and interest rates, with the purpose of not distracting
resources from the operation or from the expansion plan and to secure future cash flows for the Company,
which will also allow the maintenance of a strategy with respect to the cost of the debt. The DFI’s are only
used for hedging purposes, through which the Company is required to exchange cash flows on pre-established
future dates, on the nominal or reference value, and are valued at fair value.
Every month, the Company will define the price levels at which the Corporate Treasury department must operate
the different hedging instruments. Under no circumstances can it operate amounts exceeding the monthly
resource requirements, thus ensuring that it is always a hedging and not a speculative operation. Given the
variety of possible derivative instruments for hedging risks, Management will be empowered to define their
operating level, provided those instruments are for hedging and not for speculation purposes.
DFI’s operations are carried out under a master agreement using the ISDA (International Swap Dealers
Association) standardized form, which must be duly formalized by the legal representatives of the Company
and of the financial institutions.
In some cases, the Company and the financial institutions have signed an additional agreement to the ISDA
master agreement, which stipulates the conditions that force it to offer guarantees for margin calls if the
market value (mark-to-market) exceeds certain established credit limits.
The Company has the policy of monitoring the volume of operations contracted with each of those institutions,
in order to avoid margin calls.
42
Annual Report 2010
DFIs are contracted on the local market with the following financial entities: Banco Nacional de México, S.A.,
Banco Santander, S. A., UBS Bank México, Deutsche Bank México, Barclays Bank México S.A. and Morgan
Stanley & Co. International. The Company may select other regulated and authorized financial institutions,
always if they are authorized, to carry out this type of operations.
Valuation-
In the case of cash flow hedges, the effective portion of gains or losses on the hedging instrument is recorded
under comprehensive income or loss in stockholders’ equity and it is reclassified to income for the same period
or periods that the forecasted transaction affects. The ineffective portion is recorded immediately in the results
of the period under comprehensive financing result.
The identified risks are those related to exchange and interest rate fluctuations. The contracted derivative
financial instruments are managed under the Company’s policies and management does not foresee any risks
that could differ from the purpose for which said financial instruments were contracted.
In 2010 and 2009, the Company performed 229 and 236 operations of financial derivative instruments related
to foreign exchange rates amounting 83.8 and 102.4 million dollars, respectively. The absolute value of the fair
value of derivative financial instruments used per quarter in the year, does not represent more than 5% of the
total consolidated assets, liabilities or equity, or otherwise, more than 3% of the total consolidated sales for the
last quarter. Therefore, the risk taken by the Company related to fluctuations in the exchange rate will not have
negative effects on its operations, nor will affect its capacity to cover operations of derivative financial products.
As of December 31, 2010 and 2009, the Company has not had any margin call and there was not breach of the
agreements entered into with the different financial institutions.
Positions in derivative financial operations-
At December 31, 2010 and 2009 to Alsea has contracted hedging to purchase dollars in 2011 and 2010,
amounting approximately to 51.5 and 41.65 million dollars, at the average exchange rate of $12.14 and $12.96
pesos for each US dollar, respectively.
As of December 31, 2010, to hedge against interest rate fluctuations, the Company acquired a variable to fixed
interest rate Swap. This strategy is applied to a loan with a balance as of today of $56.3 million pesos, and
only the 20% in a fixed rate swap of 7.98%, plus a 10 bps spread. The loan is payable on a monthly basis and
matures in June 2011.
As of December 31, 2009, to hedge against interest rate fluctuations, the Company acquired variable to fixed
interest rate Swaps. This strategy is applied in two loans, in which one of the loans have a balance as of today
of $169 million pesos, and only 20% is in a 7.98% fixed rate swap of 7.98%, plus a 10 bps spread. The
loan is payable on a monthly basis and matures in June 2011; the second loan shows a balance as of today of
$200 million pesos and is 100% hedged with a 5.395% fixed rate swap, plus a spread of 400 bps; the loan is
bullet (no payment obligation of redemptions and the same is fully settled at the due date) subject to monthly
interest, maturing in April 2010.
The type of derivative products and the hedged amounts are in line with the internal risk management policy
defined by the Corporate Practices Committee, which contemplates an approach for covering foreign currency
requirements without the possibility of carrying out speculative operations.
As of December 31, 2010 and 2009, the Company had contracted the following financial instruments:
Touching people, enriching moments 43
Institution
2010
UBS
Deutsche Bank
Banamex
Morgan Stanley
Barclays
Santander
2009
UBS
Banamex
Santander
Deutsche Bank
Thousands of dollars
Average exchange rate at
settlement date
maturing in
7,250
$
27,150
6,600
2,750
1,000
6,750
26,250
$
6,750
750
7,900
11.9781
12.2434
12.1586
11.7891
12.7750
11.9170
13.0312
12.9804
12.9400
12.7094
2011
2011
2011
2011
2011
2011
2010
2010
2010
2010
As of December 31, 2010 and 2009, the Company recorded an expense to income amounting to $3,391 and
$4,340, respectively, and corresponds to the fluctuation between the exchange rate and the interest rate from
the date on which the derivative financial instrument was contracted to the settlement date.
(g) Embedded derivatives-
The Company reviews all signed agreements to identify the existence of embedded derivatives. The embedded
derivatives are evaluated to determine whether or not they comply with the conditions established in the
respective regulations; if that is the case, they are separated from the host agreement and they are valued at
fair value. If the embedded derivatives are classified for trade purposes, the appreciation or the depreciation in
the fair value is recorded in income for the period.
Embedded derivatives designated for hedging recognize the changes in valuation based on the type of hedging:
(1) when they are fair value instruments, fluctuations of the implicit instrument and of the hedged item are
valued at fair value and are recorded in income; (2) when they are cash flow instruments, the effective portion
of the implicit instrument is temporarily recorded under comprehensive income and it is recycled to income
when the hedged item affects them - the ineffective portion is immediately recorded in income.
(h) Accounts receivable-
Accounts receivable as of December 31, 2010 and 2009 are reported at fair value, net of the allowance for
doubtful accounts.
(i)
Inventory and cost of sales-
Inventories up to September 30, 2010 and December 31, 2009 were shown at their original cost determined
by the last-in-first-out (LIFO) method. As of October 1, 2010, the Company decided to change this accounting
policy and as from that date, inventories are shown at their original cost, determined by the average cost
method.
As required by “FRS B-1 Accounting Changes and Error Corrections”, the Company’s management decided not
to apply retrospectively said change, as it considered no material and impractical to determine prior years’
accumulated effects due to the high level of inventory turnover, and therefore, determined the effects of the
change in the accounting policy not to be significant for the consolidated financial statements.
The cost of sales represents the cost of inventories at the time of sale, and it increases with the reductions in
the net realization value over the year.
44
Annual Report 2010
The Company records the necessary allowances to recognize reductions in the value of its inventories arising
from impairment, obsolescence, slow movement and other causes that indicate that the use or realization of
the items comprising the inventory will be lower that the recorded value.
(j) Permanent investments-
Permanent investments in associated companies, in which the Company holds an interest between 11% and
18% of equity are valued by the equity method, based on the audited financial statements of the issuers at
December 31, 2010 and 2009.
(k) Store equipment, leasehold improvements and property-
Store equipment, leasehold improvements and property are recorded at their acquisition cost.
Depreciation of store equipment, leasehold improvements and property is calculated by the straight-line
method, based on the useful lives estimated by the Company’s management. Annual depreciation rates of the
main groups of assets are shown on the following page.
Buildings
Store equipment
Leasehold improvements
Transportation equipment
Computer equipment
Production equipment
Office furniture and equipment
Rates
5%
5% to 30%
7% to 20%
25%
30%
10% to 20%
10%
Minor repairs and maintenance costs are expensed as incurred.
During 2009 the economic useful lives of certain fixed asset and intangible asset captions were reviewed; the
analysis was based on criteria elements provided by each of the brands operated by the Company, in order to
adjust the useful lives to the current business operating conditions (see note 7).
(l) Goodwill of subsidiary and associated companies-
Goodwill represents the future economic benefits arising from other acquired assets that are not identifiable
individually or recognized separately. Goodwill is subject to impairment tests at least annually.
(m) Intangible assets-
They represent payments made to third parties for the right to use the brands under which the Company operates
its establishments in accordance with franchise or association agreements. Amortization is calculated through
the straight-line method at the 5% to 15% annual rate. The term of brand rights is shown as follows:
Trademarks
Domino’s Pizza
Starbucks Coffee
Burger King
Chili’s Grill & Bar
California Pizza Kitchen
P.F. Chang’s
(Mexico)
(Colombia)
(Mexico)
(Argentina)
Expiration
date
2025
2016
2022
2027
(Mexico, Argentina, Chile and Colombia)*
According to opening dates
2015
2017
2019
(*) Each store operating under this brand has an operating term of 20 years, starting as from the opening date.
Touching people, enriching moments 45
The Company has obligations to do and not to do under the aforementioned agreements, including making
capital investments and opening establishments. As of December 31, 2010, such obligations have been met.
The association agreement signed by Starbucks Coffee International (SCI) and Alsea in 2008 allowed SCI to
increase its equity in the capital stock of Café Sirena by up to 50%, only if certain goals related to opening
Starbucks Coffee stores were not met. As of December 31, 2008 such option was not exercised. In January
2009, SCI confirmed that it would not exercise the purchase option that year, as established in the association
agreement. The following and last date to exercise the option is September 2012.
Installation expenses and minor equipment are related to the opening of new points of sale in different
locations. Amortization is calculated by the straight-line method over one year, starting as from the date on
which the new points of sale start operations.
(n) Impairment in the recovery value of long-lived assets, property, equipment and leasehold improvements,
goodwill and other intangibles-
The Company periodically evaluates the restated values of its long-lived assets (store equipment, leasehold
improvements, property, goodwill and other intangible assets), to determine the existence of indication that
those values exceed the recovery value.
The recoverable value represents the amount of net potential income expected to be obtained on a reasonable
basis as a result of the use or realization of said assets. If it is determined that the restated values are
excessive, the Company records the necessary estimations to reduce them to their recovery value. When there
is the intention of selling the assets, they are shown in the financial statements at the lower of their restated
or realization value. Assets and liabilities of a group classified as available for sale are shown separately in the
balance sheet.
(o) Accruals-
Based on management’s estimations, the Company records liability provisions for present obligations for which
the transfer of assets or the rendering of services are virtually unavoidable and which result from past events,
mainly in relation to supplies and to other personnel payments. These provisions have been recorded based on
management’s best estimate of the amount needed to cover the present liability; however, actual results could
differ from the provisions recognized (see note 12).
(p) Employee benefits-
Termination benefits for causes other than restructuring and retirement to which employees are entitled
are recorded in income for the year based on actuarial calculations prepared under the projected unit-credit
method, considering the projected salaries or the projected cost of the benefits.
The actuarial gain or loss is recorded directly in income for the period as it is accrued.
Other compensation to which employees are entitled is recorded in income for the year in the year it is paid.
(q) Tax on earnings (Income Tax (IT), Flat Rate Business Tax (IETu)) and Employees’ Statutory Profit Sharing
(ESPS)-
IT, IETU and ESPS payable for the year are determined in conformity with the tax provisions in effect.
Deferred income tax and ESPS are accounted by the assets and liabilities method, which compares the book
and tax values. Deferred taxes and ESPS assets and liabilities are recognized for the future tax consequences
attributable to temporary differences between the financial statements carrying amounts of existing assets
and liabilities and their respective tax bases; and in the case of IT and IETU, for operating loss carry forwards
and other recoverable tax credits. Deferred tax and ESPS assets and liabilities are measured using enacted tax
rates expected to be recovered or settled. The effect on deferred tax and ESPS assets and liabilities of a change
in tax rates is recognized in the consolidated income statement in the that included the enactment date.
46
Annual Report 2010
(r) Inflation adjustment of capital stock, other stockholder contributions and retained earnings-
As of December 31, 2007, this item was calculated by multiplying contributions and retained earnings by
NCPI factors, which measure accrued inflation from the dates on which the contributions were made and the
results were accrued until the close of 2007, date on which Mexico became a non-inflationary environment
according to FRS B-10, “Effects of inflation”. Amounts thus obtained represented constant values in shareholder
investments.
(s) Additional paid in capital-
It represents the excess difference between payment of subscribed shares and the nominal value thereof, less
the expenses related to the placement of shares.
(t) Cumulative translation adjustment-
This effect represents the difference arising from translating foreign operations from the functional currency
to the reporting currency.
(u) Revenue recognition-
Income from the sale of food is recorded as food is delivered to customers; service income is recorded as
services are rendered. The Company records estimations for losses incurred in recovering accounts receivable,
which are included in operating expenses and rebates and discounts, which are deducted from sales.
(v) Comprehensive financing result (CFR)-
It includes interest, exchange differences, the effect of translation and the effect on financial instruments.
Transactions in foreign currencies are recorded at the rates of exchange prevailing on the dates they are
entered into and/or settled. Foreign currency assets and liabilities are translated using the exchange rate in
effect at the balance sheet date. Exchange differences incurred in relation to assets or liabilities contracted in
foreign currency are charged to income for the year.
(w) Contingencies-
Significant obligations or losses related to contingencies are recorded when it is probable that their effects will
materialize and when there are reasonable elements for quantifying them. In the absence of such reasonable
elements, they are disclosed on qualitative bases in the notes to the consolidated financial statements.
Income, profits or contingent assets are not recorded until there is certainty of their realization.
(x) Profit per share-
It is the result of dividing income for the year by the weighted average of current shares in the period.
(y) Comprehensive income-
It represents the result of the Company’s total operations for the year and it is comprised by the net profit and
the translation effect of foreign entities that was applied directly to stockholders’ equity.
(z) Accounting changes-
The FRS issued by the Mexican Board for Research and Development of Financial Reporting Standards (Consejo
Mexicano para la Investigación y Desarrollo de Normas de Información Financiera or CINIF) became effective for
fiscal years beginning on or after January 1, 2010, with the respective prospective or retrospective application
being specified in each case.
(a) FRS C-1 “Cash and Cash Equivalents” - FRS C-1 supersedes Bulletin C-1 “Cash” and is effective beginning
January 1, 2010. The purpose of this NIF is to establish the standards for valuation, presentation and
disclosures of the items comprising the cash and cash equivalents caption. Application of this FRS had no
significant effects in the year.
(b) Improvements to FRS 2010 - In December 2009, CINIF issued the document referred to as “2010 FRS
Revisions” setting forth the changes mentioned on the following page.
Touching people, enriching moments 47
FRS B-1 “Accounting changes and correction of errors”- Disclosures are added to financial statements in case
of an accounting change or an error correction, which are already contemplated in the accompanying financial
statements. The Company made the disclosure regarding the accounting change in FRS C-4 “Inventories”.
FRS B-2 “Statement of cash flows” – Unrealized accrued foreign exchange fluctuations and the effects
of fair value recognition are excluded from the cash balance on the statement of cash flows. Additionally,
the concept “Adjustment to cash flow from foreign exchange fluctuations and inflation levels” is changed
to “Effects from cash value changes” which includes effects from translation, inflation, foreign exchange
fluctuations and fair value of cash balances. Application of this FRS had no significant effects in the year.
FRS C-7 “Investments in associates and other permanent investments” – Capital contributions by the
holding company to the associate that increases its equity percentage are to be recognized based on the
net fair value of identifiable assets and liabilities. For that purpose, the valuation must be in proportion
to the increase. The changes resulting from the application of this Revision are recognized prospectively
beginning January 1, 2010.
FRS B-8 “Consolidated or combined financial statements” – Replaces Bulletin B-8 “Consolidated or
combined financial statements and valuation of permanent share investments” and establishes the general
guidelines for the preparation and presentation of consolidated and combined financial statements, as
well as disclosure thereof. Application of this FRS had no significant effects during this year.
The Management has exercised the option contained in FRS B-8 “Consolidated or combined financial
statements” for not presenting consolidated financial statements of its subsidiaries, that in turn are
controlling companies, as they do not require to issue consolidated financial statements for decision-
making, and its stockholders have expressed their consent to do so.
(aa)
New accounting pronouncements - The CINIF has issued the following FRS and Improvements:
FRS B-5 “Segment financial information” - FRS B-5 is effective beginning January 1, 2011, with retrospective
application. The principal changes as compared to superseded Bulletin B-5 – “Segment financial information”
include the following:
• The information to be disclosed by operating segment is the information regularly used by top management
and does not require segmentation into primary and secondary information or into segments identified
based on products or services (economic segments), geographical areas, and homogeneous customer groups.
Additionally, disclosure by the entity as a whole of information on its products or services, geographical areas
and principal customers and suppliers is required.
•
It does not require that the entity’s business areas be subject to different risks to qualify as operating segments.
• Business areas in pre-operating stage may be classified as operating segments.
•
It requires disclosing separately by segment, interest revenue and expense, as well as all other components of
comprehensive financial results (CFS). In specific cases, disclosure of net interest income is permissible.
• Disclosure of the liability amounts included in the usual operating segment information normally used by top
management for making the entity’s operating decisions is required.
Management estimates that the effects of adoption of this new FRS will not generate significant effects.
FRS B-9 “Interim financial reporting - FRS B-9 is effective beginning January 1, 2011 with retrospective application.
The principal changes as compared to superseded Bulletin B-9 – “Interim financial reporting” include the following:
48
Annual Report 2010
•
•
It requires that the interim financial information, in addition to the balance sheet and income statement,
include a comparative and condensed statement of stockholders’ equity and statement of cash flows, and, for
not-for-profit entities, the presentation of the statement of activities is expressly required.
It establishes that the financial information reported at the end of an interim period should be presented
comparatively with the equivalent interim period of the immediate preceding year and, in the case of the
balance sheet, compared also to such financial statement at the immediate preceding year-end date.
• New terminology is included and defined.
Management estimates that the effects of adoption of this new FRS will not generate significant effects.
FRS C-4 “Inventories”- FRS C-4 is effective beginning January 1, 2011 with retrospective application, supersedes
Bulletin C-4 and establishes new valuation, presentation and disclosure rules for initial and subsequent recognition
of inventories on the balance sheet. The principal changes are as follows:
•
•
It eliminates: a) direct costing as a valuation system and, b) the inventory cost assignment formula (formerly
method) referred to as Last In – First Out (LIFO).
Inventory cost can only be modified solely to “Lower of cost or market value, except that the net realizable
value is not to exceed market value”..
• For inventories acquired on an installment payment basis, the difference between the purchase price under
normal credit conditions and the amount paid must be recognized as financial cost during the financing
period.
• Under certain circumstances, estimates of impairment losses on inventories recognized in a prior period may
be deducted or charged off against results of operations for the period in which such modifications occur.
•
Items whose benefits and risks have already been transferred to the entity must be recognized as inventories;
therefore, prepayments are not part of inventory.
Management estimates that the effects of adoption of this new FRS will not generate significant effects.
FRS C-5 “Prepayments”– FRS C-5 is effective beginning January 1, 2011, with retrospective application, supersedes
Bulletin C.5, and includes primarily the following changes:
• Advances for purchase of inventories (current assets) or property, plant and equipment and intangible assets
(non-current assets), among others, must be reported under prepayments provided the benefits and risks
inherent in the assets to be acquired or the services to be received have not yet been transferred to the entity.
Furthermore, prepaid expenses must be reported based on the nature of the item to be acquired, either under
current assets or non-current assets.
• When an impairment loss on the value of prepayments occurs, the unrecoverable amount must be reported in
the income statement. Additionally, if the necessary conditions exist, the impairment effect may be reversed
and recorded on the income statement for the related future period.
• Among other things, the following must be disclosed in notes to financial statements: breakdown of pepayments,
accounting policies for recognition and impairment losses, as well as relevant reversal of impairments.
Management estimates that the effects of adoption of this new FRS will not generate significant effects.
FRS C-6“Property, plant and equipment”- FRS C-6 is effective beginning January 1, 2011, except for changes
arising from segregation into the components of property, plant and equipment items having a clearly different
useful life, which will be effective for fiscal years beginning on or after January 1, 2012. The accounting changes
resulting from the initial application of this FRS must be prospectively recognized. The principal changes with
respect to the superseded Bulletin include the following:
Touching people, enriching moments 49
• Property, plant and equipment to develop or maintain biological and extraction industry assets are within the
scope of this FRS.
• The treatment for asset exchanges based on the economic substance is included.
• The bases for determination of the residual value of a component are added.
• The requirement to assign an appraised value to property, plant and equipment acquired at no cost or at an
inadequate cost is eliminated.
• Depreciation for components representative of a property, plant and equipment item is mandatory, independently
of the depreciation of the rest of the item as if it were a single component.
• Depreciation of idle components must continue, unless depreciation is determined based on the activity.
Management estimates that the effects of adoption of this new FRS will not generate significant effects.
FRS C-18 “Property, plant and equipment retirement obligations” – FRS C-18 is effective beginning January 1, 2011,
and primarily provides for the following:
• Requirements that must be considered for valuation of a (Fixed Asset) component retirement obligation.
• Requirement to recognize retirement obligations as a provision that increases the acquisition cost of a component.
• How changes in the valuation of retirement obligations (provisions) resulting from revisions to the cash flows, the
periodicity for settlement and the suitable discount rate to be used must be recognized for accounting purposes.
• Use of a suitable discount rate on estimated future cash flows, incorporating the cost of money and the entity’s credit
risk
• Use of the expected present value technique to determine the best estimate for retirement obligations.
• Disclosures that are to be made in case an entity has component retirement obligation.
Management estimates that the effects of adoption of this new FRS will not generate significant effects.
Improvements to FRS 2011
In December 2010, the CINIF issued the document referred to as “2011 FRS Revisions”, which contains precise
modifications to some FRS. The modifications that bring about accounting changes are as follows:
• Statement C-3 “Accounts receivable”- Recognition of interest income on accounts receivable when accrued
is established, provided the relevant amount is reliably valued and likely to be recovered. Furthermore, it is
provided that interest income on accounts receivable unlikely to be recovered must not be recognized. These
revisions are effective beginning January 1, 2011 y are retrospectively applicable.
Management estimates that the effects of adoption of this new FRS will not generate significant effects.
• FRS C-10“Derivative financial instruments and hedging activities” – The revisions to this new FRS are
effective beginning January 1, 2011, with retrospective application. The principal revisions include the following:
• Certain effects of hedge effectiveness may be excluded.
• An intra-group transaction may be recognized as hedging only when the functional currencies of the
related parties are different from each other.
• Reporting of the effect of the hedged interest rate risk is required, when a portfolio portion is the hedged
position.
50
Annual Report 2010
• Account margins must be reported separately.
•
In a hedge relationship, a proportion of the total amount of the hedging instrument may be designated as
the hedging instrument. The impossibility of designating a hedge relationship for a portion of the term of
the hedging instrument is specified.
Management estimates that the effects of adoption of this new FRS will not generate significant effects.
• Bulletin D-5“Leases”- The discount rate to be used on capital leases is established, disclosures related to
such leases are added, and the timing for recognition of the gain or loss on a sale and leaseback transaction
is modified. Application is on a prospective basis, except for the changes in disclosures, which must be
retrospectively recognized and are effective beginning January 1, 2011.
Management estimates that the effects of adoption of this new FRS will not generate significant effects.
(3) Foreign currency position-
Monetary assets and liabilities denominated in US dollars (dollars) shown in the reporting currency at December
31, 2010 an 2009 were as follows
Assets
Liabilities
Net liability position
Thousands of pesos
2010
2009
$
$
266,257
275,688
(320,540)
(370,032)
(54,283)
(94,344)
The exchange rate of the peso to the dollar as of December 31, 2010 and 2009 was $12.38 and $13.04, respectively.
As of February 25, 2011, date of issuance of the audited financial statements, the rate of exchange was $12.17 to
the US dollar.
The exchange rates used in the different translation processes in relation to the reporting currency at December 31,
2010 and 2009 and the date of issuance of the financial statements are as follows:
Country of origin
Currency
At year end
Issuance
Exchange rate
2010
Argentina
Chile
Colombia
2009
Argentina
Chile
Colombia
Argentinian peso
Chilean peso
Colombian peso
Argentinian peso
Chilean peso
Colombian peso
(ARP)
(CLP)
(COP)
(ARP)
(CLP)
(COP)
$
$
3.1142
0.0264
0.0064
3.4478
0.0256
0.0069
3.0085
0.0254
0.0064
3.3372
0.0244
0.0066
Touching people, enriching moments 51
The following currencies were used for translation purposes:
Currency
Foreign operation (*)
Country of origin
Recording
Functional
Reporting
Fast Food Sudamericana, S. A.
Starbucks Coffee Argentina S.R.L.
Fast Food Chile, S. A.
Dominalco, S. A.
Operadora Alsea en Colombia, S. A.
Argentina
Argentina
Chile
Colombia
Colombia
ARP
ARP
CLP
COP
COP
ARP
ARP
CLP
COP
COP
MXP
MXP
MXP
MXP
MXP
The Company’s functional currency is the Mexican peso. The Company keeps investments in subsidiaries resident
abroad, whose functional currency is not the Mexican peso; therefore, in order to incorporate the results and the
financial position of foreign operations in the consolidation, those figures are translated to MXP (reporting currency).
(4) Balances and transactions with associated parties-
Accounts payable to associated companies as of December 31, 2010 and 2009 are as follows:
Starbucks Coffee International
SBI Nevada, Inc.
2010
29,128
29,395
58,523
$
$
2009
14,328
11,703
26,031
The balance payable to SBI Nevada, Inc. arose mainly from royalties and the balance with Starbucks Coffee
International is due to the acquisition of inventory and fixed assets.
(5) inventories-
At December 31, 2010 and 2009, this item is comprised as follows:
Food and beverages
Containers and packaging
Promotional stock
Other
Obsolescence allowance
$
2010
2009
191,342
98,854
30,921
39,641
238,991
47,892
25,528
29,796
(8,320)
(5,337)
$
352,438
336,870
(6) investment in shares of associated companies-
As of December 31, 2010 and 2009, this item is comprised of the direct interest in the capital stock of the
following companies:
Starbucks Brasil Comercio de Cafés, Ltda.*
Starbucks Coffee Chile, S. A.
Equity in
Stockholder´s equity
Equity
in results
2010
-
20,783
20,783
$
$
2009
17,631
7,402
25,033
2010
(1,259)
5,092
3,833
2009
(3,795)
(698)
(4,493)
* In August 2010, Alsea sold its non-controlling interest in Starbucks Brazil (see note 1(a)).
52
Annual Report 2010
(7) store equipment, leasehold improvements and property-
At December 31, 2010 and 2009, it is comprised as follows:
Buildings
Store equipment
Leasehold improvements
Transportation equipment
Computer equipment
Production equipment
Office furniture and equipment
Less accumulated depreciation
Land
Investments in process*
2010
2009
$
132,810
133,452
1,877,882
1,685,705
2,448,542
2,237,604
124,599
271,668
212,559
128,638
245,667
232,004
99,132
97,628
$
5,167,192
4,760,698
(2,558,772)
(2,193,705)
2,608,420
2,566,993
62,460
63,185
271,164
267,500
$
2,942,044
2,897,678
(*) Corresponds mainly to store and restaurant openings, whose termination date is 2011 and 2010, respectively.
During 2009, the useful life of certain store equipment and leasehold improvements was reviewed and adjusted to the
current business operating conditions. The effect of that change was a credit to income of $3,698.
(8) Goodwill-
As of December 31, 2010 and 2009, the Company’s goodwill is comprised as follows:
Alsea, S. A. B. de C. V.
Operadora y Procesadora de Productos de Panificación, S. A. de C. V.
Operadora DP de México, S. A. de C. V.
Dominalco, S. A.
Less accumulated amortization
2010
2009
$
124,912
60,061
19,619
124,912
60,061
19,619
2,367
2,367
206,959
206,959
(16,980)
(16,980)
$
189,979
189,979
As a result of the evaluation in the determination of the recoverable value of long-lived assets, the net book value
of fixed assets and goodwill recorded in Alsea, S. A. B. de C. V., in any of the cases, except for the Burger King brand,
exceed their recoverable value. Therefore, as of December 31, 2009, an impairment loss was recorded amounting to
$30,000 thus reducing the goodwill balance related to that brand, with a debit to income for the year (see note 14).
Touching people, enriching moments 53
(9) intangible assets-
Intangible assets as of December 31, 2010 and 2009 are comprised as follows:
Trademarks
Installation
expenses
Other
opening
expenses
Franchise
rights and use
of commercial
facilities
Licenses
and
developments
Total
Balances as of
December 31, 2009
$
474,748
57,854
33,260
25,996
-
77,144
139,974
38,889
96,785
802,621
22,403
164,432
(44,032)
(949)
(34,504)
(24,532)
(45,626)
(149,643)
Acquisitions
Less acumulated
amortization
Balances as of
December 31, 2010
$
456,712
56,905
75,900
154,331
73,562
817,410
During 2010, Alsea increased its investment in brands and franchise rights, mainly to the opening rights of Starbucks
Coffee stores in Mexico and Argentina and Burger King stores in Mexico, Argentina and Colombia, as well as the
openings in Mexico of Chilli’s, California Pizza Kitchen and P. F. Chang’s restaurants.
As of December 31, 2009, an increase in franchise rights was recognized in the amount of $6,583 due to the acquisition
of the minority interest in two subsidiaries in Colombia (see notes 1(g) and (h)).
(10) long-term debt-
The long-term debt as of December 31, 2010 and 2009 is comprised of loans with no guarantees, as shown below:
Unsecured loans
2011-2015
5.00%-7.50%
maturing in
Average annual
interest rate
Less current installments
Long-term debt
Annual maturities of the long-term debt are as follows:
2010
2009
897,524
1,002,103
229,524
593,316
668,000
408,787
$
$
Year
2012
2013
2014
2015
Amount
$
128,000
130,000
205,000
205,000
$
668,000
Bank loans include certain obligations to do and not to do, and require keeping certain financial ratios. At the date
of the consolidated financial statements, all these obligations have been duly met.
54
Annual Report 2010
(11) Debt stock exchange-
Based on the debt stock exchange program established by Alsea, for up to $700,000 Mexican pesos (Seven
hundred million of Mexican pesos) or its equivalent in investment units (“udis”), in December 2009, the first
public offering took place in the Mexican market of up to 3,000,000 debt stock exchange, and in March 2010, the
program was accredited, with a second public offering of up to 4,000,000 debt stock exchange with a par value
of $100 pesos (one hundred pesos) each one, respectively. The total offering was of $ 300,000 and $400,000,
respectively.
Debt stock exchange issued is for a three-year term as from date issuance thereof, maturing in December 2012 and
March 2013, respectively. The certificates are subject to 28-day TIIE (Average Interbank Interest Rate) coupon rate,
plus 2.15 and 1.75 percentage, respectively. Net resources obtained from such issuances were used to prepay bank
liabilities, so as to improve the debt maturities profile, while at the same time decrease the cost thereof.
The rating given is “AA”, which means that the issuer or issuance with such classification is considered to have high
credit quality and offers high probability of timely payment of debt obligations. They keep a very low credit risk
profile under adverse economic scenarios.
The amount of issuance expenses, such as legal fees, issuance costs, printing fees, placement expenses, etc. that
total $3,499 in 2010 and $3,968 in 2009 were recorded as a deferred charge and will be amortized on the straight
line basis over the period in which the obligation is effective (see note 1(c)).
(12) Accruals-
Accruals as of December 31, 2010 and 2009, are comprised as follows:
Balances as of December 31, 2009
Increases charged to operation
Payments
Balances as of December 31, 2010
Remunerations and
other employee
payments
Supplies
and others
34,413
189,773
405,602
401,034
Total
440,015
590,807
(147,606)
(518,624)
(666,230)
76,580
288,012
364,592
$
$
(13) comprehensive financing result-
As of December 31, 2010 and 2009, this item is comprised as follows:
Interest expense - net
Income (loss) exchange - net
Unfavorable monetary effect (1)
2010
2009
(92,225)
(122,489)
5,543
(5,349)
(3,998)
(3,881)
(90,680)
(131,719)
$
$
(1) Corresponds to the effect of unfavorable monetary position arising by the subsidiaries established in Argentina, which, in accordance with FRS B-10 and the level of
inflation accumulated in the preceding three years, are considered to be operating in an inflationary environment.
Touching people, enriching moments 55
(14) Other income (expenses), net-
As of December 31, 2010 and 2009, this balance is comprised as follows:
Restatement and interest on tax refund (see note 1(b))
$
105,595
111,487
Legal expenses (see notes 1(b) and 18(e))
(47,382)
(41,979)
Income from sale of shareholding in Starbucks Brazil (see note 1(a))
17,076
-
2010
2009
Loss on fixed assets cancellation, net
ESPS
Other income (expenses), - net
Asset impairment (see note 8)
Organizational restructuring (1)
(25,474)
(22,035)
(6,423)
2,089
(6,040)
(4,141)
-
(30,000)
-
(22,208)
$
45,481
(14,916)
(1) A formal restructuring plan was developed in 2009, which included liquidations and other inherent expenses.
(15) labor obligations-
As of December 31 2010 and 2009, liability for seniority premium and severance payments at the end of employment
for causes other than restructuring to which employees are entitled, are recorded in income for each year in which
said services are rendered based on actuarial calculations.
The Company has not set up a trust to cover those benefits; the respective actuarial calculations are summarized below:
Defined benefit obligations
Transition obligation and unamortized items
Net current liability
The net cost for the period is as follows:
Labor cost
Financial cost
Amortization of transitory obligation
Net cost for the period
Benefits
2010
2009
Termination
Retirement
Termination
Retirement
18,703
(3,373)
15,330
29,707
(12,853)
16,854
14,453
(5,060)
9,393
14,204
(1,992)
12,212
Benefits
2010
2009
Termination
Retirement
Termination
Retirement
8,146
900
1,939
10,985
3,211
1,065
375
4,651
15,484
1,483
3,125
953
(13,235)
10
3,732
4,088
$
$
$
$
56
Annual Report 2010
Following is a reconciliation of defined benefit obligation (DBO) as of December 31, 2010 and 2009:
Initial DBO balance
Labor cost of current service
Financial cost
Past service as from 2008
Actuarial gain or loss for the period
Benefits paid
Final DBO balance
Benefits
2010
Termination
Retirement
2009
Termination
Retirement
$
$
14,453
8,146
900
358
(132)
(5,022)
18,703
14,204
3,211
1,065
373
10,864
(10)
29,707
24,620
15,484
1,483
12,004
3,125
953
-
-
(14,741)
(12,393)
14,453
(1,706)
(172)
14,204
The most important assumptions of the above plans used in determining the net cost for the period are shown in
the following page.
Discount rate
Salary increase rate
Expected average labor life (years)
* Includes future compensation levels
Benefits
2010
8%
5.9%*
5.3
2009
8%
5.9%*
5.3
The actuarial calculations were prepared consistently under the same financial reporting procedures and standards;
however, in 2009, the main premises applied to the studies were reviewed, mainly related to personnel turn over
tables. As a result, the Company recognized a decrease in seniority premium and severance liabilities at the end
of employment for causes other than restructuring.
Derived from the review of the actuarial studies, in 2009, the net decrease in labor obligations amounting $20,700,
was recognized in the results for the year (see note 2(p)).
(16) Tax on earnings (income Tax (iT), Flat rate Business Tax (ieTU)) and employees’ statutory Profit
sharing (esPs))-
Companies are required to pay the higher of IETU and IT. When the IETU is payable, payment is considered final
and not subject to recovery in subsequent years. The IT Law in effect as of December 31, 2009 establishes the 28%
rate, and based on the tax amendments in effect as from January 1, 2010, the IT tax rate for fiscal years from 2010
to 2012 is 30%, 29% for 2013 and 28% for 2014 onwards. The IETU tax rate for 2009 is 17%, and 17.5% for 2010
and subsequent years. The Company determines IT on a consolidated basis.
Given that according to Company estimations the tax payable in the following years is the Income Tax, deferred
taxes as of December 31, 2010 and 2009 were calculated on IT basis.
The income tax expense as of December 31, 2010 and 2009 is comprised as follows:
IT and IETU on tax bases
Deferred IT
2010
2009
205,004
196,676
(77,255)
(151,590)
127,749
45,086
$
$
At December 31, 2010 and 2009, the tax expense attributable to pretax income and equity in the results of
associated companies differed from the amount resulting from applying the 30% rate in 2010 and 2009, as a
result of the items described on the following page.
Touching people, enriching moments 57
Expected IT rate
Non-deductible expenses
Inflationary effect, net
Effect of published changes to laws and rates
Change to valuation allowance
Other, net
Effective consolidated IT rate
2010
30%
18%
(9%)
-
8%
(2%)
45%
2009
28%
3%
(16%)
(13%)
19%
4%
25%
The tax effects of temporary differences giving rise to significant portions of deferred tax assets and liabilities as of
December 31, 2010 and 2009 are described and shown below:
Deferred (assets) liabilities:
Allowance for doubtful accounts
Liability accruals
Advances from customers
Unamortized tax losses, net of valuation allowance
Asset tax recoverable
Store equipment, leasehold improvements and property
Other assets
Prepaid expenses
Deferred assets, net
IT from re-investment of profits and deferred ESPS
Income tax
2010
2009
$
(2,164)
(3,846)
(96,701)
(127,306)
(10,945)
(12,303)
(172,426)
(153,642)
(22,802)
(22,802)
(242,815)
(165,641)
(1,189)
19,786
13,955
8,603
(535,087)
(457,151)
-
(681)
Assets recognized in balance sheets
$
(535,087)
(457,832)
The valuation allowance as of December 31, 2010 and 2009 amounted $200,245 and $178,642, respectively. The
net change in the valuation allowance as of December 31, 2010 and 2009 was a increase of $ 21,603 and $19,446,
respectively.
As of December 31, 2010 and 2009, the Company generated a deferred ESPS asset, which was reserved in full by
Company’s management in light of the uncertainty of its realization.
The Company has not recorded a deferred tax liability from profits not distributed to its subsidiaries, recorded
under the equity method, arising in 2010 and prior years, since it currently does not expect those undistributed
profits to be reversed and become taxable in the near future. The above deferred liability will be recognized when
the Company considers that it will receive said undistributed profits and they will become taxable, as in the case of
the sale or disposal of its investments in shares.
As mentioned in note 1 (d) and as a result of the liquidation process of subsidiaries Dobrasil, S. A. C. V. and
Operadora y Procesadora de Pollo, S. A. C. V. the consolidated deferred IT was reduced to $20,642.
The reconciliation of IT balances related to the Company’s tax consolidation before and after the enactment of the
2010 tax amendments are shown below:
58
Annual Report 2010
Tax loss carryforwards pending to reduce during the tax consolidation
arising from holding and subsidiary companies.
Tax profit derived from the comparison of the individual net tax profit account
and the consolidated net tax profit account.
2010
2009
$
$
130,326
145,723
-
5,245
130,326
150,968
Following is the calendar for payments years established by the Company to cover income tax liabilities to its
tax consolidation, as result of the enactment of the 2010 tax amendments:
Year
2011
2012
2013
2014
2015
2016
2017
2018
2019
$
Payment
2,606
7,089
11,562
22,715
27,960
24,040
17,013
12,353
4,988
$
130,326
(17) stockholders’ equity-
Following is a description of the main features of the comprising stockholders equity:
(a) Capital stock structure-
Movements of Company’s capital stock and additional paid-in capital premium are shown in the following page.
Thousands of pesos
Number of
shares
Capital
stock
Additional
paid-in
capital
Balances as of December 31, 2008
617,961,984
$
534,017
1,228,880
Shares repurchased from January
1 to December 31, 2009
Cancellation of repurchased shares
Balances as of December 31, 2009
Shares sold from January 1to
December 31, 2010
Cancellation of repurchased shares
(16,434,000)
(157,260)
601,370,724
3,870,000
-
(8,217)
(78)
525,722
1,935
-
Balances as of December 31, 2010
605,240,724
$
527,657
-
7,723
1,236,603
-
4,605
1,241,208
Touching people, enriching moments 59
In April 2010 and October 2009, Alsea declared dividends in the amount of $245,958 and $41,859 in cash,
respectively.
The minimum portion of fixed capital with no withdrawal rights is comprised of Class I shares, while the
variable portion of capital stock is comprised of Class II shares, which at no time should exceed ten times the
amount of the minimum capital with no withdrawal rights.
As of December 31, 2010, the fixed and variable portions of subscribed capital stock are comprised of
605,240,724 common nominative shares, with no par value, as shown below:
Number of
shares
489,157,480
128,647,244
(12,564,000)
605,240,724
Description
Fixed capital stock
Variable capital stock
Repurchased shares (nominal value)
Nominal capital stock
Restatement increment (note 2(r))
Capital stock as of December 31, 2010
Amount
244,579
64,324
(6,282)
302,621
225,036
527,657
$
$
The Mexican National Banking and Insurance Commission established a procedure that allows companies to
acquire their own shares on the stock market, for which purpose they must set up a “reserve for repurchase of
shares”, with a debit to retained earnings.
Total repurchased shares must not exceed 5% of total paid up shares, which must be replaced on the market in a
term not exceeding one year and which are not considered in the dividend payment. As of December 31, 2010 and
2009, the Company repurchased 3,870,000 and 16,434,000 shares, which amounted to $ 62,097 and ($ 118,035),
respectively.
The premium on shares issuing represents the difference in the excess between the payment of the subscribed
shares and their par value, or value (amount of the capital stock paid by the number of shares issued) in the case
of shares without nominal value added of its update, as of December 31, 2010, the premium on shares issuing
amounting to $ 1,241,208.
Available own repurchased shares are reclassified to contributed capital.
(b) Stock option plan for executives-
Alsea established a stock option plan for its executives. The plan started in 2005 and it concluded on December
31, 2009. The plan consisted of offering Company’s executives the right to receive the appreciation in market
value of certain shares, which is determined from the difference in the price of the shares at the start of the
plan ($5.70) and the price of the option for the year (market value) payable in cash. The market value at the
close of operations as of December 31, 2009 was $8.73.
The Stockholders’ Meeting agreed to assign 5,886,524 shares to plan in question; those shares were managed
through a trust.
60
Annual Report 2010
At the end of 2006, the executives exercised 20% of the rights acquired at that date ($1.05 per share) and the
remaining 80% was exercised in 2009, for which purpose a share subscription premium was recorded in the
amount of $14,306.
As of December 31, 2010 the authorization of the Trust Institution to extinguish the trust is in process.
(c) Restrictions on stockholders’ equity-
I) The net profit for the year is subject to the legal provision requiring that 5% of said profit be set aside to
constitute legal reserve, until it equals one fifth of the capital stock. As of December 31, 2010, the legal
reserve totals $92,108.
II) Dividends paid from taxed profits are free from IT if paid out the After Tax Earnings Account (CUFIN). Any
excess over that account is subject to 30% tax on the result of multiplying the dividend paid by the factor
of 1.4286. Tax arising from dividend payments not paid out of the CUFIN is payable by the Company and
it may be credited against IT payable in the following two years.
(18) commitments and contingencies-
Commitments:
a) The Company leases the space that houses its stores and distribution centers, as well as certain equipment,
in accordance with signed leasing agreements with defined expirations expenses from January to December
2010 and 2009 leases amounted to $753,008 and $688,751, respectively, and were established at fixed prices
that increase annually based on the NCPI.
b) The Company has contracted different commitments in relation to the arrangement established in the
agreements for the acquired trademarks (see note 2(m)).
c) During the regular course of operations, the Company contracts commitments arising from supply agreements,
which in certain cases establish conventional penalties in the event of non-compliance.
Contingent liabilities:
d) Alsea is involved in different lawsuits and trials derived from the course of its operations. The Company’s
officers and attorneys consider that the result of said lawsuits will not substantially effect the Company’s
financial position.
e)
In a court resolution issued on November 19, 2009; confirmed in a second resolution on November 16,
2010, Alsea and co-defendants were sentenced to comply with the sharepurchase agreement held with the
shareholders of the Itallianni’s Groups and therefore, to pay the purchase price and its legal interests, franchise
rights and others.
Alsea has appealed the sentence above mentioned and in the opinion of management and the Company’s
legal counsel, there are sufficient elements to obtain a favorable resolution to the Company’s interest and
therefore no provision has been recognized in the financial statements at December 31 2010 and 2009.
Touching people, enriching moments 61
(19) Financial information per segment-
The Company is organized in three large operating divisions comprised of sales of food and beverage in Mexico and
South America and distribution services, all of which are headed by the same management team.
The information related to segments as of December 31, 2010 and 2009 is shown on the following page (information
in Millions of pesos).
External income
Inter-business income
Food and Beverages
mexico
2010
2009
South America
2009
2010
Distribution
2010
2009
Eliminations
2010
2009
Consolidated
2010
2009
$
6,111
6,032
1,811
1,408
1,065
1,135
9
12 $ 8,996 $
8,587
-
-
-
-
1,909
1,930 (1,909)
(1,930)
-
-
6,111
6,032
1,811
1,408
2,974
3,065 (1,900)
(1,918)
8,996
8,587
Operating costs and expenses
5,410
5,335
1,680
1,340
2,827
2,894
(1,924)
(1,932)
7,993
7,587
Depreciation and amortization
495
494
118
Operating income
$
206
203
13
113
(45)
34
113
30
141
28
(4)
28
675
665
36 $
328 $
335
Other income statement items
Majority net income
Assets
$
6,120
5,769
956
832
1,090
919
(2,811)
(2,244) $
5,355 $
5,276
(117)
(231)
$
151 $
104
Investment in associated companies
21
25
Investment in fixed assets an intangibles
483
296
187
201
32
29
32
(18)
21
734
25
508
Total assets
$
6,603
6,065
1,164
1,058
1,122
948 (2,779)
(2,262) $
6,110 $ 5,809
As of December 31, 2009, the net consolidated result for discontinuation in the Food and Beverage amounts
to ($31,896).
Lic. Fabián Gosselin Castro
General Director
Lic. Diego Gaxiola Cuevas
Chief Financial Officer
C.P. Alejandro Villarruel morales
Corporate Controller
62
Annual Report 2010
Investor Information
invesTOr inFOrMATiOn
Diego Gaxiola Cuevas
CFO
ri@alsea.com.mx
Tel: +52 (55) 5241-7151
Enrique González Casillas
Investor Relations
ri@alsea.com.mx
Tel: +52 (55) 5241-7035
HeADqUArTers
ALSEA S.A.B. DE C.V.
Av. Paseo de la Reforma #222 – 3th. Floor
Tower 1 Corporativo
Col. Juárez, Del. Cuauhtémoc
zip Code 06600, México D.F
Phone: +52 (55) 5241-7100
inDePenDenT AUDiTOrs
KPmG Cárdenas Dosal, S.C.
Boulevard Manuel Ávila Camacho #176
zip Code 11650, México D.F.
Phone: +52 (55) 5246-8300
inFOrMATiOn On AlseA’s sTOcK
The single series shares of Alsea S.A.B. de C.V. have been traded on
the Mexican Stock Exchange (Bolsa Mexicana de Valores or BMV) since
June 25, 1999. Ticker Symbol: BMV ALSEA*
Alsea’s 2010 Annual Report may include certain expectations regarding the results of Alsea,
S.A.B. de C.V. and its subsidiaries. All such projections, which depend on the judgment
of the Company’s Management, are based on currently known information; however,
expectations may vary as a result of facts, circumstances and events beyond the control of
Alsea and its subsidiaries.
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We with you the happiness
celebrate
of sharing good in life
moments
:
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D
This card is a gift from Alsea,
enriching your moments with our brands
valid in all starbucks stores in
Mexico and the United states of America
Touching people, enriching moments 63
Touching people, enriching moments
64
Annual Report 2010