**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      DC 20549**







**FORM
      20-F**




**ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d)**


**OF
      THE SECURITIES EXCHANGE ACT OF 1934**


**for
      the year ended December 31, 2004**




**Commission
      file number 1-12632**




**Grupo
      Casa Saba, S.A. de C.V.**


(Exact
      name of Registrant as specified in its charter) ****




**N/A**


(Translation
      of Registrant’s name into English)




**Mexico**


(Jurisdiction
      of Incorporation or Organization)




**Paseo
      de la Reforma, No. 215**


**Colonia
      Lomas de Chapultepec México, D.F. 11000**




**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****American
                Depositary Shares, each representing ten**
              **Ordinary
                Shares, without par value**
            **New
                York Stock Exchange****Ordinary
                Shares, without par value**
            **New
                York Stock Exchange**
              **(for
                listing purposes only)**





**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**




**The
      number of outstanding shares of each class of capital or common stock as of
      December 31, 2004 was:** **265,419,360
      Ordinary Shares, without par value**




**Indicate
      by check mark whether the Registrant: (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the Registrant was required
      to file such reports) and (2) has been subject to such filing requirements
      for
      the past 90 days.**




**Yes**   **X**  **No**  **_**




**Indicate
      by check mark which financial statement item the Registrant has elected to
      follow.**




**Item
      17 __**   **Item
      18** **X**










**TABLE
        OF CONTENTS**
   PART
                    I
                
                1Item
                    1.
                Identity
                    of Directors, Senior Management and Advisers
                1Item
                    2.
                Offer
                    Statistics and Expected Timetable
                1Item
                    3.
                Key
                    Information
                1Item
                    4.
                Information
                    on the Company
                9Item
                    5.
                Operating
                    and Financial Review and Prospects
                25Item
                    6.
                Directors,
                    Senior Management and Employees
                40Item
                    7.
                Major
                    Shareholders and Related Party Transactions
                44Item
                    8.
                Financial
                    Information
                46Item
                    9.
                Offer
                    and Listing Details
                47Item
                    10.
                Additional
                    Information
                49Item
                    11.
                Quantitative
                    and Qualitative Disclosures about Market Risk
                63Item
                    12.
                Description
                    of Securities Other than Equity Securities
                63PART
                    II
                
                63Item
                    13.
                Defaults,
                    Dividend Arrearages and Delinquencies
                63Item
                    14.
                Material
                    Modifications to the Rights of Security Holders and Use of
                    Proceeds
                63Item
                    15.
                Controls
                    and Procedures
                63Item
                    16.
                Reserved
                63PART
                    III
                
                64Item
                    17.
                Financial
                    Statements
                64Item
                    18.
                Financial
                    Statements
                64Item
                    19.
                Exhibits
                64INDEX
                  TO CONSOLIDATED FINANCIAL STATEMENTS
                F-1
 
 i
 
 **INTRODUCTION**
  Grupo
        Casa Saba, S.A. de C.V. is a limited liability stock corporation with variable
        capital, or *sociedad
        anónima de capital variable* ,
        organized under the laws of the United Mexican States, or “Mexico”, and is a
        holding company that conducts substantially all of its operations through
        subsidiaries. In this annual report, except when indicated or the context
        otherwise requires, the words “Grupo Casa Saba”, “the company”, “we”, “us”,
“our” and “ours” refer to Grupo Casa Saba, S.A. de C.V. and its consolidated
        subsidiaries. Each subsidiary of Grupo Casa Saba is an independent legal
        entity
        with its own accounting, corporate structure and records, executives and
        employees. References in this annual report to divisions are to combinations
        of
        various subsidiaries that have been grouped together for management and
        presentation purposes.
  This
        annual report contains translations of certain constant Mexican Peso amounts
        into U.S. Dollars at specified rates solely for the convenience of the reader.
        These convenience translations should not be construed as representations
        that
        the constant Peso amounts actually represent such U.S. Dollar amounts or
        could
        be converted into U.S. Dollars at the rate indicated or at all. The exchange
        rates used in preparing our consolidated financial statements and in preparing
        convenience translations of such information into U.S. Dollars are determined
        by
        reference as of the specified date to the rate of Mexican Pesos per U.S.
        Dollar
        reported by the *Banco
        de México* ,
        or the
        Mexican Central Bank, in the *Diario
        Oficial de la Federación* ,
        or the
        Official Gazette of the Federation. As of December 31, 2004, the rate
        of
        Mexican Pesos per U.S. Dollar, as reported by the Mexican Central Bank in
        the
        Official Gazette of the Federation, was Ps.11.22 to one U.S. dollar. See
“Item 3
        Key Information 3⁄4 Exchange
        Rate Information.”
  Unless
        otherwise specified, information included in this annual report is as of
        December 31, 2004. References to “Ps.” or “Pesos” in this annual report are
        to Mexican Pesos and references to “Dollars,”“U.S. Dollars,”“$” or “U.S.$” are
        to United States Dollars. Certain amounts included in this annual report
        may not
        sum due to rounding.
  **MARKET
        SHARE AND OTHER INFORMATION**
  Market
        share information for our private sector pharmaceutical sales is based on
        statistics provided exclusively to us by IMS A.G., known internationally
        as IMS
        Health, and our estimates.
  
 ii
 
 **FORWARD-LOOKING
        STATEMENTS**
  Some
        written information and oral statements made or incorporated by reference
        from
        time to time by us or our representatives in this annual report, other reports,
        filings with the Securities and Exchange Commission, or the SEC, press releases,
        conferences, or otherwise, are “forward-looking statements” within the meaning
        of the Private Securities Litigation Reform Act of 1995. Forward-looking
        statements, which are subject to various risks and uncertainties, include,
        without limitation, any statement that may predict, forecast, indicate, or
        imply
        future results, performance, or achievement, and may contain forward-looking
        terminology such as
“anticipate,”“believe,”“continue,”“expect,”“estimate,”“project,”“will,”“will
        be,”“will continue,”“will likely result,”“may,”“plan,” or words or phrases of
        similar meaning. These statements are contained in the sections entitled
“Risk
        Factors”, “Operating Financial Review and Prospects”, “Information on the
        Company” and other sections of this annual report.
  Forward-looking
        statements reflect our best assessment at the time and thus involve risks
        and
        uncertainties that may cause actual results to differ materially from the
        forward-looking statements. Therefore, these forward-looking statements are
        qualified by reference to the cautionary statements set forth in this annual
        report. The risks and uncertainties involved in the forward-looking statements
        are detailed from time to time in reports we file with the SEC and include,
        among others, the following:
  ·
              International,
                  national and local general economic and market conditions;
  ·
              The
                  overall size and growth of the Mexican pharmaceutical market;
  ·
              The
                  level of competition among distributors, suppliers and sellers
                  of
                  pharmaceuticals;
  ·
              Fluctuations
                  and difficulty in forecasting operating
                  results;
  ·
              Dependence
                  on suppliers and clients;
  ·
              General
                  risks associated with doing business in Mexico, including political
                  and
                  economic instability and changes in government regulations;
                  and
  ·
              Other
                  factors referenced in this annual
                  report.
  The
        risks
        summarized above are not exhaustive. Other sections of this annual report
        may
        include additional factors that could adversely impact our business and
        financial performance. Moreover, we operate in a very competitive and rapidly
        changing environment. New risk factors emerge from time to time and it is
        not
        possible for our management to predict all of these risk factors, nor can
        it
        assess the impact of all of these risk factors on our business or the extent
        to
        which any factor, or combination of factors, may cause actual results to
        differ
        materially from those contained in any forward-looking statements. Given
        these
        risks and uncertainties, investors and analysts should not place undue reliance
        on forward-looking statements as a prediction of actual results. Accordingly,
        when considering forward-looking statements, investors and analysts should
        bear
        in mind the factors described in “Item 3. Key Information—Risk Factors” and
        other cautionary statements appearing in “Item 5. Operating and Financial Review
        and Prospects” and elsewhere in this annual report.
  The
        predictive and forward-looking statements in this annual report may never
        materialize and are made under the SEC’s disclosure safe harbor. Forward-looking
        statements speak only as of the date they are made, and we do not undertake
        any
        obligation to update them in light of new information or future
        developments.
  
 
 
 iii
 
 **PART
        I**
  **Item
        1.**  **Identity
        of Directors, Senior Management and Advisers**
  Not
        applicable.
  **Item
        2.**  **Offer
        Statistics and Expected Timetable**
  Not
        applicable.
  **Item
        3.**  **Key
        Information** ****
  ***(a)***  ***Selected
        Financial Data***
  We
        prepare our audited consolidated financial statements in accordance with
        Mexican
        GAAP, which differs in some significant respects from U.S. GAAP. Note 15
        to our
        audited consolidated financial statements provides a description of the
        principal differences between Mexican GAAP and U.S. GAAP as they relate to
        us,
        and describes differences in presentation between the statement of changes
        in
        financial position under Mexican GAAP and the requirements under U.S. GAAP
        for a
        statement of cash flows. Note 16 to our audited consolidated financial
        statements provides a partial reconciliation to U.S. GAAP of net income and
        stockholders’ equity.
  Pursuant
        to Mexican GAAP, our audited consolidated financial statements and the selected
        financial information set forth in the following table reflect inventories
        at
        current replacement cost. All other non-monetary assets are restated
        by using the Mexican National Consumer Price Index, or the NCPI. Components
        of stockholders’ equity are also restated using the NCPI. In addition, the
        statement of income recognizes the effect of gain or loss on
        the purchasing power from holding monetary assets and monetary liabilities.
        Mexican GAAP also requires the restatement of all financial statements in
        constant Pesos as of the date of the last day of the period reported and,
        accordingly, all information in our audited consolidated financial statements
        and in the selected financial information set forth in the following table
        has
        been restated in constant Pesos as of December 31, 2004. See Note 3 to our
        audited consolidated financial statements for significant accounting policies.
        The impact of inflation accounting under Mexican GAAP has not been
        reversed
        in our reconciliation to U.S. GAAP. See Notes 15 and 16 to our audited
        consolidated financial statements.
  The
        information set forth in the following table has been selected from our audited
        consolidated financial statements for the periods indicated. This information
        should be read together with, and it is qualified in its entirety by reference
        to, our audited consolidated financial statements, the notes to such financial
        statements and the information under the section entitled “Item 5.
        Operating and Financial Review and Prospects.”
  
 **Year
                  ended December 31,**
              2000
              2001
              2002
              2003
              2004
              2004
                  (1)(in
                  thousands of constant Pesos as of December 31, 2004 and U.S. Dollars,
                  except share and per share data)**Income
                  Statement****Mexican
                  GAAP:**Net
                  sales
              Ps. 
                  18,802,166
              Ps. 
                  18,771,000
              Ps. 
                  19,914,147
              Ps. 
                  20,545,077
              Ps. 
                  20,569,977
              U.S.$1,833,609Gross
                  profit
              1,954,672
              2,010,022
              2,100,940
              2,042,475
              2,117,590
              188,764Operating
                  expenses
              1,271,864
              1,276,278
              1,333,107
              1,266,235
              1,319,797
              117,647Operating
                  income,  net
              682,809
              733,744
              767,833
              776,240
              797,793
              71,117Comprehensive
                  cost of financing, net
              93,597
              163,844
              16,981
              48,699
              15,794
              1,407Other
                  (income) (2)
              (19,934)
              (34,975)
              (6,484)
              (36,096)
              (49,899)
              (4,448)Income
                  (loss) before taxes and employee profit sharing
              609,145
              604,875
              757,336
              763,637
              831,898
              74,158Net
                  income (loss)
              480,551
              468,846
              594,916
              605,844
              648,804
              57,836Net
                  income (loss) per Ordinary Share (3)
              1.811
              1.766
              2.241
              2.283
              2.444
              0.218Weighted
                  average Ordinary Shares outstanding (in thousands) (3)
              265,419
              265,419
              265,419
              265,419
              265,419**U.S.
                  GAAP (4):**Net
                  sales
              Ps. 
                  18,802,166
              Ps. 
                  18,771,000
              Ps. 
                  19,914,147
              Ps. 
                  20,545,077
              Ps. 
                  20,569,977
              U.S.$1,833,609Gross
                  profit
              1,954,672
              2,010,023
              2,100,940
              2,042,475
              2,117,590
              188,764Operating
                  income
              860,674
              762,345
              739,020
              837,900
              797,793
              71,117Income
                  (loss) before taxes and employee profit sharing
              787,005
              633,476
              728,521
              825,297
              831,898
              1,407Net
                  income (4)
              658,416
              497,448
              566,104
              667,503
              648,804
              57,836








1
    
 **Year
                  ended December 31,**
              2000
              2001
              2002
              2003
              2004
              2004
                  (1)(in
                  thousands of constant Pesos as of December 31, 2004 and U.S. Dollars,
                  except share and per share data)Net
                  income (loss) per Ordinary share (3)
              2.4807
              1.8742
              2.1328
              2.5149
              2.4444
              0.2180Weighted
                  average Ordinary Shares outstanding (in thousands) (3)
              265,419
              265,419
              265,419
              265,419
              265,419
              —**Balance
                  Sheet Data****Mexican
                  GAAP:**Property
                  and equipment, net
              Ps. 
                  1,182,105
              Ps. 
                  1,098,546
              Ps. 
                  1,065,935
              Ps. 
                  1,034,959
              Ps. 
                  1,069,880
              U.S.$ 
                  95,369Total
                  assets
              7,251,605
              7,760,061
              8,208,549
              8,700,168
              9,126,832
              813,567Short-term
                  debt
              87,504
              351,451
              388,282
              410,244
              -
              -Long-term
                  debt (5)
              734,060
              438,157
              47,027
              0
              -Capital
                  stock
              1,007,292
              1,007,292
              1,007,292
              1,007,292
              1,007,292
              89,790Total
                  stockholders’ equity (4)
              2,792,144
              3,033,473
              3,260,403
              3,514,373
              4,033,065
              359,508**U.S.
                  GAAP (4):**Property
                  and equipment, net
              Ps. 
                  1,182,105
              Ps. 
                  1,098,546
              Ps. 
                  1,065,935
              Ps. 
                  1,034,959
              Ps. 
                  1,069,880
              U.S.$ 
                  95,369Total
                  assets
              7,251,605
              7,760,061
              8,208,549
              8,700,168
              9,126,832
              813,567Short-term
                  debt
              87,504
              351,451
              388,282
              410,244
              -
              -Long-term
                  debt(5)
              734,060
              438,157
              47,027
              0
              -Capital
                  stock
              1,007,292
              1,007,292
              1,007,292
              1,007,292
              1,007,292
              89,790Total
                  stockholders’ equity (4)
              2,791,311
              3,061,242
              3,222,881
              3,538,510
              4,057,202
              361,659
 
 (1)
        Peso amounts have been translated into U.S. Dollars, solely for the convenience
        of the reader, at the rate of Ps. 11.22 per U.S. $1.00, which was the Peso
        /U.S.
        Dollar exchange rate as of December 31, 2004, as reported by the Mexican
        Central
        Bank in the Official Gazette of the Federation.
  (2)
        Other income consists of fees on returned checks, miscellaneous articles
        and
        non-taxable items adjustments and services.
  (3)
        Based on the weighted average number of Ordinary Shares outstanding during
        each
        year.
  (4)
        For a discussion of the principal differences between U.S. GAAP and Mexican
        GAAP
        concerning net income and total stockholders’ equity as well as a partial
        reconciliation to U.S. GAAP of net income and total stockholders’ equity, see
        Notes 15 and 16 to our audited consolidated financial statements.
  (5)
        Our long-term debt under Mexican GAAP as of December 31, 1999 differs
        from
        our long-term debt under U.S. GAAP as of that date as a result of a difference
        in the accounting treatment of our financial restructuring, which we completed
        in January 2000. Under Mexican GAAP, our consolidated balance sheet as of
        December 31, 1999 gives effect to our financial restructuring. Under
        U.S.
        GAAP, our financial restructuring would have been classified as a subsequent
        event in the notes to our audited consolidated financial statements for the
        year
        ended December 31, 1999 and reflected in our audited consolidated
        balance
        sheet as of December 31, 1999.
  ***(b)***  ***Dividends***
  Under
        Mexico’s *Ley
        General de Sociedades Mercantiles* ,
        or
        General Corporations Law, five percent of our net income in a given year
        must be
        allocated annually to a legal reserve. This legal reserve shall be increased
        annually until it reaches 20% of our capital stock. After this allocation
        is
        made, it is possible to make additional allocations, such as a contribution
        of
        funds for the payment of dividends or the creation of special reserves,
        generally, but not necessarily, upon the recommendation of our Board of
        Directors. We cannot pay dividends on our shares of capital stock, which
        we
        refer to as Ordinary Shares, unless these allocations are previously made.
        As of
        December 31, 2004, we had a legal reserve of approximately Ps.57.67 million,
        which represented approximately 5.72% of our capital stock as of that date.
        See
        Note 11 to our audited consolidated financial statements. Five percent of
        our
        net income for the year ended December 31, 2002 was applied to the
        legal
        reserve, and thus our annual shareholders’ meeting, held on April 22, 2003,
        approved the payment of a dividend in the amount of Ps.100.0 million (Ps.
        107.5
        million at fiscal year end constant Pesos), equivalent to Ps.0.38 per Ordinary
        Share. Five percent of our net income for the year ended December 31,
        2003
        was applied to the legal reserve, and thus our annual shareholders’ meeting,
        held on April 27, 2004, approved the payment of a dividend in the
        amount of
        Ps.110.0 million (Ps. 113.7 million at fiscal year end constant Pesos),
        equivalent to Ps.0.41 per Ordinary Share. During our annual shareholder’s
        meeting, held on April 29, 2005, the payment of a dividend in the amount
        of
        Ps.120.0 million, equivalent to Ps.0.452 per Ordinary Share, was
        approved.
  
 2
 
 In
        2000,
        2001 and 2002, we did not declare any dividends, cash or otherwise. Our
        controlling shareholder has the ability to determine, by means of a shareholder
        vote, whether we will declare and pay dividends, in cash or otherwise. See
“Item
        3. Key Information—Risk Factors—Risk Factors Relating to Our Securities—Our
        Controlling Shareholder Has the Ability to Restrict the Payment and Amount
        of
        Dividends.” A determination to declare and pay dividends may depend on the
        following factors, among others:
  ·
              the
                  resolution by our shareholders in light of our results, financial
                  condition, cash requirements, future prospects and other factors
                  deemed
                  relevant by our shareholders for this
                  purpose;
  ·
              the
                  extent to which we receive cash dividends, advances and other payments
                  from our subsidiaries. We are a holding company with no significant
                  operating assets other than the ones we own through our subsidiaries.
                  Given the fact that we receive substantially all of our operating
                  income
                  from our subsidiaries, our ability to meet our financial obligations,
                  including the payment of dividends, depends significantly on the
                  dividend
                  payments we receive from our subsidiaries;
                  and
  ·
              the
                  extent to which we have cash available for distribution after funding
                  our
                  working capital needs, capital expenditures and
                  investments.
  To
        the
        extent that we declare and pay dividends on our Ordinary Shares, these dividends
        are payable to the holders of our American Depositary Shares, or ADSs. Owners
        of
        our ADSs are entitled to receive any dividends payable on the Ordinary Shares
        underlying their ADSs. We pay all cash dividends in Pesos, to the depositary
        of
        our ADSs, The Bank of New York. Except as otherwise provided in the Amended
        and
        Restated Deposit Agreement pursuant to which our ADSs are issued, cash dividends
        received by the depositary are converted by the depositary from Pesos into
        U.S.
        Dollars and, after the deduction or upon payment of the depositary’s expenses,
        are paid to the holders of ADSs in U.S. Dollars. No withholding tax applies
        to
        dividends on our ADSs paid to individuals and non-residents of Mexico.
        See
“Item 10. Additional
        Information—Taxation—Mexican Taxes—Dividends.”
 
 3
 
  Exchange
        Rate Information
  The
        following table sets forth, for the periods indicated, the high, low, average
        and period-end free market exchange rates, as reported by the Board of Governors
        of the U.S. Federal Reserve Bank of New York for the purchase of U.S. Dollars,
        expressed in nominal Pesos per $1.00 U.S. Dollar. The noon buying rate for
        Pesos
        on June 15, 2005, was Ps.10.83 per U.S. Dollar.
  **Exchange
                  Rate****(1)****Year
                  ended December 31,**
              
              **High**
              
              **Low**
              
              **Average****(2)**
              
              **Period
                  End**2000
              
              
              10.09
              
              
              9.18
              
              
              9.46
              
              
              9.622001
              
              
              9.97
              
              
              8.95
              
              
              9.34
              
              
              9.172002
              
              
              10.43
              
              
              9.00
              
              
              9.66
              
              
              10.432003
              
              
              11.41
              
              
              10.11
              
              
              10.79
              
              
              11.242004
              
              
              11.64
              
              
              10.81
              
              
              11.30
              
              
              11.15**Month
                  ended**December
                  31, 2004
              
              
              11.33
              
              
              11.11
              
              
              11.20
              
              
              11.15January
                  30, 2005
              
              
              11.41
              
              
              11.17
              
              
              11.26
              
              
              11.21February
                  28, 2005
              
              
              11.21
              
              
              11.04
              
              
              11.14
              
              
              11.09March
                  31, 2005
              
              
              11.33
              
              
              10.98
              
              
              11.16
              
              
              11.18April
                  30, 2005
              
              
              11.23
              
              
              11.04
              
              
              11.11
              
              
              11.08May
                  31, 2005
              
              
              11.03
              
              
              10.89
              
              
              10.98
              
              
              10.91June
                  15, 2005
              
              
              10.88
              
              
              10.81
              
              
              10.85
              
              
              10.83
 
 (1)
        The
        free market exchange rate is the Noon Buying Rate for Mexican Pesos, as reported
        by the Board of Governors of the U.S. Federal Reserve Bank of New
        York.
  (2)
        Annual average rates reflect the average of month end rates. Monthly average
        rates reflect the average of daily rates.
  4
 ***(c)***  ***Risk
        Factors***
  *For
        purposes of this section, when we state that a risk, uncertainty or problem
        may,
        could or would have an “adverse effect” on us, we mean that the risk,
        uncertainty or problem may, could or would have an adverse effect on our
        business, financial condition, liquidity, results of operations or prospects,
        except as otherwise indicated or as the context may otherwise
        require.*
  *The
        risks described below are intended to highlight risks that are specific to
        us,
        but are not the only risks that we face. Additional risks and uncertainties,
        including those generally affecting the industries in which we operate
        and the countries where we have a presence, risks that we currently
        deem
        immaterial or other unforeseeable risks, may also impair our
        business.*
  *The
        information in this annual report includes forward-looking statements that
        involve risks and uncertainties. Our actual results could differ materially
        from
        those anticipated in these forward-looking statements as a result of numerous
        factors, including, without limitation, those described in this section and
        under the sections entitled “Item 4. Information on the Company” and “Item
        5. Operating and Financial Review and Prospects” and elsewhere in this annual
        report. Please see “Forward-Looking Statements.”*
  **Risk
        Factors Relating to the Company**
  ***We
        Participate in a Competitive Market and Increased Competition May Adversely
        Affect Our Business.*** ** We face
        competition in the distribution of pharmaceuticals, health, beauty aids and
        consumer goods, publications, general merchandise, office and other products.
        In
        our Pharmaceutical Products business division, we face competition primarily
        from Mexico’s only other national distributor, Nacional de Drogas, S.A. de C.V.,
        or Nadro, and several regional distributors. In our Health, Beauty Aids and
        Consumer Goods, Publications and General Merchandise and Other Products and
        Office Products business divisions, we compete with many manufacturers,
        wholesalers and distributors that target the same markets that we do. Loss
        of
        existing or future market share to competitors may adversely affect our
        performance and, to the extent that one or more of our competitors becomes
        more
        successful than us with respect to any key competitive factor, our operating
        margins and profitability could be adversely affected.
  ***There
        are Differences in Corporate Disclosure and Accounting Standards for Mexican
        Companies and this May Cause Our Financial Statements to Differ in Certain
        Respects from U.S. Issuers*** **.** A
        principal objective of the securities laws of the United States, Mexico and
        other countries is to promote full and fair disclosure of all material corporate
        information. However, there may be less publicly available information about
        foreign issuers of securities listed in the United States than is regularly
        published by or about domestic issuers of listed securities. In addition,
        we
        prepare our financial statements in accordance with Mexican GAAP, which differs
        from U.S. GAAP and accounting procedures in certain significant respects.
        For
        example, most Mexican companies, including us, have incorporated the
        impact of inflation directly in accounting records and in their published
        financial statements. Thus, Mexican financial statements and reported earnings
        may differ from those of companies in other countries in this and other
        respects. Notes 15 and 16 to our audited annual financial statements describe
        the principal differences between Mexican GAAP and U.S. GAAP as they relate
        to
        us and provide reconciliation to U.S. GAAP of net income and total stockholders’
        equity.
  ***We
        Are Controlled by One Controlling Shareholder.*** Eighty-five percent of our outstanding Ordinary Shares are directly owned
        by one
        shareholder, our controlling shareholder. See “Item 7. Major Shareholders and
        Related Party Transactions—Principal Shareholders.” Our controlling shareholder
        controls our business and has the power to elect the majority of our Board
        of
        Directors, as well as to determine the outcome of all actions that require
        shareholder approval, including the determination to declare and pay dividends,
        in cash or otherwise.
  **Risk
        Factors Related to our Securities**
  ***Our
        Controlling Shareholder Has the Ability to Restrict the Payment and Amount
        of
        Dividends.*** By law,
        decisions regarding the payment and amount of dividends are subject to approval
        of our shareholders, generally, but not necessarily, on the recommendation
        of
        the Board of Directors. Our controlling shareholder owns 85% of our outstanding
        Ordinary Shares and, so long as he continues to own a majority of our
        outstanding shares, he will have
  
 5
 
 the
        ability to determine whether we will declare and pay dividends, in cash or
        otherwise. See “Item 3. Key Information—Dividends.”
  ***Preemptive
        Rights May Be Unavailable to Holders of Our ADSs. Under Mexican law, our
        shareholders have preemptive rights.*** This
        means that, in the event that we issue new Ordinary Shares for cash, our
        shareholders will have the right to purchase the number of Ordinary Shares
        necessary to maintain their existing share participation. U.S. holders of
        our
        ADSs cannot exercise their preemptive rights unless we register any newly
        issued
        Ordinary Shares under the Securities Act of 1933 or qualify for an exemption
        from registration. If U.S. holders of our ADSs cannot exercise their preemptive
        rights, the interests of these holders would be diluted in the event that
        we
        issue new Ordinary Shares for cash. We intend to evaluate at the time of
        any
        offering of preemptive rights the costs and potential liabilities associated
        with registering any additional Ordinary Shares under the Securities Act
        of
        1933. We cannot assure you that we will register any new Ordinary Shares
        that we
        issue for cash. In addition, although the deposit agreement provides that
        the
        Depositary may, after consulting with us, sell preemptive rights in Mexico
        or
        elsewhere outside the United States and distribute the proceeds to holders
        of
        ADSs, under current Mexican law, these sales are not possible.
  ***The
        Protections Afforded to Minority Shareholders in Mexico are Different From
        Those
        in the United States.*** Under
        Mexican law, the protections afforded to minority shareholders are different
        from those in the United States. In particular, the law concerning fiduciary
        duties of directors is not appropriately developed, there is no procedure
        for
        class actions or shareholder derivative action, and there are different
        procedural requirements for bringing shareholder lawsuits. As a result, in
        practice, it may be more difficult for our minority shareholders to enforce
        their rights against us or our directors or controlling shareholder than
        it
        would be for shareholders of a U.S. company. As of June 1, 2001, the *Ley
        del Mercado de Valores* ,
        or the
        Mexican Securities Market Law, was amended in order to heighten the protection
        given to minority shareholders and to bring corporate governance procedures
        of
        Mexican issuers up to international standards. We made amendments to our
        bylaws
        in April 2002 to reflect these changes to the Mexican Securities Market Law,
        but
        they may not be sufficient to protect minority shareholders. See “Item
        10. Additional Information—Amendments to the Mexican Securities Market
        Law.”
  ***You
        may be unable to enforce judgments against us.*** We
        are a
        corporation with variable capital ( *sociedad
        anónima de capital variable* )
        organized under the laws of Mexico. A majority of our assets and operations
        are
        located, and a majority of our revenues are derived from sources, outside
        the
        United States. All of our directors and officers reside outside of the United
        States and all or a significant portion of the assets of these persons and
        of
        our assets are located outside of the United States. As a result, it may
        not be
        possible for shareholders to effect service of process within the United
        States
        upon such persons or upon us, or to enforce against them or against us judgments
        by U.S. courts predicated upon the civil liability provisions of the
        U.S.
        federal securities laws or otherwise. As of this date, there is no effective
        treaty between the United States and Mexico for the reciprocal enforcement
        of
        judgments issued in the other country. Generally, Mexican courts would enforce
        final judgments rendered in the United States if certain requirements are
        met,
        including the review in Mexico of the U.S. judgment to ascertain compliance
        with
        certain basic principles of due process and the non-violation of Mexican
        law or
        public policy, provided that U.S. courts would grant reciprocal treatment
        to
        Mexican. judgments. Additionally, we have been advised by our Mexican counsel
        that there is doubt as to the enforceability, in original actions in Mexican
        courts, of liabilities predicated in whole or in part on U.S. federal securities
        laws and as to the enforceability in Mexican courts of judgments of U.S.
        courts
        obtained in actions predicated upon the civil liability provisions of U.S.
        federal securities laws.
  **Risk
        Factors Relating to Economic and Political Developments in
        Mexico**
  ***Economic
        and Political Developments in Mexico May Adversely Affect Our Business.*** Beginning
        in December 1994 and continuing through 1995, Mexico experienced an economic
        crisis characterized by a sharp devaluation of the Peso, high inflation,
        foreign
        currency exchange rate instability, high domestic interest rates, a strong
        contraction in consumer demand for many products and services, reduced
        availability of credit, high unemployment and diminished international investor
        confidence in Mexico. Mexico’s GDP, which grew at a real annual rate of 4.4%
        during 1994, declined by 6.2% in real terms during 1995.
  
 6
 
 In
        response to these developments, beginning in February 1995, the Mexican
        government implemented a variety of economic programs designed to promote
        economic recovery, stabilize foreign currency exchange rates and reduce
        inflation. Economic conditions in Mexico improved moderately in 1996 and
        1997.
        However, a combination of factors led to a slowdown in Mexico’s economic growth
        in 1998. Notably, the decline in the international price of oil resulted
        in a
        reduction of federal revenues, approximately one-third of which are derived
        from
        petroleum taxes and duties. In addition, the economic crises in Asia and
        Russia,
        as well as the financial turmoil in Brazil, Venezuela and elsewhere, produced
        greater volatility in the international financial markets, which further
        slowed
        Mexico’s economic growth. In 1998, the inflation rate in Mexico was 18.6%,
        interest rates on 28-day Mexican government treasury securities, which we
        refer
        to as “CETES,” averaged 24.7% and the Peso lost approximately 22.7% of its value
        relative to the U.S. Dollar.
  During
        1999 conditions improved with inflation in Mexico at 12.3%, interest rates
        on
        28-day CETES averaging 21.4% and the Peso appreciating approximately 4.2%
        in
        value relative to the U.S. Dollar. Throughout 2000, the improvement shown
        in
        1999 continued. In 2000 the inflation rate was 9.0%, interest rates on 28-day
        CETES averaged 15.3% and the Peso lost approximately 1.5% of its value relative
        to the U.S. Dollar. The Mexican government estimated that Mexico’s real GDP grew
        by 4.8% in 1998, 3.7% in 1999 and 6.6% in 2000.
  Beginning
        in January 2001, however, and increasing in the fourth quarter of 2001, amid
        concerns of a global economic slowdown and a recession in the United States,
        Mexico began to experience an economic slowdown marked by a decline in GDP.
        In
        2001, Mexico’s GDP shrank by 0.2% in real terms while the inflation rate was
        4.4%, interest rates on 28-day CETES averaged 11.3% and the Peso appreciated
        approximately 5.0% in value relative to the U.S. Dollar. During 2002 and
        2003,
        as the United States and global economic slowdown continued, the Mexican
        real
        GDP growth rate was 0.8% and 1.4% respectively, the annual inflation rate
        was
        5.7% and 4.0% respectively, interest rates on 28-day CETES averaged 7.1%
        and
        6.2% respectively, and the Peso lost approximately 13.7% and 7.8%, respectively,
        of its value relative to the U.S. Dollar. In 2004, several factors helped
        boost
        the Mexican economy including: the recuperation of the U.S. economy; higher
        revenues generated from petroleum sales and an increase in remittances. During
        this period, Mexico’s GDP grew 4.4%, which represents the highest level of
        growth achieved since the year 2000, while inflation reached 5.2% and the
        interest rates on 28-day CETES averaged 6.8%. In the first quarter of 2005,
        Mexico’s GDP grew 2.4% while inflation reached 0.8%.
  Although
        recent economic activity seems to be increasing in Mexico and the United
        States,
        the Mexican and the U.S. economies may not continue to grow at similar rates
        as
        they have done in the past, and the economic slowdown described above may
        continue and have a negative impact on our business and results of
        operations.
  We
        are a
        Mexican company and all of our business operations take place in Mexico.
        As a
        result, our business may be affected by the general condition of the Mexican
        economy. For each of the years ended on December 31, 2002, 2003 and 2004,
        approximately 99% of our consolidated net sales resulted from sales to parties
        located within Mexico. In the past, inflation has led to high interest rates
        and
        devaluations of the Peso. Inflation itself, as well as governmental efforts
        to
        reduce inflation, has had significant negative effects on the Mexican economy
        in
        general and on Mexican companies, including us. Inflation in Mexico decreases
        the real purchasing power of the Mexican population and the Mexican government’s
        efforts to control inflation by tightening the monetary supply have historically
        resulted in higher financing costs, as real interest rates have increased.
        Such
        policies have had and could in the future have an adverse effect on
        us.
  Future
        economic slowdowns or developments in or affecting Mexico could impair our
        business, results of operations, financial condition, prospects and ability
        to
        obtain financing.
  ***Devaluation
        of the Peso Against the U.S. Dollar Could Adversely Affect Our Financial
        Condition and Results of Operations.*** We are
        affected by fluctuations in the value of the Peso against the U.S. Dollar.
        In
        2002, and according to the Noon Buying Rate for Mexican Pesos, as reported
        by
        the Board of Governors of the U.S. Federal Reserve Bank of New York, the
        Peso
        depreciated by approximately 13.7% due to pressures from an international
        environment with volatility and geopolitical concerns. In 2003, the war in
        Iraq,
        the uncertainty regarding the recovery of the U.S. economy and few advances
        in
        the expected legal structural reforms in Mexico also adversely impacted the
        Peso, resulting in a devaluation against the U.S. dollar of approximately
        7.8%.
        In 2004, high oil prices, higher remittance levels and a recovery in the
        U.S.
        economy led to a slight appreciation of the Peso against
 
 7
 
 the
        U.S.
        dollar of 0.8%. Any future depreciation or devaluation of the Peso will likely
        result in price increases from our suppliers that would impact the purchasing
        capacity of the final consumers and lead to a reduction in our
        sales.
  Severe
        devaluation or depreciation of the Peso may also result in disruption of
        the
        international foreign exchange markets and may limit our ability to transfer
        or
        to convert Pesos into U.S. Dollars and other currencies for the purpose of
        obtaining imported goods. Devaluation or depreciation of the Peso against
        the
        U.S. Dollar may also adversely affect U.S. Dollar prices on our securities
        on
        the Mexican Stock Exchange, including the Ordinary Shares and, as a result,
        will
        likely affect the market price of the ADSs. Such fluctuations would also
        impact
        the conversion value of any cash dividends paid on the Ordinary Shares in
        Pesos,
        into U.S. Dollars in order to pay such dividend to the holders of our
        ADSs.
  ***High
        Levels of Inflation and High Interest Rates in Mexico Could Adversely Affect
        Our
        Financial Condition and Results of Operations.*** In
        recent years, Mexico has experienced high levels of inflation. The annual
        rate
        of inflation, as measured by changes in the NCPI, was 5.7% for 2002, 4.0%
        for
        2003, 5.2% for 2004 and 0.8% during the first quarter of 2005. High inflation
        rates can adversely affect our business and our results of operations in
        the
        following ways:
  ·
              inflation
                  can adversely affect consumer purchasing power, thereby adversely
                  affecting consumer demand for the products we distribute;
                  and
  ·
              to
                  the extent inflation exceeds price increases, our prices and revenues
                  will
                  be adversely affected in “real”
                  terms.
  Mexico
        also has, and could continue to have, high real and nominal interest rates.
        The
        interest rates on 28-day Mexican government treasury securities averaged
        approximately 7.1%, 6.2% and 6.8% for 2002, 2003 and 2004,
        respectively, and 9.1% for the first quarter of 2005. Accordingly,
        if we
        need to incur Peso-denominated debt in the future, it could be at high interest
        rates.
  ***The
        political situation in Mexico could negatively affect our operating
        results.*** Mexico
        has experienced political changes in recent years. This instability affects
        Mexico’s business and investment climate as well as the performance of Mexican
        securities, including our securities. As a Mexican company with substantially
        all of our assets and operations in Mexico, the political environment in
        Mexico
        has a significant impact on our financial condition and results of
        operations.
  In
        July
        2000, presidential and congressional elections took place, and Vicente Fox
        Quesada, a member of the National Action Party ( *Partido
        Acción Nacional* )
        was
        elected President. His victory ended more than 70 years of presidential rule
        by
        the Partido Revolucionano Institucional. President Fox assumed office on
        December 1, 2000. While the transition from the previous administration
        was
        smooth, President Fox has faced many economic and political challenges derived
        mainly from the large opposition in Congress as well as by the constant
        political struggles among the main political parties who have failed to approve
        important reforms. In July 2003, congressional elections took place in Mexico
        and President Fox continued to face large opposition in Congress. This
        legislative gridlock has slowed the progress of key legal reforms that the
        Fox
        administration is promoting, which could have an adverse effect on us, including
        our business, financial condition and results of operations. In 2004, in
        general, the political situation remained largely the same, with the differences
        between the Legislative and Executive branches continuing to obstruct reforms.
        In addition, the lead-up to the 2006 presidential election has also begun
        to
        distract attention from much needed structural reforms. Therefore, it is
        possible that political uncertainty in Mexico may adversely affect financial
        markets or the performance of Mexican securities, including our securities.
  ***If
        foreign currency exchange controls and restrictions are imposed, investors
        would
        be exposed to foreign currency exchange risk.*** In the
        past, the Mexican economy has experienced balance of payments deficits,
        shortages in foreign currency reserves and other issues that have affected
        the
        availability of foreign currencies in Mexico. The Mexican government does
        not
        currently restrict or regulate the ability of persons or entities to convert
        Pesos into U.S. Dollars. However, it has done so in the past and could do
        so
        again in the future. We cannot assure you that the Mexican government will
        not
        institute a restrictive foreign currency exchange control policy in the future.
        Any such restrictive foreign currency exchange control policy could
        (i) affect the ability of the depositary of our ADSs to convert dividends,
        which are payable in Pesos, into U.S. Dollars for purposes of making
        distributions to the holders of our ADSs, (ii) prevent or restrict
        access
        to U.S. Dollars, (iii) should we incur any U.S. Dollar-
  
 8
 
 denominated
        debt in the future, affect our ability to service such debt and (iv) have
        an adverse effect on our business and financial condition.
  ***Developments
        in other emerging market countries may adversely affect our business or the
        market price of our securities.*** The
        market price of securities of Mexican companies is, to varying degrees, affected
        by economic and market conditions in other emerging market countries. Although
        economic conditions in such countries may differ significantly from economic
        conditions in Mexico, investors’ reactions to developments in such countries may
        have an adverse effect on the market price of securities of Mexican companies,
        including ours. In late October of 1997, prices of Mexican securities dropped
        substantially, precipitated by a sharp drop in the price of securities traded
        in
        the Asian markets. Similarly, prices of Mexican securities were adversely
        affected by the economic crises in Russia and Brazil in the second half of
        1998
        and, to a lesser extent, the economic crisis in Argentina in 2002. There
        can be
        no assurance that the market price of our securities will not be adversely
        affected by future events elsewhere, especially in other emerging markets
        countries.
  **Risk
        Factors Relating to Regulations in Mexico to which our Business is
        Subject**
  ***Mexican
        Antitrust Law and Regulations May Affect Our Ability to do
        Business.*** Mexico’s
        federal antitrust law, or *Ley
        Federal de Competencia Económica* ,
        and its
        regulations, or *Reglamento
        de la Ley Federal de Competencia Económica* ,
        may
        affect some of our activities. In particular, these laws and regulations
        may
        adversely affect our ability to acquire and sell businesses, or to enter
        into
        joint ventures with competitors due to our market share in some of the
        industries in which we operate and the reduced number of participants
        in
        those markets.
  ***Our
        Ability to Increase the Prices of Some Products is Regulated by the Mexican
        Government.*** Our
        historical operating performance has been significantly affected by the Mexican
        government’s control on prices in the pharmaceutical sector. Prices of
        pharmaceuticals continue to be subject to approval by the Mexican government.
        As
        a result, our suppliers, and in turn, we may not be able to increase
        pharmaceutical prices at or above the rate of inflation, which would
        substantially limit the growth of our pharmaceutical-related revenues. Since
        1990, the Mexican government has deregulated pharmaceutical prices to some
        extent, and prices have increased in the Mexican pharmaceutical market as
        a
        result of this deregulation. However, we cannot assure you that the Mexican
        government will continue to deregulate pharmaceutical prices, or if so, that
        our
        ability to increase prices will continue, or result in, the improvement of
        our
        operating performance.
  ***Any
        Value-Added Tax Imposed on Prescription Drugs May Adversely Affect Our Business,
        Financial Condition and Results of Operations.*** Unlike
        the HBA/other products, entertainment products, general merchandise and other
        products and office products we distribute, the prescription drugs we distribute
        are not currently subject to a 15% value-added tax. In April 2001, a proposal
        was filed with the Mexican Congress, requesting a substantial amendment to
        Mexican tax laws. One of the reforms contemplated by this proposal was an
        increase in the value-added tax for prescription drugs from 0% to 15%. Although
        that bill was not passed by the Mexican Congress, the current Government
        has
        continued to file similar proposals. If prescription drugs become subject
        to a
        value-added tax in excess of the currently applicable 0% rate, the prices
        paid
        by consumers for prescription drugs would likely increase by the percentage
        amount of the value-added tax rate. While any price increases resulting from
        the
        imposition of a higher value-added tax would be non-recurring, we still believe
        that these price increases would adversely impact consumer demand for these
        products and result in a decrease in related revenues. To the extent any
        of
        these price increases adversely impact revenues related to prescription drugs,
        our business, financial condition and results of operations could be adversely
        affected. We cannot assure you that the proposal containing this request
        or
        other similar proposals will not be filed again with the Mexican Congress
        and,
        if such proposal were enacted into law, will not adversely affect our business,
        financial condition or results of operations.
  **Item
        4.**  **Information
        on the Company**
  **History
        and Development of the Company**
  Grupo
        Casa Saba, S.A. de C.V. is a *sociedad
        anónima de capital variable* ,
        or
        stock corporation with variable capital, which was organized under the laws
        of
        the United Mexican States on November 16, 1982. Our deed of incorporation
        was registered with the Public Registry of Commerce in Mexico City on January
        10, 1983 under Commercial Folio Number 55,635. Pursuant to the terms of our *estatutos
        sociales* ,
        or
        bylaws, our corporate existence shall continue until 2099. Our principal
        executive offices are located at Paseo de la Reforma, No. 215,
  
 9
 
 Colonia
        Lomas de Chapultepec, C.P. 11000, D.F., Mexico. Our telephone number at that
        address is (52 55) 5284-6600. Grupo Casa Saba’s authorized representative in the
        United States is Puglisi & Associates and is located at 850 Library Avenue,
        Suite 204, P.O. Box 885, Newark, Delaware 19714, (302) 738-6680.
  Grupo
        Casa Saba was founded as a pharmacy in 1892, and is currently one of the
        leading
        multi-channel, multi-product national wholesale distributors in Mexico,
        operating through one of Mexico’s largest nationwide distribution networks of
        its type. We distribute pharmaceutical products, health, beauty aids and
        consumer goods, general merchandise, publications, office and other products.
        The majority of these products are distributed by us on a non-exclusive basis.
        With over 110 years of experience, we serve the majority of Mexico’s pharmacies,
        mass merchandisers, retail and convenience stores, supermarkets and other
        specialized channels nationwide.
  On
        February 1, 2000, Xtra Inmuebles, S.A. de C.V., or Xtra Inmuebles,
        an
        entity beneficially owned and controlled by our controlling shareholder,
        acquired 225,606,457 of our Ordinary Shares on the Mexican Stock Exchange
        through a tender offer. Immediately thereafter, all of these Ordinary Shares
        were acquired from Xtra Inmuebles by our controlling shareholder.
  Following
        the completion of our financial restructuring and the tender offer, our
        controlling shareholder, by means of a shareholder vote, amended our bylaws,
        replaced our incumbent Board of Directors with nine of his appointees, elected
        a
        new management, including a new Chief Executive Officer and Chief Financial
        Officer, among others, and changed the corporate name of our company from
        Grupo
        Casa Autrey, S.A. de C.V. to Grupo Casa Saba, S.A. de C.V. For a description
        of
        our financial restructuring and subsequent refinancing of our restructured
        indebtedness, see “Item 5. Operating and Financial Review and Prospects
        -Indebtedness.” For a description of our controlling shareholder and his current
        ownership stake in our company, see “Item 7. Major Shareholders and Related
        Party Transactions -Principal Shareholders”.
  We
        refinanced our restructured indebtedness in December 2000 through a term
        loan
        facility from Banco Nacional de Mexico, S.A. or Banamex, and further refinanced
        this indebtedness in June 2001 through a term loan facility with Scotiabank
        Inverlat, S.A., Institución de Banca Múltiple, Grupo Financiero Scotiabank
        Inverlat, or Scotiabank Inverlat. On August 18, 2003, with resources from
        our
        operations, we repaid the outstanding amounts under the long term loan facility
        with Scotiabank Inverlat established in June 2001. In 2004, with resources
        from
        our operations, we repaid our short-term loan facilities to end the year
        with a
        net debt of Ps. 481 million. See “Item 5. Operating and Financial Review and
        Prospects—Indebtedness” and Note 8 to our audited consolidated financial
        statements.
  Our
        consolidated net sales for the year ended on December 31, 2004 totaled Ps.
        20,567.0 million. As of December 31, 2004, our total assets were Ps. 9,126.8
        million. We have 22 distribution centers in Mexico. In 2004, 99% of our
        consolidated net sales were made in Mexico.
  Our
        operations are currently organized into four operating business divisions:
        the
        Private Pharmaceutical Products business division, which we refer to as “Private
        Pharma,” (83.6% of our total net sales in 2004); the Government Pharmaceutical
        business division, which we refer to as “Government Pharma” (3.0% of our total
        net sales in 2004); the Health, Beauty Aids, Consumer Goods, General Merchandise
        and Other Products business division, which we refer to as “HBCG/Other Products”
        business division (9.9% of our total net sales in 2004); and the Publications
        business division (3.5% of our consolidated net sales in 2004).
  **Organizational
        Structure**
  The
        following table sets forth our significant subsidiaries and our direct or
        indirect percentage equity ownership in such subsidiaries as of May 31,
        2005:
  **Name
                  of Subsidiary****(1)**
              **Jurisdiction
                  of Incorporation**
              **Percentage
                  Ownership****(2)**Casa
                  Saba, S.A. de C.V.(3)
              Mexico
              99.9%Drogueros,
                  S.A. de C.V.(4)
              Mexico
              99.9%Grupo
                  Mexatar, S.A. de C.V.(5)
              Mexico
              99.9%Centennial,
                  S.A. de C.V.(6)
              Mexico
              99.9%Inmuebles
                  Visosil, S.A. de C.V.(7)
              Mexico
              99.9%Publicaciones
                  CITEM, S.A. de C.V.(8)
              Mexico
              99.9%
   
 10
  
 
 Transportes
                  Marproa, S.A. de C.V.(9)
              Mexico
              99.9%Servicios
                  Corporativos Saba, S.A. de C.V.(10)
              Mexico
              99.9%Distribuidora
                  Casa Saba, S.A. de C.V.(11)
              Mexico
              99.9%Other
                  companies(12)
              Mexico
              99.9%
 ____________________
 
 (1)
              With
                  the exception of Casa Saba, S.A. de C.V., none of our operating
                  subsidiaries is a “significant subsidiary” within the meaning of Rule
                  1-02(w) of Regulation S-X of the Securities Act of
                  1933.
  (2)
              Percentage
                  of equity owned by us directly or indirectly through subsidiaries
                  or
                  affiliates.
  (3)
              Direct
                  subsidiary through which we distribute pharmaceutical products
                  to private
                  and government clients.
  (4)
              Indirect
                  subsidiary through which we distribute pharmaceutical products
                  to private
                  and government clients.
  (5)
              Indirect
                  subsidiary through which we distribute office and electronic products,
                  including keyboards, audio and television equipment and related
                  accessories.
  (6)
              Indirect
                  subsidiary through which we distribute general merchandise and
                  other
                  products.
  (7)
              Indirect
                  subsidiary through which we lease real property to our other subsidiaries.
                  Inmuebles Visosil, S.A. de C.V. owns substantially all of the capital
                  stock of Drogueros, S.A. de C.V., another indirect subsidiary of
                  Grupo
                  Casa Saba.
  (8)
              Direct
                  subsidiary through which we distribute
                  publications.
  (9)
              Direct
                  subsidiary through which we deliver products to our distribution
                  centers
                  throughout Mexico. We place centralized purchase orders for all
                  of our
                  distribution centers directly with suppliers, who deliver these
                  centralized purchase orders to Transportes Marproa, S.A. de C.V.,
                  or
                  Marproa. Marproa then distributes customized orders to each of
                  our 22
                  distribution centers throughout Mexico. Marproa also provides freight
                  services to third parties at market
                  rates.
  (10)
              Indirect
                  subsidiary that provides administrative, legal, accounting, tax
                  planning,
                  financial counseling and other professional services to Casa Saba,
                  S.A. de
                  C.V.
  (11)
              Direct
                  subsidiary that provides logistical and transportation services
                  to Casa
                  Saba, S.A. de C.V.
  (12)
              Real
                  estate and Service companies
  
 **Capital
        Expenditures**
  The
        table
        below sets forth our capital expenditures, investments and acquisitions for
        the
        years ended December 31, 2002, 2003 and 2004. Our capital expenditure
        program is focused on new investments in vehicles for our distribution fleet
        and
        technology and computer equipment. For a discussion of how we funded our
        capital
        expenditures, investments and acquisitions in 2004, as well as a more detailed
        description of our capital expenditures, investments and acquisitions, see
“Item
        5. Operating and Financial Review and Prospects—Liquidity and Capital
        Resources—Overview” and “—Capital Expenditures.”
   **Year
                  ended December 31**,**2002**
              
              **2003**
              
              **2004****(Millions
                  of constant Pesos as of December 31, 2004)**Distribution
                  fleet
              
              Ps
              32.8
              
              Ps
              35.6
              
              Ps.
              35.7Technology
                  and
                  computer
                equipment
              
              
              2.8
              
              
              20.7
              
              
              9.6Acquisitions
              
              
              0.0
              
              
              0.0
              
              
              0.0Other
                  general capital
                expenditures
              
              
              0.0
              
              
              0.7
              
              
              1.0**Total
                  capital expenditures**
              
              Ps
              35.6
              
              Ps
              57.0
              
              Ps.
              46.3
 
 We
        expect
        that, in 2005, our main capital expenditures will be related to the continued
        improvements to our distribution fleet, technology and computer equipment,
        logistics and the reengineering of our routes and processes.
  
 11
 
 As
        in
        prior years, we expect to fund the capital expenditures listed above with
        a
        combination of internally generated funds and bank loans.
   **Business
        Overview**
  Grupo
        Casa Saba was founded as a pharmacy in 1892, and is currently one of the
        leading
        multi-channel, multi-product national wholesale distributors in Mexico,
        operating through one of Mexico’s largest distribution networks of its type. We
        distribute pharmaceutical products, health, beauty aids and consumer goods,
        publications, general merchandise, office and other products. We distribute
        the
        majority of these products on a non-exclusive basis. With over 110 years
        of
        experience, we supply the majority of Mexico’s pharmacies, mass merchandisers,
        retail and convenience stores, supermarkets and other specialized channels
        nationwide.
  We
        currently distribute over 15,500 different products, including
        approximately:
  q
              5,300
                  pharmaceutical products;
  q
              3,800
                  health and beauty products;
  q
              890
                  general merchandise and other products, such as food, toiletries
                  and
                  electronics; and
  q
              5,900
                  publications.
  We
        distribute these products throughout Mexico through our nationwide distribution
        network, to clients in the following segments:
  q
              more
                  than 18,000 pharmacies owned by private
                  individuals;
  q
              approximately
                  3,000 privately-owned pharmacy chains and over 628 government
                  pharmacies;
  q
              approximately
                  1,900 regional and national supermarkets;
  q
              approximately
                  740 magazine stores, 200 racks and 170 nationwide
                  agents;
  q
              over
                  70 department stores; and
  q
              approximately
                  200 major wholesalers and 1,200 convenience
                  stores.
  Our
        core
        business is the wholesale distribution of pharmaceutical products. The following
        table shows our sales by business division, as a percentage of net sales
        for the
        last three years:
  **Year
                    Ended December 31,****2002**
                
                **2003**
                
                **2004**Private
                    Pharmaceuticals(1)
                
                
                81.4%
                
                
                83.5%
                
                
                83.6%Government
                    Pharmaceuticals
                
                
                4.0%
                
                
                2.7%
                
                
                3.0%HBCG/Other
                    Products
                
                
                10.7%
                
                
                10.5%
                
                
                9.9%Publications
                
                
                3.9%
                
                
                3.3%
                
                
                3.5%Total
                
                
                100.0%
                
                
                100.0%
                
                
                100.0%
  ____________________
 (1)  For
            a
            brief description of the types of products included within the term
“pharmaceutical products” for purposes of this annual report, as well as a
            discussion of the differences between the pharmaceutical markets in Mexico
            and
            the United States, see “—Pharmaceutical Industry,” below in this
            item.
 We
        seek
        to distribute pharmaceutical products on a “full-line/full-service” basis. We
        distribute a wide array of pharmaceutical and other products of the kinds
        listed
        above, as well as provide our clients with a range of
  
 12
 
 value-added
        services, including multiple daily deliveries and emergency product replacement
        services. In our HBCG/Other Products business division we distribute certain
        product on an exclusive basis while also providing our clients with specialized
        value-added services on a product-by-product basis, including merchandising,
        marketing support and other customer counseling services.
  We
        purchase the products we distribute from a wide variety of suppliers, the
        majority of which are located in Mexico. We place purchase orders on an ongoing
        basis, negotiating quantity and price periodically rather than committing
        to
        contractual terms. In our distribution of pharmaceutical products, we generally
        are not a “demand creator,” since we do not advertise products or suggest or
        provide substitute products for those ordered.
  Our
        principal strengths are our nationwide distribution network, through which
        we
        are able to deliver products within 12 to 24 hours from the time of order,
        our
        state-of-the-art technology, our commitment to customer service and our
        well-trained and experienced personnel. In addition, as a result of our
        continued use of new technologies since the early 1990s, we have increased
        our
        operating efficiency and distribution capacity.
  Mexico’s
        vast and mountainous terrain and old road network connecting small towns
        present
        a difficult environment for distribution. This is further complicated in
        Mexico
        City and the surrounding areas by traffic congestion. We believe that we
        will
        continue to overcome these constraints with our strategically located
        distribution centers near Mexico’s major population centers.
  As
        of
        December 31, 2004, we distributed products to our clients nationwide through
        a
        distribution network consisting of 22 distribution centers, representing
        over
        110,000 square meters of warehouse space. Using a fleet of over 900 vans,
        trucks
        and cars, we filled more than 5 million orders in 2004, averaging more than
        400,000 orders per month. For a list of our distribution centers and their
        locations, see “—Property, Plant and Equipment,” below in this
        item.
   **Business
        Strategy**
  Since
        the
        acquisition of our company in February 2000, we have been operating under
        the
        direction of our current management. See “Item 4. Information on the
        Company 3⁄4 History
        and Development of the Company”. Under the direction of our current management,
        we are focused on enhancing the value of Grupo Casa Saba by:
  ·
              Focusing
                  our efforts on improving our profitability levels and operating
                  profit
                  generation, including by conducting ongoing analysis and evaluation
                  of the
                  profitability of each client and each distribution route and commercial
                  terms with the suppliers;
  ·
              Paying
                  off our cost-bearing liabilities in
                  full;
  ·
              Maintaining
                  state-of-the-art technology in all of our subsidiaries, as well
                  as a
                  renovating our transportation
                  fleet;
  ·
              Capitalizing
                  on our favorable capital structure;
                  and
  ·
              Complementing
                  our existing businesses through our Internet
                  solutions.
   As
        a
        result of these measures, as of December 31, 2004, we had:
  ·
              increased
                  our operating profit margin from 3.78% in 2003 to 3.88%;
  ·
              canceled,
                  created and reduced some of the distribution routes to increase
                  their
                  profitability;
  ·
              reviewed,
                  and in some cases changed, the commercial terms of several of our
                  clients
                  and supplier. In certain instances, we stopped distributing product
                  lines
                  for some suppliers;
    13
  ·
              paid
                  off in full our cost-bearing liabilities with resources generated
                  from our
                  operations. In addition, we ended the year with cash in the amount
                  of Ps.
                  481 million;
  ·
              continued
                  to renew and update our transportation fleet and to enhance a
                  state-of-the-art distribution network for the warehousing and delivery
                  of
                  our various products;
  ·
              maintained
                  a strong financial position, which allowed us the opportunity to
                  negotiate
                  better terms with suppliers; and
  ·
              continued
                  to develop technologies to improve the efficiency of our operations
                  and
                  better serve our clients.
  During
        2004 our operations were based on strict cost and expense controls that sought
        a
        more efficient and profitable distribution network. For 2005 we expect to
        continue operating under a similar scheme pursuing an increase in our client
        base, net sales and profitability levels.
  ***Focus
        Efforts on Improving Profitability Levels and Operating Profit
        Generation***
  In
        2004,
        we began implementing our new profitability focused strategy, involving the
        ongoing review and negotiation of commercial terms with our suppliers and
        clients to obtain better profitability levels.  After reviewing and
        modifying the commercial terms for both suppliers and clients, we improved
        our
        gross margin, from 9.94% in 2003 to 10.29% in 2004. We also continued to
        operate
        under very strict cost control measures in order to reduce expenses. We
        continued to make efforts to control expenses related to gas and gasoline,
        our
        distribution process and the operation of all of our warehouses. Our cost
        control measures were offset by the increase in expenses of 4.23%, primarily
        due
        to the increase in wages and salaries, which represents a significant portion
        of
        our expenses. The increase in the gross margin offset the increase in our
        expenses as a percentage of sales, which enabled us to increase our operating
        profit margin from 3.78% in 2003 to 3.88% in 2004.
  **Paying
        off our Cost-Bearing Liabilities in Full**
  The
        Company’s ability to generate cash allowed us to pay off our short-term
        cost-bearing liabilities by the end of 2004. Our long-term debt was fully
        repaid
        in 2003. By the end of 2004, the Group had no cost-bearing
        liabilities.
  ***Maintaining
        State-of-the-Art Technology in All of our Subsidiaries as well as the Renovation
        of our Transportation Fleet***
  We
        continued investing in IT systems in 2004, including software and hardware,
        in
        order to maintain our use of state-of-the art technology in our warehouses
        and
        distribution operations.
  In
        terms
        of our transportation fleet, we maintained our policy of renewing vans that
        are
        over four years old and trucks whose maintenance regimen is more expensive
        than
        the renewal of these vehicles.
  ***Capitalize
        on Our Favorable Capital Structure***
  We
        believe that a stronger financial position has improved our ability to take
        advantage of commercial opportunities as well as to focus our efforts on
        finding
        ways to increase our net sales and further develop our core pharmaceutical
        business. It has also allowed us to reduce our interest expense, to prepay
        our
        outstanding long-term debt, and to pay dividends. We intend to preserve our
        improved financial position and capitalize on our flexibility to implement
        measures to increase our net sales and to support our growth strategy, as
        well
        as to allow us to react quickly to market opportunities.
  ***Continue
        to Use the Internet to Complement Our Existing
        Business***
  We
        continued to use an online distribution and information website, *www.farmaservicios.com* ,
        which
        we currently make available to our clients free of charge. Clients that log
        on
        to *www.farmaservicios.com* are
        able
        to communicate and/or negotiate the terms of their distributorship arrangements
        directly with us, as well as place and track their orders and shipments,
        on-line. In addition, these clients have access to a wide range of additional
  
 14
 
 services,
        including news and industry information, free e-mail, business advice and
        a
        variety of special promotions. We believe that *www.farmaservicios.com* is
        a
        value-added service that provides our clients with a quicker and more convenient
        way to link their demand to our inventory and place and track their orders
        unlike other traditional distribution channels. See “— Information Technology
        Systems” below in this item. We will continue with our efforts to develop
        internet-based solutions for our clients and suppliers, as we believe it
        allows
        us to provide a value-added service that complements our existing
        business.
  **Operations**
  Our
        operations are currently organized into four operating business divisions:
        the
        Private Pharma business division, the Government Pharma business division,
        the
        HBCG/Other Products Division and the Publications business division. Please
        see
“Item 5. Operating and Financial Review and Prospects—Results of Operations” and
        Note 13 of our financial statements included elsewhere in this annual report
        for
        a breakdown of our consolidated net sales by business division for the three
        year period ended on December 31, 2004.
  
 **Private
        and Government Pharma Business Divisions**
  ***Pharmaceutical
        Industry Overview***
  In
        Mexico, pharmaceuticals are available to the public through both private
        and
        government distribution channels. The Mexican government plays a significant
        role in the market for pharmaceuticals. In Mexico, pharmaceutical products
        consist of prescription pharmaceutical products that may be sold only in
        licensed pharmacies and “over-the-counter” pharmaceuticals that may be sold
        without a prescription in licensed pharmacies. For purposes of this annual
        report, prescription pharmaceutical products include “over-the-counter”
        pharmaceuticals.
  The
        Secretaría de Salud, or the Mexican Ministry of Health, oversees the provision
        of public health care through hospitals in Mexico, pharmacies and clinics
        operated by various governmental agencies and state-owned institutions.
        Distribution of pharmaceuticals within the public sector is largely undertaken
        by each governmental agency through direct purchases from manufacturers during
        yearly bidding programs based primarily on price.
  Based
        on
        information from IMS Health, A.G. and our internal data, we estimate that
        approximately 90% of private sector pharmaceutical sales are placed through
        wholesalers, which in turn sell primarily to retail pharmacies. The remaining
        10% of private sector pharmaceutical sales are placed directly by manufacturers
        to a few large pharmaceutical retail chains that purchase sufficiently large
        volumes to have direct access to the laboratories. Most manufacturers have
        adopted a “wholesaler only” policy because it is the most cost-efficient method
        of distributing their products. Nearly all of the individual pharmaceutical
        purchases take place at retail pharmacies and are either paid for by individuals
        or through private health insurance. The following table shows annual sales
        and
        average unit prices in U.S. Dollars and growth rates for the private sector
        of
        the Mexican pharmaceutical market:
  **Year
                  Ended December 31,**(1)**2002**
              
              
              **2003**
              
              
              **2004**Sales
                  in
                  millions(2)
              
              
              U.S.$6,768.3
              
              
              U.S.$7,061.7
              
              
              U.S.$7,721.3Sales
                  in millions of units(3)
              
              
              988.0
              
              
              1,005.0
              
              
              972.6Average
                  unit price
              
              
              U.S.$6.85
              
              
              U.S.$7.03
              
              
              U.S.$7.94Growth
                  in average unit price
              
              
              -1.7
              %
              
              2.6
              %
              
              12.9
              %
 ____________________
 
 (1)
              Statistics
                  based on information made publicly available by IMS Health, A.G.
                  for
                  private sector data and our estimates.
  (2)
              Revenues
                  based on prices charged by wholesalers to retailers.
  
 15
 
 (3)
              In
                  Mexico, pharmaceutical products are distributed in pre-packaged
                  doses or
                  units, which may vary in size from year to year.
  ***Industry
        Prices***
  As
        a
        result of government regulation, Mexican pharmaceutical prices are lower
        than in
        other countries such as the United States. We believe that price increases
        of
        pharmaceutical and over-the-counter products in Mexico continue to represent
        an
        area of possible future revenue growth for us. Prior to 1990, the Mexican
        government determined pharmaceutical prices and did not increase pharmaceutical
        prices at the rate of inflation, thereby limiting the growth of our revenues
        from the distribution of these products. As of 1990, the Mexican government,
        acting through the *Secretaría
        de Comercio y Fomento Industrial* ,
        or
        Ministry of Commerce and Industrial Promotion, now known as the *Secretaría
        de Economía* ,
        or
        Ministry of Economy, and the *Cámara
        Nacional de la Industria Farmacéutica* ,
        or
        National Chamber of the Pharmaceutical Industry, known as *Canifarma* ,
        entered
        into a series of agreements to deregulate the prices of domestically
        manufactured pharmaceutical products, which constitute most of the
        pharmaceutical products we sell. In order to obtain the benefits of these
        agreements, many Mexican pharmaceutical manufacturers have agreed with Canifarma
        to continue submitting price increase proposals for approval by the Ministry
        of
        Economy. Under current practice, any manufacturer seeking a price increase
        must
        file a request before the Ministry of Economy, outlining the reasons for
        the
        price increase. The most important factors considered by the Ministry of
        Economy
        are the minimum wage increase, the inflation rate, the exchange rate and
        the
        amount of foreign direct investment that the manufacturer commits to its
        Mexican
        facilities. If the Ministry of Economy does not respond within 30 days, the
        increase is automatically granted. *Canifarma* and the
        Ministry of Economy continuously engage in negotiations regarding the level
        of
        price increases for individual products and for the pharmaceutical sector
        as a
        whole. In the case of new pharmaceutical products, the manufacturer is required
        to file a request for a price increase before the Ministry of Economy, which
        outlines the price for the new product and the rationale behind the chosen
        price. Since 1990, prices have increased above the rate of inflation. However,
        in 2002 the price per unit decreased by 1.7% “in dollar terms” compared with
        2001, reflecting in part the devaluation of approximately 13.7% that the
        Peso
        suffered in 2002. In 2003, the average price per unit increased 2.6% “in dollar
        terms” versus 2002, affected by the 5.7% devaluation of the Peso and the low GDP
        growth rate of 1.3% posted by the Mexican economy. In 2004, the 11.8% growth
        in
        average unit price was largely due to the slight 0.8% appreciation of the
        Peso
        versus the U.S. Dollar as well as the 3.2% decrease in the number of units
        sold
        in the market. The devaluation of the Peso may affect our ability to increase
        the prices of some of our products. See “Item 3. Key Information—Risk
        Factors—Risk Factors Relating to Political and Economic Developments in
        Mexico.”
  The
        government institutions that purchase products from us include:
 ·
                ISSSTE
                    - The Instituto de Seguridad y Servicios Sociales para los Trabajadores
                    del Estado, the health and social security institution for Mexican
                    federal
                    government employees;
  ·
              *PEMEX*-
                  The hospitals and pharmacies of Petróleos Mexicanos, the Mexican national
                  oil company. Our sales to PEMEX in 2000 accounted for 4.8% of our
                  total
                  net sales and we had 100% of the PEMEX contracts. Due to new conditions
                  on
                  our PEMEX contract, sales to PEMEX during 2001 accounted for 3.5%
                  of our
                  total net sales and we were awarded with approximately 60% of the
                  total
                  PEMEX contracts to serve different hospitals in four specific regions
                  of
                  Mexico. During 2002, sales to PEMEX represented approximately 4.0%
                  of our
                  total sales, 19.40% higher than in 2001. In 2003, mainly due to
                  a lower
                  participation in contracts with PEMEX, sales in our Government
                  Pharma
                  Division decreased 29.2% with respect to 2002. Our lower participation
                  in
                  PEMEX contracts reflects changes in the terms and conditions of
                  the
                  contracts, including changes in the type of products and prices
                  included
                  compared to previous years. In 2004, we were able to increase our
                  participation in various governmental institutions including PEMEX.
                  As a
                  result, Government Pharma sales increased 10.1%, and the participation
                  of
                  this division to the Group’s total net sales reached 3.0%. We cannot
                  assume that we will be awarded contracts with PEMEX similar to
                  those we
                  have had in previous years; and
  ·
              *IMSS*-
                  The hospitals and pharmacies of the*Instituto
                  Mexicano del Seguro Social*,
                  the health and social security institution for Mexican employees
                  of
                  private companies.
  
 16
 
 ***Private
        Sector Pharmaceutical Distribution (Private Pharma)***
  Our
        customers in the private sector consist primarily of over 18,000 privately
        owned
        pharmacies, as well as national and regional pharmaceutical and supermarket
        chains (comprising approximately 4,900 stores) and the pharmacies associated
        with private hospitals. We were the first nationwide wholesale distributor
        of
        pharmaceuticals to enter the private sector market in Mexico, and since the
        1960s we have been one of only two wholesalers providing national coverage.
        We
        believe that our coverage of customers is one of the highest in the industry
        and
        that we cater to a majority of retailers nationwide.
  According
        to IMS Health, A.G. and our estimates, in 2002, 2003 and 2004, Grupo Casa
        Saba
        and Nadro, Mexico’s only other nationwide pharmaceutical distributor, together
        accounted for over 54% of prescription and over-the-counter pharmaceutical
        sales
        through private sector wholesale pharmaceutical channels in Mexico (this
        figure
        does not include the sale of similar and generic products). Mexico has adopted
        individual dosage packaging where pharmaceuticals are distributed in
        pre-packaged dosages rather than in bulk. Retail customers demand a rapid
        and
        continuous supply of pharmaceutical products. As a result, inventory turnover
        is
        quite high. Consequently, shortages and stock-outs are common and pharmacies
        are
        forced to rely on multiple suppliers. We have sought to overcome these market
        constraints by maintaining a superior distribution network. Through more
        than
        110 years of experience, we have developed sophisticated transportation and
        inventory logistics, which enable us to distribute our products between 12
        and
        24 hours from the time of order nationwide. We believe that we are able to
        fill
        the highest rate of orders in the industry , and plan to maintain a
        state-of-the-art distribution network to continue to improve our distribution
        capabilities.
  ***Public
        Sector Pharmaceutical Distribution (Government
        Pharma)***
  Since
        the
        Mexican government generally buys directly from manufacturers through IMSS
        and
        ISSSTE, it is able to buy at prices that are substantially lower than those
        for
        private entities. Our sales to IMSS, ISSSTE and PEMEX are not in bulk and,
        therefore, are not at bulk prices. Instead, we deliver pharmaceutical products
        to ISSSTE Tiendas, the supermarket pharmacies operated by ISSSTE, at prices
        comparable to those prices we charge our large private sector customers.
        We are
        able to sell our pharmaceutical products to approximately 260 ISSSTE Tiendas
        at
        private sector prices because we can provide them with additional services
        and
        increased efficiency. Since our sales to ISSSTE Tiendas are not through the
        usual public sector channels, we classify them as private sector sales. Sales
        to
        PEMEX are at prices substantially lower than those for the private sector.
        Sales
        to IMSS are made also at prices substantially lower than those for the private
        sector and in many cases depend on the negotiations made with the laboratories
        over each specific product.
  ***Value-Added
        Pharmaceutical Services***
  We
        believe that we distinguish ourselves from our competitors, in part, by the
        wide
        range of value-added services we provide our customers in addition to our
        products. For example, we provide pharmacies with suggested retail price
        lists
        that are updated immediately upon notice of price changes from our suppliers.
        These price lists are the only notices used by pharmacies to adjust their
        prices. We also provide inventory, purchasing management, price updates and
        advisory services to our customers through direct personal computer links
        between us and individual pharmacies using *www.farmaservicios.pdv* ,
        our
        proprietary point-of-sale system. See “—Technology Information Systems—Pharmacy
        Personal Point-of-Sale Computers” below in this item. Also, we offer our
        customers an immediate product replacement service. If any item from a
        customer’s order is out of stock, *www.farmaservicios.pdv* adds the
        client’s name together with the specific out of stock item to the product
        replacement list. This ensures that the product will be delivered to the
        client
        as soon as it is received at one of our distribution centers, without requiring
        the client to reorder the product.
  We
        also
        offer our customers a series of specialized services, including training,
        conferences and trade fairs. Some services to customers are supported by
        a
        monthly pharmaceutical publication, “ *Farmservicios
        Editorial* ,”
        formerly “ *Correo
        Farmacéutico* ,”
        a
        monthly magazine and product catalog. We have already established an online
        distribution and information site for our clients and suppliers, *www.farmaservicios.com* ,
        which
        we currently make available to them free of charge. Clients that log on to *www.farmaservicios.com* are able
        to communicate directly with us, and to place and track their orders and
        shipments, on-line. In addition, these clients also have access to a wide
        range
        of additional services, including news and industry information, free e-mail,
        business advice and a
  
 17
 
 variety
        of special promotions. *www.farmaservicios.com* also
        links to *www.farmaservicios.pdv* .
        See
“—Information Technology Systems” below in this item.
  **Health,
        Beauty Aids, Consumer Goods, General Merchandise and Other**
  Prior
        to
        2004, we used to break out the divisions of General Merchandise and Other
        Products and Office Products. However, in 2004, as part of a strategic business
        decision, the Group decided to unite all three divisions under the name of
        Health, Beauty Aids, Consumer Goods, General Merchandise and Other or HBCG/Other
        Products. The decision was made due to the diminishing participation of the
        General Merchandise and Other products as well as Office Products within
        the
        Group’s sales, which together accounted for less than 1% of the Group’s total
        net sales.
  We
        distribute health and beauty aids (HBA), various consumer products and
        electronic products that are typically sold through supermarkets, convenience
        stores, specialty stores and pharmacies in Mexico. The products distributed
        in
        this division consist principally of basic toiletries, food products, consumer
        goods and electronics, some of which are distributed on an exclusive basis,
        such
        as:
  ·
              Mexsana
                  talcum powders from Schering Plough (since
                  1999);
  ·
              Coppertone
                  suntan lotions (since 1999);
  ·
              Brunswick
                  Sea Food products (since 1994);
  ·
              Canderel
                  and Nutra Sweet products (since 1999);
  ·
              Kraft
                  Foods (candies division) (since
                  1999);
  ·
              Veet
                  Depiladores (since 2002);
  ·
              Cure
                  Brand (since 2002);
  ·
              The
                  Sensual Tea (since 2004); and
  ·
              Pringles
                  (since 2005).
  In
        some
        cases, we enter into short-term exclusive distribution agreements on a
        preliminary, experimental basis, in order to test the real demand for specific
        products. If upon the termination of these agreements, we conclude that there
        is
        no significant demand for a specific product, we cease the distribution of
        such
        product. For this reason, in the normal course of business, products we
        distribute one year may not be distributed the next year. We are permanently
        seeking to enter into distribution agreements to distribute HBA, other consumer
        products, general merchandise and other products at acceptable margin levels.
        We
        cannot assure you that we will enter into distribution agreements to distribute
        any or all of these products at acceptable margin levels.
  In
        the
        HBCG/Other Products business division, in some cases, we provide manufacturers
        with highly specialized integrated services. These services range from
        purchasing, planning, centralized sales, merchandising, collections, execution
        of promotions and product information.
  We
        anticipate that the market in Mexico for health and beauty aids, consumer
        goods,
        general merchandise and other products will continue to grow due to the young
        profile of the Mexican population. We believe that as the Mexican population
        continues to grow, and as consumers’ disposable income increases, this division
        could account for increases in the demand for our products.
  We
        distribute general merchandise and other products that are generally sold
        through grocery stores, supermarkets, convenience stores, major warehouses
        and
        pharmacies in Mexico. Prior to 2002, we referred to these products as
        non-perishable food/consumer products. The general merchandise products we
        distribute consist primarily of packaged and canned foods, candies, chocolates
        and freezer products, among others. The other products we distribute consist
        of
        over-the-counter products, household cleansers, toiletries, Casio electronic
        products and
  
 18
 
 Disney
        licensed products, among others. General merchandise and other products we
        distribute are mostly products sold on an exclusive basis in specified areas
        pursuant to contractual arrangements.
  In
        August
        2000, we sold all of the outstanding capital stock of our wholly owned
        subsidiary Papelera General, a regional office-supply wholesale distributor,
        and
        the assets related to this business, including two warehouses in Mexico City,
        to
        Adolfo I. Autrey, a former principal shareholder, director and executive
        officer, for Ps. 37.5 million (the equivalent of approximately U.S.$3.9
        million). Following this sale, we stopped conduct any business through, or
        with,
        Papelera General, other than a lease for office space and licensing and
        trademark arrangements.
  Since
        August 2000, we have distributed office and electronic products from Casio,
        including keyboards, calculators, audio and television equipment and related
        accessories, through Mexatar. We acquired Mexatar in December 1998. As part
        of
        our business strategy, the distribution of electronic products will continue
        only until our existing inventory of such products lasts. There can be no
        assurance that we will enter into a distribution agreement with Casio or
        any
        other supplier of similar products, or if so, that the terms will be favorable
        to us.
  **Publications**
  We
        distribute books and magazines, a large majority of which we distribute on
        an
        exclusive basis, through our publishing subsidiary, Publicaciones Citem,
        S.A. de
        C.V., or Citem, which is among the leading distributors of weekly magazines
        in
        Mexico. We are also one of the leading suppliers of self-service store chains,
        as well as the exclusive supplier of Wal-Mart Mexico’s VIPS and Portón
        restaurant chains in Mexico City. In 2002, we co-published children’s books with
        approximately 23 international publishers. However, due to our restructuring
        process, Citem did not enter into any co-publishing agreement during 2003
        or
        2004. There can be no assurance that we will enter into new co-publishing
        agreements in the future.
  We
        believe that Citem is one of the leading magazine distributors in Mexico,
        selling primarily through 170 nationwide agents, 740 book stores as well
        as
        through three firms affiliated with the *Union
        de Voceadores* ,
        or
        Union of Newspaper Boys, in Mexico City. Citem also distributes entertainment
        products through other establishments, including supermarkets, convenience
        stores, racks and magazine newsstands in airports, libraries and hotel magazine
        stores. In addition, Citem offers one of the most efficient forces of
        rack-jobbers, or shelf-keeping merchandisers, to VIPS and Portón, that keep the
        shelves of approximately 200 stores across Mexico, duly organized. Citem
        also
        distributes products to 15 export clients, consisting mainly on magazines
        wholesalers, in North, Central and South America.
  Revenues
        from publication sales to export clients in the United States, Central America,
        South America and the Caribbean accounted for approximately 54%, 17%, 20%
        and 9%
        of our total export sales in 2001, respectively. In 2002 and 2003, we continued
        with our international operations to the United States, Central America,
        South
        America and the Caribbean. These areas represented 54%, 11%, 7%, and 28%,
        respectively, of our total publication export sales in 2002, while in 2003
        these
        sales accounted for 68%, 5%, 17%, and 10% of our total publication export
        sales, respectively. By the end of 2004, exports to the United States accounted
        for 62% of our annual publication export sales while Central America represented
        13%, South America represented 22% and the Caribbean represented 3%.
  In
        2001,
        Citem secured the distribution of new publications, expanding its client
        base
        with the distribution of albums and stickers from leading licensors and
        publishers in the market. Despite the economic slowdown and supported by
        new
        contracts for distributing publications, Citem increased its total net sales
        during 2001 by 1.7%. To improve its infrastructure and increase its operating
        profitability, in the last quarter of 2001 Citem moved its distribution center
        from Mexico City to the State of Mexico.
  In
        the
        second half of 2002, Citem started an administrative and operational
        restructuring to achieve higher levels of profitability. This process involved
        changes in its catalog of products, client base, personnel and distribution
        units and methods, among other changes. As a result, several magazines and
        books
        were eliminated from its supplier base, generating a decrease in Citem’s sales
        of 8.5% compared to sales in 2001. The restructuring process continued during
        2003 and, therefore, sales in the year decreased by 12.9%. However, in the
        last
        quarter of 2003 the restructuring processes started to show positive results,
        reflecting an increase in Citem’s sales of 11.6%. This increase reflects Citem’s
        new client and product bases in which the inclusion of new titles are improving
        sales
  
 19
 
 and
        operating results. During 2004, due to above-mentioned restructuring factors,
        Citem’s sales rose by 6.2% as a result of having a more solid editorial base
        which included highly-demanded magazine titles.
  **Exclusive
        Distribution Agreements**
  In
        the
        areas of HBCG/Other Products and Publications, exclusive distribution agreements
        are typically limited to specific products, channels and geographic areas.
        Some
        of our exclusive distribution agreements can be terminated without cause,
        by
        means of proper notice, given by either party. We do not anticipate the imminent
        termination of any of these agreements, other than those that we decide to
        terminate if the products distributed are not sufficiently profitable. Before
        entering into exclusive distribution arrangements, we require that each
        prospective supplier agrees to advertise its services and offer a specific
        number of promotions and trade discounts to ensure that the supplier is seeking
        to take a leading position in the Mexican market. We provide manufacturers
        with
        highly specialized integrated services, ranging from purchasing, planning,
        centralized sales, merchandising, collections, execution of promotions and
        the
        provision of information.
  In
        2000,
        we terminated several of our exclusive distribution agreements because, based
        on
        our new criteria for profitability, the margin on products distributed pursuant
        to these agreements was not sufficiently profitable. We are currently seeking
        to
        enter into exclusive distribution agreements that will allow us to distribute
        products, particularly in our HBCG/Other Products and Publications business
        divisions at acceptable margin levels. We cannot assure you that we will
        enter
        into distribution agreements to distribute any or all of these products at
        acceptable margin levels.
  **Purchasing**
  We
        order
        all of our products on an ongoing basis, negotiating quantity and price
        periodically, rather than committing to contractual terms. While the majority
        of
        our suppliers are Mexican companies, we do purchase some products from
        international manufacturers. We negotiate exchange risks by purchasing these
        products in Pesos or setting a limit on our exchange risk exposure.
  In
        previous years, each of our distribution centers placed its own orders on
        a
        weekly basis, directly to suppliers. These orders were placed through our
        computerized order system, Electronic Document Interchange, or EDI. Suppliers
        delivered orders directly to the distribution warehouse that placed the order,
        or to our transportation subsidiary, Marproa. Suppliers typically delivered
        bulk
        orders directly to the distribution warehouse that placed the order. In the
        second half of 2000, we centralized our purchasing to improve our financial
        results and increase the efficiency of our operations. As a result, all of
        our
        orders for all of our distribution centers are placed through our centralized
        system.
  Deliveries
        of non-Mexican products are performed through Mexican customs near the U.S.
        border, and are typically made directly from the supplier to a Mexican customs
        agent. Once the customs agent concludes the importing procedure, the products
        are sent to our distribution center by ground transportation.
  Marproa
        is a common carrier that also provides freight services to third parties
        at
        market rates. From Marproa, we make deliveries several times a week to each
        of
        our 22 distribution centers.
  Maintaining
        good relationships with our suppliers and publishers is important to our
        competitive success because of the tight inventory policies prevalent in
        the
        pharmaceutical industry in Mexico. We are committed to making rapid and timely
        deliveries to our customers.
  We
        have
        also installed EDI, which enables us to communicate electronically with our
        suppliers and customers. For example, we use EDI for order placement, order
        confirmation and price changes. See “—Information Technology Systems” below in
        this item.
  ***Pharmaceutical
        Products***
  We
        purchase pharmaceutical products from over 290 laboratories and manufacturers.
        Most of these suppliers are located in Mexico City and its surrounding areas.
        Purchases are made through purchase orders from time to time, on an as-needed
        basis. More than two-thirds of the suppliers that manufacture pharmaceuticals
  
 20
 
 products
        in Mexico are owned primarily by large multinational companies. Purchases
        made
        from these suppliers represent more than 80% of our Private Pharma and
        Government Pharma business divisions’ purchases. Companies such as Aventis,
        Pharmacia, Glaxo, Roche and others are among our suppliers.
  ***Health
        Beauty, Consumer Goods, General Merchandise and Other
        Products***
  We
        purchase health, beauty and consumer goods from more than 100 suppliers located
        primarily in Mexico. We purchased our catalog of over 890 general merchandise
        and other products from a wide range of suppliers including, Nutrasweet,
        Brunswick and Veet. In some cases, we negotiate directly with our suppliers
        in
        other countries and directly import the products through a customs agent.
        Products imported are delivered to our warehouses from the customs agent
        after
        complying with all the legal requirements, which in some cases depend on
        the
        type of product. We purchased office products and electronic products from
        Casio, pursuant to a distribution agreement, including keyboards, calculators,
        audio and television equipment and related accessories, through our subsidiary
        Mexatar. In line with our business strategy to focuses on profitability,
        we are
        currently distributing keyboards, digital cameras and some electronics products,
        such as watches, only until we run out of our existing inventory. There can
        be
        no assurance that we will enter into a different distribution agreement with
        Casio or any other supplier, or if so, under terms favorable to us.
  ***Publications***
  Our
        Publications business division distributes, through Citem, magazines, books,
        albums and stickers from leading licensors and publishers in the market.
        Nearly
        all products purchased as of today may be returned to the publisher. In 2003,
        while going through an administrative and operative restructuring as described
        above, Citem distributed over 6,200 publications purchased from over 280
        publishers. In 2004, Citem distributed over 5,900 publications, purchased
        from
        over 290 publishers. Currently, Citem is distributing only publications
        (magazine and books titles) that meet a minimum profit requirement. Purchases
        are made through our centralized administration. As a result of this
        profitability strategy, certain titles were incorporated to or eliminated
        from
        Citem’s catalog of products.
  **Competition**
  ***Pharmaceutical
        Products***
  Our
        primary competitor in the private pharmaceutical distribution business is
        Nadro,
        Mexico’s only other national pharmaceutical distributor. According to IMS
        Health, A.G. and our estimates, in 2004, Grupo Casa Saba and Nadro together
        accounted for over 54% of prescription and over-the-counter pharmaceutical
        sales
        through private sector wholesale pharmaceutical channels in Mexico (this
        figure
        does not include the sale of similar and generic products, which if included
        would increase that percentage). Our other primary competitor is Marzam,
        S.A. de
        C.V., a large Mexican regional distributor. Our other competitors include
        approximately twelve regional distributors, some of which own chains of
        pharmacies. We believe that our distribution services are superior to those
        of
        regional distributors due to the speed with which we distribute our products,
        as
        well as the quality, catalog of products and value-added services we
        provide.
  In
        the
        government pharmaceutical distribution business, government entities acquire
        products through bidding programs in which wholesalers and laboratories
        participate directly. These bidding processes are open to the public and,
        therefore, we face competition as we do in the private sector.
  ***Health,
        Beauty, Consumer Goods, General Merchandise and Other
        Products***
  Our
        competition in the Health, Beauty, Consumer Goods, General Merchandise and
        Other
        Products business division is similar to the competition we face in our
        distribution of pharmaceutical products. We compete primarily with manufacturers
        that deliver directly to supermarkets, some pharmaceutical chains and with
        various regional distributors. In addition, Nadro and other regional wholesalers
        also distribute health, beauty, consumer goods, general merchandise and other
        products.
  Our
        principal competitors in the general merchandise and other products market
        segment are manufacturers that deliver directly to supermarkets and some
        regional distributors. We compete directly with many middle
  
 21
 
 wholesalers
        and product-specialized wholesalers that distribute to convenience stores,
        independent grocery stores and “mom and pop” stores. In the lines that we
        distribute exclusively, we face no competition from other
        wholesalers.
  We
        continue to distribute office and electronic products from Casio, and face
        competition from regional and other wholesalers. We only expect to continue
        distributing these products while inventories last, given that we do not
        see
        this as a strategic business.
  ***Publications***
  In
        Mexico, where the majority of Citem’s sales are made, our principal competitors
        in our publications product line include:
  ·
              Intermex,
                  a company owned by Televisa, which primarily distributes its own
                  publications;
  ·
              Codiplyrsa,
                  which primarily distributes popular magazines nationwide;
                  and
  ·
              DIMSA,
                  which distributes primarily English-language publications.
  **Payments
        and Collections**
  Most
        of
        our sales are made on credit, with customers signing promissory notes for
        each
        invoice indicating the delivery of a product. Cash-on-delivery terms are
        mainly
        used with new clients or those whose credit has been temporarily suspended.
        We
        negotiate the number of days of credit that we will extend to our clients
        on a
        case-by-case basis. The determination of the number of days that we will
        extend
        credit to a particular client depends on a number of factors, including the
        client’s creditworthiness, as well as the length and nature of the client’s
        relationship with us. The determination of the number of days that we will
        extend credit to a particular client also depends on our current business
        strategy. For example, in connection with our efforts to increase sales to
        particular sectors of the market, in the past we extended credit to clients
        in
        these sectors on more favorable terms than those offered to our overall client
        base, and as a result, the maturity of accounts receivable due from clients
        in
        these sectors was slightly higher than the average maturity of accounts
        receivable due from our overall client base in some periods. We are constantly
        adapting our collection methods to market and general economic conditions.
        The
        average maturity of accounts receivable due from our overall client base
        was 61
        days in 2002, 64 in 2003 and 63 days in 2004.
  Although
        we are currently seeking to reduce the average maturity of our accounts
        receivable and maintain an aggressive collection policy for delinquent accounts
        receivable in connection with our efforts to improve our financial results
        and
        the efficiency of our operations, we cannot assure you that we will not extend
        credit to clients in particular sectors on more favorable terms than those
        offered to our overall client base in the future. See “Item 4.”
  The
        following chart sets forth the average maturity of accounts receivable due
        from
        various sectors of the market.
  Credit
                  terms
              DaysPharmacies
              35Supermarkets
                  and local wholesalers
              35Government
              45Publications
                  to wholesalers
              46Publications
                  to retailers (1)
              46
 
 ____________________
 (1)
              National
                  retail chains are centralized.
  
 **Information
        Technology Systems**
  We
        periodically acquire and use new technologies to increase our efficiency
        and
        distribution capabilities. All dealings with suppliers, leasers, banks and
        insurance companies, as well as our treasury, are centralized. We
  
 22
 
 believe
        that our technology information systems have been, and will continue to be,
        instrumental in our ability to provide value-added services to our
        clients.
  ***Retail
        Order Computers***
  A
        substantial part of our sales representatives use portable hand-held computer
        terminals to take and process orders. These orders are transmitted via telephone
        lines to a central computer at each distribution center. The orders are then
        printed and separated by route and filled according to a departure schedule.
        We
        continually upgrade our systems to increase the effectiveness of our ordering
        system, installing individual workstations in more locations, tracking the
        orders of customers and suppliers in the systems network and ensuring the
        accurate fulfillment of those orders.
  ***Pharmacy
        Personal Point-of-Sale Computers***
  We
        have
        developed a point-of-sale software known as *www.farmaservicios.pdv.* ,
        which
        is a PC-based application that has been designed to meet the needs of our
        pharmacy customers. *www.farmaservicios.pdv* has
        point-of-sale, inventory control and Internet capabilities to update and
        synchronize data using web technology. Clients that use *www.farmaservicios.pdv* can
        access and synchronize point-of-sale inventory and other databases through
        our
        business-to-business website, *www.farmaservicios.com* .
        Pharmacies that use our system are linked to our inventory control and order
        placement systems, which allow these pharmacies to order items electronically,
        view current product prices and track promotional discounts and outstanding
        orders. Additionally, through this system, we can also assist customers with
        their own inventory control and business management. *www.farmaservicios.pdv* can
        operate on a stand-alone PC or in a network environment, depending on the
        customer’s particular needs. The pharmacy owners purchase the PCs and related
        hardware and we provide the software package. We charge an annual license
        fee
        for this software. Management believes that *www.farmaservicios.pdv* will
        continue to be an important factor in developing customer loyalty and improving
        overall customer service to our primary client base, pharmacies. As of December
        31, 2004, more than 2,400 *www.farmaservicios.pdv* systems
        were operating at customer locations.
  ***Automatic
        Picking Technology***
  We
        were
        the first Mexican wholesaler to install automated pickers in our distribution
        centers. An automated picker is a computerized robot that matches an order
        number with an order number previously submitted by one of our sales
        representatives, selects the appropriate item(s) ordered and deposits the
        item(s) in a box for delivery. Each automated picker processes approximately
        50%
        of the total units sold out of each distribution center where one is located
        and
        is significantly more efficient than a team of experienced workers. The
        automated pickers operate at high speed with extremely high accuracy and
        include
        error correction features. As of December 31, 2004, 4 of our 22 distribution
        centers had automated pickers. The installation of additional automated pickers
        in our distribution centers currently without automation will depend upon
        whether we deem the cost to be justifiable.
  ***Computerized
        Purchase Order Placement System***
  We
        have
        developed and continue to update an automatic inventory control and order
        placement system. This system utilizes inventory optimization software to
        track
        historic demand for products and to forecast future demand. The system also
        seeks to optimize inventory levels and order sizes at each distribution center
        through a “just-in-time” inventory approach.
  ***New
        Back-Office and Accounting Services***
  In
        2000,
        we finished transferring all of our back-office information systems over
        to a
        multidimensional database that operates using a software program called BaaN.
        The database provides us with a strong analytical tool for decision-making
        that
        affects all aspects of our operations. BaaN is an integrated back-office
        and
        accounting system that currently manages our General Ledger, Accounts
        Receivable, Accounts Payable, Fixed Assets Control System and Treasury, as
        well
        as other financial information. In 2004, we continued to update all of our
        back-office information systems in order to improve our internal processes
        as
        well as our administrative reports.
  
 23
 
 ***Software***
  We
        license *www.farmaservicios.pdv* to our
        clients for an annual fee. We also operate with software designed by third
        parties with which we have entered into license agreements.
  **Regulation**
  Our
        business is primarily regulated by *the
        Ley General de Salud* ,
        or
        General Health Law, and the accompanying regulations. Two federal agencies
        under
        the executive branch of the Mexican government, the Mexican Ministry of Health
        and the Mexican Ministry of Economy, regulate the pharmaceuticals industry.
        We
        must obtain an authorization from the Mexican Ministry of Health to distribute
        prescription drugs and over-the-counter pharmaceuticals on the wholesale
        level.
        We believe that we have obtained all necessary authorization and permits
        required for the operation of our business and we do not foresee any revocation,
        cancellation or termination of such authorizations and permits.
  The
        Ministry of Economy regulates both the wholesale and retail prices of
        prescription and over-the-counter pharmaceutical products. Mexican law requires
        us to sell all prescription and over-the-counter products at a price equal
        to or
        lower than the price approved by the Ministry of Economy for each product.
        The
        Ministry of Economy periodically receives and, if appropriate, approves revised
        price lists submitted by manufacturers on a product-by-product basis.
  **Property,
        Plant and Equipment**
 As
        of May
        31, 2005, our principal properties consisted of 22 distribution centers,
        complete with all of the equipment necessary to operate these centers, and
        approximately 15 other properties, which are not currently in use. The majority
        of our fixed assets is wholly owned and free of any major liens or encumbrances.
        We also own a fleet of over 900 vans, trucks and cars which we use to distribute
        products to our customers.
  As
        of May
        31, 2005, our distribution centers represented approximately 100,000 square
        meters of warehouse space. From these centers, we filled more than 5 million
        orders in 2004, averaging more than 400,000 orders per month. All of our
        distribution centers are strategically located near Mexico’s major population
        centers.
  The
        following table shows our current distribution centers and their locations
        in
        alphabetical order, as of May 31, 2005:
  **Distribution
                  Center’s Name**
              **Location
                  (City, State)**1.
              Taxqueña
              Mexico
                  City, Distrito Federal2.
              Chihuahua
              Chihuahua,
                  Chihuahua3.
              Coatzacoalcos
              Coatzacoalcos,
                  Veracruz4.
              Culiacán
              Culiacán,
                  Sinaloa5.
              Guadalajara
              Guadalajara,
                  Jalisco6.
              Hermosillo
              Hermosillo,
                  Sonora7.
              Juárez
              Ciudad
                  Juárez, Chihuahua8.
              La
                  Laguna
              Gómez
                  Palacio, Durango9.
              León
              León,
                  Guanajuato10.
              Centenal
              Tlalnepantla,
                  Mexico11.
              Monterrey
              Monterrey,
                  Nuevo León12.
              Morelia
              Morelia,
                  Michoacán13.
              Peninsular
              Mérida,
                  Yucatán14.
              Citem
              Tlalnepantla,
                  Mexico15.
              Puebla
              Puebla,
                  Puebla16.
              Reynosa
              Reynosa,
                  Tamaulipas17.
              Tampico
              Tampico,
                  Tamaulipas18.
              Tijuana
              Tijuana,
                  Baja California19.
              Tláhuac
              Mexico
                  City, Distrito Federal20.
              Tuxtla
              Tuxtla
                  Gutiérrez, Chiapas21.
              Vallejo
              Mexico
                  City, Distrito Federal
 
 24
 
 
 **Distribution
                  Center’s Name**
              **Location
                  (City, State)**22.
              Veracruz
              Veracruz,
                  Veracruz
 
 In
        connection with our cost-cutting program and our efforts to consolidate our
        operations and improve our profitability in the fourth quarter of 2001, we
        relocated our distribution center “Casa Saba Centro” located in Mexico City,
        Federal District to Taxqueña, also, within Mexico City. We also relocated
“Citem” from Taxqueña to Tlalnepantla, in the State of Mexico. In 2002, 2003 and
        2004 we did not make any changes to our distribution centers’ location.
  **Item
        5.**  **Operating
        and Financial Review and Prospects**
  The
        following discussion should be read in conjunction with our audited consolidated
        financial statements and the accompanying notes included elsewhere in this
        annual report. Our audited consolidated financial statements have been prepared
        in accordance with Mexican GAAP, which differ in some significant respects
        from
        U.S. GAAP. Note 15 to our audited consolidated financial statements provides
        a
        description of the principal differences between Mexican GAAP and U.S. GAAP,
        and
        describes differences in presentation between the statement of changes in
        financial position under Mexican GAAP and the requirements under U.S. GAAP
        for a
        statement of cash flows. Note 15 to our audited consolidated financial
        statements provides a description of our profit sharing and income taxes,
        and
        goodwill under U.S. GAAP. Note 16 to our audited consolidated financial
        statements provides a partial reconciliation to U.S. GAAP of net income and
        total stockholders’ equity.
  Mexican
        GAAP requires that our audited consolidated financial statements recognize
        certain effects of inflation. In accordance with Mexican GAAP, except as
        otherwise indicated, financial data for all periods presented in our audited
        consolidated financial statements in this annual report have been restated
        in
        constant Pesos as of December 31, 2004.
  **Overview**
  In
        response to the evolution of the dynamic markets in which we operate, we
        made
        certain operational changes in 2004, including the introduction of a system
        for
        the continued evaluation of our clients’ and suppliers’ commercial terms and our
        operational strategies and policies, in order to increase our profitability
        levels.
  In
        our
        Private Pharmaceutical Products Division and our HBCG/Other Products business
        division, which together generated 93.5% of our sales in 2004, we implemented
        programs and controls in order to raise our internal operational efficiency
        levels and to improve the quality of the services offered to our clients.
        Among
        other measures we adopted, we increased the operational efficiency of our
        distribution centers and back-office support systems, continued to renew
        our
        transportation fleet, enhanced our distribution network and communication
        channels with our clients, and developed technologies to improve efficiency.
        While implementing the initial reviews of our clients’ and suppliers’ commercial
        terms, we ceased to distribute all products for some suppliers and various
        product lines for other suppliers. In addition, we discontinued operations
        for
        clients that did not meet our minimum profitability requirements. In the
        General
        Merchandise and Other Products business division, we added new distribution
        lines, which increased the sale of food products.
  We
        also
        carried out operational changes in each of our other business divisions in
        order
        to increase profitability and sales levels. In our Government Pharma business
        division, we continued to pursue the strategy of increasing our presence
        in
        Governmental institutions, including PEMEX. Sales in this business division
        for
        the year ended December 31, 2004 were Ps. 617.5 million, an increase of 10.1%
        compared to sales of Ps. 560.7 million for the same period in 2003. Our
        Publications division had sales of Ps. 712.6 million, an increase of 6.2%
        over
        sales of Ps. 671.2 million for the same period in 2003, due primarily to
        a more
        solid editorial base.
  Due
        principally to the implementation of our new commercial strategies with respect
        to both clients and suppliers and the increased efficiency in our operations,
        our gross profit increased by 35 basis points, from 9.94% for the year ended
        December 31, 2003 to 10.29% for the same period in 2004. This increase, however,
        was offset by the effect of the above-mentioned strategies on our sales,
        which
        increased only 0.1% for the year ended December 31, 2004 as compared to 2003,
        which prevented us from lowering our expenses as a percentage of sales. The
        increase in gross profit enabled us to offset the increase in our expenses
        as a
        percentage of sales, allowing our operating income to increase by 10 basis
        points for the year ended December 31, 2004 compared to the year ended
  
 25
 
 December
        31, 2003. As a result, our operating profit for the year ended December 31,
        2004
        increased 2.77% and net income increased 7.10% for the same period as compared
        to the year ended December 31, 2003.
  For
        the
        year ended December 31, 2004, we had no cost-baring liabilities and cash
        in an
        amount of Ps. 481.0 million. As a result of our improved financial structure,
        our Board of Directors authorized a cash dividend in the amount of Ps. 120.0
        million, or Ps. 0.4521 per share, which was paid on June 3, 2005. This is
        the
        third consecutive year in which dividends were distributed.
  **Effects
        of Economic and Mexican Governmental Factors on Our Results of
        Operations**
  Our
        operations and assets are located in Mexico. As a consequence, our results
        of
        operations may be significantly affected by the general condition of the
        Mexican
        economy, Mexican inflation, interest rates and political developments in
        Mexico.
        See “Item 3. Risk Factors Relating to Economic and Political Developments in
        Mexico.”
  ***Economic
        Situation***
  In
        2001
        due to a slowdown in the international economic environment, Mexico’s GDP
        decreased by 0.2% and inflation declined to 4.4%. This economic slowdown
        continued in 2002 and Mexico’s GDP increased by 0.8% and annual inflation
        reached 5.7%. In 2003, the concerns about the recovery of the U.S. economy
        continued, the war with Iraq took place and there were no major advances
        in the
        structural reforms expected in Mexico. The combination of these factors affected
        Mexico’s GDP, which grew in the period by 1.4% while inflation declined to 4.0%.
        Finally, in 2004 several factors helped to boost the Mexican economy, including:
        the recuperation of the U.S. economy; higher revenues generated from petroleum
        sales; and an increase in remittances. During this period, Mexico’s GDP grew by
        4.4%, which represented the highest level of growth achieved since the year
        2000, while inflation reached 5.2%. In the first quarter of 2005, Mexico’s GDP
        grew 2.4% while inflation reached 0.8%.
  For
        each
        of the years ended on December 31, 2002, 2003 and 2004, approximately 99%
        of our
        consolidated net sales resulted from sales to parties located within Mexico.
        In
        the past, inflation has led to high interest rates and devaluations of the
        Peso.
        Inflation itself, as well as governmental efforts to reduce inflation, has
        had
        significant negative effects on the Mexican economy in general and on Mexican
        companies, including us, in particular. One result of inflation in Mexico
        is the
        decrease in the real purchasing power of the Mexican population, which can
        lead
        to a decrease in the demand for the products we distribute. In addition,
        the
        Mexican government’s efforts to control inflation by tightening the monetary
        supply have historically resulted in higher financing costs as real interest
        rates have increased. Such policies have had and could have an adverse effect
        on
        our business, financial condition and results of operations.
  ***Currency
        Fluctuations***
  Although
        we currently do not have any U.S. Dollar-denominated indebtedness and do
        not
        expect to incur any U.S. Dollar-denominated indebtedness in the near term
        in
        connection with our current business plan, we may need to do so in the future.
        Substantially all of our revenues are and will continue to be Peso-denominated.
        As a result, should we incur any substantial U.S. Dollar-denominated
        indebtedness, we would be adversely affected by decreases in the value of
        the
        Peso against the U.S. Dollar, which would most likely result in net foreign
        exchange losses. In 2004, based on changes in the Noon Buying Rate for Mexican
        Pesos as reported by the Board of Governors of the U.S. Federal Reserve Bank
        of
        New York, the Peso appreciated by approximately 0.8% against the U.S. Dollar.
        In
        the first quarter of 2005, the Peso depreciated by approximately 0.3% against
        the U.S. Dollar. Any future depreciation or devaluation of the Peso will
        likely
        result in price increases from our suppliers which could impact the purchasing
        capacity of the final consumers, causing a reduction in our net
        sales.
  Severe
        devaluation or depreciation of the Peso may also result in the disruption
        of the
        international foreign exchange markets. This may limit our ability to transfer
        or to convert Pesos into U.S. Dollars and other currencies for the purpose
        of
        making timely payments of principal and interest on any non-Peso-denominated
        indebtedness we may incur in the future, which could, in turn, affect our
        ability to obtain foreign services and products. Devaluation or depreciation
        of
        the Peso against the U.S. Dollar may also adversely affect U.S. Dollar prices
        for our securities on the Mexican Stock Exchange, including the Ordinary
        Shares
        and, as a result, will likely affect the market price of
  
 26
 
 the
        ADSs.
        Such fluctuations would also impact the conversion value of any cash dividends
        paid on the Ordinary Shares in Pesos into U.S. Dollars.
  ***Inflation
        and Interest Rates***
  In
        recent
        years, Mexico has experienced high levels of inflation. The rate of inflation
        on
        an annualized basis, as measured by changes in NCPI, was 5.7%, 4.0% and 5.2%
        for
        2002, 2003 and 2004. High inflation rates can adversely affect our business
        and
        our results of operations by adversely affecting consumer purchasing power,
        thereby adversely affecting consumer demand for the products we distribute.
        In
        addition, to the extent inflation exceeds our price increases or to the extent
        we do not increase our prices, high inflation rates can adversely affect
        our
        prices and revenues by adversely affecting our prices in “real” terms.
  Mexico
        has had, and is expected to continue to have, high real and nominal interest
        rates. The interest rates on 28-day Mexican government treasury bonds averaged
        approximately 7.1%, 6.2% and 6.8% for 2002, 2003 and 2004, respectively.
        In the
        first quarter of 2005, the 28-day Mexican CETE averaged 9.1%. Accordingly,
        if we
        need to incur Peso-denominated indebtedness in the future, it will most likely
        be at higher interest rates than in the United States.
  **Introduction
        to Our Operations**
  The
        following table sets forth the real price increases and unit volume growth
        for
        our Private Pharma division, our core business division, for the years
        indicated:
  **Year
                  Ended December 31,****2002**
              
              
              **2003**
              
              
              **2004****Total
                  Private Pharmaceuticals**
                **Market:**Real
                  Unit Price Increases
              
              
              7.2
              %
              
              7.6
              %
              
              6.6
              %Growth
                  in Units
              
              
              2.3
              %
              
              1.7
              %
              
              -3.2
              %**Grupo
                  Casa Saba Private**
                **Pharmaceutical
                  Products:**Real
                  Unit Price Increases
              
              
              5.5
              %
              
              4.2
              %
              
              7.2
              %Growth
                  in Units
              
              
              1.3
              %
              
              1.5
              %
              
              -6.8
              %**Market
                  Share of Grupo Casa Saba****(1)****:**
              
              
              28.0
              %
              
              27.9
              %
              
              26.0
              %**Inflation****(2)**
              
              
              5.7
              %
              
              4.0
              %
              
              5.2
              %
 _________________
 
 (1)
              Based
                  on information from IMS Health, A.G. and Grupo Casa Saba estimates.
                  This
                  market share does not include purchases made by government institutions
                  and sales in the private pharmaceutical market from similares,
                  generics
                  and impulso.
  (2)
              Based
                  on the changes in the NCPI
  For
        a
        more detailed description of the Mexican private pharmaceutical market and
        our
        private pharmaceutical business, see “Item 4. Information on the
        Company—Business Overview—Pharmaceutical Industry.”
    27
   The
        following table sets forth our net sales by division and the corresponding
        growth rates for each of our business divisions for the years indicated.
        This
        financial data is restated in constant Pesos as of December 31,
        2004.
   **Year
                    Ended December 31,****2002**
                
                **2003**
                
                **2004****(Millions
                    of constant Pesos as of December 31, 2004)****Pharmaceuticals:****Private
                    sector**
                
                
                Ps.16,220.3
                
                
                Ps.17,160.8
                
                
                Ps.17,185.6%
                    Growth
                
                
                6.9
                %
                
                5.8
                %
                
                0.1
                %**Government**
                
                
                791.1
                
                
                560.7
                
                
                617.5%
                    Growth
                
                
                19.4
                %
                
                -29.2
                %
                
                10.1
                %**Health,
                    Beauty, Consumer Goods, General Merchandise and Other
                    Products**
                
                
                2,132.5
                
                
                2,152.4
                
                
                2,054.3%
                    Growth
                
                
                1.8
                %
                
                0.9
                %
                
                -4.6
                %**Publications**
                
                
                770.2
                
                
                671.2
                
                
                712.6%
                    Growth
                
                
                (8.5
                )%
                
                (12.9
                )%
                
                6.2
                %**Total**
                
                
                Ps.19,914.1
                
                
                Ps.20,545.1
                
                
                Ps.20,570.0Total
                    % Growth
                
                
                6.1
                %
                
                3.2
                %
                
                0.1
                %
  
 The
        following table sets forth the net sales for each of our business divisions
        and
        our results of operations as a percentage of our total net sales for the
        years
        indicated:
  **Year
                  Ended December 31,****2002**
              
              **2003**
              
              **2004****Pharmaceuticals:**Private
              
              
              81.4
              %
              
              83.5
              %
              
              83.6
              %Government
              
              
              4.0
              %
              
              2.7
              %
              
              3.0
              %**Health,
                  Beauty, Consumer Goods, General Merchandise and Other
                  Products**
              
              
              10.7
              %
              
              10.5
              %
              
              9.9
              %**Publications**
              
              
              3.9
              %
              
              3.3
              %
              
              3.5
              %100.0
              %
              
              100.0
              %
              
              100.0
              %**Cost
                  of Sales**
              
              
              89.5
              %
              
              90.1
              %
              
              89.7
              %**Gross
                  Profit**
              
              
              10.5
              %
              
              9.9
              %
              
              10.3
              %**Operating
                  expenses**:Selling
                  expenses
              
              
              2.9
              %
              
              2.5
              %
              
              2.7
              %Administrative
                  expenses
              
              
              3.8
              %
              
              3.7
              %
              
              3.7
              %6.7
              %
              
              6.2
              %
              
              6.4
              %**Operating
                  income**
              
              
              3.9
              %
              
              3.8
              %
              
              3.9
              %**Comprehensive
                  cost of financing, net**
              
              
              0.1
              %
              
              0.2
              %
              
              0.0
              %**Other
                  income**
              
              
              0.0
              %
              
              (0.2
              )%
              
              (0.2
              )%**Income
                  tax and employee profit sharing**
              
              
              0.8
              %
              
              0.8
              %
              
              0.9
              %**Net
                  income**
              
              
              3.0
              %
              
              2.9
              %
              
              3.2
              %100.0
              %
              
              100.0
              %
              
              100.0
              %
 
 **Results
          of Operations**
  *In
          accordance with Mexican GAAP, Peso amounts presented below for 2002, 2003
          and
          2004 are reflected in constant Pesos as of December 31,
          2004.*
 28
 
 ***Year
        Ended December 31, 2004 Compared to Year Ended December 31, 2003***
  ***Total
        Net Sales.*** Net
        sales
        increased by 0.12% to Ps. 20,570.0 million for the year ended December 31,
        2004
        as compared to the same period for 2003, mainly due to the positive performance
        of our Private Pharma, Government Pharma and Publications business divisions.
        Net sales in our HBCG/Other Products business division decreased by 4.6%
        to Ps.
        2,054.3 million as compared to Ps. 2,152.4 million for the year ended December
        31, 2003, primarily due to lower market participation. Principally, net sales
        were mainly affected by general competition and the non-distribution of product
        lines from suppliers that did not meet our new minimum profitability
        requirements. The distribution of most of the products in our Private Pharma
        business division that had ceased to be distributed was reestablished as
        commercial terms were renegotiated. Though our new business strategy of focusing
        on profitability affected the sales performance of the Group since we halted
        operations with clients that did not meet our minimum profitability requirements
        and ceased to distribute certain product lines, we believe that the results
        of
        this strategy were generally positive as operating profit and net income
        grew by
        2.8% and 7.1%, respectively.
  ***Net
        Private Pharma Sales.*** Net
        sales
        from our Private Pharma business division increased by 0.14% from Ps. 17,160.8
        million for the year ended December 31, 2003 to Ps.17,185.6 million for the
        year
        ended December 31, 2004. This slight increase primarily reflects the
        non-distribution of products from suppliers that did not meet our new minimum
        profitability requirements, new profitability-focused commercial terms utilized
        with certain of our clients and increased competition. We are currently
        distributing most of the products that we stopped distributing during our
        profitability analysis under new commercial terms. As the private pharmaceutical
        market posted better results than our Private Pharma business division
        for
        the year ended December 31, 2004, we experienced a decrease in our market
        share.
        Our Private Pharma business division continued to account for most of our
        sales,
        increasing its percentage of total sales slightly from 83.5% for the year
        ended
        December 31, 2003 to 83.6% for the same period in 2004.
  ***Net
        Government Pharma Sales.*** Net
        sales from our Government Pharma business division increased by 10.1% as
        compared to Ps. 560.7 million for the year ended December 31, 2003, totaling
        Ps.
        617.5 million for the same period in 2004. This increase resulted primarily
        from
        our increased commercial and promotional efforts as well as our increased
        participation in different government institutions, including PEMEX. As a
        result
        of this increase, net sales in our Government Pharma business division for
        the
        year ended December 31, 2004 represented 3.0% of total net sales, compared
        to
        2.7% for the same period in 2003. Since sales to PEMEX depend on the bidding
        processes, there can be no assurance that we will be awarded similar contracts
        in the future. See “Item 4. Information on the Company—Business
        Overview—Pharmaceutical Industry—Industry Prices.”
  ***Net
        Health, Beauty, Consumer Goods, General Merchandise and Other Products
        Sales.*** Net
        sales from our Health, Beauty, Consumer Goods, General Merchandise and Other
        Products ****** business
        division decreased by 4.6% to Ps. 2,054.3 million for the year ended December
        31, 2004 compared to Ps. 2,152.4 million for the same period in 2003. This
        decrease was mainly due to the change in the market position of this division
        and the rebalancing of our product catalog, including the decrease in the
        contribution of office supplies to total net sales and the addition and
        elimination of certain food products lines. Net sales for this division
        decreased as a percentage of total net sales to 9.9% for the year ended December
        31, 2004 as compared to 10.5% for the same period in 2003.
  ***Net
        Publications Sales.*** Net
        sales in our Publications business division increased by 6.2% to Ps. 712.6
        million for the year ended December 31, 2004 from Ps. 671.2 million for the
        year
        ended December 31, 2003. This increase is mainly due to the continuation
        of the
        restructuring process that was started in the second half of 2002, which
        resulted in a modified management structure for the division and the elimination
        of titles and clients that were not sufficiently profitable. In addition,
        during
        2004 this business division had a more solid editorial and client base,
        distributing highly-demanded magazine titles, and did not co-publish any
        books.
        However, the division continued to distribute books from its inventory. Net
        sales from our Publications division represented 3.5% of our total net sales
        for
        the year ended December 31, 2004, increasing slightly from 3.3% for the year
        ended December 31, 2003.
  ***Gross
          Profit.*** Cost of
          sales for the year ended December 31, 2004 was Ps. 18,452.4 million, reflecting
          a decrease of 0.3% as compared to Ps. 18,502.6 million for the same
          period
          for 2003, due to primarily to the implementation of the new commercial
          and
          operative strategies to focus on increasing profitability levels. As a
          result,
          our gross margin increased from 9.94% for the year ended December 31, 2003
          to
          10.29% for the same period in 2004 and gross profit increased by 3.7% to
          Ps.
          2,117.6 million for the year ended December 31, 2004 from Ps. 2,042.5 million
          for the same period in 2003.
 
 29
 
  ***Operating
        Expenses.*** Operating expenses for the year ended December 31, 2004 were Ps. 1,319.8
        million, reflecting an increase by 4.2% as compared to Ps. 1,266.2 million
        for
        the same period in 2003. In general, the increase was mainly due to increases
        in salaries. As total net sales increased by only 0.1%, operating
        expenses
        as a percentage of total net sales increased from 6.2% for the year ended
        December 31, 2003 to 6.4% for the same period in 2004.
  ***Operating
        Income.*** Operating income for the year ended December 31, 2004 was Ps.797.8 million,
        reflecting a 2.8% increase from Ps. 776.2 million for the same period in
        2003.
        Our operating margin for the year ended December 31, 2004 increased 10 basis
        points to 3.88% from the year ended December 31, 2003, primarily due to the
        increase in the Group’s gross margin.
  ***Comprehensive
        Cost of Financing, Net.*** Pursuant
        to Mexican GAAP, we report four items within this line item: interest expense,
        interest income, foreign exchange (gain) loss and the (gain) loss on net
        monetary position.
  Foreign
        exchange losses (or gains) arise primarily from U.S. Dollar-denominated position
        or loans as the Peso devalues or appreciates against the U.S. Dollar. In
        the
        past, we have borrowed in U.S. Dollars upon a determination that money market
        conditions generated a favorable cost-benefit tradeoff in comparison to
        borrowing in Pesos. The gain or loss on the net monetary position incorporates
        the effect of inflation on monetary assets and liabilities. Monetary gains
        arise
        from holding a net monetary liability position during periods of inflation,
        while monetary losses arise from holding a net monetary asset position during
        periods of inflation.
  Our
        comprehensive cost of financing, net for the year ended December 31, 2004
        was
        Ps. 15.8 million, a decrease of 67.6% compared to Ps. 48.7 million for the
        same
        period in 2003. This lower comprehensive cost of financing, net was mainly
        the
        result of lower interest payments, which decreased 55.29% compared to the
        prior
        year, and an increase in interest earned, which grew 89.13% versus the previous
        year.
  ***Income
        Taxes, Assets Tax and Employee’s Statutory Profit
        Sharing.*** Provisions for taxes and employees’ statutory profit-sharing for the year ended
        December 31, 2004 were Ps. 183.1 million, an increase of 16.0% compared to
        Ps.
        157.8 million for the year ended December 31, 2003. With respect to pre-tax
        income, provision for taxes and the *Participación
        de las Trabajadores en la Utilidad* ,
        or PTU
        (employee profit-sharing), was 22.0% of pre-tax income for the year ended
        December 31, 2004 compared to 20.7% for the year ended December 31, 2003.
        Income
        tax for the year ended December 31, 2004 was Ps. 57.9 million and income
        tax
        offset by prior year tax loss carryforwards was Ps. (37.1) million. For the
        year
        ended December 31, 2004, we paid Ps. 10.3 million in asset tax and deferred
        income tax was Ps. 142.4 million. Employee profit-sharing and deferred employee
        profit sharing for the year ended December 31, 2004 accounted for Ps. 9.5
        million.
  In
        July
        2000, the Mexican Institute of Public Accountants, or MIPA, issued Circular
        54,
“Bulletin D-4 Interpretations,” which clarified a number of issues concerning
        the application of Bulletin D-4. Bulletin D-4, which relates to accounting
        for
        deferred taxes, became effective on January 1, 2000. Bulletin D-4 requires
        us to
        calculate deferred income taxes by using the comprehensive asset and liability
        method. Pursuant to this method, deferred income taxes are calculated by
        applying the applicable income tax rate to the temporary differences between
        the
        accounting and tax values of assets and liabilities as of the date of the
        relevant financial statements. Bulletin D-4 will continue to impact our
        effective tax rates in future periods. See Notes 3(1), 9 and 15(b) to our
        audited consolidated financial statements.
  ***Net
        Income.*** Net
        income for the year ended December 31, 2004 was Ps. 648.8 million, increasing
        by
        7.1% from Ps. 605.8 million for the year ended December 31, 2003. Net profit
        as
        a percentage of sales, or net margin, for the year ended December 31, 2004
        was
        3.2%, 20 basis points higher than that for the same period in 2003.
  ***Year
          Ended December 31, 2003 Compared to Year Ended December 31,
          2002***
  ***Total
          Net Sales.*** Net
          sales
          increased by 3.2% to Ps. 20,545.1 million for the year ended December 31,
          2003
          from Ps. 19,914.1 for the same period in 2002, mainly due to the positive
          performance of our Private Pharma business division, which increased net
          sales
          by 5.8%. Similarly, our HBCG/General Merchandise and Other Products business
          division increased net sales by 0.9%, due principally to our market
          participation and the restructuring of certain of our product catalogs.
          The
          positive performance of these two divisions partially offset the negative
          growth
          of our Government Pharma business division, Publications, General Merchandise
          and Other
 
 30
 
 Products
        and Office Products business divisions. Our Private Pharma division, combined
        with our HBCG/Other Products division, represented 94.0% of total net sales
        and
        were the main sources of our growth in total net sales for the year ended
        December 31, 2003.
  ***Net
        Private Pharma Sales.*** Net
        sales
        from our Private Pharma business division increased by 5.8% to Ps. 17,160.8
        million for the year ended December 31, 2003 from Ps. 16,219.8 million for
        the
        same period in 2002, principally as a result of the implementation of our
        sales
        strategies as well as an increase in the private pharmaceutical market, which
        had both increases in the number of units sold and in real prices in 2003.
        Our
        Private Pharma business division continued to account for most of our net
        sales
        and increased its contribution to total net sales from 81.4% for the year
        ended
        December 31, 2002 to 83.5% for the year ended December 31, 2003.
  ***Net
        Government Pharma Sales.*** Net
        sales from our Government Pharma business division decreased 29.2% to Ps.
        560.7
        million for the year ended December 31, 2003 as compared to Ps. 791.1 million
        for the same period in 2002, primarily due to the fact that we entered into
        fewer contracts with PEMEX. The lower number of contracts obtained in the
        PEMEX
        bidding processes in 2003 was the result of certain changes made by PEMEX
        in the
        prices and type of products in its contracts. As a result of our having obtained
        fewer contracts with PEMEX, Government Pharma’s sales for the year ended
        December 31, 2003 accounted for 2.7% of total sales as compared to 4.0% for
        the
        same period in 2002. Since sales to PEMEX depend on the bidding processes,
        there
        can be no assurance that we will be awarded similar contracts in the future.
        See
“Item 4. Information on the Company—Business Overview—Pharmaceutical
        Industry—Industry Prices.”
  ***Net
        Health, Beauty, Consumer Goods, General Merchandise and Other Products
        Sales.*** Net
        sales from our Health, Beauty, Consumer Goods, General Merchandise and Other
        Products business division increased 0.9% to Ps. 2,152.4 million for the
        year
        ended December 31, 2003 from Ps. 2,132.5 million for the same period for
        2002.
        This increase primarily reflected an increase in our market participation
        in our health, beauty and consumer good markets, as well as the restructuring
        of
        operations related to those sales that took place during 2003. Net sales
        were
        also affected by the rebalancing of the product catalog for our general
        merchandise that took place during 2003, resulting in the inclusion and
        elimination of certain products. A slow economic environment also affected
        the
        performance of this division which accounted for 10.5% of our total sales
        for
        the year ended December 31, 2003. In the last quarter of 2003, we implemented
        important changes in this division’s management to improve operating and sales
        results.
  ***Net
        Publications Sales.*** Net
        sales in our Publications business division decreased by 12.9% to Ps. 671.2
        million for the year ended December 31, 2003 from Ps. 770.2 million for the
        year
        ended December 31, 2002. This decrease was mainly due to the restructuring
        process started in the second half of 2002, which resulted in a modification
        of
        the division’s management structure and in the elimination of titles and clients
        that were not sufficiently profitable. Though the results of this division
        were
        affected throughout the year by these factors, we believe that the new
        operational scheme resulted in an 11.6% increase in [net] sales in this division
        in the fourth quarter of 2003. Net sales from our Publications division
        represented 3.3% of our total net sales for the year ended December 31,
        2003.
  ***Gross
        Profit.*** Our cost
        of sales for the year ended December 31, 2003 was Ps. 18,502.6 million, an
        increase of 3.9% from Ps. 17,813.2 million for the same period in 2002, due
        to
        an increase in net sales. As a result, our gross margin decreased from 10.55%
        for the year ended December 31, 2002 to 9.94% for the year ended December
        31, 2003, and gross profit decreased by 2.8% from Ps. 2,100.9 million for
        the
        year ended December 31, 2002 to Ps. 2,042.5 for same period in 2003. The
        0.61%
        reduction in our gross margin reflects increased competition in the different
        markets in which we operate.
 ***Operating
          Expenses.*** Operating expenses for the year ended December 31, 2003 decreased 5.02%
          to
          Ps.1,266.2 million, reflecting a decrease of 50% with respect to the year
          2002.
          In general, the decrease resulted from the restructuring processes made
          in
          logistics, administration and management in some of our business divisions,
          which resulted in lower sales expenses. The success of the strategies we
          have
          implemented to increase productivity and efficiency in each of the areas
          of our
          operations is reflected in the significant reduction of our consolidated
          expenses. As a result of the implementation of these strategies, our expense
          ratio decreased from 6.7% in 2002 to 6.2% for the year ended December 31,
          2003.
  
 31
 
  ***Operating
        Income.*** Operating income for the year ended December 31, 2003 was Ps. 776.2 million,
        reflecting an increase of 1.1% compared to Ps. 767.8 million for the year
        ended
        December 31, 2002. As our lower expenses partially offset the reduction in
        gross
        margin, our operating margin for the year ended December 31, 2003 decreased
        by
        0.08% compared to 2002, to 3.78%.
  ***Comprehensive
        Cost of Financing, Net.*** Pursuant
        to Mexican GAAP, we report four items within this line item: interest expense,
        interest income, foreign exchange (gain) loss and the (gain) loss on net
        monetary position.
  Foreign
        exchange losses (or gains) arise primarily from U.S. Dollar-denominated position
        or loans as the Peso devalues or appreciates against the U.S. Dollar. In
        the
        past, we have borrowed in U.S. Dollars upon a determination that money market
        conditions generated a favorable cost-benefit tradeoff in comparison to
        borrowing in Pesos. The gain or loss on net monetary position incorporates
        the
        effect of inflation on monetary assets and liabilities. Monetary gains arise
        from holding a net monetary liability position during periods of inflation,
        while monetary losses arise from holding a net monetary asset position during
        periods of inflation.
  The
        comprehensive cost of financing, net for the year ended December 31, 2003
        was
        Ps. 48.7 million, which was equivalent to an increase of 186.8% compared
        to Ps.
        17.0 for the same period in 2002. The higher comprehensive cost of financing,
        net for the year ended December 31, 2003 was mainly due to lower income from
        interest earned, exchange gains and monetary position gains which could not
        be
        compensated by the 14.9% reduction in our interest expense. See “—Indebtedness”
        and Note 8 to our audited consolidated financial statements.
  ***Income
        Taxes, Assets Tax and Employee’s Statutory Profit
        Sharing.*** Provisions for taxes and employees’ statutory profit-sharing for the year ended
        December 31, 2003 were Ps. 157.8 million, reflecting a 2.9% decrease compared
        to
        Ps. 162.4 million for the same period in 2002. With respect to pre-tax income,
        provision for taxes and the *Participación
        de las Trabajadores en la Utilidad* ,
        or PTU
        (employee profit-sharing), was 20.7% of pre-tax income for the year ended
        December 31, 2003 compared to 21.4% for the year ended December 31, 2002.
        Income
        tax for the year ended December 31, 2003 was Ps. 166.1 million and income
        tax
        offset by prior year tax loss carryforwards was Ps. (136.0) million. In 2003,
        we
        did not have any asset tax liability nor any recovery of asset tax paid.
        Deferred income tax was Ps. 126.1 million and employee profit-sharing was
        Ps.1.5
        million for the year ended December 31, 2003.
  In
        July
        2000, the Mexican Institute of Public Accountants, or MIPA, issued Circular
        54,
“Bulletin D-4 Interpretations,” which clarified a number of issues concerning
        the application of Bulletin D-4. Bulletin D-4, which relates to accounting
        for
        deferred taxes, became effective on January 1, 2000. Bulletin D-4 requires
        us to
        calculate deferred income taxes by using the comprehensive asset and liability
        method. Pursuant to this method, deferred income taxes are calculated by
        applying the applicable income tax rate to the temporary differences between
        the
        accounting and tax values of assets and liabilities as of the date of the
        relevant financial statements. Bulletin D-4 will continue to affect our
        effective tax rates in future periods. See Notes 3(1), 9 and 15(b) to our
        audited consolidated financial statements.
  ***Net
        Income.*** Net
        income for the year ended December 31, 2003 was Ps. 605.8 million, increasing
        by
        1.8% from Ps. 595.0 million for the year ended December 31, 2002. This slight
        increase reflects the 1.1% growth in our operating profit as well as the
        increase of Ps. 29.6 million in other income, net. Net profit as a percentage
        of
        total net sales, or the net margin, for the year ended December 31, 2003
        decreased 0.04% from that for the same period in 2002 to 2.95%.
  
 32
 
 **Aggregate
          Contractual Obligations**
  Below
          is
          a table containing a description of Casa Saba’s aggregate contractual
          obligations.
  **Tabular
          Presentation of Aggregate Contractual Obligations**
  Contractual
                      Obligations
                  Payments
                      due by periodTotal
                  Less
                      than 1 year
                  1-3
                      years
                  3-5
                      years
                  More
                      than 5 years
 Long
                    Term Debt (1)
                -
                -
                -
                -
                -Capital
                    Lease Obligations (2)
                17,073
                17,073
                -
                -
                -Operating
                    Leases (3)
                -
                -
                -
                -
                -Purchase
                    Obligations (4)
                -
                -
                -
                -
                -Other
                    Long Term Liabilities reflected on our Balance Sheet Under Mexican
                    GAAP
                    (5)
                53,821
                -
                -
                -
                53,821Total
                70,894
                17,073
                -
                -
                53,821
 _________________
 (1)
        Current Maturities of Long Term Debt (see Note 8 to our audited consolidated
        financial statements).
 (2)
        Includes leasing obligations of Information Technology equipment and transport
        equipment from Hewlett Packard, Capital and Paragon.
 (3)
        Not
        applicable.
 (4)
        Not
        applicable.
 (5)
        Includes reserve for retirement pensions and seniority premiums. The maturity
        of
        this obligation will occur in accordance with the disclosure in Note 3(j)
        to our
        audited consolidated financial statements.
  **Non-Exchange
        Traded Contracts Accounted for at Fair Value**
  All
        financial assets and financial liabilities derived from any type of financial
        instrument are recognized in our balance sheet at fair value. The valuation
        effect is recognized as income for the year. Revenues and expenses
        generated by financial instruments are recognized in the income statement
        when
        accrued.
  In
        accordance with Bulletin C-2 “Financial Instruments” issued by the MIPA, Casa
        Saba’s financial instruments are comprised mainly of cash and cash equivalents,
        accounts receivable and payable not related to its commercial activities,
        bank
        loans, and long-term debt. We are not party to any derivative or other similar
        instruments at this time. As of December 31, 2003 and 2004, the carrying
        value
        of financial instruments shown in the balance sheet approximates their fair
        value due to their short-term nature.
  **Off-
          Balance Sheet Agreements**
  We
          currently do not have any off-balance sheet arrangements that have or are
          reasonably likely to have a current or future effect on our financial
          statements, financial condition, results of operations, liquidity, capital
          expenditures or capital resources that are material to investors.
  **Critical
          Accounting Policies**
  ***Application
          of critical accounting policies***
  Preparing
          our consolidated financial statements requires that we make certain estimates
          and use certain assumptions to determine the valuation of some assets and
          liabilities and disclose our contingent assets and liabilities at the date
          of
          our financial statements and the reported amount of revenues and expenses
          incurred during the reporting periods. We base our estimates on our experience
          and on various other reasonable factors that together
  33
   form
          the basis for making judgments about the carrying
          values of our assets and liabilities. Our actual results may differ from
          these
          estimates under different assumptions or conditions. We evaluate our estimates
          on an on-going concern basis. Our significant accounting policies are described
          in Note 3 to our audited consolidated financial statements. We believe
          our most
          critical accounting policies that imply the application of estimates and/or
          judgments are:  ***a)
            Allowance for doubtful accounts***
  The
            allowance for doubtful accounts represents our estimate of the probable
            loss
            inherent in all receivables by considering the general historical trend
            of
            payment performance of customers and factors surrounding the
 specific
          customer’s credit risk. On a periodic basis, we analyze the recoverability of
          our accounts receivable in order to determine whether due to credit risk
          or
          other factors, some receivables may not be recovered. If we determined
          such a
          situation exists, book value related to the non-recoverable assets are
          adjusted
          and expensed through an increase in the allowance for doubtful accounts.
          This
          determination requires substantial management judgment. Final losses from
          doubtful accounts may differ from our estimated reserve.
  ***b)
          Estimate for slow-moving inventory***
  Periodically,
          we analyze the recoverability of our inventories in order to determine
          whether
          due to certain factor or conditions, certain products in our inventories
          may not
          be available or useable for sale purposes. If such a situation exists book
          value
          related to the non-recoverable assets are adjusted and expensed through
          an
          increase in the estimate for slow-moving inventory. As a result, final
          losses
          from slow-moving inventory could differ from our estimated
          reserves.
  ***c)
          Property and equipment***
  Our
          balance sheets reflect amounts of long-lived assets (mainly fixed assets
          and
          goodwill) associated with our operations throughout Mexico. Many of these
          assets
          have resulted from past acquisitions, which have required us to reflect
          these
          assets at their market value at the dates of acquisition. Subsequently,
          we
          restate the value of long-lived assets by applying the “adjustments due to
          changes in the general price level method” by using the National Consumer Price
          Index to value those assets, as permitted by Mexican GAAP. We believe this
          method more accurately presents the fair value of the assets than historical
          cost or other methods accepted by Mexican GAAP.
  As
          we
          discuss in Note 3 to our audited consolidated financial statements, effective
          2004, in accordance with Bulletin C-15, “Impairment of the value of long-lived
          assets and their related disposal” (Bulletin C-15) issued by the IMCP, we
          periodically assess the recoverability of the restated value of our long-lived
          tangible and intangible assets, including goodwill, to establish whether
          factors
          such as the occurrence of significant adverse events, changes in the business
          environment and/or changes in expectations with respect to operating income
          for
          each business unit or subsidiary, indicate that the carrying value of those
          assets may not be recovered. This determination requires substantial judgment.
          In the event that we determine that the carrying value may not be recovered,
          an
          impairment loss is recorded in the income statement in the period when
          such an
          assessment is carried out, unless the indications are of a temporary nature.
          The
          impairment loss is determined by the excess of carrying value of long-lived
          assets over recovery value thereof by considering net present value of
          cash
          flows estimated to be generated by those assets. Bulletin C-15 contemplates
          the
          reversal of the recognition of impairment. Property and equipment to be
          disposed
          of are recorded as the lesser of the carrying value and the fair market
          value
          thereof, less sale related costs. Additionally, we review the lives assigned
          to
          these long-lived assets for purposes of depreciation or amortization, as
          the
          case may be, when applicable. This determination is subjective and is an
          integral part of the determination of whether an impairment has occurred.
          Property and equipment are depreciated on the restated value thereof, by
          using
          the straight-line method, and by considering the estimated remaining useful
          lives of fixed assets. The estimated useful lives represent the period
          we expect
          the fixed assets to remain in service and to generate revenues by considering
          their operation conditions.
  As
          a
          result of the application of the provisions of Bulletin C-15, we completed
          a
          transitional fair-value-based impairment test on our property and equipment
          as
          of January 1, 2004. Based on the results of this test, the fair value of
          those
          long-lived assets was equivalent to or greater than the carrying value
          thereof
          recorded on that date. Accordingly, no impairment charges resulted from
          the
          transitional evaluation performed on the carrying value of property and
          equipment as of January 1, 2004. The provisions issued prior to Bulletin
          C-15
          set forth the
  34
   determination
          of the impairment loss by comparing
          undiscounted estimated future cash flows to be generated by long-lived
          assets
          and their respective carrying value.  While
            we
            believe that our estimates are reasonable, different assumptions could
            materially affect our evaluations. Our evaluations throughout the year
            and up to
            the date of this annual report did not lead to any impairment of long-lived
            assets. We can give no assurance that our expectations will not change
            as a
            result of new information or developments.
  The
            provisions of Bulletin C-15 are virtually identical to SFAS 144, “Accounting for
            the impairment or disposal of long-lived assets” adopted by us on January 1,
            2002 under U.S. GAAP.
 ***d)
          Valuation of intangible assets and goodwill***
  Our
          goodwill arises from acquiring shares of capital stock of subsidiary companies
          at a price exceeding the fair value of the net assets acquired at the
          acquisition date. As we discuss in Note 3 to our audited consolidated financial
          statements, effective 2003, we began to apply Bulletin C-8, “Intangible Assets”
          (Bulletin C-8) issued by the MIPA. That Bulletin states that intangible
          assets
          including goodwill refer to costs incurred and/or rights or privileges
          acquired
          that generate specific future economic benefits over which we have control.
          As a
          result thereof, intangible assets acquired through a business combination
          are
          accounted for individually at the fair value as of the acquisition date
          and are
          reported separately, unless their cost cannot be reasonably determined.
          In that
          event, they are accounted for collectively as goodwill. In addition, intangible
          assets with an undefined economic useful life including goodwill are subject
          to
          a periodic impairment valuation, by following the provisions referred to
          in
          paragraph c) above.
  While
          we
          believe that our estimates are reasonable, different assumptions could
          affect
          our evaluation. Our evaluation throughout fiscal year 2004 up to the date
          of
          this annual report did not lead to any significant impairment of goodwill.
          We
          can give no assurance that our expectations will not change as a result
          of new
          information or developments.
  The
          provisions of Bulletin C-8 are virtually identical to SFAS 142, “Goodwill and
          other intangible assets” adopted by us on January 1, 2002 under U.S.
          GAAP.
  ***e)
          Labor obligations***
  Our
          labor
          obligations are comprised of retirement pensions and seniority premiums
          derived
          from defined benefit plans for all our employees. The determination of
          our
          obligations and the net periodic cost is dependent on our selection of
          certain
          assumptions used by actuaries in calculating such amounts. We evaluate
          our
          assumptions at least annually. We describe our labor obligations in Note
          3 to
          our audited consolidated financial statements and include the discount
          rate,
          expected long-term rate of return on plan assets and rates of increase
          in
          compensation costs.
  In
          accordance with Mexican GAAP, actual results that differ from our assumptions
          (actuarial gains or losses) are accumulated and amortized over future periods
          by
          considering probable labor lives of our employees and, therefore, generally
          affect our recognized expenses and recorded obligations in these future
          periods.
          While we believe that our assumptions are appropriate, significant differences
          in our actual experience or significant changes in our assumptions may
          materially affect our retirement pensions and seniority premiums.
  ***f)
            Income taxes***
 We
          recognize both the deferred income tax and deferred employee profit sharing
          effect by applying the “comprehensive asset and liability method” in accordance
          with Mexican GAAP and U.S. GAAP. The deferred income tax liability and/or
          asset
          are determined by applying the income tax rate to the temporary differences
          between the accounting and tax values of assets and liabilities as of the
          date
          of the relevant financial statements, as well as the amount of tax loss
          carryforwards. In the event of any change in the income tax rate
          effective
          subsequent to the fiscal year end, the income tax rate that will be affected
          at
          the time it is estimated so that the temporary differences that are realized
          will be applied. Asset tax paid in the current year and in prior years
          that are
          recoverable may be recognized as a deferred income tax asset under certain
          circumstances.
   35
   In
            addition, our tax position is subject to different laws that require
            certain
            interpretation and application. It is possible that the relevant taxing
            authorities may review our tax position and might challenge our interpretation
            and application regarding certain tax criteria. Although we have been
            successful
            in sustaining our tax criteria, no assurance can be given that we will
            be
            continue to be as successful as we have been in the past. Significant
            judgment
            is required to appropriately assess the amounts of the income tax liability
            and/or asset.
  We
            periodically perform a valuation allowance to determine the amount of
            the
            deferred income tax asset that will be recorded, in the event that it
            is likely
            that a certain portion or the entire deferred income tax asset may not
            be
            realized. The valuation allowance is determined based on historical taxable
            income, projected future taxable income and the expected timing of the
            reversal
            of existing temporary differences. Any reduction in the deferred income
            tax
            asset amount is recorded in the income statement and/or the stockholders’
            equity, by considering the nature of the temporary item. If our estimates
            and
            related assumptions change in the future, we may be required to record
            additional valuation allowance against our deferred tax assets resulting
            in
            additional income tax expense.
  On
          December 1, 2004, an amendment to the Mexican Income Tax Law was published
          and
          became effective as of January 1, 2005. Under this amendment:
  (i)
                The
                    statutory income tax rate will be 30% for 2005 and will be reduced
                    by one
                    percentage point per year through 2007, when the rate will be
                    28%.
  (ii)
                The
                    tax deduction for inventories will be made through cost of sales,
                    and the
                    inventory balance as of December 31, 2004, will be taxable during
                    the next
                    four to twelve years, based on specific criteria provided for
                    in the
                    Income Tax Law.
  (iii)
                Paid
                    employee profit sharing will be deductible from income tax,
                    and
  (iv)
                The
                    limit on stockholders’ participation in taxable income or loss from
                    Mexican subsidiaries will be eliminated for tax consolidation
                    purposes.
  This
          amendment reduced the deferred income tax liability, which we recorded
          as a
          reduction in taxes in our income statement, in the amount of Ps. 61,899.
          See
          Note 9 to our consolidated financial statements.
  ***g)
          Provisions, contingent assets and liabilities and
          commitments***
  We
          recognize provisions when present, legal or assumed, obligations are unavoidable
          and will require the disbursement of economic resources or can be reasonably
          estimated. Significant obligations or losses related to contingencies are
          periodically evaluated. They are only accounted for when it is likely that
          present obligations will require the disbursement of economic resources,
          and
          there are reasonable elements for their quantification. Commitments are
          not
          recognized unless they result in a loss. Actual results may differ from
          our
          estimates under different assumptions or conditions.
  **Indebtedness**
  During
          2004, we continued to reduce our outstanding debt. As a result, as of December
          31, 2004, Casa Saba had fully paid off its cost-bearing liabilities. As
          of
          September 18, 2003, we had paid off all of our long-term debt and, accordingly,
          terminated our long-term loan facility Scotiabank Inverlat which we established
          in June 2001. Certain of the warranties related to this facility were released
          upon its termination.
  As
          of
          June 15, 2005, we had arranged for short-term loan revolving credit lines
          for a
          total aggregate principal amount of Ps. 1,940 million with the following
          banks:
          Santander-Serfin; Banamex; BBVA Bancomer and IXE. These facilities may
          each be
          accessed depending on our cash flow requirements. Grupo Casa Saba did not
          provide specific warranties for these facilities. The loans made under
          these
          facilities bear interest at variable rates depending on the Equilibrium
          Interbank Interest Rate (TIIE) published periodically by Banco de México, S.A.
          plus a maximum of 80 basis points. The basis points which will be added
          to TIIE
          depend on negotiations and prevailing market conditions. As of this date,
          and
          despite the pay out of a Ps. 120 million dividend payment on June 3, 2005,
          we do
          not have any cost-bearing liabilities.
   36
  **Liquidity
          and Capital Resources**
  ***Overview***
  Historically,
          our cash and capital requirements have been satisfied through cash from
          operations and bank loans. We plan to continue to satisfy our cash and
          capital
          expenditure requirements primarily through cash from our operations. If
          deemed
          necessary, we can access our revolving credit facilities totaling an aggregate
          principal amount of up to Ps. 1.9 billion. Net working capital (current
          assets
          minus current liabilities) as of December 31, 2004 was Ps. 3,522.1 .million
          as
          compared to Ps. 2,954.2 million as of December 31, 2003.
  Our
        cash
        flows are subject to seasonal fluctuations and market conditions. To maintain
        a
        larger winter inventory and to support inventory for the two or more weeks
        of
        holidays in December, during which suppliers do not make sales or deliveries,
        our accounts payable and inventories typically increase at year-end. After
        reaching their highest levels in December, our inventories gradually decrease
        to
        what we estimate is a normal operational level of approximately 50 inventory
        days. Our inventories, net as of December 31, 2004, were Ps. 3,694.5
        million or 15.2% higher as compared to Ps. 3,205.8 million as of December
        31,
        2003. As of December 31, 2004, our inventory days were 72.1 days, 9.7 days
        higher than the 62.4 days registered for the year ended December 31, 2003.
        In
        2002, our inventory days were 64.9 days. Accounts Receivable for the year
        ended
        December 31, 2004 registered 62.7 days while accounts payable accounted for
        79.6
        days for the same period. While for the year ended December 31, 2003, inventory
        days were 62.4, account receivable days reached 69.1 and accounts payable
        days
        were at 73.1.
  ***Accounts
        Receivable***
  As
        of
        December 31, 2004, mainly due to our newly implemented strategies to improve
        our
        profitability levels and our client structure and the competitive environment
        in
        which our operations were conducted, accounts receivable net decreased to
        Ps.
        3,580.9 million or by 9.2% as compared to Ps. 3,943.4 million as of December
        31,
        2003. Our accounts receivable as of December 31, 2004 decreased 6.4 days
        to 62.7
        days from 69.1 days for 2003. As of December 31, 2002, our accounts receivables
        were for 61.2 days.
  For
        a
        description of the nature and amounts of accounts receivable due from current
        and former related parties, see “Item 7. Major Shareholders and Related Party
        Transactions—Related Party Transactions” and Notes 3(f), 4 and 7 to
        our audited consolidated financial statements.
  ***Trade
        Accounts Payable***
  As
        of
        December 31, 2004, trade accounts payable increased to Ps. 4,081.2 million
        or by
        8.6% as compared to Ps. 3,757.9 million as of December 31, 2003. As a result,
        our trade accounts payable days increased to 79.6 days in 2004 as compared
        to
        73.1 days for the year ended December 31, 2003. As of December 31, 2002,
        our
        trade accounts payable were 78.6 days.
  For
        a
        description of the nature and amounts of trade accounts payable owed to current
        and former related parties, see “Item 7. Major Shareholders and Related Party
        Transactions—Related Party Transactions” and Note 7 to our audited
        consolidated financial statements.
  ***Capital
        Expenditures***
  Our
        capital expenditures during 2004 were approximately Ps. 46.3 million, which
        consisted of Ps. 35.7 million for the purchase of transport and delivering
        equipment, Ps. 9.6 million for technology and computer equipment and Ps.
        1.0
        million for other general expenditures. We expect to fund these expenditures
        with internal resources. In the event that we require additional funds, we
        may
        access our short-term revolving credit facilities.
  In
        2003,
        our capital expenditures amounted to Ps. 57.0 million, which consisted of
        Ps.
        20.7 million for the purchase of technology and computer equipment, Ps. 35.6
        million for the purchase of vehicles for our distribution fleet and Ps. 0.7
        million for other general expenditures. As in previous periods, these
        expenditures were financed with bank borrowings and cash on hand.
  
 37
 
 In
          2002,
          our capital expenditures amounted to Ps. 35.6, which consisted of Ps. 2.8
          million for the purchase of technology and computer equipment and Ps. 32.8
          million for the purchase of vehicles for our distribution fleet. As in
          previous
          periods, the expenditures were financed with bank borrowings and cash on
          hand.
 ***Trend
        Information***
  During
        2004, and as a result of the evolution of the markets in which we operate,
        we
        implemented innovative operational strategies in our warehouses and sales
        divisions, as well as in the administrative and corporate areas, in order
        to
        increase our operating profit levels and to better position the Group in
        a
        competitive manner. Through these measures, we believe that we will be able
        to
        better respond to market needs in the medium and long-term, which in turn
        should
        improve our results of operations.
  As
        part
        of this strategy we applied profitability requirements with respect to our
        clients and suppliers which allowed us to increase our gross margin. These
        measures included discontinuing operations with certain clients and suppliers
        that did not meet the minimum profitability parameters that we
        established.
  These
        changes generated positive results, particularly in our gross margin level,
        which increased from 9.9% in 2003 to 10.3% in 2004. Accordingly, our operating
        profit grew 2.8% in 2004 despite the fact that sales only grew by 0.1%. We
        believe that our current profitability strategy will allow us to continue
        growing our divisions with acceptable margin levels and will continue to
        focus
        our efforts on increasing profitability in the different markets in which
        we
        operate. In addition to these measures, we are also committed to operating
        under
        strict expense controls.
  The
        Mexican private pharmaceutical market has solid growth fundamentals which
        lead
        us to expect sustained annual growth over the coming years. The main factors
        supporting this expected growth are Mexico’s demographic structure (adults are
        continuously increasing their participation in Mexico’s total population) and
        the increase in the life expectancy of the Mexican population. The combination
        of these two factors generate natural growth in the demand for healthcare
        services and pharmaceutical products.
  With
        respect to our non-pharmaceutical or HBCG/other products related business
        divisions, we expect that higher levels of economic growth will increase
        demand,
        allowing us to generate positive results in the upcoming years. We believe
        that
        the more solid client and editorial base of our Publication business division
        has, and will, allow it to generate better sales and operating results,
        particularly if Mexico has a better economic performance than in previous
        years.
  ****Accounting
        Pronouncements and Related Effects****
 **Under
          Mexican GAAP**
  In
          May
          2003, the MIPA issued Bulletin C-12, “Financial instruments with liability and
          equity characteristics or characteristics of both” (Bulletin C-12). This
          Bulletin incorporates the parts referred to in other bulletins issued by
          the
          MIPA regarding the issuance of debt, equity or compound financial instruments.
          Bulletin C-12 states the basic differences between liabilities and equity,
          as
          well as the rules to classify and value the opening recognition of liability
          and
          equity components of compound financial instruments. Subsequent opening
          recognition and valuation of liability and equity components of compound
          financial instruments is subject to the provisions set forth in the specific
          bulletins issued by the MIPA. Application of the provisions of Bulletin
          C-12 is
          mandatory, effective January 1, 2004. Although we currently have no financial
          instruments with these characteristics, this does not mean that we may
          not issue
          them in the future.
  In
          December 2003, the MIPA issued the revised Bulletin D-3, “Labor obligations”
          (Bulletin D-3), which incorporates rules for valuation, presentation, and
          disclosure regarding “remunerations at the end of the employer/employee
          relationship” granted to employees when they complete their employer/employee
          relationship prior to reaching retirement age. Under Bulletin D-3, remunerations
          granted to employees due to causes other than restructuring, are valued
          by using
          the “projected unit credit method”, whereas remunerations due to restructuring
          causes, should continue to follow the guidelines of Bulletin C-9, “Liability,
          provisions, contingent assets and liabilities, and commitments”. Application of
          the provisions of Bulletin D-3 is mandatory, effective January 1, 2005.
          We
          believe that these provisions did not have any effect on our financial
          position
          or income statement.
    38
  In
            March
            2004, the MIPA issued Bulletin B-7, “Business acquisitions” (Bulletin B-7) that
            requires applying the purchase method for the recognition and opening
            valuation
            at fair value of the business acquisitions and investments in associated
            companies (International Accounting Standard No. 22, “Business Combinations”,
            will no longer be supplemental under Mexican GAAP). A business acquisition
            occurs when net assets comprising a business or common shares that are
            under the
            control or significant influence of a legal entity are acquired. The
            Bulletin
            sets forth the rules for acquiring minority interest, transferring assets
            or
            exchanging shares among entities under common control. That Bulletin
            further
            amends the accounting treatment of goodwill generated in business acquisitions,
            by eliminating its amortization and subjecting it to impairment rules.
            The
            Bulletin complements the accounting treatment of intangible assets recognized
            in
            a business acquisition, in accordance with Bulletin C-8 “Intangible Assets”
            issued by the IMCP, as discussed in Note 3(h) to our audited consolidated
            financial statements. Application of the provisions of Bulletin B-7 is
            mandatory, effective January 1, 2005. Although we have currently not
            carried out
            transactions of this nature, this does not mean that we may not carry
            them out
            in the future. This standard substantially equals Mexican GAAP to U.S.
            GAAP.
  In
          February 2004, the MIPA issued Bulletin C-10, “Derivative financial instruments
          and hedging transactions” (Bulletin C-10), which sets forth the characteristics
          of derivative financial instruments, the requirements of derivatives to
          be
          classified as hedging instruments, the journalization models of hedging
          transactions, the recognition and valuation rules of derivatives, and structured
          hedging transactions through derivatives. It classifies hedging for purposes
          of
          defining whether the gain or loss that results from valuation of hedging
          instruments at fair value should be recorded in net income or other
          comprehensive income. Application of the provisions of Bulletin C-10 is
          mandatory, effective January 1, 2005. Although we have currently not carried
          out
          transactions of this nature, this does not mean that we may not carry them
          out
          in the future. This standard substantially equals Mexican GAAP to U.S.
          GAAP.
  **Under
          U.S. GAAP**
  In
          December 2004, the Financial Accounting Standard Board (FASB) issued Statement
          123 (revised 2004), “Share-Based Payment” (Statement 123(R)). Statement 123(R)
          requires that the compensation cost relating to share-based payment transactions
          be recognized in financial statements. The cost will be measured based
          on the
          fair value of the instruments issued. Statement 123 (R) covers a wide range
          of
          share-based compensation arrangements including share options, restricted
          share
          plans, performance-based awards, share appreciation rights and employee
          share
          purchase plan. Statement 123 (R) replaces Statement 123, “Accounting for
          Stock-Based Compensation” and supersedes Opinion 25, “Accounting for Stock
          Issued to Employees”. As originally issued in 1995, Statement 123 established as
          preferable the fair-value-based method of accounting for share-based payment
          transactions with employees. However, that Statement permitted entities
          the
          option of continuing to apply the guidance in Opinion 25, as long as the
          footnotes to the financial statements disclosed what net income would have
          been
          had the preferable fair-value-based method been used. We will be required
          to
          apply Statement 123 (R) as of the first interim reporting period that begins
          after June 15, 2005, and we plan on using the modified-prospective method,
          effective July 1, 2005. We are currently evaluating the impact Statement
          123(R)
          will have. We do not believe the adoption of this standard will have a
          material
          impact on our financial position, results of operations, or cash
          flows.
  In
          November 2004, FASB issued Statement 151, “Inventory Cost”, an amendment of ARB
          No. 43, Chapter 4, which is effective for inventory costs incurred during
          fiscal
          years beginning after June 15, 2005. The amendments made by Statement 151
          will
          improve financial reporting by clarifying that abnormal amounts of idle
          facility
          expense, freight, handling costs and wasted material (spoilage) should
          be
          recognized as current-period charges and by requiring the allocation of
          fixed
          production overheads to inventory base on the normal capacity of the production
          facilities. We do not believe that the adoption of Statement 151 will have
          a
          significant effect on our financial statements.
  In
          December 2004, FASB issued Statement 153, “Exchanges of Nonmonetary Assets”, an
          amendment of APB Opinion No. 29. This Statement is effective for nonmonetary
          asset exchanges occurring in fiscal periods beginning after June 15, 2005.
          This
          Statement eliminates the exception to fair value for exchanges of similar
          productive assets and replaces it with a general exception for exchange
          transactions that do not have commercial substance, meaning, transactions
          that
          are not expected to result in significant changes in the cash flow of the
          reporting entity. We do not believe that the adoption of Statement 153
          will have
          a significant effect on our financial statements.
    39
  In
            March
            2004, the FASB Emerging Issues Task Force (EITF) released Issue No. 03-1,
“The
            Meaning of Other-Than-Temporary Impairment and Its Application to Certain
            Investments.” EITF 03-1 provides guidance for determining whether impairment for
            certain debt and equity investments is other-than-temporary and the measurement
            of an impaired loss. Certain disclosure requirements of EITF 03-1 were
            adopted
            in 2003 and We have complied with the new disclosure requirements in
            our audited
            consolidated financial statements. The recognition and measurement requirements
            of EITF 03-1 were initially effective for reporting periods beginning
            after June
            15, 2004. In September 2004, the FASB Staff issued FASB Staff Position
            (FSP)
            EITF 03-1-1 that delayed the effective date for certain measurement and
            recognition guidance contained in EITF 03-1. The FSP requires that entities
            continue to apply previously existing “other-than-temporary” guidance until a
            final consensus is reached. We do not anticipate that issuance of a final
            consensus will materially impact our financial condition or results of
            operations.
   In
          November 2004, the EITF released Issue No. 03-13, “Applying the Conditions
          in Paragraph 42 of FASB Statement No. 144, Accounting for the Impairment
          or
          Disposal of Long-Lived Assets, in Determining Whether to Report Discontinued
          Operations”. To qualify as a discontinued operation, paragraph 42 of Statement
          144 requires that the cash flows of the disposed component be eliminated
          from
          the operations of the ongoing entity and that the ongoing entity not have
          any
          significant continuing involvement in the operations of the disposed component
          after the disposal transaction. EITF 03-13 provides guidance on how to
          interpret
          and apply the criteria in paragraph 42A (elimination of cash flows) and
          paragraph 42B (no significant continuing involvement) of Statement 144.
          EITF
          03-13 is effective for all periods beginning after December 15, 2004. Previously
          reported operating results related to disposal transactions initiated within
          an
          enterprise’s fiscal year that includes November 30, 2004 (the date that the
          consensus was ratified) may be reclassified to reflect the consensus. We
          do not
          believe that the adoption of EITF 03-13 will have a significant effect
          on our
          financial statements.
  In
          September 2004, the EITF released EITF Issue No. 04-8, “The Effect of
          Contingently Convertible Instruments on Diluted Earnings per Share.” Under
          current interpretations of Statement 128, Earnings per Share, issuers of
          contingently convertible debt instruments generally exclude the potential
          common
          shares underlying the contingently convertible debt instruments from the
          calculation of diluted earnings per share until the underlying common stock
          achieves a specified price target, or other contingency is met. EITF 04-8
          requires that contingently convertible debt instruments should be included
          in
          diluted earnings per share computations, if dilutive, regardless of whether
          the
          market price trigger has been met. We will adopt the requirements of EITF
          04-8
          beginning with the quarter ending February 28, 2005. The application of
          EITF
          04-8 will require us to include the contingent convertible subordinated
          notes in
          the calculation of diluted earnings per share, if dilutive. The diluted
          earnings
          per share computations for fiscal year 2004 would exclude the impact of
          these
          notes as the effect would be antidilutive. We do not believe that the adoption
          of EITF 04-8 will have a significant effect on our financial
          statements.
 **Item
        6.**  **Directors,
        Senior Management and Employees**
  **Board
        of Directors**
  The
        following table sets forth the names of our current directors, their dates
        of
        birth, their principal occupation, their business experience, including other
        directorships, and their years of service as directors. Each of the following
        directors was elected for a one-year term by our shareholders at our annual
        shareholders’ meeting, which was held on April 29, 2005.
 
 **Directors**
                  **Name
                    and Date of Birth**
                **Principal
                    Occupation**
                **Business
                    Experience**
                **First
                    Elected**Isaac
                    Saba Raffoul
                  (10/17/23)
                Chairman
                    of the Board
                President
                    and Director -
                  Xtra
                    Inmuebles, S.A. de C.V.
                February
                    2000Moises
                    Saba Ades
                  (07/12/63)
                Vice
                    Chairman of the Board
                Director
                    - Xtra Inmuebles, S.A. de C.V.
                February
                    2000Alberto
                    Saba Ades
                  (07/09/65)
                Vice
                    Chairman of the Board
                Director
                    - Xtra Inmuebles, S.A. de C.V.
                February
                    2000Manuel
                    Saba Ades
                  (11/03/67)
                Vice
                    Chairman of the Board and Chief Executive Officer
                Director
                    - Xtra Inmuebles, S.A. de C.V.
                February
                    2000Gabriel
                    Saba D’jamus
                  (07/27/69)
                Assistant
                    Chief Executive Officer
                Executive
                    Director - Grupo Comercial Hotelera, S.A. de C.V.
                February
                    2000
  40
    Agustin
                    Rodriguez Legorreta
                  (02/11/63)
                Director
                Investor
                    Advisor -Internacional de Capitales, S.A. de C.V.
                February
                    2000Raul
                    Fernandez Diaque
                  (05/16/63)
                Director
                Investor
                    Advisor -Internacional de Capitales, S.A. de C.V.
                February
                    2000
  Francisco
        Fuentes Ostos is the Secretary of our Board of Directors. Moises Saba Ades,
        Alberto Saba Ades and Manuel Saba Ades are sons of Isaac Saba Raffoul. Gabriel
        Saba D’jamus is the nephew of Isaac Saba Raffoul. Manuel Saba Ades, Moises Saba
        Ades and Alberto Saba Ades are cousins of Gabriel Saba D’Jamus. Isaac Saba
        Raffoul, Alberto Saba Ades and Manuel Saba Ades are also members of the Board
        of
        Directors of Grupo Xtra, S.A. de C.V. and alternate member of the Board of
        Directors of Ixe Grupo Financiero, S.A. de C.V., and Finamex Casa de Bolsa,
        S.A.
        de C.V., Grupo Financiero Finamex. Our directors are not party to a service
        contract with us, and there are no arrangements pursuant to which any of
        them
        was elected as a director of the Company.
 
 Set
        forth
        below are the names of the alternate members of our board of directors. The
        alternate members of our board were elected for a one-year term by our
        shareholders at our annual shareholders’ meeting, which was held on
        April 29, 2005.
  **Name
                  and Date of Birth**
              **Principal
                  Occupation**
              **Business
                  Experience**
              **First
                  Elected**Ivan
                  Moguel Kuri
                (01/31/63)
              Tax
                  Adviser to Grupo Casa Saba, S.A. de C.V.
              Partner
                  - Chevez, Ruiz, Zamarripa y Cia, S.C.
              February
                  2000Alejandro
                  Sadurni Gomez
                (10/8/59)
              Chief
                  Financial Officer
              Former
                  Chief Financial Officer of Administration - INMAS, S.A. de
                  C.V.
              February
                  2000
 
 The
        management of our business is vested in our Board of Directors. Our bylaws
        provide that the number of seats on our Board of Directors shall be determined
        by our shareholders at a general ordinary shareholders’ meeting held for the
        purpose of appointing and electing directors; provided, however, that in
        no case
        shall our Board of Directors consist of less than five directors. Our bylaws
        also provide that our shareholders may, but are not required to, nominate
        and
        elect corresponding alternate directors for each current director. Our current
        Board of Directors has seven directors and two alternate directors. Directors
        and alternate directors are elected for one-year terms by our shareholders
        at
        each annual shareholder’s meeting, and each serves until a successor is elected
        and takes office. In order to have a quorum for a meeting of the Board of
        Directors, a majority of the directors must be present.
        All of the current members of our Board of Directors were elected by our
        shareholders at the annual shareholders’ meeting, which was held on April 29,
        2005. In accordance with the Mexican Securities Market Law as amended on
        June 1,
        2001, we have amended our bylaws to reflect the changes in such law, and
        as a
        result of such amendments, 25% of the members of our Board of Directors qualify
        as “independent directors” in Mexico. Under Mexican law, a person will not
        qualify as an “independent director” if he or she is, among other
        things:
  ·
              one
                  of our employees or managers;
  ·
              a
                  controlling shareholder;
  ·
              a
                  director, executive officer or relative of a controlling shareholder,
                  or
                  entities controlled or managed by a controlling shareholder;
                  or
  ·
              a
                  significant client, supplier, debtor or creditor, or member of
                  the board
                  of directors or executive officer of any of these
                  entities.
  Our
        bylaws, as amended, also provide that the Chairman of the Board of Directors
        shall have the casting vote in the event of a tie. The Board of Directors
        is
        required to meet at least once a quarter. The Chairman, 25% of the directors
        or
        any examiner may call for a meeting of the Board of Directors. Also, our
        amended
        bylaws provide that the Board of Directors must approve all transactions
        that
        are outside the ordinary course of business as well as transactions that
        are to
        be entered into between us and any of our shareholders, our managers or other
        related individuals as set forth in the amendments to the Mexican Securities
        Market Law. Likewise, the Board of Directors
   41
  must
        approve any purchase or sale that represents 10% or more of our assets, the
        grant by us of guarantees exceeding 30% percent of our assets and other
        transactions representing more than 1% of our assets, in addition to any
        shareholder approval required by our bylaws or otherwise.
  In
        addition, each holder or group of holders representing at least 10% of a
        series
        of shares has the right to appoint one director and a corresponding alternate
        director. Pursuant to the Mexican Securities Market Law and our bylaws, holders
        of at least 10% of our voting stock are also entitled to appoint a director
        and
        a corresponding alternate director.
  **Committees
        of Our Board of Directors**
  We
        have
        an Executive Committee, whose members are Messrs. Manuel, Alberto and Moises
        Saba Ades, who were all reelected by the shareholders at our annual
        shareholders’ meeting held on April 29, 2005. Under our bylaws, the Executive
        Committee is permitted to act on matters that are not legally reserved for
        the
        Board of Directors.
  In
        accordance with the Mexican Securities Market Law, as amended, we also have
        an
        Audit Committee composed of Messrs. Agustín Rodríguez Legorreta, Raúl Fernández
        Diaque and Mr. Manuel Saba Ades, who are members of the Board of Directors.
        Both
        the Chairman and a majority of the members of the Audit Committee are
        independent directors. Our examiners ( *comisarios* )
        must be
        invited to attend all Audit Committee meetings. Among other duties and
        responsibilities, the Audit Committee must:
  ·
              prepare
                  an annual report regarding its activities for submission to the
                  Board of
                  Directors and to our shareholders at our annual shareholders’ meeting;
  ·
              prepare
                  and render statements to the Board of Directors as to the fairness
                  of
                  transactions and arrangements with related parties; and
  ·
              retain
                  independent experts to render fairness opinions in connection with
                  material transactions and arrangements with related
                  parties.
  **Examiner**
  Pursuant
        to the Mexican Corporations Law and the Mexican Securities Market Law, as
        amended, we must have at least one *comisario* ,
        or
        examiner, who is elected by our shareholders at our annual general ordinary shareholders’
        meeting. In accordance with the amendments to the Mexican Securities Market
        Law,
        every 10% holder, or group of holders, of a series of our shares may elect
        an
        examiner ( *comisario* )
        and a
        corresponding alternate examiner at the annual general ordinary shareholders’
        meeting. The primary role of the examiners is to report to our shareholders
        at
        the annual ordinary general shareholders’ meeting the accuracy of the financial
        information presented to shareholders by the Board of Directors. In accordance
        with Mexican law, the examiners receive monthly reports from the Board of
        Directors regarding material aspects of our affairs, including our financial
        condition and are invited to attend any meeting of the Board of Directors
        and
        the Audit Committee. The examiners are also authorized to:
  ·
              call
                  ordinary or extraordinary general
                  meetings;
  ·
              place
                  items on the agenda for meetings of shareholders or the Board of
                  Directors;
  ·
              attend
                  meetings of shareholders, the Board of Directors, or the Audit
                  Committee;
                  and
  ·
              generally
                  monitor our affairs.
  Our
        current examiner is Manuel Sainz Meixueiro and our current alternate examiner
        is
        Jose Antonio Guzmán Durán.
    42
  **Executive
          Officers**
  The
          following table sets forth the names of our executive officers, their dates
          of
          birth, their current position, their prior business experience, and the
          year in
          which they were first appointed to their current position.
  **Name
                  and Date of**
                **Birth**
              **Current
                  Position**
              **Business
                  Experience**
              **First
                  Appointed**Manuel
                  Saba Ades
                (11/03/67)
              Chief
                  Executive Officer and Vice Chairman of the Board
              President
                  and Director -Xtra Inmuebles, S.A. de C.V.
              February
                  2000Gabriel
                  Saba D’jamus
                (07/27/69)
              Deputy
                  Chief Executive Officer
              Executive
                  Director - Grupo Comercial Hotelera, S.A. de C.V.
              February
                  2000Alejandro
                  Sadurni Gomez
                (10/08/59)
              Chief
                  Financial Officer
              Former
                  Chief Financial Officer of Administration - INMAS, S.A. de
                  C.V.
              February
                  2000Ricardo
                  Ríos Cardenas
                (01/02/55)
              North
                  Region Operations and Sales Director
              Deputy
                  Personal Assistant of the President of the United Mexican
                  States
              December
                  2000Oscar
                  Gutierrez Melgar (17/04/67)
              South
                  Region Operations and Sales Director
              Former
                  Manager of Drogueros, S.A. de C.V.
              November
                  1985Jesus
                  Guerra de Luna
                (05/29/61)
              General
                  Counsel
              Legal
                  Manager - Grupo Casa Autrey, S.A. de C.V.
              June
                  1995Jose
                  Norberto Mouret
                (03/30/52)
              Human
                  Resources Director
              Human
                  Resources Director - Taesa
              October
                  1999Fernando
                  Torres Suarez
                (09/21/64)
              Purchasing
                  Director
              Commercial Director
                  - Farmacias Benavides
              April
                  2001Jorge
                  Luis Garcia
                (09/12/61)
              Chief
                  Information Officer
              Former
                  Manager - Grupo Casa Autrey, S.A. de C.V.
              May
                  1992
 
 **Compensation**
  Pursuant
        to our bylaws, all executive compensation must be approved by our Board of
        Directors on a yearly basis. For the year ended December 31, 2004, the aggregate
        compensation paid by us to our executive officers for services rendered in
        all
        capacities was approximately Ps. 24.2 million. Our directors do not receive
        any
        compensation for their services rendered in such capacity.
  **Share
        Ownership of Directors and Officers**
  Share
        ownership of our directors and executive officers is set forth in the table
        under the caption “Item 7. Major Shareholders and Related Party Transactions”.
        Except as set forth in the table, none of our directors or executive officers
        is
        the beneficial owner of more than 1% of any class of our capital stock or
        options representing the right to purchase more than 1% of any class of our
        capital stock.
  **Employees**
  As
        of
        December 31, 2004, we had 5,367 employees, 2,237 of which were sales
        representatives for our Pharmaceutical and HBCG/Other Products business
        divisions, 875 of which were administrative employees and 2,255 of which
        were
        operational employees. A significant majority of our
        employees, 83.70% as of
        December 31, 2004, are represented by unions. We believe that our relations
        with
        our employees and the unions to which they are affiliated are good. In 2004
        the
        number of employees increased 1.9% compared to 2003, mainly due to the
        reinforcement of our sales force.
  **Employee
        Profit Sharing**
  Under
        Mexican law, we are required to contribute 10% of our yearly taxable profits,
        as
        adjusted, to our employees. This contribution is distributed in May of each
        year. In addition, in the past we have customarily paid an annual Christmas
        bonus to our employees in an amount equal to between two (the minimum required
        by law) and five weeks’ salary, depending on seniority.
    43
  ***The
          Pension Fund***
  We
          recognize the labor obligations for retirement pensions and seniority premiums
          derived from defined benefit plans for all their employees in accordance
          with
          Mexico’s Federal Labor Law, as well as the schemes that have been established
          for each plan. Seniority premiums are granted for a voluntary separation
          of
          personnel who have completed at least fifteen years of service and are
          calculated based on the number of years worked. Retirement pensions are
          granted
          to all personnel who have completed at least ten years of service and reached
          sixty-five years of age. We are required to pay certain severance benefits
          to
          employees that are dismissed without proper cause. These payments for
          non-substitute indemnification of retirement pensions are expensed when
          paid.
  Projected
        benefit obligations, unamortized items, and the net periodic cost applicable
        to
        retirement pensions and seniority premiums are determined by using the
“projected unit credit method”, in conformity with Bulletin D-3, “Labor
        Obligations” issued by the MIPA. This method is virtually identical to the
        method used under U.S. GAAP.
  We
        have
        created a fund placed in irrevocable trusts at a financial institution to
        meet
        the labor obligations referred to above. Contributions to these funds are
        determined annually by an actuarial calculation prepared by an accounting
        firm
        and approved by our Board of Directors. We believe that obligations under
        these
        trusts are closely monitored by their trustee.
  During
        2002, 2003 and 2004 contributions to the fund based on actuarial computations
        amounted to Ps. 4.27, Ps. 10.0 and Ps. 10.0 million, respectively (Ps. 4.7,
        Ps.
        10.5 and 10.0 million at fiscal year-end constant Pesos, respectively). As
        of
        December 31, 2002, 2003 and 2004, fund assets consisted primarily of investments
        in equity securities, as well as investments in fixed income securities issued
        by Mexican companies that are traded on the Mexican Stock Market.
  For
        information regarding the relevant information of the study performed by
        independent actuaries, with regard to our retirement pension and seniority
        premiums, see Note 3(j)(ii) to our audited consolidated financial statements.
 
 **Item
        7.**  **Major
        Shareholders and Related Party Transactions** ****
  We
        are
        not directly or indirectly owned or controlled by another corporation or
        by any
        foreign government.
  **Principal
        Shareholders**
  All
        information presented in this section regarding beneficial ownership of our
        capital stock is based on the number of Ordinary Shares outstanding as of
        May
        31, 2005, which was 265,419,360. As required by Mexican law, the number of
        Ordinary Shares outstanding is presented net of the number of repurchased
        Ordinary Shares held in our treasury as of May 31, 2005, which was 14,729,720.
        We repurchased these Ordinary Shares in the open market pursuant to our share
        repurchase program, as described under the caption “Item 9. Offer and Listing
        Details—Share Repurchases.” Currently, there are no arrangements known to us
        that could result in a change of control of the Company.
  As
        of
        May 31, 2005, our controlling shareholder directly and indirectly
        owned
        225,606,456 Ordinary Shares, representing 85% of our issued and outstanding
        capital stock. As of May 31, 2005, approximately 10.1% of our Ordinary Shares
        were held through ADSs by 92 recorded holders.
  The
        following table shows information, as of May 31, 2005, regarding the
        ownership of our capital stock by each person known by us to own or beneficially
        own more than 5% of our outstanding capital stock and by each of our directors,
        executive officers and key employees.
  
 **Name**
              **Number
                  of Ordinary Shares Owned****(1)**
              **Percentage
                  Stake**Isaac
                  Saba Raffoul
              225,606,456
              85%Directors,
                  executive officers and key employees(2)
              225,606,456
              85%Total
              225,606,456
              85%
   44
 ____________________
 
 (1)
              Does
                  not include Ordinary Shares directly held by funds advised by
                  Internacional de Capitales, S.A. de C.V., an investment advisory
                  firm that
                  renders investment advisory services to funds that invest in securities
                  of
                  Latin American and emerging market issuers. Shares held directly
                  by these
                  funds as of May 31, 2005 represented less than 3% of our
                  issued and
                  outstanding capital stock as of that date. Agustin Rodriguez Legorreta
                  and
                  Raul Fernandez Diaque, two members of our Board of Directors, render
                  investment advisory services to these funds in their capacity as
                  investment advisors of Internacional de Capitales, S.A. de
                  C.V.
  (2)
              The
                  only director, executive officer and/or key employee who owns Ordinary
                  Shares or ADSs is Isaac Saba Raffoul, our controlling shareholder.
                  The
                  listed amount is based on information provided by Mr.
                  Saba.
   **Acquisition
        of Our Company**
  On
        January 19, 2000, Xtra Inmuebles, an entity beneficially owned and controlled
        by
        our controlling shareholder, commenced a tender offer for up to 85% of our
        then
        outstanding Ordinary Shares on the Mexican Stock Exchange. Upon the completion
        of the tender offer on February 1, 2000, Xtra Inmuebles acquired 225,606,456
        Ordinary Shares, representing 85% of our then outstanding capital stock.
        Immediately thereafter, all of these Ordinary Shares were acquired from Xtra
        Inmuebles by our controlling shareholder. The completion of this tender offer
        was subject to the completion of our financial restructuring, which is briefly
        described under “Item 4- Information on the Company - History and Development of
        the Company.”
  Following
        the completion of the tender offer, our controlling shareholder, by means
        of a
        shareholder vote, amended our bylaws, replaced our incumbent Board of Directors
        with nine of his appointees, appointed new management, including a new Chief
        Executive Officer and Chief Financial Officer, among others, and changed
        the
        name of our company from Grupo Casa Autrey, S.A. de C.V. to Grupo Casa Saba,
        S.A. de C.V. As part of our financial restructuring, the net proceeds received
        by certain members of the Autrey family from the tender offer were deposited
        into a special purpose trust in benefit of our creditors in order to repay
        a
        substantial portion of our restructured indebtedness. See “Item 4. Information
        on the Company—History and Development of the Company” and “Item 5. Operating
        and Financial Review and Prospects—Indebtedness.”
 
 **Related
        Party Transactions**
  In
        2004,
        we engaged in, and we may continue to engage in, transactions with related
        parties, including, without limitation, the transactions described below.
        Exclusively for purposes of this discussion, the term “related party” includes
        our affiliates, associates, directors, officers and principal shareholders,
        as
        well as affiliates of our directors, officers and principal shareholders,
        but
        does not include our consolidated subsidiaries. Conflicts of interest are
        inherent in transactions with related parties. See Note 7 to our audited
        consolidated financial statements for all of the information that we must
        make
        publicly available in Mexico regarding related party transactions.
  All
        related party transactions we engage in are previously submitted to the Audit
        Committee, and are subject to thorough evaluation, which results in the
        determination of the terms and conditions under which the transactions shall
        be
        carried out. During this evaluation period, the Audit Committee makes relevant
        market research and obtains quotations from several different non-related
        parties that render the exact or similar services to those intended to be
        performed by the related party with which the transaction is intended to
        be
        conducted. Once the research is concluded, the Audit Committee prepares the
        guidelines that must be observed in establishing the terms of the related
        party
        transactions and submits its evaluation to the Board of Directors and to
        our
        shareholders. This procedure enables the Company to obtain objective information
        as to competitive market prices and conditions and therefore, guarantees
        that
        the transactions entered with related parties are at all times entered into
        on
        an arm’s-length basis.
  ***Transactions
        and Arrangements With Affiliates and Related Parties of Our Directors, Officers
        and Principal Shareholders effective during 2004***
  ***Leases*** .
        In
        2001, we entered into a lease for office space with Xtra Inmuebles, S.A.
        de
        C.V., an entity owned and controlled by our controlling shareholder. During
        2002, 2003, and 2004, we maintained our lease for
 45
   office
        space with Xtra Inmuebles and do not have plans to terminate this agreement.
        In
        2004, we expensed Ps. 4.8 million with respect to this lease. We believe
        that
        this lease was entered into the ordinary course of business, was made at
        arm’s
        length and is on terms no less favorable than those that could have been
        obtained from unaffiliated third parties. See Note 7 to our audited consolidated
        financial statements.
  ***Services*** **.** In 2002,
        one of our subsidiaries, Servicios Corporativos Casa Saba, S.A. de C.V. entered
        into an air transport service agreement with Aero Xtra, S.A. de C.V. an entity
        owned and controlled by our controlling shareholder. Services pursuant to
        this
        agreement were also provided to us in 2003 and 2004. In 2004, we expensed
        Ps.
        10.4 million with respect to services rendered by Aero Xtra, S.A. de C.V.
        This
        contract was entered into in the ordinary course of business, and was made
        at
        arm’s length on terms no less favorable than those that could have been obtained
        from unaffiliated third parties. See Note 7 to our audited consolidated
        financial statements.
  ***Legal
        and Advisory Services*** .
        During
        2004, Mijares, Angoitia, Cortés y Fuentes, S.C., a Mexican law firm, provided us
        with legal and advisory services, and we expect that this will continue to
        be
        the case in the future. Francisco Fuentes Ostos, a partner from the law firm
        of
        Mijares, Angoitia, Cortés y Fuentes, S.C., is the secretary of our Board of
        Directors. We believe that the fees we paid for these services were comparable
        to those that we would have had to pay a third party law firm for similar
        services.
  ***Tax
        Advisory Services*** .
        During
        2004, Chevez, Ruiz, Zamarripa y Cia, S.C., a tax advisory firm, provided
        us with
        tax advisory services, and we expect that this will continue to be the case
        in
        the future. Ivan Moguel Kuri, a partner from the tax advisory firm of Chevez,
        Ruiz, Zamarripa y Cia, S.C., is one of our directors. We believe that the
        fees
        we paid for these services were comparable to those that we would have had
        to
        pay a third party for similar services.
  As
        of
        December 31, 2003 and 2004, the receivable balances from all related parties, Aeroxtra,
        S.A. de C.V. million and Xtra Inmuebles, S.A. de C.V., were Ps. 2.0 million
        and
        Ps. 1.7 million, respectively. The
        receivable balance from Aeroxtra, S.A. de C.V. and Xtra Inmuebles, S.A. de
        C.V.
        represented prepaid flight services and the leasing of real property,
        respectively. During 2004, amounts paid to these related parties were expensed
        in the amounts of Ps. 10,381 and Ps. 4,792, respectively.
  During
        2003 and 2004, we had no other related party agreements, except for the balances
        and transactions referred to above. We believe that all related party
        transactions were agreed upon on an arm’s length basis.
  **Item
        8.**  **Financial
        Information**
  See
“Item
        18—Financial Statements” and “Index to Consolidated Financial Statements”, which
        are incorporated herein by reference.
  **Material
        Legal Proceedings.**
  **** As
        of
        December 31, 2004, there were no existing material legal proceedings that
        could
        have a significant effect on the Company’s financial position or
        profitability.
  **Dividend
        Policy**
  Pursuant
        to Mexican law, decisions regarding the payment and amount of dividends are
        subject to approval of our shareholders, generally, but not necessarily,
        on the
        recommendation of the Board of Directors. Our controlling shareholder owns
        85%
        of our outstanding Ordinary Shares and, so long as he continues to own a
        majority of our outstanding shares, he will have the ability to determine
        whether we will declare and pay dividends, in cash or otherwise. See “Item 3.
        Key Information--Risk Factors -- Risk Factors Related to our Securities --
        Our
        Controlling Shareholder Has the Ability to Restrict the Payment and Amount
        of
        Dividends”. We do not have a specific dividend policy. Depending on the results
        and condition of our business, dividends for a specific year would be paid
        to
        the extent such payment would not impair our ability to invest and grow.
        Therefore, any dividend payment would depend on the cash that the Company
        generates in a specific year as well as on the market conditions of our
        business.
   46
  **Significant
        Changes**
  Since
        the
        date of our annual financial statements, no significant change in our financial
        information has occurred other than those changes described in “Item. 5.
        Operating and Financial Review and Prospects - Trend Information”.
  **Item
        9.**  **Offer
        and Listing Details**
  ***Trading
        History of Ordinary Shares and ADSs***
  Since
        December 7, 1993, our Ordinary Shares have been listed and traded on the
        Mexican
        Stock Exchange under the symbol “SAB” and our American Depositary Shares, or
        ADSs, have been listed and traded on the New York Stock Exchange, or NYSE,
        also
        under the symbol “SAB”. The ADSs were issued pursuant to a Deposit Agreement,
        dated December 1, 1993, as amended, among us, Morgan Guaranty Trust Company
        of
        New York, as depositary, and the holders from time to time of our ADSs. Each
        ADS
        represents 10 Ordinary Shares. On December 11, 2002, we entered into an Amended
        and Restated Deposit Agreement pursuant to which The Bank of New York was
        appointed as successor depositary to Morgan Guaranty Trust Company of New
        York.
  The
        table
        below shows, for the five most recent full financial years ending December
        31,
        2004 and each month in the six month period ending May 31, 2005, the reported
        annual highest and lowest market prices in nominal Pesos for our Ordinary
        Shares
        on the Mexican Stock Exchange.
  **Pesos
                  per Ordinary Share****(1)****High**
              
              **Low**Year2000
              
              Ps.
              10.10
              
              Ps.
              6.502001
              
              Ps.
              8.99
              
              Ps.
              3.692002
              
              Ps.
              12.40
              
              Ps.
              6.522003:
              
              Ps.
              13.30
              
              Ps.
              10.00First
                  Quarter
              
              
              12.09
              
              
              10.50Second
                  Quarter
              
              
              12.50
              
              
              10.00Third
                  Quarter
              
              
              13.30
              
              
              12.30Fourth
                  Quarter
              
              
              13.10
              
              
              11.90
 2004:
              
              Ps.
              16.20
              
              Ps.
              12.39First
                  Quarter
              
              
              14.40
              
              
              12.80Second
                  Quarter
              
              
              13.94
              
              
              13.56Third
                  Quarter
              
              
              14.15
              
              
              12.39Fourth
                  Quarter
              
              
              16.60
              
              
              12.932005:First
                  Quarter
              
              Ps.
              20.50
              
              Ps.
              17.00MonthDecember
                  2004
              
              Ps.
              16.60
              
              Ps.
              15.55January
                  2005
              
              Ps.
              20.50
              
              Ps.
              17.00February
                  2005
              
              Ps.
              20.00
              
              Ps.
              18.91March
                  2005
              
              Ps.
              18.50
              
              Ps.
              18.50April
                  2005
              
              Ps.
              18.50
              
              Ps.
              18.50May
                  2005
              
              
              18.50
              
              
              18.50June
                  (through June 15, 2005)
              
              
              17.90
              
              
              16.70
 ____________________
 (1)
              Source:
                  Infosel and Economática
   The
        table
        below shows, for the five most recent full financial years ending December
        31,
        2004 and each month in the six month period ending May 31, 2005, the high
        and
        low sales prices in U.S. Dollars for our ADSs on the NYSE.
    47
    **U.S.
                    Dollars per ADS****(1)****High**
                
                **Low**Year2000
                
                U.S.$
                $11.00
                
                U.S.$
                $6.382001
                
                U.S.$
                8.35
                
                U.S.$
                5.052002
                
                U.S.$
                12.51
                
                U.S.$
                6.602003:
                
                U.S.$
                12.50
                
                U.S.$
                9.40First
                    Quarter
                
                
                11.65
                
                
                9.70Second
                    Quarter
                
                
                11.90
                
                
                9.40Third
                    Quarter
                
                
                12.50
                
                
                11.50Fourth
                    Quarter
                
                
                11.60
                
                
                10.452004:
                
                U.S.$
                14.99
                
                U.S.$
                10.70First
                    Quarter
                
                
                13.01
                
                
                11.40Second
                    Quarter
                
                
                13.00
                
                
                12.11Third
                    Quarter
                
                
                11.83
                
                
                10.70Fourth
                    Quarter
                
                
                14.99
                
                
                11.252005:First
                    Quarter
                
                U.S.$
                18.50
                
                U.S.$
                14.75MonthDecember
                    2004
                
                U.S.$
                14.99
                
                U.S.$
                13.45January
                    2005
                
                U.S.$
                18.50
                
                U.S.$
                14.75February
                    2005
                
                U.S.$
                18.10
                
                U.S.$
                16.85March
                    2005
                
                U.S.$
                17.20
                
                U.S.$
                16.12April
                    2005
                
                U.S.$
                16.77
                
                U.S.$
                16.25May
                    2005
                
                U.S.$
                16.65
                
                U.S.$
                14.80June
                    (through June 15, 2005)
                
                U.S.$
                15.69
                
                U.S.$
                14.95
  ____________________
 (1)
        Source: Bloomberg, Infosel and Economática
  Trading
        prices of our Ordinary Shares and our ADSs will be influenced by our results
        of
        operations, financial condition, cash requirements, future prospects and
        by
        economic, financial and other factors and market conditions. See “Item 3. Key
        Information—Risk Factors—Risk Factors Relating to Developments in
        Mexico—Economic and Political Developments in Mexico May Adversely Affect Our
        Business.” There can be no assurance that prices of our Ordinary Shares and our
        ADSs will, in the future, be within the ranges set forth above. As of December
        31, 2004, there were 265,419,360 Ordinary Shares issued and outstanding,
        approximately 10.1% of which were held in the form of ADSs.
  ***Trading
        on the Mexican Stock Exchange***
  **Overview**
  The
        Mexican Stock Exchange, located in Mexico City, is the only stock exchange
        in
        Mexico. Operating continuously since 1907, the Mexican Stock Exchange is
        organized as a corporation with variable capital, or *sociedad
        anónima de capital variable* .
        Securities are traded on the Mexican Stock Exchange from 8:30 am to 3:00
        pm
        Mexico City time, each business day. Since January 1999, all trading on the
        Mexican Stock Exchange has been conducted electronically. The Mexican Stock
        Exchange operates a system of automatic suspension of trading in shares of
        a
        particular issuer as a means of controlling excessive price or volume
        volatility. Under current regulations, this system applies to the ADSs. However,
        the Mexican Stock Exchange may take into account any suspension measures
        that
        may or may not have been taken by the New York Stock Exchange in respect
        of the
        ADSs, and may resolve not to impose a suspension of trading of our
        shares.
  Settlement
        is effected two trading days after a share transaction on the Mexican Stock
        Exchange. Deferred settlement, even by mutual agreement, is not permitted
        without the approval of the CNBV. Most securities traded on the Mexican Stock
        Exchange are on deposit with *S.D.
        Indeval, S.A. de C.V.* , *Institución
        para el Depósito de Valores, S.A. de C.V.* ,
        or
        Indeval, a privately owned securities depositary that acts as a clearinghouse,
        depositary and
    48
  custodian,
        as well as a settlement, transfer and
        registration agent for Mexican Stock Exchange transactions, eliminating the
        need
        for physical transfer of securities.
  Although
        the Mexican Securities Market Law provides for the existence of an
        over-the-counter market, no such market for securities in Mexico currently
        exists.
  ***Trading
        on the New York Stock Exchange***
  Since
        December 7, 1993, our ADSs have been listed on the NYSE. Each ADS
        represents 10 Ordinary Shares. The ADSs are evidenced by American Depositary
        Receipts, or ADRs. ADRs evidencing ADSs may be issued by The Bank of New
        York,
        as depositary, pursuant to the Amended and Restated Deposit Agreement dated
        as
        of December 11, 2002 among Grupo Casa Saba, The Bank of New York and
        all
        registered holders, from time to time, of the ADRs issued thereunder. An
        ADR may
        evidence any number of ADSs.
  As
        of May
        31, 2005, approximately 10.1% of the Ordinary Shares were publicly held through
        ADRs in the NYSE. Holders of ADRs have voting rights with respect to the
        underlying shares. In accordance with the ADR Amended and Restated Deposit
        Agreement, ADR holders must instruct the Depositary as to the manner in which
        the underlying shares are to be voted.
  ***Share
        Repurchases***
  In
        April
        1998 and April 1999, our shareholders approved the allocation of retained
        earnings from a reserve of Ps. 200.0 million and Ps. 500.0 million (Ps. 294.4
        million and Ps. 547.0 million in constant Pesos as of December 31, 2004)
        to
        repurchase our Ordinary Shares on the Mexican Stock Exchange at the discretion
        of our Board of Directors. At our annual shareholders’ meeting, which was held
        on April 29, 2005, our shareholders did not approve the allocation of any
        amounts from retained earnings for share repurchases. Our share repurchase
        program has been authorized by the CNBV and all repurchases have been conducted
        in full compliance with Mexican law and the rules and regulations of the
        CNBV.
  Pursuant
        to our share repurchase program, we may repurchase Ordinary Shares on the
        Mexican Stock Exchange at the prevailing market price. Upon the repurchase
        of
        Ordinary Shares, we must reduce the number of Ordinary Shares outstanding
        by the
        number of Ordinary Shares repurchased. Pursuant to our share repurchase program,
        we repurchased 13,433,000 Ordinary Shares during 1998 and 3,003,720 Ordinary
        Shares during 1999. Since then, we have not repurchased any additional Ordinary
        Shares.
  When
        we
        resell repurchased Ordinary Shares on the Mexican Stock Exchange, we must
        increase the number of Ordinary Shares outstanding by the corresponding number
        of Ordinary Shares sold. We resold 1,438,000 Ordinary Shares during 1998
        and
        269,000 Ordinary Shares in 1999. As of December 31, 2004, 14,729,720 repurchased
        Ordinary Shares were held in our treasury. We are currently in the process
        of
        evaluating various alternatives regarding the resale or redemption of the
        Ordinary Shares held in our treasury.
  We
        have
        amended our bylaws to reflect certain changes to the Mexican Securities Market
        Law affecting share repurchases. For a description of the amendments relating
        to
        share repurchases, see “Item 10. Additional Information —Bylaws—Other
        Provisions—Share Repurchases.”
  **Item
        10.**  **** **Additional Information**
  ***Amendments
        to Mexican Securities Market Law***
  The
        Mexican Congress approved amendments to the Mexican Securities Market Law,
        which
        became effective on June 2, 2001. Some of these amendments have not yet been
        implemented by governmental regulators. We have, however, amended our bylaws
        in
        order to reflect certain of these amendments. See “Item 3. Key Information—Risk
        Factors—Risk Relating to Our Securities—The Protections Afforded to Minority
        Shareholders Under Mexican Law Are Different From Those in the United
        States.”
   49
  Among
          other amendments, our bylaws were changed to state that we must:
  ·
                establish
                    a Board of Directors with at least five and not more than twenty
                    members
                    and alternate members, of which 25% must qualify as “independent
                    directors” as defined under Mexican law;
 ·
              adopt
                  specified corporate governance measures, which require us to establish,
                  among other things, an audit committee, as well as more stringent
                  procedures for the approval of transactions and arrangements with
                  related
                  parties and corporate transactions out of the ordinary course of
                  business;
                  and
  ·
              provide
                  additional protections for minority
                  shareholders.
  In
        addition, there is a bill currently pending before the Mexican national congress
        that would, if passed, amend certain Mexican securities laws and would require
        certain amendments to our bylaws, including amendments to the provisions
        relating to corporate governance standards and the rights of minority
        shareholders.
  The
        Mexican Securities Market Law now permits issuers to include anti-takeover
        defenses in their bylaws, provided that their bylaws also include specified
        minority rights and protections, among other things, and we have included
        such
        provisions in our bylaws. See “—Bylaws—Other Provisions—Appraisal Rights and
        Other Minority Protections” under this item. Under the new law, issuers are not
        permitted to implement mechanisms where common shares and limited or non-voting
        shares are jointly traded or offered to public investors, unless the limited
        or
        non-voting shares are converted into common shares within a term of up to
        five
        years, or when as a result of the nationality of a given holder, the shares
        or
        the securities representing the shares limit the right to vote in order to
        comply with applicable foreign investment regulations.
  The
        Mexican Securities Market Law imposes some restrictions on shareholders of
        issuers listed on the Mexican Stock Exchange. Shareholders of issuers listed
        on
        the Mexican Stock Exchange must notify the CNBV before effecting transactions
        outside of the Mexican Stock Exchange that result in a transfer of 10% or
        more
        of an issuer’s capital stock. These shareholders must also inform the CNBV of
        the results of these transactions within three days of their completion,
        or,
        alternatively, that these transactions have not been consummated. The CNBV
        will
        notify the Mexican Stock Exchange of these transactions, without specifying
        the
        names of the parties involved. The CNBV also has the ability to determine
        whether purchasers in these types of transactions must effect these transactions
        through a tender offer, as well as the minimum and maximum percentages of
        capital stock that may be purchased through any such tender offer.
  On
        April
        25, 2002, the CNBV issued general rules to regulate public tender offers
        and the
        obligation to disclose share acquisitions above certain thresholds. Subject
        to
        certain exceptions, any acquisition of shares of an issuer which increases
        the
        acquirer’s ownership to 10% or more, but no more than 30%, of the issuer’s
        outstanding capital stock must be disclosed to the CNBV and the Mexican Stock
        Exchange no later than the day following the acquisition. In addition, any
        intended acquisition of shares of an issuer which increases the potential
        acquirer’s ownership to 30% or more, but no more than 50%, of the issuer’s
        voting shares requires the potential acquirer to make a tender offer for
        the
        greater of (i) the percentage of the capital stock intended to be acquired
        or
        (ii) 10% of the outstanding
        capital stock. Finally, any intended acquisition of shares of an issuer which
        increases the potential acquirer’s ownership to more than 50% of the issuer’s
        voting shares requires the potential acquirer to make a tender offer for
        100% of
        the outstanding capital stock.
  ***Bylaws***
  In
        2003,
        as a result of the amendments to the Mexican Securities Market Law, all listed
        companies were required to incorporate certain provisions into their corporate
        bylaws. As a consequence, in December 2003, our shareholders approved the
        amendment of the bylaws of Grupo Casa Saba in order to comply with the new
        provisions. Most of the changes were related to corporate governance provisions
        and focused on the need to have independent directors.
  Set
        forth
        below is a brief summary of some significant provisions of our bylaws and
        applicable Mexican law. This description does not purport to be complete,
        and is
        qualified by reference in its entirety to our bylaws, which have been filed
        as
        an exhibit to this annual report and to Mexican law. For a description of
        the
        provisions of our bylaws relating to our Board of Directors, Executive Committee
        and statutory auditors, see “Item 6. Directors, Senior Management and
        Employees.”
   50
  ***Organization
          and Register***
  Grupo
          Casa Saba, S.A. de C.V., is a sociedad anónima de capital variable, or limited
          liability stock corporation with variable capital, which was organized
          under the
          laws of the United Mexican States in accordance with the Mexican Corporations
          Law on November 11, 1982. Our deed of incorporation was registered with
          the
          Public Registry of Commerce of Mexico City, D.F., under Commercial Page
          (*folio mercantil*) Number 55,635. We have a general corporate purpose,
          the specifics of which can be found in Article Four of our bylaws, which
          includes, among others, the following: (i) to promote, incorporate, organize,
          exploit and participate in the capital stock and assets of all type of
          commercial or civil companies, associations or industrial, commercial,
          service
          or other concerns, both domestic and foreign, and participate in the management
          or liquidation thereof; (ii) to manufacture, produce, purchase, sell, process,
          distribute, export and import all types of products permitted by law and,
          generally, all types of domestic or foreign goods or merchandise, whether
          in the
          form of raw materials, semi-finished of finished products and whether
          pre-assembled or unassembled, and to trade them in any manner whatsoever
          either
          for our account or the account of others; (iii) to acquire, transfer and,
          generally, negotiate with all types of shares of stock, partnership interests
          and securities; (iv) provide, contract and receive all types of technical,
          consulting and advisory services, and enter into contracts or agreements
          in
          connection therewith; (v) to enter into all types of agreements with the
          Federal
          Government or any local governments of public or private entities, individuals
          or corporations, whether domestic or foreign; (vi) to issue, subscribe,
          accept,
          endorse and guarantee credit instruments, securities and other instruments
          permitted by law; (vii) to acquire, transfer, lease, sublease and permit
          the
          use, enjoyment, disposition of generally, exploitation of all types of
          personal
          and real property, including their parts or appurtenances; (viii) to provide
          or
          receive all types of technical and professional assistance and services;
          (ix) to
          obtain and grant all types of loans, providing and receiving specific guarantees
          thereof; issue debentures and notes; accept, draw, endorse or guarantee
          all
          types of credit instruments and other documents evidencing credit rights,
          and
          grant all types of bonds or guarantees with regard to the obligations assumed
          or
          the instruments issued or accepted by third parties; and (x) generally,
          to carry
          out all types of commercial transactions and enter into all types of contracts,
          agreements and transactions of any nature whatsoever, in accordance with
          the
          law.
 
  ***Directors*** .
        Under
        the Mexican Securities Market Law, any shareholder or director that votes
        on a
        transaction in which his interests conflict with our interests may be liable
        for
        damages, but only if the transaction would not have been approved without
        his
        vote. In addition, any member of our Board of Directors that votes on a
        transaction in which his interest conflict with our interests may be liable
        for
        damages. Our existing bylaws do not contain any provisions that govern or
        limit
        the ability of our directors or shareholders to vote on transactions in which
        their interests conflict with our interests. In addition, our existing bylaws
        do
        not contain any provisions that govern or limit the ability of our directors,
        in
        the absence of an independent quorum, to borrow from us or to vote compensation
        to themselves or any other member of our Board of Directors or any committee
        of
        our Board of Directors. We have amended our bylaws in order to submit, among
        others, the following matters to the Board of Directors: (i) all transactions
        between the Company and any of its subsidiaries or any related party as such
        terms is defined under the Mexican Securities Market Law; (ii) the purchase
        or
        shale of assets by any subsidiary representing 10%
        (ten
        per cent) or more of the Company’s total assets; and (iii) the granting of loans
        by any subsidiary exceeding 30% (thirty per cent of the total value of the
        Company’s assets). Members of our Board of Directors, members of our Audit
        Committee and our Statutory Auditor will be liable to our shareholders for
        breaching their duty of loyalty to the corporation to the extent that these
        individuals approve transactions in which they have a conflict of interest.
        Members of our Board of Directors, members of our Audit Committee and our
        Statutory Auditor will be liable to our shareholders for breaching their
        duty of
        loyalty to the corporation to the extent that these individuals approve
        transactions in which they have a conflict of interest.
 
  ***Voting
        Rights and Shareholders’ Meetings***
  Holders
        of Ordinary Shares have the right to vote on all matters subject to shareholder
        approval at any general shareholder’s meeting and have the right to appoint our
        Board of Directors.
  General
        shareholders’ meetings may be ordinary general meetings or extraordinary general
        meetings. Extraordinary general meetings are those called to consider specific
        matters listed in Article 182 of the Mexican Corporations Law and our bylaws,
        including the extension of the Company’s duration, changes to the corporate
        purpose, change of the Company’s jurisdiction of incorporation, amendments to
        the corporate bylaws, dissolution,
  51
  liquidation
        or spin-offs, issuance of securities, mergers and transformations of our
        mercantile regime and increases and reductions in the fixed portion of our
        capital stock. In addition, our bylaws require an extraordinary general meeting
        to approve the cancellation of the Ordinary Shares’ listing with the securities
        and/or special sections of the National Registry of Foreign Investment (“NRFI”),
        as the case may be, and with any other Mexican or foreign stock exchange
        in
        which our Ordinary Shares or securities represented our Ordinary Shares,
        such as
        our ADSs, are registered. General meetings called to consider all other matters
        are ordinary meetings that are held at least once each year within four months
        following the end of each year.
 
 The
        procedure that must be followed in order to call a shareholders meeting is
        provided for in the General Corporations Law, the Securities Market Law and
        the
        Company’s bylaws, which incorporate the provisions set forth in the mentioned
        laws.
  In
        terms
        of the above-mentioned regulations and our bylaws, the shareholders meetings
        shall be called by our Board of Directors or the Statutory Examiner. Any
        shareholder or group of shareholders representing at least 10% of the capital
        stock may request that a shareholder’s meeting be called. If after 15 days
        following the request such call has not been made, the shareholder or
        shareholders may appear before a judge within the Company’s jurisdiction who
        shall call upon such meeting as requested by the shareholder(s).
  Calls
        for
        the general ordinary shareholders meetings must be published in the Official
        Federal Gazette or in one major newspaper sold within our corporate domicile,
        at
        least 15 days prior to the date in which the meeting is to be held.
        Extraordinary shareholders meetings may be called as described above, although
        calls for such meetings may be published with at least eight days prior to
        the
        meeting.
  In
        order
        for any shareholder to attend a shareholders meeting, a shareholder must
        demonstrate his title to the shares, and only such persons registered as
        shareholders in the stock registry book of the Company shall be deemed
        shareholders. Once the shareholder of record demonstrates his title to the
        shares, he shall obtain an admission pass for the meeting, which shall be
        required in order to be admitted at the corresponding meeting. The admission
        pass shall be delivered to such shareholders that request the pass in writing
        to
        the Secretary of the Board of Directors at least 24 hours prior to the meeting,
        and deliver to the Secretary their share certificates or the corresponding
        certificate form the depositary of the shares, as may be the case.
  Holders
        of ADRs have the same rights as holders of Ordinary Shares. They are entitled
        to
        direct the vote of the shares underlying their ADRs by means of instructing
        the
        ADRs Depositary who must ensure that the requirements, set forth in the
        paragraph above, for attendance at shareholder’s meetings are met. ADR holders
        also have all of the economic rights inherent to the Ordinary Shares that
        underlie their respective ADRs, such as the right to receive
        dividends.
 
 ***Dividend
        Rights***
  At
        our
        annual ordinary general shareholders’ meeting, our Board of Directors submits
        our financial statements from the previous year to the holders of our Ordinary
        Shares for their approval. Once our shareholders approve these financial
        statements, they must then allocate our net profits for the previous year.
        Under
        Mexican law, at least 5% of our net profits must be allocated to a legal
        reserve, until the amount of this reserve equals 20% of our paid-in capital
        stock. Thereafter, our shareholders may allocate our net profits to any special
        reserve. After this allocation, the remainder of our net profits will be
        available for distribution as dividends. Additionally and prior to the
        distribution of dividends, Mexican companies are required to contribute 10%
        of
        their yearly taxable profits to our employees. However, please note that
        the
        Company has no direct employees as of this date, only its subsidiaries. See
        “Item 10. Additional Information—Employee Profit Sharing.”
  Decisions
        regarding the payment and amount of dividends are subject to approval by
        the
        holders of our Ordinary Shares, generally, but not necessarily, on the
        recommendation of our Board of Directors. Our controlling shareholder owns
        85%
        of the authorized, issued and outstanding Ordinary Shares, and as long as
        he
        continues to do so, he will have, as a result of such ownership, the ability
        to
        determine whether dividends are to be paid and the amount of such dividends.
        See
“Item 3. Key Information—Dividends” and “Item 3. Key Information—Risk
        Factors—Risk Factors Relating to Our Securities—Our Controlling Shareholder Has
        the Ability to Restrict the Payment and Amount of Dividends.”
    52
  In
          accordance with the General Corporations Law, our shareholders have five
          years
          to collect their dividends, beginning on the date the dividends are declared
          payable. If the dividends are not collected during such period, a shareholder’s
          right to the dividend is extinguished.
 ***Limitation
        on Capital Increases***
  Our
        bylaws require that any capital increase is represented by new shares of
        each
        series of our capital stock in proportion to the number of each series
        outstanding shares **.** All
        increases in the capital stock of the Company must be approved at the general
        shareholder’s meeting. When the increase is to the fixed portion of the capital
        stock, then the general extraordinary shareholders meeting must approve it.
        If
        the increase is to the variable portion of the capital stock, then the general
        ordinary shareholder’s meeting must approve it.
  ***Preemptive
        Rights***
  In
        the
        event of a capital increase, a holder of Ordinary Shares has a preferential
        right to subscribe to a sufficient number of Ordinary Shares in order to
        maintain his existing proportionate holdings of Ordinary Shares. Shareholders
        must exercise their preemptive rights within the time period set by our
        shareholders at the meeting approving the issuance of additional Ordinary
        Shares. This period must continue for at least fifteen days following the
        publication of notice of the issuance in the Diario Oficial de la Federación,
        Mexico’s official newspaper, and in a newspaper of general circulation in Mexico
        City. Under Mexican law, shareholders cannot waive their preemptive rights
        in
        advance or be represented by an instrument that is negotiable separately
        from
        the corresponding Ordinary Share. U.S. holders of ADSs may exercise preemptive
        rights only if we register any newly issued Ordinary Shares under the Securities
        Act of 1933 or qualify for an exemption from registration. We intend to evaluate
        at the time of any offering of preemptive rights the costs and potential
        liabilities associated with registering additional Ordinary Shares. See “Item 3.
        Key Information—Risk Factors—Risk Factors Relating to Our Securities—Preemptive
        Rights May Be Unavailable to Holders of Our ADSs. “
  ***Forfeiture
        of Shares*** .
        As
        required by Mexican law, our bylaws provide that for Ordinary Shares, our
        non-Mexican shareholders formally agree with the Foreign Affairs
        Ministry:
  ·
              to
                  be considered as Mexicans with respect to Ordinary Shares that
                  they
                  acquire or hold as well as to the property, rights, concessions,
                  participations or interests owned by us or to the rights and obligations
                  derived from any agreements we have with the Mexican government;
                  and
  ·
              not
                  to invoke the protection of their own governments. Failure to comply
                  is
                  subject to a penalty of forfeiture of such a shareholder’s capital
                  interests in favor of Mexico.
  In
        the
        opinion of Mijares, Angoitia, Cortés y Fuentes, S.C., our Mexican counsel, under
        this provision a non-Mexican shareholder is deemed to have agreed not to
        invoke
        the protection of his own government by asking such government to interpose
        a
        diplomatic claim against the Mexican government with respect to the
        shareholder’s rights as a shareholder, but is not deemed to have waived any
        other rights it may have, including any rights under the United States
        securities laws, with respect to its investment in our Company. If the
        shareholder should invoke governmental protection, in violation of this
        agreement, his shares could be forfeited to the Mexican government.
  ***Exclusive
        Jurisdiction*** .
        Our
        bylaws provide that legal action relating to the execution, interpretation
        or
        performance of the bylaws shall be brought only in courts located in Mexico
        City.
  ***Duration*** .
        Our
        corporate existence under our bylaws continues until 2099.
  ***Dissolution
        or Liquidation*** .
        Upon
        any dissolution, liquidation or split-up of our company, our shareholders
        will
        appoint one or more liquidators at an extraordinary general shareholders’
        meeting to wind up our affairs. In the event of a surplus upon dissolution,
        liquidation or split-up, a pro rata payment per Ordinary Share will be made
        to
        each of our shareholders.
  ***Redemption*** .
        Our
        bylaws provide that we may redeem our Ordinary Shares with distributable
        profits
        without reducing our capital stock by shareholder resolution at an extraordinary
        shareholders’ meeting. In accordance with Mexican law:
  53
  ·
                any
                    redemption shall be made on a pro-rata basis among all of our
                    shareholders;
 ·
              to
                  the extent that a redemption is effected through a public tender
                  offer on
                  the Mexican Stock Exchange, the shareholders’ resolution approving the
                  redemption may empower the Board of Directors to specify the number
                  of
                  shares to be redeemed and appoint the related intermediary or purchase
                  agent; and
  ·
              any
                  redeemed shares must be cancelled.
  ***Share
        Repurchases*** .
        As
        required by Mexican law, our bylaws provide that we may repurchase our shares
        on
        the Mexican Stock Exchange at the prevailing market prices. We are not require
        to create a special reserve for the repurchase of shares, nor do we need
        the
        approval of our Board to effect share repurchases, however, we must appoint
        a
        person or individuals responsible for effecting share repurchases. The amount
        of
        capital stock allocated to share repurchases is determined by our shareholders
        at a general ordinary shareholders’ meeting. Share repurchases must be charged
        to our net worth if the repurchased shares remain in our possession and to
        our
        capital stock if the repurchased shares are converted into treasury shares.
        The
        aggregate amount of resources allocated to share repurchases in any given
        year
        cannot exceed the total amount of our net profits in any given year. Our
        capital
        stock is reduced automatically in an amount equal to the theoretical value
        of
        any repurchased shares. If the purchase price of the shares is less than
        the
        theoretical value of the repurchased shares, our capital stock account will
        be
        affected by an amount equal to the theoretical value of the repurchased
        shares.
  ***Delisting.*** In the
        event that the we decide to cancel the registration of our shares with the
        Mexican Securities Registry, or if the CNBV orders this deregistration, our
        shareholders, who are deemed to have control, will be required to make a
        tender
        offer to purchase the shares held by minority shareholders prior to such
        cancellation. Shareholders deemed to have control are those that own a majority
        of our common shares, have the ability to control our shareholders’ meetings, or
        have the ability to appoint a majority of the members of our Board of Directors.
        The price of the offer to purchase will generally be the higher of (x) the
        average trading price on the Mexican Stock Exchange during the last 30 days
        on
        which the shares were quoted prior to the date on which the tender offer
        is made
        and (y) the book value of the shares as reflected in our latest quarterly
        financial information filed with the CNBV and the Mexican Stock
        Exchange.
  In
        accordance with the applicable regulations, in the event that our controlling
        shareholders are unable to purchase all of our outstanding shares pursuant
        to a
        tender offer, they must form a trust and contribute to it the amount required
        to
        secure payment of the purchase price offered pursuant to the tender offer
        to all
        of our shareholders that did not sell their shares pursuant to the tender
        offer.
        The trust may not exist for a period longer than six months.
  Controlling
        shareholders are not required to make a tender offer if the deregistration
        is
        approved by 95% of our shareholders and the aggregate consideration payable
        for
        publicly-traded shares does not exceed 300,000 UDIs, Mexico’s investment deposit
        units. Nonetheless, the trust mechanism described in the previous paragraph
        still must be implemented. Five business days prior to the commencement of
        the
        offering, our Board of Directors must make a determination with respect to
        the
        fairness of the offering, taking into account the rights of our minority
        shareholders, and disclose its opinion, which must refer to the justifications
        for the offer price. If the Board of Directors is precluded from making this
        determination as a result of a conflict of interest, the board’s resolution must
        be based on a fairness opinion issued by an expert selected by the audit
        committee.
  ***Modification
        of Shareholders’ Rights.*** The
        rights appurtenant to our Ordinary Shares may only be modified through a
        resolution adopted by at least 50% of our outstanding Ordinary Shareholders
        acting at a general extraordinary shareholders’ meeting.
  ***Appraisal
        Rights and Other Minority Protections*** .
        Whenever our shareholders approve an amendment to our corporate purpose,
        jurisdiction of organization or the transformation of our corporate form,
        any
        dissenting shareholder is entitled, in terms of the General Corporations
        Law, to
        request the separation from the Company and receive the amount of his share
        participation in the Company through the reimbursement of his shares. The
        dissenting shareholder must exercise his appraisal rights 15 days following
        the
        conclusion of the shareholder’s meeting in which the matter was
        approved.
    54
  The
          protections afforded to minority shareholders under Mexican law are generally
          different from those in the United States and many other jurisdictions.
          Substantive Mexican law concerning fiduciary duties of directors has not
          been
          the subject to extensive judicial interpretation in Mexico, unlike many
          states
          in the United States where duties of care and loyalty elaborated by judicial
          decisions helped to shape the rights of minority shareholders. Mexican
          civil
          procedure does not contemplate class actions or shareholder derivative
          actions,
          which permit shareholders in U.S. courts to file actions on behalf of other
          shareholders or to enforce rights of the corporation itself. Shareholders
          cannot
          challenge corporate actions taken at shareholders’ meetings unless they meet
          stringent procedural requirements.
  As
        a
        result of these factors, it is generally more difficult for our minority
        shareholders to enforce rights against us or our directors or principal
        shareholders, than it is for shareholders of a U.S. issuer.
  In
        addition, under U.S. securities laws, as a foreign private issuer we are
        exempt
        from certain rules that apply to domestic U.S. issuers with equity securities
        registered under the U.S. Securities Exchange Act of 1934, including the
        proxy
        solicitation rules. We are also exempt from some of the corporate governance
        requirements of the New York Stock Exchange.
  Under
        our
        current bylaws, if we decide to cancel, or the CNBV requires us to cancel,
        the
        registration of our Ordinary Shares in the NRFI, our controlling shareholder
        will be required to initiate a tender offer for all Ordinary Shares held
        by
        minority stockholders at a price equal to the higher of the average trading
        price of the Ordinary Shares on the Mexican Stock Exchange during the 30
        day
        period prior to the commencement of the tender offer or the book value of
        the
        Ordinary Shares. If any Ordinary Shares held by minority shareholders are
        not
        tendered pursuant to the tender offer, a trust will be established, into
        which
        our controlling shareholder would be required to contribute cash in an amount
        equal to the consideration for these remaining Ordinary Shares. Those minority
        shareholders who did not tender their Ordinary Shares in the tender offer
        have
        the right to tender their Ordinary Shares to the trust at the tender offer
        price
        for up to two years following the completion of the tender offer.
  In
        addition, as of June 1, 2001, the Mexican Securities Market Law was amended
        to
        heighten to the protections afforded to minority shareholders under Mexican
        law.
        In accordance with these amendments, we have amended our bylaws to include
        a
        number of minority protections. These minority protections include provisions
        that permit:
  ·
              holders
                  of at least 10% of our outstanding capital stock to call a shareholders’
                  meeting;
  ·
              holders
                  of at least 15% of our outstanding capital stock to bring a derivative
                  suit against any member of our Board of Directors for breach of
                  fiduciary
                  duties;
  ·
              holders
                  of at least 10% of our shares represented at a shareholders’ meeting to
                  request that resolutions with respect to any matter on which they
                  were not
                  sufficiently informed to be postponed; and
  ·
              subject
                  to the satisfaction of certain requirements under Mexican law,
                  holders of
                  at least 20% of our outstanding capital stock to contest any shareholder
                  resolution.
  We
        are
        organized under the laws of Mexico. Substantially all of our directors and
        executive officers reside outside of the United States, all or a significant
        portion of the assets of our directors and executive officers reside outside
        of
        the United States and substantially all of our assets are located outside
        of the
        United States. As a result, it may be difficult for investors to effect service
        of process within the United States upon these individuals. It may also be
        difficult for investors to enforce against these individuals, either inside
        or
        outside the United States, judgments obtained against them in U.S. courts,
        or to
        enforce in U.S. courts judgments obtained against them in courts in
        jurisdictions outside the United States, in any action based on civil
        liabilities under the U.S. federal securities laws. There is doubt as to
        the
        enforceability against these individuals in Mexico, whether in original actions
        or in actions to enforce judgments of U.S. courts, of liabilities predicated
        solely on U.S. federal securities laws. We have been advised by our Mexican
        counsel, Mijares, Angoitia, Cortés y Fuentes, S.C., that there is doubt as to
        the enforceability, in original actions in Mexican courts, of liabilities
        predicated solely on U.S. federal securities laws and as to the enforceability
        in Mexican courts of judgments of U.S. courts obtained in actions predicated
        upon the civil liability provisions of the U.S. federal securities
        laws.
   55
  ***Material
          Contracts***
  We
        are
        not a party to any material contract out of the ordinary course of
        business.
  ***Exchange
        Controls and Restrictions on Foreign Investment***
  In
        the
        past, the Mexican economy has experienced balance of payments deficits,
        shortages in foreign currency reserves and other problems that have affected
        the
        availability of foreign currencies in Mexico. The Mexican government does
        not
        currently restrict or regulate the ability of persons or entities to convert
        Pesos into U.S. Dollars or other currencies. However, it has done so in the
        past
        and could do so again in the future. We cannot assure you that the Mexican
        government will not institute a restrictive foreign currency exchange control
        policy in the future. For a description of exchange rate information, see
“Item
        3. Key Information—Exchange Rate Information.”
  Ownership
        by non-Mexicans of securities issued by Mexican Corporations is regulated
        by the *Ley
        de Inversión Extranjera* ,
        or the
        Foreign Investment Law, and the *Reglamento
        de la Ley de Inversión Extranjera y del Registro Nacional de Inversiones
        Extranjeras* ,
        or the
        Foreign Investment Regulations. The *Comisión
        Nacional de Inversiones Extranjeras* ,
        or the
        Foreign Investment Commission, is responsible for the administration of the
        Foreign Investment Law and the Foreign Investment Regulations. The Foreign
        Investment Law, as amended, provides that the Company may have up to 100%
        of
        foreign participation without requiring any government authorizations. The
        Foreign Investment Law also requires us to register any foreign owner of
        our
        Ordinary Shares, including the depositary for our ADSs, with the National
        Registry of Foreign Investment or the NRFI. We have registered The Bank of
        New
        York, the depositary for our ADSs, for this purpose.
  In
        addition, as required by Mexican law, our bylaws provide that non-Mexican
        holders of our Ordinary Shares, including those held in the form of ADSs,
        formally agree with the Foreign Affairs Ministry:
  ·
              to
                  be considered as Mexicans with respect to the Ordinary Shares that
                  they
                  acquire or hold, as well as to the property, rights, concessions,
                  participation or interests owned by us or to the rights and obligations
                  derived from any agreements we have with the Mexican government;
                  and
  ·
              not
                  to invoke the protection of their own governments. If a holder
                  of our
                  Ordinary Shares invokes the protection of its own government, the
                  holder’s
                  Ordinary Shares will be forfeited to the Mexican
                  government.
  **Mexican
        Tax Considerations**
  ***General*** .
        The
        following is a summary of the anticipated material Mexican tax consequences
        of
        the purchase, ownership and disposition of ADSs or Ordinary Shares by a person
        that is not a resident of Mexico, as defined below. The term “U.S. Holder” shall
        have the meaning ascribed below under the section “- U.S. Federal Income Tax
        Considerations”.
  U.S.
        Holders should consult with their own tax advisors to as to their entitlement
        to
        benefits afforded by the tax treaty between the United States and Mexico.
        Mexico
        has also entered into and is negotiating with various countries regarding
        other
        tax treaties that may have an effect on the tax treatment of ADSs or Ordinary
        Shares. Holders should consult with their tax advisors as to their entitlement
        to the benefits afforded by these treaties.
  This
        discussion does not constitute, and shall not be considered as, legal or
        tax
        advice to holders. This discussion is for general information purposes only
        and
        is based upon the tax laws of Mexico as in effect on the date of this annual
        report, which are subject to change, including:
  ·
              The
                  Income Tax Law
  ·
              The
                  Federal Tax Code, and
  ·
              The
                  Tax Treaty between Mexico and the U.S., which we refer to as the
                  Tax
                  Treaty.
   56
   Holders
        should consult their own tax advisors as to U.S., Mexican or other tax
        consequences of the purchase, ownership and disposition of ADSs or Ordinary
        Shares.
  For
        Mexican income tax purposes, the following principles apply regarding
        residency:
  ·
              a
                  natural person may be treated as a resident of Mexico if he or
                  she has
                  established his or her home in Mexico, unless he or she resided
                  in another
                  country for more than 183 calendar days during a year and can demonstrate
                  that he or she had become a resident of that country for tax
                  purposes;
  ·
              a
                  legal entity is a resident of Mexico if it is established under
                  Mexican
                  law, or it has established in Mexico its main place of
                  management;
  ·
              a
                  Mexican citizen is presumed to be a resident of Mexico unless he
                  or she
                  can demonstrate otherwise; and
  ·
              a
                  legal entity that has a permanent establishment or fixed base in
                  Mexico
                  shall be required to pay taxes in accordance with relevant tax
                  provisions.
  On
        April
        3, 2001, a bill was introduced in the Mexican Congress involving a proposal
        to
        substantially reform the Mexican tax laws. Certain of such reforms have already
        been passed by the Mexican Congress and involve, among others, the corporate
        income tax rate will be gradually reduced to 32%. For 2002 the applicable
        corporate income tax rate was 35% and has been reduced by 1% in each year
        until
        reaching 32% in 2005.
  ***Dividends*** .
        Dividends, either in cash or in any other form, paid with respect to the
        Ordinary Shares underlying the ADSs, are no longer subject to a Mexican
        withholding tax, so long that certain requirements are met.
  ***Sales
        or Other Dispositions*** .
        The
        sale or other disposition of ADSs will not be subject to Mexican taxation.
        Deposits and withdrawals of Ordinary Shares for ADSs will not give rise to
        Mexican tax or transfer duties.
  The
        sale
        or other disposition of Ordinary Shares will not be subject to any Mexican
        tax
        if:
  ·
              the
                  sale is carried out through the Mexican Stock Exchange, or other
                  recognized securities market approved by the Mexican tax authorities
                  through general rules; and
  ·
              the
                  Ministry of Finance and Public Credit considers such Ordinary Shares
                  to be
                  publicly held.
 
 Sales
        or
        other dispositions of Ordinary Shares made in other circumstances would be
        subject to Mexican income tax. However, under the Tax Treaty, any U.S. Holder
        that is eligible to claim the benefits of the Tax Treaty may be exempt from
        Mexican tax on gains realized on a sale or other disposition of Ordinary
        Shares
        in a transaction that is not carried out through the Mexican Stock Exchange
        or
        such other approved securities markets. The U.S. Holder will be exempt under
        the
        Tax Treaty if the U.S. Holder did not own directly or indirectly 25% or more
        of
        our outstanding shares within the 12-month period preceding such sale or
        disposition. Gains realized by other holders that are eligible to receive
        benefits pursuant to other income tax treaties to which Mexico is a party
        may be
        exempt from Mexican income tax in whole or in part. Non-U.S. Holders should
        consult their own tax advisors as to their possible eligibility under such
        other
        income tax treaties.
  ***Other
        Mexican Taxes*** .
        There
        are no estate, gift, or succession taxes applicable to the ownership, transfer
        or disposition of ADSs or Ordinary Shares. However, a gratuitous transfer
        of
        ADSs or Ordinary Shares may, in some circumstances, result in the imposition
        of
        a Mexican federal tax upon the recipient. There are no Mexican stamp, issuer,
        registration or similar taxes or duties payable by holders of ADSs or Ordinary
        Shares.
  **U.S.
        Federal Income Tax Considerations**
  GENERAL .
        The
        following summary of U.S. Federal income taxes is based on U.S. Federal income
        tax laws in force on the date of this Form 20-F, which laws are subject to
        change, possibly with retroactive effect. It describes the principal U.S.
        Federal income tax consequences of the purchase, ownership and sale of ADSs
        or
        Ordinary Shares, as the case may be, by:
  57
  ·
                a
                    citizen or resident of the United
                    States;
 ·
              a
                  corporation or other entity taxable as a corporation organized
                  or created
                  in the United States or any political subdivision thereof; as the
                  case may
                  be;
  ·
              an
                  estate, the income of which is subject to U.S. federal income tax,
                  regardless of its source or
  ·
              a
                  trust, if a court within the United States is able to exercise
                  primary
                  supervision over its administration and one or more United States
                  persons
                  have the authority to control all substantial decisions of such
                  trust
  (each
        a
“U.S. Holder”). This section applies only to holders who hold ADSs or Ordinary
        Shares as capital assets (generally, property held for investment) under
        the
        Internal Revenue Code of 1986, as amended, (the “Code”). This section does not
        provide a complete analysis, listing or other description of all of the possible
        tax consequences of the purchase, ownership, sale or other disposition of
        ADSs
        or Ordinary Shares, as the case may be, and does not address tax consequences
        to
        persons with a special tax status such as dealers or traders in securities
        or
        currencies, U.S. Holders whose functional currency is not the U.S. dollar,
        persons holding ADSs or Ordinary Shares, as part of a hedge, straddle,
        conversion of other integrated transaction, certain U.S. expatriates, banks,
        insurance companies, real estate investment trust (REITs), regulated investment
        companies (RICs), tax-exempt entities, or corporations owning at least
        10%
        of the local combined voting power of our stock.
 
 If
        a
        partnership holds ADSs or Ordinary Shares, the tax treatment of a partner
        in
        such partnership will generally depend upon the status of the partner and
        the
        activities of the partnership. A partner of a partnership holding ADSs or
        Ordinary Shares should consult his, her or its own tax advisor.
  Investors
        should consult their tax advisors with respect to the tax consequences of
        the
        purchase, ownership, sale or other disposition of ADSs or Ordinary Shares,
        including consequences under foreign, state and local tax laws.
  For
        U.S.
        Federal income tax purposes, a U.S. Holder of an ADS generally will be treated
        as the beneficial owner of 10 Ordinary Shares.
  TAXATION
        OF CASH DISTRIBUTIONS AND DISTRIBUTIONS OF STOCK. The gross amount of any
        distribution (other than in liquidation), including the fair market value
        of all
        distributions of ADSs or Ordinary Shares whenever a holder may elect to receive
        cash distributions in lieu of distributions of ADSs or Ordinary Shares, that
        you
        receive with respect to our ADSs or Ordinary Shares (before reduction for
        any
        Mexican tax, if any, withheld from such distributions) generally will be
        includible in your gross income on the day on which the Depositary receives
        such
        distribution on behalf of the holder of the applicable ADSs or Ordinary Shares.
        Depending on the amount of the dividend and the amount of the U.S. Holder’s tax
        basis in the applicable ADSs or Ordinary Shares, distributions will be taxed
        in
        the following manner: to the extent that distributions paid by us with respect
        to the underlying Ordinary Shares do not exceed our earnings and profits
        (“E&P”), as calculated for U.S. Federal income tax purposes, such
        distributions will be taxed as dividends.
 
 The
        Jobs
        and Growth Tax Relief Reconciliation Act of 2003 (the “Act”), enacted on May 28,
        2003, reduced the maximum rate of tax imposed on certain dividends received
        by
        U.S. Holders that are individuals to 15 percent (the “Reduced Rate”), so long as
        certain holding period requirements are met. In order for dividends
        paid by
        a foreign corporation to be eligible for the Reduced Rate, the foreign
        corporation must be a Qualified Foreign Corporation (“QFC”) within the meaning
        of the Act and must not be a passive foreign investment company (a
“PFIC”)
        in either the taxable year of the distribution or the preceding taxable year.
        We
        believe that we are, and will continue to be, a QFC. As a result, dividends
        received by individual U.S. Holders will generally constitute qualified
        dividend income (“QDI”) for U.S. Federal income tax purposes and taxable at the
        Reduced Rate, provided that certain holding period and other requirements
        are
        satisfied. There can be no assurance, however, that we will continue to be
        considered a QFC or that we will not be classified as a PFIC in the future.
        Thus, there can be no assurance that our dividends will continue to be eligible
        for the Reduced Rate. Special rules apply for purposes of determining the
        recipient’s investment income (which limits deductions for investment interest)
        and foreign income (which may affect the amount of foreign tax credit) and
        to
        certain extraordinary dividends. Each U.S. Holder that
   58
   is
        an
        individual is urged to consult their tax advisor regarding the possible
        applicability of the Reduced Rate under the Act and the related restrictions
        and
        special rules.
 
 Because
        we are not a U.S. corporation, dividends paid by us will not be eligible
        for the
        dividends received deduction generally allowable to corporations under the
        Code.
 
 To
        the
        extent that distributions by us exceed our E&P, such distributions will be
        treated as a tax-free return of capital, by both individual and corporate
        U.S.
        Holders, to the extent of each such U.S. Holder’s basis in their ADSs or
        Ordinary Shares, and will reduce such U.S. Holder’s basis in the ADSs or
        Ordinary Shares on a dollar-for-dollar basis (thereby increasing any gain
        or
        decreasing any loss on a disposition of the ADSs or Ordinary
        Shares).
 
 To
        the
        extent that the distributions exceed the U.S. Holders’ basis in the ADSs or
        Ordinary Shares, each such individual or corporate U.S. Holder will be taxed
        as
        having recognized gain on the sale of disposition of the ADSs or Ordinary
        Shares
        (see “Taxation of Sale or Other Disposition,” below).
 
 We
        anticipate that any distributions on the ADSs and Ordinary Shares will be
        made
        in Pesos, and any dividends so paid generally will be includible in a U.S.
        Holder’s gross income in a U.S. Dollar amount calculated by reference to the
        exchange rate in effect on the day the Depositary receives
        the
        dividend. It is expected that the ADS Depositary will, in the ordinary course,
        convert Pesos received by it as distributions on the Depositary into
        U.S.
        dollars. To the extent that the Depositary does not convert the Pesos
        into
        U.S. Dollars at the time that such U.S. Holder is required to take the
        distribution into gross income for U.S. Federal income tax purpose, such
        U.S.
        Holder may recognize foreign exchange gain or loss, taxable as ordinary income
        or loss, on the later conversion of the Pesos into U.S. Dollars. The gain
        or
        loss recognized will generally be based upon the difference between the exchange
        rate in effect when the Pesos are actually converted and the “spot” exchange
        rate in effect at the time the distribution is taken into account and any
        gain
        will generally be treated as U.S.-source income for U.S. foreign tax credit
        limitation purposes.
 
 Dividends
        paid by us will generally be treated as foreign source income for U.S. foreign
        tax credit limitation purposes. Subject to certain limitations, U.S. Holders
        may
        elect to claim a foreign tax credit against their U.S.
        Federal income tax liability for foreign tax withheld (if any) form dividends
        received in respect of the ADSs or Ordinary Shares, as applicable. The
        limitation on foreign taxes eligible for credit is calculated separately
        with
        respect to specific classes of income. For this purpose, dividends paid in
        respect of our ADSs or Ordinary Shares, as applicable, generally will be
        “passive income” and therefore any U.S. Federal income tax imposed on these
        dividends cannot be offset by excess foreign tax credits that such U.S. Holders
        may have from foreign source income not qualifying as passive income. U.
        S.
        Holders that do not elect to claim a foreign tax credit may instead claim
        a
        deduction for foreign tax withheld (if any).
 
 Distributions
        of Ordinary Shares and ADSs to U.S. Holders with respect to their holdings
        of
        Ordinary Shares and ADSs, as the case may be (such previously held ADSs or
        Ordinary Shares being “Old Stock”), that are pro rata with respect to their
        holdings of Old Stock will generally not be subject to U.S. Federal income
        tax
        (except with respect to cash received in lieu of fractional Ordinary Shares
        and
        ADSs). The basis of the Ordinary Shares and ADSs so received will be determined
        by allocating the U.S. Holder’s adjusted basis in the Old Stock between the Old
        Stock and the Ordinary Shares and ADSs so received.
 
 TAXATION
        OF SALE OR OTHER DISPOSITION. Unless a non-recognition provision applies,
        a U.S.
        Holder will recognize capital gain or loss upon a sale or other disposition
        of
        ADSs or Ordinary Shares in an amount equal to the difference between the
        amount
        realized on their disposition and such U.S. Holder’s basis in the ADSs or
        Ordinary Shares. Under current law, capital gains realized by corporate and
        individual taxpayers are generally subject to U.S. Federal income taxes at
        the
        same rate as ordinary income, except that long-term capital gains realized
        by
        individuals, trust and estates currently are subject to Federal income taxes
        at
        a maximum rate of 15%. Certain limitations exist on the deductibility of
        capital
        losses by
        both
        corporate and individual taxpayers. Capital gains and losses on the sale
        or
        other disposition by a U.S. Holder of ADSs or Ordinary Shares generally should
        constitute gains of losses from sources within the U.S. 
 For
          cash
          basis U.S. Holders who receive foreign currency in connection with a sale
          or
          other taxable disposition of ADSs or Ordinary Shares, as applicable, the
          amount
          realized will be based on the U.S. dollar value of
   59
   the
        foreign currency received with respect to such ADSs or Ordinary Shares as
        determined on the settlement date of such sale or other taxable
        disposition.
 
 Accrual
        basis U.S. Holders may elect the same treatment required of cash basis taxpayers
        with respect to a sale or other taxable disposition of ADSs or Ordinary Shares,
        as applicable, provided that the election is applied consistently from year
        to
        year. Such election may not be changed without the consent of the U.S. Internal
        Revenue Service. Accrual basis U.S. Holders who or which do not elect to
        be
        treated as cash basis taxpayers (pursuant to the Treasury Regulations applicable
        to foreign currency transactions) for this purpose may have a foreign currency
        gain or loss for U.S. Federal income tax purposes because of differences
        between
        the U.S. Dollar value of the foreign currency received prevailing on the
        date of
        the sale or other taxable disposition of ADSs or Ordinary Shares, as applicable,
        and the date of payment. Any such currency gain or loss generally will
        constitute gain or loss from sources within the U.S. and generally will be
        treated as ordinary income or loss and would be in addition to gain or loss,
        if
        any, recognized on the sale or other taxable disposition of ADS or Ordinary
        Shares, as applicable.
 
 DEPOSITS,
        WITHDRAWALS AND PRE-RELEASES. Deposits and withdrawals by U.S. Holders of
        Ordinary Shares in exchange for ADSs and of ADSs in exchange for Ordinary
        Shares
        will not be subject to any U.S. Federal income tax. The U.S. Treasury
        Department, however, has expressed concerns that parties involved in
        transactions where depositary shares are pre-released may be taking actions
        that
        are not consistent with the claiming of foreign tax credits by the holders
        of
        the applicable ADSs. Accordingly, the analysis of the credibility of Mexican
        taxes described above could be affected by future actions that may be taken
        by
        the U.S. Treasury Department.
 
 UNITED
        STATES BACKUP WITHHOLDING AND INFORMATION REPORTING. In general, information
        reporting requirements will apply to payments of dividends on ADSs or Ordinary
        Shares and the proceeds of certain sales of ADSs or Ordinary Shares in respect
        of U.S. Holders other than certain exempt persons (such as corporations).
        A 28%
        backup withholding tax (31% for 2011 and thereafter) will apply to such payments
        if the U.S. Holder fails to provide a correct taxpayer identification number
        or
        other certification of exempt status or, with respect to certain payments,
        the
        U.S. Holder fails to report in full all dividend and interest income and
        the
        U.S. Internal Revenue Service notifies the payer of such under-reporting.
        Amounts withheld under the backup withholding
        rules may be credited against a holder’s U.S. Federal tax liability, and a
        refund of any excess amounts withheld under the backup withholding rules
        may be
        obtained by filing the appropriate claim form with the U.S. Internal Revenue
        Service.
 
 PASSIVE
          FOREIGN INVESTMENT COMPANY CONSIDERATIONS. We believe that we are not currently,
          and we do not expect to become, a PFIC for U.S. Federal income tax purposes.
          Because this determination is made annually at the end of each of our taxable
          years and is dependent upon a number of factors, some of which are beyond
          our
          control, including the value of our assets and the amount and type of our
          income, there can be no assurance that we will not become a PFIC. In general,
          a
          corporation organized outside the United States will be treated as a PFIC
          for
          U.S. Federal income tax purposes in any taxable year in which either (a) at
          least 75% of its gross income is “passive income” or (b) on average at
          least 50% of the value of its assets is attributable to assets that produce
          passive income or are held for the production of passive income. If a U.S.
          Holder owns our ADSs or Ordinary Shares at a time when we become a PFIC
          and is
          not eligible to make or does not make certain elections with respect to
          our ADSs
          or Ordinary Shares, such U.S. Holder could be liable for additional taxes
          and
          interest charges upon certain distributions by us or upon a sale, exchange
          or
          other disposition of such shares at a gain, whether or not we continue
          to be a
          PFIC.
  ***Documents
          on Display***
  For
          further information pertaining to us and our Ordinary Shares and ADSs,
          we refer
          you to the filings we have made with the SEC. Statements contained in this
          annual report concerning the contents of any contract or any other document
          are
          not necessarily complete. If a contract or document has been filed as an
          exhibit
          to any filing we have made with the SEC, we refer you to the copy of the
          contract or document that has been filed. Each statement in this annual
          report
          relating to a contract or document filed as an exhibit to any filing we
          have
          made with the SEC is qualified in its entirety by the filed
          exhibit.
  We
          are
          subject to the informational requirements of the Securities Exchange Act
          of 1934
          and, in accordance with these requirements, we file reports and other
          information with the SEC. These reports and other information, as well
          as any
          related exhibits and schedules, may be inspected, without charge, at the
          public
          reference
 60
   facility
        maintained by the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
        Washington, D.C. 20549. Copies of these reports and other information may
        also
        be obtained from the Public Reference Section of the SEC at 450
        Fifth
        Street, N.W., Washington, D.C., 20549, at prescribed rates. These reports
        and
        other information may also be inspected at the offices of the New York Stock
        Exchange, 20 Broad Street, New York, New York 10005.
  We
        furnish The Bank of New York, the depositary for our ADSs, with annual reports
        in English. These reports contain audited consolidated financial statements
        that
        have been prepared in accordance with Mexican GAAP, and include reconciliations
        of net income and stockholders’ equity to U.S. GAAP. These reports have been
        examined and reported on, with an opinion expressed by, an independent auditor.
        The depositary is required to mail our annual reports to all holders of record
        of our ADSs. The deposit agreement for the ADSs also requires us to furnish
        the
        depositary with English translations of all notices of shareholders’ meetings
        and other reports and communications that we send to holders of our Ordinary
        Shares. The depositary is required to mail these notices, reports and
        communications to holders of record of our ADSs.
  As
        a
        foreign private issuer, we are not required to furnish proxy statements to
        holders of our ADSs in the United States.
 **Significant
          Differences in Corporate Governance Standards**
  Pursuant
            to Rule 303A.11 of the Listed Company Manual of the New York Stock Exchange
            (NYSE), we are required to provide a brief summary of the significant
            ways in
            which our corporate governance practices differ from those required for
            U.S.
            companies under the NYSE listing standards.
  Since
            we
            are Mexican corporation with shares listed on the Mexican Stock Exchange
            (*Bolsa Mexicana de Valores*), our corporate governance standards are
            governed by our corporate bylaws, the Mexican Securities Market Law (*Ley del
            Mercado de Valores*) and the regulations issued by the Mexican Banking and
            Securities Commission (*Comisión Nacional Bancaria y de Valores*).
            Further to the compliance with the above mentioned laws and regulations,
            as a
            public company listed in the Mexican Stock Exchange, since January 2001,
            we are
            required by the Mexican Banking and Securities Commission to disclose
            annually
            the extent to which our corporate governance practices comply with those
            issued
            by the Mexican Banking and Securities Commission as general guidelines
            and which
            are collected in the Mexican Code of Enhanced Corporate Practices (*Código de
            Mejores Prácticas Corporativas*). This Code was originally created by a
            group of Mexican business leaders and was acknowledged by the Mexican
            Banking
            and Securities Commission in January 2001. Under Mexican legislation,
            we are not
            compelled to comply with the guidelines contained in the Code although
            compliance is highly recommended by the authorities and disclosure as
            to the
            degree of our compliance therewith is mandatory.
 **NYSE
                        Standards**
                    
                    **Our
                        Corporate Governance Practice***Majority
                        of board of directors must be independent. Exception for
“controlled
                        companies,” which would include our company if we were a U.S.
                        issuer.*
                    
                    We
                        are required to have a board of directors of between 5 and
                        20 members, 25%
                        of whom must be independent under the Mexican Stock Exchange
                        Law. Our
                        board of directors is not required to make a determination
                        as to the
                        independence of our directors. The applicable definition
                        of independence,
                        which differs in certain respects from the definition applicable
                        to U.S.
                        issuers under the NYSE standard, prohibits, among other relationships,
                        an
                        independent director from being an employee or officer of
                        the company or
                        an independent director from being a shareholder that may
                        have influence
                        over the company. It also prohibits certain relationships
                        between the
                        company and the independent director, entities with which
                        the independent
                        director is associated and family members of the independent
                        director.
  61
    *Non-management
                          directors must meet at executive sessions without
                          management.*
                      
                      Our
                          non-management directors are not required to meet in executive
                          sessions.
                          Executive sessions are not recommended by the Mexican Code
                          of Enhanced
                          Corporate Practices. Our Chief Executive Officer is a member
                          of our board
                          of directors.*Nominating/corporate
                          governance committee of independent directors required.
                          Exception for
                          “controlled companies,” which would include our**company if we
                          were a U.S. issuer.*
                      
                      We
                          are not required to have a nominating corporate governance
                          committee, and
                          such committee is not recommended by the Mexican Code of
                          Enhanced
                          Corporate Practices.*Compensation
                          committee of independent directors required. Exception
                          for “controlled
                          companies,” which would include our company if we were a U.S.
                          issuer.*
                      
                      We
                          are not required to have a compensation committee, and
                          currently we do not
                          have one.*Audit
                          committee satisfying the independence and other requirements
                          of Rule 10A-3
                          under the Exchange Act and the NYSE independence
                          standards.*
                      
                      We
                          have a three member audit committee. Two of these members
                          are independent
                          under applicable Mexican standards. We expect to comply
                          with the independence requirements of Rule 10A-3
                          prior to July 31,
                          2005, however, members of our audit committee do not need
                          to satisfy the
                          NYSE independence standards that are not required by Rule
                          10A-3. Our audit
                          committee does not have a written
                          charter.
 *Equity
                        compensation plans require shareholder approval, subject
                        to limited
                        exemptions.*
                    
                    Shareholder
                        approval is not required under Mexican law or our
                        bylaws for the
                        adoption and amendment of an equity-compensation plan. However,
                        regulations of the Mexican Banking and Securities Commission
                        require
                        shareholder approval under certain circumstances.*Corporate
                        governance guidelines and code of conduct and ethics required,
                        with
                        disclosure of any waiver for directors or executive officers.*
                    
                    The
                        practices for our board of directors, including committees
                        and
                        compensation of directors, are described in this annual
                        report. We
                        have adopted a code of ethics applicable to all of our directors
                        and
                        executive officers, which is available at http://www.casasaba.com.*CEO
                        Certifications must certify to the NYSE each year that the
                        CEO is not
                        aware of any violation by the company of the NYSE corporate
                        governance
                        listing standards. Additionally CEO’s must notify the NYSE in writing if
                        any executive officer becomes aware of any material non-compliance
                        with
                        the new listing standards.*
                    
                    We
                        are required to disclose each year our degree of compliance
                        with the Code
                        of Enhanced Corporate Governance Practices, and the truthfulness
                        of such
                        disclosure must be certified by the Chairman of the Board
                        of Directors,
                        however there is no such concept as a violation of the Code
                        of Enhanced
                        Corporate Governance Practices since compliance with these
                        is not
                        mandatory. Furthermore, other than the disclosure provided
                        by our CEO in
                        this annual report, the CEO is not required to provide notification
                        of any
                        non-compliance of which he may be aware
                        of.
   62
  **Item
        11.**  **Quantitative
        and Qualitative Disclosures about Market Risk**
  We
        are
        exposed to a number of different market risks arising from our normal business
        activities and risk management activities. We do not enter into or hold any
        market risk sensitive instruments for trading purposes. Market risks arise
        from
        the possibility that changes in interest rates or currency exchange rates
        will
        adversely affect the value of our financial assets, liabilities or expected
        future cash flows.
  ***Interest
        Rate Risk***
  We
        are
        subject to market risks due to interest fluctuations in Mexico. In addition,
        in
        the past, we have occasionally entered into swap arrangements and other hedge
        transactions, and will continue to consider to do so in the future, to reduce
        our exposure to interest rate risks. Currently, we do not have any outstanding
        debt that is subject to interest rate risk, nor are we party to any arrangements
        to reduce our exposure to interest rate risk.
  ***Foreign
        Exchange Rate Risk***
  As
        of
        December 31, 2004, we had no cost-bearing liabilities and, therefore, we
        are not
        currently subject to foreign exchange rate risk fluctuations. To the extent
        that
        we incur U.S. Dollar-denominated indebtedness in the future, we would be
        subject
        to foreign exchange rate risk.
  **Item
        12.**  **Description
        of Securities Other than Equity Securities**
  Not
        applicable.
  **PART
        II**
  **Item
        13.**  **Defaults,
        Dividend Arrearages and Delinquencies**
  Not
        applicable.
  **Item
        14.**  **Material
        Modifications to the Rights of Security Holders and Use of
        Proceeds**
  Not
        applicable.
  **Item
        15.**  **Controls
        and Procedures**
  As
        of the
        end of the period covered by this report, the Company’s management (with the
        participation of our Chief Executive Officer and Chief Financial Officer)
        conducted an evaluation pursuant to Rule 13a-15 promulgated under
        the
        Securities Exchange Act of 1934, as amended (the “Exchange Act”) of the
        effectiveness of the
        design and operation of the Company’s disclosure controls and procedures. Based
        on such evaluation, such officers have concluded that as of the end of the
        period covered by this report, the Company’s disclosure controls and procedures
        are effective to provide reasonable assurance that information required to
        be
        disclosed by the Company (including its consolidated subsidiaries) in reports
        it
        files or submits under the Exchange Act is recorded, processed, summarized
        and
        reported within the time periods specified in the rules and forms of the
        SEC.
        During 2004, there were no significant changes in the Company’s internal
        controls or in other factors that could significantly affect such
        controls.
  **Item
        16.**  **Reserved**
  **Item
        16A. Audit Committee Financial Expert**
  At
        our
        annual ordinary shareholders’ meeting in April 29, 2005, our shareholders
        reelected the following individuals as members of the Audit Committee: Mr.
        Agustin Rodriguez Legorreta, Mr. Raul Fernandez Diaque and Mr. Manuel Saba
        Ades. Our Board of Directors has determined that the “audit committee
        financial expert” within the meaning of this Item 16A, is Mr. Raul Fernandez
        Diaque.
  **Item
        16B. Code of Ethics**
  63
   We
        have
        adopted a code of ethics that applies to our Chief Executive Officer, Chief
        Financial Officer, Chief Accounting Officer, and persons performing similar
        functions as well as to our directors and other officers and employees. Our
        code
        of ethics is available on our web site at *www.casasaba.com* .
        Since
        its adoption, our code of ethics has not been amended and no waivers have
        been
        granted thereunder; however, any amendment to the code of ethics or waiver
        thereto shall be disclosed on our web site at the same address.
  **Item
        16C. Principal Accountant Fees and Services**
 ******
 **For
                  the year ended December 31,****2003**
              
              **2004****(Ps.
                  millions)**Audit
                  Fees
              
              Ps.
              3.3
              
              Ps.
              5.0Audit-Related
                  Fees
              
              
              .3
              
              
              1.3Tax
                  Fees
              
              
              2.2
              
              
              3.0Other
                  Fees
              
              
              0
              
              
              0Total
              
              Ps.
              5.8
              
              Ps.
              9.3


***Audit
        Fees.*** The amount set forth as Audit Fees in the table above
        represents fees billed to us by Salles Sainz-Grant Thornton, S.C., our
        external auditor. The firm was appointed by the shareholders meeting and
        was
        hired to render tax and financial audit and due diligence services as well
        as to
        prepare Grupo Casa Saba’s audited consolidated financial statements.
  ***Audit-Related
          Fees.*** The
          amount set forth as Audit-Related Fees in the table above represents fees
          billed
          to us by Salles Sainz-Grant Thornton, S.C. in connection with their review
          of
          our consolidated financial statements.
  ***Tax
          Fees.*** The
          amount set forth as Tax Fees in the table above represents fees billed
          to us by
          Chevez, Ruiz Zamarripa, S.C., the firm hired by us to provide tax advisory
          services.
  ***Pre-Approval
        Policies and Procedures*** .
        Our
        Audit Committee has not adopted pre-approval policies and procedures under
        which
        all non-audit services provided by our external auditors must be pre-approved
        by
        the Audit Committee. However, any matter that is submitted to the Audit
        Committee for approval must be approved at a meeting and the members of the
        Board of Directors must be informed.
   **Item
        16D.**
  Not
        applicable.
  **Item
        16E.**
  Not
        applicable.
  **PART
        III**
  **Item
        17.**  **Financial
        Statements** ****
  We
        are
        furnishing financial statements pursuant to the instructions to Item 18 of
        Form
        20-F.
    64
  **Item
          18.**  **Financial
          Statements**
  The
          following financial statements, together with the report of Salles Sáinz-Grant
          Thornton, S.C. thereon, are filed as part of this Annual
          Report.
 PageIndex
                  to Consolidated Financial Statements
              F-1Report
                  of Independent Registered Public Accounting Firm
              F-2Consolidated
                  Balance Sheets as of December 31, 2003 and 2004
              F-3Consolidated
                  Statements of Income for each of the years ended
                December
                  31, 2002, 2003 and 2004
              F-4Consolidated
                  Statements of Stockholders’ Equity for the years ended
                December
                  31, 2002, 2003 and 2004
              F-5Consolidated
                  Statements of Changes in Financial Position for the
                years
                  ended December 31, 2002, 2003 and 2004
              F-6Notes
                  to Consolidated Financial Statements
              F-8
 
 All
        supplementary schedules relating to the Company are omitted because
        they
        are not required or because the required information, where material, is
        contained in our audited consolidated financial statements or the
        notes
        thereto.
  **Item
        19.**  **Exhibits**
  Documents
        filed as an exhibit to this annual report are as follows:
 
 
 Exhibit
                  Number
                Description
                    of Exhibits1.1
                Amended
                    and Restated Bylaws (estatutos sociales) of the Registrant (English
                    Translation)(1).8.1
                List
                    of Subsidiaries of the Registrant.12.1
                Certification
                    of the Principal Executive Officer of Grupo Casa Saba, S.A. de
                    C.V.
                    pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.12.2
                Certification
                    of the Principal Financial Officer of Grupo Casa Saba, S.A. de
                    C.V.
                    pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.13.1
                Certification
                    of the Principal Executive and Financial Officer of Grupo Casa
                    Saba, S.A.
                    de C.V. pursuant to 18 U.S. C. Section 1350, as adopted pursuant
                    to
                    Section 906 of the Sarbanes-Oxley Act of
                    2002.
 ____________________
 
 65
 
 
 SIGNATURE
  GRUPO
        CASA SABA, S.A. DE C.V. hereby certifies that it meets all of the requirements
        for filing on Form 20-F and that it has duly caused and authorized the
        undersigned to sign this annual report on its behalf.
  
 Dated:
        June 30, 2005
 **GRUPO
                    CASA SABA, S.A. DE C.V.,**by/s/
                    Manuel Saba AdesName:
                    Manuel Saba AdesTitle:
                    Chief Executive Officer
 
 
 
 
 66
 
 
 
 ***INDEX TO CONSOLIDATED FINANCIAL STATEMENTS***
  **Page****Consolidated
                  Financial Statements of Grupo Casa Saba, S.A. de
                  C.V.**Report
                  of Independent Registered Public Accounting Firm
              F-2Consolidated
                  Balance Sheets as of December 31, 2003 and 2004
              F-3Consolidated
                  Statement of Income for each of the years ended
                December
                  31, 2002, 2003 and 2004
              F-4Consolidated
                  Statements of Stockholders’ Equity for the years ended December 31,
                2002,
                  2003 and 2004
              F-5Consolidated
                  Statement of Changes in Financial Position for the years ended
                  December
                31,
                  2002, 2003 and 2004
              F-6Notes
                  to Consolidated Financial Statements
              F-8
 
 
 
 
 F-1






**REPORT
              OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**
 
 
 
 To
              the
              Board of Directors and Stockholders of
 Grupo
              Casa Saba, S.A. de C.V.:
 
 
 We
              have
              audited the accompanying consolidated balance sheets of Grupo Casa
              Saba, S. A.
              de C. V. and Subsidiaries (all incorporated in Mexico and collectively
              the
              Group) as of December 31, 2003 and 2004, and the related consolidated
              statements
              of income, changes in stockholders’ equity, and changes in financial position
              for each of the three years in the period ended December 31, 2004,
              all stated in
              thousands of 2004 year end constant Mexican pesos. These financial
              statements
              are the responsibility of the Group's management. Our responsibility
              is to
              express an opinion on these financial statements based on our
              audits.
 
 We
              conducted our audits in accordance with the standards of the Public
              Company
              Accounting Oversight Board (United States of America) and with auditing
              standards generally accepted in Mexico. Those standards require that
              we plan and
              perform the audits to obtain reasonable assurance about whether the
              financial
              statements are free of material misstatement. The Group is not required
              to have,
              nor were we engaged to perform, an audit of its internal control over
              financial
              reporting. Our audits included consideration of internal control over
              financial
              reporting as a basis for designing audit procedures that are appropriate
              in the
              circumstances but not for the purpose of expressing an opinion on the
              effectiveness of the Group ́s internal control over financial reporting.
              Accordingly, we express no such opinion. An audit includes examining,
              on a test
              basis, evidence supporting the amounts and disclosures in the financial
              statements. An audit also includes assessing the accounting principles
              used and
              significant estimates made by management, as well as evaluating the
              overall
              financial statement presentation. We believe that our audits provide
              a
              reasonable basis for our opinion.
 
 In
              our
              opinion, the consolidated financial statements referred to above present
              fairly,
              in all material respects, the consolidated financial position of Grupo
              Casa
              Saba, S.A. de C.V. and Subsidiaries as of December 31, 2003 and 2004,
              and the
              results of their operations, changes
              in stockholders’ equity and
              changes in their financial position for each of the three years in
              the period
              ended December 31, 2004, in conformity with accounting principles generally
              accepted in Mexico.
 
  The
              accounting principles used by the Group in preparing the accompanying
              consolidated financial statements conform to accounting principles
              generally
              accepted in Mexico (Mexican GAAP), which differ in certain material
              respects to
              accounting principles generally accepted in the United States of America
              (U.S.
              GAAP). A summary of these differences and a partial reconciliation
              of
              consolidated net income for each of the three years in the period ended
              December
              31, 2004 and consolidated stockholders’ equity as of December 31, 2003 and 2004
              from Mexican GAAP to U.S. GAAP, as permitted by Form 20-F of the Securities
              and
              Exchange Commission of the United States of America, are set forth
              in Notes 15)
              and 16). That Form permits waiving the requirement to quantify the
              differences
              in the U.S. GAAP reconciliation attributable to the adjustments recorded
              locally
              to comprehensively recognize the effect of price level changes for
              each line
              item of the financial statements.
 
 Salles
              Sainz - Grant Thornton, S.C.
 
 /s/
              Salles Sainz - Grant Thornton, S.C.
  Mexico
              City, Mexico
 February
              18, 2005
    F-2
 **Grupo
                                  Casa Saba, S.A. de C.V. and Subsidiaries****Consolidated
                                  balance sheets**
                                **as
                                    of
                                    december 31, 2003 and 2004**
                                  **(Amounts
                                      stated in thousands of 2004 year end constant
                                      Mexican pesos**
                                    **(Ps.)****and
                                      thousands of U.S. dollars ($))**Convenience
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              Convenience2003
                              
                              
                              2004
                              
                              translation
                                  2004
                              
                              
                              
                              
                              
                              2003
                              
                              
                              2004
                              
                              translation
                                  2004CURRENT
                                  ASSETS:
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              CURRENT
                                  LIABILITIES:Cash
                                  and cash
                                  equivalents (Note 3.d)
                              
                              Ps.
                              179,965
                              
                              Ps.
                              481,037
                              
                              $      
                                  42,880
                              
                              Bank
                                  loans
                                  (Note 8)
                              
                              Ps.
                              410,244
                              
                              Ps.
                              —
                              
                              $                 —Accounts
                                  receivable, net (Notes 3.f and 4)
                              
                              
                              3,943,433
                              
                              
                              3,580,918
                              
                              319,203
                              
                              Trade
                                  accounts
                                  payable
                              
                              
                              3,757,850
                              
                              
                              4,081,183
                              
                              363,797Inventories,
                                  net (Notes 3.c and 5)
                              
                              
                              3,205,754
                              
                              
                              3,694,473
                              
                              329,326
                              
                              Other
                                  payables
                                  and accrued liabilities
                              
                              
                              221,887
                              
                              
                              158,966
                              
                              14,170Prepaid
                                  expenses
                              
                              
                              16,552
                              
                              
                              8,604
                              
                              767
                              
                              Employee
                                  profit sharing (Notes 3.l and 12.d)
                              
                              
                              1,508
                              
                              
                              2,764
                              
                              246Total
                                  current
                                  assets
                              
                              
                              7,345,704
                              
                              
                              7,765,032
                              
                              692,176
                              
                              Total
                                  current
                                  liabilities
                              
                              
                              4,391,489
                              
                              
                              4,242,913
                              
                              378,213RESERVE FOR RETIREMENT PENSIONS ANDSENIORITY PREMIUM (Note 3.j)
                              
                              
                              54,347
                              
                              
                              53,821
                              
                              4,798DEFERRED INCOME TAX (Notes 3.l and 9)
                              
                              
                              739,959
                              
                              
                              789,116
                              
                              70,342DEFERRED EMPLOYEE PROFIT SHARING
                              
                              
                              —
                              
                              
                              7,917
                              
                              706PROPERTY
                                  AND
                                  EQUIPMENT, net (Notes 3.c and 6)
                              
                              
                              1,034,959
                              
                              
                              1,069,880
                              
                              95,369
                              
                              Total
                                  liabilities
                              
                              
                              5,185,795
                              
                              
                              5,093,767
                              
                              454,059**STOCKHOLDERS'
                                  EQUITY**Capital
                                  stock
                                  (Note 11)
                              
                              
                              1,007,292
                              
                              
                              1,007,292
                              
                              89,790Premium
                                  on
                                  stock sold
                              
                              
                              779,720
                              
                              
                              779,720
                              
                              69,504OTHER
                                  ASSETS,
                                  net
                              
                              
                              87,328
                              
                              
                              83,651
                              
                              7,457
                              
                              
                              Reserve
                                  for
                                  share repurchases (Note 11)
                              
                              
                              952,110
                              
                              
                              952,110
                              
                              84,871Retained
                                  earnings
                              
                              
                              2,635,037
                              
                              
                              3,170,087
                              
                              282,582Deficit
                                  on
                                  restatement (Note 3.c)
                              
                              
                              (1,823,309)
                              
                              
                              (1,839,667)
                              
                              (163,988)Accrued
                                  deferred income tax effect
                              
                              
                              (36,477)
                              
                              
                              (36,477)
                              
                              (3,251)GOODWILL,
                                  net
                                  (Note 3.h)
                              
                              
                              232,177
                              
                              
                              208,269
                              
                              18,565
                              
                              
                              Total
                                  stockholders' equity
                              
                              
                              3,514,373
                              
                              
                              4,033,065
                              
                              359,508Total
                                  assets
                              
                              Ps.
                              8,700,168
                              
                              Ps.
                              9,126,832
                              
                              $    
                                  813,567
                              
                              
                              Total
                                  liabilities and stockholders' equity
                              
                              Ps.
                              8,700,168
                              
                              Ps.
                              9,126,832
                              
                              $    
                                  813,567
  The
                      accompanying notes are
                      an integral part of these consolidated financial statements.
 F-3
    **Grupo
                Casa
                Saba, S.A. de C.V. and Subsidiaries**
  **Consolidated statements
                  of income**
 **for
                  the
                  years ended December 31, 2002, 2003 and 2004**
 **(Amounts
                      stated in thousands of 2004 year end constant Mexican pesos
                      (Ps.)**
 **and
                      thousands of U.S. dollars ($))**
 2002
                      
                      
                      2003
                      
                      
                      2004
                      
                      Convenience
                        translation
                          2004Net
                          sales (Note 3.o)
                      Ps.
                      19,914,146
                      
                      Ps.
                      20,545,077
                      
                      Ps.
                      20,569,977
                      
                      $               1,833,609Cost
                          of sales
                      
                      17,813,206
                      
                      
                      18,502,602
                      
                      
                      18,452,387
                      
                      1,644,845Gross
                          profit
                      
                      2,100,940
                      
                      
                      2,042,475
                      
                      
                      2,117,590
                      
                      188,764Operating
                          expensesSelling
                      
                      586,781
                      
                      
                      511,800
                      
                      
                      564,104
                      
                      50,284Administrative
                      
                      746,324
                      
                      
                      754,435
                      
                      
                      755,693
                      
                      67,3631,333,105
                      
                      
                      1,266,235
                      
                      
                      1,319,797
                      
                      117,647Operating
                          income
                      
                      767,835
                      
                      
                      776,240
                      
                      
                      797,793
                      
                      71,117Comprehensive
                          cost of financing, netInterest
                          income
                      
                      (8,387)
                      
                      
                      (3,191)
                      
                      
                      (6,035)
                      
                      (538)Interest
                          expense
                      
                      78,313
                      
                      
                      66,679
                      
                      
                      29,811
                      
                      2,657Exchange
                          (gain) loss, net (Note 3.m)
                      
                      (2,953)
                      
                      
                      187
                      
                      
                      2
                      
                      -Gain
                          on monetary position (Note 3.c)
                      
                      (49,990)
                      
                      
                      (14,976)
                      
                      
                      (7,984)
                      
                      (712)16,983
                      
                      
                      48,699
                      
                      
                      15,794
                      
                      1,407Other
                          income, net
                      
                      (6,483)
                      
                      
                      (36,096)
                      
                      
                      (49,899)
                      
                      (4,448)Income
                          before provisions757,335
                      
                      
                      763,637
                      
                      
                      831,898
                      
                      74,158Provisions
                          for:Income
                          tax (Notes 3.l, 12.a and 12 .e)
                      
                      182,217
                      
                      
                      166,119
                      
                      
                      57,884
                      
                      5,160Income
                            tax offset by prior year tax losscarryforwards
                      
                      (137,439)
                      
                      
                      (135,972)
                      
                      
                      (37,059)
                      
                      (3,303)Asset
                          tax (Note 12.b)
                      
                      9,425
                      
                      
                      —
                      
                      
                      10,342
                      
                      922Recovery
                          of asset tax paid in prior years (Note 12.b)
                      
                      (44,401)
                      
                      
                      —
                      
                      
                      —
                      
                      —Deferred
                          income tax (Notes 3.l and 9)
                      
                      149,149
                      
                      
                      126,138
                      
                      
                      142,418
                      
                      12,695158,951
                      
                      
                      156,285
                      
                      
                      173,585
                      
                      15,474Employee
                          profit sharing (Notes 3.j and 12.d)
                      
                      3,468
                      
                      
                      1,508
                      
                      
                      1,592
                      
                      142Deferred
                          employee profit sharing
                      
                      —
                      
                      
                      —
                      
                      
                      7,917
                      
                      706162,419
                      
                      
                      157,793
                      
                      
                      183,094
                      
                      16,322Net
                          income
                      Ps.
                      594,916
                      
                      Ps.
                      605,844
                      
                      Ps.
                      648,804
                      
                      $                       
                          57,836Net
                          income per share (Note 3.n)
                      Ps.
                      2.241
                      
                      Ps.
                      2.283
                      
                      Ps.
                      2.444
                      
                      $
                          0.218Weighted
                          average sharesoutstanding
                          (in thousands)
                      
                      265,419
                      
                      
                      265,419
                      
                      
                      265,419
  The
                accompanying notes are
                an integral part of these consolidated financial statements.
   F-4
    **Grupo
                Casa
                Saba, S.A. de C.V. and Subsidiaries**
  **Consolidated statements
                  of stockholders' equity**
 **for
                  the
                  years ended December 31, 2002, 2003 and 2004**
 **(Amounts
                      stated in thousands of 2004 year end constant Mexican pesos
                      (Ps.)**
 **and
                      thousands of U.S. dollars ($))**
  AccruedCapital
                          stock
                      
                      
                      
                      
                      Reserve
                          for
                      
                      
                      
                      
                      
                      
                      
                      deferredPremium
                          on
                      
                      share
                      
                      Retained
                      
                      Deficit
                          on
                      
                      income
                          taxHistorical
                      
                      Restatement
                      
                      stock
                          sold
                      
                      repurchases
                      
                      earnings
                      
                      restatement
                      
                      effect
                      
                      
                      TotalBalances
                          as of January 1, 2002
                      
                      Ps.
                      167,903
                      
                      Ps.
                      839,389
                      
                      Ps.
                      779,720
                      
                      Ps.
                      952,110
                      
                      Ps.
                      1,541,824
                      
                      Ps.
                      (1,210,994)
                      
                      Ps.
                      (36,477)
                      
                      Ps.
                      3,033,475**Comprehensive
                          income**
                      
                      
                      —
                      
                      
                      —
                      
                      
                      —
                      
                      
                      —
                      
                      
                      594,916
                      
                      
                      (367,988)
                      
                      
                      —
                      
                      
                      226,928Balances
                          as of December 31, 2002
                      
                      
                      167,903
                      
                      
                      839,389
                      
                      
                      779,720
                      
                      
                      952,110
                      
                      
                      2,136,740
                      
                      
                      (1,578,982)
                      
                      
                      (36,477)
                      
                      
                      3,260,403**Dividends
                          paid**
                      
                      
                      —
                      
                      
                      —
                      
                      
                      —
                      
                      
                      —
                      
                      
                      (107,547)
                      
                      
                      —
                      
                      
                      —
                      
                      
                      (107,547)**Comprehensive
                          income**
                      
                      
                      —
                      
                      
                      —
                      
                      
                      —
                      
                      
                      —
                      
                      
                      605,844
                      
                      
                      (244,327)
                      
                      
                      —
                      
                      
                      361,517Balances
                          as of December 31, 2003
                      
                      
                      167,903
                      
                      
                      839,389
                      
                      
                      779,720
                      
                      
                      952,110
                      
                      
                      2,635,037
                      
                      
                      (1,823,309)
                      
                      
                      (36,477)
                      
                      
                      3,514,373**Dividends
                          paid**
                      
                      
                      —
                      
                      
                      —
                      
                      
                      —
                      
                      
                      —
                      
                      
                      (113,754)
                      
                      
                      —
                      
                      
                      —
                      
                      
                      (113,754)**Comprehensive
                          income**
                      
                      
                      —
                      
                      
                      —
                      
                      
                      —
                      
                      
                      —
                      
                      
                      648,804
                      
                      
                      (16,358)
                      
                      
                      —
                      
                      
                      632,446Balances
                          as of December 31, 2004
                      
                      Ps.
                      167,903
                      
                      Ps.
                      839,389
                      
                      Ps.
                      779,720
                      
                      Ps.
                      952,110
                      
                      Ps.
                      3,170,087
                      
                      Ps.
                      (1,839,667)
                      
                      Ps.
                      (36,477)
                      
                      Ps.
                      4,033,065
  The
              accompanying notes are
              an integral part of these consolidated financial statements.
    F-5
     **Grupo
                  Casa
                  Saba, S.A. de C.V. and Subsidiaries**
  **Consolidated statements
                    of changes in financial position**
 **for
                    the
                    years ended December 31, 2002, 2003 and 2004**
 **(Amounts
                        stated in thousands of 2004 year end constant Mexican pesos
                        (Ps.)**
 **and
                        thousands of U.S. dollars
                        ($))**
   Convenience2002
                      
                      2003
                      
                      2004
                      
                      translation
                          2004Operating
                          activities:Net
                          income
                      
                      Ps.
                      594,916
                      
                      Ps.
                      605,844
                      
                      Ps.
                      648,804
                      
                      $               
                          57,836Add
                          - Non cash items:Depreciation
                          and amortization
                      
                      
                      106,722
                      
                      
                      96,644
                      
                      
                      104,062
                      
                      9,276Allowance
                          for doubtful accounts
                      
                      
                      101,741
                      
                      
                      84,813
                      
                      
                      87,899
                      
                      7,835Loss
                          on sale of property and equipment
                      
                      
                      6,438
                      
                      
                      8,422
                      
                      
                      1,416
                      
                      126Provision
                            for retirement pensions andseniority
                            premium
                      
                      
                      16,432
                      
                      
                      13,468
                      
                      
                      13,617
                      
                      1,214Deferred
                          income tax
                      
                      
                      149,149
                      
                      
                      126,138
                      
                      
                      142,418
                      
                      12,695Deferred
                          employee profit sharing
                      
                      
                      -
                      
                      
                      -
                      
                      
                      7,917
                      
                      706975,398
                      
                      
                      935,329
                      
                      
                      1,006,133
                      
                      89,688Changes
                          in assets and liabilities:(Increase)
                          decrease in:Accounts
                          receivable
                      
                      
                      (525,874)
                      
                      
                      (489,627)
                      
                      
                      274,616
                      
                      24,479Inventories
                      
                      
                      (494,302)
                      
                      
                      (240,787)
                      
                      
                      (505,077)
                      
                      (45,023)Prepaid
                          expenses
                      
                      
                      (3,431)
                      
                      
                      (1,547)
                      
                      
                      7,948
                      
                      708Trade
                          accounts payable
                      
                      
                      284,103
                      
                      
                      (129,970)
                      
                      
                      323,333
                      
                      28,822Other
                          payables and accrued liabilities
                      
                      
                      32,857
                      
                      
                      139,265
                      
                      
                      (62,921)
                      
                      (5,609)Employee
                          profit sharing
                      
                      
                      3,516
                      
                      
                      (2,257)
                      
                      
                      1,256
                      
                      112(703,131)
                      
                      
                      (724,923)
                      
                      
                      39,155
                      
                      3,489Net
                          cash provided by operating activities
                      
                      
                      272,267
                      
                      
                      210,406
                      
                      
                      1,045,288
                      
                      93,177Investing
                          activities:Additions
                            of property and equipment, net of retirements
                      
                      
                      41,191
                      
                      
                      46,258
                      
                      
                      112,823
                      
                      10,056Increase
                          in other assets
                      
                      
                      3,504
                      
                      
                      2,076
                      
                      
                      2,418
                      
                      216Reserve
                          for retirement pensions and seniority premium
                      
                      
                      (3,846)
                      
                      
                      12,393
                      
                      
                      11,716
                      
                      1,044Net
                          cash used in investing activities
                      
                      
                      40,849
                      
                      
                      60,727
                      
                      
                      126,957
                      
                      11,316Financing
                          activities:Dividends
                          paid
                      
                      
                      -
                      
                      
                      (107,547)
                      
                      
                      (113,754)
                      
                      (10,140)Bank
                          loans, net of payments made
                      
                      
                      (311,715)
                      
                      
                      (8,415)
                      
                      
                      (390,000)
                      
                      (34,765)Effect
                          in change of bank loans due to the restatement
                      
                      
                      (42,584)
                      
                      
                      (16,649)
                      
                      
                      (20,244)
                      
                      (1,805)Deferred
                          income tax
                      
                      
                      85,950
                      
                      
                      95,471
                      
                      
                      (93,261)
                      
                      (8,313)Net
                          cash (used in) financing activities
                      
                      
                      (268,349)
                      
                      
                      (37,140)
                      
                      
                      (617,259)
                      
                      (55,023)
    F-6
 Convenience2002
                              
                              2003
                              
                              2004
                              
                              translation
                                  2004Net
                                  (decrease) increase in cash andcash
                                  equivalents
                              
                              Ps.
                              (36,931)
                              
                              Ps.
                              112,539
                              
                              Ps.
                              301,072
                              
                              $                   
                                  26,838Cash
                                  and cash
                                  equivalents at
                                  beginning of year
                              
                              
                              104,354
                              
                              
                              67,426
                              
                              
                              179,965
                              
                              16,042Cash
                                  and cash equivalents at
                                  end of year
                              
                              Ps.
                              67,423
                              
                              Ps.
                              179,965
                              
                              Ps.
                              481,037
                              
                              $                  
                                   42,880Supplementary
                                  information:Income
                                  tax and asset tax paid
                              
                              Ps.
                              111,022
                              
                              Ps.
                              170,129
                              
                              Ps.
                              96,941
                              
                              $                     
                                  8,641Employee
                                  profit sharing paid
                              
                              Ps.
                              130
                              
                              Ps.
                              1,371
                              
                              Ps.
                              1,528
                              
                              $                        
                                  136Interest
                                  paid
                              
                              Ps.
                              66,372
                              
                              Ps.
                              53,583
                              
                              Ps.
                              20,535
                              
                              $                      1,830
   The
                      accompanying notes are
                      an integral part of these consolidated financial statements.
  F-7
  
 
 GRUPO
                CASA SABA, S.A. DE C.V. AND SUBSIDIARIES
 
 NOTES
                TO
                THE CONSOLIDATED FINANCIAL STATEMENTS
 
 AS
                OF
                DECEMBER 31, 2002, 2003 AND 2004
 
 (Amounts
                stated in thousands of 2004 year end constant Mexican
 pesos
                (Ps.) and thousands
 of
                U.S.
                dollars ($), except as indicated otherwise)
 
 
 
 **1.**  **Description
                of business:**
 
 Grupo
                Casa Saba, S.A. de C.V. (the Company), through its consolidated subsidiaries
                (the Company and its subsidiaries collectively, the Group),
                distributes
                pharmaceutical products, as well as health-and-beauty/other products,
                entertainment products (including magazines and books), food/non-perishable
                products, and office/electronic products. The Group distributes these
                five
                product lines through its distribution network to supermarket chains,
                pharmacies, both private and governmental, and retail customers throughout
                Mexico. The Group does not maintain separate operating results for
                each of its
                five product lines, and as a result, it considers all of its operations
                and
                reporting the results of all of its operations to management as a
                single
                business segment. Revenue attributable to each of the five product
                lines is
                shown in Note 13).
 
 The
                Company holds substantially all of the issued and outstanding capital
                stock of
                the following subsidiaries that are members of the Group:
  Economic
                          Interest(Direct
                          or indirect)2003
                      
                      2004Casa
                          Saba, S.A de C.V.
                      
                      (Casa
                          Saba)
                      
                      99.9%
                      
                      99.9%Drogueros,
                          S.A. de C.V.
                      
                      (Drogueros)
                      
                      99.9%
                      
                      99.9%Grupo
                          Mexatar, S.A. de C.V.
                      
                      (Mexatar)
                      
                      99.9%
                      
                      99.9%Centennial,
                          S.A. de C.V.
                      
                      (Centennial)
                      
                      99.9%
                      
                      99.9%Inmuebles
                          Visosil, S.A. de C.V.
                      
                      (Visosil)
                      
                      99.9%
                      
                      99.9%Publicaciones
                          Citem, S.A. de C.V.
                      
                      (Citem)
                      
                      99.9%
                      
                      99.9%Transportes
                          Marproa, S.A. de C.V.
                      
                      (Marproa)
                      
                      99.9%
                      
                      99.9%Servicios
                          Corporativos Saba, S.A. de C.V.
                      
                      (Servicios
                          Corporativos Saba)
                      
                      99.9%
                      
                      99.9%Distribuidora
                          Casa Saba, S.A. de C.V.
                      
                      (Distribuidora
                          Saba)
                      
                      99.9%
                      
                      99.9%Other
                          companies (real estate and service companies)
                      
                      (real
                          estate and service companies)
                      
                      99.9%
                      
                      99.9%
 
 During
                2003 and 2004, the Group’s management approved the following agreements to
                strengthen its corporate structure, as well as to facilitate its
                consolidated
                operations. The Group’s management constantly reviews its strategies to adapt to
                any economic changes that may arise.
 
 a)  Through
                certain assignment of rights and obligations agreements dated June
                30, 2003 and
                December 31, 2003, Casa Saba and Drogueros, both Company’s subsidiaries, sold
                certain collection rights applicable to individuals and legal entities
                to the
                Company at a discount in the amount of Ps. 489,546 and Ps. 80,378
                (Ps. 528,832
                and Ps. 84,550 at fiscal year end constant Mexican pesos), respectively.
                The
                selling price of the assignment agreed upon amounted to Ps. 254,670
                and Ps.
                42,234 (Ps. 275,110 and Ps. 44,426 at fiscal year
 
 F-8
 
 end
                constant Mexican pesos), respectively. Accordingly, the Company accrues
                a gain
                for the collection rights acquired that is recognized in income as
                realized.
  b)  Through
                an assignment of rights and obligations agreement dated November
                30, 2004, Casa
                Saba sold certain collection rights applicable to individuals and
                legal entities
                to the Company at a discount in the amount of Ps. 254,319 (Ps. 254,844
                at fiscal
                year end constant Mexican pesos). The selling price of the assignment
                agreed
                upon amounted to Ps. 144,666 (Ps. 144,965 at fiscal year end constant
                Mexican
                pesos). Accordingly, the Company accrues a gain for the collection
                rights
                acquired that is recognized in income as realized.
 
 The
                resulting balances and/or transactions derived from agreements among
                Group’s
                entities referred to above are eliminated in the accounting consolidation,
                in
                accordance with accounting principles generally accepted in Mexico
                or Mexican
                GAAP. This provision is virtually identical to accounting principles
                generally
                accepted in the United States of America or U.S. GAAP.
 
 At
                2003
                and 2004 year end, the realized gain arose from the forementioned
                transactions
                amounted to Ps. 63,402 (Ps. 66,693 at fiscal year end constant Mexican
                pesos)
                and Ps. 27,686, respectively, which was recognized in the line item
“Other
                income”.
 
 
 **2.**  **Basis
                of presentation:**
 
 These
                financial statements have been prepared based on the
                Mexican GAAP
                issued by the Mexican Institute of Public Accountants (MIPA),
                which is
                described in Note 3). Certain accounting principles applied by the
                Group in
                accordance with Mexican GAAP differ in certain material respects
                with U.S. GAAP,
                as discussed in Note 15). A partial reconciliation of the consolidated
                net
                income and stockholders' equity from Mexican GAAP to U.S. GAAP is
                included in
                Note 16).
 
 **Convenience
                translation**
 
 The
                accompanying consolidated financial statements have been translated
                from Spanish
                into English for the convenience of readers outside of Mexico. The
                consolidated
                financial statements are stated in Mexican pesos. U.S. dollar amounts
                shown in
                the accompanying financial statements were calculated based on the
                amounts in
                constant Mexican pesos as of December 31, 2004. They have been included
                solely
                for the convenience of the reader and are translated from constant
                Mexican pesos
                as a matter of arithmetic computation only by using the rate of Ps.11.2183
                (pesos) per U.S. dollar as quoted by Banco de Mexico in the Official
                Daily
                Gazette as of December 31, 2004. The convenience translation should
                not be
                construed as a representation that the Mexican peso amounts have
                been, could
                have been, or in the future could be translated into U.S. dollars
                at this or any
                other exchange rate.
 
 
 **3.** **Significant
                accounting** **policies:**
 
 a)  Use
                of
                estimates
 
 Preparing
                the accompanying consolidated financial statements requires the Group’s
                management to make certain estimates and use certain assumptions
                to determine
                the valuation of some assets and liabilities and disclose contingent
                assets and
                liabilities at the date of the financial statements and the reported
                amount of
                revenues and expenses incurred during the periods. Those estimates
                and
                assumptions are made on a going concern basis.
 
 The
                most
                significant line items subject to the estimates and assumptions foregoing
                discussed, apply mainly to the carrying value of property and equipment
                and
                goodwill, allowance for doubtful accounts and slow-moving inventories,
                valuation
                of labor obligations, assessment of the deferred income tax effect
                and valuation
                of contingencies. Actual results may differ from these estimates
                and
                assumptions.
 
 
 F-9
 
 b)  Basis
                of
                consolidation
 
 The
                Group’s financial statements are presented on a consolidated basis under
                Mexican
                GAAP. Those financial statements include the results of operation
                of the Company
                and all of its subsidiaries (controlled directly or indirectly, acquired,
                newly
                incorporated or disposed of) from the date on which they are acquired
                and/or
                incorporated up to the date when they are sold and/or at the year
                end of the
                last year reported. The consolidated financial statements are prepared
                at the
                same date and for the same period. All significant intercompany balances
                and
                transactions are eliminated from the Group’s consolidated financial
                statements.
 
 c)  Recognition
                of the impact of inflation on
                the
                financial information
  The
                Group
                restates its consolidated financial statements in terms of the purchasing
                power
                of the currency as of the fiscal year end of the last period reported
                to
                recognizing the impact of inflation. Consequently, the amounts of
                the financial
                statements for the current year are comparable to one another and
                with those of
                prior years. Accordingly, all prior year financial statement amounts
                presented
                herein differ from those originally reported.
 
 The
                impact of inflation on the financial information is recognized under
                Bulletin
                B-10, “Recognition of the Impact of Inflation on the Financial Information”, as
                amended (Bulletin B-10) issued by MIPA by applying the following
                procedures:
  i) The
                amounts of the accompanying consolidated financial statements and
                their notes
                are presented for comparative purposes in Mexican pesos of purchasing
                power of
                the currency as of December 31, 2004, by applying the inflation factor
                derived
                from the National Consumer Price Index or NCPI.
 
 ii) Revenues
                and expenses related to monetary items are restated from the month
                in which they
                occur up to fiscal year end, by applying the NCPI factor. Expenses
                related to
                nonmonetary items such as cost of sales and depreciation are restated
                as of the
                date on which inventories are sold, and/or at the time when property
                and
                equipment are depreciated based on the restated value thereof, and
                from that
                date up to fiscal year end, based on the applicable NCPI factor.
 
 iii) The
                gain
                or loss on monetary position represents the impact of inflation,
                as measured by
                the NCPI, on the purchasing power on monetary items. The resulting
                gain or loss
                on monetary position is included in the statement of income in
                the comprehensive cost of financing.
 
 iv) Inventories
                are initially recorded at acquisition cost. Subsequently, they are
                restated to
                their replacement cost, which do not exceed their net realizable
                values.
 
 v) Property
                and equipment are initially recorded at acquisition cost. Those fixed
                assets
                along with their depreciation are restated based on "adjustments
                due to changes
                in the general price level method" by applying the relevant NCPI
                factor to the
                value of those assets determined by an appraisal performed by independent
                experts as of December 31, 1996 (except for Drogueros, as discussed
                in Note 6)),
                as well as to the historical cost of acquisitions made subsequent
                to that date.
                Property and equipment are subject to periodic impairment
                valuation.
 
 Depreciation
                is calculated on the restated value of fixed assets by using the
                straight-line
                method based on the remaining economic useful lives thereof.
 
 vi)  Goodwill
                is restated based on the relevant NCPI factor.
 
 vii)  Stockholders’
                equity is restated based on the NCPI factor by considering the age
                of
                contributions and that of earnings or losses generated. The restated
                stockholders’ equity represents the amount necessary to maintain shareholders’
                investment in terms of the purchasing power of the currency at fiscal
                year end
                of the last year reported.
 
 
 
 F-10
   viii)  The
                deficit on restatement represents the accumulated monetary effect
                at the date on
                which the financial statements were restated for the first time,
                plus (less) the
                deficit (surplus) generated by the valuation of nonmonetary assets,
                based on the
                replacement cost above or below inflation by considering the NCPI
                factor.
                Effective 1997, the deficit or surplus is generated by restating
                inventories to
                their replacement cost as well as their relevant deferred income
                tax effect. The
                resulting deficit or surplus is included in stockholders' equity
                as a component
                of comprehensive income of the year.
 
 d) Cash
                and
                cash equivalents
  Cash
                consists of
                non-interest bearing bank deposits. Cash equivalents are comprised
                mainly of
                short-term investments (highly liquid investments with maturity dates
                when
                acquired of ninety days or less) in banking institutions, payable
                on demand at
                variable interest rates. Investments are valued at market value (cost
                plus
                accrued interest). Interests are included in comprehensive cost of
                financing.
  e) Financial
                instruments
  All
                financial
                assets and financial liabilities derived from any type of financial
                instrument
                are recognized in the balance sheet at fair value. The valuation
                effect is
                recognized in income. Revenues and expenses generated by financial
                instruments
                are recognized in the statement of income when earned or incurred.
 
 The
                Group’s financial instruments are comprised mainly of cash and cash equivalents,
                accounts receivable and payable not related to their commercial activities
                and
                bank loans. As of December 31, 2003, and 2004, the carrying value
                of financial
                instruments shown in the balance sheet approximates their fair value,
                due to
                their short-term nature.
 
 f) Allowance
                for doubtful accounts
 
 The
                allowance for doubtful accounts represents the Group’s estimate of the probable
                loss inherent in all receivables by considering the general historical
                trend of
                payment performance of customers and factors surrounding the specific
                customer’s
                credit risk.
 
 g)  Property
                and equipment
 
 Effective
                2004, in accordance with Bulletin C-15, “Impairment of the value of long-lived
                assets and their related disposal” (Bulletin C-15) issued by the MIPA, the Group
                periodically assesses the restated value of long-lived tangible and
                intangible
                assets, including goodwill, to establish whether factors such as
                the occurrence
                of significant adverse events, changes in the business environment
                and/or
                changes in expectations with respect to operating income for each
                business unit
                or subsidiary, indicate that the carrying value of those assets may
                not be
                recovered. In that event, an impairment loss is recorded in the income
                statement
                in the the period when such an assessment is carried out, unless
                indications
                mentioned are of a temporary nature. The impairment loss is determined
                by the
                excess of carrying value of long-lived assets over recovery value
                thereof by
                considering net present value of cash flows estimated to be generated
                by those
                assets. Bulletin C-15 contemplates the reversal of the recognition
                of
                impairment. Property and equipment to be disposed of are recorded
                at the lower
                between carrying value and the fair market value thereof, less sale
                related
                costs.
 
 As
                a
                result of the application of the provisions of Bulletin C-15, the
                Group
                completed a transitional fair value based impairment test on its
                property and
                equipment as of January 1, 2004. Based on the results of this test,
                the fair
                value of those long-lived assets was equivalent to or greater than
                the carrying
                value thereof recorded at that date. Accordingly, no impairment charges
                resulted
                from the transitional evaluation performed on the carrying value
                of property and
                equipment as of January 1, 2004.
 
 The
                provisions issued prior to Bulletin C-15 set forth the determination
                of the
                impairment loss by comparing undiscounted estimated future cash flows
                to be
                generated by long-lived assets and their respective carrying value.
 
 
 
 
 F-11
 
 h)  Intangible
                assets and Goodwill
  Effective
                2003, in accordance with the new Bulletin C-8, “Intangible Assets” issued by the
                MIPA, intangible assets refer to costs incurred and/or rights or
                privileges
                acquired that generate specific future economic benefits over which
                the Group
                has control. Consequently: (i) development costs are capitalized
                as intangible
                assets under certain circumstances; (ii) preoperating costs are expensed
                in the
                period on which they are incurred; (iii) intangible assets acquired
                through a
                business combination are accounted for individually at the fair value
                as of the
                acquisition date and reported separately, unless their cost cannot
                be reasonably
                determined. In that event, they are accounted for collectively as
                goodwill; (iv)
                intangible assets with a defined economic useful life are amortized
                over their
                useful life by using the straight-line method, unless there is no
                market for
                those assets. In that event, they are reduced to the amount of goodwill
                or to
                zero. In addition, intangible assets with an undefined economic useful
                life
                including goodwill are subject to a periodic impairment valuation,
                by following
                the provisions referred to in paragraph g) above.
 
 As
                a
                result of the application of the provisions of Bulletin C-8, the
                Group completed
                a transitional fair value based impairment test on its goodwill as
                of January 1,
                2003. Based on the results of this test, the fair value of the goodwill
                was
                equal to or greater than the carrying value thereof recorded at that
                date.
                Accordingly, no impairment charges resulted from the transitional
                evaluation
                performed on the carrying value of goodwill as of January 1, 2003.
 
 As
                of
                December 31, 2003 and 2004, the Group’s goodwill arises from acquiring shares of
                capital stock of subsidiary companies at a price exceeding the fair
                value of the
                net assets acquired at the acquisition date. At those fiscal year
                ends, the
                Group recorded an operating expense for goodwill impairment in the
                amount of
                Ps.28,709 (Ps.30,199 at fiscal year end constant Mexican pesos) and
                Ps.23,888,
                respectively.
 
 Up
                to
                2002 year end, goodwill was amortized over the term during which
                the Group’s
                management estimated that the additional benefits of such an investment
                would be
                generated without exceeding twenty years. The unamortized portion
                was
                continually reviewed, thereby decreasing the remaining amortization
                term whether
                economic and circumstantial factors surrounding the Group indicated
                impairment
                in the carrying value of goodwill. At 2002 year end, amortization
                expensed
                amounted to Ps. 24,137 at fiscal year end constant Mexican pesos.
 
 i) Provisions,
                contingent assets and liabilities commitments
  The
                Group
                recognizes the liabilities of present obligations on which the transfer
                of
                assets or the rendering of future services are virtually unavoidable,
                and arise
                as a consequence of past transactions or events. Provisions are recognized
                when
                present, legal or assumed, obligations are unavoidable and will require
                the
                disbursement of economic resources or can be reasonably estimated.
                In the
                relevant cases, provisions are recorded at present value as of the
                financial
                statements date.
 
 Significant
                obligations or losses related to contingencies are periodically evaluated.
                They
                are only accounted for when it is likely that present obligations
                will require
                the disbursement of economic resources, and there are reasonable
                elements for
                their quantification. If there are no such a reasonable elements,
                they are
                disclosed qualitatively in the notes to the financial statements.
                Either of
                contingent revenues, income or assets is only recognized when their
                realization
                is practically certain.
 
 Commitments
                are not recognized unless they result in a loss. Commitments are
                disclosed when
                they represent significant additions of fixed assets, goods or services
                contracted substantially exceed the immediate needs of the Group,
                or represent
                contractual obligations relative to restrictive covenants or significant
                events
                related to liabilities.
 
 j) Labor
                obligations
 
 i) Members
                of the Group that have personnel recognize the labor obligations
                for retirement
                pensions and seniority premiums derived from defined benefit plans
                for all their
                employees. Seniority premiums are granted
 
 F-12
 
 for
                a
                voluntary separation of personnel after completing fifteen years
                of service and
                then calculated based on the number of years worked. Retirement pensions
                are
                granted to all personnel that have completed at least ten years of
                service and
                have reached sixty-five years of age. Members of the Group are required
                to pay
                certain severance benefits to employees that are dismissed without
                proper cause.
                These payments for non-substitute indemnification of retirement pensions
                are
                expensed when paid.
  Projected
                benefit obligations, unamortized items, and the net periodic cost
                applicable to
                retirement pensions and seniority premiums are determined by using
                the
                "projected unit credit method", in conformity with Bulletin D-3,
                "Labor
                obligations" issued by the MIPA. This method is virtually identical
                to the
                method under U.S. GAAP.
 
 Members
                of the Group with employees have created a fund placed in an irrevocable
                trust
                in a financial institution to meet the labor obligations referred
                to above.
                During 2003 and 2004, contributions to the fund based on actuarial
                computations
                amounted to Ps.10,000 (Ps.10,519 at fiscal year end constant Mexican
                pesos) and
                Ps.10,372, respectively. Fund assets consisted of investments in
                equity
                securities, as well as investments in fixed income securities that
                are traded on
                the Mexican Stock Market.
 
 ii) The
                relevant information of the study performed by independent actuaries,
                regarding
                labor obligations is summarized below. The rates referred to below
                with regard
                to actuarial assumptions are stated in real terms (nominal rates
                discounted by
                inflation).
 
 **December
                          31,****2003**
                      
                      
                      **2004****Labor
                          liability**Vested
                          benefit obligation
                      
                      Ps.
                      115,178
                      
                      Ps.
                      111,207Non-vested
                          benefit obligation
                      
                      
                      21,437
                      
                      
                      23,491Accumulated
                          benefit obligation
                      
                      
                      136,615
                      
                      
                      134,698Additional
                          benefit related to future
                        compensation
                          increases
                      
                      
                      10,563
                      
                      
                      9,208Projected
                          benefit obligation
                      
                      
                      147,178
                      
                      
                      143,906Fair
                          value of plan assets
                      
                      
                      50,558
                      
                      
                      57,715Unfunded
                          projected benefit obligation
                      
                      
                      96,620
                      
                      
                      86,191Unrecognized
                          net transition obligation
                      
                      
                      (44,098
                      )
                      
                      (40,466
                      )Negative
                          amendments
                      
                      
                      16,927
                      
                      
                      15,921Unrecognized
                          net loss
                      
                      
                      (48,094
                      )
                      
                      (38,390
                      )**Unfunded
                          accrued pension cost**
                        **and
                          seniority premium to be recognized**
                        **under
                          U.S. GAAP and Mexican GAAP**
                      
                      **Ps.**
                      **21,355**
                      
                      **Ps.**
                      **23,256***Additional
                          Obligation*
                      
                      
                      32,992
                      
                      
                      30,565*Net
                          Actual obligation*
                      
                      **Ps.**
                      **54,347**
                      
                      **Ps.**
                      **53,821****Components
                          of the net periodic cost**Service
                          cost
                      
                      Ps.
                      4,845
                      
                      Ps.
                      4,866Interest
                          on projected benefit obligation
                      
                      
                      8,400
                      
                      
                      7,586Expected
                          return on plan assets
                      
                      
                      (4,036
                      )
                      
                      (3,143
                      )Amortization
                          of net transition obligation
                      
                      
                      3,631
                      
                      
                      3,452Amortization
                          of amendments
                      
                      
                      (1,007
                      )
                      
                      (957
                      )Amortization
                          of losses
                      
                      
                      1,635
                      
                      
                      1,813Effect
                          of reduction and/or curtailment on benefit obligation
   
 F-13
 Ps.
                          13,468
                          
                          Ps.
                          13,
                              617
 Net
                                periodic cost under U.S. GAAP
                              and
                                Mexican GAAP
  ****
                            **December
                                31**
                            ********
                            ****
                            ****
                            **2003**
                            ****
                            ****
                            **2004****Assumptions
                                (real rates)**Discount
                                rate
                            
                            
                            6
                            %
                            
                            5.5
                            %Salary
                                increase rate
                            
                            
                            2
                            %
                            
                            1
                            %Return
                                on plan assets
                            
                            
                            8
                            %
                            
                            7.5
                            %
  **Change
                            in projected benefit obligation**Actual
                            projected benefit obligation at beginning of year
                        
                        Ps.
                        133,262
                        
                        Ps.
                        147,178Service
                            cost
                        
                        
                        4,606
                        
                        
                        4,866Interest
                            cost
                        
                        
                        7,985
                        
                        
                        7,586Actuarial
                            loss
                        
                        
                        (15,699
                        )
                        
                        -Benefits
                            paid
                        
                        
                        9,761
                        
                        
                        (15,724
                        )Inflationary
                            adjustment
                        
                        
                        7,263
                        
                        
                        -Projected
                            benefit obligation at end of year
                        
                        Ps.
                        147,178
                        
                        Ps.
                        143,906**Change
                            in plan assets**Fair
                            value of plan assets at beginning of year
                        
                        Ps.
                        42,619
                        
                        Ps.
                        50,558Actual
                            return on plan assets
                        
                        
                        (14,318
                        )
                        
                        (16,086
                        )Employer
                            contributions
                        
                        
                        10,000
                        
                        
                        10,372Benefits
                            paid
                        
                        
                        9,761
                        
                        
                        12,871Inflationary
                            adjustment
                        
                        
                        2,496
                        
                        
                        -Fair
                            value of plan assets at end of year
                        
                        Ps.
                        50,558
                        
                        Ps.
                        57,715Funded
                            status
                        
                        Ps.
                        91,852
                        
                        Ps.
                        86,191Unrecognized
                            net transition obligation
                        
                        
                        (41,922
                        )
                        
                        (40,466
                        )Negative
                            amendments
                        
                        
                        16,092
                        
                        
                        15,921Unrecognized
                            net loss
                        
                        
                        (45,721
                        )
                        
                        (38,390
                        )Inflationary
                            adjustment
                        
                        
                        1,054
                        
                        
                        -Unfunded
                            accrued pension cost and seniority premium to be recognized
                            under U.S.
                            GAAP and Mexican GAAP
                        
                        Ps.
                        21,355
                        
                        Ps.
                        23,256**Amounts
                            recognized in the statement of financial position consist
                            of:**Unfunded
                            accrued pension cost and seniority premium to be
                            recognized
                        
                        Ps.
                        20,301
                        
                        Ps.
                        23,256Accrued
                            benefit liability
                        
                        
                        (65,713
                        )
                        
                        (60,981
                        )Intangible
                            asset
                        
                        
                        31,364
                        
                        
                        30,565Accumulated
                            other comprehensive income
                        
                        
                        34,349
                        
                        
                        30,416Inflationary
                            adjustment
                        
                        
                        1,054
                        
                        
                        -1,054
                        
                        
                        -Net
                            amount recognized
                        
                        Ps.
                        21,355
                        
                        Ps.
                        23,256
  
 
 
 
 F-14
 
  k)  Comprehensive
                  income
 
 Comprehensive
                  income consists of the consolidated net income for the period,
                  plus (less) other
                  results (i.e. deficit on restatement and/or the relevant deferred
                  income tax
                  effect) for the same period reflected in the stockholders’ equity pursuant to
                  specific accounting provisions. Consequently, stockholders’ equity discloses the
                  components of comprehensive
  l)  Income
                tax and employee profit sharing
 
 i)
                      The
                          Group records the provision for both income tax and employee
                          profit
                          sharing based on the amount payable which is determined
                          based on taxable
                          income.
 
 ii)
                      The
                          deferred income tax effect and deferred employee profit
                          sharing are
                          determined by applying the “comprehensive asset and liability method” in
                          accordance with Mexican GAAP. Pursuant to this method,
                          the deferred income
                          tax liability is recorded for all temporary differences.
                          On the other
                          hand, the deferred income tax asset is only recorded under
                          certain
                          circumstances. The deferred income tax liability and/or
                          asset are
                          classified as a noncurrent item. The deferred income tax
                          liability and/or
                          asset are determined by applying the income tax rate to
                          the temporary
                          differences between the accounting and tax values of assets
                          and
                          liabilities as of the date of the relevant financial statements,
                          as well
                          as the amount of the tax loss carryforwards. In the event
                          of any change in
                          the income tax rate effective subsequent to the fiscal
                          year end, the
                          income tax rate that will be affected at the time it is
                          estimated that the
                          temporary differences are realized will be applied. Asset
                          tax paid in the
                          current year and in prior years that are recoverable may
                          be recognized as
                          a deferred income tax asset under certain
                          circumstances.
 
 The
                Group
                periodically performs a valuation allowance to determine the amount
                of the
                deferred income tax asset that will be recorded, in the event that
                it is likely
                that a certain portion or the entire deferred income tax asset may
                not be
                realized. Any reduction in the deferred income tax asset amount is
                recorded in
                the income statement and/or the stockholders’ equity, by considering the nature
                of the temporary item. As of December 31, 2002, 2003 and 2004 there
                is no
                valuation allowance recorded.
 
 iii)
                      The
                          Group prepares its income tax return and asset tax return
                          on a
                          consolidated basis. The Group’s consolidated subsidiaries meet the
                          characteristics set forth in the Income Tax Law for "controlled
                          companies". The Group recognizes the impact of the eliminations
                          that
                          should be recorded for book and tax consolidation purposes.
                          Consequently,
                          the Group’s consolidated financial statements reflect the amount
                          of the
                          provision for income tax of the Company and that of its
                          consolidated
                          subsidiaries, adjusted for the impact of
                          consolidation.
 
 m)  Foreign
                currency transactions
 
 Foreign
                currency denominated transaction is recorded at the current exchange
                rate at the
                date on which they are entered into or paid. Foreign currency denominated
                monetary item in the balance sheet is translated to Mexican pesos
                by using the
                exchange rate published by the Central Bank of Mexico at month-end.
                Exchange
                fluctuations derived from these monetary items are recorded in the
                income
                statement in the comprehensive cost of financing.
 
 n)  Earnings
                per share
 
 Earnings
                per share are determined based on the weighted average common shares
                outstanding
                during the years and earnings for common shareholders, in conformity
                with
                Bulletin B-14, "Earnings per share" issued by the MIPA.
 
 o)  Revenue
                recognition
 
 Revenues
                are recognized in the period in which risks and benefits are transferred
                to
                purchasers, which generally coincides with: (i) persuasive evidence
                that an
                arrangement exists, (ii) delivery has occurred to the satisfaction
                of
                customers’s orders, (iii) the seller’s price to the buyer is fixed or
                determined, and (iv) collection is reasonably assured.
 
 
 
 
 
 
 
 F-15
 
 4. Receivables:
 
 **2003**
                      
                      
                      **2004**Trade
                          receivables
                      
                      Ps.
                      3,898,714
                      
                      Ps.
                      3,607,961Allowance
                          for doubtful accounts
                      
                      
                      (270,478
                      )
                      
                      (315,311
                      )3,628,236
                      
                      
                      3,292,650Other
                          receivables
                      
                      
                      57,192
                      
                      
                      68,687Related
                          parties
                      
                      
                      3,696
                      
                      
                      3,664Value
                          added tax recoverable
                      
                      
                      33,746
                      
                      
                      57,120Income
                          tax recoverable
                      
                      
                      208,967
                      
                      
                      145,822Asset
                          tax recoverable
                      
                      
                      11,596
                      
                      
                      12,975Ps.
                      3,943,433
                      
                      Ps.
                      3,580,918
 
 **5.**  **Inventories:**
 
 **2003**
                      
                      
                      **2004**Pharmaceutical
                          products
                      
                      Ps.
                      2,263,298
                      
                      Ps.
                      Ps.2,442,179Beauty
                          care products
                      
                      
                      298,964
                      
                      
                      308,692Books
                          and magazines
                      
                      
                      309,292
                      
                      
                      275,438Electric
                          appliances
                      
                      
                      3,905
                      
                      
                      3,464Groceries
                      
                      
                      62,203
                      
                      
                      87,829Other
                      
                      
                      12,498
                      
                      
                      11,8822,950,160
                      
                      
                      3,129,484Estimate
                          for low-moving inventory
                      
                      
                      (7,382
                      )
                      
                      (7,017
                      )2,942,778
                      
                      
                      3,122,467Merchandise-in-transit
                      
                      
                      262,976
                      
                      
                      572,006Ps.
                      3,205,754
                      
                      Ps.
                      3,694,473
 
 Merchandise-in-transit represents
                pharmaceutical products for which title and risk of loss has
                been
                transferred to the Group.
  **6.**  **Property
                and equipment:**
 
 **2003**
                          
                          
                          **2004****Total**
                          
                          
                          **Originalcost**
                          ****
                          ****
                          **Restatement**
                          
                          
                          **Total**Buildings
                          
                          Ps.
                          810,669
                          
                          Ps.
                          242,722
                          
                          Ps.
                          568,361
                          
                          Ps.
                          811,083Machinery
                              and equipment
                          
                          
                          90,102
                          
                          
                          38,858
                          
                          
                          52,084
                          
                          
                          90,942Transportation
                              equipment
                          
                          
                          242,470
                          
                          
                          154,361
                          
                          
                          76,525
                          
                          
                          230,886Office
                              equipment
                          
                          
                          138,679
                          
                          
                          43,662
                          
                          
                          95,481
                          
                          
                          139,143Computer
                              equipment
                          
                          
                          284,395
                          
                          
                          148,234
                          
                          
                          145,839
                          
                          
                          294,0731,566,315
                          
                          
                          627,837
                          
                          
                          938,290
                          
                          
                          1,566,127Less-accumulated
                              depreciation
                          
                          
                          (815,242
                          )
                          
                          (291,297
                          )
                          
                          (514,846
                          )
                          
                          (806,143
                          )751,073
                          
                          
                          336,540
                          
                          
                          423,444
                          
                          
                          759,984Land
                          
                          
                          283,886
                          
                          
                          55,151
                          
                          
                          254,745
                          
                          
                          309,896Ps.
                          1,034,959
                          
                          Ps.
                          391,691
                          
                          Ps.
                          678,189
                          
                          Ps.
                          1,069,880
 
 
 F-16
 
 As
                of
                December 31, 2003 and 2004, the net restated value of the property
                and equipment
                of the subsidiary Drogueros, that is included in the foregoing summary,
                amounted
                to Ps. 111,653 (Ps. 117,449 at fiscal year end constant Mexican pesos)
                and Ps.
                113,306, respectively. The restatement for that property and equipment
                is
                determined by applying the applicable NCPI factor to the original
                cost thereof
                from their respective dates of acquisition.
  The
                average
                annual depreciation rates for 2003 and 2004 were as follows:
 
 Buildings
                          and improvements
                      2.10%Machinery
                          and equipment
                      6.09%Transportation
                          equipment
                      10.15%Furniture
                          and fixtures
                      6.50%Computer
                          equipment
                      11.15%
 
 **7.**  **Related
                party balances** **and
                transactions:**
 
 As
                of
                December 31, 2003 and 2004, the receivable balances from related
                parties were as
                follows:
 
 2003
                      
                      2004Aeroxtra,
                          S.A. de C.V.
                      Ps.
                          3,696
                      
                      Ps.
                          2,000Xtra
                          Inmuebles, S.A. de C.V.
                      -
                      
                      1,664Ps.
                          3,696
                      
                      Ps.
                          3,664
 
 At
                2004
                year end, the receivable balance from Aeroxtra, S.A. de C.V. and
                Xtra Inmuebles,
                S.A. de C.V. represented prepaid flight services, as well as the
                leasing of real
                property, respectively. During 2004, amounts paid to these related
                parties were
                expensed in the amounts of Ps. 10,381 and Ps. 4,792, respectively.
 
 At
                2003
                year end, the receivable balance from Aeroxtra, S.A. de C.V. represented
                prepaid
                flight services. During 2003, flight services and leases of real
                property paid
                to related parties were expensed in the amounts of Ps. 10,388 and
                Ps. 4,501 (Ps.
                10,927 and Ps. 4,735 at fiscal year end constant Mexican pesos),
                respectively.
  During
                2003 and 2004, the Group had no other material related party agreements,
                except
                for the balances and transactions referred to above. The Group's
                management
                estimates that all related party transactions were agreed upon on
                an
                arm's-length basis.
 
 **8.**  **Bank
                loans:**
 
 a)
                        On
                            December 31, 2003, Casa Saba obtained an unsecured loan
                            from Scotiabank
                            Inverlat, S.A. (Scotiabank) in the amount of Ps. 390,000
                            (Ps. 410,244 at
                            fiscal year end constant Mexican pesos), which bore interest
                            at a 7.29%
                            annual market rate. The proceeds from this loan were
                            used for the working
                            capital. The loan was paid in full on its due date, January
                            7,
                            2004.
  b)
                        Through
                            a "mortgage backed clean credit opening contract" with
                            Scotiabank dated
                            June 29, 2001, Casa Saba obtained a loan in the amount
                            of Ps. 645,000 (Ps.
                            762,435 at fiscal year end constant Mexican pesos). The
                            proceeds from this
                            loan were used to prepay the aggregate amount of the
                            outstanding
                            restructured indebtedness previously acquired with Banco
                            Nacional de
                            Mexico dated December 5,
                            2000.
 
 Outstanding
                indebtedness under the Scotiabank loan would be payable monthly from
                July 18,
                2001 through December 31, 2005. This loan bore interest at a variable
                rate equal
                to the Equilibrium Interbank Interest Rate published by the Central
                Bank of
                Mexico in effect from time to time, plus 1.75%.
 
 F-17
 
 On
                September 18, 2003, Casa Saba prepaid the outstanding indebtedness
                referred to
                above in full. Prepayments on principal in whole or in part were
                permitted.
                Consequently, prepayments did not generate any penalty payable by
                Casa Saba.
                Accordingly, the terms and conditions of the loan obtained from Scotiabank
                are
                no longer applicable at 2003 year end.
 
 c)
                        On
                            December 16, 2002, Casa Saba obtained an unsecured loan
                            from Scotiabank in
                            the amount of Ps. 200,000 (Ps. 218,748 at fiscal year
                            end constant Mexican
                            pesos). This loan bore interest at a 9.3% annual market
                            rate. The proceeds
                            from this loan were used for the working capital. This
                            loan was paid in
                            full on its due date, February 14,
                            2003.
  d)
                        Applicable
                            interest rates are adjusted monthly, in accordance with
                            market rates
                            hence, as of December 31, 2003 the carrying value of
                            the bankig debt
                            approximates its market
                            value.
 
 **9.**  **Deferred
                income tax:**
 
 As
                of
                December 31, 2003 and 2004, the deferred income tax liability effect
                determined
                under Mexican GAAP was as follows:
 
 **2003**
                      
                      
                      **2004**Excess
                          of book overtax
                          value of assets and liabilities, net
                      
                      Ps.
                      2,945,877
                      
                      Ps.
                      3,827,886Tax
                          loss carryforwards
                      
                      
                      (504,350
                      )
                      
                      (732,945
                      )2,441,527
                      
                      
                      3,094,941Income
                          tax rate
                      
                      
                      33
                      %
                      
                      28
                      %Deferred
                          income tax
                      
                      
                      805,704
                      
                      
                      866,583Less-Asset
                          tax recoverable
                      
                      
                      (65,745
                      )
                      
                      (77,467
                      )Deferred
                          income tax liability effect
                      
                      Ps.
                      739,959
                      
                      Ps.
                      789,116
 
 As
                of
                December 31, 2002, 2003 and 2004, the excess of book over tax value
                of assets
                and liabilities refers mainly to the line items of inventories and
                property and
                equipment. At those year ends, the provision for deferred income
                tax applied to
                the income statement amounted to Ps. 149,149, Ps. 126,138 and Ps.
                142,418 at
                fiscal year end constant Mexican pesos, respectively.
 
 Under
                Mexican GAAP, the Group records in stockholders’ equity, without passing in
                income, certain items related to temporary items (effect of restatement
                on
                inventories by considering their replacement cost above or below
                inflation).
                Accordingly, both the deferred income tax and employee profit sharing
                related to
                such a temporary differences are recognized in equity. This provision
                is
                virtually identical to U.S. GAAP.
 
 The
                Group
                recognizes the deferred income tax asset derived from tax loss carryforwards,
                whose benefit expires in varying amounts between 2008 and 2011. Their
                realization depends on generating sufficient taxable income prior
                to the
                expiration of those tax loss carryforwards. Although realization
                of tax loss
                carryforwards is not assured, Management estimates a high likelihood
                that the
                deferred income tax asset will be realized by taking into account
                the Group’s
                business plan. The deferred income tax asset amount may be reduced
                in the
                short-term if the estimated taxable income decreases in future
                periods.
 
 As
                of
                December 31, 2002 and 2003, the Members of the Group with employees
                did not have
                a deferred employee profit sharing effect, insofar as there were
                no significant
                temporary items that would have generated a future liability or asset.
                At 2004
                year end, the deferred employee profit sharing amounted to Ps.
                7,917.
 
 
 F-18
 
 As
                discussed in Note 12 f), some provisions to the Income Tax Law were
                amended.
                These amendments will become into effect as of January 1, 2005. As
                a result, the
                income tax rate will be reduced gradually. A tax rate of 33%, 30%,
                29% and 28%
                should be applied to the taxable income may be obtained in fiscal
                2004, 2005,
                2006 and 2007, respectively. In addition, the decrease in the income
                tax rate
                represented a reduction in the deferred income tax liability at 2004
                year end by
                considering the existing temporary items at that same date. The reduction
                amounted to Ps.61,899.
 
 Under
                amendments discussed above, the Group has chosen to deduct the cost
                of sales of
                the inventories existing as of December 31, 2004 to reduce the income
                taxable
                basis should be determined in 2005, on the condition of accruing
                the value
                thereof to the taxable income basis of subsequent years. In that
                event, existing
                inventories at 2004 year end should be valued under the first-in/first-out
                method. That accrual should be made depending on the average inventory
                turnover
                rate applicable to the 2002 to 2004 period. The accrual term should
                not exceed
                twelve years. Management estimates that this amendment to the Income
                Tax Law
                would not have a significant effect on the financial position or
                operating
                income of the Group.
 
 **10.**  **Consolidated
                foreign** **currency
                position:**
 
 As
                of
                December 31, 2003 and 2004, assets and liabilities denominated in
                U.S. dollars
                were as follows:
 
 **2003**
                      
                      
                      **2004**Current
                          assets
                      
                      $
                      3,972
                      
                      $
                      5,375Current
                          liabilities
                      
                      
                      1,453
                      
                      
                      1,014Net
                          position in U.S. dollars
                      
                      $
                      2,519
                      
                      $
                      4,361Net
                          position (at fiscal year end constant Mexican pesos)
                      
                      Ps.
                      28,220
                      
                      Ps.
                      48,925
  As
                of
                December 31, 2003 and 2004, the Group valued its U.S. dollars denominated
                assets
                and liabilities at the fiscal year end exchange rate of Ps. 11.24
                (pesos), and
                Ps. 11.2183 (pesos) per dollar, respectively, published by the Central
                Bank of
                Mexico in the Official Daily Gazette.
 
 As
                of
                February 18, 2005, issue date of the accompanying financial statements,
                the
                consolidated net U.S. dollar position was similar to that of December
                31, 2004
                and the exchange rate was Ps. 11.23 (pesos) per dollar.
 
 
 **11.** **Stockholders’
                equity:**
  Capital
                structure
 
 As
                of
                December 31, 2003 and 2004, paid-in capital stock was as follows:
 
 Par
                          valueNumber
                      
                      
                      2003
                      
                      
                      2004Fixed
                          capital shares without retirement rights
                      
                      
                      265,149,080
                      
                      Ps.
                      167,730
                      
                      Ps.
                      167,730Variable
                          capital shares
                      
                      
                      270,280
                      
                      
                      173
                      
                      
                      173265,419,360
                      
                      Ps.
                      167,903
                      
                      Ps.
                      167,903At
                          fiscal year end constant Mexican pesos
                      
                      
                      
                      
                      Ps.
                      1,007,292
                      
                      Ps.
                      1,007,292
 
 
 F-19
  As
                of
                December 31, 2003 and 2004, capital stock was comprised of 265,419,360
                fully
                paid and non-assessed Ordinary Shares, with no par value. Variable
                capital
                shares may not exceed ten times the amount of fixed minimum capital
                stock.
 
 Repurchase
                and resale of
                own
                shares (Restricted earnings)
 
 At
                the
                General Ordinary and Extraordinary Stockholders’ Meeting held on April 22, 2003,
                the stockholders resolved that maximum amount geared toward the Company's
                own
                share repurchases should be equivalent to 15% of the Company’s stockholders’
                equity as of December 31, 2002, without exceeding retained earnings
                at that
                date. The amount of the reserve for own share repurchases was appropriated
                from
                retained earnings. During 2003 and 2004, the stockholders did not
                approve a
                specific number of shares and peso amount for repurchase or resale
                of its own
                shares.
 
 As
                of
                December 31, 2003 and 2004, the number of own shares available for
                resale was
                14,729,720 valued in the amount of Ps. 100,446 (Ps. 154,292 at fiscal
                year end
                constant Mexican pesos). Those shares cannot be represented at the
                stockholders’
                meeting, as long as the shares belong to the Company.
 
 Legal
                reserve
 
 Net
                income generated by the Company is subject to the legal provision
                that requires
                appropriating 5% of the Company’s income to a legal reserve until that reserve
                equals 20% of the Company’s capital stock. Equity in earnings of subsidiaries is
                not considered for this purpose. Amounts from this reserve may not
                be
                distributed to the Company’s stockholders, except as stock dividends. As of
                December 31, 2003 and 2004, the Company’s legal reserve amounted to Ps. 57,665
                at fiscal year end constant Mexican pesos, which is included in the
                balance
                sheet under the caption "Retained earnings".
 
 Distribution
                of earnings and capital
                reductions
 
 Any
                dividends distributed to stockholders must be paid out of the consolidated
“Net
                taxable income account” (NTIA). Any dividends paid out in excess of NTIA are
                subject to a 42.9% in fiscal 2005 (49.2% in fiscal 2004) tax rate
                payable by the
                Company, except as discussed in the following paragraph “Dividends among
                companies of the Group”. The resulting income tax may be offset against income
                tax due in accordance with the Income Tax Law in the same year and
                the
                subsequent two years. The consolidated balance of NTIA is determined
                as provided
                for in currently enacted tax legislation. As of December 2003 and
                2004,
                t he
                consolidated balance of NTIA amounted to Ps. 180,965 (Ps. 190,357
                at fiscal year
                end constant Mexican pesos) and Ps. 108,366, respectively.
 
 On
                April
                22, 2003, and on April 27, 2004 dividends were declared at the Company’s
                Stockholders’ Meetings in the amount of Ps. 100,000 and Ps. 110,000 (Ps. 107,547
                and Ps. 113,754 at fiscal year end constant Mexican pesos), respectively,
                paid
                out of retained earnings. Dividends paid did not exceed the balance
                of the
                consolidated NTIA at that date; therefore, no taxable income was
                generated for
                income tax.
 
 The
                excess of capital reimbursement per share paid to stockholders over
                the balance
                of the consolidated "Restated contributed capital per share account"
                should be
                treated as a distributed dividend. The excess will be assessable
                as provided for
                in the Income Tax Law. The resulting income tax may be offset as
                referred to
                above. Restated contributed capital per share account is determined
                in
                accordance with currently enacted tax legislation.
 
 Dividends
                among companies of
                the
                Group
 
 Dividends
                distributed among consolidating companies that are not paid out of
                the NTIA will
                be subject to income tax at the time when the shares of the controlled
                subsidiary distributing them are sold, either in whole or in part,
                when the
                equity stake is reduced in the controlled subsidiary or when the
                Group is
                dissolved or no longer consolidates. During 2003 and 2004, no corporate
                changes
                of that nature occurred.
  At
                stockholders’ meetings held on March 5, August 29,
                2003, and on April 27, 2004, the stockholders of Casa Saba declared
                the payment
                of dividends in the amounts of Ps. 314,000, Ps. 56,500 and Ps. 90,000
                (Ps.
                338,964, Ps. 60,763 and Ps. 93,072 at fiscal year end constant Mexican
                pesos),
                respectively . Those payments were made out of the NTIA of Casa
                Saba.
 
 F-20
 
  
 In
                addition, in August 2003, dividends distributed among the other Group’s
                consolidated subsidiaries amounted to Ps. 63,200 (Ps. 67,970 at fiscal
                year end
                constant Mexican pesos). All payments were made out of the NTIA of
                each of the
                subsidiaries that declared the dividend.
 
 **12.**  **Tax
                system:**
 
 a)  Consolidated
                income tax
                due
 
 i) The
                income tax rate applicable in fiscal 2004 is 33%. In accordance with
                the
                recently enacted tax provisions, effective January 1, 2005, the income
                tax rate
                will be reduced gradually. Therefore, a 30% tax income rate will
                be applied in
                fiscal 2005, 29% in fiscal 2006, and finally 28% in fiscal 2007.
  The
                Group
                determines its income and asset taxes on a consolidated basis. Either
                consolidated taxable income and/or consolidated tax loss is determined
                in
                accordance with the "consolidating tax equity" of the taxable
                income or tax
                loss generated in the year by the Company and that of its consolidated
                subsidiaries. Consolidating tax equity represents 60% of the
                equity stake
                that the Company holds in all of its consolidated subsidiaries. Effective
                2002,
                consolidating tax equity applicable to the Company, in its
                capacity as a
                holding company is 60%, as well. The remaining 40% of the taxable
                income or tax
                loss is reported separately by the Company and by each of its consolidated
                subsidiaries. The Company and its consolidated subsidiaries individually
                record
                their applicable income and asset taxes, insofar as each of the companies
                must
                separately file the income and asset tax return of the year, in accordance
                with
                the Tax Legislation.
 
 Taxes
                are
                computed in Mexican pesos as of the date on which the transactions
                occurred.
                Under Mexican GAAP, they are restated to fiscal year end Mexican
                pesos by
                applying the NCPI factor.
 
 ii)  One
                of
                the Group’s consolidated subsidiaries (Transportes Marproa, S.A. de C.V., which
                assets and revenues are not material to the Group’s consolidated operations), is
                authorized to pay its annual income and asset taxes separately from
                the Group
                under a special tax regime known as the “administrative facilities”. Under this
                special regime, the subsidiary pays its annual income tax based only
                on cash-in
                and cash-out with regarding all of its transactions carried out during
                the
                year.
 
 iii)  In
                March
                1999, the Group filed an appeal for constitutional relief against
                an amendment
                enacted to the tax consolidation regime, which became effective in
                1999. This
                amendment set forth that the Group should determine consolidating
                tax equity of
                the 60% discussed in paragraph i) above. In March 2002, a ruling
                in favor of the
                Group was handed down by the Federal Tax Court against this amendment.
                Notwithstanding, the Group has determined its consolidated taxable
                income or
                consolidated tax loss, as the case may be, based on the consolidative
                equity
                since 1999.
 
 iv) 
                   Income tax due is determined by taking into account
                the impact of
                inflation on depreciation of restated fixed assets, the deduction
                and/or
                accumulation of the annual inflationary adjustment on monetary items,
                as well as
                the deduction of inventory purchases instead of the book cost of
                sales.
 
 At
                2002,
                2003 and 2004 fiscal year end, the income tax provision was as
                follows:
 
 2002
                      
                      
                      2003
                      
                      
                      2004Income
                          tax due
                      
                      Ps.
                      182,217
                      
                      Ps.
                      166,119
                      
                      Ps.
                      57,884Income
                          tax offset by prior year tax loss carryforwards
                      
                      
                      (137,439
                      )
                      
                      (
                          135,972
                      )
                      
                      (37,059
                      )Deffered
                          income tax
                      
                      
                      149,149
                      
                      
                      126,138
                      
                      
                      142,418193,927
                      
                      
                      156,285
                      
                      
                      163,243Asset
                          tax, net of recovery
                      
                      
                      (34,976
                      )
                      
                      -
                      
                      
                      10,342Ps.
                      158,951
                      
                      Ps.
                      156,285
                      
                      Ps.
                      173,585
  Taxable
                  income generated in 2002, 2003 and 2004 differs from book income,
                  due to the
                  annual inflationary adjustment on monetary items, excess of book
                  over tax
                  depreciation, deduction of inventory purchases in excess of the
                  book cost of
                  sales, and the effect of prior year tax loss carryforwards.
   F-21
 
 At
                2002,
                2003 and 2004 fiscal year end, consolidated taxable income for income
                tax
                purposes in the amount of Ps. 359,028, Ps. 380,182 (Ps. 392,676 and
                Ps. 399,917
                at fiscal year end constant Mexican pesos) and Ps. 112,300 was incurred,
                respectively. At those fiscal year end, the applicable income tax
                due was fully
                offset by the tax benefit effect of the partial amortization of the
                prior year
                consolidated tax loss carryforwards. The income tax effect offset
                amounted to
                Ps. 125,660 and Ps. 129,262 (Ps. 137,439 and Ps. 135,972 at fiscal
                year end
                constant Mexican pesos) and Ps. 37,059, respectively. The foregoing
                effect is
                shown in the income statement.
 
 b) Consolidated
                asset tax due
 
 i)
                Consolidated asset tax due is determined by applying a 1.8% annual
                tax rate to
                the average restated value of the assets, less the average face value
                of certain
                debts (“Group’s net asset position”). Effective 2003, the Group’s net asset
                position is determined based on the consolidating tax equity (discussed
                in
                paragraph a) above) of the assets and debts of the Company and that
                of its
                consolidated subsidiaries, in accordance with a specific criterion
                issued by the
                Ministry of Finance and Public Credit.
  Asset
                tax
                is only paid on the amount on which it exceeds income tax of the
                year. Income
                tax paid during the year may be credited against asset tax due in
                the same year.
                As provided for in currently enacted Tax Legislation, asset tax paid
                in excess
                of income tax due in the same period may be recovered over a ten
                year term,
                under certain circumstances. On the other hand, income tax paid in
                excess of
                asset tax due may be credited for the immediately foregoing three
                years, under
                certain circumstances. As of December 31, 2003 and 2004, the consolidated
                asset
                tax due amounted to Ps. 28,703 (Ps. 31,005 at fiscal year end constant
                Mexican
                pesos) and Ps. 20,228, respectively.
 
 ii)
                On
                February 15, May 31, and June 30, 2000, the Federal Tax Court handed
                down a
                favorable ruling to the Company, Casa Saba, and Drogueros, respectively,
                in
                order for asset tax to be determined by subtracting the average face
                value of
                debts contracted with the financial system or its intermediaries
                from the
                average restated value of assets. As a result, during 2002, the Company
                obtained
                the refund of asset tax paid in excess for prior years in the amount
                of Ps.
                40,596 (Ps. 44,401 at fiscal year end constant Mexican pesos). This
                amount is
                shown in the income statement.
 
 c) Tax
                loss
                carryforwards and asset
                tax
                recoverable
 
 i)
                Tax
                loss carryforwards can be offset against taxable income that may
                be generated in
                the future over a ten year term. Tax loss carryforwards can be restated
                based on
                the NCPI factor from the date incurred up to the sixth month of the
                year on
                which they can be offset against taxable income. On the other hand,
                asset tax
                recoverable can be restated from the date on which the recoverable
                balance is
                generated up to the date when that balance is recovered.
 
 As
                of
                December 31, 2004, the restated amount of tax loss carryforwards
                and asset tax
                recoverable were as follows:
  Year
                      
                      Tax
                          loss
                      Asset
                          tax
                      
                      Year
                          ofincurred
                      
                      Carryforward
                      
                      recoverable
                      
                      Expiration1995
                      
                      Ps.
                      -
                      
                      Ps.
                      4,043
                      
                      
                      20051996
                      
                      
                      -
                      
                      
                      15,152
                      
                      
                      20061998
                      
                      
                      240,979
                      
                      
                      -
                      
                      
                      20082000
                      
                      
                      190,485
                      
                      
                      -
                      
                      
                      20102001
                      
                      
                      194,553
                      
                      
                      2,376
                      
                      
                      20112002
                      
                      
                      -
                      
                      
                      8,746
                      
                      
                      20122003
                      
                      
                      -
                      
                      
                      31,005
                      
                      
                      20132004
                      
                      
                      -
                      
                      
                      10,623
                      
                      
                      2014Ps.
                      626,017
                      
                      Ps.
                      71,945
 
 F-22
   ii)
                At 2003 fiscal
                year end, the Company, in its capacity as a holding company, has
                incurred
                individual tax loss carryforwards derived from the sale of stock
                (whose return
                is not considered interest as provided for in the Income Tax Law)
                in the amount
                of Ps. 352,997 (Ps. 408,097 at fiscal year end constant Mexican pesos).
                That
                amount may be applied only in the holding company, if certain requirements
                are
                met.
  iii)
                Tax
                loss carryforwards of the subsidiaries expire individually over a
                ten year term,
                effective the date on which the tax losses are incurred. The effect
                of these
                restated tax loss carryforwards should be reversed in the tax consolidation
                on
                the year that the subsidiary loses its carryforward right.
 
 d) Employee
                profit sharing
 
 The
                Federal Labor Law provides that the Group’s consolidated subsidiaries that have
                personnel are obligated to pay profit sharing to their employees.
                This profit
                sharing is calculated by applying a 10% annual rate to taxable income
                for each
                subsidiary, determined as provided for in the Income Tax Law. As
                of December 31,
                2002 and 2003, no deferred effect was recorded. At 2004 year end,
                the deferred
                employee profit sharing in the amount of $7,917 was applied to the
                income
                statement.
 
 e)  Provisions
                for income tax
 
 In
                accordance with Mexican GAAP, the following items represent the principal
                differences between Mexican income tax computed at the statutory
                tax rate and
                the Group's provisions for income tax in each year:
 
 **Year
                          ended December, 31****2002**
                      
                      
                      **2003**
                      
                      
                      **2004****Statutory
                          income tax rate**
                      
                      **35**
                      **%**
                      
                      **34**
                      **%**
                      
                      **33**
                      **%****Permanent
                          differences:**Comprehensive
                          cost of financing vs. annual inflationary adjustment
                      
                      -
                      
                      
                      3
                      
                      
                      15Non-deductible
                          items
                      
                      (12
                      )
                      
                      (10
                      )
                      
                      (35
                      )Other
                          (including inflation effects)
                      
                      74
                      
                      
                      -
                      
                      
                      -**Temporary
                          differences:**Depreciation
                      
                      13
                      
                      
                      4
                      
                      
                      9Book
                          cost of sales vs. purchases, labor and overhead
                      
                      39
                      
                      
                      16
                      
                      
                      225Application
                          of prior year tax loss carryforwards
                      
                      (149
                      )
                      
                      (26.5
                      )
                      
                      (226.1
                      )0
                      %
                      
                      20.5
                      %
                      
                      20.9
                      %
 
 In
                fiscal
                2002, 2003 and 2004, the Group generated consolidated taxable income
                for income
                tax purposes in the amounts of Ps. 359,028, Ps. 380,182 (Ps. 392,676
                and Ps.
                399,917 at fiscal year end constant Mexican pesos) and Ps. 112,300,
                respectively. At those fiscal year end, income tax due was fully
                offset by the
                tax benefit effect of the amortization of the prior year consolidated
                tax loss
                carryforwards. The income tax effect offset amounted to Ps. 125,660
                and Ps.
                129,262 (Ps. 137,439 and Ps. 135,972 at fiscal year end constant
                Mexican pesos)
                and Ps. 37,059, respectively. That effect is shown in the accompanying
                statement
                of income.
 
 f) Tax
                amendments
 
 Effective
                January 1, 2005, the following amendments applicable to the Group
                were enacted
                to the Income Tax Law and Asset Tax Law:
 
 i)
                Change
                from the tax deduction of merchandise and finished products at the
                time when
                they are acquired to the deduction of the cost of sale of those goods
                up to the
                time when they are sold.
 
 F-23
 
 Pursuant
                to the aforementioned, the value of stock in inventory as of December
                31, 2004
                cannot be deducted from the tax basis of income tax determined subsequent
                to
                that year. However, the Income Tax Law set forth a transition regime
                to deduct
                that value from the tax basis of income tax when the merchandise
                is sold. The
                Group adopted the option referred to in the terms and with the effects
                discussed
                in the last paragraph in Note 9).
 
 ii)
                Holding companies that consolidate their taxable income and/or tax
                losses for
                income tax purposes should include taxable income and/or tax losses
                from their
                consolidated subsidiaries by considering 100% of the average equity
                stake
                maintained in the capital stock of those subsidiaries. Moreover,
                holding
                companies should include 100% of their individual taxable income
                and/or tax
                losses in the tax consolidation. This amendment will allow the Mexican
                tax
                system to be more competitive.
 
 From
                fiscal 1999 through fiscal 2004, the equity stake of the holding
                company in the
                capital stock of its subsidiaries should be multiplied by the 0.60
                factor to
                determine the consolidative equity, whereas consolidative equity
                of the holding
                company was 60% from 2002 through 2004.
 
 iii)
                Taxpayers that have debts derived from capitals received as loans
                from related
                parties and foreign resident independent parties in excess of their
                stockholders’ equity should calculate the amount of nondeductible interest on
                the relevant surplus for income tax purposes. The excess is
                generated when
                the debt to stockholders’ equity ratio exceeds three to one. In accordance with
                the business plan of the Group, that provision will not affect its
                financial
                position or operating income.
 
 iv)
                The
                Asset Tax Law will permit debts contracted with the financial system
                and foreign
                residents to be deductible for the determination of the tax basis
                relative to
                that tax. Up to 2004, the deductions referred to above were not
                permitted.
 
 **13.**  **Segment
                information:**
 
 Although
                the Group distributes five product lines, it considers all of its
                operations,
                and reports the results of all of its operations to management as
                a single
                business segment, as discussed in Note 1).
 
 Revenue
                attributable to each of the five product lines for the years ended
                December 31,
                2002, 2003 and 2004, were as +follows:
 
 **Millions
                          of Mexican pesos**2002
                      
                      
                      2003
                      
                      
                      2004Pharmaceutical
                          products
                      
                      Ps.
                      17,013
                      
                      Ps.
                      17,722
                      
                      Ps.
                      17,803Health
                          and beauty aids/other products
                      
                      
                      1,925
                      
                      
                      1,975
                      
                      
                      1,882Entertainment
                          products
                      
                      
                      770
                      
                      
                      671
                      
                      
                      713Food/non-perishable
                          products
                      
                      
                      168
                      
                      
                      156
                      
                      
                      170Office/electronic
                          products
                      
                      
                      38
                      
                      
                      21
                      
                      
                      2Total
                      
                      Ps.
                      19,914
                      
                      Ps.
                      20,545
                      
                      Ps.
                      20,570
 
 **14.** **New
                Mexican accounting** **pronouncements:**
  i) In
                May
                2003, the MIPA issued Bulletin C-12, “Financial instruments with liability and
                equity characteristics or characteristics of both” (Bulletin C-12). This
                Bulletin incorporates the parts referred to in other bulletins issued
                by the
                MIPA regarding the issuance of debt, equity or compound financial
                instruments.
                Bulletin C-12 sets forth the basic differences between liabilities
                and equity,
                as well as the rules to classify and value the opening recognition
                of liability
                and equity components of compound financial instruments. Subsequent
                opening
                recognition and valuation of liability and equity components of compound
                financial instruments is subject to the provisions set forth in the
                specific
                bulletins issued by the MIPA. Application of the provisions of Bulletin
                C-12 is
                mandatory, effective January 1, 2004. Although the Group currently
                has no
                financial instruments with these characteristics, this does not mean
                that the
                Group may not issue them in the future.
 
 F-24
 
 
 ii) In
                December 2003, the MIPA issued the new Bulletin D-3, “Labor obligations”
                (Bulletin D-3), which incorporates rules for valuation, presentation,
                and
                disclosure regarding “remunerations at the end of the employer/employee
                relationship” granted to employees when they complete their employer/employee
                relationship prior to reaching retirement age. Under Bulletin D-3,
                remunerations
                granted to employees due to causes other than restructuring, are
                valued by using
                the “projected unit credit method”, whereas remunerations due to restructuring
                causes, should continue to follow the guidelines of Bulletin C-9,
“Liability,
                provisions, contingent assets and liabilities, and commitments”. Application of
                the provisions of Bulletin D-3 is mandatory, effective January 1,
                2005. The
                Group believes that these provisions did not have any effect on the
                financial
                position or its income statement.
 
 iii) In
                March
                2004, the MIPA issued Bulletin B-7, "Business acquisitions” (Bulletin B-7) that
                requires applying the purchase method for the recognition and opening
                valuation
                at fair value of the business acquisitions and investments in associated
                companies. A business acquisition occurs when net assets comprising
                a business
                or common shares that are under the control or significant influence
                of a legal
                entity are acquired. The Bulletin sets forth the rules for acquiring
                minority
                interest, transferring assets or exchanging shares among entities
                under common
                control. That Bulletin further amends the accounting treatment of
                goodwil
                generated in business acquisitions, by eliminating its amortization
                and
                subjecting it to impairment rules. The Bulletin complements the accounting
                treatment of intangible assets recognized in a business acquisition,
                in
                accordance with Bulletin C-8 “Intangible Assets” issued by the IMCP, as
                discussed in Note 3h). Application of the provisions of Bulletin
                B-7 is
                mandatory, effective January 1, 2005. Although the Group has currently
                not
                carried out transactions of this nature, this does not mean that
                it may not
                carry them out in the future.
 
 iv) In
                February 2004, the MIPA issued Bulletin C-10, “Derivative financial instruments
                and hedging transactions” (Bulletin C-10), which sets forth the characteristics
                of derivative financial instruments, the requirements of derivatives
                to be
                classified as hedging instruments, the journalization models of hedging
                transactions, the recognition and valuation rules of derivatives,
                and structured
                hedging transactions through derivatives. Application of the provisions
                of
                Bulletin C-10 is mandatory, effective January 1, 2005. Although the
                Group has
                currently not carried out transactions of this nature, this does
                not mean that
                it may not carry them out in the future.
 
 
 **15.** **Differences
                between Mexican** **and
                U.S. GAAP:**
 
 The
                Group’s consolidated financial statements are prepared based on Mexican
                GAAP,
                which differ in certain material respects from U.S. GAAP. A partial
                reconciliation of the reported net income and stockholders’ equity from Mexican
                GAAP to U.S. GAAP is presented in Note 16). This partial reconciliation
                to U.S.
                GAAP does not include the reversal of the restatement of the financial
                statements to recognize the impact of inflation, as required under
                Mexican GAAP,
                Bulletin B-10, as amended. The application of Bulletin B-10 represents
                a
                comprehensive measure of the impact of price-level changes in the
                inflationary
                Mexican economy and, as such, is considered a more meaningful presentation
                than
                historical cost-based financial reporting for both Mexican and U.S.
                accounting
                purposes.
 
 Other
                than inflation accounting, the principal differences between Mexican
                GAAP and
                U.S. GAAP that affect the Group’s consolidated financial statements are
                described below along with an explanation, where appropriate, of
                the method used
                to determine the adjustment between Mexican and U.S. GAAP.
 
 a)  Statements
                of Cash Flows
 
 Under
                Mexican GAAP, the Group prepares the consolidated statements of changes
                in
                financial position in accordance with Bulletin B-12, "Statement of
                Changes in
                Financial Position". Bulletin B-12 specifies the appropriate presentation
                of
                this statement when the financial statements have been restated to
                constant
                Mexican pesos in accordance with the Third Amendment to Bulletin
                B-10. Bulletin
                B-12 identifies the generation and application of resources representing
                differences between beginning and ending balance
 
 F-25
 
   sheets
                in
                constant Mexican pesos, excluding the effect of the heading "Deficit
                on
                restatement". The Bulletin also requires treating monetary gains
                and losses and
                unrealized gains and losses on foreign currency transactions as cash
                items in
                the determination of net cash provided by operating activities. Consequently,
                the changes included in this financial statement constitute cash
                flow activity
                stated in constant Mexican pesos. Under Mexican GAAP, the changes
                in current and
                long-term debt related to restatement to constant Mexican pesos are
                presented in
                the consolidated statements of changes in financial position as a
                resource used
                in financing activities, and the gain or loss on monetary position
                is presented
                as a component of operating activities.
 
 Under
                Statement of Financial Accounting Standard No. 95, "Statement of
                Cash Flows"
                (SFAS 95), a statement of cash flows is required, which presents
                only cash
                movement and excludes non-cash items. SFAS 95 does not provide guidance
                on
                inflation-adjusted statements of changes in financial position. If
                the gain on
                monetary position were treated as a component of financing activities,
                resources provided by operating activities would be Ps.
                222,277, Ps. 195,430, and Ps.1,037,304 and net cash used in
                financing
                activities would be Ps. (218,359), Ps. (22,164) and Ps. (609,275)
                in 2002, 2003
                and 2004, respectively.
 
 b)D eferred
                income tax and employee
                profit sharing
 
 i) The
                Group
                adopted SFAS No. 109, "Accounting for income taxes" (SFAS 109) for
                U.S. GAAP
                reconciliation purposes. SFAS 109 determines the deferred income
                tax effect by
                applying the "comprehensive asset and liability method". As described
                in Note
                12b), Mexican Tax Law requires paying a 1.8% annual tax rate on the
                Group’s net
                assets which may be used to offset future income tax obligations.
                Under SFAS
                109, such an amount should be treated as a deferred income tax benefit
                and
                reduced by a valuation allowance, if required.
 
 Moreover,
                for U.S. GAAP purposes, all of the changes in the required deferred
                income tax
                effect during the year are allocated in the income statement, except
                for the
                deferred income tax effect derived from temporary differences attributed
                to
                changes in other stockholders’ equity accounts. In that event, such an effect is
                applied directly to the specific stockholders’ equity accounts that generate
                such changes.
 
 The
                foregoing provisions are virtually identical to Mexican GAAP, except
                that the
                recognition of the accumulated initial effect of the comprehensive
                asset and
                liability method as of January 1, 2000, was recorded directly to
                stockholders’
                equity.
  Under
                U.S. GAAP, the deferred income tax effect should be classified as
                current and
                non-current, based on the classification of the asset and liability
                items that
                give rise to it. As of December 31, 2003 and 2004, the deferred income
                tax
                effect under Mexican and U.S. GAAP was classified as follows:
 
 **CONSTANT
                          MEXICAN PESOS****MEXICAN
                          GAAP**
                      **U.S.
                          GAAP****2003**
                      
                      
                      **2004**
                      
                      
                      **2003**
                      
                      
                      **2004**Current
                      
                      Ps.
                      -
                      
                      Ps.
                      -
                      
                      Ps.
                      900,170
                      
                      Ps.
                      967,275Noncurrent
                      
                      
                      739,959
                      
                      
                      789,116
                      
                      
                      (160,211
                      )
                      
                      (178,159
                      )Ps.
                      739,959
                      
                      Ps.
                      789,116
                      
                      Ps.
                      739,959
                      
                      Ps.
                      789,116
 
 ii) The
                Group’s consolidated subsidiaries that have personnel are obligated to
                pay
                profit sharing to their employees. Profit sharing is calculated by
                applying a
                10% annual rate to taxable income determined for each subsidiary
                as provided for
                in the Income Tax Law, as explained in Note 12d). By virtue thereof,
                employee
                profit sharing is subject to the future consequences of temporary
                differences in
                the same manner as income tax.
 
 
 
 F-26
 
 Under
                Mexican GAAP, no deferred employee profit sharing was recorded in
                2002 and 2003
                insofar as the Group’s consolidated subsidiaries did not have significant
                temporary differences that had generated future liabilities or benefits.
                At 2004
                year end deferred employee profit sharing amounted to Ps.7,917. (See
                Note
                12d).
 
 For
                U.S.
                GAAP purposes, a deferred profit sharing expense and liability have
                been
                calculated. Therefore, in fiscal 2002 the deferred effect not recorded
                under
                Mexican GAAP amounted to Ps. (51,378). For fiscal 2003, and 2004,
                the deferred
                employee profit sharing amounted to Ps. 0 and Ps. 7,917 for
                U.S. GAAP
                purposes. Accordingly, at 2002 reconciling item for the deferred
                effect not
                recorded under Mexican GAAP is included in the reconciliation from
                Mexican to
                U.S. GAAP. In addition, employee profit sharing is classified as
                an operating
                expense for U.S. GAAP purposes. The components of the U.S. GAAP employee
                profit
                sharing liability as of December 31, 2002 were as follows:
 
  **DEFERRED
                            EMPLOYEE PROFIT SHARING****CONSTANT
                            MEXICAN PESOS****2002**
                        
                        
                        **2003**
                        
                        
                        **2004**CurrentInventories
                        
                        Ps.
                        62,605
                        
                        Ps.
                        Ps.
                            298,000
                        
                        Ps.
                        27,535Non-deductible
                            reserves
                        
                        
                        (5,590
                        )
                        
                        (100,768
                        )
                        
                        -57,015
                        
                        
                        197,232
                        
                        
                        27,535Non-currentProperty
                            and equipment
                        
                        
                        2,998
                        
                        
                        392Prepaid
                            expenses and prepaid pension cost
                        
                        
                        1,646
                        
                        
                        (46
                        )Other
                        
                        
                        -
                        
                        
                        (197,578
                        )
                        
                        (19,618
                        )4,644
                        
                        
                        (197,232
                        )
                        
                        (19,618
                        )Ps.
                        61,659
                        
                        Ps.
                        -
                        
                        Ps.
                        7,917
  iii) Goodwill
 
 Goodwill
                is restated based on NCPI factor as discussed in Note 3c). Under
                Mexican GAAP
                and U.S. GAAP, prior to January 1, 2003, and January 1, 2002, respectively,
                goodwill was amortized on a straight-line basis over 20 years.
 
 In
                June
                2001, the Financial Accounting Standards Board approved SFAS 142,
                "Goodwill and
                Other Intangible Assets", which requires that all intangible assets
                that are
                obtained through contractual or legal right, or are capable of being
                separately
                sold, transferred, licensed, rented or exchanged must be recognized
                as an asset
                apart from goodwill. As a result of the statement, under US GAAP,
                goodwill and
                intangibles with indefinite lives are no longer amortized, but are
                subject to an
                annual assessment for impairment by applying a fair value based test.
                Effective
                2003, this provision is virtually identical to Mexican GAAP.
 
 **16.**  **Reconciliation
                of Mexican** **to
                U.S. GAAP:**
 
 Net
                income and stockholder’s equity adjusted to take into account the significant
                differences between Mexican GAAP and U.S. GAAP, except for the comprehensive
                effect of price-level changes as required by Mexican GAAP, were as
                follows:
 
 
 F-27
 - -
 
 **Thousands
                            of Mexicsn pesos (Ps.) and thousands of U.S. dollars
                            ($), except per
                            share****NET
                            INCOME**
                        
                        **Year**
                        
                        **Convenience**
                          **translation****2002**
                        
                        **2003**
                        
                        **2004**
                        
                        **2004**Net
                            income under Mexican
                            GAAP
                        
                        Ps.
                        594,916
                        
                        Ps.
                        605,844
                        
                        Ps.
                        648,804
                        
                        $
                        57,836U.S.
                            GAAP adjustments-Deferred
                            employee profit sharing
                        
                        
                        (53,421
                        )
                        
                        59,301
                        
                        
                        -
                        
                        
                        -Amortization
                            of goodwill
                        
                        
                        24,137
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -Impact
                            of inflation accounting
                            on U.S. GAAP ad
                          justments
                        
                        
                        472
                        
                        
                        2,358
                        
                        
                        -
                        
                        
                        -(28,812
                        )
                        
                        61,659
                        
                        
                        -Net
                            income under U.S. GAAP
                        
                        Ps.
                        566,104
                        
                        Ps.
                        667,503
                        
                        Ps.
                        648,804
                        
                        $
                        57,836Weighted
                            average common
                          shares
                            outstanding (thousands)
                        
                        
                        265,419
                        
                        
                        265,419
                        
                        
                        265,419Basic
                            and diluted earnings per share under U.S. GAAP
                        
                        Ps.
                        2.13
                        
                        Ps.
                        2.51
                        
                        Ps.
                        2.44
 Because Mexican GAAP requires using a comprehensive method for
                  recognizing the
                  impact of inflation and the financial statements are prepared on
                  this basis, the
                  applicable impact of inflation on U.S. adjustments was calculated
                  and included
                  in the heading "impact of inflation accounting on U.S. GAAP
                  adjustments".
  **STOCKHOLDERS’
                            EQUITY**
                        
                        
                        
                        **Convenience**
                          **translation****2002**
                        
                        
                        **2003**
                        
                        
                        **2004**
                        
                        
                        **2004**Stockholders’
                            equity underMexican
                            GAAP
                        
                        
                        3,260,403
                        
                        $
                        3,514,373
                        
                        $
                        4,033,065
                        
                        $
                        359,508U.S.
                            GAAP adjustments-Deferred
                            employee profit
                          Sharing
                        
                        
                        (61,659
                        )
                        
                        -
                        
                        
                        -
                        
                        
                        -Amortization
                            of goodwill
                        
                        
                        24,137
                        
                        
                        24,137
                        
                        
                        24,137
                        
                        
                        2,151(37,522
                        )
                        
                        24,137
                        
                        
                        24,137
                        
                        
                        2,151Stockholders’
                            equity under
                          U.S.
                            GAAP
                        
                        $
                        3,222,881
                        
                        $
                        3,538,510
                        
                        $
                        4,057,202
                        
                        $
                        361,659
 
 
 
 
 
 
 
 
 
 
 
 
 F-28
  
 **Changes
                in stockholders’ equity** **under
                U.S. GAAP**
  **Convenience****translation****2002**
                            
                            
                            **2003**
                            
                            
                            **2004**
                            
                            
                            **2004**Stockholders’
                                equity underU.S.
                                GAAP as of beginning of the year
                            
                            Ps.
                            3,061,242
                            
                            Ps.
                            3,222,881
                            
                            Ps.
                            3,538,510
                            
                            $
                            315,421Comprehensive
                                income under U.S. GAAP
                            
                            
                            198,116
                            
                            
                            423,176
                            
                            
                            632,446
                            
                            
                            56,378Reversal
                                of deferred income tax
                            
                            
                            (36,477
                            )
                            
                            -
                            
                            
                            -
                            
                            
                            -Dividends
                                paid
                            
                            
                            -
                            
                            
                            (107,547
                            )
                            
                            (113,754
                            )
                            
                            (10,140
                            )Stockholders’
                                equity under U.S. GAAP at year end
                            
                            Ps.
                            3,222,881
                            
                            Ps.
                            3,538,510
                            
                            Ps.
                            4,057,202
                            
                            $
                            361,659
  **Comprehensive
                    income under** **U.S.
                    GAAP**
  **Convenience**
                        ********
                        ****
                        ****
                        ****
                        ****
                        ****
                        ****
                        ****
                        ****
                        ****
                        ****
                        ****
                        **translation**
                        ********
                        ****
                        ****
                        **2002**
                        ****
                        ****
                        **2003**
                        ****
                        ****
                        **2004**
                        ****
                        ****
                        **2004**Net
                            income under U.S. GAAP
                        
                        Ps.
                        566,104
                        
                        Ps.
                        667,503
                        
                        Ps.
                        648,804
                        
                        $
                        57,836Deficit
                            on holding nonmonetary assets
                        
                        
                        (367,988
                        )
                        
                        (244,327
                        )
                        
                        (16,358
                        )
                        
                        (1,458
                        )Comprehensive
                            income under U.S. GAAP
                        
                        Ps.
                        198,116
                        
                        Ps.
                        423,176
                        
                        Ps.
                        632,446
                        
                        $
                        56,378
  
 **17.** **Supplementary
                U.S.** **GAAP
                disclosures:**
 
 a)  Financial
                instruments with off-balance-sheet risk
 
 Under
                the
                provisions of SFAS No. 105, "Disclosure of information about financial
                instruments with off-balance-sheet risk and financial instruments
                with
                concentrations of credit risk”, the Group sells its products mainly to
                distributors including supermarket chains, pharmacies and retail
                customers
                throughout Mexico. No single customer accounted for a significant
                amount of the
                Group’s sales in fiscal 2002, 2003 and 2004, and there were no significant
                accounts receivable from a single customer for the same years. Moreover,
                there
                is no significant concentration of a specific supplier relating to
                the purchase
                of inventories.
 
 The
                Group
                currently do not have any off-balance sheet arrangement that have
                or are
                reasonably likely to have a current or future effect in the financial
                statements, changes in financial condition, results of operations,
                liquidity,
                capital expenditures or capital resources that is material to
                investors.
 
 b)  Accounts
                receivable
 
 The
                majority of the Group’s accounts receivable are due from companies in the
                pharmaceutical products, as well as health-and-beauty/products activities.
                Credit is extended based on evaluation of a customer’s financial condition and,
                generally, collateral is not required. Accounts receivable are due
                within a
                30-60 day term and are stated at amounts due from customers net of
                an allowance
                for doubtful accounts. Accounts outstanding longer than the agreed
                upon payment
                terms are considered past due. The Group determines its allowance
                by considering
                a number of factors, including the length of time trade accounts
                receivable are
                past due, the Group’s previous loss history, the customer’s current ability to
                pay its obligation to the Group, and the condition of the general
                economy and
                the industry as a whole. The Group writes-off accounts receivable
                when they
                become uncollectible, and payments subsequently received on such
                receivables are
                credited to the allowance for doubtful accounts.
  c)  Impairment
                  of long-lived assets
 
 F-29
 
 
 Under
                U.S. GAAP, an impairment occurs when the total amount of the estimated
                future
                cash flow that may be reasonably expected to be obtained through
                the use of the
                asset during its remaining economic useful live, reduced by the operating
                costs
                and expenses associated with such cash flows, is less than the net
                book value of
                the asset. The impairment of a long-lived asset that must be charged
                to the
                income statement is that amount by which the net book value exceeds
                its recovery
                value. If the adjustment is in order, it is determined by the difference
                between
                fair value and net book value. At fiscal 2002, 2003 and 2004 year
                end, there
                were not changes in circumstances indicate that the net book value
                of a
                long-lived asset may not be fully recoverable
 
 In
                August
                2001, SFAS 144, "Accounting for the impairment or disposal of long-lived
                assets"
                was issued. This SFAS supersedes SFAS No. 121, "Accounting for the
                impairment of
                long-lived assets and for long-lived assets to be disposed of". SFAS
                144
                provides a single accounting model for long-lived assets to be disposed
                of and
                retains many of the fundamental recognition and measurement provisions
                of SFAS
                121 including: (i) the write-down for impairment is not allowed to
                be reversed
                and, (ii) the valuation of fixed assets and some intangibles held
                for sale at
                the lower between net book value or their realization value.
 
 SFAS
                144
                change the criteria that would have to be met to classify an asset
                as
                held-for-sale. The new rules also supersede the provisions of APB
                Opinion No.
                30, "Reporting the results of operations-reporting, the effects of
                disposal of a
                segment of a business, and extraordinary, unusual and infrequently
                occurring
                events and transactions", with regard to reporting the effects of
                a disposal of
                a segment of business. Those rules further require showing expected
                future
                operating losses from discontinued operations in the period in which
                the losses
                are incurred (rather than as of the measurement date presently required
                by APB
                No. 30).
 
 On
                January 1, 2002, the Group adopted SFAS 144 for U.S. GAAP purposes.
                At that
                date, and at fiscal 2002, 2003 and 2004 year end, the Group did not
                have any
                intangible and/or fixed assets held for sale.
 
 Also,
                Bulletin C-15, "Impairment of the value of long-lived assets and
                their related
                disposal” (Bulletin C-15) issued by the MIPA, which is similar to U.S. GAAP,
                became effective in January 2004 (see Note 3 g), except that the
                reversal of the
                recognition of impairment is pemitted under Mexican GAAP.
 
 As
                a
                result of the application of the provisions of Bulletin C-15, the
                Group
                completed a transitional fair value based impairment test on its
                property and
                equipment as of January 1, 2004. As a result, no impairment charges
                resulted
                from the transitional evaluation performed on the carrying value
                of property and
                equipment as of January 1, 2004.
 
 d)  Goodwill
                and other intangible assets
 
 In
                June
                2001, SFAS 142, "Goodwill and other intangible assets" superseded
                APB Opinion
                17, "Intangible assets". Under the new rules, goodwill and intangible
                assets
                deemed to have indefinite lives are not longer continued to be amortized
                over
                their remaining economic useful lives. Instead they should be subject
                to annual
                impairment tests in accordance with SFAS 142. Other intangible assets
                should be
                amortized over their remaining economic useful lives.
 
 The
                Group
                applied the provisions of SFAS 142 beginning on January 1, 2002.
                The Group
                completed a transitional fair value based impairment test on its
                goodwill as of
                January 1, 2002. As a result, the fair value of the goodwill was
                equivalent to
                or greater than the recorded value as of January 1, 2002, therefore,
                no
                adjustment was made to the carrying value of the goodwill in the
                Group’s
                financial statements.
 
 Also,
                Bulletin C-8, "Intangible assets” (Bulletin C-8) issued by the MIPA, which is
                similar to U.S. GAAP, became effective in January 2003. As a result
                of the
                application of the provisions of Bulletin C-8, no impairment charges
                resulted on
                the carrying value of goodwill as of January 1, 2003 (see Note 3
                h).
 
 
 
 
 
 
 F-30
 
 e)  Business
                combinations
 
 In
                June
                2001, SFAS 141, "Business combination" superseded SFAS 38, "Accounting
                for
                pre-acquisition contingencies of purchased enterprises" and the APB
                Opinion 16,
                "Business combination". SFAS 141 prohibits using of the "pooling
                of interest
                method" and requires using the purchase method of accounting for
                business
                combinations. SFAS 141 is effective July 1, 2001.
  Also,
                Bulletin B-7, "Intangible assets” (Bulletin B-7) issued by the MIPA, which is
                similar to U.S. GAAP, will become effective on January 1, 2005. Although
                the
                Group has not currently carried out business combinations, there
                can be no
                assurance that the Group will not do so in the future.
 
 f)
                Asset
                retirement obligations
 
 SFAS
                143,
                "Accounting for Asset Retirement Obligations" addresses financial
                accounting and
                reporting for obligations associated with the retirement of tangible
                long-lived
                assets and the associated asset retirement costs. SFAS 143 requires
                recording
                the fair value of an asset retirement obligation as a liability in
                the period in
                which it incurs a legal obligation associated with the retirement
                of a tangible
                long-lived asset. SFAS 143 also requires recording the contra to
                the initial
                obligation as an increase to the carrying amount of the related long-lived
                asset
                (i.e., the associated asset retirement costs) and to depreciate that
                cost over
                the remaining useful life of the asset. The liability is adjusted
                at the end of
                each period to reflect the passage of time (i.e., accretion expense)
                and changes
                in the estimated future cash flows underlying the initial fair value
                measurement.
  In
                June
                2002, the Group adopted SFAS 143. At that date, and at fiscal 2002,
                2003 and
                2004 year end, the Group did not have any impact on its financial
                position or
                its results of operations, or cash flows.
 
 Also,
                Bulletin C-9, “Liability, provisions, contingent assets and liabilities, and
                commitments” issued by the MIPA, which is similar to U.S.GAAP, became effective
                on January 1, 2003.
 
 g)  Quantitative
                and qualitative disclosures
                on market risk
 
 The
                Group
                is subject to market risks due to interest rate fluctuations that
                prevail in the
                domestic economy. Those fluctuations further impact the short and
                long-term debt
                generated by loans obtained from Mexican banks for financing its
                operations. The
                Group has managed its interest rate risks.
 
 h)  Fair
                value of financial instruments
 
 The
                carrying amount for cash and cash equivalents, accounts receivable,
                other
                accounts receivable, accounts payable, receivables due from and payable
                to
                related parties, and accrued liabilities and short term debt approximates
                their
                fair value due to their short-term nature.
 
 i)  Comprehensive
                income
 
 SFAS
                No.
                130, "Reporting comprehensive income", requires reporting all items
                required to
                be recognized under accounting standards as components of comprehensive
                income
                in a financial statement displayed with the same prominence as other
                financial
                statements. The adoption of SFAS No. 130 does not impact net income
                or
                shareholders' equity. The Group presents Comprehensive income under
                U.S.GAAP for
                2002, 2003, and 2004 in Note 16). Also Bulletin B-4, “Comprehensive income”
                issued by the MIPA, which is similar to U.S. GAAP, became effective
                in
                2000.
 j)  Segment
                  Information
 
 The
                  Group
                  adopted SFAS No. 131, "Disclosures about Segments of an Enterprise
                  and Related
                  Information". SFAS 131 establishes standards for the way that public
                  enterprises
                  must determine and report information or operating segments in
                  its annual and
                  interim reports. Although the Group distributes five product lines,
                  it considers
                  all of its operations, and reports the results of all of its operations
                  to
                  management as a single business segment. Accordingly, the Group
                  does not
                  maintain separate operating results for each of its five product
                  lines. Revenue
                  attributable to each of the five product lines for the years ended
                  December 31,
                  2002, 2003 and 2004, is mentioned in Note 13). Also, Bulletin B-5,
“Financial
                  Information by Segment” issued by the MIPA, which is similar to SFAS No. 131,
                  became effective in April 2003.
 
 
 
 F-31
 
 
 k)
                Variable interest entities
 
 On
                January 31, 2003, the FASB issued FASB Interpretation No. 46, "Consolidation
                of
                Variable Interest Entities" (FIN 46). FIN 46 clarifies existing accounting
                for
                whether variable interest entities should be consolidated in the
                financial
                statements based upon the investee’s ability to finance its activities without
                additional financial support and whether investors possess characteristics
                of a
                controlling financial interest. FIN 46 applies to years or interim
                periods
                beginning after June 15, 2003 with certain disclosure provisions
                required for
                financial statements issued after January 31, 2003. Management had
                assessed the
                applicability of FIN 46 to its leases with related parties discussed
                in Note 7),
                and does not believe the adoption of this standard had a material
                impact on its
                financial position or its results of operations at fiscal 2002, 2003,
                and 2004.
 
 The
                FASB
                published a revision to Interpretation 46 (46R) to clarify some of
                the
                provisions of FASB No. 46, and to exempt certain entities from its
                requeriments.
                The additional guidelines were issued in response to input received
                from
                constituents regarding certain issues arising in implementing Interpretation
                46.
 
 Under
                46R, special effective date provisions apply to enterprises that
                have fully or
                partially applied Interpretation 46 prior to issuance of this revised
                Interpretation. Otherwise, application of 46R is required in financial
                statements of public entities that have interests in structures that
                are
                commonly referred to as special-purpose entities for periods endings
                after
                December 15, 2003. Application by public entities, other than small
                business
                issuers, for all other types of variable interest entities is required
                in
                financial statements for periods ending after March 15, 2004. Application
                by
                small business issuers to variable interest entities other than special-purposes
                entities and by nonpublic entities to all types of variable entities
                is required
                at various dates in 2004 and 2005. In some instances, enterprises
                have the
                option of applying or continuing to apply Interpretation 46 for a
                short period
                of time before applying this revised Interpretation. The Group believes
                that
                adoption of Interpretation 46 will have no effect on its financial
                statements.
 
 l)
                Financial instruments with characteristics
                of both liabilities
                and equity
 
 On
                May
                15, 2003 the FASB issued Statement No. 150, "Accounting for Certain
                Financial
                Instruments with Characteristics of Both Liabilities and Equity".
                The Statement
                improves the accounting for certain financial instruments that, under
                previous
                guidance, issuers could account for as equity. The new Statement
                requires that
                those instruments be classified as liabilities in statements of financial
                position when they meet certain specific criteria. In addition to
                its
                requirements for the classification and measurement of financial
                instruments in
                its scope, Statement 150 also requires disclosures about alternative
                ways of
                settling the instruments and the capital structure of entities, all
                of whose
                shares are mandatorily redeemable. Most of the guidance in Statement
                150 is
                effective for all financial instruments entered into or modified
                after May 31,
                2003. The Group did not have any impact for this provision.
 
 Also,
                Bulletin C-12, "Financial instruments with liability and equity characteristics
                or characteristics of both” issued by MIPA, which is similar to SFAS No. 150,
                became effective in January 2004. Although, the Group currently has
                no financial
                instruments with these characteristics, this does not mean that it
                may not issue
                them in the future.
 
 m) 
                Recently Issued Acounting Pronouncements
  In
                December 2004, the Financial Accounting Standard Board (FASB) issued
                Statement
                123 (revised 2004), “Share-Based Payment” (Statement 123(R)). Statement 123(R)
                requires that the compensation cost relating to share-based payment
                transactions
                be recognized in financial statements. The cost will be measured
                based on the
                fair value of the instruments issued. Statement 123 (R) covers a
                wide range of
                share-based compensation arrangements including share options, restricted
                share
                plans, performance-based awards, share appreciation rights and employee
                share
                purchase plan. Statement 123 (R) replaces Statement 123, “Accounting for
                Stock-Based Compensation” and supersedes Opinion 25, “Accounting for Stock
                Issued to Employees”. As originally issued in 1995, Statement 123 established as
                preferable the fair-value-based method of accounting for share-based
                payment
                transactions with employees. However, that Statement permitted entities
                the
                option of continuing to apply the guidance in Opinion 25, as long
                as the
                footnotes to the financial statements disclosed what net income would
                have been
                had the preferable fair-value-based method been used. The Group will
                be required
                to apply Statement 123 (R) as of the first interim reporing period
                that
   
 F-32
 
 begins
                after June 15, 2005, and the Group plans on using the modified-prospective
                method, effective July 1, 2005. The Group is currently evaluating
                the impact
                Statement 123(R) will have. The Group does not believe that
                the adoption of
                this statement will have a material impact on its consolidated
                financial
                statements.
 
 In
                November 2004, FASB issued Statement 151, “Inventory Cost”, an amendment of ARB
                No. 43, Chapter 4, which is effective for inventory costs incurred
                during fiscal
                years beginning after June 15, 2005. The amendments made by Statement
                151 will
                improve financial reporting by clarifying that abnormal amounts of
                idle facility
                expense, freight, handling costs and wasted material (spoilage) should
                be
                recognized as current-period charges and by requiring the allocation
                of fixed
                production overheads to inventory base on the normal capacity of
                the production
                facilities. The Group does not believe that the adoption of this
                statement will have a material impact on its consolidated financial
                statements.
 
 In
                December 2004, FASB issued Statement 153, “Exchanges of Nonmonetary Assets”, an
                amendment of APB Opinion No. 29. This Statement is effective for
                nonmonetary
                asset exchanges occurring in fiscal periods beginning after June
                15, 2005. This
                Statement eliminates the exception to fair value for exchanges of
                similar
                productive assets and replaces it with a general exception for exchange
                transactions that do not have commercial substance-that is, transactions
                that
                are not expected to result in significant changes in the cash flow
                of the
                reporting entity. The Group does not believe that the adoption of
                this statement
                will have a material impact on its consolidated financial
                statements.
 
 In
                March
                2004, the FASB Emerging Issues Task Force (EITF) released Issue No.
                03-1, “The
                Meaning of Other-Than-Temporary Impairment and Its Application to
                Certain
                Investments.” EITF 03-1 provides guidance for determining whether impairment for
                certain debt and equity investments is other-than-temporary and the
                measurement
                of an impaired loss. Certain disclosure requirements of EITF 03-1
                were adopted
                in 2003 and the Group has complied with the new disclosure requirements
                in its
                consolidated financial statements. The recognition and measurement
                requirements
                of EITF 03-1 were initially effective for reporting periods beginning
                after June
                15, 2004. In September 2004, the FASB Staff issued FASB Staff Position
                (FSP)
                EITF 03-1-1 that delayed the effective date for certain measurement
                and
                recognition guidance contained in EITF 03-1. The FSP requires that
                entities
                continue to apply previously existing “other-than-temporary” guidance until a
                final consensus is reached. The Group does not anticipate
                that
                issuance of a final consensus will materially impact the Group’s financial
                condition or results of operations.
  In
                November 2004, the EITF released Issue No. 03-13, “Applying the Conditions
                in Paragraph 42 of FASB Statement No. 144, Accounting for the Impairment
                or
                Disposal of Long-Lived Assets, in Determinig Wheter to Report Discontinued
                Operations”. To qualify as a discontinued operation, paragraph 42 of Statement
                144 requires that the cash flows of the disposed component be eliminated
                from
                the operations of the ongoing entity and that the ongoing entity
                not have any
                significant continuing involvement in the operations of the disposed
                component
                after the disposal transaction. EITF 03-13 provides guidance on how
                to interpret
                and apply the criteria in paragraph 42A (elimination of cash flows)
                and
                paragraph 42B (no significant continuing involvement) of Statement
                144. EITF
                03-13 is effective for all periods beginning after December 15, 2004.
                Previously
                reported operating results related to disposal transactions initiated
                within an
                enterprise’s fiscal year that includes November 30, 2004 (date that the
                consensus was ratified) may be reclassified to reflect the consensus.
                The Group
                does not believe that the adoption of EITF 03-13 will have a material
                impact on its consolidated financial statements.
  In
                  September 2004, the EITF released EITF Issue No. 04-8, “The Effect of
                  Contingently Convertible Instruments on Diluted Earnings per Share.” Under
                  current interpretations of Statement 128, Earnings per Share, issuers
                  of
                  contingently convertible debt instruments generally exclude the
                  potential common
                  shares underlying the contingently convertible debt instruments
                  from the
                  calculation of diluted earnings per share until the underlying
                  common stock
                  achieves a specified price target, or other contingency is met.
                  EITF 04-8
                  requires that contingently convertible debt instruments should
                  be included in
                  diluted earnings per share computations, if dilutive, regardless
                  of whether the
                  market price trigger has been met. The Group will adopt the requirements
                  of EITF
                  04-8 beginning with the quarter ending February 28, 2005. The application
                  of
                  EITF 04-8 will require the Group to include the contingent convertible
                  subordinated notes (the Notes) in the calculation of diluted earnings
                  per share,
                  if dilutive. The diluted earnings per share computations for fiscal
                  2004 would
                  exclude the impact of the Notes as the effect would be antidilutive.
                  The Group
                  does not believe that the adoption of EITF 04-8 will have a material
                  impact on
                  its consolidated financial statements.
 
 F-33
 Commission
                File Number 1-12632
 ________________________________________________________________________
 
 
 **SECURITIES
                AND EXCHANGE COMMISSION**
  **Washington,
                D.C. 20549**
  
 _________________________
 
 
 **EXHIBITS**
  **TO**
  **ANNUAL
                REPORT ON**
  **FORM
                20-F**
 **(for
                the year ended December 31, 2004)**
  **UNDER**
  **THE
                SECURITIES ACT**
  __________________________
 
 
 **Grupo
                Casa Saba, S.A. de C.V.**
 **(Exact
                name of Registrant as specified in its charter)**
   **N.A.**
 **(Translation
                of Registrant’s Name into English)**
  
 
 ________________________________________________________________________
 
 
 
 
 **EXHIBIT
                INDEX**
  
 
 Exhibit
                        Number
                      Description
                          of Exhibits1.1
                      Amended
                          and Restated Bylaws (estatutos sociales) of the Registrant
                          (English
                          Translation)(1).8.1
                      List
                          of Subsidiaries of the Registrant.12.1
                      Certification
                          of the Principal Executive Officer of Grupo Casa Saba,
                          S.A. de C.V.
                          pursuant to Section 302 of the Sarbanes-Oxley Act of
                          2002.12.2
                      Certification
                          of the Principal Financial Officer of Grupo Casa Saba,
                          S.A. de C.V.
                          pursuant to Section 302 of the Sarbanes-Oxley Act of
                          2002.13.1
                      Certification
                          of the Principal Executive and Financial Officer of Grupo
                          Casa Saba, S.A.
                          de C.V. pursuant to 18 U.S. C. Section 1350, as adopted
                          pursuant to
                          Section 906 of the Sarbanes-Oxley Act of
                          2002.