UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13A-16 OR 15D-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of October, 1999
-------
DESC, S.A. DE C.V.
(Translation of registrant's name into English)
PASEO DE LOS TAMARINDOS 400-B, BOSQUES DE LAS LOMAS, 05120 MEXICO, D.F., MEXICO
(Address of principal executive office)
Indicate by check mark whether the registrant files or will file annual reports
under cover of Form 20-F or Form 40-F. Form 20-F [X] Form 40-F [ ]
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes [ ] No [X]
If "Yes" is marked, indicate below the file number assigned to the registrant in
connection with Rule 12g3-2(b): 82-___________.
NY2:\844049\01\$39T01!.DOC\41150.0012
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Desc, S.A. de C.V.
------------------
(Registrant)
Date: October 29, 1999 By /s/ Ernesto Vega Velasco
-------------------- ----------------------------------
(Signature)*
Name: Ernesto Vega Velasco
Title: Chief Financial Officer
* Print the name and title under the signature of the signing officer.
2
<PAGE>
EXHIBIT INDEX
Sequential
Item Page Number
---- -----------
1. Press Release announcing Desc's Third Quarter 1999
Results.................................................. 4
3
Exhibit 1
[Desc Logo] FOR IMMEDIATE RELEASE
Contact: DESC
Arturo D'Acosta Ruiz
Mariana Alvarez Neder
011 525 261 8000
[email protected]
- or -
CITIGATE DEWE ROGERSON
Mikhal Stein
305 381 6500
[email protected]
DESC ANNOUNCES THIRD QUARTER 1999 RESULTS
MEXICO CITY, Mexico, October 25, 1999 -- DESC, S.A. de C.V. (NYSE: DES; BMV:
DESC) today reported results for the third quarter of 1999.
NINE MONTH RESULTS
CONSOLIDATED RESULTS FOR JANUARY - SEPTEMBER 1999 AND 1998
(In millions of constant Mexican pesos as of September 30, 1999)
<TABLE>
<CAPTION>
%
1999 1998 CHANGE
---- ---- ------
<S> <C> <C> <C>
Net Sales 16,894.5 17,496.5 -3.4%
Exports (US$) 683.4 629.5 8.6%
Operating Profit 2,310.6 2,615.9 -11.7%
Operating Margin 13.7% 15.0%
EBITDA (1) 3,002.4 3,331.1 -9.9%
EBITDA US$ (2) 304.9 309.2 -1.4%
Net Majority Income 1,664.9 567.6 193.3%
UPA (last 12 months) 1.41 0.61 131.1%
EBITDA / Share (last 12 months) 2.69 2.90 -7.2%
</TABLE>
(1) EBITDA: operating profit + depreciation and amortization
(2) EBITDA US$: calculated using the monthly figures in current pesos divided by
the average monthly exchange rate. This calculation is applicable to all dollar
denominated figures in this earnings release, with the exception of exports.
Net profit for the period of January - September 1999 was Ps $1,665 million,
nearly three times the figure from the same period of 1998. Cumulative sales for
the first nine months of the year were Ps $16,895 million, a decrease in
constant pesos of 3.4% from 1998. Exports grew 8.6% reaching US $683 million.
Operating profit was Ps $2,311 million, an 11.7% reduction from the prior year,
due to lower margins in every sector with the exception of autoparts. EBITDA in
dollars was US $305 million, 1.4% less than last year. The 15.8% inflation rate
in conjunction with an 8.2% revaluation rate of the peso negatively impact the
DESC S.A. de C.V.
Paseo de los Tamarindos 400-B
Bosques de las Lomas
05120 Mexico D.F.
www.desc.com.mx
4
<PAGE>
historical data when reported in constant pesos; the effect is lesser in dollar
terms.
THIRD QUARTER RESULTS
CONSOLIDATED RESULTS FOR JULY - SEPTEMBER 1999 AND 1998
(In millions of constant Mexican pesos as September 30, 1999)
<TABLE>
<CAPTION>
%
1999 1998 CHANGE
------- ------ ------
<S> <C> <C> <C>
Net Sales 5,459.1 6,203.2 -12.0%
Exports (US$) 229.0 224.7 1.9%
Operating Profit 677.7 974.9 -30.5%
Operating Margin 12.4% 15.7%
EBITDA (1) 916.2 1,213.6 -24.5%
EBITDA US$ (2) 97.0 108.4 -10.5%
Net Majority Income 339.5 136.4 149.0%
</TABLE>
(1) EBITDA: operating profit + depreciation and amortization
(2) EBITDA US$: calculated using the monthly figures in current pesos
divided by the average monthly exchange rate. This calculation is
applicable to all dollar denominated figures in this earnings
release, with the exception of exports.
In peso terms, third quarter 1999 results were 12.0% lower than the previous
year; in US dollars however, like-for-like sales increased by 3.9% to US $577
million. Exports increased 1.9% due to improved sales in autoparts and
petrochemicals. Operating profit fell 30.5% in pesos and 17.4% in equivalent US
dollars. The decrease in operating margin, to 12.4%, was due to strong pressure
on operating profits in petrochemicals, diversified products, and food, as well
as lower sales in real estate, for which positive results in the autoparts
sector could not compensate. EBITDA in US dollars fell 10.5% from US $108
million to US $97 million. Net profit increased 149.0% to Ps $340 million.
5
<PAGE>
The following graphs indicate sales and operating profit distribution during the
third quarter of the year:
SALES -Q3 1999
PS. $5,459 MILLION
[The figures in the table below represent percentage of sales
by sector in the third quarter 1999 that were depicted in a
pie chart]
Real Estate 2%
Food 23%
Diversified Products 16%
Petrochemicals 16%
Autoparts 43%
OPERATING PROFIT - Q3 1999
PS $678 MILLION
[The figures in the table below represent percentage of
operating profit by sector in the third quarter 1999 that were
depicted in a pie chart]
Real Estate 2%
Food 12%
Diversified Products 13%
Petrochemicals 18%
Autoparts 55%
6
<PAGE>
THIRD QUARTER 1999 RESULTS BY SECTOR
AUTOPARTS
(In millions of constant Mexican pesos as of September 30, 1999)
<TABLE>
<CAPTION>
CUMULATIVE TO SEPTEMBER 3RD QUARTER
- ----------------------- -----------
1999 1998 % CHANGE 1999 1998 % CHANGE
- ------- ---- -------- ------ ------ --------
<S> <C> <C> <C> <C> <C> <C>
7,265.6 7,253.0 0.2% Net Sales 2,365.3 2,406.2 -1.7%
71.4 409.4 15.1% Exports (US$) 155.7 130.1 19.7%
1,167.9 1,081.0 8.0% Operating Profit 381.9 386.5 -1.2%
6.1% 14.9% Operating Margin 16.1% 16.1%
1,497.3 1,446.9 3.5% EBITDA (1) 497.1 507.5 -2.0%
51.7 134.6 12.7% EBITDA US$ (2) 52.6 45.4 15.8%
</TABLE>
(1) EBITDA: operating profit + depreciation and amortization
(2) EBITDA US$: calculated using the monthly figures in current pesos divided by
the average monthly exchange rate. This calculation is applicable to all dollar
denominated figures in this earnings release, with the exception of exports.
Exports continued to be the main driver of sales, reaching US$156 million, an
equivalent to an increase of 19.7% over 1998. Third quarter sales in constant
pesos declined 1.7% over the same period in 1998 to Ps $2,365 million,
reflecting the effect of inflation and peso revaluation. Year over year volumes
show continued growth mainly in stamped parts, transmissions and axles.
Notwithstanding the strength of the peso, operating margin improved on both a
consecutive and year-over-year basis due to productivity improvements.
Operating profit in pesos fell 1.2% from 1998, although in US dollar terms it
increased 17.2% to US $40 million. EBITDA rose US $53 million, an increase of
15.8% compared to last year. This is the highest level of EBITDA in dollars for
this sector to date.
PETROCHEMICALS
(In millions of constant Mexican pesos as of September 30, 1999)
<TABLE>
<CAPTION>
CUMULATIVE TO SEPTEMBER 3RD QUARTER
- ----------------------- -----------
1999 1998 % CHANGE 1999 1998 % CHANGE
------- ------ -------- ---- ----- --------
<S> <C> <C> <C> <C> <C> <C>
2,402.8 2,875.3 -16.4% Net Sales 857.1 1,009.3 -15.1%
95.3 100.5 -5.2% Exports (US$) 36.6 33.2 10.5%
335.2 540.3 -38.0% Operating Profit 121.0 202.3 -40.2%
14.0% 18.8 % Operating Margin 14.1% 20.0%
456.6 671.8 -32.0% EBITDA (1) 162.2 248.4 -34.7%
46.5 62.6 -25.6% EBITDA US$ (2) 17.2 22.4 -23.3%
</TABLE>
(1) EBITDA: operating profit + depreciation and amortization
(2) EBITDA US$: calculated using the monthly figures in current pesos divided by
the average monthly exchange rate. This calculation is applicable to all dollar
denominated figures in this earnings release, with the exception of exports.
Sales in the third quarter of 1999 were 15.1% lower in pesos than those of the
previous year, while in dollars they remain the same in US$91 million; likewise,
operating profit in pesos fell by 40.2% to Ps $121 million, or a decrease of
7
<PAGE>
29.7% in US dollars to US$13 million. Operating margin decreased from 20.0% in
the third quarter of 1998 to 14.1% in the same period this year as a result of
significant increases in raw material prices not reflected in end product
prices.
As an example, the price of styrene monomer increased 20% in the third quarter
of 1999 over the same period of 1998, while the price of polystyrene, a
petrochemical end product, rose only 5% since September 15. Volumes remained
stable. Exports reached US $37 million, an increase of 10.5% due to increase
exports in synthetic rubber. EBITDA fell by 23.3% to US $17 million as a result
of the aforementioned raw material price increase.
The joint venture with Repsol commenced in July, creating one of the three
biggest producers of solution rubber. In September operations started at the new
nitrile rubber plant, a joint venture with Uniroyal. These ventures enable to
Desc to market these specialty products worldwide.
DIVERSIFIED PRODUCTS
(In millions of constant Mexican pesos as of September 30, 1999)
<TABLE>
<CAPTION>
CUMULATIVE TO SEPTEMBER 3RD QUARTER
- ----------------------- -----------
1999 1998 % CHANGE 1999 1998 % CHANGE
------ ---- -------- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C>
2,700.1 2,819.2 -4.2% Net Sales 875.1 990.5 -11.7%
56.1 58.0 -3.2% Exports (US$) 17.9 20.4 -12.5%
351.6 367.4 -4.3% Operating Profit 90.6 123.3 -26.5%
13.0% 13.0% Operating Margin 10.4% 12.4%
423.7 442.1 -4.2% EBITDA (1) 111.9 149.0 -24.9%
42.9 41.3 4.0% EBITDA US$ (2) 11.8 13.4 -11.6%
</TABLE>
(1) EBITDA: operating profit + depreciation and amortization
(2) EBITDA US$: calculated using the monthly figures in current pesos divided by
the average monthly exchange rate. This calculation is applicable to all dollar
denominated figures in this earnings release, with the exception of exports.
During the third quarter of 1999 sales in pesos declined 11.7% from the prior
year to Ps $875 million, while in US dollars sales increased 3.8% reaching US$93
millions. Similarly, operating profit in pesos fell 26.5% to Ps $91 million, a
decrease of 13.5% in US dollars. The primary cause of this reduction was
pressure in the phosphates business, which represents 50% of sales in this
sector; difficulties included the peso level and an international price war.
In order to return margins to previous levels management is working on improving
competitiveness and reducing costs.
8
<PAGE>
FOOD
(In millions of constant Mexican pesos as of September 30, 1999)
<TABLE>
<CAPTION>
CUMULATIVE TO SEPTEMBER 3RD QUARTER
- ----------------------- -----------
1999 1998 % CHANGE 1999 1998 % CHANGE
------ ------ -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
3,951.5 3,799.3 4.0% Net Sales 1,271.4 1,492.1 -14.8%
60.6 61.6 -1.6% Exports (US$) 18.8 41.0 -54.1%
282.3 379.6 -25.6% Operating Profit 82.1 146.8 -44.1%
7.1% 10.0% Operating Margin 6.5% 9.8%
420.1 497.7 -15.6% EBITDA (1) 131.7 182.8 -28.0%
42.7 46.2 -7.7% EBITDA US$ (2) 13.9 16.4 -14.9%
</TABLE>
(1) EBITDA: operating profit + depreciation and amortization
(2) EBITDA US$: calculated using the monthly figures in current pesos divided by
the average monthly rate. This calculation is applicable to all dollar
denominated figures in this earnings release, with the exception of exports.
Peso sales decreased this quarter by 14.8% to Ps $1,271 million, or in dollar
terms, sales increased 1.3% to US $135 million. Operating profit declined 44.1%
to Ps $82 million, or a decrease of 34.0% in US dollars. Although improvements
were recorded in the branded products business, which is undergoing a
consolidation process, the commodity business reflected lower prices in pork and
poultry and production problems in shrimp. Due to the aforementioned situation
operating margin was 6.5% for the quarter versus 9.8% in the third quarter of
1998. EBITDA decreased 14.9% from US $16 million in 1998 to US $14 million.
In order to facilitate the analysis of this sector, operating margins will be
reported by branded and commodity products:
<TABLE>
<CAPTION>
CUMULATIVE TO SEPTEMBER 3RD QUARTER
----------------------- -----------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C>
BRANDED PRODUCTS
----------------
9.0% 7.4% Operating Margin 9.3% 8.0%
COMMODITIES
-----------
6.3% 11.1% Operating Margin 5.55 11.4%
</TABLE>
As previously reported, this sector has undergone restructuring in 1999, a
process that has been longer and more complex than initially estimated, but has
thus far achieved some important goals in the branded products operations
division.
Since mid-June, a new general director with extensive experience in generic and
branded products has led Corfuerte. A plan has been implemented to rationalize
SKUs, reposition brands and focus on the core products, focusing on distribution
channels and customer service, as well as the execution of a comprehensive
logistics plan and a reduction of production costs through plant investments.
9
<PAGE>
REAL ESTATE
(In millions of constant Mexican pesos as of September 30, 1999)
<TABLE>
<CAPTION>
CUMULATIVE TO SEPTEMBER 3RD QUARTER
----------------------- -----------
1999 1998 %CHANGE 1999 1998 % CHANGE
------ ------ ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
574.4 749.4 -23.4% Net Sales 90.2 304.9 -70.4%
204.3 290.7 -290.7% Operating Proft 15.0 122.5 -87.8%
35.6% 38.8% Operating Margin 16.6% 40.2%
227.2 308.2 -26.3% EBITDA(1) 22.7 129.6 -82.5%
23.2 27.9 -16.8% EBITDA US$(2) 2.4 11.2 -78.3%
</TABLE>
(1) EBITDA: operating profit + depreciation and amortization
(2) EBITDA US$: calculated using the monthly figures in current pesos divided
by the average monthly exchange rate. This calculation is applicable to all
dollar denominated figures in this earnings release, with the exception of
exports.
Sales in pesos decreased 70.4% in the third quarter of 1999 from the prior year,
or 63.3% in US dollar terms. Operating profit fell from Ps $123 million in 1998
to Ps $15 million in 1999, an 87.8% decrease in pesos, or 84.8% in US dollars,
as a result of lower sales which were not enough to compensate for fixed costs.
Operating margin fell from 40.2% from the prior year to 16.6%. EBITDA declined
78.3% from US $11 million to US $2 million.
Sales in the Bosques de Santa Fe project were lower than estimated this quarter,
partially because of the July and August vacation months; this should normalize
during the fourth quarter. On September 1 operations began successfully of the
Four Seasons Punta Mita Resort; initial sales (lots, villas and condominiums)
are projected in the first quarter of 2000.
FINANCIAL STRUCTURE AND BALANCE SHEET
- -------------------------------------
At quarter end total debt was US $1,179 million, 67% of which was long-term and
33% short-term. Short-term debt was used to finance working capital for exports,
principally inventory and accounts receivables. DESC's financial strength is
reflected in its leverage ratio (debt/capitalization) of 0.41, and an interest
coverage ratio (interest / EBITDA) of 4.66.
The company plans to continue the refinancing of its short-term debt; as such,
in the week of October 18th DESC announced the launch of a three billion peso
program of medium term notes with maturities of up to seven years by which the
Company can issue Pesos or UDIS denominated paper. The first draw down,
concluded last October 21st, was for an amount of Ps $850 million pesos and had
a real interest rate of 9% and Duff & Phelps rated this issue MxAA. The banks
responsible for this issue were Chase and BBV. This program will help meet
DESC's goal of increasing long-term debt and changing the mix of debt between
pesos and dollars. After this issue, long term debt comprises 78% of the total
debt.
YEAR 2000 (Y2K) SYSTEM ADAPTATION PROCESS
- -----------------------------------------
Complete information appended.
10
<PAGE>
DESC S.A. C.V.
CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER
30, 1999 AND 1998 (Millions of Constant
Mexican Pesos as of September 30, 1999)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
CURRENT ASSET
Cash and cash equivalents Ps.$ 1,300.00 Ps.$ 1,914.5
Other current assets 7,305.3
Total current assets 8,605.3 9,759.3
FIXED ASSETS 17,596.8 17,557.1
INVESTMENTS IN UNCONSOLIDATED SUBSIDIARIES 123.0 230.3
OTHER ASSETS 3,371.6 3,692.8
Total assets 29,696.6 31,239.5
LIABILITIES
Liabilities without cost 3,074.4 3,553.6
Debt 11,011.3 12,307.7
Total liabilities 14,085.7 15,861.3
STOCKHOLDERS' EQUITY
Majority stockholders' equity 11,484.8 11,781.6
Minority stockholders' equity 4,126.1 3,596.6
Total stockholders' equity 15,610.9 15,378.2
- -------------------------------------------------------------------------------------------------------------------------------
DESC S.A. DE C.V.
CONSOLIDATED STATEMENT OF INCOME AS OF JUNE 30, 1999 AND 1998
(Millions of Constant Mexican Pesos as of September 30, 1999)
NET SALES 16,894.5 17,496.5
OPERATING PROFIT Ps.$ 2,310.6 Ps.$ 2,615.9
COMPREHENSIVE FINANCIAL RESULT (648.4) 1,484.1
PROVISIONS FOR TAXES AND EMPLOYEE PROFIT SHARING 659.0 321.2
NET CONSOLIDATED PROFIT Ps.$ 2,148.8 Ps.$ 895.3
ALLOCATION FOR NET CONSOLIDATED PROFIT
Majority interest Ps$ 1,664.9 Ps.$ 567.6
Minority interest Ps.$ 483.9 Ps.$ 327.7
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
COVENANT RATIOS
<S> <C> <C>
Interest coverage ratio 4.66 4.84
Total Debt /Capitalization 0.41 0.44
Earnings per share (last 12 months) Ps.$ 1.41 Ps.$ 0.61
Book Value Ps.$ 7.7 Ps.$ 7.85
Earnings per ADS (last 12 months) US$ 3.03 US$ 1.02
FOREIGN EXCHANGE RATE AT THE END OF THE QUARTER PS.$/US$ 9.3500 PS.$/US$ 10.1900
</TABLE>
TOTAL OUTSTANDING SHARES
Series "A" 618,768,900 41.5%
Series "B" 554,096,760 37.2%
Series "C" 317,865,765 21.3%
- --------------- ----------------------- -------------------
TOTAL 1,490,731,425 100.0%
12
<PAGE>
SUMMARY OF ASPECTS RELEVANT TO Y2K
At Desc S.A. de C.V. (DESC), we are aware of the problem and we are solving it
according to a Y2K solution program involving senior management. The objective
of the program is to guarantee that our operations will continue without the
change in millennium constituting an event that will harm the company in any
way. Senior management is committed to duly following this program and is in
charge of overseeing that everything is carried out in a timely fashion. The
project has been given a very special priority, which is part of the executive
agenda.
<TABLE>
<CAPTION>
COSTS INCURRED AND BUDGETED BY SECTOR (FIGURES IN DOLLARS).
SECTOR Y2K BUDGETED COSTS COSTS INCURRED AS OF SEPTEMBER 1999
(APPROX.)
<S> <C> <C>
Autoparts 7,605,694 6,000,000
Petrochemicals and Diversified 1,644,505 902,898
Products
Real Estate 71,000 72,080
Foodstuffs 1,643,000 1,136,119
Corporate 10,000 10,000
TOTAL 11,203,922 8,121,097
</TABLE>
We consider that the costs of solving the Y2K problem will not affect our
production capacity or client service.
DESC CORPORATE
Currently, we are in the contingency plan validation stage and have made 90%
progress. We have used 100% of the allocated budget. The systems are ready and
have been tested internally and with the interaction of clients and providers.
AUTOPARTS
We concluded the Y2K implementation process on September 30, 1999. However, we
have a team in charge of following up on the critical dates subsequent to the
close of the year 1999. One hundred percent of UNIK's operations have been
classified as low risk.
PETROCHEMICALS AND DIVERSIFIED PRODUCTS
We are in the final stage of implementation and contingency plans having made
75% progress. An internal monitoring group has been formed which will follow up
on the change of the year and the critical dates subsequent to same. The
estimated date to complete the implementation and contingency plans will be
November 30, 1999.
REAL ESTATE
We have completed the first four phases of the program. The implementation stage
is 90% covered, and the contingency plans are ready. This allows us to assume
that by the middle of the fourth quarter of 1999 we will be ready with regard to
the Y2K problem solution.
13
<PAGE>
FOOD
The problem-solution process is in its final phase. TheY2K related problems will
be satisfactorily sorted out as a result of the modernization of systems and
equipment. We are currently preparing contingency plans which will be ready
prior to the close of the fourth quarter of 1999.
14
