SANLUIS RASSINI GLOBAL PRESENCE U. S. A. TECHNICAL CENTER PLYMOUTH, MICHIGAN RESEARCH AND DEVELOPMENT

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1 A n n u a l R e p o r t

2 U. S. A. 1 2 TECHNICAL CENTER PLYMOUTH, MICHIGAN RESEARCH AND DEVELOPMENT SANLUIS RASSINI - OHIO MONTPELIER, OHIO COIL SPRINGS M E X I C O SANLUIS RASSINI - PIEDRAS NEGRAS PIEDRAS NEGRAS, COAHUILA LEAF SPRINGS, COIL SPRINGS AND TORSION BARS SANLUIS RASSINI - BYPASA SAN JUAN DEL RIO, QUERETARO ELASTOMERS SANLUIS RASSINI - XALOSTOC ECATEPEC, THE STATE OF MEXICO LEAF SPRINGS HEADQUARTERS MEXICO CITY SANLUIS RASSINI - PUEBLA SAN MARTIN TEXMELUCAN, PUEBLA ROTORS, DRUMS AND ASSEMBLIES SANLUIS RASSINI GLOBAL PRESENCE 8 B R A Z I L SANLUIS RASSINI - NHK AUTOPEÇAS SAO PAULO LEAF SPRINGS 9 SANLUIS RASSINI - NHK AUTOPEÇAS RIO DE JANEIRO LEAF SPRINGS AND COIL SPRINGS E U R O P E 10 SANLUIS RASSINI - SUSPENSIONS STUTTGART, GERMANY SALES OFFICE

3 VALUES SERVICE ATTITUDE: To offer our internal and external customers effective solutions of the highest value, with enthusiasm and a sense of urgency. N E T S A L E S Millions of US dollars COMMITMENT: To always go the extra mile. TRUST: To be consistent in our words and actions. 580 DISCIPLINE: To always do the job according to established standards and procedures. TEAMWORK: To add my talent and effort to that of my peers in order to meet our objectives. QUALITY: To always bear in mind that the organization s quality reflects my own personal quality VISION To be the Best of the Best product and solution provider to the automotive industry, while creating value for our customers, employees, communities and shareholders R E L I A B I L I T Y

4 SANLUIS RASSINI S U S P E N S I O N S SANLUIS RASSINI B R A K E S MISSION Maintain SANLUIS Rassini as a high quality, competitive, profitable organization S A F E T Y

5 COMPANY PROFILE The humble origin of SANLUIS Rassini can be traced back to a small leaf spring repair shop in Mexico City in After being acquired by Corporación Industrial SANLUIS in 1988, Rassini became SANLUIS Rassini, and underwent an ambitious series of changes that would bring it to where it is today. The organization now offers a constantly expanding range of solutions to the world s leading auto manufacturers through its Technical Center in the United States, Headquarters in Mexico City, seven industrial facilities throughout the American continent and one commercial office in Europe. Today SANLUIS Rassini is the largest leaf spring manufacturer in the world, the undisputed producer of suspension components for light vehicles on the American continent, the absolute market leader in supplying the NAFTA region and Brazil, and a growing designer and producer of hi-tech brake systems. 85% of the company s sales are dollar based.

6 REPORT OF THE BOARD OF DIRECTORS Dear Shareholders, On behalf of our Company s Board of Directors, I am pleased to present this report on the operations and financial results of SANLUIS Corporación, S.A. de C.V. ( SANLUIS ) and its subsidiaries for the year ended December 31, was a period full of milestones for the company: SANLUIS Corporación celebrated 25 years of having been founded by the current group of majority stockholders We commemorated the 75 th anniversary of Rassini We observed the 30 year mark for our operations in Piedras Negras 2004 signaled the 15 th anniversary of having acquired Rassini s auto parts business, now SANLUIS Rassini Suspensions We honored 10 years of having started our SANLUIS Rassini Brake business We celebrated a decade of having brought BYPASA into the company s fold

7 The organization s consolidated sales reached a record level, registering $6,723 million pesos, or US$580 million; a 20% increase over the previous year In the NAFTA region, which represents 85% of the revenue, sales rose by 15% over 2003; while in Brazil, which makes up 15% of our bottom line, 12-month sales rocketed 63% The rise in NAFTA sales was due primarily to an expanded market share in suspensions; leaf springs grabbed a 92% share in 2004 compared to 77% in 2003, primarily due to a 4% overall increase in the North American light truck market SANLUIS NAFTA brake sales remained steady with a 12% share of the market, representing 22% of the company s consolidated sales for the year The notable growth in our Brazilian sales was tied to strong domestic demand and auto exports, as well as an increased market share: 62% in leaf springs and 25% in coil springs In short, this speaks of the solidity of SANLUIS Rassini s operations and growth. Despite significant increases in sales, EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) was 16% lower than the previous year, registering $662 million pesos or US$57 million; a 10% operating margin in 2004 compared to 14% in 2003.

8 REPORT OF THE BOARD OF DIRECTORS 4 5 We can directly attribute the drop in consolidated EBITDA to the major rise worldwide in the prices of steel and scrap compared to 2003, an upward movement that far overstepped all forecasts. Making matters worse, on top of the higher cost for these primary raw materials for both SANLUIS Rassini Suspensions and SANLUIS Rassini Brakes, there was also a serious shortage of these products and a jump in the domestic rate of electricity. These price increases could not be totally offset by passing them on. That being the situation, we came up with a number of strategies that would compensate for the difference through improvements in productivity, a better product mix, savings in our plants and reducing sales and administrative costs. In the absence of this unforeseeably radical rise in steel and scrap, our EBITDA would have been 42% above what we are reporting, reaching US$81 million and a 15% profit margin. While the added cost and volume of raw material needed to meet increased sales meant a greater investment of work capital, day/sales indices stayed at levels similar to The use of available financing programs for acquiring steel through established factoring-supplier lines enabled the Company to significantly reduce the net increase in work capital, which we held to only US$5 million above Net operating cash flow was US$62 million, an 8% increase over Without the extraordinary cost escalation, OCF would have reached US$86 million, or 50% above the previous year.

9 In combination, an increased operating cash flow and a planned reduction of new investments enabled SANLUIS to maintain its strategy of paying down its debt, which the company did by US$36 million compared to December Additionally, during the month of July, SANLUIS Rassini Brakes negotiated new bank financing for US$25 million to prepay the previous debt in full, obtaining better conditions as to cost of capital, terms and operational flexibility. With respect to the size of the organization, today SANLUIS Rassini employs 5,700 people in Mexico, the United States and Brazil. To preserve and improve our competitive market position the company needed an organizational strategy that delineated our annual specific objectives. This ultimately led to more effective actions in Among these were competency-based managerial and development evaluations that helped us reassess our human resources and the need for greater yield. This led us to implement new programs that boost individual performance, increase personal satisfaction and improve executive leadership capabilities.

10 REPORT OF THE BOARD OF DIRECTORS 6 7 Our Quality Management Model has been evolving year by year, and 2004 was no exception. The model was the focus of a number of significant improvements, especially integrating the key requirements of ISO/TS Out of this effort headed by a technical committee of in-house specialists came the Rassini Total Quality Management System, which enables us to not only fully comply with our Vision, Mission and Values, but to also surpass our customers expectations. Our support of social development programs plays an important role in the harmonious evolution of the communities where we operate, as well as fostering the integration of our employees and their families into the company and its culture of growth. At the end of 2004 we concluded that it was essential to have an Integral Occupational Health System, which we will develop and implement in Dear Shareholders, Since SANLUIS went into the auto parts business 15 years ago, the company s sales have grown at an annual compounded rate of 15%, going from US$71 million in 1989 to US$580 million in During that same time span, EBITDA has gone from US$7 million to US$57 million, also registering a 15% yearly compounded rate of growth a number we would have considerably improved on for 2004 if we eliminate the impact of the extraordinary rise in the price of steel. Over these 15 years we have grown from a Mexican suspension manufacturer to become the leading supplier of OEM suspensions in North America and Brazil; the number one leaf spring supplier in the world; and a growing competitor in supplying the NAFTA market with coil springs and advanced brake components.

11 Now we are going global with suspensions to extend our leadership to other high growth potential markets. We are confident that because of the measures we took in 2004 to counteract the cost rise of our primary raw materials an issue that will be dealt with in greater detail further on in this report that our operating margins will tend to return to the profit levels of previous years while recuperating an annual growth rate superior to sales. By the same token, by sustaining and continually improving our position as a leading solutions supplier for our customers, we will keep on consolidating our leadership in the North American and Brazilian suspension and brake markets. The result of this combination of positive actions should be reflected in an upward movement of our revenue and profitability. S i n c e r e l y, Antonio Madero Chairman of the Board and CEO April 28, 2005

12 SANLUIS RASSINI SUSPENSIONS N O R T H A M E R I C A 2004 was full of historic landmark achievements for us. On the one hand our industrial complex in Piedras Negras, Coahuila, celebrated its 30 th anniversary, reaffirming its title as the largest production center of suspension components in the world also marked the 10-year point of having acquired our BYPASA plant, which is showing a promising future in the production of elastomers. 8 9 During this last year we secured new contracts and extended our share of the North American leaf spring market by 15 percentage points. Added to the growth of the pick-up segment, in which we are also leaders, we saw a 23% increase in our sales compared to 2003, reaching US$370 million. We successfully launched 10 platforms in 2004 in record time, which represented US$46 million in new leaf spring and coil spring business. Between these new platforms and improved demand, production volume reached 9.1 million leaf springs, 5 million coil springs and 2.5 million torsion bars, representing year to date increases of 20%, 28% and 19%, respectively. LEAF SPRINGS MARKET SHARE NAFTA 2004 was full of challenges for SANLUIS Rassini Suspensions. The unprecedented crisis in assuring a timely supply of steel at a reasonable price was by far our most daunting task. 92%

13 Owing to the immense global demand for the raw material, especially by China, and the scarcity of the special grade of steel needed for our processes, costs rose 41% during the year and 34% on average from To diminish the effects of this situation, externally we negotiated long and hard with our steel suppliers and customers, to assure a consistent on-time supply of our products. Internally we implemented a wide range of productivity initiatives in our processes, which allowed us to lessen the impact of the price increases while improving output.

14 SANLUIS RASSINI - SUSPENSIONS IN PIEDRAS NEGRAS, COAHUILA: For our Leaf Springs 1 plant we implemented 250 kaizen initiatives targeting process improvement, resulting in a 14% reduction in energy consumption, a 4% drop in waste and a 2% increase in productivity In the Leaf Springs 2 facility we managed to boost production capacity 8% without any additional capital investments. We obtained a record high production average of 13,500 assemblies per day, while keeping manufacturing costs on a par with 2003 and offsetting the dramatic rise in steel prices We put into effect more than 100 ideas for improvement at the Coil Springs plant, resulting in a 20% savings in energy consumption and 15% increase in production. Before factoring in the effects of steel, we achieved a 28% overall reduction in production costs compared to the previous year In the Torsion Bars plant we implemented over 90 process improvements that led to producing 35% less scrap, a 5% drop in energy consumption and an improvement in productivity of over 15% IN XALOSTOC, THE STATE OF MEXICO: Here we put into action a diversity of work and production enhancing initiatives and laid the foundation for other productivity improvement processes that will give us significant savings in 2005.

15 L E A D E R S H I P SANLUIS Rassini is the largest designer and manufacturer of leaf springs in the world. Producing 10 million pieces per year, the company is the undisputed leader in the North American market with a 92% share

16 SANLUIS RASSINI - SUSPENSIONS Quality is an area in which we have never taken short cuts. Proof of this is the stringent international parts per million (ppm) standard for defective pieces. On average, SANLUIS Rassini Suspensions registered a phenomenal 10 ppm an all time record low. Also reflecting our organization s devotion to quality assurance, the Piedras Negras industrial complex and coil spring plants in Montpelier, Ohio, both obtained ISO/TS certification. Developing new market niches and strengthening existing ones are traits that have defined SANLUIS Rassini throughout its 75-year history. And 2004 was no exception. We opened a sales office in Stuttgart, Germany to directly serve our customers with European centers of operation, as well as to explore and capitalize on new continental business opportunities. Along a similar line, we strengthened our elastomer business at the BYPASA plant. We also obtained very positive results in the area of R&D, especially with five Tier I and Tier II suppliers in the non-metallic subcomponent segment. The engineering team at SANLUIS Rassini Suspensions received its first U.S. patent for an integrated mechanism that holds the leaves together in a leaf spring. We trust that this will be widely employed in upcoming years and evolve into another competitive advantage for us. We also developed a new tool for measuring fatigue parameters for leaf springs on double axle vehicles. Currently being tested at our Technology Center, this product was nominated for the 2004 OEM Technical Innovation Award. Together or separately, these achievements once again ratify SANLUIS Rassini s leadership in R&D.

17 75% of the auto parts we produce are for the North American light truck segment, which makes up 54% of the auto sector and has a 4% annual growth K E Y M A R K E T

18 SANLUIS RASSINI - SUSPENSIONS B R A Z I L Our Brazilian affiliate, Rassini NHK Autopeças (RNA) considerably surpassed its sales objectives for the year, accounting for 15% of the company s consolidated sales in This was largely a result of high truck and tractortrailer demand for transporting agro-goods and a substantial rise in auto exports During the year we signed two important agreements that will help consolidate our regional presence and leadership. The first was a technical assistance contract with U.S. based CMP for manufacturing U bolts, a move that will allow us to launch this line of complementary products in The second contract was a deal for supplying parabolic leaf springs with a leading producer of heavy trucks in North America, starting in was a record year for RNA. Production volumes reached 1.1 million leaf springs and 2.7 million coil springs. This represented 16% and 15% growth respectively compared to the previous year. Sales reached US$83 million, 63% MARKET SHARE BRAZIL LEAF COIL SPRINGS SPRINGS higher than Our Brazilian subsidiary maintains its point position with 62% of the market in leaf springs and 25% in coil springs. 62% 25%

19 T E C H N O L O G Y SANLUIS Rassini s R&D team received a U.S. patent for their innovative system that improves leaf spring performance

20 SANLUIS RASSINI BRAKES Ten years ago we went into the brake business. Shortly afterwards, in 1997, we entered the North American OEM brake market. In 2004 we continued strengthening our position as an advanced designer and producer of hi-tech rotors, drums and assemblies. And as a result of all this, we now have a 12% share of the NAFTA region Staying the course in 2004, we again acquired and produced a number of new platforms, some of our own design. In overview these include: DaimlerChrysler 300/300C, representing annual sales of 60,000 rotors Montana and Rendezvous, with a yearly volume of 1 million pieces General Motor s Equinox, supplying 1.2 million rotors per year GM s Sierra, Silverado and Savana, with a guaranteed production of 1 million pieces annually until 2012 The GM heavy-duty Corvette, DaimlerChrysler Dakota pick-up both launched without delays BRAKES MARKET SHARE NAFTA 12%

21 The founding process for original equipment clutch discs for our new customer, Luk Mercedes Benz M Class, with an approximate volume of 500,000 pieces annually We also developed 17 new products for the North American aftermarket, representing a yearly volume of nearly 250,000 pieces

22 SANLUIS RASSINI - BRAKES Our products enjoy high acceptance with North American and European assemblers. In 2004 we sold 8.5 million rotors, drums and assemblies, a significant amount, yet 4% less than 2003 due to the lifespan of one of the key platforms we supply For the year being reported, SANLUIS Rassini Brakes registered sales of US$127 million and the foundry operation reached 106,500 tons of pieces. During 2004 we operated within an adverse environment where scrap metal, our primary raw material, reached its highest price in the last decade. Costs reflected a 58% increase on average over 2003, and 82% up through Electrical energy also rose by 22%. To compensate for these excessive price increases, we implemented a series of improvement initiatives that enabled us to absorb a certain degree of the cost increments while improving our productivity.

23 SANLUIS Rassini s strength is seen in the high performance rotors it produces for sports cars like the 300/300C, Magnum, Viper, Charger and Corvette HIGH PERFORMANCE

24 SANLUIS RASSINI - BRAKES In the Foundry we achieved a 6% increment in Overall Group Effectiveness (OGE), reaching a 12-month level of 84%. By working outside of peak hours we pushed up our potency factor to 98.2%, resulting in a yearly quality average of 2.78%, a significant 25% improvement over The number of defective parts mentioned previously was the best in our history and puts us very close to world-class status In Machining we reduced internal part rejections, reaching a 1.27% annual average and a significant improvement of 45% over 03. We had a solid annual rise in OGE, improving performance by 10%, bringing the annual average up to 87.1%. In November we finished the installation of two painting lines that will be operational for These lines will give us even greater control over the quality assurance of our product and attractive savings. Our ongoing efforts in continuous improvement continued to yield results in increased productivity and reduced costs, as well as higher quality. During 2004, SANLUIS Rassini Brakes improved its quality indicator by reporting only 5 ppm, an all time record low. The company obtained diverse customer awards for its quality, service and product design.

25 E X C E L L E N C E I N M O T I O N Producing Zero-Defect quality components and exceeding our customers expectations are at the heart of our commitment to excellence

26 BOARD OF DIRECTORS PROPRIETARIES Antonio Madero Bracho (P/R) Member since 1980 Founder and Chairman of the Board, SANLUIS Corporación; Member and former president, Council of Mexican Businessmen; International Advisory Council member, J.P Morgan Chase, N.Y., N.Y.; Trilateral Commission member; Board member: Deere & Company, Moline, Il, Alfa, S.A. de C.V., Grupo Industrial Saltillo, S.A. de C.V., Grupo Posadas, S.A. de C.V., Grupo México S.A. de C.V., ING México, and G. Acción, S.A. de C.V.; Founder and Honorary President, Mexico Foundation at Harvard, A.C.; Executive Committee member: Committee on University Resources, Harvard; Founding Advisory Council member, David Rockefeller Center for Latin American Studies at Harvard; Harvard Business School Visiting Committee member; Member of the Governing Boards for the Universidad Panamericana and Instituto Panamericano de Alta Dirección de Empresas (IPADE); Advisor to the National Museum of Art (Mexico). Carlos Autrey Maza (I) Member since 1985 Chairman of the Board, Corporación Autrey, Laboratorios Autrey, Desarrolladora y Operadora Inmobiliaria Premier and Trilenio. Has served as the CEO and chairman of numerous companies, including Transportes Aeromar, Organización Autrey, Casa Autrey and Casa de Bolsa México. Was Vice-chairman of the Board of Grupo Financiero Inverlat (currently Scotiabank Inverlat), and has also been a board member of various firms, including: Satélites Mexicanos, S.A. de C.V., NH Hoteles de México, S.A. de C.V., Enlaces Integra, Globalstar and Principia. Founding president of Papalote Interactive Children s Museum. Founder of the Fundación Mexicana para la Salud. Founding partner, Centro Mexicano para la Filantropía and the Centro Cívico de Solidaridad. Founder of the Nuestros Niños and Enlace Solidario foundations. Trustee of the Instituto de Estudios Superiores de Tampico and an advisory board member of MIT s Sloan School of Management Javier Bours Castelo (P) Member since 1992 Chairman of the Board, Industrias Bachoco, S.A. de C.V., Congeladora Hortícola, S.A. de C.V., Inmobiliaria Trento, S.A. de C.V., Fertilizantes Tepeyac, S.A. de C.V., and Promotora Empresaria del Noroeste, S.A. de C.V. Enrique Bours Muñoz (P) Member since 2002 Industrial board member, Industrias Bachoco, S.A. de C.V. and Megacable, S.A. de C.V. Emilio Carrillo Gamboa (I) Member since 1989 Founding partner of the legal firm, Bufete Carrillo Gamboa, S.C.; Chairman of the Board, Holcim Apasco, S.A. de C.V. Board member: Empresas ICA, S.A. de C.V., Grupo Modelo, S.A. de C.V., Kimberly Clark de México, S.A. de C.V., Grupo México, S.A. de C.V., The Mexico Fund, Inc. and Southern Peru Copper Corporation. Executive Secretary for the Council of Mexican Businessmen and a board member of the Consejo Coordinador Empresarial. Alfonso Cervantes Riba (I) Member since 2002 Financial advisor. Antonio Cosío Pando (P/I) Member since 1992 Production Director, Compañía Industrial de Tepeji del Río. (P) Patrimonial (I) Independent (R) Related

27 ALTERNATES Javier López de Nigris (R) Member since 2004 Board member, Grupo Industrial Saltillo, S.A. de C.V. James Robert Jones (I) Member since 1999 CEO and Co-chairman of the Board, Manatt Jones Global Strategies. Executive President, GlobeRanger Corporation and ZN Mexico Trust. Board member: Anheuser Busch Corporation, Keyspan Energy Corporation, Kansas City Southern Railway, Grupo Modelo and The Kaiser Family Foundation. President of both the Meridian International Center of Washington and World Affairs Council. Antonio Madero Pinson (P/R) Member since 1989 Founding partner of the legal firm, AMP Abogados, S.C.; Metropolitan advisory board member, Banamex. Fernando Quiroz Robles (I) Member since 2003 Corporate Director, Banamex Financial Group. Eugenio Madero Pinson (P/R) Member since 1995 Vice President, SANLUIS Rassini Suspensions Group. Fernando Ruiz Sahagún (I) Member since 2001 Founding partner, Chévez, Ruiz, Zamarripa & Cía; Board member: Grupo México, S.A. de C.V., Grupo Financiero Santander Serfin, S.A., Accel, S.A. de C.V., Grupo Industrial Camesa, S.A. de C.V., Grupo Palacio de Hierro, S.A. de C.V., Ispat International N.V. and Elamex S.A. de C.V.; Auditor: Kimberly Clark de México, S.A. de C.V., Grupo Cementos de Chihuahua, S.A. de C.V. and Bacardí y Compañía, S.A. de C.V. Agustín Santamarina Vázquez (I) Member since 1980 Advisory partner for the law firm, Santamarina y Steta, S.C.; Board member: Kimberly-Clark de México, S.A. de C.V., Grupo Carso, S.A. de C.V., Grupo México, S.A. de C.V., Industrias Nacobre, S.A. de C.V., Grupo Sanborns, S.A. de C.V. and Grupo Condumex, S.A. de C.V. Nicolás Zapata Cárdenas (I) Member since 1980 CEO and Chairman of the Board, Corporación Zapata Cárdenas. Sergio Visintini Freschi (R) Member since 2002 CFO, SANLUIS Corporación and subsidiary companies. Manuel Galicia Romero (I) Member since 2002 Founding partner of the legal firm, Galicia y Robles, S.C. Fernando Todd Álvarez (I) Member since 2002 Founding partner, Todd y Asociados, S.C.; Legal and securities advisor for various Mexican and foreign companies; Board member: Accel, S.A. de C.V. and Elamex S.A. de C.V.; Member of the Mexican Legal Bar -Asociación Nacional de Abogados de Empresa (ANADE). Gustavo Zenizo González (R) Member since 1994 Chief Legal Council for SANLUIS Corporación and its subsidiaries. Alberto Saavedra Olavarrieta (I) Member since 2002 Founding partner of the law firm, Santamarina y Steta, S.C. Federico Delgado Garcia Granados (I) Member since 2002 Financial consultant for various companies such as Cygni, S. de R.L. de C.V. Has worked as an auditor, consultant and financial advisor at Industrias Peñoles, S.A. de C.V. and the firm of Roberto Casas Alatriste. Santiago Cosío Pando (P/I) Member since 1994 Advisory delegate and board member, Industrias Pando. Jorge Yáñez Cervantes (I) Member since 2003 Has formed part of the Banamex Financial Group since 1980, where he is the Director of Strategic Planning and responsible for carrying out functions related to the design, structuring and negotiation of strategic alliances, as well as new product and business development for the Group and its customers. Enrique Villaseñor Ezcurdia (R) Member since 1998 President, SANLUIS Rassini Suspensions Group.

28 EXECUTIVE COMMITTEE PROPRIETARIES Antonio Madero Bracho Chairman of the Board and CEO ALTERNATES Antonio Madero Pinson Javier Bours Castelo Antonio Cosío Pando Eugenio Madero Pinson Fernando Ruiz Sahagún Agustín Santamarina Vázquez Nicolás Zapata Cárdenas Enrique Bours Muñoz Santiago Cosío Pando Carlos Autrey Maza Alfonso Cervantes Riva Fernando Todd Álvarez Emilio Carrillo Gamboa Examiner: Manuel Canal Hernando Alternate Examiner: Javier Soní Ocampo Secretary: Fernando Todd Álvarez Alternate Secretary: Gustavo Zenizo González AUDIT COMMITTEE Fernando Ruíz Sahagún Chairman Emilio Carrillo Gamboa Alfonso Cervantes Riba COMPENSATION COMMITTEE Agustín Santamarina Vázquez Chairman Javier Bours Castelo Emilio Carrillo Gamboa Javier López del Bosque Antonio Madero Bracho SHARE REPURCHASE COMMITTEE Antonio Madero Bracho Chairman Javier Bours Castelo Agustín Santamarina Vázquez

29 F i n a n c i a l S t a t e m e n t s

30 26 27 CONSOLIDATED FINANCIAL STATEMENTS

31 INDEX Contents Page Report of independent auditors 28 Statutory Auditor s Report 29 Annual Report of the Audit Committee 30 Consolidated financial statements: Consolidated balance sheets 32 Consolidated statements of income 33 Consolidated statements of changes in stockholders equity 34 Consolidated statements of changes in financial position 36 Notes to the consolidated financial statements 37 to 52

32 REPORT OF INDEPENDENT AUDITORS Mexico City, March 31, 2005 To the Stockholders of SANLUIS Corporación, S. A. de C. V We have audited the accompanying consolidated balance sheets of SANLUIS Corporación, S. A. de C. V. and subsidiaries (the company) at December 31, 2004 and 2003, and the related consolidated statements of income, of changes in stockholders equity and of changes in financial position for the years then ended. These financial statements are the responsibility of the company s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in Mexico. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement and that they were prepared in accordance with generally accepted accounting principles. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures contained in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the aforementioned consolidated financial statements present fairly, in all material respects, the consolidated financial position of SANLUIS Corporación, S. A. de C. V. and subsidiaries at December 31, 2004 and 2003, and the results of their operations, the changes in their stockholders equity and the changes in their financial position for the years then ended, in conformity with accounting principles generally accepted in Mexico. PricewaterhouseCoopers Gildardo Lili

33 STATUTORY AUDITOR S REPORT Mexico City, March 31, 2005 To the Shareholders of SANLUIS Corporación, S.A. de C.V.: In compliance with Article 166 of the Mexican Corporate Law and the bylaws of SANLUIS Corporación, S.A. de C.V., I submit my report and opinion regarding the accuracy, sufficiency and fairness of the financial information submitted by the Board of Directors, regarding the Company s operations for the year ended December 31, I have attended the meetings of the Shareholders, Board of Directors and Audit Committee and obtained from the Directors and Management all the information relative to operations, documents and records that I deemed necessary. My review was performed in accordance with the auditing standards generally accepted in Mexico. I have also reviewed the individual and consolidated balance sheets of the Company as of December 31, 2004 and the related statements of income, shareholder s equity and changes in financial position for the year ended, which are hereby submitted for your information and approval. In submitting this report, I have also relied on the report issued on such financial statements by the independent auditors of the Company. In my opinion, the accounting, reporting policies and criteria followed by the Company and considered by management to prepare and present the financial information are appropriate, sufficient and were applied on a basis consistent with of the preceding year; therefore, the financial information presented by management accurately, sufficiently and fairly presents the individual and consolidated financial position of SANLUIS Corporación, S.A. de C.V. as of December 31, 2004 the results of its operations, the changes in its shareholders equity and the changes in its financial position for the year then ended, in accordance with accounting principles generally accepted in Mexico. C.P.C. José Manuel Canal Hernando EXAMINER

34 SANLUIS Corporación, S. A. DE C. V. AND SUBSIDIARIES ANNUAL REPORT OF THE AUDIT COMMITTEE Mexico City, February 18, 2005 To the Directors of SANLUIS Corporación, S.A. de C.V.: In accordance with my responsibilities as Chairman of the Audit Committee at SANLUIS Corporación, S.A. de C.V., I hereby present the following Annual Report of Activities for the fiscal year ended December 31, Four duly convened meetings of the Committee were held during the year being reported. All actions and resolutions during those meetings were properly approved and recorded. The following are the most relevant of those actions and resolutions: I. Internal Audit: We verified that the work programs instituted at the beginning of the year were completed and the points covered in the Letter of Observations and Memorandum of Recommendations issued by the Independent Auditors in their audit report for 2002 were implemented. The work program for fiscal 2005 was approved II. External Audit a) Obtainment of Report of Independent Accountants b) Review of the contractual terms related to the independent audit of the financial statements for the fiscal period ending December 31, 2004, and approval of fees. c) Review and approval of policies for contracting additional services to those provided by the Independent Auditors.

35 III. Financial Information a) Review and approval of financial information for Q1, Q2, Q3 and Q4, 2004, prior to being given to the Mexican Stock Exchange. b) Review of the Independent Auditors limited audits of the Suspension Group, SANLUIS Rassini Autopartes, S.A. de C.V. and SANLUIS Corporación and Subsidiaries, as required by the Banks in connection with the Group s debt restructuring. IV. Legal Report Review of the report by the SANLUIS Corporación Legal Department concerning pending legal issues and lawsuits. V. Suspension Group Debt While the Company managed to offset the negative effects of the rises in steel prices with increased productivity and reduced operating expenses in its Business Units, at the close of the year it was unable to cover the Total Debt to EBITDA Covenant, for which management is currently in the process of obtaining the corresponding exemptions, which it hopes to have before the Annual Shareholders Meeting. The Audit Committee and its delegates met with the Independent Auditors alone and unaccompanied by other officers of the Company, and received full cooperation concerning all requests for additional information. Finally, we certify that no transaction of the type described in Article 14-3, Section IV, Subsection D, of the Securities & Exchange law occurred during fiscal S i n c e r e l y, Fernando Ruiz Sahagún

36 SANLUIS Corporación, S. A. DE C. V. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS Thousands of Mexican pesos of December 31, 2004 purchasing power December 31, Assets CURRENT ASSETS: Cash and cash equivalents Ps 168,967 Ps 179,578 Accounts receivable: Trade - Net 872, ,069 Other 180, ,771 1,052, , Inventories - Net (Note 4) 587, ,274 Prepaid expenses 132, ,390 Assets of discontinued operations (Note 1) 236, ,674 Total current assets 2,176,735 1,907,756 PROPERTY, PLANT AND EQUIPMENT - Net (Note 5) 4,579,747 4,587,126 GOODWILL (Note 2h.) 410, ,135 DEFERRED TAXES (Note 9) 304, ,829 INVESTMENT IN SHARES (Note 2f.) 63,986 68,724 OTHER ASSETS 221, ,619 ASSETS OF DISCONTINUED OPERATIONS (Note 1) 348,552 Ps 7,756,245 Ps 8,048,741 Liabilities and Stockholders Equity CURRENT LIABILITIES: Short-term debt and current portion of long-term debt (Note 6) Ps 374,771 Ps 566,261 Trade accounts payable 855, ,421 Other accounts payable and accrued expenses 467, ,422 Total current liabilities 1,697,270 1,576,104 LONG-TERM DEBT (Note 6) 3,092,698 3,501,275 LABOR OBLIGATIONS (Note 2k.) 56, ,154 Total liabilities 4,846,015 5,188,533 STOCKHOLDERS EQUITY (Note 8): Capital stock 962, ,036 Paid-in capital 1,333,944 1,333,944 Reserve for repurchase of shares 538, ,869 Retained earnings 5,609,241 5,678,079 Initial recognition of deferred income tax (446,229) (446,229) Deficit in the restatement of capital (6,907,116) (7,153,145) Majority stockholders 1,091, ,554 Minority stockholders 1,818,528 1,951,654 Total stockholders equity 2,910,230 2,860,208 COMMITMENTS (Note 10) Ps 7,756,245 Ps 8,048,741 The accompanying eleven notes are an integral part of these consolidated financial statements.

37 SANLUIS Corporación, S. A. DE C. V. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME Thousands of Mexican pesos of December 31, 2004 purchasing power (except per share amounts) Year ended December 31, Net sales Ps 6,723,030 Ps 5,611,005 Costs: Cost of sales 5,610,617 4,398,011 Depreciation and amortization 380, ,619 5,991,602 4,759,630 Gross profit 731, ,375 Administrative and selling expenses 450, ,250 Operating profit 280, ,125 Comprehensive financing cost (Note 7) (190,983) (516,465) Other expenses - Net (75,856) (64,542) Income (loss) before taxes and employees statutory profit sharing 13,819 (151,882) Taxes and employees statutory profit sharing (Note 9) (182,095) (63,742) Loss before equity in the results of affiliates (168,276) (215,624) Equity in income of affiliates 6,035 4,672 Loss from continuing operations (162,241) (210,952) Discontinuation of Mining Division - Net (Note 1) (6,282) 188,253 Loss before extraordinary items (168,523) (22,699) Extraordinary item: Gain on debt extinguishment - Net (Note 6) 136,537 51,200 Consolidated net (loss) income (Ps 31,986) Ps 28,501 Income of minority stockholders Ps 29,542 Ps 7,073 (Loss) income of majority stockholders (61,528) 21,428 Consolidated net (loss) income (Ps 31,986) Ps 28,501 Net (loss) earnings per share (Note 2m.): Series A, B and C shares (Ps 0.26) Ps 0.09 Series D shares (Note 8) Ps 0.00 Ps 0.12 Continuing operations (Ps 0.69) (Ps 0.88) Discontinued operations (Ps 0.03) Ps 0.78 Extraordinary items Ps 0.58 Ps 0.21 The accompanying eleven notes are an integral part of these consolidated financial statements.

38 SANLUIS Corporación, S. A. DE C. V. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003 (Notes 1 and 8) Thousands of Mexican pesos of December 31, 2004 purchasing power Reserve for Capital Paid-in repurchase stock capital of shares Balances at January 1, 2003 Ps 957,036 Ps 1,333,944 Ps 538,869 Comprehensive income (Notes 2o. and 8c.) Balances at December 31, ,036 1,333, ,869 Capitalization of retained earnings (Note 8a.) 5,957 Dividend paid (Note 8a.) Comprehensive (loss) income (Notes 2o. and 8c.) Balances at December 31, 2004 Ps 962,993 Ps 1,333,944 Ps 538,869 The accompanying eleven notes are an integral part of these consolidated financial statements.

39 Initial Deficit effect in the Total Retained of deferred restatement majority Minority earnings taxes of capital stockholders stockholders Total Ps 5,656,651 (Ps 446,229) (Ps 7,345,579) Ps 694,692 Ps 1,925,129 Ps 2,619,821 21, , ,862 26, ,387 5,678,079 (446,229) (7,153,145) 908,554 1,951,654 2,860,208 (5,957) (1,353) (1,353) (1,353) (61,528) 246, ,501 (133,126) 51,375 Ps 5,609,241 (Ps 446,229) (Ps 6,907,116) Ps 1,091,702 Ps 1,818,528 Ps 2,910,230

40 SANLUIS Corporación, S. A. DE C. V. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION (NOTE 1) Thousands of Mexican pesos of December 31, 2004 purchasing power Year ended December 31, Operation: Loss before extraordinary item (Ps 168,523) (Ps 22,699) Charges (credits) not affecting resources: Loss (income) from discontinued operations 6,282 (188,253) Depreciation and amortization 380, ,619 Interest on convertible debt 60,997 63,649 Effect of deferred taxes 97, Equity in income of affiliates (6,035) (4,672) Changes in inventories, accounts receivable and payable and prepaid expenses 267,554 (47,738) Resources provided by operations before extraordinary item 638, ,420 Extraordinary item: Gain on debt extinguishment 136,537 51, Financing: Resources provided by operation 774, ,620 Decrease in bank loans - Net (406,859) (131,611) Unrealized exchange (gain) loss (193,208) 155,309 Divided paid (1,353) Resources (used in) provided by financing activities (601,420) 23,698 Investment: Debt issuance and restructuring costs (16,990) (41,210) Acquisition of property, plant and equipment - Net (167,154) (160,512) Resources used in investment activities (184,144) (201,722) (Decrease) increase in cash and cash equivalents (10,611) 35,596 Cash and cash equivalents at beginning of year 179, ,982 Cash and cash equivalents at end of year Ps 168,967 Ps 179,578 The accompanying eleven notes are an integral part of these consolidated financial statements.

41 SANLUIS Corporación, S. A. DE C. V. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 Monetary figures expressed in thousands of Mexican pesos of December 31, 2004 purchasing power, except for exchange rates, which are expressed in nominal pesos and per share amounts NOTE 1 - COMPANY OPERATIONS AND DISCONTINUED OPERATIONS: SANLUIS Corporación, S. A. de C. V. (SANLUIS) and subsidiaries (the company) are engaged in the manufacture and sale of automobile suspensions and brake components. Most company sales are denominated in US dollars (85% in 2004 and 89% in 2003) and are made to Original Equipment Manufacturers (OEMs). The company s main subsidiaries and affiliates are shown below: Company Activity Equity interest (%) Non-operating subsidiaries: SANLUIS Co-Inter, S. A. de C. V. (SISA) Parent of SANLUIS Rassini Autopartes, S. A. de C. V. 100 SANLUIS Rassini Autopartes, S. A. de Parent of the following operating C. V. (SRA) subsidiaries 100 Operating subsidiaries: Suspension group Rassini, S. A. de C. V. (Rassini) Manufacture and sale of leafsprings and coil springs 100 Suspensiones Rassini, S. A. de C. V. Manufacture and sale of leaf-springs 100 Rassini NHK Autopeças, S/A Manufacture and sale of leafsprings and coil springs 49.9 Rassini Torsion Bars, S. A. de C. V. Manufacture and sale of torsion bars 96.7 Brake group: SANLUIS Investments, LLC Parent of SANLUIS Developments, LLC 100 SANLUIS Developments, LLC Parent of Fundimak, S. A. de C. V Fundimak, S. A. de C. V. and subsidiaries Manufacture and sale of disks, rotors, (Rassini Frenos, S. A. de C. V. and drums and hubs for brake systems Inmobiliaria Rassini, S. A. de C. V.) 44.6 Affiliates: Brembo Rassini, S. A. de C. V. Manufacture and sale of disks and drums for brake systems 24

42 SANLUIS Developments, LLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS On September 20, 2000, J.P. Morgan and Partners (JPM) and American Industrial Partners Capital Fund III, L.L.P. (AIP) acquired 522,302 Class B Units of SANLUIS Developments, LLC, for US$56.3 million in cash, which may be acquired by SANLUIS prior to September 20, 2005, through a cash payment (in US dollars) or, subject to certain limitations, for a combination of cash and stock of SANLUIS. Otherwise, JPM and AIP may require SANLUIS Developments, LLC, to make a public offering or to be put up for sale. In 2002, JPM and AIP carried out a capital contribution in SANLUIS Developments, LLC, by Ps54,108 (US$5.2 million). The equity interest of JPM and AIP is 52.4%. However, SANLUIS Investments, LLC, maintains control of SANLUIS Developments, LLC, by holding 51% of the voting shares. Sale of non-strategic assets In June 2002, the company sold its equity interest in Minas Luismin, S. A. de C. V. and other exploration projects to Wheaton River Minerals Ltd. (currently Goldcorp Inc.), in exchange for a cash payment of US$75 million, 9,084,090 common shares of Wheaton River Minerals Ltd.; as well as the right to receive an additional contingent payment represented by 11,355,113 common shares of Wheaton River Minerals Ltd., in the event the price of silver averages US$5 or more per ounce over a period of 60 consecutive trading days from June 2002 to June Beginning October 2003, the conditions for receiving the contingent payment were satisfied and the company received the common shares of Wheaton River Minerals Ltd., which were classified as discontinued operations in the balance sheet, for the purpose of clearly identify the remaining operations of the mining division, recording the income shown in the 2003 consolidated statement of income as Discontinuation of Mining Division, net of the related deferred income tax. During 2004, the company continued sales of these and other assets related to the mining division, recording a loss shown in the 2004 consolidated statement of income. NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES: The significant accounting policies followed in the preparation of the financial statements, including the concepts, methods and criteria related to recognition of the effects of inflation on the financial statements, are summarized below: a. Accounting for the effects of inflation The consolidated financial statements have been prepared in accordance with Accounting Principles Generally Accepted in Mexico (Mexican GAAP) issued by the Mexican Institute of Public Accountants (MIPA), and accordingly recognize the effects of inflation on the financial information in accordance with the following rules: - Inventories and cost of sales are restated using replacement costs. - Machinery and equipment of foreign origin are restated by applying the general inflation index of the country of origin to the corresponding foreign currency amounts and translating those amounts to pesos at the exchange rate prevailing on the balance sheet date. Property, plant and equipment of local origin are restated by applying factors derived from the National Consumer Price Index (NCPI). - The components of stockholders equity are restated by using factors derived from the NCPI.

43 - The cumulative loss from holding nonmonetary assets [the net difference between: i) the restatement of property, plant and equipment of foreign origin, inventories and the cost of sales following the procedures described in the paragraphs above, and ii) adjustments to the related historical costs based on the NCPI] is included in stockholders equity. - The gain in purchasing power from holding monetary assets and liabilities is included in the net comprehensive financing cost. b. Principles of consolidation The consolidated financial statements include SANLUIS and all subsidiaries under its control. All significant intercompany balances and transactions have been eliminated in consolidation. c. Cash and cash equivalents The company considers all highly liquid investments with original maturities of less than three months to be cash equivalents and states them at market value. Interest earned on these investments is recorded in the results of the year. d. Inventories and cost of sales Inventories are stated at estimated replacement cost, at the most recent production cost for finished products and at the most recent purchase price in the case of raw materials and operating materials. Amounts so determined are not in excess of market. The cost of sales is determined by the Last-In, First-Out (LIFO) method. e. Property, plant and equipment Property, plant and equipment are originally recorded at cost and restated as mentioned in paragraph a. above. Depreciation is calculated by the straight-line method based on the estimated useful lives of the assets that are evaluated periodically by independent experts. f. Other investments in shares The investment in affiliates in which the company holds more than 20% but less than 50% equity interest is accounted by the equity method. Other investments in shares in which the company s interest is less than 20% are stated by applying factors derived from the NCPI. The company periodically reviews the carrying value of these investments, which are written down upon evidence of impairment. g. Impairment of long-lived assets Effective January 1, 2004, the company adopted the provisions of Statement C-15, Impairment of Long-lived Assets and their Disposal, issued by the MIPA in March The adoption of this statement did not affect the company s financial position and results of operation since the company periodically evaluates the carrying value of its long-lived assets on the basis of the present value of future cash flows of its two cash-generating units (Suspensions and Brakes). If the book value of the assets is higher than the discounted value, an impairment is recognized.

44 h. Goodwill NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The excess of cost over book value of subsidiaries acquired (goodwill) is stated at restated value by applying NCPI factors to the original value deducting the respective accumulated amortization. In accordance with Statement B-7 Business Acquisitions, as from January 1, 2005, goodwill will cease to be amortized and it will be subject to an annual impairment test. In the years ended December 31, 2004 and 2003, goodwill amortization amounted to Ps50,583 and Ps37,939, respectively. i. Deferred income tax (IT) and Deferred employees statutory profit sharing (ESPS) The company recognizes the effects of deferred income tax by applying the enacted IT rate to all differences between the book and tax values of assets and liabilities (temporary differences) at the date of the financial statements. Deferred ESPS is recorded only in respect of those temporary differences between the book income and income adjusted for profit sharing purposes, which it may reasonably be presume will result in a future liability or benefit. j. Debt issuance and restructuring costs Debt issuance and restructuring costs are originally recorded at cost and are subsequently restated by applying factors derived from the NCPI. These costs are amortized by the straight-line method over the life of the related debt, and their amortization is included in comprehensive financing cost. At December 31, 2004 and 2003, the remaining balance to be amortized amounted to Ps117,525 and Ps144,927, respectively, and is included in other assets in the consolidated balance sheet. k. Labor obligations Seniority premiums to which employees are entitled upon termination of employment after 15 years of service, as well as the obligations under the company s noncontributory retirement plan for employees, are recognized as expenses of the years in which the services are rendered, through contributions to irrevocable trust funds and the establishment of accruals based on actuarial studies. A summary of the principal consolidated financial data relating to these plans is shown below: December 31, Projected benefit obligation (Ps 166,695) (Ps 141,850) Plan assets at market value 95,280 17,442 Unamortized transition asset 18,677 10,405 Unamortized actuarial losses 31,396 24,533 Projected net liability (Ps 21,342) (Ps 89,470)

45 December 31, Accumulated benefit obligation (Ps 148,343) (Ps 126,132) Plan assets at market value 95,280 17,442 Net accumulated liability (Ps 53,063) (Ps 108,690) Additional liability (Ps 34,705) (Ps 21,684) Projected net liability (Ps 21,342) (Ps 89,470) Additional liability (34,705) (21,684) (Ps 56,047) (Ps 111,154) Labor cost Ps 12,005 Ps 8,268 Financial cost 7,324 5,446 Interest on plan assets (1,085) (906) Prior services and plan modifications Variations in assumptions and experience adjustments Net cost for the period Ps 19,735 Ps 13,617 Rates used in the calculation of benefit obligations and return on plan assets: Discount rate 5% 5% Salary increase rate 2% 2% Actuarial losses and the transition asset are being amortized over the average remaining years of service of the employees expected to benefit from the plan (approximately 20 years). Other compensations based on length of service, to which employees may be entitled in the event of dismissal or death, in accordance with the Federal Labor Law, are charged to income of the year in which such amounts become payable. l. Transactions in foreign currencies and translation of foreign operations Transactions in foreign currencies are recorded at the rates of exchange prevailing on the dates they are entered into and/or settled. Assets and liabilities denominated in these currencies are stated at the Mexican peso equivalents resulting from applying year-end rates. Exchange differences arising from fluctuations in the exchange rates between the dates on which transactions are entered into and those on which they are settled, or the balance sheet dates, are charged or credited to income as part of comprehensive financing cost, or are capitalized if they are attributable to construction in progress. The financial statements of foreign subsidiaries classified as foreign entities are restated on the basis of the NCPI for the country in which each entity reports its operations, and are subsequently converted at the rate of exchange in effect at the close of the period. At December 31, 2004 and 2003, the exchange differences arising from fluctuations in the exchange rate were not important and were included in comprehensive income.

46 m. (Loss) earnings per share NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The (loss) earnings per share is computed by dividing the (loss) income of the majority stockholders by the weighted average number of shares outstanding during the year (233,880,924 in 2004 and 227,957,568 in 2003) (see Note 8a.). n. Mandatorily convertible debentures issued by a subsidiary The Mandatorily Convertible Debentures (MCDs) issued by SISA are recorded in accordance with Statement C-12 Financial Instruments Qualifying as Liabilities, Capital or Both, which establishes that when MCDs are convertible at maturity to a fixed number of shares, that the company s creditors are subject to the same risks as the company s stockholders, and therefore the debentures must be classified as equity. Since the increase in SISA s equity was not contributed by SANLUIS, this item was classified in the consolidated statement of stockholders equity as contribution of minority stockholders, which is restated by applying factors derived from the NCPI (see Note 8b.). Interest on these debt instruments is recorded as it arises in results of the year and credited to a special account in the majority stockholders equity. o. Comprehensive income Comprehensive income (loss) is represented by the net income (loss) plus the gain or loss from holding non-monetary assets, the translation adjustment arising in connection with foreign subsidiaries and items required by specific accounting standars to be reflected in stockholders equity, but which do not constitute capital contributions, reductions or distributions, and is restated on the basis of NCPI factors (see Note 8c.). p. Revenue recognition Revenue is recognized upon delivery of products and customers acceptance, and only when the company has transferred to the buyer the risks and rewards of ownership of the goods, and when the amount of revenue and the cost incurred or to be incurred in the transaction can be measured reliably. q. Use of estimates Preparation of financial statements in conformity with Mexican GAAP requires that management make estimates and assumptions that affect the amounts reported in the financial statements. Actual results could differ from those estimates. r. Assets of discontinued operations The assets of discontinued operations are stated at their net realizable value at December 31, 2004 and s. Reclassifications Certain prior period amounts have been adjusted to conform to the current presentation.

47 t. New accounting principles Statement B-7 Business Acquisitions issued by the MIPA and in effect as from January 1, 2005, establishes new accounting rules for business acquisitions and investments in affiliates, adopting the purchase method as the only method of accounting for business acquisitions, changes the accounting treatment of goodwill, eliminating the amortization of goodwill and instead, making it subject to an annual impairment test. The effects of adoption of this statement related to amortization of goodwill are shown in Note 2h. Statement B-7 also complements the accounting treatment of intangible assets recognized in business acquisitions and provides specific rules for the acquisition of minority interests and the transfer of assets or the exchange of shares between entities under common control. Adoption of this statement did not have any impact on the company s results of operation and financial position, because current accounting policies applied are consistent with the treatment established in the Statement B-7. NOTE 3 - FOREIGN CURRENCY POSITION: The company mainly operates in the US and Canadian markets and most of its sales and indebtedness are denominated in US dollars (US$). Except where otherwise indicated, amounts in this note are expressed in millions of US$. The company had the following foreign currency monetary assets and liabilities: December 31, Assets US$ 101 US$ 82 Liabilities (401) (410) Net liability position (US$ 300) (US$ 328) At December 31, 2004, the exchange rate was Ps to the US$ dollar (Ps to the US$ dollar at December 31, 2003). At March 31, 2005, date of issuance of the consolidated financial statements, the foreign currency position of the company was similar to that at December 31, 2004 and the exchange rate was Ps to the US$ dollar. At December 31, 2004 and 2003, the company had no financial instruments to protect it against exchange risks. In the years ended December 31, 2004 and 2003, the company had exchange losses of Ps4,677 and Ps287,200, respectively. The company had the following position with respect to non-monetary assets of foreign origin or whose replacement cost can only be determined in foreign currency: December 31, Inventories US$ 24 US$ 17 Machinery and equipment US$ 226 US$ 226

48 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The company s exports and imports of goods and services (excluding machinery and equipment for its own use), together with its interest income and expense in foreign currency, are shown below: Year ended December 31, Exports of merchandise US$ 414 US$ 380 Imports of raw materials (163) (110) Interest expense (12) (13) Net US$ 239 US$ 257 NOTE 4 - INVENTORIES: December 31, Finished products Ps 162,464 Ps 150,137 Raw materials and operating materials 426, , , ,901 Allowance for slow-moving inventories (2,068) (1,627) Ps 587,097 Ps 459,274 NOTE 5 - PROPERTY, PLANT AND EQUIPMENT: December 31, Land, buildings and construction Ps 1,209,678 Ps 1,199,835 Machinery and equipment 5,407,028 5,186,641 Transportation equipment, furniture and fixtures 175, ,839 6,791,966 6,565,315 Accumulated depreciation (2,385,097) (2,090,802) 4,406,869 4,474,513 Construction in progress 172, ,613 Ps 4,579,747 Ps 4,587,126

49 NOTE 6 - SHORT-TERM AND LONG-TERM DEBT: Short-term and long-term debt are analyzed as shown below: December 31, Suspension Group Debt Ps 2,396,722 Ps 2,731,771 8% Guaranteed Senior Notes due , ,172 Syndicated loan of Fundimak, S. A. de C. V. (Fundimak) 361,492 Simple and revolving line of credit of Fundimak 266,435 Euro Commercial Paper 78, ,493 Eurobonds 81, ,609 Other loans payable in US dollars 35,903 29,999 Total debt 3,467,469 4,067,536 Less: Short-term debt 78, ,493 Current portion of long-term debt 296, , , ,261 Long-term debt Ps 3,092,698 Ps 3,501,275 The outstanding debt at December 31, 2004 matures as follows: The Suspension Group Debt (Restructured Credit Agreement - RCA) 2005 Ps 374, , , ,704, and thereafter 650,716 Ps 3,467,469 At December 31, 2004, the Suspension Group Debt amounts to Ps2,396,722 (US$213.6 million) and is broken down into Tranche A, amounting to Ps1,764,311 (US$157.3 million) and Tranche B amounting to Ps632,411 (US$56.3 million). Tranche A is payable on a growing installment basis beginning on December 2003, and with a single payment in December Tranche B is due in a single payment in December This debt is subject to interest at the Eurodollar Rate, plus a margin of 3.5% up to December Subsequently, the applicable margin is 5.5%, unless the company prepays the principal balance in December 2006.

50 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS This loan agreement imposes certain operating restrictions and financial covenants on the Suspension Group, which affect, and in many respects limit or prohibit, among other things, the company s ability to pay dividends, to incur additional indebtedness, to create liens and to carry out transactions with derivative financial instruments, to incur in capital expenditures and to enter into any transactions involving the payment of money to SANLUIS or any subsidiary of the Brake Group. In addition, under certain conditions, the proceeds of an equity offering, sale of assets or additional debt must be applied to repay this debt, which is guaranteed with the assets of the Suspension Group and the shares of SRA and its subsidiaries. As a result of a worldwide shortage of steel, its price has experienced unprecedented increases in 2004 and 2005, resulting in significant rises in the company s costs. This affected the computation of Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA, as defined in the RCA), and consequently, at December 31, 2004, the Suspension Group was not in compliance with the ratio Total Debt to EBITDA (also as defined in the RCA); however, on March 31, 2005, the company obtained from its creditors a waiver of the covenant violation, for the quarters ended December 31, 2004 and March 31, 2005, in exchange for certain commitments assumed by SANLUIS to provide financial support to the Suspension Group which would not affect the consolidated financial position of SANLUIS. The company and its bank creditors are conducting an analysis on the RCA terms and conditions to adapt them to current market conditions affecting the automotive industry, seeking to complete this process by June Eurobonds and Euro Commercial paper In December 2002, the company concluded the restructuring of a public offering of US$200 million in Eurobonds and its Euro Commercial Paper program amounting to US$77.5 million, obtaining the acceptance of 94% of Eurobond holders and 75% of Euro Commercial Paper holders. During 2004 and 2003 some of the holders, who did not restructure initially, decided to accept, under similar terms and conditions, that the rest of the holders, therefore the company repurchased at discont debt by Ps175,331 (US$15.6) and Ps12,116 (US$1.1), in each year generating gains of Ps136,537 and Ps51,200, respectively. At December 31, 2004 the non-restructured debt is shown below: Restructured Non Debt Original debt debt restructured debt Eurobonds US$ 200,000 US$ 192,739 US$ 7,261 Euro Commercial Paper 77,500 70,520 6,980 US$ 277,500 US$ 263,259 US$ 14,241 The non-restructured debt of Eurobond holders amounted to Ps81,456 (US$7.3 million), and is classified in the accompanying financial statements as a liability due after one year in order for its maturity to be in line with the terms agreed with most of the holders, which are mandatory for Eurobond holders in accordance with the original Indenture. The non-restructured debt related to Euro Commercial Paper for Ps78,305 (US$7.0 million) is included in the accompanying consolidated balance sheets as a short-term obligation.

51 Issuance of Guaranteed Senior Notes due 2010 In December 2002, SISA issued US$47.5 million Senior Notes due June 30, 2010 subject to a 8% fixed rate, and guaranteed by all operating and some non-operating SRA subsidiaries. Interest will be payable annually in the event SRA and its subsidiaries generate cash excess according to the computation provided in the loan agreement, otherwise interest is capitalized. At December 31, 2004, the outstanding balance of these obligations, including capitalized interest, was Ps608,648 (US$54.3 million). Fundimak syndicated loan On October 20, 2000 Fundimak entered into a syndicated loan agreement of US$40 million which, at June 2004, amounted to US$27 million. On that date, Fundimak repaid the outstanding balance of the loan through a prepayment of US$2 million and with the proceeds from the simple line of credit mentioned below. Fundimak simple and revolving line of credit On June 28, 2004, Fundimak obtained a credit line with Comerica Bank México, S. A., which includes a simple loan of up to US$25 million and a revolving loan of up to US$15 million, which has not yet been drawn down. At December 31, 2004, Fundimak has drawn down the entire simple loan, which bears interest at the LIBOR, plus 275 basis points and is payable in 20 quarterly installments of US$1.25 million, plus interest on the outstanding balance, as from September The withdrawals of the revolving credit are payable 90 days following the date of the withdrawal and bear interest at the LIBOR, plus 225 basis points. Both, the simple and the revolving loans are secured with property, machinery and equipment, inventories and accounts receivable of Rassini Frenos, S. A. de C. V. (Rassini Frenos) and Inmobiliaria Rassini, S. A. de C. V. At December 31, 2004, Fundimak is in compliance with the requirements established by this loan. NOTE 7 - COMPREHENSIVE FINANCING COST: The comprehensive financing cost is analyzed below: Year ended December 31, Interest and other financing charges - Net (Ps 358,971) (Ps 400,142) Exchange loss - Net (4,677) (287,200) Gain on net monetary position 172, ,877 (Ps 190,983) (Ps 516,465)

52 NOTE 8 - STOCKHOLDERS EQUITY: NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS a. Capital restructuring At December 31, 2003, the authorized and subscribed shares (per series), representing the company s capital stock were as follows: Number of shares Repurchased Paid-in and Series Authorized Treasury shares shares outstanding A 108,874,950 (1,210,500) 107,664,450 B 54,437,472 (10,835,766) (3,504,000) 40,097,706 C 54,437,472 (10,835,766) (3,504,000) 40,097,706 D 54,437,472 (10,835,766) (3,504,000) 40,097, ,187,366 (33,717,798) (10,512,000) 227,957,568 Series A (which may only be acquired by Mexican nationals) and B shares have full voting rights. Series C shares have no voting rights, and Series D shares had limited voting rights and were convertible to Series A shares on November 30, Additionally, Series D shares had the right to receive an annual cumulative preferred dividend of Ps per share, equivalent to 5% of the theoretical value of the shares. In order to quote in the Mexican Stock Exchange, the company issued Ordinary Participation Certificates (CPOs), which included Series B, Series C and Series D shares. Series A shares were quoted separately. At the special Series A, B, C and D Stockholders Meeting and the November 26, 2004 Extraordinary Stockholders Meeting the Stockholders authorized the capital restructuring of the SANLUIS as follows: 1. Write-off of 33,717,798 treasury shares not yet subscribed or paid in. 2. Write-off of 10,512,000 repurchased shares. 3. Payment of the cumulative annual preferred dividend arising from 1998 to November, 2004, of Series D outstanding shares in an accumulated total amount of Ps1,353, equivalent to Ps0.034 per share, before their conversion to Series A shares. 4. Early conversion of the 40,097,706 Series D shares to the same number of Series A shares. 5. Modifying the structure of CPOs quoted in the stock exchange, in order for the 147,762,156 Series A shares, which include the 40,097,706 new shares arising from conversion of Series D shares, to be quoted independently as new CPOs, which include one Series A share each (CPOs - A), and Series B and C shares to be quoted in the stock exchange as new CPOs, which include one common voting Series B share and one non-voting Series C share (CPOs - BC).

53 6. Increase the fixed capital stock by Ps5,957, through capitalization of retained earnings, issuing 30,886,070 new Series B and 30,886,070 new Series C shares delivered to shareholders at the rate of new Series B shares and new Series C shares for each of the outstanding shares held by the company, in the understanding that said new Series B and Series C shares were delivered to the shareholders in one CPO each for every outstanding shares held. After these modifications, at December 31, 2004, capital stock was as follows: Series Paid-in and outstanding A 147,762,156 B 70,983,776 C 70,983,776 b. MCDs issued by a subsidiary 289,729,708 In December 2002, SISA issued US$76.2 million in debentures mandatorily convertible to SISA Series B shares, if at June 30, 2011, the outstanding balance and related interest are unpaid, or if an event of default provided in the agreement has occurred. These debentures are subject to a 7% fixed rate payable semi annually, and at December 31, 2004, the outstanding balance was Ps863,582 (see Note 2n.) c. Comprehensive income Comprehensive income is analyzed below: Year ended December 31, Net (loss) income of majority stockholders (Ps 61,528) Ps 21,428 Gain from holding non-monetary assets 267, ,694 Deferred income tax recorded in stockholders equity (21,342) (114,260) Income of minority stockholders 29,542 7,073 Other effects corresponding to minority stockholders (162,668) 19,452 Comprehensive consolidated income Ps 51,375 Ps 240,387 d. Tax regulation related to dividend payments In the event dividends are paid from retained earnings arising from the After Tax Earnings Account (ATEA), income tax is not payable as per the Income Tax Law (ITL). The preferred dividends mentioned in point a.3. of this Note, were exempt of income tax as they were paid out from the ATEA.

54 50 51 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS In the event of a capital reduction, any excess of stockholders equity over the balances of the capital contribution, after tax earnings and reinvested after tax earnings accounts are accorded the same tax treatment as dividends. At December 31, 2004, the consolidated ATEA amounted to Ps869,588, determined in accordance with current tax provisions. NOTE 9 - INCOME TAX, ASSET TAX, EMPLOYEES STATUTORY PROFIT SHARING AND DEFERRED TAXES: This item is analyzed below: Year ended December 31, Income tax Ps 56,660 Ps 32,322 Deferred income tax 97, Asset tax 6,279 4,625 ESPS 22,000 26,281 Ps 182,095 Ps 63,742 The tax result differs from the accounting result mainly due to permanent differences arising from recognition of the effects of inflation on different bases and to nondeductible expenses. The 2004 current income tax is represented mainly by the non-consolidated portion of Suspensiones Rassini, S. A. de C. V. s tax expense, as well as by the tax expense of the Brazilian subsidiary that is not included in the tax consolidation. The 2003 current income tax corresponds mainly to Suspensiones Rassini, S. A. de C. V. The company s subsidiaries file individual income tax returns. In addition, SANLUIS files a consolidated tax return. Up until December 31, 2004, the ITL limited tax consolidation to 60% of the parent company s equity interest; however, in accordance with the amendments to the ITL approved on November 13, 2004, as from January 1, 2005, the parent consolidating portion for tax purposes is 100%. Additionally, the modifications to the ITL include: 1. A reduction of the income tax rate, from 33% applicable in 2004 to 30% applicable in 2005; and there will be a 1% annual reduction up to a limit of 28% in Consequently, the effects of these tax rate reductions were considered in the computation of the deferred income tax, generating a decrease in 2004 of the related asset in the amount of Ps39,274, and decreasing the results for the year by the same amount. 2. As from 2005, there is a change in the tax treatment of purchases for the year, as the cost of sales is deductible and purchases are no longer deductible. Consequently, the company may choose to deduct in 2005 the inventory balance as at December 31, 2004 as long as it includes in taxable income the tax value of the aforementioned inventories over a four to twelve-year period, determined under the new provisions contained in the ITL; the effect will be reduced by the application of unamortized tax losses as of December 31, 2004.

55 Significant items comprising the company s net deferred tax assets and liabilities are as follows: Deferred income tax liabilities: December 31, Inventories Ps 26,187 Ps 123,884 Property, machinery and equipment 591, ,994 Other assets 18,757 37,229 Deferred income tax assets: 636, ,107 Unamortized tax losses 878,095 1,093,649 Asset tax recoverable 29,413 59,769 Liability provisions 28,886 72,144 Other 4,661 7, ,055 1,232,936 Net deferred tax asset Ps 304,331 Ps 422,829 In the years ended December 31, 2004 and 2003, the company determined consolidated asset tax in the amount of Ps9,751 and Ps10,389, respectively, eliminated due to the immediate deduction of fixed assets. At December 31, 2004 and 2003, asset tax charged to income amounted to Ps6,279 and Ps4,625, respectively, and represents the non-consolidating portion paid to the tax authorities. ESPS is determined on an individual basis for each company, in accordance with the ITL. NOTE 10 - COMMITMENTS: On January 1, 2001, Rassini Frenos entered into a non-cancelable lease agreement of machinery and equipment amounting to US$18 million for an eight-year period. During 2004, Rassini Frenos entered into another non-cancelable lease agreement of machinery and equipment amounting to US$2.1 million, with a 5 year-mandatory term beginning on November 1, Following is a schedule of future minimum lease payments required under both agreements. Year ending December 31, Amount 2005 Ps 34, , , , ,479 Total minimum payments required Ps 202,187 Total lease expense for the years ended December 31, 2004 and 2003 were Ps29,826 and Ps29,095, respectively.

56 NOTE 11 - SEGMENT INFORMATION: 52 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Below is a summary of the financial information pertaining to each of the segments in which the company carried out business: Year ended December 31, 2004 Suspensions Brakes Other Total Net sales Ps 5,247,844 Ps 1,475,186 Ps 6,723,030 Operating income 303,685 14,130 (Ps 37,157) 280,658 Total assets 4,082,701 2,563,438 1,110,106 7,756,245 Acquisitions of machinery and equipment 93,093 74, ,154 Depreciation and amortization 194, , ,985 Year ended December 31, 2003 Suspensions Brakes Other Total Net sales Ps 4,085,104 Ps 1,525,901 Ps 5,611,005 Operating income 387,186 55,040 (Ps 13,101) 429,125 Total assets 3,810,834 2,664,890 1,573,017 8,048,741 Acquisitions of machinery and equipment 87,821 72, ,512 Depreciation and amortization 193, , ,619 Segment information is presented in the same format utilized by the company s management to review the performance of each business. An operating segment is defined as a component of the company that engages in business activities from which it may earn revenues, and on which it may incur expenses, and concerning which separate financial information is regularly evaluated by company management in deciding how to allocate resources. The accounting policies of the segments are the same as those described in the summary of significant accounting policies included in Note 2. The Suspensions Business Segment includes sales of multi-leaf springs and parabolic leaf springs, coil springs, torsion bars and stabilizing bars. The Brakes Business Segment includes sales of rotors, disks, drums and hubs for brake systems. The Other Business Segment mainly represents the assets for deferred income tax resulting from the recognition of consolidated tax loss carry-forwards of SANLUIS, other investments in shares and discontinued operations. As mentioned in Note 3, the company operates mainly in the US and Canadian markets. The operations of the subsidiary located in Brazil for the years ended December 31, 2004 and 2003 represent 15% and 11%, respectively. Three of the company s customers jointly accounted for 79% and 81% of its aggregate net sales in the years ended December 31, 2004 and 2003, respectively. Although the company has had a long-standing relationship with these customers, a substantial reduction in sales to any of these customers could have a material adverse effect on the company s financial condition and results of operations.

57 GLOSSARY OF TERMS 1. Automotive Platform: Primary technical components (suspension, transmission, brake system) shared by a family of motor vehicles. 2. Brake Disc: A cast iron brake system component that operates in conjunction with the wheels. When the brake is applied, the caliper is actuated forcing the friction material against the spinning disc imparting a braking force. 3. Brake Drums: Cast iron housing bolted to the wheel that rotates around the brake shoes. When the shoes are expanded, they rub against the machined inner surface of the brake drum and exert a braking effect upon the wheel to slow or stop the vehicle. 4. Coil Springs: A steel rod wound in a spiral pattern or shape. It cushions and absorbs the shocks and bumps and provides easier control as the vehicle is driven. 5. Elastomers: Rubber components or sub-components used to reduce noise and vibration. 6. Foundry: Chemical process through which scrap is casted to obtain a piece of iron cast. 7. Leaf spring: A suspension system component designed to cushion and absorb shocks and bumps and to keep a vehicle level on turns. There are two main types of leaf springs: a. Multi-leaf spring: Two or more flat spring steel plates bent in an arch, usually with curled ends to allow mounting to the frame. These springs are normally used in cargo truck suspensions and pickups because they have the unique capability of being designed to change rate as a function of suspension travel. b. Parabolic spring: They get their name from the midspan change in thickness which is built into each plate. This changing cross section allows the material to maintain constant strength which is not possible in a flat plate multileaf design. The result is that a parabolic spring may be up to 30% lighter than an equivalent flat-plate leaf spring design. 8. Machining: The piece of iron cast is physically treated and refined. 9. Sport Utility Vehicle (SUV) A recreational vehicle, such as an all terrain 4x Torsion Bars: Made of steel, the torsion bar is a suspension component in some 4x4 front suspension systems. INFORMATION FOR INVESTORS AND THE MEDIA Headquarters Monte Pelvoux Piso Lomas de Chapultepec México, D.F. Tel. 52 (55) Stock Bolsa Mexicana de Valores (BMV) Symbol SANLUIS Shares Issued SANLUIS A 147,762,156 SANLUIS CPO 70,983,776* * Each CPO represents one B, and C share. Auditors PricewaterhouseCoopers Mariano Escobedo 573 Rincón del Bosque México, D.F. Tel. 52 (55) Fax 52 (55) Legal Department Gustavo Zenizo Tel. 52 (55) Fax 52 (55) ext gzenizo@sanluiscorp.com.mx Investor Relations Antonio Olivo Tel. 52 (55) Fax 52 (55) ext aolivo@sanluiscorp.com.mx Public Relations and Media Rubén Darío Gómez Tel. 52 (55) Fax 52 (55) ext rdario@sanluiscorp.com.mx