• Excess
of cost over fair value of net assets acquired - The
excess of cost over fair value of net assets acquired of Mexican subsidiaries
and associated companies is restated using the INPC. The excess of cost
over fair value of net assets acquired of US subsidiaries is restated
using the CPI, and such excess is translated to Mexican pesos at the
exchange rate at the date of the most recent balance sheet presented.
• Excess
(shortfall) in restatement of capital - This
item, which is an element of stockholders’ equity, reflects the accumulated
effect of holding non-monetary assets and the effect of the initial
monetary position gain or loss. The accumulated effect of holding non-monetary
assets represents the difference between the specific values of non-monetary
assets in excess of or below the increase attributable to general inflation
as measured by the INPC and CPI.
• Restatement
of capital stock and retained earnings - Capital
stock and retained earnings, for Mexican subsidiaries, are restated
using the INPC from the respective dates such capital was contributed
or net income generated to the date of the most recent balance sheet
presented. Retained earnings for US subsidiaries are restated using
the CPI.
• Exchange fluctuations
- Exchange gains or losses of Mexican subsidiaries are included in the
cost of financing and are calculated by translating monetary assets
and liabilities denominated in foreign currencies at the exchange rate
in effect at the end of each month.
• Transactions
in foreign currency for Mexican subsidiaries - All transactions
in foreign currency are translated at the exchange rate as of the date
of such transactions. In accordance with the Third Amendment, such transactions
are restated using the INPC.
• Gain
(loss) from monetary position - The
gain (loss) from monetary position reflects the result of holding monetary
assets and liabilities during periods of inflation. Values stated in
current monetary units represent a decreasing purchasing power over
time. This means that losses are incurred by holding monetary assets
over time, whereas gains are realized by maintaining monetary liabilities.
The net effect is presented in the statements of operations as part
of the total financing cost. For subsidiaries located in the US the
result from monetary position is calculated using the CPI.
b) Cash and
cash equivalents
Highly liquid short-term
investments with original maturity of ninety days or less, consisting
primarily of Mexican Government Treasury Bonds and money market instruments,
are classified as cash equivalents.
c) Maintenance
expenses
Maintenance
and repair expenses are recorded as costs and expenses in the period
when they are incurred.
d)
Seniority premiums, retirement plans and severance payments
Seniority premiums
and pension plans for all personnel are considered as costs in the periods
in which services are rendered. Periodic costs are calculated in accordance
with Bulletin D-3 issued by the IMCP, and the actuarial computations
were made by an independent actuary, using estimates of the salaries
that will be in effect at the time of payment. Personnel not yet eligible
for statutory seniority premiums are also taken into account, with any
necessary adjustments made in accordance with the probability of their
acquiring the required seniority. The past service cost is amortized
over the average period required for workers to reach their retirement
age. The method used is the projected unit credit. Effective year 2000
the Company is funding a trust in order to cover the payment of such
liabilities.
Severance payments
are expensed in the period in which such payments are made.
e)
Employee stock option plan
An employee stock
option plan (see note 13b) was adopted in 1998. The Company is accounting
for stock-based compensation using a fair value based method. Compensation
cost is measured at the grant date based on the value of the stock option
award and is recognized over the vesting period.
f)
Income tax
Effective January
1, 2000, the Company applies the provisions of the new Bulletin D-4
“Accounting Treatment of Income Tax, Tax on Assets and Workers’ Profit
Sharing”, issued by the IMCP. As required by this new bulletin, deferred
income taxes are provided for differences between the book and tax value
of assets and liabilities and deferred workers’ profit sharing for temporary
differences between the financial and adjusted tax income, that are
expected to reverse in the future. Additionally, the tax on assets paid
is recognized as an asset. Until 1999, deferred taxes were provided
only for identifiable, non-recurring timing differences that were expected
to reverse over a definite period of time, and the tax on assets paid
was recognized in the income statement.
The cumulative effect
at January 1, 2000 was an increase in long-term liabilities of Ps. 1,528,
a decrease in total assets of Ps. 844 and a decrease directly to stockholders´
equity of Ps. 2,372. The effect on the year ended December 31, 2000
was an increase in net income of Ps. 107, an increase directly to stockholders´
equity of Ps. 145 and a decrease in long-term liabilities of Ps. 252.
g)
Excess of cost over fair value of net assets acquired
The excess of cost
over fair value of net assets acquired is amortized on a straight-line
basis over a period of 20 years. Amortization expense for the years
ended December 31, 1998, 1999 and 2000 was Ps. 14, Ps. 12 and Ps. 16,
respectively.
h)
Excess of book value over cost of net assets acquired
The excess of book
value over cost of net assets acquired is amortized over the period
that the subsidiary or associated company is expected to be integrated
into the operations of the group, which can not exceed 5 years. Amortization
for the year ended December 31, 2000 was Ps. 55.
i)
Reclassification of selling, general and administrative expenses to
cost of goods sold
In order to improve
comparative analysis with other companies, to reflect ongoing changes
in Vitro’s management of production facilities, and to facilitate the
control of such expenses, a change in classification of certain costs
and expenses is reflected in the 1999 results. Expenses related to the
production of goods have been reclassified, from selling, general and
administrative expenses to cost of goods sold. Those expenses include,
among others, supervisors’ salaries, packing materials, certain freight
expenses, and warehousing costs. For comparison purposes, historical
figures for the year 1998 have been reclassified in the amount of Ps.
1,775. Additionally, as a result of the reclassification, Ps. 120 was
capitalized in ending inventory at December 31, 1999 and operating income
for the year then ended was increased by the same amount.
j)
Earnings per share
Earnings per share
are computed by dividing income (loss) by the weighted average number
of shares outstanding during each period.
k)
Use of estimates
The preparation
of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that
affect the reported amounts of these consolidated financial statements
and its disclosures. Actual results could differ from those estimated.