UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 20-F
(Mark One)

|_| REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE
SECURITIES EXCHANGE ACT OF 1934

|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the fiscal year ended December 31, 2000

|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________

Commission file number 1-13196

DESC, S.A. DE C.V.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)

Not Applicable
- --------------------------------------------------------------------------------
(Translation of Registrant's name into English)

United Mexican States
- --------------------------------------------------------------------------------
(Jurisdiction of incorporation or organization)

Paseo de los Tamarindos 400-B, Bosques de las Lomas, 05120 Mexico, D.F.
- --------------------------------------------------------------------------------
(Address of principal executive offices)

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

Name of each exchange
Title of each class on which registered
- -------------------------------------- -----------------------------
American Depositary Shares, each New York Stock Exchange, Inc.
representing Twenty Series C Shares(1)

Series C Shares, without expression of New York Stock Exchange, Inc.
par value(2)

(1) Evidenced by American Depositary Receipts (ADRs).
(2) Not for trading, but only in connection with the registration of the
American Depositary Shares.

Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
(Title of Class)

Securities for which there is a reporting obligation pursuant to
Section 15(d) of the Act:
Dine, S.A. de C.V.'s 8-3/4% Guaranteed Notes due 2007
(Title of Class)

Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the annual
report.

Series A Common Stock: 587,479,900
Series B Common Stock: 506,176,760
Series C Common Stock: 275,341,610

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
|X| Yes |_| No

Indicate by check mark which financial statement item the registrant has elected
to follow. |_| Item 17 |X| Item 18

TABLE OF CONTENTS

Page

Item 1. Identity of Directors, Senior Management and Advisers..........................................4

Item 2. Offer Statistics and Expected Timetable........................................................4

Item 3. Key Information................................................................................4

Item 4. Information on our Company....................................................................17

Item 5. Operating and Financial Review and Prospects..................................................41

Item 6. Directors, Senior Management and Employees....................................................57

Item 7. Major Shareholders and Related Party Transactions.............................................61

Item 8. Financial Information.........................................................................62

Item 9. The Offer and Listing.........................................................................62

Item 10. Additional Information.......................................................................64

Item 11. Quantitative and Qualitative Disclosures About Market Risk...................................88

Item 12. Description of Securities Other than Equity Securities.......................................90

PART II .............................................................................................91

Item 13. Defaults, Dividend Arrearages and Delinquencies..............................................91

Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds.................91

Item 15. [RESERVED]...................................................................................91

Item 16. [RESERVED]...................................................................................91

PART III .............................................................................................92

Item 17. Financial Statements.........................................................................92

Item 18. Financial Statements.........................................................................92

Item 19. Exhibits.....................................................................................92

PRESENTATION OF INFORMATION

In this annual report:

o "Depositary" means Citibank, N.A., as depositary, under that
certain Amended and Restated Deposit Agreement, dated as of June
29, 1994, effective as of July 20, 1994, amended as of July 15,
1996, among Desc, Citibank, and all holders and beneficial owners
from time to time of American Depositary Receipts ("ADRs"),
evidencing American Depositary Sharers ("ADSs"), issued thereunder.
Each ADS currently represents twenty Series C shares.

o "Dine" means Dine, S.A. de C.V., a wholly owned subsidiary of Desc
engaged in the real estate business;

o "Dollars" and "$" refer to the currency of the United States of
America;

o "Financial Statements" means Desc's audited consolidated financial
statements for the years ended December 31, 2000, 1999 and 1998;

o "GAAP" means generally accepted accounting principles in the
indicated country;

o "Girsa" means Girsa, S.A. de C.V., a wholly owned subsidiary of
Desc engaged in the chemicals business;

o "Mexico" means the United Mexican States;

o "Mexican government" means the Mexican federal government;

o "NCPI" means the Mexican National Consumers Price Index, a measure
of inflation in Mexico;

o "Noon Buying Rate" means the noon buying rate in New York City for
cable transfers in Pesos as certified for customs purposes by the
U.S. Federal Reserve Bank, expressed in Pesos per $1.00;

o "Pesos" and "Ps." refer to the currency of Mexico. Except as
otherwise indicated, all Peso amounts reflect thousands of Pesos;

o "SEC" means the U.S. Securities and Exchange Commission;

o "Unik" means Unik, S.A. de C.V., a wholly owned subsidiary of Desc
engaged in the automotive parts business; and

o "we," "our," "us" and similar terms, as well as "Desc," mean Desc,
S.A. de C.V. and its consolidated subsidiaries, unless the context
indicates otherwise.

Our fiscal year ends on December 31 of each year, and references to
"fiscal year" reflect a 52-week period.

Our Financial Statements are expressed in Pesos and prepared in
accordance with Mexican GAAP, which differ from U.S. GAAP in significant
respects, in particular by requiring Mexican companies to recognize effects of
inflation. Please see notes 19 and 20 to our Financial Statements for a
discussion of the principal differences between Mexican GAAP and U.S. GAAP as
they relate to Desc.

The Mexican Institute of Public Accountants has issued Bulletin B-10,
"Recognition of the Effects of Inflation on Financial Information", as amended,
and Bulletin B-12, "Statement of Changes in Financial Position". These bulletins
outline the inflation accounting methodology mandatory for all Mexican companies
reporting under Mexican GAAP. Mexican GAAP provide for the recognition of
effects of inflation by restating nonmonetary assets and liabilities using the
NCPI, restating the components of stockholders' equity using the NCPI and
recording gains or losses in purchasing power due to the holding of monetary
liabilities or assets. Mexican GAAP also require that all financial information
be presented in constant Pesos, having the same purchasing power for each period
indicated taking into account inflation, as of the date of the most recent
balance sheet presented. The effect of these inflation accounting principles has
not been reversed in the reconciliation to U.S. GAAP. The annual rates of
inflation in Mexico, as measured by changes in the NCPI, were 27.7% in 1996,
15.7% in 1997, 18.6% in 1998, 12.3% in 1999 and 9.0% in 2000.

In this annual report, all financial data presented in Pesos for all
periods in the Financial Statements, unless otherwise indicated, have been
restated in constant Pesos as of December 31, 2000. Dollar amounts, unless
otherwise indicated, are stated on a nominal, that is, noninflation adjusted,
basis, except for convenience translations of Peso amounts.

Solely for your convenience, this annual report contains translations
of Peso amounts into Dollars. We have used an exchange rate of Ps.9.65 per
Dollar for these translations, which is the exchange rate quoted by Banco de
Mexico on December 31, 2000. The Noon Buying Rate was Ps.9.62 per $1.00 on
December 31, 2000. Translations contained in this annual report do not
constitute representations that the stated Peso amounts actually represent
Dollar amounts or vice versa, or that amounts could be or could have been
converted into Dollars or Pesos, as the case may be, at any particular rate.

Prior to December 8, 1999, we conducted our food business through our
wholly owned subsidiary Agrobios, S.A. de C.V. On December 8, 1999, we merged
Agrobios with and into Desc, with Desc being the surviving company of the
merger. As a result, each of Agroken, S.A. de C.V., which conducts our pork
business, Grupo Corfuerte, S.A. de C.V., which conducts our branded food
business in Mexico, Authentic Acquisition Corporation, Inc., which conducts our
branded food business in the U.S., and Aquanova, S.A. de C.V., which conducts
our development-stage shrimp business), became a direct subsidiary of Desc. As
of the second half of 2000, we restructured the management of our food sector to
address that sector's relatively poor results and appointed Girsa's
management team to manage our branded food business and appointed Ernesto Vega
Velasco, our senior vice president, and his management team to manage our
commodity food business, which consists of pork and shrimp.

CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR"
PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

This annual report includes "forward-looking statements," as that term
is defined in the Private Securities Litigation Reform Act of 1995. These
forward-looking statements can be identified by the use of forward-looking
terminology such as "estimate," "project," "believe," "anticipate," "intend,"
"expect," "plan," "may," "will," "would," "could," or "should" or the negative
of these words or other variations of these words or other similar expressions.
These forward-looking statements reflect the views of our management with
respect to our future financial performance and future events. All
forward-looking statements contained in this annual report, including those
presented with numerical specificity, however, are uncertain. They are based on
assumptions and affected by risks and uncertainties that could cause actual
results to differ materially from our expectations described in these
forward-looking statements. These factors include, among other things, the
following:

o changes in the Mexican economy, including rates of inflation,
economic growth and currency fluctuations;

o Mexican political instability, including the reversal of
market-oriented reforms and economic recovery measures or the
failure of those reforms and measures to achieve their goals;

o adverse changes in the prices of our products or of the prices of
other products in which our products are incorporated, in the
international markets or on the costs of our inputs;

o competitive product and pricing pressures in both the domestic and
international markets; and

o foreign currency rate fluctuations and fluctuations in other market
rate sensitive instruments to which we are a party.

We caution readers not to place undue reliance on these forward-looking
statements. We do not undertake any obligation or intend to publicly update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise.

PART I

Item 1. Identity of Directors, Senior Management and Advisers

Not Applicable.

Item 2. Offer Statistics and Expected Timetable

Not Applicable.

Item 3. Key Information

Selected Financial Data

The following table presents selected consolidated financial data of
Desc for the fiscal years 1996, 1997, 1998, 1999 and 2000. You should read this
information in conjunction with the Financial Statements included elsewhere in
this annual report. The Financial Statements have been audited by Arthur
Andersen, our independent public accountants. The Financial Statements have been
prepared in accordance with Mexican GAAP, which differ in significant respects
from U.S. GAAP, in particular by requiring Mexican companies to recognize
effects of inflation. Notes 19 and 20 to the Financial Statements provide a
description of the principal differences between Mexican GAAP and U.S. GAAP, as
they relate to Desc, and a reconciliation to U.S. GAAP of Desc's net income and
stockholders' equity. The effect of inflation accounting principles has not been
reversed in the reconciliation to U.S. GAAP. Net income information included in
the following tables consists of "majority net income," as referred to in the
Financial Statements, and therefore is net of minority interests attributable to
third party equity interests in some of our subsidiaries, unless the context
otherwise requires.

Selected Consolidated Financial Information

Year ended December 31,
-----------------------------------------------------------------------------
1996 1997 1998 1999 2000 2000
---------- ---------- ---------- ---------- ---------- -----------
(In thousands, except for net income (loss) per share/ADS)

Income statement data:
Mexican GAAP: Ps. Ps. Ps. Ps. Ps.
Net sales ................................. 20,131,034 23,451,558 26,176,034 25,329,850 23,439,306 $ 2,428,944
Cost of sales ............................. 14,239,685 17,075,451 18,859,146 18,255,984 17,444,972 1,807,769
Gross profit .............................. 5,891,349 6,376,107 7,316,888 7,073,866 5,994,334 621,175
Operating expenses ........................ 2,648,623 2,830,700 3,541,180 3,738,732 3,731,019 386,635
Operating income .......................... 3,242,726 3,545,407 3,775,708 3,335,134 2,263,315 234,540
Comprehensive financial result ............ 1,171,239 69,199 (1,442,325) 446,528 (689,957) (71,498)
Equity in associated companies and
unconsolidated subsidiaries ............ 52,472 (60,575) (132,380) 46,483 (10,302) (1,067)
Impairment of fixed assets ................ -- (32,202) (37,739) (220,736) (152,026) (15,753)
Other income (expense), net ............... (34,329) 14,302 (97,655) (241,242) (428,102) (44,363)
Provision for income taxes and
employee profit sharing ................ 394,143 364,162 532,003 889,843 554,016 57,411
Income before extraordinary items ......... 4,037,965 3,171,969 1,533,606 2,476,324 428,912 44,448
Profit on the sale of subsidiaries ........ -- -- 119,517 153,746 -- --
Extraordinary items ....................... (272,795) -- -- -- 191,465 19,840
Net Income before minority interest ....... 3,765,170 3,171,969 1,653,123 2,630,070 620,377 64,288
Minority interest ......................... (575,264) (544,219) (521,317) (694,997) (345,482) (35,802)
Majority net income ....................... 3,189,906 2,627,750 1,131,806 1,935,073 274,895 28,486
Majority net income per share(1) .......... 2.21 1.73 0.75 1.30 0.19 0.02
Majority net income per ADS(2) ............ 44.20 34.60 15.00 26.00 3.80 0.40
Dividends per share ....................... 0.00 0.17 0.63 0.00 0.59 0.07
Dividends per ADS ......................... 0.00 3.40 12.60 0.00 2.36 0.28

Approximate U.S. GAAP amounts: Ps. Ps. Ps. Ps. Ps.
Net sales ................................. 20,180,032 23,452,030 26,173,807 25,330,232 23,445,839 $ 2,429,620
Operating income .......................... 3,229,881 3,041,979 3,543,969 2,685,595 1,666,729 172,718
Majority income (loss) from continuing
operations ................................ 3,301,106 1,487,512 1,405,990 1,732,027 495,344 51,331
Majority net income (loss) ................ 3,301,106 1,487,512 1,405,990 1,732,027 495,344 51,331
Majority net income (loss) per share(1) ... 2.29 0.98 0.93 1.16 0.35 .04
Majority net income (loss) per ADS(2) ..... 45.80 19.60 18.60 23.20 7.00 0.80

Balance sheet data (at period end):
Mexican GAAP:
Assets: Ps. Ps. Ps. Ps. Ps.
Total current assets ...................... 7,083,885 9,281,683 9,770,951 10,046,232 10,984,099 $ 1,138,248
Land held for development and real estate
projects in progress ................... 3,743,073 3,240,542 4,180,083 3,765,789 3,737,802 387,337
Investment in shares ...................... 523,161 484,147 153,926 422,491 392,378 40,661
Property, plant and equipment, net ........ 14,978,818 15,026,323 16,707,303 15,537,372 14,147,921 1,466,106
Total assets .............................. 26,974,454 29,477,137 33,699,369 32,310,966 32,112,150 3,327,684
Liabilities:
Short-term debt(3) ........................ 2,638,919 3,626,673 4,284,606 4,082,850 3,738,874 387,448
Long-term debt(4) ......................... 5,731,055 6,525,420 8,403,162 7,024,513 8,472,697 878,000
Total liabilities ......................... 11,663,608 13,429,770 16,624,591 14,799,669 18,370,875 1,903,717
Stockholders' equity:
Capital Stock 9,958,710 10,064,907 10,062,627 10,062,431 10,060,941 1,042,584
Total stockholders' equity including
minority
interest(5) ............................ 15,310,846 16,047,367 17,074,779 17,511,297 13,741,275 1,423,967
Total liabilities and stockholders' ....... 26,974,454 29,477,137 33,699,369 32,310,966 32,112,150 3,327,684
equity(5)(6)
Approximate U.S. GAAP amounts: Ps. Ps. Ps. Ps. Ps.
Property, plant and equipment, net ........ 14,549,409 15,539,675 17,399,222 16,582,156 15,256,529 $ 1,580,987
Total assets .............................. 26,804,653 30,452,004 34,760,219 34,137,351 33,795,608 3,502,136
Short-term debt ........................... 2,638,918 3,626,673 4,284,606 4,082,850 3,738,874 387,448
Long-term debt ............................ 5,731,055 6,525,420 8,403,162 7,024,513 8,472,697 878,001
Stockholders' equity(5) ................... 9,458,946 10,510,439 10,126,988 10,628,162 9,443,503 978,602

Selected Consolidated Financial Information (Continued)

Year ended December 31,
----------------------------------------------------------------------------------
1996 1997 1998 1999 2000 2000
---------- ---------- ---------- ---------- ---------- -----------
(In thousands other than for net income (loss) per share/ADS)

Other data: Ps. Ps. Ps. Ps. Ps.
Working capital(7) ................... 2,247,323 4,309,707 4,662,759 4,660,813 5,792,322 $ 600,242
Depreciation and amortization(8) ..... 992,670 961,098 1,140,587 1,139,098 1,183,778 122,671
Operating cash flow (EBITDA)(9) ...... 4,235,396 4,506,505 4,916,295 4,474,232 3,447,093 357,211
Capital expenditures(10) ............. 2,308,386 3,031,812 4,445,987 3,073,424 1,842,228 190,904
Investment in real estate projects(11) 340,921 161,481 544,951 396,836 668,611 69,286
Dividends paid ....................... -- 260,746 953,207 0 408,848 42,471
Dividends paid to minority interest .. (11,609) (241,734) (293,990) 0 (44,662) (4,628)
Number of employees .................. 18,880 22,152 23,664 20,878 22,320 22,320
Weighted average shares outstanding ... 1,443,300 1,515,183 1,506,981 1,489,733 1,418,126 1,418,126

Net sales: ............................ Ps. Ps. Ps. Ps. Ps.
Automotive Parts (UNIK) ............... 7,400,731 9,594,182 10,876,582 10,854,485 10,935,622 $ 1,110,927
Chemicals (GIRSA) ..................... 9,670,030 8,714,972 8,456,287 7,595,856 7,914,807 805,153
Food .................................. 2,738,087 4,576,970 5,923,063 5,973,442 3,575,823 364,293
Real Estate (DINE) .................... 322,186 540,438 895,370 876,452 995,668 102,050
Desc(12) 0 24,996 24,732 29,615 17,386 1,780
---------- ---------- ---------- ---------- ---------- -----------
Ps. Ps. Ps. Ps. Ps.
Total ................................. 20,131,034 23,451,558 26,176,034 25,329,850 23,439,306 $ 2,428,944

Cost of sales and operating expenses:
Automotive Parts (UNIK) ............... 6,163,824 8,153,493 9,219,483 9,122,457 9,335,897 $ 967,450
Chemicals (GIRSA) ..................... 7,959,121 7,308,387 7,154,159 6,660,882 7,393,422 766,157
Food .................................. 2,488,077 3,979,541 5,389,632 5,568,288 3,536,204 366,446
Real Estate (DINE) .................... 245,814 402,265 575,045 567,619 840,693 87,118
Desc(13) .............................. 31,472 62,065 62,007 75,470 69,775 7,233
---------- ---------- ---------- ---------- ---------- -----------
Ps. Ps. Ps. Ps. Ps.
Total .............................. 16,888,308 19,906,151 22,400,326 21,994,716 21,175,991 $ 2,194,404

Operating income:
Automotive Parts (UNIK ................ 1,236,907 1,440,689 1,657,099 1,732,028 1,599,725 $ 162,142
Chemicals (GIRSA) ..................... 1,710,909 1,406,185 1,302,128 934,974 521,385 52,856
Food .................................. 250,010 597,429 533,431 405,154 39,619 3,935
Real Estate (DINE) .................... 76,372 138,173 320,325 308,833 154,975 15,637
Desc .................................. (31,472) (37,069) (37,275) (45,855) (52,389) (5,322)
---------- ---------- ---------- ---------- ---------- -----------
Ps. Ps. Ps. Ps. Ps.
Total .............................. 3,242,726 3,545,407 3,775,708 3,335,134 2,263,315 $ 234,540

Equity in associated companies and Ps. Ps. Ps. Ps. Ps.
unconsolidated subsidiaries(14) .... 52,472 (60,575) (132,380) 46,483 (10,302) $ (1,067)

- ----------

(1) Net income per share was calculated by dividing net income by the weighted
average number of shares outstanding during the period retroactively
reflecting the 5:1 stock split effected on September 8, 1998.
(2) Calculated as if the applicable number of outstanding shares were all
represented by ADSs at a ratio of 20 shares per ADS.
(3) At December 31, 2000, Ps.3,338,757 of short-term debt represented the Peso
equivalent of Dollar-denominated borrowing and the balance of Ps.400,117 of
short-term debt represented Peso-denominated borrowings.
(4) Excludes current portion of long-term debt. At December 31, 2000,
Ps.6,435,463 of long-term debt represented the Peso equivalent of
Dollar-denominated borrowings, and the balance of Ps.2,037,234 of long-term
debt represented Peso-denominated borrowings.
(5) Includes variable capital shares. See Note 15 to the Financial Statements
for more information about stockholders' equity.
(6) Includes minority interest which does not constitute stockholders' equity
under U.S. GAAP.
(7) Defined as current assets except for cash, less current liabilities except
for short-term bank loans and current portion of long-term debt and notes
payable.
(8) Does not include amortization of goodwill or amortization of an inactive
automotive parts sector plant.
(9) Defined as earnings before interest expense, tax, depreciation and
amortization. We have included EBITDA data as a convenience only, because
some investors and analysts use it to measure a company's ability to
service debt. EBITDA is not a measure of financial performance under either
Mexican GAAP or U.S. GAAP and should not be considered an alternative to
net income as a measure of operating performance. In evaluating EBITDA,
investors should consider that the methodology applied in calculating
EBITDA may differ among companies and analysts. Investors relying on EBITDA
should take into account that the amount of EBITDA may not be available for
debt service due to other commitments and uncertainties in the operation of
business.

(10) Includes expenditures related to the Santa Fe shopping mall in which we
have a 50.1% interest, including acquisitions of land, construction costs,
permits, architects' and engineering fees and related items. Does not
include expenditures for other projects in our real estate sector.
(11) Includes expenditures made during the relevant period for acquisitions of
land, construction costs, permits, architects' and engineering fees and
related items, other than expenditures related to the Santa Fe shopping
mall.
(12) Represents sales by services company.
(13) Represents operating expenses allocable to the holding company.
(14) For 1996, reflects primarily the corporate services company and a
special-purpose company whose only asset is an aircraft. For 1997, 1998 and
1999, reflects primarily the adjustment to market value of our investment
in Grupo Financiero Santander Mexicano, which we sold in 2000. For 2000,
reflects principally the equity in Paratec, S.A. de C.V. and Dynasol
Elastomeros.

EXCHANGE RATES

Since November 1991, Mexico has had a free market for foreign exchange.
Until December 21, 1994, Banco de Mexico, the Mexican Central Bank, kept the
Peso-Dollar exchange rate within a range prescribed by the Mexican government
through intervention in the foreign exchange market. Within the range, the Banco
de Mexico generally intervened to reduce day-to-day fluctuations in the exchange
rate.

On December 21, 1994, the Mexican government announced its decision to
suspend intervention by Banco de Mexico and to allow the Peso to float freely
against the Dollar. The Peso declined sharply in December 1994 and continued to
fall under conditions of high volatility in 1995. During 1996 and 1997, the Peso
did not fall as quickly and was less volatile. In the last quarter of 1997 and
for most of 1998, the foreign exchange markets were affected significantly by
the financial crises in Asia and Russia and financial turmoil in various other
countries, including Brazil and Venezuela. Although the Peso declined during
this period, it was relatively stable in 1999 and 2000. There can be no
assurance that the Mexican government will maintain its current policies
concerning the Peso or that the Peso will not experience a significant
depreciation or appreciation in the future.

Except for the period from September through December 1982 during the
Mexican liquidity crisis, Banco de Mexico consistently has made foreign currency
available to Mexican private sector entities, such as Desc, to meet their
foreign currency obligations and has not adopted any measure to control the
availability of foreign currency since November 1991. Nevertheless, if there
were renewed shortages of foreign currency, Banco de Mexico might not continue
to make foreign currency available to private sector companies, and foreign
currency needed by Desc to service foreign currency obligations might be
available for purchase in the open market only at substantial additional cost.

The following table lists, for the periods indicated, the period-end,
average, high and low Noon Buying Rate for the purchase and sale of Dollars,
presented in each case as the average between the purchase and sale rates,
expressed in Pesos per Dollar:

Noon Buying Rate
----------------------------------------------------
Year Ended High Low Average(1) Period End
December 31, ------- ------- ---------- ----------
- ------------

1996................................... 8.05 7.33 7.63 7.88
1997................................... 8.41 7.72 7.97 8.07
1998 .................................. 10.63 8.04 9.24 9.90
1999 .................................. 10.60 9.24 9.56 9.50
2000................................... 10.09 9.18 9.47 9.60

Most Recent 6 Months:
- ---------------------
December 2000.......................... 9.61 9.37
January 2001........................... 9.97 9.66
February 2001.......................... 9.78 9.65
March 2001............................. 9.71 9.48
April 2001............................. 9.42 9.18
May 2001............................... 9.29 8.94

- ----------

(1) Average of month-end rates.

On June 28, 2001, the Noon Buying Rate was Ps. 9.08 to $1.00.

Fluctuations in the exchange rate between the Peso and the Dollar will
affect the price of the ADSs on the NYSE. To the extent Desc pays cash dividends
and other cash distributions (including the net proceeds from any sale of
securities, property or rights distributed to the owners of Series C shares)
denominated in Pesos, the Depositary must convert or cause to be converted, as
soon as possible, such amounts into Dollars, to the extent that the Depositary
in its judgment can do so on a reasonable basis and in accordance with
applicable law. As a result, any exchange rate fluctuations will affect the
Dollar amounts received by the holders of the ADSs upon conversion of any such
Peso-denominated dividend payment or distribution.

Risk Factors

Our business, operating results and financial condition could be
seriously harmed due to any of the following risks. If we do not successfully
address any of the risks described below, we could experience a material adverse
effect on our business, operating results and financial condition and the ADS
price of Desc may decline. We cannot assure you that we will successfully
address all of these risks.

Risk Factors Relating to Our Operations

Dependence on dividends from subsidiaries

We are structured as a holding company that operates through more than
100 direct and indirect subsidiaries. Accordingly, we rely on dividends from our
subsidiaries to generate the funds necessary to meet debt service obligations at
Desc. The ability of our subsidiaries to pay dividends is subject to Mexican
legal requirements, which provide that a corporation may declare and pay
dividends only out of the profits reflected in its year-end financial statements
(approved by its stockholders), only if such payment is

approved by its stockholders, and then only after the creation of a required
legal reserve and the set off or satisfaction of losses, if any, suffered in
previous fiscal years. Dividends and other payments by some of our direct and
indirect subsidiaries are shared with substantial minority stockholders of those
subsidiaries.

Technological assistance and licensing agreements may not be renewed

A number of our subsidiaries conduct all or a portion of their
businesses through joint ventures or technological alliances with Mexican and
non-Mexican partners. Certain of these partners and other Mexican and
non-Mexican companies also license technology and other intellectual property
(e.g., trade names) to these subsidiaries for use in the manufacture and sale of
various products, including most automotive parts. We believe that these
ventures, alliances and license arrangements give us access to advanced
technology that we otherwise would not be able to develop and provide us with
important competitive advantages. However, we cannot assure that in the future
certain of these partners will not prefer to conduct business directly in Mexico
and terminate their relationships with us in view of the easing of the
limitations on foreign investment, the reduction of import duties and tariffs
that has occurred in recent years and as a result of the continued
implementation of the North American Free Trade Agreement or for other reasons.
Accordingly, we cannot assure you that we will be successful in renewing any of
our technology, license, joint venture or other agreements or arrangements upon
their expiration, in renewing these agreements or arrangements on terms as
favorable as the present ones, in forming similar alliances with other partners
or in developing equivalent technologies independently.

Environmental laws could lead to added expenditures or liabilities

Our operations are subject to Mexican federal and state laws and
regulations relating to the protection of the environment. The fundamental
environmental law in the Mexican federal system is the Ley General del
Equilibrio Ecologico y la Proteccion al Ambiente (the Mexican General Law of
Ecological Balance and Environmental Protection or the "Ecological Law"). Under
the Ecological Law, the Mexican government has implemented an aggressive program
to protect the environment by promulgating rules concerning water, land, air and
noise pollution, and hazardous substances. The Mexican government also has
enacted regulations concerning the importation and exportation of hazardous
materials and hazardous waste. In addition, Mexican regulatory authorities have
promulgated various health and environmental regulations and standards, which
are applicable to our pork business, in order to control and eliminate the
spread of infections and other types of diseases in the Mexican Bajio region.

We, and particularly our chemicals business, use and produce a
substantial amount of substances and emissions that are or could become subject
to regulatory control. We believe that all of our facilities and real estate
investments presently are in substantial compliance with applicable
environmental laws and regulations as currently enforced. However, we have no
basis for predicting what effect, if any, stricter enforcement of existing laws
and regulations or the adoption of additional environmental

laws and regulations would have on our results of operations, cash flows or
financial condition.

Risks Relating to Girsa

Our chemicals business is cyclical and may be adversely affected
by events and conditions beyond our control

The chemicals industry is a highly cyclical business. Ethylene and
ethylene derivative products, such as petrochemicals, are particularly heavily
impacted by the business cycles of the chemicals industry. Our chemicals
business may also be affected by other events or conditions that are beyond our
control, including changes or developments in domestic or foreign economic
markets, increases in natural gas prices or the cost of raw materials,
competition from other chemicals manufacturers, changes in the availability or
supply of chemical products generally and unscheduled downtime of plants. These
external factors may cause fluctuations in the demand for our chemical products
and fluctuations in our prices and our margins, which may adversely affect our
income and cash flow.

Girsa's principal raw material, styrene monomer, is subject to
substantial price fluctuations, which may adversely affect Girsa's financial
results; however, the current depressed price of this commodity has had a
positive effect on our margins for synthetic rubber and polystyrene. We cannot
predict when the price of styrene monomer will recover.

Material events at our customers affect Girsa

Our sales volumes of synthetic rubber and carbon black have decreased
because of the shutdown of two tire manufacturing facilities in Mexico, one of
which occurred in 2000 and the other earlier this year,. We have partly offset
the reduced sales volume by increasing our sales to new and existing customers.
We are unable to predict and, therefore, cannot plan for events such as these.
In addition, the slowdown of the U.S. economy has increased competition from
U.S. and other chemical manufacturers, which has put added pressure on the
pricing of our products.

Risks Relating to Our Food Sector

A decrease in the supply of tomatoes and hot peppers may affect
our branded food operations

Our domestic and U.S. branded food operations may be adversely affected
if there is a shortfall in the tomato harvests in Mexico or the United States
and, to a lesser extent, the hot pepper harvests in Mexico. The size of the
harvest of these products varies based upon weather conditions and other
factors, none of which is within our control. However, we believe we could
minimize the impact of a significant tomato or hot pepper shortfall through
integrated planning and by optimizing the purchase of these affected crops in
various markets.

Our food business has been affected by the power crisis in the
state of California

The current power crisis in the state of California has increased
operating costs at our Rosemead plant. We cannot predict when the power crisis
will end or make any assurances that the power crisis will not become more
severe.

Risks Relating to Dine

The value of our real estate investments is subject to factors
and conditions outside of our control

Our revenue from real estate operations and the value of our real
estate properties are affected by many factors outside of our control, including
the overall economic conditions of our country and the conditions of the real
estate sector. Our real estate business would be adversely affected if these
external factors led to reduced demand for our properties or to increased costs
and we were not able to reflect this increase in the price of our projects.

Risks Relating to Unik

The automotive industry is highly cyclical

Our automotive parts sector is directly affected by domestic and
foreign automotive sales and production. Automotive sales and production are
highly cyclical and impacted by the strength of the economy generally, by
prevailing interest rates and by other factors. The largest U.S. and foreign
automobile manufacturers have been affected by the current slowdown of the U.S.
economy and, therefore, have reduced or delayed their output, which has
adversely affected the automotive parts industry in Mexico and Unik. We cannot
predict when the slowdown will end or make any assurances that it will not
become more severe.

We are dependent on a small group of principal customers and the sales of
certain products

Our largest customers in the automotive parts sector are Daimler
Chrysler, Ford, General Motors, Volkswagen and Nissan. In 2000, these customers
represented 63% of our total sales, of which Daimler Chrysler accounted for 21%,
General Motors accounted for 17%, Ford accounted for 13%, Volkswagen accounted
for 6% and Nissan accounted for 6%, and aggregate sales to Original Equipment
Manufacturers ("OEMs") represented 75% of our total automotive parts sales.
Although we have had a long-standing relationship with each of these customers,
if we lost any significant portion of our sales to any of these customers, it
would adversely affect our business and operating results.

In 2000, a significant percentage of our sales were derived from the
following products: transmissions (30%), front and rear axles (16%), pickup
boxes and stamping products (11%), constant velocity joints (10%), pistons,
valves and tappets (8%), cardan shafts (6%) and aluminum and steel wheels (6%).
A significant decrease in the sales of any these products could also adversely
affect our business and operating results.

The OEM supplier industry is highly competitive

The automotive industry is characterized by a small number of OEMs that
are able to exert considerable pressure on automotive parts suppliers to reduce
costs, improve quality and provide additional design and engineering
capabilities. In addition, the OEM supplier industry is highly competitive, with
price, quality and technological innovation as the primary elements of
competition. We cannot assure you that our business will not be adversely
affected by increased competition in the markets in which we operate.

Labor relations may affect our operations

We consider our relations with our employees and their union
representation to be good, but cannot assure you that future contract
negotiations with union representation will be favorable to us or that a change
in the nature of these relationships would not cause labor interruptions, or
that work stoppages or other labor unrest will not occur in the ordinary course
of these relationships.

Risks Relating to Our Controlling Stockholder and Capital Structure

Certain members of the Senderos family effectively control our
management and their interests may differ from those of other
securityholders

As of April 26, 2001, the date of our last general stockholders'
meeting, Fernando Senderos Mestre, our chairman and chief executive officer, and
his immediate family approximately own (beneficially or of record) 54.81% of our
Series A shares, 0.35% of our Series B shares and 1.80% of our Series C shares.
As a result of the shares owned by the Senderos family together with additional
shares as to which Fernando Senderos Mestre exercises voting control (see Item
6. "-Compensation of Directors and Officers" for information about these
additional shares), the Senderos family has the power to elect a majority of our
board of directors, to control the general management of Desc and to determine
the outcome of substantially all matters requiring stockholder approval,
including the payment of dividends, except in those limited instances requiring
the vote of the holders of the Series C shares.

Future sales of our shares by the controlling stockholder may
affect the stock prices of our securities

Sales of our shares held by the Senderos family may adversely affect
the trading price of the Series A and Series B shares on the Bolsa Mexicana de
Valores, S.A. de C.V. (the "Mexican Stock Exchange") and the price of the ADSs
on the New York Stock Exchange ("NYSE"). The Senderos family is not subject to
any contractual restrictions that limit their right to dispose of their Series
A, B and C shares.

Market for the ADSs and the Series C shares is limited

The Series C shares are listed on the Mexican Stock Exchange, which is
Mexico's only stock exchange. There is no public market outside of Mexico for
the Series C shares. The ADSs are listed on the NYSE. The Mexican securities
market is not as large

or as active as securities markets in the United States and certain other
developed market economies. As a result, the Mexican securities market has
experienced less liquidity and more volatility than has been experienced in such
other markets. These market characteristics may limit the ability of the a
holder of ADSs to sell the underlying Series C shares and may also affect the
market price of the Series C shares and the ADSs.

Desc is subject to different corporate disclosure and accounting
standards than U.S. companies

As a listed company, we are required to provide annual audited and
quarterly unaudited financial information to the Mexican Stock Exchange and the
Comision Nacional Bancaria y de Valores (the National Banking and Securities
Commission or the "CNBV") and to file certain information with the SEC pursuant
to U.S. law. However, you may not be able to obtain as much publicly available
information about foreign issuers of securities traded in the United States as
is regularly published by or about U.S. issuers of publicly traded securities.

Holders of ADSs are not entitled to attend stockholders'
meetings, and they may only vote through the Depositary

Under Mexican law, a stockholder must deposit its shares with a Mexican
custodian in order to attend a stockholders' meeting. A holder of ADSs will not
be able to meet this requirement, and accordingly is not entitled to attend
stockholders' meetings. A holder of ADSs also will not be permitted to vote its
shares directly at a stockholders' meeting or to appoint a proxy to do so.
Rather, a holder of ADSs is entitled to instruct the Depositary as to how to
vote its shares represented by the ADS in accordance with the procedures
provided in the deposit agreement with respect to the ADSs.

You may not be entitled to participate in any future preemptive
rights offering, which may result in a dilution of your equity
interest in Desc

Under Mexican law, if we issue new shares for cash as a part of a
capital increase, we generally must grant our stockholders the right to purchase
a sufficient number of shares to maintain their existing ownership percentage in
Desc. Rights to purchase shares in these circumstances are commonly referred to
as preemptive rights. We may not legally be permitted to allow holders of ADSs
in the United States to exercise preemptive rights in any future capital
increase unless (1) we file a registration statement with the SEC with respect
to that future issuance of shares or (2) the offering qualifies for an exemption
from the registration requirements of the U.S. Securities Act of 1933. At the
time of the any future capital increase, we will evaluate the costs and
potential liabilities associated with filing a registration statement with the
SEC, as well as the benefits of preemptive rights to holders of ADS in the
United States and any other factors that we consider important in determining
whether to file a registration statement.

We cannot make any assurances that we will file a registration
statement with the SEC to allow holders of ADSs in the United States to
participate in a preemptive rights offering or that an exemption from the
registration requirements of the U.S. Securities

Act of 1933 will be available. Additionally, under current Mexican law, sales by
the Depositary of shares which it might acquire by exercising preemptive rights
and distribution of the proceeds from such sales to the ADS holders is not
possible. As a result, the equity interests of holders of ADSs would be diluted
to the extent that ADS holders cannot participate in a preemptive rights
offering. See Item 10. "Additional Information - Bylaws - Share Capital" for
additional information concerning the ability of holders of Series C shares to
participate in preemptive offerings.

Minority stockholder protections in Mexico are different from
those in the United States

Under Mexican law, the protections provided to minority stockholders
are different from those in the United States. Specifically, the law respecting
fiduciary duties of directors is not well developed, there is no procedure for
class actions or stockholder derivative actions and the procedural requirements
for bringing stockholder lawsuits are different. Therefore, it may be more
difficult for minority stockholders to enforce their rights against us, our
directors or our controlling stockholder than it would be for minority
stockholders in the United States.

Risks Relating to Mexico

Economic and political developments in Mexico may adversely
affect our business

We are a Mexican corporation and substantially all of our assets
(including our manufacturing facilities) are located in Mexico. For this reason,
our financial condition, results of operations, prospects and ability to pay
amounts when due on our indebtedness may be affected by factors, such as
inflation, interest rates, currency fluctuations, taxation, social instability,
new regulatory environments and other political or economic developments, in or
affecting Mexico, over which we have no control.

A downturn in the Mexican economy may adversely affect Desc

In the second half of 1997 and in 1998, economic crises in Asia,
Russia, and Brazil resulted in very volatile global financial conditions, large
outflows of capital from emerging market countries such as Mexico, and volatile
exchange rates for emerging markets' currencies such as the Peso. As a result,
Mexico experienced higher interest rates, slower economic growth and higher
inflation during the second half of 1997 and during all of 1998. Mexican
interest rates, which had declined to an average of 19.7% per annum in 1997,
increased in 1998 to an average of 24.7% per annum. Gross Domestic Product, or
"GDP", growth declined from 6.76% in 1997, to 4.83% in 1998. Inflation, which
had declined to 15.7% in 1997 increased to 18.6% in 1998.

During 1999 and 2000, economic conditions in Mexico improved. However,
the current slowdown in the U.S. economy has adversely affected the Mexican
economy and our businesses. In particular, the slowing U.S. economy has led to a
decrease in automotive production in the United States, which has affected our
automotive parts business. Although we believe that the actions taken by the
U.S. Federal Reserve Board in lowering interest rates may accelerate a recovery
of the U.S. economy, we cannot provide any assurance that this downturn will not
continue or become more severe.

If the Mexican economy experiences a recession or if inflation and
interest rates increase significantly or other adverse economic conditions
affect Mexico, such as those experienced beginning in December 1994, our
business, financial condition and results of operation could suffer.

Political events in Mexico may affect the financial condition and
results of operations of Desc

Since the Mexican federal government has exercised and continues to
exercise significant influence over many aspects of the Mexican economy, its
actions concerning the economy or regulating certain industries could have a
significant effect on Mexican private sector entities, including Desc, and on
market conditions, prices and returns on Mexican securities.

In the Mexican national elections held on July 2, 2000, Vicente Fox of
the opposition National Action Party (Partido Accion Nacional or "PAN") won the
presidency, and he assumed office on December 1, 2000. His victory ended more
than 70 years of presidential rule by the Institutional Revolutionary Party (the
Partido Revolucionario Institutional or "PRI"). Neither the PRI nor the PAN
succeeded in securing a majority in the Mexican Congress or Senate.

We cannot assure you that future developments in the Mexican political
or social environment or that the policies of the Mexican government, over which
we have no control, will not adversely affect our financial condition, results
of operations or prospects.

Devaluations or changes of the Peso relative to the Dollar may
adversely affect our financial condition and results of operation

In the past, the value of the Peso has been subject to significant
fluctuations with respect to the Dollar, and it may fluctuate significantly in
the future. For example, in 1998, the Peso depreciated at year end by
approximately 22% and on average by 16.6% against the Dollar, resulting in a net
foreign exchange loss of Ps.5,020 million for 1998. Fluctuations in the exchange
rate between the Peso and the Dollar will affect the Dollar value of an
investment in our equity securities and of dividend and other distribution
payments on those securities.

As of March 31, 2001, almost all of our indebtedness was denominated in
currencies other than Pesos, and we may incur additional non-Pesos-denominated
indebtedness in the future. In addition, the price we pay for certain raw
materials is set by reference to international prices fixed in currencies other
than Pesos, and the majority

of our purchases of equipment are Dollar-denominated. Consequently, declines in
the value of the Peso relative to other currencies will increase our interest
costs in Pesos and result in foreign exchange losses, and will increase the Peso
cost of certain of our raw materials and capital expenditures. We generally do
not hedge against the risk of exchange rate fluctuations.

Foreign currency availability may impair our ability to make
Dollar-denominated payments

Except for the period from September through December 1982 during the
Mexican liquidity crisis, Banco de Mexico consistently has made foreign currency
available to Mexican private sector entities, such as Desc, to meet their
foreign currency obligations and has not adopted any measure to control the
availability of foreign currency since November 11, 1991. Nevertheless, if there
were renewed shortages of foreign currency, Banco de Mexico might not continue
to make foreign currency available to private sector companies, and foreign
currency needed by Desc to service its foreign currency obligations might be
available for purchase in the open market only at a substantial additional cost.

An increase in inflation may adversely affect our financial
condition and results of operation

During most of the 1980s and since 1995, Mexico experienced high levels
of inflation. In the past, inflation has led to high interest rates,
devaluations of the Peso and (during the 1980s) substantial government controls
over exchange rates and prices, which at times adversely affected our operating
revenues and margins. High rates of inflation relative to the rate of
devaluation of the Peso against the Dollar reduce our operating margins in
business segments where costs are generally denominated in Pesos while sales are
denominated in Dollars, such as automotive parts. The annual rates of inflation,
as measured by changes in the NCPI, were 18.6%, 12.3% and 9.0% for the years
1998, 1999 and 2000, respectively. We cannot assure you that Mexico will not
experience high inflation in the future.

Developments in other emerging market countries may affect our
business or the market price of our securities

The market value of securities of Mexican companies to varying degrees
is affected by economic and market conditions in other emerging market
countries. Although economic conditions in such countries may differ
significantly from economic conditions in Mexico, investors' reactions to
developments in any of these other countries may have an adverse effect on the
market value of securities of Mexican issuers. For example, in October 1997,
prices of both Mexican debt securities and Mexican equity securities dropped
substantially due to a sharp drop in the value of Asian markets. Similarly,
during the second half of 1998, prices of Mexican securities were adversely
affected by the economic crises in Russia and Brazil. Thus, we can make no
assurance that the market value of our securities would not be adversely
affected by events elsewhere, especially in emerging market countries.

Item 4. Information On Our Company

History and Development of Our Company

Desc is a corporation (sociedad anonima de capital variable) organized
under the laws of Mexico in 1973 under the name "Desc, Sociedad de Fomento
Industrial, S.A. de C.V." On April 28, 1994, we changed our name to "Desc, S.A.
de C.V." The duration of Desc is 99 years from the date of its incorporation.

Our executive offices are located at Paseo de los Tamarindos 400-B,
Bosques de las Lomas, 05120 Mexico, D.F., Mexico, and our telephone number at
that address is (525) 261-8000.

Principal Capital Expenditures and Divestitures

The following table lists our capital expenditures and other
investments by business segment for the periods shown. Capital expenditures and
other investments may include investments in or acquisitions of assets or the
capital stock of existing businesses. A more-detailed explanation of Desc's
principal capital expenditures and divestitures is described under each of the
business segments below.

Year ended December 31,
---------------------------------------------------
1998 1999 2000
------------- ------------- --------------
(In millions)

Automotive Parts..................... Ps. 1,015.5 Ps. 868.7 Ps. 1,097.3
Chemicals 498.4 1,187.0 336.0
Food(1).............................. 2,407.6 772.0 317.3
Real Estate(2)....................... 979.9 611.6 758.4
Desc(3).............................. 89.5 30.9 1.8
------------- ------------- --------------
Total............................. Ps. 4,990.9 Ps. 3,470.2 Ps. 2,510.8
============= ============= ==============

- --------

(1) For 1998, includes the acquisitions of ASF and Nair.
(2) Includes investments in real estate projects and investments in real estate
for rent.
(3) Reflects the investment of Desc in Arcos Bosques Corporativo, an office
complex developed by Dine.

Business Overview

General

We are a diversified holding company and one of the largest companies
in Mexico. We are engaged in four principal lines of business: automotive parts,
chemicals, food and real estate. With the exception of the food business, these
businesses are conducted through our principal wholly-owned subsidiaries:
Unik, Girsa and Dine, each of which is a holding company with no significant
operations. Our food business was conducted through our wholly-owned subsidiary,
Agrobios, S.A. de C.V. until December 1999, when Agrobios was merged with and
into Desc. As a result of the merger, our food business now is conducted through
four principal operating subsidiaries:

Agroken, S.A. de C.V. (pork), Aquanova, S.A. de C.V. (shrimp), Grupo Corfuerte,
S.A. de C.V. (branded foods in Mexico) and Authentic Acquisition Corporation,
Inc. (branded foods in the U.S.).

The following charts depict the percentage of our 2000 consolidated net
sales and operating income by business segment:

2000 NET SALES BY SEGMENT
AS A PERCENTAGE OF CONSOLIDATED NET SALES

----------------------------------------------

2000 Net Sales by Segment as a Percentage of
Consolidated Net Sales
----------------------------- ----------------
Segment Percentage (%)
----------------------------- ----------------
Automotive 47
----------------------------- ----------------
Chemicals 34
----------------------------- ----------------
Food 15
----------------------------- ----------------
Real Estate 4
----------------------------- ----------------

----------------------------------------------

Total Ps. 23,439,306

2000 OPERATING INCOME BY SEGMENT
AS A PERCENTAGE OF CONSOLIDATED OPERATING INCOME

----------------------------- ----------------
Segment Percentage (%)
----------------------------- ----------------
Automotive 69
----------------------------- ----------------
Chemicals 22
----------------------------- ----------------
Real Estate 7
----------------------------- ----------------
Food 2
----------------------------- ----------------

Total Ps. 2,263,315

The following chart depicts the percentage of book value of our investments in
each of our business segments at December 31, 2000:

DESC PORTFOLIO AT BOOK VALUE

----------------------------------------------
Desc Portfolio at Book Value
----------------------------------------------
Segment Percentage (%)
----------------------------- ----------------
Dine (Real Estate) 34
----------------------------- ----------------
Unik (Automotive Parts) 29
----------------------------- ----------------
Food Subsidiaries (Food) 20
----------------------------- ----------------
Girsa (Chemicals) 17
----------------------------- ----------------

Total Ps. 3,212,150

Sales information by geographic market

The following table shows the approximate aggregate sales of Desc's
products for each of the past three years by geographic region:

Net sales for the years ended December 31,
- --------------------------------------------- -------------------------------------------------------
Region 1998 1999 2000
- --------------------------------------------- -------------------------------------------------------
(Pesos in thousands)

Continental Europe.......................... Ps. 476,519 Ps. 361,349 Ps. 382,893
North America............................... 8,264,226 8,794,547 8,741,707
Asia....................................... 447,549 528,749 611,220
Mexico(1)................................... 16,133,776 15,216,948 13,164,998
Rest of the world........................... 853,964 428,257 538,488
-------------- ---------------- ---------------
Total.................................. Ps. 26,176,034 Ps. 25,329,850 Ps. 23,439,306
============== ================ ===============

- ----------

(1) In 1999, we divested our poultry business.

Automotive Parts

Our automotive parts business, which is conducted through our
wholly-owned subsidiary Unik, manufactures 43 different types of automotive
products, including light, medium and heavy duty manual transmissions and
clutches, constant velocity joints, rear

and front traction axles, motor valves and tappets, pistons and piston pins,
pick-up truck bodies and other stamped metal products, propeller shafts, steel
and aluminum wheels, gears, gaskets, seals, alternators, ignition coils and
spark plugs.

We are one of the largest independent manufacturers of automotive parts
in Mexico. For the years ended December 31, 1998, 1999 and 2000, our automotive
parts business contributed 43.9%, 51.9% and 69.1%, respectively, of our
consolidated operating income and 41.6%, 42.9% and 46.7%, respectively, of our
consolidated net sales.

The following table presents the net sales generated by our principal
automotive parts products for the years ended December 31, 1998, 1999 and 2000,
and the percentage of this segment's 2000 net sales that is represented by these
products:

% of net
Net sales sales
---------------------------------------------------------- ---------
1998 1999 2000 2000
-------------- --------------- --------------- ---------
(Pesos in thousands)

Transmissions and clutches.................. Ps. 3,598,877 Ps. 3,835,013 Ps. 3,248,724 29.7%
Rear and front traction axles............... 1,219,900 1,552,176 1,729,403 15.8
Pick-up truck bodies and other
stamped metal products...................... 865,605 935,359 1,235,179 11.3
Constant velocity joints.................... 1,273,132 1,025,224 1,124,490 10.3
Motor valves and tappets, pistons
and piston pins............................. 1,131,785 1,058,233 885,042 8.1
Propeller shafts............................ 632,599 697,628 678,607 6.2
Steel and aluminum wheels................... 418,557 465,601 636,957 5.8
Gears....................................... 416,504 441,082 421,012 3.9
Other automotive parts...................... 1,319,623 844,168 970,208 8.9
-------------- --------------- --------------- -------
Total.................................. Ps. 10,876,582 Ps. 10,854,485 Ps. 10,935,622 100.0%
============== =============== =============== =======

Unik's capital expenditures during 2000 were $111.5 million. These
funds were used mainly to (i) modernize and automate our plants for axles,
propeller shafts, gears, metal casting and spark plugs; (ii) expand the capacity
of our plants for pick-up truck stamped and painted bodies and of our assembly
lines for propeller shafts, constant velocity joints and steel and aluminum
wheels; (iii) add new lines of valves for export and constant velocity joints
which utilize state of the art technology; and (iv) complete the transfer of our
piston operations in the Mexico City metropolitan area to our piston plant in
Celaya, Guanajuato.

Our automotive parts businesses have received numerous quality awards
from the Mexican government, clients and joint venture partners. Transmisiones y
Equipos Mecanicos S.A. de C.V. ("Tremec"), our subsidiary which manufactures
manual transmissions, received the National Export Award from the Mexican
government in both 2000 and 1998 and received a "Supplier of the Year" award
from General Motors in 1997. Cardanes, S.A. de C.V., our subsidiary that
manufactures propeller shafts and

universal joints, Pemsa, our subsidiary that manufactures pick-up bodies and
other stamped metal products, and Velcon, S.A. de C.V., our subsidiary that
manufactures constant velocity joints, each received a "Supplier of the Year"
award from General Motors in 2000, and Pistones Moresa, S.A. de C.V., our
subsidiary, which manufactures pistons, received this award in 1998. In
addition, in 1998 Tremec was awarded a Shingo Prize for Excellence in
Manufacturing, which recognizes manufacturing excellence in the United States,
Canada and Mexico and is considered one of the "Triple Crown" of industrial
excellence awards, along with the Baldridge National Quality Award and the
Deming Prize. The Shingo Prize is administered by the College of Business at
Utah State University in partnership with the National Association of
Manufacturers of the U.S. We believe that these awards have resulted, among
other things, from the ongoing implementation of Unik's total quality
improvement efforts. All of our plants that supply OEMs are QS-9000 certified,
which qualifies them as approved suppliers to DaimlerChrysler, Ford and General
Motors, and Tremec and TF Victor have received 1S0-14001 certification, which is
an international standard for environmental management.

Market overview; competition

We sell automotive products to domestic OEMs for installation in new
cars and trucks, as well as to distributors for resale in the automotive parts
aftermarket. Our significant OEM customers include DaimlerChrysler, Ford,
Freightliner, General Motors, John Deere, Kenworth, Navistar, Nissan,
Renault-Nissan, Ssangyong, Volkswagen, Volvo and ZF-Meritor.

Both the OEM market and the aftermarket for automotive parts are highly
competitive with regard to price and quality. We compete with numerous domestic
and foreign manufacturers of automotive parts. We continually seek to maintain a
competitive advantage over other manufacturers with respect to productivity and
product quality. We accomplish this in part through technical assistance and
license agreements with leading foreign manufacturers of automotive parts, the
development of our own technology, our knowledge of the markets in which we
compete and our ability to achieve manufacturing efficiencies.

The table below presents information concerning our domestic and export
sales of automotive parts. Approximately 93% of our exports of automotive parts
are to the United States and Canada.

% of net sales
---------------------------------
1998 1999 2000
------- ------- -------
Domestic market
OEMs................................ 21% 19% 21%
Aftermarket......................... 18% 17% 17%
Export market(1)....................... 61% 64% 62%
Total export sales ($ in millions)..... $ 550.4 $ 638.1 $ 686.6

- ----------

(1) Includes "indirect" exports by OEMs that purchase parts from us.

Technological assistance and licensing agreements

Most of our major automotive parts are produced using technology and
licenses from leading international automobile manufacturers and automotive
parts producers. Through these arrangements, we have access to up-to-date
technology necessary to manufacture automotive components competitively in world
markets. In many cases, these arrangements not only provide us with
technological information, but also give us access to worldwide markets and
customers. The following are the most significant of these arrangements:

Licensor Product
- -------- -------
Dana Propeller shafts and universal joints
Dana Rear and front traction axles
Delphi Automotive Systems Corporation Spark plugs
Eaton Heavy-duty clutches
GKN Constant velocity joints and shafts
Hayes Lemmerz Steel wheels and aluminum wheels
TRW Engine valves

In general, under technology and license agreements, these foreign
manufacturers provide us with technological assistance or license their
proprietary technology to us in return for a fee based upon a percentage of
sales. These technology assistance and license agreements typically were entered
into for initial fixed terms, however many are renewed on an annual or biannual
basis, and could now be terminated by either party on relatively short notice.
We also develop our own technology with respect to some automotive products,
such as transmissions, pistons, piston pins, stamping products and tappets, and
work with our partners to jointly develop technologies for specific
applications.

We also are partners with some of these foreign manufacturers in joint
venture companies that produce various automobile parts utilizing technology
licensed by the foreign joint venture partner. In the fourth quarter of 2000, we
restructured the ownership of Velcon, our joint venture with Dana and GKN which
manufactures constant velocity joints. As a result of this restructure Unik
increased its ownership to 51%, GKN increased its ownership to 49% and Dana
exited this subsidiary.

The following is a list of the most significant of our joint ventures
and the percentage ownership of the foreign partner in the joint venture:

% ownership by joint
Joint venture partner Joint venture company venture partner
- --------------------- --------------------- --------------------

Delphi Automotive Systems
Corporation Bujias Mexicanas, S.A. de C.V. 40.0%
Dana Spicer, S.A. de C.V. 49.0
GKN Velcon, S.A. de C.V. 49.0
Hayes Lemmerz Hayes Wheels de Mexico, S.A. de C.V. 40.0
TRW Moresa, S.A. de C.V. 40.0

Distribution arrangements

Our automotive parts products generally are sold by means of purchase
orders which require us to supply products for particular model releases during
finite terms of up to six months. We have been seeking to increase our
participation in the export market, and our automotive parts exports have
increased 148.5% from $276.3 million in 1996 to $686.6 million in 2000. In 1996,
exports represented 53% of Unik's total sales, while in 2000 exports represented
62% of its total sales.

Suppliers

The primary raw materials for the automotive parts products that we
manufacture are iron castings, steel and aluminum. We believe that the markets
for these materials are highly price competitive, and we have never experienced
difficulty in obtaining these commodities. We believe that there will continue
to be a large number of producers of the requisite castings, steel and aluminum,
and adequate worldwide supplies of these materials, for the foreseeable future.

Properties/plants

During the past few years, we have implemented a modernization program
to improve our existing automotive parts facilities and also build new
facilities to replace outdated facilities. We invested approximately
Ps.1,015,542 in this program in 1998, Ps.868,664 in 1999 and Ps.1,097,298 in
2000. We believe that the resulting improvements in efficiency, the increased
flexibility in utilizing excess plant capacity and decreases in fixed costs
derived from the plants' modernization program, have enabled us to improve
operating margins from 1996 levels, although the improved margins also reflect
the increase of capacity utilization from 66% in 1996 to 75% in 2000.

We produce our automotive parts at 24 plants located throughout Mexico
and one plant located in the United States. The following table presents the
principal products produced at each of the most significant of these plants and
their locations and their respective rates of utilization:

Products Location of plant Utilization
- -------- ----------------- -----------
Front and rear axles La Presa, Estado de Mexico 75%
Heavy-duty transmissions Pedro Escobedo, Queretaro; 48%
and clutches Knoxville, Tennessee
Light and medium-duty Queretaro, Queretaro 78%
manual transmissions
Steel wheels Tlalnepantla, Estado de 79%
Mexico
Aluminum wheels Chihuahua, Chihuahua 43%
Pistons Celaya, Guanajuato; 52%
Saltillo, Coahuila 70%
Pick-up truck bodies and Celaya, Guanajuato 80%
other stamped metal parts
Constant velocity joints Celaya, Guanajuato 99%
Ignition coils, alternators Tlalnepantla, Estado de 100%
Mexico
Spark plugs Tlalnepantla, Estado de 84%
Mexico
Propeller shafts and Queretaro, Queretaro 82%
universal joints
Steel forging Tlaxcala, Tlaxcala; 72%
Queretaro, Queretaro
Engine valves Aguascalientes, 75%
Aguascalientes
Gears Queretaro, Queretaro 95%
Gaskets and seals Naucalpan, Estado de 66%
Mexico
Piston pins Celaya, Guanajuato 52%
Tappets Aguascalientes, 62%
Aguascalientes

CHEMICALS

Our chemicals business, which we conduct through Girsa, produces and
sells chemicals and is the leading (and in some cases the only) producer of some
of these products in Mexico. Our main chemical products include synthetic
rubber, polystyrene, carbon black, phenol, methyl methacrylate or MMA, specialty
lattices, phosphates, acrylics, natural pigments, laminates, particle board,
adhesives and glues, waterproofing additives and sealants. For the years ended
December 31, 1998, 1999 and 2000, our chemicals business contributed 35.7%,
28.0% and 23.0%, respectively, of our consolidated operating income, and 31.1%,
30.0% and 33.8%, respectively, of our consolidated net sales.

The following table presents the net sales generated by our principal
chemicals sector products for the years ended December 31, 1998, 1999 and 2000,
and the percentage of this segment's 2000 net sales that is represented by these
products:

% of net
Net sales sales
--------------------------------------------------------- ----------
1998 1999 2000 2000
-------------- -------------- ------------- ----------
(Pesos in thousands)

Synthetic rubber....................... Ps. 1,834,849 Ps. 1,459,171 Ps. 1,996,851 25.2%
Phosphate.............................. 1,741,768 1,428,641 1,270,833 16.1
Polystyrene............................ 818,328 841,377 1,268,229 16.0
Carbon black........................... 771,412 687,930 666,265 8.4
Particle board & laminates............. 589,701 616,034 605,447 7.6
Fester products (mainly asphalt
coatings) and Acriton Products (mainly
acrylic waterproofing)................. 492,881 539,787 465,272 5.9
Acrylics sheet......................... 463,126 429,795 462,743 5.9
Adhesives and sealants................. 406,707 391,108 431,569 5.5
Natural pigments....................... 578,948 567,133 319,143 4.0
Phenol................................. 618,047 493,802 310,913 3.9
Emulsions (specialty lattices)......... 140,520 141,078 117,542 1.5
-------------- -------------- ------------- -------
Total............................... Ps. 8,456,287 Ps. 7,595,856 Ps. 7,914,807 100.0%
============== ============== ============= ========

Our chemical products are used in the manufacture of a wide variety of
other products, including asphalt and plastic modifiers, disposable packaging,
tires and other industrial rubber goods, automotive rubber parts, footwear and
carpeting. We sell our chemical products in the Mexican and export markets,
exporting products to over 50 countries in 2000. Our export sales were $253.6
million in 2000 and $198.8 million in 1999.

Resirene, S.A. de C.V. ("Resirene"), a Girsa subsidiary which
manufactures polystyrene, won the National Quality Award in 2000. We are the
only business in Mexico that has received this award for five years (with our
automotive parts subsidiary Engranes Conicos having received the award in 1994,
our automotive parts subsidiary Velcon having received the award in 1995, our
chemicals subsidiary Industrias Negromex, S.A. de C.V. ("INSA"), which
manufactures synthetic rubber, having received the award in 1996 and our
chemicals subsidiary Nhumo S.A. de C.V. ("Nhumo") which manufactures carbon
black, having received the award in 1997). In addition, INSA, Nhumo, and
Resirene and our subsidiaries Laboratorios Bioquimex, S.A. de C.V., Plastiglas
de Mexico, S.A. de C.V., Rexcel, S.A. de C.V., Quimir, S.A. de C.V. and
Productos de Consumo Resistol, S.A de C.V., each has received ISO-9002 or
ISO-9001 certification, which are international standards for quality management
and assurance adopted by more than 90 countries, thus enhancing Girsa's
reputation as a reliable, high quality supplier. In 1997 Nhumo became the first
carbon black business in

the world to receive ISO-14001 certification, an international standard for
environmental management.

Market overview; competition

Girsa is Mexico's only producer of synthetic rubber, phenol, methyl
methacrylate and carbon black, and has a leadership position in the production
of polystyrene. The majority of our chemical products are sold in both the
domestic and export markets. The domestic market accounted for 69% of our
chemicals sales in 2000, and the export market accounted for 31% of such sales.
We compete with foreign companies in chemicals such as Shell, Dow Chemical, ICI,
BASF, Degussa, Georgia Gulf, Firestone, Albright & Wilson, FMC, Cyro, Wilson Art
International, McMillan and Helm in both the Mexican and international markets.

Certain of our products, such as low pressure laminates, glues,
adhesives, acrylic and asphalt roofing systems, however, are sold primarily in
the domestic market, where we compete with companies such as National Starch, HB
Fuller, Henkel, Alkoat, Johns Mansville and Comex. We believe that we have a
leadership position in the production of phosphates, acrylic laminates, natural
pigments and laminated plastics and that we are the national leader in
adhesives, glues and sealants. Our Resistol brand name is the most
widely-recognized brand name for adhesives and glues throughout Mexico. We
consider our Resistol, Fester, Acriton and Resikon brand names and the extensive
national distribution systems for these lines of products to be significant
competitive advantages.

The chemicals industry is a cyclical business that has experienced
depressed conditions since 1998 resulting in lower prices. Although we believe
that the chemicals industry has begun to recover and that our focus on specialty
products, low-cost production and plant capacity increase during the last few
years are likely to mitigate the effects of adverse conditions in the global
chemicals market, this might not be the case.

Technology

With respect to the majority of our chemical businesses, we utilize
proprietary technology that we have developed or acquired from third parties.
Our carbon black business, for example, utilizes technology developed by Cabot
Corporation, our partner in this business and a world leader in carbon black
research, development and production. Our polysterene business utilizes
technology originally licensed from Monsanto which Girsa has improved and
adapted over the years. Similarly, our synthetic rubber business utilizes
technology originally licensed from Phillips Petroleum which Girsa has improved
and adapted over the years. More recently, we have entered into reciprocal
technological exchange agreements in connection with our two joint ventures in
synthetic rubber with Repsol Quimica and Uniroyal Chemical, both of which are
world leaders in synthetic rubber research, development and production.

Supply arrangements and suppliers

Petroleos Mexicanos ("Pemex") is one of the principal suppliers of raw
materials to our chemical businesses. We have executed agreements with Pemex
with respect to styrene monomer, hydrogen cyanide, carbon black feedstock,
natural gas and methanol.

These agreements contain contractual assurances as to product quality and
volumes and provide for competitive pricing. We also purchase raw materials from
numerous other domestic and foreign suppliers. The market for these raw
materials is highly price competitive and we believe that there generally is an
adequate supply of them.

Products

The following table presents information with respect to our chemical
products:

Raw Materials Necessary
Product Principal Uses to Produce Product
- ----------------------------- ------------------------------------------------- ------------------------------

Synthetic rubber Production of tires, footwear, asphalt and Butadiene and styrene
plastic modifiers, adhesives, industrial rubber
products, automotive engines and other
automotive parts

Polystyrene Production of plastics for disposable Styrene
monomer packaging, home appliances, cassettes,
compact discs, light fixtures, school supplies
and office equipment

Carbon black Production of tires, ink, hoses, belts and Carbon black feedstock and
other products using rubber natural gas

Phenol/acetone Production of phenolic resins, methyl Cumene
methacrylate, additives, paints, paper, foundry
and aspirin

Specialty lattices Production of carpeting, chewing gum, rubber, Butadiene and styrene monomer
paper and tissues

Phosphates Detergents, water treatment and soft drink Phosphoric acid and soda ash
production

Natural pigments Coloring of poultry, egg yolks, and shrimp skin Paprika meal, Marigold meal,
Oleoresin
Acrylic sheets Manufacturing of signs, displays, MMA
advertisements and safety devices.

Particle boards and laminates Manufacturing of furniture, office and home Wood shavings, Melanin, Urea
products, kitchen countertops and tabletops,
and floors

Adhesives and glues School, home and office supplies, shoe Cloroprene, vinyl acetate
manufacturing, furniture manufacturing and
carpentry

Waterproofing sealants and Manufacturing of construction-related products Monomer acrylic resins
additives

The synthetic rubber business is the largest business in our chemicals
division. In 2000, the synthetic rubber business contributed 25.2% of the
chemical sector's net sales. We are the only manufacturer of synthetic rubber in
Mexico. We produce both solution rubber and emulsion rubber, as well as
elastomers, thermoplastics and specialty rubbers.

We are a leader in the manufacture of asphalt modifying rubbers, which we sell
to highway paving companies in the United States and more recently also in
Europe. Our synthetic rubber products are exported to over 40 countries,
principally the United States, Canada and countries in Europe, South America and
the Far East. In 2000, exports accounted for approximately 70% of our synthetic
rubber sales.

In November 1998, Girsa and Uniroyal Chemical Company, a subsidiary of
Crompton and Knowles Corporation, formed a joint venture, Paratec, S.A. de C.V.
to produce and market Uniroyal's Paracril(R) nitrile rubber products, which are
highly resistant to heat and used in automotive engines and other automotive
parts. The joint venture is 50% owned by Girsa and 50% owned by Uniroyal. The
joint venture relocated Uniroyal's Paracryl(R) production facilities to a
newly-built 40,000 metric tons per year, state-of-the-art production plant in
Altamira, Mexico. Prior to the formation of this joint venture, Uniroyal and
Girsa were parties to a 1996 manufacturing agreement to produce Paracryl(R)
rubbers in Mexico.

In July 1999, Girsa and Repsol Quimica, a subsidiary of Spain's Repsol,
S.A., formed a joint venture to produce and market solution synthetic rubbers
used in the manufacturing of products such as asphalt, adhesives and footwear.
This joint venture created significant synergies due to Girsa's and Repsol
Quimica's complementary products and geographic markets, and these synergies
have significantly boosted the competitiveness of this business. The joint
venture is 50% owned by Girsa and 50% owned by Repsol Quimica and operates under
the name Dynasol Elastomeros. Repsol Quimica contributed to the joint venture
its styrene-butadiene solution rubber plant in Santander, Spain with a capacity
of 110,000 metric tons per year, its strong presence in the European market,
particularly in the thermoplastic rubber segment, and a hydrogenated
thermoplastics solution rubber plant in Santander, Spain, which had recently
begun operations. Girsa contributed to the joint venture its production facility
in Altamira, Mexico which produces styrene butadiene and thermoplastic solution
rubbers and has a capacity of 90,000 metric tons per year, as well as its strong
presence in the NAFTA region, particularly in the diblock copolymer specialties.
We believe Dynasol Elastomeros is one of the three largest global producers of
special solution styrene-butadiene rubbers and the second largest global
producer of hydrogenated thermoplastic rubbers.

Our polystyrene business produces crystal polystyrene (GPPS) and impact
polystyrene (HIPS), which are used in the disposable packaging and packing
industries, lighting fixtures, school supplies, office equipment, and home
appliances, including audio and video equipment and refrigerators. In 2000, our
polystyrene business contributed 16% of the chemical sector's net sales. Most of
our polystyrene sales are to the domestic market, where we estimate that our
market share in 2000 was approximately 50%. We attribute our dominance in the
domestic polystyrene market to our ability to customize products, the quality of
our service and our timely delivery.

We are the only manufacturer of carbon black in Mexico. Carbon black is
principally used by the tire industry and we produce it utilizing technology
licensed from Cabot, a world leader in carbon black research, development and
production. Cabot owns a 40% interest in our carbon black business. We believe
that our share of the

domestic carbon black market in 2000 exceeded 95% and attribute our dominance to
our technology, our large installed plant capacity, our focus on those carbon
black varieties which have the highest demand, our continuous development of
carbon black varieties with specific competitive advantages for their
application, and our low production costs which enable us to price our products
competitively. Approximately 20% of our carbon black sales in 2000 were exports,
primarily to the United States, Canada and Latin America.

We are the only domestic manufacturer of phenol, acetone, and methyl
methacrylate ("MMA") in Mexico. These products are used in the manufacture of
acrylic sheets, aniline, bisphenol A, fertilizers, phenolic resins, polymethyl
methacrylate and water treatment products. Approximately 64% of the sales of
this business in 2000 were to the domestic market and 49% of our phenol sales
and 9% of our MMA sales were exports to the United States and South America. We
believe that due to our competitive prices, reliability, customer service and
support, we have been able to establish long term relationships and supply
contracts with many of our international customers and suppliers.

Phosphates. Our phosphates business produces chemicals for use in the
manufacturing of household detergents, in soft drinks and for water treatment.
In 2000, our phosphates business contributed 16.1% of the chemicals sector's net
sales. We are the largest manufacturer of phosphates in Mexico, and rank third
in rated capacity of industrial sodium phosphates worldwide. In 2000, our
exports reached 20 countries in the Americas and accounted for 12% of our total
sales of phosphates.

Natural pigments. We produce natural yellow and red food pigments, and
believe that we are one of the largest producers of these pigments in Mexico.
Yellow pigments are used primarily to color poultry through poultry feed, and
red pigments are used to color poultry, egg yolks and shrimp skins.
Approximately, 58% of our sales of these products in 2000 were exports to 22
countries. Our customers include Bayer and Perdue. The raw materials used to
produce these products primarily are imported. Our manufacturing technology
permits us to work closely with our customers to tailor our products to meet the
specific needs of each customer.

Acrylic sheet. We are the leading manufacturer of acrylic sheets in
Mexico. These products are used in the manufacture of signs, displays,
advertisements and safety devices. Approximately 53% of our sales of these
products in 2000 were to the United States, Canada, Europe, Central and South
America. Our principal raw materials are supplied by Fenoquimia, S.A. de C.V.,
another Girsa subsidiary. Our manufacturing technology allows us to develop
differentiated products targeted at greater value-added markets in the different
countries where our products are sold.

Particle board and laminates. We manufacture particle board and
laminates using formaldehyde, urea, resins and natural wood shavings. We sell
these products to manufacturers in the furniture and construction industries.
Ninety-five percent of our sales of these products in 2000 were to the domestic
market, with the balance being exported principally to North, Central and South
America.

Adhesives and glues (Resistol). We produce a line of adhesives and
glues which we sell under the brand name "Resistol" to retail merchandisers and
industrial users throughout Mexico. In addition to household glues, our products
include polyvinyl acetate (white glue), contact and acrylic adhesives, sealants
and hot melts (specialized adhesives). We sell these products to a variety of
industries including shoe manufacturers, the wood and furniture industries,
artisans and the automotive industry. We distribute these products to more than
45,000 points of sale throughout Mexico, such as supermarkets, hardware stores
and retail outlets as well as to industrial purchasers. The market for these
products is highly fragmented. In 1998 we acquired Simon, the Mexican leader in
polyurethane adhesives, to strengthen our market share in the shoe industry.

Waterproofing sealants and additives (Fester, Acriton and Resikon). We
produce waterproofing additives and sealants under the brand names Fester,
Acriton and Resikon, as well as cement additives and construction coatings,
under the Fester brand name, which is a widely recognized brand name in Mexico.
We sell these products to manufacturers in the construction industry and to
manufacturers of products for household use. We distribute these products
through approximately 2,000 distributors located throughout Mexico, many of
which carry Fester products exclusively. All of the distributors sell
construction-related products and provide homeowners and others with maintenance
and repair services using Fester products.

Properties/plants. The table below presents the location of the
facilities at which our chemical products are manufactured and their respective
rates of utilization:

Products Location Utilization
- ----------------------------------- -------------------------------------------- -----------

Synthetic rubber Altamira, Tamaulipas (two sites) 78%
Polystyrene Coatzacoalcos, Veracruz; 89%
Xicohtzingo, Tlaxcala; 100%
Carbon black Altamira, Tamaulipas 89%
Phenol/acetone and methyl Cosoleacaque, Veracruz; Tula, Hidalgo 63%
methacrylate 100%
Specialty lattices Lecheria, Estado de Mexico 100%

Phosphates/phosphorus derivatives Coatzacoalcos, Veracruz; 99%
Tultitlan, Estado de Mexico; 86%
Lecheria, Estado de Mexico 70%
Natural pigments and additives Queretaro, Queretaro 62%
Acrylic sheet Ocoyoacac, Estado de Mexico; 100%
San Luis Potosi, San Luis Potosi 82%
Laminates/particle board Lerma, Estado de Mexico; 87%
Zitacuaro, Michoacan 100%
Glues/waterproofing sealants Salamanca, Guanajuato; Mexico City (2 sites) 59%

Food

Our food operations principally involve the production and sale of
pork, shelf-stable branded products and, to a lesser extent, shrimp. For the
years ended December 31, 1998, 1999 and 2000, our food segment contributed
14.1%, 12.1% and 1.8%, respectively, to our consolidated operating income, and
22.6%, 23.6% and 15.3%, respectively, to our consolidated net sales.

Our strategy for our food sector business has been to gradually shift
its product mix away from commodity products to branded products which have more
stable margins. To that end, we acquired Grupo Corfuerte, S.A. de C.V.
("Corfuerte") in September 1997, Authentic Specialty Foods Inc. ("ASF") in June
1998, and a 60% interest in Grupo Nair, S.A. de C.V., a Mexican producer of
canned tuna and other seafood products ("Nair") in December 1998, and divested
our poultry operations (which historically had been the largest component of our
food sector) and our animal feed operations in December 1999. We are developing
our branded food products operations in partnership with J.P. Morgan Capital
Corporation, which purchased an 18.6% interest in each of Corfuerte and
Authentic Acquisition Corporation, the direct parent of ASF, for an aggregate
purchase price of $50 million in 1998. We intend to use Corfuerte as our vehicle
for the expansion of our branded food products business in Mexico and Authentic
Acquisition Corporation for the expansion of this business in the United States.
As of the second half of 2000, we restructured the management of our food sector
to address that sector's relatively poor results and appointed Girsa's
management team to manage our branded food business and appointed Ernesto Vega
Velasco, our senior vice president, and his management team to manage our
commodity food business, which consists of pork and shrimp.

The following table presents the net sales generated by each product
line in our food segment for the years ended December 31, 1998, 1999 and 2000
and the percentage of this segment's 2000 net sales that is represented by each
product line:

% of net
Net sales sales
--------------------------------------------------------- --------
1998 1999 2000 2000
--------------- -------------- -------------- --------
(Pesos in thousands)

Poultry(1)............................. Ps. 2,035,159 Ps. 1,574,442 Ps. 0 0.0%
Shelf-stable branded products.......... 1,781,563 2,159,770 1,806,595 50.5
Pork................................... 1,497,446 1,637,093 1,689,523 47.2
Animal Feed(1)......................... 495,701 542,640 0 0.0
Shrimp................................. 113,194 59,497 79,705 2.3
--------------- -------------- -------------- ------
Total............................ Ps. 5,923,063 Ps. 5,973,442 Ps. 3,575,823 100.0%
=============== ============== ============== ======

- ----------

(1) We divested these businesses in December 1999.

Products

Pork. Our pork business is conducted through our wholly-owned
subsidiary Agroken, S.A. de C.V. and is concentrated principally in the
southeastern region of Mexico as well as in the central region, which includes
Mexico City. As a result of our acquisition of AgroYuc's production facilities
in 1999, we increased our number of sows in production from 12,000 to
approximately 49,000 in 1999 and 54,000 in 2000. We have a slaughterhouse and a
processing plant for hogs close to the city of Merida, Yucatan, and a
slaughterhouse in the central region of Mexico. To satisfy increased domestic
demand and to supply growing exports of pork to Japan, we have increased the
cutting capacity of our processing plant in recent years. Our sales strategy
seeks to reduce the intermediary channels between producers like us and
consumers by establishing distribution centers where consumers can buy different
pork products directly from us. We currently operate 25 distribution centers and
plan to open 24 more in 2001. Our pork products are marketed under the "Keken"
brand name.

Shelf-stable branded products. Our branded food product operations are
conducted in Mexico through Corfuerte and in the United States through Authentic
Acquisition Corporation. With our "Del Fuerte" brand, we are a domestic leader
in the production of tomato sauce and related products and canned vegetables. We
also have a large share of the domestic corn oil and gelatin with our "La
Gloria" brand of products. We participate in the canned jalapeno peppers market
and in the salsa market with our "La Victoria" and "La Cumbre" brands, in the
coffee market with our "Blason" and "Latino" brands, and in the canned tuna
market with our "Nair" brand. Gourmet products are marketed under our "Perigord"
brand We also have exclusive distribution rights in Mexico for "Reynolds"
aluminum foil and "Smuckers" jams, which have been embraced by the domestic
market and continue to increase in market share.

In the United States, we manufacture and/or distribute a wide variety
of high quality, authentic Mexican food products such as salsas, taco sauces,
other Mexican sauces, and items such as jalapeno peppers under labels that
include La Victoria(TM) and Embasa(TM). Our products are targeted principally at
the U.S. Hispanic market, and our brands have strong market positions in the
southwestern and western regions of the United States, particularly in Texas and
California.

Shrimp. Our shrimp business remains in the development stage with no
substantial sales having been made to date. It is conducted through Aquanova.

Market overview; competition

Pork. The pork industry in Mexico is highly fragmented, but smaller,
inefficient growers in Mexico are being replaced by larger, higher quality, more
efficient, integrated companies, principally located in the states of Sonora,
Sinaloa and Yucatan. We have developed a fully integrated business with high
quality genetics and advanced farming techniques, composed of breeding farms and
facilities for raising, slaughtering, cutting and processing hogs. We have a
greater than 50% market share in the Southeastern region of Mexico and have
continued to gain market share in the important central region, which includes
Mexico City. In August 1999, we acquired the production

facilities of Agroindustrias Yucatan ("AgroYuc"), our partner in the pork
business, and contributed these production facilities to Grupo Porcicola
Mexicano, our joint venture with AgroYuc, raising our participation in this
joint venture to 66% from 51%. AgroYuk owns the remaining 34% of this joint
venture. As a result of these transactions, we became the leader in the
marketing of pork in Mexico. Since 1998, we also have exported pork to Japan.

Shelf-stable branded products. The shelf-stable branded food industry
in Mexico is highly competitive. Corfuerte has significant market shares in
Mexico with respect to tomato sauce and related products, canned vegetables and
corn oil. Its principal competitors are Del Monte, Herdez, La Costena and
Clemente Jacques. The principal competitors of Nair's products are Herdez,
Dolores, Tuny, Calmex and Ybarra. In the United States, our products compete
principally with Mexican food products that are distributed in the southwestern
and western regions of the United States and are targeted principally to the
Hispanic market. Our brands have strong market positions in these regions,
particularly Calidad(TM) in Texas.

Properties/plants

Below is a list of the principal production facilities of our food
segment and their respective rates of utilization:

Activity Location Utilization
------------------------------ -------------------------------- -----------

Pork production/slaughterhouse Yucatan, Guanajuato and 100%
Quintana Roo
Pork processing Yucatan 100%
Canning Sinaloa, Tlaxcala, Oaxaca and
California (USA) 47%
Shrimp production Sinaloa and Nayarit 100%
Shrimp laboratory 100%

In addition, Corfuerte has nine distribution centers in Mexico.

Real Estate

Through Dine, we acquire and develop land for commercial (office
buildings and shopping malls), residential and tourism/resort uses. We have over
20 years of experience in this sector and believe that we are the largest
diversified real estate developer in Mexico. Dine owns large land reserves for
residential development in the Mexico City metropolitan area as well as
properties for tourism development along the Pacific coast of Mexico. We focus
on the upper income segments of the real estate market, developing high quality
projects that are unique in their respective market segments. Dine was the
developer during the late 1960s, 1970s and early 1980s of "Bosques de las
Lomas," a five million square meter upper-income residential and commercial
development in Mexico City and of "La Estadia," a high-income residential suburb
of Mexico City. Our more recent projects include the Centro Comercial Santa Fe
in Mexico City, which is Mexico's largest regional shopping mall, Arcos Bosques

Corporativo, which is Mexico City's largest office complex, Punta Mita, which is
an upscale tourist resort that includes a new hotel and championship golf course
developed in partnership with Four Seasons Hotels, and La Punta Bosques and
Bosques de Santa Fe, both of which are high-income residential projects in
Mexico City.

For the years ended December 31, 1998, 1999 and 2000, our real estate
business contributed 8.5%, 9.3% and 6.8%, respectively, of our consolidated
operating income and 3.4%, 3.5% and 4.2%, respectively, of our consolidated net
sales. As part of our strategy for this sector, we continue to assess the
profitability of each of our real estate projects. As a result of these
assessments, in December 2000 we sold our land holdings in Xaac, which consisted
of 515,000 square meters of beachfront property in the state of Quintana Roo, to
a Spanish hotel group for $7.3 million in cash, and in February 2001 we sold our
participation in the Four Seasons Punta Mita Hotel to Strategic Hotel Capital
("SHC") for an aggregate consideration of $52 million (including the assumption
by the buyer of $11 million of net debt). We currently are in the process of
seeking a buyer for our 50.1% interest in Centro Comercial Santa Fe.

The following is a list of the major properties being developed by
Dine, which are discussed in greater detail below:

Ownership
by
Name and location Land area Dine Other partners
- ------------------------------------------- ------------------ --------- ------------------------
(square meters) (%)

Commercial development projects(1)
Arcos Bosques Corporativo, Mexico, D.F.
72,570 100 None
Centro Comercial Santa Fe, Mexico, D.F.
300,000 50.1 El Puerto de Liverpool,
El Palacio de Hierro and others
Residential development projects
La Punta Bosques, Mexico, D.F. 293,000(2) 100 None
Bosques de Santa Fe, Mexico, D.F. 1,100,000 50 Several individuals

Tourist/resort development projects
Punta Ixtapa, Guerrero 390,000 100 None
Punta Mita, Nayarit (Phase I)(3) 1,030,000 85 Four Seasons Hotels

Other properties
Bosques de la Estadia, Estado de Mexico(4) 6,269,086 63 Fernando Senderos Mestre,
Victor de la Lama Cortina

Ownership
by
Name and location Land area Dine Other partners
- ------------------------------------------- ------------------ --------- ------------------------------
(square meters) (%)

and members of their families
Los Cabos, Baja California Sur(5) 38,521 15 Grupo Casa, S.A. de C.V.
Punta Gorda, Baja California Sur 4,000,000 25 Grupo Casa, S.A. de C.V.
Tepeji del Rio, Hidalgo 3,850,000 59 Several individuals
Punta Mita, Nayarit (other than Phase I) 5,740,000 100 None

- ----------

(1) In addition to the commercial development projects listed above, Dine owns
a 33% interest in 89,000 square meters adjacent to the Santa Fe shopping
mall project that are held for commercial development.

(2) Dine has seven lots that remain to be sold for this project.

(3) Punta Mita Phase I consisted of a world class luxury hotel, an 18-hole
championship golf course and clubhouse and a timeshare resort development.
Four Seasons Hotels participated in each of these components with an
ownership interest of 30.77% in the hotel, 12.31% in the golf course, and
30.77% in the timeshare resort. In February 2001, Dine and the Four
Seasons Hotels sold their participation in the hotel. Based on the
relative sizes of the two components of this development still owned by
Dine and the Four Seasons Hotels, the total participation of Four Seasons
Hotels in Phase I is approximately 16%.

(4) Dine owns 77.3% of Club Ecuestre Chiluca, S. de R.L., a Mexican company
that owns 3,750,000 square meters of undeveloped land and 106,514 square
meters of partially developed land on this site. Club Ecuestre Chiluca, S.
de R.L. also owns 51% of another company which owns 2,412,572 square
meters of adjacent undeveloped land.

(5) Dine owns 100% of the land and has entered into a joint venture agreement
with Grupo Casa pursuant to which Dine contributed the land, Grupo Casa
developed it, and Dine is entitled to 15% of both the time-share units
developed and the net income of the hotel built on the site.

We invested approximately Ps.979,873 in 1998, Ps.611,684 in 1999, and
Ps.758,375 in 2000 to develop our real estate properties for commercial,
residential and resort use.

Strategy for the real estate sector

We intend to continue to sell our existing inventory of developed
properties, so long as conditions in the real estate market in Mexico remain
favorable. We also intend to continue to seek partnerships through which to
develop our land reserves in order to reduce our risk and increase the margins
and market share of our real estate sector. We also continue to evaluate the
profitability of each of our remaining real estate projects and may decide to
divest additional properties in the future.

We believe that our real estate products, aimed at the high-end market,
generally offer superior quality, amenities and value. In evaluating all of our
opportunities for new real estate projects, we generally pursue projects that we
expect to yield an internal rate of return of at least 30%, although we might
not actually achieve that target.

Our land acquisitions fall into two categories: strategic purchases,
where land is acquired and retained for future development, and current
development purchases, where land is purchased in connection with a planned
development. All of our projects are organized into a predetermined number of
phases designed to reduce our risk and exposure to market conditions and shifts
in the economy. When market indicators project

a downturn in the industry, a project can be stopped in a logical and
cost-efficient manner at the end of a phase of construction and delayed until
market conditions improve, and when these indicators predict high growth at an
accelerated pace, two or more phases can be constructed simultaneously. We
generally subcontract the responsibilities of designing and building projects,
including, but not limited to, hiring independent project managers, architects,
construction companies and project supervisors.

Commercial developments

Arcos Bosques Corporativo. This project consists of a five-phase
development of office space located in Bosques de las Lomas near the Mexico
City-Toluca highway. Each phase includes the construction of a separate
building. We completed the construction of the East building (Phase 1) in July
1993 and of the East Tower (Phase 2) in June 1996. We relocated our headquarters
to the East Tower in 1997 and purchased 15,000 square meters of this development
(approximately 25% of the available space in the East Tower) for this purpose.
All of the space in the East Tower has been sold. We began the construction of
the North building (Phase 3) in 1997 to meet existing demand for office space
which recovered in 1997, and plan to complete it in 3 stages. We completed and
sold all of the available space in stage 1 of the North building in 1998 and
began constructing stage 2 in November 1999 pursuant to a 50/50 partnership with
Ingenieros Civiles Asociados ("ICA") which is Mexico's largest construction
company. Stage 2 will consist of approximately 18,000 square meters of office
space. Pursuant to our partnership agreement with ICA, Dine contributed the land
and permits, valued in the aggregate at approximately $7.5 million, and ICA
agreed to contribute an equal amount in construction labor and services. Each
partner thereafter is required to contribute 50% of the cash required to
complete Stage 2. We estimate that the total cost for Stage 2, including the
contributions already made by the partners, will be $21 million. Phases 4 and 5
of Arcos Bosques Corporativo consist of the construction of the West building
and the West Tower, respectively. The timetable for these phases has not been
established. The total investment budget allocated to all five phases of Arcos
Bosques Corporativo is $340 million, of which approximately $160 million already
has been invested.

Centro Comercial Santa Fe. In association with El Palacio de Hierro, El
Puerto de Liverpool and others, we entered into a contract with the government
of Mexico City pursuant to which we developed a shopping mall in the Santa Fe
zone in Mexico City, near Bosques de las Lomas. We believe that the shopping
mall is the largest development of this type in Mexico. Construction of the
first phase was completed in November 1993, when the Santa Fe shopping mall
officially opened, at a total cost of $102 million. A second phase was completed
in October 1995 at a total cost of $13 million. This additional phase consists
of an entertainment complex with movie theaters and a children's center, a
fitness center and additional retail space including one medium-sized department
store which has not yet been leased. The shopping mall encompasses a total of
approximately 100,000 square meters of retail space, as well as approximately
200,000 square meters of additional space for parking, tunnels and access roads.
We retained 50.1% ownership of this project, excluding the department stores,
which are owned by El Palacio de Hierro, El Puerto de Liverpool, Sears and
Sanborn's, and we are entitled to receive retail income from future leasing
activity. As of December 31, 2000, 99.7% of the available space in this project
was leased.

Approximately 89,000 square meters of undeveloped land adjacent to the Santa Fe
project remains available for future commercial development, of which we own
33%. We generate additional income from the collection of parking fees at this
project. In November 2000, we decided to divest this project and we are
currently seeking a buyer for it.

Residential developments

Bosques de las Lomas--La Punta. We completed construction of the
infrastructure for a 293,000 square meter high-income residential community in
Bosques de las Lomas. Sales of undeveloped lots in this project commenced in
September 1993 and approximately 88% of the properties had been sold by the end
of 2000. We own 100% of the project and are the sole developer and manager. The
total investment was approximately $40 million, including the cost of
constructing a bridge that connects the development to Bosques de las Lomas.

A new phase of La Punta, La Punta Peninsula, is expected to result in
the construction of four twelve-story residential buildings, each containing 25
condominiums. We entered into an agreement in principle with Terrum, a Mexican
real estate company, under which we contributed the land for the Peninsula
project and Terrum agreed to construct and sell the units. The construction of
one of the buildings in the Peninsula project was completed in 2000. The first
14 units of this building have been sold and we expect to sell the remaining
units in 2001.

Bosques de Santa Fe. This 1,100,000 square meter development, located
two miles south from the Santa Fe shopping mall, is currently being developed in
partnership with private investors. The current plans call for the development
of a high-income residential community with a nine-hole golf course. We own 50%
of this land. We began building the infrastructure for this project in 1998 and
commenced selling lots in June 1998. As of December 31, 2000, we had sold
approximately 50% of the lots available.

Tourist/resort developments

Punta Ixtapa. This development is a resort encompassing approximately
390,000 square meters located in the western side of the hotel zone of Ixtapa.
As currently planned, the total project will consist of a residential area
containing lots for private construction, finished homes, villas and
condominiums, a recreation center and two beach clubs. This project is intended
to be developed in five phases over an eight-year period. The first phase,
consisting of the construction of finished homes and villas on a site of
approximately 63,000 square meters, has been fully sold and construction is
completed. The second and third phases, consisting of the development and sale
of undeveloped residential lots on a site of approximately 153,000 square
meters, commenced in June 1993, and approximately 80% of the lots were sold as
of December 31, 2000. The remaining land is available for two additional phases
of development for which firm plans have not yet been formulated. The total cost
of the development is currently projected at $85 million, of which $65 million
has been allocated for the first three phases.

Punta Mita. We commenced in early 1997 the development of a 7.1 million
square meter resort project located on beach front property in Costa Banderas,
Nayarit, which is near Puerto Vallarta on the Pacific coast of Mexico. This
project is intended to be developed in seven phases over a 15-year period. The
first phase was developed in partnership with Four Seasons Hotels and includes a
world class luxury hotel consisting of 100 guest rooms, together with
restaurants, bars, banquet, meeting and other public rooms, an 18-hole
championship golf course and clubhouse, a tennis and sports complex, a fitness
club, a spa facility, timeshare units, and residential lots. We invested $100
million in the first phase of this project. We completed the construction of the
golf course in 1998, under the supervision of Jack Nicklaus and completed the
construction of the hotel in 1999. The hotel and golf course opened for business
on September 1, 1999. The hotel was expanded to 140 rooms in 2000. We sold our
participation in the hotel to SHC in February 2001, as the hotel had already
achieved our objective of anchoring the project. We received consideration of
$52 million in the sale (including the assumption by the buyer of $11 million of
net debt) of which we used $26.5 million to reduce consolidated debt. The hotel
will continue to be operated by Four Seasons Hotels Ltd. pursuant to a long term
contract.

Other properties

Bosques de La Estadia. We own 77.3% of Club Ecuestre Chiluca, S. de
R.L., an entity which holds 3,750,000 square meters of undeveloped land and an
additional 106,514 square meters of partially developed land located on the
northern border of Mexico City. Fernando Senderos Mestre and members of his
family are the owners of the remaining 22.7% of Club Ecuestre. An additional
2,412,572 square meters of adjacent undeveloped land is held by an entity that
is 51%-owned by Club Ecuestre. During 1994, a private construction company
completed a toll-road providing access directly to this area. We believe this
land is suitable for the development of condominiums. We have postponed
development of this land at this time.

Tepeji del Rio. We have a 59% interest in approximately 3,850,000
square meters of land located approximately fifty miles north of Mexico City. We
believe this land is suitable for the development of a weekend resort targeted
to Mexico City residents but have postponed development of this land at this
time.

Competition

We believe that Dine is one of the largest real estate developer in the
commercial, retail and residential real estate markets in Mexico City. We
compete with many smaller Mexican real estate developers and at least two large
real estate developers.

NAFTA

The North American Free Trade Agreement ("NAFTA") became effective on
January 1, 1994. Under NAFTA, Mexico, the United States and Canada agreed to
phase out tariffs and other trade barriers on each other's products, as well as
to liberalize or eliminate many barriers to investment. The lowering of U.S. and
Canadian trade barriers has facilitated access to those markets while the
lowering of Mexican barriers to U.S. and

Canadian products, and in some cases investments, also has increased the
competition in the Mexican market. While most changes required by NAFTA had to
be implemented during the first six years of operation of the agreement, tariff
and non-tariff restrictions on the most sensitive products will continue to be
phased down until 2003, or in the case of a few products, 2008.

In the automotive sector, NAFTA required Mexico to reduce its tariff on
most parts by 50% in 1994, and the remainder is being phased out over ten years,
ending in 2003. The United States has phased out its tariffs on automotive parts
exported from Mexico as of January 1, 1998. NAFTA also obligates Mexico to
gradually phase out the trade balancing and domestic value-added requirements
imposed on original equipment manufacturers (OEMs), eliminating those
requirements by 2004. While those requirements in part have protected and, to a
diminishing extent, continue to protect Mexican parts producers, the phasing out
of artificial restrictions is facilitating the integration of the North American
industry, with beneficial effects for efficient Mexican parts producers such as
Desc. We believe these and other changes could increase demand for Mexican
automotive parts among U.S., Mexican and Canadian OEMs during the next ten
years. However, these changes also could increase competition among automotive
parts manufacturers in Mexico.

In the chemicals industry, NAFTA requires Mexico to phase out its
tariffs to reduce barriers to foreign investment in Mexico, and imposes
requirements that prohibit Pemex from discriminating against U.S. or Canadian
persons in the supply of raw materials over which Pemex has a monopoly. Most of
these changes with respect to Pemex already have been implemented by the Mexican
government, and therefore NAFTA is unlikely to have a significant new effect on
the businesses conducted by Girsa.

In the food sector, NAFTA requires Mexico gradually to phase out
tariffs on imported feed products used by us. Since the enactment of NAFTA
special regulations enacted by the Mexican government have permitted livestock
growers to import feed products duty-free when domestic feed consumption is
projected to exceed domestic feed production. Therefore, NAFTA's effect on the
importation of feed products has not been significant, though NAFTA's
requirements help assure that the more liberal import policy will likely be
continued.

In the food sector, NAFTA also implements procedures for certification
of conformity with health and sanitary requirements to facilitate the export of
Mexican pork and other agricultural products to the United States. The
regulatory clearing procedures for importing pork products from Mexico's Yucatan
Peninsula and the Northwest region into the United States have been put in place
and these areas have been certified as disease-free areas by the U.S. Department
of Agriculture. The state of Sonora has already begun exporting pork products to
the United States. It is expected that products from the other areas will start
entering the United States by the end of 2001.

The Mexican, U.S. and Canadian governments have had a generally good
record of compliance with NAFTA requirements to date and all three governments
have expressed their continued support for the agreement and its implementation.

Nevertheless, we cannot assure you that this compliance will continue. This
compliance is only one factor affecting the competitive conditions in which we
operate.

Environmental Regulation

Both Mexican federal and state laws and regulations relating to the
protection of the environment apply to our operations. The fundamental
environmental law in the Mexican federal system is the Ley General del
Equilibrio Ecologico y la Proteccion al Ambiente (the Mexican General Law of
Ecological Balance and Environmental Protection or the "Ecological Law"). The
Mexican federal agency in charge of overseeing compliance with, and enforcing
the federal environmental laws is the Secretaria del Medio Ambiente, Recursos
Naturales y Pesca (the Ministry of Environmental Protection, Natural Resources
and Fishing, or the "Semarnap"). As part of its enforcement powers, the Semarnap
is empowered to bring administrative proceedings against companies that violate
environmental laws, impose economic sanctions and close temporarily or
permanently non-complying facilities. Under the Ecological Law, the Mexican
government has implemented an aggressive program to protect the environment by
promulgating rules concerning water, land, air and noise pollution, and
hazardous substances. Additionally, the Mexican government has enacted
regulations concerning the importation and exportation of hazardous materials
and hazardous waste. We believe that all of our facilities are in substantial
compliance with government regulations relating to the protection of the
environment.

In addition, our subsidiary Nhumo, which manufactures carbon black,
became the first carbon black business in the world to receive ISO-14001
certification in 1997 and our subsidiaries TREMEC, which manufactures
transmissions, and TF Victor, which manufactures gaskets and seals, also
received this certification in 2000. ISO-14001 is an international environmental
management standard first adopted in 1996 by the International Organization for
Standardization that requires commitment to continuous environmental improvement
and compliance with all applicable environmental laws.

Patents and Trademarks

We have a number of Mexican, U.S. and foreign patents, registered
trademarks, trade names and trade secrets and applications for, or licenses in
respect of, the same that relate to various businesses. We believe that certain
of these intellectual property rights are of material importance to the
businesses to which they relate. We also believe that the material patents,
trademarks, trade names and trade secrets of its operating subsidiaries and
divisions are adequately protected.

Seasonality

Our business is subject to seasonal effects and we have generally
experienced the highest level of business for our real estate sector in the
second quarter and the fourth quarter, for our food sector in the third quarter
and the fourth quarter, for our chemicals sector in the second quarter and the
third quarter and for our automotive parts in the second quarter and the fourth
quarter.

Organizational Structure

Desc is a holding company and its operations are carried out by its
direct and indirect wholly owned subsidiaries. Set forth below is a list of our
significant subsidiaries, including name, country of incorporation or residence,
proportion of ownership interest and, if different, proportion of voting power
held.

==============================================================================================================
Name of Entity Country of Incorporation or Proportion of Ownership Interest
Residence or Proportion of Voting Power Held
==============================================================================================================

Unik, S.A. de C.V................... Mexico 99.9%
Girsa, S.A. de C.V.................. Mexico 99.9%
Dine, S.A. de C.V................... Mexico 99.9%
Agroken, S.A. de C.V................ Mexico 99.9%
Aquanova, S.A. de C.V............... Mexico 99.9%
Grupo Corfuerte, S.A. de C.V........
Mexico 77.2%
Authentic Acquisition
Corporation, Inc.................... Delaware, U.S.A. 81.3%
- --------------------------------------------------------------------------------------------------------------

Collectively, Unik, Girsa, Dine, Agroken, Aquanova, Grupo Corfuerte and
Authentic Acquisition Corporation control or own majority interests in more than
100 companies.

Property, Plants and Equipment

Our corporate headquarters and executive offices, which we own, are
located in Mexico City, Mexico and measure approximately 7,200 square meters. We
believe that all our current properties and facilities are adequate for our
present needs.

For a description of our properties and plants, please reference each
of the business segment descriptions set forth above under the heading
"--Business Overview."

Item 5. Operating and Financial Review and Prospects

You should read the following discussion in conjunction with the
Financial Statements included elsewhere in this annual report. The Financial
Statements have been prepared in accordance with Mexican GAAP, which differ in
significant respects from U.S. GAAP, in particular by requiring Mexican
companies to recognize effects of inflation. Notes 19 and 20 to the Financial
Statements provide a description of the principal differences between Mexican
GAAP and U.S. GAAP as they relate to Desc and a reconciliation to U.S. GAAP of
our net income and stockholders' equity. Net income information included in this
section consists of "majority net income," as referred to in the Financial
Statements, and therefore is net of minority interests attributable to third
party equity interests in some of our subsidiaries, unless the context otherwise
requires.

Mexico experienced high inflation in some of the periods covered by the
Financial Statements. The annual rates of inflation in Mexico, as measured by
changes in the NCPI, were 27.7% in 1996, 15.7% in 1997, 18.6% in 1998, 12.3% in
1999 and 9.0% in 2000. Mexican GAAP requires that the Financial Statements
recognize the effects of inflation. Financial statements are adjusted by
applying NCPI factors. As a result, financial statements prepared under Mexican
GAAP are stated in constant terms, that is, with adjustment for inflation,
rather than in nominal terms. Therefore, all data for all periods in the
Financial Statements, and the financial information derived from the Financial
Statements and presented in this section, unless otherwise indicated, have been
restated in constant Pesos as of December 31, 2000. Increases or decreases shown
as percentages reflect variations in constant Pesos. Peso figures are in
thousands of constant Pesos, unless otherwise noted.

Recent Developments

As part of our strategy to improve the operating results of our food
sector, we appointed Mr. Enrique Ochoa Vega as the Chief Executive Officer of
the branded products business of Agrobios (Corfuerte, ASF and Nair). Mr. Ochoa
will continue to serve in his current position as Chief Executive Officer of
Girsa.

On January 18, 2001, we announced the creation of an Executive
Committee, which reports directly to our board of directors. See "Item 6.
Directors, Senior Management and Employers-Committees of the Board of Directors"
for additional information concerning the Executive Committee. All of Desc's
corporate departments will report directly to Luis Tellez Kuenzler and each of
our sectors will report to the Executive Committee. The purpose of the Executive
Committee is to facilitate the decision-making process and management of Desc.

On February 27, 2001, Desc sold the Four Seasons Resort located in
Punta Mita, Nayarit, to Strategic Hotel Capital LLC for $52 millon. The Four
Seasons Resort Punta Mita, which performed exceptionally during its first year
of operations, represents a very important anchor for Dine's Punta Mita project,
which has become a top tourist attraction in the Bahia de Banderas region.

On May 9, 2001, we named Arturo D'Acosta as our new chief financial
officer. Mr. D'Acosta, who was most recently our director of corporate treasury,
will report directly to Mr. Tellez.

Results of Operations for Years Ended December 31, 2000, 1999 and 1998

The following table provides information derived from our Financial
Statements:

Year ended December 31,
------------------------------------------------------------
1998 1999 2000
----------------- ----------------- ------------------
(In thousands, except percentages)

Net sales......................................... Ps. 26,176,034 Ps. 25,329,850 Ps. 23,439,306
Cost of sales..................................... 18,859,146 18,255,984 17,444,972
Gross margin...................................... 28.0% 27.9% 25.6%
Operating expense................................. Ps. 3,541,180 Ps. 3,738,732 Ps. 3,731,019
Operating income.................................. 3,775,708 3,335,134 2,263,315
Operating margin.................................. 14.4% 13.2% 9.7%
Comprehensive financial result.................... Ps. (1,442,325) Ps. 446,528 Ps. (689,957)
Equity in associated companies and
unconsolidated subsidiaries.................... (132,380) 46,483 (10,302)
Impairment of fixed assets........................ (37,739) (220,736) (152,026)
Other income (expenses), net...................... (97,655) (241,242) (428,102)
Provisions for income taxes and
employee profit sharing...................... 532,003 889,843 554,016
Profit on the sale of subsidiaries................ 119,517 153,746 0
Net majority income............................... 1,131,806 1,935,073 274,895
Depreciation and amortization..................... 1,140,587 1,139,098 1,183,778
Capital expenditures(1)........................... 4,990,938 3,470,260 2,510,839
Exports ($ in millions)........................... $ 822.3 $ 933.1 $ 1,037.7

- ----------

(1) Includes investments in real estate projects.

The following table presents financial data from our consolidated
statements of income expressed as a percentage of net sales:

Year ended December 31,
--------------------------------
1998 1999 2000
------ ------ ------

Net sales.................................. 100.0% 100.0% 100.0%
Cost of sales.............................. 72.0 72.1 74.4
Gross margin............................... 28.0 27.9 25.6
Operating expenses......................... 13.5 14.8 15.9
Operating margin........................... 14.4 13.2 9.7
Comprehensive financial result............. (5.5) (1.8) (2.9)
Equity in associated companies and
unconsolidated subsidiaries............. (0.5) 0.2 (0.0)
Other expenses, net........................ (0.4) (1.0) (1.8)
Majority income ........................... 4.3 7.6 1.2

Our business operations have been adversely affected by the continued
weakness of the U.S. economy. To address this challenge, we have adopted various
measures that are designed to reduce our cash expenditures. These measures
include reducing our net debt, and thereby reducing our total financial
expenses, divesting various underperforming assets, decreasing capital
expenditures (our target for 2001 is approximately $100 million excluding the
Velcon business), and keeping salary increases below the rate of inflation.

We can make no assurance that these measures will be sufficient to
prevent our business from continuing to be adversely affected by the U.S.
economy.

2000 and 1999 compared. Consolidated net sales for 2000 decreased 7.5%
to Ps.23,439,306 compared to Ps.25,329,850 in 1999. This decrease was mainly due
to a 40.1% reduction in the sales of our food sector in 2000, which resulted
from the divestiture of our poultry business in December 1999, and to the
appreciation of the Peso relative to the Dollar during the course of 2000 which
reduced the Peso value of our 2000 Dollar-denominated sales. Historically, the
poultry business had been the largest component of our food sector. Our
automotive parts sector's sales increased slightly in 2000 by 0.7% despite the
slowdown in the U.S. economy in the fourth quarter of 2000. Our chemical
sector's sales rose 4.2%, reflecting price increases for most products, while
our real estate sector registered an increase of 13.6% in sales due to our Punta
Mita and Bosques de Santa Fe projects. Exports reached $1,037.7 million during
2000, an increase of 11.2% when compared to the $933.1 million registered in
1999, due to the significant increase in exports of automotive parts and
chemicals, which increased 7.6% and 27.6% in 2000, respectively. Cost of sales
decreased 4.4% to Ps.17,444,972 during 2000, from Ps.18,255,984 in 1999. The
decrease in cost of sales was lower than the decrease in sales due to higher raw
material prices in our chemicals sector and the significant rise in natural gas
prices. As a result, gross margin was 25.6%, 2.3% below the gross margin for
1999. Operating expenses decreased 0.2% to Ps.3,731,019 in 2000, compared to
Ps.3,738,732 in 1999 mainly as a result of the savings resulting from the sale
of the poultry business, which partly offset operating expense increases of
11.1% and 50.1% respectively, in our automotive parts and real estate sectors in
2000 as well as salary increases above inflation. Our operating margin decreased
from 13.2% in 1999 to 9.7% in 2000 as a result of these factors. Net majority
income decreased 85.8% from Ps.1,935,073 in 1999 to Ps.274,895 in 2000. This
decrease was mainly due to lower operating profit, higher foreign exchange
losses, and extraordinary charges principally related to the restructuring of
the food sector.

1999 and 1998 compared. Consolidated net sales decreased 3.2% in 1999,
to Ps.25,329,850 from Ps.26,176,034 in 1998. This decrease was due mainly to
lower sales in the chemicals sector, which resulted from lower prices. Export
sales increased by 13.5% in 1999 to $933.1 million from $822.3 million in 1998,
primarily due to increased exports of automotive parts and food products. Cost
of sales decreased 3.2% in 1999 to Ps.18,255,984 from Ps.18,859,146 in 1998, in
line with the decrease in net sales. Consequently, gross margin decreased only
slightly to 27.9% in 1999 from 28.0% in 1998. Operating expenses increased 5.6%
in 1999 to Ps.3,738,732 from Ps.3,541,180 in 1998, mainly due to increased
operating expenses in the food sector, as a result of including Nair for the
full year and increased distribution costs in our poultry and pork

businesses in 1999, and in the real estate sector, as a result of the
commencement of operations of the Four Seasons Hotel that we built in Punta Mita
in 1999. These factors led to an 11.7% decrease in operating income from
Ps.3,775,708 in 1998 to Ps.3,335,134 in 1999. Our operating margin was 13.2% in
1999 compared to 14.4% in 1998 due to lower margins in the chemicals sector and
in the poultry and pork businesses of our food sector and the appreciation of
the Peso against the Dollar in 1999 which increased our Peso costs and reduced
the benefit of our Dollar-denominated sales. Net majority income during 1999
increased 71.0% from Ps.1,131,806 in 1998 to Ps.1,935,073 primarily due to
foreign exchange gains that resulted from the appreciation of the Peso relative
to the Dollar during 1999.

Automotive Parts

The following table presents selected operating data for our automotive
parts segment:

Year ended December 31,
-----------------------------------------------------
1998 1999 2000
---------------- -------------- ----------------
(In thousands, except percentages)

Net sales............................................ Ps. 10,876,582 Ps. 10,854,485 Ps. 10,935,622
Cost of sales........................................ 8,048,929 7,942,089 8,024,381
Gross margin......................................... 26.0% 26.8% 26.6%
Operating expenses................................... Ps. 1,170,554 Ps. 1,180,368 Ps. 1,311,516
Operating income..................................... 1,657,099 1,732,028 1,599,725
Operating margin..................................... 15.2% 16.0% 14.6%
Depreciation and amortization........................ Ps. 535,403 Ps. 561,554 Ps. 574,020
Capital expenditures................................. 1,015,542 868,664 1,097,298

2000 and 1999 compared. The automotive parts sector's net sales for
2000 increased 0.7% to Ps.10,935,622 from Ps.10,854,485 in 1999. While we were
able to sustain our sales growth in the domestic market and increase our exports
by 7.6% in 2000, to $686.6 million from $638.1 million in 1999, the appreciation
of the Peso relative to the Dollar reduced the Peso value of our 2000
Dollar-denominated sales resulting in only a 0.7% net sales increase. During
2000, exports represented 61.8% of the sales of this sector, while in 1999 they
represented 63.8%. The decrease in the percentage of our sales that is
represented by exports was mainly due to the growth in the production of
automobiles in the domestic market, which reached record levels. Costs of sales
increased 1.0% to Ps.8,024,381 in 2000. Operating expenses increased 11.1% in
2000 to Ps.1,311,516 from Ps.1,180,368 in 1999, reflecting salary increases in
2000 which were above the rate of inflation. As a result, operating profit
decreased 7.6% in 2000 to Ps.1,599,725 from Ps.1,732,028 in 1999. Operating
margin for 2000 was 14.6%, compared to 16% in 1999.

1999 and 1998 compared. The automotive parts sector's net sales for
1999 decreased 0.2% to Ps.10,854,485 from Ps.10,876,582 in 1998, principally due
to the appreciation of the Peso relative to the Dollar during 1999 which lowered
the Peso value of our Dollar-denominated sales. Exports were $638.1 million in
1999, representing an

increase of 15.9% from $550.4 million in 1998, and accounted for 64% of this
sector's sales in 1999 as compared to 61% in 1998. This increase in exports was
primarily due to increased sales of transmissions in the U.S. Cost of sales
decreased 1.3% in 1999 to Ps.7,942,089 from Ps.8,048,929 in 1998 principally as
a result of the implementation of operational improvements and cost-cutting
programs and lower costs of raw materials. Operating expenses increased 0.8% in
1999 to Ps.1,180,368 from Ps.1,170,554 due principally to the payment of higher
sales commissions and increased promotional expenditures. All of the above
boosted operating income by 4.5% from Ps.1,657,099 in 1998 to Ps.1,732,028 in
1999. Operating margin increased to 16.0% in 1999 from 15.2% in 1998.

Chemicals

Beginning in 2000, we combined our diversified products segment, which
includes adhesives, glues, waterproofing, additives and sealants, with our
petrochemicals segment. These businesses are operated under Girsa, and are now
reported together as our chemicals segment. Prior years results have been
restated to reflect this change. The following table presents selected operating
data for our chemicals segment:

Year ended December 31,
-------------------------------------------------------
1998 1999 2000
-------------- -------------- ---------------
(In thousands, except percentages)

Net sales....................................... Ps. 8,456,287 Ps. 7,595,856 Ps. 7,914,807
Cost of goods sold.............................. 5,874,834 5,433,964 6,177,172
Gross margin.................................... 30.5% 28.5% 22.0%
Operating expenses.............................. Ps. 1,279,325 Ps. 1,226,918 Ps. 1,216,250
Operating income................................ 1,302,128 934,974 521,385
Operating margin................................ 15.4% 12.3% 6.6%
Depreciation and amortization................... Ps. 324,322 Ps. 311,442 Ps. 300,119
Capital expenditures............................ 498,449 1,186,956 336,001

2000 and 1999 compared. During 2000, net sales increased 4.2% to
Ps.7,914,807 from Ps.7,595,856 in 1999. The increase in sales was mainly due to
higher international prices for synthetic rubber, carbon black and phenol, and
higher volumes sold of polystyrene, acrylics, synthetic rubber and decorative
laminates in 2000. Cost of sales increased 13.7% in 2000 to Ps.6,177,172 from
Ps.5,433,964 in 1999, reflecting significant price increases in 2000 for some of
our raw materials such as butadiene, styrene and cumene (some of which increased
up to 100%) and significantly higher natural gas prices. We implemented various
initiatives to offset the negative environment in the chemicals cycle, including
aggressive cost reduction and productivity programs in all of our chemicals
businesses. These included programs aimed at increasing the efficiency and
volume of our synthetic rubber and polystyrene production processes and the
optimization of our installed capacity. As a result of these initiatives,
operating expenses decreased 0.9% to Ps.1,216,250 during 2000, compared to
Ps.1,226,918 in 1999. The previously-mentioned factors and our inability to pass
the increases in the cost of raw materials and natural gas to our customers,
caused our operating profit to decrease

44.2% from Ps.934,974 in 1999 to Ps.521,385 in 2000, and our operating margin to
decrease to 6.6% in 2000 compared to 12.3% in 1999.

1999 and 1998 compared. During 1999, net sales declined by 10.2%, from
Ps.8,456,287 in 1998 to Ps.7,595,856. The decline in sales was due to continued
lower international prices for chemicals in general and lower demand for these
products in Asian countries, which were only partially offset by a shift in our
product mix toward specialty products which are less affected by the chemicals
cycle. In addition the decline in sales reflects lower sales volumes and prices
for phosphates in 1999 which resulted from a price war in the international
markets, and the appreciation of the Peso relative to the Dollar in 1999 which
reduced the Peso value of our 1999 Dollar-denominated sales. Exports were $198.8
million in 1999, representing a decrease of 2.6% from $204.2 million in 1998,
and accounted for 28.4% of this sector's sales in 1999 as compared to 29.3% in
1998. Although the cost of raw materials increased significantly in Dollar terms
as a result of the recovery of the chemicals cycle in primary products and the
rise in oil prices, our cost of sales actually decreased 7.5% from Ps.5,874,834
in 1998 to Ps.5,433,964 in 1999, primarily due to the appreciation of the Peso
relative to the Dollar and the implementation of measures to improve the yield
of raw materials. Gross margin decreased from 30.5% in 1998 to 28.5% in 1999 as
a result of these factors. Operating expenses decreased 10.6% from Ps.1,279,325
in 1998, to Ps.1,226,918 in 1999 principally as a result of reductions in
administrative personnel and the implementation of tighter controls on operating
expenses. Operating income declined 28.2% from Ps.1,302,128 in 1998 to
Ps.934,974 in 1999 and operating margin decreased to 12.3% in 1999 from 15.4% in
1998.

Food

The following table presents selected operating data for our food
segment:

Year ended December 31,
-------------------------------------------------------------
1998 1999 2000
-------------- --------------- --------------
(In thousands, except percentages)

Net sales.......................................... Ps. 5,923,063 Ps. 5,973,442 Ps. 3,575,823
Cost of sales...................................... 4,478,700 4,518,991 2,712,857
Gross margin....................................... 24.4% 24.3% 24.1%
Operating expenses................................. Ps. 910,932 Ps. 1,049,297 Ps. 823,347
Operating income................................... 533,431 405,154 39,619
Operating margin................................... 9.0% 6.8% 1.1%
Depreciation and amortization...................... Ps. 220,692 Ps. 197,842 Ps. 211,085
Capital expenditures .............................. 2,407,653 771,972 317,315

- ----------

2000 and 1999 compared. During 2000, net sales decreased 40.1% to
Ps.3,575,823 from Ps.5,973,442 in 1999. This decrease was mainly due to the
divestiture of the poultry business in December 1999 and to lower sales of
branded food products in 2000. Cost of sales decreased 40.0% to Ps.2,712,857 in
2000 compared to Ps.4,518,991 in 1999, and operating expenses decreased 21.5%
from Ps.1,049,297 in 1999 to

Ps.823,347 in 2000 due to the divestiture of our poultry business. Operating
profit contracted 90.2% due to the sale of the poultry business and the
extraordinary charges related to the restructuring in the branded products
businesses, which achieved an operating profit of Ps.405,154 in 1999 compared to
Ps.39,619 in 2000. As a result of the aforementioned events, operating margin
decreased from 6.8% in 1999 to 1.1% in 2000.

1999 and 1998 compared. During 1999, net sales increased 0.9% to
Ps.5,973,442 from Ps.5,923,063 in 1998 as a result of increased sales of branded
food products during 1999 which compensated for lower prices in pork and
poultry. Cost of sales increased 0.9% in 1999 to Ps.4,518,991 from Ps.4,478,700
in 1998, in line with the increase in net sales. As a result, gross margin
remained essentially the same at 24.3% compared to 24.4% during the prior year.
Operating expenses increased 15.2% in 1999 to Ps.1,049,297 from Ps.910,932 in
1998, reflecting the expenses of Nair, which were included for the full year in
1999 but only for one month in 1998, as well as higher distribution costs in our
poultry and pork businesses due to increased volumes sold and sales made to a
larger number of distributors during 1999. These factors led to a 24.0% decline
in operating income from Ps.533,431 in 1998 to Ps.405,154 in 1999 and to a
decline in operating margin from 9.0% in 1998 to 6.8% in 1999. In 1999, we sold
our poultry business to Industrias Bachoco, S.A. de C.V. for $155 million.

Real Estate

The following table presents selected operating data for our real
estate segment:

Year ended December 31,
---------------------------------------------------
1998 1999 2000
------------ ------------ ------------
(In thousands, except percentages)

Net sales
Residential....................................... Ps. 545,125 Ps. 665,162 Ps. 280,407
Tourism/resort.................................... Ps. 74,705 Ps. 85,073 Ps. 420,185
Commercial........................................ 275,540 126,217 295,076
------------ ------------ ------------
Total........................................... Ps. 895,370 Ps. 876,452 Ps. 995,668
------------ ------------ ------------
Cost of sales(1)..................................... 456,683 360,940 530,562
Gross margin......................................... 49.0% 58.8% 46.7%
Operating expenses................................... Ps. 118,362 Ps. 206,679 Ps. 310,131
Operating income..................................... 320,325 308,833 154,975
Operating margin..................................... 35.8% 35.2% 15.6%
Depreciation and amortization........................ Ps. 29,180 Ps. 42,485 Ps. 66,278
Capital expenditures(2).............................. 698,985 214,848 89,764
Investments in real estate projects(3)............... 280,888 396,836 668,611

- ----------

(1) Includes recognized cost of land, subcontracted construction costs, permit
costs, architects' and engineering fees and related costs. These costs are
recognized proportionately as revenues are received for the particular
project.
(2) Includes expenditures made during the relevant period related to the Santa
Fe shopping mall, in which we hold a 50.1% interest, including
acquisitions of land, construction costs, permits, and architects' and
engineering fees. Does not include expenditures for other projects in our
real estate sector which are being developed for sale.

(3) Includes expenditures made during the relevant period for acquisitions of
land, construction costs, permits, architects' and engineering fees and
related items, except for expenditures related to the Santa Fe shopping
mall.

2000 and 1999 compared. Net sales increased 13.6% from Ps.876,452 in
1999 to Ps.995,668 in 2000. The projects that contributed most to this increase
were Bosques de Santa Fe, Punta Mita and Arcos Bosques Corporativo. Cost of
sales increased 47.0% to Ps.530,562 in 2000 compared to Ps.360,940 in 1999.
Costs increased at a higher rate than sales because there were more projects
with lower margins in 2000, such as Arcos Bosques Corporativo and the operation
of the Four Seasons Hotel in Punta Mita, resulting in a lower gross margin for
the sector of 46.7% in 2000 compared to 58.8% in 1999. Operating expenses
increased 50.1% from Ps.206,679 in 1999 to Ps.310,131 in 2000, which was due in
large part to the operation of the Four Seasons Hotel in Punta Mita. As a
percentage of sales, operating expenses represented 31.1% of sales in 2000 and
23.6% of sales during 1999. As a result of the foregoing, operating profit
decreased 49.8%, from Ps.308,833 in 1999 to Ps.154,975 in 2000, and operating
margin decreased to 15.6% in 2000 from 35.2% in 1999.

1999 and 1998 compared. The net sales of our real estate sector
decreased 2.1% in 1999 to Ps.876,452 from Ps.895,370 in 1998. The decrease in
net sales was mainly due to a lower sales volume in our Bosques de Santa Fe
project in the 1999 period compared to the 1998 period when we began marketing
this project, which were partially offset by sales in Punta Mita, which opened
in September 1999. Cost of sales decreased 21% in 1999 to Ps.360,940 from
Ps.456,683 in 1998. The decrease in cost of sales was significantly greater than
the decrease in net sales because our 1999 sales mix included more properties
with a relatively high profit margin. As a result, gross margin rose to 58.8% in
1999 from 49.0% in 1998. Operating expenses increased as a percentage of net
sales in 1999 to 23.6% from 13.2% in 1998, and were Ps.206,679 in 1999 compared
to Ps.118,362 in 1998 as a result of the commencement of operations of the Four
Seasons Hotel in September, 1999, which we built and operate in partnership with
Four Seasons Hotels Limited. As a result, operating income decreased 3.6% in
1999 to Ps.308,833 from Ps.320,325 in 1998, and operating margin decreased to
35.2% in 1999 from 35.8% in 1998.

Comprehensive financial result

Comprehensive financial result includes: (1) interest expense paid by
us on financing, (2) interest earned by us on temporary investments, (3) the
variations in our UDI-denominated debt which result from the inflation
adjustment mechanism of these instruments, (4) foreign exchange gains or losses
on our foreign currency-denominated monetary assets or liabilities, and (5)
monetary earnings or losses due to the effects of inflation on our net monetary
liability or asset position. To the extent that our monetary liabilities exceed
our monetary assets during inflationary periods, we will generate a monetary
position gain.

The following table presents the components of our comprehensive
financial result for each of the periods indicated:

Year ended December 31,
---------------------------------------------------------------
1998 1999 2000
------------------ ------------------ -----------------
(In thousands, except percentages)

Interest expense.......................... Ps. (988,555) Ps. (1,247,668) Ps. (1,150,094)
Interest income........................... 374,588 342,194 141,696
UDI variation............................. 0 (16,884) (108,022)
Exchange, gain (loss), net................ (1,896,046) 393,227 (310,215)
Gain on monetary position................. 1,067,688 975,659 736,678
Comprehensive financial result............ Ps. (1,442,325) Ps. 446,528 Ps. (689,957)

2000 and 1999 compared. During 2000, the comprehensive financial result
reflected a loss of Ps.689,957, compared to income of Ps.446,528 in 1999. This
is attributable principally to: (1) the depreciation of the Peso against the
Dollar during 2000, which resulted in an exchange loss of Ps.310,215 compared to
an exchange gain of Ps.393,227 in 1999; (2) a 58.6% decrease in interest income
during the 2000 to Ps.141,696 from Ps.342,194 in 1999 due to lower interest
rates in 2000; (3) UDI variation expense of Ps.108,022 resulting from two
issuances of UDI-denominated medium-term notes in 2000 and the inflation
adjustment made to such notes and to the UDI-denominated medium-term notes
issued in 1999 (UDIs are Peso-denominated, inflation-adjusted units); and (4) a
24.5% decline in monetary gains in 2000, from Ps.975,659 in 1999 to Ps.736,678
due to lower inflation during 2000. These factors more than offset a 7.8%
decrease in interest paid in 2000 resulting from lower interest rates.

1999 and 1998 compared. In 1999, the comprehensive financial result
showed a gain of Ps.446,528 compared to a loss of Ps.1,442,325 in 1998. This is
attributable principally to the significant appreciation of the Peso against the
Dollar during 1999, which resulted in a foreign exchange gain of Ps.393,227
compared to a foreign exchange loss of Ps.1,896,046 in 1998. This more than
offset the following factors: (1) an increase of 26.2% in interest expense, from
Ps.988,555 in 1998 to Ps.1,247,668 in 1999, resulting from increased
consolidated debt in 1999; (2) an 8.6% decline in interest income in 1999 from
Ps.374,588 in 1998 to Ps.342,194 due to lower interest rates paid on deposits in
1999; (3) UDI variation expense of Ps.16,884 resulting from the inflation
adjustment made to our UDI-denominated medium term notes which were issued in
1999; and (4) an 8.6% decline in monetary gains in 1999 from Ps.1,067,688 in
1998 to Ps.975,659 due to lower inflation during 1999.

Income taxes and employee profit sharing

In Mexico, until 1998, the nominal corporate income tax rate was 34% of
the taxable profits of a company for the fiscal year. The nominal corporate tax
rate, however, may not be less than 1.8% of the average value of a company's
assets, subject to some adjustments, whether or not the company had taxable
income for the year.

As a result of amendments to the Mexican income tax law which became
effective on January 1, 1999, the nominal corporate income tax rate was
increased to 35%. The nominal corporate tax rate, however, may not be less than
1.8% of the average value of a company's assets, subject to some adjustments,
whether or not the company

had taxable income for the year. Under the amended tax law, companies are
permitted to defer a portion of their income tax liability on their net taxable
income until dividends are paid from that income. For 1999, companies initially
were required to pay income tax at a 32% rate, with the remaining 3% income tax
liability payable on a proportional basis upon the distribution of dividends.
For 2000 and subsequent years, the income tax liability due initially is 30% and
the remaining 5% income tax may be deferred. With some exceptions, the
amendments to the Mexican income tax laws also limit the extent to which we may
reduce our consolidated tax liability by offsetting tax liabilities in some of
our subsidiaries against tax losses in other subsidiaries, to 60% of our equity
interest in the relevant subsidiaries. We do not expect these changes to have a
significant impact on our results of operations.

In addition, aside from wages and agreed-upon fringe benefits, we and
each of our subsidiaries are required by law to provide to our workers a share
of our profits equal to 10% of taxable profit of the relevant company,
calculated before any adjustments for inflation or amortization of fiscal losses
of previous years. The combined statutory rates of corporate income tax and
profit sharing were 44.0% for 1998 and 45.0% for 1999 and 2000.

Bulletin D-4, "Accounting for Income and Asset Taxes and Employee
Profit Sharing," became effective on January 1, 2000 for all Mexican companies.
Prior to the effective date of this Bulletin, companies reporting under Mexican
GAAP did not record the deferred tax effect of recurring temporary differences
in the timing of the recognition of income and expenses for financial statement
and income tax purposes. These differences, together with other non-recurring
and permanent differences between income and expenses for accounting and tax
purposes, resulted in an effective income tax rate that was lower than the
statutory rate. New Bulletin D-4 requires that the comprehensive deferred
effects (assets or liabilities) applicable to the cumulative temporary
differences between assets and liabilities for financial statement and tax
purposes be recorded. Deferred employee profit sharing will be calculated only
for the temporary differences of the year whose reversal period can be
determined. Our combined effective income tax rate for corporate income taxes
and employee profit sharing was 25.8% in 1998, 26.4% in 1999 and 43.7% in 2000,
as compared to the combined statutory rates of 44% in 1997 and 1998 and 45% in
1999 and 2000.

The initial effect of Bulletin D-4 on Desc amounts to Ps.2,327,204 as
of December 31, 1999. This effect was recognized as a long-term liability in
2000 and affected retained earnings. Our cash flows, however, are not affected
by the application of Bulletin D-4.

U.S. GAAP Reconciliation

In 2000, we had net income under U.S. GAAP of Ps.495,344 compared to
net income under Mexican GAAP of Ps.274,895. In 1999, we had net income under
U.S. GAAP of Ps.1,732,027 compared to net income under Mexican GAAP of
Ps.1,935,073. In 1998, we had net income under U.S. GAAP of Ps.1,405,990
compared to net income under Mexican GAAP of Ps.1,131,806. These differences are
attributable mainly to the recognition of deferred taxes and employee profit
sharing, net of their monetary gain and

the effect of the minority interest. The other major reasons for these
differences relate to the recognition of the benefits of tax consolidation, as
well as the minority interest and inflation effect of the U.S. GAAP adjustments.

For a further description of these and other adjustments under U.S.
GAAP, see Notes 19 and 20 to the Financial Statements.

Economic Conditions in Mexico

Beginning in December 1994, Mexico experienced an economic crisis
characterized by exchange rate instability and devaluation of the Peso, high
inflation, high domestic interest rates, negative economic growth, reduced
consumer purchasing power and high unemployment. The economic crisis resulted in
part from a series of internal disruptions and political and economic events
that adversely affected the Mexican economy and undermined the confidence of
investors in Mexico. These adverse conditions in Mexico also resulted in an
increase in the annual rate of inflation from 7.1% in 1994 to 52.0% in 1995, and
a liquidity crisis affecting the ability of the Mexican government and the
banking system to refinance or refund maturing debt issues. Mexican interest
rates, which averaged 14.1% per annum for 28-day Cetes (Mexican treasury bills)
during 1994, increased to an average of 48.4% during 1995. According to
government estimates, Mexico's GDP fell by 6.2% in 1995. Mexico's gross
international reserves fell sharply at the end of 1994, from $24.5 billion at
December 31, 1993 to $6.1 billion at December 31, 1994, and were $15.7 billion
at December 31, 1995, as reported by the Banco de Mexico.

The Mexican economic crisis of late 1994 and 1995 had a profound impact
on most Mexican businesses, including Desc. We experienced a significant
decrease in demand in the domestic market for many of our products, particularly
real estate and consumer products. However, the devaluation also caused imported
products to become more costly and therefore less competitive in Mexico, which
allowed domestic manufacturers to take advantage of an import substitution
effect. Additionally, for those of our products for which there is an export
market, such as automotive parts and chemicals, the devaluation enabled us to
compete more effectively in the global marketplace. We cannot predict the effect
that adverse economic conditions in Mexico, such as those beginning in December
1994, would have on our financial condition, results of operations or properties
were such conditions to recur.

Economic conditions in Mexico improved in 1996 and during the first
half of 1997. However, beginning in the second half of 1997, economic crises in
Asia, Russia, and Brazil caused a setback in the economic recovery of Mexico and
other emerging markets. These crises resulted in very volatile global financial
conditions, large outflows of capital from emerging market countries such as
Mexico, and volatile exchange rates for emerging markets currencies such as the
Peso. As a result, Mexico experienced higher interest rates, slower economic
growth and higher inflation during the second half of 1997 and during all of
1998. Mexican interest rates, which had declined from an average of 31.2% per
annum for the 28-day Cetes in 1996 to an average of 19.7% per annum in 1997,
increased in 1998 to an average of 24.7% per annum. GDP growth

declined from 6.76% in 1997, to 4.83% in 1998. Inflation, which had declined
from 27.7% in 1996 to 15.7% in 1997 increased to 18.6% in 1998.

During 1999 and 2000, economic conditions in Mexico improved. Mexican
interest rates averaged 21.3% and 15.24% per annum in 1999 and 2000,
respectively, for the 28-day Cetes and inflation decreased to 12.3% in 1999 and
to 9.0% in 2000. GDP grew by 3.7% in 1999, and by 6.9% in 2000. During 1999, the
Mexican currency also strengthened compared to the Dollar, from Ps.10.17 per
Dollar in January 1999 to Ps.9.50 per Dollar in December 1999 and maintained its
strength during 2000 ending at Ps.9.47 per Dollar in December 2000. Foreign
investment also soared from approximately $10 billion in 1998 to $22 billion in
1999 to $11 billion in 2000. During the first quarter of 2000, Moody's upgraded
Mexico to "investment grade" status. However, the current slowdown of the U.S.
economy has adversely affected our business.

Political Events in Mexico

In the Mexican national elections held on July 2, 2000, Vicente Fox of
the opposition PAN won the presidency, and he assumed office on December 1,
2000. His victory ended more than 70 years of presidential rule by PRI. Neither
PRI nor PAN succeeded in securing a majority in the Mexican Congress or Senate.

In April 1999, students at Mexico's National University, UNAM, staged a
strike which lasted almost one year, demanding the end of certain reforms
enacted by the Mexican government which the students believed threatened the
future of free public education. Security forces ultimately secured the
university facilities and ended the strike, and the university has resumed its
normal activities. Since the strike, the Mexican government has responded to the
initial demands of the strikers and agreed to create a University Congress where
students and University administrators will be able to discuss the most relevant
issues confronting the UNAM. Nonetheless, some radical student groups have
continued to stage protests from time to time.

In Chiapas, the social unrest has continued and from time to time there
have been outbreaks of violence that have resulted in deaths in Chiapas and
other southern regions of Mexico. The new administration has inherited the
conflict and has started a new negotiation process to solve it.

If the kind of political instability experienced at the UNAM or at
Chiapas were to expand, the market price of securities of Mexican issuers,
including our shares, ADSs and debt securities, could be adversely affected.

Liquidity and Capital Resources

Liquidity

We have significant liquidity due to EBITDA, defined as earnings before
interest expense, tax, depreciation and amortization. We generated cash flow of
Ps.4,916,295 during 1998, Ps.4,474,232 during 1999, and Ps.3,447,093 during
2000. We used this cash flow mainly to finance capital expenditures and to

service and repay debt. As of December 31, 2000, we had cash and marketable
securities totaling Ps.325,264 on a non-consolidated basis, and Ps.1,540,002 on
a consolidated basis. We believe that our working capital is sufficient for our
company's and our subsidiaries' present requirements.

Under Mexican GAAP, we present our consolidated statement of changes in
financial position in accordance with Bulletin B-12, which identifies the
generation and application of resources representing differences between
beginning and ending financial statement balances in constant Pesos. The changes
shown in the Financial Statements do not represent cash flow activities. See
note 19 to the Financial Statements for more information about these changes.

As of December 31, 2000, our consolidated Dollar-denominated
liabilities were $1.2 billion and our net consolidated Dollar-denominated
liabilities after deducting Dollar-denominated assets, which consist principally
of cash, were $865 million.

At the corporate level, Desc has no substantial operations of its own
and, consequently, we depend on dividends and other payments from our
subsidiaries and income tax refunds for virtually all of our cash flow.

Dividends from subsidiaries. It is our general policy that each of our
principal subsidiaries pay to Desc (and other stockholders of the subsidiary)
dividends equal to at least 50% of the subsidiary's annual consolidated net
income legally available for distribution. This percentage may be significantly
lower in some cases, such as when the subsidiary proposes to make large capital
expenditures or when its profits decline. As a general policy, Desc has paid
approximately 35% of its legally available net income to stockholders, although
it did not pay cash dividends in 1996 or 1999 as a result of restrictions under
the terms of indebtedness that has since been repaid.

During 2000, our subsidiaries paid dividends of approximately
Ps.414,213, representing in total approximately 23% of the subsidiaries' 1999
net income. Approximately Ps.369,588 of these total dividends were paid to Desc
and the balance were paid to minority interests. During 1999, our subsidiaries
did not pay dividends. During 1998, our subsidiaries paid dividends of
approximately Ps.1,982,747, representing in total approximately 62.5% of the
subsidiaries' 1997 net income. Approximately Ps.1,688,757 of these total
dividends were paid to Desc and the balance were paid to minority interests.

Income tax refunds. In Mexico, each corporation is required to pay
income tax for each year in an amount not less than 1.8% of the average value of
its assets (subject to some adjustments), whether or not the corporation had
taxable income for the year. Under Mexican income tax law, each year, each of
our consolidated subsidiaries has been required to pay to Desc the amount of tax
it would have paid to the Mexican government in respect of its annual taxable
income and assets had the subsidiary filed a separate return. These payments
were made pro rata based on our proportionate equity interest in the subsidiary
making the payment. We were required to collect these tax payments and pay to
the Mexican government the amount of tax due on behalf of Desc and its
subsidiaries calculated on a consolidated basis. We generally made payments in
respect

of each year early in the following year, after completion of our year-end
audit. Because we were entitled to apply this requirement on the basis of our
consolidated taxable income, we generally were able to reduce our consolidated
tax liability below the aggregate amount of tax payments we receive from our
subsidiaries, depending on how many subsidiaries made payment based on the
minimum tax and the extent of consolidated taxable income compared to
consolidated taxable assets. Any amount by which these tax payments to Desc
exceeded our consolidated tax liability for any year was retained by Desc and
therefore provided a source of cash at the parent company level. We refer to
these excess payments as "refunds." These refunds and the Mexican tax system are
addressed in notes 3 and 15 to the Financial Statements.

As a result of amendments to Mexican income tax law which became
effective on January 1, 1999, each subsidiary now makes 40% of its income tax
payments directly to the Mexican government. The amendments also limit the
extent to which we may reduce our consolidated tax liability by offsetting tax
liabilities in some of our subsidiaries against tax losses in other
subsidiaries, to 60% of our equity interest in the relevant subsidiaries thus
reducing the amount of refunds available to us. We do not expect these changes
to have a significant impact on our results of operations and financial
condition.

Uses of funds. At the Desc level, we utilize cash primarily to pay
taxes, service debt and pay dividends. During 2000, we received Ps.369,588 in
dividends from our subsidiaries, which we used to pay dividends to our
stockholders totaling Ps.409,848. During 1999, our subsidiaries did not pay
dividends. During 1998, we received Ps.1,688,757 in dividends from our
subsidiaries, which we used to pay dividends to our stockholders totaling
Ps.953,208 and to service debt. The dividend policies of the entity proposing to
pay the dividend may change at the discretion of its stockholders. In addition,
general limitations under Mexican corporate law apply to the amount of dividends
payable by each of Desc and our direct and indirect subsidiaries.

Financing activity

Our principal subsidiaries generally do not rely on Desc or each other
for financing, except when substantial capital expenditures are to be made and
in other limited circumstances. When intercompany financing has been needed,
Desc has generally provided it by means of capital contribution and not by
intercompany loans. In the past, our subsidiaries have made several debt
offerings in the capital markets with Desc's guaranty. As described below,
presently there are outstanding notes issued by Dine which have been guaranteed
by Desc. We anticipate that Desc alone will make future debt offerings in the
capital markets. The proceeds of any future offerings of this kind, to the
extent required by a subsidiary, would be provided to the subsidiary either by
means of capital contribution or intercompany loan, as determined by Desc at the
time.

In April 1998, Girsa entered into a five-year, $30 million revolving
credit facility with a group of banks. Interest on this loan is payable
quarterly. At December 31, 2000, Girsa had used all $30 million available to it.
Girsa used the proceeds from this loan to repay short-term debt and fund capital
expenditures.

In May 1998, Unik entered into a three-year, $75 million trade finance
facility with a group of banks. This loan is guaranteed by Unik's subsidiaries
Spicer, S.A. de C.V., Moresa, S.A. de C.V. and Hayes Wheels de Mexico, S.A. de
C.V. Principal on the loan is payable at maturity and interest is payable
semi-annually. At December 31, 2000, Unik and its subsidiaries had borrowed all
$75 million available to them.

In October 1999, Desc issued approximately Ps.850 million of
UDI-denominated Medium Term Notes due 2006. These notes were our first issuance
under a Ps.3 billion program structured by the Chase Manhattan Bank Mexico and
authorized by the CNBV. UDIs are Unidades de Inversion or investment units,
which are denominated in Pesos and adjusted periodically for inflation by Banco
de Mexico, the Mexican Central Bank. These notes bear interest at a net rate of
9% and were rated "MAA" by Duffs and Phelps. We used the proceeds of this
issuance to refinance short-term debt.

In January 2000, Girsa entered into a ten-year, $105 million Loan
Agreement with the International Finance Corporation. Girsa used the proceeds
from this loan to fund the establishment of a joint venture in the synthetic
rubber business, increase capacity at various facilities, implement quality,
technology and process improvements in various businesses, and implement various
cost reduction programs as well as maintenance and environmental investments. As
of December 31, 2000, Girsa had borrowed $47 million under this facility and
terminated the remaining commitment.

In April 2000, Corfuerte entered into a five-year, $32 million Term
Loan Agreement with a group of banks. Corfuerte used the proceeds from this loan
to refinance short term debt. As of December 31, 2000, Corfuerte had borrowed
all $32 million available to it under this facility.

In November 2000, Desc entered into a three-year $150 million Credit
Agreement with a group of banks. Principal on the loan is payable in November
2002 ($37.5 million), May 2003 ($37.5 million) and November 2003 ($75 million),
and interest is payable on each principal payment date. We used the proceeds
from this loan to refinance short-term debt of Desc. The credit facility
contains various affirmative and negative covenants, including restrictions on
the payment of dividends by Desc, on the purchase, redemption or acquisition of
Desc's capital stock by Desc and any subsidiary, and on the ability to enter
into agreements that restrict the payment of dividends by Desc's subsidiaries to
Desc. As of December 31, 2000, we had borrowed $90 million under this facility
and in the second quarter of 2001 we borrowed the additional $60 million
available to us under this facility.

In November 2000, Girsa entered into a four-year, $50 million revolving
credit. Interest on this loan is payable monthly. Girsa used the proceeds from
this loan to repay short-term debt and fund capital expenditures.

On July 12, 2000, Desc issued approximately Ps.1 billion in
UDI-denominated Medium Term Notes with a maturity period of seven years. These
notes bear interest at a net rate of 8.20% and were rated "MAA" by Duffs and
Phelps. This placement was done under the Ps.3 billion program authorized by the
CNBV, from which Ps.850 million (or 324 million in UDIS) was placed during
October 1999.

As of December 31, 2000, our subsidiaries had outstanding short-term
liabilities of $306 million, most of which was borrowed under unsecured
revolving credit facilities provided by several Mexican and U.S. commercial
banks. These facilities are predominantly Dollar-denominated and are payable
within 30 to 364 days with interest rates which fluctuated during 2000 between
7.30% and 9.00% in Dollars and 17.00% and 20.50% in Pesos. As of December 31,
2000, our subsidiaries had approximately $1,012 million of available credit
under these and other facilities, in addition to the $640 million outstanding on
that date. Since none of these facilities is committed, borrowings under them
require the lenders' consent.

Item 6. Directors, Senior Management and Employees

Directors

Our board of directors is responsible for the management of our
business. At the April 27, 2000 stockholders' meeting, our stockholders adopted
amendments to our bylaws which among other things, reduced the size of our board
of directors and eliminated the positions of alternate director. As a result of
these amendments, our board of directors is to be composed of no less than 5 and
no more than 15 directors, as determined by our stockholders at their annual
meeting. The holders of the Series A shares have the right to elect one more
than half of the board of directors. Stockholders or groups of stockholders
holding shares, including Series C shares, of any one class which represent at
least 10% of our total equity capitalization have a right to elect one director
of the relevant series for each 10% held. The holders of the Series B shares
have the right to elect the remaining members of the board of directors. Each
director is elected to serve a one-year term and remains in office until the
person elected to replace him takes office. At the April 26, 2001 meeting, our
stockholders set the size of our board of directors at 12 members. Since the
holders of Series C shares as a group represent more than 10% of our total
equity capitalization, one Series C director was elected at our 2001 general
stockholders' meeting.

The following table lists the principal occupation, type of director
and period of service on the board of each of our directors elected at our last
general stockholders' meeting, which took place on April 26, 2001. Except as
indicated below, none of the directors holds any offices or positions in Desc.

Principal occupation First
Name of Directors and positions with Desc elected
- ---------------------------------- --------------------------------------- -------

Series A Directors:
Fernando Senderos Mestre(1)....... Chairman of the Board and Chief 1973
Executive Officer of Desc

Eneko de Belausteguigoitia Arocena Entrepreneur 1973

Carlos Gomez y Gomez.............. Chairman of the Board of Grupo 1973
Financiero Santander Mexicano, S.A. de
C.V.

Carlos Gonzalez Zabalegui......... Chief Executive Officer of Controladora 1996
Comercial Mexicana, S.A. de C.V.

Principal occupation First
Name of Directors and positions with Desc elected
- ---------------------------------- --------------------------------------- -------

Adolfo Patron Lujan............... Private investor and Consultant 1982

Luis Tellez Kuenzler.............. Executive Vice President of Desc 2001

Ernesto Vega Velasco.............. Secretary of the Board 1973

Series B Directors:
Alberto Bailleres Gonzalez........ Chairman of the Board of Penoles, S.A. 1973
de C.V., and Chief Executive Officer of
Grupo Bal

Ruben Aguilar Monteverde.......... Private investor 1978

Federico Fernandez Senderos....... Chief Executive Officer of Grupo Eulen 1993
Mexico

Valentin Diez Morodo.............. Vice President and Chief Sales Officer 1999
of Grupo Modelo, S.A. de C.V.

Series C Director:
Prudencio Lopez Martinez.......... Chairman of the Board of Sanvica, S.A. 1973
de C.V.

- ----------

(1) Fernando Senderos Mestre is the uncle of Federico Fernandez Senderos and
the brother-in-law of Carlos Gomez y Gomez.

Committees of the Board of Directors

The amendments to our bylaws adopted by our stockholders at the April
27, 2000 meeting established 3 committees of our board of directors: an
Evaluation and Compensation Committee, an Audit Committee, and a Finance and
Planning Committee. Each of these committees is to be composed of no less than 3
and no more than 7 directors, as determined at the general stockholders'
meeting, plus Desc's examiner, who must attend meetings of the board and of each
of its committees but may not vote at these meetings. See "--Examiner" below for
more information about the Examiner's responsibilities. At the April 27, 2000
meeting, our stockholders set the size of the Evaluation and Compensation
Committee and of the Audit Committee at 3 members each, and the size of the
Finance and Planning Committee at 4 members.

The duties of the Evaluation and Compensation Committee include
recommending criteria to our Board for the selection and evaluation of the
performance of our executive officers in accordance with general guidelines
established by the Board, and analyzing the structure and amount of the
compensation of our executive officers proposed by our CEO and making a
recommendation to our Board. The current members of the Evaluation and
Compensation Committee are Messrs. Adolfo Patron Lujan, Carlos Gonzalez
Zabalegui, and Valentin Diez Morodo.

The duties of the Audit Committee include recommending to our Board
candidates to serve as our external auditors, the terms under which such
candidates will serve and the scope of their audit; assisting our Board in its
supervision of our external auditors' compliance with the terms of their
engagement; acting as communication channels between our Board and our external
auditors; ensuring the independence and objectivity of our external auditors;
and reviewing our auditors' reports and letters and

reporting the results of their review to the full Board. The current members of
the Audit Committee are Messrs. Prudencio Lopez Martinez, Ruben Aguilar
Monteverde, and Eneko de Belausteguigoitia Arocena.

The duties of the Finance and Planning Committee include evaluating
and, if applicable, recommending for approval to our Board the investment and
financing policies proposed by our Chief Executive Officer; evaluating and
recommending general guidelines for our strategic planning; opining as to the
premises underlying our annual budget; overseeing the implementation of our
budget and strategic plan; and identifying the financial risks to which our
company is subject and evaluating our policies to manage those risks. The
current members of the Finance and Planning Committee are Messrs. Fernando
Senderos Mestre, Eneko de Belausteguigoitia Arocena, Carlos Gomez y Gomez, and
Federico Fernandez Senderos.

At the April 26, 2001 stockholders' meeting, our stockholders resolved
to create an Executive Committee composed by Messrs. Fernando Senderos Mestre
and Luis Tellez Kuenzler. The duties of the Executive Committee include
supervising the performance of our subsidiaries; appointing their top tier
officers and determining their compensation with the advise of the Evaluation
and Compensation Committee, establishing the premises and guidelines for the
growth and development of our company and its subsidiaries and deciding on their
investments and financing, with the advise of the Finance and Planning
Committee.

The board of directors has six regular meetings scheduled per year and
each of the committees has two regular meetings scheduled per year.

Executive Officers

The following table presents information concerning our executive
officers:

Years
with
Name Position Desc
- ----------------------------------- ------------------------------------------------------------- ----

Fernando Senderos Mestre........... Chairman of the Board and Chief Executive Officer 29

Luis Tellez Kuenzler............... Executive Vice President 0

Emilio Mendoza Saeb................ Vice President (Automotive Parts) 33

Enrique Ochoa Vega................. Vice President (Chemicals and Branded Food Products) 10

Andres Banos Samblancat............ Vice President (Real Estate) 17

Arturo D'Acosta Ruiz............... Chief Financial Officer 19

Jorge Almada Wright................ Corporate Director of Strategic Planning 2

Alberto Morett Lopez............... Corporate Director of Administration and Human Resources 8

Pedro Piedras Ros.................. Corporate Director of Control (Chemicals and Real Estate) 21

Agustin Rios Matence............... Corporate Director of Control (Automotive Parts and Food) 24

Ramon F. Estrada Rivero............ General Counsel 11

The following table presents information concerning the chief executive
officers of our principal sectors:

Years
with
Name Position Desc
- ----------------------------------- ------------------------------------------------------------- ----

Emilio Mendoza Saeb Unik (Automotive Parts) 33

Enrique Ochoa Vega Girsa (Chemicals and Branded Food Products) 10

Andres Banos Samblancat Dine (Real Estate) 17

Examiner

In addition to electing our directors, our stockholders generally elect
an examiner at their annual ordinary meeting. Under Mexican law, the duties of
the examiner include, among other things, examining the operations, books,
records and any other documents of Desc and presenting at the annual ordinary
stockholders' meeting a report on the accuracy, sufficiency and reasonableness
of the information presented by the board of directors at that meeting. Under
our bylaws, the examiner is also authorized to call ordinary or extraordinary
general shareholders' meetings. Our examiner is Jose Manuel Canal Hernando, and
his alternate is Daniel del Barrio Burgos.

Compensation of Directors and Officers

For the year ended December 31, 2000, the aggregate compensation of all
directors and officers of Desc, S.A. de C.V. as a group that was paid or accrued
by us in that year for services in all capacities was approximately Ps.70,750.
This group includes 11 directors, one examiner, one alternate examiner and 13
officers, 2 of whom were also directors. During the year ended December 31,
2000, we contributed approximately Ps.10,217 (in nominal Pesos) to a pension
fund that covers the employees and the 15 executive officers of Desc, S.A. de
C.V. Aside from this contribution, we did not set aside or accrue any other
funds for pension, retirement or similar benefits for directors and executive
officers as a group. Following the completion of each fiscal year, Desc in its
sole discretion, awards cash bonuses in varying amounts to its executive
employees. Most of these employees are entitled, if they so elected when the
plan was adopted, to use their cash bonuses to purchase Desc shares from a trust
to which we loaned funds in 1992 to enable it to purchase shares of our stock in
the open market, at an amount equal to the trust's average cost basis in those
shares. For 2000, the trust's average cost basis was Ps.8.00 per share (in
nominal Pesos, not in thousands). In addition to the cash amount of his or her
bonus, an employee purchasing shares from the trust may recognize income equal
to the difference between the market price of the purchased shares at the time
of purchase by the employee and the amount the employee paid to the trust for
those shares.

Share Ownership by Our Executive Officers and Directors

Share ownership of Fernando Senderos Mestre and certain members of his
immediate family is set forth in "Major Shareholders" under Item 7. None of our
other directors, alternate directors or executive officers is the beneficial
owner of more than 1% of any class of our capital stock.

Employees; Labor Relations

As of December 31, 2000, we employed approximately 22,320 people.

Each of our subsidiaries has entered into short-term union, collective
bargaining or similar agreements for each plant and/or facility it operates.
These contracts generally have two-year terms and provide for an annual salary
review as well as a review of other contract terms and conditions prior to
renewal, which is a standard arrangement for collective bargaining agreements
for most Mexican companies. We believe that our relations with our employees are
satisfactory.

Item 7. Major Shareholders and Related Party Transactions

The following table presents information with respect to the ownership
of Desc's Series A, B and C shares, as of April 26, 2001, by each stockholder
known to us to own beneficially more than 10% of our outstanding Series A, B or
C shares and by all of our officers and directors as a group:

Number of Shares Owned
-----------------------------------------------
Name Series A Series B Series C
- ---- -------- -------- --------

Fernando Senderos Mestre(1)(2) 321,986,985 1,770,000 4,968,600
Lucia Senderos de Gomez(1)(3) 0 [134,812,955] 9,318,680
Officers and directors as a group (25 persons)(2) 428,081,545 [13,676,555] 6,056,752

Percentage Owned
----------------------------------------------
Name Series A Series B Series C
- ---- -------- -------- --------

Fernando Senderos Mestre(1)(2) 54.81% 0.35% 1.80%
Lucia Senderos de Gomez(1)(3) 0.00 26.63 3.38
Officers and directors as a group (25 persons)(2) 64.15 11.59 2.20

(1) Lucia Senderos de Gomez and Fernando Senderos Mestre are siblings. Lucia
Senderos de Gomez is the wife of Carlos Gomez y Gomez, a director of Desc.

(2) Includes shares owned by SEN, S.A. de C.V., a corporation wholly-owned by
Fernando Senderos Mestre. Does not include the 33,006,300 Series A shares,
2,761,940 Series B shares and 21,131,275 Series C shares owned by our
pension funds, for which Fernando Senderos Mestre and other officers and
directors serve as trustees or members of the investment committee, or
shares owned by Lucia Senderos de Gomez. Does not include approximately
7,973,760 Series A shares, 687,000 Series B shares and 665,582 Series C
shares currently owned by the trust referred to under "Item 11.
Compensation of Directors and Officers", as to which Fernando Senderos
Mestre has voting control. Does not include 26,391,360 Series A shares,
46,331,105 Series B shares and 38,806,305 Series C shares owned by Manuel
Senderos Irigoyen, the father of Fernando Senderos.

(3) Does not include 2,345,030 Series A shares, 564,000 Series B shares and
78,505 Series C shares owned by Carlos Gomez y Gomez, the husband of Lucia
Senderos de Gomez.

As a result of the shares owned by the Senderos family together with
additional shares as to which Fernando Senderos Mestre exercises voting control
(see the table above and Item 6. "Directors, Senior Management and Employers
- --Compensation of Directors and Officers" for information about these additional
shares), the Senderos family has the power to elect a majority of our board of
directors, to control our general management and to determine the outcome of
substantially all matters requiring stockholder approval.

Item 8. Financial Information

Consolidated Financial Statements

See pages F-1 through F-47, which is incorporated herein by reference.

Litigation

We are involved in legal proceedings not described in this annual
report that are incidental to the normal conduct of our business. We do not
believe that liabilities relating to these proceedings will have a material
adverse effect on our financial condition or results of operations.

Dividend Policy

For a discussion of our dividend policy, see Item. 10 "Additional
Information - Dividends and Distributions" and "Dividends and Paying Agent."

Significant Changes

No significant change has occurred since the date of the Financial
Statements included in this Annual Report.

Item 9. The Offer and Listing

Trading Prices of our Shares and ADS

All three series of our stock are listed on the Mexican Stock Exchange
and our ADSs are listed in the New York Stock Exchange under the symbol "DES".

As of April 26, 2001, approximately 85,570,520 of the Series C shares
were held in the form of ADSs. It is not practicable for us to determine the
number of Series C shares beneficially owned by U.S. persons.

The following table sets forth for the periods indicated the high and
low sales prices of the Series C shares on the Mexican Stock Exchange in nominal
Pesos and the high and low sales prices of the ADSs on the New York Stock
Exchange in Dollars. These prices are not representative of the prices for the
Series A and Series B shares for these periods:

Mexican Stock Exchange Pesos New York Stock Exchange
Per Series C Share Dollars Per ADS
---------------------------- ------------------------
Prior Five Years(1): High Low High Low
- ------------------- ------------ ----------- -------- --------

1996 Ps. 9.00 Ps. 5.30 $ 23.13 $ 13.87
1997 16.62 8.54 43.25 21.75
1998 15.08 5.50 37.68 8.87
1999 13.60 6.80 29.12 14.06
2000 8.10 3.20 17.00 6.31

1999:
First Quarter Ps. 11.86 Ps.8.06 $ 27.12 $ 15.06
Second Quarter 13.60 10.10 29.12 21.00
Third Quarter 12.22 7.80 26.06 16.50
Fourth Quarter 7.90 6.80 18.62 14.06

2000:
First Quarter Ps. 8.10 Ps. 5.90 $ 17.00 $ 12.50
Second Quarter 7.00 5.30 15.25 11.00
Third Quarter 6.62 4.99 14.37 10.25
Fourth Quarter 4.78 3.20 10.31 6.31

Most Recent Six Months:
- ----------------------
December 2000 Ps. 3.86 Ps. 3.20 $ 8.37 $ 6.31
January 2001 3.95 3.10 8.31 6.18

Mexican Stock Exchange Pesos New York Stock Exchange
Per Series C Share Dollars Per ADS
---------------------------- ------------------------

February 2001 4.40 3.40 9.09 7.25
March 2001 4.20 3.80 8.70 7.75
April 2001 4.00 3.40 8.15 7.00
May 2001 4.00 3.50 8.30 7.45

(1) We have adjusted the sales prices of the Series C shares for the periods
presented to retroactively reflect the 5 for 1 stock split effected on
September 8, 1998.

As of June 28, 2001, the closing sales price of the Series C shares on
the Mexican Stock Exchange was Ps.3.84 and the closing sales price of the ADSs
on the New York Stock Exchange was $8.36.

Dine's 8 3/4% Guaranteed Notes due 2007 were listed on the Luxembourg
Stock Exchange on June 21, 1999. They are not listed on any other stock
exchange. It is not practicable for us to determine the amount of Dine Notes
beneficially owned by U.S. persons.

Trading on the Mexican Stock Exchange

The Mexican Stock Exchange was founded in 1894 and has operated
continuously since 1907. The Mexican Stock Exchange is located in Mexico City
and it is Mexico's only stock exchange. The Mexican Stock Exchange is organized
as a corporation and its shares are owned by authorized brokerage firms. These
firms exclusively are authorized to trade on the floor of the Mexican Stock
Exchange.

Electronic trading on the Mexican Stock Exchange takes place between
the hours of 8:30 a.m. and 3:00 p.m., Mexico City time, on each weekday other
than public holidays. Mexico's Daylight Savings Time begins approximately one
month after Daylight Savings Time in the United States and ends approximately
one month before. During those two periods of approximately one month each,
electronic trading on the Mexican Stock Exchange takes place between the 7:30
a.m. and 3:00 p.m., Mexico City time, on each weekday other than public
holidays. Since January 11, 1999, all trading of equity securities listed on the
Mexican Stock Exchange has been made through the Electronic Negotiation System,
an automated, computer-linked system commonly known as BMV SENTRA Capitales.

The Mexican Stock Exchange publishes a daily official price list that
includes information on each listed security. Trading may be suspended in the
event of disclosure of material non-public information, if the Mexican Stock
Exchange considers that the suspension is necessary for the public to be fully
informed. The Mexican Stock Exchange may also suspend trading of a particular
security as a result of significant price fluctuations during a given trading
day (fluctuations exceeding a given price level by more than 15%) or as a result
of unusual movements in the price of a security during a period of no more than
five consecutive trading days. The Mexican Stock Exchange may also suspend
trading generally as a result of unexpected events or force majeure, or if
unusual market fluctuations arise.

Settlement takes place two trading days after a share transaction is
effected on the Mexican Stock Exchange. Deferred settlements, even if by mutual
agreement, are not permitted without the approval of the CNBV. Most securities
traded on the Mexican Stock Exchange, including our shares, are on deposit with
S.D. Indeval, S.A. de C.V., Sociedad para el Deposito de Valores, a privately
owned central securities depositary that acts as a clearing house, depositary,
custodian, settlement, transfer and registration institution for Mexican Stock
Exchange transactions, eliminating the need for physical delivery of securities.

As of December 31, 2000, approximately 177 Mexican companies were
listed on the Mexican Stock Exchange, excluding mutual funds. During the second
half of 2000, the ten most actively traded equity issues represented
approximately 63.7% of the total volume of the shares traded on the Mexican
Stock Exchange, not including public offerings. Although there is substantial
participation by the public in the trading of securities on the Mexican Stock
Exchange, a major part of such activity reflects transactions of institutional
investors. There is no formal over-the-counter market for securities in Mexico.

The Mexican Stock Exchange is Latin America's third largest exchange in
terms of market capitalization, but it remains relatively small and illiquid
compared to major world stock markets and is subject to significant volatility.
As of December 31, 2000, the total market value of all shares, excluding mutual
funds, listed on the Mexican Stock Exchange was Ps.1,203 billion.

Item 10. Additional Information

Share Capital

Our capital stock consists of 3 classes of common stock: Series A
common stock, Series B common stock and Series C common stock. The holders of
the Series A shares have the right to elect one more than half of the members of
our board of directors and, subject to the right of stockholders or groups of
stockholders holding shares of any one class which represent at least 10% of our
total equity capitalization to designate one director of the relevant series for
each 10% held, the holders of the Series B shares have the right to elect the
remaining members of our board of directors. The holders of Series C shares and
American Depositary Shares (each representing 20 Series C shares) have limited
voting rights that entitle them to vote only upon the matters designated in the
corporate charter. These matters are the extension of our duration, our
dissolution, our transformation from one type of corporation into another, the
change of our nationality, the change of our designated corporate purposes, our
merger into another corporation, and the cancellation of the registration of our
shares on the Mexican Stock Exchange.

As of April 26, 2001, our outstanding capital stock consisted of
1,368,998,270 shares, comprised of 587,479,900 Series A shares, 506,176,760
Series B shares and 275,341,610 Series C shares. An additional 48,785,000 Series
A shares, 60,088,140 Series B shares and 43,411,155 Series C shares had been
repurchased by us and were held as treasury shares. Under our bylaws, the Series
A shares and the Series B shares may be held only by Mexican investors. The
Series C shares may be held by Mexican

and non-Mexican investors, but under applicable law the Series C shares may not
be held by foreign governments or official agencies of foreign governments.

Bylaws

Set forth below is a brief summary of certain principal provisions of
our bylaws and certain provisions of Mexican law. This description does not
purport to be complete and is qualified in its entirety by reference to our
bylaws, which have been filed as an exhibit to this annual report, and the
applicable provisions of Mexican law. For a description of the provisions of our
bylaws relating to our board of directors, Executive Committee and statutory
auditor, see Item 6.

Organization and Register; Purposes

Desc is a corporation (sociedad anonima de capital variable) organized
under the laws of Mexico on August 28, 1973. Desc is registered with the Public
Registry of Commerce of Mexico City under the number 8089.

Pursuant to Article Three of our bylaws, Desc's general purpose
includes promoting and encouraging industrial and tourist development,
participating as a shareholder or partner in any type of Mexican company and
acquiring all types of real estate and rendering all services necessary for the
attainment of its purposes.

Share Capital

Our bylaws require that the Series A shares represent at all times at
least 51% of the outstanding capital stock (not including the Series C shares)
and that the Series B shares may not exceed 49% of such capital (not including
the Series C shares). The Series C shares may in no event exceed 25% of our
entire capital stock (including the Series C shares).

Voting Rights

Each Series A share and Series B share entitles the holder to one vote
at any general meeting of our stockholders. The holders of the Series A shares
have the right to elect one more than half of the board of directors.
Stockholders or groups of stockholders holding shares, including the Series C
shares, of any one class which represent at least 10% of our total equity
capitalization have a right to elect one director of the relevant series for
each 10% held. The holders of the Series B shares have the right to elect the
remaining members of the board of directors. Except as described above, the
holders of the Series C shares are entitled to vote only upon certain matters
designated in the corporate charter, namely:

o the extension of the term of duration of Desc;

o the dissolution of Desc;

o the transformation of Desc from one type of corporation into
another;

o the change of Desc's designated corporate purposes;

o the change of nationality of Desc;

o the merger of Desc into another corporation; and

o cancellation of the registration of any series of our shares on
the Mexican Stock Exchange.

Under Mexican law, the holders of shares of any series are also
entitled to vote as a class at a special meeting on any action that would
prejudice the rights of holders of such series, and a holder of such series
would be entitled to judicial relief against any such action taken without such
a vote. The determination whether an action requires a class vote on these
grounds would initially be made by our board of directors or other party calling
for shareholder action. Any determination that an action does not require a vote
at a special meeting would be subject to judicial challenge by an affected
stockholder, and the need for a vote at a special meeting would ultimately be
determined by a court. There are no other procedures for determining whether a
proposed shareholder action requires a class vote, and Mexican law does not
provide extensive guidance on the criteria to be applied in making such a
determination.

Stockholders' Meetings

Under Mexican law and our bylaws, we may hold three types of
stockholders' meetings: ordinary, extraordinary and special. Ordinary
stockholders' meetings are those called to discuss any issue specified in
Article 181 of the Ley General de Sociedades Mercantiles (the "Mexican Companies
Law") and other issues not reserved for extraordinary stockholders' meetings. An
ordinary stockholders' meeting must be held at least annually during the four
months following the end of each fiscal year to consider certain matters
specified in Article 181, including, among other things, the approval of the
report prepared by the board of directors on Desc's financial statements for the
preceding fiscal year, the appointment of members of our board of directors and
statutory auditors and the determination of compensation for members of our
board of directors and statutory auditors.

Extraordinary stockholders' meetings are those called to consider the
matters specified in Article 182 of the Mexican Companies Law, including:

o extension of the company's duration or voluntary dissolution;

o an increase or decrease in the company's minimum fixed capital;

o change in corporate purpose or nationality;

o any transformation, merger or spin-off involving the company;

o any stock redemption or issuance of preferred stock or bonds;

o the cancellation of the listing of the company's shares with the
National Registry of Securities and Intermediaries;

o amendments to the company's bylaws; and

o other matters for which applicable Mexican law or the bylaws
specifically require an extraordinary meeting.

Special stockholders' meetings are those called and held by
stockholders of the same series or class to consider any matter particularly
affecting the relevant series or class of shares.

Under Mexican law, holders of 33% of our outstanding capital stock may
have any stockholder action set aside by filing a complaint with a Mexican court
of competent jurisdiction within 15 days after the close of the meeting at which
the action was taken, which shows that the challenged action violates Mexican
law or our bylaws. Relief under these provisions is only available to holders
(1) who were entitled to vote on the challenged stockholder action and (2) whose
shares were not represented when the action was taken or, if represented, voted
against such action.

Stockholders' meetings are required to be held in our corporate
domicile, which is Mexico City. Calls for stockholders' meetings must be made by
our board of directors, the statutory auditors or any Mexican court of competent
jurisdiction. The board of directors or the statutory auditors may be required
to call a meeting of stockholders by the holders of 33% of our outstanding
capital stock.

Notice of meetings must be published in the Diario Oficial de la
Federacion or in a newspaper of major circulation in Mexico City at least 15
days prior to the meeting. Unless the approval of financial statements is to be
discussed at the meeting, such notice period may be reduced to 5 days if the
board of directors deems such reduction appropriate based on the urgency of the
matters to be discussed at the meeting. Each call must set forth the place, date
and time of the meeting and the matters to be addressed. Calls must be signed by
whomever makes them.

In order to attend and vote at a stockholders' meeting, a stockholder
must request and obtain an admission card by depositing its share certificates
(or evidence of deposit thereof in a Mexican bank) with the Secretary of Desc at
least one day prior to the meeting.

Quorum

A quorum on a first call for an ordinary stockholders' meeting is least
50% of the outstanding shares entitled to vote thereat. In order for a
resolution of the ordinary stockholders' meeting to be validly adopted as a
result of a first or a subsequent call, the

favorable vote of the majority of the shares represented and entitled to vote at
such meeting is required.

The quorum on a first call for an extraordinary stockholders' meeting
is at least 75% of the outstanding shares entitled to vote at such meeting. An
extraordinary stockholders' meeting may be validly held pursuant to a second
call with a quorum of at least 50% of the outstanding shares entitled to vote at
such meeting. In order for a resolution of the extraordinary general meeting to
be validly adopted as a result of a first or a subsequent call, the favorable
vote of 50% of the outstanding shares entitled to vote at such meeting is
required.

Withdrawal Rights

The outstanding variable portion of our capital stock may be fully or
partially withdrawn by the stockholders. The minimum fixed portion of our
capital stock specified in our charter cannot be withdrawn. A holder of shares
representing our variable capital stock that wishes to effect a total or partial
withdrawal of its shares must notify us in an authenticated written notice to
that effect. If notice of withdrawal is received prior to the last quarter of
the fiscal year, the withdrawal becomes effective at the end of the fiscal year
in which the notice is given. Otherwise, the withdrawal becomes effective at the
end of the following fiscal year.

The redemption of the stockholders' shares would be made at the lower
of: (i) 95% of the average share price quoted on the Mexican Stock Exchange
during the 30 business days prior to the date on which the withdrawal becomes
effective or (ii) the book value per share in accordance with our most recent
financial statements approved at the annual ordinary stockholders' meeting, by
reference to the date on which the withdrawal becomes effective.

Since our inception, no stockholder has ever exercised its right to
withdraw.

Dividends and Distributions

At our annual ordinary general stockholders' meeting, our board of
directors must submit to the holders of the Series A shares and the Series B
shares our financial statements for the preceding fiscal year. Five percent of
our net earnings must be allocated to a legal reserve fund until such fund
reaches an amount equal to 20% of Desc's capital stock. Our legal reserve fund
currently satisfies this requirement. Additional amounts may be allocated to
extraordinary, special or additional reserve funds as the stockholders may from
time to time determine. The remaining balance, if any, of net earnings may be
distributed as dividends or allocated for the redemption of shares. Any
redemption must be approved in advance at an extraordinary stockholders'
meeting.

Dividends are paid to the registered holder of the relevant share or
the duly authorized representative of such holder upon delivery of the
applicable coupon. With respect to share certificates deposited with Indeval,
payment of dividends is made through Indeval in accordance with customary
payment procedures. Partially paid shares participate in any distribution to the
extent that such shares have been paid at the time of the distribution. Our
ability to pay dividends is subject to Mexican legal requirements,

which provide that a corporation may declare and pay dividends only out of the
profits reflected in its year-end financial statements (approved by its
stockholders), only if such payment is approved by its stockholders, and then
only after the creation of a required legal reserve and the set off or
satisfaction of losses, if any, incurred in previous fiscal years. See Item 4.
"Risk Factors Relating to Our Operations--Dependence on dividends from
subsidiaries" and "Risks Relating to Our Controlling Stockholder and Capital
Structure--Certain members of the Senderos family effectively control our
management and their interests may differ from those of other securityholders".

Liquidation Rights

Upon a dissolution of Desc, one or more liquidators must be appointed
by an extraordinary stockholders' meeting to wind up its affairs. All fully paid
and outstanding shares of capital stock, regardless of class, will be entitled
to participate equally in any distribution upon liquidation. Partially paid
shares participate in a liquidation distribution in the same manner as they
would in a dividend distribution.

Changes in Share Capital

An increase of capital stock may be effected through the issuance of
new shares for payment in cash or in kind, by capitalization of indebtedness or
by capitalization of certain items of stockholders' equity. No increase of
capital stock may be effected until all previously issued shares have been fully
paid. A reduction of capital stock may be effected to absorb losses, to redeem
shares or to release stockholders from payments not made. A reduction of capital
stock to absorb losses may be effected by reducing the value of all outstanding
shares. A reduction of capital stock to redeem shares may be effected by
reimbursing holders of shares pro rata or through a drawing before a public
broker. Stockholders may also approve the redemption of fully paid shares with
retained earnings, which would be effected by a repurchase of shares on the
Mexican Stock Exchange (in the case of shares listed thereon).

Our capital stock may be increased or decreased only by resolution of
an extraordinary general stockholders' meeting and, if such increase or decrease
affects the fixed portion of our capital, an amendment to our bylaws. Any
holders of the Series A shares or the Series B shares would be entitled to vote
on an increase or decrease in capital stock, including one affecting the Series
C shares.

No stockholder resolution is required for decreases in capital stock
based on the exercise of a stockholder's right to withdraw variable shares or
Desc's purchase of its shares or for increases based on a resale by Desc of
shares it previously purchased.

Preemptive Rights

In the event of a capital increase through the issuance of new shares
for payment in cash or in kind, a holder of existing shares generally has a
preferential right to subscribe for a sufficient number of new shares to
maintain the holder's proportionate holdings of shares; however, such right is
unavailable to holders of the Series C shares in respect of capital increases
represented by either the Series A shares or the Series B shares or both the
Series A shares and the Series B shares.

Except in limited circumstances, preemptive rights must be exercised
within the period and under the conditions established for such purpose by the
stockholders' meeting approving the increase and under our bylaws, and in no
case may such period be less than 15 business days following the publication of
notice of the capital increase in the Diario Oficial de la Federacion, provided
that if all stockholders are present or represented at such meeting such
publication shall not be required. Otherwise, such rights will lapse. Under
Mexican law, preemptive rights may not be waived in advance by a stockholder and
cannot be represented by an instrument that is negotiable separately from the
corresponding share. Holders of ADSs may exercise preemptive rights only through
the Depositary.

Registration and Transfer of the Shares

All of Desc's series of shares are evidenced by share certificates in
registered form, and registered dividend coupons may be attached to the
certificates. Share certificates held by stockholders may have dividend coupons
attached. If Desc and Indeval agree, share certificates deposited with Indeval
will have no dividend coupons attached. Dividend coupons may only be presented
for payment by the registered holder of the related share or its duly appointed
agent. Stockholders of Desc may either hold their shares directly, in the form
of physical certificates, or indirectly through institutions that have accounts
with Indeval. Accounts may be maintained at Indeval by brokers, banks, other
financial institutions or other entities approved by the CNBV ("Indeval
Participants"). Desc maintains a share registry, and only those persons listed
in such registry and those holding certificates issued by Indeval and any
relevant Indeval Participant indicating ownership will be recognized as
stockholders by Desc.

Other Provisions

Liabilities of the members of the board of directors

Under Mexican law, an action for civil liabilities against members of
our board of directors may be initiated by a stockholders' resolution. The
director against whom such action is brought will cease to be a member of the
board immediately upon the stockholders' adoption of a resolution demanding
responsibility for such civil liabilities. Additionally, stockholders
representing not less than 33% of our outstanding shares may directly take such
action against members of our board of directors, if (1) such stockholders have
not voted against taking such action at the relevant stockholders' meeting and
(2) the claim in question covers damage alleged to have been caused to Desc and
not merely to the individual plaintiffs. Any recovery of damages with respect to
the action will be for our benefit and not for the stockholders bringing such
action.

Purchase by Desc of its shares

According to Mexican law, we may repurchase any series of our shares on
the Mexican Stock Exchange at any time at the then prevailing market price. Any
such repurchase must be done by charging our shareholders' equity account, while
we hold the repurchased shares, or by reducing our outstanding capital stock, if
such shares are to be held as treasury stock. No approval by our shareholders is
required for such reduction,

but our shareholders must approve, for each year, the maximum amount that may be
used to repurchase shares which may not exceed the amount of net earnings
(including retained earnings). During the period we own such shares, they may
not be represented at any shareholders' meeting. In no event may a share
repurchase result in a percentage of the Series C shares in excess of that
permitted by our bylaws or applicable law. Repurchased shares may be resold at
any time.

Repurchases in the event of delisting

In the event that the registration of our shares in the Securities
Section of the National Registry for Securities and Intermediaries is canceled,
whether upon our request or pursuant to a resolution adopted by the CNBV, our
bylaws and CNBV regulations require that our controlling shareholders make a
public offer to purchase the shares owned by minority holders. The purchase
price to be paid by the controlling shareholders will be equal to the higher of
(i) the average quotation price of the shares for the 30 trading days prior to
the date of the offer or (ii) the book value of the shares, as reflected in the
last quarterly report filed with the CNBV and the Mexican Stock Exchange prior
to the date of the offer. If after that repurchase offer our controlling
shareholders fail to acquire 100% of our capital stock, the cancellation of the
registration of our shares will not become effective until our controlling
shareholders have created a trust with the funds required to purchase the
remaining shares at the same offering price, with the trust remaining in effect
for at least 2 years.

Appraisal rights

Whenever a stockholders' meeting approves a change of corporate
purpose, change of nationality, a restructuring from one type of corporate form
to another or a spin-off (escision), any stockholder who has voted against such
change or restructuring has the right to withdraw from Desc and receive an
amount broadly equal to the book value of Desc's shares (in accordance with
Desc's latest balance sheet approved by an ordinary general meeting), provided
the dissenting stockholder exercises its right to withdraw during the 15-day
period following the meeting at which such change or restructuring was approved.

Stockholder's conflicts of interest

Pursuant to Article 196 of the Mexican General Law of Commercial
Companies, any stockholder that has a direct or indirect conflict of interest
with respect to a transaction must abstain from voting with respect to such
transaction at the relevant stockholders' meeting. A stockholder that votes on a
transaction in which its interest conflicts with that of Desc may be liable for
damages if the relevant transaction would not have been approved without such
stockholder's vote.

Director's conflicts of interest
Pursuant to Article 156 of the Mexican General Law of Commercial
Companies, any director that has a direct or indirect conflict of interest with
respect to a transaction that is presented to the board of directors must
disclose such conflict to the board of directors and abstain from voting with
respect to such transaction at the relevant board

meeting. A director who votes on a transaction in which his interest conflicts
with that of Desc may be liable for damages if the relevant transaction would
not have been approved without such director's vote.

Rights of stockholders

The protections afforded to minority shareholders under Mexican law are
different from those in the United States and many other jurisdictions. The
substantive law concerning fiduciary duties of directors has not been the
subject of extensive judicial interpretation in Mexico, unlike many states in
the United States where duties of care and loyalty elaborated by judicial
decisions help to shape the rights of minority shareholders. Mexican civil
procedure does not contemplate class actions or shareholder derivative actions,
which permit shareholders in U.S. courts to bring actions on behalf of other
shareholders or to enforce rights of the corporation itself. Shareholders cannot
challenge corporate action taken at a shareholders' meeting unless they meet
certain procedural requirements, as described above under "Stockholders'
Meetings." As a result of these factors, in practice it may be more difficult
for our minority shareholders to enforce rights against us or our directors or
controlling shareholders than it would be for shareholders of a U.S. company.

Enforceability of civil liabilities

Desc is organized under the laws of Mexico, and most of our directors,
officers and controlling persons reside outside the United States. In addition,
all or a substantial portion of our assets and their assets are located in
Mexico. As a result, it may be difficult for investors to effect service of
process within the United States on such persons. It may also be difficult to
enforce against them, either inside or outside the United States, judgments
obtained against them in U.S. courts, or to enforce in U.S. courts judgments
obtained against them in courts in jurisdictions outside the United States, in
any action based on civil liabilities under the U.S. federal securities laws.
There is doubt as to the enforceability against such persons in Mexico, whether
in original actions or in actions to enforce judgments of U.S. courts, of
liabilities based solely on the U.S. federal securities laws.

Exclusive jurisdiction

Our bylaws provide that legal actions relating to the execution,
interpretation or performance of the bylaws shall be brought only in the courts
of Mexico City, Federal District.

Duration

Our existence under the bylaws is 99 years from the date of
registration with the Public Registry of Commerce.

Material Contracts

For a description of our material contracts please refer to Item. 4
"Information on our Company" and Item 5. "Operating and Financial Review."

Exchange Controls

Restrictions on Foreign Investment.

Foreign investment in the capital stock of Mexican companies is
regulated by the 1993 Ley de Inversion Extranjera (the "Foreign Investment Law")
and the 1998 regulations promulgated under the Foreign Investment Law (the
"Foreign Investment Regulations"). The Foreign Investment Law defines foreign
investment as (i) the participation of foreign investors in the capital stock of
Mexican corporations, or investments made in the capital stock of Mexican
corporations by a Mexican corporation in which foreign capital has a majority
participation, and (ii) the participation of foreign investors in those
activities that are regulated by the Foreign Investment Law. Foreign investors
are defined as individuals or entities that are not Mexican nationals. The
Comision Nacional de Inversiones Extranjeras (the "Foreign Investment
Commission") and the Registro Nacional de Inversiones Extranjeras (the "National
Registry of Foreign Investments") of the Ministry of Economy are responsible for
the administration of the Foreign Investment Law and the Foreign Investment
Regulations. In order to comply with foreign investment restrictions, Mexican
companies typically limit particular classes of their stock to ownership by
Mexican individuals and Mexican corporations in which foreign investment has a
minority participation.

As a general rule, the Foreign Investment Law allows foreign investment
in up to 100% of the capital stock of Mexican companies except for those engaged
in restricted industries. With respect to restricted industries, the Foreign
Investment Law not only limits or forbids share ownership but also requires that
Mexican stockholders retain the power to determine the administrative control
and the management of those corporations. Restricted industries currently
include retail trade in gasoline and distribution of liquid petroleum gas, radio
broadcasting, credit unions, development banks, land transportation of
passengers, tourists and freight in Mexico other than messenger and package
delivery services, and the rendering of specified professional and technical
services. Desc and its subsidiaries currently do not engage in any restricted
industry. However, our bylaws restrict our Series A and Series B shares to
Mexican ownership. A holder that directly acquires Series A or B shares in
violation of the restrictions on foreign investment contained in our bylaws will
not have any of the rights of a stockholder with respect to those shares, the
acquisition will be null and void, and the corresponding shares will be
cancelled.

Due to the limited voting rights of our C shares, they are not taken
into account under the Foreign Investment Law or our bylaws in determining
compliance with restrictions on foreign ownership. Accordingly, unlike the
Series A and B shares, the C shares are not restricted to Mexican ownership.
Under applicable law, however, the Series C shares may not be held by foreign
governments or official agencies of foreign governments.

Neither applicable Mexican law nor Dine's bylaws (estatutos sociales)
impose any limitation on the right of non-Mexican investors to hold Dine's 8
3/4% Guaranteed Notes due 2007.

Taxation

Tax Treaty between the United States and Mexico

The United States and Mexico have signed and ratified a Convention for
the Avoidance of Double Taxation and the Prevention of Tax Evasion with Respect
to Taxes on Income and Protocols thereto. We refer to this Convention as the
"Tax Treaty". The Tax Treaty is currently in effect and we summarize below the
provisions of the Tax Treaty that may affect holders of ADSs, Series C shares
and Dine Notes who are residents of the United States (as defined in the Tax
Treaty).

Mexico has also executed treaties to avoid double taxation with other
countries as well as agreements providing for the exchange of information with
respect to tax matters, some of which presently are in force. The following
summary does not take into account the effect of any such treaties. Readers
should consult their tax advisors as to their entitlement to the benefits
afforded by the Tax Treaty or such other treaties.

Mexican Federal Income Tax Considerations for Holders of
ADSs and Series C Shares

The following is a summary of the principal consequences under current
Mexican federal tax laws, the regulations and administrative rules issued by the
Ministry of Finance and Public Credit and the Tax Treaty of the purchase,
ownership and disposition of ADSs or Series C shares by a holder that is not a
resident of Mexico, as in effect as of the date hereof. We caution that these
laws and regulations are subject to change or differing interpretations, which
changes or differing interpretations could apply retroactively. This summary
does not address the tax laws of any state or municipality in Mexico. Readers
are cautioned that this is not a complete analysis or listing of all potential
tax effects that may be relevant to a decision to purchase, hold or dispose of
ADSs or Series C shares.

For purposes of Mexican taxation, an individual is a resident of Mexico
if he has established his home in Mexico, unless he has resided in another
country for more than 183 days, whether consecutive or not, during a calendar
year and can demonstrate that he has become a resident of that other country for
tax purposes. Individuals of Mexican birth are deemed to be Mexican residents
for tax purposes, unless proof is submitted to the contrary. A legal entity
established under Mexican law or having its principal offices or management in
Mexico is deemed a resident of Mexico. A person having a permanent establishment
or a fixed base in Mexico will be regarded as a resident of Mexico and will be
required to pay taxes in Mexico in accordance with applicable law in respect of
all Mexican-source income.

Taxation of dividends

Dividends paid either in cash or in any other form to Mexican
individuals and to all non-Mexican shareholders, whether individuals or
entities, with respect to the ADSs or the Series C shares represented by ADSs,
are subject to a 5% Mexican withholding tax on the product that results from
multiplying the amount of the dividend paid and 1.5385. The Tax Treaty limits
the rate of withholding tax on dividends to be received by U.S.

residents to 5% of the gross amount of the dividend if the beneficial owner is a
company that owns at least 10% of the voting stock of Desc or 10% of the gross
amount of the dividend for all other U.S. residents. The Tax Treaty is not
expected to have a material effect on the Mexican tax consequences to U.S.
holders of the ADSs or Series C shares so long as the rate of withholding tax in
effect under Mexican Income Tax Law and regulations is less than the rate
imposed by the Tax Treaty.

We will not be subject to any tax in connection with a dividend payment
if the amount maintained in our previously taxed reinvested net earnings account
(cuenta de utilidad fiscal neta reinvertida or "CUFINRE") or previously taxed
net earnings account (cuenta de utilidad fiscal neta or "CUFIN") exceeds the
dividend payment to be made. However, if the dividend payment is in an amount
greater than our CUFINRE and CUFIN balance (which may occur in a year when net
profits exceed the balance in such accounts), then we will be required to pay a
35% income tax on an amount equal to the product of (i) the portion of the
amount which exceeds such balance times (ii) 1.5385.

Taxation of capital gains

Gains on the sale or other disposition of ADSs by holders who are not
residents of Mexico will not be subject to Mexican tax. Deposits of Series C
shares in exchange for ADSs and withdrawals of Series C shares in exchange for
ADSs will not give rise to Mexican taxes.

Gains on the sale of Series C shares by holders who are not residents
of Mexico will not be subject to any Mexican tax if the transaction is carried
out either through the Mexican Stock Exchange or through a recognized exchange.
A recognized exchange is an exchange or quotation system that has operated for
at least five years and has been duly authorized to operate under the laws of a
country where taxes on interest from a foreign source are imposed at a rate of
at least 15%. Gains on the sale or other disposition of Series C shares made in
other circumstances may be subject to Mexican taxes.

The Tax Treaty exempts United States residents from Mexican capital
gains taxes on dispositions of stock (whether or not those dispositions are
carried out through the Mexican Stock Exchange or a recognized exchange),
provided that (i) during the 12-month period before the disposition, the U.S.
resident did not hold, directly or indirectly, an equity interest of 25% or more
in the Mexican company, (ii) less than 50% of the assets of the Mexican company
consist of immovable property situated in Mexico or (iii) the gain is not
attributable to a permanent establishment or fixed base in Mexico of the U.S.
resident.

Other Mexican taxes

There are no Mexican inheritance, gift or succession taxes applicable
to the ownership, transfer or disposition of ADSs or Series C shares, although
gratuitous transfers of Series C shares may in some circumstances cause a
Mexican federal tax to be imposed on the recipient. There are no Mexican stamp,
issue, registration or similar taxes or duties payable by holders of ADSs or
Series C shares.

Mexican Federal Income Tax Considerations for Holders of Dine Notes

The following is a summary of the principal consequences under current
Mexican federal tax laws, the regulations and administrative rules issued by the
Ministry of Finance and Public Credit and the Tax Treaty of the purchase,
ownership and disposition by a Foreign Holder of Dine's 8 3/4% Guaranteed Notes
due 2007, which are fully and unconditionally guaranteed by Desc (the "Notes").
A "Foreign Holder" is a holder who (1) is not a resident of Mexico for tax
purposes and (2) will not hold Notes or a beneficial interest in Notes in
connection with the conduct of a trade or business through a permanent
establishment or a fixed base in Mexico. This summary does not address the tax
laws of any state or municipality in Mexico. Readers are cautioned that this is
not a complete analysis or listing of all potential tax effects that may be
relevant to a decision to purchase, hold or dispose of Notes.

The statements of Mexican federal income tax laws that we make below
are based on the federal laws of Mexico, the regulations and administrative
rules issued by the Ministry of Finance and Public Credit, as in effect as of
the date hereof. We caution that these laws and regulations and the Tax Treaty
are subject to change or differing interpretations, which changes or differing
interpretations could apply retroactively.

Taxation of payments of interest and principal

Under the Mexican Income Tax Law, payments of interest made by Dine or
by Desc to a Foreign Holder in respect of the Notes will be subject to Mexican
withholding taxes assessed at a rate of 10% if, as is the case, the Notes have
been registered with the Special Section of the National Registry for Securities
and Intermediaries (the "Special Section").

In addition, under the general rules issued by the Mexican Ministry of
Finance and Public Credit (the "Reduced Rate Regulation"), payments of interest
made by Dine or by Desc to Foreign Holders in respect of Notes will be subject
to withholding taxes imposed at a rate of 4.9% (the "Reduced Rate") until March
16, 2002 (or thereafter if as has been the case in the past, the effectiveness
of a rule equivalent to the Reduced Rate Regulation is extended), regardless of
the place of residence or tax regime applicable to the Foreign Holder recipient
of the interest, if:

o the Notes, as is the case, are registered in the Special Section;

o Dine, as is the case, has timely filed with the Ministry of
Finance and Public Credit information relating to the registration
of the Notes in the Special Section and to the issuance of the
Notes; and

o Dine timely files each quarter of the calendar year with the
Ministry of Finance and Public Credit information representing
that no "party related" to Dine, directly or indirectly, is the
effective beneficiary of 5% or more of the aggregate amount of the
interest payment, and Dine maintains records evidencing compliance
with this requirement.

Under the Reduced Rate Regulation any of the following would be a
"party related" to Dine: (1) shareholders of Dine that own, directly or
indirectly, individually or collectively with related persons (within the
meaning of the Reduced Rate Regulation) more than 10% of Dine's voting stock or
(2) corporations if more than 20% of their stock is owned directly or
indirectly, individually or collectively by related persons of Dine.

Apart from the Reduced Rate Regulation, other special rates of Mexican
withholding income tax may apply. In particular, under the Tax Treaty, the
Mexican withholding tax is reduced to 4.9% (the "Treaty Rate") for some holders
that are residents of the United States within the meaning of the Tax Treaty
provided they satisfy the circumstances contemplated in the Tax Treaty. However,
during 2001, the Tax Treaty is not expected, generally, to have any material
effect on the Mexican tax consequences to holders of Notes because, as described
above, with respect to a United States holder, Dine will be entitled to withhold
taxes in connection with interest payments under the Notes at the Reduced Rate
so long as the Reduced Rate Regulation requirements described above are met.
From March 2002 and beyond, holders of the Notes should consult their tax
advisors as to the possible application of the Treaty Rate.

Interest paid on Notes held by a non-Mexican pension or retirement fund
will be exempt from Mexican withholding tax if the fund (1) has been duly
incorporated as a fund pursuant to the laws of its country of origin, (2) is the
effective beneficiary of the interest paid, (3) is registered with the Ministry
of Finance and Public Credit for that purpose, and (4) is exempt from income
taxation in its country of origin and the relevant interest income is exempt
from taxes in that country.

Dine and Desc, as guarantor of the Notes, have agreed, subject to the
exceptions and limitations contained in the indenture under which the Notes were
issued, to pay additional amounts in respect of the Mexican withholding taxes
mentioned above to the holders of the Notes.

Under the Mexican Income Tax Law, a Foreign Holder will not be subject
to any Mexican income taxes in respect of payments of principal made by Dine or
by Desc in connection with the Notes.

Taxation of capital gains

Under the Income Tax Law it is not clear if a tax will apply to gains
resulting from a Foreign Holder's sale or other disposition of Notes. We believe
that if such tax were to apply, it would be deemed paid when the withholding tax
on interest payments on the Notes is paid pursuant to the Income Tax Law or the
Reduced Rate Regulation. However, there can be no assurance that the Mexican
authorities would agree with our interpretation.

Transfer and other taxes

There are no Mexican stamp, registration, or similar taxes payable by a
Foreign Holder in connection with the purchase ownership or disposition of the
Notes. A Foreign Holder of Notes will not be liable for Mexican estate, gift,
inheritance or similar tax with

respect to the Notes, although gratuitous transfers of the Notes may in some
circumstances cause a Mexican income tax to be imposed on the recipient.

United States Federal Income Tax Considerations - ADSs or Series C Shares

General

Subject to the limitations described below, the following discussion
describes the material United States federal income tax consequences to a U.S.
Holder (as defined below) that is a beneficial owner of the ADSs or Series C
shares (the "Shares") and that holds them as capital assets. For purposes of
this summary, a "U.S. Holder" is a beneficial owner of Shares who or that is for
United States federal income tax purposes (i) a citizen or resident of the
United States, (ii) a corporation (or other entity treated as a corporation for
United States federal tax purposes) created or organized in the United States or
under the laws of the United States or of any state or the District of Columbia,
(iii) an estate, the income of which is includible in gross income for United
States federal income tax purposes regardless of its source, or (iv) a trust, if
a court within the United States is able to exercise primary supervision over
the administration of the trust and one or more U.S. persons have the authority
to control all substantial decisions of the trust.

This summary is for general information purposes only. It does not
purport to be a comprehensive description of all of the tax considerations that
may be relevant to each person's decision to purchase Shares. As this is a
general summary, prospective owners of Shares are advised to consult their own
tax advisers with respect to the U.S. federal, state and local tax consequences,
as well as to non-U.S. tax consequences, of the acquisition, ownership and
disposition of Shares applicable to their particular tax situations.

This discussion is based on current provisions of the U.S. Internal
Revenue Code of 1986, as amended, current and proposed U.S. Treasury regulations
promulgated thereunder, and administrative and judicial decisions, as of the
date hereof, all of which are subject to change, possibly on a retroactive
basis. This discussion does not address all aspects of United States federal
income taxation that may be relevant to any particular holder based on such
holder's individual circumstances. In particular, this discussion does not
address the potential application of the alternative minimum tax or the United
States federal income tax consequences to U.S. Holders that are subject to
special treatment, including:

o broker-dealers, including dealers in securities or currencies;

o insurance companies;

o taxpayers that have elected mark-to-market accounting;

o tax-exempt organizations;

o financial institutions or "financial services entities";

o taxpayers who hold Shares as part of a straddle, "hedge" or
"conversion transaction" with other investments;

o holders owning directly, indirectly or by attribution at least 10%
of our voting power;

o taxpayers whose functional currency is not the U.S. dollar; and

o taxpayers who acquire Shares as compensation.

This discussion does not address any aspect of United States federal
gift or estate tax, or state, local or non-United States tax laws. Additionally,
the discussion does not consider the tax treatment of partnerships or persons
who hold Shares through a partnership or other pass-through entity. Certain
material aspects of United States federal income tax relevant to a beneficial
owner other than a U.S. Holder (a "Non-U.S. Holder") also are discussed below.
Each prospective investor is advised to consult such person's own tax advisor
with respect to the specific tax consequences to such person of purchasing,
holding or disposing of Shares.

Taxation of Dividends Paid on Shares

We have never paid cash dividends, and we currently do not intend to
pay cash dividends in the foreseeable future. In the event that we do pay a
dividend, and subject to the discussion of the passive foreign investment
company, or "PFIC," rules below, a U.S. Holder will be required to include in
gross income as ordinary income the amount of any distribution paid on Shares,
including any Mexican taxes withheld from the amount paid, on the date the
distribution is received to the extent the distribution is paid out of our
current or accumulated earnings and profits, as determined for United States
federal income tax purposes. Distributions in excess of such earnings and
profits will be applied against and will reduce the U.S. Holder's basis in the
Shares and, to the extent in excess of such basis, will be treated as a gain
from the sale or exchange of the Shares. Distributions of current or accumulated
earnings and profits paid in foreign currency to a U.S. Holder will be
includible in the income of a U.S. Holder in a U.S. dollar amount calculated by
reference to the exchange rate on the date the distribution is received.

U.S. Holders will have the option of claiming the amount of any Mexican
income taxes withheld at source either as a deduction from gross income or as a
dollar-for-dollar credit against their United States federal income tax
liability. Individuals who do not claim itemized deductions, but instead utilize
the standard deduction, may not claim a deduction for the amount of any Mexican
income taxes withheld, but such individuals may still claim a credit against
their United States federal income tax liability. The amount of foreign income
taxes which may be claimed as a credit in any year is subject to complex
limitations and restrictions, which must be determined on an individual basis by
each shareholder. The total amount of allowable foreign tax credits in any year
cannot exceed the pre-credit U.S. tax liability for the year attributable to
foreign source taxable income.

A U.S. Holder will be denied a foreign tax credit with respect to
Mexican income tax withheld from dividends received on the Shares:

o if such U.S. Holder has not held the Shares for at least 16 days
of the 30-day period beginning on the date which is 15 days before
the ex-dividend date; or

o to the extent such U.S. Holder is under an obligation to make
related payments on substantially similar or related property.

Any days during which a U.S. Holder has substantially diminished its
risk of loss on the Shares are not counted toward meeting the 16 day holding
period required by the statute. In addition, distributions of current or
accumulated earnings and profits will be foreign source passive income for
United States foreign tax credit purposes and will not qualify for the dividends
received deduction otherwise available to corporations.

Taxation of the Disposition of Shares

Subject to the discussion of the PFIC rules below, upon the sale,
exchange or other disposition of Shares, a U.S. Holder will recognize capital
gain or loss in an amount equal to the difference between such U.S. Holder's
basis in the Shares, which is usually the U.S. dollar cost of such shares, and
the amount realized on the disposition. Capital gain from the sale, exchange or
other disposition of the Shares held more than one year is long-term capital
gain. Gain or loss recognized by a U.S. Holder on a sale, exchange or other
disposition of Shares generally will be treated as United States source income
or loss for United States foreign tax credit purposes. The deductibility of a
capital loss recognized on the sale, exchange or other disposition of Shares is
subject to limitations.

Passive Foreign Investment Company Considerations

We will be a passive foreign investment company, or PFIC, for United
States federal income tax purposes, if 75% or more of our gross income in a
taxable year, including the pro-rata share of the gross income of any company,
U.S. or foreign, in which we are considered to own 25% or more of the shares by
value, is passive income. Alternatively, we will be considered to be a PFIC if
50% or more of our assets in a taxable year, averaged over the year and
ordinarily determined based on fair market value and including the pro-rata
share of the assets of any company in which we are considered to own 25% or more
of the shares by value, are held for the production of, or produce, passive
income. If we are a PFIC a U.S. Holder may be subject to adverse U.S. federal
income tax consequences upon receipt of distributions by us or upon realizing a
gain on the disposition of our Shares, including taxation of such amounts as
ordinary income and the imposition of an interest charge on the resulting tax
liability as if such ordinary income accrued over the U.S. Holder's holding
period for the PFIC shares. We believe that we were not a PFIC for 2000 and
believe we will not be a PFIC for 2001. However, there can be no assurances that
we will not become a PFIC. U.S. Holders are strongly urged to consult their tax
advisors about the PFIC rules.

Tax Consequences for Non-U.S. Holders of Shares

Except as described in "U.S. Information Reporting and Back-up
Withholding" below, a Non-U.S. Holder who is a beneficial owner of Shares will
not be subject to United States federal income or withholding tax on the payment
of dividends on, and the proceeds from the disposition of, Shares, unless:

o such item is effectively connected with the conduct by the
Non-U.S. Holder of a trade or business in the United States and,
in the case of a resident of a country which has a treaty with the
United States, such item is attributable to a permanent
establishment or, in the case of an individual, a fixed place of
business, in the United States;

o the Non-U.S. Holder is an individual who holds the Shares as
capital assets and is present in the United States for 183 days or
more in the taxable year of the disposition and does not qualify
for an exemption; or

o the Non-U.S. Holder is subject to tax pursuant to the provisions
of United States tax law applicable to U.S. expatriates.

U.S. Information Reporting and Backup Withholding

U.S. Holders generally are subject to information reporting
requirements with respect to dividends paid in the United States on Shares. In
addition, U.S. Holders are subject to U.S. backup withholding at a rate of up to
31% on dividends paid in the United States on Shares unless the U.S. Holder
provides an IRS Form W-9 or otherwise establishes an exemption. U.S. Holders are
subject to information reporting and backup

withholding at a rate of up to 31% on proceeds paid from the sale, exchange,
redemption or other disposition of Shares unless the U.S. Holder provides an IRS
Form W-9 or otherwise establishes an exemption.

Non-U.S. Holders generally are not subject to information reporting or
back-up withholding with respect to dividends paid on, or proceeds upon the
sale, exchange, redemption or other disposition of, Shares, provided that such
Non-U.S. Holder provides a taxpayer identification number, certifies to its
foreign status, or otherwise establishes an exemption.

The amount of any backup withholding will be allowed as a credit
against such U.S. Holder's or Non-U.S. Holder's United States federal income tax
liability and may entitle such holder to a refund, provided that the required
information is furnished to the U.S. Internal Revenue Service.

United States Federal Income Tax Considerations - Dine 8-3/4% Guaranteed Notes

The following discussion is based upon the provisions of the
U.S. Internal Revenue Code of 1986, as amended (the "Code"), the applicable U.S.
Treasury regulations promulgated or proposed thereunder, judicial authority and
current administrative rulings and practice. Legislative, judicial or
administrative changes or interpretations may be forthcoming that may be
retroactive and that could alter or modify the continued validity of the
statements and conclusions set forth below. Except with respect to the
discussions set forth below under "- Non-U.S. Holders" and "- Information
Reporting and Backup Withholding," this discussion is limited to the U.S.
federal income tax considerations applicable to a beneficial owner of a Note who
or which is (i) a citizen or resident of the United States, (ii) a corporation
organized under the laws of the United States or any political subdivision
thereof or therein, (iii) an estate, the income of which is subject to U.S.
federal income tax regardless of its source or (iv) a trust, if a court within
the U.S. is able to exercise primary supervision over the administration of the
trust and one or more U.S. persons have authority to control all substantial
decisions of the trust (a "U.S. Holder"). Certain aspects of U.S. federal income
taxation relevant to a beneficial owner of a Note other than a U.S. Holder (a
"Non-U.S. Holder") are also discussed below. This discussion does not address
all aspects of U.S. federal income taxation that might be relevant to particular
holders in light of their personal investment circumstances or status, nor does
it discuss the consequences to investors subject to special treatment under the
U.S. federal income tax laws, including:

o broker-dealers, including dealers in securities or currencies;

o insurance companies;

o taxpayers that have elected mark-to-market accounting;

o tax-exempt organizations;

o financial institutions or "financial services entities";

o taxpayers who hold Shares as part of a straddle, "hedge" or
"conversion transaction" with other investments; and

o taxpayers whose functional currency is not the U.S. dollar.

The discussion does not address any special rules that may apply if the
Holder receives principal in installment payments of if a Note is called before
the maturity date. This discussion does not address any aspect of United States
federal gift or estate tax, or state, local or non-United States tax laws.
Additionally, the discussion does not consider the tax treatment of partnerships
or persons who hold Shares through a partnership or other pass-through entity.
Holders are urged to consult their own tax advisors regarding the U.S. federal,
state, local and other tax considerations of the acquisition, ownership and
disposition of the Notes.

Except as otherwise indicated below, this discussion is generally
limited to the tax consequences to beneficial owners of the Notes that are
initial holders of the Notes that hold the Notes as capital assets (within the
meaning of Section 121 of the Code) and that purchased the Notes at the "issue
price." For this purpose, the "issue price" of a Note is the first price at
which a substantial amount of the Notes were sold to the public for money
(excluding sales to bond houses, brokers or similar persons or organizations
acting in the capacity of underwriters, placement agents or wholesalers).

Stated Interest on Notes

Stated interest on a Note will be taxable to a U.S. Holder as ordinary
income either at the time it accrues or is received in accordance with the U.S.
Holder's method of accounting. Stated interest paid on a Note will be includible
in income by a U.S. Holder in an amount equal to the U.S. dollar value of the
interest, regardless of whether a payment is in fact converted to dollars at
that time. The U.S. dollar value of interest accrued or received, adjusted for
any exchange gain or loss with respect to the amount accrued, generally will be
a U.S. Holder's tax basis in the Mexican pesos received as interest on a Note.

Additional Amounts

A U.S. Holder will treat the gross amount of any Additional Amounts
(the amount of interest provided in the Notes to prevent any net reduction for
withholding taxes determined using the withholding tax rate applicable to the
U.S. Holder) as ordinary interest income at the time such amount is received or
accrued in accordance with such U.S. Holder's method of accounting for tax
purposes. Consequently, the amount a U.S.

Holder will include in gross income with respect to a Note could exceed the
amount of cash received by the U.S. Holder.

Withholding Taxes

Any foreign withholding taxes paid at the rate applicable to a U.S.
Holder will be treated as foreign taxes eligible for credit against such
Holder's U.S. federal income tax liability, at the election of the U.S. Holder,
subject to generally applicable limitations and conditions (including that the
U.S. Holder claim any applicable treaty benefits). Alternatively, such taxes are
eligible for deduction in computing such U.S. Holder's taxable income. Stated
interest and Additional Amounts will constitute foreign source income for
foreign tax credit purposes. Such income will generally constitute "high
withholding tax interest" for U.S. foreign tax credit purposes, unless the rate
applicable to the U.S. Holder is below 5%, in which case such income generally
will constitute "passive income". The calculation of foreign tax credits
involves the application of complex rules that depend on a U.S. Holder's
particular circumstances. Accordingly, investors are urged to consult their tax
advisors regarding their ability to claim a credit for any foreign withholding
taxes paid with respect to the Notes.

Sale, Exchange or Redemption

Unless a non-recognition provision applies, the sale, exchange,
redemption (including pursuant to an offer by us) or other disposition of a Note
will be a taxable event for U.S. federal income tax purposes. In that event, a
U.S. Holder will recognize gain or loss equal to the difference between (i) the
amount of cash plus the fair market value of any property received upon that
sale, exchange, redemption or other taxable disposition (other than amounts
attributable to accrued interest) and (ii) the U.S. Holder's adjusted tax basis
in the Note. A U.S. Holder's tax basis in a Note generally will equal the cost
of the Note to the U.S. Holder, which is the U.S. dollar value of the Mexican
peso purchase price translated at the spot rate for the date of purchase (or, in
some cases, the settlement date). The conversion of dollars into Mexican pesos
and the immediate use of those Mexican pesos to purchase a Note generally will
not result in a taxable gain or loss for a U.S. Holder. A U.S. Holder will have
a tax basis in any Mexican pesos received on the sale, exchange or retirement of
a Note equal to the U.S. dollar value of the Mexican pesos on the date of
receipt.

Gain or loss recognized by a U.S. Holder of a Note should be capital
gain or loss and will be long-term capital gain or loss if the Note has been
held by the U.S. Holder for more than one year at the time of sale, exchange,
redemption or other disposition. Upon the sale, exchange, retirement or
repayment of a Note, a U.S. Holder will recognize exchange gain or loss to the
extent that the rate of exchange on the date of retirement or disposition
differs from the rate of exchange on the date the Note was acquired, or deemed
acquired. Exchange gain or loss is recognized, however, only to the extent of
total gain or loss on the transaction. For purposes of determining the total
gain or loss on the transaction, a U.S. Holder's tax basis in the Note will
generally equal the U.S. dollar cost of the Note. Exchange gain or loss
recognized by a U.S. Holder will generally be treated as ordinary income or
loss.

Any gain realized by a U.S. Holder on the sale, exchange or redemption
of a Note generally will be treated as U.S. source income for U.S. foreign tax
credit purposes. Any loss realized upon such a sale, exchange, redemption or
other disposition of a Note generally will be allocated against U.S. source
income for U.S. foreign tax credit purposes.

Non-U.S. Holders

Subject to the discussion below under "-Information Reporting and
Back-up Withholding," a Non-U.S. Holder of a Note generally will not be subject
to U.S. federal income or withholding tax on payments, including stated interest
and Additional Amounts in respect of a Note, and gain realized on the sale,
exchange, redemption or other disposition of a Note unless (i) that income is
effectively connected with the conduct by the Non-U.S. Holder of a trade or
business in the United States (or in the case of a treaty resident, attributable
to a permanent establishment (or a fixed base) in the United States) or (ii) in
the case of a gain, the Non-U.S. Holder of a Note is a nonresident alien
individual who holds a Note as a capital asset and is present in the United
States for 183 days or more in the taxable year of the sale, exchange,
redemption or other disposition and certain other conditions are satisfied.

Information Reporting and Back-up Withholding

Payments of interest and principal on a Note and the proceeds from the
sale of a Note paid to a U.S. Holder (other than a corporation or other exempt
recipient) will be reported to the U.S. Internal Revenue Service. A U.S. Holder
may be subject to U.S. back-up withholding at the rate of up to 31% with respect
to interest paid on a Note unless such U.S. Holder (i) is a corporation or comes
within certain other exempt categories and, when required, demonstrates this
fact or (ii) provides a correct taxpayer identification number, certifies as to
no loss of exemption from back-up withholding and otherwise complies with the
applicable requirements of the back-up withholding rules.

Interest on a Note paid outside the United States to a Non-U.S. holder
through a U.S. person or a U.S. related person (as defined below) is subject to
information reporting and possible back-up withholding unless certain
documentation and other requirements are satisfied. The payment of principal on
a Note and the process from the disposition of a Note by a Non-U.S. Holder to or
through the U.S. office of any broker, U.S. or foreign, or the non-U.S. office
of a U.S. person or a U.S. related person, will be subject to information
reporting and possible back-up withholding unless (i) the owner certifies its
non-U.S. status under penalties of perjury or otherwise establishes an exemption
and (ii)

the broker does not have actual knowledge that the holder is a U.S. Holder or
that the conditions of any other exemption are not, in fact, satisfied. A "U.S.
related person" is a person with certain enumerated U.S. relationships.

Any amount withheld under the back-up withholding rules will be
creditable against the Holder's U.S. federal income tax liability, subject to
satisfaction of certain procedural requirements. Holders of Notes should consult
their tax advisors to determine whether they qualify for exemption from U.S.
withholding and the procedure for obtaining an exemption, if applicable.

Dividends and Paying Agent

All three series of shares are entitled to the same dividend and
distribution rights, and therefore any dividends must be declared and paid in
equal amounts with respect to all outstanding shares. We did not pay cash
dividends in 1996, paid a stock dividend in 1996, paid both cash and stock
dividends in 1997, made two cash dividend payments in 1998, did not pay
dividends in 1999 and paid cash dividends in 2000. The table below presents the
cash and stock dividends paid on each share, as well as the number of shares
entitled to these dividends during the periods indicated. Dividend per share
amounts have not been adjusted for inflation, and reflect share amounts
outstanding immediately prior to the distribution of the dividend. Peso amounts
have been translated into Dollars at the Noon Buying Rate on the first date that
the dividend was available for payment:

Number
of shares
entitled Dividends Dividends
Period to dividends per share(1) per share
- ------- --------------- ------------ ---------

1996(2) 273,091,084 Ps. 0.00 $ 0.00
1997(3) 301,244,072 0.55 0.07
1998(4) 304,256,513 1.20 0.14
1998(5) 1,492,814,425 0.25 0.02
1999 1,492,363,425 0.00 0.00
2000 1,444,774,155 0.27 0.00

(1) Dividends reflected in the table are in nominal Pesos. If the amounts for
1997 and 1998 had been restated in constant Pesos of December 31, 2000, the
dividends per share would have been Ps.0.87 for 1997 and Ps.0.63 for 1998
(after giving retroactive effect to the 5 for 1 stock split).

(2) In the second quarter of 1996, we declared a stock dividend to holders of
Series A, B and C shares. The stock dividend was issued on May 13, 1996 to
stockholders of record on May 9, 1996 and consisted of one Series C share
for each 48 previously outstanding Series A, B or C shares. After giving
effect to the stock dividend, we had 278,780,482 outstanding shares.

(3) In the second quarter of 1997, we declared a stock dividend to holders of
Series A, B and C shares. The dividend was issued on May 9, 1997 to
stockholders of record on April 25, 1997 and consisted of one Series C
share for each 100 previously outstanding Series A, B or C shares. After
giving effect to the stock dividend, we had 304,256,513 outstanding shares.

(4) Paid in May 1998.

(5) Paid in December 1998, after the 5 for 1 split of all our shares was
effected on September 8, 1998.

In accordance with Mexican Law and our bylaws, at least 5% of our net
income, as reflected in the financial statements approved by our stockholders,
must be allocated to a legal reserve until this reserve equals 20% of our
paid-in capital. We increased this reserve in April 1998 to reflect the increase
in paid-in-capital caused by the stock dividend declared in 1997. After this
allocation, the remainder of our net profits is available for distributions as
dividends subject to stockholders' approval and the terms of any applicable law
or indebtedness that restricts dividends.

The declaration, amount and payment of dividends are determined by
majority vote of the holders of the Series A shares and the Series B shares,
generally, but not necessarily, on the recommendation of our board of directors,
and will depend on our results of operations, financial condition, cash
requirements, future prospects and other factors deemed relevant by the board of
directors and the holders of the Series A and the Series B shares. As a general
policy, approximately 35% of the legally available net income of Desc has been
paid annually to our stockholders. However in 1996 and 1999, we were not
permitted to pay cash dividends under the terms of indebtedness that has since
been repaid.

The indenture that we executed in October 1997 with respect to Dine's 8
3/4% Guaranteed Notes due 2007 limits our ability to pay dividends or make other
distributions. Under the Dine indenture, we are not permitted to pay dividends
or make other distributions if at the time of the dividend payment or
distribution, a Default or an Event of Default under the indenture has occurred
and is continuing, or if the payment or distribution exceeds, in the aggregate
since July 1, 1997, the sum of:

(1) the Consolidated Adjusted Majority Net Income of Desc,
which may be positive or negative, earned during the
period beginning on January 1, 1997 and ending on the last
day of the most recent fiscal quarter of Desc ended on or
prior to the date of the proposed dividend payment or
distribution, multiplied, if positive, by 50% or, if
negative, by 100%; plus

(2) if the amount determined as specified in clause (1) is
positive and if the Dine notes are Investment Grade at the
time the dividend payment or distribution is proposed to
be made, an additional 25% of the Consolidated Adjusted
Majority Net Income of Desc, if positive, for each full
fiscal quarter, if any, that falls entirely within the
period specified in clause (1) above and in which the Dine
notes are Investment Grade during the entire quarter; plus

(3) the aggregate net cash proceeds received by Desc on or
after January 1, 1997 as capital contributions or from the
issuance or sale of (x) shares of non-redeemable capital
stock of Desc, including upon the exercise of options,
warrants or rights, or (y) warrants, options or rights to
purchase shares of non-redeemable capital stock of Desc;
plus

(4) the aggregate net cash proceeds received by Desc on or
after January 1, 1997 from the issuance or sale of debt
securities or redeemable capital stock of Desc that have
been converted into or exchanged for non-redeemable
capital stock of Desc, to the extent those securities were
originally sold for cash, together with the aggregate net
cash proceeds, if any, received by Desc at the time of the
conversion or exchange; plus

(5) $50 million.

Any amount described in the clauses above and denominated in Pesos will
be adjusted to reflect constant Pesos as of the date on which the relevant
dividend payment or distribution is proposed to be made. We may make dividend
payments or distributions of up to $30 million in the aggregate per fiscal year
without regard to the restrictions described in this paragraph so long as there
is no Default or Event of Default under the Dine indenture that is continuing.

The Dine indenture also requires that we maintain a specified
consolidated fixed charge coverage ratio, which may indirectly have the effect
of restricting dividends or other distributions. The Dine indenture terminates
in October 2007, upon payment and cancellation of the Dine notes.

The $150 million credit agreement that we executed with a syndicate of
lenders in November 2000 also limits our ability to pay dividends or make other
distributions. Under the credit agreement, we are permitted to pay dividends or
make other distributions if the aggregate amount of dividends, including capital
reductions, and other distributions received by Desc (1) during the first annual
period of the credit agreement exceeds $40 million, or (2) during any annual
period thereafter until the maturity date of the credit agreement exceeds $70
million, so long as no event of default under the credit agreement has occurred
and is continuing, Desc is in pro forma compliance with the interest rate
coverage ratio, leverage capitalization ratio and the leverage EBITDA ratio
requirements established by the credit agreement, and the dividend payments
during each such annual period, if any, do not exceed the amount of dividends,
including capital reductions, and other distributions received by Desc. The
credit agreement also requires that we maintain a fixed interest coverage ratio,
which may indirectly have the effect of restricting dividends or other
distributions. The principal amounts under the credit agreement are payable as
follows: $37.5 million in November 2002, $37.5 million in May 2003 and $75
million in November 2003, with interest to be repaid at the end of the relevant
interest period.

We cannot assure you that we will be able to pay dividends in the
future or that any future dividends will be comparable to historical dividends.

Owners of ADSs are entitled to receive any dividends payable in respect
of the Series C shares underlying the ADSs. The Depositary generally will
convert cash dividends received by it in respect of Series C shares evidenced by
ADSs from Pesos into Dollars and, after deduction or upon payment of expenses of
the Depositary, pays these dividends to the holders of ADSs in Dollars.

Documents on Display

We file reports, including annual reports on Form F-20, and other
information with the SEC pursuant to the rules and regulations of the SEC that
apply to foreign private issuers. You may read and copy any materials filed with
the SEC at its Public Reference Room located at 450 Fifth Street, N.W.,
Washington, D.C. 20459. You may obtain information on the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330. You may also read
and copy any materials we file with the SEC at the regional offices of the SEC
located Seven World Trade Center, 13th Floor, New York, New York 10048, and at
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
As a foreign private issuer, we are not required to make filings with the SEC by
electronic means, although we may do so. Any filings we make electronically will
be available to the public over the internet at the SEC's website at
http://www.sec.gov.

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our business activities require that we hold or issue financial
instruments, principally debt obligations, that expose us to market risk caused
by movements in currency exchange rates and interest rates. To hedge these
risks, we sometimes utilize derivative instruments. All financial instruments
held by us are for purposes other than trading.

Interest Rate Risk.

Our exposure to market risk associated with changes in interest rates
relates primarily to debt obligations. Our policy is to manage our interest rate
risk through a combination of fixed and floating rate debt issues. With respect
to floating rate debt, we sometimes use interest rate swap contracts to reduce
our interest rate exposure. Most of our debt is denominated in Dollars.

The table below provides information as of December 31, 2000 about our
financial instruments that are sensitive to changes in interest rates. For these
debt obligations, the table presents principal cash flows and related weighted
average interest rates by expected maturity dates. The fair value of long-term
debt is based on the quoted market prices for the same or similar issues, as
well as on the present value of future cash flows. The rates used to discount
the future cash flows of debt instruments are the London inter-bank offered rate
or "LIBOR" and the Mexican CETES rates that match the remaining life of the
instrument.

Expected Maturity Date
2000 2000 1999 1999
---- ---- ---- ----
2001 2002 2003 2004 2005 Thereafter Total Fair Value Total(5) Fair Value(5)
---- ---- ---- ---- ---- ---------- ----- ---------- ----- ----------
(Pesos in Millions)

Fixed Rate Debt(1)
Dollar-denominated Ps. 19 Ps. 19 Ps. 19 Ps. 19 Ps. 19 Ps. 1,312 Ps. 1,408.9 Ps. 1,530.0 Ps. 6,657 Ps. 6,694
Weighted average interest rate 9.88% 9.88% 9.88% 9.88% 9.88% 8.76%
Peso-denominated Ps. 7.9 Ps. 1,980 Ps. 1,987.8 Ps. 1,183.1
Weighted average interest rate 7.44% 8.62%
Floating Rate Debt(2)
Dollar - denominated Ps. 3,320 Ps.1,699 Ps.1,836 Ps.771 Ps.749 Ps. 8,373.2 Ps. 8,697.7 Ps. 2,577 Ps. 2,642
Weighted average interest
rate(3) 8.15% 8.61% 8.14% 8.49% 10.32%
Peso-denominated Ps. 392 Ps. 8 Ps. 42 Ps. 441.6 Ps. 438.4 Ps. 1,031 Ps. 1,034
Weighted average interest
rate(4) 19.23% 21.31% 19.13%
Interest RateDerivatives(6)
Variable to fixed swaps Ps. 155 Ps. 122 Ps. 42 Ps. 319.5 Ps. 300.6 Ps. 695 Ps. (1)
Average pay rate 7.0% 7.1% 7.3%
Average receive rate 6.8% 6.0% 6.3%

(1) Fixed interest rates are weighted averages as contracted by Desc.
(2) Floating interest rates are based on market rates as of December 31,
2000 plus the weighted average spread for Desc and its subsidiaries.
(3) Market rates for Dollar-dominated debt are based on the LIBOR curve.
(4) Market rates for Peso-Denominated debt are based on the CETES and
assume a flat yield curve because there is no long-term yield curve in
Mexican pesos.
(5) For comparison purposes, amounts are based on 1999 figures plus the
2000 inflation factor.
(6) Fair value refers to accrued net interest expenses/income as of
December 31, 2000.

A hypothetical, instantaneous and unfavorable change of 100 basis points in the
average interest rate applicable to floating rate liabilities held at December
31, 2000, would increase the Company's interest expense in 2001 by approximately
Ps. 132.02 Or 1.44%, over a 12-month period of 2001, assuming no additional debt
is incurred during such period.

Foreign Exchange Risk.

Our exposure to market risk associated with changes in foreign currency
exchange rates relates primarily to our debt obligations which are denominated
in Dollars, as shown in the interest risk table above. We currently utilize
forwards and options contracts to hedge against unfavorable movements of the
Peso against the Dollar.

2001 2002 Total Fair Value
---- ---- ----- ----------
(Pesos in millions, except for weighted averages)

Foreign Exchange Derivatives
Net-Forward Contracts Ps. 189.45 Ps. 346.78 Ps. 536.2Ps. (50.43)
(Peso/Dollar)
Weighted Average Fixed Exchange 9.47 9.91
Rate (Peso/Dollar)

- -----------------------------------------

A hypothetical, instantaneous and unfavorable 10% devaluation in the value of
the Peso relative to the Dollar ocurring on December 31, 2000, would have
resulted in an increase in the Company's net consolidated integral cost of
financing expense of approximately Ps. 49.91

Equity Risk

From time to time we buy back our own shares as part of a share
repurchase program. Purchases may be made directly on the Mexican Stock Exchange
or through over-the-counter derivative contracts. As of December 31, 2000, our
equity derivatives position was as follows:

2001 Total Fair Value.
---- ----- -----------
(Pesos in millions, except for weighted averages)

Equity Derivatives
Short put option contracts on ADRs 71,090(1) 71,090 Ps. 18.54
Weighted average strike price $ 33.41(2)

- -------------------------------------------
(1) Number of units.
(2) Strike price in Usd

Item 12. Description of Securities Other Than Equity Securities

Not Applicable.

PART II

Item 13. Defaults, Dividend Arrearages and Delinquencies

Not Applicable.

Item 14. Material Modifications to the Rights of Security Holders and
Use of Proceeds

Not Applicable.

Item 15. [RESERVED]

Item 16. [RESERVED]

PART III

Item 17. Financial Statements

Not Applicable.

Item 18. Financial Statements

Page
----

Report of Arthur Andersen, independent public accountants............. F-1

Consolidated balance sheets as of December 31, 1999 and 2000.......... F-2

Consolidated statements of income for the years ended December 31,
1998, 1999 and 2000................................................. F-3

Consolidated statements of stockholders' equity for the years
ended December 31, 1998, 1999 and 2000.............................. F-4

Consolidated statements of changes in financial position for the
years ended December 31, 1998, 1999 and 2000........................ F-5

Notes to consolidated financial statements............................ F-6-F-28

Reports of independent public accountants other than
Arthur Andersen.....................................................F-29-F-34

Item 19. Exhibits

1.1. English translation of Registrant's bylaws, as amended on
April 26, 2001.

2.1. Indenture, dated as of October 17, 1997, among Dine, S.A.
de C.V., as Issuer, Desc, S.A. de C.V., as Guarantor, and Bankers Trust Company,
as Trustee, relating to Dine's 8 3/4% Guaranteed Notes due 2007 (incorporated by
reference to Exhibit 4.1 to Registration Statement No. 333-9150 of Desc, S.A. de
C.V.).

The Registrant agrees to furnish to the Securities and
Exchange Commission, upon request, copies of any instruments that define the
rights of holders of long-term debt of the registrant that are not filed as
exhibits to this annual report.

SIGNATURE

The registrant hereby certifies that it meets all of the requirements
for filing on Form 20-F and that it has duly caused and authorized the
undersigned to sign this annual report on its behalf.

Desc, S.A. de C.V.

By: /s/ Arturo D'Acosta Ruiz
----------------------------
Name: Arturo D'Acosta Ruiz
Title: Chief Financial Officer

Dated: June 29, 2001

Translation of a report originally issued in Spanish

To the Shareholders of
Desc, S.A. de C.V.:

We have audited the accompanying consolidated balance sheets of DESC,
S.A. DE C.V. AND SUBSIDIARIES (all incorporated in Mexico and collectively
referred to as the "Company") as of December 31, 1999 and 2000, and the related
consolidated statements of income, shareholders' equity and changes in financial
position for each of the three years in the period ended December 31, 2000.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

The financial statements of Girsa, S.A. de C.V. and subsidiaries,
Agroken, S.A. de C.V., Aquanova, S.A. de C.V., Grupo Corfuerte, S.A. de C.V. and
Authentic Acquisition Corporation, Inc., were audited by other auditors whose
reports thereon have been furnished to us and our opinion, insofar as it relates
to the amounts included for those entities is based solely on the reports of the
other auditors. Those financial statements reflect total assets of 43% and 42%
in 1999 and 2000, respectively, and total revenues of 55%, 53% and 49% in 1998,
1999 and 2000, respectively, of the related consolidated totals.

We conducted our audits in accordance with generally accepted auditing
standards in Mexico and in the United States of America. Those standards require
that the audit be planned and performed to obtain reasonable assurance about
whether the financial statements are free of material misstatement and that they
are prepared in conformity with accounting principles generally accepted in
Mexico. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the reports of other auditors provide a
reasonable basis for our opinion.

As mentioned in Note 4 to the accompanying financial statements,
beginning in January 2000, the Company adopted the provisions of Bulletin D-4,
"Accounting for Income and Asset Taxes and Employee Profit Sharing". The effect
from this adoption was to recognize an initial long-term liability for deferred
income taxes in the amount of Ps. 1,644,919 (in thousands of Mexican Pesos)
affecting shareholder's equity as "Cumulative effect from deferred income taxes"
and Ps. 682,285 (in thousands of Mexican pesos) of the minority interest. The
provision for income taxes for the year increased by Ps. 99,658 (in thousands of
Mexican pesos).

As a result of the adoption of Bulletin D-4 mentioned above, the
Company changed its method for recording the effect from tax consolidation.
Until 1999, it was recorded in the year in which the corresponding annual
consolidated tax return was filed. Beginning in 2000, this benefit is recorded
in the results of the year in which the benefit is generated. The effect from
this change increased the benefit from tax consolidation by Ps. 124,795 (in
thousands of Mexican pesos), which is recorded as "Extraordinary item".

F-1

Accounting practices used by the Company in preparing the accompanying
consolidated financial statements conform with generally accepted accounting
principles in Mexico but do not conform with generally accepted accounting
principles in the United States of America. Notes 19 and 20 describe the main
differences and present a reconciliation of the net consolidated majority income
and the majority shareholders' equity to the accounting principles generally
accepted in the United States of America in conformity with the guidelines of
the Securities and Exchange Commission of the United States of America. These
guidelines allow the omission of the requirement to quantify, in the
reconciliation, the differences attributable to the adjustments recorded locally
to comprehensively recognize the effects of inflation.

In our opinion, based on our audits and the reports of other auditors,
the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Desc, S.A. de C.V. and Subsidiaries
as of December 31, 1999 and 2000, and the results of their operations, the
changes in their shareholders' equity and the changes in their financial
position for each of the three years in the period ended December 31, 2000, in
conformity with accounting principles generally accepted in Mexico.

s/ Arthur Andersen

March 27, 2001

F-2

DESC, S.A. DE C.V. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1999 AND 2000

EXPRESSED IN THOUSANDS OF CONSTANT MEXICAN PESOS (Ps.) AND

THOUSANDS OF U.S. DOLLARS ($)

1999 2000 2000
---------------- ---------------- ----------------

ASSETS
CURRENT:
Cash and cash equivalents Ps. 1,828,434 Ps. 1,540,002 $ 159,585
Notes and accounts receivable, net 4,783,122 4,467,403 462,943
Inventories 3,349,977 3,672,989 380,621
Prepaid expenses 84,699 96,470 9,997
Real estate assets available for sale -- 1,207,235 125,102
----------------- ----------------- -----------------
Total current assets.......................................... 10,046,232 10,984,099 1,138,248

LAND HELD FOR DEVELOPMENT AND
REAL ESTATE PROJECTS............................................ 3,765,789 3,737,802 387,337

PROPERTY, PLANT AND EQUIPMENT..................................... 15,537,372 14,147,921 1,466,106

GOODWILL.......................................................... 1,631,823 1,460,004 151,296

OTHER ASSETS...................................................... 1,329,750 1,462,108 151,514

EMPLOYEE SEVERANCE BENEFIT INTANGIBLE ASSET....................... -- 320,216 33,183
----------------- ----------------- -----------------
Total assets................................................ Ps. 32,310,966 Ps. 32,112,150 $ 3,327,684
================ ================ ================

LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT:
Bank loans and current portion of long-term debt Ps. 4,082,850 Ps. 3,738,874 $ 387,448
Notes and accounts payable to suppliers 2,064,647 2,162,334 224,076
Other payables and accrued liabilities 1,183,425 1,304,950 135,228
Income taxes and employee profit sharing 308,913 184,491 19,118
----------------- ----------------- -----------------
Total current liabilities................................. 7,639,835 7,390,649 765,870

LONG-TERM DEBT.................................................... 7,024,513 8,472,697 878,000

DEFERRED INCOME TAXES............................................. -- 2,072,901 214,808

EMPLOYEE SEVERANCE BENEFITS....................................... -- 320,216 33,183

OTHER LONG-TERM LIABILITIES....................................... 135,321 114,412 11,856
---------------- ---------------- ----------------
Total liabilities........................................... 14,799,669 18,370,875 1,903,717

SHAREHOLDERS' EQUITY:
Capital stock 10,062,431 10,060,941 1,042,584
Paid-in surplus 1,169,800 1,169,800 121,223
Retained earnings 20,424,907 18,859,571 1,954,361
Reserve for repurchase of shares 175,460 907,079 93,998
Cumulative effect of deferred income taxes - (1,644,919) (170,458)
Cumulative effect of restatement (19,294,885) (20,340,715) (2,107,846)
---------------- ---------------- ----------------
12,537,713 9,011,757 933,862
Minority interest 4,973,584 4,729,518 490,105
---------------- ---------------- ----------------
Total shareholders' equity.................................. 17,511,297 13,741,275 1,423,967
---------------- ---------------- ----------------
Total liabilities and shareholders' equity.................. Ps. 32,310,966 Ps. 32,112,150 $ 3,327,684
================ ================ ================

The accompanying notes are an integral part of these balance sheets.

F-3

DESC, S.A. DE C.V. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1999 AND 2000

EXPRESSED IN THOUSANDS OF CONSTANT MEXICAN PESOS (Ps.) AND

THOUSANDS OF U.S. DOLLARS ($)

1998 1999 2000 2000
-------------- -------------- -------------- -------------

NET SALES........................................... Ps. 26,176,034 Ps. 25,329,850 Ps.23,439,306 $ 2,428,944

COST OF SALES....................................... 18,859,146 18,255,984 17,444,972 1,807,769
-------------- -------------- -------------- -------------
Gross profit................................... 7,316,888 7,073,866 5,994,334 621,175

OPERATING EXPENSES:
Administrative.................................... 1,805,706 1,947,712 2,167,677 224,631
Selling........................................... 1,735,474 1,791,020 1,563,342 162,004
-------------- -------------- -------------- -------------

3,541,180 3,738,732 3,731,019 386,635
-------------- -------------- -------------- -------------
Operating income............................... 3,775,708 3,335,134 2,263,315 234,540

COMPREHENSIVE FINANCIAL RESULT:
Interest income................................... 374,588 342,194 141,696 14,684
Interest expense.................................. (988,555) (1,247,668) (1,150,094) (119,181)
UDIS variation.................................... -- (16,884) (108,022) (11,194)
Exchange gain (loss), net......................... (1,896,046) 393,227 (310,215) (32,147)
Gain on monetary position......................... 1,067,688 975,659 736,678 76,340
--------------- --------------- --------------- --------------
(1,442,325) 446,528 (689,957) (71,498)
--------------- --------------- --------------- --------------
EQUITY IN ASSOCIATED COMPANIES AND
UNCONSOLIDATED SUBSIDIARIES....................... (132,380) 46,483 (10,302) (1,067)

IMPAIRMENT OF FIXED ASSETS.......................... (37,739) (220,736) (152,026) (15,753)

OTHER INCOME (EXPENSES):
Reorganization of food sector..................... -- -- (245,080) (25,397)
Depreciation of idle plant........................ (68,558) (78,316) (57,249) (5,932)
Nonrecurring freight and shipments................ -- -- (47,364) (4,908)
Amortization of goodwill.......................... (50,468) (37,074) (32,902) (3,410)
Gain on sale of shares............................ -- -- 54,588 5,657
Indemnity payments................................ (33,058) (75,352) (65,546) (6,792)
Income from the technology fund................... 54,061 62,610 35,076 3,635
Contingencies..................................... (7,090) (36,597) -- --
Other, net........................................ 7,458 (76,513) (69,625) (7,216)
-------------- -------------- -------------- -------------
(97,655) (241,242) (428,102) (44,363)
Income before provisions, extraordinary
item and profit on the sale of shares..... 2,065,609 3,366,167 982,928 101,859

PROVISIONS FOR:
Current income taxes.............................. 449,212 778,397 454,241 47,072
Deferred income taxes............................. -- -- 99,658 10,328
Employee profit sharing........................... 153,260 150,840 124,090 12,858
Asset taxes....................................... 86,335 68,132 -- --
Tax consolidation benefit......................... (156,804) (107,526) (123,973) (12,847)
-------------- -------------- -------------- -------------
532,003 889,843 554,016 57,411

Income before extraordinary item and profit
on the sale of subsidiaries............... 1,533,606 2,476,324 428,912 44,448

EXTRAORDINARY ITEM.................................. -- -- 191,465 19,840
-------------- -------------- -------------- -------------
1,533,606 2,476,324 620,377 64,288

PROFIT ON THE SALE OF SUBSIDIARIES.................. 119,517 153,746 -- --
-------------- -------------- -------------- -------------
Net consolidated income for the year........ Ps. 1,653,123 Ps. 2,630,070 Ps. 620,377 $ 64,288
============== ============== ============= ==============

ALLOCATION OF NET CONSOLIDATED INCOME:
Majority interest................................. Ps. 1,131,806 Ps. 1,935,073 Ps. 274,895 $ 28,486
Minority interest................................. 521,317 694,997 345,482 35,802
-------------- -------------- -------------- -------------
Ps. 1,653,123 Ps. 2,630,070 Ps. 620,377 $ 64,288
============== ============== ============= ==============
Income per share before extraordinary item
and profit on the sale of subsidiaries.... Ps. 1.01 Ps. 1.66 Ps. 0.30 $ 0.03
-------------- -------------- -------------- -------------
Extraordinary item per share................ Ps. -- Ps. -- Ps. 0.13 $ 0.01
-------------- -------------- -------------- -------------
Profit on the sale of shares per share...... Ps. 0.08 Ps. 0.10 Ps. -- $ --
-------------- -------------- -------------- -------------
Net consolidated income per share........... Ps. 1.09 Ps. 1.76 Ps. 0.43 $ 0.04
-------------- -------------- -------------- -------------
Majority net income per share............... Ps. 0.75 Ps. 1.30 Ps. 0.19 $ 0.02
============== ============== ============== =============
Weighted average shares outstanding (000's). 1,506,981 1,489,733 1,418,126 1,418,126
============== ============== ============== =============

The accompanying notes are an integral part of these statements.

F-4

DESC, S.A. DE C.V. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1999 AND 2000

EXPRESSED IN THOUSANDS OF CONSTANT MEXICAN PESOS (Ps.) AND

THOUSANDS OF U.S. DOLLARS ($)

Capital Stock
------------------------------
Number of Paid-in Retained
Shares Historical Restatement Surplus Earnings
------------- ------------ -------------- ------------- --------------

BALANCES AS OF DECEMBER 31, 1997 1,515,492,565 Ps. 19,701 Ps. 10,045,206 Ps. 1,177,498 Ps. 18,599,534

Increase in reserve for repurchase
of shares................................ -- -- -- -- (200,000)
Repurchase of shares..................... (23,129,140) (300) (1,980) (7,698) (76,319)
Dividends paid in cash................... -- -- -- -- (953,207)
Net variation in minority interest -- -- -- -- --
------------- ------------ -------------- ------------- --------------
Balances before comprehensive income 1,492,363,425 19,401 10,043,226 1,169,800 17,370,008
Comprehensive income-
Net consolidated income for the
year.................................. -- -- -- -- 1,131,806
Result from holding nonmonetary -- --
assets................................ -- -- -- -- --
------------- ------------ -------------- ------------- --------------
BALANCES AS OF DECEMBER 31, 1998............. 1,492,363,425 19,401 10,043,226 1,169,800 18,501,814

Repurchase of shares..................... (13,629,000) (177) (19) -- (11,980)
------------- ------------ -------------- ------------- --------------
Balances before comprehensive income 1,478,734,425 19,224 10,043,207 1,169,800 18,489,834
Comprehensive income-
Net consolidated income for the
year.................................. -- -- -- -- 1,935,073
Result from holding nonmonetary
assets................................ -- -- -- -- --
------------- ------------ -------------- ------------- --------------
BALANCES AS OF DECEMBER 31, 1999............. 1,478,734,425 19,224 10,043,207 1,169,800 20,424,907
Cumulative effect of deferred
income taxes............................. -- -- -- -- --
------------- ------------ -------------- ------------- --------------
BALANCES AS OF JANUARY 1, 2000............... 1,478,734,425 19,224 10,043,207 1,169,800 20,424,907
Increase in reserve for repurchase
of shares................................ -- -- -- -- (1,400,000)
Repurchase of shares..................... (109,736,155) (1,427) (63) -- (30,383)
Dividends paid in cash................... -- -- -- -- (409,848)
------------- ------------ -------------- ------------- --------------
Balances before comprehensive loss 1,368,998,270 17,797 10,043,144 1,169,800 18,584,676
Comprehensive loss-
Net consolidated income for the
year.................................. -- -- -- -- 274,895
Result from holding nonmonetary
assets................................ -- -- -- -- --
------------- ------------ -------------- ------------- --------------
BALANCES AS OF DECEMBER 31, 2000............. 1,368,998,270 Ps. 17,797 Ps. 10,043,144 Ps. 1,169,800 Ps. 18,859,571
============= ============ ============== ============= ==============

BALANCES AS OF DECEMBER 31, 1999............. 1,478,734,425 $ 1,992 $ 1,040,747 $ 121,223 $ 2,116,572
Cumulative effect of deferred
income taxes............................. -- -- -- -- --
------------- ------------ -------------- ------------- --------------
BALANCES AS OF JANUARY 1, 2000............... 1,478,734,425 1,992 1,040,747 121,223 2,116,572
Increase in reserve for repurchase
of shares................................ -- -- -- -- (145,078)
Repurchase of shares..................... (109,736,155) (148) (7) -- (3,148)
Dividends paid in cash................... -- -- -- -- (42,471)
------------- ------------ -------------- ------------- --------------
Balances before comprehensive loss 1,368,998,270 1,844 1,040,740 121,223 1,925,875
Comprehensive loss-
Net consolidated income for the
year.................................. -- -- -- -- 28,486
Result from holding nonmonetary
assets................................ -- -- -- -- --
------------- ------------ -------------- ------------- --------------
BALANCES AS OF DECEMBER 31, 2000............. 1,368,998,270 $ 1,844 $ 1,040,740 $ 121,223 $ 1,954,361
============= ============ ============== ============= ==============

Cumulative
Reserve Effect of
for Deferred Cumulative Total
Repurchase Income Effect of Minority Shareholders'
of Shares Taxes Restatement Interest Equity
----------- -------------- -------------- ------------ --------------

BALANCES AS OF DECEMBER 31, 1997 Ps. 320,372 Ps. -- Ps.(17,075,283) Ps.2,960,339 Ps. 16,047,367

Increase in reserve for repurchase
of shares......................... 200,000 -- -- --
Repurchase of shares.............. (234,524) -- -- -- (320,821)
Dividends paid in cash............ -- -- -- (293,990) (1,247,197)
Net variation in minority interest -- -- -- 1,089,472 1,089,472
----------- -------------- -------------- ------------ --------------
Balances before comprehensive income 285,848 -- (17,075,283) 3,755,821 15,568,821
Comprehensive income-
Net consolidated income for the
year........................... -- -- -- 521,317 1,653,123
Result from holding nonmonetary
assets......................... -- -- (159,227) 12,062 (147,165)
----------- -------------- -------------- ------------ --------------
BALANCES AS OF DECEMBER 31, 1998...... 285,848 -- (17,234,510) 4,289,200 17,074,779

Repurchase of shares.............. (110,388) -- -- -- (122,564)
----------- -------------- -------------- ------------ --------------
Balances before comprehensive income 175,460 -- (17,234,510) 4,289,200 16,952,215
Comprehensive income-
Net consolidated income for the
year........................... -- -- -- 694,997 2,630,070
Result from holding nonmonetary
assets......................... -- -- (2,060,375) (10,613) (2,070,988)
----------- -------------- -------------- ------------ --------------
BALANCES AS OF DECEMBER 31, 1999...... 175,460 -- (19,294,885) 4,973,584 17,511,297
Cumulative effect of deferred
income taxes...................... -- (1,644,919) -- (682,285) (2,327,204)
----------- -------------- -------------- ------------ --------------
BALANCES AS OF JANUARY 1, 2000........ 175,460 (1,644,919) (19,294,885) 4,291,299 15,184,093
Increase in reserve for repurchase
of shares......................... 1,400,000 -- -- --
Repurchase of shares.............. (668,381) -- -- (700,254)
Dividends paid in cash............ -- -- -- (44,662) (454,510)
----------- -------------- -------------- ------------ --------------
Balances before comprehensive loss 907,079 (1,644,919) (19,294,885) 4,246,637 14,029,329
Comprehensive loss-
Net consolidated income for the
year........................... -- -- -- 345,482 620,377
Result from holding nonmonetary
assets......................... -- -- (1,045,830) 137,399 (908,431)
----------- -------------- --------------- -------------- --------------
BALANCES AS OF DECEMBER 31, 2000...... Ps. 907,079 Ps. (1,644,919) Ps.(20,340,715) Ps. 4,729,518 Ps. 13,741,275
=========== ============== =============== ============== ==============

BALANCES AS OF DECEMBER 31, 1999...... $ 18,182 $ -- $ (1,999,470) $ 515,396 $ 1,814,642
Cumulative effect of deferred
income taxes...................... -- (170,458) -- (70,703) (241,161)
----------- -------------- -------------- -------------- --------------
BALANCES AS OF JANUARY 1, 2000........ 18,182 (170,458) (1,999,470) 444,693 1,573,481
Increase in reserve for repurchase
of shares......................... 145,078 -- -- -- --
Repurchase of shares.............. (69,262) -- -- -- (72,565)
Dividends paid in cash............ -- -- -- (4,628) (47,099)
----------- -------------- -------------- -------------- --------------
Balances before comprehensive loss 93,998 (170,458) (1,999,470) 440,065 1,453,817
Comprehensive loss-
Net consolidated income for the
year........................... -- -- -- 35,802 64,288
Result from holding nonmonetary
assets......................... -- -- (108,376) 14,238 (94,138)
----------- -------------- -------------- -------------- --------------
BALANCES AS OF DECEMBER 31, 2000...... $ 93,998 $ (170,458) $ (2,107,846) $ 490,105 $ 1,423,967
=========== ============== ============== ============== ==============

The accompanying notes are an integral part of these statements.

F-5

DESC, S.A. DE C.V. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1999 AND 2000

EXPRESSED IN THOUSANDS OF CONSTANT MEXICAN PESOS (Ps.) AND

THOUSANDS OF U.S. DOLLARS ($)

1998 1999 2000 2000
------------- ------------ ----------- ---------

OPERATIONS:
Net consolidated income for the year Ps. 1,653,123 Ps 2,630,070 Ps. 620,377 $ 64,288
Add (deduct)-Items which do not require (generate)
resources-
Depreciation and amortization 1,140,587 1,139,098 1,183,778 122,671
Depreciation of idle plant 68,558 78,316 57,249 5,932
Impairment of fixed assets 37,739 220,736 152,026 15,753
Capitalized comprehensive financial cost (134,896) (68,480) (47,919) (4,966)
Equity in associated companies and
unconsolidated subsidiaries 132,380 (46,483) 10,302 1,068
Amortization of goodwill 50,468 37,074 60,010 6,220
Deferred income taxes -- -- 99,658 10,328
------------- ------------ ----------- ---------
2,947,959 3,990,331 2,135,481 221,294
Changes in operating assets and liabilities-
Notes and accounts receivable (166,565) (328,441) 315,719 32,717
Inventories (64,181) (123,485) (508,896) (52,736)
Prepaid expenses 609 (23,427) (11,770) (1,220)
Real estate assets available for sale (364,923) 364,923 (1,207,235) (125,102)
Notes and accounts payable to suppliers, other
payables and accrued liabilities 43,474 (180,921) 219,212 22,716
Income taxes and employee profit sharing 122,703 112,712 (124,422) (12,894)
------------- ------------ ----------- ---------
(428,883) (178,639) (1,317,392) (136,519)
------------- ------------ ----------- ---------
Net resources generated by operations 2,519,076 3,811,692 818,089 84,775
------------- ------------ ----------- ---------
INVESTMENTS:
Land acquisition (105,176) -- (51,648) (5,352)
Cost of land sold 269,930 224,942 330,627 34,262
Investment in real estate projects (439,776) (396,836) (616,963) (63,934)
Cost of real estate projects sold 157,572 90,816 171,565 17,778
Investment in shares (81,838) (250,369) 67,745 7,020
Sale of shares of Campi -- 1,023,074 -- --
Cash and cash equivalents of Campi -- (64,213) -- --
Purchase of shares of Authentic Specialty Foods ("ASF") (1,807,547) -- -- --
Sale of shares of ASF and Corfuerte 529,948 -- -- --
Cash and cash equivalents of ASF 99,954 -- -- --
Purchase of shares of Nair Industrias (309,625) -- -- --
Cash and cash equivalents of Nair Industrias 32,618 -- -- --
Purchase of shares of Canada de Santa Fe (144,134) -- -- --
Acquisition of property, plant and equipment (1,954,525) (2,823,055) (1,842,228) (190,904)
Net book value of retirements 195,708 106,291 115,083 11,926
Real estate assets available for sale -- -- 1,207,235 125,102
Investment in real estate held for rent (280,888) -- -- --
Deferred income taxes -- -- (9,041) (937)
Other assets 23,360 82,409 (153,128) (15,868)
------------- ------------ ----------- ---------
Net resources applied to investing activities (3,814,419) (2,006,941) (780,753) (80,907)
------------- ------------ ----------- ---------
FINANCING:
Variation in short-term bank loans and current
portion of long-term debt 570,049 (1,123,443) (343,976) (35,645)
Proceeds from long-term debt 2,310,442 2,601,778 2,288,845 237,186
Payments of principal of long-term debt (1,573,716) (1,725,541) (1,418,260) (146,970)
Effect of the variation on long-term debt, in
constant pesos 1,096,814 (910,220) 577,599 59,855
Other long-term liabilities -- 69,145 (20,909) (2,167)
Deferred income taxes -- -- 2,072,901 214,808
Dividends paid (953,207) -- (409,848) (42,471)
Dividends paid to minority shareholders of
subsidiaries (293,990) -- (44,662) (4,628)
Repurchase of shares (320,821) (122,564) (700,254) (72,565)
Cumulative effect of deferred income taxes -- -- (2,327,204) (241,161)
------------- ------------ ----------- ---------
Net resources generated by (applied to) financing
activities 835,571 (1,210,845) (325,768) (33,758)
------------- ------------- ------------ ---------
Net increase (decrease) in cash and cash equivalents (459,772) 317,029 (288,432) (29,890)
Balance at beginning of year 1,694,300 1,234,528 1,828,434 189,475
------------- ------------- ------------ ---------
Balance at end of year Ps. 1,234,528 Ps. 1,828,434 Ps.1,540,002 $ 159,585
============= ============= ============ =========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Income and asset taxes paid Ps. 682,923 Ps. 475,531 Ps. 725,249 $ 75,155
============= ============= ============ =========
Employee profit sharing paid Ps. 93,422 Ps. 98,655 Ps. 128,536 $ 13,320
============= ============= ============ =========
Interest paid Ps. 1,055,340 Ps. 870,019 Ps.1,064,070 $ 110,266
============= ============= ============ =========

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

F-6

DESC, S.A. DE C.V. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 1998, 1999 AND 2000

1) PRINCIPAL ACTIVITIES AND SIGNIFICANT EVENTS:

The Company is the controlling shareholder of a group of companies that
engage mainly in the manufacture and sale of autoparts, chemicals and food. It
is also engaged in the acquisition, sale, development and leasing of real
estate.

SIGNIFICANT EVENTS-

Reorganization of the food sector-

Due to the low profitability generated by the food segment in recent
years, the Company decided to restructure the businesses making up this segment.
As part of this reorganization, the majority of the management of this segment
was changed. As a result of this situation the companies of the trademark
segment (Grupo Corfuerte, S.A. de C.V. and Authentic Acquisition Corporation,
Inc.) were grouped with the consumer products business under the management
structure of GIRSA, S.A. de C.V. The pork breeding and fattening business
(Agroken, S.A. de C.V.) and the shrimp aquaculture business (Aquanova, S.A. de
C.V.) now report directly to the Company's management. A restructuring charge of
Ps.245,080 was charged to results in 2000, which is included in "Other expenses"
in the accompanying consolidated statement of income.

Shareholding restructuring of Velcon, S.A. de C.V.-

On November 29, 2000, there was a shareholding restructuring of Velcon,
S.A. de C.V. (Velcon), a subsidiary of Unik, S.A. de C.V. (UNIK) that is engaged
in the manufacturing and sale of constant speed shafts, whereby Spicer, S.A. de
C.V. (Spicer), another subsidiary, sold all of its shares in Velcon,
representing 36.18% of the capital stock. UNIK acquired 26.22% and GKN
Automotive International GMBH (GKN) acquired 9.96%, resulting in shareholding
interests of 51.05% and 48.95%, respectively.

As a result of this restructuring, UNIK increased its total
shareholding interest in Velcon by 7.71% at a cost of Ps.108,687. In this
transaction, Ps.63,551 goodwill was recognized for these additional shares
related to the participation of Dana Corporation, Inc. (DANA) in Spicer, which
will be amortized over four years, the term over which it is estimated that the
investment will be recovered.

Sale of shares of Grupo Campi, S.A. de C.V.-

On December 21, 1999, the Company sold its shares of Grupo Campi, S.A.
de C.V. (Campi), a subsidiary engaged in the production and sale of poultry, as
well as the production and sale of balanced food for animals, to Industrias
Bachoco, S.A. de C.V. This transaction generated a gain, net of income taxes, of
Ps.153,746.

F-7

DESC, S.A. DE C.V. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 1998, 1999 AND 2000

(Continued)

2) BASIS OF PRESENTATION:

These consolidated financial statements are presented on the basis of
accounting principles generally accepted in Mexico ("Mexican GAAP"), which may
not conform with the accounting principles generally accepted in the United
States of America ("US GAAP") as explained in Note 19. A reconciliation between
Mexican GAAP and US GAAP is presented in Note 20.

The amounts in U.S. dollars shown in the accompanying financial
statements were calculated based on the figures in constant Mexican pesos as of
December 31, 2000, translated at the exchange rate in effect as of such date of
Ps.9.65 per U.S. dollar. The interim monthly statements of income produced by
the Company for internal reporting purposes are presented in nominal Mexican
pesos translated at the average exchange rates of each of the months reported
and, therefore, differ from the accompanying financial statements. Certain
amounts in the consolidated financial statements at December 31, 1998 and 1999
have been reclassified in order to conform them to the presentation of the
consolidated financial statements at December 31, 2000.

3) SUMMARY OF FINANCIAL DATA BY BUSINESS SEGMENT:

The presentation below sets forth certain financial information
regarding Desc's industry segments: autoparts, chemicals, food and real estate.
Intersegment transactions have been eliminated.

Total assets by industry are those assets that are used in the
operations in each industry segment. Corporate assets are principally cash and
long-term investments.

Net Provision
Consoli Capital Depreciation for
Operating dated Total Total Expendi and Interest Interest Income
1998 Net Sales Income Income Assets Liabilities tures Amortization Expenses Income Taxes
- ------------ ---------- ---------- --------- ---------- ---------- --------- --------- --------- ------- ---------

Autoparts Ps. Ps. Ps. Ps. Ps. Ps. Ps. Ps. Ps. Ps.
(UNIK) 10,876,582 1,657,099 830,487 11,342 5,136,18 1,015, 603,960 229,616 77,640 215,088
Chemicals
(GIRSA)..... 8,456,287 1,302,128 340,692 8,361,759 5,301,754 498,449 324,322 253,467 81,142 172,342
Food........ 5,923,063 533,431 272,418 7,150,229 3,575,984 2,407,653 220,692 221,857 60,609 55,727
Real estate
(DINE)...... 895,370 320,325 (1,897) 6,580,134 2,227,156 979,873 29,180 215,542 32,006 2,334
Corporate
(DESC) 24,732 (37,275) 211,423 264,989 383,512 89,421 30,991 68,073 123,191 3,721
---------- --------- --------- ---------- ---------- --------- --------- ------- ------- -------
Ps. Ps. Ps. Ps. Ps. Ps. Ps. Ps. Ps. Ps.
26,176,034 3,775,708 1,653,1 33,699, 16,624, 4,990, 1,209,14 988,555 374,58 449,212
========== ========= ========= ========== ========== ========= ========= ======= ======= =======

Autoparts Ps. Ps. Ps. Ps. Ps. Ps. Ps. Ps. Ps. Ps.
(UNIK) 10,854, 1,732,0 1,265,86 10,984 4,170,323 868,664 630,439 216,921 89,581 383,790
Chemicals
(GIRSA)..... 7,595,856 934,974 728,483 8,282,794 4,650,961 1,186,956 320,873 272,015 52,195 272,704
Food........ 5,973,442 405,154 199,615 5,618,917 1,601,222 771,972 197,842 350,691 43,913 74,639
Real estate
(DINE)...... 876,452 308,833 313,732 6,496,545 1,757,992 611,684 42,485 210,360 41,204 46,734
Corporate
(DESC) 29,615 (45,855) 122,376 927,826 2,619,171 30,984 25,775 197,681 115,301 530
---------- --------- --------- ---------- ---------- --------- --------- --------- ------- -------
Ps. Ps. Ps. Ps. Ps. Ps. Ps. Ps. Ps. Ps.
25,329, 3,335,1 2,630,07 32,310 14,799,66 3,470,2 1,217,41 1,247,66 342,194 778,397
========== ========= ========= ========== ========== ========= ========= ========= ======= =======

F-8

DESC, S.A. DE C.V. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 1998, 1999 AND 2000

(Continued)

Autoparts Ps. Ps. Ps. Ps. Ps. Ps. Ps. Ps. Ps. Ps.
(UNIK)...... 10,935,622 1,599,7 486,457 11,519,Ps. 6,049,0 1,097,29 605,493 225,188 71,491 355,652
Chemicals
(GIRSA)..... 7,914,807 521,385 220,382 8,311,012 5,755,776 336,001 325,895 375,979 21,679 111,167
Food........ 3,575,823 39,619 (243,915) 5,079,056 1,445,636 317,315 211,085 181,853 15,541 (9,370)
Real estate
(DINE)...... 995,668 154,975 42,592 6,425,650 1,696,376 758,375 66,278 141,350 6,686 (3,208)
Corporate
(DESC)...... 17,386 (52,389) 114,861 777,255 3,424,010 1,850 32,276 225,724 26,299 -
---------- --------- ------- ---------- ---------- --------- --------- --------- ------- -------
Ps. Ps. Ps. Ps. Ps. Ps. Ps. Ps. Ps. Ps.
23,439,306 2,263,3 620,377 32,112, 18,370,8 2,510,839 1,241,02 1,150,09 141,69 454,241
========== ========= ======= ========== ========== ========= ========= ========= ======= =======

4) SIGNIFICANT ACCOUNTING POLICIES:

The accounting policies followed by the Company are in accordance with
accounting principles generally accepted in Mexico, which require management to
make certain estimates and use certain assumptions to determine the valuation of
some of the balances included in the financial statements and to make the
disclosures required to be included therein. Although the actual results may
differ from those estimates, management believes that the estimates and
assumptions used were appropriate in the circumstances.

The significant accounting policies followed by the companies are as
follows:

CHANGES IN ACCOUNTING POLICIES-

Adoption of new Bulletin D-4-

Beginning in January 2000, the Company adopted the new procedures for
the recognition of deferred income taxes as prescribed by recently revised
Bulletin D-4, "Accounting for Income and Asset Taxes and Employee Profit
Sharing". The effect from this adoption was to recognize an initial long-term
liability for deferred income taxes in the amount of Ps.1,644,919 affecting
shareholder's equity under the account "Cumulative effect of deferred income
taxes" and the minority interest by Ps.682,285. The provision for income taxes
for the year increased by Ps.99,658. The provision for employee profit sharing
of the subsidiaries was not affected because the Company does not have any items
that generated a future liability or benefit. The adoption of this bulletin did
not have any effect on the cash flows of the Company.

F-9

DESC, S.A. DE C.V. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 1998, 1999 AND 2000

(Continued)

Recognition of the tax consolidation benefit-

As a result of the adoption of Bulletin D-4 mentioned above, the
Company changed its method for recognizing the tax consolidation benefit.
Through 1999, the benefit was recognized in the year in which the corresponding
annual consolidated tax return was filed. Beginning in 2000, this benefit is
recognized in the results of the year in which the benefit is generated. The
effect from this change in accounting policy increased the benefit from tax
consolidation by Ps.124,795, which is recorded as an "extraordinary item" in the
accompanying consolidated statement of operations.

Recognition of the Effects of Inflation-

The Company and its subsidiaries follow the accounting policies
established in Bulletin B-10 and its amendments and, accordingly, the financial
statements have been restated in terms of the purchasing power of the Mexican
peso as of December 31, 2000.

Basis of Consolidation-

The consolidated financial statements include those subsidiaries in
which the Company owns capital stock and has administrative control. All
significant intercompany transactions and balances have been eliminated.

The Company's principal subsidiaries are:

1999 2000
-------- ---------
Unik, S.A. de C.V. ("Unik")................. 99.9% 99.9%
Girsa, S.A. de C.V. ("Girsa")............... 99.9% 99.9%
Dine, S.A. de C.V. ("Dine") 99.9% 99.9%
Agroken, S.A. de C.V........................ 99.9% 99.9%
Aquanova, S.A. de C.V....................... 99.9% 99.9%
Grupo Corfuerte, S.A. de C.V................ 77.2% 77.2%
Authentic Acquisition Corporation, Inc...... 81.3% 81.3%

The local currency financial statements of foreign subsidiaries whose
operations are not an integral part of the Mexican companies are restated using
the inflation index of the corresponding country and subsequently translated
into Mexican pesos at the exchange rate at yearend. The local currency financial
statements of foreign subsidiaries whose operations are an integral part of the
Mexican companies are translated at the exchange rate at yearend or as of the
transaction date, based on whether the items are monetary or nonmonetary, and
are restated using factors derived from the National Consumer Price Index
(NCPI).

The participation in net income and changes in equity or consolidation
of those subsidiaries that were acquired or sold has been included in the
financial statements since or up to the date on

F-10

DESC, S.A. DE C.V. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 1998, 1999 AND 2000

(Continued)

which the transactions took place and were restated in terms of the purchasing
power of the Mexican peso as of December 31, 2000.

Cash Equivalents-

Investments in marketable securities consist mainly of acceptances,
bank promissory notes, and paper issued by the Mexican and United States
governments, at market (cost plus accrued interest). Cash equivalents also
include technology and training funds since the Company plans to utilize these
funds during 2001.

Inventories and Cost of Sales-

Inventories are originally recorded at their acquisition or
manufacturing cost and restated to their specific net replacement cost without
exceeding their net realizable value. Substantially all subsidiaries compute
cost of sales using the replacement cost at the time of sale.

Real Estate Assets Available for Sale-

Following the Company's strategy, DINE has begun a process of
liquidation and the sale of certain real estate projects. Among those for sale
are Centro Comercial Santa Fe and the Four Seasons Hotel in Punta Mita.
Therefore, this real estate was recorded at its estimated realizable value as of
December 31, 2000. The Four Seasons Hotel in Punta Mita was sold at the end of
February 2001 for $52 million.

Land Held for Development and Real Estate Projects-

Undeveloped land represents land reserves which, together with
developed land and ongoing and completed projects, are considered inventories,
since they are held for sale. They include acquisition, development and
construction costs and are restated in U.S. dollars based on the NCPI of the
United States and the market exchange rate for the purpose of showing values in
accordance with the current situation of the real estate market.

Had the NCPI been used to restate land held for development, developed
land and real estate projects, their net value at December 31, 1999 and 2000
would have increased by Ps.854,358 and Ps.888,428, respectively, and the cost of
land sold for the years ended December 31, 1998, 1999 and 2000 would have
increased by Ps.41,773, Ps.8,758 and Ps.60,649, respectively.

During 1998, the Company capitalized the integral cost of financing on
debt used to finance real estate projects in progress in addition to their
construction and development costs. The amount capitalized was Ps.77,606 and is
restated at yearend using the NCPI. During 1999 and 2000 DINE did not any incur
integral cost of financing subject to capitalization.

Investment in Shares-

The investment in shares is recorded under the equity method except for
the participation in Grupo Financiero Santander Mexicano, S.A. de C.V.
(SANTANDER), which was recorded at

F-11

DESC, S.A. DE C.V. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 1998, 1999 AND 2000

(Continued)

market value as of December 31, 1999. During June 2000 the Company sold its
shares in SANTANDER, which resulted in a gain of Ps.54,588, which is recorded in
the results for the year under the caption "Other expenses".

Property, Plant and Equipment-

Property, plant and equipment are originally recorded at their cost of
acquisition and/or construction and restated following the accounting policies
established in Bulletin B-10 and its amendments, using the following methods.

The methods used to restate the fixed assets were the NCPI for assets
of domestic origin and the specific indexation for assets of foreign origin,
which were restated by applying to their cost in foreign currency the slippage
of the Mexican peso plus the inflation of their country of origin, not exceeding
their net realizable value.

Had the restatement of all property, plant and equipment been
calculated using the NCPI, the net value of fixed assets as of December, 31,
1999 and 2000 would have increased by Ps.1,413,977 and Ps.1,762,295,
respectively, and depreciation charged to income for 1998, 1999 and 2000 would
have increased by Ps.89,241, Ps.118,337 and Ps.226,450, respectively.

The companies follow the practice of capitalizing the comprehensive
financial result on debt used to finance construction in progress and the
installation of equipment, up until the equipment is ready for production.
During 1998, 1999 and 2000 the comprehensive financing result capitalized was
Ps.134,896, Ps.68,480 and Ps.47,919, respectively.

Depreciation of property, plant and equipment is calculated using the
straight-line method applied to month-end balances based on the utilization of
the assets and the estimated remaining useful lives.

Impairment of Fixed Assets-

The amounts shown in the accompanying consolidated statements of income
correspond basically to the reduction in value of property and equipment of some
productive facilities in the food and autoparts businesses, in order to reflect
their current realizable value.

Goodwill-

The goodwill resulting from acquisitions made in excess of book value
is amortized over periods ranging from 5 to 20 years, the terms over which the
benefits from the investment will be realized.

Income Taxes and Employee Profit Sharing-

Beginning January 1, 2000, the Company and its subsidiaries recognize
by means of the liability method the future effects of income taxes related to
the cumulative temporary differences between book and taxable income. For
employee profit sharing purposes they recognize only

F-12

DESC, S.A. DE C.V. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 1998, 1999 AND 2000

(Continued)

those items that will materialize in the short term. Up to 1999 deferred taxes
were recognized on the significant nonrecurring temporary differences whose
turnaround period could be determined and which were not expected to be replaced
by items of a similar nature and amount.

Based on the authorization granted by the Ministry of Finance, the
Company prepares its income and asset tax returns on a consolidated basis,
including all subsidiaries which comply with the characteristics established for
controlled companies.

Employee Severance Benefits-

Under Mexican labor law, the subsidiaries with employees are liable for
separation payments to employees terminating under certain circumstances. The
related indemnity payments are charged to results in the period in which they
are made.

The liabilities for seniority premiums, pensions and retirement
payments are recorded through annual contributions to irrevocable trust funds,
calculated using actuarial calculations based on the projected-unit credit
method, using real interest rates.

The liability being accrued at present value will cover the obligation
from benefits projected to the estimated retirement date of the Company's
employees.

The subsidiaries have established irrevocable trust funds to cover the
accrued employee benefits. The contributions made in 1998, 1999 and 2000, based
on actuarial computations, were Ps.26,834, Ps.39,927 and Ps.83,897,
respectively. The Company follows the funding recommendations of its actuaries.
At December 31, 2000 the balances of these funds amount to Ps.569,171. The asset
of the trusts consist of stock traded in the Mexican Stock Market (32.64%), the
majority of which is represented by the Company's common shares and certain
fixed-rate investments (67.36%).

The number and series of common shares of the Company held by the
trusts at December 31, 2000 was as follows:

Series A........................... 33,006,300
Series B........................... 2,761,940
Series C........................... 21,131,235
----------
56,899,475
==========

The market value of the shares of the Company held at December 31, 2000
was Ps.222,404. During 2000 the trusts purchased 18,749,235 shares and sold
21,000,389 shares of the Company's stock.

F-13

DESC, S.A. DE C.V. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 1998, 1999 AND 2000

(Continued)

Shareholders' Equity Restatement-

Capital stock and retained earnings are restated by applying the NCPI
to the original contributions of capital and the earnings obtained. The
restatement represents the amount necessary to maintain shareholders' equity in
terms of the purchasing power of the amounts originally invested or retained.

The cumulative effect of restatement represents the gain or loss from
holding nonmonetary assets, which is the amount by which nonmonetary assets
change in value as compared to the NCPI.

Revenues and Expense Restatement-

Revenues and expenses associated with monetary items are restated from
the month in which they arise through yearend, based on factors derived from the
NCPI. Cost of sales and depreciation expense are restated through yearend as a
function of the restatement of the nonmonetary asset that is being consumed or
sold.

Comprehensive Financial Result-

This represents the net effect of interest earned and incurred,
exchange gains and losses and the gain or loss from monetary position, which is
the result of maintaining monetary assets and liabilities whose real purchasing
power is modified by the effects of inflation.

Foreign currency transactions are recorded at the exchange rate
effective at the time the transactions are carried out and foreign currency
denominated assets and liabilities are adjusted to the exchange rate effective
at yearend.

Earnings Per Share-

The Company determined its earnings per share based on the majority
interest in the income before extraordinary item and profit on the sale of
subsidiaries, extraordinary item, profit on the sale of subsidiaries and the net
income utilizing the weighted-average number of shares outstanding during the
years.

Comprehensive Income (Loss)-

Comprehensive income (loss) is comprised of the net income for the
period plus any gains or losses that according to specific regulations are
presented directly in shareholders' equity, such as the gain or loss from
holding nonmonetary assets.

5) NEW ACCOUNTING PRINCIPLE:

In 2001 the new Mexican Bulletin C-2, "Financial Instruments", became
effective. Bulletin C-2 requires the recognition of certain derivatives on the
balance sheet as either assets or liabilities and the measurement of such
instruments and the related hedged item at their fair value. Bulletin

F-14

DESC, S.A. DE C.V. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 1998, 1999 AND 2000

(Continued)

C-2 also requires that all gains and losses on derivative hedging instruments be
recorded in current earnings, regardless of the nature of the instrument.
Although the Company does not presently have any significant derivative
instruments or engage in any significant hedging activities, there can be no
assurance that the Company will not do so in the future.

6) CASH AND CASH EQUIVALENTS:

Cash and cash equivalents consist of the following:

1999 2000
--------------- ---------------

Cash........................................ Ps. 137,292 Ps. 307,195
Investments with maturities of
less than 3 months........................ 1,414,265 1,058,717
Technology and training funds............... 276,877 174,090
--------------- ---------------
Ps. 1,828,434 Ps. 1,540,002
=============== ===============

7) NOTES AND ACCOUNTS RECEIVABLE:

Notes and accounts receivable include:

1999 2000
--------------- ---------------
Trade....................................... Ps. 3,897,410 Ps. 3,725,816
Less- Allowance for doubtful accounts....... 82,115 99,152
--------------- -----------------
3,815,295 3,626,664
Other accounts receivable................... 967,827 840,739
--------------- ---------------
Ps. 4,783,122 Ps. 4,467,403
=============== ===============

8) INVENTORIES:

Inventories consist of the following:

1999 2000
--------------- ---------------
Finished goods and work-in-process........ Ps. 1,692,190 Ps. 1,991,653
Raw materials, supplies and other......... 1,660,942 1,724,052
--------------- ---------------
3,353,132 3,715,705
Less- Allowance for slow-moving items..... 37,220 62,790
--------------- ---------------
3,315,912 3,652,915
Advances to suppliers..................... 34,065 20,074
--------------- ---------------
Ps. 3,349,977 Ps. 3,672,989
=============== ===============

9) TECHNOLOGY FUNDS:

The companies of UNIK have a trust fund with Banco Santander Mexicano,
S.A. as trustee to earmark funds for research and development of technology for
the companies. The contributions during 1999 and 2000 amounted to Ps.136,378 and
Ps.83,605, respectively, and withdrawals from the trust amounted to Ps.160,196
and Ps.134,923, respectively, mainly as a result of the acquisition of
technology for machinery and equipment. At December 31, 1999 and 2000, the fund
amounted to Ps.211,419 and Ps.77,045, respectively.

F-15

DESC, S.A. DE C.V. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 1998, 1999 AND 2000

(Continued)

In 2000, the technology fund was classified as cash and cash
equivalents since the Company plans to use these funds during 2001.

10) LAND HELD FOR DEVELOPMENT AND REAL ESTATE PROJECTS:

Land held for development and real estate projects are as follows:

1999 2000
--------------- ---------------

Land held for development............... Ps. 1,745,840 Ps. 1,746,907
Real estate projects-in-progress........ 1,668,771 1,739,219
Real estate for sale.................... 82,806 32,917
Developed land.......................... 222,357 132,187
Advances to contractors................. 33,243 75,733
Other................................... 12,772 10,839
--------------- ---------------
Ps. 3,765,789 Ps. 3,737,802
=============== ===============

11) PROPERTY, PLANT AND EQUIPMENT:

Property, plant and equipment include:

1999 2000
--------------- ---------------
Buildings and installations............ Ps. 6,646,038 Ps. 6,157,640
Machinery and equipment................ 14,297,900 15,321,198
Transportation equipment............... 293,618 263,190
Furniture and office equipment......... 336,058 599,952
Real estate for rent................... 712,319 66,195
Other.................................. 921,347 293,871
--------------- ---------------
23,207,280 22,702,046
Less- Accumulated depreciation......... 10,250,582 10,545,829
--------------- ---------------
12,956,698 12,156,217
Projects-in-progress................... 1,319,588 758,347
Land................................... 1,261,086 1,233,357
--------------- ---------------
Ps. 15,537,372 Ps. 14,147,921
=============== ===============

The annual depreciation rates are as follows:

Buildings and installations................ 2.00% to 31.46%
Machinery and equipment.................... 3.77% to 31.73%
Transportation equipment................... 9.00% to 25.00%
Furniture and office equipment............. 3.00% to 30.00%
Real estate for rent....................... 2.5%
Other...................................... 4.56% to 33.00%

12) TRANSACTIONS AND BALANCES IN FOREIGN CURRENCY:

The Company and its subsidiaries valued their foreign currency
denominated assets and liabilities, represented mainly by U.S. dollars, at the
exchange rates effective at December 31,

F-16

DESC, S.A. DE C.V. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 1998, 1999 AND 2000

(Continued)

1999 and 2000 of 9.55 and 9.65 Mexican pesos per U.S. dollar, respectively, as
the Company expects to use foreign currency denominated assets to settle foreign
currency denominated liabilities.

As of December 31, 1999 and 2000, the foreign currency position was as
follows:

1999 2000
---------- ----------
Assets............................................ $ 362,852 $ 338,510
Current liabilities-
Non-interest bearing............................ 148,881 181,066
Interest bearing................................ 382,618 345,761
---------- ----------
531,499 526,827
Long-term liabilities............................. 584,281 677,086
---------- ----------
1,115,780 1,203,913
---------- ----------
Net liability position in foreign currency...... $ 752,928 $ 865,403
========== ==========

During the years ended December 31, 1998, 1999 and 2000, the Company
and its subsidiaries had the following transactions in foreign currency, which
were translated into Mexican pesos at the exchange rate in effect at the date of
each transaction:

1998 1999 2000
----------- ---------- ----------

Direct export sales.............................. $ 596,850 $ 559,816 $ 634,258
Indirect export sales under agreement............ 140,326 254,941 305,692
Sales of foreign subsidiaries.................... 85,159 118,333 97,713
----------- ---------- ----------
822,335 933,090 1,037,663
Less-
Purchases of inventories....................... (512,850) (491,221) (639,905)
Purchases and expenses of foreign
subsidiaries................................. (70,939) (84,251) (86,421)
----------- ---------- ----------
(583,789) (575,472) (726,326)
----------- ---------- ----------
238,546 357,618 311,337
----------- ---------- ----------
Interest earned.................................. 580 1,804 6,210
Less- Interest expense........................... (58,780) (37,034) (69,609)
----------- ---------- ----------
(58,200) (35,230) (63,399)
----------- ---------- ----------
Technical support................................ (4,839) (11,199) (9,894)
----------- ---------- ----------
Net............................................ $ 175,507 $ 311,189 $ 238,044
=========== ========== ==========

As of March 27, 2001, the date of issuance of these financial
statements, the unaudited foreign exchange position was similar to that at
yearend, and the exchange rate was 9.51 Mexican pesos per U.S. dollar.

F-17

DESC, S.A. DE C.V. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 1998, 1999 AND 2000

(Continued)

13) BANK LOANS AND LONG-TERM DEBT:

Banks loans and long-term debt are as follows:

1999 2000
------------------------------------------------- ----------------------------------------------
Maturity Interest Rate Amount Maturity Interest Rate Amount
------------------------------------------------- ----------------------------------------------

Syndicated loan-
DESC $90 million 2001 Variable Ps. 1,248,674 2003 LIBOR+1.375 Ps. 868,500
Medium-term promissory notes- 9% and
DESC 680,569 million UDIS 2006 9.00% 942,567 2006 to 2007 8.20% 1,979,882
CORFUERTE $24,500 -- -- -- 2005 LIBOR+2.70 236,425
DINE $11.00 million 2006 LIBOR + 3.875 124,867 2006 LIBOR+3.875 106,150
AQUANOVA $11.08 million 2002 LIBOR + 1.75 181,231 2002 LIBOR+1.75 106,953
International Finance
Corporation-
GIRSA $128.86 million 2000 to 2006 Variable 1,522,121 2000 to 2006 Variable 1,258,929
GIRSA $105 million -- -- -- 2008 Variable 1,016,400
Loans-
GIRSA $50 million 2000 Variable 676,365 2004 Variable 482,500
GIRSA $30 million 2003 LIBOR + 1 312,168 2003 LIBOR+1 289,500
GIRSA $15 million 2002 Variable 156,084 2003 LIBOR+1.60 144,750
GIRSA $4 million -- -- -- 2003 Variable 38,600
CORFUERTE $25 million 2002 to 2003 Eurodollar+1 260,162 2002 to 2003 Eurodollar+1 241,250
Secured bonds-
DINE $135 million 2007 8.75% 1,404,758 2007 8.75% 1,302,750
Secured syndicated loans-
UNIK $75 million 2001 LIBOR + 1 780,422 -- -- -
UNIK $16.66 million 2002 6.50% 252,010 2002 6.50% 160,788
UNIK $20.42 million 2003 7.34% 287,067 2003 7.34% 197,014
UNIK $11.9 million -- -- -- 2004 LIBOR + 1 114,835
Other loans payable in-
Mexican pesos 2000 to 2003 Variable 101,883 2002 to 2008 Variable 57,352
Foreign currency 2000 to 2007 Variable 1,202,967 2002 to 2007 Variable 542,926
------------- -------------
9,453,346 9,145,504
Less- Current portion (2,428,833) (672,807)
------------- -------------
Ps. 7,024,513 Ps. 8,472,697
============= =============

Long-term debt maturities are as follows:

2002........................................................ Ps. 2,411,667
2003........................................................ 1,167,191
2004........................................................ 808,649

F-18

DESC, S.A. DE C.V. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 1998, 1999 AND 2000

(Continued)

2005........................................................ 212,834
2006........................................................ 1,557,207
2007 and thereafter......................................... 2,315,149
--------------
Ps. 8,472,697
==============

The current portion of long-term debt and short-term bank loans are as
follows:

1999 2000
-------------- --------------
Current portion of long-term debt........... Ps. 2,428,833 Ps. 672,807
Other loans payable in-
Mexican pesos............................. 78,998 311,960
Foreign currency.......................... 1,575,019 2,754,107
-------------- --------------
Ps. 4,082,850 Ps. 3,738,874
============== ==============

Syndicated loan-

On January 14, 2000, the Company fully prepaid the syndicated loan
obtained on January 14, 1999 for $120 million with an original maturity date of
January 14, 2001. The resources were obtained from the sale of Grupo Campi.

On November 1, 2000, the Company signed a syndicated loan contract for
$150 million, for a three-year term, bearing interest annually at LIBOR plus
1.375. At December 31, 2000 a total of $90 million has been drawn. The proceeds
from the loan were used to pay short-term debt. The financing establishes
certain restrictions for the Company, which have all been complied with, of
which, the most important are:

- - Limitations regarding dividend payments.

- - Interest coverage ratio more than 2.75.

- - Debt to equity ratio not higher than .50.

- - Debt to EBITDA ratio not higher than 3.5.

Medium-term promissory notes-

In October 1999 and July 2000, the Company issued medium-term
promissory notes equivalent to 324,000,000 and 356,568,600 Units of Investment
(UDIS), respectively. The value of the UDI as of December 31, 2000 was 2.909158
Mexican pesos per UDI so the value of the promissory notes was Ps.942,567 and
Ps.1,037,315, respectively. The notes bear interest quarterly at 9% and 8.20%
and mature in 2006 and 2007, respectively. There are no restrictions on the
notes. The resources generated were used to pay short-term debt.

In April 2000, Grupo Corfuerte, S.A. de C.V. obtained two long-term
promissory notes in the total amount of $32 million. This loan establishes,
among other conditions, that the Company comply with certain financial ratios,
which the Company has complied with. The notes accrue interest at a variable
rate equal to LIBOR plus 2.7%, with quarterly payments from June 30, 2000
through March 31, 2005.

F-19

DESC, S.A. DE C.V. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 1998, 1999 AND 2000

(Continued)

In 1998 DINE obtained a bank loan with Banca Promex, S.A. for $11
million, with interest equal to LIBOR plus 3.875 and the loan is paid
semiannually beginning on April 28, 2000. This loan is guaranteed with the Hotel
Four Seasons of Punta Mita land and construction. This loan was fully paid in
February 2001.

On July 23, 1997, Aquanova and its subsidiaries obtained a long-term
loan in U.S. dollars to finance their working capital and investment in shrimp
production projects. The interest rate is equal to LIBOR plus 1.75 and the loan
is paid quarterly from October 29, 1999 through July 29, 2002. The balance as of
December 31, 2000 is $11.08 million.

International Finance Corporation-

The loan contract with International Finance Corporation (IFC), whereby
granted to GIRSA a financing for $155 million, is comprised as follows:

- - Loan A, for $30 million

- - Loan B, for $40 million

- - Loan C, for $10 million

- - Loan D is a revolving loan through the issuance of commercial paper
represented by a maximum unpaid amount of $75 million

At December 31, 1999 and 2000, a total of $146.28 million and $128.86
million, respectively, has been drawn.

Repayment of loans A, B and C will be made through equal semi-annual
installments, beginning on August 15, 1999, over five, four and seven-year
terms, respectively. Loan D will be repaid in full no later than August 14, 2002
in accordance with the amended agreement dated June 4, 1999.

Interest on the loans will be paid semiannually at the following rates:

Loan Interest Rate
---------------- -------------
A and C......... LIBOR + 2.125
B............... LIBOR + 2.0

Additionally, loan C requires the payment of additional annual interest
calculated at 1% of the consolidated operating margin (operating income less
consolidated financial expense of GIRSA) with a maximum limit set.

Interest on loan D is determined in accordance with the discount rate
of the issuance of commercial paper plus the commission on the unused line of
credit equivalent to 1.125%, until June 4, 1999 and 2.625% from June 4, 1999 to
maturity date, in accordance with the amended agreement as of such date.

F-20

DESC, S.A. DE C.V. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 1998, 1999 AND 2000

(Continued)

There are certain covenants for Girsa and its subsidiaries, which in
all cases have been complied with, of which the most significant are:

- - Limitation as to the existence of liens.

- - Limitations on disposals of property, plant and equipment.

- - Current ratio of at least 1:1.

- - Debt to equity ratio (total liabilities divided by total liabilities
plus equity) not higher than 0.60:1.

- - Consolidated short-term debt may not exceed 20% of net sales of GIRSA
and its subsidiaries of the previous year.

As well, on January 21, 2000, GIRSA executed another loan contract with
IFC, through which IFC granted financing of $105 million, made up as follows:

- - Loan A for $45 million

- - Loan B for $60 million

The A and B loans are going to be paid in equal semiannual payments
over six years beginning on March 15, 2003.

The interest on the loans is paid semiannually at the following rates:

Loan Interest Rate
---- -------------
A............... LIBOR + 3.75
B............... U.S. Bond rate + 4.50 (fixed)

The financing establishes restrictions for GIRSA and its subsidiaries
with which they are in compliance. The most important of the restrictions are as
follows:

- - Limitations as to the existence of liens.

- - Limitations on disposal of property, plant and equipment.

- - Liquidity index higher than 1.1.

- - Debt to equity ratio lower than 0.60.

- - Consolidated short-term debt must not exceed 20% of the net
consolidated sales of the preceding year.

Loan contracts-

During 1997, GIRSA entered into a loan agreement to finance long-term
(three years) transactions whereby it received financing in the amounts of $35
million are based on committed and revolving credit. These lines matured during
2000 and a committed and revolving credit of $50 million was negotiated to
finance long-term operations (four years as a maximum). As of December 31, 2000
the entire amount of the revolving line of credit has been drawn.

F-21

DESC, S.A. DE C.V. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 1998, 1999 AND 2000

(Continued)

During 1998, GIRSA signed into credit contracts for long-term
operations (5 years) in which it received financing of $30 million, with payment
due on the maturity dates and quarterly payments of interest at LIBOR plus 1.0.

The financing establishes restrictions for GIRSA and its subsidiaries,
which in all cases have been met, the most important of which are similar to
those of the IFC loan.

As well, during 1997, GIRSA executed loan contracts for long-term
operations for $30 million which will be repaid at the maturity dates. These
lines matured during 2000 and the Company paid $15 million and renegotiated $15
million at LIBOR plus 1.60 for an additional three years.

In 1999, GIRSA executed a loan contract for long-term operations (3.5
years) through which a line of credit up to $50 million was granted. The funds
must be drawn within a maximum of 18 months from the date of the contract (July
12, 1999) and payment is due 24 months from the date of the draw. As of December
31, 2000, $4 million has been drawn.

In March 1998, Grupo Corfuerte contracted an unsecured loan for $25
million. The interest rate is equal to the Eurodollar plus 1, and it matures in
March 2003. This loan establishes the restriction that the shareholders' equity
of Alimentos del Fuerte, S.A. de C.V. must be higher than $5,000. The resources
were used to pay short-term debt.

Secured bonds-

On October 9, 1997, DINE placed long-term guaranteed bonds on the
international markets due October 9, 2007. Some of the obligations and
restrictions of the bonds are as follows:

- - Specific restrictions on new liens on fixed assets.

- - Limitations on the acquisition of new debt when the adjusted interest
coverage ratio is less than 2.25. At yearend, the ratio was 3.12.

- - Limitations regarding dividend payments, share distributions,
repurchase of shares and/or any other form of capital reductions in
cash. Such payments may be made only when:

1. No event of default under the established obligations of the issue has
occurred.

2. Payments do not exceed the cumulative amount of consolidated majority
income of DINE (not considering the effects of inflation). The
cumulative amount shall be computed from January 1, 1999 through the
date on which any payment is made. Such amount shall be multiplied by
0.5, and $50 million will be added. The result shall represent the
Company's dividend payment capacity. In case the cumulative amount is
negative, an aggregate payment of $30 million may be made over the term
of the issue.

As of December 31, 2000 the book value of the long-term bonds issued by
DINE is $135 million and their fair value is $121.5 million.

F-22

DESC, S.A. DE C.V. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 1998, 1999 AND 2000

(Continued)

Secured syndicated loans-

On May 19, 1998 UNIK signed a guaranteed syndicated loan in the amount
of $75 million, payable in one installment in 2001, bearing interest at LIBOR
plus 1.0 in the first year and Libor plus 1 1/8 in the next two years. This loan
is guaranteed by the subsidiaries of UNIK (Spicer, S.A. de C.V., Moresa, S.A. de
C.V. and Hayes Wheels de Mexico, S.A. de C.V.).

As part of its debt restructuring, Spicer entered into syndicated loan
agreements amounting to $100 million, secured by its export sales. As of
December 31, 2000, outstanding amounts were $20.42 million and $16.66 million.
These loans are linked to a long-term export contract with Dana Corporation
(minority stockholder of Spicer), whereby Dana agrees to purchase sufficient
amounts to generate the resources necessary to pay the loan installments. These
loans are payable in semi-annual installments that began on June 6 and September
11, 1996, respectively, over a seven-year period, bearing interest at LIBOR plus
0.50. In addition, Spicer entered into two swaps for the same amounts and terms
of these loans, to secure fixed interest rates, after taxes, of 6.50% and 7.34%,
respectively.

In December 1998, Forjas y Maquinas, S.A. de C.V., subsidiary company
of UNIK, obtained a loan from Comerica Bank, N.A., for $12 million payable
semiannually with maturity in 2004. The interest rate is LIBOR plus 1.

F-23

DESC, S.A. DE C.V. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 1998, 1999 AND 2000

(Continued)

14) EMPLOYEE BENEFITS:

The employee benefit obligation relates to the pension plan, which will
cover the pension and seniority premiums due upon retirement of the Company's
employees. The amount resulting from the actuarial calculations prepared by
external actuaries is being funded using the projected unit credit method. Below
is a breakdown of this obligation as of December 31, 1999 and 2000:

1999 2000
------------- -------------

Projected benefit obligation (PBO)............................ Ps. 855,064 Ps. 1,055,058
Plan assets at fair value:.................................... 837,916 569,171
------------- -------------
Funded status............................................... (17,148) (485,887)
Unrecognized transition obligation.......................... (315,274) (288,688)
Unrecognized variances in assumptions....................... 454,472 903,187
------------- -------------
Net projected benefit obligation under Mexican GAAP........... 122,050 128,612
Fund withdrawals............................................ 49,661 40,529
------------- -------------
Net projected benefit obligation under U.S. GAAP.............. Ps. 171,711 Ps. 169,141
============= =============

As of December 31, 1999, the amount accrued exceeds the obligation for
present services (ABO) (equivalent to the PBO without projecting the salaries to
the date of retirement) by Ps.161,087. As of December 31, 2000 the ABO exceeds
the plan assets by Ps.320,216 which is recorded as an employee severance benefit
intangible asset and as an additional liability in the consolidated balance
sheets.

The cost of employee benefits is as follows:

1998 1999 2000
------------- ------------- -------------

Service cost.................................... Ps. 48,577 Ps. 49,364 Ps. 62,567
Amortization of transition liability............ (24,005) (16,117) (4,663)
Amortization of variances in assumptions........ 41 5,794 26,282
Financial cost.................................. 34,856 38,443 52,894
------------- ------------- -------------
59,469 77,484 137,080
Less- Actual return on plan assets.............. (71,191) (60,066) (50,569)
------------- ------------- -------------
Net result for the period under
Mexican GAAP.................................. (11,722) 17,418 86,511
Amortization of fund withdrawals................ (8,404) (5,747) (5,248)
------------- ------------- -------------
Net result for the period under
U.S. GAAP..................................... Ps. (20,126) Ps. 11,671 Ps. 81,263
============= ============= =============

Interest rates utilized in the actuarial calculations for 1998, 1999
and 2000 were as follows:

Investment return rate.............. 7%

F-24

DESC, S.A. DE C.V. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 1998, 1999 AND 2000

(Continued)

Interest rate....................... 5%
Salary increase rate................ 1.5%

The changes in the projected benefit obligation are as follows:

1999 2000
------------- -------------
Beginning balance.................. Ps. 760,647 Ps. 855,064
Service cost..................... 49,364 62,567
Financial cost................... 38,443 52,894
Actuarial gain................... 6,610 84,533
------------- -------------
Ending balance..................... Ps. 855,064 Ps. 1,055,058
============= =============

The changes in the net projected liability were as follows:

1999 2000
------------- -------------
Beginning balance............................ Ps. 101,551 Ps. 122,050
Provision for the year..................... (17,418) (86,511)
Actuarial gain............................. 5,821 50,517
Contributions to the fund.................. 39,927 83,897
Payments for the reduction of personnel.... (7,831) (41,341)
------------- -------------
Ending balance............................... Ps. 122,050 Ps. 128,612
============= =============

The changes in the fund were as follows:

1999 2000
------------- -------------
Beginning balance........................... Ps. 866,978 Ps. 837,916
Contributions............................. 39,927 83,897
Variation in fund assets.................. (61,158) (311,301)
Payments for the reduction of personnel... (7,831) (41,341)
------------- -------------
Ending balance.............................. Ps. 837,916 Ps. 569,171
============= =============

The amortization periods are as follows:

Remaining Years
---------------
Transition liability............................... 19 to 20
Variances in assumptions........................... 17 to 27

15) SHAREHOLDERS' EQUITY:

During a General Ordinary Shareholders' Meeting held on April 27, 2000,
the shareholders approved an increase in the reserve for the repurchase of its
shares in the amount of Ps.1,400,000.

F-25

DESC, S.A. DE C.V. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 1998, 1999 AND 2000

(Continued)

During 1999 and 2000, the Company repurchased 13,629,000 and 109,736,155 of its
outstanding shares at a nominal value of Ps.122,564 and Ps. 700,254,
respectively.

As of December 31, 2000 the capital stock is represented by:

Shares Amount
-------------- --------------

Fixed portion-
Nominative Series "A" shares (without withdrawal
rights and which must represent at least 51%
of the shares with voting rights)...................... 587,479,900 Ps. 7,637
Variable portion-
Nominative Series "B" shares (with withdrawal
rights and which may not represent more than
49% of the shares with voting rights).................. 506,176,760 6,580
Series "C" shares (with voting restrictions)............. 275,341,610 3,580
-------------- --------------
1,368,998,270 Ps. 17,797
============== ==============

Series "A" and "B" shares may only be acquired by Mexican citizens or
Mexican entities with an exclusion clause for foreign investors. Series "C"
shares may be freely subscribed.

Dividends paid to individuals or foreign residents will be subject to
income tax withholding at an effective rate ranging from 7.5% to 7.7%, depending
on the year in which the earnings were generated. In addition, if earnings for
which no corporate tax has been paid are distributed, the tax must be paid upon
distribution of the dividends. Consequently, the Company must keep a record of
earnings subject to each tax rate.

16) TAX ENVIRONMENT:

The companies are subject to income and asset taxes. Income taxes are
calculated in terms of Mexican pesos when the transactions occurred and not in
terms of Mexican pesos as of the end of the periods. Beginning in 1999, the
income tax rate increased from 34% to 35%, with the obligation to pay this tax
each year at a rate of 30%, with the remainder payable upon distribution of
earnings.

Some subsidiaries in the agribusiness sector have authorizations to pay
income and asset taxes under a simplified regimen. Other subsidiaries have a 50%
reduction in their taxable income due to their activities.

Asset taxes are computed at an annual rate of 1.8% on the average of
the majority of restated assets (except investments) less certain liabilities,
and the tax is paid only to the extent that it exceeds the income taxes of the
period. Any required payment of asset taxes may be credited against the excess
of income taxes over asset taxes of the preceding three and following 10 years.

F-26

DESC, S.A. DE C.V. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 1998, 1999 AND 2000

(Continued)

Employee profit sharing has been determined based at a rate of 10% on
the individual results of each operating company, rather than on a consolidated
basis.

Deferred income taxes-

The tax effects of the temporary differences that generated deferred
tax liabilities (assets), under Bulletin D-4, are as follows:

2000
---------------------------------
January 1st December 31
------------- -------------

Property, plant and equipment.............................. Ps. 2,397,778 Ps. 2,273,409
Inventories................................................ 658,901 743,796
Land held for development and real estate projects......... 402,833 474,129
Real estate assets available for sale...................... -- 80,366
Investment in SANTANDER.................................... (364,085) (378,348)
Reserves and provisions.................................... (260,002) (353,043)
Other assets............................................... 45,571 20,818
Tax loss carryforwards..................................... (760,692) (928,493)
Recoverable asset tax...................................... (243,682) (327,876)
Reserve for tax loss carryforward and recoverable asset tax 139,634 169,769
Other...................................................... 310,948 298,374
------------- -------------
Ps. 2,327,204 Ps. 2,072,901
============= =============

Income taxes are calculated on taxable income, which differs from book
income principally as follows:

1998 1999 2000
------------- ------------- -------------

Tax expense at statutory rate...................... Ps. 702,307 Ps. 1,178,158 Ps. 344,025
Permanent differences-
Gain on monetary position........................ (407,140) (245,556) (249,001)
Inflationary component........................... 234,165 253,229 241,252
Non-deductible items............................. 86,603 93,559 122,802
Non-taxable income............................... (107,850) (78,809) (48,351)
Income (loss) related to subsidiaries
subject to the simplified tax system........... (27,766) 1,144 1,663
Tax effect from sale of shares -- (99,089) --
Other............................................ 148,404 (55,017) 141,509
------------- ------------- -------------
(73,584) (130,539) 209,874
------------- ------------- -------------
Total income tax provision................... 628,723 1,047,619 533,899
Temporary differences-
Depreciation..................................... (113,216) 23,720
Cost of sales versus purchases, labor
and overhead................................... (32,914) (164,799)
Reserves......................................... 8,437 65,006
Tax loss carryforwards........................... (5,663) (146,656)

F-27

DESC, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 1998, 1999 AND 2000

(Continued)

Other............................................ (36,155) (46,493) (81,618)
------------- ------------- -------------
(179,511) (269,222) (99,658)
------------- ------------- -------------
Total income tax provision....................... Ps. 449,212 Ps. 778,397 Ps. 553,899
============= ============= =============

The tax loss carryforwards shown above do not include the benefit from
tax consolidation related to the use of the tax loss carryforwards, which is
presented as a separate item in the accompanying consolidated statement of
income.

17) EXTRAORDINARY ITEM:

The extraordinary item is comprised as follows:

Gain on the shareholding restructuring of Velcon Ps. 103,886
Reorganization expenses in Moresa, S.A. de C.V. (37,216)
Effect of change in recognition of tax consolidation benefit 124,795
-------------
Ps. 191,465
=============

18) FINANCIAL INSTRUMENTS:

The fair value of interest rate swaps and cash-settled options is
estimated based on quoted market prices to terminate the related contracts at
the reporting date. As of December 31, 1999 and 2000 the fair value of the
interest rate swaps was estimated to be a gain (loss) of $100 and $(233),
respectively. SPICER does not anticipate canceling these contracts and expects
them to expire as originally contracted (see Note 13).

UNIK and its subsidiaries entered into option contracts for risk
coverage with Pemex Gas and Petroquimica Basica to protect themselves against
the price volatility of natural gas for the period from September 2000 to
February 2001.

Those companies entered into a contract to hedge against the rise in
the market price of gas exceeding the maximum price that had been selected
through the payment of a premium. The maximum price was 8 dollars per "MMBTU"
(one million energy units) and the minimum price was 2.85 dollars per "MMBTU".
In the event the referred price exceeds the maximum price, a discount will be
applied to the invoice; if it is below the minimum price, the invoice will be
issued in the amount of the corresponding minimum price. At December 31, 2000,
the market value of the premium for the price of gas shows an estimated gain of
$37.3.

19) Differences between Mexican and US GAAP:

The consolidated financial statements of the Company are presented on
the basis of accounting principles generally accepted in Mexico ("Mexican GAAP")
which do not conform with accounting principles generally accepted in the United
States ("U.S. GAAP"). Note 20 presents a reconciliation of majority net income
and shareholders' equity to U.S. GAAP. However, this reconciliation to U.S. GAAP
does not include the reversal of the restatement of the financial statements to
comprehensively recognize the effects of inflation, as required under

F-28

DESC, S.A. DE C.V. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 1998, 1999 AND 2000

(Continued)

Mexican GAAP Bulletin B-10, "Recognition of the Effects of Inflation in the
Financial Information," as amended. The application of Bulletin B-10 represents
a comprehensive measure of the effects of price level changes in the
inflationary Mexican economy and, as such, is considered a more meaningful
presentation than historical cost-based financial reporting for both Mexican and
U.S. accounting purposes.

The principal differences between Mexican GAAP and U.S. GAAP are
described below together with an explanation, where appropriate, of the method
used in the determination of the adjustments that affect net income and
shareholders' equity.

Restatement of prior year financial statements:

As explained in Note 4, in accordance with Mexican GAAP, the financial
information for foreign subsidiaries of prior years was restated using the
inflation rate of the country in which the foreign subsidiary is located, then
translated at the year-end exchange rate of the Mexican peso. This procedure
results in the presentation of prior year amounts in the purchasing power of the
respective currencies as of the end of the latest year presented.

Under U.S. GAAP, the financial information for foreign subsidiaries of
prior years must be restated in constant units of the reporting currency, the
Mexican peso, which requires the restatement of such prior year amounts using
the inflation rate of Mexico.

Accordingly, a reconciling item for the difference in methodologies of
restating prior year balances is included in the GAAP reconciliation of net
majority income and consolidated majority shareholders' equity. Additionally,
all other U.S. GAAP adjustments affected by the use of the B-15 methodology have
been determined based on the U.S. GAAP methodology described above.

Cash flow information-

Under Mexican GAAP, the Company presents consolidated statements of
changes in financial position.

Bulletin B-12 specifies the appropriate presentation of the statement
of changes in financial position when the financial statements have been
restated in constant Mexican pesos in accordance with the third amendment to
Bulletin B-10. Bulletin B-12 identifies the generation and application of
resources representing differences between beginning and ending financial
statement balances in constant Mexican pesos. The bulletin also requires that
monetary and foreign exchange gains and losses be treated as non-cash items in
the determination of resources provided by operations.

The changes included in this statement constitute cash flow activity
stated in constant Mexican pesos (including monetary and unrealized foreign
exchange gains and losses on liabilities, which are considered cash gains and
losses in the constant Mexican peso financial statements).

F-29

DESC, S.A. DE C.V. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 1998, 1999 AND 2000

(Continued)

In accordance with Mexican GAAP, the reduction in current and long-term
debt due to restatement in constant Mexican pesos and unrealized exchange gains
and losses on liabilities are presented in the statement of changes in financial
position as a resource used in financing activities and the gain on monetary
position is presented as a component of operating activities. U.S. GAAP
Statement of Financial Accounting Standards (SFAS) No. 95, "Statement of Cash
Flows", does not provide guidance with respect to inflation-adjusted financial
statements and requires presentation of a statement of cash flows.

The following presents a reconciliation of the resources generated by
(applied to) operating, investing and financing activities under Mexican GAAP to
the resources generated by (applied to) such activities under U.S. GAAP:

1998 1999 2000
--------------- --------------- ---------------

Net Resources generated by operations under Mexican GAAP.... Ps. 2,519,076 Ps. 3,811,692 Ps. 818,089
Inflationary effects........................................ (1,067,688) (975,659) (736,678)
Exchange loss............................................... 2,113,265 (402,392) (99,496)
Net book value of retirements............................... 195,708 106,291 115,083
--------------- --------------- ---------------
Net Resources generated by operations under U.S. GAAP..... Ps. 3,760,361 Ps. 2,539,932 Ps. 96,998
=============== =============== ===============
Net Resources applied to investing activities under
Mexican GAAP.............................................. Ps. (3,814,419) Ps. (2,006,941) Ps. (780,753)
Net book value of retirements............................... (195,708) (106,291) (115,083)
Restatement of investment................................... 296,233 120,274 30,804
--------------- --------------- ---------------
Net Resources applied to investing activities under US
GAAP.................................................... Ps. (3,713,894) Ps. (1,992,958) Ps. (865,032)
=============== =============== ===============
Net Resources generated by (applied to) financing
activities under Mexican GAAP............................. Ps. 835,571 Ps. (1,210,845) Ps. (325,768)
Inflationary effects........................................ 771,455 855,385 705,874
Exchange loss............................................... (2,113,265) 402,392 99,496
--------------- --------------- ---------------
NetResources generated by (applied to) financing
activities under U.S. GAAP.............................. Ps. (506,239) Ps. 46,932 Ps. 479,602
=============== =============== ===============

Deferred income taxes and employee profit sharing-

The Company adopted SFAS No. 109, "Accounting for Income Taxes" for
U.S. GAAP reconciliation purposes. The objective of this pronouncement is to
recognize the deferred assets and liabilities that arise from all temporary
differences between the book and tax basis of the assets and liabilities for
future tax purposes.

The principal temporary differences that generated the deferred tax
liability, in accordance with U.S. GAAP, were the deduction of purchases for tax
purposes versus cost of sales for financial statements purposes, differences in
the depreciation indexes used for book and tax

F-30

DESC, S.A. DE C.V. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 1998, 1999 AND 2000

(Continued)

purposes and the recognition of tax loss carryforwards as deferred taxes.
Beginning on January 1, 2000, the new Bulletin D-4, "Accounting for Income and
Asset Taxes and Employee Profit Sharing", went into effect and one of the most
important differences with respect to U.S. GAAP has been significantly reduced.

The tax effects of temporary differences that generated deferred tax
liabilities (assets) under SFAS No. 109 are as follows:

1999 2000
-------------- --------------

Fixed assets.................................................. Ps. 2,688,564 Ps. 2,673,482
Inventories................................................... 711,907 743,796
Land held for development and real estate projects............ 861,591 765,105
Fixed assets for sale......................................... -- 112,151
Reserves...................................................... (53,486) (353,043)
Investment in SANTANDER....................................... (339,871) (378,348)
Tax loss carryforwards........................................ (760,662) (928,493)
Recoverable asset taxes....................................... (242,783) (327,876)
Other......................................................... 493,065 446,454
Valuation allowance........................................... 479,525 169,769
-------------- --------------
Ps. 3,837,850 Ps. 2,922,997
============== ==============

Employee profit sharing is subject to the future consequences of
temporary differences in the same manner as income taxes. The deferred effects
not recorded under Mexican GAAP are included in the reconciliation of Mexican to
U.S. GAAP.

Additionally, for US GAAP purposes, employee profit sharing must be
classified as an operating expense.

The tax effects of temporary differences that generated deferred
employee profit sharing liabilities (assets) under SFAS No. 109 are as follows:

1999 2000
------------- -------------
Fixed assets.............................. Ps. 684,655 Ps. 657,965
Inventories............................... 220,876 199,746
Reserves.................................. (12,723) (7,892)
Unrealized exchange losses................ (35,953) (8,774)
Other..................................... 53,860 49,721
------------- -------------
Ps. 910,715 Ps. 890,766
============= =============

Cost of pension plans and other employee benefits-

Under Mexican GAAP, the requirement to record liabilities for employee
benefits using actuarial computations is substantially the same as under SFAS
No. 87, "Employers' Accounting

F-31

DESC, S.A. DE C.V. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 1998, 1999 AND 2000

(Continued)

for Pensions". The Company's independent actuaries have prepared a study of
pension costs under U.S. GAAP (see Note 14).

The Company has no postretirement health care insurance or other
benefit plans, other than the pension plans referred to in Note 14. Therefore,
SFAS No. 106, "Employers' Accounting for Postretirement Benefits other than
Pensions", would have no effect on the Company's financial position.

During 1992, the Company withdrew Ps.228,266 from plan assets covering
pension and seniority premiums for employees of certain subsidiaries, as the
plans were overfunded. The amount of the withdrawal was recorded as income under
Mexican GAAP, however, for purposes of SFAS No. 87, the amount must be amortized
over the average remaining working life of the employees, which is approximately
17 years.

Minority interest-

Under Bulletin B-8 of Mexican GAAP, minority interest in subsidiaries
must be included as a component of shareholders' equity. Consequently, unlike
U.S. GAAP, minority interest in the income of subsidiaries is not presented as
an expense in the consolidated statement of income. Under U.S. GAAP, minority
interest in subsidiaries is shown below liabilities in the consolidated balance
sheet and is not included in consolidated shareholders' equity.

Technology and training funds-

The technology and training funds are recorded under cash and cash
equivalents since the Company plans to utilize these funds during 200. Under
U.S. GAAP those funds must be classified as "Other assets".

Cost of sales and inventory valuation-

Certain of the Company's subsidiaries use the direct cost method to
calculate cost of sales and inventory, whereby certain overhead costs are
charged to expense when they are incurred rather than being allocated to
inventory. U.S. GAAP requires that indirect manufacturing costs be considered as
part of inventory cost.

Land held for development and real estate projects-

Undeveloped and developed land of the real estate business and the real
estate projects are considered as inventories, since they are held for sale.
They were restated in U.S. dollars using the inflation rate of the US. Under
U.S. GAAP, these assets and the corresponding cost of land sold during the year
would be restated using the NCPI.

F-32

DESC, S.A. DE C.V. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 1998, 1999 AND 2000

(Continued)

Property, plant and equipment-

Since 1997, the Company restated its fixed assets of foreign origin
based on the internal inflation rate of the country of origin and the period end
exchange rate. Under U.S. GAAP, these fixed assets would be restated using the
NCPI.

Goodwill-

Up to 1997 the goodwill resulting from acquisitions made in excess of
book value of the acquired subsidiaries in the food segment was partially
restated using the NCPI. Under U.S. GAAP this goodwill should be restated using
the NCPI from the date of acquisition through the date of the financial
statements.

Plant closings and abandonment of assets--

Under Mexican GAAP, certain costs of plant closings were deferred and
amortized over a three-year period. In addition, certain assets not in use and
expected to be disposed were depreciated over their normal useful lives. Under
US GAAP, the costs associated with the sale or closing of a plant, and any
estimated impairment in value of the assets or loss on sale must be recorded as
an expense as soon as it can be estimated. Therefore, in the reconciliation of
net income and shareholders' equity, these costs and writedowns are adjusted and
are reflected in results in the year in which they can be estimated.

Payments received for the right to enter into lease agreements-

In Mexico, it is common practice for lessors to collect an "up-front"
payment from lessees upon the initial signing of a lease agreement. The Company,
under Mexican GAAP, has recognized these payments as income in the period in
which they were received. The Company has no future obligation with regard to
these payments and they are not refundable to the lessee.

Under U.S. GAAP, the amounts received as "up-front" payments must be
amortized to income over the terms of the lease agreements, which average three
years.

Goodwill of POLIFOS-

During 1994 and 1995, the Company purchased the shares of a new
subsidiary at a cost below book value. The negative goodwill recorded on the
purchases was amortized to income during 1995 and 1996. Under U.S. GAAP purchase
accounting, after considering the deferred tax liability not recorded under
Mexican GAAP for the subsidiary, positive goodwill resulted. This goodwill is
being amortized to expense over three years for U.S. GAAP purposes.

Goodwill of Canada de Santa Fe-

During 1999, DINE acquired 10% of the shares of Canada de Santa Fe,
S.A. de C.V. As a result of this acquisition, goodwill of Ps.79,394 was
generated, which will be amortized proportionally to the sales of the "Bosques
de Santa Fe" project, not to exceed a period of seven

F-33

DESC, S.A. DE C.V. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 1998, 1999 AND 2000

(Continued)

years. Under U.S. GAAP purchase accounting, goodwill of Ps.82,410 resulted,
which will be amortized over the same term.

Negative goodwill-

In September 1997, AGROBIOS acquired 94.3% of the shares of
("CORFUERTE"), a company engaged in the manufacturing and distribution of
processed food. The book value (substantially equivalent to the fair value of
the net assets acquired as a result of inflation accounting) exceeded the cost
of the shares by Ps.9,276, which is being amortized to income over five years
using the straight-line method. Under U.S. GAAP purchase accounting, after
considering the deferred tax asset not recorded under Mexican GAAP for the
subsidiary, the excess of the book value over the cost of the shares was
Ps.351,556, which was offset against the fair value of the fixed assets acquired
and will be recognized in income as a reduction of the related depreciation.

Goodwill of VELCON-

In 2000, UNIK increased its share ownership in VELCON (see Note 1), its
subsidiary, at a cost above the book value of DANA's interest in SPICER. The
goodwill resulting from this acquisition will be amortized over four years.
According to U.S. GAAP, the recognition of the acquisition, after recording the
differences between Mexican GAAP and U.S. GAAP, resulted in Ps.4,708 of
additional goodwill, which will be amortized over four years.

Capitalized financing costs-

The Company capitalizes the comprehensive financial result related to
construction in progress, including the exchange losses and gain on monetary
position. Under U.S. GAAP, only interest expense may be capitalized on U.S.
dollar- denominated debt, and only interest expense, net of the related gain on
monetary position, may be capitalized on Mexican peso-denominated debt.

Capitalized preoperating expenses-

Under Mexican GAAP, AGROBIOS and some subsidiaries of UNIK and GIRSA
capitalized preoperating expenses amounting to Ps.116,538 related to the shrimp
business and new production lines. Such expenses will be amortized over the term
during which the shrimp business and the new production lines become fully
operational. Under U.S. GAAP, such costs are expensed as incurred.

Other pronouncements-

In view of the simple capital structure of the Company, SFAS No. 128,
"Earnings per Share", does not have any impact on the calculation of net
majority income per share under U.S. GAAP.

F-34

DESC, S.A. DE C.V. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 1998, 1999 AND 2000

(Continued)

Beginning in 1998, SFAS No. 130, "Reporting Comprehensive Income",
which requires the presentation of comprehensive income under U.S. GAAP, went
into effect. Note 20 d) presents a reconciliation of majority net income under
U.S. GAAP to comprehensive income (loss) under U.S. GAAP, in which the main
reconciling item is the effect of restatement (result of holding non-monetary
assets).

Effect of newly adopted accounting standards-

In June 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities".
SFAS No. 133 went into effect on January 1, 2001. This new standard requires
recognition of all derivative financial instruments on the balance sheet as
either assets or liabilities and the measurement of such instruments and the
hedged items at their fair value. Changes in the fair value of the derivatives
will be recognized currently in earnings, unless specific hedge accounting
criteria are met. Gains and losses on derivative hedging instruments must be
recorded in either other comprehensive income or current earnings, depending on
the nature of the instruments.

Although the Company does not presently have any significant derivative
instruments or engage in any significant hedging activities, there can be no
assurance that the Company will not do so in the future. See note 18 for a
description of the Company's current limited hedging activities.

Convenience translation statements-

U.S. dollar amounts shown in the financial statements have been
included solely for the convenience of the reader and are translated from
Mexican pesos, as a matter of arithmetic computation only, at the exchange rate
quoted by Banco de Mexico as of December 31, 2000 of Ps.9.65 per U.S. dollar.
Such translation should not be construed as a representation that the Mexican
peso amounts have been, could have been, or could in the future be converted
into U.S. dollars at this or any other exchange rate.

20) RECONCILIATION OF MEXICAN GAAP TO US GAAP:

(a) Reconciliation of net majority income-

1998 1999 2000 2000
------------- ------------- ------------- -------------

Net income applicable to majority interest
under Mexican GAAP Ps. 1,131,806 Ps. 1,935,073 Ps. 274,895 $ 28,486
US GAAP adjustments:
Deferred income taxes (833,972) (373,777) 622,893 64,548
Deferred income taxes under Mexican GAAP -- -- 99,658 10,327
Deferred employee profit sharing.................. (50,466) (100,178) (57,100) (5,917)
Capitalized exchange loss net of gain on
monetary position............................... (60,363) 23,276 37,216 3,857
Goodwill of POLIFOS............................... -- 3,666 -- --
Goodwill of Canada de Santa Fe.................... (3,016) -- 3,016 313
Full absorption costing........................... 24,561 (47,311) (98,531) (10,210)
Payments received for rights to enter into
lease agreements................................ (2,228) 380 6,533 677

F-35

DESC, S.A. DE C.V. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 1998, 1999 AND 2000

(Continued)

Write-down of fixed assets........................ 49 680 -- --
Goodwill of VELCON................................ -- -- 4,708 488
Additional depreciation on foreign origin
fixed assets restated using the NCPI
method.......................................... (24,431) (29,096) (108,113) (11,203)
Restatement of cost of land for development
and real estate projects using the NCPI
method.......................................... (41,773) (8,758) (60,649) (6,285)
Reduction in depreciation expense of
corfuerte....................................... (3,889) 15,820 (65,793) (6,818)
Withdrawal of pension fund assets and
amortization of gains under SFAS No. 87......... 8,404 5,747 5,248 544
Capitalization of preoperating expenses........... (9,289) (740) (27,283) (2,827)
Benefit of tax consolidation of prior years....... 168,309 (145,327) (123,973) (12,847)
Effects of inflation accounting on U.S. GAAP
adjustments..................................... 814,915 545,734 373,211 38,675
Effects on minority interest of U.S. GAAP
adjustments..................................... 287,373 (93,162) (390,592) (40,477)
------------- ------------- ------------- -------------
274,184 (203,046) 220,449 22,845
------------- ------------- ------------- -------------
Net income under U.S. GAAP.......................... Ps. 1,405,990 Ps. 1,732,027 Ps. 495,344 $ 51,331
============= ============= ============= =============

Weighted average shares outstanding (000's) 1,506,981 1,489,733 1,418,126 1,418,126
============= ============= ============= =============
Net income per share under U.S. GAAP Ps. 0.93 Ps. 1.16 Ps. 0.35 $ 0.04
============= ============= ============= =============

(b) Reconciliation of majority shareholders' equity-

1999 2000 2000
-------------- -------------- ---------------

Majority shareholders' equity under Mexican GAAP................ Ps. 12,537,712 Ps. 9,011,757 $ 933,861
US GAAP adjustments:
Deferred income taxes......................................... (3,837,850) (2,922,997) (302,901)

Deferred income taxes under Mexican GAAP...................... -- 1,644,919 170,457
Deferred employee profit sharing.............................. (910,715) (890,766) (92,307)
Capitalized exchange loss and gain on monetary position....... (412,373) (375,157) (38,876)
Goodwill of VELCON............................................ -- 4,708 488
Goodwill of POLIFOS........................................... (19,695) (19,695) (2,041)
Goodwill of Canada de Santa Fe................................ (3,016) -- --
Full absorption costing....................................... 98,531 -- --
Payments received for rights to enter into lease
agreements.................................................. (6,848) -- --
Write-down of fixed assets.................................... (3,916) (3,916) (406)
Adjustment for changes to the NCPI method in the restatement
of land held for development and real estate projects,
foreign origin machinery and goodwill....................... 2,386,672 3,018,085 312,755
Additional depreciation on foreign origin fixed assets
restated using the NCPI method.............................. (118,337) (226,450) (23,466)
Restatement of cost of land held for development and real
estate projects sold using the NCPI method.................. (59,322) (119,971) (12,432)
Reduction in depreciation expense of CORFUERTE................ 47,095 (18,702) (1,938)
Capitalization of preoperating expenses....................... (89,255) (116,538) (12,076)

Withdrawal of pension fund assets and amortization of
gains under SFAS No.87...................................... (49,661) (40,529) (4,200)
Effects on minority interest of U.S. GAAP adjustments......... 1,069,140 678,548 70,314
-------------- -------------- ---------------
(1,909,550) 611,539 63,371
-------------- -------------- ---------------
Majority shareholders' equity under U.S. GAAP................... Ps. 10,628,162 Ps. 9,623,296 $ 997,232
============== ============== ==============

F-36

DESC, S.A. DE C.V. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 1998, 1999 AND 2000

(Continued)

1999 2000 2000
-------------- -------------- -------------

Majority shareholders' equity at beginning of year........ Ps. 10,126,985 Ps. 10,628,162 $ 1,101,364
Net income under U.S. GAAP............................... 1,732,027 495,344 51,331
Effect of restatement.................................... (2,060,375) (1,021,521) (105,858)
Adjustment for changes to the NCPI method in the
restatement of land held for development and real
estate projects, foreign origin machinery and goodwill. 952,089 631,413 65,431
Dividends paid........................................... -- (409,848) (42,471)
Repurchase of shares..................................... (122,564) (700,254) (72,565)
-------------- -------------- -------------
Majority shareholders' equity at end of year............... Ps. 10,628,162 Ps. 9,623,296 $ 997,232
============== ============== =============

(d) Comprehensive income (loss) under US GAAP-

1998 1999 2000 2000
------------- ------------- ------------- -------------

Majority net income under U.S. GAAP................. Ps. 1,405,990 Ps. 1,732,027 Ps. 495,344 $ 51,331
Other comprehensive loss
Result from holding nonmonetary assets
With adjustments under U.S. GAAP................ (515,408) (1,108,286) (569,901) (58,746)
------------- ------------- ------------- -------------
Comprehensive income (loss) under U.S. GAAP......... Ps. 890,582 Ps. 623,741 Ps. (74,557) $ (7,415)
============= ============= ============= =============

21) CONDENSED FINANCIAL INFORMATION OF DINE, S.A. DE C.V. AND SUBSIDIARIES:

The condensed consolidated balance sheets and statements of income
(loss) of Dine, S.A. de C.V. and its subsidiaries as of and for the periods
reported in the accompanying financial statements are as follows:

1999 2000
ASSETS -------------- --------------

Current assets........................................... Ps. 801,519 Ps. 2,207,582
Land held for development and real estate projects....... 3,765,789 3,737,802
Investment in shares..................................... 91,602 108,235
Property and equipment................................... 1,613,103 283,611
Other assets............................................. 43,582 88,420
-------------- --------------
Total assets....................................... Ps. 6,315,055 Ps. 6,425,650
============== ==============

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities...................................... Ps. 161,910 Ps. 270,000
Long-term debt........................................... 1,529,625 1,408,900
Reserve for separation payments.......................... 10,761 377
Deferred income taxes.................................... -- 17,937
Majority shareholders' equity............................ 3,853,848 3,784,476
Minority interest........................................ 759,451 943,960
-------------- --------------
Total liabilities and shareholders' equity......... Ps. 6,315,595 Ps. 6,425,650
============== ==============

F-37

DESC, S.A. DE C.V. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 1998, 1999 AND 2000

(Continued)

1998 1999 2000
-------------- -------------- --------------

Revenues................................................. Ps. 895,293 Ps. 616,721 Ps. 1,234,042
Costs 446,342 267,047 616,734
-------------- -------------- --------------
Gross profit............................................. 448,951 349,674 617,308
Operating expenses....................................... 128,654 190,381 325,089
Comprehensive result of financial........................ 318,331 (77,454) 111,123
Other (income) expenses, net............................. (34,666) 20,527 (32,651)
Provisions for income and assets taxes................... 40,802 36,862 74,243
Equity in income (loss) of associated (2,273) 9,197 (101)
-------------- -------------- ---------------
companies..............................................
Net consolidated income (loss) for the year.............. Ps. (1,897) Ps. 188,555 Ps. 139,605
=============== ============== ==============

F-38

REPORT OF INDEPENDENT AUDITORS

Mexico City, January 19, 2001, except for Note 2(b)

To the Stockholders' Meeting of
GIRSA, S.A. de C.V.

We have examined the consolidated balance sheets of GIRSA, S.A. de
C.V., and Subsidiaries as of December 31, 2000 and 1999, and the related
consolidated statements of income, changes in stockholders' equity and changes
in financial position for each of the three years ended December 31, 2000, 1999
and 1998. These consolidated financial statements are the responsibility of the
Company's Management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally
accepted in Mexico and the United States of America. Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the consolidated financial statements are free of material misstatements and are
prepared in accordance with generally accepted accounting principles. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
Management, as well as evaluating the overall consolidated financial statements
presentation. We believe that our audit provides a reasonable basis for our
opinion.

As mentioned in Noted 2(1) to the consolidated financial statements,
starting on January 1, 2000, the Company adopted the guidelines in the amended
Bulletin D-4 "Accounting Treatment of Income Tax, Asset Tax and Employees'
Profit-sharing".

Accounting practices used by the Companies in preparing the
accompanying consolidated financial statements conform with generally accepted
accounting principles in Mexico, but do not conform with accounting principles
generally accepted in the United States of America. A description of these
differences and partial reconciliation as permitted by Form 20-F of the
Securities and Exchange Commission of consolidated net income and shareholders'
equity to U.S. generally accepted accounting principles is set forth in notes
20, 21 and 22.

In our opinion, the aforementioned consolidated financial statements
present fairly in all material aspects, the consolidated financial position of
GIRSA, S.A. de C.V. and Subsidiaries at December 31, 2000 and 1999, and the
consolidated results of their operations, the changes in their stockholders'
equity and the changes in their financial position for each of the three years
ended December 31, 2000, 1999 and 1998, in conformity with accounting principles
generally accepted in Mexico.

PricewaterhouseCoopers

By /s/ Alfonso Infante Lozola
Alfonso Infante Lozola
Alfonso Infante Lozola
Public Accountant

F-39

REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Shareholders of
Agroken, S.A. de C.V. and Subsidiaries:

We have audited the accompanying consolidated balance sheets of
Agroken, S.A. de C.V. and subsidiaries as of December 31, 1999 and 2000, and the
related consolidated statements of income, stockholders' equity and changes in
financial position for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards in Mexico, which are substantially the same as those followed in the
United States of America. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement and are prepared in conformity with generally
accepted accounting principles in Mexico. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Agroken, S.A. de C.V. and subsidiaries at December 31, 1999 and 2000, and the
consolidated results of their operations, their stockholders' equity and the
changes in their financial position for the years then ended, in conformity with
accounting principles generally accepted in Mexico.

As mentioned in Note 3 to the accompanying financial statements,
effective January 1, 2000, the Company adopted the requirements of the new
Mexican accounting Bulletin D-4, Accounting for Income Tax, Asset Tax and
Employee Profit Sharing, issued by the Mexican Institute of Public Accountants.
The new Bulletin D-4 requires the recognition of deferred taxes on all temporary
differences in balance sheet accounts for financial and tax reporting purposes.
Through December 31, 1999 deferred taxes were recognized only on temporary
differences that were considered to be non-recurring and that had a known
turnaround time.
Mancera, S.C.
Member of Ernst & Young International

by /s/ Augustin Aguilar
---------------------------------
C.P.C. Augustin Aguilar

Mexico, D.F.
January 29, 2001

F-40

REPORT OF INDEPENDENT AUDITORS

Board of Directors
Authentic Acquisition Corporation

We have audited the accompanying consolidated balance sheets of
Authentic Acquisition Corporation and subsidiaries as of December 31, 2000 and
1999 and the related consolidated statements of operations, stockholders' equity
and cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Authentic Acquisition Corporation and subsidiaries at December 31, 2000 and
1999, and the consolidated results of their operations and their cash flows for
the years then ended in conformity with accounting principles generally accepted
in the United States.

/s/ Ernst & Young LLP

January 19, 2001

F-41

REPORT OF INDEPENDENT AUDITORS

To the Stockholders of
Grupo Corfuerte, S.A. de C.V.
and Subsidiaries:

We have audited the accompanying consolidated balance sheets of GRUPO
CORFUERTE, S.A. DE C.V. AND SUBSIDIARIES (all incorporated in Mexico and
collectively referred to as the "Company") as of December 31, 1999 and 2000, and
the related consolidated statements of income, changes in stockholders' equity
and changes in financial position for each of the three years in the period
ended December 31, 2000. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We did not audit the financial statements of Nair Industrias, S.A. de
C.V., Pesquera Nair, S.A. de C.V. and Propemaz, S.A. de C.V. for the year ended
December 31, 1998, which statements reflect total assets of 26% and total
revenues of 2% in 1998 of the related consolidated totals. Those financial
statements were audited by other independent auditors, whose report has been
furnished to us and our opinion, insofar as it relates to the amounts included
for those entities, is based solely on the reports of the other auditors.

We conducted our audits in accordance with generally accepted auditing
standards in Mexico, which are substantially the same as those followed in the
United States. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement and are prepared in accordance with generally accepted
accounting principles in Mexico. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the reports of other
independent auditors provide a reasonable basis for our opinion.

In our opinion, based on our audits and the audit reports of the other
independent auditors, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Grupo
Corfuerte, S.A. de C.V. and Subsidiaries as of December 31, 1999 and 2000, and
the results of their operations, the changes in their stockholders' equity and
changes in their financial position for each of the three years in the period
ended December 31, 1998, 1999 and 2000, in conformity with accounting principles
generally accepted in Mexico.

F-42

recognized only on temporary differences that were considered to be
non-recurring and that had a known turnaround time.

Mancera, S.C.
Member of Ernst & Young International

by /s/ Augustin Aguilar
----------------------------------
C.P.C. Augustin Aguilar

Mexico, D.F.
January 31, 2001

F-43

REPORT OF INDEPENDENT AUDITORS

To the Stockholders of
Aquanova, S.A. de C.V.
and Subsidiaries:

We have audited the accompanying consolidated balance sheets of
Aquanova, S.A. de C.V. and Subsidiaries as of December 31, 1999 and 2000, and
the related consolidated statements of income, changes in shareholders' equity
and changes in financial position for the three years ended December 31, 1998,
1999 and 2000. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

As described in Notes 9 and 10 to the accompanying financial
statements, in the years ended December 31, 1999 and 2000 the Company did not
restate its property, plant and equipment and preoperating expenses as required
by Mexican Accounting Principles Bulletin B-10 Accounting Recognition of the
Effects of Inflation on Financial Information, as amended, issued by the Mexican
Institute of Public Accountants. Consequently, the financial information for the
year ended December 31, 1998, is not comparable with the information for years
ended December 31, 1999 and 2000.

In our opinion, except for the nonrecognition of the effects of
inflation on property, plant and equipment and preoperating expenses in 1999 and
2000, as mentioned in the third paragraph above, the accompanying consolidated
financial statements present fairly, in all material respects, the consolidated
financial position of Aquanova, S.A. de C.V. and Subsidiaries at December 31,
1999 and 2000, and the consolidated results of their operations, changes in
their shareholders' equity and changes in their financial position for each of
the three years ended December 31, 1998, 1999 and 2000, in conformity with
accounting principles generally accepted in Mexico.

Mancera, S.C.
Member of Ernst & Young International

by /s/ Jose Maria Tabares
---------------------------------
C.P.C. Jose Maria Tabares

January 29, 2001

F-44

REPORT OF INDEPENDENT AUDITORS

To the Stockholders of
Agrobios Corporativo, S.A. de C.V.

We have audited the accompanying balance sheets of Agrobios
Corporativo, S.A. de C.V. as of December 31, 1999 and 2000, and the related
statements of operations, shareholders' equity and changes in financial position
for each of the three years in the period ended December 31, 2000. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Agrobios
Corporativo, S.A. de C.V. at December 31, 1999 and 2000, and the results of its
operations, the changes its shareholders' equity and the changes in its
financial position for each of the three years in the period ended December 31,
2000, in conformity with accounting principles generally accepted in Mexico.

Mancera, S.C.
Member of Ernst & Young International

by /s/ Augustin Aguilar
--------------------------------------
C.P.C. Augustin Aguilar

Mexico, D.F.
January 29, 2001

F-45

DESC, S.A. DE C.V.

CORPORATE BYLAWS

NAME

FIRST. The name of the corporation is "DESC." This name shall be
followed by the words SOCIEDAD ANONIMA DE CAPITAL VARIABLE (variable capital
stock company), or the abbreviation thereof, "S.A. de C.V."

DOMICILE

SECOND. The domicile of the Corporation is Mexico City, Federal
District. However it may establish offices, branches or agencies in any place in
the Mexican Republic or abroad.

PURPOSES

THIRD. The purposes of the Corporation are the following:

a. The promotion and encouragement of industrial and tourist
development and the acquisition, alienation, stewardship and any
other legal acts that have as object shares, certificates of
participation, bonds, debentures, corporate interests and all
kinds of securities issued by Mexican companies.

b. Promotion and stimulation of industrial and tourist development
through acquisition, alienation, and any other legal acts which
have as object real estate, factories, laboratories, plants,
warehouses, machinery, equipment, personal property, credits and
rights.

c. To grant all kinds of credit to the companies in which it is the
direct or indirect owner of shares or corporate interests, as well
as to guarantee or secure in any form the obligations it owes and
the obligations of the companies in which it is the direct or
indirect owner of shares or corporate interests.

d. To provide all kinds of services and undertake studies for
promotion, expansion or restructuring intended solely or for those
in which it may have the intention of having any corporate
participation.

e. The acquisition and alienation by any legal means of all kinds of
real estate which may be necessary or convenient to achieve the
corporate purposes.

f. Lease of all kinds of real estate and execution of all kinds of
legal acts by which use or use and enjoyment of real estate is
obtained or conceded.

g. Acquisition of personal property, machinery, equipment and tools
as may be necessary or convenient to achieve the corporate
purposes.

h. Act as agent, representative or commission agent for persons or
companies, whether Mexican or foreign.

i. Give or take monies, under loan, provided that it be permitted by
the laws, obtaining as applicable the prior permits which are
required.

j. Execute the acts and enter into the contracts related to the
corporate purposes.

DURATION

FOURTH-. The duration of the Corporation shall be ninety-nine years,
counted from the date of this instrument(1).

NATIONALITY

FIFTH. No foreign person, individual or corporate, nor Mexican
corporations that do not contain an exclusion of foreigners clause, may have any
corporate participation whatsoever of own shares in the Corporation.(2)

If for any reason any of the persons referred to above due to any event
should acquire a corporate participation or become owner of one or more shares,
thereby contravening the provisions of this clause, it is agreed from this time
forward that said acquisition shall be null and therefor canceled and the
corporate participation at issue without any value and the certificates that
represent it, the capital stock being reduced in an amount equal to the value of
the canceled participation.

CAPITAL

SIXTH. The capital of the Corporation is variable. The minimum fixed
capital is the amount of EIGHT MILLION TWO HUNDRED SEVENTY-ONE THOUSAND FOUR
HUNDRED FORTY-THREE PESOS, MEXICAN CURRENCY, represented by 636,264,900
registered Series A shares without expression of par value and shall represent
at minimum FIFTY-ONE PERCENT of the voting shares, without counting those with
limited voting rights.

The variable capital will always be represented by registered Series B
shares or their subseries, numerically progressive, which shall have the
characteristics determined by the Extraordinary Shareholders Meeting that
resolves their issue but which in all cases shall be without expression of par
value and will represent at maximum FORTY-NINE PERCENT of the shares with voting
rights, without counting those with limited vote.

The Corporation may issue Series B shares that will be retained in the
corporate Treasury to be delivered as they are subscribed.

Further, there will be a Series C, Limited Voting Shares with right to
retirement, which will represent up to a maximum of TWENTY-FIVE PERCENT of the
Corporation's capital stock. Said series of shares shall have only pecuniary
rights and not corporate rights, and may be freely acquired by Mexican
individuals or Mexican companies with an exclusion of foreigners clause, by
foreign individuals or companies, as well as by Mexican companies with an
admission of foreigners clause.

- ----------

(1) TN: This refers to the charter of incorporation, dated August 28, 1973

(2) TN: This refers to A and B Shares.

SEVENTH. All shares within their respective series shall confer equal
rights and obligations on their holders, except for the Limited Vote Series C of
shares, which shall have only pecuniary rights and a right to vote regarding the
following matters:

- Extension of the Corporation's duration

- Advance dissolution of the Corporation

- Transformation from one type of Corporation to another

- Change of the Corporation's nationality

- Change of the purpose of the Corporation

- Merger of the Corporation if it is not the survivor

- Cancellation of the registration of the Corporation's shares on
the Bolsa Mexicana de Valores, Sociedad Anonima de Capital
Variable.

Each series A and B share shall give the right to one vote at the
General Shareholders Meetings.

Certificates representing the shares shall carry the signatures of any
two members of the Board of Directors, regular or alternate, in accordance with
the resolutions adopted for such purpose by said Board.

Facsimile signatures may be used if so resolved by the Board of
Directors; in this case the original signatures must be deposited in the
corresponding section of the Public Registry of Property and Commerce in the
corporate domicile.

Stock certificates shall be progressively numbered and may represent
one or several shares, and shall have coupons attached for dividend payment or
for exercise of the right that the Shareholders Meeting may from time to time
resolve. The stock certificates or provisional certificates for each issue must
meet the requirements of Article One hundred twenty five of the General Law of
Commercial Companies, and must also contain the whole text of Clause Fifth
herein.

EIGHTH. The Corporation shall keep a Stock Register and shall consider
as owner of the shares the person who appears as such in said Register.

On request of any interested person, after appropriate proof, the
Corporation must record in said Register transfers which occur.

NINTH. The variable capital of the Corporation may be increased or
reduced without need of amending the corporate bylaws, with the sole formality
that increases or reductions be resolved by the General Extraordinary
Shareholders Meeting, duly protocolling the corresponding Minutes. The fixed
minimum capital of the Corporation may not be increased or reduced if not
resolved by

a General Extraordinary Shareholders Meeting and the corporate bylaws are
consequently amended.

Any increase or reduction of the capital must be recorded in the
Changes of Capital Book kept for such purpose.

A capital increase may not be declared if all shares previously issued
by the Corporation are not wholly subscribed and fully paid.

CAPITAL INCREASES

When the capital is increased, the following shall be observed:

a. When capital increases are with distributable profits or due to
capitalization of the legal reserve fund, due to capitalization of
premiums on shares or from other prior contributions by the
shareholders or due to capitalization of retained profits or
reserves from appraisal or reappraisal, all shareholders of the
different shareholding series shall have the right to subscribe
the capital increase in proportion to the number of shares that
they hold.

b. When capital increases are by cash contributions from the
shareholders, they must be declared with assurance that the
shareholding proportion established in Clause Sixth herein is
retained.

c. In the case of an increase in Series B, in order to reach the
percentage established in Clause Sixth hereof, (holders of shares
in) Series A and B currently in circulation shall have a
preferential right to subscribe the increase in proportion to the
number of shares which they hold. If any of the shareholders of
such Series does not exercise the right conferred in this section
at the proper time, it shall be exercised by the other
shareholders of said Series pursuant to the bases established at
the Shareholders Meeting that declares the increase.

d. In the event that once a capital increase has been declared, it
has not been fully subscribed by the shareholders, the Board of
directors shall determine the form and terms on which the
unsubscribed portion must be subscribed.

The right conferred in the preceding sections must be exercised
within the fifteen business days following the date on which the
corresponding resolutions are published in the federal Diario
Oficial.

In cases of capital increase, the increase in question and the
issue of the shares that represent it shall not have effect until
written notice of the capital increase and issue of the
corresponding shares has been given to the National Securities
commission and to the stock exchanges where the Corporation's
shares are listed, and until notice of the capital increase and
the issue that represents it is published in the federal Diario
Oficial, which notice must indicate the total number of shares
issued to represent the capital after the increase in question,
the Series into which it is divided, and the number of shares that
constitute each series.

e. If the capital increase is declared in order to issue unsubscribed
shares for public offer, it shall be in accordance with Article
Eighty one of the Securities Market

Law, through express waiver by the shareholders of their
preferential right at the Extraordinary Shareholders Meeting that
declares issue of these shares.

CAPITAL REDUCTIONS

Any capital reduction shall affect all shares representing the capital,
respecting the shareholding proportions established in clause Sixth hereof.

Reimbursement for complete shares will be made to shareholders at their
book value. Designation of the shares to be reimbursed will be done as resolved
in the corresponding Shareholders Meeting, through drawing before a public
broker or through reimbursement to all shareholders such that they represent,
after the corresponding capital reduction, the same shareholding percentages and
if this be not possible, the percentage of shares that is most similar to that
which they previously hold. Upon designation of the shares which must be
reimbursed, a notice will be published in the federal Diario Oficial stating the
system followed for retirement of the shares, the number of shares that will be
retired, and the number of the share certificates which as a consequence must be
canceled, or, as applicable, exchanged, and the credit institution where the
amount for reimbursement is deposited, which shall remain available to the
respective shareholders from the date of publication but shall not earn
interest.

On prior approval of the General Extraordinary Shareholders Meeting,
the Corporation may amortize shares with accumulated profits pursuant to Article
One hundred thirty six of the General Law of Commercial Companies.

TENTH. The Shareholders shall be entitled to partial or total
retirement of their contributions represented by Series B shares or their
numerically progressive subseries and Series C Limited Vote shares, provided
they give effective notice to the Corporation meeting the requirements of
Articles Two Hundred Twenty and Two Hundred Twenty One of the General Law of
Commercial Companies. The Corporation shall reimburse the respective
participation to the shareholder at the value which is the lesser of the two
following options:

Ninety five percent of the value quoted on the market, obtained from
the average of transactions effected during the thirty days that the shares have
been quoted prior to the date when the retirement should take effect, or the
book value of the shares in accordance with the financial position statement for
the fiscal year when the separation should become effective, previously approved
by the General Ordinary Shareholders Meeting.

Payment of the reimbursement may be requested of the Corporation from
the day following the General Ordinary Shareholders Meeting which has approved
the financial position statement corresponding to the fiscal year when the
retirement will become effective.

The reimbursement will be done against the delivery and cancellation of
the respective shares.

TENTH BIS. In the event of cancellation of the registration of the
shares of the Corporation in the Securities Section of the National Securities
and Brokers Registry, whether on request of the Corporation or by resolution
adopted by the National Securities Commission pursuant to the law, but except
when said cancellation has the consent of all of the shareholders of the
Corporation, the shareholders who hold control of the Corporation shall have the
obligation to make a public tender prior to cancellation and at the price that
is the higher of the average for the close of trades that have been done during
the thirty days during which the shares were quoted

prior to the date of the tender, or at the book value of the share according to
the last quarterly report filed with the National Securities Commission and the
Mexican Securities Exchange prior to the tender. This clause may be amended only
with prior approval of the National Securities Commission, through resolution
from the General Extraordinary Shareholders Meeting of the Corporation adopted
by favorable vote of shares representing at least 95% of the capital stock. The
provisions of this clause shall at all times be subject to the legal and
administrative provisions in force at the time when cancellation is planned and
to the authorizations granted for such purpose by the National Securities
Commission, and shall not be applicable or shall be applied in the terms and
under the conditions provided in said provisions and authorizations, as the case
may be.

GENERAL SHAREHOLDERS MEETINGS

ELEVENTH. The General Shareholders Meeting is the highest authority of
the Corporation all other being subordinate thereto.

TWELFTH. Shareholders Meetings shall be Ordinary, Extraordinary, or
Special, and will be held at the corporate domicile.

a. Extraordinary Shareholders Meetings shall be those wherein any of
the issues listed in Article One Hundred Eighty Two or the General
Law of commercial Companies are addressed;

b. Ordinary Shareholders Meetings are those listed in Article One
Hundred Eighty One of the General Law of Commercial Companies;

c. Special Shareholders Meetings are those which address issues
relating to the shareholders rights of Series A, B, or C shares,
and will be governed by Article One Hundred Ninety Five of the
General Law of commercial Companies.

THIRTEENTH. The Ordinary Shareholders Meeting will meet at least once
each year within the four months following the close of the corresponding fiscal
year, on the date set by the Board of Directors, and it shall address in
addition to the matters included on the Agenda, those matters enumerated in
Article One Hundred Eighty One of the General Law of commercial Companies,
especially the presentation, pursuant to Article One Hundred Seventy Two of said
law, of the report for the immediately preceding fiscal year of the
Corporation(s) in which the Corporation owns the majority of shares when the
value of the investment in each exceeds twenty percent of the shareholders
equity according to the financial position statement of the Corporation at the
close of the corresponding fiscal year.

The Extraordinary Shareholders Meeting shall meet whenever any of the
matters which are incumbent upon it under Article One Hundred eighty Two of the
General Law of commercial companies must be addressed.

FOURTEENTH. The call for the Shareholders Meetings must be done by the
Board of Directors, by the Statutory Auditors, or by judicial authority when
applicable, and will be signed by whomsoever resolves to issue the call.

FIFTEENTH. The call for Shareholders Meetings shall be done by
publication of a notice in the federal Diario Oficial or another periodical of
major circulation in Mexico city, never less than fifteen days prior to the date
for the meeting when balance sheets are to be approved.

This period may be reduced to five days with respect to other Ordinary or
Extraordinary Shareholders Meetings if the Board deems then urgent.

SIXTEENTH. The call for Shareholders Meetings must contain the place,
date and time when the Shareholders Meeting is to be held, the Agenda, and the
signature of the person making it.

SEVENTEENTH. A shareholders Meeting may be held without prior call
provided that all of the shares into which the capital stock is divided are
represented.

EIGHTEENTH. Ordinary Shareholders Meetings met on a first call will be
deemed legally met when at least half of the capital stock is represented and
its resolutions shall be valid if adopted by a majority of votes present.

NINETEENTH. If the Ordinary Shareholders Meeting could not be held on
the date set for it, a second call will be made with statement of this
circumstance, and at the meeting the matters set forth on the Agenda will be
resolved by a majority of votes regardless of the number of shares represented.

TWENTIETH. Extraordinary Shareholders Meetings met on a first call will
be deemed legally met if at least three quarters of the capital stock is
represented and its resolutions shall be valid if adopted by vote of the shares
representing the same proportion of the capital stock.

On a second or later call, the Extraordinary Shareholders Meeting will
be deemed legally met when at least half of the capital stock is represented,
and its resolutions will be valid if adopted by favorable vote of the numbers of
shares that represent, at least, fifty percent of the capital stock.

TWENTY-FIRST. In order for shareholders to have the right to attend
Shareholders Meetings and to vote therein, they must deposit their share
certificates with the Secretary of the Corporation at least one day prior to the
Shareholders Meeting, receiving the corresponding admission card. They may also
deposit the stock in a Mexican credit institution, and in this case, to obtain
the admission card, they must file with the Secretary of the Corporation a
certificate from the (credit) institution that evidences the deposit of the
stock certificates and the obligation of the corresponding credit institution to
retain the certificates deposited until the Secretary of the Board of Directors
notifies if that the Shareholders Meeting has concluded.

The Secretary of the Corporation shall deliver to the corresponding
shareholders an admission card which records the name of the shareholder, the
number of shares deposited and the number of votes to which the shareholders is
entitled by virtue of said shares.

TWENTY-SECOND. The shareholders may be represented in Shareholders
Meetings by proxies named through a simply proxy letter on the understanding
that members of the Board of Directors and Statutory Auditors may not act as
proxies.

TWENTY-THIRD. Shareholders meetings shall be presided over by the
Chairman of the Board, and in his/her absence, by one of the Directors following
the order of their appointments, and in the absence of all of these, by the
person named by those present at the Shareholders Meeting. The Secretary or
Assistant Secretary of the Board shall act as Secretary and in the absence of
either of these, the person designated by the acting Chairman.

TWENTY-FOURTH. At the beginning of the Shareholders Meeting, the person
presiding shall name two inspectors of Election to count shares represented
therein, who must prepare an attendance list whereon they note the names of the
shareholders present or represented, and number of shares which each of them has
deposited in order to appear at the corresponding Shareholders Meeting.

TWENTY-FIFTH. If once a Shareholders Meeting is legally met, there be
not time to decide on all of the matters for which it was called, it may adjourn
and be continued on the following days without need of a new call.

ADMINISTRATION

TWENTY-SIXTH. The Administration of the Corporation shall be vested in
a Board of Directors that shall be composed of a number of regular members
between 5 and 15, as decided by the corresponding Shareholders Meeting, without
there being alternates.

One half plus one of the directors shall be elected by the vote of the
majority of the Series "A" shares, represented and voted in the Shareholders
Meeting, and but for minority rights, the rest shall be elected by majority vote
of the Series "B" or its progressive subseries shares represented and voted at
the Shareholders Meeting.

Any shareholder or group of shareholders holding shares in the same
Series of stock who represents at least ten percent of the capital stock, shall
have the right to elect one Director for the corresponding Series, pursuant to
the provisions of Article One Hundred Forty-Four of the General Law of
Commercial Companies.

The members of the Board of Directors need not be shareholders of the
Corporation and may not be over 75 years old at the time of their designation or
reelection, as applicable, unless the shareholders meeting expressly waives this
limitation for each exercise, on the understanding that in no event, any such
person is older than 78 years.

The Directors shall be elected for one year and shall remain in office,
even if the period for which they were elected has concluded, until the persons
elected to replace them take office.

TWENTY-SEVENTH. When the Shareholders Meeting so resolves, each of the
Directors and the Chief Executive Officer must secure the liabilities to which
they may become subject in performance of their duties, through deposit in cash
or creation of a bond in favor of the Corporation in such amount as may be
established by the Shareholders Meeting. If the Chief Executive Officer is named
by the Board, it shall pertain to the Board to determine whether said person
must provide security and the amount thereof.

The security, if any, shall remain in force until the accounts for the
relevant period have been approved by the General Shareholders Meeting.

TWENTY-EIGHTH. The Board of Directors shall meet in Mexico City or in
any other place in the Mexican Republic or abroad that may be indicated for such
purpose at least 4 times a year, provide that it be convened by the Chairman,
the Secretary, at least 25% of the Directors, or by the Statutory Auditor(s).

The Statutory Auditors must be convened to all Board meetings, which
they may attend with the right to speak, but without vote.

The Board shall validly function with the presence of a majority of its
members and its resolutions shall be valid if adopted by majority vote of those
present. In the case of deadlock, the person who presides at the meeting shall
have the decision-making vote.

Pursuant to Article One Hundred Forty-Three of the General Law of
Commercial Companies, the Directors may adopt resolutions outside a Board
Meeting by unanimous vote. Said resolutions shall have, for all legal effects,
the same validity as if they were adopted in a Board Meeting, provided they be
confirmed in writing. Said confirmation may be recorded in a single document or
in separate documents. The text of the resolutions shall be transcribed in the
book referred to in Clause Twenty-Ninth hereafter, with notation of the date
from which they will be effective.

TWENTY-NINTH. For each Board Meeting, minutes shall be prepared wherein
are noted the resolutions approved. They must be recorded in the corresponding
Minute Book and will be signed by whoever presides at the meeting by the person
who acted as Secretary and by the other attendees who wish to do so.

THIRTIETH. The Board of Directors, in its first meeting held after the
shareholders meeting appointing the Board, will name a Chairman from among its
members. The Board will also designate a Secretary and an Assistant Secretary,
who may or not be members of the Board, as well as the Presidents of the
Compensation and Evaluation, Auditing, and Finance and Planning Committees.

Furthermore, the Board at any time may designate one or more
Vicepresidents, who will perform the offices and will have the faculties and
obligations that the Board vests on them at their designation or afterwards and,
if the Board deems it necessary, one or more Delegate Directors with all
necessary faculties to carry out the Board's resolutions.

The temporary or permanent absences of the Chairman will be covered by
one of the Vicepresidents in the order of their designation or in the absence of
Vicepresidents by one of the Directors in the order of their designation; the
absences of the Secretary shall be covered by the Assistant Secretary, or in the
latter's absence by the person the Board designates. The Board of Directors may
also name a Chief Executive Officer or a Management Committee, as well as any
other types of committees, which will have the faculties and obligations
determined by the Board.

POWERS OF THE BOARD AND OF THE DIRECTORS

THIRTY-FIRST. The Board of Directors shall have the broadest faculties
for the unrestrained and proper management of the Corporation business, with the
broadest general power of attorney for lawsuits and collections, to administer
property, and to exercise acts of dominion, without any limitation whatsoever,
that is, with all general faculties and the specific faculties which require a
specific clause pursuant to the Law, in the terms of the first three paragraphs
of Article Two Thousand Five Hundred Fifty-Four of the Federal District Civil
Code, including the faculties enumerated in Article Two Thousand Five Hundred
Eighty-Seven of said Code.

Expressly, the Board will have the following faculties:

I. To represent the Corporation before all kinds of authorities, be
they Federal, State or Municipal; represent the Corporation before all kinds of
natural or legal persons, national or foreign; to represent the Corporation
before Labor Conciliation Boards and Labor Conciliation and Arbitration Boards,
be they federal or local; present constitutional relief [amparo] petitions and,
as

applicable, withdraw same; file criminal complaints and, as applicable, grant
pardon; file criminal accusations and assist the Public Prosecutor; withdraw,
settle, assume commitments in arbitration, administer and respond to
depositions, and receive payments.

II. Grant, subscribe, endorse, and guarantee all kinds of credit
instruments, pursuant to Article Ninth of the General Law of Credit Operations
and Instruments.

III. Designate the members of the Management Committee, as well as the
Chief Executive Officer, vice-presidents, officers, employees, managers and
attorneys-in-fact of the Corporation, to whom the Board must indicate their
duties, obligations, and remuneration. It shall also designate the Presidents of
the Compensation and Evaluation, Auditing, and Finance and Planning Committees.

IV. Establish or close offices, branches, or agencies.

V. Acquire shares and securities issued by third parties.

VI. Exclusively determine how to exercise voting rights on shares or
corporate interests of the Corporation in other companies at General Ordinary or
Extraordinary Shareholders meetings of said other companies.

VII. Enter into, amend, and rescind all kinds of contracts and legal
acts.

VIII. Accept in the Corporation's name mandates from natural or legal
persons, Mexican or foreign.

IX. Establish bank accounts and withdraw deposits from same, and
designate the persons authorized to use the corporate signature and to deposit
into said bank accounts and withdraw deposits from same with the limitations
that the Board may decide to establish.

X. Confer, replace, delegate and revoke general and specific powers
of attorney.

XI. Call Shareholders Meetings and execute the resolutions adopted by
same.

XII. Establish the strategic vision for the Corporation.

XIII. Assure that the Shareholders and the market have access to the
Corporation's public information.

XIV. Establish mechanisms for internal control.

XV. Assure that the Corporation has the instruments it deems
necessary which permit the Corporation to verify that it complies with the
different legal provisions applicable to it.

XVI. Regularly evaluate the performance of the Chief Executive Officer
and the high level officers of the Corporation.

In the case of acquisition of alienation of shares in another company,
or exercise of the right of retirement, the Board shall require prior approval
from the General Ordinary Shareholders Meeting, for which shareholders must be
convened as set forth in the bylaws, in the following cases:

a. When the value of the acquisition of shares in another company
through one acquisition or several acquisitions, simultaneous or
successive, exceeds twenty percent of shareholders equity,
according to the last financial position statement of the
Corporation.

b. When the value of alienation of shares in another company, through
one or several alienations, simultaneous or successive, exceeds
twenty percent of the shareholders equity of the Corporation,
according to the last financial position statement of the
Corporation.

c. When the Corporation exercises its right of retirement in the
Commercial Companies in which it is shareholder, if these have a
variable capital structure, when such retirement represents,
through one or several simultaneous or successive operations, the
redemption of shares with a value exceeding twenty percent of the
shareholders equity, according to the Corporation's last financial
position statement, or implies loss of administrative control of
the relevant entity.

CHAIRMAN

THIRTY-SECOND. The Chairman shall preside at the Shareholders Meetings
and at the Board Meetings, shall be the representative of the Board, shall
execute the resolutions of the Shareholders Meeting and of the Board of
Directors, unless either shall designate a Delegate for execution thereof, shall
oversee generally corporate operations, assuring exact compliance herewith, with
the regulations and with the resolutions and provisions of the Shareholders
Meetings, of the Board of Directors and of the Law; he shall sign with the
Secretary Minutes of Shareholders Meetings and Board Meetings.

In the temporary or permanent absence of the Chairman, his functions
shall be performed with the same authorities by one of the Directors according
to the order of appointment.

THIRTY-THIRD. The Board of Directors shall have three mid-level
administrative bodies to support the Board in performance of its tasks: a
Compensation and Evaluation, Committee; an Auditing Committee; and a Finance and
Planning Committee. Said mid-level bodies shall be composed of a minimum of
three and a maximum of seven Directors, as determined by the Shareholders
Meeting.

The members of the Committees must be Directors of the Corporation and
elected in a General Ordinary Shareholders Meeting that resolves the election of
the members of the Board of Directors.

These Committees shall act without exception as collegial bodies, and
their faculties may not be delegated to individuals such as Directors, Managers,
Delegate Directors or Attorneys-in-Fact.

The Committees for Compensation and Evaluation, Auditing, and Finance
and Planning Committees shall present at least twice year a report on their
actions to the Board of Directors, or whenever facts or acts of importance for
the Corporation arise that so merits in their judgment.

The Statutory Auditor must be convened to all committee meetings, who
shall attend them with the right to speak but without vote.

The Committees for Compensation and Evaluation, Auditing, and Finance
and Planning shall have the following faculties:

I. The Compensation and Evaluation Committee shall have the following
duties:

a. Suggest to the Board procedures for proposing the Chief Executive
Officer and high level officers.

b. Propose to the Board criteria for evaluation of the Chief
Executive Officer and the high level officers according to the
general guidelines established by the Board of Directors.

c. Analyze and taking to the Board of Directors the proposal made by
the Chief Executive Officer on structure and amount of
remuneration for principal Corporation executives.

II. The Auditing Committee shall have the following duties:

a. Recommend to the Board of Directors the candidates for external
auditors of the Corporation.

b. Recommend to the Board the conditions for contracting and the
scope of the professional mandate for the external auditors.

c. Support the Board of Directors in supervising performance of
auditing contracts.

d. Serve as a communication channel between the Board of Directors
and the external auditors, as well as assuring the independence
and objectivity of these latter.

e. Review the work program, comment letters and auditing reports and
reporting to the Board of Directors on the results.

f. Recommend to the Board the bases for preparation of the financial
information.

g. Assist the Board through review of the financial information and
its issue process.

h. Contribute to the definition of the general guidelines for the
internal control system and evaluating its effectiveness.

i. Assist the Board in coordination and evaluation of annual internal
auditing programs. j. Coordinate the work of the external auditor,
internal auditor, and Statutory Auditor.

k. Verify that the mechanisms are in place which are deemed necessary
such that the Corporation can prove that it complies with the
different provisions to which it is subject.

III. The Finance and Planning Committee shall have the following
functions:

a. Evaluate and, as applicable, suggest investment policies for the
Corporation proposed by the Office of the Chief Executive Officer,
to thereafter submit them to the approval of the Board.

b. Evaluate and, as applicable, suggest financing policy (capital or
debt) for the Corporation proposed by the Office of the Chief
Executive Officer, to later be submitted to approval of the Board.

c. Evaluate and, as applicable, suggest general guidelines for
determination of strategic planning for the Corporation.

d. Give opinion on the premises of the annual budget and propose them
to the Board for its approval.

e. Do follow-up on application of the budget and the strategic plan.

f. Identify the risk factors to which the Corporation is subject and
evaluate the policies for their management.

SECRETARY

THIRTY-FOURTH. The Secretary shall have the powers that the Board
assigns to him and shall keep the Minute Books, in one of which he shall note
and sign with the Chairman all minutes of Shareholders Meetings and in the other
all minutes of the Board of Directors.

In the absence of the Secretary these functions shall be assumed by the
Assistance Secretary, if any, and in the absence of the latter, the person who
the acting, Chairman designates shall perform said functions.

THIRTY-FIFTH. The Chief Executive Officer, and as applicable, the
Management Committee shall have the faculties, if any, conferred thereon by the
Board of Directors, and the remuneration that the latter may establish.

THIRTY-SIXTH. The oversight of the corporation shall be the function of
a Statutory Auditor and an Alternate, who need not be shareholders and who will
be named by the General shareholders Meeting by majority vote, with the
exception for the right of any shareholder or group of shareholders who
represent ten percent of the shares to name an additional Statutory Auditor and
an Alternate in accordance with Articles One Hundred Forty Four and One Hundred
Seventy One of the General Law of Commercial Companies, except the Limited Vote
Series C shares, which shall not have the right to name any Statutory Auditor.

The Statutory Auditors shall have the powers and obligations determined
by the law and shall remain in their positions for one year, on the
understanding, that they shall continue to act until those appointed to replace
them assume their duties.

THIRTY-SEVENTH. To assume the position of Statutory auditor, those
elected must guarantee their performance in the same manner as the Directors
pursuant to Clause Twenty Seventh herein.

FISCAL YEARS AND BALANCE SHEETS

THIRTY-EIGHT. Fiscal years shall be twelve months and shall be closed
on the dates determined by the General Shareholders Meeting or the Board of
Directors.

As exception, the first fiscal year may be irregular and will begin the
day when this instrument is protocolled and will end on the date which the
General Shareholders Meeting or the Board of Directors determines.(3)

THIRTY-NINTH. At the end of each fiscal year, a financial position
statement shall be prepared which must be audited by an independent public
accountant and which be completed within the four months following close of the
corresponding fiscal year.

The Board of Directors shall deliver the financial position statement
to the Statutory Auditors at least fifteen days prior to the date of the General
Shareholders Meeting, which is to discuss it, together with the profit and loss
statement, the statement of changes in the financial position, the statement of
changes in the entries that constitute the corporate property and the notes
needed to clarify or complete the information on the foregoing statements. The
Statutory Auditors within the fifteen days that follow shall render the report
referred to in Article One Hundred Sixty Six (IV) of the General Law of
Commercial Companies.

RESERVE FUND AND MANNER OF DISTRIBUTION PROFITS AND LOSSES

FORTIETH. The liquid profits shown on the statement of financial
position after being approved by the Annual Ordinary Shareholders Meeting shall
be distributed as follows:

a. First, five percent shall be separated for creation or
replenishment of the legal reserve fund until it represents an
amount equal to one -fifth of the capital.

b. Then, the amount, if any, that the General Shareholders Meeting
resolves to constitute additional reserve, special or
extraordinary funds shall be separated.

c. The remainder of the liquid profits may be distributed as a
dividend among the shareholders in proportion to their respective
contributions to the capital; the dividend payments shall be made
against the respective coupons, unless the Shareholders Meeting
resolves another form of proof.

Dividends not collected in five years counted from and after the
date fixed for their payment shall prescribe in favor of the
corporation.

d. The remainder of the distributable profits may also be applied to
amortization of shares, pursuant to Article One Hundred Thirty-Six
of the General Law of Commercial Companies, pursuant to the
resolutions that the Extraordinary Shareholders Meeting adopts for
such purpose.

The Annual Ordinary Shareholders Meeting shall establish the
remuneration for the Directors and Statutory Auditors, which shall
be charged to general expenses.

If there are losses, these shall be reported by the shareholders
in proportion to the respective number of their shares, but at all
times the obligations of the

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(3) TN: Mexican law currently requires that fiscal years run from January 1
through December 31.

shareholders shall be limited to payment of the amount of their shares, and no
additional payment may be demanded of them.

FORTIETH BIS. The Corporation may acquire the shares representing its
capital stock on prior resolution of the Board of Directors, through the Mexican
Securities Market at the price current in the market, without the prohibition
being applicable that is established in the first paragraph of Article 134 of
the General Law of Commercial Companies, provided the purchase be made with
charge to the capital and, as applicable, to a reserve from the net profits
titled reserve for acquisition of shares.

The General Ordinary Shareholders Meeting shall determine the amount of
the capital that can be allocated to purchase of the Corporation's shares and
the amount of the corresponding reserve which will be created by the
Shareholders Meeting with the sole limitation that the sum of the resources that
can be allocated to this purpose may not exceed the total balance of the net
profits of the Corporation.

Purchase of its own shares by the Corporation shall be done by
affecting the capital account for an amount equal to the par value of the shares
purchased, determined through division of the amount of the paid capital by the
number of the Corporation's outstanding shares. The surplus shall be charged to
the reserve for acquisition of shares. If the purchase price for the shares is
less than the par value determined as indicated above, only the capital account
shall be affected for the amount equal to the par value of the shares purchased.

As a consequence of the purchase of its shares, the Corporation shall
proceed to reduce its capital on the same date as the acquisition, and as
applicable, at the same time shall affect the reserve for acquisition of shares.

The Corporation may issue treasury shares for their later placement for
investment by the public. The shares acquired by the Corporation shall become
treasury shares and may be placed for public investment and, in this case, the
capital shall be increased by the amount equal to the par value of the shares,
multiplied by the total number of treasury shares placed for public investment,
and the surplus of the proceeds of the placement, if any, shall be used to
replenish the reserve for acquisition of shares. The gain generated by the
difference between the proceeds from the placement and the purchase price, if
any, shall be recorded in the account titled premium for subscription of shares.

The capital reductions and increases derived from purchase and
placement of shares as referred to in this clause shall not require any
resolution by the Shareholders Meeting or any resolution by the Board of
Directors.

The Board of Directors, or the persons it may designate to perform
stock repurchase operations or placement of treasury shares with the investing
public shall assure that in no case said operations result in exceeding the
maximum authorized percentage of limited voting shares of the Corporation.

The operations for purchase and placement of shares provided for in
this clause, the reports on same to be submitted to the General Ordinary
Shareholders Meeting, the rules for disclosure through financial information,
and the form and terms on which these operations will be notified to the
National Securities Commission, to the Mexican Securities Market, and to the
investing public, shall be subject to the general provisions issued by the
National Securities Commission.

FORTY-FIRST. The incorporating shareholders do not reserve any
participation in the profits.

FORTY-FIRST.BIS. The company or companies in which the Corporation is a
majority shareholder may not directly or indirectly invest in the shares of the
Corporation, nor in shares of companies that are majority shareholders in the
Corporation, or without being so, have knowledge that it is a shareholder
therein.

FORTY-SECOND. The Corporation shall dissolve:

I. Due to expiration of the period established herein(4).

II. Due to impossibility of continuing realization of the primary
purpose of the corporation.

III. By agreement of the shareholders taken in accordance with the
corporate bylaws and the law.

IV. Because the number of shareholders becomes less than five, the
minimum required by the law(5).

V. Due to losses of two thirds of the capital.

BASES FOR LIQUIDATION

FORTY-THIRD. Should a case of liquidation arise, the General
Shareholders Meeting will appoint by majority vote one or more liquidators, who
shall be the representatives of the corporation and shall have the powers and
obligations set forth in Article Two Hundred Forty Two of the General law of
Commercial Companies, and who must in due course proceed to distribution of the
remainder among the shareholders pursuant to Article Two Hundred Forty Seven and
Two Hundred Forty Eight of the law.

FORTY-FOURTH. The provisions of the General Law of Commercial Companies
shall govern in all matters on which these bylaws do not provide an express
clause.

FORTY-FIFTH. Any dispute that may arise from the execution,
interpretation and performance of this contract shall be submitted to the
competent courts of the First Judicial District of those into which the Federal
District is divided.

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(4) TN: See footnote No. 1

(5) TN: The current minimum is two.