**SECURITIES AND EXCHANGECOMMISSIONWashington, D.C.  20549**

 

**Form 20-F**

 

**o****REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OFTHE SECURITIES EXCHANGE ACT OF 1934**

 

**OR**

 

**ý****ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934****For the fiscal year ended December 31,2003**

 

**OR**

 

**o****TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934**

**for thetransition periodfrom     to     **

 

**CommissionFile Number: 1-13032**

 

**Grupo Industrial Maseca, S.A. de C.V.**(Exact name of Registrant as specified in its charter)

 

| **N/A**(Translation of Registrant’s name into English)                                                                                                         |   | **United  Mexican States**(Jurisdiction of incorporation or organization) |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------|
|                                                                                                                                                                |   |                                                                      |
| **Avenida  La Clínica 2520  Edificio Delta, Primer Piso  Col. Sertoma  Monterrey, Nuevo León  64710 México**(Address of principal executive offices) |
|                                                                                                                                                                |   |                                                                      |
| Securities registered or to be registered pursuant  to Section 12(b) of the Act:                                                                               |

 
| **Title of each class:**                                                                                                               |   | **Name of each exchange on which registered:**     |
|----------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------|
| Class  B Common Shares, without par value  American Depositary Shares, each representing  15 Class B Common Shares, without par  value |   | New  York Stock Exchange*  New York Stock Exchange |
|                                                                                                                                   |   |                                               |
| Securities registered or to be registered pursuant  to Section 12(g) of the Act:                                                  |
| **None**                                                                                                                               |
|                                                                                                                                   |
| Securities for which there is a reporting  obligation pursuant to Section 15(d) of the Act:                                       |
| **None**                                                                                                                               |

 

**Indicate the number of outstanding shares of each of theissuer’s classes of capital or common stock as of the close of the periodcovered by the annual report:**

 

504,150,300 ClassA Common Shares, without par value414,254,700 Class B Common Shares, without par value

 

**Indicate by check mark whether the registrant (1) has filedall reports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports) and (2) has been subjectto such filing requirements for the past 90 days.**

 
| **Yes       **ý |   | **No       **o |
|---------------------------------------------------------|--------|---------------------------------------------------|

 

**Indicate by check mark which financial statement item theregistrant has elected to follow:**

 
| **Item 17****o** |   | **Item 18****ý** |
|------------------|--------|-----------------------|

 

----

*                 Not for trading, but only inconnection with the registration of American Depositary Shares, pursuant to therequirements of the Securities and Exchange Commission.

 

 

----

 

**TABLE OF CONTENTS**

 
| PART I.    |                                                                           |   |
|------------|--------------------------------------------------------------------------------|--------|
|       |                                                                           |   |
| ITEM  1.   | IDENTITY  OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS.                        |   |
| ITEM  2.   | OFFER  STATISTICS AND EXPECTED TIMETABLE.                                      |   |
| ITEM 3.    | KEY INFORMATION.                                                               |   |
| ITEM  4.   | INFORMATION  ON THE COMPANY.                                                   |   |
| ITEM  5.   | OPERATING  AND FINANCIAL REVIEW AND PROSPECTS.                                 |   |
| ITEM  6.   | DIRECTORS,  SENIOR MANAGEMENT AND EMPLOYEES.                                   |   |
| ITEM  7.   | MAJOR  SHAREHOLDERS AND RELATED PARTY TRANSACTIONS.                            |   |
| ITEM  8.   | FINANCIAL  INFORMATION.                                                        |   |
| ITEM  9.   | THE  OFFER AND LISTING.                                                        |   |
| ITEM 10.   | ADDITIONAL  INFORMATION.                                                       |   |
| ITEM  11.  | QUANTITATIVE  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.                   |   |
| ITEM  12.  | DESCRIPTION  OF SECURITIES OTHER THAN EQUITY SECURITIES.                       |   |
|       |                                                                           |   |
| PART II.   |                                                                           |   |
|       |                                                                           |   |
| ITEM  13.  | DEFAULTS,  DIVIDEND ARREARAGES AND DELINQUENCIES.                              |   |
| ITEM  14.  | MATERIAL  MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS. |   |
| ITEM 15.   | CONTROLS AND  PROCEDURES.                                                      |   |
| ITEM 16A.  | AUDIT  COMMITTEE FINANCIAL EXPERT                                              |   |
| ITEM 16B.  | CODE OF ETHICS                                                                 |   |
| ITEM  16C. | PRINCIPAL  ACCOUNTANT FEES AND SERVICES                                        |   |
| ITEM 16D.  | NOT APPLICABLE                                                                 |   |
| ITEM 16E.  | NOT APPLICABLE                                                                 |   |
|       |                                                                           |   |
| PART III.  |                                                                           |   |   |
|       |                                                                           |   |
| ITEM 17.   | FINANCIAL STATEMENTS.                                                          |   |
| ITEM 18.   | FINANCIAL STATEMENTS.                                                          |   |
| ITEM 19.   | EXHIBITS.                                                                      |   |
|            |                                                                                |        |  |

 

----

 

**PRESENTATION OF FINANCIAL INFORMATION**

 

Grupo Industrial Maseca,S.A. de C.V., or GIMSA, is a corporation (*sociedad anónima de capital variable*)organized under the laws of the United Mexican States, or Mexico.

 

In this Annual Report onForm 20-F, references to “pesos” or “Ps.” are to Mexican pesos, and referencesto “U.S. dollars,” “U.S.$,” “dollars” or “$” are to United States dollars.  “We,” “our,” “us,” “our company,” “GIMSA”and similar expressions refer to Grupo Industrial Maseca, S.A. de C.V. and itsconsolidated subsidiaries, except when the reference is specifically to GrupoIndustrial Maseca, S.A. de C.V. (parent company only) or the context otherwiserequires.

 

This Annual Reportcontains our audited consolidated financial statements as of December 31,2002 and 2003 and for the years ended December 31, 2001, 2002 and2003.  The financial statements havebeen audited by PricewaterhouseCoopers, independent registered publicaccounting firm.

 

We publish our financialstatements in pesos and prepare our consolidated financial statements inaccordance with accounting principles generally accepted in Mexico, commonlyreferred to as “Mexican GAAP.”  MexicanGAAP differs in certain significant respects from accounting principlesgenerally accepted in the United States of America, commonly referred to as“U.S. GAAP.”  See Note 15 to our auditedconsolidated financial statements for information relating to the nature andeffect of such differences and for a quantitative reconciliation of ourconsolidated net income and stockholders’ equity to U.S. GAAP.

 

As the Mexican economyhas experienced significant levels of inflation in the past although in recentyears inflation has declined significantly, we are required under Mexican GAAPto recognize the effects of inflation in our financial statements.  Under Bulletin B-10, issued by the MexicanInstitute of Public Accountants, we are required to present our financialinformation in inflation-adjusted monetary units to allow for more accuratecomparisons of financial line items over time and to mitigate the distortiveeffects of inflation on our financial statements.  Unless otherwise indicated, all financial information in thisAnnual Report has been restated in pesos of constant purchasing power as ofDecember 31, 2003.

 

We are required todetermine our monetary position gain/loss to reflect the effect of inflation onour monetary assets and liabilities.  Wedetermine our net monetary position by subtracting our monetary liabilitiesfrom our monetary assets and then adjusting our net monetary position by theappropriate inflation rate for the period with the resulting monetary gain orloss reflected in earnings.  In sodoing, we can reflect the effect inflation is having on our monetary items.

 

**MARKET SHARE AND OTHER INFORMATION**

 

The information containedin this Annual Report regarding market share and market position of corn flourin Mexico is based on our own estimates and is presented for the twelve monthperiod ended December 31, 2003. While we believe our internal research and estimates are reliable, theyhave not been verified by any independent source and we cannot assure you as totheir accuracy.

 

All references to “tons”in this Annual Report refer to metric tons. One metric ton equals 2,204 pounds. Estimates of production capacity contained herein assume operation ofthe relevant facilities on the basis of 24 hours a day, 360 days a year onthree shifts and assume only regular intervals for required maintenance.

 

**FORWARD LOOKING STATEMENTS**

 

This Annual Reportincludes “forward-looking statements” within the meaning of Section 27A ofthe U.S. Securities Act of 1933, as amended, and Section 21E of the U.S.Securities Exchange Act, as amended, including the statements about our plans,strategies and prospects under “Item 4. Information on the Company” and “Item5. Operating and Financial Review and Prospects.”  Some of these statements contain words such as “believe,”“expect,” “intend,” “anticipate,” “estimate,” “strategy,” “plans” and othersimilar words.  These statements are notguarantees of our future performance and are subject to risks, uncertaintiesand other important factors that could

 

1

----

 

cause our actual resultsto be materially different from those projected. These risks, uncertainties andfactors include: general economic and business conditions, including changes inthe Mexican peso/U.S. dollar exchange rate and conditions that affect the priceof corn; potential changes in demand for corn flour or tortillas; price andproduct competition; and other factors discussed herein.

 

# **PARTI.**

 

## **Item1.**                              Identityof Directors, Senior Management and Advisors.

 

Not applicable.

 

## **Item2.**                              OfferStatistics and Expected Timetable.

 

NotApplicable.

 

## **Item 3.**                              Key Information.

 

**SELECTED FINANCIAL DATA**

 

The selected consolidatedbalance sheet data as of December 31, 2002 and 2003 and the selectedconsolidated statements of income data for the three years endedDecember 31, 2001, 2002 and 2003 and notes thereto set forth below havebeen derived from our consolidated financial statements.  Such data should be read in conjunctionwith, and is qualified in its entirety by reference to, our consolidatedfinancial statements, including the notes thereto, included elsewhere in thisForm 20-F.

 

Our consolidatedfinancial statements are prepared in accordance with Mexican GAAP, whichdiffers in certain significant respects from accounting principles generallyaccepted in the United States of America. Note 15 to our consolidated financial statements provides informationrelating to the nature and effect of such differences, as they relate to us,and provides a reconciliation to U.S. GAAP of net income and totalstockholders’ equity.

 

Pursuant to Mexican GAAP,the consolidated financial statements and the selected consolidated financialdata set forth below restate the components of stockholders’ equity using theMexican National Consumer Price Index, or NCPI, and record gains and losses inpurchasing power from holding monetary assets or liabilities.  Under Mexican GAAP, non-monetary assets,with the exception of inventories and fixed assets of non-Mexican origin, arerestated using the NCPI factors. Inventories are restated at current replacement costs while fixed assetsof foreign origin are restated by the inflation rate of the country of originprior to translation to pesos at the period-end exchange rate.  Mexican GAAP also requires restatement ofall financial statements to pesos of constant purchasing power as of the dateof the most recent balance sheet presented, and accordingly all data in theconsolidated financial statements and in the selected consolidated financialdata set forth below have been restated in pesos of constant purchasing poweras of December 31, 2003.  Theeffects of inflation accounting under Mexican GAAP, other than for the use of aspecific index for the restatement of fixed assets of foreign origin, have notbeen reversed in the reconciliation to U.S. GAAP.  See Note 15 to our consolidated financial statements.

 

2

----

 
|                                                  |   | **Year ended  December 31,**                                                                                        |      |
|-------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------|-----------|
|                                                  |   | **1999**                                                                                                                 |      | **2000** |   | **2001** |   | **2002** |   | **2003** |   |
|                                                  |   | **(Thousands  of pesos of constant purchasing power as of December 31, 2003,  except share and per share amounts)** |      |
|                                                  |   |                                                                                                                     |      |   |   |   |   |   |   |   |   |
| **Income Statement  Data**                            |   |                                                                                                                     |      |   |   |   |   |   |   |   |   |
| **Mexican GAAP:**                                     |   |                                                                                                                     |      |   |   |   |   |   |   |   |   |
| Net sales                                             |   | Ps.                                                                                                                      | 6,131,318 |   | Ps. | 5,480,756 |   | Ps. | 5,143,476 |   | Ps. | 4,952,110 |   | Ps. | 5,200,809 |   |
| Cost of sales                                         |   | (4,635,320                                                                                                               | )         | (3,903,450 | ) | (3,594,716 | ) | (3,485,098 | ) | (3,839,571 | ) |
| Gross profit                                          |   | 1,495,998                                                                                                                |      | 1,577,306 |   | 1,548,760 |   | 1,467,012 |   | 1,361,238 |   |
| Selling, general and administrative  expenses         |   | (1,036,838                                                                                                               | )         | (974,891 | ) | (968,268 | ) | (939,419 | ) | (967,396 | ) |
| Operating income                                      |   | 459,160                                                                                                                  |      | 602,415 |   | 580,492 |   | 527,593 |   | 393,842 |   |
| Comprehensive financing (cost) income, net:           |   |                                                                                                                     |      |   |   |   |   |   |   |   |   |
| Interest expense                                      |   | (54,155                                                                                                                  | )         | (27,601 | ) | (24,230 | ) | (13,018 | ) | (7,014 | ) |
| Interest income                                       |   | 116,603                                                                                                                  |      | 126,582 |   | 108,876 |   | 76,855 |   | 66,993 |   |
| Monetary position loss, net                           |   | (12,476                                                                                                                  | )         | (75,569 | ) | (60,273 | ) | (86,729 | ) | (60,899 | ) |
| Foreign exchange (loss) gain, net                     |   | 66,049                                                                                                                   |      | 3,582 |   | (719 | ) | (4,921 | ) | (3,829 | ) |
| Total comprehensive financing (cost)  income, net     |   | 116,021                                                                                                                  |      | 26,994 |   | 23,654 |   | (27,813 | ) | (4,749 | ) |
| Other expense, net:                                   |   | (35,257                                                                                                                  | )         | (5,068 | ) | (20,851 | ) | (6,848 | ) | 7,978 |   |
| Income tax (current and deferred)                     |   | (84,431                                                                                                                  | )         | (186,436 | ) | (171,140 | ) | (71,484 | ) | (62,422 | ) |
| Net income                                            |   | 449,350                                                                                                                  |      | 421,907 |   | 387,599 |   | 377,502 |   | 311,973 |   |
| Earnings per share(1)                                 |   | 0.49                                                                                                                     |      | 0.45 |   | 0.42 |   | 0.41 |   | 0.34 |   |
| Dividends per share(2)                                |   | 0.23                                                                                                                     |      | 0.15 |   | 0.90 |   | 0.13 |   | 0.23 |   |
| Weighted average number of shares  outstanding (000s) |   | 909,242                                                                                                                  |      | 918,405 |   | 918,405 |   | 918,405 |   | 918,405 |   |
|                                                  |   |                                                                                                                     |      |   |   |   |   |   |   |   |   |
| **U.S. GAAP (3):**                                    |   |                                                                                                                     |      |   |   |   |   |   |   |   |   |
| Net sales                                             |   | Ps.                                                                                                                      | 6,131,318 |   | Ps. | 5,480,756 |   | Ps. | 5,143,476 |   | Ps. | 4,952,110 |   | Ps. | 5,200,809 |   |
| Cost of sales                                         |   | (4,659,721                                                                                                               | )         | (3,944,234 | ) | (3,633,698 | ) | (3,523,440 | ) | (3,878,492 | ) |
| Gross profit                                          |   | 1,471,597                                                                                                                |      | 1,536,522 |   | 1,509,778 |   | 1,428,670 |   | 1,322,317 |   |
| Selling, general and administrative  expenses         |   | (1,076,370                                                                                                               | )         | (972,610 | ) | (984,613 | ) | (959,788 | ) | (966,475 | ) |
| Operating income                                      |   | 395,227                                                                                                                  |      | 563,912 |   | 525,165 |   | 468,882 |   | 355,842 |   |
| Comprehensive financing (cost) income, net:           |   |                                                                                                                     |      |   |   |   |   |   |   |   |   |
| Interest expense                                      |   | (54,155                                                                                                                  | )         | (27,601 | ) | (24,230 | ) | (13,018 | ) | (7,014 | ) |
| Interest income                                       |   | 116,603                                                                                                                  |      | 126,582 |   | 108,876 |   | 76,855 |   | 66,993 |   |
| Monetary position loss, net                           |   | (11,444                                                                                                                  | )         | (75,793 | ) | (60,360 | ) | (86,818 | ) | (60,946 | ) |
| Foreign exchange (loss) gain, net                     |   | 66,049                                                                                                                   |      | 3,582 |   | (719 | ) | (4,921 | ) | (3,829 | ) |
| Total comprehensive financing (cost)  income, net     |   | 117,053                                                                                                                  |      | 26,770 |   | 23,567 |   | (27,902 | ) | (4,796 | ) |
| Other income (expense), net:                          |   | 2,839                                                                                                                    |      | (2,057 | ) | (15,388 | ) | (2,559 | ) | 12,826 |   |
| Income tax (current and deferred)                     |   | (185,993                                                                                                                 | )         | (158,997 | ) | (174,708 | ) | (57,275 | ) | (59,948 | ) |
| Net income                                            |   | 323,077                                                                                                                  |      | 421,218 |   | 355,223 |   | 369,122 |   | 292,718 |   |
| Earnings per share(1)                                 |   | 0.35                                                                                                                     |      | 0.45 |   | 0.38 |   | 0.40 |   | 0.32 |   |
| Dividends per share(2)                                |   | 0.23                                                                                                                     |      | 0.15 |   | 0.90 |   | 0.13 |   | 0.23 |   |
| Weighted average number of shares  outstanding (000s) |   | 909,242                                                                                                                  |      | 918,405 |   | 918,405 |   | 918,405 |   | 918,405 |   |
|                                                       |        |                                                                                                                          |           |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

3

----

 
|                                     |   | **Year ended  December 31,**                                                   |      |
|------------------------------------------|--------|-------------------------------------------------------------------------------------|-----------|
|                                     |   | **1999**                                                                            |      | **2000** |   | **2001** |   | **2002** |   | **2003** |   |
|                                     |   | **(Thousands  of pesos of constant purchasing power as of December 31, 2003)** |      |
|                                     |   |                                                                                |      |   |   |   |   |   |   |   |   |
| **Balance Sheet Data  (Mexican GAAP):**  |   |                                                                                |      |   |   |   |   |   |   |   |   |
| Inventories                              |   | Ps.                                                                                 | 1,217,328 |   | Ps. | 959,219 |   | Ps. | 930,274 |   | Ps. | 1,044,565 |   | Ps. | 1,166,531 |   |
| Property, plant and equipment, net       |   | 4,875,897                                                                           |      | 4,570,622 |   | 4,309,670 |   | 4,094,040 |   | 3,896,328 |   |
| Total assets                             |   | 7,703,132                                                                           |      | 7,757,222 |   | 7,015,337 |   | 7,259,515 |   | 7,122,245 |   |
| Short-term debt                          |   | 3,055                                                                               |      | 0 |   | 0 |   | 0 |   | 0 |   |
| Long-term debt                           |   | 0                                                                                   |      | 0 |   | 0 |   | 0 |   | 0 |   |
| Deferred income taxes (4)                |   | 344,692                                                                             |      | 1,073,390 |   | 1,061,950 |   | 988,782 |   | 950,755 |   |
| Capital stock                            |   | 3,334,823                                                                           |      | 3,334,823 |   | 3,334,823 |   | 3,334,823 |   | 3,334,823 |   |
| Total stockholders’ equity          |   | 6,756,449                                                                           |      | 6,075,499 |   | 5,561,709 |   | 5,763,614 |   | 5,802,488 |   |
|                                     |   |                                                                                |      |   |   |   |   |   |   |   |   |
| **Balance Sheet Data  (U.S. GAAP) (3):** |   |                                                                                |      |   |   |   |   |   |   |   |   |
| Inventories                              |   | Ps.                                                                                 | 1,217,328 |   | Ps. | 959,219 |   | Ps. | 930,274 |   | Ps. | 1,044,565 |   | Ps. | 1,166,531 |   |
| Property, plant and equipment, net       |   | 5,080,397                                                                           |      | 4,802,794 |   | 4,553,751 |   | 4,311,104 |   | 4,101,829 |   |
| Total assets                             |   | 7,870,895                                                                           |      | 7,967,690 |   | 7,241,556 |   | 7,466,827 |   | 7,326,675 |   |
| Short-term debt                          |   | 3,055                                                                               |      | 0 |   | 0 |   | 0 |   | 0 |   |
| Long-term debt                           |   | 0                                                                                   |      | 0 |   | 0 |   | 0 |   | 0 |   |
| Deferred income taxes (4)                |   | 1,236,449                                                                           |      | 1,147,052 |   | 1,141,127 |   | 1,053,749 |   | 1,013,249 |   |
| Capital stock                            |   | 3,334,823                                                                           |      | 3,334,823 |   | 3,334,823 |   | 3,334,823 |   | 3,334,823 |   |
| Total stockholders’ equity          |   | 5,707,340                                                                           |      | 5,895,895 |   | 5,391,933 |   | 5,588,059 |   | 5,617,893 |   |
|                                          |        |                                                                                     |           |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

----

(1)                        Calculated based on the weighted averagenumber of shares outstanding.  See Note2M to the consolidated financial statements.

(2)                        Dividend amounts are stated in pesos ofconstant purchasing power.  Based on thenoon buying rate on each of April 21, 1999, May 11, 2000, April 30, 2001,  May 7, 2002 and April 24, 2003 and therespective dates on or about which the dividends were paid in each year, theCompany’s dividends per share was the equivalent of approximately U.S.$0.01,U.S.$0.02, U.S.$0.09, U.S.$0.01 and U.S.$0.02 for each of  1999, 2000, 2001, 2002 and 2003respectively.

(3)                        See Note 15 to the consolidated financialstatements.

(4)                        Includes the current and non-currentportion thereof.

 

**DIVIDENDS**

 

Our ability to paydividends is limited by Mexican law and our bylaws (*estatutos sociales*).  Because we are a holding company with nosignificant operations of our own, we have distributable profits to paydividends to the extent that we receive dividends from our subsidiaries.  The ability of our subsidiaries to makedistributions to us is also limited by their bylaws and Mexican law.  Accordingly, there can be no assurance thatwe will pay dividends, and should we pay dividends, we cannot guarantee thatthey will be comparable to prior years.

 

Pursuant to Mexican lawand our bylaws the declaration, amount and payment of dividends are determinedby a majority vote of the holders of the outstanding shares represented at a dulyconvened annual shareholders’ meeting. The amount of any future dividend would depend on, among other things,operating results, financial condition, cash requirements, losses for priorfiscal years, future prospects and other factors deemed relevant by the boardof directors and the shareholders.

 

In addition, underMexican law, companies may only pay dividends:

 

•                  fromearnings included in year-end financial statements that are approved byshareholders at a duly convened meeting;

 

•                  afterany existing losses applicable to prior years have been made up or absorbedinto capital;

 

4

----

 

•                  afterat least 5% of net profits for the relevant fiscal year have been allocated toa legal reserve until the amount of the reserve equals 20% of a company’spaid-in capital stock; and

 

•                  aftershareholders have approved the payment of the relevant dividends at a dulyconvened meeting.

 

Holders of our AmericanDepositary Receipts, or ADRs, on the applicable record date are entitled toreceive dividends declared on the shares contained in the units represented byAmerican Depositary Shares, or ADSs, evidenced by such ADRs.  The depositary will fix a record date forthe holders of ADRs in respect of each dividend distribution.  We pay dividends in pesos and holders ofADSs will receive dividends in U.S. dollars (after conversion by the depositaryfrom pesos, if not then restricted under applicable law) net of the fees,expenses, taxes and governmental charges payable by holders under the laws ofMexico and the terms of the deposit agreement.

 

During 2004, GIMSAresolved to pay dividends of Ps.294 million, stated in nominal terms, to bedistributed to the shareholders in July 2004.  During 2003, 2002 and 2001, GIMSA paid dividends to itsshareholders, in nominal terms, of Ps.202 million, Ps.110 million and Ps.735million, respectively.  In pesos ofconstant purchasing power as of December 31, 2003, the dividends paid orpayable to shareholders in 2003, 2002 and 2001 amounted to Ps.208 million,Ps.119 million and Ps.830 million.

 

**EXCHANGE RATE INFORMATION**

 

Mexico has had a freemarket for foreign exchange since 1991. Prior to December 1994, the Mexican central bank (*Banco deMéxico*) kept the peso-U.S. dollar exchange rate within a rangeprescribed by the government through intervention in the foreign exchangemarket.  In December 1994, thegovernment suspended intervention by *Banco de México* and allowed the peso tofloat freely against the U.S. dollar. The peso declined sharply in December 1994 and continued to fallunder conditions of high volatility in 1995. In 1996 and most of 1997, the peso fell more slowly and was lessvolatile.  In the last quarter of 1997and for much of 1998, the foreign exchange markets were volatile as a result offinancial crises in Asia and Russia and financial turmoil in countriesincluding Brazil and Venezuela.  Thepeso declined during this period, but was relatively stable in 1999, 2000 and2001.  In late 2001 and early 2002, theMexican peso appreciated considerably against the U.S. dollar and, morestrongly, against other foreign currencies. From the second quarter of 2002 and until the end of 2003, the Mexicanpeso depreciated in value.  To date in2004, the foreign exchange markets have been volatile due to internationaldevelopments, including events in Argentina and Venezuela as well as the war inthe Middle East and the weaker U.S. dollar. There can be no assurance that the government will maintain its currentpolicies with regard to the peso or that the peso will not depreciate orappreciate in the future.

 

The following table setsforth, for the periods indicated, the high, low, average and period-end noonbuying rate in New York City for cable transfers in pesos published by theFederal Reserve Bank of New York, expressed in pesos per U.S. dollar.  The rates have not been restated in constantcurrency units.

 

5

----

 
|                        |   | **Noon  Buying Rate (Ps. Per U.S.$)** |    |
|-----------------------------|--------|---------------------------------------|---------|
| **Year**                    |   | **High(1)**                           |    | **Low(1)** |   | **Average(2)** |   | **Period End** |   |
| 1999                        |   | Ps.                                   | 10.6000 |   | Ps. | 9.2430 |   | Ps. | 9.5630 |   | Ps. | 9.4800 |   |
| 2000                        |   | 10.0870                               |    | 9.1825 |   | 9.4716 |   | 9.6180 |   |
| 2001                        |   | 9.9720                                |    | 8.9460 |   | 9.3255 |   | 9.1560 |   |
| 2002                        |   | 10.4250                               |    | 9.0005 |   | 9.7458 |   | 10.4250 |   |
| 2003                        |   | 11.4063                               |    | 10.1130 |   | 10.8460 |   | 11.2420 |   |
| 2004 (through June 18) |   | 11.6350                               |    | 11.1810 |   | 11.2355 |   | 11.3400 |   |
| December 2003          |   | 11.4603                               |    | 11.1725 |   | 11.2510 |   | 11.2420 |   |
| January 2004           |   | 11.0973                               |    | 10.8050 |   | 10.9200 |   | 11.0120 |   |
| February 2004          |   | 11.2450                               |    | 10.9095 |   | 11.0320 |   | 11.0620 |   |
| March 2004             |   | 11.2290                               |    | 10.9180 |   | 11.0190 |   | 11.1830 |   |
| April 2004             |   | 11.4315                               |    | 11.1570 |   | 11.2700 |   | 11.4020 |   |
| May 2004                    |   | 11.6350                               |    | 11.3815 |   | 11.5200 |   | 11.4140 |   |
| June 2004(3)           |   | 11.4885                               |    | 11.3400 |   | 11.3970 |   | 11.3400 |   |
|                             |        |                                       |         |  |  |  |  |  |  |  |  |  |  |

 

----

(1)                Rates shown are the actual low and high, on aday-by-day basis for each period.

(2)                Average of month-end rates.

(3)                Through June 18, 2004.

 

On June 18, 2004,the noon buying rate for pesos was Ps.11.3400 to U.S.$1.00.

 

**RISK FACTORS**

 

**RisksRelating to Mexico**

 

***Our Business OperationsCould Be Affected by Economic Conditions in Mexico***

 

We are a Mexican companywith all our consolidated assets located in Mexico and all our consolidated netsales derived from Mexico.  InDecember 1994, Mexico experienced an economic crisis characterized by exchangerate instability and significant devaluation of the peso, increased inflation,high domestic interest rates, a substantial outflow of capital, negativeeconomic growth, reduced consumer purchasing power and high unemployment.  In addition, the financial crises in 1998and early 1999 in Asia, Russia and Latin America resulted in instability in theforeign exchange markets and international financial markets.  These events resulted in limited liquidityfor the Mexican government and for local corporations as well as an increase ininterest rates in Mexico.  The recenteconomic and financial crises in Argentina and recent civil and politicalunrest in Venezuela could produce similar results.  See “—Adverse Developments in Other Emerging Market Countries May Affect Mexico or thePrice of Our Securities.”  Although theMexican economy declined by 0.3% in 2001, the Mexican economy grew by 0.9% in2002, by 1.3% in 2003 and by 3.7% in the first quarter of 2004.

 

***Our Business OperationsCould Be Affected by Government Policies in Mexico***

 

The Mexican governmenthas exercised, and continues to exercise, significant influence over theMexican economy.  Mexican governmentalactions concerning the economy could have a significant effect on Mexicanprivate sector entities, as well as on market conditions, prices and returns onsecurities of Mexican issuers, including our securities.

 

On December 1, 2000,Vicente Fox of the *Partido Acción Nacional* (National ActionParty, or PAN) was inaugurated as president of Mexico, ending more than 70years of presidential rule by the *Partido Revolucionario Institucional*(Institutional Revolutionary Party, or PRI). Neither the PRI nor the PANsucceeded in securing a majority in the Congress or Senate.  In elections held in July 2003 the PANlost additional seats in the Congress and state governorships.  The resulting gridlock has impeded theprocess of reform in Mexico which may adversely affect economic conditions inMexico or our business and results of operations.  During 2004, there will be elections for governors in ten of 32states and for local legislatures in 14 states.

 

In the case of our salesof corn flour, governmental policies have affected us negatively and maycontinue to do so.  The elimination ofthe tortilla subsidy for consumers, coupled with the government’s decision toclose

 

6

----

 

*Compañía Nacional de SubsistenciasPopulares*, or CONASUPO, which resulted in the sale of itscorn reserves at below market prices, reduced sales and hurt profits in1999.  The Mexican government issuescorn import permits to corn traders typically based upon the availability ofdomestic corn, which contributes to thestability of domestic corn prices. However, in the past, in election years, the Mexican government has increased the number of cornimport permits which has driven down the price of domestic corn which had theeffect of reducing sales of corn flour. We currently depend on corn import permits to ensure an adequate supplyof corn in non-corn producing regions of the country.  We cannot assure you that the Mexicangovernment will not take actions that could adversely affect us.  See “Item 5. Operating and FinancialReview and Prospects— Management’s Discussion and Analysis of FinancialCondition and Results of Operations—Effects of Deregulation of the MexicanTortilla and Corn Flour Industry.”

 

The level ofenvironmental regulation and enforcement in Mexico has increased in recentyears.  The *Comisión Nacional del Agua*(“WaterNational Commission” or “CNA”) has brought enforcement proceedings against usfor water discharges from five of our facilities.  While we are vigorously defending this action, we cannot assureyou that we will succeed or that further actions of this type will not be broughtagainst us.  We expect the trend towardgreater environmental regulation and enforcement to continue and to beaccelerated by international agreements between Mexico and the UnitedStates.  The promulgation of  new environmental regulations or higherlevels of enforcement may adversely affect us.

 

***High Levels of Inflationand High Interest Rates in Mexico Could Adversely Affect the Business Climatein Mexico and our Financial Condition and Results of Operations***

 

Mexico has experiencedhigh levels of inflation in the past although in recent years inflation hasdeclined significantly.  The annual rateof inflation, as measured by changes in the National Consumer Price Index, was4.40% for 2001, 5.70% for 2002 and 3.98% for 2003.  From January through May 2004, the inflation rate was1.46%.  On June 18, 2004, the28-day CETES rate was 6.54%.  While wehave no outstanding debt at this time, high interest rates in Mexico mayadversely affect the business climate in Mexico generally and our financing costsin the future and thus our financial condition and results of operations.

 

***Developments in OtherCountries Could Adversely Affect the Mexican Economy, the Market Value of OurSecurities and Our Results of Operations***

 

The Mexican economy maybe, to varying degrees, affected by economic and market conditions in othercountries.  Although economic conditionsin other countries may differ significantly from economic conditions in Mexico,investors’ reactions to adverse developments in other countries may have anadverse effect on the market value of securities of Mexican issuers.  In recent years, economic conditions inMexico have become increasingly correlated to economic conditions in the UnitedStates.  Therefore, adverse economicconditions in the United States could have a significant adverse effect on theMexican economy. In addition, in the past, economic crises in Asia, Russia,Brazil, Argentina and other emerging market countries adversely affected theMexican economy.

 

We cannot assure you thatthe events in other emerging market countries, in the United States orelsewhere will not adversely affect our business, financial condition andresults of operations.

 

***You May Be Unable toEnforce Judgments Against Us in Mexican Courts***

 

We are a Mexicancorporation (*sociedad anónima de capital variable*).  Our directors and executive officers areresidents of Mexico, and a significant portion of the assets of our directorsand executive officers, and our assets, are located in Mexico.  You may experience difficulty in effectingservice of process upon our company or our directors and executive officers inthe United States, or, more generally, outside of Mexico, and in enforcingcivil judgments of non-Mexican courts in Mexico, including judgments predicatedon civil liability under U.S. federal securities laws, against us, or ourdirectors and executive officers.  Wehave been advised by our General Counsel, that there is doubt as to theenforceability in original actions in Mexican courts of liabilities predicated solelyon the U.S. federal securities laws.

 

7

----

 

***Differences BetweenMexican GAAP and U.S. GAAP May Have an Impact on the Presentation of OurFinancial Information***

 

Our annual auditedconsolidated financial statements are prepared in accordance with Mexican GAAP,which differ in some significant respects from U.S. GAAP.  Financial results reported using MexicanGAAP may differ substantially from those results that would have been obtainedusing U.S. GAAP.  We are required,however, to file an annual report on Form 20-F containing financial statementsreconciled to U.S. GAAP, although this filing only contains year-end financialstatements reconciled to U.S. GAAP for our three most recent fiscal years.  See Note 15 to our audited consolidatedstatements.

 

**RisksRelating to Our Company**

 

***Fluctuations in the Costand Availability of Corn May Affect Our Financial Performance***

 

Our financial performancemay depend upon the price and availability of corn as it represented 69% of ourcost of sales for 2003.  Mexican andworld markets have experienced periods of over-supply and shortage of corn,some of which have caused adverse effects on our results of operations.  We cannot always predict whether or whenshortages or over-supply of corn will occur. In addition, future Mexican orother governmental actions could affect the price and availability ofcorn.  Any adverse developments indomestic and international corn markets could have a material adverse effectupon our business, financial condition, results of operations and prospects.

 

***Adverse Developments atOur Parent Company GRUMA May Increase Our Financing Costs or OtherwiseAdversely Affect Us or Our Stock Price***

 

Gruma, S.A. de C.V., orGRUMA, our parent company is currently rated BBB- by Standard & Poor’s andBa2 by Moody’s.  These ratings representan improvement since 1999 when Standard & Poor’s lowered its rating ofGRUMA’s notes.  Future downgrades orchanges in outlook could cause GRUMA’s or our costs with respect to new debt toincrease which could ultimately affect GRUMA’s stock price as well as ours.

 

**RisksRelating to Our Controlling Shareholders and Capital Structure**

 

***Holders of ADSs May NotBe Able to Vote at our Shareholders’ Meetings***

 

Our shares are traded onthe New York Stock Exchange in the form of ADSs.  There can be no assurance that holders of our shares through ADSswill receive notices of shareholder meetings from our ADS depositary withsufficient time to enable such holders to return voting instructions to our ADSdepositary in a timely manner.

 

***Holders of ADSs Are NotEntitled to Attend Shareholder Meetings, and They May Only Vote Throughthe Depositary***

 

Under Mexican law, ashareholder is required to deposit its shares with a Mexican custodian in orderto attend a shareholders’ meeting.  Aholder of ADSs will not be able to meet this requirement, and accordingly isnot entitled to attend shareholders’ meetings. A holder of ADSs is entitled to instruct the depositary as to how tovote the shares represented by ADSs, in accordance with procedures provided forin the deposit agreement, but a holder of ADSs will not be able to vote itsshares directly at a shareholders’ meeting or to appoint a proxy to do so.  In addition, such voting instructions may belimited to matters enumerated in the agenda contained in the notice toshareholders and with respect to which information is available prior to theshareholders’ meeting.

 

***Holders of ADSs May NotBe Able to Participate in Any Future Preemptive Rights Offering and as a ResultMay Be Subject to a Dilution of Equity Interest***

 

Under Mexican law, if weissue new shares for cash as a part of a capital increase, we must generallygrant our shareholders the right to purchase a sufficient number of shares tomaintain their existing ownership percentage. Rights to purchase shares in these circumstances are known as preemptiverights.  We are not legally permitted toallow holders of our shares through ADSs in the United States to exercise anypreemptive rights in any future capital

 

8

----

 

increases unless (i) wefile a registration statement with the U.S. Securities and Exchange Commission,or SEC, with respect to that future issuance of shares or (ii) the offeringqualifies for an exemption from the registration requirements of the SecuritiesAct.  At the time of any future capitalincrease, we will evaluate the costs and potential liabilities associated withfiling a registration statement with the SEC, as well as the benefits ofpreemptive rights to holders of our shares through ADSs in the United Statesand any other factors that we consider important in determining whether to filea registration statement.

 

We are under noobligation to, and there can be no assurance that we will, file a registrationstatement with the SEC to allow holders of our shares through ADSs in theUnited States to participate in a preemptive rights offering.  In addition, under current Mexican law,sales by the ADS depositary of preemptive rights and distribution of theproceeds from such sales to the holders of our shares through ADSs is notpossible.  As a result, the equityinterest of holders of our shares through ADSs would be diluted proportionatelyand such holders may not receive any economic compensation.  See “Item 10.  Additional Information—Bylaws—Preemptive Rights.”

 

***The Protections Affordedto Minority Shareholders in Mexico Are Different From Those in the UnitedStates***

 

Under Mexican law, theprotections afforded to minority shareholders are different from those in the UnitedStates.  In particular, the lawconcerning fiduciary duties of directors and controlling shareholders is notwell developed and there are different procedural requirements for bringingshareholder lawsuits. As a result, in practice it maybe more difficult for ourminority shareholders to enforce their rights against us or our directors orcontrolling shareholders than it would be for shareholders of a U.S. company.

 

***Our AntitakeoverProtections May Deter Potential Acquirors***

 

Certain provisions of ourbylaws could make it substantially more difficult for a third party to acquirecontrol of us.  These provisions in ourbylaws may discourage certain types of transactions involving the acquisitionof our securities.  These provisionscould discourage transactions in which our shareholders might otherwise receivea premium for their shares over the then current market price.  Holders of our securities who acquire sharesin violation of these provisions will not be able to vote, or receivedividends, distributions or other rights in respect of, these securities andwould be obligated to pay us a penalty. For a description of these provisions, see “AdditionalInformation—Bylaws—Antitakeover Protections.”

 

***We Have SignificantTransactions With Our Parent Company GRUMA and Other Affiliates That CouldCreate Potential Conflicts of Interest***

 

In the ordinary course ofbusiness, we and certain of our subsidiaries enter into agreements with GRUMA,our parent company, and other affiliates, including agreements pertaining tothe sharing of intellectual property, and providing technical and advisorysupport services.  We also periodicallyprovide loans to GRUMA, which owed us Ps.801 million as of June 18, 2004.  Transactions with affiliates may create thepotential for conflicts of interest. See “Item 7.  Major Shareholdersand Related Party Transactions—Related Party Transactions.”

 

***Exchange RateFluctuations May Affect the Value of Our Shares***

 

Fluctuations in theexchange rate between the Peso and the U.S. Dollar will affect the U.S. Dollarvalue of an investment in our shares and of dividend and other distributionpayments on those shares.  See “Item3.  Key Information—Exchange Rate Information.”

 

***Our Bylaws Restrict theAbility of Non-Mexican Shareholders to Invoke the Protection of TheirGovernments With Respect to Their Rights as Shareholders***

 

As required by Mexicanlaw, our bylaws provide that non-Mexican shareholders shall be considered asMexican in respect of their ownership interests in us and shall be deemed tohave agreed not to invoke the protection of their governments in certaincircumstances.  Under this provision, anon-Mexican shareholder is deemed to have agreed not to invoke the protectionof its own government by asking such government to interpose a diplomatic claimagainst the Mexican government with respect to the shareholder’s rights as ashareholder, but is not deemed to

 

9

----

 

have waived any otherrights it may have, including any rights under the U.S. securities laws, withrespect to its investment in us.  If youinvoke such governmental protection in violation of this agreement, your sharescould be forfeited to the Mexican government.

 

***Our ControllingShareholder Can Exert Substantial Control Over Our Company***

 

As of April 30,2004, Mr. Roberto González Barrera controlled, directly and indirectly,approximately 52.6% of the outstanding shares of GRUMA, our parentcompany.  GRUMA owns 83.18% of ouroutstanding shares.  Consequently, Mr.González Barrera has the power to elect the majority of our directors and todetermine the outcome of most actions requiring approval of our stockholders.

 

Mr. González Barrera haspledged part of his shares in GRUMA to secure some of his borrowings.  If there is a default and the lendersenforce their rights against any or all of these shares, Mr. González Barreracould lose control over GRUMA and a change of control could result.  In addition, this could trigger a default inone of GRUMA’s credit agreements and have a material adverse effect upon ourbusiness, financial condition, results of operations and prospects.

 

***We Are a Holding Companyand Depend Upon Dividends and Other Funds From Subsidiaries to Service Our Debt***

 

We are a holding companywith no significant assets other than the shares of our subsidiaries.  As a result, our ability to meet any debtservice obligations depends primarily upon our receiving sufficient funds fromour subsidiaries.  Under Mexican law,companies may only pay dividends:

 

•                  fromearnings included in year-end financial statements that are approved byshareholders at a duly convened meeting;

 

•                  afterany existing losses applicable to prior years have been made up or absorbedinto capital;

 

•                  afterat least 5% of net profits for the relevant fiscal year have been allocated toa legal reserve until the amount of the reserve equals 20% of a company’spaid-in capital stock; and

 

•                  aftershareholders have approved the payment of the relevant dividends at a dulyconvened meeting.

 

## **Item 4**.                                        Informationon the Company.

 

**THE BUSINESS**

 

**PrincipalProducts**

 

We produce, distributeand sell corn flour in Mexico, which is then used in the preparation oftortillas and other related products. In 2003, we had net sales of Ps.5,201 million.  We are the largest corn flour producer in Mexico, with a cornflour market share of approximately 71% in 2003.  We estimate that our corn flour is used in 36% of the corntortillas consumed in Mexico.  We sellcorn flour in Mexico under the brand name MASECA®.  MASECA® flour is a ready-mixedcorn flour that becomes a dough when water is added.  This corn dough can then be pressed to an appropriate thickness,cut to shape and cooked to produce tortillas and similar food products.

 

We produce over 40varieties of corn flour for the manufacture of different food products.  We sell corn flour to tortilla and tortillachip manufacturers as well as in the retail market. Our principal corn flourproduct is a standard fine-textured, white flour used to manufacture tortillas.

 

**Salesand Marketing**

 

We sell packaged cornflour in 20-kilogram sacks in the trade market, principally to thousands oftortilla manufacturers, and one-kilogram packages in the retail market.

 

10

----

 

The following table setsforth our trade and retail sales volumes of corn flour in Mexico for theperiods indicated.

 
|   |   | **Year Ended  December 31,** |   |
|--------|--------|-----------------------------------|--------|
|   |   | **2001**                          |   | **2002** |   | **2003** |   |
|   |   | **Tons**                          |   | **%** |   | **Tons** |   | **%** |   | **Tons** |   | **%** |   |
| Trade  |   | 1,217,197                         |   | 85 |   | 1,179,186 |   | 85 |   | 1,190,597 |   | 85 |   |
| Retail |   | 219,033                           |   | 15 |   | 206,344 |   | 15 |   | 204,730 |   | 15 |   |
|   |   | 1,436,230                         |   | 100 |   | 1,385,530 |   | 100 |   | 1,395,327 |   | 100 |   |

 

Our customer base iscomprised primarily of small tortilla producers, or *tortillerías*, which purchasecorn flour in 20 kg sacks and produce tortillas on their premises, which arethen sold locally.  Retail sales arechanneled to two distinct markets: urban centers and rural areas.  Sales to urban consumers are made mostlythrough supermarket chains that use their own distribution networks todistribute MASECA® flour or through wholesalers who sell the productto smaller grocery stores throughout Mexico. Sales to rural consumers are made principally through the Mexicangovernment’s social and distribution program *Distribuidora Conasupo, S.A.*,or DICONSA, which consists of a network of small government-owned stores andwhich supplies rural areas with basic food products.  Our sales representatives are mainly concerned with promoting thedry corn flour method to tortilla producers. Mexico’s tortilla industry is highly fragmented, consisting mostly of *tortillerías,*some of which continue to utilize, in our opinion, the relatively inefficientwet corn dough method of tortilla production. We estimate that the traditionalwet corn dough method accounts for approximately 49% of all tortillas producedin Mexico. Tortilla producers that do not utilize corn flour buy the wet doughfrom dough producers or buy and mill their own corn and produce tortillasthemselves.

 

This traditional methodis a rudimentary practice requiring more energy, time and labor since itinvolves cooking the corn in water and with lime, milling the cooked corn,creating and shaping the dough, and then making tortillas from that dough.  We pioneered the dry corn flour method inwhich we mill the raw corn in our facilities into corn flour.  Tortilla producers and consumers may thensimply add water to transform the flour into tortilla dough.  We believe the preparation of tortillasusing the dry corn flour method possesses several advantages over the traditionalmethod.  Our internal studies show thatthe dry corn flour method consumes less water, electricity, fuel andlabor.  We estimate that one kilogram ofcorn processed through the corn flour method yields more tortillas on averagethan a similar amount of corn processed using the traditional method.  Corn flour is also transported more easilythan wet corn dough and has a shelf life of approximately three months,compared with one or two days for wet corn dough.  The market for wet corn dough is limited due to the perishablenature of the product, restricting sales of most wet corn dough producers totheir immediate geographic areas. Additionally, the corn flour’s longer shelf life makes it easier forconsumers in rural areas to produce their own tortillas, as *tortillerías*are relatively scarce.

 

We strongly believe inthe superiority of our dry corn flour method and, thus also, believe that wehave substantial opportunities for growth by encouraging a transition to ourmethod.  Corn flour is primarily used toproduce corn tortillas, a principal staple of the Mexican diet.  In fact, in 2003, corn flour for tortillamanufacturing accounted for approximately 94% of our total corn flour salesvolume in Mexico, with the balance being used for the manufacture of tortillachips.  The tortilla industry is one ofthe largest industries in Mexico as tortillas constitute the single largestcomponent of Mexico’s food industry. However, there is still reluctance to abandon traditional practice,particularly in central and southern Mexico, because corn dough producersand/or tortilla producers using the traditional method incur lower expenses byworking in an underground economy. Additionally, most of the time they are notrequired to comply with environmental regulations, which also represent savingsfor them.  To the extent regulations inMexico improve and we and our competitors are on the same footing, we expect tobenefit from these developments.

 

We have embarked onseveral programs to promote corn flour sales to tortilla producers andconsumers.  We offer incentives topotential customers, such as small independent *tortillerías*, to convert tothe corn flour method from the traditional wet corn dough method.  The incentives we offer include new, easy touse equipment designed specifically for small-volume users, financing, andindividualized training.  For example,in order to assist

 

11

----

 

traditional tortillaproducers in making the transition to corn flour, we sell specially designedmixers made by Tecnomaíz, S.A. de C.V., or Tecnomaíz, one of GRUMA’s researchand development subsidiaries.  Theseincentives are helping us tap into a significant potential market.  We also help our *tortillería* customers toimprove sales by directing consumer promotions to heighten the desirability oftheir products and increase consumption, which, in turn, should increase cornflour sales.  These efforts to improvesales include prime time advertising on television as well as radio, magazineand billboard advertising.  In 2004, weintend to have our specialized sales teams continue their efforts to providebetter and more individualized service to different types of customers.

 

We have also developedthe “in-store *tortillería*” concept, which involves the on-site manufactureand sale of tortillas in supermarkets using MASECA® brand corn flourand machinery supplied by our technology and equipment operations.  Through this promotion, we seek to increaseconsumer exposure to, and acceptance of, tortillas made with corn flour.  As of December 31, 2003, 67% ofsupermarkets throughout Mexico hosted our “in-store *tortillerías*.”

 

During 2003 our maininitiatives were focused on developing a successful business model for ourcustomers to increase the consumption of corn-flour based products generallyand our products specifically.  Someexamples of these initiatives were:

 

•                  helpingour customers to develop new higher margin products such as tortilla chips,taco shells and enchilada tortillas, reflecting current consumption trends;

 

•                  helpingour customers develop new profitable distribution schemes to increase theirmarket penetration and sales; and

 

•                  developingtailored marketing promotions to increase consumption in certain customersegments.

 

At the end of 2003 westarted a national marketing campaign to emphasize the benefits and nutritionalvalue of tortillas made with 100% MASECA® corn flour. This campaign will targetboth consumption of tortillas made by our customers and consumption of our retailcorn flour packages sold directly to consumers by repositioning the use of cornflour not only for making tortillas but for a wide variety of foods which arepart of the Mexican diet.

 

The demand for corn flourvaries slightly with the seasons. After the May/June andDecember harvests, when corn is more abundant and thus less expensive,tortilla producers are more inclined to purchase corn and use the traditionalmethod.  In the months immediatelypreceding such harvests, corn is more costly and in shorter supply and moretortilla producers then employ the dry corn flour method of production.

 

**Competitionand Market Share**

 

We face competition onthree levels—from other corn flour producers, from sellers of wet corn doughand from the many *tortillerías* that produce their own wet corn dough on theirpremises.  Our estimates indicate that49% of tortilla producers continue to use the traditional wet corn doughmethod.

 

Our biggest challenge inincreasing the use of corn flour is the prevalence of the traditional method(cooked-corn method). In the corn flour industry, our principal competitors areGrupo Minsa, S.A. de C.V., previously known as Maíz Industrializado Conasupo,S.A. de C.V., or MICONSA, and regional corn flour producers.  We estimate that our market share of cornflour sales in Mexico during 2003 was approximately 71%.  We compete against other corn flourmanufacturers on the basis of quality, brand recognition, technology, customerservice and nationwide coverage.  Webelieve that we have certain competitive advantages resulting from ourproprietary technology, greater economies of scale and broad geographiccoverage, which may afford us opportunities to more effectively source rawmaterials and reduce transportation costs.

 

12

----

 

**Operationsand Capital Expenditures**

 

We currently own 18 cornflour mills, all of which are located throughout Mexico, typically within corngrowing regions and those of large tortilla consumption. One of the plants(Chalco) is temporarily closed. The Chalco plant has been inactive sinceOctober 1999. We have temporarily shifted production to other plants toachieve savings in overhead costs.  Weintend to reopen the Chalco plant in the fourth quarter of 2004.  Due to the maintenance program we put inplace in the Chalco plant since the closing, we currently estimate that thereopening cost of the Chalco plant will not be significant, and we plan tostart production with an estimated 40,000 tons per year.  The Zamora plant has been inactive sinceJuly 2000 and its real estate assets are available for sale.

 

As a result ofconstruction and expansion of our plants, we increased our installed corn flourmanufacturing capacity from approximately 1.0 million tons per year as ofJanuary 1, 1990 to 2.3 million tons per year as of December 31,2003.  Most of this construction andexpansion took place between 1992 and 1995. In recent years, our capital expenditures for our plants were primarilyused to update technology and corn flour production process.  We spent U.S.$0.4 million, U.S.$2.9 millionand U.S.$7.2 million for these purposes in 2001, 2002 and 2003, respectively.Although no assurances can be given as to future levels of capital expenditures,during the first quarter of 2004 we spent U.S.$0.6 million on investments infixed assets of GIMSA in 2004, and currently project total investments in fixedassets during 2004 of approximately U.S.$7.6 million, which will be usedprimarily for upgrading production equipment, acquisition of transportationequipment and information technology upgrades.

 

We believe we have themost extensive nationwide corn purchasing and corn flour distributioncapabilities of any corn flour producer in Mexico, providing us with asignificant competitive advantage.  Toenhance our presence in particular geographic areas, we have transferred aminority interest in certain subsidiaries to local investors, unions anddevelopment agencies.  Pursuant to anagreement between us and Investigación de Tecnología Avanzada, S.A. de C.V., orINTASA, a wholly-owned subsidiary of GRUMA, our controlling shareholder, INTASAprovides technical assistance to each of our operating subsidiaries for whicheach pays to INTASA a fee equal to 0.5% of its consolidated net sales. Each of ourcorn flour facilities use proprietary technology developed by GRUMA’stechnology and equipment operations.

 

**RawMaterials**

 

Corn is the principal rawmaterial required for the production of corn flour, and constitutedapproximately 69% of our cost of sales for 2003.  We purchase corn primarily from Mexican growers and grainelevators, or if domestic supply proves insufficient, from world markets atinternational prices under import permits granted by the Mexican government.  Our domestic corn purchases are made on aspot basis pursuant to short-term contractual arrangements, which are generallyin the form of oral agreements entered into at the beginning of theharvest.  Compañía NacionalAlmacenadora, S.A. de C.V., our subsidiary, contracts for and purchases thecorn, and also monitors, selects, handles and ships the corn.

 

We believe that thediverse geographic locations of our production facilities in Mexico enables usto achieve savings in raw material transportation and handling.  In addition, by sourcing corn locally forour plants, we are better able to communicate with local growers concerning thesize and quality of the corn crop and are better able to maintain qualitycontrol.  In Mexico, we purchase corn forcash in order to strengthen our ability to obtain the highest quality corn onthe best terms.

 

Traditionally, domesticcorn prices in Mexico tend to be higher than those abroad, but do follow trendsin the international market.  Duringmost periods, the price at which we purchase corn depends on the internationalcorn market. As a result, corn prices are sometimes unstable and volatile.  In certain periods in the past, however,these fluctuations have been significantly affected by government regulationsand policies.  The Mexican government’s decisionto discontinue the subsidy program for tortilla consumers in 1999 and toincrease corn imports and support for corn growers in 1999 and 2000, resultedin drastic decreases in corn prices.  In1998, the average cost for our corn purchases in Mexico and abroad wasapproximately Ps.2,503 per ton compared to Ps.1,350 per ton, in 2001.  In 2002, corn prices generally remainedstable through October but increased to approximately Ps.1,612 per tonbeginning in November, reflecting an international trend.  However, the average cost for our cornpurchases in 2002 was Ps.1,346 per ton. In 2003, the average cost of our corn purchases increased to Ps. 1,518per ton.  For more information regardingthe government’s effect on corn prices, see “Item 5. Operating and Financial

 

13

----

 

Review andProspects—Management’s Discussion and Analysis of Financial Condition andResults of Operations––Effects of Deregulation of the Mexican Tortilla and CornFlour Industry.”

 

In addition to corn, theother principal materials and resources used in the production of corn flourare packaging materials, water, lime and energy.  We believe that our sources of supply for these materials andresources are adequate, although energy and packaging costs tend to bevolatile.

 

**Distribution**

 

Our products aredistributed through independent transport firms contracted by us.  Most of our sales are made free-on-board atour plants, in particular those to tortilla manufacturers.  With respect to other sales, in particularretail sales (one-kilogram packages) to the Mexican government and largesupermarket chains, we pay the freight cost.

 

**Historyand Development**

 

Grupo Industrial Maseca,S.A. de C.V. is a corporation (*sociedad anónima de capital variable*)registered in Monterrey, Mexico under the Mexican Companies Law (*Ley Generalde Sociedades Mercantiles*) on March 12, 1981 with a corporatelife of 99 years.  Our full legal nameis Grupo Industrial Maseca, S.A. de C.V., but we are also known as GIMSA andMaseca.  The address of our principalexecutive office is located at Avenida La Clínica 2520, Edificio Delta, PrimerPiso, Col. Sertoma, Monterrey, Nuevo León, 64710 México and our telephonenumber is (52) 818-3-99-33-00.  Ourlegal domicile is Monterrey, Nuevo León, México.

 

We were founded in 1949,when Roberto González Barrera, the Chairman of our board of directors and ChiefExecutive Officer, started producing and selling corn flour in NortheasternMexico as an alternative ingredient in producing tortillas.  Prior to our founding, all corn tortillaswere made using a wet corn dough method. We believe that the preparation of tortillas using the corn flour methodpresents major advantages including greater efficiency and higher quality.

 

We believe the gradualtransition to the dry corn flour method offers significant opportunities forour growth.  Today, we are the largestcorn flour producer in Mexico with a 71% share of the corn flour market.

 

**OrganizationalStructure**

 

We are a subsidiary ofGRUMA, a Mexican holding company with operations in Mexico, the United States,Venezuela, Central America and United Kingdom. Our sister companies produce corn flour in other countries as well aspackaged tortillas, other tortilla-related products and wheat products.  In 2003 our sales comprised 23% of GRUMA’stotal sales.

 

We are also currently theparent of the following wholly-owned and majority-owned subsidiaries, allincorporated in Mexico.  They all engagein the production of corn flour and related activities including arranging forthe purchase of corn and other raw materials.

 

14

----

 
|                                                         |   | **Percentage  of  ownership** |   |
|--------------------------------------------------------------|--------|-------------------------------|--------|
| **Corn flour  manufacturing subsidiaries**:                  |   |                          |   |
| Molinos Azteca, S.A. de C.V.(1)                              |   | 100.00                        | %      |
| Industrias de Río Bravo, S.A. de C.V.(1)                |   | 98.34                         |   |
| Harinera de Veracruz, S.A. de C.V.                           |   | 100.00                        |   |
| Molinos Azteca de Jalisco, S.A. de C.V.                      |   | 100.00                        |   |
| Molinos Azteca de Chalco, S.A. de C.V.                       |   | 57.40                         |   |
| Harinera de Maíz de Jalisco, S.A. de C.V.               |   | 100.00                        |   |
| Harinera de Yucatán, S.A. de C.V.                       |   | 88.57                         |   |
| Harinera de Maíz de Mexicali, S.A. de C.V.              |   | 85.00                         |   |
| Molinos Azteca de Chiapas, S.A. de C.V.                      |   | 90.00                         |   |
| Molinos Azteca de Veracruz, S.A. de C.V.                     |   | 100.00                        |   |
|                                                         |   |                          |   |
| **Service and other  subsidiaries:**                         |   |                          |   |
| Compañía Nacional Almacenadora, S.A. de  C.V.      |   | 100.00                        | %      |
| Servicios Administrativos y Financieros  Gimsa, S.A. de C.V. |   | 100.00                        |   |
| Industria Tortilladora Azteca, S.A. de C.V.                  |   | 100.00                        |   |
| Arrendadora de Maquinaria de Chihuahua,  S.A. de C.V.        |   | 100.00                        |   |

 

----

(1)                                  OnJanuary 1, 2004 Industrias de Río Bravo, S.A. de C.V. merged with Molinos Azteca, S.A. de C.V.

 

**REGULATIONS**

 

**Cornand Tortilla Subsidies and Import Policies**

 

Due in part to theimportance of tortillas in the Mexican diet, the Mexican government has enactedvarious policies that have distorted the corn and tortilla markets.  Prior to January 1, 1999, thegovernment subsidized corn purchases made by tortilla producers and set retailtortilla prices.  Although the subsidiesand price controls were dismantled at that time, the government took othermeasures that affected the price of corn and tortillas.  These included the closing of CONASUPO,which resulted in the sale of its significant corn reserves, the increaseddistribution of corn import permits and increased funding for support programsfor corn growers.  For more informationon these policies and their effect on our costs and sales, see “Item 5.Operating and Financial Review and Prospects—Management’s Discussion andAnalysis of Financial Condition and Results of Operations––Effects ofDeregulation of the Mexican Tortilla and Corn Flour Industry.”

 

**EnvironmentalRegulations**

 

Our Mexican operationsare subject to Mexican federal, state and municipal laws and regulationsrelating to the protection of the environment. The principal federal environmental laws are the *Ley General de Equilibrio Ecológico yProtección al Ambiente* (the General Law of Ecological Equilibriumand Protection of the Environment, or the Mexican Environmental Law), which isenforced by the *Secretaría de Medio Ambiente y Recursos Naturales* (theMinistry of the Environment and Natural Resources, or SEMARNAT) and the *Ley Federalde Derechos* (the Mexican Federal Law of Governmental Fees).  Under the Mexican Environmental Law, each ofour facilities engaged in the production of corn flour is required to obtain anoperating license from SEMARNAT upon initiating operations, and then annuallysubmit a certificate of operation to maintain the operating license.  Furthermore, the Mexican Federal Law ofGovernmental Fees requires that Mexican manufacturing plants pay a fee for thedischarge of residual waste water to drainage. Rules have been promulgated concerning hazardous substances and water,air and noise pollution. In particular, Mexican environmental laws andregulations require that Mexican companies file periodic reports with respectto air and water emissions and hazardous wastes.  They establish standards for waste water discharge.  We must also comply with zoning regulationsas well and rules regarding health, working conditions and commercial matters.SEMARNAT and the Federal Bureau of Environmental Protection can bringadministrative and criminal proceedings against companies that violateenvironmental laws, as well as close non-complying facilities.

 

15

----

 

We believe we arecurrently in compliance in all material respects with all applicable Mexicanenvironmental regulations.  The level ofenvironmental regulation and enforcement in Mexico has increased in recent years.  We expect this trend to continue and to beaccelerated by international agreements between Mexico and the UnitedStates.  To the extent that newenvironmental regulations are promulgated in Mexico, we may be required toincur additional remedial capital expenditures to comply.  Management is not aware of any pendingregulatory changes that would require additional remedial capital expendituresin a significant amount.

 

**CompetitionRegulations**

 

The *Ley Federal de Competencia Económica*(the Federal Economic Competition Law, or the Mexican Competition Law), wasapproved by the Mexican Congress and published in the *Diario Oficial de la Federación*on December 24, 1992 and became effective on June 22, 1993.  The Mexican Competition Law and the *Reglamentode la Ley Federal de Competencia Económica* (the Regulations of theMexican Competition Law), effective as of March 5, 1998, regulatemonopolies and monopolistic practices and require Mexican government approvalof certain mergers and acquisitions. The Mexican Competition Law grants government the authority to establishprice controls for products and services of national interest qualified as suchby Presidential decree, and established the *Comisión Federal de Competencia*, orFederal Competition Commission, to enforce the law.  Mergers and acquisitions and other transactions that may restraintrade or that may result in monopolistic or anti-competitive practices orcombinations must be approved by the Federal Competition Commission.  The Mexican Competition Law may potentiallylimit our business combinations, mergers and acquisitions and may subject us togreater scrutiny in the future in light of our market presence, although it hashad little effect on our operations, and we do not believe that thislegislation will have a material adverse effect on our existing or developingbusiness operations.

 

## **Item5.**                              Operatingand Financial Review and Prospects.

 

**MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF OPERATIONS**

 

*You should read the following discussion in conjunction withour consolidated financial statements and the notes thereto included elsewhereherein.  Our consolidated financialstatements have been prepared in accordance with Mexican GAAP, which differfrom U.S. GAAP in certain significant respects.  See Note 15 to the consolidated financial statements forinformation related to the nature and effect of such differences, as theyrelate to us and a quantitative reconciliation to U.S. GAAP of our consolidatednet income and stockholders’ equity.*

 

**InflationAccounting**

 

Mexican GAAP requiresthat financial statements recognize the effect of inflation in accordance withBulletin B-10 of the Mexican Institute of Public Accountants, as amended. Theintended effect of such recognition is to present all information in comparablemonetary units and thereby eliminate the distorting effect of inflation in thefinancial statements. Unless otherwise stated herein, financial information inthe financial statements and throughout this Form 20-F has been restated inpesos of constant purchasing power as of December 31, 2003.

 

Mexican inflationaccounting requires, among other considerations, the determination ofcomprehensive financing cost, which is composed of interest expense, interestincome, foreign exchange gains or losses and an item called monetary positiongain or loss.  The monetary positiongain or loss account is used to reflect the effect of inflation on a company’smonetary assets and liabilities.  Bydetermining a company’s net monetary position (monetary assets minus monetaryliabilities) and applying inflation indices for the period under consideration,the impact of inflation on a company’s monetary items may be quantified andreflected in earnings.  Thus, ifmonetary liabilities are larger than monetary assets, the company willrecognize a gain from inflation as its liabilities will be worth less uponrepayment due to the reduced value of the currency from inflation.  If monetary assets exceed monetaryliabilities, on the other hand, the company will recognize a loss as itsmonetary assets will be worth less in terms of purchasing power.

 

16

----

 

**CriticalAccounting Policies**

 

Management’s Discussionand Analysis of Financial Condition and Results of Operations discusses certainfinancial information included in our consolidated financial statements, whichhave been prepared in accordance with Mexican GAAP as promulgated by theMexican Institute of Public Accountants. A reconciliation from Mexican GAAP to U.S. GAAP of net income and totalstockholders’ equity is included in Note 15 to our consolidated financialstatements.  The preparation of thesefinancial statements requires management to make estimates and assumptions thataffect the reported amounts of assets and liabilities and the disclosure ofcontingent assets and liabilities at the date of the financial statements, aswell as the reported amounts of revenues and expenses during the reportingperiod.

 

We have identified themost critical accounting principles that involve a higher degree of judgmentand complexity and that management believes are important to a more completeunderstanding of our financial position and results of operations.  These policies are outlined below.

 

Additional accountingpolicies that are also used in the preparation of our consolidated financialstatements are outlined in the notes to our consolidated financial statementsincluded in this Annual Report.  SeeNote 6 to our consolidated financial statements.

 

***Property, Plant andEquipment***

 

We depreciate ourproperty, plant and equipment over their respective estimated usefullives.  Useful lives are based onmanagement’s estimates of the period that the assets will continue to supportproduction requirements or generate sales of our products and are adjusted whenthose estimates change.  Estimates arebased on the nature of the asset, historical usage with consideration given totechnological changes, our current strategy, as well as internal engineeringstudies.  To the extent that ourestimates are incorrect, our periodic depreciation expense or carrying value ofour assets may be impacted.

 

We also evaluate thecarrying value of property, plant and equipment to be held and used, and anyassets to be disposed of, when events or circumstances suggest that thecarrying value may not be recoverable, such as temporary shut downs orpermanent closures of plants.  Suchreviews have been necessary in recent years. Impairment losses for equipment held and used are recorded when theundiscounted cash flows estimated to be generated by those assets are less thantheir carrying amount.  The estimates ofundiscounted cash flows take into consideration expectations of futuremacroeconomic conditions as well as our internal strategic plans.  Therefore, inherent in the estimated futurecash flows is a certain level of risk which we have considered in ourvaluation; nevertheless, actual future results may differ.  Should impairment exist, the amount of theloss is then quantified by comparing the carrying amount of the assets to thediscounted cash flows.  For assets to bedisposed of, we assess whether machinery or equipment can be used at otherfacilities and, if not, estimate the net proceeds to be realized upon sale ofthe assets.  Primarily as a result ofplant rationalization, certain facilities and equipment are not currently inuse in operations.  We have recordedimpairment losses related to certain unused assets and such losses may potentiallyoccur in the future.

 

***Goodwill***

 

Under Mexican GAAP,goodwill is amortized on a straight-line basis over estimated useful lives.

 

Under U.S. GAAP,effective January 1, 2002, we applied FAS 142.  Under FAS 142, goodwill is no longer amortized, but is subject toannual impairment testing.

 

The identification andmeasure of goodwill impairment involves the estimation of fair value of thereporting units.  Determining the fairvalue of a reporting unit under the first step of the goodwill impairment test anddetermining the fair value of individual assets and liabilities of a reportingunit (including unrecognized intangible assets) under the second step of thegoodwill impairment test is judgmental in nature and often involves the use ofsignificant estimates and assumptions. These estimates and assumptions could have a significant impact onwhether or not an impairment charge is recognized and also the magnitude of anysuch charge.  We perform internalvaluation analyses and consider relevant internal data as well as other marketinformation that is publicly

 

17

----

 

available.  Estimates of fair value are primarilydetermined using discounted cash flows. This approach uses significant estimates and assumptions includingprojected future cash flows (including timing), a discount rate reflecting therisk inherent in future cash flow and a perpetual growth rate.  Inherent in these estimates and assumptionsis a certain level of risk which we believe we have considered in ourvaluation.  Nevertheless, if futureactual results differ from estimates, a possible impairment charge may berecognized in future periods related to the write-down of the carrying value ofgoodwill.

 

***Deferred Income Taxes***

 

Under both Mexican andU.S. GAAP, we record deferred income tax assets and liabilities using enactedtax rates for the effect of temporary differences between the book and taxbasis of assets and liabilities.  Ifenacted tax rates change, we adjust the deferred tax assets and liabilitiesthrough the provision for income taxes in the period of change, to reflect theenacted tax rate expected to be in effect when the deferred tax itemsreverse.  We also record a valuationallowance to reduce our deferred tax assets to the amount that is more likelythan not to be realized.  While we haveconsidered future taxable income and ongoing prudent and feasible tax planningstrategies in assessing the need for the valuation allowance, in the event wewere to determine that we would be able to realize our deferred tax assets in thefuture in excess of the net recorded amount, an adjustment to the deferred taxasset would increase income in the period such determination was made.  Should we determine that we would not beable to realize all or part of our net deferred tax asset in the future, anadjustment to the deferred tax asset would be charged to income in the periodsuch determination was made.

 

**Effectsof Deregulation of the Mexican Tortilla and Corn Flour Industry**

 

Because of the importanceof tortillas as a principal staple in the Mexican diet, the Mexican governmenthas regulated the domestic corn, corn flour and tortilla industry, in one formor another, for approximately thirty years. With the deregulation of the corn flour and tortilla markets onJanuary 1, 1999, we believed that we were well positioned for growth.  As tortilla prices were no longer to be setby the government, we anticipated a price war among tortilla producers thatwould accelerate the switch to the more efficient dry corn flour method in aneffort to reduce costs.  However, theMexican government accelerated the sale of its remaining corn inventoriesduring 1999 and since 1999 has issued import permits for corn which resulted indrastic decreases in corn prices.  Thisin turn drove down corn flour prices as tortilla producers switched from cornflour to raw corn.  This trend continuedin 2001 and 2002, although to a lesser extent, during which time corn pricesfell approximately 0.5% and 0.4%, respectively.  During 2003, the cost of GIMSA’s corn purchases increased about13% while our average corn flour price increased only about 4%.

 

Despite the drop in cornand corn flour prices after deregulation, tortilla prices drastically increasedafter January 1, 1999 and have remained high through June of 2004.  Tortilla price increases generally have anegative effect on our sales volume. During the period from 1999 through the end of 2003, tortilla pricesincreased approximately 104% (in nominal terms) while inflation wasapproximately 40% in that period.  Mostof the price increase took place at the beginning of 1999 (once thederegulation was effective on January 1), with an estimated nationwideaverage tortilla price increase of 43% (in nominal terms) in 1999 versusMexican inflation of 12.3% in 1999. Since 2000, tortilla prices continued their upward trend, but at aslower rate.  During the first threemonths of 2004, we estimate that tortilla prices increased approximately3%.  We believe tortilla prices arelikely to stabilize or increase at lower rates although we can give noassurances in this regard.

 

18

----

 

***Complementary Revenues. ***Until December 31,1998, the Mexican government, in recognition of the importance of tortillas asa principal staple in the Mexican diet, established below market tortillaprices and consequently regulated corn flour prices and paid complementaryrevenues to corn flour producers, subject to specified volume ceilings.  Complementary revenues accounted for 12.2%of our net sales in 1998.  Effective asof December 31, 1998, the Mexican government deregulated the corn flourand tortilla industry and, in particular, terminated the complementary revenueprogram and allowed the prices of corn flour and tortillas to be determined bycompetition and other market conditions. The termination of this program, combined with the othermarket-distortive effects described above, has negatively affected thetransition to competitive corn and corn flour markets and has negativelyaffected our results of operations.

 

***Commercialization Program. ***Since December 1996,ASERCA, a Mexican government agency, has maintained a separate program designedto promote the purchase of corn in certain regions of Mexico.  Under this program, called thecommercialization program, the Mexican government provides payments to cornpurchasers based partly on international corn prices.  The net effect is that these purchasers receive corn below thedomestic market price of corn. The reimbursements vary depending upon the sizeof the corn harvest in Mexico’s various growing regions.  The amount of corn available under thisprogram has been small.  Payments underthe commercialization program represented less than 1% of our net sales in2001, 2002 and 2003.

 

**RESULTS OF OPERATIONS**

 

We are the leadingMexican producer of corn flour.  We hadan estimated market share of approximately 71% of the Mexican corn flour marketin 2003.  Corn flour is used primarilyto make tortillas, one of the principal staples of the Mexican diet.  We estimate that our corn flour is used in36% of the corn tortillas consumed in Mexico. From 1989 to 1996, the corn flour segment of the overall tortilla marketexperienced significant growth, increasing from 22% of the tortilla market inMexico in 1988 to approximately 54% in 1996. From 1997 through 2003, due to changes relating to the deregulation ofthe tortilla industry, the corn flour segment declined to 51% of the overalltortilla market (based on our estimates). We believe that the overall increase in corn flour industry sales since1989 has resulted primarily from the substitution of the corn flour method forthe traditional method in the production of tortillas.

 

The following table setsforth certain income statement and operating data for our company for each ofthe periods indicated, expressed as a percentage of total sales and based ondata expressed in pesos of constant purchasing power as of December 31,2003:

 
|                                          |   | **Year Ended  December 31,** |   |
|-----------------------------------------------|--------|-----------------------------------|--------|
|                                          |   | **2001**                          |   | **2002** |   | **2003** |   |
| Net Sales                                     |   | 100.0                             | %      | 100.0 | % | 100.0 | % |
| Cost of Sales                                 |   | 69.9                              |   | 70.4 |   | 73.8 |   |
| Gross Profit                                  |   | 30.1                              |   | 29.6 |   | 26.2 |   |
| Selling, General and Administrative  Expenses |   | 18.8                              |   | 19.0 |   | 18.6 |   |
| Operating Income                              |   | 11.3                              |   | 10.7 |   | 7.6 |   |
| Comprehensive Financing Income (Cost), net    |   | 0.5                               |   | (0.6 | ) | (0.1 | ) |
| Income Taxes                                  |   | 3.3                               |   | 1.4 |   | 1.2 |   |
| Net Income                                    |   | 7.5                               |   | 7.6 |   | 6.0 |   |

 

**FiscalYear Ended December 31, 2003 Compared to Fiscal Year EndedDecember 31, 2002**

 

***Net***Sales

 

Our net sales increasedby 5.0% to Ps.5,201 million in 2003 compared with Ps.4,952 million in2002.  The increase in net salesresulted primarily from corn flour price increases related to higher corn costsand was also due to higher sales volume. We gradually implemented price increases throughout 2003 to offset highercorn costs although we were not able to do so to an extent to fully reflecthigher corn costs.  In constant pesoterms, the average

 

19

----

 

price of corn flourincreased 4% in 2003 compared to 2002. Our sales volume increased 1.0% in 2003 to 1,395,000 tons from 1,386,000tons in 2002 due to higher sales volume to DICONSA resulting from amodification in our sales structure.

 

***Cost***ofSales

 

Our cost of sales as apercentage of net sales increased to 73.8% in 2003 from 70.4% in 2002 dueprimarily to:

 

•                  highercorn costs and, to a lesser extent, higher fuel, electricity and additivecosts; and

 

•                  GIMSA’sgradual price increases during the year not fully reflecting increases in costsmentioned above.

 

In peso terms, our costof sales increased 10.2% to Ps.3,840 million in 2003 from Ps.3,485 million in2002.

 

***Gross***Profit

 

Our gross profitdecreased 7.2% in 2003 to Ps.1,361 million compared to Ps.1,467 million in2002.  Our gross profit margin decreasedto 26.2% in 2003 compared to 29.6% in 2002.

 

***Selling***, GeneralandAdministrativeExpenses

 

Selling, general andadministrative expenses, or SG&A expenses, as a percentage of net salesdecreased to 18.6% in 2003 from 19.0% in 2002 due to better expense absorptionrelated to higher corn flour prices.  Inabsolute terms, SG&A expenses increased 3.0% to Ps.967 million in 2003 fromPs.939 million in 2002, mainly as a result of higher selling expenses due toimprovements in the commercialization and customer-service infrastructure.

 

***Operating***Income

 

Operating incomedecreased 25.4% to Ps.394 million in 2003 compared to Ps.528 million in2002.  Our operating margin declined to7.6% in 2003 compared to 10.7% in 2002.

 

***Comprehensive***FinancingCost (Income),Net

 

Net comprehensive financing cost decreased 82.9% to Ps.5 million in 2003compared to Ps.28 million in 2002.  Thecomponents of comprehensive financing cost, together with an explanation of thesignificant changes, are detailed in the following chart:

 
| **Items**                     |   | **2003**                                                                                |   | **2002** |   | **Change** |   | **Comments**                                                                                                                                                                         |   |
|-------------------------------|--------|-----------------------------------------------------------------------------------------|--------|----------|--------|------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                          |   | **(in  millions of pesos of constant  purchasing power as of  December 31, 2003)** |   |     |   |
| Interest expense              |   | Ps.                                                                                     | 7      |     | Ps.    | 13         |   | Ps.                                                                                                                                                                                  | (6     | ) | •                  Lower  weighted-average interest rates |   |
| Interest income               |   | (67                                                                                     | )      | (77      | )      | 10         |   | •                  Lower  weighted-average interest rates                                  |   |
| Foreign Exchange Loss (Gain)  |   | 4                                                                                       |   | 5        |   | (1         | )      | •                  8% peso  devaluation against the U.S. dollar in 2003                    |   |
| Monetary Position Loss (Gain) |   | 61                                                                                      |   | 87       |   | (26        | )      | •                  Lower  inflation and lower weighted-average net monetary asset position |   |
| Total                         |   | Ps.                                                                                     | 5      |     | Ps.    | 28         |   | Ps.                                                                                                                                                                                  | (23    | ) |   |   |
|                               |        |                                                                                         |        |          |        |            |        |                                                                                                                                                                                      |        |  |  |  |  |

 

20

----

 

***Income***TaxesandEmployees’StatutoryProfitSharing

 

The provision for incometaxes and employees’ statutory profit sharing decreased 31.9% to Ps.65 millionin 2003 compared to Ps.96 million in 2002 due to changes to the statutoryincome tax rate, which will be reduced gradually from 35% to 32% beginning in2003 (34%) and continuing through 2005 (32%). To a lesser extent, the decrease also resulted from lower pre-taxincome.

 

Our effective tax rate(income tax and employees’ statutory profit sharing) for 2003 was 16.4% ascompared to 19.2% in 2002.

 

***Net***Income

 

Our net income decreased17.4% to Ps.312 million in 2003 compared to Ps.378 million in 2002, and our netmargin declined to 6.0% in 2003 from 7.6% in 2002.

 

**FiscalYear Ended December 31, 2002 Compared to Fiscal Year EndedDecember 31, 2001**

 

***Net***Sales

 

Our net sales decreasedby 3.7% to Ps.4,952 million in 2002 compared with Ps.5,143 million in2001.  The decrease in net salesresulted from lower sales volume.  Salesvolume decreased 3.5% in 2002 to 1,386,000 tons from 1,436,000 tons in 2001 dueto a combination of factors, including:

 

•                  a3.1% decrease in trade sales volume (which represented 85.1% of total salesvolume in 2002) resulting from our efforts to limit our customers to those withlow-risk credit profiles.  We arecontinuing to focus on increasing sales to these customers and are providingsuch customers with incentives to increase the percentage of corn flour used intheir raw-material mix; and

 

•                  a5.8% decrease in 2002 in sales volume of one-kilogram consumer retail packagesof corn flour (which represented 14.9% of total sales volume in 2002)reflecting lower sales to DICONSA caused by DICONSA’s restructuring ofoperations, which resulted in an increase in the prices of goods DICONSA sellsto the public and a reduction in DICONSA branches and regional coverage.

 

***Cost***ofSales

 

Our cost of sales as apercentage of net sales increased to 70.4% in 2002 from 69.9% in 2001 dueprimarily to:

 

•                  lowerabsorption of fixed costs as a result of lower sales volume; and

 

•                  anincrease in expenses associated with corn procurement, due to:

 

•                  insufficientcorn supplies in certain regions of Mexico in the fourth quarter of 2002; and

 

•                  highercorn transportation and warehousing costs due to the absence in 2002 ofgovernmental support we received in 2001 to compensate us for using domesticcorn.

 

In peso terms, our costof sales decreased 3.0%, commensurate with the 3.5% decline in sales volume, toPs.3,485 million in 2002 from Ps.3,595 million in 2001.

 

21

----

 

***Gross***Profit

 

Our gross profitdecreased 5.3% in 2002 to Ps.1,467 million compared to Ps.1,549 million in2001.  Our gross profit margin decreasedto 29.6% in 2002 compared to 30.1% in 2001.

 

***Selling***, GeneralandAdministrativeExpenses

 

Selling, general andadministrative expenses, or SG&A expenses, as a percentage of net salesincreased to 19.0% in 2002 from 18.8% in 2001 due to lower sales volume.  In absolute terms, SG&A expensesdecreased 3.0% to Ps.939 million in 2002 from Ps.968 million in 2001 due to theconsolidation of administrative positions at our plants and lower freightexpenses as a result of decreased sales to DICONSA.

 

***Operating***Income

 

Operating income decreased9.1% to Ps.528 million in 2002 compared to Ps.580 million in 2001.  Our operating margin declined to 10.7% in2002 compared to 11.3% in 2001.

 

***Comprehensive***FinancingCost (Income),Net

 

Net comprehensive financing cost increased 217.6% to Ps.28 million in2002 compared to income of Ps.24 million in 2001.  The components of comprehensive financing cost (income), together with anexplanation of the significant changes, are detailed in the following chart:

 

22

----

 
| **Items**                     |   | **2002**                                                                                |   | **2001** |   | **Change** |   | **Comments**                                                                                                                                                                                                                                      |   |
|-------------------------------|--------|-----------------------------------------------------------------------------------------|--------|----------|--------|------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                          |   | **(in  millions of pesos of constant  purchasing power as of  December 31, 2003)** |   |     |   |
| Interest expense              |   | Ps.                                                                                     | 13     |     | Ps.    | 24         |   | Ps.                                                                                                                                                                                                                                               | (11    | ) | •                  Lower  weighted-average interest rates and lower weighted-average levels of  outstanding debt |   |
| Interest income               |   | (77                                                                                     | )      | (109     | )      | 32         |   | •                  Lower  weighted-average interest rates and lower weighted-average outstanding cash  balances primarily during the first half of 2002 |   |
| Foreign Exchange Loss (Gain)  |   | 5                                                                                       |   | 1        |   | 4          |   | •                  14% peso  devaluation against the U.S. dollar in 2002                                                                                |   |
| Monetary Position Loss (Gain) |   | 87                                                                                      |   | 60       |   | 27         |   | •                  Higher  weighted-average net monetary asset position and higher inflation                                                            |   |
| Total                         |   | Ps.                                                                                     | 28     |     | Ps.    | (24        | )      | Ps.                                                                                                                                                                                                                                               | 52     |   |   |   |
|                               |        |                                                                                         |        |          |        |            |        |                                                                                                                                                                                                                                                   |        |  |  |  |  |

 

***Income***TaxesandEmployees’StatutoryProfitSharing

 

The provision for incometaxes and employees’ statutory profit sharing decreased 48.8% to Ps.96 millionin 2002 compared to Ps.187 million in 2001 due to changes to the statutoryincome tax rate, which will be reduced gradually from 35% to 32% beginning in2003 (34%) and continuing through 2005 (32%). To a lesser extent, the decrease also resulted from lower pre-taxincome.

 

See Note 11 to theconsolidated financial statements for more information regarding thischange.  Our effective tax rate for 2002was 15% as compared to 29% in 2001.

 

***Net***Income

 

Our net income decreased2.6% to Ps.378 million in 2002 compared to Ps.388 million in 2001.  However, our net margin improved to 7.6% in2002 from 7.5% in 2001.

 

**CONTRACTUALOBLIGATIONS AND COMMERCIAL COMMITMENTS**

 

At December 31, 2003, materialcontractual obligations and commercial commitments were as follows:

 
| **Contractual  Obligations and  Commercial  Commitments** |   | **Less than  1 Year** |   | **From 1 to  3  Years**            |   | **Over 3  Years** |   | **Total** |   |
|-----------------------------------------------------------|--------|-----------------------|--------|------------------------------------|--------|-------------------|--------|-----------|--------|
|                                                      |   |                  |   | **(in  millions of U.S. dollars)** |   |              |   |
| Operating lease obligations                               |   | .640                  |   | .418                               |   | 0                 |   | 1.058     |   |
| Total                                                     |   | .640                  |   | .418                               |   | 0                 |   | 1.058     |   |

 

23

----

 

**OFF-BALANCE SHEET ARRANGEMENTS**

 

From time to time, weenter into swap and commodity futures contracts to hedge a portion of our keyproduction requirements such as gas and corn, in order to reduce the risk ofprice fluctuations.  These contractshave been short-term and did not exceed the maximum production requirements fora one-year period.  The gain or loss onthese contracts was not significant.  Asof December 31, 2003 our outstanding contracts for natural gas had anominal value of U.S.$738,000.  Wecurrently have no off-balance sheet arrangements outstanding although we mayenter into such arrangements in the future.

 

**LIQUIDITY AND CAPITAL RESOURCES**

 

Our liquidity and capitalresource requirements in recent years reflect capital expenditures used forupgrades of our equipment, working capital requirements and the payment ofdividends.  Although no assurances canbe given as to future levels of capital expenditures, to date we have spentU.S.$0.6 on investments in fixed assets in 2004, and currently project totalinvestments in fixed assets during 2004 of approximately U.S.$7.6 million,which will be used primarily for upgrading production equipment, acquisition oftransportation equipment and information technology upgrades.

 

We fund our liquidity andcapital resource requirements through cash generated from operations.  Funds generated from operations werePs.554.3 million in 2003, Ps.648.3 million in 2002 and Ps.659.7 million in2001.  Our current general policy is tofund our inventory purchases with either cash or short-term borrowings throughuncommitted lines of credit with various Mexican financial institutions, theterms and conditions of which we negotiate at the time of purchase.

 

We believe that our cashreserves and cash generated from operations will be sufficient during the next12 months to meet our liquidity requirements. Because we rely on cash generated from operations to fund our liquidityand capital resource requirements, factors that cause our revenues and netincome to increase or decrease could also cause our sources of liquidity toincrease or decrease.  These factorsinclude fluctuations in the demand for, or price of, our products, as well asfluctuations in the price of corn and tortillas.

 

On December 31,2003, we had cash and cash equivalents of Ps.188 million (U.S. $16.7 million),none of which was denominated in U.S. dollars. See Note 12 to the consolidated financial statements for a discussion offoreign currency balances.

 

Our sources of liquidityare similarly affected by transactions that we enter into in the ordinarycourse of business with GRUMA and other affiliates, including agreements pertaining to the sharing of intellectual property,and providing technical and advisory support services.  When we have excess cash, we provide loansto GRUMA, which owed us Ps.801 million as of June 18, 2004. For more information regarding these transactions, see “Item 7.  Major Shareholders and Related PartyTransactions—Related Party Transactions.”

 

We intend to mitigateliquidity risks by increasing revenues through capitalizing on our existinginfrastructure and production capacity, but we cannot assure you that we willsucceed in this regard.  We haveavailable uncommitted lines of credit with various Mexican financialinstitutions which we could use in the event of a contingency.  Should we elect to utilize the uncommittedlines of credit, we would have to negotiate the terms and conditions at thattime.

 

As of December 31,2003, we had no outstanding debt.

 

We and our subsidiarieshad net working capital, defined as current assets (excluding cash and cashequivalents) minus current liabilities, of Ps.2,558 million and Ps.2,266  million as of December 31, 2003 and2002, respectively.

 

24

----

**RESULTS UNDER U.S. GAAP**

 

Our consolidatedfinancial statements are prepared in accordance with Mexican GAAP, which differin certain significant respects from U.S. GAAP.  See Note 15 to our audited consolidated financial statements forinformation relating to the nature and effect of such differences.  Mexican GAAP financial statements recognizethe effects of inflation, whereas financial statements prepared under U.S. GAAPare presented on a historical cost basis. We are not required to reverse many of the Mexican inflation accountingadjustments when reconciling Mexican GAAP to U.S. GAAP, because theseadjustments provide a means of measuring the effects of price-level changes inthe inflationary Mexican economy. Inflation-adjusted figures are considered amore meaningful presentation than historical cost-based financial reporting forboth Mexican and United States accounting purposes.

 

Net income under U.S.GAAP amounted to Ps.292.7 million in2003, Ps.369.1 million in 2002, and Ps.355.2million in 2001, compared with net income under Mexican GAAP of Ps.312.0million in 2003, Ps.377.5 million in 2002 and Ps.387.6 million in 2001.

 

Stockholders’ equityunder U.S. GAAP amounted to Ps.5,617.9million in 2003 and Ps.5,588.1million in 2002, compared with stockholders’ equity under Mexican GAAP of Ps.5,802.5 million in 2003 and Ps.5,763.6 million in 2002.

 

See Note 15 to theconsolidated financial statements for a discussion of the adjustments underU.S. GAAP.

 

**NEW ACCOUNTING STANDARDS**

 

**NewAccounting Pronouncements under Mexican GAAP**

 

In December 2002,the Mexican Institute of Public Accountants (“MIPA”) issued Bulletin C-15,“Impairment in the Value of Long-Lived Assets and their Disposal” (“BulletinC-15”), which is effective as of January 1, 2004. Bulletin C-15establishes guidance for the identification of certain events that representevidence of a potential impairment in long-lived assets, tangible andintangible. Additionally, it provides guidance for the estimation andrecognition of losses for impairment and their reversal and establishes therequirements of presentation and disclosure of impairment losses anddiscontinued operations. Our management believes that the adoption of BulletinC-15 will not have a significant impact on our results of operations orfinancial condition.

 

In April 2003, theMIPA issued Bulletin C-12, “Financial Instruments with Characteristics ofLiabilities, Equity or Both” (“Bulletin C-12”), which is effective as ofJanuary 1, 2004. Bulletin C-12 establishes standards to classify andmeasure certain financial instruments with characteristics of both, liabilitiesand equity, as well as the disclosure requirements. Our management believesthat the adoption of Bulletin C-12 will not have a significant impact on ourresults of operations or financial condition.

 

In April 2004, theMIPA issued Bulletin C-10, “Derivative financial instruments and hedgeoperations”, which is effective on January 1, 2005, but early adoption isencouraged. Bulletin C-10 establishes, among other things, the characteristicsof derivative financial instruments, the definition and classification ofaccounting models for hedge operations, the conditions to consider a financialinstrument as having hedging purposes, and the recognition, valuation anddisclosure guidelines for derivative financial instruments. Our management iscurrently evaluating the effective date for the adoption of this standard andits effect on our results of operation and financial position.

 

In May 2004, the MIPAissued Bulletin B-7, “Business Acquisitions” (“Bulletin B-7”) which providesguidance for accounting of business acquisitions and investments in associatedentities. Bulletin B-7 requires that all business acquisitions and investmentsin associates be accounted for by the purchase method of accounting, andsupplements the accounting for the recognition of intangible assets as a partof a business acquisition. Upon adoption of Bulletin B-7, goodwill ceases to beamortized, and is rather tested for impairment at least annually. Bulletin B-7also provides guidance for the acquisition of a minority interest, and forasset transfers and business acquisitions among entities under common control.Bulletin B-7 is effective for periods beginning on January 1,

 

25

----

 

2005 with early adoptionencouraged. Our management is currently evaluating the effects that thisBulletin will have on our financial position and results of operations.

 

**Recently Issued U.S. AccountingStandards**

 

In April 2003, theFASB issued SFAS No. 149, “Amendment of SFAS No. 133 on Derivative Instrumentsand Hedging Activities”. SFAS No. 149 amends and clarifies financial accountingand reporting for derivative instruments by requiring that contracts withcomparable characteristics be accounted for similarly. In particular, thisstatement (i) clarifies the circumstances under which a contract with aninitial net investment meets the characteristics of a derivative, (ii)clarifies when a derivative contains a financing component, (iii) amends thedefinition of an underlying to conform it to the language used in FIN No. 45,“Guarantor’s Accounting and Disclosure Requirements for Guarantees, IncludingIndirect Guarantees of Indebtedness of Others” and (iv) amends certain otherexisting pronouncements. SFAS No. 149 is effective for contracts entered intoor modified after June 30, 2003, and for hedging relationships designatedafter June 30, 2003. The adoption of SFAS No. 149 did not have a materialimpact on the Company’s consolidated results of operations or financialcondition.

 

In May 2003, theFinancial Accounting Standards Board (“FASB”) issued SFAS No. 150, “Accountingfor Certain Financial Instruments with Characteristics of Both Liabilities andEquity”. The statement requires issuers to classify as liabilities (or assetsin some circumstances) three classes of freestanding financial instruments thatembody obligations for the issuer. Generally, the statement is effective forfinancial instruments entered into or modified after May 31, 2003 and isotherwise effective at the beginning of the first interim period beginningafter June 15, 2003. The adoption of SFAS No. 150 did not have a materialimpact on the Company’s consolidated results of operations or financialcondition.

 

In January 2003, theFASB issued Interpretation No. 46 (“FIN 46”), “Consolidation of VariableInterest Entities, an interpretation of ARB 51”.  The primary objectivesof FIN 46 are to provide guidance on the identification of entities for whichcontrol is achieved through means other than through voting rights (“variableinterest entities” or “VIE”) and how to determine when and which businessenterprise should consolidate the VIE (the “primary beneficiary”).  Thisnew model for consolidation applies to an entity which either (1) the equityinvestors (if any) do not have a controlling financial interest or (2) theequity investment at risk is sufficient to finance that entity’s activitieswithout receiving additional subordinated financial support from other parties. In addition, FIN 46 requires that both the primary beneficiary and allother enterprises with a significant variable interest in a VIE make additionaldisclosures.  FIN 46 applies immediately to variable interest entitiescreated after January 31, 2003, and to variable interest entities in whichan enterprise obtains an interest after that date.  It applies in thefirst fiscal year or interim period beginning after June 15, 2003, tovariable interest entities in which an enterprise holds a variable interestthat it acquired before February 1, 2003.  FIN 46 applies to publicenterprises as of the beginning of the applicable interim or annual period, andit applies to nonpublic enterprises as of the end of the applicable annualperiod. In December 2003, the FASB redeliberated certain proposedmodifications and revised FIN 46 (“FIN 46-R”). The revised provisions areapplicable no later than the first reporting period ending after March 15,2004. The Company does not expect that the adoption of FIN 46 and FIN 46-R willhave a material impact on its financial statements.

 

## **Item 6**.                       Directors,Senior Management and Employees.

 

**DIRECTORS AND EXECUTIVE OFFICERS**

 

**Directors**

 

Our bylaws require thatour board of directors be composed of a minimum of five and maximum of twentydirectors as decided by our Shareholders at the Ordinary General Shareholders’Meeting.  Pursuant to Mexican law, atleast 25% of the members of the board of directors must be independent.

 

The board of directors,which was elected at the Ordinary General Shareholders’ Meeting held onApril 30, 2004, currentlyconsists of 12 directors, each one having its corresponding alternatedirector.  The following table setsforth the current members of our board of directors, their ages, their years ofservice, their principal occupations

 

26

----

 

and directorships, theterms of expiration of their positions as directors, their directorshipclassifications as defined in the Code of Best Corporate Practices promulgatedby a committee formed by the Mexican Entrepreneur Coordinating Board (*ConsejoCoordinador Empresarial*), and their alternates. 

 
| Roberto González Barrera        |   | Age:                                                   |   | 73                                                                                                                                                                                                                                                                                                                                                         |
|--------------------------------------|--------|--------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                 |   | Years as Director:                                     |   | 23                                                                                                                                                                                                                                                                                                                                                         |
|                                 |   | Principal occupation and previous business experience: |   | Chief Executive Officer and Chairman of the Board of GIMSA and  GRUMA  Chairman of the Board of  Directors of Grupo Financiero Banorte, S.A. de C.V.                                                                                                                                                                                                  |
|                                 |   | Term Expires:                                          |   | 2004                                                                                                                                                                                                                                                                                                                                                       |
|                                 |   | Directorship Type:                                     |   | Shareholder, related                                                                                                                                                                                                                                                                                                                                       |
|                                 |   | Alternate:                                             |   | Juan A. Quiroga García                                                                                                                                                                                                                                                                                                                                |
|                                 |   |                                                   |   |                                                                                                                                                                                                                                                                                                                                                       |
| Alejandro Álvarez Guerrero      |   | Age:                                                   |   | 78                                                                                                                                                                                                                                                                                                                                                         |
|                                 |   | Years as Director:                                     |   | 14                                                                                                                                                                                                                                                                                                                                                         |
|                                 |   | Principal occupation and previous business experience: |   | Member of the Board of Cablemás, S.A. de C.V. Member of the Board of  Korn Ferry International                                                                                                                                                                                                                                                        |
|                                 |   | Term Expires:                                          |   | 2004                                                                                                                                                                                                                                                                                                                                                       |
|                                 |   | Directorship Type:                                     |   | Independent                                                                                                                                                                                                                                                                                                                                                |
|                                 |   | Alternate:                                             |   | Javier A. Álvarez Figueroa                                                                                                                                                                                                                                                                                                                            |
|                                 |   |                                                   |   |                                                                                                                                                                                                                                                                                                                                                       |
| Rodolfo F. Barrera Villarreal        |   | Age:                                                   |   | 76                                                                                                                                                                                                                                                                                                                                                         |
|                                 |   | Years as Director:                                     |   | 15                                                                                                                                                                                                                                                                                                                                                         |
|                                 |   | Principal occupation and previous business experience: |   | Chairman of the Board of Grupo Quimmco  Member of the Consulting Board of Grupo Financiero BBVA  Bancomer, S.A. de C.V.  Vice President  of the Board of Directors of Grupo Financiero Banorte, S.A. de C.V. and Banco  Mercantil del Norte, S.A. and First Vice President of the Executive Committee  of Grupo Financiero Banorte, S.A. de C.V. |
|                                 |   | Term Expires:                                          |   | 2004                                                                                                                                                                                                                                                                                                                                                       |
|                                 |   | Directorship Type:                                     |   | Independent                                                                                                                                                                                                                                                                                                                                                |
|                                 |   | Alternate:                                             |   | Jésus L. Barrera Lozano                                                                                                                                                                                                                                                                                                                               |
|                                 |   |                                                   |   |                                                                                                                                                                                                                                                                                                                                                       |
| José de la Peña y Angelini |   | Age:                                                   |   | 55                                                                                                                                                                                                                                                                                                                                                         |
|                                 |   | Years as Director:                                     |   | 1                                                                                                                                                                                                                                                                                                                                                          |
|                                 |   | Principal occupation and previous business experience: |   | President of GRUMA’s Latin American Operations, Executive Vice President of Sales and  Marketing of GRUMA, top management positions at Colgate-Palmolive, senior  positions at Chrysler de México, President of the México office of FBC  Worldwide                                                                                         |
|                                 |   | Term Expires:                                          |   | 2004                                                                                                                                                                                                                                                                                                                                                       |
|                                 |   | Directorship Type:                                     |   | Related                                                                                                                                                                                                                                                                                                                                                    |
|                                 |   | Alternate:                                             |   | Gerardo S. Vargas Ateca                                                                                                                                                                                                                                                                                                                                    |

 

27

----

 
| Ernesto Enríquez Uso    |   | Age:                                                   |   | 72                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|------------------------------|--------|--------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                         |   | Years as Director:                                     |   | 3                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|                         |   | Principal occupation and previous business experience: |   | Member of the Board of Molinos Azteca de Chalco, S.A. de C.V.  Chairman of the Board of Directors of  Grupo Enríquez, S.A. de C.V.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|                         |   | Term Expires:                                          |   | 2004                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|                         |   | Directorship Type:                                     |   | Independent                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|                         |   | Alternate:                                             |   | Alejandro Enríquez Larrondo                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|                         |   |                                                   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| Roberto González Moreno |   | Age:                                                   |   | 52                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|                         |   | Years as Director:                                     |   | 19                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|                         |   | Principal occupation and previous business experience: |   | President and Chairman of the Board of Directors of Corporación  Noble, S.A. de C.V., and Noble Marketing International, Inc. Member of the  Board of Banco Mercantil del Norte, S.A., several management positions within  GRUMA including Chief Operating Officer of GIMSA and Director of GRUMA’s  former Fast Food Division, President of RGM Inc., Exportaciones El Parián,  S.A.                                                                                                                                                                                                                                                                  |
|                         |   | Term Expires:                                          |   | 2004                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|                         |   | Directorship Type:                                     |   | Related                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|                         |   | Alternate:                                             |   | Raúl Cavazos Morales                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|                         |   |                                                   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| Juan B. Guichard Michel      |   | Age:                                                   |   | 50                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|                         |   | Years as Director:                                     |   | 2                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|                         |   | Principal occupation and previous business experience: |   | Chairman of the Board of Directors and CEO of Invex, Grupo  Financiero, S.A. de C.V., several positions within Grupo Internacional de  Empresarios, S.A. de C.V., InverMéxico, S.A. de C.V. and Banco Nacional de  México among others.                                                                                                                                                                                                                                                                                                                                                                                                                      |
|                         |   | Term Expires:                                          |   | 2004                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|                         |   | Directorship Type:                                     |   | Shareholder, independent                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|                         |   | Alternate:                                             |   | Juan David Michel                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|                         |   |                                                   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| Eduardo Livas Cantú     |   | Age:                                                   |   | 61                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|                         |   | Years as Director:                                     |   | 18                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|                         |   | Principal occupation and previous business experience: |   | Consultant on financial and strategic issues and mergers and  acquisitions Member of the Board of Directors of GRUMA, Chairman and member  of GRUMA’s Audit Committee, Member of the Board of Directors of Grupo  Financiero Banorte, S.A. de C.V., Member of the Board of Directors of  Banorte, S.A. de C.V. and Bancentro, S.A. de C.V., Chairman and Member of the  Risk Policy Committee of Grupo Financiero Banorte, S.A. de C.V., Member of  the Audit Committee of Grupo Financiero Banorte, S.A. de C.V., several positions within GRUMA including  Chief Financial Officer, President of Gruma Corporation, Chief Executive  Officer of GRUMA and GIMSA |
|                         |   | Term Expires:                                          |   | 2004                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|                         |   | Directorship Type:                                     |   | Independent                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|                         |   | Alternate:                                             |   | Alfredo Livas Cantú                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |

 

28

----

 
| Carlos Hank González            |   | Age:                                                   |   | 32                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|--------------------------------------|--------|--------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                 |   | Years as Director:                                     |   | 1                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|                                 |   | Principal occupation and previous business experience: |   | CEO of Grupo Financiero Interacciones, S.A. de C.V., several top management positions within Grupo  Financiero Interacciones, S.A. de C.V. and   Grupo Financiero Banorte, S.A. de C.V.                                                                                                                                                                                                                                                                                                                    |
|                                 |   | Term Expires:                                          |   | 2004                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|                                 |   | Directorship Type:                                     |   | Related                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|                                 |   | Alternate:                                             |   | Eduardo Sastré de la Riva                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|                                 |   |                                                   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| Román Martínez Méndez |   | Age:                                                   |   | 66                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|                                 |   | Years as Director:                                     |   | 2                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|                                 |   | Principal occupation and previous business experience: |   | President of Internal Auditing of Grupo Financiero Banorte, S.A. de  C.V., Member of the Board of Directors of GRUMA, Member of GRUMA’s Audit  Committee, Several management  positions within GRUMA, including Chief Internal Auditing Officer and  Vice-President of Controllership and Auditing                                                                                                                                                                                                         |
|                                 |   | Term Expires:                                          |   | 2004                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|                                 |   | Directorship Type:                                     |   | Related                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|                                 |   | Alternate:                                             |   | Homero Huerta Moreno                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|                                 |   |                                                   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| Héctor Rangel Domene            |   | Age:                                                   |   | 56                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|                                 |   | Years as Director:                                     |   | 7                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|                                 |   | Principal occupation and previous business experience: |   | Alternate member of the Board of Directors of Grupo Financiero  BBVA-Bancomer, S.A. de C.V.  Alternate  Chief Executive Officer and member of the Board of Directors of Bancomer,  S.A. de C.V.  Chairman of Consejo  Coordinador Empresarial (Mexican Entrepreneur Coordinating Board)                                                                                                                                                                                                               |
|                                 |   | Term Expires:                                          |   | 2004                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|                                 |   | Directorship Type:                                     |   | Independent                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|                                 |   | Alternate:                                             |   | Jaime Alatorre Córdoba                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|                                 |   |                                                   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| Javier Vélez Bautista           |   | Age:                                                   |   | 47                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|                                 |   | Years as Director:                                     |   | 4                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|                                 |   | Principal occupation and previous business experience: |   | Managing Director of Value Link Strategic Management, Member of the  Board of Directors of GRUMA and Financial Expert of the Audit Committee of  GRUMA, alternate director of Grupo Financiero Banorte, S.A. de C.V. and Banco  Mercantil del Norte, S.A., Member of the Risk Management Committee of Grupo  Financiero Banorte, S.A. de C.V., several  management positions within GRUMA including Director of Finance and Planning  of Gruma Corporation, Chief Financial Officer and Chief of Staff of GRUMA |
|                                 |   | Term Expires:                                          |   | 2004                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|                                 |   | Directorship Type:                                     |   | Independent                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|                                 |   | Alternate:                                             |   | Sergio García Boulle                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |

 

Mr. Roberto GonzálezMoreno, a member of our board of directors, is the son of Mr. Roberto GonzálezBarrera, the Chairman of our board of directors.  In addition, Carlos Hank González, a member of our board ofdirectors, is the grandson of Mr. Roberto González Barrera.

 

29

----

 

The board of directorshas regularly scheduled quarterly meetings. The directors were elected for aone-year term by our shareholders at the Annual Meeting held inApril 2004.

 

**Secretary**

 

The secretary of theboard of directors is Mr. Salvador Vargas Guajardo, our General Counsel, andhis alternate is Mr. Guillermo Elizondo Ríos. Mr. Vargas Guajardo is not a member of the board of directors.

 

**StatutoryAuditor**

 

Under Mexican law, astatutory auditor must be elected by our shareholders at the annual ordinarygeneral shareholders meeting for a term of one year.  At the subsequent annual ordinary general shareholders meeting,the statutory auditor is required to review our affairs and report as to theaccuracy of the financial information as presented to shareholders by the boardof directors.  The statutory auditor isalso authorized (i) to call ordinary general shareholders meetings,extraordinary general shareholders meetings and board of directors meetings;(ii) to place items on the agenda for general shareholders meetings andmeetings of the board of directors; and (iii) to attend general shareholdersmeetings, meetings of the board of directors, meetings of the audit committee,and any other meetings of intermediate committees to which the board ofdirectors delegates any activities (without the right to vote). At the OrdinaryGeneral Shareholders’ Meeting held on April 30, 2004, Hugo Lara Silva was elected to serve as our statutoryauditor and Carlos Arreola Enríquez was elected as alternate statutory auditor.

 

Mr. Hugo Lara Silva is 64years old.  He is a retired co-directorof and partner in PricewaterhouseCoopers and was a member of the board ofdirectors, the international executive audit committee and the general partnercounsel of that firm.  Mr. Hugo LaraSilva has experience with a wide variety of businesses in the public andprivate sectors and has been the statutory auditor for companies such as GrupoModelo, S.A. de C.V., Ciba-Geigy Mexicana, S.A. de C.V., El Puerto deLiverpool, S.A. de C.V., Grupo Financiero Bancomer, S.A. de C.V., GrupoMexicano Somex, S.N.C. and Aseguradora Cuauhtémoc, S.A., among others.

 

**AuditCommittee**

 

In accordance withamendments to the Mexican Securities Law promulgated on April 30, 2001, anaudit committee was appointed at the Ordinary General Shareholders’ Meetingheld on April 30, 2004.  Members ofthe audit committee were selected from members of the board of directors.  The current audit committee is comprised ofthree members, two of whom are independent directors within the meaning of theMexican Securities Law.  Set forth beloware the names of our audit committee members, their positions within thecommittee, and their directorship type:

 
| Eduardo Livas Cantú             |   | Position:          |   | Chairman of the Audit  Committee         |
|--------------------------------------|--------|--------------------|--------|------------------------------------------|
|                                 |   | Directorship Type: |   | Independent                              |
|                                 |   |               |   |                                     |
| Javier Vélez Bautista           |   | Position:          |   | Financial Expert of the  Audit Committee |
|                                 |   | Directorship Type: |   | Independent                              |
|                                 |   |               |   |                                     |
| Román Martínez Méndez |   | Position:          |   | Member of the Audit  Committee           |
|                                 |   | Directorship Type: |   | Related                                  |

 

**Forfurther information regarding our audit committee, see “Item 10. AdditionalInformation—Directors.”**

 

**SeniorManagement**

 

Set forth below are thenames of our executive officers, their ages, years of service and currentpositions as our Executive Officers:  

 

30

----

 
| Roberto González Barrera       |   | Age:                          |   | 73                                                                                                                                                                                                                                                          |
|-------------------------------------|--------|-------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                |   | Years as Executive Officer:   |   | 23                                                                                                                                                                                                                                                          |
|                                |   | Current Position:             |   | Chief Executive Officer                                                                                                                                                                                                                                     |
|                                |   | Other Positions:              |   | Chief Executive Officer of GRUMA and  Chairman of the board of directors of GIMSA and GRUMA.  Chairman  of the board of directors of Grupo Financiero Banorte, S.A. de C.V.                                                                            |
|                                |   |                          |   |                                                                                                                                                                                                                                                        |
| Juan Antonio Quiroga García    |   | Age:                          |   | 54                                                                                                                                                                                                                                                          |
|                                |   | Years as Executive Officer:   |   | 6                                                                                                                                                                                                                                                           |
|                                |   | Current Position:             |   | Senior Corporate Controller                                                                                                                                                                                                                                 |
|                                |   | Other Positions:              |   | Chief Corporate Officer of GRUMA.                                                                                                                                                                                                                           |
|                                |   | Previous Business Experience: |   | Vice President of Administration of Gruma  Corporation.  Chief Administrative and  Internal Auditing Officer of GRUMA.                                                                                                                                 |
|                                |   |                          |   |                                                                                                                                                                                                                                                        |
| Salvador Vargas Guajardo            |   | Age:                          |   | 51                                                                                                                                                                                                                                                          |
|                                |   | Years as Executive Officer:   |   | 8                                                                                                                                                                                                                                                           |
|                                |   | Current Position:             |   | General Counsel                                                                                                                                                                                                                                             |
|                                |   | Other Positions:              |   | General Counsel of GRUMA                                                                                                                                                                                                                                    |
|                                |   | Previous Business Experience: |   | Positions at Grupo Alfa, Protexa and Proeza.  Senior partner of two law firms, including  Rojas-González-Vargas-De la Garza y Asociados.                                                                                                          |
|                                |   |                          |   |                                                                                                                                                                                                                                                        |
| Roberto González Alcalá   |   | Age:                          |   | 40                                                                                                                                                                                                                                                          |
|                                |   | Years as Executive Officer:   |   | 2                                                                                                                                                                                                                                                           |
|                                |   | Current Position:             |   | Chief Operating Officer.  Mr.  González is also President of GRUMA’s Mexican Operations.                                                                                                                                                     |
|                                |   | Previous Business Experience: |   | Several positions within GRUMA’s Central American Operations,  including Chief Operating Officer, President of the tortilla division and  President of the corn flour division.   He also worked in the marketing, sales and manufacturing areas. |
|                                |   |                          |   |                                                                                                                                                                                                                                                        |
| Joaquín Rubio Lamas            |   | Age:                          |   | 43                                                                                                                                                                                                                                                          |
|                                |   | Years as Executive Officer:   |   | 4                                                                                                                                                                                                                                                           |
|                                |   | Current Position:             |   | Senior Vice President of Manufacturing and Procurement                                                                                                                                                                                                      |
|                                |   | Previous Business Experience: |   | Director of supply chain management in GRUMA, Chief Operating Officer  of GIMSA.  Several executive positions  within the Company including Chief Executive Officer of Electra Foods  Machinery, Chief Executive Officer of Azteca Milling.            |
|                                |   |                          |   |                                                                                                                                                                                                                                                        |
| Rafael Angel Gárate Muñoz |   | Age:                          |   | 47                                                                                                                                                                                                                                                          |
|                                |   | Years as Executive Officer:   |   | Since January 2004                                                                                                                                                                                                                                     |
|                                |   | Current Position:             |   | Senior Vice President of Commercial Operations                                                                                                                                                                                                              |

 

31

----

 
|                                 |   | Previous Business Experience: |   | Chief Operating Officer of Molinera de México (a GRUMA subsidiary  and our affiliate), SECOFI, CONASUPO and Agroinsa.                                                                                                       |
|--------------------------------------|--------|-------------------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                 |   |                          |   |                                                                                                                                                                                                                             |
| Ramiro Martínez Guerra          |   | Age:                          |   | 60                                                                                                                                                                                                                               |
|                                 |   | Years as Executive Officer:   |   | 15                                                                                                                                                                                                                               |
|                                 |   | Current Position:             |   | Vice President, Administration                                                                                                                                                                                                   |
|                                 |   | Previous Business Experience: |   | Administration Manager of GIMSA.   He has been working in the administration at GIMSA for more than 30  years.                                                                                                              |
|                                 |   |                          |   |                                                                                                                                                                                                                             |
| Guillermo Nicolás Cubas Cordero |   | Age:                          |   | 49                                                                                                                                                                                                                               |
|                                 |   | Years as Executive Officer:   |   | 2                                                                                                                                                                                                                                |
|                                 |   | Current Position:             |   | Vice President, Marketing                                                                                                                                                                                                        |
|                                 |   | Previous Business Experience: |   | Human Development at GRUMA corporate services, marketing at GRUMA’s  Central American operations, training at PRODISA (GRUMA’s packaged tortilla  operations in México), marketing at Industria Lactea Los Pinos. |
|                                 |   |                          |   |                                                                                                                                                                                                                             |
| Guillermo Arteaga MacKinney          |   | Age:                          |   | 42                                                                                                                                                                                                                               |
|                                 |   | Years as Executive Officer:   |   | 5                                                                                                                                                                                                                                |
|                                 |   | Current Position:             |   | Vice President, New Product Development                                                                                                                                                                                          |
|                                 |   | Previous Business Experience: |   | Vice President, Quality Assurance.   Technology Operations Manager of GIMSA. Banco de México and the  University of British Columbia.                                                                                  |
|                                 |   |                          |   |                                                                                                                                                                                                                             |
| Luis Lauro Garza Villezca            |   | Age:                          |   | 58                                                                                                                                                                                                                               |
|                                 |   | Years as Executive Officer:   |   | 11                                                                                                                                                                                                                               |
|                                 |   | Current Position:             |   | Vice President, Human Resources                                                                                                                                                                                                  |
|                                 |   | Previous Business Experience: |   | Labor Relations Manager and Human Resources employee at GIMSA, Grupo  Alfa and Coca-Cola.                                                                                                                                        |

 

Mr. Roberto GonzálezAlcalá, our Chief Operating Officer, is the son of Mr. Roberto GonzálezBarrera, the Chairman of our board of directors and CEO.

 

**Compensationof Directors and Senior Management**

 

The aggregate amount ofcompensation paid by our company during the year ended December 31, 2003to the executive officers mentioned above was Ps.33.9 million, in nominal terms, and to the directors, Ps.471,250 in nominal terms.  The contingent or deferred compensationreserved as of December 2003 is Ps.5.6 million, in nominal terms.  Members of our board of directors are paid afee of Ps.14,500 for each meeting attended as a member.  José de la Peña y Angelini, a member of ourboard of directors, is also an employee of GRUMA.  Under his service contract with GRUMA, if he is terminatedwithout cause before September 1, 2005, he is entitled to receive asseverance, an amount not lower than 50% of his base annual salary, includinghis Christmas bonus.  No other membersof our board of directors have service contracts providing for benefits upontermination of employment.

 

32

----

 

Eligible employees mayparticipate in our Executive Bonus Plan that is based on an individual’sperformance and results of our operations. This program applies to officers, vice presidents and managers.  Variable compensation can range from 15% to32% of annual base salary, depending on the employee’s position.

 

In the past we alsooffered an executive stock purchase plan, which we decided to terminate in2002.

 

**ShareOwnership**

 

The following directorsown shares of GIMSA, with each individual’s ownership representing no more than1% of our capital stock:  Mr. RobertoGonzález Barrera, Mr. Rodolfo F. Barrera Villarreal, Mr. Román Martínez Méndez,and  Mr. Juan Antonio QuirogaGarcía.  In addition, Mr. Juan B.Guichard Michel owns directly and indirectly 54,527,700 shares of GIMSArepresenting approximately 5.94% of our capital stock and Mr. Juan David Michelowns directly and indirectly 37,532,900 shares of GIMSA representingapproximately 4.09% of our capital stock.

 

**EMPLOYEES**

 

On December 31,2003, we had 2,875 employees, ofwhom 1,098 were members of laborunions. Workers at each of our 18 plants are covered by a separate laborcontract, although most of the plants belong to the major workers’confederations such as Confederación Revolucionaria de Obreros Mexicanos(CROM), Confederación Revolucionaria de Obreros y Campesinos (CROC) andConfederación de Trabajadores Mexicanos (CTM). Most salary revisions take place annually, usually in January orFebruary.  We believe that our relationswith our employees are good.  Of ourtotal employees as of December 31, 2003, approximately 62% were white-collar and 38% were blue-collar.  Total employees for 2002 and 2001 were 2,949 and 3,023, respectively.

 

## **Item 7**.                       MajorShareholders and Related Party Transactions.

 

**MAJOR SHAREHOLDERS**

 

As of April 30,2004, there were 504,150,300 Class A Common Shares, or A Shares, and414,254,700 Class B Common Shares, or B Shares, issued andoutstanding.  As of April 30, 2004,890,133,360 of these shares were held in Mexico by 433 record holders.  The remaining 28,271,640 shares were held inthe United States by 29 record holders. See “Item 9.  The Offer andListing” for fuller discussion of our capital stock.

 

The table below setsforth information concerning the percentage of each class of our capital stockowned by any person known to us to be the owner of more than 5% of any class ofour voting securities, our directors and officers as a group and our othershareholders as of April 30, 2004. The company’s major shareholders do not have different voting rightswith respect to the shares they own.

 
|                              |   | **Shares  Owned** |   |
|-----------------------------------|--------|-------------------|--------|
| **Owner**                         |   | **A Shares** |   | **B Shares** |   | **Aggregate** |   | **Voting  Power** |   |
| GRUMA(1)                          |   | 504,150,300       |   | 259,811,930 |   | 763,962,230 |   | 83.18 | % |
| Juan B. Guichard Michel           |   | None              |   | 54,527,700 |   | 54,527,700 |   | 5.94 | % |
| Directors and officers as a group |   | None              |   | 38,855,200 |   | 38,855,200 |   | 4.23 | % |
| Other shareholders                |   | None              |   | 61,059,870 |   | 61,059,870 |   | 6.65 | % |

 

----

(1)                Roberto González Barrera is the controllingshareholder of GRUMA.  Through hisownership in GRUMA, Mr. González Barrera indirectly controls 83.18% of ouroutstanding capital stock. Consequently, Mr. González Barrera has the power to elect the majorityof our directors and to control the timing and amount of the payment of anydividends.  Mr. González Barrera isChairman of our board of directors.

 

On December 31,2003, 890,133,360 shares were held in Mexico. The remaining 28,271,640 shares were held in the United States by29 record holders.  Because certainof the B Shares and ADSs are held by nominees, the number of recordholders may not be representative of the number of beneficial owners.

 

33

----

 

Mr. González Barrera haspledged or has been required to pledge part of his shares in GRUMA ascollateral for loans made to him.  Inthe event of a default, should the lenders enforce their rights with respect tothese shares, Mr. Gonzalez Barrera could lose his controlling interest inGRUMA, and consequently, in us.  Inaddition, Mr. González Barrera must give Archer-Daniels-Midland a right offirst refusal on any sale of his GRUMA shares if at the time of the sale, heowns, or as a result of the sale will own, less than 30% of GRUMA’s outstandingshares.  Should Archer-Daniels-Midlandexercise its right, then it could control GRUMA, and consequently, us.

 

**RELATED PARTY TRANSACTIONS**

 

In the ordinary course ofbusiness, we and certain of our subsidiaries enter into agreements with GRUMAand other affiliates, including agreements pertaining to the sharing ofintellectual property, and providing technical and advisory supportservices.  We believe that ourtransactions with related parties are generally conducted on terms no lessfavorable to the Company that could be obtained from unrelated third parties.  The following is a summary of the principalagreements between these parties.

 

Our operatingsubsidiaries contract for certain technology and maintenance services inconnection with corn flour production equipment with INTASA, a wholly-ownedsubsidiary of GRUMA.  Pursuant to theseagreements, each operating subsidiary pays INTASA 0.5% of consolidated netsales (subject to certain adjustments).

 

In June 1990, GRUMAentered into a licensing contract with us regarding our non-exclusive use ofthe MASECA® brand name in Mexico. We are currently the only licensee of GRUMA for the MASECA®brand name in Mexico.  MASECA®is a registered trademark in Mexico. The license currently allows for us and our subsidiaries to use theMASECA® brand name on a royalty-free basis.  The license agreement has been renewed foran indefinite term.

 

Our operatingsubsidiaries also contract for services from Asesoría de Empresas, S.A. deC.V., or AESA, a wholly-owned GRUMA subsidiary.  AESA provides various administrative and operational advisoryservices in the areas of finance, planning and design, audit controls, humanresources, tax advice and legal affairs. Pursuant to the terms of such agreements, each operating subsidiary, ona monthly basis, pays AESA 2.5% of its net sales of corn flour in addition torelated direct expenses.

 

GRUMA periodically entersinto short-term credit arrangements with us, where we provide GRUMA with fundsfor working capital at market interest rates.

 

When we have excess cash,we make loans to GRUMA.   At their peakon June 1, 2004, these loans reached the amount of Ps.1,097 million innominal terms.  The weighted averageinterest rate for 2004 has been 7.5%.

 

The foregoingtransactions were made in the ordinary course of business since GRUMA operatesas the central treasury for its subsidiaries.

 

## **Item 8**.                       FinancialInformation.

 

See “Item 18.  Financial Statements” and pages F-1 throughF-37.

 

**LEGAL PROCEEDINGS**

 

We are involved invarious legal proceedings in the ordinary course of business. We do not expectthat such proceedings, individually or in the aggregate, will have a materialadverse effect on our results of operations or financial condition

 

**WaterDischarges Assessments**

 

Certain subsidiaries havebeen notified by the Comisión Nacional del Agua (“Water National Commission” or“CNA”) of assessments due to CNA from different years amounting to Ps 24.9million plus related penalties and

 

34

----

 

surcharges ofapproximately Ps.172.2 million.These assessments mainly derive from CNA charges of sewage water beingdischarged underground through the sprinkler systems on the grounds of thosesubsidiaries. The subsidiaries have asserted the legal defense allowed by lawin order to annul these assessments. The Company has received a favorablejudicial resolution for one of these assessments amounting to Ps 6.5 millionplus its related penalties and surcharges of Ps.32.7 million.  According to the Company’s lawyers, areasonable basis exists in order to obtain a favorable resolution of the restof the claimed assessments, because, among other things, the water waspreviously treated, it was not discharged on public property of the Nation anddoes not contaminate aquiferous layers or the underground soil.  See Note 9 to our consolidated financialstatements.

 

**DIVIDEND POLICY**

 

For a discussion of ourdividend policy, see “Item 3. Key Information**—**Dividends.”

 

**SIGNIFICANT CHANGES**

 

Except as disclosedherein, no significant changes have occurred since the date of the annualfinancial statements included in this annual report.

 

## **Item 9**.                       The OfferAnd Listing.

 

Our B Shares arelisted on the Mexican Stock Exchange, and ADSs, each representing 15B Shares, are listed on the New York Stock Exchange.  As of December 31, 2003, approximately5.7% of the publicly traded B Shares were held in the form of ADSs.  The ADSs are evidenced by ADRs issued byCitibank, N.A., as Depositary under a Deposit Agreement, dated as ofMay 17, 1994 between us, Citibank, N.A., and all registered holders fromtime to time of the ADRs evidencing the ADSs. As of December 31, 2003, there were outstanding 414,254,700B Shares (of which 23,686,680 shares, represented by 1,579,112 ADSs, wereheld by 29 record holders in the United States).  Because certain of the B Shares and ADSs are held bynominees, the number of record holders may not be representative of the numberof beneficial owners.

 

**PRICE HISTORY**

 

The following table setsforth, for the periods indicated, the annual high and low closing sale pricesfor the B Shares and the ADSs as reported by the Mexican Stock Exchangeand the New York Stock Exchange, respectively.

 
|                         |   | **Mexican  Stock Exchange** |   | **NYSE**            |   |
|------------------------------|--------|-----------------------------|--------|---------------------|--------|
|                         |   | **Common  Stock**           |   | **ADS(1)**          |   |
|                         |   | **High**                    |   | **Low**             |   | **High** |   | **Low** |   |
|                         |   | **(Ps. per  share(2))**     |   | **(U.S.$per  ADS)** |   |
| **Annual Price  History**    |   |                        |   |                |   |   |   |   |   |
| 1999                         |   | 9.42                        |   | 4.02                |   | 14.56 |   | 6.31 |   |
| 2000                         |   | 6.16                        |   | 1.85                |   | 9.63 |   | 2.88 |   |
| 2001                         |   | 3.05                        |   | 1.50                |   | 5.21 |   | 2.55 |   |
| 2002                         |   | 4.83                        |   | 3.09                |   | 8.05 |   | 4.81 |   |
| 2003                         |   | 4.80                        |   | 3.30                |   | 6.49 |   | 4.50 |   |
| **Quarterly Price  History** |   |                        |   |                |   |   |   |   |   |
| 2002                         |   |                        |   |                |   |   |   |   |   |
| 1st Quarter                  |   | 4.46                        |   | 3.09                |   | 7.35 |   | 4.85 |   |
| 2nd Quarter                  |   | 4.83                        |   | 3.85                |   | 8.05 |   | 5.55 |   |
| 3rd Quarter                  |   | 4.20                        |   | 3.65                |   | 6.35 |   | 5.60 |   |
| 4th Quarter                  |   | 4.00                        |   | 3.44                |   | 5.95 |   | 4.81 |   |
| 2003                         |   |                        |   |                |   |   |   |   |   |
| 1st Quarter                  |   | 3.60                        |   | 3.30                |   | 4.95 |   | 4.50 |   |
| 2nd Quarter                  |   | 4.00                        |   | 3.40                |   | 5.65 |   | 4.80 |   |
| 3rd Quarter                  |   | 4.50                        |   | 4.00                |   | 6.40 |   | 5.50 |   |
| 4th Quarter                  |   | 4.80                        |   | 4.26                |   | 6.49 |   | 5.65 |   |
| 2004                         |   |                        |   |                |   |   |   |   |   |
| 1st Quarter                  |   | 5.50                        |   | 4.90                |   | 7.59 |   | 6.42 |   |
| 2nd Quarter(3)               |   | 5.50                        |   | 5.00                |   | 7.25 |   | 6.38 |   |
| **Monthly Price  History**   |   |                        |   |                |   |   |   |   |   |
| December 2003           |   | 4.80                        |   | 4.63                |   | 6.49 |   | 5.80 |   |
| January 2004            |   | 5.50                        |   | 4.90                |   | 7.59 |   | 6.42 |   |
| February 2004           |   | 5.50                        |   | 5.30                |   | 7.45 |   | 7.05 |   |
| March 2004              |   | 5.40                        |   | 5.21                |   | 7.25 |   | 7.02 |   |
| April 2004              |   | 5.40                        |   | 5.40                |   | 7.25 |   | 7.10 |   |
| May 2004                |   | 5.35                        |   | 5.00                |   | 7.12 |   | 6.38 |   |
| June 2004(3)            |   | 5.50                        |   | 5.20                |   | 6.94 |   | 6.59 |   |

 

35

----

 

----

(1)                Price per ADS in U.S.$; one ADS represents 15 BShares.

(2)                Pesos per share reflect nominal price at trade date.

(3)                Through June 18 , 2004.

 

On June 18, 2004,the reported last sale price of the B Shares on the Mexican Stock Exchangewas Ps.5.50 per B Share and the reported last sale price of the ADSs on the NewYork Stock Exchange was U.S.$6.84 per ADS.

 

**MEXICAN STOCK EXCHANGE**

 

The Mexican StockExchange, the *Bolsa Mexicana de Valores, S.A. de C. V.*, located in MexicoCity, is the only stock exchange in Mexico. Founded in 1907, it is organized as a corporation whose shares are heldby brokerage firms, which are exclusively authorized to trade on the exchange.  Trading on the Mexican Stock Exchange takesplace principally through automated systems and is open between the hours of8:30 a.m. and 3:00 p.m., Mexico City time, each business day.  Trades in securities listed on the MexicanStock Exchange can also be effected off the exchange.  The Mexican Stock Exchange operates a system of automaticsuspension of trading in shares of a particular issuer as a means ofcontrolling excessive price volatility, but under current regulations thissystem does not apply to securities such as the B Shares that are directly orindirectly (for example, through ADSs) quoted on a stock exchange (includingfor these purposes the New York Stock Exchange) outside Mexico.

 

Each day a price band isestablished for each security with upper and lower limits usually set at 15%above and below a reference price, which is initially the day’s openingprice.  If during the day a binding bidto purchase or offer to sell is made at a price outside this band, trading isautomatically suspended.  When tradingresumes, the high point of the previous band becomes the new reference price inthe event of an increase in the price of a security and the low point of theprevious band becomes the new reference price in the event of a decrease in theprice of a security.

 

On April 20, 2001, abinding bid was made to purchase B Shares for a price that exceeded thereference price by 20.51% and trading was suspended on the Mexican StockExchange from 9:02 am through 9:48 am. On April 26, 2001, the price per B Share increased 38.89%, causingtrading to be suspended on the Mexican Stock Exchange from 7:38 am through 8:04am.  Later that morning, a binding bidwas made to purchase B Shares for a price that was 25.70% below the referenceprice, causing trading to be suspended on the Mexican Stock Exchange from 8:34am through 8:36 am.  OnSeptember 17, 2001, the price per B Share decreased 15.56% and trading wassuspended on the Mexican Stock Exchange from 12:32 pm. through 12:34 pm.  On September 26, 2001, a binding offerto sell B Shares was made for a price that was 17.21% below the reference priceand trading was suspended on the Mexican Stock Exchange from 10:03 am through10:38 am.

 

Settlement is effectedtwo business days after a share transaction on the Mexican Stock Exchange.  Deferred settlement, even by mutualagreement, is not permitted without the approval of the *Comisión Nacional Bancaria y de Valores*(the Mexican National Banking and Securities Commission, or CNBV).  Most securities traded on the Mexican StockExchange, including ours, are on deposit with S.D. Indeval, S.A. de C.V., orIndeval, a privately owned securities depositary that acts as a clearinghousefor Mexican Stock Exchange transactions.

 

As of June 1, 2001,the Mexican Securities Law requires issuers to increase the protections offeredto minority shareholders and to impose corporate governance controls on Mexicanlisted companies in line with international standards.  The Mexican Securities Law expressly permitsMexican listed companies, with prior authorization from the CNBV, to include intheir bylaws antitakeover defenses such as shareholder rights plans, or

 

36

----

 

poison pills.  We amended our bylaws to include certain ofthese protections at our Extraordinary Shareholders’ Meeting held onDecember 2, 2003.  See “AdditionalInformation—Bylaws—Antitakeover Protections.”

 

## **Item10.**                AdditionalInformation.

 

**BYLAWS**

 

Set forth below is abrief summary of certain significant provisions of (1) our bylaws, as amendedby our Extraordinary Shareholders’ Meeting held on December 2, 2003 tocomply with recent changes to Mexican Securities regulations, and (2) Mexicanlaw.  This description does not purportto be complete and is qualified by reference to our bylaws, which have beenfiled as an exhibit to this registration statement.

 

**Organizationand Register**

 

We are a *sociedadanónima de capital variable* (a corporation) organized in Mexicounder the *LeyGeneral de Sociedades Mercantiles*, or the Mexican CompaniesLaw.  We were incorporated onMarch 12, 1981 and have a corporate life of 99 years, startingApril 2, 1981.  We were registeredin the Public Registry of Property and Commerce of Monterrey on April 3,1981 under mercantile number 365, folio**169, volume 243, book 3.  Our corporate purpose, as fully described inArticle 2 of our bylaws, is to act as a holding company.  As such, our bylaws grant us the power toengage in various activities, which allow us to function as a holdingcompany.  These powers include, but arenot limited to, the ability to (1) acquire, sell, import, export, andmanufacture all types of goods and products, (2) issue securities and takeall actions with respect to securities of any kind, (3) create, organizeand manage all types of companies, (4) act as an agent or representative,(5) acquire, sell and maintain real property, (6) perform or receiveprofessional, technical or consulting services, (7) establish branches,agencies or representative offices, (8) acquire, license or useintellectual property, (9) grant and receive loans, (10) subscribe, issueand negotiate all types of credit instruments, and (11) perform any actsnecessary to accomplish the foregoing.

 

**Directors**

 

Our bylaws provide thatour management shall be vested in the board of directors.  Each director is elected by a simple majorityof the shares and there are no provisions for cumulative voting.  Under Mexican law and our bylaws, any holderor group of holders of shares representing 10% or more of our capital stock mayelect one director and its corresponding alternate.  The board of directors shall be comprised of a minimum of fiveand a maximum of twenty directors, as determined by the shareholders at theannual ordinary general shareholders’ meeting. Under Mexican law, at least 25% of the members of the board of directorsmust be independent as determined under Mexican law.  Currently, our board of directors consists of 12 members.

 

The board of directorsshall meet at least once every three months. These meetings can be called by the Chairman of the Board of Directors,by 25% of the members of the board of directors, or by our statutoryauditors.  The directors serve for a oneyear term, or until their successors have taken office.  Directors receive compensation as determinedby the shareholders at the annual ordinary general shareholders’ meeting.  A majority of directors is needed toconstitute a quorum and board resolutions must be passed by a majority of thevotes present at any validly constituted meeting or by unanimous consent if nomeeting is convened.

 

Under Mexican law, anymember of the board of directors who has a conflict of interest with thecorporation in any transaction must disclose such fact to the other directorsand abstain from voting on that transaction. Any member of the board of directors who violates this provision may beliable for the resulting damages incurred by the company.  Members of the board of directors may notrepresent shareholders at any shareholders’ meeting.

 

Our bylaws provide thatthe board of directors is required to approve: (i) related party transactionsother than those occurring in the ordinary course of business; (ii) purchasesof 10% or more of our corporate assets; (iii) guarantees for more than 30% ofour corporate assets; (iv) any of the aforementioned transactions when they areto be carried out by any of our subsidiaries; and (v) any other transaction,different from the aforementioned, the value of which represents more than 1%of our corporate assets.  This approvalis non-delegable.

 

37

----

 

Under Mexican law,shareholders can initiate actions for civil liabilities against directorsthrough resolutions passed by a majority of the shareholders at a generalordinary shareholders’ meeting.  In theevent the majority of the shareholders decide to bring such action, thedirector against whom such action is brought will immediately cease to be amember of the board of directors. Additionally, shareholders representing not less than 15% of our outstandingshares may directly bring such action against directors.  Any recovery of damages with respect to suchaction will be for the benefit of us and not for the shareholders bringing theaction.

 

Under our bylaws and inaccordance with applicable law, we are required to have an audit committee comprisedof directors, of which at least the majority of whom must be independentdirectors, including the Chairman. Members are appointed at the annual ordinary general shareholders’meeting, hold office for one year and will continue their duties until theirsuccessors take their positions. Members shall receive such compensation set at the ordinary generalshareholders’ meeting.  The auditcommittee is empowered to: (i) prepare an annual report of its activitiesand render it to the board of directors; (ii) issue opinions with respectto related party transactions that the Company intends to carry out outside ofits ordinary course of business; as well as to issue opinions with respect to(a) related party transactions that the subsidiaries of the Company intend tocarry out that are outside their ordinary course of business or (b)transactions that may imply a commitment of its assets under the terms ofsection IV, paragraph (d) of Article 14-Bis-3 of the MexicanSecurities Law; (iii) make proposals relating to the hiring of independentexperts, if necessary, so that such experts can issue their opinions withrespect to related party transactions; (iv) propose to the board ofdirectors candidates for the external auditor position and the conditions pursuantto which they will be hired; (v) revise our financial information andarrange the issuance process for the same; (vi) contribute to thedefinition of the general guidelines of the internal control system, assess itseffectiveness, as well as coordinate and evaluate the annual internal auditsand the activities performed by our internal and external auditors and thestatutory auditors; (vii) verify that we have the necessary mechanisms toensure that we are in compliance with applicable laws and inform the board ofdirectors in this respect; and (viii) perform other functions as set forth orderiving from applicable legal provisions to which the Company may besubject.  Our statutory auditors will becalled to all meetings held by the audit committee.

 

According to our bylaws,the board of directors is empowered to execute and negotiate any of our creditinstruments and agreements.  The boardof directors may delegate such power to any individual.

 

See also “Item 6.  Directors, Senior Management and Employees”for further information about the board of directors.

 

**VotingRights and Shareholders’ Meetings**

 

Each share, regardless ofthe series held, entitles the holder thereof to one vote at any general meetingof our shareholders.  Shareholders mayvote by proxy.  At the ordinary generalshareholders’ meeting, any shareholder or group of shareholders representing10% or more of the outstanding common stock has the right to appoint onedirector and its corresponding alternate, with the remaining directors beingelected by majority vote.  Shareholdersdo not have cumulative voting rights.

 

General shareholders’meetings may be ordinary meetings or extraordinary meetings.  Extraordinary general shareholders’ meetingsare called to consider matters specified in Article 182 of the MexicanCompanies Law, including, principally, changes in the authorized fixed sharecapital and other amendments to the bylaws, the issuance of preferred stock,liquidation, mergers and spin-offs, changes in the rights of security holdersand transformation from one corporate form to another.  All other matters may be considered atordinary general shareholders’ meetings. Ordinary general shareholders’ meetings must be called to consider andapprove matters specified in Article 181 of the Mexican Companies Law,including, principally, the appointment of the members of the board ofdirectors and the statutory auditor, the compensation paid to the directors andstatutory auditor, the distribution of our profits for the previous year, and theannual reports presented by the board of directors and the statutory auditor.

 

A general ordinaryshareholders’ meeting must be held during the first four months after the endof each fiscal year.  In order to attenda general shareholders’ meeting, the day before the meeting shareholders mustdeposit the certificates representing their common stock or other appropriateevidence of ownership either with the secretary

 

38

----

 

of our board ofdirectors, with a credit institution, or with Indeval.  The secretary, credit institution or Indevalwill hold the certificates until after the general shareholders’ meeting hastaken place.

 

Our shareholdersestablish the number of members that will serve on our board of directors atthe ordinary general shareholders’ meeting. Under our bylaws, the board of directors shall be comprised of a minimumof five and a maximum of twenty directors. Pursuant to Mexican law, at least 25% of the members of the board ofdirectors must be independent.

 

Under our bylaws, thequorum for an ordinary general shareholders’ meeting is at least 50% of theoutstanding common stock, and action may be taken by the affirmative vote ofholders representing a majority of the shares present.  If a quorum is not present, a subsequentmeeting may be called at which the shareholders present, whatever their number,will constitute a quorum and action may be taken by a majority of the sharespresent.  A quorum for extraordinarygeneral shareholders’ meetings is at least 75% of the outstanding common stock,but if a quorum is not present, a subsequent meeting may be called.  A quorum for the subsequent meeting is atleast 50% of the outstanding shares. Action at an extraordinary general shareholders’ meeting may only betaken by a vote of holders representing at least 50% of the outstanding shares.

 

Shareholders’ meetingsmay be called by the board of directors, the statutory auditor or a court.  The board of directors or the statutoryauditor may be required to call a shareholders’ meeting if holders of at least10% of our outstanding share capital request a meeting in writing, at thewritten request of any shareholder if no shareholders’ meeting has been heldfor two consecutive years, or if, during a period of two consecutive years, theboard of directors’ annual report for the previous year and the company’sfinancial statements were not presented to the shareholders, or if theshareholders did not elect directors and the statutory auditor.

 

Notice of shareholders’meetings must be published in the Official Gazette of the State of Nuevo Leonor in a newspaper of general circulation in Monterrey at least 15 days prior tothe meeting.  Shareholders’ meetings maybe held without such publication provided that 100% of the outstanding sharesare represented.  Shareholders’ meetingsmust be held in Monterrey, Mexico.

 

Under Mexican law,holders of 10% of shares may have any shareholder action set aside by filing acomplaint with a Mexican court of competent jurisdiction within 15 days afterthe close of the meeting at which such action was taken, by showing that thechallenged action violates Mexican law or our bylaws.  Relief under these provisions is only available to holders whowere entitled to vote on the challenged shareholder action and whose shareswere not represented when the action was taken or, if represented, were votedagainst it.

 

**DividendRights and Distribution**

 

Within the first fourmonths of each year, the board of directors must submit our company’s financialstatements for the preceding fiscal year to the shareholders for their approvalat the ordinary general shareholders’ meeting. They are required by law to allocate five percent of any new profits toa legal reserve which is not thereafter available for distribution until theamount of the legal reserve equals 20% of our historical capital stock (beforeadjusting for inflation).  Amounts inexcess of those allocated to the legal reserve fund may be allocated to otherreserve funds as the shareholders determine, including a reserve for therepurchase of our shares.  The remainingbalance of new profits, if any, is available for distribution asdividends.  Cash dividends on the sharesheld through Indeval will be distributed by us through Indeval.  Cash dividends on the shares evidenced byphysical certificates will be paid when the relevant dividend coupon registeredin the name of its holder is delivered to us. No dividends may be paid, however, unless losses for prior fiscal yearshave been paid up or absorbed.  See“Item 3. Key Information—Dividends.”

 

**Liquidation**

 

Upon our dissolution, oneor more liquidators must be appointed by an extraordinary shareholders’ generalmeeting to wind up its affairs.  If theextraordinary general shareholders’ meeting does not make said appointment, aCivil or District Judge of the Federation can do so at the request of anyshareholder.  All fully paid andoutstanding common stock will be entitled to participate equally in anydistribution upon liquidation after the payment of the

 

39

----

 

company’s debts, taxesand the expenses of the liquidation. Common stock that has not been paid in full will be entitled to theseproceeds in proportion to the paid-in amount.

 

If the extraordinarygeneral shareholders’ meeting does not give express instructions onliquidation, the bylaws stipulate that the liquidators will (i) conclude allpending matters in such a way to avoid damage to the interests of creditors andshareholders, (ii) prepare a general balance and inventory, (iii) collect allcredits and pay all debts by selling assets necessary to accomplish this task,(iv) sell assets and distribute income, and (v) distribute the remnant, if any,pro rata among the shareholders.

 

**Changesin Capital Stock**

 

Our bylaws currentlypermit our capital stock to consist of a fixed and a variable portion.  The fixed portion of our capital stock isdivided into Class A and Class B shares and has no par value.  The fixed portion of our capital stockcannot be redeemed.  The variableportion of our capital stock has no par value. The issuance of variable capital shares, unlike the issuance of fixedcapital shares, does not require an amendment of the bylaws, although it doesrequire approval at an ordinary general shareholders’ meeting. The fixedportion of our capital stock may only be increased or decreased by resolutionof an extraordinary general shareholders’ meeting and an amendment to ourbylaws, whereas the variable portion of our capital stock may be increased ordecreased by resolution of an ordinary general shareholders’ meeting.  Currently, our outstanding capital stockconsists only of fixed capital.

 

An increase of capitalstock may generally be effected through the issuance of new shares for paymentin cash or in kind, by capitalization of indebtedness or by capitalization ofcertain items of shareholders’ equity. An increase of capital stock generally may not be effected until allpreviously issued and subscribed shares of capital stock have been fullypaid.  A reduction of capital stock maybe effected to absorb losses, to redeem shares, to repurchase shares in theopen market or to release shareholders from payments not made.

 

**PreemptiveRights**

 

Except in certain limitedcircumstances, in the event of a capital increase through the issuance ofshares for payment in cash or in kind, a holder of existing shares of a givenseries at the time of the capital increase has a preferential right tosubscribe for a sufficient number of new shares of the same series to maintainthe holder’s existing proportionate holdings of shares of that series.  Preemptive rights must be exercised withinthe period and under the conditions established for such purpose by theshareholders at the corresponding shareholders’ meeting.  Under Mexican law and our bylaws, theexercise period may not be less than 15 days following the publication ofnotice of the capital increase in the Official Gazette of the State of NuevoLeon or following the date of the shareholders’ meeting at which the capitalincrease was approved if all shareholders were represented; otherwise suchrights will lapse.

 

Shareholders will nothave preemptive rights to subscribe for common stock issued in connection withmergers, upon the conversion of convertible debentures, in a public offering(if the majority of shareholders at a general extraordinary meeting approve theissuance of shares and waive their preemptive rights in accordance with theMexican Securities Law and our bylaws) or in a resale of common stock held inour treasury as a result of repurchases on the Mexican Stock Exchange.

 

Under Mexican law,preemptive rights may not be waived in advance by a shareholder, except underlimited circumstances, and cannot be represented by an instrument that isnegotiable separately from the corresponding share.  Holders of ADRs may be restricted in their ability to participatein the exercise of preemptive rights. See “Item 3.  KeyInformation—Risk Factors—Risks Relating to Our Controlling Shareholders andCapital Structure—Holders of ADSs May Not Be Able to Participate in Any FuturePreemptive Rights Offering and as a Result May Be Subject to a Dilution ofEquity Interest.”

 

**RestrictionsAffecting Non-Mexican Shareholders**

 

Foreign investment incapital stock of Mexican corporations is regulated by the 1993 ForeignInvestment Law and by the 1998 Foreign Investment Regulations to the extentthey are not inconsistent with the Foreign

 

40

----

 

Investment Law.  The Ministry of Economy and the NationalCommission on Foreign Investment are responsible for the administration of theForeign Investment Law and the Foreign Investment Regulations.

 

Our bylaws do notrestrict the participation of non-Mexican investors in our capital stock.  However, approval of the National ForeignInvestment Commission must be obtained for foreign investors to acquire adirect or indirect participation in excess of 49% of the capital stock of aMexican company that has an aggregate asset value that exceeds, at the time offiling the corresponding notice of acquisition, an amount determined annuallyby the National Foreign Investment Commission.

 

As required by Mexicanlaw, our bylaws provide that any non-Mexicans who acquire an interest orparticipation in our capital at any time will be treated as having Mexicannationality for purposes of their interest in us, and with respect to theproperty, rights, concessions, participations or interests that we may own orrights and obligations that are based on contracts to which we are a party withthe Mexican authorities.  Suchshareholders cannot invoke the protection of their government under penalty offorfeiting to the Mexican State the ownership interest that they may haveacquired.  See “Item 3.  Key Information—Risk Factors—Risks Relatingto Our Controlling Shareholders and Capital Structure—Our Bylaws Restrict theAbility of Non-Mexican Shareholders to Invoke the Protection of TheirGovernments with Respect to Their Rights as Shareholders.”

 

Under this provision, anon-Mexican shareholder is deemed to have agreed not to invoke the protectionof his own government with respect to his rights as a shareholder, but is notdeemed to have waived any other rights it may have with respect to itsinvestment in us, including any rights under U.S. securities laws.  If a shareholder should invoke governmentalprotection in violation of this provision, its shares could be forfeited to theMexican government.  Mexican lawrequires that such a provision be included in the bylaws of all Mexicancompanies unless such bylaws prohibit ownership of shares by non-Mexicans.

 

**Registrationand Transfer**

 

Our shares are evidencedby certificates in registered form.  Wemaintain a stock registry and, in accordance with Mexican law, only thosepersons whose names appear on the stock registry are recognized as owners ofthe shares.

 

**OtherProvisions**

 

***Redemption Rights***

 

Outstanding variablecapital shares, if any, may be fully or partially redeemed by the holders thereof.  The minimum fixed portion of our capitalstock cannot be redeemed.  Currently, wehave no outstanding variable capital shares. A holder of variable capital stock that wishes to effect a total orpartial redemption of such stock is required to notify us in an authenticatedwritten notice to that effect.  Ifnotice of redemption is received prior to the last quarter of the fiscal year,the redemption becomes effective at the end of the fiscal year in which theshareholder gives notice.  Otherwise, theredemption becomes effective at the end of the following fiscal year.

 

Redemption of ourvariable capital stock is made at the lower of (i) 95% of the weighted averageshare price as quoted on the Mexican Stock Exchange for the last 30 days inwhich our shares were traded, in a period not greater than six months, prior tothe effective date of the redemption, or (ii) the book value per variablecapital share, calculated from our balance sheet (as approved at an ordinarygeneral shareholders’ meeting) for the fiscal year immediately prior to thefiscal year in which the redemption is to become effective.  If the number of days in which our shareshave traded during the period referred to above is less than 30, then only theactual number of days in which our shares have traded during such period willbe taken into account.  If shares havenot been exchanged during such period, then the tender offer shall be made at aprice equal to at least the book value of the shares.  Any such amount to be paid by us would become due on the dayfollowing the ordinary general shareholders’ meeting referred to in clause (ii)above.

 

41

----

 

***Appraisal Rights***

 

Under Mexican law,whenever the shareholders approve a change of corporate purpose, change of ournationality or transformation from one type of corporate form to another, anyshareholder entitled to vote on such change or transformation who has votedagainst it has the right to tender its shares and receive the amount attributableto its shares, provided such shareholder exercises its right to withdraw within15 days following the adjournment of the meeting at which the change ortransformation was approved.  UnderMexican law, the amount which a withdrawing shareholder is entitled to receiveis equal to its proportionate interest in our capital stock according to ourmost recent balance sheet approved by an ordinary general shareholders’meeting.  The reimbursement may havecertain tax consequences.

 

***Share Repurchases***

 

We may repurchase ourcommon stock on the Mexican Stock Exchange at any time at the then prevailingmarket price.  The repurchase of shareswill be made at the expense of our equity if the repurchased shares remainoutstanding; or at the expense of our capital stock if the repurchased sharesare placed in our treasury.  At theordinary general shareholders’ meeting, shareholders shall determine themaximum amount of funds to be allocated to the repurchase of shares, which amountshall not exceed our total net profits, including retained earnings.

 

Repurchased common stockwill either be held by us or kept in our treasury, pending future sales thereofon the Mexican Stock Exchange.  If therepurchased shares are kept in our treasury, we may not exercise the economicand voting rights corresponding to them, and such shares are not deemed to beoutstanding for purposes of calculating any quorum or vote at any shareholders’meeting.  Repurchased shares held by usas outstanding shares may not be represented at any shareholder meeting.  The decrease or increase of the capitalstock as a consequence of the repurchase and sale by the company of its sharesdoes not require the approval of a shareholders’ meeting or of the board of directors.

 

Under Mexican securitiesregulation, our directors, officers, statutory auditors, external auditors andthe secretary of the board of directors and holders of 10% or more of ouroutstanding common stock may not sell common stock to us, or purchaserepurchased common stock from us, unless the sale or purchase is made through atender offer.  Mexican securitiesregulations require that if we decide to repurchase common stock representingthree percent or more of our outstanding share capital in any 20 trading-dayperiod, these repurchases must be conducted by means of a public tender offer.

 

***Repurchase in the Eventof Delisting***

 

If the registration ofour common shares in the Securities Section of the *Registro Nacional de Valores* (NationalRegistry of Securities, or RNV) is canceled, whether at our request or by theCNBV, under our bylaws and CNBV regulations the shareholders holding themajority of our common shares or who are otherwise able to impose, by anymeans, decisions at the general shareholders’ meetings or able to appoint themajority of the directors of our board of directors, shall be obligated to makea tender offer to purchase all of our shares prior to the cancellation.  Such tender offer shall be made at a minimumin price equal to the higher of: (i) the closing sale price of such shares onthe Mexican Stock Exchange, under the terms of the following paragraph, and(ii) the book value of the shares according to the most recent quarterly reportsubmitted to the CNBV and to the Mexican Stock Exchange prior to thecommencement of the offer.  As set forthin the last paragraph of this subsection below, the tenderingshareholder(s) may request approval from the CNBV to use different criteria todetermine the price of the shares, in which case, the most recent financialinformation of the Company shall be taken into account.

 

The quoted share price onthe Mexican Stock Market referred to in the preceding paragraph shall be theweighted average share price as quoted on the Mexican Stock Exchange for thelast 30 days in which our shares were traded, in a period not greater than sixmonths, prior to the date of the offer. If the number of days in which our shares have traded during the periodreferred to above is less than 30, then only the actual number of days in whichour shares have traded during such period will be taken into account.  If shares have not been exchanged duringsuch period, then the tender offer shall be made at a price equal to at leastthe book value of the shares.

 

42

----

 

If the tender offerrefers to more than one series of stock, the weighted average price referred toin the preceding paragraph shall be calculated for each series of stock to becancelled, and the price for the tender offer of all of the series shall be thegreatest of such averages.

 

Within five business daysof the commencement of the tender offer, the board of directors shall discloseits opinion in connection with the reasonableness of the price of such offer,taking into consideration (i) the interests of the minority shareholders inorder to comply with the terms of the second paragraph of Article 16 ofthe Mexican Securities Law, and (ii) an opinion of the audit committee.  If the board of  directors’ and audit committee’s opinions are conflicting, thenthe audit committee’s opinion shall be disclosed.  If the board of directors has a potential conflict of interest,then the opinion of the board of directors shall be accompanied with an opinionissued by an independent expert selected by the audit committee in whichspecial emphasis is to be made to protect the interests of the minorityshareholders.

 

The holders of themajority of our common shares, or whoever is otherwise able to, by any means,(i) impose resolutions at the general shareholders’ meetings, or (ii) appointthe majority of the directors of our board of directors, shall be under noobligation to make the tender offer to purchase all of our shares prior to thecancellation of the registry if: (i) they have the consent of the holders of atleast 95% of our outstanding common shares, by a resolution at a shareholders’ meeting, and (ii) the aggregate amountoffered for the securities in the market is less than 300,000 investment units(UDIs); provided, however that, in order to obtain the cancellation from theRNV, (x) the trust referred to in the following paragraph must be executed, and(y) notice of such cancellation and of the execution of the trust shall be madethrough the appropriate means established by the CNBV.

 

In the event the shareholdersmaking the tender offer are not able to purchase 100% of our outstanding commonshares, then prior to the cancellation of our common shares in the SecuritiesSection of the RNV, they shall execute a trust, for a minimum term of sixmonths, in order to provide sufficient monetary resources to purchase theremaining outstanding common shares at the same tender offer price.

 

The shareholders requiredto make the tender offer referred to above may request the approval from theCNBV to use different criteria to determine the price of the shares. The CNBVwould be required to take into account our financial situation in consideringwhether to grant such approval.  Inrequesting such approval, the following must be submitted to the CNBV:  (i) a resolution of the board of directorsapproving such request, (ii) a favorable opinion of the audit committeeaddressing the reasons why it deems the use of a different price to beappropriate, and (iii) a report from an independent expert indicating that theprice is consistent with the terms of Article 16 of the Mexican SecuritiesLaw.

 

**Rightsof Shareholders**

 

The protections affordedto minority shareholders under Mexican law are different from those in theUnited States and many other jurisdictions. The substantive law concerning duties of directors and controllingshareholders has not been the subject of extensive judicial interpretation inMexico, unlike many states in the United States where duties of care andloyalty elaborated by judicial decisions help to shape the rights of minorityshareholders.  Mexican civil proceduredoes not contemplate class actions or shareholder derivative actions, whichpermit shareholders in U.S. courts to bring actions on behalf of other shareholdersor to enforce rights of the corporation itself.  Shareholders cannot challenge corporate action taken at ashareholders’ meeting unless they meet certain procedural requirements.

 

As a result of thesefactors, in practice it may be more difficult for our minority shareholders toenforce rights against us or our directors or controlling shareholders than itwould be for shareholders of a U.S. company. See “Item 3.  KeyInformation—Risk Factors—Risks Relating to Our Controlling Shareholders andCapital Structure—The Protections Afforded to Minority Shareholders in MexicoAre Different From Those in the United States.”

 

In addition, under theU.S. securities laws, as a foreign private issuer we are exempt from certainrules that apply to domestic U.S. issuers with equity securities registeredunder the U.S. Securities Exchange Act of 1934, including the proxysolicitation rules, the rules requiring disclosure of share ownership bydirectors, officers and certain shareholders. We are also exempt from certain of the corporate governance requirementsof the New York

 

43

----

 

Stock Exchange, includingthe requirements concerning audit committees and independent directors.  A summary of significant ways in which ourcorporate governance standards differ from the those followed by U.S. domesticcompanies under NYSE listing standards is available on our website atwww.gimsa.com.

 

**Antitakeover Protections**

 

Our bylaws provide that,subject to certain exceptions as explained below, prior written approval fromthe board of directors shall be required for any person (as defined hereunder),or group of persons to acquire, directly or indirectly, any of our commonshares or rights to our common shares, by any means or under any title whetherin a single event or in a set of consecutive events, such that its total sharesor rights to shares would represent 5% or more of our outstanding shares.

 

Prior approval from theboard of directors must be obtained each time such ownership threshold (andmultiples thereof) is intended to be exceeded, except for persons who, directlyor indirectly, are competitors (as such term is defined below) of the Companyor of any of its subsidiaries, who must obtain the prior approval of the boardof directors for future acquisitions where a threshold of 2% (or multiplesthereof) of our common shares is intended to be exceeded.

 

Pursuant to our bylaws, a“person” is defined as any natural person, corporate entity, trust or similarform of venture, vehicle, entity, corporation or economic or mercantileassociation or any subsidiaries or affiliates of any of the former or, asdetermined by the board of directors, any group of persons who may be actingjointly, coordinated or as a whole; and a “competitor” is defined as any personengaged, directly or indirectly, in (i) the business of production and/ormarketing of corn or wheat flour, and/or (ii) any other activity carried on bythe Company or by any of its subsidiaries or affiliates.

 

Persons that acquire ourcommon shares in violation of these requirements will not be considered thebeneficial owners of such shares under our bylaws and will not be able to votesuch shares or receive any dividends, distributions or other rights in respectof these shares.  In addition, pursuantto our bylaws, these holders will be obligated to pay us a penalty in an amountequal to the greater of (i) the market value of the shares such party acquiredwithout obtaining the prior approval of the board of directors and (ii) themarket value of shares representing 5% of our capital stock.

 

***Board Notices, Meetings, QuorumRequirements and Approvals****.*  To obtain the prior approval of our board of directors, apotential acquiror must properly deliver a written application complying withthe applicable requirements set forth in our bylaws.  Such application shall state, among other things:  (i) the number and class of our shares theperson beneficially owns or to which such person has any right, either directlyor through a related party, (ii) the number and class of shares the Personintends to acquire, either directly or through a related party, (iii) thenumber and class of shares with respect to which such Person intends to acquireany right, (iv) the percentage that the shares referred to in (i) represent ofour total outstanding shares and of the class or series to which such sharesbelong, (v) the percentage that the shares referred to in (ii) and (iii)represent of our total outstanding shares and of the class or series to whichsuch shares belong, (vi) the person’s identity, or in the case of an acquirorwhich is a corporation, trust or legal entity, its shareholders, partners orbeneficiaries as well as the identity and nationality of each personeffectively controlling such corporation, trust or legal entity, (vii) thereasons and purpose behind such acquisition, (viii) if such person is, directlyor indirectly, a competitor of the Company or any of its subsidiaries oraffiliates, and if such person has the authority to legally acquire the sharespursuant to our bylaws and Mexican law, (ix) its source of financing theintended acquisition, (x) if the Person is part of an economic group, formed byone or more of its related parties, which intends to acquire shares of ourcommon stock or rights to such shares, (xi) if the person has obtained anyfinancing from one of its related parties for the payment of the shares, (xii)the identity and nationality of the financial institution, if any, that willact as the underwriter or broker in connection with any tender offer, and(xiii) the person’s address for receiving notices.

 

Either the Chairman, theSecretary or the Alternate Secretary of our board of directors must call ameeting of the board of directors within 10 business days following the receiptof the written application.  The noticesfor the meeting of the board of directors shall be in writing and sent to eachof the directors and their alternates at least 45 calendar days prior to themeeting.  Action by unanimous writtenconsent is not permitted.

 

44

----

 

Any acquisition of commonshares representing at least 2% or 5%, as the case may be, of our outstandingcapital stock, must be approved by at least the majority of the members of ourboard of directors present at a meeting at which at least the majority of themembers is present. Such acquisitions must be resolved by our board ofdirectors within 60 calendar days following the receipt of the writtenapplication described above, unless the board of directors determines that itdoes not have sufficient information upon which to base its decision.  In such case, the board of directors shalldeliver a written request to the potential acquiror for any additionalinformation that it deems necessary to make its determination.  The 60 calendar days referred to above willcommence following the receipt of the additional information from the potentialacquiror.

 

***Mandatory Tender Offers in the Case ofCertain Acquisitions****. *Ifour board of directors authorizes an acquisition of common shares whichincreases the acquirer’s ownership to 30% or more, but not more than 50%, ofour capital stock, then the acquiror must effect its acquisition by way of acash tender offer for a specified number of shares equal to the greater of (i)the percentage of common shares intended to be acquired or (ii) 10% of ouroutstanding capital stock, in accordance with the applicable Mexican securitiesregulations.

 

No approval of the boardof directors will be required if the acquisition would increase the acquirer’sownership to more than 50% of our capital stock or results in a change ofcontrol, in which case the acquiror must effect its acquisition by way of atender offer for 100% minus one of our total outstanding capital stock, whichtender shall be made pursuant to applicable Mexican laws.

 

The aforementioned tenderoffers must be made simultaneously in the Mexican and US stock markets.Furthermore, an opinion issued by the board of directors regarding any suchtender offer must be made available to the public through the authorized meansof communication within 10 days after commencement of the tender offer.  In the event of any tender offer, theshareholders shall have the right to hear more competitive offers.

 

***Notices****. *In addition to the aforementionedapprovals, if a person increases its beneficial ownership by 1% in the case ofcompetitors, or 2% in the case of non-competitors, written notice must besubmitted to the board of directors within five days of reaching or exceedingsuch thresholds.

 

***Exceptions****. *The provisions of our bylaws summarized above will notapply to (a) transfers of shares by operation of the laws of succession; (b)acquisitions of shares by (i) any person who, directly or indirectly, has theauthority or possibility of appointing the majority of the directors of ourboard of directors, (ii) any company, trusts or similar form of venture,vehicle, entity, corporation or economic or mercantile association, which maybe under the control of the aforementioned person; (iii) the heirs of theaforementioned person, (iv) the aforementioned person when such person isrepurchasing  the shares of anycorporation, trust or similar form of venture, vehicle, entity, corporation oreconomic or mercantile association referred to in the item (ii) above; and (v)the Company or by trusts created by the Company; (c) any person(s) that as ofDecember 2, 2003 hold(s), directly or indirectly, more than 20% of theshares representing the Company’s capital stock; and (d) any other exceptionsprovided for in the Mexican Securities Law and other legal dispositions derivedfrom said law.

 

**ShareholderConflicts of Interest**

 

Under Mexican law, anyshareholder that has a direct or indirect conflict of interest with respect toany transaction must abstain from voting thereon at the relevant shareholders’meeting.  A shareholder that votes on abusiness transaction in which its interest conflicts with ours may be liablefor damages if the transaction would not have been approved without suchshareholder’s vote.

 

**MATERIAL CONTRACTS**

 

For a description of ourmaterial contracts, see “Item 7. Major Shareholders and Related PartyTransactions—Related Party Transactions.”

 

45

----

 

**EXCHANGE CONTROLS**

 

Mexican law does not restrictour ability to remit dividends and interest payments, if any, to non-Mexicanholders of our securities.  Payments ofdividends to equity-holders generally will not be subject to Mexicanwithholding tax.  See “—Taxation—MexicanTax Considerations—Payment of Dividends.”

 

Mexico has had a freemarket for foreign exchange since 1991, and the government has allowed the pesoto float freely against the U.S. dollar since December 1994.

 

**TAXATION**

 

The following summarycontains a description of certain Mexican federal and U.S. federal income taxconsequences of the acquisition, ownership and disposition of B Shares orB Share ADSs (which are evidenced by ADRs), but it does not purport to be acomprehensive description of all of the tax considerations that may be relevantto a decision to purchase or hold shares or ADSs, such as the tax treatment ofholders that are dealers or that own (actually or constructively under rulesprescribed in the Internal Revenue Code of 1986, as amended, or the Code) 10%or more of our voting shares.

 

The Convention for theAvoidance of Double Taxation and a Protocol thereto, or the Tax Treaty, betweenthe United States and Mexico entered into force on January 1, 1994.  The United States and Mexico have alsoentered into an agreement concerning the exchange of information with respectto tax matters.

 

The summary is based upontax laws of the United States and Mexico as in effect on the date of thisdocument, which are subject to change, including changes that may have aretroactive effect.  Holders of sharesor ADSs should consult their own tax advisers as to the Mexican, U.S. or othertax consequences of the purchase, ownership and disposition of shares or ADSs,including, in particular, the effect of any foreign, state or local tax laws.

 

**MexicanTax Considerations**

 

The following is ageneral summary of the principal consequences under the *Ley del Impuesto sobre la Renta*,or the Mexican Income Tax Law, and rules and regulations thereunder, ascurrently in effect, of an investment in Shares or ADSs by a holder that is nota resident of Mexico and that will not hold shares or ADSs or a beneficialinterest therein in connection with the conduct of a trade or business througha permanent establishment or fixed base in Mexico.

 

For purposes of Mexicantaxation, a natural person is a resident of Mexico for tax purposes if he hasestablished his home in Mexico, unless he has resided in another country formore than 183 days, whether consecutive or not, in any one calendar year andcan demonstrate that he has become a resident of that country for tax purposes,and a legal entity is a resident of Mexico if it was incorporated in Mexico ormaintains the principal administration of its business or the effectivelocation of its management in Mexico.  AMexican citizen is presumed to be a resident of Mexico unless such person candemonstrate the contrary.  If anon-resident of Mexico is deemed to have a permanent establishment or fixedbase in Mexico for tax purposes, all income attributable to such permanentestablishment or fixed base will be subject to Mexican taxes, in accordancewith applicable tax laws.

 

***Tax Treaties***

 

Provisions of the TaxTreaty that may affect the taxation of certain U.S. holders are summarizedbelow.  The United States and Mexicohave also entered into an agreement that covers the exchange of informationwith respect to tax matters.

 

Mexico has also enteredinto and is negotiating several other tax treaties that may reduce the amountof Mexican withholding tax to which payment of dividends on shares or ADSs maybe subject. Holders of shares or ADSs should consult their own tax advisors asto the tax consequences, if any, of such treaties.

 

46

----

 

Under the Mexican IncomeTax Law, in order for any benefits from the Tax Treaty or any other taxtreaties to be applicable, residence for tax purposes must be demonstrated.

 

***Payment of Dividends***

 

Under the Mexican IncomeTax Law, dividends, either in cash or in kind, paid with respect to sharesrepresented by ADSs are not subject to Mexican withholding tax.  A Mexican corporation will not be subject toany tax if the amount of dividends does not exceed the net tax profit account (*cuenta deutilidad fiscal neta,* or CUFIN).

 

If we had paid a dividendin 2004 in an amount greater than our CUFIN balance (which may occur in a yearwhen net profits exceed the balance in such accounts), then we will be requiredto pay a 33% income tax on an amount equal to the product of the portion of thegrossed-up amount which exceeds such balance multiplied by the factor 1.4925.

 

After 2005, theapplicable income tax rate and factor are expected to be 32% and 1.4706,respectively.

 

***Taxation of Dispositions***

 

The sale or otherdisposition of ADSs by a non-resident holder will not be subject to Mexicantax.  Deposits of shares in exchange forADSs and withdrawals of shares in exchange for ADSs will not give rise toMexican tax or transfer duties.

 

The sale of shares by anon-resident holder will not be subject to any Mexican tax if the transactionis carried out through the Mexican Stock Exchange or other securities marketsapproved by the Mexican Ministry of Finance. Sales or other dispositions of shares made in other circumstancesgenerally would be subject to Mexican tax, regardless of the nationality orresidence of the transferor.

 

Under the Mexican IncomeTax Law, gains realized by a nonresident holder of shares on the sale ordisposition of shares not conducted through a recognized stock exchangegenerally are subject to a Mexican tax at a rate of 20% of the gross saleprice.  However, if the holder is aresident of a country which is not considered to be a low tax rate country (byreference to a list of low rate countries published by the Mexican Ministry ofFinance and Public Credit), the holder may elect to designate a resident ofMexico as its representative, in which case taxes would be payable at a 34%rate on the gain on such disposition of shares in 2003 (33% in 2004 and 32% in2005 and thereafter).

 

Pursuant to the TaxTreaty, gains realized by qualifying U.S. holders from the sale or otherdisposition of shares, even if the sale is not conducted through a recognizedstock exchange, will not be subject to Mexican income tax except that Mexicantaxes may apply if:

 

•                  50%or more of our assets consist of fixed assets situated in Mexico;

 

•                  suchU.S. holder owned 25% or more of the shares representing our capital stock(including ADSs), directly or indirectly, during the 12-month period precedingsuch disposition; or

 

•                  thegain is attributable to a permanent establishment or fixed base of the U.S.holder in Mexico.

 

***Other Mexican Taxes***

 

A non-resident holderwill not be liable for estate, inheritance or similar taxes with respect to itsholdings of shares or ADSs; provided, however, that gratuitous transfers ofshares may in certain circumstances result in imposition of a Mexican tax uponthe recipient.  There are no Mexicanstamp, issue registration or similar taxes payable by a non-resident holderwith respect to shares or ADSs.

 

47

----

 

Reimbursement of capitalpursuant to a redemption of shares will be tax exempt up to an amountequivalent to the adjusted contributed capital corresponding to the shares thatwill be redeemed.  Any excessdistribution pursuant to a redemption will be considered a dividend for taxpurposes and we may be taxed as described above.

 

**U.S.Federal Income Tax Considerations**

 

The following is asummary of certain U.S. federal income tax consequences to U.S. holders (asdefined below) of the acquisition, ownership and disposition of B Shares orADSs.  This summary is based upon thefederal income tax laws of the United States as in effect on the date of thisAnnual Report, including the provisions of the Tax Treaty, all of which aresubject to change, possibly with retroactive effect in the case of U.S. federalincome tax law.

 

The summary does notpurport to be a comprehensive description of all of the tax consequences of theacquisition, ownership or disposition of B Shares or ADSs.  The summary applies only to U.S. holdersthat will beneficially own their shares or ADSs as capital assets and does notapply to special classes of holders such as dealers in securities orcurrencies, holders with a functional currency other than the U.S. dollar,holders of 10% or more of our voting shares (whether held directly or throughADSs or both), tax-exempt organizations, financial institutions, holders liablefor the alternative minimum tax, securities traders electing to account fortheir investment in their shares or ADSs on a mark-to-market basis, and personsholding their shares or ADSs in a hedging transaction or as part of a straddleor conversion transaction.

 

For purposes of thisdiscussion, a “U.S. holder” is a beneficial owner of B Shares or ADSs that is:

 

•                  acitizen or resident of the United States of America;

 

•                  acorporation or partnership organized in or under the laws of the United Statesof America or any state thereof or the District of Columbia;

 

•                  anestate the income of which is subject to United States federal taxationregardless of its source;

 

•                  atrust if a court within the U.S. is able to exercise primary supervision overthe administration and one or more U.S. persons have the authority to controlall substantial decisions of the trust; or

 

•                  otherwisesubject to U.S. federal income taxation on a net income basis with respect tothe B Shares or ADSs.

 

A holder of B Shares orADSs that is a partnership, and partners in such partnership, should consulttheir tax advisors about the U.S. federal income tax consequences of holdingand disposing of the B Shares or ADSs, as the case may be.

 

Prospective investors inthe B Shares or ADSs should consult their own tax advisors as to the U.S. federal,Mexican or other tax consequences of the purchase, ownership and disposition ofthe B Shares or ADSs, including, in particular, the effect of any foreign,state or local tax laws and their entitlement to the benefits, if any, affordedby the Tax Treaty.

 

***Treatment of ADSs***

 

In general, a U.S. holderof ADSs will be treated as the beneficial owner of the B Shares represented bythose ADSs for U.S. federal income tax purposes.  Deposits or withdrawals of B Shares by U.S. holders in exchangefor the ADSs they represent will not result in the realization of gain or lossfor U.S. federal income tax purposes. U.S. holders that withdraw any B Shares should consult their own taxadvisors regarding the treatment of any foreign currency gain or loss on anypesos received in respect of such B Shares.

 

48

----

 

***Taxation of Distributions***

 

In this discussion, theterm “dividends” is used to mean distributions paid out of our current oraccumulated earnings and profits (calculated for U.S. federal income taxpurposes) with respect to B Shares or ADSs. In general, the gross amount of any dividends will be includible in thegross income of a U.S. holder as ordinary income on the day on which thedividends are received by the U.S. holder in the case of B Shares, or by thedepositary in the case of ADSs. Dividends paid by us will not be eligible for the dividends-receiveddeduction allowed to corporations under the Code.  To the extent that a distribution exceeds the amount of ourearnings and profits (calculated for U.S. federal income tax purposes), it willbe treated as a non-taxable return of capital to the extent of the U.S.holder’s basis in the B Shares or ADSs, and thereafter as capital gain(provided that the B Shares or ADSs are held as capital assets).  Distributions will be paid in pesos and willbe includible in the income of a U.S. holder in a U.S. dollar amount calculatedby reference to the exchange rate in effect on the day that they are receivedby the U.S. holder in the case of B Shares, or by the depositary in the case ofADSs.  U.S. holders should consult theirown tax advisors regarding the treatment of foreign currency gain or loss, ifany, on any pesos received by a U.S. holder or depositary that are convertedinto U.S. dollars on a date subsequent to receipt.

 

Distributions ofadditional shares or ADSs to U.S. holders with respect to their shares or ADSsthat are made as part of a pro rata distribution to all of our shareholdersgenerally will not be subject to U.S. federal income tax.

 

Dividends paid on sharesor ADSs generally will be treated for U.S. foreign tax credit purposes asforeign source passive income, or, in the case of certain U.S. holders, asforeign source financial services income. In the event Mexican withholding taxes are imposed on such dividends,any such withheld taxes would be treated as part of the gross amount of thedividend includible in income of a U.S. Holder for U.S. federal income taxpurposes (to the extent current or accumulated earnings and profits), and suchtaxes may be treated as a foreign income tax eligible, subject to generallyapplicable limitations and conditions under U.S. federal income tax law, forcredit against a U.S. holder’s U.S. federal income tax liability or, at theU.S. holder’s election, for deduction from gross income in computing the U.S.holder’s taxable income.  Thecalculation and availability of foreign tax credits and, in the case of a U.S.holder that elects to deduct foreign taxes, the availability of deductions,involves the application of rules that depend on a U.S. holder’s particularcircumstances.  In the event Mexicanwithholding taxes are imposed, U.S. holders should consult their own taxadvisors regarding the availability of foreign tax credits.

 

***Qualified Dividend Income***

 

Notwithstanding theforegoing, certain dividends received by individual U.S. holders thatconstitute “qualified dividend income” will be subject to a reduced maximummarginal U.S. federal income tax rate. Qualified dividend income generally includes, among other dividends,dividends received during the taxable year from “qualified foreigncorporations.”  In general, the term“qualified foreign corporation” includes a foreign corporation that is eligiblefor the benefits of a comprehensive income tax treaty with the United Stateswhich the U.S. Treasury Department determines to be satisfactory, and whichincludes an exchange of information program. In addition, a foreign corporationis treated as a qualified foreign corporation with respect to any dividend paidby the corporation with respect to stock of the corporation that is readilytradable on an established securities market in the United States.  For this purpose, a share is treated asreadily tradable on an established securities market in the United States if anADR backed by such share is so traded.

 

Notwithstanding theprevious rule, dividends received from a foreign corporation that is a foreigninvestment company (as defined in section 1246(b) of the Code), a passiveforeign investment company (as defined in section 1297 of the Code), or aforeign personal holding company (as defined in section 552 of the Code)in either the taxable year of the corporation in which the dividend was paid orthe preceding taxable year will not constitute qualified dividend income.  In addition, the term “qualified dividendincome” will not include, among other dividends, any (i) dividends on any shareof stock or ADS which is held by a taxpayer for 60 days or less during the120-day period beginning on the date which is 60 days before the date on whichsuch share or the shares backing the ADS become ex-dividend with respect tosuch dividends (as measured under section 246(c) of the Code) or (ii)dividends to the extent that the taxpayer is under an obligation (whetherpursuant to a short sale or otherwise) to make related payments with respectsto positions in substantially similar or related property. Moreover, specialrules

 

49

----

 

apply in determining ataxpayer’s foreign tax credit limitation under section 904 of the Code inthe case of qualified dividend income.

 

Individual U.S. holdersshould consult their own tax advisors to determine whether or not amountsreceived as dividends from us will constitute qualified dividend income subjectto a reduced maximum marginal U.S. federal income tax rate and, in such case,the effect, if any, on the individual U.S. holder’s foreign tax credit.

 

***Taxation of Dispositions***

 

Gain or loss realized bya U.S. holder on the sale, redemption or other disposition of B Shares or ADSswill be subject to U.S. federal income taxation as capital gain or loss in anamount equal to the difference between such U.S. holder’s adjusted basis in theB Shares or the ADSs and the amount realized on the disposition (including anyamounts withheld in respect of Mexican withholding tax). Gain (including gainthat arises because the U.S. holder’s basis in the B Shares or ADSs has beenreduced because a distribution is treated as a return of capital rather than asa dividend) and loss realized by a U.S. holder on a sale, redemption or otherdisposition of B Shares or ADSs generally will be treated as U.S. source incomeor loss for U.S. foreign tax credit purposes.

 

The availability of U.S.foreign tax credits for any Mexican taxes imposed on the sale, redemption orother disposition is subject to certain limitations and involves theapplication of rules that depend on a U.S. holder’s particular circumstances.U.S. holders should consult their own tax advisors regarding the application ofthe foreign tax credit rules to their investment in, and disposition of, BShares or ADSs.

 

***Tax Return DisclosureRegulations***

 

Pursuant to U.S. Treasuryregulations (the “Disclosure Regulations”), any taxpayer that has participatedin a “reportable transaction” and who is required to file a U.S. Federal incometax return must generally attach a disclosure statement disclosing suchtaxpayer’s participation in the reportable transaction to the taxpayer’s taxreturn for each taxable year for which the taxpayer participates in thereportable transaction.  The DisclosureRegulations provide that, in addition to certain other transactions, “losstransactions” and “transactions involving a brief asset holding period”constitute “reportable transactions.” “Loss transactions” include transactionsthat produce a foreign currency exchange loss in an amount equal to or inexcess of certain threshold amounts. “Transactions involving a brief asset holding period” are generallytransactions resulting in the taxpayer claiming a tax credit in excess of$250,000 if the underlying asset giving rise to the credit is held by thetaxpayer for 45 days or less. U.S. holders should consult their own advisorsconcerning the implications of the tax return disclosure requirements in lightof their particular circumstances.

 

***Information Reporting andBackup Withholding***

 

Dividends on, andproceeds from the sale or other disposition of, the B Shares or ADSs paid to aU.S. holder generally may be subject to the information reporting requirementsof the Code and may be subject to backup withholding at the applicable rateunless the holder:

 

•                  establishesthat it is a corporation or other exempt holder; or

 

•                  providesan accurate taxpayer identification number on a properly completed InternalRevenue Service Form W-9 and certifies that no loss of exemption from backupwithholding has occurred.

 

The amount of any backupwithholding from a payment to a holder will be allowed as a credit against theU.S. holder’s U.S. federal income tax liability and may entitle such holder toa refund, provided that certain required information is furnished to theInternal Revenue Service.

 

***U.S. Tax Consequences forNon-U.S. Holders***

 

*Distributions*.  A holder of B Shares or ADSs that is, with respect to the UnitedStates, a foreign corporation or a non-resident alien individual (a “non-U.S.holder”) generally will not be subject to U.S. federal

 

50

----

 

income or withholding taxon dividends received on B Shares or ADSs, unless such income is effectivelyconnected with the conduct by the holder of a U.S. trade or business.

 

*Dispositions*.  A non-U.S. holder of B Shares or ADSs will not be subject to U.S.federal income or withholding tax on gain realized on the sale of B Shares orADSs, unless:

 

•                  suchgain is effectively connected with the conduct by the holder of a U.S. trade orbusiness; or

 

•                  inthe case of gain realized by an individual holder, the holder is present in theUnited States for 183 days or more in the taxable year of the sale and certainother conditions are met.

 

*Information Reporting and Backup Withholding*.  Although non-U.S. holders generally areexempt from backup withholding, a non-U.S. holder may be required to complywith certification and identification procedures in order to establish itsexemption from information reporting and backup withholding.

 

**DOCUMENTS ON DISPLAY**

 

We are subject to theinformation requirements of the Securities Exchange Act of 1934, as amended,and, in accordance therewith, we are required to file reports and otherinformation with the SEC.  Thesematerials, including this Form 20-F and the exhibits thereto, may be inspectedand copied at the SEC’s Public Reference Room at 450 Fifth Street, NW,Washington, D.C. 20549.  The public mayobtain information on the operation of the Public Reference Room by calling theSEC at 1-800-SEC-0330.

 

## **Item 11**.                Quantitative AndQualitative Disclosures About Market Risk.

 

The following discussionof the effects on us of changes in interest rates, foreign exchange rates andcommodity prices is not necessarily indicative of our actual results in thefuture.  Future gains and losses will beaffected by actual changes in interest rates, foreign exchange rates, commodityprices and other market exposures, as well as changes in any actual derivativeinstruments employed during any period. All information below is presented on aMexican GAAP basis in pesos of constant purchasing power as of December 31,2003.

 

**INTEREST RATE RISKS**

 

Although we had nooutstanding debt as of December 31, 2003, we generally depend upon debtfinancing, including credit facilities and leases, to finance ouroperations.  These transactions exposeus to interest rate risk, with the primary interest-rate risk exposureresulting from changes in the relevant base rates (CETES, TIIE, LIBOR and/orprime rate) which are used to determine the interest rates that are applicableto borrowings under our credit facilities.

 

In the case of our cashand short-term investments, declines in interest rates decrease the interestreturn on floating rate cash deposits and short-term investments.  A hypothetical 100 basis point (1.0%)decrease in interest rates would not have a significant effect on our resultsof operations.

 

We have not used anyderivative financial instruments to hedge our interest rate exposures.

 

**FOREIGN EXCHANGE RATE RISKS**

 

Our net sales aredenominated in Mexican pesos, while our operations, including imports of corn,are financed through Mexican peso and U.S. dollar-denominated debt.  As of December 31, 2003, 1.4% of ourtotal monetary assets was denominated in U.S. dollars and 7.2% of our totalliabilities was denominated in U.S. dollars. See Note 12 to our consolidated financial statements for a descriptionof our foreign currency exposure.

 

Fluctuations in exchangerates relative to the Mexican peso expose us to foreign-currency exchange raterisk.  Our primary foreign exchange raterisk relates to our debt portfolio, but as of December 31, 2003, we had nooutstanding debt.

 

51

----

 

A hypothetical 10% changein the Peso-Dollar exchange rate would not have a significant effect on ourexchange rate risk with respect to our dollar-denominated obligations.

 

**COMMODITY PRICE RISKS**

 

TheCompany has entered into commodity futures contracts and swap operations tohedge a portion of its key production requirements like gas and corn, in orderto reduce the risk of price fluctuations. These contracts are short term and donot exceed the maximum production requirements for a one-year period. The gainor loss on these futures contracts was recognized in income when settled andwas not significant. As of December 31, 2003, the nominal value of ouroutstanding swap contracts for gas was U.S.$738,000.  We currently have no off-balance sheet arrangementsoutstanding although we may enter into such arrangements in the future.

 

The availability andprice of corn and other agricultural commodities are subject to widefluctuations due to factors outside our control, such as weather, plantings,government (domestic and foreign) farm programs and policies, changes in globaldemand created by population growth and global production of similar and competitivecrops.  In 2003, Ps.2,633 million of our Ps.3,840 million costs of sales related tothe cost of corn.  A hypothetical 10%increase in corn prices, relative to corn prices during 2003, implies a Ps.263 million increase in our costs ofsales, and a corresponding decrease in gross profit assuming that we wereunable to increase the price we charge for our products to offset thehypothetical increase in corn prices.

 

**COUNTERPARTY RISKS**

 

Liquid assets areinvested primarily in Mexican government bonds and short-term debt instrumentsof Mexican issuers with a minimum “A” rating. Substantially all of these financial instruments are unsecured.  We face credit risk from the potentialnon-performance by the counterparties in respect of the financial instruments inwhich we invest.  We do not, however,anticipate non-performance by the counterparties which are primarily theMexican government and “A” rated private issuers.

 

## **Item 12**.                Description ofSecurities other than Equity Securities.

 

Not applicable.

 

# **PARTII.**

 

## **Item13.**                Defaults, DividendArrearages and Delinquencies.

 

None.

 

## **Item 14.**                MaterialModifications to the Rights of Security Holders and Use Of Proceeds.

 

None.

 

## **Item15.**                Controls andProcedures.

 

**EVALUATIONOF DISCLOSURE CONTROLS AND PROCEDURES**

 

The conclusions of ourChief Executive Officer and Senior Corporate Controller about the effectivenessof our disclosure controls and procedures based on their evaluation of thesecontrols and procedures as of December 31, 2003 are as follows:

 

Our disclosure controlsand procedures are designed to ensure that information required to be disclosedby us is recorded, processed, summarized and reported within requiredtimeframes. Our disclosure controls and procedures include controls andprocedures designed to ensure that information required to be disclosed isaccumulated and communicated to our management, including our Chief ExecutiveOfficer and Senior Corporate Controller, as appropriate to allow timelydecisions regarding required disclosure. Based on their assessments of our

 

52

----

 

disclosure controls andprocedures, our Chief Executive Officer and Senior Corporate Controller haveconcluded that the disclosure controls and procedures have functionedeffectively and that the consolidated financial statements fairly present ourconsolidated financial position and the results of our operations for theperiods presented.

 

**CHANGESIN INTERNAL CONTROLS**

 

There has been no changein our internal control over financial reporting during 2003 that hasmaterially affected, or is reasonably likely to materially affect, our internalcontrol over financial reporting.

 

## **Item 16A.**                                           AuditCommittee Financial Expert

 

At our annual ordinaryshareholders’ meeting in April 2004, our shareholders elected thefollowing three members of the Audit Committee:  Eduardo Livas Cantú, Javier Vélez Bautista and Román MartínezMéndez, and designated Javier Vélez Bautista as an “audit committee financialexpert” within the meaning of this Item 16A. Although under Mexican law the determination of the shareholders isbinding on our company, our board of directors will confirm this designation atits next board meeting.

 

## **Item 16B.**                                           Codeof Ethics

 

We have adopted a code ofethics, as defined in Item 16B of Form 20-F under the Securities Exchange Actof 1934, as amended.  Our code of ethicsapplies to our Chief Executive Officer, Chief Financial Officer and personsperforming similar functions as well as to our directors and other officers andemployees.  Our code of ethics isavailable on our web site at www.gimsa.com. If we amend the provisions of our code of ethics that apply to our ChiefExecutive Officer, Chief Financial Officer and persons performing similar functions,or if we grant any waiver of such provisions, we will disclose such amendmentor waive on our web site at the same address.

 

## **Item 16C.**                                           PrincipalAccountant Fees and Services

 

**Audit and Non-Audit Fees**

 

The following tablesummarizes the aggregate fees billed to us by PricewaterhouseCoopers, S.C.during the fiscal years ended December 31, 2002 and 2003:

 
|               |   | **Year ended  December 31,** |   |
|--------------------|--------|-----------------------------------|--------|
|               |   | **2003**                          |   | **2002** |   |
|               |   | **(thousands  of Mexican pesos)** |   |
| Audit fees         |   | Ps.                               | 3,135  |   | Ps. | 3,638 |   |
| Audit-related fees |   | 0                                 |   | 0 |   |
| Tax fees           |   | 1,754                             |   | 549 |   |
| Other fees         |   | 190                               |   | 249 |   |
| Total fees         |   | Ps.                               | 5,079  |   | Ps. | 4,436 |   |
|                    |        |                                   |        |  |  |  |  |  |  |

 

*Audit fees*.  Audit fees in the above table are theaggregate fees billed by PricewaterhouseCoopers, S.C. in connection with theaudit of our annual financial statements and statutory and regulatory audits.

 

*Audit-related Fees*.  Audit-related fees in the above table arethe aggregate fees billed by PricewaterhouseCoopers, S.C. for financialaccounting and reporting consultations.

 

*Tax Fees*.  Tax fees in the above table are fees billedby PricewaterhouseCoopers, S.C. for services based upon existing facts andprior transactions in order to document, compute, and obtain governmentapproval for amounts included in tax filings such as value-added tax returnassistance, transfer pricing documentation and requests for technical advicefrom taxing authorities.

 

53

----

 

*Other Fees*.  Other fees in the above table are feesbilled by PricewaterhouseCoopers, S.C. for non-audit services.  As a percentage of total fees billed toGIMSA, other fees represent 3.7% and 5.6% for 2003 and 2002, respectively.

 

**Audit Committee Pre-Approval Policies andProcedures**

 

We have adopted pre-approval policies and procedures under which allaudit and non-audit services provided by our external auditors must bepre-approved by the audit committee. Any service proposals submitted by external auditors need to bediscussed and pre-approved by the audit committee during its meetings, whichtake place at least four times a year. Once the proposed service is approved, we or our subsidiaries formalizethe engagement of services.  Theapproval of any audit and non-audit services to be provided by our externalauditors is specified in the minutes of our audit committee.  In addition, the members of our board ofdirectors are briefed on matters discussed by the audit committee.

 

## **Item 16D.**                                           NotApplicable

 

## **Item 16E.**                                             NotApplicable

 

# **PARTIII.**

 

## **Item17.**                FinancialStatements.

 

Not Applicable.

 

## **Item18.**                FinancialStatements.

 

See pages F-1 through F-37, incorporated herein by reference.

 

## **Item 19.**                Exhibits.

 
| **Exhibit No.** |   |                                                                                                                                                                                                                                                                             |
|-----------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|            |   |                                                                                                                                                                                                                                                                             |
| 1               |   | Our  bylaws (*estatutos  sociales*) as amended through December 2, 2003, together with  an English translation.                                                                                                                                                             |
|            |   |                                                                                                                                                                                                                                                                             |
| 2(a)(1)         |   | Deposit  Agreement, dated as of May 17, 1994 between us, Citibank, N.A., as  Depositary, all registered holders from time to time and all owners from time  to time of any beneficial interest in any American Depository Receipts  evidencing American Depository Shares.* |
|            |   |                                                                                                                                                                                                                                                                             |
| 7               |   | Statement  of Computation of Ratio of Earnings to Fixed Changes (Mexican GAAP and U.S.  GAAP).                                                                                                                                                                                   |
|            |   |                                                                                                                                                                                                                                                                             |
| 8               |   | List  of Principal Subsidiaries.                                                                                                                                                                                                                                                 |
|            |   |                                                                                                                                                                                                                                                                             |
| 12(a)(1)        |   | CEO  Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002,  dated June 28, 2004.                                                                                                                                                                    |
|            |   |                                                                                                                                                                                                                                                                             |
| 12(a)(2)        |   | CFO  Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002,  dated June 28, 2004.                                                                                                                                                                    |
|            |   |                                                                                                                                                                                                                                                                             |
| 13              |   | Officer  Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of  2002, dated June 28, 2004.                                                                                                                                                               |

 

54

----

 

----

*  Previously filed in Annual Report on Form20-F (File No. 1-13032), originally filed with the SEC on July 2,2001.  Incorporated herein by reference.

 

55

----

 

**SIGNATURE**

 

The registrant, GrupoIndustrial Maseca, S.A. de C.V., hereby certifies that it meets all of therequirements for filing on Form 20-F and that it has duly caused and authorizedthe undersigned to sign this annual report on its behalf.

 

 
|                            | GRUPO INDUSTRIAL  MASECA, S.A. de C.V. |
|---------------------------------|----------------------------------------|
|                            |                                   |
|                            |                                   |
|                            | /s/ Juan Antonio Quiroga García   |   |
|                            | Name:                                  | Juan Antonio Quiroga García |
|                            | Title:                                 | Senior Corporate  Controller |
|                            |                                   |
|                            |                                   |
| Dated:  June 28, 2004 |                                   |
|                                 |                                        |  |  |

 

56

----

**GRUPO INDUSTRIAL MASECA, S.A. DE C.V. AND SUBSIDIARIES**

 

**INDEX TO CONSOLIDATEDFINANCIAL STATEMENTS**

 
| Report  of Independent Registered Public Accounting Firm                                                                |   |
|-------------------------------------------------------------------------------------------------------------------------|--------|
| Consolidated Balance Sheets  as of December 31, 2003 and 2002                                                           |   |
| Consolidated  Statements of Income for the Years Ended December 31,  2003, 2002 and 2001                                |   |
| Consolidated  Statements of Changes in Stockholders’ Equity for the Years   Ended December 31, 2003, 2002 and 2001 |   |
| Consolidated  Statements of Changes in Financial Position for the Years  Ended December 31, 2003, 2002 and 2001         |   |
| Notes to  Consolidated Financial Statements                                                                             |   |

 

F-1

----

 

Report of Independent Registered Public Accounting Firm

#  

To the Stockholders of Grupo Industrial Maseca, S.A.de C.V.:

 

In our opinion, the accompanying consolidated balancesheets and the related consolidated statements of income, changes instockholders’ equity and changes in financial position present fairly, in allmaterial respects, the financial position of Grupo Industrial Maseca, S.A. deC.V. and subsidiaries (collectively “the Company”) at December 31, 2003 and2002, and the results of their operations and changes in their financialposition for each of the three years ended December 31, 2003, in conformitywith accounting principles generally accepted in Mexico. These consolidatedfinancial statements are the responsibility of the management of GrupoIndustrial Maseca, S.A. de C.V.; our responsibility is to express an opinion onthese financial statements based on our audits. We conducted our audits ofthese statements in accordance with the standards of the Public CompanyAccounting Oversight Board (United States) and generally accepted auditingstandards in Mexico, which require that we plan and perform the audit to obtainreasonable assurance about whether the financial statements are free ofmaterial misstatement.  An auditincludes examining, on a test basis, evidence supporting the amounts anddisclosures in the financial statements, assessing the accounting principlesused and significant estimates made by management, and evaluating the overallfinancial statement presentation. We believe that our audits provide areasonable basis for the opinion expressed above.

 

Accounting principles generally accepted in Mexicovary in certain significant respects from accounting principles generallyaccepted in the United States of America. The application of accountingprinciples generally accepted in the United States of America would haveaffected the determination of the consolidated net income and comprehensiveincome, expressed in Mexican pesos, for each of the three years in the periodended December 31, 2003, and the determination of the total consolidatedstockholders’ equity, also expressed in Mexican pesos, as of December 31, 2003and 2002. Information related to the nature and effect of such differences ispresented in Note 15 to the consolidated financial statements.

 

 

**PricewaterhouseCoopers**

 

 

January 19, 2004

Monterrey, N.L., Mexico

F-2

----

 

**GRUPOINDUSTRIAL MASECA, S.A. DE C.V. AND SUBSIDIARIES**

** **

# **CONSOLIDATED BALANCE SHEETS****as of December 31, 2003 and 2002**

**(Expressed in thousandsof Mexican pesos in purchasing power as of December 31, 2003)(Notes 1 and 2)**

 
|                                                                                                                              |   | **2003**   |      | **2002**   |   |
|-----------------------------------------------------------------------------------------------------------------------------------|--------|------------|-----------|------------|--------|
| **ASSETS**                                                                                                                        |   |       |      |       |   |
| Current:                                                                                                                          |   |       |      |       |   |
| Cash and cash equivalents                                                                                                         |   | Ps         | 188,196   |       | Ps     | 58,938 |   |
| Notes and accounts receivable, net  (Note 3)                                                                                 |   | 775,603    |      | 842,158    |   |
| Refundable taxes  (Note 3)                                                                                                   |   | 158,402    |      | 215,793    |   |
| Receivables from affiliated companies  (Note 4)                                                                              |   | 710,279    |      | 630,890    |   |
| Inventories  (Note 5)                                                                                                        |   | 1,166,531  |      | 1,044,565  |   |
| Prepaid expenses                                                                                                                  |   | 89,387     |      | 3,266      |   |
| Total current assets                                                                                                              |   | 3,088,398  |      | 2,795,610  |   |
|                                                                                                                              |   |       |      |       |   |
| Property, plant and equipment, net  (Note 6)                                                                                 |   | 3,896,328  |      | 4,094,040  |   |
| Other assets, net  (Note 7)                                                                                                  |   | 137,519    |      | 369,865    |   |
|                                                                                                                              |   |       |      |       |   |
| **Total assets**                                                                                                                  |   | Ps         | 7,122,245 |       | Ps     | 7,259,515 |   |
|                                                                                                                              |   |       |      |       |   |
| **LIABILITIES**                                                                                                                   |   |       |      |       |   |
| Current:                                                                                                                          |   |       |      |       |   |
| Trade accounts payable                                                                                                            |   | Ps         | 173,463   |       | Ps     | 269,774 |   |
| Payables to affiliated companies (Note 4)                                                                                         |   | 13,576     |      | 29,567     |   |
| Accrued liabilities and other payables                                                                                            |   | 142,918    |      | 159,243    |   |
| Employees’ statutory profit sharing payable                                                                                  |   | 12,724     |      | 12,330     |   |
| Total current liabilities                                                                                                         |   | 342,681    |      | 470,914    |   |
| Deferred income taxes (Note 11)                                                                                                   |   | 950,755    |      | 988,782    |   |
| Deferred employees’ statutory profit  sharing (Note 11)                                                                      |   | 26,321     |      | 36,205     |   |
| **Total liabilities**                                                                                                             |   | 1,319,757  |      | 1,495,901  |   |
| Commitments and contingencies  (Note 9)                                                                                      |   |       |      |       |   |
|                                                                                                                              |   |       |      |       |   |
| **STOCKHOLDERS’ EQUITY**                                                                                                     |   |       |      |       |   |
| Majority interest (Note 10):                                                                                                      |   |       |      |       |   |
| Common stock                                                                                                                      |   | 183,681    |      | 183,681    |   |
| Restatement of common stock                                                                                                       |   | 1,596,229  |      | 1,596,229  |   |
|                                                                                                                              |   | 1,779,910  |      | 1,779,910  |   |
| Additional paid-in capital                                                                                                        |   | 1,554,913  |      | 1,554,913  |   |
|                                                                                                                              |   | 3,334,823  |      | 3,334,823  |   |
| Deficit from restatement                                                                                                          |   | (2,863,616 | )         | (2,787,238 | )      |
| Cumulative effect of a change in an  accounting principle for deferred income taxes and employees’ statutory  profit sharing |   | (718,690   | )         | (718,690   | )      |
| Retained earnings:                                                                                                                |   |       |      |       |   |
| Prior years                                                                                                                       |   | 5,389,009  |      | 5,219,173  |   |
| Net income for the current year                                                                                                   |   | 311,973    |      | 377,502    |   |
| Total majority interest                                                                                                           |   | 5,453,499  |      | 5,425,570  |   |
| Minority interest                                                                                                                 |   | 348,989    |      | 338,044    |   |
| **Total stockholders’ equity**                                                                                               |   | 5,802,488  |      | 5,763,614  |   |
| **Total liabilities and stockholders’ equity**                                                                               |   | Ps         | 7,122,245 |       | Ps     | 7,259,515 |   |

 

The accompanying notes are an integral part of these consolidatedfinancial statements.

 

F-3

----

 

**GRUPOINDUSTRIAL MASECA, S.A. DE C.V. AND SUBSIDIARIES**

** **

# **CONSOLIDATED STATEMENTS OF INCOME****For the Years Ended December 31, 2003, 2002 and 2001**

**(Expressed in thousandsof Mexican pesos in purchasing power as ofDecember 31, 2003, except share and per share amounts)(Notes 1 and 2)**

 
|                                                                                         |   | **2003**   |      | **2002**   |   | **2001**   |   |
|----------------------------------------------------------------------------------------------|--------|------------|-----------|------------|--------|------------|--------|
|                                                                                         |   |       |      |       |   |       |   |
| Net sales                                                                                    |   | Ps         | 5,200,809 |       | Ps     | 4,952,110  |   | Ps | 5,143,476 |   |
| Cost of sales                                                                                |   | (3,839,571 | )         | (3,485,098 | )      | (3,594,716 | )      |
| Gross profit                                                                                 |   | 1,361,238  |      | 1,467,012  |   | 1,548,760  |   |
|                                                                                         |   |       |      |       |   |       |   |
| Selling, general and administrative expenses                                                 |   | (967,396   | )         | (939,419   | )      | (968,268   | )      |
| Operating income                                                                             |   | 393,842    |      | 527,593    |   | 580,492    |   |
|                                                                                         |   |       |      |       |   |       |   |
| Comprehensive financing (cost) income, net:                                                  |   |       |      |       |   |       |   |
| Interest expense                                                                             |   | (7,014     | )         | (13,018    | )      | (24,230    | )      |
| Interest income                                                                              |   | 66,993     |      | 76,855     |   | 108,876    |   |
| Monetary position loss, net                                                                  |   | (60,899    | )         | (86,729    | )      | (60,273    | )      |
| Foreign exchange loss, net                                                                   |   | (3,829     | )         | (4,921     | )      | (719       | )      |
|                                                                                         |   | (4,749     | )         | (27,813    | )      | 23,654     |   |
| Other income (expense), net                                                                  |   | 7,978      |      | (6,848     | )      | (20,851    | )      |
|                                                                                         |   |       |      |       |   |       |   |
| Income before income taxes, employees’  statutory profit sharing, and minority interest |   | 397,071    |      | 492,932    |   | 583,295    |   |
|                                                                                         |   |       |      |       |   |       |   |
| Income taxes  (Note 11):                                                                |   |       |      |       |   |       |   |
| Current provision                                                                            |   | (91,569    | )         | (100,867   | )      | (180,633   | )      |
| Deferred benefit                                                                             |   | 29,147     |      | 29,383     |   | 9,493      |   |
|                                                                                         |   | (62,422    | )         | (71,484    | )      | (171,140   | )      |
| Employees’ statutory profit sharing  (Note 11):                                    |   |       |      |       |   |       |   |
| Current provision                                                                            |   | (12,541    | )         | (12,323    | )      | (14,813    | )      |
| Deferred benefit (provision)                                                                 |   | 9,884      |      | (11,736    | )      | (807       | )      |
|                                                                                         |   | (2,657     | )         | (24,059    | )      | (15,620    | )      |
| Income before minority interest                                                              |   | 331,992    |      | 397,389    |   | 396,535    |   |
| Minority interest                                                                            |   | (20,019    | )         | (19,887    | )      | (8,936     | )      |
| Net income (Note 10-B)                                                                       |   | Ps         | 311,973   |       | Ps     | 377,502    |   | Ps | 387,599 |   |
|                                                                                         |   |       |      |       |   |       |   |
| Earnings per share                                                                           |   | Ps         | 0.34      |       | Ps     | 0.41       |   | Ps | 0.42 |   |
| Weighted average shares outstanding  (thousands)                                             |   | 918,405    |      | 918,405    |   | 918,405    |   |

 

The accompanying notes are an integral part of these consolidatedfinancial statements.

 

F-4

----

 

**GRUPOINDUSTRIAL MASECA, S.A. DE C.V. AND SUBSIDIARIES**

 

# **CONSOLIDATED STATEMENTS OF CHANGES INSTOCKHOLDERS’ EQUITY****For the Years Ended December 31, 2003, 2002 and 2001**

**(Expressed in thousandsof Mexican pesos in purchasing power as of December 31, 2003, except number ofshares)(Notes 1 and 2)**

 
|                                          |   | **Common  stock  (Note 10-A)**     |   |       |      |                            |   | **Cumulative  effect  of deferred  income taxes and** |   | **Retained  earnings  (Note 10-B)**            |       |             |   |                         |   |                          |      |
|-----------------------------------------------|--------|------------------------------------|--------|------------|-----------|---------------------------------|--------|-------------------------------------------------------|--------|------------------------------------------------|------------|------------------|--------|------------------------------|--------|-------------------------------|-----------|
|                                          |   | **Number of  shares  (thousands)** |   | **Amount** |      | **Additional  paid in capital** |   | **Deficit  from  restatement**                        |   | **employee’s  statutory profit  sharing** |       | **Prior  years** |   | **Net income  for the year** |   | **Total  majority  interest** |      | **Minority  interest** |   | **Total  stockholders’  equity** |   |
|                                          |   |                               |   |       |      |                            |   |                                                  |   |                                           |       |             |   |                         |   |                          |      |   |   |   |   |
| **Balances at December 31, 2000**             |   | 918,405                            |   | Ps         | 1,779,910 |                            | Ps     | 1,554,913                                             |   | Ps                                             | (2,642,267 | )                | Ps     | (718,690                     | )      | Ps                            | 5,357,752 |   | Ps | 421,905 |   | Ps | 5,753,523 |   | Ps | 321,976 |   | Ps | 6,075,499 |   |
| Appropriation of prior year net income        |   |                               |   |       |      |                            |   |                                                  |   |                                           |       | 421,905          |   | (421,905                     | )      |                          |      |   |   |   |   |
| Dividends paid (Ps 0.90 per share)            |   |                               |   |       |      |                            |   |                                                  |   |                                           |       | (829,490         | )      |                         |   | (829,490                      | )         | (1,455 | ) | (830,945 | ) |
|                                          |   |                               |   |       |      |                            |   |                                                  |   |                                           |       | (407,585         | )      | (421,905                     | )      | (829,490                      | )         | (1,455 | ) | (830,945 | ) |
| Comprehensive income (loss):                  |   |                               |   |       |      |                            |   |                                                  |   |                                           |       |             |   |                         |   |                          |      |   |   |   |   |
| Recognition of inflation effects for the year |   |                               |   |       |      |                            |   | (76,132                                               | )      |                                           |       |             |   |                         |   | (76,132                       | )         | (3,248 | ) | (79,380 | ) |
| Net income for the current year               |   |                               |   |       |      |                            |   |                                                  |   |                                           |       |             |   | 387,601                      |   | 387,601                       |      | 8,936 |   | 396,537 |   |
|                                          |   |                               |   |       |      |                            |   | (76,132                                               | )      |                                           |       |             |   | 387,601                      |   | 311,469                       |      | 5,688 |   | 317,157 |   |
| **Balances at December 31, 2001**             |   | 918,405                            |   | 1,779,910  |      | 1,554,913                       |   | (2,718,399                                            | )      | (718,690                                       | )          | 4,950,167        |   | 387,601                      |   | 5,235,502                     |      | 326,209 |   | 5,561,711 |   |
| Appropriation of prior year net income        |   |                               |   |       |      |                            |   |                                                  |   |                                           |       | 387,601          |   | (387,601                     | )      |                          |      |   |   |   |   |
| Dividends paid (Ps 0.13 per share)            |   |                               |   |       |      |                            |   |                                                  |   |                                           |       | (118,595         | )      |                         |   | (118,595                      | )         | (2,840 | ) | (121,435 | ) |
|                                          |   |                               |   |       |      |                            |   |                                                  |   |                                           |       | 269,006          |   | (387,601                     | )      | (118,595                      | )         | (2,840 | ) | (121,435 | ) |
| Comprehensive income (loss):                  |   |                               |   |       |      |                            |   |                                                  |   |                                           |       |             |   |                         |   |                          |      |   |   |   |   |
| Recognition of inflation effects for the year |   |                               |   |       |      |                            |   | (68,839                                               | )      |                                           |       |             |   |                         |   | (68,839                       | )         | (5,212 | ) | (74,051 | ) |
| Net income for the current year               |   |                               |   |       |      |                            |   |                                                  |   |                                           |       |             |   | 377,502                      |   | 377,502                       |      | 19,887 |   | 397,389 |   |
|                                          |   |                               |   |       |      |                            |   | (68,839                                               | )      |                                           |       |             |   | 377,502                      |   | 308,663                       |      | 14,675 |   | 323,338 |   |
| **Balances at December 31, 2002**             |   | 918,405                            |   | 1,779,910  |      | 1,554,913                       |   | (2,787,238                                            | )      | (718,690                                       | )          | 5,219,173        |   | 377.502                      |   | 5,425,570                     |      | 338,044 |   | 5,763,614 |   |
| Appropriation of prior year net income        |   |                               |   |       |      |                            |   |                                                  |   |                                           |       | 377,502          |   | (377,502                     | )      |                          |      |   |   |   |   |
| Dividends paid (Ps 0.23 per share)            |   |                               |   |       |      |                            |   |                                                  |   |                                           |       | (207,666         | )      |                         |   | (207,666                      | )         | (1,756 | ) | (209,422 | ) |
|                                          |   |                               |   |       |      |                            |   |                                                  |   |                                           |       | 169,836          |   | (377,502                     | )      | (207,666                      | )         | (1,756 | ) | (209,422 | ) |
| Comprehensive income (loss):                  |   |                               |   |       |      |                            |   |                                                  |   |                                           |       |             |   |                         |   |                          |      |   |   |   |   |
| Recognition of inflation effects for the year |   |                               |   |       |      |                            |   | (76,378                                               | )      |                                           |       |             |   |                         |   | (76,378                       | )         | (7,318 | ) | (83,696 | ) |
| Net income for the current year               |   |                               |   |       |      |                            |   |                                                  |   |                                           |       |             |   | 311,973                      |   | 311,973                       |      | 20,019 |   | 331,992 |   |
|                                          |   |                               |   |       |      |                            |   | (76,378                                               | )      |                                           |       |             |   | 311,973                      |   | 235,595                       |      | 12,701 |   | 248,296 |   |
| Balances at December 31, 2003                 |   | 918,405                            |   | Ps         | 1,779,910 |                            | Ps     | 1,554,913                                             |   | Ps                                             | (2,863,616 | )                | Ps     | (718,690                     | )      | Ps                            | 5,389,009 |   | Ps | 311,973 |   | Ps. | 5,453,499 |   | Ps | 348,989 |   | Ps | 5,802,488 |   |

 

The accompanying notes are an integral part of these consolidatedfinancial statements.

 

F-5

----

 

**GRUPO INDUSTRIAL MASECA, S.A. DE****C.V. ANDSUBSIDIARIES**

** **

**CONSOLIDATEDSTATEMENTS OF CHANGES IN FINANCIAL POSITION**

**For the Years EndedDecember 31, 2003, 2002 and 2001**

**(Expressed in thousandsof Mexican pesos in purchasing power as of December 31, 2003)**

**(Notes 1 and 2)**

 
|                                                                                |   | **2003** |    | **2002** |   | **2001** |   |
|-------------------------------------------------------------------------------------|--------|----------|---------|----------|--------|----------|--------|
| Operating activities:                                                               |   |     |    |     |   |     |   |
| Net income for the current year                                                     |   | Ps       | 311,973 |     | Ps     | 377,502  |   | Ps | 387,599 |   |
| Minority interest                                                                   |   | 20,019   |    | 19,887   |   | 8,936    |   |
| Adjustments to reconcile net income to  resources provided by operating activities: |   |     |    |     |   |     |   |
| Depreciation and amortization                                                       |   | 261,373  |    | 268,559  |   | 271,854  |   |
| Deferred income taxes and employees’  statutory profit sharing                 |   | (39,031  | )       | (17,647  | )      | (8,686   | )      |
|                                                                                |   | 554,334  |    | 648,301  |   | 659,703  |   |
|                                                                                |   |     |    |     |   |     |   |
| Changes in working capital:                                                         |   |     |    |     |   |     |   |
| Notes and accounts receivable, net                                                  |   | 66,555   |    | (49,787  | )      | 59,733   |   |
| Refundable taxes                                                                    |   | 48,511   |    | (66,226  | )      | (34,412  | )      |
| Receivables from and payables to affiliated  companies, net                         |   | (13,373  | )       | (8,214   | )      | 36,324   |   |
| Inventories                                                                         |   | (160,929 | )       | (154,736 | )      | (4,969   | )      |
| Prepaid expenses                                                                    |   | (87,180  | )       | 11,500   |   | (3,638   | )      |
| Trade accounts payable                                                              |   | (96,311  | )       | 143,247  |   | (208,153 | )      |
| Accrued liabilities and other payables                                              |   | (16,325  | )       | (11,375  | )      | 4,344    |   |
| Income taxes and employees’ statutory  profit sharing                          |   | 395      |    | (70,800  | )      | (71,259  | )      |
|                                                                                |   | (258,657 | )       | (206,391 | )      | (222,030 | )      |
| Net resources provided by operating  activities                                     |   | 295,677  |    | 441,910  |   | 437,673  |   |
| Financing activities:                                                               |   |     |    |     |   |     |   |
| Dividends paid                                                                      |   | (209,422 | )       | (121,435 | )      | (830,945 | )      |
| Net resources used in financing activities                                          |   | (209,422 | )       | (121,435 | )      | (830,945 | )      |
| Investing activities:                                                               |   |     |    |     |   |     |   |
| Acquisition of property, plant and  equipment                                       |   | (81,003  | )       | (31,206  | )      | (3,886   | )      |
| Net decrease (contribution) to  technological research and development fund         |   | 213,714  |    | 8,033    |   | (11,124  | )      |
| (Loan to) repayments from Gruma                                                     |   | (82,007  | )       | (395,330 | )      | 534,506  |   |
| Other assets                                                                        |   | (7,701   | )       | 24,010   |   | (16,159  | )      |
| Net resources provided by (used in)  investing activities                           |   | 43,003   |    | (394,493 | )      | 503,337  |   |
| Net increase (decrease) in cash and cash  equivalents                               |   | 129,258  |    | (74,018  | )      | 110,065  |   |
| Cash and cash equivalents at beginning of  year                                     |   | 58,938   |    | 132,956  |   | 22,891   |   |
| Cash and cash equivalents at end of year                                            |   | Ps       | 188,196 |     | Ps     | 58,938   |   | Ps | 132,956 |   |

 

The accompanying notes are an integral part of these consolidatedfinancial statements.

 

F-6

----

 

**GRUPO INDUSTRIAL MASECA, S.A. DE C.V. ANDSUBSIDIARIES**

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

 

**For the Years Ended December 31, 2003, 2002and 2001**

**(Amounts expressed in thousands of Mexicanpesos in purchasing power**

**as of December 31, 2003, except whereotherwise indicated)**

 

**1.****                                      ENTITYAND NATURE OF BUSINESS**

 

Grupo Industrial Maseca, S.A. de C.V. (“Gimsa”), aMexican corporation, is a holding company whose subsidiaries are primarilyengaged in manufacturing and distributing corn flour in Mexico. Gimsa’s cornflour is used mainly in the preparation of tortillas and other relatedproducts. Gimsa and its subsidiaries are herein collectively referred to as“the Company”. The Company is majority owned by Gruma, S.A. de C.V. (“Gruma”).

 

**2.**                                      SIGNIFICANTACCOUNTING POLICIES

** **

The consolidated financial statements have beenprepared in accordance with generally accepted accounting principles in Mexico(“Mexican GAAP”) as promulgated by the Mexican Institute of Public Accountants(“MIPA”). A reconciliation from Mexican GAAP to United States generallyaccepted accounting principles (“US GAAP”) is included in Note 15.

 

A)                                  BASISOF CONSOLIDATION

 

The consolidated financial statements include theaccounts of Gimsa and all of its majority-owned and controlled subsidiaries.All significant intercompany balances and transactions have been eliminatedfrom the consolidated financial statements.

 

The principal subsidiaries of the Company are:

 
|                                             |   | **% of  ownership as of December 31,** |   |
|--------------------------------------------------|--------|----------------------------------------|--------|
| **Corn flour manufacturing facilities:**         |   | **2003**                               |   | **2002** |   |
| Molinos  Azteca, S.A. de C.V. (1) (2)            |   | 100.00                                 |   | 100.00 |   |
| Industrias  de Río Bravo, S.A. de C.V. (1)  |   | 98.34                                  |   | 98.34 |   |
| Harinera de  Veracruz, S.A. de C.V.              |   | 100.00                                 |   | 100.00 |   |
| Molinos  Azteca de Jalisco, S.A. de C.V.         |   | 100.00                                 |   | 100.00 |   |
| Harinera de  Maíz, S.A. de C.V. (2)         |   | —                                 |   | 100.00 |   |
| Molinos  Azteca de Chalco, S.A. de C.V.          |   | 57.40                                  |   | 56.33 |   |
| Harinera de  Maíz de Jalisco, S.A. de C.V.  |   | 100.00                                 |   | 100.00 |   |
| Harinera de  Yucatán, S.A. de C.V.          |   | 88.57                                  |   | 88.57 |   |
| Harinera de  Maíz de Mexicali, S.A. de C.V. |   | 85.00                                  |   | 85.00 |   |
| Molinos  Azteca de Chiapas, S.A. de C.V.         |   | 90.00                                  |   | 90.00 |   |
| Molinos  Azteca de Veracruz, S.A. de C.V.        |   | 100.00                                 |   | 100.00 |   |

 

F-7

----

 
|                                                         |   | **% of  ownership** |   |
|--------------------------------------------------------------|--------|---------------------|--------|
| **Service and other entities:**                              |   | **2003**            |   | **2002** |   |
| Compañía  Nacional Almacenadora, S.A. de C.V.      |   | 100.00              |   | 100.00 |   |
| Servicios Administrativos  y Financieros Gimsa, S.A. de C.V. |   | 100.00              |   | 100.00 |   |
| Industria  Tortilladora Azteca, S.A. de C.V.                 |   | 100.00              |   | 100.00 |   |
| Arrendadora  de Maquinaria de Chihuahua, S.A. de C.V.        |   | 100.00              |   | 100.00 |   |

 

----

(1)               On January 1, 2004  Industrias de Río Bravo, S.A. de C.V. merged with Molinos Azteca,S.A. de C.V.

 

(2)               On December 31, 2002 Harinera de Maíz, S.A. deC.V. merged with Molinos Azteca, S.A. de C.V.

 

B)                                    USEOF ESTIMATES

 

The preparation of the financial statements inconformity with generally accepted accounting principles requires management tomake certain estimates and assumptions that affect the reported amounts ofassets and liabilities and disclosures of contingent assets and liabilities asof the date of the financial statements, and the reported amounts of revenuesand expenses during the reporting years. Actual results may differ from theseestimates.

 

C)                                    RECOGNITIONOF THE EFFECTS OF INFLATION

 

The consolidated financial statements of the Companyhave been restated to recognize the effects of inflation and are expressed inMexican pesos of December 31, 2003 purchasing power, determined as follows:

 

•                     Forcomparability purposes, the consolidated financial statements as of and for theyear ended December 31, 2002 and 2001 have been restated using inflationfactors derived from the National Consumer Price Index (“NCPI”), published byBanco de Mexico.

 

•                     Theconsolidated statements of income and changes in stockholders’ equity wererestated by applying NCPI factors from the periods in which the transactionsoccurred and year-end.

 

F-8

----

 

•                     Theconsolidated statements of changes in financial position present, in constantMexican pesos, the resources provided by or used in operating, financing andinvesting activities.

 

•                     The annual NCPIfactors used to restate the consolidated financial statements were:

 
| **Year** |   | **Factor** |   |
|----------|--------|------------|--------|
| 2003     |   | 3.98       | %      |
| 2002     |   | 5.70       | %      |
| 2001     |   | 4.46       | %      |

 

The methodology for the restatement of the financialstatements is as follows:

 

•                                          Restatement ofnon-monetary assets

 

Inventoriesand cost of sales are restated using the estimated replacement cost method. Asset forth in Note 2-G, property, plant and equipment, net is restated using theNCPI factors, except for machinery and equipment of foreign origin which isrestated by applying factors derived from the general price index of thecountry of origin, to the related foreign currency amount, prior to translatingthose amounts to Mexican pesos at the exchange rate at year-end.

 

•                                          Restatement ofcommon stock, additional paid-in capital and retained earnings

 

Thisrestatement, which reflects the amount necessary to maintain the stockholder’sinvestment at the original purchasing power amounts, is determined by applyingNCPI factors from the dates on which capital stock and additional paid-incapital were contributed and earnings were generated, and is included withinthe related stockholders’ equity captions.

 

•                                          Deficit fromrestatement

 

Deficitfrom restatement primarily represents the difference between the replacementcost values of non-monetary assets or specific indexing of machinery andequipment of foreign origin, as described above, and the historical cost ofthose assets restated for inflation, as measured by NCPI factors.

 

•                                          Monetaryposition loss

 

Monetaryposition loss represents the inflationary effect, measured by NCPI factors, onthe net balance of monetary assets and liabilities at the beginning of eachmonth.

 

F-9

----

 

D)                                   FOREIGNCURRENCY TRANSACTIONS

 

Foreign currency transactions are recorded at theexchange rate prevailing on the dates the transactions are entered into andsettled. Assets and liabilities denominated in foreign currencies aretranslated into Mexican pesos at the exchange rate in effect at the balancesheet dates. Currency exchange fluctuations are credited or charged to incomefor the year.

 

E)                                     CASHEQUIVALENTS

 

All highly liquid investments with maturities ofthree months or less at the date of purchase are considered to be cashequivalents and are stated at cost, which approximates market value.

 

F)                                     INVENTORIESAND COST OF SALES

 

Inventories are stated at the lower of replacementcost or market. Replacement cost is determined by the last purchase price orproduction cost. Cost of sales is determined from replacement costs calculatedfor the month in which inventories are sold.

 

G)                                    PROPERTY,PLANT AND EQUIPMENT, NET

 

Property, plant and equipment are restated utilizingthe NCPI factors, except for machinery and equipment of foreign origin whichare restated by applying factors derived from the general price index of thecountry of origin to the related foreign currency amount, prior to translatingthose amounts to Mexican pesos at the exchange rate at year-end.

 

Depreciation expense is computed based on therestated values less salvage value, using the straight-line method over theestimated useful lives of the assets. Average useful lives of the assets are asfollows:

 
|                    |   | **Years** |   |
|-------------------------|--------|-----------|--------|
| Buildings               |   | 23        |   |
| Machinery and equipment |   | 11        |   |
| Software                |   | 3         |   |

 

Maintenance and repairs are expensed as incurred.Costs of major replacements and improvements are capitalized. Comprehensivefinancing costs, including interest expense, foreign currency exchangefluctuation, and monetary position of the related debt for major constructionprojects, are capitalized as part of the assets during the construction period.

 

F-10

----

 

When assets are retired or otherwise disposed of,the replacement cost and accumulated depreciation are removed from theappropriate accounts and any gain or loss is included in “Other income(expense), net”.

 

The costsassociated with the acquisition, development and implementation of internal usesoftware are capitalized and amortized over the estimated useful life beginningwhen such software is ready for its intended use.

 

H)                                   INTANGIBLES,NET

 

Pre-operating expensesare restated using NCPI factors.

 

Prior to January 1, 2003,pre-operating expenses were amortized using the straight-line method over anestimated useful life not to exceed 12 years.

 

Effective January 1,2003, the Company adopted the provisions established by revised Bulletin C-8“Intangible Assets”, issued by the MIPA. This bulletin provides guidance andspecific criteria for the deferral of research and development costs andcertain pre-operating expenses. Additionally, Bulletin C-8 establishes thatcertain intangible assets can be considered as having indefinite lives and,therefore, should no longer be amortized.

 

Upon the application ofBulletin C-8, expenses incurred only during the development stage arecapitalized as pre-operating expenses. The development stage concludes upon thecommencement of commercial operations. Research and development expenses areexpensed as incurred. Amortization expense of intangible assets with finitelives is computed on the restated values using the straight-line method, over aperiod of 5 to 20 years. Estimated useful lives of intangible assets withfinite lives are determined based on the analysis of contractual, economic,legal or regulatory factors that limit the useful lives. Indefinite-livedintangible assets are no longer amortized starting January 1, 2003. Theadoption of Bulletin C-8 did not have a material impact on the Company’s financialposition and results of operation.

 

The excess of cost overbook value of subsidiaries acquired is restated using NCPI factors.Amortization expense is computed based on the restated values, using thestraight-line method over a period not to exceed 20 years.

 

F-11

----

 

I)                                        SENIORITYPREMIUM PLANS AND INDEMNITIES

 

Seniority premiums to which the personnel of Mexicancompanies are entitled after 15 years of service are charged to income asdetermined by annual actuarial valuations. Indemnities to which Mexican workers may be entitled in the case ofdismissal or death, under certain circumstances established by Mexican LaborLaw, are charged to income when they become payable.

 

J)                                       FINANCIALINSTRUMENTS

 

The derivativefinancial instruments held for hedging purposes are recognized using the samevaluation criteria for the assets and liabilities being hedged. The effects ofthis valuation are recognized in income, net of costs, expenses or revenuesfrom the assets or liabilities whose risks are being hedged. The cost of thefinancial instrument is recognized in income using the straight-line methodduring the contract term. Derivative financial instruments not designated ashedges are recorded at fair value. The difference between the initial andyear-end fair value of the derivative assets and liabilities is recognized inincome.

 

K)                                   REVENUERECOGNITION

 

Revenue on product sales is recognized upon shipmentto and acceptance by the Company’s customers or when the ownership risk hasbeen transferred. Provisions fordiscounts, rebates to customers, returns and other adjustments are recorded inthe same period the related sales are recorded and are based upon eitherhistorical estimates or actual terms.

 

L)                                     INCOME TAXES AND EMPLOYEES’ STATUTORY PROFITSHARING

 

Income taxes and employees’ statutory profit sharing are recorded forall temporary differences between the carrying values for financial reportingand tax values of assets and liabilities that are expected to reverse in thefuture. Valuation allowances are provided if based upon the weight of availableevidence it is more likely than not that some or all the deferred tax assetswill not be realizable.

 

M)                                EARNINGSPER SHARE

 

Earnings per share are computed by dividing majoritynet income for the year by the weighted average number of common sharesoutstanding during the year.

 

F-12

----

 

N)                                   COMPREHENSIVE INCOME

 

The different components that constitute earned capital of the year arepresented in the statement of changes in stockholders’ equity as comprehensiveincome.

 

**3.**                                      NOTES ANDACCOUNTS RECEIVABLE, NET AND REFUNDABLE TAXES

** **

Notes and accounts receivable, net are comprised ofthe following as of December 31:

 
|                                                              |   | **2003** |    | **2002** |   |
|-------------------------------------------------------------------|--------|----------|---------|----------|--------|
| Trade accounts receivable                                         |   | Ps       | 669,038 |     | Ps     | 712,907 |   |
| Trade notes receivable from sales of  tortilla producing machines |   | 67,196   |    | 81,356   |   |
| Allowance for doubtful accounts                                   |   | (42,167  | )       | (38,202  | )      |
|                                                              |   | 694,067  |    | 756,061  |   |
| Employees                                                         |   | 9,928    |    | 11,128   |   |
| Other debtors                                                     |   | 71,608   |    | 74,969   |   |
|                                                              |   | Ps       | 775,603 |     | Ps     | 842,158 |   |

 

Refundable taxes are comprised of the following asof December 31:

 
| Value-added tax             |   | Ps     | 67,094  |   | Ps     | 60,462  |   |
|-----------------------------|--------|--------|---------|--------|--------|---------|--------|
| Income tax                  |   | 54,121 |    | 67,802 |   |
| Production and services tax |   | 37,187 |    | 87,529 |   |
|                        |   | Ps     | 158,402 |   | Ps     | 215,793 |   |

 

**4.**                                      BALANCESAND TRANSACTIONS WITH AFFILIATED COMPANIES

** **

In the normal course of business, the Company hastransactions with Gruma and its subsidiary companies (“affiliated companies”).As of December 31, 2003 and 2002, the Company has current receivables fromaffiliated companies of Ps 710,279 and Ps 630,890 respectively, and currentpayables to affiliated companies of Ps 13,576 and Ps 29,567, respectively.The receivables as of December 31, 2003 and 2002 include mainly a short-term notewith Gruma of Ps 706,266 and Ps 624,259, respectively, which bears interests atmarket rates. Accounts payable refer mainly to services and acquisitions oftortilla producing machines. In addition, at December 31, 2003 and 2002, “Otherassets, net” includes deposits to affiliated companies to guarantee futurepayments for administrative services amounting to Ps 22,531 and Ps 25,441,respectively.

 

The following is a summary of transactions withaffiliated companies for the years ended December 31, 2003, 2002 and 2001:

 

F-13

----

 
|             |   | **2003** |   | **2002** |   | **2001** |   |
|------------------|--------|----------|--------|----------|--------|----------|--------|
| Revenues:        |   |     |   |     |   |     |   |
| Corn flour sales |   | Ps       | 38,958 |     | Ps     | 30,270   |   | Ps | 36,837 |   |
| Interest income  |   | 43,358   |   | 39,648   |   | 57,429   |   |
| Other            |   | 9,067    |   | 4,303    |   | 1,317    |   |
|             |   | Ps       | 91,383 |     | Ps     | 74,221   |   | Ps | 95,583 |   |

** **
|                                     |   | **2003** |    | **2002** |   | **2001** |   |
|------------------------------------------|--------|----------|---------|----------|--------|----------|--------|
| Costs, expenses and other:               |   |     |    |     |   |     |   |
| Purchases of plant and equipment         |   | Ps       | 12      |     | Ps     | 21       |   | Ps | 1,049 |   |
| Purchases of tortilla producing machines |   | 90,952   |    | 104,199  |   | 103,012  |   |
| Administrative services                  |   | 146,532  |    | 127,135  |   | 120,424  |   |
| Technical services                       |   | 24,424   |    | 23,121   |   | 24,084   |   |
| Transportation services and other        |   | 12,826   |    | 11,927   |   | 9,864    |   |
|                                     |   | Ps       | 274,746 |     | Ps     | 266,403  |   | Ps | 258,433 |   |

 

Pursuant to an agreementbetween the Company and an affiliated company, the Company pays a fee equal to0.5% of its consolidated net sales in exchange for technical services providedby the affiliated company.

 

In addition, the Company hasa non-exclusive licensing contract with Gruma, which allows the Company to usefor no consideration the “MASECA” brand name, a registered trademark in Mexico.

 

**5.**                                      INVENTORIES

** **

Inventories consist of the following as of December31:

 
|                                                          |   | **2003** |      | **2002** |   |
|---------------------------------------------------------------|--------|----------|-----------|----------|--------|
| Corn                                                          |   | Ps       | 964,261   |     | Ps     | 892,945 |   |
| Finished products                                             |   | 29,482   |      | 28,965   |   |
| Tortilla producing machines and related  spare parts          |   | 56,072   |      | 49,042   |   |
| Spare parts for corn flour machinery and  equipment and other |   | 116,716  |      | 73,613   |   |
|                                                          |   | Ps       | 1,166,531 |     | Ps     | 1,044,565 |   |

 

F-14

----

 

**6.**                                      PROPERTY,PLANT AND EQUIPMENT, NET

** **

Property, plant and equipment, net consists of thefollowing as of December 31:

 
|                     |   | **2003**   |      | **2002**   |   |
|--------------------------|--------|------------|-----------|------------|--------|
| Land                     |   | Ps         | 206,526   |       | Ps     | 203,706 |   |
| Buildings                |   | 1,407,917  |      | 1,405,679  |   |
| Machinery and equipment  |   | 5,874,929  |      | 5,906,346  |   |
| Projects in progress     |   | 66,100     |      | 40,452     |   |
|                     |   | 7,555,472  |      | 7,556,183  |   |
| Accumulated depreciation |   | (3,659,144 | )         | (3,462,143 | )      |
|                     |   | Ps         | 3,896,328 |       | Ps     | 4,094,040 |   |

 

Depreciation expense for the years ended December31, 2003, 2002, and 2001 amounted to Ps 257,198, Ps 263,260 and Ps 265,598,respectively.

 

As of December 31, 2003and 2002, machinery and equipment includes acquisition and implementation costsof software for internal use of Ps 60,760 and Ps 75,785, respectively. As ofDecember 31, 2003, property, plant and equipment include temporarily idledassets with a carrying value of approximately Ps. 421,879, which are not beingdepreciated since the carrying value is expected to be recovered and theremaining useful life is maintained. The Company’s management intends tocommence operations during the fourth quarter of 2004. Additionally, theCompany has assets at net realizable value amounting to Ps 42,525 which areavailable for sale.

 

For the year endedDecember 31, 2001 the Company recognized an impairment loss of Ps 15,387 in“Other expense, net”.

 

**7.**                                      OTHER ASSETS,NET

** **

Other assets, net consist of the following as ofDecember 31:

 
|                                                             |   | **2003** |    | **2002** |   |
|------------------------------------------------------------------|--------|----------|---------|----------|--------|
| Pre-operating expenses                                           |   | Ps       | 44,923  |     | Ps     | 44,994 |   |
| Accumulated amortization                                         |   | (34,715  | )       | (30,954  | )      |
|                                                             |   | 10,208   |    | 14,040   |   |
| Trust funds for research and development of  technology          |   | —   |    | 222,213  |   |
| Excess of cost over book value of  subsidiaries acquired, net    |   | 76,374   |    | 81,295   |   |
| Guaranty deposits                                                |   | 24,814   |    | 26,224   |   |
| Long-term receivables from sales of  tortilla producing machines |   | 9,024    |    | 14,234   |   |
| Other                                                            |   | 17,099   |    | 11,859   |   |
|                                                             |   | Ps       | 137,519 |     | Ps     | 369,865 |   |

 

F-15

----

 

During 2003 the Company decided to liquidate the research anddevelopment trust fund established to finance these activities. The Companywill fund its research and development initiatives using the operatingresources generated during each year.

 

Researchand development expense for the years ended December 31, 2003, 2002, and2001 amounted to Ps 473, Ps 8,860 and Ps 12,911, respectively and were chargedto expense as incurred.

 

Asof December 31, 2003 and 2002, the excess of cost over book value ofsubsidiaries acquired, net includes accumulated amortization of Ps 20,725 andPs 16,238, respectively.

 

**8.****                                      SENIORITYPREMIUM**

 

Thecost of seniority premiums to which employees are entitled after 15 years ofservice is charged to income as determined by independent actuaries, primarilybased on the employees’ years of service, ages, and salaries. The Company hasestablished trust funds to meet these obligations. The Company uses a December 31measurement date for this plan.

 

Forthe years ended December 31, 2003, 2002 and 2001, the components of netseniority premium cost consist of the following:

 
|                  |   | **2003** |   | **2002** |   | **2001** |   |
|-----------------------|--------|----------|--------|----------|--------|----------|--------|
| Service cost          |   | Ps       | 1,627  |     | Ps     | 1,553    |   | Ps | 1,444 |   |
| Interest cost         |   |     | 561    |     |   | 582      |   |   | 515 |   |
| Return on plan assets |   |     | (1,846 | )        |   | (1,569   | )      |   | (1,821 | ) |
| Net amortization      |   |     | 1,066  |     |   | 1,031    |   |   | 1,031 |   |
| Net cost              |   | Ps       | 1,408  |     | Ps     | 1,597    |   | Ps | 1,169 |   |

 

Asof December 31, the status of the plan is as follows:

 
|                                                                        |   | **2003** |    | **2002** |   |
|-----------------------------------------------------------------------------|--------|----------|---------|----------|--------|
| Actuarial present value of benefit  obligations:                            |   |     |    |     |   |
| Vested benefit obligation                                                   |   | Ps       | (8,207  | )        | Ps     | (7,104 | ) |
| Non-vested benefit obligation                                               |   |     | (5,488  | )        |   | (5,081 | ) |
| Accumulated benefit obligation                                              |   |     | (13,695 | )        |   | (12,185 | ) |
| Excess of projected benefit obligation over  accumulated benefit obligation |   |     | (5,304  | )        |   | (4,930 | ) |
| Projected benefit obligation                                                |   |     | (18,999 | )        |   | (17,115 | ) |
| Plan assets at fair value                                                   |   |     | 18,554  |     |   | 17,509 |   |
| Plan assets (insufficiency) in excess of  projected benefit obligation      |   |     | (445    | )        |   | 394 |   |

 

F-16

----

 
|                                                 |   | **2003** |   | **2002** |   |
|------------------------------------------------------|--------|----------|--------|----------|--------|
| Unrecognized amounts to be amortized over  13 years: |   |     |   |     |   |
| Cumulative net (loss) gain                           |   |     | (217   | )        |   | 643 |   |
| Net transition liability                             |   |     | (1,007 | )        |   | (1,296 | ) |
| Prior service cost                                   |   |     | (265   | )        |   | (319 | ) |
| Seniority premium liability                          |   | Ps       | (1,934 | )        | Ps     | (578 | ) |

 

Forthe years ended December 31, 2003 and 2002, the changes in benefitobligation liability and plan assets (trust funds) are as follows:

 
|                                                   |   | **2003** |   | **2002** |   |
|--------------------------------------------------------|--------|----------|--------|----------|--------|
| Projected benefit obligation at beginning  of the year |   | Ps       | 17,115 |     | Ps     | 15,930 |   |
| Service cost                                           |   |     | 1,627  |     |   | 1,553 |   |
| Interest cost                                          |   |     | 561    |     |   | 582 |   |
| Benefits paid                                          |   |     | (801   | )        |   | (2,047 | ) |
| Actuarial loss                                         |   |     | 497    |     |   | 1,097 |   |
| Projected benefit obligation at end of the  year       |   | Ps       | 18,999 |     | Ps     | 17,115 |   |

 
|                                                |   | **2003** |   | **2002** |   |
|-----------------------------------------------------|--------|----------|--------|----------|--------|
| Fair value of plan assets at beginning of  the year |   | Ps       | 17,509 |     | Ps     | 17,987 |   |
| Return on plan assets                               |   |     | 1,846  |     |   | 1,569 |   |
| Benefits paid                                       |   |     | (801   | )        |   | (2,047 | ) |
| Fair value of plan assets at end of the  year       |   | Ps       | 18,554 |     | P      | 17,509 |   |

 

Theweighted average assumptions (net of expected inflation) used to determinebenefit obligations at December 31 were as follows:

 
|                                            |   | **2003** |   | **2002** |   |
|-------------------------------------------------|--------|----------|--------|----------|--------|
| Discount rate                                   |   | 3.5      | %      | 3.5      | %      |
| Rate of increase in future compensation  levels |   | 1.5      | %      | 1.5      | %      |

 

Theweighted average assumptions (net of expected inflation) used to determine netperiodic benefit cost for the years ended December 31 were as follows:

 
|                                              |   | **2003** |   | **2002** |   | **2001** |   |
|---------------------------------------------------|--------|----------|--------|----------|--------|----------|--------|
| Discount rate                                     |   | 3.5      | %      | 3.5      | %      | 4.0      | %      |
| Rate of increase in future compensation  levels   |   | 1.5      | %      | 1.5      | %      | 2.0      | %      |
| Expected long-term rate of return on plan  assets |   | 4.0      | %      | 4.0      | %      | 5.0      | %      |

 

F-17

----

 

The long-term asset return rate is based on the annual recommendationsof the Actuarial Commission in the Mexican Association of Consulting Actuaries.These recommendations consider historical information and future expectations.

 

The Company’s weighted average asset allocation byasset category as of December 31 is as follows:

 
|                   |   | **2003** |   | **2002** |   |
|------------------------|--------|----------|--------|----------|--------|
| Equity securities      |   | 30       | %      | 22       | %      |
| Fixed rate instruments |   | 70       | %      | 78       | %      |
| Total                  |   | 100      | %      | 100      | %      |

 

The Company has a policy of maintaining at least 30% of the trustassets in Federal Government instruments. Objective portfolio guidelines havebeen established for the remaining 70% and investment decisions are being madeto comply with those guidelines to the extent that market conditions andavailable funds allow.

 

The Company estimates that it will not have tocontribute to the plan during 2004.

 

**9.****                                      COMMITMENTSAND CONTINGENCIES**

 

Atthe date of issuance of the financial statements, certain subsidiaries havebeen notified by the Comisión Nacional del Agua (“Water National Commission” or“CNA”) of assessments due from different years amounting to Ps 24,623 plusrelated penalties and surcharges. These assessments mainly derive from theCNA’s determination of sewage water discharged to the underground through thesprinkler system of those subsidiaries in its gardens. The subsidiaries haveasserted the legal defense allowed by law in order to annul these assessments.At the date of issuance of the financial statements, the Company received afavorable judicial resolution for one of these assessments amounting to Ps6,504. According to the Company’s lawyers, a reasonable basis exists in orderto obtain a favorable resolution of the rest of the claimed assessments,because, among other things, the water is previously treated, it is notdischarged on public property of the Nation and does not contaminate aquiferouslayers nor the underground soil.

 

Asof December 31, 2003, the Company is leasing certain of its computerequipment under operating long-term lease agreements. Future minimum leasepayments under such leases amount to U.S.$1,058,000 dollars (Ps 11,892), asfollows:

 
| **Year** |   | **Thousands  of U.S. Dollars** |   | **Thousands  of Mexican Pesos** |   |
|----------|--------|--------------------------------|--------|---------------------------------|--------|
| 2004     |   | U.S.$                          | 640    |                            | Ps     | 7,194 |   |
| 2005     |   |                           | 329    |                            |   | 3,698 |   |
| 2006     |   |                           | 89     |                            |   | 1,000 |   |
|     |   | U.S.$                          | 1,058  |                            | Ps     | 11,892 |   |

 

F-18

----

 

Rentalexpense for the years ended December 31, 2003, 2002 and 2001 amounted toPs 24,202, Ps 38,890 and Ps 33,026, respectively, and corresponds mainly tobuilding and computer equipment leases.

 

Asof December 31, 2003 the Company has an outstanding swap operation fornatural gas maturing in February 2004 for a total of U.S.$738,000 dollars.

 

**10.****                               STOCKHOLDERS’EQUITY**

 

A)                                  COMMON STOCK

 

Asof December 31, 2003 the Company has 918,405,000 no-par-value shares ofcommon stock authorized, issued and outstanding, comprised of 504,150,300 Class“A” shares and 414,254,700 Class “B” shares. Both classes have equal priorityin liquidation and payment of dividends. Class “A” shares, representing 54.89%of the common stock, must be held by Mexican nationals; Class “B” shares arenot subject to this restriction and may be owned by non-Mexican nationals.

 

B)                                    NET INCOME FOR THE YEAR AND EARNINGSDISTRIBUTION

 

Netincome for the year is subject to the legal requirement to appropriate 5% toincrease the Company’s legal reserve until the reserve equals 20% of theCompany’s contributed common stock.

 

Dividendspaid from retained earnings which have not been previously taxed are subject toan income tax payable by the Company equal to 49.25% in 2004 and 47.06% in2005. The applicable tax may be credited against income tax the Company issubject to in the following two fiscal years. Effective January 1, 2002,dividends paid by the Company are not subject to any tax if the amount ofdividends does not exceed the net tax profit account.

 

C)                                    PURCHASE OF COMMON STOCK

 

Thestockholders authorized the Company to establish a Ps 600,000 reserve for therepurchase of the Company’s common stock, limited to 3% of such stock.    Repurchases of Class “A” shares occur fromtime to time in the open market at price-levels the Company deems attractive.At December 31, 2003 the Company does not hold shares of its own commonstock.

 

D)                                   INFLATION EFFECTS

 

Asof December 31, 2003, the majority stockholders’ equity is comprised ofthe following:

 

F-19

----

 

 
|                                                                                                                              |   | **Nominal** |      | **Restatement** |   | **Total**  |   |
|-----------------------------------------------------------------------------------------------------------------------------------|--------|-------------|-----------|-----------------|--------|------------|--------|
| Common stock                                                                                                                      |   | Ps          | 183,681   |            | Ps     | 1,596,229  |   | Ps | 1,779,910 |   |
| Additional paid-in capital                                                                                                        |   | 333,734     |      | 1,221,179       |   | 1,554,913  |   |
| Deficit from restatement                                                                                                          |   | —      |      | (2,863,616      | )      | (2,863,616 | )      |
| Cumulative effect of a change in an  accounting principle for deferred income taxes and employees’ statutory  profit sharing |   | (582,561    | )         | (136,129        | )      | (718,690   | )      |
| Prior years’ retained earnings                                                                                               |   | 2,275,354   |      | 3,113,655       |   | 5,389,009  |   |
| Net income for the current year                                                                                                   |   | 307,190     |      | 4,783           |   | 311,973    |   |
|                                                                                                                              |   | Ps          | 2,517,398 |            | Ps     | 2,936,101  |   | Ps | 5,453,499 |   |

 

E)                                     TAXVALUES OF COMMON STOCK AND RETAINED EARNINGS

 

As of December 31, 2003 and 2002, tax amountsof common stock and retained earnings were Ps 4,905,768 and Ps 4,085,049 and Ps624,244 and Ps 469,769, respectively.

 

**11.**                               INCOMETAXES, ASSET TAX AND EMPLOYEES’ STATUTORY PROFIT SHARING

** **

A)                                  INCOMETAX AND ASSET TAX

 

The Company determines itsincome tax provision on an individual basis for Gimsa and each of itssubsidiaries (unconsolidated basis). In accordance with tax provisions ineffect, Mexican corporations must pay the higher of income tax or asset tax(1.8%). Asset tax is determined on the average value of substantially all of acompany’s assets less certain liabilities. Payments of asset tax arerecoverable against the excess of income tax over asset tax of the three prioryears and the ten subsequent years.

 

For the years endedDecember 31, 2003, 2002 and 2001, the income tax was Ps. 91,569, Ps.100,867 and Ps. 180,633, respectively.

 

B)                                    RECONCILIATIONOF FINANCIAL AND TAXABLE INCOME

 

For the years 2003, 2002 and2001, the reconciliation between the statutory and effective tax rate is asfollows: 

 

F-20

----

 
|                                                                         |   | **2003** |   | **2002** |   | **2001** |   |
|------------------------------------------------------------------------------|--------|----------|--------|----------|--------|----------|--------|
| Statutory income tax rate                                                    |   | 34       | %      | 35       | %      | 35       | %      |
| Differences between tax and financial  accounting for:                       |   |     |   |     |   |     |   |
| Financing cost, net and other income  statement effects related to inflation |   | (4       | )%     | (5       | )%     | (1       | )%     |
| Restatement effects of deferred tax  liability items                         |   | 4        | %      | 5        | %      | (5       | )%     |
| Effect due to change in statutory tax rate                                   |   | —   |   | (20      | )%     | —   |   |
| Effect due to withdrawal of investment in  others assets.                    |   | (17      | )%     | —   |   | —   |   |
| Other permanent differences                                                  |   | (1       | )%     | —   |   | —   |   |
| Effective income tax rate                                                    |   | 16       | %      | 15       | %      | 29       | %      |

 

Underthe Mexican Income Tax Law applicable in 2002, statutory tax rates willgradually decrease from 35% to 32%, beginning in 2003 (34%) to reach 32% in2005.

 

According to Bulletin D-4, “AccountingTreatment of Income Tax, Asset Tax and Employees’ Statutory Profit Sharing”,deferred income taxes should be determined using the statutory tax rateeffective when the deferred tax assets and liabilities will be recovered orsettled.

 

The tax effects of temporarydifferences that give rise to significant portions of the deferred tax assetsand liabilities as December 31, 2003 and 2002, are as follows:

 
|                               |   | **2003**       |    | **2002**                                       |   |
|------------------------------------|--------|----------------|---------|------------------------------------------------|--------|
|                               |   | **Income tax** |    | **Employees ́  statutory  profit sharing** |   | **Income tax** |   | **Employees ́  statutory  profit sharing** |   |
| Accrued liabilities                |   | Ps             | 44,280  |                                           | Ps     | 10,574 |   | Ps | 36,053 |   | Ps | 8,387 |   |
| Tax loss carryforwards             |   | 49,309         |    | 330                                            |   | 26,363 |   | 442 |   |
| Deferred tax assets                |   | 93,589         |    | 10,904                                         |   | 62,416 |   | 8,829 |   |
|                               |   |           |    |                                           |   |   |   |   |   |
| Inventories                        |   | 386,605        |    | 33,675                                         |   | 328,055 |   | 20,620 |   |
| Property, plant and equipment, net |   | 707,030        |    | 1,498                                          |   | 762,320 |   | 22,976 |   |
| Other assets                       |   | 3,373          |    | 2,052                                          |   | 4,607 |   | 1,438 |   |
| Deferred tax liabilities           |   | 1,097,008      |    | 37,225                                         |   | 1,094,982 |   | 45,034 |   |
| Net deferred tax liability         |   | 1,003,419      |    | 26,321                                         |   | 1,032,566 |   | 36,205 |   |
| Recoverable asset tax              |   | 52,664         |    | —                                         |   | 43,784 |   | — |   |
|                               |   | Ps             | 950,755 |                                           | Ps     | 26,321 |   | Ps | 988,782 |   | Ps | 36,205 |   |

 

F-21

----

 

As of December 31, 2003 and 2002, the Company did not recognize adeferred tax asset totaling Ps 47,384 and Ps 68,526, respectively, foridentified tax loss carryforwards of certain subsidiaries. In management’sopinion, the realization of these tax loss carryforwards is less likely thannot because of the dependency on the generation of sufficient taxable income atthe subsidiary level.

 

## C)                                    TAX LOSSCARRYFORWARDS

##  

As of December 31,2003, certain subsidiaries of the Company have tax loss carryforwards ofapproximately Ps 305,985, which can be restated using NCPI and are available tooffset its taxable income in subsequent years, which expire as follows:

 
| **Expiration year** |   | **Amount** |    |
|---------------------|--------|------------|---------|
| 2004                |   |       | Ps      | 39,554 |   |
| 2005                |   |       | 40,571  |   |
| 2006                |   |       | 25,136  |   |
| 2007                |   |       | 17,328  |   |
| 2008                |   |       | 9,674   |   |
| 2009                |   |       | 48,178  |   |
| 2010                |   |       | 26,834  |   |
| 2011                |   |       | 32,985  |   |
| 2012 and 2013       |   |       | 65,725  |   |
|                |   | Ps         | 305,985 |   |

 

D)                                   EMPLOYEES’STATUTORY PROFIT SHARING

 

Employees’statutory profit sharing (ESPS) in Mexico is computed for each subsidiary (onan unconsolidated basis) as 10% of taxable income determined on a basis similarto income tax, except that employee’s statutory profit sharing does notconsider the inflation effects, the depreciation expense is based on thehistorical cost, and foreign exchange gains or losses are recognized when amonetary asset or liability is contractually due.

 

**12.**                               FOREIGNCURRENCY BALANCES AND TRANSACTIONS

** **

As of December 31,monetary assets and liabilities held or payable in U.S. dollars are:

 
|                   |   | **Thousands  of U.S. dollars** |   |
|------------------------|--------|--------------------------------|--------|
|                   |   | **2003**                       |   | **2002** |   |
| Assets                 |   | U.S.$                          | 2,351  |   | U.S.$ | 5,440 |   |
| Liabilities            |   | (8,410                         | )      | (15,938 | ) |
| Net liability position |   | U.S.$                          | (6,059 | ) | U.S.$ | (10,498 | ) |

 

F-22

----

 

AtDecember 31, 2003 and 2002, the exchange rates between the Mexican pesoand the U.S. dollar were Ps 11.24 and Ps 10.44 pesos, respectively. OnJanuary 19, 2004, the date of issuance of the financial statements, theexchange rate was 10.82 pesos per U.S. dollar.

 

For the years ended December 31, 2003, 2002 and 2001, the Companyhad transactions in U.S. dollars as follows:

 
|                       |   | **Thousands  of U.S. dollars** |   |
|----------------------------|--------|--------------------------------|--------|
|                       |   | **2003**                       |   | **2002** |   | **2001** |   |
| Corn purchases             |   | U.S.$                          | 26,423 |   | U.S.$ | 32,270 |   | U.S.$ | 47,430 |   |
| Computer equipment leasing |   | 532                            |   | 321 |   | 619 |   |
| Equipment purchases        |   | 206                            |   | 186 |   | 88 |   |
|                       |   | U.S.$                          | 27,002 |   | U.S.$ | 32,777 |   | U.S.$ | 48,137 |   |

 

As of December 31, assets included in property, plant andequipment of foreign origin, and the respective foreign currency amounts atacquisition date are as follows:

 
|           |   | **2003**              |   | **2002**                        |   |
|----------------|--------|-----------------------|--------|---------------------------------|--------|
|           |   | **Foreign  currency** |   | **Exchange  rate  at year-end** |   | **Foreign  currency** |   | **Exchange  rate  at year-end** |   |
|           |   | **(thousands)**       |   | **(Pesos per  currency)**       |   | **(thousands)** |   | **(Pesos per  currency)** |   |
| U.S. dollars   |   | 11,473                |   | 11.2400                         |   | 13,273 |   | 10.4400 |   |
| Swiss francs   |   | 522                   |   | 8.8717                          |   | 678 |   | 7.5500 |   |
| Deutsche marks |   | 28,534                |   | 5.0700                          |   | 24,600 |   | 5.6000 |   |
| Italian  liras |   | 28,813                |   | 0.0051                          |   | 35,544 |   | 0.0057 |   |

 

 

**13.**                               FINANCIALINSTRUMENTS

** **

A)                                  FAIRVALUE OF FINANCIAL INSTRUMENTS

 

Thecarrying amounts of cash and cash equivalents, notes and accounts receivable,refundable taxes, trade accounts payable, current accounts due to and fromaffiliated companies and accrued liabilities and other payables approximatetheir fair value, because of the short-term maturity of these instruments.In addition, the net book valueof notes and accounts receivable and refundable taxes represent the expectedcash flow to be received.

 

F-23

----

 

The Company has historically entered into swap andcommodity futures contracts to hedge a portion of its key productionrequirements such as gas and corn, in order to reduce the risk of pricefluctuations. These contracts are short term and do not exceed the maximumproduction requirements for a one-year period. The gain or loss on thesecontracts was not significant. As of December 31, 2003, the Company hasoutstanding contracts for natural gas amounting to U.S.$738,000 dollars.

 

B)                                    CONCENTRATIONOF CREDIT RISK

 

The financial instruments,which potentially are subject to a concentration of risk, are principally cashand cash equivalents and trade accounts receivable.

 

The Company deposits andinvests its excess cash in recognized financial institutions. The concentrationof the credit risk with respect to the accounts receivable is limited, due to alarge number of customers comprising the Company’s customer base and theirdispersion across different locations of Mexico. In 2003, 2002 and 2001,approximately 4.06%, 6.93% and 5.94%, respectively, of the Company’s net saleswere to a major customer.

 

**14.**                               RECENTACCOUNTING PRONOUNCEMENTS

** **

In December 2002, the MIPA issuedBulletin C-15, “Impairment in the Value of Long-Lived Assets and theirDisposal” (“Bulletin C-15”), which is effective as of January 1, 2004.Bulletin C-15 establishes guidance for the identification of certain eventsthat represent evidence of a potential impairment in long-lived assets,tangible and intangible. Additionally, it provides guidance for the estimationand recognition of losses for impairment and their reversal and establishes therequirements of presentation and disclosure of impairment losses and discontinuedoperations. The Company’s management believes that the adoption of BulletinC-15 will not have a significant impact on the Company’s results of operationand financial position.

 

In April 2003, the MIPA issued BulletinC-12, “Financial Instruments with Characteristics of Liabilities, Equity orBoth” (“Bulletin C-12”), which is effective as of January 1, 2004.Bulletin C-12 establishes standards to classify and measure certain financialinstruments with characteristics of both, liabilities and equity, as well asthe disclosure requirements. The Company’s management believes that theadoption of Bulletin C-12 will not have a significant impact on the Company’sresults of operation and financial position.

 

F-24

----

 

**15.**                               DIFFERENCESBETWEEN MEXICAN GAAP AND US GAAP

 

The Company’s consolidatedfinancial statements are prepared in accordance with Mexican GAAP, which differin certain significant respects from US GAAP. The Mexican GAAP consolidatedfinancial statements include the effects of inflation as provided for underBulletin B-10 and its amendments (see Note 2), whereas financial statementsprepared under US GAAP are presented on a historical cost basis. Thereconciliation to US GAAP includes a reconciling item for the effect ofapplying the option provided by the Fifth Amendment to Bulletin B-10 for therestatement of machinery and equipment of foreign origin because, as describedbelow, this provision of inflation accounting under Mexican GAAP does not meet theconsistent reporting currency requirements of Regulation S-X. Thereconciliation does not include the reversal of the other adjustments to thefinancial statements for the effects of inflation required under Mexican GAAPbecause the application of Bulletin B-10 represents a comprehensive measure ofthe effects of price-level changes in the inflationary Mexican economy and, assuch, is considered a more meaningful presentation than historical cost-basedfinancial reporting for both Mexican and US accounting purposes.

 

The principal differences,other than inflation accounting, between Mexican GAAP and US GAAP and theeffect on consolidated net income and consolidated stockholders’ equity arepresented below, with an explanation of the adjustments.

 

Reconciliationof net income:

 
|                                                       |   | **Year ended  December 31,** |    |
|------------------------------------------------------------|--------|-----------------------------------|---------|
|                                                       |   | **2003**                          |    | **2002** |   | **2001** |   |
| **Net  income under Mexican GAAP**                         |   | Ps                                | 311,973 |   | Ps | 377,502 |   | Ps | 387,599 |   |
| US GAAP adjustments:                                       |   |                              |    |   |   |   |   |
| Depreciation expense (See B)                               |   | (39,231                           | )       | (38,651 | ) | (39,292 | ) |
| Pre-operating expenses (See D)                             |   | 3,914                             |    | 3,983 |   | 5,039 |   |
| Comprehensive financing costs (See E)                      |   | 310                               |    | 310 |   | 310 |   |
| Amortization of excess of cost over book  value (See F)    |   | 4,848                             |    | 4,289 |   | — |   |
| Deferred income taxes (See G)                              |   | 2,474                             |    | 14,209 |   | (3,568 | ) |
| Deferred ESPS (See G)                                      |   | (336                              | )       | (293 | ) | (297 | ) |
| Monetary position loss resulting from US  GAAP adjustments |   | (47                               | )       | (89 | ) | (87 | ) |
| Total US GAAP adjustments                                  |   | (28,068                           | )       | (16,242 | ) | (37,895 | ) |
| Minority interest (See A)                                  |   | 8,813                             |    | 7,862 |   | 5,519 |   |
| **Net income under US  GAAP**                              |   | Ps                                | 292,718 |   | Ps | 369,122 |   | Ps | 355,223 |   |
| Basic and diluted earnings per share  under  US GAAP  |   | Ps                                | 0.32    |   | Ps | 0.40 |   | Ps | 0.38 |   |
| Weighted average shares outstanding (000’s)           |   | 918,405                           |    | 918,405 |   | 918,405 |   |

 

F-25

----

 

Reconciliationof stockholders’ equity:

 
|                                                    |   | **December 31,** |      |
|---------------------------------------------------------|--------|-----------------------|-----------|
|                                                    |   | **2003**              |      | **2002** |   |
| **Total  stockholders’ equity under Mexican GAAP** |   | Ps                    | 5,802,488 |   | Ps | 5,763,614 |   |
| US GAAP adjustments:                                    |   |                  |      |   |   |
| Property, plant and equipment (See B)                   |   | 207,051               |      | 218,925 |   |
| Pre-operating expenses (See D)                          |   | (10,208               | )         | (14,040 | ) |
| Comprehensive financing cost (See E)                    |   | (1,551                | )         | (1,861 | ) |
| Excess of cost over book value (See F)                  |   | 9,137                 |      | 4,289 |   |
| Deferred income taxes (See G)                           |   | (62,493               | )         | (64,967 | ) |
| Deferred ESPS (See G)                                   |   | 1,021                 |      | 1,403 |   |
| US GAAP adjustments attributable to minority  interest  |   | 21,437                |      | 18,740 |   |
| Minority interest under Mexican GAAP (See  A)           |   | (348,989              | )         | (338,044 | ) |
| Total US GAAP adjustments                               |   | (184,595              | )         | (175,555 | ) |
| **Total  stockholders’ equity under US GAAP**      |   | Ps                    | 5,617,893 |   | Ps | 5,588,059 |   |

 

A summary of the Company’sstatement of changes in stockholders’ equity with balances determined under USGAAP for the year ended December 31, 2003 is as follows:

 

 
| Balance at December 31, 2002                 |   | Ps       | 5,588,059 |   |
|---------------------------------------------------|--------|----------|-----------|--------|
| Dividends paid                                    |   | (207,666 | )         |
| Recognition of inflationary effects for the  year |   | (55,218  | )         |
| Net income for the year                           |   | 292,718  |      |
| Balance at December 31, 2003                 |   | Ps       | 5,617,893 |   |

 

A summary of the Company’s stockholders’ equity under US GAAP, as ofDecember 31, 2003 and 2002 is as follows:

 
|                                          |   | **2003**   |      | **2002**   |   |
|-----------------------------------------------|--------|------------|-----------|------------|--------|
| Capital stock                                 |   | Ps         | 1,779,910 |       | Ps     | 1,779,910 |   |
| Additional paid-in capital                    |   | 1,554,913  |      | 1,554,913  |   |
| Retained earnings                             |   | 5,885,291  |      | 5,800,239  |   |
| Accumulated other comprehensive loss          |   | (3,602,221 | )         | (3,547,003 | )      |
| Total stockholders’ equity under US GAAP |   | Ps         | 5,617,893 |       | Ps     | 5,588,059 |   |

 

F-26

----

 

A)                                  FINANCIALSTATEMENT PRESENTATION AND CLASSIFICATION

 

Under Mexican GAAP, minorityinterest in consolidated subsidiaries is presented as a separate componentwithin the stockholders’ equity section of the consolidated balance sheet.For US GAAP purposes, the minority interest is not included in stockholders’equity.

 

B)                                    PROPERTY,PLANT AND EQUIPMENT

 

Under the Fifth Amendment toBulletin B-10, the Company has elected to apply the specific index method tofixed assets of foreign origin for the purposes of determining the restatedbalances under Mexican GAAP.  For USGAAP purposes, the use of this specific index is not in accordance with thehistorical cost concept, nor does it present financial information in aconstant reporting currency.  The impacton the net carrying value of fixed assets of restating fixed assets of foreignorigin utilizing the Mexican NCPI for US GAAP purposes increases stockholders’equity as of December 31, 2003 and 2002 by Ps 319,550 and Ps 308,315,respectively.

 

In addition, under MexicanGAAP depreciation can cease on temporarily idled assets if the carrying valueis expected to be recovered and if the remaining useful life is maintained.Under US GAAP, depreciation does not cease on temporarily idled assets, andtherefore the adjustment to property, plant and equipment decreasesstockholder’s equity as of December 31, 2003 and 2002 by Ps 112,499 and Ps89,390, respectively.

 

C)                                    LONG-LIVEDASSETS

 

The Company evaluates thecarrying value of long-lived assets to be held and used, primarily property,plant and equipment, goodwill, preoperating expenses and any assets to bedisposed of, when events or circumstances suggest that the carrying value maynot be recoverable. Any impairment of these assets is included in income of theyear, for the difference between the carrying value and the fair market valueof long-lived assets to be held and used, and the difference between thecarrying value and the fair market value less costs to sell for long-livedassets to be disposed of. As of December 31, 2003 the Company’s managementbelieves there is no impairment in the carrying value of long-lived assets.

 

F-27

----

 

D)                                   PRE-OPERATINGEXPENSES

 

As of December 31,2002, under Mexican GAAP, pre-operating expenses incurred were permitted to becapitalized and amortized by the Company over the period of time estimated togenerate the income necessary to recover such expenses. The Company definedthis period as 12 years based on prior experience. Starting January 1,2003, under Mexican GAAP, only the pre-operating expenses incurred during thedevelopment stage are capitalized, whereas the pre-operating expensesidentified as research are expensed as incurred. Additionally, thepre-operating expenses capitalized until January 1, 2003 are amortizedusing the straight-line method over a 12-year period.

 

Under US GAAP, such expensesshould be treated as period expenses. The adjustment to other assets decreasesstockholders’ equity as of December 31, 2003 and 2002 by Ps 10,208 and Ps14,040, respectively.

 

E)                                     COMPREHENSIVE FINANCING COSTS

 

Under Mexican GAAP,comprehensive financing costs, including interest expense, foreign exchangegain or loss and monetary position gains of the related debt for majorconstruction projects, are capitalized as part of the assets during theconstruction period.

 

Under US GAAP, monetaryposition and foreign exchange gains and losses on US dollar or other stablecurrency borrowings should be excluded from capitalized interest.

 

F)                                     EXCESSOF COST OVER BOOK VALUE

 

UnderMexican GAAP, the excess of cost over book value of subsidiaries acquired isrestated using NCPI factors. Amortization expense is computed based on therestated values using the straight-line method, over a period not to exceed 20years.

 

UnderUS GAAP, the excess of cost over book value related to purchase acquisitionscompleted prior to June 30, 2001 was amortized on a straight-line basisover its estimated useful life. Effective January 1, 2002, amortizationceased on the excess of cost over book value, according to SFAS No. 142“Goodwill and Other Intangible Assets” (“SFAS No. 142”). The excess of costover book value is subject to annual impairment test whereby it is allocated tothe Company’s reporting units and impairment is deemed to exist if the carryingvalue of a reporting unit exceeds its estimated fair value. As ofDecember 31, 2003 and 2002 the stockholder’s equity adjustment of Ps 9,137and Ps. 4,289 respectively increases “Other assets, net”.

 

F-28

----

 

Additionally,under Mexican GAAP, the amortization of the excess of cost over book value ofsubsidiaries acquired for the year 2001 was recognized as a non-operatingexpense. Under US GAAP, such item would be included in the determination ofoperating income. For the year ended December 31, 2001, this item amountedto Ps 5,464.

 

Theimpact of adopting SFAS No. 142 on net income and earnings per share adjustedto exclude amortization expense (net of taxes) related to goodwill is asfollows:

 

 
|                                                                   |   | **2003** |    | **2002** |   | **2001** |   |
|------------------------------------------------------------------------|--------|----------|---------|----------|--------|----------|--------|
| Net income attributable to common  stockholders’ equity           |   | Ps       | 292,718 |     | Ps     | 369,122  |   | Ps | 355,223 |   |
| Goodwill amortization                                                  |   | —   |    | —   |   | 5,464    |   |
|                                                                   |   |     |    |     |   |     |   |
| Pro forma net income attributable to common  stockholders’ equity |   | Ps       | 292,718 |     | Ps     | 369,122  |   | Ps | 360,687 |   |
|                                                                   |   |     |    |     |   |     |   |
| Basic and diluted earnings per share:                             |   |     |    |     |   |     |   |
| Reported earnings per share                                            |   | Ps       | 0.32    |     | Ps     | 0.40     |   | Ps | 0.38 |   |
| Goodwill amortization                                                  |   | —   |    | —   |   | 0.01     |   |
|                                                                   |   |     |    |     |   |     |   |
| Pro forma basic and diluted earnings per  share                        |   | Ps       | 0.32    |     | Ps     | 0.40     |   | Ps | 0.39 |   |

 

G)                                    DEFERREDINCOME TAXES AND EMPLOYEES’ STATUTORY PROFIT SHARING

 

Under the comprehensiveasset and liability method of SFAS No. 109, deferred tax assets and liabilitiesare recognized for the future tax consequences attributable to differencesbetween the financial statement carrying amounts of existing assets andliabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax ratesexpected to apply to taxable income in the years in which those temporarydifferences are expected to be reversed.

 

For both Mexican and US GAAPpurposes, the financial statement carrying amounts utilized in thedetermination of the deferred tax assets and liabilities included the inflationadjustments described in Note 2-C, and their respective tax bases also includedthe effects of inflation based on tax regulations.

 

F-29

----

 

The amounts of deferred incometaxes charged or credited to net income for each year under SFAS No. 109 and asset forth in Issue 93-9 of the US Financial Accounting Standards Board’sEmerging Issues Task Force was determined based on the differences between thebeginning and ending balances of the deferred tax assets or liabilities foreach period, expressed in Mexican pesos of constant purchasing power.

 

The tax effects of temporarydifferences that give rise to significant portions of the deferred tax assetsand deferred tax liabilities at December 31, 2003 and 2002 are presentedbelow:

 
|                                           |   | **2003**   |   | **2002**   |   |
|------------------------------------------------|--------|------------|--------|------------|--------|
| **Deferred tax  assets:**                      |   |       |   |       |   |
| Tax loss carryforwards                         |   | Ps         | 49,309 |       | Ps     | 26,363 |   |
| Other                                          |   | 44,280     |   | 36,053     |   |
| Total deferred tax assets                      |   | 93,589     |   | 62,416     |   |
|                                           |   |       |   |       |   |
| **Deferred tax  liabilities:**                 |   |       |   |       |   |
| Property, plant and equipment, net             |   | 772,790    |   | 831,781    |   |
| Inventories                                    |   | 386,605    |   | 328,055    |   |
| Other assets                                   |   | 106        |   | 113        |   |
| Total deferred tax liabilities                 |   | 1,159,501  |   | 1,159,949  |   |
| Net deferred tax liability under US GAAP       |   | 1,065,912  |   | 1,097,533  |   |
| Net deferred tax liability under Mexican  GAAP |   | (1,003,419 | )      | (1,032,566 | )      |
| Adjustment for US GAAP                         |   | Ps         | 62,493 |       | Ps     | 64,967 |   |

 

A summary of the deferredtax liability (asset) balances on a US GAAP basis are as follows:

 
|                   |   | **2003** |      | **2002** |   |
|------------------------|--------|----------|-----------|----------|--------|
| Current:               |   |     |      |     |   |
| Deferred tax asset     |   | Ps       | (44,280   | )        | Ps     | (36,053 | ) |
| Deferred tax liability |   | 386,605  |      | 328,055  |   |
|                   |   | 342,325  |      | 292,002  |   |
| Non-current:           |   |     |      |     |   |
| Deferred tax asset     |   | (49,309  | )         | (26,363  | )      |
| Deferred tax liability |   | 772,896  |      | 831,894  |   |
|                   |   | 723,587  |      | 805,531  |   |
| Total                  |   | Ps       | 1,065,912 |     | Ps     | 1,097,533 |   |

 

F-30

----

 

The provision for income taxon a US GAAP basis is as follows:

 
|     |   | **2003** |    | **2002** |   | **2001** |   |
|----------|--------|----------|---------|----------|--------|----------|--------|
|     |   |     |    |     |   |     |   |
| Current  |   | Ps       | (91,569 | )        | Ps     | (100,867 | )      | Ps | (180,633 | ) |
| Deferred |   | 31,621   |    | 43,592   |   | 5,925    |   |
|     |   | Ps       | (59,948 | )        | Ps     | (57,275  | )      | Ps | (174,708 | ) |

 

In addition, the Company hasestablished, for US GAAP purposes, a deferred tax liability of Ps 25,300 and Ps34,802 at December 31, 2003 and 2002, respectively, related to employees’statutory profit sharing, which is included within operating expenses under USGAAP.

 

H)                                   SUPPLEMENTALBALANCE SHEET INFORMATION

 

•                                          Other current liabilities:

 

Included within accrued liabilities and other payables as ofDecember 31, 2003 and 2002 are customers advances (Ps 10,434 and Ps 9,499respectively), accrued freight costs (Ps 16,960 and Ps 8,938, respectively),accrued employee compensation and benefits (Ps 31,334 and Ps 18,497,respectively), accrued public utility expenses (Ps 17,982 and Ps 17,340,respectively) and accrued advertising (Ps 6,323 and Ps 6,581, respectively).

 

•                                          Computer software costs:

 

Depreciation expense on capitalized computer software costs for theyears ended December 31, 2003, 2002 and 2001 amounted to Ps 20,459, Ps18,773 and Ps 18,248, respectively.

 

•                                         Accumulated amortization ofexcess of cost over book value

 

Under US GAAP, the excess of cost over bookvalue of subsidiaries acquired, net includes accumulated amortization of Ps11,588 as of December 31, 2003 and 2002.

 

F-31

----

 

I)                                        SUPPLEMENTALINCOME STATEMENT INFORMATION

 

•                                          Employees’ statutory profitsharing:

 

Under Mexican GAAP, the Company recognizes ESPS as a non-operatingexpense. Under US GAAP, such item would be included in the determinationof operating income. For the years ended December 31, 2003, 2002 and 2001,these items amounted to Ps 2,993, Ps 24,352 and Ps 15,917, respectively.

 

•                                          Advertising costs:

 

Advertising costs, included in selling, general and administrativeexpenses, are expensed when the advertising first takes place. Totaladvertising expense for the years ended December 31, 2003, 2002 and 2001amounted to Ps 103,981, Ps 106,041 and Ps 125,169, respectively.

 

•                                          Shipping and handling costs:

 

The shipping and handling costs are included in selling, general andadministrative expenses and amounted to Ps 144,043, Ps 139,160 and Ps 145,994for the years ended December 31, 2003, 2002 and 2001, respectively.

 

J)                                       SUPPLEMENTALCASH FLOW INFORMATION

 

Mexican GAAP Bulletin B-12issued by the Mexican Institute of Public Accountants specifies the appropriatepresentation of the statements of changes in financial position. Under BulletinB-12, the sources and uses of resources are determined based upon thedifferences between beginning and ending financial statement balances inMexican pesos of constant purchasing power. Under U.S. GAAP, a statement of cash flow is required, which presentsonly cash movements and excludes non-cash items.

 

The following presents aprice-level adjusted statement of cash flows, after considering the impact ofU.S. GAAP adjustments in conformity with the AICPA SEC Regulations Committee’sInternational Practice Task Force recommendations.

 

F-32

----

 
|                                                                               |   | **Year ended  December 31,** |    |
|------------------------------------------------------------------------------------|--------|-----------------------------------|---------|
|                                                                               |   | **2003**                          |    | **2002** |   | **2001** |   |
| Operating activities:                                                              |   |                              |    |   |   |   |   |
| Net income for the current year                                                    |   | Ps                                | 292,718 |   | Ps | 369,122 |   | Ps | 355,223 |   |
| Minority interest                                                                  |   | 11,206                            |    | 12,026 |   | 3,417 |   |
| Adjustments to reconcile net income to net  cash provided by operating activities: |   |                              |    |   |   |   |   |
| Allowance for doubtful accounts                                                    |   | 5,726                             |    | 3,838 |   | 13,067 |   |
| Loss from monetary position                                                        |   | 60,946                            |    | 86,817 |   | 60,360 |   |
| Depreciation and amortization                                                      |   | 291,532                           |    | 298,628 |   | 305,799 |   |
|                                                                               |   |                              |    |   |   |   |   |
| Deferred income taxes and employees’  statutory profit sharing                |   | (41,169                           | )       | (31,563 | ) | (4,820 | ) |
|                                                                               |   | 620,959                           |    | 738,868 |   | 733,046 |   |
| Changes in working capital:                                                        |   |                              |    |   |   |   |   |
|                                                                               |   |                              |    |   |   |   |   |
| Accounts receivable                                                                |   | 27,245                            |    | (103,005 | ) | 6,786 |   |
| Refundable taxes                                                                   |   | 41,954                            |    | (72,477 | ) | (37,153 | ) |
| Receivables from and payable to affiliates,  net                                   |   | (13,373                           | )       | (8,214 | ) | 19,266 |   |
| Inventories                                                                        |   | (160,929                          | )       | (154,736 | ) | (4,969 | ) |
| Prepaid expenses                                                                   |   | (87,180                           | )       | 11,500 |   | (3,638 | ) |
| Trade accounts payable                                                             |   | (92,569                           | )       | 147,990 |   | (201,593 | ) |
| Accrued liabilities and other payables                                             |   | (10,591                           | )       | (1,364 | ) | 11,603 |   |
|                                                                               |   |                              |    |   |   |   |   |
| Income taxes and employees’ statutory  profit sharing                         |   | 2,083                             |    | (68,643 | ) | (70,231 | ) |
|                                                                               |   | (293,360                          | )       | (248,949 | ) | (279,929 | ) |
| Net cash provided by operating activities                                          |   | 327,599                           |    | 489,919 |   | 453,117 |   |
|                                                                                    |        |                                   |         |  |  |  |  |  |  |  |

 

F-33

----

 
|                                                                        |   | **Year ended  December 31,** |    |
|-----------------------------------------------------------------------------|--------|-----------------------------------|---------|
|                                                                        |   | **2003**                          |    | **2002** |   | **2001** |   |
| Investing activities:                                                       |   |                              |    |   |   |   |   |
| Purchases of property, plant and equipment                                  |   | (81,003                           | )       | (31,206 | ) | (3,889 | ) |
| Net decrease (contribution) to  technological research and development fund |   | 210,418                           |    | (4,550 | ) | (21,113 | ) |
|                                                                        |   |                              |    |   |   |   |   |
| (Loan to) repayments from Gruma                                             |   | (104,314                          | )       | (420,496 | ) | 533,306 |   |
| Other assets                                                                |   | (8,489                            | )       | 23,102 |   | (16,242 | ) |
| Net cash (used in) provided by investing  activities                        |   | 16,612                            |    | (433,150 | ) | 492,062 |   |
|                                                                        |   |                              |    |   |   |   |   |
| Financing activities:                                                       |   |                              |    |   |   |   |   |
| Dividends paid                                                              |   | (209,422                          | )       | (121,435 | ) | (830,946 | ) |
| Net cash used in financing activities                                       |   | (209,422                          | )       | (121,435 | ) | (830,946 | ) |
| Effect of inflation on cash and cash  equivalents                           |   | (5,531                            | )       | (9,352 | ) | (4,168 | ) |
| Net (decrease) increase in cash and cash  equivalents                       |   | 129,258                           |    | (74,018 | ) | 110,065 |   |
| Cash and cash equivalents at beginning of  year                             |   | 58,938                            |    | 132,956 |   | 22,891 |   |
| Cash and cash equivalents at end of year                                    |   | Ps                                | 188,196 |   | Ps | 58,938 |   | Ps | 132,956 |   |
|                                                                             |        |                                   |         |  |  |  |  |  |  |  |

 

Supplementary cash flowdisclosure:

 

Net cash flow from operatingactivities reflects cash payments and receipts for interest, and income taxes,as follows:

 
|              |   | **Year ended  December 31,** |   |
|-------------------|--------|-----------------------------------|--------|
|              |   | **2003**                          |   | **2002** |   | **2001** |   |
| Interest incurred |   | Ps                                | 7,014  |   | Ps | 13,019 |   | Ps | 24,230 |   |
| Interest paid     |   | 6,163                             |   | 5,077 |   | 3,231 |   |
| Interest received |   | 47,491                            |   | 47,897 |   | 66,390 |   |
| Income taxes paid |   | 91,035                            |   | 112,390 |   | 164,219 |   |
|                   |        |                                   |        |  |  |  |  |  |  |  |

 

F-34

----

 

K)                                   COMPREHENSIVEINCOME

 

A summary of the Company’scomprehensive income under US GAAP is as follows:

 
|                               |   | **Year ended  December 31,** |    |
|------------------------------------|--------|-----------------------------------|---------|
|                               |   | **2003**                          |    | **2002** |   | **2001** |   |
| Net income under US GAAP           |   | Ps                                | 292,718 |   | Ps | 369,122 |   | Ps | 355,223 |   |
| Other comprehensive loss:          |   |                              |    |   |   |   |   |
| Deficit from restatement           |   | (55,218                           | )       | (58,712 | ) | (25,381 | ) |
| Deferred loss on hedge activity    |   | —                            |    | 4,310 |   | (4,310 | ) |
| Comprehensive income under US GAAP |   | Ps                                | 237,500 |   | Ps  | 314,720 |   | Ps | 325,532 |   |

 

Taxes were not recorded forthe deficit from restatement for the years ended December 31, 2003, 2002,and 2001.

 

The changes in accumulated other comprehensive loss as ofDecember 31, 2003 and 2002 are as follows:

 
|                              |   | **Deficit  from  restatement** |       | **Deferred  loss on  hedge activity** |   | **Accumulated  other  comprehensive  loss** |   |
|-----------------------------------|--------|--------------------------------|------------|---------------------------------------|--------|---------------------------------------------|--------|
| Balance at December 31, 2001 |   | Ps                             | (3,488,291 | )                                     | Ps     | (4,310                                      | )      | Ps | (3,492,601 | ) |
| Current year changes              |   | (58,712                        | )          | 4,310                                 |   | (54,402                                     | )      |
| Balance at December 31, 2002 |   | (3,547,003                     | )          | —                                |   | (3,547,003                                  | )      |
| Current year changes              |   | (55,218                        | )          | —                                |   | (55,218                                     | )      |
| Balance at December 31, 2003 |   | Ps                             | (3,602,221 | )                                     | Ps     | —                                      |   | Ps | (3,602,221 | ) |

 

L)                                     BUSINESSSEGMENT DATA

 

The Company is principallyengaged in only one reportable line of business, which is the production andsale of corn flour throughout Mexico.

 

F-35

----

 

M)                                VALUATIONAND QUALIFYING ACCOUNTS

 

The activity in theallowance for doubtful accounts for the years ended December 31, 2003,2002 and 2001 is as follows:

 
| **Description**                   |   | **Balance at  beginning of  year** |   | **Additions** |   | **Deductions** |   | **Balance at  year-end** |   |
|-----------------------------------|--------|------------------------------------|--------|---------------|--------|----------------|--------|--------------------------|--------|
| Allowance for doubtful accounts:  |   |                               |   |          |   |           |   |                     |   |
| Year ended December 31, 2003 |   | Ps                                 | 38,202 |          | Ps     | 5,726          |   | Ps                       | 1,761  |   | Ps | 42,167 |   |
| Year ended December 31, 2002 |   | 36,531                             |   | 3,838         |   | 2,167          |   | 38,202                   |   |
| Year ended December 31, 2001 |   | 33,758                             |   | 13,067        |   | 10,294         |   | 36,531                   |   |
|                                   |        |                                    |        |               |        |                |        |                          |        |  |  |  |  |

 

N)                                   RECENTLYISSUED ACCOUNTING STANDARDS

 

InApril 2003, the Financial Accounting Standards Board (“FASB”) issued SFASNo. 149, “Amendment of SFAS No. 133 on Derivative Instruments and HedgingActivities”. SFAS No. 149 amends and clarifies financial accounting andreporting for derivative instruments by requiring that contracts withcomparable characteristics be accounted for similarly. In particular, thisstatement clarifies the circumstances under which a contract with an initialnet investment meets the characteristics of a derivative, clarifies when aderivative contains a financing component, amends the definition of an underlyingto conform it to the language used in FIN No. 45, “Guarantor’s Accounting andDisclosure Requirements for Guarantees, Including Indirect Guarantees ofIndebtedness of Others” and amends certain other existing pronouncements. SFASNo. 149 is effective for contracts entered into or modified after June 30,2003, and for hedging relationships designated after June 30, 2003. Theadoption of SFAS No. 149 did not have a material impact on the Company’sconsolidated results of operations or financial condition.

 

InMay 2003, the FASB issued SFAS No. 150, “Accounting for Certain FinancialInstruments with Characteristics of Both Liabilities and Equity”. The statementrequires issuers to classify as liabilities (or assets in some circumstances)three classes of freestanding financial instruments that embody obligations forthe issuer. Generally, the statement is effective for financial instrumentsentered into or modified after May 31, 2003 and is otherwise effective at thebeginning of the first interim period beginning after June 15, 2003. Theadoption of SFAS No. 150 did not have a material impact on the Company’sconsolidated results of operations or financial condition.

 

F-36

----

 

InJanuary 2003, the FASB issued Interpretation No. 46 (“FIN 46”),“Consolidation of Variable Interest Entities, an interpretation of ARB 51”. The primary objectives of FIN 46 are to provide guidance on theidentification of entities for which control is achieved through means otherthan through voting rights (“variable interest entities” or “VIE”) and how todetermine when and which business enterprise should consolidate the VIE (the“primary beneficiary”).  This new model for consolidation applies to anentity which either (1) the equity investors (if any) do not have a controllingfinancial interest or (2) the equity investment at risk is sufficient tofinance that entity’s activities without receiving additional subordinatedfinancial support from other parties.  In addition, FIN 46 requires thatboth the primary beneficiary and all other enterprises with a significantvariable interest in a VIE make additional disclosures.  FIN 46 appliesimmediately to variable interest entities created after January 31, 2003,and to variable interest entities in which an enterprise obtains an interestafter that date.  It applies in the first fiscal year or interim periodbeginning after June 15, 2003, to variable interest entities in which anenterprise holds a variable interest that it acquired before February 1,2003.  FIN 46 applies to public enterprises as of the beginning of theapplicable interim or annual period, and it applies to nonpublic enterprises asof the end of the applicable annual period. In December 2003, the FASB redeliberatedcertain proposed modifications and revised FIN 46 (“FIN 46-R”). The revisedprovisions are applicable no later than the first reporting period ending afterMarch 15, 2004. The Company does not expect that the adoption of FIN 46and FIN 46-R will have a material impact on its financial statements.

 

F-37

----