Independent Auditors’ Report
The Board of Directors and Stockholders
Industrias Bachoco, S.A.B de C.V.
(Thousands of pesos)
We have audited the accompanying consolidated financial statements of Industrias Bachoco, S.A.B. de
C.V. and subsidiaries (the Company), which comprise the consolidated statements of financial position
as at January 1, 2011 and December 31, 2011 and 2012, the consolidated statements of
comprehensive income, changes in equity and cash flows for the years ended at December 31, 2011
and 2012, and notes, comprising a summary of significant accounting policies and other explanatory
information.
Management’s responsibility for the consolidated financial statements
Management is responsible for the preparation and fair presentation of these consolidated financial
statements in accordance with International Financial Reporting Standards, and for such internal
control as management determines is necessary to enable the preparation of consolidated financial
statements that are free from material misstatement, whether due to fraud or error.
Auditors’ responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our
audits. We conducted our audits in accordance with International Standards on Auditing. Those
standards require that we comply with ethical requirements and plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are free of material
misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures
in the consolidated financial statements. The procedures selected depend on our judgment, including
the assessment of the risks of material misstatement of the consolidated financial statements, whether
due to fraud or error. In making those risk assessments, we consider internal control relevant to the
entity’s preparation and fair presentation of the consolidated financial statements in order to design
audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of accounting estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the
consolidated financial position of Industrias Bachoco, S.A.B. de C.V. and subsidiaries as at January, 1,
2011 and December 31, 2011 and 2012, and the consolidated results of their operations and the
consolidated cash flows for the years ended at December 31, 2011 and 2012, in accordance with
International Financial Reporting Standards.
16
Emphasis of Matter
Without qualifying our opinion, we draw attention to the following:
As mentioned in note 6 to the consolidated financial statements, on November 1, 2011, the Company
acquired 100% percent of the voting stock of OK Industries, Inc. (the “Acquired Entity”) which owns
five consolidated subsidiaries. OK Industries, Inc. operates and is located in the United States of
America (U.S.A.). The results of operations of the Acquired Entity have been included in the
consolidated financial statements from such date. The acquisition of this company originated a gain
on bargain purchase of $1,000,565, which was booked in other income in 2011.
As mentioned in note 7 to the consolidated financial statement, on March 2, 2012 Bachoco USA, LLC.
was incorporated as a subsidiary of Industrias Bachoco, S.A.B. de C.V., and acquired 100% of the shares
of OK Industries. From such date, Bachoco USA, LLC. acts as holding company of OK Industries, Inc.
and, therefore, of the operations of the Company in the U.S.A.
Demetrio Villa Michel
KPMG Cárdenas Dosal, S.C.
Querétaro, México 15 de abril de 2013.
17
,
5
4
2
5
4
4
3
,
,
1
4
4
1
2
9
2
,
,
4
1
0
6
6
9
1
,
9
3
0
8
8
,
3
4
5
8
7
,
3
7
8
0
6
,
,
0
4
3
0
3
7
4
,
,
7
7
9
2
5
4
4
,
,
4
5
7
6
6
1
2
,
3
1
6
6
9
,
8
3
0
0
0
1
,
5
8
8
7
7
,
,
2
0
6
6
2
5
1
,
0
7
3
4
8
3
,
3
5
0
7
0
5
,
,
0
4
9
7
9
5
2
,
,
7
0
1
0
0
4
2
,
,
7
5
0
6
1
0
2
,
,
5
5
1
1
2
2
4
,
,
5
1
5
4
8
8
2
,
,
5
9
9
0
0
6
2
,
,
5
9
4
1
5
9
8
,
,
2
9
4
7
3
3
7
,
,
9
4
7
7
6
7
4
,
4
7
4
9
9
,
1
4
6
9
9
3
,
)
6
1
9
6
2
(
,
1
4
6
9
9
3
,
1
8
4
8
8
,
7
8
3
4
6
,
1
4
6
9
9
3
,
0
9
6
8
8
,
-
,
2
3
4
4
7
1
1
,
,
2
3
4
4
7
1
1
,
,
2
3
4
4
7
1
1
,
,
0
6
3
5
0
4
7
1
,
,
0
6
7
4
1
6
5
1
,
,
0
4
3
7
3
7
4
1
,
,
1
9
9
1
5
0
9
1
,
,
1
0
7
1
4
3
7
1
,
,
3
0
1
0
0
4
6
1
,
8
9
6
6
3
,
7
2
1
8
3
,
7
1
9
9
2
,
,
9
8
6
8
8
0
9
1
,
,
8
2
8
9
7
3
7
1
,
,
0
2
0
0
3
4
6
1
,
0
6
5
5
1
1
,
3
4
2
5
7
1
,
,
6
9
4
1
8
0
1
,
,
0
5
7
7
7
2
1
,
-
7
6
8
9
3
1
,
$
8
1
8
1
9
1
0
2
8
1
1
2
2
2
5
2
7
2
8
2
2
3
t
s
e
r
e
t
n
i
g
n
i
l
l
o
r
t
n
o
c
-
n
o
N
s
t
n
e
v
e
t
n
e
u
q
e
s
b
u
S
s
e
i
c
n
e
g
n
i
t
n
o
C
s
t
n
e
m
t
i
m
m
o
C
y
t
i
u
q
e
l
a
t
o
T
l
e
b
a
y
a
p
s
t
n
u
o
c
c
a
r
e
h
t
o
d
n
a
e
b
a
y
a
p
e
d
a
r
T
l
t
b
e
d
m
r
e
t
-
g
n
o
l
f
o
s
t
n
e
m
a
t
s
n
l
l
i
t
n
e
r
r
u
C
t
b
e
d
m
r
e
t
t
r
o
h
S
:
s
e
i
t
i
l
i
b
a
i
l
t
n
e
r
r
u
C
s
e
i
t
r
a
p
d
e
t
a
e
R
l
s
e
i
t
i
l
i
b
a
i
l
t
n
e
r
r
u
c
l
a
t
o
T
8
3
9
2
,
8
6
9
1
6
9
,
8
0
2
0
1
,
1
2
7
0
1
4
,
7
9
8
2
1
,
8
4
3
9
0
2
,
,
1
4
5
9
7
1
4
,
,
1
6
6
5
2
6
2
,
,
4
7
8
7
6
9
3
,
,
8
3
6
0
2
2
2
,
,
2
5
1
5
3
2
2
,
,
7
3
8
9
2
8
5
,
,
5
5
3
2
6
5
4
,
,
1
0
5
6
3
4
1
,
,
9
6
7
1
1
2
3
,
s
t
n
e
m
a
t
s
n
l
l
i
t
n
e
r
r
u
c
g
n
d
u
i
l
c
x
e
,
t
b
e
d
m
r
e
t
g
n
o
L
:
s
e
i
t
i
l
i
b
a
i
l
m
r
e
t
g
n
o
L
2
8
4
6
6
2
,
8
7
8
8
6
8
,
7
0
5
1
5
,
4
5
3
7
1
2
,
0
5
1
2
5
7
,
7
4
6
5
9
,
3
9
9
3
5
1
,
4
1
1
5
0
5
,
2
2
2
0
4
,
y
n
a
p
m
o
C
e
h
t
f
o
s
r
e
n
w
o
o
t
e
b
a
t
u
b
i
r
t
t
a
l
y
t
i
u
q
E
s
e
r
a
h
s
f
o
e
s
a
h
c
r
u
p
e
r
r
o
f
e
v
r
e
s
e
R
e
v
r
e
s
e
r
n
o
i
t
a
l
s
n
a
r
T
x
a
t
e
m
o
c
n
i
d
e
r
r
e
f
e
D
s
t
i
f
e
n
e
b
e
e
y
o
p
m
E
l
s
e
i
t
i
l
i
b
a
i
l
m
r
e
t
g
n
o
l
l
a
t
o
T
i
m
u
m
e
r
p
e
r
a
h
S
k
c
o
t
s
l
a
t
i
p
a
C
:
y
t
i
u
q
E
s
e
i
t
i
l
i
b
a
i
l
l
a
t
o
T
i
s
g
n
n
r
a
e
d
e
n
a
t
e
R
i
,
9
8
7
1
8
3
4
1
,
,
8
4
2
9
0
9
0
1
,
8
4
8
0
0
3
,
1
1
9
1
0
3
,
8
4
8
0
0
3
,
7
3
6
4
6
3
,
,
0
2
1
6
0
1
1
,
,
2
4
6
9
2
0
1
,
,
6
1
5
9
4
9
1
1
,
,
5
4
9
2
1
1
2
1
,
,
5
9
3
8
5
6
3
1
,
,
2
7
0
8
0
8
3
1
,
,
8
1
7
7
3
5
9
,
8
8
2
0
5
7
,
8
4
8
0
0
3
,
4
8
8
4
6
,
,
1
3
0
4
4
5
0
1
,
,
1
5
0
0
6
6
1
1
,
$
9
0
1
0
1
1
1
2
1
3
1
4
1
5
1
6
1
3
1
)
e
(
3
7
1
s
t
e
s
s
a
t
n
e
r
r
u
c
r
e
h
t
o
d
n
a
s
e
s
n
e
p
x
e
d
a
p
e
r
P
i
s
t
e
s
s
a
t
n
e
r
r
u
c
l
a
c
i
g
o
o
B
l
i
t
e
n
,
s
e
i
r
o
t
n
e
v
n
I
t
e
n
,
i
l
e
b
a
v
e
c
e
r
s
t
n
u
o
c
c
A
t
e
n
i
,
t
n
e
m
p
u
q
e
d
n
a
t
n
a
p
l
,
y
t
r
e
p
o
r
P
s
t
e
s
s
a
s
t
n
e
r
r
u
c
l
a
t
o
T
:
s
t
e
s
s
a
t
n
e
r
r
u
c
-
n
o
N
s
t
e
s
s
a
t
n
e
r
r
u
c
-
n
o
n
l
a
c
i
g
o
o
B
l
i
s
t
e
s
s
a
t
n
e
r
r
u
c
-
n
o
n
r
e
h
t
O
s
t
e
s
s
a
s
t
n
e
r
r
u
c
-
n
o
n
l
a
t
o
T
l
l
i
w
d
o
o
G
l
e
a
s
r
o
f
e
b
a
l
l
i
a
v
a
s
t
e
s
s
A
s
t
n
e
m
u
r
t
s
n
i
l
a
i
c
n
a
n
i
f
e
v
i
t
a
v
i
r
e
D
s
t
n
e
m
u
r
t
s
n
i
l
a
i
c
n
a
n
i
f
y
r
a
m
i
r
P
l
i
s
t
n
e
a
v
u
q
e
h
s
a
c
d
n
a
h
s
a
C
:
s
t
e
s
s
a
t
n
e
r
r
u
C
,
4
8
1
0
4
0
8
2
,
,
0
2
3
7
1
7
4
2
,
,
9
6
7
7
9
1
1
2
,
$
y
t
i
u
q
e
d
n
a
s
e
i
t
i
l
i
b
a
i
l
l
a
t
o
T
,
4
8
1
0
4
0
8
2
,
,
0
2
3
7
1
7
4
2
,
,
9
6
7
7
9
1
1
2
,
$
s
t
e
s
s
a
l
a
t
o
T
,
1
3
r
e
b
m
e
c
e
D
,
1
3
r
e
b
m
e
c
e
D
,
1
3
r
e
b
m
e
c
e
D
2
1
0
2
,
1
3
r
e
b
m
e
c
e
D
1
1
0
2
1
1
0
2
,
1
y
r
a
u
n
a
J
e
t
o
N
y
t
i
u
q
e
d
n
a
s
e
i
t
i
l
i
b
a
i
L
2
1
0
2
1
1
0
2
1
1
0
2
,
1
y
r
a
u
n
a
J
e
t
o
N
s
t
e
s
s
A
n
o
i
t
i
s
o
P
l
a
i
c
n
a
n
i
F
f
o
s
t
n
e
m
e
t
a
t
S
d
e
t
a
d
i
l
o
s
n
o
C
2
1
0
2
d
n
a
1
1
0
2
1
3
r
e
b
m
e
c
e
D
,
1
1
0
2
,
1
y
r
a
u
n
a
J
)
s
o
s
e
p
f
o
s
d
n
a
s
u
o
h
T
(
18
.
s
t
n
e
m
e
t
a
t
s
l
a
i
c
n
a
n
i
f
d
e
t
a
d
i
l
o
s
n
o
c
o
t
s
e
t
o
n
g
n
y
n
a
p
m
o
c
c
a
e
e
S
i
INDUSTRIAS BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES
Consolidated Statement of Comprehensive Income
Years ended December 31, 2011 and 2012
(Thousands of pesos, except per share amount)
Net revenues
Cost of sales
Gross profit
Note
2011
2012
$
20 (b)
20 (b)
27,734,990
24,797,037
39,367,431
33,318,207
2,937,953
6,049,224
General, selling and administrative expenses
Other income (expenses), net
20 (b)
31
2,974,733
999,965
3,396,655
(23,810)
Operating income
Finance income
Finance costs
Net finance income
Profit before income taxes
Income taxes
Profit for the year
Comprehensive income:
Currency translation effect
Comprehensive income for the year
Profit attributable to:
Controlling interest
Non-controlling interest
Profit for the year
Comprehensive income attributable to:
Controlling interest
Non-controlling interest
Comprehensive income for the year
963,185
2,628,759
248,282
(70,640)
177,642
270,032
(105,000)
165,032
1,140,827
2,793,791
(38,616)
602,020
1,179,443
2,191,771
64,387
(186,095)
1,243,830
2,005,676
1,177,346
2,097
2,184,567
7,204
1,179,443
2,191,771
1,241,733
2,097
1,998,472
7,204
1,243,830
2,005,676
30
30
21
$
$
$
$
$
$
Weighted average outstanding shares (thousands)
599,822
598,960
Basic and diluted earnings per share
26
$
1.96
3.65
See accompanying notes to consolidated financial statements.
19
l
a
t
o
T
y
t
i
u
q
e
g
n
i
l
l
o
r
t
n
o
c
-
n
o
N
t
s
e
r
e
t
n
i
l
a
t
o
T
d
e
n
i
a
t
e
R
s
g
n
i
n
r
a
e
n
o
i
t
a
l
s
n
a
r
T
e
v
r
e
s
e
r
r
o
f
e
v
r
e
s
e
R
f
o
e
s
a
h
c
r
u
p
e
r
s
e
r
a
h
s
e
r
a
h
S
i
m
u
m
e
r
p
l
a
t
i
p
a
C
k
c
o
t
s
2
1
0
2
d
n
a
1
1
0
2
,
1
3
r
e
b
m
e
c
e
D
d
e
d
n
e
s
r
a
e
Y
)
s
o
s
e
p
f
o
s
d
n
a
s
u
o
h
T
(
y
n
a
p
m
o
C
e
h
t
f
o
s
r
e
n
w
o
o
t
e
l
b
a
t
u
b
i
r
t
t
A
)
2
1
9
(
)
9
0
2
(
5
2
0
7
,
)
6
2
9
9
9
2
(
,
,
0
2
0
0
3
4
6
1
,
,
3
4
4
9
7
1
1
,
7
8
3
4
6
,
,
0
3
8
3
4
2
1
,
,
8
2
8
9
7
3
7
1
,
)
1
9
4
(
3
9
9
0
1
,
)
2
4
1
8
(
,
)
5
7
1
9
9
2
(
,
,
1
7
7
1
9
1
2
,
)
5
9
0
6
8
1
(
,
,
6
7
6
5
0
0
2
,
,
9
8
6
8
8
0
9
1
,
7
1
9
9
2
,
)
2
1
9
(
-
-
5
2
0
7
,
-
7
9
0
2
,
7
9
0
2
,
7
2
1
8
3
,
-
-
)
1
9
4
(
)
2
4
1
8
(
,
-
4
0
2
7
,
4
0
2
7
,
8
9
6
6
3
,
,
3
0
1
0
0
4
6
1
,
,
0
4
3
7
3
7
4
1
,
)
6
2
9
9
9
2
(
,
)
6
2
9
9
9
2
(
,
-
-
)
9
0
2
(
7
8
3
4
6
,
,
6
4
3
7
7
1
1
,
-
-
-
-
,
6
4
3
7
7
1
1
,
,
3
3
7
1
4
2
1
,
,
6
4
3
7
7
1
1
,
,
1
0
7
1
4
3
7
1
,
,
0
6
7
4
1
6
5
1
,
-
-
3
9
9
0
1
,
-
-
-
)
5
7
1
9
9
2
(
,
)
5
7
1
9
9
2
(
,
,
7
6
5
4
8
1
2
,
,
7
6
5
4
8
1
2
,
)
5
9
0
6
8
1
(
,
)
2
9
7
4
9
(
,
,
2
7
4
8
9
9
1
,
,
5
7
7
9
8
0
2
,
,
1
9
9
1
5
0
9
1
,
,
0
6
3
5
0
4
7
1
,
-
-
-
-
-
-
7
8
3
4
6
,
7
8
3
4
6
,
7
8
3
4
6
,
-
-
-
-
-
)
3
0
3
1
9
(
,
)
3
0
3
1
9
(
,
)
6
1
9
6
2
(
,
0
9
6
8
8
,
1
4
6
9
9
3
,
-
-
-
-
-
-
)
9
0
2
(
1
8
4
8
8
,
-
-
3
9
9
0
1
,
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1
4
6
9
9
3
,
4
7
4
9
9
,
1
4
6
9
9
3
,
-
-
-
-
-
-
-
,
2
3
4
4
7
1
1
,
,
2
3
4
4
7
1
1
,
-
-
-
-
-
-
-
,
2
3
4
4
7
1
1
,
I
S
E
I
R
A
D
I
S
B
U
S
D
N
A
.
.
V
C
E
D
.
.
B
A
S
.
,
O
C
O
H
C
A
B
S
A
R
T
S
U
D
N
I
I
y
t
i
u
q
E
n
i
s
e
g
n
a
h
C
f
o
s
t
n
e
m
e
t
a
t
S
d
e
t
a
d
i
l
o
s
n
o
C
$
e
t
o
N
)
d
(
5
2
)
c
(
5
2
)
d
(
5
2
)
c
(
5
2
t
s
e
r
e
t
n
i
g
n
i
l
l
o
r
t
n
o
c
-
n
o
n
o
t
d
a
p
s
d
n
e
d
v
D
i
i
i
:
r
a
e
y
e
h
t
r
o
f
e
m
o
c
n
i
e
v
i
s
n
e
h
e
r
p
m
o
C
e
m
o
c
n
i
e
v
i
s
n
e
h
e
r
p
m
o
c
r
e
h
t
O
r
a
e
y
e
h
t
r
o
f
t
i
f
o
r
P
r
a
e
y
e
h
t
r
o
f
e
m
o
c
n
i
e
v
i
s
n
e
h
e
r
p
m
o
c
l
a
t
o
T
1
1
0
2
,
1
3
r
e
b
m
e
c
e
D
t
a
e
c
n
a
a
B
l
i
d
a
p
s
d
n
e
d
v
D
i
i
t
s
e
r
e
t
n
i
g
n
i
l
l
o
r
t
n
o
c
-
n
o
n
d
e
r
i
u
q
c
A
s
e
r
a
h
s
l
f
o
e
a
s
d
n
a
e
s
a
h
c
r
u
p
e
R
1
1
0
2
,
1
y
r
a
u
n
a
J
t
a
e
c
n
a
a
B
l
20
i
d
a
p
s
d
n
e
d
v
D
i
i
l
n
o
i
t
u
o
s
i
d
m
o
r
f
t
s
e
r
e
t
n
i
g
n
i
l
l
o
r
t
n
o
c
-
n
o
n
f
o
l
a
s
s
o
p
s
i
D
s
e
r
a
h
s
l
f
o
e
a
s
d
n
a
e
s
a
h
c
r
u
p
e
R
t
s
e
r
e
t
n
i
g
n
i
l
l
o
r
t
n
o
c
-
n
o
n
o
t
d
a
p
s
d
n
e
d
v
D
i
i
i
$
2
1
0
2
,
1
3
r
e
b
m
e
c
e
D
t
a
e
c
n
a
a
B
l
:
r
a
e
y
e
h
t
r
o
f
e
m
o
c
n
i
e
v
i
s
n
e
h
e
r
p
m
o
C
e
m
o
c
n
i
e
v
i
s
n
e
h
e
r
p
m
o
c
r
e
h
t
O
r
a
e
y
e
h
t
r
o
f
t
i
f
o
r
P
r
a
e
y
e
h
t
r
o
f
e
m
o
c
n
i
e
v
i
s
n
e
h
e
r
p
m
o
c
l
a
t
o
T
.
s
t
n
e
m
e
t
a
t
s
l
a
i
c
n
a
n
i
f
d
e
t
a
d
i
l
o
s
n
o
c
o
t
s
e
t
o
n
g
n
y
n
a
p
m
o
c
c
a
e
e
S
i
INDUSTRIAS BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 2011 and 2012
(Thousands of pesos)
Note
2011
2012
$
1,179,443
2,191,771
Cash flows from operating activities:
Profit for the year
Adjustments for:
Income tax recognized in profit or loss
Bargain purchase on business combinations
Depreciation and amortization
Loss on sale of plant and equipment
Interest income
Interest expense
Foreign exchange loss on loans
21
16
30
30
Cash flows provided by operating activities before
changes in working capital and provisions
Derivative financial instruments
Accounts receivable, net
Inventories, net
Biological assets current and long term
Prepaid expenses and other current assets
Assets available for sale
Trade payable and other accounts payable
Related parties
Employee benefits
(108,202)
(1,047,245)
745,837
46,671
(193,777)
69,744
34,500
726,971
2,689
(435,320)
(387,569)
(342,715)
(216,722)
(9,075)
443,987
17,670
22,153
235,603
-
837,807
65,323
(222,063)
105,000
(52,687)
3,160,754
7,270
14,514
(1,267,482)
(125,606)
(116,728)
44,140
532,030
9,496
(3,425)
Cash flows (used in) provided by operating activities
(177,931)
2,254,963
Cash flows from investing activities:
Acquisition of property, plant and equipment
Proceeds from sale of plant and equipment
Financial instruments
Other assets
Interest collected
Business acquisitions
(707,533)
83,946
(201,373)
(146,389)
193,777
(1,326,741)
(951,760)
81,591
(551,247)
62,726
222,063
-
Cash flows used in investing activities
(2,104,313)
(1,136,627)
Cash flows from financing activities:
Share premium and reserve for repurchases of shares
Dividends paid
Proceeds from borrowings
Interest paid
Dividends paid to non-controlling interest
Currency translation effect
Dispossal of non-controlling interest from disolution
-
(209)
(299,926)
1,921,609
(60,809)
(912)
33,440
10,993
(299,175)
3,069,787
(105,000)
(491)
(93,397)
(8,142)
Principal payment on loans
(774,601)
(2,130,805)
Cash flows provided by financing activities
818,592
443,770
Net (decrease) increase in cash and cash equivalents
(1,463,652)
1,562,106
Cash and cash equivalents at January 1
3,967,874
2,625,661
Effect of exchange rate fluctuations on cash and cash equivalents
121,439
(8,226)
Cash and cash equivalents at December 31
$
2,625,661
4,179,541
See accompanying notes to consolidated financial statements.
21
INDUSTRIAS BACHOCO, S. A .B. DE C. V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Years ended December 31, 2011 and 2012
(Thousands of pesos, except per share amounts)
(1)
Reporting entity
Industrias Bachoco, S.A.B. de C.V. and subsidiaries (collectively referred to as “Bachoco” or the
“Company”) a public stock corporation with variable capital was incorporated on April 17, 1980, as a
legal entity. The Company’s registered address is Avenida Tecnológico 401, Ciudad Industrial, Celaya,
Guanajuato, México.
The Company is engaged in breeding, processing and marketing of poultry (chicken and eggs), swine
and other products (principally balanced animal feed). Bachoco is a holding company that has control
over a group of subsidiaries (see note 7).
The shares of the Company are listed on the Mexican Stock Exchange (MSE) under the symbol
“Bachoco”; and on the New York Stock Exchange (NYSE), under the symbol “IBA”.
(2)
Basis of preparation
a) Statement of compliance
The consolidated financial statements have been prepared in accordance with International Financial
Reporting Standards (“IFRS”), as issued by the International Accounting Standard Board (IASB),
adopted by public entities in Mexico in accordance with the amendments to Rules for Public
Companies and other Entities Trading on the Mexican Stock Exchange Market, established by the
National Banking and Securities Commission on January 27, 2009 according to which, beginning in
2012 the Company is required to prepare financial statements in accordance with IFRS as issued by the
IASB.
These are the Company’s first consolidated financial statements prepared in accordance with IFRS, and
the IFRS 1, “First-time Adoption of International Financial Reporting Standards”, has been applied.
On April 19, 2012 Bachoco issued its last consolidated financial statements prepared under Mexican
Financial Reporting Standards (“NIF”) as of December 2010 and 2011 and for the years ended
December 31, 2009, 2010 and 2011.
Note 33 contain an explanation of how the transition to IFRS has affected the financial position,
financial performance and cash flows reported by the Company.
On April 15, 2013, the accompanying consolidated financial statements and related notes were
authorized by the Company’s Finance Director, C.P. Daniel Salazar Ferrer and Controller Director C.P.
Marco Antonio Esparza Serrano, for the Audit Committee, Board of Directors and Stockholders’
approvals. In accordance with the General Corporations Law and the bylaws of the Company, the
stockholders are empowered to modify the consolidated financial statements after issuance.
22
b)
Basis of measurement
The consolidated financial statements have been prepared on the historical cost basis except for the
following material items in the statement of financial position:
• Financial derivative instruments for trading and hedging purposes attributable to fair value,
primary investment securities and equity securities at fair value in gains or losses;
• Non-derivative financial instruments at fair value though profit or loss re measured at fair value.
• Biological assets are measured at fair value less costs to sell;
• The defined benefit plan asset are recognized at fair value;
c)
Functional and presentation currency
These consolidated financial statements are presented in thousands of Mexican pesos (“pesos” or “$”),
national currency of México, which is the Company’s recording and functional currency, except for the
foreign subsidiary that uses the dollar as its recording and functional currency.
For disclosure purposes, in the notes to the financial statements, “thousands of pesos” or “$” means
thousands of Mexican pesos, and “thousands of dollars” means thousands of U.S. dollars.
When it is deemed relevant, certain amounts presented in the notes to the financial statements are
included between parentheses as a convenience translation into thousands of dollars, into thousands
of pesos, or both, as applicable. These translations are provided as informative data and should not be
construed that these amounts should be converted into thousands of pesos or thousands of dollars at
the indicated rate.
d)
Use of estimates and judgments
IFRS requires
The preparation of the consolidated financial statements
management to make judgments, estimates and assumptions that affect the application of accounting
policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ
from these estimates.
in conformity with
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting
estimates are recognized in the period in which the facts and circumstances that support a change in
estimates occur and in any future periods affected.
Information about critical judgments in applying accounting policies that have the most significant
effect on the amounts recognized in the consolidated financial statements is included in the following
notes:
•
•
•
•
•
•
•
•
Note 10 – valuation of financial instruments
Note 11 – allowance for doubtful accounts
Note 12 – inventories
Note 13 – biological assets
Note 15 – assets available for sale
Note 16 – useful lives of property, plant and equipment
Note 21 – deferred income tax assets
Note 22 – measurement defined labor obligation
23
The information on assumptions and uncertainty of estimates having a significant risk of a material
adjustment within the next year is included in the note below:
• Note 28 – contingencies.
(3)
Significant accounting policies
The accounting policies set out below have been applied consistently to all periods presented in these
consolidated financial statements, and have been applied consistently by the Company and its
subsidiaries in preparing the opening consolidated IFRS statement of financial position as at January 1,
2011, for the purposes of the transition to IFRS.
(a)
Basis of consolidation
i. Business acquisitions
Acquisitions since January 1, 2011
Business acquisitions made since January 1, 2011 are accounted for by the purchase method. For each
business acquisition, the non-controlling interest in the acquiree is valued either at fair value or
according to the proportionate interest in acquiree’s identifiable net assets.
On a business acquisition, the Company evaluates the financial assets acquired and the financial
liabilities assumed for proper classification and designation according to the contractual terms,
economic circumstances and relevant conditions at the acquisition date.
Goodwill is originally valued at cost, and represents any excess of the transferred consideration over
the net assets acquired and liabilities assumed. When the goodwill is negative, a bargain purchase gain
is recognized immediately in profit or loss.
Transaction costs, other than those associated with the issue of debt or equity securities, that the
Company incurs related to a business combination are expensed as incurred.
Any contingent consideration payable is measured at fair value at the acquisition date. If the
contingent consideration is classified as equity, then it is not remeasured and settlement is accounted
for within equity. Otherwise, subsequent changes in the fair value of the contingent consideration are
recognized in profit or loss.
Acquisitions prior to January 1, 2011
As part of its transition to IFRS, the Company elected not to restate those business combinations that
occurred prior to January 1, 2011. Goodwill in respect of acquisitions prior to this date represents the
amount recognized under the accounting criteria previously followed by the Company.
24
ii. Subsidiaries
Subsidiaries are entities controlled by the Company. The financial statements of subsidiaries are
included in the consolidated financial statements from the date that control commences until the date
that control ceases (see note 7).
iii.Transactions eliminated in consolidation
Intra-group balances and transactions, and any unrealized gain and loss arising from intra-group
transactions, are eliminated in preparing the consolidated financial statements.
b) Foreign currency
i.Foreign currency transactions
Transactions in foreign currencies are translated to the respective functional currencies of the
Company at the dates of the transactions. Monetary assets and liabilities denominated in foreign
currencies at the reporting date are retranslated to the functional currency at the exchange rate at that
date. The foreign currency gain or loss on monetary items is the difference between amortized cost in
the functional currency at the beginning of the period, adjusted for effective interest and payments
during the period, and the amortized cost in foreign currency translated at the exchange rate at the
end of the reporting period.
Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value
are retranslated to the functional currency at the exchange rate at the date that the fair value was
determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are
translated using the exchange rate at the date of the transaction.
Foreign currency differences arising in retranslation are recognized in profit or loss.
ii.Foreign operations
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising
on acquisition, are translated to pesos at exchange rates at the reporting date. The income and
expenses of foreign operations are translated to pesos at the average exchange rate of the period of
the transactions.
Foreign currency differences are recognized in other comprehensive income, and presented in the
foreign currency translation reserve in equity.
Foreign exchange gains or losses arising from an item received from or payable to a foreign operation,
whose settlement is neither planned nor likely in the foreseeable future, are considered part of a net
investment in a foreign operation and are recognized under “other comprehensive income” account,
and presented within equity in the foreign currency translation reserve. At 1 January 2011, as well as at
31 December 2011 and 2012 the Company does not have such operations.
25
c)
Financial instruments
i. Non-derivative financial assets
Non-derivative financial instruments include cash and cash equivalents, trade receivable and other
receivables.
The Company initially recognizes accounts receivables and cash equivalents on the date that they are
originated. All other financial assets (including assets designated as at fair value through profit or loss)
are recognized initially on the trade date, which is the date that the Group becomes a party to the
contractual provisions of the instrument.
The Company derecognizes a financial asset when the contractual rights to the cash flows from the
asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which
substantially all the risks and rewards of ownership of the financial asset are transferred.
Financial assets and liabilities are offset and the net amount presented in the statement of financial
position when, and only when, the Company has a legal right to offset the amounts and intends either
to settle them on a net basis or to realize the asset and settle the liability simultaneously.
The Company has the following non-derivative financial assets: financial assets at fair value through
profit or loss, held-to-maturity financial assets, cash and cash equivalents and accounts receivable.
Financial assets at fair value through profit or loss
A financial asset is classified as at fair value through profit or loss if it is classified as held-for-trading or
is designated as such on initial recognition. Financial assets are designated as at fair value through
profit or loss if the Company manages such investments and makes purchase and sale decisions based
on their fair value in accordance with the Company´s documented risk management or investment
strategy. Upon initial recognition, attributable transaction costs are recognized in profit or loss as
incurred. Financial assets at fair value through profit or loss are measured at fair value, and changes
therein are recognized in profit or loss.
Held-to-maturity financial assets
If the Company has the intention and ability to hold debt instruments to maturity quoted on an active
market, then such financial assets are classified as held-to-maturity. Held-to-maturity financial assets
are originally recognized at fair value plus any directly attributable transaction costs. Subsequently to
initial recognition, held-to-maturity financial assets are measured at their amortized cost by using the
effective interest method, less any impairment losses. Any sale or reclassification of a more than
insignificant amount of held-to-maturity investments would result in the reclassification of all held-to-
maturity investments as available-for-sale, and prevent the Company from classifying investment
securities as held-to-maturity for the current and the following two years.
26
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call deposits with maturities of three months or
less from the acquisition date that are subject to an insignificant risk of changes in their fair value, and
are used by the Company in the management of its short-term commitments.
Receivables
Receivables are financial assets with fixed or determinable payments that are not quoted in an active
market. Such assets are recognised initially at fair value plus any directly attributable transaction costs.
Subsequent to initial recognition, receivables are measured at amortized cost. Receivables comprise
trade and other receivables.
ii. Non-derivative financial liabilities
All financial liabilities are recognised initially on the trade date, which is the date that the Company
becomes a party to the contractual provisions of the instrument.
The Company derecognizes a financial liability when its contractual obligations are satisfied, cancelled
or expire.
The Company has the following non-derivative financial liabilities: debt, senior bond issuance, trade
and other payables.
The aforementioned financial liabilities are originally recognized at fair value, plus cost directly
attributable to the transaction. Subsequently, these financial liabilities are measured at amortized cost
during its term.
iii. Derivative financial instruments
Derivative financial instruments for fair value hedging or for trading purposes are initially recognized
at fair value; any attributable transaction costs are recognized in profit or loss as incurred. Subsequent
to initial recognition, the derivative financial instruments are measured at fair value, and changes in
fair value are immediately recognized in profit or loss.
The fair value of derivative financial instruments that are traded in recognized financial markets is
based on quotes issued by these markets; when a derivative financial instrument is traded “Over the
Counter” market, the fair value is determined based on internal models and market inputs accepted in
the financial environment.
The Company analyzes if the embedded derivatives exist that should be segregated from the host
contract and accounted for separately if the economic characteristics and risks of the host contract and
the embedded derivative are not closely related. A separate instrument with the same terms as those
of the embedded derivative meet the definition of a derivative, and the combined instrument is not
measured at fair value through profit or loss. Changes in fair value of the separable embedded
derivatives are immediately recognized in profit or loss. At January 1, 2011, December 31, 2011 and
2012, the Company has not recognized embedded derivatives.
27
The Company has derivative instruments for accounting fair value hedging for its exposure to
commodity price risks resulting from its operating activities. Derivative instruments not meeting the
requirements for hedge accounting treatment are accounted for as derivative trading instruments.
On initial designation of the derivative as a hedging instrument, the Company formally documents the
relationship between the hedging instrument and hedged item, including the risk management
objectives and strategy in undertaking the hedge transaction and the hedged risk, together with the
methods that will be used to assess the effectiveness of the hedging relationship.
The Company makes an assessment, both at the inception of the hedge relationship as well as on an
ongoing basis, of whether the hedging instruments are expected to be highly effective in offsetting
the changes in the fair value of the respective hedged items during the period for which the hedge is
designated and whether the actual results of each hedge are within a range of 80 – 125 percent.
Derivatives are recognized initially at fair value; any attributable transaction costs are recognized in
profit or loss as incurred. Subsequent to initial recognition, derivatives are measured at fair value, and
changes therein are accounted for as follows:
Fair value hedging
When a derivative is designated as a fair value hedging instrument, the fluctuations of both the
derivative and the primary position for the hedged risk(s) are measured at fair value and recognized in
profit or loss.
If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold,
terminated or exercised, or the designation is revoked, then hedge accounting is discontinued
prospectively.
iv. Capital stock
Ordinary shares
Ordinary shares are classified as equity. Incremental costs directly attributable to the issuance of
ordinary shares are recognized as a deduction from equity, net of any tax effects.
Stock repurchase
When share capital recognized as equity is repurchased, the amount of the consideration paid, which
includes directly attributable costs, net of any tax effects, is recognized as a deduction from equity.
Repurchased shares are classified as treasury shares and are presented in the reserve for own shares.
When treasury shares are sold or reissued subsequently, the amount received as well as the resulting
surplus or deficit on the transaction is recognized in equity.
28
d)
Property, plant and equipment
i.Recognition and measurement
Property, plant and equipment, except for land, are measured at the acquisition cost less accumulated
depreciation and any accumulated impairment losses. As of the transition date to IFRS, the Company
elected the “Deemed Cost” option, thus recognizing the values of property, plant and equipment as
determined under Mexican Financial Reporting Standards as of the transition date (see note 33).
The acquisition cost includes the purchase price, as well as any cost directly attributable to the asset
acquisition, and all costs directly attributable to bringing the assets to a working condition for their
intended use.
When parts of an item of property, plant and equipment have different useful lives, they are accounted
for as separate items (major components) of property, plant and equipment.
A component of property, plant and equipment and any significant part initially recognized is retired
at the time of disposal or when economic benefits from use or disposal are not expected to be realized
in the future. Gains or losses on the sale of a property, plant and equipment item are determined by
comparing the proceeds from the sale with the carrying amount of property, plant and equipment,
and are recognized net under “other income” in profit or loss for the year.
ii.Subsequent costs
The replacement cost of a property, plant and equipment item is capitalized if the future economic
benefits associated with the cost will flow to the Company and the related cost may be reliably
determined. The carrying amount of the replaced item is written off from the accounting records.
Maintenance and repairs expenses related to property, plant and equipment are expensed as incurred.
iii.Depreciation
Depreciation is computed on the amount subject to depreciation, which is the asset cost, or other
amount substituting the cost. The depreciable amount normally does not reduce residual values as
they are not representative considering the industry in which the entity operates.
Depreciation is computed by the straight-line method based on the estimated useful life of the assets
and recognized in profit or loss beginning in the month following that in which they are available for
use. Land is not depreciated.
The estimated useful lives for the current and comparative years of significant items of property, plant
and equipment are as follows:
• Buildings
• Machinery and equipment
• Transportation equipment
• Computer equipment
• Furniture
20 - 40 years
7 - 15 years
6 years
3 years
3 years
29
Depreciation methods, useful lives and residual values are reviewed at each reporting date and
adjusted if appropriate.
e)
Goodwill
Goodwill arises on the acquisition of the entities over which control is obtained. Negative goodwill
arises in the business combination at bargain purchase is recognized immediately in profit or loss.
Goodwill is measured at cost less cumulative impairment losses and is subject to annual tests for
impairment.
f)
Biological assets
Biological assets are measured at fair value less costs to sell, with any change therein recognized in
profit or loss. Costs to sell include all costs that would be necessary to sell the assets.
The Company’s biological assets consist of hens in production, laying and breeder hens incubatable
eggs, and breeder pigs.
When the fair value cannot be reliably, verifiably and objectively determined, the assets are valued at
production cost less accumulated depreciation and any cumulative impairment loss.
Cumulative impairment loss in productivity of poultry and breeder pigs is estimated based on the
future life expected and determined on a straight-line basis.
The agricultural products obtained from biological assets are live chicken, processed chicken,
commercial eggs and pigs available for sale, which are recognized as inventories in the statement of
financial position.
The Company is exposed to financial risks related to changes in chicken price. The Company does not
contemplate a significant drop in chicken price in the future; therefore, it has not entered into any
financial derivative or contract for managing the risk related to a decrease in chicken price.
The Company reviews the chicken prices frequently so as to evaluate the need for having a financial
instrument to manage the risk.
The biological assets were classified in current and non-current assets, based on their availability and
business cycle.
30
g)
Leased assets
Operating leases of the Company as of December 31, 2011 and 2012, are not recognized in the
Company’s statement of financial position. The rentals paid by the Company for the operating leases
are recognized in profit or loss for the year by the straight-line method over the lease term, even
though the payments are not made on the same basis.
h)
Inventories
Inventories are measured at the lower of cost and net realizable value. The cost of inventories is based
on the average costs, and includes expenditure incurred in acquiring the inventories, production or
conversion costs, and other costs incurred in bringing them to their existing location and condition.
Net realizable value is the estimated selling price in the ordinary course of business, less the estimated
costs of completion and estimated costs necessary to make the sale.
Cost of sales represents cost of inventories at the time of sale, plus, if applicable, by reductions in the
net realizable value of inventories during the year.
The Company records the necessary allowances to recognize declines in the value of their inventories
impairment, obsolescence, slow movement and other factors that may indicate that the use or
performance of the items that are part of inventory may be lower than the carrying value.
i)
Impairment
i.Financial assets
A financial asset that is not recorded at fair value through profit or loss is assessed at each reporting
date to determine whether there is objective evidence that it is impaired. A financial asset is impaired if
there is objective evidence of impairment as a result of one or more events that occurred after the
initial recognition of the asset, and that loss event(s) had an impact on the estimated future cash flows
of that asset that can be estimated reliably.
Objective evidence that financial assets are impaired includes default or delinquency by a debtor,
restructuring of an amount due to the Company on terms that the Company would not consider
otherwise, indications that a debtor or issuer will enter bankruptcy, adverse changes in the payment
status of borrowers or issuers, economic conditions that correlate with defaults or the disappearance
of an active market for a security. In addition, for an investment in an equity security, a significant or
prolonged decline in its fair value below its cost is objective evidence of impairment.
The Company considers evidence of impairment for financial assets measured at amortized cost
(accounts receivables and held-to-maturity investment securities) at both a specific asset and
collective level. All individually significant receivables and held-to-maturity investment securities are
assessed for specific
individually significant receivables and held-to-maturity
investment securities found not to be specifically impaired are then collectively assessed for any
impairment. All
31
impairment that has been incurred but not yet identified. Assets that are not individually significant
are collectively assessed for impairment by grouping together assets with similar risk characteristics.
In assessing collective impairment the Company uses historical trends of the probability of default,
timing of recoveries and the amount of loss incurred, adjusted for management’s judgment as to
whether current economic and credit conditions are such that the actual losses are likely to be greater
or less than suggested by historical trends.
An impairment loss in respect of a financial asset measured at amortised cost is calculated as the
difference between its carrying amount of the asset, and the present value of the estimated future
cash flows discounted at the effective interest rate. Losses are recognised in profit or loss and reflected
in an allowance account against receivables or held-to-maturity investment securities. Interest on the
impaired asset continues being recognized. When a subsequent event causes the amount of
impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss.
ii.Non-financial assets
The carrying amounts of the Company´s non-financial assets, other than inventories, biological assets
and deferred tax assets, are reviewed at each reporting date to determine whether there is any
indication of impairment. If any such indication exists, then the asset’s recoverable amount is
estimated. Goodwill and indefinite-lived intangible assets are tested annually for impairment on the
same dates.
The recoverable amount of an asset or cash-generating unit (CGU) is the greater of its value in use and
its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted
to their present value using a pre-tax discount rate that reflects current market assessments of the
time value of money and the risks specific to the asset or CGU. For impairment testing, assets that
cannot be tested on an individual basis are grouped together into the smallest group of assets that
generates cash inflows from continuing use that are independent of the cash inflows of other assets
CGU. For the purpose of impairment testing of the goodwill, CGU to which goodwill has been
allocated are aggregated so that the level at which impairment testing is performed reflects the lowest
level at which goodwill is monitored for internal reporting purposes.
Goodwill acquired in a business combination is allocated to groups of CGU that are expected to
benefit from the synergies of the combination.
In regards to goodwill, the Company identifies the CGU related to balanced animal feed plants,
chicken processing plants and some chicken farms for the Peninsula and Itsmo divisions in which such
Goodwill was generated.
Impairment losses are recognized in profit or loss. Impairment losses recognized in respect of CGU are
allocated first to reduce the carrying amount of any goodwill allocated to the CGU (group of CGUs),
and then to reduce the carrying amounts of the other assets in the CGU (group of CGUs) on a pro rata
basis.
An impairment loss in respect of goodwill is not reversed. For other assets, an impairment loss is
reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that
would have been determined, net of depreciation or amortization, if no impairment loss had been
recognized.
32
j)
Available-for-sale assets
Assets available for sale mainly consist of foreclosed assets as well as an aircraft included with the
acquisition of OK Industries, Inc. (note 6a). Management sold this aircraft in 2012.
Immediately before classification as available-for-sale, the assets are remeasured according to the
Company’s accounting policies. Subsequently, available-for-sale assets are generally recorded at the
lower of carrying amount and fair value less cost to sale the assets. Impairment losses on initial
classification of available-for-sale assets and subsequent revaluation gains or losses are recognized in
profit or loss. Gains exceeding any cumulative impairment loss are not recognized.
k)
Other assets
Other long-term assets primarily include prepayments for the purchase of property, plant and
equipment, investments in insurance policies and investment in an associate company.
At December 31, 2011 y 2012, Bachoco USA (foreign subsidiary) holds a minority investment in
Southern Hens, Inc. The Company does not exercise significant influence over the entity and therefore
the investment is recorded at original cost which is similar to fair value at the acquisition date (see note
17).
Bachoco USA, (foreign subsidiary) owns life insurance policies of some of the previous shareholders.
The Company records these policies to net cash surrender (see note 17).
l)
Employee benefits
Benefit plan in Mexican operation
Bachoco has a retirement plan in which non-union workers in México participate. Pension benefits are
determined based on the salary of workers in their final three years of service, the number of years
worked in the Company and their age at retirement. This plan includes:
i Defined contribution plan
A defined contribution plan is a post-employment benefit plan under which an entity pays fixed
contributions into a separate entity and has no legal or constructive obligation to pay further amounts.
Obligations for contributions to defined contribution plans are recognized as an employee benefit
expense in profit or loss in the periods during which related services are rendered by employees.
Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in
future payments is available. Contributions to a defined contribution plan that are due more than 12
months after the end of the period in which the employees render the service are discounted to their
present value.
33
ii Defined benefit plan
A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. It is
funded only by contributions made by the Company and is intended to satisfy the Company’s labor
obligations to employees.
The Company´s net obligation in respect of defined benefit plans is calculated separately for each plan
by estimating the amount of future benefit that employees have earned in return for their service in
the current and prior periods. That benefit is discounted to determine its present value. Any
unrecognized past service costs and the fair value of any plan assets are deducted. The discount rate is
the yield at the reporting date on investment grade bonds that have maturity dates approximating the
terms of the Company´s and that are denominated in the currency in which the benefits are expected
to be paid.
The calculation is performed annually by a qualified actuary using the projected unit credit method.
When the calculation results in a benefit to the Group, the recognized asset is limited to the net total of
any unrecognized past service costs and the present value of economic benefits available in the form
of any future refunds from the plan or reductions in future contributions to the plan. In order to
calculate the present value of economic benefits, consideration is given to any minimum funding
requirements that apply to any plan in the Company. An economic benefit is available to the Company
if it is realizable during the life of the plan, or on settlement of the plan liabilities.
When the benefits of a plan are improved, the portion of the increased benefit related to past service
by employees is recognized in profit or loss on a straight-line basis over the average period until the
benefits become vested. To the extent that the benefits vest immediately, the expense is recognized
immediately in profit or loss.
The Company recognizes the surplus that is outside the 10% margin of the actuarial gains and losses
arising from defined benefit plans in the previous reporting date divided by the expected average life
of the employees participating in the plan.
iii Short-term benefits
Short-term employee benefits are valued on a non-discounted basis and are recognized in profit or
loss as respective services are rendered.
A liability is recognized for the amount expected to be payable under the short-term cash bonus plans
or profit sharing, if the Company has a legal or constructive obligation to pay such amounts as a result
of prior services rendered by the employee, and the obligation may be reliably estimated.
iv Termination benefits from constructive obligation
The Company recognized as a defined benefit plan, a constructive obligation from practices typically
done. This constructive obligation is associated with the period of time that an employee rendered
services to the Company. Payment of this benefit is made in one installment at the time that the
employee voluntarily stops working for the Company.
34
Benefit plan in the foreign operation
Bachoco USA (foreign subsidiary) maintains a 401(k) defined contribution retirement plan covering all
employees meeting certain eligibility requirements. The Company contributes to the plan at the rate
of 50% of employee’s contributions up to a maximum of 2% of the individual employee’s
compensation.
m)
Provisions
A provision is recognized if, as a result of a past event, the Company has a present legal or constructive
obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will
be required to settle the obligation.
When the effect of time value of money is significant, the amount of the provision is the present value
of the expected disbursements necessary to settle the obligation. The discount rate applied is
determined before taxes, and reflects the market conditions at the statement of financial position
date, and takes into account the specific risk of the relevant liability, if any. In these cases, the increase
in the provision is recognized as a finance cost.
n)
Revenue
Revenue from the sale of goods in the course of ordinary activities is measured at the fair value of the
consideration received or receivable, net of returns, trade discounts and volume rebates. Revenue is
recognized when persuasive evidence exists, usually in the form of an executed sales agreement, that
the significant risks and rewards of ownership have been transferred to the customer, recovery of the
consideration relating to the transaction is probable, the associated costs and possible return of goods
can be estimated reliably, there is no continuing management involvement with the goods, and the
amount of revenue can be measured reliably. If it is probable that discounts will be granted and the
amount can be measured reliably, then the discount is recognized as a reduction of revenue.
The Company’s products are sold to a large number of customers, with no significant concentration
with any specific customer.
o)
Finance income and costs
Finance income comprises interest income on funds invested, fair value changes on financial assets at
fair value through profit or loss and foreign currency gains. Interest income is recognized at amortized
cost in profit or loss, using the effective interest method. Dividend income is recognized in profit or
loss on the date that the Company´s right to receive payment is established.
Finance costs comprise interest expense on borrowings, foreign currency losses, fair value changes on
financial assets at fair value through profit or loss. Borrowing costs that are not directly attributable to
the acquisition, construction or production of a qualifying asset are recognized in profit or loss using
the effective interest method.
Foreign currency gains and losses are reported on a net basis.
35
p)
Income taxes
Tax expense comprises current and deferred tax. Current tax and deferred tax is recognized in profit or
loss except to the extent that it relates to a business combination, or items recognized directly in
equity or in other comprehensive income.
Current tax is the expected tax payable or receivable on the taxable income or loss for the fiscal year,
using tax rates enacted or substantively enacted in each jurisdiction at the of the statement of financial
position. Any adjustment to tax payable in respect of previous years. Current tax payable also includes
any tax liability arising from the declaration of dividends.
Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred
tax is not recognized for:
•
the initial recognition of assets or liabilities in a transaction that is not a business combination
and that affects neither accounting nor taxable profit or loss;
• differences related to investments in subsidiaries to the extent that it is probable that the
Company is able to control the timing of the reversal, and the reversion is not expected to
take place in the foreseeable future.
•
taxable temporary differences arising on the initial recognition of goodwill.
Deferred tax is measured at the tax rates that are expected to be applied to temporary differences
when they reverse, based on the legislations enacted or substantively enacted at the date of the
statement of financial position.
In determining the amount of current and deferred tax, the Company takes into account the impact of
uncertain tax positions and whether additional taxes and interest may be due. The Company believes
that its accruals for the tax liabilities are adequate for all open tax years based on its assessment of
many factors, including the interpretation of tax law and prior experience. This assessment relies on
estimates and assumptions and may involve a series of judgments about future events. New
information may become available that causes the Company to change its judgment regarding the
adequacy of existing tax liabilities; such changes to tax liabilities will impact tax expense in the period
that such a determination is made.
A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary
differences to the extent that it is probable that future taxable profits will be available against which
they can be utilized. Deferred tax assets are reviewed at each date of statement of financial position
and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.
36
q)
Earnings per share
The Company presents information on the basic and diluted earnings per share (EPS) for their ordinary
shares. The basic EPS is computed by dividing the profit or loss attributable to the holders of the
Company’s common shares by the weighted average number of ordinary shares outstanding during
the period, adjusted for the own shares held. The diluted EPS is determined by adjusting the profit or
loss attributable to the holders of the ordinary shares and the weighted average number of ordinary
shares outstanding, adjusted by the own shares held, for the effects of potential dilution of all ordinary
shares, including the convertible instruments and options on share granted to employees. At
December 31, 2011 and 2012, the Company has no dilutive potential ordinary shares.
r)
Segment information
An operating segment is a component of the company that is engaged in business activities from
which revenues and expenses may be obtained and incurred, respectively, including revenues and
expenses related to transactions with other components of the Company. The transactions between
segments are determined on an arm’s-length basis.
The financial information by segments is prepared based on the management approach, as a segment
represents the operating components of a company that are subject to risks and benefits and are
different from other business segments. As a result of the acquisition of OK Industries, company
located in the United States (see note 6a), beginning in 2011, geographical operating segments are
also taken into consideration.
(4) New standards and interpretations not yet adopted
The following new Standards, modifications to Standards and Interpretations that are not in force as
of December 31, 2012, have not been applied in preparing these consolidated financial statements.
•
•
IFRS 9 Financial Instruments will come into force for annual periods beginning on or after January 1,
2015; early adoption is permitted. The new Standard will be issued in various stages, and is
intended to supersede IAS 39 Financial Instruments: Recognition and Measurement. The Company
acknowledges that such adoption will affect the classification and measurement of financial
instruments. The magnitude of the effect of adoption of this IFRS has not been determined. The
Company acknowledges that the new standard introduces many changes to the accounting
treatment of financial instruments, and is likely to have a significant effect on the Company’s
consolidated financial statements. The effect of such changes will be analyzed in the course of the
project as additional stages of the standard are issued.
In May 2011, the IASB issued the IFRS 10 Consolidated Financial Standards, IFRS 11 Joint
Arrangements, IFRS 12 Disclosure of interest in other entities, and NIIF 13 Fair Value Measurement. All
of these standards are effective beginning on January 1, 2013, early adoption permitted. The
Company does not expect a significant impact on the application of these standards.
37
• On June 16, 2011, the IASB issued modifications to IAS 19 Employee Benefits. The amendments
improve the recognition and the requirements for dissemination of defined benefit plans. The
new requirements are effective for annual periods beginning on or after January 1, 2013; early
application is permitted. Among other changes, the amendments require a) the use of a single rate
for determining the expected return on plan assets and the present value of the benefit liability
discount (in overall "net finance costs"), b) the recognition of net finance cost over net pension
liability (liabilities minus plan assets), rather than a finance cost over the liabilities and an expected
return on assets separately; and c) the recognition of actuarial gains or losses for the period within
comprehensive income or loss. The option of postponing the gains and losses, known as the
"corridor method", is eliminated. Company does not anticipate that the impact will be material.
•
In December 2011, the IASB modified IFRS 32, to incorporate compensation disclosures regarding
assets and liabilities in the statement of financial position. The modified standard requires entities
to disclose both amounts gross and offset, on eligible instruments and transactions to offset in the
statement of financial position, as well as instruments and transactions subject to a offsetting
agreement. The scope includes derivative instruments, purchase and sale agreements and
purchase, sale and leaseback agreements and securities lending agreements. The amendments to
IFRS 32 are effective from January 1, 2014 and retrospective application is required. The Company
is currently evaluating the impact of adopting modified IFRS 32, however, the Company does not
expect that the adoption of this modified IFRS will result a significant impact on its consolidated
financial statements.
(5)
Financial risk management
The Company is exposed to the following risks related to the use of financial instruments to which risk
management is applied:
• credit risk
•
liquidity risk
• market risk
This note presents information on the Company’s exposure to each of the aforementioned risks, and
the Company’s objectives, policies and procedures for risk measurement and management. Further
quantitative disclosures are included in various sections of these consolidated financial statements.
Risk management framework
The risk philosophy adopted by the Company seeks to minimize the risk and, therefore, to enhance its
business stability, by opting for a sound relationship between the levels of risk assumed and its
operating capabilities, for ensuring a better decision-making that will enable an optimal combination
of products and assets leading to a risk-return ratio more in line with the stockholders’ risk profile.
Risk will mean the level of uncertainty associated with the Company’s future losses.
Risk Management will mean the “Set of objectives, policies, procedures and actions implemented to
identify, measure, monitor, limit, control, report and disclose the various types of risks to which the
entity is exposed”.
38
General Objectives
• Promoting the development and application of a Risk Management culture, establishing
guidelines that will ensure the efficient application of relevant Risk Management policies and
procedures.
• Having sound Risk Management practices in place, consistent with relevant criteria and
international recommendations.
•
Implementing an efficient Risk Management that will allow performing the entity’s activities and
ensuring levels of risk exposure consistent with the operating capability.
Organizational structure
In order to create a clear and optimum Risk Management, the Company established the Risk
Committee, which is the specialized body in terms of managing risks. At the Committee, objectives,
policies, procedures, methodologies and strategies as well as maximum risk exposure limits and
contingency plans are defined, proposed, approved and implemented.
Management by type of risk.
a) Credit risk
Credit risk is defined as the potential loss of an accounts receivable portfolio due to lack of payment by
a debtor or for the nonperformance of a counterparty with which transactions with derivative or
primary instruments are conducted.
The Credit Risk Management process begins with the execution of transactions with derivative and
primary instruments, which are plainly exposed to a market risk but also to a counterparty risk.
Measurement and monitoring of counterparty risks
Currently, in terms of derivative and primary instruments, the Company has decided to measure and
monitor its counterparty risk by calculating and identifying the Counterparty Valuation Adjustment
(CVA).
Measurement and monitoring of accounts receivable
There is a policy whereby an allowance for doubtful accounts is established for balances of accounts
which are likely not to be recovered. For defining the required reserve, the entity considers historical
losses in evaluating the current market conditions as well as the financial condition of customers,
accounts receivable in dispute, price differences, the aging of the portfolio and present payment
patterns.
39
Risk reporting structure
This part of the report considers the change in the market value of the portfolio of derivative and
primary instruments after the credit risk factor (CVA) has been applied to valuations.
The ratings of counterparties with which the entity has contracted derivatives are circumscribed.
CVA (Counterparty Valuation Adjustment)
In the case of investments in primary financial instruments in local currency, the valuation models for
financial instruments used by price vendors are validated annually by the National Banking and
Securities Commission (CNBV) and incorporate market movements and the credit quality of the
issuers; therefore, it is implicitly included in the determination of the fair value of the transaction’s CVA.
For this reason, the position in primary financial instruments includes the CVA and no other related
study and/or adjustment will be performed. Price Vendor’s provided securities pricing, are released at
mid prices.
Financial instruments denominated in foreign currencies and not listed in Mexico are valued with the
prices included in the broker statements of accounts, which are taken from Bloomberg, the world’s
largest price vendor. Furthermore, the entity validates such market prices in Bloomberg. Market prices
included in Bloomberg incorporate market movements and the credit quality of issuers; therefore, it is
implicitly included in the determination of the fair value of the transaction’s CVA. For this reason, the
position in primary financial instruments includes the CVA and no other related study and/or
adjustment will be performed. Price Vendor’s provided securities pricing, are released at mid prices.
In case of derivative financial instruments traded in “Over the Counter” markets, the CVA is calculated
in Bloomberg. For accounting purposes, the CVA is part of the fair value of derivative financial
instruments.
Trade and other accounts receivable
The assessment of accounts receivable impairment is made on a collective basis because there are no
accounts with significant balances individually and due to their short term. The Company’s products
are traded among a large number of customers without significant concentration with any of them.
Among objective evidence of an impaired accounts receivable portfolio we may include the
Company’s past experience as to collections, increase in the number of overdue payments that exceed
the average credit period as well as observable changes in the national and local economic conditions
that correlate with default on payments.
The Risk Management Committee has implemented a credit policy whereby each new customer is
analyzed individually as to creditworthiness prior to extending it the payment terms and conditions.
The Company’s review includes internal and external assessments and, in certain instances, bank
references and looking up assets in the Public Registry. Purchase limits are set for each customer,
which represent the maximum outstanding amount. Customers who fail to meet the Company’s credit
references may only engage in cash or advance payment transaction with the Company.
40
The allowance for doubtful accounts includes impaired trade accounts receivable, which at December
31, 2011 and 2012 amounted to $38,537 and $46,681, respectively. Such allowance is determined
based on the historical experience of accounts receivable, guarantees obtained, etc.
i.
Guarantees on loans granted
The Company receives guarantees on loans granted, which consist of personal and real property such
as plots of land, buildings, houses, transportation units, letters of credit and cash deposits. At
December 31, 2011 and 2012, the fair value of guarantees, at appraisal value at the time of granting
the loan amounted to $484,771 and $517,269, respectively.
ii.
Fair value
The fair value and amortized cost of trade accounts receivable is the same since those are short term
nature, with no significant financial component.
Investments
The Company limits its exposure to credit risk by investing only in liquid securities and with
counterparties with a credit rating of at least A1 and A granted by Standard & Poor’s and Moody’s,
respectively. Management continuously monitors credit ratings and since the Company has only
invested in highly rated securities, management does not anticipate any counterparty default, except
as disclosed in note 10.
Eventually, the debt and equity investments with the credit rating lower than those mentioned in the
previous paragraph, are authorized by the Risk Committee and the Board of Directors.
Guarantees
It is the Company’s policy to grant financial guarantees only to wholly-owned subsidiaries.
b) Liquidity risk
Liquidity risk is defined as the potential loss due to the inability to renew liabilities or contract others in
normal conditions, from the advance or compulsory sale of assets or unusual discounts in meeting its
obligations, or, for the fact that a position may not be timely sold, acquired or covered by establishing
an equivalent opposite position.
The Liquidity Risk Management process considers asset and liability management (ALM).
Its objective is:
• Anticipating funding difficulties due to extreme events.
41
Follow-up
Liquidity risks associated with ALM are measured, monitored and reported and authorization,
application and operation limits are set as well as contingent action in case of liquidity requirements.
Liquidity risk due to differences between current cash flows and cash flows projected at various dates
are measured and monitored, considering the totality of the entity’s asset and liability positions
denominated in domestic and foreign currencies. Furthermore, the Company’s funding diversification
and sources are evaluated.
The Company quantifies the potential loss due to the advanced or forced sale of assets at unusual
discounts to timely face its obligations as well as for the fact that a position may not be timely sold,
acquired or covered by establishing an equivalent opposite position.
This part of the report is deemed in the analysis of liquidity gaps, scenarios on insufficient liquidity and
use of alternative sources of financing.
c) Market risk
Market risk is defined as: “The potential loss of a portfolio of derivative instruments and primary
instruments for trading (speculation) purposes, due to changes in risk factors that impinge on the
valuation of long or short positions. In this regard, uncertainty is detected if future losses resulting
from changes in market conditions (interest rates, exchange rates, price of commodities, etc.) that
have a direct impact on price changes both of assets and liabilities.
The Company measures, monitors and reports all financial instruments subject to market risks, using to
such end the sensitivity measurement models for measuring potential losses associated to changes in
risk variables, in accordance with the various interest and exchange rate scenarios over a period of
time.
Follow up
Sensitivities are reported at least monthly. These values are compared to the limits and any excesses
are immediately reported as stipulated in the Risk Manual.
Stress testing
Stress tests are performed on a quarterly or more regular basis, based on the following assumptions.
To this end, the value of portfolios is calculated considering the changes in risk factors observed in
historical financial stress dates, including, among others:
• Changes in the exchange rates, interest rates, commodities prices; scenarios:+5%, -5%, +25%
, -25%, +50%, -50%
• 2008 (+25% in the MXN/USD exchange rate)
42
i) Exchange Risk
The Company is exposed to an exchange risk on sales, purchases and borrowings denominated in a
currency other than its functional currency, which is the peso. The foreign currency in which such
transaction is denominated is primarily the US dollar.
The Company protects by derivative instruments for hedging a percentage of its estimated exposure
to variance in exchange rate in regards to the projected sales and purchases during the year and
months, as required. Maturities of all the aforementioned instruments as hedges for its exchange risks
are less than one year from the date of contracting. At December 31, 2012 the Company have not
financial derivates instruments about tax rate (see note 10d).
The Company is exposed to exchange rate risk (Peso/USD denominated instruments) within the assets
and liabilities as: primary instruments (investments), financial liabilities and commodity derivatives that
are denominated in a other currency than its functional currency. In this regard the Company does not
perform sensitivity analysis in order to measure the impact of exchange rate fluctuations in the asset
an liabilities described.
ii) Interest rate risk
The Company is exposed to interest rate risk in the assets and liabilities as: primary instruments (with
floating rates), financial liabilities (loans and debt issuance) and interest rate derivatives (e.g Interest
Rate Swaps (IRS)). The Company performs a sensitivity analysis to measure the effect of changes in
interest rates in derivative instruments as of December 31, 2012, while for the other instruments
described, no sensitivity analysis is performed. The Company’s Risk Policy does not restrict exposure to
different interest rates, neither establishes limits for fixed or floating rates.
43
d) Quantitative measurements of sensitivity
Main quantitative sensitivities of the current derivative financial instruments at December 31, 2012
related to commodities prices and rates, as well as the impact of different scenarios based on the
established limits, are as follows:
Sensitivity report of Financial Derivative Instruments (FDI´s) to different market scenarios
Scenarios
Commodities
Rates Mex USA
Total
Effect
%
Limit
Effect
Prev. Max %
Limit
Prev. Max.
-50%
-25%
-5%
0.00%
5%
25%
50%
$
(1,040) (19,532) (71,377) (91,949)
-2.9%
-2.5% -5.0%
-2.0%
-1.25%
2.50%
(444) (10,572) (35,917) (46,934)
-1.5%
-2.5% -5.0%
-1.0%
-1.25%
-2.50%
32
(3,404)
(7,549) (10,922)
-0.3%
-2.5% -5.0%
-0.2%
-1.25%
-2.50%
151
(1,612)
(457)
(1,919)
-0.1%
-2.5% -5.0%
0.0%
-1.25%
-2.50%
270
746
180
6,634
7,084 0.2%
-2.5% -5.0%
0.2%
-1.25%
-2.50%
7,348 35,002
43,096 1.4%
-2.5% -5.0%
0.9%
-1.25%
-2.50%
1,342 16,308 70,462 88,112 2.8%
-2.5% -5.0%
1.9%
-1.25%
-2.50%
For FX ($12.87), Rate (TIIE 28 days 4.8475%) and commodities (corn and soybean meal), the effect of
the current position is a loss of $1,919, mainly originated by losses on commodity programs in Mex of
$1,612. The exposure of current positions is below of the preventive and maximum limits approved by
the and Risk Committee.
In market stress scenarios where all hedging programs managed by the Company would be affected
by a decline of 50% and 25%, the effect of total exposure would be a loss of $91,949 and $46,934,
respectively.
Such amounts represent a negative effect of 2.9% and 1.5% respectively, compared to EBITDA of the
last 12 months. On the other hand, the total amount of cash would have a negative impact on EBITDA
of 2.0% and 1.0%, respectively.
44
Consumption report of risk market limits
Scenario
Rates
Mexico
USA
Total
Commodities
$
-50.00%
-25.00%
-5.00%
0.00%
5.00%
25.00%
50.00%
(1,040)
(444)
32
151
270
746
1,342
(19,532)
(10,572)
(3,404)
(1,612)
180
7,348
16,308
(71,377)
(35,917)
(7,549)
(457)
6,634
35,002
70,462
(91,949)
(46,933)
(10,921)
(1,918)
7,084
43,096
88,112
Current market levels
FX
Rates
Mexico
USA
Total
Commodities
Preventive limit
Consumption
Maximum limit
Consumption
$
(25,740)
0%
(64,350)
$
0%
(3,000)
(25,740)
(25,740)
(80,220)
-5%
6%
2%
2%
(10,000)
(64,350)
(64,350)
203,050
-2%
3%
1%
1%
Current stress levels
(-25%)
Preventive limit
Consumption
Maximum limit
Consumption
Commodities
FX
Rates
Mexico USA
Total
(25,740) $
0%
(64,350) $
0%
(3,000)
(25,740)
(25,740)
(80,220)
15%
41%
140%
59%
(10,000)
(64,350)
(64,350)
(203,050)
4%
16%
56%
23%
45
A negative consumption means that the overall position presents valuation gain, while positive
consumption means valuation loss.
At market levels of the ended year, the preventive consumption limit of all programs is 2% due to the
fact that current position is negative. Moreover, the consumption of the maximum acceptable limit is
1%, as a result of the mentioned above.
At stress levels of -25% of current market prices, the preventive limits of consumption of total hedging
programs is 59%. On the other hand, the maximum acceptable limit of consumption is 23%.
The current sensitivities of the Interest Rate Swap (IRS) at year end considering different scenarios and
its impact in pesos, is as follows:
Current positions
Debt levels and natural currency effects
Scenarios
Rates
Average debt
December 31, 2012
Effect MXN
Current debt
% of exposure
-50.00%
-25.00%
-5.00%
0.00%
5.00%
25.00%
50.00%
2.4238%
3.6356%
4.6051%
4.8475%
5.0899%
6.0594%
7.2713%
$ 151,910
151,910
151,910
151,910
151,910
151,910
151,910
$
(1,040) $
(444)
32
151
270
746
1,342
2,741,250
2,741,250
2,741,250
2,741,250
2,741,250
2,741,250
2,741,250
5.5%
5.5%
5.5%
5.5%
5.5%
5.5%
5.5%
At current levels of 28-days TIIE of 4.8475%, the effect of the current secured debt represents $151 of
profit and accounts for 5.5% of the total debt of the Company.
If the 28-day TIIE moves in ranges of -5%, +5%, +25% and +50%, current hedge gain exposure levels
would be $32, $270, $746 and $1,342 in each one of the levels, respectively.
In market stress scenarios with fluctuations of -50% and -25%, the loss exposure levels for current
hedge would be $1,040 and $444, respectively.
46
Sensitivity of derivative financial instruments related to commodity prices under various scenarios in
Mexico, is as follows:
Current position of commodities
December 31, 2012 (Exchange rate: $12.87)
Closing variation base B/TC* Comp
Effect (thousand
USD)
Effect (thousand
MXN)
Corn + Soybean
-50.0%
-25.0%
-5.0%
0.0%
5.0%
25.0%
50.0%
$
282,000
282,000
282,000
282,000
282,000
282,000
282,000
(1,518)
(821)
(265)
(125)
14
571
1,267
(19,532)
(10,572)
(3,404)
(1,612)
180
7,348
16,305
*Bushels/Short Tons
At price levels or the year-end the corn and soybean agreements would be a loss of 125 USD or $1,612.
At price sensitivity levels of, +5%, +25% and +5% in the corn and soybean agreements, the obtained
result in the current position of IFDs of would be gain of $180, $7,348 and $16,305 profit of at each
level, respectively.
At price sensitivity levels of, -50%, -25% and -50% in the corn and soybean agreements, the obtained
result in the current position of IFDs of would be loss of $19,352, $10,572 and $3,404 of at each level,
respectively.
47
Sensitivity of derivative financial instruments related to commodity prices of Bachoco USA under
various scenarios is as follows:
Corn + Soybean
Variation
Closing base
B/TC*
Comp
Effect (thousand of
USD)
Effect (thousand of
MXN)
-50.0%
-25.0%
-5.0%
0.0%
5.0%
25.0%
50.0%
1,270,600
1,270,600
1,270,600
1,270,600
1,270,600
1,270,600
1,270,600
(5,546)
(2,791)
(587)
(36)
515
2,720
5,475
$ (71,377)
(35,917)
(7,549)
(457)
6,634
35,002
70,462
*Bushels/Short Tons
Note: This sensitivity analysis considers up and down variations based on the closing price of each corn
and soybean agreements.
At prices levels of the year end, the corn and soybean agreements woul be a loss of 36 USD or $ 457.
At price sensitivity levels of -5%, +5% in corn and soybeans agreements, the result in the current
position of IFDs of Bachoco USA would be ($7,549), and $ 6,634 of loss and profit, respectively.
At price sensitivity levels of -50%, -25%, +25% and +50%, the result in the current position of IFDs
would be $71,377 and $35,917 of loss, and $ 35,002 and $70,462 of profit, respectively.
e)
Capital Management
The Company lacks a formal policy for managing capital; however, management seeks maintaining an
adequate capital base for satisfying the Company’s operational and strategic needs and maintaining
the confidence of market participants. This is attained through effective cash management,
monitoring the Company’s revenues and profit as well as the long-term investment plans that mainly
finance the Company’s operating cash flows. These measures allow the Company attains constant
profit growth.
48
(6)
Business and assets acquisitions
a)
OK Industries acquisition
On November 1, 2011, the Company acquired 100% percent of the voting stock of OK Industries, Inc.
and subsidiaries (Acquired Entity). Income of the Acquired Entity has been included in the
consolidated financial statements from such date. The Acquired Entity is engaged in breeding,
processing and marketing of poultry (chicken) to supplier autoservices networks, fast food networks
and others in the U.S and foreign markets. The aggregate purchase price that was paid in cash
amounted $1,269,306 (93.4 million USD).
On March 2, 2012 Bachoco USA, LLC. was incorporated as a subsidiary of Industrias Bachoco, S.A.B. de
C.V., Bachoco USA, LLC acquired 100% of the shares of OK Industries.
The consolidated financial statements of Bachoco as of December 31, 2011 include the balance sheet
of OK Industries, Inc. and subsidiaries, as of such date, based on the best estimate of its net asset’s fair
value as of the acquisition date, and its results of operations for the two-month period ended
December 31, 2011. The fair values of these assets acquired were determined using the cost and
market approaches.
The cost approach, which estimates value by determining the current cost of replacing an asset with
another of equivalent economic utility, was utilized primarily for plant and equipment. The cost to
replace a given asset reflects the estimated reproduction or replacement cost for the asset, less an
allowance for loss in value due to depreciation. The market approach, which indicates value for a
subject asset based on available market pricing for comparable assets, was utilized primarily for real
estate. The market approach indicates value based on financial multiples available for similar entities
and adjustments for the lack of control or lack of marketability that market participants would consider
in determining fair value.
Due to their short-term maturities, the Company believes the carrying amounts of cash equivalents,
accounts receivables, other current assets, accounts payable and other current liabilities approximate
their fair value at the acquisition date. At the acquisition date, inventories are stated at their net
realizable value. The Company’s investment in an unconsolidated entity is recorded at its historical
cost and the investment in insurance contracts is recorded at its aggregate net cash surrender value,
both of which approximate fair value at the acquisition date.
49
Identifiable assets acquired and liabilities assumed
A summary follows of the main classes of consideration transferred and the recognized amounts of
acquired assets and assumed liabilities at the acquisition date. The following summarizes the acquired
condensed balance sheet of OK Industries, Inc., including the application of purchase accounting
adjustments to record the best estimate fair value of assets and liabilities at the date of acquisition
(November 1, 2011), as well as additional adjustments to the balance of certain items. Such
adjustments arose from additional information obtained during the measurement period and were
recognized retroactively at the date of acquisition in accordance with IFRS 3:
Previously
recognized
value
Measurement
period
adjustment
Adjusted
balance
Current assets
$
Property, plant and equipment
Other assets
Total assets
Current liabilities
Deferred income tax
Non-controlling interest
Net acquired assts
Consideration paid
1,332,762
1,693,980
153,364
3,180,106
(390,001)
(519,189)
(7,025)
2,263,891
1,269,306
Gain on bargain purchase
(note 31)
$
994,585
-
-
-
-
(53,531)
(53,531)
59,511
5,980
1,332,762
1,640,449
153,364
3,126,575
(390,001)
(459,678)
(7,025)
2,269,871
1,269,306
1,000,565
This gain was derived due that the former strategies resulted in high cost structure and limited
opportunity to improve profitability; as a consequence the fair value of the enterprise was found lower
than the respective fair values of its components. Therefore, after reviewing if all the acquired assets
and assumed liabilities had been properly identified and recognizing any additional assets identified in
this review, a gain was recognized as bargain purchase price in the consolidated statement of
comprehensive income.
Had the acquisition occurred on January 1, 2011, management estimates that consolidated revenues
and consolidated profits for the period would have totaled $34,809,853 and $911,952, respectively. In
determining these amounts, management has assumed that adjustments to fair value determined
temporarily, originating on the acquisition date would have been the same had the acquisition
occurred on January 1, 2011.
50
b) Trosi de Carne acquisition
On August 20, 2011, Induba Pavos, S.A. de C.V. (subsidiary) acquired certain assets of Trosi de Carne,
S.A. de C.V. In accordance with IFRS 3, such net assets qualify as business combination. With the
acquisition of the net assets, the Company will be dedicated to the production of high value added
products from beef and pork. Below is a summary of the assets acquired at their fair value (determined
within the measurement period and recorded at the acquisition date in accordance with IFRS 3) and
the purchase price paid in cash.
Property, plant and equipment
Working capital
Deferred income tax
Consideration paid
Gain on bargain purchase (note 31)
c) Costs related to OK industries acquisition.
$
$
98,385
24,232
(18,170)
104,447
57,723
46,724
Industries acquisition of $11,426
During 2011, the Company
corresponding to external legal fees and due diligence costs. The external legal fees and due diligence
costs have been
in the Company’s consolidated statement of
comprehensive income for the year ended December 31, 2011 (see note 31).
incurred costs related to OK
in other expenses
included
d) Acquisition of fixed assets Mercantil Agropecuario Coromuel, S.A. de C.V. (“MACSA”)
On December 16, 2011, Bachoco, S.A. de C.V. (subsidiary) acquired certain assets from MACSA located
in the state of Baja California. The transaction consisted of the acquisition of property, plant and
equipment, for an amount of $55,522. The acquisition intend increase the brand commercial presence
and improve the distribution channels in that region.
51
(7)
Subsidiaries of the Company
Subsidiaries and Company´s stockownership interest percentage over such entities as of January 1,
2011, December 31, 2011 and 2012, are listed below:
Name
Ownership interest percentage in Subsidiaries
Bachoco, S.A. de C.V.
OK Industries Inc., and Subsidiaries
Bachoco USA, LLC. & Sub.
Campi Alimentos, S.A. de C.V.
Induba Pavos, S.A. de C.V.
Bachoco Comercial, S.A. de C.V.
Pecuarius Laboratorios, S.A. de C.V.
Aviser, S.A. de C.V.
Operadora de Servicios de Personal, S.A. de
C.V.
Secba, S.A. de C.V.
Servicios de Personal Administrativo, S.A. de
C.V.
Sepetec, S. A. de C.V.
Country
Mexico
U.S.
U.S.
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
January
1, 2011
99.99
-
-
99.99
99.99
99.99
63.57
99.99
99.99
99.99
99.99
99.99
December 31
2011
99.99
100.00
-
99.99
99.99
99.99
63.57
99.99
99.99
99.99
99.99
99.99
2012
99.99
-
100.00
99.99
99.99
99.99
63.57
99.99
99.99
99.99
99.99
99.99
The main subsidiaries of the group and their activities are as follows:
- Bachoco, S.A. de C.V. (“BSACV”) (includes four subsidiaries which are 50% owned, and for which
BSACV has control). BSACV is engaged in breeding, processing and marketing of poultry (chicken and
eggs).
- On March 2, 2012, Bachoco USA, LLC. was incorporated in the State of Delaware, United States (“U.S.”)
as a wholly owned subsidiary of Industrias Bachoco, S.A.B. de C.V. From then onwards, Bachoco USA,
LLC. acts as holding company for the shares of OK Industries, Inc. and, therefore, of the operations of
Bachoco in the United States of America. OK Industries, Inc. (acquired in November 2011) comprises
five controlled subsidiaries. Four of these subsidiaries, OK Industries, Inc. has a 100% shareholding
while it only holds 85% of the shares of the remaining subsidiary through its dissolution in 2012. Its
principal activity includes the production of chicken products, mostly marketed in the U.S. and, to a
lesser extent, in other foreign markets.
- Campi Alimentos, S.A. de C.V. (Campi), is engaged in producing and marketing of balanced animal
feed.
- Aviser, S.A. de C.V., Operadora de Servicios de Personal, S.A. de C.V., Secba, S.A. de C.V., Servicios de
Personal Administrativo, S.A. de C.V. y Sepetec, S.A de C.V., These companies are engaged in providing
administrative and operative services to their related parties.
52
(8) Operating segments
Reporting segments have a line of product approach. Intersegment transactions have been
eliminated. The poultry segment consists of the chicken and egg operations and has been added due
to its risks and benefits similarities. The information included in the “Others” column corresponds to
pigs, balanced feed for animal consumption and other non-significant sub-products.
Inter-segment pricing is determined on an arms – length basis. The accounting policies of operating
segments are the same as those described in note 3.
The next pages includes information on the results of each segment by line of business. Performance is
measured based on each segment’s income before taxes, in the same manner as included in
management reports that are reviewed by the Company’s General Director. Each segment profits are
used in measuring performance since management believes such information is most appropriate for
assessing the results of certain segments, as compared with other entities that operate in the same
businesses as the Company.
53
a) Operating segment information
$
$
Net revenues
Cost of sales
Gross profit
Income tax
Net controlling interest income
Property, plant and equipment, net
Goodwill
Total assets
Total liabilities
Capital expenditures
Business acquisitions
Expenses not requiring cash
disbursements:
Depreciation and amortization
Net revenues
Cost of sales
Gross profit
Income tax
Net controlling interest income
Property, plant and equipment, net
Goodwill
Total assets
Total liabilities
Capital expenditures
Expenses not requiring cash
disbursements:
Year ended December 31, 2011
Poultry
Others
24,697,212
22,058,417
2,638,795
(20,135)
1,093,861
11,652,108
212,833
23,335,598
(6,779,658)
662,009
2,269,871
3,037,778
2,738,620
299,158
(18,481)
83,485
460,837
88,015
1,381,722
(557,834)
45,524
104,447
Total
27,734,990
24,797,037
2,937,953
(38,616)
1,177,346
12,112,945
300,848
24,717,320
(7,337,492)
707,533
2,374,318
(722,286)
(23,551)
(745,837)
Year ended December 31, 2012
Poultry
Others
35,797,169
30,210,843
5,586,326
486,251
1,939,733
10,363,200
212,833
25,224,900
(8,093,729)
942,351
3,570,262
3,107,364
462,898
115,769
244,834
1,586,316
88,015
2,815,284
(857,766)
9,409
Total
39,367,431
33,318,207
6,049,224
602,020
2,184,567
11,949,516
300,848
28,040,184
(8,951,495)
951,760
Depreciation and amortization
(752,492)
(85,315)
(837,807)
54
Revenue of the Poultry segment is analyzed as follows:
Net revenues
Net revenues
As of December 31, 2011
Chicken
22,611,264
Egg
2,085,948
Total
24,697,212
As of December 31, 2012
Chicken
32,989,481
Egg
2,807,688
Total
35,797,169
$
$
b) Geographic information
Since 2011, with the acquisition of the US operation, a new segment is included in the managerial
approach called “foreign” to identify (segment) domestic and foreign operations. When submitting
information by geographic area, revenue is classified based on the geographic location of customers.
Segment assets are classified in accordance with their geographic location.
Year ended December 31, 2011
$
Domestic
poultry
23,318,433
20,755,753
2,562,680
(12,240)
1,096,519
10,011,659
212,833
19,983,780
(6,240,308)
662,009
Foreign
poultry (two-
months
operations)
1,378,779
1,302,664
76,115
(7,895)
(2,658)
Total
24,697,212
22,058,417
2,638,795
(20,135)
1,093,861
1,640,449
11,652,108
-
3,351,818
(539,350)
-
212,833
23,335,598
(6,779,658)
662,009
Net revenues
Cost of sales
Gross profit
Income tax
Net controlling interest income
Property, plant and equipment, net
Goodwill
Total assets
Total liabilities
Capital expenditures
Expenses not requiring cash
disbursements:
Depreciation and amortization
(703,606)
(18,680)
(722,286)
55
Year ended December 31, 2012
Domestic
poultry
Foreign
poultry
$
Net revenues
Cost of sales
Gross profit
Income tax
Net controlling interest income
Property, plant and equipment, net
Goodwill
Total assets
Total liabilities
Capital expenditures
Expenses
not
disbursements:
requiring
cash
27,625,702
22,574,463
5,051,239
457,727
1,939,733
8,863,652
212,833
21,783,895
(6,637,159)
889,081
8,171,467
7,636,380
535,087
(28,524)
-
Total
35,797,169
30,210,843
5,586,326
486,251
1,939,733
1,499,548
10,363,200
-
3,441,005
(1,456,570)
53,270
212,833
25,224,900
(8,093,729)
942,351
Depreciation and amortization
(578,977)
(173,515)
(752,492)
The following table details revenue for chicken in the poultry segment, by geographic area:
As of December 31, 2011
Foreign chicken
(two months
operation)
Domestic
chicken
Net revenues
$
21,232,485
1,378,779
Total
22,611,264
Net revenues
$
24,818,014
8,171,467
32,989,481
As of December 31, 2012
Domestic
chicken
Foreign chicken
Total
56
c) Major Customers
In Mexico, the Company’s products are traded among a large number of customers, without
significant concentration with any specific customer. Therefore, in 2011 and 2012, no customer
accounted for over 10% of the Company’s total revenue.
The foreign subsidiary held sales transactions representing the 12% of total sales with the entity Ozark
Mountain Poultry.
(9)
Cash and cash equivalents
The consolidated balances of cash and cash equivalents as of January 1, 2011, December 31, 2011 and
2012, are as follows:
Cash and banks
Available on demand investments
$
(note 10)
Unrestricted cash and cash
equivalents
January 1,
2011
December 31
2011
2012
513,076
472,318
1,592,555
3,445,899
2,151,702
2,586,471
3,958,975
2,624,020
4,179,026
Restricted investments
8,899
1,641
515
Total cash and equivalents
$
3,967,874
2,625,661
4,179,541
Restricted investments corresponds to the minimum margin requirement made by the financial
instruments intermediary to meet future commitments due to adverse market movements affecting
prices on the open positions as of January 1, 2011 and December 31, 2011 and 2012.
Available on demand investments includes cash of $38,431 included in the investment portfolio.
57
(10) Financial instruments and risk management
(a)
Credit risk
i.Exposure to credit risk
The carrying amount of financial assets represents the maximum credit exposure. At the report date,
the maximum exposure to credit risk is as follows:
Held-to-maturity investments
Investments designated at fair value through
$
Carrying amount
January 1,
2011
36,725
December 31,
2011
42,352
2012
38,958
profit or loss
3,618,522
2,520,071
3,509,995
Exchange rate derivative instruments held
for trading
Interest rate derivative instruments held for
trading
Commodities derivative instruments held for
trading
Commodities derivative instruments held for
hedging
Accounts receivable
262
1,344
-
-
7,114
1,803
5,801
963,273
4,631,697
7,829
1,507,095
4,080,494
$
-
-
152
2,549
1,741, 639
5,293,293
Investments designated at fair value through profit or loss includes cash of $38,431 included in the
investment portfolio.
The maximum exposure to credit risk for trade receivables at the end of the reporting period by
geographic region was as follows:
Carrying amount
January 1,
2011
963,273
-
963,273
$
$
December 31,
2011
1,115,238
391,857
1,507,095
2012
1,287, 686
453,953
1,741, 639
National
United States
58
The maximum exposure to credit risk for trade receivables at the end of the reporting period by type
of counterparty was as follows:
Carrying amount
January 1,
2011
December 31,
2011
2012
Receivables
Legal receivables (Lawyers held)
$
$
916,139
47,134
963,273
1,457,617
49,478
1,507,095
1,682, 729
58,910
1,741, 639
Impairment analysis
The aging of trade receivables at the end of the reporting period was as follows:
Current
Past due 0-60 days
Past due greater than 60 days
$
$
776,066
127,412
12,661
916,139
Carrying amount
December 31,
January 1,
2011
2011
1,233,249
209,127
15,241
1,457,617
2012
1,455, 915
208,704
18,110
1,682, 729
The Company considers that the unimpaired amounts that are past due by more than 60 days are still
collectible, based on historic payment behavior and extensive analysis of customer credit risk.
Based on historical trends of the probability of default, the Company considers that no impairment
allowance is necessary in respect of current trade receivables.
59
b) Liquidity risk
Following are the remaining contractual maturities at the end of the reporting period of financial
liabilities, including estimated interest payments and excluding the impact of netting agreements.
As of January 1, 2011 (pesos and dollars)
Financial liabilities
Bank loans (pesos)
Exchange rate derivative instruments
held for traiding
Trade and other payables
Book value
Current
contractual
cash flows
Non-current
contractual
cash flows
$
$
646,920
-
646,920
280
1,966,014
2,613,214
280
1,966,014
1,966,294
-
-
646,920
As of December 31, 2011 (pesos and dollars):
Book Value
$
789,613
1,047,750
769
2,921,441
$
4,759,573
Current
contractual cash
flows
Non-current
contractual
cash flows
230,000
1,047,750
769
2,921,441
4,199,960
559,613
-
-
-
559,613
Financial liabilities
Bank loans (pesos)
Bank loans (valued dollars)
Derivative
financial
instruments on
commodities at fair value through
profit or loss
Trade and other payables
60
As of December 31, 2012 (pesos and dollars):
Book value
Current
contractual
cash flows
Non-current
contractual
cash flows
Financial liabilities
Bank loans (pesos)
Bank loans (valued dollars)
Senior bond issuance
Derivative financial instruments on
commodities at fair value through profit
or loss
Trade and other payables
$
$
580,158
643,500
1,500,000
437,996
643,500
-
142,162
-
1,500,000
1,332
1,332
-
3,445,245
6,170,235
3,445,245
4,528,073
-
1,642,162
At least on a monthly basis the Company evaluates and reports to the Board of Directors the liquidity status
of the Company. As of December 31, 2012, the Company has determined that has sufficient resources to
meet its short and long term obligations and; therefore, it does not expect to have liquidity gaps in the
future and will not necessary to sell assets to settle their debts at unusual or off market prices.
c) Market risk
Price risk of generic commodities
The Company seeks protection against declines in the agreed-upon price of corn and/or sorghum after
the producer issues the respective invoice that may result in not ceasing an opportunity cost for lower
prices in the commodity market against a higher agreed-upon price and once they become part of the
inventory to hedge a risk if the price declines prior to their consumption.
In other words, if the price on the physical delivery of the agreed-upon commodities is lower than the
agreed-upon prices, the entity does not benefit from lower market prices and purchases are made at
higher prices, resulting in a loss for the Company.
Corn and/or sorghum purchases are formalized through a forward sales agreement, which stipulate
the following:
• Date of execution;
• Number of tons sold;
• Harvest, State and the harvest’s agricultural cycle;
• Price per ton plus quality premium or penalty based on the following formula:
Agricultural agreements that lead to firm commitments are related to two corn and/or sorghum cycles
and to the contracting of purchases; both cycles and contracting dates are detailed below:
61
• Fall / Winter Cycle – ASERCA, at its discretion, determines the registration desk period, which
normally runs from December to March, while the harvest period for the Fall / Winter cycle occurs
in the months of May through July. However, the corn and/or sorghum harvest period may extend
from one to several months, depending on the climatic conditions such as droughts and frosts.
• Spring / Summer Cycle – ASERCA, at its discretion, determines the registration desk period, which
normally runs from July to August while the harvest time varies depending on the specific State.
The risk being hedged is for exposure from changes in the fair value by fixing the price of corn and/or
sorghum purchases that may cause potential losses by not taking advantage, as applicable, of lower
corn and/or sorghum prices at the date of purchase of the physical product.
The Company conducts effectiveness tests at the beginning and at least on a quarterly basis using a
specific methodology for each test. Effectiveness tests are conducted for hedging relationships for put
options the Company acquires from ASERCA. These methodologies are described below. Each only
distinguishes changes in the price of corn below the strike price agreed in the put option.
Prospective effectiveness tests
For this test, it is proven that the hedging relationship being set operates properly prior to it being
established. Basically, the test consists of performing a linear regression on the put option profits that
would be obtained at the expiration date (explanatory or independent variable) against the losses
sustained from the primary position, which are defined as losses arising from the fall of the corn spot
price.
The test is deemed highly effective and therefore, the implementation of the hedging relationship is
feasible, where:
•
•
•
The R2 of the linear regression is equal to or greater than 0.8
The correlation in the linear regression is 0.8 or greater
The slope m lies within the [0.8, 1.25] interval.
Failure to meet any these conditions indicates that the test is not effective and the hedging
relationship may not be established.
The retrospective effectiveness test is performed at least quarterly and only after the hedging
relationship has been established, not at the beginning. The test is performed following the
methodology known as “Dollar Offset”, which changes in the value of the put option are compared to
changes in the value of the accumulated primary position through an index. This index is computed as
follows:
The absolute value of the “Dollar Offset” (DO) index should always fall within the [0.8, 1.25] range. In
this case, the test and, therefore, the hedging relationship, are deemed effective and so the latter may
continue.
In cases where the absolute value is not within such range, the test is not deemed effective and the
hedging relationship designated in that moment.
62
At December 31, 2012, there were no open positions of long put hedge options with ASERCA.
Regarding commodity price risk, for derivative instruments that are not designated in a hedging
relationship, the Company performs sensitivity analysis on the corn and soybean future contracts,
considering different scenarios (bullish and bearish). These results are shown in Note 5 b). In case of
structured commodity derivatives, that contains options (traded with Cargill), the Company does not
perform a sensitivity analysis on the volatility factor.
63
d) Currency risk
Interest on borrowings is denominated in currencies that match the cash flows generated by the
underlying operations of the Company, primarily pesos, but also euro and dollars. This provides an
economic hedge without derivatives.
Exposure to currency risk
Below is the company's exposure to currency risk, based on notional amounts:
Asets
Cash and cash equivalents
Primary financial instruments
$
Accounts receivables
Other accounts
Advances to supliers
Liabilities
Accounts payables
Other accounts
Short term debt
January 1,
2011
December 31,
2011
2012
357,933
106,466
-
6,926
170,170
232,211
375,648
391,857
315,037
602,912
362,905
380,036
473,245
191,071
502,585
641,495
1,917,665
1,909,842
(770,931)
(1,668,025)
(1,715,893)
-
-
(157,110)
(1,047,750)
(150,529)
(643,000)
Net liability position
$
(129,436)
(955,220)
(599,580)
The following significant exchange rates applied during the year:
Average exchange rate
Spot exchange rate as the date of the
consolidated financial statements
2011
12.43
2012
13.16
January 1,
2011
12.37
2011
13.97
2012
12.87
USD
$
The exchange rate as of reporting date is $12.08.
In this regard the Company does not perform sensitivity analysis in order to measure the impact of
exchange rate fluctuations in the asset an liabilities described.
64
e) Interest rate risk
Fluctuations in interest rates mainly impact loans by changing either their fair value (fixed-rate debt) or
their future cash flows (variable-interest debt). Management lacks a formal policy for determining how
much of the Company’s exposure should be at fixed or variable rate. However, on getting new loans,
management uses is judgment for deciding if a fixed or a variable rate would be more favorable for the
Company, considering the original term of the loan, through its maturity.
The Company only made sensibility´s analysis.
f) Fair value versus carrying amounts
The fair values of financial assets and liabilities, together with the carrying amounts shown in the
statement of financial position, are as follows:
December 31,
Carrying
amount
January
1, 2011
Fair
value
January
1, 2011
Carrying
Fair
Carrying
amount
2011
value
2011
amount
2012
Fair
Value
2012
Assets recorded at
fair value
Investments
designated at fair
value through
profit or loss
Exchange rate
derivative
instruments at
fair value through
profit or loss
Interest rate
derivative
instruments
classified held-
for-trading
Commodities
derivative
instruments at
fair value through
profit or loss
Commodities
derivative
instruments held-
for-hedging
$
3,618,522
3,618,522
2,520,071
2,520,071
3,509,995
3,509,995
(18)
(18)
1,344
1,344
-
-
-
-
-
-
152
152
7,114
7,114
1,034
1,034
2,786
2,786
5,801
5,801
7,829
7,829
-
-
$ 3,631,419
3,631,419
2,530,278
2,530,278
3,512,993
3,512,993
65
Carrying
amount
January
1, 2011
Fair
value
January
1, 2011
Carrying
amount
2011
Fair
value
2011
Carrying
amount
2012
Fair
value
2012
December 31,
$
$
36,725
36,725
36,725
36,725
42,352
42,352
42,352
42,352
38,958
38,958
38,958
38,958
$
$
$
-
-
-
-
(769)
(769)
(769)
(769)
(1,332)
(1,332)
(1,332)
(1,332)
646,920
-
646,920
-
1,837,363
1,837,363
1,223,658
1,223,658
-
-
1,500,000
1,507,562
1,966,014
1,966,014
2,921,441
2,921,441
3,445,247
3,445,247
$ 2,612,934
2,612,934
4,758,804
4,758,804
6,168,905
6,176,639
Assets recorded at
amortized cost
Held-to maturity
investments
Liabilities recorded
at fair value
Commodities
derivative
instruments at fair
value through
profit or loss
Liabilities recorded
at amortized cost
Secured bank loans
Senior bonds
issuance
Trade payable and
other accounts
payable
Investments designated at fair value through profit or loss includes cash of $38,431 included in the
investment portfolio.
66
g) Fair value hierarchy
The table below analyses financial instruments carried at fair value, by the levels in the fair value
hierarchy. The Company adopted the early exemption of IFRS 1, which exempts the entity from
providing comparative information.
The different levels have been defined as follows:
• Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
• Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or
liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
• Level 3: inputs for the asset or liability that are not based on observable market data (unobservable
inputs).
At December 31, 2012
Investments in primary
instruments at fair value
through profit or loss
Exchange rate derivative
instruments at fair value
through profit or loss
Interest rate derivative
instruments
Commodities derivative
instruments at fair value
through profit or loss
Commodities derivative
instruments at fair value
through profit or loss
Level 1
Level 2
Level 3
Total
$
-
-
-
3,509,995
-
152
2,549
-
-
(1,332)
$
2,549
3,508,815
-
-
-
-
-
-
3,509,995
-
152
2,549
(1,332)
3,511,364
Investments designated at fair value through profit or loss includes cash of $38,431 included in the
investment portfolio.
67
(11) Account receivables, net
As of January 1, 2011, December 31, 2011 and 2012, trade and other receivables breakdown is as
follows:
January
1, 2011
December 31,
2011
2012
Trade receivables
Allowance for doubtful accounts
Other receivables (Value added
tax and other recoverable
taxes)
$
$
996,263
1,545,632
1,788,320
(32,990)
(38,537)
(46,681)
473,228
1,436,501
728,057
2,235,152
478,999
2,220,638
Note 10 disclose the Company’s exposure to credit and exchange risks related to trade and other
accounts receivable.
(12)
Inventories
As of January 1, 2011, December 31, 2011 and 2012, inventories breakdown is as follows:
January 1,
2011
December 31,
2011
2012
Raw materials and sub-products (net of
reserve as at
$27,940 and $25,740
December 31, 2011 and 2012)
$
Medicine, materials and spare parts
Finished feed
Inventories:
Live chicken
Processed chicken (net of $30,203 reserve as
at December 31, 2011)
Commercial eggs
Beef
Turkey
Value added products
Total
$
1,523,690
452,373
60,405
2,036,468
1,883,163
487,178
83,601
2,453,942
2,751,718
640,953
292,056
3,684,727
877,654
1,383,769
1,307,744
250,904
22,094
4,463
20,186
-
1,175,301
3,211,769
670,890
27,498
13,658
12,598
-
2,108,413
4,562,355
728,258
46,341
17,090
37,812
7,865
2,145,110
5,829,837
The change in the historical cost of biological assets measured at fair value corresponded to an
increase of $2,558 and $19,331 in 2011 and 2012, respectively.
68
(13) Biological assets
As of January 1, 2011, December 31, 2011 and 2012, biological assets breakdown is as follows:
Balance at January 1, 2011
Increase due to purchases
Decrease for sales
Increase due to births
Manufacturing cost
Depreciation
Transferred to inventories
Balance at December 31, 2011
Balance at January 1, 2012
Increase due to purchases
Decrease for sales
Increase due to births
Manufacturing cost
Depreciation
Current
Biological
Assets
Non-current
Biological
Assets
$
$
$
153,993
66,460
(888)
186,176
1,754,845
-
(1,943,232)
217,354
217,354
38,123
(7,166)
257,261
2,546,129
-
750,288
262,479
(20,561)
-
808,698
(771,262)
-
1,029,642
1,029,642
207,230
(325,116)
-
1,067,717
(861,339)
Transferred to inventories
(2,782,841)
-
Other
Balance at December 31, 2012
$
(2,378)
266,482
(12,014)
1,106,120
Total
904,281
328,939
(21,449)
186,176
2,563,543
(771,262)
(1,943,232)
1,246,996
1,246,996
245,353
(332,282)
257,261
3,613,846
(861,339)
(2,782,841)
(14,392)
1,372,602
Biological assets (current) are comprised of incubatable eggs and breeder pigs; while biological assets
(non-current) are comprised of hens in production, laying and breeder hens and pigs breeding stock.
69
The Company is exposed to the following risks relating to its biological assets:
• Future excesses in the offer of poultry products and the decline in demand growth of the
chicken industry may negatively affect the Company’s results.
• Increases in raw material prices and price volatility may negatively affect the Company’s
margins and results.
• In addition, in the case of the U.S. operations, the cost of corn grain may be affected by an
increase in the demand for ethanol, which may reduce the market’s available corn inventory.
• The Mexico and U.S. operations are based on animal breeding and meat processing, which are
subject to sanitary risks and natural disasters.
• Hurricanes and other adverse climate conditions may result in additional inventory losses and
damage to the Company’s installations and equipment.
(14) Prepaid expenses and other current assets
As of January 1, 2011, December 31, 2011 and 2012, prepaid expenses and other current assets
breakdown is as follows:
January 1,
2011
December 31,
2011
2012
Advances to suppliers of inventories
Prepayments – Services
Other receivables
Prepayments- Insurance and financial
guarantee
Total
$
$
366,160
43,240
77,753
515,672
125,158
72,043
505,667
240,706
79,999
17,961
39,277
42,506
505,114
752,150
868,878
70
(15) Assets available for sale
As of January 1, 2011, December 31, 2011 and 2012, assets available for sale breakdown is as follows:
The balance of non-current assets available for sale is mainly comprised of assets foreclosed by the
Company when certain accounts receivable are not settled by the customers, as well as an aircraft that
was included in the acquisition of OK Industries in 2011 and sold in 2012. This caption includes a wide
variety of assets, which are recorded based on the fair value of the asset in question, supported by
appraisals made of such assets. If the asset cannot be measured reliably, the acquisition cost is
measured at the net carrying amount of the related asset.
Buildings
Land
Aircraft
Others
Total
January 1,
2011
_______December 31,____
2012
2011
$
$
17,731
20,621
-
1,870
40,222
19,508
25,904
48,895
1,340
95,647
18,502
30,361
-
2,644
51,507
71
(16) Property, plant and equipment-
As of January 1, 2011, December 31, 2011 and 2012, property, plant and equipment is comprised as
follows.
Balance at
January 1,
2011
Additions
Business
combinations
Disposals
$
948,036
13,582
74,647
(3,204)
Currency
translation
effect
Balance
at
December
31, 2011
1,278 1,034,339
8,353,164
184,845
803,776
(1,147)
22,186
9,362,824
7,687,734
379,330
743,474
(23,035)
19,897 8,807,400
1,158,660
93,576
55,603
(44,829)
1,580 1,264,590
120,108
26,472
8,258
(22,341)
126,241
9,728
6,726
(8,081)
235
175
132,732
134,789
Deemed cost
Land
Buildings and
constructions
Machinery and
equipment
Transportation
equipment
Computer
equipment
Furniture
Leasehold
improvements
Construction in
27,856
progress
Total
279,604
$ 18,701,403
-
-
-
-
707,533
1,692,484
-
-
27,856
(27,979)
(130,616)
-
251,625
45,351 21,016,155
Accumulated depreciation
Buildings and constructions
Machinery and equipment
Transportation equipment
Computer equipment
Furniture
Total
$
$
Balance at
January 1 2011
Depreciation for
the year
(3,906,771)
(3,417,695)
(638,109)
(109,103)
(85,694)
(8,157,372)
(270,113)
(355,386)
(109,580)
(3,349)
(7,410)
(745,837)
Balance at
December 31, 2011
(4,176,884)
(3,773,081)
(747,689)
(112,452)
(93,104)
(8,903,210)
72
Deemed cost
Land
Buildings and
constructions
Machinery and
equipment
Transportation
equipment
Balance at
January 1,
2012
1,034,339
$
Additions
25,722
Disposals
-
Currency
translation
effect
(3,916)
Balance at
December 31,
2012
1,056,145
9,362,824
103,998
(1,727)
(67,973)
9,397,122
8,807,400
415,116
(84,521)
(56,335)
9,081,660
1,264,590
66,565
(159,845)
Computer equipment
Furniture
Leasehold
improvements
Construction in progress
Total
132,732
134,789
27,856
251,625
$ 21,016,155
6,226
12,023
10,985
311,125
(67)
(607)
-
-
(989)
(719)
(536)
-
-
1,170,321
138,172
145,669
38,841
562,750
951,760
(246,767)
(130,468)
21,590,680
Accumulated depreciation
Buildings and constructions
Machinery and equipment
$
Transportation equipment
Computer equipment
Furniture
Total
Balance at
January 1,
2012
(4,176,884)
(3,773,081)
(747,689)
(112,452)
(93,104)
Depreciation
for the year
Disposals
(256,796)
(469,250)
(93,734)
(9,430)
(8,602)
12,795
18,881
67,597
129
456
Balance at
December 31,
2012
(4,420,885)
(4,223,450)
(773,826)
(121,753)
(101,250)
$
(8,903,210)
(837,807)
99,858
(9,641,164)
Carrying amounts
Land
$
Buildings and constructions
Machinery and equipment
Transportation equipment
Computer equipment
Furniture
Leasehold improvements
Construction in progress
Balance at
January 1,
2011
Balance at
December
31, 2011
Balance at
December 31,
2012
948,036
4,446,393
4,270,039
520,551
11,005
40,547
27,856
1,034,339
5,185,940
5,034,319
516,901
20,280
41,685
27,856
279,604
251,625
1,056,145
4,976,237
4,858,210
396,495
16,419
44,419
38,841
562,750
Total
$
10,544,031
12,112,945
11,949,516
Depreciation expense at December 31, 2011 and 2012 was for $745,837 and $837,807 respectively,
which were charged to cost of sales and operating expenses.
73
(17) Other non-current assets
The other non-current assets consist of the following:
January 1,
2011
December 31,
2011
2012
$
43,290
185,091
-
-
21,594
64,884
119,792
38,020
21,734
364,637
301,911
131,561
115,502
35,026
19,822
Advances for purchase of fixed assets
Investments in life insurance
(note 3 (k))
Investment in associate company (note 3
(k))
Others
Total of other non-current assets
$
74
(18) Financial debt
Major borrowings are secured by guaranties, according to contractual obligations incurred.
Note 10 discloses the carrying amount and the fair value of loan borrowings.
a)
Short-term financial debt breakdown is as follows:
January, 1
December 31,______
2011
2011
2012
$
Denominated in USD for an amount of 75,000 USD,
maturing in October 2012, at LIBOR (3) rate plus
0.60 points. Bachoco is guarantor of this debt.
Denominated in USD for an amount of 20,000 USD,
maturing in April 2013, at LIBOR (3) rate plus 0.84
points. Bachoco is guarantor of this debt.
Denominated in pesos, maturing in January 2012, at
TIIE (1) plus 0.85 points.
Denominated in pesos, maturing in January 2013, at
TIIE (1) plus 0.60 points.
Denominated in pesos, maturing in August 2012, at
TIIE (1) FIRA (2) plus 0.50 points.
Denominated in pesos, maturing in December 2013,
at TIIE (1) FIRA (2) plus 0.88 points.
Denominated in pesos, maturing in December 2013,
at TIIE (1) FIRA (2) plus 0.89 points.
Denominated in pesos, maturing in November 2013,
at TIIE (1) FIRA (2) plus 0.70 points.
Credit denominated in USD for an amount of 30,000
USD, maturing in June 2013, at LIBOR (3) rate plus
1.62 points.
Total short term debt
$
-
-
-
-
-
-
-
-
-
-
1,047,750
-
-
257,400
200,000
-
200,000
30,000
-
-
-
-
-
-
1,277,750
59,368
82,628
96,000
386,100
1,081,496
Weighted average interest rate on short-term debt for the years ended December 31, 2011 and 2012
was 5.53 % and 4.97%, respectively.
The average interest rate on short-term bank loans for the years ended December 31, 2011 and 2012,
was 5.48% and 4.68%, respectively.
The weighted average interest rate on dollars short-term for the years ended December 31, 2011 and
2012, was 0.8702% and 1.06%, respectively.
(1) TIIE= Interbank Equilibrium Rate (by its Spanish acronym)
(2) FIRA= Agriculture trust (Fideicomiso Instituido en Relación con la Agricultura by its Spanish
acronym)
(3) Libor= London InterBank Offered Rate
75
b)
Long-term debt, consist of the following:
Denominated in pesos, maturing in June 2016,
at TIIE (1) rate plus 1 points (3).
$
Denominated in pesos, maturing in 2013, at TIIE
(1) rate plus 0.60 points.
Denominated in pesos, maturing in 2015 and
2016, at TIIE (1) plus 1.00 points.
Denominated in pesos, maturing in December
2013, at TIIE (1) FIRA (2) rates less 1.00 point.
Denominated in pesos, maturing in April 2015,
at TIIE (1) rate plus 0.95 points (3).
Denominated in pesos, maturing in April 2012
and June 2013, at TIIE (1) FIRA (2) rates less
1.10 points and 0.875 points (3).
Denominated in pesos, maturing in March 2014,
at TIIE (1) rate plus 2 points (3).
Denominated in pesos, maturing in July 2015, at
TIIE (1) plus 1.50 points (3).
Denominated in pesos, maturing in April 2015,
at TIIE (1) FIRA (2) rates plus 1.90 points (3).
Denominated in pesos, maturing in June 2015,
at TIIE (1) rate plus 2.50 points (3).
Denominated in pesos, maturing in June 2011,
at TIIE (1) FIRA (2) rates plus 2 points.
Denominated in pesos, maturing in January
2014, at TIIE (1) FIRA (2) rates minus 0.55
points.
Total
Senior bonds issuance (subsection (d) of this
note)
Less current installments
Long-term debt, excluding current
installments
January 1,
2011
December 31,
2011
2012
-
-
-
38,133
23,617
30,720
2,957
250,000
250,000
38,993
12,500
-
646,920
-
(139,867)
360,000
87,500
47,579
26,400
18,621
17,390
2,123
-
-
-
-
-
559,613
-
(175,243)
-
37,500
34,449
14,667
-
-
-
-
-
-
-
55, 546
142, 162
1,500,000
(115,560)
$
507,053
384,370
1,526,602
Weighted average interest rate on long-term debt, excluding the issuance of senior bonds for the
years ended December 31, 2011 and 2012 was 5.58% and 5.40%, respectively.
The average interest rate of the long-term debt, excluding the issuance of senior bonds, for the years
ended December 31, 2011 and 2012 was 6.17%, and 5.43%, respectively.
(1) TIIE = Interbank Equilibrium Rate (by Spanish acronym)
(2) FIRA = Agriculture trust (Fideicomiso Instituido en Relación con la Agricultura by its
Spanish acronym)
(3) In 2011 and 2012, the Company made prepayments of long-tern debt of $538,993 and
$398,134 respectively, without being required to pay early termination fee.
76
At December 31, 2011 and 2012, unused lines of credit amounted to $2,257,870 and $2,664,911,
respectively. In 2011 and 2012, the Company did not pay any fee for unused lines of credit.
c)
Maturities of long-term debt, excluding current maturities, as of December 31, 2012, are as
follows:
Year
2014
2015
2016
2017
$
Amount
16,392
7,720
2,490
1,500,000
$
1,526,602
Interest expense on loans during the years ended December 31, 2011 and 2012, amounted to $40,687
and $71,005, respectively.
Bank loans establish certain affirmative and negative covenants. As of December 31, 2012 and
the
date of the consolidated financial statements, the Company was in compliance with all these
covenants, for which the most important are the following:
a)
b)
c)
d)
e)
Deliver of financial information at the bank requirement.
Not contracting liabilities with financial cost or granting loans that could affect payment
obligations.
Notify the bank regarding the existence of legal issues that could substantially affect the
financial situation of the Company.
Substantial changes to the nature of the business, or the administrative structure are not
permitted.
Reductions of capital stock in excess to a 10% of the assets is not permitted.
d)
Debt by issuing Securities Certificates
On August 28, 2012, the Company was authorized to make an issue of senior bonds for a total
authorized amount of the program of $5,000,000 pesos or its equivalent in UDIS, on a revolving
program period of five years from the date of authorization letter of the CNBV. The initial issue dated
August 31, 2012 was for $1,500,000 pesos with ticker: "BACHOCO 12" for a period of 1,820 days,
equivalent to 65 periods of 28 days, approximately five years. For a total senior bonds of 15,000,000,
and a face value of $100 pesos each.
From the date of issue, and while the senior bonds have not been amortized, will accrue annual gross
interest on their face value, at a yearly interest rate, which is calculated by adding 0.60 (zero point
sixty) percentage points to the TIIE to within 28 days and in case of non-publication TIIE 28-day TIIE be
used to nearer term, released by the Bank of Mexico. The Common Representative will calculate two
business days prior to the beginning of each interest period of 28 days, according to the payment
schedule, computed from the date of issue or at the beginning of each interest period and governed
precisely during this period of interest.
77
Amortization of senior bonds will be at the deadline for the term of issue.
Senior bonds-related cost are capitalized to the debt and amortized through earnings by using the
effective interest method through the maturity of each transaction. Such related cost includes
commissions and professional fees.
(19) Trade payable and other accounts payable
Trade payable
Sundry creditors
Expense payable
Advance from costumers
IMSS (1)
INFONAVIT (2)
Employee statutory profit sharing
Employment taxes
Salaries payable
SAR (3)
Tax payable
Interest payable
$
January 1,
2011
1,572,292
35,963
148,357
_______December 31,_______
2011
2,326,779
218,458
158,461
2012
2,838,500
256,132
142,799
66,189
35,073
30,743
37,921
21,277
4,924
6,266
6,520
489
71,212
35,453
32,552
26,234
24,044
9,168
6,416
6,349
6,315
54,590
36,419
34,459
30,849
25,897
10,755
6,434
7,528
883
(1)
(2)
(3)
$
1,966,014
2,921,441
3,445,245
IMSS (Instituto Mexicano del Seguro Social by its Spanish acronym): Contributions are made
by the Company and employees in accordance with applicable regulations. The Company is
required to pay a monthly contribution.
INFONAVIT (Instituto del Fondo Nacional de la Vivienda para los Trabajadores by its Spanish
acronym): The Company is required to make contributions to this entity based on the 5% of
the salaries of employees, subject to certain limits. The Company has a duty to pay this
contribution every two months.
SAR (Sistema de Ahorro para el Retiro by its Spanish acronym): Contributions are made by the
Company based on the regulations as a percentage of the worker's salary. The Company has a
duty to pay this contribution to the government every two months.
Note 10 discloses the Company’s exposure to exchange and liquidity risks related to trade accounts
payable and other accounts payable.
78
(20) Related party transactions and balances
(a)
Transactions with management
Management remuneration
The following table shows total remuneration paid to our directors and executives for services
provided in their respective positions, for the years ended December 31, 2011 and 2012, which is
included in employee costs (see note 23):
Net compensation
$
44,472
39,288
2011
2012
(b)
Transactions with related parties
A summary of related party balance and transactions as of December 31, 2011 and 2012 is as follows:
(i) Revenue
Sells products to:
Vimifos S.A de C.V.
Frescopack S.A de C.V
Maquinaria Agrícola, S.A. de C.V.
Llantas y Accesorios, S.A. de C.V.
Autos y Accesorios, S.A. de C.V.
Alfonso R. Bours, S.A. de C.V.
Taxis Aéreos del Noroeste, S.A. de C.V.
Transaction value
2011
2012
$
$
24,314
8
21
125
500
29
28
25,025
38,664
20
-
50
448
29
19
39,230
79
(ii)Expenses and payables to related parties
Purchases of feed, raw
materials and packing
supplies
Vimifos, S.A. de C.V.
Frescopack, S.A. de C.V.
Pulmex 2000, S.A. de C.V.
Qualyplast, S.A. de C.V.
Purchases of vehicles, tires
and spare parts
Maquinaria Agrícola,
S.A. de C.V.
Llantas y Accesorios,
S.A. de C.V.
Autos y Accesorios,
S.A. de C.V.
Autos y Tractores de Culiacán,
S.A. de C,V.
Camiones y Tractocamiones
de Sonora, S.A. de C.V.
Agencia MX-5 S.A de C.V.
Alfonso R. Bours,
S.A. de C.V.
Distribuidora Automotriz de
los Mochis, S.A. de C. V.
Airplane leasing expenses
Taxis Aéreos del Noroeste,
Transaction value year
ended December 31,
2011
2012
Balance at
January
1, 2011
December 31,
2011
2012
$ 347,062 $
119,950
10,302
6
467,499 $
129,119
11,844
44
43,051 $
6,670
-
-
47,564 $
18,609
-
-
42,855
22,766
-
-
$
69,205 $
62,035
7,973
8,566
21,640
27,282
1,144
3,270
24,995
19,815
678
422
23,207
18,026
1,025
3,333
-
767
2,135
1,647
397
568
-
41
37
-
34
-
-
67
-
52
213
-
8,529
4,724
4,055
5,026
15
-
69
-
-
S.A. de C.V.
$
10,063
10,137
At January 1, 2011, December 31, 2011 and 2012, balances due to related parties correspond to
unsecured current accounts denominated in pesos that bear no interest and are payable in short-term
basis without warranties.
$
60,873 $
78,543 $
88,039
80
(21)
Income Tax (IT), Asset Tax (AT), and Flat Rate Business Tax (IETU)
Under the current tax legislation in Mexico, companies must pay the greater of their IT or IETU. If IETU
is payable, the payment will be considered final, not subject to recovery in subsequent years.
a)
Income tax (IT)-
The Company and each of its subsidiaries file separate income tax returns (including its foreign
subsidiary, that files income tax returns in the U.S. based on its existing tax year end of April). Bachoco,
S.A. de C.V. (“BSACV”), the Company’s principal operating subsidiary, is subject to corporate income tax
under the provisions of the simplified regime, which is applicable to companies engaged exclusively in
agriculture, cattle-raising, fishing, forestry and other activities. The income tax law establishes that
such regime is only for companies that obtain no more than 10% of their total revenues from the
production of processed products; BSACV has complied with this criteria.
The simplified regime establishes that the taxable base for income tax is determined on revenues
collected net of deductions paid (cash basis). The tax rate for this regime is 21%.
The income tax rate of the general regime for fiscal years 2011 to 2013 is 30%, for 2014 the rate shall be
29% and for 2015 and thereafter is 28%.
The income tax rate of the foreign subsidiary is 38.79%.
b)
Flat rate business tax (IETU)-
IETU is calculated applying the rate of 17.5% to profit determined based on cash flows less authorized
tax credits.
IETU credits are derived mainly from the unamortized negative IETU base, and taxable salaries for IT
purposes and social security contributions, as well as credits derived from the deduction of certain
investments, such as inventories and fixed assets.
The IETU is required to be paid only when it is greater than the IT. To determine the IETU payable,
income tax paid in a given period shall be subtracted from the current IT of the same period.
If negative IETU base is determined because deductions exceed income, there will be no current IETU.
The amount of negative base multiplied by the IETU rate results in a IETU credit, which may be applied
against IT for the same year or, if applicable, against IETU payable in the next ten years. According to
the tax law, the IETU credit cannot be applied against IT for 2011 and 2012.
81
c)
Tax charged to profit or loss
For the years ended December 31, 2011 and 2012, the income tax charged (credited) to profit or loss is
as follows:
Operation in Mexico:
Current IT
Current IETU
Deferred IT
Foreign operation:
Deferred IT
IT (benefit) expense
Total (benefit) expense for income taxes
2011
2012
69,578
8
(100,307)
366,417
-
207,079
(30,721)
573,496
(7,895)
28,524
(38,616)
602,020
$
$
$
The (benefit) expense tax attributable to income before income taxes, was different from the amount
computed by applying the IT rate of 21% in 2011 and 2012 as a result of the items listed below:
2011
IT
Percentage
2012
IT
Percentage
Expected expense
$
239,574
21%
$
586,696
21%
Increase resulting from:
Tax effect of inflation, net
Non-deductible expenses
Gain on purchase of foreign
subsidiary
Effect of companies outside
of simplified regime
Unrecognized deferred
assets effect
Others
(Benefit) expense for
income taxes
(67,883)
870
(6%)
0%
(47,627)
1,740
(219,931)
(19%)
-
27,021
2%
61,777
(18,112)
(155)
(1%)
0%
(453)
(113)
(2%)
0%
-
2%
0%
0%
$
(38,616)
(3%)
$
602,020
21%
82
d)
Deferred income tax
Based on the financial projections of taxable income, the Company estimated that it will pay IT;
therefore, deferred tax effects have been determined and recorded reflecting the IT basis.
The tax effects of temporary differences that lead to significant portions of deferred tax assets and
liabilities at January 1, 2011, December 31, 2011 and 2012 are detailed below:
January 1,
2011
____December 31,_____
2012
2011
Deferred tax assets
Trade payable
Employee benefits
Employee statutory profit sharing
Effect on derivative financial instruments
Tax loss carryforwards
Others
Deferred tax assets
Deferred tax liabilities
Inventories
Accounts receivable
Property, plant and equipment
Advanced deduction
Effects on derivative financial instruments
Total deferred tax liabilities
Net deferred tax liability
$
$
$
493,645
15,748
11,311
1,635
-
1,006
523,345
842,767
190,082
1,490,183
16,370
-
2,539,402
$
2,016,057
649,678
46,889
9,002
-
96,772
-
802,341
1,056,327
204,213
1,919,994
20,210
1,704
3,202,448
2,400,107
754,765
40,401
9,254
858
10,043
-
815,321
1,284,699
221,133
1,871,086
36,343
-
3,413,261
2,597,940
83
e)
Unrecognized deferred tax assets
Deferred tax assets have not been recognized in the Companys´financial statements in respect of the
following items:
January 1,
2011
2011
2012
Tax loss carryforwards
Recoverable AT
Total
$
$
17,698
4,859
22,557
-
4,445
4,445
-
3,992
3,992
f)
Unrecognized deferred tax liabilities
Deferred tax related to investments in subsidiaries has not been recognized since the Company is able
to control the timing of the reversal of the temporary difference, and it is probable that they will not
reverse in the foreseeable future.
g)
Movement in temporary differences during the year
January 1,
2011
Recognized
in profit or
loss
Acquired or/
Recognized
directly in
equity
December 31,
2011
(493,645)
(15,748)
(11,311)
(1,635)
-
(1,006)
842,767
190,082
(156,033)
(31,141)
2,309
1,635
(96,772)
2,710
213,560
14,131
-
-
-
-
-
-
-
-
(649,678)
(46,889)
(9,002)
-
(96,772)
1,704
1,056,327
204,213
1,490,183
(62,441)
477,848
1,905,590
-
-
14,404
16,370
3,840
-
14,404
20,210
$
Trade payable
Employee benefits
ESPS payable
Recoverable IT
Tax loss carryforwards
Effects on derivative
financial instruments
Inventories
Accounts receivable
Property, plant and
equipment
Currency translation effect
Advanced deductions
Net deferred tax
liability
$
2,016,057
(108,202)
492,252
2,400,107
84
January 1,
2012
Recognized in
profit or loss
Recognized
directly in equity
December 31,
2012
$
Trade payable
Employee benefits
ESPS payable
Tax loss carryforwards
Effects on derivative
financial instruments
Inventories
Accounts receivable
Property, plant and
equipment
Currency translation effect
Advanced deductions
Net deferred tax
(649,678)
(46,889)
(9,002)
(96,772)
1,704
1,056,327
204,213
(105,087)
6,488
(252)
86,729
(2,562)
228,372
16,920
1,905,590
(11,138)
14,404
20,210
-
16,133
-
-
-
-
-
-
-
-
-
(37,770)
(754,765)
(40,401)
(9,254)
(10,043)
(858)
1,284,699
221,133
1,894,452
(23,366)
36,343
liability
$
2,400,107
235,603
(37,770)
2,597,940
h)
Asset tax (AT) and Tax loss carryforwards-
At December 31, 2012, tax loss carryforwards, and recoverable AT expires as shown below:
Amount remeasured by inflation at
December 31, 2012
Base year
Tax loss
carryforwards
Recoverable AT
Year of expiration
2005
2006
2010
2011
2012
$
$
-
-
863
10,157
15,678
26,698
192
3,800
3,992
-
-
-
2015
2016
2020
2021/2032
2033
85
(22) Employee benefits
a)
Employee benefits in Mexico
The Company has a defined benefit pension plan covering non unionized personnel in México. The
benefits are based on years of service and the employee’s compensation. The Company’s policy in
order to fund pension plan is to make contributions up to the maximum amount that can be deducted
for income tax purposes based on the projected unit credit method.
Present value of unfunded obligations
Present value of funded obligations
Total present value of obligations
Plan assets at fair value
Unamortized (gains) losses
Unamortized past service
Projected liability, net
January 1,
2011
57,098
256,382
313,480
(256,382)
-
20,787
77,885
$
$
December 31,
2011
70,415
250,856
321,270
(250,856)
29,624
-
100,038
2012
121,928
263,250
385,178
(263,250)
(25,315)
-
96,613
i. Composition of plan assets
Fixed rate investment
Variable rate investment
Total
January 1,
2011
70%
30%
100%
December 31,
2011
70%
30%
100%
2012
70%
30%
100%
ii. Movement in the present value of the defined benefit obligations (DBO)
2011
2012
DBO at January 1
Benefits paid by the plan
Current service costs and interest cost
Past service cost
Actuarial (gains) and losses recognized in the
statement of comprehensive income
DBO at December 31
$
$
313,480
(36,414)
51,116
41,724
(48,636)
321,270
321,270
(31,513)
48,514
-
46,907
385,178
86
iii. Movement in the fair value of plan assets
Fair value of plan assets at January 1
Plan contributions
Benefits paid by the plan
Expected return on plan assets
Actuarial gains in the statement of comprehensive
$
income
Fair value of plan assets at December 31
$
2011
2012
256,382
15,100
(27,429)
25,815
(19,012)
250,856
250,856
15,125
(19,877)
24,522
(7,376)
263,250
iv. Expense recognized in profit or loss
Current service costs
Interest on obligation
Curtailment gain
Prior service cost
Expected return on plan assets
2011
2012
-
26,620
24,496
20,937
(25,815)
46,238
21,876
26,638
(657)
-
(24,522)
23,335
$
$
v. Actuarial gains and losses recognized in the statements of comprehensive income
Amount accumulated at 1 January
Recognized during the year
Amount accumulated at 31 December
$
$
-
29,624
29,624
29,624
(54,939)
(25,315)
2011
2012
87
vi. Actuarial assumptions
The following are the principal actuarial assumptions at the reporting date (expressed as weighted
averages).
Discount rate at 31 December
Expected return on plan assets at 1 January
Future salary increases
Future pension increases
vii. Historical information
2011
8.50%
9.50%
4.50%
4.25%
2012
7.50%
7.50%
4.50%
4.25%
Present value of the defined benefit
obligation
Fair value of plan assets
Plan deficit
Experience adjustments arising on plan
liabilities
Experience adjustments arising on plan
assets
$
$
$
$
January 1,
________December 31,____
2011
2011
2012
313,480
(256,382)
57,098
321,270
(250,856)
70,414
385,178
(263,250)
121,928
-
-
(48,636)
46,907
19,012
7,376
b)
Employee benefits foreign
Bachoco USA, LLC. (foreign subsidiary) maintains a 401(k) retirement plan (defined contribution plan)
covering all employees meeting certain eligibility requirements. The Company contributes to the plan
at the rate of 50% of employee’s contributions up to a maximum of 2% of the individual employee’s
compensation. The cumulative contribution expense for this plan was approximately $471 y $4,131 for
the period and year ended December 31, 2011 and 2012, respectively.
Bachoco USA, LLC. (foreign subsidiary) maintains a deferred compensation arrangement with certain
key employees. Amounts payable under this plan vest 10 years from the date of the agreement. The
benefit value of each unit is equal to the increase in initial book value from the date of the agreement
to the conclusion of the vesting period. Under the agreement, 275,000 and 38,500 units were
outstanding on December 31, 2011 and 2012, respectively all of which were fully vested. Amounts
expected to be paid within the next year of are included in other current liabilities. The total liability
under this plan totaled $14,942 and $3,449 at December 31, 2011 and 2012, respectively. The
compensation expense for the year ended December 31, 2012 was for $9,318. There was no
compensation expense for the two-month period ending December 31, 2011.
88
c) Employee statutory profit sharing (ESPS)
Industrias Bachoco, S.A.B de C.V. and BSACV have no employees, but each of the subsidiaries of the
Company in Mexico that has employees is required under Mexican law to pay employees, in addition
to their compensation and benefits, statutory profit sharing in an aggregate amount equal to 10% of
such subsidiary’s taxable income.
(23) Employee costs
Wages and salaries
Contributions to the pension fund
Expenses related to defined benefit plans
Termination expenses
2011
2012
$
$
2,903,073
15,100
28,223
48,534
2,994,930
2,922,160
15,125
4,481
40,040
2,981,806
The employee cost is presented in the line items of cost of sales and general, selling and administrative
expenses.
(24) Operating leases
Leases as lessee
The Company has entered into operating leases for certain offices, production facilities, and
automotive and computer equipment. Some leases contain renewal options. These agreements have
terms between one and five years.
2011
2012
Incurred expenses
$
188,244
194,094
Amount of the annual rentals payable, arising from lease agreements for the following five years is as
follows:
2013
2014
2015
2016
2017
$
67,767
56,115
38,783
22,071
18,666
89
(25) Equity and reserves
a)
Share capital and share premium
As of December 31, 2011 and 2012, the Company’s capital stock is represented by 600,000,000 “B”
shares with a par value of $1 peso each.
The Robinson Bours family owns 82.75% of the total outstanding shares through two trusts (control
trust and family trust) that together held 496,500,000 shares outstanding.
The major shareholders of the Company as of December 31, 2012 are listed below:
Shareholders
Shares
%
Control Trust
Family Trust
Royce & Associates, LLC
River Road Asset Management, LLC
312,000,000
184,500,000
20,868,816
8,551,572
52.00%
30.75%
3.50%
1.40%
Total shares (issued and outstanding) are paid up and have total voting rights and the right to receive
dividends when declared.
b)
Translation reserve
The translation reserve comprises all foreign currency differences arising from the translation of the
financial statements of foreign operations.
c)
Reserve for repurchase of shares
The Company approved a stock repurchase plan in 1998, in conformity with the Mexican Securities
Trading Act, providing a stock repurchase reserve for that purpose of $180,000 through the
appropriation of retained earnings in 1998.
90
The table below shows the movements of the repurchase of shares during the years ended December
31, 2011 and 2012:
Reconciliation of treasury shares
Total shares at January 1, 2011
(+) Total shares purchased in 2011
(-) Total shares sold in 2011
Balance at December 31, 2011
Total shares at January 1, 2012
(+) Total shares purchased in 2012
(-) Total shares sold in 2012
Balance at December 31, 2012
Number of
Shares
200,000
257,400
230,000
227,400
227,400
3,704,731
3,932,131
-
Net effect of repurchase and sales of shares was a loss of $209 and a gain of $10,993 at December 31,
2011 and 2012, respectively.
At December 31, 2012, the Company has no treasury shares.
d)
Dividends
The following dividends were declared and paid by the Company at the reporting date:
In 2011 y 2012, the Company declared and paid cash dividends at nominal values of $299,926 and
$299,175 respectively, or $0.50 per share in nominal pesos.
Dividends paid to shareholders of the Company, are subject to IT only insofar as such dividends
exceed the net tax profit account "CUFIN" consisting of profits in which the IT is already paid. The
income tax paid on the dividend corresponds to a tax payable by corporations and not by individuals.
The Company derives most of its revenue and net income of Bachoco, S.A. de C.V. ("BSACV"). For the
years 2011 and 2012, net income of BSACV, accounted for 86% and 79% respectively, of consolidated
net income. Dividends which BSACV pay income tax will be credited to the account of the Company
CUFIN, and accordingly, any future liabilities arising from income taxes arise when such amounts are
distributed as dividends by the Company to the shareholders.
From 1999 to 2001, according to IT law, had the option of deferring a portion of the annual corporate
income tax until the rate represented 30%. The deferral of such income tax and the related profits are
controlled through the "net tax profit account reinvested" (CUFINRE).
Given that some subsidiaries opted to defer a portion of the income tax, the distributed profits will be
treated as paid first from the CUFINRE and any excess will be paid from the CUFIN balance in order to
pay the 5% of the deferred income tax. The option of deferring a portion of the annual income tax was
eliminated as of January 1, 2002.
91
The updated amount on tax bases, of the contributions made by shareholders (CUCA), totaling
$2,324,358, may be refunded to them tax-free, to the extent that such amount is the same or higher
than equity.
(26) Earnings per share
The calculation of basic earnings per share at 31 December 2012 was based on profit attributable to
ordinary shareholders of $2,184,567 ($1,177,346 in 2011), and a weighted average number of ordinary
shares outstanding of 598,959,882 (599,822,448 in 2011). The Company has no potential ordinary
shares with dilutive effects.
(27) Commitments
• Bachoco USA, LLC (foreign subsidiary) maintains self-insurance programs for health care costs
and workers’ compensation. The subsidiary is liable for health care claims up to $4,504 (350
USD) each year per plan participant and workers’ compensation claims up to $12,870 (1,000
USD) per occurrence. Self-insurance costs are accrued based upon the aggregate of the
liability for reported claims and an estimated liability for claims incurred but not reported. The
allowance for this concept is booked into the accompanying consolidated statement of
financial position within current liabilities and amounting to $47,644 (3,702 USD) at December
31, 2012. Likewise, the consolidated statement of income includes expenses relating to self-
insurance plans of approximately $85,160 (6,617 USD) for the year ended December 31, 2012.
Bachoco is required to maintain letters of credit on behalf of the subsidiary of $43,758 (3,400
USD) to secure self-insured workers compensation payments.
•
The Company has agreed contracts to supply grain from third parties as part of the normal
course of operations.
(28) Contingencies
a)
Insurance
The Company has not contracted full coverage insurance for its facilities, interruption of activities or
corporate civil liability in respect of property and environmental damage resulting from accidents in
the Company’s property or that relate to company operations. Until appropriate insurance coverage is
provided, there is a risk that the loss or destruction of certain assets may have a significant adverse
effect on the Company’s operations and financial situation.
Litigation
The Company is involved in a number of lawsuits and claims arising in the normal course of
business. In the opinion of management, it is expected that the final outcome of these matters
will not have significant adverse effects on the Company’s consolidated financial position and
results of income.
Bachoco USA, LLC (foreign subsidiary) is involved in claims with the U.S. Department of Labor
and the U.S. Immigration and Customs Enforcement, and various other matters incidental to its
business, including workers’ compensation claims and environmental issues. At December 31,
2012, the subsidiary has accrued reserves for potential claims of $25,740 (2,000 USD) which are
included within other current liabilities.
b)
•
•
92
c)
•
•
Tax contingencies
In accordance with tax laws, the tax authorities are empowered to examine transactions carried
out during the five years prior to the most recent income tax return filed.
In accordance with the Income Tax Law, companies carrying out transactions with related
parties are subject to certain requirements as to the determination of prices, which should be
similar to those that would be used in arms-length transactions.
Should the tax authorities examine the transactions and reject the related-party prices, they
could assess additional taxes plus the related inflation adjustment and interest in addition to
penalties of up to 100% of the omitted taxes.
d)
Other contingencies
There is a contingent liability arising from employee benefits mentioned in note 3(l).
93
(29) Expenses by nature
Expenses for employee benefits
Depreciation expense
Distribution cost
(30) Financial income and costs
Interest income
Income from interest in accounts receivable
Foreign exchange gain, net
Effects of financial instruments valuation
Financial income
Effects of financial instruments valuation
Interest cost and financial expenses on loans
Commissions and financial costs
Financial costs
Financial income, net
(31) Other income (expense)
2011
2012
$
2,994,930
726,061
920,011
2,981,806
814,587
949,562
2011
2012
$
$
$
$
$
182,274
11,503
54,505
-
248,282
(896)
(40,688)
(29,056)
(70,640)
177,642
209,170
12,893
35,212
12,757
270,032
-
(71,006)
(33,994)
(105,000)
165,032
2011
2012
Other income
Sale of scrap of biological assets, raw materials,
sub-products and other
$
Domestic business acquisition (note 6b)
Foreign business acquisition (note 6a)
Total other income
Other expenses
Cost of disposal of biological assets, raw
materials, sub-products and other
Business acquisition-related costs
Others
Total other expenses
Total other income (expenses), net
$
202,780
46,724
1,000,565
1,250,069
(193,707)
(11,426)
(44,971)
(250,104)
999,965
271,385
271,385
-
-
-
(257,182)
-
(38,013)
(295,195)
(23,810)
94
(32) Subsequent events
On February 14, 2013, the Company announced the detection of a possible outbreak of H7N3 avian
influenza in five of its poultry breeding farms located in the state of Guanajuato. Subsequently, on
February 18, 2013, the Company reported that the National Service of Sanity and Food Quality
(SENASICA, by its Spanish acronym) confirmed the presence of the avian influenza in some farms of
the Company, all located in the same region of the state of Guanajuato.
At the date of issuance of the consolidated financial statements, the Company has been affected in
several of its farms in the state of Guanajuato, as well as in the boundaries of the state of Jalisco and
Guanajuato. The Company believes that the outbreak is under control, but not yet eradicated. The
Company is in the process of quantifying the financial impact arose from this contingency thereof will
be recognized in income for the year 2013.
(33) Explanation of transition to IFRS
As mentioned in note 2(a), these are the first Company´s consolidated financial statements prepared in
accordance with IFRS.
The accounting policies referred to in note 3 have been applied in the preparation of the consolidated
financial statements for the year ended December 31, 2012, in the comparative information presented
in these consolidated financial statements for the year ended December 31, 2011 and in the
preparation of the initial consolidated statement of financial position in accordance with IFRS at
January 1, 2011 (date of the Company’s transition).
In preparing its initial consolidated statement of financial position in accordance with IFRS, the
Company has adjusted the amounts reported previously in the consolidated financial statements
prepared in accordance with Mexican FRS. In the following tables and notes thereto, an explanation is
provided of how the transition from Mexican FRS to IFRS has affected the Company’s consolidated
financial position, consolidated financial performance and consolidated cash flows.
The Company has not prepared consolidated financial statements in accordance with Mexican FRS for
any period subsequent to December 31, 2011.
There are no material differences between the statements of cash flows presented under IFRS and the
statements of cash flows presented under Mexican FRS; except that under IFRS the starting point was
profit for the year, whereas under Mexican FRS was profit before income taxes, as well as for the effects
derived from the adoption of IFRS further described below.
95
Note
Mexican
FRS
January 1, 2011
Effect of
transition
to IFRS
IFRS
December 31, 2011
Effect of
transition
to IFRS
Mexican
FRS
IFRS
d
e
c
e
b
b
b
d
f
$
9,497,496
a, d
10,544,031
40,222
1,116,020
-
-
-
-
9,497,496 10,813, 600
- 10,813, 600
10,544,031
10,440,253
1,672,692
12,112,945
40,222
46,752
48,895
95,647
1,116, 020
1,869,269
(174,141)
1,695,128
$ 21,197,769
- 21,197,769 23,169,874 1,547,446 24,717,320
$
2,166,754
507,053
-
-
2,166,754
4,452, 977
507,053
384,370
-
-
4,452, 977
384,370
126,458
(48,573)
77,885
142,087
(42,049)
100,038
2,029,150
4,829,415
(13,093)
2,016,057
(61,666) 4,767,749
1,921, 334
6,900,768
478,773
436,724
2,400,107
7,337,492
2,294,927
744,753
(1,120,495)
(345,112)
1,174,432
399,641
2,294,927
744,753
(1,120,495)
(345,112)
1,174,432
399,641
154,288
(65,598)
88,690
154,079
(65,598)
88,481
-
-
-
35,636
28,751
64,387
13,122,387
1,614,953
14,737,340
12,979,502
2,635,259
15,614,761
$
$
$
16,316,355
83,748
16,400,103
16,208,897
1,132,805
17,341,701
b
51,999
(22,082)
29,917
60,209
(22,082)
38,127
$ 16,368,354
$
21,197,769
61,666 16,430,020 16,269,106 1,110,722 17,379,828
- 21,197,769 23,169,874 1,547,446 24,717,320
ASSETS
Current assets
Property, plant and
equipment, net
Current assets
available for sale
Other non-current
assets
Total assets
LIBIALITIES
Current liabilities
Long-term debt
Employee benefits
Deferred tax liabilities
Total liabilities
EQUITY
Capital stock
Share premium
Reserve for
repurchase of shares
Translation reserve
Retained earnings
Total equity
attributable to
shareholders of the
Company
Non-controlling
interest
Total equity
Total equity and
liabilities
96
Reconciliation of comprehensive income for the year ended December 31, 2011
Net income
Cost of sales
Gross profit
Note
Mexican FRS
Effect of
transition to
IFRS
$
c
27,734,990
(24,773,216)
2,961,774
-
(23,821)
(23,821)
IFRS
27,734,990
(24,797,037)
2,937,953
General selling and administrative
expenses
Other income (expenses), net
a, c, g
d, g
Operating profit
Financial income
Financial costs
Financial income, net
Profit before income taxes
Income tax expense
Net income
Other comprehensive income:
Currency translation effect
Total comprehensive income
Profit attributable to:
Controlling interest
Non-controlling interest
Profit for the year
Comprehensive income attributable to:
Controlling interest
Non-controlling interest
Total comprehensive income for the
year
e
d
$
$
$
$
(2,951,887)
(22,846)
(2,974,733)
(68,921)
1,068,886
(59,034)
1,022,219
248,282
(70,640)
177,642
118,608
-
-
-
-
(40,530)
1,914
999,965
963,185
248,282
(70,640)
177,642
1,140,827
(38,616)
159,138
1,020,305
1,179,443
35,636
28,751
64,387
194,774
1,049,056
1,243,830
157,041
1,020,305
1,177,346
2,097
-
2,097
159,138
1,020,305
1,179,443
192,677
1,049,056
1,241,733
2,097
-
2,097
194,774
1,049,056
1,243,830
97
a)
Deemed cost of property, plant and equipment
According to Mexican FRS, the Company initially recorded the property, plant and equipment at
acquisition cost, and through December 31, 2007, adjusted for inflation by using factors derived from
National Consumer Price Index (NCPI).
At transition date to IFRS, the Company initially opted to apply the “Fair Value” option through
appraisals performed by independent appraisers. This option remained during 2012 interim periods;
however, after detailed analysis, management decided to change its accounting policy to recognize
the carrying amount of property, plant and equipment under Mexican FRS as “Deemed Cost” at the
date of transition to IFRS. Because of this, there are no reconciling effects in this caption.
b)
Effects of inflation
IAS 29 “Financial reporting in hyperinflationary economies” requires the recognition of the effects of
inflation on the financial information when the entity operates in a hyperinflationary economy, being
one of the characteristics when the cumulative inflation rate over three years approaches, or exceeds,
100%.
The last three-year period where Mexico was a hyperinflationary economy was from 1995 to 1997.
Therefore, the Company eliminated the effects of inflation, recognized under Mexican FRS, in equity
accounts, from January 1, 1998 to December 31, 2007 (last period in which inflation effects were
recognized under Mexican FRS).
The following table summarizes the impact of such change:
Consolidated statement of financial
position
Share capital
Additional paid-in capital
Stock repurchase reserve
Non-controlling interest
Adjustment to retained earnings
January 1,
2011
1,120,495
345,112
65,598
22,082
(1,553,287)
$
$
December 31, 2011
1,120,495
345,112
65,598
22,082
(1,553,287)
c)
Employee benefits
In making its transition to IFRS, the Company eliminated the termination benefits liability which does
not comply with the guidelines established by the IAS 19 “Employee Benefits”, recognizing in addition,
the corresponding effect on deferred income taxes.
98
The impact from such change is summarized below:
Consolidated statement of comprehensive income
Cost of sales
General expense, selling and
administrative
Income tax
Adjustment to the year’s net income
$
$
2011
5,275
1,248
8,913
15,436
Consolidated statement of financial position
Employee benefits
Adjustment to the year´s net income
Deferred income tax liability
Adjustment to retained earnings
January 1,
2011
$
48,573
-
13,093
(61,666)
$
December 31, 2011
42,049
15,436
4,180
(61,666)
d)
Acquisition of a foreign business
During 2011, derived from the business combinations disclosed in note 6, under IFRS the Company
recognized under IFRS an increase in the value of property, plant and equipment in order to recognize
such assets at fair value, based on the guidelines provided by the IFRS 3 “Business Combinations”.
Under Mexican FRS, when there is a gain from bargain purchase price, the fair values of non-monetary
assets are reduced to compensate the resulting gain from the business combinations.
99
Such business combinations were performed at a bargain purchase price originating, the effects
detailed below:
Consolidated statement of financial position
December 31, 2011
Property, plant and equipment
Assets available for sale
Translation reserve
Deferred income tax liability
Gain on bargain purchase
Consolidated statement of comprehensive
income:
Cost of sales
Other income (expense), net
Income taxes
Increase to the year’s net income
e)
Income tax
$
$
$
$
1,672,692
48,895
(28,751)
(657,094)
(1,035,742)
2011
18,546
(1,047,288)
(7,000)
1,035,742
Derived from the effects that the Company recognized at the date of transition to IFRS on the items
described above, the following effects were recognized on the deferred income tax:
Consolidated statement of
comprehensive income
Deferred tax of employee
benefits
Deferred tax of business
combination
Adjustment to the year’s
net income
Consolidated statements of
financial position
Employee benefits
Business combination
Asset reclassification of
deferred income tax
Decrease (increase) in
deferred tax liabilities
Note
(c)
(d)
Note
(c)
(d)
2011
8,913
(7,000)
1,913
$
$
January 1,
2011
December 31,
2011
13,093
-
-
4,180
(657,094)
174,141
13,093
(478,773)
$
$
100
f)
Retained earnings
The net effects that the Company recognized at transition date to IFRS in the items mentioned above,
were recognized in retained earnings as follows:
Consolidated statements of
financial position
Inflation effects
Employee benefits
Effects in year´s net income
Increase in retained
earnings
Note
(b)
(c)
See
below
$
$
January 1,
2011
December 31, 2011
(1,553,287)
(61,666)
-
(1,553,287)
(61,666)
(1,020,305)
(1,614,953)
(2,635,258)
Changes arising from the adoption of IFRS increased the 2011 year’s net income as shown below:
Consolidated statement of
comprehensive income
Employee benefits
Deferred taxes – employee benefits
Gain on bargain purchase
Increase to the year’s net income
Note
(c)
(c)
(d)
$
$
2011
6,524
8,913
(1,035,742)
(1,020,306)
g)
Reclassification
For IFRS purposes the ESPS expense is presented in general, selling and administrative expenses, as
opposed to Mexican FRS which is presented in other expenses. Therefore, the ESPS expense for the
year ended December 31, 2011 for an amount of $21,598 was reclassified accordingly.
101