Vitro Corporativo S.A. de C.V.

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Vitro Corporativo S.A. de C.V.

Avenida del Roble 660
San Pedro, Garda Garda, Nueva Leon 66265
Mexico
Telephone: (528) 329-1210
Fax: (528) 335-7210
Web site: http://www.vto.com

Public Company
Incorporated: 1909 as Vidriera Monterrey, S.A.
Employees: 32,535
Sales: 25.88 billion pesos (US$2.63 billion) (1999)
Stock Exchanges: Mexico City New York (ADRs)
Ticker Symbol: VITRO (Mexico City); VTO (New York)
NAIC: 32616 Plastics Bottle Manufacturing; 327211 Flat Glass Manufacturing; 32712 Other Pressed & Blown Glass & Glassware Manufacturing; 32713 Glass Container Manufacturing; 332431 Metal Can Manufacturing; 333298 All Other Industrial Machinery Manufacturing; 5551112 Offices of Other Holding Companies

Vitro Corporativo S.A. de C.V., or Grupo Vitro, is a holding company that, through its subsidiaries, is mainly engaged in the manufacture of such products as glass containers, flat glass for the construction and automotive industries, glassware for table and kitchen use; home appliances and enamel ware; silica, sand, soda, and fiberglass; plastic and aluminum can containers; glass-forming machines; and molds for plastic and glass containers. Vitro is the third largest producer of glass containers in the world and one of only two companies in the world—the other being France’s Compagnie de Saint-Gobain S.A.—that produces a complete line of glass products, include fiberglass and soda silicate as well as automotive and flat glass, glass containers, and glassware. It serves markets in 70 countries.

Mexican Glass Pioneer: 1899-1974

Vitro was an outgrowth of the Cuauhtemoc brewery founded in Monterrey in 1890 by two generations of three interrelated Mexican families, but especially by Francisco G. Sada Muguerza and his brother-in-law, Isaac Garza Garza. In order to bottle the product without resorting to imports, Garza established Vidrios y Cristales, S.A. in 1899, with production beginning in 1903. This enterprise was not a success until 1909, when it acquired the Owens patent for automatic mechanical fabrication of the glass bottle and became Vidriera Monterrey, S.A., establishing a separate glass factory in 1911. The company added glassware to its products in 1928, opened a Mexico City plant in 1934, and began exporting to Central America in 1935.

By 1936 the holdings of the Garza and Sada families and their associates had been divided into brewery and glass groups. Although they continued to hold shares within each group, management of the Vidriera group became largely the responsibility of Roberto G. Sada and Andres G. Sada, sons of Francisco Sada Muguerza. In that year Vidriera Monterrey became a holding company named Fomento de Industria y Comercio (FIC). Its units included the Monterrey and Mexico City plants and Vidrio Plano, a newly established unit to manufacture plate glass. Cristalería was also established in 1936 to manufacture glassware.

In 1943 FIC established a subsidiary to manufacture machinery and equipment because of World War II shortages. The parent company added bottling plants at Los Reyes in 1944 and Guadalajara in 1951. In 1948 it acquired Financiera del Norte, S.A., which later became Banco del Pais, S.A. (Banpais), the nation’s fifth-ranking bank. A joint venture, Vitro Fibres S.A., was established with Owens Corning Fiberglass Co. in 1951, a silicates subsidiary in 1964, and a Central American subsidiary for making glass the same year. By 1965 FIC also had added a bottling plant in Ciudad Obregon, and it entered the plastics field soon after. Beginning in 1970, the company started exporting machinery and molds for glass to various American countries, including the United States. In 1973 it acquired a company making safety glass for automobiles.

Boom and Bust Years: 1975-95

In 1974 the tightly held Sada-Garza holdings, known collectively as the Monterrey Group, were divided into four entities: Grupo Alfa, Visa, Cydsa, and FIC. FIC, which had sales of 3.4 billion pesos in 1975 (US$272 million, 11th among reporting Mexican companies), became a public company the following year, offering shares on the Bolsa de Valores Mexicanos, Mexico City’s stock exchange.

A factory was founded at Queretaro in 1978 and Vitro Flotado, a glass-sheet subsidiary, was launched in 1979. That same year FIC was 16th in size among reporting Mexican firms, with sales of 12.9 billion pesos (US$570 million) and net income of 1.1 billion pesos (US$48.6 million). It employed about 30,000 people. The company had seven marketing divisions: food products, beer, industrials, medicines, perfumes, wines, and soft drinks. Only about ten percent of its output was standard production; the rest was customized to meet the needs of a particular client. The Los Reyes plant housed the world’s biggest furnace for glass containers. FIC was exporting 13 percent of its production, at prices about 30 percent below international level, according to company directors.

Also in 1979, Vidrio Plano established a joint venture with Ford Motor Company to fabricate automotive glass in Mexico for sale primarily in Europe and Latin America. Vidrio Plano took 62 percent ownership of the venture. The following year FIC was renamed Vitro. In 1981 it added plastic containers and machinery for making plastics to its products. Vitro and its subsidiaries also owned all of Banpais and 87 percent of Grupo Financiera Banpais, the holding company. Their operating results were excluded from Vitro’s consolidated financial statements.

Like many other big Mexican companies that had borrowed heavily during the oil boom of the late 1970s, Vitro was hard hit by the subsequent collapse of petroleum prices and the devaluation of the peso in 1982. Manufacturing capacity in use dropped from 90 percent during 1978-81 to less than 70 percent in 1982-83, and employment peaked at 36,611 in 1980. Moreover, Vitro’s stake in Banpais ended with the nationalization of the banks by the Mexican government in 1982. Nevertheless, because other companies did even worse, Vitro was the seventh largest of reporting Mexican companies in 1982, up from 12th the. previous year. It had no less than 63 subsidiaries. It made a strong recovery the next year, raising its net profits 64 percent and rising to sixth place. Although the debt to foreign creditors reached about US$840 million in 1984, by 1989 the foreign debt had been almost entirely eliminated. Ernesto Martens became the company’s first nonfamily chief executive officer in 1985.

Faced with a curtailed market at home, Vitro began seeking outside markets and formed alliances with foreign companies. These included a joint venture with Samsonite Corp. to make luggage and furniture and with Whirlpool Corporation to produce refrigerators, window air conditioners, and kitchen ranges. The company also added enamelware cooking utensils to its products in 1985 and established a flat-glass joint venture with Pilkington Brothers of Great Britain that year. By 1987 Vitro had ties to some 400 companies in the Americas, together with Cydsa, in which it held a half-interest. The number of joint ventures reached 12 by 1989.

By this time Vitro was strong enough financially to accomplish the first successful hostile takeover of an American company by a Mexican one, purchasing Anchor Glass Container Corp., the second largest U.S. glass-container manufacturer, for more than US$900 million. It also acquired a smaller U.S. company, Latchford Glass Co., that year. State-of-the-art technology for these companies’ plants was licensed from Owens-Illinois Inc. Vitro’s net sales came to 8.13 trillion pesos (US$2.89 billion) and net income to 611 billion pesos (US$217 million) in 1990. Debt-ridden Anchor ate into Vitro’s profits, however, and in 1992 Vitro laid off workers—3,000 of them—for the first time.

Vitro formed its most important alliance in 1992, when it signed an agreement with Corning Inc. to establish two joint ventures. Corning Vitro Corp. was established as a Corning subsidiary 51 percent-owned by Corning and 49 percent by Vitro, while Corning S.A. de C.V. was created as a Vitro subsidiary 51 percent-owned by Vitro and 49 percent by Corning. Corning received a cash payment in excess of US$130 million and 49 percent of Vitro’s worldwide consumer business, while Vitro received 49 percent of Coming’s worldwide consumer assets and businesses.

Vitro also formed a partnership with AMISILCO Holdings, Inc. that year to create two similar joint ventures—World Tableware International, Inc. and Vitrocrisa Cubiertos, S.A. de C.V., respectively. ACI America, a company with 120 processors and sales offices in the south and west of the United States, was purchased for US$88 million. In 1994 Regioplast, S.A. de C.V. was formed as a joint venture between Vitro and Owens-Illinois to manufacture plastic containers and caps. Vitro sold its share of the luggage business to Samsonite that year but acquired AMSILCO Holdings. As a result of these alliances, in 1995 51 percent of Vitro’s sales were outside of Mexico, compared to only 15 percent in 1991, with Anchor alone responsible for 40 percent of total sales.

In Mexico, Vitro opened a new plant in Mexicali for this border area of growing demand for beer and soda. A division for domestic products had ten plants for making washing machines and refrigerators. Nevertheless, all was not rosy for Vitro: sales were only growing slowly, net profits were down, and debt was rising.

Company Perspectives:

Grupo Vitro seeks to promote growth and increase value for shareholders by introducing new technology, new products and developing new markets. Through its personnel, products, and suppliers Grupo Vitro seeks to become the most cost-efficient manufacturer in the markets it serves, and to exert a positive influence in the communities in which it has a presence.

Restructuring in the Late 1990s

The peso devaluation of December 1994 affected Vitro less than other Mexican firms because of its dollar holdings, thanks to its alliances with foreign enterprises. Nevertheless, the company, saddled with interest payments on a hefty US$2.2 billion debt, lost money in 1994 and 1996. Anchor Glass continued to be a drain on earnings, as was Vitro’s ten percent holding in troubled Grupo Financiero Serrín, which it had purchased in 1992 and which also was closely associated with the Monterrey Group. Vitro had to pay US$69 million in 1995 for another ten percent share to keep the bank, Mexico’s third largest, from collapsing. In 1996 it put up US$15 million more, but its share of the group fell to 11.4 percent. Adrian Sada Tre vino’s sons Adrian Sada Gonzalez and Federico Sada Gonzalez became chairman and president/chief executive officer of the firm, respectively, in 1995. (The family’s net worth was estimated at US$1 billion in 1993.)

With the continuing transition of U.S. soft-drink manufacturers from glass to plastic containers, Anchor Glass began concentrating on the beer and iced-tea markets. By 1995, however, the latter beverage was falling in sales. Anchor cut its number of plants to 14 (compared to 22 in 1989) and its production by 20 percent (compared to 1991) but continued to founder in red ink. In 1997 Vitro sold the company to Owens Brockway Containers of Canada for US$392.5 million, with Vitro also assuming responsibility for the company’s US$70 million pension debt.

To relieve its financial pressures, in 1997 Vitro also agreed to sell its 49.9 percent holding in Cydsa—the Monterrey Group’s profitable plastics, chemicals, and fibers group—for the right to receive the proceeds from 47.6 million of its own shares, or 13.2 percent, held by Tomas Gonzalez Sada, Cydsa’s president, and his family. These shares were sold in 1998 to Vitro itself, an employee stock-option plan, and a third party, the latter paying 34.46 million pesos (US$3.48 million) for about one-eighth of these shares. Vitro also sold 49 percent of Vitrocrisa, 49 percent of Crisa Corp., and all of Worldcrisa—its glass tableware subsidiaries—to Libbey Inc. for US$100 million•. Vitrocrisa represented 14 percent of the parent company’s sales. In addition, it sold Materias Primas, S.A., a subsidiary engaged in the mining of silica sand and feldspar, to Unimin Corp. for US$130 million. As a result, Vitro fell from 5th to 12th place among reporting Mexican firms.

Of Vitro’s 26.96 billion pesos in sales in 1998 (US$2.49 billion) the flat-glass unit accounted for 34 percent; glass containers for 30 percent; household products for 18 percent; diverse industries for 11 percent; and glassware for seven percent. Export sales accounted for about 27 percent and joint ventures about 67 percent of sales. The company lost some 311 million pesos (US$28.71 million). Its holdings in Grupo Serfin were down to 5.1 percent by the end of the year.

In September 1999 Vitro announced it would restructure its glass-container division, close a plant, and sell about US$100 million in assets as part of a plan to reduce its debt. Vitro’s 1999 sales were down in pesos (25.88 billion) but higher in dollar terms (US$2.63 billion). Flat glass accounted for 33 percent; glass containers, 28 percent; household products, 19 percent; diverse industries, 12 percent; and glassware, eight percent. The company had net income of 1.49 billion pesos (US$151.66 million). The long-term debt at the end of the year was 12.91 billion pesos (US$1.31 billion). In January 2000 Vitro announced the acquisition of Harding Glass, a U.S. distributor of specialty glass products.

Principal Subsidiaries

Ampolletas (49%); Crisa Corporation (U.S.A.); Regioplast, S.A. de C.V. (50%); Vidrio Plano; Vitro-American National Can (France; 50%); Vitro Flex (38%); Vitro Packaging, Inc. (U.S.A.); Vitro Plan (U.K.; 35%); Vitrocrisa Holding (49%); Vitromatic (49%); VVP America (U.S.A.).

Principal Operating Units

Diverse Industries Business Unit; Flat Glass Business Unit; Glass Containers Business Unit; Glassware Business Unit; Household Products Business Unit.