STRENGTHENING Our Core Base ANNUAL REPORT 2003

VITRO 03ANA REPORT 2003 ANNUAL

STRENGTHENING our core base ANNUAL REPORT 2003

Av. Ricardo Margáin Zozaya 400 Col. Valle del Campestre, 66265 Garza García, Nuevo León, Mexico Tel. (52) 81 8863 1200 OUR Company at a GLANCE SHAREHOLDER information

Vitro, S.A. de C.V. (NYSE: VTO; BMV: VITROA), Mexico through its subsidiary companies, is one of the United States Corporate Headquarters Independent Auditors world’s leading manufacturers and distributors of Born in 1909 as Vidriera Monterrey, Av. Ricardo Margáin Zozaya 400 Galaz, Yamazaki, Ruiz Urquiza, S.C. we’ve grown into one of the market Col. Valle del Campestre, 66265 A member firm of Deloitte Touche Tohmatsu Through our Vitro America and GLOSSARY glass products. The company focuses on three leaders; the Vitro brand is Av. Lázaro Cárdenas 2321 Pte., PB Vitro Packaging subsidiaries, we Garza García, Nuevo León, Mexico recognized among customers Residencial San Agustín, 66260 core businesses: flat glass, glass containers, are a major processor and Tel. (52) 81 8863 1200 nationwide for its high-quality of industry terms Garza García, Nuevo León, Mexico distributor of value-added flat- glass products, packaging and www.vitro.com and glassware. Within these businesses, Vitro’s Tel. (52) 81 8133 7300 glass products, and the U.S. support services. subsidiaries serve diverse product markets, leading supplier of specialty glass Category management is a dynamic consumer-oriented Financial Community Contact Fax (52) 81 8133 7342 and 83 Deyanira Méndez Meléndez packaging. www.deloitte.com/mx including construction and automotive glass; Packaging Revision Assistant, process between retailers and suppliers that groups Fabrice Serfati Fatu Ulale Vidriera Monterrey products with different brands into specific categories Corporate Finance Manager beverage, cosmetics, food, liquor, and wine glass Fabricator, in order to manage them as strategic business units Tel. (52) 81 8863 1201 Exchange Listings Vitro America containers; and glassware for commercial, on a store-by-store basis through merchandising Fax: (52) 81 8863 1290 Bolsa Mexicana de Valores (BMV), Mexico and statistical analysis, generating commercial and e-mail: [email protected] New York Stock Exchange (NYSE), USA industrial, and retail uses. Vitro also produces Guatemala economic improvements, and delivering added Ticker Symbols raw materials and capital goods for industrial use. Through Comegua, a long-standing value to the final consumer. Gerardo Guajardo joint-venture relationship in Financing Manager BMV, VITROA Guatemala and Costa Rica, we Float glass is the modern method of making flat-glass Tel. (52) 81 8863 1349 NYSE, VTO (American Depositary Receipt, ADR, Founded in 1909, Monterrey, Mexico-based Vitro produce, distribute, and sell glass products like windows and mirrors. In the float-glass Fax: (52) 81 8863 1290 consisting of three non-voting VITROA Shares) has strong joint ventures and strategic alliances containers for customers across process, molten glass pours over the lip of a broad e-mail: [email protected] “the cradle of the Mayan world.” spout, passes between rollers, and floats over a bath ADR Depositary Bank with major world-class partners and industry Karen Linares Sandoval of molten tin in a steel container. Media Contact Citibank, N.A. leaders that provide its subsidiaries with access Financial Management Assistant, 111 Wall Street, 20th Floor/Z7 Vidriera Guatemalteca Albert Chico New York, New York 10005, USA to important international markets, distribution Through our Incremental Improvement Award, we Corporate Communication Manager Costa Rica recognize and reward employees’ novel technological Tel. (52) 81 8863 1335 Tel. (212) 657 4665 channels, and state-of-the-art technology. Vitro’s developments at our core businesses. Fax: (52) 81 8863 1307 subsidiaries have facilities and distribution centers We began making glass containers e-mail: [email protected] Dividend Policy for this scenic country and its Insulated glass is composed of two glass sheets joined The declaration, amount, and payment of dividends in eight countries, located in Europe, North, Central American neighbors in by an aluminum separator, forming a hermetic air Legal Contact are determined by the majority of the voting stock, 1964, with our initial investment Central, and South America, and export to more at an Ordinary Shareholders Meeting. This decision in Comegua. space to keep exterior heat and noise out, and Javier Arechavaleta is generally, but not necessarily, based on the than 70 countries worldwide. prevent the loss of indoor heat in winter. Assistant General Counsel Marisol Miranda Mena Tel. (52) 81 8863 1203 recommendation of the Board of Directors. The terms Head of Training, Laminated safety glass is made through a rolling process Fax: (52) 81 8863 1372 and conditions of payment of the dividends formally Vidriera Centroamericana involving two sheets of annealing glass and a flexible e-mail: [email protected] declared by the corresponding Ordinary Shareholders Colombia plastic intermediate film of polyvinyl butyral (PVB). Meeting are generally determined by the Company’s Because of its shatterproof properties (adhesion to US Contact Board of Directors, taking into account the Company’s Our Colombian flat-glass the plastic film in case of breakage), which protect a Alex Fudukidis / Susan Borinelli financial declaration. Bolivia subsidiary, Vitro Colombia, vehicle’s occupants from glass fragments, laminated Breakstone & Ruth International processes tempered and laminated glass is mainly used for automotive windshields. Tel. (646) 536 7012 / 7018 SEC Filings glass for the country’s automotive Vidrio Lux, our glass-container e-mail: [email protected] The Company files and submits periodical reports to and construction markets. subsidiary, serves the soft drink, OEM means original equipment manufacturer. e-mail: [email protected] the U.S. Securities and Exchange Commission (SEC). food, beer, wine and liquor, and : Earthcolor-Houston pharmaceutical industries Álvaro Hernández Restrepo Vitro manufactures a universe of high-quality glass products—from Point of purchase is broadly defined as anything that throughout Bolivia, southern Peru, Cut and Automotive Glass Area laminated glass that fosters vehicle safety, to insulated construction

Supervisor, Vitro Colombia PRINTING influences the consumer at the point where the and northern Argentina. 2003 glass for thermal protection, to customized glass containers and Stock Performance María Osinaga Murillo consumer, the product, and the sale come together. packaging that ensure product freshness, to glassware designed for a The price range for Vitro’s common stock on the New York NYSE BMV Industrial Security Attendant, Stock Exchange (NYSE) and the Mexican Stock Exchange variety of daily household, commercial and industrial uses. ADR Shares Vidrio Lux SKU (stockkeeping unit) is an identification, usually (BMV) over 2003 was as follows: alphanumeric, of a particular product that enables (in dollars) (in pesos) tracking for inventory purposes. High Low High Low About the COVER Tempered glass is formed by initially heating a cut and First Quarter 2.85 2.12 9.51 7.80 polished glass sheet to approximately 650o C. At this Second Quarter 2.25 2.00 7.95 7.03 temperature, the glass reaches its required curving Third Quarter 2.47 2.04 9.00 7.06 and is immediately air-cooled. The cover photograph is of our new flat-glass facility—developed : Camilo Garza / Archive photography Fourth Quarter 3.10 2.14 11.63 8.15 jointly with AFG Industries, Inc., the U.S. subsidiary of Asahi Glass—in Mexicali, Mexico. The new plant’s design links the long- This annual report contains historical information, certain management’s expectations and other forward-looking information regarding Vitro, S.A. de C.V. and its subsidiaries (collectively the “Company”). While the Company believes that these expectations and forward-looking statements are based on reasonable assumptions, all such statements reflect the current views of the Company with respect to standing tradition of these two industry leaders with state-of-the- future events and are subject to certain risks and uncertainties that could cause actual results to differ materially from those contemplated in this report. Many factors could cause actual results, PHOTOGRAPHER performance, or achievements of the Company to be materially different from any future results, performance, or achievements that may be expressed or implied by such expectations or forward-looking art technology. The facility further exemplifies the theme of this statements, including among others, changes in general economic, political, governmental, and business conditions worldwide and in the markets in which the Company does business, changes in year’s report: Strengthening our core base. Through selective interests rates, changes in inflations rates, changes in exchange rates, the growth or decline of the markets and segments where the Company sells its products, changes in raw material prices, changes in energy prices, particularly gas, changes in the business strategy, and other factors. Should one or more of these changes, risks or uncertainties materialize, or should the underlying assumptions investments such as this plant, we continue to reinforce our prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated or expected. The Company does not assume any obligation to and will not update these position as one of the world’s leading glass manufacturers, forward-looking statements. The assumptions, risks and uncertainties relating to the forward-looking statements in this report include those described in the Company’s annual report on form 20-F filed

: milenio3.com.mx with the U.S. Securities and Exchange Commission, and in the Company’s other filings with the Mexican Comisión Nacional Bancaria y de Valores and the U.S. Securities and Exchange Commission. distributors, and packagers.

This annual report is printed on recycled paper. DESIGN

2 COMPANIES

Flat Glass Vitro-American National Can: Vitro S.A. de C.V. + Rexam Vitro Plan: Vitro, S.A. de C.V. + Pilkington, plc (UK) Beverage Can of the Americas, Inc. (USA) 1994 – 50% 1965 – 35% Vitro Chemical, Fibers and Mining (USA) Cristales Automotrices + Posselt Family Vitro Envases Norteamérica (Mexico) 1999 – 49% Compañía Vidriera Cristales Inastillables de México Fabricación de Máquinas Distribuidora de Vidrio de México Industria del Álcali Distribuidora de Vidrio y Cristal Manufacturas, Ensamblajes y Fundiciones Distribuidora Nacional de Vidrio Procesadora de Materias Primas Industrializables Química M: Vitro Plan + Solutia Inc. Servicios Integrales de Envasado (USA) 1995 – 49% Vidriera Guadalajara Vitro AFG: Vitro Plan + AFG Industries, Vidriera Los Reyes Inc. (USA) 2002 – 50% Vidriera México Vitro America (USA) Vidriera Monterrey Super Sky (USA) Vidriera Querétaro Spain Vitro Automotriz Vidriera Toluca Vitrocar Vidrio Lux (Bolivia) Vitro Cristalglass, our Spanish Vitro Chaves-Industria de Vidro, S.A.: Vitro VGD Soluciones Integrales de Diseño subsidiary, is a leading producer Cristalglass, S.L. + Chaves Family Vitro Packaging (USA) of value-added insulated (Portugal) 2002 – 40% construction glass, used for thermal and acoustic insulation, Vitro Colombia Glassware solar protection, and safety glass Vitro Cristalglass, S.L.: Vitro Plan + Crisa Corporation (USA) in homes and buildings. Prado Family and Inversiones Gargalón Crisa Industrial: Crisa Corp. + LGA4 José Manuel López Peón (Spain) 2001 – 40% Corporation (USA) 1997 – 49% Double-glazed Glass Line Production Attendant, Vitro Cristalglass Vitro Flex: Vitro Plan + Fairlane Holdings, Fabricación de Cubiertos Inc. a Visteon subsidiary (USA) 1979 – Plásticos Bosco 38% Vitrocrisa Holding: Vitro, S. A. de C. V. + Libbey Europe, Vitro Flotado Cubiertas B.V. a Libbey, Inc. subsidiary (USA) 1997 – 49% Portugal Vitro OCF: Vitro, S.A. de C.V. + Owens Vitrocrisa: Vitro, S. A. de C. V. + Libbey Corning (USA) 1957 – 40% Europe, B.V. a Libbey, Inc. subsidiary (USA) The most recent addition to the Vitro Fibras 1997 – 49% Vitro family, Portugal-based Vitro Comercializadora Vitro Fibras Vitrocrisa Comercial: Vitro, S. A. de C. V. + Chaves expands our foothold in Vidrio Plano Libbey Europe, B.V. a Libbey, Inc. subsidiary the European construction industry. Vidrio Plano de México (USA) 1997 – 49% Vitro Vidrio y Cristal Luis Miguel Rodríguez Chaves Cut and Double-glazed Glass Line Glass Containers Production Attendant, Vitro Chaves The reference to the term “Joint Venture” in this report does not Empresas Comegua: Vitro, S.A. de C.V. + Cervecería imply or infer the definition of “Joint Venture” set forth in the Centroamericana, S.A. (Guatemala) & Cervecería de International Accounting Standards. It refers to those corporations Costa Rica, S.A. (Costa Rica) 1964 – 50.3% in which Vitro owns at least 50 percent of the shares and one or more third parties (either domestic or foreign) own the remaining shares of Metalúrgica Oriental the corresponding corporation. We believe our usage of the term Vancan, S.A. de C.V.: Vitro S.A. de C.V. + Rexam “Joint Venture” is consistent with international business and legal Beverage Can of the Americas, Inc. (USA) 2002 – 50% practices standards.

CONTENTS OUR Mission, Vision and Values

2-3 Financial Highlights 16-17 Board of Directors Vitro is a customer-committed corporation that is dedicated to providing value-added 4-5 Chairman’s Letter 18-23 Operating and Financial products and services in profitable and growing markets. This Mission is sustained through 6-7 CEO’s Letter Review our values, personnel development, and state–of–the–art technology. Our Vision is to become a leader in the global glass industry in terms of profitability, 8-9 Strenghtening our 24 Management´s Financial efficiency, quality, and service. We believe that the only way for us to realize our vision is to Customer Relationships Responsibility remain true to our time-tested values: Our Customer Orientation enables us to anticipate 10-11 Strenghtening our New 25 Auditor’s Report and satisfy customers’ needs; Our commitment to Quality drives us to consistently exceed Product Development 26-44 Consolidated Financial customers’ expectations; Our Creativity and Innovation lead us to constantly search for new 12-13 Strenghtening our Core Statements ideas to develop and improve our value-added products and services; and Our Teamwork Operations 45 Glossary / Shareholder and Integrity foster a collegial environment in which to meet and exceed our constituents’ expectations. 14-15 Strenghtening our Information

Commitment to Society Our 2003 20-F form, to be filled with the SEC, includes certain financial information calculated in accordance with US GAAP. FINANCIAL Highlights Vitro, S.A. de C.V. and Subsidiaries (In millions of constant pesos as of December 31, 2003, except where indicated otherwise; dollar figures are in millions of US dollars).

December 31,

US$(1) Ps.

2003 2002 % change(2) 2003 2002 % change (2)

INCOME STATEMENT

Consolidated net sales $ 2,238 $ 2,343 (4.5) Ps. 24,954 Ps. 25,426 (1.9)

Domestic 1,020 1,129 (9.7) 11,281 11,807 (4.5) Export 580 586 (1.0) 6,470 6,379 1.4 Foreign Subsidiaries 638 628 1.6 7,203 7,240 (0.5)

Operating income 165 194 (14.9) 1,848 2,118 (12.7) Net income (loss) of majority interest (51) (5) (570) (19) Net income (loss) of majority interest earnings per common share(3) )(0.18) (0.02) (2.08) (0.06) EBITDA 364 403 (9.7) 4,051 4,309 (6.0)

BALANCE SHEET

Total assets 2,748 2,875 (4.4) 30,882 31,566 (2.2) Total liabilities 1,978 2,051 (3.6) 22,231 22,390 (0.7) Stockholders‘ equity l770 824 (6.6) 8,651 9,176 (5.7) Stockholders‘ equity of majority interest 514 569 (9.7) 5,777 6,339 (8.9) Personnel l25,829 27,174 (4.9) 25,829 27,174 (4.9) Capital expenditures 160 101 58.4 1,776 1,067 66.4

FINANCIAL INDICATORS

Debt / EBITDA (times) 3.9 3.6 3.9 3.7 Interest Coverage (times) (EBITDA / Total net financial expense) 2.3 2.8 2.3 2.8 EBITDA / Sales (%) 16.3 17.2 16.2 16.9

(1) Dollar figures reported herein are in nominal dollars resulting from dividing each month‘s nominal pesos by that month‘s ending exchange rate. (2) Change from 2002 to 2003. (3) Based on the weighted average shares outstanding.

2 CONSOLIDATED NET SALES CONSOLIDATED NET SALES In millions of constant pesos as of December 31, 2003 In millions of US dollars

03 24,954 03 2,238 02 25,426 02 2,343 01 25,933 01 2,369 00 26,523 00 2,292 99 26,550 99 2,132 98 27,708 98 2,039 97 27,301 97 2,001 96 27,163 96 1,795 95 27,079 95 1,607 94 24,290 94 1,802

EBIT EBIT In millions of constant pesos as of December 31, 2003 In millions of US dollars

03 1,848 03 165 02 2,118 02 194 01 2,442 01 226 00 3,252 00 285 99 4,161 99 333 98 5,137 98 369 97 5,077 97 365 96 4,806 96 300 95 5,931 95 320 94 3,608 94 273

EBITDA EBITDA In millions of constant pesos as of December 31, 2003 In millions of US dollars

03 4,051 03 364 02 4,309 02 403 01 4,678 01 437 00 5,367 00 471 99 6,298 99 505 98 7,242 98 520 97 7,024 97 505 96 6,935 96 433 95 8,132 95 440 94 5,495 94 412

Discontinued Operations On July 3, 2002, we sold our controlling 51% interest in Vitromatic, our joint venture with Whirlpool that engaged in the production and distribution of household products, to Whirlpool for US$148.3 million in cash. Our consolidated financial statements have been reclassified to reflect Vitromatic as a discontinued operation for all periods presented in our financial statements. Therefore, Vitromatic’s results are included in the line items titled “Net income (loss) from discontinued operations”. Therefore, except as otherwise expressly provided, any discussion of our results of operations or our debt or other liabilities in this annual report does not include the results or debt or other liabilities of Vitromatic or its subsidiaries.

3 CHAIRMAN‘S Letter

To Our Shareholders: Our concern with looming geopolitical risks and the pace the U.S. non-residential construction and OEM of the U.S. economic recovery unfortunately proved automotive markets. On the upside, our flat-glass sales prescient last year. Though the U.S. economy picked up benefited from Mexico’s strong construction and auto- steam the last half of 2003, the manufacturing sector replacement markets, as well as the positive performance lagged overall economic growth; consequently, the of our Spanish operations. We’ve further completed a second-half surge did not materially impact our financial number of measures that should improve our future results. Moreover, Chinese exports commanded a performance, including our shifted sales mix to the auto- growing share of the U.S. import market. Thus, Mexico- replacement market; increased operating efficiencies at based exporters, such as Vitro, realized a smaller our automotive and float-glass plants; and long-term percentage of rising U.S. imports. contracts with Ford and General Motors, which take Aside from these macro variables, the main external effect in 2005. factor that affected our consolidated results last year In 2003 our core glassware business’ top-line results was rising energy prices in North America—our most continued to suffer from weak consumer spending, important geographic market. That, coupled with a particularly in Mexico. But, at the same time, glassware’s decline in our container sales, affected our 2003 bottom line began to benefit from our better mix of consolidated net sales and EBITDA, which decreased to products and capacity utilization. US$2.2 billion and US$364 million, respectively, Though we are dissatisfied with our consolidated compared with US$2.3 billion and US$403 million in financial performance last year, over the near and long- 2002. term, we will continue to focus on the factors that we can Last year, we experienced a reversal in our core glass control in the face of dynamic market forces. containers business; from operating at almost 100 We took important steps to strengthen our financial percent capacity in 2002, our capacity utilization position. We effectively managed to maintain our level of declined to 77 percent in 2003. Among other factors, the net debt in a difficult year, when our cash flow from year-over-year decline reflects excessively wet weather operations declined and important capital expenditures conditions in Mexico, which affected some of our beer (CAPEX) were required. Of note, we matched our debt and soft-drink customers’ distribution networks, and a profile with our EBITDA generation. We tapped public short-term drop in U.S. beer consumption, which debt markets in Mexico and the U.S., as well as private affected our indirect container exports. To deal with this markets, through a syndicated loan. And, through a series issue, we’ve taken multiple steps, including the of financial transactions, we improved the average life of alignment of our current manufacturing capacity with our debt from 3.1 years to 4.1 years during 2003. In this demand and the investment in new container technology regard, we successfully placed US$225 million of senior to improve our operating efficiency. notes (due November of 2013), using the net proceeds However, our core flat glass business showed to refinance our holding company’s shorter maturity significant signs of improvement in 2003. On the debt—on an adjusted basis, approximately 72% of our downside, our top-line results continued to reflect debt is long term, compared to 66% prior to this lingering economic issues, particularly the slowdown in transaction. Also, we executed a US$201 million

4 "...we will continue to focus on the growth and development of our core businesses."

syndicated credit facility that improved our debt maturity investments to maintain and upgrade our core profile and reduced our cost of capital. containers, flat glass, and glassware businesses. As a On top of the measures that I noted earlier, we result, we’re ready to benefit from improving economic implemented several initiatives to lower our costs and conditions in our markets. improve our operating efficiency. In particular, we We remain committed to top corporate governance reduced our corporate and operating headcount, and practices. Half of our Board of Directors is comprised of aligned Vitro America’s flat-glass distribution network independent directors. Furthermore, our distinct Finance with current market needs. and Planning, Evaluation and Compensation, Audit, and Moreover, given the impact of energy costs, we’re Corporate Responsibility Committees not only provide us developing new technology that can use alternate with valuable oversight, but also work to ensure the sources of fuel to maximize our operating efficiency. highest standards of corporate governance at Vitro. This technology represents a scientific breakthrough in Looking forward, we aim to strengthen our financial our industry. In 2003 we began to convert our furnaces position, improve our operating efficiency, and continue for this technology. We also started a long-term energy to build on our core competitive strengths, focusing on contract, which should generate annual cost savings improved productivity and profitability. Although we still of approximately US$10 million. face considerable uncertainty—particularly in light of our Finally, we will continue to focus on the growth and current competitive and cost pressures, I am confident development of our core businesses. In the fourth we have the people, the resources, the vision, and the quarter of 2003, we opened our new flat-glass facility— strategy to surmount the challenges and create value for you. developed jointly with AFG, Industries, Inc., the U.S. subsidiary of Asahi Glass—in Mexicali, Mexico, ahead Sincerely, of schedule and under budget. This new plant will significantly improve our operating efficiency, lower our logistics costs, and provide us with a closer link to our North American markets. During the third quarter, we completed the divestiture of one of our plastic subsidiaries for approximately US$18 million. And recently, we reached a preliminary agreement to sell our majority stake in Vitro Fibras, our fiberglass subsidiary, Adrián Sada G. to Owens Corning, our joint venture partner. Chairman of the Board When our markets pick up, we’ve sufficient installed Vitro, S.A. de C.V. capacity to meet increasing demand; in 2003, we made February 27, 2004

5 CEO‘S Letter

Dear Fellow Shareholders: Since 2000, we’ve managed to decrease our Last year was a very tough and challenging year for Vitro. consolidated debt by US$225 million(1)—or US$306 Though we managed to regain market share in each of million of net debt.(1)(2) Also, through a series of financial our core businesses, the difficult cost, competitive, and transactions, we’ve increased the long-term component macroeconomic environment took a significant toll on of our total debt to 72 percent as of December 31, 2003. our financial results. Moving forward, we will remain committed to reducing Our consolidated sales were US$2.2 billion, down 4.5 our debt and strengthening our balance sheet. percent year-over-year, mainly due to across-the-board Over the last two years, we’ve embarked on several price pressure and a drop in container volumes. Our initiatives to lower our costs and expenses. As a result of operating cash flow (EBITDA) was US$364 million, off our ongoing efforts, we brought down our selling, general, 9.7 percent from 2002. Our net loss was US$35 million, and administrative expenses (SG&A) by around US$22 compared with net income of US$7 million a year ago. million in 2003. Though our overhead has declined Aside from the top-line decline in our containers dramatically, we are not satisfied with our level of business, the main factor that affected our results was expense reductions. Therefore, we plan to take additional rising energy costs. To mitigate the impact of these steps to increase our operating efficiency, including the variables, we’ve taken actions to sharpen our focus, development of new state-of-the-art technology aimed at strengthen our balance sheet, improve our cost lowering our production costs. structure, and expand our margins. To address rising energy prices, we are actively Consistent with our One Vitro strategy, we continued exploring the use of lower-cost alternative fuels. Also, to divest non-strategic assets last year; as a result, our through our power purchase agreement with Tractebel, glass-related businesses comprised 93 percent of our we expect to realize significant energy cost savings in total sales and 91 percent of our EBITDA in 2003, up 2004. from 71 percent and 81 percent, respectively, in 1998. Moving forward, we will continue to manage our In September 2003, we sold Envases Cuautitlán, one of company for the long term, concentrating on the factors our plastic containers subsidiaries, for approximately within our control and building on the things that we do US$18 million. Additionally, we recently reached a best. We are an industry leader with high-quality preliminary agreement to sell our 60 percent interest in products, world-class customers, strong joint venture Vitro Fibras, our fiberglass subsidiary, for approximately partnerships, a multinational presence, and a passionate, US$71.5 million. We look to negotiate the sale of our knowledgeable group of employees. Moreover, we’ve a remaining non-core businesses and, thus, fully focus our clear focused strategy to build on our position as a top- attention on fortifying our financial position and growing glass manufacturer, distributor, and packager. our core businesses. Product innovation is key to our company’s success.

(1) 2000 base figure includes Vitromatic. (2) Debt net of cash and, cash equivalents and cash collateralizing debt accounted for within the “Other long-term assets” line in our balance sheet.

6 "...we will continue to manage our company for the long term, concentrating on the factors within our control and building on the things we do best."

To improve our top and bottom-line growth, we will will leverage Vitro’s brand equity and leading industry continue to introduce value-added products, serving position to pursue selective opportunities in our core niche markets in which we enjoy an advantage over our product markets, as exemplified by our accretive competitors. For example, new products represented acquisitions in Spain and Portugal and our recently 29.7 percent of our glassware business’ total sales in launched float-glass plant in Mexicali, Mexico. 2003, compared with 16.1 percent in 2002. Similarly, At the end of the day, we will succeed with the passion our new glass container products’ percentage of total of those who work for our company; their desire to make sales rose from 12 to 18 percent over the same period. a difference in our industry and their community. Our As I’ve emphasized on many occasions, the customer team of employees are the engine of our performance is the origin and final destination of our business. and the foundation for our company’s sustainable Consistent with our vision and values, we will continue development. to completely devote ourselves to our customers, forging On behalf of the management team and the motivated long-lasting relationships founded on quality products men and women who make up Vitro, I thank you for the and services. Our world-class client base is a testament support that you have shown in your company. And, I am to our unwavering customer focus. We enjoy strong confident that, by building on our competitive strengths, customer relationships with a diverse array of industry we can generate profitable growth for you. leaders—from Avon, Bacardi, Coca-Cola, Coty, Cuervo, Gerber, Gigante, Grupo Domecq, Grupo Modelo, Sincerely, Hamilton Beach/Proctor-Silex, HEB, Herdez, Nestlé, Pepsi Co., Procter & Gamble, Soriana, Victoria’s Secret, and Wal-Mart to DaimlerChrysler, Ford, General Motors, Nissan and Volkswagen. And, we will leverage these relationships to grow our core businesses. In this regard, we will continue to follow a clear focused strategy. 1. We will concentrate on our core competencies of glass manufacturing, distribution, and packaging, capitalizing on value-added and niche market opportunities. 2. We will further strengthen our financial position. 3. We will continue to drive down costs and Federico Sada G. maximize our operating efficiency. 4. We will bolster our President and Chief Executive Officer international presence in the U.S. and Europe through Vitro, S.A. de C.V. our long-term joint ventures and agreements. 5. And, we February 27, 2004

7 1 2

STRENGTHENING our customer relationships

Thanks to our product quality and our ability to meet The Preferred Choice among Customers our customers’ specifications and volume requirements Our recently signed five-year contract with Best Maid promptly and reliably, we’ve successfully established Products underscores the distinctive qualities of our long-term relationships with customers that are leaders in glass containers. For over seven decades, Best Maid and their industries. These long-standing relationships—some Del Dixi products—from dill pickles to mustard, syrup, of which span more than 50 years—provide us with a and salad dressing—have maintained a reputation of strong base on which to grow. Avon, Bacardi, Coca-Cola, taste, freshness, and service; only “glass provides the Coty, Cuervo, DaimlerChrysler, Ford, General Motors, product protection to assure our products reach the Gerber, Gigante, Grupo Domecq, Grupo Modelo, consumer at ultimate freshness,” said Brian Dalton, Hamilton Beach/Proctor-Silex, HEB, Nestlé, Nissan, President of Texas-based Best Maid Products. Currently, Pepsi Co., Procter & Gamble, Soriana, Volkswagen, Vitro supplies Best Maid at least 12 different containers, Victoria’s Secret, and Wal-Mart are examples of the ranging in size from eight ounces to one gallon, and due world-class customers with whom we’ve developed to the joint effort of Best Maid Products and Vitro, it will strong relationships. provide a wider array of packages for their product The quality of our customer relationships is equaled lines.(1) only by their diversity. In 2003 no single customer accounted for more than five percent of our consolidated Demonstrated Commitment to Excellence sales. Moreover, our customer diversity is enhanced by As a result of our team’s commitment to excellence at the breadth of industries we serve, which include the every level, we closed new long-term contracts with Ford automotive, construction, beverage, food, lodging, and General Motors that take effect in 2005. These restaurant, pharmaceutical, and cosmetic industries. major contracts—which extend from three to five years— Looking ahead, we aim to build on our diverse base will increase the volume of windshields and tempered of client relationships by re-doubling our time-tested glass we supply for some of their most important lines of commitment to our customers. vehicles, such as Avalanche, Cavalier, Deville, Grand AM, Impala, Le Sabre, Suburban, and the Ford Futura

8 “…we will continue to completely devote ourselves to our customers, forging long-lasting relationships founded on quality products and services.”

GLASS CONTAINERS‘ NET SALES In millions of US dollars

248 653 03 901 Exports Comprise Growing Share of 236 747 Container Sales 02 983 249 725 Our glass-container exports were up 5% in 01 974 2003, accounting for 28% of the business’ 245 696 00 941 total sales. 228 726 99 954 219 719 98 938 203 702 97 905 209 609 96 818 201 506 95 707 Export Sales 163 631 94 794 Domestic Sales and Foreign Sales

program, as well as additional vehicles by side with Vitrocrisa, whom we’ve recognized to be launched. As a result of these new with the ‘Excellence Award’ on several agreements, we will further consolidate our occasions,” said Ing. Pedro Martínez de relationship with both manufacturers.(2) Velasco, New Business Director, Avon Cosmetics. In addition to our quality glassware Closer to Our Customers products, we offer our clients a range of value- We build customer service and loyalty through added solutions—from better packaging, win-win initiatives like our Vitrocar commercial exclusive designs, and short runs with network. To get closer to our customers, production minimums, to point-of-purchase Vitrocar, a leader in Mexico’s auto-replacement publicity, merchandising, and category glass market, opened eight new outlets last management.(3) year, increasing its presence to 126 branches across the country. Additionally, our new Customer Focus Vitromart concept will offer customers an array Of our many corporate relationships, the of construction glass products and services— connection between our people and our including technical assistance, workforce customers is paramount. We use a variety training, and business planning systems such of research tools, including consumer focus as production control and inventory groups, point-of-sale analysis, and customer management—and reinforce our long-term usage and habit studies, to anticipate and retail relationships. satisfy our customers’ changing needs. Moreover, through our cross-functional Value-Added Solutions employee training programs and workshops, “Selecting our suppliers is critical for the we focus on each element of our client accomplishment of the goals we have laid out, relationships to provide a valuable and and in that sense, we feel proud to work side consistent end-to-end customer experience.

9 1 2

STRENGTHENING our new product development

Since 1909, Vitro has produced some of the most supplier that we needed to bring this product from a creative and recognizable glass products in the world. No concept to a commercial reality.” other products have the look, the feel or appeal of our --William Borghetti, CEO, Gardner Technologies glass. Nonetheless, we operate in a very competitive and Thanks to the joint effort of Vitro Packaging and dynamic industry landscape. Thus, we continually look to Gardner Technologies, opening a bottle of wine no longer improve our flexibility and creativity, so we provide our requires a corkscrew expert. In 2003 the companies customers and consumers exactly what they want. partnered to develop an innovative glass wine bottle for Our focus on new product development is evident the launch of Gardner’s revolutionary new product, across our core businesses. New products—totaling 747 MetaCork™. With a twist-to-unlock wine opening system, million pieces in production last year—represented a MetaCork™ integrates the traditional look of cork-and-foil record 18 percent of our glass container business’ finished wine with state-of-the-art technology. It also consolidated sales volume in 2003. Similarly, new offers a drip-resistant pour spout and a convenient products represented 29.7 percent of our glassware airtight, reseal cap. Last year, consumers marveled at the business’ total sales and 25 percent of Vitro Packaging’s nearly 60,000 MetaCork™ sealed bottles of Amusant, total sales last year. Clos du Bois, and Fetzer Super Premium wines test marketed in restaurants, wine shops, and selected retail Revolutionary Wine Technology stores in California and Texas.(1) “After discussions with many glass companies, we chose Vitro Packaging because we felt that Vitro could Wide Array of Specialty Products execute on the technical challenges and was willing to We do more than just listen to our customers’ needs; we work closely with us to ensure that the bottles made by work hand-in-hand with our customers to create and Vitro met or exceeded our tight specifications. … They’ve refine new products that stimulate and meet consumers’ proven to be the progressive and innovative glass demands. Last year, we developed and launched a

10 “Product innovation is key to our company’s success. …we will continue to introduce value-added products…”

GLASSWARE‘S NET SALES In millions of US dollars

78 159 03 237 Mexican Economy Affects Top-line 79 180 Results 02 259 80 194 Our glassware sales declined by 8% in 2003, 01 274 mostly due to decreases in our domestic sales 89 204 volumes. 00 293 76 174 99 250 68 149 98 217 73 191 97 264 60 186 96 246 60 169 95 229 Export Sales 60 218 94 278 Domestic Sales and Foreign Sales

number of new specialty containers for our the Mexican and North American export auto- clients. They include industry leader Grupo replacement markets, as well as for our Domecq’s Spirit, Bacardi’s Breezer, Coca-Cola’s network of distribution and installation non-returnable contour presentation, Estée centers.(3) Lauder’s Black Cashmere for Donna Karan, Grupo Modelo’s first-ever non-returnable barrel Quality People, Innovative Ideas bottle, Herdez’s Solo consommé, Herradura’s We regularly analyze, confirm, and recognize Skyy Blue, Lala’s Makiatto ready-to-drink novel technological developments at our core coffee, and Smucker’s five-ounce jam jar. businesses with our Incremental Improvement Award. Through this award, we not only reward Evolving Family of “Champion” Products employee innovation, but also protect our Glassware is a fashion-driven business, so we intellectual property rights through patents, offer our customers and consumers more than trademarks, and other enforceable legal 6,500 different active SKU‘s. Of these, 2,500 instruments. Presently, we have almost 449 pieces belong to our “champion” product patents, trademarks, designs, and copyrights families; families who continuously evolve to issued and 339 pending companywide. For meet consumers’ every-changing preferences legal certainty, through periodic technology and purchasing patterns.(2) reviews at our plants, we confirm the legal use of our technology and the legal We’ve Got Your Part commercialization of our products and In 2003 we developed 130 new automotive services, honoring others’ rights. products to serve the expanded range of vehicles available in Mexico. On average, we develop five to 10 new parts per month for

11 1 2

STRENGTHENING our core operations

Quite simply, our goal is to consolidate and advance our Customer-Focused Flexibility position as an industry leader. To accomplish this goal, Our plants are capable of manufacturing many different we will continue to focus on our core competencies— types and colors of glassware. Last year, we increased glass manufacturing, distribution, and packaging; our flexibility to create even more customized products, capitalize on value-added niche markets; reduce our tailored to consumers’ distinct preferences and costs and enhance our operating efficiency; and pursue purchasing patterns. Based on a proprietary mix of selective opportunities in our core markets. internal and external technology, we modified the design Thanks to our investments last year, we are well- of our manual furnace, so we can produce both clear situated for growth, without the need for significant and colored glass simultaneously.(1) additional capital expenditures. In 2003 we implemented a number of initiatives that not only increased our Glass Icon manufacturing capability, but also improved our Capitalizing on the growing demand for value-added operating efficiency. As a result, we significantly glass products, we continued to consolidate our position upgraded our production and optimized our costs and in complex icon building construction. In 2003 Vitro expenses, decreasing our SG&A expenses by US$22 Cristalglass won five of the largest construction projects million year-over-year. in Spain: the Banco Santander Central Hispano Financial In 2003 we further focused on niche market segments Center in Madrid, the Bilbao Exhibition Center in Bilbao, and opportunities in which we enjoy a competitive the Reina Sofia National Art Museum in Madrid, the advantage over commodity manufacturers. We entered Universal Culture Forum in Barcelona, and the Barajas new product categories, such as glass for plug-in home International Airport in Madrid. Vitro’s important and car deodorizers in Mexico—manufacturing 90 international icon projects also include the recently million pieces for this segment alone. We started our new reconstructed Winter Garden Atrium in New York City, float-glass facility in Mexicali, Mexico. And, we expanded the new Walt Disney Conference Hall in Los Angeles, the our presence in the sophisticated icon building Torre Mayor tower in Mexico City, the Oceanographic construction sector. Museum in Valencia, the Galerías Valle Oriente in

12 “…we’ve a clear focused strategy to build on our position as a top glass manufacturer, distributor, and packager.”

FLAT GLASS‘ NET SALES In millions of US dollars

255 847 03 1,102 Exports Impact Total Flat-Glass Sales 272 837 Our total flat-glass sales decreased by 02 1,109 260 874 less than one percent year-over-year, as 01 1,134 our construction, automotive replacement, 274 790 00 1,064 and international subsidiaries‘ sales largely 279 661 offset our decreased automotive OEM and 99 940 export sales. 242 649 98 891 217 625 97 842 189 566 96 755 197 490 95 687 Export Sales 175 575 94 750 Domestic Sales and Foreign Sales

Monterrey, Mexico, and the remodeled significantly reduced energy consumption.(3) Safe, Secure Work Environment Victoria’s Secret stores in the U.S., among Our people are our most important asset, so others.(2) Market Proximity their safety comes first. Last year, we took a In November 2003, we opened a new flat- number of actions to ensure our people enjoy Improved Productivity glass facility—developed jointly with AFG a healthy environment in which to work, Last year, we took steps to enhance our Industries, Inc., the U.S. subsidiary of Asahi including extraordinary safety and health and position as one of the most profitable flat-glass Glass—in Mexicali, Mexico. The plant, which quality and security inspections in our producers in the world. Among other is expected to operate at approximately 80 operations; strong follow up on recommended initiatives, our Cristales Inastillables de México percent capacity in just its first year of measures; multiple motivational events, (Crinamex) plant significantly increased its operation, started production ahead of campaigns, and Safety and Health Week windshield production in 2003. Thanks to the schedule and under budget. Because of its programs; and strict enforcement of our facility’s improved productivity, we were able proximity to our western markets, the new policies governing high-risk work and furnace to expand our automotive sales volume and facility will significantly improve our operating repair. Thanks to these actions and the efforts market share last year. efficiency and lower our freight costs. The of our people at every organizational level, Mexicali plant supplies flat glass to 2003 was a year of historic achievement in the High-Quality Glass northwestern Mexico and the southwestern area of safety. Companywide, we reduced our We upgraded the largest furnace in Vitro’s U.S.; it also gives us a closer link to Canada. number of lost-time accidents by 20 percent container operation’s network, Vidriera Most of the new plant’s sales are made directly and our total number of lost workdays by 40 Querétaro, one of our plants designed to to Vitro America, our U.S. subsidiary. As a percent year-over-year. Consequently, we produce light, high-quality, and hygienic glass result, Vitro America can satisfy a growing achieved an accident index of 86.0, versus the containers. The new furnace offers us a share of its needs internally, and thereby, minimum glass industry standard of 1,340 in number of competitive advantages, such as its ensure a consistent supply of better quality our class. expanded production capacity of up to 15 and more cost-effective flat glass. million containers a month, state-of-the-art technology, increased operating efficiency, and

13 1 2

3 STRENGTHENING our commitment to society

At Vitro, we believe that being a leader in our industry area collected six tons of glass in the first stage of their includes a responsibility to better society. That’s why we “contribute with a bit of glass” campaign. By actively support the needs of the communities in which we work communicating the importance of recycling, sharing and why we encourage our employees to get involved as employee experiences, collecting statistics, and creating volunteers. Indeed, one of the things that sets our culture an honor roll, 146 employees were motivated to apart from other businesses is volunteer employee participate in the program, which collected five times involvement. more glass than the goal set for this phase of the project. Through our recycling programs, our employees are encouraged to volunteer and commit their time and Happier Holidays talent to actively promote and educate the public about In Bolivia, employees from our Vidrio Lux containers the myriad advantages of glass recycling and subsidiary made the Christmas holidays brighter for a environmental protection. In Mexico alone, we support number of needy children who live in a neighboring approximately 50 joint recycling programs with community. Working together, they collected toys, communities, schools, hotels and restaurants, federal, caramels, cookies, and milk for 900 boys and girls, state, and local governments, and disposal collection who received these gifts on December 23, 2003. Our centers across the country.(1) employees’ wish is to build on this effort and bring joy to a growing group of children each year.(2) Virreyes’ Facilities are the State’s Seat for Middle and High School Education Our Shared Commitment to Ecological Awareness Our employee-support programs help to improve the As a member of the Board of Trustees of Chipinque quality of life of our people, their families, and our Ecological Park, we promote health and ecological communities. Officially inaugurated by the State of awareness within our community. Located on 1,625 Mexico’s Integrated Educational Services and Vidriera hectares of protected natural areas, the park offers Los Reyes (Virreyes) on June 3, 2003, the new open something for everyone: trails, childrens’ workshops, high school system guarantees that our employees and playgrounds, sports facilities, and lots of captivating their families who want to finish high school can scenery. complete their education at Virreyes open high school. An Open Door to the Community “A Bit of Glass” Goes a Long Way To facilitate communication and maximize employee Employees from the Management Information Systems involvement, we extend an “open door” policy to the

14 “… we will succeed with the passion of those who work for our company; their desire to make a difference…”

communities we serve companywide. In only helps the kids—who receive one-on-one helped to make our employees’ dream of Colombia, our Vitro Colombia employees instruction with an adult—but also our home ownership a reality, but also invested in conduct regular meetings with local action employees—who strengthen their friendships, the future of our community. groups and work closely with governmental teamwork, and level of personal satisfaction. officials to solve problems and better their A Strong Foundation communal areas—attaining much-needed A Clean Industry Each year employees and friends of our Vitro improvements such as road repair and light “Vitro is one of the leading companies with America subsidiary donate to the Binswanger installation. They also donate their time, the best technologies, but it is the quality of Memorial Scholarship Fund. The fund was money, and gifts to support various church, its executives and its workers that have kept established in memory of Sam E. Binswanger; school, and municipal initiatives. Recently, 150 Vitro’s excellence and success through the and for over 40 years, has consistently children visited our Vitro Colombia flat-glass years,” said Mexico’s Federal Attorney General awarded lump-sum scholarships to deserving processing facility to express their gratitude to for Environmental Protection. Thanks to our young people each year. The awards are our organization. employees’ hard work and dedication, 10 more based on academic excellence, leadership of our facilities received the government’s activities, employment, and financial need. The Art of Glass Clean Industry Certificate in 2003. As a result, Since its inception, approximately 500 children Vitro has served as a proud sponsor of Museo 27 of the 29 audited plants have received have received financial assistance from the del Vidrio—the first and only glass museum federal recognition for their environmental fund; with this support, a number of them in Latin America—for more than a decade. efforts since we began conducting voluntary have gone on to become teachers, doctors, Thanks to the museum, children of all ages audits in 1998. lawyers, and respected business professionals. get to express themselves through the fine art of glass making. The museum’s activities Delivering on a Dream Please visit our website at www.vitro.com to include craft workshops, some of which are Through Infonavit, a Mexican governmental learn more about our efforts to protect the specially designed to teach children about the housing program that enables workers to buy environment and promote a better quality of environmentally friendly art of recycling.(3) their own homes, we’ve offered counseling and life for our people and neighboring procedural support that’s aided more than communities. Reading is Fundamental 4,500 employees to receive credits over the Last year, employees from Vitro Packaging last five years. Additionally, we’ve delivered volunteered for Project Transformation, a 287 homes for Vitro employees and their summer reading program for underprivileged families through a home construction project children in Dallas, Texas. The program not with Infonavit. As a result, we’ve not only

15 BOARD of Directors

Our Board is elected to oversee management and to assure that the long-term interests of our shareholders are served; half of our Board is composed of independent directors. In addition, the Board performs a number of specific functions. Comprised entirely of independent directors, the Audit Committee verifies that our company’s internal and external auditing functions are conducted in an objective manner and that the financial information our company presents to the public is reliable, sufficient, and transparent. Established in 1998, the Corporate Responsibility Committee oversees and ensures that corporate governance rules are applied correctly. The Evaluation and Compensation Committee helps the Board to evaluate and compensate our company’s top-level executives. And, the Finance and Planning Committee assists the Board to evaluate our company’s long-term business strategy, assuring investment and financing policies are in accordance with our company’s strategic vision.

ADRIÁN SADA G./1944/D 1, 2, 4 FEDERICO SADA G./1949/D 1, 2, 4 Member since 1984 Chairman of the Board Member since 1982 President and Chief Executive Officer Finance and Planning Committee President Member of the Boards of Instituto Tecnológico y de Estudios Superiores de Monterrey Member of the Boards of ALFA, Gruma, Cydsa, Regio Empresas, Wharton (Latin (ITESM), Bombardier Inc., Regio Empresas, ALPEK (a subsidiary of Grupo ALFA) and American Executive Board for the Wharton School of Finance), Mexican Businessmen University of Texas MD Anderson Cancer Center; former Chairman of the Mexican Council Council (CMHN), Consejo de Industriales de Nuevo León, and Pronatura; for Foreign Trade (COMCE), current President of the Mexico-France Bilateral Committee of Member of the Young Presidents Organization (YPO). the Mexican Council for Foreign Trade (COMCE); Chairman of the Fundación Pro Museo Nacional de Historia (Chapultepec Castle), A.C.; Chairman of Trustees of Parque Ecológico Chipinque; Member of the International Business Council of the World Economic Forum, and of the World Business Council for Sustainable Development.

ADRIÁN SADA T./1920/D 1 CARLOS E. REPRESAS/1945/A 2 Member since 1969 Honorary Chairman of the Board Member since 1998 Chairman of the Board of Vitro (1972-1991); Executive Vice-President Nestlé S.A.; President for the Americas; Chairman of the Board Chairman of the Board of Fundación Martínez Sada of Nestlé México, S.A. de C.V.; Chairman of the Board, Nestlé Holdings Inc. (USA); Co- Chairman of the Board of Beverage Partners Worldwide (a joint venture of Nestlé and Coca-Cola); Member of the Board of Cereal Partners Worldwide (a joint venture of Nestlé and General Mills); Co-Chairman of the Board of Dairy Partners Americas (a joint venture of Nestlé and New Zealand’s Fonterra Cooperative Group); Member of the Global Advisory Council of The Conference Board of New York, USA; Board Director of Dreyer´s Grand Ice Cream Holdings, Inc. Oakland, California.

ROBERTO G. MENDOZA/1945/A 1 JAIME SERRA P./1951/A 1, 3 Member since 1998 Member since 1998 Chairman of Egg plc; Chairman of Integrated Finance Limited; Founding Partner of SAI Consultores, S.C.; Member of the Boards of Grupo Ferroviario Vice-Chairman of J.P. Morgan & Co. Inc. (1990-2000). Mexicano, Fondo México, Bardahl, RMM Global Sourcing Solutions, Tenaris and Chiquita Brands; Mexico’s Secretary of Finance (1994), Secretary of Trade and Industry (1988-1994); Under-secretary of Revenue, Ministry of Finance (1986-1988); currently co-chairs The President’s Council on International Activities of Yale University; Member of the Trilateral Commission and the US-Mexico Bilateral Council.

JOAQUÍN VARGAS G./1954/A 3 DIONISIO GARZA M./1954/B 1 Member since 2000 Member since 1995 Chairman of the Board of Grupo MVS Comunicaciones; Chairman of the Board of Chairman of the Board and Chief Executive Officer of ALFA; Chairman of the Board of Corporación Mexicana de Restaurantes; Member of the Boards of Grupo Costamex, Universidad de Monterrey (UDEM); Member of the Boards of CEMEX, Cydsa and ING Grupo Posadas, Bolsa Mexicana de Valores, NRM Comunicaciones México; Member of the Mexican Businessmen Council (CMHN); Member of the Associates and Member of the Mexican Businessmen Council (CMHN). Board of Directors of the Harvard Business School; Member of the Harvard University Advisory Committee to the David Rockefeller Center for Latin American Studies and the Advisory Committee of the New York Stock Exchange (NYSE).

LORENZO H. ZAMBRANO T./1944/A 2 GUSTAVO MADERO M./1955/A 3 Member since 1998 Evaluation and Compensation Committee President Member since 1996 Audit Committee President Chairman of the Board and Chief Executive Officer of CEMEX; Chairman of the Board of Federal Congressman (Representative) of the 59th Legislature (2003-2006), Chairman Enseñanza e Investigación Superior, A. C. (body responsible for the management of the of the Tax and Finance Commission; Chief Executive Officer of Electronic Publishing, Instituto Tecnológico y de Estudios Superiores de Monterrey, ITESM); Member of the Board and Campestre Carolinas; Member of the Boards of Hermanos Madero, and of Directors of IBM, Citigroup’s International Advisory Board and of the Chairman’s ING-Comercial América División Norte; and Regional Vice-President of Banamex. Council of DaimlerChrysler AG; Member of the Boards of ALFA, Grupo Financiero Banamex, Empresas ICA, Femsa, and Televisa; Member of the Stanford University’s Graduate School of Business Advisory Council; Member of the Boards of the Americas Society, the Conservation International, and the Museo de Arte Contemporáneo (MARCO).

16 ANDRÉS A. YARTE C./1941/D 4 TOMÁS GONZÁLEZ S./1943/B 1 Member since 1991 Corporate Responsibility Committee President Member since 1980 Chairman of the Board and Chief Executive Officer of Distribuidora de Productos Chairman of the Board and Chief Executive Officer of Cydsa; Chairman of the Mexico- Cerámicos, S.A., and K-Inver, S.A. Japan Business Committee of the Mexican Council for Foreign Trade (COMCE); Chairman of the Board of Trustees of Universidad Regiomontana; Vice-President of the Mexican Institute for Competitiveness; Honorary Consul-General of Japan at Monterrey, Mexico; Treasurer of the Fundación Martínez Sada; Member of the Mexican Businessmen Council (CMHN); and Member of the Board of Regio Empresas.

CARLOS F. MUÑOZ O./1955/C 4 RAÚL RANGEL H./1949/A 4 Member since 2000 Member since 2001 Secretary of the Board since 1998 Vice-President of Fomento Bursátil; Vice-President of Super Mart; Vice-President of Legal and Strategic Services Consultant; Vice-President of the Advisory Council of Manufacturas de Concreto; Member of the Board, North Zone, of Banamex; Member of the Universidad Autónoma de Nuevo León (UANL); Active Member of the Universidad the Board of Instituto Tecnológico y de Estudios Superiores de Monterrey (ITESM), Autónoma de Nuevo León Foundation, A.C.; Member of the Regional Board of Banco Campus Chihuahua. Nacional de México (Banamex); Member of the Boards of Universidad de Monterrey (UDEM), and the Law and Criminology Faculty of the Universidad Autónoma de Nuevo León (UANL).

ALEJANDRO GARZA L./1926/A 2, 3 EDUARDO G. BRITTINGHAM/1926/A 2 Member since 1972 Member since 1972 Member of the Executive Committee of SAVIA, S.A. de C.V. y VECTOR Casa de Bolsa; Chief Executive Officer of Auto Express Rápido Nuevo Laredo, Laredo Autos and Member of the Boards of Cydsa, Grupo Industrial Ramírez, Instituto Tecnológico y de Corporación Internacional de Manufacturas. Estudios Superiores de Monterrey (ITESM), and Centro de Estudios en Economía y Educación; Member of the Board of Governors of the Wharton School of Business and the Joseph H. Lauder Institute.

MANUEL GÜEMEZ/1942 JULIO ESCÁMEZ F./1934 Examiner since 1999 Alternate Examiner since 1999 Examiner of the Finance and Planning, Evaluation and Compensation, Audit, and Member of the Boards of Consorcio Industrial de Manufacturas, and Grupo Empresarial Corporate Responsibility Committees Martel. Member of the Board of Vitro, S.A. de C.V. (1974 – 1998). Chairman of the Boards of Regio Empresas and Grupo PREZ; Member of the Board of Grupo de Seguridad Integral; Alternate Member of the Board of Gruma.

COMMITTEES AFFILIATIONS:

A = Independent 1 Finance and Planning

B = Related 2 Evaluation and Compensation

C = Independent Proprietary 3 Audit

D = Related Proprietary 4 Corporate Responsibility

17 OPERATING &and Financial Review

You should read this discussion in conjunction with our recovery—at a time when China’s role as an exporter and consolidated financial statements, notes thereto, and as a destination for foreign investment is growing—and other financial information included elsewhere in this the Mexican government’s passage and implementation document. We prepare our financial statements in of fiscal and other structural reforms. In spite of these accordance with Mexican GAAP, which differs in certain dynamics, we will continue to focus on the factors within respects from U.S. GAAP. This section contains forward- our control and position ourselves to take full advantage looking statements that involve risks and uncertainties. of arising market opportunities. Our actual results may differ materially from those discussed in the forward-looking statements as a result GDP Growth 2001 2002 2003 of various factors. Mexico (0.3%) 0.9% 1.3% USA 0.5% 2.2% 3.1% Economic Environment GENERAL 2003 was again a year of lackluster economic growth EXCHANGE AND INFLATION RATES globally. Mexico and the U.S.—our two biggest markets, More than half of our revenues come from foreign were no exception. Mexico logged real GDP growth of markets, either as direct exports from Mexico or as 1.3% in 2003, slightly better than 2002. Among other sales from our international subsidiaries. In addition, a factors, the continued slowdown of the U.S. economy in significant part of our sales in Mexico—particularly our the first half of the year—followed by an improvement in flat glass sold for automotive uses, our capital goods, the latter part of the year that was based on consumption and most of our raw materials and packaging products— rather than industrial dynamics—and Mexico’s tight fiscal are either invoiced in U.S. dollars or referenced to and monetary policy contributed to Mexico’s tepid growth international prices. Thus, changes in the relative value in 2003. of the currencies for which we sell our products can While helping the country to maintain low levels impact our year-over-year sales and margin comparisons. of inflation and a manageable deficit, the Mexican In 2003 the Mexican peso experienced a nominal government’s current fiscal and monetary policy has not devaluation of 7.6%, compared with a nominal provided room to jump-start Mexico’s economy. As a devaluation of 13.8% in 2002. Although this figure result, new investment, employment growth, and growth was significantly lower for 2003, there was significant in aggregate purchasing power have been marginal to variation, up and down, throughout the year. The most non-existent. important impact of this volatility, and concomitant Going forward, several factors could hinder the growth uncertainty, was on our domestic prices and revenues. of Mexico’s economy and its industrial sector. These Although several of the products we sold in Mexico were factors include the extent of the U.S. economic recovery correlated to international prices, there was a natural and the participation of Mexico’s industrial sector in that price-adjustment delay—which was slow to materialize in

18 the current slow-growth environment—that negatively NET SALES affected our domestic sales when expressed in dollars. At In 2003 our consolidated net sales decreased 4.5%, to the operating income level, this reduction was mitigated US$2,238 million, from US$2,343 million in 2002. Aside by the corresponding decline in our peso-denominated from the exchange rate’s effect on some of our domestic costs and expenses when expressed in dollars. sales, this decrease was primarily attributable to (i) a As set forth in the following table, in 2002 and 2003 55% year-over-year decline in glass-container volume in there was a nominal and real devaluation that adversely the beer segment; (ii) an 8% year-over-year reduction in affected our absolute revenues and profits. domestic volume of glassware pieces; (iii) across-the- board price pressure; (iv) a continued slowdown in the

2001 2002 2003 U.S. non-residential construction market that impacted Mexico Inflation 4.4% 5.7% 4.0% our U.S. flat-glass distribution arm, which business is US Inflation 1.6% 2.4% 1.9% basically focused on the commercial segment of the Nominal Peso market; and (v) our divestiture of two non-core Revaluation / (Devaluation) 4.6% (13.8%) (7.6%) operations—our September 2003 sale of one of our Inflation Differential (2.8%) (3.2%) (2.1%) plastic facilities in the State of Mexico and our 2002 sale USA/Mexico Revaluation Approx. 10% Real Approx. 5% Real of our ampoules and vials business—which contributed Devaluation Devaluation aggregate net sales of US$27 million and US$13 million in the years ended December 31, 2002 and December Consolidated Results of Operations 31, 2003. On the upside, we were able to achieve (i) The following table sets forth selected items from our higher domestic flat-glass sales volume, resulting in consolidated statement of operations, which are 10.7% more tons sold to domestic construction and calculated as a percentage of net sales. other non-auto customers; (ii) increased volumes in both the Mexican and U.S. automotive replacement markets— For the year ended 6% more domestic units and 18% more exports to the December 31, U.S.; (iii) higher sales in our U.S. glass-containers 2001 2002 2003 business—4.3% more sales in dollar terms than our prior Net sales 100% 100% 100% annual record; and (iv) for the second consecutive year, Cost of goods sold 70.4 71.2 72.3 a sharp increase in sales in our European flat-glass Gross profit 29.6 28.8 27.7 business, resulting in 41% more revenue than 2002. The Selling, administrative, and general expenses 20.2 20.4 20.3 net result was that our flat-glass business showed a Operating income 9.4 8.3 7.4 marginal sales reduction of 0.6% in dollar terms, while Total financing cost 2.5 9.3 8.0 our glass containers and glassware businesses’ sales each Net income (loss) for the year 2.7 0.5 (1.5) decreased by 8.4% in dollar terms year-over-year. EBITDA 18.0 16.9 16.2

19 CONSOLIDATED NET SALES

In millions of US dollars

580 638 1,020 03 2,238 International Sales Grow for Ninth 586 628 1,129 Consecutive Year 02 2,343 589 619 1,161 Despite the difficult industry environment, sales from our foreign 01 2,369 subsidiaries rose again last year, marking the ninth consecutive 608 542 1,142 year of top-line growth. 00 2,292 583 452 1,097 99 2,132 531 451 1,057 98 2,039 493 428 1,080 97 2,001 458 427 910 96 1,795 Export Sales 460 405 742 95 1,607 Foreign Sales 398 271 1,133 94 1,802 Domestic Sales

OPERATING INCOME TOTAL FINANCING COST For 2003, our consolidated EBIT and EBITDA decreased Our total financing cost decreased by US$45 million, 14.9% and 9.7%, to US$165 million and US$364 to US$178 million in 2003, from US$223 million in million, respectively, from US$194 million and US$403 2002. The decrease in total financing cost was due to a million for 2002. The decrease was mainly due to our lower exchange loss of US$67 million for 2003, versus reduced consolidated sales (review Net Sales) and an exchange loss of US$152 million for 2002, since the increased energy prices, which we mitigated through nominal devaluation of the Mexican peso was lower our price-hedging strategy and the start-up of the in 2003. cogeneration project. Flat glass maintained the same level of EBITDA as 2002, when adjusting for RESULTS OF OPERATIONS extraordinary charges in 2002, while glass containers For 2003, we reported a net loss of US$35 million, and glassware’s EBIT decreased year-over-year. Although compared with net income of US$7 million for 2002. our results were far from satisfying, our EBIT for the 2002 results include the US$48 million profit from the fourth quarter of 2003 was higher than for the sale of our 51% interest in Vitromatic to Whirlpool corresponding period of 2002—a positive trend reversal (US$35 million net after accounting for a US$13 million that we will work to maintain during 2004. loss incurred in the year, before the divestiture). Also, our lower financing cost was insufficient to offset our decreased operating income and a US$53 million EBITDA / TOTAL NET FINANCIAL negative recorded tax differential, resulting from lower EXPENSE deferred tax benefits.

times CAPITAL EXPENDITURES 03 2.3 Our capital expenditures (CAPEX) for 2003 amounted to 02 2.8 US$160 million, compared to US$101 million for 2002. 01 2.4 In 2003 we completed or significantly advanced three 00 2.3 major projects that will substantially improve our 99 2.3 98 2.5 competitive position. They were the new float-glass plant 97 1.8 in Mexicali, Mexico, which came online in November 96 1.0 2003, the upgrade and expansion of a glass-container furnace in Querétaro, Mexico—now the most cost- Lower Interest Coverage efficient furnace in our glass-container system—and the Our interest coverage declined to 2.3 times in 2003, from 2.8 times in 2002. alternative fuels project, which is operational at some of our glass-container and flat-glass facilities.

20 CONSOLIDATED FINANCIAL POSITION US$201 million syndicated facility at flat glass; and the On December 31, 2003, our total outstanding debt was issuance of Ps. 2.5 billion Certificados Bursátiles in a US$1,409 million, versus US$1,455 million at year-end local program. 2002. Accounting for our cash position, our consolidated debt would have been US$1,248 million and US$1,228 Discussion and Analysis of 2003 Operating Results, Structural and million, respectively, for year-end 2003 and 2002.(1) Temporary Factors, and Management Actions We achieved several objectives during the year, including: (i) the extension of the average life of our debt, In 2003 the one item that contributed most to our from 3.1 to 4.1 years; (ii) the reduction of our short-term top-line sales reduction was our lower beer-container debt, from 32% to 28% of the total; and (iii) a higher shipments, which in 2003 was almost half our volume in percentage of Mexican peso-denominated debt, from an average year. Our main customer in the beer segment 34% to 39% of the mix, which reduced our balance has vertically integrated glass manufacturing capacity sheet’s exposure to currency movements. Our debt and has launched a new production facility every few reduction was mostly due to exchange rate variations. years. Most recently, this customer brought a glass- We were also able to tap several debt markets in 2003. container furnace online in the fourth quarter of 2002, Highlights included the issuance of a US$225 million which affected our 2003 sales. The effect of this cyclical bond at the holding company level; the arrangement of a event was compounded by the unusual slowdown of beer exports to the U.S., our beer-container customers’ largest market. DEBT We expect to continue our active role in the beer In millions of US dollars segment’s growth once our customer’s new capacity is 1,409 absorbed by the market. Nonetheless, we are proactively 03 1,455 increasing our new product development for new market 02 1,497 segments in order to diversify our customer and 01 1,576* 1,539 consumer mix, mitigate the potential impact of new third- 00 1,634* 1,473 party glass capacity, and improve our product mix, so we 99 1,588* 1,422 can compensate for price pressures in commodity 98 1,567* 1,499 market segments. Our plants’ configuration, product 97 1,620* 1,724 design capabilities, and approach to the market provide 96 1,865* 1,427 us with a competitive advantage in niche industry 95 1,519* 1,303 segments. 94 1,398*

* Considering Vitromatic (1)Debt net of cash and, cash equivalents and cash collateralizing debt accounted for within the “Other long-term assets” line in our balance sheet.

21 In 2003 the glass industry continued to experience of product offerings, our proximity to the market through volatile and increased natural gas prices in Mexico and our enhanced distribution channels, and our regional the United States. This negative trend not only impacted presence with the start-up of our new Mexicali plant. our direct natural gas purchases, but also our electricity With the increased level of economic activity in China costs, since natural gas is the main fuel used to produce and the resulting relocation of some of our glassware electricity at the cogeneration project in which we customers to that country, we are analyzing all available participate, and it is also a significant cost component in strategies to remain a competitive supplier, particularly in the electricity provided by Mexico’s state-owned power the OEM segment of the glassware market. In the last supplier (Comisión Federal de Electricidad). Although the couple of years, we have achieved a successful direct price of natural gas is a factor outside of our control, we presence in the European flat-glass market. Therefore, have taken proactive action on three fronts: (i) our we continue analyzing the possibility of entering China strategy to improve our cost/risk profile for gas prices and enhancing our global presence, so we remain our through our active market hedging, (ii) our long-term clients’ best alternative in the market segments in which commitment to a cogeneration project that came online we have achieved a leading position. in 2003, (iii) and the use of alternative fuels in our processes, a project that is well on its way in some of Corporate Governance our facilities. At Vitro, we are committed to sound principles of Although we have yet to reap electricity cost savings corporate governance. Half of the members of our from the cogeneration project, it has proved profitable to Board of Directors are independent directors. Our Audit us. We consume the steam provided by the cogeneration Committee is entirely composed of independent process, which reduces our need for natural gas and, at directors. Among other matters, our Audit Committee has the same time, helps to lower the power bill of all the approved the retention of different internal (outsourced) companies that participate in the project. During 2003, and external auditors in advance of new legislative the project provided us net savings of approximately deadlines; we have started the process of internal control US$5 million, and when we annualize this figure to certification, which will take effect by 2005; and updated reflect a full year of operations, our estimated savings and presented for our Board's authorization, a code of reach US$10 million—in line with our original estimates. ethics and other policies aligned with new U.S. and Mexican governance standards. Likewise, in accordance Other Known Trends, Uncertainties, Demands, Commitments, and with new governance requirements, our Compensation Events with a Potential Future Impact on Our Operations Committee has approved: annual salary increases for all salaried employees; fixed compensation increases for all In the fourth quarter of 2003, one of our biggest regional executives, employees, and officers of the company; and competitors announced the ground breaking for a new a short-term variable compensation package for all float-glass plant in Mexico. We anticipated this new company executives. capacity and prepared accordingly, reinforcing our depth

22 DEBT STRUCTURE AS OF DECEMBER 31, 2003 AND 2002

77% 14% 9% 03 Improving Debt Profile Fixed Rate(1) Floating Rate(2) Mkt Conditions(2) Rate Exposure 71% 8% 21% In 2003 we further improved our debt structure. 02 During the year, we were able to extend the average

61% 39% life of our debt from 3.1 to 4.1 years. 03 (3) Currency Exposure Dollars Pesos 66% 34% 02

28% 72% 03 Short Term Long Term Maturity 32% 68% 02 (1) Includes US$350 million of a fixed rate cap 46% 54% 03 Banks Market (2) LIBOR, TIIE and CETES base rates Source 58% 42% 02 (3) Includes US$200 million swapped into pesos

Key Developments of the negotiations. Accordingly, our net relationships, and at the same time, improve ENERGY PROJECT proceeds from the transaction will be our margins and strengthen our market The cogeneration plant, built and operated approximately US$49.5 million, which we will position. by Tractebel, a major global energy company, use to reduce net debt. The completion of the started operations in April of 2003. With an transaction is subject to customary closing DEBT REFINANCING electricity generating capacity of 245 conditions, including regulatory approval from In October 2003, we completed the issuance megawatts (MW), the facility supplies power both the U.S. and Mexico. of US$225 million of senior notes (due to us and other important companies, and The two divestitures are in line with our November 2013) at the holding company produces steam for one of our subsidiaries. stated strategy to focus on our core glass level. We applied the net proceeds from the We’ve contracted to use 104 MW of the plant’s manufacturing, distribution, and packaging offering to retire a portion of the short- and power generating capacity, and the total steam businesses, and to use the proceeds from the long-term debt of our holding company, Vitro, output for 15 years. We expect the plant will sale of non-strategic assets to improve our S.A. de C.V. As of year-end 2003, short-term provide us with a competitive supply of energy, financial position. debt at our holding company level represented enable us to realize significant cost savings, only 8% of its total debt, and there are no and reduce our supply-side risk. MEXICALI PLANT START-UP material market maturities until late 2006. In November 2003, the new Vitro AFG float- Furthermore, through our Vitro Plan STRATEGIC DIVESTITURES glass plant—a 50/50 joint venture with AFG subsidiary, we executed a US$201 million On September 10, 2003, we completed Industries, Inc., a subsidiary of Asahi Glass— syndicated loan facility in February 2003. We the sale of our 100% interest in Envases started operations in Mexicali, Mexico. used the proceeds from the facility to pay Cuautitlán, S.A. de C.V., a manufacturer of Originally a Vitro-owned glass-container facility, down mostly short-term debt maturities and plastic containers, to Phoenix Capital Ltd. the Mexicali operation was totally converted some long-term debt with less favorable Group for approximately US$18 million. over the preceding 12 months into one of financial conditions. Proceeds from the transaction were used to North America’s most modern float-glass These transactions are consistent with our pay down debt. plants, with technology capable of strategy to strengthen our balance sheet and Additionally, on January 26, 2004, we manufacturing a broad range of high-quality to enhance our liquidity by increasing the announced the signature of a preliminary flat-glass products. average life of our debt. agreement to sell our 60% interest in Vitro OCF, S.A. de C.V., the holding company for AUTOMOTIVE CONTRACTS Vitro Fibras, S.A., a fiberglass manufacturing Two of our major automotive OEM customers, company, to our joint-venture partner, Owens Ford and General Motors, awarded us Corning, for approximately US$71.5 million in contracts to supply them with complex, higher cash. In connection with the sale, we agreed value-added new generation windshields. to pay Vitro OCF and its subsidiaries’ These important contracts are consistent with consolidated debt of approximately US$22 our strategy to provide enhanced value to our million to pay down its bank debt at the close customers, build on our long-term customer

23 MANAGEMENT‘S Financial Responsibility

Management is responsible for the preparation of the Company’s financial statements and other financial information included in this report. This responsibility includes maintaining the integrity and objectivity of financial records and the preparation of the financial statements in conformity with Mexican generally accepted accounting principles (GAAP).

The Company maintains an internal control structure intended to provide, among other things, reasonable assurance that its records reflect transactions arising from its operations in all material respects and to provide reasonable protection against significant misuse or loss of company assets.

The internal control structure is supported by the selection and training of qualified personnel, written policies and procedures, and by a staff of internal auditors who employ thorough auditing programs.

The Company’s financial statements have been audited by Galaz, Yamazaki, Ruiz Urquiza, S.C., a member firm of Deloitte Touche Tohmatsu, independent, certified public accountants; their audit was conducted in accordance with Mexican generally accepted auditing standards, which are substantially equivalent to the U.S. generally accepted auditing standards, and which has considered the Company’s internal control structure. For further reference, the Independent Auditors’ Report is included in this document.

The Audit Committee of our Board of Directors is responsible for determining that management fulfills its responsibilities regarding the financial control for the register and the reporting of operations and the preparation of financial statements.

The Audit Committee meets on a continuous basis with management, the internal auditors, and the independent auditors. The Audit Committee selects, compensates and oversees the firm performing the independent audit of our financial statement. Besides, only the Audit Committee can authorize the Company to engage the independent auditors in other non-audits projects.

The independent auditors and internal auditors have full and free access to the Audit Committee. They meet with the Committee to discuss their audit work, the Company’s internal controls, and financial reporting matters.

Federico Sada G. Claudio L. Del Valle C. Álvaro Rodríguez A. President and Chief Executive Officer Chief Administrative Officer Chief Financial Officer

February 23, 2004