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OFFERING MEMORANDUM



US$300,000,000



Metalsa, S.A. de C.V. (Incorporated under the laws of Mexico)



4.90% Senior Notes due 2023 _____________________



We are offering US$300,000,000 aggregate principal amount of our 4.90% Senior Notes due 2023 (the “notes”). We will pay interest on the notes semi-annually on April 24 and October 24 of each year beginning on October 24, 2013. The notes will mature on April 24, 2023. We may redeem the notes, in whole or in part, at any time at a redemption price based on a “make-whole” premium plus accrued and unpaid interest, if any, to the date of redemption. In addition, in the event of certain changes relating to the applicable withholding tax treatment relating to payments of interest on the notes, we may redeem the notes in whole, but not in part, at 100% of their principal amount, plus accrued and unpaid interest, if any, plus additional amounts payable to the date of redemption. If certain change of control events occur, each holder of the notes will have the right to require us to repurchase all or any part of that holder’s notes at 101% of the aggregate principal amount of the notes repurchased plus accrued and unpaid interest and additional amounts, if any, to the date of repurchase. The notes will be unconditionally guaranteed by certain of our subsidiaries. The notes and the subsidiary guarantees will be our and our Subsidiary Guarantors’ senior unsecured general obligations (subject to certain statutory preferences under Mexican law, including without limitation, tax and labor obligations) and will rank equally in right of payment with each other and with all of our and our Subsidiary Guarantors’ respective existing and future senior unsecured indebtedness, to the extent permitted by applicable law. The notes and the subsidiary guarantees will rank effectively junior to any of our and the Subsidiary Guarantors’ respective existing and future secured indebtedness to the extent of the value of the assets securing such indebtedness and structurally junior to debt obligations of our non-guarantor subsidiaries. No public market currently exists for the notes. Application is expected to be made to admit the notes to listing on the Official List of the Luxembourg Stock Exchange and to trading on the EuroMTF Market of the Luxembourg Stock Exchange.



Investing in the notes involves risks. See “Risk Factors” beginning on page 16 for certain information that you should consider before investing in the notes. _____________________



Offering Price: 100% plus accrued interest, if any, from April 24, 2013.



_____________________



THE NOTES HAVE NOT BEEN AND WILL NOT BE REGISTERED WITH THE NATIONAL SECURITIES REGISTRY (REGISTRO NACIONAL DE VALORES, OR “RNV”) MAINTAINED BY THE MEXICAN NATIONAL BANKING AND SECURITIES COMMISSION (COMISION NACIONAL BANCARIA Y DE VALORES, OR “CNBV”), AND MAY NOT BE OFFERED OR SOLD PUBLICLY IN MEXICO, EXCEPT PURSUANT TO THE PRIVATE PLACEMENT EXEMPTION SET FORTH IN ARTICLE 8 OF THE MEXICAN SECURITIES MARKET LAW (LEY DEL MERCADO DE VALORES). WE WILL NOTIFY THE CNBV OF THE TERMS AND CONDITIONS OF THIS OFFERING AS REQUIRED UNDER APPLICABLE LAW AND FOR INFORMATIONAL PURPOSES ONLY. DELIVERY OR RECEIPT OF SUCH NOTICE DOES NOT CONSTITUTE OR IMPLY A CERTIFICATION AS TO THE INVESTMENT QUALITY OF THE NOTES, OUR SOLVENCY, LIQUIDITY OR CREDIT QUALITY OR THE ACCURACY OR COMPLETENESS OF THE INFORMATION SET FORTH IN THIS OFFERING MEMORANDUM. THIS OFFERING MEMORANDUM IS SOLELY OUR RESPONSIBILITY AND HAS NOT BEEN REVIEWED OR AUTHORIZED BY THE CNBV.



_____________________



The notes have not been, and will not be, registered under the U.S. Securities Act of 1933, as amended (the “Securities Act”), any state securities laws, or the securities laws of any other jurisdiction and may not be offered or sold in the United States or to U.S. persons (as defined in Regulation S under the Securities Act (“Regulation S”)), except in transactions exempt from, or not subject to, the registration requirements of the Securities Act. Accordingly, the notes are being offered and sold in the United States only to qualified institutional buyers in compliance with Rule 144A under the Securities Act (“Rule 144A”) and to persons other than U.S. persons outside the United States in compliance with Regulation S. Prospective purchasers that are qualified institutional buyers are hereby notified that the seller of the notes may be relying on the exemption from the provisions of Section 5 of the Securities Act provided by Rule 144A. For a description of eligible offerees and certain restrictions on transfer of the notes, see “Transfer Restrictions.” The notes are being offered pursuant to an exemption from the requirement to publish a prospectus under Directive 2003/71/EC (as amended and supplemented from time to time, the “Prospectus Directive”), of the European Union, and this offering memorandum has not been approved by a competent authority within the meaning of the Prospectus Directive. The notes will be ready for delivery in book-entry form only through the facilities of The Depository Trust Company (“DTC”) for the accounts of its direct and indirect participants, including Euroclear Bank S.A./N.V., as operator of the Euroclear System (“Euroclear”), and Clearstream Banking, société anonyme, Luxembourg (“Clearstream”) on or about April 24, 2013.



_____________________ Joint Book-Runners



BofA Merrill Lynch The date of this offering memorandum is July 30, 2013.



Citigroup



TABLE OF CONTENTS Page Notice to Investors ....................................................................................................................................................... ii  Available Information................................................................................................................................................. iv  Forward-Looking Statements ...................................................................................................................................... v  Certain Definitions .................................................................................................................................................... vii  Presentation of Financial and Certain Other Information ........................................................................................... ix  Summary...................................................................................................................................................................... 1  The Offering .............................................................................................................................................................. 10  Summary of Financial Data and Other Information .................................................................................................. 13  Risk Factors ............................................................................................................................................................... 17  Use of Proceeds ......................................................................................................................................................... 40  Capitalization ............................................................................................................................................................. 41  Selected Historical Financial Data and Other Information ........................................................................................ 42  Management’s Discussion and Analysis of Financial Condition and Results of Operations .................................... 46  Industry ...................................................................................................................................................................... 73  Business ..................................................................................................................................................................... 78  Management .............................................................................................................................................................. 97  Principal Shareholders ............................................................................................................................................. 103  Related Party Transactions ...................................................................................................................................... 104  Description of the Notes .......................................................................................................................................... 105  Transfer Restrictions................................................................................................................................................ 129  Taxation ................................................................................................................................................................... 132  Plan of Distribution ................................................................................................................................................. 137  Enforcement of Civil Liabilities .............................................................................................................................. 142  Listing and General Information ............................................................................................................................. 143  Legal Matters ........................................................................................................................................................... 144  Independent Accountant .......................................................................................................................................... 145  Index to Financial Statements ................................................................................................................................... F-1  Summary of Certain Significant Differences Between MFRS and U.S. GAAP...................................................... A-1  You should rely only on the information contained in this offering memorandum. We have not, and the initial purchasers have not, authorized anyone to provide you with information that is different or additional from that contained in this offering memorandum, and we take no responsibility for any other information that others may give you. If anyone provides you with different or additional information, you should not rely on it. You should assume that the information in this offering memorandum is accurate only as of the date on the front cover of this offering memorandum, regardless of time of delivery of this offering memorandum or any sale of the notes. Our business, financial condition, results of operations and prospects may change after the date on the front cover of this offering memorandum. This document may only be used where it is legal to sell the notes. Neither we nor any of the initial purchasers is making an offer to sell the notes in any jurisdiction where such an offer is not permitted. Unless otherwise indicated or the context otherwise requires, all references in this offering memorandum to “Metalsa,” “our company,” “we,” “our,” “us” or similar terms refer to Metalsa, S.A. de C.V. together with its consolidated subsidiaries.



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NOTICE TO INVESTORS We are relying on exemptions from registration under the Securities Act for offers and sales of securities that do not involve a public offering. The notes are subject to restrictions on transferability and resale and may not be transferred or resold except as permitted under the Securities Act and the applicable state securities laws pursuant to registration or exemption therefrom. By purchasing the notes, you will be deemed to have made the acknowledgements, representations, warranties and agreements described under the heading “Transfer Restrictions” in this offering memorandum. You should understand that you will be required to bear the financial risks of your investment for an indefinite period of time. Neither the CNBV, the U.S. Securities and Exchange Commission (the “SEC”), nor any U.S. state securities commission has approved or disapproved of the notes or determined if this offering memorandum is truthful or complete. Any representation to the contrary is a criminal offense. We have submitted this offering memorandum solely to a limited number of qualified institutional buyers in the United States and to non-U.S. persons outside the United States so they can consider a purchase of the notes. We have not authorized its use for any other purpose. By accepting delivery of this offering memorandum, you agree to these restrictions. See “Transfer Restrictions.” The initial purchasers make no representation or warranty, express or implied, as to the accuracy or completeness of the information contained in this offering memorandum. Nothing contained in this offering memorandum is, or shall be relied upon as, a promise or representation by the initial purchasers as to the past or future. We are not making any representation to any purchaser of the notes regarding the legality of an investment in the notes by such purchaser under any legal investment or similar laws or regulations. You should not consider any information in this offering memorandum to be legal, business or tax advice. You should consult your own attorney, business advisor and tax advisor for legal, business and tax advice regarding any investment in the notes. We accept responsibility for the information contained in this offering memorandum. To the best of our knowledge and belief, the information contained in this offering memorandum is in accordance with the facts and does not omit any material information. You should assume that the information contained in this offering memorandum is accurate only as of the date on the front cover of this offering memorandum. We reserve the right to withdraw this offering of the notes at any time, and we and the initial purchasers reserve the right to reject any commitment to subscribe for the notes in whole or in part and to allot to any prospective investor less than the full amount of notes sought by that investor. The initial purchasers and certain related entities may acquire for their own account a portion of the notes. You must comply with all applicable laws and regulations in force in your jurisdiction and you must obtain any consent, approval or permission required by you for the purchase, offer or sale of the notes under the laws and regulations in force in your jurisdiction to which you are subject or in which you make such purchase, offer or sale, and neither we nor any of the initial purchasers will have any responsibility therefor.



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NOTICE TO NEW HAMPSHIRE RESIDENTS NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENSE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED STATUTES WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE OF THE STATE OF NEW HAMPSHIRE THAT ANY DOCUMENT FILED UNDER CHAPTER 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE OF THE STATE OF NEW HAMPSHIRE HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER, OR CLIENT ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH.



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AVAILABLE INFORMATION We are not subject to the information requirements of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”). To permit compliance with Rule 144A under the Securities Act in connection with resales of notes, we will be required under the indenture under which the notes are issued (the “Indenture”), upon the request of a holder of Rule 144A notes or Regulation S notes (during the restricted period, as defined in the legend included under “Transfer Restrictions”), to furnish to such holder and any prospective purchaser designated by such holder the information required to be delivered under Rule 144A(d)(4) under the Securities Act, unless we either furnish information to the SEC in accordance with Rule 12g3-2(b) under the Exchange Act or file information with the SEC pursuant to Section 13 or 15(d) of the Exchange Act. Any such request may be made to us in writing at our main office located at Carretera Miguel Alemán Km 16.5 #100, Apodaca Nuevo León, México, 66000. The Indenture will further require that we furnish to the Trustee (as defined herein) all notices of meetings of the holders of notes and other reports and communications that are generally made available to holders of the notes. At our request, the Trustee will be required under the Indenture to mail these notices, reports and communications received by it from us to all record holders of the notes promptly upon receipt. See “Description of the Notes.” We will make available to the holders of the notes, at the corporate trust office of the Trustee at our cost, copies of the Indenture as well as this offering memorandum, including a review of our operations, and copies in English of our annual audited consolidated financial statements and our quarterly unaudited consolidated financial statements. Information will also be available at the office of the Luxembourg Listing Agent (as defined herein). Application is expected to be made to admit the notes to listing in the Official List of the Luxembourg Stock Exchange and to trading on the EuroMTF of the Luxembourg Stock Exchange, in accordance with its rules. This offering memorandum forms, in all material respects, the listing memorandum for admission to the Luxembourg Stock Exchange. We will be required to comply with any undertakings given by us from time to time to the Luxembourg Stock Exchange in connection with the notes, and to furnish all such information as the rules of the Luxembourg Stock Exchange may require in connection with the listing of the notes. Our corporate offices are located at Carretera Miguel Alemán Km 16.5 #100, Apodaca Nuevo León, México, 66000. Our corporate website address is www.metalsa.com.mx. We do not incorporate the information available on our corporate website into this offering memorandum, and you should not consider it part of this offering memorandum.



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FORWARD-LOOKING STATEMENTS This offering memorandum includes forward-looking statements. These statements relate to our future prospects, developments and business strategies and are identified by our use of terms and phrases such as “anticipate,” “believe,” “could,” “would,” “will,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “goals,” “target,” “strategy” and similar terms and phrases, and may include references to assumptions. These statements are contained in the sections entitled “Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Industry,” “Business” and other sections of this offering memorandum. Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward-looking statements relate to the future, by their nature, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Our actual results may differ materially from those contemplated by the forward-looking statements. Important factors that could cause actual results to differ materially from those in the forward-looking statements include regional, national or global economic, business, market and regulatory conditions, without limitation, and the following: 



general economic conditions in the United Mexican States (“Mexico”), the United States, South America, and Asia, and any significant economic or political developments in those regions;







cyclicality in the demand for our products, mainly linked to economic cycles, either regional or global;







a prolonged disruption in the supply of raw materials (including steel) and other components to us from our suppliers;







our ability to adjust fixed costs in the event of lower automotive demand and decreased sales to our customers;







change of purchasing or selling conditions by our OEM customers, based upon regulatory, economic or other events;







our ability to correctly implement our strategy;







the impact of competition arising from the use of non-steel materials as a substitute for steel or the development of new technologies in connection with the manufacturing or use of steel;







potential changes in industry pricing practices, including changes in the “pass-through” pricing formula for steel;







our ability to pass through price increases;







the impact of any natural disasters on our ability to operate or to deliver products to our customers;







unanticipated downtime of our plants;







increased capital expenditures as a result of technological, environmental or other changes;







our inability to supply our main customers with the amounts established in our commercial agreements;







claims arising from defective components, either directly from our OEM customers or indirectly from any end user of the components we produce or other third parties;







losses from derivative transactions, particularly with respect to our energy requirements;







changes to, and our ability to comply with, environmental and/or other laws and regulations, their interpretation or their application to our industry;



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



technological changes in the production of the components we supply that could result in lower demand for our products;



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performance of financial markets and our ability to refinance our financial obligations when they come due on favorable terms or at all, including our short-term debt;







our ability to service our debt;







loss of key personnel;







our ability to successfully compete in an increasingly consolidated industry;







our ability to generate new sources of revenue and to maintain current revenue levels;







currency exchange rates, including the Mexican Peso/U.S. Dollar exchange rate;







changes in the policies of central banks and/or foreign governments;







risks inherent in international operations, such as trade barriers, currency fluctuations, changes in duties and royalties, expropriation and nationalization;







our ability to comply with, and changes to, rules and regulations affecting exports;







the implementation of exchange controls in any of the jurisdictions where we operate;







our ability to successfully launch material new or takeover business;



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the termination or non-renewal by our customers of any material long-term contract or purchase order;



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shifts in market share away from our top customers;







our ability to successfully identify, complete and integrate acquisitions or achieve anticipated synergies, including as a result of our ability to comply with, or changes to, rules and regulations, and their interpretation, affecting acquisitions or other business combinations we may undertake in the future; and







other factors described under “Risk Factors” and elsewhere in this offering memorandum.



Should one or more of these factors or situations materialize, or should the underlying assumptions prove to be incorrect, the actual results may differ considerably from those that are described, foreseen, considered, estimated, expected, predicted or intended in this offering memorandum. These forward-looking statements speak only as of the date of this offering memorandum and we undertake no obligation to update our forward-looking statements or risk factors to reflect new information, future events or otherwise. Additional factors affecting our business emerge from time to time and it is not possible for us to predict all of these factors, nor can we assess the impact of all such factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statement. Although we believe that the plans, intentions and expectations reflected in or suggested by such forward looking statements are reasonable, we cannot assure you that those plans, intentions or expectations will be achieved. In addition, you should not interpret statements regarding past trends or activities as assurances that those trends or activities will continue in the future. All written, oral and electronic forward-looking statements attributable to us or to the persons acting on our behalf are expressly qualified in their entirety by this cautionary statement.



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CERTAIN DEFINITIONS In this offering memorandum, except where otherwise indicated or the context otherwise requires, references to: 



Accounting terms have the definitions set forth under Mexican Financial Reporting Standards;







“Banco de México” means Mexico’s Central Bank;







“BOF” means the body on frame market, a market within the LV segment consisting of all the vehicles that have a full independent frame assembly as their backbone;







“Board of Directors” means the board of directors of Proeza;







“CINIF” means the Mexican Financial Reporting Standards Board (Consejo Mexicano de Normas de Información Financiera);







“CV” means commercial vehicles;







“DSPB” means the Dana Structural Products Business;







“Dana” means Dana Holding Corporation;







“DTC” means The Depository Trust Company;







“Exchange Act” means the U.S. Securities Exchange Act of 1934, as amended;







“GAAP” means generally accepted accounting principles in the indicated country;







“GKN” means GKN Sinter Metals GmbH;







“GM” means General Motors;







“IASB” means the International Accounting Standards Board;







“IFRS” means International Financial Reporting Standards, as issued by the IASB;







“Indenture” means the Indenture under which the notes are issued;







“LV” means light vehicles;







“Metalsa” means Metalsa, S.A. de C.V.;







“Mexican Congress” means the Congreso General de los Estados Unidos Mexicanos;







“Mexico” means the United Mexican States;







“MFRS” means Mexican Financial Reporting Standards, as issued from time to time by the Mexican Financial Reporting Standards Board (Consejo Mexicano de Normas de Información Financiera, A.C.);







“MMBTU” is a unit of measurement comprised of one million British thermal units;







“NAFTA” means the North American Free Trade Agreement established on January 1, 1994;







“NCPI” means the National Consumer Price Index (Índice Nacional de Precios al Consumidor), published from time to time by the Banco de México in the Official Gazette of México (Diario Oficial de la Federación) or any index that may replace it;







“OCI” means other comprehensive income;



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



“OEMs” means original equipment manufacturers;







“Official Exchange Rate” means the exchange rate of Mexican Pesos for U.S. Dollars determined by the Banco de México for the payment of obligations denominated in foreign currency payable in Mexico, as published in the Federal Official Gazette (Diario Oficial de la Federación) on a determined date;







“Pesos,” “Mexican Pesos,” “Pesos” or “Ps.” means the lawful currency of Mexico;







“Proeza” or the “Group” means Grupo Proeza, S.A.P.I. de C.V., the direct parent company to Metalsa;







“SEC” means the U.S. Securities and Exchange Commission;







“Subsidiary Guarantors” means Metalsa Roanoke, Inc. and Metalsa Structural Products, Inc.;







“Tech Centers” means our three technology centers, two of which are located in Apodaca, Nuevo León, México; and one of which is located in Novi, Michigan, the United States;







“Tower” means Tower Automotive, a U.S. corporation;







“UDIs” means Unidades de Inversión, a unit account value of which, in pesos, is indexed to inflation on a daily basis by the exchange in the NCPI;







“United Kingdom” means the United Kingdom of Great Britain and Northern Ireland;







“U.S.” or “United States” means the United States of America;







“U.S. Dollars” “Dollars” or “US$” means the lawful currency of the United States of America;







“U.S. GAAP” means the generally accepted accounting principles as applied in the United States; and







“VW” means Volkswagen.



Certain capitalized terms used and not defined in this offering memorandum have been defined in the Indenture governing the notes. See “Description of the Notes—Certain Definitions.”



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PRESENTATION OF FINANCIAL AND CERTAIN OTHER INFORMATION Financial Information The annual audited consolidated financial statements and other financial information in this offering memorandum are expressed in U.S. Dollars and have been prepared in accordance with Mexican Financial Reporting Standards (“MFRS”), as issued from time to time by the Mexican Financial Reporting Standards Board (Consejo Mexicano de Normas de Información Financiera, A.C., or “CINIF”). MFRS differ in significant respects from generally accepted accounting principles as applied in the United States (“U.S. GAAP”). We have not attempted to identify or to reconcile the differences between MFRS and U.S. GAAP that would be significant to our financial statements. See “Summary of Certain Significant Differences Between MFRS and U.S. GAAP.” Pursuant to Article 78 of the General Provisions Applicable to Securities Issuers and Other Participants in the Securities Market (Disposiciones de Carácter General Aplicables a las Emisoras de Valores y a Otros Participantes del Mercado de Valores), effective January 1, 2012, certain Mexican companies with securities listed with the RNV are required to prepare and present financial information in accordance with IFRS. Because we are not required to comply with the foregoing regulations, the financial information presented herein has been prepared in accordance with MFRS. Although this requirement is not mandatory for us, our management is currently evaluating the possibility of adopting IFRS to align the accounting standards of our international operations under a globally accepted accounting framework. See “Risk Factors―Risks Relating to Our Business― We are subject to different corporate disclosure and accounting standards than U.S. companies.” In making an investment decision, you must rely upon your own examination of our company, the terms of the offering and the financial information included herein. We urge you to consult your own advisors regarding the differences between MFRS and U.S. GAAP and how these differences might affect the financial information included in this offering memorandum. Translation of Foreign Currency Financial Statements We have adopted the guidelines established in MFRS B-15. As a result of this adoption, our financial statements are presented in U.S. Dollars, which is the functional currency for Metalsa (in Mexico) and in its U.S. subsidiaries. Sales in these locations accounted for 77% of revenues in 2012. The financial statements of the consolidated foreign subsidiaries are translated into the reporting currency by initially identifying if the functional currency of the foreign operations is different from the reporting currency. If this is the case, such financial statements are translated using the historical exchange rates at year end and the inflation index of the country of origin, depending on whether the information comes from a non-inflationary or an inflationary economy in accordance with MFRS. As of December 31, 2012 and 2011, we recognized the effects of inflation in the financial statements of our subsidiaries in Argentina and Venezuela. The monetary position result recognized in the statement of income represents the gain or loss from holding monetary assets and liabilities in high-inflationary environments in accordance with MFRS and is calculated applying the inflation rate of the country where the subsidiary operates to its net monetary position (monetary assets less monetary liabilities). Rounding Adjustments Certain figures included in this offering memorandum have been rounded for ease of presentation. Percentage figures included in this offering memorandum have not in all cases been calculated on the basis of such rounded figures but on the basis of such amounts prior to rounding. For this reason, certain percentage amounts in this offering memorandum may vary from those obtained by performing the same calculations using the figures in our financial statements included elsewhere in this offering memorandum. Certain other amounts that appear in this offering memorandum may not sum due to rounding.



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Non-GAAP Financial Measures A body of generally accepted accounting principles is commonly referred to as “GAAP.” A non-GAAP financial measure is generally defined as one that purports to measure historical or future financial performance, financial position or cash flows but excludes or includes amounts that would not be so adjusted in the most comparable GAAP measure. In this offering memorandum, we present “Adjusted EBITDA,” which is a non-GAAP financial measure. For a description of how we define Adjusted EBITDA and a reconciliation of our Adjusted EBITDA to consolidated net income, see “Selected Historical Financial Data and Other Information.” Adjusted EBITDA is not a recognized term or measure of financial performance under MFRS or U.S. GAAP and does not purport to be and should not be considered as an alternative to net income, as determined on a consolidated basis in accordance with MFRS, as an indicator of our operating performance or as net resources generated by operating activities as a measure of our liquidity. We include Adjusted EBITDA because we believe that it enhances the understanding of our financial performance and our ability to satisfy principal and interest obligations with respect to our indebtedness as well as to fund capital expenditures and working capital requirements. We believe that Adjusted EBITDA can be useful to facilitate comparisons between periods and with other companies because it excludes the effect of (i) depreciation and amortization, which represents a non-cash charge to earnings, (ii) certain financing costs, which are significantly affected by external factors, including interest rates, foreign currency exchange rates and inflation rates, that have little or no bearing on our operating performance, (iii) income tax, (iv) pension plan liabilities costs, which represents a non-cash charge to earnings and (v) other expenses or income not related to the operation of the business. We also believe Adjusted EBITDA is a useful basis for comparing our results with those of other companies because it presents operating results on a basis unaffected by capital structure, taxes and such other noncash charges and non-operational income and expenses. However, Adjusted EBITDA has material limitations that impair its value as a measure of a company’s overall profitability since it does not address certain ongoing costs of our business that could significantly affect profitability, such as financial expenses and income taxes, depreciation, capital expenditures and associated charges. In addition, certain items excluded from the calculation of Adjusted EBITDA such as other income (expenses), net, may include items of a type that are recurring and that might otherwise reflect the ongoing costs associated with our operations. Further, companies define Adjusted EBITDA in different ways and caution must be used in comparing this measurement to Adjusted EBITDA of other companies. You should review Adjusted EBITDA together with consolidated net income and net resources generated from (used in) operating activities, financing activities and investing activities, when trying to understand our operating performance. For a reconciliation of Adjusted EBITDA to consolidated net income, see “Selected Historical Financial Data and Other Information.” Industry and Market Data Market data and other statistical information used throughout this offering memorandum are generally based on independent industry publications, government publications, reports by market research firms or other published independent sources. Some data are also based on our estimates, which are derived from our review of internal surveys, as well as independent sources. Although we believe these sources are reliable, we have not independently verified the information and cannot guarantee its accuracy or completeness. In addition, in many cases, we have based certain statements contained in this offering memorandum regarding our industry and our position in the industry on certain assumptions concerning our customers and competitors. These assumptions are based on our experience in the industry and our own investigation of market conditions. We cannot assure you as to the accuracy of any such assumptions, and such assumptions may not be indicative of our position in our industry. Intellectual Property This offering memorandum includes some of our trademarks and trade names, including our logos. Each trademark and trade name of any other company appearing in this offering memorandum belongs to its respective owner.



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SUMMARY This summary highlights certain information contained in this offering memorandum and may not include all the information relevant to you. For a more complete understanding of our business, you should read the following summary together with the more detailed information appearing elsewhere in this offering memorandum, including that set forth under “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business” and our annual audited consolidated financial statements and the notes thereto included elsewhere in this offering memorandum. Overview We are one of the leading suppliers, in terms of market share, of structural components for the automotive light vehicle (“LV”) and commercial vehicle (“CV”) markets in North America and Brazil. Our main products include chassis structures, body structures, suspension structures, steel fuel tanks, customized side rails, customized cross members, heavy truck frames, and bus frames, which we provide primarily as a direct, or “Tier One”, supplier to original equipment manufacturers (“OEMs”). We are the second largest supplier of LV Body on Frame (“BOF”) chassis in North America, where we hold a market share of approximately 40%, and the largest supplier in South America, where we hold a market share of approximately 50%, and we are one of the primary suppliers of CV side rails in both North America, where we hold a market share of approximately 46%, and Brazil, where we hold a market share of approximately 33%. Moreover, in 2014, we expect to become the number one supplier in North America for LV BOF chassis frames as we expect to be the sole supplier for the next generation Ford F-150 Truck and the next generation General Motors Chevrolet Colorado. In 2011, we generated revenues of US$1,572 million and Adjusted EBITDA of US$210 million, which grew to US$1,807 million and US$252 million, respectively, for the year ended December 31, 2012, representing an increase of 14.9% and 20.0%, respectively. Our operations fall within two strategic business units which service the LV and CV markets. Within our LV segment, we produce chassis structures, suspension modules, engine cradles, stampings, body structures and fuel tanks for passenger cars and light vehicles, with a primary focus on chassis and body structures for BOF pickup trucks. Within our CV segment, we produce side rails, cross members and chassis structures for medium and heavy duty trucks and buses, with a primary focus on side rails. We use our manufacturing capabilities to transform thousands of tons of commercial, high strength and alternative steels and aluminum into our final products. We are both a holding and operating company. We have a presence in 12 countries around the world and have over 9,100 employees. We currently operate 14 facilities in seven countries, are setting up a new facility in Thailand that is expected to become operational in 2013, and partially own another facility in the United Kingdom through a joint venture with GKN Sinter Metals GmbH (“GKN”). We have manufacturing facilities in North America, South America, Asia and Australia. Our manufacturing facilities are supported by three state-of-the-art Tech Centers, two of which are located in Apodaca, Nuevo León, México; and one of which is located in Novi, Michigan, the United States. We also have international sales offices and engineering locations in Argentina, Australia, Brazil, Germany, India, Japan, Mexico, Russia, and the United States. Sequencing centers are located in San Antonio, Texas and Mexicali, Baja California to support Toyota and in Saltillo, Coahuila, Mexico to support Chrysler which helps to enhance customer service. Our sequencing centers store manufactured Metalsa products near the OEM’s plant in a sequence specified by the OEM which allows the OEM to retrieve the products in the proper order for the production of the vehicle model. See “Business—Product Development.” Our key product portfolio includes: LV Strategic Business Unit 



Chassis Structures: The chassis frame is the skeleton of the vehicle, which supports the power train, suspension, electrical and body systems. Chassis structures or ladder frames are used on mid- and full-size pickups and on medium duty trucks. The chassis frame’s primary function is to ensure a safe, durable and reliable vehicle performance to achieve the appropriate payload and towing specifications for the truck. The cabin and cargo box are bolted or riveted to the frame with rubber bushings, and the frame is assembled with all of the subsystems at the OEM plant.



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



Body Structures: Body structures refer mainly to the internal sheet metal or tubular components that give the final shape and structural integrity to the LV body. These structures are sub-assembled through different high-tech manufacturing processes and the final assembly occurs at the OEM plant. Also included in the body structure business unit are suspension modules and steel fuel tanks.



CV Strategic Business Unit 



Side Rails: Side rails are the backbone of the CV chassis segment for medium and heavy duty trucks, and range from 16 to 40 feet in size. These side rails are customized by various processes including cutting, hole drilling or punching, ramping and offsetting. Ladder frames consist of two side rails joined together by several crossmembers that are typically bolted or riveted to the side rails. Bus frames are also part of the CV side rail business.



See “Business—Key Products” for a more detailed description of each of our main products. The following chart shows the breakdown of sales volume as a percentage by product for the twelve months ended December 31, 2012. Breakdown of Sales Volume by Product Twelve Months Ended December 31, 2012



We supply our products to a well-diversified list of more than 23 clients, which include major OEMs, such as Toyota, Ford, Chrysler/Fiat, Volvo/Mack, VW, General Motors, Paccar (producer of the Kenworth, Peterbilt and DAF brands) and Nissan, among others. Some of our long-standing relationships with OEMs have lasted for up to 50 years. Our main LV products are chassis structures and body structures, which are customized for each of our main platforms and include the Ford F-150, Expedition, Navigator and Ranger; the Toyota Tundra, Tacoma, Hilux, Highlander and Sienna; the VW Amarok and Jetta; and the Chrysler Ram LD and Ram HD, among many others. The main products in our CV segment are side rails and ladder frames for Volvo/Mack Trucks, and side rails for Paccar. We have a significant global presence and are continuously looking to increase our participation in key geographic locations to better serve our customers and enhance our footprint within the industry. We currently operate from and sell products into countries all over the world, including, but not limited to, Argentina, Australia, Brazil, India, Mexico, the United Kingdom, the United States and Venezuela and we are in the process of setting up a new facility in Thailand. We have Tech Centers, engineering locations and/or sales offices in Argentina, Australia, Brazil, Germany, India, Japan, Mexico, Russia, and the United States. Our facilities in Argentina, Australia, Venezuela and Kentucky (United States) focus on the manufacturing and sale of LV products. Meanwhile, our facilities in Brazil, India, Thailand and Virginia (United States) are principally focused on the manufacturing and sale of CV products. Our facilities in Mexico focus on the manufacturing and sale of both LV and CV products. We believe offering high quality and differentiated service and customization to each of our customers enables us to develop strong, long-standing customer relationships. Our commercial philosophy is to create and maintain a long term relationship with our customers, developing an atmosphere of trust while building strong collaborative partnerships. We focus on our ability to act as a full-service partner with OEMs through specialized processes and advanced engineering. These operations are supported by onsite engineers at certain customer locations. In addition, 2



we offer our customers onsite designing, prototyping, testing and research and development. Within the automotive industry, relationships between OEMs and suppliers tend to be durable given the high start-up costs for the supplier and high switching costs for the OEM. We work directly with various OEMs to design products for each new generation of vehicle model before it enters production. This design process and the construction of the associated tooling and assembly lines often results in a lead time of one to three years. Once a project is awarded to us for a specific vehicle model and product, we usually remain the supplier for the life of that generation of vehicle model, which generally lasts three to ten years. In March 2010, we acquired the Dana Structural Products Business (“DSPB”) for US$147 million from Dana Holding Corporation (“Dana”). With this acquisition, we were able to strengthen our position as a leading supplier of chassis frames in North America and advanced our strategy to become a global supplier of chassis frames by acquiring new operating facilities in South America. The acquisition added manufacturing facilities in Argentina, Australia, Brazil, Venezuela and the United States and a joint venture relationship with GKN in the United Kingdom. The DSPB acquisition has significantly enhanced our book of future international business. The following charts show the breakdown of sales volume as a percentage by OEM, manufacturing location and end-consumer location for the twelve months ended December 31, 2012: Breakdown of Sales Volume by OEM Twelve Months Ended December 31, 2012



Breakdown of Sales Volume by Manufacturing Location Twelve Months Ended December 31, 2012



Australia



Breakdown of Sales Volume by End-Consumer Location Twelve Months Ended December 31, 2012



Others



Australia Argentina



Others



Mexico



Argentina



Brazil Mexico Brazil



Canada USA



USA



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The following map shows the location of our manufacturing plants, sales offices, sequencing centers, and Tech Centers.



Our Strengths Throughout our history, we have developed a series of competitive strengths upon which we have built a successful business model. We believe that our key competitive strengths are: Leading Full-Service Supplier Dedicated to Quality and Innovation We believe we are one of the leading suppliers of chassis, body structures, suspension modules, steel fuel tanks, customized side rails and cross members, and heavy truck and bus frames targeted to the automotive LV and CV markets. In addition, we believe we are one of the leading suppliers for both LV BOF chassis frames and CV side rails in North America, and in 2014, we expect to become the number one supplier in this region for LV BOF chassis frames as we expect to be the sole supplier for the next generation Ford F-150 Truck and the General Motors Chevrolet next generation Colorado. In Argentina, we are the sole supplier for LV BOF chassis frames, which for the most part are exported to Brazil. We also believe we are one of the primary global suppliers of CV side rails and have gained a significant presence in Brazil, where we believe we hold the number two market position. Our world-class manufacturing capabilities position us among the few companies that are able to provide OEMs with a full range of services that include design, advanced engineering (supported by on-site engineers at certain customer locations), prototype development, testing, validation and quality assurance for our products. Our close communication and well-established relationships with our clients allow us to adjust costs and maintain a firm product familiarity, which leads to a strong track record of winning new platforms and to high retention on existing platforms. Our operations and strict internal policies and procedures are designed, managed, measured and constantly improved in order to maintain our high levels of product quality and productivity.



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State-of-the-Art Manufacturing Capabilities and Technologies We believe our manufacturing facilities are among the most advanced in the industry and utilize industry standard capabilities and state-of-the-art technology, as well as advanced, flexible processes such as stamping, hydro forming and robotic assembly, with a balance between labor and automation. We believe we possess the highest technology currently available in our industry. Our logistics unit smoothly integrates our products into the modern, just-in-time manufacturing model used by our customers. We enhance our service offering by leveraging these capabilities through our globally diversified operations, which include international sales offices and Tech Centers in key locations. Geographic, Customer and Product Diversification Geographic and product diversity is a cornerstone of our competitive advantage. Through our manufacturing facilities, which are located in seven countries, we service North America, South America, Asia and Australia. Our worldwide presence, allows us to be more integrated in the structural design and engineering process with manufacturers, provide a full complement of solutions, and support production worldwide. This global footprint has allowed us to obtain a considerable amount of expertise with multiple OEMs in developing, manufacturing and designing structural products across the spectrum of components, including LV BOF chassis, unibodies structures, CV side rails, and others. Our business model is also diversified with regard to customers, as no more than 30% of our revenues come from a single OEM. Strong, Long-Standing Customer Relationships Some of our long-standing relationships with OEMs have lasted for up to 50 years. We believe offering high quality and differentiated service and customization to each of our customers enables us to develop strong, longstanding customer relationships. Our client portfolio includes major automotive OEMs including Chrysler/Fiat, Ford, General Motors, Nissan, Paccar, Scania, Toyota, VW, Volvo/Mack, among others. Our commercial philosophy strives to create and maintain a long term relationship with our customers, developing an atmosphere of trust while building strong collaborative partnerships through win-win solutions. The acquisition of the DSPB further strengthened our existing customer relationships and provided access to important new relationships. Furthermore, we have a strong track record of securing replacement business with our existing customers. Within the automotive industry, relationships between OEMs and suppliers tend to be durable given the high start-up costs for the supplier and high switching costs for the OEM. We work directly with each OEM to design products for each new generation of vehicle model before it enters production. This design process and the construction of the associated tooling and assembly lines often results in a lead time of one to three years. Once a project is awarded to us for a specific vehicle model and product, we usually remain the supplier for the life of that generation of vehicle model, which generally lasts three to ten years. Strong Cash Flow Generation and Opportunistic Acquisitions Despite the cyclicality of the automotive industry, we have historically achieved strong growth in revenue and Adjusted EBITDA with very moderate leverage levels. Even during the global financial crisis from 2007 to 2009, we were able to reduce costs and improve processes to maintain sustainable levels of liquidity and leverage while improving our Adjusted EBITDA margin to 18% for the year ended December 31, 2009. Our success in maintaining a strong cash flow profile, stable margins and liquidity during the financial crisis has positioned us to opportunistically expand our operations through acquisitions. Our acquisition strategy has been focused on strategic acquisitions that complement our existing business and foster our organic growth strategy. In 2010, we completed the acquisition of the DSPB, which enhanced our manufacturing presence in Argentina, Australia, Brazil, the United States, Venezuela, and (through a joint venture relationship with GKN) the United Kingdom. With the acquisition of the DSPB, we believe our LV segment achieved its goal of becoming one of the leading suppliers of LV BOF chassis frames in North America and our CV segment became a global supplier for side-rails. We expanded our operations into new regions with strategic customers such as Toyota and Volvo, and also gained greater exposure to VW and added Ford to our customer portfolio, thereby further diversifying our high quality customer base. 5



We have achieved a double-digit revenue growth every year since the DSBP acquisition (including 30% growth in 2011, when the acquisition was fully integrated) and an approximately 15.6% compounded annual growth rate in revenue over the past 12 years, despite significantly reduced sales during the global financial crisis from 2007 to 2009. We are focused on building on the foregoing competitive strengths to achieve profitable top-line growth, improve margins, and generate a strong and sustainable cash flow. Conservative Financial Profile with Proven Track Record Through the Crisis We have been focused on growing our core operations through a combination of organic and acquisition-based growth and maintaining a conservative financial profile. As of December 31, 2012, our Net Debt to Adjusted EBITDA ratio was 0.4x and our Total Debt to Adjusted EBITDA ratio was 1.0x. Even during the global financial crisis from 2007 to 2009, which had a particularly strong impact on the automotive industry and decreased our revenue by approximately 45%, we generated positive cash flows, as we were able to proportionately adapt our cost base to the significantly lower demand. Moreover, during 2007 to 2009, our maximum Total Debt to EBITDA ratio was 1.9x and our maximum Net Debt to Adjusted EBITDA ratio was 1.3x, calculated at the end of each corresponding year. As of December 31, 2012, we had an excellent liquidity position comprised of over $145 million in cash, $200 million in commitment lines of credit and $55 million in uncommitted facilities. In addition, our acquisition strategy to acquire cash flow generating businesses allows us to de-lever after our acquisitions. The DSPB acquisition was financed with 68% debt, 20% new equity contributed by our parent company, Grupo Proeza, S.A.P.I. de C.V. (“Proeza” or the “Group”), and 12% cash on hand. The acquisition resulted in a pro-forma Total Debt to Adjusted EBITDA ratio of 2.3x and 10 months later (December 2010) this ratio had dropped to 1.2x. Experienced Management Team and Proven Philosophy and Culture We believe we have one of the most experienced management teams in the automotive parts manufacturing industry. Our key executives have an average of nearly 18 years of experience at Metalsa. Management’s ability to adapt to an evolving macroeconomic environment is evidenced by our solid performance through difficult economic and operating environments. We believe that our team has substantial depth in critical operational areas and has demonstrated success in reducing costs, integrating business acquisitions and improving processes through cyclical periods. High Barriers to Entry Provide Competitive Advantage We believe we hold leading market positions in many of the regions where we operate. Our company currently serves 40% of the market for LV BOF chassis and 46% for CV side rails in North America, 50% for LV BOF chassis in South America and 33% for CV side rails in Brazil, which now positions us among the top suppliers in many of the market segments where we participate. Our leading market positions are a result of significant capital investments in plant and equipment and research and development and many of our long-standing relationships with OEMs have lasted for up to 50 years. The strength of our relationships and existing manufacturing capabilities, in addition to the high investment required to set-up vehicle structure manufacturing lines, poses significant challenges to potential new competitors to enter the market. Long-Term Supply Arrangements Our long-standing commercial relationships are reflected in our long-term contracts with OEMs, which generally last three to ten years and reflect the general terms and conditions of the relationship. Pursuant to specific purchase orders with the OEMs, we have agreed to manufacture, among others, the Ford F-150 platform at least until 2019, the Chrysler RAM Light Duty until 2016 and Heavy Duty until 2017, the VW Amarok until 2018, the Toyota Tundra until 2018 and the Toyota Tacoma until 2021. Given the high cost of changing suppliers for OEMs, we expect most of our purchase orders to be rebooked throughout the entire life of each platform, or until such platform is substantially modified. 6



Our Strategies Increase Market Share in Product Structures We plan to increase our market share in North America by securing additional contracts to manufacture new platforms. We plan to attract the additional business by offering the best technical solutions and reducing weight in our products while managing cost implications, which will allow us to bid on new truck platforms and differentiate ourselves from our competitors. Grow the Structural Business Segment in Mexico We believe we have the infrastructure in Mexico to offer an attractive alternative to new OEMs entering the Mexican market, such as Honda, Mazda and Toyota. We plan to grow our market share on LV body structural components in Mexico by leveraging this existing infrastructure to service more customers and a larger volume of business. Strengthen the Leadership Position in South American Chassis Market and Grow Other Product Structures in Brazil We currently have a strong presence in the South American LV BOF chassis market. In Argentina, we are the sole supplier for LV BOF chassis frames, which for the most part are exported to Brazil. We are also the primary global supplier of CV side rails and have gained a significant presence in Brazil, where we believe we hold the number two market position. We plan to increase our position by securing current platform replacements. Similar to our strategy in North America, we expect to attract additional business by offering the best technical solutions and reducing weight in our products while managing cost implications, which will allow us to differentiate ourselves from our competitors in South America. Additionally, we plan to apply our current capabilities and knowledge of the market to our Brazilian operating locations in order to develop new business opportunities in the LV market. Establish a Presence as a Chassis Supplier in Key Asian and European Markets While we will continue to focus on capturing market share in our core markets, countries such as India and China constitute attractive growth opportunities given that most of our main customers have built or have plans to build manufacturing capabilities in these countries. We also continue to analyze an expansion of our European footprint. We may selectively pursue complementary strategic acquisitions that allow us to leverage the marketing, research and development, manufacturing and technology strengths of our existing business and expand our revenues to new and current customers. We expect that our acquisitions and conservative financing strategy will continue to enable us to increase our global presence, diversify our revenue base by customer, geography or product offering while maintaining a strong financial position, as they have in the past. Maintain Our Leading Position in Side Rail Production through Our Relationships with Our Strategic Customers We believe we are one of the primary global suppliers of CV side rails, and plan to continue to strengthen and maintain our position by supporting our strategic customers locally on their individual globalization efforts. Many of our existing OEMs are increasing their global presence through development of new product platforms around the world. We plan to generate additional business from such OEMs. Establish a Market Position in India by Consolidating Our Operations in Jamshedpur, and Our Construction of a Facility in Rayong, Thailand We intend to continue to establish ourselves as a global supplier of CV side rails by consolidating our operations in Jameshedpur through the integration of business opportunities with local OEMs like Tata, Mahindra and Volvo-Eicher, and we intend to achieve profitable and sustainable operations through an adapted business model for the region. We also aim to generate new business opportunities in Thailand to support Volvo’s recent entry into the Thai market.



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Recent Developments Metalsa Germany GmbH, our German subsidiary, intends to enter into a share purchase agreement with ISE Holding L.P. (“ISE Holding”) on April 29, 2013 for the purchase of the common stock of ISE Beteiligungs GmbH (“ISE”). ISE’s product portfolio includes body and chassis modules, hinges and transmission components and safety systems. The total purchase price for the ISE shares is €90 million ($118 million), not including assumed net debt of €34 million ($44 million). The transaction was funded by (i) a capital contribution to us by Proeza of €41 million ($53 million) and (ii) our applying cash on hand in the amount of €20 million ($26 million) plus approximately €29 million ($38 million) of the proceeds of this offering to the purchase price. The transaction closed on May 3, 2013. We believe that the ISE acquisition will be of significant benefit to us by significantly diversifying our geographic presence, primarily in Germany, by further expanding our base of high-quality OEM customers to include companies such as Audi, BMW and Mercedes Benz and by incorporating additional technological capabilities.



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Corporate Structure The following chart summarizes key components of our corporate structure, including our Subsidiary Guarantors (as defined below under “—The Offering”).



As of and for the year ended December 31, 2012, the Subsidiary Guarantors, together with Metalsa, accounted for 84% of our total assets and 93% of our Adjusted EBITDA on a consolidated basis. All of Metalsa’s subsidiaries are fully owned by Metalsa with the exception of Chassis Systems Limited, which is a 50% joint venture with GKN, a British manufacturer of metal powder precision components. Corporate Information Metalsa is a privately held company and a wholly-owned subsidiary of Proeza, headquartered in Monterrey, Mexico. Proeza is a Mexican industrial group and is privately owned and controlled by the Zambrano family, who has been in the automotive parts supply business since the early 1960s. In 1975, Proeza was created as a holding company for the individual companies of the Group. The Group has approximately 10,300 full time employees, over 9,100 of which are full-time employees of Metalsa in 27 locations worldwide. Proeza maintains operations and exports its products around the world. During 2012, Metalsa’s revenues represented approximately 89% of the Group’s total revenues. The remainder of Proeza’s revenues are comprised of sales from its other direct subsidiaries, Citrofrut, S.A. de C.V., a manufacturer of natural citrus and tropical fruit juice, and Zánitas Clínica + Hospital, S.A. de C.V., a healthcare services provider. 9



THE OFFERING The following is a brief summary of certain terms of this offering and it is not intended to be complete. For a more complete description of the terms of the notes, see “Description of the Notes.”



Issuer ..........................................................



Metalsa, S.A. de C.V.



Notes offered ..............................................



US$300,000,000 aggregate principal amount of 4.90% Senior Notes.



Offering Price .............................................



100%, plus accrued interest, if any, from April 24, 2013.



Maturity Date..............................................



April 24, 2023.



Interest Rate ................................................



Interest will accrue at a rate of 4.90% per year.



Interest Payment Dates ...............................



April 24 and October 24 of each year, beginning on October 24, 2013.



Subsidiary Guarantors ................................



The following indirect subsidiaries: (i) Metalsa Roanoke, Inc. and (ii) Metalsa Structural Products, Inc. (together, the “Subsidiary Guarantors”). As of and for the year ended December 31, 2012, the Subsidiary Guarantors, together with Metalsa, accounted for 84% of our total assets and 93% of our Adjusted EBITDA on a consolidated basis.



Guarantees ..................................................



The notes will be fully, unconditionally and irrevocably guaranteed, jointly and severally, on a senior unsecured basis by our Subsidiary Guarantors, to the extent permitted by applicable law.



Ranking ......................................................



The notes and subsidiary guarantees will be our and our Subsidiary Guarantors’ respective senior unsecured obligations and they will rank: 



equally with all of our and the Subsidiary Guarantors’ respective existing and future senior unsecured indebtedness (subject to certain obligations that are preferred by statute, including, without limitation, tax and labor obligations); and







senior to all of our and our Subsidiary Guarantors’ respective existing and future subordinated indebtedness.



The notes and the subsidiary guarantees will effectively rank junior to all of our and the Subsidiary Guarantors’ respective existing and future secured indebtedness, to the extent of the value of the assets securing such indebtedness. The notes and the subsidiary guarantees will be structurally subordinated to all indebtedness, and trade payables, of our non-guarantor subsidiaries. As of December 31, 2012, we had no secured indebtedness outstanding and our non-guarantor subsidiaries had $22 million of indebtedness outstanding (excluding guarantees and intercompany loans). Optional Redemption ..................................



We may redeem the notes, in whole or in part, at the greater of 100% of their principal amount outstanding and a make-whole amount 10



described in this offering memorandum, in each case, plus Additional Amounts, if any, and any accrued and unpaid interest, if any, up to the redemption date. See “Description of the Notes— Optional MakeWhole Redemption.” Tax Redemption .........................................



We may redeem the notes, in whole but not in part, at 100% of their principal amount plus accrued interest and Additional Amounts, if any, to the redemption date, upon the occurrence of specified events relating to the applicable tax law, that result in our being required to pay additional amounts attributable to withholding taxes at a rate greater than 4.9% with respect to interest payments under the notes. See “Description of the Notes—Withholding Tax Redemption.”



Additional Amounts ...................................



Payments of interest on the notes to investors that are non-residents of Mexico for tax purposes, will generally be subject to Mexican withholding taxes. Subject to certain specified exceptions, we and the Subsidiary Guarantors will, jointly and severally, pay such additional amounts as may be required so that the net amount received by the holders of the notes in respect of principal, interest or other payments on the notes, after any such withholding or deduction, will not be less than the amount each holder of notes would have received had such withholding or deduction not applied. See “Description of the Notes —Additional Amounts.”



Certain Covenants.......................................



The indenture governing the notes contains covenants that will, among other things, limit the creation of liens by us and our subsidiaries, and will permit us and our subsidiaries to consolidate or merge with, or transfer all or substantially all of our assets to, another person only if any such transaction complies with certain requirements. However, these covenants are subject to a number of important exceptions and qualifications. See “Description of the Notes — Covenants.”



Events of Default ........................................



The indenture sets forth the events of default applicable to the notes. See “Description of the Notes — Events of Default.”



Further Issuances ........................................



We may from time to time without notice to or consent of the holders of the notes create and issue an unlimited principal amount of additional notes of the same series as the notes initially issued in this offering.



Use of Proceeds ..........................................



We intend to use $214 million of the net proceeds of this offering for the repayment of substantially all of our outstanding indebtedness (other than the outstanding indebtedness borrowed by Metalsa Argentina S.A. due in 2015 and certain capital lease obligations, as described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations —Liquidity and Capital Resources—Indebtedness”), including our existing debt with affiliates of Citigroup Global Markets Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated. We intend to use the remaining net proceeds for general corporate purposes, including approximately $38 million for the acquisition of ISE. 1 See “Use of Proceeds” and “Plan of Distribution.”



1



A portion of the proceeds of this offering was used to finance a portion of the ISE acquisition.



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Change of Control ......................................



Upon a Change of Control Triggering Event (as defined in the Indenture), we will be required to make an offer to repurchase the notes at a purchase price equal to 101% of principal plus accrued and unpaid interest. See “Description of the Notes—Repurchase at the Option of Holders Upon a Change of Control Triggering Event.”



Taxation ......................................................



For a summary of Mexican federal income tax consequences and U.S. federal income tax consequences of an investment in the notes, see “Taxation.”



Book-Entry; Form and Denominations.......



The notes will be issued in the form of global notes in fully registered form without interest coupons. The global notes will be exchangeable or transferable, as the case may be, for definitive certificated notes in fully registered form without interest coupons only in limited circumstances. The notes will be issued in registered form in denominations of US$150,000 and integral multiples of US$1,000 in excess thereof. See “Description of the Notes—Global Notes.”



Settlement ...................................................



The notes will be delivered in book-entry form through the facilities of DTC, for the accounts of its participants, including Euroclear Bank S.A./N.V., as operator of the Euroclear System, or Euroclear, and Clearstream Banking, S.A. Luxembourg, or Clearstream Luxembourg.



Transfer Restrictions...................................



We have not registered the notes under the Securities Act or the securities laws of any other jurisdiction. The notes are subject to restrictions on transfer and may only be offered in transactions exempt from or not subject to the registration requirements of the Securities Act. See “Transfer Restrictions.” As required under the Mexican Securities Market Law, we will notify the CNBV of the offering of the notes outside of Mexico. The notes will not be registered with the National Securities Registry maintained by the CNBV and may not be offered or sold publicly, in Mexico, except to Mexican qualified and institutional investors pursuant to the private placement exemption set forth in Article 8 of the Mexican Securities Market Law.



Listing of the Notes ....................................



We will apply to list the notes on the Official List of the Luxembourg Stock Exchange and to trade them on the Euro MTF Market. We cannot assure you that this application will be accepted.



Governing Law ...........................................



The indenture, the notes and the subsidiary guarantees will be governed by, and construed in accordance with, the laws of the State of New York.



Trustee, Registrar, Transfer Agent and Paying Agent...........................................



Wilmington Trust, N.A.



Luxembourg Paying Agent, Transfer Agent and Listing Agent ....................................



Wilmington Trust SP Services (Luxembourg) S.A.



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SUMMARY OF FINANCIAL DATA AND OTHER INFORMATION You should read the following summary financial data and other information in conjunction with our annual audited consolidated financial statements, including the notes thereto, and the information set forth in the sections “Presentation of Financial and Certain Other Information,” “Selected Historical Financial Data and Other Information” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing elsewhere in this offering memorandum. The financial information as of December 31, 2011 and 2012 and for the years ended December 31, 2010, 2011 and 2012 has been derived from our annual audited consolidated financial statements prepared in accordance with MFRS. MFRS differs in certain significant respects from U.S. GAAP. Effective January 1, 2012, certain Mexican companies with securities listed with the RNV are required to prepare and present financial information in accordance with IFRS. Because we are not required to comply with the foregoing regulations, the financial information presented herein has been prepared in accordance with MFRS. Although this requirement is not mandatory for us, our management is currently evaluating the possibility of adopting IFRS to align the accounting standards of our international operations under a globally accepted accounting framework. See “Presentation of Financial and Certain Other Information.” The financial statements are presented in U.S. Dollars, which is the functional currency for Metalsa (in Mexico) and in its U.S. subsidiaries. Sales in these locations accounted for 77% of revenues in 2012.



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For the Year Ended December 31, 2012 2011 2010 (US$) (US$) (US$) (in thousands) Income Statement Data: Revenues .............................................................................. $1,807,173 Cost of sales ......................................................................... 1,534,386 272,787 Gross profit........................................................................... Gross margin .................................................................. 15% 89,498 Selling, general and administrative expenses ....................... 183,289 Operating income ................................................................. (3,851) Other (income) expenses ...................................................... Comprehensive financial results: Interest expense ................................................................ 21,560 Interest gain ...................................................................... (627) Currency exchange loss (gain), net ................................... 6,333 Derivative financial instruments valuation gain ............... (1,617) (5,528) Monetary position gain ..................................................... 20,121 Comprehensive financial results, net .................................... (6,079) Equity investment in associate company .............................. 173,098 Income before income taxes ................................................. Income taxes: Current ................................................................................. 15,042 35,837 Deferred................................................................................ 50,879 Total income taxes................................................................ $122,219 Net income ...........................................................................



$1,572,399 1,340,289 232,110 15% 87,701 144,409 10,796



$1,212,993 1,033,046 179,947 15% 66,134 113,813 9,356



16,293 (531) (2,255) (296) (2,599) 10,612 (5,666) 128,667



18,549 (1,364) 3,105 (4,662) (1,278) 14,350 (3,036) 93,143



10,855 28,517 39,372 $89,295



16,421 (6,844) 9,577 $83,566



As of December 31, 2012 2011 (US$) (US$) (in thousands)



Balance Sheet Data Assets Current assets: Cash and cash equivalents ................................................ Accounts receivable, net ................................................... Inventories ........................................................................ Derivative financial instruments(1) .................................. Prepaid expenses ..............................................................



$157,972 315,064 174,744 463 7,589



$94,443 274,639 116,474 10,783



Total current assets .................................................... Property, plant and equipment, net ....................................... Deferred tax assets ................................................................ Other assets, net .................................................................... Equity in associated company .............................................. Derivative financial instruments(1) ...................................... Goodwill ...............................................................................



655,832 419,376 17,598 10,507 34 13,935



496,339 395,590 24,449 11,195 6,610 13,935



Total assets ........................................................................



1,117,282



948,118



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As of December 31, 2012 2011 (US$) (US$) (in thousands) Liabilities and Stockholders’ Equity Current Liabilities: Current installments of notes payable to bank and long-term debt .................................................................. Current portion of obligations under capital leases........... Derivative financial instruments(1) .................................. Deferred revenue, short term ............................................ Accounts payable and accrued liabilities ..........................



$75,026



$11,601



5,653 4,077 291,134



2,942 147 7,517 254,684



Total current liabilities .............................................. Notes payable to bank, long-term debt, excluding current installments........................................................................... Capital lease obligations, excluding current maturities ........ Deferred tax liabilities .......................................................... Deferred revenue, long-term ................................................. Employee benefits ................................................................



375,890



276,891



161,007



163,572



4,751 10,073 638 13,372



2,899 4,715 9,535



Total liabilities ..................................................................



565,731



457,612



Stockholders’ Equity: Common stock ...................................................................... Additional paid-in capital ..................................................... Retained earnings ................................................................. Cumulative current translations effect .................................. Total stockholders’ equity .........................................



13,685 53,359 497,033 (12,526) 551,551



13,685 53,359 427,399 (3,937) 490,506



Total .....................................................................................



$1,117,282



$948,118



For the Year Ended December 31, 2012 2011 (US$) (US$) (in thousands) Cash Flow Data: Net cash flows from operating activities ..................................... Net cash flows from investing activities...................................... Net cash flows from financing activities .....................................



$165,941 (97,153) (5,399)



$177,254 (58,424) (93,299)



Other Financial Data: Adjusted EBITDA (unaudited)(2) ...............................................



252,422



209,891



___________________ (1) See “Management’s Discussion and Analysis of Financial Condition and Results of Operations––Quantitative and Qualitative Disclosures about Market Risk––Derivative Financial Instruments” for information regarding items included in Derivative Financial Instruments. (2) We define “Adjusted EBITDA” to mean consolidated net income before adding or subtracting, as the case may be, (1) depreciation and amortization, (2) comprehensive financial results, net (which includes interest expense, interest gain, current exchange loss (gain), net, derivative financial instruments valuation gain, and monetary position gain), (3) other (income) expenses (which typically consists of non-recurring items under MFRS such as impairments of non-current assets), (4) income taxes and (5) equity investment in associate company. Adjusted EBITDA is not a financial measure computed under MFRS. Our calculation of Adjusted EBITDA may not be comparable to other companies’ calculation of similarly titled measures. For additional information, see “Presentation of Financial and Certain Other Information – Non-GAAP Financial Measures” and



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“Selected Historical Financial Data and Other Information.” The following table sets forth a reconciliation of Adjusted EBITDA to consolidated net income under MFRS for each of the periods presented:



2012



Year Ended December 31, 2011 2010



(US$)



(US$)



(US$)



(in thousands)



Consolidated net income ................................... Depreciation and amortization .......................... Comprehensive financial results, net ................ Other (income) expenses................................... Income taxes ..................................................... Equity investment in associate company .......... Adjusted EBITDA (unaudited) .........................



122,219 69,133 20,121 (3,851) 50,879 (6,079) 252,422



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89,295 65,482 10,612 10,796 39,372 (5,666) 209,891



83,566 65,191 14,350 9,356 9,577 (3,036) 179,004



RISK FACTORS You should carefully consider the following discussion of risks, as well as all the other information presented in this offering memorandum before investing in the notes. These risks are not the only risks that affect our business. Additional risks that are presently unknown to us or that we currently deem immaterial may also impair our business. Any of the following risks, if they actually occur, could materially and adversely affect our business, results of operations, financial condition and prospects. Risks Relating to Our Business The weakness in the global economy, the global credit markets and the financial services industry over the past several years has severely and negatively affected demand for automobiles and automobile parts and our business, financial condition, results of operations and cash flows. Demand for and pricing of our products are subject to economic conditions and other factors present in the various domestic and international markets where our products are sold. The level of demand for our products depends primarily upon the level of consumer demand for new vehicles that are manufactured with our products. The level of new vehicle purchases is cyclical, affected by such factors as general economic conditions, interest rates, consumer confidence, consumer preferences, patterns of consumer spending, fuel costs and the automobile replacement cycle. The global economic crisis that prevailed throughout 2008 and 2009 resulted in delayed and reduced purchases of durable consumer goods, such as automobiles. Although the global economic climate improved during 2010 and 2011, the global economy has not recovered to levels previously experienced and remains fragile. If the global economy were to take another significant downturn, depending upon its length, duration and severity, our business, financial condition, results of operations, and cash flow would again be materially adversely affected. We are an international company subject to the market risk of the countries in which we manufacture and/or sell our products. We currently maintain production facilities and operations in Mexico, the United States, Asia, Australia and certain countries in South America such as Argentina, Brazil and Venezuela. Our ability to conduct and expand our business and our financial performance are subject to the risks inherent in international operations, such as currency controls, expatriation and operational integration issues. In the event of a drop in global economic activity, the automotive industry is often one of the first ones to suffer the effects of economic deceleration. The resulting decrease in demand for automotive vehicles in the markets in which we operate could have a strong negative impact on our business, financial condition and results of operations. For the year ended December 31, 2012, approximately 35% of our revenues were attributable to end customers outside of the United States and Canada. International operations are subject to certain risks inherent in doing business abroad, including: 



unexpected changes in laws, regulations, trade or monetary or fiscal policy, including interest rates, foreign currency exchange rates and changes in the rate of inflation in the U.S. and other foreign countries;







tariffs, quotas, customs and other import or export restrictions;







expropriation and nationalization;







difficulty of enforcing agreements, collecting receivables and protecting assets through non-U.S. legal systems;







reduced intellectual property protection;







limitations on repatriation of earnings;







withholding and other taxes on remittances and other payments by subsidiaries;







investment restrictions or requirements;



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



export and import restrictions;







political instability, including military coups, periods of violence and civil unrest, and a succession of regimes with differing policies and programs; and







compliance with the requirements of applicable anti-bribery laws, including the U.S. Foreign Corrupt Practices Act.



Additionally, our operations may be adversely affected by trade barriers, currency fluctuations, exchange controls, increases in duties, governmental royalties, labor strikes, and forced negotiation or modification of existing contracts. We are also exposed to risks related to social instability and other political, economic or social events in these countries, which could have an adverse effect on our business, financial condition and results of operations, as well as our ability to comply with our financial obligations in a timely manner. Deterioration in the United States and world economies could exacerbate the difficulties experienced by our customers and suppliers in obtaining financing, which, in turn, could materially and adversely impact our business, financial condition, results of operations and cash flows. Lending institutions have suffered and may continue to suffer losses due to their lending and other financial relationships, especially because of the general weakening of the global economy and the increased financial instability of many borrowers. Longer-term disruptions in the credit markets could further adversely affect our customers by making it increasingly difficult for them to obtain financing for their businesses and for their customers to obtain financing for automobile purchases. Our OEM customers typically require significant financing for their respective businesses. In addition, our OEM customers typically have related finance companies that provide financing to their dealers and customers. These finance companies have historically been active participants in the securitization markets, which have experienced severe disruptions during the global economic crisis. Our suppliers, as well as the other suppliers to our customers, may face similar difficulties in obtaining financing for their businesses. If capital is not available to our customers and suppliers, or if its cost is prohibitively high, their businesses would be negatively impacted, which could result in their restructuring or even reorganization or liquidation under applicable bankruptcy laws. Any such negative impact, in turn, could materially and negatively affect our company either through the loss of revenues from any of our customers so affected, or due to our inability to meet our commitments without excess expense resulting from disruptions in supply caused by the suppliers so affected. Financial difficulties experienced by any major customer could have a material adverse impact on us if such customer were unable to pay for the products we provide or we experienced a loss of, or material reduction in, business from such customer. As a result of such difficulties, we could experience lost revenues, significant writeoffs of accounts receivable or significant impairment charges. A large percentage of our revenues are derived from the sale of LV chassis structures. Revenues from LV chassis structures represented approximately 70% of our revenue for 2012. These products are used primarily in the manufacture of BOF LV, particularly pickup trucks. A decline in sales of these products due to consumer demand for these vehicles, adverse conditions in the markets where we sell these products or where our OEM customers sell these vehicles, or otherwise, would have a material adverse impact on our business, financial condition and results of operations. Decline in the production levels of our major customers could adversely affect our financial condition, reduce our sales and harm our profitability. Demand for our products is directly related to the automotive vehicle production of our major customers. Automotive sales and production can be affected by general economic or industry conditions, labor relations issues, fuel prices, regulatory requirements, government initiatives, trade agreements, availability and cost of credit, consumer confidence, the availability of government-sponsored vehicle incentives and other factors. The global automotive industry is characterized by intense competition among our automotive manufacturer customers. We expect these challenging industry conditions to continue in the foreseeable future.



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Lower production levels by our major customers, particularly with respect to series of vehicle models for which we are a significant supplier (such as the Chrysler RAM, Ford F-150, VW Amarok, Toyota Tacoma and Toyota Tundra), could adversely affect our financial condition, reduce our sales and harm our profitability, thereby making it more difficult for us to make payments under our indebtedness, including the notes offered hereby. The automobile industry is highly cyclical and cyclical downturns in our domestic or international business segments negatively impact our business, financial condition, results of operations and cash flows. The volume of automotive production in North America and the rest of the world has fluctuated, sometimes significantly from year-to-year, and such fluctuations give rise to changes in demand for our products. The highly cyclical nature of the automotive industry presents a risk that is outside our control and that cannot be accurately predicted. Moreover, a number of factors that we cannot predict can and have impacted cyclicality in the past. Decreases in demand for automobiles generally, or in the demand for our products in particular, could materially and adversely impact our business, financial condition, results of operations and cash flows. We are dependent on a limited number of customers and suppliers and the financial distress of our main customers and/or main suppliers could adversely affect our financial condition, operating results and cash flows. Our business is exposed to risks related to the financial condition of our customers. Four global parent groups (Toyota (27%), Ford (18%), Chrysler/Fiat (16%) and Volvo (8%)) were responsible for 69% of our revenues in 2012. A loss of order volumes from or a loss of market share by any of these major customers could harm our business and could make it more difficult for us to make payments on the notes and our other debt obligations. Our supply base could also be affected by the industry environment. Four suppliers (Ternium (25%), ArcelorMittial (19%), Nippon Steel & Sumitomo Metal Corporation (7%) and Novolipetsk Iron & Steel Corporation (7%) accounted for 58% of our total steel purchases in 2012. Lower global automotive production, turmoil in the credit markets and volatility in raw material, energy and commodity costs could result in financial distress within our supply base and an increase in the risk of supply disruption. Our supply agreements with our OEM customers are generally requirements contracts, and a decline in the production requirements of any of our customers, and in particular our largest customers, could adversely impact our revenues and profitability. Our relationships with OEMs are usually governed by long-term contracts that specify the more general terms and conditions of the relationship. We then receive OEM purchase orders for specific components supplied for particular vehicles. These purchase orders lay out the pricing, quantity, delivery and other terms of the order, have terms ranging from one year to the life of the model (typically three to ten years; however, customers reserve the right to terminate) and production of components of such models usually continues afterwards as part of replacement platforms. In most instances, our OEM customers agree to purchase their requirements for specific products but are not required to purchase any minimum amount of products from us. Therefore, a significant decrease in demand for certain key models or group of related models sold by any of our major customers or the ability of a manufacturer to re-source and discontinue purchasing from us, for a particular model or group of models, could have a material adverse effect on us. To the extent that we do not maintain our existing level of business with our largest customers because of a decline in their production requirements or because the contracts or purchase orders expire or are terminated for convenience, we will need to attract new customers or win new business with existing customers, or our results of operations and financial condition will be adversely affected. See “Business— Customer Base.” Any changes in credit availability or cost of borrowing could adversely affect our business. The possible deterioration of our customers’ financial condition, including the financial condition of the largest OEMs, could significantly limit our access to credit, which we traditionally use to fund our working capital investments. Declines in automotive sales and production by our customers in the future could negatively impact our access to credit or our cost of borrowing, which could have a material adverse effect on our business, results of operations and financial condition.



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We bear production risk from our customers’ unpredictable production schedules. All our customers follow unpredictable production program schedules that may vary substantially over time. This requires our operations to be extremely flexible and leaves us vulnerable when there are large and unexpected changes in demand, as we must order raw materials and appropriately tool and deploy our production lines well in advance of product delivery. Our customers may announce cuts in production schedules for one or more models with short notice, potentially leaving us with excess manufacturing capacity and excess inventory of components for the relevant models, especially in the case of components specifically tailored to the particular customer and endproduct. Such unpredictability may adversely affect our business, financial condition and results of operations. We may experience unanticipated delays, lower-than-expected sales volumes or higher-than expected costs in launching new programs and platforms, which could adversely affect our profitability. Our strategy requires us to develop and launch the manufacture of new components in the time periods and at the cost projected by us and our customers. New programs often require substantial investment to design and develop the tools and purchase the machinery and equipment required to manufacture new components. We may also need to expand existing facilities or establish new facilities to create production capacity for new programs. Our future performance will depend on whether we develop the manufacturing processes, equipment and tools necessary to launch these programs successfully and cost-effectively within the established timeframe and with the quality demanded by our customers. For example, in 2011, we were awarded significant purchase orders for the full production of the Ford F-150 Chassis and for the GM Colorado replacement platform, beginning in 2014. We are in the process of implementing steps to prepare commencement of these purchase orders, and additional capital investments are required to fulfill these purchase orders. Any capital expenditures we make in respect of OEM programs that are cancelled, delayed or that are based on volume estimates in excess of actual demand could have an adverse impact on our financial performance if we are not reimbursed by the customer. High raw material costs could continue to have an adverse impact on our profitability. Raw material, energy and commodity costs have been volatile globally over the past several years. In the past, we have implemented strategies to mitigate the impact of such higher costs, together with commercial negotiations with our customers and suppliers. However, we cannot assure that, in the future, we will be able to completely offset this adverse impact. These costs remain volatile and could have an adverse impact on our profitability in the foreseeable future. In addition, no assurance can be given that cost increases will not have a larger adverse impact on our financial condition and profitability than currently anticipated. The volatility of steel prices may adversely affect our results of operations. Steel purchases represent a substantial amount of our cost of goods sold, as with most Tier 1 auto suppliers. In 2012, we consumed approximately 800,000 tons of steel and we expect to increase our steel consumption in the future as our production grows. In recent years, there has been a dramatic increase in the price of commodities and raw materials, including steel, which has negatively impacted all automotive suppliers. Changes in steel prices may adversely affect our working capital requirements and liquidity because of the time difference between our payment for our steel and our collection of cash from our customers. A disruption of our steel, energy or other supplies that we and our customers use in our products could have a material adverse impact on our business, financial condition, results of operations and cash flows. We are dependent on a reliable supply of steel, energy and other supplies. Our business may be subject to periodic delays in the delivery of these materials or energy. Steel constitutes a substantial portion of our cost of goods sold. Failure by our suppliers to continue to supply us with steel or any of our key inputs on commercially reasonable terms, or at all, could result in a disruption of production, which could adversely affect our operations. Such disruptions could be caused by any one of a myriad of potential problems, such as closures of one of our or our suppliers’ plants or critical manufacturing lines due to strikes, mechanical breakdowns, electrical outages, fires, explosions or political upheaval, as well as logistical complications due to weather, volcanic eruptions, or other natural or nuclear disasters, mechanical failures, delayed customs processing and more. Additionally, as we grow in developing countries, the risk for such disruptions is heightened. The lack of even a small single 20



subcomponent necessary to manufacture one of our products, for whatever reason, could force us to cease production, even for a prolonged period. Similarly, a potential quality issue could force us to halt deliveries while we validate the products. Even where products are ready to be shipped, or have been shipped, delays may arise before they reach our customer. Our customers may halt or delay their production for the same reason if one of their other suppliers fails to deliver necessary components. This may cause our customers, in turn, to suspend their orders, or instruct us to suspend delivery, of our products, which may adversely affect our financial performance. When we fail to make timely deliveries in accordance with our contractual obligations, we generally have to absorb our own costs for identifying and solving the “root cause” problem as well as expeditiously producing replacement components or products. Generally, we must also carry the costs associated with “catching up,” such as overtime and premium freight. If we are liable for any disruptions in a customer’s production, such customer may seek to recuperate all of its losses and expenses from us. These losses and expenses could be significant, and may include consequential losses such as lost profits. Any supply-chain disruption, however small, could potentially cause the complete shutdown of a customer’s assembly line, and any such shutdown that is due to causes within our control could expose us to material claims for compensation. If a customer halts production because of another supplier failing to deliver on time, it is unlikely we will be fully compensated, if at all. Any disruptions afflicting us or caused by us could have a material adverse impact on our business, financial condition, results of operations and cash flows. The seasonality we experience in our business may negatively impact our quarterly results of operations, cash flows and liquidity. Our business is seasonal. Our North American customers typically shut down vehicle production for approximately one to two weeks during July and December. In our South American facilities, customers typically shut down vehicle production for approximately one week during December and for two weeks during January. Such seasonality may adversely affect our results of operations, cash flows and liquidity during the third and fourth quarters of each fiscal year. We face the risk of exposure to product liability claims, product recalls, and adverse publicity in connection with the sale of defective products, any of which may adversely affect our business. The manufacture, processing, distribution and sale of products entail an inherent risk of product liability, product recall and adverse publicity. Although we maintain quality controls and procedures, we cannot ensure that our products will be free from defects. We cannot assure you that product liability claims will not be asserted against us or that we will not be obligated to perform recalls in the future. If a product liability claim is successful, our insurance may not be adequate to cover all liabilities we may incur, and we may not be able to continue to maintain such insurance, or obtain comparable insurance at a reasonable cost, if at all. The contractual indemnification that we seek from our third-party suppliers may be limited and thus insufficient to cover claims made against us with respect to components manufactured by such third-party suppliers. If we do not have adequate insurance or contractual indemnification available to us, product liability claims relating to defective products could have a material adverse effect on our ability to successfully sell our products and on our business, financial condition and results of operations. In addition, even if a product liability claim is not successful or is not fully pursued, the negative publicity surrounding any claim that the products we sell caused illness or injury could have a material adverse effect on our reputation, business and results of operations. We may not have sufficient insurance to cover any future liabilities, including litigation claims, either due to coverage limits or as a result of insurance carriers seeking to deny coverage of such liabilities, which, in either case, could have a material adverse effect on our business, financial condition and results of operations. Our third party insurance coverage may not be sufficient to cover damages that we may incur if the amount of such damages surpasses the amount of our insurance coverage or the damages are not covered by our insurance policies. Such losses could cause us to suffer significant unanticipated expenses resulting in an adverse effect on our business or financial condition. In addition, our insurance carriers may seek to rescind or deny coverage with respect to future liabilities, including from lawsuits, investigations and other legal actions against us. If we do not have sufficient coverage under our policies, or if the insurance companies are successful in rescinding or denying coverage to us, it could have a material adverse effect on our business, financial condition and results of operations.



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We may fail to make timely deliveries which may generate additional costs and expenses. We may be liable for any costs or expenses arising from our failure to make timely deliveries in accordance with our contractual obligations, and for solving the root cause problem as well as expeditiously producing replacement components or products. Generally, we may also have to absorb any costs associated with catching up on delivery delays, such as overtime and premium freight costs. The prices that we charge our customers are typically predetermined, and we bear the risk of costs in excess of estimates. We sell our products at prices set several years before we manufacture the component, subject to adjustment for fluctuations in the price of steel, and in some cases, macroeconomic impacts, such as inflation or exchange rate fluctuations. In many cases, component prices decline over the term of the purchase order in anticipation of expected increases in efficiency. If we do not achieve these efficiencies, our overall profitability could be adversely affected. Our costs of fulfilling these purchase orders may vary substantially from our initial estimates. Under our arrangements with our customers, we may only increase agreed upon prices under specific circumstances. Increases in interest rates, labor costs, energy prices, and costs relating to unexpected tooling design or production difficulties may not be passed through to the customer. Cost overruns that we cannot pass through to our customers could adversely affect our operating results. Most of our contracts allow for the pass-through of steel price fluctuations to minimize the market risks associated with such commodity; however, there may be a time lag in passing through such fluctuations to the OEMs, and there may be differences in calculations of steel prices by each OEM, which usually reflect market prices based on an average period that may range between one and three months. As a result, the basis on which each OEM determines steel prices may differ from the actual price of the steel we purchase, which could increase our costs and adversely affect our business, financial condition and results of operations. We could experience increased competitive pressure from OEMs and suppliers. In recent years many OEMs have started to reduce their number of automotive part suppliers, and are aiming to reduce costs by using common parts and systems across automotive platforms, and thus may also engage in strategic partnerships to reduce procurement costs. In addition, internal production is a viable alternative to outsourcing for OEMs and OEMs might not continue to outsource production to us. In particular, the unions representing the workforce of an OEM may object to its proposed outsourcing, and the OEM may need to reach an agreement with the unions before outsourcing can occur. Although the overall number of competitors has decreased, we face significant competition within each of our major product areas. The principal competitive factors include price, quality, global presence, service, product performance, design and engineering capabilities, new product innovation and timely delivery. We cannot assure you that we will be able to continue to compete favorably in these markets or that increased competition will not have a material adverse effect on our business by reducing our ability to increase or maintain sales and profit margins. Due to industry consolidation, there has been a decline in the aggregate number of new program and platform opportunities and a corresponding increase in volumes associated with many new programs and platforms, the anticipation of higher volumes has resulted in pressure from OEMs for price reductions and rebates from suppliers and increased pricing competition among suppliers for programs. Consequently, we have been, and expect to continue to be, requested to reduce prices as part of our initial business quotations and over the life of contracts we have been awarded. We cannot be certain that we will be able to generate cost savings and operational improvements in the future that are sufficient to offset price reductions requested by customers and to make us profitable and position us to win additional business. Likewise, it may be difficult for us to offset the resulting revenue reductions through corresponding cost savings. If we are unable to do so, this would adversely impact our margins and operating results.



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We compete to obtain and retain supply arrangements for new and redesigned vehicle models and are affected by the success of those models. We principally compete for new business at the beginning of the development of new models and upon the redesign of existing models by major OEM customers. New model development generally begins three to five years prior to the marketing of such models to the public. Redesign of existing models begins during the life cycle of a platform, usually at least two to three years before the end of the platform’s life cycle. The failure to obtain new business on new models, or to retain or increase business on redesigned existing models, could adversely affect our business, financial condition, results of operations, and cash flows. In addition, as a result of the relatively long lead times required for many of our structural components, it may be difficult in the short-term for us to obtain new revenues to replace any unexpected decline in the sale of existing products. Similarly, we cannot assure you that we will be successful in obtaining supply arrangements for new models or in supplying additional parts for existing models as they are redesigned by our customers. The programs for vehicle models that we develop could be in preliminary planning stages and may not be in production for four to six years. We cannot assure you that we will be able to design and produce new products that satisfy customers’ expectations, or that such models will be successfully introduced. Our business, financial condition, results of operations and prospects could be adversely affected if we do not obtain supply arrangements for new models, if we fail to retain supply arrangements for redesigned existing models, or if such new models are not successfully introduced. We may be unable to realize revenues represented by our awarded business, which could materially and adversely impact our business, financial condition, results of operations and cash flows. The realization of future revenues from awarded business is inherently subject to a number of important risks and uncertainties, including the number of vehicles that our customers will actually produce, the timing of that production and the mix of options that our customers may choose. In addition to not having a commitment from our customers regarding the minimum number of products they must purchase from us if we obtain awarded business, typically the terms and conditions of the agreements with our customers provide that they have the contractual right to unilaterally terminate our contracts with them with no notice or limited notice. If such contracts are terminated by our customers, our ability to obtain compensation from our customers for such termination is contractually limited to the direct out-of-pocket costs that we incurred for raw materials and work in progress and in certain instances undepreciated capital expenditures. We base a substantial part of our planning on the anticipated lifetime revenues of particular products. We calculate the lifetime revenues of a product by multiplying our agreed price for a product by forecasted production volume during the length of time we expect the related vehicle to be in production. Lifetime revenues associated with a particular platform are not guaranteed and are not equivalent to backlog. If we over-estimate the production units or if a customer reduces its level of anticipated purchases of a particular platform as a result of reduced demand, our actual revenues for that platform may be substantially less than the lifetime revenues we had anticipated for that platform. Typically, it takes one to three years from the time a manufacturer awards a program until the program is launched and production begins. In many cases, we must commit substantial resources in preparation for production under awarded customer business well in advance of the customer’s production start date. We cannot assure you that our results of operations will not be materially adversely impacted in the future if we are unable to recover these types of pre-production costs related to our customers’ cancellation of awarded business. Our operations could be adversely affected if a change in the terms of our suppliers’ financing or the bankruptcy of any of our major customers or suppliers were to occur. Our business operations depend to some extent on the relationships we sustain with our suppliers. A number of events, such as deterioration in the financial condition of our suppliers derived from a mechanical problem in one of their facilities, a natural disaster or any event of a similar nature, could restrict the suppliers’ ability to fulfill their obligations to us, which could have a material adverse effect in our operations and financial condition. We currently manage payment terms which are considered standard in the markets in which we participate; however, a change, 23



reduction or elimination of the financing terms with our strategic suppliers could have a material adverse effect on the performance and planning of our operations and on our liquidity and financial results. The current financing terms with our suppliers could change in the future, which could have an adverse effect on our financial results. In addition, there is no certainty regarding the long-term financial health of our customers and suppliers. The bankruptcy or insolvency of a major customer or supplier to us could have a material adverse effect on our profitability. Our principal customers may be subject to work stoppages at their respective facilities, which could significantly impact the profitability of our business. Many of our customers and their other component suppliers have unionized workforces. Strikes, work stoppages or slowdowns experienced by OEMs or their suppliers could result in slowdowns or closures. Any such labor problems at our customers’ facilities, or the facilities of their other suppliers, could result in reduced demand for our products. In addition, companies responsible for shipping our customers’ products may be impacted by strikes staged by the unions to which their employees belong. Any delay in the delivery of our customers’ products could in turn delay demand for our products and could have a material adverse effect on our operating results. Any deterioration of relations with our employees or increase in labor costs may have a negative impact on our business, financial condition, results of operations and prospects. We employ approximately 9,100 employees in our facilities worldwide. Any significant increase in labor costs, deterioration of employee relations, slowdowns or work stoppages at any of our locations, whether due to union activities, employee turnover or otherwise, could have a material adverse effect on our business, financial condition, results of operations and prospects. A strike, work slowdown or other labor unrest or our inability to reach an agreement with respect to our collective bargaining agreements could, in some cases, impair our ability to supply our products to customers, which could result in reduced revenues. A portion of our U.S. employees and majority of our employees elsewhere in the world are represented by a local or national union. We negotiate collective bargaining agreements with our work force in the United States and Mexico every two years. We cannot predict the outcome of negotiations with unions and if any significant differences arise during these negotiations, or any other significant conflicts arise, our business, financial condition, results of operations and prospects could be adversely affected. Unexpected equipment failures may lead to production curtailments or shutdowns. Interruptions in our production capabilities could increase our production costs and reduce our sales and earnings for the affected period. Our plants are also subject to the risk of catastrophic loss due to unanticipated events such as natural disasters, fires or explosions. Our manufacturing processes are dependent upon critical pieces of equipment, and this equipment may incur downtime as a result of unanticipated failures. In the future we may experience material plant shutdowns or periods of reduced production as a result of such equipment failures. Unexpected interruptions in our production capabilities would adversely affect our productivity and financial condition. Moreover, any interruption in production capability may require us to make significant capital expenditures to remedy the problem, which would reduce the amount of cash available for our operations. Our insurance may not cover these losses. In addition, long-term business disruption could harm our reputation and result in a loss of customers, which could adversely affect our business, financial condition and results of operations. We may be subject to interruptions or failures in our information technology systems. We rely on sophisticated information technology systems and infrastructure to support our business, including process control technology. These systems may be susceptible to outages due to fire, floods, power loss, telecommunications failures and similar events. The failure of any of our information technology systems may cause disruptions in our operations, adversely affecting our sales and profitability. We cannot assure you that our business continuity plans will be completely effective in the event of interruptions or failure of our information technology systems.



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A shift away from technologies in which we are investing could have a material adverse effect on our profitability and financial condition. We continue to invest in technology and innovation which we believe will be critical to our long-term growth. Our ability to anticipate changes in technology and to successfully develop and introduce new and enhanced products and/or manufacturing processes on a timely basis will be a significant factor in our ability to remain competitive. If there is a shift away from the use of technologies in which we are investing, our costs may not be fully recovered. We may be placed at a competitive disadvantage if other technologies emerge as industry-leading technologies, which could have a material adverse effect on our profitability and financial condition. We may not be able to respond quickly enough to changes in regulations, technology and technological risks, and we may not be able to develop our intellectual property into commercially viable products. Changes in legislative, regulatory or industry requirements or in competitive technologies may render certain of our products obsolete or less competitive. Our ability to anticipate changes in technology and regulatory standards and to successfully develop and introduce new and enhanced products on a timely basis are significant factors in our ability to remain competitive and to maintain or increase our revenues. Certain of our products may become obsolete and we may not be able to achieve the technological advances necessary, or to purchase technologies from third parties, for us to remain competitive and maintain or increase our revenues in the future. We are also subject to the risks generally associated with new product introductions and applications, including lack of market acceptance, delays in product development or production and failure of products to operate properly. The pace of our development and introduction of new and improved products depends on our ability to implement successfully improved technological innovations in design, engineering and manufacturing, which requires extensive capital investment. Any future capital expenditure cuts in these areas could reduce our ability to develop and implement improved technological innovations, which may materially reduce demand for our products. To compete effectively in the automotive supply industry, we must be able to launch new products to meet changing consumer preferences and our customers’ demand in a timely and cost-effective manner. Our ability to respond to competitive pressures and react quickly to major changes in the marketplace such as increased gasoline prices or consumer demand for alternative fuels is also a risk to our future financial performance. Furthermore, we may not be able to adjust our facilities or equipment to new demands from our customers. We cannot assure you that we will be able to install and certify the equipment needed for our new product programs in a timely manner or that the transitioning of our manufacturing facilities and resources to full production under new product programs will not impact production rates or other operational efficiency measures at our facilities. Development and manufacturing schedules are difficult to predict, and we cannot assure you that our customers will execute the launch of their new product programs on schedule. Our failure to successfully launch new products, or a failure by our customers to successfully launch new programs, could adversely affect our results. Our business may be materially and adversely affected by obligations and liabilities under numerous foreign, federal, state and local environmental laws, regulations and official standards. We are subject to numerous foreign, federal, state and local environmental, health and safety laws, regulations and official standards from different jurisdictions governing, among other things, the operation of our facilities, land use and construction licenses, environmental impact and risk, the generation, storage, handling, use and transportation of hazardous materials and wastes, the responsible use of water, the emission and discharge of hazardous materials into the ground, air or water, and the health and safety of our employees. We are required to obtain environmental permits and make environmental filings for many of our operations from governmental authorities at the federal, state and local level. These authorities can modify or revoke our permits, may interpret environmental laws differently or may impose additional conditions in respect of permits, and can enforce compliance through fines, injunctions, or closure for non-compliance. We cannot assure you that we have been or will be at all times in complete compliance with such laws, regulations and permits. If we violate or fail to comply with these laws, regulations and permits or such laws, regulations and permits are interpreted differently from our interpretation, we could be fined, temporarily closed or otherwise sanctioned by regulators. We could also be held



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liable for any and all consequences arising out of human exposure to hazardous substances or other environmental damage, including any investigation and remediation of contamination. We are subject to environmental, health and safety laws and regulations that: • affect our ongoing operations and may increase our capital costs and operating expenses related to compliance with those requirements; • impose liability relating to contamination at or from our facilities, facilities where we have sent wastes for treatment or disposal and other properties to which we are linked. Our liability may include, for example, the investigation and remediation of contamination, personal injury and property damage caused by contamination, damages to natural resources and fines or penalties from regulatory agencies. Some of these liabilities may be imposed without regard to fault and may also be joint and several, which would result in our being held liable for the entire obligation, even where other parties are also responsible; and • could affect the expansion of our operations due to a failure or delay in obtaining future construction and operational permits. In Mexico, key environmental laws in the federal system include the Mexican General Law of Ecological Balance and Environmental Protection (Ley General del Equilibrio Ecológico y la Protección al Ambiente), the General Law for the Prevention and Integral Management of Wastes (Ley General para la Prevención y Gestión Integral de los Residuos) and their respective regulations, or, collectively, “Mexican Environmental Law”. The Mexican Ministry of Environment and Natural Resources (Secretaría del Medio Ambiente y Recursos Naturales), or “SEMARNAT,” oversees compliance with Mexican federal environmental laws and has the authority to enforce these laws. As part of its enforcement powers, SEMARNAT is empowered to bring administrative and criminal proceedings against companies that violate environmental laws and also has the power to close non-complying facilities. Under Mexican Environmental Law, the Mexican government has implemented a program to protect the environment by promulgating regulations concerning environmental impact and risk, water, land, air and noise pollution, and hazardous materials and waste. Additionally, the Mexican government has enacted regulations concerning the importation and exportation of hazardous materials and waste. Failure to comply with Mexican Environmental Law, as well as other state and local environmental regulations our business is subject to, could result in the initiation of administrative procedures by the relevant government agencies or the closure of any noncomplying facilities. These laws, regulations and official standards mandate, among other requirements, that we obtain and maintain environmental, health and safety licenses for the construction and operation of all our facilities. For example, we must obtain and maintain environmental impact authorizations, risk studies, accident prevention program authorizations, forestry land use change authorizations, air emissions operation licenses, local land use and construction licenses, waste disposal permits and authorizations including hazardous, special management and urban solid wastes, concession titles or permits for the use of water and the discharge of wastewaters. Moreover, under the North American Agreements on Environmental Cooperation, or “NAAEC”, each country that is a party to NAFTA, including Mexico, must ensure that its environmental laws and regulations are duly enforced. If a NAFTA partner fails to enforce its domestic environmental laws, it may be subject to the dispute mechanisms available under the NAAEC, which may lead to monetary penalties, and in some cases, to the suspension of NAFTA benefits, the result of which could materially adversely affect our business, financial condition, results of operation and/or cash flows. We may be legally or contractually responsible or alleged to be responsible for the remediation of contamination at various sites, and for personal injury or property damages associated with that contamination. Contaminated sites may be identified in the future, including sites we may discover as we expand into new facilities or acquire others. We have incurred, and expect to continue to incur, operating costs and capital expenditures to satisfy our compliance obligations and discharge our liabilities under environmental laws and regulations. Furthermore, many of our facilities have been used for industrial purposes for many years. As a result, we have incurred and may continue to incur costs related to environmental investigations, studies and/or assessments. It is possible that 26



contamination may be present at our facilities in concentrations that will require cleanup and remediation, the costs of which could be significant and may surpass our insurance coverage. We may also learn new information concerning existing matters or discover new matters that could materially and adversely affect us. Moreover, we anticipate that the regulation of our business operations under Mexican federal, state and local environmental laws and regulations will increase and become more stringent over time. Changes that are likely to affect our operations and environmental liability may result from, among others, the following: (1) pending regulations related to a recently-enacted General Law on Climate Change (Ley General de Cambio Climático), which are expected to impose an internal system to limit emissions and introduce tradable permits and other measures to achieve its goals on greenhouse gas reduction, (2) recently enacted legislation regarding class action lawsuits, which provides a legal framework for the formation of plaintiffs classes and aggregating environmental related claims into a single lawsuit, and (3) potential approval of a bill of Federal Law of Environmental Liability (Ley Federal de Responsabilidad Ambiental), which, if enacted, could significantly increase liability for environmental damages in Mexico. See “Business—Environmental and Other Government Regulation”. While it is difficult to predict the scope and effect of new environmental laws, regulations and official standards, such changes could materially adversely affect our business, financial condition, results of operations and/or cash flows. We could experience losses in connection with derivative financial instruments. Despite the fact that we have a non-speculative hedging policy, we use derivative financial instruments to manage the risk profile associated with currency exposure and hedge some of our commodity risks, and could use derivatives to manage interest rate risk, reduce financing costs, access alternative sources of financing and hedge our financial market risks. A substantial fluctuation in exchange rates or decrease in prices of these commodities could lead to mark-to-market losses and a significant potential liability in connection with these instruments. In addition, we face the risk that the creditworthiness of our counterparties may deteriorate substantially. This could prevent our counterparties from honoring their obligations to us, which would expose us to market risks and could have a material adverse effect on our business. We intend to continue using derivative financial instruments in the future. As a result, we may incur additional net losses from, and may be required to make cash payments or post cash as collateral in connection with, our derivative financial instruments in the future. Natural disasters, terrorist activities and/or geopolitical events and their consequences could disrupt our business and affect our operating results. Natural disasters, such as earthquakes, floods, hurricanes or tornadoes, have disrupted our business and the businesses of our suppliers and customers in the past and could do so in the future. If any of these events occur in the future, we may suffer business interruption or shutdown or damage to our production facilities, which could adversely and materially affect our operating results. Terrorist attacks or the continued threat of terrorism or organized crime within Mexico, the United States, Argentina and elsewhere and the potential for military action and heightened security measures in response to such threats may cause significant disruptions to commerce throughout the world, including restrictions on cross-border transport and trade. In addition, related political events may cause a lengthy period of uncertainty that may adversely affect our business. Political and economic instability in other regions of the world could have an adverse effect on our business operations. Any loss of key personnel may adversely affect our business. Our success depends, in large measure, on the skills, experience and efforts of our senior management team and other key personnel. While we believe that we have an experienced and comprehensive management team and highly-skilled employees, the loss of services from one or more members of our senior management or of numerous employees with critical skills could have a negative effect on our business, financial condition and results of operations. If we are not able to attract or retain highly skilled, talented and committed senior managers or other key employees, our ability to fully implement our business objectives may be affected. 27



We are both a holding and operating company and depend in part on the operating results of our subsidiaries. We are both a holding and operating company. Accordingly, we depend in part on the results of operations of our subsidiary companies. Our ability to service our debt and other obligations, including the notes, depends on the generation of cash flow by us and our subsidiaries, and our subsidiaries’ ability to make such cash available to us in the form of interest payments, debt repayment, or dividends, among others. Each of our subsidiaries is a distinct legal entity and, under certain circumstances, legal and contractual restrictions may limit our ability to obtain cash from our subsidiaries. For example, our subsidiaries Metalsa Argentina, S.A. (Argentina) and Soluciones Estructurales de Venezuela, C.A. (Venezuela) are subject to certain restrictions on their ability to pay dividends due to laws in their respective jurisdictions. While certain of our existing indebtedness limits the ability of our subsidiaries to incur consensual restrictions on their ability to pay dividends or make other intercompany payments to us, these limitations are subject to certain qualifications and exceptions. In the event that we do not receive distributions from our subsidiaries, we may be unable to make required principal and interest payments on our indebtedness, including the notes, or honor our other obligations. Any adverse change in the financial condition or results of operations of our subsidiaries could affect our financial condition. We may make significant acquisitions which, if not successfully integrated within our company, may adversely affect our operating results. We have made in the past, and may make in the future, significant acquisitions to continue our growth. Acquisitions involve risks, such as: • inability to successfully integrate the services, products and personnel of the acquisitions into our operations; • failure of acquired businesses to achieve expected results, economies of scale, synergies or other benefits sought; • possible inability to retain or hire key personnel of acquired businesses; • the need to incur debt, which may reduce our cash available for operations and other uses due to increased debt service obligations; • greater than expected costs and management time and effort involved in completing and integrating the acquisitions; • unidentified or unanticipated regulatory and other liabilities or risks in the operations of the companies which we may acquire; • restrictions or conditions imposed by antitrust and other regulatory authorities in connection with acquisitions, including restrictions on reducing workforces, and conditions such as obligations to dispose of assets; • greater capital expenditures required in connection with any purchased facilities; • potential disruption to our ongoing businesses and difficulty in maintaining our internal control environment, information systems technologies and procedures; • inability to retain customers and supplier relationships; • customer overlap or loss of customers supplied prior to the acquisitions by us or by any acquired entity; and • lack of return on our investment. If we are unable to integrate or manage acquired businesses successfully, we may not realize anticipated cost savings, revenue growth and levels of integration, which may result in reduced profitability or operating losses. We may also become involved in litigation or other proceedings related to proposed or completed acquisitions, which may adversely affect us. 28



Our investments in joint ventures could be adversely affected by our lack of sole decision-making authority, our reliance on joint venture partners’ financial condition and disputes between us and our joint venture partners. Our United Kingdom operations are conducted through a joint venture with GKN and we may in the future enter into other joint ventures or other arrangements in which we share control with third parties or in which we hold a non-controlling interest. Investments through joint ventures or other arrangements may, under certain circumstances, involve risks not present were a third party not involved, including the possibility that joint venture partners might become bankrupt, fail to fund their share of required capital contributions, make poor business decisions or block or delay necessary decisions. Joint venture partners may have economic or other business interests or goals that are inconsistent with our business interests or goals, and may be in a position to take actions contrary to our policies or objectives. Improper management or ineffective policies, procedures or controls could adversely affect the value of related joint venture investments and operations and, by association, damage our reputation thereby harming our other business and operations. Such investments may also have the potential risk of impasses on decisions, because neither we nor our joint venture partners would have full control over the joint venture. Disputes between us and our joint venture partners may result in litigation or arbitration that would increase our expenses and prevent the members of our management team from focusing its time and effort on our business. Consequently, action by, or disputes with, our joint venture partners might result in subjecting the joint venture operations to additional risk. In addition, we may in certain circumstances be liable for the actions of our joint venture partners. The failure to avoid the risks described above or other risks associated with such arrangements could have a material adverse effect on our business, financial condition and results of operations. Failure to obtain, renew or maintain the permits and approvals required to operate our businesses may have an adverse effect on our business, financial condition, results of operations and prospects. We require a number of permits and approvals to operate our businesses and/or construct and operate our facilities. In the future, we may be required to renew such permits and approvals or to obtain new permits and approvals. While we believe that we will be able to obtain or renew such permits and approvals and we have not experienced any difficulty in renewing and maintaining these permits and approvals in the past, as and when required, there can be no assurance that the relevant authorities will issue any such permits or approvals in the time frame anticipated by us, or at all for several different reasons, including demanding additional capital expenditures or imposing conditions not currently in effect. Any failure to renew, maintain or obtain the required permits and approvals and technology licenses, or the revocation or termination of existing permits and approvals, may interrupt our operations or delay or prevent the implementation of any capacity expansion programs or require that we incur substantial expenditures, and may have an adverse effect on our business, financial condition, results of operations and prospects. Significant capital investments including future development of new facilities have been, and may in the future continue to be, necessary to achieve our growth plans, which carry project and other risks. Our business requires significant capital expenditures for maintenance and expansion. Our growth plans have required, and may continue to require, significant capital investments to expand, renovate, convert or upgrade existing facilities, develop new facilities or technologies or make major acquisitions or investments. Projects that require significant capital expenditure carry risks including: 



failure to complete a project within the prescribed project timetable and/or within budget; and



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failure of the project to perform according to prescribed operating specifications following its completion.



There can be no assurance that technology we have acquired or may acquire in the future will perform as expected, that we will be able to successfully integrate the acquired technology into our production facilities, or that we will be able to fully and efficiently operate the technology acquired. Furthermore, if new technologies and more cost-efficient processes are developed, our competitors may be able to access new technology which we do not possess. In addition, any significant increases in raw material costs unforeseen in the project plan and any inability to sell the products produced at volumes and/or price levels envisaged in the project plan could adversely affect the 29



success of our projects. Due to the significant amount of capital required and the long lead time between planning and completion of such projects, project failure could have a material adverse effect on our business, financial condition, results of operations and prospects. We are continuously evaluating future business opportunities, and it is possible that expected returns on these investments may not be fully achieved as a result of adverse market conditions and other factors. Moreover, it is possible that these projects may not be concluded in a timely manner, for reasons outside of our control. Our intellectual property rights may be used without our authorization by third parties. Our intellectual property rights and proprietary technology are valuable assets in our business. Our ability to compete effectively in part depends on our ability to obtain, maintain, and protect our intellectual property rights and proprietary technology. However, we do not believe that any single patent, trademark, trade secret, or other intellectual property right of ours, or combination of our intellectual property rights, is likely to prevent others from competing with us using a similar business model. Despite our efforts, intellectual property laws of some of the jurisdictions in which we operate and the enforcement of such laws by the authorities in such jurisdictions may impair our ability to protect our intellectual property rights from competition or unauthorized use, lapse or expiration, or from being challenged, narrowed, invalidated, misappropriated or circumvented by third parties, or being deemed unenforceable or abandoned, which, as a result, could harm our business. In addition, we rely on inlicensed intellectual property rights, and such rights may be available to competitors, and thus affect the company’s ability to assert rights against competitors, or hinder settlement disputes with third parties having similar licenses. From time to time, we seek to protect and enforce our intellectual property and proprietary rights against third parties and may commence litigation with respect to the violation or the inappropriate use of our intellectual property rights. The violation of our intellectual property rights or unsuccessful litigation may adversely affect our operations. Moreover, we cannot guarantee that our intellectual property rights will not be used without our authorization. Policing unauthorized use of intellectual property can be difficult and expensive and may not result in in action being taken by the appropriate authorities. We are controlled by Proeza, whose interests may not be aligned with yours. We are a wholly-owned subsidiary of Proeza. As such, Proeza has and will continue to have the power to control our affairs and operations. Proeza also controls the election of all of our directors, the appointment of our senior management, and our entering into mergers, acquisitions and other extraordinary transactions. So long as Proeza controls us, it will continue to be able to strongly influence and effectively control decisions by our board and senior management team. Proeza, as our parent, may exercise its control in a manner that differs from your interests as a noteholder. We have entered into and expect to continue entering into transactions with Proeza and its affiliates, including contracts for administrative and corporate services. Many of these transactions occur in the ordinary course of business. Transactions with affiliates may create the potential for conflicts of interest. See “Principal Shareholders” and “Related Party Transactions.” We are subject to different corporate disclosure and accounting standards than U.S. companies. As a non-U.S. issuer, investors may not be able to obtain as much publicly-available information about us as they would about U.S. issuers of publicly traded securities, particularly because we are not a public company. Therefore, potential investors may not be able to easily ascertain the risks facing us as they would if we were a public U.S. company. In addition, because we are not a public company, accounting standards and disclosure requirements in Mexico differ from those of the United States. In particular, our consolidated financial statements are prepared in accordance with MFRS, which differ from U.S. GAAP, IFRS and accounting principles adopted in other countries in a number of respects. Items on the financial statements of a company prepared in accordance with MFRS may not reflect its financial position or results of operations in the way they would be reflected had such financial statements been prepared in accordance with U.S. GAAP. We cannot assure you that, if we convert from MFRS to IFRS, our



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consolidated financial information under IFRS would not differ materially from that reported under MFRS, and we are unable to provide a reliable estimate of the effects of adoption of IFRS on our consolidated financial statements. We may face risks relating to climate change that could have an adverse impact on our business. Greenhouse gas emissions have increasingly become the subject of substantial international, national, regional, state and local attention. GHG emission regulations have been promulgated in certain of the jurisdictions in which we operate, and additional GHG requirements are in various stages of development. For example, the United States Congress has considered legislation that would establish a nationwide limit on GHGs. In addition, the U.S. Environmental Protection Agency has issued regulations limiting GHG emissions from mobile and stationary sources pursuant to the federal Clean Air Act. When effective, such measures could require us to modify existing or obtain new permits, implement additional pollution control technology, curtail operations or increase our operating costs. In addition, our OEM customers may seek price reductions from us to account for their increased costs resulting from GHG regulations. Further, growing pressure to reduce GHG emissions from mobile sources could reduce automobile sales, thereby reducing demand for our products and ultimately our revenues. Thus, any additional regulation of GHG emissions, including through a cap-and-trade system, technology mandate, emissions tax, reporting requirement or other program, could adversely affect our business, results of operations, financial condition, reputation, product demand and liquidity. Risks Relating to Our Indebtedness Our level of indebtedness may affect our flexibility in operating and developing our business and our ability to satisfy our obligations. As of December 31, 2012, after giving pro forma effect to the issuance of the notes and the use of the proceeds thereof, we would have had US$333 million of outstanding debt, none of which would have been secured. Our level of indebtedness may have important consequences to investors, including: 



limiting our ability to generate sufficient cash flow to satisfy our obligations with respect to our indebtedness, particularly in the event of a default under one of our other debt instruments;



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limiting cash flow available to fund our working capital, capital expenditures or other general corporate requirements;



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increasing our vulnerability to adverse economic and industry conditions, including increases in interest rates, foreign currency exchange rate fluctuations and market volatility;



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limiting our ability to obtain additional financing to refinance debt or to fund future working capital, capital expenditures, other general corporate requirements and acquisitions on favorable terms or at all; and



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limiting our flexibility in planning for, or reacting to, changes in our business and the industry.



To the extent that we incur additional indebtedness, the risks outlined above could increase. In addition, our actual cash requirements in the future may be greater than expected. Our cash flow from operations may not be sufficient to repay all of the outstanding debt as it becomes due, and we may not be able to borrow money, sell assets or otherwise raise funds on acceptable terms, or at all, to refinance our debt. We might not be able to obtain funding if a deterioration in the credit and capital markets or reductions in our credit ratings were to occur. This could hinder or prevent us from meeting our future capital needs and from refinancing our existing indebtedness when it comes due. A deterioration of capital and credit markets could hinder our ability to access these markets. In addition, adverse changes in our credit ratings, which are based on various factors, including the level and volatility of our earnings, the quality of our management, the liquidity of our balance sheet and our ability to access a broad array of funding sources, may increase our cost of funding. If this were to occur, we cannot be certain that additional funding for our capital needs from credit and capital markets would be available if needed and, to the extent required, on acceptable terms. In addition, we might be unable to refinance our existing indebtedness when it comes



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due on terms that are acceptable to us or at all. If we were unable to meet our capital needs or refinance our existing indebtedness, it could have a material adverse effect on our financial position and results of operations. Cross-defaults under, and/or acceleration by lenders of, our debt obligations could result in significant liquidity problems and have a material adverse effect on our business, financial condition, results of operations and prospects. Our debt agreements contain various financial and other covenants relating to the maintenance of certain ratios, including interest coverage ratios and leverage ratios. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Indebtedness.” A breach of such covenants could give rise to a default, which could entitle our lenders to accelerate the loans provided under these agreements and/or refuse to provide us with any additional funds under the facilities. We cannot assure you that we will be in compliance with our financial covenants in the future or that lenders will grant waivers to us. We also cannot assure you that one or more of our lenders under these loan agreements would not seek to enforce any remedies following any breach of financial covenants or an event of default thereunder. In addition, most of our loan agreements contain cross-default provisions, which would entitle the lenders to accelerate repayments under their respective loan facilities upon the occurrence of a default in our other borrowings. Any acceleration of our indebtedness may have a significant effect on our liquidity and may materially and adversely affect our business, financial condition, results of operations and prospects. Risks Relating to Mexico and Other Latin American Countries Our business may be materially and adversely affected by obligations and liabilities under administrative laws, regulations and official standards. We operate under the laws and regulations of various federal, state and local governmental agencies in Mexico and other Latin American countries and are required to obtain and maintain several permits, licenses and governmental approvals for our activities. The failure to obtain or maintain these permits, licenses or authorizations could adversely affect our business or require us to incur significant costs. The relevant governmental agencies could take enforcement action against us for any failure to comply with applicable laws, regulations, official standards and related policies. We cannot predict any future changes in such laws, regulations, official standards and policies or the effect that this changing regulatory environment will have on our business. Mexican federal governmental policies or regulations, as well as economic, political and social developments in Mexico, could adversely affect our business, financial condition, results of operations and prospects. We are a Mexican corporation and a significant portion of our assets are located in Mexico, including many of our production facilities. As a result, our business, financial condition, results of operations and prospects are subject to political, economic, legal and regulatory risks specific to Mexico. The Mexican federal government has exercised, and continues to exercise, significant influence over the Mexican economy and the Mexican automotive industry. Accordingly, Mexican federal governmental actions, fiscal and monetary policy and regulation of the Mexican automotive industry could have an impact on Mexican private sector entities, including our company. Following Enrique Peña Nieto’s election as President in 2012, the Congreso General de los Estados Unidos Mexicanos (“Mexican Congress”) became politically divided, as his political party Partido Revolucionario Institucional, or PRI, does not have majority in the Mexican Congress. The lack of alignment between the Mexican Congress and the President could result in deadlock and prevent the timely implementation of political and economic reforms, which in turn could have a material adverse effect on Mexican economic policy. We cannot predict the impact that these political conditions will have on the Mexican economy, which in turn, has a significant impact on our operations and results. Furthermore, our business, financial condition, results of operations and prospects may be affected by currency fluctuations, exchange restrictions, price instability, inflation, interest rates, regulation, taxation, social instability and other political, social and economic developments in or affecting Mexico, over which we have no control. We cannot assure you that changes in Mexican federal governmental policies will not adversely affect our business, financial condition, results of operations and prospects.



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Mexico has experienced a period of violence and criminal activity and such activities could affect our operations. Mexico has recently experienced periods of violence and crime due to the activities of drug cartels. In response, the Mexican government has implemented various security measures and has strengthened its police and military forces throughout the Mexican territory. Despite these efforts, drug-related crime continues to exist in Mexico. These activities, their possible escalation and the violence associated with them may have a negative impact on the Mexican economy or on our operations in the future. The social and political situation in Mexico could adversely affect the Mexican economy, which in turn could have a material adverse effect on our business, financial condition, results of operations and prospects. Argentina, Brazil, Mexico or Venezuela may experience high levels of inflation in the future, which could adversely affect our business, results of operations and financial condition. Argentina, Brazil, Mexico and Venezuela have histories of high levels of inflation and may experience high inflation in the future. Historically, inflation in Mexico has led to higher interest rates, depreciation of the Mexican Peso and the imposition of substantial government controls over exchange rates and prices, which at times has adversely affected our operating revenues and margins. Similar inflation could occur in the other Latin American countries in which we operate. In Mexico, the annual rate of inflation for the last four years, as measured by changes in the NCPI, as provided by Banco de México, was 3.6% in 2009, 4.4% in 2010, 3.8% in 2011 and 3.6% in 2012. In Brazil, inflation and certain government actions taken to combat inflation have had significant negative effects on the Brazilian economy. Inflationary pressures, and perceptions of inflationary pressures, may hinder our ability to access foreign financial markets or lead to government policies to combat inflation that could harm our business. We cannot assure you that Argentina, Brazil, Mexico or Venezuela will not experience high inflation in the future, including in the event of a substantial increase in inflation in the United States. High levels of inflation could cause our operating costs to increase while the rates we charge for our services, due to the competitive market environment, might not. A substantial increase in the inflation rate in the Latin American countries in which we operate could also adversely affect consumer purchasing power, thereby negatively impacting demand for our products, and would have the effect of increasing some of our costs, which could adversely affect our financial condition and results of operations. Developments in other countries could adversely affect the Mexican economy, our business, financial condition and results of operations. The Mexican economy may be, to varying degrees, affected by economic and market conditions in other countries. Although economic conditions in other countries may differ significantly from economic conditions in Mexico, investors’ reactions to adverse developments in other countries may have an adverse effect on the market value of securities of Mexican issuers. In recent years, for example, the prices of both Mexican debt and equity securities decreased substantially as a result of the prolonged decrease in the United States securities markets. Credit issues in the United States have resulted in significant fluctuations in the financial markets. In addition, in recent years, economic conditions in Mexico have become increasingly correlated with economic conditions in the United States as a result of NAFTA and increased economic activity between the U.S. and Mexico. Therefore, adverse economic conditions in the United States, the termination or re-negotiation of NAFTA or other related events could have a significant adverse effect on the Mexican economy. We cannot assure you that events in other emerging market countries, in the United States or elsewhere will not adversely affect our business, financial condition or results of operations. Changes in the relative value of the Mexican Peso or other foreign currencies to the U.S. Dollar may have an adverse effect on us. We have operations in a variety of countries and therefore to the extent that we enter into transactions in currencies that are different than the functional currency of our investments, our operations are exposed to currency fluctuations associated with such entities. This includes exposure to fluctuations in the Mexican Peso, the Brazilian Real, the Indian Rupee, the Argentine Peso, the Australian Dollar, the British Pound Sterling, the Venezuelan Bolivar, the Canadian Dollar, the Euro, the Japanese Yen and the Thai Baht.



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We have particular exposure to fluctuations in the Mexican Peso. Currently, the Peso-Dollar exchange rate is determined on the basis of a free market float in accordance with the policy set by Banco de México. There is no guarantee that Banco de México will maintain the current exchange rate regime or that Banco de México will not adopt a different monetary policy that may affect the exchange rate itself or our ability to exchange Mexican Pesos into foreign currencies, including the U.S. Dollar. Any change in the monetary policy, the exchange rate regime or in the exchange rate itself, as a result of market conditions over which we have no control, could have a considerable impact on our business, financial condition and results of operations. The Mexican Peso has been subject to significant devaluations against the U.S. Dollar and may be subject to significant fluctuations in the future. In 2008, as a result of negative economic conditions in the United States and in other parts of the world, local and international markets experienced high volatility, which contributed to the devaluation of the Mexican Peso. The Mexican government has implemented a series of measures to limit the devaluation of the Peso and stabilize the local economy. However, we cannot assure you that such measures will be effective or ongoing or predict how they will impact the Mexican economy. A significant portion of our revenues are either denominated in or linked to the value of the U.S. Dollar. Because a portion of our cost of goods sold, including labor costs, and other operating expenses are invoiced in Mexican Pesos and are not directly affected by the relative value of the Mexican Peso to the U.S. Dollar, the real appreciation or depreciation of the Mexican Peso relative to the U.S. Dollar can have an effect on our operating margins. This is because the aggregate amount of our consolidated revenues denominated in or linked to U.S. Dollars exceeds the aggregate amount of our cost of sales and other operating expenses denominated in or linked to U.S. Dollars. Given that a significant portion of our revenues are either denominated in or linked to the value of the U.S. Dollar, an unexpected appreciation of the Peso relative to the U.S. Dollar would adversely affect our ability to meet our U.S. Dollar-denominated trade and financial obligations, including the notes, and to make additional capital expenditures. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations––Quantitative and Qualitative Disclosures about Market Risk––Foreign Currency Exposure.” We are subject to significant foreign currency exchange controls in certain countries in which we operate. Certain Latin American economies have experienced shortages in foreign currency reserves and their respective governments have adopted restrictions on the ability to transfer funds out of the country and convert local currencies into U.S. Dollars. This may increase our costs and limit our ability to convert local currency into U.S. Dollars and transfer funds out of certain countries. Any shortages or restrictions may impede our ability to convert these currencies into U.S. Dollars and to transfer funds, including for the payment of dividends or interest or principal on our outstanding debt. In the event that any of our subsidiaries are unable to transfer funds to us due to currency restrictions, we are responsible for any resulting shortfall. There are currency restrictions in place in Venezuela that limit our ability to repatriate bolívares fuertes held in Venezuela at the government’s official exchange rate. In Venezuela, the official bolívar fuerte-U.S. dollar exchange rate is established by the Central Bank of Venezuela and the Venezuelan Ministry of Finance, and the acquisition of foreign currency at the official exchange rate by Venezuelan companies to pay foreign debt or dividends is subject to registration with and approval by the relevant Venezuelan authorities. On February 8 2013, the Venezuelan government announced a currency devaluation, and increased the government’s official exchange rate to $6.30 bolívares fuertes per U.S. dollar from $4.30 bolívares fuertes per U.S. dollar. These approvals have become more difficult to obtain over time, which led to the development of a bond-based exchange process under which bolívar fuerte-denominated bonds are purchased in Venezuela and then are immediately exchanged outside Venezuela for bonds denominated in U.S. Dollars at a specified, and less favorable, parallel market exchange rate.



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In addition, in 2001 and 2002, Argentina imposed exchange controls and transfer restrictions substantially limiting the ability of companies to accumulate or maintain foreign currency in Argentina or make payments abroad. Although certain exchange controls and transfer restrictions were subsequently eased, in June 2005, the Argentine government issued a decree that established new controls on capital flows. Exchange control restrictions impact our ability to transfer funds abroad and may prevent or delay payments that our Argentine subsidiaries are required to make outside Argentina. In October and November 2011, in response to the Argentine government’s concern over increasing capital flight, tax evasion and money laundering, the Central Bank of Argentina and the Argentine tax authority (AFIP) issued new regulations affecting the purchase of foreign currency (including U.S. Dollars) in Argentina. Through Communication “A” 5236 the government enforced new limitations on the purchase of foreign currency by Argentine residents through the local exchange market (Mercado Único y Libre de Cambios, or MULC) that are applicable to individuals or legal entities with respect to formation of off-shore assets. The new limitations with which banking institutions must comply involve, among others, (i) the origin of the funds (when a purchaser’s aggregate purchases exceed US$250,000 in one calendar year, the banking institution facilitating the transaction must ensure that the funds used to purchase the foreign currency do not exceed certain thresholds set forth in Communication “A” 5236); and (ii) the kind of entity that may access the local exchange market (corporations, foundations or associations that are not registered with a specific registry—other than tax regimes—and trusts that are not created by the national government require prior Central Bank authorization in order to access the MULC. Central Bank of Argentina Communication “A” 5237 set forth new rules regarding the repatriation of foreign direct investments. Communication “A” 5245 and AFIP’s Resolution No. 3210 require all banks and foreign exchange houses to register every purchase of foreign currency, whether by individual or a legal entity, through an online system administered by AFIP. In case of purchases of foreign currency by local residents for the formation of off-shore assets, prior authorization from AFIP is needed in order to carry out the transaction. If such a transaction fails to clear, the purchaser will not be able to complete the transaction and may make a claim at the AFIP’s offices to obtain authorization to complete the transaction. Purchases of foreign currency for formation of off-shore assets that are exempt from this clearance process include, among others, those made by international organizations and official export credit agencies, diplomatic and consular representatives and local governments. Argentina may tighten exchange controls or transfer restrictions in the future to prevent capital flight, counter a significant depreciation of the Argentine peso or address other unforeseen circumstances. In particular, current Argentine Central Bank regulations do not grant non-debtors, such as any Argentine subsidiary guarantor, access to the foreign exchange market for the purpose of transferring currency outside Argentina in order to make payments under any subsidiary guarantee granted by it. In 2012, our subsidiaries in Venezuela and Argentina represented 0.6% and 0.6% of our Adjusted EBITDA, respectively. If we are prohibited from transferring funds out of Venezuela and/or Argentina, or if we become subject to similar restrictions in other countries in which we operate, our results of operations and financial condition could be adversely affected. We could be subject to expropriation or nationalization of our assets and government interference with our business in certain countries in which we operate. We face a risk of expropriation or nationalization of our assets and government interference with our business in some of the countries in which we do business. These risks are particularly acute in Venezuela. The current Venezuelan government has promoted a model of increased state participation in the economy through welfare programs, exchange and price controls and the promotion of state-owned companies. We can provide no assurance that our Venezuelan operations will not be threatened with expropriation and that our operations will not be transformed into state-owned enterprises.



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Risks Relating to the Notes Payments on the notes and the subsidiary guarantees will be effectively junior to any of our secured indebtedness and structurally junior to debt obligations of our non-guarantor subsidiaries. The notes will constitute our senior unsecured obligations and will rank equal in right of payment with all of our and our Subsidiary Guarantors’ other existing and future senior unsecured indebtedness, other than obligations preferred by statute (such as tax and labor claims). Although the holders of the notes will have a direct, but unsecured claim on our assets and property, payment on the notes will be subordinated in right of payment to any of our existing or future secured debt, to the extent of the assets securing such debt. Although the Indenture governing the notes will contain restrictions on the incurrence of additional liens, these restrictions are subject to important qualifications and exceptions, and the liens that we may incur in compliance with these restrictions or liens that arise from governmental or creditor action, could be substantial. Payment by us in respect of the notes will also be structurally subordinated to the payment of secured and unsecured debt and other creditors of our non-guarantor subsidiaries. As of December 31, 2012, we had total consolidated debt of US$246 million, US$224 million of which was unsecured debt of Metalsa and our Subsidiary Guarantors and US$22 million of which was unsecured debt of our non-guarantor subsidiaries. If we become insolvent or are liquidated, or we become subject to bankruptcy proceedings (concurso mercantile), or if payment under any secured debt is accelerated, any secured lenders would be entitled to exercise the remedies available to a secured lender. Accordingly, any proceeds upon a realization of the applicable collateral would be applied first to amounts due under the secured debt obligations before any proceeds would be available to make payments on the notes. After such application of the proceeds from collateral, it is possible that there would be no assets remaining from which claims of the holders of the notes could be satisfied. As of the date hereof, we do not have any secured debt. In addition, under Mexican law, our obligations under the notes are subordinated to certain statutory preferences, including claims for salaries, wages, secured obligations (to the extent of the security provided), social security, employee housing fund contributions, retirement fund quotes, taxes and court fees and expenses. Similar statutory preferences may be applicable in other jurisdictions where the Subsidiary Guarantors are incorporated. In the event of our liquidation, such statutory preferences will have preference over any other claims, including claims by any holder of the notes, and any remaining assets might be insufficient to satisfy the claims of the holders of the notes and holders of other unsecured debt including trade creditors that rank equal to holders of the notes. Our obligations under the notes would be converted into Mexican Pesos in the event of bankruptcy. Under Mexico’s Law on Mercantile Reorganization (Ley de Concursos Mercantiles), if we are declared bankrupt or in concurso mercantil, our obligations under the notes, (i) would be converted into Mexican Pesos and then from Mexican Pesos into inflation-adjusted units (unidades de inversion, known as UDIs), (ii) would be satisfied at the time claims of all our creditors are satisfied, (iii) would be subject to the outcome of, and priorities recognized in, the relevant proceedings, (iv) would cease to accrue interest from the date the concurso mercantil is declared, (v) would not be adjusted to take into account any depreciation of the Mexican Peso against the U.S. Dollar occurring after such declaration, and (vi) would be subject to certain statutory preferences, including tax, social security and labor claims, and claims of secured creditors (up to the value of the collateral provided to such creditors). The subsidiary guarantees may not be enforceable under applicable laws. The notes will be fully and unconditionally guaranteed on a joint and several basis by certain of our U.S. subsidiaries. The subsidiary guarantees provide a basis for a direct claim against the Subsidiary Guarantors; however, it is possible that the guarantees of these subsidiaries may not be enforceable under applicable laws. Under various fraudulent conveyance or fraudulent laws (including under the laws of the United States), a court could subordinate or void the obligations of our Subsidiary Guarantors under the guarantees. Generally, to the extent that a court were to find that at the time one of our Subsidiary Guarantors entered into a guarantee either (a) the 36



Subsidiary Guarantor incurred the guarantee with the intent to hinder, delay or defraud any present or future creditor or contemplated insolvency with a design to favor one or more creditors to the exclusion of others or (b) the Subsidiary Guarantor did not receive fair consideration or reasonably equivalent value for issuing the guarantee and, at the time it issued that guarantee, the Subsidiary Guarantor (i) was insolvent or became insolvent as a result of issuing the guarantee, (ii) was engaged or about to engage in a business or transaction for which the remaining assets of the Subsidiary Guarantor constituted unreasonably small capital, (iii) intended to incur, or believed that it would incur, debts beyond its ability to pay those debts as they matured or (iv) was a defendant in an action for money damages, or had a judgment for money damages declared against such Subsidiary Guarantor if, after final judgment, the judgment is unsatisfied, then the court could void or subordinate the subsidiary’s obligations under the guarantee in favor of the issuer’s or the Subsidiary Guarantor’s other obligations. In addition, any payment by any Subsidiary Guarantor could be voided and required to be returned to such Subsidiary Guarantor, or to a fund for the benefit of its creditors. Among other things, a legal challenge of a Subsidiary Guarantor’s obligations under a guarantee on fraudulent conveyance grounds could focus on the benefits, if any, realized by the Subsidiary Guarantors as a result of the issuance of the notes. To the extent a subsidiary guarantee is voided as a fraudulent conveyance or held unenforceable for any other reason, the holders of the notes would not have any claim against that Subsidiary Guarantor and would solely be our creditors and creditors of the Subsidiary Guarantors, if any, whose obligations under the guarantees were not held unenforceable. If any such event were to occur, the creditworthiness of the notes, and the market value of the notes in the secondary market, may be materially adversely affected. The notes are subject to transfer restrictions. The notes have not been registered under the Securities Act or any state securities laws, and we are not required to and currently do not plan on making any such registration in the immediate future. As a result, the notes may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable state securities laws. Prospective investors should be aware that investors may be required to bear the financial risks of this investment for an indefinite period of time. See “Transfer Restrictions” for a full explanation of such restrictions. An active trading market for the notes may not develop. Currently there is no market for the notes. Application is expected to be made to have the notes listed on the Official List of the Luxembourg Stock Exchange and traded on the Euro MTF Market. Even if the notes become listed on this exchange, we may delist the notes. A trading market for the notes may not develop, or if a market for the notes were to develop, the notes may trade at a discount from their initial offering price, depending upon many factors, including prevailing interest rates, the market for similar securities, general economic conditions and our financial condition. The initial purchasers are not under any obligation to make a market with respect to the notes, and we cannot assure you that trading markets will develop or be maintained. Accordingly, we cannot assure you as to the development or liquidity of any trading market for the notes. If an active market for the notes does not develop or is interrupted, the market price and liquidity of the notes may be adversely affected. Payments claimed in Mexico on the notes, pursuant to a judgment or otherwise, would be required to be made in Mexican Pesos. In the event that proceedings are brought against us in Mexico, either to enforce a judgment or as a result of an original action brought before Mexican courts, or if payment is otherwise claimed from us in Mexico, we would not be required to discharge those obligations in a currency other than Mexican currency. Under the Monetary Law of the United Mexican States (Ley Monetaria de los Estados Unidos Mexicanos) an obligation, whether resulting from a judgment or by agreement, denominated in a currency other than Mexican currency, which is payable in Mexico, may be satisfied in Mexican currency at the rate of exchange in effect on the date on which payments are made. Such rate is currently determined by Banco de México and published every banking day in the Official Gazette. As a result, you may suffer a U.S. Dollar shortfall if you obtain a judgment or a distribution in Mexico. You should be aware that no separate action exists or is enforceable in Mexico for compensation for any shortfall.



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We may not be able to make payments in U.S. Dollars. In the past, the Mexican economy has experienced balance of payments deficits and shortages in foreign exchange reserves. While the Mexican government does not currently restrict the ability of Mexican or foreign persons or entities to convert Mexican Pesos to foreign currencies, including U.S. Dollars, it has done so in the past and could do so again in the future. We cannot assure you that the Mexican government will not implement a restrictive exchange control policy in the future. Any such restrictive exchange control policy could prevent or restrict our access to U.S. Dollars to meet our U.S. Dollar obligations and could also have a material adverse effect on our business, financial condition and results of operations. We cannot predict the impact of any such measures on the Mexican economy. It may be difficult to enforce civil liabilities against us or our directors, executive officers and controlling persons. Most of our directors, executive officers and controlling persons are non-residents of the United States and substantially all of the assets of such non-resident persons and a significant portion of all of our assets are located in Mexico or elsewhere outside the United States. As a result, it may not be possible for investors to effect service of process within the United States upon such persons or us to enforce against them or us in courts of any jurisdiction outside Mexico, judgments predicated upon the laws of any such jurisdiction, including any judgment predicated substantially upon the civil liability provisions of United States federal and state securities laws. We have been advised that there is doubt as to the enforceability in Mexican courts, in original actions or in actions for enforcement of judgments obtained in courts of jurisdictions outside Mexico, of civil liabilities arising under the laws of any jurisdiction outside Mexico, including any judgment predicated solely upon United States federal or state securities laws. No treaty is currently in effect between the United States and Mexico that covers the reciprocal enforcement of foreign judgments. In the past, Mexican courts have enforced judgments rendered in the United States by virtue of principles of reciprocity and comity as well as the provisions of Mexican law relating to the enforcement of foreign judgments in Mexico, consisting of the review by Mexican courts of the United States judgment in order to ascertain whether Mexican legal principles of due process and public policy (orden público), among other requirements, have been duly complied with, without reviewing the merits of the subject matter of the case, provided that U.S. courts would grant reciprocal treatment to Mexican judgments. We cannot assure you that the credit ratings for the notes will not be lowered, suspended or withdrawn by the rating agencies. The credit ratings of the notes may change after issuance. Such ratings are limited in scope, and do not address all material risks relating to an investment in the notes, but rather reflect only the views of the rating agencies at the time the ratings are issued. An explanation of the significance of such ratings may be obtained from the rating agencies. We cannot assure you that such credit ratings will remain in effect for any given period of time or that such ratings will not be lowered, suspended or withdrawn entirely by the rating agencies, if, in the judgment of such rating agencies, circumstances so warrant. Any lowering, suspension or withdrawal of such ratings may have an adverse effect on the market price and marketability of the notes. We may not have the ability to raise the funds necessary to finance the change of control offer required by the Indenture. If we undergo a Change of Control Triggering Event (as defined in the Indenture), we may need to refinance large amounts of our debt, including the notes. Under the Indenture, if a Change of Control Triggering Event occurs, we must offer to buy back the notes for a price equal to 101% of the principal amount of the notes, plus any accrued and unpaid interest. We may not have sufficient funds available to us to make any required repurchases of the notes upon a Change of Control Triggering Event. If we fail to repurchase the notes in those circumstances, we will be in default under the Indenture, which may, in turn, trigger cross-default provisions in our other debt instruments. The Indenture will not limit the amount of unsecured indebtedness that we or our subsidiaries may incur or require us to comply with any financial covenants. Neither we nor any of our subsidiaries will be restricted from incurring additional unsecured debt or other liabilities, including additional senior debt, under the Indenture. As of December 31, 2012, we had approximately 38



$246 million of indebtedness outstanding and $200 million of borrowings available under our available committed credit lines. If we incur additional debt or liabilities, our ability to pay our obligations on the notes could be adversely affected. In addition, we will not be restricted from paying dividends on or issuing or repurchasing our securities under the Indenture. Furthermore, the Indenture will not contain any provisions restricting our or any of our subsidiaries’ ability to sell assets (except to the extent set forth under “Description of the Notes—Consolidation, Merger, Sale or Conveyance”), to enter into transactions with affiliates, or to create restrictions on the payment of dividends or other amounts to us from our subsidiaries. Moreover, the Indenture will not contain any covenants or other provisions to afford protection to holders of the notes in the event of a change of control involving us except to the extent described under “Description of the Notes—Repurchase at the Option of Holders Upon a Change of Control Triggering Event” and “Description of the Notes—Consolidation, Merger, Sale or Conveyance”. Additionally, the Indenture will not require that we or our subsidiaries adhere to any financial tests or ratios or specified levels of net worth. There will be no financial covenants in the Indenture. You will not be protected under the Indenture in the event of a highly leveraged transaction, reorganization, change of control, restructuring, merger or similar transaction that may adversely affect you, except to the limited extent described in this offering memorandum under “Description of the Notes.”



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USE OF PROCEEDS We estimate that the net proceeds from the issuance of the notes will be approximately US$297.5 million (after deducting the initial purchasers’ discounts and commissions and the payment of estimated offering expenses). We intend to use $214 million of the net proceeds of this offering for the repayment of substantially all of our outstanding indebtedness (other than the outstanding indebtedness borrowed by Metalsa Argentina S.A. due in 2015 and certain capital lease obligations, as described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations —Liquidity and Capital Resources—Indebtedness”), including our existing debt with affiliates of Citigroup Global Markets Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Indebtedness” and “Plan of Distribution.” We intend to use the remaining net proceeds for general corporate purposes, including approximately $38 million for the acquisition of ISE.2 For a description of our outstanding indebtedness as of December 31, 2012, including a description of the outstanding indebtedness intended to be repaid with a portion of the proceeds of this offering, see “Capitalization” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.”



2



A portion of the proceeds of this offering was used to finance a portion of the ISE acquisition.



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CAPITALIZATION The following table sets forth our cash and cash equivalents and consolidated capitalization as of December 31, 2012 (i) on a historical basis, (ii) as adjusted to give effect to the issuance of the notes and the use of the proceeds therefrom as if it had occurred on December 31, 2012 and (iii) as further adjusted for the ISE acquisition as if it had occurred on December 31, 2012. Since December 31, 2012, there has been no material change to our capitalization. As of December 31, 2012 As Adjusted for Offering Actual (in thousands of Dollars)



As Further Adjusted for ISE Acquisition(5)



Cash and cash equivalents(1) ................................................



$145,287



$231,716



$193,608



Short-term debt Current portion of long-term debt .........................................



$57,398 $23,281



$7,398 $11,149



$41,437 $11,149



Total short-term debt(2) ...................................................



$80,679



$18,547



$52,586



Long-term debt ..................................................................... 4.90% senior notes due 2023 offered hereby .......................



$165,758 -



$14,319 $300,000



Total long-term debt(3)(4)) ..............................................



$165,758



$314,319



$50,789 $300,000 $350,789



Total shareholders’ equity .....................................................



$551,551



$551,551



$605,049



Total capitalization ......................................................



$797,988



$884,417



$1,008,424



_____________ (1) Excludes restricted cash of $12.7 million related to the purchase agreement of the DSPB. (2)



Includes short term portion of capital leases of $5.7 million (Actual and As Adjusted for Offering) and $13.5 million (As Further Adjusted for ISE Acquisition).



(3)



Includes long term portion of capital leases of $4.8 million (Actual and As Adjusted for Offering) and $20.6 million (As Further Adjusted for ISE Acquisition).



(4)



Giving effect to the ISE acquisition, total long-term debt would increase by $36.5 million.



(5)



ISE’s financial statements have been prepared in accordance with IFRS, which differs in certain respects from MFRS. Accordingly, ISE’s financial statements may not be comparable to our financial statements, which have been prepared in accordance with MFRS.



With respect to the financial information for the ISE acquisition that is set forth in the table above, we have relied on unaudited financial information of ISE as of December 31, 2012 provided to us by ISE and ISE Holding. We were not involved in compiling any such financial information, nor have we been able to verify the truthfulness or accuracy of completeness of such financial information.



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SELECTED HISTORICAL FINANCIAL DATA AND OTHER INFORMATION You should read the following summary financial data and other information in conjunction with our annual audited consolidated financial statements and the information set forth in the sections “Presentation of Financial and Certain Other Information,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing elsewhere in this offering memorandum. The financial information as of December 31, 2011 and 2012 and for the years ended December 31, 2010, 2011 and 2012 has been derived from our annual audited consolidated financial statements prepared in accordance with MFRS. MFRS differs in certain significant respects from U.S. GAAP. Effective January 1, 2012, certain Mexican companies with securities listed with the RNV are required to prepare and present financial information in accordance with IFRS. Because we are not required to comply with the foregoing regulations, the financial information presented herein has been prepared in accordance with MFRS. Although this requirement is not mandatory for us, our management is currently evaluating the possibility of adopting IFRS to align the accounting standards of our international operations under a globally accepted accounting framework. See “Presentation of Financial and Certain Other Information.” The financial statements are presented in U.S. Dollars, which is the company’s functional currency for Metalsa, S.A. de C.V. (in Mexico) and in its U.S. subsidiaries. Sales in these locations accounted for 77% of revenues in 2012.



42



For the Year Ended December 31, 2012 2011 2010 (US$) (US$) (US$) (in thousands) Income Statement Data: Revenues .............................................................................. $1,807,173 Cost of sales ......................................................................... 1,534,386 272,787 Gross profit........................................................................... Gross margin .................................................................. 15% 89,498 Selling, general and administrative expenses ....................... 183,289 Operating income ................................................................. (3,851) Other (income) expenses ...................................................... Comprehensive financial results: Interest expense ................................................................ 21,560 Interest gain ...................................................................... (627) Currency exchange loss (gain), net ................................... 6,333 Derivative financial instruments valuation gain ............... (1,617) (5,528) Monetary position gain ..................................................... 20,121 Comprehensive financial results, net .................................... (6,079) Equity investment in associate company .............................. 173,098 Income before income taxes ................................................. Income taxes: Current ................................................................................. 15,042 35,837 Deferred................................................................................ 50,879 Total income taxes................................................................ $122,219 Net income ...........................................................................



$1,572,399 1,340,289 232,110 15% 87,701 144,409 10,796



$1,212,993 1,033,046 179,947 15% 66,134 113,813 9,356



16,293 (531) (2,255) (296) (2,599) 10,612 (5,666) 128,667



18,549 (1,364) 3,105 (4,662) (1,278) 14,350 (3,036) 93,143



10,855 28,517 39,372 $89,295



16,421 (6,844) 9,577 $83,566



As of December 31, 2012 2011 (US$) (US$) (in thousands)



Balance Sheet Data Assets Current assets: Cash and cash equivalents ................................................ Accounts receivable, net ................................................... Inventories ........................................................................ Derivative financial instruments(1) .................................. Prepaid expenses ..............................................................



$157,972 315,064 174,744 463 7,589



$94,443 274,639 116,474 10,783



Total current assets .................................................... Property, plant and equipment, net ....................................... Deferred tax assets ................................................................ Other assets, net .................................................................... Equity in associated company .............................................. Derivative financial instruments(1) ...................................... Goodwill ...............................................................................



655,832 419,376 17,598 10,507 34 13,935



496,339 395,590 24,449 11,195 6,610 13,935



Total assets ........................................................................



1,117,282



948,118



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As of December 31, 2012 2011 (US$) (US$) (in thousands) Liabilities and Stockholders’ Equity Current Liabilities: Current installments of notes payable to bank and long-term debt .................................................................. Current portion of obligations under capital leases........... Derivative financial instruments(1) .................................. Deferred revenue, short term ............................................ Accounts payable and accrued liabilities ..........................



$75,026



$11,601



5,653 4,077 291,134



2,942 147 7,517 254,684



Total current liabilities .............................................. Notes payable to bank, long-term debt, excluding current installments........................................................................... Capital lease obligations, excluding current maturities ........ Deferred tax liabilities .......................................................... Deferred revenue, long-term ................................................. Employee benefits ................................................................



375,890



276,891



161,007



163,572



4,751 10,073 638 13,372



2,899 4,715 9,535



Total liabilities ..................................................................



565,731



457,612



Stockholders’ Equity: Common stock ...................................................................... Additional paid-in capital ..................................................... Retained earnings ................................................................. Cumulative current translations effect .................................. Total stockholders’ equity .........................................



13,685 53,359 497,033 (12,526) 551,551



13,685 53,359 427,399 (3,937) 490,506



Total .....................................................................................



$1,117,282



$948,118



For the Year Ended December 31, 2012 2011 (US$) (US$) (in thousands) Cash Flow Data: Net cash flows from operating activities ..................................... Net cash flows from investing activities...................................... Net cash flows from financing activities .....................................



$165,941 (97,153) (5,399)



$177,254 (58,424) (93,299)



Other Financial Data: Adjusted EBITDA (unaudited)(2) ...............................................



252,422



209,891



___________________ (1) See “Management’s Discussion and Analysis of Financial Condition and Results of Operations––Quantitative and Qualitative Disclosures about Market Risk––Derivative Financial Instruments” for information regarding items included in Derivative Financial Instruments as a current asset and as a liability. (2) We define “Adjusted EBITDA” under MFRS to mean consolidated net income before adding or subtracting, as the case may be, (1) depreciation and amortization, (2) comprehensive financial results, net (which includes interest expense, interest gain, current exchange loss (gain), net, derivative financial instruments valuation gain, and monetary position gain), (3) other (income) expenses (which typically consists of non-recurring items under MFRS such as impairments of non-current assets), (4) income taxes and (5) equity investment in associate company. Adjusted EBITDA is not a financial measure computed under MFRS. Our calculation of Adjusted EBITDA may not be comparable to other companies’ calculation of similarly titled measures. For additional information, see “Presentation of Financial and Certain Other Information – Non-GAAP Financial



44



Measures” and “Presentation of Financial Information and Certain Other Information.” The following table sets forth a reconciliation of Adjusted EBITDA to consolidated net income under MFRS for each of the periods presented:



2012



Year Ended December 31, 2011 2010



(US$)



(US$)



(US$)



(in thousands)



Consolidated net income ................................... Depreciation and amortization .......................... Comprehensive financial results, net ................ Other (income) expenses................................... Income taxes ..................................................... Equity investment in associate company .......... Adjusted EBITDA (unaudited) .........................



122,219 69,133 20,121 (3,851) 50,879 (6,079) 252,422



45



89,295 65,482 10,612 10,796 39,372 (5,666) 209,891



83,566 65,191 14,350 9,356 9,577 (3,036) 179,004



MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion is based on and should be read in conjunction with our annual audited consolidated financial statements, and the notes thereto, and the other financial information included elsewhere in this offering memorandum. You should read this discussion and analysis together with “Financial Information,” “Selected Historical Financial Data and Other Information,” and our annual audited consolidated financial statements and the accompanying notes, which are included elsewhere in this offering memorandum. Our financial statements are prepared in accordance with MFRS, which differ in certain respects from U.S. GAAP. This section contains forward-looking statements that reflect our plans, estimates and beliefs and involve risks, uncertainties and assumptions. Our actual results could differ materially from those discussed in the forwardlooking statements. Factors that could cause or contribute to these differences include, but are not limited to, those discussed below and elsewhere in this offering memorandum, particularly in “Risk Factors” and “ForwardLooking Statements.” Investors should consider carefully the following discussion and the information set forth under “Risk Factors” before investing in the notes. Overview We are one of the leading suppliers, in terms of market share, of structural components for the automotive LV and CV markets in North America and Brazil. Our main products include chassis structures, body structures, suspension structures, steel fuel tanks, customized side rails, customized cross members, heavy truck frames, and bus frames, which we provide primarily as a direct, or “Tier One”, supplier to OEMs. We are the second largest supplier of BOF chassis in North America, where we hold a market share of approximately 40%, and the largest supplier in South America, where we hold a market share of approximately 50%, and we are one of the primary suppliers of CV side rails in both North America, where we hold a market share of approximately 46%, and Brazil, where we hold a market share of approximately 33%. Moreover, in 2014, we expect to become the number one supplier in North America for LV BOF chassis frames as we expect to be the sole supplier for the next generation Ford F-150 Truck and the next generation General Motors Chevrolet Colorado. In 2011, we generated revenues of US$1,572 million and Adjusted EBITDA of US$210 million, which grew to US$1,807 million and US$252 million, respectively, for the year ended December 31, 2012, representing an increase of 14.9% and 20.0%, respectively. Our operations fall within two strategic business units which service the LV and CV markets. Within our LV segment, we produce chassis structures, suspension modules, engine cradles, stampings, body structures and fuel tanks for passenger cars and light vehicles, with a primary focus on chassis and body structures for BOF pickup trucks. Within our CV segment, we produce side rails, cross members and chassis structures for medium and heavy duty trucks and buses, with a primary focus on side rails. We use our manufacturing capabilities to transform thousands of tons of commercial, high strength and alternative steels and aluminum into our final products. Metalsa is both a holding and operating company. We have a presence in 12 countries around the world and have over 9,100 employees. We currently operate 14 facilities in seven countries, are setting up a new facility in Thailand that is expected to become operational in 2013, and partially own another facility in the United Kingdom through a joint venture with GKN. We have manufacturing facilities in North America, South America, Asia and Australia. Our manufacturing facilities are supported by three state-of-the-art Tech Centers, two of which are located in Apodaca, Nuevo León, México; and one of which is located in Novi, Michigan, the United States. We also have international sales offices and engineering locations in Argentina, Australia, Brazil, Germany, India, Japan, Mexico, Russia, and the United States. Sequencing centers are located in San Antonio, Texas and Mexicali, Baja California to support Toyota and in Saltillo, Coahuila, Mexico to support Chrysler which helps to enhance customer service. Our sequencing centers store manufactured Metalsa products near the OEM’s plant in a sequence specified by the OEM which allows the OEM to retrieve the products in the proper order for the production of the vehicle model. See “Business—Product Development.”



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Our key product portfolio includes: LV Strategic Business Unit 



Chassis Structures: The chassis frame is the skeleton of the vehicle, which supports the power train, suspension, electrical and body systems. Chassis structures or ladder frames are used on mid- and full-size pickups and on medium duty trucks. The chassis frame’s primary function is to ensure a safe, durable and reliable vehicle performance to achieve the appropriate payload and towing specifications for the truck. The cabin and cargo box are bolted or riveted to the frame with rubber bushings, and the frame is assembled with all of the subsystems at the OEM plant.







Body Structures: Body structures refer mainly to the internal sheet metal or tubular components that give the final shape and structural integrity to the LV body. These structures are sub-assembled through different high-tech manufacturing processes and the final assembly occurs at the OEM plant. Also included in the body structure business unit are suspension modules and steel fuel tanks.



CV Strategic Business Unit 



Side Rails: Side rails are the backbone of the CV chassis segment for medium and heavy duty trucks, and range from 16 to 40 feet in size. These side rails are customized by various processes including cutting, hole drilling or punching, ramping and offsetting. Ladder frames consist of two side rails joined together by several crossmembers that are typically bolted or riveted to the side rails. Bus frames are also part of the CV side rail business.



See “Business—Key Products” for a more detailed description of each of our main products. The following chart shows the breakdown of sales volume as a percentage by product for the twelve months ended December 31, 2012. Breakdown of Sales Volume by Product Twelve Months Ended December 31, 2012



We supply our products to a well-diversified list of more than 23 clients, which include major OEMs, such as Toyota, Ford, Chrysler/Fiat, Volvo/Mack, VW, General Motors, Paccar (producer of the Kenworth, Peterbilt and DAF brands) and Nissan, among others. Some of our long-standing relationships with OEMs have lasted for up to 50 years. Our main LV products are chassis structures and body structures, which are customized for each of our main platforms and include the Ford F-150, Expedition, Navigator and Ranger; the Toyota Tundra, Tacoma, Hilux, Highlander and Sienna; the VW Amarok and Jetta; and the Chrysler Ram LD and Ram HD, among many others. The main products in our CV segment are side rails and ladder frames for Volvo/Mack Trucks, and side rails for Paccar. We have a significant global presence and are continuously looking to increase our participation in key geographic locations to better serve our customers and enhance our footprint within the industry. We currently operate from and sell products into countries all over the world, including, but not limited to, Argentina, Australia, Brazil, India, Mexico, the United Kingdom, the United States and Venezuela and we are in the process of setting up 47



a new facility in Thailand. We have Tech Centers, engineering locations and/or sales offices in Argentina, Australia, Brazil, Germany, India, Japan, Mexico, Russia, and the United States. Our facilities in Argentina, Australia, Venezuela and Kentucky (United States) focus on the manufacturing and sale of LV products. Meanwhile, our facilities in Brazil, India, Thailand and Virginia (United States) are principally focused on the manufacturing and sale of CV products. Our facilities in Mexico focus on the manufacturing and sale of both LV and CV products. We believe offering high quality and differentiated service and customization to each of our customers enables us to develop strong, long-standing customer relationships. Our commercial philosophy is to create and maintain a long term relationship with our customers, developing an atmosphere of trust while building strong collaborative partnerships. We focus on our ability to act as a full-service partner with OEMs through specialized processes and advanced engineering. These operations are supported by onsite engineers at certain customer locations. In addition, we offer our customers onsite designing, prototyping, testing and research and development. Within the automotive industry, relationships between OEMs and suppliers tend to be durable given the high start-up costs for the supplier and high switching costs for the OEM. We work directly with various OEMs to design products for each new generation of vehicle model before it enters production. This design process and the construction of the associated tooling and assembly lines often results in a lead time of one to three years. Once a project is awarded to us for a specific vehicle model and product, we usually remain the supplier for the life of that generation of vehicle model, which generally lasts three to ten years. In March 2010, we acquired the DSPB for US$147 million from Dana. With this acquisition, we were able to strengthen our position as a leading supplier of chassis frames in North America and advanced our strategy to become a global supplier of chassis frames by acquiring new operating facilities in South America. The acquisition added manufacturing facilities in Argentina, Australia, Brazil, Venezuela and the United States and a joint venture relationship with GKN in the United Kingdom. The DSPB acquisition has significantly enhanced our book of future international business. We currently operate 14 facilities in seven countries, are setting up a new facility in Thailand that is expected to become operational in 2013, and have a 50% interest in an another facility in the United Kingdom through our joint venture with GKN. Our total consolidated assets as of December 31, 2012 were US$1,117 million. The following table presents our total revenues and Adjusted EBITDA for the periods indicated.



2010 (US$) Total revenues.......................... Adjusted EBITDA (unaudited)(1)



Year Ended December 31, 2011 2012 (US$) (US$) (in thousands of Dollars)



1,807,173



1,572,399



1,212,993



252,422



209,891



179,004



__________________ (1) For a definition of Adjusted EBITDA and a reconciliation of our net income to our Adjusted EBITDA, see “Selected Historical Financial Data and Other Information.”



Operating Environment Our business is closely tied to general economic conditions in North America, particularly in the United States and Mexico since 85% of our Mexican facilities, production is exported either directly or indirectly to the U.S. market. Our industry has been significantly affected by continued deterioration of global economic conditions, unstable credit markets, sharply declining consumer confidence and volatile fuel prices. Although the deterioration of the economy and credit markets impacted the United States most significantly, the economic environment has affected the automotive industry worldwide.



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North America United States According to the IMF World Economic Outlook, real GDP in the United States increased 1.8%, increased 2.4% and decreased 3.1% in 2011, 2010 and 2009, respectively, compared to the applicable prior year. Despite the modest improvements in 2010 and 2011, the recent global financial crisis, widely perceived to be the worst financial crisis since the Great Depression of the 1930s, severely and adversely affected the economy and growth of the United States, resulted in the collapse of large financial institutions and the correlative bailout of banks by national governments, and triggered downturns in stock markets around the world. The crisis contributed to the failure of key businesses, a decrease in consumer wealth estimated in the trillions of dollars and a significant decline in economic activity. The recovery of the U.S. economy generally has been slow and is expected to remain slow with GDP anticipated to grow by 2.2% in 2012 and 2.1% in 2013. As a result of deteriorating global economic conditions, restrictive credit markets and declining consumer confidence, U.S. automotive production decreased dramatically in 2009. The U.S. Seasonally Adjusted Annual Rate of automotive industry sales growth declined to the lowest documented rate in the United States in over 25 years. Reduced U.S. automotive production levels are intensifying the challenges the industry faces with regard to excess installed capacity, high fixed-cost structures and limited access to capital in recent years. In 2012, industry participants took numerous restructuring actions to reduce fixed operating costs and to increase variability of cost structures. Mexico In Mexico, our economic performance and our ability to implement our business strategies may be affected by changes in national economic conditions. Since the 1995 currency and banking crisis, Mexico’s GDP has grown at an average real rate of 2.9% per year. In 2006, GDP grew at a rate of 5.2%, supported by exports of manufactured goods and strong foreign direct investment. Economic conditions began deteriorating in 2007, due mainly to the lower growth in domestic consumer demand, influenced by weaker wages and lower remittances from the United States, which negatively affected domestic consumption and caused Mexico’s GDP growth rate to slow to 3.3%. In 2008, the Mexican economy experienced a significant deterioration as a result of the global financial crisis. Foreign consumer demand deteriorated significantly, particularly in the manufacturing sector, which also affected domestic consumer demand, with lower investment and consumption. Mexico’s GDP growth rate fell to 1.2% and several supply side shocks affected price levels. The Mexican Peso was also adversely impacted by the economic downturn, and from September 2008 through the first quarter of 2009, the Mexican Peso devaluated significantly. During 2009, the financial crisis that started in 2008 continued affecting the world economy, which experienced the sharpest decline in decades. Mexico suffered the sharpest decline in GDP since 1932, declining by 6.1% during 2009, mainly as a result of Mexico’s close commercial ties with the United States. As a result of sharp decline in foreign consumer demand, Mexican exports fell drastically in key industries such as the automotive and electrical equipment industries. The Mexican financial sector was strongly affected by volatility. Inflation in 2009 was 3.57%. However, in 2010, the Mexican economy recovered considerably, with external demand and exports of manufactured goods driving an annual GDP growth of 5.4%, the highest in the past ten years. In 2011, Mexican GDP grew at a rate of 3.9%. Banco de México’s expectations for the Mexican economy cite signs of recovery in domestic consumer demand and external demand, as well as increases in public and private sector investment in 2013. Factors Affecting Our Results of Operations Revenues Our revenues consist primarily of revenue generated from the sale of chassis structures, suspension structures, body structures, steel fuel tanks, customized side rails, customized cross members, heavy truck frames, and bus



49



frames for the automotive industry, which is primarily driven by sales volume, price, and product mix. The principal drivers of sales volumes of our products include: 



available production capacity, including through the acquisition of new production facilities or the expansion of existing plant capacity (see “—Effect of Acquisitions and Capacity Expansion” below);







our operating rate, the existence or absence of operational disruptions and demand in North America and globally for most of our products by end users, particularly increased vehicle sales, which indirectly drives demand for our products;







demand in the United States for our customers’ products, as well as economic growth or contraction in the United States;







changes in product mix driven by the performance of particular vehicle platforms for which we supply one or more component; and







regional market conditions and the regional supply and demand balance for our products, and global trends regarding supply and demand for our products.



The principal factors affecting the price of our products include: 



changes in steel prices, substantially all of which we have successfully “passed through” to our OEM customers either through formal resale programs or through informal price adjustment mechanisms; and







regional market conditions, the regional supply and demand balance for our products and global trends regarding supply and demand of our products.



Cost of Sales Our cost of sales consists primarily of raw materials costs (the majority of which is steel), but also includes, among others, labor costs, maintenance costs, energy costs (primarily electricity and natural gas), transportation costs and depreciation and amortization. The principal factors that affect our cost of sales include: 



raw material (particularly steel) mainly purchased in Mexico and the United States;







energy prices;







high start-up costs associated with new production facilities; and







our ability to streamline or create efficiencies in production processes.



Realized gains or losses on derivative financial instruments related to commodities designated as hedges for accounting purposes are also included in cost of sales. Changes in our product mix can also impact our cost of sales, as our manufacturing costs for the different products we produce at a given manufacturing facility can vary. Gross Margin Gross margin is defined as revenues less cost of sales. Selling, General and Administrative Expenses Our operating expenses consist principally of selling and administrative expenses, such as salaries, travel, information technology (“IT”) systems and other corporate expenses.



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Comprehensive Financing (Expense) Income The components of comprehensive financing (expense) income include: 



interest expense, which is primarily a function of the principal amount of debt outstanding and the interest rates in effect;







interest income, which includes interest income earned on cash and cash equivalents;







exchange gain (loss), net, which includes net gains or losses relating to foreign currency exchange rate movements, as further described below under “—Effects of Foreign Currency Exchange Rate Fluctuations”;







loss (gain) from derivative financial instruments, which reflects settlement payments as well as changes in the fair market value of derivative financial instruments that from an economic point of view we entered into for hedging purposes but that are designated as held for trading because they do not satisfy the accounting requirements for hedge accounting; and







gain (loss) on monetary position, which in recent years has related to our operations in Argentina and Venezuela, which represents the effects of inflation, as measured by NCPI of the particular country on our monthly net monetary assets or liabilities during the year expressed in purchasing power of the most recent year reported.



Changes in the fair value of our derivative financial instruments are recognized in comprehensive financing (expense) income, except when designated as a hedge for accounting purposes. Their designation as a hedge is documented at the inception of the transaction, specifying the related objective, initial position, risk to be hedged, type of relationship, characteristics, accounting recognition and how their effectiveness will be assessed. Our policy is not to enter into derivative financial instruments for speculative purposes; however, we may enter into derivative financial instruments as an economic hedge against certain business risks, even if these instruments do not qualify for hedge accounting under MFRS. Effect of Acquisitions and Capacity Expansion Our results of operations for the periods under review were materially affected by the following acquisitions and capacity expansion. On March 8, 2010, we completed the acquisition of certain assets from Dana for US$147 million. The DSPB acquisition further diversified our geographic footprint and customer base and enhanced our product offering. This acquisition was accounted for under the purchase method of accounting and we began to consolidate the acquired businesses on a prospective basis as of March 8, 2010, and therefore the information for the year ended December 31, 2010 is not comparative with those of the full year for 2011 and 2012. For a description of the acquisition, see “Business—The DSPB Acquisition.” In 2011, our facilities in Kentucky, United States started a capacity expansion for new projects for LV with Ford and GM, which continued in 2012. In 2012, we began the construction of a new manufacturing site in Rayong, Thailand to supply to Volvo. Effects of Seasonality on Results of Operations Our business is seasonal. Our North American customers typically shut down vehicle production for approximately one to two weeks during July and December. In our South American facilities, customers typically shut down vehicle production for approximately one week during December and for two weeks during January. Such seasonality may adversely affect our results of operations, cash flows and liquidity during the third and fourth quarters of each fiscal year. We consider the cyclicality of our operations when budgeting our target forecasts and sales estimates for the year.



51



Effects of Foreign Currency Exchange Rate Fluctuations on Results of Operations We have operations in a variety of countries and, therefore, to the extent that we enter into transactions in currencies that are different than the U.S. Dollar, our reporting currency, our operations are exposed to currency fluctuations associated with such currencies. This includes exposure to fluctuations in the Mexican Peso, the Brazilian Real, the Indian Rupee, the Argentine Peso, the Australian Dollar, the British Pound Sterling, the Venezuelan Bolivar, the Canadian Dollar, the Euro, the Japanese Yen and the Thai Baht. Changes in the relative value of the any one of these currencies to the U.S. Dollar have an effect on our results of operations. Most of our revenues are either denominated in or linked to the value of the U.S. Dollar. Similarly, a substantial majority of our costs of sales and other selling, general and administrative expenses are either denominated in or linked to the value of the U.S. Dollar, including our purchases of several raw materials and the costs of our operations in the United States. Moreover, we have particular exposure to fluctuations in the Mexican Peso. As a result, in our Mexican facilities, when the Mexican Peso depreciates against the U.S. Dollar, costs and expenses tied to Mexican Pesos are reduced in U.S. Dollar terms, increasing our profitability. Conversely, when the Mexican Peso appreciates against the U.S. Dollar, costs and expenses tied to Mexican Pesos are increased in U.S. Dollar terms, decreasing our profitability. In general, a depreciation of the Mexican Peso will likely result in an increase in our operating margins and a real appreciation of the Mexican Peso will likely result in a decrease in our operating margins, in each case. This is because we have certain expenses in Mexican Pesos such as labor costs in connection with our Mexican operations, and our revenues denominated in or linked to U.S. Dollars exceed our cost of sales and other selling, general and administrative expenses denominated in or linked to U.S. Dollars. For more information, see “–– Quantitative and Qualitative Disclosures about Market Risk––Derivative Financial Instruments” and “–– Quantitative and Qualitative Disclosures about Market Risk––Foreign Currency Exposure” below. Effects of Derivative Financial Instruments on Comprehensive (Expense) Income Our finance result includes, and can be impacted by, mark-to-market gains or losses in connection with derivative financial instruments, including as a result of movements in prices for natural gas. Currently, our derivatives contracts do not contain margin call provisions. See “—Quantitative and Qualitative Disclosures about Market Risk—Derivative Financial Instruments.” Key Drivers of Profitability Key drivers of our profitability include: 



The successful implementation of our strategies: The effectiveness of our strategy implementation can have significant effects on the profitability for each of our business segments. This includes the successful integration of strategic acquisitions. Historically, our acquisitions have increased our customer base and global presence, demonstrated our ability to effectively restructure our operations and allowed us to benefit from economies of scale. In addition, we undertake continuing technological and operational improvements in order to increase our margins and reduce our costs. We also strive to maintain a diverse range of products, which provides us protection against a decreased demand in any one of our product offerings.







Pass through of raw materials costs: Our profitability depends in part upon our ability to successfully pass through our raw materials costs to our customers. We are able to pass through some of these costs, such as steel costs, through resale contracts which allow for price volatility to be absorbed by the end consumer. In addition, most of our resale and non-resale contracts for steel allow for renegotiation and pricing updates to reflect increasing raw material costs due to inflation, exchange rate fluctuations and other macroeconomic effects. For additional information, see “Business—Resale of Steel.”







Maintenance of long-term relationships with customers and suppliers: Our future profitability is dependent on the relationships we build and maintain with both our customers and suppliers. For example, we work continuously to strengthen and evolve our OEM customer relationships from our acting as a traditional “build to print” supplier to our becoming a collaborative partner of the customer. By providing high quality products and contributing to the development of our customers’ and suppliers’ businesses, we strengthen our relationships and the potential for long-term profitability.



52



Critical Accounting Policies We have identified certain key accounting estimates on which our financial condition and results of operations are dependent. These key accounting estimates most often involve complex matters or are based on subjective judgments or decisions that require management to make estimates and assumptions which affected the amounts reported in the financial statements. We base our estimates on historical information, where applicable and other assumptions that we believe are reasonable under the circumstances. Actual results may differ from our estimates under different assumptions or conditions. In addition, estimates routinely require adjustments based on changing circumstances and the receipt of new or more accurate information. In the opinion of our management, our most critical accounting estimates under MFRS are those that require management to make estimates and assumptions that affect the reported amounts related to the carrying amount of property, plant and equipment; valuation allowances for receivables, inventories and deferred income tax assets; valuation of derivative financial instruments; liabilities related to employee benefits; and the determination of the functional currency of our subsidiaries. For a full description of all of our accounting policies, see our annual audited consolidated financial statements included in this offering memorandum. There are certain critical estimates that we believe required significant judgment in the preparation of our financial statements. We consider an accounting estimate to be critical if: 



it requires us to make assumptions because information was not available at the time or it included matters that were highly uncertain at the time we were making the estimate; and







changes in the estimate or different estimates that we could have selected would have had a material impact on our financial condition or results of operations.



Property, plant and equipment We review the estimates for useful lives of fixed assets in order to determine depreciation expense to be recorded during any reporting period. The useful life of an asset is estimated at the time the asset is acquired and is based on historical experience with similar assets, taking into account anticipated technological or other changes. If technological changes were to occur more rapidly than anticipated, or in a different form than anticipated, the useful lives assigned to these assets may need to be shortened. This would result in the recognition of increased depreciation expense in future periods. Alternatively, these types of technological changes could result in the recognition of an impairment charge to reflect the write-down in the asset’s value. Property, plant and equipment of defined life are tested for impairment upon the occurrence of factors such as the appearance of a significant adverse event, changes in our operating environment, changes in projected use or in technology, as well as expectations of lower operating results for each cash generating unit, in order to determine whether their carrying amounts may not be recovered, in which case an impairment loss is recorded when such determination is made in the income statements for the period within “Other expenses.” The impairment loss results from the excess of the carrying amount over the net present value of estimated cash flows related to such asset. Income Taxes We are subject to income taxes in many jurisdictions. A significant judgment is required in the determination of the global provision for income taxes. There are many transactions and calculations for which the final tax determination is uncertain. We recognize liabilities for purposes of the advancement of fiscal audits based on estimates of whether additional taxes will be paid. Where the final tax result for these purposes is different from the amounts initially recorded, such differences will have an effect on current income tax and deferred income tax assets and liabilities in the period when the determination is made. For the recognition of deferred tax assets derived from net operating losses and their corresponding valuation reserve, we make an assessment of: a) the aggregate amount of self-determined tax loss carryforwards included in our income tax returns in each country that management believes the tax authorities would not reject based on available evidence; and b) the likelihood of the recoverability of such tax loss carryforwards prior to their expiration through an analysis of estimated future taxable income. If management believes that it is more likely than not that 53



the tax authorities would reject a self-determined deferred tax asset, we would decrease our deferred tax assets. Likewise, if we believe that we will not be able to use a deferred tax carryforward asset before its expiration, we increase the valuation allowance. Both situations would result in additional income tax expense in the determining statement of income for the period in which such determination is made. In the determination of whether it is more likely than not that deferred tax assets will ultimately be realized, management takes into consideration all available positive and negative evidence, including factors such as market conditions, industry analysis, expansion plans, projected taxable income, carry forward periods, current tax structure, potential changes or adjustments in tax structure, tax planning strategies, future reversals of existing temporary differences, etc. Likewise, every reporting period, we analyze our actual results versus management’s estimates, and adjust, as necessary, the deferred tax asset valuation allowance. If actual results vary from management’s estimates, the deferred tax asset and/or valuation allowance may be affected and necessary adjustments will be made based on relevant information. Any adjustments recorded will affect the statement of income in such period. Financial Instruments Measured at Fair Value The fair value of financial instruments is determined based upon liquid market prices evidenced by exchange traded prices, broker-dealer quotations or prices of other transactions with similarly rated counterparties. If available, quoted market prices provide the best indication of value. If quoted market prices are not available for fixed maturity securities and derivatives, we discount expected cash flows using market interest rates commensurate with the credit quality and maturity of the investment. Derivative financial instruments used for hedging are designated either as cash-flow hedges or fair value hedges. The changes in the fair value of cash flow hedges are reported in other comprehensive income, while the changes in the fair value of fair value hedges (along with the change in the fair value of the hedged item) are recorded in earnings. Fair value amounts are based on either quoted market prices or estimated values derived utilizing dealer quotes or internally generated modeling techniques. As market conditions change, adjustments to the fair value of these derivatives are made to reflect those conditions. In addition, hedging effectiveness needs to be evaluated on a periodic basis and to the extent the hedge is not deemed effective, hedge accounting ceases to be applied. Actual settlements of these derivatives will reflect the market conditions at the time and may differ significantly from the estimated fair market value reflected on the balance sheet. The degree of management’s judgment involved in determining the fair value of a financial instrument is dependent upon the availability of quoted market prices. When observable market prices and parameters do not exist, management’s judgment is necessary to estimate fair value, in terms of estimating the future cash flows, based on variable terms of the instruments and the credit risk and in defining the applicable interest rate to discount those cash flows. Employee Benefits The present value of obligations related to our defined benefit plans (applicable only for Mexico, Argentina and Brazil), which include our pension plans and seniority premium benefits in addition to statutory termination benefits, relies on factors determined on the basis of actuarial valuations that use a series of assumptions. The assumptions used in determining the net cost for the period and obligations arising from our defined benefit plans and statutory termination benefits include the use of discount rates, future salary increases, personnel turnover rates, mortality rates, among others. Any changes in these assumptions will impact the book value of the related obligations. In addition, the specific regulation in each jurisdiction, which may provide for legally mandated termination or retirement benefits, and any changes to such regulations, can impact the book value of the related obligations. We determine the discount rate (the interest rate to be used in determining the present value of future disbursements, estimated to be required to settle pension obligations) at the end of each year. To determine the proper discount rate, we consider the interest rate denominated in the same currency as that of the benefits to be paid and which have maturity terms closely resembling those of our defined benefit plans and statutory termination benefits. 54



Functional Currency of Our Subsidiaries Functional currency is defined as the currency of the primary economic environment an entity operates in. In general, the functional currency identified for an entity should provide information about the entity that is useful and reflects the economic substance of the underlying events and circumstances relevant to that entity. If a particular currency is used to a significant extent in, or has a significant impact on, the entity, that currency may be an appropriate currency to be used as the functional currency. In preparing our consolidated financial statements, we determine the functional currency of each of our individual subsidiaries. We utilize judgment in assessing which currency is the functional currency of our subsidiaries and consider the following factors as part of our analysis: 



the currency that mainly influences sales prices for goods and services (this will often be the currency in which sales prices for its goods and services are denominated and settled);







the currency of the country whose competitive forces and regulations mainly determine the sales prices of its goods and services;







the currency that mainly influences labor, material and other costs of providing goods or services (this will often be the currency in which such costs are denominated and settled);







the currency in which funds from financing activities (i.e., issuing debt and equity instruments) are generated; and







the currency in which receipts from operating activities are usually retained.



The local currency and functional currency of our subsidiaries located in the following countries is as follows: Country of Origin Mexico Brazil India Argentina Australia United Kingdom United States Venezuela Thailand



Local Currency Mexican Peso Brazilian Real Rupee Argentinean Peso Australian Dollar Pound Sterling U.S. Dollar Bolivar Thai Baht



Functional Currency U.S. Dollar Brazilian Real Rupee Argentinean Peso Australian Dollar Pound Sterling U.S. Dollar Bolivar Thai Baht



Our reporting currency is the U.S. Dollar. In preparing the financial statements of each individual subsidiary, transactions in currencies other than the subsidiary’s functional currency (foreign currencies) are recognized at the rates of exchange prevailing at the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. For the purposes of preparing our consolidated financial statements, the assets and liabilities of our subsidiaries with functional currencies that differ from the U.S. Dollar are translated into U.S. Dollars using exchange rates prevailing at the end of each reporting period. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuate significantly during that period, in which case the exchange rates at the dates of the transactions are used. Exchange differences arising, if any, are recognized in other comprehensive income and accumulated in equity.



55



Results of Operations The following financial information has been derived from our annual audited consolidated financial statements. Percent Change



Year Ended December 31,



2012



Percent of Revenues



2011



Percent of Revenues



2010



Percent of Revenues



2012 vs. 2011



2011 vs. 2010



14.9% 14.5% 17.5% 2.05%



29.6% 29.7% 29.0%



9% 26.9% 1% (135.7%)



27.0% 15.4%



(in thousands of Dollars, except percentages) Revenues ....................................... Cost of sales................................... Gross profit .................................... Selling, general and administrative expenses ................ Operating income .......................... Other (income) expenses ............... Comprehensive financial results:



$1,807,173 1,534,386 272,787 89,498



100% 85% 15% 5%



$1,572,399 1,340,289 232,110



100% 85% 15% 6%



$1,212,993 1,033,046 179,947



183,289 (3,851)



10% 0%



144,409 10,796



9% 1%



113,813 9,356



Interest expense ...................... Interest gain ............................ Currency exchange loss (gain), net ................................ Derivative financial instruments valuation gain ...... Monetary position gain ........... Comprehensive financial results, net .................................................. Equity investment in associate company ........................................ Income before income taxes ......... Income taxes .................................. Current ..................................... Deferred ................................... Net income .................................... Adjusted EBITDA (unaudited)(1) ..



21,560 (627) 6,333



1% 0% 0%



16,293 (531)



1% 0% 0%



18,549 (1,364)



(1,617)



0%



(5,528) 20,121



0% 1%



(6,079)



0%



173,098



10%



128,667



8%



15,042 35,837 122,219 252,500



0% 2% 7% 14%



10,855 28,517 89,295 209,800



0% 2% 6% 13%



87,701



(2,255) (296) (2,599) 10,612 (5,666)



0% 0% 1% 0%



100% 85% 15% 5%



66,134



2% 0% 0%



3,105



32.3% (18.0%) 215.0%



0% (446.2%)



(4,662) (1,278)



0% (112.7%) 1% 89.6%



14,350



0%



(7.29%)



93,143



8%



34.53%



16,421 (6,844) 83,566 178,900



1% 0% 7% 14%



(38.6%) 25.7% 36.87%



(3,036)



32.6%



(12.2)% 61.0% (172.6)% 93.7% (103.4)% (26.0)% (86.6)% 38.1% (33.9%) 516.6% 6.9%



(1) For a definition of Adjusted EBITDA and a reconciliation of our net income to our Adjusted EBITDA, see “Selected Historical Financial Data and Other Information.”



The following table shows the revenues breakdown by manufacturing region for 2012, 2011 and 2010:



2012



Percent of Revenues



Year Ended December 31, Percent of Revenues 2011



2010



Percent of Revenues



Percent Change 2012 vs. 2011 vs. 2011 2010



(in thousands of Dollars, except percentages) North America(1) ............................ South America(2) ............................ Rest of the World(3) ....................... Revenues…………………………



$1,362,803 $390,295 $54,075 $1,807,173



75% 22% 3% 100%



$1,092,260 $429,633 $50,506 $1,572,399



(1) Our North American region is comprised of the United States and Mexico. (2) Our South American region is comprised of Argentina, Brazil and Venezuela. (3) The “Rest of the World” is comprised of Australia and India.



56



70% 27% 3% 100%



$918,071 $248,704 $46,218 $1,212,993



75% 21% 4% 100%



25% (9)% 7% 15%



19% 73% 9% 30%



The following table shows the revenues breakdown by end-consumer region for 2012, 2011 and 2010:



2012



Percent of Revenues



Year Ended December 31, Percent of 2011 Revenues



2010



Percent of Revenues



Percent Change 2012 vs. 2011 vs. 2011 2010



(in thousands of Dollars, except percentages) North America(1) ............................ $1,370,258 76% $1,095,883 70% $845,395 70% 25% South America(2) ............................ $290,894 16% $361,804 23% $279,195 23% (20)% Rest of the World(3) ....................... $146,021 8% $114,712 7% $88,493 7% 27% Revenues ......................................... $1,807,173 100% $1,572,399 100% $1,212,993 100% 15% (1) Our North American region is comprised of the United States, Canada and Mexico. (2) Our South American region is comprised of Argentina, Brazil and Venezuela. (3) The “Rest of the World” is comprised of Australia, India, Germany and other countries where our customers export their products.



30% 30% 30% 30%



We evaluate our revenues both by manufacturing region, as this provides us with relevant information regarding the profitability of our manufacturing facilities on a regional basis, and by end-consumer region, as this provides us with relevant information regarding where our customers ultimately sell their products. However, we have positioned our manufacturing locations to be in close proximity to where our customers’ facilities are located, which, in many cases, also coincides with the principal region where they sell their products. As a result, our revenues by manufacturing region are often consistent with our revenues by end-consumer region. The following table shows the revenues breakdown by product category for 2012, 2011 and 2010:



2012 Chassis Structures .................... Side Rails ................................. Body Structures & Others



$1,257,444 $321,856 $227,873



Revenues .......................................



$1,807,173



Year Ended December 31, Percent of Percent of Revenues Revenues 2011 2010 (in thousands of Dollars, except percentages) 70% $971,105 62% $819,331 68% 18% $419,718 27% $243,962 20% 12% $181,576 11% $149,700 12%



Percent of Revenues



100% $1,572,399



100%



$1,212,993



100%



Percent Change 2012 vs 2011 vs 2011 2010 29% (23)% 25%



19% 72% 21%



15%



30%



Year Ended December 31, 2012 Compared to Year Ended December 31, 2011 Revenues by Product Category Revenues of chassis structures for the year ended December 31, 2012 were US$1,257.4 million, an increase of 29% from the US$971.1 million reported for 2011. This increase was primarily due to an increase of light truck demand in the United States. Revenues of side rails for the year ended December 31, 2012 were US$321.8 million, a decrease of 23% from the US$419.7 million reported for 2011. This decrease was primarily due to a contraction in the Brazilian market in 2012, particularly compared to 2011, which was an outstanding year for our sales volume as a new environmental law change in Brazil that became effective on January 1, 2012 accelerated the demand during 2011 for CV that were already compliant with such law. Revenues of body structures and others for the year ended December 31, 2012 were US$227.9 million, an increase of 25% from the US$181.6 million reported for 2011. This increase was primarily due to higher demand in the Mexican and U.S. market for body structures. Revenues by Manufacturing Region Revenues from North America for the year ended December 31, 2012 were US$1,362.8 million, an increase of 25% from the US$1,092.3 million reported for 2011. This increase was primarily due to the increase of LV demand in the United States and Mexico. Revenues from South America for the year ended December 31, 2012 were US$390.3 million, a decrease of 9% from the US$429.6 million reported for 2011. This decrease was primarily due to a contraction of the Brazilian CV 57



market, resulting from an environmental law change that became effective on January 1, 2012 which accelerated the demand during 2011 for CV that were compliant with such law. This decrease was only partially offset by a higher demand for LV in Argentina. Revenues from the Rest of the World for the year ended December 31, 2012 were US$54.1 million, an increase of 7% from the US$50.5 million reported for 2011. This increase was primarily due to better market dynamics in Australia and Germany for body structures and LV chassis, respectively. Revenues by End-Consumer Region Revenues to North America for the year ended December 31, 2012, were US$1,370.3 million, an increase of 25% from the US$1,095.9 million reported for 2011. This increase was primarily due to the increase of LV demand for the United States and Mexico. Revenues to South America for the year ended December 31, 2012 were US$290.9 million, a decrease of 20% from the US$361.8 million reported for 2011. This decrease was primarily due to a contraction of the Brazilian CV market, resulting from an environmental law change that became effective on January 1, 2012 which accelerated the demand during 2011 for CV that were compliant with such law. This decrease was only partially offset by a higher demand for LV in Argentina. Revenues to the Rest of the World for the year ended December 31, 2012 were US$146.0 million, an increase of 27% from the US$114.7 million reported for 2011. This was primarily due to improved market dynamics in Australia and Germany for body structures and LV chassis, respectively. General Revenues for the year ended December 31, 2012 were US$1,807.2 million, an increase of 15% from the US$1,572.4 million reported for 2011. This increase was due to an increase in chassis volume in North America and Argentina, offset by a decrease in side rails volume in Brazil resulting from an environmental law change that became effective on January 1, 2012 which accelerated the demand during 2011 for CV that were compliant with such law. Overall, our sales volume for 2012 increased 15% compared to 2011. Cost of sales for the year ended December 31, 2012 was US$1,534.4 million, a 15% increase from the US$1,340.3 million reported for 2011. This increase was primarily due to the 15% sales volume increase described above. The contribution margin as a percentage of revenues, defined as the difference between revenue and cost of sales, divided by revenue, in 2012 was 33% versus 31% in 2011. Such increase was mainly due to improved product mix in 2012 compared to 2011. Gross profit, defined as the difference between revenues and cost of sales, for the year ended December 31, 2012 was US$272.8 million, an increase of 17.5% from the US$232.1 million reported for 2011. This increase was primarily due to the increase in revenues and the higher contribution margin as described above. Selling, general and administrative expenses for the year ended December 31, 2012 were US$89.5 million, an increase of 2 % from the US$87.7 million reported for 2011. This relatively small increase was primarily due to the increase in sales volume described above. As a percentage of revenues, selling, general and administrative expenses in 2012 were 5% and 2011 in 6%. We were able to reduce selling, general and administrative expenses as a percentage of revenues by controlling our fixed expenses. Operating income for the year ended December 31, 2012 was US$183.3 million, an increase of 27 % from the US$144.4 million reported for 2011. This increase was primarily due to the increased volume of sales, the higher contribution margin and the reduction of selling, general and administrative expenses as a percentage of revenues as described above. Comprehensive financial results, net for the year ended December 31, 2012 were US$20.1 million, an increase of 90.6% from the US$10.6 million reported for 2011. This increase was primarily due to a currency exchange loss in 2012 versus a currency exchange gain in 2011, and to higher interest expense in 2012 versus 2011 of US$5.3 million. We had a currency exchange loss in 2012 as a result of a strengthening of the U.S. Dollar as compared to



58



the currencies of certain of the countries in which we operate (mainly Brazil and Mexico) and a currency exchange gain in 2011 as a result of a weakening of the U.S. Dollar as compared to the currencies of certain of the countries in which we operate (mainly Brazil and Mexico). Our interest expense increased in 2012 as a result of the change from a variable to a fixed rate on a portion of our debt in the third quarter of 2011, the issuance of an additional US$75 million of debt for our Argentinean and Mexican operations, and the payment of commitment fees related to the revolving credit lines we obtained in December 2011 and June 2012. Other income for the year ended December 31, 2012 was US$3.9 million, and was primarily due to increased dividend proceeds from our joint venture in the United Kingdom. Other expenses were US$10.8 million for 2011, and were primarily due to an impairment at our plant in India, restructuring and post-acquisition integration costs associated with the DSPB acquisition and the closure of our facility in Stockton, California (United States). Income taxes for the year ended December 31, 2012 were US$50.9 million, an increase of 29.2% compared to US$39.4 million reported for 2011 due to increases in our operating income as described above. Our effective tax rate remained relatively consistent at 29.4% for the year ended December 31, 2012 compared to 30.6% for the year ended December 31, 2011. Consolidated net income for the year ended December 31, 2012 was US$122.2 million, an increase 36.9% from the US$89.3 million reported for 2011 due to the increase in revenues, the higher contribution margin, and the decrease in selling, general and administrative expenses as a percentage of revenues as described above. Year Ended December 31, 2011 Compared to Year Ended December 31, 2010 Revenues by Product Category Revenues of chassis structures for the year ended December 31, 2011 were US$971.1 million, an increase of 18% from the US$819.3 million reported for 2010. This increase was primarily due to an increase of light truck vehicle sales volume in the United States, resulting from new projects, and our results including 12 months of the DSPB’s operations in Argentina and the United States (primarily light truck sales) in 2011 versus only 10 months of operations in 2010. Revenues of side rails for the year ended December 31, 2011 were US$419.7 million, an increase of 72% from the US$244.0 million reported for 2010. This increase was primarily due to growth in North and South America as our results included 12 months of the DSPB’s operations in the United States and Brazil in 2011 versus only 10 months of operations in 2010, as well as from an environmental law change in Brazil that became effective on January 1, 2012 which accelerated the demand during 2011 for CV that were compliant with such law. Revenues of body structures and others for the year ended December 31, 2011 were US$181.6 million, an increase of 21% from the US$149.7 million reported for 2010. This increase was primarily due to a higher demand in Mexico and the United States for body structures of passenger trucks Revenues by Manufacturing Region Revenues from North America for the year ended December 31, 2011 were US$1,092.3 million, an increase of 19% from the US$918.1 million reported for 2010. This increase was primarily due to an increase of 11% in LV sales volume, stemming from increased sales volume of chassis and side rails resulting from a market recovery in North America, in addition to our results including 12 months of the DSPB’s operations in the United States (primarily light truck sales) during 2011 compared to only 10 months of operations in 2010. In addition, CV net sales volume (of side rails) increased in North America 73% during 2011 compared to 2010, due to the economic recovery in this region. Revenues from South America for the year ended December 31, 2011 were US$429.6 million, an increase of 73% from the US$248.7 million reported for 2010. This increase was primarily due to an increase in demand for side rails in Brazil, resulting from an environmental law change that became effective on January 1, 2012 which accelerated the demand during 2011 for CV that were compliant with such law, in addition to a higher demand in truck chassis in Argentina.



59



Revenues from Rest of the World for the year ended December 31, 2011 were US$50.5 million, an increase of 9% from the US$46.2 million reported for 2010. This increase was primarily due to the start of our operations in India in August 2011 and our results including 12 months of the DSPB’s operations in Australia in 2011 versus 10 months in 2010. Revenues by End-Consumer Region Revenues to North America for the year ended December 31, 2011 were US$1,095.9 million, an increase of 30% from the US$845.4 million reported for 2010. This increase was primarily due to an increase of 11% in LV net sales volume, stemming from increased sales volume of chassis and side rails resulting from a market recovery in North America, in addition to our results including 12 months of the DSPB’s operations in the United Stated (primarily light truck sales) during 2011 compared to 10 months of operations in 2010. In addition, CV net sales volume (of side rails) increased in North America 73% during 2011 compared to 2010, due to the economic recovery in this region. Revenues to South America for the year ended December 31, 2011 were US$361.8 million, an increase of 30% from the US$279.1 million reported for 2010. This increase was primarily due to an increase in demand for side rails in Brazil, resulting from an environmental law change that became effective on January 1, 2012 which accelerated the demand during 2011 for CV, in addition to a higher demand in truck chassis in Argentina. Revenues to the Rest of the World for the year ended December 31, 2011 were US$114.7 million, an increase of 30% from the US$88.5 million reported for 2010. This increase was primarily due to the start of our operations in India in August 2011 and our results including 12 months of the DSPB’s operations in Australia in 2011 versus 10 months in 2010. General Revenues for the year ended December 31, 2011 were US$1,572.4 million, an increase of 30% from the US$1,213.0 million reported for 2010. This increase was primarily due to growth in North and South America as our results included 12 months of the DSPB’s operations in the United States and Brazil in 2011 versus only 10 months of operations in 2010, a recovery in LV sales volume and demand for side rails in North America, as well as from an environmental law change in Brazil that became effective on January 1, 2012 which accelerated the demand during 2011 for CV that were compliant with such law. Overall, our sales volume for 2011 increased 30% compared to 2010. Cost of sales for the year ended December 31, 2011 was US$1,340.3 million, an increase of 30% from the US$1,033.0 million for 2010. This increase was primarily due to changes in our product mix as a result of new operations associated with our plants in India and Venezuela, which began operations in August and January 2011, respectively. The contribution margin as a percentage of revenues, defined as the difference between revenues and cost of sales, divided by net sales, in 2011 was 32% versus 33% in 2010, due to changes in our product mix. Gross profit, defined as the difference between revenues and cost of sales, for the year ended December 31, 2011 was US$232.1, an increase of 29% from the US$179.9 million reported for 2010. This increase was primarily due to changes in our product mix as a result of new operations associated with our plants in India and Venezuela. Selling, general and administrative expenses for the year ended December 31, 2011 were US$87.7 million, an increase of 33% from the US$66.1 million reported for 2010. This increase was primarily due to preoperative costs related to the preparation for production of Chrysler lines in Mexico, as well as the start-up costs for production of Ford and Toyota in Argentina. The increase was also partially due to the fact that our results included 12 months of the DSPB’s operations in 2011 versus only 10 months of operations in 2010. Operating income for the year ended December 31, 2011 was US$144.4 million, an increase of 27% from the US$113.8 million reported for 2010. This increase was primarily due to the increase of revenues, offset by increased cost of sales due to changes in our product mix and higher selling, general and administrative expenses associated with preoperative expenses for Chrysler lines in Mexico and for Ford and Toyota in Argentina.



60



Comprehensive financial results, net for the year ended December 31, 2011 were US$10.6 million, a decrease of 26% from the US$14.4 million reported for 2010. This decrease was primarily due to a currency exchange gain as a result of a weakening of the U.S. Dollar as compared to certain of the currencies of the countries in which we operate (mainly Brazil and Mexico), and a reduction of interest expense of ($2.3 million) resulting from a lower average interest rate in 2011 due to the refinancing of certain of our debt and lower average outstanding debt balances. Other expenses for the year ended December 31, 2011 were US$10.8 million, and were primarily due to an impairment at our plant in India, restructuring and post-acquisition integration costs associated with the DSPB acquisition and the closure of our facility in Stockton, California (United States). This represented an increase of 15.4% from the US$9.4 million of other expenses reported for 2010, which were primarily associated with losses on disposals of fixed assets and post-acquisition integration costs for the DSPB acquisition that began in 2010 and continued into 2011. Income taxes for the year ended December 31, 2011 were US$39.4 million, an increase of 310.4% from the US$9.6 million reported for 2010 due to increases in our operating income as described above, primarily offset by tax deductions of $16.3 million associated with the DSPB acquisition. Our effective tax rate was 30.6% for the year ended December 31, 2011, which was approximately equal to our statutory rate in Mexico of 30%, whereas for the year ended December 31, 2010 our effective tax rate was 10.3% due to tax deductions of US$16.3 million associated with the DSPB acquisition. Consolidated net income for the year ended December 31, 2011 was US$89.3 million, an increase of 7% from the US$83.6 million reported for 2010. This increase was the combined effect of all of the factors affecting the above income statement items. New Accounting Policies and Standards MFRS B-3 “Statement of comprehensive income” MFRS B-3 supersedes MFRS B-3 “Statement of Income”, Bulletin B-4 “Comprehensive income” and the MFRS Guideline 1 “Presentation or disclosure of the operating income or loss”, is effective beginning January 1, 2013 and is applicable retrospectively. The principal changes with respect to the superseded MFRS B-3 include the following:







The comprehensive income may be presented in one or two statements as follows: a)



In one statement: all the line items that comprise the net income or loss, as well as other comprehensive income (“OCI”) and the equity in the OCI of other entities shall be presented in one single document and named “Statement of Comprehensive Income”.



b) In two statements: the first statement shall include solely the line items that comprise the net income or loss and shall be named “Statement of Income” and, the second statement shall bring forward the net income or loss reported at the end of the statement of income and then present the OCI and the equity in the OCI of other entities. This statement shall be named “Statement of Other Comprehensive Income”.







The OCI shall be presented right after the net income or loss.







Items shall not be presented in a segregated manner as non-ordinary, neither in the financial statement or in the notes to the financial statements.







Clarification is provided regarding the items that shall be presented as part of the comprehensive financial results.







“Other income and expenses” shall regularly include amounts that are not relevant and not include operating items (such as gain or loss on sale of property, plant and equipment and the employee statutory profit sharing); thus, it is not required that it be presented in a segregated manner.



61



MFRS B-4 “Statement of changes in stockholders’ equity” MFRS B-4 is effective for fiscal years beginning January 1, 2013 and is applicable retrospectively. It mainly requires that the following be presented in a segregated manner under the statement of changes in stockholders’ equity:







Reconciliation between the initial and final balances of the line items comparison the stockholders’ equity.







If applicable, retrospective adjustments arising from accounting changes and error corrections, which have an effect on the initial balances of each of the line items that comprise the stockholders’ equity.







Provide a breakdown of ownership transactions relating to owners’ equity in the entity.







Reserve transactions.







Comprehensive income in a single line item, but broken down into all of its items: net income or loss, other comprehensive income, and the equity in other comprehensive income of other entities.



MFRS B-6 “Statement of financial position” MFRS B-6 is effective for fiscal years beginning January 1, 2013. The main characteristic of this MFRS is that the structure of the statement for financial position, as well as the related presentation and disclosure standards, is required in a single standard. MFRS B-8 “Consolidated or combined financial statements” MFRS B-8 is effective for fiscal years beginning January 1, 2013 and is applicable retrospectively. MFRS B-8 supersedes former MFRS B-8 “Consolidated or combined financial statements”. The main changes with respect to superseded MFRS B-8 include the following:







The definition of control is amended to stipulate that an entity controls an investee when it controls the relevant activities of the investee; it is exposed or has rights to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.







The term “protective rights” is introduced which is defined as those designed to protect the interest of the noncontrolling party, and although these rights do not give the investor power, identification of these rights in the analysis of existence of power is important.







The figures principal and agent are incorporated. Principal is an investor entitled to make decisions about the entity wherein the investment is; furthermore, an agent is a person or entity that makes decisions acting on behalf and in benefit of the principal, thus the agent cannot exercise control.







The term Specific Purpose Entity (SPE) is eliminated, since the objective and purpose of operation of an entity are not considered determinant to identify it as a subsidiary.







The term “structured entity” is included referring to an entity that has been designed in such a way that the voting or similar rights are not determining factors to decide who controls it.



MFRS B-12 “Compensation of financial assets and financial liabilities” MFRS B-12 is effective for fiscal years beginning January 1, 2014 although early adoption is permitted as of January 1, 2013. The main characteristics of this MFRS are:







Standards related to the compensation rights that should be considered to present, the net amount of a financial asset and a financial liability in the statement of financial position are established.



62







The characteristics required of the intention to make the compensation are established, based on the principle that a financial asset and a financial liability must be in the amount compensated provided that the future cash flow of collection or liquidation is net.







This MFRS establishes other issues related to the compensation of financial assets and liabilities, such as the intent to collect and simultaneous liquidation of a financial position, the bilateral and multilateral compensation agreements and accounting for collaterals.



MFRS C-7 “Associates, joint ventures and other permanent investments” MFRS C-7 is effective for fiscal years beginning January 1, 2013 and is applicable retrospectively. This MFRS supersedes MFRS C-7 “Investments in associates and other permanent investments”. The main changes and characteristics are:







Investments in joint ventures should be recognized by the application of the equity method.







The term specific purpose entity (SPE) is eliminated, since the objective and purpose of operation of an entity are not considered determinant to identify it as a subsidiary.







All effects that have an impact on net income or loss of the holder derived from the permanent investments in associates, joint ventures and others should be recognized under effects from other entities.







Additional disclosures aimed to introduce more financial information data of the associated companies and/or joint ventures are required.



MFRS C-14 “Transfer and sale of financial assets” MFRS C-14 is effective for fiscal years beginning January 1, 2014 with retrospective effect and is issued to correct the absence of an accounting standard with respect to the transfer and sale of financial assets. The main aspects covered by this MFRS are the following:







This MFRS is based on the principle of transfer of risks and benefits of the ownership of the financial asset as a fundamental condition to write it off.







For a transfer to mean that the transferor of the financial assets can write it off the statement of financial position, it will be necessary for the transferor can no longer derive a benefit or loss with respect to such asset.



MFRS C-21 “Joint agreements” MFRS C-21 is effective for fiscal years beginning January 1, 2013 with retrospective effect and is issued to correct the absence of an accounting standard with respect to joint agreements. The main aspects covered by this MFRS are the following:







A joint agreement is defined as a covenant that regulates an activity on which two or more parties maintain joint control. Furthermore, there are two types of joint agreements: a)



Joint operation: when the parties to the agreement have direct rights on the assets and obligations for the liabilities related to the agreement; and



b) Joint venture: when the parties to the agreement are entitled to share only in the residual value of net assets (stockholders’ equity), related to the agreement.







It is pointed out that the joint operations may or may not be structured through a separate vehicle, whereas joint ventures always have separate vehicles.







It is established that a participant in a joint venture must acknowledge their involvement therein as a permanent investment and should value it based on the equity method. 63



2013 MFRS Improvements In December 2012, the CINIF issued a document referred to as “2013 MFRS Improvements”, which contains precise modifications to some of the existing MFRS. The revisions that bring about accounting changes are listed below:







MFRS C-5 “Prepayments”, Bulletin C-9 “Liabilities, accruals, contingent assets and liabilities and commitments” and Bulletin C-12 “Financial instruments with characteristics of liabilities, equity or both”- These establish that obligation issuing expenses such as legal fees, issuing costs, printing, allocation and other expenses should be presented as a reduction of the corresponding liability and applied to income based on the effective interest method. This improvement is effective for fiscal years beginning January 1, 2013 and changes in presentation should be recognized retrospectively.







MFRS D-4 “Income taxes” - MFRS D-4 establishes that an income taxes incurred and deferred shall be presented and classified in the income statement of the period, except to the extent that the taxes have arisen from a transaction or event recognized outside the income statement for the year, either in other comprehensive income or directly under a hedging of stockholders’ equity. This improvement is effective for fiscal years beginning January 1, 2013 and is recognized retrospectively.







MFRS D-5 “Leases”- The cost incurred, directly related to the recognition and fulfillment of the lease (commissions, legal fees, leasehold (goodwill) etc.) for both the landlord and tenant shall be deferred in the lease period and applied to income in proportion to the related revenue or expense. This improvement is effective for fiscal years beginning on or after January 1, 2013 and is recognized retrospectively.



Our management believes that the adoption of the new standards and amendments discussed above will have no significant impact on our financial statements. Transition to International Financial Reporting Standards (IFRS) Effective January 1, 2012, certain Mexican companies with securities listed with the RNV are required to prepare and present financial information in accordance with IFRS. Because we are not required to comply with the foregoing regulations, the financial information presented herein has been prepared in accordance with MFRS. Although this requirement is not mandatory for us, our management is currently evaluating the possibility of adopting IFRS to align the accounting standards of our international operations under a globally accepted accounting framework. Liquidity and Capital Resources Overview Historically, we have generated and expect to continue to generate positive cash flow from operations. Cash flow from operations primarily represents inflows from net income (adjusted for depreciation and other non-cash items) and outflows from increases in working capital needed to grow our business. Cash flow used in investing activities represents our investment in property and capital equipment required for our growth, as well as our acquisition activity. Cash flow from financing activities is primarily related to changes in indebtedness borrowed to grow the business or indebtedness repaid with cash from operations or refinancing transactions as well as dividends paid. Our principal capital needs are for working capital, capital expenditures related to maintenance, expansion and acquisitions and debt service. In addition, our current policy is to pay quarterly dividends to Proeza equal to 50% of our net income for the quarter, and we pay fees to Proeza for administrative and technical services through reimbursements on our common stock. Our ability to fund our capital needs depends on our ongoing ability to generate cash from operations, overall capacity and terms of financing arrangements, equity contributions from Proeza and our access to the capital markets. We believe that our future cash from operations together with our access to funds available under such financing arrangements, Proeza and the capital markets will provide adequate resources to fund our foreseeable operating requirements, capital expenditures, acquisitions and new business development activities. 64



Liquidity We are both a holding and operating company. Our ability to service our debt and other obligations depends both on our cash flow generation and on the generation of cash flow by our subsidiaries, and our subsidiaries’ ability to make such cash available to us in the form of dividends, interest payments, and other distributions. We believe we have adequate sources of liquidity through operations, financing and other sources to meet our currently foreseeable liquidity requirements through 2013. The following table shows the generation and use of cash in 2012, 2011 and 2010. December 31, 2012



Net cash provided by operating activities ..................................... Net cash used in investing activities ............................................. Net cash provided by (used in) financing activities...................... Cash and cash equivalents at period end (1)...................................



2011



2010



(in thousands of Dollars) 165,941 177,254 106,300 (97,153) (58,424) (164,061) (5,399) (93,299) 90,219 157,972 94,443 74,865



_____________________ (1) Includes restricted cash.



Operating Activities In 2012, net cash provided by operating activities was US$165.9 million, which was primarily attributable to net income of US$122.2 million, plus non-cash adjustments associated with depreciation and amortization of US$69.1 million and deferred income tax benefit of US$35.8 million. Such amounts were partially offset by net changes in working capital primarily attributable to accounts receivable of US$13.2 million, recoverable taxes of US$30.0 million, inventories and spare parts of US$12.2 million, tooling inventory of US$48.4 million, as well as income taxes paid of US$14.3 million, which were in turn offset by suppliers of US$26.5 million. In 2011, net cash provided by operating activities was US$177.3 million, which was primarily attributable to net income of US$89.3 million, plus non-cash adjustments associated with depreciation and amortization of US$65.5 million, deferred income tax benefit of US$28.5 million and sales of trade accounts receivable of US$15.4 million. Such amounts were partially offset by net changes in working capital primarily attributable to accounts receivable of US$67.8 million, recoverable taxes of US$9.8 million, trade accounts receivable held for sale of US$14.1 million, as well as other accounts payable of US$28.0 million, which were in turn offset by suppliers of US$60.1 million. In 2010, net cash provided by operating activities was US$106.3 million, which was primarily attributable to net income of US$83.6 million, plus non-cash adjustments associated with depreciation and amortization of US$65.2 million, and sales of trade accounts receivable of US$26.2 million. Such amounts were partially offset by net changes in working capital primarily attributable to accounts receivable of US$36.9 million, US$31.4 million, trade accounts receivable held for sale of US$26.7 million, inventories and spare parts of US$20.6 million, and tooling inventory of US$16.7 million, which were in turn offset by suppliers of US$50.9 million. Investing Activities In 2012, net cash used in investing activities was US$97.2 million, which was primarily due to purchases of property, plant and equipment of US$95.2 million, related to new production lines in LV for Chrysler in Mexico, for both General Motors and Ford in the United States, and for VW in Argentina, offset by cash receipts of less significant items such as dividends from associates and other investing activities. In 2011, net cash used in investing activities was US$58.4 million, which was primarily due to purchases of property, plant and equipment of US$63.3 million, related to a production line for Ford in Argentina and a new paint line in Brazil, and cash invested in business acquisitions, offset by cash receipts of less significant items such as dividends from associates and other investing activities. 65



In 2010, net cash used in investing activities was US$164.1 million, which was primarily due to purchases of property, plant and equipment of US$33.2 million related to new production lines for Toyota in Mexico and completion of our plant in India and cash invested in business acquisitions of US$134.7 million associated with the DSPB acquisition, offset by cash receipts of less significant items such as dividends from associates and other investing activities. Financing Activities In 2012, net cash flows used in financing activities of US$5.4 million were used mainly for common stock reimbursements of US$32.6 million, repayments of debt of US$8.3 million, dividends paid of US$20.0 million and interest payments of US$12.6 million. These reimbursements and payments were offset primarily by proceeds from debt issuances of US$70.3 million. In 2011, net cash flows used in financing activities of US$93.3 million were used mainly for common stock reimbursements of US$15.1 million, repayments of debt of US$395.6 million, dividends paid of US$38.0 million and interest payments of US$16.1 million. These reimbursements and payments were offset primarily by common stock contributions of US$3.8 million and proceeds from debt issuances of US$370.3 million. In 2010, net cash flows provided by financing activities of US$90.2 were obtained from common stock contributions of US$30.0 million and proceeds from debt issuances of US$220.0 million. Such proceeds were offset by payments associated with common stock reimbursements of US$7.0 million, repayments of debt of US$133.7 million and interest payments of US$17.0 million. Indebtedness The following table shows our indebtedness as of December 31, 2012, 2011 and 2010. December 31, 2011



2012 Current bank debt Long-term bank debt Total bank debt Other debt Total Debt



75,026 161,007 236,033 10,404 246,437



(in thousands of US$) 11,601 163,572 175,173 5,988 181,161



2010 54,589 145,836 200,425 10,897 211,322



At December 31, 2012, we had total indebtedness of US$246 million, of which 91% was denominated in U.S. Dollars and all of which was unsecured. Of this amount, approximately 48% constituted floating rate debt. The primary use of our debt has been to finance capital expenditures and working capital needs and to fund the DSPB acquisition. As of December 31, 2012, we had available committed credit lines under which we may borrow up to US$200 million to finance capital expenditures and working capital and for general corporate purposes; as of December 31, 2012, we had not borrowed under these credit lines. We are currently in compliance with our obligations under our credit agreements; such obligations, among other conditions and subject to certain exceptions, either require or limit our ability to: 



disclose certain financial information;







maintain accounting books and registries;







maintain assets in good condition;







comply with applicable laws and regulations;







enter into transactions with affiliates;







effect a consolidation, merger or purchase of all or substantially all of the assets;



66







create liens on assets;







dispose of assets; and







pay dividends.



The following table summarizes certain terms and conditions of our credit arrangements, including a description of financial covenants contained in such credit arrangements. We are currently in compliance with these covenants. The following table is only a summary and does not purport to describe all of the terms of the credit arrangements that may be important. Metalsa Consolidated Bank Loans As of December 31, 2012 General Terms and Conditions



Borrower



Metalsa Méx



Type of Loan



Term Loan



Starting Date



Nov-2008



Term Currency Original Loan Agreement Amount Outstanding Amount Interest Rate



5.5 years US$



(U.S. Dollar and Argentinean peso amounts in thousands) Metalsa Metalsa Metalsa Metalsa Méx/ Méx/ Metalsa Metalsa Metalsa Méx Méx Méx MSP/Roan MSP/Roan Arg Arg oke oke Revolver Term Revolver Revolver Term Term Term Loan Term Loan Loan Loan(1) Loan Loan Loan Loan MayAugDec-2010 Jul-2011 Nov-2011 Dec-2011 Jun-2012 2012 2012 4 years 8 years 3 years 5 years 4 years 4 years 3 years 3 years US$ US$ US$ US$ US$ US$ ARS ARS



30,000



9,387



100,000



9,000*



4,571*



100,000*



L+ 0.80%



L + 2.50%



Guarantors



100,000



100% available L+ Fixed (2.125% to (5.78%) 2.75%)



MSP



MSP & Roanoke



MSP & Roanoke



50,000



50,000



50,000



30,000



45,000



50,000*



100% available



100% available



29,000



45,000



L+ (2.375% to 3.00%)



L + 2.25%



L + 2.25%



Fixed (22.50 %)



Fixed (23.75 %)



MSP & Roanoke



Cross guarantee between borrowers



Cross guarantee between borrowers



Metalsa Méx



Metalsa Méx



Financial Covenants - Leverage Ratio Debt/EBITDA



3.00



> US$ 360,000



> US$ 325,000 + 25% Net Income (starting 2011)



> US$ 360,000



> US$ 360,000



> US$ 360,000



Net Worth



> US$ 360,000



67



US$ Year 2013 2014 2015 2016 2017 2018 2019 Total



Amortization Schedule (U.S. Dollar and Argentinean peso amounts in thousands) US$ US$ US$ US$ US$ US$ ARS



6,000 3,000



2,286 2,285 1,500 8,500 20,000 34,500 35,500



9,000



4,571



100,000



ARS



3,846 15,385 15,385 15,384



12,000 12,000 5,000



15,000 18,000 12,000



50,000



29,000



45,000



Metalsa Méx = Metalsa, S.A. de C.V. MSP = Metalsa Structural Products Inc. Roanoke = Metalsa Roanoke, Inc. Metalsa Arg = Metalsa Argentina S.A. (1)



Affiliates of Citigroup Global Markets Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated are lenders under this credit arrangement, a portion of which will be repaid with the net proceeds of this offering.



We expect to utilize the proceeds of this offering to repay our term loans indicated in the table above (*) in the total outstanding amount of $163.571 million. Additionally, we expect to repay two short-term loans of $25 million each. Capital Expenditures In 2010, 2011 and 2012, excluding expenditures made in relation to acquisitions, we made capital expenditures of US$33 million, US$63 million, and US$95 million, respectively. These capital expenditures included expenditures related to maintenance and new manufacturing projects. We estimate that our capital expenditures for the remainder of 2013, excluding expenditures made in connection with any acquisitions, will be approximately US$183 million, primarily for our operations in Kentucky, United States. Research and Development During 2011 and 2012, we spent a total of US$5 million on a Technology Center facility in Apodaca for research and development. Additionally, we spent US$7.9 million and US$10.6 million in 2011 and 2012, respectively, on other research and development projects. Tabular Disclosure of Contractual Obligations The following is a summary of our contractual obligations as of December 31, 2012: Payments Due By Period Total Current portion long term debt ................ Long term debt ........................................ Short term debt ........................................ Capital (finance) lease obligations .......... Operating lease obligations ..................... Total .........................................................



Less than 1 year 17,628 161,007 57,398 10,404 40,570 287,007



1-3 years



(in thousands of U.S. Dollars) 17,628 47,123 57,398 5,653 4,751 6,137 11,561 86,816 63,435



3-5 years



More than 5 years



43,884 10,674 54,558



In the ordinary course of business, we also enter into long-term supply arrangements for raw materials and energy, which are not reflected in the above table. In addition, our obligations under derivative financial instruments are described further below.



68



70,000 12,198 82,198



Off Balance Sheet Arrangements As of December 31, 2012, we did not have any off balance sheet arrangements. Internal Controls We have adopted internal control policies and procedures designed to provide reasonable assurance that our operations are subject to and in compliance with guidelines set forth by our management and that our financial reporting complies with MFRS. Some of these policies and procedures include policies and procedures relating to our ongoing business operations, the implementation and promotion of business initiatives, the control and supervision of acquisitions, the promotion, distribution and sale of subsidiary projects and the development of internal controls for our human resources, accounting, legal, tax and information technology departments. We believe that our advanced information technology platform and our organizational structure provide us with the necessary tools to accurately and effectively apply our internal control policies and procedures. In addition, our various operational processes are subject to periodic internal audits. Quantitative and Qualitative Disclosures about Market Risk Foreign Currency Exposure We have operations in a variety of countries and, therefore, to the extent that we enter into transactions in currencies that are different than the U.S. Dollar, our reporting currency, our operations are exposed to currency fluctuations associated with such currencies. At December 31, 2012, 2011 and 2010, the exchange rates used in the various translation processes to the reporting currency were as follows: 2012 Country of origin



Mexico Brazil India Argentina Australia United Kingdom Venezuela Canada European Union Japan Thailand



Currency



(MXP) Peso (BRL) Brazilian Real (INR) Indian Rupee (ARS) Argentine Peso (AUD) Australian Dollar (GBP) Pound Sterling (VEB) Venezuelan Bolivar (CAD) Canadian Dollar (EUR) Euro (JPY) Japanese Yen (THB) Thai Baht



2011



2010



Closing



Average



Closing



Average



Closing



Average



13.01 2.04 54.94 4.91 0.97 0.63 4.30 1.01 0.76 86.04 30.53



13.17 1.96 53.55 4.59 0.97 0.63 4.30 1.00 0.78 80.43 30.91



13.99 1.87 53.05 4.30 0.99 0.64 4.30 1.02 0.77 77.99 30.99



12.47 1.67 46.93 4.14 0.96 0.62 4.30 0.99 0.72 79.27 30.41



12.36 1.69 45.05 3.98 0.99 0.65 1.00 0.75 81.35 -



12.64 1.75 45.67 3.91 1.09 0.65 1.03 0.76 87.18 -



The foreign currency assets and liabilities held as of December 31, 2012 and 2011 were as follows:



Assets: Current Long-term Liabilities: Current Long-term



Net assets (liabilities)



BRL



INR



ARS



56,283 121



195,812 -



140,108 -



10,249 -



27,635 -



56,404



195,812



140,108



10,249



27,635



28,799 178



5,439 -



214,537 74,977



5,912 2,084



12,492 4,570



28,977



5,439



289,514



7,996



17,062



190,373 (149,406)



2,253



10,573



27,427



AUD



2012 (in thousands) VEB CAD MXP



69



GBP



EUR



JPY



THB



168



160,434 -



5,541 -



18,831 -



26,995 -



25,617 -



168



160,434



5,541



18,831



26,995



25,617



28



461,725 180,191



-



-



10,269 -



9,198 -



28



641,916



-



-



10,269



9,198



18,831



16,726



16,419



-



-



140 (481,482)



5,541



BRL Assets: Current Long-term Liabilities: Current Long-term



Net assets (liabilities)



INR



ARS



2011 (in thousands) AUD



MXP



GBP



VEB



85,808 1,299



105,983 -



126,798 8,799



11,208 2,386



486,124 139,374



4,160 -



24,702 -



87,107



105,983



135,597



13,594



625,498



4,160



24,702



52,922 -



126,500 -



225,178 1,084



10,484 2,077



859,548 608,052



13 -



12,777 6,774



52,922



126,500



226,262



12,561



1,467,600



13



19,551



34,185



(20,517)



(90,665)



1,033



4,147



5,151



(842,102)



Derivative Financial Instruments Because we operate in various countries and are exposed to foreign currency exchange fluctuations, we may enter derivative contracts to hedge our exposure to such risks. We believe our most significant exposure associated with exchange rate risk comes from our Mexican operations, which have significant expenses in Mexican pesos (primarily labor costs), but whose functional currency is the U.S. dollar (the majority of contracts with customers and raw material costs used for production are denominated in U.S. Dollars). As a result we enter into derivative instrument transactions to hedge this risk through a series of ‘zero-cost’ collars. Additionally, we are exposed to fluctuations in the price of natural gas, which is a significant component of our production costs, and therefore enter into derivative contracts to hedge this risk through natural gas options. We maintain a system of internal control over derivative financial instruments. The negotiation, authorization, contracting, operating, monitoring and recording of derivative financial instruments are subject to MFRS C-10 Derivative Financial Instruments and Hedging Activities, and to internal control procedures variously overseen by our treasury, legal, accounting and auditing departments. In accordance with our policy, the derivatives that we enter into are for non-speculative purposes in the ordinary course of business. From an economic point of view, these derivatives are entered into for hedging purposes; however, for accounting purposes, some of our derivative financial instruments may not be designated as hedges if they do not meet all the accounting requirements established by MFRS and, therefore, may be classified as trading instruments. Derivative financial instruments employed by us are contracted in the over-the-counter market with international financial institutions. The main characteristics of the transactions refer to the obligation to buy or sell a certain underlying asset given certain criteria such as cap rate, spread and strike price, among others. a) Foreign-exchange options Zero Cost Collar (Mexican Pesos/U.S. Dollars) 2012 We negotiated this portfolio of zero cost collars on May and October 2012. This portfolio of zero cost collars is composed of 29 Long Put Options and 29 Short Call Options with different strike prices and settlement dates (on a monthly basis during 2013), performing a ´synthetic´ short position in U.S. Dollars for us. We designated the portfolio as a cash flow hedge in order to mitigate the variability in the Mexican Pesos/U.S. Dollars exchange rate attributable to 23% of the year’s payroll costs, which are incurred in Mexican Pesos. We have formally documented the hedging relationship, establishing management´s objective and strategy for undertaking the hedge, the identification of the hedging instrument, the hedged item, the nature of the risk being hedged, and the methodology of the effectiveness assessment being performed.



70



As of December 31, 2012, we had the following zero-cost collars outstanding (notional and fair value amounts in thousands of U.S. Dollars): Trade Date May 16, 2012 October 31, 2012 October 31, 2012 October 31, 2012 October 31, 2012 October 31, 2012



Maturity Date Jan to Apr 2013 January 2013 Feb to Apr 2013 May 13, 2013 May 27, 2013 Jun to Oct 2013



Put 13.60 13.00 13.00 13.00 13.00 13.00



Call 15.22 14.00 14.00 14.00 14.00 14.00



Strike Price US$ Notional $250 $300 $350 $1,350 $1,850 $300



Risk Exposure Appreciation of Ps. Appreciation of Ps. Appreciation of Ps. Appreciation of Ps. Appreciation of Ps. Appreciation of Ps. Fair Value US$252



As of December 31, 2012, we also had a portfolio of zero-cost collars negotiated on April and May 2012. This portfolio is composed of 17 Long Put Options and 17 Short Call Options with different strike prices and settlement dates (on a monthly basis during 2013), performing a ´synthetic´ short position in U.S. Dollars for us. We designated the portfolio as a cash flow hedge in order to mitigate the variability in the Mexican Pesos/U.S. Dollars exchange rate attributable to 23% of the year’s payroll costs, which is incurred in Mexican Pesos. We have formally documented the hedging relationship, establishing management´s objective and strategy for undertaking the hedge, the identification of the hedging instrument, the hedged item, the nature of the risk being hedged, and the methodology of the effectiveness assessment being performed. As of December 31, 2012, we had the following zero-cost collars outstanding (notional and fair value amounts in thousands of U.S. Dollars): Trade date April 19, 2012 May 15, 2012



Maturity Date Jan to Apr 2013 Jan to May 2013



Put 13 13.5



Call 14.69 15.15



Strike Price US$ Notional $1,000 $250



Risk Exposure Appreciation of Ps. Appreciation of Ps. Fair Value US$202



We have opted to use the intrinsic value method in order to assess effectiveness; therefore, the extrinsic value of the option has been excluded from the hedge relationship and is recognized in the consolidated statement of income. Zero Cost Collar (Mexican Pesos/U.S. Dollars) 2011 We negotiated this portfolio of zero cost collars on September, October, November and December 2011. This portfolio is composed of 144 Long Put Options and 144 Short Call Options with different strike prices and settlements dates (on a monthly basis during 2012), performing a ‘synthetic’ short position in U.S. Dollars for us. We designated the portfolio as a cash flow hedge in order to mitigate the variability in the Mexican Pesos/U.S. Dollars exchange rate attributable to 50% of the year’s payroll expenses, which are incurred in Mexican Pesos. We have formally documented the hedging relationship, establishing management’s objective and strategy for undertaking the hedge, the identification of the hedging instrument, the hedged item, the nature of the risk being hedged, and the methodology of the effectiveness assessment being performed. As of December 31, 2011, we had the following zero cost collars outstanding (notional and fair value amounts in thousands of U.S. Dollars): Trade Date September 27,2011 October 5, 2011 October 5, 2011 November 14, 2011 November 14, 2011 November 30, 2011 December 16, 2011 December 16, 2011 December 16, 2011 December 16, 2011 December 16, 2011



Maturity Date Jan to Sep 2012 Jan to Sep 2012 Jan to Sep 2012 Jan to Oct 2012 Jan to Oct 2012 Jan to Nov 2012 Jan to Sep 2012 October 1, 2012 October 29, 2012 November 13, 2012 November 26, 2012



Put 13.40 13.40 13.40 13.40 13.40 13.60 13.60 13.60 13.60 13.60 13.60



Call 15.28 16.08 15.88 14.28 14.62 15.28 15.25 15.25 15.25 15.25 15.25



71



Strike Price US$ Notional $500 $250 $250 $125 $125 $125 $125 $1,125 $1,125 $1,375 $1,500



Risk Exposure Appreciation of Ps. Appreciation of Ps. Appreciation of Ps. Appreciation of Ps. Appreciation of Ps. Appreciation of Ps. Appreciation of Ps. Appreciation of Ps. Appreciation of Ps. Appreciation of Ps. Appreciation of Ps. Fair Value US$(147)



We have opted to use the intrinsic value method in order to assess effectiveness; therefore, the extrinsic value of the option has been excluded from the hedge relationship and is recognized in the consolidated statement of income. b) Natural gas options As of December 31, 2012, two Natural Gas Swaps (Natural Gas-NYMEX) were contracted, the first one has a notional amount of 100,000 million British thermal unit (“MMBTU”), with a fixed price of US$3.085 per MMBTU and a maturity date in August 2014. The second swap has a notional amount of 140,000 MMBTU with a fixed price of US$3.41 per MMBTU and a maturity date in December 2013. Both were contracted for hedging purposes; however, for accounting purposes, they were classified as trading securities, recognizing the changes in fair value in income. Details are shown in the following table (notional amount in thousands of MMBTU and fair value amount in thousands of U.S. Dollars): Trade Date Sep-12 Oct-12



Maturity Date Aug-14 Dec-14



Fixed Price per MMBTU $3.81 $3.41



Notional MMBTU 100,000 140,000



Risk Exposure of Derivative Instrument Declining Price of Natural Gas Declining Price of Natural Gas Fair Value US$ 34



In addition, as of December 31, 2012, two European Call Options of Natural Gas (Natural Gas-NYMEX) were contracted. Our risk in these transactions is limited to the premium paid for the Call Option, which represents the cost of the Call Option. Both options were contracted for hedging purposes; however, for accounting purposes, they were classified as trading securities, recognizing the changes in fair value in the consolidated statement of income. Details are shown in the following table (notional amount in thousands of MMBTU and fair value amount in thousands of U.S. Dollars):



Trade Date 07-Sep-12 01-Sep-12



Maturity Date Apr-13 Apr-13



Call per MMBTU $4.50 $4.50



Strike Price Premium US$/MMBTU $0.3240 $0.0975



Notional MMBTU 30,000 30,000



Risk Exposure Premium Paid Premium Paid Fair Value US$ 9



c) Credit Risk We manage our credit risk exposure within our derivatives portfolio through a policy that requires trading any derivative only with counterparties that can demonstrate sound creditworthiness.



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INDUSTRY This section includes market share and industry and historic economic data and forecasts that we have obtained from industry sources, surveys and our internal estimates. There can be no assurance as to the accuracy or completeness of information based on our estimates or industry publications. Overview Automotive Industry The automotive industry is characterized by long-term growth but is also subject to volatility, cyclicality and seasonality. New vehicle demand is driven by macro-economic and other factors such as consumer confidence, employment and income growth trends, interest rate levels, manufacturer and dealer sales incentives, and fuel costs. These factors ultimately determine vehicle sales and production. The automotive industry is divided into two main segments: LV and CV. The LV segment is comprised of passenger cars and light trucks and within this segment we identify two different markets. One is the BOF market, consisting of all the vehicles that have a full independent frame assembly as their backbone, and the other is the Unibody market, where the components of the vehicle are welded together into a single unit, thus eliminating the need for a separate frame. In the North American region, BOF pickup trucks are our primary focus. The other sector is CV. These vehicles are classified differently depending on the region in which they are located. In North America, the classification is by Gross Vehicle Weight Rating and they range from Class 4 to Class 8. In other regions such as South America or Europe, the classification is by Medium Duty and Heavy Duty with a consistent correlation to the North American system (Class 4 to 7 correlates to Medium Duty and Class 8 to Heavy Duty). In the North American region, Class 8 is our primary focus. North American Market The North American vehicles market is currently in the recovery process from the recent downturn caused by the financial crisis. In 2010, an important recovery in the industry materialized, and the expected trend for the next few years is positive for unibody and relatively stable for BOF. NORTH AMERICAN LIGHT VEHICLES PRODUCTION 2001-2018E



Source: IHS Global Insight 2013



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CV segment production experienced a similar trend to that of the LV segment in recent years. Production reached its peak during 2006 and then declined through 2009 falling 67% in the period and 41% from 2008 to 2009. A 26% recovery during 2010 continued in 2011 and 2012, and is expected to continue in 2013 and 2014. Class 8 segment followed the same pattern during 2006-2009 with a 69% contraction and a 30% recovery in 2010. NORTH AMERICAN COMMERCIAL VEHICLES PRODUCTION 2001-2018E



Source: ACT Research 2012



Brazil Brazil is another important CV market with 208,000 vehicles in 2011 and 133,000 in 2012; this slowdown in the market was a result of a change in emission regulations to Euro V from Euro III that took place starting January 2012, and therefore the market had a pre-buy effect at the end of 2011 for Euro V compliant vehicles. The market is expected to fully recover by 2015, according to industry forecasts. Current Industry Trends – Production In the industry’s more recent design-focused history, trends have been driven by the customization of existing products rather than the introduction of new auto components. This has led to increasingly smaller individual product volumes, lower capital expenditures, increased efficiencies in purchasing, engineering and manufacturing as well as unprecedented cooperation between OEMs in areas of purchasing, power trains and platform design/engineering. This interdependence, however, has both heightened OEMs’ risk of failure (as the success of one OEM is inevitably linked to the success of another OEM’s corresponding product), and the risk of failure of their suppliers as well as compromised their product individuality. In keeping with the trend of customization, OEMs must mitigate against these potentially negative consequences through the implementation of certain strategies: 



Update portfolios more frequently. Faster, shorter product cycles can revive interest in failing products and allow OEMs to capitalize on new product trends. However, it requires flexible design, engineering and



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manufacturing capacity. This trend also directly detracts OEMs’ focus on capital investment, driving greater consolidation in vehicle platforms and parts usage. 



Better differentiate against competitors. High-quality interior auto designs are becoming a standard offering. OEMs are using external styling techniques to differentiate their designs. Technology has also become a vehicle differentiator with the introduction of stability/traction control, anti-lock braking systems, power sliding doors, etc.







Clearly defined brand names. OEMs must convey a consistent brand image for their products to thrive. Creating a certain image to complement the actual product allows these companies to command premiums over competitors.







Innovation. OEMs need to keep up with highest technology to meet emissions regulations and give to the final consumer more reliable, durable and cost efficient (miles per gallon) products. Connectivity will be a key factor in the future for end consumers.



Chrysler and General Motors restructuring procedures emphasize that these strategies need to be taken in order to survive into the future. We are currently working on different innovative projects to support these customers’ trends. As OEMs explore strategic opportunities to expand into world markets, global production platforms are becoming increasingly necessary. Lower tariffs and the expansion of the World Trade Organization, combined with global competition, have driven OEMs to seek increased economies of scale through platform consolidation on a global scale. From a supplier’s perspective, global platforms provide opportunities to expand into new markets. This trend benefits those suppliers, like us, who are flexible and already working on global platforms, as they are able to react to currency shifts and limit negative financial and commodity exposure.



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The following chart details our management’s views regarding the implications for auto parts suppliers given current industry trends. AUTO PARTS SUPPLIERS’ STRATEGIES IN THE CURRENT MARKET Product differentiation



Cost reduction Consolidation/ globalization



R&D focus



Outsourcing increase Suppliers rationalization



Model proliferation



OEM’s



Innovation growth



Platforms use increase Shifting production to southernUSA



High content of Electronics



Use of complete modules Suppliers implications



Growing value added systems and modules



Continuous cost reduction



Consolidation/globalization



Closer localizations near customers facilities



Close relationships with OEMs



Automotive suppliers find themselves facing a business environment that continues to become more competitive. Rising materials prices coupled with demands for price cuts as well as the growing cost of health care (especially for U.S. companies) and increased competition have created a business environment in which suppliers struggle to succeed. The trend for suppliers to take on a larger role in the design and engineering of components has been observed over the last few years. This trend is indeed widespread and has increased. The OEMs are passing price pressures they face in the increasingly competitive automotive market down to the suppliers. Furthermore, the automakers are shifting the burden of design and production of modules and systems to the supply companies. In this environment, the automotive suppliers are realizing they can no longer operate as isolated enterprises and this is forcing a re-examination of the suppliers’ basic business structures and practices. OEMs have been increasingly relying on suppliers for a greater proportion of the components, design, engineering, and total value of the vehicles they build. Competition among suppliers is intensifying in response to pressures in an evolving environment that includes the increasing need to cut costs, minimize costly inventories, assure just-in-time delivery, evolve from component to subsystem production, take on more design responsibility, and increase reliance on technology in design and manufacturing. Increasing costs of raw materials is also a continuing problem. The suppliers that had a strong customer focus are generally organized to assure continuous coordinated contact with the customer. The successful companies work to collaborate with the customer in defining their needs and product requirements.



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The following chart summarizes our management’s views regarding the expected future drivers and trends of the heavy truck industry. HEAVY TRUCK INDUSTRY DYNAMICS Future drivers



Tighter emission regulations



High capital costs



Low economies of scale



Low OEM’s profitability



Global economy



 Consolidation of multi-regionally OEM’s looking for economies of scale with  Common platforms  Larger volume procurement  Lower costs in truck design and component purchasing  Reduce levels of vertical integration



Trends



 Increase collaboration on product design between OEM’s, operators and suppliers  OEM’s looking for global suppliers  Increase pressure for price reductions



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Global competition



BUSINESS Overview We are one of the leading suppliers, in terms of market share, of structural components for the automotive LV and CV markets in North America and Brazil. Our main products include chassis structures, body structures, suspension structures, steel fuel tanks, customized side rails, customized cross members, heavy truck frames, and bus frames, which we provide primarily as a direct, or “Tier One”, supplier to OEMs. We are the second largest supplier of BOF chassis in North America, where we hold a market share of approximately 40%, and the largest supplier in South America, where we hold a market share of approximately 50%, and we are one of the primary suppliers of CV side rails in both North America, where we hold a market share of approximately 46%, and Brazil, where we hold a market share of approximately 33%. Moreover, in 2014, we expect to become the number one supplier in North America for LV BOF chassis frames as we expect to be the sole supplier for the next generation Ford F-150 Truck and the next generation General Motors Chevrolet Colorado. In 2011, we generated revenues of US$1,572 million and Adjusted EBITDA of US$210 million, which grew to US$1,807 million and US$252 million, respectively, for the year ended December 31, 2012, representing an increase of 14.9% and 20.0%, respectively. Our operations fall within two strategic business units which service the LV and CV markets. Within our LV segment, we produce chassis structures, suspension modules, engine cradles, stampings, body structures and fuel tanks for passenger cars and light vehicles, with a primary focus on chassis and body structures for BOF pickup trucks. Within our CV segment, we produce side rails, cross members and chassis structures for medium and heavy duty trucks and buses, with a primary focus on side rails. We use our manufacturing capabilities to transform thousands of tons of commercial, high strength and alternative steels and aluminum into our final products. Metalsa is both a holding and operating company. We have a presence in 12 countries around the world and have over 9,100 employees. We currently operate 14 facilities in seven countries, are setting up a new facility in Thailand that is expected to become operational in 2013, and partially own another facility in the United Kingdom through a joint venture with GKN. We have manufacturing facilities in North America, South America, Asia and Australia. Our manufacturing facilities are supported by three state-of-the-art Tech Centers, two of which are located in Apodaca, Nuevo León, México; and one of which is located in Novi, Michigan, the United States. We also have international sales offices and engineering locations in Argentina, Australia, Brazil, Germany, India, Japan, Mexico, Russia, and the United States. Sequencing centers are located in San Antonio, Texas and Mexicali, Baja California to support Toyota and in Saltillo, Coahuila, Mexico to support Chrysler which helps to enhance customer service. Our sequencing centers store manufactured Metalsa products near the OEM’s plant in a sequence specified by the OEM which allows the OEM to retrieve the products in the proper order for the production of the vehicle model. See “—Product Development” below. Our key product portfolio includes: LV Strategic Business Unit 



Chassis Structures: The chassis frame is the skeleton of the vehicle, which supports the power train, suspension, electrical and body systems. Chassis structures or ladder frames are used on mid- and full-size pickups and on medium duty trucks. The chassis frame’s primary function is to ensure a safe, durable and reliable vehicle performance to achieve the appropriate payload and towing specifications for the truck. The cabin and cargo box are bolted or riveted to the frame with rubber bushings, and the frame is assembled with all of the subsystems at the OEM plant.







Body Structures: Body structures refer mainly to the internal sheet metal or tubular components that give the final shape and structural integrity to the LV body. These structures are sub-assembled through different high-tech manufacturing processes and the final assembly occurs at the OEM plant. Also included in the body structure business unit are suspension modules and steel fuel tanks.



CV Strategic Business Unit 



Side Rails: Side rails are the backbone of the CV chassis segment for medium and heavy duty trucks, and range from 16 to 40 feet in size. These side rails are customized by various processes including cutting, 78



hole drilling or punching, ramping and offsetting. Ladder frames consist of two side rails joined together by several crossmembers that are typically bolted or riveted to the side rails. Bus frames are also part of the CV side rail business. See “—Key Products” for a more detailed description of each of our main products. The following chart shows the breakdown of sales volume as a percentage by product for the twelve months ended December 31, 2012. Breakdown of Sales Volume by Product Twelve Months Ended December 31, 2012



We supply our products to a well-diversified list of more than 23 clients, which include major OEMs, such as Toyota, Ford, Chrysler/Fiat, Volvo/Mack, VW, General Motors, Paccar (producer of the Kenworth, Peterbilt and DAF brands) and Nissan, among others. Some of our long-standing relationships with OEMs have lasted for up to 50 years. Our main LV products are chassis structures and body structures, which are customized for each of our main platforms and include the Ford F-150, Expedition, Navigator and Ranger; the Toyota Tundra, Tacoma, Hilux, Highlander and Sienna; the VW Amarok and Jetta; and the Chrysler Ram LD and Ram HD, among many others. The main products in our CV segment are side rails and ladder frames for Volvo/Mack Trucks, and side rails for Paccar. We have a significant global presence and are continuously looking to increase our participation in key geographic locations to better serve our customers and enhance our footprint within the industry. We currently operate from and sell products into countries all over the world, including, but not limited to, Argentina, Australia, Brazil, India, Mexico, the United Kingdom, the United States and Venezuela and we are in the process of setting up a new facility in Thailand. We have Tech Centers, engineering locations and/or sales offices in Argentina, Australia, Brazil, Germany, India, Japan, Mexico, Russia, and the United States. Our facilities in Argentina, Australia, Venezuela and Kentucky (United States) focus on the manufacturing and sale of LV products. Meanwhile, our facilities in Brazil, India, Thailand and Virginia (United States) are principally focused on the manufacturing and sale of CV products. Our facilities in Mexico focus on the manufacturing and sale of both LV and CV products. We believe offering high quality and differentiated service and customization to each of our customers enables us to develop strong, long-standing customer relationships. Our commercial philosophy is to create and maintain a long term relationship with our customers, developing an atmosphere of trust while building strong collaborative partnerships. We focus on our ability to act as a full-service partner with OEMs through specialized processes and advanced engineering. These operations are supported by onsite engineers at certain customer locations. In addition, we offer our customers onsite designing, prototyping, testing and research and development. Within the automotive industry, relationships between OEMs and suppliers tend to be durable given the high start-up costs for the supplier and high switching costs for the OEM. We work directly with various OEMs to design products for each new generation of vehicle model before it enters production. This design process and the construction of the associated tooling and assembly lines often results in a lead time of one to three years. Once a project is awarded to us for a specific vehicle model and product, we usually remain the supplier for the life of that generation of vehicle model, which generally lasts three to ten years.



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In March 2010, we acquired the DSPB for US$147 million from Dana. With this acquisition, we were able to strengthen our position as a leading supplier of chassis frames in North America and advanced our strategy to become a global supplier of chassis frames by acquiring new operating facilities in South America. The acquisition added manufacturing facilities in Argentina, Australia, Brazil, Venezuela and the United States and a joint venture relationship with GKN in the United Kingdom. The DSPB acquisition has significantly enhanced our book of future international business. The following charts show the breakdown of sales volume as a percentage by OEM, manufacturing location and end-consumer location for the twelve months ended December 31, 2012: Breakdown of Sales Volume by OEM Twelve Months Ended December 31, 2012



Breakdown of Sales Volume by Manufacturing Location Twelve Months Ended December 31, 2012



Australia



Breakdown of Sales Volume by End-Consumer Location Twelve Months Ended December 31, 2012



Others



Australia Argentina



Others



Mexico



Argentina



Brazil Mexico Brazil



Canada USA



USA



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Our Strengths Throughout our history, we have developed a series of competitive strengths upon which we have built a successful business model. We believe that our key competitive strengths are: Leading Full-Service Supplier Dedicated to Quality and Innovation We believe we are one of the leading suppliers of chassis, body structures, suspension modules, steel fuel tanks, customized side rails and cross members, and heavy truck and bus frames targeted to the automotive LV and CV markets. In addition, we believe we are one of the leading suppliers for both LV BOF chassis frames and CV side rails in North America, and in 2014, we expect to become the number one supplier in this region for LV BOF chassis frames as we expect to be the sole supplier for the next generation Ford F-150 Truck and the General Motors Chevrolet next generation Colorado. In Argentina, we are the sole supplier for LV BOF chassis frames, which for the most part are exported to Brazil. We also believe we are one of the primary global suppliers of CV side rails and have gained a significant presence in Brazil, where we believe we hold the number two market position. Our world-class manufacturing capabilities position us among the few companies that are able to provide OEMs with a full range of services that include design, advanced engineering (supported by on-site engineers at certain customer locations), prototype development, testing, validation and quality assurance for our products. Our close communication and well-established relationships with our clients allow us to adjust costs and maintain a firm product familiarity, which leads to a strong track record of winning new platforms and to high retention on existing platforms. Our operations and strict internal policies and procedures are designed, managed, measured and constantly improved in order to maintain our high levels of product quality and productivity. State-of-the-Art Manufacturing Capabilities and Technologies We believe our manufacturing facilities are among the most advanced in the industry and utilize industry standard capabilities and state-of-the-art technology, as well as advanced, flexible processes such as stamping, hydro forming and robotic assembly, with a balance between labor and automation. We believe we possess the highest technology currently available in our industry. Our logistics unit smoothly integrates our products into the modern, just-in-time manufacturing model used by our customers. We enhance our service offering by leveraging these capabilities through our globally diversified operations, which include international sales offices and Tech Centers in key locations. Geographic, Customer and Product Diversification Geographic and product diversity is a cornerstone of our competitive advantage. Through our manufacturing facilities, which are located in seven countries, we service North America, South America, Asia and Australia. Our worldwide presence, allows us to be more integrated in the structural design and engineering process with manufacturers, provide a full complement of solutions, and support production worldwide. This global footprint has allowed us to obtain a considerable amount of expertise with multiple OEMs in developing, manufacturing and designing structural products across the spectrum of components, including LV BOF chassis, unibodies structures, CV side rails, and others. Our business model is also diversified with regard to customers, as no more than 30% of our revenues come from a single OEM. Strong, Long-Standing Customer Relationships Some of our long-standing relationships with OEMs have lasted for up to 50 years. We believe offering high quality and differentiated service and customization to each of our customers enables us to develop strong, longstanding customer relationships. Our client portfolio includes major automotive OEMs including Chrysler/Fiat, Ford, General Motors, Nissan, Paccar, Scania, Toyota, VW, Volvo/Mack, among others. Our commercial philosophy strives to create and maintain a long term relationship with our customers, developing an atmosphere of trust while building strong collaborative partnerships through win-win solutions. The acquisition of the DSPB further strengthened our existing customer relationships and provided access to important new relationships. Furthermore, we have a strong track record of securing replacement business with our existing customers.



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Within the automotive industry, relationships between OEMs and suppliers tend to be durable given the high start-up costs for the supplier and high switching costs for the OEM. We work directly with each OEM to design products for each new generation of vehicle model before it enters production. This design process and the construction of the associated tooling and assembly lines often results in a lead time of one to three years. Once a project is awarded to us for a specific vehicle model and product, we usually remain the supplier for the life of that generation of vehicle model, which generally lasts three to ten years. Strong Cash Flow Generation and Opportunistic Acquisitions Despite the cyclicality of the automotive industry, we have historically achieved strong growth in revenue and Adjusted EBITDA with very moderate leverage levels. Even during the global financial crisis from 2007 to 2009, we were able to reduce costs and improve processes to maintain sustainable levels of liquidity and leverage while improving our Adjusted EBITDA margin to 18% for the year ended December 31, 2009. Our success in maintaining a strong cash flow profile, stable margins and liquidity during the financial crisis has positioned us to opportunistically expand our operations through acquisitions. Our acquisition strategy has been focused on strategic acquisitions that complement our existing business and foster our organic growth strategy. In 2010, we completed the acquisition of the DSPB, which enhanced our manufacturing presence in Argentina, Australia, Brazil, the United States, Venezuela, and (through a joint venture relationship with GKN) the United Kingdom. With the acquisition of the DSPB, we believe our LV segment achieved its goal of becoming one of the leading suppliers of LV BOF chassis frames in North America and our CV segment became a global supplier for side-rails. We expanded our operations into new regions with strategic customers such as Toyota and Volvo, and also gained greater exposure to VW and added Ford to our customer portfolio, thereby further diversifying our high quality customer base. We have achieved a double-digit revenue growth every year since the DSBP acquisition (including 30% growth in 2011, when the acquisition was fully integrated) and an approximately 15.6% compounded annual growth rate in revenue over the past 12 years, despite significantly reduced sales during the global financial crisis from 2007 to 2009. We are focused on building on the foregoing competitive strengths to achieve profitable top-line growth, improve margins, and generate a strong and sustainable cash flow. Conservative Financial Profile with Proven Track Record Through the Crisis We have been focused on growing our core operations through a combination of organic and acquisition-based growth and maintaining a conservative financial profile. As of December 31, 2012, our Net Debt to Adjusted EBITDA ratio was 0.4x and our Total Debt to Adjusted EBITDA ratio was 1.0x. Even during the global financial crisis from 2007 to 2009, which had a particularly strong impact on the automotive industry and decreased our revenue by approximately 45%, we generated positive cash flows, as we were able to proportionately adapt our cost base to the significantly lower demand. Moreover, during 2007 to 2009, our maximum Total Debt to EBITDA ratio was 1.9x and our maximum Net Debt to Adjusted EBITDA ratio was 1.3x, calculated at the end of each corresponding year. As of December 31, 2012, we had an excellent liquidity position comprised of over $145 million in cash, $200 million in commitment lines of credit and $55 million in uncommitted facilities. In addition, our acquisition strategy to acquire cash flow generating businesses allows us to de-lever after our acquisitions. The DSPB acquisition was financed with 68% debt, 20% new equity contributed by Proeza, and 12% cash on hand. The acquisition resulted in a pro-forma Total Debt to Adjusted EBITDA ratio of 2.3x and 10 months later (December 2010) this ratio had dropped to 1.2x. Experienced Management Team and Proven Philosophy and Culture We believe we have one of the most experienced management teams in the automotive parts manufacturing industry. Our key executives have an average of nearly 18 years of experience at Metalsa. Management’s ability to



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adapt to an evolving macroeconomic environment is evidenced by our solid performance through difficult economic and operating environments. We believe that our team has substantial depth in critical operational areas and has demonstrated success in reducing costs, integrating business acquisitions and improving processes through cyclical periods. High Barriers to Entry Provide Competitive Advantage We believe we hold leading market positions in many of the regions where we operate. Our company currently serves 40% of the market for LV BOF chassis and 46% for CV side rails in North America, 50% for LV BOF chassis in South America and 33% for CV side rails in Brazil, which now positions us among the top suppliers in many of the market segments where we participate. Our leading market positions are a result of significant capital investments in plant and equipment and research and development and many of our long-standing relationships with OEMs have lasted for up to 50 years. The strength of our relationships and existing manufacturing capabilities, in addition to the high investment required to set-up vehicle structure manufacturing lines, poses significant challenges to potential new competitors to enter the market. Long-Term Supply Arrangements Our long-standing commercial relationships are reflected in our long-term contracts with OEMs, which generally last three to ten years and reflect the general terms and conditions of the relationship. Pursuant to specific purchase orders with the OEMs, we have agreed to manufacture, among others, the Ford F-150 platform at least until 2019, the Chrysler RAM Light Duty until 2016 and Heavy Duty until 2017, the VW Amarok until 2018, the Toyota Tundra until 2018 and the Toyota Tacoma until 2021. Given the high cost of changing suppliers for OEMs, we expect most of our purchase orders to be rebooked throughout the entire life of each platform, or until such platform is substantially modified. Our Strategies Increase Market Share in Product Structures We plan to increase our market share in North America by securing additional contracts to manufacture new platforms. We plan to attract the additional business by offering the best technical solutions and reducing weight in our products while managing cost implications, which will allow us to bid on new truck platforms and differentiate ourselves from our competitors. Grow the Structural Business Segment in Mexico We believe we have the infrastructure in Mexico to offer an attractive alternative to new OEMs entering the Mexican market, such as Honda, Mazda and Toyota. We plan to grow our market share on LV body structural components in Mexico by leveraging this existing infrastructure to service more customers and a larger volume of business. Strengthen the Leadership Position in South American Chassis Market and Grow Other Product Structures in Brazil We currently have a strong presence in the South American LV BOF chassis market. In Argentina, we are the sole supplier for LV BOF chassis frames, which for the most part are exported to Brazil. We are also the primary global supplier of CV side rails and have gained a significant presence in Brazil, where we believe we hold the number two market position. We plan to increase our position by securing current platform replacements. Similar to our strategy in North America, we expect to attract additional business by offering the best technical solutions and reducing weight in our products while managing cost implications, which will allow us to differentiate ourselves from our competitors in South America. Additionally, we plan to apply our current capabilities and knowledge of the market to our Brazilian operating locations in order to develop new business opportunities in the LV market. Establish a Presence as a Chassis Supplier in Key Asian and European Markets While we will continue to focus on capturing market share in our core markets, countries such as India and China constitute attractive growth opportunities given that most of our main customers have built or have plans to 83



build manufacturing capabilities in these countries. We also continue to analyze an expansion of our European footprint. We may selectively pursue complementary strategic acquisitions that allow us to leverage the marketing, research and development, manufacturing and technology strengths of our existing business and expand our revenues to new and current customers. We expect that our acquisitions and conservative financing strategy will continue to enable us to increase our global presence, diversify our revenue base by customer, geography or product offering while maintaining a strong financial position, as they have in the past. Maintain Our Leading Position in Side Rail Production through Our Relationships with Our Strategic Customers We believe we are one of the primary global suppliers of CV side rails, and plan to continue to strengthen and maintain our position by supporting our strategic customers locally on their individual globalization efforts. Many of our existing OEMs are increasing their global presence through development of new product platforms around the world. We plan to generate additional business from such OEMs. Establish a Market Position in India by Consolidating Our Operations in Jamshedpur, and Our Construction of a Facility in Rayong, Thailand We intend to continue to establish ourselves as a global supplier of CV side rails by consolidating our operations in Jameshedpur through the integration of business opportunities with local OEMs like Tata, Mahindra and Volvo-Eicher, and we intend to achieve profitable and sustainable operations through an adapted business model for the region. We also aim to generate new business opportunities in Thailand to support Volvo’s recent entry into the Thai market.



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Corporate Structure The following chart summarizes key components of our corporate structure, including the Subsidiary Guarantors.



All of Metalsa’s subsidiaries are fully owned by the company with the exception of Chassis Systems Limited, which is a 50% joint venture with GKN, a British manufacturer of metal powder precision components. Corporate Information Metalsa is a privately held company and a wholly-owned subsidiary of Proeza, headquartered in Monterrey, Mexico. Proeza is a Mexican industrial group and is privately owned and controlled by the Zambrano family, who has been in the automotive parts supply business since the early 1960s. In 1975, Proeza was created as a holding company for the individual companies of the Group. The Group has approximately 10,300 full time employees, over 9,100 of which are full-time employees of Metalsa in 27 locations worldwide. Proeza maintains operations and exports its products around the world. During 2012, Metalsa’s revenues represented approximately 89% of the Group’s total revenues. The remainder of Proeza’s revenues are comprised of sales from its other direct subsidiaries, Citrofrut, S.A. de C.V., a manufacturer of natural citrus and tropical fruit juice, and Zánitas Clínica + Hospital, S.A. de C.V., a healthcare services provider.



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Issuer Information Metalsa S.A. de C.V. was incorporated on August 20, 1981, with, according to Article 2 of our bylaws, the objective of manufacturing, producing, distributing, importing, exporting, purchasing, selling, or by any other means marketing chassis, frames, supports for suspensions, axels, carters, piston lids, light-and heavy-weight prints and, generally, all types of basic parts used by automotive industry in the production of automobiles, trucks and other vehicles, as well as all types of machinery, tools and products for the metal-mechanic, agricultural and construction industries, including all types of machinery, equipment, tools, raw materials and any other components that may be necessary for such purposes. Our incorporation is recorded in the registry of Companies, Proxies and Commerce in Monterrey, Mexico under Number 564, page 78, file 11-H, and our bylaws were recorded under register number 18203*9 on April 4, 2009. We currently have 126,049,574 shares outstanding, with a nominal value of Ps. 1.00 per share. This current issued capital of Ps. 126,049,574 is comprised of 50,000 Series “A” shares of fixed capital and 125,999,574 Series “B” shares of variable capital. The minimum fixed portion of the capital is Ps. 50,000, represented by the 50,000 shares of Series “A” shares and have no withdrawal rights. The variable portion of our capital stock (Series “B” stock) has no minimum or maximum. The minimum fixed portion of our capital stock or the variable portion of our capital stock may be increased or decreased by a resolution of the General Extraordinary Shareholders Meeting, formalized and registered in the Public Registry of Property and Commerce in Monterrey, Mexico. All shares confer the same rights and obligations. Series “A” shares and Series “B” shall be represented by the nominal values, which serve to credit and transmit the title and rights of the shares to the shareholder. In the event of a capital increase approved by the shareholders, each shareholder shall have the pre-emptive right to purchase new shares issued in equal proportion to the number of shares owned by them at the time of such approval, which right must be exercised within 15 calendar days following the approval. We do not have any convertible debt securities, exchangeable debt securities or debt securities with warrants attached.



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History and Evolution We started operations in 1956 when Mr. Guillermo Zambrano Lozano founded Metalsa to manufacture metallic structures for the construction industry, poles for public lighting and power transmission towers for electric utilities. Mr. Zambrano began to shift our focus toward the automotive market following an early 1960s decree by the Mexican government that mandated that all manufactured vehicles in Mexico must contain at least 60% Mexican manufactured components. In 1961, Metalsa, in association with A.O. Smith, an auto parts concern, began manufacturing structural components and stamped parts for the automotive industry in Mexico. This alliance was extremely significant, representing one of the earliest joint ventures between a Mexican and U.S. firm. A.O. Smith had been in operation for more than 85 years and took a significant but calculated risk on us to perform based on the vision of Mr. Zambrano and his commitment to better serve the North American automotive industry. The joint venture flourished for thirty six years until A.O. Smith decided to exit the automotive supply business. In 1997, A.O. Smith sold its automotive parts units (except for its 40% ownership of Metalsa) to Tower Automotive, a U.S. corporation and a leading designer and producer of structural components and assemblies used by the major OEMs (“Tower”). As a result of Tower’s acquisition of A.O. Smith, Proeza, our parent company, initially repurchased A.O. Smith’s 40% ownership interest in Metalsa in October 1997. Aware of the competitive advantages associated with having a strategic partner of international stature, Proeza ultimately decided, however, to pursue a strategic partnership with an international OEM supplier. After various offers from international OEM suppliers, Proeza decided to form a strategic alliance later that month with Tower Automotive México S. de R.L., a subsidiary of Tower, that resulted in Tower purchasing a 40% ownership interest in our company. In December 2000, we acquired Tower’s heavy truck business, including a manufacturing facility in Roanoke, Virginia. As a result of that acquisition, we became the largest supplier of heavy truck side rails in North America with a market share of approximately 50%. Over the course of the last 15 years, we have undergone a major transformation becoming a full service supplier from product development (design, prototyping and validation) to sequenced delivery of modules and parts and have shifted our focus towards mainly serving all of North America. In December 2007, Proeza reached an agreement with Tower and purchased Tower’s 40% ownership interest in Metalsa. Proeza recognized that we had developed the complete capabilities needed to independently compete as a full service supplier and that we had received strong customer brand awareness and recognition. In December 2009, we reached an agreement to buy from Dana certain assets and companies dedicated to the manufacturing of structural components, mainly chassis frames and side rails. The DSPB was acquired for an enterprise value of US$147 million in March 2010. The DSPB acquisition further diversified our geographic footprint and customer base and enhanced our product offering. Today, we believe we are recognized and distinguished within the automotive community for our philosophy and culture. We have established a unique model, integrated with the way in which our operations are designed, managed, measured and improved in order to magnify our quality, productivity and profitability, and prioritize the safety of our personnel, and combined with our “Quality as a Way of Life” philosophy, to distinguish ourselves from our competitors. We believe these principles have facilitated the solid and sustained growth we have achieved during the last two decades. This distinctive approach to management and culture has enabled us to cultivate a reputation as a quality and productivity leader in the production of components for LV and heavy trucks. We believe that our accomplishments are a function of our emphasis on quality as an operational requirement. Our adoption of statistical process control more than 30 years ago was unique among Mexican based manufacturers. This foresight, coupled with a focus on customer service, quality control and innovation have become essential components of our operational model.



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The DSPB Acquisition In December 2009, we reached an agreement to buy from Dana certain assets (manufacturing facilities) and companies dedicated to the manufacturing of structural components, mainly chassis frames and side rails. Prior to the acquisition, the DSPB was the most international supplier in the structural components industry. We bought the DSPB for an enterprise value of US$147 million in March 2010. We financed the acquisition with funds from a new US$100 million credit facility, a US$30 million capital contribution from Proeza, and US$17 million from operating cash flow. The DSPB acquisition resulted in 155 years of combined LV and CV structural automotive products supplier experience between our two companies. It provided the opportunity to employ best practices across the platform to increase financial performance. It also allowed us to broaden our complementary manufacturing locations and align them closer to customer locations. Existing customer relationships were strengthened given the increased product offering. Our product line and technological leadership was enhanced along with our market share in North America. We believe the acquisition made us the second largest provider of LV BOF chassis frames in North America and the most internationally located supplier in the structural components industry. In addition to becoming the provider to the Toyota’s Tundra and Chrysler’s Dodge Ram platforms, we also acquired purchase orders for approximately 62% of the Ford F-150 and 100% of the Toyota Tacoma platforms. The Tundra, Dodge Ram, F-150 and Tacoma are four of the most important pickup truck platforms in North America. We also acquired important purchase orders in the United States for the chassis platforms for the Toyota Sequoia, the General Motors Express Van, the Ford Expedition and the Ford Ranger. Other important additions included the Toyota Hilux and VW Amarok in Argentina and new product offerings such as the stamped parts for the Australian produced Toyota Camry. We are now the only company specializing in offering a full range of structural components. The acquisition strengthened our international presence by adding operations in: (i) Argentina, Brazil and Venezuela, servicing VW, Toyota, Volvo and Ford and (ii) Australia, servicing Toyota and Ford. Key Products We deliver a variety of products and services to our OEM customers through our two strategic business units, LV and CV. We have developed expertise in all elements of the value chain and assist our customers at each stage in the development of program platforms. Our main products include chassis frames, suspension structures, body structures and steel fuel tanks produced by our LV strategic business unit and customized side rails, customized cross members, heavy truck side rails, and bus frames produced by our CV strategic business unit. These products are categorized into the following two product sales segments and corresponding subsegments. LV Strategic Business Unit 



Chassis Structures







Body Structures and Others



CV Strategic Business Unit 



Side Rails



We sell our chassis structures primarily into Australia and the United States, our body structures primarily into Mexico, and our CV structures primarily into Brazil, India, Mexico and the United States. Our facilities in Argentina, Australia, Venezuela and Kentucky (United States) focus on the manufacturing and sale of LV products. Meanwhile, our facilities in Brazil, India, Thailand and Virginia (United States) all principally focus on the manufacturing and sale of CV products. Our facilities in Mexico focus on the manufacturing and sale of both LV and CV products. 88



In addition to providing our customers with top quality products, we provide complete after-sale service including engineering changes, service and new parts. We have the capacity to generate price quotations for new projects and integrated design proposals with a fast response time. We also offer our customers logistical support through customized transportation solutions with strategically located centers for sequenced delivery. Our products are sent to our customers through third-party truck and rail service providers. In some cases, we pay the freight cost and charge it to the customer, and in other cases the customer pays directly to the service provider. Product Development Our manufacturing facilities are supported by three state-of-the-art Tech Centers, two of which are located in Apodaca, Nuevo León, México; and one of which is located in Novi, Michigan, the United States. We also have international sales offices and engineering locations in Argentina, Australia, Brazil, Germany, India, Japan, Mexico, Russia, and the United States. Sequencing centers are located in San Antonio, Texas and Mexicali, Baja California to support Toyota and in Saltillo, Coahuila, Mexico to support Chrysler which helps to enhance customer service. Our sequencing centers store manufactured Metalsa products near the OEM’s plant in a sequence specified by the OEM which allows the OEM to retrieve the products in the proper order for the production of the vehicle model. Throughout our history, we have developed and manufactured thousands of prototypes at our production facilities. In addition, we have participated in the design of several platforms, including Chrysler’s Dodge Ram and Ford’s F-150 Truck. These services have been enhanced by electronic data interchange with our OEM customers. With the start-up of the Saltillo plant in Mexico, we developed a flexible assembly station to accommodate the increasing number of models within each program and customized specifications. Our product development system employs the following processes: • Design Objective Development: Studying customer and market needs and translating these needs into specific engineering targets. • Conceptual Design: Generating ideas that best fit design targets. This involves all areas of our process chain from material reception to shipping. •



Design and Analysis: Using extensive analytical tools to enhance product and process.



• Prototype Construction: Fast construction phase prior to production to eliminate potential manufacturability problems in new designs and impending implementation processes. • Physical Product Evaluation: Fast experimental testing providing product and process feedback prior to product launching. To further ensure immediate responsiveness and flexibility, we have implemented a successful initiative placing our engineers physically on site at certain OEM customers’ facilities. Similarly, as an additional resource, we utilize Customer Technical Centers to provide real-time engineering solutions at the same location. Customer Base We believe offering high quality and differentiated service and customization to each of our customers enables us to develop strong, long-standing customer relationships. Our client list includes Toyota, Ford, Chrysler/Fiat, Volvo/Mack, VW, General Motors, Paccar and Nissan, among others. Some of our long-standing relationships with OEMs have lasted for up to 50 years. Our commercial philosophy is to create and maintain a long term relationship with our customers, developing an atmosphere of trust while building strong partnerships. The highlights of our diverse relationships are summarized below. • Toyota is our largest customer by sales volume. The products we produce for Toyota are diverse, including LV frames, cradles and body structures sold into Australia, Argentina, Brazil, Mexico, the United States and Venezuela. 89



• Ford is our second largest customer by sales volume. We produce mostly LV frames for Ford for distribution in Argentina, Australia, Brazil, Mexico, the United States and Venezuela. • Our long-standing relationship with Chrysler, our third-largest customer by sales volume, largely focuses on the production of LV frames for sale into Mexico and the United States. • Volvo is our largest CV customer by sales volume. We produce CV side rails for both Volvo and Paccar for sales into Canada, Mexico and the United States, and Paccar sales into Brazil. •



Another OEM for which we produce CV side rails is Tata, as a result of our production and sales in India.



• New CV accounts that we have recently developed include Iveco, Scania, Agrale and Mahindra, among others. Our relationships with OEMs are usually governed by long-term contracts that specify the more general terms and conditions of the relationship. The long-term contracts occasionally carry a fixed term; however, they are more often open-ended, with termination to be conditioned on mutual agreement, notice of six months or more if terminated by only one of the parties, or a breach of the terms. Most customer sales are then executed on the basis of specific purchase orders with the OEM. These purchase orders lay out the pricing, quantity, delivery and other terms of the order, and typically last for the life of the specific model or product given the high costs involved in the construction of the tooling and assembly lines required for the specific auto part and the switching cost for the OEMs. Purchase orders require a development period of one to three years before mass production begins, which includes the design stage, prototype building and full manufacturing During the last several years, we have grown our overall revenue base while diversifying our customer base and reducing individual customer concentrations. This initiative has been driven by our success in entering into new long-term contracts and new purchase orders with OEMs and our acquisition of the DSPB. We have a diverse client portfolio, which mitigates the effects of industry cyclicality and protects us against the impact of market trends within any geographic segment. Suppliers We use open purchase orders with our main suppliers and requirements are generally sent to these suppliers on a weekly basis. Our strong supplier relationships have been a critical contributing factor to our success. We have never experienced any material supply interruptions in any of our key inputs. For less frequently used supplies or services (mainly tooling and infrastructure), we negotiate contracts directly on a case by case basis. The table below highlights our top four suppliers, detailing the average annual volume they provide us. KEY SUPPLIER RELATIONSHIPS Type of product



Supplier



Percent of annual volume of steel



1



Steel coils



Ternium



25%



2



Steel coils



ArcelorMittial



19%



3



Steel coils



Nippon Steel & Sumitomo Metal Corporation



7%



4



Steel coils



Novolipetsk Iron & Steel Corporation



7% 58%



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Resale of Steel We seek to pass on our steel costs to our OEM customers when they purchase our products and, historically, we have successfully passed on substantially all of these costs, either through formal resale programs or through informal price adjustment mechanisms. Of the total steel we purchased in 2012, approximately 82% was purchased directly from our OEMs through their resale steel programs and approximately 18% was purchased directly from our steel suppliers. With respect to resale steel, the OEM negotiates the steel price with the steel suppliers directly. We then purchase the steel directly from the OEM. We believe exposure to volatility in international steel prices has no significant impact on our operations as a result of such resale programs. With respect to non-resale steel, the steel prices are directly negotiated by us with the steel suppliers. Any new steel prices are part of the sales cost structure that is negotiated with the OEMs, as well as any change in the price of steel during the life of the project. It is in the OEMs’ best interest to establish resale programs and negotiate the prices with the steel suppliers directly, as they typically purchase steel in large enough volumes to obtain bulk discounts we would not otherwise have access to through the non-resale channels. However, regardless of whether our steel supply is purchased as resale steel or non-resale steel, the cost is ultimately passed on to the OEM. As a result, the method of obtaining steel (either through resale or non-resale channels) does not have any significant impact on us. Competition In the LV market, we have achieved our market share in the BOF segment through the production of frame assemblies primarily for pickup trucks and sport utility vehicles. In North America (3.5 million BOF vehicles in 2012), we are positioned as the number two supplier with a market share of 40%. Our main competitors are Cosma (a subsidiary of Magna International Inc.), with a 44% market share, and Tower Automotive (a former Metalsa partner), whose market share is 14%. We are the sole LV BOF chassis manufacturer in Argentina. For the Mercosur region, we are the leader with a 50% market share, followed by Maxion with a 28% market share, and the remaining percentage split between Inhouse production and Tower Automotive. Production in Argentina largely serves to meet the rising demand in the Brazilian market. With regard to the CV market, we measure participation as the number of vehicles that utilize our side rails divided by the total amount of vehicles. For North America (403,000 vehicles in 2012), we are the second largest supplier having a 46% market share with our main competitor being Maxion with a 51% market share. In the Class 5-7 segment we have a 39% participation behind only Maxion, which has a 50%% market share. In the Class 8 segment, we have a 49% market share as compared to the 51% market share held by Maxion. Brazil is another important CV market with 208,000 vehicles in 2011 and 133,000 in 2012; this slowdown in the market was a result of a change in emission regulations to Euro V from Euro III that took place starting January 2012, and therefore the market had a pre-buy effect at the end of 2011 for Euro V compliant vehicles. The market is expected to fully recover by 2015, according to industry forecasts. Metalsa Brazil maintains a relevant presence through the DSPB facilities acquired in 2010 and for 2012 achieved a market share of 33%, having the second position, after Maxion, the market leader with 66% of the market. The third competitor in terms of market share was Montich, but Maxion bought 50% of its shares in 2011, and the remaining 1% is manufactured in-house. For more information, see “Industry.” Intellectual Property We own 126 U.S. and foreign patents, patent applications, licenses and trademarks, as well as 24 scientific publications. We consider our patents, patent applications, licenses, trademarks and trade names to be valuable. We do not believe, however, that a loss of any of these rights would have a material adverse effect on our business. We sell many of our products under a number of registered trademarks, which we believe are widely recognized in the sales channels we serve. We do not believe that any single patent, trademark or trade name is material to our business as a whole. 91



Environmental and Other Government Regulation Our businesses are subject to a broad range of regulations generally applicable to manufacturing businesses. These regulations include environmental, health and safety, transportation, anti-corruption, labor, customs, export controls and trade sanctions, employment and labor, government contracts, and intellectual property, among others. Environmental We are committed to controlling all of our activities, products and services to prevent the contamination of the environment and to comply with all legal requirements. Our objectives and goals are established based on meaningful environmental programs and are reviewed periodically. We aim to continuously improve our Environmental Management System based on the international standard ISO 14001. The Apodaca facility is recognized for Environmental Leadership for competitiveness by the SEMARNAT (Secretariat of the Environment and Natural Resources of Mexico). We promote waste separation, recycling, landfill for biogas production, water treatment and efficient use of utilities including water, electricity and gas. We are subject to numerous foreign, federal, state and local environmental, health and safety laws, regulations and official standards from different jurisdictions governing, among other things, land use and construction licenses, environmental impact and risk, the generation, storage, handling, use and transportation of hazardous materials and wastes, the responsible use of water, the emission and discharge of hazardous materials into the ground, air or water, and the health and safety of our employees. We are required to obtain environmental permits and make environmental filings for many of our operations from governmental authorities at the federal, state and local level. These authorities can modify or revoke our permits, may interpret environmental laws differently or may impose additional conditions in respect of permits, and can enforce compliance through fines, injunctions, or closure for non-compliance. We cannot assure you that we have been or will be at all times in complete compliance with such laws, regulations and permits. If we violate or fail to comply with these laws, regulations and permits, or such laws, regulations and permits are interpreted differently from our interpretation, we could be fined, temporarily closed or otherwise sanctioned by regulators. We could also be held liable for any and all consequences arising out of human exposure to hazardous substances or other environmental damage, including any investigation and remediation of contamination. Certain environmental laws assess liability on current or previous owners or operators of real property for the cost of removal or remediation of hazardous substances or waste. In addition to remediation actions brought by federal, state and local agencies, plaintiffs could raise personal injury or other private claims due to the presence of hazardous substances or waste on a property. Certain environmental laws, particularly those in the United States, impose liability even if the owner or operator did not know of, or was not responsible for, the release of hazardous substances or waste. In addition, persons who arrange for the disposal or treatment of hazardous substances or waste may be responsible for the cost of removal or remediation of these substances, even if such persons never owned or operated any disposal or treatment facility. See “Risk Factors―Risks Relating to Mexico and the Mexican Regulatory Environment―Our business may be materially and adversely affected by obligations and liabilities under numerous foreign, federal, state and local environmental laws, regulations and official standards.” On July 29, 2010, Article 17 of the Mexican Constitution was amended in order to allow class actions to be brought in federal courts in connection with civil actions on matters related, among others, to consumer protection and environmental law. Consequently, on August 30, 2011, the Federal Code of Civil Procedure, the Federal Law for Consumer Protection (Ley Federal de Protección al Consumidor) and the Mexican Environmental Law were amended to incorporate class actions. Such amendments became effective on March 1, 2012. The new rules authorize collective actions to recover both general relief (i.e. injunctive relief), which are brought on an opt-out basis, and individual relief (i.e., damages), which follow an opt-in approach. Thus, in addition to individual actions (requiring a minimum of 30 plaintiffs), various federal agencies, including the General Prosecutor (Procuraduría General de la República), the Federal Environmental Protection Agency (Procuraduría Federal de Protección al Ambiente) and the Federal Consumer Protection Agency (Procuraduría Federal del



92



Consumidor), among others, and certain private non-profit organizations may bring suit. Class members in individual actions may join at any time up to 18 months following the final judgment or settlement. Safety and Quality Control We are committed to all of our employees, providing and maintaining a healthy and safe working environment. Health and safety are our priority and is a responsibility of all employees. Safety is also an integral part of our operating system. We believe that accidents can be avoided and promote a culture of prevention by applying controls to eliminate occupational hazards. Meetings are held every 15 days between our Health and Safety Commission, Development and Training Area and the unions to address issues related to training, personnel's growth and development system, and safety plan. We also offer comprehensive safety talks to suppliers, with the aim of reducing incidents and accidents in the plant, in compliance with the Government requirements, providing basic elements for external contractors' and subcontractors' security. Insurance We are insured with coverage against three key categories of risk: (i) property and business interruption; (ii) cargo insurance (transportation); and (iii) general and product liability. Our insurance policies are negotiated on our behalf at the parent company level through Proeza and apply to our operations globally. Our all-risk policy insures property and protects us against business interruptions caused by floods, hurricanes and other weather conditions, earthquakes, machinery breakdown and other catastrophic events. Our cargo policies provide coverage for all import and export merchandise under our responsibility, such as raw materials, inventories and products, whether shipped by air, land and/or sea. We also maintain general liability policies that provide coverage against claims for damage to third parties; under this policy, our operations, properties, products and individuals are included. In addition, each subsidiary maintains other insurance policies as necessary to comply with local regulations or specific needs, such as commercial auto, workers compensation, environmental liability, etc. We believe that our insurance coverage is reasonable in amount and consistent with industry standards applicable to automotive companies operating in the regions in which we operate and do not anticipate having any difficulties in renewing any of our insurance policies. Legal Proceedings In the ordinary course of our business, we have been involved in various disputes and litigation. In particular, we were recently the defendants in various tax disputes initiated by the Mexican tax authorities. On May 30, 2013, we resorted to the tax amnesty program that was initiated in December 2012. Through this program, we paid US$2.5 million (Ps.32 million) in order to settle five of the six tax disputes. The only tax dispute remaining is related to customs duties, with a value of US$1.5 million. While the results of any such disputes cannot be predicted with certainty, we do not believe that there are any pending or threatened actions, suits or proceedings against or affecting us, including the remaining dispute initiated by the Mexican tax authorities, which, if determined adversely, would, individually or in the aggregate, have a material adverse effect on our business, financial condition or results of operations. On November 21, 2012, we entered into a share purchase agreement with ISE Holding L.P. for the purchase of a German automotive company. In accordance with the provisions of the agreement and German law, we exercised our right with the advice of counsel to terminate the agreement on February 25, 2013. Thereafter the seller commenced an arbitration proceeding seeking specific performance in order to compel a closing. The arbitration with ISE Holding was terminated immediately upon completion of the acquisition. Employees As of December 2012, we had around 9,100 full-time employees in 27 locations worldwide. A portion of our U.S. employees and majority of our employees elsewhere in the world are represented by a local or national union, 93



the most significant of which include the National Federation of Independent Unions and the Confederation of Mexican Workers in Mexico, and various local chapters of the United Auto Workers in the United States (including Local 4700 in Roanoke, Virginia; Local 3047 in Elizabethtown, Kentucky; and Local 3063 in Hopkinsville, Kentucky). At our U.S. and Mexican facilities, we maintain what we believe to be good relationships with our unions. At our U.S. facilities, we negotiate the applicable collective agreements generally every two years. At our Mexican facilities, we review and renegotiate wages every year and contracts every two years. We have not experienced any strikes in the last ten years. The following table sets forth the number of employees by region as of December 31, 2012. Location



Number of Employees



Mexico ........................................... United States .................................. South America ............................... Rest of the World ...........................



4,824 1,693 2,351 274



Total



9,142



94



Facilities and Operations We have a strong international presence and are continuously looking to increase our reach to better serve our customers and the industry. A snapshot of our global position is provided below. Our corporate offices are located at Carretera Miguel Alemán Km 16.5 #100, Apodaca Nuevo León, México, 66000.



Principal Subsidiaries and Establishments The following subsidiaries each represent at least 10% of the capital and reserves or accounts for at least 10% of our net profit or loss. In addition to our corporate headquarters, we have principal establishments that account for at least 10% of our turnover or production at the facilities owned by the following subsidiaries. Below we have provided certain key information relating to these subsidiaries. Subsidiary METALSA ARGENTINA, S.A.



METALSA ROANOKE, INC.



METALSA STRUCTURAL PRODUCTS, INC.



Registered office



Suipacha 268, floor 12o, Ciudad Autónoma, Buenos Aires, Argentina.



2711 Centerville Road, Suite 400, Wilmington , Delaware, 19808



Corporate Trust Center, 1209 Orange Street, Wilmington, Delaware, 19801



Field of activity



Manufacture, produce, distribute, import, export, buy, sell or commercialize in any form, various basic parts used in the automotive industry



To engage in any lawful act or activity for which corporations may be organized under Delaware General Corporation Law



To engage in any lawful act or activity not required to be specifically stated in the Certificate of Incorporation



95



Proportion of capital held



Automotive Quality Europe, BV holds 99.51% of the capital stock in this company, and Metalsa, S.A. de C.V. holds 100% of the capital stock in Automotive Quality Europe, BV.



Metalsa Automotive USA, INC holds 100% of the capital stock in this company, and Metalsa, S.A. de C.V. holds 100% of the capital stock in Metalsa Automotive USA, Inc.



Metalsa Automotive USA, INC holds 100% of the capital stock in this company, and Metalsa, S.A. de C.V. holds 100% of the capital stock in Metalsa Automotive USA, Inc.



Issued capital



160,000,000 shares



100 shares of common capital stock



1,100 shares of common stock



Reserves



According to the financial statements corresponding to the fiscal year ended on December 31, 2012, legal reserves amount to $294.864 Argentinean pesos and other reserves (non mandatory) amount to $5.602.436 Argentinean pesos.



None



None



Profit or loss arising out of ordinary activities, after tax, for the last financial year



The financial statements corresponding to the fiscal year ended on December 31, 2012 included losses amounting to $53.413.737 Argentinean pesos.



US$2,399,117



US$11,419,906



Amount still to be paid up on shares held



None



None



None



Amount of dividends received in the course of the last financial year in respect of shares held



No dividends were approved for the fiscal year ended December 31, 2012



No dividends were approved for the fiscal year ended December 31, 2012



No dividends were approved for the fiscal year ended December 31, 2012



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MANAGEMENT Board of Directors The Proeza board of directors (the “Board of Directors”) is comprised of twelve members of which seven are family members and five are independent non-family board members who have been selected in order to strengthen the Board of Directors’ expertise and independence. The following table sets forth Proeza’s current directors: Name Don Guillermo Zambrano Lozano



Enrique Zambrano Benítez



Position in the Board of Age Directors 83 Chairman and President



Business Address Ave. Constitución 405 Pte. Col. Centro Monterrey, NL 64000 Mexico Same as above



Juan Carlos Zambrano Benítez



57 Family Board Member Chief Executive Officer of Proeza 54 Family Board Member*



Pablo Zambrano Benítez



50 Family Board Member*



Same as above



Cecilia Zambrano Benítez de Martínez Ana Sofía Zambrano Benítez de Sada Consuelo Zambrano Benítez de Bailleres Armando Garza Sada



52 Family Board Member*



Same as above



51 Family Board Member*



Same as above



48 Family Board Member*



Same as above



55



Independent Board Member Chairman of the Board of the Alfa Group



Ave. Gómez Morín 1111 Sur Col. Carrizalejo San Pedro Garza García, NL 66254 Mexico



Teresa Puchades Olmos



57



Independent Board Member



Avda. Alfahuir, 45-9º Valencia 46019 Spain



Member of the Board of Muebles Puchades and Edival Nicholas Vernon Scheele(1)



69 Independent Board Member Former President and Chief Operating Officer of Ford Motor Co.



Same as above



Ward Leys, Stratford Road Wootton Wawen Warwickshire, B956AR England 8252 S.E. Golfhouse Drive Hobe Sound, FL 33455 USA



Rogelio Miguel Rebolledo Rojas



68



Independent Board Member Former President and Director of Pepsi Co. Latin America / Asia Pacific / Australia



97



Bosques de Amates 56 Col. Bosques de Las Lomas Mexico DF 11700 Mexico



Name Ricardo Gutiérrez Muñoz



Age 69



Position in the Board of Directors Independent Board Member President of Mexichem and Chief Executive Officer of Kaluz



Business Address Horacio 1855 5th Floor - Office 505 Col. Los Morales Polanco, Delegación Miguel Hidalgo Mexico DF 11510 Mexico



*Indicates family board members with a two year rotation Mr. Scheele also serves as Metalsa’s Advisory Council Chairman, which insures that both companies’ directions are aligned. (1)



Guillermo Zambrano Lozano holds a degree in Management from Instituto Tecnológico y de Estudios Superiores de Monterrey (ITESM). Mr. Zambrano has been the President of the Proeza Board of Directors since 1961 and was the President of the Agricultural Development Corporation of the state government of Nuevo León, Mexico. He also has been advisor to Banco Nacional de México, S.A., Integrante del Grupo Financiero Banamex; Banca Confía; Banco del Centro (Bancen); Consejo Citrícola de Nuevo León; and Unión Social de Empresarios Mexicanos, among others. Enrique Zambrano Benítez is the Chief Executive Officer of the Proeza Group and Director of Proeza. Mr. Zambrano is a mechanical engineer with a degree from the Massachusetts Institute of Technology (MIT), as well as an MBA from the Stanford Graduate School of Business. Mr. Zambrano is a son of Guillermo Zambrano Lozano. Juan Carlos Zambrano Benítez holds an MBA from the Institute for Management Development in Lausanne, Switzerland and a BS in Chemical Engineering from Massachusetts Institute of Technology (MIT). Mr. Zambrano is a Family Board Member of the Proeza Board of Directors and has served as Chief Executive Officer of Citrofrut, S.A. de C.V., a beverage company and one of the other members of the Group, since 1987. He has occupied several positions outside Citrofrut such as President of ANAPROCI (Mexican Citrus Processors Association), Regional Board Member of Bancomext, and Regional Director of CAINTRA and COPARMEX (Mexican organizations which represent the interests of the private sector in Mexico). Mr. Zambrano is a son of Guillermo Zambrano Lozano. Pablo Zambrano Benítez holds an MBA from the Instituto Tecnológico y de Estudios Superiores de Monterrey (ITESM). Mr. Zambrano is a Family Board Member of the Proeza Board of Directors, has more than 25 years of experience in Grupo Proeza and is the current Citric Fruits Director of Citrofrut. He is the ANAPROCI (Mexican Citrus Processors Association) Treasurer and board member of the Club Campestre de Monterrey, A.C. and the Club Industrial de Monterrey, A.C. Mr. Zambrano is a son of Guillermo Zambrano Lozano. Cecilia Zambrano Benítez de Martínez holds a degree in Educational Sciences from the Universidad de Monterrey (UDEM) as well as a Diploma on Human Development from the Universidad Iberoamericana. Mrs. Zambrano has been member of the Parents’ Association at the American School Foundation of Monterrey, as well as its Values Committee Coordinator and member of its Board. She was a Family Board Member of the Proeza Board of Directors from 1999 to 2001 and became a member again in 2012, she was a member of the Proeza Audit Committee from 2005 to 2008, and she was a member of the Advisory Board of Zánitas Clinica + Hospital, S.A., a healthcare services company and one of the other members of the Group, from 2009 to 2011. She is a daughter of Guillermo Zambrano Lozano. Ana Sofía Zambrano Benítez de Sada studied Graphic Design at the Universidad de Monterrey (UDEM). Mrs. Zambrano has been a Family Board Member of the Proeza Board of Directors since 1998. She worked at Maternidad Lolita from 1996 – 1998, she is a member of the events committee of ANSPAC (National Association of Personal Growth) and was a member of the Proeza Audit Committee from 2011 through 2013. She is a daughter of Guillermo Zambrano Lozano.



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Consuelo Zambrano Benítez de Bailleres holds a Management degree from the Instituto Tecnológico y de Estudios Superiores de Monterrey (ITESM). Mrs. Zambrano has been a Family Board Member of the Proeza Board of Directors since 2000. She was a member of the Proeza Audit Committee from 2008 through 2011, and a member of the Proeza Corporate Governance Committee from 2011 through 2012, and is a member of ANSPAC (National Association of Personal Growth) and the Patronato Pro-Construcción de las Hermanas Clarisas, among other charitable organizations. She is a daughter of Guillermo Zambrano Lozano. Armando Garza Sada holds a degree from the Massachusetts Institute of Technology (MIT) and an MBA from the Stanford Graduate School of Business. Mr. Garza Sada has hold a place in the Board of Directors of Grupo Alfa, Deutsche Bank Consejo Consultivo Latinoamericano, FEMSA, Frisa, Grupo Financiero Banorte, ITESM, Lamosa, Liverpool, NFL Mexico, Stanford University, among others. Teresa Puchades Olmos holds a Master in Education from the London University as well as a Master in Human Resources from the Instituto Social de Empresa Valencia. Mrs. Puchades is a member of the Board of Directors of Muebles Puchades and Edival, as well as Edival’s President. She is the Executive Director of Avanza Urbana Siglo XXI and is also a certified member of the Family Firm Institute and of the Social Council of the Valencia University. Nicholas Vernon Scheele was President and Chief Operating Officer of Ford Motor Company, President of Ford Europe, Chief Executive Officer of Premier Automotive Group and President and Managing Director of Ford de México, among other executive positions. Mr. Scheele has over 35 years of experience in the auto industry. Rogelio Miguel Rebolledo Rojas holds a BS in Chemical Engineering from the Universidad Nacional Autónoma de México (UNAM) and an MBA from the University of Iowa. Mr. Rebolledo is currently a member of the Board of Directors of The Clorox Company, Applebee's International Inc., and Kellogg Co. He has also been an independent director and member of committees of Grupo Alfa and Best Buy Co. Inc. and is the former chairman and Chief Executive Officer of Pepsi Bottling Group Mexico. Ricardo Gutiérrez Muñoz holds a degree in Accounting from the Instituto Politécnico Nacional (IPN) and a Master in Finance from the Universidad La Salle. Mr. Gutiérrez is the President of Mexichem and Chief Executive Officer of Grupo Empresarial Kaluz. He has been member of several Boards and Audit Committees including Bolsa Mexicana de Valores (BMV), Banco BX+, and ANIQ (Asociación Nacional de la Industria Química). “Bravo Business Awards” (Latin Trade) awarded him with the recognition “CEO of 2010”. Main Executive Officers The following table sets forth as of the date of this offering memorandum certain information regarding the individuals who currently serve as our main executive officers: Name Leopoldo Cedillo Villarreal Ricardo Alemán Flores James Benjamin Rachlin Angel Alberto Loredo Castro Gustavo Adrian Andrés Garza Jorge Garza Garza José Manuel Alejo Cantú Juan Martín Huerta Berlanga



Age Position 42 Chief Executive Officer 41 Vice President Light Vehicles Mexico Operations 47 Vice President Light Vehicles USA and Australia Operations 51 Vice President Commercial Vehicles Operations 41 Vice President New Business Development 38 Vice President Technology 41 Vice President Finance and Legal 48 Vice President Human Development



Years with Metalsa 17 18 24* 25 18 15 10 22



*21 of the 24 years indicated represents years Mr. Rachlin was employed by Dana. Certain information with respect to our executive officers is set out below: Leopoldo Cedillo Villarreal holds a degree in Accounting from Instituto Tecnológico y de Estudios Superiores de Monterrey (ITESM), and a Master of Science in Management from the Stanford Graduate School of Business. Mr. 99



Cedillo has 17 years of experience in Metalsa in various positions, including Vice President of Light Vehicles and Administration and Commercial Manager. Prior to Metalsa, Mr. Cedillo worked for PriceWaterhouse for four years. Ricardo Alemán Flores holds a degree in Industrial and Administrative Engineering from Universidad Autónoma de Nuevo León (UANL), a Master in Sciences of Engineering Management from University of Michigan, a Master in Sciences of Industrial Operation from Lawrence Tech University, a Top Management Diploma from Instituto de Mandos Intermedios (IMI) and a D1 from Instituto Panamericano de Alta Dirección de Empresa (IPADE). Mr. Alemán has 18 years of experience in Metalsa in various positions, including Assembly Operations Manager and Development Coordinator. Mr. Alemán is in charge of Apodaca LV, Saltillo and San Luis plants. James Benjamin Rachlin holds a degree in Electrical Engineering from Lehigh University and an MBA from Bowling Green State University. Mr. Rachlin has three years of experience in Metalsa in his current position. Previously, he worked for Dana Limited for nine years in various positions in Engineering and Operations, one year for Colfax Corporation, and ten years for Dana Corporation. Mr. Rachlin is in charge of Elizabethtown, Hopkinsville, Owensboro and Australia plants. Angel Alberto Loredo Castro holds a degree in Chemical and Administrative Engineering from Instituto Tecnológico y de Estudios Superiores de Monterrey (ITESM), a Seminar in Finance and a Master in Finance from Instituto de Estudios Avanzados y de Actualización (IDESAA), and a D1 from Instituto Panamericano de Alta Dirección de Empresa (IPADE). Mr. Loredo has 25 years of experience in Metalsa in various positions, including Vice President Operations, Strategic Business Unit Manager and Logistics Coordinator. Mr. Loredo is in charge of Apodaca CV, Brazil, India and Roanoke plants. Gustavo Adrian Andrés Garza holds a degree in Mechanical and Administration Engineering from Instituto Tecnológico y de Estudios Superiores de Monterrey (ITESM) and an Executive Program from the University of Michigan. Mr. Andres has 18years of experience in Metalsa in various positions, including Growth Manager and Commercial Manager for Light Vehicles and Commercial Vehicles. Jorge Garza Garza holds a degree in Mechanical and Administration Engineering from Instituto Tecnológico y de Estudios Superiores de Monterrey (ITESM) and an MBA from Lawrence University. Mr. Garza has 15 years of experience in Metalsa in various positions, including Vice President Innovation, Technology & Strategic Planning Manager and Technology & Innovation Manager. José Manuel Alejo Cantú holds a degree in Accounting from Instituto Tecnológico y de Estudios Superiores de Monterrey (ITESM), a Master Degree from ITESM and Tulane University and a D1 from Instituto Panamericano de Alta Dirección de Empresa (IPADE). Mr. Alejo has nine years of experience in Proeza in various positions, including Acquisitions and Administration Manager and, since August 2009, he is acting Chief Financial Officer of Metalsa. Prior to Proeza, Mr. Alejo worked for four years for Grupo Pulsar (a former diversified conglomerate in the business of tobacco, packaging, biotechnology, construction, healthcare, telemarketing, education, financial sector, and the sale of personal health care products), and six years for Grupo CYDSA (a diversified group of manufacturing companies active in chemicals, plastics, flexible packaging, and textile raw materials and finished products). Juan Martín Huerta Berlanga holds a degree in Accounting from Instituto Tecnológico y de Estudios Superiores de Monterrey (ITESM), an MBA from ITESM and a D1 from Instituto Panamericano de Alta Dirección de Empresa (IPADE). Mr. Huerta has 22 years of experience in Proeza and Metalsa in various positions, including both Metalsa and Proeza Chief Financial Officer. Audit Committee Our Audit Committee is comprised of the following five members: Ricardo Gutierrez Muñoz, an Independent Board Member, Juan Huerta Berlanga, a Proeza executive who is not a member of the Zambrano family and is not a member of the Board of Directors, Jaime Martinez Merla, who is not a member of the Zambrano family and not a member of the Board of Directors, Ana Sofía Zambrano Benitez de Sada, a Family Board Member, and Juan Carlos Zambrano Benitez, a Family Board Member and Proeza executive. Corporate Governance Committee 100



Our Corporate Governance Committee is comprised of the following four members: Don Guillermo Zambrano Lozano and Consuelo Zambrano Benitez de Bailleres, both of whom are Family Board Members, Alfredo Livas Cantú, who is not a member of the Zambrano family and is not a member of the Board of Directors, and Pablo Zambrano Benitez, a Family Board Member and Proeza executive. Compensation and Evaluation Committee Salaries and benefits received by our senior officers that were paid or accrued by us in 2012 and 2011 amounted to US$2.4 million and US$2.8 million, respectively, consisting of base salary amounts, benefits and variable compensation programs. The Compensation and Evaluation Committee is in charge of establishing compensation and performance evaluation for top management and the executives who report to them. It is comprised of the following four members: Armando Garza Sada, an Independent Board Member, Alejandro Kipper Lezama, a Proeza executive who is not a member of the Zambrano family and is not a member of the Board of Directors, Teresa Puchades Olmos, an Independent Board Member, and Enrique Zambrano Benitez, a Family Board Member and Proeza executive. Advisory Council of Directors We have an Advisory Council to bring industry expertise and diversity to the decision making process. The independent Board Members bring over 130 years of combined experience in the auto industry coming from positions of great responsibility in the industry. Their expertise, contacts and business acumen are highly valued resources in the decision making process at Metalsa. Name Nicholas Vernon Scheele Leopoldo Cedillo Villarreal



Age 69 42



Enrique Zambrano Benítez



57



Ben van Schaik Bill Cosgrove Olav Volldal Eugenio Morales Zambrano Verónica Zambrano de Fernández



68 67 63 33 31



Title and Company President Board Member Chief Executive Officer of Metalsa Board Member Chief Executive Officer of Proeza Independent Board Member Independent Board Member Independent Board Member Family Board Member



Nicholas Vernon Scheele was President and Chief Operating Officer of Ford Motor Company, President of Ford Europe, Chief Executive Officer of Premier Automotive Group and President and Managing Director of Ford de México, among other executive positions. Mr. Scheele has over 35 years of experience in the auto industry. Leopoldo Cedillo Villarreal holds a degree in Accounting from Instituto Tecnológico y de Estudios Superiores de Monterrey (ITESM), and a Master of Science in Management from the Stanford Graduate School of Business. Mr. Cedillo has 17 years of experience in Metalsa in various positions, including Vice President of Light Vehicles and Administration and Commercial Manager. Prior to Metalsa, Mr. Cedillo worked for PriceWaterhouse for four years. Enrique Zambrano Benítez is the Chief Executive Officer of the Proeza Group and Director of Proeza. Mr. Zambrano is a mechanical engineer with a degree from the Massachusetts Institute of Technology (MIT), as well as an MBA from the Stanford Graduate School of Business. Mr. Zambrano is a son of Guillermo Zambrano Lozano. Ben van Schaik was President and Chief Executive Officer of DaimlerChrysler do Brasil Ltda, President of DaimlerChrysler South America, and Member of the Board of Mercedes Benz Truck Division, Stuttgart. Mr. Van Schaik has over 40 years of experience in the auto industry. Bill Cosgrove was Corporate Vice-President, Chief Financial Officer and Chief of Staff of Premier Automotive Group, Ford's operating unit for its European luxury brands Mexico, among other executive positions. Mr.



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Cosgrove has an MA in Economics from Washington and Lee University and a MBA from Syracuse University. Mr. Cosgrove has over 30 years of experience in the auto industry. Olav Volldal was President and Chief Executive Officer of Kongsberg Automotive and Managing Director of the Automotive Division of AS Kongsberg Våpenfabrikk. Mr. Volldal holds a Master’s degree in Mechanical Engineering from Technical University in Norway. Mr. Volldal has over 25 years of experience in the auto industry. Eugenio Morales Zambrano holds a degree in Management from Purdue University and an MBA from Instituto de Empresa Business School. Mr. Morales has ten years of experience in Vinoteca (a wine, liquor and food importer and distributor in Mexico) in various positions, starting as a Franchise Manager to Sales & Operation Manager in Mexico City to currently Sales Director (Business to Consumer). Mr. Morales is a grandson of Guillermo Zambrano Lozano. Verónica Zambrano de Fernández holds a degree in Business Administration from ITESM. Mrs. Zambrano did a one-year course in History at the Universidad de Sevilla, Spain in 2006 and participated in a one-year program in Finance at Stanford University in 2007. She worked for two years at Alimentos Naturales La Sabroza, S.A. de C.V. (a company dedicated to the manufacturing, marketing and distribution of processed sauces) where she participated in a rotational program covering the areas of commercial, marketing, logistics and finance. She was a member of the Red de Filantropía del Tec (an association that gives financial aid to talented students with economic needs) in 2005-2006. Mrs. Zambrano is a granddaughter of Guillermo Zambrano Lozano.



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PRINCIPAL SHAREHOLDERS We are a wholly-owned subsidiary of Proeza, a privately held company headquartered in Monterrey, Mexico, that is owned and controlled by the Zambrano family. Proeza was established in 1975 as a holding company for various family businesses that now comprise the companies of the Group.



103



RELATED PARTY TRANSACTIONS Related Party Transactions From time to time, we may enter into transactions with parties that have relationships with Proeza, officers, directors or entities in which we have an ownership interest. It is our policy to conduct these transactions on an arm’s-length basis. In addition, it is Proeza’s policy to prohibit Metalsa and the other companies that comprise the Group from providing inter-Group loans or cross-guarantees. Transactions with related parties during the years ended December 31, 2012 and 2011, which were carried out at an arm’s-length basis, were as follows: Receivable Short-term Grupo Proeza, S.A. de C.V. Proeza, S.A. de C.V. Others



$ $



Long-term Proeza, S.A. de C.V. (included in other assets)



2011 2012 (in thousands of Dollars) 11 2,560 163 298 12 49 186 2,907



$ $



395 581



2,907



Payable 2011



2012



(in thousands of Dollars) Others (included in accounts payable and accrued liabilities)



$



20



15



Related party transactions Transactions carried out with related parties during the years ended December 31, 2012, 2011 and 2010, were as follows: 2012 Sales Purchases Administrative services and technical assistance



$



2011



2010



(in thousands of Dollars) 484 363 5,979 41 77 481 12,565 10,989 9,564



Services Provided by Affiliates In the ordinary course of our business, we obtain administrative and corporate services from Proeza and several subsidiaries. Proeza provides the following services, among others: lobbying; human resources; financial and treasury planning; legal and tax advice; strategic planning; and mergers and acquisitions. Corporate fee payments are made on an arms-length basis. The terms, conditions and pricing for such corporate fees are determined by Metalsa. An independent third party then evaluates the fairness of the pricing through a market comparison, and evaluates the terms and conditions of the fees for compliance with the Internal Revenue Code of the United States and the Mexican Tax Income Law.



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DESCRIPTION OF THE NOTES The notes will be issued under an Indenture, to be dated as of the Issue Date (the “Indenture”), among Metalsa S.A. de C.V., as issuer (the “Issuer”), the Subsidiary Guarantors and Wilmington Trust, National Association, as trustee (the “Trustee”), registrar, paying agent and transfer agent and Wilmington Trust SP Services (Luxembourg) S.A., as paying agent and transfer agent in Luxembourg. In this description: 



the term “Issuer” refers only to Metalsa, S.A. de C.V. and not to any of its Subsidiaries; and







the term “Subsidiary Guarantors” refers to the existing and future Subsidiaries of the Issuer that will issue guarantees of the notes, which initially are those Subsidiaries identified under “—Note Guarantees.”



The following summaries of certain provisions of the notes, Note Guarantees, and the Indenture do not purport to be complete and are subject to, and are qualified in their entirety by reference to, all the terms and conditions of the notes, Note Guarantees, and the Indenture, including the definitions therein of certain terms. Copies of the Indenture are available at the offices of the Trustee, and at the offices of any paying agent. As used herein, the term “Holder” or “Noteholder” means the person in whose name a note is registered in the register (the “Register”) which the Issuer shall cause the registrar to maintain for the notes. General The notes will be general unsecured and unconditional obligations of the Issuer. The notes will, at all times, rank pari passu in right of payment among themselves and at least equally with all other present and future unsecured and unsubordinated obligations of the Issuer, subject to certain creditors having priority under applicable law, such as tax authorities and creditors in respect of labor responsibilities. The notes will be unconditionally and irrevocably guaranteed, jointly and severally, on a general unsecured senior basis, by each of our Subsidiary Guarantors. The Issuer is entitled, without the consent of the Holders, to issue additional notes under the Indenture on the same terms and conditions (other than the original issue date and interest commencement date) (the “Additional Notes”). The notes and the Additional Notes, if any, will be treated as a single class for all purposes of the Indenture, including waivers and amendments; provided that unless such Additional Notes are issued under a separate CUSIP number, such Additional Notes must be fungible with the notes for U.S. federal income tax purposes. Unless the context otherwise requires, for all purposes of the Indenture and this “Description of the Notes,” references to the notes include any Additional Notes actually issued. As of December 31, 2012, the Issuer had consolidated total indebtedness of US$246 million, all of which was unsecured indebtedness and US$22 million of which was indebtedness of non-guarantor Subsidiaries (excluding guarantees and intercompany loans). As of the same date, after giving effect to the issuance of the notes, the Issuer would have had consolidated total indebtedness of US$333 million, all of which would have been unsecured indebtedness and US$22 million of which would have been indebtedness of non-guarantor Subsidiaries (excluding guarantees and intercompany loans). The Indenture does not limit the amount of Indebtedness or other obligations that may be incurred by the Issuer or its Subsidiaries. The Issuer will issue notes in denominations of US$150,000 and integral multiples of US$1,000 in excess thereof. The notes will mature on April 24, 2023. The notes will not be entitled to the benefit of any mandatory sinking fund. The notes will bear interest at a rate of 4.90% per annum from and including the Issue Date, payable semiannually, in arrears, on April 24 and October 24 of each year commencing October 24, 2013 (each, an “Interest Payment Date”), to the person in whose name such note (or any predecessor note) is registered at the close of business on the April 9 or October 9 that precedes the respective Interest Payment Date, whether or not a Business Day (each, a “record date”). Interest on the notes will be computed on the basis of a 360-day year of twelve 30-day months. 105



Notwithstanding the foregoing, any interest which is payable, but which is not punctually paid or duly provided for, on any Interest Payment Date shall cease to be payable to the Holder registered on such date, and shall be payable, at the election of the Issuer, either (i) to the person in whose name such note is registered at the close of business on a special record date to be fixed by the Trustee not more than 15 nor less than 10 days prior to the date fixed by the Issuer for payment thereof or (ii) in any other lawful manner not inconsistent with the rules of any applicable securities exchange if deemed practicable by the Trustee. Ranking The notes will not be secured by any of our assets. As a result, by owning the notes, you will be one of our unsecured creditors. The notes will not be subordinated to any of our other unsecured debt obligations, except for certain of our obligations which are given priority under applicable law. In the event of a bankruptcy, liquidation, concurso mercantil or quiebra proceeding against us, the notes would rank equally in right of payment with all our other unsecured and unsubordinated debt. Note Guarantees Not all of our Subsidiaries will guarantee the notes. The following Subsidiaries of the Issuer will unconditionally, irrevocably and on a joint and several basis guarantee the performance of all Obligations of the Issuer under the Indenture and the notes: (i) Metalsa Structural Products, Inc.; (ii) Metalsa Roanoke, Inc.; and (iii) any Subsidiary that provides a Note Guarantee after the date of this Offering Memorandum (collectively, the “Subsidiary Guarantors”). The Obligations of each Subsidiary Guarantor in respect of its Note Guarantee will be limited to the maximum amount as will result in the Obligations not constituting a fraudulent conveyance, fraudulent transfer or similar illegal transfer under applicable law. See “Risk Factors––Risks Relating to the Notes–– The subsidiary guarantees may not be enforceable under applicable laws.” A Subsidiary Guarantor will be released and relieved of its Obligations under its Note Guarantee (i) in the event there is a Defeasance or Covenant Defeasance of the notes as described under “––Defeasance” or (ii) in the event of a sale, disposition, or other transfer (including through merger or consolidation) of the Subsidiary Guarantor or all or substantially all of its assets (other than to the Issuer or another Subsidiary Guarantor) in compliance with the Indenture. As of and for the year ended December 31, 2012, the Subsidiary Guarantors, together with the Issuer, accounted for 84% of our total assets and 93% of our Adjusted EBITDA on a consolidated basis. Metalsa Structural Products, Inc. and Metalsa Roanoke, Inc. are each 100% owned subsidiaries of Metalsa Automotive USA, Inc., which is a holding company and a 100% owned, non-guarantor subsidiary of the Issuer. For further information, see “Business––Corporate Structure.” The Subsidiary Guarantors will waive the right to any defenses to which any of them may be entitled under applicable law. In the event of a bankruptcy, liquidation, reorganization, concurso mercantil or quiebra of our nonguarantor Subsidiaries, such non-guarantor Subsidiaries will pay the holders of their debt and their trade creditors before they will be able to distribute any of their assets to us. See “Risk Factors—Risks Relating to the Notes— Payments on the notes and the subsidiary guarantees will be effectively junior to any of our secured indebtedness and structurally junior to debt obligations of our non-guarantor subsidiaries.” Below we have provided certain key information relating to the Subsidiary Guarantors. Subsidiary Guarantor



Registered office



METALSA ROANOKE, INC.



METALSA STRUCTURAL PRODUCTS, INC.



2711 Centerville Road,



Corporate Trust Center,



106



Field of activity



Suite 400, Wilmington , Delaware, 19808



1209 Orange Street, Wilmington, Delaware, 19801



To engage in any lawful act or activity for which corporations may be organized under Delaware General Corporation Law



To engage in any lawful act or activity not required to be specifically stated in the Certificate of Incorporation



Methods of Receiving Payments on the Notes Payments on the notes may be made, in the case of DTC or a Holder of US$1,000,000 or more in aggregate principal amount of notes, by wire transfer to a U.S. dollar account maintained by the payee with a bank in the United States if such Holder elects payment by wire transfer by giving notice to the Issuer to such effect respecting such account no later than 30 days immediately preceding the relevant due date for payment. All other payments on the notes will be made at the office or agency of the paying agent within the City and State of New York in the United States or at the office of the paying agent in Luxembourg unless the Issuer elects to make interest payments by check mailed to the Holders at their address set forth in the Register. Subject to any applicable abandoned property law, the Trustee and the paying agents will pay to the Issuer upon our request any monies held by them for the payment of principal of or interest on the notes that remains unclaimed for two years, and, thereafter, Holders entitled to such monies must look to us and the Subsidiary Guarantors for payment as our and their general creditors. After the return of such monies by the Trustee or the paying agents to us, neither the Trustee nor the paying agents shall be liable to the Holders in respect of such monies. Paying Agent and Registrar for the Notes The Trustee will initially act as paying agent and registrar. Wilmington Trust SP Services (Luxembourg) S.A. will initially act as paying agent and transfer agent in Luxembourg. The Issuer may change the paying agent, the transfer agent or the registrar without prior notice to the Holders of the notes. Transfer and Exchange A Holder may transfer or exchange notes in accordance with the provisions of the Indenture. The Issuer, the registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents in connection with a transfer of notes. Any transfer documents will be available at the Issuer's principal executive offices, as well as at the offices of the Trustee, registrar and transfer agents, and at the offices of the Luxembourg transfer agent. Holders will be required to pay all taxes due on transfer. The Issuer is not required to transfer or exchange any notes selected for redemption. Also, the Issuer is not required to transfer or exchange any notes for a period of 15 days before a selection of notes to be redeemed. Optional Make-Whole Redemption Except as described below, the notes are not redeemable at the Issuer's option. The Issuer is not, however, prohibited from acquiring the notes by means other than a redemption, whether pursuant to a tender offer, open market purchase or otherwise, so long as the acquisition does not otherwise violate the terms of the Indenture. The notes will be redeemable as a whole or in part, at the option of the Issuer at any time, at a redemption price calculated by the Issuer and equal to the greater of (i) 100% of the principal amount of such notes and (ii) the sum of the present values of the remaining scheduled payments of principal and interest thereon (exclusive of interest accrued to the date of redemption) discounted to the redemption date on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate plus 50 basis points, plus in each case accrued and unpaid interest thereon to the date of redemption and any Additional Amounts (as defined below) payable in respect thereof. 107



“Comparable Treasury Issue” means the United States Treasury security or securities selected by an Independent Investment Banker as having an actual or interpolated maturity comparable to the remaining term of the notes to be redeemed that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of a comparable maturity to the remaining term of such notes. “Comparable Treasury Price” means, with respect to any redemption date, (A) the average of the Reference Treasury Dealer Quotations for such redemption date, after excluding the highest and lowest such Reference Treasury Dealer Quotations, or (B) if the Independent Investment Banker obtains fewer than four such Reference Treasury Dealer Quotations, the average of all such quotations. “Independent Investment Banker” means one of the Reference Treasury Dealers appointed by the Issuer. “Reference Treasury Dealer” means each of Citigroup Global Markets Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated and two other Primary Treasury Dealers selected by the Issuer, or their respective affiliates or successors which are primary U.S. Government securities dealers; provided, however, that if any of the foregoing or their affiliates shall cease to be a primary U.S. Government securities dealer in The City of New York (a “Primary Treasury Dealer”), the Issuer shall substitute therefor another Primary Treasury Dealer. “Reference Treasury Dealer Quotations” means, with respect to each Reference Treasury Dealer and any redemption date, the average, as determined by the Independent Investment Banker, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Independent Investment Banker by such Reference Treasury Dealer at 3:30 p.m. New York time on the third Business Day preceding such redemption date. “Treasury Rate” means, with respect to any redemption date, the rate per annum equal to the semi-annual equivalent yield to maturity or interpolated (on a day count basis) of the Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such redemption date. Notice of any redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each Holder of notes to be redeemed. Unless the Issuer defaults in payment of the redemption price, on and after the redemption date interest will cease to accrue on the notes or portions thereof called for redemption. Upon presentation of any note redeemed in part only, the Issuer will execute and the Trustee will authenticate and deliver to us on the order of the Holder thereof, at the Issuer's expense, a new note or notes, of authorized denominations, in principal amount equal to the unredeemed portion of the note so presented. The Issuer may at any time purchase notes in the open market or otherwise at any price. Withholding Tax Redemption The notes are subject to redemption (“Withholding Tax Redemption”) at any time (a “Withholding Tax Redemption Date”), as a whole but not in part, at the election of the Issuer, at a redemption price equal to 100% of the principal amount thereof plus accrued and unpaid interest, if any, to and including the Withholding Tax Redemption Date (the “Withholding Tax Redemption Price”) and any Additional Amounts payable in respect thereof if, as a result of (i) any amendment to or change in the laws, rules or regulations of a Relevant Jurisdiction, or any political subdivision or taxing authority thereof or therein affecting taxation, or (ii) any amendment to or change in the generally applicable regulations or official publicly disclosed interpretations relating to such laws, rules or regulations made by the legislative branch or any competent governmental authority of a Relevant Jurisdiction, or any political subdivision or taxing authority thereof or therein, which amendment or change is enacted and becomes effective, or which interpretation is announced and becomes effective, in each case, after the Issue Date (or, if the applicable Relevant Jurisdiction became a Relevant Jurisdiction on a date after the Issue Date, such later date), the Issuer has or will become required to pay any Additional Amounts in excess of those



108



attributable to Taxes (as defined below) that are imposed and withheld at a rate of 4.9% on or from any payments of interest under the notes. The election of the Issuer to redeem the notes shall be evidenced by a certificate (a “Withholding Tax Redemption Certificate”) of a financial officer of the Issuer stating that the Issuer is entitled to effect the redemption and setting forth a statement of facts showing that the conditions precedent to the Issuer's right to redeem have occurred, which certificate shall be delivered to the Trustee together with an opinion of independent legal counsel of recognized standing to the effect that the Issuer has or will become obligated to pay such Additional Amounts as a result of such change or amendment. The Withholding Tax Redemption Certificate shall also certify that the Issuer will deduct or withhold all required amounts and pay such amounts to the appropriate taxing authority. The Issuer shall, not less than 30 days nor more than 60 days prior to the Withholding Tax Redemption Date, notify the Trustee in writing of such Withholding Tax Redemption Date and of all other information necessary to the giving by the Trustee of notices of such Withholding Tax Redemption. The Trustee shall be entitled to rely conclusively upon the information so furnished by the Issuer in the Withholding Tax Redemption Certificate and shall be under no duty to check the accuracy or completeness thereof. Such notice shall be irrevocable and upon its delivery the Issuer shall be obligated to make the payment or payments to the Trustee referred to therein on or before 12:00 noon (New York time) at least one Business Day prior to such Withholding Tax Redemption Date. Notice of Withholding Tax Redemption shall be given by the Trustee to the Holders, in accordance with the provisions under “––Notices,” upon the mailing by first-class postage prepaid to each Holder at the address of such Holder as it appears in the Register not less than 15 days nor more than 60 days prior to the Withholding Tax Redemption Date. The notice of Withholding Tax Redemption shall state: 



the Withholding Tax Redemption Date;







the Withholding Tax Redemption Price;







the sum of all other amounts due to the Holders under the notes and the Indenture;







that on the Withholding Tax Redemption Date the Withholding Tax Redemption Price will become due and payable upon each such note to be redeemed; and







the place or places where the notes to be redeemed are to be surrendered for payment of the Withholding Tax Redemption Price.



Notice of Withholding Tax Redemption having been given as aforesaid, the notes to be redeemed shall, on the Withholding Tax Redemption Date, become due and payable at the Withholding Tax Redemption Price. Upon surrender of any such notes for redemption in accordance with such notice, such notes shall be paid by the paying agent on behalf of the Issuer on the Withholding Tax Redemption Date; provided, however, that money sufficient therefor has been deposited with the Trustee for the Holders. Notwithstanding anything to the contrary herein or in the Indenture or in the notes, if a Withholding Tax Redemption Certificate has been delivered to the Trustee and the Issuer shall have paid to the Trustee for the benefit of the Holders (i) the Withholding Tax Redemption Price and (ii) all other amounts due to the Holders and the Trustee under the notes and the Indenture, then neither the Holders nor the Trustee on their behalf shall any longer be entitled to exercise any of the rights of the Holders under the notes other than the rights of the Holders to receive payment of such amounts from the paying agent, and the occurrence of an Event of Default, whether before or after such payment by the Issuer to the Trustee for the benefit of the Holders, shall not entitle either the Holders or the Trustee on their behalf after such payment to declare the principal of any notes then outstanding to be due and payable on any date prior to the Withholding Tax Redemption Date. The funds paid to the Trustee shall be used to redeem the notes on the Withholding Tax Redemption Date. Additional Amounts All payments of principal of, and premium, if any, and interest on the notes by the Issuer or any applicable Subsidiary Guarantor will be made without withholding or deduction for or on account of any present or future taxes, duties, assessments or governmental charges of whatever nature imposed or levied by Mexico or any other 109



jurisdiction in which the Issuer, or an applicable Subsidiary Guarantor is organized or resident for tax purposes or through which payment on the notes or the Notes Guarantees is made (a “Relevant Jurisdiction”), or any political subdivision or taxing authority thereof or therein (“Taxes”), unless the withholding or deduction of such Taxes is required by law. In that event, the Issuer or an applicable Subsidiary Guarantor will pay such additional amounts (“Additional Amounts”) as may be necessary in order that the net amounts received by the Holders after such withholding or deduction shall equal the respective amounts which would have been received in respect of the notes in the absence of such withholding or deduction, which Additional Amounts shall be due and payable when the amounts to which such Additional Amounts relate are due and payable, except that no such Additional Amounts shall be payable with respect: (i)



to any Taxes which would not have been imposed but for the existence of any present or former connection between the Holder or beneficial owner of the note (or between a fiduciary, settlor, beneficiary, member or shareholder of, or possessor of a power over, such Holder or beneficial owner, if such Holder or beneficial owner is an estate, trust, corporation or partnership) and the Relevant Jurisdiction (or any political subdivision or territory or possession thereof or area subject to its jurisdiction) including, without limitation, such Holder or beneficial owner or such fiduciary, settlor, beneficiary, member, shareholder or possessor (x) being or having been a citizen or resident thereof for tax purposes, (y) having had a permanent establishment or branch subject to taxation therein, or (z) being or having been present or engaged in a trade or business therein other than the mere holding of such note or the receipt of any amounts due in respect thereof;



(ii)



to any estate, inheritance, gift, sales, stamp, transfer or personal property Taxes;



(iii)



to any Taxes that are imposed on, or withheld or deducted from, payments made to the Holder or beneficial owner of a note to the extent such Taxes would not have been so imposed, deducted or withheld but for the failure by such Holder or beneficial owner of such note to comply with any certification, identification, information or other reporting requirement concerning the nationality, residence, identity or connection with the Relevant Jurisdiction of the Holder or beneficial owner of such note if (x) such compliance is required or imposed by a statute, treaty, regulation or rule in order to make any claim for exemption from, or reduction in the rate of, the imposition, withholding or deduction of any Taxes, and (y) at least 30 days prior to the first payment date with respect to which the Issuer shall apply this clause (iii), the Issuer shall have notified all the record Holders of notes as of the date of notification, in writing, that such Holders or beneficial owners of the notes will be required to provide such information or documentation;



(iv)



to or on behalf of a Holder of a note in respect of Taxes that would not have been imposed but for the presentation of such note by such Holder for payment on a date more than 30 days after the date on which such payment became due and payable or the date on which payment thereof is duly provided for and notice thereof given to Holders, whichever occurs later, except to the extent that the Holder of such note would have been entitled to Additional Amounts in respect of such Taxes on presenting such note for payment on any date during such 30-day period;



(v)



to any withholding or deduction imposed on a payment to or for the benefit of an individual that is required to be made pursuant to European Council Directive 2003/48 EC or any other Directive on the taxation of savings implementing the conclusion of the ECOFIN council meeting on November 26-27, 2000, or any law implementing or complying with, or introduced in order to conform to, such Directive;



(vi)



to any tax, assessment or other governmental charge which would have been avoided by a Holder presenting the relevant note (if presentation is required) or requesting that such payment be made to another paying agent in a member state of the European Union;



(vii)



to any tax, assessment or other governmental charge which is payable other than by deduction or withholding from payments on the note;



(viii)



to any tax, assessment or other governmental charge imposed with respect to a payment on any note to a Holder that is a fiduciary or partnership or other than the sole beneficial owner of such 110



payment to the extent a beneficiary or settlor with respect to such fiduciary or a member of such partnership or beneficial owner would not have been entitled to receive payment of the Additional Amounts had the beneficiary, settlor, member or beneficial owner been the Holder of the note; (ix)



to any Tax required to be withheld or deducted under section 1471 through 1474 of the Internal Revenue Code of 1986, as amended, any treaty, law, regulation or other official guidance enacted by any foreign government implementing FATCA, or any agreement between the Issuer or any non-U.S. Subsidiary Guarantor and the United States or any authority thereof implementing FATCA; or



(x)



to any combination of the above (the Taxes described in clauses (i) through (x), for which no Additional Amounts are payable, are hereinafter referred to as “Excluded Taxes”).



Notwithstanding the foregoing, the limitations on the Issuer's and the Subsidiary Guarantors' obligation to pay Additional Amounts set forth in clause (iii) above shall not apply if (a) the provision of information, documentation or other evidence described in such clause (iii) would be materially more onerous, in form, in procedure or in the substance of information disclosed, to a Holder or beneficial owner of a note (taking into account any relevant differences between U.S. and Mexican law, rules, regulations or administrative practice) than comparable information or other reporting requirements imposed under U.S. tax law, regulations and administrative practice (such as IRS Forms W-8BEN and W-9) or (b) Article 195, Section II, of the Mexican income tax law (or a substantially similar successor of such Article) is in effect, unless the provision of the information, documentation or other evidence described in clause (iii) is expressly required by statute, regulation or rule to apply Article 195, Section II, of the Mexican income tax law (or a substantially similar successor of such Article), the Issuer or an applicable Subsidiary Guarantor cannot obtain such information, documentation or other evidence on its own through reasonable diligence and without requiring it from Holders or beneficial owners of the notes and the Issuer or an applicable Subsidiary Guarantor otherwise would meet the requirements for application of Article 195, Section II, of the Mexican income tax law (or such successor of such Article). In addition, such clause (iii) shall not be construed to require that a non-Mexican pension or retirement fund or a non-Mexican financial institution or any other Holder or beneficial owner of a note register with the Ministry of Finance and Public Credit (Secretaría de Hacienda y Crédito Público) or the Tax Administration Service (Servicio de Administración Tributaria) for the purpose of establishing eligibility for an exemption from or reduction of Mexican withholding taxes or to require that a Holder or beneficial owner certify or provide information concerning whether it is or is not a tax-exempt pension or retirement fund. At least 30 days prior to each date on which any payment under or with respect to the notes is due and payable, if the Issuer or any applicable Subsidiary Guarantor will be obligated to pay Additional Amounts with respect to such payment (other than Additional Amounts payable on the Issue Date), the Issuer will deliver to the Trustee an Officers' Certificate stating the fact that such Additional Amounts will be payable and the amounts so payable. Whenever either in the Indenture, the notes or in this offering memorandum there is mentioned, in any context, the payment of principal (and premium, if any), redemption price, interest or any other amount payable under or with respect to any note, such mention shall be deemed to include mention of the payment of Additional Amounts to the extent that, in such context, Additional Amounts are, were or would be payable in respect thereof. In the event that the Issuer has become or would become required to pay any Additional Amounts in excess of those attributable to Taxes that are imposed and withheld at a rate of 4.9% or more as a result of certain changes affecting Mexican tax laws or the tax laws of any other Relevant Jurisdiction, the Issuer may redeem all, but not less than all, of the notes, at any time at 100% of the principal amount, together with accrued and unpaid interest thereon, if any, to the redemption date and any Additional Amounts due thereon. See “––Withholding Tax Redemption.” The Issuer will provide the Trustee with documentation evidencing the payment of taxes in respect of which the Issuer or any applicable Subsidiary Guarantor has paid any Additional Amounts. Copies of such documentation will be made available to the Holders or the paying agent, as applicable, upon request therefor. In addition, the Issuer will pay any stamp, issue, registration, documentary or other similar taxes and other duties (including interest and penalties) (a) payable in Mexico or the United States (or any political subdivision of either jurisdiction) in respect of the creation, issue and offering of the notes, and (b) payable in Mexico (or any political subdivision thereof) in respect of the subsequent redemption or retirement of the notes (other than, in the 111



case of any subsequent redemption or retirement, Excluded Taxes; except for this purpose, the definition of Excluded Taxes will not include stamp or transfer Taxes defined in clause (ii) thereof). Repurchase at the Option of Holders Upon a Change of Control Triggering Event Upon the occurrence of a Change of Control Triggering Event, each Holder of notes will have the right to require the Issuer to repurchase all or any part of such Holder's notes pursuant to the offer described below (the “Change of Control Offer”) at a purchase price (the “Change of Control Purchase Price”) equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the purchase date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date) and any Additional Amounts payable in respect thereof. Within 30 days following any Change of Control Triggering Event, the Issuer shall send a notice to each Holder as described in “—Notices” below, with a copy to the Trustee, stating: 



that a Change of Control Triggering Event has occurred and a Change of Control Offer is being made pursuant to the covenant entitled “Repurchase at the Option of Holders Upon a Change of Control Triggering Event” and that all notes timely tendered will be accepted for payment;







the Change of Control Purchase Price and the purchase date, which shall be, subject to any contrary requirements of applicable law, a Business Day no earlier than 30 days nor later than 60 days from the date such notice is mailed (such specified date, the “Change of Control Payment Date”);







the circumstances and relevant facts regarding the Change of Control Triggering Event; and







the procedures that Holders of notes must follow in order to tender their notes (or portions thereof) for payment, and the procedures that Holders of notes must follow in order to withdraw an election to tender notes (or portions thereof) for payment.



On or before 12:00 noon (New York time) on the Business Day immediately preceding the Change of Control Payment Date, the Issuer will deposit with the paying agent funds in an amount equal to the Change of Control Purchase Price in respect of all notes or portions thereof so tendered. The Issuer will not be required to make a Change of Control Offer following a Change of Control Triggering Event if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in the Indenture applicable to a Change of Control Offer made by the Issuer and purchases all notes validly tendered and not withdrawn under such Change of Control Offer. The Issuer will comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of notes pursuant to a Change of Control Offer. To the extent that the provisions of any securities laws or regulations conflict with the provisions of the covenant described above, the Issuer will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under this covenant by virtue of such compliance. The Issuer's obligation to make an offer to repurchase the notes as a result of a Change of Control Triggering Event may be waived or modified at any time prior to the occurrence of such Change of Control Triggering Event with the written consent of the holders of a majority in principal amount of the notes, although the premium payable upon a Change of Control Triggering Event may not be reduced without the written consent of the holder of each note. See “—Amendments and Waivers.” Covenants The Indenture provides that the following restrictive covenants will be applicable to the Issuer and its Subsidiaries.



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Limitation on Liens The Issuer will not, nor will it permit any Subsidiary to, issue, assume or suffer to exist any Indebtedness or Guarantee, if such Indebtedness or Guarantee is secured by a Lien upon any Operating Property of the Issuer or any Subsidiary, unless, concurrently with the issuance or assumption of such Indebtedness or Guarantee or the creation of such Lien, the notes shall be secured equally and ratably with (or prior to) such Indebtedness or Guarantee; provided, however, that the foregoing restriction shall not apply to: (xi)



any Lien on (A) any Operating Property acquired, constructed, developed, extended or improved by the Issuer or any Subsidiary (singly or together with other Persons) after the Issue Date or any property reasonably incidental to the use or operation of such Operating Property (including any real property on which such Operating Property is located), or (B) any shares or other ownership interest in, or any Indebtedness of, any Person which holds, owns or is entitled to such property, products, revenue or profits, in each of cases (A) and (B) to the extent such Lien is created, incurred or assumed (x) during the period such Operating Property was being constructed, developed, extended or improved, or (y) contemporaneously with, or within 270 days after, such acquisition or the completion of such construction, development, extension or improvement in order to secure or provide for the payment of all or any part of the purchase price or other consideration of such Operating Property or the other costs of such acquisition, construction, development, extension or improvement (including costs such as escalation, interest during construction and financing and refinancing costs);



(xii)



any Lien on any Operating Property existing at the time of acquisition thereof by the Issuer or any Subsidiary and which (a) is not created as a result of or in connection with or in anticipation of such acquisition and (b) does not attach to any other Operating Property other than the Operating Property so acquired;



(xiii)



any Lien on any Operating Property acquired from a Person which is merged with or into the Issuer or any Subsidiary or any Lien existing on Operating Property of any Person at the time such Person becomes a Subsidiary, in either such case which (a) is not created as a result of or in connection with or in anticipation of any such transaction and (b) does not attach to any other Operating Property other than the Operating Property so acquired;



(xiv)



any Lien which secures Indebtedness or a Guarantee owing by a Subsidiary to the Issuer or any Subsidiary Guarantor;



(xv)



any Lien existing on the Issue Date;



(xvi)



any Lien imposed by law that was incurred in the ordinary course of business, including, without limitation, carriers’, suppliers’, materialmen’s, repairmen’s, warehousemen’s and mechanics’ liens and other similar encumbrances arising in the ordinary course of business, in each case for sums not yet due or being contested in good faith by appropriate proceedings;



(xvii)



any pledge or deposit made in connection with workers’ compensation, unemployment insurance or other similar social security legislation, any deposit to secure appeal notes in proceedings being contested in good faith to which we or any Subsidiary is a party, good faith deposits in connection with bids, tenders, contracts (other than for the payment of Indebtedness) or leases to which we or any Subsidiary is a party or deposits for the payment of rent, in each case made in the ordinary course of business;



(xviii)



any Lien securing reimbursement obligations with respect to commercial letters of credit which encumber documents or other property relating to such letters of credit and products and proceeds thereof;



(xix)



any Lien securing taxes, assessments or other governmental charges, the payment of which is not yet due or that are being contested in good faith by appropriate proceedings and for which reserves or other appropriate provisions, if any, have been established as required by MFRS; 113



(xx)



minor defects, easements, rights-of-way, restrictions and other similar encumbrances incurred in the ordinary course of business and encumbrances consisting of zoning restrictions, licenses, restrictions on the use of property or assets or minor imperfections in title that do not materially impair the value or use of the property or assets affected thereby, and any leases and subleases of real property that do not interfere with the ordinary conduct of the business of the Issuer or any Subsidiary, and which are made on customary and usual terms applicable to similar properties;



(xxi)



any rights of set-off of any person with respect to any deposit account of the Issuer or any Subsidiary arising in the ordinary course of business and not constituting a financing transaction;



(xxii)



any Liens granted, directly or indirectly, to secure borrowings from (i) Banco Nacional de Obras y Servicios Públicos, Sociedad Nacional de Crédito, Institución de Banca de Desarrollo (BANOBRAS), Nacional Financiera, Sociedad Nacional de Crédito, Institución de Banca de Desarrollo (NAFINSA), or any other Mexican governmental development bank or government credit institution or (ii) any international or multilateral development bank, government-sponsored agency, export-import bank or official, export-import credit insurer; or



(xxiii)



any extension, renewal or replacement (or successive extensions, renewals or replacements), in whole or in part, of any Lien referred to in the foregoing clauses (i) through (v) inclusive; provided, however, that the principal amount of Indebtedness or Guarantee secured thereby shall not exceed the principal amount of Indebtedness or Guarantee so secured at the time of such extension, renewal or replacement, and that such extension, renewal or replacement shall be limited to all or a part of the property which secured the Lien so extended, renewed or replaced (plus improvements on such property).



Notwithstanding the foregoing, the Issuer or any Subsidiary may issue or assume Indebtedness or a Guarantee secured by a Lien which would otherwise be prohibited under the provisions of the Indenture described in this section or enter into a Sale and Leaseback Transaction that would otherwise be prohibited by the provision of the Indenture described under “—Sale and Leaseback”; provided, however, that the aggregate amount of such Indebtedness, Guarantee or Attributable Value of such Sale and Leaseback Transactions of the Issuer and its Subsidiaries (without duplication) together with the aggregate amount (without duplication) of Indebtedness, Guarantees or Attributable Value from Sale and Leaseback Transactions as described below outstanding at such time that was previously incurred pursuant to this paragraph by the Issuer and its Subsidiaries, shall not exceed the greater of US$180.0 million and 15% of Consolidated Tangible Assets. Sale and Leaseback The Issuer will not, nor will it permit any Subsidiary to, enter into any Sale and Leaseback Transactions with respect to any Operating Property, without effectively providing that the notes will be secured equally and ratably with such Sale and Leaseback Transaction, unless after giving effect thereto: (i)



the Issuer or such Subsidiary would be entitled pursuant to the provisions of the Indenture described above under “—Limitation on Liens” to issue or assume Indebtedness or a Guarantee (in an amount equal to the Attributable Value with respect to such Sale and Leaseback Transaction) secured by a Lien on such Operating Property without equally and ratably securing the notes; or



(ii)



the Issuer or such Subsidiary shall apply or cause to be applied, in the case of a sale or transfer for cash, an amount equal to the net proceeds thereof and, in the case of a sale or transfer otherwise than for cash, an amount equal to the fair market value (as determined in good faith by the board of directors of the Issuer) of the Operating Property so sold and leased-back (A) to the retirement, within 12 months after the effective date of such Sale and Leaseback Transaction, of (i) Indebtedness of the Issuer ranking at least on a parity with the notes with a remaining maturity of more than one year or (ii) Indebtedness of any Subsidiary of the Issuer, in each case owing to a Person other than the Issuer of any Affiliate of the Issuer, or (B) to the acquisition, purchase, construction, development, extension or improvement of any fixed or capital assets or other real and/or tangible property, plant or equipment of the Issuer or that of any Subsidiary (other than the



114



property so sold and leased-back) to be used by or for the benefit of the Issuer or any Subsidiary, in each case, in the ordinary course of business. Consolidation, Merger, Sale or Conveyance The Issuer and each Subsidiary Guarantor may not, and the Issuer will not cause or permit any Subsidiary Guarantor to, consolidate with or merge into, or convey or transfer its properties and assets substantially as an entirety to, any Person other than the Issuer or a Subsidiary Guarantor, unless (i) the successor Person shall be a corporation or limited liability company or similar entity organized and existing under the laws of Mexico or the United States (or any State thereof or the District of Columbia) or any country that is a member of the European Union and shall expressly assume, by a supplemental indenture, the due and punctual payment of the principal of, premium, if any, and interest on all the outstanding notes or obligations under the Note Guarantee as applicable, and the performance of every covenant in the Indenture on the part of the Issuer or the Subsidiary Guarantor, as the case may be, to be performed or observed; (ii) immediately after giving effect to such transaction, no Event of Default, and no event which, after notice or lapse of time or both, would become an Event of Default, shall have happened or be continuing; and (iii) the Issuer shall have delivered to the Trustee an Officers' Certificate and Opinion of Counsel stating that such consolidation, merger, conveyance or transfer and such supplemental indenture comply with the foregoing provisions relating to such transaction. In case of any such consolidation, merger, conveyance or transfer (other than a lease), such successor corporation or limited liability company or similar entity will succeed to and be substituted for the Issuer or the Subsidiary Guarantor, as the case may be, as obligor on the notes, with the same effect as if it had been named in the Indenture as such obligor or Subsidiary Guarantor. For purposes of this covenant, the conveyance or transfer of all the property of one or more Subsidiaries of the Issuer which property, if held by the Issuer instead of such Subsidiaries, would constitute all or substantially all the property of the Issuer on a consolidated basis, shall be deemed to be the transfer of all or substantially all the property of the Issuer. Additional Guarantees If the Issuer or any of its Subsidiaries acquires, creates or capitalizes a Subsidiary after the Issue Date that is a Significant Subsidiary and is not a Subsidiary Guarantor, the Issuer will cause such newly acquired, created or capitalized Subsidiary to become a Subsidiary Guarantor and to execute and deliver to the Trustee, together with an Opinion of Counsel, a supplemental indenture to the Indenture, pursuant to which it provides a Note Guarantee. Thereafter, such newly acquired, created or capitalized Significant Subsidiary that was not a Subsidiary Guarantor shall be a Subsidiary Guarantor for all purposes of the Indenture. The Issuer may cause any other Subsidiary of the Issuer to issue a Note Guarantee and become a Subsidiary Guarantor. The Obligations of each Subsidiary Guarantor in respect of its Note Guarantee will be limited to the maximum amount as will result in the Obligations not constituting a fraudulent conveyance, fraudulent transfer or similar illegal transfer under applicable law. A Subsidiary Guarantor will be released and relieved of its Obligations under its Note Guarantee (i) in the event there is a Defeasance or Covenant Defeasance of the notes as described under “––Defeasance” or (ii) in the event of a sale, disposition, or other transfer (including through merger or consolidation) of the Subsidiary Guarantor or all or substantially all of its assets (other than to the Issuer or another Subsidiary Guarantor) in compliance with the Indenture. Certain Definitions The following terms have the following definitions in the Indenture: “Affiliate” means, with respect to any specified Person, any other Person who directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, such specified Person. The term “control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise; provided, however, that beneficial ownership of 10% or more of the Voting Stock of a Person shall be deemed to be



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control. For purposes of this definition, the terms “controlling,” “controlled by” and “under common control with” have correlative meanings. “Attributable Value” means as to any particular lease under which the Issuer or any Subsidiary is at any time liable as lessee and any date as of which the amount thereof is to be determined, the total net obligation of the lessee for rental payments during the remaining term of the lease (including any period for which such lease has been extended or may, at the option of the lessor, be extended) discounted from the respective due dates thereof to such date at a rate per annum equivalent to the interest rate inherent in such lease (as determined in good faith by the Issuer in accordance with generally accepted financial practice). “Business Day” shall mean any day other than a Saturday, a Sunday or a legal holiday or a day on which banking institutions or trust companies are authorized or obligated by law to close in The City of New York or Mexico. “Capital Stock” means: (1) with respect to any Person that is a corporation, any and all shares, interests, participations or other equivalents (however designated and whether or not voting) of corporate stock, including each class of common stock and preferred stock of such Person; (2) with respect to any Person that is not a corporation, any and all partnership or other equity or ownership interests of such Person; and (3) any warrants, rights or options to purchase any of the instruments or interests referred to in clause (1) or (2) above. “Change of Control” means the occurrence of one or more of the following events: (1)



(x) prior to the occurrence of an Initial Public Offering, any Person or Group other than the Permitted Holders is or becomes the beneficial owner (as defined below), directly or indirectly, in the aggregate of more than 50% of the total voting power of the Voting Stock of the Issuer or, (y) after the occurrence of an Initial Public Offering, any Person or a Group other than the Permitted Holders is or becomes the beneficial owner, directly or indirectly, in the aggregate of 35% or more of the voting power of the Voting Stock of the Issuer and the Permitted Holders beneficially own, directly or indirectly, in the aggregate a lesser percentage of the total voting power of the Voting Stock of the Issuer (or its successor by merger, consolidation or purchase of all or substantially all of its assets) than such other Person or Group and do not have the right or ability by voting power, contract or otherwise to elect or designate for election a majority of the board of directors of the Issuer or such successor, unless, as a result of such transaction, the ultimate direct or indirect ownership of the Issuer is substantially the same immediately after such transaction as it was immediately prior to such transaction (for the purposes of this clause, such other Person or Group shall be deemed to beneficially own any Voting Stock of a specified entity held by a parent entity, if such other Person or Group “beneficially owns” directly or indirectly, more than 35% of the voting power of the Voting Stock of such parent entity and the Permitted Holders “beneficially own” directly or indirectly, in the aggregate a lesser percentage of the voting power of the Voting Stock of such parent entity and do not have the right or ability by voting power, contract or otherwise to elect or designate for election a majority of the board of directors of such parent entity);



(2)



the Issuer consolidates with, or merges with or into, another Person, or the Issuer sells, conveys, assigns, transfers, leases or otherwise disposes of all or substantially all of the assets of the Issuer, determined on a consolidated basis, to any Person, other than a transaction where the Person or Persons that, immediately prior to such transaction “beneficially owned” the outstanding Voting Stock of the Issuer are, by virtue of such prior ownership, or Permitted Holders are, the “beneficial owners” in the aggregate of more than 50% of the total voting power of the then outstanding Voting Stock of the surviving or transferee person (or if such surviving or transferee Person is a direct or indirect wholly-owned subsidiary of another Person, such Person who is the ultimate parent entity), in each case whether or not such transaction is otherwise in compliance with the Indenture;



(3)



individuals appointed by the Permitted Holders cease for any reason to constitute a majority of the members of the board of directors of the Issuer; or



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(4)



the approval by the holders of Capital Stock of the Issuer of any plan or proposal for the liquidation or dissolution of the Issuer, whether or not otherwise in compliance with the provisions of the Indenture.



For purposes of this definition: (a)



“beneficial owner” will have the meaning specified in Rules 13d-3 and 13d-5 under the Exchange Act, except that any Person or Group will be deemed to have “beneficial ownership” of all securities that such Person or Group has the right to acquire, whether such right is exercisable immediately, only after the passage of time or, except in the case of the Permitted Holders, upon the occurrence of a subsequent condition;



(b)



“Person” and “Group” will have the meanings for “person” and “group” as used in Sections 13(d) and 14(d) of the Exchange Act; and



(c)



the Permitted Holders or any other Person or Group will be deemed to beneficially own any Voting Stock of a corporation held by any other corporation (the “parent corporation”) so long as the Permitted Holders or such other Person or Group, as the case may be, beneficially own, directly or indirectly, in the aggregate more than 50% of the voting power of the Voting Stock of the parent corporation and no other Person or Group beneficially owns an equal or greater amount of the Voting Stock of the parent corporation.



“Change of Control Triggering Event” means the occurrence of both a Change of Control and a Ratings Decline. “Common Stock” means, with respect to any Person, any and all shares (however designated and whether voting or non-voting) of such Person's common equity interests, whether outstanding on the Issue Date or issued after the Issue Date, and includes, without limitation, all series and classes of such common equity interests. “Consolidated Tangible Assets” means, as of any date of determination, the total amount of assets of the Issuer and its consolidated Subsidiaries less Intangible Assets of the Issuer and its consolidated Subsidiaries, according to MFRS, as of the end of the fiscal year immediately preceding such date. “DTC” means The Depository Trust Company. “Exchange Act” means the U.S. Securities Exchange Act of 1934, as amended, or any successor statute or statutes thereto. “Fitch” means Fitch Ratings, Inc. “Guarantee” means any obligation, contingent or otherwise (including an aval), of any Person directly or indirectly guaranteeing any Indebtedness of any other Person, direct or indirect, contingent or otherwise, or entered into for the purpose of assuring in any other manner the obligee of such Indebtedness of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part); provided, however, that the term “Guarantee” shall not include endorsements for collection or deposit in the ordinary course of business. The term “Guarantee” used as a verb has a corresponding meaning. The term “Guarantee” shall not apply to a guarantee of intercompany Indebtedness among the Issuer and the Subsidiaries or among the Subsidiaries. “Indebtedness” means, with respect to any Person (without duplication) (a) any obligation of such Person (1) for borrowed money, under any reimbursement obligation relating to a letter of credit (other than letters of credit payable to suppliers in the ordinary course of business), under any reimbursement obligation relating to a financial bond or under any reimbursement obligation relating to a similar instrument or agreement, (2) for the payment of money relating to any obligations under any capital lease of real or personal property, or (3) under any agreement or instrument in respect of an interest rate or currency swap, exchange or hedging transaction or other financial derivatives transaction (other than (i) any such agreements or instruments directly related to Indebtedness otherwise incurred in compliance with the Indenture and (ii) any such agreements as are entered into in the ordinary course of business and are for hedging purposes and not for the obtaining of credit); and (b) any amendment, supplement,



117



modification, deferral, renewal, extension or refunding of any liability of the types referred to in clause (a) above. For the purpose of determining any particular amount of Indebtedness under this definition, Guarantees of (or obligations with respect to letters of credit) Indebtedness otherwise included in the determination of such amount shall not be included. “Initial Public Offering” means the first underwritten issuance and sale for cash of Common Stock of the Issuer to any Person other than an Affiliate of the Issuer pursuant to (i) a public offering in accordance with U.S. or Mexican laws, rules or regulations or (ii) a private offering in accordance with Rule 144A and Regulation S under the Securities Act. “Intangible Assets” means, with respect to the Issuer and its consolidated Subsidiaries, unamortized deferred charges, goodwill, patents, trademarks, service marks, trade names, copyrights, write-ups of assets over their carrying value at the end of each fiscal year, and all other items which would be treated as intangibles on the balance sheet of the Issuer and its consolidated Subsidiaries (except unamortized debt discount and expense), according to MFRS. “Issue Date” means the first date of issuance of notes under the Indenture. “Lien” means any mortgage, pledge, lien or security interest. “MFRS” means Mexican financial reporting standards as in effect from time to time, or any financial reporting standards authorized by the Consejo Mexicano de Normas de Información Financiera – CINIF and applied by the Issuer. “Note Guarantee” means the unconditional and irrevocable Guarantee, on a joint and several basis, of the Issuer's Obligations under the notes and the Indenture provided by a Subsidiary Guarantor pursuant to the Indenture. “Obligations” means, with respect to any Indebtedness any principal, interest (including, without limitation, post-petition interest), penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing such Indebtedness, including in the case of the notes and the Note Guarantees, the Indenture. “Officers' Certificate” means a certificate signed on behalf of the Issuer or a Subsidiary Guarantor, as the case may be, by two officers of the Issuer or such Subsidiary Guarantor, as applicable, one of whom must be the principal executive officer, principal financial officer, treasurer, or principal accounting officer of the Issuer or the Subsidiary Guarantor, as applicable, that meets the requirements set forth in the Indenture. “Operating Property” means, as of any date of determination, any real or tangible property owned by the Issuer or any Subsidiary that constitutes all or any part of any manufacturing facility, warehouse or distribution center and is used in the ordinary course of its business, other than any such property which, individually or, in the case of a series of related transactions, in the aggregate, in the good faith opinion of the board of directors of the Issuer, is not of material importance to the business conducted or assets owned by the Issuer and its Subsidiaries taken as a whole. “Opinion of Counsel” means a written opinion of counsel, who may be an employee of or counsel for the Issuer or any of its Affiliates (except as otherwise provided in the Indenture). “Permitted Holders” means (i) Guillermo Carlos Zambrano Lozano, (ii) a parent, brother or sister of any individual named in clause (i), (iii) the spouse or a former spouse of any individual named in clause (i) or (ii), (iv) the lineal descendants of any person named in clauses (i) through (iii) and the spouse or a former spouse of any such lineal descendant, (v) the estate or any guardian, custodian or other legal representative of any individual named in clauses (i) through (iv), (vi) any trust established principally for the benefit of any one or more of the individuals named in clauses (i) through (v), (vii) any Person in which a majority of the equity interests are owned, directly or indirectly, by any one or more of the Persons named in clauses (i) through (vi). “Person” means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, limited liability company or government or other entity.



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“Ratings Decline” means that, at any time during the period (the “Trigger Period”) commencing on the first public announcement by the Issuer of any Change of Control (or pending Change of Control) and ending 60 days following consummation of such Change of Control (which Trigger Period shall be extended following consummation of a Change of Control for so long as the rating of the notes is under publicly announced consideration for possible downgrade by S&P or Fitch (or any other rating agency) or a substitute or successor of any thereof), the then-applicable rating of the notes is decreased by either S&P or Fitch (or any other rating agency) or a substitute or successor of any thereof; provided that any such ratings decline is in whole or in part in connection with such Change of Control. “Sale and Leaseback Transaction” means an arrangement relating to property now owned or hereafter acquired by the Issuer or any Subsidiary whereby the Issuer or Subsidiary transfers such property with the intention of taking back a lease pursuant to which rental payments are calculated to amortize the purchase price of such property substantially over the useful life thereof and the Issuer or such Subsidiary leases for a period greater than three years from such Person, other than leases between the Issuer and a Subsidiary or between Subsidiaries. “S&P” means Standard & Poor's Investors Ratings Services. “Securities Act” means the U.S. Securities Act of 1933, as amended, or any successor statute or statutes thereto. “Significant Subsidiary” means a Subsidiary of the Issuer constituting a “Significant Subsidiary” of the Issuer in accordance with Rule 1-02(w) of Regulation S-X under the Exchange Act in effect on the date hereof. “Subsidiary” means any corporation or other business entity of which the Issuer owns or controls (either directly or through one or more other Subsidiaries) more than 50% of the issued share capital or other ownership interests, in each case having ordinary voting power to elect or appoint directors, managers or trustees of such corporation or other business entity (whether or not capital stock or other ownership interests or any other class or classes shall or might have voting power upon the occurrence of any contingency). “Voting Stock” means Capital Stock of any Person, the holders of which are ordinarily, in the absence of contingencies, entitled to vote for the election of directors (or persons performing similar functions) of such Person, even if the right to vote has been suspended by the happening of such a contingency. Highly Leveraged Transactions The Indenture does not include any debt covenants or other provisions which afford Holders of the notes protection in the event of a highly leveraged transaction. Reporting Requirements The Issuer will provide the Trustee and the Trustee will provide the Holders with: (i)



annual consolidated financial statements audited by an internationally recognized firm of independent public accountants within 150 days of the end of each fiscal year, and quarterly unaudited consolidated financial statements within 60 days of the end of each of the first three fiscal quarters of each fiscal year, in each case for the Issuer and its Subsidiaries. These annual and quarterly consolidated financial statements will be prepared in accordance with MFRS and such annual consolidated financial statements will be accompanied by a summary management discussion and analysis on the results of operations of the Issuer and its Subsidiaries on a consolidated basis for the periods presented. English translations of any of the foregoing documents prepared in another language will be provided; and



(ii)



copies (including English translations of documents in other languages) of all public filings made by the Issuer with any stock exchange or securities regulatory agency within ten days after filing.



As an alternative to providing the Trustee with the information referred to in clauses (i) and (ii) above, the Issuer may maintain a non-public website or other non-public electronic distribution system to which the beneficial owners of the notes, prospective investors, the Trustee and security analysts are given access and on which the reports and information referred to in clauses (i) and (ii) above are posted and give written notice of each posting to 119



the Trustee; provided, however, that the Issuer may, in its sole discretion, exclude direct competitors, customers and suppliers from access to such website or electronic distribution system. In addition, so long as the notes are listed on the Euro MTF Market, the Issuer will make available the information specified in subparagraphs (i) and (ii) above at the specified office of the Luxembourg paying agent for the notes. Available Information The Issuer shall take all action necessary to provide information to permit resales of the notes pursuant to Rule 144A under the Securities Act, including furnishing to any Holder of a note or beneficial interest in a global note, or to any prospective purchaser designated by such Holder, upon request of such Holder, financial and other information required to be delivered under Rule 144A(d)(4) (as amended from time to time and including any successor provision) unless, at the time of such request, the Issuer is subject to the reporting requirements of Section 13 or Section 15(d) of the Exchange Act or is exempt from such requirements pursuant to Rule 12g3-2(b) under the Exchange Act (as amended from time to time and including any successor provision). Other Covenants The Indenture contains certain other covenants relating to, among other things, the maintenance of corporate existence and maintenance of books and records. Copies of the Indenture are available at the offices of the Trustee and the Luxembourg paying agent and transfer agent. Events of Default The Indenture provides that each of the following events constitutes an Event of Default with respect to the notes: (i)



default in the payment of the principal of or premium, if any, on any note after any such principal or premium becomes due in accordance with the terms thereof, upon redemption or otherwise; or default in the payment of any interest in respect of such notes or Additional Amounts if such default continues for 30 days after any such interest or Additional Amounts becomes or become due in accordance with the terms thereof;



(ii)



failure to observe or perform any other term, agreement, covenant, warranty or obligation contained in the notes or the Indenture not otherwise expressly included as an Event of Default in (i) above, and such failure continues for 60 days after notice, by registered or certified mail or the equivalent thereof in any Relevant Jurisdiction, to the Issuer by the Trustee or to the Issuer and the Trustee by the Holders of at least 25% in principal amount of the outstanding notes, specifying such failure and requiring it to be remedied and stating that such notice constitutes a notice of default under the Indenture;



(iii)



the Issuer or any of its Significant Subsidiaries shall fail to pay when due (whether at maturity, upon redemption or acceleration or otherwise) the principal (including premium) of any Indebtedness in excess, individually or in the aggregate, of US$25,000,000 (or the equivalent thereof in other currencies), if such failure shall continue for more than the original period of grace, if any, applicable thereto and the period for payment has not been expressly extended;



(iv)



a decree or order by a court having jurisdiction shall have been entered adjudging the Issuer or any of its Significant Subsidiaries as bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, concurso mercantil or quiebra of or by the Issuer or any of its Significant Subsidiaries and such decree or order shall have continued undischarged or unstayed for a period of 120 days; or a decree or order of a court having jurisdiction for the appointment of a receiver or liquidator or conciliador or for the liquidation or dissolution of the Issuer or any of its Significant Subsidiaries, shall have been entered, and such decree or order shall have continued undischarged and unstayed for a period of 120 days; provided, however, that any Significant Subsidiary may be



120



liquidated or dissolved if, pursuant to such liquidation or dissolution, all or substantially all of its assets are transferred to the Issuer or another Significant Subsidiary of the Issuer; (v)



the Issuer or any of its Significant Subsidiaries shall institute any proceeding to be adjudicated as voluntary bankrupt, or shall consent to the filing of a bankruptcy proceeding against it, or shall file a petition or answer or consent seeking reorganization, concurso mercantil or quiebra, or shall consent to the filing of any such petition, or shall consent to the appointment of a receiver or liquidator or conciliador or trustee or assignee in bankruptcy or insolvency of it or its property;



(vi)



failure by the Issuer or any of its Significant Subsidiaries to pay one or more final judgments against any of them, aggregating US$25,000,000 or more, which judgment(s) are not paid, discharged or stayed for a period of 60 days or more; or



(vii)



except as permitted by the Indenture, any Note Guarantee is held to be unenforceable or invalid in a judicial proceeding or ceases for any reason to be in full force and effect or any Subsidiary Guarantor, or any Person acting on behalf of any Subsidiary Guarantor, denies or disaffirms such Subsidiary Guarantor's obligations under its Note Guarantee.



If an Event of Default specified in clause (iv) or (v) above shall occur, the maturity of all outstanding notes shall automatically be accelerated and the principal amount of (and premium, if any, on) the notes, together with accrued interest thereon, shall be immediately due and payable. If any other Event of Default shall occur and be continuing, the Trustee or the Holders of not less than 25% of the aggregate principal amount of the notes then outstanding may, by written notice to the Issuer (and to the Trustee if given by Holders), declare the principal amount of (and premium, if any, on) the notes, together with accrued interest thereon, immediately due and payable. The right of the Holders to give such acceleration notice shall terminate if the event giving rise to such right shall have been cured before such right is exercised. Any such declaration may be annulled and rescinded by written notice from the Holders of a majority of the aggregate principal amount of the notes then outstanding to the Issuer if all amounts then due with respect to the notes are paid (other than amount due solely because of such declaration) and all other defaults with respect to the notes are cured. In case the Issuer shall fail to comply with its obligations under the Indenture or the notes and such failure shall be continuing, the Trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the request or direction of any of the Holders, unless such Holders shall have offered to the Trustee indemnity reasonably satisfactory to it. Subject to the immediately preceding sentence, the Holders of a majority in aggregate principal amount of the outstanding notes will have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee, to the extent such action does not conflict with the provisions of the Indenture or applicable law. No Holder of any note will have any right to institute any proceeding with respect to the Indenture or the notes or for any remedy thereunder, unless (i) such Holder has previously given to the Trustee written notice of a continuing Event of Default and (ii) the Holders of at least 25% in aggregate principal amount of the outstanding notes shall have made a written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee, (iii) such Holder or Holders have offered to the Trustee indemnity reasonably satisfactory to it, (iv) the Trustee for 60 days after receipt of such notice has failed to institute any such proceeding and (v) no direction inconsistent with such request shall have been given to the Trustee during such 60-day period by the Holders of a majority in principal amount of the outstanding notes. However, such limitations do not apply to a suit individually instituted by a Holder of a note for enforcement of payment of the principal of, premium, if any, on or interest on (including Additional Amounts) such note on or after respective due dates expressed in such note. Currency Indemnity The Issuer and each Subsidiary Guarantor will pay all sums payable under the Indenture or the notes solely in U.S. Dollars. Any amount that a Holder, the Trustee or any agent appointed under the Indenture receives or recovers in a currency other than U.S. Dollars in respect of any sum expressed to be due to such Holder or other recipient from the Issuer or any Subsidiary Guarantor will only constitute a discharge to us, to the greatest extent permitted under applicable law, to the extent of the U.S. Dollar amount which the Holder or other recipient is able to purchase with the amount received or recovered in that other currency on the date of the receipt or recovery or, if it 121



is not practicable to make the purchase on that date, on the first date on which the Holder or other recipient is able to do so. If the U.S. Dollar amount is less than the U.S. Dollar amount expressed to be due to a Holder under the Indenture or any note, the Issuer and the Subsidiary Guarantors will jointly and severally indemnify the Holder or other recipient against any loss the Holder or other recipient sustains as a result. In any event, the Issuer and the Subsidiary Guarantors will jointly and severally indemnify a Holder or other recipient, as applicable, against the cost of making any purchase of U.S. Dollars. For the purposes of this paragraph, it will be sufficient for a Holder or other recipient to certify in a satisfactory manner that such Holder or other recipient would have suffered a loss had an actual purchase of U.S. Dollars been made with the amount received in that other currency on the date of receipt or recovery or, if it was not practicable to make the purchase on that date, on the first date on which the Holder were able to do so. In addition, the Holder or other recipient will also be required to certify in a satisfactory manner the need for a change of the purchase date. The indemnities described above: (i)



constitute a separate and independent obligation from the other obligations of the Issuer and the Subsidiary Guarantors;



(ii)



will give rise to a separate and independent cause of action;



(iii)



will apply irrespective of any indulgence granted by any Holder; and



(iv)



will continue in full force and effect despite any other judgment, order, claim or proof for a liquidated amount in respect of any sum due under any note.



Defeasance The Issuer may at any time terminate all of its Obligations with respect to the notes (“Defeasance”), except for certain Obligations, including those rights, protections, immunities and indemnities applicable to the Trustee and other agents appointed under the Indenture and those regarding any trust established for a Defeasance, to replace mutilated, destroyed, lost or stolen notes and to maintain agencies in respect of notes. The Issuer may at any time terminate its Obligations under the Indenture with respect to the covenants described above under “––Covenants” (other than the covenant described under “––Covenants––Consolidation, Merger, Sale or Conveyance”), and any omission to comply with such Obligations shall not constitute a default with respect to the notes issued under the Indenture (“Covenant Defeasance”). In order to exercise either Defeasance or Covenant Defeasance, the Issuer must irrevocably deposit in trust, for the benefit of the Holders of the notes, with the Trustee money in U.S. Dollars or U.S. government obligations, or a combination thereof, in such amounts as will be sufficient to pay the principal of, premium, if any, on and interest on (including Additional Amounts) such notes when such payments are due or to the redemption date specified by the Issuer in accordance with the terms of the Indenture without reinvestment and comply with certain other conditions, including: (i)



to exercise Defeasance, (i) the Issuer must deliver to the Trustee an Opinion of Counsel of recognized standing with respect to U.S. federal income tax matters (subject to customary exceptions and exclusions) confirming that (A) the Issuer has received from, or there has been published by, the Internal Revenue Service a ruling or (B) since the Issue Date there has been a change in the applicable U.S. federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the holders of the outstanding notes will not recognize income, gain or loss for U.S. federal income tax purposes as a result of such Defeasance and will be subject to U.S. federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Defeasance had not occurred and (ii) 91 days must pass after the deposit in trust is made; and



(ii)



to exercise Covenant Defeasance, the Issuer must deliver to the Trustee an Opinion of Counsel of recognized standing with respect to U.S. federal income tax matters (subject to customary exceptions and exclusions) confirming that the holders of the outstanding notes will not recognize income, gain or loss for U.S. federal income tax purposes as a result of such Covenant Defeasance and will be subject to U.S. federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred. 122



Notices Notices to Holders of (a) non-global, definitive notes will be given to them by first-class mail, postage prepaid, at their registered addresses set forth in the register maintained by the registrar and (b) global notes will be given to them by delivery of such notices to DTC in accordance with its applicable procedures. In addition, from and after the date the notes are listed on the Euro MTF Market, and so long as it is required by the rules of such exchange, all notices to Holders of notes will be published in English: (i)



in a leading newspaper having a general circulation in Luxembourg (which is expected to be the Luxemburger Wort); or



(ii)



if such Luxembourg publication is not practicable, on the website of the Luxembourg Stock Exchange (http://www.bourse.lu/Accueil.jsp).



Notices shall be deemed to have been given on the date of publication as aforesaid or, if published on different dates, on the date of the first such publication. Amendments and Waivers The Indenture may be amended by the Trustee and the Issuer for the purpose of curing any ambiguity, or of curing, correcting or supplementing any defective provision contained therein, to conform the text of the Indenture, the notes or the Note Guarantees to any provision of this “Description of the Notes” to the extent that such provision in this “Description of the Notes” was intended to be a verbatim recitation of a provision of the Indenture, the Note Guarantees or the notes, to provide for the assumption of the Issuer's or a Subsidiary Guarantor's obligations under the Indenture and the notes or the Note Guarantees, as applicable, as permitted under the Indenture, to add Note Guarantees or to release a Subsidiary Guarantor in accordance with the terms of the Indenture, to secure the notes, or in any manner which may be deemed necessary or desirable and which shall not adversely affect the interests of any of the Holders of the notes in any material respect, to all of which each Holder of the notes shall, by acceptance thereof, consent. Modification and amendments to the Indenture or to the terms and conditions of the notes or the Note Guarantees may also be made, and future compliance therewith or past default by the Issuer (other than a default in the payment of any amount, including in connection with a redemption, due on the notes or in respect of covenant or provision which cannot be modified and amended without the consent of the Holders of all notes so affected) may be waived, either with the written consent (including consents obtained in connection with a tender offer or exchange offer for the notes) of the Holders of at least a majority in aggregate principal amount of outstanding notes, or by the adoption of resolutions at a meeting of Holders of the notes by the Holders of at least a majority in aggregate principal amount of the outstanding notes; provided, however, that no such modification or amendment to either the Indenture or to the terms and conditions of the notes or the Note Guarantees may, without the consent or the affirmative vote of the Holder of each note so affected, that would: (i)



change the stated maturity of the principal of or any installment of interest with respect to any note or reduce the principal amount of or interest with respect to any note;



(ii)



change cash prices at which the notes may be redeemed by the Issuer;



(iii)



reduce the premium payable upon a Change of Control Triggering Event or, at any time after a Change of Control Triggering Event has occurred, change the time at which the Change of Control Offer relating thereto must be made or at which the notes must be repurchased pursuant to such Change of Control Offer;



(iv)



change the currency in which, or change the required place at which, payment with respect to principal of or premium or interest with respect to the notes is payable;



(v)



change the time at which any note may be redeemed;



123



(vi)



reduce the above-stated percentage of principal amount of outstanding notes required to modify or amend the Indenture or the terms or conditions of the notes or the Note Guarantee or to waive any future compliance or past default;



(vii)



make any change in the provisions of the Indenture described under “—Additional Amounts” that adversely affects the rights of any Holder or amend the terms of the notes in a way that would result in a loss of exemption from Taxes;



(viii)



make any change to the provisions of the Indenture or the notes that adversely affect the ranking of the notes; or



(ix)



eliminate or modify in any manner a Subsidiary Guarantor's obligations with respect to its Note Guarantee which adversely affects Holders in any material respect, except as contemplated in the Indenture.



Governing Law; Jurisdiction The notes, the Note Guarantees and the Indenture will be governed by, and construed in accordance with, the laws of the State of New York. The Issuer and the Subsidiary Guarantors have consented to the jurisdiction of the U.S. Federal and New York State courts located in the City of New York, Borough of Manhattan and have appointed an agent for service of process with respect to any actions brought in these courts arising out of or based on the Indenture or the notes. To the extent that either the Issuer or any Subsidiary Guarantor has or hereafter may acquire or have attributed to it or them any sovereign or other immunity under any law, each of the Issuer and each Subsidiary Guarantor has agreed to waive, to the fullest extent permitted by law, such immunity in respect of any claims or actions regarding its or their obligations under the notes or the Note Guarantees, respectively. Form, Denomination and Title The notes will be represented by Regulation S Global Notes (as defined below) and Restricted Global Notes (as defined below) (each sometimes referred to herein as a “global note” and together sometimes referred to herein as the “global notes”). Notes issued in offshore transactions to non-U.S. persons in reliance on Regulation S under the Securities Act will be represented by one or more global notes in definitive, fully registered form without interest coupons (collectively, “Regulation S Global Notes”) and will be deposited with the Trustee as custodian for DTC and registered in the name of DTC or its nominee for the accounts of Euroclear and Clearstream (as indirect participants in DTC). Notes issued to qualified institutional buyers in reliance on Rule 144A under the Securities Act initially will be represented by one or more global notes in definitive, fully registered form without interest coupons (collectively, “Restricted Global Notes”) and will be deposited with the Trustee as custodian for DTC and registered in the name of DTC or its nominee. Restricted Global Notes and Regulation S Global Notes will be subject to certain restrictions on transfer and will bear legends to that effect as described under “Transfer Restrictions.” Prior to or on the 40th day after the settlement date, beneficial interests in Regulation S Global Notes may only be transferred to a person who takes delivery in the form of an interest in Restricted Global Notes upon receipt by the Trustee of a written certification from the transferor (in the form provided in the Indenture) to the effect that such transfer is being made to a person that the transferor reasonably believes is a qualified institutional buyer in a transaction meeting the requirements of Rule 144A and in accordance with any applicable securities laws of any state of the United States or any other jurisdiction. Beneficial interests in Restricted Global Notes may be transferred to a person who takes delivery in the form of an interest in Regulation S Global Notes, whether before, on or after such 40th day, only upon receipt by the Trustee of a written certification from the transferor (in the form provided in the Indenture) to the effect that such transfer is being made in accordance with Rule 903 or Rule 904 of Regulation S. Any beneficial interest in one of the global notes that is transferred to a person who takes delivery in the form of an interest in the other global note 124



will, upon transfer, cease to be an interest in such global note and become an interest in the other global note and, accordingly, will thereafter be subject to all transfer restrictions and other procedures applicable to beneficial interests in such other global note for as long as it remains such an interest. The Issuer has initially appointed the Trustee at its office in New York City specified on the inside back cover hereof as registrar, principal paying agent and transfer agent for the notes. In such capacities, the Trustee will be responsible for, among other things, (i) maintaining a record of the aggregate holdings of notes represented by the global notes and accepting notes for exchange and registration of transfer, (ii) ensuring to the extent lawful that payments of principal and interest in respect of the notes received by the Trustee from the Issuer are duly paid to DTC or its nominee and (iii) transmitting to the Issuer any notices from Noteholders. The notes will be issued only in fully registered form, without coupons, in minimum denominations of US$150,000 and integral multiples of US$1,000 in excess thereof. No service charge will be made for any registration of transfer or exchange of notes, but the Issuer or Trustee or other agent may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Global Notes Upon the issuance of Regulation S Global Notes and Restricted Global Notes, DTC or its custodian will credit, on its internal system, the respective principal amount of the individual beneficial interests represented by such global note to the accounts of persons who have accounts with DTC. Ownership of beneficial interests in a global note will be limited to persons who have accounts with DTC (“DTC Participants”) or persons who hold interests through DTC Participants. Ownership of beneficial interests in the global notes will be shown on, and the transfer of that ownership will be effected only through, records maintained by DTC or its nominee (with respect to interests of DTC Participants) and the records of DTC Participants (with respect to interests of persons other than DTC Participants). So long as DTC, or its nominee, is the registered owner or Holder of such global note, DTC or such nominee, as the case may be, will be considered the sole owner or Holder of the notes represented by such global note for all purposes under the Indenture and the notes. Unless DTC notifies the Issuer that it is unwilling or unable to continue as depositary for a global note or ceases to be a “clearing agency” registered under the Exchange Act, or the Issuer elects to discontinue use of the system of book-entry transfers through DTC or a successor depository, or an Event of Default (as defined above) has occurred and is continuing with respect to such note, owners of beneficial interests in a global note will not be entitled to have any portion of such global note registered in their names, will not receive or be entitled to receive physical delivery of notes in certificated form and will not be considered to be the owners or Holders of any notes under the Indenture or the notes. In addition, no beneficial owner of an interest in a global note will be able to transfer that interest except in accordance with DTC's or its participant's applicable procedures. Investors may hold their interests in Global Notes directly through Euroclear or Clearstream, if they are participants in such systems, or indirectly through organizations that are participants in such systems. Euroclear and Clearstream will hold interests in the Global Notes on behalf of their participants through customers' securities accounts in their respective names on the books of their respective depositaries, which in turn will hold such interests in Global Notes in customers' securities accounts in the depositaries' names on the books of DTC. Payments of the principal and interest on individual notes represented by a global note registered in the name of DTC or its nominee will be made to DTC or its nominee, as the case may be, as the registered owner of the global note representing such notes. None of the Issuer, the Trustee or any paying agent will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in the global notes or for maintaining, supervising, or reviewing any records relating to such beneficial ownership interests. The Issuer expects that DTC or its nominee, upon receipt of any payment of principal or interest in respect of a global note representing any notes held by it or its nominee, will credit DTC Participants' accounts with payments in amounts proportionate to their respective beneficial interests in the principal amount of such global note as shown on the records of DTC or its nominee. The Issuer also expects that payments by DTC Participants to owners of beneficial interests in such global note held through such DTC Participants will be governed by standing instructions and customary practices, as is now the case with securities held for the accounts of customers registered in the names of nominees for such customers. Such payments will be the responsibility of such DTC Participants.



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Transfers between DTC Participants will be effected in accordance with DTC rules and procedures and will be settled in same-day funds. Transfers between participants in Euroclear and Clearstream will be effected in accordance with their respective rules and procedures. The laws of some states require that certain persons take physical delivery of securities in definitive form. Consequently, the ability to transfer beneficial interests in a global note to such persons may be limited because DTC can only act on behalf of DTC Participants, who in turn act on behalf of indirect participants and certain banks. Accordingly, the ability of a person having a beneficial interest in a global note to pledge such interest to persons or entities that do not participate in the DTC system, or otherwise take actions in respect of each interest, may be affected by the lack of a physical certificate for such interest. Subject to compliance with the transfer restrictions applicable to the notes described above and under “Transfer Restrictions,” cross-market transfers between DTC, on the one hand, and directly or indirectly through Euroclear or Clearstream participants, on the other, will be effected in DTC in accordance with DTC rules and procedures on behalf of Euroclear or Clearstream, as the case may be, by its respective depositary; however, such cross-market transactions will require delivery of instructions to Euroclear or Clearstream, as the case may be, by the counterparty in such system in accordance with its rules and procedures and within its established deadlines (Brussels, Belgium time). Euroclear or Clearstream, as the case may be, will, if the transaction meets its settlement requirements, deliver instructions to its respective depositary to take action to effect final settlement on its behalf by delivering or receiving interests in Global Notes in DTC, and making or receiving payment in accordance with normal procedures for same-day funds settlement applicable to DTC. Euroclear participants and Clearstream participants may not deliver instructions directly to the depositaries for Euroclear or Clearstream. Because of time zone differences, the securities account of a Euroclear or Clearstream participant purchasing an interest in a global note from a DTC Participant will be credited during the securities settlement processing day (which must be a business day for Euroclear or Clearstream, as the case may be) immediately following the DTC settlement date, and the credit of any transactions in interests in a global note settled during such processing will be reported to the relevant Euroclear or Clearstream participant on such day. DTC has advised the Issuer that it will take any action permitted to be taken by a Holder of notes (including, without limitation, the presentation of notes for transfer or exchange as described below) only at the direction of one or more DTC Participants to whose account with DTC interests in the global notes are credited and only in respect of such portion of the aggregate principal amount of the notes as to which such Participant or Participants has or have given such direction. However, in the limited circumstances described herein, DTC will exchange the global notes for certificated notes in definitive form, which it will distribute to DTC Participants and which, if representing interests in the Restricted Global Notes, will be legended as set forth under “Transfer Restrictions.” See “— Certificated Notes.” DTC has advised the Issuer as follows: DTC will act as the depositary for the notes. The notes will be issued as fully registered senior notes registered in the name of Cede & Co., which is DTC's nominee. Fully registered global notes will be issued for the notes, in the aggregate principal amount of the issue, and will be deposited with DTC. DTC is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Exchange Act. DTC holds securities that its participants deposit with DTC. DTC also facilitates the settlement among participants of securities transactions, including transfers and pledges, in deposited securities through electronic computerized book-entry changes to participants' accounts, thereby eliminating the need for physical movement of notes certificates. Direct participants of DTC include securities brokers and dealers, including the initial purchasers of the notes, banks, trust companies, clearing corporations and certain other organizations. DTC is owned by a number of its direct participants and by the New York Stock Exchange, Inc. and the Financial Industry Regulatory Authority, Inc. Access to DTC's system is also available to indirect participants, which includes securities brokers and dealers, banks and trust companies that clear through or maintain a custodial relationship with a direct participant, either directly or indirectly. The rules applicable to DTC and its participants are on file with the SEC.



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To facilitate subsequent transfers, all global notes representing the notes which are deposited with, or on behalf of, DTC are registered in the name of DTC's nominee, Cede & Co. The deposit of global notes with, or on behalf of, DTC and their registration in the name of Cede & Co. effect no change in beneficial ownership. DTC has no knowledge of the actual beneficial owners of the global notes representing the notes; DTC's records reflect only the identity of the direct participants to whose accounts the notes are credited, which may or may not be the beneficial owners. The participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to direct participants, by direct participants to indirect participants, and by direct and indirect participants to beneficial owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Neither DTC nor Cede & Co. will consent or vote with respect to the global notes representing the notes. Under its usual procedure, DTC mails an omnibus proxy to the Issuer as soon as possible after the applicable record date. The omnibus proxy assigns Cede & Co.'s consenting or voting rights to those direct participants to whose accounts the notes are credited on the applicable record date (identified in a listing attached to the omnibus proxy). DTC may discontinue providing its services as securities depositary with respect to the notes at any time by giving reasonable notice to the Issuer or the Trustee. Under such circumstances, in the event that a successor securities depositary is not obtained, certificated notes are required to be printed and delivered. See “—Certificated Notes.” The Issuer may decide to discontinue use of the system of book-entry transfers through DTC or a successor securities depositary. In that event, certificated notes will be printed and delivered. See “—Certificated Notes.” Although DTC, Euroclear and Clearstream have agreed to the procedures described above in order to facilitate transfers of interests in the global notes among participants of DTC, Euroclear and Clearstream, they are under no obligation to perform or continue to perform these procedures, and these procedures may be discontinued at any time. None of the Trustee, the registrar, any paying agent or the Issuer will have any liability or responsibility for the performance by DTC, Euroclear or Clearstream or their respective participants or indirect participants of their respective obligations under the rules and procedures governing their operations. Certificated Notes If DTC is at any time unwilling or unable to continue as a depositary for the reasons set forth under “—Global Notes” above and a successor depositary is not appointed by the Issuer within 90 days, the Issuer elects to discontinue use of the system of book-entry transfers through DTC or a successor securities depository, or an Event of Default has occurred and is continuing with respect to the notes, the Issuer will issue individual definitive notes, having the same maturity date and the same terms and conditions and of differing authorized denominations which will have the same aggregate principal amount, in registered form in exchange for Regulation S Global Notes and Restricted Global Notes, as the case may be, and will bear the applicable restrictive legend referred to in “Transfer Restrictions,” unless the Issuer determines otherwise in accordance with Indenture and in compliance with applicable law. Upon any exchange for certificated notes, the certificated notes shall be registered in the names of the beneficial owners of the global notes representing the notes, which names shall be provided by DTC's relevant participants (as identified by DTC) to the Trustee. The Holder of a definitive note may transfer such note by surrendering it at the office or agency maintained by the Issuer for such purpose in the Borough of Manhattan, The City of New York, which initially will be the office of the Trustee or at the office of any transfer agent or the registrar. Upon the transfer, exchange or replacement of definitive notes bearing the legend referred to under “Transfer Restrictions,” or upon specific request for removal of the legend on a definitive note, the Issuer will deliver only definitive notes that bear such legend, or will refuse to remove such legend, as the case may be, unless there is delivered to the Issuer such satisfactory evidence, which may include an opinion of counsel, as may reasonably be required by the Issuer, that neither the legend nor the restrictions on transfer set forth therein are required to ensure compliance with the provisions of the Securities Act. Neither the Trustee nor any registrar or transfer agent shall be required to register the transfer of or exchange definitive notes for a period from the record date to the due date for any payment of principal of, or interest on, the



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notes or register the transfer of or exchange any notes for 15 days prior to selection for redemption through the date of redemption. Prior to presentment of a note for registration of transfer (including a global note), the Issuer, the Trustee and any agent of the Issuer or the Trustee may treat the person in whose name such note is registered as the owner or Holder of such note for the purpose of receiving payment of principal or interest on such note and for all other purposes whatsoever, whether or not such note is overdue, and none of the Issuer, the Trustee or any agent of the Issuer or the Trustee shall be affected by notice to the contrary. Replacement of Notes In the event that any note shall become mutilated, defaced, destroyed, lost or stolen, the Issuer will execute and, upon the Issuer's request, the Trustee will authenticate and deliver, a new note of like tenor (including the same date of issuance) and equal principal amount, registered in the same manner, and bearing interest from the date to which interest has been paid on such note, in exchange and substitution for such note (upon surrender and cancellation thereof) or in lieu of and substitution for such note. In the event that such note is destroyed, lost or stolen, the applicant for a substitute note shall furnish to the Issuer and the Trustee security or indemnity satisfactory to them to hold each of them harmless, and, in every case of destruction, loss or theft of such note, the applicant shall also furnish to the Issuer and the Trustee satisfactory evidence of the destruction, loss or theft of such note and of the ownership thereof. Upon the issuance of any substituted note, the Issuer may require the payment by the registered holder thereof of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other fees and expenses (including the fees and expenses of the Trustee) connected therewith. Trustee Wilmington Trust, National Association is the Trustee, registrar, paying agent and transfer agent under the Indenture. The Trustee's office is located at 166 Mercer Street, Ste 2R, New York, NY 10012, United States. The Trustee's function is to exercise its rights and powers granted to it under the Indenture to protect the interests of the Holders. The Trustee may resign at any time with notice, and the holders of a majority of the outstanding principal amount of notes may remove the Trustee at any time by so notifying the Trustee. The Issuer will remove the Trustee if (i) the Trustee is no longer eligible, (ii) the Trustee is adjudged bankrupt or insolvent, (iii) a receiver or other public officer takes charge of the Trustee or its property or (iv) the Trustee otherwise becomes incapable of acting under the Indenture. If the Trustee resigns or is otherwise removed, the Holders may appoint a new trustee, and if they do not do so in a timely manner, the Issuer shall appoint a new trustee. The Issuer may have normal banking relationships with Wilmington Trust, National Association and its Affiliates in the ordinary course of business. The Indenture contains provisions for the indemnification of the Trustee and for its relief from responsibility. The obligations of the Trustee to any Holder of notes are subject to such immunities and rights as are set forth in the Indenture. The Trustee and any of its Affiliates may hold notes in their own respective names.



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TRANSFER RESTRICTIONS The notes have not been and will not be registered under the Securities Act and may not be offered or sold within the United States or to, or for the account or benefit of U.S. persons except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. Accordingly, the notes are being offered hereby only (a) to “qualified institutional buyers” (as defined in Rule 144A under the Securities Act), or QIBs, in compliance with Rule 144A under the Securities Act and (b) in offers and sales that occur outside the United States to persons other than U.S. persons (“non-U.S. purchasers,” which term shall include dealers or other professional fiduciaries in the United States acting on a discretionary basis for non-U.S. beneficial owners (other than an estate or trust)), in offshore transactions meeting the requirements of Rule 903 of Regulation S. As used herein, the terms “offshore transactions,” “United States” and “U.S. person” have the respective meanings given to them in Regulation S. Each purchaser of notes will be deemed to have represented and agreed with us and the initial purchasers as follows: (1) It is purchasing the notes for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is (a) a QIB, and is aware that the sale to it is being made in reliance on Rule 144A under the Securities Act or (b) a non-U.S. purchaser that is outside the United States (or a non-U.S. purchaser that is a dealer or other fiduciary as referred to above); (2) It understands that the notes are being offered in a transaction not involving any public offering in the United States within the meaning of the Securities Act, that the notes have not been and will not be registered under the Securities Act, and that the notes may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except as set forth below; (3) It shall not resell or otherwise transfer any of such notes except: 



to Metalsa or any of its subsidiaries;







pursuant to a registration statement which has been declared effective under the Securities Act;







within the United States to a QIB in compliance with Rule 144A under the Securities Act;







outside the United States to non-U.S. purchasers in offshore transactions meeting the requirements of Rule 903 or Rule 904 of Regulation S under the Securities Act; or







pursuant to another available exemption from the registration requirements of the Securities Act;



(4) It agrees that it will give notice of any restrictions on transfer of such notes to each person to whom it transfers the notes; (5) It understands that the certificates evidencing the notes (other than the Regulation S global notes) will bear a legend substantially to the following effect unless otherwise determined by us: THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE OR OTHER SECURITIES LAWS, AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT IN ACCORDANCE WITH THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF (1) REPRESENTS THAT IT, AND ANY ACCOUNT FOR WHICH IT IS ACTING, (A) IS A “QUALIFIED INSTITUTIONAL BUYER” (WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT) OR (B) IS NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN “OFFSHORE TRANSACTION” PURSUANT TO RULE 903 OR 904 OF REGULATION S AND, WITH RESPECT TO (A) AND (B), EXERCISES SOLE INVESTMENT DISCRETION WITH RESPECT TO SUCH ACCOUNT, (2) AGREES FOR THE BENEFIT OF THE COMPANY THAT IT WILL NOT OFFER, SELL, PLEDGE OR OTHERWISE 129



TRANSFER THIS SECURITY OR ANY BENEFICIAL INTEREST HEREIN, EXCEPT (A) (I) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (II) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BECOME EFFECTIVE UNDER THE SECURITIES ACT, (III) TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (IV) IN AN OFFSHORE TRANSACTION COMPLYING WITH THE REQUIREMENTS OF RULE 903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT OR (V) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT (IF AVAILABLE), AND (B) IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES OF THE UNITED STATES AND OTHER JURISDICTIONS, AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. AS USED HEREIN, THE TERMS “OFFSHORE TRANSACTION,” “UNITED STATES” AND “U.S. PERSON” HAVE THE RESPECTIVE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. PRIOR TO THE REGISTRATION OF ANY TRANSFER IN ACCORDANCE WITH PARAGRAPH 2A(V) ABOVE, THE COMPANY RESERVES THE RIGHT TO REQUIRE THE DELIVERY OF SUCH LEGAL OPINIONS, CERTIFICATIONS, OR OTHER EVIDENCE AS MAY REASONABLY BE REQUIRED IN ORDER TO DETERMINE THAT THE PROPOSED TRANSFER IS BEING MADE IN COMPLIANCE WITH THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS. NO REPRESENTATION IS MADE AS TO THE AVAILABILITY OF ANY EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THIS LEGEND SHALL ONLY BE REMOVED AT THE OPTION OF THE ISSUER. (6) If it is a non-U.S. purchaser acquiring a beneficial interest in a Regulation S global note offered pursuant to this offering memorandum, it acknowledges and agrees that, until the expiration of the 40 day “distribution compliance period” within the meaning of Regulation S, any offer, sale, pledge or other transfer shall not be made by it in the United States or to, or for the account or benefit of, a U.S. person, except pursuant to Rule 144A to a QIB taking delivery thereof in the form of a beneficial interest in a U.S. global note, and that each Regulation S global note will contain a legend to substantially the following effect: PRIOR TO EXPIRATION OF THE 40-DAY DISTRIBUTION COMPLIANCE PERIOD (AS DEFINED IN REGULATION S (“REGULATION S”) UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”)), THIS SECURITY MAY NOT BE REOFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES (AS DEFINED IN REGULATION S) OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, A U.S. PERSON (AS DEFINED IN REGULATION S), EXCEPT TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT IN A TRANSACTION MEETING THE REQUIREMENTS OF THE INDENTURE REFERRED TO HEREIN. (7) It acknowledges that the foregoing restrictions apply to holders of beneficial interests in the notes, as well as holders of the notes; (8) It acknowledges that Metalsa will not be required to accept for registration of transfer any notes acquired by it, except upon presentation of evidence satisfactory to Metalsa that the restrictions set forth herein have been complied with; and (9) It acknowledges that Metalsa, the trustee, the initial purchasers and others will rely upon the truth and accuracy of the foregoing acknowledgments, representations and agreements and agrees that if any of the acknowledgments, representations or agreements deemed to have been made by its purchase of the notes are no longer accurate, it shall promptly notify Metalsa, the trustee and the initial purchasers. If it is acquiring the notes as a fiduciary or agent for one or more investor accounts, it represents that it has sole investment discretion with respect to each such account and it has full power to make the foregoing acknowledgments, representations and agreements on behalf of each such account. In addition, if it is a person in any Member State of the European Economic Area that has implemented the Prospectus Directive (each, a “Relevant Member State”), who receives any communication in respect of, or who



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acquires any notes under, the offers contemplated in this offering memorandum, it will be deemed to have represented, warranted and agreed to and with each initial purchaser and Metalsa that: (a) it is a qualified investor within the meaning of the law in that Relevant Member State implementing Article 2(1)(e) of the Prospectus Directive; and (b) in the case of any notes acquired by it as a financial intermediary, as that term is used in Article 3(2) of the Prospectus Directive, (i) the notes acquired by it in the offer have not been acquired on behalf of, nor have they been acquired with a view to their offer or resale to, persons in any Relevant Member State other than qualified investors, as that term is defined in the Prospectus Directive, or in circumstances in which the prior consent of the initial purchasers has been given to the offer or resale; or (ii) where notes have been acquired by it on behalf of persons in any Relevant Member State other than qualified investors, the offer of those notes to it is not treated under the Prospectus Directive as having been made to such persons. For the purposes of this representation, the expression an “offer to the public” in relation to any notes in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and any notes to be offered so as to enable an investor to decide to purchase or subscribe for the notes, as the same may be varied in that Relevant Member State by any measure implementing the Prospectus Directive in that Relevant Member State and the expression “Prospectus Directive” means Directive 2003/71/EC (and amendments thereto, including the 2010 PD Amending Directive, to the extent implemented in the Relevant Member State), and includes any relevant implementing measure in the Relevant Member State and the expression “2010 PD Amending Directive” means Directive 2010/73/EU.



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TAXATION General The following summary contains a description of the material U.S. and Mexican federal income tax consequences of the purchase, ownership and disposition of the notes by holders that are non-resident of Mexico for tax purposes. This summary is based upon federal tax laws of the United States and Mexico as in effect on the date of this offering memorandum, including the provisions of the income tax treaty between the United States and Mexico, which we refer to in this offering memorandum as the Tax Treaty, all of which are subject to change. This summary does not purport to be a comprehensive description of all the U.S. or Mexican federal income tax considerations that may be relevant to a decision to purchase, hold or dispose of the notes. The summary does not address any tax consequences under the laws of any state or municipality of Mexico or the United States or the laws of any taxing jurisdiction other than the federal laws of Mexico and the United States. Prospective investors should consult their own tax advisors as to the Mexican and United States tax consequences of the purchase, ownership and disposition of notes, including, in particular, the effect of any foreign (non-Mexican and non-U.S.), state, municipal or local tax laws. The tax implications described herein may vary depending on the applicability of a treaty for the avoidance of double taxation. Mexico has also entered into or is negotiating several double taxation treaties with various countries that may have an impact on the tax treatment of the purchase, ownership or disposition of notes. Prospective purchasers of notes should consult their own tax advisors as to the tax consequences, if any, of the application of any such treaties. Mexican Federal Tax Considerations General The following is a general summary of the principal Mexican federal income tax consequences of the purchase, ownership and disposition of the notes by holders that are not residents of Mexico, for Mexican federal income tax purposes, and that do not hold such notes through a permanent establishment for tax purposes in Mexico, to which income under the notes is attributable; for purposes of this summary, each such holder is referred to as a foreign holder. This summary is based on the Mexican Income Tax Law (Ley del Impuesto sobre la Renta) and regulations in effect on the date of this offering memorandum, all of which are subject to change, possibly with retroactive effect, or to new or different interpretations, which could affect the continued validity of this general summary. This summary does not address all of the Mexican tax consequences that may be applicable to specific holders of the notes and does not purport to be a comprehensive description of all the Mexican tax considerations that may be relevant to a decision to purchase, own or dispose of the notes. In particular, this summary does not describe any tax consequences arising under the laws of any state, municipality or taxing jurisdiction other than certain federal tax laws of Mexico. Potential investors should consult with their own tax advisors regarding the particular consequences of the purchase, ownership or disposition of the notes under the federal laws of Mexico or any other jurisdiction or under any applicable double taxation treaty to which Mexico is a party, which is in effect. For purposes of Mexican taxation, an individual or corporation that does not satisfy the requirements to be considered a resident of Mexico for tax purposes, as specified below, is deemed as a non-resident of Mexico for tax purposes and a foreign holder for purposes of this summary. An individual is a resident of Mexico for tax purposes, if he/she established his/her home in Mexico. When the individual in question has a home in another country, the individual will be deemed a resident in Mexico if his/her center of vital interests is located in Mexican territory. This will be deemed to occur if (i) more than 50% of the aggregate income realized by such individual in the calendar year is from a Mexican source, or (ii) the principal 132



center of his/her professional activities is located in Mexico. Mexican nationals who filed a change of tax residence to a country or jurisdiction that does not have a comprehensive exchange of information agreement with Mexico and where his/her income is subject to a preferred tax regime, as defined by Mexican law, will be considered Mexican residents for tax purposes during the year of the filing of notice of such residence change and during the following three years. Unless otherwise proven, a Mexican national is deemed a resident of Mexico for tax purposes. A legal entity is a resident of Mexico if it maintains the principal administration of its business or the effective location of its management in Mexico. If a legal entity or an individual is deemed to have a permanent establishment in Mexico for Mexican tax purposes, any and all income attributable to that permanent establishment will be subject to Mexican income taxes, in accordance with applicable tax laws. The maximum income tax rate currently applicable to both individuals and legal entities is 30.0% Payments of Interest Pursuant to the Mexican Income Tax Law, payments of interest on the notes (including original issue discount, which is deemed to be interest) made by us to foreign holders will be subject to Mexican withholding tax at the current rate of 4.9%, if, as expected, the following requirements are met: 



the issuance of the notes (including the principal characteristics of the notes) is notified to the CNBV pursuant to Article 7 of the Mexican Securities Market Law;







the notes, as expected, are placed outside of Mexico in a public offering through banks or brokerage houses, in a country with which Mexico has in force a treaty for the avoidance of double taxation which is in effect (which currently includes the United States); and







we timely file with the Servicio de Administración Tributaria or SAT, fifteen days after the placement of the notes, information regarding such placement, and on a quarterly basis, information, among other things, setting forth that no party related to us, jointly or individually, directly or indirectly, is the effective beneficiary of more than 5% of the aggregate amount of each interest payment, and we maintain records that evidence compliance with this requirement.



If any of the above-mentioned requirements is not met, the Mexican withholding tax will be 10.0% or higher. As of the date of this offering memorandum, the Tax Treaty is not expected to have any effect on the Mexican tax consequences described in this summary, because, as described above, under Mexico’s Income Tax Law, we expect to be entitled to withhold taxes in connection with interest payments under the notes at the current 4.9% rate. Payments of interest on the notes made by us to non-Mexican pension and retirement funds will be exempt from Mexican withholding tax provided that: 



the applicable fund is duly incorporated pursuant to the laws of its country of residence and is the effective beneficiary of the interest payment;







such income is exempt from taxes in its country of residence; and







such fund is registered with the SAT in accordance with rules issued by SAT for these purposes.



Holders or beneficial owners of the notes may be requested to, subject to specified exceptions and limitations, provide certain information or documentation necessary to enable us to apply the appropriate Mexican withholding tax rate on interest payments under the notes made by us to such holders or beneficial owners. In the event that the specified information or documentation concerning the holder or beneficial owner, if requested, is not timely provided, we may withhold Mexican tax from interest payments on the notes to that holder or beneficial owner at the maximum applicable rate in effect, and our obligation to pay Additional Amounts relating to those withholding taxes will be limited as described under “Description of the Notes—Additional Amounts.”



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Payments of Principal Under the Mexican Income Tax Law, payments of principal on the notes made by us or by to foreign holders will not be subject to any Mexican withholding tax. Taxation of Capital Gains Under the Mexican Income Tax Law, capital gains resulting from the sale or other disposition of the notes by a foreign holder to another foreign holder are not taxable in Mexico. Gains resulting from the sale of the notes by a foreign holder to a Mexican resident for tax purposes or to a foreign holder deemed to have a permanent establishment in Mexico for tax purposes, will be subject to the Mexican taxes pursuant to the rules described above with respect to interest payments. Other Mexican Taxes Under current Mexican tax laws, generally there are no estate, inheritance, succession or gift taxes applicable to the purchase, ownership or disposition of the notes by a foreign holder. Gratuitous transfers of the notes in certain circumstances may result in the imposition of a Mexican federal tax upon the recipient. There are no Mexican stamp, issue, registration or similar taxes or duties payable by foreign holders of the notes with respect to the notes or the issuance of the notes. Certain Material U.S. Federal Income Tax Considerations To ensure compliance with Internal Revenue Service (“IRS”) Circular 230, prospective investors are hereby notified that: (a) any discussion of U.S. federal tax issues contained or referred to in this offering memorandum or any document referred to herein is not intended or written to be used, and cannot be used by prospective investors for the purpose of avoiding penalties that may be imposed on them under the United States Internal Revenue Code of 1986, as amended (the “Code”); (b) such discussion is written for use in connection with the promotion or marketing of the transactions or matters addressed herein; and (c) prospective investors should seek advice based on their particular circumstances from an independent tax advisor. The following is a general summary of certain material U.S. federal income tax consequences of the ownership and disposition of the notes. This summary is limited to “U.S. Holders” (as defined below) of the notes that purchase the notes at the original issuance, at their “issue price” (as defined below) and who hold the notes as capital assets (within the meaning of the Code). This summary is based upon provisions of the Code and U.S. Treasury regulations, rulings and judicial decisions as of the date hereof. Those authorities may be changed, or differing interpretations may be issued, perhaps retroactively, so as to result in United States federal income tax consequences different from those summarized below. We have not and will not seek any rulings from the Internal Revenue Service (“IRS”) regarding the matters discussed herein. There can be no assurance that the IRS will not take positions concerning the tax consequences of the ownership or disposition of the notes that are different from those discussed herein or that a court will not agree with any such positions. This summary does not address all aspects of U.S. federal income taxation that may be relevant to a particular holder or to certain types of holders subject to special treatment, such as persons subject to certain U.S. federal income tax laws regarding expatriates, dealers in securities or foreign currency, financial institutions, insurance companies, tax-exempt organizations, real estate investment trusts, regulated investment companies, partnerships, pass-through entities or persons that hold the notes through partnerships or pass through entities, U.S. Holders whose functional currency is not the U.S. Dollar, or persons who hold the notes as part of a “straddle,” “hedge,” “conversion transaction,” “synthetic security” or other integrated investment. In addition, this summary does not address alternative minimum tax consequences or the indirect effects on holders of interests in a holder of the notes. This summary also does not describe any tax consequences arising under the laws of any taxing jurisdiction other than the U.S. federal government and does not describe any U.S. tax considerations other than income tax considerations (e.g. federal estate or gift tax considerations). Each investor should consult its own tax advisor with respect to the U.S. federal, state, local and non-U.S. tax consequences of the ownership and disposition of the notes.



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As used in this section, the term “U.S. Holder” means a beneficial owner of the notes that is for U.S. federal income tax purposes: (i) a citizen or individual resident of the United States; (ii) a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States or any state thereof (including the District of Columbia); (iii) any estate the income of which is subject to U.S. federal income tax regardless of its source; or (iv) any trust if (A) a court within the United States is able to exercise primary supervision over its administration and one or more U.S. persons have the authority to control all substantial decisions of the trust or (B) the trust made a valid election, which remains in effect, under applicable U.S. Treasury regulations to be treated as a U.S. person. If a partnership (or other entity treated as a partnership for U.S. federal income tax purposes) holds notes, the tax treatment of a partner generally will depend upon the status of the partner and the activities of the partnership. A partner in a partnership that acquires or holds the notes should consult its own tax advisers. If you are considering the purchase of notes, you should consult your own tax advisors concerning the particular United States federal income tax consequences to you regarding ownership of the notes, as well as the consequences to you arising under the laws of any other taxing jurisdiction. Contingent Payment Debt Obligations Certain debt instruments that provide for one or more contingent payments are subject to U.S. Treasury regulations governing contingent payment debt instruments. A payment is not treated as a contingent payment under these regulations if, as of the issue date of the debt instrument, the likelihood that such payment will be made is remote and/or the payments are incidental. In certain circumstances as set forth in the Description of the Notes, we may be required to redeem the notes for an amount that is in excess of the stated interest or principal of the notes. Although the issue is not free from doubt, we intend to take the position that the possibility that any such payment will be made is remote and/or the payments are incidental and therefore the notes are not subject to the rules governing contingent payment debt instruments. Our determination that these contingencies are remote and/or incidental is binding on you unless you disclose your contrary position to the IRS in the manner that is required by applicable U.S. Treasury regulations. Our determination is not, however, binding on the IRS. It is possible that the IRS might take a different position from that described above, in which case the timing, character and amount of taxable income in respect of the notes may differ adversely from that described herein. The remainder of this discussion assumes that the notes will not be treated as contingent payment debt instruments. Stated Interest The amount of stated interest payments on a note will generally be taxable to you as ordinary income at the time it accrues or is received in accordance with your method of accounting for federal income tax purposes. In addition to interest on the notes, you will be required to include in income any Additional Amounts and any tax withheld from the interest payments you receive, even if you do not in fact receive this withheld tax. You may be entitled to deduct or credit this tax, subject to certain limitations (including that the election to deduct or credit non-U.S. taxes applies to all of your non-U.S. taxes for a particular tax year). Interest income (including Mexican taxes withheld from the interest payments and any Additional Amounts) on a note generally will be considered foreign source income and generally should constitute “passive category income.” You may be denied a foreign tax credit for non-U.S. taxes imposed with respect to the notes where you do not meet a minimum holding period requirement during which you are not protected from risk of loss. The rules governing the foreign tax credit are complex. You are urged to consult your tax advisors regarding the availability of the foreign tax credit under your particular circumstances. Sale, Exchange and Retirement of Notes Your adjusted tax basis in a note will, in general, be your cost for that note reduced (but not below zero) by payments, if any, you have previously received (other than payments of stated interest) on such note. Upon the sale, exchange, retirement or other disposition of a note, you will recognize gain or loss equal to the difference between the amount you realize upon the sale, exchange, retirement or other disposition (including any make-whole amount received upon redemption, but less an amount equal to any accrued but unpaid interest, which will be taxable as interest income to the extent not previously included in income) and the adjusted tax basis of the note. Such gain or 135



loss will be capital gain or loss and will generally be treated as United States source gain or loss (unless the applicable provisions in the U.S.-Mexican income tax treaty provide otherwise). Consequently, you may not be able to claim a credit for any Mexican tax imposed upon a disposition of a note unless such credit can be applied (subject to applicable limitations) against tax due on other income treated as derived from foreign sources. Capital gains of individuals derived with respect to capital assets held for more than one year are eligible for reduced rates of taxation. The deductibility of capital losses is subject to limitations. Medicare Contribution Tax on Unearned Income Certain U.S. Holders who are individuals, estates or trusts to pay an additional 3.8% tax on, among other things, interest on the notes and capital gain from the sale or other taxable disposition of the notes. U.S. Holders should consult their tax advisors regarding the effect, if any, of this legislation on their ownership and disposition of the notes. Backup Withholding and Information Reporting Generally, information reporting requirements will apply to all payments we make to a U.S. Holder and the proceeds from a sale of a note paid to a U.S. Holder unless such U.S. Holder is an “exempt recipient” (such as a corporation). To avoid the imposition of backup withholding, a U.S. Holder should (i) provide its taxpayer identification number, (ii) certify that it is not subject to backup withholding, and (iii) otherwise comply with the applicable requirements of the backup withholding rules. Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules will be allowed as a refund or a credit against a holder’s United States federal income tax liability, provided the required information is furnished to the IRS. You should consult your own tax advisors about any tax reporting or filing obligations you may have as a result of acquiring, owning or disposing of the notes.



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PLAN OF DISTRIBUTION Citigroup Global Markets Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated are acting as initial purchasers. The addresses of each of the initial purchasers are as follows: Citigroup Global Markets Inc., 390 Greenwich Street, New York, NY 10013, United States and Merrill Lynch, Pierce, Fenner & Smith Incorporated, 4 World Financial Center, North Tower, New York, NY 10080, United States. Subject to the terms and conditions stated in the purchase agreement, dated April 17, 2013, each initial purchaser named below has severally and not jointly agreed to purchase, and we have agreed to sell to the initial purchasers, the principal amount of the notes set forth opposite such initial purchaser's name. Initial Purchaser Citigroup Global Markets Inc. .....................................................................................................



Principal Amount of Notes US$150,000,000



Merrill Lynch, Pierce, Fenner & Smith Incorporated ..................................................................



US$150,000,000



Total ............................................................................................................................................



US$300,000,000



Subject to the terms and conditions set forth in the purchase agreement, the initial purchasers have agreed to purchase all of the notes sold under the purchase agreement if any notes are purchased. If an initial purchaser defaults, the purchase agreement provides that the purchase commitments of the non-defaulting initial purchasers may be increased or the purchase agreement may be terminated. We have agreed to indemnify the initial purchasers and their controlling persons against certain liabilities in connection with this offering, including liabilities under the Securities Act, or to contribute to payments the initial purchasers may be required to make in respect of those liabilities. The initial purchasers are offering the notes, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of legal matters by their counsel, including the validity of the notes, and other conditions contained in the purchase agreement, such as the receipt by the initial purchasers of officer's certificates and legal opinions. The initial purchasers reserve the right to withdraw, cancel or modify offers to the public and to reject orders in whole or in part. The initial purchasers have advised us that they propose initially to offer the notes at the offering price set forth on the cover page of this offering memorandum and to certain dealers at that price less a selling concession. After the initial offering, the offering price, concession or any other term of the offering may be changed. The initial purchasers may offer and sell notes through certain of their affiliates. Notes Are Not Being Registered The notes have not been registered under the Securities Act, or the securities law of any other jurisdiction, and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons (as defined in Regulation S) except in transactions exempt from, or not subject to, the registration requirements of the Securities Act. Each purchaser of the notes will be deemed to have made acknowledgements, representations and agreements as described under “Transfer Restrictions.” In connection with sales outside the United States, each of the initial purchasers has agreed that it will not offer, sell or deliver the notes to, or for the account of, U.S. persons (unless in reliance on Rule 144A) (i) as part of their distribution at any time or (ii) otherwise until 40 days after the later of the commencement of the offering and the closing date, and it will send to each dealer to whom it sells such notes during such period a confirmation or other notice setting forth the restrictions on offers and sales of the notes within the United States or to, or for the account or benefit of, U.S. persons. Resales of the notes are restricted as described below under “Transfer Restrictions.”



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Further, until 40 days after the commencement of the offering, an offer or sale of the notes within the United States by a dealer whether or not participating in the offering may violate the registration requirements of the Securities Act if such offer or sale is made otherwise than in accordance with Rule 144A. New Issue of Notes The notes will constitute a new issue of securities with no established trading market. Application will be made to list the notes on the Official List of the Luxembourg Stock Exchange and for trading on the Euro MTF Market. However, we cannot assure you that the listing application will be approved. We have been advised by the initial purchasers that they presently intend to make a market in the notes after completion of the offering. However, they are under no obligation to do so and may discontinue any market-making activities at any time without any notice. We cannot assure the liquidity of the trading market for the notes. If an active trading market for the notes does not develop, the market price and liquidity of the notes may be adversely affected. If the notes are traded, they may trade at a discount from their initial offering price, depending on prevailing interest rates, the market for similar securities, our operating performance and financial condition, general economic conditions and other factors. Settlement We expect that delivery of the notes will be made to investors on or about April 24, 2013, which will be the fifth business day following the date of this offering memorandum (such settlement being referred to as T+5). Under Rule 15c6-1 under the Securities Exchange Act of 1934, trades in the secondary market are required to settle in three business days, unless the parties to any such trade expressly agree otherwise. Accordingly, purchasers who wish to trade notes prior to the delivery of the notes hereunder may be required, by virtue of the fact that the notes initially settle in T+5, to specify an alternative settlement arrangement at the time of any such trade to prevent a failed settlement. Purchasers of the notes who wish to trade the notes prior to their date of delivery hereunder should consult their advisers. No Sales of Similar Securities We and our subsidiary guarantors have agreed that for a period of 30 days after the date of this offering memorandum, we and our subsidiary guarantors will not without first obtaining the prior written consent of the initial purchasers, offer, sell, pledge, otherwise dispose of, or enter into any transaction which is designed to, or might reasonably be expected to, result in the disposition (whether by actual disposition or effective economic disposition due to cash settlement or otherwise) by us or any of our affiliates or any person in privity with us or any of our affiliates, directly or indirectly, or announce the offering, of any debt securities issued or guaranteed by us or any of our subsidiary guarantors, except for the notes sold to the initial purchasers pursuant to the purchase agreement. Short Positions In connection with the offering, the initial purchasers may purchase and sell the notes in the open market. These transactions may include short sales and purchases on the open market to cover positions created by short sales. Short sales involve the sale by the initial purchasers of a greater principal amount of notes than they are required to purchase in the offering. The initial purchasers must close out any short position by purchasing notes in the open market. The initial purchasers may also impose a penalty bid. This occurs when a particular initial purchaser repays to the underwriters a portion of the underwriting discount received by it because the representatives have repurchased notes sold by or for the account of such underwriter in stabilizing or short covering transactions. Similar to other purchase transactions, purchases by the initial purchasers to cover the syndicate short sales may have the effect of raising or maintaining the market price of the notes or preventing or retarding a decline in the market price of the notes. As a result, the price of the notes may be higher than the price that might otherwise exist in the open market. Neither we nor the initial purchasers make any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of the notes. In addition, neither we nor



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the initial purchasers make any representation that the representatives will engage in these transactions or that these transactions, once commenced, will not be discontinued without notice. Other Relationships The initial purchasers and their respective affiliates are full service financial institutions engaged in various activities, which may include sales and trading, commercial and investment banking, advisory, investment management, investment research, principal investment, hedging, market making, brokerage and other financial and non-financial activities and services. The initial purchasers and their affiliates have provided, and may in the future provide, a variety of these services to us and to persons and entities with relationships with us, for which they received or will receive customary fees and expenses. Affiliates of Citigroup Global Markets Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated are lenders under certain of our credit arrangements, a portion of which will be repaid with the net proceeds of this offering. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Indebtedness” and “Use of Proceeds.” In addition, in the ordinary course of their business activities, the initial purchasers and their affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers. Such investments and securities activities may involve securities and/or instruments of ours or our affiliates. Certain of the initial purchasers or their affiliates that have a lending relationship with us routinely hedge their credit exposure to us consistent with their customary risk management policies. Typically, such initial purchasers and their affiliates would hedge such exposure by entering into transactions which consist of either the purchase of credit default swaps or the creation of short positions in our securities, including potentially the notes offered hereby. Any such short positions could adversely affect future trading prices of the notes offered hereby. The initial purchasers and their affiliates may also make investment recommendations and/or publish or express independent research views in respect of such securities or financial instruments and may hold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments. Sales Outside the United States Neither we nor the initial purchasers are making an offer to sell, or seeking offers to buy, the notes in any jurisdiction where the offer and sale is not permitted. You must comply with all applicable laws and regulations in force in any jurisdiction in which you purchase, offer or sell the notes or possess or distribute this offering memorandum, and you must obtain any consent, approval or permission required for your purchase, offer or sale of the notes under the laws and regulations in force in any jurisdiction to which you are subject or in which you make such purchases, offers or sales. Neither we nor the initial purchasers will have any responsibility therefor. Notice to Prospective Investors in Mexico The notes have not been and will not be registered with the National Securities Registry maintained by the CNBV, and may not be offered or sold publicly in Mexico, except pursuant to the private placement exemption set forth in article 8 of the Mexican Securities Market Law. We will notify the CNBV of the terms and conditions of this offering as required under applicable law and for informational purposes only. Delivery or receipt of such notice does not constitute or imply a certification as to the investment quality of the notes, our solvency, liquidity or credit quality or the accuracy or completeness of the information set forth in this offering memorandum. This offering memorandum is solely our responsibility and has not been reviewed or authorized by the CNBV. Notice to Prospective Investors in the EEA In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a “Relevant Member State”), with effect from and including the date on which the Prospectus Directive is implemented in that Relevant Member State (the “Relevant Implementation Date”) no offer of notes may be made to the public in that Relevant Member State other than: A.



to any legal entity which is a qualified investor as defined in the Prospectus Directive;



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B.



to fewer than 100 or, if the Relevant Member State has implemented the relevant provision of the 2010 PD Amending Directive, 150, natural or legal persons (other than qualified investors as defined in the Prospectus Directive), as permitted under the Prospectus Directive, subject to obtaining the prior consent of the initial purchasers; or



C.



in any other circumstances falling within Article 3(2) of the Prospectus Directive,



provided that no such offer of notes shall require us or the initial purchasers to publish a prospectus pursuant to Article 3 of the Prospectus Directive or supplement a prospectus pursuant to Article 16 of the Prospectus Directive. This offering memorandum has been prepared on the basis that any offer of notes in any Relevant Member State will be made pursuant to an exemption under the Prospectus Directive from the requirement to publish a prospectus for offers of notes. Accordingly any person making or intending to make an offer in that Relevant Member State of notes which are the subject of the offering contemplated in this offering memorandum may only do so in circumstances in which no obligation arises for us or any of the initial purchasers to publish a prospectus pursuant to Article 3 of the Prospectus Directive in relation to such offer. Neither we nor the initial purchasers have authorized, nor do they authorize, the making of any offer of notes in circumstances in which an obligation arises for us or the initial purchasers to publish a prospectus for such offer. For the purpose of the above provisions, the expression “an offer to the public” in relation to any notes in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the notes to be offered so as to enable an investor to decide to purchase or subscribe the notes, as the same may be varied in the Relevant Member State by any measure implementing the Prospectus Directive in the Relevant Member State and the expression “Prospectus Directive” means Directive 2003/71/EC (including the 2010 PD Amending Directive, to the extent implemented in the Relevant Member States) and includes any relevant implementing measure in the Relevant Member State and the expression “2010 PD Amending Directive” means Directive 2010/73/EU. Notice to Prospective Investors in United Kingdom This communication is only being distributed to and is only directed at (i) persons who are outside the United Kingdom or (ii) investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “Order”) or (iii) high net worth companies, and other persons to whom it may lawfully be communicated, falling within Article 49(2)(a) to (d) of the Order (all such persons together being referred to as “relevant persons”). The notes are only available to, and any invitation, offer or agreement to subscribe, purchase or otherwise acquire such notes will be engaged in only with, relevant persons. Any person who is not a relevant person should not act or rely on this document or any of its contents. Notice to Prospective Investors in Switzerland This offering memorandum, as well as any other material relating to the notes which are the subject of the offering contemplated by this offering memorandum, do not constitute an issue prospectus pursuant to Article 652a of the Swiss Code of Obligations. The notes will not be listed on the SWX Swiss Exchange and, therefore, the documents relating to the notes, including, but not limited to, this document, do not claim to comply with the disclosure standards of the listing rules of the SWX Swiss Exchange and corresponding prospectus schemes annexed to the listing rules of the SWX Swiss Exchange. The notes are being offered in Switzerland by way of a private placement (i.e., to a small number of selected investors only, without any public offer and only to investors who do not purchase the notes with the intention to distribute them to the public). The investors will be individually approached by the initial purchasers from time to time. This document, as well as any other material relating to the notes, is personal and confidential and do not constitute an offer to any other person. This document may only be used by those investors to whom it has been provided in connection with the offering described herein and may neither directly nor indirectly be distributed or made available to other persons without our express consent. It may not be used in connection with any other offer and shall in particular not be copied and/or distributed to the public in (or from) Switzerland. 140



Notice to Prospective Investors in Japan The notes have not been and will not be registered under the Securities and Exchange Law of Japan (the “Securities and Exchange Law”) and, accordingly, each initial purchaser has undertaken that it will not offer or sell any notes, directly or indirectly, in Japan or to, or for the benefit of any resident of Japan (which term as used herein means any person resident in Japan, including any corporation or other entity organized under the laws of Japan), or to others for re-offering or resale, directly or indirectly, in Japan or to a resident of Japan except pursuant to an exemption from the registration requirements of, and otherwise in compliance with, the Securities and Exchange Law and any other applicable laws, regulations and ministerial guidelines of Japan. For purposes of this paragraph, “resident of Japan” shall have the meaning as defined under the Foreign Exchange and Foreign Trade Law of Japan. Notice to Prospective Investors in Hong Kong This offering memorandum has not been approved by or registered with the Securities and Futures Commission of Hong Kong or the Registrar of Companies of Hong Kong. No person may offer or sell in Hong Kong, by means of any document, any notes other than (i) to “professional investors” as defined in the Securities and Futures Ordinance (Cap. 571) of Hong Kong and any rules made under that Ordinance; or (ii) in other circumstances which do not result in the document being a “prospectus” as defined in the Companies Ordinance (Cap. 32) of Hong Kong or which do not constitute an offer to the public within the meaning of that Ordinance. No person may issue or have in its possession for the purposes of issue, whether in Hong Kong or elsewhere, any advertisement, invitation or document relating to the notes which is directed at, or the contents of which are likely to be accessed or read by, the public of Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to notes which are or are intended to be disposed of only to persons outside Hong Kong or to “professional investors” as defined in the Securities and Futures Ordinance and any rules made under that Ordinance or to any persons in the circumstances referred to in paragraph (ii) above. Notice to Prospective Investors in Singapore This offering memorandum has not been registered as a prospectus with the Monetary Authority of Singapore (the “MAS”) under the Securities and Futures Act, Chapter 289 of Singapore (the “Securities and Futures Act”). Accordingly, this offering memorandum and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the notes may not be circulated or distributed, nor may the notes be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to the public or any member of the public in Singapore other than (a) to an institutional investor pursuant to Section 274 of the Securities and Futures Act, (b) to a relevant person, or any person pursuant to Section 275(1A) of the Securities and Futures Act, and in accordance with the conditions specified in Section 275 of the Securities and Futures Act, or (c) pursuant to, and in accordance with the conditions of, any other applicable provision of the Securities and Futures Act. Each of the following relevant persons specified in Section 275 of the Securities and Futures Act which has subscribed or purchased notes, namely a person who is: (i) a corporation (which is not an accredited investor) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or (ii) a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary is an accredited investor, should note that shares, debentures and units of shares and debentures of that corporation or the beneficiaries' rights and interest in that trust shall not be transferable for 6 months after that corporation or that trust has acquired the notes under Section 275 of the Securities and Futures Act except: (a) to an institutional investor under Section 274 of the Securities and Futures Act or to a relevant person, or any person pursuant to Section 275(1A) of the Securities and Futures Act, and in accordance with the conditions, specified in Section 275 of the Securities and Futures Act; (b) where no consideration is given for the transfer; or (c) by operation of law.



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ENFORCEMENT OF CIVIL LIABILITIES We are a sociedad anónima de capital variable (a limited liability corporation) organized under the laws of Mexico. Most of our directors, executive officers and controlling persons named herein are non-residents of the United States and substantially all of the assets of such non-resident persons and a significant portion of all of our assets are located in Mexico or elsewhere outside the United States. As a result, it may not be possible for investors to effect service of process within the United States upon such persons or us or to enforce against them or us in courts of any jurisdiction outside Mexico, judgments predicated upon the laws of any such jurisdiction, including any judgment predicated substantially upon the civil liability provisions of United States federal and state securities laws. We have appointed CT Corporation System, New York, New York, as an agent to receive service of process with respect to any action brought against us in any federal or state court in the State of New York arising from this offering. No treaty exists between the United States and Mexico for the reciprocal enforcement of judgments issued in the other country. Generally, Mexican courts would enforce final judgments rendered in the United States if certain requirements were met, including the review in Mexico of the U.S. judgment to ascertain compliance with certain basic principles of due process and the non-violation of Mexican law or public policy, provided that U.S. courts would grant reciprocal treatment to Mexican judgments. Additionally, there is doubt as to the enforceability, in original actions in Mexican courts, of liabilities predicated, in whole or in part, on U.S. federal securities laws and as to the enforceability in Mexican courts of judgments of U.S. courts obtained in actions predicated on the civil liability provisions of U.S. federal securities laws.



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LISTING AND GENERAL INFORMATION Clearing Systems Application has been made to have the notes accepted for clearance through Euroclear and Clearstream. In addition, application has been made to have the notes accepted for trading in book-entry form by DTC. For the Rule 144A notes, the ISIN number is US59132VAA61, the CUSIP number is 59132V AA6 and the common code is 092227936. For the Regulation S notes, the ISIN number is USP6638MAA91, the CUSIP number is P6638M AA9 and the common code is 092219291. The notes have been accepted for clearing and settlement. Listing Application is expected to be made to the Luxembourg Stock Exchange, for the notes to be listed on the Official List of the Luxembourg Stock Exchange and traded on the EuroMTF, a market of the Luxembourg Stock Exchange. Copies of our by-laws, the by-laws of our Subsidiary Guarantors, the indenture which contains the terms of the subsidiary guarantees, as may be amended or supplemented from time to time, the registration rights agreement, our published annual audited consolidated financial statements and quarterly unaudited consolidated financial statements will be available at our expense at our principal executive offices, as well as at the offices of the trustee, registrar, paying agent and transfer agent, and at the offices of the Luxembourg listing agent, paying agent and transfer agent, as such addresses are set forth in this offering memorandum. Our Subsidiary Guarantors do not publish separate non-consolidated financial statements. Their financial statements are consolidated with ours when we publish financial statements. We do not publish non-consolidated financial statements. We believe the auditor’s reports included herein have been accurately reproduced. We will maintain a paying and transfer agent in Luxembourg for so long as any of the notes are listed on the Luxembourg Stock Exchange. The notes have not been and will not be listed in the BMV or registered with the National Securities Registry and therefore the notes may not be offered or sold publicly, or otherwise be the subject of brokerage activities in Mexico, except pursuant to a private placement exemption set forth under Article 8 of the Mexican Securities Market Law. Authorization We have obtained all necessary consents, approvals and authorizations in connection with the issuance and performance of the notes. On April 9, 2013, our shareholders authorized the issuance of the notes. No Material Adverse Change Except as disclosed in this offering memorandum, there has been no material adverse change in the financial position or prospectus of us and our subsidiaries taken as a whole since December 31, 2012.



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LEGAL MATTERS The validity of the notes will be passed upon for us by Paul Hastings LLP, our United States counsel, and for the initial purchasers by Clifford Chance US LLP, United States counsel to the initial purchasers. Certain matters of Mexican law relating to the notes will be passed upon for us by González Calvillo, S.C., our special Mexican counsel, and for the initial purchasers by Ritch Mueller, S.C., special Mexican counsel to the initial purchasers.



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INDEPENDENT ACCOUNTANT The audited consolidated financial statements as of December 31, 2012 and 2011 and for the years ended December 31, 2012, 2011 and 2010, together with the notes thereto, included in this offering memorandum have been audited by KPMG Cárdenas Dosal, S.C., independent accountant, as stated in their report appearing herein



145



INDEX TO FINANCIAL STATEMENTS Annual Consolidated Financial Statements



Page



Independent Auditor’s Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Statements of Financial Position at December 31, 2012 and 2011 . . . . . . . . . . . . Consolidated Statements of Income for the years ended December 31, 2012, 2011 and 2010 . . . Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2012, 2011 and 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Statements of Cash Flows for the years ended December 31, 2012, 2011 and 2010 Notes to the Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .



F-1



. . .



F-2 F-4 F-5



. . .



F-6 F-7 F-8



Independent Auditors’ Report



The Board of Directors and Stockholders Metalsa, S.A. de C.V.: We have audited the accompanying consolidated financial statements of Metalsa, S. A. de C. V. and subsidiaries ("the Company"), which comprise the consolidated statements of financial position as of December 31, 2012 and 2011, and the consolidated statements of income, changes in equity and cash flows for the years ended December 31, 2012, 2011 and 2010, and notes, comprising a summary of significant accounting policies and other explanatory information. Management's responsibility for the consolidated financial statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with Mexican Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditors' responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.



F-2



Metalsa, S.A. de C.V. 2.



Opinion In our opinion, the consolidated financial statements give a true and fair view in all material respects, of the consolidated financial position of Metalsa, S. A. de C. V. and subsidiaries as of December 31, 2012 and 2011, and of their consolidated results of their operations and their consolidated cash flows for the years ended December 31, 2012, 2011 and 2010 in accordance with Mexican Financial Reporting Standards. Other Matter Previously, and on March 13, 2012 and February 28, 2011, we issued our audit report on the consolidated financial statements as of December 31, 2011 and December 31, 2010, respectively, and for the years then ended in accordance with auditing standards generally accepted in Mexico. As required by the Mexican Institute of Public Accountants, International Standards on Auditing (ISAs) are mandatory in Mexico for audits of financial statements commencing on January 1, 2012; consequently, our audit report on the figures of the consolidated financial statements for 2012, 2011 and 2010 is issued on the basis of ISAs. KPMG Cardenas Dosal, S.C.



José Luis Hernández García February 28, 2013.



F-3



METALSA, S. A. DE C.V. AND SUBSIDIARIES Consolidated Statements of Financial Position December 31, 2012 and 2011 (Thousands of US Dollars) Assets



2012



Current assets: Cash and cash equivalents (includes cash equivalents for $85,193 in 2012 and $55,048 in 2011) Accounts receivable, net (note 8) Inventories (note 10) Derivative financial instruments (note 7) Prepaid expenses (note 11)



$



157,972 315,064 174,744 463 7,589



94,443 274,639 116,474 10,783



655,832



496,339



419,376 17,598 10,507 34 13,935



395,590 24,449 11,195 6,610 13,935



$



1,117,282



948,118



$



75,026 5,653 4,077 291,134



11,601 2,942 147 7,517 254,684



375,890



276,891



161,007 4,751 10,073 638 13,372



163,572 2,899 4,715 9,535



565,731



457,612



13,685 53,359 497,033 (12,526)



13,685 53,359 427,399 (3,937)



551,551



490,506



1,117,282



948,118



Total current assets Property, plant and equipment, net (note 13) Deferred tax assets (note 21) Other assets, net (note 14) Equity in associated Company (note 12) Derivative financial instruments (note 7) Goodwill



Liabilities and Stockholders’ Equity Current liabilities: Current installments of notes payable to bank and long-term debt (note 15) Current portion of obligations under capital leases (note 16) Derivative financial instruments (note 7) Deferred revenue, short-term (note 18) Accounts payable and accrued liabilities (note 17)



2011



Total current liabilities Notes payable to bank, long-term debt, excluding current installments (note 15) Obligations under capital leases, excluding current installments (note 16) Deferred tax liabilities (note 21) Deferred revenue, long-term (note 18) Employee benefits (note 19) Total liabilities Stockholders’ equity (note 20): Common stock Additional paid-in capital Retained earnings Cumulative currency translations effect Total stockholders’ equity Contingencies and commitments (note 23) $



See accompanying notes to consolidated financial statements. F-4



METALSA, S. A. DE C.V. AND SUBSIDIARIES Consolidated Statements of Income Years ended December 31, 2012, 2011 and 2010 (Thousands of US Dollars)



Revenues Cost of sales



$



Gross profit Selling, general and administrative expenses Operating income



2012



2011



2010



1,807,173 1,534,386



1,572,399 1,340,289



1,212,993 1,033,046



272,787



232,110



179,947



89,498



87,701



66,134



183,289



144,409



113,813



Other (income) expenses



(3,851)



10,796



9,356



Comprehensive financial results: Interest expense Interest gain Currency exchange loss (gain), net Derivative financial instruments valuation gain (note 7) Monetary position gain



21,560 (627) 6,333 (1,617) (5,528)



16,293 (531) (2,255) (296) (2,599)



18,549 (1,364) 3,105 (4,662) (1,278)



20,121



10,612



14,350



(6,079)



(5,666)



(3,036)



173,098



128,667



93,143



15,042 35,837



10,855 28,517



16,421 (6,844)



50,879



39,372



9,577



122,219



89,295



83,566



Comprehensive financial results, net Equity investment in associate company Income before income taxes Income taxes (note 21): Current Deferred Total income taxes Net income



$



See accompanying notes to consolidated financial statements.



F-5



F-6



$



13,685



See accompanying notes to consolidated financial statements.



Balances at December 31, 2012



-



Comprehensive income



(32,585)



Reimbursement to stockholders (note 20a)



-



32,585



Increase in common stock (note 20a)



Dividends to stockholders (note 20a)



13,685



-



Net comprehensive income



Balances at December 31, 2011



-



(15,147)



Reimbursement to stockholders (note 20a)



Dividends to stockholders (note 20a)



3,834



24,998



-



Contributions to common stock (note 20a)



Balances at December 31, 2010



Net comprehensive income



(7,000)



Reimbursement to stockholders (note 20a)



1,998 30,000



$



Contributions to common stock (note 20a)



Balances at December 31, 2009



Common stock



53,359



-



-



-



-



53,359



-



-



-



-



53,359



-



-



-



53,359



Additional paid-in capital



(Thousands of US Dollars)



497,033



122,219



(20,000)



-



(32,585)



427,399



89,295



(38,000)



-



-



376,104



83,566



-



-



292,538



Retained earnings



Years ended December 31, 2012, 2011 and 2010



Consolidated Statements of Changes in Stockholders’ Equity



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



(12,526)



(8,589)



-



-



-



(3,937)



(7,964)



-



-



-



4,027



4,027



-



-



-



Cumulative currency translation effect



551,551



113,630



(20,000)



(32,585)



-



490,506



81,331



(38,000)



(15,147)



3,834



458,488



87,593



(7,000)



30,000



347,895



Total stockholders’ equity



METALSA, S. A. DE C.V. AND SUBSIDIARIES Consolidated Statements of Cash Flows Years ended December 31, 2012, 2011 and 2010 (Thousands of US Dollars) 2012 Cash flow from operating activities: Net income Depreciation and amortization Impairment reversal Derivative financial instruments Unrealized foreign exchange (gain) loss (Gain) loss on sale of property, plant and equipment Deferred income tax loss (gain) Sales of trade accounts receivable Equity investment in associate company Income taxes Interest expense, net



$



Subtotal



2011



122,219 69,133 (1,617) (1,816) (193) 35,837 (6,079) 15,042 20,933



89,295 65,482 (296) 3,403 1,868 28,517 15,389 (5,666) 10,856 15,762



2010 83,566 65,191 (9,941) (4,662) (954) 3,963 (6,356) 26,157 (3,036) 16,421 17,185



253,459



224,610



187,534



(13,201) (30,008) (12,237) (48,363) 2,895 26,545 7,405 (7,516) (14,267) 3,660 (2,431)



(67,765) (9,819) (14,129) (5,492) 5,212 151 60,102 (28,006) 12,232 (1,696) 2,092 (238)



(36,911) (31,415) (26,691) (20,566) (16,697) (6,958) 50,913 520 4,622 (1,140) 3,650 (561)



165,941



177,254



106,300



(95,176) 2,182 (4,159)



(63,330) (4,570) 7,916 1,560



(33,198) (134,725) 786 3,076



(97,153)



(58,424)



(164,061)



(32,585) 70,301 (8,284) (20,000) (12,638) (2,193)



(15,147) 3,834 370,340 (395,592) (284) (38,000) (16,139) (2,311)



(7,000) 30,000 220,000 (133,747) 306 (16,967) (2,373)



Net cash flows (used in) provided by financing activities



(5,399)



(93,299)



90,219



Net increase in cash and cash equivalents



63,389



25,531



32,458



Accounts receivable Recoverable taxes Trade accounts receivable held for sale Inventories and spare parts Tooling inventory Prepaid expenses Suppliers Other accounts payable Inmobiliaria Proeza Monterrey, S.A. de C.V. Deferred revenue Income taxes paid Labor cost Payments for termination and retirement benefits Net cash provided by operating activities Cash flows from investing activities: Purchase of property, plant and equipment Cash invested in business acquisition Dividends received from associates Change in other non-current assets, net Net cash used in investing activities Cash flows from financing activities: Common stock reimbursement Contributions for common stock Proceeds from debt Repayments of debt Derivative financial instruments Dividends paid Interest paid Capital lease



Effects from cash value changes



140



Cash and cash equivalents: At beginning of year At end of year



$



See accompanying notes to consolidated financial statements.



F-7



(5,953)



(351)



94,443



74,865



42,758



157,972



94,443



74,865



METALSA, S.A. DE C.V. AND SUBSIDIARIES Notes Consolidated to Financial Statements December 31, 2012 and 2011 (Thousands of US Dollars) (1)



Description of business The principal activity of Metalsa, S.A. de C.V. and subsidiaries (the Company or Metalsa) is the manufacture and sale of frames (chassis), heavy truck side rails, fuel tanks and steel stamped parts for the automotive industry, mainly for the North American Free Trade Agreement (NAFTA) market. There are three facilities in Mexico, four in the United States, two in Brazil and Australia and one in Argentina, India and Venezuela; and a joint venture agreement in England.



(2)



Financial statements presentation On February 28, 2013, Company’s management authorized the issuance of the accompanying consolidated financial statements and related notes thereto. In accordance with the General Corporations Law and the Company’s bylaws, the stockholders are empowered to modify the financial statements after issuance. The accompanying consolidated financial statements will be submitted to the next Stockholders’ Meeting for approval. The accompanying consolidated financial statements have been prepared in accordance with Mexican Financial Reporting Standards (MFRS) in effect as of the statement of financial position date (see note 5). The aforementioned financial statements are presented in US Dollars which is the Company’s functional currency in its subsidiaries located in Mexico and the United States of America; sales in these countries account for 76% of revenues. As detailed in note 6, these consolidated financial statements were prepared using the functional currency which is the same as the reporting currency, but different from the recording currency used in all the countries for legal and tax purposes, except in the United States of America.



(3)



Outstanding events On May 2, 2012, the Company paid dividends in cash totaling $20,000 to Grupo Proeza, S.A. de C.V. In January 2012, the Company incorporated a new subsidiary in Thailand. The approximate investment in the Tahiland’s new facility is for $12,000, which is expected to be completed during the first quarter of 2013 and become operational in the second quarter of 2013. On November 30, 2011, the Company paid dividends in cash totaling $38,000 to Grupo Proeza, S.A. de C.V. On February 17, 2010, a resolution was passed to increase the variable portion of the common stock in $30,000, to fund the business acquisition mentioned in the following paragraph. On March 8, 2010, the Company finalized the purchase of several facilities included in the structural products business of Dana Holding Corporation (“Dana”) (NYSE:DAN – Acquired Entity) (see note 22). On May 2010, the Company opened its manufacturing facility in India. The total investment was approximately $35,000.



F-8



METALSA, S.A. DE C.V. AND SUBSIDIARIES Notes Consolidated to Financial Statements (Thousands of US Dollars)



(4)



Summary of significant accounting policies The preparation of financial statements requires management to make a number of estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Significant items subject to such estimates and assumptions include, the carrying amount of property, plant and equipment; valuation allowances for receivables, inventories and deferred income tax assets; valuation of derivative financial instruments; and liabilities related to employee benefits. Actual results could differ from those estimates and assumptions. For disclosure purposes, “USD” or “$” means US Dollars, currency of the United States of America, “EUR” means Euro and “MXP” means Mexican Pesos. Significant accounting policies applied in the preparation of the accompanying financial statements follow: (a)



Principles of consolidation The consolidated financial statements include the financial statements of Metalsa, S.A. de C.V. and its majority owned (over 50%) and/or controlled subsidiaries. All significant inter-company balances and transactions have been eliminated in consolidation. The consolidation was based on the audited financial statements of the issuing companies as of December 31, 2012 and 2011, which have been prepared in accordance with MFRS. The principal subsidiaries are the following: Ownership Metalsa Automotive USA, Inc.



100%



-



Metalsa Structural Products Inc.



100%



-



Metalsa Roanoke, Inc.



100%



- Metalsa Light Trucks, Inc. Metalsa Brasil Industria e Comercio de Autopecas, Ltda



100% 100%



Automotive Quality Europe B.V. -



100%



Metalsa Argentina, S.A.



100%



F-9



Principal activity • Holding of Metalsa Structural Products Inc. • Manufacturing and sale of light vehicle chassis frames. • Manufacturing and sale of heavy truck side rails. • Sequence center services. • Manufacturing and sale of heavy truck side rails. • Management and development of technology and know-how related to the manufacture of automotive products. • Manufacturing and sale of light vehicle chassis frames.



METALSA, S.A. DE C.V. AND SUBSIDIARIES Notes Consolidated to Financial Statements (Thousands of US Dollars) Ownership Metalsa Australia Pty Ltd Metalsa Canada Holding, Inc. - Soluciones Estructurales Venezuela, C.A.



100% 100% de



100%



Metalsa India Private Limited



100%



Grupo Metalsa S. A. de C. V.



100%



Perfektools, S.A. de C.V.



100%



Metalsa Thailand Co., Ltd.



100%



Metalsa Chassis Systems Limited



100%



Principal activity • Manufacturing and sale of light vehicle chassis frames. • Holding of Metalsa Venezuela. • Manufacturing and sale of light vehicle chassis frames. • Manufacturing and sale of heavy truck side rails. • Administrative services. • Manufacturing and stamping of tools and dies. • Manufacturing and sale of heavy truck side rails. • Holding of 50% of Chassis Systems Limited (Joint Venture).



(b) Translation of foreign currency financial statements The financial statements of the consolidated foreign subsidiaries are translated into the reporting currency by initially identifying if the functional currency of the foreign operations are different from the reporting currency, if this is the case, such financial statements are translated using the exchange rates at year end and the inflation index of the country of origin, depending on whether the information comes from a non-inflationary or an inflationary economy in accordance with MFRS B-10 “Inflation effects”. As of December 31, 2012, 2011 and 2010, the Company recognized the effects of inflation in the financial statements of its subsidiaries in Argentina and Venezuela. The monetary position result recognized in the statement of income represents the gain or loss from holding monetary assets and liabilities in high-inflationary environments and is calculated applying the inflation rate of the country where the subsidiary operates to its net monetary position (monetary assets less monetary liabilities). (c) Cash and cash equivalents Cash and cash equivalents consist of checking accounts, and other highly liquid instruments. At the date of the consolidated financial statements, interest income and foreign exchange gains and losses are included in the results of the period, under comprehensive financial results. As of December 31, 2012 and 2011, there were restricted cash (short-term) $12,685 and $13,250 related to the purchase agreement of Dana manufacturing facilities. (d) Derivatives financial instruments The Company utilizes derivatives to hedge financial risks in its normal course of business. Currently, its most significant exposure comes from the variability in the MXP to USD exchange rate, since the Company incurs in certain expenses in MXP, which are hedged through a series of “zero-cost collars”. As required by the MFRS C-10 ‘Financial Derivative Instruments and Hedging Activities’, the Company recognizes all derivatives in the statement of financial position at estimated fair value. Fair value is calculated based on prices quoted in active markets for identical assets and/or based on techniques and models generally accepted in the financial industry using observable inputs.



F-10



METALSA, S.A. DE C.V. AND SUBSIDIARIES Notes Consolidated to Financial Statements (Thousands of US Dollars)



All derivatives used to hedge the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, are considered fair value hedges; derivatives utilized to hedge the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges; and, derivatives used to hedge translation risks attributable to foreign investments, are considered hedging of the foreign currency exposure of a net investment in a foreign subsidiary. For accounting purposes, (1) in derivatives classified as fair value hedges, the gain or loss on the instrument as well as the offsetting loss or gain of the attributable hedged item shall be recognized in income in the same accounting period; (2) in derivatives classified as a cash flow hedges, the effective portion of the gain or loss on a derivative instrument shall be recognized in other comprehensive income and reclassified into income in the same period or periods during which the hedged forecasted transaction affects income, the remaining instrument gain or loss, if any, shall be recognized in income; (3) when hedging an investment in a foreign subsidiary, the gain or loss shall be reported in other comprehensive income as part of the cumulative translation adjustment; (4) when a derivative is designated for trading, the gain or loss on the instrument shall be recorded in income. Metalsa does not enter into derivative transactions for speculation purposes; it has designated its derivatives as cash flow hedges of forecasted transactions and, in order to comply with MFRS C-10, it formally documents its hedging activities and measures the effectiveness, both prospectively (at inception) and retrospectively (an ongoing basis). The Company discontinues hedge accounting when the derivative has expired or is sold, terminated or exercised, and also when the relationship is no longer highly effective in offsetting changes in the hedged item. The policy of Metalsa is to enter into derivative transactions only with institutions with high credit ratings. (e)



Embedded derivatives The Company reviews its different contracts to identify the existence of embedded derivatives. Identified embedded derivatives are analyzed to determine if they need to be bifurcated from the host contract, and recognized in the statement of financial position as assets or liabilities, applying the same valuation rules as with other derivative instruments.



  (f)



Accounts receivable, net Accounts receivable are reported at fair value, net of provisions for returns and discounts and the allowance for doubtful accounts.



(g) Inventories and cost of sales Inventories are valued using the lower of cost and realizable value. The cost of inventories includes expenditures incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing them to their existing location and condition. The Company analyzes its inventory balances to determine if, as a result of internal events, such as physical damage, or external events, such as technological changes or market conditions, certain portions of such balances have become obsolete or impaired. When an impairment situation arises, the inventory balance is adjusted to its net realizable value and, if an obsolescence situation occurs, the inventory obsolescence reserve is increased. In both cases, these adjustments are recognized against the results of the period.



F-11



METALSA, S.A. DE C.V. AND SUBSIDIARIES Notes Consolidated to Financial Statements (Thousands of US Dollars)



Cost of sales represents the cost of inventories at the time of sale, increased, as applicable, by reductions in the net realizable value of inventories during the year. The Company recognizes the necessary allowances for inventory impairment arising from damaged, obsolete and slow-moving inventories or any other reason indicating that the carrying amount will exceed the future revenues expected from the use or realization of the inventory items. (h) Equity accounted investments Equity accounted investments in which the Company holds 50% of their capital stock, are accounted for by the equity method based on the financial statements of the investees as of December 31, 2012 and 2011. (i)



Property, plant and equipment Property, plant and equipment, including those under capital leases, are recognized in the statement of financial position at acquisition cost, while the leased property are recognized at amounts equal to the fair value of the leased property or, if lower, are recognized at the present value of the minimum lease payments, each determined at the inception of the lease. Depreciation on property, plant and equipment is calculated on the straight-line method over the estimated useful lives determined by management based on independent appraisers. Total useful lives are detailed in note 13. Repairs and maintenance costs are expensed as incurred. Long-term tools and dies consist of spare and replacement parts that are critical in the operation of plant and equipment. The spare parts are recognized at cost and are expensed when used. The Company performs an assessment of the physical conditions and future plans in determining a reserve for damaged, obsolete and slow-moving inventory.



(j)



Goodwill Goodwill are tested for impairment when needed or at least once a year, during the last quarter of such year, by determining the value in use of the reporting units, which consists in the discounted amount of estimated future cash flows to be generated by such reporting units to which those assets relate. The Company determines the discounted amount of estimated future cash flows over a period of 5-years, unless a longer period is justified in a specific country considering its economic cycle and the situation of the industry A reporting unit refers to a group of one or more cash generating units which is the smallest identifiable group of assets that generates cash inflows that are largerly independent of the cash inflows from other assets or group of assets. An impairment loss is recognized if the value in use is lower than the net book value of the reporting unit. After making an impairment assessment the Company determined that no impairment adjustment was necessary for 2012, 2011 and 2010.



(k)



Other assets Other assets include software, deferred financing costs prepaid, insurance and licenses. Prepaid insurance and licenses are amortized using the straight-line method according to their maturities. Software is amortized under straight-line over a four-year period. Deferred financing costs are amortized over the projected life of the related long-term debt, using the effective interest method.



F-12



METALSA, S.A. DE C.V. AND SUBSIDIARIES Notes Consolidated to Financial Statements (Thousands of US Dollars)



(l)



Prepaid expenses Mainly include prepaid expenses for the purchase of inventories and services that are received after the date of the statement of financial position and in the ordinary course of business.



(m) Impairment of long-lived assets Property, plant and equipment, intangible assets with a defined life and other investments are tested for impairment upon the occurrence of factors such as the appearance of a significant adverse event, changes in the Company’s operating environment, changes in the projected use or in technology, as well as expectations of lower operating results for each cash generating unit, in order to determine whether their carrying amounts may not be recovered, in which case an impairment loss is recorded when such determination is made, in the statements of income for the period within “Other income (expense).” The impairment loss results from the excess of the carrying amount over the net present value of estimated cash flows related to such assets. (n) Accruals Based on management’s estimates, the Company recognizes accruals for those present obligations in which the transfer of assets or the rendering of services is virtually inevitable and arises as a consequence of past events, mainly warranties on products sold, commissions, royalties, salaries and other amounts payable to employees, as well as environmental effects, which are recorded at present value, as applicable. (o) Employee benefits Termination benefits other than restructuring and retirement, to which employees are entitled, are recognized in the consolidated statement of financial position, based on actuarial calculations using the projected unit credit method, and considering as projected salaries, any change to such liabilities is recognized in the operating expenses within the consolidated statement of income. At the end of December 31, 2012 and for purposes of recognizing benefits upon retirement, the remaining average service life of the employees entitled to plan benefits are as described in note 19. Remuneration at the end of a labor relationship, for reasons other than restructuring, is recognized in the consolidated statement of income. Remuneration at the end of a labor relationship for restructuring purposes should be recognized in accordance with MFRS C-9 “Liabilities, provisions, contingent assets, and liabilities and commitments” and recognized as other income (expense). (p) Income taxes According to MFRS D-4, “Accounting for Income Taxes”, the effects reflected in the consolidated statement of income for income taxes include the amounts incurred during the period as well as the amounts of deferred income taxes, in both cases determined according to the income tax law applicable to the jurisdiction in which each subsidiary operates. Consolidated deferred income taxes represent the total amounts determined in each subsidiary by applying the enacted statutory income tax rate to the total temporary differences resulting from comparing the book and taxable values of assets and liabilities, taking into account and subject to a recoverability analysis, tax loss carryforwards as well as other recoverable taxes and tax credits. Deferred income taxes expense (income) of the period represents the difference between the balances of deferred income tax at the beginning and the end of the period. Deferred income tax assets and liabilities relating to different tax jurisdictions are not offset. According to MFRS D-4, all items charged or credited directly in stockholders’ equity are recognized net of their deferred income tax effects. The effect of a change in enacted statutory tax rates is recognized in the consolidated statement of income for the period in which the change is officially enacted.



F-13



METALSA, S.A. DE C.V. AND SUBSIDIARIES Notes Consolidated to Financial Statements (Thousands of US Dollars)



For the recognition of deferred tax assets derived from net operating losses and their corresponding valuation reserve, Metalsa makes an assessment of: a) the aggregate amount of self-determined tax loss carryforwards included in each local income tax returns that the Company believes the tax authorities would not reject based on available evidence; and b) the likelihood of the recoverability of such tax loss carryforwards prior to their expiration through an analysis of estimated future taxable income. If the Company believes that it is more-likely-than-not that the tax authorities would reject a self-determined deferred tax asset, then the Company should adjust its deferred tax assets as applicable. Likewise, if the Company believes that it would not be able to use a deferred tax carryforward asset before its expiration date, it would increase its valuation reserve as applicable. Both situations would result in additional income tax expense in the statement of income for the period in which such determination is made. In the determining of whether it is more likely than not that deferred tax assets will ultimately be realized, the Company takes into consideration all available positive and negative evidence, including factors such as market conditions, industry analysis, expansion plans, projected taxable income, carry forward periods, current tax structure, potential changes or adjustments in tax structure, tax planning strategies, future reversals of existing temporary differences, etc. Likewise, in every reporting period, the Company analyzes its actual results versus the Company’s estimates, and adjusts, as necessary, its tax asset valuations. If actual results vary from the Company’s estimates, the deferred tax asset and/or valuations may be affected and necessary adjustments will be made based on relevant information. Any adjustments recorded will affect the statement of income of the Company in such period. (q) Cumulative currency translation effect Represent the difference resulting from the translation of the functional currency of foreign operations into the reporting currency. (r)



Revenue recognition The Company recognizes revenue from the sale of manufactured products when the price is fixed or determinable, collectability is reasonably assured and upon shipment to, or receipt by customers, depending on contractual terms, and acceptance by, customers. Based on management’s analysis and estimates, the Company recognized a provision for doubtful receivables, and any change in this provision is recognized within the selling expenses.



(s)



Business and credit concentration The Company made sales to four customers that account for approximately 68%, 67% and 74% of total net sales during 2012, 2011 and 2010, respectively. The related accounts receivable balances as of December 31, 2012 and 2011 represent approximately 62% and 66% of total accounts receivable, respectively. The Company recognizes the necessary allowances for losses in the recovery of accounts receivable based on management analyses and estimates. Certain customers currently purchase all of the steel used by the Company for their models directly from steel producers. As a result, the Company has minimal exposure to changes in steel prices for parts supplied to these customers, which collectively represented 53%, 54% and 54% of the Company’s purchases in 2012, 2011 and 2010. In 2012 and 2011, the related balances amount to $34,488 and $28,602, respectively, and are recorded in accounts payable.



F-14



METALSA, S.A. DE C.V. AND SUBSIDIARIES Notes Consolidated to Financial Statements (Thousands of US Dollars)



(t)



Contingencies Liabilities for loss contingencies are recorded when it is probable that a liability has been incurred and the amount thereof can be reasonably estimated. When a reasonable estimation cannot be made, qualitative disclosure is provided in the notes to the consolidated financial statements. Contingent revenues, earnings or assets are not recognized until realization is assured.



(5)



Accounting changes The MFRS and Improvements mentioned below, issued by the Mexican Board of Financial Reporting Standards (Consejo Mexicano de Normas de Información Financiera or CINIF) became effective for fiscal years beginning on or after January 1, 2012, with the respective prospective or retrospective application being specified in each case.



•



MFRS C-6 “Property, plant and equipment”- MFRS C-6 is effective beginning January 1, 2011, except for changes arising from segregation into the components of property, plant and equipment items having a clearly different useful life, which will be effective for fiscal years beginning on or after January 1, 2012. The accounting changes resulting from the initial application of this MFRS must be prospectively recognized. The principal changes with respect to the superseded Bulletin include the following:



• The determination bases of the residual value of a component are added. • Depreciation of representative components of a property, plant and equipment items is mandatory, independently of the depreciation of the rest of the item as if it were a single component.



• Depreciation of idle components must continue, unless depreciation is determined based on the activity.



As of December 31, 2012 the Company is in compliance with this accounting change, and no significant impact has been identified. 2012 MFRS Improvements



•



MFRS A-7 “Presentation and disclosure”- MFRS A-7 revises and adds certain paragraphs in order to clarify disclosure requirements with respect to key assumptions used at the end of the accounting period, to determine accounting estimates that imply uncertainty with a relevant risk of generating significant adjustments in the carrying amount of assets or liabilities in the following accounting period. These Improvements are effective beginning January 1, 2012 and are retrospectively applicable. The Company is in compliance with this improvement.



•



MFRS C-1 “Cash and cash equivalents”- MFRS C-1 requires the presentation of restricted cash in the line item of “cash and cash equivalents”, if the restriction expires within the twelve months following the date of the statement of financial position or in the regular course of the entity’s operations. If the restriction expires at a subsequent date, it shall be classified as a long-term asset and named “restricted cash and cash equivalents”. This revision is effective for fiscal years beginning January 1, 2012 and is applicable. The Company is in compliance with this improvement.



F-15



METALSA, S.A. DE C.V. AND SUBSIDIARIES Notes Consolidated to Financial Statements (Thousands of US Dollars) (6)



Foreign currency exposure and translation As described in note 4(b), the Company adopted the guidelines established in MFRS B-15. As a result of this adoption the financial statements are prepared in USD which has been defined as the functional currency, and the foreign currency exposure is related to all non-US currencies. At December 31, 2012 and 2011, the exchange rates used in the various translation processes to the reporting currency were as follows: Country



Mexico Brazil India Argentina Australia United Kingdom Venezuela Canada European Union Japan Thailand



2012 Closing Average



Currency



(MXP) Peso (BRL) Brazilian Real (INR) Indian Rupee (ARS) Argentine Peso (AUD) Australian Dollar (GBP) Pound Sterling (VEB) Venezuelan Bolivar (CAD) Canadian Dollar (EUR) Euro (JPY) Japanese Yen (THB) Thai Baht



13.01 2.04 54.94 4.91 0.97 0.63 4.30 1.01 0.76 86.04 30.53



2011



13.17 1.96 53.55 4.59 0.97 0.63 4.30 1.00 0.78 80.43 30.91



Closing



Average



13.99 1.87 53.05 4.30 0.99 0.64 4.30 1.02 0.77 77.99 30.99



12.47 1.67 46.93 4.14 0.96 0.62 4.30 0.99 0.72 79.27 30.41



2010 Closing Average



12.36 1.69 45.05 3.98 0.99 0.65 1.00 0.75 81.35 -



12.64 1.75 45.67 3.91 1.09 0.65 1.03 0.76 87.18 -



The foreign currency assets and liabilities held as of December 31, 2012 and 2011 are as follows:



BRL Assets: Current Long-term Liabilities: Current Long-term



Net Assets (liabilities)



INR



Liabilities: Current Long-term



Net assets (liabilities)



AUD



GBP



EUR



JPY



THB



56,283 195,812 121 -



140,108 -



10,249 27,635 -



168 -



160,434 -



5,541 -



18,831 -



26,995 -



25,617 -



56,404 195,812



140,108



10,249 27,635



168



160,434



5,541



18,831



26,995



25,617



28,799 178



5,439 -



214,537 74,977



5,912 12,492 2,084 4,570



28



461,725 180,191



-



-



10,269 -



9,198 -



28,977



5,439



289,514



7,996 17,062



28



641,916



-



-



10,269



9,198



5,541



18,831



16,726



16,419



27,427 190,373 (149,406)



BRL Assets: Current Long-term



ARS



2012 Thousands of VEB CAD MXP



2,253 10,573



INR



ARS



-



140 (481,482)



2011 Thousands of AUD



MXP



GBP



VEB



85,808 1,299



105,983 -



126,798 8,799



11,208 2,386



486,124 139,374



4,160 -



24,702 -



87,107



105,983



135,597



13,594



625,498



4,160



24,702



52,922 -



126,500 -



225,178 1,084



10,484 2,077



859,548 608,052



13 -



12,777 6,774



52,922



126,500



226,262



12,561



1,467,600



13



19,551



34,185



(20,517)



(90,665)



1,033



4,147



5,151



F-16



(842,102)



METALSA, S.A. DE C.V. AND SUBSIDIARIES Notes Consolidated to Financial Statements (Thousands of US Dollars) (7)



Derivative financial instruments a) Foreign-exchange options Zero-cost collar (MXP/USD) 2012 The Company negotiated this portfolio on May and October 2012 with a Financial Institution as counterparty. This portfolio is composed of 29 Long Put Options and 29 Short Call Options with different strike prices and settlement dates (monthly basis during 2013), performing a ´synthetic´ short position in USD for the Company. The Company designated the portfolio as a cash flow hedge in order to mitigate the variability in the exchange rate MXP/USD attributable to 23% (composed by both the operations with two different Financial Entities) of the year’s payroll costs, which is incurred in MXP. The Company has formally documented the hedging relationship, establishing management´s objective and strategy for undertaking the hedge, the identification of the hedging instrument, the hedged item, the nature of the risk being hedged, and the methodology of the effectiveness assessment being performed. As of December 31, 2012 the Company has the following zero-cost collars outstanding:



  Trade Date May 16, 2012 October 31, 2012 October 31, 2012 October 31, 2012 October 31, 2012 October 31, 2012



Maturity Date Jan to Apr 2013 January 2013 Feb to Apr 2013 May 13, 2013 May 27, 2013 Jun to Oct 2013



Strike Price Put Call 13.60 15.22 13.00 14.00 13.00 14.00 13.00 14.00 13.00 14.00 13.00 14.00



USD Notional 250 300 350 1,350 1,850 300



Risk Exposure Appreciation of MXP Appreciation of MXP Appreciation of MXP Appreciation of MXP Appreciation of MXP Appreciation of MXP Fair Value $252



As of December 31, 2012 the Company also had a portfolio of zero-cost collars negotiated on April and May 2012 with a Financial Institution as counterparty. This portfolio is composed of 17 Long Put Options and 17 Short Call Options with different strike prices and settlement dates (monthly basis during 2013), performing a ´synthetic´ short position in USD for the Company. The Company designated the portfolio as a cash flow hedge in order to mitigate the variability in the MXP/USD exchange rate attributable to 23% (composed by both the operations with two different Financial Entities) of the year’s payroll costs, which is incurred in MXP. The Company has formally documented the hedging relationship, establishing management´s objective and strategy for undertaking the hedge, the identification of the hedging instrument, the hedged item, the nature of the risk being hedged, and the methodology of the effectiveness assessment being performed. Details are shown in the following table: Trade date April 19, 2012 May 15, 2012



Maturity Date Jan to Apr 2013 Jan to May 2013



Strike Price Put Call 13 14.69 13.5 15.15



USD Notional 1,000 250



Risk Exposure Appreciation of MXP Appreciation of MXP Fair Value $202



The Company has opted to use the intrinsic value method in order to assess effectiveness; therefore the extrinsic value of the option has been excluded from the hedge relationship and is recognized in the consolidated statement of income.



F-17



METALSA, S.A. DE C.V. AND SUBSIDIARIES Notes Consolidated to Financial Statements (Thousands of US Dollars) As of December 31, 2012, two Natural Gas Swaps (Natural Gas-NYMEX) were contracted, the first one with a notional value of 100,000 million British thermal unit (MMBTU), a fixed price of USD 3.085 per MMBTU with a maturity date in August 2014. The second swap has a notional value of 140,000 MMBTU with a fixed price of USD 3.41 per MMBTU with a maturity date in December 2013. Both were contracted for hedging purposes, however for accounting purposes, they were classified as trading securities, recognizing the changes in fair value in income. Details are shown in the following table: Trade Date September, 2012 October, 2012



  



Fixed Price per MMBTU 3.81 3.41



Maturity Date August, 2014 December, 2014



Notional MMBTU 100,000 140,000



Risk Exposure of Derivative Instrument Declining Price of Natural Gas Declining Price of Natural Gas



  



Fair Value $ 34



As well, two European Call Options of Natural Gas (Natural Gas-NYMEX) were contracted; details are shown in the following table: Strike Price Trade Date September 7, 2012 September 1, 2012



  



Maturity Date April, 2013 April, 2013



Call per MMBTU 4.50 4.50



  



Premium USD/MMBTU 0.3240 0.0975



  



Notionall MMBTU 30,000 30,000



Risk Exposure Premium Paid Premium Paid Fair Value $ 9



The Company’s risk in this transaction is limited to the premium paid for the derivative instrument (European Call Option), which represents the cost of the Call Option. Both options were contracted for hedging purposes, however for accounting purposes, they were classified as trading securities, recognizing the changes in fair value in the consolidated statement of income. Zero Cost Collar (MXN/USD) 2011 The Company negotiated this portfolio on September, October, November and December 2011 with a Financial Institution as counterparty. This portfolio is composed of 144 Long Put Options and 144 Short Call Options with different strike prices and settlements dates (monthly basis during 2012), performing a ´synthetic´ short position in USD for the Company. The Company designated the portfolio as a cash flow hedge in order to mitigate the variability in the exchange rate MXP/USD attributable to 50% of the payroll expenses in MXP. The Company has formally documented the hedging relationship, establishing management´s objective and strategy for undertaking the hedge, the identification of the hedging instrument, the hedged item, the nature of the risk being hedged, and the methodology of the effectiveness assessment being performed.



F-18



METALSA, S.A. DE C.V. AND SUBSIDIARIES Notes Consolidated to Financial Statements (Thousands of US Dollars) As of December 31, 2011 the Company has the following zero cost collars outstanding: Trade Date September 27,2011 October 5, 2011 October 5, 2011 November 14, 2011 November 14, 2011 November 30, 2011 December 16, 2011 December 16, 2011 December 16, 2011 December 16, 2011 December 16, 2011



Maturity Date Jan to Sep 2012 Jan to Sep 2012 Jan to Sep 2012 Jan to Oct 2012 Jan to Oct 2012 Jan to Nov 2012 Jan to Sep 2012 October 1, 2012 October 29, 2012 November 13, 2012 November 26, 2012



Strike Price Put Call 13.40 15.28 13.40 16.08 13.40 15.88 13.40 14.28 13.40 14.62 13.60 15.28 13.60 15.25 13.60 15.25 13.60 15.25 13.60 15.25 13.60 15.25



USD Notional 500 250 250 125 125 125 125 1,125 1,125 1,375 1,500



Risk Exposure Appreciation of MXP Appreciation of MXP Appreciation of MXP Appreciation of MXP Appreciation of MXP Appreciation of MXP Appreciation of MXP Appreciation of MXP Appreciation of MXP Appreciation of MXP Appreciation of MXP Fair Value $(147)



The Company has opted to use the intrinsic value method in order to assess effectiveness; therefore the extrinsic value of the option has been excluded from the hedge relationship and is recognized in the consolidated statement of income. b) Credit Risk The Company manages the credit risk exposure within its derivatives portfolio through a policy that requires trading any derivative only with counterparties that can prove creditworthiness. (8)



Accounts receivable, net At December 31, 2012 and 2011, accounts receivable are as follows:



Trade Recoverable taxes and other accounts receivable, net Related parties (note 10)



$



Less allowance for doubtful accounts $



2012



2011



215,812 100,455 186



207,517 65,077 2,907



316,453 (1,389)



275,501 (862)



315,064



274,639



A summary of the changes in the allowance for doubtful accounts for the years ended December 31, 2012 and 2011 is as follows:



Description Year ended: December 31, 2012 December 31, 2011



$ $



Balances at beginning of year



Charges to expenses



862 695



738 360



F-19



Recoveries (211) (193)



Balances at end of year 1,389 862



METALSA, S.A. DE C.V. AND SUBSIDIARIES Notes Consolidated to Financial Statements (Thousands of US Dollars)



(9)



Related-party transactions and balances At December 31, 2012 and 2011, the balances and transactions with related parties are as follows: (a) Receivable 2011



2012 Short-term Grupo Proeza, S.A. de C.V. Proeza, S.A de C.V. Others



$



Long-term Proeza, S.A. de C.V. (included in other assets)



$



11 163 12 186



2,560 298 49 2,907



$ $



395 581



2,907



(b) Payable 2012 Others (included in accounts payable and accrued liabilities)



$



2011 20



15



(c) Related party transactions Transactions carried out with related parties during the years ended December 31, 2012, 2011 and 2010, were as follows: 2011



2012 Sales Purchases Administrative services and technical assistance



$



484 41 12,565



2010



363 77 10,989



5,979 481 9,564



During 2012, 2011 and 2010, administrative services were provided by Proeza, S.A. de C.V. and represent corporate services. (10) Inventories At December 31, 2012 and 2011, inventories include the following:



$



Raw materials Work in process Finished goods Tools and dies projects Materials in transit and general warehouse Less allowance for obsolete and slow-moving items



$



F-20



2012



2011



53,011 25,584 24,126 61,071 19,998 183,790 (9,046) 174,744



48,510 22,788 23,306 13,604 16,401 124,609 (8,135) 116,474



METALSA, S.A. DE C.V. AND SUBSIDIARIES Notes Consolidated to Financial Statements (Thousands of US Dollars) (11) Prepaid expenses At December 31, 2012 and 2011, the prepaid expenses include the following: 2011



2012 Advances to suppliers Prepaid insurance Prepaid broker fees Other Other deposits Prepaid rent



$



1,227 3,231 1,649 1,005 404 73



4,261 3,945 1,814 426 271 66



$



7,589



10,783



(12) Equity accounted investments In 2010, the Company acquired several facilities included in the structural products business of Dana Holding Corporation. The purchase also included the interest of Dana Holding Corporation in its Chassis Systems Limited joint venture in the United Kingdom with GKN Auto Structures. Chassis Systems Limited was formed to produce the chassis structures for two of Land Rover’s leading brands, the Land Rover Discovery and the Range Rover Sport. Investments in the common stock of the associate company are accounted for by the equity method, which recognizes the Company’s proportionate share in the results of operations and stockholders’ equity of the investee. For the years ended December 31, 2012 and 2011, the associate company and dividends of the investment are as follows: December 31, 2012 Equity in net assets



% Chassis Systems Limited



50



$



6,610 $



Share participation in income for the year 6,079 $



Dividends received (2,182)



Total $



10,507



December 31, 2011 Equity in net assets



% Chassis Systems Limited



50



$



8,860 $



F-21



Share participation in income for the year 5,666 $



Dividends received (7,916)



Total $



6,610



METALSA, S.A. DE C.V. AND SUBSIDIARIES Notes Consolidated to Financial Statements (Thousands of US Dollars)



(13) Property, plant and equipment At December 31, 2012 and 2011, the investment in property, plant and equipment is integrated as follows: 2012 Land Building Plant and equipment Transportation equipment Furniture and fixtures Computer equipment Tools and dies Construction in progress



$



Less accumulated depreciation $



2011



23,993 188,525 661,563 1,948 22,223 23,010 9,751 72,067 1,003,080



22,365 182,985 642,732 1,737 20,356 9,619 9,369 39,153 928,316



(583,704)



(532,726)



419,376



395,590



Estimated useful life 26-28 years 16-18 years 3-4 years 8-10 years 2-3 years 8-9 years -



As of December 31, 2012 and 2011 buildings under capital leases amounted $6,366; in addition as of December 31, 2012 and 2011 computer equipment under capital leases amounted to $8,452 and $4,131, respectively. Construction in progress for the amount of $24,830 was located in the USA. (14) Other assets At December 31, 2012 and 2011, other assets include the following: 2012 Software Capitalized expenditures Deferred financing cost Deferred charges Others



$



Less accumulated amortization $



2011



27,962 11,918 4,222 1,202 875



24,192 6,415 3,475 2,517 636



46,179 (28,581)



37,235 (26,040)



17,598



11,195



For the years ended December 31, 2012, 2011 and 2010, interest expense includes $831, $1,178 and $1,437, respectively, of amortization costs from deferred financing costs. Amortization costs are recognized in selling, general and administrative expenses, except those related to deferred financing cost.



F-22



METALSA, S.A. DE C.V. AND SUBSIDIARIES Notes Consolidated to Financial Statements (Thousands of US Dollars)



(15) Notes payable to bank, long-term debt and current installments of long term debt At December 31, 2012 and 2011, long-term debt is as follows: 2012 Loan agreement for $30 million, bearing interest at LIBOR plus 0.80%, This agreement was signed in November 2008, with equal semi-annual payments beginning November 2009 and ending in May 2014.



9,000



15,000



Loan agreement for $9.4 million, disbursing just $8 million, bearing interest at LIBOR plus 2.50%, with equal semi-annual payments beginning December 2011 and ending December 2014.



4,571



6,857



Loan agreement for $100 million, bearing interest at 5.78%. This agreement was signed in July, 2011, with quarterly payments starting in October 2015 and ending in July 2019.



100,000



100,000



Syndicated credit agreement signed in November 2011 for $150 million divided in two tranches. A tranche “A” three years revolving facility for $100 million ending November 2014; and a tranche “B” five years term loan for $50 million, with quarterly payments beginning November 2013 and ending in November 2016. The interest rate is LIBOR plus a margin according to the leverage rate. At December 31, 2012, the applicable margin to tranche “A” was 2.125% and 2.375% to tranche “B”. (1)



50,000



50,000



Loan agreement for ARS $30 million, bearing interest at 22.50%. This agreement was signed in May 2012, with monthly payments starting in December 2012 and ending in May 2015.



5,903



-



Loan agreement for ARS $45 million, bearing interest at 23.75%. This agreement was signed in August 2012, with monthly payments starting March 2013 and ending August 2015.



9,161



-



50,000



-



Short-term loans in USD. Short-term loan for ARS 36.3 million at December 2012. Total long-term debt Less current installments of long-term debt and short term loans Long-term debt, excluding current installments (1)



2011



7,398



3,316



236,033



175,173



(75,026) $



161,007



(11,601) 163,572



At December 31, 2012 tranche “A” revolving facility was totally available.



The loans payable to the banks and the long-term debt contracts described in this note establish certain restrictive covenants, the most significant covenant refers to limitations on dividend payments and contractual debts. As of December 31, 2012 and February 15, 2013 the Company was in compliance with these covenants.



F-23



METALSA, S.A. DE C.V. AND SUBSIDIARIES Notes Consolidated to Financial Statements (Thousands of US Dollars)



The maturities of short-term and long-term debt are as follows: Years ending December 31: 2013 2014 2015 2016 2017 2018 and thereafter



$



$



75,026 26,777 20,345 23,885 20,000 70,000 236,033



In addition the Company has available committed credit lines for $100 million and not-committed credit lines for $55.25 million. (16) Leases Future minimum lease payments under non-cancelable leases (with initial or remaining lease terms in excess of one year) as of December 31, 2012 and 2011 are as follows: Capital leases 2012 Total minimum lease payments Less amounts representing interest (at the rate of 4%)



$



Present value of net minimum capital lease payments Less current portion of obligations under capital leases Obligations under capital leases, excluding current portion



$



Capital leases 2011



13,204 (2,800)



7,894 (2,053)



10,404 (5,653)



5,841 (2,942)



4,751



2,899



Total expenses incurred during 2012 and 2011 amounted to $2,193 and $2,311, respectively. (17) Accounts payable and accrued liabilities At December 31, 2012 and 2011, this caption includes the following: Trade Accounts payable and accrued liabilities



$



2012 199,782 91,352



2011 177,082 77,602



$



291,134



254,684



The Company made raw material purchases from four suppliers that accounted for 58% and 56% of its total purchases made during 2012 and 2011. The balance of accounts payable to these suppliers as of December 31, 2012 and 2011 represents 15% and 14% of total accounts payable, respectively.



F-24



METALSA, S.A. DE C.V. AND SUBSIDIARIES Notes Consolidated to Financial Statements (Thousands of US Dollars) Accounts payable and accrued liabilities include the following: 2011



2012 Accrued liabilities (1) Other current liabilities Taxes payable and employees statutory profit sharing Advanced payments from customers Interest expense Other creditors Due to related parties (note 9)



$



32,389 29,018 14,968 12,721 1,668 567 20



30,889 22,696 11,639 10,073 1,535 755 15



$



91,351



77,602



Accruals include the following: Salaries Balance as of December 31, 2011 (nominal value)



$



Increases (Payments) Balance as of December 31, 2012 (1)



$



Other



Total



22,056



8,833



30,889



9,930 (9,752)



3,956 (2,634)



13,886 (12,386)



22,234



10,155



32,389



Accrued liabilities include bonus provisions from subsidiaries in Mexico, Brazil, Argentina and the United States of America.



(18) Deferred revenue The Company recognized a deferred revenue, as a result of an agreement with the customer Ford on the F-150 project whereby the former received an advance in connection with such project. At December 31, 2012 and 2011, the total deferred revenue amount was $4,715 and $12,232, respectively, of which $7,517 were amortized in 2012, $4,077 and $638 will be amortized in 2013 and 2014, respectively. (19) Employee benefits As of December 31, 2012, the cost of the pension plan, termination and seniority premium is as follows (only for Mexico, Argentina and Brazil):



Net period cost disclosure Labor cost Financial cost Amortization of prior service cost, transitionliability variance assumptions and experience adjustments Net actuarial loss



Pension Plan



Termination



Seniority premiums



243 285



1,016 561



182 348



$



48 -



Net period cost



$



F-25



977



576



2,554



-



Total 1,441 1,194 48 977



530



3,660



METALSA, S.A. DE C.V. AND SUBSIDIARIES Notes Consolidated to Financial Statements (Thousands of US Dollars)



At December 31, 2012 the actuarial present value of benefit obligations are as follows: Pension Plan Changes in benefit obligations: Projected benefit obligations (PBO) $ Variance assumptions and experience adjustments Actuarial gain Net projected benefit obligations (PBO)



$



Termination



Seniority premiums



Total



(5,494) 679 2,252



(9,465) -



(2,966) 1,622



(17,925) 679 3,874



(2,563)



(9,465)



(1,344)



(13,372)



At December 31, 2012 amounts recognized in the consolidated statement of financial position are as follows: Pension plan Changes in benefit obligations: Projected benefit obligations (PBO) as of December 31, 2011 Labor cost Net actuarial loss



$



Benefits paid Projected benefit obligations (PBO) as of December 31, 2012



$



Termination



Seniority premiums



(1,831) (576) (169)



(6,963) (2,554) (315)



(741) (530) (77)



(9,535) (3,660) (561)



(2,576) 13



(9,832) 367



(1,348) 4



(13,756) 384



(2,563)



(9,465)



(1,344)



(13,372)



Total



As of December 31, 2011, the cost of the pension plan, termination and seniority premiums is as follows (only for Mexico, Argentina and Brazil):



Net period cost disclosure Labor cost Financial cost Amortization of prior service cost, transition liability variance assumptions and experience adjustments Reduction and extinction of obligations



Pension plan



Termination



Seniority premiums



172 211



761 426



74 61



1,007 698



3



61 326



138



2,092



$



58



-



-



Net period cost



$



326 441



1,513



-



Total



At December 31, 2011 amounts recognized in the consolidated statement of financial position are as follows: Pension plan Changes in benefit obligations: Projected benefit obligations (PBO) $ Variance assumptions and experience adjustments Actuarial loss Net projected benefit obligations (PBO)



$



F-26



3,469 (676) (962) 1,831



Termination 6,963 6,963



Seniority premiums 2,354 (1,613) 741



Total 12,786 (676) (2,575) 9,535



METALSA, S.A. DE C.V. AND SUBSIDIARIES Notes Consolidated to Financial Statements (Thousands of US Dollars) Amounts recognized in the consolidated balance sheet as of December 31, 2011:



Pension plan Changes in benefit obligations: Projected benefit obligations (PBO) as of December 31, 2010 Labor cost Net actuarial gain



$



Benefits paid Projected benefit obligations (PBO) as of December 31, 2011



Termination



Seniority premiums



1,528 441 (119)



6,477 1,513 (811)



663 138 (57)



8,668 2,092 (987)



1,850



7,179



744



9,773



(19) $



(216)



1,831



Total



(3)



6,963



(238)



741



9,535



As of December 31, 2010, the cost of the pension plan, termination and seniority premium is as follows (only for Mexico, Argentina and Brazil):



Net period cost disclosure Labor cost Financial cost Amortization of prior service cost, transition, variance assumptions and experience adjustments Reduction and extinction of obligations



Pension plan



Termination



Seniority premium



121 184



617 692



57 50



50



1,020



355



2,329



$



-



Net periodic cost



$



-



Total 795 926 50 1,020



107



2,791



The most significant assumptions used in the determination of the defined benefit obligations for 2012, 2011 and 2010 were as follows: 2012 6.75% 4.50%



Discount rate Rate of salary increases



F-27



2011 7.75% 4.50%



2010 8.00% 4.50%



METALSA, S.A. DE C.V. AND SUBSIDIARIES Notes Consolidated to Financial Statements (Thousands of US Dollars) (20) Stockholders’ equity The characteristics of the stockholders’ equity are as follows: (a)



Common stock The Company´s stock is represented by shares; each share represents the value of the contribution made by the respective stockholders. Each stockholder has one voting right for each Mexican peso they contributed to the common stock. The share of each stockholder can be divided into two series: •



Series “A”: • Represent the fixed common stock of the Company, which should consist of a fixed minimum withdrawal of MXP 50. • It is represented by nominative ordinary shares. • If the fixed common stock is raised or lowered, should be done by agreement of the Extraordinary General Meeting of Shareholders and registered in the Public Registry of Property and Commerce.



•



and Series “B”: • Represent the variable portion of the common stock, which has no limit. • It is represented by nominative ordinary shares. • If the variable common stock is raised or lowered, shall be in accordance with General Meeting of Shareholders.



The Company’s capital stock at December 31, 2012 is represented by 88,607,074 common, registered shares, divided into two series: 50,000 series “A” shares representing the fixed portion, and 88,557,074 series “B” shares representing the unlimited variable portion. The stockholders will have preemptive right to subscribe new shares in each series in the proportion held by them when the capital stock increase is approved. On May 2, 2012, the Company paid dividends in cash to Grupo Proeza, S.A. de C.V. in the amount of $20,000. At the stockholders meeting held on June 27, 2012, a resolution to increase the variable portion of common stock in $32,585 issuing 438,354,806 common registered shares was approved. On June 29, 2012, a resolution to reduce the variable portion of common stock in $32,585 at Grupo Proeza, S.A.P.I. de C.V. through the reimbursement of 445,277,476 shares was approved. On November 30, 2011, the Company paid dividends in cash to Grupo Proeza, S.A. de C.V. in the amount of $38,000. On November 30, 2011, a resolution to reduce the variable portion of common stock in $15,147 at Grupo Proeza, S.A.P.I. de C.V. through the reimbursement of 212,752 shares, with a par value of $0.07 each was approved. On the same date, a resolution to increase the capital stock in $3,834, issuing 50,000 common, registered shares with a par value of $77 per share was approved. At the stockholders meeting held on February 17, 2010, a resolution to increase the variable portion of common stock in $30,000 issuing 386,049,000 common registered shares with a par value of $0.08 was approved. On December 31, 2010, a resolution to reduce the variable portion of common stock in $7,000 at Grupo Proeza, S.A.P.I. de C.V. through the reimbursement of 86,499 shares, with a par value of $0.08 each was approved. F-28



METALSA, S.A. DE C.V. AND SUBSIDIARIES Notes Consolidated to Financial Statements (Thousands of US Dollars) (b)



Retained earnings Net earnings for the year are subject to an appropriation of 5% to the legal reserve until this reserve equals 20% of the Company’s shares. At December 31, 2012, the legal reserve amounts to $147.



(21) Tax on earnings (Income Tax (IT)) The main subsidiaries of the Company are incorporated in Mexico and in the United States of America. The Mexican entities are subject to federal and state income taxes in accordance with Mexican laws. The entities in the United States of America are limited liability companies, which are substantially passthrough entities for U.S. taxation purposes. Therefore, the income tax expense attributable to income from operations differs from the amounts computed by applying the income tax rate for several items including non-taxable items from consolidation of the U.S. companies not subject to income taxes in Mexico. Income Tax expense for the years ended December 31, 2012, 2011 and 2010 was as follows: 2011



2012 Current taxes Deferred taxes



2010



$



15,042 35,837



10,855 28,517



16,421 (6,844)



$



50,879



39,372



9,577



Income tax expense attributable to income from continuing operations before IT is different from the amounts computed by applying the rates of 30% for 2012, 2011 and 2010 to income as a result of the following items: 2011



2012 Computed expected tax expense Increase (reduction) resulting from: Non-deductible expenses Equity in earnings of associated companies not subject to taxation Currency exchange gain non-taxable and tax foreign exchange loss Deduction over PPE tax value Change in valuation allowance Effects of inflation and other, net IT expense



$



$



F-29



2010



51,929



38,600



27,943



28



1,913



54



(1,824)



(1,700)



(383)



4,000 (3,254)



780 492 (713)



(563) (16,326) 535 (1,683)



50,879



39,372



9,577



METALSA, S.A. DE C.V. AND SUBSIDIARIES Notes Consolidated to Financial Statements (Thousands of US Dollars)



The tax effects of temporary differences that give rise to significant portions of the deferred income tax assets and liabilities, as of December 31, 2012 and 2011, are presented below: 2012



2011



407 2,777 18,435 7,468 24,229 1,974



259 2,675 19,760 13,550 39,712 1,739



55,290



77,695



Deferred tax assets: Allowance for doubtful accounts Inventory reserves Accrued liabilities Tax loss carryforwards Intellectual property Derivative financial instruments



$



Total gross deferred tax assets Less valuation allowance



(4,492)



(492)



Total deferred tax assets



50,798



77,203



Deferred tax liabilities: Property, plant and equipment Other non-current assets Other current assets Goodwill



(26,437) (28,144) (2,154) (4,136)



(32,742) (13,105) (2,771) (4,136)



(60,871)



(52,754)



(10,073)



24,449



Total deferred tax liabilities Net deferred tax (liabilities) assets



$



The roll forward of the net deferred tax asset for the years ended December 31, 2012 and 2011 is presented below: 2012



2011



Initial deferred income tax balance Deferred IT expense Foreign currency exchange effect



$



24,449 (35,837) 1,315



49,349 (28,517) 3,617



Ending balance



$



(10,073)



24,449



The valuation allowance for deferred tax assets as of January 1, 2012 and 2011 was $492 and $0, respectively. The net change in the total valuation allowance was an increase of $4,000 in 2012 and an increase of $492 in 2011. The valuation allowance at December 31, 2012 and 2011 was primarily related to net operating loss carryforwards that, in the judgment of management, will not be realized. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities (including the impact of available carryback and carryforward periods), projected future taxable income, and tax-planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that the Company will realize the benefits of these deductible differences, net of the existing valuation allowances at December 31, 2012 and 2011. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced.



F-30



METALSA, S.A. DE C.V. AND SUBSIDIARIES Notes Consolidated to Financial Statements (Thousands of US Dollars) At December 2012, tax loss carryforwards for the Mexican and Foreign subsidiaries amounted to and expire as follows: Tax loss Tax loss carryforwards carryforwards of Mexican of Foreing Total entities entities Expire in



2016 2017 2027



$



704 2,007 -



$



2,711



23,882 23,882



704 2,007 23,882 26,593



(22) Acquisition On March 8, 2010, the Company has announced that it has finalized the purchase of several facilities included in the structural products business of Dana Holding Corporation (NYSE:DAN - Acquired Entity). The Company assumed control of 9 Dana manufacturing facilities that produce structural components for chassis and body structures in light and commercial vehicles, including accompanying administrative, technical and sales centers in Argentina, Australia, Brazil and the United States of America. The facility in Venezuela was effectively transferred on January 1, 2011. The purchase also includes Dana’s interest in its Chassis Systems Limited joint venture in the United Kingdom with GKN Auto Structures. Income of the Acquired Entity has been included in the consolidated financial statements from such date. Dana is responsible for any product liability arising for products manufactured before the change of control (for warranties given to customers, and for products recalls for 8 years after that some date). The total consideration amount was $151,404, comprised of $36,320 of net working capital, $98,746 in property, plant and equipment and other assets, $3,286 of deferred income tax assets and $5,000 of the investment in associates (United Kingdom operation). The valuation of the assets was prepared by thirdparty valuation expert. There was not recorded a goodwill or intangible assets during this transaction. The following table summarizes the estimated fair value of assets acquired and liabilities assumed at the date of acquisition. 2010 Cash Net working capital Property, plant and equipment, net Deferred income tax assets Investment in associates Payment in advance



$



1,052 36,320 98,746 3,286 5,000 7,000



Net assets acquired



$



151,404



Metalsa, S. A. de C. V. may adjust for any correction to the preliminary assessment given to the assets acquired and/or liabilities assumed, within the twelve-month period after purchase. During 2011, Metalsa, S.A. de C.V. included an adjustment related to the purchase of Dana Holding Corporation facilities for $4,427. As provided for by the Purchase Agreement dated December 16, 2009, in September 2011, Metalsa, S. A. de C. V. (“the Buyer”) sent to Dana Holding Corporation (“the Seller”) a notice letter listing twelve claims arising after the closing of the transaction. These twelve claims were determined based on such purchase agreement and, in the aggregate, request from the Seller and the Buyer indemnification for an estimated amount between $18 and $26 million, plus an uncertain amount for claim number twelve. Since October 2011 both the Seller and the Buyer have been negotiating the final amount due and expect to complete this process before year end; meanwhile cash for $12,685 is held as restricted (note 4c). F-31



METALSA, S.A. DE C.V. AND SUBSIDIARIES Notes Consolidated to Financial Statements (Thousands of US Dollars) (23) Contingencies and commitments The Company has the following contingencies and commitments: (a)



Tax authorities are entitled to review transactions carried out during an established period of time prior to the most recent IT return filed.



(b)



In accordance with the Income Tax Law, companies carrying out transactions with related parties, either in Mexico or abroad, are subject to certain requirements as to the determination prices, which should be similar to those that would be used in arm’s-length transactions. Should the tax authorities examine the transactions and reject the related-party prices, they could assess additional taxes plus penalties.



(c)



Metalsa Roanoke, Inc. has certain non-cancelable operating leases that expire over the next 3years. Future minimum lease payments under non-cancelable operating leases are described in note 16.



(d)



As of December 31, 2012, there are several contracts with the principal customers to manufacture and sell frames (chassis), heavy truck side rails, fuel tanks and steel stamped parts over the following years. These contracts are subject to production levels and specific customer requirements.



(24) Subsequent events



•



On January 23, 2013, a resolution was passed to reduce the variable portion of capital stock in $20,000 to Grupo Proeza, S.A de C.V.



•



Venezuela's Commission of Foreign Exchange Administration ("CADIVI") controls the sale and purchase of foreign currency in Venezuela. Since December 2010, the official rate of exchange for purchase of foreign currency through CADIVI was 4.3 VEB per USD. In addition to the official exchange rate system, limited amounts of foreign currency also may be purchased through the Sistema de Transacciones con Títulos en Moneda Extranjera (“SITME”) at a variable rate. On February 7, 2013, the Venezuelan government announced that:



•



the official exchange rate will be changed to 6.3 VEB per USD effective from February 13, 2013; and



•



the SITME exchange system will be abolished.



Management estimates that the effects on financial information of this resolution will be immaterial for the consolidated financial statements.



•



On November 21, 2012, Metalsa entered into a share purchase agreement with ISE Holding L.P. for the purchase of a German automotive company. In accordance with the provisions of the agreement and German law, we exercised our right with the advice of counsel to terminate the agreement on February 25, 2013. Thereafter the seller commenced an arbitration proceeding seeking specific performance in order to compel a closing. We are defending ourselves in respect of this claim and we do not believe that even a negative result with respect to the foregoing would have a material adverse effect on us.



F-32



METALSA, S.A. DE C.V. AND SUBSIDIARIES Notes Consolidated to Financial Statements (Thousands of US Dollars) (25) Recently issued accounting standards The CINIF has issued the MFRS and Improvements listed below: MFRS B-3 “Statement of comprehensive income”- MFRS B-3 supersedes MFRS B-3 “Statement of Income”, Bulletin B-4 “Comprehensive income” and the MFRS Guideline 1 “Presentation or disclosure of the operating income or loss”, is effective beginning January 1, 2013 and is applicable retrospectively. The principal changes with respect to the superseded MFRS B-3 include the following:



• The comprehensive income may be presented in one or two statements as follows: a) In one statement: all the line items that comprise the net income or loss, as well as other comprehensive income (OCI) and the equity in the OCI of other entities shall be presented in one single document and named “Statement of Comprehensive Income”. b) In two statements: the first statement shall include solely the line items that comprise the net income or loss and shall be named “Statement of Income” and, the second statement shall bring forward the net income or loss reported at the end of the statement of income and then present the OCI and the equity in the OCI of other entities. This statement shall be named “Statement of Other Comprehensive Income”.



• The OCI shall be presented right after the net income or loss. • Items shall not be presented in a segregated manner as non-ordinary, either in the financial statement or in the notes to the financial statements.



• Clarification is provided regarding the items that shall be presented as part of the comprehensive financial results.



• “Other income and expenses” shall regularly include amounts that are not relevant and not include operating items (such as gain or loss on sale of property, plant and equipment and the ESPS); thus, it is not required that it be presented in a segregated manner. MFRS B-4 “Statement of changes in stockholders’ equity”- MFRS B-4 is effective for fiscal years beginning January 1, 2013 and is applicable retrospectively. It mainly requires that the following be presented in a segregated manner in the statement of changes in stockholders’ equity:



• Reconciliation between the beginning and ending balances of the line items comprising stockholders’ equity.



• As applicable, retrospective adjustments arising from accounting changes and error corrections that affect the beginning balances of each of the line items comprising stockholders’ equity.



• Provide a breakdown of owner transactions relating to their investment in the entity. • Reserve transactions. • Comprehensive income in a single line item, but broken down into all of its items: net income or loss, other comprehensive income, and equity in the other comprehensive income of other entities. MFRS B-6 “Statement of financial position”- MFRS B-6 is effective for fiscal years beginning on or after January 1, 2013. The main distinguishing feature of this MFRS is that a single standard specifies the structure of the statement of financial position, as well as the related presentation and disclosure rules. F-33



METALSA, S.A. DE C.V. AND SUBSIDIARIES Notes Consolidated to Financial Statements (Thousands of US Dollars) MFRS B-8 “Consolidated or combined financial statements”- MFRS B-8 is effective for fiscal years beginning on or after January 1, 2013 and is applicable retrospectively. MFRS B-8 supersedes MFRS B-8 “Consolidated or combined financial statements”. The main changes with respect to the superseded MFRS B-8 include the following:



• The definition for control is amended to stipulate that an entity controls an investee when it controls the relevant activities of the investee; it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.



• The term “protective rights” is introduced, which is defined as those designed to protect the interest of the non-controlling investor without giving that party power over entity to which those rights relate. It is important to identify protective rights in assessing whether the investor has power or not over the investee.



• The concepts of principal and agent are incorporated, the principal being an investor with decisionmaking rights over the investee; moreover, an agent is a party primarily engaged to act on behalf and for the benefit of another party or parties (the principal(s)) and therefore does not control the investee.



• The term “Special Purpose Entity” or SPE is eliminated since it is deemed that to identify an entity as subsidiary, its operating objective and purpose are irrelevant.



• The term “structured entity” is included, which refers to an entity designed so that voting or similar rights are not a determining factor in deciding who controls such entity. MFRS B-12 “Offsetting financial assets and financial liabilities”- MFRS B-12 is effective for fiscal years beginning January 1, 2014; however, earlier application is permitted as of January 1, 2013. Among its main features, we may cite the following:



• Rules are established in relation to the rights of set-off that should be considered for presenting, on a net basis, a financial asset and a financial liability in the statement of financial position.



• MFRS B-12 establishes the requirements to be met by an offsetting intention, based on the principle that a financial asset and a financial liability should be presented by the offset amount, provided the future cash flow from its collection or settlement is net.



• MFRS B-12 establishes other subjects relating to the offsetting of financial assets and liabilities such as the intention of realizing the asset and settling the liability simultaneously for its net presentation in the statement of financial position, the bilateral and multilateral offsetting agreements and the treatment of collateral. MFRS C-7 “Associates, joint ventures and other permanent investments”- MFRS C-7 is effective for fiscal years beginning January 1, 2013 and is applicable retrospectively. This MFRS supersedes MFRS C7 “Investments in associates and other permanent investments”. The major changes from the original MFRS C-7 are as follows:



• It is provided that investments in joint ventures should be accounted for by the equity method. • The term “Special Purpose Entity” or SPE is eliminated since it is deemed that to identify an entity as subsidiary, its operating objective and purpose are irrelevant.



F-34



METALSA, S.A. DE C.V. AND SUBSIDIARIES Notes Consolidated to Financial Statements (Thousands of US Dollars)



• It is stipulated that all the effects that have an impact on the net income or loss of a holding company, arising from its permanent investments in associates, joint ventures and others, should be recognized under the heading of “equity in the results of other entities”.



• Additional disclosures are required for providing more details of the financial information of associates and/or joint ventures. MFRS C-14 “Transfer and retirement of financial assets”- MFRS C-14 is effective for fiscal years beginning January 1, 2014, with retrospective effects and is issued to amending the absence of accounting standards with regard to the transfer and retirement of financial assets. The main aspects covered by this MFRS include the following:



• Based on the principle of assigning the risks and benefits of ownership of a financial asset as primary condition for its retirement.



• For a transfer to signify that the transferor may retire a financial asset from its statement of financial position, it is required that it may no longer have a future benefit or loss with regard to such financial asset. MFRS C-21 “Joint arrangements”- MFRS C-21 is effective for fiscal years beginning January 1, 2014, with retrospective effects and is issued to amends the absence of accounting standards with regard to joint arrangements. The main aspects covered by this MFRS include the following:



• A joint arrangement is defined as an arrangement that regulates an activity over which two or more parties have joint control. Moreover, joint arrangements are divided into two types: a)



Joint operations: whereby the parties with joint control have rights to the assets, and obligations for the liabilities, relating to the arrangement; and



b)



Joint ventures: whereby the parties with joint control have rights to the net assets of the arrangement.



• It is made clear that joint operations may or may not be structured through a separate vehicle, while joint ventures always have a separate vehicle.



• A joint venture accounts for its interest in the joint venture as a permanent investment using the equity method. 2013 Improvements to MFRS In December 2012 the CINIF published a document called “Improvements to 2013 MFRS”, which contains specific amendments to certain existing MFRS. The improvements that produce accounting changes are as follows:



• MFRS C-5 “Prepayments”, Bulletin C-9 “Liabilities, accruals, contingent assets and liabilities



and commitments” and Bulletin C-12 “Financial instruments with characteristics of liabilities, equity or both”- Provides that expenses on the issue of debentures such as legal fees, issuance, printing and placement costs, etc. should be presented as a reduction of the corresponding liability and charged to income based on the effective interest method. This improvement is effective for years beginning on or after January 1, 2013 and presentation changes should be recognized retrospectively.



F-35



METALSA, S.A. DE C.V. AND SUBSIDIARIES Notes Consolidated to Financial Statements (Thousands of US Dollars)



• MFRS D-4 “Income taxes”- Establishes that current and deferred income tax shall be recognized



and included in profit or loss for the period, except to the extent that the tax arises from a transaction or event that is recognized in a different period, outside profit or loss, either in other comprehensive income or directly in equity. This improvement is effective for years beginning on or after January 1, 2013 and presentation changes should be recognized retrospectively.



• MFRS D-5 “Leases”- It was defined that costs incurred and directly attributable to negotiating and



arranging a lease (fees, legal fees, tenancy rights (extra pay) etc.), both for the lessor and lessee shall be deferred in the lease term and charged or credited to income in proportion to the related income or expense. This improvement is effective for fiscal years beginning on or after January 1, 2013 and its recognition is recognized retrospectively.



Management estimates that the effects of the new MFRS and the improvements to MFRS will be immaterial. (26) Migration to International Financial Reporting Standards (“IFRS”) Beginning in 2012, the Mexican National Banking and Securities Commission (“CNBV”) requires Public Companies that prepare and disclose their financial information through the Mexican Stock Exchange, to prepare their financial information according to International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board (IASB). Although this requirement is not mandatory for the Company, Management is currently evaluating the possibility of adopting IFRS to align the accounting standards of its international operations under a globally accepted accounting framework.



F-36



SUMMARY OF CERTAIN SIGNIFICANT DIFFERENCES BETWEEN MFRS AND U.S. GAAP The Financial Statements were prepared and presented in accordance with Mexican Financial Reporting Standards (“MFRS”) issued by the Mexican Financial Reporting Standards Board (Consejo Mexicano para la Investigación y Desarrollo de Normas de Información Financiera or “CINIF”). MFRS differ in certain significant respects from generally accepted accounting principles as applied in the United States (“U.S. GAAP”), which might be material to the financial information contained herein. We have not prepared a reconciliation of the Financial Statements appearing in the offering memorandum, from MFRS to U.S. GAAP, and we have not quantified those differences. The matters described below summarize certain differences between MFRS and U.S. GAAP that may be material. Accordingly, no assurance is provided that the following summary of differences between MFRS and U.S. GAAP is complete. In making an investment decision, investors must rely upon their own examination of our company, the terms of the offering and the financial information included in the offering memorandum. In addition, no attempt has been made to identify future differences between MFRS and U.S. GAAP that may affect the financial statements as a result of transactions or events that may occur in the future, including the issuance of new accounting standards either in the United States or Mexico. Potential investors should consult their professional advisors for an understanding of the differences between MFRS and U.S. GAAP, and how those differences might affect the financial information included in this offering memorandum. We are responsible for preparing the summary below. Accounting for the Effects of Inflation Mexico Through December 31, 2007, MFRS B-10 “Recognition of the Effects of Inflation on Financial Information,” required that the comprehensive effects of price level changes due to inflation be recorded in the basic financial statements for all non-monetary and monetary items. MFRS B-10 required the recognition of the effects of inflation on non-monetary assets and expenses including inventories, cost of sales, property, plant and equipment, accumulated depreciation and depreciation, and other non-monetary assets, as well as stockholders’ equity. Non-monetary assets and stockholders’ equity were generally restated for inflation using factors derived from the NCPI, except that inventory and cost of sales may be adjusted to their replacement cost, not to exceed net realizable value. MFRS B-10 also required the determination of an inflationary gain or loss arising from a company’s net monetary asset or liability position, and the adjustment or restatement of income statement amounts for the year in constant pesos of purchasing power as of the date of the most recent balance sheet presented, as well as the presentation of financial statement amounts from prior years in constant pesos of purchasing power as of the date of the most recent balance sheet presented. Accounting for the effects of inflation under MFRS B-10 was considered a more meaningful presentation than historical cost based financial reporting for Mexican companies. Through December 31, 2007, under MFRS B-10, equipment of non-Mexican origin could be restated by applying the inflation rate of the country of origin, and then translated at the year-end exchange rate of the Mexican peso. Beginning January 1, 2008, MFRS B-10 established new standards for recognizing the effects of inflation in an entity’s financial statements as measured by changes in a general price index only. MFRS B-10 provides criteria for identifying both inflationary and non-inflationary environments, and provides guidelines to cease or start recognizing the effects of inflation in financial statements when the general price index in a cumulative three-year period exceeds 26% in the countries of the functional currency where the company and subsidiaries operate. Restatement of financial statements for earlier periods presented is not permitted by MFRS B-10. United States Under U.S. GAAP, companies are generally required to prepare financial statements using historical costs that are not subsequently adjusted for inflation. However, the application of MFRS 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



A-1



meaningful presentation than historical, cost-based financial reporting for both Mexican and U.S. accounting purposes for foreign private issuers. Under U.S. GAAP, the effect of applying the option provided by the MFRS B-10, “Recognition of the Effects of Inflation on Financial Information,” for the restatement of equipment of non-Mexican origin does not meet the consistent reporting currency requirement of Regulation S-X of the Securities and Exchange Commission (“SEC”). Impairment of Long-Lived Assets Mexico MFRS requires that all long-lived assets be evaluated periodically in order to determine whether there is an indication of potential impairment. The calculation of impairment losses requires the determination of the recoverable value of such assets, which is defined as the greater of the net selling price of a cash-generating unit and its value in use, which is the present value of discounted future net cash flows. In addition, under certain limited circumstances, the reversal of previously recognized impairment losses is permitted. Any recorded impairment losses are presented in other expenses. United States U.S. GAAP requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Assets are considered impaired when the fair value is less than the carrying value of the asset. An impairment loss is to be recorded only when the recoverable amount of the asset, defined as the estimated future undiscounted cash flows expected to result from the use of the asset, is less than the carrying value of the asset, and is measured by the difference between the carrying value of the asset and its fair value. Any impairment loss recorded for an asset to be held and used establishes a new cost basis and, therefore, cannot be reversed in the future. Any recorded impairment losses are presented in operating expenses. Deferred Income Tax Mexico Under MFRS, deferred tax assets and liabilities are recognized for all significant temporary differences between the carrying amounts of existing assets and liabilities as of the balance sheet date and their respective tax bases. MFRS is similar to U.S. GAAP with respect to accounting for current and deferred income taxes, except that MFRS establishes that any deferred tax assets recorded must be reduced by a valuation allowance if it is “highly probable” that all or a portion of the deferred tax assets will not be realized. United States Under U.S. GAAP, deferred income taxes are accounted for under the balance sheet method. Deferred tax assets and liabilities are recognized for the future tax consequence attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases as well as the recognition of operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to berecovered or settled. A valuation allowance is recognized if, based on the weight of available evidence, it is “more likely than not” that all or a portion of the deferred tax asset will not be realized. The effect on the deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. U.S. GAAP requires separate presentation of current and non-current income tax assets or liabilities, depending on the classification of the asset or liability to which the deferred tax item relates. U.S. GAAP also prescribes a comprehensive model for the recognition, measurement, financial statement presentation and disclosure of uncertain tax positions taken or expected to be taken in a tax return. ASC 740 Income Taxes provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.



A-2



Fair Value Measurements Mexico Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction. The use of either an exit or entry price is not specified. Mexico has no definition of what constitutes a principal (or most advantageous) market. There is no guidance as to the use of a fair value measurement within a bid-ask spread, but it does not preclude its use. United States U.S. GAAP clarifies that fair value is the price in an orderly transaction between market participants to sell the asset or transfer the liability in the market in which the reporting entity would transact for the asset or liability, that is, the principal or most advantageous market for the asset or liability. This Statement also emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Labor Obligations Mexico Through December 31, 2007, companies were required to account for an additional liability, and their corresponding intangible assets and separate equity component when an unfunded accumulated benefit obligation existed. Beginning January 1, 2008, accounting for labor obligations was amended. The most important changes are the reduction to a maximum five-year period to amortize prior year items, the effects of the salary growth in the calculation of the Obligation for Defined Benefits (formerly known as Obligations for Projected Benefits) and the elimination of the accounting treatment for the additional liability and its corresponding intangible asset and separate equity component. Companies are required to present the full funded status only within the footnotes. United States Under U.S. GAAP, an employer is required to accrue a liability and recognize an expense during the period in which the employee earns paid absences. In addition, U.S. GAAP requires companies to (i) fully recognize, as an asset or liability, the overfunded or underfunded status of defined pension and other postretirement benefit plans; (ii) recognize changes in the funded status through other comprehensive income in the year in which the changes occur; (iii) measure the funded status of defined pension and other postretirement benefit plans as of the date of the company’s fiscal year-end; and (iv) provide enhanced disclosures. In addition, a company must now measure the fair value of its plan assets and benefit obligations as of the date of its year-end balance sheet. Statement of Cash Flows Mexico and the United States Through December 31, 2007, MFRS specified the appropriate presentation of the statement of changes in financial position be based on financial statements restated in constant Mexican pesos. MFRS identifies the sources and applications of resources representing differences between beginning and ending financial statement balances in constant Mexican pesos. Monetary and foreign exchange gains and losses are not treated as non-cash items in the determination of resources provided by operations. Beginning January 1, 2008, MFRS requires entities to present a cash flow statement describing the cash flow provided by or used in operating, investing and financing activities similar to U.S. GAAP. Under MFRS, restricted cash is part of cash and cash equivalents, with a separate disclosure of restricted cash. Entities are required to classify interest paid as cash outflows for financing activities. Interest expense of the period is reconciled from the Net Income before taxes and Interest paid during the period is included as financing activities. MFRS requires classifying interest received within the same group of activity as the operation to which they are associated.



A-3



ISSUER Metalsa, S.A. de C.V. Carretera Miguel Alemán Km 16.5 #100 Apodaca, NL 66000 México LEGAL ADVISORS To the Issuer As to U.S. law Paul Hastings LLP 75 East 55th Street New York, NY 10022 United States of America



As to Mexican law González Calvillo, S.C. Montes Urales 632, Piso 2 Lomas de Chapultepec México, DF 11000 México



To the Initial Purchasers As to U.S. law Clifford Chance US LLP 31 West 52nd Street New York, NY 10019 United States of America



As to Mexican law Ritch Mueller, S.C. Blvd. Manuel Ávila Camacho 24, Piso 20 Lomas de Chapultepec México, DF 11000 México



INDEPENDENT ACCOUNTANT KPMG Cárdenas Dosal, S.C. Oficinas en el Parque, Piso 8 Blvd. Díaz Ordaz #140 Pte. Col. Santa María Monterrey, NL 64650 México TRUSTEE, REGISTRAR, PAYING AGENT AND TRANSFER AGENT Wilmington Trust, N.A. 166 Mercer Street, Suite 2R New York, NY 10012 United States of America LUXEMBOURG LISTING AND PAYING AGENT Wilmington Trust SP Services (Luxembourg) S.A. 52-54 Avenue du X Septembre L-2550 Luxembourg



US$300,000,000



Metalsa, S.A. de C.V. 4.90% Senior Notes due 2023



________________________________ OFFERING MEMORANDUM ________________________________



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