US$60000000 6.125% Notes due January 28, 2015

INFORMATION MEMORANDUM
U.S.$60,000,000
6.125% Notes due January 28, 2015
_________________________________________________________________________________________________
We are issuing coupon bearing short-term promissory notes (the “Notes”) in an aggregate principal amount of
U.S.$60,000,000.
Issue Date – January 28, 2014: Maturity – January 28, 2015.
Issue Price – The Notes will be issued at par and bear interest at a rate of 6.125% per year based on a 360-day year
comprised of twelve 30-day months, payable semiannually in arrears.
Ranking; Security – The Notes are unsecured and will constitute our direct, unsecured and unsubordinated obligations and
will rank pari passu with all of our other unsecured and unsubordinated indebtedness including any guarantees given by us,
other than obligations preferred by mandatory law.
Redemption – There will be no redemption prior to maturity.
ISIN – XS1025746568
Investing in the Notes involves a high degree of risk. Please read “Risk Factors” beginning on page 11 of this
Information Memorandum.
The Notes have not been approved by the U.S. Securities and Exchange Commission or any state securities
commission in the United States of America (the “United States” or “U.S.”), nor has the U.S. Securities and Exchange
Commission or any U.S. state securities commission passed upon the accuracy or the adequacy of this Information
Memorandum. Any representation to the contrary is a criminal offense.
The Notes have not been and will not be registered under the U.S. Securities Act of 1933, as amended (the
“Securities Act”), or with any securities regulatory authority of any state or other jurisdiction of the United States.
The Notes may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons (as
defined in Regulation S under the Securities Act (“Regulation S”)) except as permitted by Regulation S. This
Information Memorandum has been prepared by the Issuer (as defined herein) for use in connection with the offer
and sale of the Notes outside the United States to non-U.S. persons pursuant to Regulation S. For a description of
these and certain further restrictions on offers, sales and transfers of the Notes and distribution of this Information
Memorandum, see “Selling Restrictions” and “Transfer Restrictions” below.
The Notes have not been and will not be registered with the National Securities Registry (Registro Nacional de
Valores or “RNV”) maintained by the National Banking and Securities Commission (Comisión Nacional Bancaria y de
Valores or “CNBV”), and may not be offered or sold publicly, or otherwise be the subject of brokerage activities, in
Mexico, except pursuant to a private placement exemption set forth under Article 8 of the Ley del Mercado de Valores
(the “Mexican Securities Market Law”). As required under the Mexican Securities Market Law, we will notify the
CNBV of the issuance of the Notes, including the principal characteristics of the Notes and the offering of the Notes
outside of Mexico. Such notice will be delivered to the CNBV to comply with a legal requirement and for information
purposes only, and the delivery to and the receipt by the CNBV of such notice does not constitute or imply any
certification as to the investment quality of the Notes, our solvency, liquidity or credit quality or the accuracy or
completeness of the information provided in this Information Memorandum. The information contained in this
Information Memorandum regarding the Notes is exclusively the responsibility of the Company and has not been
reviewed or authorized by the CNBV. In making an investment decision, all investors, including any Mexican
investors who may acquire the Notes from time to time, must rely on their own review and examination of the
Company.
Dealer
Financial Advisor
Information Memorandum dated February 18, 2014
Grupo Famsa, S.A.B. de C.V. (the “Issuer” or “Famsa” and, together with its subsidiaries, unless the
context requires otherwise, the “Company”, “we”, “us”, “our” or the like) accepts responsibility for the
information contained in this Information Memorandum. The Company confirms that information
contained herein is true and accurate and not misleading and that there are no other facts the omission of
which makes the Information Memorandum as a whole or any such information contained or incorporated
by reference herein misleading.
i
TABLE OF CONTENTS
IMPORTANT NOTICE ................................................................................................................................. 1
EXECUTIVE SUMMARY ............................................................................................................................. 2
RECENT DEVELOPMENTS ........................................................................................................................ 9
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS………… ............... 10
RISK FACTORS ......................................................................................................................................... 11
EXCHANGE RATES .................................................................................................................................. 31
CAPITALIZATION ...................................................................................................................................... 32
USE OF PROCEEDS................................................................................................................................. 33
SELECTED CONSOLIDATED FINANCIAL INFORMATION .................................................................... 34
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS .................................................................. 36
BUSINESS ................................................................................................................................................. 57
RELATED PARTY TRANSACTIONS ...................................................................................................... 105
MANAGEMENT ....................................................................................................................................... 107
TAXATION ............................................................................................................................................... 114
SELLING RESTRICTIONS ...................................................................................................................... 117
TRANSFER RESTRICTIONS .................................................................................................................. 120
GENERAL INFORMATION ...................................................................................................................... 122
UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS....................................... Exhibit A
AUDITED CONSOLIDATED FINANCIAL STATEMENTS ............................................................ Exhibit B
FORMS OF GLOBAL NOTES ..................................................................................................... Exhibit C
FORMS OF DEFINITIVE NOTES ................................................................................................ Exhibit D
ii
IMPORTANT NOTICE
This Information Memorandum contains summary information provided by the Company in
connection with its issuance of the Notes. The Issuer has appointed Banco Espírito Santo de
Investimento, S.A., Sucursal en España (together with any other dealers appointed by the Issuer, the
“Dealers”) as dealers for the Notes, and has authorized and requested the Dealers to circulate this
Information Memorandum in connection therewith.
The Dealers have not independently verified the information contained herein. Accordingly, no
representation, warranty or undertaking, express or implied, is made and no responsibility or liability is
accepted by the Dealers as to the accuracy or completeness of this Information Memorandum or any
supplement hereto.
This Information Memorandum is not intended to provide the basis of any credit, taxation, legal,
investment or other evaluation and should not be considered as a recommendation by the Issuer or the
Dealers that any recipient of this Information Memorandum should purchase any of the Notes. Each
recipient contemplating the purchase of any of the Notes is advised to consult its own tax adviser,
attorney and business adviser as to tax, legal, business and related matters concerning the purchase of
the Notes and to make, and shall be deemed to have made, its own independent investigation in relation
to the financial condition and affairs, and its own appraisal of the creditworthiness, of the Issuer. Neither
the Issuer nor the Dealers make any comment about the treatment for taxation purposes of payments or
receipts in respect of the Notes to or by a holder of the Notes or the legality of the purchase of the Notes
by an investor under applicable investment or similar laws.
Neither the Issuer nor the Dealers accept any responsibility, express or implied, for updating this
Information Memorandum. Neither the delivery of this Information Memorandum nor the offering, sale or
delivery of any Notes shall, in any circumstances, create any implication that the information contained
herein is true subsequent to the date hereof or the date upon which this Information Memorandum has
been most recently amended or supplemented or that there has been no adverse change in the financial
situation of the Issuer since the date hereof or, as the case may be, the date upon which this Information
Memorandum has been most recently amended or supplemented or that any other information supplied
in connection herewith is correct at any time subsequent to the date on which it is supplied or, if different,
the date indicated in the document containing the same. No person has been authorized to give any
information to the contrary or to make any representation not contained in this Information Memorandum
or any supplement hereto and, if given or made, such information or representation must not be relied
upon as having been authorized.
This Information Memorandum does not, and is not intended to, constitute or contain an offer or
invitation to any person to purchase Notes. This Information Memorandum does not obligate the Issuer
to accept any offer to purchase the Notes. The distribution of this Information Memorandum and the
offering, sale and delivery of the Notes in certain jurisdictions is restricted by law. All persons into whose
possession this Information Memorandum or any Notes come are required by the Issuer and the Dealers
to inform themselves of, and to observe, any such restrictions. In particular, such persons are required to
comply with the restrictions on offers or sales of the Notes and on distribution of this Information
Memorandum and other information in relation to the Notes set out under “Selling Restrictions” and
“Transfer Restrictions” below. No person or entity shall have authority to make any offer or invitation to
purchase Notes in any jurisdiction in which such offer or invitation is not authorized.
1
EXECUTIVE SUMMARY
The following is a summary of the more detailed information included elsewhere in this Information
Memorandum and, accordingly, may not contain all the information that prospective investors may deem
relevant. This summary information is qualified in its entirety by reference to, and should be read in
conjunction with, the more detailed information, the unaudited interim consolidated financial statements
and the audited consolidated financial statements and the notes thereto included elsewhere in this
Information Memorandum, including, under the caption “Risk Factors”.
The Company
We are a leading company in the Mexican retail sector, satisfying families’ different purchasing,
financing and savings needs. Our target market is the middle and lower-middle income segments of
Mexico’s population and the Hispanic population in Texas and Illinois where we maintain our U.S.
operations.
Our Mexican retail operation offers furniture, electronics, household appliances, cellular telephones,
computers, motorcycles, clothing and other durable consumer products, which are sold mainly through
our Famsa stores. In the states of Texas and Illinois in the U.S., we offer furniture and appliances through
our subsidiary Famsa, Inc. As of September 30, 2013, we owned and operated 383 stores, including 358
stores in 83 cities throughout Mexico and 25 stores in Texas and Illinois, 17 warehouses and 11
distribution centers. As of September 30, 2013, in Mexico we also operated 284 banking branches within
Famsa stores and 27 independent banking branches. With the acquisition of Montemex we have added an
additional 167 independent banking branches as of October 1, 2013. We believe that over the course of
our 42-year history, we have built a strong brand name associated with a broad product offering at low
prices and personalized customer service with convenient consumer financing programs. For the nine
months ended September 30, 2013, furniture, electronics and household appliances accounted for 40.2%
of our consolidated total revenues.
In connection with our retail operations, we offer consumer financing to our customers who opt to
purchase our products and services on credit, many of whom do not typically have access to other forms
of financing, which provides them with an alternative method to purchase our products and services. In
2012, 81.2% of our retail sales were through our credit sales programs. To enhance our consumer
financing business in Mexico, in 2007, we established our own commercial bank, Banco Ahorro Famsa,
S.A., Institucion de Banca Multiple (Banco Famsa), allowing us to offer additional banking services to our
customers, and generate a lower-cost, more stable form of short-term financing for our operations.
According to the CNBV, as of September 30, 2013, Banco Famsa operated one of the ten largest banking
branch networks in Mexico, with 284 banking branches within Famsa Mexico stores and 27 independent
banking branches, and managed an aggregate amount of 3.0 million saving and credit accounts.
Retail Operations
Famsa Mexico and Famsa USA manage our retail operations through our network of stand-alone
stores and anchor stores. In addition to the products and services provided by stand-alone stores, anchor
stores serve as administrative centers, providing customer service, credit processing and other support to
the stand-alone stores in the same region.
88.9% of Famsa’s consolidated total revenues for the nine-month period ended September 30, 2013
were generated in Mexico. Over the last decade, Mexican consumers have increased their overall
demand for goods and services as a result of greater purchasing power, economic stability and income
growth. Our target market in Mexico is primarily the middle and lower-middle income segments of the
population. We consider these segments to comprise the adult working population that earns a household
monthly income of between Ps.3,420 (U.S.$259.59) and Ps.44,200 (U.S.$3,354.92). Based on AMAI´s
Mexican Housing Overview of 2012, this group represents approximately 74.0% of the Mexican
households living in cities with a population greater than 50,000 inhabitants. For further discussion of our
2
target demographics, see “—Target Markets.” Famsa Mexico has targeted this large segment of the
population since 1970 by offering convenient installment credit plans, a broad assortment of products and
personalized customer service. As of September 30, 2013, Famsa Mexico serves its customers through
358 stores (301 stand-alone and 57 anchor) that are generally located within the metropolitan areas of
cities with a population in excess of 50,000, and range in size from 400 to 3,000 square meters, with an
average of 1,192 square meters. On average, each store maintains approximately 2,205 durable
consumer products on display, ranging from furniture, electronics and household appliances to clothing
and cellular telephones. In addition, we believe that we are also one of Mexico’s largest wholesalers of
household appliances and electronic products in Mexico, operating 17 wholesale stores in the principal
metropolitan areas of 17 Mexican states.
Famsa USA represented 11.1% of Famsa’s consolidated total revenues for the nine-month period
ended September 30, 2013. Hispanics make up the largest and fastest-growing minority segment in the
United States. According to U.S. Census Bureau estimates, in 2010 the Hispanic population reached 50.5
million (16% of the US) and, between 2000 and 2010, grew by 43 percent, which was four times the
growth in the total U.S. population. We operate in two U.S. states, Texas and Illiniois, in which
approximately 23% of the U.S. Hispanic population resides. Famsa USA has targeted the U.S. Hispanic
market by replicating Famsa Mexico’s business model and leveraging the recognition of the “Famsa”
brand. Famsa USA serves its customers through a 25 store network, developed both organically and
through acquisitions in Texas and Illinois. Famsa USA’s stores carry an average of 1,822 products on
display, and range in size from 1,400 to 3,000 square meters with an average of 2,322 square meters. In
addition, we offer differentiated services, such as Famsa-to-Famsa, through which our customers can
purchase merchandise at Famsa stores in the U.S. and have it delivered to others in Mexico through
Famsa Mexico, taking advantage of our infrastructure on both sides of the U.S.-Mexico border.
We sell brand-name and third-party domestic products and imports. The principal brands available in
our stores include Sony, White Westinghouse, Panasonic, Whirlpool, LG, Samsung and Mabe, among
others, and we continually seek to expand our product and service offerings. Furthermore, Kurazai, our
own motorcycle brand, has been ranked as one of Mexico’s four best-selling motorcycle brands, after
only three years in the market. Our stores are characterized by their display method, which is designed to
maximize sales and the use of space. Most of our stores have their own warehouse area to ensure that
their most popular products are readily available. Each of our stores is outfitted with integrated inventory
management and marketing systems and connected to STORIS®, which is an advanced supply chain
management application that provides real-time information on inventory levels, purchase order status
and other information to both stores and vendors.
On September 2, 2013, Banco Famsa announced the acquisition of the rights for the operation of 167
pawn-broking branches, which will provide customers with the option to acquire loans for which items of
personal property are used as collateral. The acquisition also contributes significantly to the Company’s
expansion plan in Mexico, increasing Grupo Famsa’s presence from 82 to 207 cities across the country.
The aforementioned branches are located in the central, Gulf and southeastern regions of Mexico. The
operations of these branches will be recorded by Banco Famsa as of October 1, 2013.
Our net sales totaled Ps.10,688 million for the nine months ended September 30, 2013, compared to
Ps.9,899 million for the nine months ended September 30, 2012. Our total retail space consisted of
491,008 square meters as of September 30, 2013, compared to 502,786 square meters as of September
30, 2012. Our adjusted earnings before interest expense, depreciation and amortization (“Adjusted
EBITDA”) totaled Ps.1,850.9 million for the nine months ended September 30, 2013, compared to
Ps.1,713.1 million for the nine months ended September 30, 2012.
Consumer Finance
Given our product mix of high-ticket items and our focus on middle and lower-middle income
individuals, Famsa’s comprehensive value offer has always included the availability of flexible credit sales
programs, which enhance our customers’ purchasing power by providing a convenient source of financing
for purchasing the retail products we offer. The credit sales programs we offer involve weekly, bi-weekly
3
or monthly payments with terms that can range from three to 24 months, depending on the customer’s
preference and payment capacity. As of September 30, 2013, credit sales accounted for 83.0% of our
total revenues. We believe that our credit sales programs improve our retail operation’s profitability and
boost our growth prospects.
The retail price of the merchandise sold in Mexico depends on the market trends of the diverse type
of products offered. Sales on credit generally generate higher gross margins than those yielded by our
cash sales. In the United States, the purchase price of the merchandise sold on credit is determined
based on the suggested retail price plus a finance charge that is reviewed periodically.
With the establishment of our banking operations through Banco Famsa in 2007, we have increased
our product and service offering to our customers. As of September 30, 2013, Banco Famsa was the
source of 71.8% of our net funding and Banco Famsa’s average cost of funding was 5.3%. Banco Famsa
is now fully-funded through its own deposits in the form of savings and checking accounts, certificates of
deposit and other consumer investment products
Business Strategy
Grupo Famsa serves specific consumer, credit and savings needs of the middle and lower-middle
income segments of the population through a portfolio of complementary businesses. We believe the
synergies among our business units, Famsa Mexico, Banco Famsa and Famsa USA enable us to attain
competitive advantages that reinforce our position. Our business strategy focuses on maximizing these
synergies to provide a comprehensive and differentiated value offer to our customers who value
personalized service and require credit options that are not offered to them by the traditional banking
sector.
Famsa USA serves the Hispanic segment, successfully replicating Famsa Mexico’s business model
in the states of Texas and Illinois. Our objective is to increase our customer base by attracting new
customers and maintaining existing ones through the communication of our strengths, such as in-house
credit, name brands, competitive prices, unique promotions and exclusive Famsa-to-Famsa service.
The key elements of our strategy are to (i) enhance our consumer financing operations in Mexico
through Banco Famsa, (ii) selectively expand our store network in Mexico, (iii) improve our sales and
marketing efforts to increase our market share, (iv) continue to improve our margins through the
introduction of new products, services and distribution channels and (v) improve profitability of Famsa
USA.
We were organized in Monterrey, Nuevo Leon, Mexico on December 27, 1979 under the name
Corporación Famsa, S.A. (sociedad anómina), deed 1246. We were issued a mercantile association
(sociedad mercantil) under the Mexican law. The public property & trade record is 250, page 41, volume
234, book 3, Commercial section (registro público de la propiedad y del comercio). The registration
number granted by the Mexican Ministry of Finance and Public Credit (Secretaria de Hacienda y Crédito
Público) is CFA-791227-8T0. In March 07, 1988, the company changed from Corporación Famsa, S.A.
to Corporación Famsa, S.A. de C.V. (sociedad anónima de capital variable). The public property & trade
record is 1199, volume 189-24, book 4, Commercial section (registro público de la propiedad y del
comercio). In November 19, 1997, we changed our corporate name to Grupo Famsa, S.A. de C.V. Its
public property & trade record is 102, volume 207-03, book 4, Commercial section (registro público de la
propiedad y del comercio). The registration number granted by the Mexican Ministry of Finance and
Public Credit (Secretaria de Hacienda y Crédito Público) also changed to GFA-971015-267. When we
listed on the Mexican Stock Exchange on December 19, 2006, we changed our corporate name to Grupo
Famsa, S.A.B. de C.V.. Its public property & trade electronic record is 15680*9 (registro público de la
propiedad y del comercio). Our corporate headquarters are located at Avenida Pino Suárez No. 1202
Norte, Colonia Centro, 64000 Monterrey, N.L. Our telephone number is +52 (81) 8389-3405. Our web
address is http://www.grupofamsa.com. Information on our website is not part of this Information
Memorandum.
4
U.S.$60.0 Million
6.125% Notes due January 28, 2015
Issuer
Grupo Famsa, S.A.B. de C.V.
Dealer
Banco Espírito Santo de Investimento, S.A., Sucursal en
España
Issue Agent and
Principal Paying Agent
HSBC Bank plc.
Aggregate Principal Amount
U.S.$60,000,000.
Currency
U.S. Dollars.
Form and Delivery
Notes will be issued in bearer form and sold in offshore
transactions outside the United States in reliance on Regulation
S, and will be represented by a coupon bearing global Note, the
form of which is attached hereto as Exhibit C (the “Notes”). The
Notes will be deposited with a common depository on behalf of,
and will be delivered through, the Euroclear system (“Euroclear”)
and Clearstream Banking, Société Anonyme (“Clearstream
Luxembourg”) and will only be exchangeable into definitive Notes,
the form of which is attached hereto as Exhibit D, in the
exceptional circumstances contemplated by the Notes.
Issue Date of the Notes
January 28, 2014.
Maturity Date of the Notes
January 28, 2015.
Coupon
The Notes accrue interest from the date of their issuance, January
28, 2014, at a rate of 6.125% per year based on a 360-day year
comprised of twelve 30-day months. Interest on the Notes will be
payable semi-annually in arrears on each of July 28, 2014 and
January 28 2015.
Issue Price
100%.
ISIN
XS1025746568
Status of the Notes
The Notes are unsecured and will constitute direct, unsecured
and unsubordinated obligations of the Issuer and will rank pari
passu with all other unsecured and unsubordinated indebtedness
of the Issuer, including any guarantees given by the Issuer, other
than obligations preferred by mandatory law.
Redemption
There will be no redemption prior to maturity.
Denomination
U.S.$100,000 and higher integral multiples of U.S.$1,000.
Withholding Tax
All payments under the Notes will be made net of withholding
taxes imposed by Mexico, except as stated in the Notes.
Selling and Transfer Restrictions
See “Selling Restrictions” and “Transfer Restrictions”.
5
Notice to Investors
We have not registered, and we are not required to and do not
currently plan on registering the issuance of the Notes under the
Securities Act and, unless so registered, the Notes may not be
offered or sold except pursuant to an exemption from, or in a
transaction not subject to, the registration requirements of the
Securities Act and applicable U.S. state securities laws. See
“Selling Restrictions”.
The Notes will not be registered in the National Registry of
Securities maintained by the CNBV and may not be offered or
sold publicly or otherwise be subject to brokerage activities in
Mexico, except pursuant to the private placement exemption set
forth in Article 8 of the Mexican Securities Market Law.
As required under the Mexican Securities Market Law, we will
notify the CNBV of the issuance of the Notes, including the
principal characteristics of the Notes and the offering of the Notes
outside of Mexico. Such notice will be delivered to the CNBV to
comply with a legal requirement and for information purposes
only, and the delivery to and the receipt by the CNBV of such
notice, does not constitute or imply any certification as to the
investment quality of the Notes, our solvency, liquidity or credit
quality or the accuracy or completeness of the information
provided in this Information Memorandum.
Listing
Application has been made to the Irish Stock Exchange to
approve the Information Memorandum as a Listing Particulars and
the Notes to be admitted to the Official List of the Irish Stock
Exchange for trading on the Global Exchange Market.
Rating
The Notes will not be rated.
Use of Proceeds
The proceeds of the issue of the Notes will be used to refinance a
portion of our short-term debt or for general corporate purposes.
Governing Law
New York.
Risk Factors
Prospective purchasers of the Notes should carefully read this
entire Information Memorandum. Purchasers should consider,
among other things, the risk factors with respect to the Company,
its business, the Notes and Mexico, which may not normally be
associated with investments in other issuers or issuers domiciled
in other countries, including those risk factors set forth in this
document.
6
Summary Consolidated Financial and Other Information
The following information has been derived from and should be read in conjunction with our
consolidated annual financial statements as of and for the years ended December 31, 2011 and 2012,
which have been audited by PriceWaterhouseCoopers, S.C., and our unaudited interim consolidated
financial statements as of and for the nine-month periods ended September 30, 2012 and 2013, both
prepared in accordance with International Financial Reporting Standards (IFRS). The information (other
than operating data expressed in percentages or data regarding the number of stores) contained in the
following table is stated in thousands of Pesos.
Until 2011, we issued our consolidated financial statements in conformity with MFRS. In accordance
with IFRS 1 “First-time adoption of IFRS” we considered January 1, 2011 as our IFRS transition date and
January 1, 2012 as our IFRS adoption date. As a result, the Financial Statements have been prepared in
accordance to IFRS as issued by IASB. The amounts included in the Financial Statements for 2011 have
been reconciled in order to be presented under the same standard and criteria applied in 2012.
In addition, the preparation of these consolidated financial statements requires the use of estimates,
judgments and assumptions that affect the reported amounts of assets and liabilities at the balance sheet
date as well as the reported amounts of revenues and expenses for the periods presented. Actual results
may differ from these estimates, judgments and assumptions.
An accounting estimate in the Company’s consolidated financial statements is a critical accounting
estimate if it requires the Company to make assumptions about matters that are highly uncertain at the
time the accounting estimate is made, and either different estimates that the Company reasonably could
have used in the current period, or changes in the accounting estimate that are reasonably likely to occur
from period to period, would have a material impact on the presentation of the Company’s financial
condition, cash flows or results of operations.
Year ended December 31,
Nine-month period ended
September 30,
IFRS
IFRS
IFRS
IFRS
2011
2012
2012
2013
Income Statement Data:
Net sales
Ps.
13,865,739 Ps.
14,123,528 Ps.
9,899,583 Ps.
10,687,700
Cost of sales
7,571,078
7,536,148
5,179,172
5,593,199
Operating expenses
5,216,442
5,112,280
3,685,238
3,995,857
229,961
325,599
45.4%
46.6%
525,132
47.7%
611,590
47.7%
Net income
Gross margin
Balance Sheet Data:
Total assets
Ps.
27,386,108 Ps.
29,069,926 Ps.
28,065,534 Ps.
31,999,747
19,371,592
20,780,211
19,344,485
23,105,555
8,014,516
8,289,715
8,721,049
8,894,192
401
380
382
383
Ps.
28.6 Ps.
29.2 Ps.
20.6 Ps.
22.2
Ps.
26.9 Ps.
26.6 Ps.
19.3 Ps.
Total liabilities
Stockholders’ equity
Other Financial & Operating Data:
Number of stores
Mexican sales per square meter
U.S. sales per square meter
(1)
Growth in net sales
Growth in same-store sales
Adjusted EBITDA
1.9%
---1.3%
Ps.
1.6%
1,955.3 Ps.
2,379.2 Ps.
1.0%
-0.5%
1,713.1 Ps.
18.5
8.0%
7.4%
1,850.9
Operating margin
7.8%
10.4%
10.5%
10.3%
Net margin
1.7%
2.3%
5.3%
5.7%
70.7%
71.5%
68.9%
68.9%
Other Financial Ratios:
Total liabilities/total assets
7
Total liabilities/stockholders’ equity
2.4%
2.5%
2.2%
2.2%
Current assets/current liabilities
1.8%
1.8%
1.5%
1.5%
Current assets/total liabilities
1.1%
1.1%
1.2%
1.2%
(1)
Financial information for the nine-month period ended September 30, 2012 and 2013 includes only sales per square meter in Texas and Illinois, the
two U.S. states in which we operate.
8
RECENT DEVELOPMENTS
There has not been a material adverse change in our prospects since December 31, 2012, the date
of our last published audited financial statements. Other than as set forth below, there has not been any
significant change in our financial position as reflected in our September 30, 2013 unaudited consolidated
balance sheet, consolidated income statement or consolidated cash flow statement.
On September 2, 2013, Banco Famsa announced the acquisition of the rights for the operation of 167
pawn-broking branches of Monte de Mexico, S. A. de C. V., which provide customers with the option to
acquire loans for which items of personal property are used as collateral. On October 1, 2013, Grupo
Famsa announced that Banco Famsa had concluded the acquisition of the rights associated with the
operation of these pawn stores. The operations of these branches will be recorded by Banco Famsa as of
October 1, 2013. The acquisition contributes significantly to the Company’s expansion plan in Mexico,
increasing Grupo Famsa’s presence from 82 to 207 cities across the country. The aforementioned
branches are located in the central, Gulf and southeastern regions of Mexico.
On October 16, 2013, Famsa, Inc. renewed a credit facility with Deutsche Bank AG for a maximum
principal amount of EUR 6.6 million or its U.S. dollar equivalent. As of November 30, 2013, Famsa, Inc.
had a U.S. dollar loan outstanding under this credit facility in an aggregate principal amount of U.S.$8.0
million. These U.S. dollar loan accrue interest at a fixed rate of 3.25% per annum and mature on October
16, 2014. This facility does not impose on us any restrictive covenants.
On November 26, 2013, Famsa accessed its short-term revolving credit line with Banco Mercantil del
Norte, S.A., Institución de Banca Múltiple (Banorte), and took out a loan in the amount of Ps.100 million.
The balance accrues interest at a fixed rate of 28-day TIIE (Equilibrium Interbank Interest Rate) plus
3.61% per annum for a period of 28 days, and matures on March 24, 2014.
9
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Information Memorandum contains forward-looking statements. These forward-looking
statements include, without limitation, those regarding our future financial position and results of
operations, our strategy, plans, objectives, goals and targets, future developments in the markets in which
we participate or are seeking to participate or anticipated regulatory changes in the markets in which we
operate or intend to operate. In some cases, forward-looking statements can be identified by terminology
such as “aim,” “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “forecast,” “guidance,”
“intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “will” or “would” or the negative of such
terms or other comparable terminology.
By their nature, forward-looking statements involve risks and uncertainties because they relate to
events and depend on circumstances that may or may not occur in the future. We caution potential
investors that forward-looking statements are not guarantees of future performance and are based on
numerous assumptions and that our actual results of operations, including our financial condition and
liquidity may differ materially from (and be more negative than) those made in, or suggested by, the
forward-looking statements contained in this Information Memorandum. In addition, even if our results of
operations, including our financial condition and liquidity and the development of the industries in which
we operate, are consistent with the forward-looking statements contained in this Information
Memorandum, those results or developments may not be indicative of results or developments in
subsequent periods. Important factors that could cause these differences include, but are not limited to:

risks related to our competitive position;

risks related to our business, to our strategy, to our expectations about growth in demand for our
products and services and to our business operations, financial condition and results of
operations;

our access to funding sources, and the cost of the funding;

changes in regulatory, administrative, political, fiscal or economic conditions, including
fluctuations in interest rates and growth or diminution of the Mexican and U.S. furniture,
electronics and household appliances markets;

risks associated with our subsidiary Banco Famsa, including regulatory, credit, market and any
other risks related to financing activities and the Mexican consumer finance market and retail
banking market generally;

variations in loan default rates by our clients, as well as in our recording of provisions for doubtful
loans;

foreign currency exchange fluctuations relative to the U.S. Dollar against the Mexican Peso;

risks related to Mexico’s social, political or economic environment; and

risks related to the United States’ social, political or economic environment as it relates to the
U.S. Hispanic population.
Potential investors should read the sections of this Information Memorandum entitled “Risk Factors,”
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and
“Business” for a more complete discussion of the factors that could affect our future performance and the
markets in which we operate. In light of these risks, uncertainties and assumptions, the forward-looking
events described in this Information Memorandum may not occur. We undertake no obligation to update
or revise any forward-looking statement, whether as a result of new information or future events or
developments.
10
RISK FACTORS
You should carefully consider the following discussion of risks, as well as all the other information
presented in this Information Memorandum before investing in the Notes. These risks are not the only
risks that affect our business. Additional risks that are presently unknown to us or that we currently deem
immaterial may also impair our business. Any of the following risks, if they actually occur, could materially
and adversely affect our business, results of operations, financial condition and prospects.
Risk Factors Related to Our Business
The loss of our market share to competitors may adversely affect our performance.
We face intense competition in each of our product categories. Both the Mexican and U.S. retail
markets are highly fragmented, encompassing large store chains, department stores, household
appliance and electronics stores, discount warehouse clubs and a broad range of smaller independent
specialty stores targeting both high and middle and lower-middle income levels. In Mexico, we compete
primarily with two other large domestic retail chains that have nationwide presence and offer similar
consumer financing options, namely Grupo Elektra and Coppel. We also compete with other large retail
stores, including Grupo Chedraui, Organización Soriana, Centros de Descuento Viana, Dico, Gala, and
with the Mexican subsidiaries or affiliates of international chains such as Wal-Mart and Best Buy.
Although to a lesser extent, we also compete with several domestic department store chains, including El
Puerto de Liverpool, Grupo Palacio de Hierro, Grupo Hermanos Vázquez y Fábricas de Francia and
Sears, which do not have a national presence, are targeted towards population segments different from
those that we primarily serve and offer less-flexible and/or non-consumer finance options. We also
compete to a lesser extent with informal or “black” markets and street vendors. In the United States, we
compete with large U.S. retailers, such as Ashley Furniture, Rooms to Go, Best Buy and Sears, on cash
sales, and with local and regional retailers that directly target U.S. Hispanics with in-house credit, such as
Conn’s, Continental, LDF and Lacks. In addition, as a result of the North America Free Trade Agreement
(“NAFTA”) and other free trade agreements to which Mexico is a party, other U.S. and European retailers
may enter into similar arrangements or alliances in the future. We also compete, to a certain extent, with
informal or “black” markets, street vendors and online and catalog businesses which handle similar lines
of merchandise as we do. Any increase in the existing competition, the consolidation of the retail sector or
the entry of new and more sophisticated competitors into our current or future markets could impact our
business activities and, accordingly, have an adverse effect on our margins, results of operations,
financial condition and prospects. See “Business—Target Markets” and “Business—Competition” below.
Our competitiveness and profitability depend on our ability to offer competitive financing terms to
our customers.
The consumer finance segments in both Mexico and the United States are highly competitive. We
derive a significant portion of our revenues from our sales on credit. The price of the merchandise sold on
credit considers various factors, such as the repayment period, the customer’s credit history and the type
of product. Our sales on credit yield higher margins than our cash sales. Competition in the consumer
finance business may increase significantly as a result of the introduction of new banking and other
financial products, such as credit card and personal loans targeted towards the lower-middle income
class segment of the population, which constitutes our primary target customer base. Banco Famsa has
faced and will continue to face strong competition in Mexico from banking institutions associated with
Famsa Mexico competitors in the retail market, such as Banco Azteca, S.A., institución de banca múltiple,
the consumer financing subsidiary of Grupo Elektra, Bancoppel, S.A., institución de banca múltiple, the
consumer financing subsidiary of Coppel, and Banco Wal-Mart de México Adelante, S.A., institución de
banca múltiple, the consumer financing subsidiary of Wal-Mart. See “—Risk Factors Related to Banco
Famsa.” Any increase in competition could affect our market position if our competitors are able to offer
financing terms to our customer base that are more attractive than ours.
In addition, our results of operations and financial condition could be adversely affected by any future
imposition of price controls or restrictions on the interest rates that we can charge or other commercial
11
terms under our credit sales program in either Mexico or the United States, or our inability to adjust our
credit approval policies in response to future economic conditions. Any increase in competition could also
affect the profitability of the consumer finance segment in general, thereby causing our competitors to
adopt more aggressive pricing policies. See “Business—Consumer Lending Operations—Sales on Credit
and Credit Approval Process.”
Adverse economic conditions in Mexico and the United States may adversely affect our financial
condition and results of operations.
Our continued success depends largely on the economic conditions in the countries in which we
operate. The global economy, including Mexico and the United States, continues to experience a period
of slowdown and volatility and has been materially and adversely affected by a significant lack of liquidity,
loss of confidence in the financial sector, disruption in the credit markets, reduced business activity, rising
unemployment, decline in interest rates and erosion of consumer confidence. This situation has had a
direct adverse effect on the purchasing power of, and the credit available to, our customers in Mexico and
the United States, and has reduced the quality of our loan portfolio. Our vendors, upon which we depend
to provide us with financing on our purchases and inventory and services, are similarly affected. In
addition, Mexico’s economy is largely influenced by the economic conditions in the United States as a
result of various factors, including the volume of commercial transactions under NAFTA and the level of
U.S. investments in Mexico. Events and conditions that affect the U.S. economy can also affect our
business, results of operations and financial condition. The macroeconomic environment in which we
operate is beyond our control, and the future economic environment may experience further periods of
slowdown and volatility. Our level of revenues depends to a significant extent on our stores’ ability to
maintain high sales volumes, efficient inventory and distribution levels and strict control systems, which in
turn depend on the recuperation of the global economy. There is no assurance when such recuperation
will take place or the current economic conditions will ameliorate. The risks associated with current and
potential changes in the Mexican and United States economies are significant and could have a material
adverse effect on our business and results of operations.
Our success depends on our ability to retain certain and attract new key executives and maintain
good relations with our employees.
Our continued success will depend on our ability to retain certain key executives. In particular, our
senior executives have extensive experience in the retail market for household appliances, furniture and
consumer finance services, and the loss of any of these executives could have an adverse effect on us
(see “Management—Executive Officers”). Competition to attract these types of qualified individuals is
intense, and we may be unable to attract key executives with the requisite experience and skills. We do
not maintain key-man insurance on our executive officers and, as a result, we are exposed to the risk of
any one or more of such individuals being unable to continue rendering their services to us. Our future
success will also depend on our ability to identify, recruit, train and retain qualified sales, marketing and
administrative personnel and to manage our personnel turnover. As of September 30, 2013,
approximately 31.2% of our employees are affiliated with labor unions and we may be forced to incur
increased overhead costs to avoid disruptions in our business operations in the event of a threatened
strike or other labor dispute. Any conflict with our labor unions may affect our operations and result in a
decrease in our sales volume or an increase in our overhead costs. See “Business—Employees” and
“Management—Executive Officers.”
Our operations in the United States are exposed to various risks that differ from those we face in
Mexico.
We operate in the U.S. retail industry. For the nine-month period ended September 30, 2013, our total
revenues in the United States accounted for 11.2% of our consolidated total revenues. As a result, we are
exposed to the risks associated with doing business in the United States, including, but not limited to, the
risks of:

economic recessions;
12

changes in government policies;

international developments;

contraction in the employment market for U.S. Hispanics;

acts of war or terrorism;

political instability; and

protectionist government policies, including immigration policy.
Any of these risks may affect our business operations in the United States and, accordingly, the
Company as a whole. For example, precipitated by the economic downturn beginning in 2008 that
adversely affected Hispanic consumers, and despite our efforts over the past few years to improve
profitability, we posted recurring operating losses in California, Nevada and Arizona and elected in 2012
to close our stores in those states.
The U.S. consumer finance sector is subject to numerous U.S. federal, state and local laws and
regulations, including some that impose information disclosure requirements on retailers engaged in the
sale of merchandise on credit and others (e.g., usury laws) that limit the amount of interest or interest
rates that retailers may charge their customers and other commercial terms. The U.S. government also
enacted legislation regulating, among other things, the U.S. credit markets and established a federal
consumer protection agency. We are also subject to numerous laws and regulations applicable to the
U.S. retail industry generally, including laws and regulations in connection with the import, marketing and
sale of products, consumer protection and zoning. Any change in the regulatory framework in the United
States, or the imposition of special authorization requirements in connection with our credit sales
program, may adversely affect our U.S. operations and in turn our business operations and financial
condition.
In addition, our U.S. operations are subject to various immigration laws and regulations that require
us to verify the employment eligibility of our personnel in that country and to maintain appropriate records
to evidence our compliance therewith. While some of these requirements may change or become more
stringent as a result of a proposed overhaul of the U.S. immigration system, the federal legislative bodies
of the United States government have yet to approve a series of proposals in connection therewith,
including certain proposed legislation that would result in the imposition of more severe penalties to any
person that enables others to reside or remain in the U.S. illegally. If these proposed reforms are
approved and incorporated into law, we may be forced or compelled to adopt stricter employment and
credit eligibility requirements so as to ensure that all of our employees and customers are legal residents
of the United States. This would cause us to incur additional expenses to comply with any such new law.
We may not be able to acquire an adequate supply of high-quality, low-cost merchandise.
Our future success largely depends on our ability to secure a sufficient volume of merchandise for our
stores at an attractive cost. Historically, we have been able to acquire quality merchandise at a low cost,
but such merchandise may not be available in the future at all or in amounts sufficient to satisfy the
demand from our customers or on terms otherwise acceptable to us. We do not rely heavily on any one
supplier of merchandise for our stores. However, we purchase a substantial portion of our product
inventories from: Whirlpool, Mabe and Electrolux Home Products, which supply household appliances;
Sony, Panasonic, Samsung and LG Electronics, which supply electronics; and Movistar and Telcel, which
supply cellular telephones. Our business operations may be disrupted if we are unable to secure an
adequate supply of merchandise at reasonable prices. See “Business—Suppliers.”
13
Our success depends on our ability to distribute our products to our stores on a timely and costefficient basis.
Our success depends on our ability to distribute our products to our stores on a timely and costefficient basis. Our nine distribution centers in Mexico and two distribution centers in the United States
receive inventory deliveries from our suppliers for processing and subsequent distribution to our stores
and warehouses. The orderly operation of our receipt and distribution of inventory requires the effective
management of our distribution centers and an adherence to our logistics guidelines. Our operations
exert pressure on our inventory receiving and distribution systems, which could be affected by one or
more of the following factors:

the upgrade and expansion of our existing distribution centers and the installation of new
distribution centers to accommodate future growth;

any disruptions in the operation of, or our ability to improve or upgrade, our information
technology infrastructure and management information systems, in particular our supply chain
management software system;

disruptions in the delivery processes; and

natural disasters or casualties, such as fires, explosions, hurricanes, tornadoes, floods or
earthquakes, which may affect our inventory receipt and distribution processes.
See “Business—Distribution Network.”
Price competition may affect our results of operations.
Price competition in the retail industry is intense. We are subject to increasing pressure to reduce our
prices as the industry continues to consolidate and more of our competitors are able to benefit from their
economies of scale to offer lower prices. We may be unable to increase or maintain our current gross
margins, and the decrease of such margins would have a negative effect on our business.
Our future operating results may fluctuate and, accordingly, are difficult to predict.
In the future, our annual and quarterly results may experience significant fluctuations due to various
factors that are beyond our control, including the seasonal nature of our business. Historically, the
demand for our products and services tends to increase during the second and fourth quarters of the year
as a result of the increase in consumer spending associated with Mothers’ Day, Buen Fin and the
Christmas holiday season, respectively. Our quarterly operating results are not indicative of our results for
a full year. See “Management’s Discussion and Analysis of Financial Condition and Results of
Operations—Overview of Our Results of Operations—Seasonality.”
We are exposed to credit risks in connection with our credit sales program, and our allowance for
doubtful accounts may be insufficient to offset such risks.
As of September 30, 2013, on a consolidated basis, sales on credit accounted for 83.0% of our total
revenues and our accounts receivable, net of allowance for doubtful accounts, reached Ps.20,921 million.
As a result, we are exposed to credit risks and may suffer losses if the customers of our credit sales
program, personal loans and business credit products do not meet their payment obligations. As of
September 30, 2013, we maintained a relatively low uncollectibility level of approximately 7.2%,
measured as the percentage of recoveries over total trade accounts receivable. Although we seek to
minimize our exposure to this credit risk by subjecting our customers to strict credit approval policies and
processes, any impairment in the quality of our loan portfolio or any increase in the amount of our nonperforming accounts could affect our results of operations and financial condition if our allowance for
doubtful accounts proves insufficient to offset losses therefrom.
14
The amount of our allowance for doubtful accounts is determined based on risk considerations given
our past practices and experience. Although we believe that our allowance for doubtful accounts is
adequate and sufficient to cover any losses associated with our loan portfolio, in the future we may be
required or may deem it desirable to increase the amount of such provision. Any increase in our
allowance for doubtful accounts may have an adverse effect on our results of operations and financial
condition. See “Management’s Discussion and Analysis of Financial Condition and Results of
Operations—Critical Accounting Policies and Estimates—Allowance for Doubtful Accounts,” “Business—
Regulation—Legal Regime Applicable to Banco Famsa” and “Business—Consumer Lending Operations.”
We depend on Banco Famsa deposits as our primary source of financing.
We have traditionally relied on a variety of funding sources, including credit lines with major financial
institutions, commercial paper offerings in Mexico and international markets, and equity offerings in
Mexico. We have recently transformed our funding strategy to rely principally on Banco Famsa’s deposit
base as a source of funding for our credit sales program and operations. We are, therefore, subject to
the risks associated with Banco Famsa’s deposits. See “—Risk Factors Related to Banco Famsa.” We
cannot guarantee that we will be able to continue to rely on Banco Famsa’s deposit base as our primary
source of financing or that we will be able to do so on terms favorable to us. We also cannot assure you
that our strategy of relying on Banco Famsa’s deposits as a source of funding will be an acceptable costeffective and stable form of financing for our needs.
Furthermore, in the event that Banco Famsa’s deposit base is insufficient to finance our credit sales
programs or operations, we cannot assure you that we will be able to extend maturities on our current
lines of credit, acquire additional financing in the form of credit lines with major financial institutions or
continue to access the Mexican or international capital markets on terms acceptable to us. Adverse
developments in the Mexican and international credit markets, including higher interest rates, reduced
liquidity or decreased interest by financial institutions in lending to us may increase our cost of borrowing
or refinancing maturing indebtedness, with adverse consequences to our financial condition and results of
operation. We cannot assure you that we will be able to refinance any indebtedness we may incur,
including the Notes, or otherwise obtain funds by selling assets or raising equity to make required
payments on maturing indebtedness.
Our business operations depend on the integrity of our employees.
Our success and profitability depend largely on the quality and integrity of our employees at every
level of our distribution process. Any breach in the quality or integrity of our employees could have an
adverse effect on our success and profitability.
Our business operations are dependent, in part, upon the success of our new product and service
offerings.
Our success and profitability depend to a certain extent on the market acceptance of our new product
and service offerings, such as Internet sales, new consumer financing products, footwear catalog sales,
travel packages and automobile financing, in addition to other products and services primarily directed to
customers in higher income brackets. Additionally, we expect that through the continuing development
and integration of Banco Famsa, we will be able to offer a growing variety of personal and business
financial products and services in Mexico. Our new products and services could fail to gain market
acceptance once available in our stores or at Banco Famsa’s branches and we may be unable to
anticipate in a timely fashion the ever-changing needs of our customers, which could render obsolete our
new product and service offerings. If our competitors in the retail and consumer financing sectors are able
to anticipate the market trends better than we are, our market share could decrease. See “Business—Our
Business Strategy.”
15
We may not be able to achieve our growth expectations in Mexico.
We expect to achieve growth through the opening of new stores in Mexico, but we may be unable to
fully implement our growth strategy in Mexico as a result of numerous factors, including adverse changes
in economic conditions generally, our inability to secure financing on attractive terms and conditions, the
unavailability of suitable retail space, difficulties in complying with the regulatory framework applicable in
the jurisdictions in which we intend to open new stores and our inability to attract and retain personnel for
our new locations. The performance of any one or more of our new stores may fail to meet our
expectations.
In addition, our cash flows may prove insufficient to finance the costs associated with the
establishment of new stores, which may require us to seek other sources of financing or close stores. Our
growth and expansion strategy would be hindered if we are unable to secure financing on favorable terms
and conditions. Our growth and expansion strategy also calls for the opening of new stores in new
markets in Mexico, and the performance of such new stores may differ from that of our existing stores.
Similarly, the opening of new stores in markets in which we already operate could affect the sales
volumes of our existing stores in those markets. In either case, the performance of our new stores may
fail to justify the operating expenses associated with the opening of such stores, which could affect our
margins. See “Business—Our Business Strategy” and “Business—Retail Network—Market Expansion
Strategy.”
Failures in our information technology systems, or any problem or delay in the installation of new
information technology systems, could have an adverse effect on our business operations.
We depend heavily on our information technology (“IT”) systems to conduct our business activities,
including our sales processing, inventory purchase and management, product distribution and customer
service functions and maintain a cost-efficient operation. From time to time, our IT systems experience
failures or suffer disruptions as a result of computer viruses, hacking and other similar events. Any
material failure or disruption in our IT systems could result in the loss or damage of our customers’
purchase order information, which could give rise to delays in the delivery of merchandise to our stores
and a decrease in sales, particularly during the Christmas holiday season. Furthermore, our ability to
remain competitive will depend in part on our ability to upgrade our IT systems on a timely, cost-effective
basis. We must continually make significant investments and improvements in our IT systems to remain
competitive, in particular as we continue to open new stores and distribution centers in Mexico or the
United States. In the future, we may be unable to develop or acquire the IT systems necessary to address
our customers’ needs or meet our needs in conducting our business activities (such as inventory and
purchase management). In addition, any future changes in technology could render our IT systems
obsolete or unable to accommodate our growth, which could in turn result in a decrease in sales. See
“Business—Systems.”
Risk Factors Related to Banco Famsa
We face uncertainties in connection with our banking activities.
Banco Famsa was created in 2007 to provide consumer financing and deposit services to our retail
customers. The performance of Banco Famsa and its ability to attract deposits and successfully offer
consumer financing services is directly related to the ability of Banco Famsa to obtain deposits from our
existing retail customers. However, Banco Famsa may find it difficult to attract deposits from or market its
services to our existing retail customers who do not yet bank with Banco Famsa and who generally do not
bank with other institutions. Accordingly, Banco Famsa may require additional capital investments in the
future. In addition, Banco Famsa’s client portfolio is comprised of individuals with no previous or limited
credit history who are more likely to default on their repayment obligations during periods of economic
crisis.
Banco Famsa competes with a number of Mexican banks and Mexican affiliates of foreign financial
institutions. The operations and activities of Banco Famsa are subject to the legal regime applicable to
16
the Mexican banking industry, the accounting requirements prescribed by the CNBV and various other
laws and regulations not otherwise applicable to our business operations (other than Banco Famsa’s
operations). Such laws, regulations and requirements may impose restrictions upon Banco Famsa’s
operations and activities and the activities of the Company in general. The application of different
accounting standards to Banco Famsa from those standards applicable to the rest of the Company may
have an adverse effect on the recognition of our income and expenses, which could reduce our
profitability. Any future change in the legal regime applicable to Banco Famsa could subject it to
additional restrictions and affect its business operations and financial results. For more information on the
legal regime applicable to Banco Famsa, see “Business—Regulation—Legal Regime Applicable to Banco
Famsa.”
We cannot assure you that our banking activities will be successful or profitable. In addition, we
cannot guarantee that the results of Banco Famsa will not have an adverse effect on our consolidated
results of operations. See “Business—Banco Famsa.”
The short-term nature of Banco Famsa’s financing resources may expose it to liquidity risks.
Since 1994, Mexican banks have at times experienced liquidity shortages in the international financial
markets, particularly in connection with the refinancing of their short-term debt. We cannot guarantee that
the Mexican financial system will not experience liquidity shortages in the future, or that Banco Famsa will
not be affected by any such liquidity shortage. Although we expect that Banco Famsa will be able to
repay or refinance its debt, there is no guarantee that it will be able to repay such debt or refinance it on
favorable terms.
Banco Famsa intends to use its customer deposits as its primary source of financing, and we
anticipate that our Mexican customers will continue to demand deposit services (particularly in the form of
on-demand or short-term deposits) and short-term loans. However, we cannot guarantee that our
customers will place their deposits with Banco Famsa or that such deposits will provide a stable source of
financing for Banco Famsa, which in turn would affect Famsa because it relies on Banco Famsa as a
principal source of funding. As of September 30, 2013, substantially all of Banco Famsa’s deposits had
current maturities of one year or less or were payable upon demand. In the past, a substantial portion of
our bank deposits has been rolled over upon maturity, however, we cannot assure that this practice will
continue and that Banco Famsa will be able to maintain the stability or consistency of its deposit base.
The withdrawal of deposits by a significant number of Banco Famsa’s customers would affect Banco
Famsa’s liquidity position, which would force Banco Famsa to seek financing from other, more expensive
sources of short-term or long-term funding to finance Banco Famsa’s operations, which, in turn, may have
a material adverse effect on our consolidated financial condition or results of operation.
Changes in the Mexican banking and financial services regulatory framework may affect the
results of Banco Famsa.
As a Mexican banking institution, Banco Famsa is subject to comprehensive regulation and
supervision by Mexican banking and financial regulatory authorities, such as Mexico’s Central Bank
(Banco de México), the CNBV and the Ministry of Finance and Public Credit. These regulatory authorities
have broad powers to adopt regulations and other requirements affecting or restricting virtually all aspects
of Banco Famsa’s capitalization, organization and operations, including the authority to regulate the
interest rates and fees that it is allowed to charge and the other terms and conditions of its consumer
lending transactions. Moreover, Mexican banking and financial regulatory authorities possess significant
power to enforce applicable regulatory requirements in the event of Banco Famsa’s failure to comply with
them, including by imposing fines, requiring the contribution of new capital, inhibiting Banco Famsa from
paying dividends to us or paying bonuses to its employees, and restricting or revoking authorizations,
licenses or permits to operate its business. In the event Banco Famsa encounters significant financial
problems or becomes insolvent or in danger of becoming insolvent, Mexican banking authorities would
have the power to take over Banco Famsa’s management and operations. See “Business—Regulation—
Legal Regime Applicable to Banco Famsa.”
17
Mexican banking and financial services laws and regulations are subject to continuing review and
changes, and any such future changes may have an adverse impact on, among other things, Banco
Famsa’s ability to grant and collect on loans, transfer non-performing loans and otherwise extend credit
on terms and conditions and at interest rates that are adequately profitable, which could materially and
adversely affect Banco Famsa’s and our consolidated results of operations and financial position.
On January 10, 2014, amendments to banking and financial services laws were published in the
Official Gazette of Mexico within the framework of the Pacto por México (Pact for Mexico, a cross-party
co-operation pact signed early in Mr. Enrique Peña Nieto's presidency to push through 95 reforms in
which a degree of consensus existed), with the main purpose of broadening credit granting, improving
credit conditions, and decreasing the cost of collateral foreclosure. The financial reforms exceed the
commitments of the Pacto por México, and include amendments to 34 laws and encompass a broad
range of subject matters. In general terms the reforms grant greater powers to financial authorities and
materially increase the level of regulation, penalties and cost of compliance. Most of these amendments
became effective as of January 13, 2014, and certain amendments require the implementation of
secondary rules and regulations which are yet to be drafted and issued by financial regulators. These and
future amendments to financial laws could adversely affect Banco Famsa’s and our financial condition
and results of operations. See “Business—Regulation—Legal Regime Applicable to Banco Famsa.”
The revocation of Banco Famsa’s authorization to operate as a banking institution in Mexico or other
government approvals to operate its business, or the imposition of any restrictions on Banco Famsa’s
ability to grant consumer loans, may in turn affect the sales volumes of our retail stores, which rely on the
consumer financing supplied by Banco Famsa, and in turn affect our results of operations and financial
position. See “Business—Regulation.”
Future Mexican government restrictions on interest rates and banking fees may affect Banco
Famsa’s liquidity and profitability.
Our Mexican consumer finance operations implemented through Banco Famsa are subject to the
legal regime applicable to the Mexican banking industry in general, including the Law for the Protection
and Defense of the User of Financial Services (Ley de Protección y Defensa al Usuario de Servicios
Financieros). This law does not currently impose any limit on interest rates or banking fees, subject to
certain exemptions, that a bank may charge. However, the possibility of imposing such limits has been
and continues to be debated by the Mexican Congress and Mexican banking authorities. In the future, the
Mexican banking authorities could impose restrictions on the interest rates or fees charged by banks or
impose additional disclosure requirements regarding interest rates or fee information. We derive a
substantial portion of our revenues and operating flows from our consumer lending business, and the
imposition of any such restriction or requirement could impact Banco Famsa’s competitiveness and have
a material adverse effect on our financial performance.
Any change in the Mexican laws applicable to Banco Famsa, including the imposition of credit
approval requirements, could have an adverse effect on our financial condition and results of operations.
See “Business—Regulation—Legal Regime Applicable to Banco Famsa.”
Guidelines for loan classification and loan loss reserves in Mexico may be less stringent than
those in other countries.
Mexican banking regulations require Banco Famsa to classify each loan or type of loan (other than
loans to the Mexican government, Banco de México, the Instituto de Protección al Ahorro Bancario (the
“IPAB”) and certain international organizations) according to a risk assessment that is based on specified
criteria, to establish corresponding reserves and, in the case of some non-performing assets, to write-off
certain loans. The criteria to establish reserves include both qualitative and quantitative factors. Mexican
regulations relating to loan classification and determination of loan loss reserves are generally different or
less stringent than those applicable to banks in the United States. Banco Famsa may be required or
deem it necessary to increase its loan loss reserves in the future. Increasing loan loss reserves for Banco
18
Famsa could materially and adversely affect Banco Famsa and our results of operations and financial
position.
Banco Famsa may be unable to effectively control the level of non-performing or poor credit
quality loans or have insufficient loan loss reserves to cover future loan losses.
Non-performing or low credit quality loans can negatively impact Banco Famsa and our results of
operations. We cannot assure you that we will be able to effectively control and reduce the level of the
impaired loans in Banco Famsa’s total loan portfolio. In particular, the amount of Banco Famsa’s nonperforming loans may increase in the future as a result of growth in Banco Famsa’s total loan portfolio,
including as a result of loan portfolios that Banco Famsa may acquire from time to time or otherwise, or
factors beyond our control, such as the impact of macroeconomic trends, political events affecting Mexico
or changes to accounting principles or other laws or regulations applicable to us or events affecting our
target customers. In addition, Banco Famsa’s current loan loss reserves may not be adequate to cover an
increase in the amount of non-performing loans or any future deterioration in the overall credit quality of
Banco Famsa’s total loan portfolio. As a result, if the quality of Banco Famsa’s total loan portfolio
deteriorates Banco Famsa may be required to increase our loan loss reserves, which may adversely
affect Banco Famsa’s and our financial condition and results of operations. Moreover, there is no precise
method for predicting loan and credit losses, and we cannot assure you that our loan loss reserves will be
sufficient to cover actual losses. If we are unable to control or reduce the level of Banco Famsa’s nonperforming or poor credit quality loans, Banco Famsa and our financial condition and results of operations
could be materially and adversely affected. See “Management’s Discussion and Analysis of Financial
Condition and Results of Operations— Results of Operations at September 30, 2013 compared with
Results of Operations for September 30, 2012.”
Mexican banks, such as Banco Famsa, are subject to strict capitalization requirements.
Mexican banks are required to maintain a net capital (capital neto) relative to market risk, riskweighted assets incurred in its operations and operations risk, which may not be less than the capital
required in respect of each type of risk. If Banco Famsa were not to comply with these requirements, two
risk scenarios could arise: (i) pursuant to articles 117 and 121 of the Mexican Law of Credit Institutions,
the CNBV could impose a minimum corrective measure, or (ii) pursuant to numeral V of article 28 of the
Mexican Law of Credit Institutions, and under certain circumstances, the CNBV could revoke the
authorization granted to Banco Famsa to operate as a banking institution in Mexico. See “Business—
Regulation—Legal Regime Applicable to Banco Famsa.” The imposition of either scenario, or the
consequences therefrom, could adversely affect Banco Famsa’s and our financial condition and results of
operations.
On September 2010, the Basel Committee on Banking Regulations and Supervisory Practices, or the
Basel Committee, proposed comprehensive changes to the capital adequacy framework, known as Basel
III. On December 16, 2010 and January 13, 2011, the Basel Committee issued its final guidance on a
number of regulatory reforms to the regulatory capital framework in order to strengthen minimum capital
requirements, including the phasing out of innovative Tier 1 and 2 Capital instruments with incentivebased redemption clauses and implementing a leverage ratio on institutions in addition to current riskbased regulatory requirements. On November 28, 2012, the Mexican Ministry of Treasury and Public
Credit (Secretaría de Hacienda y Crédito Público) published several amendments to the regulations
applicable to financial institutions for the implementation of Basel III standards in Mexico, which result in
new requirements in respect of regulatory capital, liquidity/funding and leverage ratios applicable to
Mexican banks, that could have a material adverse effect on Banco Famsa, including our results of
operations. Most of these amendments became effective as of January 1, 2013.
Banco Famsa may be required to make significant contributions to the IPAB.
Under applicable Mexican law, Mexican banks are required to make monthly contributions to the
IPAB to support its operations that are equal to 1/12 of 0.4% (the annual rate) multiplied by the average of
certain liabilities minus the average of certain assets. The IPAB was created in January 1999 to manage
19
the bank savings protection system and regulate the financial support granted to troubled banking
institutions in Mexico. Mexican authorities impose regular assessments on banking institutions covered by
the IPAB for funding. Banco Famsa contributed Ps.45.3 million in 2012 and Ps.38.5 million for 2013 (as of
September 2013) to the IPAB. In the event that IPAB’s reserves are insufficient to manage the bank
savings protection system and provide the necessary financial support granted to troubled banking
institutions, the IPAB maintains the limited right to require extraordinary contributions to participants in the
Mexican banking system.
Banco Famsa may not be able to detect money laundering and other illegal or improper activities
fully or on a timely basis, which could expose Banco Famsa to additional liability and harm our
business.
Banco Famsa is required to comply with applicable anti-money laundering laws and other regulations
in Mexico. These laws and regulations require Banco Famsa, among other things, to adopt and enforce
“know your customer” policies and procedures and to report suspicious and large transactions to the
applicable regulatory authorities. While Banco Famsa has adopted policies and procedures aimed at
detecting and preventing the use of Banco Famsa’s banking network for money laundering activities,
such policies and procedures may not completely eliminate instances where Banco Famsa may be used
by other parties to engage in money laundering and other illegal or improper activities. To the extent
Banco Famsa fails to fully comply with applicable laws and regulations, the relevant government agencies
to which we report have the power and authority to impose fines and other penalties on Banco Famsa,
including revoking Banco Famsa’s authorization to engage in commercial banking activities in Mexico. In
addition, Banco Famsa’s and our business and reputation could suffer if we fail to detect and prevent
customers who engage in money laundering or other illegal or improper activities. See “Business—
Regulation—Legal Regime Applicable to Banco Famsa.”
Failure to successfully implement and continue to upgrade Banco Famsa’s credit risk
management system could materially and adversely affect Banco Famsa’s business operations
and prospects.
One of the principal types of risks inherent to Banco Famsa’s business is credit risk. We may not be
able to, on a timely basis, upgrade Banco Famsa’s credit risk management system. For example, an
important part of Banco Famsa’s credit risk management system is to employ an internal credit rating
system to assess the particular risk profile of a client. Because this process involves a detailed analysis of
the client’s credit risk profile that takes into account not just quantitative but qualitative factors that require
human judgment to be exercised, the process is subject to human error. In exercising their judgment,
Banco Famsa’s employees may not always be able to assign an accurate credit rating to a client, which
may result in Banco Famsa’s exposure to higher credit risks than indicated by Banco Famsa’s internal
credit rating system. However, Banco Famsa may not be able to timely detect these risks before they
occur, or due to limited resources or tools available to Banco Famsa, Banco Famsa’s employees may not
be able to effectively implement the system, which may increase Banco Famsa’s credit risk exposure. As
a result, failure to implement effectively, consistently follow or continuously refine Banco Famsa’s credit
risk management system may result in a higher risk exposure for us, which could materially and adversely
affect Banco Famsa’s and our results of operations and financial position.
Reductions in Banco Famsa’s credit ratings would increase its cost of borrowing funds and make
its ability to raise new funds, attract deposits or renew maturing debt more difficult.
The credit ratings of Banco Famsa are an important component of its liquidity profile. Among other
factors, Banco Famsa’s credit ratings are based on the financial strength, credit quality and
concentrations in its total loan portfolio, the level and volatility of its earnings, its capital adequacy, the
quality of management, the liquidity of its balance sheet, the availability of a significant base of core retail
and commercial deposits and its ability to access funding sources. Banco Famsa currently has a credit
rating of 'B' global-scale and ‘mxBBB-/mxA-3’ Mexican national-scale issuer from Standard & Poor’s and
'B+' global-scale and ‘mxBBB/mxA’ Mexican national-scale issuer from Fitch. Changes (downgrades) in
Banco Famsa’s credit ratings would increase its cost of borrowing funds or renewing maturing debt or
20
could affect its ability to access the capital markets. The ability of Banco Famsa to compete successfully
in the marketplace for deposits depends on various factors, including its financial stability as reflected by
its credit ratings. A downgrade in Banco Famsa’s credit rating may adversely affect perception of its
financial stability and its ability to raise deposits.
21
Risk Factors Related to Mexico
Mexican federal governmental policies or regulations, as well as economic, political and social
developments in Mexico, could adversely affect our business, financial condition, results of
operations and prospects.
We are a Mexican corporation and a significant portion of our assets are located in Mexico. As a
result, our business, financial condition, results of operations and prospects are subject to political,
economic, legal and regulatory risks specific to Mexico. The Mexican federal government has exercised,
and continues to exercise, significant influence over the Mexican economy. Accordingly, Mexican federal
governmental actions, fiscal and monetary policy and regulation of state-owned enterprises, such as
Pemex, and of private industry could have an impact on Mexican private sector entities, including our
company, and on market conditions, prices and returns on Mexican securities, including our securities.
We cannot predict the impact that political conditions will have on the Mexican economy. Furthermore,
our business, financial condition, results of operations and prospects may be affected by currency
fluctuations, price instability, inflation, interest rates, regulation, taxation, social instability and other
political, social and economic developments in or affecting Mexico, over which we have no control. We
cannot assure potential investors that changes in Mexican federal governmental policies will not
adversely affect our business, financial condition, results of operations and prospects. We do not have
and do not intend to obtain political risk insurance.
Our business and customers may be negatively affected by the recent global and Mexican
financial downturn.
The economic and market conditions of Mexico, as well as the financial condition and operating
results of the Company, are greatly affected by worldwide economic conditions. The recent global
deterioration of economic conditions has led to reductions in available capital and liquidity, reductions in
equity and currency values, extreme volatility in credit, equity and fixed income markets and general
economic uncertainty in Mexico and around the world. Continuing deterioration may harm our financial
condition, inhibit demand for our services and adversely affect our suppliers and customers. The effects
of the current economic situation are extremely difficult to forecast and mitigate.
Weakness in the Mexican economy could adversely affect our business, financial condition and
results of operations.
Our business, results of operations and financial condition are dependent in part on the level of
economic activity in Mexico. Periods of slow economic growth in Mexico could materially and adversely
affect our results of operations and financial position. According to Banco de México estimates:

In 2008, GDP increased by 1.2%;

In 2009, GDP decreased by 6.2%;

In 2010, GDP increased by 5.5%;

In 2011, GDP increased by 3.9%;

In 2012, GDP increased by 3.9%; and

As of September 2013, GDP for 2013 increased by 1.2%.
Although in the last few years interest rates have fallen gradually, historically Mexico has had high
real and nominal interest rates. The interest rates on 28-day Mexican government treasury securities
(certificados de la tesorería or “CETES”) averaged approximately 7.7%, 5.4%, 4.4%, 4.2%, 4.2% and
3.9% for 2008, 2009, 2010, 2011, 2012 and 2013 (as of September), respectively. Relative to the U.S.
22
Dollar, the Peso depreciated by 26.7% in 2008, appreciated by 5.5% in 2009, appreciated by 5.5% in
2010, depreciated by 12.9% in 2011, appreciated by 7.0% in 2012 and has depreciated by 0.7% as of
September 2013, all in nominal terms. Accordingly, to the extent that we incur Peso-denominated debt in
the future, it could be at interest rates higher than the current rates.
As a consequence of the global recession and economic slowdown of 2008, the Mexican economy
entered into recession. In the last few years, the economy has shown recovery, but Mexico’s main
macroeconomic indicators continue to be negatively affected, including a rise in unemployment, decline of
interest rates, higher inflation and a devaluation of the Peso against the U.S. Dollar. As a result,
consumer purchasing power may decrease and demand for furniture, electronics and household
appliances may also decrease. This global economic downturn and/or any other future downturns,
including those that could occur in the United States and Europe, could negatively affect our revenues
and profit to the extent that we are unable to reduce our costs and expenses in response to falling
demand.
Mexico may experience high levels of inflation in the future, which could adversely affect our
business, financial condition, results of operations and prospects.
Mexico has a history of high levels of inflation and may experience high inflation in the future.
Historically, inflation in Mexico has led to higher interest rates, depreciation of the Mexican Peso and the
imposition of substantial government controls over exchange rates and prices, which at times has
adversely affected our operating revenues and margins. The annual rate of inflation for the last four
years, as measured by changes in the NCPI, as provided by Banco de México, was 4.4% in 2010, 3.8%
in 2011, 3.6% in 2012 and 3.4% for the nine months ended September 30, 2013. Although inflation is less
of an issue today than in past years, we cannot assure you that Mexico will not experience high inflation
in the future, including in the event of a substantial increase in inflation in the United States. A substantial
increase in the Mexican inflation rate could adversely affect consumer purchasing power, thereby
negatively impacting demand for our products, and would increase some of our costs, which could
adversely affect our business, financial condition, results of operations and prospects.
Fluctuations in the exchange rate between the Peso and the U.S. Dollar could lead to an increase
in our cost of financing and have an adverse effect on our financial condition and results of
operations.
Approximately eighty seven percent of our revenues are Peso-denominated and therefore, any
decrease in the value of the Peso against the U.S. Dollar would increase the cost of our products and our
U.S. Dollar-denominated debt, which totals Ps.3,970 million as of September 30, 2013, and would have
an adverse effect on our financial condition and results of operations. The value of the Mexican Peso has
been subject to significant fluctuations with respect to the U.S. Dollar in the past and may be subject to
further fluctuations in the future. In 2011, as a consequence of the global economic and financial crisis,
the Peso depreciated 12.9% against the U.S. Dollar in nominal terms. However, in December 2012, the
Peso had appreciated 7.0% against the U.S. dollar in nominal terms. As of September 30, 2013, the Peso
had depreciated by 0.7% against the U.S. Dollar in nominal terms. A depreciation of the Peso in the
future may result in a disruption of the international foreign exchange markets. This could limit our ability
to transfer or convert Pesos into U.S. Dollar and other currencies and adversely affect our ability to meet
our current U.S. Dollar-denominated obligations, including the Notes issued hereby, and any other U.S.
Dollar-denominated obligations that we may incur in the future. See “Liquidity and Capital Resources—
Debt.”
While the Mexican federal government does not currently restrict the ability of Mexican or foreign
persons or entities to convert Pesos into U.S. Dollars or other currencies, the Mexican federal
government could institute restrictive exchange control policies in the future.
23
Political events in Mexico may affect our operations.
Significant changes in laws, public policies and/or regulations could affect Mexico’s political and
economic situation, which could adversely affect our business. Any change in the current consumer
protection or consumer finance regulatory policies could have a significant effect on Mexican retailers and
consumer finance services providers (including us), variations in interest rates, demand for our products
and services, market conditions and the prices of and returns on Mexican securities.
Enrique Peña Nieto won Mexico’s July 1, 2012 presidential election, and took office on December 1,
2012. With the July 1, 2012 federal elections, Mexican Congress remained politically divided, as the
Partido Revolucionario Institucional, which is the political party to which President Peña Nieto belongs,
does not have majority control. The lack of alignment between Mexican Congress and the Mexican
President could result in 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. It is also possible that political uncertainty may adversely affect Mexico’s economic situation.
These and other future developments in the Mexican political or social environment may cause
disruptions to our business operations and decreases in our sales and net income.
Mexico has experienced a period of increased criminal activity and such activities could adversely
affect the country’s economy and, in turn, our results of operations.
Mexico has experienced a period of increased criminal activity and violence, primarily due to
organized crime. These activities, the violence associated with them and their escalation could have a
negative impact on Mexico´s business environment. This impact may cause disruptions in our business
operations and negatively affect our results of operations.
Terrorist activities, violence and geopolitical events and their consequences could adversely
affect our business, financial condition, results of operations and prospects.
Violence or the continued threat of violence or organized crime within Mexico, or terrorist activities in
the United States and elsewhere, and the potential for military action and heightened security measures
in response to such threats and activities, may cause significant disruption to commerce throughout the
world, including restrictions on cross-border transport and trade. In addition, related political events may
cause a lengthy period of uncertainty that may adversely affect our business. Political and economic
instability in Mexico and the United States could negatively impact our operations. The consequences of
violence or terrorism and the responses to such threats and activities are unpredictable and could have
an adverse effect on our business, financial condition, results of operations and prospects.
Developments in other countries could adversely affect the Mexican economy, the market value of
our securities and our results of operations.
The market value of securities of Mexican companies is, to varying degrees, affected by economic
and market conditions in other emerging market countries. Although economic conditions in these
countries may differ significantly from economic conditions in Mexico, investors’ reactions to
developments in any of these other countries may have an adverse effect on the market value of
securities of Mexican issuers. In recent years, for example, prices of both Mexican debt securities and
Mexican equity securities dropped substantially as a result of developments in Russia, Asia and Brazil.
In addition, the correlation between economic conditions in Mexico and the United States has
sharpened in recent years as a result of the implementation of NAFTA and increased economic activity
between the two countries. We are exposed to changes or re-negotiations of NAFTA, which may affect
the Mexican economy. As a result of the slowing economy in the United States and the uncertainty
surrounding the impact of such slowdown on the general economic conditions in Mexico and the United
States, our financial condition and results of operations could be adversely affected. In addition, due to
24
recent developments in the international credit markets, capital availability and the cost of capital could be
significantly affected and could restrict our ability to obtain financing or refinance our existing
indebtedness on favorable terms, if at all.
High interest rates in Mexico could increase our financing and operating costs.
Historically, Mexico has had high real and nominal interest rates. The interest rates on 28-day
Mexican CETES averaged 21.3%, 15.3% and 11.3% for 1999, 2000 and 2001, respectively. Although
average rates for 2008, 2009, 2010, 2011, 2012 and 2013 (as of September), were 7.7%, 5.4%, 4.4%,
4.2%, 4.2% and 3.9%, respectively, we cannot assure you that they will remain at their current levels.
Thus, if we are to incur Mexican Peso-denominated debt in the future, it may be at interest rates higher
than the current rates.
The recent Mexican tax reforms may have an adverse effect on our clients, which in turn may
adversely affect our business.
In November 2009, the Mexican Congress approved a general tax reform, effective as of January 1,
2010. The general tax reform includes changes to the tax consolidation regime that will require the
deconsolidation of tax returns prepared for prior periods. Specifically, the tax reform requires taxes to be
paid on items in past years that were eliminated in consolidation or that reduced consolidated taxable
income.
On October 31, 2013, the Mexican Congress approved a general tax reform, effective as of January
1, 2014 that includes the elimination of the consolidation regime for corporations, the elimination of the
flat rate business tax (Impuesto Empresarial a Tasa Única), or IETU, and the tax on cash deposits
(Impuesto a los Depósitos en Efectivo), the preservation of the corporate income tax at 30%, the increase
of the income tax for individuals and foreign residents to a maximum rate of 35%, the creation of a 10%
withholding tax on dividends distributed by companies to their Mexican individual and non-Mexican
shareholders, and the increase of the value added tax rate applicable to the border region from 11% to
16%, among other changes. Such tax reforms could adversely affect our business, consumption of our
products and the financial position of some of our customers. These and future tax reforms, which could
be broad or narrow in scope, could negatively affect the economy of Mexico or our financial condition and
results of operations.
Risk Factors Related to the Notes
The Notes are unsecured.
The Notes will be unsecured obligations of the Company and will be subordinate to the Company’s
secured indebtedness and obligations given preference by mandatory provisions of law (including certain
claims relating to taxes and labor) and will rank equally with all other unsecured indebtedness of the
Company.
If we become insolvent or are liquidated, or if payment under any secured debt is accelerated, the
lenders thereunder would be entitled to exercise the remedies available to a secured lender. Accordingly,
the lender would have priority over any claim for payment under the Notes to the extent of the value of the
assets that constitute its collateral. If this were to occur, it is possible that there would be no assets
remaining from which claims of the holders of the Notes could be satisfied. Further, if any assets did
remain after payment of these lenders, the remaining assets might be insufficient to satisfy the claims of
the holders of the Notes and holders of other unsecured debt that is deemed the same class as the
Notes, and potentially all other general creditors who would participate ratably with holders of the Notes.
25
Our indebtedness could adversely affect our financial condition and impair our ability to fulfill our
obligations under the Notes.
Our ability to meet our debt service requirements will depend on our future performance, which is
subject to a number of factors, many of which are outside our control. We cannot assure you that we will
generate sufficient cash flow from operating activities to meet our debt service and working capital
requirements.
As of December 31, 2012, we had Ps.4,618.7 million of net debt, and our ratio of net debt to Adjusted
EBITDA for December 31, 2012 was 1.9 to 1.0. As of September 30, 2013, we had Ps.5,348.3 million of
net debt, and our ratio of net debt to Adjusted EBITDA for the last twelve months at the close of
September 30, 2013, was 2.1 to 1.0.
Our level of indebtedness may have important negative effects on our future operations, including:
 impairing our ability to obtain additional financing in the future for working capital, capital
expenditures, acquisitions or other general corporate purposes;
 requiring us to dedicate a substantial portion of our cash flow to the payment of principal and
interest on our indebtedness, which reduces the availability of our cash flow to fund working
capital, capital expenditures, acquisitions and other general corporate purposes;
 subjecting us to the risk of increased sensitivity to interest rate increases on our indebtedness
with variable interest rates, including our borrowings under our credit facilities;
 increasing the possibility of an event of default under the financial and operating covenants
contained in the agreements governing our outstanding indebtedness; and
 limiting our ability to adjust to rapidly changing market conditions, reducing our ability to withstand
competitive pressures and making us more vulnerable to a downturn in general economic
conditions or our business than our competitors with less debt.
If we are unable to generate sufficient cash flow from operations in the future to service our debt, we
may be required to refinance all or a portion of our existing debt or to obtain additional financing. We
cannot assure you that any such refinancing would be possible or that any additional financing could be
obtained on terms acceptable to us or at all. Our inability to obtain such refinancing or financing may have
a material adverse effect on us.
Famsa’s ability to repay the Notes and Famsa’s other debt depends on cash flow from our
subsidiaries.
Famsa is a holding company whose only material assets are our ownership interests in our
subsidiaries. Consequently, Famsa depends on distributions or other inter-company transfers of funds
from our subsidiaries to meet Famsa’s debt service and other obligations, including with respect to the
Notes. Famsa’s subsidiaries are not obligated to make funds available to Famsa for the payment on the
Notes. The ability of Famsa’s subsidiaries to pay dividends or make other distributions to Famsa may be
limited on the basis of contractual and other restrictions, and Famsa cannot assure you that the operating
results of Famsa’s subsidiaries will be sufficient to enable Famsa to make payments on the Notes.
Additionally, Banco Famsa’s ability to pay dividends or make other distributions to Famsa may be limited
by applicable banking regulations.
26
We may incur substantially more debt, which could further exacerbate the risks associated with
our indebtedness.
We may be able to incur substantial additional debt in the future. Although the agreements governing
our outstanding indebtedness contain restrictions on the incurrence of additional indebtedness, these
restrictions are subject to a number of qualifications and exceptions, and the indebtedness incurred in
compliance with these restrictions could be substantial. Also, these restrictions do not prevent us from
incurring obligations that do not constitute “indebtedness” as defined in the relevant documents. Adding
new debt to our current indebtedness levels would increase our leverage. The related risks that we now
face could intensify.
Restrictive covenants in our debt agreements may restrict the manner in which we can operate
our business.
The agreements governing our outstanding indebtedness limit, among other things, our ability to:

incur additional indebtedness or issue guarantees;

pay dividends on our capital stock or redeem, repurchase or retire our capital stock or
subordinated indebtedness;

make investments;

create liens;

create any consensual limitation on the ability of our restricted subsidiaries to pay dividends,
make loans or transfer property to us;

engage in transactions with affiliates;

sell assets, including capital stock of our subsidiaries; and

consolidate, merge or transfer assets.
If we fail to comply with these covenants, we would be in default under our credit facilities, and the
principal and accrued interest on our outstanding indebtedness may become due and payable. See
“Management’s Discussion and Analysis of Financial Condition and Results of Operations—PesoDenominated Credit Facilities,” “Management’s Discussion and Analysis of Financial Condition and
Results of Operations—Commercial Paper Programs” and “Management’s Discussion and Analysis of
Financial Condition and Results of Operations—U.S. Dollar-Denominated Credit Facilities.” In addition,
our future indebtedness agreements may contain additional affirmative and negative covenants, which
could be more restrictive than those contained in the instruments governing our existing indebtedness.
These restrictions could limit our ability to seize attractive growth opportunities for our businesses that
are currently unforeseeable, particularly if we are unable to incur financing or make investments to take
advantage of these opportunities.
We may not be able to make payments in U.S. Dollars.
In the past, the Mexican economy has experienced balance of payments deficits and shortages in
foreign exchange reserves. While the Mexican government does not currently restrict the ability of
Mexican or foreign persons or entities to convert Pesos to foreign currencies, including U.S. Dollars, it has
done so in the past and could do so again in the future. We cannot assure you that the Mexican
government will not implement a restrictive exchange control policy in the future. Any such restrictive
exchange control policy could prevent or restrict our access to U.S. Dollars to meet our U.S. Dollar
27
obligations and could also have a material adverse effect on our business, financial condition and results
of operations. We cannot predict the impact of any such measures on the Mexican economy.
The Notes are subject to restrictions on transfer within the United States or to U.S. persons and
may be subject to transfer restrictions under the laws of other jurisdictions.
We have not and do not intend to register the Notes under the Securities Act or any U.S. state
securities laws, and we have not registered the Notes under any other country’s securities laws. It is your
obligation to ensure that your offers and sales of the Notes within the United States and elsewhere
comply with applicable securities laws. See the cover page to this Information Memorandum, “Seller
Restrictions” and “Transfer Restrictions”.
There may be no public trading market for the Notes.
No active trading market currently exists for the Notes, and it is possible that none will develop
following this offering. We have applied to list the Notes for trading on the Irish Stock Exchange. We do
not intend to list the Notes on any other stock exchange or seek their admission for trading on any
automated quotation system. The lack of an active trading market for the Notes would have a material
adverse effect on the market price and liquidity of the Notes. Furthermore, even if a market for the Notes
develops, the Notes may trade at a discount from their initial offering price.
In addition, you may not be able to sell your Notes at a particular time or at a price favorable to you.
Future trading prices of the Notes will depend on many factors, including:

our operating performance and financial condition;

the interest of securities dealers in making a market;

the market for similar securities;

prevailing interest rates;

changes in earnings estimates or recommendations by research analysts who track our Notes or
the notes of other companies in our industry;

changes in general economic conditions;

acquisitions, strategic alliances or joint ventures involving us or our competitors; and

other developments affecting us, our industry or our competitors.
You may not be able to effect service of process on the Issuer, our subsidiaries or directors or to
enforce in Mexican courts judgments obtained against us in the United States.
Famsa is a publicly-traded variable capital corporation (sociedad anónima bursátil de capital variable)
and our subsidiaries (except for Famsa Inc., a subsidiary organized under the laws of the State of
California, and Famsa Financial, Inc., a subsidiary organized under the laws of the State of Texas) are
variable capital corporations (sociedades anónimas de capital variable) and in the case of Banco Famsa,
a corporation (sociedad anónima) authorized to conduct banking activities as an institución de banca
múltiple, organized under the laws of Mexico, and headquartered, managed and operated outside of the
United States (principally in Mexico). Almost all of our directors and officers reside outside the United
States. Substantially all of the assets of such persons are located outside the United States. Furthermore,
a majority of our assets are located in Mexico. As a result, it may not be possible for investors to effect
service of process within the United States or in any other jurisdiction outside of Mexico upon us, our
directors or officers or our subsidiaries (except for Famsa Inc.) or to enforce against such parties in any
28
jurisdiction outside of Mexico judgments predicated upon the laws of any such jurisdiction, including any
judgment predicated upon the federal and state securities laws of the United States. We have been
advised by our Mexican counsel, Mijares, Angoitia, Cortés y Fuentes, S.C., that there is doubt as to the
enforceability in Mexican courts of civil liabilities under the laws of any jurisdiction outside of Mexico,
including any judgment predicated solely upon the federal and state securities laws of the United States.
Payment of judgments entered against us in Mexico will be in Pesos, which may expose you to
exchange rate risks.
Under Article 8 of the Ley Monetaria de los Estados Unidos Mexicanos (the “Mexican Monetary
Law”), in the event that proceedings are brought in Mexico seeking to enforce in Mexico our obligations
under the Notes, we would not be required to discharge such obligations in Mexico in a currency other
than the Mexican Peso. Pursuant to Article 8 of the Mexican Monetary Law, an obligation which is
payable in Mexico in a currency other than the Mexican Peso, as a result of an action initiated in Mexico
or of the enforcement of a judgment in Mexico or otherwise, may be satisfied in Pesos at the rate of
exchange in effect on the date when payment is made. Such exchange rate currently is determined by
Banco de México every business banking day in Mexico and published the following business banking
day in the Official Gazette of Mexico. It is unclear, however, whether the applicable rate of exchange
applied by a Mexican court to determine the amount owed will be the rate prevailing at the time when the
judgment is rendered or when the judgment is paid. Provisions purporting to limit our liability to discharge
our obligations as described above, or purporting to give any legitimate party an additional course of
action seeking indemnity or compensation for possible deficiencies arising out of or resulting from
variations in rates of exchange may not be enforceable in Mexico.
If we were to be declared bankrupt, holders of the Notes may find it difficult to collect payment on
the Notes.
Under Mexico’s Ley de Concursos Mercantiles (the “Mexican Bankruptcy Law”), upon our declaration
of insolvency (concurso mercantil) or bankruptcy, or in the event that actions and claims are initiated in
the courts of Mexico, our obligations under the Notes:
(i) would be converted into Pesos at the exchange rate published by Banco de México prevailing at
the time of such declaration and would subsequently be converted into Unidades de Inversión (“UDIs”),
which is a unit pegged to the consumer price index determined by Banco de México, and payment would
occur at the time claims of our other creditors are satisfied;
(ii) would be subject to any provisional remedy (“providencia precautoria”), which may be issued in
such proceedings;
(iii) would be dependent upon the outcome of the insolvency or bankruptcy proceedings;
(iv) would not be adjusted to take into account depreciation of the Peso against the U.S. Dollar
occurring after such declaration of insolvency or bankruptcy; and
(v) would be subject to certain statutory preferences, including tax, social security and labor claims
and secured creditors.
Under the Mexican Bankruptcy Law, it is possible that in the event we are declared insolvent or
bankrupt, any amount by which the stated principal amount of the Notes exceeds their accreted value
may be regarded as not mature and, therefore, claims of holders of the Notes may be allowed only to the
extent of the accreted value of the Notes. Any provision that aggravates or makes more onerous the
obligations of the insolvent entity by virtue of the filing of a petition of bankruptcy or insolvency (whether
voluntary or involuntary) is considered invalid and may be deemed as if not included in the agreement
under Mexican Law. It is believed that there are no Mexican precedents in insolvency or bankruptcy
29
addressing this matter and there exists significant uncertainty as to how a Mexican court would measure
the claims of holders of the Notes.
The collection of interest on interest may not be enforceable in Mexico.
Mexican law does not permit the collection of interest on interest and, therefore, the accrual of default
interest on past due ordinary interest accrued in respect of the Notes may be unenforceable in Mexico.
The laws of New York may not be recognized in a judicial proceeding in Mexico.
Although the choice of the laws of New York governing the Notes would be recognized by the
competent courts of Mexico, in the case of a dispute before a Mexican court, the Mexican court would
only recognize the substantive laws of New York and would apply the laws of Mexico with respect to
procedural matters. The application of any foreign law in Mexico is subject to Mexican procedural rules of
evidence. Further, a Mexican court may refuse to apply and/or to enforce provisions governed by the laws
of New York if the respective provision is contrary to the public policy (orden público) of Mexico.
A trustee has not been appointed to act as agent for the holders of the Notes.
A trustee has not been appointed to act as agent for the holders of the Notes. As such, holders of the
Notes do not have a centralized third party to handle the administrative aspects of the Notes or to provide
directions to or to otherwise direct the time, method or place of conducting any proceeding for any
remedy available to holders of the Notes for failure to pay scheduled principal and interest on the Notes.
30
EXCHANGE RATES
Mexico has a free market for foreign exchange, and the Mexican government allows the Peso to float
freely against the U.S. Dollar. There can be no assurance that the Mexican government will maintain its
current policies with regard to the Peso or that the Peso will not depreciate or appreciate significantly in
the future.
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.
Federal Reserve Rate
Period
(1)
Average
(2)
High
Low
Period End
2007 .......................................
11.2692
10.6670
10.9281
10.9169
2008 .......................................
13.9350
9.9166
11.1425
13.8320
2009 .......................................
15.4060
12.6318
13.4978
13.0576
2010 .......................................
13.1940
12.1556
12.6236
12.3825
2011 .......................................
14.2542
11.5050
12.4270
13.9510
2012…………………………...
14.3650
12.6250
13.1547
12.9880
2013 .......................................
13.4330
11.9760
12.7584
13.0980
13.3115
12.9965
13.1204
13.2680
Year Ended December 31,
2014 .......................................
(3)
January ............................
_______________
(1) Source: U.S. Federal Reserve.
(2) Average of the daily exchange rates during the applicable period.
(3) As of January 17, 2014.
On January 17, 2014, the noon buying rate was Ps.13.2680 to U.S.$1.00.
31
CAPITALIZATION
The following table sets forth, as of September 30, 2013, our cash and cash equivalents and our
consolidated capitalization on a historical, actual basis. This table should be read together with our
unaudited interim consolidated financial statements and the notes thereto included elsewhere in this
Information Memorandum. This table does not reflect borrowings incurred since September 30, 2013.
See “Recent Developments.”
Solely for the convenience of the reader, Peso amounts appearing in the table below have been
converted to U.S. Dollar amounts at an exchange rate of Ps.13.1747 to U.S.$1.00, which was the rate of
exchange on September 30, 2013, based on daily buying rates for liquidating obligations in Mexico City
certified by Banco de Mexico. The exchange rate conversions contained in this Information Memorandum
should not be construed as representations that the Peso amounts actually represent the U.S. Dollar
amounts presented or that the Peso amounts could be converted into U.S. Dollars at the rate indicated as
of the dates mentioned herein or at any other rate.
(1)
As of September 30, 2013
Actual
Actual
(in millions
(in millions
of Mexican Ps.)
1,871.3
of U.S.$)
142.0
4,013.6
304.7
Long-term debt
3,206.1
243.4
Total stockholders’ equity
8,894.2
675.1
16,113.8
1,223.1
Cash and cash equivalents
Short-term debt
(including current portion of long-term debt)
Total capitalization
________________________
(1)
Financial information is unaudited. See “Recent Developments” above.
32
USE OF PROCEEDS
The proceeds of the issuance of the Notes will be used to refinance a portion of our short-term debt or
for general corporate purposes.
33
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following information has been derived from and should be read in conjunction with our
consolidated annual financial statements as of and for the years ended December 31, 2011 and 2012,
which have been audited by PriceWaterhouseCoopers, S.C. and our unaudited interim consolidated
financial statements as of and for the nine-month periods ended September 30, 2012 and 2013, both
prepared in accordance with International Financial Reporting Standards (IFRS). The information (other
than operating data expressed in percentages or data regarding the number of stores) contained in the
following table is stated in thousands of Pesos.
Until 2011, we issued our consolidated financial statements in conformity with MFRS. In accordance
with IFRS 1 “First-time adoption of IFRS” we considered January 1, 2011 as our IFRS transition date and
January 1, 2012 as our IFRS adoption date. As a result, the Financial Statements have been prepared in
accordance to IFRS as issued by IASB. The amounts included in the Financial Statements for 2011 have
been reconciled in order to be presented under the same standard and criteria applied in 2012.
Year ended December 31,
Nine-month period ended September 30,
IFRS
IFRS
IFRS
IFRS
2011
2012
2012
2013
Income Statement Data:
Net sales
Ps.
13,865,739 Ps.
14,123,528
Ps.
9,899,583 Ps.
7,536,148
Gross margin
6,294,661
6,587,380
4,720,411
5,094,501
Operating expenses
5,216,442
5,112,280
3,685,238
3,995,857
Operating income
Comprehensive financing expense,
net
1,078,219
1,475,100
1,035,173
1,098,644
Net income
Net earnings per share
5,179,172
10,687,700
7,571,078
Cost of sales
5,593,199
775,941
658,375
457,164
675,355
229,961
325,599
525,132
611,590
0.52
0.74
Balance Sheet Data:
Assets:
Current assets
Property, leasehold improvements
and furniture and equipment
Ps.
Other assets
Total assets
22,276,327 Ps.
23,874,423
Ps.
23,473,768 Ps.
26,311,241
2,486,286
2,370,018
2,313,087
2,623,495
2,825,485
2,278,679
2,307,232
3,381,274
27,386,108
29,069,926
28,065,534
31,999,747
12,516,154
13,398,206
15,693,214
14,147,265
Liabilities:
Current liabilities
Long-term liabilities
Total liabilities
Stockholders’ equity
6,855,438
7,382,005
3,651,271
8,958,290
19,371,592
20,780,211
19,344,485
23,105,555
8,014,516
8,289,715
8,721,049
8,894,192
Other Financial & Operating Data:
Number of stores
Total sales area (in square meters)
Mexican sales per square meter
(1)
U.S. sales per square meter
Growth in net sales
401
380
382
383
539,918
487,923
502,786
491,008
Ps.
28.6 Ps.
29.2
Ps.
20.6 Ps.
22.2
Ps.
26.9 Ps.
26.6
Ps.
19.3 Ps.
18.5
----
1.9%
1.0%
8.0%
Famsa growth in same-store sales..
1.3%
1.6%
-0.5%
7.4%
Mexico growth in same-store sales
5.8%
2.6%
2.1%
8.6%
-14.5%
-4.0%
-11.2%
0.4%
45.4%
46.6%
47.7%
47.7%
7.8%
10.4%
10.5%
10.3%
U.S. growth in same-store sales
Gross margin
Operating margin
(2)
34
Net margin
1.7%
2.3%
5.3%
________________________
(1)
Financial information for the nine-month period ended September 30, 2012 and 2013 includes only sales per square meter in Texas and
Illinois, the two U.S. states in which we operate.
(2)
Financial information for the nine-month period ended September 30, 2012 and 2013 refers only to same store sales in Texas and Illinois,
the two U.S. states in which we operate.
35
5.7%
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with our unaudited interim
consolidated financial statements and the notes thereto included elsewhere in this Information
Memorandum.
Critical Accounting Policies and Estimates
Until 2011, we issued our consolidated financial statements in conformity with MFRS. In accordance
with IFRS 1 “First-time adoption of IFRS” we considered January 1, 2011 as our IFRS transition date and
January 1, 2012 as our IFRS adoption date. As a result, the Financial Statements have been prepared in
accordance to IFRS as issued by IASB. The amounts included in the Financial Statements for 2011 have
been reconciled in order to be presented under the same standard and criteria applied in 2012.
In addition, the preparation of these consolidated financial statements requires the use of estimates,
judgments and assumptions that affect the reported amounts of assets and liabilities at the balance sheet
date as well as the reported amounts of revenues and expenses for the periods presented. Actual results
may differ from these estimates, judgments and assumptions.
An accounting estimate in the Company’s consolidated financial statements is a critical accounting
estimate if it requires the Company to make assumptions about matters that are highly uncertain at the
time the accounting estimate is made, and either different estimates that the Company reasonably could
have used in the current period, or changes in the accounting estimate that are reasonably likely to occur
from period to period, would have a material impact on the presentation of the Company’s financial
condition, cash flows or results of operations.
This section contains a discussion of our critical accounting policies so as to provide a better
understanding of our operating results.
Allowance for Doubtful Receivables
We maintain an allowance for doubtful receivables related to customer receivables for estimated
losses resulting from our customers’ inability to make timely payments, including interest on finance
receivables. The amount of our allowance for doubtful receivables is based on whether there is objective
evidence of impairment as a result of one or more events that occurred after the initial recognition of the
receivable (a ‘loss event’) and if that loss event (or events) has an impact on the estimated future cash
flows of the receivable that can be reliably estimated. The objective evidence can be based in various
factors, including the length of past overdue payments, the current business environment, past practices
(represented as a percentage of sales), historical experience and the estimated recoverable value of the
item sold, since, in some cases, the item is pledged as collateral under the applicable sales contract.
Although we believe that our allowance for doubtful receivables is adequate and sufficient to cover
any losses associated with our accounts receivable, in the future we may be required or may deem it
necessary to increase the amount of such provision. The adequacy and sufficiency of our allowance for
doubtful receivables in the future could be affected by changes in our consumer lending policies, the
profiles of our customers and the prevailing macroeconomic conditions both in Mexico and the United
States. Any increase in our allowance for doubtful receivables may have an adverse effect on our results
of operations and financial condition.
Allowance for Income Taxes
Our income tax expense includes both our accrued and deferred income tax obligations. Deferred
income taxes represent our future income tax obligations or credits due to temporary differences between
the tax and accounting treatment of certain balance sheet items, including our allowance for doubtful
36
receivables, buildings, leasehold improvements and furniture and equipment and sales on credit. We
report these temporary differences and unrealized tax losses or credits as deferred income tax assets
and liabilities on our balance sheet. We report the corresponding change in the amount of our deferred
income tax assets or liabilities as a charge or credit in our income statement depending on their nature.
For purposes of determining the deferred tax, the Company prepares tax projections to determine
whether the Company will pay income tax or flat rate tax, and then determines deferred income tax or
deferred flax tax, as appropriate.
Depreciation and Impairment of Property, Leasehold Improvements and Furniture and Equipment
Depreciation is calculated in accordance with the straight-line method based on the estimated useful
life of the relevant assets. Any change in circumstances, including any change in our business model,
could give rise to differences between the actual and estimated useful lives of such assets. In those
instances where we determine it necessary to shorten the useful life of a given item of property, leasehold
improvements and furniture and equipment, we depreciate the portion of the net book value of such item
that exceeds its recoverable value over the course of its remaining adjusted useful life, thus increasing
our depreciation expense. We review the estimated useful lives and residual values of property,
leasehold improvements and furniture and equipment at the end of each annual period.
We review property, leasehold improvements and furniture and equipment for impairment whenever
events or changes in circumstances indicate that the related carrying amounts may not be recoverable.
Determining whether impairment has occurred typically requires various estimates and assumptions,
including determining which cash flows are directly related to the potentially impaired asset, the useful life
over which cash flows will occur, their amount and the asset’s residual value, if any. In turn,
measurement of an impairment loss requires a determination of fair value, which is based on the best
information available. We use internal discounted cash flow estimates and independent appraisals as
appropriate to determine fair value. We derive the required cash flow estimates from our historical
experience and our internal business plans and apply an appropriate discount rate.
Revenue recognition, installment sales
We apply judgment to identify the applicable discount rate to determine the present value of
installment sales. To determine the discounted cash flows, we use an imputed interest rate, considering
the rate that can be determined better from: (i) the prevailing rate in the market for a similar instrument
available for our customers with a similar credit rating or (ii) the interest rate that equals the nominal value
of the sale, properly discounted to the cash price of the goods sold.
When making our judgment, we consider the interest rates used by the principal financial institutions
in Mexico to fund programs of installment sales.
Employee Benefits
We determine the cost of employee benefits that qualify as defined benefit plans using independent
actuarial valuations. The valuations involve actuarial assumptions about discount rates, future salary
increases, employee turnover rates and mortality rates, among other things. Any changes in these
assumptions will impact the carrying value of our pension obligations. Due to the long-term nature of
these plans, such estimates are subject to a significant amount of uncertainty.
Overview of Our Results of Operations
Revenues
We generate revenues from our retail operations primarily through the sale of recognized brand name
products (such as furniture, electronics, household appliances, cellular telephones, computers,
37
motorcycles, clothing and other durable consumer products), as well as the issuance of personal loans
and other financial services offered through Banco Famsa.
Revenue from retail sales is recognized upon completion of the revenue recognition process, which
occurs when merchandise is shipped or delivered to customers in accordance with the terms of a sales
contract, when there is a fixed or determinable sales price, when title and risk of loss have been
transferred, and when collectability is reasonably assured. Most of these conditions are satisfied at the
time of delivery to customers and upon issuance of the sales receipt.
We offer our customers an option to pay in installments (weekly, bi-weekly or monthly) over time
rather than in cash at the time of purchase. As of September 30, 2013, sales under our credit sales
program accounted for 83.0% of our total sales.
In accordance with IAS 18, “Revenue”, the Company recognizes the following as revenues: (a)
installment sales at present value using the imputed interest rate; and (b) sales of life insurance, which
are recorded net, since their associated cost is recognized.
In Mexico, the retail prices of our products depend on the market trends of the diverse type of
products offered. In addition, our installment program considers various factors, such as the repayment
period, the customer’s credit history and the type of product. The actual installment payments result from
the division of the retail price by the number of payments within the desired repayment period.
Installment payments displayed at our stores are typically calculated using 12 or 18-month terms. As a
result, sales on credit generate gross margins above those yielded by our cash sales.
In the United States, the retail price of our merchandise sold on credit is determined based on the
suggested retail price plus a finance charge that is reviewed periodically. Cash purchases at our U.S.
stores generally are not subject to discounts.
Our total revenues per square meter reflect the performance of our Famsa stores. Our sales area is
measured in square meters and serves as a parameter for the calculation of our growth in terms of our
total revenues. The following table shows our stores’ sales area and performance.
Nine-Month Period Ended
September 30,
IFRS
IFRS
IFRS
IFRS
2011
2012
2012
2013
352
355
350
358
Stores in U.S. Illinois and Texas
25
25
25
25
Stores in U.S. West
24
0
7
0
401
380
382
383
422,646
423,489
420,504
426,574
Stores in Mexico
Total number of stores
(1)
Total sales area in Mexico
Total sales area in U.S. Illinois and
(1)
Texas
(1)
Total sales area in U.S. West
Total sales area
(1)
Mexican sales per square meter
U.S. sales per square meter
(2)
(2)(3)
64,434
64,434
64,434
64,434
52,838
0
17,848
0
539,918
487,923
502,786
491,008
Ps.
28.6 Ps.
29.2
Ps.
20.6 Ps.
22.2
Ps.
26.9 Ps.
26.6
Ps.
19.3 Ps.
18.5
Famsa growth in same-store sales
1.3%
1.6%
-0.5%
7.4%
Mexico growth in same-store sales
5.8%
2.6%
2.1%
8.6%
-14.5%
-4.0%
-11.2%
0.4%
U.S. growth in same-store sales
(3)
38
_______________
(1) In square meters.
(2) In thousands of Pesos.
(3) Financial information for the nine-month period ended September 30, 2012 and 2013 includes only sales per square meter in Texas and Illinois,
the two U.S. states in which we operate.
We provide sales by category as of September 30, 2013, in the table below.
2013
2012
(millions of Pesos)
Interest earned from customers
Furniture
Electronics
Appliances
Mobile phones
Motorcycles
Computer equipment
Clothing and footwear
Seasonal articles (air conditioners, heaters, etc.)
Income from commercial banking
Small appliances
Sport articles
Children’s articles and accessories
Other (1)
Ps.
Ps.
3,364
1,579
1,145
1,142
854
571
549
329
302
140
101
77
20
515
Ps.
3,078
1,564
1,053
920
626
403
512
313
351
131
113
113
32
690
10,688
Ps.
9,899
In 2012, we decreased the total number of our retail stores by 21, or (5.2)%, to 380 total retail stores
as of December 31, 2012, from 401 total retail stores as of December 31, 2011. Our total sales area
decreased by 51,995 square meters in 2012, or (9.6)%, to 487,923 square meters as of December 31,
2012, from 539,918 square meters as of December 31, 2011, due mainly to the orderly exit from the
West region in the United States, which comprised the closure of 24 stores located in the states of
California, Arizona and Nevada. As of September 30, 2013, we had 383 retail stores and 17 warehouses
in Mexico and the United States and had a total sales area of 491,008 square meters.
Mexican retail sales per square meter increased by Ps.1,600, or 7.8%, to Ps.22,200 as of September
30, 2013 from Ps.20,600 as of September 30, 2012, as a result of increasing efforts to spur demand.
U.S. retail sales per square meter in Texas fell by Ps.(800) (4.1%), to Ps.18,500 as of September 30,
2013, from Ps.19,300 as of September 30, 2012 due to continuing pressure on sales growth during the
first and third quarter of 2013.
Seasonality
We recognize a substantial percentage of our net sales across all of our business segments in the
second and fourth quarters of the year as a result of the increase in consumer spending associated with
Mother’s Day, Buen Fin and the Christmas holiday season. Unlike our revenues, our operating costs
(excluding the cost of the merchandise sold), distribution costs and a portion of our marketing and
advertising expenses are relatively stable throughout the year and, therefore, generally do not correlate
with our sales fluctuations.
Cost of Sales
The main component of our cost of sales is the acquisition cost of the merchandise offered by our
Famsa Mexico and Famsa USA stores and the merchandise we sell at wholesale prices. IFRS provide
that the cost of inventories includes all costs derived from their acquisition and transformation. Import
duties, transportation, commercial discounts, rebates and other similar items affect the acquisition cost.
Furthermore, because of our transition from MFRS to IFRS, for the year ended December 31, 2012, the
39
allowance for doubtful accounts is now a component of cost of sales. In addition, the Company reduced
inventories affecting cost of sales during calendar year 2012.
According to IAS 19 (as amended) the actuarial gains and losses should be recognized in financial
expenses, net as incurred, therefore actuarial gains for the year ended December 31, 2011 were
reclassified reducing administrative expenses and increasing actuarial gains in financial expenses, net by
the same amount.
We recognize our cost of sales as of the date of sale of the relevant products.
Operating Expenses
The main components of our operating expenses, which comprise selling expenses and
administrative expenses, are employees’ salaries and benefits, depreciation, rent, marketing and
advertising expenses, and service and maintenance costs.
Financial Expenses, Net
Our financial expenses, net has a material effect on our financial statements during periods of high
inflation or fluctuation in the exchange rate of the Peso against the U.S. Dollar. Our financial expenses,
net consist of interest income, interest expense, foreign exchange gains or losses attributable to our
foreign-denominated monetary assets and liabilities and gains or losses in monetary position from the
holding of monetary assets and liabilities exposed to inflation. Our foreign exchange position is affected
by our foreign-denominated assets and liabilities. We recognize a foreign exchange gain or loss in the
event of an increase or decrease in the exchange rate of the Peso against the currencies in which our
assets and liabilities are denominated.
Income Tax
The main components of our income tax expense are Mexican income tax and U.S. federal and state
income taxes. Income tax rates vary from one country or state to another and are subject to changes in
the tax laws of each such country or state. Our income tax expense includes both our accrued and
deferred taxes and we use the comprehensive asset and liability method to determine the deferred tax
asset or liability, and related income/expense for deferred income taxes, for all temporary differences
between the carrying values for financial reporting and tax values of assets and liabilities.
Operating Results by Geographic Segment
Famsa manages and evaluates its continuing operations through three business segments: Famsa
Mexico (retail stores, personal car financing and financial sector in Mexico), Famsa USA (retail stores)
and other businesses in Mexico (wholesale, manufacturing of furniture and the footwear catalog
business). The Company controls and evaluates its continuing operations on a consolidated basis since
the goods and services mix and the target markets are similar. Its operations are carried out through its
subsidiary companies.
40
The following table shows our net sales by geographic segment, as a percentage of our total
revenues, and our Adjusted EBITDA (explained below) by geographic segment, for the years ended
December 31, 2011 and 2012 and for the nine-month periods ended September 30, 2012 and 2013.
Nine-Month Period Ended
September 30,
IFRS
IFRS
IFRS
IFRS
2011
2012
2012
2013
Amount
%
Amount
%
Amount
%
Amount
%
Net Sales by Segment:
Famsa Mexico
Ps.
Famsa USA
Other
Subtotal
12,030.6
86.8
12,353.3
1,731.5
12.5
1,715.2
8,631.9
87.2 Ps.
9,421.3
88.2
12.1
1,240.6
12.5
1,193.1
11.2
1,030.0
7.4
949.0
6.7
678.2
6.9
642.4
6.0
14,792.1
106.7
15,017.5
106.3
10,550.8
106.6
11,256.8
105.3
Intersegment sales
Total net sales
87.5 Ps.
(926.4)
(6.7)
(894.0)
(6.3)
(651.2)
(6.6)
(569.1)
(5.3)
13,865.7
100.0
14,123.5
100.0
9,899.6
100
10,687.7
100.0
2,046.3
104.7
2,257.8
1,661.0
94.3 Ps.
1,787.3
96.6
(2.9)
(0.1)
121.7
5.1
95.589
5.1
67.4
3.6
(62.7)
(3.2)
8.7
0.4
(36.3)
(1.5)
(3.6)
(0.2)
1,980.7
101.3
2,388.2
100.4
1,720.3
97.9
1,851.0
100.0
(25.4)
(1.3)
(8.9)
(0.4)
(7.2)
2.1
(0.1)
(0.0)
1,955.3
100.0
2,379.3
100.0
1,713.1
100
1,850.9
100.0
Adjusted EBITDA:
Famsa Mexico
Ps.
Famsa USA
Other
Subtotal
Intersegment EBITDA
Total EBITDA
94.9 Ps.
Adjusted EBITDA Reconciliation
Adjusted EBITDA is a non-GAAP financial measure computed under IFRS. Adjusted EBITDA, as
such term is used in this Information Memorandum consists of adding to the operating profit: interest
expense on bank deposits, depreciation and amortization.
In accordance with IFRS, the effect of discontinued operations has been separated from continuing
operations and is presented as an extraordinary item before net income. Thus, in order to measure
Adjusted EBITDA for the years ended December 31, 2011 and 2012, net income also excludes income
(loss) from discontinued operations.
We believe that Adjusted EBITDA can be useful to facilitate comparisons of operating performance
between periods and with other companies in our industry, but it has the following material limitations: (i)
it does not include interest expense, which, because we have borrowed money to finance some of our
operations, is a necessary and ongoing part of our costs and has assisted us in generating revenue; (ii) it
does not include taxes, which are a necessary and ongoing part of our operations; and (iii) it does not
include depreciation, which, because we must utilize property and equipment in order to generate
revenues in our operations, is a necessary and ongoing part of our costs.
41
We provide a reconciliation of operating profit to Adjusted EBITDA in the table below.
Nine-Month Period Ended
September 30,
Years Ended
December 31,
IFRS
IFRS
IFRS
IFRS
2011
2012
2012
2013
Consolidated net income
227.4
322.9
521.9
608.5
Depreciation and amortization
350.7
314.4
241.5
235.1
1,200.5
1,312.1
963.7
1,153.8
(149.5)
(107.3)
(259.1)
(188.3)
(1.4)
(1.8)
(1.1)
(1.1)
103.2
(62.2)
(69.0)
39.9
2.5
2.7
3.2
3.1
Interest expenses on bank deposits
& financial expenses, excluding
foreign Exchange loss, net
Income tax
Interest income
Foreign exchange gain (loss), net
Net income attributable to noncontrolling interest
Loss from discontinued
operations
Adjusted EBITDA
221.8
598.5
312.0
0.0
1,955.3
2,379.2
1,713.1
1,850.9
42
Results of Operations for the Nine-Month Period Ended September 30, 2013, compared with our
Results of Operations for the Nine-Month Period Ended September 30, 2012 and Balance Sheet
Data as of September 30, 2013 compared with September 30, 2012
Our unaudited interim consolidated financial statements as of and for the nine-month periods
ended September 30, 2012 and 2013 are prepared in accordance with IFRS.
Total Revenues
Consolidated total revenues for the nine-month period ended September 30, 2013 totaled Ps.10,688
million, 8.0% above consolidated net sales during the same period in 2012. Famsa Mexico’s total
revenues for the nine-month period ended September 30, 2013 increased 9.1%, to Ps.9,421 million, as
compared to Ps.8,632 million during the first nine months of 2012. Famsa USA’s total revenues for the
nine-month period ended September 30, 2013 increased 0.4%, to U.S.$94,048, as compared to $93,708
during the first nine months of 2012.
Same Store Sales (“SSS”), which represent the sales of those of our stores that have been in
operation longer than 12 months, and isolate the effect of the Peso/U.S. Dollar exchange rate, increased
to a growth of 7.4% for the nine-month period ended September 30, 2013 over the nine-month period
ended September 30, 2012, from a decrease of 0.5% for the nine-month period ended September 30,
2012 over the nine-month period ended September 30, 2011. Famsa Mexico achieved a 8.6% SSS
growth in this same nine-month period over the nine-month period in 2012 amid a slower growth in
consumption in Mexico. The effectiveness of commercial initiatives, such as introducing new models,
mounting specialized displays and launching attractive promotions have boosted sales of core categories
during this period. Famsa USA’s SSS for the nine-month period ended September 30, 2013 were 0.4%,
remaining practically the same as compared to the same period in 2012. The decline in the Consumer
Confidence Index in the United States as a result of economic uncertainty represents one of the main
obstacles for consumption, affecting Famsa USA´s sales volume.
Cost of Sales and Gross Profit
In 2012, several accounts were reclassified as a result of the MFRS to IFRS transition. Among them,
interest expense related to bank deposits was reclassified to cost of sales and thus, our consolidated cost
of sales for the nine months ended September 30, 2013 was Ps.5,593 million, 8.0% above that of the
same period of 2012.
Our consolidated gross profit for the first nine months of 2013 was Ps.5,095 million, 7.9% greater
than our consolidated gross profit during the same nine-month period in 2012. As a percentage of sales,
gross margin remained at 47.7% during the nine months ended September 30, 2013 as during the same
period in 2012. This year’s growth in gross profit and gross margin has been largely driven by Famsa
Mexico’s growth in sales of its durable core categories.
Operating Expenses and Adjusted EBITDA
Our operating expenses increased by 5.8%, from Ps.3,762 million during the nine months ended
September 30, 2012, to Ps.3,980 million during the same period in 2013, derived from a rise in general
and advertising expenses registered mainly during the third quarter of 2013.
As a percentage of sales, operating expenses reached 38.0% during the the first nine months of
2013, compared to 37.2% during the same period in 2012.
Our consolidated Adjusted EBITDA, which is a non-GAAP financial measure computed under IFRS
and consists of adding to the operating profit: interest expense on bank deposits, depreciation and
amortization, for the nine months ended September 30, 2013 totaled Ps.1,851 million, 8.0% above that
during the same period in 2012. The increase is primarily attributable to Famsa Mexico’s sales volume
43
during 2013. See “Management´s Discussion and Analysis of Financial Condition and Results of
Operations – Adjusted EBITDA Reconciliation”.
Financial Expenses, net
Derived from the MFRS to IFRS transition, several accounts were reclassified in 2012. As a result,
financial expenses, net now comprise interest expense related to bank debt, debt certificates, and
factoring. Therefore, the accumulated net financial expenses of Grupo Famsa as of September 30, 2013
were Ps.675 million, a 47.7% increase compared to the nine months ended September 30, 2012.
This increase largely reflects the payment of interest premium on the offer for acquisition and
amortization of the senior notes due 2015 that was executed in May 2013. Furthermore, it also reflects
the payment of a premium paid on July 2013 on unredeemed capital from the senior notes due 2015. In
addition, it also reflects the variation from a moderate foreign exchange gain of Ps.70 million posted
during the first nine months of 2012, which changed to a foreign exchange loss of Ps.39 million during
2013.
Income Tax
Our income tax decreased by 27.3%, from Ps.259 million during the first nine months of 2012 to
Ps.188 million during 2013, primarily as a result of deferred income tax.
Net Income
Our consolidated net income increased by 16.4%, from Ps.525 million during the January-September
period of 2012 to Ps.612 million as of September 30, 2013. This increase results from an increase of
6.1% in operating profit as of September 30, 2013 compared to the same period of 2012.
Trade Receivables, net
The balance of current and non-current trade receivables as of September 30, 2013, net of
impairment allowances, grew 8.9% compared to the year ended December 31, 2012, totaling Ps.20,921
million. Derived from the MFRS to IFRS transition, this balance was segmented based on the timeframe
of credits. Ps.19,903 or 95.1% of the total balance of trade receivables, net corresponds to credits with
terms of less than one year. The remaining amount has been reclassified as a non-current asset.
Grupo Famsa applies stringent credit criteria to evaluate the credit quality of its trade receivables,
both with respect to loans offered by Banco Famsa and the company’s consumer financing through its
retail stores. The credit quality of trade receivables is assessed based on historical default rates by the
company’s counterparties.
Inventories
The balance of inventory as of September 30, 2013 increased by 13.3%, to Ps.2,209 million, when
compared to Ps.1,951 million as of December 31, 2012, primarily as a result of increased inventory levels
to prepare for the Buen Fin and Christmas holiday season.
Net Debt and Bank Deposits
Net debt reached Ps.5,348 million as of September 30, 2013, 15.8% above than the net debt posted
as of December 31, 2012, derived from a growth in gross debt, attributable to the 144A Notes that were
issued in May 2013 and an increase of 22.4% in cash during the first nine months of the 2013. Net debt is
calculated by the sum of long-term debt and short-term debt and subtracting cash and cash equivalents.
44
As of September 30, 2013, bank deposits totaled Ps.13,636 million, which was 13.6% above the
balance as of December 31, 2012. In addition, Banco Famsa’s average cost of funding was 5.3% as of
the close of the third quarter of 2013. Bank deposits continue to offer an optimum source of funding for
the credits extended to our Mexican customers. The diverse financing products that make up Banco
Famsa’s bank deposit base (demand deposits, short- and medium-term investments and certificates of
deposit) mitigate the Company’s exposure to conventional credit market volatility and have also
contributed significantly to reducing the Company’s consolidated cost of funding.
Total Stockholders’ Equity
The balance of stockholders’ equity as of September 30, 2013 grew by 7.3%, to Ps.8,894 million, as
compared to stockholders’ equity of Ps.8,290 million as of December 31, 2012.
Results of Operations for the Year Ended December 31, 2012, compared with Results of
Operations for the Year Ended December 31, 2011 and Balance Sheet Data as of December 31,
2012 compared with December 31, 2011
Our consolidated annual financial statements as of and for the years ended December 31, 2011 and
2012, which have been prepared in accordance with IFRS.
Total Revenues
During the year ended December 31, 2012, our total revenues increased by 1.9%, to Ps.14,124
million, from Ps.13,866 million during the year ended December 31, 2011, primarily as a result of Famsa
Mexico’s sales growth posted during the period of April through December of the year ended December
31, 2012. Although same-store sales (which represent the sales of those of our stores that have been in
operation longer than 12 months and isolate the effect of the Peso/U.S. Dollar exchange rate) of Famsa
Mexico were lower in the first quarter of 2012 compared to the first quarter of 2011 for the reasons
described below, consolidated same-store sales grew 1.6% during the year ended December 31, 2012,
as compared to a growth rate of 1.3% in the year ended December 31, 2011, as a result of sales growth
during the remainder of 2012.
Famsa Mexico reported total revenues of Ps.12,353 million during the year ended December 31,
2012, which represented a 2.7% increase in total revenues from Ps.12,031 million during the year ended
December 31, 2011, primarily as a result of the combination of the progressive recovery of core
categories, such as furniture, household appliances and cellular telephones, and the strength of personal
loan origination. Same-store sales at Famsa Mexico grew 2.6% during the year ended December 31,
2012, compared to 5.8% during the year ended December 31, 2011. The unfortunate accident at one of
our office buildings in Monterrey, that temporarily affected our credit approval capacity, combined with the
highest comparable quarterly growth of the past few years in the first quarter of 2011, resulted in a 4.4%
reduction in Famsa Mexico’s total revenues during the first three months of 2012.
Famsa USA’s total revenues and same-store sales in terms of U.S. Dollars both decreased by 4.0%
during the year ended December 31, 2012. During the year ended December 31, 2012, total revenues in
the Texas region fell 0.9%, to Ps.1,715 million from Ps.1,731 million during the year ended December 31,
2011. However, during the fourth quarter of 2012, for the first time since 2011, Famsa USA posted a
growth in quarterly sales in the Texas region, with an 8.3% increase in same-store sales in the fourth
quarter of the year ended December 31, 2012, compared to the fourth quarter of 2011. The growing
recovery of Hispanic consumers and the rise in demand for some of our core product categories, such as
household appliances and furniture, had a significant impact on sales volumes of Famsa USA during the
fourth quarter of 2012.
45
Cost of Sales and Gross Profit
In 2012, several accounts were reclassified as a result of the MFRS to IFRS transition. Among them,
interest expense related to bank deposits was reclassified to cost of sales and thus, cost of sales for the
year ended December 31, 2012 was Ps.7,536 million, 0.5% below that of the year ended December 31,
2011.
During the year ended December 31, 2012, consolidated gross profit reached Ps.6,587 million, 4.7%
above that of the year ended December 31, 2011. As a percentage of sales, gross profit grew 120 basis
points from 45.4% in the year ended December 31, 2011 to 46.6% during the year ended Decemeber 31,
2012, largely driven by Famsa Mexico’s growth in credit sales, combined with the higher participation of
personal loans and furniture in the consolidated sales mix.
Operating Expenses
Consolidated operating expenses, which comprise selling expenses and administrative expenses,
grew 0.3% during the year ended December 31, 2012, to Ps.5,183 million. During the year ended
December 31, 2012, salaries and employee benefits and rent represented 59.9% of total operating
expenses and the remaining amount corresponds to advertising, maintenance and depreciation
expenses, among others. As a percentage of sales, operating expenses reached 36.7% during the year
ended December 31, 2012, which represents a decrease of 60 basis points compared to the same period
in 2011.
Financial Expenses, net
Derived from the MFRS to IFRS transition, several accounts were reclassified in 2012. As a result,
financial expenses, net now comprise interest expense related to bank debt, debt certificates, and
factoring. Therefore, the financial expenses, net of Grupo Famsa as of year ended December 31, 2012
were Ps.658 million, a 15.2% decrease compared to 2011.
The principal variation was in the foreign exchange loss of Ps.103 million posted in 2011, which
changed to a moderate foreign exchange gain of Ps.62 million in the year ended December 31, 2012, as
a result of the increased stability of the foreign exchange market and, more importantly, Grupo Famsa’s
reduced asset position in U.S. Dollars through the operations of Famsa USA.
Income Tax
Our income tax decreased by 28.2%, from Ps.149 million during the year ended December 31, 2011
to Ps.107 million during 2012, primarily as a result of deferred income tax.
Net Income
Our consolidated income increased by 41.5%, from Ps.230 million during the year ended December
31, 2011 to Ps.326 million as of December 31, 2012. This increase results from an increase of 170.2% in
income before income tax as of December 31, 2012 compared to 2011. However, in the year ended
December 31, 2012 the Company recorded a loss from discontinued operations corresponding to Famsa
USA´s divestment process from the West region of Ps.598 million.
Trade Receivables, net
The balance of trade receivables, net as of December 31, 2012, net of impairment allowances, grew
7.4% compared to the year ended December 31, 2011, totaling Ps.19,215 million. Derived from the
MFRS to IFRS transition, this balance was segmented based on the timeframe of credits. Ps.18,546, or
96.5% of the total balance of trade receivables, net corresponds to credits with terms of less than one
year. The remaining amount has been reclassified as a non-current asset.
46
Grupo Famsa applies stringent credit criteria to evaluate the credit quality of its trade receivables,
both with respect to loans offered by Banco Famsa and the company’s consumer financing through its
retail stores. The credit quality of trade receivables is assessed based on historical default rates by the
company’s counterparties. Trade receivables, net as of December 31, 2012 and 2011 were Ps.20.251
million and Ps.18.855 million, respectively, including past due receivables of Ps.2.086 million and
Ps.2.145 million, respectively.
Inventories
The balance of inventories as of December 31, 2012 decreased by 2.9%, to Ps.1,951 million, when
compared to Ps.2,010 million as of December 31, 2011, primarily as a result of the effective
implementation of initiatives aimed at optimizing inventory levels without reducing our standards of
service.
Net Debt and Bank Deposits
Net debt was Ps.4,619 million as of December 31, 2012, 6.0% less than the net debt posted as of
December 31, 2011, largely reflecting an increase of 21.2% in the balance of cash and cash equivalents.
Net debt is calculated by the sum of long-term debt and short-term debt and subtracting cash and cash
equivalents.
As of December 31, 2012, bank deposits totaled Ps.11,999 million, which was 15.0% above the
balance as of December 31, 2011. In addition, Banco Famsa’s average cost of funding was 5.2% as
December 31, 2012. Bank deposits continue to offer an optimum source of funding for the credits
extended to our Mexican customers. The diverse financing products that make up Banco Famsa’s bank
deposit base (demand deposits, short- and medium-term investments and certificates of deposit) mitigate
the Company’s exposure to conventional credit market volatility and have also contributed significantly to
reducing the Company’s consolidated cost of funding.
Total Stockholders’ Equity
The balance of total stockholders’ equity as of December 31, 2012 grew by 3.4%, to Ps.8,290 million,
as compared to stockholders’ equity of Ps.8,015 million as of December 31, 2011, primarily due to an
8.5% increase in retained earnings, from Ps.3,536 million as of December 31, 2011 to Ps.3,837 million as
of December 31, 2012, and an 18.2% increase in the reserve for repurchase of shares, which grew from
Ps.110 million as of December 31, 2011 to Ps.130 million during the year ended December 31, 2012.
47
Liquidity and Capital Resources
General
Our primary sources of liquidity are the cash flow generated by our operating activities, Banco Famsa
bank deposits, the funds available under our existing credit facilities and the issuance of debt instruments,
such as our commercial paper programs in international and Mexican capital markets (certificados
bursátiles), including these Notes. We require liquidity primarily to fund our working capital needs,
including our sales on credit and the opening of new stores, and to satisfy our debt service obligations.
Changes in Financial Condition
The change in our resources from our operating activities during the year ended December 31, 2012
was primarily attributable to the increase in income before income tax.
The change in our resources from our financing activities during the year ended December 31, 2012
was attributable to a decrease in short-term debt and bank loans.
The change in our resources from our investing activities during the year ended December 31, 2012
was attributable to a decrease in investments in leasehold improvements and fixed assets.
Cash Flows
The following table shows the generation and use of cash for the years ended December 31, 2011
and 2012 and for the nine months ended September 30, 2013.
Nine-Month
Period Ended
September 30,
Year Ended
December 31,
Net cash flow provided by (used in) operating activities
Ps.
Net cash flow provided by financing activities
Net cash flow used in investing activities
(Decrease) increase in net cash and cash equivalent
Ps.
IFRS
IFRS
IFRS
2011
2012
2013
490.2 Ps.
975.6 Ps.
171.4
56.2
(522.5)
332.1
(233.6)
(190.0)
(150.9)
312.8 Ps.
263.1 Ps.
352.5
Net cash flow provided by operating activities for the year ended December 31, 2012 was Ps.975.6
million and net cash flow provided by operating activities for the year ended December 31, 2011 was
Ps.490.2 million. The Ps.485.4 million increase in cash provided by operating activities in 2012 was
primarily a result of the 170.5% increase in income before income tax, of Ps.514.4 million.
Net cash flow used by financing activities for the years ended December 31, 2012 was Ps.522.5
million and net cash flow provided by financing activities for the year ended December 31, 2011 was
Ps.56.2 million, respectively. The Ps.578.7 million decrease in our cash provided by financing activities in
2012 was attributable to a decrease in short-term debt and bank loans, which fell 88.5%, from Ps.2,607.7
million in 2011 to Ps.300.0 million in 2012.
Net cash flow used in investing activities for the years ended December 31, 2012 and 2011 was
Ps.190.0 million and Ps.233.6 million, respectively. The Ps.43.6 million, or 18.6%, decrease in our cash
used in investing activities in 2012 was attributable mainly to a decrease in investments in leasehold
improvements and fixed assets, which fell Ps.38.4 million, or 16.0%, from Ps.240.0 million in 2011, to
Ps.201.6 million in 2012.
48
Net cash flow provided by operating activities for the nine months ended September 30, 2013 was
Ps.171.4 million and net cash flow provided by operating activities for the nine months ended September
30, 2012, amounted Ps.224.1 million. The Ps.52.8 million decrease in cash used in operating activities as
of September 2013 was primarily a result of a higher interest paid to bank depositors and more funds
required in connection with the growth in trade accounts receivable and other accounts receivable.
Net cash flow provided by financing activities for the nine months ended September 30, 2013 was
Ps.332.0 million and net cash flow used by financing activities for the nine months ended September 30,
2012 was Ps.377.1 million, respectively. As of September 30, 2013, payment of current and non-current
debt and bank loans increased to (Ps.3,324.0) million from (Ps.17.1) million as of September 30, 2012.
Payment of interest premium on the offer for acquisition and amortization of the senior notes due 2015
that was executed in May 2013 and payment of a premium paid on July 2013 on unredeemed capital
from the senior notes due 2015 amounted to Ps. 2.9 billion (U.S.$221.7 million) as of September 30,
2013.
Net cash flow used in investing activities for the nine months ended September 30, 2013 and 2012
was Ps.150.1 million and Ps.23.5 million, respectively. The Ps.127.4 million increase in our cash used in
investing activities as of September 30, 2013 was attributable mainly to a higher acquisition of property,
leasehold improvements, furniture and equipment from Ps.65.1 million for the nine months ended
September 30, 2012 to Ps.159.8 million for the nine months ended September 30, 2013.
Capital Investments
In 2012 and 2011, we made capital investments of Ps.207.1 million and Ps.307.0 million,
respectively, including:

leasehold improvements in the amount of Ps.25.4 million in 2012 and Ps.76.0 million in 2011;

the acquisition of furniture and equipment in the amount of Ps.18.1 million in 2012 and
Ps.71.8 million in 2011; and

the acquisition of data-processing equipment in the amount of Ps.20.8 million in 2012 and
Ps.25.6 million in 2011.
For the nine months ended September 30, 2013, we made capital investments of Ps.163.2 million,
including:

leasehold improvements in the amount of Ps.20.7 million;

the acquisition of furniture and equipment in the amount of Ps.21.7 million; and

the acquisition of information technology systems in the amount of Ps.32.1 million.
49
The following table contains a more detailed breakdown of our capital investments during the years
ended December 31, 2011, and 2012 and for the nine-month periods ended September 30, 2013.
Nine-Month
Period Ended
September
30,
Year Ended
December 31,
IFRS
IFRS
IFRS
2011
2012
2013
Capital Investments
Land
Ps.
— Ps.
26,192 Ps.
53,960
Buildings and construction
58,865
25,933
150
Leasehold improvements
76,016
25,362
20,715
Furniture and equipment
71,847
18,063
21,726
Transportation equipment
20,688
24,837
28,860
Data-processing equipment
25,612
20,788
Total capital investments
Ps.
306,988 Ps.
65,906
2,850
Construction in process
207,081 Ps.
56,810
32,131
163,242
In 2011, 2012 and as of September 30, 2013, we financed our capital investments through a
combination of our operating resources, loans and borrowings under our existing credit facilities.
Bank Deposits (Banco Famsa)
During the year ended December 31, 2012, Banco Famsa’s deposit balance increased 15.0%, to
Ps.11,999 million, from Ps.10,436 million during the year ended December 31, 2011, as a result of the
continuing development of Banco Famsa. Bank deposits represent an increasing percentage of Famsa’s
total net consolidated financing, having reached 72.2% as of December 31, 2012 and 68.0% as of
December 31, 2011 and having reached 71.8% as of September 30, 2013. For a description of Banco
Famsa’s deposit products, see “Business—Banco Famsa—Products and Services.”
The breakdown of Banco Famsa’s deposits as of December 31, 2011 and 2012 and September 30,
2013 is as follows:
Nine-Month
Period Ended
September 30,
Year Ended December 31,
IFRS
IFRS
IFRS
2011
2012
2013
(millions of Pesos)
Demand Deposits:
Saving deposits (interest bearing)
Checking accounts (non-interest
bearing)
2,831
2,191
2,279
208
314
320
7,397
9,494
11,036
10,436
11,999
13,636
Time deposits:
From the general public
Total Bank Deposits
50
Debt
As of December 31, 2011 and December 31, 2012, we had outstanding debt in the aggregate amount
of Ps.6,177.3 million and Ps.6,147.4 million, respectively. As of September 30, 2013, we had outstanding
debt in the aggregate amount of Ps.7,219.6 million. Debt from affiliates is described under “Related Party
Transactions.” The following table contains a summary of our third-party debt as of September 30, 2013.
See “Recent Developments” for a summary of our borrowings incurred since September 30, 2013.
As of September 30, 2013
Amount
(1)
Outstanding
Interest
(2)
Rate
Maturity Date
Grupo Famsa
Mexican pesos:
Financial factoring :
Financiera Bajío, S.A. SOFOM ER
Ps.
99,978
7.57%
December 2013
Arrendadora y Factor Banorte, S.A. de C.V.
SOFOM, ER
399,693
7.14%
December 2013
Banco Monex, S.A.
199,955
7.13%
December 2013
100,000
7.28%
December 2013
99,795
7.81%
October 2013
BBVA Bancomer,S.A.
150,000
6.92%
Oct and Nov 2013
CI Banco, S.A.
100,000
6.79%
December 2013
Banamex, S.A.
100,000
6.96%
March 2014
2,000,000
7.10%
Nov 2013 and Jan, Feb, Mar, Aug 2014
699,626
Amounts drawn down from short-term
revolving credit lines:
Banco del Bajío, S.A.
Banorte, S.A.
Issuance of debt certificates:
Short-term
2,549,795
U.S. Dollars:
Issuance of foreign debt:
Senior notes 2020
Euro-commercial paper
3,206,052
7.25%
June 2020
658,735
7.00%
February 2014
2.39%
October 2013
3,864,787
Famsa USA
U.S. Dollars:
Deustche Bank AG
105,398
Total debt
7,219,606
Short -term debt
Long-term debt
(4,013,554)
Ps.
3,206,052
51
_______________
(1) All amounts expressed in thousands of Pesos.
(2) Nominal rates as of September 30, 2013.
(3) Weighted average of all outstanding debt pursuant to short-term local bond issuances.
The following sections briefly summarize material terms of certain of our credit arrangements,
including credit arrangements of our subsidiary Banco Famsa. These descriptions are only summaries
and do not purport to describe all of the terms of the credit arrangements that may be important.
Grupo Famsa Peso-Denominated Debt
Banco del Bajío, S.A. Credit Facility
As of September 30, 2013, we had a credit facility with Banco del Bajío, S.A., Institución de Banca
Múltiple, for a maximum amount of Ps.100 million. As of September 30, 2013, we had borrowed Ps.100.0
million under this credit facility at a variable interest rate, which as of September 30, 2013 was 7.28% per
annum, with a maturity date that was subsequently extended to September 25, 2015. We are subject to
standard terms, covenants and conditions pursuant to this credit facility, with which we were in
compliance as of September 30, 2013.
Banco Mercantil del Norte, S.A. Loan
As of September 30, 2013, we had a loan from Banorte with an aggregate principal amount
outstanding of Ps. 99.8 million, a variable interest rate as of September 30, 2013 of 7.81%, and with a
maturity date of October 04, 2013. We are not subject to restrictive covenants pursuant to this loan. This
loan has since been extended to Nov 14, 2015 and may be further extended on a monthly basis.
BBVA Bancomer, S.A. Loan
As of September 30, 2013, we had a loan from BBVA Bancomer, S.A., Institución de Banca Múltiple,
with an aggregate principal amount outstanding of Ps.150 million, a variable interest rate as of September
30, 2013 of 6.92%, mature on different date of October and November 2013. We are not subject to
restrictive covenants pursuant to this loan. This loan has since been extended to June 14, 2014.
CI Banco
As of September 30, 2013, we had a credit facility with CI Banco S.A., for a maximum amount of
Ps.100 million. As of September 30, 2013, we had borrowed Ps.100 million under this credit facility at a
variable interest rate, which as of September 30, 2013 was 6.79% per annum, with a maturity date of
December 20, 2013, that was subsequently extended to May 28, 2014. We are not subject to restrictive
covenants pursuant to this loan.
Banamex
As of September 30, 2013, we had a loan from Banamex, S.A., Institución de Banca Múltiple, with an
aggregate principal amount outstanding of Ps.100 million, a variable interest rate as of September 30,
2013 of 6.96%, per annum, with a maturity date of March 04, 2014. We are not subject to restrictive
covenants pursuant to this loan.
Commercial Paper Programs
We have established various Peso- and U.S. Dollar-denominated commercial paper programs. As of
September 30, 2013, we had Ps.2,000 million outstanding under the following Peso-denominated
commercial paper programs:
52
Long-term local bonds (Certificados Bursátiles de Largo Plazo)

Ps.2,000 million long-term local bonds program established March 25, 2011, for a five year
term.
We issued bonds in an aggregate principal amount of Ps.1,000 million under this program on March
25, 2011, in an offering through the Mexican stock exchange (Bolsa Mexicana de Valores S.A.B. de C.V.
or “BMV”). These bonds were priced at a spread of 280 bps over the the 28-day TIIE interbank rate,
mature on March 21, 2014, and were assigned “BBB(mex)” and “HR BBB” ratings by Fitch Mexico S.A.
de C.V. and HR Ratings de Mexico S.A. de C.V., respectively. The net proceeds of this issuance, which
amounted to Ps.982.8 million, were used by the Company to repay outstanding debt.
Certain of our subsidiaries acted as guarantors of the long-term local bonds.
Additionally, the long-term local bonds contain certain restrictive covenants which, among other
things, limit our ability to:

change or modify the main business purpose or activities of the Company;

incur additional debt;

sell assets, pay dividends, repay certain debts, carry out certain investments and agree to
merge, consolidate or engage in certain sale-leaseback transactions;

guarantee third party obligations, except for obligations assumed by our employees,
subsidiaries and affiliates; and
In addition, the long-term local bonds contain standard default provisions, including a
change of control provision, as well as cross-default provisions.
Short-term local bonds (Certificados bursátiles de corto plazo)

Ps.500 million local unsecured bonds program established January 24, 2013, for a two-year
term. As of September 30, 2013, we had issued bonds for Ps.500 million under this program,
which matured on different dates in November 2013, January, February and August 2014
pursuant to the terms established for each issuance.

Ps.500 million local unsecured bonds program established July 04, 2013, for a two-year term.
This program enables us to issue both Peso and/or UDI-denominated bonds. As of
September 30, 2013 we had issued bonds for Ps.500 million under this program, which
mature on different dates in November 2013, January and March 2014 pursuant to the terms
established for each issuance.
The interest rate to be paid under these programs is determined on a case-by-case basis, pursuant to
the terms established for each issuance. The weighted average interest rate for all the short-term local
bonds issuances, as of September 30, 2013, was 7.07%. In addition, the short-term local bonds
programs contain standard default provisions, including a change of control provision, as well as crossdefault provisions.
Both the long- and short-term local bonds have been registered with the RNV maintained by the
CNBV.
53
Grupo Famsa U.S.-Dollar Denominated Debt
Euro Commercial Paper Program
We established a U.S.$100.0 million Euro commercial paper program in December 18, 2009. As of
September 30, 2013, we had issued short-term notes in an aggregate principal amount of U.S.$50.0
million under this program. These notes are coupon-bearing, have an interest rate of 7.00% per annum,
and mature on February 04, 2014. The net proceeds of this issuance, which amounted to U.S.$[xxxx]
million, were used by the Company to repay outstanding debt.
Senior Notes
On May 31, 2013, Famsa issued senior notes for an amount of US$ 250 million, under Rule
144A/Reg. S, in the foreign market, at a rate of 7.25%, maturing in May 31, 2020. These notes received a
rating of “B” from Standard & Poor’s and “B+” by Fitch Ratings. Approximately 88% of the proceeds of the
issuance were used (i) to pay the consideration for the tender offer and consent solicitation and accrued
and unpaid interest on the senior notes due 2015, (ii) to redeem any senior notes due 2015 that were not
purchased under the tender offer and consent solicitation, (iii) and to pay fees and expenses incurred in
connection with the tender offer and consent solicitation.
Additionally, the indenture governing our senior notes due 2020 contains certain restrictive covenants
which, among other things, limit our ability to:

incur additional indebtedness;

pay dividends on our capital stock or redeem, repurchase or retire our capital stock or
subordinated indebtedness;

make investments;

create liens;

create any consensual limitation on the ability of our restricted subsidiaries to pay dividends,
make loans or transfer property to us;

engage in transactions with affiliates;

sell assets, including capital stock of our subsidiaries; and

consolidate, merge or transfer assets.
If the notes obtain investment grade ratings from both Standard and Poor’s Ratings Group and Fitch
Ratings Inc. and no default has occurred and is continuing, the foregoing covenants will cease to be in
effect with the exception of covenants that contain limitations on liens and on, among other things, certain
consolidations, mergers and transfer of assets for so long as each of the foregoing rating agencies
maintains its investment grade rating.
In addition, the indenture comprises standard default provisions.
Famsa USA Debt
Deutsche Bank N.Y.
On October 16, 2012, Famsa, Inc. renewed a credit facility with Deutsche Bank AG for a maximum
principal amount of EUR 6.6 million or its U.S. dollar equivalent. As of November 30, 2012, Famsa, Inc.
54
had two U.S. dollar loans outstanding under this credit facility in an aggregate principal amount of
U.S.$8.0 million. These U.S. dollar loans accrue interest at a fixed rate of 2.395% per annum and mature
on October 16, 2013. This facility does not impose on us any restrictive covenants.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Contractual Obligations and Other Commitments
The following table contains a description of our contractual obligations and other commitments as of
September 30, 2013.
Total
Maturity
1-3 Yrs.
Less than 1 Yr.
3-5 Yrs.
6+ Yrs.
(in thousands of Pesos)
Long-term debt .......................
Capital lease obligations .........
Operating lease obligations ....
Purchase commitments ..........
Total ........................................
Ps.
Ps.
3,206.1
—
3,030.5
—
6,236.6
Ps.
Ps.
—
—
606.1
—
606.1
Ps.
Ps.
—
—
2,424.4
—
2,424.4
Ps.
Ps.
—
—
—
—
—
Ps.
Ps.
3,206.1
—
—
—
3,206.1
Market Risk Disclosures
Market risk represents our exposure to adverse changes in the value of our financial instruments as a
result of fluctuations in the prevailing interest rates, foreign exchange rates and inflation. The following
information contains certain statements that are subject to risks and uncertainties. Our actual results
could differ from those referred to in such statements.
Risk Management Policies and Procedures
We are exposed to the market risks associated with potential fluctuations in the prevailing interest
rates, foreign exchange rates and inflation in both Mexico and the United States.
Given our business activities and the short-term nature of our sales on credit, we believe that our
level of market risk for potential changes in interest rates is low. We manage our interest rate risk by
refinancing the short-term debt that we incur to fund our sales on credit. In addition, we have certain
options to pay interest at either fixed or variable rates on some of our debt instruments. This enables us
to match our debt maturities with the maturities of our customers’ repayment obligations and to use a mix
of fixed and variable interest rates.
We do not use financial derivative instruments to hedge our exposure to the market risk associated
with potential fluctuations in interest rates, foreign exchange rates and inflation.
For a description of Banco Famsa’s risk management policies and procedures, see
“Business―Regulation― Legal Regime Applicable to Banco Famsa―Risk Management Policies and
Procedures”.
Internal Controls
We have established internal control policies and procedures that we believe are sufficient to provide
reasonable assurance that our business operations are carried out, reported and disclosed in accordance
with the guidelines established by our management. We believe that our information technology platform
and our organizational structure provide us with the necessary tools with which to ensure adherence to
55
our policies and procedures. We have also established, and from time to time perform, internal audit
procedures in respect of our various operating processes.
Our internal control systems include a number of policies and procedures that cover all aspects of our
operations, from the provision of services to the method employed in connection with the acquisition of
our merchandise and services.
New Accounting Pronouncements
As of January 1, 2012 we adopted IFRS for the preparation of our consolidated financial statements.
Standards, amendments and interpretations issued but not yet effective as of March 31, 2013 and which
have not been early adopted by us include:
IFRS 9 - “Financial instruments”; addresses the classification, recognition and measurement of
financial assets and liabilities. IFRS 9 was issued in November 2009 and October 2010. This standard
partially replaces IAS 39 “Financial instruments: recognition and measurement” on issues relating to the
classification and measurement of financial instruments. IFRS 9 requires financial assets to be classified
in either of the following two categories: those assets measured at fair value and those measured at
amortized cost. The determination must be made at initial recognition of these assets. The classification
depends on the business model of the entity used to manage its financial instruments and the contractual
characteristics of the cash flows of the instruments. For financial liabilities, the standard retains most of
the requirements of IAS 39. The main change is that in the case of the election of the option to use the
fair value, the valuation effect related to own credit risk should be recognized as part of comprehensive
income, unless it causes an accounting mismatch. We expect to adopt this standard on January 1, 2015.
The IASB intends to expand IFRS 9 during 2011 and 2012 to add new requirements for derecognition of
financial instruments, impairment and hedge accounting, so that by the end of 2012 IFRS 9 will be a
complete replacement of IAS 39.
IAS 32 (amended) “Financial instruments: Presentation”, offsetting of assets and liabilities. These
amendments are the application guidance of IAS 32 and clarify some of the requirements for offsetting
financial assets and financial liabilities in the statement of financial position. The standard is mandatory
from January 1, 2014.
Our management believes that the adoption of the new standards and amendments discussed above
will have no significant impact on our consolidated financial statements.
56
BUSINESS
Overview
We are a leading company in the Mexican retail sector, satisfying families’ different purchasing,
financing and savings needs. Our target market is the middle and lower-middle income segments of
Mexico’s population and the Hispanic population in Texas and Illinois, where we maintain our U.S.
operations.
Our Mexican retail operation offers furniture, electronics, household appliances, cellular telephones,
computers, motorcycles, clothing and other durable consumer products, which are sold mainly through
our Famsa stores. In the states of Texas and Illinois in the U.S., we offer furniture and appliances through
our subsidiary Famsa, Inc. As of September 30, 2013, we owned and operated 383 stores, including 358
stores in 83 cities throughout Mexico and 25 stores in Texas and Illinois, 17 Warehouses and 11
distribution centers. As of September 30, 2013, in Mexico we also operated 284 banking branches within
Famsa stores and 27 independent banking branches. With the acquisition of Montemex we have added
an additional 167 independent banking branches as of October 1, 2013. We believe that over the course
of our 42-year history, we have built a strong brand name associated with a broad product offering at low
prices and personalized customer service with convenient consumer financing programs. As of
September 30, 2013, furniture, electronics and household appliances accounted for 40.2% of our
consolidated total revenues.
In connection with our retail operations, we offer consumer financing to our customers who opt to
purchase our products and services on credit, many of whom do not typically have access to other forms
of financing, which provides them with an alternative method to purchase our products and services. In
2012, 81.2% of our retail sales were through our credit sales programs. To enhance our consumer
financing business in Mexico, in 2007, we established our own commercial bank, Banco Famsa, allowing
us to offer additional banking services to our customers, and generate a lower-cost, more stable form of
short-term financing for our operations. According to the CNBV, as of September 30, 2013, Banco
Famsa operated one of the ten largest banking branch networks in Mexico, with 284 banking branches
within Famsa Mexico stores and 27 independent banking branches, and managed an aggregate amount
of 3.0 million saving and credit accounts.
Our total revenues were Ps.13,866 million for the year ended December 31, 2011 and Ps.14,124
million for the year ended December 31, 2012. Our U.S. operations represented 12.1% of total revenues
during 2012 with 13.2% of the total retail space. Our Adjusted EBITDA totaled Ps.1,955 million for the
year ended December 31, 2011 and Ps.2,379 million for the year ended December 31, 2012. The
following table shows certain of our financial and operating data for the years ended December 31, 2011
and 2012 in accordance to IFRS.
Our total revenues totaled Ps.10,687.7 million and Ps.9,899.5 for the nine month period ended
September 30, 2013 and 2012, respectively. Our total retail space as of September 30, 2013 consisted of
523,901 square meters, a 1.8% decline compared to the same period in 2012. Our U.S. operations
represented 11.1% of total revenues during the nine-month period ended September 30, 2013 with 12.2%
of the total retail space during that period. Our Adjusted EBITDA (as defined below) totaled Ps.1,713.1
million for the nine-month period ended September 30, 2012 and Ps.1,850.9 million for the nine-month
period ended September 30, 2013.
The following table shows certain of our financial and operating data for the years ended December
31, 2011 and 2012 and for the first nine-months ended at September 30, 2012 and 2013 in accordance to
IFRS.
57
Year ended December 31,
Nine Month Period
ended September 30,
IFRS
IFRS
IFRS
IFRS
2011
2012
2012
2013
Number of stores
401
380
382
383
(1)
539,918
487,923
502,786
491,008
Total sales area
(2)
Ps.
Total revenues
13,866 Ps.
14,124 Ps.
9,900 Ps.
10,688
1.3%
1.6%
-0.5%
7.4%
Sales on credit, as a percentage of our total sales
79.9%
81.2%
81.7%
83.0%
Famsa USA sales, as a percentage of total sales
12.6%
12.2%
13.0%
11.2%
Same-store sales
(2)(3)
Ps.
Adjusted EBITDA
Adjusted EBITDA margin (%)
1,955 Ps.
(4)
14.1%
2,379 Ps.
16.8%
1,713 Ps.
17.3%
1,851
17.3%
____________________
(1)
In square meters, except for percentage amounts.
(2)
In millions of Pesos.
(3)
Adjusted EBITDA is a non-GAAP financial measure computed under IFRS. Adjusted EBITDA consists of adding to the operating profit; interest
expense on bank deposits, depreciation and amortization. See “Management’s Discussion and Analysis of Financial Condition and Results of
Operations—Adjusted EBITDA Reconciliation.”
(4)
Adjusted EBITDA margin is calculated as Adjusted EBITDA divided by Total revenues.
Famsa Mexico and Famsa USA manage our retail operations through our network of stand-alone
stores and anchor stores. In addition to the products and services provided by stand-alone stores, anchor
stores serve as administrative centers, providing customer service, credit processing and other support to
the stand-alone stores in the same region.
88.9% of Famsa’s consolidated total revenues for the nine-month period ended September 30, 2013
were generated in Mexico. Over the last decade, Mexican consumers have increased their overall
demand for goods and services as a result of greater purchasing power, economic stability and income
growth. Our target in Mexico is primarily the middle and lower-middle income segments of the population.
We consider these segments to comprise the adult working population that earns a household monthly
income of between Ps.3,420 (U.S.$259.59) and Ps.44,200 (U.S.$3,354.92). Based on AMAI´s Mexican
Housing Overview of 2012, this group represents approximately 74.0% of the Mexican households living
in cities with a population greater than 50,000 inhabitants. For further discussion of our target
demographics, see “—Target Markets.” Famsa Mexico has targeted this large segment of the population
since 1970 by offering convenient installment credit plans, a broad assortment of products and
personalized customer service. Currently, Famsa Mexico serves its customers through 358 stores (301
stand-alone and 57 anchor) that are generally located within the metropolitan areas of cities with a
population in excess of 50,000, and range in size from 400 to 3,000 square meters, with an average of
1,192 square meters. On average, each store maintains approximately 2,205 durable consumer products
on display, ranging from furniture, electronics and household appliances to clothing and cellular
telephones. In addition, we believe that we are also one of Mexico’s largest wholesalers of household
appliances and electronic products in Mexico, operating 17 wholesale stores in the principal metropolitan
areas of 17 Mexican states.
Famsa USA represented 11.1% of Famsa’s consolidated total revenues for the nine-month period
ended September 30, 2013. Hispanics make up the largest and fastest-growing minority segment in the
United States. According to U.S. Census Bureau estimates, in 2010 the Hispanic population reached 50.5
million (16% of the US) and, between 2000 and 2010, grew by 43 percent, which was four times the
growth in the total U.S. population. We operate in two U.S. states, Texas and Illiniois, in which
approximately 23% of the U.S. Hispanic population resides. Famsa USA has targeted the U.S. Hispanic
market by replicating Famsa Mexico’s business model and leveraging the recognition of the “Famsa”
58
brand. Famsa USA serves its customers through a 25 store network, developed both organically and
through acquisitions in two of the U.S. states with large Hispanic populations. Famsa USA’s stores carry
an average of 1,822 products on display, and range in size from 1,400 to 3,000 square meters with an
average of 2,322 square meters. In addition, we offer differentiated services, such as Famsa-to-Famsa,
through which our customers can purchase merchandise at Famsa stores in the U.S. and have it
delivered to others in Mexico through Famsa Mexico, taking advantage of our infrastructure on both sides
of the U.S.-Mexico border.
We sell brand-name and third-party domestic products and imports. The principal brands available in
our stores include Sony, White Westinghouse, Panasonic, Whirlpool, LG, Samsung and Mabe, among
others, and we continually seek to expand our product and service offerings. Furthermore, Kurazai, our
own motorcycle brand, has been ranked as one of Mexico’s four best-selling motorcycle brands, after
only three years in the market. Our stores are characterized by their display method, which is designed to
maximize sales and the use of space. Most of our stores have their own warehouse area to ensure that
their most popular products are readily available. Each of our stores is outfitted with integrated inventory
management and marketing systems and connected to STORIS®, which is an advanced supply chain
management application that provides real-time information on inventory levels, purchase order status
and other information to both stores and vendors.
Given our product mix of high-ticket items and our focus on middle and lower-middle income
individuals, Famsa’s comprehensive value offer has always included the availability of flexible credit sales
programs, which enhance our customers’ purchasing power by providing a convenient source of financing
for purchasing the retail products we offer. The credit sales programs we offer involve weekly, bi-weekly
or monthly payments with terms that can range from three to 24 months, depending on the customer’s
preference and payment capacity. As of September 30, 2013, credit sales accounted for 83.0% of our
total revenues. We believe that our credit sales programs improve our retail operation’s profitability and
boost our growth prospects.
The retail price of the merchandise sold in Mexico depends on the market trends of the diverse type
of products offered. In addition, our installment program considers various factors, such as the repayment
period, the customer’s credit history and the type of product. Sales on credit generally generate higher
gross margins than those yielded by our cash sales. In the United States, the purchase price of the
merchandise sold on credit is determined based on the suggested retail price plus a finance charge that
is reviewed periodically. Cash purchases at our U.S. stores generally are not subject to discounts.
All customers who wish to enter into a credit sales program go through our credit approval process,
which has been honed throughout our 43 years of experience in consumer financing. This process
includes a proprietary credit application, credit bureau analysis, telephone confirmation and, in some
cases, physical address verification. Additionally, our credit approval process involves the determination
of the customer’s payment capacity based upon various factors such as monthly income, prior
outstanding credit commitments and credit history. The payment capacity figure is one of the most
important outputs of the entire credit approval process. This amount represents the maximum aggregate
amount and number of installments a customer can commit to at any given time. For instance, if a
customer has a payment capacity of Ps.1,000 he or she can purchase any amount of products whose
aggregate installments at any time are equal to or less than Ps.1,000. Customers of our personal loans
undergo the same credit approval process as those purchasing retail goods, though personal loans are
only granted to existing credit sales customers with proven payment capacity. During the past four years,
we have centralized the credit approval process from 78 different offices to three supervised and
controlled offices to ensure that credit policies are carried out properly and to obtain feedback from our
internal audit area. Currently, all credit applications are evaluated by an antifraud division that detects
suspicious customer profiles based on established policies, and by an analytics division, that centralizes
information necessary to update the Management Information System, and performs analyses, models
and forecasts.
With the establishment of our banking operations through Banco Famsa in 2007, we have increased
our product and service offering to our customers. Banco Famsa leverages Famsa’s expertise to serve
our customer base and our target market, which has limited access to banking services. We believe this
59
represents an opportunity for growth given that approximately 60% of our customer base has never used
banking services before. We have incorporated our banking operations within our retail stores, and as of
September 30, 2013, we had 284 banking branches within Famsa stores and 27 independent banking
branches, becoming one of the ten largest bank networks in the country according to the CNBV. Our
expansion into the banking sector through Banco Famsa has allowed us to create additional consumer
finance products, which diversify our product offering and thereby partially hedge our exposure to the
sensitivity of durable goods demand caused by the economic downturn during past years. In addition to
our credit sales programs, we offer Banco Famsa customers several savings and checking accounts and
other investment products, as well as personal and business loan products. Personal loans are
unsecured cash loans used to meet needs not offered in our stores. As of September 30, 2013, interest
earned on personal loans offered by Banco Famsa represented 25.9% of Famsa Mexico’s total revenues.
Business loan products comprise commercial loans issued by Banco Famsa to micro, small and medium
enterprises, as well as to other financial institutions. As of September 30, 2013, the commercial loans
portfolio in Mexico decreased 0.3% compared to September 30, 2012. The integration of Banco Famsa
branches into our retail stores also provides us an enhanced opportunity to cross-sell our retail products
and banking products and services in our Banco Famsa branches and our retail stores, respectively.
Through these banking branches, we have been able to obtain deposits by offering several savings
and checking accounts and other investment products to our customers. Bank deposits, distributed
across more than 1.13 million accounts, have grown consistently since 2007, and continue growing at a
double-digit pace per year, from the year ended December 31, 2007 to the year ended December 31,
2012. As of September 30, 2013, bank deposits reached Ps.13,635.7 million, a 18.4% increase compared
to September 30, 2012. Furthermore, Banco Famsa supports the sale of merchandise in Famsa Mexico’s
stores. Banco Famsa had a capitalization ratio of 14.2% as of September 30, 2013, which results from
dividing net equity by the assets at risk (including credit, market and operational risk). As a result of the
stability of its operations, Banco Famsa has a capitalization ratio well in excess of any statutory
requirements. The capitalization rules for financial institutions establish requirements for specific levels of
net equity, as a percentage of assets subject to both market and credit risk. The capitalization index
required for Banco Famsa is a minimum of 8%.
In addition, customers’ deposits have provided us with a stable and less expensive source of funding
for our Mexican retail operation, further enhancing consumer financing profitability. The average interest
rate of Banco Famsa´s deposit base has fallen from 8.1% as of December 31, 2009 to 5.3% as of
September 30, 2013.
Our Business Strengths
We believe our business has the following strengths:
Strong Market Position and Growth Platform in the Mexican Retail Industry
Our extensive network of stores and distribution centers covering most of the major metropolitan
areas in Mexico provides what we believe to be an extensive distribution channel to launch new products
and services to our target market. Moreover, our established retail store and distribution infrastructure, in
particular the location and geographic coverage of our stores and distribution centers, allows us to
efficiently continue our expansion plans and gives us a significant advantage over existing and new
competitors.
We offer a broad assortment of well-recognized brands, low prices, personalized customer service
and convenient credit sales programs, which we believe have strengthened our customer loyalty. We
believe the Famsa name has strong brand recognition, particularly in the middle and lower-middle income
segments, which we continually reinforce through an aggressive multi-media advertising program with
national scope in Mexico. Our sales systems and marketing efforts are further supported through
initiatives such as our “Gran Crédito” direct marketing program, whereby our credit representatives visit
the homes of potential customers in an effort to set up new accounts both in areas where we currently
operate stores and in advance of new store openings. Other initiatives we carry out to reinforce our
60
position include telemarketing, direct mail, cashier pitches and our “Cambaceo” door-to-door sales
program. In addition, we believe that our strong market position in the retail industry in Mexico has
enhanced our ability to negotiate better prices with our suppliers.
Proven Track Record in Consumer Financing
We have 43 years of experience providing consumer financing, with an emphasis on offering flexible
credit sales programs to our retail customers while maintaining prudent risk management and credit
evaluation policies and procedures. See “—Consumer Lending Operations.”
Our target markets’ financing needs have typically been underserved by the traditional financial
sector. Since 1970, we have been developing the necessary skill set and infrastructure to capitalize on
the growing credit needs of this large segment of the population. As of September 30, 2013, we managed
a total of 1.98 million active credit accounts with a team of over 3,172 credit-related personnel, including
approximately 378 call-center agents, all of whom are dedicated to making credit accessible to our
customers while ensuring the quality of our loan portfolio. We also provide convenient options for our
customers to manage their credit account payments, including our “Promobien” program, which offers
customers the option to make payments on their Famsa credit accounts through an automatic payroll
deduction with participating employers. As of September 30, 2013, we maintained a relatively low
uncollectibility level of approximately 7.2%, measured as the percentage of recoveries over total trade
accounts receivable. Combined with our in-depth knowledge of the retail industry, we believe that our
extensive experience with risk management and consumer financing represents a competitive advantage
that we have and that we will continue to enhance through Banco Famsa.
Funding through Banco Famsa
In the past, we funded our credit sales program through multiple credit lines with major financial
institutions and international and Mexican securities markets. However, with the establishment of Banco
Famsa and the growth of its deposit base, we now have access to a more stable and less expensive
source of short-term funding to support our credit sales portfolio and other growth initiatives. As of
September 30, 2013, Banco Famsa was the source of 71.8% of our net funding and Banco Famsa’s
average cost of funding was 5.3%. Initially funded in part through financial intermediaries and interbank
loans, Banco Famsa is now fully-funded through its own deposits in the form of savings and checking
accounts, certificates of deposit and other consumer investment products. The combination of our
diversified funding platform with our risk management experience and knowledge of the retail industry
represents a unique competitive advantage.
Integrated Consumer-Targeted Banking Services
Through the development of Banco Famsa we are able to offer our customers targeted banking
products and services that are normally not available to a large portion of the customer base. Based on
our estimates, approximately 60% of Famsa Mexico’s customers have never used banking services. As a
result of the credit evaluation and monitoring to which our retail credit sales account customers are
already subject and the associated records that we keep, we believe that we are in a better position than
other banking services providers to offer our retail customers first-time banking services and develop
products tailored to their needs. The integration of Banco Famsa with our retail operations provides a
variety of cost-saving synergies, including joint product marketing through mailings, telemarketing,
cashier sales pitches, television and other marketing campaigns, advertising on bank statements and
cross selling in general. As of September 30, 2013, Banco Famsa managed over 2,571 point-of-sale
terminals in our stores, which accept Famsa and third-party credit and debit cards, along with 192 in-store
ATMs. Banco Famsa also handles online payroll services for five Famsa companies and 50 third-party
companies. Additionally, the integration of our Banco Famsa branches into our retail stores increases our
customers’ familiarity with our stores and personnel and allows us to provide longer hours of operation
than other banking services providers.
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Product Diversification and Cross-Sales
Our expansion into the banking sector through Banco Famsa has allowed us to create additional
consumer finance products, which have helped us to diversify our product offering and thereby hedge our
exposure to the sensitivity of durable goods demand caused by the economic downturn during the past
years. In addition to our credit sales programs, we offer Banco Famsa customers several savings and
checking accounts and other investment products, as well as personal (unsecured cash loans used to
meet our customer’s personal needs) and business loan products. As of September 30, 2013, personal
loans offered by Banco Famsa represented 25.9% of Famsa Mexico’s total revenues. Business loan
products comprise commercial loans issued by Banco Famsa to micro, small and medium enterprises, as
well as to other financial institutions. As of September 30, 2013, the commercial loan portfolio in Mexico
represented 11.3% of Famsa Mexico’s total trade accounts receivable, net of allowances. The integration
of Banco Famsa branches into our retail stores also provides us an enhanced opportunity to cross-sell
our retail products and banking products and services in our Banco Famsa branches and our retail stores,
respectively.
Personalized Quality Customer Service and Point-of-Sale Marketing
We are dedicated to providing the highest-quality customer service. We believe our desire to serve
our customers is evidenced by our ability to continually exceed their expectations for offering high-quality
products at competitive prices. We actively manage client relationships through:

a well-trained, motivated sales force focused on delivering quality personalized service;

customer service centers in each of our anchor stores;

a call center to provide customer service;

our “Gran Crédito” and “Cambaceo” (or “canvassing”) programs; and

a wide range of post-sale services, including repair services and home delivery.
Customer satisfaction is measured through surveys conducted by an external provider and may be
either in store or by telephone. In-store surveys are conducted near the exit at five of our stores during
high seasons (December, Mother's Day, Buen Fin), and include questions regarding service, wait times
and products, among other topics. Telephone surveys are conducted on a monthly basis to approximately
2,800 customers with the objective of obtaining information regarding customer preferences.
We believe our commitment to customer service is a significant factor in increasing our customer
loyalty and expanding our customer base. Additionally, our dedication to high-quality, personalized
customer service has been critical to the sale of complementary products such as extended warranties
and the introduction of new products, including life and car insurance (which we sell for a commission)
and personal loans.
Advanced Information Technology and Systems
We operate STORIS®, a modern supply chain management software system that, among other
functions, provides us with key real-time information regarding retail sales, inventory levels, product
availability and purchase order status, enhancing our decision-making process. Our technology improves
the efficiency of our supply chain by allowing us to manage detailed information in such a way as to
increase the likelihood that our customers will find exactly the products they wish to purchase while
optimizing the associated inventory levels. Moreover, we are able to track the interests, needs and buying
habits of our customers, anticipating changes in consumer demand.
Customer service has benefited from our technology by having:
62

readily available access to important product information such as technical product
descriptions and product availability;

the ability to identify and prevent potential service problems (e.g., incorrect or inaccurate
product information) in connection with matters such as inventory availability and returns; and

a reliable source for registering and handling customer complaints.
In addition, during the past few years we have complemented our information technology
infrastructure with SAP and Calypso, a sales processing system developed by Unisys, to manage our
human resources, accounting and soft good retail operations. We use advanced operational information
technology to support Banco Famsa’s operations, including ICBS-FISERV, Metacard (credit card
processing FISERV module) and eBanking. In addition to providing a more sophisticated consumer
financing management platform, our bank’s systems enable us to identify cross-selling opportunities
across credit and deposit customer databases by integrating virtually all of Famsa Mexico’s existing credit
accounts with Banco Famsa’s growing deposit base.
Strong Management Team and Motivated Employees Focused on Continuous Improvement
Our executive officer team has over 25 years of accumulated specialty retail experience and a solid
track record of sustainable growth. Additionally, top management has successfully fostered a work culture
based on teamwork and focused on continuous improvement and commercial innovation. Each of our
employees has individual objectives, which serve as a basis for measuring performance and are
associated with broader corporate goals. Having met operational and financial objectives, our employees
are eligible for bonuses according to our compensation system. We believe our goal-oriented culture and
incentive programs have contributed to the development of a motivated and well-aligned team that is
dedicated to serving our customers’ needs and ensuring the sustainability of our business. The positive
performance of the Company rests on practices of sound corporate governance. Famsa was one of the
few finalists in the second edition of the “Affinitas” Awards for Good Corporate Governance in Latin
America, held on November 22, 2007 as part of the 9th Latibex Forum in Madrid, Spain. More than 580
companies were evaluated by the jury and 12 finalists were chosen on the basis of such criteria as
shareholders’ rights, equality, stakeholder involvement, communication and transparency and
responsibilities of the board of directors.
Our Business Strategy
Grupo Famsa serves specific consumer, credit and savings needs of the middle and lower-middle
income segments of the population through a unique portfolio of complementary businesses. We believe
the synergies among our business units, Famsa Mexico, Banco Famsa and Famsa USA enable us to
attain competitive advantages that reinforce our position. Our business strategy focuses on maximizing
these synergies to provide a comprehensive and differentiated value offer to our customers who value
personalized service and require credit options that are not offered to them by the traditional banking
sector.
Famsa USA serves the Hispanic segment, replicating Famsa Mexico’s business model in the states
of Texas and Illinois. Our objective is to increase our customer base by attracting new customers and
maintaining existing ones through the communication of our strengths, such as in-house credit, name
brands, competitive prices, unique promotions and exclusive Famsa-to-Famsa service.
The key elements of our strategy are the following:
Enhance Our Consumer Financing Operations in Mexico through Banco Famsa
We continue enhancing our consumer financing operations in Mexico through the development of
Banco Famsa. We believe that further development of Banco Famsa will lead to an additional decrease in
our cost of financing, allowing us to apply greater financial resources to other areas of our operations. We
believe the inclusion of Banco Famsa branches in our retail stores and the opening of independent
63
banking branches, as well as the recent acquisition of Montemex branches, will enable us to increase our
customer base in Mexico and enhances our ability to sell additional products to our consumers. Besides
acting as a catalyst for further growth in our retail operations, we believe Banco Famsa will increasingly
become a source of independent growth through expansion of existing and development of new financial
products and services. Furthermore, we believe Banco Famsa’s personal and business loan programs
and other financial products will help us further diversify our product offerings to hedge our exposure to
durable goods demand sensitivity. We intend to continue building upon our experience and knowledge of
providing consumer financing to further successfully establish, expand and operate Banco Famsa.
Selectively Expand Our Store Network in Mexico
We believe our current retail store network provides an important platform for our selective expansion
in Mexico. Our expansion strategy includes opening new stores in areas better served by full-format
stores to selectively replace smaller stores, opening additional stores in strategic, high-demand areas of
cities in which we already operate and opening new stores in regions which we believe offer a substantial
growth opportunity. Based on our estimates, there are approximately 395 cities in Mexico with
populations exceeding 50,000 inhabitants, and most are currently underserved by us. We currently
operate in only 83 (or 21%) of these cities. Furthermore, our expansion strategy also encompasses the
opening of independent banking branches, which require a lower level of investment due to their smaller
retail space, on average of 150 square feet. These independent banking branches offer Banco Famsa’s
current portfolio of financial products and services, in addition to door-to-door credit origination (“Gran
Crédito”), door-to-door sales program (“Cambaceo”) and durable goods sales through electronic catalogs
maintained within the independent banking branches.
Improve Our Sales and Marketing Efforts to Increase Our Market Share
We plan to continue improving our sales force productivity through more effective training programs
and attractive compensation systems and enhance our marketing efforts to attract new customers and
increase our market share. We also plan to improve our information technology systems, databases and
customer relationship management system in order to enhance our ability to anticipate consumer demand
and promote commercial innovation. While our marketing strategy emphasizes mass media advertising,
we also intend to further expand our telemarketing program and explore other new direct marketing
channels. In addition, we will continue our commitment to customer service and customer satisfaction by
providing a combination of personalized service, high-quality products and services at competitive prices
and with flexible consumer financing options.
Our marketing program includes different channels, among them: digital marketing (social media,
emarketing and famsa.com website); customer service (FAQ 1-800 number); direct marketing
(telemarketing, SMS, e-mailing and interactive voice response telephone marketing); marketing
intelligence (research, benchmarking and price monitoring); customer relationship management (loyalty
program, cross marketing channels, customer data warehouse, customer segmentation, and marketing
campaigns management); and finally, marketing communications (above-the line, below-the line, media,
digital and production).
Continue to Improve Our Margins through the Introduction of New Products, Services and Distribution
Channels
We plan to take advantage of the strong growth platform provided by our extensive retail store
network to continue developing new products, services and distribution channels that satisfy our
customers’ needs, such as Internet sales, new consumer financing products, footwear catalog sales, and
motorcycle and automobile financing, in addition to other products and services primarily directed to
customers in higher income brackets. Furthermore, we expect that through the continued development
and integration of Banco Famsa, we will be able to offer a growing variety of personal and business
financial products and services in Mexico. We believe that the continued development of new products,
services and distribution channels will allow us to cross-sell a broader range of products and services
more effectively, which should lead to improvements in our margins and increase our competitiveness,
64
further strengthening our growth platform. Additionally, we expect that the continuing development and
integration of Banco Famsa will provide a lower-cost source of financing and expand our products
offering, which may lead to an increase in our profitability.
Our product and service diversification strategy includes the making of loans to support micro, small
and medium-sized enterprises. This search for new ways to generate value has positioned Banco Famsa
as an attractive alternative for customers seeking productive working capital loans. Our success with
these loans reflects a series of initiatives we implemented during 2012, including the opening of 10
service centers in the Mexican cities of Monterrey, San Luis Potosi, Torreon and Saltillo to serve the
micro, small and medium enterprises segment. At these service centers, our specialized personnel help
customers from a wide range of industries, including the construction, financial services and commercial
sectors.
Improve profitability of Famsa USA
Precipitated by the economic downturn beginning in 2008 that adversely affected Hispanic
consumers, and despite our efforts over the past few years to improve profitability, we posted recurring
operating losses in California, Nevada and Arizona and elected to close our stores in those states. As a
result, in 2012 we began a comprehensive review of Famsa USA’s operations in an effort to improve its
profitability. We are consolidating our operations in the profitable regions of Texas and Illinois and have
already implemented several initiatives, including increasing our product assortment, enhancing our
personalized service, supporting the origination of personal loans, relaunching an attractive advertising
campaign and reducing operating expenses. Our objective is to increase our customer base by attracting
new customers and maintaining existing ones through the communication of our strengths, such as inhouse credit, name brands, competitive prices, unique promotions and the exclusive Famsa-to-Famsa
service. As of September 30, 2013, we had 22 stores in Texas and 3 stores in Illinois.
History
The origin of our business dates to 1970, with the opening of a household appliances, furniture and
electronics store in the city of Monterrey, Nuevo León, in northern Mexico, followed by additional stores in
Monterrey and other markets in the states of Nuevo León and Coahuila over the course of the next
decade. The Company was formally organized in 1979, under the name Corporación Famsa, S.A., in
order to centralize the then-existing stores’ merchandise purchasing process and attain economies of
scale.
During the 1980s, we began expanding into other business segments. In 1980, we ventured into the
wholesale market with the establishment of our subsidiary Mayoramsa, S.A. de C.V. (“Mayoramsa”), and
in 1983 we created Impulsora Promobien, S.A. de C.V. (“Promobien”) to offer consumer loans to the
employees of our affiliates. In 1987, we began our furniture manufacturing operations through our
subsidiary, Expormuebles, S.A. de C.V. (“Expormuebles”).
The year 1990 marked the beginning of a significant growth period for the Company. During the
1990s, we established a number of subsidiaries and expanded our geographical presence to other cities
in central Mexico, including San Luis Potosí, Querétaro, León, Celaya and San Juan del Río. In 1991, we
opened six stores within the metropolitan areas of Guadalajara, Ciudad Obregón, Los Mochis, Navojoa
and Hermosillo. Between 1995 and 1996, we implemented a strategic expansion plan to capitalize on the
then-ongoing Mexican economic recovery process, opening additional stores in the States of Nuevo
León, Puebla and Aguascalientes. By the decade’s end, we had a total of 185 stores located in 49 cities
throughout Mexico. Concurrent with this geographic expansion, we also diversified our lines of products.
For instance, in 1994 we began selling clothing, footwear, cosmetics and jewelry.
In 1999 and 2000, Tapazeca, S.L., a joint venture between Soros Fund Management and
Mr. Fernando Chico Pardo, and Monterrey Venture Holding, L.L.C., an affiliate of General Electric
Pension Trust, acquired in the aggregate a 13.78% interest in the Company. The proceeds of these
65
transactions enabled us to further pursue our strategic expansion plan. The participation of these
investors through Tapazeca, S.L. was sold to the public in May 2006 when we became a public company.
Between 2002 and 2010, we opened 103 additional stores throughout Mexico, primarily in the
country’s Gulf and Central regions, including Veracruz, Tabasco, Mexico City, Pachuca, Toluca,
Cuernavaca, Yucatan, Campeche and Colima, among others. As of September 30, 2013, we had a total
of 358 stores located throughout Mexico.
Concurrent with our geographic expansion in Mexico, in 2001 we entered the United States market
with the opening of a store in California, aimed at catering to the needs of the U.S. Hispanic population.
Our expansion plan in the United States led to the acquisition and integration into our operations in 2006
of the five “National” furniture stores in San Antonio, Texas and in 2007 of the 12 “La Canasta” furniture
stores in the cities of Los Angeles, California and Houston, Texas.
In May 2006, we became a public company through an initial public offering of our shares on the BMV
and also established Banco Famsa in order to further our consumer lending operations and enter the
banking business. Banco Famsa commenced operations in Monterrey, Nuevo León, in 2007, and in the
same year we opened 167 Banco Famsa branches within our stores in 12 states in Mexico. In 2008, we
opened an additional 101 Banco Famsa branches in our stores in the states of Nuevo León, Sonora,
Sinaloa, Puebla, Coahuila, Veracruz, San Luis Potosí, Aguascalientes, Baja California, Michoacán,
Morelos, Toluca, Hidalgo, Tamaulipas, Jalisco, Campeche, Tabasco, México, Zacatecas, Colima,
Chihuahua and Guanajuato. As of September 30, 2013, Banco Famsa had a total of 311 bank branches
located throughout Mexico.
In 2008, we opened 13 new stores and acquired and integrated into our operations Edelstein’s Better
Furniture’s eight stores in the Rio Grande Valley of Texas. Precipitated by the economic downturn
beginning in 2008 that adversely affected Hispanic consumers, and despite our efforts over the past few
years to improve profitability, we posted recurring operating losses in California, Nevada and Arizona and
elected to close our stores in those states. As a result, in 2012 we began a comprehensive review of
Famsa USA’s operations in an effort to improve its profitability. We are consolidating our operations in the
profitable regions of Texas and Illinois and have already implemented several initiatives, including
increasing our product assortment, enhancing our personalized service, supporting the origination of
personal loans, relaunching an attractive advertising campaign and reducing operating expenses. As of
the close of the third quarter of 2013, we had 22 stores in Texas and 3 stores in Illinois. With regard to the
states of California, Nevada and Arizona, we are focusing our efforts in these states on collecting the
remaining balance of our receivables portfolio through kiosks and third party collectors. We believe that
our decision to refocus our U.S. operations on Texas and Illinois will bring long-term benefits
66
Organizational Structure
We conduct our business operations through 15 operating subsidiaries. The following chart shows
our organizational structure and our subsidiaries, all of which are substantially wholly owned, directly or
indirectly by us (we hold a 53.75% interest in Geografía Patrimonial, S.A. de C.V.):
Operating Subsidiaries
We operate our 383 stores in Mexico and the United States through our subsidiaries listed below:

Famsa Mexico S.A. de C.V., which is responsible for the operation of Famsa Mexico’s 358 stores;

Famsa, Inc., which operates our 25 stores in the United States and is a corporation organized
under the laws of the State of California, and Famsa Financial, Inc., which maintains the requisite
licenses in connection with the issuance of regulated loans in the State of Texas;

Promobien, which serves as administrator for our Promobien program;

Auto Gran Crédito Famsa S.A. de C.V., which is engaged in the personal car loan business;

Verochi S.A. de C.V. (“Verochi”), which is engaged in the sale and distribution of footwear and
other related products both directly and through third parties;

Expormuebles, a manufacturer and distributor of furniture and related products; and

Mayoramsa, which is engaged in the wholesale and distribution of household appliances and
furniture through its 17 warehouse clubs.
67
Financial, Administrative and Other Subsidiaries
We conduct our banking and consumer lending businesses, receive administrative support and
services and are engaged in other business activities through our subsidiaries listed below:

Banco Ahorro Famsa, S.A., Institución de Banca Múltiple, or Banco Famsa, which is responsible
for our banking business and providing financing services to our retail customers;

Promotora Sultana, S.A. de C.V., Corporación de Servicios Ejecutivos, S.A. de C.V., Suministro
Especial de Personal, S.A. de C.V. and Corporación de Servicios Ejecutivos Famsa S.A. de C.V.,
which provide administrative, accounting, audit, financial planning, personnel and IT systems
development and maintenance services, as well as consulting services in connection with a
variety of areas, including technical assistance, research and development, statistical information
and analysis, marketing and public relations; and

Geografía Patrimonial, S.A. de C.V., which was incorporated and began operations in November
2009 and which is engaged primarily in leasing real estate to related parties.
Target Markets
Our target market in Mexico is primarily the lower-middle and middle income segments of the
population. We consider these segments to comprise the adult working population that earns a household
monthly income of between Ps.3,420 (U.S.$259.59) and Ps.44,200 (U.S.$3,354.92). Based on the
Asociación Mexicana de Agencias de Investigación de Mercado y Opinión Pública (“AMAI”), this group
represents approximately 724 of the Mexican households living in cities with a population greater than
50,000 for the year 2012.
The table below shows the breakdown of the Mexican population inhabiting cities with a population
greater than 50,000, according to the AMAI for the year 2012:
Demographic
Group
Percentage
of Total
Population
Household Income per
Month
“A/B” ....................
“C+”......................
6.8%
14.2%
Ps.108,000 and above
Ps.44,300 - Ps.107,000
“C”........................
“C-” ......................
17.0%
PS.14,700 - PS.44,200
PS.11,700 - PS.14,600
“D+”......................
“D”........................
“E” ........................
_____________________
17.1%
18.5%
21.4%
5.0%
PS.8,610 - PS.11,600
PS.3,420 - PS.8,600
Less than PS.3,420
Source: AMAI
Our stores target customers who are primarily in the C, C-, D+ and D groups. However, we also offer
a variety of products and services that primarily appeal to consumers from the A/B group (LED and or
LCD flat screen televisions, etc.). The age distribution of Mexico’s population favors the maintenance of
high levels of consumption and offers significant opportunities for growth. According to the INEGI
(Instituto Nacional de Estadística y Geografía), as of December 31, 2010, approximately 57.5% of the
Mexican population was aged between 20 and 74, our primary consumer group, and approximately
38.8% was under the age of 20, which we believe represents future growth potential for our customer
base.
68
In addition, Mexico’s low- and middle-low income housing industry has historically reported strong
performance levels, contributing to the increase in the demand for household appliances and other
products. We currently operate full-format stores in 83 cities in Mexico.
Hispanics make up the largest and fastest-growing minority segment in the United States. According
to U.S. Census Bureau estimates, in 2010 the Hispanic population reached 50.5 million (16% of the U.S.)
and, between 2000 and 2010, grew by 43 percent, which was four times the growth in the total U.S.
population. We operate in two U.S. states, Texas and Illiniois, in which approximately 23% of the U.S.
Hispanic population resides.
69
Retail Network
As of September 30, 2013, we owned and operated a total of 383 stores and 17 warehouses in
Mexico and the U.S. 358 stores are located in 83 cities throughout Mexico and 25 stores in the U.S.
states of Texas and Illinois. In addition, we operate 284 banking branches within Famsa stores and 27
independent banking branches, in addition to 167 independent banking branches recently acquired from
Montemex. Furthermore, we operate under a dual-store format that encompasses both stand-alone and
anchor stores. Anchor stores function as administrative centers that provide customer service, credit
processing and other support to our stand-alone stores in the same region. Each of the other cities in
which we operate has one anchor store or is located close to another city with an anchor store.
The following map and table show the geographical distribution of our stores in Mexico and the
United States as of September 30, 2013.
70
State
Nuevo León
San Luis Potosi
Queretaro
Guanajuato
Veracruz
Toluca
Hidalgo
Villahermosa
Campeche
Yucatán
Quintana Roo
Sonora
Sinaloa
Chihuahua
Baja California
Tamaulipas
Coahuila
Durango
Jalisco
Puebla
Aguascalientes
Michoacan
Colima
Morelos
Zacatecas
CD. Mexico
Mexico Total
State
Texas
Number of Stores
63
8
6
19
13
4
6
8
1
3
1
11
10
13
17
32
26
4
20
9
2
4
2
5
2
69
358
Square Meters
84,375
9,108
6,367
16,992
17,415
5,221
8,374
10,060
1,240
5,041
1,002
16,466
12,930
18,987
26,068
34,125
33,856
4,829
19,457
9,560
3,735
5,435
1,309
6,693
1,928
66,001
426,574
USA
Number of Stores
22
Square Meters
55,154
3
25
383
9,280
64,434
491,008
Illinois
USA Total
TOTALS
Famsa Mexico’s stores are located within the metropolitan areas of cities with a population in excess
of 50,000 people and range in size from 400 to 3,000 square meters, with an average of 1,193 square
meters per store. Each of our Mexican stores maintains an average of 2,205 products on display. As of
September 30, 2013, we had a total of 301 stand-alone and 57 anchor stores in Mexico. Furthermore, in
Mexico, as of September 30, 2013, we also operated 284 banking branches within Famsa stores and 27
independent banking branches. In addition, with the acquisition of Montemex, we now operate an
additional 167 independent banking branches as of October 1, 2013.
71
In the United States, as of September 30, 2013, we had 23 stand-alone and two anchor stores. Our
U.S. stores range in size from 2,000 to 3,000 square meters, with an average of 2,577 square meters per
store. Each store maintains an average of 2,000 products on display.
Famsa USA has targeted the U.S. Hispanic market by replicating Famsa Mexico’s business model
and leveraging the recognition of the “Famsa” brand. As of Sepember 30, 2013, Famsa USA served its
customers through a 25 store network, developed both organically and through acquisitions in two U.S.
states with large Hispanic populations. Famsa USA’s stores carry an average of 1,750 products on
display, and range in size from 1,400 to 3,000 square meters with an average of 2,322 square meters.
Our main product categories are furniture, electronics and household appliances. In addition, we also
offer differentiated services, such as Famsa-to-Famsa, through which our customers can purchase
merchandise at Famsa stores in the U.S. and have it delivered to family members through Famsa Mexico,
taking advantage of our infrastructure on both sides of the U.S.-Mexico border.
Our stores in both Mexico and the United States are characterized by their display method, which is
designed to maximize sales and the use of space. Most of our stores have their own warehouse area to
ensure that their most popular products are readily available. Each of our stores is outfitted with
integrated inventory management and marketing systems and is connected to STORIS®, which is an
advanced supply chain management application that provides real-time information on inventory levels,
purchase order status and other information to both stores and vendors. Most of our stores are open from
9:00 a.m. to 9:00 p.m., seven days a week (other than December 25 and January 1), except stores
located within shopping centers, which are subject to the shopping center’s business hours.
We lease most of the properties that house our stores. As of September 30, 2013, 87.5% of our
stores were located on real property owned by independent third parties, 10.4% were located on property
leased from related third parties and 2.1% located on property we own. Property leased from related third
parties was leased pursuant to long-term lease agreements with our controlling shareholders and various
entities controlled thereby, in respect of the retail space used by several of our stores.We select the retail
space used by our stores based upon various considerations, including our desire to convey a uniform
corporate image and the need for total sales and warehouse areas sufficient to accommodate our
increasing number of product lines and services and merchandise volumes.
Market Expansion Strategy
Our expansion strategy has enabled us to achieve significant growth levels in terms of both our net
sales and net income over the past years. As part of our ongoing expansion strategy, we continue to
consider opening additional stores in Mexico, both in cities in which we are already present and in other
regions, such as the southeastern part of the country, where we believe there are significant growth
opportunities given the number of cities with a population in excess of 50,000 that are not currently
served by us or our competitors. We also periodically consolidate our operations and close older, smaller
stores and other stores located in areas that are not adequately served by our larger full-format stores. In
2009, for example, we optimized our retail network by selectively closing fifteen stores while opening four
larger, full-format stores, resulting in a net square meter reduction of 0.5% in our total sales area and
operation savings of over Ps.200 million. Furthermore, in 2011, we adjusted the display area allocation at
50 Mexican stores which had a limited clothing offer in order to boost the productivity of our sales floor
space. This change mainly reinforced our furniture category with over 20,000 square meters of exhibition
space, equivalent to more than 10 full-format Famsa stores.
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The following chart illustrates our growth in terms of our total number of stores in Mexico and the
United States during the periods indicated. The following chart also illustrates our growth in terms of our
total sales area, in thousands of square meters, in Mexico and the United States during the periods
indicated.
Precipitated by the economic downturn beginning in 2008 that adversely affected Hispanic
consumers, and despite our efforts over the past few years to improve profitability, we posted recurring
operating losses in California, Nevada and Arizona and elected to close our stores in those states. As a
result,in 2012 we began a comprehensive review of Famsa USA’s operations in an effort to improve its
profitability. We are consolidating our operations in the profitable regions of Texas and Illinois and have
already implemented several initiatives, including increasing our product assortment, enhancing our
personalized service, supporting the origination of personal loans, relaunching an attractive advertising
campaign and reducing operating expenses. As of September 30, 2013, we had 22 stores in Texas and 3
stores in Illinois. With regard to the states of California, Nevada and Arizona, we are focusing our efforts
in those states on collecting the remaining balance of our receivables portfolio through kiosks and third
party collectors. We believe that our decision to refocus our U.S. operations on Texas and Illinois will
bring long-term benefits.
Products and Services
We offer a broad assortment of brand name and third-party domestic and imported durable goods,
including furniture, electronics, household appliances, cellular telephones, computers, motorcycles, and
clothing, and we seek to constantly expand our product and service offerings. Imports account for
approximately 5% of our product portfolio.
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The following table shows our accumulated net sales by type of product as of September 30, 2012
and 2013:
% of Total Sales
Product Category
% of Total Sales
as of September 30, 2012
Famsa
Total
Mexico
Famsa USA
Consolidated
as of September 30, 2013
Famsa
Total
Mexico
Famsa USA
Consolidated
Furniture
13.4
48.3
50.7
11.1
18.0
17.6
11.9
12.2
Electronics
11.2
17.8
16.4
11.9
Household Appliances
10.5
9.8
10.4
12.0
11.8
11.9
Mobile phones
8.1
–
7.1
10.0
–
8.9
Computers
5.7
6.4
5.8
5.7
5.8
5.7
25.5
2.6
3.9
3.6
22.7
0.4
25.9
–
–
3.5
23.5
0.4
5.2
–
4.6
6.7
–
6.0
20.5
11.4
19.3
16.2
6.5
15.2
100%
100%
100%
100%
100%
100%
Personal Loans
Famsa-to-Famsa
Motocycles
Others
Total
Our product and service portfolio includes:

Furniture, including living, dining and bedroom sets, chairs, tables, armoires, headboards,
mattresses, cushions, rocking chairs, dressers, book cases and sofas. The main brands carried
by our Famsa Mexico stores are Simmons, Selther, Mónaco, Sealy, Emman, Muebles Liz,
Demomuebles, Chavoya, MobilKraft, Taosa and Dafel. In addition, our Famsa Mexico stores offer
an exclusive brand-name line of furniture manufactured by our subsidiary Expormuebles. Famsa
USA furniture brands include Ashley Furniture, Wickline Bedding, Michels & Company,
International Furniture, Golden Oaks, Acme Furniture and Sandberg Furniture.

Electronics, including cameras, TV sets, home theater systems, DVD players, as well as sound
systems (car stereos, modular stereo systems, and recorders) of international brands such as
Sony, Panasonic, LG, Samsung and Toshiba, among others.

Major household appliances, including refrigerators, washers, freezers, dryers, ovens and stoves
of internationally-recognized brands such as White Westinghouse, General Electric, Mabe,
Maytag, Easy, IEM, Acros, Whirlpool, among others.

Small household appliances, including microwave ovens, toasters, irons, coffee makers, vacuum
cleaners, mixers and other small appliances of brands such as Moulinex, Panasonic, Black &
Decker, Braun, LG and Osterizer, among others. We also sell fans, air conditioning units and
boilers, including those manufactured by Impco, Whirlpool, Lenomex, De´Longhi, LG and Mytek .

Mobile phones and accessories, including those distributed by Telcel, Movistar, Iusacell and
Unefon. These are sold by us in our stores and we receive marketing support from the providers.
Customers contract with the providers separately.

Computers, including laptops, desktops, tablets, and video game consoles and games, of
internationally-recognized brands like Sony, Toshiba, Acer, Dell and HP, among others.

Personal loans, which are unsecured cash loans that our customers use to meet needs not
offered in our retail floor, including medical care and house remodeling. These loans are normally
offered to our existing customers and are very similar in amount and duration to other credits that
we issue.
74

Motorcycles, including scooters, semiautomatic, chopper, dual purpose, sports, ATV 4 wheels,
and work motorcycles. We carry our own brand, Kurazai, which is currently among the top four
motorcycle brands in Mexico. Manufacturing takes place in China through our supplier Moto
Road, with which we have an exclusivity agreement.

Others, which include motorcycles and scooters, clothing and accessories, sporting goods and
other products not captured above.
Leveraging on our large merchandise purchase volumes, we entered into agreements with some of
our vendors, under which they manufacture products according to our specifications for inclusion in our
stores’ product portfolio. For instance, Lester manufactures the mattresses sold in our stores under our
proprietary “CisiAmo” label.
In addition to our conventional product categories described above, our stores offer a variety of other
products and services, including the following:

Catalog sales. In 2004, we entered the sales-by-catalog business within the footwear segment,
through our subsidiary Verochi. Our customers place their orders either through our call center or
through an informal network of independent, door-to-door sales people who are primarily
housewives and other women in search of a source of additional income. We offer these
independent sales persons the ability to pay for their merchandise purchases in up to eight weeks
and to return unsold merchandise. Currently, our Verochi footwear is available only through a
limited number of Famsa stores in the northeast region of Mexico, although we plan to expand
this business to the rest of the country.

Famsa-to-Famsa. Our Famsa-to-Famsa services allow our customers in the United States to
purchase merchandise at any of our Famsa USA stores and have it delivered to others in Mexico
through Famsa Mexico, taking advantage of our infrastructure on both sides of the border.
Though the product is delivered in Mexico, the sale is treated as a sale in the United States. The
products most frequently purchased for delivery in Mexico through this service are household
appliances, furniture and electronics. For the nine-month period ended September 30 2013, sales
under our Famsa-to-Famsa program accounted for 3.5% of Famsa USA’s sales.

Electronic transfer of funds and foreign exchange. Our Famsa Mexico stores offer electronic
money transfer and foreign exchange services, charging a commission that is payable by the
sender. Although we do not directly offer these types of services in the United States, Famsa
USA has entered into an agreement with U.S. Dollar Express, Inc. (“DolEx”), under which DolEx
provides such services to our customers through kiosks located within our stores. In exchange for
these business referrals, DolEx pays Famsa USA a fixed monthly rent for the space used by its
kiosks. In addition, we have entered into a series of agreements with DolEx Envíos, SA. de C.V.,
Western Union and other providers of international money transfer services, under which we
deliver their intended recipients, at our Famsa Mexico stores, the proceeds of the transactions
processed by them, in exchange for a commission from the provider for each completed
transaction. We do not charge any fee or commission to the recipients.

Auto Gran Crédito. In 2005, we began offering personal car financing services under our “Auto
Gran Crédito” brand. We finance the purchase of new vehicles only, through a lottery system that
requires the customer to pay at the due dates of each of the first six installments on their
purchase before they can receive the vehicle. If a customer fails to pay any of such six first
installments, then delivery of the vehicle is delayed until the customer’s name is drawn in the
lottery. We hold lottery drawings on a monthly basis. As in the case of our other consumer
finance services, customers make weekly payments in amounts that vary depending on their
individual payment ability over a 48-month period.

Banco Famsa Products. Through Banco Famsa, we offer a variety of consumer and business
finance banking products, which are designed to target the banking needs of our retail customers.
75
Our deposit and investment products include traditional savings and checking accounts and a
variety of short- and medium-term investment products, including certificates of deposit that offer
a wide range of terms to maturity and returns. Our credit offerings include personal and business
products, including a Famsa private-label credit card for use only at Famsa stores, personal cash
loans and both long- and short-term business loans and revolving credit facilities. For additional
discussion of Banco Famsa’s products, see “Banco Famsa—Products and Services.”
As part of our business strategy, we continually seek new products and services to offer our
customers, and from time to time we introduce new products or services through trials before
incorporating them into our portfolio. The products and services offered can vary from store to store
based on layout as well as specific demographics and regional and customer preferences.
Sales
Sales in Cash. Our sales in cash include the sales paid in hard currency and the sales paid by check
or credit card. Cash sale prices at our Mexican stores are established at a discount off the suggested
retail price, depending on the type of product and the product’s credit sale terms. Cash purchases at our
U.S. stores generally are not subject to discounts. We offer to our institutional customers a 30-day credit
line and account for these sales in the same manner as sales paid for in cash given the short repayment
period associated therewith.
Sales on Credit. As an alternative to traditional sales in cash, we offer to our customers an option to
pay in installments, providing weekly, bi-weekly or monthly payments over a three- to 24-month period.
The retail price of the merchandise sold in Mexico depends on the market trends of the diverse type of
products offered. In addition, our installment program considers various factors, such as the repayment
period, the customer’s credit history and the type of product. Sales on credit generally generate higher
gross margins than those yielded by our cash sales. In the United States, the purchase price of the
merchandise sold on credit is determined based on the suggested retail price plus a finance charge that
is reviewed periodically. Because many of our clients do not generally have access to other sources of
credit, we believe that our installment program contributes to increasing the number of our potential
customers, enhances our existing customers’ purchasing power and, as a result, contributes to our
growth in net sales and net income. As of September 30, 2013, our sales on credit accounted for
approximately 83.0% of our total sales.
Our customers can make payments on their accounts at any of our stores and, in the United States,
customers also have the option of paying by mail or by website.
Prices
Our price strategy seeks to offer our products at low, competitive prices in each of our markets. To
ensure the maintenance of competitive market prices, our marketing department monitors on a daily basis
the prices advertised by our competitors and adjusts and determines the discounts applicable to the price
of the merchandise that we sell in cash or on credit. Our store managers are authorized to reduce the
cash purchase price of our products to match the prices offered by our competitors, within certain
specified parameters.
Distribution Network
Following our customer service strategy and looking to strengthen our delivery policy, we have
developed a series of administrative procedures, information technology systems and personnel training
programs to maximize the efficiency of our distribution operations. Starting on January 2011, the QS-LyD
Quality Management System, based on the ISO-9000 standard, was implemented to improve operations
and productivity in all of our distribution centers in Mexico. The final certification was obtained on
December 2011.
We currently operate 9 distribution centers that are strategically located throughout Mexico in the
cities of Monterrey, Nuevo León; Hermosillo, Sonora; Chihuahua, Chihuahua; Guadalajara, Jalisco;
76
Tijuana, Baja California; Mexico City, D.F.; Irapuato, Guanajuato; Villahermosa, Tabasco; and Culiacán,
Sinaloa. In the United States, we have one distribution center in Texas and one in Illinois.
Our distribution centers receive our merchandise purchases directly from our suppliers and also
provide merchandise return processing support to our stores. Upon its arrival at our distribution centers,
the merchandise is transported to the point of sale through proprietary routes generated upon automated
consolidation of our stores’ daily sales by type of product and destination. To ensure an efficient delivery
process, our distribution centers maintain permanent on-line communication with our stores. Famsa also
entered into approximately 35 contracts with third parties that provide delivery services to assist Famsa in
the delivery of merchandise to other regions.
In the last few years the Company has implemented a supply program for its transfer centers through
its own high capacity fleet. This program is employed only on certain routes where a high demand
justifies it as necessary: Monterrey – Reynosa, Monterrey – Matamoros, Monterrey – Tampico, Monterrey
– Cd. Victoria – Cd. Mante, Monterey – Monclova, Monterrey – Saltillo, Chihuahua – Torreón, Irapuato –
San Luis Potosí, Irapuato - Aguascalientes, México – Veracruz, México – Toluca, Culiacán – Mazatlán,
Culiacán – Los Mochis.
The current distribution system has allowed a reduction in costs, maintaining a time delivery to
customers in less than 48 hours, and ensuring reliability in inventory availability. This has been achieved
through the close adherence to productivity and efficiency standards, which has resulted in a 9%
reduction in our distribution vehicle fleet in the last two years. On average, 18,933m³ of merchandise
leave distribution centers each week, reaching on average 29,765m³ during peak seasons. The use of a
bar code system through radio frequency in our distributions centers has contributed to a higher level of
assurance in inventory management and control, reaching a 99.8% confidence level. In addition, we have
implemented an automatic routing system to increase efficiency of both human and mechanic resources.
As of September 30, 2013, we operate various merchandise transfer centers throughout Mexico and
the United States, with an average warehouse area of 600 square meters. These centers receive
merchandise deliveries from our distribution centers for their subsequent shipment to our stores or our
customers’ homes. Our transfer centers are located along certain routes characterized by large
merchandise traffic volumes. Additionally, we operate three warehouses in the United States that receive
merchandise from our distribution centers for their subsequent delivery to our stores and customers.
For the majority of our sales, we rely on our own fleet of transportation vehicles. As of December 31,
2012, our fleet consisted of 210 vehicles, mainly 3.5-ton trucks, in addition to other trucks equipped with
compartments for the proper handling of products. For additional security, our fleet designated to
distribution centers in Monterrey and Mexico City, as well as all of our lightweight tractors, are equipped
with satellite tracking.
Customer Service
We believe our commitment to excellence in pre-sale and post-sale customer service sets us apart
from our competitors and provides us with a distinctive feature upon which to retain and expand our
customer base. The broad range of services that we offer our customers includes home delivery and
extended guaranties on all other products. We operate a customer service center that is open every day
of the year except December 25 and January 1. In addition, each of our anchor stores includes a
customer service department that supports our stand-alone stores in the region. In the United States, we
employ many bilingual speakers to service our customers.
Suppliers
A critical element of our marketing strategy is our ability to offer a broad range of high-quality
products at low prices to our customers. We secure our merchandise purchase requirements from a
network of approximately 450 domestic and international suppliers. We have developed strong business
relationships with several of the world’s largest manufacturers of electronic products, as well as with
domestic manufacturers of furniture and other products.
77
In order to centralize our merchandise purchasing process and maximize the efficiency of our
distribution network, we have integrated into our retail operations the STORIS® supply chain
management system, an advanced software application that provides real-time information on our
inventory levels, historic purchases, purchase order status and other information to both our stores and
vendors, who can access this system through our web page, thereby enabling us to remain in permanent
communication with them. This helps us reduce the risk of inventory shortages and obsolescence, while
enabling us to obtain optimum prices and other purchase conditions. We believe that we conduct
business with our suppliers on terms that are no less favorable than those of our competitors.
The following table shows Famsa Mexico’s and Famsa USA’s ten largest suppliers and the
percentage of our merchandise purchases represented by each such supplier as of September 30, 2013:
Suppliers
Famsa Mexico:
Radiomóvil Dipsa, S.A. de C.V. (TELCEL)
Comercial Acros Whirlpool
Moto Road, S.A. de C.V.
Mabe, S.A. de C.V.
Sony de México, S.A. de C.V.
Panasonic de México, S.A. de C.V.
LG Electronics México, S.A.
Samsung Electronics Mexico
Expormuebles, S.A. de C.V.
Inno Digital Stream Mex, S.A.
Famsa USA:
Ashley Furniture Inds, Inc.
Acme Furniture Industry Inc
LG Electronics USA Inc
Electrolux
Sandberg Furniture MFG Co Inc
Restonic Bedding
Sony Electronics Inc
E & S International Enterp Inc
American Furniture MFG Inc.
National Bedding Company LLC
%
11.30%
9.10%
8.90%
6.70%
5.90%
2.80%
2.70%
2.20%
2.20%
1.80%
11.1%
8.4%
8.3%
6.7%
6.6%
6.0%
5.6%
4.7%
2.9%
2.8%
Consumer Lending Operations
Sales on Credit and Credit Approval Process
As an alternative to the traditional in-cash sales system, we offer our customers an installment
program that provides them with a convenient source of financing to satisfy their credit needs, which
helps increase our number of potential customers and enhance the purchasing power of our existing
customers, which in turn translates into an increase in our sales volume and profitability. New credit sales
accounts and credit approval processes in Mexico are managed by Banco Famsa, whereas in the United
States they are managed through Famsa, Inc.
The retail price of the merchandise sold in Mexico depends on the market trends of the diverse type
of products offered. In addition, our installment program considers various factors, such as the repayment
period, the customer’s credit history and the type of product. Sales on credit generally generate higher
gross margins than those yielded by our cash sales. In the United States, the purchase price of the
merchandise sold on credit is determined based upon a suggested retail price plus a finance charge that
78
is reviewed periodically. In general terms, cash purchases in the United States are not subject to
discounts. Our installment program calls for weekly, bi-weekly or monthly payments over a three- to 24month period, depending on the customer’s preference and payment ability, which is determined based
upon various factors, including the customer’s credit history, monthly income and the purchase price of
the merchandise. We also offer several product-specific financing options, including financing for the
purchase of clothing items exclusively, which are targeted towards our younger customers. Our
customers can make payments on their accounts at any of our stores or, in the United States customers
also have the option of paying by mail or by website.
As of September 30, 2013, Famsa Mexico, through Banco Famsa, had approximately 1.87 million
active customer accounts, and Famsa USA had approximately 106,500 active customer accounts. Our
Consumer Loans Portfolio in Mexico and our Consumer Loans Portfolio in the United States (continuous
operations) totaled Ps.16,708 million and Ps.1,838 million respectively, as of September 30, 2013.
Our customer credit approval process entails the submission of a credit application and certain
support documentation, including photo identification and proof of income and address, and the execution
of a credit agreement and a promissory note by the customer. In 2012, we centralized the credit
underwriting process through three credit centers establishing additional controls and increasing
efficiency. This efficiency has been derived by taking advantage of powerful decision engines that provide
origination scores for our credit portfolio and by developing projects in order to automate the credit
underwriting process. On a regular basis, the Company representative pays a visit to the customer’s
residence in order to verify the accuracy of the information contained in the application. Absent adequate
proof of income, the application is approved or declined based on the outcome of such visit and of the
verification of the customer’s credit references. In general terms, the amount of the weekly installments
under our consumer loans does not exceed 30% of the customer’s gross weekly income. The credit
approval process, which takes 24 hours in most cases, is managed by anchor stores, and process is run
by one of the three credit centers. Sales in excess of a pre-determined threshold amount must be
approved by a higher ranked manager at the credit centers. Depending on the customer’s credit
worthiness and repayment ability, we may require a down payment of between 5% and 20% of the
purchase, and the balance is subject to repayment in weekly, bi-weekly or monthly installments that can
be made at any of our stores. If a customer’s application is initially declined, the customer can offer a
larger down payment to reduce the amount of the loan and increase the likelihood of approval. This credit
verification process yields a valuable data base that is used to improve our customer relations functions.
Our credit agreements and promissory notes provide for interest on the loan at a fixed rate that varies
depending on the type of product and the length of the repayment period. In addition, we assess late
interest upon any installment not paid when due. The amount of late interest is determined on a daily
basis taking into consideration the number and amount of missed payments, until the account is brought
to date.
In 2008, we began transferring to Banco Famsa our consumer credit accounts. In 2012, the Company
completed the migration of these credit accounts, and any new customer credit accounts will be
originated and managed by Banco Famsa. Management procedures and collection protocols are not
affected by the transfer of credit accounts to Banco Famsa, as delinquent credit accounts are transferred
back to the originating subsidiary for collection purposes. However, the transfer of credit accounts to
Banco Famsa will enable our customers to obtain financing and other services directly from Banco
Famsa. See “―Banco Famsa” below.
79
Account Collection Procedure
Past due accounts in Mexico are maintained at Banco Famsa, where, starting the second semester of
2012, they are subject to preliminary collection procedures, until they are over 270 days delinquent,
whereupon they are transferred at a discount to the Famsa retail subsidiary where they were originated
for additional and, in some cases, legal collection procedures. Such retail subsidiary receives any
revenues derived from such collection procedures. Past due accounts in the United States are maintained
at Famsa, Inc. throughout the collection process.
Notice Procedures.
We operate a call center in Mexico to handle the collection of our past due Mexican and U.S.
customer account portfolio. Our call center is staffed with more than 378 representatives. When an
account has gone past due for a period of up to 20 days, one of our call center representatives places a
telephone call to the relevant customer to remind him or her of the amount due and payable and the date
by which payment must be received. In most instances, the issue is settled at this point and the customer
arranges payment. Otherwise, if the account goes over 20 days past due, a call center representative
telephones the customer once again to make payment arrangements. Our call center uses various
customized telephone call formats for specific stores, cities and customer profiles. In 2012, Banco Famsa
implemented a preventive campaign (7 days before payment due date) in order to remind the customer
its payment due date to avoid the entry rate. If the account goes one day past due, Banco Famsa begins
a predictive dialing process (through AVAYA’s predictive dailer), to contact the customer and negotiate a
promise to pay and get a payment to return the account back to current portfolio. If after several attempts
the customer is not located, Banco Famsa Contact Center has a skip process in order to find other phone
numbers and contact the client.
In addition to the efforts of our call center, we periodically mail reminders, demands for payment
and default notices to our past due account holders through virtual technology (SMS/Blaster/emails).
Default notices are sent on the 15th day from the date on which payment was due and at various intervals
thereafter. The procedure for recovery on our past due accounts varies depending on the relevant
customer’s risk profile, the amount owed and other factors as we may deem relevant. Any customer
whose account has gone past due for over 60 days is assigned to a “door to door” process collection.
Legal Procedures.
In general terms, we do not resort to litigation until after an account has gone past due for over
120 days. If an account is not settled following notice or personal contact with the customer, we may
decide to bring legal action against the customer or transfer the account to an independent collection
agency. We base our decisions as to whether to pursue legal action upon a cost/benefit analysis and the
likelihood of recovery. If we decide to engage in litigation in Mexico and the outcome of such litigation
favors us, we may seize or repossess the relevant merchandise based upon the applicable court
resolution. The repossessed merchandise is then sold at a discount through one of our stores. In
contrast, our past due account recovery process in the United States provides for the attachment of the
customer’s wages rather than the repossession of the merchandise.
Our account collection and recovery procedures in Mexico are subject to the Código de Comercio
(the “Commerce Code”), the Consumer Protection Law, and the Código Civil Federal (“Federal Civil
Code”). Our account collection procedures in the United States are subject to the Federal Fair Debt
Collection Practices Act, the Federal Trade Commission Act and various other provisions applicable to
the retail industry and the origination of and collection on accounts payable. Our uncollectibility level has
generally been higher in the United States than in Mexico, primarily as a result of the effects of the U.S.
economic downturn on U.S. Hispanic unemployment as well as our ability to repossess merchandise in
Mexico.
80
Promobien
We established our Promobien program in 1983, to offer an alternative source of consumer financing
products and services to the employees of the program’s participating entities. Under the Promobien
program, employees of participating entities are able to purchase merchandise at our stores or from
kiosks installed in their workplace and to have the purchase price of such merchandise deducted from
their salaries over a three- to 18-month period. As of September 30, 2013, the Promobien program had
approximately 4,000 participants in 73 cities throughout Mexico. The Promobien program’s participants
include private sector entities, government entities and universities. For the nine-month period ended
September 30, 2013, our sales under the Promobien program accounted for 12% of our total revenues.
For the nine-month period ended September 30, 2013, approximately 29% of our sales under the
Promobien program were attributable to private sector entities, 40% to government entities and 31% to
teachers’ and oil industry workers’ unions.
To be eligible to participate in the Promobien program, a company must have been in operation for at
least two years, have a minimum of 50 full-time employees and be based in a city with at least one
Famsa store. In turn, the employee must have been employed with the participating entity for at least one
year (two years in the case of employees of in-bond manufacturers (maquiladoras) based in the MexicoU.S. border region) and provide a copy of his most recent payroll stub and certain personal identification
documentation, together with a pre-approved merchandise purchase order. Any participating individual
switching jobs while maintaining an outstanding balance under his account in the Promobien program
may have his account information forwarded to the new employer and continue to have the applicable
amount deducted from his salary, so long as the new employer is a Promobien participant.
The Company and the relevant participating entity review on a case-by-case basis the amount of
financing requested by the latter’s employees, to ensure that such amount does not exceed the
employee’s payment ability. The Company provides the participant with a list of all the Promobien
accounts established by its employees, the outstanding balances under each such account and the
amount to be deducted from the employees’ salaries.
Competition
The retail industry is highly competitive, particularly as it concerns the household appliances, furniture
and electronics segments. Both the Mexican and U.S. retail markets are highly fragmented,
encompassing large store chains, department stores, household appliance and electronics stores,
discount warehouse clubs, factory outlets, online retailers and a broad range of smaller independent
specialty stores. In Mexico, we compete primarily with two other large domestic retail chains that have
nationwide presence and offer similar consumer financing options, namely Grupo Elektra and Coppel. We
also compete with other large retail stores, including Grupo Chedraui, Organización Soriana, Centros de
Descuento Viana, Dico, Gala, and with the Mexican subsidiaries or affiliates of international chains such
as Wal-Mart and Best Buy. Although to a lesser extent, we also compete with several domestic
department store chains, including El Puerto de Liverpool, Grupo Palacio de Hierro, Grupo Hermanos
Vázquez y Fábricas de Francia and Sears, which do not have national presence, are targeted towards
other population segments and offer less-flexible and other non-consumer finance options, as well as with
informal or “black” markets and street vendors. In the United States, we compete with large U.S. retailers,
such as Ashley Furniture, Rooms to Go, Best Buy and Sears, on cash sales, and with local and regional
retailers that directly target U.S. Hispanics with in-house credit, such as Conn’s, Continental, LDF and
Lacks.
We believe that our focus in the furniture, electronics and household appliances segments, our broad
geographical presence and our ability to offer competitive pricing and financing options to our customers,
backed by our 43 years of experience and what we believe to be the broad market recognition enjoyed by
the Famsa brand, provide us with a significant competitive advantage based upon which we continue to
grow and expand.
In addition, we believe our pre- and post-sale personalized customer service and our convenient
locations coupled with our unique banking services provide us with a competitive advantage.
81
Furthermore, we employ many promotional programs, including, among others, our “Gran Credito” and
“Cambaceo” (or “canvassing”) door-to-door sales programs coupled with a nationwide marketing
campaign. We also provide convenient options for our customers to manage their credit account
payments, including through our Promobien program, which gives customers the option to make
payments on their Famsa credit accounts through an automatic payroll deduction with participating
employers.
The banking segment in Mexico is also highly competitive. For more information on the competition in
the banking segment in Mexico, see “—Banco Famsa—Competition.”
Banco Famsa
Overview
Banco Famsa, our own retail bank, was established in 2006 as part of a plan to maximize our
consumer finance operations and complement our product portfolio with banking services and loan
products and, in addition, to serve as a source of funding for Famsa’s credit sales and operations. Banco
Famsa began operations in Monterrey in January 2007. According to the CNBV, as of September 30,
2013, Banco Famsa operated one of the ten largest banking branch networks in Mexico, with 311
branches located within Famsa Mexico stores and 27 independent branches, and managed an aggregate
amount of 3.0 million savings and credit accounts. Combined, our 311 branches, excluding our recently
acquired Montemex branches, as of the close of the third quarter of 2013, have over 2,500 tellers and
720 service executives to serve our customers’ banking needs.
Within our overall business strategy, Banco Famsa seeks to achieve the following objectives:

Ensure a constant and reliable source of low-cost, short-term funding through customer
deposits and interbank loans to finance our Mexican consumer finance operations, which we
had traditionally financed through a combination of credit facilities with banking and other
financial institutions and the issuance of debt; and

Foster the cross-selling of products and services within the Company with the introduction of
personal loans and other financial services to our Mexican customers, who typically do not
have access to credit or other financial services from the traditional banking sector.
As of September 30, 2013, Banco Famsa was the source of 71.8% of our net funding and Banco
Famsa’s average cost of funding was 5.3%. Initially funded in part through financial intermediaries and
interbank loans, Banco Famsa is now fully-funded through its own deposits in the form of savings and
checking accounts, certificates of deposit and other consumer investment products. The combination of
our diversified funding platform with our risk management experience and knowledge of the retail industry
represents a unique competitive advantage.
Through Banco Famsa, we are achieving our objective of providing a viable source of funding for our
consumer credit operations in Mexico. At the same time, the diverse financing options tha make up our
bank deposit base, including savings and checking deposits, certificates of deposit and other investment
vehicles, mitigate our exposure to conventional credit markets and have begun to reduce significantly our
cost of financing. Banco Famsa offers a growing assortment of its own financial products and services,
including a variety of personal, commercial and microcredit loans. As of September 30, 2013, according
to a report published by the CNBV, Banco Famsa’s total loan portfolio was almost five times larger than
that of Banco Wal-Mart’s.
The credit quality of trade receivables, both with respect to loans offered by Banco Famsa and our
consumer financing through our retail stores, is assessed based on the historical default rates of the
counterparties.
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Products and Services
Banco Famsa offers traditional deposit and other banking services through branches located within
Famsa Mexico’s stores, taking advantage of their existing credit processing and customer service
facilities and infrastructure, such as internet banking services, money orders, ATMs, POS terminals and
other financial services.
In addition, Banco Famsa has incorporated our pre-existing consumer finance operations and is
engaged in an ongoing process of developing its products and services, expanding its bank deposits
base and improving its systems and procedures, including developing an information technology and risk
management platform to meet regulatory requirements, competing in the Mexican financial industry and
supporting its expansion plans. Some examples of the actions taken towards this objective are: i)
implementation and continuous upgrading of card core and bank core systems based on the IBM eSeries platform served by FISERV, ii) implementation of state of the art Call Center telephone technology
by Avaya, iii) implementation of ERP SAP to support accounting, human resources and CRM processes,
iv) web based services to offer internet banking and smart phone services to support origination and
collections processes and v) implementation of SAS to develop information analysis and business
intelligence.
Banco Famsa’s financial products include traditional demand deposit accounts and short- and
medium-term investments, including certificates of deposit, personal loans and business loans, each of
which is described below.
Demand Deposits

Famsa Ahorro. Banco Famsa offers a traditional savings account that pays between 1%–3%
interest based on the deposit amount, requires no annual fee and may be opened with a
minimal amount (Ps.1). It offers free withdrawal and deposit service at any Banco Famsa
branch along with free transfers among Banco Famsa accounts. Same-day transfers to
accounts of other persons or accounts at other banks are offered for a fee. Withdrawals from
certain other banks and third-party ATMs are provided for a fee after the first three
transactions each month, which are offered for free.

Mi Chequera Famsa. Banco Famsa’s checking feature provides essentially the same
features as the Famsa Ahorro with the exception that it requires a higher minimum deposit
(Ps.1,000). Checks are provided without fee.

Ahorro Niños. Banco Famsa offers savings accounts targeting first-time account holders,
adolescents and children, with similar features as the Famsa Ahorro, but additionally requires
parental consent.

Payroll. Banco Famsa offers a payroll and savings account that requires no annual fee, no
minimum average balance and no account management fee.
Short- and Medium-Term Investments

InverFamsa and InverFamsaPlus. Banco Famsa’s fixed rate investment products provide a
variety of options including 15 different possible terms under one year, different associated
rates of return and the option to reinvest returns, to increase the amount of the investment
during a term, to receive monthly or end-of-term interest payments and to withdraw principal
during the term of the investment for a reduction in the final return. Minimum required
deposits vary from Ps.4,000 to Ps.5,000 (U.S.$303.61 to U.S.$379.52) depending on the
product.

InverCedeFamsa. Banco Famsa offers fixed-rate certificates of deposit with 6, 9, 12, 18 and
24-month terms, offering respectively greater returns for longer terms. Interest may be paid
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out monthly or reinvested at the customer’s option, and the minimum deposit is Ps.25,000
(U.S.$1,897.58).
The following table sets forth the maturity profile of our deposits, stated in millions of Pesos as of
September 30, 2013:
Balance
Ps. 4,154.4
30.5%
6-12 months
3,928.1
28.8%
13-24 months
5,553.2
40.7%
Ps. 13,635.7
100.0%
0–6 months
Total
Credit

Tarjeta Famsa. Banco Famsa offers a credit card that may be used for purchases at any
Famsa store or for personal loans, Préstamos en Efectivo, through cash withdrawals.
Cardholders are subject to our credit approval procedures only at the time of issuance of the
card, rather than at the time of purchase. Payments and cash withdrawals (personal loans)
on the card may be made at any Banco Famsa branch. Banco Famsa offers fixed-rate
personal loans through Tarjeta Famsa for up to a term of 18 months. Besides including no
pre-payment penalty, the personal loan product includes disability, life and unemployment
insurance covering principal amounts up to Ps.25,000, Ps.25,000 and Ps.5,000
(U.S.$1,897.58, U.S.$1,897.58 and U.S.$379.52), respectively.

Crédito PYME. Banco Famsa offers both fixed-term and revolving small- and medium-sized
business loans with a variety of features including terms from six to 60 months, fixed interest
rates, commission-free origination and a number of payment options including amortization
and bullet payments.

Credinero. During the third quarter of 2013, Banco Famsa developed a new credit product
directed at a higher income segment of the population that seeks financing for medium and
long-term personal projects.
Subject to the exceptions provided under Article 10 of the IPAB, all of Banco Famsa’s deposit
accounts benefit from the guarantee of the IPAB covering deposits up to the amount of 400,000 UDIs (or
approximately Ps.1.9 million (U.S.$150,858) as of September 30, 2013).
Competition
Banco Famsa competes with various Mexican banks and other financial institutions that cater to the
same segment of the Mexican population and offer similar products and services. After 5 years of
operation, Banco Famsa is already one of the ten largest banking branch networks in Mexico, according
to the CNBV, as of December 31 2012, and enjoys a number of competitive advantages relating to its
products and synergies with Famsa Mexico’s retail operations.
Banco Famsa has faced and will continue to face strong competition from banking institutions
associated with Famsa Mexico competitors in the retail market, such as Banco Azteca, S.A., institución
de banca múltiple, the consumer financing subsidiary of Grupo Elektra, Bancoppel, S.A., institución de
banca múltiple, the consumer financing subsidiary of Coppel, and Banco Wal-Mart de México, the
consumer financing subsidiary of Wal-Mart, each of which targets customers in Famsa’s Mexican
population segments. According to information published by the CNBV, several of Banco Famsa’s more
direct competitors currently offer more banking branches. As of September 30, 2013, Banco Azteca
operated 2,138 branches, Bancoppel 800 branches and Banco Wal-Mart 262 branches, as compared to
Banco Famsa’s 311 branches. Additionally, stand-alone bank institutions (not associated with any
retailer) such as Banorte, Bancomer and Santander, have recently shown an increased interest in lowerincome segments of the population.Competition in the consumer finance business may increase
significantly as a result of the introduction of new banking and other financial products, such as credit
card and personal loans targeted towards the lower-middle income class segment of the population,
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which constitutes our primary target customer base. Any increase in competition could affect our market
position if our competitors are able to offer financing terms more attractive than ours.
Competition in the consumer finance business may increase significantly as a result of the
introduction of new banking and other financial products, such as credit card and personal loans targeted
towards the lower-middle income class segment of the population, which constitutes our primary target
customer base. Any increase in competition could affect our market position if our competitors are able to
offer financing terms more attractive than ours.
Commercial banks in Mexico also compete in the retail market with non-banking institutions known as
Sofoles and Sofomes, which focus primarily on offering consumer and mortgage loans to middle- and
low-income individuals. Sofoles and Sofomes are Mexican corporations (sociedades anónimas) that
expressly include as their main corporate purpose in their by-law, engaging in lending and/or financial
leasing and/or factoring services, but are prohibited from engaging in many banking operations, including
foreign trade financing, taking deposits, offering checking accounts and engaging in foreign currency
operations. Until recently, the commercial credit market for middle and low-income individual customers
has been serviced almost exclusively by Sofoles and Sofomes; however, traditional banks have begun to
extend their credit services to the markets previously dominated by Sofoles and Sofomes.
In July 2006, the Mexican Congress enacted certain reforms to deregulate lending activities, including
financial leasing and factoring activities, pursuant to which, the Ministry of Finance and Public Credit has
ceased to authorize the creation of new Sofoles, and all existing Sofol authorizations automatically
terminated on July 19, 2013. On or prior to that date, existing Sofoles must cease operating as a Sofol.
Failure to comply with this requirement will result in dissolution or liquidation of the Sofol. Existing Sofoles
also have the option of converting to Sofomes or otherwise extending their corporate purposes to include
activities carried out by Sofomes.
On January 10, 2014, the Mexican Law for Organizations and Credit Associated Activities (Ley
General de Organizaciones y Actividades Auxiliares del Crédito) was amended to, among other things,
extend the concept of regulated Sofomes to include those with financial ties with Mexican credit
institutions (i.e., private or public banks), certain popular financial companies (sociedades financieras
populares), certain community financial companies (sociedades financieras comunitarias), certain savings
and loans companies (sociedades cooperativas de ahorro y préstamo), and Sofomes that issue
registered debt securities (directly or through trusts), as well as those that obtain approval by the CNBV
for such purpose. Regulated Sofomes are regulated and supervised by the CNBV, and are required to
comply with a number of provisions and requirements applicable to credit institutions, such as capital
adequacy requirements, risk allocation requirements, related party transactions rules, write-offs and
assignment provisions, reporting obligations as well as anti-money laundering provisions.
All other entities whose main purpose is engaging in lending, financial leasing and factoring activities
are non-regulated Sofomes. Non-regulated Sofomes are not subject to the supervision of the CNBV, and
therefore are not subject to the same extensive federal banking regulation, including capitalization,
reserve requirements and anti-money laundering provisions. As a result, certain of our competitors may
have advantages in conducting certain businesses and providing certain services because they are
subject to fewer regulations.
The Mexican Law of Credit Institutions grants authority to the CNBV (with the assistance of other
regulators, but with CNBV having primary responsibility) to authorize the creation of banks solely to
engage in certain activities (which is intended to incentivize competition, reduce required capital and
improve the attention to certain industries and regions) in contrast to so-called “universal” banks. As a
result of the reduced capital requirements and potential reduced operational costs that are likely to apply
to this type of bank, there could be increased competition as a result of the creation of more banks to
target specific market niches.
Our banking services target a segment of the population that has historically had limited access to the
regulated banking sector. Despite the recent growth in the number of competitors pursuing Mexico’s
middle and lower-middle income segments, banking service penetration among Mexicans is significantly
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low. Based on our estimates, approximately 60% of Mexico’s middle and lower-middle income segments
have never used banking services.
Banco Famsa has positioned itself by focusing on our target customers’ needs to develop several key
competitive advantages, which include a comprehensive portfolio of simple banking products, an
accessible network of banking branches with extended hours of operation and a number of Famsa
synergies. Given the lack of access to financial services of our target market, Banco Famsa offers a wide
variety of simple, straight-forward deposit and credit products that are intended to simplify our customers’
selection process. Furthermore, Banco Famsa’s 311 banking branches make up one of the top-ten
banking branch networks in Mexico. Lastly, the integration of our Banco Famsa branches within our retail
stores provides an inviting environment for our customers and allows us to offer longer hours of operation
than other banking services providers. In addition, with the implementation of independent banking
branches across the country, Banco Famsa will also be able to target customers’consumption needs of
durable good categories, since Grupo Famsa’s door-to-door sales program “Cambaceo” (or “canvassing”)
will also be offered through these banking branches.
Synergies between Banco Famsa and Famsa’s Mexican retail operation provide unique competitive
advantages. For instance, as a result of the credit evaluation and monitoring to which our existing retail
credit customers are already subject, we believe, we are in a better position than other competitors to
cross-sell first-time banking services and develop products tailored to our target customers’ needs.
Additionally, we believe Banco Famsa benefits from the Famsa brand’s widespread recognition and good
standing among its target segment. Furthermore, the integration of Banco Famsa with our retail
operations provides a variety of cost-saving synergies, including rent expense, utilities and joint product
marketing through direct mail, telemarketing, cashier pitches, television or advertising on bank
statements.
In order to comply with the applicable bank secrecy provisions, we have established different
operating systems, which restrict information to be shared between our retail business and Banco Famsa.
The only information of Banco Famsa’s loan portfolio that is provided to Famsa is the information
regarding specific loans, which are effectively transferred to Famsa as part of the credit transfer-back
process of account receivables that are more than 120 days past due. See “—Regulation—Legal Regime
Applicable to Banco Famsa—Bank Secrecy Provisions; Credit Bureaus.”
Other Businesses
Wholesale Business
Famsa operates its wholesale business, which specializes in sales of home appliances, electronics
and household goods, through its subsidiary, Mayoramsa. For the nine-month period ended September
30, 2013, our wholesale segment generated Ps.423.9 million in net sales, or 3.9% of our total
consolidated revenues.
Our customers in this segment consist principally of small and mid-sized furniture stores. As of
September 30, 2013, we had approximately 1,950 customers.
As of September 30, 2013, Famsa operated 17 warehouses in the principal metropolitan areas of 17
Mexican states, including Veracruz, Guadalajara, Monterrey, Mérida, Puebla, Culiacán, Torreón, Tijuana,
Tuxtla Gutiérrez, León, México, San Luis Potosí, Hermosillo, Reynosa, Chihuahua, Chilpancingo and
Tampico. As of September 30, 2013, the floor space of these warehouses totaled 11,060 square meters.
Each warehouse includes a customer service department responsible for, among other things, issues
relating to product guarantees. Once our distribution centers receive merchandise, they deliver it directly
to our customers. Our delivery routes are determined using a database generated from sales occurring
throughout the day at our wholesale locations.Famsa wholesale customers can pay for goods in
installments for periods ranging from 30 to 90 days. Before each sale on credit, customers are subject to
a credit investigation, which Famsa conducts from the nearest distribution center. Collections are carried
out at the premises of customers regularly and by the same vendor that performed the initial sale.
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Mayoramsa customers can pay for goods in installments for periods ranging from 30 to 90 days.
Before each sale on credit, customers are subject to a credit investigation, which the Company conducts
from the nearest distribution center. Collections are carried out at the premises of customers regularly and
by the same vendor that performed the initial sale.
Mayoramsa offers a wide range of wholesale products, mainly home appliances, electronics, heaters,
air conditioners, household goods and bicycles. Products can be domestic or imported, and most are of
recognized brands. Most wholesale products we sell have a manufacturer’s guaranty.
As of September 30, 2013, our sales of wholesale products were distributed in the following
percentages: home appliances, 49.5%; electronic devices, 21.5%; air conditioners and heaters, 15.9%;
and household goods accounted for 13.1% of total wholesale product sales.
Furniture Manufacturing
Through our Monterrey-based subsidiary Expormuebles, we produce two lines of home furniture that
are sold exclusively in our Famsa stores: living room and dining room sets and tubular furniture, which
includes bunk beds and sofa beds. We also sell a portion of Expormuebles’ production through our
wholesale operations.
Expormuebles’ production facilities have total area in excess of 10,000 square meters, with capacity
to produce 65,760 living room and dining room sets and 142,320 tubular items annually.
Marketing
Our marketing strategy seeks to strengthen our customer base at our existing stores, assist in the
development of a solid clientele for our new store openings and increase the demand for additional
locations, by emphasizing our broad catalog of low-priced, high-quality merchandise always in stock,
easily accessible consumer finance products, convenient locations, excellence in customer service and
high levels of customer satisfaction. As part of our marketing strategy, we are constantly engaged in
aggressive advertising efforts, primarily through prime-time TV commercials and the distribution of fliers,
which are designed to allow us flexibility to adapt to the size and profile of each particular market.
In 2011 and 2012, our marketing and advertising expenses (consolidated basis) accounted for 2.0%
and 2.4%, respectively, of our total revenues. In the nine months ended September 30, 2013, our
marketing and advertising expenses (consolidated basis) accounted for 2.1% of our total revenues.
In addition, our web site, www.famsa.com, enables our clients to make on-line purchases and
perform research with respect to our products for their subsequent purchase from our stores. In 2012, we
continued to develop the following strategic areas of famsa.com: the overall shopping experience, the
shopping cart feature, development of additional payment methods and privacy & data security. We also
consolidated our business relationships with key partners, including Banamex, Blockbuster and Estafeta,
and for the second consecutive year, we had an increase in the total number of visits to our website,
which totaled 6.3 million, a 72.2% growth compared to 2011. Although on-line sales currently represent a
relatively small percentage of our total retail sales, we believe that our web site helps to foster consumer
loyalty and encourages consumer spending.
In recent periods, we have focused our marketing and advertising efforts on countering the effects of
the decrease in consumer spending as a result of the economic crisis, by engaging in outdoor advertising
to redirect the flows of street traffic to our stores and introducing cross-business promotions.
Systems
We have traditionally made significant capital investments in the acquisition, installation and upgrade
of IT (Information Technology) and software applications. In 2011 and 2012, we invested Ps.25.6 million
and Ps.20.8 million, respectively, in our systems. Our capital investments in IT from period to period is
primarily a reflection of our growth in terms of number of stores, the creation of the Bank division and a
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number of new functionalities and business initiatives in order to offer more and better services to our
customers.
We have a long term contract pursuant to which IBM will provide the necessary infrastructure for the
optimal operation of our enterprise resource planning (ERP) for the Commercial Division and SAP
systems for Famsa.
Our communications network that links all of our branches, distribution centers and warehouse
facilities, enables them to maintain ongoing, real-time communication to operate and maximize their
processes and support. We have a long term contract with one of the main carriers in Mexico to get the
service, including the update and maintenance for the equipment (e.g., routers and switches) and the
management to monitoring and secure the optimal service levels.
The ERP for the commercial division is STORIS (www.storis.com) based in US, operates on IBM
pSeries platform (AIX) housed in Apodaca-Triara (IBM) including the recovery capacity.
Banco Famsa network architecture is built around an IBM eSeries system with immediate recovery
capacity, which is housed in Apodaca-Triara and Redit-Monterrey. The Banco Famsa’s Core Banking
System (ICBS) and the consumer credit system (CMS) were provided and are supported by FISERV
(www.fiserv.com) based in the U.S. We also use additional applications to complete the bank institution
requirements and meet the Mexican regulations.
Human Resources and Finance for the Famsa divisions are using SAP products and operating on
IBM pSeries platform (AIX) housed in Apodaca-Triara (IBM) including the recovery capacity.
We have recently implemented the Customer Relationship Management software from SAP. In
addition, we put new marketing software from SAP into service, which allows us to plan and administer
maketing campaigns, administer telemarketing operations and manage our contact with customers, and
administer media advertising and customer service.
Trademarks
As of September 30, 2013, we owned the rights to more than 1,402 registered trademarks and trade
names used in connection with our business operations, including, among others, “Famsa,” “Famsa.com,”
“Auto Gran Crédito Famsa,” “CisiAmo,” “De Famsa a Famsa” (Famsa-to-Famsa), “GarantiMax,” “Giovanni
Paolo,” “Gran Crédito Famsa,” “Verochi”, "Kurazai", “Kultur", “Prendinero” and “Univercel.”
In addition, pursuant to certain agreements with some of our vendors and suppliers, we hold licenses
to various trademarks used in connection with the sale and distribution of their products at our stores.
Regulation
This section contains a summary of the legal regime applicable to our retail and consumer finance
operations in Mexico and the United States, as well as the laws and regulations applicable to Banco
Famsa.
Operations in Mexico
Securities Market Law
Corporations whose equity and debt securities are registered with the RNV and trade on the
BMV, such as the Company, are subject to the Mexican Securities Market Law and the rules and
regulations issued thereunder and are otherwise governed by the provisions of the General Law of
Commercial Corporations (Ley General de Sociedades Mercantiles).
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Consumer Protection Laws
Our consumer financing services not carried out through Banco Famsa are subject to the Federal
Consumer Protection Law (Ley Federal de Protección al Consumidor), which promotes and protects
consumer rights and seeks to establish equality and legal certainty in relationships between consumers
and commercial suppliers.
On July 29, 2010, Article 17 of the Mexican Constitution was amended in order to allow class
actions to be brought in federal courts in connection with civil actions on matters related, among others, to
consumer protection. Consequently, on August 30, 2011, the Federal Code of Civil Procedure and the
Federal Law for Consumer Protection (Ley Federal de Protección al Consumidor), among others, were
amended to incorporate class actions. 93 Such amendments became effective on March 1, 2012. As of
the date of this Information Memorandum, no class action has been resolved in connection with
consumer protection matters.
Collection Procedures
Our account collection and recovery procedures in Mexico are subject to the Commerce Code,
the Consumer Protection Law and the Federal Civil Code.
Legal Regime Applicable to Banco Famsa
General
As a Mexican banking institution, Banco Famsa is subject to regulation and oversight by the
SHCP, Mexico’s Central Bank (Banco de México), the CNBV, the IPAB and the Comisión Nacional para
la Defensa de los Usuarios de las Instituciones Financieras (“CONDUSEF”).
Banco Famsa’s operations are primarily subject to the Mexican Law of Credit Institutions (Ley de
Instituciones de Crédito), the General Provisions Applicable to Credit Institutions (Disposiciones de
Carácter General Aplicables a las Instituciones de Crédito) (the “General Bank Rules”), as amended, and
other rules and regulations issued by the SHCP, Banco de México, the CNBV and the IPAB.
The Ministry of Finance and Public Credit, either directly or through the CNBV, the role of which
has been expanded and enhanced, possesses broad regulatory powers over the banking system. Banks
are required to report regularly to the financial regulatory authorities, principally the CNBV and Banco de
México. Reports to bank regulators are often supplemented by periodic meetings between senior
management of the banks and senior officials of the CNBV. Banks must submit their unaudited monthly
and quarterly and audited annual financial statements prepared in accordance with accounting rules and
practices established by the CNBV to the CNBV for review and must publish on their website and in a
national newspaper their unaudited quarterly balance sheets and audited annual balance sheets. The
CNBV may order a bank to modify and republish such balance sheets.
The CNBV has authority to impose fines for failing to comply with the provisions of the Mexican
Law of Credit Institutions or regulations promulgated thereunder. In addition, Banco de México has
authority to impose certain fines and administrative sanctions for failure to comply with the provisions of
the Ley del Banco de México (the “Banco de México Law”) (and regulations that it promulgates and the
Law for the Transparency and Ordering of Financial Services (Ley para la Transparencia y Ordenamiento
de los Servicios Financieros), particularly as violations relate to interest rates, fees and the terms of
disclosure of fees charged by banks to clientele. Violations of specified provisions of the Mexican Law of
Credit Institutions are subject to administrative sanctions and criminal penalties.
On July 11, 2008, Banco de México published new rules that regulate the issuance and use of
credit cards and include certain card user protection provisions.
On January 10, 2014, amendments to banking and financial services laws were published in the
Official Gazette of Mexico within the framework of the Pacto por México (Pact for Mexico, a cross-party
89
co-operation pact signed early in Mr. Enrique Peña Nieto's presidency to push through 95 reforms in
which a degree of consensus existed), with the main purpose of broadening credit granting, improving
credit conditions, and decreasing the cost of collateral foreclosure. The financial reforms exceed the
commitments of the Pacto por México, and include amendments to 34 laws and encompass a broad
range of subject matters. In general terms the reforms grant greater powers to financial authorities and
materially increase the level of regulation, penalties and cost of compliance. Most of these amendments
became effective as of January 13, 2014, and certain amendments require the implementation of
secondary rules and regulations which are yet to be drafted and issued by financial regulators.
Relevant Provisions Applicable to Banco Famsa
Among other things, under the Mexican Law of Credit Institutions, the General Bank Rules and
other rules and regulations, Mexican banks are subject to the following provisions:
Licensing Requirements. Authorization of the Mexican government is required to conduct banking
activities. The CNBV, subject to the prior favorable opinion of Banco de México, has the power to
authorize the establishment of new banks, subject to minimum capital standards, among other things.
Approval of the CNBV is required prior to the opening, closing or relocating offices, including branches, of
any kind, outside of Mexico, transfer of assets or liabilities between branches or any amendments to a
bank’s bylaws or increase or decrease of its capital.
Capitalization. The minimum equity capital requirement applicable to full service commercial
banks (including newly-chartered banks) is 90,000,000 UDIs (approximately Ps.447.2 million as of
September 30, 2013).
Banks are required to maintain a net capital (capital neto) relative to market risk, risk-weighted
assets incurred in its operation and operations risk, which may not be less than the capital required in
respect of each type of risk. The Mexican Law of Credit Institutions, the General Rules for Banks as well
as the Rules for Capitalization Requirements of Commercial Banks and National Credit Institutions
(Reglas para los requerimientos de Capitalización de las Instituciones de Banca Múltiple y las
Sociedades Nacionales de Crédito, Instituciones de Banca de Desarrollo) (the “Mexican Capitalization
Requirements”) set forth the methodology to determine the net capital relative to market risk, riskweighted assets and operations risk. Under the relevant regulations, the CNBV may impose additional
capital requirements and Banco de México may, with the CNBV’s recommendation, grant temporary
exceptions to such requirements.
The Mexican Capitalization Requirements provide capitalization standards for Mexican banks
similar to international capitalization standards, particularly with respect to the recommendations of the
Basel Committee on Banking Supervision. On November 28, 2012, the Mexican Ministry of Treasury and
Public Credit (Secretaría de Hacienda y Crédito Público) published several amendments to the
regulations applicable to financial institutions for the implementation of Basel III standards in Mexico.
Most of these amendments became effective as of January 1, 2013.
Under the Mexican Capitalization Requirements, Mexican banks are required to maintain a
minimum capital ratio of 10.0% to avoid the imposition of any of the corrective measures described below.
Aggregate net capital consists of a basic portion (parte básica) or Tier 1 capital and an additional portion
(parte complementaria) or Tier 2 capital of the net capital. At all times, Tier 1 capital must represent at
least 50.0% of our aggregate net capital. Failure to meet the capital requirements may result in the
imposition of corrective measures as described below. We are in compliance with all applicable Mexican
Capitalization Requirements.
On January 10, 2014, the Mexican Law of Credit Institutions was amended to, among other
things, create the Committee of Banking Liquidity Regulation (Comité de Regulación de Liquidez
Bancaria) with the purpose of drafting the guidelines to be used for setting the liquidity requirements
applicable to Mexican banks.
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Every Mexican bank must create certain legal reserves (fondo de reserva de capital), included as
part of Tier 1 capital. Banks must allocate 10.0% of their net income to such reserve each year until the
legal reserve equals 100.0% of their paid-in capital (without adjustment for inflation). The balance of net
income, to the extent not distributed to shareholders, is added to the bank’s retained earnings account.
Under Mexican law, dividends may not be paid out of the legal reserve. As of September 30, 2013, Banco
Famsa had legal reserves of Ps.83 million and had paid-in capital of Ps.1,740 million (without adjustment
for inflation).
Intervention. The CNBV may declare managerial intervention (intervención) of a banking
institution pursuant to Articles 129 through 141 of the Mexican Law of Credit Institutions and in such case
the Governing Board of IPAB will appoint a peremptory manager (administrador cautelar) (the “CNBV
Intervention”).
A CNBV Intervention pursuant to Articles 129 through 141 of the Mexican Law of Credit
Institutions, will occur only when (i) during a calendar month, the capitalization ratio of a bank falls below
a level equal to or above the minimum capital ratio required and thereby does not comply with the
Mexican Capitalization Requirements; or (ii) a bank does not comply with the minimum capitalization ratio
and is not operating under the conditional management regime (See “—Conditional Management
Regime”). In addition, a CNBV Intervention may occur when the CNBV, in its sole discretion, determines
the existence of irregularities that affect the stability or solvency of the bank, the public interest or the
bank’s creditors.
During a CNBV Intervention, the peremptory manager appointed by IPAB will assume the
authority of a bank’s board of directors. The peremptory manager will have the authority to represent and
manage the bank with the broadest powers under Mexican law and will not be subject to control by the
bank’s board of directors or its shareholders. The appointment of the peremptory manager shall be
effective upon its publication with the Official Gazette of Mexico and two newspapers of wide distribution
in Mexico, regardless of the future registration of such appointment with the Public Registry of Commerce.
IPAB. The Mexican Law of Credit Institutions, the Banking Deposit Insurance Law (Ley de
Protección al Ahorro Bancario, the “IPAB Law”), which became effective January 20, 1999, provides for
the creation, organization and functions of the IPAB, the new bank savings protection agency. The IPAB
is a decentralized public entity that regulates the financial support granted to banks for the protection of
bank deposits. The IPAB may grant financial support to banking institutions only in exceptional
circumstances.
According to the IPAB Law, the IPAB will manage and sell the loans, rights, shares and any other
assets that it acquires from banks in the performance of its activities to maximize their recovery value.
The IPAB must ensure that the sale of such assets is made through open and public procedures. The
Mexican President is required to present annually a report to Congress prepared by the IPAB with a
detailed account of the transactions conducted by the IPAB in the prior year.
The IPAB has a governing board of seven members: (i) the Minister of Finance and Public Credit,
(ii) the Governor of Banco de México, (iii) the President of the CNBV and (iv) four other members
appointed by the President of Mexico, with the approval of two-thirds of the Senate.
The deposit insurance to be provided by the IPAB to a bank’s depositors will be paid upon
determination of the dissolution and liquidation or bankruptcy of a bank. The IPAB will act as liquidator or
receiver in the dissolution and liquidation or bankruptcy of banks either directly or through designation of
a representative. The IPAB will guarantee obligations of banks to certain depositors and creditors only up
to the amount of 400,000 UDIs (or approximately U.S.$150,858 as of September 30, 2013), per person
per bank.
Banks have the obligation to pay the IPAB ordinary and extraordinary contributions as determined
from time to time by the Governing Board of IPAB. Under the IPAB Law, banks are required to make
monthly ordinary contributions to the IPAB, of no less than 0.4% of the average daily outstanding
liabilities of the respective bank in a specific month, less (i) holdings of term bonds issued by other
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commercial banks; (ii) financing granted to other commercial banks; (iii) financing granted by the IPAB;
and (iv) subordinated debentures that are mandatorily convertible in shares representing the capital stock
of the banking institution.
The IPAB’s Governing Board also has the authority to impose extraordinary contributions in the
case that, given the conditions of the Mexican financial system, the IPAB does not have available
sufficient funds to comply with its obligations. The determination of the extraordinary contributions is
subject to the following limitations: (i) may not exceed, on an annual basis, the amount equivalent to
0.003% multiplied by the total amount of the liabilities outstanding of the banking institutions that are
subject to IPAB contributions and (ii) the aggregate amount of the ordinary and extraordinary
contributions may not exceed, in any event, on an annual basis, an amount equivalent to 0.008%
multiplied by the total amount of the liabilities outstanding of the applicable banking institution.
The Mexican Congress allocates funds to the IPAB on a yearly basis to manage and service the
IPAB’s liabilities. In emergency situations, the IPAB is authorized to incur additional financing every three
years in an amount not to exceed 6% of the total liabilities of Mexican banks.
On January 10, 2014, certain amendments to the IPAB Law and the full-amendment of the
Financial Groups Law (Ley para Regular las Agrupaciones Financieras) were published in the Official
Gazette of Mexico to provide, among other things, improvements to the legal framework to resolve and
grant financial support to commercial banking institutions undergoing financial difficulties.
Revocation of Banking License. If the CNBV revokes a bank’s license to organize and operate as
a banking institution, the IPAB’s Governing Board will determine the manner under which the
corresponding banking institution shall be either liquidated or judicially liquidated (as the case may be) in
accordance with Articles 165 through 270 of the Mexican Law of Credit Institutions. In such a case, the
IPAB’s Governing Board may determine to undertake the liquidation through any or a combination of the
following transactions: (i) transfer the liabilities and assets of the banking institution in liquidation to
another banking institution; (ii) constitute, organize and manage a new banking institution owned and
operated directly by the IPAB, with the exclusive purpose of transferring the liabilities and assets of the
banking institution in liquidation; or (iii) any other alternative that may be determined within the limits and
conditions provided by the Mexican Law of Credit Institutions that the IPAB considers as the best and
least expensive option to protect the interest of bank depositors.
On January 10, 2014, the Mexican Law of Credit Institutions was amended to provide, among
other things, the legal framework for the judicial liquidation of commercial banking institutions, applicable
in the event the banking license of any such commercial banking institution has been revoked and whose
assets are not sufficient to pay its liabilities. The judicial liquidation may only be requested by the IPAB,
which will act as liquidator or receiver. Upon commencement of a judicial liquidation, the commercial
banking institution shall suspend its operations and close its offices.
Causes to Revoke a Banking License. The following are among the most common events upon
which the CNBV may revoke a banking license:
(1)
if the banking institution is dissolved or initiates liquidation procedures;
(2)
if the banking institution (a) does not comply with any minimum corrective measures
ordered by the CNBV pursuant to Article 122 of the Mexican Law of Credit Institutions; (b)
does not comply with any special corrective measure ordered by the CNBV pursuant to
such Article 122; or (c) consistently does not comply with an additional special corrective
measure ordered by the CNBV;
(3)
if the banking institution does not comply with the minimum capital ratio required under
the Mexican Law of Credit Institutions and the Mexican Capital Requirements;
(4)
if the banking institution defaults with respect to any of the following payment obligations
(a) in the case of obligations in an amount greater than 20,000,000 UDIs or its equivalent:
(1) loans granted by other banking institutions, foreign financial institutions or Banco de
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México; or (2) payments of principal or interest on securities issued that have been
deposited with a clearing system, and (b) in the case of obligations in an amount greater
than 2,000,000 UDIs or its equivalent, if during two business days or more, (1) it does not
pay its obligations owed to one or more participants in clearing systems or central
counterparts, or (2) it does not pay in two or more of its branches, banking deposits
claimed by 100 or more of its clients; and
(5)
if the banking institution´s assets are not sufficient to pay its liabilities.
Upon publication of the resolution of the CNBV revoking a banking license in the Official Gazette
of Mexico and two newspapers of wide distribution in Mexico and registration of such resolution with the
corresponding Public Registry of Commerce, the liquidation of the relevant banking institution will be
initiated. Upon liquidation of a banking institution, the IPAB shall proceed to make payment of all
‘‘guaranteed obligations’’ of the relevant banking institution.
On the liquidation date, all liabilities of the relevant banking institution will be treated as follows:
(1)
term obligations will become due (including interest accrued);
(2)
unpaid principal amounts, interest and other amounts due in respect of unsecured
obligations denominated in Pesos or UDIs will cease to accrue interest;
(3)
unpaid principal amounts, interest and other amounts due in respect of unsecured
obligations denominated in foreign currencies, regardless of their place of payment, will
cease to accrue interest and will be converted into Pesos at the prevailing exchange rate
determined by Banco de México;
(4)
secured liabilities, regardless of their place of payment will continue to be denominated in
the agreed currency, and will continue to accrue ordinary interest, up to an amount of
principal and interest equal to the value of the assets securing such obligations;
(5)
obligations subject to a condition precedent, shall be deemed unconditional; and
(6)
obligations subject to a condition subsequent, shall be deemed as if the condition had
occurred, and the relevant parties will have no obligation to return the benefits received
during the period in which the obligation subsisted.
Liabilities owed by the banking institution in liquidation will be paid in the following order of
preference: (i) labor liabilities related to salaries or severance payments, (ii) secured liabilities, (iii) labor
liabilities other than those related to salaries or severance payments, (iv) liabilities with a special privilege,
(v) liabilities for bank deposits and loans up to the amount of 400,000 UDIs, as well as any other liabilities
in favor of the IPAB, (vi) liabilities for bank deposits and loans exceeding the amount of 400,000 UDIs,
(vii) any other liabilities different from those referred above, (viii) preferred subordinated debentures, (ix)
non-preferred subordinated debentures, and (x) the remaining amounts, if any, shall be distributed to
stockholders.
Financial Support. Determination by the Banking Stability Committee. With the January 10, 2014
amendments to the Mexican Law of Credit Institutions, the recently-created Financial Stability Committee
changed its name to the Banking Stability Committee (the ‘‘BSC’’). If the BSC determines that if a bank
were to default on its payment obligations and such default may (i) generate (directly or indirectly) severe
negative effects in one or more commercial banks or other financial entities, endangering their financial
stability or solvency, and such circumstance may affect the stability or solvency of the financial system, or
(ii) put the operation of the payments’ system at risk, then the BSC may determine that a percentage of all
of the outstanding obligations of the troubled bank that are not considered ‘‘guaranteed obligations’’ under
the IPAB Law and guaranteed obligations in amounts equal to or higher than the amount set forth under
Article 11 of the IPAB Law (i.e. 400,000 UDIs per person per entity), be paid as a means to avoid the
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occurrence of any of such circumstances. Notwithstanding the foregoing, under no circumstance may the
transactions referred to in Sections II, IV and V of Article 10 of the IPAB Law (which include transactions
such as liabilities or deposits in favor of shareholders, members of the board of directors and certain top
level officers, and certain illegal transactions) or the liabilities derived from the issuance of subordinated
debentures be covered or paid by IPAB or any other Mexican governmental agency. The BSC may
increase such percentage at a later date if appropriate due to a change of circumstances.
The members of the BSC are representatives of the Ministry of Finance and Public Credit, Banco
de México, the CNBV and the IPAB.
Conditional Management Regime. As an alternative to revoking the banking license of a bank, a
new conditional management regime was created, which may apply to commercial banks with a capital
ratio below the minimum required pursuant to the Mexican Capitalization Requirements. To adopt this
regime, a bank must voluntarily make a request to the CNBV, with prior approval of its shareholders, for
the application of the conditional management regime. In order to qualify for such regime, the requesting
bank must (i) deliver to the CNBV a plan for the reconstitution of its capital and (ii) transfer at least 75% of
its shares to an irrevocable trust.
Banking institutions that do not comply with the minimum capital ratio required by the Mexican
Capitalization Requirements may not adopt the conditional management regime.
Corrective Measures. Pursuant to the Mexican Capitalization Requirements, the CNBV classifies
Mexican banks in several categories based on their capital ratio and other capital requirements, and
based on the category of the relevant Mexican bank, orders corrective measures to prevent and correct
problems that may affect the stability or solvency of banks if a bank fails to meet the minimum required
capital ratio or any other capital requirement. Some of these corrective measures, include, among others:
(1)
informing the board of directors of the bank’s classification (and the circumstances that
resulted in such classification), based on the capital ratio thereof, and submitting a
detailed report containing an evaluation of the bank’s overall financial status and its level
of compliance with applicable regulation, including the principal regulatory ratios, that
reflect the bank’s degree of stability and solvency (together with any determinations or
indications made by any of the CNBV or Banco de México); the bank shall provide written
notice to the general director and the chairman of the board of directors of the bank’s
regulated holding company with respect to such events and the status thereof;
(2)
within a period not to exceed seven (7) days, filing with the CNBV, for its approval, a
capital recovery plan to increase the bank’s capital ratio (which may include improving
operating efficiencies, rationalizing expenses, increasing profitability, receiving new
capital contributions and limiting the bank’s operations); the bank’s capital recovery plan
shall be approved by such bank’s board of directors before it is submitted to the CNBV for
approval; subject to certain exceptions, the plan is required to be satisfied within 270 days
counted from the date of its approval by the CNBV;
(3)
suspending (totally or partially) any payment of dividends to its shareholders, as well as
any mechanism or action for the making of any distributions or the granting of any
economic benefits to shareholders;
(4)
suspending (totally or partially) any share repurchase programs;
(5)
deferring or cancelling (totally or partially) payments of interest and deferring or cancelling
(totally or partially) the payment of principal on outstanding subordinated debt or, if
applicable, exchanging, outstanding convertible subordinated debt into shares of the bank
in the amount necessary to cover the capital deficiency; in the event that the bank issues
subordinated debt, the bank is obligated to include in the documentation evidencing the
relevant debt, in the applicable indenture and in the applicable offering documents, that
such deferral of payment of principal or deferral and cancellation of payments of interest
shall apply upon the occurrence of certain events, as provided in the general rules of
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Article 121 of the Mexican Law of Credit Institutions set forth under the General Rules for
Banks, and that the implementation of such measures shall not be considered a default
under the relevant debt documentation;
(6)
suspending payment of any extraordinary benefits and bonuses that are not a component
of the ordinary salary of the general director or any officer within the next two levels, and
suspending the granting of new benefits and bonuses to the general director and the
officers mentioned above until the bank complies with the minimum capital ratio set forth
under the Mexican Capitalization Requirements;
(7)
abstaining from increasing outstanding amounts under any loans granted to any party
who is a related party to the bank; and
(8)
any other corrective measures that, in each case, are provided by the general rules of
Article 121 of the Mexican Law of Credit Institutions set forth under the General Rules for
Banks.
Reserve and Compulsory Deposit Requirements. The compulsory reserve requirement is one of
the monetary policy instruments used as a mechanism to control the liquidity of the Mexican economy to
reduce inflation. The objective of Banco de México’s monetary policy is to maintain the stability of the
purchasing power of the Mexican Peso and, in this context, to maintain a low level of inflation. Given the
historic inflation levels in Mexico, the efforts of Banco de México have been directed towards a restrictive
monetary policy.
Under the Banco de México Law, Banco de México has the authority to order the percentage of
the liabilities of financial institutions that must be deposited in interest-bearing or non-interest-bearing
deposits with Banco de México. These deposits may not exceed 20% of the aggregate liabilities of the
relevant financial institution. Banco de México also has the authority to order that 100% of the liabilities of
Mexican banks resulting from specific funding purposes or pursuant to special legal regimes be invested
in specific assets created in respect of any such purpose or regime.
To manage its maturity exposures to the Mexican financial markets, Banco de México has been
extending the maturities of its liabilities for longer terms to avoid the need for continuing refinancing of its
liabilities. Those liabilities have been restructured into voluntary and compulsory deposits (Depósitos de
Regulación Monetaria) and into investment securities such as longer-term government bonds (Bondes)
and compulsory monetary regulatory bonds (Brems). At the same time, Banco de México has elected to
hold short-term assets, thus allowing it the ability readily to refinance its positions of assets and reduce its
maturity exposure to the financial markets.
Classification of Loans and Allowance for Loan Losses. The loan classification and rating rules
set forth under the General Rules for Banks, provide a methodology to classify (i) consumer loans (i.e.,
each of credit card exposure and loans to individuals, divided as separate groups) considering as
principal elements (a) for credit card exposure, the possibility of non-payment and potential losses (taking
into account collateral received), and (b) for loans to individuals, the possibility of non-payment, potential
losses (taking into account collateral received) and credit exposure (net of reserves created), (ii)
mortgage loans (i.e., residential, including loans for construction, remodeling or improvements),
considering as principal elements delinquency periods, possibility of non-payment and potential losses
(taking into account collateral and guarantees received), and (iii) commercial loans, based principally on
an evaluation of the borrower’s ability to repay its loan (including country risk, financial risk, industry risk
and payment history) and an evaluation of the related collateral and guarantees.
The loan classification and rating rules require that consumer loans to individuals be stratified,
considering the number of unpaid billing periods applicable to the relevant loans, and that a statutory
percentage be applied to loans that are past due for each level, as a means to create reserves; reserves
may be decreased as the maturity of the applicable loan approaches and past due payments are made.
Credit card loans must be reserved, on a loan-by-loan basis, considering amounts due, amounts paid to
the relevant date, credit limits and minimum payments required. Consumer loans to individuals may be
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classified as A, B, C, D or E, depending upon the percentage of reserves required (from 0% to 100%);
credit card consumer loans may be classified as A, B-1, B-2, C, D or E also depending upon the
percentage of reserves required.
The loan classification and rating rules establish the following categories corresponding to levels
of risk, applicable reserves and set forth procedures for the grading of commercial loans: A-1, A-2, B-1, B2, B-3, C-1, C-2, D and E. The loan classification and rating rules require that Mexican banks grade their
commercial loan portfolio (except loans made to or guaranteed by the Mexican federal government) as of
the end of each quarter and the classification must be reported to the CNBV. The classification of
mortgage and consumer loans is required to be made monthly and reported to the CNBV.
The loan loss reserves are held in a separate account on the balance sheet and all write-offs of
uncollectible loans are charged against this reserve. Mexican banks are required to obtain authorization
from their boards of directors in order to write-off loans. In addition, Mexican banks are required to inform
the CNBV after such write-offs have been recorded.
The determination of the allowance for loan losses reflected in Famsa’s financial statements is
made at the consolidated Famsa level, and, pursuant to MFRS, is calculated according to Company
policy, which requires management’s judgment, particularly for commercial loans. The loan loss reserve
calculation that results from using the estimated and prescribed loss percentages may not be indicative of
future losses. Differences between the estimate of the loan loss reserve and the actual loss will be
reflected in Banco Famsa’s financial statements at the time of charge-off.
Risk Management Policies and Procedures. Banco Famsa is subject to the provisions applicable
to the development and implementation of risk management policies and procedures contained in the
General Bank Rules, which in general terms provide for the development of a non-speculative, low-risk
profile on the part of Mexican banks. Among other things, under such provisions Mexican banks are
required to identify, quantify, manage and report the various types of risks to which they are exposed in
connection with the financial transactions entered into thereby. The Board of Directors of Banco Famsa is
responsible for approving the objectives, guidelines and policies for risk management.
To such effect, Banco Famsa has established a Risk Management Committee that is responsible
for the development and implementation of the policies, procedures and methodology applicable to the
identification and administration of its risks, including the establishment of risk limits and any exceptions
thereto. In addition, Banco Famsa’s Overall Risk Management Unit is responsible for the development
and implementation of mechanisms and procedures for the identification, measurement, management
and reporting of the risks to which it is exposed, based upon legal, regulatory, external and other
quantitative and qualitative considerations. For additional information concerning Banco Famsa’s risk
management policies and procedures, see “Management’s Discussion and Analysis of Financial
Condition and Results of Operations―Market Risk Disclosures―Risk Management Policies and
Procedures.”
Self-imposed Correction Programs. On January 10, 2014, the Mexican Law of Credit Institutions
was amended to provide, among other things, the legal framework for self-imposed correction programs
for Mexican banks in the event an irregularity or non-compliance with the Mexican Law of Credit
Institutions or other applicable regulation is detected by the relevant Mexican bank. Self-imposed
correction programs shall be filed for approval with the CNBV, CONDUSEF and IPAB, and shall include,
among others, the relevant irregularity or non-compliance and its effect, the corrective measures
conducted or proposed to be conducted, and any applicable term to rectify the relevant irregularity or noncompliance. If approved, the CNBV, CONDUSEF and IPAB may not impose any saction on the relevant
Mexican bank during the term the self-imposed correction program is being implemented.
Funding Limits. In accordance with the General Rules for Banks, Mexican banks are required to
diversify their funding risks. In particular, a Mexican bank is required to notify the CNBV the business day
following the occurrence of the event in the event it receives funds from a person or a group of persons
acting in concert that represent in one or more funding transactions more than 100% of a bank’s Tier 1
capital. None of Banco Famsa’s liabilities to a person or group of persons exceeds the 100% threshold.
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Restrictions on Liens and Guarantees. Under the Mexican Law of Credit Institutions, banks are
specifically prohibited from (i) pledging their securities as collateral (except if Banco de México or the
CNBV so authorizes, including as described above with respect to derivative transactions) and (ii)
guarantying the obligations of third parties, except, generally, in connection with letters of credit and
bankers’ acceptances.
Bank Secrecy Provisions; Credit Bureaus. Pursuant to the Mexican Law of Credit Institutions, a
Mexican bank may not provide any information relating to the identity of its customers or specific
deposits, services or any other banking transactions (including loans) to any third parties (including any
purchaser, underwriter or broker or holder of any of the bank’s securities), other than (i) the depositor,
debtor, accountholder or beneficiary and their legal representatives or attorneys-in-fact, (ii) judicial
authorities in trial proceedings in which the accountholder is a party or defendant, (iii) the Mexican federal
tax authorities for tax purposes, (iv) the Ministry of Finance and Public Credit for purposes of the
implementation of measures and procedures to prevent terrorism and money laundering, (v) the Federal
Auditor (Auditoría Superior de la Federación) to exercise its supervisory authority, (vi) the supervisory unit
of the Federal Electoral Agency, and (vii) the federal attorney general’s office (Procurador General de la
República) for purposes of criminal proceedings, among others. In most cases, the information needs to
be requested through the CNBV.
In order to comply with the applicable bank secrecy provisions, we have established different
operating systems, which restrict information to be shared between our retail business and Banco Famsa.
The only information of Banco Famsa’s loan portfolio that is provided to Famsa is the information
regarding specific loans, which are effectively transferred to Famsa as part of the credit transfer-back
process of account receivables that are more than 120 days past due. See “—Banco Famsa—Overview.”
Banks and other financial entities are allowed to provide credit-related information to dulyauthorized Mexican credit bureaus.
On January 10, 2014, the Mexican Law of Credit Bureaus (Ley para Regular las Sociedades de
Información Crediticia) was amended to, among other things, allow the Mexican Federal Government to
incorporate a governmental entity as a credit bureau which would become part of the Mexican financial
system.
Money Laundering Regulations. Mexico has in effect rules relating to money laundering (the
“Money Laundering Rules”).
Under the Money Laundering Rules, Banco Famsa is required to satisfy various requirements,
including:

the establishment and implementation of procedures and policies, including client
identification and know-your-customer policies, to prevent and detect actions, omissions
or transactions that might favor, assist or cooperate in any manner with terrorism or
money laundering activities (as defined in the Mexican Federal Criminal Code (Código
Penal Federal));

implementing procedures for detecting relevant, unusual and suspicious transactions (as
defined in the Ministry of Finance and Public Credit regulations);

reporting of relevant, unusual and suspicious transactions to the CNBV and the Ministry
of Finance and Public Credit; and

the establishment of a communication and control committee (which, in turn, must appoint
a compliance officer) in charge of, among other matters, supervising compliance with
anti-money laundering provisions; and

The creation of an Electronic Automated System which must have the following functions:
(i) maintaining, updating and consulting of the clients’ information;
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(ii) generating, encrypting, coding and transferring of information with respect to any
unusual or relevant operations;
(iii) classifying the transactions entered into by the banking institutions in order to screen
potential unusual or relevant operations; and
(iv) triggering an alert system with regards to any unusual or relevant operations to be
carried out by any politically-exposed person.
Banco Famsa is also required to organize and maintain a file before opening an account or
entering into any kind of transaction for the identification of each client (each, an “Identification File”). An
individual’s Identification File includes, among other information, a copy of the following documentation or
data: (i) full name, (ii) date of birth, (iii) country of birth, (iv) nationality, (v) occupation, profession, main
activity or line of business, (vi) complete domicile, (vii) telephone number, (viii) e-mail, if any, (ix) tax
identification number and population registry identification, when applicable, and (x) advanced electronic
signature series number, when applicable. An entity’s Identification File includes, among other
information, a copy of the following documentation or data: (i) corporate name, (ii) corporate purpose and
line of business, (iii) nationality, (iv) tax identification number, (v) advanced electronic signature series
number, when applicable, (vi) complete domicile, (vii) telephone number, (viii) e-mail, if any, (ix)
incorporation date, and (x) complete name of the sole administrator, the members of the board of
directors, the general manager or any relevant attorneys-in-fact. Identification Files are maintained for the
complete duration of the corresponding agreement entered into with such client, and for a minimum term
of ten years from the date such agreement is terminated.
Under the Money Laundering Rules, Banco Famsa must provide to the Ministry of Finance and
Public Credit, through the CNBV, (i) quarterly reports (within ten business days from the end of each
quarter) with respect to transactions equal to, or exceeding, U.S.$10,000, (ii) monthly reports (within 15
business days from the end of the month) with respect to international funds transfers, received or sent by
a client, with respect to transactions equal to, or exceeding, U.S.$10,000, (iii) reports of unusual
transactions, within 60 calendar days counted from the date an unusual transaction is detected by its
systems and (iv) periodic reports of suspicious transactions, within 60 calendar days counted from the
date the suspicious transaction is detected.
Rules on Interest Rates. Banco de México regulations limit the number of reference rates that
may be used by Mexican banks as a basis for determining interest rates on loans. For Peso-denominated
loans, banks may choose any of a fixed rate, TIIE (Tasa de Interés Interbancaria de Equilibrio), Cetes
(Certificados de la Tesoreria de la Federación), CCP (costo de captación promedio a plazo), the rate
determined by Banco de México as applied to loans funded by or discounted with NAFIN, the rate agreed
to with development banks in loans funded or discounted with them, the weighted bank funding rate (tasa
ponderada de fondeo bancario) and the weighted governmental funding rate (tasa ponderada de fondeo
gubernamental). For UDI-denominated loans, the reference rate is the UDIBONOS (Bonos de Desarrollo
del Gobierno Federal denominados en Unidades de Inversión). For foreign currency-denominated loans,
banks may choose either a fixed rate or floating market reference rates that are not unilaterally
determined by a financial institution, including LIBOR (as defined in the relevant loan or credit agreement)
or the rate agreed upon with international or national development banks or funds for loans funded by or
discounted with such banks or funds. For U.S. Dollar-denominated loans, banks may choose any of a
fixed rate, any of the rates referred to in the prior sentence or CCP-U.S. Dollars, as calculated and
published in the Official Gazette by Banco de México.
The rules also provide that only one reference rate can be used for each transaction and that no
alternative reference rate is permitted, unless the selected reference rate is discontinued, in which event
a substitute reference rate may be established. A rate or the mechanism to determine a rate may not be
modified unilaterally by a bank. Rates must be calculated annually, based upon 360-day periods.
Fees. Under Banco de México regulations, Mexican banks, Sofoles and Sofomes may not, in
respect of loans, deposits or other forms of funding and services with their respective clients, (i) charge
fees that are not included in their respective, publicly disclosed, aggregate annual cost (costo anual total),
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(ii) charge alternative fees, except if the fee charged is the lower fee, and (iii) charge fees for the
cancellation of credit cards issued. In addition, among other things, Mexican banks may not (i) charge
simultaneous fees, in respect of demand deposits, for account management and relating to not
maintaining minimum amounts, (ii) charge fees for returned checks received for deposit in a deposit
account or as payment for loans granted, (iii) charge fees for cancellation of deposit accounts, debit or
teller cards or the use of electronic banking services, or (iv) charge different fees depending upon the
amount subject of a money transfer. Under the regulations, fees arising from the use of ATMs must be
disclosed to users.
Mexican banks, Sofoles and Sofomes permitting customers the use of, or operating, ATMs must
choose between two options for charging fees to clients withdrawing cash or requesting balances: (i)
specifying a fee for the relevant transactions, in which case, Mexican banks, Sofoles and Sofomes
issuing credit or debit cards (“Issuers”) may not charge cardholders any additional fee (Issuers are
entitled to charge operators the respective fee), or (ii) permit Issuers to charge a fee to clients, in which
case, banks, Sofoles and Sofomes may not charge additional fees to clients.
Banco de México, on its own initiative or as per request from the CONDUSEF, banks, Sofoles or
Sofomes, may assess whether reasonable competition conditions exist in connection with fees charged
by banks, Sofoles or Sofomes in performing financial operations. Banco de México must obtain the
opinion of the Federal Economic Competition Commission (Comisión Federal de Competencia
Económica) in carrying out this assessment. Banco de México may take measures to address these
issues.
Law for the Protection and Defense of Financial Service Users. A Law for the Protection and
Defense of Financial Service Users (Ley de Protección y Defensa al Usuario de Servicios Financieros) is
in effect in Mexico. The purpose of this law is to protect and defend the rights and interests of users of
financial services. To this end, the law provides for the creation of CONDUSEF, an autonomous entity
that protects the interests of users of financial services and that has very wide authority to protect users of
financial services (including imposing fines). CONDUSEF acts as arbitrator in disputes submitted to its
jurisdiction and seeks to promote better relationships among users of financial institutions and the
financial institutions. As a banking institution, Banco Famsa must submit to CONDUSEF’s jurisdiction in
all conciliation proceedings (initial steps of a dispute) and may choose to submit to CONDUSEF’s
jurisdiction in all arbitration proceedings that may be brought before it. The law requires banks, as Banco
Famsa, to maintain an internal unit designated to resolve any and all controversies submitted by clients.
On January 10, 2014, the Law for the Protection and Defense of Financial Service Users was
amended to provide, among other things, the creation of the Financial Arbitration System (Sistema
Arbitral en Materia Financiera) by means of which financial institutions may offer to the public the
alternative to resolve through arbitration any future disputes in connection with transactions and services
determined in advance. Such offer to the public will be registered with the Arbitration System Registry of
Public Offers (Registro de Ofertas Públicas del Sistema Arbitral).
CONDUSEF maintains a Registry of Financial Service Providers (Registro de Prestadores de
Servicios Financieros), in which all financial services providers must be registered, that assists
CONDUSEF in the performance of its activities. CONDUSEF is required to publicly disclose the products
and services offered by financial service providers, including interest rates. To satisfy this duty,
CONDUSEF has wide authority to request any and all necessary information from financial institutions.
Furthermore, CONDUSEF may scrutinize banking services provided by using standard accession
agreements.
With the January 10, 2014 amendments to the Law for the Protection and Defense of Financial
Service Users, the Financial Entities Bureau (Buró de Entidades Financieras) was created, to provide
information regarding products offered by financial institutions, including commissions, practices,
administrative sanctions, claims and other relevant information for users of financial services regarding
the performance of financial institutions. This information is public and CONDUSEF shall issue periodic
information relevant for users of financial services in their decision-making regarding financial services.
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The January 10, 2014 amendments to the Law for the Protection and Defense of Financial
Service Users provide greater powers to CONDUSEF. With this amendment CONDUSEF has the
authority to regulate standard accession agreements of financial institutions and to regulate the events
when provisions of such contracts qualify as abusive, provided that such provisions do not refer to
interest rates, commissions or any other provisions regarding the amounts received by financial
institutions for their services, which are subject to the Banco de México regulations. CONDUSEF has the
power to suppress any such abusive provisions from standard accession agreements, and resolutions
issued by CONDUSEF with such effect are made public.
On July 29, 2010, Article 17 of the Mexican Constitution was amended in order to allow class
actions to be brought in federal courts in connection with civil actions on matters related, among others, to
protection and defense of financial service users. Consequently, on August 30, 2011, the Federal Code of
Civil Procedure and the Law for the Protection and Defense of Financial Service Users (Ley de
Protección y Defensa al Usuario de Servicios Financieros), among others, were amended to incorporate
class actions. Such amendments became effective on March 1, 2012. As of the date of this Information
Memorandum, no class action has been initiated in connection with protection and defense of financial
service users matters.
Banco Famsa may be required to provide reserves against contingencies that could arise from
proceedings pending before CONDUSEF. Banco Famsa may also be subject to recommendations by
CONDUSEF regarding its standard agreements or information used to provide its services. It may be
subject to coercive measures or sanctions imposed by CONDUSEF. At present, Banco Famsa is not the
subject of any material proceedings before CONDUSEF.
Law for the Transparency and Ordering of Financial Services. The Transparency and Ordering of
Financial Services Law (Ley para la Transparencia y Ordenamiento de los Servicios Financieros) was
published in the Official Gazette of Mexico in June 2007. The purpose of this law is to regulate (i) the fees
charged to clients of financial institutions for the use and/or acceptance of means of payment, as with
debit cards, credit cards, checks and orders for the transfer of funds, (ii) the fees that financial institutions
charge to each other for the use of any payment system, (iii) interest rates that may be charged to clients
and (iv) other aspects related to financial services, all in an effort to make financial services more
transparent and protect the interests of the users of such services. This law grants Banco de México the
authority to regulate interest rates and fees and establish general guidelines and requirements relating to
payment devices and credit card account statements. See “—Rules on Interest Rates” and “—Fees”
above. Banco de México has the authority to specify the basis upon which each bank must calculate its
aggregate annual cost (costo annual total), which comprises interest rates and fees, on an aggregate
basis, charged in respect of loans and other services. The aggregate annual cost must be publicly
disclosed by each bank. The law also regulates the terms that banks must include in standard accession
agreements and the terms of any publicity and of information provided in account statements.
Banco Famsa must inform Banco de México of any changes in fees at least 30 calendar days
before they become effective.
Regulations Regarding the Entry of U.S. Dollars into Mexico. On June 16, 2010, the SHCP issued
new regulations limiting the ability of banking institutions to accept U.S. Dollars. Among other things,
these new regulations restrict banks from receiving from their customers more than U.S.$4,000 in cash
from individuals or U.S.$7,000 from companies operating in the northern border region in the same month
in transactions such as the purchase of U.S. Dollars, cash deposits, or as payment of credits or other
banking services. These new measures seek to reinforce anti-money laundering policy and dissuade
other illegal or improper activities. These new regulations do not limit in any way the amount of U.S.
Dollars that may be sold to the public by banking institutions and do not restrict transactions with U.S.
Dollars performed by any other means other than cash. According to the 103 press release of the SHCP
dated June 15, 2010, announcing the issuance of these new regulations, more than 96% of the cash
remittance from the United States into Mexico is carried out through electronic money transfers and,
therefore, will not be affected by these new regulations. Considering that (i) substantially all of our
customers in Mexico pay in Pesos and (ii) all the payment services made in connection with the cash
remittance from the United States are made in Pesos, these regulations have not had and we do not
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expect that they will have a significant impact in our operations. There can be no assurance that
regulations related to U.S. Dollar transactions will not be implemented in the future that could have a
material effect on our operations.
Legal Regime Applicable to our U.S. Operations
Our consumer finance operations in the United States are subject to various federal laws and
regulations, including the Federal Truth-In-Lending Act, the Federal Equal Credit Opportunity Act, the Fair
Credit Reporting Act, the Federal Fair Debt Collection Practices Act, the Federal Trade Commission Act,
Regulations B and Z of the Federal Reserve System, and to numerous state and local laws and
regulations. Among other things, these laws and regulations:

subject us to licensing and registration requirements in connection with our sales on credit
and installments;

limit the time length of our consumer lending transactions;

restrict the amount of the fees and commissions that we may charge our clients;

require full-disclosure of our lending practices to our customers;

prescribe procedures for the processing of credit applications, and regulate the entire lending
process;

regulate certain account collection practices and procedures; and

regulate the repossession of merchandise and its resale.
In addition, our retail operations are subject to the consumer protection, customs, zoning and other
laws and regulations applicable to the U.S. retail industry generally. For instance, we are subject to
federal and state laws and regulations that require retailers who offer merchandise at discount prices to
also offer merchandise at regular prices during certain periods. The violation of any of these laws and
regulations may result in the imposition of fines and penalties, and may entitle our customers to challenge
the validity of their payment obligations. We believe that we are currently in compliance with all the laws
and regulations applicable to our operations in the United States.
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Employees
The following table shows our number of full-time employees by area of activity and geographical
segment during the periods indicated.
As of September 30,
As of December 31,
2010
2011
2013
2012
By Activity:
Sales and operations
9,028
8,425
8,921
Credit and collections
3,149
2,740
2,858
9,273
3,172
Logistics and distribution
704
624
671
608
Furniture manufacturing
202
225
216
237
Management
464
411
369
559
Executive Officers
101
99
114
141
Banco Famsa
2,550
2,622
2,853
2,756
16,198
15,146
16,002
16,746
1,498
1,121
739
675
17,696
16,267
16,741
17,421
By Geographical Segment:
Famsa Mexico
Famsa USA
Total employees
In addition, from time to time we hire temporary employees, particularly around the Christmas holiday
season. As of December 31, 2012 and December 31, 2011, 31.2% and 30.8% of our employees,
respectively, were affiliated with labor unions. In addition, as of September 30, 2013, approximately
31.2% of our employees remain affiliated with labor unions. Our Mexican employees are affiliated with
five labor associations (centrales obreras) and 10 unions, and we have entered into a collective
bargaining agreement with each of them. Pursuant to Mexican law, collective bargaining agreements are
subject to renegotiation on an annual basis as with respect to salaries, and otherwise on a bi-annual
basis. We believe that our relationships with our labor unions are good. To date, we have never
experienced a strike or other labor disruption. Famsa USA’s employees are not unionized.
On November 30, 2012, the Federal Labor Law (Ley Federal del Trabajo) was amended in order to
incorporate, among other things, (i) labor principles recognized by the International Labor Organization
regarding non-discrimination towards women and the disabled in the labor environment, (ii) three new
employment arrangements (the “initial training contract,” the “contract on trial” and the “seasonal
discontinuous contract”), and (iii) the new subcontracting regime providing a legal framework for the
contracting of employees through third parties. While we do not expect these amendments to have a
material impact on us, we cannot predict with certainty the potential effects from the application of this
new law.
Property
We lease a substantial majority of the retail space used by our stores. We select the retail space used
by our stores based upon various considerations, including our desire to convey a uniform corporate
image and the need for total sales and warehouse areas sufficient to accommodate our increasing
number of product lines and services and merchandise volumes.
As of December 31, 2012, 87.4% of our stores were located on real property owned by independent
third parties, 10.5% were located on property leased from related third parties and 2.1% located on
property we own. As of December 31, 2011, 88.3% of our stores were located on real property owned by
independent third parties, 10.5% were located on property leased from related third parties and 1.2%
located on property we own. As of December 31, 2011and December 31, 2012, our total rental expense
amounted to Ps.728 million and Ps.763 million, respectively.
As of September 33, 2013, 87.5% of our stores were located on real property owned by independent
third parties, 10.4% were located on property leased from related third parties and 2.1% located on
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property we own. In addition, as of September 30, 2013 we had more than 389 short- and long-term lease
agreements in place. Leased properties are used primarily for our stores and as office space and
warehouse facilities.
The following table shows the principal real properties owned by us as of September 30, 2013.
Location
Use
Area
(in square
meters)
Cienega de Flores Polígono No.5, Monterrey, Nuevo León .....
Cienega de Flores Polígono No.2, Monterrey, Nuevo León
.................................................................................
Adolfo López Mateos No.1339, Monterrey, Nuevo León .........
Manuel Pérez Treviño No. 284, Saltillo, Coahuila ....................
Colón No. 607 Pte., Monterrey, Nuevo León............................
Pino Suárez and Ruperto Martínez, Monterrey, Nuevo León ..
Félix U. Gómez No. 850, Monterrey, Nuevo León....................
Zaragoza and Ocampo, Saltillo, Coahuila ................................
Cuauhtémoc No.1419 Norte, Monterrey, Nuevo León .............
Humberto Lobo (Opción San Pedro Mall), Nuevo León ...........
Ocampo and Hidalgo, Monclova, Coahuila ..............................
Cuauhtémoc No. 1408 Lado Sur, Monterrey, Nuevo León ......
Benito Juárez and Zaragoza, Sabinas, Coahuila .....................
Zaragoza No.449, Saltillo, Coahuila .........................................
Allende No. 424, Saltillo, Coahuila ...........................................
Zaragoza No. 447, Saltillo, Coahuila ..............................
Vacant
Vacant
Warehouse
Store
Store
Store
Parking lot
Store
Warehouse
Leased to unaffiliated third party
Store
Warehouse
Store
Store
Store
Store
1,082,433.0
69,078.8
7,409.9
3,520.6
1,922.5
1,910.4
1,640.0
1,315.2
1,288.0
1,000.0
939.0
802.7
700.0
298.3
249.0
143.3
Environmental Matters
In connection with the ownership and/or operation of the real properties where our stores are located,
we are subject to various Mexican and U.S. environmental protection laws and regulations, including
those concerning the handling and disposal of hazardous residues and materials and the clean-up of
polluting agents. We could be forced to incur unanticipated expenses as a result of the violation of such
laws or regulations, including clean-up expenses and administrative fines, or of third-party environmentalrelated claims. We believe that we currently conduct all of our business operations in compliance with
such laws and regulations.
On July 29, 2010, Article 17 of the Mexican Constitution was amended in order to allow class actions
to be brought in federal courts in connection with civil actions on matters related, among others, to
environmental law. Consequently, on August 30, 2011, the Federal Code of Civil Procedure and the
Mexican General Law of Ecological Balance and Environmental Protection (Ley General del Equilibrio
Ecológico y la Protección al Ambiente) were amended to incorporate class actions. Such amendments
became effective on March 1, 2012. As of the date of this Information Memorandum, no class action has
been resolved in connection with environmental matters.
Legal Proceedings
From time to time, we are involved in various types of legal proceedings that are incidental to our
business operations. There has been no governmental, legal or arbitration proceeding (including any
such proceedings which are pending or threatened of which we are aware), during the immediately
preceding twelve months, which may have, or have had during such time, significant effects on us and
our financial position or profitability.
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Insurance
Our policy is to purchase and carry all-risk insurance coverage for our property and business
operations. We currently maintain insurance policies in respect of all leased and owned real property and
all of our inventory, equipment and distribution fleet, with policy specifications and for insured limits that
we believe are appropriate in view of our exposure to the risk of loss, the cost of such insurance, the
regulatory requirements to which we are subject and the prevailing industry practice. However, we could
suffer losses that are not covered by our insurance policies or in amounts that exceed our insured limits.
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RELATED PARTY TRANSACTIONS
We have historically engaged and will continue to engage in a number of transactions with our
shareholders or their affiliates. All transactions with these related parties are entered into on an arm’s
length basis, on terms and conditions no more favorable than those available in the market through
independent third parties.
Real Property Leases
As of September 30, 2013, we had 42 long-term lease agreements in place with our controlling
shareholders and various entities controlled thereby, in respect of the retail space used by several of our
stores. As of such date, these lease agreements accounted for approximately 9.8% of the aggregate
amount of leased space used for our stores. The terms of all such agreements are substantially identical
and are consistent with standard industry practices and real estate market prices, except for certain lease
agreements entered into with Desarrollos Inmobiliarios Garza Valdez, S.A. de C.V. (“DIGV”), an entity
owned by our controlling shareholders, which contain provisions pursuant to which DIGV may terminate
the relevant lease in the event of our default with any of our obligations thereunder. In addition, DIGV has
pledged the amounts payable as rent by the Company and its subsidiaries under such lease agreements
as collateral for certain loan obligations incurred by it. As a result, in the event of default by the Company
or its subsidiaries under such lease agreements, DIGV and/or the holder of such debt will be entitled to
collect any and all rents through the expiration or termination of the relevant lease.
The terms of our lease agreements with our controlling shareholders and entities controlled by them
range from three to fifteen years, and monthly lease payments per lease range from approximately
Ps.24,000 to Ps.793,000. With exception of leases with indefinite terms, the average maturity date for
these leases as of September 30, 2013 was 12 years. Upon maturity, a majority of these lease
agreements are automatically renewable for successive additional one-year terms.
In addition, in respect to DIGV leases, DIGV has pledged the amounts payable as rent by the
Company and its subsidiaries under such lease agreements as collateral for certain loan obligations
incurred by it. As a result, in the event of default by the Company or its subsidiaries under such lease
agreements, DIGV and/or the holder of such debt will be entitled to collect any and all rents through the
expiration or termination of the relevant lease.
During the years ended December 31, 2011 and 2012, we made payments in the aggregate amount,
stated in millions of Pesos, of Ps.100.9 and Ps.101.1, respectively, under our lease agreements with
these related parties. In addition, for the nine-month period ended September 30, 2013, we made
payments in the aggregate amount of Ps. 75.7 million under our lease agreements with these related
parties.
Asset Management
We have entered into various asset management agreements with affiliates and other entities
controlled by our principal shareholders, pursuant to which such shareholders perform account collection
services and manage and invest the proceeds of such accounts on behalf of such entities, in exchange
for a commission payable on an annual basis. In addition, pursuant to these agreements we are required
to make available to such entities every year a revolving credit facility that bears interest at the rate of
9.3% per annum, payable in arrears at the end of each such year. For the year ended December 31,
2012, net interest expense related to these credit facilities totaled Ps.14.4 million.
We have entered into this kind of agreement with certain entities that are directly or indirectly
controlled by our controlling shareholder, including Inmobiliaria Garza Valdez, S.A. de C.V., Inmobiliaria
Garza Valdez de la Laguna, S.A. de C.V., Inmobiliaria Logar de Monterrey, S.A. de C.V., and Desarrollos
Inmobiliarios Garza Valdez, S.A. de C.V., among others.
105
During the years ended December 31, 2012 and 2011, we generated net financing expense in the
aggregate amount of Ps.14.9 million and Ps.7.7 million, respectively, under our asset management
agreements with these related parties. For the first nine months of 2013, net interest expense related to
these credit facilities totaled Ps.14.1 million.
Banco Famsa
Banco Famsa has set in place a series of policies and procedures with respect to its transactions with
our controlling shareholders and their affiliates, including qualitative and quantitative restrictions and
oversight and reporting and disclosure obligations in connection therewith. Among other things, such
policies and procedures impose restrictions to the granting of loans to our directors, executives and
employees other than as part of their employment benefit packages. Banco Famsa is in compliance with
these policies and procedures.
Article 73 of the Mexican Law of Credit Institutions regulates transactions by a bank with affiliates and
other “related party transactions”. Related party transactions may only be undertaken on market terms.
Loans made to related parties require the approval of 75% of the members of our board that are present
and the prior approval of our credit committee, and must be notified to the CNBV. As of September 30,
2013, loans granted by Banco Famsa to related parties pursuant to Article 73 of the Mexican Law of
Credit Institutions amounted to Ps.672 million (5.9%,of Banco Famsa’s total loan portfolio as of such
date). This amount is comprised of 2 separate loans described in the following sentence. Banco Famsa
entered into a) a three-year credit facility with Grupo Famsa on February 25, 2011 for an aggregate
principal amount of Ps.528 million at a variable interest rate of TIIE plus 2.3 percentage points with
maturity on February 24, 2014; and b) a revolving credit facility with Grupo Famsa on May 22, 2013,
which was amended to extend the maturity date and increase the amount outstanding under the facility
on August 21, 2013, for an aggregate principal amount of Ps.144 million at a variable interest rate of TIIE
plus 2.5 percentage points, with maturity on September 04, 2013.
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MANAGEMENT
General
The management of our business affairs and operations is entrusted to our board of directors. Our
corporate bylaws prescribe that our board of directors shall consist of no less than five and no more than
21 members, subject to determination at the general shareholders meeting. At least 25% of the directors
must be independent within the meaning assigned to such term by the Mexican Securities Market Law.
The members of our board of directors are appointed to one-year terms during our general annual
shareholders meeting and may be reelected. At such meeting, any shareholder or group of shareholders
representing at least 10% of our outstanding capital stock is entitled to appoint a director and an
alternate. All of our current directors and alternate directors were elected or ratified on April 19, 2013.
A quorum at any meeting of the board of directors is formed with the attendance of a majority of its
members and actions are validly taken by the affirmative vote of a majority of the members present. In the
event of an impasse, the Chairman of the Board casts the deciding vote.
Board of Directors
Our board of directors currently consists of nine members, four of whom are considered independent.
The business address for each member of the board of directors is the registered address of the Company.
The following table sets forth the name, title, age and the year elected to office of each of the current board
members.
Title
Age
Director
since
Chairman of the Board
Director
Director
Director
Independent Director
Independent Director
Independent Director
Independent Director
86
51
50
44
63
61
70
48
1993
1993
1993
1993
1998
2006
2006
2011
Name
Humberto Garza González
Humberto Garza Valdez
Hernán Javier Garza Valdez
Oziel Mario Garza Valdez
Salvador Kalifa Assad
Jorge Luis Ramos Santos
Alejandro Sepúlveda Gutiérrez
Bernardo Guerra Treviño
Humberto Garza González is our founder.
Humberto Garza Valdez has been with the Company for the past 27 years and is Humberto Garza
González’s son. He has been our President for the past 16 years, having previously served as Deputy
President. He holds a Bachelor’s degree in Business Administration from the University of Monterrey
(UDEM) and a Masters in Executive Business Administration from the Institute of Executive Business
Management (IPADE).
Hernán Javier Garza Valdez has been with the Company for the past 26 years and is Humberto
Garza González’s son. He holds a Bachelor’s degree in Economics from the Monterrey Institute of
Technology and Professional Studies (ITESM), an M.B.A. from the University of Notre Dame and a
Masters in Information Systems from ITESM.
Oziel Mario Garza Valdez has been with the Company for the past 19 years and is Humberto Garza
González’s son. He has been our Vice President of Clothing and Real Estate for the past 14 years,
having previously served as Commercial Director for the Monterrey Region. He holds a Bachelor’s degree
in Business Administration from UDEM and a Masters in Executive Business Administration from IPADE.
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Salvador Kalifa Assad has been an independent director since 1997. He currently runs his own
consulting firm, Consultores Económicos Especializados, S.A. de C.V., and provides economic analysis
for several Mexican newspapers, for which he also writes editorial columns. He was Director of Economic
Studies at Grupo Alfa for seven years and collaborated with Grupo Financiero GBM-Atlántico. He holds a
Bachelor’s degree in Economics from Instituto Tecnológico y de Estudios Superiores de Monterrey
(ITESM), as well as Master’s and Doctoral degrees in Economics from Cornell University. He has also
been a member of the Boards of Directors of Grupo IMSA, Verzatec and Banorte.
Jorge Luis Ramos Santos has been an independent director since 2006. He currently represents
Heineken Americas in its joint ventures and is a strategic advisor to that company. He has served as
Deputy President of Heineken Americas, as Chief Executive Officer of Cervecería Cuauhtémoc
Moctezuma and, before that, as Human Resources Vice President and Chief Commercial Officer of
Femsa Cerveza. He holds Bachelor’s degrees in Accounting and Business Administration from Instituto
Tecnológico y de Estudios Superiores de Monterrey (ITESM) and a Master in Business Administration
from the Wharton School of the University of Pennsylvania. He currently sits on the boards of several
private and public companies in Latin America, as well as of several business organizations and
universities in Mexico.
Alejandro Sepúlveda Gutiérrez has been an independent director since 2006. He has served as Vice
President of Financial Information at Alfa, S.A. de C.V., and Corporate Controller and Deputy Vice
President, Costs, at Fundidora Monterrey. He holds a degree in Accounting from ITESM and a Master in
Business Administration from Texas Christian University and has completed course studies on executive
business management at IPADE. He is member of the Committee on Financial Reporting Practices of the
Mexican Institute of Finance Executives, Monterrey Division.
Bernardo Guerra Treviño has been an independent director since 2011. He is a founding member
and has been Director General of Morales y Guerra Capital Asesores (MG Capital) since 1995. He serves
as an independent director of Banco Famsa and Axtel, S.A.B. de C.V., where he is also the President of
the Corporate Practices and Auditing committees. He is also a member of the administrative committee
and President of the Corporate Practices and Auditing committees of Promotora Ambiental, S.A.B. de
C.V. He holds an Industrial Engineering degree from ITESM.
Board Practices
Pursuant to the Mexican Securities Market Law and our corporate bylaws, our board of directors
must, among other things:

determine our general business strategy;

approve (i) policies and guidelines for the use of our assets by related parties, and (ii) any
transaction with related parties, subject to certain limited exceptions, in both cases taking
into consideration the opinion of the Audit Committee;

approve unusual or non-recurrent transactions and any transactions that imply the
acquisition or sale of assets with a value equal to or in excess of 5% of our consolidated
assets, or the provision of collateral or guarantees or the assumption of liabilities equal to or
in excess of 5% of our consolidated assets;

appoint and remove our chief executive officer, and approve the policies for the appointment
of our executive officers;

approve our financial statements, accounting policies and internal control systems;

approve the appointment of our external auditors; and
108

approve the policies for the disclosure of information.
The Mexican Securities Market Law also permits us to appoint a substitute director for each
appointed director. The substitute director of an independent appointed director must also be
independent. The Mexican Securities Market Law also imposes duties of care and loyalty on our
directors, including our substitute directors.
The duty of care requires that our directors act in good faith and in our best interest, and obtain from
our chief executive officer, other executive officers and external auditors sufficient information based upon
which to make their decisions. The duty of care is discharged, primarily, by attending the meetings of the
board of directors and its committees and disclosing material information in the possession of the relevant
director. Failure to act with care by any one or more directors subjects the relevant directors to joint
liability for damages and losses caused to the Company and its subsidiaries.
The duty of loyalty primarily consists of a duty to maintain the confidentiality of information received in
connection with the performance of a director’s duties and to abstain from discussing or voting on matters
where the director has a conflict of interest. In addition, the duty of loyalty is breached if a shareholder or
group of shareholders is knowingly favored or if, without the express approval of the board of directors, a
director takes advantage of a corporate opportunity. The duty of loyalty is also breached if the director (i)
fails to report to the Audit Committee and our external auditors any irregularity that may come to his
attention, or (ii) discloses false or misleading information or fails to register any transaction on the
Company’s records that could affect its financial statements. The violation of the duty of loyalty subjects
the offending director to joint liability for damages and losses caused to the Company and its subsidiaries,
and may subject the offending director to criminal penalties including a prison term of up to 12 years.
Claims for breach of the duty or care of the duty of loyalty may be brought solely for the benefit of the
Company, by the Company or by shareholders representing at least 5% of our outstanding shares.
Criminal complaints may only be brought by the SHCP, subject to the opinion of the CNBV.
The liabilities specified above will not be applicable if the director acted in good faith and (i) complied
with the requirements set forth in the applicable laws and our bylaws in connection with the matters
requiring approval by our board of directors or its committees, (ii) relied upon information provided by our
executive officers or independent experts, and (iii) selects the more adequate alternative in good faith or
in a case where the negative effects of such decision may not have been foreseeable.
Our audited consolidated financial statements for the year ended December 21, 2012 have been
approved by our board of directors and were approved by our shareholders at the annual ordinary
shareholders’ meeting held on April 19, 2013.
With respect to each of our directors, except as otherwise described in this Information Memorandum,
there are no conflicts of interests between such director’s duties to the Company, which are described
above, and his private interests.
Secretary
Since December 31, 2005, the Secretary of the board of directors is Luis Gerardo Villarreal Rosales.
He is not a member of the board of directors.
Audit Committee
Under the Mexican Securities Market Law, all members of our Audit Committee must be independent,
and two such members must meet the criteria to be considered as financial experts. The following
persons are current members of our Audit Committee: Alejandro Sepúlveda Gutiérrez (Chairman) was
ratified on April 19, 2013, Salvador Llarena Arriola (substitute director) was elected on April 27, 2007 and
Jorge Luis Ramos Santos was elected on October 26, 2010.
109
The duties of the Audit Committee include, among others:

evaluating our internal control and internal audit systems;

submitting to the board of directors and the shareholders meeting, for approval, an annual
report of activities;

reviewing our financial statements and, if applicable, recommending their approval to the
board of directors; and

overseeing the enforcement of the resolutions adopted by our shareholders meeting and
board of directors.
The chairman of the Audit Committee prepares an annual report to our board of directors with respect
to its activities and findings.
Corporate Practices Committee
As in the case of our Audit Committee, in accordance with the Mexican Securities Market Law all
members of our Corporate Practices Committee must be independent. The current members of our
Corporate Practices Committee are Alejandro Sepulveda Gutiérrez (Chairman) and Jorge Luis Ramos
Santos.
The Corporate Practices Committee is required to:

oversee the performance of our executive officers and the compensation awarded to such
executive officers;

provide to the board of directors opinions in connection with any material transaction with
related parties;

call shareholders meetings and submit thereto any matter as it may deem appropriate; and

assist the board of directors in the preparation of the information required by law.
The chairman of the Corporate Practices Committee prepares an annual report to our board of
directors with respect to its activities and findings.
Executive Officers
The following table sets forth the name, title, age and years with the company of our executive
officers.
Name
Humberto Garza Valdez
Oziel Mario Garza Valdez
Luis Gerardo Villarreal Rosales
Abelardo García Lozano
Héctor Padilla Ramos
Héctor Hugo Hernández Lee
Title
Chief Executive Officer
Vice President, Clothing and Real Estate
Chief Operating Officer
Chief Financial Officer
Vice President, Purchases
Vice President, Human Resources
110
Age
52
45
63
53
53
49
Years with
the
Company
28
20
16
24
16
14
Martin Urbina Villarreal
Ignacio Ortiz Lambretón
Angel Alfonso de Soto Hernández
Joaquin Aguirre Carrera
Manuel Rodríguez González
General Director, Famsa Mexico
General Director, Famsa USA
Director of Consumer Banking
Marketing Director
Chief Information Officer
54
59
46
44
61
11
14
2
6
16
Luis Gerardo Villarreal Rosales has served as our Chief Operating Officer for the past 16 years. Prior
to joining the Company, he served as Corporate Controller at Hylsa S.A. de C.V. for eight years and as
Director of Finance and Administration and, later on, President of Sigma Alimentos, S.A. de C.V., for a
total of nine years. He holds a Bachelor´s degree in Chemical Engineering from ITESM, a Bachelor´s
degree in Accounting and Auditing from Universidad Regiomontana a Master in BusinessAdministration
from ITESM and has completed several courses on executive business management at the University of
Texas and IPADE.
Abelardo García Lozano has worked with the Company for the past 24 years. He has served as our
Chief Financial Officer for the past 17 years and, previously, as Regional Manager and Vice President of
Financial Information. Before joining the Company, he served as Administrative Director at Plastic Art
Angel. He holds a Bachelor’s degree in Accounting and Auditing from the Universidad de Monterrey and
is a Certified Public Accountant. He also holds a degree in Finance from ITESM and a degree in Taxation
from the Instituto de Especialización para Ejecutivos (IEE).
Héctor Padilla Ramos has served as our Vice President of Merchandise for the past 16 years. Prior to
joining the Company, he served as Vice President of Merchandise at Grupo Mazon, S.A. de C.V. for nine
years. He holds a Bachelor’s degree in Industrial Psychology from Northwestern University, a Master in
Business Administration from the University of Sonora and a Diploma in Marketing and Finance from
ITESM at Sonora.
Héctor Hugo Hernández Lee has served as our Vice President of Human Resources for the past 14
years. Prior to joining the Company, he served as National Director of Human Resources at Danone de
México, S.A. de C.V. for three years and as Vice President of Human Resources at Sigma Alimentos S.A.
de C.V. for six years. He holds a Bachelor’s degree in Industrial Relations and a Diploma in
Organizational Development, both from Universidad Iberoamericana.
Martin Urbina Villarreal has been with the Company for 11 years. He currently serves as Vice
President of Famsa Mexico and previously as Vice President of Commercial Banking with Banco Famsa
and as Vice President of Northern Regional Operations for Famsa. Prior to joining the Company, he was
General Director of Precision Tune Mexico for five years and Commercial Vice President for the Central
Region for Grupo Gamesa for four years. He holds a Bachelor’s degree in Business Administration from
ITESM and has completed the AD1 program at IPADE.
Ignacio Ortíz Lambretón has served as Vice President of Famsa USA for the past 14 years. Prior to
joining the Company, he worked in Grupo Protexa, S.A. de C.V. for eight years, where he last held the
position of President of the Tourism and Real Estate Division. Previously, he held various positions in
Alfa, S.A. de C.V., and also served as General Director of Church’s and Little Caesars Pizza Northeast
Division, where he was responsible for the operations of 14 stores. He holds a Degree in Systems and
Industrial Engineering from ITESM and a Master in Business Administration from the Wharton School of
Business of the University of Pennsylvania.
Angel Alfonso de Soto Hernández has been the Vice President of Banco Famsa since April 2012,
after joining the bank to serve as Director of Consumer Banking earlier in 2012. Prior to joining the
Company, he served as Chief Executive Officer of CAM & Credito Inmobiliario-Americas for four years
and worked at CAMGE Bank in Spain for three years, where he held the positions of Chief Risk Officer
and Chief Compliance Officer. He also worked at GE Capital for ten years, serving as Chief Risk Officer
and Chief Compliance Officer in several European countries. He holds a Bachelor’s Degree in
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Mechanical Engineering with a concentration in Industrial Engineering from Universidad Anahuac and a
Master in Business Administration from ITAM.
Joaquin Aguirre Carrera has worked with Grupo Famsa for the past 6 years, and has served as Vice
President of Marketing since September 2011 and, previously, as Vice President of New Business and
Marketing at Banco Famsa. Prior to joining the Company, he served as Marketing Director at Grupo
Financiero Banorte for 10 years and as Subdirector of Strategic Planning at Grupo Financiero Bancomer
for another 10 years. He holds a degree in Business Administration and a Master in Business
Administration with a specialty in Marketing from the La Salle University.
Manuel Rodríguez González has served as our Chief Information Officer for the past 16 years. Prior
to joining the company he served as an IT Manager for more than 15 years in several companies,
primarily of Grupo Alfa, S.A.B. de C.V. He holds a Bachelor’s degree in Industrial Engineering from the
Universidad Autónoma de Nuevo León (UANL) and has completed several courses on specialized
studies in the Escuela de Graduados en Administración EGAII.
Pursuant to the Mexican Securities Market Law, our executive officers are subject to duty of care and
duty of loyalty obligations. See the discussion of these duties under “Management—Board of Directors—
Board Practices” above. With respect to each of our executive officers, except as otherwise described in
this Information Memorandum or previously disclosed by such officer, there are no conflicts of interests
between such officer’s duties to the Company, which are described above, and his private interests.
Compensation of Our Directors and Executive Officers
By resolution of the annual shareholders meeting held April 19, 2013, each member of our foard of
directors is entitled to receive Ps.35,000 as compensation for each board meeting attended by such
director.
We pay our executive officers, on an annual basis, in addition to their salaries and other fixed
compensation, a performance bonus equal to up to 33% of their fixed compensation, based on each
executive’s individual performance and our results of operations for the year. During the year ended
December 31, 2012, the aggregate amount of all fixed and variable compensations paid to our executive
officers, as a group, was Ps.105.7 million.
Stock Plan
In May 2012, the Technical Committee of Trust No. 80497, which is comprised of Humberto Garza
Valdez, Oziel Mario Garza Valdez and Luis Gerardo Villarreal Rosales, approved a modification to our
April 2006 stock plan, pursuant to which up to 3,123,546 common, nominative shares with no par value
could be awarded to executives, employees and persons who render services either to Famsa or to its
subsidiaries. The main objectives of the stock plan are to:

motivate beneficiaries to achieve an outstanding performance;

allow beneficiaries to be part of the success of the business;

bring the interests of the beneficiaries in line with those of Famsa;

grant an important incentive to the beneficiaries of the stock plan; and

to retain the services of the beneficiaries of the stock plan.
Awards under the stock plan are determined by the Technical Committee of Trust No. 80497. As of
December 31, 2012, a total of 3,113,256 common, nominative shares with no par value had been granted
under the stock plan.
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Share Ownership
The following table sets forth the beneficial ownership of our capital stock by our directors and senior
management as of October 31, 2013.
Name
Humberto Garza González
Humberto Garza Valdéz
Hernán Javier Garza Valdéz
Oziel Mario Garza Valdéz
Total
Number of
Percentage of
Common
Common
Shares Owned
Shares Outstanding
275,600,172
62.72%
1,298,325
0.30%
648,325
0.15%
648,325
0.15%
277,130,147
63.45%
Independent Auditors
Our independent auditors are PricewaterhouseCoopers, S.C., who have reviewed and audited our
consolidated financial statements as of and for the years ended December 31, 2011 and 2012, included
elsewhere in this Information Memorandum, and issued an unqualified opinion as the accuracy and
sufficiency of the information contained therein. PricewaterhouseCoopers, S.C. is a member of
numerous associations, including the Mexican Institute of Public Accountants (Instituto Mexicano de
Contadores Públicos, A. C.) and the National Association of Fiscal Specialists (Asociación Nacional de
Especialistas Fiscales, A. C.). The address of PricewaterhouseCoopers, S.C.’s principal offices is
Avenida Rufino Tamayo 100, Col. Valle Oriente, San Pedro Garza García, N.L. México, C.P.66269.
Principal Shareholders
Our issued capital stock is divided into 439,447,294 shares, of which 330,357,085 are Series A, Class
I Shares and 109,090,909 are Series A, Class II Shares. The table below sets forth information
concerning the percentage of our capital stock owned by any person known to us to be the owner of 5%
or more of any class of our voting securities and our other shareholders as of October 21, 2013. Our
major shareholders do not have different or preferential voting rights with respect to the shares they own.
Series A, Class I Shares
Identity of owner
Series A, Class II
Shares
Shares
Number
%
Number
%
Number
%
210,517,647
63.77
65,082,525
59.66
275,600,172
62.75
1,173,300
0.36
2,070,000
1.9
3,243,300
0.74
Public Investors
118,406,439
35.87
41,938,383
38.44
160,344,822
36.51
Total
330,097,385
439,188,294
100%
Control Trusts
(1)
(2)
Other members of the Garza Valdez family
109,090,909
_______________
(1)
Trust No. F/007 and Trust No. F/715 (the “Control Trusts”) were entered into on April 7, 2005 and May 17, 2007, respectively,
by Humberto Garza González and Graciela Valdez Sánchez de Garza, with Humberto Garza Valdez, Graciela Valdez Sánchez
de Garza and certain immediate family members as beneficiaries. Under the terms of the Control Trusts, voting in respect of
the shares subject to the Control Trusts must be exercised by the Trustee as instructed by Humberto Garza González and,
upon his death, as instructed by a committee comprised of various members of the Garza Valdez family. The Control Trusts
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also contain standard provisions relating to, among other things, preemptive rights in the context of future stock issuances and
limitations on transfer. The Control Trusts have a duration of 20 years and may be revoked at any time by Humberto Garza
González.
(2)
Humberto Garza Valdez, Hernán J. Garza Valdez, Graciela L. Garza Valdez and Oziel Mario Garza Valdez.
114
TAXATION
General
The following summary contains a description of the material Mexican federal tax consequences of
the purchase, ownership and disposition of the Notes by certain non-Mexican resident holders. This
summary does not purport to be a comprehensive description of all the Mexican federal income tax
considerations that may be relevant to a decision to purchase, hold or dispose of the Notes and does not
address all of the Mexican federal tax consequences that may be applicable to specific holders of the
Notes. The summary does not address any tax consequences under the laws of any state, municipality or
locality of Mexico or the laws of any taxing jurisdiction other than the federal laws of Mexico.
This summary is based on the Mexican Federal Income Tax Law (Ley del Impuesto sobre la Renta),
the Federal Fiscal Code (Código Fiscal de la Federación) and regulations in effect on the date of this
offering memorandum, all of which are subject to change, possibly with retroactive effect, or to new or
different interpretations, which could affect the continued validity of this summary. The current tax regime
could be modified by the competent authorities in Mexico during the term of the Notes. We assume no
obligation to inform about modifications in the Mexican federal tax provisions applicable throughout the
term of the Notes.
Prospective investors, including Mexican resident investors, should consult their own tax advisors as
to the Mexican and foreign tax consequences of the purchase, ownership and disposition of the Notes,
including, in particular, the effect of any foreign (non-Mexican), state or local tax laws or under any
applicable double taxation treaty.
The tax implications described herein may vary depending on the applicability of a treaty for the
avoidance of double taxation. Mexico has also entered into or is negotiating several double taxation
treaties with various countries that may have an impact on the tax treatment of the purchase, ownership
or disposition of the Notes. Prospective purchasers of the Notes should consult their own tax advisors as
to the tax consequences, if any, of the application of any such treaties.
Mexican Federal Tax Considerations
General
The following is a general summary of the principal Mexican federal income tax consequences of the
acquisition, ownership and disposition of the Notes by holders that are not residents of Mexico, for
Mexican federal tax purposes, and that do not hold such Notes through a permanent establishment in
Mexico for tax purposes, to which income under the Notes is attributable; for purposes of this summary,
each such holder is referred to as a “foreign holder”.
For purposes of Mexican taxation, an individual or corporation that does not satisfy the requirements
to be considered a resident of Mexico for tax purposes, as specified below, is deemed a non-resident of
Mexico for tax purposes and a foreign holder for purposes of this summary.
An individual is a resident of Mexico for tax purposes, if he/she established his/her home in Mexico.
When the individual in question has a home in another country, the individual will be deemed a resident in
Mexico if his/her center of vital interests is located in Mexican territory. This will be deemed to occur if
(i) more than 50.0% of the aggregate income realized by such individual in the calendar year is from a
Mexican source or (ii) the principal center of his/her professional activities is located in Mexico. Mexican
nationals who filed a change of tax residence to a country or jurisdiction that does not have a
comprehensive exchange of information agreement with Mexico and where his/her income is subject to a
preferential tax regime as defined by Mexican law, will be considered Mexican residents for tax purposes
during the year of the filing of notice of such residence change and during the following three years.
115
A legal entity is a resident of Mexico if it maintains the principal administration of its business or the
effective location of its management in Mexico. Under applicable regulations, the principal administration
of a business or the effective location of management is deemed to exist in Mexico if the individual or
individuals having the authority to decide or execute the decisions of control, management, operation or
administration are in Mexico.
If a legal entity or an individual is deemed to have a permanent establishment in Mexico for Mexican
tax purposes, all income attributable to that permanent establishment will be subject to Mexican income
taxes, in accordance with applicable tax laws.
Payments of Interest
Pursuant to the Mexican Income Tax Law, payments of interest on the Notes (including original issue
discount, if any, which is deemed to be interest) made by us to foreign holders will be subject to Mexican
withholding tax at a rate of 4.9%, if, as expected, the following requirements are met:

issuance of the Notes (including the principal characteristics of the Notes) is notified to the CNBV
pursuant to Article 7 of the Mexican Securities Market Law and the information requirements
related to such registration established in the general rules issued by the Tax Administrative
Service (Servicio de Administración Tributaria, or “SAT”) are duly complied with;

the Notes, as expected, are placed outside of Mexico through banks or brokerage houses, in a
country with which Mexico has in force a treaty for the avoidance of double taxation (which
currently includes Luxembourg);

we timely file with the SAT, fifteen (15) days after the placement of the Notes, information
regarding such placement, and the information requirements specified from time to time by SAT;
and

we timely file with the SAT quarterly filings with respect to interest paid, income tax withheld and
certain other related information relative to the immediately preceding quarter during the life of
the Notes.
If any of the above mentioned requirements is not met, the Mexican withholding tax will be 10.0% or
higher.
In addition, if the effective beneficiaries, whether acting directly or indirectly, severally or jointly, with
related parties receiving more than 5% of the aggregate amount of each interest payment under the
Notes are (i) shareholders holding 10% or more of our voting stock, directly or indirectly, severally or
jointly, with related parties, or (ii) corporations or other entities having more that 20% of their stock owned
directly or indirectly, jointly or severally, by persons related to us, the Mexican withholding tax will be
applied at a rate of 35%.
Payments of interest on the Notes made by us to non-Mexican pension and retirement funds will be
exempt from Mexican withholding tax, provided that:

such fund is duly-incorporated pursuant to the laws of its country of residence and is the effective
beneficiary of the interest payment; and

such income is exempt from income tax in its country of tax residence.
Holders or beneficial owners of the Notes may be requested to, subject to specified exceptions and
limitations, provide certain information or documentation necessary to enable us to apply the appropriate
Mexican withholding tax rate on interest payments under the Notes made by us to such holders or
beneficial owners. In the event that the specified information or documentation concerning the holder or
116
beneficial owner, if requested, is not timely provided, we may withhold Mexican tax from interest
payments on the Notes to that holder or beneficial owner at the maximum applicable rate.
Payments of Principal
Under Mexican Income Tax Law, payments of principal on the Notes made by us to a foreign holder
will not be subject to Mexican income tax withholding.
Taxation of Capital Gains
Under the Mexican Income Tax Law and regulations thereunder, capital gains resulting from the sale
or other disposition of the Notes by a foreign holder to another foreign holder are not taxable in Mexico.
Gains resulting from the sale of the Notes by a foreign holder to a Mexican resident for tax purposes or to
a foreign holder deemed to have a permanent establishment in Mexico for tax purposes will be subject to
the Mexican taxes pursuant to the rules described above with respect to interest payments.
Other Mexican Taxes
Under current Mexican tax laws, generally there are no estate, inheritance, succession or gift taxes
applicable to the acquisition, ownership or disposition of the Notes by a foreign holder. Gratuitous
transfers of the Notes in certain circumstances may result in the imposition of a Mexican federal tax upon
the recipient. There is no Mexican stamp, issuer registration or similar taxes or duties payable by foreign
holders of the Notes with respect to the Notes.
The above description is not intended to constitute a complete analysis of all Mexican federal tax
consequences relating to the acquisition, ownership and disposition of the Notes. Prospective purchasers
of the Notes should consult their own tax advisors concerning the tax consequences of their particular
situations.
117
SELLING RESTRICTIONS
General
Pursuant to a dealer agreement applicable to the Notes (the “Dealer Agreement”), each Dealer has
represented, warranted and agreed that it will observe all applicable laws and regulations in any
jurisdiction in which it may offer, sell or deliver Notes, and it will not directly or indirectly offer, sell, resell,
reoffer or deliver Notes or distribute any Disclosure Documents (as defined in the Dealer Agreement),
circular, advertisement or other offering material in any country or jurisdiction, except under
circumstances that will result, to the best of its knowledge and belief after due inquiry, in compliance with
all applicable laws and regulations.
The United States of America
The Notes have not been and will not be registered under the Securities Act or with any securities
regulatory authority of any state or territory within the jurisdiction of the United States and may not be
offered or sold within the United States or to, or for the account or benefit of, U.S. persons except in
accordance with Regulation S or pursuant to an exemption from the registration requirements of the
Securities Act. Each Dealer has represented that it has offered and sold the Notes, and agrees that it will
offer and sell the Notes, only in accordance with Rule 903 of Regulation S under the Securities Act.
Accordingly, neither it, its affiliates nor any persons acting on its or their behalf have engaged or will
engage in any directed selling efforts with respect to the Notes, and it and they have complied and will
comply with the offering restrictions requirement of Regulation S. Each Dealer has agreed that, at or prior
to confirmation of sale of the Notes, it will have sent to each distributor, dealer or person receiving a
selling concession, fee or other remuneration that purchases Notes from it a confirmation or notice to
substantially the following effect:
“The Notes covered hereby have not been registered under the U.S. Securities Act of
1933 (the “Securities Act”) and may not be offered or sold within the Unites States or to,
or for the account or benefit of, U.S. persons. Terms used above have the meanings
given to them by Regulation S under the Securities Act.”
European Economic Area
In relation to each Member State of the EEA that has implemented the Prospectus Directive (each, a
“Relevant Member State”), each Dealer has represented and agreed that with effect from and including
the date on which the Prospectus Directive is implemented in that Relevant Member State (the “Relevant
Implementation Date”) it has not made and will not make an offer of the Notes to the public in that
Relevant Member State prior to the publication of a prospectus in relation to the Notes that has been
approved by the competent authority in that Relevant Member State or, where appropriate, approved in
another Relevant Member State and notified to the competent authority in that Relevant Member State,
all in accordance with the Prospectus Directive, except that it may, with effect from and including the
Relevant Implementation Date, make an offer of the Notes to the public in that Relevant Member State
at any time (i) to legal entities that are authorized or regulated to operate in the financial markets or, if
not so authorized or regulated, whose corporate purpose is solely to invest in securities; (ii) to any legal
entity which has two or more of (a) an average of at least 250 employees during the last financial year;
(b) a total balance sheet of more than €43,000,000 and (c) an annual net turnover of more than
€50,000,000, as shown in its last annual or consolidated accounts; or (iii) in any other circumstances that
118
do not require the publication by the Issuer of a prospectus pursuant to Article 3 of the Prospectus
Directive.
For the purposes of the immediately preceding paragraph, the expression an “offer of the Notes to the
public” in relation to any Notes in any Relevant Member State means the communication in any form and
by any means of sufficient information on the terms of the offer and the Notes to be offered so as to
enable an investor to decide to purchase or subscribe the Notes, as the same may be varied in that
Member State by any measure implementing the Prospectus Directive in that Member State, and the
expression Prospectus Directive means Directive 2003/71/EC and includes any relevant implementing
measure in each Relevant Member State.
The United Kingdom
Each Dealer has represented and agreed that (i) it has complied and will comply with all applicable
provisions of the Financial Services Act 1986 with respect to anything done by it in relation to any Notes
in, from or otherwise involving the United Kingdom and (ii) it has only issued or passed on, and will only
issue or pass on, in the United Kingdom any document received by it in connection with any issue of the
Notes to a person who is of a kind described in Article 11(3) of the Financial Services Act 1986
(Investment Advertisements (Exemptions) Order 1996 (as amended)) or who is a person to whom such
document may otherwise lawfully be issued or passed on.
Mexico
The Notes have not been and will not be listed in the BMV or registered with the RNV and, therefore,
the Notes may not be offered or sold publicly or otherwise be the subject of brokerage activities in
Mexico, except pursuant to a private placement exemption set forth under Article 8 of the Mexican
Securities Market Law.
Hong Kong
Each Dealer has represented and agreed that (i) it has not offered or sold and will not offer or sell in
Hong Kong, by means of any document, any Notes other than (a) to persons whose ordinary business is
to buy or sell shares or debentures (whether as principal or agent); (b) to “professional investors” as
defined in the Securities and Futures Ordinance (Cap. 571) of Hong Kong and any rules made under that
Ordinance; or (c) in other circumstances which do not result in the document being a “prospectus” as
defined in the Companies Ordinance (Cap. 32) of Hong Kong or which do not constitute an offer to the
public within the meaning of that Ordinance; and (ii) it has not issued or had in its possession for the
purposes of issue, and will not issue or have in its possession for the purposes of issue, whether in Hong
Kong or elsewhere, any advertisement, invitation or document relating to the Notes, which is directed at,
or the contents of which are likely to be accessed or read by, the public of Hong Kong (except if permitted
to do so under the securities laws of Hong Kong) other than with respect to Notes that are or are intended
to be disposed of only to persons outside Hong Kong or only to “professional investors” as defined in the
Securities and Futures Ordinance and any rules made under that Ordinance.
Kingdom of Denmark
Each Dealer has represented and agreed that the Notes have not been offered or sold and will not be
offered, sold or delivered directly or indirectly in the Kingdom of Denmark by way of a public offering,
119
unless in compliance with the Danish Securities Trading Act, Consolidation Act No. 1077 of 4 September
2007, as amended from time to time, and any Orders issued thereunder.
Singapore
The Information Memorandum has not been registered as a prospectus with the Monetary Authority
of Singapore (the “MAS”) under the Securities and Futures Act, Chapter 289 of Singapore (the “Securities
and Futures Act”). Accordingly, the Notes may not be offered or sold or made the subject of an invitation
for subscription or purchase nor may the Information Memorandum or any other document or material in
connection with the offer or sale or invitation for subscription or purchase of such Notes be circulated or
distributed, whether directly or indirectly, to any person in Singapore other than (i) to an institutional
investor pursuant to Section 274 of the Securities and Futures Act, (ii) to a relevant person, or any person
pursuant to Section 275(1A) of the Securities and Futures Act, and in accordance with the conditions
specified in Section 275 of the Securities and Futures Act, or (iii) pursuant to, and in accordance with the
conditions of, any other applicable provision of the Securities and Futures Act.
Each of the following relevant persons specified in Section 275 of the Securities and Futures Act that
has subscribed for or purchased Notes, namely a person who is (i) a corporation (which is not an
accredited investor) the sole business of which is to hold investments and the entire share capital of
which is owned by one or more individuals, each of whom is an accredited investor; or (ii) a trust (where
the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary
is an accredited investor, should note that shares, debentures and units of shares and debentures of that
corporation or the beneficiaries' rights and interest in that trust shall not be transferable for six months
after that corporation or that trust has acquired the Notes under Section 275 of the Securities and Futures
Act except: (a) to an institutional investor under Section 274 of the Securities and Futures Act or to a
relevant person, or any person pursuant to Section 275(1A) of the Securities and Futures Act, and in
accordance with the conditions, specified in Section 275 of the Securities and Futures Act; (b) where no
consideration is given for the transfer; or (c) by operation of law.
120
TRANSFER RESTRICTIONS
The Notes have not been registered under the Securities Act and may not be offered or sold
within the United States or to, or for the account or benefit of, U.S. persons except pursuant to an
exemption from, or in a transaction not subject to, the registration requirements of the Securities Act.
Accordingly, the Notes are being offered and sold only outside the United States to persons other
than U.S. persons, or foreign purchasers, which term shall include dealers or other professional
fiduciaries in the United States acting on a discretionary basis for foreign beneficial owners (other
than an estate or trust), in reliance upon Regulation S under the Securities Act.
By its purchase of Notes, each purchaser of Notes will be deemed to:
(1)
represent that it is purchasing the Notes for its own account or an account with respect to
which it exercises sole investment discretion and that it and any such account is a foreign
purchaser that is outside the United States (or a foreign purchaser that is a dealer or other
fiduciary as referred to above);
(2)
acknowledge that the Notes have not been registered under the Securities Act and may not
be offered or sold within the United States or to, or for the account or benefit of, U.S.
persons except as set forth below;
(3)
agree that it will deliver to each person to whom it transfers Notes notice of any restriction
on transfer of such Notes;
(4)
if it is a foreign purchaser outside the United States, (a) understand that the Notes will be
represented by the Regulation S global note and that transfers are restricted as described
below and (b) represent and agree that it will not sell short or otherwise sell, transfer or
dispose of the economic risk of the Notes into the United States or to a U.S. person; and
(5)
understand that until registered under the Securities Act, the Notes (other than those
issued to foreign purchasers or in substitution or exchange therefor) will bear a legend to
the following effect unless otherwise agreed by us and the holder thereof:
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE “SECURITIES ACT”) AND MAY NOT BE OFFERED, SOLD, PLEDGED OR
OTHERWISE TRANSFERRED EXCEPT IN ACCORDANCE WITH THE FOLLOWING SENTENCE.
BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE ACQUIRER
(1)
REPRESENTS THAT IT IS NOT A U.S. PERSON (WITHIN THE MEANING OF
REGULATION S UNDER THE SECURITIES ACT) AND
(2)
AGREES FOR THE BENEFIT OF THE COMPANY THAT IT WILL NOT OFFER, SELL,
PLEDGE OR OTHERWISE TRANSFER THIS NOTE OR ANY BENEFICIAL INTEREST HEREIN,
EXCEPT IN ACCORDANCE WITH THE SECURITIES ACT AND ANY APPLICABLE SECURITIES
LAWS OF ANY STATE OF THE UNITED STATES AND ONLY
(A) TO THE COMPANY,
121
(B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BECOME EFFECTIVE
UNDER THE SECURITIES ACT,
(C) IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 OF
REGULATION S UNDER THE SECURITIES ACT, OR
(D) PURSUANT TO AN EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144
UNDER THE SECURITIES ACT OR ANY OTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.
PRIOR TO THE REGISTRATION OF ANY TRANSFER IN ACCORDANCE WITH ABOVE, THE
ISSUER RESERVES THE RIGHT TO REQUIRE THE DELIVERY OF SUCH LEGAL OPINIONS,
CERTIFICATIONS OR OTHER EVIDENCE AS MAY REASONABLY BE REQUIRED IN ORDER TO
DETERMINE THAT THE PROPOSED TRANSFER IS BEING MADE IN COMPLIANCE WITH THE
SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS. NO REPRESENTATION IS
MADE AS TO THE AVAILABILITY OF ANY RULE 144 EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT; and
(6) acknowledge that we and the Dealers will rely upon the truth and accuracy of the foregoing
acknowledgments, representations and agreements, and agree that if any of the
acknowledgements, representations or warranties deemed to have been made by it by its
purchase of Notes are no longer accurate, it shall promptly notify us and the Dealers; and if it
is acquiring Notes as a fiduciary or agent for one or more investor accounts, it represents
that it has sole investment discretion with respect to each such account and it has full power
to make the foregoing acknowledgments, representations and agreements on behalf of each
such account.
Notes sold outside of the United States to persons other than U.S. persons will be freely
transferable to persons other than U.S. persons.
122
GENERAL INFORMATION
Listing; Authority; Prescription Period
Application has been made to the Irish Stock Exchange to approve the Information Memorandum as
a Listing Particulars and the Notes to be admitted to the Official List of the Irish Stock Exchange for
trading on the Global Exchange Market. This Information Memorandum is the information memorandum
that will be provided to the Irish Stock Exchange in connection with making application for listing of the
Notes on the Irish Stock Exchange. Once the Notes are approved for listing, we will be required to comply
with certain undertakings, from time to time, as may be required by the Irish Stock Exchange, and to
furnish all such information as the rules of that exchange may require. Physical and electronic copies of
our charter documents and bylaws and the Note Agency Agreement, as each may be amended or
supplemented from time to time, form of Notes, our annual audited consolidated financial statements as
of and for each of the three years ended December 31, 2012, 2011 and 2010, our future published
audited consolidated financial statements, and our published quarterly unaudited consolidated financial
statements will be available for the life of the Notes free of charge at our principal executive offices, as
well as at the offices of the issue and paying agent and transfer agent, and at the offices of the Irish listing
agent, paying agent and transfer agent, as such addresses are set forth in this Information Memorandum.
We do not publish unconsolidated financial statements. We believe the auditors’ reports and information
sourced from other third parties included herein have been accurately reproduced and, as far as we are
aware and are able to ascertain from information published by such third party, no facts have been
omitted which would render the reproduced information inaccurate or misleading. The sources for any
such information has been included herein. We will maintain a paying and transfer agent in Ireland for so
long as any of the Notes are listed on the Irish Stock Exchange. The expenses related to the admission
of the Notes to the Global Exchange Market of the Irish Stock Exchange are expected to be
approximately €13,000. The Notes are being issued pursuant to the general authority granted to Grupo
Famsa’s executive officers and board of director approval is not required unde Article 28 of the Mexican
Securities Market Law given the aggregrate principal amount of Notes being issued. The holder of any
Note may make any claim for interest or principal of any Note in accordance with the terms of such Note,
the Note Agency Agreement and the laws of the State of New York, which generally provide for a six-year
statute of limitations period for similar kinds of claims; however, we advise you to consult with your own
legal counsel and other advisors regarding any such limitations period.
Service of Process and Enforcement of Civil Liabilities
Famsa is a publicly-traded variable capital corporation (sociedad anónima bursátil de capital variable)
and our subsidiaries (except for Famsa, Inc. and Famsa Financial, Inc., subsidiaries organized in the
United States) are variable capital corporations (sociedades anónimas de capital variable) and in the
case of Banco Famsa, a corporation (sociedad anónima) authorized to conduct banking activities as an
institución de banca múltiple, organized under the laws of Mexico, and headquartered, managed and
operated outside of the United States (principally in Mexico). Almost all of our directors and officers reside
outside the United States. Substantially all of our assets and the assets of our directors and officers are
located outside the United States (principally in Mexico). As a result, it may not be possible for investors
to effect service of process within the United States or in any other jurisdiction outside of Mexico upon us,
our directors or officers or our subsidiaries (except for Famsa, Inc.) or to enforce against such parties in
any jurisdiction outside of Mexico judgments predicated upon the laws of any such jurisdiction, including
any judgment predicated upon the federal and state securities laws of the United States. We have been
advised by our Mexican counsel, Mijares, Angoitia, Cortés y Fuentes, S.C., that there is doubt as to the
enforceability in original actions in Mexican courts of civil liabilities under the laws of any jurisdiction
outside of Mexico, including any judgment predicated solely upon the federal and state securities laws of
the United States.
123
See “Risk Factors—Risks Related to the Notes—You may not be able to effect service of process on
us, our subsidiaries or directors or to enforce in Mexican courts judgments obtained against us in the
United States.”
124
Exhibit A: Unaudited Interim Consolidated Financial Statements
as of September 30, 2012 and 2013
See attached.
As of September 30, 2013
TABLE OF CONTENTS
I.
Consolidated Financial Statements (UNAUDITED)……………………………….
II. Notes to the Consolidated Financial Statements………………………………….
This report contains, or may be deemed to contain, forward-looking statements. By their nature,
forward-looking statements involve risks and uncertainties because they relate to events and
depend on circumstances that may or may not occur in the future. The future results of Grupo
Famsa, S.A.B. de C.V. and its subsidiaries may differ from the results expressed in, or implied by,
the forward-looking statements set out herein, possibly to a material degree. The accompanying
preliminary non-audited financial statements have been prepared in accordance with IFRS and
interpretations in force as of September 30, 2013.
I. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Grupo Famsa, S.A.B. de C.V. and subsidiaries
Consolidated statements of financial position
As of September 30, 2013, and December 31, 2012
Thousands of Mexican Pesos
2013
2012
Assets
CURRENT ASSETS:
Cash and cash equivalents
Trade receivables, net
Recoverable taxes
Other accounts receivable
Inventories
Ps.
Total current assets
NON-CURRENT ASSETS:
Restricted cash
Trade receivables, net
Property, leasehold improvements, and
furniture and equipment, net
Goodwill and intangible assets, net
Guarantee deposits
Deferred income tax
Total assets
Ps.
1,871,313
19,902,569
1,078,333
1,249,632
2,209,394
5.8%
62.2%
3.4%
3.9%
6.9%
26,311,241
1,528,727
18,546,393
1,135,713
712,927
1,950,663
5.3%
63.8%
3.9%
2.5%
6.7%
82.2%
23,874,423
82.1%
209,143
1,018,761
0.7%
3.2%
254,905
669,065
0.9%
2.3%
2,307,232
299,424
51,253
1,802,693
7.2%
0.9%
0.2%
5.6%
2,370,018
299,572
53,910
1,548,033
8.2%
1.0%
0.2%
5.3%
0.0%
31,999,747 100.0%
Ps.
Ps.
29,069,926 100.0%
Liabilities and Stockholders’ equity
CURRENT LIABILITIES:
Demand deposits and time deposits
Short-term debt
Suppliers
Accounts payable and accrued expenses
Deferred income from guarantee sales
Income tax payable
Ps.
Total current liabilities
NON-CURRENT LIABILITIES:
Time-deposits
Long-term debt
Deferred income from guarantee sales
Employee benefits
Total non-current liabilities
8,082,498
4,013,554
1,380,888
395,484
248,543
26,298
25.3%
12.5%
4.3%
1.2%
0.8%
0.1%
14,147,265
5,553,194
3,206,052
102,443
96,601
Ps.
8,382,497
2,583,831
1,562,613
603,464
239,245
26,556
28.8%
8.9%
5.4%
2.1%
0.8%
0.1%
44.2%
13,398,206
46.1%
17.4%
10.0%
0.3%
0.3%
3,616,767
3,563,611
116,387
85,240
12.4%
12.3%
0.4%
0.3%
8,958,290
28.0%
7,382,005
25.4%
23,105,555
72.2%
20,780,211
71.5%
Stockholders’ equity:
Capital stock
Additional paid-in capital
Retained earnings
Net income
Reserve for repurchase of shares
Foreign currency translation adjustment
1,458,286
2,778,226
3,836,677
608,502
130,000
56,194
4.6%
8.7%
12.0%
1.9%
0.4%
0.2%
1,458,286
2,778,226
3,513,827
322,850
130,000
60,395
5.0%
9.6%
12.1%
1.1%
0.4%
0.2%
Total stockholders’ equity attributable to
shareholders
Non-controlling interest
8,867,885
26,307
27.7%
0.1%
8,263,584
26,131
28.4%
0.1%
Total stockholders’ equity
8,894,192
27.8%
8,289,715
28.5%
Total liabilites
Total liabilities and stockholders’ equity
Ps.
31,999,747 100.0%
Ps.
29,069,926 100.0%
Grupo Famsa, S.A.B. de C.V. and subsidiaries
Consolidated statements of income
From January 1 to September 30, 2013 and 2012
Thousands of Mexican Pesos
2013
Total revenues
Ps.
2012
9,899,583
100.0%
-52.3%
(5,179,172)
-52.3%
5,094,501
47.7%
4,720,411
47.7%
(3,980,214)
(15,643)
-37.2%
-0.1%
(3,761,951)
76,713
-38.0%
0.8%
(3,995,857)
-37.4%
(3,685,238)
-37.2%
Operating profit
1,098,644
10.3%
1,035,173
10.5%
Financial expenses
Financial income
(636,591)
(38,764)
-6.0%
-0.4%
(527,274)
70,110
-5.3%
0.7%
Financial expenses, net
(675,355)
-6.3%
(457,164)
-4.6%
Profit before income tax
423,289
4.0%
578,009
5.8%
Income tax
188,301
1.8%
259,125
2.6%
Profit before discontinued operations
611,590
5.7%
837,134
8.5%
0
0.0%
(312,002)
-3.2%
Cost of sales
Gross profit
Selling and administrative expenses
Other (expenses) income, net
Discontinued operations
10,687,700
100.0% Ps.
(5,593,199)
Consolidated net income
Ps.
611,590
5.7% Ps.
525,132
5.3%
Net income attributable to:
Controlling interest
Non-controlling interest
Ps.
608,502
3,088
5.7% Ps.
0.0%
521,901
3,231
5.3%
0.0%
Consolidated net income
Ps.
611,590
5.7% Ps.
525,132
5.3%
Grupo Famsa, S.A.B. de C.V. and subsidiaries
Consolidated statements of cash flows
From January 1 to September 30, 2013 and 2012
Thousands of Mexican Pesos
2013
2012
Operating activities
Profit before income tax
Ps.
Depreciation and amortization
Allow ance for doubtful receivables
Gain on sale of property, leasehold improvements, furniture and equipment
Estimated liabilities for labor benefits
Interest income
Interest expenses
Trade receivables
Inventories
Other accounts receivable, deffered charges and other assets
Suppliers
Accounts payable and accrued expenses
Income tax paid
Demand deposits and time deposits
Interests to bank depositors
Exchange gain and losses, net
423,289
Ps.
578,009
235,092
874,352
(951)
26,411
(1,099)
1,153,800
(2,580,224)
(258,731)
(398,171)
(185,248)
(169,496)
(66,616)
1,636,428
(517,209)
(250)
241,496
789,144
(1,493)
18,413
(1,079)
963,717
(1,422,339)
(177,762)
(110,357)
(445,614)
(516,197)
(53,326)
1,085,181
(436,443)
(287,172)
171,377
224,178
Acquisition of property, leasehold improvements, furniture and equipment
Proceeds from sale of property, leasehold improvements, furniture and equipment
Interest received
(159,851)
7,827
1,099
(65,120)
40,554
1,079
Net cash flow used in investing activities
(150,925)
(23,487)
(688,301)
4,344,379
(3,324,023)
(610,000)
250,027
(17,159)
Net cash flow from (used in) financing activities
332,055
(377,132)
Increase (decrease) in net cash and cash equivalents
352,507
(176,441)
(9,921)
5,402
1,528,727
1,261,454
Net cash flow s from operating activities
Investing activities
Financing activities
Interest paid
Proceeds from current and non-current debt and bank loans
Payments of current and non-current debt and bank loans
Adjustments to cash flow as a result of changes in exchange rates
Cash and cash equivalents at the beginning of the period
Cash and cash equivalents at the end of the period
Ps.
1,871,313
Ps.
1,090,415
Grupo Famsa, S.A.B. de C.V. and subsidiaries
Consolidated statement of changes in stockholders’ equity
For the years 2013 and 2012 from January 1 to September 30
Thousands of Mexican Pesos
Balance at January 1, 2012
Capital
stock
Additional
paid-in
capital
Retained
earnings
Cumulative
translation
adjustment
Total
majority
interest
Minority
interest
Total
stockholders’
equity
Ps 1,458,286
Ps 2,778,226
Ps 4,289,173
(Ps304,457)
Ps 8,221,228
Ps 23,382
Ps 8,244,610
Changes for the nine months ended September 30, 2012:
Net income
Cumulative translation adjustment
521,901
(49,227)
Comprehensive income
Balance at September 30, 2012
Balance at January 1, 2013
3,231
533
525,132
(48,694)
521,901
(49,227)
472,674
3,764
476,438
1,458,286
2,778,226
4,811,074
(353,684)
8,693,902
27,146
8,721,048
Ps 1,458,286
Ps 2,778,226
Ps 4,381,929
(Ps354,857)
Ps 8,263,584
Ps 26,131
Ps 8,289,715
Changes for the nine months ended September 30, 2013:
Net income
Cumulative translation adjustment
608,502
Comprehensive income
Balance at September 30, 2013
521,901
(49,227)
Ps 1,458,286
Ps 2,778,226
(4,201)
608,502
(4,201)
3,088
(2,912)
611,590
(7,113)
608,502
(4,201)
604,301
176
604,477
Ps 4,990,431
(Ps 359,058)
Ps 8,867,885
Ps 26,307
Ps 8,894,192
II. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
GRUPO FAMSA, S. A. B. DE C. V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2013, DECEMBER 31, 2012 AND SEPTEMBER 30, 2012
Thousands of Mexican Pesos
(except where otherwise indicated)
Note 1 - General information:
Grupo Famsa, S. A. B de C. V. and subsidiaries (hereinafter, “Famsa”, “the Company” or “Grupo Famsa”)
is a leading Mexican company in the retail sector, satisfying families’ different purchasing, financing and
saving needs. The Company is controlled by a trust whose beneficiaries are the Garza Valdéz family. The
address of the Company and its corporate office is Ave. Pino Suárez No. 1202 Nte., Zona Centro,
Monterrey, Nuevo León, Mexico. Grupo Famsa started operations in 1970.
Grupo Famsa has developed a solid portfolio of complementary businesses based on consumer credit and
savings, which supports a large part of the financing needs of its operations. As of September 30, 2013,
Grupo Famsa operates a network of 358 stores with 311 bank branches in 27 Mexican states, as well as 25
stores in two of the states with the largest Hispanic population in the United States of America (USA),
focused on selling various types of electronic appliances, furniture, household appliances, clothing,
mobile phones, motorcycles and other consumer durable goods. The sales operations are carried out in
cash and by credit, wholesale and directly to the general public.
The Company is listed on the Mexican Stock Exchange, and in order to perform its financial activities in
Mexico it has obtained the authorization of the Ministry of Finance and Public Credit to operate Banco
Ahorro Famsa, S. A. Institución de Banca Múltiple as established by the Mexican Law of Credit
Institutions, under the supervision and surveillance of the National Banking and Securities Commission
(the Commission) and Banco de México (Banxico).
Note 2 - Significant events:
1.
Discontinued operation:
The Company’s management redesigned its business strategy for Famsa, Inc. due to the economic
recession that mainly affected the Hispanic community of the states of California, Arizona and
Nevada (“Western USA” region).
In light of the above, when the closing of the operations was concluded, Grupo Famsa classified the
Western USA region as a discontinued operation in accordance with IFRS 5 "Non-current assets held
for sale and discontinued operations", and therefore the effects of this discontinued operation are
presented separately and in comparative form.
The analysis of the results of the discontinued operation as of September 30, 2012 is as follows:
Net sales
Operating expenses
Allowance for doubtful receivables
Cost of goods sold
Financing expenses
Freight
Other expenses, net
Ps. 364,426
(317,517)
(188,507)
(159,923)
(7,029)
(2,265)
(1,187)
(676,428)
Loss before tax from discontinued operations
(312,002)
Tax on discontinued operations
Loss after tax from discontinued operations
(Ps. 312,002)
The net cash flow from discontinued operations is attributable to operating activities.
2.
Refinancing of debt:
As part of a debt-refinancing program, Grupo Famsa undertook the following actions:
3.
i.
On February 4, 2013, the Company issued notes for US$50 million at a rate of 7.36%, under a
euro commercial paper program established in 2009 for a total of US$100 million. The net
proceeds were used by the Company to refinance the existing debt and for working capital. This
program matures on February 4, 2014.
ii.
On May 15, 2013 the Company announced a cash offer to purchase any and all outstanding 11.00%
Senior Notes due 2015, which total US$200,000,000. As of May 29, 2013, when the Early Tender
period expired, 80.07%, or US$160,133,000 of the total outstanding amount of the Notes had
been amortized. As of June 12, 2013, when the Tender Offer expired, 0.16% or US$322,000 of the
total outstanding amount of the Notes had been redeemed. The remaining amount,
US$39,545,000, was amortized by the company on July 22, 2013.
New legal entity:
In August 2011, through Famsa, Inc. in the United States, a new legal entity entitled Famsa Financial,
Inc. was established, aimed at granting personal loans in the state of Texas. In order to perform this
operation, 36 licenses were obtained from the Office of the Consumer Credit Commission of the State
of Texas (OCCC).
4.
New product:
The subsidiary Banco Ahorro Famsa, S.A. Institución de Banca Múltiple has agreed to terms for the
acquisition of the inherent rights to operate 167 branches of the pawn store business of Monte de
México, S. A. de C. V. (Montemex), formalizing the transaction on October 1, 2013. These branches are
located in the central, Gulf and southeastern regions of Mexico.
Note 3 - Summary of significant accounting policies:
The most significant accounting policies applied in the preparation of these consolidated financial
statements are described as follows. These policies have been consistently applied in the reporting years,
unless otherwise indicated.
3.1 Basis of preparation
The consolidated financial statements of Grupo Famsa, S. A. B. de C. V. and subsidiaries have been
prepared in accordance with the International Financial Reporting Standards (“IFRS”) issued by the
International Accounting Standards Board (“IASB”). The IFRS include all effective International
Accounting Standards (“IAS”), and the related interpretations issued by the International Financial
Reporting Interpretations Committee (“IFRIC”), including those issued previously by the Standing
Interpretations Committee (“SIC”).
In accordance with the amendments to the Rules for Public Companies and Other Participants in the
Mexican Stock Exchange, issued by the Mexican National Banking and Securities Commission on January
27, 2009, the Company is required to prepare its financial statements under IFRS starting in 2012.
The Company changed its accounting policies from Mexican Financial Reporting Standards (“MFRS”) to
comply with IFRS starting on January 1, 2012. The transition from MFRS to IFRS has been recorded in
accordance with IFRS 1, setting January 1, 2011 as the transition date.
The preparation of the consolidated financial statements in accordance with IFRS requires the use of
certain critical accounting estimates. Additionally, it requires the Company’s management to use
judgment in the process of applying the accounting policies of the Company. The areas involving a high
degree of judgment or complexity and areas where judgments and estimates are significant to the
consolidated financial statements are disclosed in Note 5.
3.2 Basis for consolidation
a. Subsidiaries
Subsidiaries are all 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. Subsidiaries are fully consolidated
from the date on which control is transferred to the Company. They are de-consolidated from the date
that control ceases.
Inter-company transactions and balances and unrealized gains between Famsa companies are eliminated
in the preparation of the consolidated financial statements. Unrealized losses are eliminated unless the
transaction provides evidence of impairment in the asset transferred. Accounting policies of subsidiaries
have been changed where necessary to ensure consistency with the policies adopted by the Company.
As of September 30, 2013 and December 31, 2012, the shareholding ownership percentages are as
follows:
% of ownership
As of
As of
September 30, December 31,
2013
2012
Retail sales
Fabricantes Muebleros, S. A. de C. V.
Famsa del Centro, S. A. de C. V.
Famsa del Pacífico, S. A. de C. V.
Famsa Metropolitano, S. A. de C. V.
Famsa México, S. A. de C. V. (1)
Impulsora Promobien, S. A. de C. V.
Famsa, Inc., a subsidiary organized under the laws
of California and headquartered in California, U.S.A. (Famsa USA)
99.93
100.00
100.00
99.94
99.38
99.04
99.93
100.00
100.00
99.94
99.04
100.00
100.00
Administrative services
Corporación de Servicios Ejecutivos Famsa, S. A. de C. V.
Corporación de Servicios Ejecutivos, S. A. de C. V.
Promotora Sultana, S. A. de C. V.
Suministro Especial de Personal, S. A. de C. V.
100.00
99.21
99.99
99.99
100.00
99.21
99.99
99.99
99.99
99.90
99.89
99.92
53.75
99.80
99.99
99.90
99.89
99.92
53.75
-
99.79
99.79
Manufacturing and other
Auto Gran Crédito Famsa, S. A. de C. V.
Expormuebles, S. A. de C. V.
Mayoramsa, S. A. de C. V.
Verochi, S. A. de C. V.
Geografía Patrimonial, S. A. de C. V.
(2)
Corporación de Servicios para la Administración de Valores, S. A. de C. V.
Financial sector
Banco Ahorro Famsa, S. A., Institución de Banca Múltiple
(1) Company established on December 21, 2012
(2) Company established on April 29, 2013
b. Transactions with non-controlling interest
The Company has the policy of recognizing transactions with entities in which it has a non-controlling
interest as transactions with the owners of the Company. In purchases of non-controlling interest, the
difference between the consideration paid and the interest acquired in the carrying value of the net assets
of the subsidiary is recorded in equity. Gains and losses from disposal of non-controlling interest are also
recognized in equity.
c. Disposal of subsidiaries
When the Company ceases to have control, any retained interest in the entity is measured at its fair value
at the date when control is lost, with the change in carrying amount recognized in profit or loss. The fair
value is the initial carrying amount for the purposes of subsequently accounting for the retained interest
as an associate, joint venture or financial asset. In addition, any amounts previously recognized in other
comprehensive income in respect of that entity are accounted for as if the Company had directly disposed
of the related assets or liabilities. This may mean that amounts previously recognized in other
comprehensive income are reclassified to profit or loss.
3.3 Business segment information
Operating segments are reported in a manner consistent with the internal reporting provided to the Chief
Operating Decision-Maker. The officer responsible for allocating resources and assessing performance of
the operating segments has been identified as the Chief Executive Officer.
With respect to the periods presented, September 30, 2013 and 2012, the Company has operated on the
basis of business segments. These segments have been determined considering the geographical areas.
See Note 18.
The statement of comprehensive income shows the financial information in the way that management
analyzes, conducts and controls the business.
3.4 Foreign currency translation
a.
Functional and presentation currency
Items included in the financial statements of each of the Company’s entities are measured using the
currency of the primary economic environment in which the entity operates (the functional currency).
The consolidated financial statements are presented in Mexican pesos, which is the functional currency of
the Company’s subsidiaries, except for Famsa, Inc., whose functional currency is the United States dollar.
b. Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates
prevailing at the dates of the transactions or of valuation when the amounts are revalued. Foreign
exchange gains and losses resulting from the settlement of such transactions and from the translation at
year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are
recognized in the statement of comprehensive income.
c.
Translation of entities with a functional currency different from the presentation currency
The results and financial position of Famsa, Inc., which operates in the USA, are translated into the
presentation currency as follows:
-
Assets and liabilities for each statement of financial position are translated at the closing rate at the
date of such statement of financial position.
-
Income and expenses recognized in the statement of comprehensive income are translated at
average exchange rates (unless this average is not a reasonable approximation of the cumulative
effect of the rates prevailing on the transaction dates, in which case income and expenses are
translated at the rates on the dates of the transaction), and;
-
The capital stock recognized in the statement of financial position is translated at historical
exchange rates. All resulting exchange differences are recognized in other comprehensive income.
3.5 Cash and cash equivalents
Cash and cash equivalents include cash balances, bank deposits and other highly liquid investments with
original maturities of less than three months with minor risk of changes in value. Cash is presented at
nominal value and cash equivalents are measured at fair value; the changes in value are recognized in
profit or loss of the period. Cash equivalents consist primarily of investments in government securities.
3.6 Restricted cash
Restricted cash represents limited cash in Banco Famsa and it comprises: a) deposits required by
monetary regulations with Banco de México, which earn a bank funding rate, b) inter-bank short-term
loans whose term does not exceed three working days, and c) purchased foreign currency, whose
settlement date is agreed subsequently to the transaction date.
3.7 Financial instruments
3.7.1 Financial assets
The Company classifies its financial assets as loans and receivables. The classification depends on the
purpose for which the financial assets were acquired. Management determines the classification of its
financial assets at the date of initial recognition.
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 maturities greater than 12
months after the end of the reporting period. These are classified as non-current assets. The Company’s
financial assets comprise trade receivables, other accounts receivable, cash and cash equivalents, and
restricted cash, in the statement of financial position.
Trade receivables are amounts due from customers for merchandise sold or services performed in the
ordinary course of business. If collection is expected in one year or less (or in the normal operating cycle
of the business if longer), they are classified as current assets. If not, they are presented as non-current
assets.
Trade receivables are recognized initially at fair value and subsequently measured at amortized cost using
the effective interest rate method, less any impairment allowance.
Financial assets are derecognized when the rights to receive cash flows from the investments have expired
or have been transferred and the Company has transferred substantially all risks and rewards of
ownership. If the Company neither transfers nor retains substantially all the risks and rewards of
ownership and continues to retain control of the transferred asset, the Company recognizes its interest in
the asset and the associated liability for the amounts it would pay. If the Company retains substantially all
the risks and rewards of ownership of a transferred financial asset, the Company continues to recognize
the financial asset and also recognizes a liability for the amounts received.
3.7.2 Accounts payables
Trade payables are obligations to pay for goods or services that have been acquired or received in the
ordinary course of business from suppliers. Loans are initially recognized at fair value, net of transaction
costs incurred. Loans are subsequently recognized at amortized cost, any difference between the amounts
received (net of transaction costs) and the settlement value being recognized in the statement of
comprehensive income over the term of the loan using the effective interest method.
Financial liabilities are initially recognized at fair value and are subsequently measured at amortized cost
using the effective interest method. Liabilities in this category are classified as current liabilities if they
are expected to be settled within the next 12 months, otherwise they are classified as non-current.
Financial assets and liabilities are offset and the net amount reported in the statement of financial
position when there is a legally enforceable right to offset the recognized amounts and there is an
intention to settle on a net basis or realize the asset and settle the liability simultaneously.
3.7.3 Impairment of financial assets
The Company assesses at the end of each reporting period whether there is objective evidence that a
financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is
impaired and impairment losses are incurred only if there is objective evidence of impairment as a result
of one or more events that occurred after the initial recognition of the asset (a ‘loss event’) and if that loss
event (or events) has an impact on the estimated future cash flows of the financial asset or group of
financial assets that can be reliably estimated.
For loans and receivables, if impairment exists, the amount of the loss is measured as the difference
between the asset’s carrying amount and the present value of estimated future cash flows (excluding
future credit losses that have not been incurred) discounted at the original effective interest rate. The
carrying amount of the asset is reduced and the amount of the loss is recognized in the consolidated
income statement in the line administrative expenses.
If in a subsequent period the amount of the impairment loss decreases and the decrease can be related
objectively to an event occurring after the impairment was recognized (such as an improvement in the
debtor’s credit rating), the reversal of the previously recognized impairment loss is recognized in the
statement of comprehensive income.
3.8 Other accounts receivable
The Company classifies as other receivables all credits or advances to employees and other persons or
companies other than the general public. If the receivables are expected to be collected within 12 months
of the end of the financial year, they are classified as current, if not, they are classified as non-current.
3.9 Advance payments
The Company classifies as advance payments the payments for advertising in mass media, mainly
television and press. These amounts are recognized at the value of the related agreements and are
charged to income as they are accrued. In no case do the contracted amounts exceed one year.
3.10 Inventories
Inventories are stated at the lower of cost and net realizable value. The cost comprises the cost of goods
plus import costs, freight, handling, shipping, and warehousing in customs and distribution centers,
decreased by the value of respective returns. Net realizable value is the estimated selling price in the
ordinary course of business, less applicable variable selling expenses. The cost is determined using the
average cost method.
3.11 Property, leasehold improvements, and furniture and equipment
Property, leasehold improvements, and furniture and equipment are recognized at cost less accumulated
depreciation and any accumulated impairment losses. The cost includes expenses directly attributable to
the acquisition of the asset and all the costs associated with the placement of the asset in its location and
in the necessary conditions so that it can operate in the manner intended by the management.
Costs for extension, remodeling or improvements representing an increase in the capacity and therefore
an extension of the useful life of the assets are also capitalized. The expenses for maintenance and repairs
are charged to the statement of comprehensive income in the period they are incurred. The carrying
amount of the replaced assets is derecognized when replaced, with all effects being taken to the statement
of comprehensive income.
Improvements in process represent stores under construction and include investments and all costs
directly attributable to placing them in operating conditions. The reclassification of these investments is
made when the store opens and deprecation of the assets commences.
Depreciation on the assets is calculated using the straight-line method to allocate their cost to their
residual values over their estimated useful lives, as follows:
Buildings and construction
Furniture and equipment
Transportation equipment
Data-processing equipment
Leasehold improvements
33 years
11 years
5 years
4 years
Over the effective period of the leasing
agreement
Residual values, useful lives and depreciation of assets are reviewed and adjusted, if necessary, at the date
of each statement of financial position.
The book value of an asset is written down to its recoverable amount if the asset’s carrying amount is
higher than its estimated recoverable amount.
Gains and losses on the sale of assets result from the difference between the proceeds from the
transaction and the carrying value of the assets. These are included in the statement of comprehensive
income within other income (expenses), net.
3.12 Goodwill and intangible assets
a. Goodwill
Goodwill arises on the acquisition of subsidiaries and represents the excess of the consideration
transferred over the interest in the fair value of the net identifiable assets, liabilities and contingent
liabilities of the acquiree and the fair value of the non-controlling interest in the acquiree.
For the purpose of impairment testing, goodwill acquired in a business combination is allocated to each of
the cash generating units, or groups of cash generating units, that is expected to benefit from the
synergies of the combination. Each unit or group of units to which the goodwill is allocated represents the
lowest level within the entity at which the goodwill is monitored for internal management purposes.
Goodwill is monitored at the operating segment level.
Goodwill impairment reviews are undertaken annually or more frequently if events or changes in
circumstances indicate a potential impairment. The carrying value of goodwill is compared to the
recoverable amount, which is the higher of the value in use and the fair value less costs to sell. Any
impairment is recognized immediately as an expense and is not subsequently reversed.
b. Systems development and computer software
Intangible assets associated with systems development and computer software programs involve the plan
or design and the development of a new or substantially improved software or computer system.
Development costs are capitalized only when the following criteria are met:
-
It is technically feasible to complete the software product so that it will be available for use;
-
Management intends to complete the software product and use or sell it;
-
There is an ability to use or sell the software product;
-
It can be demonstrated how the software product will generate probable future economic benefits;
-
Adequate technical, financial and other resources to complete the development and to use or sell the
software product are available; and
-
The expenditure attributable to the software product during its development can be reliably
measured.
Acquired licenses for the use of programs, software and other systems are capitalized at the value of costs
incurred for the acquisition and preparation for use. Other development costs that do not meet these
criteria and research expenses, as well as maintenance, are recognized in the statement of income within
administrative expenses as incurred. Development costs previously recognized as an expense are not
recognized as an asset in subsequent periods.
These assets are amortized based on their estimated useful life, which is 6 years.
3.13 Impairment of non-financial assets
Assets that have an indefinite useful life, including goodwill, are not subject to amortization and are
tested annually for impairment. Assets that are subject to amortization are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its
recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and its
value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which
there are separately identifiable cash flows (cash-generating units). Non-financial assets other than
goodwill that suffered impairment are reviewed for possible reversal of the impairment at each reporting
date.
3.14 Demand deposits and time-deposits
The Company’s funding liabilities include interest-bearing demand deposits (savings deposits and
checking accounts) as well as time-deposits (certificates of deposits and promissory notes). These
liabilities are recorded at the contracted transaction value plus accrued interest, determined by the days
elapsed at the end of each month, which is charged to income on an accrual basis.
3.15 Provisions
Provisions represent present obligations from past events where an outflow of economic resources is
probable. These provisions have been recognized under the best estimate made by Management.
3.16 Income taxes
The tax expense for the period comprises current and deferred tax. Tax is recognized in the
comprehensive income statement, except to the extent that it relates to items recognized in other
comprehensive income or directly in equity.
Current income tax comprises the income tax and the flat rate business tax, which are recognized in profit
or loss of the year when they are incurred. The current tax is the higher of income tax and flat rate tax for
the year. These taxes are based on taxable income and cash flows for each year, respectively.
The current income tax charge is calculated based on the tax laws enacted at the statement of financial
position date in Mexico and in the countries where the Company’s 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.
To recognize deferred income taxes the Company determines whether, based on its financial projections,
the Company will pay income tax or flat tax and recognizes the deferred taxes that correspond to the tax
payable each year. Deferred income tax is provided in full, based on the assets-and-liabilities-method, on
temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in
the consolidated financial statements. The deferred income tax is determined using tax rates and laws
that have been enacted or substantially enacted as of the statement of financial position date and are
expected to be applicable when the deferred income tax asset is realized or the deferred income tax
liability is settled.
The income tax rate for 2013 will be 30% and for 2014 and 2015 will be 29% and 28%, respectively. The
flat rate business tax is 17.5%.
Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit
will be available against which the temporary differences can be utilized.
Deferred income tax is generated on temporary differences arising on investments in subsidiaries, 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 income tax assets and liabilities are offset when there is a legally enforceable right to offset
current tax assets against current tax liabilities and when the deferred income taxes assets and liabilities
relate to income taxes levied by the same taxation authority or the intention to settle the balances on a net
basis exists in either the same taxable entity or different taxable entities.
3.17 Employee benefits
a.
Short-term benefits
The Company provides benefits to employees in the short term, which may include wages, salaries,
annual compensation and bonuses payable within 12 months.
b.
Pensions and seniority premium
The Company has defined benefit plans. A defined benefit pension plan is a plan that defines the
amount of pension benefits to be received by an employee at retirement, usually depending on one or
more factors, such as the employee’s age, years of service and compensation.
The liability recognized in the statement of financial position in respect of defined benefit pension
plans is the present value of the defined benefit obligation at the date of the consolidated statement
of financial position, together with adjustments for unrecognized actuarial gains and losses and pastservice 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 future cash outflows using interest rates of government bonds that are
denominated in the currency in which the benefits will be paid, and that have terms to maturity
approximating the terms of the related pension obligation.
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.
The Company has no plan assets.
The Company early-adopted IAS 19 (revised) “Employee Benefits”. The application of this standard
is mandatory from January 1, 2013 but early adoption is allowed.
c.
Employee profit sharing
The Company recognizes a liability and an expense for bonuses and profit-sharing, based on a
formula that takes into consideration the taxable income after certain adjustments. The Company
recognizes a provision where contractually obligated or where there is a past practice that has
created a constructive obligation.
d.
Termination benefits for indemnities established in labor laws
Termination benefits are payable and recognized in the statement of comprehensive income of the
period when employment is terminated by the Company before the normal retirement date, or
whenever an employee accepts voluntary redundancy in exchange for these benefits.
e.
Other employee benefits
The Company grants benefits to its employees who terminate their employment after more than 15
years of service. According to IAS 19 (revised) this practice constitutes an assumed obligation by the
Company with its employees which is recognized based on calculations prepared by independent
actuaries.
3.18 Stockholders’ equity
Common shares are classified as equity.
The amounts of the capital stock, legal reserve, additional paid-in capital and retained earnings are
presented at historical value, modified by the effects of inflation on the financial information recognized
as of December 31, 1997. In accordance with the requirements of IAS 29 “Financial reporting under
hyperinflationary economies”, the Mexican economy is currently in a non-hyperinflationary environment,
maintaining an accumulated inflation for the last three years under 100% (threshold for considering an
economy as hyperinflationary), therefore from January 1, 1998 onwards, the Company does not recognize
the effects of inflation on the financial information.
Legal reserve and reinvestment reserve
The net income of the year is subject to the legal provision requiring the allocation of 5% of the income for
each period to increase the legal reserve until it reaches an amount equivalent to 20% of the capital stock.
The reinvestment reserve is intended to be reinvested in the Company under shareholders agreements;
10% of the profit for the year is allocated to this reserve.
Reserve for repurchase of shares
The maximum limit for the acquisition of the Company’s own shares is determined based on
stockholders’ resolutions. Shares acquired are held in treasury and their acquisition cost is charged to
stockholders’ equity at their purchase price as follows: a portion is charged to capital stock at its modified
historical cost and the excess to the reserve for repurchase of shares (which is included under retained
earnings). These amounts are stated at historical cost.
3.19 Borrowing costs
The Company capitalizes borrowing costs that are directly attributable to the acquisition, construction or
production of qualifying assets, as part of the cost of such assets. It recognizes other borrowing costs as an
expense in the period in which they are incurred.
As of September 30, 2013 and December 31, 2012, there were no financial costs capitalized because
during these periods there were no qualifying assets in accordance with the Company’s policies.
Leasehold improvements require construction periods of less than one year.
3.20 Revenue recognition
Revenue represents the fair value of the cash collected or receivable resulting from the sale of goods or
services in the normal operating cycle of the Company. Revenues are stated net of discounts and returns
granted to customers.
The Company obtains revenues from retail operations primarily through the sale of products such as
household appliances, furniture, clothing, electronics and mobile phones, and other financial services
offered through Banco Famsa, such as the granting of personal loans.
The Company recognizes revenue when the amount of revenue can be reliably measured; when it is
probable that future economic benefits will flow to the entity; and when specific criteria have been met for
each of the Company’s activities, as described below:
Revenue from sales of goods is recognized when the customer takes possession of the goods in the stores
or when the merchandise is delivered to their domiciles. Approximately 81% of the sales are settled by
customers with cards operated by the Company, and the rest is settled in cash or through bank credit and
debit cards.
In accordance with IAS 18 “Revenue recognition”; in merchandise sales in installments, the cash
receivable is deferred over the time and therefore its fair value may be less than the nominal amount of
the sale. In these cases, the Company determines the fair value of cash to be received, discounting all
future cash flows using an implied interest rate determined by reference to the prevailing market rate for
a similar instrument.
The difference between the nominal value of the sale payable in installments and the discounted value
according to the previous paragraph is recognized as interest income.
The Company’s policy is to sell certain products with the right of return. Customer returns are normally
because of some fault or imperfection in the product. However, in cases where it is clear that the
customers wish to return the product, the Company offers its customers the option to credit their account
if the purchase was made with a card operated by the Company or to credit their bank card if the purchase
was made in cash or with external cards. Experience shows that returns on sales are not significant in
relation to total sales, and therefore the Company does not create an allowance for returns.
Other revenues exist for commissions on the sale of life insurance policies which are recognized as income
when the policies are sold. Revenues from guarantees granted are recognized by the straight-line method
over the period in which this service is offered.
Interest income resulting from sale of products and personal loans is recognized as accrued, using the
effective interest rate method.
3.21 Leases
Leases are classified as finance leases when the terms of the lease transfer to the lessee substantially all
the risks and rewards of ownership. All other leases are classified as operating leases. See Note 17.
3.22 Earnings per share
Basic earnings per share are calculated by dividing the profit attributable to shareholders of the Company
by the weighted average number of ordinary shares outstanding during the year. Diluted earnings per
share are calculated by adjusting the attributable profit and the weighted average number of ordinary
shares outstanding to assume conversion of all potentially dilutive ordinary shares. Basic earnings per
share are the same as diluted earnings per share because there are no transactions that may potentially
dilute the net income.
3.23 Discontinued operations
The Company considers as discontinued operations the operations and cash flows that can be clearly
distinguished from the rest of the entity, that either have been disposed of, or are classified as held for
sale, and:
-
Represent a line of business or geographical area of operations
Are part of a plan to dispose of a line of business or geographical area of operations, or
Is a subsidiary acquired exclusively with a view to resell it
Note 4 - Risk Management:
An integral risk management process refers to the set of objectives, policies, procedures and actions that
are implemented to identify, measure, monitor, limit, control, report and disclose the different types of
risk to which the Company is exposed.
Those responsible for risk management and their functions are:
•
The Board of Directors, whose responsibility is to approve the objectives, guidelines and policies for
risk management.
•
Internal Audit, which is responsible for carrying out all the activities necessary in order to comply
with the policies defined by the Board of Directors.
The Company has adopted as its main premise carrying out its operations in a conservative framework or
profile so as to optimize its resources through the implementation of balanced operations between risk
and performance.
The current strategy pursued by the Company is primarily focused on the granting of consumer loans,
which will be supported by the funding of resources that will be obtained through deposits, orienting
them towards correct placement and profitability, all of this under the operation of Banco Famsa.
The criteria, policies and procedures adopted by the Company in terms of risk management are based on
internal policies and applicable standards.
The Company is exposed to several market and financial risks.
a) Market Risk
Market risk is defined as the potential loss due to changes in the risk factors that affect the valuation or
the expected results from lending/borrowing operations, such as interest rates and exchange rates,
among others.
I.
Interest rate risk
The interest rate risk is defined as the risk that the fair value or future cash flows of a financial
instrument fluctuate due to changes in market interest rates. Loans and debt certificates with
maturities in the short and long term are subject to both fixed and variable interest rates and
expose the Company to the risk of variability in interest rates and therefore its cash flows.
Changes in interest rates on long-term debt at fixed rates only affect the results if such debt is
recognized at fair value. The Company initially recognizes loans from financial institutions and
debt certificates at fair value and subsequently records them at amortized cost, whereby the
Company is subject to interest rate risk related to changes in fair value.
II.
Exchange rate risk
The Company's exposure to exchange rate risk refers to risks associated with movements in the
exchange rate of the Mexican peso against the U.S. dollar, with the Mexican peso being the
functional currency of the Company. In the past, the value of the Mexican peso has been subject to
significant exchange fluctuations against the U.S. dollar. However, it is not considered a significant
risk because most of the operations are performed in local currency.
The Company has non-monetary assets denominated in U.S. Dollars which are part of the
operating unit in the USA. There is no exchange rate risk because the operations are performed
only in the local currency.
b) Liquidity Risk
Liquidity risk is defined as the inability of the Company to have sufficient funds available to meet its
obligations. The Company´s Treasury Department is responsible for ensuring liquidity and managing
the working capital in order to guarantee payment to suppliers, service debt and fund the costs and
expenses of the operation. Furthermore, the Company has the alternative to obtain liquidity through
loans drawn down from credit lines, debt and equity issuances, and funds from the sale of assets.
c) Credit Risk
Credit risk refers to the potential loss from the inability of customers to make all required payments.
The accounts receivable of the Company represent amounts owed by customers and are generated by
sales of goods or services in the regular course of its operations. Since the Company's sales are made
mostly to the general public, there is no risk of concentration in a customer or group of customers.
The Company has a risk management system for the loan portfolio, whose main elements include: 1)
the risk of default and loss, which includes the processes of granting credit, authorization of purchase
transactions and collections management; 2) operational risk, including security of the information
and technologic infrastructure and 3) the risk of fraud, comprising the steps of prevention, analysis,
detection, containment, recovery and solution.
The initial credit limits are calculated on an individual basis by the Company's systems and are
regularly monitored by the credit area to adjust them based on customer history. The Company has
processes for reviewing credit quality of its customers for the early identification of potential changes
in the ability to pay, taking timely corrective actions and the determination of current and potential
losses.
The Company continuously monitors its portfolio recovery considering several factors including
historical trends in the aging of the portfolio, history of cancellations and future performance
expectations, including trends in the unemployment rates. In addition to this analysis, the Company
requires that loans be secured primarily by the goods sold or by a guarantor, principally.
To quantify the credit risk of the Mexico commercial portfolio, the Company uses CREDITRISK+,
which considers both the creditworthiness of counterparties and the exposure of each of the
customers. CREDITRISK+ models the defaults themselves and is not intended to model or identify
any causes underlying the defaults.
The input data primarily considered are the probabilities of default, according to the credit quality of
borrowers.
d) Capital Risk
The Company's objective is to safeguard its ability to continue as a going concern, maintaining a
financial structure that maximizes the return to shareholders. The capital structure of the Company
comprises debt, which includes financing contracted via bank loans and issuance of debt certificates,
cash and cash equivalents and stockholders´ equity. The Company does not have an established policy
to declare dividends.
The Company’s management annually reviews its capital structure when presenting the budget to the
Board of Directors, which reviews the planned level of debt and ensures that it does not exceed the
established limit.
Note 5 - Critical accounting estimates and judgments:
In the application of the Company’s accounting policies, which are described in Note 3, the Company’s
management needs to make judgments, estimates and assumptions about the carrying amounts of assets
and liabilities. Estimates and assumptions are based on historical experience and other factors considered
as relevant. Actual results may differ from those estimates.
Estimates and underlying assumptions are continually reviewed. Adjustments to the accounting estimates
are recognized in the period evaluated and in future periods if the evaluation affects the current period
and subsequent periods.
5.1 Critical accounting judgments
Below are the key judgments, apart from those involving estimates, made by management in the
application of the Company’s accounting policies and that have a significant effect on the amounts
recognized in the consolidated financial statements.
5.1.1 Revenue recognition, installment sales
Note 3.20 describes the Company’s policy for the recognition of installment sales. This implies that the
Company’s management applies its judgment to identify the applicable discount rate to determine the
present value of installment sales. To determine the discounted cash flows, the Company uses an imputed
interest rate, considering the rate that can be determined better from: i) the prevailing rate in the market
for a similar instrument available for the Company’s customers with a similar credit rating or ii) the
interest rate that equals the nominal value of the sale, properly discounted to the cash price of the goods
sold.
5.2 Key sources of uncertainty in estimates
Following are the key sources of uncertainty in the estimates made at the date of the consolidated
statement of financial position, and that have a significant risk of resulting in an adjustment to the
carrying amounts of assets and liabilities during the next financial period:
5.2.1 Impairment provisions for loan and receivable portfolios
The methodology applied by the Company to determine the amount of this estimate is described in Note
3.7, see also Note 8.
5.2.2 Determination of income taxes
To determine deferred taxes, the Company makes tax projections to establish whether it will pay income
tax or flat rate tax, and thus considers the tax incurred as a basis for determining deferred taxes.
5.2.3 Estimates of useful lives and residual values of property, leasehold improvements, and furniture and
equipment
As described in Note 3.11, the Company reviews the estimated useful lives and residual values of property,
leasehold improvements and furniture and equipment at the end of each annual period. During the
period, it was determined that lives and residual values do not need to be modified since, in the
assessment of management, the existing useful lives and residual values adequately reflect the economic
conditions of the Company’s operating environment.
Note 6 - Cash and cash equivalents:
Cash and cash equivalents comprised the following:
September 30,
2013
December 31,
2012
Cash at bank and in hand
Investments
Ps.
Ps.
Total
Ps. 1,871,313
335,299
1,536,014
461,359
1,067,368
Ps. 1,528,727
Note 7 - Restricted cash:
Restricted cash represents limited cash in Banco Famsa of Ps. 209,143 and Ps. 254,905 as of September
30, 2013 and December 31, 2012, respectively. The restricted cash balance is classified as a non-current
asset in the Company’s consolidated statement of financial position based on the expiration date of the
restriction.
Note 8 - Trade receivables:
September 30,
2013
Trade receivables:
Mexican consumer
Mexico commercial
USA consumer
Less - allowance for doubtful accounts
Ps. 17,230,049
2,453,307
2,075,472
December 31,
2012
Ps. 15,612,927
2,392,702
2,244,983
21,758,828
(837,498)
20,250,612
(1,035,154)
Total, net
Ps. 20,921,330
Ps. 19,215,458
Current trade receivables
Ps. 19,902,569
Ps. 18,546,393
Non-current trade receivables
Ps. 1,018,761
Ps.
669,065
Movements of the impairment allowance for doubtful accounts:
September 30,
2013
December 31,
2012
Opening balance
Increases
Recoveries
(Ps.1,035,154)
(874,352)
1,072,008
(Ps. 966,391)
(1,542,066)
1,473,303
Ending balance
(Ps. 837,498)
(Ps. 1,035,154)
September 30,
2013
December 31,
2012
Note 9 - Inventories:
Products (*)
Clothing, footwear and jewelry
Merchandise in transit
Ps. 1,848,825
331,761
28,808
Ps. 1,718,694
201,571
30,398
Total
Ps. 2,209,394
Ps. 1,950,663
(*) Comprises all types of electronic appliances, furniture, household appliances, mobile phones,
motorcycles and other consumer goods.
Note 10 - Property, leasehold improvements and furniture and equipment, net:
Buildings
and
construction
Land
Furniture
and
equipment
Leasehold
improvements
Transportation
equipment
Data
processing
equipment
Improvements in
process
Total
As of December 31, 2012
Cost
Accumulated depreciation
Ps. 353,721 Ps. 440,341 Ps.1,084,084 Ps. 2,364,347 Ps. 255,783 Ps. 502,075 Ps. 135,879 Ps. 5,136,230
(135,368)
(700,651)
(1,263,184)
(229,383)
(437,626)
(2,766,212)
Net book amount
Ps. 353,721 Ps. 304,973 Ps. 383,433 Ps. 1,101,163
At September 30, 2013
Opening net book amount
Exchange differences on cost
Additions
Disposals
Cancelation of accumulated
depreciation on the sale of
fixed assets
Reclassifications
Exchange differences on
accumulated depreciation
Depreciation charge
353,721
2,850
-
304,973
2,279
150
-
-
-
-
(210)
(7,389)
383,433
2,023
21,726
(265,565)
1,101,163
2,117
20,715
(3,634)
261,966
-
26,400
951
28,860
(29,413)
64,449
414
32,131
(10,993)
28,978
-
11,703
-
-
302,323
-
-
(5,668)
(220,862)
306
-
135,879
56,810
-
2,370,018
7,784
163,242
(309,605)
(1,999)
(38,922)
(2,117)
(134,490)
(948)
(12,582)
(394)
(27,479)
984,060
42,246
69,201
192,689
2,307,232
256,181
(213,935)
523,627
(454,426)
192,689
-
4,997,651
(2,690,419)
Closing net book amount
356,571
299,803
362,662
As of September 30, 2013
Cost
Accumulated depreciation
356,571
-
442,770
(142,967)
842,268
(479,606)
Closing net book amount
Ps. 26,400 Ps. 64,449 Ps. 135,879 Ps. 2,370,018
2,383,545
(1,399,485)
Ps. 356,571 Ps. 299,803 Ps. 362,662 Ps.
984,060
Ps. 42,246 Ps. 69,201 Ps. 192,689 Ps. 2,307,232
The depreciation expense is recognized in the income statement within administrative and selling
expenses.
Note 11 - Goodwill and intangible assets:
As of December 31, 2012
Cost
Accumulated amortization
Ending balance
As of September 30, 2013
Additions
Disposals
Amortization
Goodwill
Licenses and
software
Total
Ps. 241,096
-
Ps. 302,361
(243,885)
Ps. 543,457
(243,885)
241,096
-
58,476
299,572
14,082
(14,230)
14,082
(14,230)
Ending balance
241,096
58,328
299,424
At September 30, 2013
Cost
Accumulated amortization
241,096
-
316,443
(258,115)
557,539
(258,115)
Ending balance
Ps. 241,096
Ps.
Goodwill is not subject to amortization and is tested annually for impairment.
58,328
Ps. 299,424
Note 12 - Demand deposits and time-deposits:
As of September 30, 2013 and December 31, 2012, the Company’s deposits with third parties were as
follows:
Demand deposits:
Savings deposits (interest bearing)
Checking accounts (non-interest bearing)
Time-deposits:
From the general public
Total demand deposits and time-deposits
September 30,
2013
December 31,
2012
Ps. 2,279,039
320,262
Ps. 2,191,438
314,092
11,036,391
9,493,734
Ps. 13,635,692
Ps. 11,999,264
In accordance with the terms negotiated, the Company’s deposits as of September 30, 2013 and December
31, 2012 are presented as follows:
September 30,
2013
December 31,
2012
Short-term demand deposits and time-deposits
Long-term demand deposits and time-deposits
Ps. 8,082,498
5,553,194
Ps. 8,382,497
3,616,767
Total demand deposits and time-deposits
Ps. 13,635,692
Ps. 11,999,264
Note 13 - Short-term and long-term debt:
The total consolidated debt was as follows:
September 30,
2013
December 31,
2012
Interest
rate(*)
Grupo Famsa:
Mexican pesos:
(1)
Financial factoring :
Financiera Bajío, S. A. SOFOM, ER
Arrendadora y Factor Banorte, S. A. de C. V.
SOFOM, ER
Banco Monex, S. A.
Amounts drawn down from short-term
revolving credit lines:
Banco del Bajío, S. A.
Banorte, S. A.
BBVA Bancomer, S. A.
CI Banco, S. A.
Banamex, S. A.
Banco Santander Serfin, S. A.
Issuance of debt certificates:
Short-term(2)
(2)
Long-term
Ps.
99,978
Ps.
30,629
7.57%
399,693
199,955
392,704
124,845
7.14%
7.13%
699,626
548,178
100,000
99,795
150,000
100,000
100,000
-
199,795
63,500
50,000
100,000
7.28%
7.81%
6.92%
6.79%
6.96%
8.86%
2,000,000
-
1,000,000
1,000,000
7.10%
7.65%
2,549,795
2,413,295
3,206,052
658,735
2,554,036
518,632
3,864,787
3,072,668
-
9,575
8.93%
105,398
103,726
2.39%
7,219,606
6,147,442
(4,013,554)
(2,583,831)
U.S. Dollars:
Issuance of foreign debt:
Senior notes 2020(7)
(3)
Senior notes 2015
Euro–commercial paper(4)
7.25%
11.00%
7.36%
Banco Ahorro Famsa, S. A.,
Institución de Banca Múltiple:
Mexican pesos:
Nacional Financiera, S.N.C. (NAFIN)(5)
Famsa USA:
U.S. Dollars:
(6)
Deutsche Bank AG
Total debt
Short-term debt
Long-term debt
(*)
Ps. 3,206,052
Ps.3,563,611
Nominal rates as of September 30, 2013. Interest is accrued on a monthly basis.
(1) The Company entered into factoring credit line contracts with suppliers. Interest is calculated by
applying to the discounted amount, the rates that financial institutions apply for this type of
operations, according to the discount period. These liabilities are settled in an average period of 110
days.
(2) In 2011, the Company entered into a debt certificate program for up to Ps. 2,000 million of a
revolving nature for a five-year term. On March 25, 2011, the Company issued certificates for an
aggregate principal amount of Ps. 1,000 million pursuant to such unsecured commercial paper
program at a spread of 280 basis points over the TIIE interbank rate and maturing in 2014. The net
proceeds of this issue were used to refinance debt maturing in 2011. These debt certificates are
guaranteed by the retail, manufacturing and other subsidiaries.
(3) On July 2010, the Company issued senior notes for an amount of US$ 200 million, under Rule
144A/Reg. S, in the foreign market, at a rate of 11%, maturing in July 2015. The senior notes are
guaranteed by the retail, manufacturing and other subsidiaries. The notes were assigned “B” and “B+”
ratings by Standard & Poor’s and Fitch Ratings, respectively. The notes may not be offered or sold in
the United States.
(4) On February 4, 2013, the Company issued notes for US$50 million at a rate of 7.36%, from a euro
commercial paper program established in 2009 for a total of US$100 million. The net proceeds from
this issue were used by the Company to refinance existing debt and for working capital. This program
matures on February 4, 2014.
(5) Loans contracted by Banco Famsa with NAFIN.
(6) On October 16, 2012, the Company renewed its credit line for a maximum amount of EUR 6.6 million
or its equivalent in US dollars. As of December 31, 2012, the Company had drawn a total of US$8
million; this credit bears interest at an annual rate of 2.39% and matures on October 16, 2013.
(7) On May 31 2013, the Company issued senior notes for an amount of US$ 250 million, under Rule
144A/Reg. S, in the foreign market, at a rate of 7.25%, maturing in May 31, 2020. The senior notes are
guaranteed by the retail, manufacturing and other subsidiaries. The notes were assigned “B” and “B+”
ratings by Standard & Poor’s and Fitch Ratings, respectively. The notes may not be offered or sold in
the United States.
As of September 30, 2013 and December 31, 2012, the Company had satisfactorily complied with all
related covenants and restrictions.
Note 14 - Stockholders’ equity:
In the Ordinary General Meeting held on April 25, 2012, the stockholders agreed that the fund created for
the purchase and sale of the Company’s own shares will be up to a maximum amount of Ps. 130 million.
As of September 30, 2013, the Company had 259,700 shares (259,700 shares in 2012) held in treasury
and the closing price per share at that date was Ps. 25.73 (Ps. 16.10 as of December 31, 2012).
As of September 30, 2013 and December 31, 2012, the capital stock comprised the following:
Description
Number
of shares
Amount
Fixed capital (minimum): Series “A”, Class “I”,
common, nominative shares, without par value
330,097,385
Variable capital: Series “A”, Class “II”,
common, nominative shares, without par value
109,090,909
218,182
-
579,909
439,188,294
Ps. 1,458,286
Accumulated inflation increase as of December 31, 1997
Capital stock
Ps.
660,195
As of September 30, 2013 the retained earnings included Ps. 302,431 and Ps. 604,863, applicable to the
legal reserve and to the reinvestment reserve, respectively. The movements of the reserves were as
follows:
As of December 31, 2012
Legal
reserve
Reinvestment
reserve
Ps. 300,839
Ps. 601,679
1,592
-
3,184
-
Ps. 302,431
Ps. 604,863
Changes in 2013:
Increases
Utilization
As of September 30, 2013
Note 15 - Costs and expenses classified by their nature:
Cost of sales and administrative and selling expenses are analyzed as follows:
September 30,
2013
Cost of goods sold
Salaries and employee benefits
Impairment allowance
Leasing
Interest expense on bank deposits
Depreciation and amortization
Energy, water and telephone services
Advertising
Maintenance
Freights
Other(1)
(1) Includes mainly insurance expenses, travel expenses and training.
2012
Ps.
4,168,293 Ps.
1,887,639
874,352
577,236
517,209
235,092
233,192
221,536
120,085
33,345
705,434
3,921,085
1,731,656
789,144
571,498
436,443
241,496
219,732
212,798
109,696
32,500
675,075
Ps.
9,573,413 Ps.
8,941,123
Note 16 - Contingencies:
In the normal course of its operations, the Company is involved in several disputes and lawsuits. None of
them are believed to be able to significantly affect, individually or taken together, the Company’s future
results of operations or financial position.
Note 17 - Commitments:
The majority of the subsidiary companies have entered into long-term lease agreements (some with
related parties) covering properties occupied by their stores. Following is a description of the main
agreements entered into with related parties:
As of September 30, 2013, the Company had 42 long-term lease agreements in place with the controlling
shareholders and various entities controlled by them, with regard to the retail space used by several
stores. The terms of such agreements are similar and consistent with standard industry practices and
have been established at market prices.
The Company has entered into various asset management agreements with affiliates and other entities
controlled by the principal shareholders, covering account collection services and the management and
investment of the proceeds of such collections, in exchange for a commission payable on an annual basis.
Rentals payable for the next years are as follows:
Other
2014
2015 to 2018
Related
parties
Total
Ps. 526,604
2,106,415
Ps. 79,494
317,977
Ps.
606,098
2,424,392
Ps. 2,633,019
Ps. 397,471
Ps. 3,030,490
During 2013 and 2012, total rental and administrative services expense was as follows:
2013
2012
Other, different from related parties
Related parties
Ps. 501,527
75,709
Ps. 495,722
75,776
Total
Ps. 577,236
Ps. 571,498
Note 18 - Information by business segments:
18.1 Segment reporting
The Company manages and evaluates its continuing operations through three business segments: Mexico
(retail stores located in Mexico and financial sector), USA, (foreign retail stores) and Other (wholesale,
manufacturing of furniture and footwear catalog business). These operating segments are managed
jointly as the products they offer and the markets they serve are similar. Their activities are carried out
through several subsidiary companies.
The Company’s management uses information from the income statements by segments to evaluate
performance, make general operating decisions and assign resources. The information by business
segment is as follows:
2013
Mexico
USA
Subtotal
Intersegment
Consolidated
Net sales(1)
Interest earned from customers
Ps. 6,456,134
2,965,195
Ps. 817,597
375,509
Ps. 440,191
202,172
Ps. 7,713,922
3,542,876
(Ps. 389,985)
(179,113)
Ps. 7,323,937
3,363,763
Total revenues
Ps. 9,421,329
Ps.1,193,106
Ps. 642,363
Ps. 11,256,798
(Ps. 569,098)
Ps.10,687,700
Cost of sales
(4,951,010)
Gross profit (loss)
Operating expenses(2)
Other
(665,368)
(543,584)
(6,159,962)
566,763
(5,593,199)
4,470,319
527,738
98,779
5,096,836
(2,335)
5,094,501
(3,238,095)
(457,744)
(95,293)
(3,791,132)
46,010
(3,745,122)
(2,623)
(7,129)
28,119
(43,762)
67,371
(3,643)
1,333,823
(87)
Other income (expenses), net
37,871
Operating profit (loss) before
depreciation and amortization
1,270,095
Depreciation and amortization
(228,784)
(2,644)
(3,664)
Operating profit (loss)
Ps. 1,041,311
Ps.
64,727
(Ps.
Additional disclosures:
Capital expenditure
Ps.
157,558
Ps.
5,234
Ps.
Adjusted EBITDA
Ps. 1,787,304
Ps.
67,371
(Ps.
(235,092)
7,307) Ps. 1,098,731
87)
163,242
Ps.
-
3,643) Ps. 1,851,032
(Ps.
87)
Ps.
1,333,736
(Ps.
450
(15,643)
(235,092)
Ps. 1,098,644
Ps.
163,242
Ps. 1,850,945
2012
Mexico
Net sales(1)
Interest earned from customers
$
Total revenues
$
Cost of sales
Gross profit (loss)
Operating expenses
(2)
USA
Other
5,947,732
2,684,202
$
854,827
385,782
$
8,631,934
$ 1,240,609
$
Subtotal
Intersegment
467,339
210,909
$
7,269,898
3,280,893
($
678,248
$
10,550,791
($
(4,531,389)
(678,139)
(612,352)
(5,821,880)
4,100,545
562,470
65,896
4,728,911
(3,005,002)
(467,461)
(90,193)
(3,562,656)
Consolidated
448,708)
(202,500)
$
651,208)
$
642,708
6,821,190
3,078,393
9,899,583
(5,179,172)
(8,500)
4,720,411
42,201
(3,520,455)
Other income (expenses), net
129,010
580
(11,976)
117,614
(40,901)
76,713
Operating profit (loss) before
depreciation and amortization
1,224,553
95,589
(36,273)
1,283,869
(7,200)
1,276,669
(6,626)
(3,984)
Depreciation and amortization
Operating profit (loss)
(230,886)
$
993,667
$
88,963
$
(241,496)
(40,257) $
1,042,373
($
Additional disclosures:
Capital expenditure
$
73,977
$
4,332
$
731
$
79,040
$
Adjusted EBITDA
$
1,660,996
$
95,589
($
36,273) $
1,720,312
($
(1) Net sales realized in the respective countries shown above.
(2) Excluding depreciation and amortization.
(7,200)
7,200)
(241,496)
$
1,035,173
$
79,040
$
1,713,112
18.2 Evaluation of operating performance
The Company evaluates operating performance based on a measure denominated “adjusted EBITDA”,
which consists of adding to the operating profit, interest expense on bank deposits, and depreciation and
amortization. The adjusted EBITDA is not a measure of financial performance under IFRS and should
not be considered as an alternative to net income as a measure of operating performance or cash flow as a
measure of liquidity.
The reconciliation between Adjusted EBITDA and operating profit for the periods ended September 3o is
as follows:
Operating profit
Interest expense on bank deposits
Depreciation and amortization
Adjusted EBITDA
2013
2012
Ps. 1,098,644
Ps. 1,035,173
517,209
235,092
436,443
241,496
Ps. 1,850,945
Ps. 1,713,112
18.3 Sales by product
Net sales by product for the periods ended September 30 were as follows:
2013
Interest earned from customers
Furniture
Electronics
Household Appliances
Mobile phones
Motorcycles
Computers
Clothing and footwear
Seasonal products (air conditioners, heaters, etc.)
Income from commercial banking
Electronic appliances
Sport articles
Children’s articles and accessories
Other(1)
2012
Ps. 3,363,763
1,578,808
1,145,184
1,142,134
853,759
571,146
549,494
328,735
302,336
140,217
100,841
76,780
19,535
514,968
Ps. 3,078,393
1,563,727
1,053,471
920,143
625,547
403,419
511,854
313,302
350,797
130,793
113,431
112,765
32,148
689,793
Ps. 10,687,700
Ps. 9,899,583
(1) Includes primarily revenues from guarantees granted and sales through the commercial program
denominated “Famsa to Famsa”.
Exhibit B: Audited Consolidated Financial Statements
as of December 30, 2011 and 2012
See attached.
As of December 31, 2012
TABLE OF CONTENTS
I.
Consolidated Financial Statements (AUDITED)…………………………………..
II. Report of Independent Auditors…………………..………………………………….
III. Notes to the Consolidated Financial Statements………………………………….
This report contains, or may be deemed to contain, forward-looking statements. By their nature, forwardlooking statements involve risks and uncertainties because they relate to events and depend on
circumstances that may or may not occur in the future. The future results of Grupo Famsa, S.A.B. de C.V.
and its subsidiaries may differ from the results expressed in, or implied by, the forward-looking statements
set out herein, possibly to a material degree.
I. CONSOLIDATED FINANCIAL STATEMENTS (AUDITED)
Grupo Famsa, S.A.B. de C.V. and Subsidiaries
Consolidated Balance Sheet as of December 31
Thousands of Mexican Pesos
2012
2011
Assets
CURRENT ASSETS:
Cash and cash equivalents
Trade receivables, net
Recoverable taxes
Other accounts receivable
Inventories
Ps
Total current assets
NON-CURRENT ASSETS:
Restricted cash
Trade receivables, net
Property, leasehold improvements, and
furniture and equipment, net
Goodwill and intangible assets, net
Guarantee deposits
Deferred income tax
Total assets
Ps
1,528,727
18,546,393
1,135,713
712,927
1,950,663
5.3%
63.8%
3.9%
2.5%
6.7%
23,874,423
1,261,454
17,217,837
1,279,064
508,222
2,009,750
4.6%
62.9%
4.7%
1.9%
7.3%
82.1%
22,276,327
254,905
669,065
0.9%
2.3%
189,901
670,738
81.3%
0.0%
0.0%
0.7%
2.4%
2,370,018
299,572
53,910
1,548,033
8.2%
1.0%
0.2%
5.3%
2,486,286
298,112
61,952
1,402,792
9.1%
1.1%
0.2%
5.1%
0.0%
29,069,926 100.0%
Ps
Ps
27,386,108 100.0%
0.0%
0.0%
Liabilities and Stockholders’ equity
CURRENT LIABILITIES:
Demand deposits and time deposits
Short-term debt
Suppliers
Accounts payable and accrued expenses
Deferred income from guarantee sales
Income tax payable
Ps
Total current liabilities
NON-CURRENT LIABILITIES
Time-deposits
Long-term debt
Deferred income from guarantee sales
Employee benefits
Total non-current liabilities
8,382,497
2,583,831
1,562,613
603,464
239,245
26,556
28.8%
8.9%
5.4%
2.1%
0.8%
0.1%
13,398,206
Ps
7,528,884
2,426,638
1,483,106
776,468
288,379
12,679
27.5%
8.9%
5.4%
2.8%
1.1%
0.0%
46.1%
12,516,154
3,616,767
3,563,611
116,387
85,240
12.4%
12.3%
0.4%
0.3%
2,907,190
3,750,700
122,859
74,689
45.7%
0.0%
0.0%
10.6%
13.7%
0.4%
0.3%
7,382,005
25.4%
6,855,438
20,780,211
71.5%
19,371,592
Stockholders’ equity:
Capital stock
Additional paid-in capital
Retained earnings
Net income
Reserve for repurchase of shares
Foreign currency translation adjustment
1,458,286
2,778,226
3,513,827
322,850
130,000
60,395
5.0%
9.6%
12.1%
1.1%
0.4%
0.2%
1,458,286
2,778,226
3,308,588
227,424
110,000
108,610
25.0%
0.0%
70.7%
0.0%
0.0%
5.3%
10.1%
12.1%
0.8%
0.4%
0.4%
0.0%
Total stockholders’ equity attributable to
shareholders
Non-controlling interest
8,263,584
26,131
28.4%
0.1%
7,991,134
23,382
0.0%
29.2%
0.1%
0.0%
Total stockholders’ equity
8,289,715
28.5%
8,014,516
Total liabilites
Total liabilities and stockholders’ equity
Ps
29,069,926 100.0%
Ps
29.3%
0.0%
27,386,108 100.0%
Grupo Famsa, S.A.B. de C.V. and Subsidiaries
Consolidated Income Statement from January 1 to December 31
Thousands of Mexican Pesos
2012
Total revenues
Ps
Cost of sales
Gross profit
Selling and administrative expenses
Other income (expenses), net
2011
14,123,528
100.0%
(7,536,148)
Ps
13,865,739
100.0%
-53.4%
(7,571,078)
-54.6%
6,587,380
46.6%
6,294,661
45.4%
(5,183,260)
70,980
-36.7%
0.5%
(5,170,189)
(46,253)
-37.3%
-0.3%
(5,112,280)
-36.2%
(5,216,442)
-37.6%
Operating profit
1,475,100
10.4%
1,078,219
7.8%
Financial expenses
Financial income
(722,345)
63,970
-5.1%
0.5%
(777,317)
1,376
-5.6%
0.0%
Financial expenses, net
(658,375)
-4.7%
(775,941)
-5.6%
Profit before income tax
816,725
5.8%
302,278
2.2%
Income tax
107,332
0.8%
149,459
1.1%
Profit before discontinued operations
924,057
6.5%
451,737
3.3%
(598,458)
-4.2%
(221,776)
-1.6%
Discontinued operations
Consolidated net income
Ps
325,599
2.3%
Ps
229,961
1.7%
Net income attributable to:
Controlling interest
Non-controlling interest
Ps
322,850
2,749
2.3%
0.0%
Ps
227,424
2,537
1.6%
0.0%
Consolidated net income
Ps
325,599
2.3%
Ps
229,961
1.7%
Grupo Famsa, S.A.B. de C.V. and Subsidiaries
Consolidated Cash Flow Statement from January 1 to December 31
Thousands of Mexican Pesos
2012
2011
Operating activities
Profit before income tax
Ps
Depreciation and amortization
Allow ance for doubtful receivables
Gain on sale of property, leasehold improvements, furniture and equipment
Estimated liabilities for labor benefits
Interest income
Interest expenses
Trade receivables
Inventories
Other accounts receivable
Suppliers
Accounts payable and accrued expenses
Income tax paid
Demand deposits and time deposits
Interests to bank depositors
Exchange gain and losses, net
816,725
Ps
302,278
314,397
1,173,362
(1,279)
15,731
(1,757)
1,312,145
(2,476,844)
(308,934)
(128,938)
87,437
(647,281)
(39,619)
1,563,190
(589,799)
(112,969)
350,674
1,166,828
(2,473)
16,171
(1,376)
1,200,540
(2,581,781)
(420,122)
(162,583)
(40,834)
(856,481)
(25,873)
1,528,776
(526,450)
542,882
975,567
490,176
Acquisition of property, leasehold improvements, furniture and equipment
Proceeds from sale of property, leasehold improvements, furniture and equipment
Interest received
(201,597)
9,829
1,757
(240,024)
5,081
1,376
Net cash flow used in investing activities
(190,011)
(233,567)
Interest paid
Proceeds from current and non-current debt and bank loans
Payments of current and non-current debt and bank loans
(718,948)
300,040
(103,585)
(623,595)
2,607,704
(1,927,876)
Net cash flow (used in) from financing activities
(522,493)
56,233
263,063
312,842
4,210
11,419
1,261,454
937,193
Net cash flow s from operating activities
Investing activities
Financing activities
Increase in net cash and cash equivalents
Adjustments to cash flow as a result of changes in exchange rates
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
Ps
1,528,727
Ps
1,261,454
Grupo Famsa, S.A.B. de C.V. and Subsidiaries
Consolidated Statement of Changes in Stockholders’ Equity
for the years 2012 and 2011 from January 1 to December 31
Thousands of Mexican Pesos
Additional
paid-in
capital
Capital
stock
Balances as of January 1, 2011
Comprehensive income:
Net income
Actuarial gains
Foreign currency translation adjustment
Total comprehensive income
Balances as of December 31, 2011
Transactions with owners of the Company:
Increase in the reserve for repurchase of shares
Comprehensive income:
Net income
Actuarial losses
Foreign currency translation adjustment
Total comprehensive income
Balances as of December 31, 2012
Retained
earnings
Reserve for
repurchase
of shares
Effects
of foreign
currency
translation
Ps
Ps 1,458,286
Ps 2,778,226
Ps 3,305,928
Ps 110,000
-
-
227,424
2,660
-
-
Total
stockholders
Total
equity attributable non-controlling
to shareholders
interest
Total
stockholders
equity
-
Ps 7,652,440
Ps 20,845
Ps 7,673,285
108,610
227,424
2,660
108,610
2,537
-
229,961
2,660
108,610
-
-
230,084
-
108,610
338,694
2,537
341,231
1,458,286
2,778,226
3,536,012
110,000
108,610
7,991,134
23,382
8,014,516
-
-
(20,000)
20,000
-
-
-
-
-
-
322,850
(2,185)
-
-
-
-
320,665
-
Ps 1,458,286
Ps 2,778,226
Ps 3,836,677
Ps 130,000
(48,215)
(48,215)
Ps 60,395
322,850
(2,185)
(48,215)
2,749
-
325,599
(2,185)
(48,215)
272,450
2,749
275,199
Ps 8,263,584
Ps 26,131
Ps 8,289,715
II. REPORT OF INDEPENDENT AUDITORS
Monterrey, N. L., April 15, 2013
To the Stockholders’ Meeting of
Grupo Famsa, S. A. B. de C. V.
We have audited the accompanying consolidated financial statements of Grupo Famsa, S. A. B. de C. V.,
and subsidiaries, which comprise the consolidated statement of financial position as at December 31, 2012
and 2011, and January 1, 2011, and the consolidated statements of income, comprehensive income,
changes in stockholders' equity and cash flows for the years ended December 31, 2012 and 2011, and a
summary of significant accounting policies and other explanatory information.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial
statements in accordance with International Financial Reporting Standards, and for such internal control
as management determines is necessary to enable the preparation of consolidated financial statements
that are free from material misstatement, whether due to fraud or error.
Auditor's Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with International Standards on Auditing. Those standards
require that we comply with ethical requirements and plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
the consolidated financial statements. The procedures selected depend on the auditor's judgment,
including the assessment of the risks of material misstatement of the financial statements, whether due to
fraud or error. In making those risk assessments, the auditor considers internal control relevant to the
entity’s preparation and fair presentation of the consolidated financial statements in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on
the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of
the accounting policies used and the reasonableness of accounting estimates made by management, as
well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our audit opinion.
Opinion
In our opinion, the accompanying consolidated financial statements present fairly, in all material
respects, the consolidated financial position of Grupo Famsa, S. A. B. de C. V. and its subsidiaries at
December 31, 2012 and 2011, and January 1, 2011, and their financial performance and their cash flows
for the years ended December 31, 2012 and 2011, in accordance with International Financial Reporting
Standards.
PricewaterhouseCoopers, S. C.
Juan Gerardo Pérez Lara
Audit Partner
III. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
GRUPO FAMSA, S. A. B. DE C. V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011, AND JANUARY 1, 2011
Thousands of Mexican Pesos
(except where otherwise indicated)
Note 1 - General information:
Grupo Famsa, S. A. B de C. V. and subsidiaries (hereinafter, “Famsa”, “Company” or “Grupo Famsa”) is a
leading company in the Mexican retail sector, satisfying families’ different purchasing, financing and savings
needs. The Company is controlled by a trust whose beneficiaries are the Garza Valdéz family. The address
of the Company and its corporate office is Ave. Pino Suárez No. 1202 Nte., Zona Centro, Monterrey,
Nuevo León, Mexico. Grupo Famsa started operations in 1970.
Grupo Famsa has developed a solid portfolio of complementary businesses based on consumer credit and
savings, which supports a large part of the financing needs of its operations. As of December 31, 2012, Grupo
Famsa operates a network of 355 stores with 304 bank branches in 26 Mexican states, as well as 25 stores in
two of the states with the largest Hispanic population in the United States of America (USA), focused on
selling various types of electronic appliances, furniture, clothing, household appliances, cellular phones,
motorcycles and other consumer durable goods. The sales operations are carried out in cash and by credit,
wholesale and directly to the general public.
The Company is listed on the Mexican Stock Exchange, and in order to perform its financial activities in
Mexico it has obtained the authorization of the Ministry of Finance and Public Credit to operate Banco
Ahorro Famsa, S. A. Institución de Banca Múltiple as established by the Mexican Law of Credit Institutions,
under the supervision and surveillance of the National Banking and Securities Commission (the
Commission) and Banco de México (Banxico).
The consolidated financial statements were authorized for issuance on April 15, 2013, by the Company
officers who have signed the consolidated financial statements and the accompanying notes. They are
subject to the approval of the ordinary shareholders’ meeting, which is legally empowered to make such
changes as it considers necessary.
Note 2 - Significant events:
1.
Discontinued operation:
During 2012, the Company closed stores in the states of California, Arizona and Nevada (“Western
USA” region) and simultaneously the US operations were concentrated in the stores located in the
states of Texas and Illinois (“Eastern USA” region).
Grupo Famsa classified the Western USA region operation as a discontinued operation in accordance
with IFRS 5 "Non-current assets held for sale and discontinued operations".
The analysis of the results of the discontinued operation for the years ended December 31, 2012 and
2011, is as follows:
Net sales
Operating expenses
Allowance for doubtful receivables
Cost of goods sold
Financing expenses
Freights
Other expenses, net
Loss before tax from discontinued operations
2012
2011
Ps. 392,105
Ps. 1,267,309
(421,781)
(368,704)
(189,753)
(7,417)
(2,828)
(80)
(668,769)
(222,691)
(574,980)
(11,776)
(2,180)
(8,689)
(990,563)
(1,489,085)
(598,458)
(221,776)
Tax on discontinued operations
Loss after tax from discontinued operations
(Ps. 598,458)
(Ps. 221,776)
The net cash flow from discontinued operations is attributable to operating activities.
2.
Refinancing of debt:
As part of a debt-refinancing program, Grupo Famsa undertook the following actions:
i. On February 15, 2012, the Company issued notes for US$40 million at a rate of 8.50%, under a
euro commercial paper program established in 2009 for a total of US$100 million. The net
proceeds were used by the Company to refinance the existing debt which matured on February
15, 2013. This program was renewed on February 4, 2013 with a new maturity of February 4,
2014, and with the amount increased to US$50 million, at a rate of 7.36%.
ii. On March 25, 2011, the Company issued debt certificates for an aggregate principal amount of Ps.
1,000 million at a rate of 280 basis points over the equilibrium interbank interest rate (TIIE for
its acronym in Spanish), maturing in 2014. The net proceeds of this issue were used to refinance
debt. This commercial paper is guaranteed by the retail, manufacturing and other subsidiaries.
3.
New legal entity
In August 2011, through Famsa, Inc. in the United States, a new legal entity entitled Famsa Financial,
Inc. was established, aimed at granting personal loans in the state of Texas. In order to perform this
operation, 36 licenses were obtained from the Office of the Consumer Credit Commission of the State of
Texas (OCCC).
Note 3 - Summary of significant accounting policies:
The most significant accounting policies applied in the preparation of these consolidated financial
statements are summarized as follows. These policies have been consistently applied in the reporting
years, unless otherwise indicated.
3.1 Basis of preparation
The consolidated financial statements of Grupo Famsa, S.A.B. de C.V. and subsidiaries have been
prepared in accordance with the International Financial Reporting Standards (“IFRS”) issued by the
International Accounting Standards Board (“IASB”). The IFRS include all effective International
Accounting Standards (“IAS”), and the related interpretations issued by the International Financial
Reporting Interpretations Committee (“IFRIC”), including those issued previously by the Standing
Interpretations Committee (“SIC”).
In accordance with the amendments to the Rules for Public Companies and Other Participants in the
Mexican Stock Exchange, issued by the Mexican National Banking and Securities Commission on January
27, 2009, the Company is required to prepare its financial statements under IFRS starting in 2012.
For comparison purposes, the consolidated financial statements as of December 31, 2011 and the
consolidated statement of financial position as of January 1, 2011, have been prepared in accordance with
IFRS.
The Company changed its accounting policies from Mexican Financial Reporting Standards (“MFRS”) to
comply with IFRS as of January 1, 2012. The transition from MFRS to IFRS has been recorded in
accordance with IFRS 1, setting January 1, 2011 as the transition date. The reconciliation of the effects of
the transition from MFRS to IFRS is disclosed in Note 26 to these consolidated financial statements.
The consolidated financial statements have been prepared on a historical cost basis, except for the
exemptions applied by the Company disclosed in Note 26.
The preparation of the consolidated financial statements in accordance with IFRS requires the use of
certain critical accounting estimates. Additionally, it requires the Company’s management to use
judgment in the process of applying the accounting policies of the Company. The areas involving a high
degree of judgment or complexity and areas where judgments and estimates are significant to the
consolidated financial statements are disclosed in Note 5.
3.2 Basis for consolidation
a. Subsidiaries
Subsidiaries are all 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. Subsidiaries are fully consolidated
from the date on which control is transferred to the Company. They are de-consolidated from the date
that control ceases.
Inter-company transactions and balances and unrealized gains between Famsa companies are eliminated
in the preparation of the consolidated financial statements. Unrealized losses are eliminated unless the
transaction provides evidence of impairment in the asset transferred. Accounting policies of subsidiaries
have been changed where necessary to ensure consistency with the policies adopted by the Company.
As of December 31, 2012 and 2011, and January 1, 2011, the shareholding ownership percentages are as
follows:
As of
December 31,
2012
Retail sales
Fabricantes Muebleros, S. A. de C. V.
Famsa del Centro, S. A. de C. V.
Famsa del Pacífico, S. A. de C. V.
Famsa Metropolitano, S. A. de C. V.
Famsa México, S. A. de C. V. (1)
Impulsora Promobien, S. A. de C. V.
Famsa, Inc., a subsidiary organized under the laws
of California and headquartered in California, U.S.A. (Famsa USA)
% of ownership
As of
December 31,
2011
As of
January 1,
2011
99.93
100.00
100.00
99.94
99.38
99.04
99.93
100.00
100.00
99.94
99.04
99.93
100.00
100.00
99.94
99.04
100.00
100.00
100.00
100.00
99.21
99.99
99.99
100.00
99.21
99.99
99.99
100.00
99.21
99.99
99.99
Manufacturing and other
Auto Gran Crédito Famsa, S. A. de C. V.
Expormuebles, S. A. de C. V.
Mayoramsa, S. A. de C. V.
Verochi, S. A. de C. V.
Geografía Patrimonial, S. A. de C. V.
99.99
99.90
99.89
99.92
53.75
99.99
99.90
99.89
99.92
53.75
99.99
99.90
99.89
99.92
53.75
Financial sector
Banco Ahorro Famsa, S. A., Institución de Banca Múltiple (BAF)
99.79
99.79
99.79
Administrative services
Corporación de Servicios Ejecutivos Famsa, S. A. de C. V.
Corporación de Servicios Ejecutivos, S. A. de C. V.
Promotora Sultana, S. A. de C. V.
Suministro Especial de Personal, S. A. de C. V.
(1) Company established on December 21, 2012.
b. Transactions with non-controlling interest
The Company has the policy of recognizing transactions with entities in which it has a non-controlling
interest as transactions with the owners of the Company. In purchases of non-controlling interest, the
difference between the consideration paid and the interest acquired in the carrying value of the net assets
of the subsidiary is recorded in equity. Gains and losses from disposal of non-controlling interest are also
recognized in equity.
c. Disposal of subsidiaries
When the Company ceases to have control any retained interest in the entity is remeasured at its fair value
at the date when control is lost, with the change in carrying amount recognized in profit or loss. The fair
value is the initial carrying amount for the purposes of subsequently accounting for the retained interest
as an associate, joint venture or financial asset. In addition, any amounts previously recognized in other
comprehensive income in respect of that entity are accounted for as if the Company had directly disposed
of the related assets or liabilities. This may mean that amounts previously recognized in other
comprehensive income are reclassified to profit or loss.
3.3 Business segment information
Operating segments are reported in a manner consistent with the internal reporting provided to the Chief
Operating Decision-Maker. The officer responsible for allocating resources and assessing performance of
the operating segments has been identified as the Chief Executive Officer.
With respect to the years presented, December 31, 2012 and 2011, and January 1, 2011, the Company has
operated on the basis of business segments. These segments have been determined considering the
geographical areas. See Note 25.
The statement of comprehensive income shows the financial information in the way that management
analyzes, conduct and controls the business.
3.4 Foreign currency translation
a.
Functional and presentation currency
Items included in the financial statements of each of the Company’s entities are measured using the
currency of the primary economic environment in which the entity operates (the functional currency).
The consolidated financial statements are presented in Mexican pesos, which is the functional currency of
the Company’s subsidiaries, except for Famsa, Inc., whose functional currency is the United States dollar.
b. Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates
prevailing at the dates of the transactions or of valuation when the amounts are revalued. Foreign
exchange gains and losses resulting from the settlement of such transactions and from the translation at
year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are
recognized in the statement of comprehensive income.
c.
Translation of entities with a functional currency different from the presentation currency
The results and financial position of Famsa, Inc., which operates in the USA, are translated into the
presentation currency as follows:
-
Assets and liabilities for each statement of financial position are translated at the closing rate at the
date of such statement of financial position.
-
Income and expenses recognized in the statement of comprehensive income are translated at
average exchange rates (unless this average is not a reasonable approximation of the cumulative
effect of the rates prevailing on the transaction dates, in which case income and expenses are
translated at the rates on the dates of the transaction), and;
-
The capital stock recognized in the statement of financial position is translated at historical
exchange rates. All resulting exchange differences are recognized in other comprehensive income.
3.5 Cash and cash equivalents
Cash and cash equivalents include cash balances, bank deposits and other highly liquid investments with
original maturities of less than three months with minor risk of changes in value. Cash is presented at
nominal value and cash equivalents are measured at fair value; the changes in value are recognized in
profit or loss of the period. Cash equivalents consist primarily of investments in government securities.
3.6 Restricted cash
Restricted cash represents limited cash in BAF and it comprises: a) deposits required by monetary
regulations with Banco de México, which earn a bank funding rate, b) inter-bank short-term loans whose
term does not exceed three working days, and c) purchased foreign currency, whose settlement date is
agreed subsequently to the transaction date.
3.7 Financial instruments
3.7.1 Financial assets
The Company classifies its financial assets as loans and receivables. The classification depends on the
purpose for which the financial assets were acquired. Management determines the classification of its
financial assets at the date of initial recognition.
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 maturities greater than 12
months after the end of the reporting period. These are classified as non-current assets. The Company’s
financial assets comprise trade receivables, other accounts receivable, cash and cash equivalents, and
restricted cash, in the statement of financial position.
Trade receivables are amounts due from customers for merchandise sold or services performed in the
ordinary course of business. If collection is expected in one year or less (or in the normal operating cycle
of the business if longer), they are classified as current assets. If not, they are presented as non-current
assets.
Trade receivables are recognized initially at fair value and subsequently measured at amortized cost using
the effective interest rate method, less any impairment allowance.
Financial assets are derecognized when the rights to receive cash flows from the investments have expired
or have been transferred and the Company has transferred substantially all risks and rewards of
ownership. If the Company neither transfers nor retains substantially all the risks and rewards of
ownership and continues to retain control of the transferred asset, the Company recognizes its interest in
the asset and the associated liability for the amounts it would pay. If the Company retains substantially all
the risks and rewards of ownership of a transferred financial asset, the Company continues to recognize
the financial asset and also recognizes a liability for the amounts received.
3.7.2 Accounts payables
Trade payables are obligations to pay for goods or services that have been acquired or received in the
ordinary course of business from suppliers. Loans are initially recognized at fair value, net of transaction
costs incurred. Loans are subsequently recognized at amortized cost, any difference between the amounts
received (net of transaction costs) and the settlement value being recognized in the statement of
comprehensive income over the term of the loan using the effective interest method.
Financial liabilities are initially recognized at fair value and are subsequently measured at amortized cost
using the effective interest method. Liabilities in this category are classified as current liabilities if they are
expected to be settled within the next 12 months, otherwise they are classified as non-current.
Financial assets and liabilities are offset and the net amount reported in the statement of financial
position when there is a legally enforceable right to offset the recognized amounts and there is an
intention to settle on a net basis or realize the asset and settle the liability simultaneously.
3.7.3. Impairment of financial assets
The Company assesses at the end of each reporting period whether there is objective evidence that a
financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is
impaired and impairment losses are incurred only if there is objective evidence of impairment as a result
of one or more events that occurred after the initial recognition of the asset (a ‘loss event’) and if that loss
event (or events) has an impact on the estimated future cash flows of the financial asset or group of
financial assets that can be reliably estimated.
For loans and receivables, if impairment exists, the amount of the loss is measured as the difference
between the asset’s carrying amount and the present value of estimated future cash flows (excluding
future credit losses that have not been incurred) discounted at the original effective interest rate. The
carrying amount of the asset is reduced and the amount of the loss is recognized in the consolidated
income statement in the line administrative expenses.
If in a subsequent period the amount of the impairment loss decreases and the decrease can be related
objectively to an event occurring after the impairment was recognized (such as an improvement in the
debtor’s credit rating), the reversal of the previously recognized impairment loss is recognized in the
statement of comprehensive income.
3.8 Other accounts receivable
The Company classifies as other receivables all credits or advances to employees and other persons or
companies other than the general public. If the receivables are expected to be collected within 12 months
of the end of the financial year, they are classified as current, if not they are classified as non-current.
3.9 Advance payments
The Company classifies as advance payments the payments for advertising in mass media, mainly
television and press. These amounts are recognized at the value of the related agreements and are charged
to income as they are accrued. In no case do the contracted amounts exceed one year.
3.10 Inventories
Inventories are stated at the lower of cost and net realizable value. The cost comprises the cost of goods
plus import costs, freight, handling, shipping and warehousing in customs and distribution centers,
decreased by the value of respective returns. Net realizable value is the estimated selling price in the
ordinary course of business, less applicable variable selling expenses. The cost is determined using the
average cost method.
3.11 Property, leasehold improvements, and furniture and equipment
Property, leasehold improvements, and furniture and equipment are recognized at cost less accumulated
depreciation and any accumulated impairment losses. The cost includes expenses directly attributable to
the acquisition of the asset and all the costs associated with the placement of the asset in its location and
in the necessary conditions so that it can operate in the manner intended by the management.
Costs for extension, remodeling or improvements representing an increase in the capacity and therefore
an extension of the useful life of the assets are also capitalized. The expenses for maintenance and repairs
are charged to the statement of comprehensive income in the period they are incurred. The carrying
amount of the replaced assets is derecognized when replaced, with all effects being taken to the statement
of comprehensive income.
Improvements in process represent stores under construction and include investments and all costs
directly attributable to placing them in operating conditions. The reclassification of these investments is
made when the store opens and deprecation of the assets commences.
Depreciation on the assets is calculated using the straight-line method to allocate their cost to their
residual values over their estimated useful lives, as follows:
Buildings and construction
Furniture and equipment
Transportation equipment
Data-processing equipment
Leasehold improvements
33 years
11 years
5 years
4 years
Over the effective period of the leasing
agreement
Residual values, useful lives and depreciation of assets are reviewed and adjusted, if necessary, at the date
of each statement of financial position.
The book value of an asset is written down to its recoverable amount if the asset’s carrying amount is
higher than its estimated recoverable amount.
Gains and losses on the sale of assets result from the difference between the proceeds from the transaction
and the carrying value of the assets. These are included in the statement of comprehensive income within
other income (expenses), net.
3.12 Goodwill and intangible assets
a. Goodwill
Goodwill arises on the acquisition of subsidiaries and represents the excess of the consideration
transferred over the interest in the fair value of the net identifiable assets, liabilities and contingent
liabilities of the acquire and the fair value of the non-controlling interest in the acquiree.
For the purpose of impairment testing, goodwill acquired in a business combination is allocated to each of
the cash generating units, or groups of cash generating units, that is expected to benefit from the
synergies of the combination. Each unit or group of units to which the goodwill is allocated represents the
lowest level within the entity at which the goodwill is monitored for internal management purposes.
Goodwill is monitored at the operating segment level.
Goodwill impairment reviews are undertaken annually or more frequently if events or changes in
circumstances indicate a potential impairment. The carrying value of goodwill is compared to the
recoverable amount, which is the higher of the value in use and the fair value less costs to sell. Any
impairment is recognized immediately as an expense and is not subsequently reversed.
b. Systems development and computer software
Intangible assets associated with systems development and computer software programs involve the plan
or design and the development of a new or substantially improved software or computer systems.
Development costs are capitalized only when the following criteria are met:
-
It is technically feasible to complete the software product so that it will be available for use;
-
Management intends to complete the software product and use or sell it;
-
There is an ability to use or sell the software product;
-
It can be demonstrated how the software product will generate probable future economic benefits;
-
Adequate technical, financial and other resources to complete the development and to use or sell the
software product are available; and
-
The expenditure attributable to the software product during its development can be reliably
measured.
Acquired licenses for the use of programs, software and other systems are capitalized at the value of costs
incurred for the acquisition and preparation for use. Other development costs that do not meet these
criteria and research expenses, as well as maintenance, are recognized in the statement of income within
administrative expenses as incurred. Development costs previously recognized as an expense are not
recognized as an asset in subsequent periods.
These assets are amortized based on their estimated useful life, which is 6 years.
3.13 Impairment of non-financial assets
Assets that have an indefinite useful life, including goodwill, are not subject to amortization and are tested
annually for impairment. Assets that are subject to amortization are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount may not be recoverable. An
impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its
recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and its
value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which
there are separately identifiable cash flows (cash-generating units). Non-financial assets other than
goodwill that suffered impairment are reviewed for possible reversal of the impairment at each reporting
date.
3.14 Demand deposits and time-deposits
The Company’s funding liabilities include interest-bearing demand deposits (savings deposits and
checking accounts) as well as time-deposits (certificates of deposits and promissory notes). These
liabilities are recorded at the contracted transaction value plus accrued interest, determined by the days
elapsed at the end of each month, which is charged to income on an accrual basis.
3.15 Provisions
Provisions represent present obligations from past events where an outflow of economic resources is
probable. These provisions have been recognized under the best estimate made by Management.
3.16 Income taxes
The tax expense for the period comprises current and deferred tax. Tax is recognized in the
comprehensive income statement, except to the extent that it relates to items recognized in other
comprehensive income or directly in equity.
Current income tax comprises the income tax and the flat rate business tax, which are recognized in profit
or loss of the year when they are incurred. The current tax is the higher of income tax and flat rate tax for
the year. These taxes are based on taxable income and cash flows for each year, respectively.
The current income tax charge is calculated on the basis of the tax laws enacted at the statement of
financial position date in Mexico and in other count where 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.
To recognize deferred income taxes the Company determines whether, based on its financial projections,
the Company will pay income tax or flat tax and recognizes the deferred taxes that correspond to the tax
payable each year. Deferred income tax is provided in full, based on the assets-and-liabilities-method, on
temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in
the consolidated financial statements. The deferred income tax is determined using tax rates and laws that
have been enacted or substantially enacted by the statement of financial position date and are expected to
apply when the deferred income tax asset is realized or the deferred income tax liability is settled.
The income tax rate for 2013 will be 30% and for 2014 and 2015 will be 29% and 28%, respectively. The
flat rate business tax is 17.5%.
Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit
will be available against which the temporary differences can be utilized.
Deferred income tax is provided on temporary differences arising on investments in subsidiaries, 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 income tax assets and liabilities are offset when there is a legally enforceable right to offset
current tax assets against current tax liabilities and when the deferred income taxes assets and liabilities
relate to income taxes levied by the same taxation authority on either the same taxable entity or different
taxable entities where there is an intention to settle the balances on a net basis.
3.17 Employee benefits
a.
Short-term benefits
The Company provides benefits to employees in the short term, which may include wages, salaries,
annual compensation and bonuses payable within 12 months.
b.
Pensions and seniority premium
The Company has defined benefit plans. A defined benefit pension plan is a plan that defines the
amount of pension benefits to be received by an employee in his or her retirement, usually depending
on one or more factors, such as the employee’s age, years of service and compensation.
The liability recognized in the statement of financial position in respect of defined benefit pension
plans is the present value of the defined benefit obligation at the end of the reporting period, together
with adjustments for unrecognized actuarial gains and losses and 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 future cash outflows using interest rates of government bonds that are denominated in the
currency in which the benefits will be paid, and that have terms to maturity approximating the terms
of the related pension obligation.
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.
The Company has no plan assets.
The Company early-adopted IAS 19 (revised) “Employee Benefits”. The application of this standard is
mandatory from January 1, 2013 but early adoption is allowed.
c.
Employee profit sharing and bonuses
The Company recognizes a liability and an expense for bonuses and profit-sharing, based on a
formula that takes into consideration the taxable income after certain adjustments. The Company
recognizes a provision where contractually obligated or where there is a past practice that has created
a constructive obligation.
d.
Termination benefits for indemnities established in labor laws
Termination benefits are payable and recognized in the statement of comprehensive income of the
period when employment is terminated by the Company before the normal retirement date, or
whenever an employee accepts voluntary redundancy in exchange for these benefits.
e.
Other employee benefits
The Company grants benefits to its employees who terminate their employment after more than 15
years of service. According to IAS 19 (revised) this practice constitutes an assumed obligation by the
Company with its employees which is recognized based on calculations prepared by independent
actuaries.
3.18 Stockholders’ equity
Common shares are classified as equity.
The amounts of the capital stock, legal reserve, additional paid-in capital and retained earnings are
presented at historical value, modified by the effects of inflation on the financial information recognized
as of December 31, 1997. In accordance with the requirements of IAS 29 “Financial reporting under
hyperinflationary economies”, the Mexican economy is currently
in a non-hyperinflationary
environment, maintaining an accumulated inflation for the last three years under 100% (threshold for
considering an economy as hyperinflationary), therefore from January 1, 1998 onwards the Company does
not recognize the effects of inflation on the financial information.
Legal reserve and reinvestment reserve
The net income of the year is subject to the legal provision requiring the allocation of 5% of the income for
each period to increase the legal reserve until it reaches an amount equivalent to 20% of the capital stock.
The reinvestment reserve is intended to be reinvested in the Company under shareholders agreements;
10% of the profit for the year is allocated to this reserve.
Reserve for repurchase of shares
The maximum limit for the acquisition of the Company’s own shares is determined based on stockholders’
resolutions. Shares acquired are held in treasury and their acquisition cost is charged to stockholders’
equity at their purchase price as follows: a portion is charged to capital stock at its modified historical cost
and the excess to the reserve for repurchase of shares. These amounts are stated at historical cost.
3.19 Borrowing costs
The Company capitalizes borrowing costs that are directly attributable to the acquisition, construction or
production of qualifying assets, as part of the cost of such assets. It recognizes other borrowing costs as an
expense in the period in which they are incurred.
As of December 31, 2012 and 2011, and January 1, 2011, there were no financial costs capitalized because
during these periods there were no qualifying assets in accordance with the Company’s policies. Leasehold
improvements require construction periods of less than one year.
3.20 Revenue recognition
Revenue represents the fair value of the cash collected or receivable resulting from the sale of goods or
services in the normal operating cycle of the Company. Revenues are stated net of discounts and returns
granted to customers.
The Company obtains revenues from retail operations primarily through the sale of products such as
household appliances, furniture, clothing, electronics and mobile phones, and other financial services
offered through BAF, such as the granting of personal loans.
The Company recognizes revenue when the amount of revenue can be reliably measured; when it is
probable that future economic benefits will flow to the entity; and when specific criteria have been met for
each of the Company’s activities, as described below:
Revenue from sales of goods is recognized when the customer takes possession of the goods in the stores
or when the merchandise is delivered to their domiciles. Approximately 81% of the sales are settled by
customers with cards operated by the Company, and the rest is settled in cash or through bank credit and
debit cards.
In accordance with IAS 18 “Revenue recognition”; in merchandise sales in installments, the cash
receivable is deferred over the time and therefore its fair value may be less than the nominal amount of
the sale. In these cases the Company determines the fair value of cash to be received, discounting all
future cash flows using an implied interest rate determined by reference to the prevailing market rate for
a similar instrument.
The difference between the nominal value of the sale payable in installments and the discounted value
according to the previous paragraph is recognized as interest income.
The Company’s policy is to sell certain products with the right of return. Customer returns are normally
because of some fault or imperfection in the product. However, in cases where it is clear that the
customers wish to return the product, the Company offers its customers the option to credit their account
if the purchase was made with a card operated by the Company or to credit their bank card if the purchase
was made in cash or with external cards. Experience shows that returns on sales are not significant in
relation to total sales, and therefore the Company does not create an allowance for returns.
Other revenues exist for commissions on the sale of life insurance policies which are recognized as income
when the policies are sold. Revenues from guarantees granted are recognized by the straight-line method
over the period in which this service is offered.
Interest income resulting from sale of products and personal loans is recognized as accrued, using the
effective interest rate method.
3.21 Leases
Leases are classified as finance leases when the terms of the lease transfer to the lessee substantially all
the risks and rewards of ownership. All other leases are classified as operating leases. See Note 24.
3.22 Earnings per share
Basic earnings per share is calculated dividing the profit attributable to shareholders of the Company by
the weighted average number of ordinary shares outstanding during the year. Diluted earnings per share
is calculated by adjusting the attributable profit and the weighted average number of ordinary shares
outstanding to assume conversion of all potentially dilutive ordinary shares. Basic earnings per share is
the same as diluted earnings per share because there are no transactions that may potentially dilute the
net income.
3.23 Discontinued operations
The Company considers as discontinued operations the operations and cash flows that can be clearly
distinguished from the rest of the entity, that either have been disposed of or are classified as held for sale,
and:
-
Represent a line of business or geographical area of operations.
Are part of a single coordinated plan to dispose of a line of business or geographical area of
operations, or
Is a subsidiary acquired exclusively with a view to resale.
3.24 New accounting standards
Standards, amendments and interpretations issued but not yet effective as of December 31, 2012 and
which have not been early-adopted by the Company:
• IAS 1 (amended) - “Presentation of Financial Statements”. The amendment requires entities to separate
the items presented in other comprehensive income in two groups based on whether they can be
recycled to the income statement in the future or not. Items that cannot be recycled will be presented
separately from items that can be recycled in the future. Entities that decide to present items of other
comprehensive income before taxes should show taxes related to the two groups separately. For the
Company, this amendment is effective on January 1, 2013.
• IFRS 9 - “Financial instruments”; addresses the classification, recognition and measurement of
financial assets and liabilities. IFRS 9 was issued in November 2009 and October 2010. This standard
partially replaces IAS 39 “Financial instruments: recognition and measurement” on issues relating to
the classification and measurement of financial instruments. IFRS 9 requires financial assets to be
classified in either of the following two categories: those assets measured at fair value and those
measured at amortized cost. The determination must be made at initial recognition of these assets. The
classification depends on the business model of the entity used to manage its financial instruments and
the contractual characteristics of the cash flows of the instruments. For financial liabilities, the
standard retains most of the requirements of IAS 39. The main change is that in the case of the election
of the option to use the fair value, the valuation effect related to own credit risk should be recognized as
part of comprehensive income, unless it causes an accounting mismatch. The company expects to adopt
this standard on January 1, 2015. The IASB intends to expand IFRS 9 during 2011 and 2012 to add new
requirements for derecognition of financial instruments, impairment and hedge accounting, so that by
the end of 2012 IFRS 9 will be a complete replacement of IAS 39.
• IAS 27 (amended) “Separate Financial Statements”, objective is to establish applicable standards in
accounting for investments in subsidiaries, associates and joint ventures, when an entity chooses or is
required by local regulations to present non-consolidated financial statements. This standard applies
when an entity prepares separate financial statements in accordance with IFRS. Separate financial
statements are those presented by a controlling entity, or an investor with joint control or significant
influence, in which the investments are carried at cost or in accordance with IFRS 9 Financial
Instruments. The revised standard is mandatory from January 1, 2013.
• IAS 28 (amended) “Investments in Associates and Joint Ventures”; objective is to establish the
requirements for the application of the equity method for investments in associates and joint ventures.
The standard replaces the previous version of IAS 28 “Investments in Associates”; and is mandatory
from January 1, 2013.
• IFRS 10 “Consolidated Financial Statements”, objective is to establish the principles for the
presentation and preparation of consolidated financial statements when an entity controls one or more
entities based on some of the concepts currently considered. This new standard changes the definition
of the principle of control and provides additional guidance for determining control for more complex
situations. The standard is a replacement of IAS 27 “Consolidated and Separate Financial Statements”
and SIC 12 “Consolidation - Special Purpose Entities”. The standard is mandatory from January 1,
2013.
• IFRS 11 “Joint Ventures” provides a more realistic reflection, focusing on the rights and obligations
under the agreement rather than its legal form. There are two types of joint agreements: joint
operations and joint ventures. Joint operations arise where a joint operator has rights to the assets and
obligations relating to the arrangement and hence accounts for its interest in assets, liabilities, revenue
and expenses. Joint ventures arise where the joint operator has rights to the net assets of the
arrangement and hence accounts for its interest by the equity method. Proportionate consolidation in
joint ventures is not allowed. The standard is mandatory from January 1, 2013.
• IFRS 12 “Disclosure of Interests in Other Entities” requires disclosure of information that enables users
of financial information to evaluate the nature and risk associated with its interest in other entities,
including joint arrangements, associates, special purpose entities and other off-balance sheet entities,
in addition to the effects of those interests on financial position and performance, and its cash flows.
The standard is mandatory from January 1, 2013.
• IFRS 13 “Fair Value Measurement”, objective is to define fair value and establish in a single standard a
framework for measuring fair value and disclosure requirements on these measurements. This
standard applies when other IFRS require or permit fair value measurement, except for transactions
within the scope of IFRS 2 “Share-based Payments”, IAS 17 “Leases”, measurements that have
similarities to fair value but are not considered as such, and the net realizable value under the scope of
IAS 2 “Inventories” or the value in use in IAS 36 “Impairment of Long-Lived Assets”. The standard is
mandatory from January 1, 2013.
• IAS 32 (amended) “Financial instruments: Presentation”, offsetting of assets and liabilities. These
amendments are the application guidance of IAS 32 and clarify some of the requirements for offsetting
financial assets and financial liabilities in the statement of financial position. The standard is
mandatory from January 1, 2014.
As of the date of these financial statements the Company is assessing the impact that these standards
might have on its financial reporting, which are estimated to be insignificant.
Note 4 - Risk Management:
An integral risk management process refers to the set of objectives, policies, procedures and actions that
are implemented to identify, measure, monitor, limit, control, report and disclose the different types of
risk to which the Company is exposed.
Those responsible for risk management and their functions are:
•
The Board of Directors, whose responsibility is to approve the objectives, guidelines and policies for
risk management.
•
Internal Audit, which is responsible for carrying out all the activities necessary in order to comply
with the policies defined by the Board of Directors.
The Company has adopted as its main premise carrying out its operations in a conservative framework or
profile so as to optimize its resources through the implementation of balanced operations between risk
and performance.
The current strategy pursued by the Company is primarily focused on the granting of consumer loans,
which will be supported by the funding of resources that will be obtained through deposits, all of this
under the operation of BAF.
The criteria, policies and procedures adopted by the Company in terms of risk management are based on
internal policies and applicable standards.
The Company is exposed to several market and financial risks.
a) Market Risk
Market risk is defined as the potential loss due to changes in the risk factors that affect the valuation or
the expected results from lending/borrowing operations, such as interest rates and exchange rates,
among others.
I.
Interest rate risk
The interest rate risk is defined as the risk that the fair value or future cash flows of a financial
instrument fluctuate due to changes in market interest rates. Loans and debt certificates with
maturities in the short and long term are subject to both fixed and variable interest rates and
expose the Company to the risk of variability in interest rates and therefore its cash flows.
Changes in interest rates on long-term debt at fixed rates only affect the results if such debt is
recognized at fair value. The Company initially recognizes loans from financial institutions and
debt certificates at fair value and subsequently records them at amortized cost, whereby the
Company is subject to interest rate risk related to changes in fair value.
The Company's exposure to changes in interest rates relates primarily to loans and debt certificates
in the short and long-term with a variable interest rate. As of December 31, 2012 and 2011, the
Company was subject to the volatility of the variable interest rates, such that, an increase in these
rates would result in a higher financial cost of the liability.
Based on the Company’s policies, it has not engaged in hedging activities through derivative
instruments to hedge the interest rate risk for the years ended December 31, 2012 and 2011.
As of December 31, 2012 and 2011, 14.9% and 15.8%, respectively, of the Company’s debt with
financial cost (including deposits) was denominated at variable rates. If hypothetically interest
rates on those dates had been increased / decreased 100 basis points and all other variables
remained constant, the financial expense of the Company at the end of 2012 and 2011 would have
increased / decreased by Ps. 22 million and Ps. 32 million, respectively.
II. Exchange rate risk
The Company's exposure to exchange rate risk refers to risks associated with movements in the
exchange rate of the Mexican peso against the U.S. dollar, with the Mexican peso being the
functional currency of the Company. In the past, the value of the Mexican peso has been subject to
significant exchange fluctuations against the U.S. dollar. However, it is not considered a significant
risk because most of the operations are performed in local currency.
The Company also has exposure to exchange rate risk for its debt denominated in U.S. dollars. As
of December 31, 2012 and 2011, 56.7% and 58.5% respectively, of the Company’s debt with
financial cost was denominated in U.S. dollars. Based on the Company policies it did not engage in
hedging activities through derivative instruments to hedge the exchange rate risk for the years
ended December 31, 2012 and 2011. As of December 31, 2012 and 2011, a variation of the Mexican
peso against the US dollar of 50 cents, with all other variables remaining constant, would impact
the Company's financial expense by Ps. 13.4 million and Ps. 13.2 million, respectively.
The Company has non-monetary assets denominated in U.S. Dollars which are part of the
operating unit in the USA. There is no exchange rate risk because the operations are performed
only in the local currency.
b) Liquidity Risk
Liquidity risk is defined as the inability of the Company to have sufficient funds available to meet its
obligations. The Company´s Treasury Department is responsible for ensuring liquidity and managing
the working capital in order to guarantee payment to suppliers, service debt and fund the costs and
expenses of the operation. Furthermore, the Company has the alternative to obtain liquidity through
loans drawn down from credit lines, debt and equity issuances, and funds from the sale of assets.
The following table details the contractual maturities of the Company’s debt with financial cost and its
principal current liabilities without financial cost. The table has been drawn up based on undiscounted
cash flows from the first date on which the Company may be required to pay. The table includes
interest and principal cash flows.
Less than
6 months
December 31, 2012
Demand deposits and time deposits
Short and long-term debt
Suppliers and accounts payable and
accrued expenses
Total
December 31, 2011
Demand deposits and time deposits
Short and long-term debt
Suppliers and accounts payable and
accrued expenses
Total
Ps.
Between 6
months and
1 year
Between 1
year and
2 years
Between 2
years and
3 years
Total
5,344,167 Ps. 3,325,209 Ps. 4,032,623 Ps.
- Ps. 12,701,999
2,288,298
739,322
1,321,842
2,710,010
7,059,472
2,166,077
-
-
-
2,166,077
Ps.
9,798,542 Ps. 4,064,531 Ps. 5,354,465 Ps. 2,710,010 Ps. 21,927,548
Ps.
5,575,014 Ps. 2,197,258 Ps. 3,243,631 Ps.
- Ps. 11,015,903
2,416,185
458,825
400,985
4,305,277
7,581,272
2,259,574
-
-
-
2,259,574
Ps. 10,250,773 Ps. 2,656,083 Ps. 3,644,616 Ps. 4,305,277 Ps. 20,856,749
c) Credit Risk
Credit risk refers to the potential loss from the inability of customers to make all required payments.
The accounts receivable of the Company represent amounts owed by customers and are generated by
sales of goods or services in the normal course of its operations. Since the Company's sales are made
mostly to the general public, there is no risk of concentration in a customer or group of customers.
The Company has a risk management system for the loan portfolio, whose main elements include: 1)
the risk of default and loss, which includes the processes of granting credit, authorization of purchase
transactions and collections management; 2) operational risk, including security of the information
and technologic infrastructure and 3) the risk of fraud, comprising the steps of prevention, analysis,
detection, containment, recovery and solution.
The initial credit limits are calculated on an individual basis by the Company systems and are regularly
monitored by the credit area to adjust them based on customer history. The Company has processes for
reviewing credit quality of its customers for the early identification of potential changes in the ability to
pay, taking timely corrective actions and the determination of current and potential losses.
The Company continuously monitors its portfolio recovery considering several factors including
historical trends in the aging of the portfolio, history of cancellations and future performance
expectations, including trends in the unemployment rates. In addition to this analysis, the Company
requires that loans be secured primarily by the goods sold or by a guarantor, principally.
To quantify the credit risk of the Mexico commercial portfolio, the Company uses CREDITRISK+,
which considers both the creditworthiness of counterparties and the exposure of each of the customers.
CREDITRISK+ models the defaults themselves and is not intended to model or identify any causes
underlying the defaults.
The input data primarily considered are the probabilities of default, according to the credit quality of
borrowers.
d) Capital Risk
The Company's objective is to safeguard its ability to continue as a going concern, maintaining a
financial structure that maximizes the return to shareholders. The capital structure of the Company
comprises debt, which includes financing contracted via bank loans and issuance of debt certificates,
cash and cash equivalents and stockholders´ equity. The Company does not have an established policy
to declare dividends.
The Company’s management annually reviews its capital structure when presenting the budget to the
Board of Directors, which reviews the planned level of debt and ensures that it does not exceed the
established limit.
The leverage ratio monitored by the Company is calculated by dividing debt with financial cost
(excluding demand deposits and time deposits) by the net income (excluding interest, exchange gains
and losses, depreciation, amortization and taxes). The maximum leverage ratio established in the debt
certificate contract is 3.5, and the actual ratio as of December 31, 2012 and 2011, was 2.58 and 3.16,
respectively.
BAF capitalization index
The capitalization rules for financial institutions establish requirements for specific levels of net equity,
as a percentage of assets subject to both market and credit risk. The capitalization index required for
BAF is a minimum of 8%. As of the 2012 year end, BAF determined a capitalization index of 13.08%
(13.08% as of December 31, 2011 and 13.05% as of January 1, 2011), which results from dividing net
equity by the assets at risk (including credit, market and operational risk).
Note 5 - Critical accounting estimates and judgments:
In the application of the Company’s accounting policies, which are described in Note 2, the Company’s
management needs to make judgments, estimates and assumptions about the carrying amounts of assets
and liabilities. Estimates and assumptions are based on historical experience and other factors considered
as relevant. Actual results may differ from those estimates.
Estimates and underlying assumptions are continually reviewed. Adjustments to the accounting estimates
are recognized in the period evaluated and in future periods if the evaluation affects the current period
and subsequent periods.
5.1. Critical accounting judgments
Below are the key judgments, apart from those involving estimates, made by management in the
application of the Company’s accounting policies and that have a significant effect on the amounts
recognized in the consolidated financial statements.
5.1.1. Revenue recognition, installment sales
Note 3.20 describes the Company’s policy for the recognition of installment sales. This implies that the
Company’s management applies its judgment to identify the applicable discount rate to determine the
present value of installment sales. To determine the discounted cash flows, the Company uses an imputed
interest rate, considering the rate that can be determined better from: i) the prevailing rate in the market
for a similar instrument available for the Company’s customers with a similar credit rating or ii) the
interest rate that equals the nominal value of the sale, properly discounted to the cash price of the goods
sold.
When making its judgment, management considers the interest rates used by the principal financial
institutions in Mexico to fund programs of installment sales.
In the event the discount rate had a variation of 10% from that estimated by management, the effect on
the present value of installment sales would be Ps. 8,573, Ps. 288 and Ps. 57,578 as of December 31, 2012
and 2011, and January 1, 2011, respectively.
5.2. Key sources of uncertainty in estimates
Following are the key sources of uncertainty in the estimates made at the date of the consolidated
statement of financial position, and that have a significant risk of resulting in an adjustment to the
carrying amounts of assets and liabilities during the next financial period:
5.2.1. Impairment provisions for loan and receivable portfolios
The methodology applied by the Company to determine the amount of this estimate is described in Note
3.7, see also Note 8.
5.2.2. Determination of income taxes
For purposes of determining the deferred tax, the Company prepares tax projections to determine
whether the Company will pay income tax or flat rate tax, and then determines deferred income tax or
deferred flax tax, as appropriate.
5.2.3. Estimates of useful lives and residual values of property, leasehold improvements, and furniture
and equipment
As described in Note 3.11, the Company reviews the estimated useful lives and residual values of property,
leasehold improvements and furniture and equipment at the end of each annual period. At December 31,
2012 and 2011, it was determined that lives and residual values need not be modified since, in the
assessment of management, the existing useful lives and residual values adequately reflect the economic
conditions in the Company’s operating environment.
5.2.4 Employee Benefits
The cost of employee benefits that qualify as defined benefit plans in accordance with IAS 19 (revised)
“Employee Benefits” is determined using actuarial valuations. The valuations involve actuarial
assumptions about discount rates, future salary increases, employee turnover rates and mortality rates,
among other things. Any changes in these assumptions will impact the carrying value of the pension
obligations. Due to the long-term nature of these plans, such estimates are subject to a significant amount
of uncertainty.
Note 6 - Cash and cash equivalents:
Cash and cash equivalents comprised the following:
December 31
2012
2011
January 1
2011
Cash at bank and in hand
Investments
Ps. 461,359
1,067,368
Ps.
405,177
856,277
Ps. 285,087
652,106
Total
Ps. 1,528,727
Ps. 1,261,454
Ps. 937,193
Note 7 - Restricted cash:
Restricted cash represents limited cash in BAF of Ps. 254,905, Ps. 189,901 and Ps. 177,266 as of December
31, 2012 and 2011, and January 1, 2011, respectively. The restricted cash balance is classified as a noncurrent asset in the statement of financial position of the Company based on the expiration date of the
restriction.
Note 8 - Trade receivables:
December 31,
2012
2011
Trade receivables:
Mexican consumer
Mexico commercial
USA consumer
Ps. 15,612,927
2,392,702
2,244,983
Ps. 13,853,646
1,864,885
3,136,435
20,250,612
(1,035,154)
Less - allowance for doubtful accounts
January 1
2011
Ps. 11,982,661
1,418,409
2,876,484
18,854,966
(966,391)
16,277,554
(848,543)
Total, net
Ps. 19,215,458
Ps. 17,888,575
Ps. 15,429,011
Current trade receivables
Ps. 18,546,393
Ps. 17,217,837
Ps. 14,696,688
Non-current trade receivables
Ps.
Ps.
Ps.
669,065
670,738
732,323
8.1. Movements of the impairment allowance for doubtful accounts:
December 31
2012
2011
Opening balance
Increases
Recoveries
(Ps.
966,391)
(1,542,066)
1,473,303
(Ps. 848,543)
(1,389,519)
1,271,671
Ending balance
(Ps. 1,035,154)
(Ps. 966,391)
8.2. Past due receivables
Trade receivables at the end of the year include past due receivables of Ps. 2,086,294, Ps. 2,144,774 and
Ps. 2,210,227 as of December 31, 2012 and 2011, and January 1, 2011, respectively, whose maturity was as
follows:
December 31
2012
2011
1- 30 days
31 - 60 days
61 - 90 days
91 - 120 days
120 days or more
Ps.
210,096
144,501
137,158
132,408
1,462,131
Total past due receivable
Ps. 2,086,294
Ps.
234,551
181,558
176,034
125,457
1,427,174
Ps. 2,144,774
January 1
2011
Ps.
262,725
183,063
138,312
108,611
1,517,516
Ps. 2,210,227
8.3 Credit quality of trade receivables
The credit quality of trade receivables is assessed based on the historical default rates of the
counterparties and is analyzed as follows:
Group
A
B
C
December 31
2012
2011
January 1
2011
Ps. 14,223,591
3,621,844
2,405,177
Ps. 14,317,230
2,595,278
1,942,458
Ps. 13,634,965
1,184,715
1,457,874
Ps. 20,250,612
Ps. 18,854,966
Ps. 16,277,554
Group A - very low risk customers who have regularly met their payment commitments.
Group B - low risk customers who have made their payments on dates after the payment deadline.
Group C - medium-high risk customers who made their payments inconsistently.
8.4 Fair value of trade receivables
As of December 31, 2012 and 2011, and January 1, 2011, the fair values of the Company’s trade receivable
approximated their carrying value.
Note 9 - Other accounts receivable:
December 31
2012
2011
January 1
2011
Bonuses from suppliers (1)
Prepaid expenses (2)
Employee debtors (3)
Other debtors (4)
Ps. 265,254
186,963
27,510
233,200
Ps. 144,538
246,091
21,952
95,641
Ps. 147,696
216,776
22,301
135,329
Total
Ps. 712,927
Ps. 508,222
Ps. 522,102
(1) Bonuses negotiated with suppliers based on volume of sales in the normal course of operations, and
promotions receivable.
(2) Includes primarily prepayments for advertising, insurance and leasing.
(3) Consists primarily of accounts receivable for expenses pending to be checked.
(4) Includes primarily commissions receivable, other accounts receivable for money transfers and payments in
advance to suppliers.
Note 10 - Inventories:
December 31
2012
January 1
2011
2011
Products (*)
Clothing, footwear and jewelry
Merchandise in transit
Ps. 1,718,694
201,571
30,398
Ps. 1,782,692
198,450
28,608
Ps. 1,889,133
309,873
16,951
Total
Ps. 1,950,663
Ps. 2,009,750
Ps. 2,215,957
(*) Comprises all types of electronic products, household appliances, furniture, mobile phones,
motorcycles and other consumer products.
Note 11 - Property, leasehold improvements and furniture and equipment, net:
Buildings
and
construction
Land
As of January 1, 2011
Cost
Accumulated depreciation
Net book amount
At December 31, 2011
Opening net book amount
Exchange differences on cost
Additions
Disposals
Cancelation of accumulated
depreciation on the sale of
fixed assets
Reclassifications
Movements of discontinued
operations
Exchange differences on
accumulated depreciation
Depreciation charge
Furniture
and
equipment
Leasehold
improvements
TransData
portation processing
equipment equipment
Improvements in
process
Total
Ps. 326,252 Ps. 356,840 Ps.1,107,678 Ps. 2,442,602 Ps. 248,968 Ps. 500,452 Ps. 52,435 Ps. 5,035,227
(116,687)
(637,694)
(1,067,139)
(226,187)
(425,854)
(2,473,561)
326,252
240,153
469,984
1,375,463
22,781
74,598
52,435
2,561,666
326,252
-
240,153
10,690
58,865
-
469,984
28,433
71,847
(1,498)
1,375,463
16,153
76,016
-
22,781
7,307
20,688
(14,763)
74,598
7,521
25,612
(1,833)
52,435
53,960
-
2,561,666
70,104
306,988
(18,094)
-
-
496
-
-
-
-
-
(3,091)
(9,113)
(42,005)
(80,325)
36,422
(14,985)
(32,888)
(201,836)
9,816
-
15
-
-
-
(10,605)
(17,358)
(8,317)
(24,182)
(36,422)
10,327
-
-
(14,985)
-
(96,906)
(332,814)
Closing net book amount
326,252
297,504
446,932
1,254,345
17,866
73,414
69,973
2,486,286
As of December 31, 2011
Cost
Accumulated depreciation
326,252
426,395
(128,891)
1,206,460
(759,528)
2,571,193
(1,316,848)
262,200
(244,334)
531,752
(458,338)
69,973
-
5,394,225
(2,907,939)
Net book amount
326,252
297,504
446,932
1,254,345
17,866
73,414
69,973
2,486,286
326,252
26,192
-
297,504
(10,710)
25,933
-
446,932
(18,196)
18,063
(122,243)
1,254,345
(11,259)
25,362
(220,949)
17,866
(4,803)
24,837
(26,451)
73,414
(4,828)
20,788
(45,637)
69,973
65,906
-
2,486,286
(49,796)
207,081
(415,280)
1,277
(1,277)
114,301
-
221,895
-
20,297
-
43,538
-
-
400,031
-
-
937
(7,414)
17,555
(72,979)
11,257
(179,488)
4,727
(10,073)
4,667
(27,493)
-
39,143
(297,447)
At December 31, 2012
Opening net book amount
Exchange differences on cost
Additions
Disposals
Cancelation of accumulated
depreciation on the sale of
fixed assets
Reclassifications
Exchange differences on
accumulated depreciation
Depreciation charge
Closing net book amount
As of December 31, 2012
Cost
Accumulated depreciation
Net book amount
Ps. 353,721 Ps. 304,973 Ps. 383,433 Ps. 1,101,163
353,721
-
440,341
(135,368)
1,084,084
(700,651)
2,364,347
(1,263,184)
Ps. 353,721 Ps. 304,973 Ps. 383,433 Ps. 1,101,163
Ps. 26,400 Ps. 64,449 Ps. 135,879 Ps. 2,370,018
255,783
(229,383)
502,075
(437,626)
135,879
-
5,136,230
(2,766,212)
Ps. 26,400 Ps. 64,449 Ps. 135,879 Ps. 2,370,018
The depreciation expense is recognized in the income statement within administrative and selling expenses.
Note 12 - Goodwill and intangible assets:
At January 1, 2011
Cost
Accumulated amortization
Net book amount
Goodwill
Licenses and
software
Total
Ps. 241,096
-
Ps. 277,977
(209,075)
Ps. 519,073
(209,075)
241,096
At December 31, 2011
Additions
Disposals
Amortization
-
68,902
309,998
5,974
(17,860)
5,974
(17,860)
Ending balance
241,096
57,016
298,112
At December 31, 2011
Cost
Accumulated amortization
241,096
-
283,951
(226,935)
525,047
(226,935)
Net book amount
241,096
57,016
298,112
18,410
(16,950)
18,410
(16,950)
At December 31, 2012
Additions
Disposals
Amortization
-
Ending balance
241,096
58,476
299,572
At December 31, 2012
Cost
Accumulated amortization
241,096
-
302,361
(243,885)
543,457
(243,885)
Net book amount
Ps. 241,096
Ps.
58,476
Ps. 299,572
Goodwill is not subject to amortization and is tested annually for impairment.
The goodwill arising in business combinations was allocated at the date of acquisition in its entirety to the
cash generating unit (CGU) of the Mexico segment. This segment benefited from the synergies of the
business combinations.
The recoverable amount of the operating segment has been determined based on value in use calculations.
These calculations use pre-tax cash flow projections based on financial budgets approved by management
covering a five-year period.
The key assumptions used for value in use calculations as of December 31, 2012 and 2011, were as follows:
December 31
Estimated gross margin
Growth rate
Discount rate
2012
2011
46.97%
2.26%
11.68%
46.37%
4.58%
11.68%
In connection with the determination of the value in use of the operating segments, the Company
considers that a reasonably possible change in the key assumptions used would not cause the carrying
value of the operating segment to exceed its value in use.
Note 13 - Demand deposits and time-deposits:
As of December 31, 2012 and 2011, and January 1, 2011, the Company’s deposits with third parties were as
follows:
December 31,
2012
2011
Demand deposits:
Savings deposits (interest bearing)
Checking accounts (non-interest bearing)
Time-deposits:
From the general public
Total demand deposits and time-deposits
January 1,
2011
Ps. 2,191,438
314,092
Ps. 2,830,774
208,453
Ps. 4,929,075
121,206
9,493,734
7,396,847
3,857,017
Ps. 11,999,264
Ps. 10,436,074
Ps. 8,907,298
In accordance with the terms negotiated, the Company’s deposits as of December 31, 2012 and 2011, and
January 1, 2011 are presented as follows:
December 31,
2012
2011
January 1,
2011
Short-term demand deposits and time-deposits
Long-term demand deposits and time-deposits
Ps. 8,382,497
3,616,767
Ps. 7,528,884
2,907,190
Ps. 7,697,144
1,210,154
Total demand deposits and time-deposits
Ps. 11,999,264
Ps. 10,436,074
Ps. 8,907,298
As of December 31, 2012 and 2011, and January 1, 2011, the maturities of time-deposits from the general
public were as follows:
December 31,
2012
2011
January 1,
2011
From 1 to 179 days
From 6 to 12 months
From 1 to 2 years
Ps. 2,731,489
3,145,478
3,616,767
Ps. 2,412,515
2,077,142
2,907,190
Ps. 1,425,810
1,221,053
1,210,154
Total
Ps. 9,493,734
Ps. 7,396,847
Ps. 3,857,017
Depending on the type of instrument and average balance in the investments, these liabilities bear
interest at the average rates indicated below:
December 31,
2012
2011
Demand deposits
Time-deposits
2.90%
5.73%
3.92%
5.79%
January 1,
2011
5.65%
6.69%
Note 14 - Short-term and long-term debt:
The total consolidated debt was as follows:
December 31
2012
2011
January 1,
2011
Interest
rate (*)
Grupo Famsa:
Mexican pesos:
Financial factoring (1):
Financiera Bajío, S. A. SOFOM, ER
Arrendadora y Factor Banorte, S. A. de C. V.
SOFOM, ER
IXE Banco, S. A.
Banco Monex, S. A.
Ps.
30,629
Ps.
46,726
Ps.
99,038
8.86% (b)
8.34% (b)
8.32% (b)
7.86% (b)
392,704
124,845
237,496
79,032
49,895
349,981
99,908
-
548,178
413,149
548,927
100,000
199,795
63,500
50,000
100,000
100,000
199,795
-
100,000
100,000
149,995
-
Issuance of debt certificates:
Short-term (7)
1,000,000
1,000,000
1,671,725
7.49% (b)
Long-term (2) and (7)
1,000,000
1,000,000
-
7.65% (b)
2,413,295
2,399,795
2,021,720
2,554,036
518,632
2,737,540
557,904
2,406,600
-
3,072,668
3,295,444
2,406,600
9,575
13,160
16,428
8.93% (b)
103,726
55,790
172,895
2.39% (a)
Amounts drawn down from short-term
revolving credit lines:
Banco del Bajío, S. A.
Banco Santander Serfin, S. A.
Banorte, S. A.
BBVA Bancomer, S. A.
CI Banco, S. A.
U.S. Dollars:
Issuance of foreign debt:
Senior notes Rule 144A/Reg.S (3)
Euro–commercial paper (4)
8.80%
8.86%
8.06%
7.57%
7.59%
(b)
(b)
(a)
(a)
(b)
11.00% (a)
8.50% (a)
Banco Ahorro Famsa, S. A.,
Institución de Banca Múltiple:
Mexican pesos:
Nacional Financiera, S.N.C. (NAFIN) (5)
Famsa USA:
U.S. Dollars:
Deutsche Bank AG (6)
Total debt
Short-term debt
Long-term debt
6,147,442
6,177,338
5,166,570
(2,583,831)
(2,426,638)
(2,743,542)
Ps. 3,563,611
Ps.
3,750,700
Ps. 2,423,028
(*) Nominal rates (a) fixed and (b) variable, as of December 31, 2012, except for Banco del Bajío, S. A.,
whose rate is as of December 31, 2011. Interest is accrued monthly.
(1) The Company entered into factoring credit line contracts with suppliers. Interest is calculated
applying to the discounted amount the rates that financial institutions apply for this type of
operations, according to the discount period. These liabilities are settled in an average period of 110
days. The relevant characteristics of each factoring credit line are presented below:
Financial institution
Financiera Bajío, S. A. SOFOM, ER
Arrendadora y Factor Banorte, S. A. de C. V.
SOFOM, ER
Banco Monex, S. A.
Renewal date
of the
credit line
Credit limit
Interest
rate
September, 2012
Ps.100,000
TIIE+4.0
March, 2010
October, 2012
Ps.400,000
Ps.125,000
TIIE+3.5
TIIE+3.0
(2) In 2011, the Company entered into a medium-term note program for up to Ps. 2,000 million of a
revolving nature for a five-year term. On March 25, 2011, the Company issued certificates for an
aggregate principal amount of Ps. 1,000 million pursuant to such unsecured commercial paper
program at a spread of 280 basis points over the TIIE interbank rate and maturing in 2014. The net
proceeds of this issue were used to refinance debt maturing in 2011. This commercial paper is
guaranteed by the retail, manufacturing and other subsidiaries. The effective interest rate of this
issuance as of December 31, 2012 was 8.28%.
(3) On July 2010, the Company issued senior notes for an amount of US$ 200 million, under Rule
144A/Reg. S, in the foreign market, at a rate of 11%, maturing in July 2015. The senior notes are
guaranteed by the retail, manufacturing and other subsidiaries. The notes were assigned “B” and “B+”
ratings by Standard & Poor’s and Fitch Ratings, respectively. As of December 31, 2012 and 2011 and
January 1, 2011, the fair value of the senior notes was Ps. 2,894,800, Ps. 2,888,766 and Ps. 2,699,463,
respectively. The effective interest rate of this issuance as of December 31, 2012 was 12.28%.
(4) On February 15, 2012, the Company issued notes for US$40 million at a rate of 8.50%, from a
commercial euro paper program established in 2009 for a total of US$100 million. The net proceeds
were used by the Company to refinance the existing debt and it matured on February 15, 2013. This
program was renewed on the date mentioned with maturity on February 4, 2014, increasing the
amount to US$50 million at a rate of 7.36%.
(5) Loans contracted by BAF with NAFIN for a total amount of Ps. 9.7 million, with an interest rate of
8.93% and maximum maturities on September 2014 and December 2015.
(6) On October 16, 2012, the Company renewed its credit line for a maximum amount of EUR 6.6 million
or its equivalent in US dollars. As of December 31, 2012, the Company had drawn down a total of
US$8 million; this borrowing bears interest at an annual rate of 2.39% maturing on October 16, 2013.
(7) As of December 31, 2012 and 2011, and January 1, 2011, the fair values of the short-term and longterm debt certificates were Ps. 1,997,570, Ps. 1,992,193 and Ps. 1,670,862, respectively.
As of December 31, 2012 and 2011, and January 1, 2011, the Company had satisfactorily complied with all
related covenants and restrictions.
Note 15 - Accounts payable and accrued expenses:
Accounts payable and accrued expenses comprised the following:
December 31,
January 1,
2012
2011
2011
Interest payable (1)
Accounts payable to affiliated companies (2)
Taxes
Accrued operating expenses (3)
Short-term employee benefits (4)
Taxes related to employee payroll (5)
Other creditors (6)
Ps. 171,568
213,907
56,721
46,283
50,209
53,778
10,998
Ps. 173,597
147,317
122,910
118,124
81,555
65,284
67,681
Ps. 140,377
47,290
108,714
195,705
79,062
86,738
206,690
Total accounts payable and accrued expenses
Ps. 603,464
Ps. 776,468
Ps. 864,576
(1) Liability for accrued interest on debt.
(2) Liability from operations with related parties. See Note 16.
(3) Liability for expenses for water service, electricity, telephone, fuel, maintenance and other.
(4) Includes liabilities for accrued salaries payable, commission to sales personnel, vacations, vacation
premium, savings fund, medical expenses and other.
(5) Includes liabilities for accrued expenses for labor taxes and other.
(6) Includes self-financing contributions from customers, vehicle insurance and other.
Note 16 - Related parties:
As of December 31, 2012 the Company has accounts payable to affiliates of Ps. 213,907 (Ps. 147,317 as of
December 31, 2011 and Ps. 47,290 as of January 1, 2011), related primarily to the following expenses:
Rent and administrative expenses (Note 24)
2012
2011
Ps. 101,161
Ps.100,963
Related party transactions were carried out at market value.
For the year ended December 31, 2012, salaries and benefits received by the principal executive officers of
the Company amounted to Ps. 105,710 (Ps. 103,830 in 2011), consisting of base salary amounts and legal
benefits, complemented by a variable compensation program that is basically driven by the Company’s
results.
The Company and its subsidiaries declare they have no significant transactions with related parties or
conflicts of interest to disclose.
Note 17 - Employee benefits:
The amount of employee benefit obligations as of December 31, 2012 and 2011 and January 1, 2011 was
Ps. 85,240, Ps. 74,689 and Ps. 68,348, respectively, and is analyzed as follows:
December 31,
Pension plans
Seniority premium
Other employee benefits
January 1,
2012
2011
2011
Ps. 6,185
48,125
30,930
Ps. 5,983
41,539
27,167
Ps. 5,274
39,074
24,000
Ps. 85,240
Ps. 74,689
Ps. 68,348
The analysis of the net period cost for the years ended December 31, 2012 and 2011, is as follows:
2012
Pension plans
Seniority premium
Other employee benefits
2011
Ps. 744
10,376
4,611
Ps.
661
10,281
5,229
Ps.15,731
Ps. 16,171
Pension plans
The amounts recognized in the consolidated statements of financial position were determined as follows:
December 31
2012
2011
January 1
2011
Defined benefit obligations
Fair value of plan assets
Ps. 6,185
-
Ps. 5,983
-
Ps. 5,274
-
Liability in the statement of financial position
Ps. 6,185
Ps. 5,983
Ps. 5,274
2012
2011
Ps. 5,983
Ps. 5,274
The movement in the defined benefit obligation is as follows:
Opening balance at January 1
Labor cost
Finance cost
Actuarial gains (losses)
Ending balance at December 31
337
407
(542)
Ps. 6,185
315
346
48
Ps. 5,983
The principal actuarial assumptions used, in nominal and real terms, were as follows:
December 31,
2012
2011
Discount rate
Salary increase rate
6.25%
4.00%
7.25%
5.00%
January 1,
2011
7.00%
5.00%
The net period cost is analyzed as follows:
2012
2011
Service costs of the year
Finance cost, net
Ps. 337
407
Ps. 315
346
Net period cost
Ps. 744
Ps. 661
In the event of a hypothetical increase or decrease in the discount rate of 0.625% from that estimated by
Management, the carrying amount of labor obligations would increase or decrease by Ps. 176.
Seniority premium
The amounts recognized in the consolidated statements of financial position were determined as follows:
December 31,
2012
2011
January 1,
2011
Defined benefit obligations
Fair value of plan assets
Ps.48,125
-
Ps. 41,539
-
Ps. 39,074
-
Liability in the statement of financial position
Ps.48,125
Ps. 41,539
Ps. 39,074
The movement in the defined benefit obligation was as follows:
2012
2011
Opening balance at January 1
Labor cost
Finance cost
Actuarial gains (losses)
Benefits paid from the reserve
Ps. 41,539
7,651
2,725
2,024
(5,814)
Ps. 39,074
7,812
2,469
(966)
(6,850)
Ending Balance at December 31
Ps. 48,125
Ps. 41,539
The principal actuarial assumptions used, in nominal and real terms, were as follows:
December 31
2012
2011
Discount rate
Salary increase rate
6.25%
4.00%
7.25%
5.00%
January 1
2011
7.00%
5.00%
The net period cost is analyzed as follows:
2012
2011
Service costs of the year
Finance cost, net
Ps. 7,651
2,725
Ps.
7,812
2,469
Net period cost
Ps. 10,376
Ps. 10,281
In the event of a hypothetical increase or decrease in the discount rate of 0.625% from that estimated by
management, the carrying amount of labor obligations would increase or decrease by Ps. 1,696.
Other employee benefits
The amounts recognized in the consolidated statements of financial position were determined as follows:
December 31
2012
2011
January 1
2011
Defined benefit obligations
Fair value of plan assets
Ps.30,930
-
Ps. 27,167
-
Ps. 24,000
-
Liability in the statement of financial position
Ps.30,930
Ps. 27,167
Ps. 24,000
The movement in the defined benefit obligation was as follows:
2012
2011
At January 1
Labor cost
Finance cost
Actuarial gains (losses)
Benefits paid from the reserve
Ps. 27,167
2,545
2,066
703
(1,551)
Ps. 24,000
3,389
1,840
(1,742)
(320)
At December 31
Ps. 30,930
Ps. 27,167
The principal actuarial assumptions used, in nominal and real terms, were as follows:
December 31
2012
2011
Discount rate
Salary increase rate
6.25%
4.00%
January 1
2011
7.25%
5.00%
7.00%
5.00%
The net period cost is analyzed as follows:
2012
2011
Service costs of the year
Finance cost, net
Ps. 2,545
2,066
Ps.
3,389
1,840
Net period cost
Ps. 4,611
Ps.
5,229
In the event of a hypothetical increase or decrease in the discount rate of 0.625% from that estimated by
Management, the carrying amount of labor obligations would increase or decrease by Ps. 2,570.
Note 18 - Stockholders’ equity:
In the Ordinary General Meeting held on April 25, 2012, the stockholders agreed that the fund created for
the purchase and sale of the Company’s own shares will be up to a maximum amount of Ps. 130 million.
As of December 31, 2012, the Company had 259,700 shares (259,700 shares in 2011) held in treasury and
the market value per share at that date was Ps. 16.10 (Ps. 12.16 in 2011).
As of December 31, 2012 and 2011, and January 1, 2011, the capital stock comprised the following:
Description
Number
of shares
Fixed capital (minimum): Series “A”, Class “I”,
common, nominative shares, without par value
330,097,385
Variable capital: Series “A”, Class “II”,
common, nominative shares, without par value
109,090,909
Accumulated inflation increase as of December 31, 1997
Capital stock
Amount
Ps.
660,195
218,182
579,909
439,188,294
Ps. 1,458,286
As of December 31, 2012 the retained earnings included Ps. 300,839 and Ps. 601,679, applicable to the
legal reserve and to the reinvestment reserve, respectively. The movements of the reserves were as
follows:
As of January 1, 2011
Legal
reserve
Reinvestment
reserve
Ps. 260,283
Ps. 520,566
35,281
-
70,563
-
295,564
591,129
5,275
-
10,550
-
Ps. 300,839
Ps. 601,679
Changes in 2011:
Increases
Utilization
As of December 31, 2011
Changes in 2012:
Increases
Utilization
As of December 31, 2012
Dividends paid are not subject to income tax if they are paid from after-tax earnings. Dividends paid in
excess of after-tax earnings are subject to a tax equivalent to 42.86% if paid in 2012. 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 tax of the
year. Dividends which are paid from retained earnings previously taxed are not subject to any tax
withholding or additional payment.
In the event of a capital reduction, any excess of stockholders’ equity over capital contributed, the latter
restated in accordance with the provisions of the Income Tax Law, is accorded the same tax treatment as
dividends. At December 31, 2012 and 2011, the inflation-adjusted contributed capital amounted to Ps.
6,808,573 and Ps. 6,518,461, respectively.
Note 19 - Costs and expenses classified by their nature:
Cost of sales and administrative and selling expenses are analyzed as follows:
December 31
2012
Cost of goods sold
Salaries and employee benefits
Impairment allowance
Leasing
Interest expense on bank deposits
Advertising
Depreciation and amortization
Energy, water and telephone services
Maintenance
Freights
Other (1)
(1)
expenses, travel expenses and training.
2011
Ps. 5,727,672
2,340,493
1,173,362
763,195
589,799
334,125
314,397
298,788
158,318
45,315
973,944
Ps. 5,838,977
2,388,599
1,166,828
727,725
526,450
279,605
350,674
291,333
176,825
38,822
955,429
Ps. 12,719,408
Ps. 12,741,267
Includes
mainly
insurance
The salaries and employee benefits are analyzed as follows:
December 31
Salaries and bonuses
Commissions to sales personnel
Employee benefits
Other remuneration
2012
2011
Ps. 1,814,309
87,910
15,731
422,543
Ps. 1,839,060
84,555
16,171
448,813
Ps. 2,340,493
Ps. 2,388,599
Note 20 - Other income (expenses):
December 31
Other income:
2012
2011
Recovery of taxes paid in excess
Gain on sale of fixed assets
Administrative services
Other
Ps.
109,818
5,652
7,551
876
Ps.
6,497
3,001
8,252
3,647
Total other income
Ps.
123,897
Ps.
21,397
Other expenses:
Utilization of tax provisions
Other
(Ps.
48,290)
(4,627)
(Ps.
47,252)
(20,398)
Total other expenses
(Ps.
52,917)
(Ps.
67,650)
Other income (expenses), net
Ps.
70,980
(Ps.
46,253)
Note 21 - Financial income (expenses):
Financial income and expenses are analyzed as follows:
December 31
2012
2011
Financial expenses:
Interest expense on bank borrowings
Interest expense on debt certificates
Factoring
Other financing expenses
Foreign exchange loss, net
(Ps. 106,318)
(553,578)
(46,800)
(15,649)
-
(Ps.
96,426)
(524,426)
(45,190)
(8,047)
(103,228)
(Ps. 722,345)
(Ps. 777,317)
Financial income:
Financial income
Foreign exchange gain, net
Ps.
1,757
62,213
Ps.
1,376
-
Ps.
63,970
Ps.
1,376
Note 22 - Income taxes:
Grupo Famsa determines its taxable income (loss) and employees’ profit sharing on an individual standalone company basis. The tax result differs from the accounting result due to the temporary differences
arising from comparing the book value and the tax value of each asset and liability account in the balance
sheet, as well as items affecting only the net income or the taxable income of the year.
Income taxes are analyzed as follows:
December 31
Current income taxes
Current flat rate business tax
Deferred income taxes
2012
2011
(Ps. 19,045)
(35,591)
161,968
(Ps. 10,802)
(8,631)
168,892
Ps. 107,332
Ps. 149,459
The deferred income tax asset is analyzed as follows:
December 31
Deferred tax assets:
Tax loss carryforwards
Prepaid expenses and other provisions, net
Allowance for doubtful receivables
Installment sales receivable
Property, leasehold improvements and furniture
and equipment
Tax effect of installment sales
Provision for labor obligations
Employee profit sharing payable
Effect on decrease in income tax rate
2012
Ps.
212,788
553,859
279,200
226,424
January 1
2011
Ps.
788,964
254,200
243,770
2011
Ps.
641,220
218,939
260,872
108,253
32,306
25,127
1,140
-
81,934
37,674
22,407
1,140
-
58,143
37,852
20,504
785
2,098
1,439,097
1,430,089
1,240,413
December 31
Deferred tax liabilities:
2012
Prepaid expenses and other accrued expenses
Inventories
Effect on decrease in income tax rate
Deferred income tax before asset tax recoverable
2011
2011
5,033
7,535
63,012
97,040
4,336
1,823
142,717
-
12,568
164,388
144,540
1,426,529
1,265,701
1,095,873
121,504
137,091
171,534
Ps. 1,548,033
Ps. 1,402,792
Ps. 1,267,407
Asset tax recoverable
Total deferred tax asset
January 1
The Company has tax projections that support the earning of future taxable profit against which current
tax losses will be applied and also those which would arise resulting from the reversal of deductible
temporary differences.
The analysis of deferred tax assets and deferred tax liabilities is as follows:
December 31
Deferred tax assets:
2012
Deferred tax asset to be paid
within 12 months
Deferred tax assets to be paid after
more than 12 months
January 1
2011
2011
Ps. 1,225,996
Ps. 1,233,043
Ps. 1,017,067
213,101
197,046
221,248
1,439,097
1,430,089
1,238,315
Deferred tax liabilities:
Deferred tax liability to be paid within 12 months
Deferred tax liability to be paid after
more than 12 months
Asset tax recoverable after more than 12 months
(1,462)
(76,381)
(43,674)
(3,571)
(83,672)
(100,866)
(5,033)
(160,053)
(144,540)
137,091
171,534
121,504
Effect of decrease in income tax rate
(7,535)
Deferred tax asset (net)
(4,335)
Ps. 1,548,033
2,098
Ps. 1,402,792
Ps. 1,267,407
The movement in deferred income tax assets and liabilities during the year, excluding asset tax
recoverable was as follows:
Property
Allowance leasehold
for
improvements, Provicion Tax effect of
Tax loss
doubtful furniture and for labor
installment
carryforwards receivables equipment obligations
sales
Ps. 218,939
147,744
35,261
-
-
-
-
-
936
936
As of December 31, 2011
Amount charged (credited) to
the statement of income
Amount charged (credited) to
other comprehensive income
788,964
254,200
81,934
22,407
37,674
(97,040)
177,562
1,265,701
(576,176)
25,000
26,319
2,720
(5,368)
92,007
597,466
161,968
1,903
(Ps. 142,717)
Total
Ps. 641,220
23,791
Ps. 37,852
Other
As of January 1, 2011
Amount charged (credited) to
the statement of income
Amount charged (credited) to
other comprehensive income
As of December 31, 2012
Ps 58,143 Ps. 20,504
Inventories
(178)
-
-
-
-
-
Ps. 212,788
Ps. 279,200
Ps. 108,253
Ps. 25,127
Ps. 32,306
45,677
-
(Ps.
5,033)
Ps. 261,932 Ps. 1,095,873
(85,306)
(1,140)
168,892
(1,140)
Ps. 773,888 Ps. 1,426,529
As of December 31, 2012, the Company had tax loss carryforwards, which will be inflation-indexed
through the year in which they are applied, as follows:
Tax loss
carryforwards
Year of expiration
2017
2018
2019
2020
2021
2022
Ps.
4,347
13,311
84,844
212,805
381,692
12,293
Ps. 709,292
To determine the deferred income tax at December 31, 2012 and 2011, the Company applied to the
temporary differences the applicable tax rates in accordance with their estimated reversal date.
The reconciliation between the statutory and effective income tax rates is as follows:
December 31
2012
Statutory tax rate
Add/ (deduct) income tax effect of:
Non-deductible permanent items (mainly non-deductible expenses)
Inflation
Decrease in income tax rate
Other permanent differences (tax effect of cost of sales and other)
Effective income tax rate
2011
30%
30%
8%
34%
(1%)
1%
(26%)
(14%)
13%
49%
In 2012 and 2011 certain subsidiaries of Famsa determined a flat rate business tax of Ps. 35,591 and Ps.
8,631 respectively, which exceeded their income tax liability and was therefore paid instead of income tax.
The accounting and tax projections of these companies indicate that they will only pay income tax in the
future; therefore, deferred income taxes were recognized at December 31, 2012 instead of deferred flat tax.
The tax charged related to the components of other comprehensive income for the years ended December
31, was as follows:
2012
Before
tax
Tax
charged
2011
After
tax
Before
tax
Tax
charged
After
tax
Foreign currency translation effects
Actuarial gains (losses)
(Ps. 48,215)
(3,121)
Ps.
936
(Ps. 48,215)
(2,185)
Ps. 108,610
3,800
Ps.
Other comprehensive income items
(Ps. 51,336)
Ps. 936
(Ps. 50,400)
Ps. 112,410
(Ps. 1,140) Ps. 111,270
Deferred tax
Ps. 936
- Ps. 108,610
(1,140)
2,660
(Ps. 1,140)
Note 23 - Contingencies:
In the normal course of operations the Company is involved in disputes and lawsuits. The Company
believes there are no legal proceedings or threatened claims against or affecting the Company which, in
the event of an adverse resolution, could significantly affect, individually or taken together, the Company’s
results of operations or financial position.
Note 24 - Commitments:
The majority of the subsidiary companies have entered into long-term lease agreements (some with
related parties) covering properties occupied by their stores. Following is a description of the main
agreements entered into with related parties:
As of December 31, 2012, the Company had 42 long-term lease agreements in place with the controlling
shareholders and various entities controlled by them, with regard to the retail space used by several
stores. The terms of all such agreements are substantially identical and are consistent with standard
industry practices and real estate market prices.
The Company has entered into various asset management agreements with affiliates and other entities
controlled by the principal shareholders, covering account collection services and the management and
investment of the proceeds of such collections, in exchange for a commission payable on an annual basis.
Rentals payable under lease agreements are as follows:
Related
parties
2013
2014 to 2017
Other
Ps. 106,219
424,877
Ps.
695,136
2,780,542
Ps. 531,096
Ps. 3,475,678
Total
Ps.
801,355
3,205,419
Ps. 4,006,774
In 2012 and 2011 total rental and administrative services expense is as follows:
2012
2011
Related parties
Other
Ps. 101,161
662,034
Ps. 100,963
626,762
Total
Ps. 763,195
Ps. 727,725
Note 25 - Information by business segments:
25.1 Segment reporting
The Company manages and evaluates its continuing operations through three business segments: Mexico
(national retail stores and financial sector), USA, (foreign retail stores) and other businesses in Mexico
(wholesale, manufacturing of furniture and footwear, catalog business). The Company controls and
evaluates its continuing operations on a consolidated basis. Its activities are carried out through its
subsidiary companies.
The Company’s management uses operating income before depreciation and amortization as the
measurement of segment performance as well as to evaluate development, make general operating
decisions and assign resources. The information by business segment is as follows:
2012
Mexico
USA
Other
Net sales (1)
Interest earned from customers
Ps.
9,137,127 Ps. 1,268,662
3,216,187
446,558
Ps.
Total revenues
Ps. 12,353,314 Ps. 1,715,220
Ps.
Cost of sales
Gross profit
Operating expenses (2)
Other income (expenses), net
Subtotal
Intersegment
Consolidated
701,908 Ps. 11,107,697
247,064
3,909,809
(Ps.
661,231) Ps. 10,446,466
(232,747)
3,677,062
948,972 Ps. 15,017,506
(Ps.
893,978) Ps. 14,123,528
(6,657,226)
(955,504)
(847,549)
(8,460,279)
924,131
5,696,088
759,716
101,423
6,557,227
30,153
6,587,380
(4,163,573)
(641,173)
(124,884)
(4,929,630)
60,767
(4,868,863)
135,489
3,146
1,668,004
121,689
(7,536,148)
32,130
170,765
(99,785)
70,980
8,669
1,798,362
(8,865)
1,789,497
Operating profit before
depreciation and amortization
Depreciation and amortization
(306,171)
1,361,833 Ps.
(3,103)
(5,123)
Operating profit (loss)
Ps.
118,586
Ps.
Additional disclosures:
Total assets
Total liabilities
Capital expenditure
Adjusted EBITDA
Ps. 28,762,550 Ps. 2,558,349
Ps. 20,366,785 Ps. 2,927,370
Ps.
202,519 Ps.
2,677
Ps. 2,257,803 Ps. 121,689
Ps.
Ps.
Ps.
Ps.
(314,397)
3,546 Ps.
412,056
149,085
1,885
8,669
1,483,965
Ps. 31,732,955
Ps. 23,443,240
Ps.
207,081
Ps. 2,388,161
(Ps.
(314,397)
8,865) Ps.
1,475,100
(Ps. 2,663,029) Ps. 29,069,926
(Ps. 2,663,029) Ps. 20,780,211
Ps.
- Ps.
207,081
(Ps.
8,865) Ps. 2,379,296
2011
Mexico
USA
Net sales (1)
Interest earned from customers
Ps.
9,529,558 Ps. 1,371,513
2,501,066
359,959
Total revenues
Ps. 12,030,624 Ps. 1,731,472
Cost of sales
(6,519,777)
Gross income
5,510,847
(4,084,542)
Operating expenses (2)
Other income (expenses), net
93,570
Other
Ps.
Subtotal
Intersegment
Consolidated
815,897 Ps. 11,716,968
214,135
3,075,160
(Ps.
733,800) Ps.
(192,589)
10,983,168
2,882,571
Ps. 1,030,032 Ps. 14,792,128
(Ps.
926,389) Ps.
13,865,739
(887,456)
(8,470,109)
899,031
(7,571,078)
668,596
142,576
6,322,019
(27,358)
6,294,661
(668,541)
(129,366)
(4,882,449)
62,934
(4,819,515)
(2,946)
(75,902)
14,722
(60,975)
(2,891)
(62,692)
1,454,292
(25,399)
(53,846)
(4,870)
(1,062,876)
(46,253)
Operating profit before
depreciation and amortization
1,519,875
Depreciation and amortization
(291,958)
Operating profit (loss)
Ps.
1,227,917 (Ps.
Additional disclosures:
Total asset
Total liabilities
Capital expenditure
Adjusted EBITDA
Ps. 26,271,733 Ps. 3,591,614 Ps.
Ps. 18,867,472 Ps. 3,236,776 Ps.
Ps.
214,680 Ps.
91,111 Ps.
Ps. 2,046,325 (Ps.
2,891) (Ps.
(1) Net sales realized in the respective countries shown above.
(2) Excluding depreciation and amortization.
56,737) (Ps.
(350,674)
67,562) Ps.
394,824
139,407
1,197
62,692)
1,103,618
Ps. 30,258,171
Ps. 22,243,655
Ps.
306,988
Ps. 1,980,742
(Ps.
1,428,893
(350,674)
25,399) Ps.
1,078,219
(Ps. 2,872,063) Ps.
(Ps. 2,872,063) Ps.
Ps.
- Ps.
(Ps.
25,399) Ps.
27,386,108
19,371,592
306,988
1,955,343
25.2 Evaluation of operating performance
The Company evaluates operating performance based on a measure denominated “adjusted EBITDA”,
which consists of adding to the operating profit; interest expense on bank deposits, depreciation and
amortization. The adjusted EBITDA is not a measure of financial performance under IFRS and should
not be considered as an alternative to net income as a measure of operating performance or cash flows as
a measure of liquidity.
The reconciliation between Adjusted EBITDA and operating profit for the years ended December 31 is as
follows:
Operating profit
Interest expense on bank deposits
Depreciation and amortization
Adjusted EBITDA
2012
2011
Ps. 1,475,100
Ps. 1,078,219
589,799
314,397
526,450
350,674
Ps. 2,379,296
Ps. 1,955,343
25.3 Sales by product
Net sales by product for the year ended December 31 were as follows:
2012
Interest earned from customers
Furniture
Electronics
Appliances
Mobile phones
Computer equipment
Motorcycles
Clothing and footwear
Seasonal articles (air conditioners, heaters, etc.)
Income from commercial banking
Sport articles
Small appliances
Children’s articles and accessories
Other (1)
(1)
2011
Ps. 3,677,062
2,393,908
1,690,187
1,394,124
955,514
831,890
575,611
540,764
389,451
175,357
177,849
146,588
63,915
1,111,308
Ps. 2,882,571
2,356,315
1,949,346
1,530,268
1,013,712
952,945
431,829
624,222
398,414
108,316
149,079
149,462
74,038
1,245,222
Ps. 14,123,528
Ps. 13,865,739
Includes primarily revenues from
guarantees granted and sales through the commercial program denominated “Famsa to Famsa”.
Note 26 - Transition to IFRS:
These consolidated financial statements are the Company’s first financial statements in accordance with
IFRS.
The accounting policies in Note 3 have been applied in preparing the financial statements as of December
31, 2012, the comparative information presented in the financial statements as of December 31, 2011 and
in the preparation of the opening balance sheet under IFRS as of January 1, 2011 (transition date for the
Company).
In preparing its opening IFRS balance sheet, based on IFRS 1 “First-time adoption of IFRS”, the Company
has adjusted the amounts reported previously in the consolidated and combined financial statements
prepared under Mexican FRS. An explanation of how the transition from MFRS to IFRS has affected the
Company’s financial position, financial performance and cash flows is set out in the following tables and
notes.
1. Exemption and exceptions
1.1. Optional exemptions
The following are the IFRS 1 optional exemptions and exceptions applied in the conversion from Mexican
FRS to IFRS:
1.1.1. Exemption for business combinations
IFRS 1 provides the option to apply IFRS 3, “Business Combinations”, prospectively from the transition
date or from a specific date prior to the transition date. This option provides relief from full retrospective
application that would require restatement of all business combinations that occurred prior to the
transition date. The Company elected to apply IFRS 3 prospectively to business combinations occurring
after its transition date.
1.1.2. Exemption for cumulative translation differences
IFRS 1 permits cumulative translation gains and losses to be reset to zero at the transition date. This
provides relief from determining currency translation differences in accordance with IAS 21, “The effects
of changes in foreign exchange rates” from the date a subsidiary or equity method investee was formed or
acquired. The Company elected to reset to zero all cumulative translation gains and losses against the
opening balance of retained earnings under IFRS at its transition date.
1.1.3. Deemed cost exemption
IFRS establishes that at the transition date an entity can choose to measure an item of property, plant and
equipment at fair value and use that value as its deemed cost at the transition date. Under Mexican FRS,
the Company initially recognized its property, plant and equipment at cost and, until December 31, 2007,
this was restated by applying inflation rates from the National Consumer Prices Index (NCPI). At the date
of transition to IFRS, the Company elected to apply the option of using the carrying amount under
Mexican FRS, adjusted to reflect the effects of inflation through December 31, 2007, as the deemed cost of
property, leasehold improvements and furniture and equipment, so there were no adjustments to those
items in the opening statement of financial position.
1.1.4. Exemption to eliminate cumulative actuarial gains and losses
IFRS 1 allows not applying IAS 19 "Employee Benefits" retrospectively for the recognition of actuarial
gains and losses. In line with this exemption, the Company chose to apply all cumulative actuarial gains
and losses that existed at the transition date against retained earnings under IFRS.
1.2 Mandatory exceptions
The following are mandatory exceptions to IFRS 1 applied in the conversion of Mexican FRS to IFRS:
1.2.1 Exception for estimates
Estimates under IFRS as of January 1, 2011 are consistent with the estimates as at the same date made in
conformity with Mexican FRS.
1.2.2 Derecognition of financial assets
The Company does not recognize financial assets or liabilities previously derecognized under Mexican
FRS.
The following IFRS 1 mandatory exceptions were not applied because they are not relevant for the
Company:
• Exception for hedge accounting.
• Exception for non-controlling interest.
2. Reconciliation from Mexican FRS to IFRS.
IFRS 1 requires an entity to reconcile equity, comprehensive income and cash flows for prior periods. The
Company’s first-time adoption did not have an impact on the total operating, investing or financing cash
flows. The following tables represent the reconciliations from Mexican FRS to IFRS for the respective
periods noted for equity and comprehensive income.
RECONCILIATION OF EQUITY AS OF JANUARY 1, 2011
Thousands of Mexican pesos
Assets
Current assets:
Cash and cash equivalents
Trade receivables, net
Recoverable taxes
Other accounts receivable
Inventories
Mexican
FRS (*)
Note
Ps.
1
2
3
Total current assets
Non-current assets:
Restricted cash
Trade receivables, net
Property, leasehold improvements, and
furniture and equipment
Goodwill and intangible assets, net
Guarantee deposits
Deferred income tax
Deferred employee profit sharing
Conversion
effects
937,193
15,840,097
1,253,048
578,344
2,216,586
Ps.
(1,143,409)
(56,242)
(629)
20,825,268
(1,200,280)
177,266
732,323
Total non-current assets
937,193
14,696,688
1,253,048
522,102
2,215,957
19,624,988
177,266
732,323
314,595
(48,256)
4,842,787
Total assets
Ps.
-
2,561,666
309,998
60,466
952,812
48,256
4
5
IFRS
2,561,666
309,998
60,466
1,267,407
-
266,339
5,109,126
Ps. 25,668,055
(Ps. 933,941)
Ps. 24,734,114
Ps.
Ps.
Ps.
Liabilities and Stockholders’ equity
Current liabilities:
Demand deposits and time deposits
Short-term debt
Suppliers
Accounts payable and accrued expenses
Deferred income from guarantee sales
Income tax payable
1
Total current liabilities
Non-current liabilities:
Time-deposits
Long-term debt
Deferred income from guarantee sales
Employee benefits
2
1
6
Total non-current liabilities
Total liabilities
Stockholders’ equity:
Capital stock
Additional paid-in capital
Retained earnings
Reserve for repurchase of shares
Effects of foreign currency translation
355,298
-
7,697,144
2,743,542
1,515,038
864,576
355,298
18,180
12,838,480
355,298
13,193,778
1,210,154
2,486,348
146,972
(63,320)
165,521
(78,624)
1,210,154
2,423,028
165,521
68,348
3,843,474
23,577
3,867,051
16,681,954
378,875
17,060,829
2,472,600
3,068,488
3,185,306
110,000
128,862
(1,014,314)
(290,262)
120,622
(128,862)
1,458,286
2,778,226
3,305,928
110,000
-
Total controlling interest
Total non-controlling interest
8,965,256
20,845
(1,312,816)
-
7,652,440
20,845
Total stockholders’ equity
8,986,101
(1,312,816)
7,673,285
Ps. 25,668,055
(Ps. 933,941)
Ps. 24,734,114
Total liabilities and stockholders’ equity
8
8
7
7,697,144
2,743,542
1,515,038
864,576
18,180
9
(*) Some items have been reclassified to show them in accordance with the Company’s classification under IFRS.
RECONCILIATION OF EQUITY AS OF DECEMBER 31, 2011
Thousands of Mexican pesos
Assets
Current assets:
Cash and cash equivalents
Trade receivables, net
Recoverable taxes
Other accounts receivable
Inventories
Mexican
FRS (*)
Note
Ps.
1
2
3
Total current assets
Non-current assets:
Restricted cash
Trade receivables, net
Property, leasehold improvements, and
furniture and equipment
Goodwill and intangible assets
Guarantee deposits
Deferred income tax
Deferred employee profit sharing
Conversion
effects
IFRS
1,261,454
18,301,745
1,279,064
551,973
2,010,065
Ps.
(1,083,908)
(43,751)
(315)
Ps. 1,261,454
17,217,837
1,279,064
508,222
2,009,750
23,404,301
(1,127,974)
22,276,327
189,901
670,738
-
2,486,286
298,112
61,952
1,123,628
58,789
4
5
Total non-current assets
279,164
(58,789)
4,889,406
Total assets
220,375
189,901
670,738
2,486,286
298,112
61,952
1,402,792
5,109,781
Ps. 28,293,707
(Ps. 907,599)
Ps. 27,386,108
Ps.
Ps.
288,379
-
Ps. 7,528,884
2,426,638
1,483,106
776,468
288,379
12,679
12,227,775
288,379
12,516,154
2,907,190
3,802,680
153,313
(51,980)
122,859
(78,624)
2,907,190
3,750,700
122,859
74,689
Liabilities and Stockholders’ equity
Current liabilities:
Demand deposits and time deposits
Short-term debt
Suppliers
Accounts payable and accrued expenses
Deferred income from guarantee sales
Income tax payable
1
Total current liabilities
Non-current liabilities:
Time-deposits
Long-term debt
Deferred income from guarantee sales
Employee benefits
2
1
6
Total non-current liabilities
6,863,183
Total liabilities
Stockholders’ equity:
Capital stock
Additional paid-in capital
Retained earnings
Reserve for repurchase of shares
Effects of foreign currency translation
7,528,884
2,426,638
1,483,106
776,468
12,679
19,090,958
6,855,438
19,371,592
2,472,600
3,068,488
3,290,807
110,000
237,472
(1,014,314)
(290,262)
245,205
(128,862)
1,458,286
2,778,226
3,536,012
110,000
108,610
Total controlling interest
Total non-controlling interest
9,179,367
23,382
(1,188,233)
-
7,991,134
23,382
Total stockholders’ equity
9,202,749
(1,188,233)
8,014,516
Ps. 28,293,707
(Ps. 907,599)
Ps. 27,386,108
Total liabilities and stockholders’ equity
8
8
7
(7,745)
280,634
9
(*) Some items have been reclassified to show them in accordance with the Company’s classification under IFRS.
RECONCILIATION OF COMPREHENSIVE INCOME FOR THE YEAR ENDED DECEMBER 31, 2011
Thousands of Mexican pesos
Consolidated statement of income
Statement of income
Net sales
Mexican
FRS (*)
Note
1
Ps.12,081,396 (Ps.1,267,309) Ps. 169,081
Interest earned from customers
2,882,571
Total revenues
Cost of sales
14,963,967
3
Gross profit
Selling expenses
Administrative expenses
Other income (expenses) - net
Discontinued Conversion
operations
effects
10
5
(1,267,309)
Financial expenses
Financial income
2
Financial expenses, net
Profit (loss) before income tax
Income tax
4
Profit before discontinued operations
Ps.10,983,168
-
2,882,571
169,081
13,865,739
(8,371,633)
799,851
6,592,334
(467,458)
169,785
6,294,661
(3,439,337)
(2,396,961)
(44,407)
415,336
253,433
8,689
(2,660)
(10,535)
(3,024,001)
(2,146,188)
(46,253)
(5,880,705)
Operating profit
IFRS
704
(7,571,078)
677,458
(13,195)
(5,216,442)
711,629
210,000
156,590
1,078,219
(789,857)
1,376
11,776
-
764
-
(777,317)
1,376
(788,481)
11,776
764
(775,941)
(76,852)
221,776
157,354
302,278
(35,431)
149,459
121,923
451,737
184,890
-
108,038
221,776
Discontinued operations
-
Consolidated net income
108,038
-
121,923
229,961
2,537
-
-
2,537
Net income attributable to non-controlling interest
Net income attributable to controlling interest
Ps.
105,501
Ps.
108,038
(221,776)
Ps.
-
(221,776)
- Ps. 121,923 Ps.
227,424
Ps. 121,923 Ps.
229,961
Statement of comprehensive income
Consolidated net income
Other comprehensive income, net of taxes:
Actuarial gains
Foreign currency translation adjustment
Consolidated comprehensive income
10
108,610
2,660
-
2,660
108,610
Ps.
216,648
Ps. 124,583 Ps.
341,231
Non-controlling interest
Ps.
214,111
Ps. 124,583 Ps.
338,694
Controlling interest
Ps.
2,537
Consolidated comprehensive income attributable to:
Ps.
- Ps.
(*) Some items have been reclassified to show them in accordance with the Company’s classification under IFRS.
2,537
Notes to the reconciliation of statement of financial position as of December 31, 2011 and
January 1, 2011, and statements of income and comprehensive income for the year ended
December 31, 2011:
Adjustments
1. Under IFRS, the sale price is the present value of the consideration paid, determined by
discounting future collections, using an imputed interest rate. As a result, under IFRS, the
amount of trade receivables was reduced affecting retained earnings. In the following years, an
effect is recognized in the income statement affecting net sales of the period.
2. IFRS establishes that financial liabilities are recognized initially at fair value and subsequently at
amortized cost, using the effective interest method which refers to the discount rate that exactly
equals the estimated cash flows payable over the expected life of the debt. At the transition date
the Company adjusted the value of the debt to its amortized cost, prepaid expenses (other
receivables) and retained earnings.
3. IFRS establishes that inventories comprise all costs of acquisition and processing. Importation
duties, transportations, trade discounts, rebates and other similar items will affect the acquisition
cost. The Company decreased inventories affecting cost of sales.
4. Deferred taxes were recalculated due to changes in the carrying amounts of certain assets and
liabilities as a result of the adjustments arising from the adoption of IFRS.
5. Under IFRS the deferred employees’ profit sharing based on the assets and liabilities method is
not recognized because that method is applied only for income taxes; therefore, at the transition
date, the balance was cancelled, decreasing retained earnings by the same amount.
6. The estimated provision for indemnities based on actuarial calculations required by Mexican FRS
is not recognized under IFRS; therefore, the balance at January 1, 2011 was cancelled, adjusting
retained earnings by the same amount. Additionally, in accordance with IFRS 1, the Company
recognized actuarial gains and losses accumulated in retained earnings at the transition date.
7. This adjustment corresponds to the net effect of all the adjustments specified above.
Reclassifications
8. The effects of inflation are recognized when an entity operates in a hyperinflationary economy,
one of whose characteristics is that the accumulated inflation for the last three years is close to or
exceeds 100%. In Mexico, inflation exceeded this percentage from 1995 to 1997; therefore, the
Company eliminated the effects of inflation from January 1, 1998 to December 31, 2007
recognized under Mexican FRS in the items of capital stock and additional paid-in capital.
9. The company reclassified the balance at January 1, 2011 of the currency translation adjustment to
retained earnings for the adoption of the exemption in IFRS 1 “First-time Adoption of
International Financial Reporting Standards”.
10. According to IAS 19 (amended) the actuarial gains and losses should be recognized in other
comprehensive income as incurred, therefore actuarial gains of 2011 were reclassified reducing
administrative expenses and increasing actuarial gains in other comprehensive income by the
same amount.
Note 27 - Subsequent events:
In preparing the consolidated financial statements, the Company has evaluated subsequent events and
transactions from December 31, 2012 to April 15, 2013 (date of issuance of the financial statements) for
their possible recognition or disclosure, and has concluded that there are no subsequent events requiring
such recognition or disclosure.
Humberto Garza Valdéz
Chief Executive Officer
Abelardo García Lozano
Chief Financial Officer
Exhibit C: Form of Global Notes
See attached.
Form of Global Note
(Interest Bearing)
The Securities evidenced hereby have not been registered under the U.S. Securities Act of 1933,
as amended (the "Securities Act") and may not be offered or sold within the United States or to,
or for the account or benefit of, U.S. persons. Terms used above have the meanings given to
them by Regulation S under the Securities Act.
GRUPO FAMSA, S.A.B. DE C.V.
Series No.:
Maturity Date:
Issued on:
Principal Amount:
Fixed Interest Rate:
Margin:
1.
For value received, GRUPO FAMSA, S.A.B. de C.V. (the "Issuer") hereby promises to
pay to the bearer of this Global Note on the above-mentioned Maturity Date the above Principal
Amount together with accrued and unpaid interest on the unpaid principal balance of this Note at
the fixed rate of _ _% per annum (the "Base Interest") and payable on the dates as set forth
below. All such payments shall be made in accordance with a Note Agency Agreement dated as
of December _, 2009 (the "Agency Agreement") among the Issuer and HSBC Bank pic, as
issue agent and principal paying agent (in such capacity, the "Agent"). All such payments shall
be made upon presentation and surrender of this Global Note at the office of the Agent at HSBC
Bank pic, 8 Canada Square, London E14' 5HQ, England, by transfer to an account denominated
in U.S. Dollars and maintained by the bearer outside the United States. Terms used and not
defined herein shall have the meanings given them in, or by reference in, the Agency Agreement.
2.
This Global Note is issued in representation of a Series of Notes in the aggregate
Principal Amount specified above.
3.
The Base Interest will be payable by the Issuer on the unpaid principal balance of this
Note from the most recent Payment Date (as defined below) to which interest has been paid on
this Note, or if no interest has been paid on this Note, from the date of issuance set forth above,
until payment in full of the principal sum hereof has been made, semi-annually in arrears (to the
] and [
]
holders of record of the Notes at the close of business on [
(each a "Payment Date")). Interest on past due amounts under this Note shall accrue interest at
the Base Interest rate plus _% per annum and will be payable by the Issuer on demand of the
bearer. Interest on this Note will be calculated on the basis of a 360-day year consisting of
twelve (12) 30-day months.
4.
All Base Interest payments due on each Payment Date, or other applicable Base Interest
payment date hereunder or under the Agreement, will be made in cash by wire transfer of
immediately available funds to the bearer's account (the "Bank Account") at such bank outside
the United States as may be specified in writing by the bearer to the Issuer in accordance with the
notice provisions of the Agency Agreement, in such denomination ofD.S. currency as at the time
of payment shall be legal tender for the payment of public and private debts. Payments in
respect of the Notes represented by a Book Entry-Note (including principal amount and interest
accrued and unpaid) will be made by wire transfer of immediately available funds to the
accounts specified by Euroclear or Clearstream Luxembourg.
5.
All payments in respect of this Global Note shall be made without setoff, counterclaim,
fees, liabilities or similar deductions, and free and clear of, and without deduction or withholding
for, taxes, levies, duties, assessments or charges of any nature now or hereafter imposed, levied,
collected, withheld or assessed by or for the account of Mexico or any political subdivision or
taxing authority thereof or therein ("Taxes"). If the Issuer or any agent thereof is required by
law or regulation to make any deduction or withholding for or on account of Taxes, the Issuer
shall, to the extent permitted by applicable law or regulation, pay such additional amounts as
shall be necessary in order that the net amounts received by the bearer of this Global Note or the
holder or beneficial owner of any interest herein or rights in respect hereof after such deduction
or withholding shall equal the amount which would have been receivable hereunder in the
absence of such deduction or withholding, except that no such additional amounts shall be
payable:
(a)
to the bearer of this Global Note or the holder or beneficial owner of any interest
herein or rights in respect hereof where such deduction or withholding is required
by reason of the bearer, holder or owner having some connection with Mexico
other than the mere holding of and payment in respect of this Global Note; or
(b)
in respect of any deduction or withholding which would not have been required
but for the presentation by the bearer of this Global Note for payment on a date
more than 15 days after the Maturity Date or the date on which payment hereof is
duly provided for, whichever occurs later; or
(c)
any estate, inheritance, gift, sales, stamp, transfer or personal property tax; or
(d)
any taxes imposed on, or withheld or deducted from, payments made to a holder
or beneficial owner of this note at a rate in excess of the 4.9% rate of tax in effect
on the date hereof and uniformly applicable in respect of payments made by
Issuer to all holders or beneficial owners eligible for the benefits of a treaty for
the avoidance of double taxation to which Mexico is a party without regard to the
particular circumstances of such holders or beneficial owners (provided that, upon
any subsequent increase in the rate of tax that would be applicable to payments to
all such holders or beneficial owners without regard to their particular
circumstances, such increased rate shall be substituted for the 4.9% rate for
purpose of this clause (d), but only to the extent that (x) such holder or beneficial
owner has failed to provide on a timely basis, at the reasonable request of Issuer
(subject to the conditions set forth below), information, documentation or other
evidence concerning whether such holder or beneficial owner is eligible for
benefits under a treaty for the avoidance of double taxation of which Mexico is a
party if necessary to determine the appropriate rate of deduction or withholding of
taxes under such treaty or under any statute, regulation, rule, ruling or
2
administrative practice, and (y) at least 60 days prior to the payment date with
respect to which Issuer shall make such reasonable request, Issuer shall have
notified the holders of this note, in writing, that such holders or beneficial owners
of this note will be required to provide such information, documentation or other
evidence; or
(e)
any taxes that are imposed on, or withheld or deducted from, payments made to
the holder or beneficial owner of this note to the extent such taxes would not have
been so imposed, deducted or withheld but for the failure by such holder or
beneficial owner of this note to comply with any certification, identification,
information, documentation or other reporting requirement concerning the
nationality, residence, identity or connection with Mexico (or any political
subdivision or territory or possession thereof or area subject to its jurisdiction) of
the holder or beneficial owner of this note if (x) such compliance is required or
imposed by a statute, treaty, regulation, rule, ruling or administrative practice in
order to make any claim for exemption from, or reduction in the rate of, the
imposition, withholding or deduction of any taxes, and (y) at least 60 days prior to
the first payment date with respect to which Issuer shall apply this clause (e),
Issuer shall have notified all the holders of this note, in writing, that such holders
or beneficial owners of this note will be required to provide such information or
documentation.
6.
The payment obligation of the Issuer represented by this Global Note constitutes and at
all times shall constitute a direct, unsecured and unsubordinated obligation of the Issuer ranking
pari passu without any preference with all present and future unsecured and unsubordinated
indebtedness of the Issuer, except any such obligations as are preferred by law.
7.
If the Maturity Date is not a Payment Business Day (as defined herein), payment in
respect hereof will not be made and credit or transfer instructions shall not be given until the next
following Payment Business Day and the bearer of this Global Note or the holder or beneficial
owner of any interest herein or rights in respect hereof shall not be entitled to any interest or
other sums in respect of such postponed payment. "Payment Business Day", as used herein,
shall mean any day other than a Saturday or Sunday, which is a day on which commercial banks
and foreign exchange markets settle payments and are open for general business (including
dealing in foreign exchange and foreign currency deposits) in London, New York City and
Mexico City.
8.
This Global Note is negotiable and, accordingly, title hereto shall pass by delivery and
the bearer shall be treated as being absolutely entitled to receive payment upon due presentation
hereof (notwithstanding any notation of ownership or other writing thereon or notice of any
previous loss or theft thereof).
9.
If (i) Euroclear or Clearstream Luxembourg is closed for a continuous period of 14 days
(other than by reason of public holidays) or (ii) default is made in the payment referred to above
and such default is not remedied within seven days after the due date for payment, the Issuer
hereby undertakes that, upon presentation and surrender of this Global Note during normal
business hours on or after the Maturity Date to the Issuer at the above office of the Agent, it will
3
issue to the bearer duly executed and authenticated bearer Notes in the form of Schedule 2 to the
Agency Agreement ("Definitive Notes") in an aggregate principal amount equal to the Principal
Amount of this Global Note.
10.
If, upon the occurrence of an event described in paragraph 9 and following such
surrender, Definitive Notes are not issued in full exchange for this Global Note before 5:00 p.m.
(London time) on the thirtieth day after surrender, this Global Note (including the obligation
hereunder to issue Definitive Notes) will become void and the bearer will have no further rights
under this Global Note (but without prejudice to the rights which any person may have pursuant
to paragraph 11 below).
11.
Interests in this Global Note will be transferable in accordance with the rules and
procedures for the time being of Euroclear or Clearstream Luxembourg. Each person who is
shown in the records of Euroclear or Clearstream Luxembourg as entitled to a particular number
of Definitive Notes by way of an interest in this Global Note will be treated by the Issuer and the
Agent as the holder of such number of Definitive Notes, and the expression "Noteholder" shall
be construed accordingly. For purposes of this Global Note, the securities account records of
Euroclear or Clearstream Luxembourg shall, in the absence of manifest error, be conclusive
evidence of the identity of the Noteholders and of the principal amount of the Notes represented
by this Global Note credited to the securities accounts of such Noteholders. Any statement
issued by Euroclear or Clearstream Luxembourg to any Noteholder relating to a specified Note
or Notes credited to the securities account of such Noteholder and stating the principal amount of
such Note or Notes and certified by Euroclear or Clearstream Luxembourg to be a true record of
such securities account shall, in the absence of manifest error, be conclusive evidence of the
records of Euroclear or C1earstream Luxembourg for the purposes of the next preceding sentence
(but without prejudice to any other means of producing such records in evidence).
Notwithstanding any provisions to the contrary contained in this Global Note, the Issuer
irrevocably agrees, for the benefit of such Noteholders and their successors and assigns, that each
Noteho1der or its successors or assigns may, without the consent and to the exclusion of the
bearer hereof, file any claim, take any action or institute any proceeding to enforce, directly
against the Issuer, the obligation of the Issuer hereunder to pay any amount due or to become due
in respect of each Note represented by this Global Note which is credited to such Noteholder's
securities account with Euroclear or Clearstream Luxembourg without the production of this
Global Note; provided that the bearer hereof shall not theretofore have filed a claim, taken action
or instituted proceedings to enforce the same in respect of such Notes.
12.
This Global Note shall be governed by and construed in accordance with the laws of the
State of New York. The Issuer irrevocably agrees that any suit, action or proceeding arising out
of or relating to this Global Note ("Proceedings") may be instituted in the courts of the State of
New York, or the federal courts, sitting in the Borough of Manhattan, City of New York, State of
New York. The Issuer irrevocably waives any objection which itmay have now or hereafter to
the laying of the venue of any Proceedings and any claim that such Proceedings have been
brought in any inconvenient or inappropriate forum, and irrevocably submits generally and
unconditionally to the jurisdiction of any such court in any Proceedings. The Issuer further
irrevocably agrees that a judgment in any Proceedings brought in such courts may be enforced in
the courts of any other jurisdiction to the extent permitted by applicable law. Nothing herein
contained shall limit the right of any party hereto to initiate Proceedings in any other court of
4
competent jurisdiction; nor shall the initiation of Proceedings in anyone or more jurisdictions
preclude taking Proceedings in any other jurisdiction. The Issuer hereby appoints C T
Corporation System, III Eighth Avenue, New York, New York 10011, as its agent to receive
service of process in any Proceedings in New York City in connection herewith.
13.
This Global Note shall not be validly issued unless manually authenticated by HSBC
Bank pIc, as Agent.
AUTHENTICATED by
Signed in facsimile on behalf of
HSBC BANK pic
without recourse, warranty or liability and for
authentication purposes only
GRUPO FAMSA, S.A.B. DE
By:
(Authorized Signatory)
By:
(Authorized Signatory)
5
c.v.
Exhibit D: Form of Definitive Notes
See attached.
, Form of Definitive Note
(Interest Bearing)
The Securities evidenced hereby have not been registered under the U.S. Securities Act of 1933,
as amended (the "Securities Act") and may not be offered or sold within the United States or to,
or for the account or benefit of, U.S. persons. Terms used above have the meanings given to
them by Regulation S under the Securities Act.
GRUPO FAMSA, S.A.B. DE c.v.
Series No.:
Maturity Date:
Issued on:
Principal Amount:
Fixed Interest Rate:
Margin:
1.
For value received, GRUPO FAMSA, S.A.B. de C.V. (the "Issuer") hereby promises to
pay to the bearer of this Note on the above-mentioned Maturity Date the above Principal Amount
together with accrued and unpaid interest on the unpaid principal balance of this Note at the
fixed rate of _% per annum (the "Base Interest") and payable on the dates as set forth below.
All such payments shall be made in accordance with a Note Agency Agreement dated as of
December _, 2009 (the "Agency Agreement") among the Issuer and HSBC Bank plc as issue
agent and principal paying agent (in such capacity, the "Agent"). All such payments shall be
made upon presentation and surrender of this Note at the office of the Agent at !-is'BC Bank pIc,
8 Canada Square, London E14 5HQ, England, by transfer to an account denominated in U.S.
Dollars and maintained by the bearer outside the United States. Terms used and not defined
herein shall have the meanings given them in the Agency Agreement.
2.
The Base Interest will be payable by the Issuer on the unpaid principal balance of this
Note from the most recent Payment Date (as defined below) to which interest has been paid on
this Note, or if no interest has been paid on this Note, from the date of issuance set forth above,
until payment in full of the principal sum hereof has been made, semi-annually in arrears (to the
] and [
)
holders of record of the Notes at the close of business on [
(each a "Payment Date")). Interest on past due amounts under this Note shall accrue interest at
the Base Interest rate plus _% per annum and will be payable by the Issuer on demand of the
bearer. Interest on this Note will be calculated on the basis of a 360-day year consisting of
twelve (12) 30-day months.
3.
All Base Interest payments due on each Payment Date, or other applicable Base Interest
payment date hereunder or under the Agreement, will be made in cash by wire transfer of
immediately available funds to the bearer's account (the "Bank Account") at such bank outside
the United States as may be specified in writing by the bearer to the Issuer in accordance with the
notice provisions of the Agency Agreement, in such denomination ofD.S. currency as at the time
of payment shall be legal tender for the payment of public and private debts. Payments in
respect of the Notes represented by a Book Entry-Note (including principal amount and interest
accrued and unpaid) will be made by wire transfer of immediately available funds to the
accounts specified by Euroclear or Clearstream Luxembourg.
4.
All payments in respect of this Note shall be made without setoff, counterclaim, fees,
liabilities or similar deductions, and free and clear of, and without deduction or withholding for,
taxes, levies, duties, assessments or charges of any nature now or hereafter imposed, levied,
collected, withheld or assessed by or for the account of Mexico or any political subdivision or
taxing authority thereof or therein ("Taxes"). If the Issuer or any agent thereof is required by
law or regulation to make any deduction or withholding for or on account of Taxes, the Issuer
shall, to the extent permitted by applicable law or regulation, pay such additional amounts as
shall be necessary in order that the net amounts received by the bearer of this Note or the holder
or beneficial owner of any interest herein or rights in respect hereof after such deduction or
withholding shall equal the amount which would have been receivable hereunder in the absence
of such deduction or withholding, except that no such additional amounts shall be payable:
(a)
to the bearer of this Note or the holder or beneficial owner of any interest herein
or rights in respect hereof where such deduction or withholding is required by
reason of the bearer, holder or owner having some connection with Mexico other
than the mere holding of and payment in respect of this Note; or
(b)
in respect of any deduction or withholding which would not have been required
but for the presentation by the bearer of this Note for payment on a date more than
15 days after the Maturity Date or the date on which payment hereof is duly
provided for, whichever occurs later; or
(c)
any estate, inheritance, gift, sales, stamp, transfer or personal property tax; or
(d)
any taxes imposed on, or withheld or deducted from, payments made to a holder
or beneficial owner of this note at a rate in excess of the 4.9% rate of tax in effect
on the date hereof and uniformly applicable in respect of payments made by
Issuer to all holders or beneficial owners eligible for the benefits of a treaty for
the avoidance of double taxation to which Mexico is a party without regard to the
particular circumstances of such holders or beneficial owners (provided that, upon
any subsequent increase in the rate of tax that would be applicable to payments to
all such holders or beneficial owners without regard to their particular
circumstances, such increased rate shall be substituted for the 4.9% rate for
purpose of this clause (d), but only to the extent that (x) such holder or beneficial
owner has failed to provide on a timely basis, at the reasonable request of Issuer
(subject to the conditions set forth below), information, documentation or other
evidence concerning whether such holder or beneficial owner is eligible for
benefits under a treaty for the avoidance of double taxation of which Mexico is a
party if necessary to determine the appropriate rate of deduction or withholding of
taxes under such treaty or under any statute, regulation, rule, ruling or
administrative practice, and (y) at least 60 days prior to the payment date with
respect to which Issuer shall make such reasonable request, Issuer shall have
notified the holders of this note, in writing, that such holders or beneficial owners
2
of this note will be required to provide such information, documentation or other
evidence; or
(e)
any taxes that are imposed on, or withheld or deducted from, payments made to
the holder or beneficial owner of this note to the extent such taxes would not have
been so imposed, deducted or withheld but for the failure by such holder or
beneficial owner of this note to comply with any certification, identification,
information, documentation or other reporting requirement concerning the
nationality, residence, identity or connection with Mexico (or any political
subdivision or territory or possession thereof or area subject to its jurisdiction) of
the holder or beneficial owner of this note if (x) such compliance is required or
imposed by a statute, treaty, regulation, rule, ruling or administrative practice in
order to make any claim for exemption from, or reduction in the rate of, the
imposition, withholding or deduction of any taxes, and (y) at least 60 days prior to
the first payment date with respect to which Issuer shall apply this clause (e),
Issuer shall have notified all the holders of this note, in writing, that such holders
or beneficial owners of this note will be required to provide such information or
documentation.
5.
The payment obligation of the Issuer represented by this Note constitutes and at all times
shall constitute a direct, unsecured and unsubordinated obligation of the Issuer ranking pari
passu without any preference with all present and future unsecured and unsubordinated
indebtedness of the Issuer, except any such obligations as are preferred by law.
6.
If the Maturity Date is not a Payment Business Day (as defined herein), payment in
respect hereof will not be made and credit or transfer instructions shall not be given until the next
following Payment Business Day and the bearer of this Note shall not be entitled to any interest
or other sums in respect of such postponed payment. "Payment Business Day", as used herein,
shall mean any day other than a Saturday or Sunday, which is a day on which commercial banks
and foreign exchange markets settle payments and are open for general business (including
dealing in foreign exchange and foreign currency deposits) in London, New York City and
Mexico City.
7.
This Note is negotiable and, accordingly, title hereto shall pass by delivery and the bearer
shall be treated as being absolutely entitled to receive payment upon due presentation hereof
(notwithstanding any notation of ownership or other writing thereon or notice of any previous
loss or theft thereof).
8.
This Note shall be governed by and construed in accordance with the laws of the State of
New York. The Issuer irrevocably agrees that any suit, action or proceeding arising out of or
relating to this Note ("Proceedings") may be instituted in the courts of the State of New York, or
the federal courts, sitting in the Borough of Manhattan, City of New York, State of New York.
The Issuer irrevocably waives any objection which it may have now or hereafter to the laying of
the venue of any Proceedings and any claim that such Proceedings have been brought in any
inconvenient or inappropriate forum, and irrevocably submits generally and unconditionally to
the jurisdiction of any such court in any Proceedings. The Issuer further irrevocably agrees that
a judgment in any Proceedings brought in such courts may be enforced in the courts of any other
3
jurisdiction to the extent permitted by applicable law. Nothing herein contained shall limit the
right of any party hereto to initiate Proceedings in any other court of competent jurisdiction; nor
shall the initiation of Proceedings in anyone or more jurisdictions preclude taking Proceedings
in any other jurisdiction. The Issuer hereby appoints C T Corporation System, III Eighth
Avenue, New York, New York 10011, as its agent to receive service of process in any
Proceedings in New York City in connection herewith.
9.
This Note shall not be validly issued unless manually authenticated by HSBC Bank plc,
as Agent.
AUTHENTICATED by
HSBC BANK pic
without recourse, warranty or liability and for
authentication purposes only
Signed in facsimile on behalf of
GRUPO FAMSA, S.A.B. DE C.V.
By:
(Authorized Signatory)
By:
(Authorized Signatory)
4
Issuer
Grupo Famsa, S.A.B. de C.V.
Avenida Pino Suárez No. 1202 Norte, Colonia Centro
64000 Monterrey, N.L.
Dealer
Banco Espírito Santo de Investimento, S.A., Sucursal en España
Calle Serrano, N. 88
28006 Madrid, Spain
340 Madison Avenue, 12th Floor
New York, NY 10173
Issue Agent and
Principal Paying Agent
HSBC Bank plc.
8 Canada Square
LondonE14 5HQ
Attorney for the Issuer
Norton Rose Fulbright (Fulbright & Jaworski LLP)
1301 McKinney, Suite 5100
Houston, Texas 77010-3095
Attorney for the Dealer
Jones Day
222 East 41st Street
New York, NY 10017-6727
U.S.$60,000,000
Grupo Famsa, S.A.B. de C.V.
6.125% Notes due January 28, 2015
______________________
INFORMATION MEMORANDUM
______________________
Dealer
Financial Advisor
February 18, 2014