SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13A-16
OR 15D-16 OF THE SECURITIES EXCHANGE ACT OF 1934
For the month of October 28, 2003
Durango Corporation
(f/k/a Grupo Industrial Durango, S.A. de C.V.)
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(Translation of registrant's name into English)
Torre Corporativa Durango, Potasio 150, Cuidad Industrial,
Durango, Durango, Mexico
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(Address of principal executive offices)
Durango, Mexico,October 28, 2003 Corporacion Durango, S.A. de C.V.,
the largest integrated paper producer in Mexico, today announced
its unaudited consolidated results for the third quarter ended
September 30th, 2003. All figures were prepared in accordance with
Mexican generally accepted accounting principles and are stated in
constant Mexican pesos as of September 30th, 2003 and converted
into U.S. dollars using the exchange rate at the end of the
period. All comparative figures for the third quarter of 2002 were
prepared on a pro-forma basis after excluding the results of the
Georgia mill operations.
INDUSTRY AND BUSINESS ENVIRONMENT
Industry Performance
North American paper and forestry companies reported flat earnings
which were only slightly ahead of the second quarter. Paper
industry prices and volume remain weak in all major grades.
Shipments, inventory, and production data continue to point to
lackluster demand. So far, the apparent economic recovery has
been disappointing for the paper sector. The improvement in the
general economy has not yet translated into improved and sustained
demand in the paper and packaging industry.
Are the Paper Industry Problems Cyclical or Structural...?
Ultimately, growth in overall global demand will be required to
trigger a paper pricing recovery. The USA can no longer drive the
world's paper economy alone and it will be necessary for the rest
of the world to join the growth cycle in order to produce a robust
and sustainable growth in paper demand and pricing, which is not
anticipated until 2007. Resource Information Systems Inc. (RISI).
Despite the anticipated improvements in North American volume and
demand, the paper industry's profit levels are not expected to
improve, according to RISI. Continued rising costs of recovered
paper, the key raw material for the industry, will limit industry
profitability even though volumes and demands are projected to
increase, according to RISI. The swing in raw materials prices
for recovered paper is driven by the unprecedented rise in
demand from the Orient's paper and packaging industry..
Additionally, in the past an uptick in GDP was matched by an
equal uptick in box consumption, however, in the last years that
trend began to separate. Today, an uptick of 1% in GDP means an
uptick of only 0.5% in box consumption, because so much of what
we buy and consume to drive GDP is no longer made and packaged
domestically. . . One other deterrent to profitability is the
large "mothballed fleet" of paper machines that has not been
dismantled, and could be restarted if profits start to appear.
The afore mentioned was stated by RISI in its recent conference
in San Diego, entitled, "The North American Forest Products
Industry Continues to Struggle: Are the Problems Cyclical or
Structural...?".
COMPANY'S PERFORMANCE
The Company's results for the third quarter of 2003 continued
to reflect challenging business conditions in Mexico, which were
worse than those of the U.S.
Pricing Weaker and Margins Under Pressure
The Company's product pricing continued to decline offsetting
the volume and cost benefits achieved.
Item 3Q03 2Q03 3Q02
Pricing (US$/Short Ton) 476 495 506
Net Sales (US$Million) 171.0 172.0 179.0
EBITDA (US$Million) 17.0 18.0 21.5
EBITDA Margin 10% 10% 12%
Operating Performance
While we continue to be disappointed by external business conditions,
we are pleased with our operational achievements, particularly with
our volume and market share growth as well as further reductions in
our unit production costs, quarter over quarter, in spite of the
high cost of energy, fiber, pulp and chemicals.
The Company's EBITDA in the third quarter of 2003 was US$17.0
million, compared to the US$21.5 million achieved in the third
quarter of 2002. The decline of US$4.5 million in EBITDA was
primarily attributable to a decrease of US$11.0 million or 6% in
pricing, partially offset by a reduction of US$6.0 million in unit
production cost and US$0.5 million in SG&A expenses.
FOURTH QUARTER 2003 OUTLOOK
"Looking at the fourth quarter earnings, Durango expects lower volume
in containerboard and corrugated products as December has traditionally
been, by far, the slowest month of the year. In addition, energy costs
will probably be higher as a result of colder weather, and the fourth
quarter will show the effects of the August containerboard price
decrease" said Miguel Rincon, Chairman and CEO.
"We believe it is a matter of time for the economic recovery to improve
the paper industry fundamentals and the company's results. However it
is important not to anticipate a recovery in the industry for the short
term but rather in the medium or long term," Rincon concluded.
FINANCIAL RESTRUCTURING
Taking into account that the industry's profitability has suffered from
a structural change in its fundamentals, the Company and its advisors
are closely working with its creditors - at the holding level - to
proactively incorporate this in a solution for a more sustainable
capital structure through a financial restructuring and to ensure the
Company emerges from the process as one of the most competitive companies
in the paper industry for the benefit of all its stakeholders.
HIGHLIGHTS THIRD QUARTER 2003/2002
Item 3Q03 2Q03 3Q02
Total Shipments (000 Short Tons) 359.3 347.7 353.6
Pricing (US$/Short Ton) 476 495 506
Net Sales (US$Million) 171.0 172.0 179.0
Unit Cost (US$/Short Ton) 424 433 443
EBITDA (US$Million) 17.0 18.0 21.5
EBITDA Margin 10% 10% 12%
Shipments (000 Short tons) 3Q03 2Q03 3Q02
Paper 165.1 164.3 156.7
Packaging 163.6 160.7 171.5
Other 30.7 22.7 25.3
Total 359.3 347.7 353.6
Prices (US$/Short Ton) 3Q03 2Q03 3Q02
Paper 450 454 483
Packaging 546 568 564
Other 241 269 259
Total 476 495 506
Net Sales (US$ Million) 3Q03 2Q03 3Q02
Paper 74.3 74.6 75.7
Packaging 89.3 91.2 96.7
Other 7.4 6.1 6.6
Total 171.0 172.0 179.0
Unit Cost (US$/ Short Ton) 3Q03 2Q03 3Q02
Total 424 433 443
EBITDA (US$ Million) 3Q03 Margin 2Q03 3Q02 Margin
Paper 5.0 7% 5.5 8.1 11%
Packaging 11.8 13% 12.9 12.2 13%
Other 0.3 3% -0.4 1.2 18%
Total 17.0 10% 18.0 21.5 12%
ACCUMULATED THIRD QUARTER RESULTS 2003/2002
HIGHLIGHTS
Item 3Q03 3Q02
Total Shipments (000 Short Tons) 1,041.5 993.4
Pricing (US$/Short Ton) 486 531
Net Sales (US$Million) 506.7 527.8
Unit Cost (US$/Short Ton) 428 423
EBITDA (US$Million) 51.1 100.7
EBITDA Margin 10% 19%
CORPORACION DURANGO, S.A. DE C.V. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
AS OF DECEMBER 31, 2002 AND SEPTEMBER 30, 2003 (UNAUDITED)
EXPRESSED IN TERMS OF THE PURCHASING POWER OF MEXICAN PESOS
AS OF SEPTEMBER 30, 2003
(Stated in thousands of Pesos and Dollars)
US$ DLLS.
December 31, September 30, September 30,
2002 2003 2003
(Audited) (Unaudited) (Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............................ $ 266,365 $ 662,942 60,195
Accounts receivable, net ............................. 1,990,060 1,942,720 176,398
Taxes recoverable and other assets ................... 39,689 0 0
Inventories, net ..................................... 1,313,040 1,170,733 106,302
Prepaids ............................................. 30,124 33,782 3,067
Total current assets ....................... 3,639,278 3,810,177 345,961
PROPERTY, PLANT AND EQUIPMENT, net ........................... 13,411,559 12,795,548 1,161,827
OTHER ASSETS, net ............................................ 728,870 673,752 61,176
Total assets .............................. $17,779,707 $17,279,477 1,568,965
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank loans and current portion of long-term debt ..... 7,762,891 7,952,202 722,054
Interest payable ..................................... 464,633 1,245,962 113,132
Trade accounts payable ............................... 930,186 909,505 82,582
Notes payable ........................................ 51,359 48,722 4,424
Accrued liabilities .................................. 506,411 466,989 42,402
Employee profit-sharing .............................. 2,394 3,857 350
Total current liabilities ................. 9,717,874 10,627,237 964,946
LONG-TERM DEBT ............................................... 1,108,290 1,087,611 98,754
NOTES PAYABLE ................................................ 143,378 112,837 10,246
DEFERRED TAXES................................................ 2,060,186 2,047,318 185,895
LIABILITY FOR EMPLOYEE BENEFITS............................... 186,746 178,784 16,233
Total long term liabilities ................ 3,498,600 3,426,550 311,128
Total liabilities ......................... 13,216,474 14,053,787 1,276,074
STOCKHOLDERS' EQUITY:
Majority interest .................................... 4,493,242 3,141,918 285,284
Minority interest .................................... 69,991 83,772 7,606
Total stockholders' equity ................. 4,563,233 3,225,690 292,890
Total liabilities and stockholders' equity . $17,779,707 $17,279,477 1,568,965
Exchange rate: $ 11.0133 per Dollar
CORPORACION DURANGO, S.A. DE C.V. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN FINANCIAL POSITION
EXPRESSED IN TERMS OF THE PURCHASING POWER OF MEXICAN PESOS
AS OF SEPTEMBER 30, 2003
(Stated in thousands of Pesos and Dollars)
US$ DLLS
Full Year Acum.Sep Acum.Sep
2002 2003 2003
(Audited) (Unaudited)
OPERATING ACTIVITIES:
Net income (loss) .......................................... $-3,676,490 $-1,208,048 -109,690
Add (deduct)- Charges (credits) to income which do
not require (provide) cash-
Depreciation and amortization ....................... 492,818 315,120 28,613
Provision for employee benefits ..................... 12,927 -3,658 -332
Special items ....................................... 1,484,814 35,467 3,220
Amortization of Financial Comissions ................ 124,210 86,569 7,860
Provision for deferred taxes ........................ -691,971 -80,045 -7,268
Impairment .......................................... 1,639,464 0 0
Other................................................ 4,226 0 0
Total items which do not require cash................ 3,066,488 353,453 32,093
Net resources generated from income ................ -610,002 -854,595 -77,597
Changes in operating assets and liabilities:
Decrease (Increase) in inventories ............... -381,465 142,307 12,921
Decrease (Increase) in current assets ............ -6,025 36,031 3,272
Decrease (increase) in account receivables, net .. -41,145 47,340 4,298
(Decrease) increase in accounts payable and
accrued liabilities ............................ 910,047 720,052 65,380
Resources generated by operating activities ........ -128,590 91,135 8,275
FINANCING ACTIVITIES:
Increase (Decrease) in bank loans and others ........ 752,660 210,350 19,100
Increase (Decrease) in capital ...................... 0 -33,960 -3,084
Net resources generated from financing activities .. 752,660 176,390 16,016
INVESTMENT ACTIVITIES:
Additions to property, plant and equipment........... -464,364 -53,949 -4,899
Divestiture to property, plant and equipment......... 148,004 257,151 23,349
Disposition of subsidiaries ......................... -209,480 0 0
Increase in deferred assets ......................... -373,280 -74,150 -6,733
Minority interest ................................... 23,968 0 0
Net resources applied to investing activities ...... -875,152 129,052 11,718
INCREASE IN CASH AND CASH EQUIVALENTS ...................... -251,082 396,577 36,009
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD........ 517,447 266,365 24,186
CASH & CASH EQUIVALENTS AT END OF THE PERIOD ............... $ 266,365 $ 662,942 US$60,195
* The exchange rate of 11.0133 was used for translation purposes.
CORPORACION DURANGO, S.A. DE C.V. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)
EXPRESSED IN TERMS OF THE PURCHASING POWER OF MEXICAN PESOS
AS OF SEPTEMBER 30, 2003
Thousands of Pesos Thousands of Dollars
3Q 3Q 3Q 3Q
2002 2003 Var 2002 2003 Var
(Audited) (Unaudited) (Audited) (Unaudited)
NET SALES ........................................... $1,921,076 $1,883,714 -2% 179,026 171,040 -4%
COST OF SALES ....................................... 1,685,150 1,677,327 0% 156,879 152,300 -3%
Gross profit.................................... 235,926 206,387 -13% 22,147 18,740 -15%
Selling and Administrative expenses ............ 128,562 126,874 -1% 12,018 11,519 -4%
Operating income ............................... 107,364 79,513 -26% 10,129 7,221 -29%
FINANCIAL EXPENSE:
Interest expense .................................... 276,330 304,104 10% 25,962 27,612 6%
Interest income ..................................... -14,634 -9,685 -34% -1,335 -879 -34%
Exchange (gain) loss, net ........................... 216,063 582,106 169% 20,303 52,855 160%
Gain on monetary position ........................... -85,363 -114,669 34% -8,035 -10,412 30%
Total financial expense ..................... 392,396 761,856 94% 36,895 69,176 87%
OTHER INCOME (EXPENSES):
Other income (expense), net ......................... 10,711 -7,812 N/A 1,006 -709 N/A
Total other income (expense) ................ 10,711 -7,812 N/A 1,006 -709 N/A
Income (loss) before income and asset taxes.. -274,321 -690,155 152% -25,760 -62,664 143%
Provisions for income and asset taxes ............... 53,712 96,056 79% 5,063 8,722 72%
Provision for deferred income taxes ................. -224,123 52,764 N/A -21,203 4,791 N/A
Net income after taxes ...................... -103,910 -838,975 707% -9,620 -76,177 692%
Extraordinary items ................................. 119,097 87,175 -27% 11,191 7,915 -29%
Discontinued operations ............................. 1,699,993 0 -100% 158,104 0 -100%
Net income before minority interest.................. $-1,923,000 $-926,150 -52% -178,915 -84,092 -53%
Minority interest.................................. -167 7,200 N/A -16 655 N/A
Majority net income................................ $-1,922,833 $-933,350 -51% -178,899 -84,747 -53%
Depreciation & amortization 122,995 107,434 -13% 11,374 9,755 -14%
EBITDA 230,359 186,947 -19% 21,503 16,976 -21%
CORPORACION DURANGO, S.A. DE C.V. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)
EXPRESSED IN TERMS OF THE PURCHASING POWER OF MEXICAN PESOS
AS OF SEPTEMBER 30, 2003
Thousands of Pesos Thousands of Dollars
Ac Ac Ac Ac
2002 2003 Var 2002 2003 Var
(Audited) (Unaudited) (Audited) (Unaudited)
NET SALES ........................................... $6,630,691 $5,500,397 -17% 627,593 506,681 -19%
COST OF SALES ....................................... 5,591,254 4,842,566 -13% 525,298 445,977 -15%
Gross profit.................................... 1,039,437 657,831 -37% 102,295 60,704 -41%
Selling and Administrative expenses ............ 459,433 419,086 -9% 44,099 38,686 -12%
Operating income ............................... 580,004 238,745 -59% 58,196 22,018 -62%
FINANCIAL EXPENSE:
Interest expense .................................... 824,806 938,293 14% 79,277 86,750 9%
Interest income ..................................... -31,399 -28,810 -8% -2,950 -2,639 -11%
Exchange (gain) loss, net ........................... 854,404 639,960 -25% 80,089 57,291 -28%
Gain on monetary position ........................... -281,114 -220,048 -22% -27,321 -20,070 -27%
Total financial expense ..................... 1,366,697 1,329,395 -3% 129,095 121,332 -6%
OTHER INCOME (EXPENSES):
Other income (expense), net ......................... -51,548 -60,948 18% -5,087 -5,552 9%
Total other income (expense) ................ -51,548 -60,948 18% -5,087 -5,552 9%
Income (loss) before income and asset taxes . -838,241 -1,151,598 37% -75,986 -104,866 38%
Provisions for income and asset taxes ............... 149,298 142,287 -5% 14,735 12,959 -12%
Provision for deferred income taxes ................. -268,483 -80,045 -70% -26,531 -7,596 -71%
Net income after taxes ...................... -719,056 -1,213,840 69% -64,190 -110,229 72%
Extraordinary items ................................. 119,097 -5,792 N/A 11,191 66 -99%
Discontinued operations ............................. 1,699,993 0 -100% 158,104 0 -100%
Net income before minority interest.................. $-2,538,146 $-1,208,048 -52% -233,485 -110,295 -53%
Minority interest.................................. 2,006 7,591 278% 221 691 213%
Majority net income................................ $-2,540,152 $-1,215,639 -52% -233,706 -110,986 -53%
Depreciation & amortization 385,088 315,120 -18% 36,569 29,057 -21%
EBITDA 965,092 553,865 -43% 94,765 51,075 -46%
This release contains forward-looking statements that involve
risks and uncertainties. The actual results achieved by the
Company may differ significantly from the results discussed in
the forward looking statements. Factors that may cause such
differences include general economic, market, or business
conditions, the opportunities (or lack thereof) that may be
presented to and pursued by the Company and its subsidiaries,
the availability of raw materials used by the Company and its
subsidiaries, competitive actions by other companies, changes
in laws or regulations, and other factors, many of which are
beyond the control of the Company and its subsidiaries.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized. CORPORACION DURANGO, S.A. DE C.V.
Date: October 28, 2003 By /s/ Mayela Rincon de Velasco
Durango, Mexico --------------------------------
Name: Mayela Rincon de Velasco
Title: Chief Financial Officer