Notes to consolidated financial statements
For the years ended December 31, 2011 and 2010 (as adjusted)
(In thousands of Mexican pesos ($) and thousands of U.S. dollars (US$))
19. Commitments
At the date of the financial statements, the following commitments have been assumed for the principal subsidiaries:
I. Commercial group:
a. As of December 31, 2011, contracts have been executed with suppliers for the remodeling and construction of some of its stores. The amount of the commitments contracted in this regard is approximately $452,939.
b. Furthermore, as of December 31, 2011, the Company and its subsidiaries have entered into lease agreements in 302 of its stores (Sears, Saks, Sanborn Hermanos, Sanborn's - Café, Mix-Up, Discolandia, I Shop, Comercializadora Dax, Corpti and Sanborns Panama). The leases are for non-cancelable periods of between one and 20 years. The rental expense during 2011 and 2010 was $1,059,358 and $748,096, respectively; also, the Company and its subsidiaries, acting as lessees, have contracts whose terms range from between one to 15 years and the amount of rental income in 2011 and 2010 was $205,323 and $1,109,915, respectively.
c Based on an agreement signed on September 12, 2006, the Company executed a contract for the payment of consulting and brand use license for an initial term of 15 years with a 10 year renewal option, establishing the minimum annual payment of US $500, and allowing the use of the name Saks Fifth Avenue both in its corporate name and in its stores.
d. Sears Operadora México, S.A. de C.V. (formerly Sears Roebuck de México, S.A. de C.V.) and Sears Roebuck and Co., recently signed an agreement whereby they have decided to extend under the same terms the Brand Use License Contract and the Merchandise Sale and Advisory Contracts governing the commercial relationship between them, which establishes the payment of 1% of the revenues from merchandise sales, and allows the use of the Sears name both in its corporate name and in its stores, and the exploitation of the brands owned by Sears Roebuck and Co. The agreement will be in effect up to September 30, 2019, but allows for a seven-year extension under the same conditions, unless one of the parties decides not to do so, in which case it must notify the other party two years in advance.
II. Infrastructure and Construction:
a. During 2011 Operadora CICSA, S.A. de C.V. ("Operadora") signed contracts for the manufacture of two fixed marine oil rigs with Pemex Exploración y Producción (PEP), for $247,000 and $381,000, respectively. The first one is 95% completed as of December 31, 2011 and is expected to conclude in the first quarter of 2012, while the second one is 32% completed and is expected to conclude in the third quarter of 2012.
b. In January 2010, PEP allocated through a direct award to Servicios Integrales GSM, S.A. de C.V. (GSM) and Operadora, both subsidiaries of CICSA, the drilling and termination work of 100 wells of the Tertiary field in the Región Sur. The amount of the construction contract was $1,028,380, plus US$159,406, and must be concluded in December 2012. As of December 31, 2011, the project is 59% completed under the original terms of this contract. In the final quarter of 2011, an addendum was assigned to this contract for the drilling of 33 steam injection wells apart from those currently in process, for an approximate value of US $95,000, on which work will begin in the first quarter of 2012.
c. In January 2010 CICSA announced that as a result of the contract awarded to the winning consortium for the construction and operation of the Wastewater Treatment Plant at Atotonilco, Tula, Hidalgo, CICSA, through a consortium created at the end of 2010, Infraestructura y Saneamiento de Atotonilco, S.A. de C.V., was waiting for the contracting of approximately $2,050,000 (including IVA) for its participation in the development of the structural and architectural engineering and in the civil construction project. The Atotonilco Plant will be the largest in Mexico and one of the largest in the world. It will have a capacity of 35 m_ per second (m3/s) for the treatment of wastewater in the Metropolitan Zone of the Valle de México, cleaning 23 m3/s during the dry season and another 12 m3/s more in the rainy season, by means of a physical-chemical process module. As of December 31, 2011, this project is 42% completed.
d. In May 2010, the SCT, a Federal Government agency, signed a concession title with the company Autovía Mitla Tehuantepec, S.A. de C.V. for $9,318,200, to construct, exploit, operate, conserve, maintain, modernize and expand the Mitla-Entronque Tehuantepec II federal highway, which is 169 km in length. For the construction of this highway, the specific purpose company Constructora MT de Oaxaca, S.A. de C.V. (MT) was created in December 2010, of which 40% is owned by Operadora. MT signed a contract in September 2011 with the concessionaire for the construction of this highway. At the date of issuance of these financial statements, the Company is waiting for the rights-of-way so that the work can begin.
e. During 2010 a contract was signed for the construction of a shopping mall in the city of San Luis Potosí for $500,000; the aforementioned contract was increased to $575,000 due to new requirements. As of December 31, 2011 this project is 88% completed and is expected to conclude in the first quarter of 2012.
f. In 2009, through Operadora, the Company began construction of a Jack Up (mobile drilling platform for oil wells at sea), which is practically terminated at the date of issuance of these financial statements, with only the commissioning of equipment pending. Currently the Company is in the process of selling it through companies specializing in this type of equipment.
g. In April 2009, Operadora executed a contract with CFC Concesiones, S.A. de C.V., a subsidiary of IDEAL, a related party, to perform the construction of the second leg of the Northeast Bypass of the Metropolitan Zone of the City of Toluca, which is 29.4 km long, through the municipalities of Lerma, Toluca, Otzolotepec, Xonacatlán, Temoaya and Almoloya de Juárez, over a one-year period. The value of the contract is approximately $750,675. At the date of issuance of these financial statements, the work has been completed and the final release documentation is being prepared.
h. In July 2009, PEP awarded GSM and Operadora the construction contract for the "Integrated work for the drilling of wells in the Proyecto Aceite Terciario del Golfo" (Paquete Adicional VIII). The value of such contract is approximately $203,528, plus US$119,897, and will be performed in approximately 2 years. In September 2009, work began on this drilling project for 144 oil wells and has finished at the date of issuance of these financial statements. However, at the date of issuance of the financial statements, CICSA is in the process of signing a contract extension up to May 2012 for the drilling of additional wells.
i. In October 2009 Operadora announced that it has reached agreement with Impulsora Del Desarrollo y el Empleo en América Latina, S.A.B. de C.V. ("IDEAL") (a related party) to perform the construction and modernization work on the "Proyecto Pacífico Norte", which consists of: (i) The Southern Bypass of Culiacán and the Mazatlán Bypass and its connecting branches, and (ii) The Mazatlán-Culiacán High Specification Highway and the related modernization work. The work to be performed comes to a total of $3,678,200, divided into three parts; the Culiacán Bypass for $1,590,844, in which the work is 91% completed as of December 31, 2011, the Mazatlán Bypass for $1,587,356, in which the Company is waiting for the rights-of-way, among other aspects, to begin the modernization and construction work for $500,000; the latter will be performed after the first two phases have been concluded.
j. In December 2009 Operadora announced that it entered into a lump sum contract with the decentralized state agency named Sistema de Autopistas, Aeropuertos, Servicios Conexos y Auxiliares del Estado de México (SAASCAEM) for the modernization of the Tenango- Ixtapan de la Sal Highway, from Km 1+100 to Km 32+630, in the Estado de México. The construction project consists of expanding the highway from two to four lanes, including earth grading work, drainage, structures, asphalting, construction and upgrades of junctions for a total length of 31.6 km. The contract amount is approximately $492,162 and will be performed over a 20 month period. At the date of the financial statements the project is 64% completed and is expected to conclude in the first quarter of 2012.
k. In the second quarter of 2008, the consortium in which CICSA participates together with ICA and Alstom Mexicana, S.A. de C.V., was awarded the project to construct Line 12 of the Mexico City subway system (also known as Linea Dorada), which will cover a distance of approximately 24 km (from Mixcoac to Tláhuac). This assignment was made by the General Public Works Office for Transportation of the Federal District Government by means of an international public tender. The amount of the respective contract is $15,290,000. CICSA's share is 25% of the value of the civil engineering work of such project. As of December 31, 2011, the civil engineering work is 100% completed; and CICSA is about to conclude the final details of this construction project within the agreed-upon deadline.
l. In the third quarter of 2008, a consortium made up of Operadora and other companies outside the Group, Constructora El Realito, S.A. de C.V., was awarded the contract to perform the work involving the design, development and engineering and construction of the El Realito dam, which will supply drinking water to the Metropolitan zone of San Luis Potosí, S.L.P., located on the river Santa María, in the municipality of San Luis de La Paz, Guanajuato. The amount of this contract was $549,748, and as of this date increases have been authorized for up to $633,180, of which Operadora has a 52% share and is expected to be finished within three years. At the date of the financial statements this project is 90% completed
m. In November 2008, through a consortium formed with other companies, CICSA signed the contract for the construction of the Túnel Emisor Oriente, which will recover drainage capacity in the Valle de México and ensure the normal operation of deep drainage maintenance programs, thus eliminating the risk of flooding during the rainy season. The National Water Commission, the Federal District Government and the Government of the Estado de México, through Trust number 1928, given the need for such construction projects and considering the technical capacity and experience of the Mexican companies which comprise the consortium, made a direct award in accordance with the related Law of Public Works and Services, to assign such project to the company named Constructora Mexicana de Infraestructura Subterránea, S.A. de C.V. (COMISSA), whose shareholders are: CICSA with 40% of the equity, Ingenieros Civiles Asociados, S.A. de C.V. (ICA), Construcciones y Trituraciones, S.A. de C.V. (COTRISA), Constructora Estrella, S.A. de C.V. (CESA) and Lombardo Construcciones, S.A. de C.V. (LOMBARDO). The amount of this contract was $9,595,581, and as of this date increases of up to $13,803,516 have been authorized. At the date of the financial statements the project is 44% completed, including the aforementioned increases, and CICSA's share is $5,465,443.
The project began engineering and construction work under a mixed public works scheme on the basis of unit prices, lump sum and fixed term, which must be concluded in September 2012. However, with the authorizations made after the construction work ended, the deadline was extended to October 2014. The contract stipulates the construction of a tunnel 7 m in diameter, approximately 62 km long and with a capacity of 150 m_ per second. As of December 31, 2011, work has been completed up to Louver 17, and the construction of two plants for the production of voussoirs has been concluded in Zumpango and Huehuetoca. At the date of the financial statements, the voussoirs continue to be produced and the project is approximately 56 % completed. The access ways have been finished and the tunnel boring has begun at Louver 10.
n. In September 2007, Operadora signed a construction contract to expand the ethylene oxide plant at the Central Petroquímica Morelos. The contract amount is $484,864. The project began in October 2007 and ended as of December 31, 2011, and the final process of release and document delivery is underway with the customer.