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**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

 

**FORM 20-F**

 

| **o**      | **REGISTRATION STATEMENT PURSUANT   TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934**                                        |
|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** ** | ** **                                                                                                                                                 |
| **OR**     |
| ** ** | ** **                                                                                                                                                 |
| **x**      | **ANNUAL REPORT PURSUANT TO   SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934   For the fiscal year ended  December 31,   2012** |
| ** ** | ** **                                                                                                                                                 |
| **OR**     |
| ** ** | ** **                                                                                                                                                 |
| **o**      | **TRANSITION REPORT PURSUANT TO   SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934   For the transition period from to**               |
| ** ** | ** **                                                                                                                                                 |
| **OR**     |
| ** ** | ** **                                                                                                                                                 |
| **o**      | **SHELL COMPANY REPORT PURSUANT   TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                |

 

Date of event requiring this shell company report  . . . . . . . . . . . . . . . . . . .

 

**For the transition period from                       to                        **

 

Commission file number: 1-14852

 
| **GRUMA, S.A.B. de C.V.**                                                                                                                                                                                                                       |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (Exact name of Registrant as specified in its charter)                                                                                                                                                                                          |
|                                                                                                                                                                                                                                            |
| **N/A**                                                                                                                                                                                                                                         |
| (Translation of Registrant’s name into English)                                                                                                                                                                                            |
|                                                                                                                                                                                                                                            |
| **United Mexican States**                                                                                                                                                                                                                       |
| (Jurisdiction of incorporation or organization)                                                                                                                                                                                                 |
|                                                                                                                                                                                                                                            |
| **Calzada del Valle, 407 Ote.**

**Colonia del Valle**

**San Pedro Garza García, Nuevo León**

**66220, México**                                                                                                                |
| (Address of principal executive offices)                                                                                                                                                                                                        |
|                                                                                                                                                                                                                                            |
| **Investor Relations**

**Calzada del Valle, 407 Ote.**

**Colonia del Valle**

**San Pedro Garza García, Nuevo León**

**66220, México**

**Tel: (52) 81 8399-3349**

**Facsimile: (52) 81 8399-3359**

**Email: ir@gruma.com** |
| (Name, Telephone, E-mail and/or Facsimile number and Address of   Company Contact Person)                                                                                                                                                       |

 

Securities registered or to be registered pursuant to Section 12(b) of the Act:

 

| Title of each   class:                                                                         |   | Name of exchange   on which registered: |
|------------------------------------------------------------------------------------------------|--------|-----------------------------------------|
| Series B Common Shares, without par value                                                      |   | New York Stock Exchange*                |
| American Depositary Shares, each

representing four Series B Common

Shares, without par value |   | New York Stock Exchange                 |

 

Securities registered or to be registered pursuant to Section 12(g) of the Act:

 

**None**

 

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Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

 

**None**

 

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:
|   |                                                    |
|--------|---------------------------------------------------------|
|   | 457,315,640   Series B Common Shares, without par value |

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

o Yes   x No

 

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

o Yes   x No

 

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.

x Yes   o No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

N/A

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.

 

| Large accelerated filer o |   | Accelerated filer x |   | Non-accelerated filer o |
|---------------------------|--------|---------------------|--------|-------------------------|

 

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

 

| U.S. GAAP o |   | IFRS x |   | Other o |
|-------------|--------|--------|--------|---------|

 

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

o Item 17   o Item 18

 

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

o Yes   x No

 

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

 

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**INDEX**

 
| FORWARD   LOOKING STATEMENTS | 2                                                                              |
|------------------------------|--------------------------------------------------------------------------------|
|                         |                                                                           |   |
| **PART I**              |                                                                           | **2** |
|                         |                                                                           |   |
| ITEM 1                       | IDENTITY   OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS                        | 2 |
|                         |                                                                           |   |
| ITEM 2                       | OFFER   STATISTICS AND EXPECTED TIMETABLE                                      | 2 |
|                         |                                                                           |   |
| ITEM 3                       | KEY INFORMATION                                                                | 2 |
|                         |                                                                           |   |
| ITEM 4                       | INFORMATION ON   THE COMPANY                                                   | 15 |
|                         |                                                                           |   |
| ITEM 4A.                     | UNRESOLVED   STAFF COMMENTS                                                    | 33 |
|                         |                                                                           |   |
| ITEM 5                       | OPERATING   AND FINANCIAL REVIEW AND PROSPECTS                                 | 33 |
|                         |                                                                           |   |
| ITEM 6                       | DIRECTORS,   SENIOR MANAGEMENT AND EMPLOYEES                                   | 53 |
|                         |                                                                           |   |
| ITEM 7                       | MAJOR SHAREHOLDERS   AND RELATED PARTY TRANSACTIONS                            | 58 |
|                         |                                                                           |   |
| ITEM 8                       | FINANCIAL   INFORMATION                                                        | 61 |
|                         |                                                                           |   |
| ITEM 9                       | THE   OFFER AND LISTING                                                        | 63 |
|                         |                                                                           |   |
| ITEM 10                      | ADDITIONAL   INFORMATION                                                       | 65 |
|                         |                                                                           |   |
| ITEM 11                      | QUANTITATIVE   AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                   | 81 |
|                         |                                                                           |   |
| ITEM 12                      | DESCRIPTION   OF SECURITIES OTHER THAN EQUITY SECURITIES                       | 85 |
|                         |                                                                           |   |
| **PART II**             |                                                                           | **85** |
|                         |                                                                           |   |
| ITEM 13                      | DEFAULTS,   DIVIDEND ARREARAGES AND DELINQUENCIES                              | 85 |
|                         |                                                                           |   |
| ITEM 14                      | MATERIAL   MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS | 86 |
|                         |                                                                           |   |
| ITEM 15                      | CONTROLS AND   PROCEDURES                                                      | 86 |
|                         |                                                                           |   |
| ITEM 16A.                    | AUDIT   COMMITTEE FINANCIAL EXPERT                                             | 86 |
|                         |                                                                           |   |
| ITEM 16B.                    | CODE   OF ETHICS                                                               | 87 |
|                         |                                                                           |   |
| ITEM 16C.                    | PRINCIPAL   ACCOUNTANT FEES AND SERVICES                                       | 87 |
|                         |                                                                           |   |
| ITEM 16D.                    | EXEMPTIONS   FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES                   | 87 |
|                         |                                                                           |   |
| ITEM 16E.                    | PURCHASES   OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS       | 88 |
|                         |                                                                           |   |
| ITEM 16F.                    | CHANGE IN   REGISTRANT’S CERTIFYING ACCOUNTANT                            | 89 |
|                         |                                                                           |   |
| ITEM 16G.                    | CORPORATE   GOVERNANCE                                                         | 89 |
|                         |                                                                           |   |
| ITEM 16H.                    | MINE SAFETY   DISCLOSURE                                                       | 90 |
|                         |                                                                           |   |
| **PART III**            |                                                                           | **90** |
|                         |                                                                           |   |
| ITEM 17                      | FINANCIAL   STATEMENTS                                                         | 90 |
|                         |                                                                           |   |
| ITEM 18                      | FINANCIAL   STATEMENTS                                                         | 90 |
|                         |                                                                           |   |
| ITEM 19                      | EXHIBITS                                                                       | 90 |

 

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**INTRODUCTION**

 

Gruma, S.A.B. de C.V. is a publicly held corporation (*Sociedad Anónima Bursátil de Capital Variable*) organized under the laws of the United Mexican States, or Mexico.

 

In this Annual Report on Form 20-F, references to “pesos” or “Ps.” are to Mexican pesos, references to “U.S. dollars,” “U.S.$,” “dollars” or “$” are to United States dollars and references to “bolivars” and “Bs.” are to the Venezuelan bolivar. “We,” “our,” “us,” “our company,” “GRUMA” and similar expressions refer to Gruma, S.A.B. de C.V. and its consolidated subsidiaries, except when the reference is specifically to Gruma, S.A.B. de C.V. (parent company only) or the context otherwise requires.

 

**PRESENTATION OF FINANCIAL INFORMATION**

 

This Annual Report contains our audited consolidated financial statements as of December 31, 2012 and 2011 and for the years ended December 31, 2012, 2011 and 2010. The consolidated financial statements have been audited by PricewaterhouseCoopers, S.C., an independent registered public accounting firm and were approved by our shareholders at the annual general shareholders’ meeting held on April 26, 2013.

 

We publish our financial statements in pesos and prepare our consolidated financial statements included in this annual report in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).

 

The financial statements of our entities are measured using the currency of the main economic environment where the entity operates (functional currency). The audited consolidated financial statements are presented in Mexican pesos, which corresponds to our presentation currency. Prior to the peso translation, the financial statements of foreign subsidiaries with functional currency from a hyperinflationary environment are adjusted for inflation in order to reflect changes in purchasing power of the local currency. Subsequently, assets, liabilities, equity, income, costs, and expenses are translated to the presentation currency at the closing rate at the date of the most recent balance sheet. To determine the existence of hyperinflation, we evaluate the qualitative characteristics of the economic environment, as well as the quantitative characteristics established by IFRS, including an accumulated inflation rate equal or higher than 100% in the past three years.

 

**DECONSOLIDATION OF OUR VENEZUELAN SUBSIDIARIES**

 

In accordance with IFRS, we concluded that we lost control of our Venezuelan subsidiaries, Molinos Nacionales, C.A. (“MONACA”) and Derivados de Maíz Seleccionado, C.A. (“DEMASECA”) on January 22, 2013. As a result of such loss of control, we will cease the consolidation of the financial information of MONACA and DEMASECA starting January 22, 2013, and consequently we will present the net investment and results of operations of these companies as of such date as a discontinued operation. See Note 30-B of our audited consolidated financial statements.

 

As disclosed in Note 7 to our audited consolidated financial statements, at December 31, 2012, the total assets and liabilities of these subsidiaries in Venezuela were Ps.7,087,569 and Ps.2,948,192, respectively.  For the year ended December 31, 2012, these subsidiaries represented net sales of Ps.9,907,182 and operating income of Ps.444,525.

 

Our interest in the total net assets of Venezuelan subsidiaries was Ps.3,090,289 at December 31, 2012.  In January 2013 and as a result of the loss of control in these subsidiaries, the foreign currency translation loss of Ps.432,458, recorded in other comprehensive income at December 31, 2012 will be transferred to our income statement and presented as a discontinued operation.

 

**MARKET SHARE**

 

The information contained in this Annual Report regarding our market positions is based primarily on our own estimates and internal analysis and data obtained from AC Nielsen. Market position information for the United States is also based on data from Technomic. For Mexico, information is also based on data from *Información Sistematizada de Canales y Mercados* or “ISCAM”, *Asociación Nacional de Tiendas de Autoservicio y Departamentales*(National Supermarkets and Department Stores Association) or “ANTAD”, *Asociación Nacional de Abarroteros Mayoristas* (National Groceries Wholesalers Association) or “ANAM” and reports from industry chambers. For Venezuela, information is also based on data obtained from LatinPanel Venezuela. For Europe, information is also based on data from Symphony IRI Group. While we believe our internal research and estimates are reliable, they have not been verified by any independent source and we cannot ensure their accuracy.

 

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**EXCHANGE RATE**

 

This annual report contains translations of various peso amounts into U.S. dollars at specified rates solely for your convenience. You should not construe these translations as representations by us that the peso amounts actually represent the U.S. dollar amounts or could be converted into U.S. dollars at the rate indicated. Unless otherwise indicated, we have translated U.S. dollar amounts from pesos (i) as of December 31, 2012 at the exchange rate of Ps.13.01 to U.S.$1.00, which was the rate established by *Banco de México* on December 27, 2012 and (ii) as of March 31, 2013 at the exchange rate of Ps.12.35 to U.S.$1.00, which was the rate established by *Banco de México* on March 26, 2013.

 

**OTHER INFORMATION**

 

Certain figures included in this Annual Report have been rounded for ease of presentation. Percentage figures included in this Annual Report are not all calculated on the basis of such rounded figures; some are calculated on the basis of such amounts prior to rounding. For this reason, percentage amounts in this Annual Report may vary from those obtained by performing the same calculations using the figures in our audited consolidated financial statements. Certain numerical figures shown as totals in some tables may not be an arithmetic aggregation of the figures that preceded them due to rounding.

 

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

 

**FORWARD LOOKING STATEMENTS**

 

This Annual Report includes “forward-looking statements” within the meaning of Section 27A of the U.S. Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, including the statements about our plans, strategies and prospects under “Item 4. Information on the Company” and “Item 5. Operating and Financial Review and Prospects.”  Some of these statements contain words such as “believe,” “expect,” “intend,” “anticipate,” “estimate,” “strategy,” “plans” and other similar words. Although we believe that our plans, intentions and expectations as reflected in or suggested by these forward-looking statements are reasonable, we cannot assure you that these plans, intentions or expectations will be achieved. Actual results could differ materially from the forward-looking statements as a result of risks, uncertainties and other factors discussed in “Item 3. Key Information—Risk Factors,” “Item 4. Information on the Company,” “Item 5. Operating and Financial Review and Prospects” and “Item 11. Quantitative and Qualitative Disclosures About Market Risk.”  These risks, uncertainties and factors include: general economic and business conditions, including changes in exchange rates and conditions that affect the price and availability of corn, wheat and edible oils; potential changes in demand for our products; price and product competition; and other factors discussed herein.

 

**PART I**

 

**ITEM 1         Identity of Directors, Senior Management and Advisors**.

 

Not applicable.

 

**ITEM 2         Offer Statistics and Expected Timetable**.

 

Not applicable.

 

**ITEM 3         Key Information**.

 

**SELECTED FINANCIAL DATA**

 

The following tables present our selected consolidated financial data as of and for each of the years indicated. The data as of December 31, 2012 and 2011 and for the years ended December 31, 2012, 2011 and 2010 are derived from and should be read together with our audited consolidated financial statements included herein and “Item 5. Operating and Financial Review and Prospects.”

 

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Pursuant to the transitional relief granted by the SEC in respect of the application of IFRS, historical financial data for the years ended December 31, 2008 and 2009 have been omitted.

 

In accordance with IFRS, we concluded that we lost control of our Venezuelan subsidiaries, MONACA and DEMASECA on January 22, 2013.  As a result of such loss of control, we will cease the consolidation of the financial information of MONACA and DEMASECA starting January 22, 2013.

 

As disclosed in Note 7 to our audited consolidated financial statements, at December 31, 2012, the total assets and liabilities of these subsidiaries in Venezuela were Ps.7,087,569 and Ps.2,948,192, respectively.  For the year ended December 31, 2012, these subsidiaries represented net sales of Ps.9,907,182 and operating income of Ps.444,525.

 

Our interest in the total net assets of Venezuelan subsidiaries was Ps.3,090,289 at December 31, 2012. In January 2013 and as a result of the loss of control in these subsidiaries, the foreign currency translation loss of Ps.432,458, recorded in other comprehensive income at December 31, 2012 will be transferred to our income statement and presented as a discontinued operation.

 
| ** **                                        | ** ** | **2012**                                                                                   | ** **       | **2011**    | ** ** | **2010**    | ** ** |
|---------------------------------------------------|------------|--------------------------------------------------------------------------------------------|------------------|-------------|------------|-------------|------------|
| ** **                                        | ** ** | **(thousands of Mexican Pesos, except per   share amounts)** | ** **       |
| **Income Statement Data:**                   |       |                                                                                       |             |        |       |        |       |
| Net sales                                         |       | Ps.                                                                                        |  64,316,632 |        | Ps.        | 57,644,749  |       | Ps. | 46,232,454 |   |
| Cost of sales                                     |       | (45,349,670                                                                                | )                | (40,117,952 | )          | (31,563,342 | )          |
| Gross profit                                      |       | 18,966,962                                                                                 |             | 17,526,797  |       | 14,669,112  |       |
| Selling and administrative expenses               |       | (15,352,274                                                                                | )                | (13,984,486 | )          | (12,100,365 | )          |
| Other expense, net                                |       | (101,655                                                                                   | )                | (203,850    | )          | (518,732    | )          |
| Operating income                                  |       | 3,513,033                                                                                  |             | 3,338,461   |       | 2,050,015   |       |
| Comprehensive financing cost, net                 |       | (728,959                                                                                   | )                | (427,200    | )          | (1,163,203  | )          |
| Equity in earnings of associated companies        |       | 2,976                                                                                      |             | 3,329       |       | 592,235     |       |
| Gain from divestment in associated companies      |       | —                                                                                     |             | 4,707,804   |       | —      |       |
| Income before income tax                          |       | 2,787,050                                                                                  |             | 7,622,394   |       | 1,479,047   |       |
| Income tax expense                                |       | (1,083,291                                                                                 | )                | (1,806,572  | )          | (839,561    | )          |
| Consolidated net income                           |       | 1,703,759                                                                                  |             | 5,815,822   |       | 639,486     |       |
| Attributable to:                                  |       |                                                                                       |             |        |       |        |       |
| Shareholders                                      |       | 1,115,338                                                                                  |             | 5,270,762   |       | 431,779     |       |
| Non-controlling interest                          |       | 588,421                                                                                    |             | 545,060     |       | 207,707     |       |
| Per share data(1):                                |       |                                                                                       |             |        |       |        |       |
| Basic and diluted earnings per share (Pesos) |       | 2.00                                                                                       |             | 9.35        |       | 0.77        |       |
|                                                   |            |                                                                                            |                  |             |            |             |            |  |  |  |

 
| ** **                                | ** ** | **2012**                                                                                                                     | ** **       | **2011**   | ** ** | **2010**         | ** ** |
|-------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------|------------------|------------|------------|------------------|------------|
| ** **                                | ** ** | **(thousands of Mexican pesos, except per   share amounts and operating data)** | ** **       |
| **Balance Sheet Data (at period   end):** |       |                                                                                                                         |             |       |       |             |       |
| Property, plant and equipment, net        |       | Ps.                                                                                                                          |  20,917,534 |       | Ps.        |  20,515,633 |       | Ps. | 17,930,173 |   |
| Total assets                              |       | 49,460,402                                                                                                                   |             | 44,542,618 |       | 38,927,394       |       |
| Short-term debt(2)                        |       | 8,018,763                                                                                                                    |             | 1,633,207  |       | 2,192,871        |       |
| Long-term debt(2)                         |       | 11,852,708                                                                                                                   |             | 11,472,110 |       | 15,852,538       |       |
| Total liabilities                         |       | 35,126,685                                                                                                                   |             | 26,829,834 |       | 28,205,120       |       |
| Common stock                              |       | 5,668,079                                                                                                                    |             | 6,972,425  |       | 6,972,425        |       |
| Total equity(3)                           |       | 14,333,717                                                                                                                   |             | 17,712,784 |       | 10,722,274       |       |
|                                      |       |                                                                                                                         |             |       |       |             |       |
| **Other Financial Information:**          |       |                                                                                                                         |             |       |       |             |       |
| Capital expenditures                      |       | 2,784,587                                                                                                                    |             | 2,386,966  |       | 1,115,161        |       |
| Depreciation and amortization             |       | 1,744,716                                                                                                                    |             | 1,596,643  |       | 1,502,534        |       |
| Net cash provided by (used in):           |       |                                                                                                                         |             |       |       |             |       |
| Operating activities                      |       | 1,806,136                                                                                                                    |             | 1,751,314  |       | 3,291,138        |       |
| Investing activities                      |       | (3,455,629                                                                                                                   | )                | 6,779,129  |       | (802,208         | )          |
| Financing activities                      |       | 1,817,675                                                                                                                    |             | (7,429,059 | )          | (4,234,431       | )          |
|                                           |            |                                                                                                                              |                  |            |            |                  |            |  |  |  |

 

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(1)  Based upon weighted average of outstanding shares of our common stock (in thousands), as follows: 558,712 shares for the year ended December 31, 2012 (See Note 3 to our audited consolidated financial statements), 563,651 shares for the year ended

 

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December 31, 2011 and  563,651 shares for the year ended December 31, 2010. Each of our American Depositary Shares represents four Series B Common Shares.

 

(2)  Short-term debt consists of bank loans and the current portion of long-term debt. Long-term debt consists of bank loans, our senior unsecured perpetual bonds and debentures.

 

(3)  Total equity includes non-controlling interests as follows: Ps.3,032 million as of December 31, 2012, Ps.4,282 million as of December 31, 2011 and Ps.3,778 million as of December 31, 2010.

 
| ** **                                               | ** ** | **2012**                          | ** ** | **2011** | ** ** | **2010** | ** ** | **2009** | ** ** | **2008** | ** ** |
|----------------------------------------------------------|------------|-----------------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|
| ** **                                               | ** ** | **(thousands of tons)** | ** ** |
|                                                     |       |                              |       |     |       |     |       |     |       |     |       |
| **Operating Data:**                                      |       |                              |       |     |       |     |       |     |       |     |       |
|                                                     |       |                              |       |     |       |     |       |     |       |     |       |
| ***Sales volume:***                                      |       |                              |       |     |       |     |       |     |       |     |       |
| Gruma Corporation (corn flour, tortillas and   other)(1) |       | 1,596                             |       | 1,464    |       | 1,395    |       | 1,312    |       | 1,337    |       |
| GIMSA (corn flour, and other)                            |       | 1,983                             |       | 1,959    |       | 1,890    |       | 1,874    |       | 1,821    |       |
| Gruma Venezuela (corn flour, wheat flour and   other)    |       | 478                               |       | 528      |       | 523      |       | 459      |       | 465      |       |
| Molinera de México   (wheat flour)                  |       | 583                               |       | 564      |       | 530      |       | 508      |       | 494      |       |
| Gruma Centroamérica (corn flour and other)          |       | 207                               |       | 229      |       | 201      |       | 208      |       | 213      |       |
|                                                     |       |                              |       |     |       |     |       |     |       |     |       |
| ***Production capacity:***                               |       |                              |       |     |       |     |       |     |       |     |       |
| Gruma Corporation (corn flour and tortillas)(2)          |       | 2,499                             |       | 2,482    |       | 2,314    |       | 2,096    |       | 2,093    |       |
|                                                     |       |                              |       |     |       |     |       |     |       |     |       |
| GIMSA (corn flour, and other)(3)                         |       | 2,965                             |       | 2,965    |       | 2,965    |       | 2,964    |       | 2,964    |       |
| Gruma Venezuela (corn flour, wheat flour and   other)(4) |       | 823                               |       | 823      |       | 823      |       | 909      |       | 823      |       |
| Molinera de México   (wheat flour)                  |       | 860                               |       | 837      |       | 811      |       | 894      |       | 894      |       |
| Gruma Centroamérica (corn flour and other)          |       | 323                               |       | 350      |       | 343      |       | 307      |       | 307      |       |
| Number of employees                                      |       | 21,974                            |       | 21,318   |       | 19,825   |       | 19,093   |       | 19,060   |       |

 

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(1) Net of intercompany transactions.

 

(2) Includes 59 thousand tons of temporarily idled production capacity at December 31, 2012.

 

(3) Includes 477 thousand tons of temporarily idled production capacity at December 31, 2012.

 

(4) Includes 71 thousand tons of temporarily idled production capacity at December 31, 2012.

 

**Dividends**

 

Our ability to pay dividends may be limited by Mexican law, our *estatutos sociales*, or bylaws, and by financial covenants contained in some of our credit agreements. Because we are a holding company with no significant operations of our own, we have distributable profits to pay in the form of dividends to the extent that we receive dividends from our subsidiaries. Accordingly, there can be no assurance that we will pay dividends or of the amount of any such dividends. See “Item 5. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Indebtedness.”

 

Pursuant to Mexican law and our bylaws, the declaration, amount and payment of dividends are determined by a majority vote of the holders of the outstanding shares represented at a duly convened shareholders’ meeting. The amount of any future dividend would depend on, among other things, operating results, financial condition, cash requirements, losses for prior fiscal years, future prospects, the extent to which debt obligations impose restrictions on dividends and other factors deemed relevant by the board of directors and the shareholders.

 

In addition, under Mexican law, companies may only pay dividends:

 

·                  from earnings included in year-end financial statements that are approved by shareholders at a duly convened meeting;

 

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·                  after any existing losses applicable to prior years have been made up or absorbed into shareholders’ equity;

 

·                  after at least 5% of net profits for the relevant fiscal year have been allocated to a legal reserve until the amount of the reserve equals 20% of a company’s paid-in capital stock; and

 

·                  after shareholders have approved the payment of the relevant dividends at a duly convened meeting.

 

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

 

The ability of our subsidiaries to make distributions to us is limited by the laws of each country in which they were incorporated and by their constitutive documents. For example, our ability to repatriate dividends from Gruma Venezuela has in the past been adversely affected by exchange controls and other governmental policies. See “Item 3. Key Information—Risk Factors—Risks Related to Venezuela.” In the case of Gruma Corporation, our principal U.S. subsidiary, its ability to pay dividends in cash is prohibited upon the occurrence of any default or event of default under its principal credit agreements. See “Item 5. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Indebtedness.”

 

During 2012, 2011, 2010, 2009 and 2008 we did not pay any dividends to shareholders.

 

**Exchange Rate Information**

 

Mexico has had a free market for foreign exchange since 1994, when the government suspended intervention by the *Banco de México*, and allowed the peso to float freely against the U.S. dollar. From the beginning of 2004 until August 2008, the Mexican peso was relatively stable, ranging from Ps.9.92 to Ps.11.63. Between October 1, 2008 and March 2, 2009, the Mexican peso depreciated in value from Ps.10.97 to Ps.15.40. From March 2009 to the end of May 2011, the Mexican peso appreciated in value from Ps.15.40 to Ps.11.58.  From June 2011 to June 1, 2012, the Mexican peso depreciated in value from 11.58 to 14.37. From June 1, 2012 to April 12, 2013 the Mexican peso appreciated in value from Ps.14.37 to Ps.12.07. There can be no assurance that the government will maintain its current policies with regard to the peso or that the peso will not depreciate or appreciate in the future. See “Item 3. Key Information —Risk Factors—Risks Related to Mexico—Devaluations of the Mexican Peso May Affect our Financial Performance.”

 

The following table sets forth, for the periods indicated, the high, low, average and period-end noon buying rate in New York City for cable transfers in pesos published by the Federal Reserve Bank of New York, expressed in pesos per U.S. dollar.

 
| ** **         | ** ** | **Noon Buying Rate (Ps. Per U.S.$)** | ** ** |
|--------------------|------------|---------------------------------------------------------------|------------|
| **Year**           | ** ** | **High (1)**                                             | ** ** | **Low (1)** | ** ** | **Average (2)** | ** ** | **Period End** | ** ** |
| 2008               |       | 13.9350                                                       |       | 9.9166 |   | 11.1415 |   | 13.8320 |   |
| 2009               |       | 15.4060                                                       |       | 12.6318 |   | 13.4970 |   | 13.0576 |   |
| 2010               |       | 13.1940                                                       |       | 12.1556 |   | 12.6222 |   | 12.3825 |   |
| 2011               |       | 14.2542                                                       |       | 11.5050 |   | 12.4270 |   | 13.9510 |   |
| 2012               |       | 14.3650                                                       |       | 12.6250 |   | 13.15397 |   | 12.9635 |   |
| October 2012  |       | 13.0925                                                       |       | 12.7054 |   | 12.8976 |   | 13.0877 |   |
| November 2012 |       | 13.0925                                                       |       | 12.9171 |   | 13.0639 |   | 12.9171 |   |
| December 2012 |       | 13.0125                                                       |       | 12.7202 |   | 12.8651 |   | 12.9635 |   |
| January 2013  |       | 12.7891                                                       |       | 12.5857 |   | 12.6964 |   | 12.7344 |   |
| February 2013 |       | 12.8798                                                       |       | 12.6260 |   | 12.7249 |   | 12.7788 |   |
| March 2013    |       | 12.7956                                                       |       | 12.3155 |   | 12.5000 |   | 12.3155 |   |

 

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

 

(2) Average of month-end rates.

 

On April 19, 2013, the noon buying rate for pesos was Ps. 12.2320 to U.S.$1.00.

 

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** **

**RISK FACTORS**

 

**Risks Related to Our Company**

 

***Fluctuations in the Cost and Availability of Corn, Wheat and Wheat Flour May Affect Our Financial Performance***

 

Our financial performance may be affected by the price and availability of corn, wheat and wheat flour as each of these raw materials represented 36%, 14% and 5%, respectively, of our cost of sales in 2012. Mexican and world markets have experienced periods of either over-supply or shortage of corn and wheat, some of which have caused adverse effects on our results of operations. In recent years, there have been substantial volatility and increases in the price of corn due mainly to increased demand for corn from emerging markets, demand for corn-based ethanol and adverse weather conditions in certain regions of the world, which may increase our cost of corn and negatively affect our financial condition and results of operations. Also, there has been substantial volatility in the price of wheat, driven by adverse weather conditions in certain regions of the world and increased demand worldwide, especially from emerging markets. The price of corn has remained at high levels, reaching a peak in 2012 for recent years. The price of wheat declined significantly from its peak in 2008, and thereafter increased substantially but is still below the prior peak. We believe that the demand and price for corn and wheat will increase over the long term in part in connection with expected rising demand for corn-based ethanol, but mainly from increased demand by emerging markets.

 

To manage these price risks, we regularly monitor our risk tolerance and evaluate the possibility of using derivative instruments to hedge our exposure to commodity prices. We currently hedge against fluctuations in the costs of corn and wheat using futures and options contracts and fixed price supply contracts according to the Company’s risk management policy, but remain exposed to losses in the event of non-performance by counterparties to the financial instruments or the supply contracts. In addition, if corn or wheat prices decrease below the levels specified in our various hedging agreements, we would lose the value of a decline in these prices.

 

Additionally, because of this volatility and price variations, we may not always be able to pass along our increased costs to our customers in the form of price increases. We cannot always predict whether or when shortages or over-supply of corn and wheat will occur. In addition, future Mexican or other countries’ governmental actions could affect the price and availability of corn and wheat. Any adverse developments in domestic and international corn and wheat markets could have a material adverse effect upon our business, financial condition, results of operations, and prospects.

 

***Our Current or Future Indebtedness could Adversely Affect Our Business and, Consequently, Our Ability to Pay Interest and Repay Our Indebtedness***

 

Our level of short and long term indebtedness could increase our vulnerability to adverse general economic and industry conditions, including increases in interest rates, increases in prices of raw materials, foreign currency exchange rate fluctuations and market volatility. Our ability to make scheduled payments and refinance our indebtedness when due depends on, and is subject to, several factors, including our financial and operating performance, which is subject to prevailing economic and financial conditions, business and other factors, the availability of financing in the Mexican and international banking and capital markets, and our ability to sell assets and implement operating improvements. See “Item 5. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Indebtedness.”

 

***We May be Adversely Affected by Increases in Interest Rates***

 

Interest rate risk exists primarily with respect to our floating-rate peso denominated debt, which generally bears interest based on the Mexican equilibrium interbank interest rate, which we refer to as the “TIIE.” In addition, we have additional interest rate risk with respect to floating-rate dollar-denominated debt, which generally bears interest based on the London interbank offered rate, which we refer to as “LIBOR.” We have significant exposure to exchange rate fluctuation due to our floating-rate peso and dollar-denominated debt. As a result, if the TIIE or LIBOR rates increase significantly, our ability to service our debt may be adversely affected.

 

***Downgrades of Our Debt May Increase Our Financing Costs or Otherwise Adversely Affect Us or Our Stock Price***

 

Our long-term corporate credit rating and our senior unsecured perpetual bond are rated “BB” by Standard & Poor’s Ratings Services (“Standard & Poor’s”). Our Foreign Currency Long-Term Issuer Default Rating and our Local Currency Long-Term Issuer Default Rating are rated “BB” by Fitch Ratings (“Fitch”). Our U.S.$300 million perpetual bond is rated “BB” by Fitch.

 

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If our financial condition deteriorates, we may experience future declines in our credit ratings, with attendant consequences. Our access to external sources of financing, as well as the cost of that financing, could be adversely affected by a deterioration of our long-term debt ratings. A downgrade in our credit ratings could increase the cost of and/or limit the availability of unsecured financing, which may make it more difficult for us to raise capital when necessary. If we cannot obtain adequate capital on favorable terms or at all, our business, operating results and financial condition would be adversely affected.

 

***We Expect to Pay Interest and Principal on Our Debt with Cash Generated mainly in Dollars or Pesos, as Needed, But Cannot Assure You That We Will Generate Sufficient Cash Flow in the Relevant Currency at the Required Times From Our Operations***

 

We had approximately 81% of our outstanding debt denominated in dollars, 18% in Mexican pesos and 1% in other currencies as of December 31, 2012. We may not generate sufficient cash in the relevant currency from our operations to service the entire amount of our debt in such currency. A devaluation of certain currencies or a change in our business could adversely affect our ability to service our debt.

 

***Increases in the Cost of Energy Could Affect Our Profitability***

 

We use a significant amount of electricity, natural gas and other energy sources to operate our corn and wheat flour mills and processing ovens for the manufacture of tortillas and related products at our domestic and international facilities. These energy costs represented approximately 3% of our cost of sales in 2012. In addition, considerable amounts of diesel fuel are used in connection with the distribution of our products. The cost of energy sources may fluctuate widely due to economic and political conditions, government policy and regulation, war, weather conditions or other unforeseen circumstances. An increase in the price of fuel and other energy sources would increase our operating costs and, therefore, could affect our profitability.

 

***The Inadvertent Presence of Genetically Modified Corn Not Approved for Human Consumption in Our Products May Have a Negative Impact on Our Results of Operations***

 

As we do not grow our own corn, we are required to buy it from various producers in the United States, Mexico and elsewhere.  Although we only buy corn from farmers and grain elevators who agree to supply us with approved varieties of corn and we have developed a protocol in all our operations, to test and monitor our corn for certain strains of bacteria and chemicals that have not been approved for human consumption, we may unwittingly buy genetically modified corn that is not approved for human consumption, and use such raw materials in the manufacture of our products. This may result in costly recalls, subject us to lawsuits, and may have a negative impact on our results of operations.

 

In the past, various allegations have been made, mostly in the United States and the European Union, that genetically modified foods are unsafe for human consumption, pose risks of damage to the environment and create legal, social and ethical dilemmas. Some countries, particularly in the European Union, as well as Australia and some countries in Asia, have instituted a partial limitation on the import of grain produced from genetically modified seeds. Some countries have imposed labeling requirements and traceability obligations on genetically modified agricultural and food products, which may affect the acceptance of these products. In particular, several states of the United States, such as New Mexico and Washington have initiatives to impose labeling requirements on food products containing genetically modified organisms; if approved, these requirements may affect the acceptance of these products in such states. To the extent that we may unknowingly buy or may be perceived to be a seller of products manufactured with genetically modified grains not approved for human consumption, this may have a significant negative impact on our financial condition and results of operation.

 

***Regulatory Developments May Adversely Affect Our Business***

 

We are subject to regulation in each of the territories in which we operate. The principal areas in which we are subject to regulation are health, environmental, labor, taxation and antitrust. The adoption of new laws or regulations in the countries in which we operate may increase our operating costs or impose restrictions on our operations which, in turn, may adversely affect our financial condition, business and results of operations. Further changes in current regulations may result in an increase in compliance costs, which may have an adverse effect on our financial condition and results of operations. See “Item 4. Information on the Company—Regulation.”

 

***Economic and Legal Risks Associated with a Global Business May Affect Our International Operations***

 

We conduct our business in many countries and anticipate that revenues from our international operations will account for a significant portion of our future revenues. There are risks inherent in conducting our business internationally, including:

 

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·                  general political and economic instability in international markets;

 

·                  limitations in the repatriation, nationalization or governmental seizure of our assets, including cash;

 

·                  direct or indirect expropriation of our international assets;

 

·                  varying prices and availability of corn, wheat and wheat flour and the cost and practicality of hedging such fluctuations under current market conditions;

 

·                  different liability standards and legal systems;

 

·                  developments in the international credit markets, which could affect capital availability or cost, and could restrict our ability to obtain financing or refinance our existing indebtedness at favorable terms, if at all; and

 

·                  intellectual property laws of countries that do not protect our international rights to the same extent as the laws of Mexico.

 

In recent years, we have expanded our operations to Ukraine, Russia and Turkey. Our presence in these and other markets could present us with new and unanticipated operational challenges. For example, we may encounter labor restrictions or shortages and currency conversion obstacles, or be required to comply with stringent local governmental and environmental regulations. Any of these factors could increase our operating expenses and decrease our profitability.

 

***Our Business May Be Adversely Impacted By Risks Related to Our Derivatives Trading Activities***

 

From time to time, we enter into commodities, currency and other derivative transactions, pursuant to the Company’s risk management policy, that cover varying periods of time and have varying pricing provisions. We may incur unrealized losses in connection with potential changes in the value of our derivative instruments as a result of changes in economic conditions, investor sentiment, monetary and fiscal policies, the liquidity of global markets, international and regional political events, and acts of war or terrorism. See “Item 5. Operating and Financial Review and Prospects—Liquidity and Capital Resources,” and “Item 11. Quantitative and Qualitative Disclosures About Market Risk—Foreign Exchange Rate Risk.”

 

***We Cannot Predict the Impact that Changing Climate Conditions, Including Legal, Regulatory and Social Responses Thereto, May Have on Our Business***

 

Various scientists, environmentalists, international organizations, regulators and other commentators believe that global climate change has added, and will continue to add, to the unpredictability, frequency and severity of natural disasters (including, but not limited to droughts, hurricanes, tornadoes, freezes, other storms and fires) in certain parts of the world. In response to this belief, a number of legal and regulatory measures as well as social initiatives have been introduced in an effort to reduce greenhouse gas and other carbon emissions which some believe may be chief contributors to global climate change. We cannot predict the impact that changing climate conditions, if any, will have on our results of operations or our financial condition. Moreover, we cannot predict how legal, regulatory and social responses to concerns about global climate change will impact our business in the future.

 

***Our Business and Operations May Be Adversely Affected by Global Economic Conditions***

 

The current global macroeconomic environment, characterized by a continuing instability in the financial markets and the potential threat of a global economic downturn, primarily as a result of the ongoing sovereign debt crisis and general economic outlook of the Eurozone, the high degree of unemployment in certain countries and the level of public debt in the U.S. and certain European countries, has adversely affected the economy in the United States, Europe and many other parts of the world, including Mexico, and has had significant consequences worldwide, including unprecedented volatility, significant lack of liquidity, loss of confidence in the financial markets, disruptions in the credit sector, reduced business activity, rising unemployment, decline in interest rates and erosion of consumer confidence. It is uncertain how long the effects of this global macroeconomic instability will continue and how much of an impact it will have on the global economy in general, or the economies in which we operate in particular, and whether slowing economic growth in any such countries could result in our customers and consumers reducing their spending. As a result, we may need to lower the prices of certain of our products and services in order to maintain their attractiveness, which could lead to reduced turnover and profit or a decline in demand for our products. Any such development could adversely affect our business, results of operations and financial condition and lead to a drop in the trading price of our shares.

 

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***Our Financial Information Prepared under IFRS May Not Be Comparable to Our Financial Information Prepared Under Mexican FRS***

 

We adopted IFRS as of January 1, 2011 and prepared our  audited consolidated financial statements included in this annual report in accordance with IFRS as issued by the IASB. IFRS differs in certain significant respects from Mexican FRS and U.S. GAAP. As a result of the adoption of IFRS, our consolidated financial information presented under IFRS for fiscal years 2010, 2011 and 2012 may not be comparable to our financial information for previous periods prepared under Mexican FRS available in the market.

 

**Risks Related to Mexico**

 

***Our Results of Operations Could Be Affected by Economic and Social Conditions in Mexico***

 

We are a Mexican company with 38% of our consolidated assets located in Mexico and 35% of our consolidated net sales derived from our Mexican operations as of and for the year ended December 31, 2012. As a result, Mexican economic conditions could impact our results of operations.

 

In the past, Mexico has experienced exchange rate instability and devaluation as well as high levels of inflation, domestic interest rates, unemployment, negative economic growth and reduced consumer purchasing power. These events resulted in limited liquidity for the Mexican government and local corporations. Crime rates and civil and political unrest in Mexico and around the world could also negatively impact the Mexican economy. See “Item 3. Key Information—Risk Factors—Developments in Other Countries Could Adversely Affect the Mexican Economy, the Market Value of our Securities and Our Results of Operations.”

 

Mexico has experienced periods of slow growth since 2001, primarily as a result of the downturn in the U.S. economy. The Mexican economy grew by 1.5% in 2008 but contracted by 6.1% in 2009. In 2010, 2011 and 2012, the Mexican economy grew by 5.5%, 3.9% and 3.9%, respectively.

 

Developments and trends in the world economy affecting Mexico may have a material adverse effect on our business, financial condition and results of operations. The Mexican economy is tightly connected to the U.S. economy through international trade (approximately 77% of Mexican exports are directed to the United States), international remittances (billions of dollars from Mexican workers in the United States are the country’s second-largest source of foreign exchange), foreign direct investment (approximately 59% of Mexican foreign direct investment comes from U.S.-based investors), and financial markets (the U.S. and Mexican financial systems are highly integrated). As the U.S. economy contracts, U.S. citizens consume fewer Mexican imports, Mexican workers in the United States send less money to Mexico, U.S. firms with businesses in Mexico make fewer investments, U.S.-owned banks in Mexico make fewer loans, and the quality of U.S. financial assets held in Mexico deteriorates. Moreover, a collapse in confidence in the U.S. economy may spread to other economies closely connected to it, including Mexico’s. The result may be a potentially deep and protracted recession in Mexico. If the Mexican economy falls into a deep and protracted recession, or if inflation and interest rates increase, consumer purchasing power may decrease and, as a result, demand for our products may decrease. In addition, a recession could affect our operations to the extent we are unable to reduce our costs and expenses in response to falling demand.

 

***Our Business Operations Could Be Affected by Government Policies in Mexico***

 

The Mexican government has exerted, and continues to exert, significant influence over the Mexican economy. Mexican governmental actions concerning the economy could have a significant effect on Mexican private sector entities, as well as on market conditions, prices and returns on securities of Mexican issuers, including our securities. Governmental policies have negatively affected our sales of corn flour in the past and may continue to do so in the future.

 

Mexico held Presidential and Congressional elections on July 1, 2012, in which Enrique Peña Nieto, of political party *Partido Revolucionario Institucional*, or PRI, was elected. Following these elections, the Mexican Congress continues to be divided, as no political party in Mexico holds an absolute majority in the Senate or House of Representatives. The lack of a majority party in the legislature, the lack of alignment between the legislature and the President and any changes that result from the recent Presidential and Congressional elections, could result in political uncertainty or deadlock and prevent the timely implementation of political and economic reforms, which in turn could have a material adverse effect on Mexican economic policy and on our business, financial conditions and results of operations.

 

The Mexican government supports the commercialization of corn for Mexican corn growers through the Agricultural Incentives and Services Agency (*Apoyos y Servicios a la Comercialización Agropecuaria*, or ASERCA). To the extent that this or other similar programs are cancelled or modified by the Mexican government, we may be required to incur additional costs in

 

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purchasing corn for our operations, and therefore we may need to increase the prices of our products to reflect such additional costs. See “Item 4. Information on the Company—Regulation.”

 

In 2008, the Mexican government created a program to support the corn flour industry (*Programa de Apoyo a la Industria de la Harina de Maíz* or PROHARINA). This program aimed to mitigate the impact of the rise in international corn prices through price supports designed to aid the consumer and provided through the corn flour industry. However, the Mexican government cancelled the PROHARINA program in December 2009. As a result of the cancellation of this program by the Mexican government in December of 2009, we were required to increase the prices of our products to reflect such additional costs. There can be no assurance that we will maintain our eligibility for other programs similar to PROHARINA that may be implemented, or that the Mexican government will not institute price controls or other actions on the products we sell, which could adversely affect our financial condition and results of operations. See “Item 4. Information on the Company—Regulation—Corn Flour Consumer Aid Program.”

 

The level of environmental regulations and enforcement in Mexico has increased in recent years. We expect the trend toward greater environmental regulation and enforcement to continue and to be accelerated as a result of international agreements between Mexico and the United States. The promulgation of new and more stringent environmental regulations or higher levels of enforcement could adversely affect our business condition and results of operations.

 

***Devaluations of the Mexican Peso May Affect our Financial Performance***

 

Because we have significant international operations generating revenue in different currencies (mainly in U.S. dollars) and debt denominated in various currencies, we remain exposed to foreign exchange risks that could affect our ability to meet our obligations and result in foreign exchange losses. We posted a net foreign exchange gain of Ps.144 million in 2010, a gain of Ps.41 million in 2011 and a loss of Ps.89 million in 2012. Major devaluation or depreciation of the Mexican peso may limit our ability to transfer or to convert such currency into U.S. dollars for the purpose of making timely payments of interest and principal on our indebtedness. The Mexican government does not currently restrict, and for many years has not restricted, the right or ability of Mexican or foreign persons or entities to convert pesos into U.S. dollars or to transfer other currencies out of Mexico. The government could, however, institute restrictive exchange rate policies in the future.

 

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

 

Mexico has experienced high levels of inflation in the past. The annual rate of inflation, as measured by changes in the National Consumer Price Index was 4.40% for 2010, 3.82% for 2011 and 3.57% for 2012.  From January through March 2013, the inflation rate was 1.64%.  On April 24, 2013, the 28-day CETES rate was 3.76%.  While a substantial part of our debt is dollar-denominated at this time, high interest rates in Mexico may adversely affect the business climate in Mexico generally and our financing costs in the future and thus our financial condition and results of operations.

 

***Developments in Other Countries Could Adversely Affect the Mexican Economy, the Market Value of Our Securities and Our Results of Operations***

 

The Mexican economy may be, to varying degrees, affected by economic and market conditions in other countries.  Although economic conditions in other countries may differ significantly from economic conditions in Mexico, investors’ reactions to adverse developments in other countries may have an adverse effect on the market value of securities of Mexican issuers.  In recent years, economic conditions in Mexico have become increasingly correlated to economic conditions in the United States.  Accordingly, the slow recovery of the economy in the United States, and the uncertainty of the impact it could have on the general economic conditions in Mexico and the United States could have a significant adverse effect on our businesses and results of operations.  See “Item 3.  Key Information—Risk Factors—Our Results of Operations Could Be Affected by Economic Conditions in Mexico,” and “Item 3.  Key Information—Risk Factors—Risks Related to the United States—Unfavorable General Economic Conditions in the United States Could Negatively Impact Our Financial Performance.” In addition, economic crises in the United States as well as in Asia, Russia, Brazil, Argentina and other emerging market countries have adversely affected the Mexican economy in the past.

 

Our financial performance may also be significantly affected by general economic, political and social conditions in the emerging markets where we operate, particularly Mexico, Venezuela, Eastern Europe and Asia.  Many countries in Latin America, including Mexico and Venezuela, have suffered significant economic, political and social crises in the past, and these events may occur again in the future.  See also “Item 3.  Key Information —Risks Related to Venezuela—Our Subsidiaries in Venezuela are Currently Involved in Expropriation Proceedings and May Engage in Arbitration Proceedings.” Instability in Latin America has been caused by many different factors, including:

 

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·                  Significant governmental influence over local economies;

 

·                  Substantial fluctuations in economic growth;

 

·                  High levels of inflation;

 

·                  Changes in currency values;

 

·                  Exchange controls or restrictions on expatriation of earnings;

 

·                  High domestic interest rates;

 

·                  Wage and price controls;

 

·                  Changes in governmental, economic or tax policies;

 

·                  Imposition of trade barriers;

 

·                  Unexpected changes in regulation; and

 

·                  Overall political, social and economic instability.

 

Adverse economic, political and social conditions in Latin America may create uncertainty regarding our operating environment, which could have a material adverse effect on our company.

 

We cannot assure you that the events in other emerging market countries, in the United States, Europe, or elsewhere will not adversely affect our business, financial condition and results of operations.

 

***You May Be Unable to Enforce Judgments Against Us in Mexican Courts***

 

We are a Mexican publicly held corporation (*Sociedad Anónima Bursátil de Capital Variable*).  Most of our directors and executive officers are residents of Mexico, and a significant portion of the assets of our directors and executive officers, and a significant portion of our assets, are located in Mexico.  You may experience difficulty in effecting service of process upon our company or our directors and executive officers in the United States, or, more generally, outside of Mexico and in enforcing civil judgments of non-Mexican courts in Mexico, including judgments predicated on civil liability under U.S. federal securities laws, against us, or our directors and executive officers.  We have been advised by our General Counsel that there is doubt as to the enforceability of original actions in Mexican courts of liabilities predicated solely on the U.S. federal securities laws.

 

**Risks Related to Venezuela**

 

***Our Subsidiaries in Venezuela are Currently Involved in Expropriation Proceedings and May Engage in Arbitration Proceedings***

 

On May 12, 2010, the Bolivarian Republic of Venezuela (the “Republic”) published decree number 7,394 in the Official Gazette of Venezuela (the “Expropriation Decree”), which announced the forced acquisition of all goods, movables, and real estate of MONACA.  The Republic has expressed to GRUMA’s representatives that the Expropriation Decree extends to DEMASECA.

 

As stated in the Expropriation Decree and in accordance with the Venezuelan Expropriation Law (the “Expropriation Law”), the transfer of legal ownership can occur either through an “Amicable Administrative Arrangement” or a “Judicial Order”.  Neither method of transfer of titles has been completed.  Therefore, as of this date, no formal transfer of title of the assets covered by the Expropriation Decree has taken place.

 

GRUMA’s interests in MONACA and DEMASECA are held through two Spanish companies Valores Mundiales, S.L. (“Valores Mundiales”) and Consorcio Andino, S.L. (“Consorcio Andino”).  In 2010, Valores Mundiales and Consorcio Andino (collectively, the “Investors”) commenced negotiations with the Republic with the intention of reaching an amicable settlement.  Through Valores Mundiales and Consorcio Andino, GRUMA participated in these negotiations with a view to (i) continuing its presence in Venezuela by potentially entering into a joint venture with the Venezuelan government; and/or (ii) seeking adequate compensation for the assets subject to expropriation.

 

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The Republic and the Kingdom of Spain are parties to a Treaty on Reciprocal Promotion and Protection of Investments dated November 2, 1995 (the “Investment Treaty”), under which the Investors may settle investment disputes by means of arbitration before the International Centre for Settlement of Investment Disputes (“ICSID”).  On November 9, 2011, the Investors, MONACA, and DEMASECA validly provided formal notice to the Republic that an investment dispute had arisen as a consequence of the Expropriation Decree and related measures adopted by the Republic.  In that notification, the Investors, MONACA, and DEMASECA also agreed to submit the dispute to ICSID arbitration if the parties were unable to reach an amicable agreement.

 

On January 22, 2013, the Venezuelan Government issued a resolution providing the right to take control over the operations of MONACA and DEMASECA. As a result, we concluded that we lost control of our Venezuelan subsidiaries, MONACA and DEMASECA, on January 22, 2013.

 

While negotiations with the government have taken place and may again take place from time to time, the Company cannot assure that such negotiations will be successful or will result in the Investors receiving adequate compensation, if any, for their investments subject to the Expropriation Decree.  Additionally, the Company cannot predict the results of any arbitral proceeding, or the ramifications that costly and prolonged legal disputes could have on its results of operations or financial position, or the likelihood of collecting a successful arbitration award.  The Company and its subsidiaries reserve and intend to continue to reserve the right to seek full compensation for any and all expropriated assets and investments under applicable law, including investment treaties and customary international law. See “Item 8—Legal Proceedings—Venezuela—Expropriation Proceedings by the Venezuelan Government.”

 

***We Intend to Deconsolidate Our Venezuelan Subsidiaries Beginning January 22, 2013***

 

In accordance with IFRS, we concluded that we lost control of our Venezuelan subsidiaries, MONACA and DEMASECA, on January 22, 2013.  As a result of such loss of control, we will cease the consolidation of the financial information of MONACA and DEMASECA starting January 22, 2013.

 

As disclosed in Note 7 to our audited consolidated financial statements, at December 31, 2012, the total assets and liabilities of these subsidiaries in Venezuela were Ps.7,087,569 and Ps.2,948,192, respectively.  For the year ended December 31, 2012, these subsidiaries represented net sales of Ps.9,907,182 and operating income of Ps.444,525.

 

Our interest in the total net assets of Venezuelan subsidiaries was Ps.3,090,289 at December 31, 2012.  In January 2013 and as a result of the loss of control in these subsidiaries the foreign currency translation loss of Ps.432,458, recorded in other comprehensive income at December 31, 2012, will be transferred to our income statement and presented as a discontinued operation.

 

This loss of control may adversely affect our results of operation.  The net impact of this matter on the Company’s audited consolidated financial statements cannot be reasonably estimated at this time.

 

***Venezuela Presents Significant Economic Uncertainty and Political Risks***

 

Our operations in Venezuela through MONACA and DEMASECA accounted for 15% of our net sales and 14% of our total assets as of December 31, 2012.  In recent years, political and social instability has prevailed in Venezuela. This unrest presents a risk to our operations in Venezuela which cannot be controlled or accurately measured or estimated

 

Venezuelan authorities have imposed foreign exchange and price controls that apply to products such as corn flour and wheat flour, which have limited our ability to increase our prices in order to compensate for higher costs in raw materials and to convert bolivars into other currencies and transfer funds out of Venezuela.  Pursuant to the foreign exchange controls, the purchase and sale of foreign currency is required to be made at an official rate of exchange, as determined by the Venezuelan government (the “Official Rate”).  In addition, U.S. dollars may be acquired in order to settle certain U.S. dollar-denominated debt incurred pursuant to imports and royalty agreements, and for payment of dividends, capital gains, interest payments or private debt only after proper submission and approval by the Foreign Exchange Administration Board (CADIVI).  We continue to make appropriate submissions to CADIVI.  We expect to be in a position to meet our foreign currency-denominated obligations; however, as long as the system of exchange controls remains in effect, there is no assurance that we will be able to secure the required approvals from CADIVI to have sufficient foreign currency for this purpose.

 

In addition, as described in Notes 6 and 30 to our audited consolidated financial statements, the Venezuelan government devalued its currency and established a two tier exchange structure on January 11, 2010.  On December 30, 2010, the Venezuelan government issued Exchange Agreement No. 14, which established a single exchange rate of 4.30 bolivars per U.S. dollar effective January 1, 2011. On February 8, 2013, the National Executive, through the Central Bank of Venezuela and the Ministry of Popular Power for Planning and Finance, amended the Exchange Agreement to the effect that an exchange rate of 6.30 bolivars per U.S. dollar

 

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is applicable to all operations conducted in foreign currency effective as of February 9, 2013. We cannot guarantee that the Venezuelan government will not impose additional price controls, or further devalue its currency or make similar decisions in the future.

 

As a result of the devaluation and based on the company’s foreign currency positions at December 31, 2012 and management interpretations, the estimated financial effect from the enactment of this Exchange Agreement for those items that management believes will be settled at these new exchange rates, is an estimated net foreign exchange loss of Bs.19,494, which could have been recognized in February 2013.  Additionally, the conversion of the financial position and the results of operations of our Venezuelan subsidiaries could have resulted in a decrease of approximately 45% of the value in Mexican peso of these subsidiaries for consolidation purposes.  Future devaluations of the Venezuelan currency will have a limited impact on our future financial statements as Gruma Venezuela will be deconsolidated from our operations as of January 22, 2013.

 

**Risks Related to the United States**

 

***Unfavorable General Economic Conditions in the United States Could Negatively Impact Our Financial Performance***

 

Net sales in the U.S. constituted 37% of our total sales in 2012.  Unfavorable general economic conditions, such as the current economic slowdown in the United States, could negatively affect the affordability of and consumer demand for some of our products.  Under difficult economic conditions, customers and consumers may seek to forego purchases of our products or, if available, shift to lower-priced products offered by other companies.  Softer customer and consumer demand for our products in the United States or in other major markets could reduce our profitability and could negatively affect our financial performance.

 

Additionally, as the retail grocery trade continues to consolidate and our retail customers grow larger, they could demand lower pricing and increased promotional programs.  Also, our dependence on sales to certain retail and food service customers could increase.  There is a risk that we will not be able to maintain our U.S. profit margin in this environment.

 

Demand for our products in Mexico may also be disproportionately affected by the performance of the United States economy.  See also “Item 3.  Key Information—Risk Factors—Risks Related to Mexico—Our Results of Operations Could Be Affected by Economic Conditions in Mexico.”

 

**Risks Related to Our Controlling Shareholders and Capital Structure**

 

***Holders of ADSs May Not Be Able to Vote at our Shareholders’ Meetings***

 

Our shares are traded on the New York Stock Exchange in the form of ADSs.  There can be no assurance that holders of our shares through ADSs will receive notices of shareholder meetings from our ADS depositary with sufficient time to enable such holders to return voting instructions to our ADS depositary in a timely manner.  Under certain circumstances, a person designated by us may receive a proxy to vote the shares underlying the ADSs at our discretion at a shareholder meeting.

 

***Holders of ADSs Are Not Entitled to Attend Shareholder Meetings, and They May Only Vote Through the Depositary***

 

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

 

***Holders of ADSs May Not Be Able to Participate in Any Future Preemptive Rights Offering and as a Result May Be Subject to a Dilution of Equity Interest***

 

Under Mexican law, if we issue new shares for cash as a part of a capital increase, other than in connection with a public offering of newly issued shares or treasury stock, we must generally grant our shareholders the right to purchase a sufficient number of shares to maintain their existing ownership percentage.  Rights to purchase shares in these circumstances are known as preemptive rights.  We may not legally be permitted to allow holders of our shares through ADSs in the United States to exercise any preemptive rights in any future capital increases unless (i) we file a registration statement with the U.S. Securities and Exchange Commission, or SEC, with respect to that future issuance of shares or (ii) the offering qualifies for an exemption from the registration requirements of the Securities Act.  At the time of any future capital increase, we will evaluate the costs and potential liabilities associated with filing a

 

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registration statement with the SEC, as well as the benefits of preemptive rights to holders of our shares through ADSs in the United States and any other factors that we consider important in determining whether to file a registration statement.

 

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

 

***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, executive officers and controlling shareholders has been recently developed and there is no legal precedent to predict the outcome of any such action.  Additionally, shareholders’ class actions are not available under Mexican law and there are different procedural requirements for bringing shareholder derivative lawsuits.  As a result, in practice it may be more difficult for our minority shareholders to enforce their rights against us, our directors, our executive officers or our controlling shareholders, than it would be for shareholders of a U.S. company.

 

***We Have Transactions With Affiliates That Could Create Potential Conflicts of Interest***

 

In general, transactions with affiliates may create the potential for conflicts of interest.  See “Item 7.  Major Shareholders and Related Party Transactions.”

 

We purchased some of our raw materials from Archer-Daniels-Midland Company (“Archer-Daniels-Midland,” or “ADM”) at market rates and terms.  During 2010, 2011 and 2012, we purchased U.S.$97 million, U.S.$ 147 million and U.S.$ 179 million of raw materials, respectively, from Archer-Daniels-Midland.  As of December 14, 2012, as a result of the ADM Transaction (as defined elsewhere in this report), Archer-Daniels-Midland no longer holds any interests in our Company. See “Item 7.  Major Shareholders and Related Party Transactions.”

 

***Exchange Rate Fluctuations May Affect the Value of Our Shares***

 

Fluctuations in the exchange rate between the peso and the U.S. dollar will affect the U.S. dollar value of an investment in our shares and of dividend and other distribution payments on those shares.  See “Item 3.  Key Information—Selected Financial Data—Exchange Rate Information” and “Item 11.  Quantitative and Qualitative Disclosures About Market Risk—Foreign Exchange Rate Risk.”

 

***Mexican Law Restricts the Ability of Non-Mexican Shareholders to Invoke the Protection of Their Governments With Respect to Their Rights as Shareholders***

 

As required by Mexican law, our bylaws provide that non-Mexican shareholders shall be treated as Mexican shareholders in respect to their ownership interests in us, and shall be deemed to have agreed not to invoke the protection of their governments under any circumstance, under penalty of forfeiting, in favor of the Mexican government, any participation or interest held in us.

 

Under this provision, a non-Mexican shareholder is deemed to have agreed not to invoke the protection of its own government by requesting the initiation of a diplomatic claim against the Mexican government with respect to its shareholder’s rights.  However, this provision shall not deem non-Mexican shareholders to have waived any other rights they may have, including any rights under the U.S. securities laws, with respect to their investment in us.

 

***Our Controlling Shareholder Exerts Substantial Control Over Our Company***

 

As of April 26, 2013, the estate of the late Roberto González Barrera and his family (the “Control Group”) controlled approximately 66.45% of our outstanding shares.  See “Item 10.  Additional Information—Bylaws—Changes in Capital stock.” Consequently, the Control Group, acting together, has the power to elect the majority of our directors and to determine the outcome of most actions requiring approval of our stockholders, including the declaration of dividends.

 

We cannot assure you that the Control Group will continue to act together for purposes of control.  Additionally, the Control Group may pledge part of its shares in us to secure any future borrowings.  If such were the case and the Control Group were to default on its payment obligations, the lenders could enforce their rights with respect to such shares, and the Control Group could lose its controlling interest in us resulting in a change of control.  A change of control could trigger a default in some of our credit agreements and the indenture governing our perpetual bonds, which have an aggregate principal amount outstanding as of December 31, 2012 of U.S. $1,063 million, and could have a material adverse effect upon our business, financial condition, results of operations and prospects.

 

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Additionally, we cannot assure you that the Control Group will continue to act together for purposes of control. A change of control could trigger a default in some of our credit agreements and have a material adverse effect upon our business, financial condition, results of operations and prospects.

 

***Our Antitakeover Protections May Deter Potential Acquirors***

 

Certain provisions of our bylaws could make it substantially more difficult for a third party to acquire control of us.  These provisions in our bylaws may discourage certain types of transactions involving the acquisition of our securities.  These provisions could discourage transactions in which our shareholders might otherwise receive a premium for their shares over the then current market price.  Holders of our securities who acquire shares in violation of these provisions will not be able to vote, or receive dividends, distributions or other rights in respect of, these securities and would be obligated to pay us a penalty.  For a description of these provisions, see “Item 10.  Additional Information—Bylaws—Other Provisions—Antitakeover Protections.”

 

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

 

We are a holding company with no significant assets other than the shares of our subsidiaries.  As a result, our ability to meet our debt service obligations depends primarily on the dividends received from our subsidiaries.  Under Mexican law, companies may only pay dividends:

 

·                  from earnings included in year-end financial statements that are approved by shareholders at a duly convened meeting;

 

·                  after any existing losses applicable to prior years have been made up or absorbed into stockholders’ equity;

 

·                  after at least 5% of net profits for the relevant fiscal year have been allocated to a legal reserve until the amount of the reserve equals 20% of a company’s paid-in capital stock; and

 

·                  after shareholders have approved the payment of the relevant dividends at a duly convened meeting.

 

In addition, Gruma Corporation is subject to covenants in some of its debt agreements, which require the maintenance of specified financial ratios and balances and, upon an event of default, prohibit the payment of cash dividends.  For additional information concerning these restrictions on inter-company transfers, see “Item 3.  Key Information—Selected Financial Data—Dividends” and “Item 5.  Operating and Financial Review and Prospects—Liquidity and Capital Resources.”

 

We own approximately 83% of the outstanding shares of Grupo Industrial Maseca, S.A.B. de C.V., or GIMSA; accordingly, we are entitled to receive only our *pro rata* share of any of its dividends.

 

We also own 76% of MONACA and 60% of DEMASECA. However, as of January 22, 2013, we lost control of MONACA and DEMASECA as a consequence of the actions of the Venezuelan Government.  Our ability to repatriate our *pro rata* share of dividends from MONACA and DEMASECA may be adversely affected.  See “Item 3.  Key Information—Risk Factors—Risks Related to Venezuela.”

 

**ITEM 4         Information on the Company**.

 

**HISTORY AND DEVELOPMENT**

 

Gruma, S.A.B. de C.V. is a publicly held corporation (*Sociedad Anónima Bursátil de Capital Variable*) registered in Monterrey, Mexico under the *Ley General de Sociedades Mercantiles*, or Mexican Corporations Law, on December 24, 1971, with a corporate life of 99 years.  Our full legal name is Gruma, S.A.B. de C.V., but we are also known by our commercial names: GRUMA and MASECA.  The address of our principal executive office is Calzada del Valle, 407 Ote., Colonia del Valle, San Pedro Garza García, Nuevo León, 66220, México, and our telephone number is (52) 81 8399-3300.  Our legal domicile is Monterrey, Nuevo León, México.

 

We were founded in 1949, when the late Roberto González Barrera started producing and selling corn flour in Northeastern Mexico as an alternative raw material for producing tortillas.  Prior to our founding, all corn tortillas were made using a rudimentary process.  We believe that the preparation of tortillas using our dry corn flour method presents significant advantages, including greater efficiency and higher quality, which makes tortillas consistent and readily available.  The corn flour process has been a significant impetus for growth, resulting in expanding corn flour and tortilla production and sales throughout Mexico, the United States, Central

 

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America, Venezuela, Europe, Asia and Oceania.  In addition, we have diversified our product mix to include wheat flour in Mexico and Venezuela, other types of flatbreads (pita, naan, chapatti, pizza bases and piadina) mainly in Europe, Asia and Oceania, among other products in the regions where we have presence.

 

One of our most important competitive advantages is our proprietary state-of-the art technology for the manufacturing of corn flour and tortillas and other related products.  We have been developing and advancing our own technology since the founding of our company.  Throughout the years we have been able to achieve vertical integration, which is an important part of our competitive advantage.

 

The following are some significant historical highlights:

 

·                  **In 1949**, Roberto González Barrera and a group of predecessor Mexican corporations founded GIMSA, which is engaged principally in the production, distribution and sale of corn flour in Mexico.

 

·                  **In 1972**, we entered the Central American market with our first operation in Costa Rica.  Today, we have operations in Costa Rica, Guatemala, Honduras, El Salvador and Nicaragua, as well as Ecuador, which we include as part of our Central American operations.

 

·                  **In 1977**, we entered the U.S. market.  Our operations have grown to include products such as tortillas, corn flour, and other tortilla related products.

 

·                  **From 1989 to 1995**, we significantly increased our installed manufacturing capacity in the United States and in Mexico.

 

·                  **In 1993**, we entered the Venezuelan corn flour market through an investment in DEMASECA, a Venezuelan corporation producing corn flour.

 

·                  **In 1994**GRUMA became a publicly listed company in both Mexico and the U.S.

 

·                  **In 1996**, we strengthened our position in the U.S. corn flour market through an association with Archer-Daniels-Midland.  Through this association we combined our existing U.S. corn flour operations and strengthened our position in the U.S. corn flour market.  This association also allowed us to enter the Mexican wheat flour market by acquiring a 60% ownership interest in Archer-Daniels-Midland’s Mexican wheat flour operations.  Archer-Daniels-Midland no longer holds an ownership interest in the Company. See “Item 4.  Information on the Company—Share Purchase Transaction with Archer-Daniels-Midland.”

 

·                  **From 1997 to 2000**, we initiated a significant plant expansion program.  During this period, we acquired or built tortilla plants, corn flour plants and wheat flour plants in the United States, Mexico, Central America, Venezuela and Europe.

 

·                  **From 2001 to 2003**, we entered into a comprehensive review of our business portfolio and focused on our core businesses.

 

·                  **In 2004**, we increased our presence in Europe by acquiring Ovis Boske, a tortilla company based in the Netherlands, and Nuova De Franceschi & Figli, a corn flour company based in Italy.  We continued to expand capacity and upgrade several of our U.S. operations, the most relevant of which was the expansion of a corn mill in Indiana.

 

·                  **In 2005**, we continued to expand capacity at existing plants, began the construction of a tortilla plant in the northeast of the U.S., acquired three tortilla plants from Cenex Harvest States or CHS (located in Minnesota, Texas and Arizona) and one more in San Francisco, California.  In addition, GIMSA acquired Agroindustrias Integradas del Norte and Agroinsa de México (together, and with their subsidiaries, Agroinsa), a group of companies engaged primarily in the production of corn flour and, to a lesser extent, wheat flour and other products in Mexico.

 

·                  **In 2006**, we acquired two small tortilla plants in Australia (Rositas Investments and Oz-Mex Foods) and opened our first tortilla plant in China, which strengthened our presence in the Asian and Oceania markets.  We concluded the acquisition of Pride Valley Foods, a company based in England that produces tortillas, pita bread, naan, and chapatti, thus expanding our product portfolio to other types of flatbreads.

 

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·                  **In 2007**, we entered into a contract to sell a 40% stake in MONACA to our former partner in DEMASECA.  In conjunction with this transaction, we also agreed to purchase an additional 10% ownership interest in DEMASECA from our former partner.  We also purchased the remaining 49% ownership interest in Nuova De Franceschi & Figli.  In addition, we made major investments in capacity expansions and upgrades in Gruma Corporation, started the construction of a new tortilla plant in Australia for Gruma Asia & Oceania, and expanded two of GIMSA’s plants.

 

·                  **From 2008 to 2010**, we made capital expenditures for the construction of a tortilla plant in southern California, capacity expansions, general manufacturing and technology upgrades to several of our existing facilities, the construction of a tortilla plant in Australia, the construction of a wheat mill in Venezuela, and the acquisition of the leading producer of corn grits in Ukraine.

 

·                  **In 2011**, we acquired Semolina, the Turkish market leading producer of corn grits, two tortilla plants in the U.S. located in Omaha, Nebraska and Albuquerque, New Mexico, and Solntse Mexico, the leading tortilla manufacturer in Russia.

 

·                  **In 2012**, our founder Mr. Roberto González Barrera passed away.  In December 2012, we repurchased from Archer-Daniels-Midland 23.16% of our issued shares as well as Archer-Daniels-Midland’s minority stakes in Azteca Milling, L.P., Molinera de México, S.A. de C.V., Consorcio Andino, S.L. and Valores Mundiales, S.L.  See “Item 4.  Information on the Company—Share Purchase Transaction with Archer-Daniels-Midland.”

 

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**ORGANIZATIONAL STRUCTURE**

 

We are a holding company and conduct our operations through subsidiaries.  The table below sets forth our principal subsidiaries as of December 31, 2012**.**

 
| **Name of Company**                                                                                                                                                                                                                                                                                                        | ** ** | **Principal   Markets**                                            | ** ** | **Jurisdiction of   Incorporation**                           | ** ** | **Percentage   Owned(1)** | ** ** | **Products/   Services**                                                           | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|---------------------------|------------|------------------------------------------------------------------------------------|------------|
|                                                                                                                                                                                                                                                                                                                                 |       |                                                               |       |                                                               |       |                      |       |                                                                               |       |
| **Mexican Operations**                                                                                                                                                                                                                                                                                                               |       |                                                               |       |                                                               |       |                      |       |                                                                               |       |
|                                                                                                                                                                                                                                                                                                                                 |       |                                                               |       |                                                               |       |                      |       |                                                                               |       |
| Grupo Industrial Maseca, S.A.B. de C.V.   (“GIMSA”)                                                                                                                                                                                                                                                                        |       | Mexico                                                             |       | Mexico                                                             |       | 83%                       |       | Corn flour, Other                                                                  |       |
|                                                                                                                                                                                                                                                                                                                                 |       |                                                               |       |                                                               |       |                      |       |                                                                               |       |
| Molinera de México, S.A. de C.V.(“Molinera   de México”)                                                                                                                                                                                                                                                         |       | Mexico                                                             |       | Mexico                                                             |       | 100%                      |       | Wheat flour, Other                                                                 |       |
|                                                                                                                                                                                                                                                                                                                                 |       |                                                               |       |                                                               |       |                      |       |                                                                               |       |
| **U.S. and Europe Operations**                                                                                                                                                                                                                                                                                                  |       |                                                               |       |                                                               |       |                      |       |                                                                               |       |
|                                                                                                                                                                                                                                                                                                                                 |       |                                                               |       |                                                               |       |                      |       |                                                                               |       |
| Gruma Corporation                                                                                                                                                                                                                                                                                                                    |       | United States and Europe                                           |       | Nevada                                                             |       | 100%                      |       | Tortillas, Other tortilla related products, Corn flour, Flatbreads,   Grits, Other |       |
|                                                                                                                                                                                                                                                                                                                                 |       |                                                               |       |                                                               |       |                      |       |                                                                               |       |
| Azteca Milling, LP. (“Azteca Milling”)                                                                                                                                                                                                                                                                                     |       | United States                                                      |       | Texas                                                              |       | 100%                      |       | Corn flour                                                                         |       |
|                                                                                                                                                                                                                                                                                                                                 |       |                                                               |       |                                                               |       |                      |       |                                                                               |       |
| **Central American Operations**                                                                                                                                                                                                                                                                                                      |       |                                                               |       |                                                               |       |                      |       |                                                                               |       |
|                                                                                                                                                                                                                                                                                                                                 |       |                                                               |       |                                                               |       |                      |       |                                                                               |       |
| Gruma de Guatemala, S.A., Derivados de Maíz   Alimenticio, S.A., Industrializadora y Comercializadora de Palmito,   S.A., Derivados de Maíz de Guatemala, S.A., Tortimasa, S.A., Derivados de   Maíz de El Salvador, S.A., and Derivados de Maíz de Honduras, S.A. (“Gruma   Centroamérica”) |       | Costa Rica, Honduras,   Guatemala, El Salvador, Nicaragua, Ecuador |       | Costa Rica, Honduras,   Guatemala, El Salvador, Nicaragua, Ecuador |       | 100%                      |       | Corn flour, Tortillas, Snacks, Hearts of palm, Rice                                |       |
|                                                                                                                                                                                                                                                                                                                                 |       |                                                               |       |                                                               |       |                      |       |                                                                               |       |
| **Venezuelan Operations(2)**                                                                                                                                                                                                                                                                                                         |       |                                                               |       |                                                               |       |                      |       |                                                                               |       |
|                                                                                                                                                                                                                                                                                                                                 |       |                                                               |       |                                                               |       |                      |       |                                                                               |       |
| Molinos Nacionales,   C.A. (“MONACA”) (3)                                                                                                                                                                                                                                                                                  |       | Venezuela                                                          |       | Venezuela                                                          |       | 76%                       |       | Corn flour, Wheat flour, Other products                                            |       |
|                                                                                                                                                                                                                                                                                                                                 |       |                                                               |       |                                                               |       |                      |       |                                                                               |       |
| Derivados de Maíz Seleccionado, C.A.   (“DEMASECA”) (3)                                                                                                                                                                                                                                                               |       | Venezuela                                                          |       | Venezuela                                                          |       | 60%                       |       | Corn flour                                                                         |       |
|                                                                                                                                                                                                                                                                                                                                 |       |                                                               |       |                                                               |       |                      |       |                                                                               |       |
| **Other Subsidiaries**                                                                                                                                                                                                                                                                                                               |       |                                                               |       |                                                               |       |                      |       |                                                                               |       |
|                                                                                                                                                                                                                                                                                                                                 |       |                                                               |       |                                                               |       |                      |       |                                                                               |       |
| Mission   Foods (Shanghai) Co. Ltd., Gruma Oceania Pty. Ltd., and Mission Foods   (Malaysia) Sdn. Bhd. (“Gruma Asia & Oceania”)                                                                                                                                                                                        |       | Asia and Oceania                                                   |       | China, Malaysia and Australia                                      |       | 100%                      |       | Tortillas, Chips, Other products                                                   |       |
|                                                                                                                                                                                                                                                                                                                                 |       |                                                               |       |                                                               |       |                      |       |                                                                               |       |
| Productos y Distribuidora Azteca, S.A. de C.V. (“PRODISA”)                                                                                                                                                                                                                                                                 |       | Mexico                                                             |       | Mexico                                                             |       | 100%                      |       | Tortillas, Other related products                                                  |       |
|                                                                                                                                                                                                                                                                                                                                 |       |                                                               |       |                                                               |       |                      |       |                                                                               |       |
| Investigación de Tecnología Avanzada, S.A. de   C.V. (“INTASA”)                                                                                                                                                                                                                                                  |       | Mexico                                                             |       | Mexico                                                             |       | 100%                      |       | Construction, Technology and Equipment operations                                  |       |

 

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(1) Percentage of equity capital owned by us directly or indirectly through subsidiaries.

 

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(2) Together these subsidiaries are referred to as “Gruma Venezuela.”  We will deconsolidate Gruma Venezuela as of January 22, 2013 and account for it as a discontinued operation.

 

(3) RFB Holdings de Mexico, S.A. de C.V. holds a 24.14% indirect interest in MONACA and 40% in DEMASECA.  See “Item 3. Key Information—Risk Factors—Risks Related to Venezuela—Our Subsidiaries in Venezuela are Currently Involved in Expropriation Proceedings and May Engage in Arbitration Proceedings and “Item 10.  Additional Information—Material Contracts—Archer-Daniels-Midland.”

 

Our subsidiaries accounted for the following percentages and amount of our net sales in millions of pesos for the years ended December 31, 2012, 2011 and 2010.

 
| ** **               | ** ** | **Year ended December 31,** | ** ** |
|--------------------------|------------|--------------------------------------------|------------|
| ** **               | ** ** | **2012**                                   | ** ** | **2011** | ** ** | **2010** | ** ** |
| ** **               | ** ** | **In Millions   of Pesos**       | ** ** | **Percentage   of Net Sales** | ** ** | **In Millions   of Pesos** | ** ** | **Percentage   of Net Sales** | ** ** | **In Millions   of Pesos** | ** ** | **Percentage   of Net Sales** | ** ** |
| Gruma Corporation        |       | Ps.                                        | 26,932     |   | 42 | % | Ps. | 23,923 |   | 42 | % | Ps. | 21,451 |   | 46 | % |
| GIMSA                    |       | 17,573                                     |       | 27 |   | 15,386 |   | 27 |   | 11,853 |   | 26 |   |
| Gruma Venezuela          |       | 9,907                                      |       | 15 |   | 9,157 |   | 16 |   | 5,382 |   | 12 |   |
| Molinera de México  |       | 5,046                                      |       | 8 |   | 4,633 |   | 8 |   | 3,757 |   | 8 |   |
| Gruma Centroamérica |       | 3,369                                      |       | 5 |   | 3,180 |   | 6 |   | 2,765 |   | 6 |   |
| Others and eliminations  |       | 1,490                                      |       | 2 |   | 1,366 |   | 1 |   | 1,024 |   | 2 |   |
| Total                    |       | Ps.                                        | 64,317     |   | 100 |   | Ps. | 57,645 |   | 100 |   | Ps. | 46,232 |   | 100 |   |

 

**Share Purchase Transaction with Archer-Daniels-Midland**

 

We entered into an association with Archer-Daniels-Midland in September 1996. Archer-Daniels-Midland is one of the world’s largest agricultural processors and traders.  Through our partnership we improved our position in the U.S. corn flour market and gained an immediate presence in the Mexican wheat flour market. See “Item 7.  Major Shareholders and Related Party Transactions—Transactions with Archer-Daniels-Midland.”  On December 14, 2012, we acquired the stake that Archer-Daniels-Midland owned directly and indirectly in the Company and certain of our subsidiaries (the ‘‘Equity Interests’’) through the exercise of a purchase option pursuant to certain rights of first refusal (the “ADM Transaction”), consisting of:

 

·                  18.81% of the issued shares of Gruma S.A.B. de C.V. and, indirectly, an additional 4.35% of the issued shares of Gruma, S.A.B. de C.V. via the acquisition of 45% of the shares of Valores Azteca, S.A. de C.V. (‘‘Valores Azteca’’), a company that owns 9.66% of the issued shares of Gruma, S.A.B. de C.V.;

 

·                  3% of the partnership interest of Valores Mundiales and Consorcio Andino, holding companies of our subsidiaries in Venezuela, MONACA and DEMASECA, respectively;

 

·                  40% of the shares of Molinera de Mexico, our wheat flour business in Mexico; and

 

·                  100% of the shares of Valley Holding Inc., a company that owns 20% of Azteca Milling, our corn flour business in the United States.

 

The Equity Interests were acquired from Archer-Daniels-Midland for US$450 million plus a contingent payment of up to US$60 million, which contingent payment is payable only if during the 42 months following the closing of the ADM Transaction certain conditions are met. See “Item 10.  Additional Information—Material Contracts.” The economic terms of the ADM Transaction were based on the terms contained in the offer made by a third party to Archer-Daniels-Midland for the purchase of the Equity Interests. As a result of the ADM Transaction, Archer-Daniels-Midland no longer holds an ownership interest in the Company.

 

Based on a fairness opinion issued by an Independent Expert, as well as the financial analysis conducted by our management, we believe that, at the agreed values for the ADM Transaction, the ADM Transaction will generate a significant economic benefit and substantial creation of value for the Company because of the higher net income attributable to shareholders that we will obtain due to the increase of our stake in Azteca Milling and Molinera de México.  We believe this benefit will occur regardless of whether we will be required to make the contingent payment.

 

To fund the ADM Transaction, GRUMA obtained short-term unsecured loan facilities for a total amount of US$400,000,000, with maturities of up to a year (the ‘‘Short-Term Facilities’’), and used proceeds from Gruma Corporation’s revolving syndicated

 

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credit facility with Bank of America, N.A. We expect to refinance the Short-Term Facilities in 2013. See “Item 5. Operating and Financial Review and Prospects—Indebtedness.”

 

**Capital Expenditures**

 

Our capital expenditure program continues to be primarily focused on our core businesses and markets.  Capital expenditures for 2010, 2011, and 2012 were U.S.$89 million, U.S.$191 million and U.S.$ 212 million, respectively.  During 2010, capital expenditures were mostly applied to general manufacturing and technology upgrades in Gruma Corporation and GIMSA, and the acquisition of the leading producer of corn grits in Ukraine.  During 2011, capital expenditures were primarily applied to production capacity expansions, manufacturing and technology upgrades, particularly in the U.S., Mexico and Europe.  We also made certain acquisitions throughout 2011, including the purchase of the leading producer of corn grits in Turkey, two tortilla plants in the U.S. and the leading tortilla manufacturer in Russia. During 2012, capital expenditures were applied primarily to production capacity expansions, general manufacturing and technology upgrades in Gruma Corporation and GIMSA.

 

We have budgeted approximately U.S.$ 130 million for capital expenditures in 2013, which we intend to use mainly for production capacity expansions, general manufacturing and technology upgrades, especially in Gruma Corporation and GIMSA.  We anticipate financing these expenditures throughout the year through internally generated funds and debt.

 

The following table sets forth the aggregate amount of our capital expenditures during the periods indicated.

 
| ** **               | ** ** | **Year ended December 31**                | ** ** |
|--------------------------|------------|----------------------------------------------------------|------------|
| ** **               | ** ** | **2012**                                                 | ** ** | **2011** | ** ** | **2010** | ** ** |
| ** **               | ** ** | **(in millions of U.S. dollars)(1)** | ** ** |
| Gruma Corporation        |       | $                                                        | 123.9      |   | $ | 126.9 |   | $ | 50.0 |   |
| GIMSA                    |       | 34.3                                                     |       | 19.2 |   | 13.8 |   |
| Gruma Venezuela(2)       |       | 14.5                                                     |       | 3.5 |   | 6.9 |   |
| Molinera de México  |       | 15.8                                                     |       | 5.7 |   | 4.5 |   |
| Gruma Centroamérica |       | 5.3                                                      |       | 7.1 |   | 3.4 |   |
| Others and eliminations  |       | 17.7                                                     |       | 28.8 |   | 10.0 |   |
| Total consolidated       |       | $                                                        | 211.6      |   | $ | 191.2 |   | $ | 88.6 |   |

 

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(1)         Amounts in respect of some of the capital expenditures were paid for in currencies other than the U.S. dollar.  As a result, U.S. dollar amounts presented in the table above may not be comparable to data contained elsewhere in this Annual Report, which is expressed on the basis of the peso/dollar exchange rate as of December 31, 2012, unless otherwise specified.

 

(2)         We will deconsolidate Gruma Venezuela as of January 22, 2013 and account for it as a discontinued operation.

 

For more information on capital expenditures for each subsidiary, please see the section entitled “Operation and Capital Expenditures” under the relevant sections below.

 

**BUSINESS OVERVIEW**

 

We believe we are one of the largest corn flour and tortilla producers and distributors in the world. We also believe we are one of the leading producers and distributors of corn flour and tortillas in the United States, one of the leading producers of corn flour and wheat flour in Mexico. We believe that we are also one of the largest producers of corn flour and tortillas in Central America, and one of the largest producers of tortilla and other flatbreads, including pita, naan, chapatti, pizza bases and piadina in Europe, Asia and Oceania. Our focus has been and continues to be the efficient and profitable expansion of our core business—corn flour, tortilla and wheat flour production. We pioneered the dry corn flour method of tortilla production, which offers several advantages over the centuries-old traditional wet corn dough method. These advantages include higher production yields, reduced production costs, more uniform quality and longer shelf life. The dry corn flour method of production offers significant opportunities for growth. Using our technology and know-how, we expect to encourage tortilla and tortilla chip producers in the United States, Mexico, Central America, and elsewhere to convert to the dry corn flour method of tortilla and tortilla chip production. We also believe there are significant opportunities for growth in our other core businesses, especially tortillas in the United States, Europe, Asia and Oceania.

 

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The following table sets forth our revenues by geographic market for the years ended December 31, 2012, 2011 and 2010.

 
| ** **               | ** ** | **Year ended December 31,** | ** ** |
|--------------------------|------------|--------------------------------------------|------------|
| ** **               | ** ** | **2012**                                   | ** ** | **2011** | ** ** | **2010** | ** ** |
| ** **               | ** ** | **(in millions of pesos)**  | ** ** |
| United States and Europe |       | Ps.                                        | 26,901     |   | Ps. | 23,901 |   | Ps. | 21,445 |   |
| Mexico                   |       | 22,270                                     |       | 19,870 |   | 15,539 |   |
| Venezuela                |       | 9,907                                      |       | 9,157 |   | 5,382 |   |
| Central America          |       | 3,369                                      |       | 3,180 |   | 2,765 |   |
| Asia and Oceania         |       | 1,870                                      |       | 1,537 |   | 1,101 |   |
| Total                    |       | Ps.                                        | 64,317     |   | Ps. | 57,645 |   | Ps. | 46,232 |   |

 

**Strategy**

 

Our strategy is to focus on our core business—corn flour, tortilla, and wheat flour production, as well as to expand our product portfolio towards the flatbreads category in general —and to capitalize upon our leading positions in the corn flour and tortilla industries.  We will continue taking advantage of the increasing popularity of Mexican food and, more importantly, tortillas, in the U.S., European, Asian and Oceania markets.  We will also continue taking advantage of the adoption of tortillas by the consumers of several regions of the world for the preparation of different recipes other than Mexican food.  Our strategy includes the following key elements:

 

*Expand in the Retail and Food Service Tortilla Markets Where We Currently Have a Presence and to New Regions in the United States*: We believe that the size and growth of the U.S. retail and food service tortilla markets offer significant opportunities for expansion.

 

*Maintain Gruma Corporation’s MISSION® and GUERRERO® Tortilla Brands as the First and Second National Brands in the United States*: We intend to achieve this by increasing our efforts at building brand name recognition, and by further expanding and utilizing Gruma Corporation’s distribution network, first in Gruma Corporation’s existing markets, where we believe there is potential for further growth, and second, in regions where Gruma Corporation currently does not have a significant presence but where we believe strong demand for tortillas already exists.

 

*Encourage Transition in Certain Markets from the Traditional Cooked-Corn Method to the Dry Corn Flour Method as Well as New Uses for Corn Flour, and Continue to Establish MASECA® as a Leading Brand*: We pioneered the dry corn flour method of tortilla production, which offers several advantages over the centuries-old traditional wet corn dough method.  We continue to view the transition from the traditional method to the dry corn flour method of making tortillas and tortilla chips as the primary opportunity for increased corn flour sales.  We see an opportunity for further potential growth in the fact that the dry corn flour method is more environmentally friendly than the traditional method.  We are also working to expand the use of corn flour in the manufacture of different types of products besides tortillas and tortilla chips.

 

*Enter and Expand in the Tortilla and Flatbread Markets in Other Regions of the World*: We believe that markets in other continents such as Europe, Asia and Oceania offer us significant opportunities.  We believe our current operations in Europe will enable us to better serve markets there and in the Middle East.  Our presence in Asia and Oceania will enable us to offer our customers in those regions fresh products and respond more quickly to their needs

 

*Leverage Our Existing Available Production Capacity and Focus on Optimizing Operational Matters*: Our investment program during recent years in plants and operations has resulted in sufficient existing capacity to meet current and foreseeable demand.  We believe that our economies of scale and existing operating synergies permit us to remain competitive without additional material capital expenditures.

 

*Enhance Value Creation of the Company by Consolidating the Growth Experienced during Past Years:* The Company is implementing initiatives oriented toward emphasizing the company’s top priority of improving profitability and cash flow generation, and strengthening its financial structure by reducing debt. This will be the foundation for resuming more aggressive and profitable growth in the future.

 

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**U.S. and European Operations**

 

***Overview***

 

We conduct our United States and European operations principally through our subsidiary Gruma Corporation, which manufactures and distributes corn flour, tortillas, corn chips and related products.  Gruma Corporation commenced operations in the United States in 1977, initially developing a presence in certain major tortilla consumption markets by acquiring small tortilla manufacturers and converting their production processes from the traditional “wet corn dough” method to our dry corn flour method.  Eventually, we began to build our own state-of-the-art tortilla plants in certain major tortilla consumption markets.  We have vertically integrated our operations by (i) building corn flour and tortilla manufacturing facilities; (ii) establishing corn purchasing operations; (iii) launching marketing and advertising campaigns to develop brand name recognition; (iv) expanding distribution networks for corn flour and tortilla products; and (v) using our technology to design and build proprietary corn flour, tortilla and tortilla chip manufacturing machinery.

 

In September 1996, we combined our U.S. corn flour milling operations with Archer-Daniels-Midland’s corn flour milling operations into a newly formed limited partnership known as Azteca Milling, L.P., in which Gruma Corporation held an 80% interest. As a result of the ADM Transaction, Gruma Corporation now holds a 100% interest in Azteca Milling.  See “Item 4.  Information on the Company—Share Purchase Transaction with Archer-Daniels-Midland.”

 

During 2000, Gruma Corporation opened its first European tortilla and corn chips plant in Coventry, England, initiating our entry into the European market.

 

***Gruma Corporation***

 

Gruma Corporation operates primarily through its Mission Foods division, which produces tortillas and related products, and Azteca Milling, a limited partnership wholly owned by Gruma Corporation which produces corn flour.  We believe Gruma Corporation is one of the leading manufacturers and distributors of tortillas and related products throughout the United States and Europe through its Mission Foods division.  We believe Gruma Corporation is also one of the leading producers of corn flour in the United States through its Azteca Milling division.

 

*Principal Products*.  Mission Foods manufactures and distributes corn and wheat tortillas and related products (which include tortilla chips) under the MISSION®, GUERRERO® and CALIDAD® brand names in the United States, as well as other minor regional brands.  By continuing to build MISSION® into a strong national brand for the general consumer market, GUERRERO® into a strong Hispanic consumer focused brand and CALIDAD® as our value brand in tortillas and chips, Mission Foods expects to increase market penetration, brand awareness and profitability.  Azteca Milling manufactures and distributes corn flour in the United States under the MASECA® brand, and, to a lesser extent, under our value brand TORTIMASA®.

 

*Sales and Marketing*.  Mission Foods serves both retail and food service customers.  In the U.S., retail customers represent approximately 75% of our sales volume, including supermarkets, mass merchandisers, membership stores and smaller independent stores.  Our food service customers include major chain restaurants, food service distributors, schools, hospitals and the military.  In our European business, approximately half of our tortilla production is allocated to retail sales, and the other half to the food service segment, including quick-service restaurants and food processors.

 

For the U.S. tortilla market, Mission Foods’ current marketing strategy is to increase market penetration by increasing consumer awareness of tortilla products in general, to expand into new regions and to focus on product innovation and customer and consumer needs.  Mission Foods promotes its products primarily through merchandising programs with supermarkets, and, to a lesser extent, joint promotions with other companies’ products that may be complementary to ours as well as radio and television advertising, targeting both Hispanic and non-Hispanic populations.  We believe these efforts have contributed to greater consumer awareness.  Mission Foods also targets food service companies and works with restaurants, institutions and distributors to address their individual needs and provide them with a full line of products.  Mission Foods continuously attempts to identify new customers and markets for its tortillas and related products in the United States and, more recently, in Europe.

 

Azteca Milling distributes approximately 39% of the corn flour it produces to Mission Foods’ plants throughout the United States and Europe.  Azteca Milling’s third-party customers consist largely of other tortilla manufacturers, corn chip producers, retail customers and wholesalers.  Azteca Milling sells corn flour in various quantities, ranging from four-pound retail packages to bulk railcar loads.

 

We anticipate continued growth in the U.S. market for corn flour, tortillas, and related products.  We believe that the growing consumption of Mexican-style foods by non-Hispanics will continue to increase demand for tortillas and tortilla related products,

 

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particularly wheat flour tortillas.  Also influential is the fact that tortillas are no longer solely used as ingredients in Mexican food; for example, tortillas are also used for wraps, which will continue to increase demand for tortillas.  Growth in the U.S. corn flour market is attributable to the conversion of tortilla and tortilla chip producers from the wet corn dough process to our dry corn flour method, the increase of the Hispanic population, the consumption of tortillas and tortilla chips by the general consumer market, and stronger and increased distribution.

 

*Competition and Market Position*.  We believe Mission Foods is one of the leading manufacturers and distributors of tortillas and related products throughout the United States and Europe.  We believe the tortilla market is highly fragmented, regional in nature and extremely competitive.  Mission Foods’ main competitors are hundreds of tortilla producers who manufacture locally or regionally and tend to be sole proprietorships.  However, a few competitors have a presence in several U.S. regions such as Olé Mexican Foods, El Milagro and Reser’s Fine Foods, among others.  In addition, a few large companies have tortilla manufacturing divisions that compete with Mission Foods, for example, Tyson, Bimbo, Hormel Foods, and General Mills.

 

Competitors within the corn flour milling industry include Minsa, Hari Masa, Silos de Oro, and the corn flour milling divisions of Cargill.  Azteca Milling competes with these corn flour manufacturers in the United States primarily on the basis of superior quality, technical support, customer service and brand recognition.  However, we believe there is great potential for growth by converting tortilla and tortilla chip manufacturers that still use the traditional method to our corn flour method.  We believe Azteca Milling is one of the leading producers of corn flour in the United States.

 

We strongly believe there is significant growth potential for tortillas, wraps and other flatbreads in all geographic areas of Europe and also through multiple channels, for example, in the retail and foodservice channels.  Mexican-based cuisine is gaining popularity in key markets.  Likewise, consumer trends indicate a growing need for versatile, healthy, nutritious and tasty food on-the-go, as well as for more interesting food accompaniments.  Our products address all of these needs, and their profile allows them to be easily customized to local cultures.  Mission Foods is well-placed to both drive and benefit from this situation in the coming years.

 

We believe Mission Foods is one of the leading tortilla producers in Europe with the main competitors being Santa Maria and General Mills.  There are a number of more recent players occupying niche positions in tortilla production, operating in continental Europe and the United Kingdom.

 

*Operations and Capital Expenditures*.  Annual total production capacity for Gruma Corporation is estimated at 2.5 million metric tons as of December 31, 2012, with an average utilization of 74% in 2012.  The average size of our plants as of December 31, 2012 was approximately 9,642 square meters (about 103,788 square feet).

 

Capital expenditures for the past three years were U.S.$301 million, and were primarily used for capacity expansions and general manufacturing and technology upgrades.  Capital expenditures for such period were also used for: (i) the construction of a tortilla plant in southern California, that began production during 2010; (ii) the acquisition in 2010 of Altera I and Altera II, the leading producer of corn grits in Ukraine for U.S.$9 million;  (iii) the acquisition in 2011 of two tortilla plants in the United States, Albuquerque Tortilla Company and Casa de Oro Foods for U.S.$9 million and U.S.$23 million, respectively; (iv) the acquisition in 2011 of Solntse Mexico, the leading tortilla and corn chips manufacturer in Russia, for U.S.$9 million; (v)  the acquisition in 2011 of Semolina, the Turkish market leading producer of corn grits, for U.S.$17 million; (vi) the acquisition in 2012 of Tortilleria Mexicana, a corn related products manufacturer, in the Netherlands for U.S.$2.3 million; and (vii) the construction of a new tortilla plant in Florida toward the end of 2012.

 

Gruma Corporation’s projected capital expenditures for 2013 will be approximately U.S.$70 million, mainly for production capacity expansions and manufacturing and technology upgrades at existing plants.

 

Mission Foods produces its tortillas and other related products at 28 manufacturing facilities worldwide.  Twenty three of these facilities are located in large population centers throughout the United States and five are located in Europe.  During 2009, Mission Foods closed three manufacturing facilities located in Las Vegas, Fort Worth and El Paso.  Mission Foods has shifted production to other plants to achieve savings in overhead costs.  Mission Foods will consider reopening the Fort Worth plant should market demands require additional capacity.  During 2010, Mission Foods closed an additional manufacturing facility located in Phoenix, Arizona.  Outside the United States, Mission Foods has two plants in England, two plants in The Netherlands, and one plant in Russia.

 

Mission Foods is committed to offering the best quality products to its customers through the implementation of the American Institute of Baking (“AIB”) food safety standards, and Global Food Safety Initiative (“GFSI”) recognized certification schemes such as British Retail Consortium (“BRC”) and Safe Quality Food (“SQF”).  Additionally, our plants are regularly evaluated by other third party organizations and customers.

 

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All of the Mission Foods manufacturing facilities worldwide have earned either a superior or excellent category rating from the AIB-GMP (Good Manufacturing Practice) audits.  Most of Mission Foods’ U.S. plants have earned the AIB’s highest award, the combined AIB-GMP and AIB-HACCP (Hazard Analysis and Critical Control Points) certification.  Our recently built Florida plant is in the process of implementing AIB-GMP audits this year and five other plants have not yet gone through the AIB-HACCP certification process.

 

In 2008 Mission Foods started the BRC certification process at four plants in the U.S.  By 2012, 16 plants had completed the certification process.  Additionally, one of our plants is SQF certified. Our plants in England and The Netherlands are also evaluated by third party organizations such as the AIB, International Food Standards and BRC. Our facility in Russia, which was acquired in July of 2011, operates in compliance with Russian food production laws and is audited by multiple clients. At the end of 2012, our Russian facility successfully completed an ISO 22000 audit for food safety.  The facility is currently working towards HACCP certification.

 

Azteca Milling produces corn flour at six plants located in Amarillo, Edinburg and Plainview, Texas; Evansville, Indiana; Henderson, Kentucky; and Madera, California.  Gruma Corporation also produces corn flour at our plants in Ceggia, Italy; Cherkassy, Ukraine; and Samsun, Turkey.  The majority of our plants are located within important corn growing areas.  Due to Azteca Milling’s manufacturing practices and processes, all six facilities located in the U.S. have achieved ISO 9002 certification as well as the AIB certification.  Our corn flour plants in Italy and Ukraine have obtained the BRC certification.  Additionally, our corn flour mill in Italy obtained the OHSAS 18001 international workplace safety standards certification, and our corn flour plant in Turkey has obtained the International Featured Standards certification, among others.

 

*Seasonality*.  We believe there is no significant seasonality in our products, however certain products tend to experience a slight volume increase during the summer months.  Tortillas and tortilla chips sell year round, with special peaks during the summer, when we increase our promotion and advertising by taking advantage of several holidays and major sporting events.  Tortilla and tortilla chip sales decrease slightly towards the end of the year when many Mexicans go back to Mexico for the holidays.  Sales of corn flour fluctuate seasonally as demand is higher in the fourth quarter during the holidays because of the preparation of Mexican food recipes that are very popular during this time of the year.

 

*Raw Materials*.  Corn is the principal raw material used in the production of corn flour, which is purchased from local producers.  Azteca Milling buys corn only from farmers and grain elevators that agree to supply varieties of corn approved for human consumption.  Azteca Milling tests and monitors its raw material purchases for corn not approved for human consumption, for certain strains of bacteria, fungi metabolites and chemicals.  In addition, Azteca Milling applies certain testing protocols to incoming raw materials to identify genetically modified products not approved for human consumption.

 

Because corn prices tend to be somewhat volatile, Azteca Milling engages in a variety of hedging activities in connection with the purchase of its corn supplies, including the purchase of corn futures contracts.  In so doing, Azteca Milling attempts to assure corn availability approximately 12 months in advance of harvest time and guard against price volatility approximately six months in advance.  The Texas Panhandle currently is the single largest source of food-grade corn.  Azteca Milling is also involved in short-term contracts for corn procurement with many corn suppliers.  Where suppliers fail to deliver, Azteca Milling can easily access the spot markets.  Azteca Milling does not anticipate any difficulties in securing adequate corn supplies in the future.

 

Corn flour for Mission Foods U.S. operations is supplied by Azteca Milling, and to a much lesser extent, by GIMSA.  Corn flour for Mission Foods European operations is supplied by our corn mill in Italy.

 

Wheat flour for the production of wheat tortillas and other types of wheat flat breads is purchased from third party producers at prices prevailing in the commodities markets.  Mission Foods believes the market for wheat flour is sufficiently large and competitive to ensure that wheat flour will be available at competitive prices to supply our needs.  Contracts for wheat flour supply are made on a short-term basis.

 

*Distribution*.  An important element of Mission Foods’ sales growth has been the expansion and improvement of its tortilla distribution network, including a direct-store-delivery system to distribute most of its products, providing national coverage in the U.S. to the retail grocery channel. Distribution in the U.S. is mainly through independent distributors most of them working exclusively with Mission Foods.  Depending on the size of the customer, and the category development index / brand development index metrics (“CDI/BDI Metrics”) of the geography, tortillas and other products are generally delivered daily or several times a week.  In parts of the country, for example the Northeast, where CDI/BDI Metrics are low, Mission Foods employs a warehouse distribution method, distributing also refrigerated tortillas.  In keeping with industry practice, Mission Foods generally does not have written sales agreements with its customers. Nevertheless, from time to time, Mission Foods enters into consumer marketing agreements with retailers, in which certain terms on how to market our products are agreed.  Mission Foods has also developed a North American food service distribution network that encompasses all regions in the U.S. and the majority of provinces in Canada.

 

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The vast majority of corn flour produced by Azteca Milling in the U.S. is sold to tortilla and tortilla chip manufacturers and is delivered directly from the plants to the customer.  Azteca Milling’s retail customers are primarily serviced by a network of distributors, although a few large retail customers have their corn flour delivered directly to them from the plants.

 

Almost all of the corn flour and corn grits produced in Europe are sold to beer, snacks, tortilla chip and taco shell manufacturers, and are delivered directly from the plants to the customer.  We also supply customers in several industries like breakfast cereals and polenta, among others.  Retail customers are primarily serviced by a network of distributors, although a few large retail customers have their corn flour delivered directly to them from the plants.

 

**Mexican Operations**

 

***Overview***

 

Our largest business in Mexico is the manufacture and sale of corn flour, which we conduct through our subsidiary GIMSA.  We also operate a wheat milling business in Mexico through Molinera de México.  Our other subsidiaries engage in the manufacturing and distribution of tortillas and other related products in northern Mexico, conduct research and development regarding corn flour and tortilla manufacturing equipment, produce machinery for corn flour and tortilla production and construct our corn flour manufacturing facilities.

 

***GIMSA—Corn Flour Operation***

 

*Principal Products.*  GIMSA produces corn flour in Mexico, which is then used in the preparation of tortillas and other related products.  GIMSA also produces wheat flour and other related products to a lesser extent.

 

We believe GIMSA is one of the largest corn flour producers in Mexico.  GIMSA estimates that its corn flour is used in one third of the corn tortillas consumed in Mexico.  It sells corn flour in Mexico mainly under the brand name MASECA®.  MASECA®, a standard fine-textured, white corn flour is a ready-mixed corn flour that becomes a dough when water is added.  This corn dough can then be pressed to an appropriate thickness, cut to shape and cooked to produce tortillas and similar food products.

 

GIMSA produces over 50 varieties of corn flour for the manufacture of different food products which are developed to meet the requirements of our different types of customers according to the kind of tortillas they produce and markets they serve.  It sells corn flour to tortilla and tortilla chip manufacturers as well as in the retail market.

 

*Sales and Marketing*.  GIMSA sells packaged corn flour in bulk principally to thousands of small tortilla manufacturers, or *tortillerías*, which purchase in 20-kilogram sacks and produce tortillas on their premises for sale to local markets.  To a lesser extent, GIMSA also sells corn flour in bulk to supermarkets’ in-store *tortillerías* and snack manufacturers.  Additionally, GIMSA sells corn flour in the retail market in one-kilogram packages.

 

The following table sets forth GIMSA’s bulk and retail sales volume of corn flour, and other products for the periods indicated.

 
| ** ** | ** ** | **Year Ended December 31,   (tons in thousands)** | ** ** |
|------------|------------|----------------------------------------------------------------------------|------------|
| ** ** | ** ** | **2012**                                                                   | ** ** | **2011** | ** ** | **2010** | ** ** |
| ** ** | ** ** | **Tons**                                                                   | ** ** | **%** | ** ** | **Tons** | ** ** | **%** | ** ** | **Tons** | ** ** | **%** | ** ** |
| Corn Flour |       |                                                                       |       |   |   |   |   |   |   |   |   |   |   |
| Bulk       |       | 1,517                                                                      |       | 77 |   | 1,528 |   | 78 |   | 1,468 |   | 78 |   |
| Retail     |       | 284                                                                        |       | 14 |   | 292 |   | 15 |   | 291 |   | 15 |   |
| Other      |       | 182                                                                        |       | 9 |   | 139 |   | 7 |   | 131 |   | 7 |   |
| Total      |       | 1,983                                                                      |       | 100 |   | 1,959 |   | 100 |   | 1,890 |   | 100 |   |

 

Retail sales of corn flour are channeled to two distinct markets: urban centers and rural areas.  Sales to urban consumers are made mostly through supermarket chains that use their own distribution networks to distribute MASECA® corn flour or through wholesalers who sell the product to smaller grocery stores throughout Mexico.  Sales to rural consumers are made principally through the Mexican government’s social welfare retail chain, a social and distribution program named *Distribuidora Conasupo, S.A.*, or DICONSA, which consists of a network of small government-owned stores and which supplies rural areas with basic food products.

 

Mexico’s tortilla industry is highly fragmented, consisting mostly of *tortillerías*, many of which continue to utilize, what is in our opinion, the relatively inefficient wet corn dough method of tortilla production (the traditional method).  We estimate that the

 

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traditional wet corn dough method accounts for approximately half of all tortillas produced in Mexico.  Tortilla producers that do not utilize corn flour buy the wet dough from dough producers or buy and mill their own corn and produce wet corn dough themselves.

 

We believe the preparation of tortillas using the dry corn flour method possesses several advantages over the traditional method.  This traditional method is a rudimentary practice requiring more energy, time and labor because it involves cooking the corn in water with lime, milling the cooked corn, creating and shaping the dough, and then making tortillas from that dough.  We pioneered the dry corn flour method in which we mill the raw corn in our facilities into corn flour.  Tortilla producers and consumers, once they acquire the corn flour, may then simply add water to transform the flour into wet dough to produce tortillas.  Our internal studies show that the dry corn flour method consumes less water, electricity, fuel and labor.  We estimate that one kilogram of corn processed through the dry corn flour method yields more tortillas on average than a similar amount of corn processed using the traditional method.  Corn flour is also transported more easily and under better sanitary conditions than wet corn dough and has a shelf life of approximately three months depending on storage conditions, compared with one or two days for wet corn dough.  The market for wet corn dough is limited due to the perishable nature of the product, restricting sales of most wet corn dough producers to their immediate geographic areas.  Additionally, the corn flour’s longer shelf life makes it easier for consumers in rural areas, where *tortillerías* are relatively scarce, to produce their own tortillas.

 

We believe in the benefits of our dry corn flour method and also believe that we have substantial opportunities for growth by encouraging a transition to our method.  Corn flour is primarily used to produce corn tortillas, a principal staple of the Mexican diet.  The tortilla industry is one of the largest industries in Mexico as tortillas constitute the single largest component of Mexico’s food industry.  However, there is still reluctance to abandon the traditional practice, particularly in central and southern Mexico.  Corn dough producers and/or tortilla producers using the traditional method are generally not required to comply with environmental regulations, which represents savings for them.  To the extent regulations in Mexico are enforced and we and our competitors are on the same footing, we expect to benefit from these developments.

 

GIMSA has embarked on several programs to promote corn flour sales to tortilla producers and consumers.  GIMSA offers incentives to potential customers, such as small independent *tortillerías*, to convert to the dry corn flour method from the traditional wet corn dough method.  The incentives GIMSA offers include new, easy to use equipment designed specifically for small-volume users, financing, and individualized training.  For example, in order to assist traditional tortilla producers in making the transition to corn flour, GIMSA also sells specially designed mixers made by Tecnomaíz, S.A. de C.V., or Tecnomaíz, one of our research and development subsidiaries.  For more information about our research and development department, see “Item 4. Information on the Company—Miscellaneous—INTASA—Technology and Equipment Operations.” GIMSA also helps its *tortillería* customers to improve sales by directing consumer promotions to heighten the desirability of their products and increase consumption, which, in turn, should increase corn flour sales and our brand equity.  These efforts to improve sales and strengthen our brand equity by better positioning us among consumers include prime time advertising on television as well as radio, magazine and billboard advertising.

 

During 2012, GIMSA continued emphasizing the nutritional values of its products in advertising campaigns on radio and television nationwide.  GIMSA also continued reinforcing MASECA®’s image and brand recognition, associating our brand with sports, exercise and wellness, and emphasizing the benefits of a good nutrition for general health.  Following this strategy, we sponsor several professional sports teams.

 

GIMSA is aware of the dynamism of the Mexican market.  In order to adapt quickly and to anticipate new customers’ needs, GIMSA continued diversifying its sales force in specialized teams to be able to satisfy different types of customers, focusing primarily in increasing product availability and achieving higher market coverage.  GIMSA also continues working on the conversion of customers from the traditional process of preparing tortillas to our corn flour method, for which we have client analysis teams whose main goal is to show tortilla manufacturers that use the traditional method, the benefits of corn flour and its use method, seeking to change its manufacturing process and the raw materials they use for producing tortillas.

 

The Company undertakes the following ongoing initiatives in an effort to improve operational efficiency, increase consumption of corn flour, and improve on its successful business model to attract new customers:

 

·                  initiatives designed to strengthen commercial relations with our existing customers, primarily by offering personalized customer service and sales programs to our customers, including the development of comprehensive business models;

 

·                  initiatives designed to increase coverage in regions with low corn flour consumption with special promotions tailored specifically to these markets;

 

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·                  design of individualized support regarding the type of machinery required for their business, financial advisory and training;

 

·                  assistance to customers in the development of new profitable distribution methods to increase their market penetration and sales;

 

·                  development of tailored marketing promotions to increase consumption in certain customer segments; and

 

·                  assistance to customers in the development of new higher margin products such as tortilla chips, taco shells and enchilada tortillas, reflecting consumption trends.

 

*Competition and Market Position*.  GIMSA faces competition on three levels—from other corn flour producers, from sellers of wet corn dough and from the many *tortillerías* that produce their own wet corn dough on their premises.  Our estimates indicate that about half of tortilla producers continue to use the traditional wet corn dough method.

 

GIMSA’s biggest challenge in increasing its market share is the prevalence of the traditional method.  In the corn flour industry, GIMSA’s principal competitors are Grupo Minsa and a few regional corn flour producers.  OPTIMASA, a subsidiary of Cargill de México, built a corn flour plant and began to offer corn flour in the central region of Mexico, therefore becoming a new competitor for GIMSA since 2005.  Hari Masa has also become a competitor for GIMSA.  Hari Masa’s primary area of influence is the Northeastern area. Hari Masa has also expanded its operations to the Gulf and Eastern part of Mexico since 2010, and is building a plant in Tabasco for the southeast market.  We compete against other corn flour manufacturers on the basis of quality, brand recognition, technology, customer service and nationwide coverage.  We believe that GIMSA has certain competitive advantages resulting from its proprietary technology, greater economies of scale and broad geographic coverage, which may provide it with opportunities to more effectively source raw materials and reduce transportation costs.

 

*Operations and Capital Expenditures*.  GIMSA currently owns 19 corn flour mills, all of which are located throughout Mexico, typically within corn growing regions and those of large tortilla consumption.  GIMSA also owns two more plants, one of which produces wheat flour and the other, corn grits and several types of corn based products.  Three of GIMSA’s plants are idle.  The Chalco plant has been inactive since October 1999. GIMSA will consider reopening this plant should market demands require additional capacity.  The other two plants (Monterrey y Celaya) have been idle since February 2006.  These assets are currently being depreciated.

 

Annual total production capacity for GIMSA is estimated at 2.97 million metric tons as of December 31, 2012, with an average utilization of 66% in 2012.  The average size of our plants as of December 31, 2012 was approximately 20,000 square meters (approximately 215,200 square feet).

 

In recent years, GIMSA’s capital expenditures were primarily used to upgrade technology, corn flour production processes and capacity expansions at certain plants.  GIMSA spent U.S.$67 million for these purposes from 2010 to 2012.  GIMSA currently projects total capital expenditures during 2013 of approximately U.S.$ 35 million, which will be used primarily for updating technology and production capacity expansion projects at certain plants.

 

Pursuant to an agreement between GIMSA and *Investigación de Tecnología Avanzada*, or INTASA, our wholly-owned subsidiary, INTASA provides technical assistance to each of GIMSA’s operating subsidiaries for which each pays to INTASA a fee equal to 0.5% of its consolidated net sales.  Each of GIMSA’s corn flour facilities uses proprietary technology developed by our technology and equipment operations.  For more information about our in-house technology and design initiatives, see “Item 4. Information on the Company—Miscellaneous—INTASA—Technology and Equipment Operations.”

 

*Seasonality*.  The demand for corn flour varies slightly with the seasons, with some minor increases during the December holidays.

 

*Raw Materials*.  Corn is the principal raw material required for the production of corn flour, and constituted 65% of GIMSA’s cost of sales for 2012.  We purchase corn primarily from Mexican growers and grain elevators, and from world markets usually at international prices.  Most of our domestic corn purchases are made through ASERCA, a governmental program established and supported by the Mexican Ministry of Agriculture, where contracts are entered into once the corn is planted to guarantee price and delivery upon harvest.  Compañía Nacional Almacenadora, S.A. de C.V., a subsidiary of GIMSA, enters into contracts for GIMSA, purchases the corn, and also monitors, selects, handles and ships the corn.

 

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We believe that the diverse geographic locations of GIMSA’s production facilities in Mexico enables GIMSA to achieve savings in raw material transportation and handling.  In addition, by sourcing corn locally for its plants, GIMSA is better able to communicate with local growers concerning the size and quality of the corn crop and is better able to maintain quality control.  In Mexico, GIMSA purchases corn on delivery in order to strengthen its ability to obtain the highest quality corn on the best terms.

 

Traditionally, domestic corn prices in Mexico typically follow trends in the international market.  During most periods, the price at which GIMSA purchases corn depends on the price of corn in the international market.  As a result, corn prices are sometimes unstable and volatile.  Additionally, in the past, the Mexican government has supported the price of corn.  For more information regarding the government’s effect on corn prices, see “Item 3.  Key Information—Risk Factors—Our Business Operations Could Be Affected by Government Policies in Mexico” and “Item 4.  Information on the Company—Regulation.”

 

In addition to corn, the other principal materials and resources used in the production of corn flour are packaging materials, water, lime, additives and energy.  GIMSA believes that its sources of supply for these materials and resources are adequate, although energy, additives and packaging costs tend to be volatile.

 

*Distribution*. We have our own sales teams that are capable of servicing all sales channels, which allows us to know our clients’ needs.  GIMSA’s products are distributed mainly through independent transport firms contracted by GIMSA and, to a lesser extent, using our own fleet, depending on the type of client.  Most of GIMSA’s sales are made free-on-board at GIMSA’s plants, in particular those to tortilla manufacturers.  With respect to other sales, in particular sales to the Mexican government, large supermarket chains, and snack producers, GIMSA pays the freight cost.

 

***Molinera de México—Wheat Flour Operation***

 

*Principal Products*.  In 1996, through our former association with Archer-Daniels-Midland, we entered the wheat milling market in Mexico by acquiring a 60% ownership interest in Archer-Daniels-Midland’s wheat flour operation, Molinera de México.  However, as a result of the ADM Transaction, we now hold a 100% ownership interest in Molinera de México. See “Item 4.  Information on the Company—Share Purchase Transaction with Archer-Daniels-Midland.” Molinera de México’s main product is wheat flour, although it also sells wheat bran and other byproducts. Our wheat flour brands are REPOSADA®, PODEROSA® and SELECTA®, among others.

 

*Sales and Marketing*.  In 2012, approximately 85% of Molinera’s wheat flour production was sold in bulk and 15% was sold for the retail segment.  Most of the bulk sales are made to thousands of traditional bakeries and tortillerías, supermarkets’ in-store bakeries and, to a lesser extent, to cookie and pasta manufacturers.  Most of the retail sales are made to large supermarkets and wholesalers throughout Mexico. Through wholesalers, our products are distributed to small grocery stores.

 

Our marketing strategy depends on the type of customer and region.  Overall, our aim is to offer products according to customers’ specifications as well as technical support.  We are trying to increase our market share in bakeries by offering products with consistent quality.  In the retail segment we target small grocery stores through wholesalers, and supermarkets through centralized and national level negotiations.  We are focusing on improving customer service, continuing to increase our distribution of products to supermarkets’ in-store bakeries, and developing new types of pre-mixed flours for the supermarket in-store bakery segment.  We provide direct delivery to supermarkets, supermarkets’ in-store bakeries, wholesalers, industrial customers and some large bakeries.  Most small bakeries and small grocery stores are served by wholesalers.

 

*Competition and Market Position*.  We believe that we are one of Mexico’s largest wheat flour producers based on revenues and sales volume.  Molinera de México competes with many small wheat flour producers.  We believe the wheat flour industry is highly fragmented and estimate that there are over 50 participants that operate 90 wheat milling plants.  Our main competitors are Altex, Trimex, Tablex, La Espiga, Elizondo, and Anáhuac.

 

*Operations and Capital Expenditures*.  We own and operate nine wheat flour plants, including one in which we hold only a 40% ownership interest.  Annual total production capacity for Molinera de México is estimated at 860 thousand metric tons as of December 31, 2012, with an average utilization of 85% in 2012, including production volume for third parties for which Molinera de México receives a fee.  On average, the size of our plants as of December 31, 2012 was approximately 12,291 square meters (approximately 132,300 square feet).  Capital expenditures from 2010 to 2012 amounted to U.S.$26 million mainly for capacity expansions and general manufacturing and technology upgrades.  Molinera de México’s capital expenditures in 2013 are projected to be U.S.$5 million, which will be used primarily for production capacity expansion on several wheat mills and general manufacturing and technology upgrades.

 

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*Seasonality*.  Molinera de México’s sales are subject to seasonality.  Higher sales volumes are achieved in the fourth and first quarters during the winter, when we believe per capita consumption of wheat-based products, especially bread and cookies, increases due in part to cold weather and the celebration of holidays occurring during these quarters.

 

*Raw Materials*.  Wheat is the principal raw material required for the production of wheat flour and constituted 74% of Molinera de México’s cost of sales for 2012.  Molinera de México purchases approximately 30% of its wheat from Mexican growers, and 70% from international markets.  Molinera de México purchases domestic wheat from local farmers and farmers’ associations through ASERCA, a governmental program established and supported by the Mexican Ministry of Agriculture, where contracts are entered into once the wheat is planted to guarantee price and delivery upon harvest.  Wheat is also sourced from foreign producers in the United States and Canada through different trading companies.  Purchases are made based on short-term requirements with the aim of maintaining adequate levels of inventories.

 

In recent years the price of wheat domestically and abroad has been volatile.  Volatility is due to the supply of wheat, which depends on various factors including the size of the harvest (which depends in large part on the weather).

 

**Central American Operations**

 

***Overview***

 

In 1972, we entered the Costa Rican market.  Our operations since then have expanded into Guatemala, Honduras, El Salvador and Nicaragua, as well as Ecuador, which we include as part of our Central American operations.

 

***Gruma Centroamérica***

 

*Principal Products*.  Gruma Centroamérica produces corn flour, and to a lesser extent tortillas and snacks.  We also cultivate and sell hearts of palm and process and sell rice.  We believe we are one of the largest corn flour producers in the region.  We sell corn flour under the MASECA®, TORTIMASA®, MASARICA®, MINSA® and JUANA® brands.  In Costa Rica, we sell tortillas under the TORTI RICA® and MISSION® brands.  We operate a Costa Rican snack operation which manufactures tortilla chips, potato chips and similar products under the TOSTY®, RUMBA®, and KRASH® brands.  Hearts of palm are exported to numerous European countries as well as the United States, Canada, Chile and Mexico.

 

*Sales and Marketing*.  76% of Gruma Centroamérica’s sales volume in 2012 derived from the sale of corn flour.

 

Gruma Centroamérica corn flour bulk sales are oriented predominantly to small tortilla manufacturers through direct delivery and wholesalers.  Supermarkets make up the customer base for retail corn flour.  Bulk sales volume represented approximately 53% and retail sales represented approximately 47% of Gruma Centroamérica’s corn flour sales volume during 2012.

 

*Competition and Market Position*.  We believe that we are one the largest corn flour producers in Central America based on revenues and sales volume.  We believe that there is significant potential for growth in Central America as corn flour is used in only approximately 16% of all tortilla production; the majority of tortilla manufacturers use the wet corn dough method.  Additionally, we believe we are one of the largest producers of tortillas and snacks in Costa Rica.

 

Within the corn flour industry, the brands of our main competitors are: Del Comal, Doña Blanca, Selecta, Bachoza, Instamasa and Doñarepa.  However, one of our main growth potentials is to convert tortilla manufacturers that still use the traditional method to our corn flour method.

 

*Operations and Capital Expenditures*.  We had an annual installed production capacity of 323 thousand tons for corn flour and other products as of December 31, 2012, with an average utilization of approximately 69% during 2012.  We operate one corn flour plant in each of Costa Rica, Honduras, El Salvador, and Guatemala, for a total of four plants throughout the region.  In Costa Rica, we also have one plant producing tortillas, one plant producing snacks, one plant processing hearts of palm and one plant processing rice.  In Nicaragua and Honduras we have small tortilla plants, while in Guatemala we have a small plant that produces snacks and in Ecuador we have a small facility which processes hearts of palm.  On average, the size of our plants as of December 31, 2012 was approximately 7,042 square meters (approximately 75,798 square feet).

 

During 2010, 2011 and 2012, most of our capital expenditures were oriented towards general manufacturing upgrades and production capacity expansions at existing tortilla plants.  Total capital expenditures for the past three years were approximately U.S.$16 million.  Capital expenditures for 2013 are projected to be U.S.$5 million, which will be used primarily for general manufacturing and technology upgrades.

 

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*Seasonality*.  Typically, corn flour sales volume is lower during the first and fourth quarters of the year due to higher corn availability and lower corn prices.

 

*Raw Materials*.  Corn is the most important raw material needed in our operations, representing 38% of the cost of sales during 2012, and is obtained primarily from imports from the United States and from local growers.  Price fluctuation and volatility are subject to domestic conditions, such as annual crop results and international conditions.

 

**Gruma Venezuela**

 

***Overview***

 

In 1993, we entered the Venezuelan corn flour industry through a participation in DEMASECA, a corn flour company in Venezuela.  In August 1999, we acquired 95% of DAMCA International Corporation, a Delaware, U.S.A. corporation which owned 100% of MONACA, Venezuela’s second largest corn and wheat flour producer at that time, for approximately U.S.$94 million.  Additionally, Archer-Daniels-Midland acquired the remaining 5% interest in MONACA.

 

In April of 2006, we entered into a series of transactions to: (i) purchase an additional 10% ownership interest in DEMASECA at a price of U.S.$2.6 million; (ii) purchase a 2% stake in MONACA from Archer-Daniels-Midland at a price of U.S.$3.3 million; and (iii) sell a 3% interest in DEMASECA to Archer-Daniels-Midland at a price of U.S.$780,000.

 

Additionally, in April of 2006, we entered into a contract for the sale of a stake in MONACA to Rotch Energy Holdings, N.V. (“Rotch”), a controlled entity of our former indirect partner in DEMASECA, Ricardo Fernández Barrueco.  As a result Rotch acquired a 24.14% interest in MONACA, and subsequently pledged its equity interests for the benefit of a Mexican financial institution (the “Rotch Lender”) as security for a loan to a controlled entity of Rotch.  In June of 2010, Rotch defaulted under the loan and the stake in MONACA was sold and assigned to a third investor, whose interest is held by a Mexican company, RFB Holdings de Mexico, S.A. de C.V.  RFB Holdings de Mexico, S.A. de C.V. is not affiliated with our former indirect partner in DEMASECA, Ricardo Fernández Barrueco.

 

As a result of the aforementioned transactions and the ADM Transaction, we currently own 75.86% of Valores Mundiales and RFB Holdings de Mexico, S.A. de C.V. owns the remaining 24.14%.  As of December 31, 2012, Valores Mundiales was the sole registered shareholder of MONACA.  In addition, we own 60% of Consorcio Andino and RFB Holdings de Mexico, S.A. de C.V. owns the remaining 40%.  As of December 31, 2012, Consorcio Andino was the sole registered shareholder of DEMASECA.  MONACA and DEMASECA are collectively referred to as “Gruma Venezuela.”

 

On May 12, 2010, the Bolivarian Republic of Venezuela published the Expropriation Decree, which announced the forced acquisition of all goods, movables and real estate of our subsidiary company in Venezuela, MONACA.  The Republic has expressed to GRUMA’s representatives that the Expropriation Decree extends to our subsidiary DEMASECA.  On January 22, 2013, the Ministry of Popular Power for Internal Relations published a Providence designating Special Managers with the power to run MONACA and DEMASECA.  As a consequence, we have concluded that we lost control of Gruma Venezuela as of that date.  We will deconsolidate Gruma Venezuela as of January 22, 2013 and account for it as a discontinued operation. See “Item 8. Legal Proceedings—Venezuela—Expropriation Proceedings by the Venezuelan Government.”

 

***DEMASECA and MONACA***

 

*Principal Products*.  Gruma Venezuela produces and distributes corn flour as well as wheat flour, rice, oats and other products.  We sell corn flour under the brand names JUANA® and DEMASA®.  We sell wheat flour under the ROBIN HOOD®, FLOR DE TRIGO® and POLAR® brands, rice under the MONICA® brand and oats under the LASSIE® brand.

 

*Sales and Marketing*.  Venezuelans use corn flour to produce and consume *arepas*, which are made at home or in restaurants for household consumption rather than manufactured by specialty shops or other large manufacturers.  We have sold corn flour in the retail market in one kilogram bags to independent distributors, supermarkets, wholesalers, and governmental social welfare and distribution programs.  We also have sold wheat flour, distributing it in 45 kilogram bags and in one kilogram bags.  Bulk sales to customers made up approximately 43% of our total sales volume in 2012.  The remaining 57% of sales in 2012 were in the retail market, which includes independent distributors, supermarkets and wholesalers.

 

*Competition and Market Position*.  In corn flour, our main competitor is Alimentos Polar, and, to a lesser extent, Asoportuguesa and La Lucha.  In wheat flour, our principal competitor is Cargill.

 

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*Operation and Capital Expenditures*.  We have operated five corn flour plants, five wheat flour plants, two rice plants, one pasta plant, and two plants that produce oats and spices in Venezuela with a total annual production capacity of 823 thousand tons as of December 31, 2012 and an average utilization of approximately 61% during 2012.  Two rice plants, representing 71 thousand tons, were temporarily idle on that date.  On average, the size of our plants measured in square meters is approximately 8,961 (approximately 96,454 square feet) as of December 31, 2012.

 

Capital expenditures for the past three years were U.S.$25 million.  Most of this was applied to general upgrades.

 

*Seasonality*.  Sales have fluctuated seasonally as demand for flour-based products is lower during those months when most schools are closed for vacation.  In addition, sales have been higher in November as customers build inventory to satisfy increased demand during the holiday season in December.

 

*Raw Materials*.  Corn and wheat are our most important raw materials.  Corn has been purchased in Venezuela and is subject to the corn market’s volatility and governmental regulations related to prices, quantities and storage facilities.  Corn prices are fixed by a government agency.  100% of our wheat has been purchased from the U.S. and Canada, with its availability and price volatility dependent upon those markets.  We have not engaged in any type of hedging activity for our supplies since exchange rate policies and country risk for Venezuela have constrained our capacity to transfer funds abroad in order to fund any hedging strategy.

 

**Miscellaneous—INTASA—Technology and Equipment Operations**

 

We have developed our own technology operations since our founding.  Since 1975 our technology and equipment operations have been conducted principally through INTASA, which has two subsidiaries: Tecnomaíz, S.A. de C.V., or Tecnomaíz, and Constructora Industrial Agropecuaria, S.A. de C.V., or CIASA.  The principal activity of these subsidiaries is to provide research and development, equipment, and construction services to us and small equipment to third parties.  Through Tecnomaíz, we also engage in the design, manufacture and sale of machines for the production of tortillas and tortilla chips.  The machinery for the tortilla industry includes a range of capacities, from machines that make 15 to 300 corn tortillas per minute to dough mixers.  The equipment is sold under the TORTEC® and BATITEC® trademarks in Mexico.  Tecnomaíz also manufactures high volume energy efficient corn tortilla, wheat tortilla and tortilla chip systems that can produce up to 1,200 corn tortillas per minute, 600 wheat tortillas per minute and 3,000 pounds of chips per hour.

 

We carry out proprietary technological research and development for corn milling and tortilla production as well as all engineering, plant design and construction through INTASA and CIASA.  These companies administer and supervise the design and construction of our new plants and also provide advisory services and training to employees of our corn flour and tortilla manufacturing facilities.  We manufacture corn tortilla-making machines for sale to tortilla manufacturers and for use in “in-store *tortillerías*,” as well as high-capacity corn and flour tortilla-makers that are supplied only to us.

 

***GFNorte Investment***

 

As of December 31, 2010, we held approximately 8.8% of the outstanding shares of GFNorte, a Mexican financial services holding company and parent of Banco Mercantil del Norte, S.A., or Banorte, a Mexican bank.  As of the same date, our investment in GFNorte represented Ps.4,296 million.  GFNorte’s results of operations were accounted for in our consolidated results of operations using the equity method of accounting.  For the period ended December 31, 2010, we received Ps.91 million in dividends in respect of our investment in GFNorte.

 

On February 15, 2011, we concluded the sale of 177,546,496 shares of the capital stock of GFNorte at a price of Ps.52 per common share (the “GFNorte Sale”), resulting in cash proceeds of Ps.9,232 million before fees and expenses.  As a result of the sale of the GFNorte’s shares, we no longer hold shares of GFNorte’s capital stock.

 

**REGULATION**

 

**Mexican Regulation**

 

***Corn Commercialization Program***

 

To support the commercialization of corn for Mexican corn growers, Mexico’s Secretary of Agriculture, Livestock, Rural Development, Fisheries and Food Ministry (*Secretaría de Agricultura, Ganadería, Desarrollo Rural, Pesca y Alimentación*, or SAGARPA), through the Agricultural Incentives and Services Agency (*Apoyos y Servicios a la Comercialización Agropecuaria*, or

 

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ASERCA), a government agency founded in 1991, implemented a program designed to promote corn sales in Mexico.  The program includes the following objectives:

 

·                  Ensure that the corn harvest is brought to market, providing certainty to farmers concerning the sale of their crops and supply security for the buyer.

 

·                  Establish a minimum price for the farmer, and a maximum price for the buyer, which are determined based on international market prices, plus a basic formula specific for each region.

 

·                  Implement a corn hedging program to allow both farmers and buyers to minimize their exposure to price fluctuations in the international markets.

 

To the extent that this or other similar programs are canceled by the Mexican government, we may be required to incur additional costs in purchasing corn for our operations, and therefore we may need to increase the prices of our products to reflect such additional costs.

 

***Environmental Regulations***

 

Our Mexican operations are subject to Mexican federal, state and municipal laws and regulations relating to the protection of the environment.  The principal federal environmental laws are the *Ley General de Equilibrio Ecológico y Protección al Ambiente*, or General Law of Ecological Equilibrium and Protection of the Environment or Mexican Environmental Law, which is enforced by the Secretaría de Medio Ambiente y Recursos Naturales, or Ministry of the Environment and Natural Resources or SEMARNAT, the *Ley General de Cambio Climático* or Mexican Climate Change Law and the *Ley Federal de Derechos* or the Mexican Federal Law of Governmental Fees.  Under the Mexican Environmental Law, each of our facilities engaged in the production of corn flour, wheat flour, and tortillas is required to obtain an operating license from state environmental regulations upon initiating operations, and then periodically submit a certificate of operation to maintain the operating license.  Furthermore, the Mexican Federal Law of Governmental Fees requires that Mexican manufacturing plants pay a fee for water consumption and the discharge of residual waste water to drainage, whenever the quality of such water exceeds mandated thresholds.  Also, regulations have been issued concerning hazardous substances and water, air and noise pollution.  In particular, Mexican environmental laws and regulations, including the Mexican Climate Change Law, require that Mexican companies file periodic reports with respect to air and water emissions and hazardous wastes.  Additionally, they also establish standards for waste water discharge.  We must also comply with zoning regulations as well and rules regarding health, working conditions and commercial matters.  SEMARNAT and the Federal Bureau of Environmental Protection can bring administrative and criminal proceedings against companies that violate environmental laws, as well as close non-complying facilities.

 

We believe we are currently in compliance in all material respects with all applicable Mexican environmental regulations.  The level of environmental regulation and enforcement in Mexico has increased in recent years.  We expect this trend to continue and to be accelerated by international agreements between Mexico and the United States.  To the extent that new environmental regulations are issued in Mexico, we may be required to incur additional remedial capital expenditures to comply.  Management is not aware of any pending regulatory changes that would require additional remedial capital expenditures in a significant amount.

 

***Competition Regulations***

 

The *Ley Federal de Competencia Económica* or Mexican Competition Law, and the *Reglamento de la Ley Federal de Competencia Económica* or Regulations of the Mexican Competition Law, regulate monopolies and monopolistic practices, and require Mexican government approval for certain mergers and acquisitions.  The Mexican Competition Law grants the government the authority to establish price controls for products and services of national interest through Presidential decree, and established the *Comisión Federal de Competencia*, or Federal Competition Commission, to enforce the law.  Mergers and acquisitions and other transactions that may restrain trade or that may result in monopolistic or anti-competitive practices or combinations must be approved by the Federal Competition Commission.  The Mexican Competition Law may potentially limit our business combinations, mergers and acquisitions and may subject us to greater scrutiny in the future in light of our market presence, nevertheless we do not believe that this legislation will have a material adverse effect on our business operations.

 

**U.S. Federal and State Regulations**

 

Gruma Corporation is subject to regulation by various federal, state and local agencies, including the Food and Drug Administration, Department of Labor, the Occupational Safety and Health Administration, the Federal Trade Commission, the Department of Transportation, the Environmental Protection Agency and the Department of Agriculture.  We believe that we are in

 

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compliance in all material respects with all environmental and other legal requirements.  Our food manufacturing and distribution facilities are subject to periodic inspection by various federal, state and local agencies, and the equipment utilized in these facilities must generally be governmentally approved prior to operation.

 

**European Regulation**

 

We are subject to regulation in each country in which we operate in Europe.  We believe that we are currently in compliance with all applicable legal requirements in all material respects.

 

**Central American and Venezuelan Regulation**

 

Gruma Centroamérica and Gruma Venezuela are subject to regulation in each country in which they operate.  We believe that Gruma Centroamérica and Gruma Venezuela are currently in compliance with all applicable legal requirements in all material respects.  See “Item 3.  Key Information—Risk Factors—Risks Related to Venezuela.”

 

**Asia and Oceania Regulation**

 

We are subject to regulation in each country in which we operate in Asia and Oceania.  We believe that we are currently in compliance with all applicable legal requirements in all material respects.

 

**ITEM 4A.     Unresolved Staff Comments.**

 

Not applicable**.**

 

**ITEM 5         Operating and Financial Review and Prospects**.

 

**MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.**

 

*You should read the following discussion in conjunction with our audited consolidated financial statements and the notes thereto contained elsewhere herein.  Our audited consolidated financial statements have been prepared in accordance with IFRS as issued by IASB.*

 

*For more information about our financial statements in general, see “Presentation of Financial Information” and “Item 5.  Operating and Financial Review and Prospects—Liquidity and Capital Resources—Indebtedness.”*

 

**Overview of Accounting Presentation**

 

Our audited financial statements have been prepared in accordance with IFRS as issued by the IASB. We began reporting under IFRS for the year ending December 31, 2011, with an IFRS adoption date of January 1, 2011 and a transition date to IFRS of January 1, 2010.

 

Note 29  to our audited consolidated financial statements discusses new accounting pronouncements under IFRS that will become effective in 2013 or thereafter.  We do not currently expect that any of these will have a significant impact on the presentation of our financial statements.

 

***Effects of Inflation***

 

To determine the existence of hyperinflation, we evaluate the qualitative characteristics of the economic environment of each country, as well as the quantitative characteristics established by IFRS, including an accumulated inflation rate equal or higher than 100% in the past three years.  Pursuant to this analysis, Mexico is not considered to be hyperinflationary, with annual inflation rates of 4.4% in 2010, 3.82% in 2011 and 3.57% in 2012.  Meanwhile, Venezuela is considered a hyperinflationary economy, with annual inflation rates of 27.2% in 2010, 27.6% in 2011 and 20% in 2012.

 

***Effects of Devaluation***

 

Because a significant portion of our net sales are generated in U.S. dollars, changes in the peso/dollar exchange rate can have a significant effect upon our results of operations as reported in pesos.  When the peso depreciates against the U.S. dollar, Gruma

 

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Corporation’s net sales in U.S. dollars represent a larger portion of our net sales in peso terms than when the peso appreciates against the U.S. dollar.  When the peso appreciates against the dollar, Gruma Corporation’s net sales in U.S. dollars represent a smaller portion of our net sales in peso terms than when the peso depreciates against the dollar.  For a description of the peso/dollar exchange rate see “Item 3.  Key Information—Exchange Rate Information.”

 

On January 8, 2010, the Venezuelan government announced the devaluation of its currency and established a two tier exchange structure.  Pursuant to Exchange Agreement No.14, the official exchange rate of the Venezuelan bolivar (“Bs.”) was devalued from Bs.2.15 to each U.S. dollar to Bs.4.30 for non-essential goods and services and to Bs.2.60 for essential goods.  On December 30, 2010, the Venezuelan government modified Exchange Agreement No. 14 and established a single exchange rate of 4.30 bolivars per U.S. dollar effective January 1, 2011.  The financial statements of our subsidiaries in Venezuela are prepared using an exchange rate of Bs. 4.30 per U.S. dollar.  Future devaluations of the Venezuelan, currency will have a limited impact on our future financial statements as Gruma Venezuela will be deconsolidated from our operations as of January 22, 2013.

 

In addition to the above, our net income may be affected by changes in our foreign exchange gain or loss, which may be impacted by significant variations in the peso/dollar exchange rate.  During 2010, 2011 and 2012, we recorded a net foreign exchange gain (loss) of Ps.144 million, Ps.41 million and Ps.(89) million, respectively.

 

***Gruma Venezuela Deconsolidation***

 

In accordance with IFRS, we concluded that we lost control of our Venezuelan subsidiaries, MONACA and DEMASECA on January 22, 2013.  As a result of such loss of control, we will cease the consolidation of the financial information of MONACA and DEMASECA starting January 22, 2013.

 

As disclosed in Note 7 to our audited consolidated financial statements, at December 31, 2012, the total assets and liabilities of these subsidiaries in Venezuela were Ps.7,087,569 and Ps.2,948,192, respectively.  For the year ended December 31, 2012, these subsidiaries represented net sales of Ps.9,907,182 and operating income of Ps.444,525.

 

Our interest in the total net assets of Venezuelan subsidiaries was Ps.3,090,289 at December 31, 2012.  In January 2013 and as a result of the loss of control in these subsidiaries, the foreign currency translation loss of Ps.432,458, recorded in other comprehensive income at December 31, 2012, will be transferred to our income statement and will be presented as a discontinued operation.

 

***Currency Issues in Venezuela***

 

Historically, we have been able to convert bolivars into U.S. dollars at the Official Rate in order to settle certain U.S. dollar-denominated debt incurred pursuant to imports and royalty agreements and to pay dividends from our business in Venezuela.  Accordingly, as of December 31, 2012, the Company’s Venezuelan subsidiaries accounted for U.S. dollar-denominated transactions, monetary assets and liabilities into bolivars using the Official Rate, which may not reflect economic reality.  See “Item 3.  Key Information—Risk Factors—Risks Related to Venezuela.” In addition, the Company’s Venezuelan subsidiaries’ bolivar-denominated financial statements were translated into Mexican pesos using the buying rate published by *Banco de México* on the applicable balance sheet dates.

 

**Critical Accounting Policies**

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses our audited consolidated financial statements, which have been prepared in accordance with IFRS as issued by the IASB.  The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period.

 

Below, we have identified the most critical accounting principles that involve a higher degree of judgment and complexity and that management believes are important to a more complete understanding of our financial position and results of operations.  These policies are outlined below.

 

Additional accounting policies that are also used in the preparation of our financial statements are outlined in the notes to our audited consolidated financial statements included in this Annual Report.

 

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***Property, Plant and Equipment***

 

We depreciate our property, plant and equipment over their respective estimated useful lives.  Useful lives are based on management’s estimates of the period that the assets will remain in service and generate revenues.  Estimates are based on independent appraisals and the experience of our technical personnel.  We review the assets’ residual values and useful lives each year to determine whether they should be changed, and adjusted if appropriate.  To the extent that our estimates are incorrect, our periodic depreciation expense or carrying value of our assets may be impacted.

 

Under IFRS, we are required to test long-lived assets for impairment whenever events or circumstances indicate that the carrying amount may not be recoverable for property, plant and equipment.  When the carrying amount exceeds the recoverable amount, the difference is accounted for as an impairment loss.  The recoverable amount is the higher of (1) the long-lived asset’s (asset group) fair value less costs to sell, representing the amount obtainable from the sale of the long-lived asset (asset group) in an arm’s length transaction between knowledgeable, willing parties less the costs of disposal and (2) the long-lived asset’s (asset group’s) value in use, representing its future cash flows discounted to present value by using a rate that reflects the current assessment of the time value of money and the risks specific to the long-lived asset (asset group) for which the cash flow estimates have not been adjusted.

 

The estimates of cash flows take into consideration expectations of future macroeconomic conditions as well as our internal strategic plans.  Therefore, inherent to the estimated future cash flows is a certain level of uncertainty which we have considered in our valuation; nevertheless, actual future results may differ.

 

Primarily as a result of plant rationalization, certain facilities and equipment are not currently in use in operations.  We have recorded impairment losses related to certain of those assets and additional losses may potentially occur in the future if our estimates are not accurate and/or future macroeconomic conditions differ significantly from those considered in our analysis.

 

***Goodwill and Other Intangible Assets***

 

Intangible assets with definite lives are amortized on a straight-line basis over estimated useful lives.  Management exercises judgment in assessing the useful lives of other intangible assets including patents and trademarks, customers lists and software for internal use.  Under IFRS, goodwill and indefinite-lived intangible assets are not amortized, but are subject to impairment tests either annually or earlier in the case of a triggering event.

 

A key component of the impairment test is the identification of cash-generating units and the allocation of goodwill to such cash-generating units.  Estimates of fair value are primarily determined using discounted cash flows.  Cash flows are discounted at present value and an impairment loss is recognized if such discounted cash flows are lower than the net book value of the cash-generating units.

 

These estimates and assumptions could have a significant impact on whether or not an impairment charge is recognized and also the magnitude of any such charge.  We perform internal valuation analyses and consider relevant internal data as well as other market information that is publicly available.

 

This approach uses significant estimates and assumptions including projected future cash flows (including timing), a discount rate reflecting the risk inherent in future cash flows and a perpetual growth rate.  Inherent in these estimates and assumptions is a certain level of risk which we believe we have considered in our valuation.  Nevertheless, if future actual results differ from estimates, a possible impairment charge may be recognized in future periods related to the write-down of the carrying value of goodwill and other intangible assets.

 

***Deferred Income Tax***

 

We record deferred income tax assets and liabilities using enacted tax rates for the effect of temporary differences between the book and tax basis of assets and liabilities.  If enacted tax rates change, we adjust the deferred tax assets and liabilities through the provision for income tax in the period of change, to reflect the enacted tax rate expected to be in effect when the deferred tax items reverse.  Under IFRS, a deferred tax asset must be recognized for all deductible temporary differences to the extent that it is probable that taxable profit will be available against which the deductible temporary difference can be utilized.  While we have considered future taxable income and ongoing prudent and feasible tax planning strategies, in the event we were to determine that we would be able to realize our deferred tax assets in the future in excess of the net recorded amount, an adjustment to the deferred tax asset would increase income in the period such determination was made.  Should we determine that we would not be able to realize all or part of our net deferred tax asset in the future, an adjustment to the deferred tax asset would be charged to income in the period such determination was made.

 

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***Derivative Financial Instruments***

 

We use derivative financial instruments in the normal course of business, primarily to hedge certain operational and financial risks to which we are exposed, including without limitation: (i) future and options contracts for certain key production requirements like natural gas, heating oil and some raw materials such as corn and wheat, in order to minimize the cash flow variability due to price fluctuations; (ii) interest rate swaps, with the purpose of managing the interest rate risk related to our debt; and (iii) exchange rate contracts (mainly Mexican peso — U.S. dollar and in other currencies).

 

We account for derivative financial instruments used for hedging purposes either as cash-flow hedges or fair value hedges with changes in fair value reported in other comprehensive income and earnings, respectively.  Derivative financial instruments not designated as an accounting hedge are recognized at fair value, with changes in fair value recognized currently in income.

 

When available, we measure the fair value of the derivative financial instruments based on quoted market prices.  If quoted market prices are not available, we estimate the fair value of derivative financial instruments using industry standard valuation models.  When applicable, these models project future cash flows and discount the future amounts to a present value using market observable inputs, including interest rates and currency rates, among others.  Also included in the determination of the fair value of the Company’s liability positions is the Company’s own credit risk, which has been classified as an unobservable input.

 

Many of the factors used in measuring fair value are outside the control of management, and these assumptions and estimates may change in future periods.  Changes in assumptions or estimates may materially affect the fair value measurement of derivative financial instruments.

 

***Employee Benefits***

 

We recognize liabilities in our balance sheet and expenses in our income statement to reflect our obligations related to our post-employment benefits (retirement plan and seniority premium).  The amounts we recognize are determined on an actuarial basis that involve many estimates and accounts for these benefits in accordance with IFRS.

 

We use estimates in four specific areas that have a significant effect on these amounts: (a) the rate of return we assume our plans will achieve on its investments, (b) the rate of increase in salaries that we assume we will observe in future years, (c) the discount rate that we use to calculate the present value of our future obligations and (d) the expected rate of inflation.  The assumptions we have applied are identified in Note 19 to our audited consolidated financial statements.  These estimates are determined based on actuarial studies performed by independent experts using the projected unit credit method.  The latest actuarial computation was prepared as of December 31, 2012.  We review the estimates each year, and if we change them, our reported expense for post-employment benefits may increase or decrease according to market conditions.

 

**Factors Affecting Financial Condition and Results of Operations**

 

In recent years, our financial condition and results of operations have been significantly influenced by some or all of the following factors:

 

·                  the level of demand for tortillas, corn flour and wheat flour;

 

·                  the effects of government policies on imported and domestic corn prices in Mexico;

 

·                  the cost and availability of corn and wheat;

 

·                  the cost of energy and other related products;

 

·                  our acquisitions, plant expansions and divestitures;

 

·                  the effect of government initiatives and policies, in particular on price controls and cost of grains in Venezuela; and

 

·                  the effect from variations on interest rates and exchange rates.

 

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**RESULTS OF OPERATIONS**

 

The following table sets forth our consolidated income statement data on an IFRS basis for the years ended December 31, 2012, 2011, and 2010, expressed as a percentage of net sales.  All financial information has been prepared in accordance with IFRS.  For a description of the method, see “Presentation of Financial Information” and “Item 5.  Operating and Financial Review and Prospects—Overview of Accounting Presentation.”

 
| ** **                              | ** ** | **Year Ended December 31,** | ** ** |
|-----------------------------------------|------------|--------------------------------------------|------------|
| ** **                              | ** ** | **2012**                                   | ** ** | **2011** | ** ** | **2010** | ** ** |
| **Income Statement Data**               |       |                                       |       |   |   |   |   |
| Net sales                               |       | 100                                        | %          | 100 | % | 100 | % |
| Cost of sales                           |       | 70.5                                       |       | 69.6 |   | 68.3 |   |
| Gross profit                            |       | 29.5                                       |       | 30.4 |   | 31.7 |   |
| Selling and administrative expenses     |       | 23.9                                       |       | 24.3 |   | 26.2 |   |
| Other expenses, net                     |       | (0.2                                       | )          | (0.4 | ) | (1.1 | ) |
| Operating income                        |       | 5.5                                        |       | 5.8 |   | 4.4 |   |
| Net comprehensive financing cost        |       | (1.1                                       | )          | (0.7 | ) | (2.5 | ) |
| Current and deferred income taxes       |       | 1.7                                        |       | 3.1 |   | 1.8 |   |
| Other items                             |       | 0.0                                        |       | 8.2 |   | 1.3 |   |
| Non-controlling interest                |       | 0.9                                        |       | 0.9 |   | 0.4 |   |
| Net income attributable to shareholders |       | 1.7                                        |       | 9.1 |   | 0.9 |   |

 

The following table sets forth our net sales and operating income as represented by our principal subsidiaries for 2012, 2011 and 2010.  Net sales and operating income of our subsidiary PRODISA are part of “others and eliminations.” Financial information with respect to GIMSA includes sales of Ps.419 million, Ps.587 million and Ps.764  in 2010, 2011 and 2012, respectively, in corn flour to Gruma Corporation, Molinera de México, PRODISA and Gruma Centroamérica.  Financial information with respect to Molinera de México includes sales of Ps.231 million, Ps.277 and Ps.207 million in 2010, 2011 and 2012, respectively, to GIMSA, Gruma Corporation and PRODISA; financial information with respect to PRODISA includes sales of Ps.97 million,  Ps.114 million and Ps.129 in 2010, 2011 and 2012, respectively, in tortilla related products to Gruma Corporation.

 

Financial information with respect to INTASA includes sales of Ps.609 million, Ps.727 million and Ps.961 million, in 2010, 2011 and 2012, respectively, in technological support to certain subsidiaries of Gruma, S.A.B. de C.V.  In the process of consolidation, all the aforementioned intercompany transactions are eliminated from the financial statements.

 
| ** **               | ** ** | ** **                                | ** **   | ** **             | ** ** | **Year Ended December 31,** | ** ** | ** **             | ** ** | ** **      | ** ** |
|--------------------------|------------|-------------------------------------------|--------------|------------------------|------------|--------------------------------------------|------------|------------------------|------------|-----------------|------------|
| ** **               | ** ** | **2012**                                  | ** **   | **2011**               | ** ** | **2010**                                   | ** ** |
| ** **               | ** ** | **Net   Sales**                           | ** **   | **Operating   Income** | ** ** | **Net   Sales**                            | ** ** | **Operating   Income** | ** ** | **Net   Sales** | ** ** | **Operating   Income** | ** ** |
| ** **               | ** ** | **(in millions of pesos)** | ** **   |
| Gruma Corporation        |       | Ps.                                       |  26,932 |                   | Ps.        | 1,335                                      |       | Ps.                    | 23,923     |            | Ps.        | 947 |   | Ps. | 21,451 |   | Ps. | 1,303 |   |
| GIMSA                    |       | 17,573                                    |         | 1,749                  |       | 15,386                                     |       | 1,771                  |       | 11,853          |       | 1,147 |   |
| Gruma Venezuela          |       | 9,907                                     |         | 445                    |       | 9,157                                      |       | 674                    |       | 5,382           |       | (26 | ) |
| Molinera de México  |       | 5,046                                     |         | 87                     |       | 4,633                                      |       | 104                    |       | 3,757           |       | 72 |   |
| Gruma Centroamérica |       | 3,369                                     |         | (40                    | )          | 3,180                                      |       | (46                    | )          | 2,765           |       | (73 | ) |
| Others and eliminations  |       | 1,490                                     |         | (63                    | )          | 1,366                                      |       | (112                   | )          | 1,024           |       | (373 | ) |
| Total                    |       | Ps.                                       |  64,317 |                   | Ps.        | 3,513                                      |       | Ps.                    | 57,645     |            | Ps.        | 3,338 |   | Ps. | 46,232 |   | Ps. | 2,050 |   |
|                          |            |                                           |              |                        |            |                                            |            |                        |            |                 |            |  |  |  |  |  |  |  |  |  |

 

**Net Sales by Subsidiary**: By major subsidiary, the percentages of consolidated net sales in 2012, 2011 and 2010 were as follows:

 
| ** **               | ** ** | **Percentage of Consolidated Net   Sales** | ** ** |
|--------------------------|------------|-----------------------------------------------------------|------------|
| **Subsidiary**           | ** ** | **2012**                                                  | ** ** | **2011** | ** ** | **2010** | ** ** |
| Gruma Corporation        |       | 42                                                        | %          | 42 | % | 46 | % |
| GIMSA                    |       | 27                                                        |       | 27 |   | 26 |   |
| Gruma Venezuela (1)      |       | 15                                                        |       | 16 |   | 12 |   |
| Molinera de México  |       | 8                                                         |       | 8 |   | 8 |   |
| Gruma Centroamérica |       | 6                                                         |       | 6 |   | 6 |   |
| Others and eliminations  |       | 2                                                         |       | 1 |   | 2 |   |

 

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(1)   We will deconsolidate Gruma Venezuela as of January 22, 2013 and account for it as a discontinued operation.

 

**Year Ended December 31, 2012 Compared with Year Ended December 31, 2011**

 

***Consolidated Results***

 

GRUMA’s sales volume increased by 2% to 4,826 thousand metric tons in 2012 compared with 4,740 thousand metric tons in 2011. This increase was driven mainly by Gruma Corporation.

 

Net sales increased by 12% to Ps.64,317 million in 2012 compared with Ps.57,645 million in 2011. The increase was driven by Gruma Corporation and GIMSA. Net sales grew mostly in connection with price increases implemented to offset higher raw material costs, sales volume growth, and the average peso depreciation effect on Gruma Corporation during 2012. Sales from non-Mexican operations constituted 65% of consolidated net sales in 2012 and 66% in 2011.

 

Cost of sales increased by 13% to Ps.45,350 million in 2012 compared with Ps.40,118 million in 2011, due primarily to Gruma Corporation and GIMSA. The increase was associated with higher raw material costs, sales volume growth, and the average peso depreciation effect on Gruma Corporation. Cost of sales as a percentage of net sales increased to 70.5% in 2012 from 69.6% in 2011 due primarily to GIMSA, Gruma Corporation, and Gruma Venezuela, as raw material cost increases were not fully reflected in our product prices, as well as production downtimes at Gruma Venezuela due to labor conflicts.

 

Selling, general, and administrative expenses (SG&A) increased by 10% to Ps.15,352 million in 2012 compared with Ps.13,984 million in 2011, due primarily to Gruma Corporation and, to a lesser extent, GIMSA and Gruma Venezuela. Part of the consolidated increase in SG&A resulted from the average peso depreciation effect on Gruma Corporation and the inflation effect at Gruma Venezuela. SG&A as a percentage of net sales decreased to 23.9% in 2012 from 24.3% in 2011, driven mainly by better expense absorption at Gruma Corporation and GIMSA.

 

Other expenses, net, were Ps.102 million in 2012 compared with Ps.204 million in 2011. The decrease was primarily due to lower impairment of long-lived assets and lower losses from the sale of fixed assets during 2012.

 

GRUMA’s operating income increased by 5% to Ps.3,513 million in 2012 compared with Ps.3,338 in 2011 driven by Gruma Corporation. Operating margin declined to 5.5% from 5.8% in 2011, due primarily to Gruma Venezuela and GIMSA.

 

Net comprehensive financing cost was Ps.729 million in 2012 compared with Ps.427 million in 2011. The increase was because in 2011 the company had gains on foreign exchange rate hedging related to corn procurement as well as gains on raw material hedging; also, the company registered foreign exchange losses of Ps.89 million in 2012 resulting mostly from the average peso depreciation as opposed to a Ps.41 million gain in 2011. See “Item 5. Operating and Financial Review and Prospects —Liquidity and Capital Resources—Indebtedness,” and “Item 5. Operating and Financial Review and Prospects —Liquidity and Capital Resources—Market Risk.”

 

GRUMA’s equity in earnings of associated companies, net, represented income of Ps.3 million in 2012 compared with income of Ps.4,711 million in 2011 primarily derived from the gain on the sale of GRUMA’s stake in GFNorte during February 2011.

 

Taxes decreased 40% to Ps.1,083 million in 2012 compared with Ps.1,807 million in 2011 primarily as a result of taxes related to the gain on the sale of GRUMA’s stake in GFNorte during 2011. The effective tax rate was 38.9%.

 

GRUMA’s net income was Ps.1,704 million in 2012 compared with Ps.5,816 million in 2011. Net income attributable to shareholders was Ps.1,115 million compared with Ps.5,271 million in 2011. Both declines were caused by the gain on the sale of GRUMA’s stake in GFNorte during 2011.

 

***Subsidiary Results***

 

***Gruma Corporation***

 

Sales volume increased 8% to 1,596 thousand metric tons in 2012 compared with 1,478 thousand metric tons in 2011. This increase was due mainly to several acquisitions made throughout 2011, in particular the acquisition of the leading corn grits company in Turkey, and organic growth at the European operations especially in connection with new and increased customer accounts.

 

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Net sales increased by 13% to Ps.26,932 million in 2012, compared with Ps.23,923 million in 2011. The increase was driven mostly by the aforementioned sales volume growth and the average peso depreciation effect. Measured in dollar terms, net sales increased 7% in connection with sales volume growth. The effect of price increases implemented toward the end of 2011 (in connection with higher raw material costs) and also towards the end of 2012, and allowance reductions in the U.S. tortilla business, were offset mainly by the change in the sales mix towards corn grits in Europe.

 

Cost of sales increased by 14% to Ps.17,655 million in 2012 compared with Ps.15,452 million in 2011 due to sales volume growth, higher raw material cost and overhead and health insurance costs, as well as the average peso depreciation effect. Measured in dollar terms, cost of sales increased 11%. As a percentage of net sales, cost of sales increased to 65.6% in 2012 from 64.6% because higher raw material costs were not fully reflected in our product prices and also due to a change in the sales mix towards foodservice products in the U.S. tortilla business and towards corn grits in Europe.

 

SG&A increased by 8% to Ps.7,996 million in 2012 compared with Ps.7,435 million in 2011 due mainly to the average peso depreciation effect, sales volume growth and higher sales commissions related to price increases. Measured in dollar terms, SG&A increased 2%. SG&A as a percentage of net sales improved to 29.7% in 2012 from 31.1% in 2011 in connection with better expense absorption.

 

Operating income increased by 41% to Ps.1,335 million in 2012 from Ps.947 million in 2011, and operating margin improved to 5% from 4% due to a favorable comparison of Ps.143 million in other expenses because in 2011 the company generated losses from asset disposals. Measured in dollar terms, operating income grew 34%. Operating margin also improved in connection with better expense absorption.

 

***GIMSA***

 

Sales volume increased by 1% to 1,983 thousand metric tons in 2012 compared with 1,959 thousand metric tons in 2011. The increase was a result of higher sales of non-corn flour products as higher grain prices motivated consumption of byproducts for animal feed.

 

Net sales increased by 14% to Ps.17,573 million in 2012 compared with Ps.15,386 million in 2011 due mainly to price increases related to higher corn costs.

 

Cost of sales increased by 17% to Ps.13,171 million in 2012 compared with Ps.11,284 million in 2011 due mainly to higher corn costs. As a percentage of net sales, cost of sales increased to 75% in 2012 from 73.3% in 2011 due to the aforementioned rise in corn costs, which were not fully absorbed through price increases, and the mathematical effect of having a larger base of sales with similar amounts of gross profit per ton. For a discussion of the discontinuation of Mexican government price supports, please see “Item 4. Information on the Company—Regulation—Corn Flour Consumer Aid Program.”

 

SG&A increased by 13% to Ps.2,574 million in 2012 compared with Ps.2,286 million in 2011. The increase resulted mainly from higher promotion and advertising expenses related mostly to sponsorship of the Mexican Football Federation, the continued strengthening of several programs aimed at attracting traditional tortilla makers, higher sales commissions due to price increases and higher freight expenses coming from higher tariffs and intercompany shipments due to capacity constraints at some plants. SG&A as a percentage of net sales decreased to 14.6% in 2012 from 14.9% in 2011 due to better expense absorption.

 

Operating income decreased by 1% to Ps.1,749 million in 2012 from Ps.1,771 million in 2011, and operating margin decreased to 10% from 11.5%. The reduction in absolute terms resulted from the higher SG&A and higher other expenses in connection with losses on natural gas hedging. Profit sharing also increased during 2012. Operating margin declined mostly from the aforementioned mathematical effect of having a larger base of sales with a similar level of gross profit per ton.

 

***Gruma Venezuela***

 

We will deconsolidate Gruma Venezuela as of January 22, 2013 and account for it as a discontinued operation.

 

Sales volume decreased 9% to 478 thousand metric tons in 2012 compared with 528 thousand metric tons in 2011 due mainly to production downtimes at certain plants related to labor conflicts (in connection with the negotiation of collective bargaining agreements) and, to a lesser extent, electrical power outages.

 

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Net sales increased by 8% to Ps.9,907 million in 2012 compared with Ps.9,157 million in 2011 due mainly to the inflation effect as figures for 2011 are expressed in constant terms as of December 2011 and are not restated to December 2012.  Additionally, there were price increases implemented to offset higher raw material costs.

 

Cost of sales increased by 11% to Ps.7,500 million in 2012 from Ps.6,747 million in 2011.  This increase was primarily due to the aforementioned inflation effect as well as higher cost of raw materials, salary increases and more benefits for manufacturing employees arising from new labor regulations.  As a percentage of net sales, cost of sales increased to 75.7% in 2012 from 73.7% in 2011 due mainly to the sales volume reduction resulting from the aforementioned production downtimes and to the higher raw material costs, which were not fully absorbed through price increases.

 

SG&A increased by 13% to Ps.1,962 million in 2012 compared with Ps.1,736 million in 2011.  The increase was due primarily to the aforementioned inflation effect as well as salary increases and higher freight expenses.  SG&A as a percentage of net sales increased to 19.8% in 2012 from 19% in 2011 due to a lower expense absorption.

 

Operating income decreased 34% to Ps.445 million in 2012 compared with an operating income of Ps.674 million in 2011, and operating margin declined to 4.5% in 2012 from 7.4% in 2011 resulting from the aforementioned sales volume reduction, the fact that price increases did not fully absorb the higher raw material costs, and the increases in SG&A, which grew at a faster pace than net sales.

 

***Molinera de México***

 

Sales volume increased by 3% to 583 thousand metric tons in 2012 compared with 564 thousand metric tons in 2011. This increase was driven by greater consumption of premixed flours at supermarket in-store bakeries, supermarket expansion through more stores, and customers’ recovery.

 

Net sales increased by 9% to Ps.5,046 million in 2012 compared with Ps.4,633 million in 2011. The rise resulted from price increases implemented to reflect the higher cost of wheat, a change in the sales mix towards pre-mixed flours, higher byproduct prices in connection with low supply in the market, and sales volume growth.

 

Cost of sales increased by 9% to Ps.4,254 million in 2012 compared with Ps.3,894 million in 2011 mainly in connection with the higher wheat costs and sales volume growth. As a percentage of net sales, cost of sales increased to 84.3% in 2012 from 84% in 2011due to higher wheat costs, which were not fully reflected in our product prices.

 

SG&A increased by 7% to Ps.674 million in 2012 compared with Ps.631 million in 2011. The increase was due mainly to higher freight expenses in connection with higher tariffs and intercompany shipments related to capacity constraints at some plants and, to a lesser extent, to sales volume growth. SG&A as a percentage of net sales decreased to 13.4% in 2012 from 13.6% in 2011 due to better expense absorption.

 

Operating income decreased by 16% to Ps.87 million in 2012 from Ps.104 million in 2011 due to the aforementioned rise in SG&A and increases in other expenses related to higher profit sharing. Operating margin decreased to 1.7% in 2012 from 2.2% in 2011 due to the aforementioned rise in profit sharing.

 

***Gruma Centroamérica***

 

Sales volume decreased by 9% to 207 thousand metric tons in 2012 compared with 229 thousand metric tons in 2011. The decrease was due mainly to the availability of cheap domestic corn, which motivated some customers to shift to the traditional method of tortilla production. This availability rose significantly during 2012 in connection with the increasing popularity of genetically modified corn. Additionally, during 2011 sales volume benefitted from a shortage of corn within the region due to bad weather conditions that affected corn crops, which at that time encouraged the conversion from the traditional method of making tortillas to the corn flour method.

 

Net sales increased by 6% to Ps.3,369 million in 2012 from Ps.3,180 million in 2011 due mainly to price increases and the effect of the average peso depreciation during 2012.

 

Cost of sales increased by 2% to Ps.2,415 million in 2012 compared with Ps.2,368 million in 2011, due mainly to the aforementioned average peso depreciation. Cost of sales as a percentage of net sales decreased to 71.7% in 2012 from 74.5% in 2011 due mainly to the aforementioned price increases.

 

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SG&A rose by 16% to Ps.994 million in 2012 compared with Ps.858 million in 2011, due to higher sales commissions, and salaries, as well as the strengthening of the sales department and the effect of the average peso depreciation. As a percentage of net sales, SG&A increased to 29.5% in 2012 from 27% in 2011 due to the aforementioned increase in expenses.

 

Operating loss was Ps.40 million in 2012 compared with a loss of Ps.46 million in 2011, and operating margin improved to a negative 1.2% in 2012 from a negative 1.5% in 2011 principally in connection with the price increases.

 

**Year Ended December 31, 2011 Compared with Year Ended December 31, 2010**

 

***Consolidated Results***

 

GRUMA’s sales volume increased by 5% to 4,740 thousand metric tons in 2011 compared with 4,526 thousand metric tons in 2010.  This increase was driven mainly by Gruma Corporation and GIMSA.  Net sales increased by 25% to Ps.57,645 million in 2011 compared with Ps.46,232 million in 2010.  The increase was due primarily to higher net sales at Gruma Venezuela, GIMSA, and Gruma Corporation, associated with price increases, sales volume growth, and the inflation effect in Venezuela.  Sales from non-Mexican operations constituted 66% of consolidated net sales in 2011 and 2010.

 

**Net Sales by Subsidiary**:  By major subsidiary, the percentages of consolidated net sales in 2011 and 2010 were as follows:

 
| ** **               | ** ** | **Percentage of Consolidated Net   Sales** | ** ** |
|--------------------------|------------|-----------------------------------------------------------|------------|
| **Subsidiary**           | ** ** | **2011**                                                  | ** ** | **2010** | ** ** |
| Gruma Corporation        |       | 42                                                        | %          | 46 | % |
| GIMSA                    |       | 27                                                        |       | 26 |   |
| Gruma Venezuela(1)       |       | 16                                                        |       | 12 |   |
| Molinera de México  |       | 8                                                         |       | 8 |   |
| Gruma Centroamérica |       | 6                                                         |       | 6 |   |
| Others and eliminations  |       | 1                                                         |       | 2 |   |

 

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(1)      We will deconsolidate Gruma Venezuela as of January 22, 2013 and account for it as a discontinued operation.

 

Cost of sales increased by 27% to Ps.40,118 million in 2011 compared with Ps.31,563 million in 2010, due primarily to higher cost of sales at Gruma Venezuela, GIMSA, and Gruma Corporation associated with higher raw-material costs, sales volume growth, and the inflation effect in Gruma Venezuela.  Cost of sales as a percentage of net sales increased to 69.6% in 2011 from 68.3% in 2010 due primarily to Gruma Corporation, as raw-material cost increases were not fully reflected in our prices.

 

Selling, general, and administrative expenses (SG&A) increased by 16% to Ps.13,984 million in 2011 compared with Ps.12,100 million in 2010, due primarily to higher SG&A at Other and Eliminations and Gruma Corporation and, to a lesser extent, Gruma Venezuela and GIMSA.  SG&A as a percentage of net sales decreased to 24.3% in 2011 from 26.2% in 2010, driven mainly by better expense absorption at Gruma Venezuela and, to a lesser extent, GIMSA and Gruma Corporation.

 

Other expenses, net, were Ps.204 million in 2011 compared with Ps.519 million in 2010.  The decrease is a result of a one-time charge during 2010 related to the expropriation procedure of our operations in Venezuela, which the company did not have during 2011.

 

GRUMA’s operating income increased by 63% to Ps.3,338 million in 2011 compared with Ps.2,050 in 2010, and operating margin improved to 5.8% in 2011 from 4.4% in 2010, due primarily to Gruma Venezuela, Other and Eliminations and, to a lesser extent, GIMSA.

 

Net comprehensive financing cost was Ps.427 million in 2011 compared with Ps.1,163 million in 2010.  The decrease resulted mainly from lower financial expenses in connection with GRUMA’s debt reduction and better interest rates achieved during 2011, and gains on foreign-exchange-rate hedging related to corn procurement.  See “Item 5.  Operating and Financial Review and Prospects —Liquidity and Capital Resources—Indebtedness,” and “Item 5.  Operating and Financial Review and Prospects —Liquidity and Capital Resources—Market Risk.”

 

GRUMA’s equity in earnings of associated companies, net, primarily from GFNorte, represented income of Ps.4,711 million in 2011 compared with income of Ps.592 million in 2010 primarily derived from the gain on the sale of GRUMA’s stake in GFNorte during February 2011.

 

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Taxes increased 115% to Ps.1,807 million in 2011 compared with Ps.840 million in 2010 primarily as a result of higher pre-tax income.

 

GRUMA’s net income was Ps.5,816 million in 2011 compared with Ps.639 million in 2010.  Net income attributable to shareholders was Ps.5,271 million compared with Ps.432 million in 2010.  Both improvements were caused mainly by the gain on the sale of GRUMA’s stake in GFNorte.

 

***Subsidiary Results***

 

***Gruma Corporation***

 

Sales volume increased 6% to 1,478 thousand metric tons in 2011 compared with 1,395 thousand metric tons in 2010.  This increase was due mainly to several acquisitions made throughout the year, the one-time effect of one more week of operations during 2011, which occurs every five-to-six years according to Gruma Corporation’s fiscal year-end accounting closings; and organic growth at the European operations.

 

Net sales increased by 12% to Ps.23,923 million in 2011 compared with Ps.21,451 million in 2010.  The increase was driven mostly by the aforementioned sales volume growth coupled with price increases implemented during 2011 in connection with higher raw-material costs.

 

Cost of sales increased by 16% to Ps.15,452 million in 2011 compared with Ps.13,302 million in 2010 due to higher raw-material cost (corn, wheat, and oil) and sales volume growth.  As a percentage of net sales, cost of sales increased to 64.6% in 2011 from 62.0% in 2010 because the aforementioned higher raw-material costs were not fully reflected in our prices.

 

SG&A increased by 9% to Ps.7,435 million in 2011 compared with Ps.6,829 million in 2010 due to sales volume growth, higher sales commissions related to price increases, and higher promotion and advertising expenses.  SG&A as a percentage of net sales improved to 31.1% in 2011 from 31.8% in 2010 in connection with better expense absorption.

 

Operating income decreased by 27% to Ps.947 million in 2011 from Ps.1,303 million in 2010, and operating margin declined to 4% from 6.1%.

 

***GIMSA***

 

Sales volume increased by 4% to 1,959 thousand metric tons in 2011 compared with 1,890 thousand metric tons in 2010.  The increase was a result of the growth in the supermarket segment associated with their organic growth, market-share gains in the snack producers segment, and customers’ build-up of corn flour inventories at the end of 2011 in anticipation of price increases.

 

Net sales increased by 30% to Ps.15,386 million in 2011 compared with Ps.11,853 million in 2010.  The increase was due mainly to price increases and, to a lesser extent, the aforementioned sales volume growth and a non-recurring sale of corn for Ps.574 million.

 

Cost of sales increased by 30% to Ps.11,284 million in 2011 compared with Ps.8,648 million in 2010 due to higher corn costs and, to a lesser extent, the cost of the aforementioned non-recurring sale of corn during 2011 and the sales volume growth.  As a percentage of net sales, cost of sales increased slightly to 73.3% in 2011 from 73.0% in 2010 due to the non- recurring sale of corn which had no margin contribution For a discussion of the discontinuation of Mexican government price supports, please see “Item 4. Information on the Company—Regulation—Corn Flour Consumer Aid Program.”

 

SG&A increased by 15% to Ps.2,286 million in 2011 compared with Ps.1,981 million in 2010.  The increase resulted mainly from the continued strengthening of several programs aimed at attracting traditional tortilla makers, higher promotion and advertising expenses and, to a lesser extent, higher freight expenses coming from capacity constraints at some plants and from increased sales to supermarkets and snack producers (as for transactions with these customers we usually pay freight expenses).  SG&A as a percentage of net sales decreased to 14.9% in 2011 from 16.7% in 2010 due to better expense absorption.

 

Operating income increased by 54% to Ps.1,771 million in 2011 from Ps.1,147 million in 2010, and operating margin increased to 11.5% from 9.7%.

 

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***Gruma Venezuela***

 

Sales volume increased 1% to 528 thousand metric tons in 2011 compared with 523 thousand metric tons in 2010 due to production efficiencies at some plants, which allowed us to expand distribution in certain channels.

 

Net sales increased by 70% to Ps.9,157 million in 2011 compared with Ps.5,382 million in 2010. The increase was due mainly to the inflation effect and price increases and, to a lesser extent, the depreciation of the Mexican Peso and the aforementioned sales volume growth.

 

Cost of sales increased by 67% to Ps.6,747 million in 2011 from Ps.4,047 million in 2010. This increase was primarily due to the inflation effect and higher cost of raw materials (corn and wheat), salary increases and larger benefits for manufacturing employees and, to a lesser extent, the depreciation of the Mexican Peso and the aforementioned sales volume growth.  As a percentage of net sales, cost of sales decreased to 73.7% in 2011 from 75.2% in 2010 due mainly to a better cost absorption as a result of the aforementioned.

 

SG&A increased by 30% to Ps.1,736 million in 2011 compared with Ps.1,335 million in 2010. The increase was due primarily to the inflation effect and, to a lesser extent, the depreciation of the Mexican Peso.  SG&A as a percentage of net sales decreased to 19% in 2011 from 24.8% in 2010 due to a better expenses absorption.

 

Operating income increased to Ps.674 million in 2011 compared with an operating loss of Ps.26 million in 2010, and operating margin improved to 7.4% in 2011 from negative 0.5% in 2010.

 

***Molinera de México***

 

Sales volume increased by 7% to 564 thousand metric tons in 2011 compared with 530 thousand metric tons in 2010.  This increase was driven by regional pricing strategies, increased market coverage and strengthening of commercial programs, higher demand for pre-mixed flours by the supermarkets, and introduction of new products to the foodservice segment.

 

Net sales increased by 23% to Ps.4,633 million in 2011 compared with Ps.3,757 million in 2010.  The increase resulted from higher prices to reflect higher cost of wheat and, to a lesser extent, from the sales volume growth.

 

Cost of sales increased by 26% to Ps.3,894 million in 2011 compared with Ps.3,095 million in 2010 in connection with these higher wheat costs and volume growth.  As a percentage of net sales, cost of sales increased to 84% in 2011 from 82.4% in 2010 due to higher wheat costs, which were not fully reflected in our prices.

 

SG&A increased by 9% to Ps.631 million in 2011 compared with Ps.578 million in 2010.  The increase was due to the ongoing programs oriented towards the aforementioned market coverage expansion and better customer service, higher freight expenses in connection with sales volume growth, and higher intercompany shipments due to capacity constraints at some plants.  SG&A as a percentage of net sales decreased to 13.6% in 2011 from 15.4% in 2010 due to a better expense absorption.

 

Operating income increased by 45% to Ps.104 million in 2011 from Ps.72 million in 2010, and operating margin increased to 2.2% in 2011 from 1.9% in 2010.

 

***Gruma Centroamérica***

 

Sales volume increased by 14% to 229 thousand metric tons in 2011 compared with 201 thousand metric tons in 2010.  The increase was due mainly to shortage of corn within the region due to bad weather conditions, which affected corn crops, the elimination of the subsidy for natural gas in El Salvador by mid-2011, which encouraged the conversion from the traditional method of making tortillas to the corn flour method, and aggressive promotions and advertising campaigns.

 

Net sales increased by 15% to Ps.3,180 million in 2011 from Ps.2,765 million in 2010.  The increase was due mainly to the aforementioned sales volume growth.

 

Cost of sales increased by 17% to Ps.2,368 million in 2011 compared with Ps.2,022 million in 2010, due mainly to the sales volume growth, as well as higher corn and energy costs.  Cost of sales as a percentage of net sales increased to 74.5% in 2011 from 73.1% in 2010 due to these cost increases, which was not fully reflected in our prices.

 

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SG&A increased by 5% to Ps.858 million in 2011 compared with Ps.816 million in 2010, due to sales volume growth, higher promotion and advertising, salary increases, and higher freight tariffs in connection with higher fuel costs.  As a percentage of net sales, SG&A declined to 27% in 2011 from 29.5% in 2010 due to a better expense absorption.

 

Operating loss was Ps.46 million in 2011 compared with a loss of Ps.73 million in 2010, and operating margin improved to negative 1.5% in 2011 from negative 2.6% in 2010.

 

**LIQUIDITY AND CAPITAL RESOURCES**

 

We fund our liquidity and capital resource requirements, in the ordinary course of business, through a variety of sources, including:

 

·                  cash generated from operations;

 

·                  committed and uncommitted short-term and long-term lines of credit;

 

·                  occasional offerings of medium- and long-term debt; and

 

·                  sales of our equity securities and those of our subsidiaries and affiliates from time to time.

 

The following is a summary of the principal sources and uses of cash for the three years ended December 31, 2012, 2011 and 2010.

 
| ** **                       | ** ** | **2012**                                        | ** ** | **2011**   | ** ** | **2010**   | ** ** |
|----------------------------------|------------|-------------------------------------------------|------------|------------|------------|------------|------------|
|                             |       | **(thousands of Mexican pesos)** |       |
| Resources provided by (used in): |       |                                            |       |       |       |       |       |
| Operating activities             |       | Ps.                                             | 1,806,136  |       | Ps.        | 1,751,314  |       | Ps. | 3,291,138 |   |
| Financing activities             |       | 1,817,675                                       |       | (7,429,059 | )          | (4,234,431 | )          |
| Investing activities             |       | (3,455,629                                      | )          | 6,779,129  |       | (802,208   | )          |
|                                  |            |                                                 |            |            |            |            |            |  |  |  |

 

During 2012, net cash generated from operations was Ps.1,806 million after changes in working capital of Ps.3,836 million, of which Ps.398 million was due to an increase in accounts receivable, Ps.2,154 million reflected an increase in inventory, Ps.971 million reflected an increase in accounts payable and Ps.2,152 million reflected an increase in income tax paid.  Net cash from financing activities during 2012 was Ps.1,818 million, including Ps.5,854 million in borrowings related to the ADM transaction, Ps.810 million in cash interest payments, Ps.96 million of dividends paid to minority shareholders of GIMSA and Ps.4,011 million in the acquisition of our own shares related to ADM Transaction and  Ps.997 million in the acquisition of the non-controlling interest of ADM in certain of our subsidiaries.  Cash used for investment activities during 2012 reflected cash expenditures of Ps.3,456 million of which Ps.2,785 were applied to general manufacturing upgrades and efficiency improvements in our subsidiaries in the U.S. and, to a lesser extent, in our subsidiaries in Mexico and Europe and Ps.896 for the acquisition of the outstanding shares of Valores Azteca. See Note 3 of our audited consolidated financial statements.  As of December 31, 2012, 2011, and 2010, there were no significant restricted net assets of the consolidated subsidiaries of the Company, as defined by Rule 4-08(e)(3) of Regulation S-X.

 

Factors that could decrease our sources of liquidity include a significant decrease in the demand for, or price of, our products, each of which could limit the amount of cash generated from operations, and a lowering of our corporate credit rating or any other credit downgrade, which could impair our liquidity and increase our costs with respect to new debt and cause our stock price to suffer.  Our liquidity is also affected by factors such as the depreciation or appreciation of the peso and changes in interest rates.  See “Item 5.Operating and Financial Review and Prospects —Indebtedness.”

 

As further described below, Gruma, S.A.B. de C.V. is subject to financial covenants contained in its debt agreements which require it to maintain certain financial ratios and balances on a consolidated basis, among other limitations.  Gruma Corporation is also subject to financial covenants contained in one of its debt agreements which require it to maintain certain financial ratios and balances on a consolidated basis.  A default under any of our existing debt obligations for borrowed money could result in acceleration of the due dates for payment of the amounts owing thereunder and, in certain cases, in a cross-default under some of our existing credit agreements and the indenture governing our perpetual bonds.  See “Item 10.  Additional Information—Material Contracts.”

 

Gruma, S.A.B. de C.V. and its consolidated subsidiaries are required to maintain a leverage ratio no greater than 4.75:1, and an interest coverage ratio no lower than 2.5:1.  As of  December 31, 2012, Gruma, S.A.B. de C.V.’s leverage ratio was 3.75:1, and the

 

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interest coverage ratio was 5.59:1.  The amount of interest that Gruma Corporation pays on its debt may increase if its overall leverage ratio increases above 1.0:1.  See “Item 5.  Operating and Financial Review and Prospects —Indebtedness.” As of December 31, 2012, Gruma Corporation’s leverage ratio was 0.9:1, therefore the applicable interest rate range under the Gruma Corporation Loan Facility is LIBOR + 137 bp.

 

The Control Group may pledge part of its shares in us to secure any future borrowings.  If such were the case, and the Control Group were to default on its payment obligations, the lenders could enforce their rights with respect to such shares, and the Control Group could lose its controlling interest in us, resulting in a change of control.  A change of control could trigger a default in some of our credit agreements and the indenture governing our perpetual bonds, which have an aggregate principal amount outstanding as of December 31, 2012 of U.S.$ 1,063 million, and could have a material adverse effect upon our business, financial condition, results of operations and prospects.  For more information about this pledge, see “Item 7.  Major Shareholders and Related Party Transactions.”

 

Our long-term corporate credit rating and our senior unsecured perpetual bond are rated BB by Standard & Poor’s.  Our Foreign Currency Long-Term Issuer Default Rating and our Local Currency Long-Term Issuer Default Rating are rated BB by Fitch.  Our U.S.$300 million perpetual bond is rated BB by Fitch.  These ratings reflect the debt repayment made on February 18, 2011, after applying the net proceeds from the sale of GRUMA’s 8.8% stake in GFNorte.  The ratings in effect during 2009 and 2010, prior to the debt repayment on February 18, 2011, reflected additional leverage on GRUMA’s capital structure from the termination of GRUMA’s foreign exchange derivative positions and the subsequent conversion of the realized losses into debt.  On December 14 2012, after the announcement of the ADM Transaction and Gruma’s increase in its leverage, Standard & Poor’s confirmed its BB credit rating and the outlook remains stable. On December 17, 2012, Fitch also confirmed its BB rating.

 

If our financial condition deteriorates, we may experience future declines in our credit ratings, with attendant consequences.  Our access to external sources of financing, as well as the cost of that financing, has been and may continue to be adversely affected by a deterioration of our long-term debt ratings.  A downgrade in our credit ratings may continue to increase the cost of and/or limit the availability of unsecured financing, which may make it more difficult for us to raise capital when necessary.  If we cannot obtain adequate capital on favorable terms, or at all, our business, operating results and financial condition would be adversely affected.  However, management believes that its working capital and available external sources of financing are sufficient for our present requirements.

 

**Indebtedness**

 

Our indebtedness bears interest at fixed and floating rates.  As of December 31, 2012, approximately 20% of our outstanding indebtedness bore interest at fixed rates and approximately 80% bore interest at floating rates, with almost all U.S. dollar and Mexican peso floating-rate indebtedness bearing interest based on LIBOR and TIIE, respectively.  From time to time, we partially hedge both our interest rate exposure and our foreign exchange rate exposure as discussed below.  For more information about our interest rate and foreign exchange rate exposures, see “Item 11.  Quantitative and Qualitative Disclosures About Market Risk.”

 

As of December 31, 2012, we had total outstanding long-term debt aggregating approximately Ps.12,102 million (approximately U.S.$ 930 million).  Approximately 85% of our long-term debt at such date was dollar-denominated, and 15% denominated in Mexican Pesos.

 

Extreme exchange rate volatility in the financial markets during the last two quarters of 2008 and the first quarter of 2009 resulted in significant fluctuations in the mark-to-market value of GRUMA’s foreign exchange derivative instruments, which in turn resulted in downgrades in our debt ratings.  As of October 28, 2008, GRUMA’s foreign exchange derivative instruments represented an aggregate negative mark-to-market non-cash unrealized loss of U.S.$788 million.  On November 12, 2008 we entered into a loan agreement with Bancomext in the amount of Ps.3,367 million and applied the proceeds to terminate our commitments arising under all the currency derivative instruments that we had entered into with one of our derivative counterparties and to pay other commitments arising under the currency derivative instruments maturing from the date of such loan agreement with Bancomext (the “2008 Bancomext Peso Facility”).

 

In addition, we entered into agreements on October 16, 2009 with our remaining derivative counterparties to convert a total of U.S.$738.3 million dollars owing under our terminated foreign exchange derivative instruments into medium- and long-term loans.  On February 18, 2011, GRUMA made an early payment of outstanding balances of such bank facilities.  The total amounts of the payments made were U.S.$752.6 million and Ps.773.3 million, payments for which GRUMA used the entirety of the net proceeds from the GFNorte Sale, which totaled Ps.9,005.5 million after fees and expenses, as well as its own resources and others obtained through short-term facilities.  As a result of these early payments the aforementioned agreements with our derivative counterparties were terminated.

 

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On June 16, 2011, we concluded a series of transactions to refinance and terminate our obligations under the 2008 Bancomext Peso Facility.  As a result, we entered into the Syndicated Loan Facility, the Peso Syndicated Loan Facility, the Rabobank Loan Facility and the 2011 Bancomext Peso Facility (as defined below).  The proceeds of these transactions as well as proceeds from uncommitted short term lines of credit were applied to make an early payment on the outstanding balance of the 2008 Bancomext Peso Facility in the amount of Ps.3,367 million.  Additionally, on June 20, 2011 we refinanced and extended the Gruma Corporation Loan Facility.  See “Item 5.  Operating and Financial Review and Prospects —Indebtedness” below for a description of our current principal debt instruments.

 

During the fourth quarter of 2012 we entered into the 2012 Bridge Loan Facility (as defined below) in an amount of US $300 million and  Gruma Corporation increased the aggregate commitment under its Revolving Loan Agreement (as defined below) for an additional amount of US $50 million in order to partially fund the ADM Transaction.  The additional U.S. $100 million required to fund the ADM Transaction was obtained through a short term-unsecured loan with Banco Inbursa .

 

***Perpetual Bonds***

 

On December 3, 2004, Gruma, S.A.B. de C.V. issued U.S.$300 million 7.75% senior unsecured perpetual bonds, which at the time were rated BBB- by Standard & Poor’s and by Fitch.  The bonds which have no fixed final maturity date, have a call option exercisable by GRUMA at any time beginning five years after the issue date. As of December 31, 2012 we have not hedged any interest payments on our U.S.$300 million 7.75% senior unsecured perpetual bonds.

 

***2012 Bridge Loan Facility***

 

On December 13, 2012, we entered into an unsecured U.S. $200 million 1-year term bridge loan with Goldman Sachs Bank, USA, and certain other financial institutions which may, from time to time become party to such Loan Agreement (the “2012 Bridge Loan Facility”).  On December 14, 2012 Banco Santander (México), S.A., Institución de Banca Múltiple, Grupo Financiero Santander México became a Lender under the 2012 Bridge Loan Facility, lending an additional amount of U.S. $100 million.  The funds obtained from the 2012 Bridge Loan Facility were used in their entirety to partially fund the ADM Transaction.

 

In order to accommodate the increase in our leverage resulting from the 2012 Bridge Loan Facility, the permitted leverage ratios established under the Syndicated Loan Facility, the Peso Syndicated Loan Facility, the Rabobank Loan Facility and the 2011 Bancomext Peso facility (the “2011 Facilities”) have been increased.

 

The 2012 Bridge Loan Facility has an interest rate based on LIBOR plus 3.00% plus a quarterly step-up margin ranging from 0% to 1.50% throughout the term of the facility.  Moreover, this facility contains covenants that require the Company to maintain a ratio of consolidated EBITDA to interest charges of not less than 2.5:1, and a Maximum Leverage Ratio of not more than 4.75:1 until September 30, 2013 and 4.50:1 from October 1, 2013 until maturity on December 13, 2013.  In addition, the 2012 Bridge Loan Facility limits our ability, and our subsidiaries’ ability in certain cases, among other things, to: create liens; make certain investments; make certain restricted payments; merge or consolidate with other companies or sell substantially all of our assets; enter into any agreements prohibiting the payment of dividends; engage in certain transactions with affiliates; and enter into certain hedging transactions.  Furthermore, this facility limits our subsidiaries’ ability to guarantee additional indebtedness issued by the Company and to incur additional indebtedness under certain circumstances

 

Finally, the 2012 Bridge Loan Facility includes a Take-Out Financing provision under which: (i) the Company is required to use commercially reasonable efforts to ensure that an investment bank reasonably satisfactory to Goldman Sachs Bank, USA and the Company (the “Investment Bank”) publicly sells or privately places in one or more offerings or placements of debt securities of the Company in the international market as soon as practicable within a 6-month period from December 13, 2012, in order to refinance the 2012 Bridge Loan Facility; (ii) upon notice by the Investment Bank, the Company shall cause the issuance and sale of the Take-Out Financing following certain rules set forth in the loan agreement, but only if the Take-Out Financing is not made within the aforementioned 6-month period, provided that all amounts outstanding under the short-term facility shall not have been repaid in full and the Company is not in the process of otherwise effectuating the Take-Out Financing; and (iii) until payment in full of the 2012 Bridge Loan Facility, the Company will not take any actions towards syndicating or issuing any debt facility or any debt security of the Company (other than the Take-Out Financing and working capital debt facilities issued, refinanced or renewed in the bank debt market in the Company’s ordinary course of business), including any refinancing of any 2011 Facilities, without the prior written consent of the Investment Bank.

 

***Inbursa Loan***

 

In December 2012, the Company obtained an amount of U.S. $100 million through a short term-unsecured financing with Banco Inbursa by means of a promissory note, with an initial interest rate of Libor + 3.00%, which was initially scheduled to mature

 

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on March 13, 2013 and is renewable until December 10, 2013. On April 22, 2013 the financing was renewed until May 22, 2013 at an interest rate of Libor + 3.50%.  Funds obtained from such financing were used in their entirety to partially fund the ADM Transaction.

 

***Gruma Corporation Loan Facility***

 

In October 2006, Gruma Corporation entered into a U.S.$100 million 5-year revolving credit facility with a syndicate of financial institutions, which was refinanced and extended to U.S.$200 million for an additional 5-year term on June 20, 2011, (the “Gruma Corporation Loan Facility”).  The facility, as refinanced in 2011, has an interest rate based on LIBOR plus a spread of 1.375% to 2% that fluctuates in relation to Gruma Corporations’ leverage and contains less restrictive provisions than those in the facility replaced.  In October, 2012 we increased the aggregate commitment under this facility up to the maximum permitted amount of US $250,000,000.  The additional US $50,000,000 were used by Gruma Corporation to cover part of the purchase price under the ADM Transaction, specifically the purchase of ADM’s stake in Azteca Milling. This facility contains covenants that limit Gruma Corporation’s ability to merge or consolidate, and require it to maintain a ratio of total funded debt to consolidated EBITDA of not more than 3.0:1.  In addition, this facility limits Gruma Corporation’s, and certain of its subsidiaries’ ability, among other things, to create liens; make certain investments; make certain restricted payments; enter into any agreements that prohibit the payment of dividends; and engage in transactions with affiliates.  This facility also limits Gruma Corporation’s subsidiaries’ ability to incur additional debt.

 

Gruma Corporation is also subject to covenants which limit the amounts that may be advanced to, loaned to, or invested in us under certain circumstances.  Upon the occurrence of any default or event of default under its credit agreements, Gruma Corporation generally would be prohibited from making any cash dividend payments to us.  The covenants described above and other covenants could limit our and Gruma Corporation’s ability to help support our liquidity and capital resource requirements

 

***Syndicated Loan Facility***

 

On March 22, 2011 we obtained a U.S.$225 million, five-year senior credit facility through a syndicate of banks (the “Syndicated Loan Facility”).  The Syndicated Loan Facility consists of a term loan (“Term Loan Facility”) and a revolving loan facility (the “Revolving Loan Facility”).  Prior to the execution of the 2012 Bridge Loan Facility mentioned above, the permitted leverage ratio established under the Syndicated Loan Facility was increased, and the interest rate grid was also modified, among other revisions made through the execution of an amendment dated December 3, 2012. After such amendment, the interest rate for the Term Loan Facility and for the Revolving Loan Facility is either (i) LIBOR or (ii) an interest rate determined by the administrative agent based on its “prime rate” or the federal funds rate, respectively, plus, in either case, (a) 3.00% if the Company’s ratio of total funded debt to EBITDA (the “Maximum Leverage Ratio”) is greater than or equal to 4.5x, (b) 2.75% if the Company’s Maximum Leverage Ratio is greater than or equal to 4.0x and less than 4.5x, (c) 2.50% if the Company’s Maximum Leverage Ratio is greater than or equal to 3.5x and less than 4.0x; (d) 2.25% if the Company’s Maximum Leverage Ratio is greater than or equal to 3.0x and less than 3.5x; (e) 2.00% if the Company’s Maximum Leverage Ratio is greater than or equal to 2.5x and less than 3.0x; (f) 1.75% if the Company’s Maximum Leverage Ratio is greater than or equal to 2.0x and less than 2.5x; and (g) 1.50% if the Company’s Maximum Leverage Ratio is less than 2.0x.  The Syndicated Loan Facility (as amended) contains covenants that require the Company to maintain a ratio of consolidated EBITDA to interest charges of not less than 2.5:1, and a Maximum Leverage Ratio of not more than 4.75:1 from December 4, 2012 until September 30, 2013; 4.50:1 from October 1, 2013 until September 30, 2014; 4.0:1 from October 1, 2014 until September 30, 2015; and 3.5:1 from October 1, 2015 and thereafter.  The Syndicated Loan Facility (as amended) also limits our ability, and our subsidiaries’ ability in certain cases, among other things, to: create liens; make certain investments or other restricted payments; merge or consolidate with other companies or sell substantially all of our assets; and enter into certain hedging transactions.  Additionally, the Syndicated Loan Facility (as amended) limits our subsidiaries’ ability to guarantee additional indebtedness issued by the Company and to incur additional indebtedness under certain circumstances.

 

***Peso Syndicated Loan Facility***

 

On June 15, 2011 we obtained a Ps.1,200 million, seven-year senior credit facility through a syndicate of banks (the “Peso Syndicated Loan Facility”).  The Peso Syndicated Loan Facility consists of a term loan maturing in June 2018 with yearly principal amortizations beginning in December 2015. Prior to the execution of the 2012 Bridge Loan Facility mentioned above, the permitted leverage ratio established under the Peso Syndicated Loan Facility was increased, and the interest rate grid was also modified, among other revisions made through the execution of an amendment dated December 3, 2012. After such amendment, the interest rate payable under the Peso Syndicated Loan Facility is the 91-day TIIE plus a spread between 137.5 and 262.5 basis points based on the Company’s ratio of total funded debt to EBITDA.  The Peso Syndicated Loan Facility (as amended) contains covenants that require the Company to maintain a ratio of consolidated EBITDA to interest charges of not less than 2.5:1, and to maintain a Maximum ratio of total funded debt to EBITDA of not more than 4.75:1 from December 4, 2012 until September 30, 2013; 4.50:1 from October 1, 2013 until September 30, 2014; 4.0:1 from October 1, 2014 until September 30, 2015; and 3.5:1 from October 1, 2015 and thereafter. The Peso Syndicated Loan Facility (as amended) also limits our ability, and our subsidiaries’ ability in certain cases, among other

 

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things, to: create liens; make certain investments or other restricted payments; merge or consolidate with other companies or sell substantially all of our assets; and enter into certain hedging transactions.  Additionally, the Peso Syndicated Loan Facility (as amended) limits our subsidiaries’ ability to guarantee additional indebtedness issued by the Company and to incur additional indebtedness under certain circumstances.

 

***Rabobank Loan Facility***

 

On June 15, 2011 we obtained a U.S.$50 million, five-year senior credit facility from Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A. (the “Rabobank Loan Facility”). On June 28, 2012, this facility was increased by U.S.$50 million to a total principal amount of U.S. $100 million.  Also, prior to the execution of the 2012 Bridge Loan Facility, the permitted leverage ratio established under the Rabobank Loan Facility was increased, and the interest rate grid was modified, among other revisions made through the execution of an amendment dated November 29, 2012. After such amendments, the Rabobank Loan Facility consists of a revolving loan facility, at an interest rate of LIBOR plus (a) 3.00% if the Company’s ratio of total funded debt to EBITDA is greater than or equal to 4.5x, (b) 2.75% if the Company’s Maximum Leverage Ratio is greater than or equal to 4.0x and less than 4.5x, (c) 2.50% if the Company’s Maximum Leverage Ratio is greater than or equal to 3.5x and less than 4.0x; (d) 2.25% if the Company’s Maximum Leverage Ratio is greater than or equal to 3.0x and less than 3.5x; (e) 2.00% if the Company’s Maximum Leverage Ratio is greater than or equal to 2.5x and less than 3.0x; (f) 1.75% if the Company’s Maximum Leverage Ratio is greater than or equal to 2.0x and less than 2.5x; and (g) 1.50% if the Company’s Maximum Leverage Ratio is less than 2.0x.  The Rabobank Loan Facility (as amended) contains covenants that require the Company to maintain a ratio of consolidated EBITDA to interest charges of not less than 2.5:1, and a Maximum Leverage Ratio of not more than 4.75:1 from December 4, 2012 until September 30, 2013; 4.50:1 from October 1, 2013 until September 30, 2014; 4.0:1 from October 1, 2014 until September 30, 2015; and 3.5:1 from October 1, 2015 and thereafter. The Rabobank Loan Facility (as amended) also limits our ability, and our subsidiaries’ ability in certain cases, among other things, to: create liens; make certain investments or other restricted payments; merge or consolidate with other companies or sell substantially all of our assets; and enter into certain hedging transactions.  Additionally, the Rabobank Loan Facility (as amended) limits our subsidiaries’ ability to guarantee additional indebtedness issued by the Company and to incur additional indebtedness under certain circumstances.

 

***2011 Bancomext Peso Facility***

 

On June 16, 2011 we obtained a Ps.600 million, seven-year senior credit facility from Bancomext (*Banco Nacional de Comercio Exterior*) (the “2011 Bancomext Peso Facility”).  Prior to the execution of the 2012 Bridge Loan Facility mentioned above, the permitted leverage ratio established under the 2011 Bancomext Peso Facility was increased, and the interest rate grid was modified, among other revisions made through the execution of an amendment dated December 7, 2012. After such amendment, the 2011 Bancomext Peso Facility consists of a term loan maturing in June 2018 at an interest rate of 91-day TIIE plus a spread between 137.5 and 262.5 basis points based on the Company’s ratio of total funded debt to EBITDA.  The 2011Bancomext Peso Facility contains a covenant that requires us to maintain a ratio of consolidated EBITDA to interest charges of not less than 2.5:1 as well as a covenant that requires us to maintain a maximum ratio of total funded debt to EBITDA of not more than 4.75:1 from December 8, 2012 until September 30, 2013; 4.50:1 from October 1, 2013 until September 30, 2014; 4.0:1 from October 1, 2014 until September 30, 2015; and 3.5:1 from October 1, 2015 and thereafter.  The 2011Bancomext Peso Facility also limits our ability, and our subsidiaries’ ability in certain cases to create liens.

 

On December 8, 2012 we entered into an amendment to this Facility in order to increase the existing permitted Leverage Ratio from December 8, 2012 until September 30, 2013, to equal or less than 4.75x; from October 1, 2013 until September 30, 2014, to equal or less than 4.5x; from October 1, 2014 until September 30, 2015, to equal or less than 4.0x and from October 1, 2015 and  thereafter, to equal or less than 3.5x.

 

**Other Information**

 

Our credit agreements currently in force and mentioned above contain event of default provisions, which include: (i) non-payment default regarding principal or interests; (ii) cross default and cross acceleration in connection with any other indebtedness of the Company; (iii) affirmative and negative covenants default; (iv) declaration or request of bankruptcy, liquidation or proceedings seeking concurso mercantil; (v) delivery of false or incorrect material information; and (vi) changes of control in the Company. The aforementioned events of default are applicable pursuant to the terms and conditions set forth in such credit agreements, including without limitation certain exceptions and baskets. For further details please review the text of our credit agreements attached hereto. Please See “Item 19 — Exhibits”.

 

As of December 31, 2012 we were in compliance with all of the covenants and obligations under our existing debt agreements.

 

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As of December 31, 2012, the Company had committed lines of credit for the amount of U.S.$425 million from banks in Mexico and the United States of which we have drawn U.S.$ 339 million dollars.

 

As of December 31, 2012, we had total cash and cash equivalents of Ps.1,287 million.

 

The following table presents our amortization requirements with respect to our total indebtedness as of December 31, 2012.

 
| **Year**            | ** ** | **In Millions of U.S. Dollars** | ** ** |
|---------------------|------------|-----------------------------------------------------|------------|
| 2013                |       | 619.8                                               |       |
| 2014                |       | 27                                                  |       |
| 2015                |       | 32.5                                                |       |
| 2016                |       | 452.8                                               |       |
| 2017 and thereafter |       | 417.8                                               |       |
| Total               |       | 1,549.9                                             |       |

 

The following table sets forth our ratios of consolidated debt to total capitalization (i.e., consolidated debt plus total stockholders’ equity) and consolidated liabilities to total stockholders’ equity as of the dates indicated.  For purposes of these ratios, consolidated debt includes short-term debt.

 
| **Date**               | ** ** | **Ratio of Consolidated Debt   to Total Capitalization** | ** ** | **Ratio of Consolidated   Liabilities to Total   Stockholders’ Equity** | ** ** |
|------------------------|------------|-----------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------|------------|
| December 31, 2010 |       | 0.63                                                                              |       | 2.63                                                                                                  |       |
| December 31, 2011 |       | 0.43                                                                              |       | 1.51                                                                                                  |       |
| December 31, 2012 |       | 0.58                                                                              |       | 2.45                                                                                                  |       |

 

**Capital Expenditures**

 

Our capital expenditure program continues to be primarily focused on our core businesses and markets.  Capital expenditures for 2010, 2011, and 2012 were U.S.$89 million, U.S.$191 million and U.S.$ 212 million, respectively.  During 2010, capital expenditures were mostly applied to general manufacturing and technology upgrades in Gruma Corporation and GIMSA, and the acquisition of the leading producer of corn grits in Ukraine.  During 2011, capital expenditures were primarily applied to production capacity expansions, manufacturing and technology upgrades, particularly in the U.S., Mexico and Europe.  We also made certain acquisitions throughout 2011, including the purchase of the leading producer of corn grits in Turkey, two tortilla plants in the U.S. and the leading tortilla manufacturer in Russia. During 2012, capital expenditures were applied primarily to production capacity expansions, general manufacturing and technology upgrades in Gruma Corporation and GIMSA.

 

We have budgeted approximately U.S.$ 130 million for capital expenditures in 2013, which we intend to use mainly for production capacity expansions, general manufacturing and technology upgrades, especially in Gruma Corporation and GIMSA.  We anticipate financing these expenditures throughout the year through internally generated funds and debt.

 

**Concentration of Credit Risk**

 

Our regular operations expose us to potential defaults when our suppliers and counterparties are unable to comply with their financial or other commitments.  We seek to mitigate this risk by entering into transactions with a diverse pool of counterparties.  However, we continue to remain subject to unexpected third party financial failures that could disrupt our operations.

 

We are also exposed to risk in connection with our cash management activities and temporary investments, and any disruption that affects our financial intermediaries could also adversely affect our operations.

 

Our exposure to risk due to trade receivables is limited given the large number of our customers located in different parts of Mexico, the United States, Central America, Venezuela, Europe, Asia and Oceania.  However, we still maintain reserves for potential credit losses.  Our operations in Venezuela represented 15% of our sales and 14% of total assets as of December 31, 2012.  The severe political and economic situation in Venezuela presents a risk to our business that we cannot control and that cannot be accurately measured or estimated.  For example, the Venezuelan government devalued its currency and established a two tier exchange structure

 

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on January 11, 2010.  Pursuant to Exchange Agreement No.14, the official exchange rate of the Venezuelan bolivar (“Bs.”) was devalued from Bs.2.15 to each U.S. dollar to Bs.4.30 for non-essential goods and services and to Bs.2.60 for essential goods.  However, effective January 4, 2011, the fixed exchange rate became 4.30 bolivars for all goods and services. On February 8, 2013, the National Executive, through the Central Bank of Venezuela and the Ministry of Popular Power for Planning and Finance, amended the Exchange Agreement to the effect that an exchange rate of 6.30 bolivars per U.S. dollar is applicable to all operations conducted in foreign currency effective as of February 9, 2013.

 

On May 12, 2010, the Republic published in the Expropriation Decree, which announced the forced acquisition of all goods, movables and real estate of MONACA. The Republic has expressed to GRUMA’s representatives that the Expropriation Decree extends to DEMASECA. On January 22, 2013, the Ministry of Popular Power for Internal Relations published a Providence designating Special Managers with the power to run MONACA and DEMASECA. As a consequence, we have determined that we lost control of Gruma Venezuela as of that date. We will deconsolidate Gruma Venezuela as of January 22, 2013 and account for it as a discontinued operation.

 

From time to time, we enter into currency and other derivative transactions that cover varying periods of time and have varying pricing provisions.  Our credit exposure on derivatives contracts is primarily to professional counterparties in the financial sector, arising from transactions with banks, investment banks and other financial institutions.  As of December 31, 2012, the Company had no open positions of foreign exchange derivative transactions. As of March 31, 2013, the Company had foreign exchange derivatives transactions in effect for a nominal amount of U.S.$ 274 million.  See “Item 11.  Quantitative and Qualitative Disclosures About Market Risk—Foreign Exchange.”

 

**Market Risk**

 

Market risk is the risk of loss generated by fluctuations in market prices such as commodities, interest rates and foreign exchange rates.  These are the main market risks to which we are exposed.

 

During 2012, we entered into short-term hedge transactions through commodity futures and options to hedge a portion of our requirements and as of December 31, 2012 these financial instruments that qualify as hedge accounting represented a favorable effect of Ps.119.3 million. Also, we have outstanding contracts of natural gas that did not qualify as hedge accounting and represented a favorable effect as of December 31, 2012, of Ps.17.1 million.

 

During 2012, GIMSA entered into forward transactions in order to hedge the Mexican peso to U.S. dollar foreign exchange rate risk related to the price of the corn purchases for the summer and winter corn harvests in Mexico. These foreign exchange derivative instruments did not qualify for hedging accounting. At December 31, 2012 we did not have open positions of these instruments.

 

The purpose of these contracts was to hedge the risks related to exchange rate fluctuations on the price of corn and wheat, which is denominated in U.S. dollars.  See “Item 11.  Quantitative and Qualitative Disclosures About Market Risk—Interest Rate Risk.”

 

**RESEARCH AND DEVELOPMENT**

 

We continuously engage in research and development activities that focus on, among other things: increasing the efficiency of our proprietary corn flour and corn/wheat tortilla production technology; maintaining high product quality; developing new and improved products and manufacturing equipment; improving the shelf life of certain corn and wheat products; improving and expanding our information technology system; engineering, plant design and construction; and compliance with environmental regulations.  We have obtained 58 patents in the United States since 1968.  Twenty one of these patents are in force and effect in the United States as of the date hereof and the remaining 37 have expired.  We currently have five new patents in process, one in the United States and four in other countries.  Additionally, three of our registered patents are currently in the process of being published in other countries.

 

Our research and development is conducted through our subsidiaries INTASA, Tecnomaíz and CIASA.  Through Tecnomaíz, we engage in the design, manufacture and sale of machines for the production of corn/wheat tortillas and tortilla chips.  We carry out proprietary technological research and development for corn milling and tortilla production as well as all engineering, plant design and construction through INTASA and CIASA.  These companies administer and supervise the design and construction of our new plants and also provide advisory services and training to employees of our corn flour and tortilla manufacturing facilities.  We spent Ps.137 million, Ps.91 million and Ps.77 million on research and development in 2012, 2011 and 2010, respectively.

 

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**TREND INFORMATION**

 

Our financial results will likely continue to be influenced by factors such as changes in the level of consumer demand for tortillas and corn flour, government policies regarding the Mexican tortilla and corn flour industry, and the cost of corn, wheat and wheat flour.  In addition, we expect our financial results in 2013 to be influenced by:

 

·                  volatility in corn and wheat prices;

 

·                  increased competition from tortilla manufacturers, especially in the U.S.;

 

·                  increase or decrease in the Hispanic population in the United States;

 

·                  increases in Mexican food consumption by the non-Hispanic population in the United States; as well as projected increases in Mexican food consumption and use of tortillas in non-Mexican cuisine as tortillas continue to be assimilated into mainstream cuisine in the U.S., Europe, Asia and Oceania, each of which could increase sales;

 

·                  volatility in energy costs;

 

·                  increased competition in the corn flour business;

 

·                  exchange rate fluctuations;

 

·                  civil and political unrest, currency devaluation and other governmental economic policies in Venezuela which may negatively affect the profitability of Gruma Venezuela; and

 

·                  unfavorable general economic conditions in the United States and globally, such as the recession or economic slowdown, which could negatively affect the affordability of and consumer demand for some of our products.

 

**OFF-BALANCE SHEET ARRANGEMENTS**

 

As of December 31, 2012 we do not have any outstanding off-balance sheet arrangements.

 

**CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS**

 

We have commitments under certain firm contractual arrangements to make future payments for goods and services.  These firm commitments secure the future rights to various assets to be used in the normal course of operations.  For example, we are contractually committed to making certain minimum lease payments for the use of property under operating lease agreements.  The following table summarizes separately our material firm commitments at December 31, 2012 and the timing and effect that such obligations are expected to have on our liquidity and cash flow in future periods.  In addition, the table reflects the timing of principal and interest payments on outstanding debt, which is discussed in “Item 5.  Operating and Financial Review and Prospects—Liquidity and Capital Resources—Indebtedness.” We expect to fund the firm commitments with operating cash flow generated in the normal course of business.

 
| **Contractual Obligations   and   Commercial Commitments** | ** ** | **Total**                                             | ** ** | **Less than   1 Year** | ** ** | **From 1 to 3   Years** | ** ** | **From 3 to 5   Years** | ** ** | **Over 5   Years** | ** ** |
|----------------------------------------------------------------------|------------|-------------------------------------------------------|------------|----------------------------------|------------|----------------------------------------|------------|----------------------------------------|------------|-------------------------|------------|
| ** **                                                           | ** ** | **(in millions of U.S. dollars)** | ** ** |
| Long-term debt obligations                                           |       | 928.7                                                 |       | —                           |       | 58.1                                   |       | 515.3                                  |       | 355.3                   |       |
| Operating lease obligations(1)                                       |       | 179.6                                                 |       | 47.1                             |       | 60.7                                   |       | 32.6                                   |       | 39.2                    |       |
| Finance lease obligations                                            |       | 2.9                                                   |       | 1.5                              |       | 0.9                                    |       | 0.5                                    |       | —                  |       |
| Purchase obligations(2)                                              |       | 262.3                                                 |       | 262.3                            |       | —                                 |       | —                                 |       | —                  |       |
| Interest payments on our indebtedness (3)                            |       | 254.6                                                 |       | 57.4                             |       | 83.4                                   |       | 65.5                                   |       | 48.3                    |       |
| Other liabilities(4)                                                 |       | 618.2                                                 |       | 618.2                            |       | —                                 |       | —                                 |       | —                  |       |
| Total                                                                |       | 2,246.3                                               |       | 986.5                            |       | 203.1                                  |       | 613.9                                  |       | 442.8                   |       |
| Total in millions of peso equivalent amounts                         |       | 29,226.0                                              |       | 12,834.5                         |       | 2,642.4                                |       | 7,988.2                                |       | 5,760.9                 |       |

 

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(1)      Operating lease obligations primarily relate to minimum lease rental obligations for our real estate and operating equipment in various locations.

 

(2)      Purchase obligations relate to our minimum commitments to purchase commodities, raw materials, machinery and equipment.

 

(3)      In the determination of our future estimated interest payments on our floating rate denominated debt, we used the interest rates in effect as of December 31, 2012.

 

(4)      Other relates to liabilities for short-term bank loans and the current portion of long-term debt.

 

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**ITEM 6         Directors, Senior Management and Employees**.

 

**MANAGEMENT STRUCTURE**

 

Our management is vested in our board of directors.  Our day to day operations are handled by our executive officers.

 

Our bylaws require that our board of directors be composed of a minimum of five and a maximum of twenty-one directors, as decided at our Ordinary General Shareholders’ Meeting.  Pursuant to the Mexican Securities Law, at least 25% of the members of the board of directors must be independent.  In addition, under Mexican law, any holder or group of holders representing 10% or more of our capital stock may elect one director and its corresponding alternate.

 

The board of directors, which was elected at the Ordinary General Shareholders’ Meeting held on April 26, 2013, currently consists of 12 directors, with each director having a corresponding alternate director. The following table sets forth the current members of our board of directors, their ages, years of service, principal occupations, outside directorships, other business activities and experience, their directorship classifications as defined in the Code of Best Corporate Practices issued by a committee formed by the *Consejo Coordinador Empresarial*, or Mexican Entrepreneur Coordinating Board, and their alternates. The terms of their directorships are for one year, or for up to thirty additional days if no designation of their substitute has been made or if the substitute has not taken office.

 
| Juan   A. González Moreno | Age:                     | 55                                                                                                                                                                                                                                                                                                                                          |
|--------------------------------|--------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                           | Years   as Director:     | 19                                                                                                                                                                                                                                                                                                                                          |
|                           | Principal   Occupation:  | Chairman   of the Board of GRUMA and GIMSA and Chief Executive Officer of GRUMA.                                                                                                                                                                                                                                                            |
|                           | Outside   Directorships: | Alternate   Director of Grupo Financiero Banorte and Chairman of the Board of Car Amigo   USA.                                                                                                                                                                                                                                              |
|                           | Business   Experience:   | Several   positions in GRUMA, including Chief Executive Officer of Special Projects of   Gruma Corporation, President of Azteca Milling, Vice President of Central and   Eastern Regions of Mission Foods, President and Vice President of Sales of   Azteca Milling, Chief Executive Officer of GIMSA and Gruma Asia &   Oceania. |
|                           | Directorship   Type:     | Related                                                                                                                                                                                                                                                                                                                                     |
|                           | Alternate:               | Roberto   González Valdés                                                                                                                                                                                                                                                                                                         |
|                           |                     |                                                                                                                                                                                                                                                                                                                                        |
| Carlos   Hank González    | Age:                     | 41                                                                                                                                                                                                                                                                                                                                          |
|                           | Years   as Director:     | Since   December 2012                                                                                                                                                                                                                                                                                                                  |
|                           | Principal   Occupation:  | Chief   Executive Officer of Grupo Financiero Interacciones and Grupo Hermes.                                                                                                                                                                                                                                                               |
|                           | Outside   Directorships: | Director of Grupo Hermes, Casa de Bolsa   Interacciones, Banco Interacciones and Bolsa Mexicana de Valores.                                                                                                                                                                                                                                 |
|                           | Business   Experience:   | Chief   Executive Officer of Casa de Bolsa Interacciones, Banco Interacciones and   Automotriz Hermer.                                                                                                                                                                                                                                      |
|                           | Directorship   Type:     | Shareholder,   Related                                                                                                                                                                                                                                                                                                                      |
|                           | Alternate:               | Graciela   González Moreno                                                                                                                                                                                                                                                                                                             |
|                           |                     |                                                                                                                                                                                                                                                                                                                                        |
| Gabriel A. Carrillo Medina     | Age:                     | 56                                                                                                                                                                                                                                                                                                                                          |
|                           | Years   as Director:     | Since   April 2013                                                                                                                                                                                                                                                                                                                     |
|                           | Principal   Occupation:  | President   and shareholder of Mail Rey and Detecno                                                                                                                                                                                                                                                                                         |
|                           | Outside   Directorships: | Director   of GIMSA.                                                                                                                                                                                                                                                                                                                        |
|                           | Business   Experience:   | President of Asociación de Casas de Bolsa de   Nuevo León and Club Deportivo San Agustín, several positions within   Interacciones Casa de Bolsa, including Chief Financial Officer.                                                                                                                                         |
|                           | Directorship   Type:     | Independent                                                                                                                                                                                                                                                                                                                                 |
|                           | Alternate:               | Gabriel   Carrillo Cattori                                                                                                                                                                                                                                                                                                                  |
|                           |                     |                                                                                                                                                                                                                                                                                                                                        |
| Mayra González Moreno     | Age:                     | 63                                                                                                                                                                                                                                                                                                                                          |
|                           | Years   as Director:     | Since   December 2012                                                                                                                                                                                                                                                                                                                  |
|                           | Principal   Occupation:  | Chairman of the Board of Saturitas                                                                                                                                                                                                                                                                                                          |
|                           | Outside   Directorships: | None                                                                                                                                                                                                                                                                                                                                        |

 

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|                                        | Business   Experience:   | Proprietary Advisory Member of the Board of   Trustees of Instituto Nacional de Enfermedades Respiratorias, Executive Chairman   of the Steering Committee of Fundación Domus Alipio and Secretary of the   Steering Committee of Fundación Eudes.    |
|---------------------------------------------|--------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                        | Directorship   Type:     | Related                                                                                                                                                                                                                                                         |
|                                        | Alternate:               | Edgar   Valverde Rubizewski                                                                                                                                                                                                                                     |
|                                        |                     |                                                                                                                                                                                                                                                            |
| Thomas   S. Heather Rodríguez          | Age:                     | 58                                                                                                                                                                                                                                                              |
|                                        | Years   as Director:     | Since   April 2013                                                                                                                                                                                                                                         |
|                                        | Principal   Occupation:  | Partner   of Heather & Heather.                                                                                                                                                                                                                        |
|                                        | Outside   Directorships: | Director   of GIMSA and Grupo Bimbo.                                                                                                                                                                                                                            |
|                                        | Business   Experience:   | Director   and Administrator of Satélites Mexicanos, Director of JP Morgan, Bank of   America México, Hoteles Nikko and Grupo Modelo.                                                                                                                 |
|                                        | Directorship   Type:     | Independent                                                                                                                                                                                                                                                     |
|                                        | Alternate:               | Eugenio   Sepúlveda Cosío                                                                                                                                                                                                                             |
|                                        |                     |                                                                                                                                                                                                                                                            |
| Homero Huerta Moreno                        | Age:                     | 50                                                                                                                                                                                                                                                              |
|                                        | Years   as Director:     | Since   April 2013                                                                                                                                                                                                                                         |
|                                        | Principal   Occupation:  | Chief   Administrative Officer of GRUMA.                                                                                                                                                                                                                        |
|                                        | Outside   Directorships: | None                                                                                                                                                                                                                                                            |
|                                        | Business   Experience:   | Several   positions within GRUMA including Finance and Administrative Vice President of   Gruma Venezuela.                                                                                                                                                      |
|                                        | Directorship   Type:     | Related                                                                                                                                                                                                                                                         |
|                                        | Alternate:               | Rogelio Sánchez Martínez                                                                                                                                                                                                                              |
|                                        |                     |                                                                                                                                                                                                                                                            |
| Mario   Martín Laborín Gómez | Age:                     | 61                                                                                                                                                                                                                                                              |
|                                        | Years   as Director:     | 4                                                                                                                                                                                                                                                               |
|                                        | Principal   Occupation:  | Chairman   of the Board of ABC Holding and Chief Executive Officer of ABC Holding and   ABC Capital.                                                                                                                                                            |
|                                        | Outside   Directorships: | Director   of GIMSA, CYDSA, XIGNUX, Megacable, VITRO, Astrum and Goldman Sachs.                                                                                                                                                                                 |
|                                        | Business   Experience:   | Chief   Executive Officer of Bancomext, Nacional Financiera, Bancomer and Grupo   Vector, Chairman of Casa de Bolsa Bancomer.                                                                                                                                   |
|                                        | Directorship   Type:     | Independent                                                                                                                                                                                                                                                     |
|                                        | Alternate:               | Alan Castellanos Carmona                                                                                                                                                                                                                                        |
|                                        |                     |                                                                                                                                                                                                                                                            |
| Juan   Manuel Ley López                | Age:                     | 80                                                                                                                                                                                                                                                              |
|                                        | Years   as Director:     | 19                                                                                                                                                                                                                                                              |
|                                        | Principal   Occupation:  | Chairman   of the Board of Casa Ley and Chief Executive Officer of Grupo Ley.                                                                                                                                                                                   |
|                                        | Outside   Directorships: | Director   of Grupo Financiero Banamex-Accival and Telmex.                                                                                                                                                                                                      |
|                                        | Business   Experience:   | Chief   Executive Officer of Casa Ley, Chairman of the Board of the Latin American   Association of Supermarkets, Sinaloa-Baja California Consultant Council of   Grupo Financiero Banamex-Accival and National Association of Supermarket and   Retail Stores. |
|                                        | Directorship   Type:     | Independent                                                                                                                                                                                                                                                     |
|                                        | Alternate:               | Juan   Manuel Ley Bastidas                                                                                                                                                                                                                                      |
|                                        |                     |                                                                                                                                                                                                                                                            |
| Eduardo   Livas Cantú                  | Age:                     | 70                                                                                                                                                                                                                                                              |
|                                        | Years   as Director:     | 20                                                                                                                                                                                                                                                              |
|                                        | Principal   Occupation:  | Member   of GRUMA’s Executive Committee.                                                                                                                                                                                                                   |
|                                        | Outside   Directorships: | Director of GIMSA, Grupo Financiero Banorte   and Industrias Alen.                                                                                                                                                                                              |
|                                        | Business   Experience:   | Business   consultant in different companies, several positions in GRUMA, including   Chief Executive Officer and Chief                                                                                                                                         |

 

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|                             |                     | Financial   Officer and Chief Executive Officer of Gruma Corporation.                                                                                                             |
|----------------------------------|--------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                             | Directorship   Type:     | Shareholder,   Related                                                                                                                                                            |
|                             | Alternate:               | Alfredo   Livas Cantú                                                                                                                                                        |
|                             |                     |                                                                                                                                                                              |
| Adrián   Sada González | Age:                     | 68                                                                                                                                                                                |
|                             | Years   as Director:     | 19                                                                                                                                                                                |
|                             | Principal   Occupation:  | Chairman   of the Board of VITRO.                                                                                                                                                 |
|                             | Outside   Directorships: | Director of ALFA, CYDSA, Consejo Mexicano de   Hombres de Negocios, and Grupo de Industriales de Nuevo León.                                                                 |
|                             | Business   Experience:   | Chairman   of the Board of Grupo Financiero Serfin and Chief Executive Officer of   Banpais.                                                                                      |
|                             | Directorship   Type:     | Independent                                                                                                                                                                       |
|                             | Alternate:               | Manuel Güemez de la Vega                                                                                                                                                     |
|                             |                     |                                                                                                                                                                              |
| Alberto   Santos Boesch          | Age:                     | 41                                                                                                                                                                                |
|                             | Years   as Director:     | Since   April 2013                                                                                                                                                           |
|                             | Principal   Occupation:  | President   of Empresas Santos, President and Chief Executive Officer of Ingenios Santos   and Vice President of Grupo Tres Vidas Acapulco.                                       |
|                             | Outside   Directorships: | Director of Axtel, Interpuerto   Monterrey, Fundación Santos y De la Garza Evia, Instituto Nuevo Amanecer   and En Nuestras Manos.                                 |
|                             | Business   Experience:   | President of Aeropuerto del Norte and Director   of Arena Monterrey.                                                                                                              |
|                             | Directorship   Type:     | Independent                                                                                                                                                                       |
|                             | Alternate:               | Carlos   González Bolio                                                                                                                                                      |
|                             |                     |                                                                                                                                                                              |
| Javier Vélez Bautista       | Age:                     | 56                                                                                                                                                                                |
|                             | Years as Director:       | 10                                                                                                                                                                                |
|                             | Principal Occupation:    | Member   of GRUMA’s Executive Committee.                                                                                                                                     |
|                             | Outside Directorships:   | Director of GIMSA and Financiamiento   Progresemos.                                                                                                                               |
|                             | Business Experience:     | Chief   Executive Officer of Value Link and Nacional Monte de Piedad, Executive Vice   President and Chief Financial Officer of GRUMA, project director at Booz   Allen Hamilton. |
|                             | Directorship Type:       | Related                                                                                                                                                                           |
|                             | Alternate:               | Jorge Vélez Bautista                                                                                                                                                         |

 

Juan Antonio González Moreno, Mayra González Moreno and Graciela González Moreno (jointly referred to as “Messrs. González Moreno”), members of our board of directors, are siblings. Homero Huerta Moreno, member of our board of directors, is the cousin of Messrs. González Moreno. Carlos Hank González, member of our board of directors, is the son of Graciela González Moreno and the nephew of Juan Antonio González Moreno and Mayra González Moreno. Roberto González Valdés, alternate member of our board of directors, is the nephew of Messrs. González Moreno.  Edgar Valverde Rubizewski, alternate member of our board of directors is the spouse of Mayra González Moreno.

 

Jorge Vélez Bautista, alternate member of our board of directors, is the brother of Javier Vélez Bautista. Alfredo Livas Cantú, alternate member of our board of directors, is the brother of Eduardo Livas Cantú. Juan Manuel Ley Bastidas, alternate member of our board of directors, is the son of Juan Manuel Ley López. Gabriel Carrillo Cattori, alternate member of our board of directors, is the son of Gabriel A. Carrillo Medina.

 

**Secretary**

 

The secretary of the board of directors is Mr. Salvador Vargas Guajardo, and his alternate is Mr. Guillermo Elizondo Ríos.  Mr. Vargas Guajardo is not a member of the board of directors.

 

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**Senior Management**

 

The following table sets forth our executive officers, their ages, years of service, current positions, and prior business experience:

 
| Juan   A. González Moreno   | Age:                          | 55                                                                                                                                                                                                                                                                                                                                          |
|----------------------------------|-------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                             | Years   as Executive Officer: | 9                                                                                                                                                                                                                                                                                                                                           |
|                             | Years   at GRUMA:             | 33                                                                                                                                                                                                                                                                                                                                          |
|                             | Current   Position:           | Chief   Executive Officer.                                                                                                                                                                                                                                                                                                                  |
|                             | Business   Experience:        | Several   positions in GRUMA, including Chief Executive Officer of Special Projects of   Gruma Corporation, President of Azteca Milling, Vice President of Central and   Eastern Regions of Mission Foods, President and Vice President of Sales of   Azteca Milling, Chief Executive Officer of GIMSA and Gruma Asia &   Oceania. |
|                             |                          |                                                                                                                                                                                                                                                                                                                                        |
| Raúl Cavazos Morales        | Age:                          | 53                                                                                                                                                                                                                                                                                                                                          |
|                             | Years   as Executive Officer: | 2                                                                                                                                                                                                                                                                                                                                           |
|                             | Years   at GRUMA:             | 25                                                                                                                                                                                                                                                                                                                                          |
|                             | Current   Position:           | Chief   Financial Officer.                                                                                                                                                                                                                                                                                                                  |
|                             | Other   Positions:            | Chief   Financial Officer of GIMSA.                                                                                                                                                                                                                                                                                                         |
|                             | Business   Experience:        | Several   finance positions within GRUMA, including Chief Treasury Officer and Vice   President of Corporate Treasury.                                                                                                                                                                                                                      |
|                             |                          |                                                                                                                                                                                                                                                                                                                                        |
| Leonel Garza Ramírez        | Age:                          | 63                                                                                                                                                                                                                                                                                                                                          |
|                             | Years   as Executive Officer: | 14                                                                                                                                                                                                                                                                                                                                          |
|                             | Years   at GRUMA:             | 27                                                                                                                                                                                                                                                                                                                                          |
|                             | Current   Position:           | Chief   Procurement Officer.                                                                                                                                                                                                                                                                                                                |
|                             | Business   Experience:        | Manager   of Quality and Corn Procurement and Vice President of Corn Procurement at   GRUMA, Chief Procurement Officer at GAMESA, Quality Control and Research and   Development Manager at Kellogg de México.                                                                                                                         |
|                             |                          |                                                                                                                                                                                                                                                                                                                                        |
| Homero   Huerta Moreno           | Age:                          | 50                                                                                                                                                                                                                                                                                                                                          |
|                             | Years   as Executive Officer: | 11                                                                                                                                                                                                                                                                                                                                          |
|                             | Years   at GRUMA:             | 28                                                                                                                                                                                                                                                                                                                                          |
|                             | Current   Position:           | Chief   Administrative Officer.                                                                                                                                                                                                                                                                                                             |
|                             | Business   Experience:        | Several   positions within GRUMA including Finance and Administrative Vice President of   Gruma Venezuela.                                                                                                                                                                                                                                  |
|                             |                          |                                                                                                                                                                                                                                                                                                                                        |
| Juan Antonio Quiroga García | Age:                          | 63                                                                                                                                                                                                                                                                                                                                          |
|                             | Years   as Executive Officer: | 15                                                                                                                                                                                                                                                                                                                                          |
|                             | Years   at GRUMA:             | 40                                                                                                                                                                                                                                                                                                                                          |
|                             | Current   Position:           | Chief   Corporate Officer.                                                                                                                                                                                                                                                                                                                  |
|                             | Other   Positions:            | Senior   Corporate Controller of GIMSA.                                                                                                                                                                                                                                                                                                     |
|                             | Business   Experience:        | Vice   President of Administration of Gruma Corporation, Chief Administrative and   Internal Auditing Officer of GRUMA, Vice President of Operations Control of   Gruma Corporation.                                                                                                                                                        |
|                             |                          |                                                                                                                                                                                                                                                                                                                                        |
| Felipe   Antonio Rubio Lamas     | Age:                          | 55                                                                                                                                                                                                                                                                                                                                          |
|                             | Years   as Executive Officer: | 11                                                                                                                                                                                                                                                                                                                                          |
|                             | Years   at GRUMA:             | 30                                                                                                                                                                                                                                                                                                                                          |
|                             | Current   Position:           | Chief   Technology Officer.                                                                                                                                                                                                                                                                                                                 |
|                             | Business   Experience:        | Several   managerial and Senior Vice President positions within Gruma Corporation   related to manufacturing processes, engineering, design, and construction of   production facilities.                                                                                                                                                   |

 

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| Salvador Vargas Guajardo | Age:                          | 60                                                                                                                                                           |
|--------------------------|-------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                     | Years   as Executive Officer: | 16                                                                                                                                                           |
|                     | Years   at GRUMA:             | 16                                                                                                                                                           |
|                     | Current   Position:           | General   Counsel.                                                                                                                                           |
|                     | Other   Positions:            | General   Counsel of GIMSA.                                                                                                                                  |
|                     | Business   Experience:        | Positions   at Grupo Alfa, Protexa and Proeza, Senior Partner of two law firms, including   Margáin-Rojas-González-Vargas-De la Garza y Asociados. |

 

Homero Huerta Moreno, our Chief Administrative Officer, is the cousin of Messrs. González Moreno.

 

**Audit and Corporate Governance Committees**

 

As required by the Mexican Securities Law, the Sarbanes-Oxley Act of 2002 and our bylaws, an audit committee and a corporate governance committee were appointed by the meeting of the board of directors held on April 24, 2013.  Members of the audit and corporate governance committees were selected from members of the board of directors.  Consequently, as required by the Mexican Securities Law and our bylaws, a chairman for each committee was elected by the General Ordinary Shareholders’ Meeting held on April 26, 2013, from among the members appointed by the board.

 

The current audit and corporate governance committees are comprised of three members, all of whom are independent directors.  Set forth below are the names of our audit and corporate governance committees members, their positions within the committees, and their directorship type:

 
| Mario   M. Laborín Gómez | Position:            | Chairman   and Financial Expert of the audit and corporate governance committees. |
|------------------------------------|----------------------|-----------------------------------------------------------------------------------|
|                               | Directorship   Type: | Independent                                                                       |
|                               |                 |                                                                              |
| Gabriel   A. Carrillo Medina       | Position:            | Member   of the audit and corporate governance committees.                        |
|                               | Directorship   Type: | Independent                                                                       |
|                               |                 |                                                                              |
| Thomas   S. Heather                | Position:            | Member   of the audit and corporate governance committees.                        |
|                               | Directorship   Type: | Independent                                                                       |

 

**Executive Committee**

 

An executive committee was created by the meeting of the board of directors held on February 27, 2013 to strengthen the link between the Board of Directors and the company’s management for the decision making process. Members of the executive committee were selected from members of the board of directors.

 

Set forth below are the names of our executive committee members, their positions, and their directorship type:

 
| Juan   Antonio González Moreno | Position:            | Chairman   of the Board of Directors and Chief Executive Officer |
|-------------------------------------|----------------------|------------------------------------------------------------------|
|                                | Directorship   Type: | Related                                                          |
|                                |                 |                                                             |
| Carlos   Hank González         | Position:            | Vice   Chairman of the Board of Directors                        |
|                                | Directorship   Type: | Related                                                          |
|                                |                 |                                                             |
| Eduardo Livas Cantú            | Position:            | Member   of the Board of Directors                               |
|                                | Directorship   Type: | Related                                                          |
|                                |                 |                                                             |
| Javier Vélez Bautista          | Position:            | Member   of the Board of Directors                               |
|                                | Directorship   Type: | Related                                                          |

 

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**COMPENSATION OF DIRECTORS AND SENIOR MANAGEMENT**

 

Members of the board of directors are paid a fee of Ps.80,000 for each board meeting they attend.  Additionally, members of the audit and corporate governance committees are paid a fee of Ps.40,000 for each committee meeting they attend.

 

For 2012, the aggregate amount of compensation paid to all directors, alternate directors, executive officers and audit and corporate governance committees members was approximately Ps.213 million.  The contingent or deferred compensation reserved as of December 31, 2012 was Ps.62.3 million.

 

We offer an Executive Bonus Plan that applies to managers, vice presidents, and executive officers.  The variable compensation under this plan can range from 21% to 100% of annual base compensation, depending upon the employee’s level, his individual performance and the results of our operations.

 

**EMPLOYEES**

 

As of December 31, 2012, we had a total of 21,974 employees, including 13,483 unionized and 8,491 non-unionized full- and part-time employees. Of this total, we employed 8,109 persons in Mexico, 7,050 in the United States, 2,160 in Central America, 2,515 in Venezuela, 787 in Asia & Oceania, and 1,353 in Europe. Total employees for 2010 and 2011 were 19,825 and 21,318, respectively. Of our total employees as of December 31, 2012, approximately 39% were white-collar and 61% were blue collar.

 

In Mexico, workers at each of our plants are covered by a separate contract, under which salary revisions take place once each year, usually in January or February. Non-salary provisions of these contracts are revised bi-annually.  We renewed agreements with the three unions that represent our workers in 2012.

 

In the United States, Gruma Corporation has five collective bargaining agreements that represent a total of 623 workers at five separate facilities (Pueblo, Tempe, Henderson, Omaha and Madera). We renewed such agreements on April 25, 2010, March 27, 2011 and January 22, 2011, respectively, and have entered into new agreements in Omaha on April 10, and in Madera on July 1, 2012.

 

In England, we have one collective bargaining agreement covering 25 employees at a facility, which is renewed every 12 months.

 

In the Netherlands, we are covered by a national labor agreement for bakery workers. This agreement is reviewed every six to twenty four months, depending on the term of the agreement.

 

In Australia, we have a collective bargaining agreement covering 271 employees at our facility, which is renewed every three years.

 

In Italy, we are covered by a national labor agreement for industrial feed staff. This agreement is reviewed every 12 to18 months nationally.

 

Wages are reviewed during the negotiations and wage increases processed according to the terms of each agreement as well as non-monetary provisions of the agreement. Wage reviews for non-union employees are conducted once each year, typically in March for Mission Foods and depending on the non-union plant, wage reviews are conducted from June through October for Azteca Milling. We believe our current labor relations are good.

 

**SHARE OWNERSHIP**

 

As of April 26, 2013, the following Directors and Senior Managers have GRUMA shares which in each case represent less than 1% of our outstanding shares: Eduardo Livas Cantú, Leonel Garza Ramírez and Juan A. Quiroga García. Carlos Hank González is the only director that beneficially owns more than 1% of GRUMA’s outstanding shares. In addition, based on publicly available information, the estate of the late Mr. Roberto González Barrera and his family owns directly and indirectly 279,301,152 shares representing approximately 61.07% of our outstanding shares.

 

**ITEM 7         Major Shareholders And Related Party Transactions**.

 

**MAJOR SHAREHOLDERS**

 

The following table sets forth certain information regarding the beneficial ownership of our capital stock as of April 26, 2013 (which consists entirely of Series B Shares), according to information on record obtained from our annual shareholders meeting held on such date. The estate of the late Roberto González Barrera and his family (the “Control Group”) is

 

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the only shareholder we know to own beneficially more than 5% of our capital stock.  We repurchased ADM’s stake in us in December 2012. See “Item 4.  Information on the Company—Share Purchase Transaction with Archer-Daniels-Midland”. See “Item 9.  The Offer and Listing” for a further discussion of our capital stock.  The major shareholder does not have different or preferential voting rights with respect to those shares they own.  As of April 26, 2013, our Series B shares were held by more than 680 record holders in Mexico.

 
| **Name**                              | ** ** | **Number of   Series B Shares** | ** ** | **Percentage of   Outstanding   Shares** | ** ** |
|---------------------------------------|------------|------------------------------------------------|------------|-----------------------------------------------|------------|
| Control Group (1)                     |       | 279,301,152                                    |       | 61.07                                         | %          |
| Directors and Officers as a Group (2) |       | 114,434                                        |       | 0.03                                          | %          |
| Other shareholders                    |       | 177,900,054                                    |       | 38.90                                         | %          |
|                                  |       |                                           |       |                                          |       |
| Total                                 |       | 457,315,640                                    | (3)        | 100                                           | %          |

 

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(1)      The shares beneficially owned by the Control Group include: 249,275,356 shares held indirectly by the Control Group through a trust, and 30,025,796 shares held indirectly by the aforementioned trust through a Mexican corporation jointly owned with GRUMA, S.A.B. de C.V. and controlled by the Control Group.

 

(2)     This includes the shares held by our directors and officers which represent less than 1% of our capital stock.

 

(3)      As of April 26, 2013, our capital stock was represented by 565,174,609 issued Series B, class I, no par value shares (“Series B shares”), of which 457,315,640 shares were outstanding, fully subscribed and paid, and 107,858,969 shares were held in our treasury.

 

The Control Group controls approximately 66.45% of our outstanding shares and therefore has the power to elect a majority of our 12 directors.  In addition, under Mexican law, any holder or group of holders representing 10% or more of our capital stock may elect one director.

 

We cannot assure you that the Control Group will continue to act together for purposes of control. Additionally, the Control Group may pledge part of its shares in us to secure any future borrowings. If such were the case and the Control Group were to default on its payment obligations, the lenders could enforce their rights with respect to such shares, and the Control Group could lose its controlling interest in us resulting in a change of control. A change of control could trigger a default in some of our credit agreements and the indenture governing our perpetual bonds and have a material adverse effect upon our business, financial condition, results of operations and prospects.

 

Other than changes resulting from the ADM Transaction, we are not aware of any significant changes in the percentage of ownership of any shareholders which held 5% or more of our outstanding shares during the past three years.

 

**RELATED PARTY TRANSACTIONS**

 

The transactions set forth below were made in the ordinary course of business, on substantially the same terms as those prevailing at the time for comparable transactions with other persons, and did not involve more than the normal risk of collectability or present other unfavorable features.

 

**Transactions with Subsidiaries**

 

We periodically enter into short-term credit arrangements with our subsidiaries, where we provide them with funds for working capital at market interest rates.

 

At their peak on March 24, 2011, the outstanding balance of loans from GIMSA to GRUMA were Ps.2,835 million and U.S.$20 million. The average interest rate for these loans from 2010 to March 31, 2013 was 6.75% for the loans in pesos and 4.76% for the loans in U.S. dollars. As of March 31, 2013, the outstanding balance of loans from GIMSA to Gruma was Ps.1,875 million, with an interest rate of CETES plus 1.25%.

 

In September of 2001, Gruma Corporation started to make loans to us. Since 2010 these operations, at their peak on December 2012, reached the amount of U.S.$50 million.  We borrowed money from Gruma Corporation at an average rate of 1.0% from 2010 to March 31, 2013.  As of March 31, 2013 we have no outstanding balance owing to Gruma Corporation or vice versa.  During 2012 we made loans to Gruma Corporation at an average interest rate of 2.0%. Since 2010 the intercompany loans between these two companies have significantly reduced due to the growth of both companies’ financing platforms.

 

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**Transactions with Archer-Daniels-Midland**

 

We entered into an association with Archer-Daniels-Midland in September 1996.  As a result of this association, (i) we received U.S.$258.0 million in cash, (ii) GRUMA and Archer-Daniels-Midland combined their U.S. corn flour operations under Azteca Milling, our wholly-owned U.S. corn flour operations, and, as a result, Archer-Daniels-Midland received a 20% partnership interest in Azteca Milling, and (iii) we received 60% of the capital stock of Molinera de México, Archer-Daniels-Midland’s wholly-owned Mexican wheat milling operations.  We also gained exclusivity rights from Archer-Daniels-Midland in specified corn flour and wheat flour markets.

 

In return, Archer-Daniels-Midland received 74,696,314 of our then newly issued shares, which represented approximately 22% of our total outstanding shares at that time, and 20% partnership interest in Azteca Milling, and retained 40% of the capital stock of Molinera de México.  Archer-Daniels-Midland also obtained the right to designate two of our directors and their corresponding alternates. Thereafter, Archer-Daniels-Midland acquired a 3% indirect stake in MONACA and DEMASECA.

 

On December 14, 2012, we acquired through the exercise of a purchase option pursuant to certain rights of first refusal (the “ADM Transaction”) the stake that Archer-Daniels-Midland owned directly and indirectly in the Company and certain of our subsidiaries (the “Equity Interests”), consisting of:

 

·                  18.81% of the issued shares of Gruma S.A.B. de C.V. and, indirectly, an additional 4.35% of the issued shares of Gruma, S.A.B. de C.V. via the acquisition of 45% of the shares of Valores Azteca, S.A. de C.V. (“Valores Azteca”), a company that owns 9.66% of the issued shares of Gruma, S.A.B. de C.V.;

 

·                  3% of the partnership interest of Valores Mundiales and Consorcio Andino, holding companies of our subsidiaries in Venezuela, MONACA and DEMASECA, respectively;

 

·                  40% of the shares of Molinera de Mexico, our wheat flour business in Mexico; and

 

·                  100% of the shares of Valley Holding Inc., a company that owns 20% of Azteca Milling, our corn flour business in the United States.

 

The Equity Interests were acquired from Archer-Daniels-Midland for US$450 million plus a contingent payment of up to US$60 million, which contingent payment is payable only if during the 42 months following the closing of the ADM Transaction certain conditions are met. See “Item 10.  Additional Information—Material Contracts.”  The economic terms of the ADM Transaction were based on the terms contained in the offer made by a third party to Archer-Daniels-Midland for the purchase of the Equity Interests.  As a result of the ADM Transaction, Archer-Daniels-Midland no longer holds an ownership interest in the Company.

 

Prior to the closing of the ADM Transaction and obtaining the Short-Term Facilities, the Board of Directors of GRUMA, with the previous favorable opinion of the Audit Committee and the Corporate Governance Committee based on a fairness opinion issued by an independent expert, approved the exercise by the Company of the option pursuant to a right of first refusal to acquire the Equity Interests and obtain the required financing. See “Item 5—Operating and Financial Review and Prospects—Indebtedness.”

 

During 2010, 2011, and 2012 we purchased U.S.$97 million, U.S.$147 million and U.S.$179 million, respectively, of inventory, including primarily wheat and corn, from Archer-Daniels-Midland Corporation, a shareholder during those years, at market rates and terms.  For more information regarding these transactions, please see “Item 4.  Information on the Company—Business Overview—Gruma Venezuela.”

 

**Other Transactions**

 

Until February 15, 2011, we held approximately 8.8% of the outstanding shares of GFNorte, a Mexican financial institution. On February 15, 2011, we concluded the sale of all of our shares of GFNorte’s capital stock.  As a result of the sale, GRUMA no longer holds any stake in GFNorte.

 

In the past, we obtained financing from GFNorte’s subsidiaries at market rates and terms.  For the past eight years, the highest outstanding loan amount has been Ps.600 million (in nominal terms) with an interest rate of 7.3% in June 2011.  In addition, we have insurance contracts in place with Seguros Banorte Generali, S.A. de C.V., a subsidiary of GFNorte, to manage certain risks associated with some of our subsidiaries.  In 2011 and 2012, we paid insurance premiums of approximately Ps.110,239 and Ps.114,422, respectively.

 

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For more information, please see Note 28 to our audited consolidated financial statements.

 

**ITEM 8         Financial Information**.

 

See “Item 18. Financial Statements.” For information on our dividend policy, see “Item 3.  Key Information—Selected Financial Data—Dividends.” For information on legal proceedings related to us, see “—Legal Proceedings.”

 

**LEGAL PROCEEDINGS**

 

In the ordinary course of business, we are party to various legal proceedings, none of which has had or we reasonably expect will have a material adverse effect on us.

 

**United States**

 

**Cox v. Gruma Corporation.**

 

On or about December 21, 2012, a consumer filed a putative class action against Gruma Corporation, claiming that Mission tortilla chips should not be labeled “All Natural” if they contain certain non-natural ingredients. The plaintiff seeks restitution or other actual damages including attorneys’ fees. Gruma Corporation believes that the claims have no merit and filed a motion to dismiss. In response to the motion to dismiss, plaintiff filed a First Amended Complaint. Gruma filed a motion to dismiss the First Amended Complaint on April 10, 2013. We intend to vigorously defend against this action.  It is the opinion of the Company that the outcome of this proceeding will not have a material adverse effect on the financial position, results of operations or cash flows of the Company.

 

**Mexico**

 

**Asset Tax Claim.**

 

The *Secretaría de Hacienda y Crédito Público*, or Ministry of Finance and Public Credit, lodged certain tax assessments against the Company for an amount of Ps.34.3 million plus penalties, updates and charges, in connection with our asset tax return for the year 1997. The Company filed a motion to reduce or annul these assessments and received a favorable judgment reducing the claimed amount to Ps.19.7 million, including updates. Thereafter, on September 3, 2012 the Company requested the Ministry of Finance and Public Credit a partial condonation of such assessment, by which the Company paid Ps.14.5 million on September 28, 2012 to finalize the dispute.

 

**Income Tax Claims.**

 

The Ministry of Finance and Public Credit has lodged certain tax assessments against the Company for an amount of Ps.29.9 million in connection with withholding on interest payments to our foreign creditors during the years 2001 and 2002. Mexican authorities claim that the Company should have withheld at a higher rate than the 4.9% actually withheld by the Company. The Company has filed several motions to annul these assessments which are pending resolution. We intend to defend against these claims vigorously, and we believe that the outcome of these claims will not have a material effect on our financial position, results of operation or cash flows.

 

The Ministry of Finance and Public Credit also lodged certain tax assessments against our Company for an amount of Ps.63.6 million in connection with withholding on interest payments to our foreign creditors during the year 2000. Notwithstanding, the Company initiated several proceedings to annul such assessments, which resulted in a judgment favorable to the Company in May 2012, finalizing the dispute.

 

**CNBV Investigation.**

 

On December 8, 2009, the Surveillance Office of the *Comisión Nacional Bancaria y de Valores* (the Mexican National Banking and Securities Commission, or CNBV) began an investigation into the Company in respect of the timely disclosure of material events reported through the Mexican Stock Exchange during the end of 2008 and throughout 2009 in connection with the Company’s foreign exchange derivative losses and the subsequent conversion of the realized losses into debt.  In 2011, the CNBV commenced an administrative proceeding against the Company for alleged infringements to applicable legislation.  The Company has participated in this proceeding in order to demonstrate its compliance with current legislation and to adopt applicable defenses as deemed appropriate in order to protect Gruma’s interests.  As of this date, the aforementioned proceeding is ongoing, and the CNBV has not issued a final resolution in connection therewith.

 

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We intend to vigorously defend against these actions and proceedings.  It is the opinion of the Company that the outcome of this proceeding will not have a material adverse effect on the financial position, results of operations or cash flows of the Company.

 

**Venezuela**

 

**Expropriation Proceedings by the Venezuelan Government.**

 

On May 12, 2010, the Republic published the Expropriation Decree, which announced the forced acquisition of all goods, movables and real estate of MONACA.  The Republic has expressed to GRUMA’s representatives that the Expropriation Decree extends to DEMASECA.

 

GRUMA’s interests in MONACA and DEMASECA are held through two Spanish companies: Valores Mundiales and Consorcio Andino, respectively.  In 2010, Valores Mundiales and Consorcio Andino commenced negotiations with the Republic with the intention of reaching an amicable settlement.  Through Valores Mundiales and Consorcio Andino, GRUMA participated in these negotiations with a view to (i) continuing its presence in Venezuela by potentially entering into a joint venture with the Venezuelan government; and/or (ii) seeking adequate compensation for the assets subject to expropriation.

 

The Republic and the Kingdom of Spain are parties to the Investment Treaty, under which the Investors may settle investment disputes by means of arbitration before ICSID.  On November 9, 2011, the Investors, MONACA and DEMASECA validly provided formal notice to the Republic that an investment dispute had arisen as a consequence of the Expropriation Decree and related measures adopted by the Republic.  In that notification, the Investors, MONACA, and DEMASECA also gave their consent to submission of the dispute to ICSID arbitration if the parties were unable to reach an amicable agreement.

 

On January 22, 2013, the Venezuelan Government issued a resolution providing the right to take control over the operations of MONACA and DEMASECA.

 

While negotiations with the government have taken place and may take place from time to time, the Company cannot assure that such negotiations will be successful or will result in the Investors receiving adequate compensation, if any, for their investments subject to the Expropriation Decree.  Additionally, the Company cannot predict the results of any arbitral proceeding, or the ramifications that costly and prolonged legal disputes could have on its results of operations or financial position, or the likelihood of collecting a favorable arbitration award.  The Company and its subsidiaries reserve and intend to continue to reserve the right to seek full compensation for any and all expropriated assets and investments under applicable law, including investment treaties and customary international law. For more information, please see Note 27 to our audited consolidated financial statements.

 

**Intervention Proceedings by the Venezuelan Government.**

 

On December 4, 2009, the Eleventh Investigations Court for Criminal Affairs of Caracas issued an order authorizing the precautionary seizure of assets in which Ricardo Fernández Barrueco had any interest.  As a result of Ricardo Fernández Barrueco’s former indirect minority ownership of MONACA and DEMASECA, these subsidiaries were subject to the precautionary measure. Between 2009 and 2012, the Ministry of Finance of Venezuela, pursuant to the precautionary measure ordered by the court, designated several special managers of the indirect minority shareholding that Ricardo Fernández Barrueco had previously owned in MONACA and DEMASECA.  On January 22, 2013, the Ministry of Justice and Internal Relations revoked the prior designations made by the Ministry of Finance of Venezuela and made a new designation of individuals as special managers and representatives of the Republic of Venezuela in MONACA and DEMASECA, conferring on them the power to take control of the operations of these companies.

 

MONACA and DEMASECA, as well as Consorcio Andino and Valores Mundiales, as holders of the Venezuelan subsidiaries, filed a petition as aggrieved third-parties in the proceedings against Ricardo Fernández Barrueco challenging the precautionary measures and all related actions.  On November 19, 2010, the Eleventh Investigations Court for Criminal Affairs of Caracas ruled that MONACA and DEMASECA are companies wholly owned by Valores Mundiales and Consorcio Andino, respectively.  In spite of this ruling, the court kept the precautionary measures issued on December 4, 2009 in effect.  An appeal has been filed, which is pending resolution as of this date.

 

The People’s Defense Institute for the Access of Goods and Services of Venezuela (“INDEPABIS”) issued an order, on a precautionary basis, authorizing the temporary occupation and operation of MONACA for a period of 90 calendar days from December 16, 2009, which was renewed for the same period on March 16, 2010.  The order expired on June 16, 2010 and as of the date hereof MONACA has not been notified of any extension or similar measure.  INDEPABIS has also initiated a regulatory proceeding against MONACA in connection with alleged failure to comply with regulations governing precooked corn flour and for

 

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allegedly refusing to sell this product as a result of the December 4, 2009 precautionary asset seizure described above. MONACA filed an appeal against these proceedings which has not been resolved as of the date hereof.

 

Additionally, INDEPABIS initiated an investigation of DEMASECA and issued an order, on a precautionary basis, authorizing the temporary occupation and operation of DEMASECA for a period of 90 calendar days from May 25, 2010, which was extended until November 21, 2010.  INDEPABIS issued a new precautionary measure of occupation and temporary operation of DEMASECA, valid for the duration of this investigation.  DEMASECA has challenged these measures but as of the date hereof, no resolution has been issued.  The proceedings are still pending.

 

The Company intends to exhaust all legal remedies available in order to safeguard and protect the Company’s legitimate interests.

 

**Other Claims.**

 

MONACA was named in several labor lawsuits related to occupational diseases and workplace accidents, issues related to social security and by representatives of freighters. MONACA, based on the opinion of its legal counsel, has recorded a provision to cover potential liabilities that may arise for these items by Ps.9,270 (Ps.17,438 at December 31, 2011), which is presented as Provisions. See Note 17 to our audited consolidated financial statements.

 

In the normal course of operations of MONACA, there are judgments and claims, whose final outcome cannot be quantified.  Management, based on the opinion of its legal counsel, believes that such lawsuits and claims are without legal merit and that the legal remedies will be favorably received.

 

There are also other lawsuits, labor and tax claims against MONACA, which have been assumed by the previous shareholder International Multifoods Corporation, in accordance with the share purchase agreement of 1999.

 

**ITEM 9         The Offer And Listing.**

 

**TRADING HISTORY**

 

Our Series B Shares have been traded on the *Bolsa Mexicana de Valores, S.A.B. de C.V.*, or Mexican Stock Exchange, since 1994.  The ADSs, each representing four Series B Shares, commenced trading on the New York Stock Exchange in November 1998.  As of December 31, 2012, our capital stock was represented by 565,174,609 issued Series B shares, of which 457,315,640 shares were outstanding, fully subscribed and paid, and 107,858,969 shares were held in our treasury.  As of December 31, 2012, 69,326,292  Series B shares of our common stock were represented by 17,331,573  ADSs held by 6 record holders in the United States.

 

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**PRICE HISTORY**

 

The following table sets forth, for the periods indicated, the annual high and low closing sale prices for the Series B Shares and the ADSs as reported by the Mexican Stock Exchange and the New York Stock Exchange, respectively.

 
| ** **                  | ** ** | **Mexican Stock Exchange** | ** ** | **NYSE**                      | ** ** |
|-----------------------------|------------|--------------------------------------|------------|-------------------------------|------------|
| ** **                  | ** ** | **Common Stock**                | ** ** | **ADS(2)**                    | ** ** |
| ** **                  | ** ** | **High**                             | ** ** | **Low**                       | ** ** | **High** | ** ** | **Low** | ** ** |
| ** **                  | ** ** | **(Ps. Per share(1))**     | ** ** | **(U.S.$ per ADS)** | ** ** |
| **Annual Price History**    |       |                                 |       |                          |       |   |   |   |   |
| 2008                        |       | 35.01                                |       | 5.85                          |       | 13.03 |   | 1.76 |   |
| 2009                        |       | 25.67                                |       | 3.67                          |       | 7.89 |   | .9214 |   |
| 2010                        |       | 28.70                                |       | 16.97                         |       | 8.99 |   | 5.20 |   |
| 2011                        |       | 28.66                                |       | 19.61                         |       | 8.96 |   | 6.33 |   |
| 2012                        |       | 41.54                                |       | 26.45                         |       | 12.76 |   | 7.79 |   |
| **Quarterly Price History** |       |                                 |       |                          |       |   |   |   |   |
| 2010                        |       |                                 |       |                          |       |   |   |   |   |
| 1st Quarter            |       | 28.70                                |       | 23.80                         |       | 8.98 |   | 7.33 |   |
| 2nd Quarter            |       | 27.77                                |       | 19.20                         |       | 8.99 |   | 5.81 |   |
| 3rd Quarter            |       | 21.28                                |       | 16.97                         |       | 6.63 |   | 5.20 |   |
| 4th Quarter            |       | 24.94                                |       | 17.96                         |       | 8.05 |   | 5.67 |   |
| 2011                        |       |                                 |       |                          |       |   |   |   |   |
| 1st Quarter            |       | 27.24                                |       | 22.17                         |       | 8.96 |   | 7.19 |   |
| 2nd Quarter            |       | 24.71                                |       | 19.61                         |       | 8.36 |   | 6.63 |   |
| 3rd Quarter            |       | 25.39                                |       | 20.00                         |       | 8.60 |   | 6.33 |   |
| 4th Quarter            |       | 28.66                                |       | 23.10                         |       | 8.54 |   | 6.90 |   |
| 2012                        |       |                                 |       |                          |       |   |   |   |   |
| 1st Quarter            |       | 34.39                                |       | 26.45                         |       | 10.77 |   | 7.79 |   |
| 2nd Quarter            |       | 38.94                                |       | 30.09                         |       | 11.81 |   | 8.58 |   |
| 3rd Quarter            |       | 36.88                                |       | 33.26                         |       | 11.26 |   | 9.83 |   |
| 4th Quarter            |       | 41.54                                |       | 35.87                         |       | 12.76 |   | 10.66 |   |
| 2013                        |       |                                 |       |                          |       |   |   |   |   |
| 1st Quarter            |       | 57.48                                |       | 39.50                         |       | 18.65 |   | 12.32 |   |
| **Monthly Price History**   |       |                                 |       |                          |       |   |   |   |   |
| October 2012           |       | 41.54                                |       | 35.87                         |       | 12.76 |   | 11.15 |   |
| November 2012          |       | 38.20                                |       | 36.30                         |       | 11.67 |   | 10.60 |   |
| December 2012          |       | 39.39                                |       | 36.82                         |       | 12.32 |   | 11.39 |   |
| January 2013           |       | 44.06                                |       | 39.50                         |       | 13.85 |   | 12.32 |   |
| February 2013          |       | 45.42                                |       | 40.43                         |       | 14.03 |   | 12.68 |   |
| March 2013             |       | 57.48                                |       | 44.84                         |       | 18.65 |   | 14.06 |   |
| April 2013 (3)         |       | 54.96                                |       | 52.59                         |       | 18.05 |   | 17.02 |   |

 

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

 

(2) Price per ADS in U.S.$; one ADS represents four Series B Shares.

 

(3) As of April 19, 2013.

 

On April 19, 2013, the last reported sale price of the B Shares on the Mexican Stock Exchange was Ps. 53.71 per B Share.  On April 19, 2013, the last reported sale price of the ADSs on the New York Stock Exchange was U.S.$ 17.54 per ADS.

 

**MEXICAN STOCK EXCHANGE**

 

The Mexican Stock Exchange, located in Mexico City, is the only stock exchange in Mexico.  Founded in 1907, it is organized as a corporation whose shares were originally held by brokerage firms, which are exclusively authorized to trade on the exchange.  As of June 13, 2008 the Mexican Stock Exchange became a publicly traded company.  Trading on the Mexican Stock Exchange takes place principally through automated systems and is open between the hours of 8:30 a.m. and 3:00 p.m.  Mexico City time, each business day.  Trades in securities listed on the Mexican Stock Exchange can also be performed off the exchange.  The

 

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Mexican Stock Exchange operates a system of automatic suspension of trading in shares of a particular issuer as a means of controlling excessive price volatility.

 

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

 

As of June 2, 2001, the Mexican Securities Law requires issuers to increase the protections offered to minority shareholders and to impose corporate governance controls on Mexican listed companies in line with international standards.  The Mexican Securities Law expressly permits Mexican listed companies, with prior authorization from the CNBV, to include in their bylaws antitakeover defenses such as shareholder rights plans, or poison pills.  Our bylaws include certain of these protections.  See “Additional Information—Bylaws—Antitakeover Protections.”

 

**MARKET MAKER**

 

On September 30, 2009, we entered into an agreement with UBS Casa de Bolsa (“UBS”) pursuant to which UBS acts as a market maker for our common shares listed on the Mexican Stock Exchange.  The purpose of the agreement is to provide liquidity for the Company’s shares.  This agreement has been extended in several occasions throughout 2010, 2011 and 2012.  On March 15, 2013 the agreement was extended until December 15, 2013.

 

**ITEM 10       Additional Information.**

 

**BYLAWS**

 

Set forth below is a brief summary of certain significant provisions of our bylaws, according to their last comprehensive amendment.  This description does not purport to be complete and is qualified by reference to our bylaws, which are incorporated as an exhibit to this Annual Report.

 

The new Mexican Securities Law of 2006 included provisions seeking to improve the applicable regulations on disclosure of information, minority shareholder rights and corporate governance of the issuers, among other matters.  It also imposes additional duties and liabilities on the members of the board of directors as well as senior officers.  Thus, we were required to carry out a comprehensive amendment of our bylaws through an extraordinary general shareholders’ meeting held on November 30, 2006.

 

**Incorporation and Register**

 

We were incorporated in Monterrey, Mexico on December 24, 1971 as a corporation (*Sociedad Anónima de Capital Variable*) under the Mexican Corporations Law, for a term of 99 years.  On November 30, 2006 we became a publicly held corporation (*Sociedad Anónima Bursátil de Capital Variable*), a special corporate form for all Mexican publicly traded companies pursuant to the regulations of the new Mexican Securities Law.

 

**Corporate Purpose**

 

Our main corporate purpose, as fully described in Article Second of our bylaws, is to serve as a holding company and to engage in various activities such as: (i) purchasing, selling, importing, exporting, and manufacturing all types of goods and products, (ii) issuing any kind of securities and taking all actions in connection therewith (iii) creating, organizing and managing all types of companies, (iv) acting as an agent or representative, (v) purchasing, selling and holding real property, (vi) performing or receiving professional, technical or consulting services, (vii) establishing branches, agencies or representative offices, (viii) acquiring, licensing, or using intellectual or industrial property, (ix) granting and receiving loans, (x) subscribing, issuing and negotiating all types of credit instruments, and (xi) performing any acts necessary to accomplish the foregoing.

 

**Directors**

 

Our bylaws provide that our management shall be vested in the board of directors and our Chief Executive Officer.  Each director is elected by a simple majority of the shares.  Under Mexican law and our bylaws, any holder or group of holders owning 10% or more of our capital stock may elect one director and its corresponding alternate.  The board of directors must be comprised of a minimum of five and a maximum of twenty-one directors, as determined by the shareholders at the annual ordinary general

 

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shareholders’ meeting.  Additionally, under the Mexican Securities Law, at least 25% of the members of the board of directors must be independent.  Currently, our board of directors consists of 12 members.

 

The board of directors shall meet at least four times a year.  These meetings can be called by the Chairman of the board of directors, the Chairman of the Audit and Corporate Governance Committees, or by 25% of the members of the board of directors.  The directors serve for a one year term, or for up to 30 (thirty) additional days, if no designation of their substitute has been made or if the substitute has not taken office.  Directors receive compensation as determined by the shareholders at the annual ordinary general shareholders’ meeting.  The majority of directors are needed to constitute a quorum, and board resolutions must be passed by a majority of the votes present at any validly constituted meeting or by unanimous consent if no meeting is convened.

 

Our bylaws provide that the board of directors has the authority and responsibility to: (i) set the general strategies for the business of the Company; (ii) oversee the performance and conduct of business of the Company; (iii) oversee the main risks encountered by the Company, identified by the information submitted by the committees, the Chief Executive Officer and the firm providing the external auditing services; (iv) approve the information and communication policies with shareholders and the market; and (v) instruct the Chief Executive Officer to disclose to the investor public any material information when known.

 

Additionally, the board of directors has the authority and responsibility to approve, with the previous opinion of the corresponding Committee: (i) the policies for the use of the Company’s assets by any related party; (ii) related party transactions other than those occurring in the ordinary course of business, those of insignificant amount, and those deemed as done within market prices; (iii) the purchase or sale of 5% or more of our corporate assets; (iv) granting of warranties or the assumption of liabilities for more than 5% of our corporate assets; (v) the appointment, and in its case, removal of the Chief Executive Officer, as the designation of integral compensation policies for all other senior officers; (vi) internal control and internal audit guidelines; (vii) the Company’s accounting guidelines; (viii) the Company’s financial statements; and (ix) the hiring of the firm providing external audit services and, in its case, any services additional or supplemental to the external audit.  The approval of the board in all of these matters is non-delegable.

 

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

 

**Audit and Corporate Governance Committees**

 

Under our bylaws and in accordance with the Mexican Securities Law, the board of directors, through the Audit and Corporate Governance Committees as well as through the firm performing the external audit, shall be in charge of the surveillance of the Company.  Such Committees should be exclusively comprised by independent directors and by a minimum of three members, elected by the board of directors at the proposal of the Chairman of the Board.  The Chairman of such Committees shall be exclusively designated and/or removed from office by the annual ordinary general shareholders’ meeting.

 

For the performance of its duties, the Corporate Governance Committee shall: (i) render its opinion to the board of directors, pursuant to the Mexican Securities Law; (ii) request the opinion of independent experts, when deemed convenient; (iii) convene shareholders meetings and include issues in the agenda they deem appropriate; (iv) assist the board of directors when making the annual reports; and (v) be responsible for other activity provided by law or our bylaws.

 

Likewise, for the performance of its duties, the Audit Committee shall: (i) render its opinion to the board of directors, pursuant to the Mexican Securities Law; (ii) request the opinion of independent experts when deemed convenient; (iii) convene shareholders meetings and include issues in the agenda they deem appropriate; (iv) assess the performance of the external auditing firm, as well as analyze the opinions and reports rendered by the external auditor; (v) discuss the financial statements of the Company and, if appropriate, recommend its approval to the board of directors; (vi) inform the board of directors of the condition of the internal controls and internal auditing systems, including any irregularities detected therein; (vii) prepare the opinion of the report rendered by the Chief Executive Officer; (viii) assist the board of directors when making the annual reports; (ix) request from the senior officers and from other employees, reports relevant to the preparation of the financial information and of any other kind deemed necessary for the performance of their duties; (x) investigate possible irregularities within the Company, as well as carry out the actions deemed appropriate; (xi) request meetings with senior officers in connection with the internal control and internal audit; (xii) inform the board of directors about the material irregularities detected while exerting their duties, and in case of any irregularities, notify the board of directors of any corrective measures taken; (xiii) ensure that the Chief Executive Officer complies with the resolutions taken by the Shareholders’ Meetings and by the board of directors; (xiv) oversee the establishment of internal controls in order to verify that the transactions of the Company conform to the applicable legal regulations; and (xv) be responsible of any other activity provided by law or our bylaws.

 

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** **

**Fiduciary Duties - Duty of Diligence**

 

Our bylaws and the Mexican Securities Law provide that the directors shall act in good faith and in our best interest.  In order to fulfill this duty, our directors may: (i) request information about us that is reasonably necessary to take actions; (ii) require the presence of any officers or other key employees, including the external auditors, that may contribute elements for taking actions at board meetings; (iii) postpone board meetings when a director has not been given sufficient notice of the meeting or in the event that a director has not been provided with the information provided to the other directors; and (iv) discuss and vote on any item requesting, if deemed convenient, the exclusive presence of the members and the secretary of the board of directors.

 

Our directors may be liable for damages caused when breaching their duty of diligence if such failure causes economic damage to the Company or our subsidiaries, as well as if the director: (i) fails to attend board or committee meetings and, as a result of such absence, the board was unable to take action, unless such absence is approved by the shareholders meeting; (ii) fails to disclose to the board of directors or the committees material information necessary to reach a decision; and/or (iii) fails to comply with its duties imposed by the Mexican Securities Law or our bylaws.  Members of the board of directors may not represent shareholders at any shareholders’ meeting.

 

**Fiduciary Duties - Duty of Loyalty**

 

Our bylaws and the Mexican Securities Law provide that the directors and secretary of the board shall keep confidential any non-public information and matters about which they have knowledge as a result of their position.  Also, directors must abstain from participating, attending or voting at meetings related to matters where they have or may have a conflict of interest.

 

The directors and secretary of the board of directors will be deemed to have violated their duty of loyalty and will be liable for any damages when they, directly or through third parties, obtain an economic benefit by virtue of their position without legitimate cause.  Furthermore, the directors will fail to comply with their duty of loyalty if they: (i) vote at a board meeting or take any action where there is a conflict of interest; (ii) fail to disclose a conflict of interest they may have during a board meeting; (iii) knowingly favor a particular shareholder of the Company against the interests of other shareholders; (iv) approve related party transactions without complying with the requirements of the Mexican Securities Law; (v) use Company assets in a manner which infringes upon the policies approved by the board of directors; (vi) unlawfully use material non-public information of the Company; and/or (vii) usurp a corporate business opportunity for their own benefit, or the benefit of a third party, without the prior approval of the board of directors.  Our directors may be liable for damages when breaching their duty of loyalty if such failure causes economic damage to the Company or our subsidiaries.

 

**Civil Actions Against Directors**

 

Under Mexican law, shareholders can initiate actions for civil liabilities against directors through resolutions passed by a majority of the shareholders at a general ordinary shareholders’ meeting.  In the event the majority of the shareholders decide to bring such action, the director against whom such action is brought will immediately cease to be a member of the board of directors.  Additionally, shareholders representing not less than 5% of our outstanding shares may directly bring such action against directors.  Any recovery of damages with respect to such action will be for our benefit and not for the benefit of the shareholders bringing the action.

 

**Chief Executive Officer**

 

According to our bylaws and the Mexican Securities Law, the Chief Executive Officer shall be in charge of running, conducting and executing the Company’s business, complying with the strategies, policies and guidelines approved by the board of directors.

 

For the performance of its duties the Chief Executive Officer shall: (i) submit, for the approval of the board of directors, the business strategies of the Company; (ii) execute the resolutions of the Shareholders’ Meetings and of the board of directors; (iii) propose to the Audit Committee, the internal control system and internal audit guidelines of the Company, as well as execute the guidelines approved thereof by the board of directors; (iv) disclose any material information and events that should be disclosed to the investor public; (v) comply with the provisions relevant to the repurchase and placement transactions of the Company’s own stock; (vi) exert any corresponding corrective measures and liability suits; (vii) assure that adequate accounting, registry and information systems are maintained by the Company; (viii) prepare and submit to the board of directors his annual report; (ix) establish mechanisms and internal controls permitting certification that the actions and transactions of the Company conform to the applicable regulations; and (x) exercise his right to file the liability suits referred to in the Mexican Securities Law against related parties or third parties that allegedly cause damage to the Company.

 

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**Voting Rights and Shareholders’ Meetings**

 

Each share entitles the holder thereof to one vote at any general meeting of our shareholders.  Shareholders may vote by proxy.  At the ordinary general shareholders’ meeting, any shareholder or group of shareholders representing 10% or more of the outstanding capital stock has the right to appoint one director and his corresponding alternate, with the remaining directors being elected by majority vote.

 

General shareholders’ meetings may be ordinary or extraordinary.  Extraordinary general shareholders’ meetings are called to consider matters specified in Article 182 of the Mexican Corporations Law, including, principally, changes in the authorized fixed share capital and other amendments to the bylaws, the issuance of preferred stock, the liquidation, merger and spin-off of the Company, changes in the rights of security holders, and transformation from one corporate form to another.  All other matters may be approved by an ordinary general shareholders’ meetings.  Ordinary general shareholders’ meetings must be called to consider and approve matters specified in Article 181 of the Mexican Corporations Law, including, principally, the appointment of the members of the board of directors and the Chairman of the Audit and Corporate Governance Committees, the compensation paid to the directors, the distribution of our profits for the previous year, and the annual reports presented by the board of directors and the Chief Executive Officer.  Our shareholders establish the number of members that will serve on our board of directors at the ordinary general shareholders’ meeting.

 

A general ordinary shareholders’ meeting must be held during the first four months after the end of each fiscal year.  In order to attend a general shareholders’ meeting, the day before the meeting shareholders must deposit the certificates representing their capital stock or other appropriate evidence of ownership either with the secretary of our board of directors, with a credit institution, or with Indeval.  The secretary, credit institution or Indeval will hold the certificates until after the general shareholders’ meeting has taken place.

 

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

 

Shareholders’ meetings may be called by the board of directors, the Chairman of the Audit and/or Corporate Governance Committees, or a court.  The Chairman of the board of directors or the Chairman of the Audit or Corporate Governance Committees may be required to call a shareholders’ meeting if holders of at least 10% of our outstanding share capital request a meeting in writing, or at the written request of any shareholder if no shareholders’ meeting has been held for two consecutive years, or, if during a period of two consecutive years, the board of directors’ annual report for the previous year and the Company’s financial statements were not presented to the shareholders, or if the shareholders did not elect directors.

 

Notice of shareholders’ meetings must be published in the Federal Official Gazette or in a newspaper of general circulation in Monterrey, Nuevo León at least 15 days prior to the meeting.  Shareholders’ meetings may be held without such publication provided that 100% of the outstanding shares are represented.  Shareholders’ meetings must be held within the corporate domicile in Monterrey, Nuevo León.

 

Under Mexican law, holders of 20% of our outstanding capital stock may have any shareholder action set aside by filing a complaint with a Mexican court of competent jurisdiction within 15 days after the close of the meeting at which such action was taken, by showing that the challenged action violates Mexican law or our bylaws.  Relief under these provisions is only available to holders who were entitled to vote on the challenged shareholder action and whose shares were not represented when the action was taken or, if represented, voted against it.

 

**Dividend Rights and Distribution**

 

Within the first four months of each year, the board of directors must submit our company’s financial statements for the preceding fiscal year to the shareholders for their approval at the ordinary general shareholders’ meeting.  They are required by law to allocate 5% of any new profits to a legal reserve which is not thereafter available for distribution until the amount of the legal reserve equals 20% of our capital stock (before adjusting for inflation).  Amounts in excess of those allocated to the legal reserve fund may be allocated to other reserve funds as the shareholders determine, including a reserve for the repurchase of our shares.  The remaining balance of new profits, if any, is available for distribution as dividends prior to their approval at the shareholders’ meeting.  Cash dividends on the shares held through Indeval will be distributed by us through Indeval.  Cash dividends on the shares evidenced by

 

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physical certificates will be paid when the relevant dividend coupon registered in the name of its holder is delivered to us.  No dividends may be paid, however, unless losses for prior fiscal years have been paid up or absorbed.  See “Item 3.  Key Information—Selected Financial Data—Dividends.”

 

**Liquidation**

 

Upon our dissolution, one or more liquidators must be appointed by an extraordinary shareholders’ general meeting to wind up its affairs.  If the extraordinary general shareholders’ meeting does not make said appointment, a Civil or District Judge can do so at the request of any shareholder.  All fully paid and outstanding common stock will be entitled to participate equally in any distribution upon liquidation after the payment of the Company’s debts, taxes and the expenses of the liquidation.  Common stock that has not been paid in full will be entitled to these proceeds in proportion to the paid-in amount.

 

If the extraordinary general shareholders’ meeting does not give express instructions on liquidation, the bylaws stipulate that the liquidators will (i) conclude all pending matters they deem most convenient, (ii) prepare a general balance and inventory, (iii) collect all credits and pay all debts by selling assets necessary to accomplish this task, (iv) sell assets and distribute income, and (v) distribute the amount remaining, if any, pro rata among the shareholders.

 

**Changes in Capital stock**

 

Our outstanding capital stock consists of Class I and Class II series B shares.  Class I shares are the fixed portion of our capital stock and have no par value.  Class II shares are the variable portion of our capital stock and have no par value.  The fixed portion of our capital stock cannot be withdrawn.  The issuance of variable capital shares, unlike the issuance of fixed capital shares, does not require an amendment of the bylaws, although it does require approval at an ordinary general shareholders’ meeting.  The fixed portion of our capital stock may only be increased or decreased by resolution of an extraordinary general shareholders’ meeting and an amendment to our bylaws, whereas the variable portion of our capital stock may be increased or decreased by resolution of an ordinary general shareholders’ meetings.  Currently, our outstanding capital stock consists only of fixed capital.

 

An increase of capital stock may generally be made through the issuance of new shares for payment in cash or in kind, by capitalization of indebtedness or by capitalization of certain items of shareholders’ equity.  An increase of capital stock generally may not be made until all previously issued and subscribed shares of capital stock have been fully paid.  A reduction of capital stock may be effected to absorb losses, to redeem shares, to repurchase shares in the market or to release shareholders from payments not made.

 

As of April 26, 2013, our capital stock was represented by 565,174,609 issued Series B shares, of which 457,315,640 shares were outstanding, fully subscribed and paid, and 107,858,969 shares were held in our treasury.

 

**Preemptive Rights**

 

In the event of a capital increase through the issuance of shares, other than in connection with a public offering of newly issued shares or treasury stock, a holder of existing shares of a given series at the time of the capital increase has a preferential right to subscribe for a sufficient number of new shares of the same series to maintain the holder’s existing proportionate holdings of shares of that series.  Preemptive rights must be exercised within the period and under the conditions established for such purpose by the shareholders at the corresponding shareholders’ meeting.  Under Mexican law and our bylaws, the exercise period may not be less than 15 days following the publication of notice of the capital increase in the Federal Official Gazette or following the date of the shareholders’ meeting at which the capital increase was approved if all shareholders were represented; otherwise such rights will lapse.

 

Furthermore, shareholders will not have preemptive rights to subscribe for common stock issued in connection with mergers, upon the conversion of convertible debentures, or in the resale of treasury stock as a result of repurchases on the Mexican Stock Exchange.

 

Under Mexican law, preemptive rights may not be waived in advance by a shareholder, except under limited circumstances, and cannot be represented by an instrument that is negotiable separately from the corresponding share.  Holders of ADRs may be restricted in their ability to participate in the exercise of preemptive rights.  See “Item 3.  Key Information—Risk Factors—Risks Related to Our Controlling Shareholders and Capital Structure—Holders of ADSs May Not Be Able to Participate in Any Future Preemptive Rights Offering and as a Result May Be Subject to a Dilution of Equity Interest.”

 

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**Restrictions Affecting Non-Mexican Shareholders**

 

Foreign investment in capital stock of Mexican corporations is regulated by the 1993 Foreign Investment Law and by the 1998 Foreign Investment Regulations to the extent they are not inconsistent with the Foreign Investment Law.  The Ministry of Economy and the National Commission on Foreign Investment are responsible for the administration of the Foreign Investment Law and the Foreign Investment Regulations.

 

Our bylaws do not restrict the participation of non-Mexican investors in our capital stock.  However, approval of the National Foreign Investment Commission must be obtained for foreign investors to acquire a direct or indirect participation in excess of 49% of the capital stock of a Mexican company that has an aggregate asset value that exceeds, at the time of filing the corresponding notice of acquisition, an amount determined annually by the National Foreign Investment Commission.

 

As required by Mexican law, our bylaws provide that any non-Mexicans who acquire an interest or participation in our capital at any time will be treated as having Mexican nationality for purposes of their interest in us, and with respect to the property, rights, concessions, participations or interests that we may own or rights and obligations that are based on contracts to which we are a party with the Mexican authorities.  Such shareholders cannot invoke the protection of their government under penalty of forfeiting to the Mexican State the ownership interest that they may have acquired.

 

Under this provision, a non-Mexican shareholder is deemed to have agreed not to invoke the protection of his own government with respect to his rights as a shareholder, but is not deemed to have waived any other rights he may have with respect to its investment in us, including any rights under U.S. securities laws.  If a shareholder should invoke governmental protection in violation of this provision, his shares could be forfeited to the Mexican government.  Mexican law requires that such a provision be included in the bylaws of all Mexican companies unless such bylaws prohibit ownership of shares by non-Mexicans.  See “Item 3.  Key Information—Risk Factors—Risks Related to Our Controlling Shareholders and Capital Structure—Mexican Law Restricts the Ability of Non-Mexican Shareholders to Invoke the Protection of Their Governments with Respect to Their Rights as Shareholders.”

 

**Registration and Transfer**

 

Our shares are evidenced by certificates in registered form.  We maintain a stock registry and, in accordance with Mexican law, only those persons whose names are recorded on the stock registry are recognized as owners of the series B shares.

 

**Other Provisions**

 

***Appraisal Rights***

 

Under Mexican law, whenever the shareholders approve a change of corporate purpose, change of our nationality or transformation from one type of corporate form to another, any shareholder entitled to vote on such change or transformation who has voted against it has the right to tender its shares and receive the amount attributable to its shares, provided such shareholder exercises its right to withdraw within 15 days following the adjournment of the meeting at which the change or transformation was approved.  Under Mexican law, the amount which a withdrawing shareholder is entitled to receive is equal to its proportionate interest in our capital stock according to our most recent balance sheet approved by an ordinary general shareholders’ meeting.  The reimbursement may have certain tax consequences.

 

***Share Repurchases***

 

We may repurchase our common stock on the Mexican Stock Exchange at any time at the then market price.  The repurchase of shares will be made by charging our equity, in which case we may keep them without reducing our capital stock, or charging our capital stock, in which case we must convert them into unsubscribed treasury stock.  The ordinary general shareholders’ meeting shall determine the maximum amount of funds to be allocated for the repurchase of shares, which amount shall not exceed our total net profits, including retained earnings.

 

Repurchased common stock will either be held by us or kept in our treasury, pending future sales thereof through the Mexican Stock Exchange.  If the repurchased shares are kept in our treasury, we may not exercise their economic and voting rights, and such shares will not be deemed to be outstanding for purposes of calculating any quorum or voting at any shareholders’ meeting.  The repurchased shares held by us as treasury shares may not be represented at any shareholder meeting.  The decrease or increase of our capital stock as a result of the repurchase does not require the approval of a shareholders’ meeting or of the board of directors.

 

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Under Mexican securities regulation, our directors, officers, external auditors, the secretary of the board of directors and holders of 10% or more of our outstanding stock may not sell stock to us, or purchase repurchased stock from us, unless the sale or purchase is made through a tender offer.  The repurchase of stock representing 3% or more of our outstanding share capital in any 20 trading-day period must be conducted through a public tender offer.

 

***Repurchase in the Event of Delisting***

 

In the event of the cancellation of the registration of our shares at the *Registro Nacional de Valores*, or National Registry of Securities, or RNV, whether at our request or at the request of the CNBV, under our bylaws and the regulations of the CNBV, we will be obligated to make a tender offer to purchase all of our shares held by non-controlling shareholders.  Such tender offer shall be made at least at the greater price of the following: (i) the closing sale price under the terms of the following paragraph, or (ii) the book value of the shares according to the most recent quarterly report submitted to the CNBV and the Mexican Stock Exchange.

 

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

 

In connection with any such cancellation of the registration of our shares, we will be required to deposit sufficient funds into a trust account for at least six months following the date of cancellation to ensure adequate resources to purchase at the public tender offer price any remaining outstanding shares from non-controlling shareholders that did not participate in the offer.

 

If we ask the RNV to cancel the registration of our shares, we will be exempt from carrying out a public tender offer, provided that: (i) we have the consent of the holders of at least 95% of our outstanding common shares, by a resolution at a shareholders’ meeting; (ii) the aggregate amount offered for the securities in the market is less than 300,000 investment units (UDIs); (iii) the trust referred to in the preceding paragraph is executed, and (iv) notice is given to the CNBV of the execution and cancellation of the trust through the established electronic means.

 

Within ten business days of the commencement of a public tender offer, our board of directors must prepare and disclose to public investors its opinion with respect to the reasonableness of the tender offer price as well as any conflicts of interest that its members may have in connection with the tender offer.  The opinion of the board of directors may be accompanied by another opinion issued by an independent expert that we may hire.

 

We may request the approval from the CNBV to use different criteria to determine the price of the shares.  In requesting such approval, the following must be submitted to the CNBV: (i) the resolution of the board of directors approving such request, (ii) the opinion of the Corporate Governance Committee addressing the reasons why it deems appropriate the use of a different price, and (iii) a report from an independent expert indicating that the price is consistent with the terms of the Mexican Securities Law.

 

***Shareholder’s Conflicts of Interest***

 

Any shareholder that has a direct or indirect conflict of interest with respect to any transaction must abstain from voting thereon at the relevant shareholders’ meeting.  A shareholder that votes on a business transaction in which its interest conflicts with ours may be liable for damages if the transaction would not have been approved without such shareholder’s vote.

 

***Rights of Shareholders***

 

The protections afforded to minority shareholders under Mexican law are different from those in the United States and other jurisdictions.  The law concerning duties and responsibilities of directors and controlling shareholders has not been the subject of extensive judicial interpretation in Mexico, unlike the United States where judicial decisions have been issued regarding the duties of diligence and loyalty, which more effectively protect the rights of minority shareholders.  Additionally, shareholder class actions are not available under Mexican law and there are different procedural requirements for bringing shareholder derivative lawsuits, which permit shareholders in U.S. courts to bring actions on behalf of other shareholders or to enforce rights of the corporation itself.  Shareholders cannot challenge corporate action taken at a shareholders’ meeting unless they meet certain procedural requirements.

 

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 Exchange Act, including the proxy solicitation rules, the rules requiring

 

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disclosure of share ownership by directors, officers and certain shareholders.  We are also exempt from certain of the corporate governance requirements of the New York Stock Exchange, including certain requirements concerning audit committees and independent directors.  A summary of significant ways in which our corporate governance standards differ from those followed by U.S. companies pursuant to NYSE listing standards is available on our website at www.gruma.com.  The information found at this website is not incorporated by reference into this document.

 

As a result of these factors, in practice it may be more difficult for our minority shareholders to enforce rights against us or our directors or controlling shareholders than it would be for shareholders of a U.S. company.  See “Item 3.  Key Information—Risk Factors—Risks Related to Our Controlling Shareholders and Capital Structure—The Protections Afforded to Minority Shareholders in Mexico Are Different From Those in the United States.”

 

***Antitakeover Protections***

 

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

 

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

 

Pursuant to our bylaws, a “person” is defined as any natural person, corporate entity, trust or similar form of venture, vehicle, entity, corporation or economic or mercantile association or any subsidiaries or affiliates of any of the former or, as determined by the board of directors, any group of persons who may be acting jointly, coordinated or as a whole; and a “competitor” is defined as any person engaged, directly or indirectly, in (i) the business of production and/or marketing of corn or wheat flour, and/or (ii) any other activity carried on by the Company or by any of its subsidiaries or affiliates.

 

Persons that acquire our common shares in violation of these requirements will not be considered the beneficial owners of such shares under our bylaws and will not be able to vote such shares or receive any dividends, distributions or other rights in respect of these shares.  In addition, pursuant to our bylaws, these holders will be obligated to pay us a penalty in an amount equal to the greater of (i) the market value of the shares such party acquired without obtaining the prior approval of the board of directors and (ii) the market value of shares representing 5% of our capital stock.

 

*Board Notices, Meetings, Quorum Requirements and Approvals*.  To obtain the prior approval of our board of directors, a potential purchaser must properly deliver a written application complying with the applicable requirements set forth in our bylaws.  Such application shall state, among other things: (i) the number and class of our shares the person beneficially owns or to which such person has any right, (ii) the number and class of shares the Person intends to acquire, (iii) the number and class of shares with respect to which such Person intends to acquire any right, (iv) the percentage that the shares referred to in (i) represent of our total outstanding shares and of the class or series to which such shares belong, (v) the percentage that the shares referred to in (ii) and (iii) represent of our total outstanding shares and of the class or series to which such shares belong, (vi) the person’s identity and nationality, or in the case of a purchaser which is a corporation, trust or legal entity, the nationality and identity of its shareholders, partners or beneficiaries as well as the identity and nationality of each person effectively controlling such corporation, trust or legal entity, (vii) the reasons and purpose behind such acquisition, (viii) if such person is, directly or indirectly, a competitor of the Company or any of its subsidiaries or affiliates, and if such person has the authority to legally acquire the shares pursuant to our bylaws and Mexican law, (ix) its source of financing the intended acquisition, (x) if the Person is part of an economic group, formed by one or more of its related parties, which intends to acquire shares of our common stock or rights to such shares, (xi) if the person has obtained any financing from one of its related parties for the payment of the shares, (xii) the identity and nationality of the financial institution, if any, that will act as the underwriter or broker in connection with any tender offer, and (xiii) the person’s address for receiving notices.

 

Either the Chairman, the Secretary or the Alternate Secretary of our board of directors must call a meeting of the board of directors within 10 business days following the receipt of the written application.  The notices for the meeting of the board of directors shall be in writing and sent to each of the directors and their alternates at least 45 calendar days prior to the meeting.  Action by unanimous written consent is not permitted.

 

Any acquisition of capital shares representing at least 2% or 5%, as the case may be, of our outstanding capital stock, must be approved by at least the majority of the members of our board of directors present at a meeting at which at least the majority of the members is present.  Such acquisitions must be resolved by our board of directors within 60 calendar days following the receipt of the 

 

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written application described above, unless the board of directors determines that it does not have sufficient information upon which to base its decision.  In such case, the board of directors shall deliver a written request to the potential purchaser for any additional information that it deems necessary to make its determination.  The 60 calendar days referred to above will commence following the receipt of the additional information from the potential purchaser.

 

*Mandatory Tender Offers in the Case of Certain Acquisitions*.  If our board of directors authorizes an acquisition of capital shares which increases the purchaser’s ownership to 30% or more, but not more than 50%, of our capital stock, then the purchaser must effect its acquisition by way of a cash tender offer for a specified number of shares equal to the greater of (i) the percentage of common shares intended to be acquired or (ii) 10% of our outstanding capital stock, in accordance with the applicable Mexican securities regulations.

 

No approval of the board of directors will be required if the acquisition would increase the purchaser’s ownership to more than 50% of our capital stock or result in a change of control, in which case the purchaser must effect its acquisition by way of a tender offer for 100% minus one of our total outstanding capital stock, which tender shall be made pursuant to applicable Mexican laws.

 

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

 

*Notices*.  In addition to the aforementioned approvals, if a person increases its beneficial ownership by 1% in the case of competitors, or 2% in the case of non-competitors, written notice must be submitted to the board of directors within five days of reaching or exceeding such thresholds.

 

*Exceptions*.  The provisions of our bylaws summarized above will not apply to: (i) transfers of shares by operation of the laws of succession; (ii) acquisitions of shares by (a) any person who, directly or indirectly, has the authority or possibility of appointing the majority of the directors of our board of directors, (b) any company, trusts or similar form of venture, vehicle, entity, corporation or economic or mercantile association, which may be under the control of the aforementioned person, (c) the heirs of the aforementioned person, (d) the aforementioned person when such person is repurchasing the shares of any corporation, trust or similar form of venture, vehicle, entity, corporation or economic or mercantile association referred to in the item (b) above, and (e) the Company or by trusts created by the Company; (iii) any person(s) that as of December 4, 2003 hold(s), directly or indirectly, more than 20% of the shares representing the Company’s capital stock; and (iv) any other exceptions provided for in the Mexican Securities Law and other applicable legal dispositions.

 

**MATERIAL CONTRACTS**

 

***Archer-Daniels-Midland***

 

As part of the ADM Transaction we entered into an Equity Purchase Agreement by and among Archer-Daniels-Midland, ADM Milling Co., ADM Bio Productos, S.A. de C.V. and Gruma, S.A.B. de C.V., dated December 14, 2012, in order to acquire all of the Equity Interests previously held by Archer-Daniels-Midland in our Company (the “Equity Purchase Agreement”).

 

In addition to the US$450 million paid to Archer-Daniels-Midland in exchange of the Equity Interests, the Equity Purchase Agreement provides that we must pay a contingent payment of up to US$60 million to Archer-Daniels-Midland, which contingent payment is payable only if during the 42 months following the closing of the ADM Transaction (ending on June 14, 2016), certain conditions take place in connection with (i) the increase in the price of the Company ́s stock, over the closing price of the Company ́s stock determined for purposes of the ADM Transaction (the “Closing Price”), at the end of the 42 months period; (ii) the difference between the price of the Company ́s stock established for public offers made by us and the Closing Price; (iii) the acquisition, by a strategic investor, of 15% or more of the Company ́s capital stock; or (iv) the reduction of the percentage of the Company ́s shares that are considered to be held by the public at any time, starting from 26%. See “Item 4.  Major Shareholders and Related Party Transactions—Share Purchase Transaction with Archer-Daniels-Midland.”

 

We maintain a reserve in the event that any or all of the aforementioned contingent payment is made to Archer-Daniels-Midland. See Note 3 to our audited consolidated financial statements.

 

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***Perpetual Bonds***

 

On December 3, 2004, Gruma, S.A.B. de C.V. issued U.S.$300 million 7.75% senior unsecured perpetual bonds, which at the time were rated BBB- by Standard & Poor’s and by Fitch.  The bonds which have no fixed final maturity date, have a call option exercisable by GRUMA at any time beginning five years after the issue date. As of December 31, 2012 we have not hedged any interest payments on our U.S.$300 million 7.75% senior unsecured perpetual bonds.

 

***2012 Bridge Loan Facility***

 

On December 13, 2012, we entered into an unsecured U.S. $200 million 1-year term bridge loan with Goldman Sachs Bank, USA, and certain other financial institutions which may, from time to time become party to such Loan Agreement (the “2012 Bridge Loan Facility”).  On December 14, 2012 Banco Santander (México), S.A., Institución de Banca Múltiple, Grupo Financiero Santander México became a Lender under the 2012 Bridge Loan Facility, lending an additional amount of U.S. $100 million.  The funds obtained from the 2012 Bridge Loan Facility were used in their entirety to partially fund the ADM Transaction.

 

In order to accommodate the increase in our leverage resulting from the 2012 Bridge Loan Facility, the permitted leverage ratios established under the Syndicated Loan Facility, the Peso Syndicated Loan Facility, the Rabobank Loan Facility and the 2011 Bancomext Peso facility (the “2011 Facilities”) have been increased.

 

The 2012 Bridge Loan Facility has an interest rate based on LIBOR plus 3.00% plus a quarterly step-up margin ranging from 0% to 1.50% throughout the term of the facility.  Moreover, this facility contains covenants that require the Company to maintain a ratio of consolidated EBITDA to interest charges of not less than 2.5:1, and a Maximum Leverage Ratio of not more than 4.75:1 until September 30, 2013 and 4.50:1 from October 1, 2013 until maturity on December 13, 2013.  In addition, the 2012 Bridge Loan Facility limits our ability, and our subsidiaries’ ability in certain cases, among other things, to: create liens; make certain investments; make certain restricted payments; merge or consolidate with other companies or sell substantially all of our assets; enter into any agreements prohibiting the payment of dividends; engage in certain transactions with affiliates; and enter into certain hedging transactions.  Furthermore, this facility limits our subsidiaries’ ability to guarantee additional indebtedness issued by the Company and to incur additional indebtedness under certain circumstances

 

Finally, the 2012 Bridge Loan Facility includes a Take-Out Financing provision under which: (i) the Company is required to use commercially reasonable efforts to ensure that an investment bank reasonably satisfactory to Goldman Sachs Bank, USA and the Company (the “Investment Bank”) publicly sells or privately places in one or more offerings or placements of debt securities of the Company in the international market as soon as practicable within a 6-month period from December 13, 2012, in order to refinance the 2012 Bridge Loan Facility; (ii) upon notice by the Investment Bank, the Company shall cause the issuance and sale of the Take-Out Financing following certain rules set forth in the loan agreement, but only if the Take-Out Financing is not made within the aforementioned 6-month period, provided that all amounts outstanding under the short-term facility shall not have been repaid in full and the Company is not in the process of otherwise effectuating the Take-Out Financing; and (iii) until payment in full of the 2012 Bridge Loan Facility, the Company will not take any actions towards syndicating or issuing any debt facility or any debt security of the Company (other than the Take-Out Financing and working capital debt facilities issued, refinanced or renewed in the bank debt market in the Company’s ordinary course of business), including any refinancing of any 2011 Facilities, without the prior written consent of the Investment Bank.

 

***Inbursa Loan***

 

In December 2012, the Company obtained an amount of U.S. $100 million through a short term-unsecured financing with Banco Inbursa by means of a promissory note, with an initial interest rate of Libor + 3.00%, which was initially scheduled to mature on March 13, 2013 and is renewable until December 10, 2013. On April 22, 2013 the financing was renewed until May 22, 2013 at an interest rate of Libor + 3.50%.  Funds obtained from such financing were used in their entirety to partially fund the ADM Transaction.

 

***Gruma Corporation Loan Facility***

 

In October 2006, Gruma Corporation entered into a U.S.$100 million 5-year revolving credit facility with a syndicate of financial institutions, which was refinanced and extended to U.S.$200 million for an additional 5-year term on June 20, 2011, (the “Gruma Corporation Loan Facility”).  The facility, as refinanced in 2011, has an interest rate based on LIBOR plus a spread of 1.375% to 2% that fluctuates in relation to Gruma Corporations’ leverage and contains less restrictive provisions than those in the facility replaced.  In October, 2012 we increased the aggregate commitment under this facility up to the maximum permitted amount of US $250,000,000.  The additional US $50,000,000 were used by Gruma Corporation to cover part of the purchase price under the ADM Transaction, specifically the purchase of ADM’s stake in Azteca Milling. This facility contains covenants that limit Gruma Corporation’s ability to merge or consolidate, and require it to maintain a ratio of total funded debt to consolidated EBITDA of not

 

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more than 3.0:1.  In addition, this facility limits Gruma Corporation’s, and certain of its subsidiaries’ ability, among other things, to create liens; make certain investments; make certain restricted payments; enter into any agreements that prohibit the payment of dividends; and engage in transactions with affiliates.  This facility also limits Gruma Corporation’s subsidiaries’ ability to incur additional debt. 

 

Gruma Corporation is also subject to covenants which limit the amounts that may be advanced to, loaned to, or invested in us under certain circumstances.  Upon the occurrence of any default or event of default under its credit agreements, Gruma Corporation generally would be prohibited from making any cash dividend payments to us.  The covenants described above and other covenants could limit our and Gruma Corporation’s ability to help support our liquidity and capital resource requirements.

 

***Syndicated Loan Facility***

 

On March 22, 2011 we obtained a U.S.$225 million, five-year senior credit facility through a syndicate of banks (the “Syndicated Loan Facility”).  The Syndicated Loan Facility consists of a term loan (“Term Loan Facility”) and a revolving loan facility (the “Revolving Loan Facility”).  Prior to the execution of the 2012 Bridge Loan Facility mentioned above, the permitted leverage ratio established under the Syndicated Loan Facility was increased, and the interest rate grid was also modified, among other revisions made through the execution of an amendment dated December 3, 2012. After such amendment, the interest rate for the Term Loan Facility and for the Revolving Loan Facility is either (i) LIBOR or (ii) an interest rate determined by the administrative agent based on its “prime rate” or the federal funds rate, respectively, plus, in either case, (a) 3.00% if the Company’s ratio of total funded debt to EBITDA (the “Maximum Leverage Ratio”) is greater than or equal to 4.5x, (b) 2.75% if the Company’s Maximum Leverage Ratio is greater than or equal to 4.0x and less than 4.5x, (c) 2.50% if the Company’s Maximum Leverage Ratio is greater than or equal to 3.5x and less than 4.0x; (d) 2.25% if the Company’s Maximum Leverage Ratio is greater than or equal to 3.0x and less than 3.5x; (e) 2.00% if the Company’s Maximum Leverage Ratio is greater than or equal to 2.5x and less than 3.0x; (f) 1.75% if the Company’s Maximum Leverage Ratio is greater than or equal to 2.0x and less than 2.5x; and (g) 1.50% if the Company’s Maximum Leverage Ratio is less than 2.0x.  The Syndicated Loan Facility (as amended) contains covenants that require the Company to maintain a ratio of consolidated EBITDA to interest charges of not less than 2.5:1, and a Maximum Leverage Ratio of not more than 4.75:1 from December 4, 2012 until September 30, 2013; 4.50:1 from October 1, 2013 until September 30, 2014; 4.0:1 from October 1, 2014 until September 30, 2015; and 3.5:1 from October 1, 2015 and thereafter.  The Syndicated Loan Facility (as amended) also limits our ability, and our subsidiaries’ ability in certain cases, among other things, to: create liens; make certain investments or other restricted payments; merge or consolidate with other companies or sell substantially all of our assets; and enter into certain hedging transactions.  Additionally, the Syndicated Loan Facility (as amended) limits our subsidiaries’ ability to guarantee additional indebtedness issued by the Company and to incur additional indebtedness under certain circumstances.

 

***Peso Syndicated Loan Facility***

 

On June 15, 2011 we obtained a Ps.1,200 million, seven-year senior credit facility through a syndicate of banks (the “Peso Syndicated Loan Facility”).  The Peso Syndicated Loan Facility consists of a term loan maturing in June 2018 with yearly principal amortizations beginning in December 2015. Prior to the execution of the 2012 Bridge Loan Facility mentioned above, the permitted leverage ratio established under the Peso Syndicated Loan Facility was increased, and the interest rate grid was also modified, among other revisions made through the execution of an amendment dated December 3, 2012. After such amendment, the interest rate payable under the Peso Syndicated Loan Facility is the 91-day TIIE plus a spread between 137.5 and 262.5 basis points based on the Company’s ratio of total funded debt to EBITDA.  The Peso Syndicated Loan Facility (as amended) contains covenants that require the Company to maintain a ratio of consolidated EBITDA to interest charges of not less than 2.5:1, and to maintain a maximum ratio of total funded debt to EBITDA of not more than 4.75:1 from December 4, 2012 until September 30, 2013; 4.50:1 from October 1, 2013 until September 30, 2014; 4.0:1 from October 1, 2014 until September 30, 2015; and 3.5:1 from October 1, 2015 and thereafter. The Peso Syndicated Loan Facility (as amended) also limits our ability, and our subsidiaries’ ability in certain cases, among other things, to: create liens; make certain investments or other restricted payments; merge or consolidate with other companies or sell substantially all of our assets; and enter into certain hedging transactions.  Additionally, the Peso Syndicated Loan Facility (as amended) limits our subsidiaries’ ability to guarantee additional indebtedness issued by the Company and to incur additional indebtedness under certain circumstances.

 

***Rabobank Loan Facility***

 

On June 15, 2011 we obtained a U.S.$50 million, five-year senior credit facility from Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A. (the “Rabobank Loan Facility”). On June 28, 2012, this facility was increased by U.S.$50 million to a total principal amount of U.S. $100 million.  Also, prior to the execution of the 2012 Bridge Loan Facility, the permitted leverage ratio established under the Rabobank Loan Facility was increased, and the interest rate grid was modified, among other revisions made through the execution of an amendment dated November 29, 2012. After such amendments, the Rabobank Loan Facility consists of a revolving loan facility, at in interest rate of LIBOR plus (a) 3.00% if the Company’s ratio of total funded debt to EBITDA is greater

 

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than or equal to 4.5x, (b) 2.75% if the Company’s Maximum Leverage Ratio is greater than or equal to 4.0x and less than 4.5x, (c) 2.50% if the Company’s Maximum Leverage Ratio is greater than or equal to 3.5x and less than 4.0x; (d) 2.25% if the Company’s Maximum Leverage Ratio is greater than or equal to 3.0x and less than 3.5x; (e) 2.00% if the Company’s Maximum Leverage Ratio is greater than or equal to 2.5x and less than 3.0x; (f) 1.75% if the Company’s Maximum Leverage Ratio is greater than or equal to 2.0x and less than 2.5x; and (g) 1.50% if the Company’s Maximum Leverage Ratio is less than 2.0x.  The Rabobank Loan Facility (as amended) contains covenants that require the Company to maintain a ratio of consolidated EBITDA to interest charges of not less than 2.5:1, and a Maximum Leverage Ratio of not more than 4.75:1 from December 4, 2012 until September 30, 2013; 4.50:1 from October 1, 2013 until September 30, 2014; 4.0:1 from October 1, 2014 until September 30, 2015; and 3.5:1 from October 1, 2015 and thereafter. The Rabobank Loan Facility (as amended) also limits our ability, and our subsidiaries’ ability in certain cases, among other things, to: create liens; make certain investments or other restricted payments; merge or consolidate with other companies or sell substantially all of our assets; and enter into certain hedging transactions.  Additionally, the Rabobank Loan Facility (as amended) limits our subsidiaries’ ability to guarantee additional indebtedness issued by the Company and to incur additional indebtedness under certain circumstances.

 

***2011 Bancomext Peso Facility***

 

On June 16, 2011 we obtained a Ps.600 million, seven-year senior credit facility from Bancomext (*Banco Nacional de Comercio Exterior*) (the “2011 Bancomext Peso Facility”).  Prior to the execution of the 2012 Bridge Loan Facility mentioned above, the permitted leverage ratio established under the 2011 Bancomext Peso Facility was increased, and the interest rate grid was modified, among other revisions made through the execution of an amendment dated December 7, 2012. After such amendment, the 2011 Bancomext Peso Facility consists of a term loan maturing in June 2018 at an interest rate of 91-day TIIE plus a spread between 137.5 and 262.5 basis points based on the Company’s ratio of total funded debt to EBITDA.  The 2011Bancomext Peso Facility contains a covenant that requires us to maintain a ratio of consolidated EBITDA to interest charges of not less than 2.5:1 as well as a covenant that requires us to maintain a maximum ratio of total funded debt to EBITDA of not more than 4.75:1 from December 8, 2012 until September 30, 2013; 4.50:1 from October 1, 2013 until September 30, 2014; 4.0:1 from October 1, 2014 until September 30, 2015; and 3.5:1 from October 1, 2015 and thereafter.  The 2011Bancomext Peso Facility also limits our ability, and our subsidiaries’ ability in certain cases to create liens.

 

On December 8, 2012 we entered into an amendment to this Facility in order to increase the existing permitted Leverage Ratio from December 8, 2012 until September 30, 2013, to equal or less than 4.75x; from October 1, 2013 until September 30, 2014, to equal or less than 4.5x; from October 1, 2014 until September 30, 2015, to equal or less than 4.0x and from October 1, 2015 and thereafter, to equal or less than 3.5x.

 

**EXCHANGE CONTROLS**

 

Mexican law does not restrict our ability to remit dividends and interest payments, if any, to Mexican or non-Mexican holders of our securities.  Payments of dividends to equity-holders generally will not be subject to Mexican withholding tax.  See “—Taxation—Mexican Tax Considerations—Payment of Dividends.” Mexico has had a free market for foreign exchange since 1991, and the government has allowed the peso to float freely against the U.S. dollar since December 1994.

 

**TAXATION**

 

The following summary contains a description of certain Mexican federal and U.S. federal income tax consequences of the acquisition, ownership and disposition of Series B Shares or Series B Share ADSs (which are evidenced by ADRs), but it does not purport to be a comprehensive description of all of the tax considerations that may be relevant to a decision to purchase or hold Series B Shares or ADSs, such as the tax treatment of holders that are dealers or that own (actually or constructively under rules prescribed in the Internal Revenue Code of 1986, as amended, or the Code), 10% or more of the voting shares of GRUMA.

 

The Convention for the Avoidance of Double Taxation and Protocols thereto, or the Tax Treaty, between the United States and Mexico entered into force on January 1, 1994.  The United States and Mexico have also entered into an agreement concerning the exchange of information with respect to tax matters.

 

The summary is based upon tax laws of the United States and Mexico as in effect on the date of this document, which are subject to change, including changes that may have retroactive effect.  Holders of Series B Shares or ADSs should consult their own tax advisers as to the Mexican, U.S. or other tax consequences of the purchase, ownership and disposition of shares or ADSs, including, in particular, the effect of any foreign, state or local tax laws.

 

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** **

**Mexican Tax Considerations**

 

The following is a general summary of the principal consequences under the *Ley del Impuesto sobre la Renta*, or Mexican Income Tax Law, and rules and regulations thereunder, as currently in effect, of an investment in Series B Shares or ADSs by a holder that is not a resident of Mexico and that will not hold Series B Shares or ADSs or a beneficial interest therein in connection with the conduct of a trade or business through a permanent establishment in Mexico.

 

For purposes of Mexican taxation, a natural person is a resident of Mexico for tax purposes if he has established his home in Mexico, unless he has resided in another country for more than 183 days, whether consecutive or not, in any one calendar year and can demonstrate that he has become a resident of that country for tax purposes, and a legal entity is a resident of Mexico if it was incorporated in Mexico or maintains the principal administration of its business or the effective location of its management in Mexico.  A Mexican citizen is presumed to be a resident of Mexico unless such person can demonstrate the contrary.  If a non-resident of Mexico is deemed to have a permanent establishment or fixed base in Mexico for tax purposes, all income attributable to such permanent establishment or fixed base will be subject to Mexican taxes, in accordance with applicable tax laws.

 

***Tax Treaties***

 

Provisions of the Tax Treaty that may affect the taxation of certain U.S. holders are summarized below.  The United States and Mexico have also entered into an agreement that covers the exchange of information with respect to tax matters.

 

Mexico has also entered into and is negotiating several other tax treaties that may reduce the amount of Mexican withholding tax to which payment of dividends on Series B Shares or ADSs may be subject.  Holders of Series B Shares or ADSs should consult their own tax advisors as to the tax consequences, if any, of such treaties.

 

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

 

***Payment of Dividends***

 

Under the Mexican Income Tax Law, dividends, either in cash or in kind, paid with respect to Series B Shares represented by ADSs are not subject to Mexican withholding tax.  A Mexican corporation will not be subject to any tax if the amount of declared dividends does not exceed the net tax profit account (*cuenta de utilidad fiscal neta*, or CUFIN).

 

If we pay a dividend in an amount greater than our CUFIN balance (which may occur in a year when net profits exceed the balance in such accounts), then we are required to pay 30% income tax in 2011 and 2012 (30% income tax in 2013 and 29% in 2014) on an amount equal to the product of the portion of the grossed-up amount which exceeds such balance multiplied by 1.4286 in 2011 and 2012 (1.4286 in 2013 and 1.4085 in 2014).

 

***Taxation of Dispositions***

 

The sale or other disposition of ADSs by a non-resident holder will not be subject to Mexican tax.  Deposits of Series B Shares in exchange for ADSs and withdrawals of Series B Shares in exchange for ADSs will not give rise to Mexican tax or transfer duties.

 

The sale of Series B Shares by a non-resident holder will not be subject to any Mexican tax if the transaction is carried out through the Mexican Stock Exchange or other securities markets approved by the Mexican Ministry of Finance.  Sales or other dispositions of Series B Shares made in other circumstances generally would be subject to Mexican tax, regardless of the nationality or residence of the transferor.

 

Under the Mexican Income Tax Law, gains realized by a nonresident holder of shares on the sale or disposition of Series B Shares not conducted through a recognized stock exchange generally are subject to a Mexican tax at a rate of 25% of the gross sale price.  However, if the holder is a resident of a country which (i) is not considered to be a low tax rate country, (ii) its legislation does not contain territorial taxation, and (iii) such income is not subject to a preferential tax regime, the holder may elect to designate a resident of Mexico as its representative, in which case taxes would be payable at the applicable income tax rate on the gain on such disposition of Series B Shares.

 

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Pursuant to the Tax Treaty, gains realized by qualifying U.S. holders from the sale or other disposition of Series B Shares, even if the sale is not conducted through a recognized stock exchange, will not be subject to Mexican income tax except that Mexican taxes may apply if:

 

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

 

·                  such U.S. holder owned 25% or more of the Series B Shares representing the capital stock of GRUMA (including ADSs), directly or indirectly, during the 12-month period preceding such disposition; or

 

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

 

***Other Mexican Taxes***

 

A non-resident holder will not be liable for estate, inheritance or similar taxes with respect to its holdings of Series B Shares or ADSs; provided, however, that gratuitous transfers of Series B Shares may in certain circumstances result in imposition of a Mexican tax upon the recipient.  There are no Mexican stamp, issue registration or similar taxes payable by a non-resident holder with respect to Series B Shares or ADSs.

 

Reimbursement of capital pursuant to a redemption of Series B Shares will be tax exempt up to an amount equivalent to the adjusted contributed capital corresponding to the Series B Shares that will be redeemed.  Any excess distribution pursuant to a redemption will be considered a dividend for tax purposes and we may be taxed as described above.

 

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

 

The following is a summary of certain U.S. federal income tax consequences to U.S. holders, as defined below, of the acquisition, ownership and disposition of Series B Shares or ADSs.  This summary is based upon the U.S. Internal Revenue Code of 1986, as amended (the “Code”), Treasury regulations, administrative pronouncements of the U.S. Internal Revenue Service (the “IRS”) and judicial decisions, all as in effect on the date of this Annual Report, including the provisions of the Tax Treaty, and all of which are subject to change, possibly with retroactive effect, and to different interpretations.  This summary does not describe any state, local, or non-U.S. tax law consequences, or any aspect of U.S. federal tax law other than U.S. federal income tax law (such as the estate tax and gift tax).

 

The summary does not purport to be a comprehensive description of all of the tax consequences of the acquisition, ownership or disposition of Series B Shares or ADSs.  The summary applies only to U.S. holders that will hold their Series B Shares or ADSs as capital assets and does not apply to special classes of holders such as dealers in securities or currencies, holders with a functional currency other than the U.S. dollar, holders that own or are treated as owning 10% or more of our voting Series B Shares (whether held directly or through ADSs or both), tax-exempt entities, financial institutions, insurance companies, regulated investment companies, real estate investment trusts, certain U.S. expatriates, holders liable for the alternative minimum tax, securities traders electing to account for their investment in their Series B Shares or ADSs on a mark-to-market basis, partnerships and other pass-through entities and persons holding their Series B Shares or ADSs in a hedging transaction or as part of a straddle, conversion or other integrated transaction.  The following summary assumes that we are not a passive foreign investment company (a “PFIC”), which we do not believe that we were for our 2011 taxable year and do not currently expect to become for our current taxable year or the foreseeable future.

 

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

 

·                  a citizen or resident of the United States of America;

 

·                  a corporation (or an entity taxable as a corporation) organized in or under the laws of the United States of America or any state thereof or the District of Columbia;

 

·                  an estate the income of which is subject to United States federal taxation regardless of its source;

 

·                  a trust if (i) a court within the U.S. is able to exercise primary supervision over the administration and one or more U.S. persons have the authority to control all substantial decisions of the trust or (ii) such trust has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person;

 

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If a partnership (or any entity treated as a partnership for U.S. federal income tax purposes) is a beneficial owner of Series B Shares or the ADSs, the U.S. federal income tax treatment of a partner in the partnership generally will depend on the status of the partner and the activities of the partnership.  A holder of Series B Shares or ADSs that is a partnership, and partners in such partnership, should consult their tax advisors about the United States federal income tax consequences of acquiring, holding and disposing of the Series B Shares or the ADSs, as the case may be.

 

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

 

***Treatment of ADSs***

 

The following summary assumes that the representations contained in the Deposit Agreement are true and that the obligations in the Deposit Agreement and any related agreement will be complied with in accordance with their terms. In general, a U.S. holder of ADSs will be treated as the beneficial owner of the Series B Shares represented by those ADSs for U.S. federal income tax purposes.  Deposits or withdrawals of Series B Shares by U.S. holders in exchange for the ADSs will not result in the realization of gain or loss for U.S. federal income tax purposes.  U.S. holders that withdraw any Series B Shares should consult their own tax advisors regarding the treatment of any foreign currency gain or loss on any pesos received in respect of such Series B Shares.

 

***Taxation of Distributions***

 

In this discussion, the term “dividends” is used to mean distributions paid out of our current or accumulated earnings and profits (calculated for U.S. federal income tax purposes) with respect to Series B Shares or ADSs.  In general, subject to the discussion below under “*Passive Foreign Investment Company Rules,*” the gross amount of any dividends will be includible in the gross income of a U.S. holder as ordinary income on the day on which the dividends are received by the U.S. holder in the case of Series B Shares, or by the depositary in the case of ADSs.  Dividends paid by us will not be eligible for the dividends-received deduction allowed to corporations under the Code.  To the extent that a distribution exceeds the amount of our earnings and profits (calculated for U.S. federal income tax purposes), it will be treated as a non-taxable return of capital to the extent of the U.S. holder’s basis in the Series B Shares or ADSs, and thereafter as capital gain.  We do not intend to calculate our earnings and profits in accordance with U.S. federal income tax principles. Therefore, a U.S. holder should expect that a distribution on Series B Shares or ADSs generally will be treated as a dividend.  Distributions will be paid in pesos and will be includible in the income of a U.S. holder in a U.S. dollar amount calculated by reference to the exchange rate in effect on the day that they are received by the U.S. holder in the case of Series B Shares, or by the depositary in the case of ADSs.  U.S. holders should consult their own tax advisors regarding the treatment of foreign currency gain or loss, if any, on any pesos received by a U.S. holder or depositary that are converted into U.S. dollars on a date subsequent to receipt.

 

Distributions of additional Series B Shares or ADSs to U.S. holders with respect to their Series B Shares or ADSs that are made as part of a pro rata distribution to all of our shareholders generally will not be subject to U.S. federal income tax.

 

Dividends paid on Series B Shares or ADSs generally will be treated for U.S. foreign tax credit purposes as foreign source passive category income.  In the event Mexican withholding taxes are imposed on such dividends, any such withheld taxes would be treated as part of the gross amount of the dividend includible in income of a U.S. holder for U.S. federal income tax purposes, and such taxes may be treated as a foreign income tax eligible, subject to generally applicable limitations and conditions under U.S. federal income tax law, for credit against a U.S. holder’s U.S. federal income tax liability or, at the U.S. holder’s election, for deduction from gross income in computing the U.S. holder’s taxable income. The calculation and availability of foreign tax credits and, in the case of a U.S. holder that elects to deduct foreign taxes, the availability of deductions, involves the application of complex rules that depend on a U.S. holder’s particular circumstances.  In the event Mexican withholding taxes are imposed, U.S. holders should consult their own tax advisors regarding the availability of foreign tax credits.

 

U.S. holders should be aware that the IRS has expressed concern that parties to whom ADSs are transferred may be taking actions that are inconsistent with the claiming of foreign tax credits by U.S. holders of ADSs.  Accordingly, the discussion above regarding the creditability of Mexican withholding taxes could be affected by future actions that may be taken by the IRS.

 

***Qualified Dividend Income***

 

Certain dividends received by non-corporate U.S. holders that constitute “qualified dividend income” will be subject to a reduced maximum marginal U.S. federal income tax rate.  Qualified dividend income generally includes, among other dividends, dividends received prior to January 1, 2013, from “qualified foreign corporations.” In general, the term “qualified foreign corporation” includes a foreign corporation that is eligible for the benefits of a comprehensive income tax treaty with the United States which the

 

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U.S. Treasury Department determines to be satisfactory, and which includes an exchange of information program.  The Tax Treaty has been approved for this purpose by the U.S. Treasury Department.  In addition, a foreign corporation is treated as a qualified foreign corporation with respect to any dividend paid by the corporation with respect to stock of the corporation that is readily tradable on an established securities market in the United States.  For this purpose, a share is treated as readily tradable on an established securities market in the United States if an ADR backed by such share is so traded.

 

Notwithstanding the previous rule, dividends received from a foreign corporation that is a passive foreign investment company or “PFIC,” as discussed below, under “*Passive Foreign Investment Company Rules,*” in the year in which the dividend was paid (or was a PFIC in the year prior to the year in which the dividend was paid) will not constitute qualified dividend income.  In addition, the term “qualified dividend income” will not include, among other dividends, any (i) dividends on any share of stock or ADS which is held by a taxpayer for 60 days or less during the 120-day period beginning on the date which is 60 days before the date on which such share or the Series B Shares backing the ADS become ex-dividend with respect to such dividends (as measured under section 246(c) of the Code) or (ii) dividends to the extent that the taxpayer is under an obligation (whether pursuant to a short sale or otherwise) to make related payments with respects to positions in substantially similar or related property.  Moreover, special rules apply in determining a taxpayer’s foreign tax credit limitation under section 904 of the Code in the case of qualified dividend income.

 

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

 

***Taxation of Dispositions***

 

Subject to the discussion below under “*Passive Foreign Investment Company Rules,*” gain or loss realized by a U.S. holder on the sale, redemption or other taxable disposition of Series B Shares or ADSs will be subject to U.S. federal income taxation as capital gain or loss in an amount equal to the difference between such U.S. holder’s adjusted basis in the Series B Shares or the ADSs and the amount realized on the disposition (including any amounts withheld in respect of Mexican withholding tax).  Any such gain or loss will be long-term capital gain or loss if the Series B Shares or ADSs have been held for more than one year as of the time of the sale, redemption or other taxable disposition.  Under current law, certain non-corporate U.S. holders may be eligible for preferential rates of U.S. federal income tax in respect of long-term capital gains.  The deductibility of capital losses is subject to limitations under the Code.

 

If Mexican income tax is withheld on the sale, redemption or other taxable disposition of Series B Shares or ADSs, the amount realized by a U.S. holder will include the gross amount of the proceeds of that sale, redemption or other taxable disposition before deduction of the Mexican income tax.  A U.S. holder who is eligible for the benefits of the Tax Treaty, can elect to treat capital gain or loss, if any, realized on the sale or other taxable disposition of Series B Shares or ADSs that is subject to Mexican income tax as foreign source gain or loss for U.S. foreign tax credit purposes. Consequently, in the case of gain from the disposition of Series B Shares or ADSs that is subject to Mexican income tax (see “Mexican Taxation — Taxation of Disposition”), a U.S. holder, subject to a number of complex limitations and conditions (including a minimum holding period requirement), may be able to benefit from the foreign tax credit for that Mexican income tax. Otherwise, any, capital gain or loss realized by a U.S. holder on a sale, redemption or other taxable disposition of Series B Shares or ADSs will be treated as U.S. source income or loss for U.S. foreign tax credit purposes and a U.S. holder may not be able to benefit from the foreign tax credit for that Mexican income tax (i.e., because the gain from the disposition would be U.S. source), unless the U.S. holder can apply the credit against U.S. federal income tax payable on other income from foreign sources.  Alternatively, the U.S. holder may take a deduction for the Mexican income tax if it does not elect to claim a foreign tax credit with respect to any foreign income taxes paid or accrued during the taxable year.

 

U.S. holders should consult their own tax advisors regarding the application of the foreign tax credit rules to their investment in, and disposition of, Series B Shares or ADSs.

 

***Passive Foreign Investment Company Rules***

 

Certain adverse U.S. federal income tax rules generally apply to a U.S. person that owns or disposes of stock in a non-U.S. corporation that is classified as a PFIC. In general, a non-U.S. corporation will be classified as a PFIC for any taxable year during which, after applying relevant look-through rules with respect to the income and assets of subsidiaries, either (i) 75.0% or more of the non-U.S. corporation’s gross income is “passive income” or (ii) 50.0% or more of the gross value (determined on a quarterly basis) of the non-U.S. corporation’s assets produce passive income or are held for the production of passive income. For these purposes, passive income generally includes, among other things, dividends, interest, rents, royalties, gains from the disposition of passive assets and gains from commodities and securities transactions (other than certain active business gains from the sale of commodities). In determining whether a non-U.S. corporation is a PFIC, a pro rata portion of the income and assets of each corporation in which it owns, directly or indirectly, at least 25.0% interest (by value) is taken into account.

 

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The Company does not believe that it was a PFIC, for United States federal income tax purposes, for its preceding taxable year and does not expect to be a PFIC in its current taxable year or in the foreseeable future. However, because PFIC status depends upon the composition of a company’s income and assets, the market value of assets from time to time, and the application of rules that are not always clear, there can be no assurance that the Company will not be classified as a PFIC for any taxable year.

 

If the Company was to be classified a PFIC, a U.S. holder could be subject to material adverse tax consequences including being subject to greater amounts of tax on gains and certain distributions on the Series B Shares or ADSs as well as increased reporting obligations. U.S. holders should consult their tax advisors about the possibility that the Company might be classified as a PFIC and the consequences if the Company was classified as a PFIC.

 

***Medicare Tax on Net Investment Income***

 

A U.S. holder that is an individual, an estate or a trust (other than a trust that falls into a special class of trusts that is exempt from such tax) will be subject to a 3.8% tax on the lesser of (1) the U.S. holder’s “net investment income” (in the case of individuals) or “undistributed net investment income” (in the case of estates and trusts) for the relevant taxable year and (2) the excess of the U.S. holder’s “modified adjusted gross income” (in the case of individuals) or “adjusted gross income” (in the case of estates and trusts) for the taxable year over a certain threshold (which in the case of individuals will be between U.S.$125,000 and U.S.$250,000 depending upon the individual’s circumstances). A U.S. holder’s net investment income generally will include its dividend income on the Series B Shares or ADSs, and its net gains from the disposition of the Series B Shares or ADSs. U.S. holders that are individuals, estates or trusts should consult their own tax advisors regarding the applicability of the Medicare tax to their income and gains in respect of the Series B Shares or ADSs.

 

***Information Reporting and Backup Withholding***

 

Dividends on, and proceeds from the sale or other disposition of, the Series B Shares or ADSs paid to a U.S. holder generally may be subject to the information reporting requirements of the Code and may be subject to backup withholding at the applicable rate unless the holder:

 

·                  establishes that it is an exempt holder; or

 

·                  provides an accurate taxpayer identification number on a properly completed Internal Revenue Service Form W-9 and certifies that no loss of exemption from backup withholding has occurred.

 

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

 

Recently enacted legislation requires individual U.S. Holders to report information to the IRS with respect to their investment in Series B Shares or ADSs unless certain requirements are met.  Investors who are individuals and fail to report required information could become subject to substantial penalties.  Prospective investors are encouraged to consult with their own tax advisors regarding the possible implications of this new legislation on their investment in Series B Shares or ADSs.

 

**DOCUMENTS ON DISPLAY**

 

We are subject to the information requirements of the Exchange Act and, in accordance therewith, we are required to file reports and other information with the SEC.  These materials, including this Form 20-F and the exhibits thereto, may be inspected and copied at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549.  The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.

 

**ITEM 11****                   ****Quantitative And Qualitative Disclosures About Market Risk.**

 

We are exposed to market risks arising from changes in interest rates, foreign exchange rates, equity prices and commodity prices.  We use derivative instruments from time to time, on a selective basis, to manage these risks.  In addition, we have also historically used certain derivative instruments for trading purposes.  We adopted a risk management policy that precludes the use of derivative instruments for trading purposes.  We maintain and control our treasury operations and overall financial risk through practices approved by our senior management.

 

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**RISK MANAGEMENT AND FINANCIAL INSTRUMENTS**

 

In 2008 we implemented specific improvements to our internal controls concerning the use of derivative financial instruments.  In addition, we implemented a new risk management policy that besides consolidating such improvements, prohibits the Company from entering into derivative financial instruments for trading purposes with the aim of obtaining profits based on changes in market values.  However, the use of financial derivative instruments for hedging purposes is allowed if used with the objective of mitigating financial risks and associated with a hedged item that is relevant to business activities.

 

**INTEREST RATE RISK**

 

We depend upon debt financing transactions, including debt securities, bank and vendor credit facilities and leases, to finance our operations.  All such financial instruments, as well as the related interest rate derivatives discussed further below, are entered into for other than trading purposes.  These transactions expose us to interest rate risk, with the primary interest-rate risk exposure resulting from changes in the relevant base rates (mostly LIBOR and to a lesser extent, Prime, TIIE and *Tasa Promedio Ponderada* in Venezuela) which are used to determine the interest rates that are applicable to borrowings under our credit facilities.  We are also exposed to interest rate risk in connection with refinancing of maturing debt.  We had U.S.$303 million (Ps.3,942 million) of fixed rate debt and U.S.$1,247 million (Ps.16,223 million) in floating rate debt as of December 31, 2012.  A hypothetical 100 basis point increase or decrease in interest rates would not have a significant effect on the fair value of our fixed rate debt.  The following table sets forth, as of December 31, 2012, principal cash flows and the related weighted average interest rates by expected maturity dates for our debt obligations.

 
| ** **          | ** ** | **Maturity Dates**                                                 | ** ** |
|---------------------|------------|-------------------------------------------------------------------------|------------|
| ** **          | ** ** | **2013**                                                                | ** ** | **2014** | ** ** | **2015** | ** ** | **2016** | ** ** | **Thereafter** | ** ** | **Total** | ** ** | **Fair   Value** | ** ** |
| ** **          | ** ** | **(in millions of pesos, except percentages)** | ** ** |
| Liabilities         |       |                                                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Debt                |       |                                                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Fixed Rate (Ps.)    |       | 20.08                                                                   |       | 8.43 |   | 3.78 |   | 3.78 |   | 3,905.8 |   | 3,941.95 |   | 3,981.0 |   |
| Average Rate        |       | 11.3                                                                    | %          | 8.96 | % | 3.99 | % | 3.99 | % | 7.75 | % |   |   |   |   |
| Floating Rate (Ps.) |       | 8,043.09                                                                |       | 343.5 |   | 419 |   | 5,887.8 |   | 1,530 |   | 16,223.4 |   | 16,418.2 |   |
| Average Rate        |       | 4.14                                                                    | %          | 2.64 | % | 3.28 | % | 2.19 | % | 6.4 | % |   |   |   |   |

 

From time to time, we use derivative financial instruments such as interest rate swaps for purposes of hedging a portion of our debt, in order to reduce our exposure to increases in interest rates.  Several of these contracts, however, do not qualify for accounting treatment as hedging transactions.

 

During 2010, the Company had only one interest rate swap contract outstanding, which was entered into by Derivados de Maíz Alimenticio, S.A., our Costa Rican subsidiary, in July 2008 to hedge the interest rate risk associated with a long-term credit facility, with a maturity date of December 28, 2010. Since the December 28, 2010 maturity we have not entered into any additional interest rate swap transactions.

 

In the case of our cash and short-term investments, declines in interest rates decrease the interest return on floating rate cash deposits and short-term investments.  A hypothetical 100 basis point decrease in interest rates would not have a significant effect on our results of operations.

 

In the case of our floating interest rate debt, a rise in interest rates increases the interest expense on floating rate debt.  A hypothetical 100 basis point increase in interest rates would not have a significant effect on our results of operations.

 

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**FOREIGN EXCHANGE RATE RISK**

 

Our net sales are denominated in U.S. dollars, Mexican pesos and other currencies.  During 2012, 38% of our revenues were generated in U.S. dollars, 35% in pesos and 28% in other currencies.  In addition, as of December 31, 2012, 63% of our total assets were denominated in currencies other than Mexican pesos, particularly U.S. dollars.  A significant portion of our operations is financed through U.S. dollar-denominated debt.

 

We believe that we have natural foreign exchange hedges incorporated in our balance sheet, in significant part because we have subsidiaries outside Mexico, and the peso-denominated value of our equity in these subsidiaries is also exposed to fluctuations in exchange rates.  Changes in the peso value of equity in our subsidiaries caused by movements in foreign exchange rates are recognized as a component of equity.  See Note 6 to our audited consolidated financial statements.

 

As of December 31, 2012, 81% of our debt obligations was denominated in U.S. dollars.  The following table sets forth information concerning our U.S. dollar-denominated debt as of December 31, 2012.  The table does not reflect our U.S. dollar sales or our U.S. dollar-denominated assets.

 
| ** **                       | ** ** | **Expected Maturity Date (U.S.   dollar-denominated Debt) as of December 31, 2012** | ** ** |
|----------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------|------------|
| **U.S. dollar-denominated debt** | ** ** | **2013**                                                                                                                         | ** ** | **2014** | ** ** | **2015** | ** ** | **2016** | ** ** | **Thereafter** | ** ** | **Total** | ** ** | **Fair   Value** | ** ** |
| ** **                       | ** ** | **(in millions of pesos)**                                                                                        | ** ** |
| Syndicated Loan Facility         |       | 0                                                                                                                                |       | 325.25 |   | 325.25 |   | 2,276.77 |   | 0 |   | 2,927.27 |   | 3,059.9 |   |
| Rabobank Loan Facility           |       | 0                                                                                                                                |       | 0 |   | 0 |   | 1,301.01 |   | 0 |   | 1,301.01 |   | 1,359.9 |   |
| 7.75% Perpetual Bond             |       | 0                                                                                                                                |       | 0 |   | 0 |   | 0 |   | 3,903.03 |   | 3,903.03 |   | 3,942.1 |   |
| Goldman Sachs                    |       | 2,602.02                                                                                                                         |       | 0 |   | 0 |   | 0 |   | 0 |   | 2,602.02 |   | 2,602.0 |   |
| Inbursa                          |       | 1,301.01                                                                                                                         |       | 0 |   | 0 |   | 0 |   | 0 |   | 1,301.01 |   | 1,301.0 |   |
| Santander                        |       | 1,301.01                                                                                                                         |       | 0 |   | 0 |   | 0 |   | 0 |   | 1,301.01 |   | 1,301.0 |   |
| Other U.S. dollar loans          |       | 936.73                                                                                                                           |       | 0 |   | 0 |   | 2,129.75 |   | 0 |   | 3,066.48 |   | 3,056.9 |   |
| TOTAL                            |       | 6,140.77                                                                                                                         |       | 325.25 |   | 325.25 |   | 5,707.53 |   | 3,903.03 |   | 16,401.83 |   | 16,622.8 |   |

 

An important part of our foreign exchange rate risk relates to our substantial U.S. dollar-denominated debt for our non-U.S. subsidiaries.

 

As indicated in Notes 6 A and 21 C to our audited consolidated financial statements, during 2012, we entered into forward transactions in order to hedge the Mexican peso to U.S. dollar foreign exchange rate risk related to the price of corn purchases for the summer and winter corn harvests in Mexico.  Since these exchange rate derivative financial instruments did not qualify for hedge accounting treatment, they were recognized at fair value and are subsequently re-measured at fair value.  As of December 31, 2012, we had no open positions of foreign exchange derivative instruments, the operations terminated throughout 2012 of these instruments represented a favorable effect of approximately Ps.108 million recognized in income.

 

As of March 31, 2013, the Company had foreign exchange derivative transactions in effect for a nominal amount of U.S.$274 million with different maturities from April through August 2013. We recognized our currency derivative instruments at fair value. The purpose of these contracts was to hedge the risks related to exchange rate fluctuations on the price of corn and wheat, which is denominated in U.S. dollars.

 

As indicated in Note 6 to our audited consolidated financial statements, operations in Venezuela represented 15% of net sales and 14% of total assets as of December 31, 2012.  In recent years, political and social instability has prevailed in Venezuela, and as described in Notes 6 and 30 to our audited consolidated financial statements, the Venezuelan government devalued its currency and established a two tier exchange structure on January 11, 2010.  On December 30, 2010, the Venezuelan government issued Exchange Agreement No. 14, which established a single exchange rate of 4.30 bolivars per U.S. dollar effective January 1, 2011.  We lost control of Gruma Venezuela on January 22, 2013.  On February 8, 2013, the National Executive, through the Central Bank of Venezuela and the Ministry of Popular Power for Planning and Finance, amended the Exchange Agreement to the effect that an exchange rate of 6.30 bolivars per U.S. dollar is applicable to all operations conducted in foreign currency effective as of February 9, 2013. Future devaluations of the Venezuelan currency will have a limited impact on our future financial statements as Gruma Venezuela will be deconsolidated from our operations as of January 22, 2013.

 

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**COMMODITY AND DERIVATIVE PRICE RISK**

 

The availability and price of corn and other agricultural commodities are subject to wide fluctuations due to factors outside our control, such as weather, plantings, government (domestic and foreign) farm programs and policies, changes in global demand/supply and global production of similar and competitive crops. We hedge a portion of our production requirements through commodity futures and options contracts in order to reduce the risk created by price fluctuations and supply of corn, wheat, natural gas and soy oils which exist as part of ongoing business operations. The open positions for hedges of purchases do not exceed the maximum production requirements for a one-year period.

 

During 2012, we entered into short-term hedge transactions through commodity futures and options for a portion of our requirements. All derivative financial instruments are recorded on the consolidated balance sheet at their fair value as either assets or liabilities. Changes in the fair value of derivatives are recorded each period in earnings or accumulated other comprehensive income in stockholders’ equity, depending on whether the derivative qualifies for hedge accounting and is effective as part of a hedge transaction. Ineffectiveness results when the change in the fair value of the hedge instruments differs from the change in the fair value of the hedged item.

 

For hedge transactions that qualify and are effective, gains and losses are deferred until the underlying asset or liability is settled, and then are recognized as part of that transaction.

 

Gains and losses which represent hedge ineffectiveness and derivative transactions that do not qualify for hedge accounting are recognized in income.

 

As of December 31, 2012, financial instruments that qualify as hedge accounting represented a favorable effect of Ps.119.3 million, which was recognized as comprehensive income in equity. From time to time we hedge commodity price risks utilizing futures and options strategies that do not qualify for hedge accounting. As a result of non-qualification, these derivative financial instruments are recognized at their estimated fair values and are marked to market with the associated effect recorded in current period earnings. For the year ended December 31, 2012, we recognized a favorable effect of Ps.17.1 million from these contracts. Additionally, as of December 31, 2012, we realized Ps.21.1 million in net gains on commodity price risk hedges that did not qualify for hedge accounting.

 

Based on our overall commodity exposure at December 31, 2012, a hypothetical 10 percent decline in market prices applied to the fair value of the instruments would result in a charge to income of Ps.68.8 million (for non-qualifying contracts).

 

**COUNTERPARTY RISK**

 

We maintain centralized treasury operations in Mexico for our Mexican operations and in the United States for our U.S. operations. Liquid assets are invested primarily in government bonds, bank repos and short-term debt instruments with a minimum “A1/P1” rating for our U.S. operations and “A” for our Mexican operations. We face credit risk from the potential non-performance by the counterparties in respect of the financial instruments that we utilize. Substantially all of these financial instruments are unsecured. We do not anticipate non-performance by the counterparties, which are principally licensed commercial banks with long-term credit ratings. In addition, we minimize counterparty solvency risk by entering into derivative instruments only with major national and international financial institutions using standard International Swaps and Derivatives Association, Inc. (“ISDA”) forms and long form confirmation agreements. For our operations in Europe, Ocenia, Asia and Central America, we only invest cash reserves with well-known local banks and local branches of international banks.  In addition, we also keep small investments abroad.

 

The above discussion of the effects on us of changes in interest rates, foreign exchange rates, commodity prices and equity prices is not necessarily indicative of our actual results in the future. Future gains and losses will be affected by actual changes in interest rates, foreign exchange rates, commodity prices, equity prices and other market exposures, as well as changes in the actual derivative instruments employed during any period.

 

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**ITEM 12       Description Of Securities Other Than Equity Securities**.

 

**American Depositary Shares**

 

Our Series B Shares have been traded on the *Bolsa Mexicana de Valores, S.A.B. de C.V.*, or Mexican Stock Exchange, since 1994. The ADSs, each representing four Series B Shares, commenced trading on the New York Stock Exchange in November 1998. As of April 26, 2013, our capital stock was represented by 565,174,609  issued Series B shares, of which 457,315,640  shares were outstanding, fully subscribed and paid, and 107,858,969  shares were held in our treasury. As of December 31, 2012, 69,326,292 Series B shares of our common stock were represented by 17,331,573 ADSs held by 6 record holders in the United States.

 

**Fees and Expenses**

 

The following table summarizes the fees and expenses payable by holders of ADSs to Citibank, N.A. (the “Depositary”) pursuant to the Deposit Agreement dated September 18, 1998:

 
| **Service** | ** **                                                                                                                              | **Rate** | ** **                                                                 | **By Whom Paid** |
|-------------|-----------------------------------------------------------------------------------------------------------------------------------------|----------|----------------------------------------------------------------------------|----------------------------|
| (1)         | Issuance   of ADSs upon deposit of Series B Shares (excluding issuances   contemplated by paragraphs 3(b) and (5) below) |     | Up   to U.S.$5.00 per 100 ADSs (or fraction thereof) issued                |                       | Party   for whom deposits are made or party receiving ADSs |
| (2)         | Delivery   of Series B Shares, property and cash against surrender of ADSs                                                         |     | Up   to U.S.$5.00 per 100 ADSs (or fraction thereof) surrendered           |                       | Party   surrendering ADSs or making withdrawal |
| (3)         | Distribution   of (a) cash dividend or (b) ADSs pursuant to stock dividends   (or other free distribution of stock) |     | No   fee, so long as prohibited by the exchange upon which ADSs are listed |                       | N/A |

 
| **Service** | ** **                                                                                                                                        | **Rate** | ** **                        | **By Whom Paid** |
|-------------|---------------------------------------------------------------------------------------------------------------------------------------------------|----------|-----------------------------------|----------------------------|
| (4)         | Distribution   of cash proceeds (i.e. upon sale of rights or the sale of any securities or   property pursuant to Sections the Deposit Agreement) |     | Up   to $2.00 per 100 ADSs held   |                       | Party   to whom distribution is made |
| (5)         | Distribution   of ADSs pursuant to exercise of rights                                                                                        |     | Up   to $2.00 per 100 ADSs issued |                       | Party   to whom distribution is made |

 

In addition to the foregoing, holders of our ADSs are responsible for the following charges pursuant to the Deposit Agreement: (i) taxes (including applicable interest and penalties) and other governmental charges; (ii) such registration fees as may from time to time be in effect for the registration of Series B Shares on the share register and applicable to transfers of Series B Shares to or from the name of Citibank, S.A. (the “Custodian”), the Depositary or any nominees upon the making of deposits and withdrawals, respectively; (iii) such cable, telex and facsimile transmission and delivery expenses as are expressly provided in the Deposit Agreement to be at the expense of the person depositing Series B Shares or holders of ADSs; (iv) the customary expenses and charges incurred by the Depositary in the conversion of foreign currency; and (v) such fees and expenses as are incurred by the Depositary in connection with compliance with exchange control regulatory requirements applicable to Series B Shares, ADSs and ADRs.

 

Pursuant to the Deposit Agreement, the Depositary may deduct the amount of any taxes or other governmental charges owed from any payments to holders. It may also sell deposited securities to pay any taxes owed. Holders may be required to indemnify the Depositary, the Company and the Custodian from any claims with respect to taxes.

 

**PART II**

 

**ITEM 13       Defaults, Dividend Arrearages And Delinquencies.**

 

Not applicable.

 

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**ITEM 14       Material Modifications To The Rights Of Security Holders And Use Of Proceeds.**

 

Not applicable.

 

**ITEM 15       Controls and Procedures.**

 

(a)   *Disclosure controls and procedures*. We carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer, Chief Financial Officer and Chief Corporate Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2012. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon our evaluation, our Chief Executive Officer, Chief Financial Officer and Chief Corporate Officer concluded that our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the applicable rules and forms, and that it is accumulated and communicated to our management, including our Chief Executive Officer, Chief Financial Officer and Chief Corporate Officer, as appropriate to allow timely decisions regarding required disclosure.

 

(b)   *Management’s annual report on internal controls over financial reporting*. Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended. Under the supervision and with the participation of our management, including our Board of Directors, Chief Executive Officer, Chief Financial Officer, Chief Corporate Officer and other personnel, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

 

Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS as issued by IASB. Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with IFRS, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on our financial statements.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Based on our evaluation under the framework in Internal Control—Integrated Framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2012.

 

PricewaterhouseCoopers, an independent registered public accounting firm, our independent auditor, issued an attestation report on our internal control over financial reporting on April 30, 2013.

 

(c)   *Attestation Report of the registered public accounting firm*. The report of PricewaterhouseCoopers, an independent registered public accounting firm, on our internal control over financial reporting is included herein at page F-2.

 

(d)   *Changes in internal control over financial reporting*. There has been no change in our internal control over financial reporting during 2012 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

**ITEM 16A.   Audit Committee Financial Expert.**

 

Our Board of Directors has determined that Mr. Mario Laborín Gómez qualifies as an independent member of the board and as an “audit committee financial expert”, within the meaning of this Item 16A.

 

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**ITEM 16B.   Code of Ethics.**

 

We have adopted a code of ethics, as defined in Item 16B of Form 20-F under the Securities Exchange Act of 1934, as amended. Our code of ethics applies, among others, to our Chief Executive Officer, Chief Financial Officer and Chief Corporate Officer, persons performing similar functions, members of the board of directors, senior management and employees. Our code of ethics is available on our web site at www.gruma.com. If we amend any provisions of our code of ethics that apply to our Chief Executive Officer, Chief Financial Officer, Chief Corporate Officer and persons performing similar functions, or if we grant any waiver of such provisions, we will disclose such amendment or waiver on our web site at the same address.

 

**ITEM 16C.   Principal Accountant Fees and Services.**

 

**Audit and Non-Audit Fees**

 

The following table sets forth the fees billed to us and our subsidiaries by our independent registered public accountants, PricewaterhouseCoopers, during the fiscal years ended December 31, 2012 and 2011:

 
| ** ** | ** ** | **Year ended December 31,**      | ** ** |
|------------|------------|-------------------------------------------------|------------|
| ** ** | ** ** | **2012**                                        | ** ** | **2011** | ** ** |
| ** ** | ** ** | **(thousands of Mexican pesos)** | ** ** |
| Audit fees |       | Ps.                                             | 45,494     |   | Ps. | 40,424 |   |
| Tax fees   |       | 6,159                                           |       | 7,397 |   |
| Other fees |       | 2,687                                           |       | 4,985 |   |
| Total fees |       | Ps.                                             | 54,340     |   | Ps. | 52,806 |   |

 

Audit fees in the above table are the aggregate fees billed by PricewaterhouseCoopers and its affiliates in connection with the audit of our annual financial statements, the review of our interim financial statements and statutory and regulatory audits.

 

Tax fees in the above table are fees billed by PricewaterhouseCoopers and its affiliates for tax compliance services, tax planning services and tax advice services.

 

Other fees in the above table are fees billed by PricewaterhouseCoopers and its affiliates for non-audit services, mainly related to accounting advice on the implementation of new accounting standards as well as accounting advice on derivative financial instruments, as permitted by the applicable independence rules.

 

**Audit Committee Approval Policies and Procedures.**

 

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

 

**ITEM 16D.   Exemptions from the Listing Standards for Audit Committees.**

 

Not Applicable.

 

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**ITEM 16E.   Purchases of Equity Securities by the Issuer and Affiliated Purchasers.**

 

**Issuer Purchase of Equity Securities**

 
| **Period**                                                   | ** ** | **(a) Total Number of   Shares (or Units)   Purchased** | ** ** | **(b) Average Price Paid   per Share (or Units)** | ** ** | **(c) Total Number of   Shares (or Units)   Purchased as Part of   Publicly Announced   Plans or Programs** | ** ** | **(d) Maximum Number   (or Approximate   Dollar Value) of   Shares (or Units) that   May Yet Be Purchased   Under the Plans or   Programs** | ** ** |
|--------------------------------------------------------------|------------|----------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| **January 1, 2012-   January 31, 2012**            |       | 0                                                                                |       | Not applicable                                                                  |       | 0                                                                                                                                                                  |       | Not applicable                                                                                                                                                                                                    |       |
| **February 1, 2012-   February 28, 2012**          |       | 0                                                                                |       | Not applicable                                                                  |       | 0                                                                                                                                                                  |       | Not applicable                                                                                                                                                                                                    |       |
| **March 1, 2012-****March 31, 2012**               |       | 0                                                                                |       | Not applicable                                                                  |       | 0                                                                                                                                                                  |       | Not applicable                                                                                                                                                                                                    |       |
| **April 1, 2012-****April 30, 2012**               |       | 0                                                                                |       | Not applicable                                                                  |       | 0                                                                                                                                                                  |       | Not applicable                                                                                                                                                                                                    |       |
| **May 1, 2012-****May 31, 2012**                   |       | 0                                                                                |       | Not applicable                                                                  |       | 0                                                                                                                                                                  |       | Not applicable                                                                                                                                                                                                    |       |
| **June 1, 2012-****June 30, 2012**                 |       | 0                                                                                |       | Not applicable                                                                  |       | 0                                                                                                                                                                  |       | Not applicable                                                                                                                                                                                                    |       |
| **July 1, 2012-****July 31, 2012**                 |       | 0                                                                                |       | Not applicable                                                                  |       | 0                                                                                                                                                                  |       | Not applicable                                                                                                                                                                                                    |       |
| **August 1, 2012-   August 31, 2012**              |       | 0                                                                                |       | Not applicable                                                                  |       | 0                                                                                                                                                                  |       | Not applicable                                                                                                                                                                                                    |       |
| **September 1, 2012-   September 30, 2012**        |       | 0                                                                                |       | Not applicable                                                                  |       | 0                                                                                                                                                                  |       | Not applicable                                                                                                                                                                                                    |       |
| **October 1, 2012-   October 31, 2012**            |       | 0                                                                                |       | Not applicable                                                                  |       | 0                                                                                                                                                                  |       | Not applicable                                                                                                                                                                                                    |       |
| **November 1, 2012-   November 30, 2012**          |       | 0                                                                                |       | Not applicable                                                                  |       | 0                                                                                                                                                                  |       | Not applicable                                                                                                                                                                                                    |       |
| **December 1, 2012-   December 31, 2012 (1)** |       | 106,335,069                                                                      |       | Ps.$ 36.45                                                                 |       | 0                                                                                                                                                                  |       | 0                                                                                                                                                                                                                 |       |

 

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(1)           In addition, we purchased 45% of the shares of Valores Azteca, which holds 54,592,357 shares of GRUMA.

 

 

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**ITEM 16F.   Change in Registrant’s Certifying Accountant.**

 

During the years ended December 31, 2012, 2011 and 2010 and through the date of this Annual Report, the principal independent accountant engaged to audit our financial statements, PricewaterhouseCoopers, S.C., has not resigned, indicated that it has declined to stand for re-election after the completion of its current audit or been dismissed.

 

**ITEM 16G.  Corporate Governance.**

 

We are a Mexican corporation with shares listed on the Mexican Stock Exchange and on the NYSE. Our corporate governance practices are governed by our bylaws and the Mexican corporate governance practices, including those set forth in the Mexican Securities Law, the *Circular Única de Emisoras* (the “Mexican Circular Única”) issued by the Mexican Banking and Securities Commission and the *Reglamento Interior de la Bolsa Mexicana de Valores* (the “Mexican Stock Exchange Rules”), and to applicable US securities laws including the Sarbanes-Oxley Act of 2002 (“SOX”) and the rules of the NYSE (the “NYSE Rules”) to the extent SOX and the NYSE Rules apply to foreign private issuers like us. Certain NYSE Rules relating to corporate governance are not applicable to us because of our status as a foreign private issuer. Specifically, we are permitted to follow home country practices in lieu of certain provisions of Section 303A of the NYSE Rules. In accordance with the requirement of Section 303A.11 of the NYSE Rules, the following is a summary of significant ways in which our corporate governance practices differ from those required to be followed by U.S. domestic companies under the NYSE’s listing standards.

 

**Independence of our Board of Directors**

 

Under the NYSE Rules, controlled companies like us (regardless of our status as a foreign private issuer) are not required to have a board of directors composed of a majority of independent directors. However, the Mexican Securities Law requires that, as a listed company in Mexico, at least 25% of the members of our Board of Directors be independent as determined under the Mexican Securities Law. We have an alternate director for each of our directors. The Mexican Securities Law further provides that alternates of independent directors be independent as well. The Mexican Securities Law sets forth detailed standards for establishing independence which differ from those set forth in the NYSE Rules.

 

**Executive Sessions**

 

Under the NYSE Rules, non-management directors must meet at executive sessions without management. We are not required, under Mexican law, to hold executive sessions in which non-management directors meet without the management or to hold meetings of only independent directors. Our Board of Directors must meet at least four times per year.

 

**Audit Committee**

 

Under the NYSE Rules, listed companies must have an audit committee with a minimum of three members who are independent directors. Under the Mexican Securities Law, listed companies are required to have an Audit Committee comprised solely of independent directors. The members of the Audit Committee are appointed by the Board of Directors, with the exception of its Chairman, who is appointed by the shareholders at the Shareholders’ Meeting. Currently, our Audit Committee is comprised of 3 members. Our Audit Committee operates pursuant to the provisions of the Mexican Securities Law and our Bylaws. A description of the specific functions of our Audit Committee can be found in Item 10. See “Item 10. Additional Information—Audit and Corporate Governance Committees” for further information about our Audit Committee.

 

**Audit Committee Reports**

 

Under the NYSE Rules, Audit Committees are required to prepare an Audit Committee Report as required by the SEC to be included in the listed company’s annual proxy statement. As a foreign private issuer, we are not required by the SEC to prepare and file proxy statements. In this regard, we are subject to Mexican securities law requirements. We have chosen to follow Mexican law and practice in this regard.

 

**Corporate Governance Committee**

 

Under both NYSE Rules and Mexican securities laws and regulations, listed companies are also required to have a Corporate Governance Committee comprised solely of independent directors. The Company’s Board of Directors appoints the members of the Corporate Governance Committee, with the exception of its Chairman, who is appointed by the shareholders at a Shareholders’ Meeting. Currently, our Corporate Governance Committee is comprised of the same three members of our Audit Committee. Our Corporate Governance Committee operates pursuant to the provisions of the Mexican Securities Law and our Bylaws. A description

 

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of the specific functions of our Corporate Governance Committee can be found in Item 10. See “Item 10. Additional Information—Audit and Corporate Governance Committees” for further information about our Corporate Governance Committee.

 

**Compensation Committee**

 

Under NYSE Rules, listed companies must have a compensation committee composed entirely of independent directors. Under our Bylaws and the Mexican securities laws and regulations, we are not required to have a compensation committee. Currently, we do not have such a committee.

 

**Corporate Governance Guidelines and Code of Ethics**

 

Domestic issuers listed on the NYSE are required to adopt and disclose corporate governance guidelines and a code of business conduct and ethics for directors, officers and employees and promptly disclose any waivers of such code for directors or executive officers. We are not required to adopt and disclose corporate governance guidelines under Mexican law to the same extent as the NYSE Rules. However, pursuant to regulations of the *Bolsa Mexicana de Valores*or Mexican Stock Exchange we are required to annually file with the Mexican Stock Exchange a statement relating to our level of adherence to the Mexican Code of Best Corporate Practices. Our statement can be found on our corporate web page. We are not required to adopt a Code of Ethics under Mexican law. However, in April 2003, we adopted a Code of Ethics applicable to our directors, officers and employees.  Our Code of Ethics can also be found on our corporate web page under “Corporate Governance.”

 

**Solicitation of Proxies**

 

Under NYSE Rules, listed companies are required to solicit proxies and provide proxy materials for all meetings of shareholders.  Such proxy solicitations are to be provided to the NYSE.  We are not required to solicit proxies from our shareholders.  Under our Bylaws and Mexican securities laws and regulations, we inform shareholders of all meetings by public notice, which states the requirements for admission to the meeting.  Under the deposit agreement relating to our ADSs, holders of our ADSs receive notice of shareholders’ meetings together with information explaining how to instruct the depositary bank to exercise the voting rights of the securities represented by ADSs.

 

**ITEM 16H.  Mine Safety Disclosure.**

 

Not Applicable.

 

**PART III**

 

**ITEM 17       Financial Statements.**

 

Not Applicable.

 

**ITEM 18       Financial Statements.**

 

See pages F-1 through F-80, incorporated herein by reference.

 

**ITEM 19       Exhibits.**

 

Pursuant to the rules and regulations of the SEC, we have filed certain agreements as exhibits to this annual report on Form 20-F. These agreements may contain representations and warranties by the parties. These representations and warranties have been made solely for the benefit of the other party or parties to such agreements and (i) may be intended not as statements of fact, but rather as a way of allocating the risk to one of the parties to such agreements if those statements turn out to be inaccurate, (ii) may have been qualified by disclosures that were made to such other party or parties and that either have been reflected in the Company’s filings or are not required to be disclosed in those filings, (iii) may apply materiality standards different from what may be viewed as material to investors, and (iv) were made only as of the date of such agreements or such other date(s) as may be specified in such agreements and are subject to more recent developments. Accordingly, these representations and warranties may not describe our actual state of affairs at the date hereof.

 

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Documents filed as exhibits to this annual report:

 
| **Exhibit No.** | ** ** | ** **                                                                                                                                                                                                                                                                                        |
|----------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **           | ** ** | ** **                                                                                                                                                                                                                                                                                        |
| 1                    |       | Our   bylaws (*estatutos sociales*) as amended through   December 13, 2012, together with an English translation.                                                                                                                                                                            |
|                 |       |                                                                                                                                                                                                                                                                                              |
| 2(a)                 |       | Deposit   Agreement, dated as of September 18, 1998, by and among us, Citibank,   N.A. as Depositary and the Holders and Beneficial Owners of American   Depositary Shares Evidenced by American Depositary Receipts Issued Thereunder   (including form of American Depositary Receipt).(1) |
| ** **           | ** ** | ** **                                                                                                                                                                                                                                                                                        |
| 2(b)                 |       | Indenture,   dated as of December 3, 2004, between us and JPMorgan Chase Bank, N.A.,   as Indenture Trustee representing up to U.S.$300,000,000 of our 7.75%   Perpetual Bonds.(2)                                                                                                           |
|                 |       |                                                                                                                                                                                                                                                                                              |
| 4(a)(1)              |       | U.S.$225   million credit facility by and among us, the Lenders party thereto and BBVA   Bancomer, S.A., Institución de Banca Múltiple, Grupo Financiero BBVA   Bancomer, as Administrative Agent, dated March 22, 2011(3), and its   amendment dated December 3, 2012.  |
|                 |       |                                                                                                                                                                                                                                                                                              |
| 4(a)(2)              |       | U.S.$200 million   revolving credit facility among Gruma Corporation, the Lenders party thereto,   Bank of America, N.A., as Administrative Agent, Documentation Agent, Swing   Line Lender, and Letter of Credit Issuer, dated June 20, 2011.(4)                                       |
|                 |       |                                                                                                                                                                                                                                                                                              |
| 4(a)(3)              |       | Ps.600 million   term loan by and among us and Banco Nacional de Comercio Exterior, S.N.C.   dated June 16, 2011(4), and its amendment dated December 7, 2012.                                                                                                                     |
|                 |       |                                                                                                                                                                                                                                                                                              |
| 4(a)(4)              |       | Ps.1,200   million credit facility by and among us, the Lenders party thereto and BBVA   Bancomer, S.A., Institución de Banca Múltiple, Grupo Financiero BBVA   Bancomer, as Administrative Agent, dated June 15, 2011(4), and its   amendment dated December 3, 2012.   |
|                 |       |                                                                                                                                                                                                                                                                                              |
| 4(a)(5)(1)           |       | U.S.$50   million credit facility by and among us and Centrale   Raiffeisen-Boerenleenbank B.A. dated June 15, 2011(4), its first   amendment dated June 28, 2012.                                                                                                                      |
|                 |       |                                                                                                                                                                                                                                                                                              |
| 4(a)(5)(2)           |       | U.S.$50   million credit facility by and among us and Centrale   Raiffeisen-Boerenleenbank B.A. dated June 15, 2011(4), and its second   amendment dated November 29, 2012.                                                                                                                  |
|                 |       |                                                                                                                                                                                                                                                                                              |
| 4(a)(6)(1)           |       | U.S.$200   million term loan by and among us and Goldman Sachs Bank, USA, as   Administrative Agent, Sole Lead Arranger and Bookrunner, dated   December 13, 2012.                                                                                                                           |
|                 |       |                                                                                                                                                                                                                                                                                              |
| 4(a)(6)(2)           |       | U.S.$200   million term loan by and among us and Goldman Sachs Bank, USA, as   Administrative Agent, Sole Lead Arranger and Bookrunner, dated December 13,   2012, and increased to U.S.$300 million on December 14, 2012 by Santander   through a joinder agreement.                             |
|                 |       |                                                                                                                                                                                                                                                                                              |
| 4(a)(7)              |       | Equity   Purchase Agreement by and among us, Archer-Daniels-Midland Company, ADM   Milling, Co., and ADM Bio Productos, S.A. de C.V. dated   December 14, 2012.                                                                                                                         |
|                 |       |                                                                                                                                                                                                                                                                                              |
| 8                    |       | List   of Principal Subsidiaries.                                                                                                                                                                                                                                                                 |
|                 |       |                                                                                                                                                                                                                                                                                              |
| 12(a)(1)             |       | CEO   Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002,   dated April 30, 2013.                                                                                                                                                                                  |
|                 |       |                                                                                                                                                                                                                                                                                              |
| 12(a)(2)             |       | CFO   Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002,   dated April 30, 2013.                                                                                                                                                                                  |
|                 |       |                                                                                                                                                                                                                                                                                              |
| 13                   |       | Officer   Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of   2002, dated April 30, 2013.                                                                                                                                                                             |

 

----

(1)      Previously filed in Registration Statement on Form F-6 (File No. 333-9282), originally filed with the SEC on August 13, 1998.  Incorporated herein by reference.

 

(2)      Previously filed in Annual Report on Form 20-F (File No. 1-14852), originally filed with the SEC on July 1, 2002. Incorporated herein by reference.

 

(3)      Previously filed in Annual Report on Form 20-F (File No. 1-14852), originally filed with the SEC on June 8, 2011. Incorporated herein by reference.

 

(4)      Previously filed in Annual Report on Form 20-F (File No. 1-14852), originally filed with the SEC on April 30, 2012. Incorporated herein by reference.

 

91

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**SIGNATURES**

 

The registrant, Gruma, S.A.B. 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.

 
|                         | GRUMA, S.A.B. de C.V.                |
|------------------------------|--------------------------------------|
|                         |
|                         | /s/ Juan Antonio Quiroga García |
|                         | Juan Antonio Quiroga García     |
|                         | Chief Corporate Officer              |
|                         |                                 |
|                         |                                 |
| Dated:   April 30, 2013 |                                 |
|                              |                                      |  |

 

92

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GRUMA, S.A.B. DE C.V. AND SUBSIDIARIES

 

CONSOLIDATED FINANCIAL STATEMENTS

 

AS OF DECEMBER 31, 2012 AND 2011 AND 2010

 

CONTENT

 
| ** **                                                | **Page**   |
|-----------------------------------------------------------|------------|
|                                                      |       |
| Report of Independent Registered Public Accounting   Firm | F-2        |
|                                                      |       |
| Consolidated financial statements:                        |       |
| Balance sheets                                            | F-3        |
| Income statements                                         | F-4        |
| Statements of comprehensive income                        | F-5        |
| Statements of changes in equity                           | F-6        |
| Statements of cash flows                                  | F-8        |
|                                                      |       |
| Notes to the consolidated financial statements            | F-9 - F-80 |

 

**Grupo Financiero Banorte, S.A.B. de C.V. and Subsidiaries**

 

**Report of Independent Registered Public Accounting Firm and Consolidated Financial Statements as of December 31, 2010, 2009 and 2008**

** **
| **Table of Contents**                                                                     | ** ** | **Page** |
|-----------------------------------------------------------------------------------------------------|------------|----------|
|                                                                                                |       |     |
| Report of Independent Registered Public Accounting   Firm                                           |       | F-81     |
|                                                                                                |       |     |
| Consolidated Balance Sheets                                                                         |       | F-83     |
|                                                                                                |       |     |
| Consolidated Statements of Income                                                                   |       | F-85     |
|                                                                                                |       |     |
| Consolidated Statements of Changes in Stockholders’   Equity                                   |       | F-86     |
|                                                                                                |       |     |
| Consolidated Cash Flow Statements for the years ended   December 31, 2010, 2009 and 2008       |       | F-88     |
|                                                                                                |       |     |
| Consolidated Statement of Changes in Financial   Position For the year ended December 31, 2010 |       | F-89     |
|                                                                                                |       |     |
| Notes to Consolidated Financial Statements                                                          |       | F-90     |

 

----

Table of Contents

 

GRUMA, S.A.B. DE C.V. AND SUBSIDIARIES

 

CONSOLIDATED FINANCIAL STATEMENTS

 

AS OF DECEMBER 31, 2012 AND 2011

 

----

Table of Contents

 

GRUMA, S.A.B. DE C.V. AND SUBSIDIARIES

 

CONSOLIDATED FINANCIAL STATEMENTS

 

AS OF DECEMBER 31, 2012 AND 2011

 

CONTENT

 
| ** **                                                | **Page**   |
|-----------------------------------------------------------|------------|
|                                                      |       |
| Report   of Independent Registered Public Accounting Firm | F-2        |
|                                                      |       |
| Consolidated financial statements:                        |       |
| Balance sheets                                            | F-3        |
| Income statements                                         | F-4        |
| Statements of comprehensive   income                      | F-5        |
| Statements of changes in equity                           | F-6        |
| Statements of cash flows                                  | F-8        |
|                                                      |       |
| Notes to the consolidated financial statements            | F-9 - F-80 |

 

F-1

----

Table of Contents

 

**Report of Independent Registered Public Accounting Firm**

 

To the Stockholders of

Gruma, S. A. B. de C. V.

 

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, of comprehensive income, of changes in equity and of cash flows, present fairly, in all material respects, the financial position of Gruma, S. A. B. de C. V. and its subsidiaries (the “Company”), as of December 31, 2012 and December 31, 2011, and the results of their operations and their cash flows, for each of the three years in the period ended December 31, 2012 in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.  Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).  The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control Over Financial Reporting appearing in Item 15.  Our responsibility is to express opinions on these financial statements and on the Company’s internal control over financial reporting based on our integrated audits.  We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects.  Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation.  Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.  Our audits also included performing such other procedures as we considered necessary in the circumstances.  We believe that our audits provide a reasonable basis for our opinions.

 

As disclosed in Notes 27 and 30 to the consolidated financial statements, on January 22, 2013, the Ministry of Justice and Internal Relations in Venezuela designated individuals as special managers representing the Republic of Venezuela, for the foreign subsidiaries located in that country; providing the right to take control over such subsidiaries. Consequently and as a result of the loss of control, the Company will stop consolidating the financial information of the Venezuelan subsidiaries as of January 22, 2013.

 

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

PricewaterhouseCoopers, S. C.

 

 
| s/s Víctor A. Robledo Gómez    |   |
|------------------------------------------|--------|
| C.P.C. Víctor A. Robledo Gómez |   |
|                                     |   |
| Monterrey, Nuevo León, México  |   |
| April 19, 2013                           |   |

 

F-2

----

Table of Contents

 

**GRUMA, S.A.B. DE C.V. AND SUBSIDIARIES**

**CONSOLIDATED BALANCE SHEETS**

**AS OF DECEMBER 31, 2012 AND 2011**

**(In thousands of Mexican pesos)**

**(Notes 1, 2 and 5)**

 
| ** **                                | ** ** | **Note**   | ** ** | **As of********December 31,   2012** | ** **       | **As of********December 31,********2011** | ** ** |
|-------------------------------------------|------------|------------|------------|------------------------------------------------|------------------|-----------------------------------------------------|------------|
| **Assets**                                | ** ** | ** ** |       |                                           |             |                                                |       |
| Current:                                  | ** ** | ** ** |       |                                           |             |                                                |       |
| Cash and cash equivalents                 |       | 8          |       | Ps.                                            | 1,287,368        |                                                | Ps.        | 1,179,651 |   |
| Trading investments                       |       | 21         |       | —                                         |             | 140,255                                             |       |
| Derivative financial   instruments        |       | 21         |       | 45,316                                         |             | 103,413                                             |       |
| Accounts receivable, net                  |       | 9          |       | 7,048,525                                      |             | 7,127,208                                           |       |
| Inventories                               |       | 10         |       | 13,383,990                                     |             | 10,700,831                                          |       |
| Recoverable income tax                    |       |       |       | 1,621,044                                      |             | 505,069                                             |       |
| Prepaid expenses                          |       |       |       | 228,791                                        |             | 231,489                                             |       |
| Total   current assets                    |       |       |       | 23,615,034                                     |             | 19,987,916                                          |       |
|                                      |       |       |       |                                           |             |                                                |       |
| Non-current:                              |       |       |       |                                           |             |                                                |       |
| Long-term notes and   accounts receivable |       | 11         |       | 346,944                                        |             | 626,874                                             |       |
| Investment in associates                  |       | 12         |       | 1,156,251                                      |             | 143,700                                             |       |
| Property, plant and   equipment, net      |       | 13         |       | 20,917,534                                     |             | 20,515,633                                          |       |
| Intangible assets, net                    |       | 14         |       | 2,775,444                                      |             | 2,954,359                                           |       |
| Deferred tax assets                       |       | 15         |       | 649,195                                        |             | 314,136                                             |       |
| Total non-current assets                  |       |       |       | 25,845,368                                     |             | 24,554,702                                          |       |
|                                      |       |       |       |                                           |             |                                                |       |
| **Total Assets**                          |       |       |       | Ps.                                            |  49,460,402 |                                                | Ps.        |  44,542,618 |   |
|                                      |       |       |       |                                           |             |                                                |       |
| **Liabilities**                           |       |       |       |                                           |             |                                                |       |
| Current:                                  |       |       |       |                                           |             |                                                |       |
| Short-term debt                           |       | 16         |       | Ps.                                            |  8,018,763  |                                                | Ps.        |  1,633,207 |   |
| Trade accounts payable                    |       |       |       | 6,307,796                                      |             | 5,544,105                                           |       |
| Derivative financial   instruments        |       | 21         |       | 28,832                                         |             | 46,013                                              |       |
| Provisions                                |       | 17         |       | 97,743                                         |             | 401,116                                             |       |
| Income tax payable                        |       |       |       | 327,657                                        |             | 624,378                                             |       |
| Other current liabilities                 |       | 18         |       | 2,744,267                                      |             | 2,732,215                                           |       |
| Total current liabilities                 |       |       |       | 17,525,058                                     |             | 10,981,034                                          |       |
|                                      |       |       |       |                                           |             |                                                |       |
| Non-current:                              |       |       |       |                                           |             |                                                |       |
| Long-term debt                            |       | 16         |       | 11,852,708                                     |             | 11,472,110                                          |       |
| Provision for deferred   taxes            |       | 15         |       | 4,225,367                                      |             | 3,838,316                                           |       |
| Employee benefits   obligations           |       | 19         |       | 583,764                                        |             | 370,402                                             |       |
| Provisions                                |       | 17         |       | 289,800                                        |             | 114,714                                             |       |
| Other non-current liabilities             |       | 3          |       | 649,988                                        |             | 53,258                                              |       |
| Total non-current   liabilities           |       |       |       | 17,601,627                                     |             | 15,848,800                                          |       |
|                                      |       |       |       |                                           |             |                                                |       |
| **Total Liabilities**                     |       |       |       | 35,126,685                                     |             | 26,829,834                                          |       |
|                                      |       |       |       |                                           |             |                                                |       |
| **Equity**                                |       |       |       |                                           |             |                                                |       |
| Shareholders’ equity:                |       |       |       |                                           |             |                                                |       |
| Common stock                              |       | 20         |       | 5,668,079                                      |             | 6,972,425                                           |       |
| Reserves                                  |       |       |       | 272,262                                        |             | (144,236                                            | )          |
| Retained earnings                         |       | 20         |       | 5,361,325                                      |             | 6,603,014                                           |       |
| Total shareholders’ equity           | ** ** | ** ** |       | 11,301,666                                     |             | 13,431,203                                          |       |
| Non-controlling interest                  | ** ** | ** ** |       | 3,032,051                                      |             | 4,281,581                                           |       |
|                                      |       |       |       |                                           |             |                                                |       |
| **Total Equity**                          | ** ** | ** ** |       | 14,333,717                                     |             | 17,712,784                                          |       |
| **Total Liabilities   and Equity**        | ** ** | ** ** |       | Ps.                                            |  49,460,402 |                                                | Ps.        |  44,542,618 |   |
|                                           |            |            |            |                                                |                  |                                                     |            |  |  |  |  |  |

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-3

----

Table of Contents

 

**GRUMA, S.A.B. DE C.V. AND SUBSIDIARIES**

**CONSOLIDATED INCOME STATEMENTS**

**FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010**

**(In thousands of Mexican pesos, except per-share data)**

**(Notes 1, 2 and 5)**

 
| ** **                                           | ** ** | **Note**   | ** ** | **2012**    | ** **       | **2011**    | ** ** | **2010**         | ** ** |
|------------------------------------------------------|------------|------------|------------|-------------|------------------|-------------|------------|------------------|------------|
|                                                 |       |       |       |        |             |        |       |             |       |
| Net sales                                            | ** ** | ** ** |       | Ps.         |  64,316,632 |        | Ps.        |  57,644,749 |       | Ps. |  46,232,454 |   |
| Cost of sales                                        | ** ** | ** ** |       | (45,349,670 | )                | (40,117,952 | )          | (31,563,342      | )          |
| **Gross   profit**                                   | ** ** | ** ** |       | 18,966,962  |             | 17,526,797  |       | 14,669,112       |       |
|                                                 |       |       |       |        |             |        |       |             |       |
| Selling and administrative   expenses                | ** ** | ** ** |       | (15,352,274 | )                | (13,984,486 | )          | (12,100,365      | )          |
| Other expenses, net                                  |       | 23         |       | (101,655    | )                | (203,850    | )          | (518,732         | )          |
| **Operating   income**                               |       |       |       | 3,513,033   |             | 3,338,461   |       | 2,050,015        |       |
|                                                 |       |       |       |        |             |        |       |             |       |
| Interest expense                                     |       | 16         |       | (947,197    | )                | (1,017,122  | )          | (1,424,152       | )          |
| Interest income                                      |       |       |       | 60,753      |             | 126,389     |       | 33,753           |       |
| Gain (loss) from derivative   financial instruments  |       | 21         |       | 107,994     |             | 207,816     |       | (82,525          | )          |
| Monetary position gain,   net                        |       |       |       | 138,753     |             | 214,832     |       | 165,869          |       |
| (Loss) gain from foreign   exchange differences, net |       |       |       | (89,262     | )                | 40,885      |       | 143,852          |       |
| Comprehensive financing   cost, net                  |       |       |       | (728,959    | )                | (427,200    | )          | (1,163,203       | )          |
|                                                 |       |       |       |        |             |        |       |             |       |
| Share of profits of   associates                     |       | 12         |       | 2,976       |             | 3,329       |       | 592,235          |       |
| Gain from the sale of   shares of associate          |       | 12         |       | —      |             | 4,707,804   |       | —           |       |
|                                                 |       |       |       |        |             |        |       |             |       |
| **Income   before income tax**                       |       |       |       | 2,787,050   |             | 7,622,394   |       | 1,479,047        |       |
|                                                 |       |       |       |        |             |        |       |             |       |
| Income   tax expense                                 |       | 25         |       | (1,083,291  | )                | (1,806,572  | )          | (839,561         | )          |
|                                                 |       |       |       |        |             |        |       |             |       |
| **Consolidated   net income**                        |       |       |       | Ps.         |  1,703,759  |        | Ps.        |  5,815,822  |       | Ps. |  639,486 |   |
|                                                 |       |       |       |        |             |        |       |             |       |
| Attributable to:                                     | ** ** | ** ** |       |        |             |        |       |             |       |
| Shareholders                                         | ** ** | ** ** |       | Ps.         |  1,115,338  |        | Ps.        |  5,270,762  |       | Ps. |  431,779 |   |
| Non-controlling interest                             | ** ** | ** ** |       | 588,421     |             | 545,060     |       | 207,707          |       |
|                                                 | ** ** | ** ** |       | Ps.         |  1,703,759  |        | Ps.        |  5,815,822  |       | Ps. |  639,486 |   |
|                                                 |       |       |       |        |             |        |       |             |       |
| Basic and diluted earnings   per share (pesos)       | ** ** | ** ** |       | Ps.         |  2.00       |        | Ps.        |  9.35       |       | Ps. |  0.77 |   |
| Weighted average shares   outstanding (thousands)    | ** ** | ** ** |       | 558,712     |             | 563,651     |       | 563,651          |       |
|                                                      |            |            |            |             |                  |             |            |                  |            |  |  |  |  |  |  |

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-4

----

Table of Contents

 

**GRUMA, S.A.B. DE C.V. AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)**

**FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010**

**(In thousands of Mexican pesos)**

**(Notes 1, 2 and 5)**

 
| ** **                                                       | ** ** | **Note**   | ** ** | **2012** | ** **      | **2011**  | ** ** | **2010**        | ** ** |
|------------------------------------------------------------------|------------|------------|------------|----------|-----------------|-----------|------------|-----------------|------------|
|                                                             |       |       |       |     |            |      |       |            |       |
| **Consolidated   net income**                                    | ** ** | ** ** |       | Ps.      |  1,703,759 |      | Ps.        |  5,815,822 |       | Ps. |  639,486 |   |
|                                                             |       |       |       |     |            |      |       |            |       |
| Other comprehensive   income:                                    | ** ** | ** ** |       |     |            |      |       |            |       |
| Items that will not be   reclassified to profit or loss:         | ** ** | ** ** |       |     |            |      |       |            |       |
| Actuarial gains and losses                                       |       | 19         |       | (105,967 | )               | 2,336     |       | (18,949         | )          |
| Income taxes                                                     |       | 15         |       | 10,783   |            | 11,725    |       | —          |       |
|                                                             | ** ** | ** ** |       | (95,184  | )               | 14,061    |       | (18,949         | )          |
|                                                             |       |       |       |     |            |      |       |            |       |
| Items that may be   reclassified subsequently to profit or loss: | ** ** | ** ** |       |     |            |      |       |            |       |
| Foreign   currency translation adjustments                       | ** ** | ** ** |       | 29,130   |            | 1,589,088 |       | (1,843,035      | )          |
| Share   of other comprehensive income of associates              | ** ** | ** ** |       | 71,217   |            | (5,014    | )          | (85,623         | )          |
| Cash   flow hedges                                               | ** ** | ** ** |       | 461,687  |            | 4,969     |       | —          |       |
| Other                                                            |       |       |       | (71,810  | )               | —    |       | —          |       |
| Income   taxes                                                   |       | 15         |       | (125,113 | )               | 9,261     |       | 25,505          |       |
|                                                             |       |       |       | 365,111  |            | 1,598,304 |       | (1,903,153      | )          |
| Other   comprehensive income, net of tax                         | ** ** | ** ** |       | 269,927  |            | 1,612,365 |       | (1,922,102      | )          |
|                                                             |       |       |       |     |            |      |       |            |       |
| **Comprehensive   income (loss)**                                | ** ** | ** ** |       | Ps.      |  1,973,686 |      | Ps.        |  7,428,187 |       | Ps. |  (1,282,616 | ) |
|                                                             |       |       |       |     |            |      |       |            |       |
| Attributable to:                                                 | ** ** | ** ** |       |     |            |      |       |            |       |
| Shareholders                                                     | ** ** | ** ** |       | Ps.      |  1,378,161 |      | Ps.        |  6,486,642 |       | Ps. |  (953,269 | ) |
| Non-controlling   interest                                       | ** ** | ** ** |       | 595,525  |            | 941,545   |       | (329,347        | )          |
|                                                             | ** ** | ** ** |       | Ps.      |  1,973,686 |      | Ps.        |  7,428,187 |       | Ps. |  (1,282,616 | ) |

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-5

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Table of Contents

** **

**GRUMA, S.A.B. DE C.V. AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY**

**FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010**

**(In thousands of Mexican pesos)**

**(Notes 1, 2 and 5)**

 
| ** **                                                            | ** ** | **Common stock********(Note 20-A)**  | ** ** | **Reserves** | ** ** | ** **                                                                | ** ** | ** **                                      | ** ** | ** **                                                 | ** ** | ** **                                 | ** ** |
|-----------------------------------------------------------------------|------------|------------------------------------------------|------------|--------------|------------|---------------------------------------------------------------------------|------------|-------------------------------------------------|------------|------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                            | ** ** | **Number********of shares   (thousands)** | ** ** | **Amount**   | ** ** | **Foreign   currency   translation   adjustment********(Note 20-D)** | ** ** | **Share of   equity of   associates** | ** ** | **Cash flow   hedges and   other reserves** | ** ** | **Retained   earnings   (Note 20-B)** | ** ** | **Total********share-********holders’   equity** | ** ** | **Non-   controlling   interest** | ** ** | **Total equity** | ** ** |
|                                                                  |       |                                           |       |         |       |                                                                      |       |                                            |       |                                                       |       |                                       |       |   |   |   |   |   |   |
| **Balances   at January 1, 2010**                                |       | 563,651                                        |       | Ps.          | 6,972,425  |                                                                      | Ps.        | —                                          |       | Ps.                                                        | 19,420     |                                       | Ps.        | (2,475 | ) | Ps. | 908,460 |   | Ps. | 7,897,830 |   | Ps. | 4,181,932 |   | Ps. | 12,079,762 |   |
| Transactions with owners   of the Company:                            |       |                                           |       |         |       |                                                                      |       |                                            |       |                                                       |       |                                       |       |   |   |   |   |   |   |
| Dividends paid                                                        |       |                                           |       |         |       |                                                                      |       |                                            |       |                                                       |       |                                       |       | — |   | (74,872 | ) | (74,872 | ) |
|                                                                  |       | —                                         |       | —       |       | —                                                                    |       | —                                          |       | —                                                     |       | —                                     |       | — |   | (74,872 | ) | (74,872 | ) |
| Comprehensive income:                                                 |       |                                           |       |         |       |                                                                      |       |                                            |       |                                                       |       |                                       |       |   |   |   |   |   |   |
| Net income of the year                                                |       |                                           |       |         |       |                                                                      |       |                                            |       |                                                       |       | 431,779                                    |       | 431,779 |   | 207,707 |   | 639,486 |   |
| Foreign currency   translation adjustment (Net of taxes of Ps.24,724) |       |                                           |       |         |       | (1,282,185                                                                | )          |                                            |       |                                                       |       |                                       |       | (1,282,185 | ) | (536,126 | ) | (1,818,311 | ) |
| Actuarial gains and losses                                            |       |                                           |       |         |       |                                                                      |       |                                            |       |                                                       |       | (18,021                                    | )          | (18,021 | ) | (928 | ) | (18,949 | ) |
| Share of other   comprehensive income of associates                   |       |                                           |       |         |       |                                                                      |       | (85,623                                         | )          |                                                       |       |                                       |       | (85,623 | ) |   |   | (85,623 | ) |
| Other                                                                 |       |                                           |       |         |       |                                                                      |       |                                            |       | 781                                                        |       |                                       |       | 781 |   |   |   | 781 |   |
| Comprehensive loss of the   year                                      |       | —                                         |       | —       |       | (1,282,185                                                                | )          | (85,623                                         | )          | 781                                                        |       | 413,758                                    |       | (953,269 | ) | (329,347 | ) | (1,282,616 | ) |
|                                                                  |       |                                           |       |         |       |                                                                      |       |                                            |       |                                                       |       |                                       |       |   |   |   |   |   |   |
| **Balances   at December 31, 2010**                              |       | 563,651                                        |       | 6,972,425    |       | (1,282,185                                                                | )          | (66,203                                         | )          | (1,694                                                     | )          | 1,322,218                                  |       | 6,944,561 |   | 3,777,713 |   | 10,722,274 |   |
| Transactions with owners   of the Company:                            |       |                                           |       |         |       |                                                                      |       |                                            |       |                                                       |       |                                       |       |   |   |   |   |   |   |
| Dividends paid                                                        |       |                                           |       |         |       |                                                                      |       |                                            |       |                                                       |       |                                       |       | — |   | (524,303 | ) | (524,303 | ) |
| Contribution from   non-controlling interest                          |       |                                           |       |         |       |                                                                      |       |                                            |       |                                                       |       |                                       |       | — |   | 86,626 |   | 86,626 |   |
|                                                                  |       |                                           |       |         |       |                                                                      |       |                                            |       |                                                       |       |                                       |       | — |   | (437,677 | ) | (437,677 | ) |
| Comprehensive income:                                                 |       |                                           |       |         |       |                                                                      |       |                                            |       |                                                       |       |                                       |       |   |   |   |   |   |   |
| Net income of the year                                                |       |                                           |       |         |       |                                                                      |       |                                            |       |                                                       |       | 5,270,762                                  |       | 5,270,762 |   | 545,060 |   | 5,815,822 |   |
| Foreign currency   translation adjustment (Net of taxes of Ps.8,583)  |       |                                           |       |         |       | 1,205,213                                                                 |       |                                            |       |                                                       |       |                                       |       | 1,205,213 |   | 392,458 |   | 1,597,671 |   |
| Actuarial gains and losses   (Net of taxes of Ps.11,725)              |       |                                           |       |         |       |                                                                      |       |                                            |       |                                                       |       | 10,034                                     |       | 10,034 |   | 4,027 |   | 14,061 |   |
| Share of other   comprehensive income of associates                   |       |                                           |       |         |       |                                                                      |       | (5,014                                          | )          |                                                       |       |                                       |       | (5,014 | ) |   |   | (5,014 | ) |
| Cash flow hedges                                                      |       |                                           |       |         |       |                                                                      |       |                                            |       | 4,969                                                      |       |                                       |       | 4,969 |   |   |   | 4,969 |   |
| Other                                                                 |       |                                           |       |         |       |                                                                      |       |                                            |       | 678                                                        |       |                                       |       | 678 |   |   |   | 678 |   |
| Comprehensive income of   the year                                    |       | —                                         |       | —       |       | 1,205,213                                                                 |       | (5,014                                          | )          | 5,647                                                      |       | 5,280,796                                  |       | 6,486,642 |   | 941,545 |   | 7,428,187 |   |
|                                                                  |       |                                           |       |         |       |                                                                      |       |                                            |       |                                                       |       |                                       |       |   |   |   |   |   |   |
| **Balances   at December 31, 2011**                              |       | 563,651                                        |       | Ps.          | 6,972,425  |                                                                      | Ps.        | (76,972                                         | )          | Ps.                                                        | (71,217    | )                                          | Ps.        | 3,953 |   | Ps. | 6,603,014 |   | Ps. | 13,431,203 |   | Ps. | 4,281,581 |   | Ps. | 17,712,784 |   |
|                                                                       |            |                                                |            |              |            |                                                                           |            |                                                 |            |                                                            |            |                                            |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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** **

**GRUMA, S.A.B. DE C.V. AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY**

**FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010**

**(In thousands of Mexican pesos)**

**(Notes 1, 2 and 5)**

 
| ** **                                                                    | ** ** | **Common stock********(Note 20-A)**  | ** ** | **Reserves** | ** ** | ** **                                                                | ** ** | ** **                                      | ** ** | ** **                                                 | ** ** | ** **                                 | ** ** |
|-------------------------------------------------------------------------------|------------|------------------------------------------------|------------|--------------|------------|---------------------------------------------------------------------------|------------|-------------------------------------------------|------------|------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                    | ** ** | **Number********of shares   (thousands)** | ** ** | **Amount**   | ** ** | **Foreign   currency   translation   adjustment********(Note 20-D)** | ** ** | **Share of   equity of   associates** | ** ** | **Cash flow   hedges and   other reserves** | ** ** | **Retained   earnings   (Note 20-B)** | ** ** | **Total********share-********holders’   equity** | ** ** | **Non-   controlling   interest** | ** ** | **Total equity** | ** ** |
|                                                                          |       |                                           |       |         |       |                                                                      |       |                                            |       |                                                       |       |                                       |       |   |   |   |   |   |   |
| **Balances   at December 31, 2011**                                      |       | 563,651                                        |       | Ps.          | 6,972,425  |                                                                      | Ps.        | (76,972                                         | )          | Ps.                                                        | (71,217    | )                                          | Ps.        | 3,953 |   | Ps. | 6,603,014 |   | Ps. | 13,431,203 |   | Ps. | 4,281,581 |   | Ps. | 17,712,784 |   |
| Transactions with owners   of the Company:                                    |       |                                           |       |         |       |                                                                      |       |                                            |       |                                                       |       |                                       |       |   |   |   |   |   |   |
| Dividends paid                                                                |       |                                           |       |         |       |                                                                      |       |                                            |       |                                                       |       |                                       |       | — |   | (96,187 | ) | (96,187 | ) |
| Contribution from   non-controlling interest                                  |       |                                           |       |         |       |                                                                      |       |                                            |       |                                                       |       |                                       |       | — |   | 165,710 |   | 165,710 |   |
| Acquisition of Company’s   own shares                                    |       | (106,335                                       | )          | (1,304,346   | )          |                                                                      |       |                                            |       |                                                       |       | (2,707,003                                 | )          | (4,011,349 | ) | — |   | (4,011,349 | ) |
| Contingent payment due to   acquisition of Company’s own shares (Note 3) |       |                                           |       |         |       |                                                                      |       |                                            |       |                                                       |       | (492,272                                   | )          | (492,272 | ) | — |   | (492,272 | ) |
| Effect of acquisition of   non-controlling interest, net of taxes (Note 3)    |       |                                           |       |         |       |                                                                      |       |                                            |       |                                                       |       | 995,923                                    |       | 995,923 |   | (1,914,578 | ) | (918,655 | ) |
|                                                                          |       | (106,335                                       | )          | (1,304,346   | )          | —                                                                    |       | —                                          |       | —                                                     |       | (2,203,352                                 | )          | (3,507,698 | ) | (1,845,055 | ) | (5,352,753 | ) |
| Comprehensive income:                                                         |       |                                           |       |         |       |                                                                      |       |                                            |       |                                                       |       |                                       |       |   |   |   |   |   |   |
| Net income of the year                                                        |       |                                           |       |         |       |                                                                      |       |                                            |       |                                                       |       | 1,115,338                                  |       | 1,115,338 |   | 588,421 |   | 1,703,759 |   |
| Foreign currency   translation adjustment (Net of taxes of Ps.(825))          |       |                                           |       |         |       | 9,860                                                                     |       |                                            |       |                                                       |       |                                       |       | 9,860 |   | 20,095 |   | 29,955 |   |
| Other                                                                         |       |                                           |       |         |       |                                                                      |       | 71,217                                          |       | (328                                                       | )          | (71,217                                    | )          | (328 | ) | (265 | ) | (593 | ) |
| Actuarial gains and losses   (Net of taxes of Ps.10,783)                      |       |                                           |       |         |       |                                                                      |       |                                            |       |                                                       |       | (82,458                                    | )          | (82,458 | ) | (12,726 | ) | (95,184 | ) |
| Cash flow hedges (Net of   taxes of Ps.(125,938))                             |       |                                           |       |         |       |                                                                      |       |                                            |       | 335,749                                                    |       |                                       |       | 335,749 |   | — |   | 335,749 |   |
| Comprehensive income of   the year                                            |       | —                                         |       | —       |       | 9,860                                                                     |       | 71,217                                          |       | 335,421                                                    |       | 961,663                                    |       | 1,378,161 |   | 595,525 |   | 1,973,686 |   |
|                                                                          |       |                                           |       |         |       |                                                                      |       |                                            |       |                                                       |       |                                       |       |   |   |   |   |   |   |
| **Balances   at December 31, 2012**                                      |       | 457,316                                        |       | Ps.          | 5,668,079  |                                                                      | Ps.        | (67,112                                         | )          | Ps.                                                        | —     |                                       | Ps.        | 339,374 |   | Ps. | 5,361,325 |   | Ps. | 11,301,666 |   | Ps. | 3,032,051 |   | Ps. | 14,333,717 |   |
|                                                                               |            |                                                |            |              |            |                                                                           |            |                                                 |            |                                                            |            |                                            |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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Table of Contents

 

**GRUMA, S.A.B. DE C.V. AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010**

**(In thousands of Mexican pesos)**

**(Notes 1, 2 and 5)**

 
| ** **                                                                     | ** ** | **2012**   | ** ** | **2011**    | ** ** | **2010**   | ** ** |
|--------------------------------------------------------------------------------|------------|------------|------------|-------------|------------|------------|------------|
| Operating activities:                                                          |       |       |       |        |       |       |       |
| **Income   before taxes**                                                      |       | Ps.        | 2,787,050  |        | Ps.        | 7,622,394  |       | Ps. | 1,479,047 |   |
| Restatement effect from   companies in hyperinflationary environment           |       | 124,070    |       | 27,771      |       | 64,899     |       |
| Foreign exchange loss   (gain) from working capital                            |       | 99,040     |       | (22,390     | )          | 424,691    |       |
| Net cost of the year for   employee benefit obligations                        |       | 176,584    |       | 35,347      |       | 56,148     |       |
| Items related with   investing activities:                                     |       |       |       |        |       |       |       |
| Depreciation and   amortization                                                |       | 1,744,716  |       | 1,596,643   |       | 1,502,534  |       |
| Impairment of long-lived   assets                                              |       | 4,014      |       | 93,808      |       | —     |       |
| Written-down fixed assets                                                      |       | 37,681     |       | 52,271      |       | —     |       |
| Interest income                                                                |       | (21,721    | )          | (86,846     | )          | (7,531     | )          |
| Share of profit of   associates                                                |       | (2,976     | )          | (3,329      | )          | (592,235   | )          |
| Gain from the sale of   shares of associate                                    |       | —     |       | (4,707,804  | )          | —     |       |
| Loss in sale of fixed   assets and damaged assets                              |       | 18,498     |       | 20,812      |       | 64,659     |       |
| Items related with   financing activities:                                     |       |       |       |        |       |       |       |
| Derivative financial   instruments                                             |       | (146,142   | )          | (207,816    | )          | 82,525     |       |
| Foreign exchange gain from   bank borrowings                                   |       | (2,342     | )          | (23,953     | )          | (561,821   | )          |
| Interest expense                                                               |       | 824,318    |       | 965,128     |       | 1,391,631  |       |
|                                                                           |       | 5,642,790  |       | 5,362,036   |       | 3,904,547  |       |
| Accounts receivable, net                                                       |       | (397,683   | )          | (1,422,010  | )          | (275,595   | )          |
| Inventories                                                                    |       | (2,154,648 | )          | (3,063,148  | )          | (747,758   | )          |
| Prepaid expenses                                                               |       | (11,089    | )          | 101,106     |       | (126,655   | )          |
| Trade accounts payable                                                         |       | 970,812    |       | 1,623,802   |       | 759,773    |       |
| Accrued liabilities and   other accounts payables                              |       | (31,220    | )          | (341,743    | )          | 561,910    |       |
| Income taxes paid                                                              |       | (2,152,108 | )          | (561,279    | )          | (786,796   | )          |
| Employee benefits   obligations and others, net                                |       | (60,718    | )          | 52,550      |       | 1,712      |       |
|                                                                           |       | (3,836,654 | )          | (3,610,722  | )          | (613,409   | )          |
| **Net   cash flows from operating activities**                                 |       | 1,806,136  |       | 1,751,314   |       | 3,291,138  |       |
|                                                                           |       |       |       |        |       |       |       |
| Investing activities:                                                          |       |       |       |        |       |       |       |
| Acquisitions of property,   plant and equipment                                |       | (2,784,587 | )          | (1,631,571  | )          | (999,546   | )          |
| Sale of property, plant   and equipment                                        |       | 74,971     |       | 100,726     |       | 139,066    |       |
| Investment in associate                                                        |       | (895,640   | )          | —      |       | —     |       |
| Acquisition of   subsidiaries, net of cash acquired                            |       | —     |       | (708,664    | )          | (106,970   | )          |
| Acquisition of intangible   assets                                             |       | (17,165    | )          | (22,724     | )          | (3,879     | )          |
| Sale of shares of   associate                                                  |       | —     |       | 9,003,700   |       | —     |       |
| Interests collected                                                            |       | 21,721     |       | 86,403      |       | 7,086      |       |
| Dividends received from   associates                                           |       | —     |       | —      |       | 90,550     |       |
| Sale of trading   investments                                                  |       | 130,804    |       |        |       |       |       |
| Acquisition of trading   investments                                           |       | —     |       | (49,837     | )          | (19,423    | )          |
| Sale of securities and   others                                                |       | 14,267     |       | 1,096       |       | 90,908     |       |
| **Net   cash flows (used in) provided by investing activities**                |       | (3,455,629 | )          | 6,779,129   |       | (802,208   | )          |
| **Cash   (to be obtained from) to be used in financing activities**            |       | (1,649,493 | )          | 8,530,443   |       | 2,488,930  |       |
|                                                                           |       |       |       |        |       |       |       |
| Financing activities:                                                          |       |       |       |        |       |       |       |
| Proceeds from debt                                                             |       | 14,586,527 |       | 15,219,575  |       | 458,710    |       |
| Payment of debt                                                                |       | (7,216,863 | )          | (21,373,729 | )          | (3,257,291 | )          |
| Interests paid                                                                 |       | (810,120   | )          | (991,784    | )          | (1,341,991 | )          |
| Derivative financial   instruments collected (paid)                            |       | 196,531    |       | 154,556     |       | (18,987    | )          |
| Acquisition of Company’s   own shares                                     |       | (4,011,348 | )          |        |       |       |       |
| Acquisition of   non-controlling interest                                      |       | (996,575   | )          |        |       |       |       |
| Capital contribution from   non-controlling interest                           |       | 165,710    |       | 86,626      |       | —     |       |
| Dividends paid                                                                 |       | (96,187    | )          | (524,303    | )          | (74,872    | )          |
| **Net   cash flows from (used in) financing activities**                       |       | 1,817,675  |       | (7,429,059  | )          | (4,234,431 | )          |
|                                                                           |       |       |       |        |       |       |       |
| Net increase (decrease) in   cash and cash equivalents                         |       | 168,182    |       | 1,101,384   |       | (1,745,501 | )          |
| Exchange differences and   effects from inflation on cash and cash equivalents |       | (60,465    | )          | 56,950      |       | (113,845   | )          |
| **Cash   and cash equivalents at the beginning of the year**                   |       | 1,179,651  |       | 21,317      |       | 1,880,663  |       |
| **Cash   and cash equivalents at the end of the year**                         |       | Ps.        | 1,287,368  |        | Ps.        | 1,179,651  |       | Ps. | 21,317 |   |
|                                                                                |            |            |            |             |            |            |            |  |  |  |  |  |  |

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-8

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Table of Contents

 

**GRUMA, S.A.B. DE C.V. AND SUBSIDIARIES**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**AS OF DECEMBER 31, 2012 AND 2011**

**(In thousands of Mexican pesos, except where otherwise indicated)**

 

**1.****             ****ENTITY AND OPERATIONS**

 

Gruma, S.A.B. de C.V. (GRUMA) is a Mexican company with subsidiaries located in Mexico, the United States of America, Central America, Venezuela, Europe, Asia and Oceania, together referred to as the “Company”. The Company’s main activities are the production and sale of corn flour, wheat flour, tortillas and related products.

 

GRUMA is a publicly held corporation (S*ociedad Anónima Bursátil de Capital Variable)*organized under the laws of Mexico. The address of its registered office is Rio de la Plata 407 in San Pedro Garza García, Nuevo León, Mexico. GRUMA is listed on the Mexican Stock Exchange and the New York Stock Exchange.

 

The consolidated financial statements were authorized by the Chief Corporate Office and the Chief Administrative Office of the Company on April 18, 2013.

 

**2.****             ****BASIS OF PREPARATION**

 

The consolidated financial statements of Gruma, S.A.B. de C.V. and Subsidiaries for all the periods presented have been prepared in accordance with the International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). The IFRS also include the International Accounting Standards (IAS) in force, as well as all the related interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC), including those previously issued by the Standing Interpretations Committee (SIC).

 

The Company decided to early adopt IFRS in 2011, setting January 1, 2010 as transition date.

 

The Company applied the IFRS effective at December 31, 2012, except for the amendment to IAS 1, “Presentation of Financial Statements”, issued in June 2011, for which the Company chose to early adopt. In accordance with IAS 1, the Company grouped items presented in other comprehensive income on the basis of whether they are potentially classifiable to profit or loss subsequently. There are no IFRS or IFRIC interpretations that were effective during 2012 that had a material impact on the Company.

 

**A)  BASIS OF MEASUREMENT**

 

The consolidated financial statements have been prepared on the basis of historical cost, except for Venezuela’s financial information due to its hyperinflationary environment and for the fair value of certain financial instruments as described in the policies shown below (see Note 5-K).

 

The preparation of financial statements requires that management make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results could differ from those estimates.

 

**B)  FUNCTIONAL AND PRESENTATION CURRENCY**

 

The consolidated financial statements are presented in Mexican pesos, which is the functional currency of GRUMA.

 

F-9

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Table of Contents

 

**GRUMA, S.A.B. DE C.V. AND SUBSIDIARIES**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**AS OF DECEMBER 31, 2012 AND 2011**

**(In thousands of Mexican pesos, except where otherwise indicated)**

 

**C)  USE OF ESTIMATES AND JUDGMENTS**

 

The relevant estimates and assumptions are reviewed on a regular basis. The review of accounting estimates are recognized in the period in which the estimate was reviewed and in any future period that is affected.

 

In particular, the information for assumptions, uncertainties from estimates, and critical judgments in the application of accounting policies, that have the most significant effect in the recognized amounts in these consolidated financial statements, are described below:

 

·                  The assumptions used for the determination of fair values of financial instruments (Note 21).

·                  The assumptions and uncertainties with respect to the interpretation of complex tax regulations, changes in tax laws, and the amount and timing of future taxable income (Notes 15 and 25).

·                  The key assumptions in impairment testing for long-lived assets used for the determination of the recoverable amount for the different cash generating units (Notes 13 and14).

·                  The actuarial assumptions used for the determination of employee benefits obligations (Note 19).

 

**3.   ACQUISITION OF NON-CONTROLLING INTEREST OF ARCHER-DANIELS-MIDLAND IN GRUMA AND CERTAIN SUBSIDIARIES**

 

In 1996, Archer-Daniels-Midland Company (“ADM”) associated with GRUMA (the “Association”) and as result of the Association, several bylaws were agreed and arrangements held, including the Shareholders Agreement entered into by and between GRUMA, Mr. Roberto González Barrera, ADM and its subsidiary ADM Bioproductos, S.A. de C.V. (“ADM Bioproductos”, and jointly with ADM, the “Strategic Partner”) dated August 21, 1996 and its subsequent amendments (the “Shareholders Agreement”).

 

As a result of the Association, as of October 23, 2012, the investment that the Strategic Partner owned, directly and indirectly, in GRUMA and certain of its subsidiaries (the “Equity Interests”), was as follows:

 

·                  23.16% of the capital stock of GRUMA. The strategic Partner held directly 18.81% of the capital stock of GRUMA and indirectly 4.35% through owning 45% Valores Azteca, S.A. de C.V. (“Valores Azteca”), a company that held 9.66% of the capital stock of GRUMA.

·                  3% of the capital stock of Valores Mundiales, S.L. (“Valores Mundiales”).

·                  3% of the capital stock of Consorcio Andino, S.L. (“Consorcio”).

·                  40% of the capital stock of Molinera de México, S.A. de C.V. (“Molinera”).

·                  20% of the capital stock of Azteca Milling L.P. (“Azteca Milling”).

 

Based on the terms of the Association, if the Strategic Partner decided to sell to a third party its direct investment on GRUMA’s shares and indirectly through Valores Azteca (the “GRUMA Shares”), the Strategic Partner had to offer first such investment to the Control Trust of the González Family (the “Controlling Shareholder”) or any third party as designated by the Controlling Shareholder, granting the option to acquire the shares of GRUMA.

 

Also, if the Strategic Partner decided to sell to a third party its investment on the capital stock of Valores Mundiales, Consorcio, Molinera and/or Azteca Milling (the “Subsidiaries Shares”), the strategic Partner had to offer GRUMA the right of first refusal to acquire the Subsidiaries Shares.

 

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Table of Contents

 

**GRUMA, S.A.B. DE C.V. AND SUBSIDIARIES**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**AS OF DECEMBER 31, 2012 AND 2011**

**(In thousands of Mexican pesos, except where otherwise indicated)**

 

On October 16, 2012, ADM reached a preliminary agreement with a Third Party to sell its minority interest on GRUMA’s shares (the “Preliminary Agreement”), to the following price:

 
| **Company**       | ** ** | **Selling price**                                                 | ** ** |
|-------------------|------------|------------------------------------------------------------------------|------------|
| GRUMA             |       | U.S.$303.8 million, plus up to U.S.$48.7 million as   contingent price |       |
| Valores Azteca    |       | U.S.$70.2 million, plus up to U.S.$11.3 million as   contingent price  |       |
| Azteca Milling    |       | U.S.$50 million                                                        |       |
| Molinera          |       | U.S.$18 million                                                        |       |
| Consorcio         |       | U.S.$1.5 million                                                       |       |
| Valores Mundiales |       | U.S.$6.5 million                                                       |       |
| Total             |       | U.S.$450 million, plus up to U.S.$60 million as   contingent price     |       |

 

On October 23, 2012, the third Party sent a communication to GRUMA’s Board of Directors, requiring the approval to purchase the 23.16% of the capital stock of GRUMA owned, directly and indirectly, by the Strategic Partner, and additionally, expressed its interest to purchase the Strategic Partner’s investment on Valores Mundiales, Consorcio, Molinera and Azteca Milling, as mentioned in the Preliminary Agreement.

 

As informed to GRUMA, on October 19, 2012, the Strategic Partner notified the Controlling Shareholder of its intention to sell its GRUMA Shares to a third Party pursuant to the terms agreed in the Preliminary Agreement, giving the Controlling Shareholder the option to acquire such shares, or to designate a third party to do so, at the same price as agreed in the Preliminary Agreement.

 

The Controlling Shareholder designated GRUMA as the third party to exercise the right to acquire the GRUMA Shares that the Strategic Partner offered for sale (including the acquisition of the Strategic Partner’s investment on Valores Azteca).

 

Additionally, through various communications dated October 25, 2012, the Strategic Partner notified GRUMA’s subsidiaries its intention to sell the Subsidiaries Shares pursuant to the terms agreed in the Preliminary Agreement, giving GRUMA the first refusal right to acquire the Subsidiaries Shares at the same price as agreed in the Preliminary Agreement.

 

On December 5, 2012, GRUMA’s Board of Directors, with the previous favorable opinion of the Corporate Governance and the Audit Committee, supported on a fairness opinion made by an independent expert, approved GRUMA’s exercise of the option and/or right of first refusal of the Controlling Shareholder to acquire from the Strategic Partner the GRUMA Shares, (including the shares that Valores Azteca held), the Subsidiaries Shares, and to obtain the necessary financing instrument to pay for this transaction.

 

On December 13, 2012, an Ordinary Shareholders’ Meeting of GRUMA was held, approving, among other things, the increase of the maximum amount of resources allocated to the purchase of own shares during fiscal year 2012. Also and on the same date, an Extraordinary Shareholders’ Meeting of GRUMA was held, approving, among other things, an amendment to GRUMA’s bylaws in order to recognize, on a statutory basis, the existence of the Shareholders Agreement.

 

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**GRUMA, S.A.B. DE C.V. AND SUBSIDIARIES**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**AS OF DECEMBER 31, 2012 AND 2011**

**(In thousands of Mexican pesos, except where otherwise indicated)**

 

On December 14, 2012, GRUMA acquired from the Strategic Partner its investment owned directly and indirectly in GRUMA and certain of its subsidiaries, consisting of:

 

a.              23.16% of the issued shares of GRUMA, through the acquisition of 18.81% of the issued shares of GRUMA and 45% of the issued shares of Valores Azteca, a company that owns 9.66% of the issued shares of GRUMA. With respect to the acquisition of 18.81% of the issued shares of GRUMA, the transaction was not made through a public offer given that it was made through the exercise of an option, in strict compliance with the contractual covenants contained in the strategic agreements of 1996 that were entered into with the Strategic Partner. Such agreements are acknowledged in GRUMA’s bylaws and their existence and terms were timely disclosed to the Mexican Stock Exchange and to the public and have thereafter being continuously disclosed in GRUMA’s annual report. Such acquisition was carried out against GRUMA’s shareholders equity, using funds reserved for the purchase of own shares authorized by GRUMA’s General Ordinary Shareholders’ Meeting;

 

b.              3% of the capital stock of Valores Mundiales, S.L. and Consorcio Andino, S.L., holding companies of GRUMA’s subsidiaries in Venezuela, Molinos Nacionales, C.A. (“MONACA”) and Derivados de Maíz Seleccionado, C.A. (“DEMASECA”), respectively;

 

c.               40% of the shares of Molinera de México; and

 

d.              20% of the shares of Azteca Milling (subsidiary of Gruma Corporation), through the acquisition of 100% of the shares of Valley Holding Inc., which has no assets or liabilities other than the investment in shares of Azteca Milling.

 

The Equity Interests were acquired for an amount of Ps.5,741,280 (U.S.$450 million) plus acquisition related costs of Ps.162,280 and a contingent payment of up to U.S.$60 million (the “Contingent Payment”), proportionally distributed between GRUMA’s and Valores Azteca’s shares that are part of the Equity Interests, payable only if during the following 42 months after closing the transaction, certain conditions are met in connection with (i) GRUMA’s stock market price increase over the closing price of GRUMA’s stock determined for purposes of the transaction (the “Closing Price”), at the end of the 42 months’ period; (ii) the difference between GRUMA’s stock price established for public offers made by GRUMA and the Closing Price; (iii) the acquisition, by a strategic investor, of 15% or more of GRUMA’s capital stock; or (iv) the reduction of the percentage of GRUMA’s shares that are considered to be held by the public at any time, starting from 26%. The economic terms of the transaction were based on the terms contained in the Preliminary Agreement entered between the third party and the Strategic Partner, for the purchase of the Equity Interests.

 

In relation with the Contingent Payment and as a result of the analysis of the above mentioned assumptions, a contingent payment liability was recognized as Other non-current liabilities amounting Ps.606,495 (U.S.$46.6 million) and affecting the Company’s equity by the amount of Ps.492,272 and the investment in associates of Ps.114,223, solely regarding the scenario (i) as mentioned in the previous paragraph, in connection to GRUMA’s stock market price increase, over GRUMA’s stock Closing Price determined for purposes of the purchase of the Equity Interests, at the end of the 42 months’ period.

 

F-12

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Table of Contents

 

**GRUMA, S.A.B. DE C.V. AND SUBSIDIARIES**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**AS OF DECEMBER 31, 2012 AND 2011**

**(In thousands of Mexican pesos, except where otherwise indicated)**

 

The Contingent Payment liability was registered at fair value, which was determined using projected future cash flows discounted to present value and the discount rate used is the average rate of return of any corporate bonds issued by companies comparable to GRUMA. Subsequent changes in the fair value of the Contingent Payment liability will affect the GRUMA’s income statement. The Monte Carlo simulation model was used to estimate the future shares price, which includes the expected return and the weighted volatility of historical prices of GRUMA’s stock over a period of 42 months.

 

The significant data used to determine the fair value of the Contingent Payment liability as of December 31, 2012 was as follows:

 
| GRUMA’s stock weighted   volatility of historical prices |   | 29.78%                 |   |
|---------------------------------------------------------------|--------|------------------------|--------|
| GRUMA’s share weighted   average price of (simulated)    |   | Ps.58.79 per share     |   |
| Forward exchange rate                                         |   | Ps.14.65 per US dollar |   |
| Discount rate                                                 |   | 7.30%                  |   |

 

As of December 31, 2012, the Company does not consider as probable scenarios (ii), (iii) and (iv) for the Contingent Payment abovementioned, so there was no contingent payment obligation recorded in connection with these cases.

 

The effect on the acquisition of GRUMA’s Subsidiaries Shares attributable to GRUMA’s shareholders investment is as follows:

 
| Carrying value of   non-controlling interest                                       |   | Ps.      | 1,914,578 |   |
|------------------------------------------------------------------------------------|--------|----------|-----------|--------|
| Purchase price                                                                     |   | (996,572 | )         |
| Deferred tax                                                                       |   | 77,917   |      |
| Excess of book value over   the purchase price of GRUMA’s Subsidiaries Shares |   | Ps.      | 995,923   |   |
|                                                                                    |        |          |           |        |  |

 

To carry out the transaction of the Equity Interests, GRUMA obtained bridge loan facilities with maturity dates of up to a year for a total amount of Ps.5,103,360 (U.S.$400 million), lent by Goldman Sachs Bank USA, Banco Santander and Banco Inbursa (the “Short-Term Loan Facilities”), and used Ps.637,920 (U.S.$50 million) of Gruma Corporation’s revolving syndicated long term credit facility with Bank of America, which matures in 2016. For the execution of the Short-Term Loan Facilities, GRUMA’s permitted leverage ratios established under the loan facilities were increased to allow GRUMA to increase its leverage as a result of the obtainment of the Short-Term Loan Facilities.

 

F-13

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Table of Contents

 

**GRUMA, S.A.B. DE C.V. AND SUBSIDIARIES**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**AS OF DECEMBER 31, 2012 AND 2011**

**(In thousands of Mexican pesos, except where otherwise indicated)**

 

**4.   BUSINESS COMBINATIONS**

 

**A)****          ****ALBUQUERQUE TORTILLA COMPANY**

 

On April 15, 2011, the Company, through its subsidiary Gruma Corporation, acquired the business of  manufacturing, distributing and selling of corn and wheat flour tortillas of Albuquerque Tortilla Company, which is located in New Mexico, United States, for Ps.102,410 (U.S.$8.9 million) paid in cash. This purchase was accounted for using the acquisition method, following the business combination rules. The purpose of this acquisition is to contribute to the growth and strengthening of the Company’s tortilla business in the south-central region of the United States under a strong and recognized brand.

 

The following table summarizes the consideration paid and the fair value of the net assets acquired:

 
| Inventories                       |   | Ps.  | 1,753   |   |
|-----------------------------------|--------|-----------|---------|--------|
| Property, plant and equipment     |   | 47,700    |    |
| Non-compete   agreement           |   | 8,993     |    |
| Customer lists                    |   | 5,189     |    |
| Trademarks                        |   | 17,641    |    |
| Fair value of identifiable assets |   | 81,276    |    |
|                              |   |      |    |
| Goodwill                          |   | 21,134    |    |
| Total consideration paid in cash  |   | Ps.       | 102,410 |   |
|                                   |        |           |         |        |  |

 

The goodwill recorded for this acquisition represents the value of acquiring an on-going business with an assembled and trained workforce, and business growth prospects in the south-central region of the United States. None of the goodwill recognized is expected to be deductible for tax purposes.

 

Acquisition-related costs such as advisory fees, appraisal fees, valuation services and legal fees amounted to Ps.2,497, were recognized in the income statement as selling and administrative expenses.

 

No contingent liabilities and contingent consideration arrangements have arisen from this acquisition.

 

From January 1, 2011 to the acquisition date, this business recorded an estimated revenue of Ps.64,979 and a net loss of approximately Ps.29,475.

 

**B)****          ****CASA DE ORO FOODS**

 

On August 25, 2011, the Company, through its subsidiary Gruma Corporation, acquired the business of manufacturing, distributing and selling of corn and wheat flour tortillas of Casa de Oro Foods, which is located in Nebraska, United States for Ps.280,615 (U.S.$22.7 million) paid in cash. This purchase was accounted for using the acquisition method, following the business combination rules. The strategic location of Casa de Oro will help improve and increase the Company’s coverage in the midwest region of the United States, generating savings in transportation and increasing the production of corn flour tortillas and tortilla chips.

 

F-14

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Table of Contents

 

**GRUMA, S.A.B. DE C.V. AND SUBSIDIARIES**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**AS OF DECEMBER 31, 2012 AND 2011**

**(In thousands of Mexican pesos, except where otherwise indicated)**

 

The following table summarizes the consideration paid and the fair value of the net assets acquired:

 
| Accounts receivable                   |   | Ps.     | 40,026  |   |
|---------------------------------------|--------|---------|---------|--------|
| Inventories                           |   | 16,808  |    |
| Prepaid expenses                      |   | 185     |    |
| Current liabilities                   |   | (21,489 | )       |
| Working capital                       |   | 35,530  |    |
|                                  |   |    |    |
| Property, plant and equipment         |   | 122,351 |    |
| Wheat forwards                        |   | 1,099   |    |
| Non-compete   agreement               |   | 7,163   |    |
| Customer lists                        |   | 41,372  |    |
| Trademarks                            |   | 4,817   |    |
| Fair value of identifiable net assets |   | 212,332 |    |
|                                  |   |    |    |
| Goodwill                              |   | 68,283  |    |
| Total consideration paid in cash      |   | Ps.     | 280,615 |   |
|                                       |        |         |         |        |  |

 

The accounts receivable fair value is not significantly different from its carrying value as the receivables are short term, with the full value being collected 30 to 45 days after the acquisition.

 

The goodwill recorded for this acquisition represents the value of acquiring an on-going business with an assembled and trained workforce, and business growth prospects in the midwest region of the United States. None of the goodwill recognized is expected to be deductible for tax purposes.

 

Acquisition-related costs such as advisory fees, appraisal fees, valuation services and legal fees amounted to Ps.4,415 were recognized in the income statement as selling and administrative expenses.

 

From January 1, 2011 to the acquisition date, this business recorded an estimated revenue of Ps.193,938 and a net income of approximately Ps.11,747.

 

**C)    SOLNTSE MEXICO**

 

On July 13, 2011, the Company, through its subsidiary Gruma International Foods, S.L., acquired all issued and outstanding shares of Solntse Mexico, which is located in Russia, for Ps.104,923 (U.S.$8.8 million). Solntse Mexico is the leading producer of corn and wheat flour tortillas, corn chips and other products, under the brand Delicados. This company introduced tortillas and corn chips to the Russian market and currently commands the leading market position in Russia’s retail and foodservice segments. This acquisition represents the Company’s entry into Russia and other Eastern Europe countries.

 

F-15

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Table of Contents

 

**GRUMA, S.A.B. DE C.V. AND SUBSIDIARIES**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**AS OF DECEMBER 31, 2012 AND 2011**

**(In thousands of Mexican pesos, except where otherwise indicated)**

 

The following table summarizes the consideration paid and the fair value of the net assets acquired:

 
| Cash                                                      |   | Ps.     | 6,268  |   |
|-----------------------------------------------------------|--------|---------|--------|--------|
| Accounts receivable                                       |   | 11,389  |   |
| Prepaid expenses                                          |   | 240     |   |
| Inventories                                               |   | 15,000  |   |
| Current liabilities                                       |   | (7,329  | )      |
| Working capital                                           |   | 25,568  |   |
|                                                      |   |    |   |
| Property, plant and equipment                             |   | 34,173  |   |
| Intangible assets                                         |   | 1,358   |   |
| Long term debt                                            |   | (22,242 | )      |
| Deferred tax liabilities                                  |   | (1,426  | )      |
| Fair value of identifiable net assets                     |   | 37,431  |   |
|                                                      |   |    |   |
| Goodwill                                                  |   | 67,492  |   |
| Purchase price                                            |   | 104,923 |   |
| Outstanding payment due to contingent   consideration (1) |   | (22,320 | )      |
| Total consideration paid in cash                          |   | 82,603  |   |

 

----

(1)         As of December 31, 2012, the outstanding payment due to contingent consideration amounted to Ps.10,382.

 

The accounts receivable fair value is not significantly different from its carrying value as the receivables are short term with the full value being collected 30 to 45 days after the acquisition.

 

The goodwill recorded for this acquisition represents the value of acquiring an on-going business with an assembled and trained workforce, and business growth prospects in the Eastern Europe and Middle East regions. None of the goodwill recognized is expected to be deductible for tax purposes.

 

Acquisition-related costs such as advisory fees, appraisal fees, valuation services and legal fees amounted to Ps.16,367 (U.S.$1.3 million), were recognized in the income statement as selling and administrative expenses.

 

For the period from July 1, 2011 to December 31, 2011, this business contributed revenues of Ps.84,002 and a net income of Ps.5,556. If the acquisition had taken place on January 1, 2011, revenues and net income would have increased by approximately Ps.28,034 and Ps.2,711, respectively.

 

**D)    SEMOLINA A.S.**

 

On November 16, 2011, the Company, through its subsidiary Gruma International Foods, S.L., acquired all issued and outstanding shares of Semolina A.S., which is located in Turkey, for Ps.230,388 (U.S.$17 million). Semolina is the leading corn miller in Turkey, and specializes in supplying corn grits for the snack and breakfast cereals industries. The acquisition of Semolina represents a significant milestone for the Company’s growth strategy in Eastern Europe and the Middle East. The Company’s European milling division’s priority is to consolidate itself as a market leader in corn milling and related products for the snack, brewing and breakfast cereals industries.

 

F-16

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Table of Contents

 

**GRUMA, S.A.B. DE C.V. AND SUBSIDIARIES**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**AS OF DECEMBER 31, 2012 AND 2011**

**(In thousands of Mexican pesos, except where otherwise indicated)**

 

The following table summarizes the consideration paid and the fair value of the net assets acquired:

 
| Cash                                                      |   | Ps.     | 3,405   |   |
|-----------------------------------------------------------|--------|---------|---------|--------|
| Accounts receivable                                       |   | 33,742  |    |
| Prepaid expenses                                          |   | 1,237   |    |
| Inventories                                               |   | 580     |    |
| Current liabilities                                       |   | (45,310 | )       |
| Working capital                                           |   | (6,346  | )       |
|                                                      |   |    |    |
| Property, plant and equipment                             |   | 48,959  |    |
| Intangible assets                                         |   | 41      |    |
| Fair value of identifiable net assets                     |   | 42,654  |    |
|                                                      |   |    |    |
| Goodwill                                                  |   | 187,734 |    |
| Purchase price                                            |   | 230,388 |    |
| Outstanding payment due to contingent   consideration (1) |   | (24,413 | )       |
| Total consideration paid in cash                          |   | Ps.     | 205,975 |   |

 

----

(1)         As of December 31, 2012, the outstanding payment due to contingent consideration amounted to Ps.11,384.

 

The accounts receivable fair value is not significantly different from its carrying value as the receivables are short term with the full value being collected 30 to 45 days after the acquisition.

 

The goodwill recorded for this acquisition represents the value of acquiring an on-going business with an assembled and trained workforce, and business growth prospects in the Eastern Europe and Middle East regions. None of the goodwill recognized is expected to be deductible for tax purposes.

 

Acquisition-related costs such as advisory fees, appraisal fees, valuation services and legal fees amounted to Ps.11,259 (U.S.$0.9 million), were recognized in the income statement as selling and administrative expenses.

 

For the period from November 17, 2011 to December 31, 2011, this business contributed revenues of Ps.42,624 and a net loss of Ps.12,798. If the acquisition had taken place on January 1, 2011, revenues would have increased by approximately Ps.296,988 and net loss would have decreased by approximately Ps.12,762.

 

**5.****       ****SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

 

**A)  BASIS OF CONSOLIDATION**

 

**a. Subsidiaries**

 

The subsidiaries are all entities (including special purpose entities) over which the Company has the power to govern the financial and operating policies, generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the group controls another entity. The financial statements of subsidiaries are incorporated in the consolidated financial statements commencing on the date on which the control begins, until the date when that control ceases.

 

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Table of Contents

 

**GRUMA, S.A.B. DE C.V. AND SUBSIDIARIES**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**AS OF DECEMBER 31, 2012 AND 2011**

**(In thousands of Mexican pesos, except where otherwise indicated)**

 

Intercompany transactions, balances and unrealized gains on transactions between group companies are eliminated. Unrealized losses are also eliminated. Subsidiaries’ accounting policies have been changed where necessary to ensure consistency with the policies adopted by the Company.

 

At December 31, 2012 and 2011, the main subsidiaries included in the consolidation were:

 
| ** **                                                                    | ** ** | **% of ownership**         | ** ** |
|-------------------------------------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                                                    | ** ** | **At December   31, 2012** | ** ** | **At December   31, 2011** | ** ** |
| Gruma Corporation and   subsidiaries                                          |       | 100.00                               |       | 100.00 |   |
| Grupo   Industrial Maseca, S.A.B. de C.V. and subsidiaries                    |       | 83.18                                |       | 83.18 |   |
| Molinos Nacionales, C.A. (Note 3)                                             |       | 75.86                                |       | 72.86 |   |
| Derivados de Maíz Seleccionado, C.A. Note 3)                             |       | 60.00                                |       | 57.00 |   |
| Molinera de México, S.A. de C.V. and subsidiaries (Note 3)               |       | 100.00                               |       | 60.00 |   |
| Gruma International Foods,   S.L. and subsidiaries                            |       | 100.00                               |       | 100.00 |   |
| Productos y Distribuidora Azteca, S.A. de C.V.                                |       | 100.00                               |       | 100.00 |   |
| Investigación de Tecnología Avanzada, S.A. de C.V. and subsidiaries |       | 100.00                               |       | 100.00 |   |

 

**b. Transactions with non-controlling interest without change of control**

 

The Company applies a policy of treating transactions with non-controlling interest as transactions with equity owners of the Company. When purchases from non-controlling interest take place, the difference between any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recognized as operations with holders of equity instruments; therefore, no goodwill is recognized with these acquisitions. Disposals to non-controlling interests result in gains and losses for the group and are also recorded in equity when there is no loss of control. See Note 3 for acquisitions of non-controlling interests during 2012.

 

**c. Business combinations**

 

Business combinations are recognized through the acquisition method of accounting. The consideration transferred for the acquisition of a subsidiary is measured as the fair value of the assets given, the liabilities incurred by the Company with the previous owners and the equity instruments issued by the Company. The cost of an acquisition also includes the fair value of any contingent payment.

 

The related acquisition costs are recognized in the income statement when incurred.

 

Identifiable assets acquired, liabilities assumed and contingent liabilities in a business combination are measured at fair value at the acquisition date.

 

The Company recognizes any non-controlling interest as the proportional share of the net identifiable assets of the acquired entity.

 

The Company recognizes goodwill when the cost including any amount of non-controlling interest in the acquired entity exceeds the fair value at acquisition date of the identifiable assets acquired and liabilities assumed.

 

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Table of Contents

 

**GRUMA, S.A.B. DE C.V. AND SUBSIDIARIES**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**AS OF DECEMBER 31, 2012 AND 2011**

**(In thousands of Mexican pesos, except where otherwise indicated)**

 

**B) FOREIGN CURRENCY**

 

**a. Transactions in foreign currency**

 

Foreign currency transactions are translated into the functional currency of the Company using the exchange rates prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated at year-end exchange rates. The differences that arise from the translation of foreign currency transactions are recognized in the income statement.

 

**b. Foreign currency translation**

 

The financial statements of the Company’s entities are measured using the currency of the main economic environment where the entity operates (functional currency). The consolidated financial statements are presented in Mexican pesos, currency that corresponds to the presentation currency of the Company.

 

The financial position and results of all of the group entities that have a functional currency which differs from the Company’s presentation currency are translated as follows:

 

·                  Assets and liabilities are translated at the closing rate of the period.

·                  Income and expenses are translated at average exchange rates.

·                  Equity is translated at the exchange rate in effect at the date when the contributions were made and the earnings were generated.

·                  All resulting exchange differences are recognized in other comprehensive income as a separate component of equity denominated “Foreign currency translation adjustments”.

 

Previous to the peso translation, the financial statements of foreign subsidiaries with functional currency from a hyperinflationary environment are adjusted by inflation in order to reflect the changes in purchasing power of the local currency. Subsequently, assets, liabilities, equity, income, costs, and expenses are translated to the presentation currency at the closing rate at the date of the most recent balance sheet. To determine the existence of hyperinflation, the Company evaluates the qualitative characteristics of the economic environment, as well as the quantitative characteristics established by IFRS of an accumulated inflation rate equal or higher than 100% in the past three years.

 

The Company applies hedge accounting to foreign exchange differences originated between the functional currency of a foreign subsidiary and the functional currency of the Company. Exchange differences resulting from the translation of a financial liability designated as hedge for a net investment in a foreign subsidiary, are recognized in other comprehensive income as a separate component denominated “Foreign currency translation adjustments” while the hedge is effective. See Note 5-L for the accounting of the net investment hedge.

 

The closing exchange rates used for preparing the financial statements are as follows:

 
| ** **              | ** ** | **As of   December 31,   2012** | ** ** | **As of   December 31,   2011** | ** ** |
|-------------------------|------------|-------------------------------------------|------------|-------------------------------------------|------------|
| Pesos per U.S. dollar   |       | 13.0101                                   |       | 13.9500                                   |       |
| Pesos   per Euro        |       | 17.1941                                   |       | 18.0764                                   |       |
| Pesos   per Swiss franc |       | 14.2420                                   |       | 14.8700                                   |       |

 

F-19

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Table of Contents

 

**GRUMA, S.A.B. DE C.V. AND SUBSIDIARIES**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**AS OF DECEMBER 31, 2012 AND 2011**

**(In thousands of Mexican pesos, except where otherwise indicated)**

 
| ** **                         | ** ** | **As of   December 31,   2012** | ** ** | **As of   December 31,   2011** | ** ** |
|------------------------------------|------------|-------------------------------------------|------------|-------------------------------------------|------------|
| Pesos per Venezuelan bolivar (Bs.) |       | 3.0256                                    |       | 3.2442                                    |       |
| Pesos   per Australian dollar      |       | 13.4960                                   |       | 14.2178                                   |       |
| Pesos   per Chinese yuan           |       | 2.0685                                    |       | 2.2161                                    |       |
| Pesos   per Pound sterling         |       | 21.0152                                   |       | 21.6797                                   |       |
| Pesos   per Malaysian ringgit      |       | 4.2499                                    |       | 4.4035                                    |       |
| Pesos per Costa Rica colon         |       | 0.0256                                    |       | 0.0270                                    |       |
| Pesos   per Ukrainian hryvnia      |       | 1.6318                                    |       | 1.7553                                    |       |
| Pesos   per Russian ruble          |       | 0.4283                                    |       | 0.4341                                    |       |
| Pesos   per Turkish lira           |       | 7.2984                                    |       | 7.3935                                    |       |

 

**C)  CASH AND CASH EQUIVALENTS**

 

Cash and cash equivalents include cash and short term highly liquid investments with original maturities of less than three months. These items are recognized at historical cost, which do not differ significantly from its fair value.

 

**D)  ACCOUNTS RECEIVABLE**

 

Trade receivables are initially recognized at fair value and subsequently valued at amortized cost using the effective interest rate method, less provision for impairment. The Company has determined that the amortized cost does not represent significant differences with respect to the invoiced amount from short-term trade receivables, since the transactions do not have relevant associated costs.

 

Allowances for doubtful accounts or impairment represent the Company’s estimates of losses that could arise from the failure or inability of customers to make payments when due. These estimates are based on the ageing of customers’ balances, specific credit circumstances and the Company’s historical bad receivables experience.

 

**E)  INVENTORIES**

 

Inventories are measured at the lower of cost and net realizable value. Cost is determined using the average cost method. The net realizable value is the estimated selling price of inventory in the normal course of business, less applicable variable selling expenses. The cost of finished goods and production in process comprises raw materials, direct labor, other direct costs and related production overheads. Cost of inventories may also include the transfer from equity of any gains or losses on qualifying cash flow hedges for purchases of raw materials.

 

**F)  INVESTMENTS IN ASSOCIATES**

 

Associates are all entities over which the Company has significant influence over, but does not control the financial and operative decisions. It is assumed that significant influence exists when there is a shareholding of between 20% and 50% of the voting rights of the other entity or less than 20% when it is clearly demonstrated that such significant influence exists.

 

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Table of Contents

 

**GRUMA, S.A.B. DE C.V. AND SUBSIDIARIES**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**AS OF DECEMBER 31, 2012 AND 2011**

**(In thousands of Mexican pesos, except where otherwise indicated)**

 

Investments in associates are accounted for using the equity method of accounting and are initially recognized at cost. The Company’s investment in associates includes goodwill identified on acquisition, net of any accumulated impairment losses.

 

The Company’s share of its associates’ post-acquisition profits or losses is recognized in the income statement, and its share of post-acquisition movements in other comprehensive income is recognized in other comprehensive income. The cumulative post-acquisition movements are adjusted against the carrying value of the investment. When the group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Company does not recognize further losses, unless it has incurred obligations or made payments on behalf of the associate. Unrealized gains and losses from transactions held with associates are eliminated from the investment in proportion to the Company’s share in the entity.

 

Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the group.

 

**G)  PROPERTY, PLANT AND EQUIPMENT**

 

Property, plant and equipment are valued at acquisition cost, less accumulated depreciation and recognized impairment losses. Cost includes expenses that are directly attributable to the asset acquisition.

 

Subsequent costs, including major improvements, are capitalized and are included in the carrying value of the asset or recognized as a separate asset as appropriate, only when it is probable that future economic benefits associated with the specific asset will flow to the Company and the costs can be measured reliably. Repairs and maintenance are recognized in the income statement when incurred. Major improvements are depreciated during the remaining useful life of the related asset. Leasehold improvements are depreciated using the lower of the lease term or useful life. Land is not depreciated.

 

Costs of borrowings associated to financing of qualifying assets that require a substantial period of time (over one year) for acquisition or construction, are capitalized as part of the acquisition cost of these assets, until such time as the assets are substantially ready for their intended use or sale.

 

Depreciation is calculated over the asset cost less residual value, considering its components separately. Depreciation is recognized in income using the straight-line method and applying annual rates that reflect the estimated useful lives of the assets. The estimated useful lives are summarized as follows:

 
| ** **              | ** ** | **Years**               | ** ** |
|-------------------------|------------|-------------------------|------------|
| ** **              | ** ** | ** **              | ** ** |
| Buildings               |       | 25 – 50            |       |
| Machinery and equipment |       |   5 – 25 |       |
| Leasehold improvements  |       |    10*   |       |

 

----

* The lesser of 10 years or the term of the leasehold agreement.

 

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.

 

Gains and losses from sale of assets result from the difference between revenues of the transaction and the book value of the assets, which is included in the income statement as other expenses, net.

 

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Table of Contents

 

**GRUMA, S.A.B. DE C.V. AND SUBSIDIARIES**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**AS OF DECEMBER 31, 2012 AND 2011**

**(In thousands of Mexican pesos, except where otherwise indicated)**

 

**H)  INTANGIBLE ASSETS**

 

**a. Goodwill**

 

Goodwill represents the excess of the cost of an acquisition over the fair value of the Company’s share of the net identifiable assets of the acquired subsidiary at the date of acquisition. Goodwill is tested annually for impairment, or whenever the circumstances indicate that the value of the asset might be impaired. Goodwill is carried at cost less accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill related to the entity sold.

 

Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units or groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose, identified according to operating segment.

 

**b. Intangible assets with finite lives**

 

Intangible assets with finite lives are carried at cost less accumulated amortization and impairment losses. Amortization is calculated using the straight-line method over the estimated useful lives of the assets. Estimated useful lives are as follows:

 
| ** **                | ** ** | **Years**         | ** ** |
|---------------------------|------------|-------------------|------------|
| ** **                | ** ** | ** **        | ** ** |
| Non-compete agreements    |       | 3 - 20            |       |
| Patents and trademarks    |       | 3 - 20            |       |
| Customer lists            |       | 5 - 20            |       |
| Software for internal use |       | 3 - 7   |       |

 

**c. Indefinite-lived intangible assets**

 

Indefinite-lived intangible assets are not amortized, but subject to impairment tests on an annual basis or whenever the circumstances indicate that the value of the asset might be impaired.

 

**d. Research and development**

 

Research costs are expensed when incurred.

 

Costs from development activities are recognized as an intangible asset when such costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits will be obtained, and the Company pretends and has sufficient resources in order to complete the development and use or sell the asset. The amortization is recognized in income based on the straight-line method during the estimated useful life of the asset.

 

Development costs that do not qualify as intangible assets are recognized in income when incurred.

 

**I)  IMPAIRMENT OF LONG-LIVED ASSETS**

 

The Company performs impairment tests for its property, plant and equipment, intangible assets with finite lives, and investment in associates, when certain events and circumstances suggest that the carrying value of the assets might not be recovered. Indefinite-lived intangible assets and goodwill are subject to impairment tests at least once a year.

 

F-22

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Table of Contents

 

**GRUMA, S.A.B. DE C.V. AND SUBSIDIARIES**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**AS OF DECEMBER 31, 2012 AND 2011**

**(In thousands of Mexican pesos, except where otherwise indicated)**

 

An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount of an asset or cash-generating unit is the higher of an asset’s fair value less costs to sell and value in use. To determine value in use, estimated future cash flows are discounted at present value, using a pre-tax discount rate that reflect time value of money and considering the specific risks associated with the asset. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating unit).

 

Impairment losses on goodwill are not reversed. For other assets, impairment losses are reversed if a change in the estimates used for determining the recoverable amount has occurred. Impairment losses are reversed to the extent that the book value does not exceed the book value that was determined, net of depreciation or amortization, if no impairment loss was recognized.

 

**J)  LONG-LIVED ASSETS HELD FOR SALE**

 

Long-lived assets are classified as held for sale when (a) their carrying amount is to be recovered mainly through a sale transaction, rather than through continuing use, (b) the assets are held immediately for sale and (c) the sale is considered highly probable in its current condition.

 

For the sale to be considered highly probable:

 

·                  Management must be committed to a sale plan.

·                  An active program must have begun in order to locate a buyer and to complete the plan.

·                  The asset must actively be quoted for its sale at a price that is reasonable to its current fair value; and

·                  The sale is expected to be completed within a year starting the date of classification.

 

Non-current assets held for sale are stated at the lower of carrying amount and fair value less costs to sell. At December 31, 2012 and 2011, the Company did not have this type of assets.

 

**K)  FINANCIAL INSTRUMENTS**

 

Regular purchases and sales of financial instruments are recognized in the balance sheet on the trade date, which is the date when the Company commits to purchase or sell the instrument.

 

**a. Financial assets**

 

**Classification**

 

In its initial recognition and based on its nature and characteristics, the Company classifies its financial assets in the following categories: (i) financial assets at fair value through profit or loss, (ii) loans and receivables, (iii) financial assets held until maturity, and (iv) available-for-sale financial assets. The classification depends on the purpose for which the financial assets were acquired. Balances of financial instruments held by the Company at December 31, 2012 and 2011 are disclosed in Note 21-A.

 

**i. Financial assets at fair value through profit or loss**

 

A financial asset is classified at fair value through profit or loss when designated as held for trading or classified as such in its initial recognition. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term. Assets in this category are carried at

 

F-23

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Table of Contents

 

**GRUMA, S.A.B. DE C.V. AND SUBSIDIARIES**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**AS OF DECEMBER 31, 2012 AND 2011**

**(In thousands of Mexican pesos, except where otherwise indicated)**

 

fair value, and directly attributable transaction costs and corresponding changes of fair value are recognized in the income statement. Derivatives are also categorized as held for trading unless they are designated as hedges. Assets in this category are classified as current assets if expected to be settled within 12 months; otherwise, they are classified as non-current.

 

**ii. Loans and receivables**

 

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for assets with maturities greater than 12 months. Initially, these assets are carried at fair value plus any transaction costs directly attributable to them; subsequently, these assets are recognized at amortized cost using the effective interest rate method.

 

**iii. Financial assets held until maturity**

 

When the Company has the intention and capacity to keep debt instruments until maturity, these financial assets are classified as held until maturity. Initially, these assets are carried at fair value plus any transaction costs directly attributable to them; subsequently, these assets are recognized at amortized cost using the effective interest rate method.

 

**iv. Available-for-sale financial assets**

 

Available-for-sale financial assets are non-derivative financial assets that are designated in this category or not classified in any of the other categories. They are included in current assets, except for assets with maturities greater than 12 months. These assets are initially recognized at fair value plus any transaction costs directly attributable to them; subsequently, these assets are recognized at fair value. If these assets cannot be measured through an active market, then its fair value is determined through a valuation technique. Profit or losses from changes in the fair value are recognized in other comprehensive income in the period when incurred. At disposition date, such profit or losses are recognized in income.

 

Interest on available-for-sale securities calculated using the effective interest method is recognized in the income statement as part of interest income. Dividends on available-for-sale equity instruments are recognized in the income statement when the Company’s right to receive payments is established.

 

**Impairment**

 

The Company assesses at each reporting date whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that have occurred after the initial recognition of the asset (an incurred “loss event”) and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. See Note 5-D for the accounting policy for the impairment of accounts receivable.

 

F-24

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Table of Contents

 

**GRUMA, S.A.B. DE C.V. AND SUBSIDIARIES**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**AS OF DECEMBER 31, 2012 AND 2011**

**(In thousands of Mexican pesos, except where otherwise indicated)**

 

**b. Financial liabilities**

 

**i. Debt and financial liabilities**

 

Debt and financial liabilities that are non-derivatives are initially recognized at fair value, net of transaction costs directly attributable to them: subsequently, these liabilities are recognized at amortized cost. The difference between the net proceeds and the amount payable is recognized in the income statement during the debt term, using the effective interest rate method.

 

**ii. Financial liabilities at fair value through profit or loss**

 

Financial liabilities at fair value through profit or loss include financial liabilities for trading and financial liabilities designated at initial recognition.

 

**L)  DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES**

 

Derivative financial instruments are initially recognized at fair value and are subsequently re-measured at their fair value; the transaction costs are recognized in the income statement when incurred. Derivative financial instruments are classified as current, except for maturities exceeding 12 months.

 

Fair value is determined based on recognized market prices. When not quoted in markets, fair value is determined using valuation techniques commonly used in the financial sector. Fair value reflects the credit risk of the instrument and includes adjustments to consider the credit risk of the Company or the counterparty, when applicable.

 

The method for recognizing the resulting gain or loss depends on whether the derivative is designated as a hedge and, if so, the nature of the item being hedged. The Company designates derivative financial instruments as follows:

 

·                        Hedges of the fair value of recognized assets or liabilities or a firm commitment (fair value hedge);

 

·                        Hedges of a particular risk associated with a recognized asset or liability or a highly probable forecast transaction (cash flow hedge); or

 

·                        Hedges of a net investment in a foreign operation (net investment hedge).

 

The Company documents at the inception of the transaction the relationship between hedging instruments and hedged items, including objectives, strategies for risk management and the method for assessing effectiveness in the hedge relationship.

 

**a. Fair value hedges**

 

Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the income statement, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. At December 31, 2012 and 2011, the Company did not have this type of hedging.

 

F-25

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Table of Contents

 

**GRUMA, S.A.B. DE C.V. AND SUBSIDIARIES**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**AS OF DECEMBER 31, 2012 AND 2011**

**(In thousands of Mexican pesos, except where otherwise indicated)**

 

**b. Cash flow hedges**

 

For cash flow hedge transactions, changes in the fair value of the derivative financial instrument are included as other comprehensive income in equity, based on the evaluation of the hedge effectiveness, and are reclassified to the income statement in the periods when the projected transaction is realized, see Note 21-C.

 

Hedge effectiveness is determined when changes in the fair value or cash flows of the hedged position are compensated with changes in the fair value or cash flows of the hedge instrument in a quotient that ranges between 80% and 125% of inverse correlation. Ineffective portions from changes in the fair value of derivative financial instruments are recognized immediately in the income statement.

 

When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognized when the forecasted transaction is ultimately registered in the income statement.

 

**c. Net investment hedge**

 

Hedges of net investments in foreign operations are accounted for similarly to cash flow hedges. Any gain or loss on the hedging instrument relating to the effective portion of the hedge is recognized in other comprehensive income. The gain or loss relating to the ineffective portion is recognized in the income statement. Gains and losses accumulated in equity are included in the income statement when the foreign operation is partially disposed of or sold, see Note 20-D.

 

**M) LEASES**

 

**a. Operating leases**

 

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases are recognized in the income statement on a straight-line basis over the period of the lease.

 

**b. Finance leases**

 

Leases where the Company has substantially all the risks and rewards of ownership, are classified as finance leases.

 

Under finance leases, at the initial date, both assets and liabilities are recognized at the lower of the fair value of the leased property and the present value of the minimum lease payments. In order to discount the minimum payments, the Company uses the interest rate implicit in the lease, if this practicable to determine; if not, the Company’s incremental borrowing rate is used.

 

Lease payments are allocated between the interest expense and the reduction of the pending liability. Interest income is recognized in each period during the lease term so as to produce a constant periodic interest rate on the remaining balance of the liability.

 

Property, plant and equipment acquired under finance leases is depreciated over the shorter of the useful life of the asset and the lease term.

 

F-26

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Table of Contents

 

**GRUMA, S.A.B. DE C.V. AND SUBSIDIARIES**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**AS OF DECEMBER 31, 2012 AND 2011**

**(In thousands of Mexican pesos, except where otherwise indicated)**

 

**N)  EMPLOYEE BENEFITS**

 

**a. Post-employment benefits**

 

In Mexico, the Company has the following defined benefit plans:

 

·                  Single-payment retirement plan, when employees reach the required retirement age, which is 60.

 

·      Seniority premium, after 15 years of service.

 

The Company has established trust funds in order to meet its obligations for the seniority premium. Employees do not contribute to these funds.

 

The liability recognized in the balance sheet in respect of defined benefit plans is the present value of the defined benefit obligation, less the fair value of plan assets, together with adjustments for unrecognized past-service costs. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method.

 

The present value of the defined benefit obligation is determined by discounting the estimated cash outflows using discount rates in accordance with IAS-19, that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related liability.

 

Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to equity in other comprehensive income in the period in which they arise. Past service costs are recognized immediately in the income statement, unless the changes to the plan are conditional on the employees remaining in service for a specified period of time (the vesting period). In this case, past-service costs are amortized on a straight-line basis over the vesting period.

 

In the United States, the Company has a savings and investment plan that incorporates voluntary employee 401 (k) contributions with matching contributions of the Company in this country. The Company’s contributions are recognized in the income statement when incurred.

 

In Venezuela, on May 7, 2012, the New Organic Labor and Workers’ Law (LOTTT) was published in the official gazette of the Bolivarian Republic of Venezuela and was effective as of such date. This law established some changes from the previous Organic Law issued on June 19, 1997 and amended on May 6, 2011. The most important changes included: modifications in the method of calculation of some employee benefits such as vacation bonuses, profits, pre and post natal leave, social security benefits and their interests. It also established changes in the duration of the workday, and introduced concepts as maternity labor stability. Some of the above benefits are also regulated by the collective agreements of the Company in Venezuela, which in many cases, exceed the issues raised by the new legislation.

 

The Company’s management has determined that the main effect of the enactment of this law is related with the retroactivity of the social security benefits and, through actuarial studies, the Company has estimated the effects on labor provisions and costs.

 

Until December 31, 2011, the Company determined severance amounts for employment termination in accordance with the local Labor Law and collective agreements effective at that date, and transferred these amounts to a trust for each worker. Contributions to each trust were recognized in income when incurred.

 

F-27

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Table of Contents

 

**GRUMA, S.A.B. DE C.V. AND SUBSIDIARIES**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**AS OF DECEMBER 31, 2012 AND 2011**

**(In thousands of Mexican pesos, except where otherwise indicated)**

 

**b. Termination benefits**

 

Termination benefits are payable when employment is terminated by decision of the Company, before the normal retirement date.

 

The Company recognizes termination benefits as a liability only when there has been a commitment to a detailed formal plan without possibility of withdrawal. Termination benefits that do not meet this requirement are recognized in the income statement in the period when incurred.

 

**c. Short term benefits**

 

Short term employee benefits are measured at nominal base and are recognized as expenses as the service is rendered. If the Company has the legal or constructive obligation to pay as a result of a service rendered by the employee in the past and the amount can be estimated, an obligation is recognized for short term bonuses or profit sharing.

 

**O)  PROVISIONS**

 

Provisions are recognized when (a) the Company has a present legal or constructive obligation as a result of past events; (b) it is probable that an outflow of resources will be required to settle the obligation; and (c) the amount has been reliably estimated.

 

Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the specific risks of the obligation. The increase in the provision due to the passage of time is recognized as interest expense.

 

**P)  SHARE CAPITAL**

 

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds.

 

**Q)  REVENUE RECOGNITION**

 

Sales are recognized upon shipment to, and acceptance by, the Company’s customers or when the risk of ownership has passed to the customers. Revenue comprises the fair value of the consideration received or receivable, net of returns, discounts, and rebates. Provisions for discounts and rebates to customers, returns and other adjustments are recognized in the same period that the related sales are recorded and are based upon either historical estimates or actual terms.

 

**R)  INCOME TAXES**

 

The tax expense of the period comprises current and deferred tax. Tax is recognized in the income statement, except to the extent that it relates to items recognized in other comprehensive income or directly in equity. In this case, the tax is also recognized in other comprehensive income or directly in equity, respectively.

 

F-28

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Table of Contents

 

**GRUMA, S.A.B. DE C.V. AND SUBSIDIARIES**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**AS OF DECEMBER 31, 2012 AND 2011**

**(In thousands of Mexican pesos, except where otherwise indicated)**

 

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the Company and its subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.

 

Deferred income tax is recognized from the analysis of the balance sheet considering temporary differences arising between the tax bases of assets and liabilities and their carrying amounts. Deferred income tax is determined using tax rates that have been enacted at the date of the balance sheet and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled.

 

Deferred income tax assets are recognized for tax loss carry-forwards not used, tax credits and deductible temporary differences, only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized. In each period-end deferred income tax assets are reviewed and reduced to the extent that it is not probable that the benefits will be realized.

 

Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates, except where the timing of the reversal of the temporary difference is controlled by the Company and it is probable that the temporary difference will not reverse in the foreseeable future.

 

Deferred tax assets and liabilities are offset if the entity has a legally enforceable right to set off assets against liabilities and are related to income tax levied by the same tax authority on the same taxable entity.

 

**S)  EARNINGS PER SHARE**

 

Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the year, excluding ordinary shares purchased by the Company and held as treasury shares. Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares, which include convertible debt and share options.

 

For the years ended December 31, 2012, 2011 and 2010, the Company has no dilutive instruments issued.

 

**T)  SEGMENT REPORTING**

 

An operating segment is a component of the Company that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses relating to transactions with other components of the same entity. Operating results from an operating segment are regularly reviewed by the entity’s chief executive officer to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available.

 

F-29

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Table of Contents

 

**GRUMA, S.A.B. DE C.V. AND SUBSIDIARIES**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**AS OF DECEMBER 31, 2012 AND 2011**

**(In thousands of Mexican pesos, except where otherwise indicated)**

 

**6.****       ****RISK AND CAPITAL MANAGEMENT**

 

**A)  RISK MANAGEMENT**

 

The Company is exposed to a variety of financial risks: market risk (including currency risk, interest rate risk, and commodity price risk), credit risk and liquidity risk. The group’s overall risk management focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on financial performance. The Company uses derivative financial instruments to hedge some of these risks.

 

**Currency risk**

 

The Company operates internationally and thus, is exposed to currency risks, particularly with the U.S. dollar. Currency risks arise from commercial operations, recognized assets and liabilities and net investments in foreign subsidiaries.

 

The following tables detail the exposure of the Company to currency risks at December 31, 2012 and 2011. The tables show the carrying amount of the Company’s financial instruments denominated in foreign currency.

 

At December 31, 2012:

 
| ** **            | ** ** | **Amounts in thousands of Mexican pesos** | ** **  |
|-----------------------|------------|--------------------------------------------------------------------|-------------|
| ** **            | ** ** | **U.S. Dollar**                                               | ** **  | **Pound   sterling** | ** ** | **Venezuelan   bolivar** | ** ** | **Euros** | ** ** | **Costa Rica   colons and   others** | ** ** | **Total** | ** ** |
| Monetary assets:      |       |                                                               |        |   |   |   |   |   |   |   |   |   |   |
| Current (1)           |       | Ps.                                                                | 3,072,982   |   | Ps. | 276,579 |   | Ps. | 1,584,590 |   | Ps. | 262,465 |   | Ps. | 1,229,180 |   | Ps. | 6,425,796 |   |
| Non-current           |       | 10,442                                                             |        | — |   | 1,538 |   | 1,655 |   | 15,498 |   | 29,133 |   |
| Monetary liabilities: |       |                                                               |        |   |   |   |   |   |   |   |   |   |   |
| Current               |       | (10,312,030                                                        | )           | (212,532 | ) | (1,584,472 | ) | (182,780 | ) | (583,534 | ) | (12,875,348 | ) |
| Non-current           |       | (12,498,676                                                        | )           | (1,080 | ) | (95,132 | ) | (52,504 | ) | (70,210 | ) | (12,717,602 | ) |
| Net position          |       | Ps.                                                                | (19,727,282 | ) | Ps. | 62,967 |   | Ps. | (93,476 | ) | Ps. | 28,836 |   | Ps. | 590,934 |   | Ps. | (19,138,021 | ) |

 

At December 31, 2011:

 
| ** **            | ** ** | **Amounts in thousands of Mexican pesos** | ** **  |
|-----------------------|------------|--------------------------------------------------------------------|-------------|
| ** **            | ** ** | **U.S. Dollar**                                               | ** **  | **Pound   sterling** | ** ** | **Venezuelan   bolivar** | ** ** | **Euros** | ** ** | **Costa Rica   colons and   others** | ** ** | **Total** | ** ** |
| Monetary assets:      |       |                                                               |        |   |   |   |   |   |   |   |   |   |   |
| Current (1)           |       | Ps.                                                                | 2,867,933   |   | Ps. | 313,652 |   | Ps. | 1,085,573 |   | Ps. | 172,257 |   | Ps. | 935,694 |   | Ps. | 5,375,109 |   |
| Non-current           |       | 20,809                                                             |        | 1,428 |   | 522 |   | 33,608 |   | 42,170 |   | 98,537 |   |
| Monetary liabilities: |       |                                                               |        |   |   |   |   |   |   |   |   |   |   |
| Current               |       | (4,627,116                                                         | )           | (173,062 | ) | (1,970,433 | ) | (273,115 | ) | (515,808 | ) | (7,559,534 | ) |
| Non-current           |       | (11,615,016                                                        | )           | (1,074 | ) | (22,356 | ) | (33,253 | ) | (69,899 | ) | (11,741,598 | ) |
| Net position          |       | Ps.                                                                | (13,353,390 | ) | Ps. | 140,944 |   | Ps. | (906,694 | ) | Ps. | (100,503 | ) | Ps. | 392,157 |   | Ps. | (13,827,486 | ) |

 

----

(1)   Approximately 70% of this balance corresponds to accounts receivable.

 

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**GRUMA, S.A.B. DE C.V. AND SUBSIDIARIES**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**AS OF DECEMBER 31, 2012 AND 2011**

**(In thousands of Mexican pesos, except where otherwise indicated)**

 

For the years ended December 31, 2012, 2011 and 2010, the effects of exchange rate differences on the Company’s monetary assets and liabilities were recognized as follows:

 
| ** **                                                                                                                                                                                                                                       | ** ** | **2012** | ** ** | **2011** | ** ** | **2010** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Exchange   differences arising from foreign currency liabilities accounted for as a   hedge of the Company’s net investment in foreign subsidiaries, recorded   directly to equity as an effect of foreign currency translation adjustments |       | Ps.      | 468,381    |     | Ps.        | (813,101 | )          | Ps. | 296,636 |   |
| Exchange   differences arising from foreign currency transactions recognized in the   income statement                                                                                                                                           |       | (89,262  | )          | 40,885   |       | 143,852  |       |
|                                                                                                                                                                                                                                             |       | Ps.      | 379,119    |     | Ps.        | (772,216 | )          | Ps. | 440,488 |   |

 

Net sales are denominated in Mexican pesos, U.S. dollars, and other currencies. Sales generated in Mexican pesos during 2012, 2011 and 2010 were 35% in 2012 and 34% in 2011 and 2010 of total net sales. Sales generated in U.S. dollars during 2012 and 2011 were 38% and 43% in 2010 of total net sales. Additionally, at December 31, 2012 and 2011, 63% and 67% of total assets were denominated in different currencies other than Mexican pesos, mainly in U.S. dollars. An important portion of operations are financed through debt denominated in U.S. dollars. For the years ended December 31, 2012, 2011 and 2010, net sales in foreign currency amounted to Ps.42,046,892, Ps. 37,819,919 and Ps.30,732,369, respectively.

 

An important currency risk for the debt denominated in U.S. dollars is present in subsidiaries that are not located in the United States, which represented 70% of total debt denominated in U.S. dollars.

 

During 2010 and 2011, the Company carried out forward transactions with the intention of hedging the currency risk of the Mexican peso with respect to the U.S. dollar, related with the price of corn purchases for domestic and imported harvest. These foreign exchange derivative instruments that did not qualify for hedging accounting were recognized at their fair value. At December 31, 2010 and 2011, the open positions of these instruments represented an unfavorable effect of approximately Ps.4,863 and a favorable effect of approximately Ps.88,537, respectively, which was recognized in the income statement.

 

At December 31, 2012 the Company has no open positions of foreign exchange derivative instruments.

 

The effect of foreign exchange differences recognized in the income statements for the years ended December 31, 2012, 2011 and 2010, related with the assets and liabilities denominated in foreign currency, totaled a loss of Ps.(89,262), and a gain of Ps.40,885 and Ps.143,852, respectively. Considering the exposure at December 31, 2012, 2011 and 2010, and assuming an increase or decrease of 10% in the exchange rates while keeping constant the rest of the variables such as interest rates, the effect after taxes in the Company’s consolidated results will be Ps.458,069, Ps.128,673 and Ps.605,597, respectively.

 

**Interest rate risk**

 

The variations in interest rates could affect the interest income or expense of financial liabilities bearing variable interest rates, and could also modify the fair value of financial liabilities bearing fixed interest rates.

 

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**GRUMA, S.A.B. DE C.V. AND SUBSIDIARIES**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**AS OF DECEMBER 31, 2012 AND 2011**

**(In thousands of Mexican pesos, except where otherwise indicated)**

 

For the Company, interest rate risk is mainly derived from debt financing transactions, including debt securities, bank and vendor credit facilities and leases. These financing transactions generate exposure to interest rate risk, principally due to changes in relevant base rates (mainly, LIBOR, and to a lesser extent, TIIE, Eurolibor and Venezuela’s weighted average rate) that are used to determine the interest rates applicable to the borrowings. The Company had Ps.3,734 million in fixed rate debt and Ps.16,137 million in variable rate debt at December 31, 2012.

 

The following table shows, at December 31, 2012 and 2011, the Company’s debt at fixed and variable rates:

 
| ** **                       | ** ** | **Amounts in thousands of Mexican pesos** | ** ** |
|----------------------------------|------------|--------------------------------------------------------------------|------------|
| ** **                       | ** ** | **2012**                                                           | ** ** | **2011** | ** ** |
| Debt at fixed interest   rate    |       | Ps.                                                                | 3,734,498  |   | Ps. | 4,280,821 |   |
| Debt at variable interest   rate |       | 16,136,973                                                         |       | 8,824,496 |   |
| Total                            |       | Ps.                                                                | 19,871,471 |   | Ps. | 13,105,317 |   |

 

From time to time, the Company uses derivative financial instruments such as interest rate swaps for the purposes of hedging a portion of its debt, in order to reduce the Company’s exposure to increases in interest rates.

 

For variable rate debt, an increase in interest rates will increase interest expense. A hypothetical increase of 100 basis points in interest rates on debt at December 31, 2012, 2011 and 2010 will have an effect on the results of the Company of Ps.161,370, Ps.88,246 and0 Ps.140,505, respectively, considering debt and interest rates at that date, and assuming that the rest of the variables remain constant.

 

**Commodity price risk and derivatives**

 

The availability and price of corn, wheat and other agricultural commodities and fuels are subject to wide fluctuations due to factors outside of the Company’s control, such as weather, plantings, government (domestic and foreign) farm programs and policies, changes in global demand/supply and global production of similar and competitive crops. The Company hedges a portion of its production requirements through commodity futures and options contracts in order to reduce the risk created by price fluctuations and supply of corn, wheat, natural gas, diesel and soy oils which exist as part of ongoing business operations. The open positions for hedges of purchases do not exceed the maximum production requirements for a period no longer than 18 months.

 

During 2012, the Company entered into short-term hedge transactions through commodity futures and options to hedge a portion of its requirements. All derivative financial instruments are recorded at their fair value as either assets or liabilities. Changes in the fair value of derivatives are recorded each period in earnings or accumulated other comprehensive income in equity, depending on whether the derivative qualifies for hedge accounting and is effective as part of a hedge transaction. Ineffectiveness results when the change in the fair value of the hedge instruments differs from the change in the fair value of the position.

 

For hedge transactions that qualify and are effective, gains and losses are deferred until the underlying asset or liability is settled, and then are recognized as part of that transaction.

 

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**GRUMA, S.A.B. DE C.V. AND SUBSIDIARIES**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**AS OF DECEMBER 31, 2012 AND 2011**

**(In thousands of Mexican pesos, except where otherwise indicated)**

 

Gains and losses which represent hedge ineffectiveness and derivative transactions that do not qualify for hedge accounting are recognized in the income statement.

 

At December 31, 2012, financial instruments that qualify as hedge accounting represented a favorable effect of Ps.119,275, which was recognized as comprehensive income in equity.

 

From time to time the Company hedges commodity price risks utilizing futures and options strategies that do not qualify for hedge accounting. As a result of non-qualification, these derivative financial instruments are recognized at their fair values and the associated effect is recorded in current period earnings. For the year ended December 31, 2012 non-settled financial instruments that did not qualify as hedge accounting represented a favorable effect of Ps.17,090. For the years ended December 31, 2011 and 2010, the Company recognized an unfavorable effect of Ps.40,207 and Ps.13,228, respectively. Additionally, as of December 31, 2012 the Company realized Ps.21,058 in net losses on commodity price risk hedges that did not qualify for hedge accounting; likewise, as of December 31, 2011 and 2010, realized net losses of Ps.52,626 and Ps.42,970, respectively.

 

Based on the Company’s overall commodity exposure at December 31, 2012 and 2011, a hypothetical 10 percent decline in market prices applied to the fair value of these instruments would result in an effect to the income statement of Ps.68,811 and Ps.40,431, respectively (for non-qualifying contracts).

 

In Mexico, to support the commercialization of corn for Mexican corn growers, Mexico’s Secretary of Agriculture, Livestock, Rural Development, Fisheries and Food Ministry (Secretaría de Agricultura, Ganadería, Desarrollo Rural, Pesca y Alimentación, or SAGARPA), through the Agricultural Incentives and Services Agency (Apoyos y Servicios a la Comercialización Agropecuaria, or ASERCA), a government agency founded in 1991, implemented a program designed to promote corn sales in Mexico. The program includes the following objectives:

 

·                  Ensure that the corn harvest is brought to market, providing certainty to farmers concerning the sale of their crops and supply security for the buyer.

·                  Establish a minimum price for the farmer, and a maximum price for the buyer, which are determined based on international market prices, plus a basic formula specific for each region.

·                  Implement a corn hedging program to allow both farmers and buyers to minimize their exposure to price fluctuations in the international markets.

 

To the extent that this or other similar programs are canceled by the Mexican government, we may be required to incur additional costs in purchasing corn for our operations, and therefore we may need to increase the prices of our products to reflect such additional costs.

 

**Credit risk**

 

The Company’s regular operations expose it to defaults when customers and counterparties are unable to comply with their financial or other commitments. The Company seeks to mitigate this risk by entering into transactions with a diverse pool of counterparties. However, the Company continues to remain subject to unexpected third party financial failures that could disrupt its operations.

 

The Company is also exposed to risks in connection with its cash management activities and temporary investments, and any disruption that affects its financial intermediaries could also adversely affect its operations.

 

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**GRUMA, S.A.B. DE C.V. AND SUBSIDIARIES**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**AS OF DECEMBER 31, 2012 AND 2011**

**(In thousands of Mexican pesos, except where otherwise indicated)**

 

The Company’s exposure to risk due to trade receivables is limited given the large number of its customers located in different parts of Mexico, the United States, Central America, Venezuela, Europe, Asia and Oceania. For this reason, there is not a significant risk of credit concentration. However, the Company still maintains reserves for credit losses. Risk control assesses the credit quality of the customer, taking into account its financial position, past experience and other factors.

 

Since none of the clients have an independent rating of credit quality, the Company’s management determines the maximum credit risk for each one, taking into account its financial position, past experience, and other factors. Credit limits are established according to policies set by the Company, which also includes controls that assure its compliance.

 

During 2012 and 2011, credit limits were complied with and, consequently, management does not expect any important losses from trade accounts receivable.

 

At December 31, 2012 and 2011, the Company has certain accounts receivable that are neither past due or impaired. The credit quality of such receivables does not present indications of impairment, since the sales are performed to a large variety of clients that include supermarkets, government institutions, commercial businesses and tortilla sellers. At December 31, 2012 and 2011, none of these accounts receivable presented non-performance by these counterparties.

 

The Company has centralized its treasury operations in Mexico, and in the United States for its operations in that country. Liquid assets are invested primarily in government bonds and short term debt instruments with a minimum grade of “A1/P1” in the case of operations in the United States and “A” for operations in Mexico. The Company faces credit risk from potential defaults of their counterparts with respect to financial instruments they use. Substantially all of these financial instruments are not guaranteed. Additionally, it minimizes the risk of default by the counterparts contracting derivative financial instruments only with major national and international financial institutions using contracts and standard forms issued by the International Swaps and Derivatives Association, Inc. (“ISDA”) and operations standard confirmation formats. For operations in Central America and Venezuela, only invests cash reserves with leading local banks and local branches of international banks. Additionally, they maintain small investments abroad.

 

**Investment risk in Venezuela**

 

The Company’s operations in Venezuela represented approximately 15% of consolidated net sales and 14% of total consolidated assets as of December 31, 2012. The recent political and civil instability that has prevailed in Venezuela represents a risk to the business that cannot be controlled and that cannot be accurately measured or estimated.

 

Also, in recent years the Venezuelan authorities have imposed foreign exchange controls and price controls on certain products such as corn flour and wheat flour. These price controls may limit the Company’s ability to increase prices in order to compensate for the higher cost of raw materials. The foreign exchange controls may limit the Company’s capacity to convert bolivars to other currencies and also transfer funds outside Venezuela.

 

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Table of Contents

 

**GRUMA, S.A.B. DE C.V. AND SUBSIDIARIES**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**AS OF DECEMBER 31, 2012 AND 2011**

**(In thousands of Mexican pesos, except where otherwise indicated)**

 

Various fixed exchange rates have been established by the Venezuelan Government since 2003. Effective January 1, 2010, the Venezuelan Government established an exchange rate of 4.30 bolivars per U.S. dollar. On February 8, 2013, the National Executive, through the Central Bank of Venezuela and the Ministry of Popular Power for Planning and Finance, amended the Exchange Agreement to the effect that an exchange rate of 6.30 bolivars per U.S. dollar is applicable to all operations conducted in foreign currency effective as of February 9, 2013. The exchange rate set in the Exchange Agreement has historically been lower than in the free market. See Note 30-A “Subsequent events”.

 

The Company does not have insurance for the risk of expropriation of its investments. See Note 27 for additional information about the expropriation proceedings of MONACA assets and the measures taken by the People ́s Defense Institute for the Access of Goods and Services of Venezuela (Instituto para la Defensa de las Personas en el Acceso a los Bienes y Servicios de Venezuela, or INDEPABIS) in DEMASECA.

 

Given the Company’s operations in Venezuela, the financial position and results of the Company may be negatively affected by a number of factors, including:

 

a.                  Decrease in consolidated income due to a possible further devaluation of the Venezuelan bolivar against the U.S. dollar;

 

b.                  Subsidiaries in Venezuela manufacturing products subject to price controls;

 

c.                   The enactment of the Just Costs and Prices Law (Ley de Costos y Precios Justos) on July 18, 2011, that controls the prices of products affecting the Company’s sales;

 

d.                  It may be difficult for subsidiaries in Venezuela to pay dividends, as well as to import some of their requirements of raw materials as a result of the foreign exchange and price controls;

 

e.                   The costs of some raw materials used by the Venezuelan subsidiaries may increase due to import tariffs, and

 

f.                    Inability to obtain and collect a just and reasonable compensation for MONACA’s assets subject to expropriation.

 

**Liquidity risk**

 

The Company funds its liquidity and capital resource requirements, in the ordinary course of business, through a variety of sources, including:

 

·                  cash generated from operations;

·                  committed and uncommitted short-term and long-term lines of credit;

·                  offerings of medium- and long-term debt; and

·                  sales of its equity securities and those of its subsidiaries and affiliates from time to time.

 

Factors that could decrease the sources of liquidity include a significant decrease in the demand for, or price of, products, each of which could limit the amount of cash generated from operations, and a lowering of the corporate credit rating or any other credit downgrade, which could further impair the liquidity and increase costs with respect to new debt and cause stock price to suffer. The Company’s liquidity is also affected by factors such as the depreciation or appreciation of the peso and changes in interest rates.

 

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**GRUMA, S.A.B. DE C.V. AND SUBSIDIARIES**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**AS OF DECEMBER 31, 2012 AND 2011**

**(In thousands of Mexican pesos, except where otherwise indicated)**

 

The following tables show the remaining contractual maturities of financial liabilities of the Company:

 

At December 31, 2012:

 
| ** **                                     | ** ** | **Less than a    year** | ** ** | **From 1 to 3    years** | ** ** | **From 3 to 5    years** | ** ** | **More than 5    years** | ** ** | **Total** | ** ** |
|------------------------------------------------|------------|----------------------------------------|------------|----------------------------------------------|------------|----------------------------------------------|------------|-----------------------------------------|------------|-----------|------------|
| Short and long term debt                       |       | Ps.                                    | 8,043,091  |                                         | Ps.        | 755,849                                      |       | Ps.                                     | 6,704,466  |      | Ps.        | 4,623,030 |   | Ps. | 20,126,436 |   |
| Interest payable from short and long term debt |       | 746,613                                |       | 1,084,968                                    |       | 852,808                                      |       | 628,022                                 |       | 3,312,411 |       |
| Financing leases                               |       | 20,077                                 |       | 18,843                                       |       | —                                       |       | —                                  |       | 38,920    |       |
| Trade accounts and other   payables            |       | 9,434,268                              |       | —                                       |       | —                                       |       | —                                  |       | 9,434,268 |       |
| Other non-current   liabilities                |       | —                                 |       | —                                       |       | 606,495                                      |       | —                                  |       | 606,495   |       |
| Derivative financial instruments               |       | 28,832                                 |       | —                                       |       | —                                       |       | —                                  |       | 28,832    |       |
|                                           |       | Ps.                                    | 18,272,881 |                                         | Ps.        | 1,859,660                                    |       | Ps.                                     | 8,163,769  |      | Ps.        | 5,251,052 |   | Ps. | 33,547,362 |   |

 

At December 31, 2011:

 
| ** **                                     | ** ** | **Less than a    year** | ** ** | **From 1 to 3    years** | ** ** | **From 3 to 5    years** | ** ** | **More than 5    years** | ** ** | **Total** | ** ** |
|------------------------------------------------|------------|----------------------------------------|------------|----------------------------------------------|------------|----------------------------------------------|------------|-----------------------------------------|------------|-----------|------------|
| Short and long term debt                       |       | Ps.                                    | 1,621,446  |                                         | Ps.        | 380,334                                      |       | Ps.                                     | 5,618,137  |      | Ps.        | 5,715,000 |   | Ps. | 13,334,917 |   |
| Interest payable from short and long term debt |       | 652,883                                |       | 1,142,966                                    |       | 1,061,734                                    |       | 791,437                                 |       | 3,649,020 |       |
| Financing leases                               |       | 11,762                                 |       | 21,521                                       |       | —                                       |       | —                                  |       | 33,283    |       |
| Trade accounts and other   payables            |       | 9,301,814                              |       | —                                       |       | —                                       |       | —                                  |       | 9,301,814 |       |
| Derivative financial instruments               |       | 46,013                                 |       | —                                       |       | —                                       |       | —                                  |       | 46,013    |       |
|                                           |       | Ps.                                    | 11,633,918 |                                         | Ps.        | 1,544,821                                    |       | Ps.                                     | 6,679,871  |      | Ps.        | 6,506,437 |   | Ps. | 26,365,047 |   |

 

The Company expects to meet its obligations with cash flows generated by operations. Additionally, the Company has access to credit lines with various banks to address potential cash needs.

 

**B) CAPITAL MANAGEMENT**

 

The Company’s objectives when managing capital (which includes share capital, borrowings, working capital and cash and cash equivalents) are to maintain a flexible capital structure that reduces the cost of capital to an acceptable level of risk, to safeguard the Company’s ability to continue as a going concern while taking advantage of strategic opportunities in order to provide sustainable returns for shareholders and benefits to stockholders.

 

The Company manages the capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain the capital structure, the Company may adjust the amount of dividends paid to shareholders, return capital to shareholders, repurchase shares currently issued, issue new shares, issue new debt, issue new debt to replace existing debt with different characteristics and/or sell assets to reduce debt.

 

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**GRUMA, S.A.B. DE C.V. AND SUBSIDIARIES**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**AS OF DECEMBER 31, 2012 AND 2011**

**(In thousands of Mexican pesos, except where otherwise indicated)**

 

In addition, to monitor capital, debt agreements contain financial covenants which are disclosed in Note 16.

 

**7.****       ****SEGMENT INFORMATION**

 

The Company’s reportable segments are strategic business units that offer different products in different geographical regions. These business units are managed separately because each business segment requires different technology and marketing strategies.

 

The Company’s reportable segments are as follows:

 

·                  Corn flour and packaged tortilla division (United States and Europe):

 

Manufactures and distributes more than 20 varieties of corn flour that are used mainly to produce and distribute different types of tortillas and tortilla chip products in the United States. The main brands are MASECA for corn flour and MISSION and GUERRERO for packaged tortillas.

 

·                  Corn flour division (Mexico):

 

Engaged principally in the production, distribution and sale of corn flour in Mexico under MASECA brand. Corn flour produced by this division is used mainly in the preparation of tortillas and other related products.

 

·                  Corn flour, wheat flour and other products division (Venezuela):

 

Engaged, mainly, in producing and distributing grains used principally for industrial and human consumption. The main brands are JUANA, TIA BERTA and DECASA for corn flour; ROBIN HOOD and POLAR for wheat flour; MONICA for rice and LASSIE for oats.

 

·                  Other segments:

 

This section represents those segments whose amounts on an individual basis do not exceed 10% of the consolidated total of net sales, operating income and assets. These segments are:

 

a)             Corn flour, hearts of palm, rice, and other products (Central America).

 

b)             Wheat flour (México).

 

c)              Packaged tortillas (México).

 

d)             Wheat flour tortillas and snacks (Asia and Oceania).

 

e)              Technology and equipment, which conducts research and development regarding flour and tortilla manufacturing equipment, produces machinery for corn flour and tortilla production and is engaged in the construction of the Company’s corn flour manufacturing facilities.

 

All inter-segment sales prices are market-based. The Chief Executive Officer evaluates performance based on operating income of the respective business units. The accounting policies for the reportable segments are the same as the policies described in Notes 2 and 5.

 

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**GRUMA, S.A.B. DE C.V. AND SUBSIDIARIES**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**AS OF DECEMBER 31, 2012 AND 2011**

**(In thousands of Mexican pesos, except where otherwise indicated)**

 

Segment information as of and for the year ended December 31, 2012:

 
| ** **                        | ** ** | **Corn flour    and packaged    tortilla    division    (United States    and Europe)** | ** ** | **Corn flour    division    (Mexico)** | ** ** | **Corn flour,    wheat flour    and other    products    (Venezuela)** | ** ** | **Other    segments** | ** ** | **Eliminations    and    corporate    expenses** | ** ** | **Total**  | ** ** |
|-----------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------|------------|----------------------------|------------|-----------------------------------------------------------------|------------|------------|------------|
| Net sales to external   customers |       | Ps.                                                                                                                                  | 26,900,883 |                                                  | Ps.        | 16,809,903                                                                                                |       | Ps.                        | 9,907,182  |                                                            | Ps.        | 10,662,239 |       | Ps. | 36,425 |   | Ps. | 64,316,632 |   |
| Inter-segmentnet sales            |       | 30,672                                                                                                                               |       | 763,547                                               |       | —                                                                                                    |       | 1,303,796                  |       | (2,098,015                                                      | )          | —     |       |
| Operating   income(loss)          |       | 1,334,615                                                                                                                            |       | 1,749,259                                             |       | 444,525                                                                                                   |       | 27,411                     |       | (42,777                                                         | )          | 3,513,033  |       |
| Depreciation and amortization     |       | 1,058,384                                                                                                                            |       | 357,097                                               |       | 154,324                                                                                                   |       | 312,037                    |       | (95,431                                                         | )          | 1,786,411  |       |
|                              |       |                                                                                                                                 |       |                                                  |       |                                                                                                      |       |                       |       |                                                            |       |       |       |
| Total   assets                    |       | 17,600,503                                                                                                                           |       | 12,793,474                                            |       | 7,087,569                                                                                                 |       | 11,318,494                 |       | 660,362                                                         |       | 49,460,402 |       |
| Investment in associates          |       | —                                                                                                                               |       | —                                                |       | —                                                                                                    |       | 146,388                    |       | 1,009,863                                                       |       | 1,156,251  |       |
| Total   liabilities               |       | 7,931,084                                                                                                                            |       | 3,808,836                                             |       | 2,948,192                                                                                                 |       | 4,630,339                  |       | 15,808,234                                                      |       | 35,126,685 |       |
| Expenditures   forfixed assets    |       | 1,630,227                                                                                                                            |       | 451,771                                               |       | 191,478                                                                                                   |       | 393,171                    |       | 117,940                                                         |       | 2,784,587  |       |
|                                   |            |                                                                                                                                      |            |                                                       |            |                                                                                                           |            |                            |            |                                                                 |            |            |            |  |  |  |  |  |  |

 

Segment information as of and for the year ended December 31, 2011:

 
| ** **                        | ** ** | **Corn flour    and packaged    tortilla    division    (United States    and Europe)** | ** ** | **Corn flour    division    (Mexico)** | ** ** | **Corn flour,    wheat flour    and other    products    (Venezuela)** | ** ** | **Other    segments** | ** ** | **Eliminations    and corporate    expenses** | ** ** | **Total**  | ** ** |
|-----------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------|------------|----------------------------|------------|--------------------------------------------------------------|------------|------------|------------|
| Net sales to external   customers |       | Ps.                                                                                                                                  | 23,900,928 |                                                  | Ps.        | 14,799,007                                                                                                |       | Ps.                        | 9,156,603  |                                                         | Ps.        | 9,643,075  |       | Ps. | 145,136 |   | Ps. | 57,644,749 |   |
| Inter-segmentnet sales            |       | 196,857                                                                                                                              |       | 586,733                                               |       | —                                                                                                    |       | 1,128,926                  |       | (1,912,516                                                   | )          | —     |       |
| Operating income(loss)            |       | 946,806                                                                                                                              |       | 1,770,725                                             |       | 674,068                                                                                                   |       | (183,752                   | )          | 130,614                                                      |       | 3,338,461  |       |
| Depreciation and amortization     |       | 1,004,467                                                                                                                            |       | 356,171                                               |       | 135,335                                                                                                   |       | 323,051                    |       | (76,302                                                      | )          | 1,742,722  |       |
|                              |       |                                                                                                                                 |       |                                                  |       |                                                                                                      |       |                       |       |                                                         |       |       |       |
| Total   assets                    |       | 16,860,083                                                                                                                           |       | 11,618,882                                            |       | 6,430,234                                                                                                 |       | 10,460,321                 |       | (826,902                                                     | )          | 44,542,618 |       |
| Investment in associates          |       | —                                                                                                                               |       | —                                                |       | —                                                                                                    |       | 143,700                    |       | —                                                       |       | 143,700    |       |
| Total   liabilities               |       | 7,074,787                                                                                                                            |       | 3,451,518                                             |       | 3,021,882                                                                                                 |       | 3,919,903                  |       | 9,361,744                                                    |       | 26,829,834 |       |
| Expenditures   forfixed assets    |       | 858,475                                                                                                                              |       | 238,958                                               |       | 43,058                                                                                                    |       | 404,051                    |       | 133,762                                                      |       | 1,678,304  |       |
|                                   |            |                                                                                                                                      |            |                                                       |            |                                                                                                           |            |                            |            |                                                              |            |            |            |  |  |  |  |  |  |

 

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**GRUMA, S.A.B. DE C.V. AND SUBSIDIARIES**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**AS OF DECEMBER 31, 2012 AND 2011**

**(In thousands of Mexican pesos, except where otherwise indicated)**

 

Segment information as of and for the year ended December 31, 2010:

 
| ** **                        | ** ** | **Corn flour    and packaged    tortilla    division    (United States    and Europe)** | ** ** | **Corn flour    division    (Mexico)** | ** ** | **Corn flour,    wheat flour    and other    products    (Venezuela)** | ** ** | **Other    segments** | ** ** | **Eliminations    and corporate    expenses** | ** ** | **Total**  | ** ** |
|-----------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------|------------|----------------------------|------------|--------------------------------------------------------------|------------|------------|------------|
| Net sales to external   customers |       | Ps.                                                                                                                                  | 21,444,929 |                                                  | Ps.        | 11,434,119                                                                                                |       | Ps.                        | 5,381,849  |                                                         | Ps.        | 7,947,115  |       | Ps. | 24,442 |   | Ps. | 46,232,454 |   |
| Inter-segmentnet sales            |       | 66,997                                                                                                                               |       | 418,647                                               |       | —                                                                                                    |       | 981,806                    |       | (1,467,450                                                   | )          | —     |       |
| Operating income(loss)            |       | 1,303,038                                                                                                                            |       | 1,146,697                                             |       | (26,200                                                                                                   | )          | (70,558                    | )          | (302,962                                                     | )          | 2,050,015  |       |
| Depreciation and   amortization   |       | 880,457                                                                                                                              |       | 365,179                                               |       | 112,399                                                                                                   |       | 245,252                    |       | (100,753                                                     | )          | 1,502,534  |       |
|                              |       |                                                                                                                                 |       |                                                  |       |                                                                                                      |       |                       |       |                                                         |       |       |       |
| Total   assets                    |       | 13,757,697                                                                                                                           |       | 10,276,449                                            |       | 3,983,891                                                                                                 |       | 8,627,963                  |       | 2,281,394                                                    |       | 38,927,394 |       |
| Investment in associates          |       | —                                                                                                                               |       | —                                                |       | —                                                                                                    |       | 140,505                    |       | 4,295,896                                                    |       | 4,436,401  |       |
| Total   liabilities               |       | 6,165,517                                                                                                                            |       | 2,680,233                                             |       | 2,095,555                                                                                                 |       | 4,189,938                  |       | 13,073,877                                                   |       | 28,205,120 |       |
| Expenditures   forfixed assets    |       | 522,741                                                                                                                              |       | 174,680                                               |       | 84,752                                                                                                    |       | 205,917                    |       | 20,101                                                       |       | 1,008,191  |       |
|                                   |            |                                                                                                                                      |            |                                                       |            |                                                                                                           |            |                            |            |                                                              |            |            |            |  |  |  |  |  |  |

 

A summary of information by geographic segment for the years ended December 31, 2012, 2011 and 2010 is presented below:

 
| ** **                         | ** ** | **2012**   | ** ** | **%**  | ** ** | **2011**   | ** ** | **%**      | ** ** | **2010**   | ** ** | **%**  | ** **       |
|------------------------------------|------------|------------|------------|--------|------------|------------|------------|------------|------------|------------|------------|--------|------------------|
| Net sales to external   customers: |       |       |       |   |       |       |       |       |       |       |       |   |             |
| United States and Europe           |       | Ps.        | 26,900,883 |   | 42         |       | Ps.        | 23,900,928 |       | 41         |       | Ps.    | 21,444,929       |   | 46 |   |
| Mexico                             |       | 22,269,740 |       | 35     |       | 19,870,195 |       | 34         |       | 15,539,076 |       | 34     |             |
| Venezuela                          |       | 9,907,182  |       | 15     |       | 9,156,603  |       | 16         |       | 5,381,849  |       | 12     |             |
| Central America                    |       | 3,368,693  |       | 5      |       | 3,180,155  |       | 6          |       | 2,765,134  |       | 6      |             |
| Asia and Oceania                   |       | 1,870,134  |       | 3      |       | 1,536,868  |       | 3          |       | 1,101,466  |       | 2      |             |
|                               |       | Ps.        | 64,316,632 |   | 100        |       | Ps.        | 57,644,749 |       | 100        |       | Ps.    | 46,232,454       |   | 100 |   |
|                               |       |       |       |   |       |       |       |       |       |       |       |   |             |
| Capital expenditures:              |       |       |       |   |       |       |       |       |       |       |       |   |             |
| United States and Europe           |       | Ps.        | 1,630,227  |   | 59         |       | Ps.        | 858,475    |       | 51         |       | Ps.    | 522,741          |   | 52 |   |
| Mexico                             |       | 839,736    |       | 30     |       | 470,977    |       | 28         |       | 329,863    |       | 33     |             |
| Venezuela                          |       | 191,478    |       | 7      |       | 43,058     |       | 3          |       | 84,752     |       | 8      |             |
| Central America                    |       | 70,078     |       | 2      |       | 88,508     |       | 5          |       | 43,477     |       | 4      |             |
| Asia and Oceania                   |       | 53,068     |       | 2      |       | 217,286    |       | 13         |       | 27,358     |       | 3      |             |
|                               |       | Ps.        | 2,784,587  |   | 100        |       | Ps.        | 1,678,304  |       | 100        |       | Ps.    | 1,008,191        |   | 100 |   |
|                               |       |       |       |   |       |       |       |       |       |       |       |   |             |
| Identifiable assets                |       |       |       |   |       |       |       |       |       |       |       |   |             |
| United States and Europe           |       | Ps.        | 17,600,503 |   | 36         |       | Ps.        | 16,860,083 |       | 38         |       | Ps.    | 13,757,697       |   | 35 |   |
| Mexico                             |       | 18,695,391 |       | 38     |       | 15,052,360 |       | 34         |       | 16,480,632 |       | 43     |             |
| Venezuela                          |       | 7,087,569  |       | 14     |       | 6,430,234  |       | 14         |       | 3,983,891  |       | 10     |             |
| Central America                    |       | 2,376,482  |       | 5      |       | 2,408,555  |       | 5          |       | 1,928,120  |       | 5      |             |
| Asia and Oceania                   |       | 3,700,457  |       | 7      |       | 3,791,386  |       | 9          |       | 2,777,054  |       | 7      |             |
|                               |       | Ps.        | 49,460,402 |   | 100        |       | Ps.        | 44,542,618 |       | 100        |       | Ps.    |  38,927,394 |   | 100 |   |
|                                    |            |            |            |        |            |            |            |            |            |            |            |        |                  |  |  |  |  |  |  |  |

 

F-39

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Table of Contents

 

**GRUMA, S.A.B. DE C.V. AND SUBSIDIARIES**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**AS OF DECEMBER 31, 2012 AND 2011**

**(In thousands of Mexican pesos, except where otherwise indicated)**

 

**8. CASH AND CASH EQUIVALENTS**

 

Cash and cash equivalents include:

 
| ** **                                    | ** ** | **At December 31,********2012** | ** ** | **At December 31,********2011** | ** ** |
|-----------------------------------------------|------------|-------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                    | ** ** | ** **                                | ** ** | ** **                                | ** ** |
| Cash at bank                                  |       | Ps.                                       | 1,245,911  |                                      | Ps.        | 1,161,899 |   |
| Short-term investments   (less than 3 months) |       | 41,457                                    |       | 17,752                                    |       |
|                                          |       | Ps.                                       | 1,287,368  |                                      | Ps.        | 1,179,651 |   |

 

**9. ACCOUNTS RECEIVABLE**

 

Accounts receivable comprised the following:

 
| ** **                            | ** ** | **At December 31,******** 2012** | ** ** | **At December 31,******** 2011** | ** ** |
|---------------------------------------|------------|-------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                            | ** ** | ** **                                      | ** ** | ** **                                      | ** ** |
| Trade accounts and notes   receivable |       | Ps.                                             | 6,530,563  |                                            | Ps.        | 6,434,327 |   |
| Employees                             |       | 26,339                                          |       | 31,628                                          |       |
| Recoverable value-added   tax         |       | 485,608                                         |       | 368,239                                         |       |
| ASERCA receivables (Note   6)         |       | —                                          |       | 321,958                                         |       |
| Other debtors                         |       | 374,249                                         |       | 287,168                                         |       |
| Allowance for doubtful   accounts     |       | (368,234                                        | )          | (316,112                                        | )          |
|                                  |       | Ps.                                             | 7,048,525  |                                            | Ps.        | 7,127,208 |   |

 

The age analysis of accounts receivable is as follows:

 
| ** **                        | ** ** | ** ** | ** ** | ** **                                            | ** ** | **Past due balances**    | ** ** |
|-----------------------------------|------------|------------|------------|-------------------------------------------------------|------------|------------------------------------|------------|
| ** **                        | ** ** | **Total**  | ** ** | **Not past due    date balances** | ** ** | **1 to 120********days** | ** ** | **121 to 240********days** | ** ** | **More than   240 days** | ** ** |
| Accounts receivable               |       | Ps.        | 7,416,759  |                                                  | Ps.        | 4,525,500                          |       | Ps. | 2,252,425 |   | Ps. | 188,609 |   | Ps. | 450,225 |   |
| Allowance for doubtful   accounts |       | (368,234   | )          | —                                                |       | (119,800                           | )          | (57,260 | ) | (191,174 | ) |
| Total at December 31,   2012 |       | Ps.        | 7,048,525  |                                                  | Ps.        | 4,525,500                          |       | Ps. | 2,132,625 |   | Ps. | 131,349 |   | Ps. | 259,051 |   |

 
| ** **                        | ** ** | ** ** | ** ** | **Not past due** | ** ** | **Past due balances**          | ** ** |
|-----------------------------------|------------|------------|------------|----------------------------|------------|------------------------------------------|------------|
| ** **                        | ** ** | **Total**  | ** ** | **date    balances**  | ** ** | **1 to 120**** ****days** | ** ** | **121 to 240**** ****days** | ** ** | **More than    240 days** | ** ** |
| Accounts receivable               |       | Ps.        | 7,443,320  |                       | Ps.        | 4,635,346                                |       | Ps. | 2,174,062 |   | Ps. | 255,623 |   | Ps. | 378,289 |   |
| Allowance for doubtful   accounts |       | (316,112   | )          | —                     |       | (31,130                                  | )          | (48,289 | ) | (236,693 | ) |
| Total at December 31,   2011 |       | Ps.        | 7,127,208  |                       | Ps.        | 4,635,346                                |       | Ps. | 2,142,932 |   | Ps. | 207,334 |   | Ps. | 141,596 |   |
|                                   |            |            |            |                            |            |                                          |            |  |  |  |  |  |  |  |  |  |  |

 

F-40

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Table of Contents

 

**GRUMA, S.A.B. DE C.V. AND SUBSIDIARIES**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**AS OF DECEMBER 31, 2012 AND 2011**

**(In thousands of Mexican pesos, except where otherwise indicated)**

 

For the years ended December 31, 2012 and 2011, the movements on the allowance for doubtful accounts are as follows:

 
| ** **                                | ** ** | **2012** | ** ** | **2011** | ** ** |
|-------------------------------------------|------------|----------|------------|----------|------------|
| Beginning   balance                       |       | Ps.      | (316,112   | )        | Ps.        | (290,379 | ) |
| Allowance   for doubtful accounts         |       | (116,240 | )          | (130,885 | )          |
| Receivables   written off during the year |       | 54,610   |       | 117,254  |       |
| Exchange   differences                    |       | 9,508    |       | (12,102  | )          |
| Ending   balance                          |       | Ps.      | (368,234   | )        | Ps.        | (316,112 | ) |

 

**10. INVENTORIES**

 

Inventories consisted of the following:

 

 
| ** **                             | ** ** | **At December********31, 2012** | ** ** | **At December   31, 2011** | ** ** |
|----------------------------------------|------------|-------------------------------------------|------------|--------------------------------------|------------|
| Raw materials, mainly corn   and wheat |       | Ps.                                       | 9,513,318  |                                 | Ps.        | 7,987,448 |   |
| Finished products                      |       | 1,018,452                                 |       | 917,014                              |       |
| Materials and spare parts              |       | 1,346,546                                 |       | 1,284,953                            |       |
| Production in process                  |       | 220,439                                   |       | 149,714                              |       |
| Advances to suppliers                  |       | 416,487                                   |       | 194,297                              |       |
| Inventory in transit                   |       | 466,700                                   |       | 167,405                              |       |
| Raw material loans (1)                 |       | 402,048                                   |       | —                               |       |
|                                   |       | Ps.                                       | 13,383,990 |                                 | Ps.        | 10,700,831 |   |

 

----

(1)         It is the total amount pending to recover as of December 31, 2012, due to physical loans of grains to government companies in Venezuela, which is expected to recover during 2013.

 

For the years ended December 31, 2012, 2011 and 2010, the cost of raw materials consumed and the changes in the inventories of production in process and finished goods, recognized as cost of sales amounted to Ps.31,479,110, Ps.34,374,608 and Ps.26,697,273, respectively.

 

For the years ended December 31, 2012, 2011 and 2010, the Company recognized Ps.97,464, Ps.76,086 and Ps.62,964, respectively, for inventory that was damaged, slow-moving and obsolete.

 

**11. LONG-TERM NOTES AND ACCOUNTS RECEIVABLE**

 

Long-term notes and accounts receivable are as follows:

 
| ** **                                                  | ** ** | **At December 31,********2012** | ** ** | **At December 31,********2011** | ** ** |
|-------------------------------------------------------------|------------|-------------------------------------------|------------|-------------------------------------------|------------|
| Long-term recoverable   asset tax                           |       | Ps.                                       | —     |                                      | Ps.        | 209,940 |   |
| Long-term notes receivable   from sale of tortilla machines |       | 199,925                                   |       | 189,044                                   |       |
| Prepaid rent deposits.                                      |       | 98,792                                    |       | 111,396                                   |       |
| Guarantee deposits                                          |       | 29,324                                    |       | 38,827                                    |       |
| Long-term recoverable   value-added tax                     |       | 6,716                                     |       | 35,019                                    |       |
| Other                                                       |       | 12,187                                    |       | 42,648                                    |       |
|                                                        |       | Ps.                                       | 346,944    |                                      | Ps.        | 626,874 |   |

 

F-41

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Table of Contents

 

**GRUMA, S.A.B. DE C.V. AND SUBSIDIARIES**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**AS OF DECEMBER 31, 2012 AND 2011**

**(In thousands of Mexican pesos, except where otherwise indicated)**

 

At December 31, 2012 and 2011 long-term notes receivable are denominated in pesos, maturing from 2014 to 2017 and bearing an average interest rate of 16.5% for both years.

 

**12. INVESTMENT IN ASSOCIATES**

 

At December 31, 2012 and 2011, investment in common stock of associated companies consisted of an investment in Valores Azteca and Harinera de Monterrey, S.A. de C.V., which produces wheat flour and related products in Mexico.

 

At December 31, 2012, Valores Azteca, an associate of GRUMA, has 9.66% of the outstanding shares of the Company. Valores Azteca has assets amounting to Ps.1,094,016, no liabilities as of December 31, 2012 and for the year ended December 31, 2012, has no revenues and reported a net profit of Ps.107,963. Valores Azteca does not perform any operation or activity besides owning the shares of GRUMA. Derived from the multiple transactions completed on December 14, 2012, see Note 3, the Company acquired 45% of the outstanding shares of Valores Azteca.

 

During January 2011, the Company decided to sell its 8.7966% interest in the capital stock of Grupo Financiero Banorte, S.A.B. de C.V. (GFNorte). On February 15, 2011, the sale of 177,546,496 shares of the capital stock of GFNorte was concluded, resulting in cash proceeds of Ps.9,232,418, before fees and expenses. The accounting result was a profit before taxes of approximately Ps.4,707,804 net of fees and expenses. The sale was authorized by the Mexican Banking Securities and Exchange Commission (CNBV) and was carried out through a secondary public offering in Mexico and a private offering in the United States and other foreign markets, for a simultaneous global offering.

 

Until the date of GFNorte’s sale, the Company had significant influence over this associate due to its representation on the Board of Directors of GFNorte through the Company’s principal shareholder.

 

Investment in associates is comprised of the following:

 
| ** **                          | ** ** | **At********December 31, 2012** | ** ** | **At********December 31, 2011** | ** ** |
|-------------------------------------|------------|-------------------------------------------|------------|-------------------------------------------|------------|
|                                |       |                                      |       |                                      |       |
| Valores Azteca, S.A. de C.V.        |       | Ps.                                       | 1,009,863  |                                      | Ps.        | — |   |
| Harinera de Monterrey, S.A. de C.V. |       | 146,388                                   |       | 143,700                                   |       |
|                                |       | Ps.                                       | 1,156,251  |                                      | Ps.        | 143,700 |   |

 

The percentage of interest held in associates is:

 
| ** **                          | ** ** | **At********December 31, 2012** | ** ** | **At********December 31, 2011** | ** ** |
|-------------------------------------|------------|-------------------------------------------|------------|-------------------------------------------|------------|
|                                |       |                                      |       |                                      |       |
| Valores Azteca, S.A. de C.V.        |       | 45                                        | %          | —                                    |       |
| Harinera de Monterrey, S.A. de C.V. |       | 40                                        | %          | 40                                        | %          |

 

F-42

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Table of Contents

** **

**GRUMA, S.A.B. DE C.V. AND SUBSIDIARIES**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**AS OF DECEMBER 31, 2012 AND 2011**

**(In thousands of Mexican pesos, except where otherwise indicated)**

 

**13. PROPERTY, PLANT AND EQUIPMENT**

 

Changes in property, plant and equipment for the years ended December 31, 2012 and 2011 were as follows:

 
| ** **                                      | ** ** | **Land and   buildings** | ** ** | **Machinery   and   equipment** | ** ** | **Leasehold   improvements** | ** ** | **Construction   in progress** | ** ** | **Total**   | ** ** |
|-------------------------------------------------|------------|-------------------------------|------------|---------------------------------|------------|------------------------------|------------|-------------------------------------|------------|-------------|------------|
| **At   January 1, 2011**                   |       |                          |       |                            |       |                         |       |                                |       |        |       |
| Cost                                            |       | Ps.                           | 7,876,090  |                            | Ps.        | 24,962,403                   |       | Ps.                                 | 943,548    |        | Ps.        | 480,133 |   | Ps. | 34,262,174 |   |
| Accumulated   depreciation                      |       | (2,405,289                    | )          | (13,493,470                     | )          | (433,242                     | )          | —                              |       | (16,332,001 | )          |
| Net   book value                                |       | Ps.                           | 5,470,801  |                            | Ps.        | 11,468,933                   |       | Ps.                                 | 510,306    |        | Ps.        | 480,133 |   | Ps. | 17,930,173 |   |
|                                            |       |                          |       |                            |       |                         |       |                                |       |        |       |
| **For the   year ended December 31, 2011** |       |                          |       |                            |       |                         |       |                                |       |        |       |
| Opening net book value                          |       | Ps.                           | 5,470,801  |                            | Ps.        | 11,468,933                   |       | Ps.                                 | 510,306    |        | Ps.        | 480,133 |   | Ps. | 17,930,173 |   |
| Exchange differences                            |       | 610,538                       |       | 1,486,807                       |       | 74,047                       |       | 93,434                              |       | 2,264,826   |       |
| Additions                                       |       | 148,380                       |       | 636,835                         |       | 12,730                       |       | 880,359                             |       | 1,678,304   |       |
| Disposals                                       |       | (8,607                        | )          | (90,945                         | )          | (175                         | )          | (22,531                             | )          | (122,258    | )          |
| Depreciation charge                             |       | (198,856                      | )          | (1,217,848                      | )          | (71,244                      | )          | —                              |       | (1,487,948  | )          |
| Transfers (1)                                   |       | 63,064                        |       | 610,568                         |       | 48,011                       |       | (721,643                            | )          | —      |       |
| Acquisitions through   business combinations    |       | 82,928                        |       | 169,663                         |       | —                       |       | 592                                 |       | 253,183     |       |
| Impairment                                      |       | (647                          | )          | —                          |       | —                       |       | —                              |       | (647        | )          |
| Closing net book value                          |       | Ps.                           | 6,167,601  |                            | Ps.        | 13,064,013                   |       | Ps.                                 | 573,675    |        | Ps.        | 710,344 |   | Ps. | 20,515,633 |   |
|                                            |       |                          |       |                            |       |                         |       |                                |       |        |       |
| **At   December 31, 2011**                 |       |                          |       |                            |       |                         |       |                                |       |        |       |
| Cost                                            |       | Ps.                           | 8,914,511  |                            | Ps.        | 28,427,554                   |       | Ps.                                 | 1,043,612  |        | Ps.        | 710,344 |   | Ps. | 39,096,021 |   |
| Accumulated depreciation                        |       | (2,746,910                    | )          | (15,363,541                     | )          | (469,937                     | )          | —                              |       | (18,580,388 | )          |
| Net book value                                  |       | Ps.                           | 6,167,601  |                            | Ps.        | 13,064,013                   |       | Ps.                                 | 573,675    |        | Ps.        | 710,344 |   | Ps. | 20,515,633 |   |
|                                            |       |                          |       |                            |       |                         |       |                                |       |        |       |
| **For the   year ended December 31, 2012** |       |                          |       |                            |       |                         |       |                                |       |        |       |
| Opening net book value                          |       | Ps.                           | 6,167,601  |                            | Ps.        | 13,064,013                   |       | Ps.                                 | 573,675    |        | Ps.        | 710,344 |   | Ps. | 20,515,633 |   |
| Exchange differences                            |       | (70,181                       | )          | (301,221                        | )          | (32,672                      | )          | (91,446                             | )          | (495,520    | )          |
| Additions                                       |       | 85,874                        |       | 815,259                         |       | 43,036                       |       | 1,840,418                           |       | 2,7849,587  |       |
| Disposals                                       |       | (1,488                        | )          | (244,407                        | )          | (16,679                      | )          | (980                                | )          | (263,554    | )          |
| Depreciation charge                             |       | (205,843                      | )          | (1,327,101                      | )          | (86,654                      | )          | —                              |       | (1,619,598  | )          |
| Transfers (1)                                   |       | 8,884                         |       | 902,720                         |       | 143,666                      |       | (1,055,270                          | )          | —      |       |
| Impairment                                      |       | —                        |       | (4,014                          | )          | —                       |       | —                              |       | (4,014      | )          |
| Closing net book value                          |       | Ps.                           | 5,984,847  |                            | Ps.        | 12,905,249                   |       | Ps.                                 | 624,372    |        | Ps.        | 1,403,066 |   | Ps. | 20,917,534 |   |
|                                            |       |                          |       |                            |       |                         |       |                                |       |        |       |
| **At   December 31, 2012**                 |       |                          |       |                            |       |                         |       |                                |       |        |       |
| Cost                                            |       | Ps.                           | 8,908,549  |                            | Ps.        | 28,915,146                   |       | Ps.                                 | 1,152,567  |        | Ps.        | 1,403,066 |   | Ps. | 40,379,328 |   |
| Accumulated depreciation                        |       | (2,923,702                    | )          | (16,009,897                     | )          | (528,195                     | )          | —                              |       | (19,461,794 | )          |
| Net book value                                  |       | Ps.                           | 5,984,847  |                            | Ps.        | 12,905,249                   |       | Ps.                                 | 624,372    |        | Ps.        | 1,403,066 |   | Ps. | 20,917,534 |   |

 

----

(1)                   Transfers correspond to capitalizations of construction in progress.

 

F-43

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Table of Contents

 

**GRUMA, S.A.B. DE C.V. AND SUBSIDIARIES**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**AS OF DECEMBER 31, 2012 AND 2011**

**(In thousands of Mexican pesos, except where otherwise indicated)**

 

For the years ended December 31, 2012, 2011 and 2010, depreciation expense was recognized as follows:

 
| ** **                            | ** ** | **2012**   | ** ** | **2011**   | ** ** | **2010**   | ** ** |
|---------------------------------------|------------|------------|------------|------------|------------|------------|------------|
| ** **                            | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Cost   of sales                       |       | Ps.        | 1,282,831  |       | Ps.        | 1,195,318  |       | Ps. | 1,146,514 |   |
| Selling   and administrative expenses |       | 336,767    |       | 292,630    |       | 266,370    |       |
|                                  |       | Ps.        | 1,619,598  |       | Ps.        | 1,487,948  |       | Ps. | 1,412,884 |   |

 

At December 31, 2012 and 2011, property, plant and equipment included idle assets with a carrying value of approximately Ps.842,992 and Ps.1,072,382, respectively, resulting from the temporary shut-down of the productive operations of various plants in Mexico, the United States and Venezuela, mainly in the corn flour division in Mexico and packaged tortilla division in the United States.

 

For the years ended December 31, 2012 and 2011, the Company recognized impairment losses on fixed assets by Ps.4,014 and Ps.647, respectively, within “Other expenses”.

 

The impairment loss in 2012 amounting to Ps.4,014 referred to Gruma Seaham, Ltd, which is part of the segment “Corn flour and packaged tortilla division (United States and Europe)”. This impairment loss reflects a decrease in the recoverable value of fixed assets of this CGU due to its continued operating losses.

 

The Company recognized equipment under finance lease arrangements that are described in Note 26-B.

 

F-44

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Table of Contents

 

**GRUMA, S.A.B. DE C.V. AND SUBSIDIARIES**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**AS OF DECEMBER 31, 2012 AND 2011**

**(In thousands of Mexican pesos, except where otherwise indicated)**

 

**14. INTANGIBLE ASSETS**

 

Changes in intangible assets for the years ended December 31, 2012 and 2011 were as follows:

 
| ** **                                      | ** ** | **Intangible assets acquired** | ** ** | **Internally**                        | ** ** | ** **                            | ** ** |
|-------------------------------------------------|------------|------------------------------------------|------------|---------------------------------------|------------|---------------------------------------|------------|
| ** **                                      | ** ** | **Goodwill**                             | ** ** | **Covenants   not to   compete** | ** ** | **Patents   and trade-   marks** | ** ** | **Customer   lists** | ** ** | **Software   for   internal   use** | ** ** | **generated   intangible   assets and   others** | ** ** | **Total** | ** ** |
| **At January 1, 2011**                     |       |                                     |       |                                  |       |                                  |       |   |   |   |   |   |   |   |   |
| Cost                                            |       | Ps.                                      | 2,148,699  |                                  | Ps.        | 461,126                               |       | Ps. | 107,471 |   | Ps. | 93,719 |   | Ps. | 563,328 |   | Ps. | 67,606 |   | Ps. | 3,441,949 |   |
| Accumulated amortization                        |       | —                                   |       | (329,155                              | )          | (66,211                               | )          | (49,137 | ) | (534,020 | ) | (56,989 | ) | (1,035,512 | ) |
| Net book value                                  |       | Ps.                                      | 2,148,699  |                                  | Ps.        | 131,971                               |       | Ps. | 41,260 |   | Ps. | 44,582 |   | Ps. | 29,308 |   | Ps. | 10,617 |   | Ps. | 2,406,437 |   |
|                                            |       |                                     |       |                                  |       |                                  |       |   |   |   |   |   |   |   |   |
| **For the year ended   December 31, 2011** |       |                                     |       |                                  |       |                                  |       |   |   |   |   |   |   |   |   |
| Opening net book value                          |       | Ps.                                      | 2,148,699  |                                  | Ps.        | 131,971                               |       | Ps. | 41,260 |   | Ps. | 44,582 |   | Ps. | 29,308 |   | Ps. | 10,617 |   | Ps. | 2,406,437 |   |
| Exchange differences                            |       | 214,138                                  |       | 2,587                                 |       | 8,710                                 |       | 12,652 |   | 6,829 |   | 13,457 |   | 258,373 |   |
| Additions                                       |       | —                                   |       | —                                |       | 18                                    |       | — |   | 3,841 |   | 18,865 |   | 22,724 |   |
| Disposals                                       |       | —                                   |       | —                                |       | —                                |       | — |   | 73 |   | (14,607 | ) | (14,534 | ) |
| Amortization                                    |       | —                                   |       | (24,905                               | )          | (8,738                                | )          | (8,719 | ) | (6,715 | ) | (7,889 | ) | (56,966 | ) |
| Additions through business   combinations       |       | 344,643                                  |       | 16,156                                |       | 22,458                                |       | 46,562 |   | 292 |   | 1,107 |   | 431,218 |   |
| Impairment                                      |       | (92,893                                  | )          | —                                |       | —                                |       | — |   | — |   | — |   | (92,893 | ) |
| Closing net book value                          |       | Ps.                                      | 2,614,587  |                                  | Ps.        | 125,809                               |       | Ps. | 63,708 |   | Ps. | 95,077 |   | Ps. | 33,628 |   | Ps. | 21,550 |   | Ps. | 2,954,359 |   |
|                                            |       |                                     |       |                                  |       |                                  |       |   |   |   |   |   |   |   |   |
| **At December 31, 2011**                   |       |                                     |       |                                  |       |                                  |       |   |   |   |   |   |   |   |   |
| Cost                                            |       | Ps.                                      | 2,614,587  |                                  | Ps.        | 480,098                               |       | Ps. | 147,577 |   | Ps. | 158,516 |   | Ps. | 640,799 |   | Ps. | 77,166 |   | Ps. | 4,118,743 |   |
| Accumulated amortization                        |       | —                                   |       | (354,289                              | )          | (83,869                               | )          | (63,439 | ) | (607,171 | ) | (55,616 | ) | (1,164,384 | ) |
| Net book value                                  |       | Ps.                                      | 2,614,587  |                                  | Ps.        | 125,809                               |       | Ps. | 63,708 |   | Ps. | 95,077 |   | Ps. | 33,628 |   | Ps. | 21,550 |   | Ps. | 2,954,359 |   |
|                                            |       |                                     |       |                                  |       |                                  |       |   |   |   |   |   |   |   |   |
| **For the year ended   December 31, 2012** |       |                                     |       |                                  |       |                                  |       |   |   |   |   |   |   |   |   |
| Opening net book value                          |       | Ps.                                      | 2,614,587  |                                  | Ps.        | 125,809                               |       | Ps. | 63,708 |   | Ps. | 95,077 |   | Ps. | 33,628 |   | Ps. | 21,550 |   | Ps. | 2,954,359 |   |
| Exchange differences                            |       | (118,552                                 | )          | (1,071                                | )          | (4,122                                | )          | 1,170 |   | 3,034 |   | (3,241 | ) | (122,782 | ) |
| Additions                                       |       | 9,804                                    |       | —                                |       | 23                                    |       | — |   | 4,400 |   | 2,938 |   | 17,165 |   |
| Disposals                                       |       | —                                   |       | —                                |       | —                                |       | — |   | (496 | ) | (6,091 | ) | (6,587 | ) |
| Amortization                                    |       | —                                   |       | (31,979                               | )          | (10,554                               | )          | (12,211 | ) | (5,022 | ) | (6,945 | ) | (66,711 | ) |
| Closing net book value                          |       | Ps.                                      | 2,505,839  |                                  | Ps.        | 92,759                                |       | Ps. | 49,055 |   | Ps. | 84,036 |   | Ps. | 35,544 |   | Ps. | 8,211 |   | Ps. | 2,775,444 |   |
|                                            |       |                                     |       |                                  |       |                                  |       |   |   |   |   |   |   |   |   |
| **At December 31, 2012**                   |       |                                     |       |                                  |       |                                  |       |   |   |   |   |   |   |   |   |
| Cost                                            |       | Ps.                                      | 2,505,839  |                                  | Ps.        | 478,820                               |       | Ps. | 137,370 |   | Ps. | 146,260 |   | Ps. | 667,243 |   | Ps. | 72,134 |   | Ps. | 4,007,666 |   |
| Accumulated amortization                        |       | —                                   |       | (386,061                              | )          | (88,315                               | )          | (62,224 | ) | (631,699 | ) | (63,923 | ) | (1,232,222 | ) |
| Net book value                                  |       | Ps.                                      | 2,505,839  |                                  | Ps.        | 92,759                                |       | Ps. | 49,055 |   | Ps. | 84,036 |   | Ps. | 35,544 |   | Ps. | 8,211 |   | Ps. | 2,775,444 |   |
|                                                 |            |                                          |            |                                       |            |                                       |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

At December 31, 2012 and 2011, except for goodwill, the Company does not have indefinite-lived intangible assets.

 

For the years ended December 31, 2012, 2011 and 2010, amortization expense of intangible assets amounted to Ps.66,711, Ps.56,966 and Ps.54,380, respectively, which were recognized in the income statement as selling and administrative expenses.

 

Research and development costs of Ps.136,826, Ps.91,011 and Ps.76,604 were recognized in the income statement for the years ended December 31, 2012, 2011 and 2010, respectively.

 

F-45

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Table of Contents

 

**GRUMA, S.A.B. DE C.V. AND SUBSIDIARIES**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**AS OF DECEMBER 31, 2012 AND 2011**

**(In thousands of Mexican pesos, except where otherwise indicated)**

 

Goodwill acquired in business combinations is allocated at acquisition date to the cash-generating units (CGU) that are expected to benefit from the synergies of the business combinations. The carrying values of goodwill allocated to the CGU or a group of CGU are as follows:

 
| **Cash-generating unit**                        | ** ** | **At December   31, 2012** | ** ** | **At December   31, 2011** | ** ** |
|------------------------------------------------------|------------|--------------------------------------|------------|--------------------------------------|------------|
| ** **                                           | ** ** | ** **                           | ** ** | ** **                           | ** ** |
| Mission Foods Division (1)                           |       | Ps.                                  | 798,768    |                                 | Ps.        |  856,474 |   |
| Gruma Seaham Ltd (2)                                 |       | 322,660                              |       | 339,222                              |       |
| Gruma Corporation                                    |       | 212,765                              |       | 212,765                              |       |
| Rositas Investments Pty, Ltd (2)                     |       | 199,062                              |       | 209,709                              |       |
| Semolina, A.S (2)                                    |       | 182,366                              |       | 189,494                              |       |
| Gruma Holding Netherlands   B.V (1)                  |       | 122,451                              |       | 120,877                              |       |
| Agroindustrias Integradas del Norte, S.A. de C.V (3) |       | 115,099                              |       | 115,099                              |       |
| Altera LLC (2)                                       |       | 95,617                               |       | 99,149                               |       |
| Grupo Industrial Maseca, S.A.B. de C.V.              |       | 98,622                               |       | 98,622                               |       |
| NDF Azteca Milling Europe   SRL (2)                  |       | 86,757                               |       | 93,614                               |       |
| Azteca Milling, L.P (1)                              |       | 70,866                               |       | 75,986                               |       |
| Solntse Mexico (2)                                   |       | 69,499                               |       | 72,269                               |       |
| Gruma Centroamérica (2)                         |       | 51,207                               |       | 51,207                               |       |
| Molinos Azteca de Chiapas, S.A. de C.V (3)           |       | 28,158                               |       | 28,158                               |       |
| Harinera de Yucatán, S.A. de C.V (3)            |       | 18,886                               |       | 18,886                               |       |
| Harinera de Maíz de Mexicali, S.A. de C.V (3)   |       | 17,424                               |       | 17,424                               |       |
| Molinos Azteca, S.A. de C.V (3)                      |       | 8,926                                |       | 8,926                                |       |
| Harinera de Maíz de Jalisco, S.A. de C.V (3)    |       | 6,706                                |       | 6,706                                |       |
|                                                 |       | Ps.                                  | 2,505,839  |                                 | Ps.        |  2,614,587 |   |

 

----

(1) Subsidiary of Gruma Corporation

(2) Subsidiary of Gruma International Foods, S.L.

(3) Subsidiary of Grupo Industrial Maseca, S.A.B. de C.V.

 

In 2012 and 2011, the after-tax discount rates and growth rates in perpetuity used by the Company for determining the discounted cash flows of the CGU with the main balances of goodwill are the following:

 
| ** **                                          | ** ** | **Discount rates** | ** ** | **Growth rates** | ** ** |
|-----------------------------------------------------|------------|-------------------------|------------|-----------------------|------------|
| **Cash-generating unit**                       | ** ** | **2012**                | ** ** | **2011**              | ** ** | **2012** | ** ** | **2011** | ** ** |
| Mission Foods Division                              |       | 6.0                     | %          | 8.9                   | %          | 2.5 | % | 2.5 | % |
| Gruma Seaham                                        |       | 7.7                     | %          | 7.0                   | %          | 2.5 | % | 2.5 | % |
| Gruma Corporation                                   |       | 6.0                     | %          | 8.9                   | %          | 2.5 | % | 2.5 | % |
| Rositas Investment PTY, LTD.                        |       | 7.9                     | %          | 7.2                   | %          | 3.0 | % | 3.0 | % |
| Gruma   Holding Netherlands B.V.                    |       | 8.6                     | %          | 7.1                   | %          | 1.85 | % | 1.85 | % |
| Agroindustrias Integradas del Norte, S.A. de   C.V. |       | 7.8                     | %          | 8.4                   | %          | 2.5 | % | 2.5 | % |
| Semolina A.S.                                       |       | 8.5                     | %          | —                |       | 2.5 | % | — |   |

 

With respect to the determination of the CGU’s value in use, the Company’s management considered that a reasonably possible change in the key assumptions used, will not cause that the CGU’s carrying value to materially exceed their value in use.

 

F-46

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Table of Contents

 

**GRUMA, S.A.B. DE C.V. AND SUBSIDIARIES**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**AS OF DECEMBER 31, 2012 AND 2011**

**(In thousands of Mexican pesos, except where otherwise indicated)**

 

For the year ended December 31, 2011, the Company recognized impairment losses on goodwill by Ps.92,893, within “Other expenses”. The impairment loss recognized in 2011 referred to the CGU of Gruma Holding Netherlands B.V. and Gruma Seaham Ltd., which are part of the segment “Corn flour and packaged tortilla division (United States and Europe)”. This impairment loss reflected a decrease in the recoverable value of these CGU due to its continuous operating losses.

 

**15. DEFERRED TAX ASSETS AND LIABILITIES**

 

**A) COMPONENTS OF DEFERRED TAX**

 

The analysis of deferred tax assets and deferred tax liabilities is as follows:

 
| ** **                                  | ** ** | **At December   31, 2012** | ** **      | **At December   31, 2011** | ** ** |
|---------------------------------------------|------------|--------------------------------------|-----------------|--------------------------------------|------------|
| Deferred tax asset:                         |       |                                 |            |                                 |       |
| To be recovered after more   than 12 months |       | Ps.                                  |  (314,866  | )                                    | Ps.        |  (124,760 | ) |
| To be recovered within 12   months          |       | (334,329                             | )               | (189,376                             | )          |
|                                        |       | (649,195                             | )               | (314,136                             | )          |
| Deferred tax liability:                     |       |                                 |            |                                 |       |
| To   be recovered after more than 12 months |       | 4,225,367                            |            | 3,782,501                            |       |
| To   be recovered within 12 months          |       | —                               |            | 55,815                               |       |
|                                        |       | 4,225,367                            |            | 3,838,316                            |       |
| Deferred tax liability,   net               |       | Ps.                                  |  3,576,172 |                                 | Ps.        |  3,524,180 |   |

 

The principal components of deferred tax assets and liabilities are summarized as follows:

 
| ** **                                               | ** ** | **(Asset) Liability**           | ** ** |
|----------------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                               | ** ** | **At December   31, 2012** | ** ** | **At December   31, 2011** | ** ** |
| Net operating loss   carryforwards and other tax credits |       | Ps.                                  | (686,260   | ) | Ps. |  (326,954 | ) |
| Customer advances                                        |       | (3,722                               | )          | (163 | ) |
| Allowance for doubtful   accounts                        |       | (4,637                               | )          | (14,791 | ) |
| Provisions and accrued   liabilities                     |       | (799,140                             | )          | (672,821 | ) |
| Recoverable asset tax                                    |       | —                               |       | (11,023 | ) |
| Other                                                    |       | (102,387                             | )          | (133,411 | ) |
| Deferred tax asset                                       |       | (1,596,146                           | )          | (1,159,163 | ) |
|                                                     |       |                                 |       |   |   |
| Property, plant and   equipment                          |       | 2,075,116                            |       | 2,060,121 |   |
| Prepaid expenses                                         |       | 3,782                                |       | 4,999 |   |
| Inventories                                              |       | 38,458                               |       | 63,104 |   |
| Intangible assets and   others                           |       | 322,962                              |       | 277,414 |   |
| Investment in associates                                 |       | 407,958                              |       | 494,137 |   |
| Derivative   financial instruments                       |       | 125,938                              |       | — |   |
| Other                                                    |       | 8,792                                |       | 86,682 |   |
|                                                     |       | 2,983,006                            |       | 2,986,457 |   |
| Tax consolidation effect                                 |       | 2,189,312                            |       | 1,696,886 |   |
| Deferred tax liability                                   |       | 5,172,318                            |       | 4,683,383 |   |
| Net provision for deferred   taxes                       |       | Ps.                                  | 3,576,172  |   | Ps. |  3,524,180 |   |

 

At December 31, 2012, the Company did not recognize a deferred income tax asset of Ps.3,328,993 for tax loss carryforwards, since sufficient evidence was not available to determine that these tax loss carryforwards will be realizable during their amortization period. These tax losses expire in the year 2022.

 

F-47

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**GRUMA, S.A.B. DE C.V. AND SUBSIDIARIES**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**AS OF DECEMBER 31, 2012 AND 2011**

**(In thousands of Mexican pesos, except where otherwise indicated)**

 

The changes in the temporary differences during the year were as follows:

 
| ** **                                               | ** ** | **Balance at   January 1,   2012** | ** ** | **Recognized   in income** | ** ** | **Recognized   in other   compre-   hensive   income** | ** ** | **Reclassifi-   cations** | ** **   | **Foreign   currency   translation** | ** ** | **Balance at   December 31,   2012** | ** ** |
|----------------------------------------------------------|------------|----------------------------------------------|------------|---------------------------------|------------|-------------------------------------------------------------|------------|---------------------------|--------------|--------------------------------------|------------|------------------------------------------------|------------|
| Net operating loss   carryforwards and other tax credits |       | Ps.                                          | (326,954   | )                               | Ps.        | (371,818                                                    | )          | Ps.                       |  — |                                 | Ps.        |  —                                   |       | Ps. |  12,512 |   | Ps. | (686,260 | ) |
| Customer advances                                        |       | (163                                         | )          | (3,559                          | )          | —                                                      |       | —                    |         | —                               |       | (3,722                                         | )          |
| Allowance for doubtful   accounts                        |       | (14,791                                      | )          | 11,810                          |       | —                                                      |       | (35                       | )            | (1,621                               | )          | (4,637                                         | )          |
| Provisions and accrued   liabilities                     |       | (672,821                                     | )          | 109,869                         |       | (53,504                                                     | )          | —                    |         | (182,684                             | )          | (799,140                                       | )          |
| Recoverable asset tax                                    |       | (11,023                                      | )          | 11,023                          |       | —                                                      |       | —                    |         | —                               |       | —                                         |       |
| Others                                                   |       | (133,411                                     | )          | 25,955                          |       | —                                                      |       | (160                      | )            | 5,229                                |       | (102,387                                       | )          |
| Deferred tax asset                                       |       | (1,159,163                                   | )          | (216,720                        | )          | (53,504                                                     | )          | (195                      | )            | (166,564                             | )          | (1,596,146                                     | )          |
|                                                     |       |                                         |       |                            |       |                                                        |       |                      |         |                                 |       |                                           |       |
| Property, plant and   equipment                          |       | 2,060,121                                    |       | (78,339                         | )          | 25,628                                                      |       | (930                      | )            | 68,636                               |       | 2,075,116                                      |       |
| Prepaid expenses                                         |       | 4,999                                        |       | (1,217                          | )          | —                                                      |       | —                    |         | —                               |       | 3,782                                          |       |
| Inventories                                              |       | 63,104                                       |       | (25,977                         | )          | 1,566                                                       |       | —                    |         | (235                                 | )          | 38,458                                         |       |
| Intangible assets and   others                           |       | 277,414                                      |       | 67,077                          |       | —                                                      |       | 312                       |         | (21,841                              | )          | 322,962                                        |       |
| Investment in associates                                 |       | 494,137                                      |       | 25,097                          |       | —                                                      |       | (77,930                   | )            | (33,346                              | )          | 407,958                                        |       |
| Derivative financial   instruments                       |       | —                                       |       | —                          |       | 125,938                                                     |       | —                    |         | —                               |       | 125,938                                        |       |
| Others                                                   |       | 86,682                                       |       | 54,210                          |       | 14,702                                                      |       | (431                      | )            | (146,371                             | )          | 8,792                                          |       |
|                                                     |       | 2,986,457                                    |       | 40,851                          |       | 167,834                                                     |       | (78,979                   | )            | (133,157                             | )          | 2,983,006                                      |       |
| Tax consolidation effect                                 |       | 1,696,886                                    |       | 492,426                         |       | —                                                      |       | —                    |         | —                               |       | 2,189,312                                      |       |
| Deferred tax liability                                   |       | 4,683,343                                    |       | 533,277                         |       | 167,834                                                     |       | (78,979                   | )            | (133,157                             | )          | 5,172,318                                      |       |
| Net provision for deferred   taxes                       |       | Ps.                                          | 3,524,180  |                            | Ps.        | 316,557                                                     |       | Ps.                       | 114,330      |                                 | Ps.        | (79,174                                        | )          | Ps. | (299,721 | ) | Ps. | 3,576,172 |   |

 
| ** **                                               | ** ** | **Balance at   January 1,   2011** | ** **      | **Recognized   in income** | ** ** | **Recognized   in other   comprehen-   sive income** | ** ** | **Foreign   currency   translation** | ** **    | **Balance at   December 31,   2011** | ** ** |
|----------------------------------------------------------|------------|----------------------------------------------|-----------------|---------------------------------|------------|----------------------------------------------------------------|------------|--------------------------------------|---------------|------------------------------------------------|------------|
| Net operating loss   carryforwards and other tax credits |       | Ps.                                     | (1,644,733      | )                               | Ps.        | 1,342,088                                                      |       | Ps.                                  |  53      |                                           | Ps.        |  (24,362 | ) | Ps. |  (326,954 | ) |
| Customer advances                                        |       | (154                                         | )               | (125                            | )          | —                                                         |       | 116                                  |          | (163                                           | )          |
| Allowance for doubtful   accounts                        |       | (15,360                                      | )               | 1,260                           |       | (1                                                             | )          | (690                                 | )             | (14,791                                        | )          |
| Provisions and accrued   liabilities                     |       | (541,729                                     | )               | (59,614                         | )          | (11,724                                                        | )          | (59,754                              | )             | (672,821                                       | )          |
| Recoverable asset tax                                    |       | (15,417                                      | )               | 4,394                           |       | —                                                         |       | —                               |          | (11,023                                        | )          |
| Others                                                   |       | (98,186                                      | )               | (30,973                         | )          | —                                                         |       | (4,252                               | )             | (133,411                                       | )          |
| Deferred tax asset                                       |       | (2,315,579                                   | )               | 1,257,030                       |       | (11,672                                                        | )          | (88,942                              | )             | (1,159,163                                     | )          |
|                                                     |       |                                         |            |                            |       |                                                           |       |                                 |          |                                           |       |
| Property, plant and   equipment                          |       | 1,959,515                                    |            | (8,368                          | )          | 297                                                            |       | 108,677                              |          | 2,060,121                                      |       |
| Prepaid expenses                                         |       | 39,895                                       |            | (37,779                         | )          | —                                                         |       | 2,883                                |          | 4,999                                          |       |
| Inventories                                              |       | 88,905                                       |            | (28,839                         | )          | —                                                         |       | 3,038                                |          | 63,104                                         |       |
| Intangible assets and   others                           |       | 194,118                                      |            | 44,885                          |       | —                                                         |       | 38,411                               |          | 277,414                                        |       |
| Investment in associates                                 |       | 1,054,891                                    |            | (620,090                        | )          | —                                                         |       | 59,336                               |          | 494,137                                        |       |
| Others                                                   |       | 1,292                                        |            | 32,573                          |       | (8,933                                                         | )          | 61,750                               |          | 86,682                                         |       |
|                                                     |       | 3,338,616                                    |            | (617,618                        | )          | (8,636                                                         | )          | 274,095                              |          | 2,986,457                                      |       |
| Tax consolidation effect                                 |       | 1,534,650                                    |            | 162,914                         |       | (678                                                           | )          | —                               |          | 1,696,886                                      |       |
| Deferred tax liability                                   |       | 4,873,266                                    |            | (454,704                        | )          | (9,314                                                         | )          | 274,095                              |          | 4,683,343                                      |       |
| Net provision for deferred   taxes                       |       | Ps.                                          |  2,557,686 |                            | Ps.        |  802,327                                                  |       | Ps.                                  |  (20,986 | )                                              | Ps.        |  185,153 |   | Ps. |  3,524,180 |   |

 

F-48

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Table of Contents

 

**GRUMA, S.A.B. DE C.V. AND SUBSIDIARIES**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**AS OF DECEMBER 31, 2012 AND 2011**

**(In thousands of Mexican pesos, except where otherwise indicated)**

 

**B) TAX LOSS CARRYFORWARDS**

 

At December 31, 2012, the Company had tax loss carryforwards which amounted to approximately Ps.12,190,892. Based on projections prepared by the Company’s management of expected future taxable income, it has been determined that only tax losses for an amount of Ps.211,960 will be used. Therefore, the Company did not recognize a deferred tax asset for the difference. Tax losses that will be used have the following expiration dates:

 
| **Year**     | ** ** | **Amount** | ** **    |
|--------------|------------|------------|---------------|
| 2013         |       | Ps.        |  8,507   |   |
| 2014         |       | 5,432      |          |
| 2015         |       | 4,389      |          |
| 2016         |       | 4,646      |          |
| 2017 to 2022 |       | 188,986    |          |
| Total        |       | Ps.        |  211,960 |   |

 

**C) UNCERTAIN TAX POSITIONS**

 

At December 31, 2012 and 2011, the Company recognized a liability for uncertain tax positions of Ps.38,688 and Ps.41,264, respectively, excluding interest and penalties, and it is included in Other non-current liabilities. The following table presents a reconciliation of the Company’s uncertain tax positions, excluding interest and penalties:

 
| ** **                                                        | ** ** | **2012** | ** **   | **2011** | ** ** |
|-------------------------------------------------------------------|------------|----------|--------------|----------|------------|
| Uncertain tax positions at   beginning of year                    |       | Ps.      |  42,816 |     | Ps.        |  40,511 |   |
| Translation adjustment of   the initial balance                   |       | (1,552   | )            | (4,646   | )          |
| Increase as result of   uncertain tax positions taken in the year |       | 5,217    |         | 9,347    |       |
| Settlements                                                       |       | —   |         | (851     | )          |
| Reductions due to a lapse   of the statute of limitations         |       | (7,793   | )            | (3,097   | )          |
| Uncertain tax positions at   end of year                          |       | Ps.      |  38,688 |     | Ps.        |  41,264 |   |

 

It is expected that the amount of uncertain tax positions will change in the next 12 months; however, the Company does not expect the change to have a significant impact on its consolidated financial position or results of operations. The Company had accrued interest and penalties of approximately Ps.3,305 and Ps.3,572 related to uncertain tax positions for fiscal 2012 and 2011, respectively.

 

**D) TAX EFFECTS FROM OTHER COMPREHENSIVE INCOME**

 

Deferred taxes related to other comprehensive income are comprised of:

 
| ** **                                 | ** ** | **At December   31, 2012** | ** ** | **At December   31, 2011** | ** ** | **At December   31, 2010** | ** ** |
|--------------------------------------------|------------|--------------------------------------|------------|--------------------------------------|------------|--------------------------------------|------------|
| Foreign currency   translation adjustments |       | Ps.                                  |  (825 | )                                    | Ps.        | (8,583                               | )          | Ps. |  (24,724 | ) |
| Actuarial gains and losses                 |       | (10,783                              | )          | (11,725                              | )          | —                               |       |
| Cash flow hedges                           |       | 125,938                              |       | —                               |       | —                               |       |
| Other movements                            |       | —                               |       | (678                                 | )          | (781                                 | )          |
| Total                                      |       | Ps.                                  | 114,330    |                                 | Ps.        | (20,986                              | )          | Ps. | (25,505 | ) |
|                                            |            |                                      |            |                                      |            |                                      |            |  |  |  |  |  |

 

F-49

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Table of Contents

 

**GRUMA, S.A.B. DE C.V. AND SUBSIDIARIES**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**AS OF DECEMBER 31, 2012 AND 2011**

**(In thousands of Mexican pesos, except where otherwise indicated)**

 

**E) TAX CONSOLIDATION**

 

Gruma, S.A.B. de C.V. is authorized to determine income tax under the tax consolidation regime, together with its subsidiaries in Mexico, according to the authorization of Ministry of Finance and Public Credit on July 14, 1986, under what is stated in the applicable Law.

 

In 2012, the Company determined a consolidated tax profit of Ps.1,575,575. As of December 31, 2012, the Company did not have consolidated tax loss carryforwards. The consolidated tax result differs from the accounting result, mainly in such items taxed and deducted during different timing for accounting and tax purposes, from the recognition of the inflation effects for tax purposes, as well as such items only affecting either the consolidated accounting or taxable income.

 

Certain Income Tax Law provisions which were reformed, added or derogated for 2010 were published on December 7, 2009, including the following:

 

·            The income tax rate applicable from 2010 to 2012 will be 30%, for 2013 it will be 29% and as of 2014 it will be 28%. At December 31, 2009, the previously described rate change produced a reduction in the income tax deferred balance of Ps.58,228, with its corresponding effect in the income statement for the year, which was determined based on an expectation of temporary reversion to the effective rates.

 

·            Eliminated the possibility of using credits for the excess of deductions on taxable income for Flat tax purposes (credit of tax loss of flat tax) in order to reduce the income tax to be paid while could be credited against the flat tax base.

 

·            The tax consolidation regime was modified in order to establish that the income tax payment related to the tax consolidation benefits obtained as of 1999 should be partially paid during the sixth to tenth years subsequent to the date when those benefits were embraced.

 

The tax consolidation benefits previously mentioned come from:

 

i)                 Tax losses embraced in the tax consolidation which were not amortized individually by the entity which produced them;

 

ii)              special consolidation items derived from transactions held between the consolidating partnerships and producing benefits;

 

iii)           loss on disposal of shares individually outstanding of deduction by the holding which produced them; and

 

iv)          dividends distributed by the holding and which do not come from the net tax profit account (CUFIN) balance and reinvested CUFIN.

 

·            It is stated that the existing differences between the consolidated CUFIN and reinvested CUFIN balances and the balances of these same accounts of the controlled entities by the Company can produce profits resulting in income tax.

 

F-50

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Table of Contents

 

**GRUMA, S.A.B. DE C.V. AND SUBSIDIARIES**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**AS OF DECEMBER 31, 2012 AND 2011**

**(In thousands of Mexican pesos, except where otherwise indicated)**

 

At December 31, 2012, the liability arising from the aforementioned changes in the Income Tax Law amounted to Ps.2,248,365 and is estimated to be incurred as follows:

 
| ** **                                                                          | ** ** | **Year of payment** | ** ** |
|-------------------------------------------------------------------------------------|------------|-------------------------------|------------|
| ** **                                                                          | ** ** | **2013**                      | ** ** | **2014** | ** ** | **2015** | ** ** | **2016** | ** ** | **2017 and   thereafter** | ** ** | **Total** | ** ** |
| Tax losses                                                                          |       | Ps.                           | 58,339     |   | Ps. | 146,748 |   | Ps. | 205,277 |   | Ps. | 286,098 |   | Ps. | 1,550,475 |   | Ps. | 2,246,973 |   |
| Special consolidation   items                                                       |       | 206                           |       | 206 |   | — |   | — |   | — |   | 412 |   |
| Dividends distributed by   the subsidiaries not paid from CUFIN or reinvested CUFIN |       | 508                           |       | 508 |   | — |   | — |   | — |   | 1,016 |   |
| Total                                                                               |       | Ps.                           | 59,053     |   | Ps. | 147,462 |   | Ps. | 205,277 |   | Ps. | 286,098 |   | Ps. | 1,550,475 |   | Ps. | 2,248,365 |   |

 

The Company, through time, has been recognizing a tax liability compensated with income tax from tax loss carryforwards. At December 31, 2012, income tax payable with defined payment dates was classified in the statement of financial position as short and long-term income tax payable for Ps.59,053 and Ps.102,088, respectively. In addition, the remaining liability, for which a settlement date has not yet determined in accordance with the requirements of the Income Tax Law, was included as a component of the deferred income taxes.

 

**16. DEBT**

 

Debt is summarized as follows:

 

Short-term:

 
| ** **                                     | ** ** | **At December 31,   2012** | ** ** | **At December 31,   2011** | ** ** |
|------------------------------------------------|------------|--------------------------------------|------------|--------------------------------------|------------|
| Bank loans                                     |       | Ps.                                  | 7,929,276  |                                 | Ps.        | 1,577,873 |   |
| Current portion of long-term bank loans        |       | 69,414                               |       | 43,572                               |       |
| Current portion of financing lease liabilities |       | 20,073                               |       | 11,762                               |       |
|                                           |       | Ps.                                  | 8,018,763  |                                 | Ps.        | 1,633,207 |   |

 

Long-term:

 
| ** **                                     | ** ** | **At December 31,   2012** | ** ** | **At December 31,   2011** | ** ** |
|------------------------------------------------|------------|--------------------------------------|------------|--------------------------------------|------------|
| Bank loans                                     |       | Ps.                                  | 8,207,700  |                                 | Ps.        | 7,533,828 |   |
| Perpetual notes                                |       | 3,695,579                            |       | 3,960,333                            |       |
| Financing lease liabilities                    |       | 38,916                               |       | 33,283                               |       |
|                                           |       | Ps.                                  | 11,942,195 |                                 | Ps.        | 11,527,444 |   |
| Current portion of long-term bank loans        |       | (69,414                              | )          | (43,572                              | )          |
| Current portion of financing lease liabilities |       | (20,073                              | )          | (11,762                              | )          |
|                                           |       | Ps.                                  | 11,852,708 |                                 | Ps.        | 11,472,110 |   |

 

F-51

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Table of Contents

 

**GRUMA, S.A.B. DE C.V. AND SUBSIDIARIES**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**AS OF DECEMBER 31, 2012 AND 2011**

**(In thousands of Mexican pesos, except where otherwise indicated)**

 

The terms, conditions and carrying values of debt are as follows:

 
| ** **                | ** ** | **Currency** | ** ** | **Interest********rate** | ** ** | **Maturity   date** | ** ** | **At December   31, 2012** | ** ** | **At December   31, 2011** | ** ** |
|---------------------------|------------|--------------|------------|--------------------------|------------|---------------------|------------|--------------------------------------|------------|--------------------------------------|------------|
| Perpetual notes           |       | USD          |       | 7.75%                    |       | (a)                 |       | Ps.                                  | 3,695,579  |                                 | Ps.        | 3,960,333 |   |
| Revolving credit          |       | USD          |       | LIBOR + 1.375%           |       | 2016                |       | 2,119,580                            |       | 1,858,098                            |       |
| Revolving credits         |       | USD          |       | LIBOR + 1.75%            |       | 2016                |       | 1,626,264                            |       | 1,046,250                            |       |
| Syndicated loan           |       | Pesos        |       | TIIE + 1.5%              |       | 2015-2018           |       | 1,193,080                            |       | 1,189,919                            |       |
| Credit                    |       | USD          |       | LIBOR + 1.75%            |       | 2014-2016           |       | 1,936,138                            |       | 2,071,783                            |       |
| Credit                    |       | USD          |       | LIBOR + 1.75%            |       | 2016                |       | 642,887                              |       | 693,296                              |       |
| Credit                    |       | USD          |       | 2.87% - 7.5%             |       | 2013                |       | 791,012                              |       | 773,142                              |       |
| Credit                    |       | Pesos        |       | 7.41% - 8.14%            |       | 2016                |       | 84,794                               |       | 70,301                               |       |
| Credit                    |       | Bolivars     |       | 8.0% and 13.0%           |       | 2010-2012           |       | —                               |       | 279,813                              |       |
| Credit                    |       | Euros        |       | 1.8% - 2.2%              |       | 2013                |       | 32,327                               |       | 50,617                               |       |
| Credit                    |       | USD          |       | LIBOR + 2%               |       | 2013                |       | 6,895                                |       | 7,394                                |       |
| Credit                    |       | USD          |       | 4.8%                     |       | 2013                |       | 9,273                                |       | —                               |       |
| Credit                    |       | Liras        |       | 10.65%                   |       | 2013                |       | 133,925                              |       | —                               |       |
| Credit                    |       | Pesos        |       | TIIE + 1.5%              |       | 2015-2018           |       | 598,062                              |       | 596,786                              |       |
| Credits                   |       | USD          |       | LIBOR + 3%               |       | 2013                |       | 3,997,068                            |       | —                               |       |
| Credit                    |       | USD          |       | LIBOR + 3%               |       | 2013                |       | 1,292,671                            |       | —                               |       |
| Credits                   |       | Pesos        |       | 6.16% - 7.65%            |       | 2013                |       | 1,673,000                            |       | —                               |       |
| Credits                   |       | USD          |       | LIBOR + 2%               |       | 2012                |       | —                               |       | 474,302                              |       |
| Financing lease liability |       | Euros        |       | 3.99%                    |       | 2013-2017           |       | 17,977                               |       | —                               |       |
| Financing lease liability |       | Pesos        |       | 13.02%                   |       | 2013-2014           |       | 20,939                               |       | 33,283                               |       |
| Total                     |       |         |       |                     |       |                |       | Ps.                                  | 19,871,471 |                                 | Ps.        | 13,105,317 |   |
|                           |            |              |            |                          |            |                     |            |                                      |            |                                      |            |  |  |  |  |

 

----

(a)  Redeemable starting 2009 at the Company’s option.

 

At December 31, 2012 and 2011, short-term debt bore interest at an average rate of 4.12% and 4.34%, respectively. At December 31, 2012, 2011 and 2010, interest expense included interest related to debt amounting Ps.824,318, Ps.965,128 and Ps.1,391,631, respectively.

 

At December 31, 2012, the annual maturities of long-term debt outstanding were as follows:

 
| **Year**            | ** ** | **Amount** | ** ** |
|---------------------|------------|------------|------------|
| 2014                |       | Ps.        | 351,896    |   |
| 2015                |       | 422,795    |       |
| 2016                |       | 5,858,444  |       |
| 2017                |       | 812,849    |       |
| 2018 and thereafter |       | 4,406,724  |       |
| Total               |       | Ps.        | 11,852,708 |   |

 

F-52

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Table of Contents

 

**GRUMA, S.A.B. DE C.V. AND SUBSIDIARIES**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**AS OF DECEMBER 31, 2012 AND 2011**

**(In thousands of Mexican pesos, except where otherwise indicated)**

 

To carry out the transaction of the Equity Interests, as mentioned in Note 3 “Acquisition of non-controlling interest of Archer-Daniels-Midland in Gruma and certain subsidiaries”, GRUMA obtained bridge loan facilities with maturity dates of up to a year for a total amount of Ps.5,103,360 (U.S.$400 million), lent by Goldman Sachs Bank USA, Banco Santander and Banco Inbursa (the “Short-Term Loan Facilities”), and used Ps.637,920 (U.S.$50 million) of Gruma Corporation’s revolving syndicated long term credit facility with Bank of America, which matures in 2016. For the execution of the Short-Term Loan Facilities, GRUMA’s permitted leverage ratios established under the loan facilities were increased to allow GRUMA to increase its leverage as a result of the obtainment of the Short-Term Loan Facilities.

 

The Company has credit line agreements for Ps.5,529 million (U.S.$425 million), from which Ps.1,123 million (U.S.$86.3 million) are available as of December 31, 2012. These credit line agreements require a quarterly payment of a commitment fee ranging from 0.2% to 1.2% over the unused amounts.

 

The outstanding credit agreements contain covenants mainly related to compliance with certain financial ratios and delivery of financial information, which, if not complied with during the period, as determined by creditors, may be considered a cause for early maturity of the debt.

 

Financial ratios are calculated according to formulas established in the credit agreements. The main financial ratios contained in the credit agreements are the following:

 

·            Interest coverage ratio, defined as the ratio of consolidated earnings before interest, tax, depreciation and amortization (EBITDA) to consolidated interest charges, should not be less than 2.50 to 1.00.

 

·            Leverage ratio, defined as the ratio of total consolidated indebtedness (as described in the credit agreements) to consolidated EBITDA, should be as follows:

 
| **Period**                                              | ** ** | **Leverage ratio**      | ** ** |
|---------------------------------------------------------|------------|------------------------------|------------|
| From June 15, 2011 to   December 7, 2012      |       | No greater than 3.50 to 1.00 |       |
| From December 8, 2012   to September 30, 2013 |       | No greater than 4.75 to 1.00 |       |
| From October 1, 2013   to September 30, 2014  |       | No greater than 4.50 to 1.00 |       |
| From October 1, 2014   to September 30, 2015  |       | No greater than 4.00 to 1.00 |       |
| From October 1, 2015   and thereafter              |       | No greater than 3.50 to 1.00 |       |
|                                                    |       |                         |       |

 

At December 31, 2012, the Company was in compliance with the financial covenants, as well as with the delivery of the required financial information.

 

F-53

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Table of Contents

 

**GRUMA, S.A.B. DE C.V. AND SUBSIDIARIES**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**AS OF DECEMBER 31, 2012 AND 2011**

**(In thousands of Mexican pesos, except where otherwise indicated)**

 

**17. PROVISIONS**

 

The movements of provisions are as follows:

 
| ** **                              | ** ** | **Labor   provisions** | ** **    | **Restoration   provision** | ** ** | **Tax   provision** | ** ** | **Unregulated   labor security   obligations** | ** ** | **Subtotal** | ** ** |
|-----------------------------------------|------------|------------------------|---------------|-----------------------------|------------|---------------------|------------|-----------------------------------------------------|------------|--------------|------------|
| **Balance   at January 1, 2011**   |       | Ps.                    | 200,182       |                        | Ps.        | 71,754              |       | Ps.                                                 | 10,751     |         | Ps.        | 27,698 |   | Ps. | 310,385 |   |
| Charge (credit) to income:              |       |                   |          |                        |       |                |       |                                                |       |         |       |
| Additional provisions                   |       | 157,324                |          | 31,148                      |       | 6,048               |       | 15,892                                              |       | 210,412      |       |
| Unused amounts reversed                 |       | —                 |          | —                      |       | (488                | )          | —                                              |       | (488         | )          |
| Used during the year                    |       | (72,696                | )             | —                      |       | (1,523              | )          | —                                              |       | (74,219      | )          |
| Exchange differences                    |       | 31,751                 |          | 12,995                      |       | 1,830               |       | 3,588                                               |       | 50,164       |       |
| **Balance   at December 31, 2011** |       | 316,561                |          | 115,897                     |       | 16,618              |       | 47,178                                              |       | 496,254      |       |
| Charge (credit) to income:              |       |                   |          |                        |       |                |       |                                                |       |         |       |
| Additional provisions                   |       | 31,913                 |          | 32,558                      |       | 5,660               |       | —                                              |       | 70,131       |       |
| Unused amounts reversed                 |       | (355                   | )             | 948                         |       | —              |       | (43,575                                             | )          | (42,982      | )          |
| Used during the year                    |       | (90,919                | )             | (12,739                     | )          | (50                 | )          | —                                              |       | (103,708     | )          |
| Exchange differences                    |       | (20,618                | )             | (8,005                      | )          | (996                | )          | (2,533                                              | )          | (32,152      | )          |
| **Balance   at December 31, 2012** |       | Ps.                    |  236,582 |                        | Ps.        | 128,659             |       | Ps.                                                 | 21,232     |         | Ps.        | 1,070 |   | Ps. | 387,543 |   |
|                                    |       |                   |          |                        |       |                |       |                                                |       |         |       |
| Of which current                        |       | Ps.                    | 96,673        |                        | Ps.        | —              |       | Ps.                                                 | —     |         | Ps.        | 1,070 |   | Ps. | 97,743 |   |
| Of which non-current                    |       | 139,909                |          | 128,659                     |       | 21,232              |       | —                                              |       | 289,800      |       |

 
| ** **                              | ** ** | **Subtotal** | ** ** | **Provision for   operating   plant closure   expenditures** | ** ** | **Other** | ** ** | **Total** | ** ** |
|-----------------------------------------|------------|--------------|------------|------------------------------------------------------------------------|------------|-----------|------------|-----------|------------|
| **Balance   at January 1, 2011**   |       | Ps.          | 310,385    |                                                                   | Ps.        | 19,681    |       | Ps.       | 88         |   | Ps. | 330,154 |   |
| Charge (credit) to income:              |       |         |       |                                                                   |       |      |       |      |       |
| Additional provisions                   |       | 210,412      |       | —                                                                 |       | 4,604     |       | 215,016   |       |
| Unused amounts reversed                 |       | (488         | )          | —                                                                 |       | —    |       | (488      | )          |
| Used during the year                    |       | (74,219      | )          | (7,256                                                                 | )          | (99       | )          | (81,574   | )          |
| Exchange differences                    |       | 50,164       |       | 2,550                                                                  |       | 8         |       | 52,722    |       |
| **Balance   at December 31, 2011** |       | 496,254      |       | 14,975                                                                 |       | 4,601     |       | 515,830   |       |
| Charge (credit) to income:              |       |         |       |                                                                   |       |      |       |      |       |
| Additional provisions                   |       | 70,131       |       | —                                                                 |       | —    |       | 70,131    |       |
| Unused amounts reversed                 |       | (42,982      | )          | —                                                                 |       | —    |       | (42,982   | )          |
| Used during the year                    |       | (103,708     | )          | (13,966                                                                | )          | (4,294    | )          | (121,968  | )          |
| Exchange differences                    |       | (32,152      | )          | (1,009                                                                 | )          | (307      | )          | (33,468   | )          |
| **Balance   at December 31, 2012** |       | Ps.          | 387,543    |                                                                   | Ps.        | —    |       | Ps.       | —     |   | Ps. | 387,543 |   |
|                                    |       |         |       |                                                                   |       |      |       |      |       |
| Of which current                        |       | Ps.          | 97,743     |                                                                   | Ps.        | —    |       | Ps.       | —     |   | Ps. | 97,743 |   |
| Of which non-current                    |       | 289,800      |       | —                                                                 |       | —    |       | 289,800   |       |

 

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Table of Contents

 

**GRUMA, S.A.B. DE C.V. AND SUBSIDIARIES**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**AS OF DECEMBER 31, 2012 AND 2011**

**(In thousands of Mexican pesos, except where otherwise indicated)**

 

**Labor provisions**

 

a. Workers’ compensation

 

In the United States, when permitted by law, the Company self insures against workers’ compensation claims.  As claims are filed for workers’ compensation, the Company recognizes an obligation to settle these claims. Certain actuarial information is used to estimate the expected outflows of economic resources and projected timing of the settlement of these claims. The discount rate rate applied during 2012 was 2.89%.

 

Subsidiaries in Venezuela established a provision for labor claims filed against the Company related to work accidents and the payment of certain labor benefits, and to meet the terms of the collective labor contracts that, as of the date hereof, are still being negotiated with workers’ unions.

 

Likewise, the subsidiary in Italy esablished a provision to meet legal costs arising from labor claims related mainly to work accidents.

 

b. Legal reserve

 

The Company’s subsidiaries in the United States have established a provision for the probable settlement of a lawsuit presented by a former employee. Final approval of the settlement was granted by the court on March 26, 2012 with payments of U.S.$2.4 million being submitted by the Company in April 2012.

 

**Restoration provision**

 

In the United States and Europe, the Company has recognized an obligation to remove equipment and leasehold improvements from certain of its leased manufacturing facilities in order to restore the facilities to their original condition, less normal wear and tear as determined by the terms of the lease. The Company has estimated the expected outflows of economic resources associated with these obligations and the probability of possible settlement dates based upon the terms of the lease. These estimates are used to calculate the present value of the estimated expenditures using a pre-tax discount rate and taking into account any specific risks associated with these obligations. The discount rate applied during 2012 was 4.30%.

 

**Tax provision**

 

In Central America, for the periods from 2005 to 2011, tax authorities have lodged tax assessments against the Company for an amount of Ps.24.8 million (971 million colons) in connection with sales and income tax. Based on the criteria of the Company’s management and the opinion of tax consultants hired for the Company ́s defense, there is a probability that nearly 50% of the tax assessments will be settled. For this reason, the Company has accrued the necessary amounts to cover the payment of these obligations.

 

**Unregulated labor security obligations**

 

In Venezuela, the Organic Law of Prevention, Conditions and Work Environment (Ley Orgánica de Prevención, Condiciones y Medio Ambiente de Trabajo) establishes the substitution of certain security obligations for other more onerous. This regulation has not been officially released by the Venezuelan government, making it difficult to determine the payment date for this obligation.

 

F-55

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Table of Contents

 

**GRUMA, S.A.B. DE C.V. AND SUBSIDIARIES**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**AS OF DECEMBER 31, 2012 AND 2011**

**(In thousands of Mexican pesos, except where otherwise indicated)**

 

**Provision for operating plant closure expenditures**

 

This provision was created to cover all expenses related to the closure of a production plant in Venezuela which was surrendered to a government institution due to the expiration of the lease contract, and to cover any damage to the assets to be returned; however, the legal settlement has yet to be concluded.

 

**Other provisions**

 

Other provisions include estimates due to commitments of the Company in Venezuela including, among others, point of sale promotions to its customers for the exchange of different products, for which it is difficult to determine the specific date to deliver these commitments.

 

**18. OTHER CURRENT LIABILITIES**

 

At December 31, 2012 and 2011, Other current liabilities include employee benefits payable of Ps.1,024,372 and Ps.959,975, respectively.

 

**19. EMPLOYEE BENEFITS OBLIGATIONS**

 

Employee benefits obligations recognized in the balance sheet, by country, were as follows:

 
| **Country**              | ** ** | **At December 31,   2012** | ** ** | **At December 31,   2011** | ** ** |
|--------------------------|------------|--------------------------------------|------------|--------------------------------------|------------|
| Mexico                   |       | Ps.                                  | 407,781    |                                 | Ps.        | 275,799 |   |
| United States and Europe |       | 85,819                               |       | 72,247                               |       |
| Venezuela                |       | 90,164                               |       | 22,356                               |       |
| Total                    |       | Ps.                                  | 583,764    |                                 | Ps.        | 370,402 |   |

 

**A) MEXICO**

 

In Mexico, labor obligations recognized by the Company correspond to the single-payment retirement plan and seniority premium. The benefits for the retirement plan and seniority premium are defined benefit plans, based on the projected salary at the date in which the employee is assumed to receive the benefits. Currently, the plan operates under Mexican law, which does not require minimum funding.

 

The Company has decided to recognize actuarial gains and losses immediately in other comprehensive income.

 

F-56

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Table of Contents

 

**GRUMA, S.A.B. DE C.V. AND SUBSIDIARIES**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**AS OF DECEMBER 31, 2012 AND 2011**

**(In thousands of Mexican pesos, except where otherwise indicated)**

 

The reconciliation between the initial and final balances of the present value of the defined benefit obligations (DBO) is as follows:

 
| ** **                                   | ** ** | **2012** | ** ** | **2011** | ** ** |
|----------------------------------------------|------------|----------|------------|----------|------------|
| DBO at beginning of the year                 |       | Ps.      | 314,649    |     | Ps.        | 306,098 |   |
| Add (deduct):                                |       |     |       |     |       |
| Current service cost                         |       | 19,907   |       | 17,496   |       |
| Financial cost                               |       | 22,296   |       | 20,964   |       |
| Actuarial losses (gains) for the period      |       | 111,890  |       | (14,061  | )          |
| Acquisition/disposal or excision of business |       | 52       |       | —   |       |
| Benefits paid                                |       | (12,103  | )          | (15,848  | )          |
| DBO at end of the year                       |       | Ps.      | 456,691    |     | Ps.        | 314,649 |   |

 

At December 31, 2012 and 2011, liabilities relating to vested employee benefits amounted to Ps.260,193 and Ps.193,225, respectively.

 

The reconciliation between the initial and final balances of the employee benefit plan assets at fair value for the years 2012 and 2011 is shown below:

 
| ** **                                         | ** ** | **2012** | ** ** | **2011** | ** ** |
|----------------------------------------------------|------------|----------|------------|----------|------------|
| Plan assets at fair value at beginning of the year |       | Ps.      | 38,850     |     | Ps.        | 40,264 |   |
| Add (deduct):                                      |       |     |       |     |       |
| Actual return                                      |       | —   |       | (184     | )          |
| Expected return on plan assets                     |       | 4,085    |       | —   |       |
| Gain on plan assets                                |       | 5,975    |       | —   |       |
| Benefits paid                                      |       | —   |       | (1,230   | )          |
| Plan assets at fair value at end of the year       |       | Ps.      | 48,910     |     | Ps.        | 38,850 |   |

 

The following table shows the reconciliation between the present value of the defined benefit obligation and the plan assets at fair value, and the projected net liability included in the balance sheet:

 
| ** **                             | ** ** | **At December 31,   2012** | ** ** | **At December 31,   2011** | ** ** |
|----------------------------------------|------------|--------------------------------------|------------|--------------------------------------|------------|
| Employee benefit (assets) liabilities: |       |                                 |       |                                 |       |
| DBO                                    |       | Ps.                                  | 456,691    |                                 | Ps.        | 314,649 |   |
| Plan assets                            |       | (48,910                              | )          | (38,850                              | )          |
| Projected net liability                |       | Ps.                                  | 407,781    |                                 | Ps.        | 275,799 |   |

 

The value of the DBO related to the pension plan amounted to Ps.388,988 and Ps.263,042 at December 31, 2012 and 2011, respectively, while the value of the DBO related to seniority premiums amounted to Ps.67,703 and Ps.51,607, respectively.

 

At December 31, 2012, 2011 and 2010, the components of net cost comprised the following:

 
| ** **                      | ** ** | **2012** | ** ** | **2011** | ** ** | **2010** | ** ** |
|---------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Current service cost            |       | Ps.      | 19,907     |     | Ps.        | 17,496   |       | Ps. | 23,435 |   |
| Financial cost                  |       | 22,296   |       | 20,964   |       | 20,441   |       |
| Estimated return on plan assets |       | (4,085   | )          | (4,447   | )          | (3,102   | )          |
| Net cost for the year           |       | Ps.      | 38,118     |     | Ps.        | 34,013   |       | Ps. | 40,774 |   |

 

F-57

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Table of Contents

 

**GRUMA, S.A.B. DE C.V. AND SUBSIDIARIES**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**AS OF DECEMBER 31, 2012 AND 2011**

**(In thousands of Mexican pesos, except where otherwise indicated)**

 

The net cost for the year 2012, 2011 and 2010 of Ps.38,118, Ps.34,013 and Ps.40,774, respectively, was recognized as follows:

 
| ** **                          | ** ** | **2012** | ** ** | **2011** | ** ** | **2010** | ** ** |
|-------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Cost of sales                       |       | Ps.      | 5,104      |     | Ps.        | 2,138    |       | Ps. | 4,596 |   |
| Selling and administrative expenses |       | 33,014   |       | 31,875   |       | 36,178   |       |
| Net cost for the year               |       | Ps.      | 38,118     |     | Ps.        | 34,013   |       | Ps. | 40,774 |   |

 

The total amount recognized in other comprehensive income is described below:

 
| ** **                                              | ** ** | **2012** | ** ** | **2011** | ** ** |
|---------------------------------------------------------|------------|----------|------------|----------|------------|
| Balance at the beginning of the year                    |       | Ps.      | 4,888      |     | Ps.        | 18,949 |   |
| Actuarial losses(gains) that occurred during the   year |       | 105,967  |       | (14,061  | )          |
| Balance at the end of the year                          |       | Ps.      | 110,855    |     | Ps.        | 4,888 |   |

 

At December 31, 2012 and 2011, plan assets stated at fair value and related percentages with respect to total plan assets were analyzed as follows:

 
|                      |   | **At December 31,   2012** |   | **At December 31,   2011** |   |
|---------------------------|--------|--------------------------------------|--------|--------------------------------------|--------|
| Equity securities         |   | Ps.                                  | 33,748 |                                 | 69     | % | Ps. | 23,692 |   | 61 | % |
| Fixed rate securities     |   | 15,162                               |   | 31                                   | %      | 15,158 |   | 39 | % |
| Fair value of plan assets |   | Ps.                                  | 48,910 |                                 | 100    | % | Ps. | 38,850 |   | 100 | % |

 

The Company has a policy of maintaining at least 30% of its trust assets in Mexican Federal Government instruments. Guidelines have been established for the remaining 70% and investment decisions are taken in accordance with these guidelines to the extent market conditions and available funds allow it.

 

As of December 31, 2012, the funds maintained in plan assets were considered sufficient to face the Company’s short-term needs; therefore, the Company’s management has determined that for the time being there is no need for additional contributions to increase these assets.

 

The estimated long-term return on assets is based on the annual recommendations issued by the Actuarial Commission of the Mexican Association of Actuaries. These recommendations consider historical information and future market expectations. The actual return on plan assets during the year 2012 was 25.89%.

 

The main actuarial assumptions used were as follows:

 
| ** **                                  | ** ** | **At December   31, 2012** | ** ** | **At December   31, 2011** | ** ** |
|---------------------------------------------|------------|---------------------------------|------------|---------------------------------|------------|
| Discount rate                               |       | 5.25                            | %          | 7.75                            | %          |
| Future increase rate in compensation levels |       | 4.50                            | %          | 4.50                            | %          |
| Estimated return rate on plan assets        |       | 5.25                            | %          | 11.00                           | %          |
| Long-term inflation rate                    |       | 3.50                            | %          | 3.50                            | %          |

 

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** **

**GRUMA, S.A.B. DE C.V. AND SUBSIDIARIES**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**AS OF DECEMBER 31, 2012 AND 2011**

**(In thousands of Mexican pesos, except where otherwise indicated)**

 

At December 31 2012 and 2011, the impact in DBO for a decrease of 25 basis points in the discount rate amounts to Ps.7,455 and Ps.4,598, respectively.

 

The Company does not expect to contribute during the next fiscal year.

 

**B) OTHER COUNTRIES**

 

In the United States, the Company has a savings and investment plan that incorporates voluntary employee 401(k) contributions with matching contributions from the Company in this country. For the years ended December 31, 2012, 2011 and 2010, total expenses related to this plan amounted to Ps.62,340, Ps.54,004 and Ps.49,066, respectively (U.S.$4.7, U.S.$4.3 and U.S.$3.9 million, respectively).

 

Additionally, the Company has established an unfunded nonqualified deferred compensation plan for a selected group of management and highly compensated employees. The plan is voluntary and allows employees to defer a portion of their salary or bonus in excess of the savings and investment plan limitations. The employees elect investment options and the Company monitors the result of those investments and records a liability for the obligation. For the years ended December 31, 2012, 2011 and 2010, total expenses related to this plan were approximately Ps.6,014, Ps.1,334 and Ps.5,348, respectively (U.S.$0.5, U.S.$0.1 and U.S.$0.4 million, respectively). At December 31, 2012 and 2011, the liability recognized for these items amounted to Ps.77,410 and Ps.72,247, respectively (U.S.$6.0 and U.S.$5.2 million, respectively).

 

In Venezuela, on May 7, 2012, the New Organic Labor and Workers’ Law (LOTTT) was published in the Official Gazette of the Bolivarian Republic of Venezuela and was effective as of such date. This law established some changes from the previous Organic Law issued on June 19, 1997 and amended on May 6, 2011. The most important changes included: modifications in the method of calculation of some employee benefits such as vacation bonuses, profits, pre and post natal leave, social security benefits and their interests. It also established changes in the lenght of the workday, and introduced concepts as maternity labor stability. Some of the above benefits are also regulated by the collective agreements of the Company in Venezuela, which in many cases, exceeds the issues raised by the new legislation.

 

The Company’s management has determined that the main effect of the enactment of this law is related with the retroactivity of social security benefits and, through actuarial studies, the Company has estimated the effects on labor provisions and costs. As of December 31, 2012 and 2011, the liability recognized for these items amounted to Ps.90,164 and Ps.22,356, respectively. At December 31, 2012, labor obligations cost amounted to Ps.69,314. The main long-term nominal actuarial assumptions used were as follows:

 
| ** **                                    | ** ** | **At December   31, 2012** | ** ** |
|-----------------------------------------------|------------|--------------------------------------|------------|
| Discount rate                                 |       | 23                                   | %          |
| Future increase rate in   compensation levels |       | 25                                   | %          |
| Long-term inflation rate                      |       | 20                                   | %          |

 

At December 31, 2012, a hypothetical 1% decrease in the discount rate would increase the value of the projected benefits obligation by approximately Ps.5,637.

 

The estimated cost of the social security benefits for 2013 is approximately Ps.30,559.

 

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**GRUMA, S.A.B. DE C.V. AND SUBSIDIARIES**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**AS OF DECEMBER 31, 2012 AND 2011**

**(In thousands of Mexican pesos, except where otherwise indicated)**

 

**20. EQUITY**

 

**A) COMMON STOCK**

 

At December 31, 2012, the Company’s outstanding common stock consisted of 457,315,640 Series “B” shares, with no par value, fully subscribed and paid, which can only be withdrawn with stockholders’ approval, and 107,858,969 shares held in Treasury (563,650,709 shares fully subscribed and paid and 1,532,900 shares held in Treasury at December 31, 2011).

 

**B) RETAINED EARNINGS**

 

In accordance with Mexican Corporate Law, the legal reserve must be increased annually by 5% of annual net profits until it reaches a fifth of the fully paid common stock amount. The legal reserve is included within retained earnings.

 

Movements in the legal reserve for the years ended December 31, 2012 and 2011 are as follows:

 
| ** **                          | ** ** | **Amount** | ** ** |
|-------------------------------------|------------|------------|------------|
| Balance at   December 31, 2010 |       | Ps.        | 76,447     |   |
| Increases during the year           |       | 27,095     |       |
| Balance at   December 31, 2011 |       | 103,542    |       |
| Increases during the year           |       | 201,089    |       |
| Balance at   December 31, 2012 |       | Ps.        | 304,631    |   |

 

Dividends paid are not subject to income tax if paid from the Net Tax Profit Account (CUFIN) and will be taxed at a rate that fluctuates between 32% and 35% if they are paid from the reinvested Net Tax Profit Account. Dividends paid that exceed CUFIN and reinvested CUFIN are subject to an income tax payable at a rate of 30% if paid in 2013. The tax is payable by the Company and may be credited against the normal income tax payable by the Company in the year in which the dividends are paid or in the following two years or, if appropriate, against the flat rate tax for the year. Dividends paid from earnings previously taxed are not subject to any withholding or additional tax payment.

 

**C) PURCHASE OF COMMON STOCK**

 

At December 13, 2012 the Shareholders’ Meeting approved to increase the reserve to repurchase the Company’s own shares up to Ps.4,500,000. The maximum amount of proceeds that can be used to purchase the Company’s own shares cannot exceed, in any case, the net earnings of the entity, including retained earnings. The difference between the acquisition cost of the repurchased shares and their stated value, composed of common stock and share premium, is recognized as part of the reserve to repurchase the Company’s own shares, which is included within retained earnings from prior years. The gain or loss on the sale of the Company’s own shares is recorded in retained earnings. As of December 31, 2012, the Company has 107,858,969 of its own shares with a market value of Ps.4,224,836 at that date.

 

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**GRUMA, S.A.B. DE C.V. AND SUBSIDIARIES**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**AS OF DECEMBER 31, 2012 AND 2011**

**(In thousands of Mexican pesos, except where otherwise indicated)**

 

Movements in the reserve for acquisition of Company’s own shares for the years ended December 31, 2012 and 2011 are as follows:

 
| ** **                                                                                                                               | ** ** | **Amount** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|------------|
| Balances   at December 31, 2010 and 2011                                                                                            |       | Ps.        | 628,736    |   |
| Increase in reserve for   repurchase of Company’s own shares approved by the Stockholders’ Meeting in   December 13, 2012 |       | 3,850,000  |       |
| Acquisition   of Strategic Partner’s shares (Note 3)                                                                                |       | (4,011,348 | )          |
| Balance   at December 31, 2012                                                                                                      |       | Ps.        | 467,388    |   |

 

**D**) **FOREIGN CURRENCY TRANSLATION ADJUSTMENTS**

 

Foreign currency translation adjustments consisted of the following as of December 31:

 
| ** **                                                                                                                                                | ** ** | **2012** | ** ** | **2011**  | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------|------------|-----------|------------|
| Balance at beginning of   year                                                                                                                            |       | Ps.      | (76,972    | )         | Ps.        | (1,282,185 | ) |
| Effect of the year from   translating net investment in foreign subsidiaries                                                                              |       | (455,490 | )          | 2,018,314 |       |
| Exchange differences   arising from foreign currency liabilities accounted for as a hedge of the   Company’s net investments in foreign subsidiaries |       | 468,381  |       | (813,101  | )          |
|                                                                                                                                                      |       | Ps.      | (64,081    | )         | Ps.        | (76,972 | ) |

 

The investment that the Company maintains in its operations in the United States and Europe generated a hedge of up to U.S.$532 and U.S.$478 million at December 31, 2012 and 2011, respectively.

 

At December 31, 2012 and 2011, the accumulated effect of translating net investment in foreign subsidiaries impacted non-controlling interest in the amounts of Ps.(130,286) and Ps.(143,668), respectively.

 

**21. FINANCIAL INSTRUMENTS**

 

**A) FINANCIAL INSTRUMENTS BY CATEGORY**

 

The carrying values of financial instruments by category are presented below:

 
| ** **                                                                       | ** ** | **At December 31, 2012**                                       | ** ** |
|----------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------|------------|
| ** **                                                                       | ** ** | **Loans,   receivables and   liabilities at   amortized cost** | ** ** | **Financial assets   at fair value   through profit   or loss** | ** ** | **Hedge   derivatives** | ** ** | **Total********categories** | ** ** |
| Financial assets:                                                                |       |                                                                          |       |   |   |   |   |   |   |
| Cash and cash equivalents                                                        |       | Ps.                                                                           | 1,287,368  |   | Ps. | — |   | Ps. | — |   | Ps. | 1,287,368 |   |
| Derivative financial   instruments                                               |       | —                                                                        |       | — |   | 45,316 |   | 45,316 |   |
| Accounts receivable                                                              |       | 7,048,525                                                                     |       | — |   | — |   | 7,048,525 |   |
| Non-current notes and   accounts receivable                                      |       | 212,113                                                                       |       | — |   | — |   | 212,113 |   |
|                                                                             |       |                                                                          |       |   |   |   |   |   |   |
| Financial liabilities:                                                           |       |                                                                          |       |   |   |   |   |   |   |
| Current debt                                                                     |       | Ps.                                                                           | 8,018,763  |   | Ps. | — |   | Ps. | — |   | Ps. | 8,018,763 |   |
| Trade accounts payable                                                           |       | 6,307,796                                                                     |       | — |   | — |   | 6,307,796 |   |
| Derivative financial   instruments                                               |       | —                                                                        |       | 28,832 |   | — |   | 28,832 |   |
| Long-term debt                                                                   |       | 11,852,708                                                                    |       | — |   | — |   | 11,852,708 |   |
| Contingent payment due to   repurchase of the Company’s own shares (Note 3) |       | —                                                                        |       | 606,495 |   | — |   | 606,495 |   |
| Other liabilities (excludes non-financial liabilities)                           |       | 60,776                                                                        |       | — |   | — |   | 60,776 |   |

 

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**GRUMA, S.A.B. DE C.V. AND SUBSIDIARIES**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**AS OF DECEMBER 31, 2012 AND 2011**

**(In thousands of Mexican pesos, except where otherwise indicated)**

 
| ** **                                             | ** ** | **At December 31, 2011**                                       | ** ** |
|--------------------------------------------------------|------------|-------------------------------------------------------------------------------|------------|
| ** **                                             | ** ** | **Loans,   receivables and   liabilities at   amortized cost** | ** ** | **Financial assets   at fair value   through profit   or loss** | ** ** | **Hedge   derivatives** | ** ** | **Total********categories** | ** ** |
| Financial assets:                                      |       |                                                                          |       |   |   |   |   |   |   |
| Cash and cash equivalents                              |       | Ps.                                                                           | 1,179,651  |   | Ps. | — |   | Ps. | — |   | Ps. | 1,179,651 |   |
| Trading investments                                    |       | —                                                                        |       | 140,255 |   | — |   | 140,255 |   |
| Derivative financial   instruments                     |       | —                                                                        |       | 88,537 |   | 14,876 |   | 103,413 |   |
| Accounts receivable                                    |       | 7,127,208                                                                     |       | — |   | — |   | 7,127,208 |   |
| Non-current notes and   accounts receivable            |       | 515,478                                                                       |       | — |   | — |   | 515,478 |   |
|                                                   |       |                                                                          |       |   |   |   |   |   |   |
| Financial liabilities:                                 |       |                                                                          |       |   |   |   |   |   |   |
| Current debt                                           |       | Ps.                                                                           | 1,633,207  |   | Ps. | — |   | Ps. | — |   | Ps. | 1,633,207 |   |
| Trade accounts payable                                 |       | 5,544,105                                                                     |       | — |   | — |   | 5,544,105 |   |
| Derivative financial   instruments                     |       | —                                                                        |       | 46,013 |   | — |   | 46,013 |   |
| Long-term debt                                         |       | 11,472,110                                                                    |       | — |   | — |   | 11,472,110 |   |
| Other liabilities (excludes non-financial liabilities) |       | 45,734                                                                        |       | — |   | — |   | 45,734 |   |

 

**B) FAIR VALUE OF FINANCIAL INSTRUMENTS**

 

The carrying amounts of cash and cash equivalents, accounts receivable, trade accounts payable and other current liabilities approximate their fair value, due to their short maturity. In addition, the net book value of accounts receivable and recoverable taxes represent the expected cash flow to be received.

 

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**GRUMA, S.A.B. DE C.V. AND SUBSIDIARIES**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**AS OF DECEMBER 31, 2012 AND 2011**

**(In thousands of Mexican pesos, except where otherwise indicated)**

 

The estimated fair value of the Company’s financial instruments is as follows:

 
| ** **                                                                          | ** ** | **At December 31, 2012** | ** ** |
|-------------------------------------------------------------------------------------|------------|-----------------------------------------|------------|
| ** **                                                                          | ** ** | **Carrying amount**                | ** ** | **Fair value** | ** ** |
| **Assets:**                                                                         |       |                                    |       |   |   |
| Derivative financial   instruments - corn (1)                                       |       | Ps.                                     | 119,275    |   | Ps. | 119,275 |   |
| Long-term notes receivable   from sale of tortilla machines                         |       | 199,925                                 |       | 172,951 |   |
| **Liabilities:**                                                                    |       |                                    |       |   |   |
| Perpetual bonds in U.S.   dollars bearing fixed interest at an annual rate of 7.75% |       | 3,695,579                               |       | 3,942,060 |   |
| Short and long-term debt                                                            |       | 16,175,892                              |       | 16,457,069 |   |
| Contingent payment due to   repurchase of the Company’s own shares             |       | 606,495                                 |       | 606,495 |   |
| Derivative financial   instruments - other raw materials                            |       | 28,832                                  |       | 28,832 |   |
|                                                                                     |            |                                         |            |  |  |  |  |

 

----

(1) At December 31, 2012, the balance of derivative financial instruments receivable amounted to Ps.45,316, and is comprised of Ps.119,275 corresponding to the valuation of open positions at the end of the year, and Ps.73,959 corresponding to advances on favorable positions that arise from price changes in the underlying asset that the Company maintains with the third party.

 
| ** **                                                                          | ** ** | **At December 31, 2011** | ** ** |
|-------------------------------------------------------------------------------------|------------|-----------------------------------------|------------|
| ** **                                                                          | ** ** | **Carrying amount**                | ** ** | **Fair value** | ** ** |
| **Assets:**                                                                         |       |                                    |       |   |   |
| Interest and capital bonds                                                          |       | Ps.                                     | 140,255    |   | Ps. | 140,255 |   |
| Derivative financial   instruments - exchange rate                                  |       | 88,537                                  |       | 88,537 |   |
| Derivative financial   instruments - corn                                           |       | 14,876                                  |       | 14,876 |   |
| Long-term notes receivable                                                          |       | 189,044                                 |       | 165,157 |   |
| **Liabilities:**                                                                    |       |                                    |       |   |   |
| Perpetual bonds in U.S.   dollars bearing fixed interest at an annual rate of 7.75% |       | 3,960,333                               |       | 4,192,115 |   |
| Long-term debt                                                                      |       | 7,567,111                               |       | 7,621,786 |   |
| Derivative financial instruments   - other raw materials                            |       | 45,922                                  |       | 45,922 |   |
|                                                                                     |            |                                         |            |  |  |  |  |

 

The fair values were determined by the Company as follows:

 

·                  The fair values of perpetual bonds and derivative financial instruments were determined based on available market prices and/or estimates using market data information and appropriate valuation methodologies for similar instruments.

 

·                  The fair value for the rest of the long-term debt was based on the present value of the cash flows discounted at interest rates based on readily observable market inputs.

 

**C) DERIVATIVE FINANCIAL INSTRUMENTS**

 

At December 31, 2012 derivative financial instruments comprised the following:

 
| ** **                     | ** ** | ** **               | ** ** | **Fair value** | ** ** |
|--------------------------------|------------|--------------------------|------------|---------------------|------------|
| **Type of contract** | ** ** | **Notional amount** | ** ** | **Asset**           | ** ** | **Liability** | ** ** |
| Corn futures                   |       | 6,695,000 bushels        |       | Ps.                 | 119,275    |   |   |   |
| Natural gas swaps 2013         |       | 1,920,000 Mmbtu          |       |                |       | Ps. | 28,832 |   |
|                                |            |                          |            |                     |            |  |  |  |  |

 

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**GRUMA, S.A.B. DE C.V. AND SUBSIDIARIES**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**AS OF DECEMBER 31, 2012 AND 2011**

**(In thousands of Mexican pesos, except where otherwise indicated)**

 

At December 31, 2012, open positions of corn and natural gas derivatives were recorded at fair value. The result of the valuation of financial instruments that qualified as hedge accounting represented a gain of Ps.119,275, which was recognized in comprehensive income within equity. Open positions of financial instruments that did not qualify as hedge accounting represented a gain of Ps.17.090 which was recognized in income as other expenses, net (Note 23).

 

Operations terminated at December 31, 2012 on corn and natural gas derivatives represented a gain of Ps.21,058 which was recognized in income as other expenses, net (Note 23).

 

Exchange rate derivative financial instruments were recorded at fair value. At December 31, 2012, the Company had no open positions of these instruments. Likewise, operations terminated at December 31, 2012 on these instruments represented a gain of Ps.107,994, which was recognized in income as comprehensive financing cost, net.

 

At December 31, 2012, the Company had no margin calls, which are required due to price variations of the underlying asset to be applied against payments.

 

For the year ended December 31, 2012, the Company reclassified the amount of Ps.235,782 from comprehensive income and recognized it as part of inventory. This amount refers to the gain from the closed operations for corn hedges, in which the grain, subject to these hedges, was received. Additionally, the corn hedges terminated during the period and for which no corn has been received, originated a gain of Ps.340,873, which was recognized in comprehensive income.

 

At December 31, 2011 derivative financial instruments comprised the following:

 
| ** **                     | ** ** | ** **               | ** ** | **Fair value** | ** ** |
|--------------------------------|------------|--------------------------|------------|---------------------|------------|
| **Type of contract** | ** ** | **Notional amount** | ** ** | **Asset**           | ** ** | **Liability** | ** ** |
|                           |       |                     |       |                |       |   |   |
| Corn futures                   |       | 2,090,000                | Bushels    |                | Ps.        | 6,915 |   | Ps. | — |   |
| Corn options                   |       | 2,560,000                | Bushels    |                | 7,961      |   | — |   |
| Natural gas swaps 2012-2013    |       | 3,840,000                | Mmbtu      |                | —     |   | 45,922 |   |
| Exchange rate forwards         |       | $106,000,000             | USD        |                | 88,537     |   | — |   |
|                                |            |                          |            |                     |            |  |  |  |  |  |

 

At December 31, 2011, open positions of corn and natural gas derivatives were recorded at fair value. Financial instruments that qualify as hedge accounting represented a gain of Ps.14,876, which was recognized as comprehensive income in equity. Financial instruments that did not qualify as hedge accounting represented a loss of Ps.40,207, which was recognized in the income statement.

 

Operations closed at December 31, 2011 on corn and natural gas derivatives represented a loss of Ps.52,626, which were recognized in income.

 

Exchange rate derivative financial instruments were recorded at fair value. At December 31, 2011, open positions on these instruments represented a gain of approximately Ps.93,400, which was recognized in income for the year. Likewise, operations terminated at December 31, 2011 on exchange rate derivatives represented a gain of Ps.207,250, which was recognized in income.

 

At December 31, 2011, the Company had no revolving funds denominated “margin calls”, which are required due to price variations of the underlying asset to be applied against payments.

 

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**GRUMA, S.A.B. DE C.V. AND SUBSIDIARIES**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**AS OF DECEMBER 31, 2012 AND 2011**

**(In thousands of Mexican pesos, except where otherwise indicated)**

 

**D) FAIR VALUE HIERARCHY**

 

A three-level hierarchy is used to measure and disclose fair values. An instrument’s categorization within the fair value hierarchy is based on the lowest level of significant input to its valuation.

 

The following is a description of the three hierarchy levels:

 

·                        Level 1—Quoted prices for identical instruments in active markets.

 

·                        Level 2—Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.

 

·                        Level 3—Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

 

This hierarchy requires the use of observable market data when available. The Company considers relevant and observable market prices in its valuations where possible.

 

**a. Determination of fair value**

 

When available, the Company generally uses quoted market prices to determine fair value and classifies such items in Level 1. If quoted market prices are not available, fair value is valued using industry standard valuation models. When applicable, these models project future cash flows and discount the future amounts to a present value using market-based observable inputs, including interest rates, currency rates, volatilities, etc. Items valued using such inputs are classified according to the lowest level input or value driver that is significant to the valuation. Thus, an item may be classified in Level 3 even though there may be some inputs that are readily observable. In addition, the Company considers assumptions for its own credit risk and the respective counterparty risk.

 

**b. Measurement**

 

Assets and liabilities measured at fair value are summarized below:

 
| ** **                                                              | ** ** | **At December 31, 2012** | ** ** |
|-------------------------------------------------------------------------|------------|-----------------------------------------|------------|
| ** **                                                              | ** ** | **Level 1**                        | ** ** | **Level 2** | ** ** | **Level 3** | ** ** | **Total** | ** ** |
| *Assets:*                                                               |       |                                    |       |   |   |   |   |   |   |
| Plan assets — seniority   premium fund                             |       | Ps.                                     | 48,910     |   | Ps. | — |   | Ps. | — |   | Ps. | 48,910 |   |
| Derivative   financial instruments — corn and other raw materials  |       | 119,275                                 |       | — |   | — |   | 119,275 |   |
|                                                                    |       | Ps.                                     | 168,185    |   | Ps. | — |   | Ps. | — |   | Ps. | 168,185 |   |
|                                                                    |       |                                    |       |   |   |   |   |   |   |
| *Liabilities:*                                                          |       |                                    |       |   |   |   |   |   |   |
| Derivative financial   instruments — exchange rate                 |       | Ps.                                     | —     |   | Ps. | — |   | Ps. | 28,832 |   | Ps. | 28,832 |   |
| Contingent payment due to   repurchase of the Company’s own shares |       | —                                  |       | — |   | 606,495 |   | 606,495 |   |
|                                                                    |       | Ps.                                     | —     |   | Ps. | — |   | Ps. | 635,327 |   | Ps. | 635,327 |   |

 

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**GRUMA, S.A.B. DE C.V. AND SUBSIDIARIES**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**AS OF DECEMBER 31, 2012 AND 2011**

**(In thousands of Mexican pesos, except where otherwise indicated)**

 
| ** **                                                    | ** ** | **At December 31, 2011** | ** ** |
|---------------------------------------------------------------|------------|-----------------------------------------|------------|
| ** **                                                    | ** ** | **Level 1**                        | ** ** | **Level 2** | ** ** | **Level 3** | ** ** | **Total** | ** ** |
| *Assets:*                                                     |       |                                    |       |   |   |   |   |   |   |
| Interest and capital bonds                                    |       | Ps.                                     | —     |   | Ps. | 140,255 |   | Ps. | — |   | Ps. | 140,255 |   |
| Plan assets — seniority   premium fund                   |       | 38,850                                  |       | — |   | — |   | 38,850 |   |
| Derivative financial   instruments — corn                |       | 14,876                                  |       | — |   | — |   | 14,876 |   |
| Derivative financial   instruments — exchange rate       |       | —                                  |       | 88,537 |   | — |   | 88,537 |   |
|                                                          |       | Ps.                                     | 53,726     |   | Ps. | 228,792 |   | Ps. | — |   | Ps. | 282,518 |   |
|                                                          |       |                                    |       |   |   |   |   |   |   |
| *Liabilities:*                                                |       |                                    |       |   |   |   |   |   |   |
| Derivative financial   instruments — other raw materials |       | Ps.                                     | —     |   | Ps. | — |   | Ps. | 46,013 |   | Ps. | 46,013 |   |

 

Level 1 - Quoted prices for identical instruments in active markets

 

Financial instruments that are negotiated in active markets are classified as Level 1. The inputs used in the Company’s financial statements to measure the fair value include the following:

 

·        Quoted market prices of corn listed on the Chicago Board of Trade.

·        Quoted market prices of natural gas listed on the NYMEX Exchange.

 

Level 2 - Quoted prices for similar instruments in active markets

 

Financial instruments that are classified as Level 2 refer mainly to quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, as well as model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.

 

Level 3 - Valuation techniques

 

The Company has classified as Level 3 those financial instruments whose fair values are obtained using valuation models that include observable inputs but also include certain unobservable inputs.

 

The table below includes a roll-forward of the balance sheet amounts for the years ended December 31, 2012 and 2011 for financial instruments classified by the Company within Level 3 of the valuation hierarchy. When a determination is made to classify a financial instrument within Level 3, it is due to the use of significant unobservable inputs. However, Level 3 financial instruments typically include, in addition to the unobservable or level 3 components, observable components (that is, components that are actively quoted and can be validated to external sources); accordingly, the gains and losses in the table below include changes in fair value due, in part, to observable factors that are part of the valuation methodology:

 

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**GRUMA, S.A.B. DE C.V. AND SUBSIDIARIES**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**AS OF DECEMBER 31, 2012 AND 2011**

**(In thousands of Mexican pesos, except where otherwise indicated)**

 
| ** **                                     | ** ** | **Contingent   payment due to   repurchase of the   Company’s own   shares** | ** ** | **Derivative   financial   instruments —   other raw   materials** | ** ** |
|------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------|------------|
| Beginning balance as of   January 1, 2011 |       | Ps.                                                                                                        | —     |                                                                              | Ps.        | — |   |
| Losses recognized in the   income statement    |       | —                                                                                                     |       | 46,013                                                                            |       |
| Ending balance as of   December 31, 2011  |       | —                                                                                                     |       | 46,013                                                                            |       |
| Gain recognized in the   income statement      |       | —                                                                                                     |       | (17,781                                                                           | )          |
| Additional provision                           |       | 606,495                                                                                                    |       | —                                                                            |       |
| Ending   balance as of December 31, 2012  |       | Ps.                                                                                                        | 606,495    |                                                                              | Ps.        | 28,832 |   |

 

Regarding the contingent payment due to repurchase of the Company’s own shares and as mentioned in Note 3, the Company recognized a contingent payment liability amounting to Ps.606,495 (U.S.$46.6 million), regarding the scenario identified as (i) in that Note. This provision is related to the increase in GRUMA’s shares market price, over the closing price of GRUMA’s shares determined for purposes of the transaction, at the end of a 42-month period.

 

The contingent payment liability was recognized at fair value, which was determined using discounted future cash flows and a discount rate which represented the average rate of return of bonds issued by companies comparable to GRUMA. Subsequent changes in the fair value of the contingent payment liability will be recognized in the income statement. The Monte Carlo simulation model was used to estimate the future price of the shares; this model includes the expected return and weighted volatility of historical prices of GRUMA’s shares over a period of 42 months.

 

Significant data used to determine the fair value of the contingent payment liability at December 31, 2012 is as follows:

 
| Weighted volatility of   historical prices of GRUMA’s shares |   | 29.78%              |   |
|-------------------------------------------------------------------|--------|---------------------|--------|
| Weighted average price of   GRUMA’s shares (simulated)       |   | Ps.58.79 per share  |   |
| Forward exchange rate                                             |   | Ps.14.65 per dollar |   |
| Discount rate                                                     |   | 7.30%               |   |

 

An increase or decrease of 10% in the disccount rate used for the calculation of fair value, would result in an effect of Ps.12,100.

 

Regarding the measurement of the fair value of the other Level 3 financial instruments, for the years 2012 and 2011, the Company’s management believes that a possible reasonable change in unobservable assumptions would not cause a variation where the fair value can materially exceed the book value. For the Company, the unobservable input included in the valuation of the other Level 3 financial instruments, refers solely to the Company’s own credit risk.

 

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**GRUMA, S.A.B. DE C.V. AND SUBSIDIARIES**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**AS OF DECEMBER 31, 2012 AND 2011**

**(In thousands of Mexican pesos, except where otherwise indicated)**

 

**22. EXPENSES BY NATURE**

 

Expenses by nature are presented in the income statement within the captions of cost of sales and selling and administrative expenses and are analyzed as follows:

 
| ** **                                                          | ** ** | **2012**   | ** ** | **2011**   | ** ** | **2010**   | ** ** |
|---------------------------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|
| Cost of raw materials   consumed and changes in inventory (Note 10) |       | Ps.        | 31,479,110 |       | Ps.        | 34,374,608 |       | Ps. | 26,697,273 |   |
| Employee benefit expenses   (Note 24)                               |       | 13,437,016 |       | 11,715,816 |       | 10,215,398 |       |
| Depreciation (Note 13)                                              |       | 1,664,677  |       | 1,526,946  |       | 1,448,154  |       |
| Amortization (Note 14)                                              |       | 80,039     |       | 69,697     |       | 54,380     |       |
| Rental expense of   operating leases (Note 26)                      |       | 790,979    |       | 701,370    |       | 745,613    |       |
| Research and development   expenses (Note 14)                       |       | 136,826    |       | 91,011     |       | 76,604     |       |
|                                                                     |            |            |            |            |            |            |            |  |  |  |

 

**23. OTHER EXPENSES, NET**

 

Other expenses, net comprised the following:

 
| ** **                                         | ** ** | **2012** | ** ** | **2011** | ** ** | **2010** | ** ** |
|----------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Expenses related to   Venezuela legal proceedings  |       | Ps.      | —     |     | Ps.        | —   |       | Ps. | (403,712 | ) |
| Net loss from sale of   fixed assets               |       | (14,053  | )          | (4,201   | )          | (26,912  | )          |
| Net (loss) gain from sale   of scrap               |       | 1,407    |       | 1,084    |       | (704     | )          |
| Impairment loss on   long-lived assets             |       | (4,014   | )          | (93,808  | )          | —   |       |
| Cost of written-down fixed   assets                |       | (37,681  | )          | (52,271  | )          | —   |       |
| Current employees’   statutory profit sharing |       | (79,610  | )          | (36,959  | )          | (50,361  | )          |
| Non-recoverable   cost of damaged assets           |       | (5,852   | )          | (17,695  | )          | (37,043  | )          |
| Result   from derivative financial instruments     |       | 38,148   |       | —   |       |     |       |
| Total                                              |       | Ps.      | (101,655   | )        | Ps.        | (203,850 | )          | Ps. | (518,732 | ) |
|                                                    |            |          |            |          |            |          |            |  |  |  |  |

 

**24. EMPLOYEE BENEFIT EXPENSES**

 

Employee benefit expenses are comprised of the following:

 
| ** **                                                      | ** ** | **2012** | ** ** | **2011** | ** ** | **2010**   | ** ** |
|-----------------------------------------------------------------|------------|----------|------------|----------|------------|------------|------------|
| Salaries, wages and   benefits (including termination benefits) |       | Ps.      | 12,399,235 |     | Ps.        | 10,989,724 |       | Ps. | 9,556,890 |   |
| Social security   contributions                                 |       | 861,197  |       | 690,745  |       | 602,360    |       |
| Employment benefits (Note   19)                                 |       | 176,584  |       | 35,347   |       | 56,148     |       |
| Total                                                           |       | Ps.      | 13,437,016 |     | Ps.        | 11,715,816 |       | Ps. | 10,215,398 |   |
|                                                                 |            |          |            |          |            |            |            |  |  |  |  |  |

 

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**GRUMA, S.A.B. DE C.V. AND SUBSIDIARIES**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**AS OF DECEMBER 31, 2012 AND 2011**

**(In thousands of Mexican pesos, except where otherwise indicated)**

 

**25.  INCOME TAX EXPENSE**

 

**A)  INCOME BEFORE INCOME TAX**

 

The domestic and foreign components of income before income tax are the following:

** **
| ** ** | ** ** | **For the years ended December 31,** | ** ** |
|------------|------------|---------------------------------------------------------------|------------|
| ** ** | ** ** | **2012**                                                      | ** ** | **2011** | ** ** | **2010** | ** ** |
| Domestic   |       | Ps.                                                           | 932,725    |   | Ps. | 5,995,927 |   | Ps. | 665,708 |   |
| Foreign    |       | 1,854,325                                                     |       | 1,626,467 |   | 813,339 |   |
|       |       | Ps.                                                           | 2,787,050  |   | Ps. | 7,622,394 |   | Ps. | 1,479,047 |   |
|            |            |                                                               |            |  |  |  |  |  |  |  |  |  |

 

**B)  COMPONENTS OF INCOME TAX EXPENSE**

 

The components of income tax expense are the following:

 
| ** **                                   | ** ** | **2012**   | ** ** | **2011**   | ** ** | **2010**   | ** ** |
|----------------------------------------------|------------|------------|------------|------------|------------|------------|------------|
| ** **                                   | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Current tax:                                 |       |       |       |       |       |       |       |
| Current tax on profits for the year          |       | Ps.        | (728,166   | )          | Ps.        | (866,734   | )          | Ps. | (669,498 | ) |
| Adjustments in respect of prior years        |       | (38,568    | )          | (137,512   | )          | 90,768     |       |
| Total current tax                            |       | (766,734   | )          | (1,004,246 | )          | (578,730   | )          |
|                                         |       |       |       |       |       |       |       |
| Deferred tax:                                |       |       |       |       |       |       |       |
| Origin and reversal of temporary differences |       | (454,631   | )          | (1,035,147 | )          | (260,831   | )          |
| Tax credit derived from foreign dividends    |       | 138,074    |       | 232,821    |       | —     |       |
| Total deferred tax                           |       | (316,557   | )          | (802,326   | )          | (260,831   | )          |
|                                         |       |       |       |       |       |       |       |
| Total income tax expense                     |       | Ps.        | (1,083,291 | )          | Ps.        | (1,806,572 | )          | Ps. | (839,561 | ) |
|                                              |            |            |            |            |            |            |            |  |  |  |  |  |  |

 

Domestic federal, foreign federal and state income taxes in the consolidated statements of income consisted of the following components:

 
| ** **         | ** ** | **For the years ended December 31,** | ** ** |
|--------------------|------------|---------------------------------------------------------------|------------|
| ** **         | ** ** | **2012**                                                      | ** ** | **2011** | ** ** | **2010** | ** ** |
| Current:           |       |                                                          |       |   |   |   |   |
| Domestic federal   |       | Ps.                                                           | (208,851   | ) | Ps. | (316,407 | ) | Ps. | (179,565 | ) |
| Foreign federal    |       | (514,142                                                      | )          | (644,174 | ) | (355,500 | ) |
| Foreign state      |       | (43,741                                                       | )          | (43,665 | ) | (43,665 | ) |
|               |       | (766,734                                                      | )          | (1,004,246 | ) | (578,730 | ) |
| Deferred:          |       |                                                          |       |   |   |   |   |
| Domestic federal   |       | (146,711                                                      | )          | (896,374 | ) | (271,451 | ) |
| Foreign federal    |       | (175,269                                                      | )          | 88,634 |   | 17,765 |   |
| Foreign state      |       | 5,423                                                         |       | 5,414 |   | (7,145 | ) |
|               |       | (316,557                                                      | )          | (802,326 | ) | (260,831 | ) |
| Total income taxes |       | Ps.                                                           | (1,083,291 | ) | Ps. | (1,806,572 | ) | Ps. | (839,561 | ) |

 

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**GRUMA, S.A.B. DE C.V. AND SUBSIDIARIES**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**AS OF DECEMBER 31, 2012 AND 2011**

**(In thousands of Mexican pesos, except where otherwise indicated)**

 

**C)  RECONCILIATION OF FINANCIAL AND TAXABLE INCOME**

 

For the years ended December 31, 2012, 2011 and 2010, the reconciliation between statutory income tax amounts and the effective income tax amounts is summarized as follows:

 
| ** **                                                                             | ** ** | **2012** | ** ** | **2011** | ** ** | **2010**   | ** ** |
|----------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|------------|------------|
| Statutory federal income   tax (30% for 2012, 2011 and 2010)                           |       | Ps.      | (836,115   | )        | Ps.        | (2,286,719 | )          | Ps. | (443,714 | ) |
| Foreign dividends                                                                      |       | —   |       | —   |       | (278,705   | )          |
| Effects related to   inflation                                                         |       | (105,677 | )          | 119,454  |       | (197,016   | )          |
| Foreign income tax rate   differences                                                  |       | (90,616  | )          | (67,105  | )          | (88,238    | )          |
| Tax credit derived from   foreign dividends                                            |       | 383,740  |       | 232,821  |       | —     |       |
| Recoverable asset tax   written off                                                    |       | (209,940 | )          | —   |       | —     |       |
| Tax loss carryforwards   used                                                          |       | (86,620  | )          | 186,772  |       | 248,031    |       |
| Non-deductible expenses   related with legal proceedings in Venezuela                  |       | —   |       | —   |       | (80,727    | )          |
| Nondeductible expenses and   others                                                    |       | (138,063 | )          | 8,204    |       | 808        |       |
| Effective income tax   (38.87%, 23.7% and 56.8% for 2012, 2011 and 2010, respectively) |       | Ps.      | (1,083,291 | )        | Ps.        | (1,806,572 | )          | Ps. | (839,561 | ) |
|                                                                                        |            |          |            |          |            |            |            |  |  |  |  |  |  |

 

In Mexico, the Federal Revenue Act for 2013 was issued on December 9, 2012 and published in the Official Journal of the Federation on December 17, 2012. This law established that the current income tax rate for 2013 will be 30% instead of 29%, and also specified that an income tax rate of 29% will apply for 2014 and 28% from 2015 and onwards.

 

In the United States of America, in late 2012, the Senate approved and passed to the Representatives changes to the Revenue Act, which were signed by the President of the United States in early January 2013 and are considered substantially approved. At December 31, 2012, this Act has no impact in either current or deferred taxes determined by the Company.

 

**26. COMMITMENTS**

 

**A) OPERATING LEASES**

 

The Company is leasing certain facilities and equipment under long-term lease agreements in effect through 2027, which include an option for renewal. These agreements are recognized as operating leases, since the contracts do not transfer substantially all risks and advantages inherent to ownership.

 

Future minimum lease payments under operating lease agreements are as follows:

 
| ** **                                    | ** ** | **2012**  | ** ** | **2011**  | ** ** |
|-----------------------------------------------|------------|-----------|------------|-----------|------------|
| No later than 1 year                          |       | Ps.       | 612,521    |      | Ps.        | 624,025 |   |
| Later than 1 year and no   later than 5 years |       | 1,214,100 |       | 1,290,301 |       |
| Later than 5 years                            |       | 509,911   |       | 801,660   |       |
|                                          |       | Ps.       | 2,336,532  |      | Ps.        | 2,715,986 |   |

 

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**GRUMA, S.A.B. DE C.V. AND SUBSIDIARIES**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**AS OF DECEMBER 31, 2012 AND 2011**

**(In thousands of Mexican pesos, except where otherwise indicated)**

 

Rental expense was approximately Ps.790,979, Ps.701,370 and Ps.745,613 for the years ended December 31, 2012, 2011 and 2010, respectively.

 

The Company has a lease agreement of an aircraft for a 10-year term, which includes an early purchase option on the following dates: (a) on the fifth anniversary for a total of U.S.$34.7 million and (b) on the seventh anniversary for a total of U.S.$31.6 million.

 

**B) FINANCE LEASES**

 

At December 31, 2012 and 2011, the net carrying values of assets recorded under finance leases totaled Ps.22,683 and Ps.20,922, respectively, and corresponded to transportation and production equipment.

 

Future minimum lease payments under finance lease agreements are as follows:

 
| ** **                                    | ** ** | **2012** | ** ** | **2011** | ** ** |
|-----------------------------------------------|------------|----------|------------|----------|------------|
| No later than 1 year                          |       | Ps.      | 16,778     |     | Ps.        | 13,515 |   |
| Later than 1 year and no   later than 5 years |       | 22,787   |       | 23,805   |       |
|                                          |       | 39,565   |       | 37,320   |       |
| Future finance charges on   finance leases    |       | (649     | )          | (4,037   | )          |
| Present value of finance   lease liabilities  |       | Ps.      | 38,916     |     | Ps.        | 33,283 |   |
|                                               |            |          |            |          |            |  |  |  |

 

The present value of finance lease liabilities is as follows:

 
| ** **                                    | ** ** | **2012** | ** ** | **2011** | ** ** |
|-----------------------------------------------|------------|----------|------------|----------|------------|
| No later than 1 year                          |       | Ps.      | 16,294     |     | Ps.        | 12,432 |   |
| Later than 1 year and no   later than 5 years |       | 22,622   |       | 20,851   |       |
| Total                                         |       | Ps.      | 38,916     |     | Ps.        | 33,283 |   |
|                                               |            |          |            |          |            |  |  |  |

 

**C) OTHER COMMITMENTS**

 

At December 31, 2012 and 2011, the Company had various outstanding commitments to purchase commodities and raw materials in the United States for approximately Ps.2,680,523 and Ps.3,742,213, respectively (U.S.$206 and U.S.$268 million, respectively) and in Mexico for approximately Ps.624,485 and Ps.4,491,900, respectively (U.S.$48 and U.S.$322 million), which will be delivered during 2013. The Company has concluded that there are not embedded derivatives resulting from these contracts.

 

At December 31, 2012 and 2011, the Company had outstanding commitments to purchase machinery and equipment in Mexico and the United States amounting to approximately Ps.106,919 and Ps.255,724.

 

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**GRUMA, S.A.B. DE C.V. AND SUBSIDIARIES**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**AS OF DECEMBER 31, 2012 AND 2011**

**(In thousands of Mexican pesos, except where otherwise indicated)**

 

**27. CONTINGENCIES**

 

**MEXICO**

 

**Asset Tax Claim.-** The *Secretaría de Hacienda y Crédito Público*, or Ministry of Finance and Public Credit, lodged certain tax assessments against the Company for an amount of Ps. 34.3 million plus penalties, updates and charges, in connection with our asset tax return for the year 1997. The Company filed a motion to reduce or annul these assessments and received a favorable judgment reducing the claimed amount to Ps. 19.7 million. Thereafter, on September 3, 2012 the Company requested to the Ministry of Finance and Public Credit a partial condonation of such assessment, by which the Company paid Ps. 14.5 million on September 28, 2012 to finalize the dispute.

 

**Income Tax Claim.-**The Ministry of Finance and Public Credit has lodged certain tax assessments against the Company for an amount of Ps. 29.9 million in connection with withholding on interest payments to our foreign creditors during the years 2001 and 2002. Mexican authorities claim that the Company should have withheld at a higher rate than the 4.9% actually withheld by the Company. The Company has filed several motions to annul these assessments which are pending resolution. We intend to defend against these claims vigorously, and we believe that the outcome of these claims will not have a material effect on our financial position, results of operation or cash flows.

 

The Ministry of Finance and Public Credit also lodged certain tax assessments against our Company for an amount of Ps. 63.6 million in connection with withholding on interest payments to our foreign creditors during the year 2000. Notwithstanding, the Company initiated several proceedings to annul such assessments, which resulted in a judgment favorable to the Company in May 2012, finalizing the dispute.

 

**CNBV Investigation.-** On December 8, 2009, the Surveillance Office of the *Comisión Nacional Bancaria y de Valores* (the Mexican National Banking and Securities Commission, or CNBV) began an investigation into the Company in respect of the timely disclosure of material events reported through the Mexican Stock Exchange during the end of 2008 and throughout 2009 in connection with the Company’s foreign exchange derivative losses and the subsequent conversion of the realized losses into debt.  In 2011, the CNBV commenced an administrative proceeding against the Company for alleged infringements to applicable legislation.  The Company has participated in this proceeding in order to demonstrate its compliance with current legislation and to adopt applicable defenses as deemed appropriate in order to protect Gruma’s interests.  As of this date, the aforementioned proceeding is ongoing, and the CNBV has not issued a final resolution in connection therewith.

 

We intend to vigorously defend against these actions and proceedings.  It is the opinion of the Company that the outcome of this proceeding will not have a material adverse effect on the financial position, results of operations or cash flows of the Company.

 

**UNITED STATES**

 

**Cox v. Gruma Corporation.-** On or about December 21, 2012, a consumer filed a putative class action against Gruma Corporation, claiming that Mission tortilla chips should not be labeled “All Natural” if they contain certain non-natural ingredients. The plaintiff seeks restitution or other actual damages including attorneys’ fees. Gruma Corporation believes that the claims have no merit and filed a motion to dismiss. In response to the motion to dismiss, plaintiff filed a First Amended Complaint. Guma filed a motion to dismiss the First Amended Complaint on April 10, 2013.

 

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** **

**GRUMA, S.A.B. DE C.V. AND SUBSIDIARIES**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**AS OF DECEMBER 31, 2012 AND 2011**

**(In thousands of Mexican pesos, except where otherwise indicated)**

 

We intend to vigorously defend against this action.  It is the opinion of the Company that the outcome of this proceeding will not have a material adverse effect on the financial position, results of operations or cash flows of the Company.

 

**VENEZUELA**

 

**Expropriation Proceedings by the Venezuelan Government**.- On May 12, 2010, the Bolivarian Republic of Venezuela (the “Republic”) published in the Official Gazette of Venezuela decree number 7,394 (the “Expropriation Decree”), dated April 27, 2010 which announced the forced acquisition of all goods, movables and real estate of MONACA. The Republic has expressed to GRUMA’s representatives that the Expropriation Decree extends to DEMASECA.

 

As stated in the Expropriation Decree and in accordance with the Venezuelan Expropriation Law (the “Expropriation Law”), the transfer of legal ownership can occur either through an “Amicable Administrative Arrangement” or a “Judicial Order”. Each process requires certain steps as indicated in the Expropriation Law, neither of which has occurred. Therefore, as of this date, no formal transfer of title of the assets covered by the Expropriation Decree has taken place.

 

GRUMA’s interests in MONACA and DEMASECA are held through two Spanish companies: Valores Mundiales, S.L. (“Valores Mundiales”) and Consorcio Andino, S.L. (“Consorcio Andino”). In 2010, Valores Mundiales and Consorcio Andino (collectively, the “Investors”) commenced negotiations with the Republic with the intention of reaching an amicable settlement. Through Valores Mundiales and Consorcio Andino, GRUMA participated in these negotiations with a view to (i) continuing its presence in Venezuela by potentially entering into a joint venture with the Venezuelan government; and/or (ii) seeking adequate compensation for the assets subject to expropriation.

 

The Republic and the Kingdom of Spain are parties to a Treaty on Reciprocal Promotion and Protection of Investments, dated November 2, 1995 (the “Investment Treaty”), under which the Investors may settle investment disputes by means of arbitration before the International Centre for Settlement of Investment Disputes (“ICSID”). On November 9, 2011, the Investors, MONACA and DEMASECA provided formal notice to the Republic that an investment dispute had arisen as a consequence of the Expropriation Decree and related measures adopted by the Republic. In that notification, the Investors, MONACA and DEMASECA also agreed to submit the dispute to ICSID arbitration if the parties were unable to reach an amicable agreement.

 

On January 22, 2013, the Venezuelan Government issued a resolution providing the right to take control over the operations of MONACA and DEMASECA. See Note 30-B.

 

While negotiations with the government may take place from time to time, the Company cannot assure that such negotiations will be successful or will result in the Investors receiving adequate compensation, if any, for their investments subject to the Expropriation Decree. Additionally, the Company cannot predict the results of any arbitral proceeding, or the ramifications that costly and prolonged legal disputes could have on its results of operations or financial position, or the likelihood of collecting a successful arbitration award. The Company and its subsidiaries reserve and intend to continue to reserve the right to seek full compensation for any and all expropriated assets and investments under applicable law, including investment treaties and customary international law.

 

Pending resolution of this matter, based on preliminary fair value calculations, no impairment charge on GRUMA’s net investment in MONACA and DEMASECA has been identified. The Company is

 

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**GRUMA, S.A.B. DE C.V. AND SUBSIDIARIES**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**AS OF DECEMBER 31, 2012 AND 2011**

**(In thousands of Mexican pesos, except where otherwise indicated)**

 

also unable to estimate the value of any future impairment charge, if one will be taken. The historical value as of December 31, 2012 of the net investment in MONACA and DEMASECA was Ps.2,901,726 and Ps.188,563, respectively. The Company does not maintain insurance for the risk of expropriation of its investments.

 

Below is financial information regarding MONACA and DEMASECA as of December 31, 2012 and 2011 (there are no material transactions between MONACA and DEMASECA and the Company that need to be eliminated):

 
| ** **                                       | ** ** | **At December 31,   2012** | ** ** | **At December 31,   2011** | ** ** |
|--------------------------------------------------|------------|--------------------------------------|------------|--------------------------------------|------------|
| Current   assets                                 |       | Ps.                                  | 4,463,157  |                                 | Ps.        | 3,934,554 |   |
| Non-current   assets                             |       | 2,624,411                            |       | 2,495,680                            |       |
| Total   assets                                   |       | 7,087,569                            |       | 6,430,234                            |       |
| *Percentage from consolidated total assets*      |       | 14.3                                 | %          | 14.4                                 | %          |
|                                             |       |                                 |       |                                 |       |
| Current   liabilities                            |       | 2,853,060                            |       | 2,999,526                            |       |
| Non-current   liabilities                        |       | 95,132                               |       | 22,356                               |       |
| Total   liabilities                              |       | 2,948,192                            |       | 3,021,882                            |       |
| *Percentage from consolidated total liabilities* |       | 8.4                                  | %          | 11.3                                 | %          |
|                                             |       |                                 |       |                                 |       |
| Total   net assets                               |       | 4,139,377                            |       | 3,408,352                            |       |
| *Percentage from consolidated total net assets*  |       | 28.8                                 | %          | 19.2                                 | %          |
|                                             |       |                                 |       |                                 |       |
| Non-controlling   interest                       |       | 1,049,088                            |       | 971,205                              |       |
| Interest   of Gruma in total net assets          |       | Ps.                                  | 3,090,289  |                                 | Ps.        | 2,437,147 |   |
|                                                  |            |                                      |            |                                      |            |  |  |  |

 

The condensed statements of income for MONACA and DEMASECA for the years ended December 31, 2012, 2011 and 2010, are as follows:

 
| ** **                                      | ** ** | **For the year ended December 31,** | ** ** |
|-------------------------------------------------|------------|--------------------------------------------------------------|------------|
| ** **                                      | ** ** | **2012**                                                     | ** ** | **2011** | ** ** | **2010** | ** ** |
| Net   sales                                     |       | Ps.                                                          | 9,907,182  |   | Ps. | 9,156,603 |   | Ps. | 5,381,849 |   |
| *Percentage from consolidated net sales*        |       | 15.4                                                         | %          | 15.9 | % | 11.6 | % |
|                                            |       |                                                         |       |   |   |   |   |
| Operating   income                              |       | 444,525                                                      |       | 674,068 |   | (26,200 | ) |
| *Percentage from consolidated operating income* |       | 12.6                                                         | %          | 20.2 | % | (1.3 | )% |
|                                            |       |                                                         |       |   |   |   |   |
| Net   (loss) income                             |       | 321,750                                                      |       | 685,887 |   | (256,375 | ) |
| *Percentage from consolidated net income*       |       | 18.9                                                         | %          | 11.8 | % | (40.1 | )% |
|                                                 |            |                                                              |            |  |  |  |  |  |  |  |

 

**Intervention Proceedings by the Venezuelan Government.-**On December 4, 2009, the Eleventh Investigations Court for Criminal Affairs of Caracas issued an order authorizing the precautionary seizure of assets in which Ricardo Fernández Barrueco had any interest. As a result of Ricardo Fernández Barrueco’s former indirect minority ownership of MONACA and DEMASECA, these subsidiaries were subject to the precautionary measure. Between 2009 and 2012, the Ministry of Finance of Venezuela, pursuant to the precautionary measure ordered by the court, designated several special managers of the indirect minority shareholding that  Ricardo Fernández Barrueco previously

 

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** **

**GRUMA, S.A.B. DE C.V. AND SUBSIDIARIES**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**AS OF DECEMBER 31, 2012 AND 2011**

**(In thousands of Mexican pesos, except where otherwise indicated)**

 

owned in MONACA and DEMASECA. On January 22, 2013, the Ministry of Justice and Internal Relations revoked the prior designations made by the Ministry of Finance of Venezuela and made a new designation of individuals as special managers and representatives on behalf of the Republic of Venezuela of MONACA and DEMASECA, providing the right to take control over the operations of these companies. See Note 30-B.

 

As a result of the foregoing, MONACA and DEMASECA, as well as Consorcio Andino and Valores Mundiales, as holders of the Venezuelan subsidiaries, filed a petition as aggrieved third-parties to the proceedings against Ricardo Fernández Barrueco challenging the precautionary measures and all related actions. On November 19, 2010, the Eleventh Investigations Court for Criminal Affairs of Caracas ruled that MONACA and DEMASECA are companies wholly controlled by Valores Mundiales and Consorcio Andino, respectively. However, the precautionary measures issued on December 4, 2009 were kept in effect by the court, despite the court’s recognition that Valores Mundiales and Consorcio Andino are the sole owners of MONACA and DEMASECA, respectively. An appeal has been filed, which is pending resolution as of this date.

 

INDEPABIS issued an order, on a precautionary basis, authorizing the temporary occupation and operation of MONACA for a period of 90 calendar days from December 16, 2009, which was renewed for the same period on March 16, 2010. The order expired on June 16, 2010 and as of the date hereof MONACA has not been notified of any extension or similar measure. INDEPABIS has also initiated a regulatory proceeding against MONACA in connection with alleged failure to comply with regulations governing precooked corn flour and for allegedly refusing to sell this product as a result of the December 4, 2009 precautionary asset seizure described above. The Company filed an appeal against these proceedings which has not been resolved as of the date hereof.

 

Additionally, INDEPABIS initiated an investigation of DEMASECA and issued an order, on a precautionary basis, authorizing the temporary occupation and operation of DEMASECA for a period of 90 calendar days from May 25, 2010, which was extended until November 21, 2010. INDEPABIS issued a new precautionary measure of occupation and temporary operation of DEMASECA, valid for the duration of this investigation. DEMASECA has challenged these measures but as of the date hereof, no resolution has been issued. The proceedings are still ongoing.

 

The Company intends to exhaust all legal remedies available in order to safeguard and protect the Company’s legitimate interests.

 

**Other claims.-** MONACA was named in several labor lawsuits related to occupational diseases and workplace accidents, issues related to social security, Caleteros and by representatives of freighters. MONACA, based on the opinion of its legal counsel, has recorded a provision to cover potential liabilities that may arise for these items by Ps.9,270 (Ps.17,438 at December 31, 2011), which is presented as Provisions, Note 17.

 

In the normal course of operations of MONACA, there are judgments and claims, whose final outcome cannot be quantified. Management, based on the opinion of its legal counsel, believes that such lawsuits and claims are not entirely appropriate and that the legal remedies will be favorably received.

 

There are also other lawsuits, labor and tax claims against MONACA, which have been assumed by the previous shareholder International Multifoods Corporation (IMF), in accordance with the share purchase agreement of 1999.

 

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**GRUMA, S.A.B. DE C.V. AND SUBSIDIARIES**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**AS OF DECEMBER 31, 2012 AND 2011**

**(In thousands of Mexican pesos, except where otherwise indicated)**

 

Finally, the Company and its subsidiaries are involved in various pending litigations filed in the normal course of business. It is the opinion of the Company that the outcome of these proceedings will not have a material adverse effect on the financial position, results of operations, or cash flows of the Company.

 

**28.  RELATED PARTIES**

 

Related party transactions were carried out at market value.

 

**A)  SALES OF GOODS AND SERVICES**

** **
| ** **                                                  | ** ** | **For the years ended December 31,** | ** ** |
|-------------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                                                  | ** ** | **2012**                                                      | ** ** | **2011** | ** ** | **2010** | ** ** |
| ** **                                                  | ** ** | ** **                                                    | ** ** | ** ** | ** ** | ** ** | ** ** |
| Sales   of goods:                                           |       |                                                          |       |   |   |   |   |
| Associate                                                   |       | Ps.                                                           | 49,783     |   | Ps. | 41,318 |   | Ps. | 27,834 |   |
| Sale   of services:                                         |       |                                                          |       |   |   |   |   |
| Entities   that have significant influence over the Company |       | 34,106                                                        |       | 41,519 |   | 21,599 |   |
| Associate                                                   |       | 1,294                                                         |       | 1,349 |   | 1,270 |   |
|                                                        |       | Ps.                                                           | 85,183     |   | Ps. | 84,186 |   | Ps. | 50,703 |   |

 

**B)  PURCHASES OF GOODS AND SERVICES**

 
| ** **                                                  | ** ** | **For the years ended December 31,** | ** ** |
|-------------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                                                  | ** ** | **2012**                                                      | ** ** | **2011** | ** ** | **2010** | ** ** |
| Purchases of goods:                                         |       |                                                          |       |   |   |   |   |
| Entities   that have significant influence over the Company |       | Ps.                                                           | 2,350,350  |   | Ps. | 1,836,942 |   | Ps. | 1,239,716 |   |
| Associate                                                   |       | 931                                                           |       | 539 |   | 210 |   |
|                                                        |       |                                                          |       |   |   |   |   |
| Purchases   of services:                                    |       |                                                          |       |   |   |   |   |
| Associate                                                   |       | 33,385                                                        |       | 31,048 |   | 28,247 |   |
| Other   related parties                                     |       | 114,422                                                       |       | 110,239 |   | 113,004 |   |
|                                                        |       | Ps.                                                           | 2,499,088  |   | Ps. | 1,978,768 |   | Ps. | 1,381,177 |   |

 

Other transactions with related parties are identified in Note 3.

 

**C)  KEY MANAGEMENT PERSONNEL COMPENSATION**

 

Key management includes Board members, alternate Board members, officers and members of the Audit Committee and Corporate Practice Committee. The compensation paid to key management for employee services is shown below:

 
| ** **                                        | ** ** | **2012** | ** ** | **2011** | ** ** | **2010** | ** ** |
|---------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Salaries and other   short-term employee benefits |       | Ps.      | 179,492    |     | Ps.        | 186,707  |       | Ps. | 149,588 |   |
| Termination benefits                              |       | 33,527   |       | 20,227   |       | —   |       |
| Total                                             |       | Ps.      | 213,019    |     | Ps.        | 206,934  |       | Ps. | 149,588 |   |

 

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**GRUMA, S.A.B. DE C.V. AND SUBSIDIARIES**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**AS OF DECEMBER 31, 2012 AND 2011**

**(In thousands of Mexican pesos, except where otherwise indicated)**

 

At December 31, 2012, 2011 and 2010, the reserve for deferred compensation amounted to Ps.62.3, Ps.49.8 and Ps.53.7 million, respectively.

 

**D)  BALANCES WITH RELATED PARTIES**

 

At December 31, 2012 and 2011, the balances with related parties were as follows:

 
| ** **                            | ** ** | **Nature********of the********transaction** | ** ** | **At********December 31,   2012** | ** ** | **At********December 31,   2011** | ** ** |
|---------------------------------------|------------|--------------------------------------------------|------------|----------------------------------------|------------|----------------------------------------|------------|
| ** **                            | ** ** | ** **                                       | ** ** | ** **                             | ** ** | ** **                             | ** ** |
| *Receivables   from related parties:* |       |                                             |       |                                   |       |                                   |       |   |
| Associate                             |       | Commercial                                       |       | Ps.                                    | 1,423      |                                   | Ps.        | 2,855 |   |
| Other   related parties               |       | and   services                                   |       |                                   | 2,391      |                                   |       | — |   |
|                                  |       |                                             |       | Ps.                                    | 3,814      |                                   | Ps.        | 2,855 |   |
|                                  |       |                                             |       |                                   |       |                                   |       |
| *Payables   from related parties:*    |       |                                             |       |                                   |       |                                   |       |
| Other related parties                 |       | Services                                         |       | Ps.                                    | 845        |                                   | Ps.        | 131,772 |   |
|                                       |            |                                                  |            |                                        |            |                                        |            |  |  |  |

 

The balances payable to related parties at December 31, 2012 expire during 2013 and do not bear interest.

 

**29.  FINANCIAL STANDARDS ISSUED BUT NOT YET EFFECTIVE**

 

The new IFRS, which will become effective after the issuance of the Company’s financial statements, are explained below. This list includes those IFRS standards which the Company reasonably expects to apply in the future. The Company has the intention of adopting these new IFRS on the date they become effective.

 

**A)****          ****NEW STANDARDS**

 

a. IFRS 9, “Financial Instruments”

 

IFRS 9, “Financial Instruments” was published in November 2009 and contained requirements for the classification and measurement of financial assets. Requirements for financial liabilities were added to IFRS 9 in October 2010. Most of the requirements for financial liabilities were carried forward unchanged from IAS 39. However, some changes were made to the fair value option for financial liabilities to address the issue of own credit risk. In December 2011, the IASB amended IFRS 9 in order to require its application for annual periods beginning on or after January 1, 2015.

 

b. IFRS 10, “Consolidated Financial Statements”

 

In May 2011 the IASB issued IFRS 10, “Consolidated Financial Statements”. This standard establishes the principles for the presentation and preparation of consolidated financial statements when an entity controls one or more other entities. IFRS 10 defines the principle of control and establishes control as the basis for determining which entities are consolidated in the financial statements. The standard also sets out the accounting requirements for the preparation of consolidated financial statements, as well as the requirements on how to apply the control principle. IFRS 10 supersedes IAS 27, “Consolidated and Separate Financial Statements” and SIC 12, “Consolidation — Special Purpose Entities”, and is effective for annual periods beginning on or after January 1, 2013.

 

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**GRUMA, S.A.B. DE C.V. AND SUBSIDIARIES**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**AS OF DECEMBER 31, 2012 AND 2011**

**(In thousands of Mexican pesos, except where otherwise indicated)**

 

c. IFRS 11, “Joint Arrangements”

 

In May 2011 the IASB issued IFRS 11, “Joint Arrangements”. IFRS 11 classifies joint arrangements into two types: joint operations and joint ventures. An entity determines the type of joint arrangement in which it is involved by considering its rights and obligations. For a joint operation, the assets, liabilities, revenues and expenses are measured in relation to its interest in the arrangement. For a joint venture, an investment is recognized and accounted using the equity method. Proportional consolidation of joint ventures is no longer allowed. IFRS 11 is effective for those annual periods beginning on or after January 1, 2013.

 

d. IFRS 12, “Disclosure of Interests in Other Entities”

 

IASB issued IFRS 12, “Disclosure of Interests in Other Entities” in May 2011. IFRS 12 requires an entity to disclose information that enables users of financial statements to evaluate the nature and the risks associated with its interest in other entities, such as joint arrangements, associates and special purpose entities. The standard is effective for annual periods beginning on or after January 1, 2013.

 

e. IFRS 13, “Fair Value Measurement”

 

In May 2011 the IASB issued IFRS 13, “Fair Value Measurement”. The objective of IFRS 13 is to provide a precise definition of fair value and a single source of fair value measurement and disclosure requirements, when it is required or allowed by other IFRS. IFRS 13 is effective for annual periods beginning on or after January 1, 2013.

 

**B)****          ****AMENDMENTS**

 

a. IAS 19, “Employee Benefits”

 

In June 2011 the IASB issued the revised IAS 19, “Employee Benefits”. The amendments eliminate the corridor approach and establish the calculation of interest expense on a net basis. The standard is effective for annual periods beginning on or after January 1, 2013.

 

b. IAS 27, “Separate Financial Statements”

 

In May 2011 the IASB issued a revised IAS 27 with a new title: “Separate Financial Statements”. This standard includes the provisions on separate financial statements that remained after the control provisions of IAS 27 were included in the new IFRS 10. The standard is effective for annual periods beginning on or after January 1, 2013.

 

c. IAS 28, “Investments in Associates and Joint Ventures”

 

In May 2011 the IASB issued a revised IAS 28 with a new title: “Investments in Associates and Joint Ventures”. This standard includes the requirements for joint ventures, as well as associates, to be accounted using the equity method. The standard is effective for annual periods beginning on or after January 1, 2013.

 

The Company’s management expects that the adoption of the new standards and amendments explained above will not have significant effects in its financial statements.

 

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**GRUMA, S.A.B. DE C.V. AND SUBSIDIARIES**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**AS OF DECEMBER 31, 2012 AND 2011**

**(In thousands of Mexican pesos, except where otherwise indicated)**

 

**30.  SUBSEQUENT EVENTS**

 

**A)****          ****DEVALUATION IN VENEZUELA**

 

On February 8, 2013 the National Executive, through the Central Bank of Venezuela and the Ministry of People’s Power for Planning and Finance, amended the Exchange Agreement which established that, from February 9, 2013, the exchange rate applicable to all operations conducted in foreign currency shall be Bs.6.2842 per U.S.$1.00 for purchase and Bs.6.30 per U.S.$1.00 for sale, maintaining the right of foreign currency settlement of Bs.4.30 per U.S.$1.00 for all requests of imports of goods and services that have been made authorized until February 8, 2013. Moreover, the President of the Central Bank of Venezuela announced the elimination of SITME exchange rate, which MONACA and DEMASECA have occasionally used for buying foreign currency in order to make payments arising from minor purchases of goods and services, as spare parts, equipment and quality audits, which are not defined by CADIVI in the lists of goods and services subject to preferential currency. It also decreed the creation of the Superior Entity for the Optimization of the Currency Exchange System, which will be dependent of the Ministry of People’s Power for Planning and Finance, the Central Bank of Venezuela and the Ministry of People’s Power of Petroleum and Mining; the purpose of this new entity is to design, plan and implement the strategies of the State on foreign currency exchange matters.

 

Based on the foreign currency positions at December 31, 2012 and the new exchange rates established in the Exchange Agreement No.14 of Bs.6.30 per U.S.$1.00 and interpretations of the Company’s management, the estimated financial effect from the enactment of this Exchange Agreement for those items that management believes will be settled at these new exchange rates, is an estimated net foreign exchange loss of Bs.19,494, which will be recognized in February 2013. Additionally, the effect on the financial position and the results of the Company for translating the financial information of the subsidiaries in Venezuela considering the exchange rate of Bs.6.30 per U.S.$1.00 will be a decrease of approximately 45% in the peso value of the consolidated financial information of these subsidiaries.

 

**B)****          ****LOSS OF CONTROL OF MONACA AND DEMASECA**

 

In connection with the order for the precautionary seizure of assets issued on December 4, 2009 and the Decree number 7,394 from April 27, 2010 (published on May 12, 2010 in the Official Gazette of Venezuela), both described in Note 27, the Ministry of Popular Power for Internal Relations and Justice published on January 22, 2013 the Administrative Providence number 004-13 dated January 21, 2013 (the “Providence”) in the Official Gazette of Venezuela. The dispositions contained in the Providence are effective starting the date when published in the Official Gazette.

 

Through this Providence, Special Managers were designated for MONACA and DEMASECA. The Preamble of the Providence indicates that its objective is to provide “the Special Managers, [...] with the broadest powers to execute all necessary actions with the purpose of pursuing continuity and avoid disruption of the operations of the companies under its management.” Consequently, Article 2 of the Providence provides Special Managers “with the broadest management faculties for ensuring the possession, care, custody, use, and conservation of movable and immovable assets of [Monaca and Demaseca]; in such regard, Special Managers must safeguard the assets, goods and rights from the companies indicated, in order to achieve their full operability.” Likewise, Article 4 orders that Special Managers “must present the financial statements for their performance at the end of its economic period [, and must] [...] comply with the public policies related to the agricultural food industry issued by the competent Ministry related with food, by providing required information.”

 

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**GRUMA, S.A.B. DE C.V. AND SUBSIDIARIES**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**AS OF DECEMBER 31, 2012 AND 2011**

**(In thousands of Mexican pesos, except where otherwise indicated)**

 

Based on the facts and circumstances described above and in Note 27 and following the principles set by IFRS, the Company concludes that it has lost the control of MONACA and DEMASECA on January 22, 2013. Consequently and as a result of such loss of control, the Company will cease the consolidation of the financial information of MONACA and DEMASECA starting January 22, 2013 and will present the net investment and results of operation of these companies as of such date as a discontinued operation.

 

As disclosed in Notes 7 and 27, at December 31, 2012, the total assets and liabilities of these subsidiaries in Venezuela were Ps.7,087,569 (Ps.6,430,234 in 2011) and Ps.2,948,192 (Ps.3,021,882 in 2011), respectively. For the years ended December 31, 2012, 2011 and 2010, these subsidiaries presented net sales of Ps.9,907,182, Ps.9,156,603 and Ps.5,381,849, and operating income of Ps.444,525, Ps.674,068 and Ps.(26,200), respectively.

 

Our interest in the total net assets of Venezuelan subsidiaries was Ps.3,090,289 at December 31, 2012. In January 2013 and as a result of the loss of control in these subsidiaries, the balance at December 31, 2012 corresponding to the foreign currency translation loss of Ps. 432,458, recorded in other comprehensive income relating to these subsidiaries, was transferred to income statement and presented as a discontinued operation.

 

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**Report of Independent Registered Public Accounting Firm**

**To the Board of Directors and Stockholders of Grupo Financiero**

**Banorte, S.A.B. de C.V. and Subsidiaries**

 

We have audited the accompanying consolidated balance sheets of Grupo Financiero Banorte, S.A.B. de C.V. and Subsidiaries (the “Financial Group”) as of December 31, 2010 and 2009, and the related consolidated statements of income and changes in stockholders’ equity for each of the three years in the period ended December 31, 2010, of cash flows for the years ended December 31, 2010 and 2009, and of changes in financial position for the year ended December 31, 2008. These consolidated financial statements are the responsibility of the Financial Group’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

 

We conducted our audits in accordance with auditing standards generally accepted in Mexico and with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and that they are prepared in conformity with the accounting practices prescribed by the Mexican National Banking and Securities Commission (the “Commission”). The Financial 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 Financial Group’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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.

 

Note 1 to the financial statements describes the Financial Group’s operations. Note 4 describes the accounting criteria established by the Commission in the “General Provisions Applicable to Banking Institutions”, which the Financial Group adheres to for the preparation of its financial information.

 

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Grupo Financiero Banorte, S. A.B. de C. V. and Subsidiaries as of December 31, 2010 and 2009, and the results of their operations and changes in their stockholders’ equity for each of the three years in the period ended December 31, 2010, their cash flows for the years ended December 31, 2010 and 2009 and changes in their financial position for the year ended December 31, 2008, in conformity with the accounting practices prescribed by the Mexican National Banking and Securities Commission.

 

Accounting practices prescribed by the Commission vary in certain significant respects from Mexican Financial Reporting Standards. The application of the latter would have affected the determination of stockholders’ equity and net income as of and for the years ended December 31, 2010 and 2009, to the extent summarized in Note 38.

 

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Accounting practices prescribed by the Commission vary in certain significant respects from accounting principles generally accepted in the United States of America. The application of the latter would have affected the determination of stockholders’ equity as of December 31, 2010 and 2009 and net income for each of the three years in the period ended December 31, 2010, to the extent summarized in Note 39.

 

The accompanying consolidated financial statements have been translated into English for the convenience of users.

 

Galaz, Yamazaki, Ruiz Urquiza, S. C.

Member of Deloitte Touche Tohmatsu Limited

 

 

CPC Fernando Nogueda Conde

Monterrey, N.L., Mexico

 

February 21, 2011

March 25, 2011 for Notes 38 and 39

 

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**GRUPO FINANCIERO BANORTE, S.A.B. DE C.V. AND SUBSIDIARIES**

**CONSOLIDATED BALANCE SHEETS**

**AS OF DECEMBER 31, 2010 AND 2009**

(In millions of Mexican pesos)

 
| ** **                                                   | ** ** | **2010**    | ** **  | **2009**    | ** ** |
|--------------------------------------------------------------|------------|-------------|-------------|-------------|------------|
| **ASSETS**                                                   | ** ** | ** **  | ** **  | ** **  | ** ** |
| **CASH AND   CASH EQUIVALENTS**                              | ** ** | **Ps.**     | **62,497**  | ** **  | **Ps.**    | ** 59,268** | ** ** |
|                                                         |       |        |        |        |       |
| **MARGIN   SECURITIES**                                      | ** ** | **177**     | ** **  | **18**      | ** ** |
|                                                         |       |        |        |        |       |
| **INVESTMENTS   IN SECURITIES**                              |       |        |        |        |       |
| Trading securities                                           |       | 66,181      |        | 24,459      |       |
| Available for sale   securities                              |       | 12,288      |        | 11,701      |       |
| Held to maturity   securities                                |       | 139,913     |        | 190,332     |       |
|                                                         | ** ** | **218,382** | ** **  | **226,492** | ** ** |
|                                                         |       |        |        |        |       |
| **DEBTOR   BALANCES UNDER REPURCHASE AND RESALE AGREEMENTS** | ** ** | **583**     | ** **  | **4**       | ** ** |
|                                                         |       |        |        |        |       |
| **DERIVATIVES   FINANCIAL INSTRUMENTS**                      | ** ** | ** **  | ** **  | ** **  | ** ** |
| For trading purposes                                         |       | 7,463       |        | 4,824       |       |
| For hedging purposes                                         |       | 596         |        | 1,056       |       |
|                                                         | ** ** | **8,059**   | ** **  | **5,880**   | ** ** |
| ** **                                                   | ** ** | ** **  | ** **  | ** **  | ** ** |
| **PERFORMING   LOAN PORTFOLIO**                              |       |        |        |        |       |
| Commercial loans                                             |       |        |        |        |       |
| Business loans                                               |       | 126,483     |        | 117,237     |       |
| Financial institutions’   loans                         |       | 5,521       |        | 7,131       |       |
| Government loans                                             |       | 47,550      |        | 38,993      |       |
| Consumer loans                                               |       | 27,828      |        | 25,712      |       |
| Mortgage loans                                               |       | 56,168      |        | 49,881      |       |
| **TOTAL   PERFORMING LOAN PORTFOLIO**                        | ** ** | **263,550** | ** **  | **238,954** | ** ** |
| ** **                                                   | ** ** | ** **  | ** **  | ** **  | ** ** |
| **PAST-DUE   LOAN PORTFOLIO**                                | ** ** | ** **  | ** **  | ** **  | ** ** |
| Commercial loans                                             |       |        |        |        |       |
| Business loans                                               |       | 4,417       |        | 3,163       |       |
| Consumer loans                                               |       | 1,276       |        | 1,942       |       |
| Mortgage loans                                               |       | 971         |        | 1,049       |       |
| **TOTAL   PAST-DUE LOAN PORTFOLIO**                          | ** ** | **6,664**   | ** **  | **6,154**   | ** ** |
| ** **                                                   | ** ** | ** **  | ** **  | ** **  | ** ** |
| **LOAN   PORTFOLIO**                                         | ** ** | **270,214** | ** **  | **245,108** | ** ** |
| (Minus) Allowance for loan   losses                          |       | (8,245      | )           | (7,535      | )          |
| **LOAN   PORTFOLIO, net**                                    | ** ** | **261,969** | ** **  | **237,573** | ** ** |
| **ACQUIRED   COLLECTION RIGHTS**                             | ** ** | **2,025**   | ** **  | **2,548**   | ** ** |
| **TOTAL LOAN   PORTFOLIO, net**                              | ** ** | **263,994** | ** **  | **240,121** | ** ** |
| ** **                                                   | ** ** | ** **  | ** **  | ** **  | ** ** |
| **RECEIVABLES   GENERATED BY SECURITIZATIONS**               | ** ** | **950**     | ** **  | **432**     | ** ** |
| **OTHER   ACCOUNTS RECEIVABLE, net**                         | ** ** | **10,864**  | ** **  | **11,324**  | ** ** |
| **MERCHANDISE   INVENTORY**                                  | ** ** | **49**      | ** **  | **119**     | ** ** |
| **FORECLOSED   ASSETS, net**                                 | ** ** | **809**     | ** **  | **928**     | ** ** |
| **PROPERTY,   FURNITURE AND EQUIPMENT, net**                 | ** ** | **9,316**   | ** **  | **8,622**   | ** ** |
| **PERMANENT   STOCK INVESTMENTS**                            | ** ** | **3,130**   | ** **  | **3,036**   | ** ** |
| **DEFERRED   TAXES, net**                                    | ** ** | **1,340**   | ** **  | **1,411**   | ** ** |
|                                                         |       |        |        |        |       |
| **OTHER   ASSETS**                                           |       |        |        |        |       |
| Other assets, deferred   charges and intangible assets       | ** ** | **10,408**  | ** **  | **9,483**   | ** ** |
| **TOTAL   ASSETS**                                           | ** ** | **Ps.**     | **590,558** | ** **  | **Ps.**    | **567,138** | ** ** |

 

MEMORANDUM ACCOUNTS (Note 33)

 

These balance sheets, consolidated with those of the financial entities and other companies that form part of the Financial Group and are susceptible to consolidation, were prepared according to accounting principles applicable to Financial Service Holding Companies issued by the Mexican National Banking and Securities Commission according to article 30 of the Law of Financial Institutions. Such principles are consistently applied in the financial statements, which are presented according to sound practices and applicable legal and administrative provisions and reflect all the operations conducted by the Financial Group, its financial service subsidiaries and the other companies that form part of the Financial Group and are consolidated as of the balance sheet dates above. The stockholders’ equity amounts to Ps. 7,016 (nominal value).

 

The accompanying Consolidated Balance Sheets have been approved by the Board of Directors in accordance with the responsibility assigned to them. The attached notes are an integral part of these consolidated balance sheets.

 

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| ** **                                                     | ** ** | **2010**    | ** **  | **2009**    | ** ** |
|----------------------------------------------------------------|------------|-------------|-------------|-------------|------------|
| **LIABILITIES**                                                |       |        |        |        |       |
| **DEPOSITS**                                                   |       |        |        |        |       |
| Demand deposits                                                |       | Ps.         | 149,817     |        | Ps.        | 137,581 |   |
| Time deposits                                                  |       |        |        |        |       |
| General public                                                 |       | 132,673     |        | 134,141     |       |
| Money market                                                   |       | 6,347       |        | 3,186       |       |
| Senior debt issued                                             |       | 3,778       |        | —      |       |
|                                                           | ** ** | **292,615** | ** **  | **274,908** | ** ** |
|                                                           |       |        |        |        |       |
| **INTERBANK   AND OTHER LOANS**                                |       |        |        |        |       |
| Demand loans                                                   |       | 4,837       |        | 21          |       |
| Short-term loans                                               |       | 13,114      |        | 13,385      |       |
| Long-term loans                                                |       | 8,496       |        | 7,562       |       |
|                                                           | ** ** | **26,447**  | ** **  | **20,968**  | ** ** |
|                                                           |       |        |        |        |       |
| **ASSIGNED   SECURITIES PENDING SETTLEMENT**                   | ** ** | **—**  | ** **  | **159**     | ** ** |
| ** **                                                     | ** ** | ** **  | ** **  | ** **  | ** ** |
| **CREDITOR   BALANCES UNDER REPURCHASE AND RESALE AGREEMENTS** | ** ** | **178,747** | ** **  | **185,480** | ** ** |
| ** **                                                     | ** ** | ** **  | ** **  | ** **  | ** ** |
| **COLLATERAL   SOLD OR PLEDGED**                               | ** ** | ** **  | ** **  | ** **  | ** ** |
| Repurchase or resale   agreements (creditor balance)           | ** ** | **11**      | ** **  | **2**       | ** ** |
|                                                           |       |        |        |        |       |
| **DERIVATIVES   FINANCIAL INSTRUMENTS**                        | ** ** | ** **  | ** **  | ** **  | ** ** |
| For trading purposes                                           |       | 7,238       |        | 4,553       |       |
| For hedging purposes                                           |       | 3,499       |        | 3,822       |       |
| ** **                                                     | ** ** | **10,737**  | ** **  | **8,375**   | ** ** |
|                                                           |       |        |        |        |       |
| **OTHER   ACCOUNTS PAYABLES**                                  |       |        |        |        |       |
| Income tax                                                     |       | 711         |        | 617         |       |
| Employee profit sharing                                        |       | 797         |        | 676         |       |
| Creditors from settlements   of transactions                   |       | 867         |        | 2,224       |       |
| Sundry debtors and other   payables                            |       | 9,871       |        | 8,968       |       |
|                                                           | ** ** | **12,246**  | ** **  | **12,485**  | ** ** |
|                                                           |       |        |        |        |       |
| **SUBORDINATED   DEBENTURES**                                  | ** ** | **17,803**  | ** **  | **18,168**  | ** ** |
| **DEFERRED   CREDITS AND ADVANCED COLLECTIONS**                | ** ** | **1,725**   | ** **  | **1,619**   | ** ** |
|                                                           |       |        |        |        |       |
| **TOTAL   LIABILITIES**                                        | ** ** | **540,331** | ** **  | **522,164** | ** ** |
|                                                           |       |        |        |        |       |
| **STOCKHOLDERS’   EQUITY**                                |       |        |        |        |       |
|                                                           |       |        |        |        |       |
| **PAID-IN   CAPITAL**                                          |       |        |        |        |       |
| Common stock                                                   |       | 11,971      |        | 11,956      |       |
| Additional paid-in capital                                     |       | 1,673       |        | 1,525       |       |
| ** **                                                     | ** ** | **13,644**  | ** **  | **13,481**  | ** ** |
|                                                           |       |        |        |        |       |
| **OTHER   CAPITAL**                                            |       |        |        |        |       |
| Capital reserves                                               |       | 3,181       |        | 3,154       |       |
| Retained earnings from   prior years                           |       | 25,492      |        | 20,681      |       |
| Result from valuation of   securities available for sale       |       | 309         |        | 206         |       |
| Result from valuation of   instruments for cash flow hedging   |       | (2,214      | )           | (1,369      | )          |
| Cumulative foreign   currency translation adjustment           |       | (1,000      | )           | (641        | )          |
| Net income                                                     |       | 6,705       |        | 5,854       |       |
| ** **                                                     | ** ** | **32,473**  | ** **  | **27,885**  | ** ** |
| **NONCONTROLLING   INTEREST**                                  | ** ** | **4,110**   | ** **  | **3,608**   | ** ** |
| **TOTAL   STOCKHOLDERS’ EQUITY**                          | ** ** | **50,227**  | ** **  | **44,974**  | ** ** |
|                                                           |       |        |        |        |       |
| **TOTAL   LIABILITIES AND STOCKHOLDERS’ EQUITY**          | ** ** | **Ps.**     | **590,558** | ** **  | **Ps.**    | **567,138** | ** ** |

 
|                                                                                       |   |                                                                      |   |                                                                                         |
|--------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------|
| Dr. Alejandro Valenzuela del RíoChief Executive Officer |   |                                                                      |   | Ing. Sergio García Robles GilManaging Director - CFO |
|                                                                                       |   |                                                                      |   |                                                                                         |
|                                                                                       |   |                                                                      |   |                                                                                         |
| Lic. Benjamín Vidargas Rojas Managing Director -   Audit                              |   | Lic. Jorge Eduardo Vega CamargoDeputy Managing Director — Controller |   | C.P.C.   Nora Elia Cantú SuárezDeputy Managing Director — Accounting and Tax  |

 

F-84

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Table of Contents

 

**GRUPO FINANCIERO BANORTE, S.A.B. DE C.V. AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF INCOME**

**FOR THE YEARS ENDED DECEMBER 31, 2010, 2009 AND 2008**

(In millions of Mexican pesos)

 
| ** **                                                                                        | ** ** | **2010**   | ** ** | **2009**   | ** ** | **2008**   | ** ** |
|---------------------------------------------------------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|
| Interest income                                                                                   |       | Ps.        | 41,479     |       | Ps.        | 45,451     |       | Ps. | 50,417 |   |
| Interest expense                                                                                  |       | (18,747    | )          | (22,268    | )          | (27,789    | )          |
| **NET   INTEREST INCOME**                                                                         | ** ** | **22,732** | ** ** | **23,183** | ** ** | **22,628** | ** ** |
|                                                                                              |       |       |       |       |       |       |       |
| Provision for loan losses                                                                         |       | (6,889     | )          | (8,286     | )          | (6,896     | )          |
| **NET INTEREST   INCOME AFTER ALLOWANCE FOR LOAN LOSSES**                                         | ** ** | **15,843** | ** ** | **14,897** | ** ** | **15,732** | ** ** |
|                                                                                              |       |       |       |       |       |       |       |
| Commission and fee income                                                                         |       | 9,234      |       | 8,291      |       | 8,535      |       |
| Commission and fee expense                                                                        |       | (1,548     | )          | (1,338     | )          | (1,208     | )          |
| Brokerage revenues                                                                                |       | 1,689      |       | 1,244      |       | 1,039      |       |
| Other revenues                                                                                    |       | 1,739      |       | 980        |       | 746        |       |
| ** **                                                                                        | ** ** | **11,114** | ** ** | **9,177**  | ** ** | **9,112**  | ** ** |
| **NET   OPERATING REVENUES**                                                                      | ** ** | **26,957** | ** ** | **24,074** | ** ** | **24,844** | ** ** |
|                                                                                              |       |       |       |       |       |       |       |
| Administrative and   promotional expenses                                                         |       | (17,691    | )          | (17,024    | )          | (16,687    | )          |
| **OPERATING   INCOME**                                                                            | ** ** | **9,266**  | ** ** | **7,050**  | ** ** | **8,157**  | ** ** |
|                                                                                              |       |       |       |       |       |       |       |
| Other income                                                                                      |       | 1,879      |       | 2,438      |       | 2,997      |       |
| Other expenses                                                                                    |       | (1,298     | )          | (1,566     | )          | (1,523     | )          |
| ** **                                                                                        | ** ** | **581**    | ** ** | **872**    | ** ** | **1,474**  | ** ** |
| **INCOME   BEFORE INCOME TAX**                                                                    | ** ** | **9,847**  | ** ** | **7,922**  | ** ** | **9,631**  | ** ** |
|                                                                                              |       |       |       |       |       |       |       |
| Current income tax                                                                                |       | (2,735     | )          | (2,581     | )          | (2,765     | )          |
| Deferred income taxes, net                                                                        |       | (70        | )          | 536        |       | 245        |       |
| ** **                                                                                        | ** ** | **(2,805** | **)**      | **(2,045** | **)**      | **(2,520** | **)**      |
|                                                                                              |       |       |       |       |       |       |       |
| **INCOME BEFORE   EQUITY IN EARNINGS OF UNCONSOLIDATED****SUBSIDIARIES AND ASSOCIATED COMPANIES** | ** ** | **7,042**  | ** ** | **5,877**  | ** ** | **7,111**  | ** ** |
|                                                                                              |       |       |       |       |       |       |       |
| Equity in earnings of   unconsolidated subsidiaries and associated companies                      |       | 320        |       | 313        |       | 276        |       |
|                                                                                              |       |       |       |       |       |       |       |
| **INCOME   BEFORE NONCONTROLLING INTEREST**                                                       | ** ** | **7,362**  | ** ** | **6,190**  | ** ** | **7,387**  | ** ** |
|                                                                                              |       |       |       |       |       |       |       |
| Noncontrolling interest                                                                           |       | (657       | )          | (336       | )          | (373       | )          |
|                                                                                              |       |       |       |       |       |       |       |
| **NET   INCOME**                                                                                  | ** ** | **Ps.**    | **6,705**  | ** ** | **Ps.**    | **5,854**  | ** ** | **Ps.** | **7,014** | ** ** |

 

These income statements, consolidated with those of the financial entities and other companies that form part of the Financial Group and are susceptible to consolidation, were prepared according to accounting principles applicable to Financial Service Holding Companies issued by the Mexican National Banking and Securities Commission according to article 30 of the Law of Financial Institutions. Such principles are consistently applied in the financial statements, which are presented according to sound practices and applicable legal and administrative provisions and reflect all the operations conducted by the Financial Group, its financial service subsidiaries and the other companies that form part of the Financial Group and are consolidated as of the income statement dates above.

 

The accompanying Consolidated Statements of Income have been approved by the Board of Directors in accordance with the responsibility assigned to them.

 

The attached notes are an integral part of these consolidated statements of income.

 
|                                                              |   |                                                                     |   |                                                                                        |
|-------------------------------------------------------------------|--------|--------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------|
| Dr. Alejandro Valenzuela del RíoChief Executive Officer |   |                                                                     |   | Ing. Sergio García Robles GilManaging Director - CFO                                   |
|                                                              |   |                                                                     |   |                                                                                        |
|                                                              |   |                                                                     |   |                                                                                        |
| Lic. Benjamín Vidargas RojasManaging Director - Audit        |   | Lic. Jorge Eduardo Vega CamargoDeputy Managing Director —Controller |   | C.P.C. Nora Elia Cantú   SuárezDeputy Managing Director — Accounting and Tax |

 

F-85

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Table of Contents

 

**GRUPO FINANCIERO BANORTE, S.A.B. DE C.V. AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY**

**FOR THE YEARS ENDED DECEMBER 31, 2010, 2009 AND 2008**

(In millions of Mexican pesos)

 
| ** **                                                                              | ** ** | **PAID-IN CAPITAL** | ** ** | **OTHER CAPITAL**             | ** ** |
|-----------------------------------------------------------------------------------------|------------|--------------------------|------------|------------------------------------|------------|
| ** **                                                                              | ** ** | **Common********stock**  | ** ** | **Additional   paid-in   capital** | ** ** | **Capital   reserves** | ** ** | **Retained   earnings   from prior   years** | ** ** | **Result from   valuation of   available for   sale   securities** | ** ** | **Result from   valuation of   cash flow   hedging   instruments** | ** ** |
|                                                                                    |       |                     |       |                               |       |   |   |   |   |   |   |   |   |
| **Balances,   January 1, 2008**                                                    | ** ** | **Ps.**                  | **11,965** | ** **                         | **Ps.**    | **1,272** | ** ** | **Ps.** | **2,452** | ** ** | **Ps.** | **21,279** | ** ** | **—** | ** ** | **—** | ** ** |
| **TRANSACTIONS   APPROVED BY STOCKHOLDERS**                                             |       |                     |       |                               |       |   |   |   |   |   |   |   |   |
| Issuance (repurchase) of   shares                                                       |       | (24                      | )          | 199                                |       | (72 | ) | — |   | — |   | — |   |
| Transfer of prior year’s   result                                                  |       | —                   |       | —                             |       | — |   | 6,810 |   | — |   | — |   |
| Creation of reserves as   per General Stockholders’ meeting on April 29, 2008 |       | —                   |       | —                             |       | 340 |   | 340 |   | — |   | — |   |
| Dividend declared at the   General Stockholders’ meeting on October 6, 2008   |       | —                   |       | —                             |       | — |   | (949 | ) | — |   | — |   |
| **Total   transactions approved by stockholders**                                       | ** ** | **(24**                  | **)**      | **199**                            | ** ** | **268** | ** ** | **5,521** | ** ** | **—** | ** ** | **—** | ** ** |
| **COMPREHENSIVE   INCOME**                                                              | ** ** | ** **               | ** ** | ** **                         | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net income                                                                              |       | —                   |       | —                             |       | — |   | — |   | — |   | — |   |
| Effect of subsidiaries,   affiliates and mutual funds                                   |       | —                   |       | (3                                 | )          | — |   | (30 | ) | (550 | ) | — |   |
| Result from valuation of   cash flow hedging instruments                                |       | —                   |       | —                             |       | — |   | — |   | — |   | — |   |
| Changes in accounting   principles (NIF B-10)                                           |       | —                   |       | —                             |       | — |   | (9,835 | ) | — |   | — |   |
| **Total   comprehensive income**                                                        | ** ** | **—**               | ** ** | **(3**                             | **)**      | **—** | ** ** | **(9,865** | **)** | **(550** | **)** | **—** | ** ** |
| Noncontrolling interest                                                                 |       | —                   |       | —                             |       | — |   | — |   | — |   | — |   |
| **Balances,   December 31, 2008**                                                  | ** ** | **11,941**               | ** ** | **1,468**                          | ** ** | **2,720** | ** ** | **16,935** | ** ** | **(550** | **)** | **—** | ** ** |
| **TRANSACTIONS   APPROVED BY STOCKHOLDERS**                                             |       |                     |       |                               |       |   |   |   |   |   |   |   |   |
| Issuance (repurchase) of   shares                                                       |       | 15                       |       | (328                               | )          | 83 |   | — |   | (221 | ) | — |   |
| Transfer of prior year’s   result                                                  |       | —                   |       | —                             |       | — |   | 7,014 |   | — |   | — |   |
| Creation of reserves as   per General Stockholders’ meeting on April 30, 2009 |       | —                   |       | —                             |       | 351 |   | (351 | ) | — |   | — |   |
| Dividend declared at the   General Stockholders’ meeting on October 5, 2009   |       | —                   |       | —                             |       | — |   | (364 | ) | — |   | — |   |
| **Total   transactions approved by stockholders**                                       | ** ** | **15**                   | ** ** | **(328**                           | **)**      | **434** | ** ** | **6,299** | ** ** | **(221** | **)** | **—** | ** ** |
| **COMPREHENSIVE   INCOME**                                                              | ** ** | ** **               | ** ** | ** **                         | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net income                                                                              |       | —                   |       | —                             |       | — |   | — |   | — |   | — |   |
| Result from valuation of   available for sale securities                                |       | —                   |       | —                             |       | — |   | — |   | 592 |   | — |   |
| Effect of subsidiaries,   affiliates and mutual funds                                   |       | —                   |       | (5                                 | )          | — |   | (47 | ) | — |   | — |   |
| Result from valuation of   cash flow hedging instruments                                |       | —                   |       | —                             |       | — |   | — |   | — |   | 209 |   |
| Application of the effect   of holding non-monetary assets                              |       | —                   |       | (4                                 | )          | — |   | (1,640 | ) | 385 |   | (1,578 | ) |
| Change in credit card loan   rating methodology (net of deferred taxes)                 |       | —                   |       | —                             |       | — |   | (683 | ) | — |   | — |   |
| **Total   comprehensive income**                                                        | ** ** | **—**               | ** ** | **(9**                             | **)**      | **—** | ** ** | **(2,370** | **)** | **977** | ** ** | **(1,369** | **)** |
| Noncontrolling interest                                                                 |       | —                   |       | 394                                |       | — |   | (183 | ) | — |   | — |   |
| **Balances,   December 31, 2009**                                                  | ** ** | **11,956**               | ** ** | **1,525**                          | ** ** | **3,154** | ** ** | **20,681** | ** ** | **206** | ** ** | **(1,369** | **)** |
| **TRANSACTIONS   APPROVED BY STOCKHOLDERS**                                             |       |                     |       |                               |       |   |   |   |   |   |   |   |   |
| Issuance (repurchase) of   shares                                                       |       | 15                       |       | 146                                |       | 27 |   | (17 | ) | (102 | ) | — |   |
| Transfer of prior year’s   result                                                  |       | —                   |       | —                             |       | — |   | 5,854 |   | — |   | — |   |
| Dividend declared at the   General Stockholders’ meeting on:                       |       |                     |       |                               |       |   |   |   |   |   |   |   |   |
| February 15, 2010                                                                  |       | —                   |       | —                             |       | — |   | (343 | ) | — |   | — |   |
| April 23, 2010                                                                     |       | —                   |       | —                             |       | — |   | (343 | ) | — |   | — |   |
| October 4, 2010                                                                    |       | —                   |       | —                             |       | — |   | (343 | ) | — |   | — |   |
| **Total   transactions approved by stockholders**                                       | ** ** | **15**                   | ** ** | **146**                            | ** ** | **27** | ** ** | **4,808** | ** ** | **(102** | **)** | **—** | ** ** |
| **COMPREHENSIVE   INCOME**                                                              | ** ** | ** **               | ** ** | ** **                         | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net income                                                                              |       | —                   |       | —                             |       | — |   | — |   | — |   | — |   |
| Result from valuation of   available for sale securities                                |       | —                   |       | —                             |       | — |   | — |   | 205 |   | — |   |
| Effect of subsidiaries,   affiliates and mutual funds                                   |       | —                   |       | 2                                  |       | — |   | 3 |   | — |   | — |   |
| Result from valuation of   cash flow hedging instruments                                |       | —                   |       | —                             |       | — |   | — |   | — |   | (845 | ) |
| **Total   comprehensive income**                                                        | ** ** | **—**               | ** ** | **2**                              | ** ** | **—** | ** ** | **3** | ** ** | **205** | ** ** | **(845** | **)** |
| Noncontrolling interest                                                                 |       | —                   |       |                               |       | — |   |   |   | — |   | — |   |
| **Balances,   December 31, 2010**                                                  | ** ** | **Ps.**                  | **11,971** | ** **                         | **Ps.**    | **1,673** | ** ** | **Ps.** | **3,181** | ** ** | **Ps.** | **25,492** | ** ** | **Ps.** | **309** | ** ** | **Ps.** | **(2,214** | **)** |
|                                                                                         |            |                          |            |                                    |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

These statements of changes in stockholder’s equity, consolidated with those of the financial entities and other companies that form part of the Financial Group and are susceptible to consolidation, were prepared according to accounting principles applicable to Financial Service Holding Companies issued by the Mexican National Banking and Securities Commission according to article 30 of the Law of Financial Institutions. Such principles are consistently applied in the financial statements, which are presented according to sound practices and applicable legal and administrative provisions and reflect all the operations conducted by the Financial Group, its financial service subsidiaries and the other companies that form part of the Financial Group and are consolidated as of the dates above. These consolidated statements of changes in stockholder’s equity were approved by the Board of Directors in accordance with the responsibility assigned to them.

 

The attached notes are an integral part of these consolidated statements of changes in stockholders’ equity.

 

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| ** **                                                                              | ** ** | **OTHER CAPITAL**                                         | ** ** |
|-----------------------------------------------------------------------------------------|------------|----------------------------------------------------------------|------------|
| ** **                                                                              | ** ** | **Cumulative   foreign   currency   translation   adjustment** | ** ** | **Insufficiency   in restated   stockholders’   equity** | ** ** | **Effect of   holding   non-   monetary   assets** | ** ** | **Net   income** | ** ** | **Total   majority   interest** | ** ** | **Total non-   controlling   interest** | ** ** | **Total   stockholders’   equity** | ** ** |
| **Balances, January 1, 2008**                                                      | ** ** | **Ps.**                                                        | —     | ** ** | **Ps.** | **(6,380** | **)** | **Ps.** | **(5,009** | **)** | **Ps.** | **6,810** | ** ** | **Ps.** | **32,389** | ** ** | **Ps.** | **1,667** | ** ** | **Ps.** | **34,056** | ** ** |
| **TRANSACTIONS APPROVED BY   STOCKHOLDERS**                                             | ** ** | ** **                                                     | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Issuance (repurchase) of shares                                                         |       | —                                                         |       | — |   | — |   | — |   | 103 |   | — |   | 103 |   |
| Transfer of prior year’s result                                                    |       | —                                                         |       | — |   | — |   | (6,810 | ) | — |   | — |   | — |   |
| Creation of reserves as per General Stockholders’   meeting on April 29, 2008 |       | —                                                         |       | — |   | — |   | — |   | — |   | — |   | — |   |
| Dividend declared at the General Stockholders’   meeting on October 6, 2008   |       | —                                                         |       | — |   | — |   | — |   | (949 | ) | — |   | (949 | ) |
| **Total transactions approved by   stockholders**                                       | ** ** | **—**                                                     | ** ** | **—** | ** ** | **—** | ** ** | **(6,810** | **)** | **(846** | **)** | **—** | ** ** | **(846** | **)** |
| **COMPREHENSIVE INCOME**                                                                | ** ** | ** **                                                     |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Net income                                                                              |       | —                                                         |       | — |   | — |   | 7,014 |   | 7,014 |   | — |   | 7,014 |   |
| Effect of subsidiaries, affiliates and mutual funds                                     |       | 1,095                                                          |       | — |   | — |   | — |   | 512 |   | — |   | 512 |   |
| Result from valuation of cash flow hedging inst.                                        |       | —                                                         |       | — |   | (1,267 | ) | — |   | (1,267 | ) | — |   | (1,267 | ) |
| Changes in accounting principles (NIF B-10)                                             |       | —                                                         |       | 6,380 |   | 3,455 |   | — |   | — |   | — |   | — |   |
| **Total comprehensive income**                                                          | ** ** | **1,095**                                                      | ** ** | **6,380** | ** ** | **2,188** | ** ** | **7,014** | ** ** | **6,259** | ** ** | **—** | ** ** | **6,259** | ** ** |
| Noncontrolling interest                                                                 |       | —                                                         |       | — |   | — |   | — |   | — |   | 277 |   | 277 |   |
| **Balances, December 31, 2008**                                                    | ** ** | **1,095**                                                      | ** ** | **—** | ** ** | **(2,821** | **)** | **7,014** | ** ** | **37,802** | ** ** | **1,944** | ** ** | **39,746** | ** ** |
| **TRANSACTIONS APPROVED BY   STOCKHOLDERS**                                             | ** ** | ** **                                                     | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Issuance (repurchase) of shares                                                         |       | —                                                         |       | — |   | — |   | — |   | (451 | ) | — |   | (451 | ) |
| Transfer of prior year’s result                                                    |       | —                                                         |       | — |   | — |   | (7,014 | ) | — |   | — |   | — |   |
| Creation of reserves as per General Stockholders’   meeting on April 30, 2009 |       | —                                                         |       | — |   | — |   | — |   | — |   | — |   | — |   |
| Dividend declared at the General Stockholders’   meeting on October 5, 2009   |       | —                                                         |       | — |   | — |   | — |   | (364 | ) | — |   | (364 | ) |
| **Total transactions approved by   stockholders**                                       | ** ** | **—**                                                     | ** ** | **—** | ** ** | **—** | ** ** | **(7,014** | **)** | **(815** | **)** | **—** | ** ** | **(815** | **)** |
| **COMPREHENSIVE INCOME**                                                                | ** ** | ** **                                                     |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Net income                                                                              |       | —                                                         |       | — |   | — |   | 5,854 |   | 5,854 |   | — |   | 5,854 |   |
| Result from valuation of available for sale sec.                                        |       | —                                                         |       | — |   | — |   | — |   | 592 |   | — |   | 592 |   |
| Effect of subsidiaries, affiliates and mutual funds                                     |       | (54                                                            | )          | — |   | — |   | — |   | (106 | ) | — |   | (106 | ) |
| Effect of the acquisition of the remaining 30% of   the subsidiary INB                  |       | (1,698                                                         | )          | — |   | — |   | — |   | (1,698 | ) | — |   | (1,698 | ) |
| Result from valuation of cash flow hedging inst.                                        |       | —                                                         |       | — |   | — |   | — |   | 209 |   | — |   | 209 |   |
| Application of the effect of holding non-monetary   assets                              |       | 16                                                             |       | — |   | 2,821 |   | — |   | — |   | — |   | — |   |
| Change in credit card loan rating methodology (net   of deferred taxes)                 |       | —                                                         |       | — |   | — |   | — |   | (683 | ) | — |   | (683 | ) |
| **Total comprehensive income**                                                          | ** ** | **(1,736**                                                     | **)**      | **—** | ** ** | **2,821** | ** ** | **5,854** | ** ** | **4,168** | ** ** | **—** | ** ** | **4,168** | ** ** |
| Noncontrolling interest                                                                 |       | —                                                         |       | — |   | — |   | — |   | 211 |   | 1,664 |   | 1,875 |   |
| **Balances, December 31, 2009**                                                    | ** ** | **(641**                                                       | **)**      | **—** | ** ** | **—** | ** ** | **5,854** | ** ** | **41,366** | ** ** | **3,608** | ** ** | **44,974** | ** ** |
| **TRANSACTIONS APPROVED BY   STOCKHOLDERS**                                             |       |                                                           |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance (repurchase) of shares                                                         |       | —                                                         |       | — |   | — |   | — |   | 69 |   | — |   | 69 |   |
| Transfer of prior year’s result                                                    |       | —                                                         |       | — |   | — |   | (5,854 | ) | — |   | — |   | — |   |
| Dividend declared at the General Stockholders’   meeting on:                       |       |                                                           |       |   |   |   |   |   |   |   |   |   |   |   |   |
| February 15, 2010                                                                  |       | —                                                         |       | — |   | — |   | — |   | (343 | ) | — |   | (343 | ) |
| April 23, 2010                                                                     |       | —                                                         |       | — |   | — |   | — |   | (343 | ) | — |   | (343 | ) |
| October 4, 2010                                                                    |       | —                                                         |       | — |   | — |   | — |   | (343 | ) | — |   | (343 | ) |
| **Total transactions approved by   stockholders**                                       | ** ** | **—**                                                     | ** ** | **—** | ** ** | **—** | ** ** | **(5,854** | **)** | **(960** | **)** | **—** | ** ** | **(960** | **)** |
| **COMPREHENSIVE INCOME**                                                                | ** ** | ** **                                                     |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Net income                                                                              |       | —                                                         |       | — |   | — |   | 6,705 |   | 6,705 |   | — |   | 6,705 |   |
| Result from valuation of available for sale sec.                                        |       | —                                                         |       | — |   | — |   | — |   | 205 |   | — |   | 205 |   |
| Effect of subsidiaries, affiliates and mutual funds                                     |       | (359                                                           | )          | — |   | — |   | — |   | (354 | ) | — |   | (354 | ) |
| Result from valuation of cash flow hedging inst.                                        |       | —                                                         |       | — |   | — |   | — |   | (845 | ) | — |   | (845 | ) |
| **Total comprehensive income**                                                          | ** ** | **(359**                                                       | **)**      | **—** | ** ** | **—** | ** ** | **6,705** | ** ** | **5,711** | ** ** | **—** | ** ** | **5,711** | ** ** |
| Noncontrolling interest                                                                 |       | —                                                         |       | — |   | — |   | — |   | — |   | 502 |   | 502 |   |
| **Balances, December 31, 2010**                                                    | ** ** | **Ps.**                                                        | **(1,000** | **)** | **Ps.** | — | ** ** | **Ps.** | — | ** ** | **Ps.** | **6,705** | ** ** | **Ps.** | **46,117** | ** ** | **Ps.** | **4,110** | ** ** | **Ps.** | **50,227** | ** ** |

 
|                                                              |   |                                                                      |   |                                                                                        |
|-------------------------------------------------------------------|--------|---------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------|
| Dr. Alejandro Valenzuela del RíoChief Executive Officer |   |                                                                      |   | Ing. Sergio García Robles GilManaging   Director - CFO                                 |
|                                                              |   |                                                                      |   |                                                                                        |
|                                                              |   |                                                                      |   |                                                                                        |
| Lic. Benjamín Vidargas RojasManaging Director - Audit        |   | Lic. Jorge Eduardo Vega CamargoDeputy Managing Director — Controller |   | C.P.C.   Nora Elia Cantú SuárezDeputy Managing Director — Accounting and Tax |

 

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**GRUPO FINANCIERO BANORTE, S.A.B. DE C.V. AND SUBSIDIARIES**

**CONSOLIDATED CASH FLOW STATEMENTS**

**FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009**

(In millions of Mexican pesos)

 
| ** **                                                                   | ** ** | **2010**   | ** ** | **2009**   | ** ** |
|------------------------------------------------------------------------------|------------|------------|------------|------------|------------|
| **Net   income**                                                             | ** ** | **Ps.**    | **6,705**  | ** ** | **Ps.**    | **5,854** | ** ** |
| Items not requiring   (generating) resources:                                |       |       |       |       |       |
| Provision for loan losses                                                    |       | 6,889      |       | 8,286      |       |
| Provision for   uncollectible or doubtful accounts receivable                |       | 164        |       | 182        |       |
| Depreciation and   amortization                                              |       | 1,181      |       | 954        |       |
| Other Provisions                                                             |       | 430        |       | (1,786     | )          |
| Current and deferred   income tax                                            |       | 2,805      |       | 2,045      |       |
| Equity in earnings of   unconsolidated subsidiaries and associated companies |       | 337        |       | (313       | )          |
|                                                                         | ** ** | **18,511** | ** ** | **15,222** | ** ** |
|                                                                         |       |       |       |       |       |
| **OPERATING   ACTIVITIES:**                                                  |       |       |       |       |       |
| Changes in margin securities                                                 |       | (159       | )          | (11        | )          |
| Changes in investments in   securities                                       |       | 7,626      |       | 12,312     |       |
| Changes in debtor balances   under repurchase and resale agreements          |       | (579       | )          | 144        |       |
| Changes in asset position   of derivative financial instruments              |       | (2,639     | )          | 501        |       |
| Change in loan portfolio                                                     |       | (32,062    | )          | (8,167     | )          |
| Changes in acquired   collection rights                                      |       | 523        |       | 502        |       |
| Changes in receivables   generated by securitizations                        |       | (518       | )          | 364        |       |
| Change in foreclosed   assets                                                |       | 94         |       | (94        | )          |
| Change in other operating   assets                                           |       | (1,461     | )          | (969       | )          |
| Change in deposits                                                           |       | 18,975     |       | 15,344     |       |
| Change in interbank and   other loans                                        |       | 5,483      |       | (15,644    | )          |
| Change in creditor   balances under repurchase and sale agreements           |       | (6,892     | )          | (7,088     | )          |
| Collateral sold or pledged                                                   |       | 9          |       | —     |       |
| Change in liability   position of derivative financial instruments           |       | 2,684      |       | (717       | )          |
| Change in subordinated   debentures                                          |       | (350       | )          | (2,481     | )          |
| Change in other operating   liabilities                                      |       | (3,274     | )          | (2,365     | )          |
| Change in hedging   instruments related to operations                        |       | 136        |       | 133        |       |
| **Net   operating activity cash flows**                                      | ** ** | **6,107**  | ** ** | **6,986**  | ** ** |
|                                                                         |       |       |       |       |       |
| **INVESTMENT   ACTIVITIES:**                                                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| Proceeds on disposal of   property, furniture and fixtures                   |       | 304        |       | 259        |       |
| Acquisition of property,   furniture and fixtures                            |       | (2,215     | )          | (1,447     | )          |
| Sale of subsidiaries and   associated companies                              |       | 69         |       |       |       |
| Acquisition of   subsidiaries and associated companies                       |       | (171       | )          | (183       | )          |
| Sale of other permanent   investments                                        |       | 1          |       | 1          |       |
| Acquisition of other   permanent investments                                 |       | —     |       | (1         | )          |
| Dividends received                                                           |       | 227        |       | 135        |       |
| **Net   investment activities cash flows**                                   | ** ** | **(1,785** | **)**      | **(1,236** | **)**      |
| ** **                                                                   | ** ** | ** ** | ** ** | ** ** | ** ** |
| **FINANCING   ACTIVITIES:**                                                  | ** ** | ** ** | ** ** | ** ** | ** ** |
| Dividends paid                                                               |       | (1,029     | )          | (364       | )          |
| Repurchase of shares                                                         |       | 69         |       | (451       | )          |
| **Net   financing activity cash flows**                                      | ** ** | **(960**   | **)**      | **(815**   | **)**      |
|                                                                         |       |       |       |       |       |
| Net increase in cash and   cash equivalents                                  |       | 3,362      |       | 4,935      |       |
| Adjustments to cash flows   from variation in the foreign exchange rate      |       | (133       | )          | (63        | )          |
| Cash and cash equivalents   at the beginning of the year                     |       | 59,268     |       | 54,396     |       |
| **Cash and   cash equivalents at the end of the year**                       | ** ** | **Ps.**    | **62,497** | ** ** | **Ps.**    | **59,268** | ** ** |

 

These statements of cash flows, consolidated with those of the financial entities and other companies that form part of the Financial Group and are susceptible to consolidation, were prepared according to accounting principles applicable to Financial Service Holding Companies issued by the Mexican National Banking and Securities Commission according to article 30 of the Law of Financial Institutions. Such principles are consistently applied in the financial statements, which are presented according to sound practices and applicable legal and administrative provisions and reflect all the operations conducted by the Financial Group, its financial service subsidiaries and the other companies that form part of the Financial Group and are consolidated as of the dates above. The accompanying Consolidated Statements of cash flows have been approved by the Board of Directors in accordance with the responsibility assigned to them. The attached notes are an integral part of these consolidated statements of cash flows.

 
|                                                              |   |                                                                      |   |                                                                                        |
|-------------------------------------------------------------------|--------|---------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------|
| Dr. Alejandro Valenzuela del RíoChief Executive Officer |   |                                                                      |   | Ing. Sergio García Robles GilManaging Director - CFO                                   |
|                                                              |   |                                                                      |   |                                                                                        |
|                                                              |   |                                                                      |   |                                                                                        |
| Lic. Benjamín Vidargas RojasManaging Director - Audit        |   | Lic. Jorge Eduardo Vega CamargoDeputy Managing Director — Controller |   | C.P.C.   Nora Elia Cantú SuárezDeputy Managing Director — Accounting and Tax |

 

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**GRUPO FINANCIERO BANORTE, S.A.B. DE C.V. AND SUBSIDIARIES**

**CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION**

**FOR THE YEAR ENDED DECEMBER 31, 2008**

(In millions of Mexican pesos)

 
| ** **                                                                     | ** ** | **2008**   | ** ** |
|--------------------------------------------------------------------------------|------------|------------|------------|
| **OPERATING ACTIVITIES:**                                                      | ** ** | ** ** | ** ** |
| Net Income                                                                     | ** ** | **Ps.**    | **7,014**  | ** ** |
| Items not requiring   (generating) resources:                                  | ** ** | ** ** | ** ** |
| Fair value adjustments of   financial instruments                              |       | (268       | )          |
| Provision for loan losses                                                      |       | 6,896      |       |
| Depreciation and amortization                                                  |       | 1,099      |       |
| Deferred taxes                                                                 |       | (245       | )          |
| Provisions for other obligations                                               |       | 24         |       |
| Noncontrolling interest                                                        |       | 373        |       |
| Equity in earnings of   subsidiaries and associated companies                  |       | (276       | )          |
|                                                                           | ** ** | **14,617** | ** ** |
| ** **                                                                     | ** ** | ** ** | ** ** |
| Changes in operating accounts:                                                 | ** ** | ** ** | ** ** |
| Increase in deposits                                                           |       | 57,462     |       |
| Increase in loan portfolio                                                     |       | (52,095    | )          |
| Increase from treasury transactions                                            |       | (220,239   | )          |
| Decrease in transactions   with securities or derivative financial instruments |       | 194,552    |       |
| Increase in bank and other   loans                                             |       | 13,960     |       |
| Increase in deferred taxes                                                     |       | (12        | )          |
| **Net   resources generated by operating activities**                          | ** ** | **8,245**  | ** ** |
| ** **                                                                     | ** ** | ** ** | ** ** |
| **FINANCING ACTIVITIES:**                                                      | ** ** | ** ** | ** ** |
| Increase (decrease) in   subordinated debentures                               |       | 10,403     |       |
| Issuance of shares                                                             |       | 103        |       |
| Increase in other payables                                                     |       | 1,269      |       |
| Dividends paid                                                                 |       | (949       | )          |
| **Net   resources generated by financing activities**                          | ** ** | **10,826** | ** ** |
| ** **                                                                     | ** ** | ** ** | ** ** |
| **INVESTING ACTIVITIES:**                                                      | ** ** | ** ** | ** ** |
| Acquisition of property,   furniture and fixtures, net                         |       | (1,308     | )          |
| Increase in permanent   stock investments                                      |       | (644       | )          |
| Increase in deferred   charges and credits                                     |       | (1,958     | )          |
| Increase in foreclosed   assets                                                |       | (478       | )          |
| Increase in other accounts   receivable                                        |       | (1,897     | )          |
| **Net   resources used in investing activities**                               | ** ** | **(6,285** | **)**      |
| ** **                                                                     | ** ** | ** ** | ** ** |
| Net increase in cash and   cash equivalents                                    |       | 12,786     |       |
| Cash and cash equivalents   available at the beginning of the year             |       | 41,610     |       |
| **Cash and   cash equivalents available at the end of the year**               | ** ** | **Ps.**    | **54,396** | ** ** |

 

This statement of changes in financial position, consolidated with those of the financial entities and other companies that form part of the Financial Group and are susceptible to consolidation, was prepared according to accounting principles applicable to Financial Service Holding Companies issued by the Mexican National Banking and Securities Commission according to Article 30 of the Law of Financial Institutions.  Such principles are consistently applied in the financial statements, which are presented according to sound practices and applicable legal and administrative provisions and reflect all the operations conducted by the Financial Group, its financial service subsidiaries and the other companies that form part of the Financial Group and are consolidated as of the dates above.

 

The accompanying Consolidated Statement of Changes in Financial Position has been approved by the Board of Directors in accordance with the responsibility assigned to them.

 

The attached notes are an integral part of this consolidated statement of changes in financial position.

 
|                                                              |   |                                                         |   |                                                                                           |
|-------------------------------------------------------------------|--------|--------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------|
| Dr. Alejandro Valenzuela del RíoChief Executive Officer |   |                                                         |   | Ing. Sergio García Robles GilManaging Director - CFO                                      |
|                                                              |   |                                                         |   |                                                                                           |
|                                                              |   |                                                         |   |                                                                                           |
| Lic. Benjamín Vidargas RojasManaging Director - Audit        |   | Lic. Jorge Eduardo Vega CamargoExecutive Director Controller |   | C.P.C.   Nora Elia Cantú SuárezGeneral Deputy Director — Accounting and   Taxes |

 

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**GRUPO FINANCIERO BANORTE, S.A.B. DE C.V. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**FOR THE YEARS ENDED DECEMBER 31, 2010, 2009 AND 2008**

(In millions of Mexican pesos, except exchange rates and Note 30)

 

**1 — ACTIVITY AND REGULATORY ENVIRONMENT**

 

Grupo Financiero Banorte, S.A.B. de C.V. and subsidiaries (the Financial Group) are authorized by Mexico’s Ministry of Finance and Public Credit (SHCP) to operate as a holding company under the form and terms established by the Laws Regulating Financial Groups, subject to the supervision and monitoring of the Mexican National Banking and Securities Commission (the Commission). Their main activities consist of acquiring and managing entities engaged in the financial services industry and supervising their activities, as defined in the above-mentioned law. The Financial Group and its subsidiaries are regulated, depending on their activities, by the Commission, the Mexican National Insurance and Bond Commission, the Mexican National Retirement Savings Systems Commission (the Commissions), the Mexican Central Bank (Banco de México) and other applicable laws and regulations.

 

The main activity of the Financial Group’s subsidiaries is to carry out financial transactions that include the rendering of full-banking services, securities brokerage activities, management of retirement funds, leasing, the purchase and sale of uncollected invoices and notes, rendering of general warehousing services, annuities (pensions) and providing life insurance and casualty insurance.

 

Per legal requirements, the Financial Group has unlimited liability for the obligations assumed and losses incurred by each of its subsidiaries.

 

The powers of the Commission in their capacity as regulator of the Financial Group include reviewing the financial information and requesting modifications to such information.

 

The Financial Group performs their activities throughout Mexico and the United States of America (U.S.).

 

The Financial Group’s consolidated financial statements have been approved by the Board of Directors at their January 25, 2011 meeting in accordance with the responsibility assigned to them.

 

**2 — SIGNIFICANT EVENTS DURING THE YEAR**

 

**a.****             ****Issuance of promissory senior notes**

 

On July 19, 2010, Banco Mercantil del Norte, S.A. de C.V., Institución de Banca Múltiple, Grupo Financiero Banorte (Banorte) successfully concluded the issuance in the international market of unsecured senior debt promissory notes for a total amount of 300 million USD with a maturity of 5 years and an 4.437% rate (United States Treasury (UST) + 262.5 bps). Standard and Poor’s rated these securities BBB- and Moody’s A3.

 

**b.****             ****Listing of American Depositary Receipts (ADRs) operations in the OTCQX International Premier platform**

 

On July 15, 2010, the Level 1 ADR’s program (ticker: GBOOY) was authorized to operate in OTCQX International Premier; the highest level in the “Over The Counter” (OTC) market.

 

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**c.****              ****Exposure to Compañía Mexicana de Aviación, S.A. de C.V. (CMA)**

 

In August 2010, CMA filed for bankruptcy and suspended its operations. The outstanding balance of the loan granted by Banorte to Gamma Servicios de Negocios, S.A. de C.V. (Gamma Servicios), a CMA subsidiary, totaled Ps.1,576 at the time of such filing. As the loan granted to Gamma Servicios was secured with present and future collection rights derived from the sale of plane tickets using credit card sales in Mexico and the U.S., it was partially amortized by the resources obtained through some of these guarantees. As of December 31, 2010 and 2009, the outstanding loan balance is Ps. 1,252 and Ps. 1,576, respectively. To date, the reserves that Banorte has constituted to cover potential losses from this loan equal 100% of the outstanding balance. Since the loan’s origination, the collection rights derived from ticket sales have been voluntarily and irrevocably transferred by CMA to the Administration and Payment Trust managed by HSBC Mexico, S.A., Institución de Banca Múltiple, Grupo Financiero HSBC, and by accounts in custody of banks in the U.S. According to the external Counsel, for the time being, it is impossible to predict the final outcome of the bankruptcy proceeding or the potential losses stemming from this loan.

 

**d.****             ****Merger with IXE Grupo Financiero, S.A.B. de C.V. (IXE Grupo Financiero)**

 

On November 17, 2010, the Financial Group and IXE Grupo Financiero signed a merger agreement through an exchange of shares valued at Ps. 16,232 at the moment. The Financial Group will issue approximately 308 million new shares and will exchange them at an exchange ratio of 0.3889943074 shares of the Financial Group for each IXE Grupo Financiero share. Such merger, still subject to government authorization, is expected to be formalized during the first quarter of 2011. The operations of both companies will be merged into a single financial group called Grupo Financiero Banorte, S.A.B. de C.V.

 

**e.****              ****Securitization of Controladora****Commercial****Mexicana, S.A.B. de C.V.’s loan (CCM)**

 

In December 2010, Banorte securitized CCM’s loan, transferring the risks and benefits related to the loan to a Trust created especially for this transaction (the Trust). The Trust issued Series A stock certificates for Ps. 190, Series B for Ps. 175, Series C for Ps. 168 and Series D for Ps. 63, placed among private investors, which secured the holders the net payment of the funds received from each tranche of CCM’s loan which they are linked to, once the expenses related to the Trust are discounted. The securitization was recorded as a sale and reported in 2010 a profit for Ps. 596. This profit is equivalent to the difference between the received assets recorded at fair value and the book value of the transferred assets.

 

**3 — BASIS OF PRESENTATION**

 

**Monetary unit of the financial statements**

 

The consolidated financial statements and notes as of December 31, 2010 and 2009 and for the years then ended include balances and transactions in Mexican pesos of purchasing power of such dates.

 

**Consolidation of financial statements**

 

The accompanying consolidated financial statements include those of the Financial Group and its subsidiaries mentioned below. All significant intercompany balances and transactions have been eliminated in consolidation.

 

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As of December 31, 2010 and 2009, the Financial Group’s consolidated subsidiaries and its equity ownership is as follows:

 
| Banco Mercantil del Norte, S.A. and subsidiaries       |   | 92.72 | % |
|--------------------------------------------------------|--------|-------|---|
| Casa de Bolsa Banorte, S. A. de C. V. and subsidiaries |   | 99.99 | % |
| Arrendadora y Factor Banorte, S. A. de C. V.      |   | 99.99 | % |
| Almacenadora Banorte, S. A. de C. V.                   |   | 99.99 | % |

 

**Conversion of Financial Statements of Banorte USA, Corporation and Subsidiaries (indirect foreign subsidiary)**

 

In order to consolidate the financial statements of Banorte USA, they are first adjusted in the recording and functional currency (U.S. dollar) to conform to the accounting criteria established by the Commission. The financial statements are then converted to the reporting currency (Mexican peso) according to the following methodology:

 

Foreign operations whose recording and functional currency are one and the same convert their financial statements using the following exchange rates: a) year-end rate for assets and liabilities, b) historical rate for stockholders’ equity, and c) weighted average rate of the period for income, costs and expenses. The conversion effects are presented in the Financial Group’s stockholders’ equity.

 

**Comprehensive Income**

 

This is the change in stockholders’ equity during the year, for items other than distributions and activity in contributed common stock, and is comprised of the net income of the year plus other comprehensive income (loss) items of the same period, which are presented directly in stockholders’ equity without affecting the consolidated statements of income, in accordance with the accounting practices established by the Commission. In 2010 and 2009, comprehensive income includes the net income of the year, the result from valuation of available for sale securities, the effect of subsidiaries, affiliates and mutual funds; the result from valuation of cash flow hedging instruments; the application of the cumulative result of non-monetary asset holdings, and the change in credit card loan rating methodology.

 

**4 — SIGNIFICANT ACCOUNTING POLICIES**

 

The significant accounting policies of the Financial Group are in conformity with practices prescribed by the Commission through issued accounting standards and other applicable laws, which require Management to make certain estimates and use certain assumptions to determine the valuation of certain items included in the consolidated financial statements and make the required disclosures therein. Even though they may differ in their final effect, management considers the estimates and assumptions to have been adequate under the current circumstances.

 

Pursuant to accounting Circular A-1, “Basic Framework of the Accounting Criteria Applicable to Banking Institutions”, prescribed by the Commission, the Financial Group’s accounting will adhere to Mexican Financial Reporting Standards (NIF), defined by the Mexican Board for Research and Development of Financial Reporting Standards (CINIF), except when the Commission deems it necessary to apply a specific accounting standard or Circular, considering the fact that financial institutions perform specialized operations.

 

**Recognition of the effects of inflation in financial information**

 

Inflation recognition is done pursuant to NIF B-10 “Inflation Effects” which considers two types of economic environments: a) inflationary, when the accumulated inflation of the three previous years is 26% or over, in which case the inflation effects must be acknowledged; b) non-inflationary, when in the same period inflation is less than 26%; in this case the effects of inflation should not be recorded in the financial statements.

 

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The cumulative Mexican inflation over the three years prior to 2010 and 2009 was 14.55% and 15.03%, respectively. Therefore, the Mexican economy is considered as non-inflationary according to the NIF B-10 definition. As of January 1, 2008, the Financial Group is no longer adjusting for the effects of inflation. However, assets, liabilities and stockholders’ equity as of December 31, 2010 and 2009 include the restatement effects recorded up through December 31, 2007.

 

The Mexican inflation rates for the years ended December 31, 2010 and 2009 were 4.29% and 3.72%, respectively.

 

**Cash and cash equivalents**

 

Cash and cash equivalents are stated at nominal value, except for precious metal coins, which are stated at fair value at the end of the period. Funds available in foreign currency are valued at the FIX exchange rate published by Banco de México at the consolidated balance sheet date.

 

**Trading securities**

 

Trading securities are those owned by the Financial Group, acquired with the intention of selling them for a profit derived from price differences in short-term purchase and sale operations made by the Financial Group as a market participant.

 

At acquisition they are initially recorded at fair value, which may include either a discount or premium.

 

These securities (including both capital and accrued interest) are stated at fair value, which is determined by the price vendor contracted by the Financial Group.

 

The trading securities valuation result is recorded in the results of the period.

 

**Available for sale securities**

 

Securities available for sale are debt or equity securities that are neither classified as trading nor held to maturity, therefore they represent a residual category, which means that, they are purchased with an intention different from the trading or held to maturity securities.

 

They are valued in the same way as trading securities, but with unrealized gains and losses recognized in other comprehensive income within stockholders’ equity.

 

In an inflationary environment, the result of the monetary position corresponding to the valuation result of securities available for sale is recorded in other comprehensive income in stockholders’ equity.

 

**Held-to-maturity securities**

 

Securities held to maturity consist of debt instruments whose payments are fixed or can be determined with a set maturity, which are acquired with the intent and capability to hold them to maturity.

 

They are initially recorded at fair value and valued at amortized cost, which means that the amortization of the premium or discount (included in the fair value at which they were initially recorded), is part of the earned interest.

 

General valuation standards

 

Upon the sale of trading securities, the valuation result previously recorded in the year’s results is reclassified as part of the gain or loss on the sale. Similarly, upon the sale of available for sale securities, the cumulative valuation result recorded in other comprehensive income in stockholders’ equity is reclassified as part of the gain or loss on the sale.

 

Accrued interest on debt instruments is determined using the effective interest method and is recorded in the corresponding category of investments in securities and in the year’s results.

 

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Dividends on equity instruments are recorded in the corresponding category of investments in securities and in the year’s results when the right to receive such dividends is established.

 

The foreign exchange gain or loss on investments in securities denominated in foreign currency is recorded in the year’s results.

 

Reclassification of securities from held to maturity to available for sale is allowed, provided there is no intention or ability of holding them to maturity. The Commission’s expressed authorization is required to reclassify securities to held to maturity, or from trading to securities available for sale.

 

If securities held to maturity are reclassified as available for sale, the corresponding valuation result on the reclassification date is recorded in other comprehensive income within stockholders’ equity.

 

An impairment loss on a security is recorded against the year’s results if there is objective evidence of such impairment as a result of one or more events, occurring after the initial recording of the security, that have had an impact on the estimated future cash flows that can be reliably determined. The effect of recording the impairment of securities is shown in Note 6.

 

A previously recorded impairment loss is reversed against the year’s results if, in a later period, the amount of the loss decreases and such decrease is objectively associated with an event occurring after the impairment was recorded.

 

The Financial Group periodically verifies whether it’s available for sale securities and those held to maturity show any impairment loss, by means of an evaluation on the quarterly balance sheet date or whenever there are indications of an impairment loss.

 

Securities are deemed as impaired and therefore incur an impairment loss if and only if there is objective evidence of the impairment loss as a result of a set of events that occurred after their initial value was recorded. Such events should have an impact on the estimated future cash flows, which must be determined in a reliable manner.

 

These events may include: issuer’s significant financial difficulties; likelihood of the issuer’s filing for bankruptcy or financial reorganization; noncompliance with contractual clauses such as failure to pay interest or the principal; loss of an active market for the securities due to financial difficulties; lower credit rating and sustained reduction in the issue price, in combination with additional information.

 

In addition to the aforementioned events, objective evidence of impairment loss for a net asset instrument includes information about significant changes with adverse effects that occurred in the technological, market, economic or legal situation in which the issuer operates, and which indicates a possible loss of the cost of investing in the net asset instrument.

 

The events considered by the model are divided into:

 

a)             Information that the Financial Group has about the securities (breach of contract covenants, financial, economic or legal problems).

b)             Information that the Financial Group has about the issuer (issuer’s probability of bankruptcy, financial reorganization and financial difficulties).

c)              Information that the market has about the securities (rating assigned by Commission-approved agencies).

d)             Information that the market has about the issuer (rating assigned by Commission-approved agencies).

 

The evaluation model that the Financial Group applies to determine impairment loss incorporates the aforementioned events according to their importance and rates them as per a severity average used to estimate the return on investment. Similarly, it incorporates the existence of guarantees, which contributes to lower impairment losses.

 

The investments on which impairment losses have been recognized are analyzed on a quarterly basis to identify the possible recovery of their value and, if applicable, reverse the recorded loss in the consolidated statements of income for the year such recovery is achieved.

 

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**Customer repurchase agreements (repos)**

 

This is a transaction through which the purchaser acquires ownership of credit securities for a sum of money and is obligated to transfer the property of another amount of securities of the same kind to the seller of the securities within the agreed term and in exchange for the same price, plus a premium. The purchaser keeps the premium unless agreed otherwise.

 

Repurchase transactions are recorded according to their economic substance, which is financing with collateral, through which the Financial Group, acting as the purchaser, provides cash as financing in exchange for financial assets that serve as guarantee in case of non-compliance.

 

On the repurchase agreement transaction contract date, the Financial Group, acting as the seller, records the cash inflow, or else a settlement debtor account as well as a payable account at its fair value, initially at the agreed price, which represents the obligation to reimburse the cash to the purchaser. The account payable is subsequently valued over the term of the repurchase agreement at amortized cost by recognizing the interest from the repurchase agreement in the year’s results using the effective interest method.

 

As to the collateral granted, the Financial Group reclassifies the financial asset in the consolidated balance sheets as restricted and values it according to the criteria mentioned earlier in this note until the maturity of the repurchase agreement.

 

The Financial Group, acting as the purchaser, on the repurchase transaction contract date records cash and cash equivalents or a creditor settlement account, with an account receivable at its fair value, initially at the agreed price, which represents the right to recover the cash that was delivered. The receivable is subsequently valued over the life of the repurchase agreement at amortized cost by recognizing the repurchase agreement interest in the year’s results using the effective interest method.

 

As to the collateral received, the Financial Group records it in off balance sheet memorandum accounts until the repurchase agreement’s maturity, following the guidelines of Circular B-9, “Asset Custody and Management”, issued by the Commission.

 

**Derivatives financial instruments**

 

The Financial Group is authorized to perform two types of transactions involving derivatives financial instruments:

 

Transactions to hedge the Financial Group’s open risk position: Such transactions involve purchasing or selling derivatives financial instruments to mitigate the risk resulting from one or a group of given transactions.

 

Transactions for trading purposes: The Financial Group enters into such transactions as a market participant for reasons other than to hedge its exposed position.

 

Transactions with derivative financial instruments are presented in assets or liabilities, as applicable, under the heading “Derivatives financial instruments”, separating derivatives for trading purposes from those for hedging purposes.

 

When entering into transactions involving derivatives financial instruments, the Financial Group’s internal policies and norms require an assessment and if necessary determination of different risk exposures for each counterparty in the financial system that have been authorized by the Banco de México to enter into these types of transactions. Regarding corporate customers, a preauthorized credit line by the National Credit Committee must be granted or liquid guarantees must be given through a securitized collateral contract before entering into these types of transactions. Medium and small sized companies and individuals must provide liquid guarantees established in securitized collateral contracts with this type of transactions.

 

The recognition or cancellation of assets and/or liabilities resulting from transactions involving derivatives financial instruments occurs when these transactions are entered into, regardless of the respective settlement or the delivery date.

 

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*Forward and futures contracts*

 

Forward and futures contracts with trading purposes establish an obligation to buy or sell a financial asset or an underlying at a future date in the quantity, quality and prices pre-established in the contract. Futures contracts are recorded initially by the Financial Group in the consolidated balance sheets as an asset and a liability at fair value, which represents the price agreed in the contract in order to acknowledge the right and obligation to receive and/or deliver the underlying, as well as the right and obligation to receive and/or deliver the cash equivalent to the underlying, object of the contract.

 

The derivatives are presented in a specific item in assets or liabilities depending on whether their fair value (as a consequence of the rights and/or obligations it establishes) corresponds to a debtor balance or creditor balance. Such debtor or creditor balances in the consolidated balance sheets are offset when the Financial Group has the contractual right to offset the stated amount, the intention to settle the net amount or to realize the asset and cancel the liability simultaneously.

 

In the case of transactions for trading purposes, their balance represents the difference between the fair value of the contract and the established “forward” price.

 

*Option contracts*

 

Through paying a premium, options contracts grant the right but not the obligation to buy or sell a financial asset or underlying instrument at a given price within an established term.

 

Options are divided into: options to buy (calls) and options to sell (puts). Both can be used as trading or hedging instruments.

 

Options can be executed on a specific date or within a certain period of time. The price is agreed in the option and may be exercised at the discretion of the buyer. The instrument used to establish the price is the reference or underlying value.

 

The premium is the price the holder pays to the issuer for the option rights.

 

The holder of a call option has the right, but not the obligation, to purchase from the issuer a certain financial asset or underlying instrument at a fixed price (transaction price) within a certain term.

 

The holder of a put option has the right, but not the obligation, to sell a certain financial asset or underlying instrument at a fixed price (transaction price) within a certain term.

 

The Financial Group records the option premium as an asset or liability at the transaction date. The fluctuations resulting from market valuation of the option’s premium are recorded by affecting the income statement in the account “Trading results” and the corresponding balance sheet account.

 

*Swaps*

 

These are two-party contracts through which a bilateral obligation is established to exchange a series of cash flows for a certain period of time on pre-set dates at a nominal or reference value.

 

They are recorded at fair value which corresponds to the net amount between the asset and liability portion for the rights and obligations agreed upon; they are subsequently valued at fair value using the present value of the future flows to receive or grant according to the projections for future implicit applicable rates, discounting the market rate on the valuation date with yield curves given by the price provider. The result of such valuation is recorded in the year’s results.

 

Management’s risk policies regarding hedging contracts to protect the Financial Group’s balance sheet is to anticipate interest and exchange rate fluctuations, thereby protecting the Shareholders’ Equity.

 

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For hedging derivatives, the Financial Group applies in all cases the cash flow hedging method and the accumulated compensation method to measure effectiveness. Both methods are approved by current accounting standards. In case ineffective hedges are detected, they are recorded in the year’s results.

 

The Financial Group documents hedging transactions from the moment that the derivative instruments are designated as hedging transactions. A file for each transaction is created in order to have documented proof as per Circular B-5 paragraph 71, which establishes conditions for the use of hedge accounting.

 

Accordingly, the Financial Group documents its hedging transactions based on the following guidelines:

 

·                  A cash flow hedging transaction is recorded as follows:

 

a.              The effective portion of the hedging instrument’s gain or loss is recorded as a component of other comprehensive income in stockholders’ equity using as an asset or liability account called “derivatives financial instruments” with an offsetting account in the liquid assets or liabilities. The portion determined as ineffective is measured through retrospective test, and when they result in over-hedging, they are immediately recognized in current earnings.

 

b.              The effective hedge component recognized in stockholders’ equity associated with the hedged item is adjusted to equal the lower (in absolute terms) of these items:

I.                The accumulated gain or loss of the hedging instrument from its inception.

II.           The accumulated change in the fair value (present value) of the hedged item’s expected future cash flows from the  beginning of the transaction.

 

Valuation method

 

Since the derivatives used by the Financial Group are considered as conventional (“plain vanilla”), the standard valuation models contained in the derivatives transaction systems and the Financial Group’s risk management is used.

 

All of the valuation methods that the Financial Group uses result in the fair value of the transactions and are periodically adjusted. Furthermore, they are audited by internal and external auditors, as well as by the financial authorities.

 

Valuation of the positions is done on a daily basis, and a price provider generates the input used by the transaction and risk management systems. The price provider generates these valuations based on daily market conditions.

 

The valuation methods are based on the market’s accepted and commonly used principles. At present, derivatives are valued by the cash flow present value method, except in the case of options. This method consists of estimating future derivative flows, using the difference between the derivative’s fixed level and the forward market curves on the valuation date, and then discounting such flows and updating them to the present value. Options are valued under the Black and Scholes method, which in addition to the present value, involves the volatility and probability of occurrence for calculating the premium. Once the option’s market value is obtained, it is compared to the original premium accrued on the valuation date.

 

Operation strategies

 

*Trading*

 

The Financial Group participates in the derivatives market with trading purposes, and the risk exposures generated are computed within its overall VaR limit.

 

The trading strategy is submitted on a weekly basis to the Financial Group’s Treasury Committee, which analyzes the current risks and makes any necessary decisions.

 

The trading strategy is carried out according to market levels and expectations, maximizing the circumstances to obtain a benefit by trading, margin and volatility. Each trading strategy is submitted to the Treasury Committee on a weekly basis for its consideration. The Committee analyzes the risks and then decides accordingly.

 

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*Hedging*

 

The hedging strategy is determined annually and when market conditions require it. Hedging strategies are submitted to the Risk Policies’ Committee.

 

Hedging transactions comply with the applicable norm set forth in Circular B-5 of the CNBV. This implies, among other things, that the hedge’s effectiveness must be evaluated both prior to its arrangement (prospective) and thereafter (retrospective). These tests are performed on a monthly basis.

 

The hedging strategy is determined annually and each time the market conditions require. Hedges are used to reduce foreign exchange risks, through both exchange rate forwards and currency swaps, as well as interest rates by means of interest rate swaps. This is done with the purpose of setting the rates paid in debt issued by the Financial Group, thereby insuring its payment, and to make investments that generate greater value for the customers. The main strategy is to insure the Financial Groups’ future income and expenses, maximizing the benefits.

 

Hedging derivatives can be restated whole or partially due to hedging inefficiencies, maturity or sale of primary position.

 

**Contingencies**

 

To enter the derivatives market, the Financial Group is bound by an agreement to deliver its financial information in a timely manner and to abide by the applicable laws, regulations and provisions, as well as to give written notice to the affected parties in an event that could be considered as early termination, which could lead to a credit contingency. These include the following: bankruptcy filing, payment suspension, restructuring, intervention, liquidation, dissolution or other similar judicial or extra-judicial proceedings that affect the Financial Group; if the statements stipulated in the contract are incorrect; the Financial Group’s failure to fulfill its obligations and/or payments; breach of contract; the Financial Group’s consolidates or merges with another entity thereby transferring a substantial portion of its assets; failure to provide the guarantees that were agreed in the event of noncompliance with obligations or if such guarantees are expired or diminished in value; the Financial Group’s falls into insolvency, lower credit quality or illegality due to changes in the tax or legal legislation; the existence of a ruling, proceeding or embargo against the Financial Group that could substantially affect its ability to fulfill its obligations in a timely manner; or general noncompliance with obligations. Each ground for early termination is subject to the counter-party’s consideration to determine its importance and significance regarding the Financial Group’s ability to comply.

 

At present no such contingency situations have arisen.

 

Embedded derivatives

 

Embedded derivatives are those contract components that do not intend to explicitly originate a derivative financial instrument but rather that the implicit risks generated or hedged by those components differ in their economic and risk features from those of the contract, and therefore display behavior and features similar to those of a common derivative.

 

Identified embedded derivatives are separated from the host contract for valuation purposes and are treated as a derivative when they meet the features set forth in Circular B-5 paragraph 22. The main embedded derivatives recognized by the Financial Group are from service and leasing contracts established in US dollars.

 

**Loan portfolio**

 

The loan portfolio represents the balance of amounts effectively granted to borrowers plus uncollected accrued interest minus interest collected in advance. The allowance for loan losses from credit risks is presented as a reduction of the loan portfolio.

 

The unpaid loan balance is classified in the past-due portfolio as follows:

 

·                  Loans with bullet payment of principal and interest at maturity: 30 calendar days after being overdue.

 

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·                  Loans involving a single principal payment at maturity, but with periodic interest payments: total principal and interest payments 30 and 90 calendar days after being overdue, respectively.

 

·                  Loans for which the payment of principal and interest is agreed based on partial periodic payments: 90 calendar days after the first payment is due.

 

·                  In the case of revolving loans, whenever payment is outstanding for two billing periods or when they are 60 or more days overdue.

 

·                  Overdrawn customer checking accounts are considered as part of the past-due portfolio when such situations arise.

 

Interest is recognized and accrued as income when earned. The accrual of interest income is suspended when loans are transferred to the past-due portfolio.

 

The fees charged for the initial granting of loans will be recorded as a deferred credit, which will be amortized as interest income, using the straight-line method over the loan’s contractual term, except those originating from revolving loans, which are amortized over a 12-month period.

 

Annual credit card fees whether the first annual charge of a renewal, are recorded as a deferred credit and amortized over a 12-month period against the year’s results in the commission and fee income line item.

 

The costs and expenses associated with the initial granting of a loan are stated as a deferred charge, which is amortized against the year’s earnings as interest expense for the duration of the loan, except those originating from revolving loans and credit cards which are amortized over a 12-month period.

 

Restructured past-due loans are not considered in the performing portfolio until evidence of sustained payment is obtained; this occurs when credit institutions receive three timely consecutive payments, or a payment is received for periods exceeding 60 days.

 

Renewed loans in which the borrower has not paid on time or when the accrued interest balance equals at least 25% of the original loan amount are considered past-due until evidence of sustained payment is obtained.

 

Accrued interest during the period in which the loan was included in the past-due portfolio is recognized as income when collected.

 

The recognition of interest income is renewed when the portfolio is no longer considered past-due, which occurs when the outstanding balances, including the principal, interest and any other item, are paid in full.

 

Restructured loans are those whose terms have been modified due to the borrowers’ financial difficulties, and it was decided to grant them a concession. Such modifications may include: reductions in the interest rate, debt forgiveness or term extensions.

 

The Financial Group regularly evaluates whether a past-due loan should remain in the balance sheet or be written off. Such write-offs are done by canceling the outstanding loan balance against the allowance for loan losses. The Financial Group may opt to eliminate from its assets those past-due loans that are 100% provisioned according to the following parameters:

 

Commercial loans — Must be classified in past-due loans, with an E risk rating, 100% reserved and unsecured by any fund.

 

Consumer loans — 180 days or more overdue.

 

Mortgage loans — 270 days or more overdue.

 

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**Allowance for loan losses**

 

*Application of new portfolio classification provisions*

 

The loan portfolio is rated according to the rules issued by the Commission and the internal methodology authorized by such Commission.

 

In the case of consumer and mortgage loans, the Financial Group applies the general provisions applicable to credit institutions in rating the loan portfolio as issued by the Commission on October 25, 2010 and December 2, 2005, respectively. The Financial Group uses the internal methodology authorized by the Commission for rating commercial loans.

 

Such provisions also establish general methodologies for the rating and calculation of allowances for each type of loan, while also allowing credit institutions to classify and calculate allowances based on internal methodologies, when previously approved by the Commission.

 

Since June 2001, the Financial Group has the Commission’s approval to apply its own methodology to commercial loans, called Internal Risk Classification (CIR Banorte). CIR Banorte applies to commercial loans with outstanding balances equal to or greater than 4 million UDIS or its equivalent in Mexican pesos. This methodology is explained below.

 

The commercial loan portfolio rating procedure requires credit institutions to apply the established methodology (general or internal) based on quarterly information for the periods ending in March, June, September and December of each year, while also recording the allowances determined at the close of each period in their financial statements. Furthermore, during the months following each quarterly close, financial institutions must apply to any loan the respective rating used at the close of the immediately preceding quarter, based on the outstanding balance on the last day of the aforementioned months. The allowances for loan risks that have exceeded the amount required to rate the loan will be cancelled on the date of the following quarterly rating against the period’s results. Additionally, recoveries on previously written-off loan portfolio are recorded in the period’s results.

 

Derived from the acquisition of INB Financial Corp. (INB) in 2006, the Financial Group applied the loan rating methodologies established by the Commission to INB’s loans, homologating the risk degrees and adjusting the allowance for loan losses derived from applying such methodologies.

 

On November 30, 2010, the Commission issued Document 121-4/5486/2010, which renews for a two-year period, as of December 1, 2010, the authorization for such internal loan rating methodology.

 

Commercial loans equal to or greater than 4 million UDIS or its equivalent in Mexican pesos are rated based on the following criteria:

 

·                  Debtor’s credit quality

·                  The loans in relation to the value of the guarantees or the value of the assets in trusts or in “structured” programs, as applicable.

 

The commercial loan segment includes loans granted to business groups and corporations, state and municipal governments and their decentralized agencies, as well as financing to companies of the financial services sector.

 

The Financial Group applied the internal risk classification methodology, CIR Banorte, authorized by the Commission to rate the debtor, except in financing granted to state and municipal governments and their decentralized agencies, loans intended for investment projects with their own source of payment and financing granted to trustees that act under trusts and “structured” loan programs in which the affected assets allow for an individual risk evaluation associated with the type of loan, for which the Financial Group applied the procedure established by the Commission.

 

When evaluating a debtor’s credit quality with the CIR Banorte method, the following risks and payment experiences are classified specifically and independently:

 

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| **Risk criteria**        | ** ** | **Risk factors** |
|-------------------------------|------------|-----------------------|
| 1. Financial risk             |       | 1.                    | Financial structure and payment capacity |
|                          |       | 2.                    | Financing sources |
|                          |       | 3.                    | Management and decision-making |
|                          |       | 4.                    | Quality and timeliness of financial information |
| 2. Industry risk              |       | 5.                    | Positioning and market in which debtor participates |
|                          |       |                  | - Target markets |
|                          |       |                  | - Risk acceptance criteria |
| 3. Borrower’s experience |       | 6.                    | Borrower’s experience |
| 4. Country risk               |       | 7.                    | Country risk |

 

Each of the risk factors is analyzed using descriptive evaluation tables, the result of which indicates the borrower’s rating. This, in turn, is standardized with the risk degrees established by the Commission.

 
| **CIR Banorte** | ** ** | **Risk level description** | ** ** | **Commission classification equivalent** |
|----------------------|------------|--------------------------------------|------------|----------------------------------------------------|
| 1                    |       | Substantially risk free              |       | A1                                                 |
| 2                    |       | Below minimal risk                   |       | A2                                                 |
| 3                    |       | Minimum risk                         |       | A2                                                 |
| 4                    |       | Low risk                             |       | B1                                                 |
| 5                    |       | Moderate risk                        |       | B2                                                 |
| 6                    |       | Average risk                         |       | B3                                                 |
| 7                    |       | Risk requiring management attention  |       | C1                                                 |
| 8                    |       | Potential partial loss               |       | C2                                                 |
| 9                    |       | High loss percentage                 |       | D                                                  |
| 10                   |       | Total loss                           |       | E                                                  |

 

For commercial loans under 4 million UDIS or its equivalent in Mexican pesos, loans under 900 thousand UDIS to state and municipal governments and their decentralized agencies, mortgage loans and consumer loans, the Financial Group applied the general provisions applicable to credit institutions for classifying the loan portfolio as issued by the Commission.

 

**Acquired loan portfolios**

 

This balance is represented by the acquisition cost of the various loan asset packages acquired by the Financial Group, which are subsequently valued by applying one of the three following methods:

 

*Cost Recovery Method*- Payments received are applied against the acquisition cost of the loan portfolio until the balance equals zero. Recoveries in excess of the acquisition cost are recognized in current earnings.

 

*Interest method**-*The result of multiplying the acquired portfolio’s outstanding balance by the estimated yield is recorded in current earnings. Differences between the Financial Group’s collection estimates and actual collections are reflected prospectively in the estimated yield.

 

*Cash basis method**-*The amount resulting from multiplying the estimated yield times the amount actually collected is recorded in the income statement, provided it is not greater than the amount obtained by the interest method. The difference between the recorded amount and the amount collected reduces the outstanding portfolio balance, once the entire initial investment has been amortized. Any subsequent recovery will be recorded in the income statement.

 

For the portfolios valued using the interest method, the Financial Group evaluates them twice a year to verify if the cash flow estimate of its collection rights is consistent with actual recoveries and therefore considered to be effective. The Financial Group uses the cost recovery method on those collection rights in which the expected cash flow estimate is not highly effective. The expected cash flow estimate is considered as “highly effective” if the result of dividing the sum of the flows actually collected by the sum of the expected cash flows is between 0.8 and 1.25 when such effectiveness is evaluated.

 

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**Securitizations involving transfer of ownership**

 

Through securitization transactions involving the transfer of ownership in mortgage and government loans, the Financial Group transfers those financial assets to a trust so that it publicly issues securities through an intermediary. The securities represent the right to the yield on the securitized portfolio and, as compensation the Financial Group receives cash and a receipt, which grants it the right over the trust’s cash flow remnants after paying the holders for their certificates. This receipt is recorded at its fair value under “Receivables generated by securitizations”

 

The Financial Group provides management services for the transferred financial assets and records the revenue in the period’s earning when accrued. These revenues are stated under “Other income.”

 

The valuation of the benefits to be received from securitization operations is recorded in the income statement under other income or other expenses, as applicable.

 

**Other accounts receivable and payable**

 

The Financial Group performs a study to quantify the different future events that could affect the amount in accounts receivable over 90 days and thus determine the percentage of non-recoverability in order to calculate its allowance for doubtful accounts. The remaining balance of accounts receivable is reserved at 90 calendar days from the initial recognition.

 

The balances of asset and liability settlement accounts represent transactions involving the sale and purchase of currency and securities, which are recorded when entered into and are settled within 48 hours.

 

**Merchandise Inventory**

 

This is comprised mainly of finished goods and prior to 2008 was restated to the lower of replacement cost or market. Cost of sales, included in “Other expenses”, is restated using the replacement cost at the time of the sale prior to 2008.

 

**Impairment of the value of long-lived assets and their disposal**

 

The Financial Group has established guidelines to identify and, if applicable, record losses derived from the impairment or decrease in value of long-lived tangible or intangible assets, including goodwill.

 

**Foreclosed assets, net**

 

Foreclosed property or property received as payments in kind are recorded at the lower of their cost or fair value minus the strictly necessary costs and expenses disbursed in the foreclosure. Cost is determined as the forced-sale value established by the judge upon foreclosure or, in the case of payments in kind, the price agreed between the parties involved.

 

When the value of the asset or the accrued or past due amortizations leading to the foreclosure, net of estimates, is higher than that of the foreclosed property, the difference is recorded in the period’s results under “Other Revenues.”

 

When the value of the asset or the accrued or past due amortizations leading to the foreclosure, net of estimates, is lower than that of the foreclosed property, its value is adjusted to the asset’s net value.

 

The carrying value is only modified when there is evidence that the fair value is lower than the recorded carrying value. Reductions in the carrying value of the loan are recorded in the current earnings as they occur.

 

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The provisions applicable to the new valuation methodology for the allowance for loan losses mentioned above define the valuation methodology for reserves related to either foreclosed property or those assets received as payment in kind, establishing that additional quarterly provisions must be created to recognize the potential decrease in value over time of property awarded under legal proceedings, out-of-court or received as payment in kind and the investments in securities received as foreclosed goods or payment in kind, based on the following guidelines:

 

I. In the case of collection rights and real property, the provisions referenced in the preceding paragraph must be treated as follows:

 

**Personal property reserves**

 
| **Time elapsed as of********award date or receipt as payment in kind (months)** | ** ** | **Reserve percentage** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|
| Up   to 6                                                                                                                              |       | 0                           | %          |
| More   than 6 and up to 12                                                                                                             |       | 10                          | %          |
| More   than 12 and up to 18                                                                                                            |       | 20                          | %          |
| More   than 18 and up to 24                                                                                                            |       | 45                          | %          |
| More   than 24 and up to 30                                                                                                            |       | 60                          | %          |
| More   than 30                                                                                                                         |       | 100                         | %          |

 

The amount of the reserves to be created will be the result of applying the reserve percentage determined under the preceding table to the value of collection rights or foreclosed property, received as payment in kind or awarded in a court proceeding.

 

II. Investments in securities must be valued in accordance with the provisions of the Commission’s accounting Circular B-2, using annual audited financial statements and monthly financial information of the issuer.

 

Following the valuation of foreclosed assets or those received as payment in kind, the reserves resulting from applying the percentages established in the table of Section I above to the estimated value, must be created.

 

III. In the case of real property, provisions must be created as follows:

 

**Real property reserves**

 
| **Time elapsed as of********award date or receipt as payment in kind (months)** | ** ** | **Reserve percentage** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|
| Up   to 12                                                                                                                             |       | 0                           | %          |
| More   than 12 and up to 24                                                                                                            |       | 10                          | %          |
| More   than 24 and up to 30                                                                                                            |       | 15                          | %          |
| More   than 30 and up to 36                                                                                                            |       | 25                          | %          |
| More   than 36 and up to 42                                                                                                            |       | 30                          | %          |
| More   than 42 and up to 48                                                                                                            |       | 35                          | %          |
| More   than 48 and up to 54                                                                                                            |       | 40                          | %          |
| More   than 54 and up to 60                                                                                                            |       | 50                          | %          |
| More   than 60                                                                                                                         |       | 100                         | %          |

 

The amount of the reserves to be created will be the result of applying the reserve percentage determined under the preceding table to the awarded value of the property based on the accounting criteria. Furthermore, when problems are identified regarding the realization of the value of the foreclosed property, the Financial Group records additional reserves based on management’s best estimates. On December 31, 2010, there are no reserves in addition to those created by the percentage applied based on the accounting criteria that could indicate realization problems with the values of the foreclosed properties.

 

If appraisals subsequent to the foreclosure or payment in kind result in the recording of a decrease in the value of the collection rights, securities, personal or real property, the reserve percentages contained in the preceding table can be applied to the adjusted value.

 

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**Property, furniture and equipment**

 

Property, furniture and equipment are recorded at acquisition cost. The balances of acquisitions made until December 31, 2007, were restated using factors derived from the value of the UDI of that date.

 

Depreciation is calculated using the straight-line method based on the useful lives of the assets as estimated by independent appraisers.

 

**Permanent stock investments**

 

The Financial Group recognizes its investments in associated companies where it has control or significant influence using the equity method, based on the book values shown in the most recent financial statements of such entities.

 

**Income Taxes (ISR), Business Flat Tax (IETU) and Employee Statutory Profit-Sharing (PTU)**

 

The provisions for ISR, IETU and PTU are recorded in the results of the year in which they are incurred. Deferred taxes are recognized if, based on financial projections, the Financial Group expects to incur ISR or IETU, and records the deferred tax it will pay. The Financial Group will record deferred ISR or IETU, corresponding to the tax it will pay. Deferred taxes are calculated by applying the corresponding tax rate to the applicable temporary differences resulting from comparing the accounting and tax bases of assets and liabilities and including, if any, future benefits from tax loss carryforwards and certain tax credits. The deferred tax assets are recorded only when there is a high probability of recovery.

 

The net effect of the aforementioned items is presented in the consolidated balance sheets under the “Deferred taxes, net” line.

 

**Intangible assets**

 

Intangible assets are recognized in the consolidated balance sheets provided they are identifiable and generate future economic benefits that are controlled by the Financial Group. The amortizable amount of the intangible asset is assigned on a systematic basis during its estimated useful life. Intangible assets with indefinite lives are not amortized, and their value is subject to annual impairment tests.

 

**Goodwill**

 

The Financial Group records goodwill when the total fair value of the acquisition cost and the noncontrolling interest is greater than the fair value of the net assets of the acquired business, pursuant to NIF B-7 “Business acquisitions.” As goodwill is considered an intangible asset with an indefinite life, it is subject to impairment tests at least annually according to NIF C-15 “Impairment in the value of long-lasting assets and their disposal.” No indicators of impairment of goodwill have been identified as of December 31, 2010 and 2009.

 

**Deposits**

 

Liabilities derived from deposits, including promissory notes settled at maturity, are recorded at their funding or placement cost plus accrued interest, determined according to the number of days elapsed at each monthly close, which are charged against results when accrued as an interest expense.

 

**Interbank and other loans**

 

These loans are recorded based on the contractual value, recognizing the interest in the year’s earnings as accrued. The Financial Group records in this item the direct loans obtained from domestic and foreign banks, loans obtained through bids with Banco de Mexico and development fund financing. Furthermore, this includes discounted loan portfolios from funds provided by banks specializing in financing economic, productive or development activities.

 

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**Provisions**

 

Provisions are recognized when the Financial Group has a current obligation that results from a past event and are likely to result in the use of economic resources and can be reasonably estimated.

 

**Employee retirement obligations**

 

According to Mexican Federal Labor Law, the Financial Group has obligations derived from severance payments and seniority premiums payable to employees that cease to render their services under certain circumstances.

 

Defined benefits plan

 

The Financial Group records a liability for seniority premiums, pensions and post-retirement medical services as incurred based on calculations by independent actuaries using the projected unit credit method, using nominal interest rates. Accordingly, this recognizes the liability whose present value will cover the obligation from benefits projected to the estimated retirement date of the Company’s overall employees, as well as the obligation related to retired personnel.

 

The balance at the beginning of each period of actuarial gains and losses derived from pension plans exceeding 10% of the greater amount between the defined benefits obligation and plan assets are amortized in future periods against current results, in the case of pension plan, medical service and seniority premiums to retirement.

 

In the case of seniority premiums related to termination and remuneration at the end of the employment relation, earnings or losses are recognized immediately in the period that are generated, as specified by the NIF D-3 “Employee benefits”.

 

The Financial Group applies the provision of NIF D-3 related to the recognition of the liability for severance payments for reasons other than restructuring, which is recorded using the projected unit credit method based on calculations by independent actuaries.

 

Defined contribution plan

 

As of January 2001, the Financial Group provided a defined contribution pension plan. The participating employees are those hired as of this date as well as those hired prior to such date that enrolled voluntarily. The pension plan is invested in a fund.

 

The employees who were hired prior to January 1, 2001 and decided to enroll voluntarily in the defined contribution pension plan received a contribution from the Financial Group for prior services equivalent to the actuarial benefit accrued in their previous defined benefit plan that was cancelled. The initial contribution was made from the plan assets that had been established for the original defined benefit plan and participants were immediately assigned 50% of such amount with the remaining 50% to be assigned over 10 years.

 

The initial payment to the defined contribution plan for past services was financed with funds established originally for the defined benefit plan as a result of the early termination of its obligations and recognized in accordance with the requirements of NIF D-3.

 

The labor obligations derived from the defined contribution pension plan do not require an actuarial valuation as established in NIF D-3, because the cost of this plan is equivalent to the Financial Group’s contributions made to the plan’s participants.

 

**Foreign currency conversion**

 

Foreign currency transactions are recorded at the applicable exchange rate in effect at the transaction date. Monetary assets and liabilities denominated in foreign currency are translated into Mexican pesos at the applicable exchange rate at the close of each period. The exchange rate used to establish Mexican peso equivalence is the

 

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FIX exchange rate published by Banco de México. Foreign exchange fluctuations are recorded in the results of operations.

 

**Interest from outstanding subordinated debentures**

 

Accrued interest from outstanding subordinated debentures is recognized as it is accrued and translated according to the exchange rate in effect at each monthly close.

 

**Transfer of financial assets**

 

The Financial Group may act as the assignor o assignee, as applicable, in this type of transactions. Moreover the Financial Group evaluates whether or not to retain the risks and benefits associated with the asset property to determine whether or not there was a transfer of property in a transaction. In transactions involving the transfer of ownership in financial assets, the assignor yields control and substantially transfers all the risks and benefits over such assets. Therefore, the assignor derecognizes such assets and records the consideration received in the transaction. Conversely, the assignee recognizes such financial assets and the transfer consideration in its accounting records.

 

**Share-based payments**

 

The Financial Group grants stock options to key officers through different payment schemes based on stocks. The Financial Group has established trusts to manage the plans and contributes the necessary funds so that shares can be purchased directly from the market at the initiation of each plan.

 

The Financial Group records its stock option plans according to the guidelines of NIF D-8, “Share-based payments.” The compensation expense is recorded at fair value as of the date the stock options are granted. The NIF D-8 guidelines stipulate that the fair value determined at the beginning is not revalued at a later date.

 

The fair value of each share is estimated as of the date granted using the Black-Scholes option pricing model or the forwards valuation model, depending on the plans’ features.

 

**Main subsidiaries’ income recognition**

 

**Banorte Casa de Bolsa**

 

Permanent stock investments — represented mainly by stockholders’ equity shares of the distributing Investment Companies. Permanent stock investments are originally recorded at their acquisition cost and restated up to December 31, 2007, based on the factor derived from the UDI or the equity method, as applicable, based on the last available financial statements, and if necessary, losses in value are recorded based on the information provided by the affiliated companies’ management. Regarding the mutual funds managed by the Operating Company, the valuation increase is from comparing the original value to the book value one day prior to the close of the period. The valuation effect at book value is recorded in the statement of income under “Share in subsidiaries and affiliates’ income”.

 

Recognition of income from services, financial advisory and securities purchase-sales — the fees and rates generated by customer securities’ operations are recorded as performed.

 

Income from financial advisory is recorded when accrued as per the contract.

 

Securities purchase-sales results are recorded when performed.

 

Income and expenses are recorded as generated or accrued as per the relative contracts.

 

Share dividends are recorded at zero value in investments: therefore they only affect the results when the shares are sold.

 

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**Arrendadora y Factor Banorte**

 

Credit from finance leasing operations, net — finance leasing operations are recorded as direct financing, wherein the account receivable is the total amount of the settled rents, and potential profit is the difference between such amount and the cost of the leased properties. Net financed capital is recorded on the general balance sheet, deducting the total of rents from the potential profit.

 

Loans from operating leasing operations — represent company assets given to a third party for the latter’s temporary use and enjoyment for a given term equal to or over six months. The operating leasing contract rents are recorded as income as accrued.

 

Loans from factoring operations, net — funded or non-funded factoring is recorded as follows:

 

·                  Ceded portfolio — the amount is recorded in loan portfolios, minus the difference between loans and the financed amount.

 

·                  Profit from acquired documents (interest) - calculated in advance, per completed month and upon maturity, recorded in factoring, and both are applied to results as accrued.

 

Recognition of income — interest from leasing and financial factoring is recognized as income as accrued; however the accumulation of interest is suspended whenever the uncollected interest and/or total loan is transferred to past-due loans. Accrued, normal and past-due interest during the period the loan is considered past-due is recognized as income as collected.

 

Profit to realize from financial leasing is recognized as income as accrued. The final value of the good in financial leasing is recognized as income when purchased.

 

The fees for credit opening in leasing and factoring operations are recognized as income as accrued.

 

**Afore Banorte-Generali**

 

Recognition of income - the administration fees are recognized as income as accrued.

 

The Pension Fund can only collect fees from workers charged to their individual accounts and the contributions received. Such fee is determined by the balance of received contributions. It may be a percentage of such concepts, a fixed fee or a combination of both, and can only be made when the worker’s contributions are effectively invested in the Siefores that the Pension Fund manages and the necessary daily provisions have been recorded in the Siefores accounting.

 

The profit or loss generated from selling investments in Siefores shares is recorded in the income statement as realized.

 

**Seguros Banorte-Generali**

 

Income from premiums — Recognized as follows:

 

a.              The income for group and collective life insurance premiums is recorded in income as the partial payment receipt is issued, deducting the premiums ceded in reinsurance.

 

b.              Income from premiums for accidents, illness and damage is recorded in terms of the policies contracted in the year, even though their term is for over one year, deducting the premiums ceded in reinsurance.

 

c.               Income from rights and surcharges on policies with segmented payments is recorded in income as collected and the uncollected portion is recorded in deferred loans.

 

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**5 — CASH AND CASH EQUIVALENTS**

 

As of December 31, 2010 and 2009, this line item was composed as follows:

 
| ** **                           | ** ** | **2010** | ** ** | **2009**   | ** ** |
|--------------------------------------|------------|----------|------------|------------|------------|
| Cash                                 |       | Ps.      | 12,308     |       | Ps.        | 9,415 |   |
| Banks                                |       |     | 46,113     |       |       | 45,949 |   |
| Other deposits and   available funds |       |     | 4,076      |       |       | 3,904 |   |
|                                 | ** ** | **Ps.**  | **62,497** | ** ** | **Ps.**    | **59,268** | ** ** |

 

On December 31, 2010, “Other deposits and available funds” include Ps. 857 for funds due to be received in 24 and 48 hours, and Ps. 36 in gold and silver coins. In 2009, it included Ps. 1,598 for funds due to be received in 24 and 48 hours, and Ps. 35 in gold and silver coins.

 

The exchange rate used for the conversion of gold and silver coins (Centenarios and Troy ounces, respectively) was Ps. 17,872.67 and Ps. 399.63, per unit, respectively, in 2010 and Ps. 14,627.95 and Ps. 239.89, per unit, respectively, in 2009.

 

“Banks” is represented by cash in Mexican pesos and US dollars converted at the exchange rate issued by Banco de México of Ps. 12.3496 and Ps. 13.0659 as of December 31, 2010 and 2009, respectively and is made up as follows:

 
| ** **                                  | ** ** | **Mexican pesos** | ** ** | **Denominated in US   dollars** | ** ** | **Total**  | ** ** |
|---------------------------------------------|------------|------------------------|------------|-------------------------------------------|------------|------------|------------|
| ** **                                  | ** ** | **2010**               | ** ** | **2009**                                  | ** ** | **2010**   | ** ** | **2009** | ** ** | **2010** | ** ** | **2009** | ** ** |
| Call money                                  |       | Ps.                    | 3,000      |                                      | Ps.        | 2,447      |       | Ps. | 3,458 |   | Ps. | 653 |   | Ps. | 6,458 |   | Ps. | 3,100 |   |
| Deposits with foreign   credit institutions |       |                   | —     |                                      |       | —     |       |   | 12,368 |   |   | 15,928 |   |   | 12,368 |   |   | 15,928 |   |
| Domestic banks                              |       |                   | 834        |                                      |       | 370        |       |   | — |   |   | — |   |   | 834 |   |   | 370 |   |
| Banco de México                        |       |                   | 26,345     |                                      |       | 26,510     |       |   | 108 |   |   | 41 |   |   | 26,453 |   |   | 26,551 |   |
| ** **                                  | ** ** | **Ps.**                | **30,179** | ** **                                | **Ps.**    | **29,327** | ** ** | **Ps.** | **15,934** | ** ** | **Ps.** | **16,622** | ** ** | **Ps.** | **46,113** | ** ** | **Ps.** | **45,949** | ** ** |

 

As of December 31, 2010 and 2009, the Financial Group had made monetary regulation deposits of Ps. 26,345 and Ps. 26,342, respectively.

 

As of December 31, 2010 and 2009, the total sum of restricted cash and cash equivalents is Ps. 36,819 and Ps. 33,289, respectively. This includes monetary regulation deposits, futures placed in the domestic and foreign market, call money and contracted transactions pending settlement in 24 and 48 hours.

 

The interbank loans are documented and accrued at an average rate of return of 0.182% and 0.167% in USD and 4.5% and 4.5% in pesos, as of December 31, 2010 and 2009, respectively.

 

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**6 - INVESTMENTS IN SECURITIES**

 

**a. Trading securities**

 

As of December 31, 2010 and 2009, trading securities are as follows:

** **
| ** **                        | ** ** | **2010**               | ** ** | **2009**               | ** ** |
|-----------------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                        | ** ** | **Acquisition   cost** | ** ** | **Accrued   interest** | ** ** | **Valuation   increase   (decrease)** | ** ** | **Book value** | ** ** | **Book value** | ** ** |
| CETES                             |       | Ps.                    | 2,544      |                   | Ps.        | — |   | Ps. | (1 | ) | Ps. | 2,543 |   | Ps. | 926 |   |
| Bonds                             |       | 532                    |       | 25                     |       | 1 |   | 558 |   | 520 |   |
| Development Bonds                 |       | 3,241                  |       | 4                      |       | 3 |   | 3,248 |   | 3,136 |   |
| Savings protection bonds   (BPAS) |       | 39,000                 |       | 194                    |       | 33 |   | 39,227 |   | 9,494 |   |
| Bank securities                   |       | 17,218                 |       | 12                     |       | 5 |   | 17,235 |   | 9,994 |   |
| UMS                               |       | 54                     |       | 1                      |       | (2 | ) | 53 |   | — |   |
| Securitization   certificates     |       | 3,114                  |       | 14                     |       | 43 |   | 3,171 |   | 260 |   |
| Treasury notes                    |       | 23                     |       | —                 |       | — |   | 23 |   | 65 |   |
| Other securities                  |       | 61                     |       | 1                      |       | — |   | 62 |   | — |   |
| Investment funds                  |       | 61                     |       | —                 |       | — |   | 61 |   | 64 |   |
| ** **                        | ** ** | **Ps.**                | **65,848** | ** **             | **Ps.**    | **251** | ** ** | **Ps.** | **82** | ** ** | **Ps.** | **66,181** | ** ** | **Ps.** | **24,459** | ** ** |
|                                   |            |                        |            |                        |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

During 2010 and 2009, the Financial Group recognized a profit (loss) of Ps. 46 and (Ps. 17), respectively, under “Brokerage revenues” for the fair value valuation of these instruments.

 

As of December 31, 2010 and 2009, there are Ps. 58,154 and Ps. 19,310, respectively, in restricted trading securities associated mainly with repurchase operations.

 

As of December 31, 2010, these investments mature as follows (stated at their acquisition cost):

** **
| ** **                        | ** ** | **One year or   less** | ** ** | **More than one   and up to 5   years** | ** ** | **More than 5 and   up to 10 years** | ** ** | **More than 10   years** | ** ** | **Total**  | ** ** |
|-----------------------------------|------------|----------------------------------|------------|------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|------------------------------------|------------|------------|------------|
| CETES                             |       | Ps.                              | 2,544      |                                                             | Ps.        | —                                                             |       | Ps.                                | —     |       | Ps.        | — |   | Ps. | 2,544 |   |
| Bonds                             |       | 532                              |       | —                                                           |       | —                                                             |       | —                             |       | 532        |       |
| Development Bonds                 |       | 1,070                            |       | 2,171                                                            |       | —                                                             |       | —                             |       | 3,241      |       |
| Savings protection bonds   (BPAS) |       | 2,463                            |       | 35,595                                                           |       | 942                                                                |       | —                             |       | 39,000     |       |
| Bank securities                   |       | 13,440                           |       | 3,778                                                            |       | —                                                             |       | —                             |       | 17,218     |       |
| UMS                               |       | —                           |       | —                                                           |       | 54                                                                 |       | —                             |       | 54         |       |
| Securitization   certificates     |       | 44                               |       | 2,870                                                            |       | —                                                             |       | 200                                |       | 3,114      |       |
| Treasury notes                    |       | —                           |       | —                                                           |       | 23                                                                 |       | —                             |       | 23         |       |
| Other securities                  |       | 2                                |       | —                                                           |       | 27                                                                 |       | 32                                 |       | 61         |       |
| Investment funds                  |       | —                           |       | —                                                           |       | —                                                             |       | 61                                 |       | 61         |       |
| ** **                        | ** ** | **Ps.**                          | **20,095** | ** **                                                       | **Ps.**    | **44,414**                                                         | ** ** | **Ps.**                            | **1,046**  | ** ** | **Ps.**    | **293** | ** ** | **Ps.** | **65,848** | ** ** |
|                                   |            |                                  |            |                                                                  |            |                                                                    |            |                                    |            |            |            |  |  |  |  |  |  |  |  |

 

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**b. Available for sale securities**

 

As of December 31, 2010 and 2009, available for sale securities were as follows:

 
| ** **                    | ** ** | **2010**               | ** ** | **2009**               | ** ** |
|-------------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                    | ** ** | **Acquisition   cost** | ** ** | **Accrued   interest** | ** ** | **Valuation   increase   (decrease)** | ** ** | **Book value** | ** ** | **Book value** | ** ** |
| US Government bonds           |       | Ps.                    | 7,769      |                   | Ps.        | 28 |   | Ps. | 76 |   | Ps. | 7,873 |   | Ps. | 6,603 |   |
| UMS                           |       | 248                    |       | 10                     |       | — |   | 258 |   | 361 |   |
| Bonds                         |       | 1,424                  |       | 10                     |       | 85 |   | 1,519 |   | 2,718 |   |
| MASTER CARD                   |       | —                 |       | —                 |       | — |   | — |   | 35 |   |
| BMV Shares                    |       | 234                    |       | —                 |       | 134 |   | 368 |   | 219 |   |
| EUROBONDS                     |       | 608                    |       | 15                     |       | 34 |   | 657 |   | 941 |   |
| PEMEX bonds                   |       | 833                    |       | 12                     |       | 25 |   | 870 |   | 824 |   |
| Securitization   certificates |       | 755                    |       | 1                      |       | (13 | ) | 743 |   | — |   |
| ** **                    | ** ** | **Ps.**                | **11,871** | ** **             | **Ps.**    | **76** | ** ** | **Ps.** | **341** | ** ** | **Ps.** | **12,288** | ** ** | **Ps.** | **11,701** | ** ** |
|                               |            |                        |            |                        |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

As of December 31, 2010 and 2009 there are Ps. 2,674 and Ps. 2,489, respectively, in restricted trading securities.

 

As of December 31, 2010, these investments mature as follows (stated at their acquisition cost):

 
| ** **                    | ** ** | **One year   or less** | ** ** | **More than one   and up to 5   years** | ** ** | **More than 5   and up to 10   years** | ** ** | **More than 10   years** | ** ** | **Total**  | ** ** |
|-------------------------------|------------|----------------------------------|------------|------------------------------------------------------------------|------------|-----------------------------------------------------------------|------------|------------------------------------|------------|------------|------------|
| US Gov. Bonds                 |       | Ps.                              | —     |                                                             | Ps.        | —                                                          |       | Ps.                                | 7,769      |       | Ps.        | — |   | Ps. | 7,769 |   |
| UMS                           |       | 248                              |       | —                                                           |       | —                                                          |       | —                             |       | 248        |       |
| Bonds                         |       | —                           |       | 183                                                              |       | 1,241                                                           |       | —                             |       | 1,424      |       |
| BMV Shares                    |       | —                           |       | —                                                           |       | —                                                          |       | 234                                |       | 234        |       |
| EUROBONDS                     |       | —                           |       | 364                                                              |       | 244                                                             |       | —                             |       | 608        |       |
| PEMEX bonds                   |       | 63                               |       | 124                                                              |       | 603                                                             |       | 43                                 |       | 833        |       |
| Securitization   certificates |       | —                           |       | 53                                                               |       | 702                                                             |       | —                             |       | 755        |       |
| ** **                    | ** ** | **Ps.**                          | **311**    | ** **                                                       | **Ps.**    | **724**                                                         | ** ** | **Ps.**                            | **10,559** | ** ** | **Ps.**    | **277** | ** ** | **Ps.** | **11,871** | ** ** |
|                               |            |                                  |            |                                                                  |            |                                                                 |            |                                    |            |            |            |  |  |  |  |  |  |  |

 

**c. Held to maturity securities**

 

As of December 31, 2010 and 2009, held to maturity securities are as follows:

 

Medium and long-term debt instruments:

 
| ** **                                                                    | ** ** | **2010**                  | ** **  | **2009**                  | ** ** |
|-------------------------------------------------------------------------------|------------|---------------------------|-------------|---------------------------|------------|
| ** **                                                                    | ** ** | **Acquisition cost** | ** **  | **Accrued interest** | ** ** | **Book value** | ** ** | **Book value** | ** ** |
| Government bonds- support   program for Special Federal Treasury Certificates |       | Ps.                       | 756         |                      | Ps.        | 3 |   | Ps. | 759 |   | Ps. | 725 |   |
| Government bonds                                                              |       | 578                       |        | 28                        |       | 606 |   | 631 |   |
| Development Bonds                                                             |       | 33,035                    |        | 57                        |       | 33,092 |   | 33,127 |   |
| Saving protection bonds   (BPAS)                                              |       | 71,826                    |        | 377                       |       | 72,203 |   | 103,759 |   |
| UMS                                                                           |       | 2,277                     |        | 61                        |       | 2,338 |   | 2,470 |   |
| Bank securities                                                               |       | 13,930                    |        | 91                        |       | 14,021 |   | 26,005 |   |
| PEMEX bonds                                                                   |       | 3,207                     |        | 62                        |       | 3,269 |   | 4,991 |   |
| Private securitization   certificates                                         |       | 13,536                    |        | 47                        |       | 13,583 |   | 18,582 |   |
| Other securities                                                              |       | 41                        |        | 1                         |       | 42 |   | 42 |   |
| ** **                                                                    | ** ** | **Ps.**                   | **139,186** | ** **                | **Ps.**    | **727** | ** ** | **Ps.** | **139,913** | ** ** | **Ps.** | **190,332** | ** ** |
|                                                                               |            |                           |             |                           |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

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As of December 31, 2010 and 2009, there are Ps. 125,938 and Ps. 175,369, respectively, in restricted trading securities associated mainly with repurchase operations.

 

As of December 31, 2010, these investments mature as follows (stated at their acquisition cost):

 
| ** **                                                                    | ** ** | **One year   or less** | ** ** | **More than one   and up to 5   years** | ** ** | **More than 5 and   up to 10 years** | ** ** | **More than 10   years** | ** ** | **Total**  | ** ** |
|-------------------------------------------------------------------------------|------------|----------------------------------|------------|------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|------------------------------------|------------|------------|------------|
| Government bonds- support   program for Special Federal Treasury Certificates |       | Ps.                              | —     |                                                             | Ps.        | —                                                             |       | Ps.                                | —     |       | Ps.        | 756 |   | Ps. | 756 |   |
| Government bonds                                                              |       | 578                              |       | —                                                           |       | —                                                             |       | —                             |       | 578        |       |
| Development Bonds                                                             |       | 22,746                           |       | 10,289                                                           |       | —                                                             |       | —                             |       | 33,035     |       |
| Saving protection bonds   (BPAS)                                              |       | 32,683                           |       | 39,143                                                           |       | —                                                             |       | —                             |       | 71,826     |       |
| UMS                                                                           |       | —                           |       | 516                                                              |       | 1,761                                                              |       | —                             |       | 2,277      |       |
| Bank securities                                                               |       | 11,554                           |       | 1,559                                                            |       | —                                                             |       | 817                                |       | 13,930     |       |
| PEMEX bonds                                                                   |       | —                           |       | 450                                                              |       | 2,757                                                              |       | —                             |       | 3,207      |       |
| Private securitization   certificates                                         |       | 1,205                            |       | 5,245                                                            |       | 1,933                                                              |       | 5,153                              |       | 13,536     |       |
| Other securities                                                              |       | 3                                |       | —                                                           |       | 11                                                                 |       | 27                                 |       | 41         |       |
| ** **                                                                    | ** ** | **Ps.**                          | **68,769** | ** **                                                       | **Ps.**    | **57,202**                                                         | ** ** | **Ps.**                            | **6,462**  | ** ** | **Ps.**    | **6,753** | ** ** | **Ps.** | **139,186** | ** ** |
|                                                                               |            |                                  |            |                                                                  |            |                                                                    |            |                                    |            |            |            |  |  |  |  |  |  |  |  |  |  |

 

Some of the investments in securities are given as collateral in derivative transactions without any restriction. Therefore, the receiver has the right to trade them and offer them as collateral.

 

**d. Collateral**

 

The fair value of the collateral given in derivatives’ transactions as of December 31, 2010 and 2009, is as follows:

 
| ** **                        | ** ** | ** **                   | ** ** | **2010**                                  | ** ** |
|-----------------------------------|------------|------------------------------|------------|-------------------------------------------|------------|
| ** **                        | ** ** | ** **                   | ** ** | **Fair value in millions** | ** ** |
| **Type of collateral:** | ** ** | **Instrument category** | ** ** | **Pesos**                                 | ** ** | **USD** | ** ** | **Euros** | ** ** |
| Cash                              |       | —                       |       | Ps.                                       | 155        |   | 243 |   | — |   |
| CETES                             |       | Trading                      |       | 232                                       |       | — |   | — |   |
| UMS                               |       | Held to maturity             |       | —                                    |       | 189 |   | — |   |
| PEMEX bonds                       |       | Held to maturity             |       | —                                    |       | 238 |   | 20 |   |
| UMS                               |       | Available for sale           |       | —                                    |       | 10 |   | — |   |
| PEMEX bonds                       |       | Available for sale           |       | —                                    |       | 58 |   | — |   |
| Bank bonds                        |       | Available for sale           |       | —                                    |       | 137 |   | — |   |
| ** **                        | ** ** | ** **                   | ** ** | **Ps.**                                   | **387**    | ** ** | **875** | ** ** | **20** | ** ** |

 
| ** **                        | ** ** | ** **                   | ** ** | **2009**                                  | ** ** |
|-----------------------------------|------------|------------------------------|------------|-------------------------------------------|------------|
| ** **                        | ** ** | ** **                   | ** ** | **Fair value in millions** | ** ** |
| **Type of collateral:** | ** ** | **Instrument category** | ** ** | **Pesos**                                 | ** ** | **USD** | ** ** | **Euros** | ** ** |
| Cash                              |       | —                       |       | Ps.                                       | 102        |   | 164 |   | — |   |
| CETES                             |       | Trading                      |       | 120                                       |       | — |   | — |   |
| UMS                               |       | Held to maturity             |       | —                                    |       | 167 |   | — |   |
| PEMEX bonds                       |       | Held to maturity             |       | —                                    |       | 353 |   | 20 |   |
| UMS                               |       | Available for sale           |       | —                                    |       | 13 |   | — |   |
| PEMEX bonds                       |       | Available for sale           |       | —                                    |       | 56 |   | — |   |
| Bank bonds                        |       | Available for sale           |       | —                                    |       | 116 |   | — |   |
| ** **                        | ** ** | ** **                   | ** ** | **Ps.**                                   | **222**    | ** ** | **869** | ** ** | **20** | ** ** |

 

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As of December 31, 2010 and 2009, the Financial Group had no instruments received as collateral.

 

As of December 31, 2010 and 2009, interest income from securities was Ps. 11,045 and Ps. 14,458, respectively.

 

During 2010 and 2009, accrued interest income not collected from impaired instruments was Ps. 2 and Ps. 13, respectively.

 

The amount recorded for impaired available for sale and held to maturity securities as of December 31, 2010 and 2009 was:

 
| **Concept**                     | ** ** | **2010** | ** ** | **2009**   | ** ** |
|---------------------------------|------------|----------|------------|------------|------------|
| Available for sale   securities |       | Ps.      | 24         |       | Ps.        | 81 |   |
| Held to maturity   securities   |       | 59       |       | 59         |       |
|                            | ** ** | **Ps.**  | **83**     | ** ** | **Ps.**    | **140** | ** ** |

 

**7 - CREDITOR BALANCES UNDER REPURCHASE AND RESALE AGREEMENTS**

 

As of December 31, 2010 and 2009, the creditor balance in repurchase transactions consist of:

 

Acting as seller of securities

 
| **Instrument**                | ** ** | **2010**    | ** **        | **2009**    | ** ** |
|-------------------------------|------------|-------------|-------------------|-------------|------------|
| CETES                         |       | Ps.         | 2,234             |        | Ps.        |  697 |   |
| Development bonds             |       | 36,298      |              | 36,159      |       |
| Bonds IPAB                    |       | 1,855       |              | 654         |       |
| Quarterly IPAB bonds          |       | 83,137      |              | 86,513      |       |
| Semi-annual IPAB bonds        |       | 26,350      |              | 25,587      |       |
| 10-year bonds                 |       | 1,157       |              | 625         |       |
| 20-year bonds                 |       | 5           |              | 491         |       |
| UDIBONOS                      |       | 1           |              | 1           |       |
| 10-year UDIBONDS              |       | 3           |              | 3           |       |
| **Government   securities**   | ** ** | **151,040** | ** **        | **150,730** | ** ** |
| Promissory notes              |       | 1,884       |              | 5,055       |       |
| CEDES                         |       | 3,749       |              | 9,035       |       |
| CEBUR Bank                    |       | 10,975      |              | 7,628       |       |
| **Bank   securities**         | ** ** | **16,608**  | ** **        | **21,718**  | ** ** |
| Private paper                 |       | 7,005       |              | 9,114       |       |
| CEBUR government short   term |       | 3,924       |              | 2,481       |       |
| Mortgage certificates         |       | 170         |              | 212         |       |
| CEBUR government              |       | —      |              | 1,200       |       |
| Securitization   certificates |       | —      |              | 25          |       |
| **Private   securities**      | ** ** | **11,099**  | ** **        | **13,032**  | ** ** |
| ** **                    | ** ** | **Ps.**     | ** 178,747** | ** **  | **Ps.**    | ** 185,480** | ** ** |
|                               |            |             |                   |             |            |  |  |  |  |

 

With the Financial Group acting as the vendor, accrued premiums charged to the results of operations during 2010 and 2009, totaled Ps. 10,913 and Ps. 13,434, respectively.

 

During 2010, repurchase transactions carried out by the Financial Group in its capacity as vendor ranged in term from 1 to 91 days.

 

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Acting as securities purchaser

 
| ** **                  | ** ** | **2010**                                    | ** **       | **2009**                                               | ** ** |
|-----------------------------|------------|---------------------------------------------|------------------|--------------------------------------------------------|------------|
| **Instrument**              | ** ** | **Repurchase   agreement   from   debtors** | ** **       | **Received,   sold   collateral in   repurchase** | ** ** | **Debit   difference** | ** ** | **Credit   difference** | ** ** | **Repurchase   agreement   from debtors** | ** ** | **Received,   sold   collateral in   repurchase** | ** ** | **Debit   difference** | ** ** | **Credit   difference** | ** ** |
| CETES                       |       | Ps.                                         |  —     |                                                   | Ps.        |  — |   | Ps. |  — |   | Ps. |   |   | Ps. |  400 |   | Ps. |  400 |   | Ps. |  — |   | Ps. | — |   |
| Development bonds           |       | 50                                          |             | 50                                                     |       | — |   | — |   | 7,113 |   | 7,114 |   | 1 |   | 2 |   |
| Quarterly IPAB bonds        |       | 158                                         |             | 158                                                    |       | — |   | — |   | 1 |   | — |   | 1 |   | — |   |
| Semi-annual IPAB bonds      |       | 1,302                                       |             | 1,301                                                  |       | 1 |   | — |   | 390 |   | 390 |   | — |   | — |   |
| 7-year bonds                |       | —                                      |             | —                                                 |       | — |   | — |   | — |   | — |   | — |   | — |   |
| 10-year bonds               |       | 2,639                                       |             | 2,639                                                  |       | — |   | — |   | 221 |   | 219 |   | 2 |   | — |   |
| 20-year bonds               |       | 2,239                                       |             | 2,239                                                  |       | — |   | — |   | 73 |   | 73 |   | — |   | — |   |
| 10-year UDIBONDS            |       | —                                      |             | —                                                 |       | — |   | — |   | 1,120 |   | 1,120 |   | — |   | — |   |
| **Government   securities** | ** ** | **6,388**                                   | ** **       | **6,387**                                              | ** ** | **1** | ** ** | **—** | ** ** | **9,318** | ** ** | **9,316** | ** ** | **4** | ** ** | **2** | ** ** |
| Promissory notes            |       | 964                                         |             | 964                                                    |       | — |   | — |   | 1,785 |   | 1,785 |   | — |   | — |   |
| CEDES                       |       | 3,453                                       |             | 3,446                                                  |       | 7 |   | — |   | — |   | — |   | — |   | — |   |
| Bank acceptances            |       | 3,050                                       |             | 3,050                                                  |       | — |   | — |   | — |   | — |   | — |   | — |   |
| **Bank   securities**       | ** ** | **7,467**                                   | ** **       | **7,460**                                              | ** ** | **7** | ** ** | **—** | ** ** | **1,785** | ** ** | **1,785** | ** ** | **—** | ** ** | **—** | ** ** |
| Private paper               |       | 657                                         |             | 86                                                     |       | 571 |   | — |   | — |   | — |   | — |   | — |   |
| CEBUR government            |       | 1,510                                       |             | 1,517                                                  |       | 4 |   | 11 |   | — |   | — |   | — |   | — |   |
| **Private   securities**    | ** ** | **2,167**                                   | ** **       | **1,603**                                              | ** ** | **575** | ** ** | **11** | ** ** | **—** | ** ** | **—** | ** ** | **—** | ** ** | **—** | ** ** |
| ** **                  | ** ** | **Ps.**                                     | ** 16,022** | ** **                                             | **Ps.**    | ** 15,450** | ** ** | **Ps.** | ** 583** | ** ** | **Ps.** | ** 11** | ** ** | **Ps.** | ** 11,103** | ** ** | **Ps.** | **11,101** | ** ** | **Ps.** | ** 4** | ** ** | **Ps.** | ** 2** | ** ** |
|                             |            |                                             |                  |                                                        |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

With the Financial Group acting as the purchaser, accrued premiums charged to the results of operations during 2010 and 2009 totaled Ps. 2,121 and Ps. 2,173, respectively.

 

During 2010, repurchase transactions carried out by the Financial Group in its capacity as purchaser ranged in term from 1 to 354 days.

 

By December 31, 2010, the amount of securities corresponding to guarantees granted and received in repurchase transactions that involved the transfer of property totaled Ps. 3 and Ps. 46, respectively, and by December 31, 2009, the totals were Ps. 120 in guarantees granted and Ps. 4 in guarantees received.

 

**8 - DERIVATIVES FINANCIAL INSTRUMENTS**

 

The transactions carried out by the Financial Group involving derivatives correspond mainly to futures, swaps and options contracts. These transactions are done to hedge various risks and for trading purposes.

 

As of December 31, 2010, the Financial Group has evaluated the effectiveness of derivatives’ transactions for hedging purposes and has concluded that they are highly effective.

 

As of December 31, 2010 and 2009, the Financial Group’s derivatives positions held for trading purposes are as follows:

 

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| ** **                | ** ** | **2010**                | ** **        | **2009**                | ** ** |
|---------------------------|------------|-------------------------|-------------------|-------------------------|------------|
| **Asset position**   | ** ** | **Nominal amount** | ** **        | **Asset position** | ** ** | **Nominal amount** | ** ** | **Asset position** | ** ** |
| **Futures**               |       |                    |              |                    |       |   |   |   |   |
| CETES-rate futures        |       | Ps.                     |  500         |                    | Ps.        | — |   | Ps. | — |   | Ps. | — |   |
| TIIE-rate futures         |       | 160,469                 |              | —                  |       | 600 |   | — |   |
| **Forwards**              |       |                    |              |                    |       |   |   |   |   |
| Foreign currency forwards |       | 135                     |              | 72                      |       | 3,454 |   | 313 |   |
| **Options**               |       |                    |              |                    |       |   |   |   |   |
| Foreign currency options  |       | —                  |              | —                  |       | 283 |   | 2 |   |
| Interest rate options     |       | 16,493                  |              | 257                     |       | 8,485 |   | 126 |   |
| **Swaps**                 |       |                    |              |                    |       |   |   |   |   |
| Interest rate swaps       |       | 289,938                 |              | 6,106                   |       | 194,317 |   | 2,612 |   |
| Exchange rate swaps       |       | 5,328                   |              | 1,028                   |       | 7,377 |   | 1,771 |   |
| **Total   trading**       | ** ** | **472,863**             | ** **        | **7,463**               | ** ** | **214,516** | ** ** | **4,824** | ** ** |
|                      |       |                    |              |                    |       |   |   |   |   |
| **Options**               |       |                    |              |                    |       |   |   |   |   |
| Interest rate options     |       | 15,550                  |              | 80                      |       | 24,200 |   | 188 |   |
| **Swaps**                 |       |                    |              |                    |       |   |   |   |   |
| Interest rate swaps       |       | 28,940                  |              | 4                       |       | 27,648 |   | 8 |   |
| Exchange rate swaps       |       | 7,496                   |              | 512                     |       | 9,996 |   | 860 |   |
| **Total   hedging**       | ** ** | **51,986**              | ** **        | **596**                 | ** ** | **61,844** | ** ** | **1,056** | ** ** |
| **Total   position**      | ** ** | **Ps.**                 | ** 524,849** | ** **              | **Ps.**    | ** 8,059** | ** ** | **Ps.** | ** 276,360** | ** ** | **Ps.** | ** 5,880** | ** ** |
|                           |            |                         |                   |                         |            |  |  |  |  |  |  |  |  |  |  |

 
| ** **                  | ** ** | **2010**                | ** **  | **2009**                    | ** ** |
|-----------------------------|------------|-------------------------|-------------|-----------------------------|------------|
| **Liability position** | ** ** | **Nominal amount** | ** **  | **Liability position** | ** ** | **Nominal amount** | ** ** | **Liability position** | ** ** |
| **Futures**                 |       |                    |        |                        |       |   |   |   |   |
| CETES-rate futures          |       | Ps.                     |  500   |                        | Ps.        | — |   | Ps. | — |   | Ps. | — |   |
| TIIE-rate futures           |       | 160,469                 |        | —                      |       | 600 |   | — |   |
| **Forwards**                |       |                    |        |                        |       |   |   |   |   |
| Foreign currency forwards   |       | 115                     |        | 2                           |       | 2,825 |   | 88 |   |
| **Options**                 |       |                    |        |                        |       |   |   |   |   |
| Foreign currency options    |       | 60                      |        | 1                           |       | 287 |   | 2 |   |
| Interest rate options       |       | 30,559                  |        | 272                         |       | 9,168 |   | 71 |   |
| **Swaps**                   |       |                    |        |                        |       |   |   |   |   |
| Interest rate swaps         |       | 289,954                 |        | 6,106                       |       | 194,340 |   | 2,713 |   |
| Exchange rate swaps         |       | 5,273                   |        | 857                         |       | 7,322 |   | 1,679 |   |
| **Total   trading**         | ** ** | **486,930**             | ** **  | **7,238**                   | ** ** | **214,542** | ** ** | **4,553** | ** ** |
| **Swaps**                   |       |                    |        |                        |       |   |   |   |   |
| Interest rate swaps         |       | 28,940                  |        | 2,043                       |       | 27,650 |   | 980 |   |
| Exchange rate swaps         |       | 3,921                   |        | 1,456                       |       | 4,146 |   | 2,842 |   |
| **Total   hedging**         | ** ** | **32,861**              | ** **  | **3,499**                   | ** ** | **31,796** | ** ** | **3,822** | ** ** |
| **Total   position**        | ** ** | **Ps.**                 | **519,791** | ** **                  | **Ps.**    | **10,737** | ** ** | **Ps.** | ** 246,338** | ** ** | **Ps.** | **8,375** | ** ** |
|                             |            |                         |             |                             |            |  |  |  |  |  |  |  |  |  |

 

The hedging instruments operated and their main underlying instruments are as follows:

 
| **Forwards** | ** ** | **Options** | ** ** | **Swaps** | ** ** | **CCS** | ** ** |
|--------------|------------|-------------|------------|-----------|------------|---------|------------|
| Fx-USD       |       | Fx-USD      |       | TIIE 28   |       | TIIE 28 |       |
|         |       | TIIE 28     |       | TIIE 91   |       | TIIE 91 |       |
|         |       | TIIE 91     |       | CETES 91  |       | Libor   |       |
|         |       | Libor       |       | Libor     |       |    |       |

 

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The risk management policies and internal control procedures for managing risks inherent to derivatives are described in Note 32.

 

Transactions carried out for hedging purposes have maturities from 2011 to 2030 and are intended to mitigate the financial risk derived from long-term loans offered by the Financial Group at fixed nominal rates, as well as the exchange rate risk generated by market instruments in the Financial Group’s portfolio.

 

The book value of collateral used to ensure compliance with obligations derived from currency swap contracts as of December 31, 2010 is USD 632,002 thousand and EUR 20,326 thousand, and as of December 31, 2009 it was USD 704,841 thousand and EUR 20,255 thousand. Futures transactions are made through recognized markets, and as of December 31, 2010 they represent 0.10% of the nominal amount of all the derivatives’ operations contracts; the remaining 99.90% correspond to option and swap transactions in OTC markets.

 

As of December 31, 2010 and 2009, the collateral was comprised mainly of cash, CETES, ITS BPAS, PEMEX bonds, UMS bonds and bank bonds restricted under the categories of trading, held to maturity and available for sale securities. The restriction maturity date for this collateral is from 2011 to 2030. Their fair value is shown in Note 6 d).

 

As of December 31, 2010 and 2009, the Financial Group had no instruments received as collateral in derivatives’ transactions.

 

During 2010 and 2009, the net income on financial assets and liabilities associated with derivatives was Ps. 252 and Ps. 200, respectively.

 

The net amount of estimated gains or losses to date originated by transactions or events that are recorded in cumulative other comprehensive income in the consolidated financial statements and that are expected to be reclassified to earnings within the next 12 months totals Ps. 48.

 

As of December 31, 2010 and 2009, the main positions hedged by the Financial Group and the derivatives designated to cover such positions are:

 

*Cash flow hedging*

The Financial Group has cash flow hedges as follows:

 

·                  Forecast funding using TIIE rate Caps and Swaps.

·                  Recorded liabilities in Mexican pesos using TIIE rate Swaps.

·                  Recorded liabilities in foreign currency using Cross Currency Swaps.

·                  Recorded assets in foreign currency using Cross Currency Swaps.

 

As of December 31, 2010, there are 27 files related to hedging transactions. Their effectiveness ranges between 85% and 100%, well within the range established by the accounting standards in effect (80% to 125%). Furthermore, there is no overhedging on any of the derivatives, so as of December 31, 2010, there are no ineffective portions that the Financial Group has to record in earnings.

 

The following are the Financial Group’s hedged cash flows as of December 31, 2010 expected to occur and affect earnings:

 
| **Concept**                      | ** ** | **Up to 3   months** | ** ** | **More than 3   months and up   to 1 year** | ** ** | **More than 1   and up to 5   years** | ** ** | **More than 5   years** | ** ** |
|----------------------------------|------------|--------------------------------|------------|---------------------------------------------------------------------------|------------|----------------------------------------------------------------|------------|-----------------------------------|------------|
| Forecasted funding               |       | Ps.                            | 254        |                                                                      | Ps.        | 800                                                            |       | Ps.                               | 3,883      |   | Ps. | 1,316 |   |
| Liabilities in Mexican   pesos   |       | 111                            |       | 337                                                                       |       | 983                                                            |       | 19                                |       |
| Liabilities denominated in   USD |       | —                         |       | 3,932                                                                     |       | —                                                         |       | —                            |       |
| Assets denominated in USD        |       | 360                            |       | 378                                                                       |       | 2,510                                                          |       | 7,645                             |       |
| Assets denominated in   Euros    |       | —                         |       | 21                                                                        |       | 373                                                            |       | —                            |       |
| ** **                       | ** ** | **Ps.**                        | **725**    | ** **                                                                | **Ps.**    | **5,468**                                                      | ** ** | **Ps.**                           | **7,749**  | ** ** | **Ps.** | **8,980** | ** ** |

 

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As of December 31, 2010 and 2009, Ps. 2,114 and Ps. 1,404, respectively, were recognized in other comprehensive income in stockholders’ equity. Furthermore, Ps. 43 and Ps. 127, respectively, were reclassified from stockholders’ equity to results.

 

Trading and hedging derivatives: the loan risk is minimized through means of contractual compensation agreements, in which asset and liability derivatives with the same counterparty are settled for their net balance. Similarly, there may be other types of collateral such as credit lines, depending on the counterparty’s solvency and the nature of the transaction.

 

The following table shows the value of cash flow hedging comprehensive income:

 
| ** **                        | ** ** | **Valuation of cash flow   hedging instruments** | ** ** | **Net change in   period** | ** ** | **Reclassified to   income** | ** ** |
|-----------------------------------|------------|----------------------------------------------------------------------|------------|--------------------------------------|------------|-----------------------------------|------------|
| Balance, January 1,   2007   |       | Ps.                                                                  | (58        | )                                    | Ps.        | —                            |       | Ps. | — |   |
| Balance, December 31,   2007 |       | Ps.                                                                  | (308       | )                                    | Ps.        | (250                              | )          | Ps. |  — |   |
| Balance, December 31,   2008 |       | Ps.                                                                  | (1,567     | )                                    | Ps.        | (1,259                            | )          | Ps. | 18 |   |
| Balance, December 31,   2009 |       | Ps.                                                                  | (1,394     | )                                    | Ps.        | 173                               |       | Ps. | 47 |   |
| Balance, December 31,   2010 |       | Ps.                                                                  | (2,114     | )                                    | Ps.        | (720                              | )          | Ps. | 42 |   |

 

**9 - LOAN PORTFOLIO**

 

As of December 31, 2010 and 2009, the loan portfolio by loan type is as follows:

 
| ** **                         | ** ** | **Performing loan   portfolio** | ** **  | **Past-due loan   portfolio** | ** ** | **Total**   | ** ** |
|------------------------------------|------------|--------------------------------------|-------------|------------------------------------|------------|-------------|------------|
| ** **                         | ** ** | **2010**                             | ** **  | **2009**                           | ** ** | **2010**    | ** ** | **2009** | ** ** | **2010** | ** ** | **2009** | ** ** |
| Commercial loans                   |       |                                 |        |                               |       |        |       |   |   |   |   |   |   |
| Denominated in domestic   currency |       |                                 |        |                               |       |        |       |   |   |   |   |   |   |
| Commercial                         |       | Ps.                                  | 99,851      |                               | Ps.        | 90,189      |       | Ps. | 3,765 |   | Ps. | 2,325 |   | Ps. | 103,616 |   | Ps. | 92,514 |   |
| Rediscounted portfolio             |       | 5,377                                |        | 4,831                              |       | —      |       | — |   | 5,377 |   | 4,831 |   |
| Denominated in USD                 |       |                                 |        |                               |       |        |       |   |   |   |   |   |   |
| Commercial                         |       | 20,581                               |        | 21,471                             |       | 652         |       | 838 |   | 21,233 |   | 22,309 |   |
| Rediscounted portfolio             |       | 674                                  |        | 746                                |       | —      |       | — |   | 674 |   | 746 |   |
| **Total   commercial loans**       | ** ** | **126,483**                          | ** **  | **117,237**                        | ** ** | **4,417**   | ** ** | **3,163** | ** ** | **130,900** | ** ** | **120,400** | ** ** |
|                               |       |                                 |        |                               |       |        |       |   |   |   |   |   |   |
| Loans to financial   institutions  |       | 5,521                                |        | 7,131                              |       | —      |       | — |   | 5,521 |   | 7,131 |   |
| Consumer loans                     |       |                                 |        |                               |       |        |       |   |   |   |   |   |   |
| Credit card                        |       | 11,159                               |        | 11,801                             |       | 1,040       |       | 1,610 |   | 12,199 |   | 13,411 |   |
| Other consumer loans               |       | 16,669                               |        | 13,911                             |       | 236         |       | 332 |   | 16,905 |   | 14,243 |   |
| Mortgage loans                     |       | 56,168                               |        | 49,881                             |       | 971         |       | 1,049 |   | 57,139 |   | 50,930 |   |
| Government loans                   |       | 47,550                               |        | 38,993                             |       | —      |       | — |   | 47,550 |   | 38,993 |   |
| ** **                         | ** ** | **137,067**                          | ** **  | **121,717**                        | ** ** | **2,247**   | ** ** | **2,991** | ** ** | **139,314** | ** ** | **124,708** | ** ** |
| **Total   loan portfolio**         | ** ** | **Ps.**                              | **263,550** | ** **                         | **Ps.**    | **238,954** | ** ** | **Ps.** | **6,664** | ** ** | **Ps.** | **6,154** | ** ** | **Ps.** | **270,214** | ** ** | **Ps.** | **245,108** | ** ** |
|                                    |            |                                      |             |                                    |            |             |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

As of December 31, 2010, the deferred balance of fees is Ps. 1,623, and the amount recorded in results was Ps. 654. Furthermore, the deferred balance of costs and expenses associated with the initial loan origination is Ps. 328, and the amount recorded in results was Ps. 386. The average term over which the deferred fee balance and the costs and expenses will be recorded is equivalent to the average term of the portfolio balance.

 

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The average terms of the portfolio’s main balances are: a) commercial, 3 years; b) financial institutions, 3.2 years; c) mortgage, 17.7 years; d) government loans, 8.1 years; and e) consumer, 2.5 years.

 

During the years ended December 31, 2010 and 2009, the balance of written off loans that had been fully reserved as past-due loans was Ps. 5,551 and Ps. 8,278, respectively.

 

For the years ended December 31, 2010 and 2009, revenues from recoveries of previously written-off loan portfolios were Ps. 1,561 and Ps. 848, respectively.

 

Customer insurance policies that the Financial Group includes as part of the loan portfolio are car insurance; the rest of the policies are not recorded in the general balance sheet and are collected when the loan amortization is charged to the client. The amount of financed car insurance policies by December 31, 2010 and 2009 is Ps. 23 and Ps. 14, respectively.

 

The loan portfolio grouped into economic sectors as of December 31, 2010 and 2009, is shown below:

 
| ** **                            | ** ** | **2010**   | ** **  | **2009**                 | ** ** |
|---------------------------------------|------------|------------|-------------|--------------------------|------------|
| ** **                            | ** ** | **Amount** | ** **  | **Reserve   percentage** | ** ** | **Amount** | ** ** | **Reserve   percentage** | ** ** |
| Private (companies and   individuals) |       | Ps.        | 130,900     |                     | 48.44      | % | Ps. | 120,400 |   | 49.12 | % |
| Financial institutions                |       | 5,521      |        | 2.04                     | %          | 7,131 |   | 2.91 | % |
| Credit card and consumer              |       | 29,104     |        | 10.77                    | %          | 27,654 |   | 11.28 | % |
| Mortgage                              |       | 57,139     |        | 21.15                    | %          | 50,930 |   | 20.78 | % |
| Government                            |       | 47,550     |        | 17.60                    | %          | 38,993 |   | 15.91 | % |
| ** **                            | ** ** | **Ps.**    | **270,214** | ** **               | **100**    | **%** | **Ps.** | **245,108** | ** ** | **100** | **%** |
|                                       |            |            |             |                          |            |  |  |  |  |  |  |  |  |

 

**Loan support programs**

 

Special accounting treatment for the Hurricane Alex flood aid program

 

Given the negative impact of the floods caused by Hurricane Alex, the Financial Group decided to assist in the region’s economic recovery; this includes the states of Nuevo León, Coahuila, Tamaulipas, San Luis Potosí and Oaxaca. The support program included the following:

 

Car, credit card and consumer loan support consisting of:

 

·                  Car loans. Deferral of up to three monthly installments or freezing of balances with no interest charged for three months.

·                  Credit cards. Minimum monthly payment was waived for up to three months, and in some case balances were frozen without interest charges or penalties for such period.

·                  Personal and payroll loans. Capital and interest payment deferral for up to 3 months.

 

In that regard, the Commission issued a special accounting standard in document number 100/042/2010 applicable to the Financial Group from July 1 to September 30, 2010, which authorized the Financial Group not to consider as restructured loans the ones which payment of the principal and interest was deferred for three months according to the Plan, as per paragraph 24 of criterion B-6 “Loan portfolio” and to keep them in the current loans during such period. These loans were considered as performing loans to determine the allowance for loan losses.

 

If such special standards had not been authorized, the Financial Group would have presented the following loan amounts in the December 31, 2010 consolidated balance sheet:

 

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| **PERFORMING   LOAN PORTFOLIO**       |       |        |        |
|---------------------------------------|------------|-------------|-------------|
| Commercial loans                      |       |        |        |
| Business loans                        |       | Ps.         | 126,482     |   |
| Loans to financial   institutions     |       | 5,521       |        |
| Government loans                      |       | 47,550      |        |
| Consumer loans                        |       | 27,825      |        |
| Mortgage loans                        |       | 56,168      |        |
| **TOTAL   PERFORMING LOAN PORTFOLIO** | ** ** | **263,546** | ** **  |
| ** **                            | ** ** | ** **  | ** **  |
| **PAST-DUE   LOAN PORTFOLIO**         | ** ** | ** **  | ** **  |
| Commercial loans                      |       |        |        |
| Business loans                        |       | 4,417       |        |
| Consumer loans                        |       | 1,280       |        |
| Mortgage loans                        |       | 971         |        |
| **TOTAL   PAST-DUE LOAN PORTFOLIO**   | ** ** | **6,668**   | ** **  |
|                                  |       |        |        |
| **LOAN   PORTFOLIO**                  | ** ** | ** **  | ** **  |
| (Minus) Allowance for loan   losses   |       | (8,256      | )           |
| **LOAN   PORTFOLIO, net**             | ** ** | **261,958** | ** **  |
| **ACQUIRED   COLLECTION RIGHTS**      | ** ** | **2,025**   | ** **  |
| **TOTAL   LOAN PORTFOLIO, net**       | ** ** | **Ps.**     | **263,983** | ** ** |
|                                       |            |             |             |  |  |

 

Moreover, the period’s net income would have been Ps. 6,693 as a result of the additional Ps. 12 in allowance for loan losses that would have been created if such support had not been provided to the borrowers.

 

The amount of deferred payments from consumer loans derived from the plans as of December 31, 2010 totals Ps. 6.

 

**Policies and Procedures for Granting Loans**

 

The granting, control and recovery of loans is regulated by the Financial Group’s Credit Manual, which has been authorized by the Board of Directors. Accordingly, administrative portfolio control is performed in the following areas:

 
| I.   | Business Areas (includes corporate, commercial,   business, governmental and consumer banking), primarily through the branch   network |
|------|----------------------------------------------------------------------------------------------------------------------------------------|
| II.  | Operations Areas                                                                                                                       |
| III. | General Comprehensive Risk Management                                                                                                  |
| IV.  | Recovery Management                                                                                                                    |

 

Similarly, the Financial Group has manuals establishing the policies and procedures to be utilized for credit risk management purposes.

 

The structure of the credit management process is based on the following stages:

 
| a) | Product design |
|----|----------------|
| b) | Promotion      |
| c) | Evaluation     |
| d) | Formalization  |
| e) | Operation      |
| f) | Administration |
| g) | Recovery       |

 

Procedures have also been implemented to ensure that amounts related to the past-due portfolio are timely transferred and recorded in the books and records, and those loans with recovery problems are properly and promptly identified.

 

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Pursuant to the Commission’s Circular B-6, “Loan Portfolio”, the distressed portfolio is defined as the commercial loans which, based on the current information and facts as well as on the loan revision process, are very unlikely to be fully recovered (both principal and interest) pursuant to the original terms and conditions. The performing and past-due portfolios are susceptible to be identified as a distressed portfolio. The commercial loan rating D and E risk degrees are as follows:

 
| ** **                                   | ** ** | **2010** | ** **  | **2009** | ** ** |
|----------------------------------------------|------------|----------|-------------|----------|------------|
| Performing portfolio                         |       | Ps.      |  2,283 |     | Ps.        | 1,373 |   |
| Total rated portfolio                        |       | 279,798  |        | 253,660  |       |
| Distressed portfolio/total   rated portfolio |       | 0.82     | %           | 0.54     | %          |
|                                              |            |          |             |          |            |  |  |

 

The Financial Group’s Treasury Department is the central unit responsible for balancing resource requirements and eliminating the interest rate risk derived from fixed rate transactions through the use of hedging and arbitrage strategies.

 

**10 - LOANS RESTRUCTURED IN UDIS**

 

The loans restructured in UDIS correspond to mortgage loans. The balance as of December 31, 2010 and 2009 is detailed below:

 
| ** **                | ** ** | **2010** | ** ** | **2009**   | ** ** |
|---------------------------|------------|----------|------------|------------|------------|
| Current portfolio         |       | Ps.      |  45   |       | Ps.        | 542 |   |
| Current accrued interest  |       | —   |       | 2          |       |
| Past-due portfolio        |       | 1        |       | 14         |       |
| Past-due accrued interest |       | —   |       | 1          |       |
| ** **                | ** ** | **Ps.**  | **46**     | ** ** | **Ps.**    | **559** | ** ** |

 

**Early termination of mortgage loan borrower support programs**

 

On June 30, 2010 the Federal Government through the SHCP and Banking Institutions signed an agreement for the early termination of the mortgage loan debtors support programs (punto final and UDIS trusts) (the Agreement) consequently as of January 1, 2011 the Financial Group absorbed its part of the early discount granted to mortgage loan debtors participating in the program. As of December 31, 2010, the Financial Group recorded a Ps. 57 reserve to face such obligation.

 

Below are some of the effects of applying the Agreement that went into effect as of the signing date.

 

The total amount of Federal Government payment obligations for commercial loans as of December 31, 2010 (Cut-off Date) is Ps. 140, which includes Ps. 138 associated with the conditioned discount portion from loans in Mexican pesos and UDIS; and Ps. 2 associated with the discount applied to those mentioned in number 3.1.2 of Circular 1430. Such amount may vary if there are no indications of sustained payment by March 31, 2011 as per the Agreement.

 

The Federal Government obligations subject to the Agreement are described below:

 
| ** **          | ** ** | **Payment date** | ** ** | **Amount** | ** ** |
|---------------------|------------|-----------------------|------------|------------|------------|
| First amortization  |       | December 1, 2011 |       | Ps.        |  28   |   |
| Second amortization |       | June 1, 2012     |       | 28         |       |
| Third amortization  |       | June 1, 2013     |       | 28         |       |
| Fourth amortization |       | June 1, 2014     |       | 28         |       |
| Fifth amortization  |       | June 1, 2015     |       | 28         |       |
| ** **          | ** ** | ** **            | ** ** | **Ps.**    | **140**    | ** ** |

 

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A monthly financial cost is incorporated to each amortization as of the day following the Cut-off Date and up to the close of the month prior to each payment date. The rate for January 2011 is the arithmetic average of the annual rate of return based on the 91-day CETES discount issued in December 2010, and for the subsequent months the 91-day future CETES rate of the previous month as published by Proveedor Integral de Precios, S.A. on the business day after the Cut-off Date, or that of the nearest month contained in said publication, taken on a 28-day return term, then dividing the resulting rate by 360 and multiplying the result by the number of days effectively elapsed during the period it is accrued, capitalized on a monthly basis.

 

A rollforward of the allowance for loan losses for the loans included in the Agreement is detailed below:

 
| ** **                                   | ** ** | **2010** | ** ** |
|----------------------------------------------|------------|----------|------------|
| Initial balance                              |       | Ps.      | 19         |   |
| Financial Group support                      |       | 67       |       |
| Debt forgiveness,   discounts and write-offs |       | 14       |       |
| Reserves reclassification                    |       | (9       | )          |
| Contribution to settle   fiduciary liability |       | 1        |       |
| **Final   balance**                          | ** ** | **Ps.**  | **92**     | ** ** |

 

The maximum amount the Financial Group would absorb for loans not susceptible to the Early Termination program and that would be entitled to the discount benefits program is Ps. 14.

 

Ps. 13 were used to repurchase Special Federal Treasury Certificates (CETES); the remaining balance of Special CETES not repurchased by the Federal Government is Ps. 760 with maturities between 2017 and 2027.

 

The Financial Group recognized Ps. 330 as an allowance for loan losses and Ps. 56 in deferred taxes as a result of terminating the Trusts.

 

**11 - ALLOWANCE FOR LOAN LOSSES**

 

The Financial Group’s portfolio classification, which serves as the basis for recording the allowance for loan losses, is detailed below:

 
| ** **                     | ** ** | **2010**                | ** **  |
|--------------------------------|------------|-------------------------|-------------|
| ** **                     | ** ** | ** **              | ** **  | **Required allowances for losses** | ** ** |
| **Risk category**         | ** ** | **Loan portfolio** | ** **  | **Commercial   portfolio** | ** ** | **Consumer   portfolio** | ** ** | **Mortgage   portfolio** | ** ** | **Total** | ** ** |
| Exempted portfolio             |       | Ps.                     | 107         |   | Ps. | — |   | Ps. |  — |   | Ps. | — |   | Ps. | — |   |
| Risk A                         |       | 66,862                  |        | — |   | 75 |   | 181 |   | 256 |   |
| Risk A1                        |       | 115,479                 |        | 576 |   | — |   | — |   | 576 |   |
| Risk A2                        |       | 65,389                  |        | 621 |   | — |   | — |   | 621 |   |
| Risk B                         |       | 6,711                   |        | — |   | 115 |   | 168 |   | 283 |   |
| Risk B1                        |       | 6,824                   |        | 101 |   | 391 |   | — |   | 492 |   |
| Risk B2                        |       | 7,628                   |        | 51 |   | 468 |   | — |   | 519 |   |
| Risk B3                        |       | 2,684                   |        | 274 |   | — |   | — |   | 274 |   |
| Risk C                         |       | 1,944                   |        | — |   | 628 |   | 92 |   | 720 |   |
| Risk C1                        |       | 968                     |        | 219 |   | — |   | — |   | 219 |   |
| Risk C2                        |       | 1,190                   |        | 552 |   | — |   | — |   | 552 |   |
| Risk D                         |       | 1,992                   |        | 227 |   | 873 |   | 317 |   | 1,417 |   |
| Risk E                         |       | 2,240                   |        | 1,919 |   | 326 |   | — |   | 2,245 |   |
| Unclassified                   |       | (220                    | )           |   |   |   |   |   |   |   |   |
| ** **                     | ** ** | **Ps.**                 | **279,798** | ** ** | **Ps.** | **4,540** | ** ** | **Ps.** | **2,876** | ** ** | **Ps.** | **758** | ** ** | **Ps.** | **8,174** | ** ** |
| **Less:   recorded allowance** |       |                    |        |   |   |   |   |   | ** ** | **8,245** | ** ** |
| **Additional   allowance**     | ** ** | ** **              | ** **  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **Ps.** | **71** | ** ** |
|                                |            |                         |             |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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| ** **                     | ** ** | **2009**                | ** **  |
|--------------------------------|------------|-------------------------|-------------|
| ** **                     | ** ** | ** **              | ** **  | **Required allowances for losses** | ** ** |
| **Risk category**         | ** ** | **Loan portfolio** | ** **  | **Commercial   portfolio** | ** ** | **Consumer   portfolio** | ** ** | **Mortgage   portfolio** | ** ** | **Total** | ** ** |
| Exempted portfolio             |       | Ps.                     | 56          |   | Ps. | — |   | Ps. | — |   | Ps. | — |   | Ps. | — |   |
| Risk A                         |       | 58,169                  |        | — |   | 63 |   | 159 |   | 222 |   |
| Risk A1                        |       | 106,990                 |        | 495 |   | — |   | — |   | 495 |   |
| Risk A2                        |       | 57,118                  |        | 520 |   | — |   | — |   | 520 |   |
| Risk B                         |       | 6,269                   |        | — |   | 102 |   | 184 |   | 286 |   |
| Risk B1                        |       | 5,700                   |        | 74 |   | 266 |   | — |   | 340 |   |
| Risk B2                        |       | 8,249                   |        | 84 |   | 509 |   | — |   | 593 |   |
| Risk B3                        |       | 2,579                   |        | 269 |   | — |   | — |   | 269 |   |
| Risk C                         |       | 2,494                   |        | — |   | 795 |   | 132 |   | 927 |   |
| Risk C1                        |       | 1,404                   |        | 301 |   | — |   | — |   | 301 |   |
| Risk C2                        |       | 803                     |        | 380 |   | — |   | — |   | 380 |   |
| Risk D                         |       | 2,592                   |        | 245 |   | 1,356 |   | 264 |   | 1,865 |   |
| Risk E                         |       | 1,272                   |        | 1,008 |   | 272 |   | — |   | 1,280 |   |
| Unclassified                   |       | (35                     | )           | — |   | — |   | — |   | — |   |
| ** **                     | ** ** | **Ps.**                 | **253,660** | ** ** | **Ps.** | **3,376** | ** ** | **Ps.** | **3,363** | ** ** | **Ps.** | **739** | ** ** | **Ps.** | **7,478** | ** ** |
| **Less:   recorded allowance** |       |                    |        |   |   |   |   |   | ** ** | **7,535** | ** ** |
| **Additional   allowance**     | ** ** | ** **              | ** **  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **Ps.** | **57** | ** ** |
|                                |            |                         |             |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

The sum of the rated loan portfolio includes Ps. 6,124 and Ps. 5,114 in loans granted to subsidiaries whose balance was eliminated in the consolidation process as of December 31, 2010 and 2009, respectively.

 

The total portfolio balance used as the basis for the classification above includes amounts related to credit commitments, which is recorded in memorandum accounts.

 

The additional allowances comply with the general provisions applicable to credit institution and the notices issued by the Commission to regulate debtor support programs, denominated in UDIS trusts.

 

As of December 31, 2010 and 2009, the estimated allowance for loan losses is determined based on portfolio balances at those dates. As of December 31, 2010 and 2009, the allowance for loan losses includes a reserve for 100% of the delinquent interest owed.

 

As of December 31, 2010 and 2009, the allowance for loan losses represents 124% and 122%, respectively, of the past-due portfolio.

 

The estimated allowance includes the classification of loans granted in foreign currency, which are evaluated at the exchange rate in effect as of December 31, 2010 and 2009.

 

**Credit card rating**

 

Changes in the rating methodology for consumer loan portfolio related to credit card transactions

 

On August 12, 2009 the Commission issued a resolution amending the general regulations applicable to banking institutions, this change modified the methodology for the classification of revolving consumer loans so that the parameters used for estimating loan loss reserves reflect, the expected 12 months losses of credit cards based on the current environment.

 

As a result of this modification, the Financial Group opted to recognize against the results of previous years the initial cumulative financial effect resulting from the first application of the provisions mentioned under section I of the second transitory article. This condition occurred in September 2009.

 

The accounting record originated in the Financial Group for this recognition led to a charge of Ps. 1,102 in the account “Retained earnings” within stockholders’ equity, against claims by the same amount to the account

 

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“Allowance for loan loss reserves” within the loan portfolio item in the balance sheet. Furthermore, a deferred tax was registered to reflect the change through a charge of Ps. 419in the asset account “Deferred Taxes” in the balance sheet, against a credit in the account “Retained earnings” within stockholders’ equity.

 

If the recognition of the abovementioned effect would have been made against earnings, the items affected and the amounts recorded and presented at both the balance sheet and the income statement of the Financial Group, would have been:

 
| ** **                                                | ** ** | ** ** | ** ** | **Effect** | ** ** | **How would be   presented** | ** ** |
|-----------------------------------------------------------|------------|------------|------------|------------|------------|----------------------------------------|------------|
| **Consolidated   Balance Sheet**                          | ** ** | ** ** | ** ** | ** ** | ** ** | ** **                             | ** ** |
| ** **                                                | ** ** | ** ** | ** ** | ** ** | ** ** | ** **                             | ** ** |
| **Stockholders’   equity**                           | ** ** | ** ** | ** ** | ** ** | ** ** | ** **                             | ** ** |
| Retained earnings from   prior years                      |       | Ps.        | 20,681     |       | Ps.        | 683                                    |       | Ps. | 21,364 |   |
| Net income                                                |       | 5,854      |       | (683       | )          | 5,171                                  |       |
| **Total   stockholders’ equity**                     | ** ** | **Ps.**    | **44,974** | ** ** | **Ps.**    | **—**                             | ** ** | **Ps.** | **44,974** | ** ** |
| ** **                                                | ** ** | ** ** | ** ** | ** ** | ** ** | ** **                             | ** ** |
| **Consolidated   Statement of Income**                    |       |       |       |       |       |                                   |       |
|                                                      |       |       |       |       |       |                                   |       |
| Provision for loan losses                                 |       | 8,286      |       | 1,102      |       | 9,388                                  |       |
| **Net   interest income after allowance for loan losses** | ** ** | **14,897** | ** ** | **(1,102** | **)**      | **13,795**                             | ** ** |
| Deferred income taxes, net                                |       | (535       | )          | (419       | )          | (954                                   | )          |
| **Net   income**                                          | ** ** | **Ps.**    | **5,854**  | ** ** | **Ps.**    | **(683**                               | **)**      | **Ps.** | **5,171** | ** ** |

 

**Movements in allowance for loan losses**

 

An analysis of the movements in allowance for loan losses is detailed below:

 
| ** **                                              | ** ** | **2010** | ** ** | **2009**   | ** ** |
|---------------------------------------------------------|------------|----------|------------|------------|------------|
| Balance at the beginning   of the year                  |       | Ps.      | 7,535      |       | Ps.        | 6,690 |   |
| Increase charged to   results                           |       | 6,841    |       | 8,208      |       |
| Debt forgiveness and   write-offs                       |       | (6,066   | )          | (8,464     | )          |
| Valuation in foreign   currencies and UDIS              |       | (18      | )          | (19        | )          |
| Rebates granted to housing   debtors                    |       | (70      | )          | (46        | )          |
| Created with profit margin   (UDIS Trusts)              |       | 34       |       | 59         |       |
| Loan purchase                                           |       | 2        |       | —     |       |
| Recognized against   retained earnings from prior years |       | —   |       | 1,136      |       |
| Other                                                   |       | (13      | )          | (29        | )          |
| **Year-end   balance**                                  | ** ** | **Ps.**  | **8,245**  | ** ** | **Ps.**    | **7,535** | ** ** |

 

As of December 31, 2010, the net amount of preventive loan loss reserves charged to the consolidated statement of income totals Ps. 6,889 and Ps. 14 charged to “Other revenues”. These amounts charged to results are made up of Ps. 6,841 credited directly to the estimate and Ps. 34 from the UDIS trust. As of December 31, 2009, the net amount of preventive loan loss reserves charged to the consolidated statement of income totals Ps. 8,282 and is comprised of Ps. 8,286 directly credited to the estimate and Ps. 4 charged to “Other revenues”.

 

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**12 - ACQUIRED COLLECTION RIGHTS**

 

As of December 31, 2010 and 2009, the acquired collection rights are comprised as follows:

 
| ** **                     | ** ** | **2010** | ** ** | **2009**   | ** ** | **Valuation Method**                                    | ** ** |
|--------------------------------|------------|----------|------------|------------|------------|--------------------------------------------------------------|------------|
| Bancomer IV                    |       | Ps.      | 360        |       | Ps.        | 456                                                          |       | Cash Basis Method |   |
| Banamex Mortgage               |       | 262      |       | 302        |       | Cash Basis Method                                            |       |
| Serfin Mortgage                |       | 126      |       | 160        |       | Cash Basis Method                                            |       |
| Bital I                        |       | 121      |       | 171        |       | Cash Basis Method                                            |       |
| Bancomer III                   |       | 111      |       | 125        |       | Cash Basis Method                                            |       |
| Goldman Sach’s            |       | 98       |       | 145        |       | Cash Basis Method                                            |       |
| Banorte Mortgage               |       | 158      |       | 196        |       | Interest Method                                              |       |
| Solida Mortgage                |       | 382      |       | 473        |       | Cost Recovery Method                                         |       |
| Serfin Commercial II           |       | 95       |       | 105        |       | Cost Recovery Method                                         |       |
| Serfin Commercial I            |       | 81       |       | 92         |       | Cost Recovery Method                                         |       |
| Confia I                       |       | 72       |       | 80         |       | Cost Recovery Method                                         |       |
| GMAC Banorte                   |       | 60       |       | 66         |       | Cost Recovery Method                                         |       |
| Bital II                       |       | 58       |       | 72         |       | Cost Recovery Method                                         |       |
| Banorte Sólida Commercial |       | 34       |       | 35         |       | Cost Recovery Method                                         |       |
| Cartera Segmento II            |       | 7        |       | —     |       | Cost Recovery Method                                         |       |
| Santander                      |       | —   |       | 70         |       | Interest Method (Commercial); Cash Basis Method   (Mortgage) |       |
| ** **                     | ** ** | **Ps.**  | **2,025**  | ** ** | **Ps.**    | **2,548**                                                    | ** ** | ** ** | ** ** |

 

As of December 31, 2010, the Financial Group recognized income from credit asset portfolios of Ps. 595, together with the respective amortization of Ps. 482, the effects of which were recognized under the “Other income” heading in the consolidated statement of income. For the year ended December 31, 2009, the Financial Group recognized income of Ps. 718, together with the respective amortization of Ps. 448.

 

The Financial Group performs an analysis based on events or information to estimate the amount of expected cash flows to determine the estimated rate of return used in applying the valuation method for the amortization of the receivable. If based on current events information, the analysis demonstrates that the expected future cash flows will decrease to the degree that they will not cover the book value, it will constitute an estimate for non-recoverability or difficult collection against the year’s results for the amount that such expected cash flows are lower than the book value of the receivable.

 

The result of the expected cash flows of the portfolios Serfín Commercial I, GMAC Banorte, Bital II Solida Mortgage, Serfin Commercial II and Cartera Segmento II were not highly effective since the quotient resulting from dividing the flows collected by the sum of expected cash flows was below 0.8. As a result, the Financial Group decided to move these portfolios to the cost recovery method.

 

Assets other than cash that the Financial Group has received as part of portfolio collection or recovery have been mainly in real property.

 

The main feature considered for segmenting acquired portfolios has been the type of loan.

 

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**13 - OTHER ACCOUNTS RECEIVABLE, NET**

 

As of December 31, 2010 and 2009, the other accounts receivable balance is as follows:

 
| ** **                            | ** ** | **2010**   | ** ** | **2009**   | ** ** |
|---------------------------------------|------------|------------|------------|------------|------------|
| Loans to officers and   employees     |       | Ps.        | 1,211      |       | Ps.        | 1,134 |   |
| Debtors from liquidation   settlement |       | 909        |       | 2,706      |       |
| Real property portfolios              |       | 1,864      |       | 1,183      |       |
| Fiduciary rights                      |       | 4,778      |       | 4,104      |       |
| Sundry debtors in Mexican   pesos     |       | 1,838      |       | 1,182      |       |
| Sundry debtors in foreign   currency  |       | 321        |       | 928        |       |
| Other                                 |       | 419        |       | 380        |       |
|                                  | ** ** | **11,340** | ** ** | **11,617** | ** ** |
| Allowance for doubtful   accounts     |       | (476       | )          | (293       | )          |
| ** **                            | ** ** | **Ps.**    | **10,864** | ** ** | **Ps.**    | **11,324** | ** ** |

 

The real property portfolios include Ps. 301 that corresponds to the collection rights of the INVEX trust that is valued applying the interest method.

 

Loans to officers and employees mature in 2 to 30 years and accrue interest at a 6% to 10% rate.

 

**14 - FORECLOSED ASSETS, NET**

 

As of December 31, 2010 and 2009, the foreclosed assets balance is as follows:

 
| ** **                                  | ** ** | **2010**  | ** ** | **2009**   | ** ** |
|---------------------------------------------|------------|-----------|------------|------------|------------|
| Personal property                           |       | Ps.       | 64         |       | Ps.        | 67 |   |
| Real property                               |       | 1,107     |       | 1,230      |       |
| Goods pledged for sale                      |       | 18        |       | 14         |       |
|                                        | ** ** | **1,189** | ** ** | **1,311**  | ** ** |
| Allowance for losses on   foreclosed assets |       | (380      | )          | (383       | )          |
| ** **                                  | ** ** | **Ps.**   | **809**    | ** ** | **Ps.**    | **928** | ** ** |

 

**15 - PROPERTY, FURNITURE AND EQUIPMENT, NET**

 

As of December 31, 2010 and 2009, the property, furniture and fixtures balance is as follows:

 
| ** **                                         | ** ** | **2010**   | ** ** | **2009**   | ** ** |
|----------------------------------------------------|------------|------------|------------|------------|------------|
| Furniture and equipment                            |       | Ps.        | 5,777      |       | Ps.        | 5,207 |   |
| Property intended for   offices                    |       | 5,530      |       | 5,272      |       |
| Installation costs                                 |       | 2,888      |       | 2,750      |       |
| ** **                                         | ** ** | **14,195** | ** ** | **13,229** | ** ** |
| Less - Accumulated depreciation   and amortization |       | (4,879     | )          | (4,607     | )          |
| ** **                                         | ** ** | **Ps.**    | **9,316**  | ** ** | **Ps.**    | **8,622** | ** ** |

 

The depreciation recorded in the results of 2010 and 2009 was Ps. 1,121 and Ps. 997, respectively.

 

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The average estimated useful lives of the Financial Group’s assets subject to depreciation are listed below:

 
| ** **               | ** ** | **Useful Life** | ** ** |
|--------------------------|------------|----------------------|------------|
| Transportation equipment |       | 4 years              |       |
| Computer equipment       |       | 4.7 years            |       |
| Furniture and fixtures   |       | 10 years             |       |
| Real estate              |       | From 4 to 99 years   |       |

 

**16 - PERMANENT STOCK INVESTMENTS**

 

Investment in unconsolidated subsidiaries and associated companies are valued according to the equity method, as detailed below:

 
| ** **                                                   | ** ** | **Share %** | ** ** | **2010** | ** ** | **2009**   | ** ** |
|--------------------------------------------------------------|------------|------------------|------------|----------|------------|------------|------------|
| Seguros Banorte Generali, S. A. de C. V.                     |       | 51               | %          | Ps.      | 1,243      |       | Ps.        | 1,209 |   |
| Fondo Solida Banorte Generali, S. A. de C. V., SIEFORE       |       | 99               | %          | 843      |       | 719        |       |
| Pensiones Banorte Generali, S. A. de C. V.                   |       | 51               | %          | 524      |       | 518        |       |
| Banorte Investment funds                                     |       | Various          |       | 129      |       | 121        |       |
| Controladora Prosa, S. A. de C. V.                           |       | 19.73            | %          | 46       |       | 49         |       |
| Servicio Pan Americano de Protección, S. A. de C. V.    |       | 8.50             | %          | —   |       | 115        |       |
| Transporte Aéreo Técnico Ejecutivo, S. A. de C. V. |       | 45.33            | %          | 42       |       | 72         |       |
| Fideicomiso Marhnos   (Sólida)                          |       | 100              | %          | 156      |       | 156        |       |
| Internacional de   Inversiones (Sólida)                 |       | 5.62             | %          | 95       |       | —     |       |
| Others                                                       |       | Various          |       | 52       |       | 77         |       |
| ** **                                                   | ** ** | ** **       | ** ** | **Ps.**  | **3,130**  | ** ** | **Ps.**    | **3,036** | ** ** |

 

The Financial Group exercises significant influence over its affiliates valued under the equity method through its representation in the board of directors or equivalent management body, as well as through significant intercompany transactions.

 

**17 - DEFERRED TAXES, NET**

 

The tax reported by the Financial Group is calculated based on the current taxable result of the year and enacted tax regulations. However, due to temporary differences between accounting and tax balance sheet accounts, the Financial Group has recognized a recoverable net deferred tax asset of Ps. 1,340 and Ps. 1,411 as of December 31, 2010 and 2009, respectively, as detailed below:

 
| ** **                                                              | ** ** | **2010**            | ** ** | **2009**                 | ** ** |
|-------------------------------------------------------------------------|------------|---------------------|------------|--------------------------|------------|
| ** **                                                              | ** ** | **Temporary ** | ** ** | **Deferred Effect** | ** ** | **Temporary** | ** ** | **Deferred Effect** | ** ** |
| ** **                                                              | ** ** | **Differences**     | ** ** | **ISR**                  | ** ** | **PTU** | ** ** | **Differences** | ** ** | **ISR** | ** ** | **PTU** | ** ** |
| Temporary Differences _   Assets                                        |       |                |       |                     |       |   |   |   |   |   |   |   |   |
| Allowance for loan losses                                               |       | Ps.                 | 339        |                     | Ps.        | 119 |   | Ps. | — |   | Ps. | 315 |   | Ps. | 110 |   | Ps. | — |   |
| Tax loss carryforwards of   Uniteller and Banorte USA                   |       | 11                  |       | 4                        |       | — |   | — |   | — |   | — |   |
| Tax loss carryforwards                                                  |       | 5                   |       | 2                        |       | — |   | (72 | ) | (25 | ) | — |   |
| State tax on deferred   assets                                          |       | 10                  |       | 3                        |       | — |   | 6 |   | 2 |   | — |   |
| Surplus preventive   allowances for credit risks over the net tax limit |       | 5,526               |       | 1,548                    |       | 552 |   | 4,757 |   | 1,332 |   | 476 |   |
| Excess of tax over book   value of foreclosed and fixed assets          |       | 1,361               |       | 374                      |       | 60 |   | 1,132 |   | 308 |   | 52 |   |
| PTU                                                                     |       | 798                 |       | 239                      |       | 80 |   | 775 |   | 232 |   | 77 |   |
| Fees collected in advance                                               |       | 20                  |       | 6                        |       | 2 |   | — |   | — |   | — |   |
| Non-deductible provisions                                               |       | 1,390               |       | 417                      |       | 131 |   | — |   | — |   | — |   |
| Other assets                                                            |       | 46                  |       | 13                       |       | — |   | 1,422 |   | 427 |   | 135 |   |
| **Total   assets**                                                      | ** ** | **Ps.**             | **9,506**  | ** **               | **Ps.**    | **2,725** | ** ** | **Ps.** | **825** | ** ** | **Ps.** | **8,335** | ** ** | **Ps.** | **2,386** | ** ** | **Ps.** | **740** | ** ** |

 

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| ** **                                                            | ** ** | **2010**        | ** ** | **2009**                 | ** ** |
|-----------------------------------------------------------------------|------------|-----------------|------------|--------------------------|------------|
| ** **                                                            | ** ** | **Temporary**   | ** ** | **Deferred Effect** | ** ** | **Temporary** | ** ** | **Deferred Effect** | ** ** |
| ** **                                                            | ** ** | **Differences** | ** ** | **ISR**                  | ** ** | **PTU** | ** ** | **Differences** | ** ** | **ISR** | ** ** | **PTU** | ** ** |
| Temporary Differences_   Liabilities                                  |       |            |       |                     |       |   |   |   |   |   |   |   |   |
| Excess of book over tax   value of fixed assets and expected expenses |       | Ps.             | 33         |                     | Ps.        | 10 |   | Ps.   | — |   | Ps. | 16 |   | Ps. | 4 |   | Ps. | — |   |
| Unrealized loss in   available-for-sale securities                    |       | 75              |       | 26                       |       | — |   | — |   | — |   | — |   |
| Unrealized capital gain   from special allowance                      |       | 170             |       | 51                       |       | — |   | 125 |   | 38 |   | — |   |
| ISR payable on UDI trusts                                             |       | 22              |       | 6                        |       | — |   | 145 |   | 40 |   | — |   |
| Portfolios acquired                                                   |       | 2,126           |       | 617                      |       | 110 |   | 2,302 |   | 655 |   | 111 |   |
| Capitalizable projects   expenses                                     |       | 706             |       | 211                      |       | 71 |   | 528 |   | 159 |   | 53 |   |
| Reversal of sales costs                                               |       | 8               |       | 3                        |       | — |   | 16 |   | 4 |   | — |   |
| Contribution to pension   fund                                        |       | 2,000           |       | 560                      |       | 200 |   | 1,500 |   | 420 |   | 150 |   |
| Federal Home Loan Bank   dividends                                    |       | 4               |       | 1                        |       | — |   | — |   | — |   | — |   |
| Intangible assets                                                     |       | 64              |       | 22                       |       | — |   | — |   | — |   | — |   |
| Other                                                                 |       | 953             |       | 276                      |       | 46 |   | 260 |   | 81 |   | — |   |
| **Total   liabilities**                                               | ** ** | **Ps.**         | **6,161**  | ** **               | **Ps.**    | **1,783** | ** ** | **Ps.** | **427** | ** ** | **Ps.** | **4,892** | ** ** | **Ps.** | **1,401** | ** ** | **Ps.** | **314** | ** ** |
| ** **                                                            | ** ** | ** **      | ** ** | ** **               | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Net   accumulated asset**                                           | ** ** | **Ps.**         | **3,345**  | ** **               | **Ps.**    | **942** | ** ** | **Ps.** | **398** | ** ** | **Ps.** | **3,443** | ** ** | **Ps.** | **985** | ** ** | **Ps.** | **426** | ** ** |
| ** **                                                            | ** ** | ** **      | ** ** | ** **               | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Deferred   tax, net**                                               | ** ** | ** **      | ** ** | ** **               | ** ** | **Ps.** | **1,340** | ** ** | ** ** | ** ** | ** ** | ** ** | **Ps.** | **1,411** | ** ** |

 

As discussed in Note 27, as of January 1, 2010 and up to December 31, 2012, the applicable income tax rate is 30% and it will be 29% in 2013. Pursuant to the provisions of NIF D-4, “Incomes Taxes”, and INIF 8, “Effects of the Business Flat Tax”, based on financial forecasts, the Financial Group adjusted their balances based on the rates likely to be in effect at the time of their recovery. Additionally, they made forecasts for the IETU and compared it to ISR, and concluded that they will continue to pay ISR. Thus no change was made to the deferred tax calculations.

 

Banorte USA’s deferred tax assets and liabilities are determined using the liability method. According to this method, the net asset of deferred taxes is determined based on the tax effects of temporary differences between the book and tax base of assets and liabilities. Due to the consolidation of Banorte USA, a net amount of Ps. 38 was added to deferred taxes determined at a rate of 35% as per the tax law of the USA.

 

**18 - OTHER ASSETS**

 

As of December 31, 2010 and 2009, other assets are as follows:

 
| ** **                                                     | ** ** | **2010** | ** ** | **2009**   | ** ** |
|----------------------------------------------------------------|------------|----------|------------|------------|------------|
| Plan assets held for   employee pension plans and savings fund |       | Ps.      | 5,303      |       | Ps.        | 4,255 |   |
| Other amortizable expenses                                     |       | 2,343    |       | 2,200      |       |
| Accumulated amortization   of other expenses                   |       | (188     | )          | (93        | )          |
| Goodwill                                                       |       | 2,950    |       | 3,121      |       |
| ** **                                                     | ** ** | **Ps.**  | **10,408** | ** ** | **Ps.**    | **9,483** | ** ** |

 

As of December 31, 2010, the balance of the investments related to provisions for staff pensions and savings fund, is comprised of Ps. 3,827, which corresponds to the defined benefit pension plan, seniority premiums and medical expenses for retirees, Ps. 1,283 for the voluntary defined contribution plan “secure your future” and Ps. 193 for the savings fund. As of December 31, 2009, this balance is comprised of Ps. 3,115 for the defined benefit pension plan, seniority premiums and medical expenses for retirees and Ps. 1,140 for the voluntary defined contribution plan “secure your future” (see Note 23).

 

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As of December 31, 2010, goodwill was Ps. 2,950 and was comprised of the following: Ps. 28 for the purchase of Banorte Generali, S.A. de C.V., AFORE; Ps. 2,682 for the purchase of INB and Ps. 240 for the purchase of Uniteller. As of December 31, 2009, the goodwill was Ps. 3,121 and was comprised as follows: Ps. 29 for the purchase of Banorte Generali, S.A. de C.V., AFORE; Ps. 2,838 for the purchase of INB; and Ps. 254 for the purchase of Uniteller. As mentioned in Note 4, goodwill is not amortized and is subject to annual impairment tests. No impairment to goodwill value was noted as of December 31, 2010 and 2009.

 

**19 - DEPOSITS**

 

**Liquidity Coefficient**

 

The “Investment regime for transactions in foreign currency and conditions to be fulfilled during the term of transactions in such currency”, designed for credit institutions by Banco de México, establishes the mechanism for determining the liquidity coefficient of liabilities denominated in foreign currency.

 

In accordance with such regime, during 2010 and 2009 the Financial Group generated a liquidity requirement of USD 498,373 thousand and USD 755,917 thousand, respectively, and held investments in liquid assets of USD 1,069,131 thousand and USD 1,230,740 thousand, representing a surplus of USD 570,758 thousand and USD 474,823 thousand, respectively.

 

**Deposits**

 

The liabilities derived from traditional deposits are made up as follows:

 
| ** **                                                                       | ** ** | **2010** | ** **  | **2009**   | ** ** |
|----------------------------------------------------------------------------------|------------|----------|-------------|------------|------------|
| **Immediately   due and payable deposits**                                       |       |     |        |       |       |
| **Checking   accounts earning no interest:**                                     |       |     |        |       |       |
| Cash deposits                                                                    |       | Ps.      | 65,583      |       | Ps.        | 59,334 |   |
| Checking accounts in US   dollars for individual residents of the Mexican border |       | 637      |        | 662        |       |
| Demand deposits accounts                                                         |       | 5,125    |        | 4,142      |       |
| **Checking   accounts earning interest:**                                        |       |     |        |       |       |
| Other bank checking   deposit                                                    |       | 34,178   |        | 35,395     |       |
| Savings accounts                                                                 |       | 262      |        | 268        |       |
| Checking accounts in US   dollars for individual residents of the Mexican border |       | 1,615    |        | 2,055      |       |
| Demand deposits accounts                                                         |       | 42,417   |        | 35,705     |       |
| IPAB checking accounts                                                           |       | —   |        | 20         |       |
| ** **                                                                       | ** ** | **Ps.**  | **149,817** | ** ** | **Ps.**    | **137,581** | ** ** |

 
| ** **                                                                                | ** ** | **2010**    | ** **  | **2009**    | ** ** |
|-------------------------------------------------------------------------------------------|------------|-------------|-------------|-------------|------------|
| **Time   deposits**                                                                       |       |        |        |        |       |
| **General   public:**                                                                     |       |        |        |        |       |
| Fixed term deposits                                                                       |       | Ps.         | 25,299      |        | Ps.        | 25,711 |   |
| Over the counter   investments                                                            |       | 43,677      |        | 49,156      |       |
| Promissory note with   interest payable at maturity (PRLV) primary market for individuals |       | 61,835      |        | 57,819      |       |
| PRLV primary market for   business entities                                               |       | 1,644       |        | 1,195       |       |
| Foreign residents deposits                                                                |       | 28          |        | 83          |       |
| Provision for interest                                                                    |       | 190         |        | 177         |       |
| ** **                                                                                | ** ** | **132,673** | ** **  | **134,141** | ** ** |
| **Money   market:**                                                                       |       |        |        |        |       |
| Fixed-term deposits                                                                       |       | 2,648       |        | 459         |       |
| Over the counter   promissory notes                                                       |       | 2,208       |        | 1,430       |       |
| Provision for interest                                                                    |       | 1,491       |        | 1,297       |       |
| ** **                                                                                | ** ** | **6,347**   | ** **  | **3,186**   | ** ** |
| ** **                                                                                | ** ** | **139,020** | ** **  | **137,327** | ** ** |
| **Senior   debt issued**                                                                  | ** ** | **3,778**   | ** **  | **—**  | ** ** |
| ** **                                                                                | ** ** | **Ps.**     | **292,615** | ** **  | **Ps.**    | **274,908** | ** ** |

 

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The funding rates which the Financial Group uses as reference are: a) for Mexican pesos, Interbank Interest Rate (TIIE), Average Cost of Funds (CCP) and; b) for foreign currency, the London Interbank Offered Rate (LIBOR).

 

These liabilities incur interest depending on the type of instrument and average balance held in the investments. The average interest rates and their currency of reference are shown below:

 

**Immediately due and payable deposits:**

** **
| ** **                | ** ** | **2010** | ** ** | **2009** | ** ** |
|---------------------------|------------|----------|------------|----------|------------|
| **Foreign exchange** | ** ** | **1Q**   | ** ** | **2Q**   | ** ** | **3Q** | ** ** | **4Q** | ** ** | **1Q** | ** ** | **2Q** | ** ** | **3Q** | ** ** | **4Q** | ** ** |
| Mexican pesos and UDIs    |       | 0.56     | %          | 0.62     | %          | 0.61 | % | 0.57 | % | 0.99 | % | 0.73 | % | 0.60 | % | 0.59 | % |
| Foreign currency          |       | 0.03     | %          | 0.03     | %          | 0.03 | % | 0.03 | % | 0.05 | % | 0.04 | % | 0.03 | % | 0.03 | % |
| Banorte USA (INB)         |       |     |       |     |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Demand deposits accounts  |       | 0.18     | %          | 0.14     | %          | 0.07 | % | 0.12 | % | 0.19 | % | 0.09 | % | 0.12 | % | 0.13 | % |
| Money market              |       | 0.94     | %          | 0.92     | %          | 0.78 | % | 0.81 | % | 1.47 | % | 1.30 | % | 1.06 | % | 1.04 | % |

 

**Time deposits:**

** **
| ** **                | ** ** | **2010** | ** ** | **2009** | ** ** |
|---------------------------|------------|----------|------------|----------|------------|
| **Foreign exchange** | ** ** | **1Q**   | ** ** | **2Q**   | ** ** | **3Q** | ** ** | **4Q** | ** ** | **1Q** | ** ** | **2Q** | ** ** | **3Q** | ** ** | **4Q** | ** ** |
| General public            |       |     |       |     |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Mexican pesos and UDIs    |       | 3.52     | %          | 3.55     | %          | 3.62 | % | 3.37 | % | 5.68 | % | 4.45 | % | 3.55 | % | 3.50 | % |
| Foreign currency          |       | 0.84     | %          | 0.91     | %          | 0.80 | % | 0.69 | % | 0.91 | % | 0.79 | % | 0.90 | % | 0.79 | % |
| Money market              |       | 7.66     | %          | 6.53     | %          | 7.06 | % | 7.32 | % | 8.59 | % | 7.54 | % | 5.72 | % | 6.61 | % |
| Banorte USA (INB)         |       | 2.76     | %          | 2.76     | %          | 2.61 | % | 2.39 | % | 3.84 | % | 3.56 | % | 3.19 | % | 2.95 | % |

 

As of December 31, 2010 and 2009, the terms at which these deposits are traded are as follows:

 
| ** **                                  | ** ** | **2010**                                   | ** **  |
|---------------------------------------------|------------|--------------------------------------------|-------------|
| ** **                                  | ** ** | **From 1 to 179 days** | ** **  | **From 6 to 12 months** | ** ** | **More than 1 year** | ** ** | **Total** | ** ** |
| **General   public**                        |       |                                       |        |   |   |   |   |   |   |
| Fixed-term deposits                         |       | Ps.                                        | 14,879      |   | Ps. | 6,062 |   | Ps. | 4,358 |   | Ps. | 25,299 |   |
| Over the counter   investments              |       | 43,614                                     |        | 63 |   | — |   | 43,677 |   |
| PRLV primary market for   individuals       |       | 61,345                                     |        | 433 |   | 57 |   | 61,835 |   |
| PRLV primary market for   business entities |       | 1,610                                      |        | 32 |   | 2 |   | 1,644 |   |
| Foreign resident deposits                   |       | 20                                         |        | 2 |   | 6 |   | 28 |   |
| Provision for interest                      |       | 174                                        |        | 15 |   | 1 |   | 190 |   |
| ** **                                  | ** ** | **121,642**                                | ** **  | **6,607** | ** ** | **4,424** | ** ** | **132,673** | ** ** |
| **Money   market:**                         |       |                                       |        |   |   |   |   |   |   |
| Fixed-term deposits                         |       | —                                     |        | — |   | 2,648 |   | 2,648 |   |
| Over the counter   promissory notes         |       | —                                     |        | — |   | 2,208 |   | 2,208 |   |
| Provision for interest                      |       | —                                     |        | 4 |   | 1,487 |   | 1,491 |   |
|                                        | ** ** | **—**                                 | ** **  | **4** | ** ** | **6,343** | ** ** | **6,347** | ** ** |
| Senior debt issued                          | ** ** | **—**                                 | ** **  | **—** | ** ** | **3,778** | ** ** | **3,778** | ** ** |
| ** **                                  | ** ** | **Ps.**                                    | **121,642** | ** ** | **Ps.** | **6,611** | ** ** | **Ps.** | **14,545** | ** ** | **Ps.** | **142,798** | ** ** |
|                                             |            |                                            |             |  |  |  |  |  |  |  |  |  |  |  |

 

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| ** **                                  | ** ** | **2009**                                   | ** **  |
|---------------------------------------------|------------|--------------------------------------------|-------------|
| ** **                                  | ** ** | **From 1 to 179 days** | ** **  | **From 6 to 12 months** | ** ** | **More than 1 year** | ** ** | **Total** | ** ** |
| **General   public**                        |       |                                       |        |   |   |   |   |   |   |
| Fixed-term deposits                         |       | Ps.                                        | 15,740      |   | Ps. | 6,972 |   | Ps. | 2,999 |   | Ps. | 25,711 |   |
| Over the counter   investments              |       | 49,105                                     |        | 51 |   | — |   | 49,156 |   |
| PRLV primary market for   individuals       |       | 57,337                                     |        | 418 |   | 64 |   | 57,819 |   |
| PRLV primary market for   business entities |       | 1,170                                      |        | 25 |   | — |   | 1,195 |   |
| Foreign residents deposits                  |       | 20                                         |        | 20 |   | 43 |   | 83 |   |
| Provision for interest                      |       | 162                                        |        | 13 |   | 2 |   | 177 |   |
| ** **                                  | ** ** | **123,534**                                | ** **  | **7,499** | ** ** | **3,108** | ** ** | **134,141** | ** ** |
| **Money   market:**                         |       |                                       |        |   |   |   |   |   |   |
| Fixed-term deposits                         |       | —                                     |        | — |   | 459 |   | 459 |   |
| Over the counter   promissory notes         |       | —                                     |        | — |   | 1,430 |   | 1,430 |   |
| Provision for interest                      |       | —                                     |        | 11 |   | 1,286 |   | 1,297 |   |
|                                        | ** ** | **—**                                 | ** **  | **11** | ** ** | **3,175** | ** ** | **3,186** | ** ** |
| ** **                                  | ** ** | **Ps.**                                    | **123,534** | ** ** | **Ps.** | **7,510** | ** ** | **Ps.** | **6,283** | ** ** | **Ps.** | **137,327** | ** ** |

 

**20 - INTERBANK AND OTHER LOANS**

 

The loans received from other banks as of December 31, 2010 and 2009 are as follows:

 
| ** **                    | ** ** | **Mexican pesos** | ** ** | **Denominated in US   dollars** | ** ** | **Total**  | ** ** |
|-------------------------------|------------|------------------------|------------|-------------------------------------------|------------|------------|------------|
| ** **                    | ** ** | **2010**               | ** ** | **2009**                                  | ** ** | **2010**   | ** ** | **2009** | ** ** | **2010** | ** ** | **2009** | ** ** |
| **Immediately   due**         | ** ** | ** **             | ** ** | ** **                                | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Domestic banks (Call   money) |       | Ps.                    | 4,837      |                                      | Ps.        | 21         |       | Ps. | — |   | Ps. | — |   | Ps. | 4,837 |   | Ps. | 21 |   |
| ** **                    | ** ** | **4,837**              | ** ** | **21**                                    | ** ** | **—** | ** ** | **—** | ** ** | **4,837** | ** ** | **21** | ** ** |
| **Short-term:**               |       |                   |       |                                      |       |       |       |   |   |   |   |   |   |
| Banco de México          |       | 250                    |       | —                                    |       | —     |       | 1,964 |   | 250 |   | 1,964 |   |
| Commercial banking            |       | 326                    |       | 204                                       |       | 321        |       | 220 |   | 647 |   | 424 |   |
| Development banking           |       | 6,747                  |       | 6,233                                     |       | 1,211      |       | 1,593 |   | 7,958 |   | 7,826 |   |
| Public trusts                 |       | 3,977                  |       | 2,801                                     |       | 192        |       | 314 |   | 4,169 |   | 3,115 |   |
| Provision for interest        |       | 87                     |       | 54                                        |       | 3          |       | 2 |   | 90 |   | 56 |   |
| ** **                    | ** ** | **11,387**             | ** ** | **9,292**                                 | ** ** | **1,727**  | ** ** | **4,093** | ** ** | **13,114** | ** ** | **13,385** | ** ** |
| **Long-term**                 |       |                   |       |                                      |       |       |       |   |   |   |   |   |   |
| Commercial banking            |       | 1,524                  |       | 895                                       |       | 1,284      |       | 1,439 |   | 2,808 |   | 2,334 |   |
| Development banking           |       | 2,421                  |       | 1,553                                     |       | 267        |       | 319 |   | 2,688 |   | 1,872 |   |
| Public trusts                 |       | 2,825                  |       | 3,236                                     |       | 173        |       | 116 |   | 2,998 |   | 3,352 |   |
| Provision for interest        |       | —                 |       | —                                    |       | 2          |       | 4 |   | 2 |   | 4 |   |
| ** **                    | ** ** | **6,770**              | ** ** | **5,684**                                 | ** ** | **1,726**  | ** ** | **1,878** | ** ** | **8,496** | ** ** | **7,562** | ** ** |
| ** **                    | ** ** | **Ps.**                | **22,994** | ** **                                | **Ps.**    | **14,997** | ** ** | **Ps.** | **3,453** | ** ** | **Ps.** | **5,971** | ** ** | **Ps.** | **26,447** | ** ** | **Ps.** | **20,968** | ** ** |

 

These liabilities incur interest depending on the type of instrument and average balance of the loans.

 

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The average interest rates are shown below:

 
| ** **                | ** ** | **2010** | ** ** | **2009** | ** ** |
|---------------------------|------------|----------|------------|----------|------------|
| **Foreign exchange** | ** ** | **1Q**   | ** ** | **2Q**   | ** ** | **3Q** | ** ** | **4Q** | ** ** | **1Q** | ** ** | **2Q** | ** ** | **3Q** | ** ** | **4Q** | ** ** |
| Call money                |       |     |       |     |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Mexican pesos and UDIs    |       | 4.44     | %          | 4.63     | %          | 4.43 | % | 4.48 | % | 7.52 | % | 5.53 | % | 4.53 | % | 4.46 | % |
|                      |       |     |       |     |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Other bank loans          |       |     |       |     |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Mexican pesos and UDIs    |       | 6.01     | %          | 5.55     | %          | 5.56 | % | 5.59 | % | 7.61 | % | 6.51 | % | 5.66 | % | 5.48 | % |
| Foreign currency          |       | 1.30     | %          | 1.67     | %          | 1.79 | % | 1.84 | % | 3.00 | % | 2.04 | % | 1.30 | % | 0.92 | % |

 

Banorte USA liabilities accrue interest at an average rate of 4.09% and 1.91% as of December 2010 and 2009, respectively. Moreover, the Arrendadora y Factor Banorte, S.A. de C.V. loans accrue an average interest rate of 6.59% and 6.46% in Mexican pesos and 2.39% and 2.86% in U.S. dollars as of December 31, 2010 and 2009, respectively.

 

**21 - SUNDRY CREDITORS AND OTHER PAYABLES**

 

As of December 31, 2010 and 2009, the balance of sundry creditors and other payables is as follows:

** **
| ** **                                                      | ** ** | **2010** | ** ** | **2009**   | ** ** |
|-----------------------------------------------------------------|------------|----------|------------|------------|------------|
| Cashier and certified   checks and other negotiable instruments |       | Ps.      | 1,001      |       | Ps.        | 796 |   |
| Provision for employee   retirement obligations                 |       | 3,333    |       | 2,773      |       |
| Provisions for other   obligations                              |       | 2,691    |       | 2,291      |       |
| Other                                                           |       | 2,846    |       | 3,108      |       |
| ** **                                                      | ** ** | **Ps.**  | **9,871**  | ** ** | **Ps.**    | **8,968** | ** ** |

 

**22 - EMPLOYEE RETIREMENT OBLIGATIONS**

 

The Financial Group recognizes the liabilities for pension plans and seniority premium using the projected unit credit method, which considers the benefits accrued at the balance sheet date and the benefits generated during the year.

 

The amount of current and projected benefits as of December 31, 2010 and 2009, related to the defined benefit pension plan, seniority premiums and retiree medical coverage, determined by independent actuaries, is analyzed below:

 
| ** **                           | ** ** | **2010**              | ** ** |
|--------------------------------------|------------|-----------------------|------------|
| ** **                           | ** ** | **Pension plan** | ** ** | **Seniority premiums** | ** ** | **Medical services** | ** ** | **Total** | ** ** |
| Projected benefit   obligation (PBO) |       | Ps.                   | (778       | ) | Ps. | (174 | ) | Ps. | (1,782 | ) | Ps. | (2,734 | ) |
| Fund market value                    |       | 1,281                 |       | 306 |   | 2,240 |   | 3,827 |   |
| **Funded   status**                  | ** ** | **503**               | ** ** | **132** | ** ** | **458** | ** ** | **1,093** | ** ** |
| Transition asset   (obligation)      |       | 15                    |       | (7 | ) | 164 |   | 172 |   |
| Unrecognized prior service   cost    |       | 2                     |       | (2 | ) | — |   | — |   |
| Unrecognized actuarial   losses      |       | 277                   |       | 7 |   | 564 |   | 848 |   |
| **Net   projected asset**            | ** ** | **Ps.**               | **797**    | ** ** | **Ps.** | **130** | ** ** | **Ps.** | **1,186** | ** ** | **Ps.** | **2,113** | ** ** |

 

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| ** **                           | ** ** | **2009**              | ** ** |
|--------------------------------------|------------|-----------------------|------------|
| ** **                           | ** ** | **Pension plan** | ** ** | **Seniority premiums** | ** ** | **Medical services** | ** ** | **Total** | ** ** |
| Projected benefit   obligation (PBO) |       | Ps.                   | (725       | ) | Ps. | (149 | ) | Ps. | (1,633 | ) | Ps. | (2,507 | ) |
| Fund market value                    |       | 1,125                 |       | 269 |   | 1,749 |   | 3,143 |   |
| **Funded   status**                  | ** ** | **400**               | ** ** | **120** | ** ** | **116** | ** ** | **636** | ** ** |
| Transition asset   (obligation)      |       | 22                    |       | (10 | ) | 246 |   | 258 |   |
| Unrecognized prior service   cost    |       | 2                     |       | (3 | ) | — |   | (1 | ) |
| Unrecognized actuarial   losses      |       | 217                   |       | 4 |   | 488 |   | 709 |   |
| **Net   projected asset**            | ** ** | **Ps.**               | **641**    | ** ** | **Ps.** | **111** | ** ** | **Ps.** | **850** | ** ** | **Ps.** | **1,602** | ** ** |

 

The Financial Group has a net prepayment (net prepaid asset) of Ps. 3 generated by transferring personnel from Sólida Administradora de Portafolios, S.A. de C.V. (Sólida) to Banorte. Moreover, as of December 31, 2010, a separate fund amounting to Ps. 3,827, (Ps. 3,143 in 2009) has been set aside to meet the above-mentioned obligations, in accordance with NIF D-3 and is recorded under “Other assets”.

 

For the years ended December 31, 2010 and 2009, the net periodic pension cost is as follows:

 
| ** **                                 | ** ** | **2010** | ** ** | **2009**   | ** ** |
|--------------------------------------------|------------|----------|------------|------------|------------|
| Service cost                               |       | Ps.      | 103        |       | Ps.        |  95 |   |
| Interest cost                              |       | 227      |       | 197        |       |
| Expected return on plan   assets           |       | (316     | )          | (274       | )          |
| **Amortizations   of unrecognized items:** |       |     |       |       |       |
| Transition obligation                      |       | 86       |       | 86         |       |
| Variations in assumptions                  |       | 30       |       | 27         |       |
| **Net   periodic pension cost**            | ** ** | **Ps.**  | **130**    | ** ** | **Ps.**    | **131** | ** ** |

 

The rates used in the calculation of the projected benefit obligation and return on plan assets as of December 31, 2010 and 2009, are shown below:

 
| **Concept**                                                                       | ** ** | **2010********Nominal** | ** ** | **2009********Nominal** | ** ** |
|-----------------------------------------------------------------------------------|------------|-------------------------|------------|-------------------------|------------|
| Discount rate                                                                     |       | 8.75                    | %          | 9.25                    | %          |
| Rate of wage increase                                                             |       | 4.50                    | %          | 4.50                    | %          |
| Rate of increase in costs   and expenses of other postretirement benefits         |       | n/a                     |       | 5.57                    | %          |
| Long-term inflation rate                                                          |       | 3.50                    | %          | 3.50                    | %          |
| Expected long-term rate of   return on plan assets of the Banorte Brokerage House |       | 10.25                   | %          | 10.25                   | %          |
| Expected long-term rate of   return on plan assets                                |       | 8.75                    | %          | 10.00                   | %          |

 

The liability for severance indemnities due to causes other than restructuring, which was also determined by independent actuaries, is comprised as follows:

 
| **Concept**                                 | ** ** | **2010** | ** ** | **2009** | ** ** |
|---------------------------------------------|------------|----------|------------|----------|------------|
| Defined and projected   benefit obligations |       | Ps.      | (171       | )        | Ps.        | (158 | ) |
| Transition obligation                       |       | 41       |       | 62       |       |
| **Net   projected liability**               | ** ** | **Ps.**  | **(130**   | **)**    | **Ps.**    | **(96** | **)** |

 

For the years ended December 31, 2010 and 2009, the net periodic pension cost is as follows:

 
| **Concept**                     | ** ** | **2010** | ** ** | **2009**   | ** ** |
|---------------------------------|------------|----------|------------|------------|------------|
| Service cost                    |       | Ps.      | 26         |       | Ps.        | 27 |   |
| Interest cost                   |       | 12       |       | 12         |       |
| Transition obligation           |       | 21       |       | 21         |       |
| Variations in assumptions       |       | 14       |       | 8          |       |
| **Net   periodic pension cost** | ** ** | **Ps.**  | **73**     | ** ** | **Ps.**    | **68** | ** ** |

 

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The balance of the employee retirement obligations presented in this Note refers to the Financial Group’s defined benefit pension plan for those employees who remain enrolled.

 

The labor obligations derived from the defined contribution pension plan do not require an actuarial valuation as established in NIF D-3, because the cost of this plan is equivalent to the Financial Group’s contributions made to the plan. Moreover, this pension plan maintains a fund as of December 31, 2010 and 2009, equivalent to Ps. 1,283 and Ps. 1,140, respectively, which is recorded under “Other assets” and is equivalent to the recorded plan liability.

 

**23 - SUBORDINATED DEBENTURES**

 

As of December 31, 2010 and 2009, the subordinated debentures in circulation are as follows:

 
| ** **                                                                                                                                                                                                                        | ** ** | **2010** | ** ** | **2009**   | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------|------------|------------|------------|
| Preferred subordinated,   nonconvertible debentures, maturing in April 2016, denominated in US   dollars, at an interest rate of 6.135%, payable semiannually with a final   principal payment at maturity (10-year term)    |       | Ps.      | 4,940      |       | Ps.        | 5,226 |   |
| Non preferred subordinated   nonconvertible debentures (Q BANORTE 08 debentures), maturing in   February 2018, paying interest at the 28-day TIIE rate plus 0.60%.                                                           |       | 3,000    |       | 3,000      |       |
| Preferred subordinated   nonconvertible debentures (Q BANORTE 08-2), maturing in June 2018,   paying interest at the 28-day TIIE rate plus 0.77%.                                                                            |       | 2,750    |       | 2,750      |       |
| Preferred subordinated   nonconvertible debentures, BANORTE 09 maturing in March 2019, paying   interest at the 28-day TIIE rate plus 2%, payable in 130 periods of 28 days   each.                                          |       | 2,200    |       | 2,200      |       |
| Nonpreferred subordinated   nonconvertible debentures, maturing in April 2021, denominated in US   dollars, at an interest rate of 6.862%, payable semiannually with a final   principal payment at maturity (15-year term). |       | 2,470    |       | 2,613      |       |
| Preferred subordinated   nonconvertible debentures, Q BANORTE 08-U maturing in February 2028,   paying interest at a 4.95% annual rate.                                                                                      |       | 2,024    |       | 1,941      |       |
| Subordinated debentures,   maturing in June 2034, denominated in US dollars, at a 3-months LIBOR   interest rate plus 2.75%.                                                                                                 |       | 127      |       | 135        |       |
| Preferred subordinated   debentures maturing in April 2034, denominated in US dollars, at a   3-months LIBOR interest rate plus 2.72%.                                                                                       |       | 127      |       | 135        |       |
| Accrued interest                                                                                                                                                                                                                  |       | 165      |       | 168        |       |
|                                                                                                                                                                                                                              | ** ** | **Ps.**  | **17,803** | ** ** | **Ps.**    | **18,168** | ** ** |

 

The costs related to these debentures are amortized using the straight-line method over the term of the debt. The amortization charged to results was Ps. 6 and Ps. 8 in 2010 and 2009, respectively.

 

**24 - TRANSACTIONS AND BALANCES WITH NON-CONSOLIDATED SUBSIDIARIES AND ASSOCIATED COMPANIES**

 

The balances and transactions with subsidiaries and associated companies as of December 31, 2010, 2009 and 2008, are as follows:

 
| ** **                               | ** ** | **Revenues** | ** ** | **Accounts receivable** | ** ** |
|------------------------------------------|------------|--------------|------------|------------------------------|------------|
| **Institution**                          | ** ** | **2010**     | ** ** | **2009**                     | ** ** | **2008** | ** ** | **2010** | ** ** | **2009** | ** ** |
| Seguros Banorte Generali, S. A. de C. V. |       | Ps.          | 650        |                         | Ps.        | 598 |   | Ps. | 613 |   | Ps. | 29 |   | Ps. | 9 |   |
|                                          |            |              |            |                              |            |  |  |  |  |  |  |  |  |  |  |  |

 
| ** **                               | ** ** | **Expenses** | ** ** | **Accounts payable** | ** ** |
|------------------------------------------|------------|--------------|------------|---------------------------|------------|
| **Institution**                          | ** ** | **2010**     | ** ** | **2009**                  | ** ** | **2008** | ** ** | **2010** | ** ** | **2009** | ** ** |
| Seguros Banorte Generali, S. A. de C. V. |       | Ps.          | 251        |                      | Ps.        | 101 |   | Ps. | 300 |   | Ps. | 19 |   | Ps. | 5 |   |
|                                          |            |              |            |                           |            |  |  |  |  |  |  |  |  |  |  |  |

 

All balances and transactions with the subsidiaries indicated in Note 3 have been eliminated in consolidation.

 

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Pursuant to article 73 of the LIC (Credit Institutions Law), the loans granted by Banorte to any related party cannot exceed 50% of the basic portion of their net capital. For the years ended December 31, 2010 and 2009, the amount of the loans granted to related parties is Ps. 8,772 and Ps. 7,362, respectively, representing 47.1% and 46.2%, respectively, of the limit established by the LIC.

 

**Loan portfolio sales**

 

Sale of loan portfolio packages between related parties (nominal values)

 

In February 2003 Banorte sold Ps. 1,925 of its proprietary portfolio (with interest) to its subsidiary Sólida at a price of Ps. 378. Of this transaction, Ps. 1,891 was related to past-due amounts and Ps. 64 to the performing portfolio. The transaction was recorded based on figures as of August 2002, and therefore the final amount affecting the February 2003 balance sheet was Ps. 1,856, considering the collections made since August 2002. In conjunction with the loan portfolio sold, Ps. 1,577 of the associated allowance for loan losses was transferred as well.

 

In official letter 601-II-323110 dated November 5, 2003, the Commission established the accounting criteria to be applied to this transaction and issued a series of rulings whereby Banorte must provide detailed information on the activities of this transaction throughout its duration, in the understanding that this transaction was a one-time event and not a recurring portfolio transfer procedure.

 

Pursuant to the foregoing, below is a summary of the activity of the loan portfolio sold to Sólida since August 2002 and for the years of 2009 and 2010:

 
| ** **                            | ** ** | **Mexican pesos** | ** ** | **Foreign currency** | ** ** | **Total**       | ** ** |
|---------------------------------------|------------|------------------------|------------|---------------------------|------------|-----------------|------------|
| **Type of portfolio**       | ** ** | **Aug 02**        | ** ** | **Dec 09**           | ** ** | **Dec 10** | ** ** | **Aug 02** | ** ** | **Dec 09** | ** ** | **Dec 10** | ** ** | **Aug 02** | ** ** | **Dec 09** | ** ** | **Dec 10** | ** ** |
| **Performing   loan portfolio**       |       |                   |       |                      |       |            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial                            |       | Ps.                    | 5          |                      | Ps.        | —          |       | Ps. | — |   | Ps. | 5 |   | Ps. | — |   | Ps. |   |   | Ps. | 10 |   | Ps. | — |   | Ps. | — |   |
| Mortgage                              |       | 54                     |       | 27                        |       | 20              |       | — |   | — |   | — |   | 54 |   | 27 |   | 20 |   |
| **Total**                             | ** ** | **59**                 | ** ** | **27**                    | ** ** | **20**          | ** ** | **5** | ** ** | **—** | ** ** | **—** | ** ** | **64** | ** ** | **27** | ** ** | **20** | ** ** |
| **Past-due   portfolio**              |       |                   |       |                      |       |            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial                            |       | 405                    |       | 361                       |       | 331             |       | 293 |   | 110 |   | 104 |   | 698 |   | 471 |   | 435 |   |
| Consumer                              |       | 81                     |       | 72                        |       | 72              |       | — |   | — |   | — |   | 81 |   | 72 |   | 72 |   |
| Mortgage                              |       | 1,112                  |       | 350                       |       | 323             |       | — |   | — |   | — |   | 1,112 |   | 350 |   | 323 |   |
| **Total**                             | ** ** | **1,598**              | ** ** | **783**                   | ** ** | **726**         | ** ** | **293** | ** ** | **110** | ** ** | **104** | ** ** | **1,891** | ** ** | **893** | ** ** | **830** | ** ** |
| **Total   portfolio**                 | ** ** | **Ps.**                | **1,657**  | ** **                | **Ps.**    | **810**         | ** ** | **Ps.** | **746** | ** ** | **Ps.** | **298** | ** ** | **Ps.** | **110** | ** ** | **Ps.** | **104** | ** ** | **Ps.** | **1,955** | ** ** | **Ps.** | **920** | ** ** | **Ps.** | **850** | ** ** |
| **Allowance   for loan losses(1)**    |       |                   |       |                      |       |            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial                            |       | 326                    |       | 349                       |       | 318             |       | 246 |   | 110 |   | 104 |   | 572 |   | 459 |   | 422 |   |
| Consumer                              |       | 77                     |       | 72                        |       | 72              |       | — |   | — |   | — |   | 77 |   | 72 |   | 72 |   |
| Mortgage                              |       | 669                    |       | 336                       |       | 313             |       | — |   | — |   | — |   | 669 |   | 336 |   | 313 |   |
| **Total   allowance for loan losses** | ** ** | **Ps.**                | **1,072**  | ** **                | **Ps.**    | **757**         | ** ** | **Ps.** | **703** | ** ** | **Ps.** | **246** | ** ** | **Ps.** | **110** | ** ** | **Ps.** | **104** | ** ** | **Ps.** | **1,318** | ** ** | **Ps.** | **867** | ** ** | **Ps.** | **807** | ** ** |

 

----

(1) Allowances required based on the classification methodology applied in Banorte that maintained a 99.99% equity interest in Sólida during 2010 and 2009.

 

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As of December 31, 2010 and 2009, the composition of the Banorte’s loan portfolio, including the loan portfolio sold to Sólida, is as follows:

 
| ** **                      | ** ** | **Mexican pesos** | ** **  | **Foreign Currency** | ** ** | **Total**       | ** ** |
|---------------------------------|------------|------------------------|-------------|---------------------------|------------|-----------------|------------|
| **Type of portfolio** | ** ** | **Dec 10**        | ** **  | **Dec 09**           | ** ** | **Dec 10** | ** ** | **Dec 09** | ** ** | **Dec 10** | ** ** | **Dec 09** | ** ** |
| Commercial loans                |       | Ps.                    | 148,786     |                      | Ps.        | 133,823         |       | Ps. | 13,330 |   | Ps. | 11,316 |   | Ps. | 162,116 |   | Ps. | 145,139 |   |
| Consumer loans                  |       | 27,637                 |        | 25,525                    |       | —          |       | — |   | 27,637 |   | 25,525 |   |
| Mortgage loans                  |       | 54,013                 |        | 47,378                    |       | —          |       | — |   | 54,013 |   | 47,378 |   |
| **Performing   loan portfolio** | ** ** | **230,436**            | ** **  | **206,726**               | ** ** | **13,330**      | ** ** | **11,316** | ** ** | **243,766** | ** ** | **218,042** | ** ** |
|                            |       |                   |        |                      |       |            |       |   |   |   |   |   |   |
| Commercial loans                |       | 3,954                  |        | 2,583                     |       | 252             |       | 150 |   | 4,206 |   | 2,733 |   |
| Consumer loans                  |       | 1,348                  |        | 2,014                     |       | —          |       | — |   | 1,348 |   | 2,014 |   |
| Mortgage loans                  |       | 1,025                  |        | 1,151                     |       | —          |       | — |   | 1,025 |   | 1,151 |   |
| **Past-due   portfolio**        | ** ** | **6,327**              | ** **  | **5,748**                 | ** ** | **252**         | ** ** | **150** | ** ** | **6,579** | ** ** | **5,898** | ** ** |
| ** **                      | ** ** | ** **             | ** **  | ** **                | ** ** | ** **      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Total   portfolio**           | ** ** | **236,763**            | ** **  | **212,474**               | ** ** | **13,582**      | ** ** | **11,466** | ** ** | **250,345** | ** ** | **223,940** | ** ** |
| Allowance for loan losses       |       | 8,131                  |        | 7,425                     |       | 297             |       | 384 |   | 8,428 |   | 7,809 |   |
| **Net   portfolio**             | ** ** | **Ps.**                | **228,632** | ** **                | **Ps.**    | **205,049**     | ** ** | **Ps.** | **13,285** | ** ** | **Ps.** | **11,082** | ** ** | **Ps.** | **241,917** | ** ** | **Ps.** | **216,131** | ** ** |
| **Allowance   for loan losses** | ** ** | ** **             | ** **  | ** **                | ** ** | ** **      | ** ** | ** ** | ** ** | **128.10** | **%** | **132.40** | **%** |
| **% of   past-due portfolio**   | ** ** | ** **             | ** **  | ** **                | ** ** | ** **      | ** ** | ** ** | ** ** | **2.63** | **%** | **2.63** | **%** |

 

**25 - INFORMATION BY SEGMENT**

 

The main operations and balances per concept and/or business segment in the general balance sheet and the statement of income are comprised as follows:

 

a. The balances by service sector of the Financial Group, without considering the eliminations relative to the consolidation of the financial statements, are as follows:

 
| ** **                            | ** ** | **2010**   | ** ** | **2009**   | ** ** | **2008**   | ** ** |
|---------------------------------------|------------|------------|------------|------------|------------|------------|------------|
| **Banking   sector:**                 | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net income                            |       | Ps.        | 6,035      |       | Ps.        | 5,132      |       | Ps. | 6,543 |   |
| Stockholders’ equity             |       | 44,316     |       | 40,348     |       | 35,526     |       |
| Total portfolio                       |       | 257,957    |       | 234,878    |       | 236,236    |       |
| Past-due portfolio                    |       | 6,523      |       | 6,051      |       | 4,836      |       |
| Allowance for loan losses             |       | (7,955     | )          | (7,358     | )          | (6,582     | )          |
| Total net assets                      |       | 564,386    |       | 548,560    |       | 562,433    |       |
|                                  |       |       |       |       |       |       |       |
| **Brokerage   sector:**               |       |       |       |       |       |       |       |
| Net income                            |       | 403        |       | 203        |       | 183        |       |
| Stockholders’ equity             |       | 1,883      |       | 1,396      |       | 1,143      |       |
| Portfolio balance                     |       | 174,068    |       | 135,621    |       | 119,286    |       |
| Total net assets                      |       | 10,169     |       | 5,273      |       | 1,662      |       |
|                                  |       |       |       |       |       |       |       |
| **Savings   sector:**                 |       |       |       |       |       |       |       |
| Net income                            |       | 903        |       | 772        |       | 579        |       |
| Stockholders’ equity             |       | 5,244      |       | 4,727      |       | 4,216      |       |
| Total net assets                      |       | 40,993     |       | 32,026     |       | 27,789     |       |
|                                  |       |       |       |       |       |       |       |
| **Other   finance companies sector:** |       |       |       |       |       |       |       |
| Net Income                            |       | 500        |       | 425        |       | 336        |       |
| Stockholders’ equity             |       | 2,136      |       | 1,631      |       | 1,308      |       |
| Total portfolio                       |       | 15,884     |       | 13,461     |       | 13,913     |       |
| Past-due portfolio                    |       | 141        |       | 103        |       | 74         |       |
| Allowance for loan losses             |       | (289       | )          | (177       | )          | (79        | )          |
| Total net assets                      |       | Ps.        | 16,456     |       | Ps.        | 13,645     |       | Ps. | 14,322 |   |

 

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b. The trading results for the years ended December 31, 2010 and 2009 are as follows:

 
| ** **                                 | ** ** | **2010**  | ** ** | **2009**   | ** ** |
|--------------------------------------------|------------|-----------|------------|------------|------------|
| **Valuation   results**                    |       |      |       |       |       |
| Trading securities                         |       | Ps.       | 46         |       | Ps.        | (17 | ) |
| Repurchase or resale   agreement           |       | 30        |       | (156       | )          |
| Derivative financial   instruments         |       | 382       |       | 20         |       |
| **Total   valuation results**              | ** ** | **458**   | ** ** | **(153**   | **)**      |
|                                       |       |      |       |       |       |
| **Purchase-sale   results**                |       |      |       |       |       |
| Trading securities                         |       | 455       |       | 318        |       |
| Available for sale   securities            |       | 214       |       | 23         |       |
| Derivative financial   instruments         |       | (143      | )          | 180        |       |
| **Total   securities purchase sale**       | ** ** | **526**   | ** ** | **521**    | ** ** |
|                                       |       |      |       |       |       |
| Spot foreign currency                      |       | 690       |       | 731        |       |
| Foreign currency forwards                  |       | (1        | )          | 154        |       |
| Foreign currency futures                   |       | (2        | )          | (1         | )          |
| Foreign currency valuation                 |       | 3         |       | (20        | )          |
| Minted metals purchase   sales             |       | 3         |       | 4          |       |
| Minted metals valuation                    |       | 12        |       | 8          |       |
| **Total   foreign currency purchase sale** | ** ** | **705**   | ** ** | **876**    | ** ** |
| **Total purchase   sale results**          | ** ** | **1,231** | ** ** | **1,397**  | ** ** |
| **Total   trading results**                | ** ** | **Ps.**   | **1,689**  | ** ** | **Ps.**    | **1,244** | ** ** |

 

c. The performing loan portfolio, grouped by economic sector and geographical location, is as follows:

 
| ** **                            | ** ** | **2010**                       | ** ** |
|---------------------------------------|------------|--------------------------------|------------|
| ** **                            | ** ** | **Geographical location** | ** ** |
| **Economic sector**              | ** ** | **North**                      | ** ** | **Central** | ** ** | **West** | ** ** | **South** | ** ** | **Total** | ** ** |
| Agriculture                           |       | Ps.                            | 2,473      |   | Ps. | 1,094 |   | Ps. | 741 |   | Ps. | 911 |   | Ps. | 5,219 |   |
| Mining                                |       | 354                            |       | 176 |   | 19 |   | 19 |   | 568 |   |
| Manufacturing                         |       | 7,830                          |       | 5,014 |   | 1,459 |   | 635 |   | 14,938 |   |
| Construction                          |       | 5,346                          |       | 7,433 |   | 557 |   | 2,023 |   | 15,359 |   |
| Public utilities                      |       | 35                             |       | 293 |   | 2 |   | 1 |   | 331 |   |
| Commerce                              |       | 12,157                         |       | 10,412 |   | 3,493 |   | 6,103 |   | 32,165 |   |
| Transportation                        |       | 1,174                          |       | 5,062 |   | 123 |   | 253 |   | 6,612 |   |
| Financial services                    |       | 8,302                          |       | 9,233 |   | 198 |   | 1,300 |   | 19,033 |   |
| Communal, social services             |       | 6,680                          |       | 5,234 |   | 1,520 |   | 417 |   | 13,851 |   |
| Business groups                       |       | 9                              |       | 364 |   | 6 |   | 5 |   | 384 |   |
| Public administration and   services  |       | 24,164                         |       | 16,189 |   | 2,188 |   | 4,901 |   | 47,442 |   |
| International organization   services |       | 2                              |       | — |   | — |   | — |   | 2 |   |
| INB                                   |       | —                         |       | — |   | — |   | — |   | 9,232 |   |
| Credit card                           |       | —                         |       | — |   | — |   | — |   | 11,159 |   |
| Consumer                              |       | —                         |       | — |   | — |   | — |   | 16,668 |   |
| Mortgage                              |       | —                         |       | — |   | — |   | — |   | 56,168 |   |
| Other                                 |       | —                         |       | — |   | — |   | — |   | 105 |   |
| Arrendadora y Factor   Banorte        |       | —                         |       | — |   | — |   | — |   | 14,314 |   |
| **Performing   loan portfolio**       | ** ** | **Ps.**                        | **68,526** | ** ** | **Ps.** | **60,504** | ** ** | **Ps.** | **10,306** | ** ** | **Ps.** | **16,568** | ** ** | **Ps.** | **263,550** | ** ** |

 

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| ** **                           | ** ** | **2009**                       | ** ** |
|--------------------------------------|------------|--------------------------------|------------|
| ** **                           | ** ** | **Geographical location** | ** ** |
| **Economic sector**             | ** ** | **North**                      | ** ** | **Central** | ** ** | **West** | ** ** | **South** | ** ** | **Total** | ** ** |
| Agriculture                          |       | Ps.                            | 2,314      |   | Ps. | 1,167 |   | Ps. | 581 |   | Ps. | 732 |   | Ps. | 4,794 |   |
| Mining                               |       | 347                            |       | 18 |   | 14 |   | 13 |   | 392 |   |
| Manufacturing                        |       | 7,872                          |       | 4,725 |   | 1,661 |   | 688 |   | 14,946 |   |
| Construction                         |       | 6,042                          |       | 6,236 |   | 546 |   | 1,828 |   | 14,652 |   |
| Public utilities                     |       | 43                             |       | 252 |   | 2 |   | 1 |   | 298 |   |
| Commerce                             |       | 10,543                         |       | 7,241 |   | 3,307 |   | 6,031 |   | 27,122 |   |
| Transportation                       |       | 1,308                          |       | 6,173 |   | 105 |   | 269 |   | 7,855 |   |
| Financial services                   |       | 8,975                          |       | 11,280 |   | 130 |   | 1,473 |   | 21,858 |   |
| Communal, social services            |       | 2,524                          |       | 4,242 |   | 1,514 |   | 369 |   | 8,649 |   |
| Business groups                      |       | 12                             |       | 457 |   | 2 |   | 6 |   | 477 |   |
| Public administration and   services |       | 21,403                         |       | 12,938 |   | 2,070 |   | 2,516 |   | 38,927 |   |
| INB                                  |       | —                         |       | — |   | — |   | — |   | 14,100 |   |
| Credit card                          |       | —                         |       | — |   | — |   | — |   | 11,801 |   |
| Consumer                             |       | —                         |       | — |   | — |   | — |   | 13,726 |   |
| Mortgage                             |       | —                         |       | — |   | — |   | — |   | 47,351 |   |
| Other                                |       | —                         |       | — |   | — |   | — |   | 54 |   |
| Arrendadora y Factor   Banorte       |       | —                         |       | — |   | — |   | — |   | 11,952 |   |
| **Performing   loan portfolio**      | ** ** | **Ps.**                        | **61,383** | ** ** | **Ps.** | **54,729** | ** ** | **Ps.** | **9,932** | ** ** | **Ps.** | **13,926** | ** ** | **Ps.** | **238,954** | ** ** |

 

d. The past-due loan portfolio, grouped by economic sector and geographical location, is summarized as follows:

 
| ** **                     | ** ** | **2010**                       | ** ** |
|--------------------------------|------------|--------------------------------|------------|
| ** **                     | ** ** | **Geographical location** | ** ** |
| **Economic sector**       | ** ** | **North**                      | ** ** | **Central** | ** ** | **West** | ** ** | **South** | ** ** | **Total** | ** ** |
| Agriculture                    |       | Ps.                            | 261        |   | Ps. | 125 |   | Ps. | 46 |   | Ps. | 24 |   | Ps. | 456 |   |
| Mining                         |       | 5                              |       | — |   | 1 |   | 1 |   | 7 |   |
| Manufacturing                  |       | 107                            |       | 250 |   | 63 |   | 38 |   | 458 |   |
| Construction                   |       | 297                            |       | 104 |   | 12 |   | 21 |   | 434 |   |
| Commerce                       |       | 329                            |       | 231 |   | 148 |   | 159 |   | 867 |   |
| Transportation                 |       | 17                             |       | 1,318 |   | 8 |   | 11 |   | 1,354 |   |
| Financial services             |       | 10                             |       | 13 |   | — |   | 1 |   | 24 |   |
| Communal, social services      |       | 45                             |       | 50 |   | 44 |   | 30 |   | 169 |   |
| Business groups                |       | —                         |       | — |   | — |   | 1 |   | 1 |   |
| INB                            |       | —                         |       | — |   | — |   | — |   | 505 |   |
| Credit card                    |       | —                         |       | — |   | — |   | — |   | 1,040 |   |
| Consumer                       |       | —                         |       | — |   | — |   | — |   | 236 |   |
| Mortgage                       |       | —                         |       | — |   | — |   | — |   | 971 |   |
| Arrendadora y Factor   Banorte |       | —                         |       | — |   | — |   | — |   | 142 |   |
| **Past-due   loan portfolio**  | ** ** | **Ps.**                        | **1,071**  | ** ** | **Ps.** | **2,091** | ** ** | **Ps.** | **322** | ** ** | **Ps.** | **286** | ** ** | **Ps.** | **6,664** | ** ** |

 

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| ** **                     | ** ** | **2009**                       | ** ** |
|--------------------------------|------------|--------------------------------|------------|
| ** **                     | ** ** | **Geographical location** | ** ** |
| **Economic sector**       | ** ** | **North**                      | ** ** | **Central** | ** ** | **West** | ** ** | **South** | ** ** | **Total** | ** ** |
| Agriculture                    |       | Ps.                            | 77         |   | Ps. | 129 |   | Ps. | 33 |   | Ps. | 20 |   | Ps. | 259 |   |
| Mining                         |       | 2                              |       | 3 |   | 1 |   | 7 |   | 13 |   |
| Manufacturing                  |       | 121                            |       | 175 |   | 73 |   | 46 |   | 415 |   |
| Construction                   |       | 89                             |       | 105 |   | 12 |   | 27 |   | 233 |   |
| Commerce                       |       | 363                            |       | 298 |   | 147 |   | 195 |   | 1,003 |   |
| Transportation                 |       | 41                             |       | 27 |   | 13 |   | 19 |   | 100 |   |
| Financial services             |       | 8                              |       | 15 |   | 1 |   | 6 |   | 30 |   |
| Communal, social services      |       | 74                             |       | 49 |   | 47 |   | 37 |   | 207 |   |
| Business groups                |       | 1                              |       | — |   | — |   | — |   | 1 |   |
| INB                            |       | —                         |       | — |   | — |   | — |   | 1,047 |   |
| Credit card                    |       | —                         |       | — |   | — |   | — |   | 1,610 |   |
| Consumer                       |       | —                         |       | — |   | — |   | — |   | 332 |   |
| Mortgage                       |       | —                         |       | — |   | — |   | — |   | 801 |   |
| Arrendadora y Factor   Banorte |       | —                         |       | — |   | — |   | — |   | 103 |   |
| **Past-due   loan portfolio**  | ** ** | **Ps.**                        | **776**    | ** ** | **Ps.** | **801** | ** ** | **Ps.** | **327** | ** ** | **Ps.** | **357** | ** ** | **Ps.** | **6,154** | ** ** |

 

e. Deposit accounts grouped by product and geographical location are as follows:

 
| ** **                                    | ** ** | **2010**                       | ** ** |
|-----------------------------------------------|------------|--------------------------------|------------|
| ** **                                    | ** ** | **Geographical location** | ** ** |
| **Product**                                   | ** ** | **Monterrey**                  | ** ** | **Mexico City** | ** ** | **West** | ** ** | **Northwest** | ** ** | **Southeast** | ** ** | **Treasury   and other** | ** ** | **Foreign** | ** ** | **Total** | ** ** |
| Non-interest bearing   checking accounts      |       | Ps.                            | 14,964     |   | Ps. | 22,000 |   | Ps. | 6,992 |   | Ps. | 8,876 |   | Ps. | 7,873 |   | Ps. | 89 |   | Ps. | — |   | Ps. | 60,794 |   |
| Interest-bearing checking   accounts          |       | 7,532                          |       | 26,293 |   | 4,093 |   | 6,041 |   | 7,580 |   | 166 |   | — |   | 51,705 |   |
| Savings accounts                              |       | 1                              |       | 1 |   | — |   | — |   | — |   | — |   | — |   | 2 |   |
| Current account in pesos   and preestablished |       | 4,042                          |       | 5,983 |   | 1,612 |   | 3,024 |   | 2,840 |   | 138 |   | — |   | 17,639 |   |
| Non-interest bearing   demand deposits, USD   |       | 1,611                          |       | 818 |   | 212 |   | 1,177 |   | 266 |   | -0 |   | 4,435 |   | 8,519 |   |
| Interest bearing demand   deposits, USD       |       | 2,258                          |       | 1,398 |   | 465 |   | 2,038 |   | 218 |   | -0 |   | 4,520 |   | 10,897 |   |
| Savings accounts in USD                       |       | —                         |       | — |   | — |   | — |   | — |   | — |   | 258 |   | 258 |   |
| Over the counter   promissory notes           |       | 12,623                         |       | 26,581 |   | 6,843 |   | 7,551 |   | 9,881 |   | 1,754 |   | — |   | 65,233 |   |
| Time deposits, USD                            |       | 3,307                          |       | 3,737 |   | 1,525 |   | 2,307 |   | 688 |   | 16 |   | 13,747 |   | 25,327 |   |
| Money desk customers                          |       | 17,416                         |       | 15,940 |   | 5,076 |   | 3,745 |   | 4,001 |   | 150 |   | — |   | 46,328 |   |
| Financial intermediaries                      |       | —                         |       | — |   | — |   | — |   | — |   | 2,208 |   | 3,705 |   | 5,913 |   |
| **Total   deposits**                          | ** ** | **Ps.**                        | **63,754** | ** ** | **Ps.** | **102,751** | ** ** | **Ps.** | **26,818** | ** ** | **Ps.** | **34,759** | ** ** | **Ps.** | **33,347** | ** ** | **Ps.** | **4,521** | ** ** | **Ps.** | **26,665** | ** ** | **Ps.** | **292,615** | ** ** |

 

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| ** **                                    | ** ** | **2009**                       | ** ** |
|-----------------------------------------------|------------|--------------------------------|------------|
| ** **                                    | ** ** | **Geographical location** | ** ** |
| **Product**                                   | ** ** | **Monterrey**                  | ** ** | **Mexico City** | ** ** | **West** | ** ** | **Northwest** | ** ** | **Southeast** | ** ** | **Treasury   and other** | ** ** | **Foreign** | ** ** | **Total** | ** ** |
| Non-interest bearing checking   accounts      |       | Ps.                            | 13,209     |   | Ps. | 19,770 |   | Ps. | 5,845 |   | Ps. | 7,773 |   | Ps. | 7,963 |   | Ps. | 70 |   | Ps. | — |   | Ps. | 54,630 |   |
| Interest-bearing checking   accounts          |       | 6,417                          |       | 23,033 |   | 4,041 |   | 6,192 |   | 8,039 |   | 162 |   | — |   | 47,884 |   |
| Savings accounts                              |       | 1                              |       | 1 |   | — |   | — |   | — |   | — |   | — |   | 2 |   |
| Current account in pesos   and preestablished |       | 3,449                          |       | 5,232 |   | 1,492 |   | 2,733 |   | 2,556 |   | 122 |   | — |   | 15,584 |   |
| Non-interest bearing   demand deposits, USD   |       | 834                            |       | 848 |   | 199 |   | 1,085 |   | 221 |   | — |   | 3,694 |   | 6,881 |   |
| Interest bearing demand   deposits, USD       |       | 2,454                          |       | 1,570 |   | 577 |   | 2,463 |   | 238 |   | — |   | 5,012 |   | 12,314 |   |
| Savings accounts in USD                       |       | —                         |       | — |   | — |   | — |   | — |   | — |   | 265 |   | 265 |   |
| Over the counter   promissory notes           |       | 11,362                         |       | 25,040 |   | 6,358 |   | 7,245 |   | 9,009 |   | 1,474 |   | — |   | 60,488 |   |
| Time deposits, USD                            |       | 3,328                          |       | 4,095 |   | 1,775 |   | 2,255 |   | 897 |   | 17 |   | 13,427 |   | 25,794 |   |
| Money desk customers                          |       | 19,366                         |       | 14,858 |   | 6,953 |   | 4,588 |   | 2,877 |   | 127 |   | — |   | 48,769 |   |
| Financial intermediaries                      |       | —                         |       | — |   | — |   | — |   | — |   | 2,277 |   | — |   | 2,277 |   |
| FOBAPROA checking accounts   bearing interest |       | 20                             |       | — |   | — |   | — |   | — |   | — |   | — |   | 20 |   |
| **Total   deposits**                          | ** ** | **Ps.**                        | **60,440** | ** ** | **Ps.** | **94,447** | ** ** | **Ps.** | **27,240** | ** ** | **Ps.** | **34,334** | ** ** | **Ps.** | **31,800** | ** ** | **Ps.** | **4,249** | ** ** | **Ps.** | **22,398** | ** ** | **Ps.** | **274,908** | ** ** |

 

**26 - TAX ENVIRONMENT**

 

In 2010 and 2009 the Financial Group was subject to ISR and IETU.

 

**Income tax**

 

Income tax (ISR) is calculated considering as taxable or deductible certain inflation effects; as of until December 31, 2010 and 2009, the ISR rate was 30% and 28%, respectively. On December 7, 2009, the decree was published reforming, adding and repealing various provisions of the Income Tax Law that went into effect on January 1, 2010. Temporary provisions were established through which the income tax rate from 2011 to 2012 will be 30%; 29% for 2013 and 28% for 2014.

 

**Book to tax reconciliation**

 

The principal items affecting the determination of the current tax expense of the Financial Group were the annual adjustment for inflation, the nondeductible amount of the allowance for loan losses that was over 2.5% of the average loan portfolio and the valuation of financial instruments.

 

**PTU**

 

The Financial Group determine employee statutory profit sharing based on the criteria established in the guidelines set forth by the Mexican Constitution.

 

**Business Flat Tax**

 

Revenues, as well as deductions and certain tax credits, are determined based on cash flows generated for each period. The rate is 17.5% and 17.0% for 2010 and 2009, respectively. The Asset Tax Law was repealed upon enactment of LIETU; however, under certain circumstances, asset taxes paid in the ten years prior to the year in which ISR is paid, may be refunded, according to the terms of the law.  As of December 31, 2010, the Financial Group has no recoverable asset taxes.

 

Based on financial projections, pursuant to the provisions in INIF-8, the Financial Group found that it will essentially pay ISR, therefore acknowledging only the deferred ISR.

 

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**27 - STOCKHOLDERS’ EQUITY**

 

At the Stockholders’ Ordinary General Meeting held on April 23, 2010, the resolution was adopted to transfer the profits of 2009 equal to Ps. 5,854 to the account “earnings from prior years”.

 

At the Stockholders’ Ordinary General Meetings held on February 15, 2010, April 23, 2010 and October 4, 2010, the resolution was adopted to declare cash dividends of Ps. 343 on each of said dates.

 

The Financial Group’s shareholders’ common stock as of December 31, 2010, 2009 and 2008 is comprised as follows:

 
| ** **           | ** ** | **Number of shares with a nominal value of Ps. 3.50** | ** ** |
|----------------------|------------|----------------------------------------------------------------------------------------------------|------------|
| ** **           | ** ** | **2010**                                                                                           | ** ** | **2009** | ** ** | **2008** | ** ** |
| “O” Series |       | 2,018,347,548                                                                                      |       | 2,017,847,548 |   | 2,013,997,548 |   |

 
| ** **                                                | ** ** | **Historical Amounts** | ** ** |
|-----------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                                | ** ** | **2010**                    | ** ** | **2009** | ** ** | **2008** | ** ** |
| “O” Series                                      |       | Ps.                         | 7,016      |   | Ps. | 7,000 |   | Ps. | 6,986 |   |
| Restatement in Mexican   pesos through December 2007 |       | 4,955                       |       | 4,956 |   | 4,955 |   |
|                                                      |       | Ps.                         | 11,971     |   | Ps. | 11,956 |   | Ps. | 11,941 |   |

 

**Restrictions on profits**

 

Stockholders’ equity distribution, except restated paid-in capital and tax retained earnings, will be subject to a tax payable by the Financial Group at the rate in effect when the dividend is distributed. Any tax paid on such distribution may be credited against the income tax payable of the year in which the tax on the dividend is paid and the two fiscal years following such payment against the year’s tax and its partial payments.

 

The Financial Group’s net profit is subject to the requirement that at least 5% of net income of each year be transferred to the legal reserve until the reserve equals 20% of capital stock at par value. The legal reserve may not be distributed to the stockholders during the life of the Financial Group, except in the form of a stock dividend. As of December 31, 2010 and 2009, the legal reserve is Ps. 3,181 and Ps. 2,444, respectively, and represents 27% and 20% of paid-in capital, respectively.

 

**Capitalization ratio (pertaining to Banorte, the Financial Group’s main subsidiary)**

 

The capitalization rules for financial institutions establish requirements for specific levels of net capital, as a percentage of assets subject to both market and credit risk.

 

The information as of December 31, 2010 sent to Banco de México to review is shown below.

 

·                  The capitalization ratio of Banorte as of December 31, 2010 was 16.12% of total risk (market, credit and operational), and 23.68% of credit risk, which in both cases exceed the current regulatory requirements.

 

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·                  The amount of net capital, divided by basic and complementary capital, is detailed below (these figures may differ from those in the basic financial statements):

 

**Net capital as of December 31, 2010**

 
| **Stockholders’   equity**                                | ** ** | **Ps.**    | **44,306** | ** ** |
|----------------------------------------------------------------|------------|------------|------------|------------|
| **Subordinated   debentures and capitalization instruments**   | ** ** | **5,135**  | ** ** |
|                                                           |       |       |       |
| Deduction of investment in   securitized instruments           |       | (446       | )          |
| Deduction of investments   in shares of financial entities     |       | (6,124     | )          |
| Deduction of investments   in shares of non-financial entities |       | (3,238     | )          |
| Deduction of intangibles   and deferred expenses or costs      |       | (264       | )          |
| **Basic   capital**                                            | ** ** | **39,369** | ** ** |
| Debentures and   capitalization instruments                    |       | 12,413     |       |
| Allowance for loan losses                                      |       | 1,285      |       |
| Deduction of investment in   securitized instruments           |       | (446       | )          |
| **Complementary   capital**                                    | ** ** | **13,252** | ** ** |
| **Net   capital**                                              | ** ** | **Ps.**    | **52,621** | ** ** |

 

Characteristics of the subordinated debentures:

 
| **Concept**                               | ** ** | **Issuance   amount** | ** ** | **Maturity** | ** ** | **Basic capital   proportion** | ** ** | **Complementary   capital   proportion** | ** ** |
|-------------------------------------------|------------|-----------------------|------------|--------------|------------|-------------------------------------|------------|------------------------------------------|------------|
| Complementary capital   debentures 2006   |       | Ps.                   | 5,006      |         | 13/10/2016 |                                | 0          | %                                        | 100        | % |
| Basic capital debentures   2006           |       | Ps.                   | 2,507      |         | 13/10/2021 |                                | 100        | %                                        | 0          | % |
| Basic capital debentures   2008           |       | Ps.                   | 3,008      |         | 27/02/2018 |                                | 87         | %                                        | 13         | % |
| Complementary capital   debentures 2008   |       | Ps.                   | 2,056      |         | 15/02/2028 |                                | 0          | %                                        | 100        | % |
| Complementary capital   debentures 2008-2 |       | Ps.                   | 2,760      |         | 15/06/2018 |                                | 0          | %                                        | 100        | % |
| Complementary capital   debentures 2009   |       | Ps.                   | 2,211      |         | 18/03/2019 |                                | 0          | %                                        | 100        | % |

 

Assets subject to risk are detailed below:

 

**Assets subject to market risk**

 
| **Concept**                                                                                  | ** ** | **Positions   weighted by   risk** | ** ** | **Capital   requirement** | ** ** |
|----------------------------------------------------------------------------------------------|------------|-----------------------------------------|------------|---------------------------|------------|
| Transactions in Mexican   pesos with nominal interest rate                                   |       | Ps.                                     | 47,037     |                      | Ps.        | 3,763 |   |
| Transactions with debt   instruments in Mexican pesos with variable interest rates           |       | 10,374                                  |       | 830                       |       |
| Transactions in Mexican   pesos with real interest rates or denominated in UDIS              |       | 1,802                                   |       | 144                       |       |
| Transactions in UDIS or   with yields referenced to the National Consumer Price Index (INPC) |       | 2                                       |       | —                    |       |
| Transactions in Mexican   pesos with nominal interest rates                                  |       | 4,700                                   |       | 376                       |       |
| Exchange transactions                                                                        |       | 1,604                                   |       | 129                       |       |
| **Total**                                                                                    | ** ** | **Ps.**                                 | **65,519** | ** **                | **Ps.**    | **5,242** | ** ** |

 

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**Assets subject to credit risk**

 
| **Concept**                                                                                    | ** ** | **Assets   weighted by   risk** | ** **  | **Capital   requirement** | ** ** |
|------------------------------------------------------------------------------------------------|------------|--------------------------------------|-------------|---------------------------|------------|
| Group III (weighted at   10%)                                                                  |       | Ps.                                  | 13          |                      | Ps.        | 1 |   |
| Group III (weighted at   11.5%)                                                                |       | 1                                    |        | —                    |       |
| Group III (weighted at   20%)                                                                  |       | 11,451                               |        | 916                       |       |
| Group III (weighted at   23%)                                                                  |       | 483                                  |        | 39                        |       |
| Group III (weighted at   50%)                                                                  |       | 2,226                                |        | 178                       |       |
| Group III (weighted at   57.5%)                                                                |       | 608                                  |        | 48                        |       |
| Group III (weighted at   100%)                                                                 |       | 150                                  |        | 12                        |       |
| Group IV (weighted at 20%)                                                                     |       | 2,851                                |        | 228                       |       |
| Group V (weighted at 20%)                                                                      |       | 7,282                                |        | 583                       |       |
| Group V (weighted at 50%)                                                                      |       | 3,723                                |        | 298                       |       |
| Group V (weighted at 150%)                                                                     |       | 4,899                                |        | 392                       |       |
| Group VI (weighted at 50%)                                                                     |       | 6,445                                |        | 515                       |       |
| Group VI (weighted at 75%)                                                                     |       | 5,608                                |        | 449                       |       |
| Group VI (weighted at   100%)                                                                  |       | 59,100                               |        | 4,728                     |       |
| Group VII (weighted at   20%)                                                                  |       | 845                                  |        | 68                        |       |
| Group VII (weighted at   50%)                                                                  |       | 99                                   |        | 8                         |       |
| Group VII (weighted at   100%)                                                                 |       | 72,788                               |        | 5,823                     |       |
| Group VII (weighted at   115%)                                                                 |       | 7,556                                |        | 604                       |       |
| Group VII (weighted at   150%)                                                                 |       | 635                                  |        | 51                        |       |
| Group VIII (weighted at   125%)                                                                |       | 1,948                                |        | 156                       |       |
| Group IX (weighted at   100%)                                                                  |       | 19,387                               |        | 1,551                     |       |
| **Sum**                                                                                        | ** ** | **208,098**                          | ** **  | **16,648**                | ** ** |
| For permanent shares,   furniture and real property, and advance payments and deferred charges |       | 14,086                               |        | 1,127                     |       |
| **Total**                                                                                      | ** ** | **Ps.**                              | **222,184** | ** **                | **Ps.**    | **17,775** | ** ** |

 

Assets subject to credit risk:

 
| **Concept** | ** ** | **Assets   weighted by   risk** | ** ** | **Capital   requirement** | ** ** |
|-------------|------------|--------------------------------------|------------|---------------------------|------------|
| **Total**   | ** ** | **Ps.**                              | **38,816** | ** **                | **Ps.**    | **3,105** | ** ** |
|             |            |                                      |            |                           |            |  |  |

 

**28 - FOREIGN CURRENCY POSITION**

 

As of December 31, 2010 and 2009, the Financial Group holds certain assets and liabilities in foreign currency, mainly US dollars, converted to the exchange rate issued by Banco de México at Ps. 12.3496 and Ps. 13.0659 per USD 1.00, respectively, as shown below:

 
| ** **                              | ** ** | **Thousands of US dollars** | ** ** |
|-----------------------------------------|------------|--------------------------------------------|------------|
| ** **                              | ** ** | **2010**                                   | ** ** | **2009** | ** ** |
| Assets                                  |       | 5,543,911                                  |       | 5,497,623 |   |
| Liabilities                             |       | 5,234,040                                  |       | 5,166,587 |   |
| **Net asset position in US dollars**    | ** ** | **309,871**                                | ** ** | **331,036** | ** ** |
| **Net asset position in Mexican pesos** | ** ** | **Ps.**                                    | **3,827**  | ** ** | **Ps.** | **4,325** | ** ** |
|                                         |            |                                            |            |  |  |  |  |

 

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**29 - POSITION IN UDIS**

 

As of December 31, 2010 and 2009, the Financial Group holds certain assets and liabilities denominated in UDIS, converted to Mexican pesos based on the current equivalency of Ps. 4.526308 and Ps. 4.340166, per UDI, respectively, as shown below:

 
| ** **                                    | ** ** | **Thousands of UDIS** | ** ** |
|-----------------------------------------------|------------|---------------------------------|------------|
| ** **                                    | ** ** | **2010**                        | ** ** | **2009** | ** ** |
| Assets                                        |       | 365,531                         |       | 207,824 |   |
| Liabilities                                   |       | 454,251                         |       | 544,676 |   |
| **Net   liability position in UDIS**          | ** ** | **(88,720**                     | **)**      | **(336,852** | **)** |
| **Net   liability position in Mexican pesos** | ** ** | **Ps.**                         | **(402**   | **)** | **Ps.** | **(1,462** | **)** |
|                                               |            |                                 |            |  |  |  |  |

 

**30 - EARNINGS PER SHARE**

 

Earnings per share is the result of dividing the net income by the weighted average of the Financial Group’s shares in circulation during the year.

 

Earnings per share for the years ended December 31, 2010, 2009 and 2008 are shown below:

 
| ** **           | ** ** | **2010**            | ** **    | **2009**                          | ** **    | **2008**                      | ** ** |
|----------------------|------------|---------------------|---------------|-----------------------------------|---------------|-------------------------------|------------|
| ** **           | ** ** | **Net Income** | ** **    | **Weighted share   average** | ** **    | **Earnings per   share** | ** ** | **Earnings per   share** | ** ** | **Earnings per   share** | ** ** |
| Net income per share |       | Ps.                 | 6,705,043,285 |                              | 2,018,257,560 |                          | Ps.        | 3.3222 |   | Ps. | 2.9021 |   | Ps. | 3.4775 |   |
|                      |            |                     |               |                                   |               |                               |            |  |  |  |  |  |  |  |  |

 

**31 - RISK MANAGEMENT (unaudited)**

 

**Authorized bodies**

 

To ensure adequate risk management of the Financial Group, as of 1997, the Financial Group’s Board of Directors created the Risk Policy Committee (CPR), whose purpose is to manage the risks to which the Financial Group is exposed, and ensure that the performance of operations adheres to the established risk management objectives, guidelines, policies and procedures.

 

Furthermore, the CPR provides oversight on the global risk exposure limits approved by the Board of Directors, and also approves the specific risk limits for exposure to different types of risk.

 

The CPR is composed of regular members of the Board of Directors, the CEO of the Financial Group, the Managing of Comprehensive Risk Management, the Managing Director of Long Term Savings, and the Managing Director of the Brokerage House, as well as the Managing Director of Internal Audits, who has the right to speak but not to vote.

 

To adequately carry out its duties, the CPR performs the following functions, among others:

 

1.              Propose for the approval of the Board of Directors:

 

·                  The objectives, guidelines and policies for comprehensive risk management

·                  The global limits for risk exposure

·                  The mechanisms for implementing corrective measures

·                  The special cases or circumstances in which the global and specific limits may be exceeded

 

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2.    Approve and review at least once a year:

 

·                  The specific limits for discretionary risks, as well as tolerance levels for nondiscretionary risks

·                  The methodology and procedures to identify, measure, oversee, limit, control, report and disclose the different kinds of risks to which the Financial Group is exposed

·                  The models, parameters and scenarios used to perform the valuation, measurement and control of risks proposed by the Comprehensive Risk Management Unit

 

3.              Approve:

 

·                  The methodologies for identification, valuation, measurement and control of risks of the new operations, products and services which the Financial Group intends to introduce into the market

·                  The corrective measures proposed by the Comprehensive Risk Management Unit

·                  The manuals for comprehensive risk management

 

4.              Appoint and remove the person responsible for the Comprehensive Risk Management Unit, who is ratified by the Board of Directors.

 

5.              Inform the Board, at least every quarter, of the exposure to risk and its possible negative effects, as well as follow up on limits and tolerance levels.

 

6.              Inform the Board of the corrective measures implemented.

 

**32 - COMPREHENSIVE RISK MANAGEMENT UNIT (UAIR) (unaudited, regarding Banorte, the Financial Group’s main subsidiary)**

 

The function of the UAIR is to identify, measure, oversee, limit, control, report and disclose the different kinds of risk to which the Financial Group is exposed, and which is the responsibility of the Office of Risk Management (DGAR).

 

The DGAR reports to the CPR in compliance with the requirements set forth in the Commission’s circular, the “General Risk Management Rules Applicable to Credit Financial Groups”, in relation to the independence of the different business areas.

 

The DGAR focuses Comprehensive Risk Management efforts through six different departments:

 

·                  Operating and Credit Risk Management;

·                  Market Risk Management;

·                  Credit Management;

·                  Risk Policy Management;

·                  Consumer Loan Quality; and

·                  Risk Management Tools.

 

The Financial Group currently has methodologies for managing risk in its different phases, such as credit, market, liquidity and operating risk.

 

The primary objectives of the DGAR are summarized as follows:

 

·                  Provide the different business areas with clear rules that facilitate their understanding so as to minimize risks and ensure that they are within the parameters established and approved by the Board of Directors and the Risk Policy Committee.

·                  Establish mechanisms that provide for follow-up on risk-taking within the Financial Group, ensuring that they are preventive as much as possible, and supported by advanced systems and processes.

·                  Standardize risk measurement and control.

·                  Protect the Financial Group’s capital against unexpected losses from market movements, credit losses and operating risks.

·                  Develop valuation methods for the different types of risks.

 

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·                  Establish procedures for portfolio optimization and loan portfolio management.

 

The Financial Group has segmented risk assessment and management into the following headings:

 

Credit Risk: Volatility of revenues due to the creation of provisions for impairment of credits and potential credit losses due to nonpayment by a borrower or counterpart.

 

Market Risk: Volatility of revenues due to changes in the market, which affect the valuation of the positions from operations involving assets, liabilities or generating contingent liabilities, such as: interest rates, exchange rates, price indexes, etc.

 

Liquidity Risk: Potential loss derived from the impossibility of renewing debts or contracting others under normal conditions for the Financial Group, due to the anticipated or forced sale of assets at unusual discounts to meet its obligations.

 

Operating Risk: Loss resulting from lack of adaptation or failure in processes, personnel, internal systems or external events. This definition includes Technological Risk and Legal Risk. Technological Risk groups includes all potential losses from damage, interruption, alteration or failures derived from the use of or dependence on hardware, software, systems, applications, networks and any other information distribution channel, while Legal Risk involves the potential loss from penalties for noncompliance with legal and administrative regulations or the issuance of adverse final court rulings in relation to the operations performed by the Financial Group.

 

**Credit risk**

 

Risk that the customers, issuers or counterparts will not comply with their payment obligations; therefore, adequate risk management is essential to maintain a high quality loan portfolio.

 

The Financial Group credit risk management objectives are as follows:

 

·                  Improve the quality, diversification and composition of the loan portfolio to optimize the risk-return ratio.

·                  Provide senior management with reliable and timely information to support decision-making in credit matters.

·                  Provide the business departments with clear and sufficient tools to support credit placement and follow up.

·                  Support the creation of economic value for shareholders by means of efficient credit risk management.

·                  Define and constantly update the regulatory framework for credit risk management.

·                  Comply with the credit risk management reporting requirements established by the relevant authorities.

·                  Perform risk management in accordance with best practices; implementing models, methodologies, procedures and systems based on the latest international advances.

 

**Individual credit risk**

 

The Financial Group segments the loan portfolio into two large groups: the consumer and corporate portfolios.

 

Individual credit risk for the consumer portfolio is identified, measured and controlled by means of a parametric system (scoring) which includes models for each of the consumer products: mortgage, automotive, payroll credit, personal and credit card.

 

Individual risk for the corporate portfolio is identified, measured and controlled by means of the Target Markets, the Risk Acceptance Criteria and the Banorte Internal Risk Rating (CIR Banorte).

 

The Target Markets and Risk Acceptance Criteria are tools which, together with the Internal Risk Rating CIR, form part of the credit strategy of the Financial Group and support the estimate of the credit risk level.

 

The Target Markets are activities selected by region and economic activity - supported by economic studies and portfolio behavior analyses - in which the Financial Group has interest to place loans.

 

The Risk Acceptance Criteria are parameters which describe the risks identified by industries, facilitating an estimate of the risk involved for the Financial Group in granting a credit to a customer depending on the economic activity which it performs. The types of risks evaluated in the Risk Acceptance Criteria are the financial risk, 

 

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operating risk, market risk, company lifecycle risk, legal and regulatory risk, credit history and quality of management.

 

Early Warnings are a set of criteria based on information and indicators of the borrowers and their environment that have been set forth for timely prevention and identification of likely impairment in the loan portfolio, in order to take credit risk mitigating preventive actions in a timely manner.

 

The CIR Banorte is in line with the “General Regulations Applicable to the Classification Methodology for the Loan Portfolio of Credit Institutions” issued by the Commission on December 2, 2005. The CIR Banorte has been certified by the Commission and by an international external auditor since 2001.

 

The CIR Banorte is applied to a commercial portfolio equal to or exceeding an amount equivalent in Mexican pesos to four million UDIS at the classification date.

 

**Portfolio credit risk**

 

The Financial Group has designed a portfolio credit risk methodology which, while also including the best and most current international practices with regard to identification, measurement, control and follow up, has been adapted to function within the context of the Mexican financial system.

 

The credit risk methodology identifies the exposure of all the loan portfolios of the Financial Group, overseeing risk concentration levels based on risk classifications, geographical regions, economic activities, currencies and type of product, for the purpose of ascertaining the portfolio profile and taking actions to diversify it and maximize profit with the lowest possible risk.

 

The calculation of loan exposure involves the generation of the cash flow from each of the loans, both in terms of principal and interest, for their subsequent discount. This exposure is sensitive to market changes, and facilitates the performance of calculations under different economic scenarios.

 

Apart from considering loan exposure, the methodology takes into account the probability of default, the recovery level associated with each customer and the sorting of the borrowers based on the Merton model. The probability of default is the probability that a borrower will not comply with its debt obligation to the Financial Group on the terms and conditions originally agreed. The probability of default is based on the transition matrixes which the Financial Group calculates as of the migration of the borrowers to different risk classification levels. The recovery level is the percentage of the total exposure that is expected to be recovered if the borrower defaults on its obligations. The sorting of the borrowers based on the Merton model is intended to tie the future behavior of the borrower to credit and market factors on which, using statistical techniques, the borrower’s “credit health” depends.

 

The primary results obtained are the expected loss and unexpected loss over a one-year time horizon. The expected loss is the median of the distribution of losses of the loan portfolio, which enables a measurement of the average loss expected in the following year due to noncompliance or variations in the credit status of the borrowers. The unexpected loss is an indicator of the loss expected under extreme circumstances, and is measured as the difference between the maximum loss based on the distribution of losses, at a specific confidence level, which in the case of the Financial Group is 95%, and the expected loss.

 

The results obtained are used as a tool for better decision-making in granting loans and portfolio diversification, in accordance with the global strategy of the Financial Group. The individual risk identification tools and the portfolio credit risk methodology are reviewed and updated periodically to incorporate new techniques that can support or strengthen them.

 

As of December 31, 2010, the total portfolio of the Financial Group is Ps. 249,495. The expected loss represents 2.2% and the unexpected loss represents 3.7% of the total operating portfolio. The average expected loss was 2.2% for the period between October and December 2010. As of December 31, 2009, the Financial Group’s total operating portfolio is Ps. 223,019. The expected loss represents 2.4% and the unexpected loss represents 3.9% of the total operating portfolio. The average expected loss was 2.5% for the period between October and December 2009.

 

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**Credit risk of financial instruments**

 

There are specific policies for the origination, analysis, authorization and management of financial instruments to identify, measure, keep track and control credit risk.

 

The origination policies define the type of financial instruments to operate and how to evaluate the credit quality of different types of issuers and counterparts. Credit quality is assigned by means of a rating obtained by an internal methodology, external rating evaluations or a combination of both. Additionally, there are maximum operating parameters depending on the type of issuer or counterpart, rating and operation type.

 

Analysis policies include the type of information and variables considered to analyze operations with financial instruments when they’re presented for their authorization by the corresponding committee, including information about the issuer or counterpart, financial instrument, operation destination and market information.

 

The Credit Committee is the body that authorizes operation lines with financial instruments according to the authorization policies. The authorization request is submitted by the business area and the areas involved in the operation with all the relevant information to be analyzed and, if applicable, authorized by the Committee.

 

The financial instrument operating lines management policy contemplates the procedures for registration, instrumentation, regulation compliance, revision, consumer monitoring, line management and responsibility of the areas and bodies involved in operating financial instruments.

 

Concentrating loan risk with financial instruments is managed continuously on an individual level, monitoring maximum operation parameters per counter-party or issuer depending on the rating and type of operation. For portfolios there are economic and internal group risk diversification policies in place. Additionally, concentration is monitored by type of counter-party or issuer, size of the financial institutions and where they operate in order to get the right diversification and avoid unwanted concentrations.

 

Credit risk is measured by means of the rating associated with the issuer, issue or counterpart, which has an assigned degree of risk measured based on two elements:

 

1) The probability of delinquency by the issuer, issue or counterpart; expressed as a percentage between 0% and 100%. The higher the rating, the lower the probability of delinquency and vice versa.

 

2) The gravity of the loss with respect to the operation’s total in the event of noncompliance, expressed as a percentage between 0% and 100%. The better the guarantees or credit structure, the lower the severity of the loss and vice versa.

 

In order to mitigate credit risk and reduce the gravity of the loss in case of noncompliance, the Financial Group and counter-parts entered into ISDA contracts settling agreements, which contemplate implementing credit lines and using collateral to mitigate losses due to noncompliance.

 

As of December 31, 2010, the investment in securities exposure to credit risk is Ps. 200,026, of which 99.2% has a rating greater than or equal to A-(mex) on the local scale. This places them in investment grade and the three main issuers other than the Federal Government, Semi-Private agencies and Domestic Financial Institutions represent 20% of the basic capital as of September 2010. Additionally, the investment exposure with the same issuer other than the Federal Government that represents a concentration greater than or equal to 5% of the net capital as of September 2010 has a rating of at least AA+(mex) and is made up of (term and weighted average interest rate): 6-month Bancomer stock certificates for Ps. 11,580 at 5.0%; 4-month Inbursa stock certificates and bonds for Ps. 9,772 at 4.8%; 5-year 8-month certificates of deposit of Pemex for Ps. 7,347 at 4.7%; and 26-year 5-month State and Municipal Governments securitized loan certificates for Ps. 4,085 at 4.9%.

 

For derivatives, the exposure is (Ps. 3,045), of which 99.9% is rated at least A-(mex) on the local scale, which places them at an investment grade and the three main counterparts other than the Federal Government, Semi-Private agencies and Domestic Financial Institutions represent 3% of the basic capital as of September 2010.

 

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As of December 31, 2009, the investment in securities exposure to credit risk is Ps. 213,274, of which 99.4% has a rating greater than or equal to A-(mex) on the local scale. This places them in investment grade and the three main issuers other than the Federal Government, Semi-Private agencies and Domestic Financial Institutions represent 23% of the basic capital as of September 2009. Additionally, the investment exposure with the same issuer other than the Federal Government that represents a concentration greater than or equal to 5% of the net capital as of September 2009 has a rating of at least AA+(mex) as is made up of (term and weighted average interest rate): 3-month Bancomer stock certificates for Ps. 14,001 at 4.8%; 5-month Pemex stock certificates and bonds for Ps. 8,445 at 6.2%; 3-month certificates of deposit of the Federal Mortgage Association for Ps. 5,012 at 4.8%; 27-year State and Municipal Governments securitized loan certificates for Ps. 4,321 at 5.3%; 4-month Banobras stock certificates and bonds for Ps. 4,043 at 4.8%; and 11-day Banco Inbursa promissory notes for Ps. 3,004 at 4.6%.

 

For derivatives, the exposure is (Ps. 2,669), of which 99.9% is rated at least A-(mex) on the local scale, which places them at an investment grade and the three main counterparts other than the Federal Government, Semi-Private agencies and Domestic Financial Institutions represent 5% of the basic capital as of September 2009.

 

**Risk Diversification**

 

In December 2005, the CNBV issued the “General Rules for Risk Diversification in Performing Asset and Liability Transactions Applicable to Credit Institutions”.

 

These regulations require that the Financial Group perform an analysis of the borrowers and/or loans they hold to determine the amount of their “Common Risk”. Also, the Financial Group must have the necessary documentation to support that a person or group of persons represents a common risk in accordance with the assumptions established under such rules.

 

In compliance with the risk diversification rules for asset and liability transactions, the following information is provided below:

 
| **Basic   capital as of September 30, 2010**                                             | ** ** | **Ps. 37,233** | ** ** |
|-----------------------------------------------------------------------------------------------|------------|----------------|------------|
|                                                                                          |       |           |       |
| **I.   Financing whose individual amount represents more than 10% of basic capital:**         | ** ** | ** **     | ** ** |
|                                                                                          |       |           |       |
| Credit transactions                                                                           |       |           |       |
| Number of financings                                                                          |       | 1              |       |
| Amount of financings taken   as a whole                                                       |       | 4,437          |       |
| % in relation to basic   capital                                                              |       | 12             | %          |
|                                                                                          |       |           |       |
| Money market transactions                                                                     |       |           |       |
| Number of financings                                                                          |       | 2              |       |
| Amount of financings taken   as a whole                                                       |       | 8,753          |       |
| % in relation to basic   capital                                                              |       | 24             | %          |
|                                                                                          |       |           |       |
| Overnight transactions                                                                        |       |           |       |
| Number of financings                                                                          |       | 1              |       |
| Amount of financings taken   as a whole                                                       |       | 5,455          |       |
| % in relation to basic   capital                                                              |       | 15             | %          |
|                                                                                          |       |           |       |
| **II.   Maximum amount of financing with the three largest debtors and common risk   groups** | ** ** | **Ps. 18,527** | ** ** |

 

**Market risk**

 

Value at risk

 

The exposure to market risk is determined through the calculation of the Value at Risk (“VaR”). The meaning of the VaR under this method is the potential day loss which could be generated in the valuation of the portfolios at a given date. This methodology is used both for the calculation of market risk and for the establishment and control of internal limits.

 

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The Financial Group applies the nonparametric historical simulation method to calculate the VaR, considering for such purpose a 99% confidence level, using the 500 immediate historical scenarios, multiplying the result by a security factor that fluctuates between 3 and 4 depending on the annual Back Testing results calculated on the previous quarter, considering 10 days to dispose of the risk portfolio in question. These measures ensure that unforeseen volatiles are considered in the main risk factors that affect such portfolios.

 

Such methodology is applied to all financial instrument portfolios within and beyond the scope of the Financial Group, including money market and treasury transactions, capital, foreign-exchange and derivatives held for trading and hedging purposes, which are exposed to variations in their value due to changes in the risk factors affecting their market valuation (domestic and foreign interest rates, exchange rates and indexes, among others).

 

The average VaR for the portfolio of financial instruments was Ps. 1,600 for the last quarter 2010.

 
| ** **                | ** ** | **4Q09** | ** **  | **1Q10** | ** ** | **2Q10**    | ** ** | **3Q10** | ** ** | **4Q10** | ** ** |
|---------------------------|------------|----------|-------------|----------|------------|-------------|------------|----------|------------|----------|------------|
| VaR Banorte*              |       | Ps.      |  2,584 |     | Ps.        |  3,442 |       | Ps.      | 2,677      |     | Ps.        | 2,246 |   | Ps. | 1,600 |   |
| Banorte net capital***    |       | 49,679   |        | 49,878   |       | 50,184      |       | 51,187   |       | 52,620   |       |
| VaR / net capital Banorte |       | 5.20     | %           | 6.90     | %          | 5.33        | %          | 4.39     | %          | 3.04     | %          |
|                           |            |          |             |          |            |             |            |          |            |          |            |  |  |  |  |  |

 

----

* Quarterly Average

*** Sum of net capital at the close of the quarter

 

Also, the average of the VaR per risk factor for the Financial Group’s portfolio of securities behaved as follows during the fourth quarter of 2010:

 
| **Risk factor**   | ** ** | **VaR** | ** **  |
|------------------------|------------|---------|-------------|
| Domestic interest rate |       | Ps.     |  1,582 |   |
| Foreign interest rate  |       | 300     |        |
| Exchange rate          |       | 141     |        |
| Total VaR              |       | Ps.     |  1,600 |   |

 

The VaR for each of the risk factors presented is determined by simulating 500 historical scenarios of the variables comprising each of such factors, maintaining constant the variables that affect the other risk factors shown. By the same token, the consolidated VaR for the Financial Group considers the correlations of all the risk factors influencing the valuation of the portfolios, for which reason the arithmetical sum of the VaR Factor does not match.

 

**Operations with derivative products**

 

The one-day individual VaR that the Financial Group has for each type of trading and hedging derivatives for the fourth quarter of 2010 is:

 
| **Trading derivatives**             | ** ** | **4Q09** | ** ** | **4Q10**   | ** ** |
|------------------------------------------|------------|----------|------------|------------|------------|
| **Futures**                              |       |     |       |       |       |
| MEXDER rate futures                      |       | Ps.      | —     |       | Ps.        | 13 |   |
| **Exchange   rate derivatives**          |       |     |       |       |       |
| Forwards                                 |       | 15       |       | —     |       |
| Options                                  |       | —   |       | 1          |       |
| **Interest   rate options**              |       |     |       |       |       |
| TIIE                                     |       | 4        |       | 3          |       |
| Libor                                    |       | —   |       | 1          |       |
| **Swap   options**                       |       |     |       |       |       |
| Libor                                    |       | —   |       | 2          |       |
| TIIE                                     |       | 2        |       | 5          |       |
| **Rate   swaps (IRS) and exchange rate** |       |     |       |       |       |
| TIIE swaps                               |       | 12       |       | 11         |       |
| LIBOR swaps                              |       | 2        |       | 2          |       |
| Cross currency exchange   rate swaps     |       | 207      |       | 12         |       |
| **Total   trading derivatives**          | ** ** | **Ps.**  | **242**    | ** ** | **Ps.**    | **50** | ** ** |

 

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| **Hedging derivatives**                                        | ** ** | **4Q09** | ** ** | **4Q10**   | ** ** |
|---------------------------------------------------------------------|------------|----------|------------|------------|------------|
| **Swaps**                                                           |       |     |       |       |       |
| Cross currency exchange   rate swaps for portfolio hedging in USD   |       | Ps.      | 8          |       | Ps.        | 2 |   |
| Cross currency exchange   rate swaps for hedging obligations in USD |       | 145      |       | 86         |       |
| Cross currency exchange   rate swaps for hedging bonds in USD       |       | 304      |       | 220        |       |
| TIIE swaps for hedging   obligations in Mexican pesos               |       | 63       |       | 30         |       |
| TIIE swaps for hedging   promissory note in Mexican pesos           |       | 265      |       | 181        |       |
| Rate operations for   hedging portfolio at a fixed rate             |       | 59       |       | 14         |       |
| **Total   hedging derivatives**                                     | ** ** | **Ps.**  | **844**    | ** ** | **Ps.**    | **533** | ** ** |

 

To calculate the VaR for each of the derivatives listed, the non-parametric historic simulation method is applied to a 99% level of confidence and a one-day horizon. For instance, the Value at Risk for TIIE Swaps is Ps. 11. This means that under normal condition, 99 days out of every 100 the maximum potential loss is Ps. 11 in one day.

 

The trading and hedging derivatives totals are the arithmetic sum of the VaR of each without considering any correlation among them.

 

**Investments in securities**

 

The one-day individual VaR that the Financial Group has for each type of securities for the fourth quarter of 2010 was:

 
| **Trading Securities**      | ** ** | **4Q09** | ** ** | **4Q10**   | ** ** |
|----------------------------------|------------|----------|------------|------------|------------|
| Variable rate government   bonds |       | Ps.      | 7          |       | Ps.        |  11 |   |
| Fixed rate government   bonds    |       | 2        |       | 2          |       |
| Bank bonds                       |       | 3        |       | —     |       |
| Securitization   certificates    |       | 37       |       | 20         |       |
| CEDES                            |       | —   |       | 2          |       |
| Capital                          |       | 13       |       | —     |       |
| US treasury bonds                |       | 3        |       | 1          |       |
| PEMEX eurobonds                  |       | 28       |       | 29         |       |
| UMS                              |       | 12       |       | 6          |       |
| Bank eurobonds                   |       | 107      |       | 37         |       |
| Private company eurobonds        |       | 11       |       | 8          |       |
| **Total**                        | ** ** | **Ps.**  | **223**    | ** ** | **Ps.**    | **116** | ** ** |

 
| **Securities at maturity** | ** ** | **4Q09** | ** ** | **4Q10**   | ** ** |
|--------------------------------------|------------|----------|------------|------------|------------|
| Variable rate government   bonds     |       | Ps.      | 92         |       | Ps.        | 52 |   |
| Fixed rate government   bonds        |       |     | 4          |       |       | 1 |   |
| Securitization   certificates        |       |     | 42         |       |       | 41 |   |
| CEDES                                |       |     | 4          |       |       | — |   |
| Bank bonds                           |       |     | —     |       |       | 1 |   |
| PEMEX eurobonds                      |       |     | 157        |       |       | 90 |   |
| UMS                                  |       |     | 89         |       |       | 64 |   |
| Zero coupon bank bonds               |       |     | 11         |       |       | 8 |   |
| Private company eurobonds            |       |     | 4          |       |       | — |   |
| **Total**                            | ** ** | **Ps.**  | **403**    | ** ** | **Ps.**    | **257** | ** ** |

 

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To calculate the VaR for each of the types of securities listed, the non-parametric historic simulation method is applied to a 99% level of confidence and a one-day horizon. For instance, the Value at Risk for trading UMS is Ps. 64. This means that under normal condition, 99 days out of every 100 the maximum potential loss is Ps. 64 in one day.

 

The trading and hedging derivatives totals are the arithmetic sum of the VaR of each without considering any correlation among them.

 

**Backtesting analysis**

 

To validate the effectiveness of the measurements of the calculation of the daily VaR as a measurement of market risk, the Backtesting analysis is updated each week. This analysis makes it possible to compare the estimated results through the VaR with the actual results generated.

 

The Backtesting results for the Financial Group during 2010 are as follows:

 

 

During 2010 there was only one excess event on November 25th.

 

**Sensitivity analysis and tests under extreme conditions**

 

To improve analysis and obtain the impact of any movements in risk factors, sensitivity analyses and tests under extreme conditions are performed periodically. These analyses foresee potential situations in which the Financial Group might suffer extraordinary losses from the valuation of the financial instruments in which it holds positions.

 

**Sensitivity for derivatives transactions**

 

Sensitivity analysis on derivative transactions is carried out as follows:

 

·                  Estimate gain or loss of the securities valuation in the event of:

 

·                      A parallel change of +100 basis points of domestic interest rates

·                      A parallel change of +100 basis points of foreign interest rates

·                      A 5% devaluation in the MXP/USD and MXP/EUR exchange rate.

 

The results may be gains or losses depending on the nature of the derivative.

 

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| **Trading derivatives**                      | ** ** | **+100 bp   domestic rates** | ** ** | **+100 bp********foreign rates** | ** ** | **+5% Exchange   rate** | ** ** |
|---------------------------------------------------|------------|----------------------------------------|------------|--------------------------------------------|------------|------------------------------|------------|
| **Futures**                                       |       |                                   |       |                                       |       |                         |       |
| MEXDER rate futures                               |       | Ps.                                    | (118       | )                                          | Ps.        | —                       |       | Ps. | — |   |
| **Exchange   rate derivatives**                   |       |                                   |       |                                       |       |                         |       |
| Options                                           |       | —                                 |       | —                                     |       | (2                           | )          |
| Forwards                                          |       | —                                 |       | —                                     |       | (1                           | )          |
| **Interest   rate options**                       |       |                                   |       |                                       |       |                         |       |
| TIIE                                              |       | (10                                    | )          | —                                     |       | —                       |       |
| Libor                                             |       | —                                 |       | 12                                         |       | —                       |       |
| **Swap   options**                                |       |                                   |       |                                       |       |                         |       |
| Libor                                             |       |                                   |       | (38                                        | )          | (1                           | )          |
| TIIE                                              |       | (33                                    | )          | —                                     |       | —                       |       |
| **Interest   rate swaps (IRS) and exchange rate** |       |                                   |       |                                       |       |                         |       |
| TIIE Swaps                                        |       | (2                                     | )          | —                                     |       | —                       |       |
| LIBOR Swaps                                       |       | —                                 |       | 28                                         |       | (1                           | )          |
| Cross currency exchange   rate Swaps              |       | (47                                    | )          | —                                     |       | —                       |       |
| **Total   trading derivatives**                   | ** ** | **Ps.**                                | **(210**   | **)**                                      | **Ps.**    | **2**                        | ** ** | **Ps.** | **(5** | **)** |

 
| **Hedging derivatives**                               | ** ** | **+100 bp   domestic rates** | ** ** | **+100 BP********foreign rates** | ** ** | **+5% Exchange   rate** | ** ** |
|------------------------------------------------------------|------------|----------------------------------------|------------|--------------------------------------------|------------|------------------------------|------------|
| **Rate   swaps and exchange rate**                         |       |                                   |       |                                       |       |                         |       |
| Cross exchange rate Swaps   for hedging obligations in USD |       | Ps.                                    | 25         |                                       | Ps.        | (30                          | )          | Ps. | 196 |   |
| Cross exchange rate Swaps   for hedging bonds in USD       |       | (239                                   | )          | 400                                        |       | (466                         | )          |
| TIIE Swaps for hedging   obligations in Mexican pesos      |       | 168                                    |       | —                                     |       | —                       |       |
| TIIE Swaps for hedging   promissory note in Mexican pesos  |       | 617                                    |       | —                                     |       | —                       |       |
| TIIE caps for fixed rate   loan hedging                    |       | 28                                     |       | —                                     |       | —                       |       |
| **Total   hedging derivatives**                            | ** ** | **Ps.**                                | **599**    | ** **                                 | **Ps.**    | **370**                      | ** ** | **Ps.** | **(270** | **)** |

 

In the event of any of above scenarios, the losses or gains of the trading securities will directly impact the Financial Group’s statements of income and capital hedging derivatives.

 

Based on the above analysis, it can be concluded that the trading derivatives portfolio is exposed mainly to increases in domestic interest rates and exchange rate devaluations. However, the hedging derivatives portfolio is exposed to foreign interest rate increases without considering the gain of the hedged liability.

 

**Sensitivity for operations with securities**

 

Sensitivity analysis on derivative transactions is carried out as follows:

 

·                  Estimate gain or loss of the securities valuation in the event of:

 

·                      A parallel change of +100 basis points of domestic interest rates

·                      A parallel change of +100 basis points of foreign interest rates

·                      A 5% devaluation in the MXP/USD and MXP/EUR exchange rate.

·                      A change of +5 basis points in government bonds surcharges

·                      A change of +50 basis points in sovereign risk

·                      A change of +10% in the IPC (Consumer Price Index)

 

The results may be gains or losses depending on the nature of the instrument.

 

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| **Trading Securities**      | ** ** | **+100 bp   domestic   rates** | ** ** | **+100 bp   foreign   rates** | ** ** | **+5%   exchange   rate** | ** ** | **+5 bp   rate   spreads** | ** ** | **+50 bp   sovereign   risk** | ** ** |
|----------------------------------|------------|-------------------------------------|------------|------------------------------------|------------|---------------------------|------------|---------------------------------|------------|------------------------------------|------------|
| Variable rate government   bonds |       | Ps.                                 | (52        | )                                  | Ps.        | —                    |       | Ps.                             | —     |                               | Ps.        | (39 | ) | Ps. | — |   |
| Fixed rate government   bonds    |       | (14                                 | )          | —                             |       | —                    |       | —                          |       | —                             |       |
| Securitization   certificates    |       | (4                                  | )          | —                             |       | —                    |       | —                          |       | —                             |       |
| CEDES                            |       | (2                                  | )          | —                             |       | —                    |       | —                          |       | —                             |       |
| US treasury bonds                |       | —                              |       | (2                                 | )          | 1                         |       | —                          |       | —                             |       |
| PEMEX eurobonds                  |       | —                              |       | (51                                | )          | 64                        |       | —                          |       | (22                                | )          |
| UMS                              |       | —                              |       | (4                                 | )          | 16                        |       | —                          |       | (2                                 | )          |
| Bank eurobonds                   |       | —                              |       | (71                                | )          | 90                        |       | —                          |       | —                             |       |
| Private company eurobonds        |       | —                              |       | —                             |       | 9                         |       | —                          |       | —                             |       |
| **Total**                        | ** ** | **Ps.**                             | **(72**    | **)**                              | **Ps.**    | **(128**                  | **)**      | **Ps.**                         | **180**    | ** **                         | **Ps.**    | **(39** | **)** | **Ps.** | **(24** | **)** |

 
| **Securities held to maturity** | ** ** | **+100 bp   domestic   rates** | ** ** | **+100 bp   foreign   rates** | ** ** | **+5%   exchange   rate** | ** ** | **+5 bp   rate   spreads** | ** ** | **+50 bp   sovereign   risk** | ** ** |
|------------------------------------------------|------------|-------------------------------------|------------|------------------------------------|------------|---------------------------|------------|---------------------------------|------------|------------------------------------|------------|
| Variable rate government   bonds               |       | Ps.                                 | (275       | )                                  | Ps.        | —                    |       | Ps.                             | —     |                               | Ps.        | (173 | ) | Ps. | — |   |
| Fixed rate government   bonds                  |       | (6                                  | )          | —                             |       | —                    |       | —                          |       | —                             |       |
| Securitization   certificates                  |       | (25                                 | )          | —                             |       | —                    |       | —                          |       | —                             |       |
| Bank bonds                                     |       | (4                                  | )          | —                             |       | —                    |       | —                          |       | —                             |       |
| PEMEX eurobonds                                |       | —                              |       | (183                               | )          | 280                       |       | —                          |       | (93                                | )          |
| UMS                                            |       | —                              |       | (116                               | )          | 154                       |       | —                          |       | (59                                | )          |
| Zero coupon bank bonds                         |       | (2                                  | )          | (49                                | )          | —                    |       | —                          |       | —                             |       |
| Private company eurobonds                      |       | —                              |       | —                             |       | —                    |       | —                          |       | —                             |       |
| **Total**                                      | ** ** | **Ps.**                             | **(312**   | **)**                              | **Ps.**    | **(348**                  | **)**      | **Ps.**                         | **434**    | ** **                         | **Ps.**    | **(173** | **)** | **Ps.** | **(152** | **)** |

 

In the event of any of above scenarios, the losses or gains of the operations with trading securities and securities held to maturity will directly impact the Financial Group’s results.

 

In conclusion, trading securities and securities held to maturity are exposed to domestic interest rate increases, foreign rate increases, interest rate spreads and deterioration of the sovereign risk.

 

**Liquidity and balance sheet risk**

 

In order to provide a measurement of liquidity risk in the Financial Group and provide follow-up consistently, the Financial Group relies on the use of financial ratios, which include the Liquidity Ratio (Current Assets/Liquid Liabilities). Liquid assets include cash and cash equivalents, trading securities and available for sale securities. By the same token, liquid liabilities include immediate demand deposits, immediate demand interbank loans and short-term loans. The liquidity ratio at the end of the fourth quarter of 2010 is 82.7%, while the average during the quarter is 93.1%, as shown below:

 
| ** **         | ** ** | **End of quarter** | ** ** |
|--------------------|------------|------------------------------|------------|
| ** **         | ** ** | **4Q09**                     | ** ** | **1Q10** | ** ** | **2Q10** | ** ** | **3Q10** | ** ** | **4Q10** | ** ** |
| Liquid assets      |       | Ps.                          | 91,931     |   | Ps. | 109,668 |   | Ps. | 141,019 |   | Ps. | 127,518 |   | Ps. | 132,713 |   |
| Liquid liabilities |       | 143,834                      |       | 132,465 |   | 140,406 |   | 140,506 |   | 160,432 |   |
| Liquidity ratio    |       | 63.9                         | %          | 82.8 | % | 100.4 | % | 90.8 | % | 82.7 | % |
|                    |            |                              |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
| ** **         | ** ** | **Average** | ** ** |
|--------------------|------------|-------------|------------|
| ** **         | ** ** | **4Q09**    | ** ** | **1Q10** | ** ** | **2Q10** | ** ** | **3Q10** | ** ** | **4Q10** | ** ** |
| Liquid assets      |       | Ps.         | 92,729     |   | Ps. | 96,900 |   | Ps. | 123,044 |   | Ps. | 129,638 |   | Ps. | 125,871 |   |
| Liquid liabilities |       | 130,575     |       | 124,820 |   | 122,584 |   | 126,698 |   | 135,251 |   |
| Liquidity ratio    |       | 71.0        | %          | 77.6 | % | 100.4 | % | 102.3 | % | 93.1 | % |
|                    |            |             |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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Average calculation considering the Liquidity Ratio’s weekly estimates.

 

To quantify and follow up on the liquidity risk for its dollar portfolio, the Financial Group uses the criteria established by Banco de México for the determination of the Liquidity Ratio. It facilitates an evaluation of the differences between the flows of assets and liabilities in different time periods. The above promotes a healthier distribution of terms for these assets.

 

Also, to prevent concentration risks in relation to payment terms and dates for the Financial Group, gap analysis is performed to match the resources with the funding sources, which detects any concentration in a timely fashion. These analyses are performed separately by currency (Mexican pesos, foreign currency and UDIS).

 

Furthermore, balance sheet simulation analyses are prepared for the Financial Group, which provides either a systematic or dynamic evaluation of the future behavior of the balance sheet. The base scenario is used to prepare sensitivity analyses for movements in domestic, foreign and real interest rates. Also, tests are performed under extreme conditions to evaluate the result of extreme changes in interest, funding and exchange rates.

 

As an evaluation measure of the effectiveness of the simulation model, the projections are periodically compared with actual data. Using these tests, the assumptions and methodology used can be evaluated and, if necessary, adjusted.

 

The operation with derivatives allows a leveling of the differentials between assets and liabilities in different maturity gaps, minimizing the Liquidity Risk. Considering only the contractual obligations of the different types of hedging and trading swaps that the Financial Group operates, a maturity analysis is found below:

 
| ** **    | ** ** | **Net position**   | ** ** |
|---------------|------------|-------------------------|------------|
| **Gap**       | ** ** | **Asset position** | ** ** | **Liability   position** | ** ** | **Net** | ** ** |
| 1 month       |       | Ps.                     | —     |   | Ps. | (2 | ) | Ps. | (2 | ) |
| 3 months      |       | —                  |       | — |   | — |   |
| 6 months      |       | 1                       |       | — |   | 1 |   |
| 1 year        |       | 1                       |       | (546 | ) | (545 | ) |
| 2 years       |       | 2                       |       | (5 | ) | (3 | ) |
| 3 years       |       | —                  |       | (12 | ) | (12 | ) |
| 4 years       |       | 1                       |       | (35 | ) | (34 | ) |
| 5 years       |       | 1                       |       | (43 | ) | (42 | ) |
| 7 years       |       | 460                     |       | (75 | ) | 385 |   |
| 10 years      |       | 86                      |       | (922 | ) | (836 | ) |
| 15 years      |       | 12                      |       | — |   | 12 |   |
| 20 years      |       | 429                     |       | (401 | ) | 28 |   |
| > 20 years |       | 657                     |       | (8 | ) | 649 |   |
| **Total**     | ** ** | **Ps.**                 | **1,650**  | ** ** | **Ps.** | **(2,049** | **)** | **Ps.** | **(399** | **)** |

 

**Operational risk**

 

In January 2003, the Financial Group established a formal operational risk department denominated “Operational Risk Management Department” as part of its Risk Management Strategy.

 

The Financial Group defines operational risk as the potential loss due to failures or deficiencies in internal controls because of operation processing and storing or in data transfer, and adverse administrative and judicial rulings, frauds or theft (this definition includes technology and legal risk).

 

Operational Risk Management’s objectives are: a) to enable and support the organization to reach its institutional objectives through operational risk prevention and management; b) to ensure that the existing operational risks and the required controls are duly identified, evaluated and aligned with the organization’s risk strategy; and c) to ensure that operational risks are duly quantified in order to assign the proper capital for operational risk.

 

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**Operational risk management’s cornerstones**

 

**I.****                                       ****Policies, objectives and guidelines**

 

The Financial Group has documented the operational risk policies, objectives, guidelines, methodologies and responsible areas.

 

The Operational Risk Department works closely with the Controllership Department to promote effective Internal Control that defines the proper procedures and controls the mitigation of Operational Risk. The Internal Audit Department follows up on compliance.

 

Regulations Control, as part of the Internal Control System, performs the following risk-mitigating activities: a) internal control validation; b) institutional regulations management and control; c) monitoring of operating process internal control by means of control indicator reports submitted by the process controllers in the various areas; d) money-laundering prevention process management; e) regulatory provisions controls and follow-up; and f) analysis and assessment of operating processes and projects with the participation of the directors in each process in order to insure proper internal control.

 

**Quantitative and qualitative measuring tools**

 

Operating Losses Database

 

To record operating loss events, a system has been developed internally known as the “Operating Loss and Events Capture System” (SCERO). This system enables the central information supplier areas to directly record such events online, which are classified by type of event in accordance with the following categories (in line with the Basle II Agreement proposals):

 
| **Types of events**              | ** ** | **Description**                                                                                                                                                                                                                  |
|--------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Internal fraud                             |       | Losses derived from actions intended to defraud,   illegally seize ownership or evade the regulations, law or policies of the   Institution (excluding diversity/discrimination events) involving at least   one internal party. |
| External fraud                             |       | Losses derived from actions taken by third parties   intended to defraud, illegally seize ownership or evade the law.                                                                                                            |
| Labor relations and job safety             |       | Losses derived from actions inconsistent with laws   or employment, health or safety agreements, or which result in the payment of   claims for damages to personnel or diversity/discrimination claims.                         |
| Customers, products and business practices |       | Losses derived from negligence or unintentional   breaches which prevent compliance with professional obligations with   customers (including trust and adaptation requirements or due to the nature   or design of a product.   |
| Natural disasters and other events         |       | Losses due to damage or harm to physical assets due   to natural disasters or other events.                                                                                                                                      |
| Business incidences and system failures    |       | Losses derived from incidences in the business and   system failures.                                                                                                                                                            |
| Process execution, delivery and management |       | Losses derived from errors in transaction processing   or in process management, as well as relations with counterparties and   suppliers.                                                                                       |

 

This historical database provides the statistics of the operating events experienced by the Financial Group in order to be able to determine the respective trends, frequency, impact and distribution. Furthermore, the database will serve to calculate capital requirements for advanced models in the future.

 

Legal and tax contingencies database

 

For the recording and follow-up of legal, administrative and tax issues that may arise from adverse unappealable ruling, an internal system called “Legal Risk Issues Monitoring System” (SMARL) was developed. This system enables the central data supplying areas to record such events directly and on-line, which are then classified by company, sector and legal issue, among others.

 

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As part of the Financial Group’s Legal Risk management initiative, legal and tax contingencies are estimated by the attorneys that process the issues based on an internal methodology. This makes it possible to create the necessary book reserve to face such estimated contingencies.

 

Risk management model

 

The Financial Group and its subsidiaries had defined objectives, which are achieved through different plans, programs and projects. Compliance with such objectives may be adversely affected due to operating risks, for which reason a methodology must be in place to manage them within the organization. Consequently, operational risk management is now an institutional policy defined and supported by senior management.

 

To perform operational risk management, each of the operating risks involved in the processes must be identified in order to analyze them. In this regard, the risks identified by Regulations Control are recorded in a risk matrix and processed to eliminate or mitigate them (trying to reduce their severity or frequency) and to define the tolerance levels, as applicable. A new Operating Risk Management Model and the technology tool for its implementation are currently been developed.

 

**II.****                                  ****Calculating capital requirement**

 

Pursuant to the Operational Risk Capitalization Rules, the Financial Group has adopted a Basic Model, which is calculated and reported periodically to the authorities. Assets subject to operational risk are found in the corresponding note of the Rules.

 

**III.****                             ****Information and reporting**

 

The information generated by the databases and the Management Model is processed regularly in order to report the main operating events detected, trends, identified risks (risk matrix) and the mitigating strategies to the Risk Policy Committee and the Board of Directors. The status of the principal initiatives for operating risk mitigation implemented by the different areas of the organization is also reported.

 

**Technology risk**

 

It is defined as the potential loss due to damage, interruption, alteration or failures in the use of or dependence on hardware, software, IT systems, applications, networks and any other data distribution channel for rendering services to customers. Technology risk forms an inherent part of operating risk, for which reason its management is performed throughout the entire organization.

 

To address operating risk associated with data integrity, the “Integrity Committee” was created. Its objectives include aligning data security and control efforts to a prevention approach, defining new strategies, policies, processes or procedures and solving data security issues that affect or may affect the Financial Group’s assets.

 

The Financial Group performs the functions for technology risk management set forth by the Commission under the guidelines established by the institutional regulations and the Integrity Committee.

 

To address the operating risk caused by high impact external events, the Financial Group has a Business Continuity Plan (BCP) and Business Recovery Plan (BRP) based on a same-time data replication system at an alternate computer site. This guarantees the back-up and recovery of critical applications in the event of an operating contingency.

 

**Legal risk**

 

Legal risk is defined as the potential loss due to noncompliance with applicable legal and administrative provisions, adverse administrative and judicial rulings, and imposed penalties.

 

The legal risk must be measured as an inherent part of operating risk in order to understand and estimate its impact. Therefore, those legal issues which result in actual operating losses in the SMARL system are recorded in the SCERO in accordance with a predetermined classification.

 

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Based on the statistics of the current legal issues and real loss events, the Financial Group can identify specific legal or operating risks, which are analyzed in order to eliminate or mitigate them in an attempt to reduce or limit their future occurrence or impact.

 

**33 - MEMORANDUM ACCOUNTS**

 
| ** **                                                          | ** ** | **2010** | ** **  | **2009**   | ** ** |
|---------------------------------------------------------------------|------------|----------|-------------|------------|------------|
| Banks customers (current   accounts)                                |       | Ps.      | 9           |       | Ps.        | 4 |   |
| Settlement of customer   transactions                               |       | 1        |        | (80        | )          |
| Customer valuables   received in custody                            |       | 172,922  |        | 134,480    |       |
| Customer repurchase   agreements                                    |       | 28,647   |        | 35,680     |       |
| Managed trusts                                                      |       | 4,348    |        | 4,641      |       |
| ** **                                                          | ** ** | **Ps.**  | **205,927** | ** ** | **Ps.**    | **174,725** | ** ** |
| Other contingent assets   and liabilities                           |       | Ps.      | 256         |       | Ps.        | 273 |   |
| Credit commitments                                                  |       | 3,155    |        | 2,272      |       |
| Deposits of assets                                                  |       | 2,429    |        | 1,632      |       |
| Assets in trusts or under   mandate                                 |       | 124,723  |        | 112,942    |       |
| Managed assets in custody                                           |       | 230,140  |        | 158,547    |       |
| Investment banking   transactions on account of third parties (net) |       | 78,069   |        | 74,646     |       |
| Collateral received by the   institution                            |       | 62,224   |        | 33,464     |       |
| Collateral received and   sold or given as a pledge by the entity   |       | 36,195   |        | 43,165     |       |
| Past-due loan portfolio   accrued but not charged interest          |       | 136      |        | 198        |       |
| ** **                                                          | ** ** | **Ps.**  | **537,327** | ** ** | **Ps.**    | **427,139** | ** ** |

 

**34 - COMMITMENTS**

 

As of December 31, 2010 and 2009, the Financial Group had the following contingent obligations and commitments:

 

·                  Other contingent obligations and opening of credits totaling Ps. 3,411 (Ps. 2,545 in 2009), which are recorded in memorandum accounts.

 

·                  Certain real property and operating equipment are leased. Total property lease payments for the periods ended December 31, 2010 and 2009, were Ps. 207 and Ps. 197, respectively.

 

**35 - CONTINGENCIES**

 

As of December 31, 2010, there are lawsuits filed against the Financial Group in civil and business court cases; however, the Financial Group’s attorneys consider that the claims filed are unsubstantiated and, in the event of an adverse ruling, they would not significantly impact the Financial Group’s consolidated financial position. A reserve of Ps. 118 is recorded for such contentious matters.

 

**36 - SAVINGS PREVENTIVE AND PROTECTION MECHANISM**

 

The objective of the Institute for the Protection of Bank Savings (IPAB) is to protect the deposits of small customers and thereby contribute to maintaining the financial system’s stability and the proper functioning of the payments systems.

 

According to the Law of Bank Savings Protection (LPAB), the IPAB manages a bank savings protection system that guarantees the payment of bank deposits or loans or credits to Full Service Banking Institution up to an amount equivalent to 400 thousand UDIS per individual or business entity, regardless of the number or type of such obligations in the customer’s favor and charged to a single bank.

 

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On July 30, 2007, general rules were issued for addressing joint accounts or those in which there is more than one account holder, referred to in art.14 of the LPAB, as well as the rules banks must observe for classifying information relative to transactions associated with guaranteed obligations.

 

The IPAB plays a major role in the implementation of the LPAB resolutions methods and the Law of Credit Institutions (LIC) as timely and adequate mechanisms for salvaging and liquidating Full Service Banking Institutions in financial trouble that may affect their solvency. The purpose is to provide maximum protection to the public while minimizing the negative impact that salvaging an institution may have on others in the banking system.

 

During 2010 and 2009, the amount of contributions to the IPAB payable by Banorte for fees amounted to Ps. 1,084 and Ps. 1,073, respectively.

 

**37 — NEW ACCOUNTING PRINCIPLES**

 

Modification of the consumer and mortgage loan rating methodology.

 

On October 25, 2010 the Commission issued a resolution to the General Provisions for Banking Institutions modifying the applicable non-revolving consumer and housing mortgage loan rating so that the allowance for loan losses will be calculated on the basis of expected rather than incurred loss. This modification will become effective on March 1, 2011. The Financial Group considers that the initial impact from entry into force of this amendment is approximately Ps. 600 increase in the reserve requirement. This will be recognized in stockholders’ equity no later than March 31, 2011, in the prior year’s results.

 

**38 — DIFFERENCES BETWEEN MEXICAN BANKING GAAP AND MEXICAN FINANCIAL REPORTING STANDARDS**

 

The Financial Group’s consolidated financial statements are prepared in accordance with the Accounting Practices established by the Commission (“Mexican Banking GAAP”), which differ in certain respects from Mexican Financial Reporting Standards (“MFRS”).

 

The principal differences and the effect on consolidated net income and consolidated stockholders’ equity are presented below with an explanation of the adjustments. This information is not required by Mexican Banking GAAP.

 

**Reconciliation of stockholders’ equity:**

 
| ** **                                                    | ** ** | **December 31,** | ** ** |
|---------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                    | ** ** | **2010**              | ** ** | **2009** | ** ** |
| **Stockholders’   equity under Mexican Banking GAAP**    |       | Ps.                   | 50,227     |   | Ps. | 44,974 |   |
|                                                          |       |                  |       |   |   |
| Adjustments:                                                  |       |                  |       |   |   |
| Loan loss reserves (See B)                                    |       | —                |       | (198 | ) |
| Loan origination fees and   costs (See A)                     |       | 277                   |       | 275 |   |
| Reserve for foreclosed   assets (See C)                       |       | 143                   |       | 45 |   |
| Insurance and   postretirement activities (See A)             |       | 2,231                 |       | 1,857 |   |
| Purchased loan portfolio   (See A)                            |       | 86                    |       | (163 | ) |
| Securitizations (See D)                                       |       | (222                  | )          | (179 | ) |
| Investment valuation (See A)                                  |       | —                |       | 7 |   |
| Total adjustments                                             |       | 2,515                 |       | 1,644 |   |
| Tax effect on adjustments   (See F)                           |       | (783                  | )          | (439 | ) |
| Noncontrolling interest   attributable to adjustments (See G) |       | (777                  | )          | (645 | ) |
|                                                          |       |                  |       |   |   |
| **Stockholders’ equity under MFRS**                      |       | Ps.                   | 51,182     |   | Ps. | 45,534 |   |

 

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**Reconciliation of net income:**

 
| ** **                                                    | ** ** | **Year ended December 31,** | ** ** |
|---------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                    | ** ** | **2010**                                   | ** ** | **2009** | ** ** |
| **Net   income under Mexican Banking GAAP**                   |       | Ps.                                        | 6,705      |   | Ps. | 5,854 |   |
|                                                          |       |                                       |       |   |   |
| Adjustments:                                                  |       |                                       |       |   |   |
| Loan loss reserves (See B)                                    |       | 198                                        |       | (101 | ) |
| Loan origination fees and   costs (See A)                     |       | 2                                          |       | 126 |   |
| Reserve for foreclosed   assets (See C)                       |       | 99                                         |       | 90 |   |
| Insurance and   postretirement activities (See A)             |       | 374                                        |       | 119 |   |
| Derivatives (See A)                                           |       | —                                     |       | 75 |   |
| Purchased loan portfolio   (See A)                            |       | 249                                        |       | 220 |   |
| Securitizations (See D)                                       |       | (43                                        | )          | 152 |   |
| Repurchase agreements (See A)                                 |       | —                                     |       | 24 |   |
| Investment valuation (See A)                                  |       | (7                                         | )          | 19 |   |
| Change in credit card loan   rating methodology (E)           |       | —                                     |       | (1,102 | ) |
| Total adjustments                                             |       | 872                                        |       | (378 | ) |
| Tax effect on adjustments   (See F)                           |       | (311                                       | )          | 157 |   |
| Noncontrolling interest   attributable to adjustments (See G) |       | (150                                       | )          | (31 | ) |
|                                                          |       |                                       |       |   |   |
| **Net income under MFRS**                                     |       | Ps.                                        | 7,116      |   | Ps. | 5,602 |   |

 

***Explanation of reconciling items:***

 

**A) General**

 

This difference between Mexican Banking GAAP and MFRS is explained further in Note 39, as the accounting treatment under MFRS and U.S. GAAP are the same for this item.

 

**B) Loan loss reserves**

 

Mexican Banking GAAP establishes rules for loan portfolio ratings and general methodologies for the rating and constitution of preventive allowances for loan losses for each type of loan and allows credit institutions to rate and develop preventive allowances based on internal methodologies, previously authorized by the Commission.

 

According to Circular B-6, “Loan Portfolio”, additional reserves may be recorded to cover risks that are not foreseen by the existing loan portfolio rating methodologies. Before doing so, the Financial Group must report the following to the Commission: a) the origin of the estimates; b) the methodology applied; c) the amount of the estimates; and d) the period over which they are considered to be necessary. Prior to 2007, specific provisions were calculated when it was determined to be probable that the Financial Group would not recover the full contractual principal and interest on a loan (impaired loan).

 

Under Mexican Banking GAAP debtor support program allowances were canceled during the first quarter of 2007 as they did not meet the requirements mentioned above and additional allowances related to UDI Trusts are recorded in accordance with accounting circulars prescribed by the Commission. Under MFRS, additional reserves are not recorded and reserves for debtor support programs must be established and additional allowances related to UDI Trusts allowances must be reversed.

 

As disclosed in Note 10, on June 30, 2010 the Federal Government through the SHCP and Banking Institutions signed an agreement for the early termination of the mortgage loan debtors support programs (punto final and UDI trusts) As a result of signing the agreement, the Financial Group reduced its reserve to Ps. 57 related to such obligation. Under MFRS additional reserves for debtor programs were cancelled.

 

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**C) Reserve for foreclosed assets**

 

Under Mexican Banking GAAP, reserves for foreclosed assets are required based on their nature and number of months outstanding. Under MFRS, these assets are recognized at the lower of the corresponding loan’s book value or the fair value of the foreclosed asset. Potential impairment should also be evaluated and recognized, as necessary, on these assets.

 

**D) Securitizations**

 

Under Mexican Banking GAAP, the Financial Group accounts for its securitization transactions as disclosed in Note 4. If it has transferred a financial asset, MFRS requires the Financial Group to assess whether it has transferred substantially all the risks and rewards of ownership of the transferred asset. If it has retained substantially all such risks and rewards, it continues to recognize the transferred asset. If it has transferred substantially all such risks and rewards, it derecognizes the transferred asset. If the Financial Group concludes that it has neither transferred nor retained substantially all the risks and rewards of ownership of the transferred asset, it assesses whether it has retained control over the transferred asset. If it has retained control, it continues to recognize the transferred asset to the extent of its continuing involvement in the transferred asset. If it has not retained control, it derecognizes the transferred asset.

 

Under MRFS, the securitization transactions entered into by the Financial Group, were evaluated under the “transfer of risks and rewards” approach, concluding that all of such risks and rewards were not transferred, thus, the adjustment represents the reinstatement of the assets and liabilities to the Financial Group’s balance sheet.

 

**E) Change in credit card loan rating methodology**

 

As disclosed in Note 11, in 2009, the cumulative effect of the change in consumer loan rating methodology for credit card operations was charged against retained earnings with the Commission’s expressed authorization. MFRS requires such changes to be recorded in current earnings.

 

**F) Income taxes**

 

MFRS differences as described above, to the extent taxable, are reflected in the MFRS deferred tax balances.

 

**G) Non-controlling interest**

 

The effects of the MFRS differences as described in this Note reflect the amounts assigned to the noncontrolling interests.

 

**39 — DIFFERENCES BETWEEN MEXICAN BANKING GAAP AND U.S. GAAP**

 

The Financial Group’s consolidated financial statements are prepared in accordance with Mexican Banking GAAP, which differ in certain significant respects from accounting principles generally accepted in the United States of America (“U.S. GAAP”). Through December 31, 2007, the Mexican Banking GAAP consolidated financial statements include the effects of inflation as provided for under NIF B-10, “Effects of Inflation”, whereas financial statements prepared under U.S. GAAP are presented on a historical cost basis. The application of NIF B-10 represented a comprehensive measure of the effects of price level changes in the inflationary Mexican economy and, as such, was considered a more meaningful presentation than historical cost-based financial reporting for both Mexican and U.S. accounting purposes. Beginning on January 1, 2008, and through December 31, 2010, in accordance with NIF B-10, “Effects of Inflation”, the Financial Group discontinued the recognition of inflation in its financial statements under Mexican Banking GAAP as the cumulative inflation for the preceding three years was less than 26%. Notwithstanding the prior comments, the following reconciliation to U.S. GAAP through December 31, 2007 does not include the reversal of the adjustments required under NIF B-10, as permitted by the rules and regulations of the Securities and Exchange Commission (the “SEC”).

 

The principal differences as they relate to the Financial Group between Mexican Banking GAAP and U.S. GAAP and the effect on consolidated stockholders’ equity and consolidated net income are presented below, with an explanation of the adjustments.

 

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**Reconciliation of stockholders’ equity:**

 
| ** **                                                              | ** ** | **December 31,** | ** ** |
|-------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                              | ** ** | **2010**              | ** ** | **2009** | ** ** |
| **Stockholders’   equity under Mexican Banking GAAP**              |       | Ps.                   | 50,227     |   | Ps. | 44,974 |   |
|                                                                    |       |                  |       |   |   |
| U.S. GAAP adjustments:                                                  |       |                  |       |   |   |
| Loan loss reserves (See A)                                              |       | 2,868                 |       | 3,034 |   |
| Loan origination fees and   costs (See B)                               |       | 277                   |       | 275 |   |
| Purchased loan portfolio   (See C)                                      |       | 86                    |       | (163 | ) |
| Reserve for foreclosed   assets (See E)                                 |       | 143                   |       | 45 |   |
| Insurance and   postretirement activities (See F)                       |       | 2,231                 |       | 1,857 |   |
| Business combinations (See G)                                           |       | 81                    |       | 969 |   |
| Employee retirement   obligations (See H)                               |       | (1,062                | )          | (1,029 | ) |
| Securitizations (See J)                                                 |       | (26                   | )          | (22 | ) |
| Other adjustments (See K)                                               |       | 423                   |       | 322 |   |
| Fair value measurements   (See L)                                       |       | (51                   | )          | (63 | ) |
| IFC transaction (See M)                                                 |       | (4,244                | )          | (3,651 | ) |
| Income taxes (See N)                                                    |       | (1,602                | )          | (1,617 | ) |
| Total U.S. GAAP   adjustments                                           |       | (876                  | )          | (43 | ) |
| Tax effect on U.S. GAAP   adjustments (See N)                           |       | (1,751                | )          | (1,794 | ) |
| Noncontrolling interest   attributable to U.S. GAAP adjustments (See O) |       | (762                  | )          | (689 | ) |
| **Stockholders’   equity under U.S. GAAP**                         |       | Ps.                   | 46,838     |   | Ps. | 42,448 |   |

 

**Reconciliation of net income:**

 
| ** **                                                              | ** ** | **Years ended December 31,** | ** ** |
|-------------------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                              | ** ** | **2010**                                    | ** ** | **2009** | ** ** | **2008** | ** ** |
| **Net   income under Mexican Banking GAAP**                             |       | Ps.                                         | 6,705      |   | Ps. | 5,854 |   | Ps. | 7,014 |   |
| U.S. GAAP adjustments:                                                  |       |                                        |       |   |   |   |   |
| Loan loss reserves (See A)                                              |       | (166                                        | )          | 1,668 |   | 225 |   |
| Loan origination fees and   costs (See B)                               |       | 2                                           |       | 126 |   | 4 |   |
| Purchased loan portfolio   (See C)                                      |       | 249                                         |       | 220 |   | 278 |   |
| Derivatives (See D)                                                     |       | —                                      |       | 75 |   | (93 | ) |
| Reserve for foreclosed   assets (See E)                                 |       | 99                                          |       | 90 |   | (210 | ) |
| Insurance and   postretirement activities (See F)                       |       | 374                                         |       | 119 |   | 286 |   |
| Business combinations (See G)                                           |       | 1                                           |       | 29 |   | (318 | ) |
| Employee retirement   obligations (See H)                               |       | 88                                          |       | 129 |   | 55 |   |
| Capitalized costs (See I)                                               |       | —                                      |       | — |   | 68 |   |
| Securitizations (See J)                                                 |       | (4                                          | )          | 114 |   | (134 | ) |
| Other adjustments (See K)                                               |       | (129                                        | )          | (413 | ) | (814 | ) |
| Fair value measurements   (See L)                                       |       | 12                                          |       | 74 |   | (137 | ) |
| Income taxes (See N)                                                    |       | 15                                          |       | (3 | ) | 11 |   |
| Total U.S. GAAP   adjustments                                           |       | 541                                         |       | 2,228 |   | (779 | ) |
| Tax effect on U.S. GAAP   adjustments (See N)                           |       | (167                                        | )          | (825 | ) | 362 |   |
| Noncontrolling interest   attributable to U.S. GAAP adjustments (See O) |       | (130                                        | )          | (183 | ) | (121 | ) |
| **Net   income under U.S. GAAP**                                        |       | Ps.                                         | 6,949      |   | Ps. | 7,074 |   | Ps. | 6,476 |   |

 

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A rollforward of the Financial Group’s U.S. GAAP stockholders’ equity balance is as follows:

 
| ** **                                               | ** ** | **2010** | ** ** | **2009** | ** ** |
|----------------------------------------------------------|------------|----------|------------|----------|------------|
|                                                     |       |     |       |     |       |
| Balance at the beginning   of the year                   |       | Ps.      | 42,448     |     | Ps.        | 38,789 |   |
| Net income under U.S. GAAP                               |       | 6,949    |       | 7,074    |       |
| Dividends declared                                       |       | (1,029   | )          | (364     | )          |
| Issuance (repurchase) of shares                          |       | 69       |       | (451     | )          |
| Acquisition of the 30%   non-controlling interest of INB |       | —   |       | (811     | )          |
| Other comprehensive loss                                 |       | (1,599   | )          | (1,789   | )          |
|                                                     |       |     |       |     |       |
| **Balance   at the end of the year**                     |       | Ps.      | 46,838     |     | Ps.        | 42,448 |   |

 

***I              Explanation of reconciling items:***

 

**A)****          ****Loan loss reserves**

 

Mexican Banking GAAP establishes rules for loan portfolio ratings and general methodologies for the rating and constitution of preventive allowances for loan losses for each type of loan and allows credit institutions to rate and develop preventive allowances based on internal methodologies, previously authorized by the Commission.

 

The Financial Group assigns an individual risk category to each commercial loan based on the borrower’s financial and operating risk level, its credit experience and the nature and value of the loans’ collateral. A loan loss reserve is determined for each loan based on a prescribed range of reserves associated to each risk category. In the case of the consumer and mortgage loan portfolio, the risk rating procedure and the establishment of loan reserves considers the accounting periods reporting past-due, the probability of noncompliance, and the severity of the loss in proportion to its amount and the nature of loan guarantees.

 

The U.S. GAAP methodology for recognition of loan losses is provided by the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 450, “Contingencies”, (previously SFAS No. 5, “Accounting for Contingencies”), and ASC 310 “Receivables” (previously SFAS No. 114, “Accounting by Creditors for Impairment of a Loan”), which establish that an estimated loss should be accrued when, based on information available prior to the issuance of the financial statements, it is probable that a loan has been impaired at the date of the financial statements and the amount of the loss can be reasonably estimated.

 

For larger non-homogeneous loans, the Financial Group assesses for impairment all individual loans with an outstanding balance greater than 4 million UDI or its equivalent in Mexican Pesos. Under U.S. GAAP, estimated losses on impaired loans, which are individually assessed, are required to be measured at the present value of expected future cash flows discounted at the loan’s effective rate, the loan’s observable market price or at the fair value of the collateral if the loan is collateral dependent.

 

To calculate the allowance required for smaller-balance impaired loans and unimpaired loans, historical loss ratios are determined by analyzing historical trends. These ratios are determined by loan type to obtain loss estimates for homogeneous groups of clients. Such historical ratios are updated to incorporate the most recent data reflective of current economic conditions, in conjunction with industry performance trends, geographic or obligor concentrations within each portfolio segment, and any other pertinent information, resulting in the estimation of the allowance for loan losses.

 

Under Mexican Banking GAAP, loans may be charged-off when collection efforts have been exhausted or when they have been fully provisioned. On the other hand for U.S. GAAP, loans (or portions of particular loans) should be written-off in the period that they are deemed uncollectible.

 

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On August 12, 2009, the Commission issued a resolution modifying the “General Provisions applicable to Banking Institutions”, which modifies the consumer loan rating methodology to show the expected loss in these operations based on the current environment.

 

This new methodology requires separating the consumer loan portfolio into two groups: those that refer to credit card operations and those that do not. The consumer loan portfolio that does not include credit card operations will consider the number of unpaid billing periods established by the Financial Group as well as the probability of noncompliance and the severity of the loss according as percentages established by the Commission. If this portfolio has collateral or means of payment in favor of the Financial Group, the covered balance will be considered to have zero unpaid periods for the provisioning purposes.

 

Regarding credit card loans, such portfolio shall be provisioned and rated on a loan-by-loan basis taking into consideration the probability of noncompliance, the severity of the loss and the exposure to noncompliance. The probability of noncompliance is determined using a formula which considers the number of delinquent payments before the calculation date, the number of payments not made in the previous six months, the percentage represented by the payment made with regards to the total payable balance, and the percentage represented by the payment made in relation to the account’s authorized credit limit. The percentage to be utilized to determine the amount of loss reserves for each credit, results from multiplying the severity of the loss by the probability of noncompliance. The amount of the reserves to record results from multiplying the percentage referred to, by the exposure to noncompliance. Exposure to noncompliance is determined by applying a formula that considers both the total balance of the creditor’s debt and its credit limit. In the case of inactive accounts, a provision equivalent to 2.68% of the credit limit shall be constituted. The resulting effect of applying the revised consumer loan rating method for credit card operations is shown in Note 11.  Given that the methodology remained unchanged for purposes of U.S. GAAP, the adjustment related to the loan loss reserve for credit cards increased when compared to 2008.

 

U.S. GAAP loan loss reserves are as follows:

 
| **Loan loss reserves**          | ** ** | **2010** | ** ** | **2009** | ** ** | **2008** | ** ** |
|-------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Loan loss reserves for ASC   310          |       | Ps.      | 1,986      |     | Ps.        | 388      |       | Ps. | 523 |   |
| Loan loss reserves for ASC   450          |       | 3,391    |       | 4,113    |       | 4,728    |       |
| Total loan loss reserves   US GAAP        |       | 5,377    |       | 4,501    |       | 5,251    |       |
| Mexican Banking GAAP loan   loss reserves |       | 8,245    |       | 7,535    |       | 6,617    |       |
|                                      |       |     |       |     |       |     |       |
| Stockholders’ equity adjustment      |       | 2,868    |       | 3,034    |       | 1,366    |       |
| Net Income adjustment                     |       | Ps.      | (166       | )        | Ps.        | 1,668    |       | Ps. | 225 |   |

 

**Roll forward of loan loss reserves:**

 
| ** **                      | ** ** | **2010** | ** ** | **2009** | ** ** | **2008** | ** ** |
|---------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                            |       |     |       |     |       |     |       |
| Beginning of the year           |       | Ps.      | 4,501      |     | Ps.        | 5,251    |       | Ps. | 2,572 |   |
| Charge-offs net of   recoveries |       | (6,329   | )          | (7,560   | )          | (4,002   | )          |
| Charges to income of the   year |       | 7,205    |       | 6,810    |       | 6,681    |       |
|                            |       |     |       |     |       |     |       |
| End of the year                 |       | Ps.      | 5,377      |     | Ps.        | 4,501    |       | Ps. | 5,251 |   |

 

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**Ratios:**

 
| ** **                                                  | ** ** | **December 31,** | ** ** | **Percentage** | ** ** |
|-------------------------------------------------------------|------------|-----------------------|------------|----------------|------------|
| **Loan loss reserves for ASC 310** | ** ** | **2010**              | ** ** | **2009**       | ** ** | **2008** | ** ** | **2010** | ** ** | **2009** | ** ** | **2008** | ** ** |
|                                                        |       |                  |       |           |       |   |   |   |   |   |   |   |   |
| Total reserves                                              |       | Ps.                   | 1,986      |           | Ps.        | 388 |   | Ps. | 523 |   |   |   |   |   |   |   |
| Total balances of impaired   loans                          |       | Ps.                   | 977        |           | Ps.        | 387 |   | Ps. | 153 |   | 203.23 | % | 100.26 | % | 341.83 | % |
| Total balances of   outstanding loans                       |       | Ps.                   | 4,731      |           | Ps.        | 7,596 |   | Ps. | 1,256 |   | 41.98 | % | 5.11 | % | 41.64 | % |

 
| ** **                                                  | ** ** | **December 31,** | ** ** | **Percentage** | ** ** |
|-------------------------------------------------------------|------------|-----------------------|------------|----------------|------------|
| **Loan loss reserves for ASC 450** | ** ** | **2010**              | ** ** | **2009**       | ** ** | **2008** | ** ** | **2010** | ** ** | **2009** | ** ** | **2008** | ** ** |
|                                                        |       |                  |       |           |       |   |   |   |   |   |   |   |   |
| Total reserves                                              |       | Ps.                   | 3,391      |           | Ps.        | 4,113 |   | Ps. | 4,728 |   |   |   |   |   |   |   |
| Total balances of impaired   loans                          |       | Ps.                   | 3,653      |           | Ps.        | 4,717 |   | Ps. | 4,548 |   | 92.82 | % | 87.22 | % | 103.96 | % |
| Total balances of   outstanding loans (1)                   |       | Ps.                   | 265,483    |           | Ps.        | 237,512 |   | Ps. | 243,990 |   | 1.28 | % | 1.73 | % | 1.94 | % |

 

----

(1) The Financial Group has also recorded loan loss reserves in accordance with ASC 450 related to items such as guarantees and other off-balance sheet liabilities. Such balances, which are not included in the total balance of outstanding loans, amounted to Ps. 3,155, Ps. 2,272 and Ps. 2,793 as of December 31, 2010, 2009 and 2008, respectively.

 

*Government Sponsored Programs*

 

Mexican banks have participated in a number of debtor relief programs that began in 1995, which caused the Mexican banks to reduce their claims to the outstanding balances of loans meeting certain criterion in accordance with program guidelines. In connection with government sponsored restructurings, Mexican banks had the option of accounting for the full amounts of the loss on the date of the refinancing or deferring the loss and amortizing this loss in the statement of income in subsequent periods. For individual loan restructurings, the Financial Group generally charges off any difference in the carrying amount of the original loan and the restructured loan.

 

For U.S. GAAP purposes, discounts available for clients as stated in these programs were written-off as the Financial Group estimated that would be the expected reduction on the future cash flows.

 

**B)****          ****Loan origination fees and costs**

 

Under Mexican Banking GAAP, fees charged in connection with the issuance of loans are recorded as a deferred credit, which is amortized into interest income over the loan’s term, using the straight line method. Until December 31, 2006, loan origination fees were recognized on a cash basis. This change in accounting principle was applied retrospectively. Costs and expenses associated with the initial granting of the loan are recorded as a deferred charge to be amortized as interest expense over the same period in which the fee income is recognized. This applies only to those costs and expenses that are considered incremental. Until December 31, 2007 loan origination costs were expensed as incurred. This change was applied prospectively given the practical impossibility of determining them for prior years. In addition, annual credit card fees, the fees for unused credit lines, as well as the associated costs and expenses, are amortized in 12 months. Under U.S. GAAP, as required by ASC 310 “Receivables” (previously SFAS No. 91 “Accounting for Nonrefudable Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases”), loan origination fees are deferred and recognized over the life of the loan as an adjustment of yield (interest income). Likewise, direct loan origination costs defined in the following paragraph are deferred and recognized as a reduction in the yield of the loan. Loan origination fees and related direct loan origination costs for a given loan are offset and only the net amount is deferred and amortized.

 

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Direct loan origination costs of a completed loan include (a) incremental direct costs of loan origination incurred in transactions with independent third parties for that loan and (b) certain costs directly related to specified activities performed by the lender for that loan. Those activities include evaluating the prospective borrower’s financial condition; evaluating and recording guarantees, collateral, and other security arrangements; negotiating loan terms; preparing and processing loan documents; and closing the transaction.

 

Credit card fees and costs are recognized on a straight-line basis over the period the cardholder is entitled to use the card.

 

**C)****          ****Purchased loan portfolio**

 

As discussed below, prior to December 31, 2004 Mexican Banking GAAP had no specific rules covering the accounting treatment of loan portfolios purchases. As collections on the purchased loan portfolios were received, the Financial Group recognized the amounts recovered as investment income. In addition, the Financial Group amortized the cost of the investment based on the percentage of amounts recovered to the acquisition cost of the portfolio acquired, as adjusted by financial projections. Unamortized amounts, if any, were written off when the collection process had ceased.

 

In 2005, the Financial Group adopted the guidance found in ASC 310 “Receivables” (previously SOP 03-3 “Accounting for Certain Loans or Debt Securities Acquired in a Transfer”) for its Mexican Banking GAAP financial statements and applied it prospectively to all existing portfolios held. U.S. GAAP addressed accounting for differences between contractual cash flows and cash flows expected to be collected from an investor’s initial investment (the amount paid to the seller plus any fees paid or less any fees received) in loans or debt securities (loans) acquired in a transfer if those differences are attributable, at least in part, to credit quality. For U.S. GAAP purposes, in 2004 the Financial Group early adopted this guidance and began to apply its requirements for all portfolios purchased after December 31, 2003.

 

In 2007, the Financial Group adopted the Commission’s new Circular B-11, “Collection Rights”; therefore under Mexican Banking GAAP purchased portfolios are valued using one of the following methods: cash basis method, interest method and cost recovery method, established in such circular.

 

Under U.S. GAAP, ASC 310 “Receivables” (previously APB 6, “Amortization of Discounts on Certain Acquired Loans”), addressed the accounting and reporting by purchasers of loans in fiscal years beginning on or before December 15, 2004. This accounting was utilized for all portfolios purchased prior to December 31, 2003.  At the time of acquisition, the sum of the acquisition amount of the loan and the discount to be amortized should not exceed the undiscounted future cash collections that are both reasonably estimable and probable. If these criteria are not satisfied, the loan should be accounted for using the cost-recovery method.

 

The loan portfolios (generally consisting of troubled loans) purchased at a discount would represent a purchase of a loan portfolio where it is not probable that the undiscounted future cash collections will be sufficient to recover the face amount of the loan and contractual interest. Consequently, under U.S. GAAP, at the time of acquisition, the sum of the acquisition amount of the loan and the discount to be amortized should not exceed the undiscounted future cash collections that are both reasonably estimable and probable. The discount on an acquired loan should be amortized over the period in which the payments are probable of collection only if the amounts and timing of collections, whether characterized as interest or principal, are reasonably estimable and the ultimate collectability of the acquisition amount of the loan and the discount is probable. If these criteria are not satisfied, the loan should be accounted for using the cost-recovery method. Application of the cost-recovery method requires that any amounts received be applied first against the recorded amount of the loan; when that amount has been reduced to zero, any additional amounts received are recognized as income.

 

Under Mexican Banking GAAP, origination costs and other fees are capitalized as part of the original investment, while for U.S. GAAP purposes those costs are expensed as incurred.

 

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The Financial Group’s portfolio disclosures and U.S. GAAP methodology applied are disclosed in the following table:

 
| ** **          | ** ** | **Stockholders’ equity** | ** ** | **Net income**                        | ** ** | ** **                              | ** ** |
|---------------------|------------|------------------------------------|------------|--------------------------------------------|------------|-----------------------------------------|------------|
| ** **          | ** ** | **December 31,**              | ** ** | **Year ended December 31,** | ** ** | **Methodology applied under** | ** ** |
| **Portfolio**       | ** ** | **2010**                           | ** ** | **2009**                                   | ** ** | **2010**                                | ** ** | **2009** | ** ** | **2008** | ** ** | **U.S. GAAP** | ** ** |
|                |       |                               |       |                                       |       |                                    |       |   |   |   |   |   |   |
| Bancrecer I         |       | Ps.                                | (106       | )                                          | Ps.        | (131                                    | )          | Ps. | 25 |   | Ps. | 21 |   | Ps. | 13 |   | Cost-recovery   method |   |
| Serfin Santander    |       | 14                                 |       | (57                                        | )          | 71                                      |       | 3 |   | 10 |   | Cost-recovery   method |   |
| Meseta              |       | 34                                 |       | 33                                         |       | 1                                       |       | 48 |   | 23 |   | Cost-recovery   method |   |
| Bancrecer II        |       | (2                                 | )          | (2                                         | )          | —                                  |       | — |   | — |   | Cost-recovery   method |   |
| Goldman Sachs       |       | (96                                | )          | (147                                       | )          | 51                                      |       | 39 |   | 42 |   | Cost-recovery   method |   |
| Cremi               |       | (34                                | )          | (41                                        | )          | 7                                       |       | 8 |   | 13 |   | Cost-recovery   method |   |
| Banorte Sólida |       | (104                               | )          | (128                                       | )          | 24                                      |       | 23 |   | 46 |   | Cost-recovery   method |   |
| Bancomer I          |       | (134                               | )          | (153                                       | )          | 19                                      |       | (17 | ) | (27 | ) | Cost-recovery   method |   |
| Bancomer II         |       | —                             |       | 1                                          |       | (1                                      | )          | (8 | ) | (2 | ) | Interest   method |   |
| Banco Unión    |       | 20                                 |       | 10                                         |       | 10                                      |       | 4 |   | (5 | ) | Interest   method |   |
| Bital I             |       | 6                                  |       | (17                                        | )          | 23                                      |       | 30 |   | 19 |   | Interest   method |   |
| Bancomer III        |       | 13                                 |       | 36                                         |       | (23                                     | )          | 2 |   | 6 |   | Interest   method |   |
| Bancomer IV         |       | 288                                |       | 243                                        |       | 45                                      |       | 68 |   | 71 |   | Interest   method |   |
| Bital II            |       | 17                                 |       | 13                                         |       | 4                                       |       | (1 | ) | (6 | ) | Interest   method |   |
| Banamex Hipotecario |       | 69                                 |       | 80                                         |       | (11                                     | )          | (1 | ) | 20 |   | Interest   method |   |
| GMAC Banorte        |       | 10                                 |       | 14                                         |       | (4                                      | )          | (10 | ) | 7 |   | Interest   method |   |
| Serfin Comercial I  |       | 7                                  |       | 10                                         |       | (3                                      | )          | (6 | ) | 27 |   | Interest   method |   |
| Serfin Hipotecario  |       | 87                                 |       | 73                                         |       | 14                                      |       | 14 |   | 17 |   | Interest   method |   |
| Vipesa              |       | (3                                 | )          | —                                     |       | (3                                      | )          | 3 |   | 4 |   | Interest   method |   |
|                |       |                               |       |                                       |       |                                    |       |   |   |   |   |   |   |
|                |       | Ps.                                | 86         |                                       | Ps.        | (163                                    | )          | Ps. | 249 |   | Ps. | 220 |   | Ps. | 278 |   |   |   |

 

**D)****          ****Derivatives**

 

Beginning in 2007, under Mexican Banking GAAP, trading instruments are carried at fair value in the balance sheet, and changes in fair value are recognized in current earnings. The Financial Group accounts the hedge instruments as follows:

 

·                  For fair value hedges, the transactions are recorded as follows: the fair value of the derivative instrument is recorded in the balance sheet, and changes in the fair value of both the derivative instrument and the hedged item are recognized in current earnings.

 

·                  For cash flow hedges, the transactions are recorded as follows: the fair value of the derivative instrument is recorded in the balance sheet and changes in the effective portion are temporarily recognized as a component of other comprehensive income in stockholders’ equity and subsequently reclassified to current earnings when affected by the hedged item. The ineffective portion of the gain or loss on the hedging instrument is recognized in current earnings.

 

Under Mexican Banking GAAP, through December 31, 2008, the Financial Group was not required to bifurcate its embedded derivatives related to service contracts and purchase and sale transactions from their host contracts and record them at their fair value for financial statement purposes.

 

Through December 31, 2008, under Mexican Banking GAAP, the designation of a derivative instrument as a hedge of a net position (“macro hedging”) was allowed. However, macro hedging is not permitted under U.S. GAAP.

 

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ASC 815, “Derivatives and Hedging” (previously SFAS 133, “Accounting for Derivative Instruments and Hedging Activities”), of U.S. GAAP provides that:

 

·                  Derivative financial instruments considered to be an effective hedge from an economic perspective that have not been designated as a hedge for accounting purposes are recognized in the balance sheet at fair value with changes in the fair value recognized in earnings concurrently with the change in fair value of the underlying assets and liabilities.

 

·                  For all derivative instruments that qualify as fair value hedges for accounting purposes, of existing assets, liabilities or firm commitments, the change in fair value of the derivative should be accounted for in the statement of income and be fully or partially offset in the statement of income by the change in fair value of the underlying hedged item; and

 

·                  For all derivative contracts that qualify as hedges of future cash flows for accounting purposes, the change in the fair value of the derivative should be initially recorded in other comprehensive income in stockholders’ equity. Once the effects of the underlying hedged transaction are recognized in earnings, the corresponding amount in OCI is reclassified to the statement of income to offset the effect of the hedged transaction. All derivative instruments that qualify as hedges are subject to periodic effectiveness testing. Effectiveness is the derivative instrument’s ability to generate offsetting changes in the fair value or cash flows of the underlying hedged item. The ineffective portion of the change in fair value for a hedged derivative is immediately recognized in earnings, regardless of whether the hedged derivative is designated as a cash flow or fair value hedge.

 

Under U.S. GAAP, prior to January 1, 2007, the Financial Group’s derivative contracts are not accounted for as hedges for accounting purposes and are recognized in the balance sheet at fair value with changes in the fair value recognized in earnings concurrently with the change in fair value of the underlying assets and liabilities.

 

Under U.S. GAAP, certain embedded terms included in host contracts that affect some or all of the cash flows or the value of other exchanges required by the contract in a manner similar to a derivative instrument must be separated from the host contract and accounted for at fair value.

 

**E)****          ****Reserve for foreclosed assets**

 

Under Mexican Banking GAAP, assets repossessed or received as payment in kind are recorded at the value at which they were judicially repossessed by order of the courts. If the book value of the loan to be foreclosed on the date of foreclosure is lower than the value of the repossessed asset as judicially determined, the value of the asset is adjusted to the book value of the loan. Foreclosed assets are subsequently valued based on standard provisions established by the Commission depending on the nature of the foreclosed asset and the number of months outstanding.

 

Until December 31, 2006, in accordance with Mexican Banking GAAP foreclosed assets were considered to be monetary assets, while for U.S. GAAP these were treated as non-monetary assets. As a result of the change in the accounting for foreclosed assets under Mexican Banking GAAP, in 2007 the Financial Group no longer calculated REPOMO related to these assets as they were considered to be non-monetary assets.

 

Under U.S. GAAP, as required by ASC 310 “Receivables” (previously SFAS No. 15, “Accounting by Debtors and Creditors for Troubled Debt Restructurings”), assets repossessed or received as payment in kind are reported at the time of foreclosure or physical possession at their fair value less estimated costs to sell. Subsequent impairment adjustments should be recognized if the fair value of these assets decreases below the value measured when repossessed or received, determined on an asset by asset basis. Those assets not eligible for being considered as ‘available-for-sale’ are depreciated based on their useful life and are subject to impairment tests.

 

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**F)****           ****Insurance and postretirement activities**

 

According to the accounting practices prescribed by the Mexican National Insurance and Surety Commission (Mexican Insurance GAAP), commissions and costs at the origination of each policy are charged to income as incurred. In addition, for life insurance policies, any amount received from individuals is considered as premium income. As required by U.S. GAAP, commissions and costs at origination are capitalized and amortized over the life of the policy using the effective interest method (deferred acquisition costs). Furthermore, premiums received in excess for life insurance policies are recorded as premium income.

 

Also, under the accounting practices prescribed by the National System of Saving for the Retirement Commission, the direct costs associated with the reception of new clients for the administration of the bills of retirement is recognized in income as incurred. Under U.S. GAAP the costs are capitalized and amortized over the time in which the service is rendered.

 

Accumulated deferred acquisition costs (DAC) as of December 31, 2010, 2009 and 2008 under U.S. GAAP are as follows:

 
| ** **                               | ** ** | **December 31,** | ** ** |
|------------------------------------------|------------|-----------------------|------------|
| ** **                               | ** ** | **2010**              | ** ** | **2009** | ** ** | **2008** | ** ** |
|                                     |       |                  |       |   |   |   |   |
| Life                                     |       | Ps.                   | 24         |   | Ps. | 22 |   | Ps. | 20 |   |
| P&C                                  |       | 316                   |       | 287 |   | 255 |   |
| Health                                   |       | 28                    |       | 58 |   | 197 |   |
| Afore                                    |       | 1,640                 |       | 1,351 |   | 1,397 |   |
| Total accumulated DAC                    |       | Ps.                   | 2,008      |   | Ps. | 1,718 |   | Ps. | 1,869 |   |
| DAC - net amount charged   to net income |       | Ps.                   | 290        |   | Ps. | (151 | ) | Ps. | 371 |   |

 

Under Mexican Insurance GAAP, certain reserves (disaster) are calculated using internal models previously approved by the Mexican National Insurance and Surety Commission. Generally pension reserves are based on the present value of benefits to be paid together with fees suggested by this Commission. U.S. GAAP establishes the use of a fee that allows policy benefits to be covered through premiums collected for pension reserves. Under U.S. GAAP, provisions for disaster reserves are based on actuarial calculations for losses incurred using the experience of the Financial Group.

 

The Financial Group recorded a reserve for catastrophic events under Mexican GAAP as a liability which is not allowed by U.S. GAAP.

 

**Loss reserves and unearned premiums**:

 
| ** **             | ** ** | **December 31,** | ** ** |
|------------------------|------------|-----------------------|------------|
| ** **             | ** ** | **2010**              | ** ** | **2009** | ** ** |
|                   |       |                  |       |   |   |
| Life                   |       | Ps.                   | 23         |   | Ps. | 68 |   |
| P&C                |       | (348                  | )          | (267 | ) |
| Health                 |       | (38                   | )          | (125 | ) |
| LAE                    |       | (161                  | )          | (107 | ) |
| Afore                  |       | (343                  | )          | (308 | ) |
| Pensions               |       | 739                   |       | 696 |   |
| Total                  |       | (128                  | )          | (43 | ) |
| Catastrophic reserve:  |       |                  |       |   |   |
| P&C                |       | 320                   |       | 252 |   |
|                   |       |  320             |       | 252 |   |
| Reinsurance activities |       | 30                    |       | (70 | ) |
|                   |       |                  |       |   |   |
| Total reserves         |       | Ps.                   | 222        |   | Ps. | 139 |   |

 

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**Summary:**

 
| ** **        | ** ** | **December 31,** | ** ** |
|-------------------|------------|-----------------------|------------|
| ** **        | ** ** | **2010**              | ** ** | **2009** | ** ** |
|              |       |                  |       |   |   |
| DAC               |       | Ps.                   | 2,008      |   | Ps. | 1,718 |   |
| Total reserves    |       | 222                   |       | 139 |   |
| Total adjustments |       | Ps.                   | 2,230      |   | Ps. | 1,857 |   |

 

**G)****         ****Business combinations**

 

Through December 31, 2004, under Mexican Banking GAAP the excess of the purchase price over the adjusted book value of net assets acquired was recorded as goodwill (negative goodwill if book value exceeded the purchase price). Effective January 1, 2005, NIF B-7, which substantially conforms to the accounting established by U.S. GAAP, except as it relates to transactions between shareholders, requires the excess of the purchase price over the book value of assets and liabilities acquired to be allocated to the fair value of separately identifiable assets and liabilities acquired.

 

Under U.S. GAAP, ASC 805, “Business Combinations” (previously SFAS No. 141), requires the excess purchase price over the book value of assets and liabilities acquired to be allocated to the fair value of separately identifiable assets and liabilities acquired. Retail depositor relationships associated with an acquisition of a financial institution by a bank, termed the core deposit intangible, are identified and valued separately. In addition, any negative goodwill (excess of fair value over cost) is first allocated to reduce long-lived assets acquired and if any negative goodwill remains that amount is recognized as an extraordinary gain. The Financial Group’s U.S. GAAP stockholders’ equity and net income balances have been adjusted for differences generated by the balances of both intangible and fixed assets resulting from the Bancrecer acquisition in 2001.

 

The Financial Group’s subsidiary Banorte, through its wholly-owned subsidiary Banorte USA acquired 70% of the outstanding common stock of INB on November 16, 2006. The total purchase price including acquisition costs, exceeded the estimated fair value of tangible net assets acquired by approximately USD 176 million, of which approximately USD 16 million was assigned to an identifiable intangible asset with the remaining balance recorded by the Financial Group as goodwill. The identifiable intangible asset represents the future benefit associated with the acquisition of the core deposits and is being amortized over a period that approximates the expected attribution of the deposits. Factors that contributed to a purchase price resulting in goodwill include INB’s historical record of earnings, capable management, and the Financial Group’s ability to enter the US market, which are expected to complement and create synergies with the Financial Group’s existing service locations. The results of operations of INB are included in the consolidated earnings of the Financial Group as of the effective date of the acquisition. Certain differences related to Banorte USA, which prepares its financial information in accordance with U.S. GAAP are included in the reconciliation within the corresponding U.S. GAAP adjustments. The goodwill recorded in the acquisition of INB is being accounted for in accordance with ASC 350, “Intangibles — Goodwill and Other” (previously SFAS No. 142 “Goodwill and Other Intangible Assets”). Accordingly, goodwill will not be amortized; rather it is being tested annually for impairment. In addition, goodwill is not deductible for tax purposes.

 

In conjunction with the acquisition of 70% of the outstanding shares of INB, Banorte entered into a stock option agreement with INB shareholders. The agreement granted Banorte, or its assignees, an irrevocable option to purchase the remaining 30% of the outstanding shares of INB (hereinafter referred to as the “Call Option”). In addition, the agreement granted INB shareholders the option to require Banorte, or its assignees to purchase the remaining 30% of the outstanding shares of INB (hereinafter referred to as the “Put Right”). If Banorte or the INB shareholders exercise the Call Option or the Put Right, each party must purchase or sell the entire 30% of the remaining share of INB. In conformity with recommendations made by the Commission, the Financial Group recognized a liability for the obligation represented by the Put Right at the acquisition date. In subsequent periods, the obligation was revised based on the contractual amount established in the purchase agreement with changes in the value recognized in goodwill. Under U.S. GAAP, the Put Right was recognized as a free standing financial instrument under the premises of ASC 480 “Distinguishing Liabilities from Equity” (previously SFAS No. 150 “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity”), and was recorded at the acquisition date at its estimated fair market value, with corresponding changes in fair value recognized in current earnings.

 

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In April 2009 the Financial Group exercised its call option acquiring the remaining 30% of INB’s shares and as of December 31, 2010 and 2009 is the 100% owner. For purposes of Mexican Banking GAAP this resulted in cancelling the value of the call option that had been recorded upon initial recognition. Under U.S. GAAP, the acquisition of the remaining 30% of the shares of INB, was treated as an equity transaction with no further valuation of the assets or liabilities of INB Financial Corp, and thus no recording of additional goodwill.

 

**H)****  ****Employee retirement obligations**

 

Under Mexican Banking GAAP NIF D-3 requires the recognition of a severance indemnity liability calculated based on actuarial computations. Similar recognition criteria under U.S. GAAP are established in ASC 712 “Compensation — Nonretirement Postemployment Benefits” (previously SFAS No. 112, “Employers’ Accounting for Postemployment Benefits”), which requires that a liability for certain termination benefits provided under an ongoing benefit arrangement such as these statutorily mandated severance indemnities, be recognized when the likelihood of future settlement is probable and the liability can be reasonably estimated. Prior to 2008, Mexican Banking GAAP allowed for the Financial Group to amortize the transition obligation related to the adoption of NIF D-3 over the expected service life of the employees. Beginning in 2008, an amendment to NIF D-3 requires the amortization of the unrecognized transition as of January 1, 2008 over the lesser of the expected remaining service period of employees or over five years. However, U.S. GAAP required the Financial Group to recognize such effect upon initial adoption and does not permit an entity to reduce the accrued liability by any unrecognized items, which results in a difference in the amount recorded under the two accounting principles.

 

Under Mexican Banking GAAP, pension and seniority premium obligations are determined in accordance with NIF D-3. For U.S. GAAP, such costs are accounted for in accordance with ASC 715 “Compensation — Retirement Benefits” (previously SFAS No. 87, “Employers’ Accounting for Pension”), whereby the liability is measured, similar to Mexican Banking GAAP, using the projected unit credit method at net discount rates. Those requirements became effective on January 1, 1989 whereas NIF D-3 became effective on January 1, 1993. Therefore, a difference between Mexican Banking GAAP and U.S. GAAP exists due to the accounting for the transition obligation at different implementation dates.

 

Postretirement benefits are accounted for under U.S. GAAP in accordance with ASC 715 “Compensation — Retirement Benefits” (previously SFAS No. 106, *“*Employers’ Accounting for Postretirement Benefits Other Than Pensions”)*,* which applies to all post-retirement benefits, such as life insurance provided outside a pension plan or other postretirement health care and welfare benefits expectedto be provided by an employer to current and former employees. The cost of postretirement benefits is recognized over the employees’ service periods and actuarial assumptions are used to project the cost of health care benefits and the present value of those benefits. For Mexican Banking GAAP purposes as required by NIF D-3, the Financial Group accounts for such benefits in a manner similar to U.S. GAAP. The requirements in ASC 715 became effective on January 1, 1993 whereas NIF D-3 became effective on January 1, 2003. Therefore, a difference between Mexican Banking GAAP and U.S. GAAP exists due to the accounting for the transition obligation at different implementation dates.

 

The Financial Group has adopted the provisions of ASC 715 “Compensation — Retirement Benefits” (SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans”).  This statement requires the Financial Group to (1) fully recognize, as an asset or liability, the overfunded or underfunded status of defined pension and other postretirement benefit plans; (2) recognize changes in the funded status through other comprehensive income in the year in which the changes occur; and (3) measure the funded status of defined pension and other postretirement benefit plans as of the date of the its fiscal year-end.

 

**I)****    ****Capitalized costs**

 

Under Mexican Banking GAAP, prior to the issuance of NIF C-8, “Intangible Assets”, all expenses incurred in the preoperating or development stages were capitalized. Upon adoption of NIF C-8, research costs and preoperating costs should be expensed as a period cost, unless they can be classified as development costs to be amortized on a straight-line basis after operations commence for a period not exceeding 20 years. Under U.S. GAAP, in accordance with ASC 730, “Accounting for Research and Development”, and ASC 340, “Other Assets and Deferred Cost” (previously SFAS No. 2, “Accounting for Research and Development Costs,” and SOP 98-5, “Reporting on the Costs of Start-Up Activities”), such research and preoperating expenses are expensed as incurred.

 

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Under Mexican Banking GAAP, the Financial Group has capitalized certain significant costs related to implementation projects. For U.S. GAAP purposes, the Financial Group follows the guidance established by ASC 350 “Intangibles — Goodwill and Other” (previously SOP 98-1, “Accounting for the Costs of Computer Software Developed or Obtained for Internal Use”). This standard establishes that computer software costs incurred in the preliminary project stage should be expensed as incurred. Once the capitalization criteria of the standard have been met, external direct costs of materials and services consumed in developing or obtaining internal-use computer software; payroll and payroll-related costs for employees who are directly associated with and who devote time to the internal-use computer software project (to the extent of the time spent directly on the project); and interest costs incurred when developing computer software for internal use should be capitalized. Generally, training costs and data conversion costs should be expensed as incurred. As the U.S. GAAP standard is more stringent, the reconciling item represents an adjustment for items that have been capitalized for Mexican Banking GAAP purposes that do not qualify for capitalization under U.S. GAAP.

 

**J)****   ****Securitizations**

 

**Mortgage Loan Securitization**

 

During December 2006, the Financial Group securitized mortgage loans in the amount of Ps. 2,147, by transferring such loans to a qualifying special purpose entity (the “Trust”) created specifically for purposes of this transaction. The Trust issued certificates that trade on the Mexican Stock Exchange and guarantees its holders with a specific rate of return. The Financial Group received a subordinated certificate from the Trust, which entitles the Financial Group to retain the excess cash flows in the Trust, after reimbursing the holders of the certificates, which was recorded at its nominal value and classified as an available-for-sale security. Under Mexican Banking GAAP, this securitization was accounted for as a sale and as a result of recognizing the retained interest represented by the subordinated certificate at nominal value no gain or loss on the sale was recognized. As of January 2007, subsequent increases or decreases in the fair value of the subordinated certificate are reflected by an adjustment, net of taxes, being charged or credited to the other comprehensive income portion of stockholders’ equity, which conforms to the accounting established by U.S. GAAP.

 

Under US GAAP, the securitization met the criteria established by ASC 860 for sale accounting and the securitized loans were derecognized by the Financial Group as of the date of sale. The Financial Group allocated the previous book carrying amount between the loans sold and the subordinated certificate (the retained interest) in proportion to their relative fair values on the date of transfer. The Financial Group recognized a gain on the sale of Ps. 358 by comparing the net sale proceeds (after transaction costs) to the allocated book value of the loans sold. The subordinated certificate was recorded at its relative book value at the date of sale and has been classified as an available-for-sale security under ASC 320. Subsequent increases or decreases in the fair value of the subordinated certificate are reflected by an adjustment, net of taxes, being charged or credited to the other comprehensive income portion of stockholders’ equity.

 

**State and Municipal Government Loans Securitization**

 

During November 2007, the Financial Group securitized state and municipal government loans in the amount of Ps. 5,599 by transferring such loans to a qualifying special purpose entity (the “Trust”) created specifically for purposes of this transaction. The Trust issued certificates that trade on the Mexican Stock Exchange and guarantees its holders with a specific rate of return. The Financial Group retained the 100% of the securitization certificates issued by the Trust and immediately subsequent to the securitization sold them under repurchase agreements. The Financial Group received a subordinated certificate from the Trust, which entitles the Financial Group to retain the excess cash flows in the Trust, after reimbursing the holders of the certificates, which was recorded at its fair value and classified as a trading security. Under Mexican Banking GAAP, this securitization was accounted for as a sale and generated a gain, resulting from the difference between the fair value of the assets received and the carrying value of the transferred assets.

 

For U.S. GAAP purposes, given that the Financial Group repurchased 100% of the certificates issued by the Trust, the transactions did not meet the sales criteria established by ASC 860 and as a result were accounted for as secured borrowings.

 

For Mexican Banking GAAP, through December 2008, both subordinated certificates were presented as part of the “Investments in securities” line item in the Consolidated Balance Sheet. In 2009, the Financial Group reclassified them to the “Receivables generated by securitizations” line item, due to a change in the Commissions’ accounting criteria

 

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**K)****  ****Other adjustments**

 

These include the following:

 
| ** **                   | ** ** | **Stockholders’ equity** | ** ** | **Net income**                        | ** ** |
|------------------------------|------------|------------------------------------|------------|--------------------------------------------|------------|
| ** **                   | ** ** | **December 31,**              | ** ** | **Year ended December 31,** | ** ** |
| ** **                   | ** ** | **2010**                           | ** ** | **2009**                                   | ** ** | **2010** | ** ** | **2009** | ** ** | **2008** | ** ** |
|                         |       |                               |       |                                       |       |   |   |   |   |   |   |
| 1) Non-accrual loans         |       | Ps.                                | 428        |                                       | Ps.        | 326 |   | Ps. | 102 |   | Ps. | 157 |   | Ps. | 142 |   |
| 2) Guarantees                |       | (5                                 | )          | (11                                        | )          | 6 |   | (18 | ) | 29 |   |
| 3) Repurchase agreements     |       | —                             |       | —                                     |       | — |   | 24 |   | 46 |   |
| 4) Investment valuation      |       | —                             |       | 7                                          |       | (237 | ) | (629 | ) | (1,121 | ) |
| 5) Equity method investments |       | —                             |       | —                                     |       | — |   | 53 |   | 90 |   |
|                         |       | Ps.                                | 423        |                                       | Ps.        | 322 |   | Ps. | (129 | ) | Ps. | (413 | ) | Ps. | (814 | ) |

 

These other adjustments are related to the following differences between Mexican Banking GAAP and U.S. GAAP:

 

1)    Under Mexican Banking GAAP, the recognition of interest income is suspended when certain of the Financial Group’s loans become past due based on criteria established by the Commission. Under U.S. GAAP, the accrual of interest is generally discontinued when, in the opinion of management, there is an indication that the borrower may be unable to make payments as they become due. As a general practice, this occurs when loans are 90 days or more overdue. Any accrued but uncollected interest is reversed against interest income at that time.

 

2)    For U.S. GAAP purposes, guarantees are accounted for under ASC 460 “Guarantees”, which requires that an entity recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. For Mexican Banking GAAP purposes, the Financial Group does not record the fair value of such guarantees in its consolidated financial statements.

 

3)    The repurchase and resale agreements are transactions by which the purchaser acquires ownership of financial instruments for a sum of money and is obligated to transfer instruments of the same kind to the seller of the securities within the agreed term and in exchange for the same price, plus a premium. Under Mexican Banking GAAP repurchase transactions are recorded according to their economic substance, which is financing with collateral, by which the Financial Group, acting as the purchaser, gives cash as financing in exchange for financial assets as guarantee in the event of noncompliance. Prior to September, 2008, repurchase and resale agreements represented the temporary purchase or sale of certain financial instruments in exchange for a specified premium to be paid or received and with the obligation to resell or repurchase the underlying securities and were recorded as sales and purchases of securities, respectively.  A net asset or liability was recorded at the fair value of the commitment to subsequently repurchase or resell the securities, respectively. Under U.S. GAAP, repurchase and reverse repurchase agreements are transfer transactions subject to specific provisions and conditions that must be met in order for a transaction to qualify as a sale rather than a secured borrowing, In most cases, banks in the U.S. enter into repurchase and reverse repurchase transactions that qualify as secured borrowings. Accordingly, the Financial Group’s assets subject to a repurchase agreement would not be derecognized. Due to changes in Mexican Banking GAAP effective October 2008, repurchase and reverse repurchase agreements are accounted for as secured borrowings, as is also required under U.S. GAAP.

 

4)    Until December 31, 2008, the investment valuation adjustment was related to a difference in the income recognition for available-for-sale and held-to-maturity securities. For U.S. GAAP purposes, the premiums and discounts of such securities are accounted for based on the interest method. Under Mexican Banking GAAP, the Financial Group recognized income based on the straight line method. Additionally, under Mexican Banking GAAP, the Financial Group recognizes the effect of exchange rate fluctuations of its securities available for sale within income of the year. Under U.S. GAAP, this impact is recognized in other comprehensive income. As disclosed in Note 4, due to changes in Mexican Banking GAAP effective January 2009, the investment valuation related to available-for-sale and held-to-maturity securities substantially conforms to U.S. GAAP requirements.

 

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5)    Until December 31, 2008, under Mexican Banking GAAP, investments in associated companies in which the Financial Group had more than a 10% ownership, were accounted for by the equity method. For U.S. GAAP purposes, investments in associated companies in which the Financial Group has a 20% to 50% ownership, but not a controlling interest, are accounted for by the equity method. Investments in which the Financial Group has less than a 20% ownership are generally accounted for under the cost method, unless it can demonstrate that it has significant influence.

 

**L)****   ****Fair value measurements**

 

For purposes of U.S. GAAP, the Financial Group applies the accounting provisions of ASC 820 “Fair Value Measurements and Disclosure” (previously SFAS No. 157, Fair Value Measurements). U.S. GAAP establishes a framework for measuring fair value and expands disclosures about fair value measurements and clarifies the definition of exchange price as the price between market participants in an orderly transaction to sell an asset or transfer a liability in the market in which the reporting entity would transact for the asset or liability, that is, the principal or most advantageous market for the asset or liability. The changes to existing practice resulting from the application of this statement relate to the definition of fair value, the methods used to measure fair value, and the expanded disclosures about fair value measurements. This guidance was effective for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years for financial assets and liabilities. On October 10, 2008, the FASB issued guidance included in ASC 820 (Staff Position (“FSP”) FAS No. 157-3 “Determining the Fair Value of a Financial Asset When the Market for That Asset is Not Active”), which was effective upon issuance. The provisions of ASC 820 were deferred until fiscal years beginning after November 15, 2008 for nonfinancial assets and liabilities. The effect of adopting ASC 820 as it relates to the Financial Group’s financial assets and liabilities is included in the reconciliation between Mexican Banking GAAP and U.S. GAAP. There was no impact to the Financial Group’s U.S. GAAP balances as a result of adopting this standard related to its nonfinancial assets and liabilities.

 

The Financial Group applied the following hierarchy for fair value.

 

Level 1. - Assets and liabilities for which an identical instrument is negotiated in an active market, such as publicly negotiated instruments or futures contracts (highly liquid and actively traded).

 

Level 2. - Assets and liabilities valued using information observable in the market for similar instruments; prices quoted in inactive markets; or other observable assumptions that can be evidenced with available information in the market for substantially the entire terms of the asset and liability.

 

Level 3. - Assets and liabilities whose significant valuation assumptions are not readily observable in the market; instruments valued using the best information available, some of which is developed internally, considering the risk premium that a market participant would need.

 

The Financial Group considers the primary or the best market where the transaction can take place and the assumptions that a market participant would use to value the asset or liability. When possible, the Financial Group uses active markets and observable market prices for identical assets and liabilities. When the identical assets and liabilities are not negotiated in active markets, the Financial Group uses observable market information for similar assets and liabilities. However, certain assets and liabilities are not actively negotiated in observable markets, so the Financial Group has to use alternate valuation methods to measure fair value.

 

Many over the counter (“OTC”) contracts have bid and ask prices that can be observed in the marketplace. Bid prices reflect the highest price that a party is willing to pay for an asset. Ask prices represent the lowest price that a party is willing to accept for an asset. For financial instruments whose inputs are based on bid-ask prices, the Financial Group does not require that the fair value estimate always be a predetermined point in the bid-ask range. The Financial Group’s policy is to allow for mid-market pricing and adjusting to the point within the bid-ask range that meets the Financial Group’s best estimate of fair value. For offsetting positions in the same financial instrument, the same price within the bid-ask spread is used to measure both the long and short positions.

 

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Fair value for many OTC contracts is derived using pricing models. Pricing models take into account the contract terms (including maturity) as well as multiple inputs, including, where applicable, commodity prices, equity prices, interest rate yield curves, credit curves, correlation, and creditworthiness of the counterparty, option volatility and currency rates. In accordance with U.S. GAAP, the impact of the Financial Group’s own credit spreads is also considered when measuring the fair value of liabilities, including OTC derivatives contracts. Where appropriate, valuation adjustments are made to account for various factors such as liquidity risk (bid-ask adjustments), credit quality and model uncertainty. These adjustments are subject to judgment, are applied on a consistent basis and are based upon observable inputs where available. The Financial Group generally subjects all valuations and models to a review process initially and on a periodic basis thereafter.

 

Fair value is a market-based measure considered from the perspective of a market participant rather than an entity-specific measure. Therefore, even when market assumptions are not readily available, the Financial Group’s own assumptions are set to reflect those that the Financial Group believes market participants would use in pricing the asset or liability at the measurement date.

 

Certain assets are measured at fair value on a non recurring basis. These assets are not measured at fair value on an ongoing basis but are subject to fair value adjustments only in certain circumstances. These include property, furniture and fixtures, foreclosed assets and goodwill that are written down to fair value when they are determined to be impaired. As mentioned in Note 4, the Financial Group has established guidelines to identify and, if applicable, record losses derived from the impairment or decrease in value of long-lived tangible or intangible assets, including goodwill. No impairment to property, furniture, fixtures, foreclosed assets or goodwill was identified for the years ended December 31, 2010 and 2009. As a result no fair value adjustments to these assets were recorded and the related fair value disclosures were not necessary.

 

As of December 31, 2010 and 2009, the Financial Group did not have any liabilities measured on a non recurring basis; as such, no disclosure was necessary.

 

Below is a description of the valuation methods used for the instruments measured at fair value on a recurring basis, including the general classification of such instruments according to their fair value hierarchy.

 

Investments in securities

 

When reference prices are available in an active market and the financial instruments are negotiated in liquid organized markets, they are considered Level 1 in the fair value hierarchy. If market price is not available or is available solely in inactive markets, fair value is estimated using valuation methods, prices established for other instruments with similar characteristics or using discounted cash flows that include assumptions prepared by management. This type of securities is classified in Level 2, and in the event the model includes assumptions prepared by management, the securities are classified in Level 3, following the fair value hierarchy.

 

Derivative financial instruments

 

Derivatives quoted on stock exchanges whose fair value is based on quoted market prices are classified in fair value hierarchy Level 1. However, for those derivative contracts quoted over the counter, their fair value is based on widely accepted valuation methods in the market using observable inputs that can be evidenced with information available in the market. Such derivatives are classified in fair value hierarchy Level 2.

 

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The following fair value hierarchy table presents information regarding the Financial Group’s financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2010 and 2009:

 
| ** **                    | ** ** | **Fair value measurements as of December 31, 2010**  | ** ** |
|-------------------------------|------------|-----------------------------------------------------------------------------------------|------------|
| ** **                    | ** ** | **Quoted prices In   active markets   for identical   instruments** | ** ** | **Significant other   observable   inputs** | ** ** | **Significant   unobservable   inputs** | ** ** | **December 31,   2010** | ** ** |
| ** **                    | ** ** | **(Level 1)**                                                                      | ** ** | **(Level 2)** | ** ** | **(Level 3)** | ** ** | **Fair value** | ** ** |
| Trading securities            |       | Ps.                                                                                     | 66,181     |   | Ps. | — |   | Ps. | — |   | Ps. | 66,181 |   |
| Available for sale securities |       | 4,415                                                                                   |       | 7,873 |   | — |   | 12,288 |   |
| Derivative asset position     |       | —                                                                                  |       | 8,059 |   | — |   | 8,059 |   |
| Derivative liability position |       | —                                                                                  |       | (10,737 | ) | — |   | (10,737 | ) |
| Securitization receivables    |       | —                                                                                  |       | — |   | 950 |   | 950 |   |
| IFC Transaction               |       | —                                                                                  |       | — |   | 4,244 |   | 4,244 |   |
| Total                         |       | Ps.                                                                                     | 70,596     |   | Ps. | 5,195 |   | Ps. | 5,194 |   | Ps. | 80,985 |   |

 
| ** **                    | ** ** | **Fair value measurements as of December 31, 2009**  | ** ** |
|-------------------------------|------------|-----------------------------------------------------------------------------------------|------------|
| ** **                    | ** ** | **Quoted prices In   active markets   for identical   instruments** | ** ** | **Significant other   observable   inputs** | ** ** | **Significant   unobservable   inputs** | ** ** | **December 31,   2009** | ** ** |
| ** **                    | ** ** | **(Level 1)**                                                                      | ** ** | **(Level 2)** | ** ** | **(Level 3)** | ** ** | **Fair value** | ** ** |
| Trading securities            |       | Ps.                                                                                     | 24,459     |   | Ps. | — |   | Ps. | — |   | Ps. | 24,459 |   |
| Available for sale securities |       | 5,098                                                                                   |       | 6,603 |   |   |   | 11,701 |   |
| Derivative asset position     |       | —                                                                                  |       | 5,880 |   | — |   | 5,880 |   |
| Derivative liability position |       | —                                                                                  |       | (8,375 | ) | — |   | (8,375 | ) |
| Securitization receivables    |       | —                                                                                  |       | — |   | 432 |   | 432 |   |
| IFC Transaction               |       | —                                                                                  |       | — |   | 3,651 |   | 3,651 |   |
| Total                         |       | Ps.                                                                                     | 29,557     |   | Ps. | 4,108 |   | Ps. | 4,083 |   | Ps. | 37,748 |   |

 
| ** **                                        | ** ** | **Fair value measurements using significant   unobservable inputs (Level 3)** | ** ** |
|---------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                        | ** ** | **Securities**                                                                                                   | ** ** |
| Beginning balance                                 |       | Ps.                                                                                                              | 4,083      |   |
| Total gains or losses   (realized/unrealized)     |       |                                                                                                             |       |
| Included in earnings (or   changes in net assets) |       | 518                                                                                                              |       |
| Included in other   comprehensive income          |       | 593                                                                                                              |       |
| Ending balance                                    |       | Ps.                                                                                                              | 5,194      |   |

 

The definition of fair value under U.S. GAAP, which is based on an exit price notion, differs from the definition established by Mexican Banking GAAP, which is based on a settlement price notion. Therefore, the Financial Group has included a reconciling item in U.S. GAAP reconciliation as a result of adopting this accounting pronouncement.

 

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**M)****       ****IFC transaction**

 

At the Banorte Extraordinary Stockholders’ Meeting held on October 23, 2009 both an increase in its ordinary shareholders’ equity and a modification to its corporate bylaws in order to complete the capitalization of the IFC to become a Banorte stockholder with an investment of USD 150 million were approved, which was settled in November 2009 by turning over to the IFC 3,370,657,357 ordinary nominative “O” Series shares with a nominal value of Ps. 0.10 (ten cents). The IFC liquidated this operation with USD 82.3 million in cash and the capitalization of a credit of USD 67.7 million. Banorte, the IFC and the Financial Group executed a series of agreements in which the IFC is compelled to maintain its share in Banorte for at least five years. After five years the IFC may sell its share to the Financial Group, which will have to purchase it with shares of its own or cash, depending on the Financial Group’s choice and convenience.

 

For US GAAP purposes, the redeemable shares held by the IFC that allow them to exchange their shares in Banorte for cash or shares of the Financial Group (to be determined by the Financial Group if the IFC excercises their option) has been classified outside the permanent equity in accordance with ASC 480 “Distinguishing Liabilities from Equity”, (previously SFAS No. 150 “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity”) which requires securities with redemption features that are not solely within the control of the issuer to be classified outside of permanent equity. The initial carrying amount of the redeemable equity security should be its fair value at date of issue. The Financial Group has elected to recognize changes in the redemption value immediately as they occur and adjust the carrying value of the security to equal the redemption value at the end of each reporting period.

 

Under Mexican Banking GAAP, NIF C-12 “Financial Instruments with Characteristics of Liability, Equity, or Both” requires the Financial Group to record the noncontrolling interest held by the IFC at the original transaction value within stockholders’ equity since the IFC is exposed to the same risks and rewards as any other shareholder of Banorte and given that the intention of the Financial Group is to redeem the IFC’s noncontrolling interest in exchange of the Financial Group’s own shares in the event that the IFC exercises its option. Any future transactions between the Financial Group and the IFC as it relates to this matter will be accounted for directly in stockholders’ equity as it is between common shareholders.

 

**N)****          ****Income taxes**

 

Under Mexican Banking GAAP as required by NIF D-4, “Income Taxes”, income tax and employee statutory profit sharing (PTU) are charged to results as they are incurred and the Financial Group recognizes deferred income tax assets and liabilities for the future consequences of temporary differences between the financial statement carrying amounts of assets and liabilities and their respective income tax basis, measured using enacted rates. The effects of changes in the statutory rates are accounted for in the period in which the enactment occurs. The Financial Group recognizes the benefits related to tax loss carryforwards and asset tax credit carryforwards when such amounts are realized. Deferred tax assets are recognized only when it is highly probable that sufficient future taxable income will be generated to recover such deferred tax assets.  Under Mexican Banking GAAP the Financial Group did not recognize deferred tax assets in the acquisition of Bancrecer as their potential utilization was not considered to be highly probable at the acquisition date.

 

PTU arises from temporary differences between the accounting result and income for PTU purposes and is recognized only when it can be reasonably assumed that such difference will generate a liability or benefit, and there is no indication that circumstances will change in such a way that the liabilities will not be paid or benefits will not be realized.

 

Under U.S. GAAP, as required by ASC 740, “Income Taxes” (previously SFAS No. 109 “Accounting for Income Taxes”), the Financial Group recognizes deferred income tax and PTU assets and liabilities for the future consequences of temporary differences between the financial statement carrying amounts of assets and liabilities and their respective income tax or PTU bases, measured using enacted rates. The effects of changes in the statutory rates are accounted for in the period when the enactment occurs. Deferred income tax assets are also recognized for the estimated future effects of tax loss carryforwards and asset tax credit carryforwards. Deferred income tax assets are reduced by any benefits that, in the opinion of management, more likely than not that the tax assets will be realized. Under U.S. GAAP the Financial Group recognized deferred tax asset related to Bancrecer’s acquisition as their realization was considered to be more likely than not.

 

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U.S. GAAP differences as described above, to the extent taxable are reflected in the U.S. GAAP deferred tax balances.

 

**O)****         ****Noncontrolling interest**

 

The effects of the U.S. GAAP differences as described in this Note reflect the amounts assigned to the noncontrolling interests.

 

***II******                                     ******Consolidation:***

 

Under Mexican Banking GAAP, the Financial Group’s consolidated financial statements include all subsidiaries under the control of financial holding companies, except those in the insurance and pension sector. The determination of which companies are deemed to be within the insurance and pension sector is not based solely on the application of a conceptual framework. The SHCP has the right to determine if a company is or is not within the insurance and pension sector, and therefore could be required to consolidate.

 

Under U.S. GAAP, the basic principle is that when a Financial Group has a controlling financial interest (either through a majority voting interest or through the existence of other control factors) of an entity, such entity’s financial statements should be consolidated, irrespective of whether the activities of the subsidiary are nonhomogeneous with those of the parent.

 

No adjustments to consolidated net income or consolidated stockholders’ equity result due to the different consolidation principles disclosed above.

 

***III******                                ******Additional disclosures:***

 

**A)****          ****Earnings per common share (“EPS”) in accordance with U.S. GAAP**

 

In accordance with U.S. GAAP, EPS is based on the provisions of ASC 260, “Earnings per Share” (previously SFAS No. 128), and is calculated using the weighted-average number of common shares outstanding during each period. Basic and diluted earnings per share are based upon, 2,018,257,560, 2,017,132,134, and 2,016,959,232 weighted-average shares outstanding for 2010, 2009 and 2008, respectively. Potentially dilutive common shares for all periods presented are not significant. Basic and diluted net income per common share computed in accordance with U.S. GAAP is presented below:

 
| ** **                                                                  | ** ** | **Year ended December 31,** | ** ** |
|-----------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                  | ** ** | **2010**                                   | ** ** | **2009** | ** ** | **2008** | ** ** |
|                                                                        |       |                                       |       |   |   |   |   |
| Basic and diluted earnings   per share attributable to controlling interest |       | Ps.                                        | 3.4776     |   | Ps. | 3.5423 |   | Ps. | 3.2379 |   |
|                                                                             |            |                                            |            |  |  |  |  |  |  |  |

 

**B)****          ****Subsequent events**

 

The Financial Group’s consolidated financial statements have been approved by the Board of Directors at their January 25, 2011 meeting in accordance with the responsibility assigned to them. The Financial Group has evaluated events subsequent to December 31, 2010 to assess the need for potential recognition or disclosure in the accompanying consolidated financial statements. Such events were evaluated through January 25, 2011, the date the Financial Group’s Mexican Banking GAAP consolidated financial statements were available to be issued.

 

In an official letter UBVA/012/2011 dated March 8, 2011, the SHCP having previously obtained a positive opinion from the Commission and Banco de México, authorized the merger of the Financial Group as the merging and subsisting entity with IXE Grupo Financiero as the merged and absorbed entity, in accordance with Article 10 of the Law Regulating Financial Groups. The merger is subject to the terms and conditions established by the shareholders of each entity as presented to the SHCP.

 

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**C****)****          ****Cash flow information**

 

Beginning in 2009, an amendment to Mexican Banking GAAP requires the presentation of a cash flow statement on a prospective basis instead of a statement of changes in financial position. Prior to such date Mexican Banking GAAP established the presentation requirements related to the statement of changes in financial position. The statement of changes in financial position presents the sources and uses of funds during the period measured as the differences, in constant pesos, between the beginning and ending balances of balance sheet items adjusted by the excess (shortfall) in restatement of capital. The monetary effect and the effect of changes in exchange rates are considered cash items in the determination of resources generated from operations due to the fact that they affect the purchasing power of the entity. The following price-level adjusted consolidated statement of cash flows presented for the years ended December 31, 2010, 2009 and 2008, includes the impact of U.S. GAAP adjustments in conformity with recommendations established by the American Institute of Certified Public Accountants, SEC Regulations and International Practices Task Force Committees.

 

**Grupo Financiero Banorte, S.A.B. de C.V. and Subsidiaries**

 

**Consolidated Statements of Cash Flows**

 

**For the years ended December 31, 2010, 2009 and 2008**

**(In millions of Mexican pesos)**

 
| ** **                                                    | ** ** | **2010** | ** ** | **2009** | ** ** | **2008** | ** ** |
|---------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Cash flows from operating   activities:                       |       |     |       |     |       |     |       |
| Net income under U.S. GAAP                                    |       | Ps.      | 6,949      |     | Ps.        | 7,074    |       | Ps. | 6,476 |   |
|                                                          |       |     |       |     |       |     |       |
| Unrealized investment   (income) loss                         |       | (52      | )          | 350      |       | 1,171    |       |
| Allowance for loan losses                                     |       | 7,056    |       | 6,616    |       | 6,625    |       |
| Depreciation and amortization                                 |       | 1,191    |       | 953      |       | 1,450    |       |
| Deferred income taxes and   employee profit sharing           |       | 67       |       | (518     | )          | (290     | )          |
| Other provisions                                              |       | 597      |       | (961     | )          | (354     | )          |
| Equity in earnings of   subsidiaries and associated companies |       | (83      | )          | (131     | )          | (125     | )          |
| Allowance for doubtful accounts                               |       | 164      |       | 182      |       | 59       |       |
| Periodic pension cost                                         |       | 206      |       | 160      |       | 199      |       |
| Loss (gain) on sale of   property                             |       | 8        |       | (8       | )          | —   |       |
| Loss on sale of foreclosed   assets                           |       | 85       |       | 31       |       | 273      |       |
| Loss (gain) on sale of   trading securities                   |       | 455      |       | 280      |       | (116     | )          |
| Loss (gain) on sale of   available for sale securities        |       | 157      |       | 23       |       | (53      | )          |
| Amortization of purchased portfolios                          |       | 588      |       | 566      |       | 680      |       |
| Insurance and postretirement reserves                         |       | (375     | )          | (117     | )          | (286     | )          |
| Amortization of debt   issuance fees and costs                |       | (2       | )          | (126     | )          | (4       | )          |
| Income recognition of   purchased portfolios                  |       | (249     | )          | (221     | )          | (278     | )          |
| Other non-cash items                                          |       | 923      |       | 535      |       | (2,014   | )          |
| Changes in operating   assets and liabilities:                |       |     |       |     |       |     |       |
| Trading securities                                            |       | (16,232  | )          | (23,015  | )          | (1,455   | )          |
| Trading derivative financial instruments                      |       | 181      |       | (82      | )          | 2,435    |       |
| Decrease (increase) in   settlement accounts payable          |       | 1,357    |       | 182      |       | (649     | )          |
| (Increase) decrease in   settlement accounts receivable       |       | (1,804   | )          | 63       |       | 1,262    |       |
| Decrease (increase) in   other accounts receivable            |       | 1,759    |       | (1,769   | )          | (4,286   | )          |
| Increase in other accounts   payable                          |       | 6,087    |       | 3,756    |       | 5,709    |       |
| (Increase) decrease in   deferred charges                     |       | (1,216   | )          | 623      |       | (1,560   | )          |
| (Decrease) increase in   deferred credits                     |       | (174     | )          | 4        |       | 242      |       |
| Net cash provided by (used   in) operating activities         |       | 7,643    |       | (5,550   | )          | 15,111   |       |
|                                                               |            |          |            |          |            |          |            |  |  |  |

 

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| ** **                                                                                  | ** ** | **2010**   | ** ** | **2009**   | ** ** | **2008**   | ** ** |
|---------------------------------------------------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|
| Cash flows from investing   activities:                                                     |       |       |       |       |       |       |       |
| Proceeds from sale of   property, furniture and equipment                                   |       | 305        |       | 259        |       | 123        |       |
| Acquisitions of property,   furniture and equipment                                         |       | (2,364     | )          | (1,467     | )          | (1,345     | )          |
| Proceeds from sale of   foreclosed assets                                                   |       | 596        |       | 636        |       | 758        |       |
| Treasury transactions -   held to maturity securities                                       |       | 17,408     |       | 31,284     |       | (219,851   | )          |
| Treasury transactions -   available for sale securities                                     |       | (7,056     | )          | (5,365     | )          | (4,430     | )          |
| Granting of loans                                                                           |       | (32,462    | )          | (8,698     | )          | (48,294    | )          |
| Purchased credit portfolios                                                                 |       | (553       | )          | (391       | )          | (302       | )          |
| Repurchase agreements — purchases                                                      |       | 4,566      |       | 5,454      |       | (90        | )          |
| Other investing activities                                                                  |       | 123        |       | 129        |       | 753        |       |
| Net cash (used in)   provided by investing activities                                       |       | (19,437    | )          | 21,841     |       | (272,678   | )          |
| Cash flows from financing   activities:                                                     |       |       |       |       |       |       |       |
| (Repayments of) proceeds   from subordinated liabilities                                    |       | (298       | )          | (2,481     | )          | 10,343     |       |
| Issuance (repurchase) of shares                                                             |       | 70         |       | (451       | )          | 103        |       |
| Dividends paid                                                                              |       | (1,029     | )          | (364       | )          | (949       | )          |
| Deposits received                                                                           |       | 19,005     |       | 15,361     |       | 53,319     |       |
| Repayments of bank debt   and other loans                                                   |       | 5,483      |       | (15,636    | )          | 9,037      |       |
| Repurchase agreements — sales                                                          |       | (6,883     | )          | (7,087     | )          | 196,368    |       |
| Net cash provided by (used   in) financing activities                                       |       | 16,348     |       | (10,658    | )          | 268,221    |       |
|                                                                                        |       |       |       |       |       |       |       |
| Effects of exchange rates   on cash                                                         |       | (1,032     | )          | (738       | )          | 2,026      |       |
| ** **                                                                                  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net increase in cash and   cash equivalents                                                 |       | 3,522      |       | 4,895      |       | 12,680     |       |
|                                                                                        |       |       |       |       |       |       |       |
| Cash and cash equivalents   at the beginning of the year                                    |       | 59,291     |       | 54,396     |       | 41,716     |       |
|                                                                                        |       |       |       |       |       |       |       |
| Cash and cash equivalents   at the end of the year                                          |       | 62,813     |       | 59,291     |       | 54,396     |       |
|                                                                                        |       |       |       |       |       |       |       |
| Supplemental disclosure of   cash flow information:                                         |       |       |       |       |       |       |       |
| Cash paid during the year   for:                                                            |       |       |       |       |       |       |       |
| Income taxes                                                                                |       | Ps.        | 2,811      |       | Ps.        | 2,649      |       | Ps. | 4,013 |   |
| Interest                                                                                    |       | Ps.        | 37,356     |       | Ps.        | 38,934     |       | Ps. | 44,630 |   |
|                                                                                        |       |       |       |       |       |       |       |
| Supplemental schedule of   non-cash investing activities:                                   |       |       |       |       |       |       |       |
| Transfers from loans to   foreclosed assets                                                 |       | 198        |       | 523        |       | 542        |       |
| Transfers from purchased   credit portfolio to foreclosed assets                            |       | 488        |       | 327        |       | 233        |       |
| Transfers (from) to   foreclosed assets from (to) loans and purchased credit portfolio, net |       | Ps.        | (686       | )          | Ps.        | (850       | )          | Ps. | (775 | ) |

 

Cash and cash equivalents include all cash balances and highly liquid instruments purchased with an original maturity of three months or less. In addition, the Financial Group maintains a minimum capital requirement as required by the Commission (regulatory monetary fund), which is included as a cash equivalent.

 

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**D) New accounting pronouncements**

 

On June 12, 2009, the FASB issued ASC 860-10 (previously SFAS No. 166, Accounting for Transfers of Financial Assets — an amendment of FASB Statement No. 140), which eliminates the concept of a qualifying special purpose entity (“QSPE”) and modifies the derecognition provisions of a previously issued accounting standard. ASC 860-10 also requires additional disclosures which focus on the transferor’s continuing involvement with the transferred assets and the related risks retained. ASC 860-10 is effective for financial asset transfers occurring after the beginning of an entity’s first fiscal year that begins after November 15, 2009. The adoption of FASB ASC 860-10 (SFAS No. 166) had no effect on the Financial Group’s consolidated financial statements.

 

On June 12, 2009, the FASB issued ASC 810-10 (previously SFAS No. 167, Amendments to FASB Interpretation No. 46 (R)), which amends the consolidation guidance that applies to variable interest entities. The new guidance requires an entity to carefully reconsider its previous consolidation conclusions, including (1) whether an entity is a variable interest entity (VIE), (2) whether the enterprise is the VIE’s primary beneficiary, and (3) what type of financial statement disclosures are required. ASC 810-10 is effective as of the beginning of the first fiscal year that begins after November 15, 2009. The amendments to the consolidation guidance affect all entities and enterprises currently within the scope of ASC 810-10, as well as qualifying special-purpose entities that are currently outside the scope of ASC 810-10 (FIN 46(R)). The adoption of FASB ASC 810-10 (SFAS No. 167) had no effect on the Financial Group’s consolidated financial statements.

 

In October 2009, the FASB issued Accounting Standards Update (ASU) 2009-13, which contains new guidance on accounting for revenue arrangements with multiple deliverables. When vendor specific objective evidence or third party evidence for deliverables in an arrangement cannot be determined, a best estimate of the selling price is required to separate deliverables and allocate arrangement consideration using the relative selling price method. The new guidance includes new disclosure requirements on how the application of the relative selling price method affects the timing and amount of revenue recognition. The guidance in the ASU will be effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning after June 15, 2010. The adoption of FASB ASU 2009-13 had no effect on the Financial Group’s consolidated financial statements.

 

On January 21, 2010, the FASB issued ASU 2010-06. The ASU amends ASC 820, Fair Value Measurements and Disclosures (SFAS No. 157) to add new requirements for disclosures about transfers into and out of Levels 1 and 2 and separate disclosures about purchases, sales, issuances, and settlements relating to Level 3 measurements. It also clarifies existing fair value disclosures about the level of disaggregation and about inputs and valuation techniques used to measure fair value. This ASU amends guidance on employers’ disclosures about postretirement benefit plan assets under ASC 715, Compensation — Retirement Benefits, to require that disclosures be provided by classes of assets instead of by major categories of assets. The guidance in the ASU is effective for the first reporting period (including interim periods) beginning after December 15, 2009, except for the requirement to provide the Level 3 activity of purchases, sales, issuances, and settlements on a gross basis, which will be effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. In the period of initial adoption, entities will not be required to provide the amended disclosures for any previous periods presented for comparative purposes. However, those disclosures are required for periods ending after initial adoption. The adoption of FASB ASU 2010-06 (SFAS No. 157) had no effect on the Financial Group’s consolidated financial statements.

 

In March 2010, the FASB issued ASU 2010-11 - Derivatives and Hedging (Topic 815): Scope Exception Related to Embedded Credit Derivatives which is included in the Certification under ASC 815. This update clarifies the type of embedded credit derivative that is exempt from embedded derivative bifurcation requirements.  Only an embedded credit derivative that is related to the subordination of one financial instrument to another qualifies for the exemption. This guidance became effective for the fiscal years beginning January 1, 2010. Accordingly, the adoption of FASB ASU 2010-11 had no effect on the Financial Group’s consolidated financial statements.

 

In April 2010, the FASB issued ASU 2010-13 - Compensation-Stock Compensation (Topic 718): Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades, a consensus of the FASB Emerging Issues Task Force (ASU 2010-13. The amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning on 

 

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or after December 15, 2010. Earlier application is permitted. The Company is currently evaluating the effects of adopting the guidance in the ASU.

 

**E) International Financial Reporting Standards**

 

In January 2009, the Commission published amendments to the Mexican Securities Law, including the obligation to prepare and present financial statements using International Financial Reporting Standards (“IFRS”) beginning in 2012, with early adoption permitted. Financial institutions such as the Financial Group are prohibited from presenting IFRS for purposes of their local filings and must continue to present their basic financial statements in accordance with Mexican Banking GAAP. However, the Financial Group’s equity method investor Gruma, S.A.B. de C.V. (“Gruma”) is required to comply with the changes to the Mexican Securities Law and has disclosed in public documents that they intend to early adopt IFRS beginning in 2011. The Financial Group is in the process of assessing the impacts of IFRS on its financial information for purposes of providing such information to Gruma for their future filings.

 

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