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 May 20, 2004
Durango Corporation
(f/k/a Grupo Industrial Durango, S.A. de C.V.)
-------------------------------------------------------------------
(Translation of registrant's name into English)
Torre Corporativa Durango, Potasio 150, Cuidad Industrial,
Durango, Durango, Mexico
-------------------------------------------------------------------
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual
reports under cover Form 20-F or Form 40-F. Form 20-F [x] Form 40-F
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act
of 1934. Yes No [x]
If "Yes" is marked, indicate below the file number assigned to the registrant
in connection with Rule 12g3-2(b): 82-_____________.
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: May 20, 2004 By /s/ Mayela Rincon de Velasco
Durango, Mexico --------------------------------
Name: Mayela Rincon de Velasco
Title: Chief Financial Officer
Corporacion Durango, S. A. de
C. V. and Subsidiaries
Consolidated Financial Statements
for the Years Ended December31,
2003, 2002 and 2001, and
Independent Auditors'Report
Dated April 30, 2004
Corporacion Durango, S. A. de C. V. and Subsidiaries
Independent auditors' report and
consolidated financial statements 2003, 2002 and 2001
Table of contents Page
Independent auditors' report 1
Consolidated balance sheets 3
Consolidated statements of operations 4
Consolidated statements of changes in stockholders' equity 6
Consolidated statements of changes in financial position 7
Notes to consolidated financial statements 9 - 40
Independent auditors' report to the
Board of Directors and Stockholders of
Corporacion Durango, S. A. de C. V.
We have audited the accompanying consolidated balance sheet of
Corporacion Durango, S. A. de C. V. and subsidiaries (the
"Company") as of December 31, 2003, and the related consolidated
statements of income, changes in stockholders' equity and changes
in financial position for the year then ended, all expressed in
thousands of Mexican pesos of purchasing power of December 31,
2003. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion
on these financial statements based on our audit. The
consolidated financial statements of the Company as of December
31, 2002 and 2001 were audited by other auditors whose report
dated April 25, 2003, expressed an unqualified opinion on those
statements and included a going concern uncertainty explanatory
paragraph and two significant event paragraphs.
We conducted our audit in accordance with auditing standards
generally accepted in Mexico. Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement and that they are prepared in accordance with
accounting principles generally accepted in Mexico. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
The accompanying consolidated financial statements as of December
31, 2003 and for the year then ended have been prepared assuming
that the Company will continue as a going concern. As described
in Note 1 to the financial statements, since November 2002 the
Company has failed to pay principal and interest of certain
obligations, and therefore the Company reclassified most of its
debt as short-term. In addition, during 2003 and 2002 the
Company has incurred significant consolidated net losses, and
since 2001 its operating margin has declined substantially. As of
December 31, 2003 and 2002, the Company had negative working
capital and is experiencing severe liquidity problems.
Furthermore, as discussed in Note 23, the Company estimates that
upon the adoption of Bulletin C-15, "Impairment of the Value of
Long-Lived Assets and Their Disposal", whose application is
mandatory for fiscal years beginning on or after January 1, 2004,
a charge to results of operations for the year 2004 of $621,619,
net of deferred income tax, will be required, which will
additionally reduce its stockholders' equity. These factors,
among others, raise substantial doubt about its ability to
continue as a going concern. Management's plans concerning these
matters, as well as its plan of restructuring, are described in
Note 1; however, this plan has not been completed. The Company's
ability to continue as a going concern is dependent upon its
ability to generate profits and to restructure its debt. The
accompanying financial statements do not include any additional
adjustments related to the valuation and presentation of assets
or the presentation and amount of liabilities that might result
if the Company is unable to continue as a going concern.
In our opinion, the 2003 consolidated financial statements
present fairly, in all material respects, the financial position
of Corporacion Durango, S. A. de C. V. and subsidiaries as of
December 31, 2003, and the results of their operations, changes
in their stockholders' equity and changes in their financial
position for the year then ended in conformity with accounting
principles generally accepted in Mexico.
The accompanying financial statements have been translated into
English for the convenience of users.
Galaz, Yamazaki, Ruiz Urquiza, S. C.
Member firm of Deloitte Touche Tohmatsu
C.P.C. Claudia Leticia Rizo Navarro
April 30, 2004
Corporacion Durango, S. A. de C. V. and Subsidiaries
Consolidated balance sheets
As of December 31, 2003 and 2002
(In thousands of Mexican pesos of purchasing power of December 31, 2003)
Assets
2003 2002
Current assets:
Cash and temporary investments $649,955 $237,614
Trade accounts receivable-Net 1,798,935 1,706,823
Due from related parties 14,283 191,307
Inventories-Net 1,095,710 1,143,981
Prepaid expenses 22,791 30,080
Current assets of discontinued operations 84,190 389,830
Total current assets 3,665,864 3,699,635
Restricted cash 157,504
Property, plant and equipment-Net 11,341,126 12,030,512
Other assets-Net 540,333 640,006
Noncurrent assets of discontinued operations 252,847 1,702,993
Total $15,957,674 $18,073,146
Liabilities and stockholders' equity
Current liabilities:
Short-term debt $8,535,163 $7,595,462
Current portion of long-term debt 121,290 278,577
Notes payable 52,095 52,226
Accrued interest 1,387,990 469,532
Trade accounts payable 910,329 824,178
Due to related parties 5,590
Accrued expenses and taxes other than
income taxes 453,717 440,737
Employee statutory profit sharing 2,412 2,433
Current liabilities of discontinued operations 84,676 212,058
Total current liabilities 11,547,672 9,880,793
Long-term liabilities:
Long-term debt 399,423 1,021,426
Long-term notes payable 101,206 145,871
Deferred income taxes 1,918,847 1,753,282
Employee retirement obligations 199,467 166,112
Long-term liabilities of discontinued
operations 190,246 466,494
Total long-term liabilities 2,809,189 3,553,185
Total liabilities 14,356,861 13,433,978
Commitments and contingencies
Stockholders' equity:
Common stock 4,742,288 4,857,963
Treasury stock (115,675)
Additional paid-in capital 1,387,056 1,387,056
Retained earnings 2,466,882 6,136,985
Insufficiency in restated stockholders' equity (4,160,313) (4,558,231)
Additional liability for employee retirement
obligations (146,450)
Cumulative initial effect of deferred
income taxes (3,080,896) (3,080,896)
Cumulative translation adjustment of foreign
subsidiaries 178,020 87,283
Majority stockholders' equity 1,533,037 4,568,035
Minority stockholders' equity in consolidated
subsidiaries 67,776 71,133
Total stockholders' equity 1,600,813 4,639,168
Total $15,957,674 $18,073,146
See accompanying notes to consolidated financial statements.
Corporacion Durango, S. A. de C. V. and Subsidiaries
Consolidated statements of operations
For the years ended December 31, 2003, 2002 and 2001
(In thousands of Mexican pesos of purchasing power of December
31, 2003, except per share amounts)
2003 2002 2001
Net sales $6,831,028 $8,124,497 $10,775,303
Cost of sales 5,957,305 7,057,911 9,065,847
Gross profit 873,723 1,066,586 1,709,456
Selling, general and 567,343 569,960 691,403
administrative expenses
Income from operations 306,380 496,626 1,018,053
Net comprehensive financing
cost:
Interest expense (1,186,232) (1,130,646) (1,118,520)
Interest income 42,428 40,336 70,227
Exchange gain (loss) (821,389) (998,232) 328,015
Monetary position gain 367,014 406,673 309,842
(1,598,179) (1,681,869) (410,436)
Other income (expenses) (1,511,189) (3,126,962) 476,430
-Net
Income (loss) from (2,802,988) (4,312,205) 1,084,047
continuing operations before
income taxes and
employee statutory profit
sharing
Income tax benefit (expense) (216) 677,223 (48,557)
Employee statutory profit (1,733) (1,082) (4,908)
sharing expense
Income (loss) from (2,804,937) (3,636,064) 1,030,582
continuing operations
Discontinued operations (549,235) (102,860) 152,868
Extraordinary loss (317,947)
Consolidated net income $(3,354,172) $(3,738,924) $865,503
(loss)
Net income (loss):
Majority interest $(3,348,336) $(3,742,169) $861,314
Minority interest (5,836) 3,245 4,189
Consolidated net income $(3,354,172) $(3,738,924) $865,503
(loss)
Basic and diluted net income
(loss) per share of:
Continuing operations $(30.12) $(38.69) $10.91
Discontinued operations (5.91) (1.09) 1.63
Extraordinary loss
(3.38)
Basic and diluted net income $(36.03) $(39.78) $9.16
(loss) per share
Weighted average shares 92,942,916 94,072,122 94,072,122
outstanding
See accompanying notes to consolidated financial statements.
Corporacion Durango, S. A. de C. V. and Subsidiaries
Consolidated statements of changes in stockholders' equity
For the years ended December 31, 2003, 2002 and 2001
(In thousands of Mexican pesos of purchasing power of December 31, 2003)
Insufficiency
Additional in Restated
Common Treasury Paid-in Retained Stockholders'
Stock Stock Capital Earnings Equity
Balances as of
January 1, 2001 $2,413,876 $ $(51,035) $5,013,057 $(24,128)
Effects of merger 2,444,087 1,373,290 4,004,783 (3,630,618)
Comprehensive loss 861,314 (1,009,226)
Balances as of
December 31,2001 4,857,963 1,322,255 9,879,154 (4,663,972)
Cancellation of swaps (115,675) 64,801
Comprehensive loss (3,742,169) 105,741
Balances as of
December 31, 2002 4,857,963 (115,675) 1,387,056 6,136,985 (4,558,231)
Reduction of common stock (115,675) 115,675
Transfer of additional
liability of employee
retirement obligations (146,450)
Allowance for accounts
receivable due from
shareholders (175,317)
Comprehensive loss (3,348,336) 397,918
Balances as of
December 31, 2003 $4,742,288 $ $1,387,056 $2,466,882 $(4,160,313)
Additional Cumulative Minority
Liability Cumulative Translation Stockholders'
for Employee Initial Effect Adjustment Equity Total
Retirement of Deferred of Foreign in Consolidated Stockholders'
Obligations Income Taxes Subsidiaries Subsidiaries Equity
Balances as of
January 1, 2001 $(13,160) $(512,014) $13,264 $1,564,204 $8,404,064
Effects of merger (2,568,882) (11,559) (1,524,875) 86,226
Comprehensive loss (133,290) 121,874 4,188 (155,140)
Balances as of
December 31, 2001 (146,450) (3,080,896) 123,579 43,517 8,335,150
Cancellation of swaps 50,874
Comprehensive loss (36,296) 27,616 3,645,108
Balances as of
December 31, 2002 (146,450) (3,080,896) 87,283 71,133 4,639,168
Reduction of common stock
Transfer of additional
liability of employee
retirement obligations 146,450
Allowance for accounts
receivable due from
shareholders (175,317)
Comprehensive loss 90,737 (3,357) 2,863,038
Balances as of
December 31, 2003 $ $(3,080,896) $178,020 $67,776 $1,600,813
See accompanying notes to consolidated financial statements.
Corporacion Durango, S. A. de C. V. and Subsidiaries
Consolidated statements of changes in financial position
For the years ended December 31, 2003, 2002 and 2001
(In thousands of Mexican pesos of purchasing power of December 31, 2003)
2003 2002 2001
Operating activities:
Consolidated income (loss)
from continuing operations $(2,804,937) $(3,636,064) $1,030,582
Items that did not require
(generate) resources:
Depreciation and amortization 396,462 457,828 486,686
Amortization of debt issuance
costs and other financing
costs 92,503 123,633 60,417
Loss on sale of property,
plant and equipment 199,664 29,540 30,637
Impairment of long-lived
assets 604,752 1,569,532
Loss on operations of Durango
Paper Company 315,091 1,509,053
Deferred income tax (71,892) (792,114) (194,795)
Negative goodwill (543,206)
amortization
Other 22,829 213,436 (3,931)
(1,245,528) (525,156) 866,390
Changes in operating assets
and liabilities:
(Increase) decrease in:
Trade accounts receivable-Net (90,405) 451,812 6,522
Inventories-Net 48,271 244,317 933,029
Prepaid expenses 7,289 (12,096) (65,552)
Increase (decrease) in:
Trade accounts payable 86,151 (353,832) (350,481)
Accrued interest 918,458 158,831 (85,506)
Accrued expenses and taxes 12,959 (41,443) (163,666)
other than income taxes
Other-Net (81,605) 59,473 (11,737)
Assets of discontinued
operations 5,936 (155,576) 131,213
Liabilities of discontinued
operations 75,308 (113,511) (28,008)
Net resources generated by
(used in) operating
activities before
discontinued operations and
extraordinary loss (263,116) (287,181) 1,232,204
Discontinued operations, net
of items that did not
require resources (178,732) 129,587 114,854
Extraordinary loss (317,947)
Net resources generated by
(used in) operating
activities (441,898) (157,594) 1,029,111
Financing activities:
Short-term and long-term
debt 259,408 2,588,475 2,558,746
Payments of long-term debt (405,978) (1,703,525) (3,230,584)
Translation adjustment of 90,737 (36,296) 121,874
foreign subsidiaries
Net resources generated by
(used in) financing
activities (55,833) 848,654 (549,964)
Investing activities:
Restricted cash (157,504)
Acquisition of machinery and
equipment (106,719) (459,555) (846,649)
Sale of property, plant and
equipment 231,070 61,209 310,579
Revenues from sale of
discontinued operations 924,620
Investment in subsidiaries (212,899)
Other assets 18,605 (379,382) (261,487)
Net resources generated by
(used in) investing
activities 910,072 (990,627) (797,557)
Cash and temporary
investments:
Increase (decrease) 412,341 (299,567) (318,410)
Balance at beginning of year 237,614 537,181 855,591
Balance at end of year $649,955 $237,614 $537,181
See accompanying notes to consolidated financial statements.
Corporacion Durango, S. A. de C. V. and Subsidiaries
Notes to consolidated financial statements
For the years ended December 31, 2003, 2002 and 2001
(In thousands of Mexican pesos of purchasing power of December
31, 2003)
1.Activities, significant developments and subsequent event
a.Activities - Corporacion Durango, S. A. de C. V. ("CODUSA") and
subsidiaries (the "Company") are primarily engaged in the
manufacturing and selling of packaging (corrugated boxes and
multi-wall sacks and bags), paper (containerboard, newsprint and
bond) to be used in the manufacturing of corrugated boxes,
newspaper, books and magazines, and other wood products (plywood
and particleboard) in Mexico and in the United States of America.
b.Merger - At the General Extraordinary Shareholders meeting held
on October 8, 2001, the shareholders of CODUSA approved the
merger of CODUSA into Grupo Industrial Durango, S. A. de C. V.
("GIDUSA"), subsidiary company. The merger was effective for
financial purposes on October 8, 2001. In connection with the
merger, the Company changed its name to Corporacion Durango, S.A.
de C.V. on February 7, 2002, when its bylaws were amended. The
merger was effected through the exchange of shares in CODUSA for
shares in GIDUSA. As a result of the merger, the Company recorded
a net increase in stockholders' equity of $86,226 and issued
72,257,378 common nominative shares without par value. For
accounting purposes the merger was accounted for in a manner
similar to a pooling-of-interests, and accordingly it has been
reflected retroactively in the financial statements for the year
ended December 31, 2001.
c.Durango Paper Company - In August 2002, Durango Paper Company
("DPC"), then a subsidiary company, suffered a boiler explosion
at one of its plants located in Georgia, which resulted in the
suspension of operations and the generation of significant
losses. Additionally, at the date of the accident, the Company
did not have insurance coverage for such an event and was exposed
to the entire loss relating to the incident. In October 2002, the
Company sold its investment in DPC to Operadora Omega
Internacional, S.A. de C.V., a related company. The sale was made
for an aggregate amount of U.S.$100,000, allocated U.S.$50,000
for the purchase of the capital stock and U.S.$50,000 for the
purchase of certain accounts receivable due to the Company. This
sale gave rise to an aggregate loss of $1,509,053, which was
included in other expenses in the statement of operations. The
Company granted guarantees for a bank loan of and certain letters
of credit issued by DPC amounting to U.S.$25.2 million. In 2003
the creditors called such guarantees, and the Company has
initiated negotiations to restructure these debts. Due to the
above, during 2003 a charge to the statement of operations of
$262,185 (U.S.$23.6 million) was recorded, which corresponds to
the balance of the bank debt and letters of credit at the date
the debt was transferred to the Company.
d.Significant developments and subsequent event - In order to
expand its production facilities, the Company has contracted
significant financing from banks in Mexico and abroad, mainly in
the U.S. Additionally, on different dates it sold bonds on the
New York securities market. However, since 2002 the Company has
been severely affected by a combination of economic factors, such
as the slowdown of the U.S. and the international economies, a
significant drop in the world price of paper, a drastic reduction
in the demand for manufactured products requiring the goods
supplied by the Company, an increase in the cost of raw
materials, electric power, gas and labor, and the entry of
imported products into the Mexican market.
The above-mentioned negative economic events led to a
significant reduction in the generation of cash flow for the
Company and its subsidiaries during the last quarter of 2002,
and as a result since November 2002 the Company has been
unable to cover the payment of interest and principal on
certain debt and has not complied with certain obligations
and restrictions imposed by the banks and bondholders to
maintain the original maturities of the debt. As a result, a
portion of the debt has been reclassified as short term,
resulting in negative working capital and uncertainty as to
the ability of the Company to continue as a going concern.
In November 2002, the Company initiated negotiations with the
banks and bondholders in an effort to restructure its debt
and consider the sale of non-strategic assets. In April 2003,
the Company signed a "Forbearance Agreement" with a
significant portion of its creditors, under which they agreed
to continue productive financial discussions regarding the
terms of the debt restructuring. This agreement expired on
June 30, 2003.
On April 30, 2004, the Company and a significant portion of
its bank lenders and bondholders signed a Plan Support
Agreement regarding its proposed debt restructuring. Under
the proposed restructuring, the Company's unsecured creditors
would exchange their existing financial debt for one or more
tranches of new debt instruments, denominated the Series A,
Series B, Series C and Series D Notes, to be issued in an
aggregate principal amount of approximately U.S.$715 million.
In addition, participating creditors would receive an
aggregate of 17% of the Company's share equity, on a fully
diluted basis. Also, the Company would make available
U.S.$43.5 million to acquire a portion of its outstanding
debt at purchase prices of no more than U.S.$650 per
U.S$1,000 of principal.
The Series A Notes will bear annual interest at LIBOR plus
3%, payable quarterly. Principal under the Series A notes
will be amortized based on the following schedule: 5% in
2005; 12.5% in 2006; 15% in 2007; 15% in 2008; 25% in 2009;
and 27.5% in 2010.
The Series B Notes will bear annual interest at the rate of
7.75% until December 31, 2004, 8.75% during 2005, and 9.75%
thereafter until maturity on December 31, 2010. Interest on
the Series B Notes will be payable quarterly. The Series B
Notes may be prepaid at the option of the Company at any time
on or after December 31, 2005, without premium or penalty.
The Series C Notes will not bear interest unless certain
events occur, in which case interest will accrue at the
annual rate of 8% retroactively from the date of issue. The
Series C Notes will mature on December 31, 2012, and will be
subject to redemption at the option of the Company under
certain circumstances at a discount of up to 50% of face
value.
The Series D Notes will bear annual interest at the rate of
10.5%. Interest on the Series D Notes will be compounded
annually and will be payable upon maturity on December 31,
2013.
Holders of the Series A and Series B Notes will receive a
restructuring fee, payable on the note issue date. The notes
will be guaranteed by certain of the Company's Mexican
subsidiaries and be secured by the fixed assets of the
Company and such subsidiaries. The Series C Notes will also
be guaranteed by the Mexican subsidiaries, which guarantee
will be subordinate to the guarantee of the Series A and
Series B Notes, but without being secured by the fixed
assets. The Series D Notes will not be guaranteed or
secured.
Under the terms of this agreement in principle, the creditors
would support the Company's overall financial restructuring
through an exchange offer; in the event the exchange offer is
not consummated but the Company obtains the necessary
approvals from its creditors to support a consensual plan of
reorganization, such plan could be filed under the United
States of America's bankruptcy rules.
2.Basis of presentation
a.Explanation for translation into English - The accompanying
consolidated financial statements have been translated from
Spanish into English for use outside of Mexico. These
consolidated financial statements are presented on the basis of
accounting principles generally accepted in Mexico ("Mexican
GAAP"). Certain accounting practices applied by the Company that
conform with Mexican GAAP may not conform with accounting
principles generally accepted in the country of use.
b.Going-concern - The accompanying consolidated financial
statements have been prepared on the assumption that the Company
will continue as a going concern. As indicated in the
accompanying financial statements, during the years ended
December 31, 2003 and 2002, the Company has incurred significant
consolidated net losses and since 2001 its operating margin has
substantially declined. As of December 31, 2003 and 2002 the
Company has negative working capital and is experiencing severe
liquidity problems. These factors, among others, raise
substantial doubt about the Company's ability to continue as a
going concern.
The accompanying consolidated financial statements do not
include any adjustments related to the valuation and
presentation of assets or the presentation and amount of
liabilities that might result if the Company is unable to
continue as a going concern. As described in Note 1,
since November 2002 the Company has not complied with
principal and interest payments on certain debt, which as
a result has been classified as short term. The Company's
ability to continue as a going concern is dependent upon
its ability to generate profits and to restructure its
debt. As mentioned in Note 1.d, the Company is committing
significant resources to the debt restructuring efforts
and has reached an agreement in principle with a
significant portion of its creditors, who will support a
comprehensive financial restructuring; however, there can
be no assurance that the Company will be successful in
its efforts.
c.Consolidation of financial statements - The consolidated
financial statements include those of CODUSA and its
subsidiaries. The ownership percentage in the capital stock of
the significant subsidiaries is shown below. Intercompany
balances and transactions have been eliminated in these
consolidated financial statements.
Group (or Company) Ownership Activity
Percentage
Industrias Centauro, S. 99% Manufacturing of
A. de C. V. containerboard,
liner and medium
Compania Papelera de 98% Manufacturing of
Atenquique, S. A. de C. containerboard,
V. liner and medium
Envases y Empaques de 100% Manufacturing of
Mexico, S.A. de C.V. corrugated boxes
and multi-wall
sacks
Empaques de Carton 100% Manufacturing of
Titan, S. A. de C. V. corrugated boxes
and subsidiary and multi-wall
sacks
Grupo Pipsamex, S. A. de 100% Manufacturing of
C. V. and subsidiaries newsprint and
bond paper
Durango McKinley Paper 100% Manufacturing of
Company containerboard,
liner and medium,
and corrugated
boxes
Ponderosa Industrial de 100% Manufacturing of
Mexico, S. A. de C. V. plywood and
particleboard
d.Translation of financial statements of foreign subsidiaries -
To consolidate the financial statements of foreign subsidiaries
that operate independently of the Company, the same accounting
policies as those of the Company are followed, and the local
currency financial statements are restated in the constant
currency of the country in which they operate. Subsequently, such
foreign currency financial statements are translated into Mexican
pesos with the resulting exchange differences presented in
cumulative translation adjustment of foreign entities within
stockholders' equity. For translation purposes, amounts are
translated into Mexican pesos using the following exchange rates:
(i) the closing exchange rate in effect at the balance sheet date
for all assets and liabilities, (ii) the exchange rate in effect
at the date the contributions were made for common stock, (iii)
the exchange rate in effect at the end of the year in which the
losses were generated for accumulated deficit, and (iv) the
exchange rate in effect at the end of the year for revenues and
expenses.
The financial statements of foreign subsidiaries included
in the 2002 and 2001 consolidated financial statements
are restated in the constant currency of the country in
which they operate and translated into Mexican pesos
using the exchange rate of the latest year presented.
e.Comprehensive loss - Comprehensive loss presented in the
accompanying statements of changes in stockholders' equity
represents all changes in stockholders' equity during each year
except those resulting from investments by and distributions to
owners, and is comprised of the net income (loss) of the year,
plus other comprehensive loss items of the same period which, in
accordance with Mexican GAAP, are presented directly in
stockholders' equity without affecting the consolidated
statements of operations. In 2003, 2002 and 2001, the other
comprehensive loss items consist of the excess (insufficiency) in
restated stockholders' equity, adjustment for additional
liability for employee retirement obligation, and the translation
effects of foreign subsidiaries.
f.Reclassifications - Certain amounts in the financial statements
as of and for the years ended December 31, 2002 and 2001 have
been reclassified in order to conform to the presentation of the
consolidated financial statements as of and for the year ended
December 31, 2003.
3.Summary of significant accounting policies
The accounting policies followed by the Company are in
conformity with Mexican GAAP, which require that management
make certain estimates and use certain assumptions that
affect the amounts reported in the consolidated financial
statements and the accompanying notes. Although these
estimates are based on management's best knowledge of current
events, actual results may differ. The significant accounting
policies of the Company are as follows:
a.New accounting policies - Beginning January 1, 2003, the
Company adopted the provisions of new Bulletin C-8, "Intangible
Assets", which establishes that project development costs should
be capitalized if they fulfill the criteria established for
recognition as assets; preoperating costs that are not considered
development costs should be recorded as a period expense; and
intangible assets considered to have indefinite useful lives are
not amortized, but instead are subject to impairment tests. The
unamortized balance of capitalized preoperating costs up to
December 31, 2002, will continue to be amortized according to the
provisions of the former Bulletin C-8. The adoption of this new
bulletin did not have significant effects on the Company's
consolidated financial position or results of operations.
Beginning January 1, 2003, the Company also adopted the
provisions of new Bulletin C-9, "Liabilities, Provisions,
Contingent Assets and Liabilities and Commitments", which
establishes additional guidelines clarifying the
accounting for provisions, accruals and contingent
liabilities, and establishes new standards for the use of
present value techniques to measure liabilities and
accounting for the early settlement or substitution of
obligations. The adoption of this new bulletin did not
have significant effects on the Company's consolidated
financial position or results of operations.
b.Recognition of the effects of inflation - The Company
restates its consolidated financial statements to Mexican
peso purchasing power of the most recent balance sheet
date presented. Accordingly, the consolidated financial
statements of the prior years have been restated to
Mexican pesos of purchasing power of December 31, 2003
and, therefore, differ from those originally reported in
the prior years.
c.Temporary investments - Temporary investments are stated at the
lower of acquisition cost, plus accrued yields, or estimated net
realizable value.
d.Inventories and cost of sales - Inventories are stated at the
lower of net realizable value or average cost, which is similar
to the most recent purchase price or production cost. Cost of
sales is stated at estimated replacement cost at the time of
sale.
e.Property, plant and equipment - Property, plant and equipment
are initially recorded at acquisition cost and restated using the
National Consumer Price Index ("NCPI"). For fixed assets of
foreign origin, restated acquisition cost expressed in the
currency of the country of origin is converted into Mexican pesos
at the market exchange rate in effect at the balance sheet date.
Depreciation is calculated based on units produced in the period
in relation to the total estimated production of the assets over
their service lives.
Years
Buildings 25-50
Industrial machinery and 23-40
equipment
Vehicles 1-5
Computers 1-3
Office furniture and equipment 5-10
Recurring maintenance and repair expenditures are charged
to operating expense as incurred. Major overhauls to
fixed assets are capitalized and amortized over the
period in which benefits are expected to be received.
Comprehensive financing cost incurred during the period
of construction and installation of property, plant and
equipment is capitalized and restated using the NCPI.
f.Impairment of long-lived assets in use - The Company evaluates
potential impairment losses to long-lived assets by assessing
whether the unamortized carrying amount can be recovered over the
remaining life of the assets through undiscounted future expected
cash flows generated by the assets and without interest charges.
If the sum of the expected future undiscounted cash flow is less
than the carrying amount of the assets, a loss is recognized for
the difference between the fair value and carrying value of the
assets. Long-lived assets are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying
amount may not be recoverable. Long-lived assets for which
management has committed to a plan of disposal are recorded at
the lower of the unamortized carrying amount or fair value less
disposal cost.
g.Other assets - Costs incurred in the development phase that
meet certain requirements and that the Company has determined
will have future economic benefits are capitalized and amortized
based on the straight-line method over their estimated useful
life. Those disbursements that do not meet such requirements are
recorded in results of the period in which they are incurred.
Intangible assets with indefinite lives are not amortized;
however, their value is subject to impairment tests. Preoperating
costs incurred after January 1, 2003 are recorded directly in
results of the period in which they are incurred. Preoperating
expenses incurred and capitalized up to December 31, 2002 are
amortized using the straight-line method over three years.
h.Financial instruments - Financial assets and liabilities
resulting from any type of financial instrument, except for
investments in financial instruments held to maturity, are
presented in the balance sheet at fair value. The effects of the
valuation of a financial asset or liability are recognized in
results of operations of the respective period. Investments in
financial instruments held to maturity are valued at acquisition
cost. The costs and yields of financial instruments are
recognized in results of the period in which they occur.
Dividends from equity financial instruments are recognized in
results of operations of the same period in which the fair value
of the financial instrument is adjusted by such dividends.
i.Derivative financial instruments - The internal control system
established by the Company includes policies and procedures to
manage its exposure to fluctuations in interest rates and in
foreign currency exchange rates using derivative financial
instruments. These instruments are traded only with authorized
institutions and trading limits have been established for each
institution. The Company does not carry out transactions with
derivative financial instruments for the purpose of speculation.
As of December 31, 2003 and 2002, the Company did not have
derivative financial instruments.
j.Goodwill - Goodwill represents the excess of cost over recorded
value of subsidiaries as of the date of acquisition. It is
restated using the NCPI and is amortized using the straight-line
method over the estimated time period in which the acquired
subsidiaries will become integrated to the Company. During 2003,
2002 and 2001, the Company did not record any amount in relation
to goodwill, and there was no amortization of goodwill.
k.Negative goodwill - This represents the excess of recorded
value over cost of subsidiary companies and is restated using the
NCPI. It is amortized using the straight-line method over the
estimated time period in which the acquired subsidiaries will
become integrated into the Company. During 2003 and 2002, there
was no amortization of negative goodwill, and amortization in
2001 was $543,206. During 2003, 2002 and 2001, the Company did
not record any amount in relation to negative goodwill.
l.Employee retirement obligations - Seniority premiums and
pension plans are recognized as costs over employee years of
service and are calculated by independent actuaries using the
projected unit credit method at net discount rates. Severance is
charged to results when the liability is determined to be
payable.
m.Debt issuance costs - Debt issuance costs, which are included
in other assets, are restated by applying the NCPI and are
amortized over the outstanding term of the debt on a straight-
line basis.
n.Provisions - Provisions are recognized for obligations that
result from a past event, that are likely to result in the use of
economic resources and that can be reasonably estimated. Such
provisions are recorded at net present values when the effect of
the discount is significant.
o.Income tax, tax on assets and employee statutory profit sharing
V Income tax ("ISR") and employee statutory profit sharing
("PTU") are recorded in results of the year in which they are
incurred. Deferred income tax assets and liabilities are
recognized for temporary differences resulting from comparing the
book and tax values of assets and liabilities plus any future
benefits from tax loss carryforwards. Deferred ISR assets are
reduced by any benefits about which there is uncertainty as to
their realizability. Deferred PTU is derived from temporary
differences between the accounting result and income for PTU
purposes and is recognized only when it can be reasonably assumed
that they will generate a liability or benefit, and there is no
indication that circumstances will change in such a way that the
liabilities will not be paid or benefits will not be realized.
The tax on assets paid that is expected to be recoverable
is recorded as an advance payment of ISR and is presented
in the balance sheet decreasing the deferred ISR
liability.
p.Foreign currency balances and transactions - Foreign currency
transactions are recorded at the applicable exchange rate
in effect at the transaction date. Monetary assets and
liabilities denominated in foreign currency are
translated into Mexican pesos at the applicable exchange
rate in effect at the balance sheet date. Exchange
fluctuations are recorded as a component of net
comprehensive financing cost in the consolidated
statements of operations, except those amounts
capitalized as a component of construction cost.
q.Excess (insufficiency) in restated stockholders' equity -
Excess (insufficiency) in restated stockholders' equity
represents the accumulated monetary position result through the
initial restatement of the consolidated financial statements and
the increase in the restated value of machinery and equipment and
inventories above (below) inflation.
r.Revenue recognition - Revenues are recognized in the period in
which the risks and rewards of ownership of the inventories are
transferred to the customers, which generally coincides with the
delivery of products to customers in satisfaction of orders.
s.Monetary position gain - Monetary position gain, which
represents the erosion of purchasing power of monetary items
caused by inflation, is calculated by applying NCPI factors to
monthly net monetary position. Gains result from maintaining a
net monetary liability position.
t.Net income (loss) per share - Basic income (loss) per common
share is calculated by dividing net income (loss) of majority
stockholders by the weighted average number of shares outstanding
during the year. Diluted income (loss) per share is determined by
adjusting consolidated net income (loss) and common shares on the
assumption that the Company's commitments to issue or exchange
its own shares would be realized.
4.Cash and temporary investments
2003 2002
Cash $233,448 $91,060
Temporary investments 416,507 146,554
$649,955 $237,614
5.Trade accounts receivable
2003 2002
Trade accounts receivable $1,757,542 $1,747,003
Recoverable taxes 93,193 39,945
Other 93,458 52,272
1,944,193 1,839,220
Allowance for doubtful accounts (145,258) (132,397)
$1,798,935 $1,706,823
6.
Inventories
2003 2002
Finished goods $208,927 $236,379
Production-in-process 10,803 30,717
Raw materials 327,731 311,559
Spare parts and materials for 243,079 305,088
immediate consumption
Molds and dies 73,208 73,679
Other 26,758 15,754
890,506 973,176
Allowance for obsolete inventories (28,344) (31,175)
862,162 942,001
Advances to suppliers 46,007 52,488
Merchandise-in-transit 187,541 149,492
$1,095,710 $1,143,981
7.Restricted cash
Corresponds to U.S.$14 million, which was provided from the
resources generated by the sale of the warehouse described in
Note 16 and the sale of the Company's participation in the
equity of Productora Nacional de Papel, S.A. de C.V.
described in Note 18. Under the terms of a loan agreement,
the Company is required to use the resources obtained for
capital expenditures.
8.Property, plant and equipment
2003 2002
Buildings $3,365,735 $3,624,486
Industrial machinery and equipment 17,668,631 17,654,725
Vehicles, computers, office 1,192,198 1,403,723
furniture and equipment
22,226,564 22,682,934
Accumulated depreciation and (9,523,226) (10,418,813)
amortization
Accumulated impairment loss (2,174,284) (1,569,532)
10,529,054 10,694,589
Land 765,166 1,096,667
Construction-in-progress 46,906 239,256
$11,341,126 $12,030,512
The Company's assets that were acquired through capital
leases are as follows:
2003 2002
Industrial machinery and equipment $354,287 $368,352
Accumulated depreciation (44,247) (31,775)
$310,040 $336,577
Depreciation expense for the years ended December 31, 2003,
2002 and 2001 was $374,262, $442,683 and $452,125,
respectively.
During 2003 and 2002, the Company reviewed the recoverable
value of its long-lived assets, which was determined by the
future cash flow generated over the useful lives of the
corresponding assets, which extends from 20 to 35 years after
2003. As a result, the Company recorded $604,752 and
$1,569,532 during 2003 and 2002, respectively, as an
impairment loss for its long-lived assets. The deferred
income tax effect for this reserve resulted in a benefit of
$193,521 and $502,250 during 2003 and 2002, respectively.
As of December 31, 2003 and 2002 the Company has assets
temporarily out of use for a net amount of $92,988 and
$348,103, respectively.
Some loans are collateralized with the machinery and
equipment acquired with those loans. Leased machinery has
been pledged as collateral.
The comprehensive financing costs capitalized in 2001 were
$34,145; during 2003 and 2002, the Company did not capitalize
any comprehensive financing costs. Unamortized capitalized
comprehensive financing cost was $69,349 and $72,110 at
December 31, 2003 and 2002, respectively.
9.Other assets
Intangible
asset of
employee
retirement Debt issuance
obligation cost Other Total
Assets:
Balance as of
January 1,
2003 $67,423 $616,658 $172,752 $856,833
Variation -
Net 33,635 (13,932) (4,673) 15,030
Balance as of
December
31, 2003 101,058 602,726 168,079 871,863
Accumulated
amortization:
Balance as of
January 1,
2003 211,367 5,460 216,827
Amortization
expense 83,147 31,556 114,703
Balance as of
December
31, 2003 294,514 37,016 331,530
Net balance
as of
December
31, 2003 $101,058 $308,212 $131,063 $540,333
During 2002 and 2001, the Company capitalized debt issuance
costs amounting to $224,459 and $261,487, respectively;
during 2003 the Company did not capitalize any debt issuance
costs. In 2003, 2002 and 2001, the Company amortized $83,147,
$123,633 and $60,417, respectively, of debt issuance costs.
For the year ended December 31, 2001, the Company wrote off
debt issuance costs related to the Yankee Bond issuances with
maturities in 2001 and 2003 of $21,657 and $14,412,
respectively.
10.
Short-term and long-term debt
a.Short-term and long-term debt is summarized as follows:
2003 2002
Continuing operations:
Short-term debt $8,535,163 $7,595,462
Current portion of long-term
debt 121,290 278,577
Long-term debt 399,423 1,021,426
9,055,876 8,895,465
Discontinued operations:
Current portion of long-term
debt 30,126 16,148
Long-term debt 111,239 104,956
141,365 121,104
$9,197,241 $9,016,569
b.Total debt classified by the main classes of liabilities are as
follows:
2003 2002
Senior Notes $5,678,562 $5,484,786
Bank loans 2,650,174 2,628,890
Notes 540,487 522,045
Financial lease agreements 194,706 322,955
Letters of credit 74,599
Euro Commercial Paper 56,186 54,269
Other long-term debt 2,527 3,624
$9,197,241 $9,016,569
Senior Notes are comprised of four series, which mature
in 2003, 2006, 2008 and 2009, with a total principal
amount of U.S.$505.3 million as of December 31, 2003;
bearing interest at fixed rates that range from 12.625%
to 13.75% annually. Wells Fargo Bank of Minnesota, N.A.
acts as trustee.
As of December 31, 2003, bank loans amount to U.S.$238.9
million, with The Chase Manhattan Bank, N. A., Banco
Nacional de Mexico, S.A., California Commerce Bank, Bank
of Albuquerque, N.A., Bancomext, S.N.C., Bancomer,
S.N.C., Bank of America, N. A. and Commerze Bank; bearing
interest at LIBOR plus a margin, which ranges from 1.5%
to 8%. Maturities are variable, through 2010. Some bank
loans are secured by the Company's machinery and
equipment.
Notes payable for U.S.$48.1 million to HG Estate, LLC,
bearing interest at fixed rates, which range from 10% to
13% per annum, payable semiannually.
Financial lease agreements for U.S.$17.4 million with
Arrendadora Bank of America, N.A. and GE Capital Leasing;
bearing interest at LIBOR plus 3.25% through 3.5% per
annum. Maturities are variable through 2009. The leased
machinery has been pledged as collateral.
Letters of credit for U.S.$6.7 million with JPMorgan
Chase Bank and Bank of America, N.A.
The Euro Commercial Paper's balance of U.S.$5 million is
derived from an issuance matured in February 2003. This
debt bore interest at 9.75% annually prior to maturity.
c.The Senior Notes, bank loans and financial lease agreements
contain covenants, obligations and restrictions with which CODUSA
and/or its subsidiaries must comply, mainly in respect of
contracting other credit lines, payment of dividends and decrease
in capital stock, restrictions on transactions with related
parties and the maintenance of certain financial ratios, as well
as compliance with prompt payment of interest and principal upon
each maturity. Since November 2002, the Company has failed to
comply with the payment of interest and principal maturing on
certain bank loans and notes. As a result, the Company is in
default with respect to such obligations and some of these bank
loans and notes have matured and not been paid. According to the
terms of certain of the Company's debt instruments, the banks and
bondholders may demand in advance, the immediate payment of
principal and interest outstanding on the loans and bonds in
default. Therefore, the principal amount of the past due loans
and notes that are in default have been classified as short-term
debt.
Payments on certain debt are guaranteed, jointly and
severally on an unsecured basis by the following
subsidiaries, Empaques de Carton Titan, S.A. de C.V.,
Compania Papelera de Atenquique, S.A. de C.V., Ponderosa
Industrial de Mexico, S.A. de C.V. and Industrias
Centauro, S.A. de C.V.
d.As of December 31, 2003, long-term debt matures as follows:
2005 $128,227
2006 88,146
2007 87,497
2008 65,022
2009 30,531
Thereafter $399,423
e.At December 31, 2003, minimum rental commitments under capital
leases are as follows:
Total minimum lease obligations $199,410
Unearned interest 4,704
Present value of obligations 194,706
Current portion of obligations (75,113)
Long-term portion of capital
lease obligations $119,593
Capital lease obligations, which include a purchase
option at the end of the lease term, mature as follows:
Year ending December 31,
2004 $75,113
2005 60,306
2006 17,826
2007 17,826
2008 17,826
Thereafter 5,809
$194,706
11.
Financial instruments and derivative financial instruments
a.Financial instruments - The estimated fair value amounts of the
Company's financial instruments have been determined by the
Company using available market information or other appropriate
valuation methodologies that require considerable judgment in
developing and interpreting the estimates of fair value.
Accordingly, the estimates presented herein are not necessarily
indicative of the amounts that the Company could realize in a
current market exchange. The use of different market assumptions
and/or estimation methodologies may have a material effect on the
estimated fair value amounts.
The carrying amounts of the Company's cash equivalents,
accounts receivable, accounts payable and current notes
payable approximate fair value because they have
relatively short-term maturities and bear interest at
rates tied to market indicators, as appropriate. The
Company's long-term debt consists of debt instruments
that bear interest at fixed or variable rates tied to
market indicators.
As of December 31, 2003 and 2002, the Company was unable
to calculate a reasonable estimate of the fair value of
the Company's long-term debt, because the comparable
market information required to determine the estimated
fair value of long-tem debt was not attainable due to the
financial situation of the Company. The fair value of the
Senior Notes was estimated based on quoted market prices,
as follows:
2003 2002
Carrying Fair Carrying Fair
Amount Value Amount Value
Senior Notes $5,678,562 $3,378,869 $5,484,786 $1,668,307
b.Derivative financial instruments - The Company entered into
several equity swaps with respect to its American Depositary
Receipts ("ADRs"). The difference between the fair value and the
acquisition cost of those shares (including purchase expenses and
premiums or discounts) as well as financing cost was recorded
directly to stockholders' equity through December 31, 2000. As a
result of the adoption of Bulletin C-2, during 2001, the Company
recorded $22,150 in the statement of operations. The fair value
of the equity swaps is estimated based on their quoted market
price, which as of December 31, 2001, was equal to its carrying
amount. The equity swap matured in May 2002, and in connection
the Company purchased 2,240,000 shares that were recorded as
treasury stock.
c.Concentration of credit risk - The financial instruments that
potentially are subject to a concentration of credit risk are
principally cash and temporary investments and trade accounts
receivable. The Company deposits and invests its excess cash in
recognized financial institutions. The concentration of the
credit risk with respect to accounts receivable is limited due to
the large number of customers comprising the Company's customer
base and their dispersion across different locations in Mexico
and the U.S. There were no customers exceeding 10% of net sales
for any of the periods presented.
12.Employee retirement obligations
Mexico - The Company maintains a pension plan for certain
employees. In addition, in accordance with the Mexican Labor
Law, the Company provides seniority premium benefits to
employees under certain circumstances. These benefits
consist of a lump sum payment of 12 days' wages for each year
worked, calculated using the most recent salary, not to
exceed twice the legal minimum wage established by law. The
related liability and annual cost of such benefits are
calculated by an independent actuary on the basis of formulas
defined in the plans using the projected unit credit method.
The present values of these obligations and the rates used
for the calculations are:
2003 2002
Accumulated benefit obligation $199,467 $166,112
Projected benefit obligation $179,061 $200,114
Unrecognized items:
Variances for assumptions and
adjustments based on experience 10,624 (23,148)
Transition asset (91,276) (82,292)
Net projected liability 98,409 94,674
Additional liability related to
seniority premiums 101,058 71,438
$199,467 $166,112
The rates used in the actuarial calculations, net of effects
of inflation, were:
2003 2002 2001
% % %
Discount of the
projected benefit
obligation at
present value 5% 5% 5%
Salary increase 2% 2% 2%
The amortization periods for the unamortized items are as
follows:
Remaining
Years
Transition asset 18
Variances in assumptions 18
Net period cost is comprised as follows:
2003 2002 2001
Service costs $5,483 $8,825 $9,141
Amortization of
transition asset,
variances for
assumptions and
adjustments based on
experience 8,417 10,755 9,170
Interest cost 8,929 9,399 10,407
Net period cost $22,829 $28,979 $28,718
In connection with the reorganization process of the
Company's operations, there was a termination of
administrative and operating personnel during 2003 that
represented payments of $59,262, which are included in other
expenses in the accompanying consolidated statements of
operations.
United States of America - The subsidiaries in the United
States of America have established the following defined
contribution plans: a 401(k) retirement savings plan, health
insurance plan, disability plan, and life insurance plan,
among others. For the years ended December 31, 2003, 2002 and
2001, total expenses related to these plans were $34,498,
$47,637 and $120,576, respectively.
As of December 31, 2003 and 2002, the Company did not have
any defined benefits plans; therefore, during 2003 the
additional liability of employee retirement obligations,
which was included within stockholders' equity, was
transferred to retained earnings. The net cost for 2001
consisted of the following:
Service costs $8,904
Amortization of transition asset 2,980
Interest cost 37,548
$49,432
The expected return on plan assets was $47,542 for 2001. The
rates used in the actuarial calculations were:
Expected long-term rate of return
on plan assets 9.00%
Discount rate 7.25%
13.Stockholders' equity
a.Common stock shares at par value as of December 31 are
comprised as follows:
2003
Number of Par Restatement
Shares Value Effect Total
Fixed
capital
Series A 46,610,100 $699,714 $1,707,265 $2,406,979
Variable
capital
Series A 45,222,022 678,873 1,656,436 2,335,309
Total
shares 91,832,122 $1,378,587 $3,363,701 $4,742,288
2002 and 2001
Number of Par Restatement
Shares Value Effect Total
Fixed
capital
Series A 46,610,100 $699,714 $1,707,265 $2,406,979
Variable
capital
Series A 47,462,022 712,500 1,738,484 2,450,984
Total
shares 94,072,122 $1,412,214 $3,445,749 $4,857,963
Common stock consists of common nominative Series A
shares without par value. The variable portion of capital
stock cannot exceed ten times the aggregate amount of the
fixed minimum portion without right to withdraw.
b.On June 30, 2003, the Board of Directors approved the
cancellation of 2,240,000 treasury shares. Consequently, the
variable portion of common stock was reduced by $115,675 ($33,627
at par value).
c.Retained earnings include the statutory legal reserve. The
Mexican General Corporate Law requires that at least 5%
of net income of the year be transferred to the legal
reserve until the reserve equals 20% of capital stock at
par value (historical pesos). The legal reserve may be
capitalized but may not be distributed unless the entity
is dissolved. The legal reserve must be replenished if
it is reduced for any reason. At December 31, 2003 and
2002, the legal reserve, in historical pesos, was
$238,870.
a.Stockholders' equity, except restated paid-in capital and tax
retained earnings, will be subject to a tax at the rate in effect
when a dividend is distributed. In 2003, the rate was 34% and
will be reduced by one percentage point each year until reaching
32% in 2005. Any tax paid on such distribution, may be credited
against the income tax payable of the year in which the tax on
the dividend is paid and the two fiscal years following such
payment.
b.The balances of the stockholders' equity tax accounts as of
December 31, are:
2003 2002
Contributed capital account $3,357,271 $3,304,135
Consolidated net tax income
account 1,606,671 1,617,760
Consolidated net reinvested tax
income account 871,769 838,433
Total $5,835,711 $5,760,328
As illustrated in the preceding table, the total amount
of the balances of the stockholders' equity tax accounts
exceeds stockholders' equity, according to the
accompanying balance sheet.
14.Foreign currency balances and transactions
a.At December 31, the foreign currency monetary position is as
follows:
2003 2002
Thousands of U.S. dollars:
Monetary assets 39,219 27,483
Monetary liabilities (929,657) (872,633)
Monetary asset (liability) (890,438) (845,150)
position, net
Equivalent in Mexican pesos $(10,006,030) $(8,822,774)
Thousands of Euros:
Monetary asset (liability)
position, net (10,346) (10,710)
Equivalent in Mexican pesos $(146,282) $(116,976)
b.Nonmonetary assets of foreign origin at December 31, 2003 are
as follows:
Foreign Equivalent
Currency in Mexican
Currency Balance Pesos
Inventories U.S. 13,659 $153,397
dollar
Industrial
machinery and
equipment
United States of U.S.dollar 405,252 4,553,903
America
Brazil Real 184,525 717,489
Japan Yen 4,736,765 496,412
Germany Euro 31,865 451,317
Canada Canadian dollar 42,480 369,731
Other 323,843
c.The condensed financial information of the principal foreign
subsidiaries as of December 31, 2003 are as follows:
2003 2002 2001
(In thousands of U.S. dollars)
United States of America
Net sales 146,646 291,700 343,919
Income from 4,471 (17,570) (4,413)
operations
Net income (54,559) (96,610) (37,131)
Current assets 30,216 45,203 96,028
Total assets 115,022 132,544 298,281
Current 18,960 33,522 95,772
liabilities
Total liabilities 48,204 65,183 210,458
d.Transactions denominated in foreign currency were as follows:
2003 2002 2001
(In thousands ofU.S.dollars)
Export sales 166,230 302,174 433,802
Interest expense (96,455) (81,441) (111,876)
Interest income 31 613 2,558
Import purchases (167,303) (337,821) (456,771)
Acquisition of
machinery and (35,486) (20,978) (17,831)
equipment
e.The exchange rates in effect at the dates of the consolidated
balance sheets and of issuance of the consolidated financial
statements were as follows:
December 31 April 30,
2003 2002 2004
U.S. dollar $11.2372 $10.4393 $11.4068
Euros 14.1390 10.9221 13.6539
15.Transaction and balances with related parties
a.Transactions with related parties, carried out in the ordinary
course of business, were as follows:
2003 2002 2001
Interest income $25,077 $20,954 $7,325
Sale of paper 12,131
Sale of industrial
machinery and
other equipment 16,194
Sale of shares 543
Sale of accounts
receivable 543
Freight expenses 42,321
Flight services 5,316
paid
Other income 3,193
b.Balances receivable and payable with related parties are as
follows:
2003 2002
Due from related parties-
Administradora Corporativa y
Mercantil, S.A. de C. V. $175,317 $155,938
Durango Georgia Receivables
Company 194,853 35,361
Durango Paper Company 58,569
Lineas Aereas Ejecutivas de
Durango, S. A. de C. V. 13,992
Other 291 8
443,022 191,307
Allowance for doubtful accounts (428,739)
$14,283 $191,307
Due to related parties-
Lineas Aereas Ejecutivas de
Durango, S.A. de C. V. $ $5,590
During 2003 the Company recorded an allowance for the
account receivable due from Administradora Corporativa y
Mercantil, S. A. de C. V. Since the Company's
shareholders own this company, this adjustment was
recorded as a debit to retained earnings.
16.Other expenses
2003 2002 2001
Loss on sale of
property, plant and
equipment $(199,664) $(29,540) $(30,637)
Severance payments due
to reorganization (59,262)
Restructuring expenses (272,885)
Impairment of long-
lived assets (604,752) (1,569,532)
Loss on operations of
DPC (315,091) (1,509,053)
Negative goodwill 543,206
Other income (expenses) (59,535) (18,837) (36,139)
$(1,511,189) $(3,126,962) $476,430
On November 25, 2003, the Company sold a warehouse for
U.S.$11.5 million. As part of the sale, the Company reserved
the right to use a portion of the warehouse representing
approximately one third of the entire property for a period
of five years at no cost. This sale generated a loss of
$193,891, which is presented in other expenses in the
statement of operations.
As mentioned in Note 1, the Company is committing significant
resources to the debt restructuring efforts, for this reason
on December 2002 a group of advisors was hired to support the
Company in the restructuring of its debt and in the sale of
non-strategic assets. On April 7, 2003, the Company entered
into a forbearance agreement with a significant portion of
its creditors, and a payment of a forbearance fee of U.S.$12
million was required. The forbearance agreement expired on
June 30, 2003.
17.Income taxes, tax on assets and employee statutory profit sharing
In accordance with Mexican tax law, the Company is subject to
income tax ("ISR") and tax on assets ("IMPAC"). ISR takes
into consideration the taxable and deductible effects of
inflation.
The ISR rate was 35% in 2002 and 2001 and 34% in 2003, and
will be reduced by one percentage point each year until
reaching 32% in 2005. In 2002, the deduction for employee
statutory profit sharing ("PTU") and the obligation to
withhold taxes on dividends paid to individuals or foreign
residents were eliminated.
IMPAC is calculated by applying a rate of 1.8% on the net
average of the majority of restated assets less certain
liabilities and is payable only to the extent that it exceeds
ISR payable for the same period. If in any year IMPAC exceeds
the ISR payable, the IMPAC payment for such excess may be
reduced by the amount by which ISR exceeded IMPAC in the
three preceding years and any required payment of IMPAC is
creditable against the excess of ISR over IMPAC of the
following ten years.
The Company incurs consolidated ISR and IMPAC with its
Mexican subsidiaries in the proportion that the Company owns
the voting stock of its subsidiaries at the balance sheet
date. Beginning on January 1, 2002, the proportion is
calculated based on the average daily equity percentage that
the Company owns of its subsidiaries during the year. The tax
results of the subsidiaries are consolidated at 60% of such
proportion and the tax results of the holding company are
also consolidated at 60%. Estimated payments of ISR and IMPAC
of both the Company and its subsidiaries are made as if the
Company did not file a consolidated tax return.
a.ISR consists of the following:
2003 2002 2001
Current $(72,108) $(114,891) $(243,352)
Deferred 71,892 792,114 194,795
$(216) $677,223 $(48,557)
b.The reconciliation of the statutory and effective ISR rates
expressed as a percentage of income (loss) from continuing
operations before ISR and PTU for the years ended December 31,
2003, 2002 and 2001 is:
2003 2002 2001
Statutory rate 34.00% 35.00% 35.00%
Add (deduct) the
effect of permanent
differences:
Non deductible
expenses (1.30%) (0.24%) 1.91%
Other (14.59%) (0.75%) (30.64%)
Add (deduct) the
effects of inflation 0.90% (0.61%) (1.77%)
Effect of change in
statutory rate on
deferred ISR 0.49% 4.70%
Change in valuation
allowance for
recoverable IMPAC
and benefit of tax
loss carryforwards (19.51%) (22.40%)
Effective rate (0.01%) 15.7% 4.5%
c.At December 31, 2003 and 2002 the main items comprising the
liability balance of deferred ISR are:
2003 2002
Deferred ISR asset (liability):
Property, plant and equipment $2,822,829 $2,892,265
Inventories 243,904 (19,209)
Allowance for doubtful accounts (127,578) (39,562)
Accrued expenses (152,243) (55,624)
Other assets 58,458 90,146
Other, net (8,593) (155,853)
Deferred ISR from temporary
differences 2,836,777 2,712,163
Effect of tax loss carryforwards (1,545,386) (1,092,446)
Recoverable tax on assets (316,349) (263,348)
975,042 1,356,369
Valuation allowance for the
deferred ISR asset and
recoverable tax on assets 943,805 396,913
Net long-term deferred ISR
liability $1,918,847 $1,753,282
d.Due to a deterioration in the circumstances used to assess the
recovery of tax on assets paid and realization of the benefit of
tax loss carryforwards, in 2003 and 2002 the valuation allowance
for recoverable tax on assets and benefit of tax loss
carryforwards was increased by $546,892 and $965,793,
respectively, and charged to results of operations.
e.At December 31, 2003 and 2002, the Company has taxable
temporary and permanent differences related to deferred PTU,
mainly inventories and property, plant and equipment, for which
the deferred PTU liabilities were not estimated nor recorded
because the Company believes that they will not reverse due to
the recurring nature of the related transactions.
f.Tax loss carryforwards and recoverable IMPAC for which the
deferred ISR asset and prepaid ISR, respectively, have been
partially recognized may be recovered subject to certain
conditions. Restated amounts as of December 31, 2003 and
expiration dates are:
Year of Tax Loss Recoverable
Expiration Carryforwards IMPAC
2004 $484,136 $48,673
2005 221,360 13,073
2006 169,449 26,274
2007 99,771 26,091
2008 147,317 25,308
2009 100,769 19,769
2010 112,249 23,857
2011 127,997 22,211
2012 1,950,845 58,092
2013 1,415,437 53,001
$4,829,330 $316,349
g.For the years ended December 31, 2003, 2002 and 2001, the
change in excess (insufficiency) in restated
stockholders' equity, as shown in the accompanying
statements of changes in stockholders' equity, is
presented net of the effect of the related deferred
income tax of $200,679, $151,170 and $22,986,
respectively.
18.Discontinued operations
In connection with the Company's financial and operating
restructuring, during 2003 the discontinuation and/or sale of
some subsidiaries or significant assets was authorized. The
related assets, liabilities and operating results have been
presented as discontinued operations in the accompanying
financial statements. Discontinued operations are as follows:
a.On February 27, 2003, the Company sold the assets of its molded
pulp division for approximately U.S.$53.7 million, resulting in a
gain of $334,969, which is included in the net loss of
discontinued operations in the accompanying consolidated
statements of operations for the year ended December 31, 2003.
Additionally, according to the purchase agreement, the Company
transferred to the buyer some accounts receivable and trade
accounts payable, in order to permit the buyer to continue with
production and sale of molded products.
b.On November 14, 2003, the Company sold its investment in
Productora Nacional de Papel, S. A. de C. V. for U.S.$28
million, giving rise to a loss of $447,466, which is included in
the net loss of discontinued operations in the accompanying
consolidated statements of operations for the year ended December
31, 2003.
c.During 2003, the Company's management authorized a plan to sell
a plant located in Chihuahua, which is primarily engaged in the
manufacturing of particleboard. On September 24, 2003, the
Company signed a letter of intent with a potential buyer, who is
in the process of performing due diligence. Based on the ongoing
negotiations with the potential buyer, the Company reduced the
book value of the net assets that will be sold by $351,291, which
is included in the net loss of discontinued operations in the
accompanying consolidated statements of operations for the year
ended December 31, 2003.
The recorded value of the net assets of discontinued
operations consist of the following:
2003 2002
Cash $3,283 $33,320
Accounts receivable-Net 56,825 165,147
Inventories-Net 23,795 190,784
Prepaid expenses 287 579
Total current assets 84,190 389,830
Property, plant and equipment-
Net 252,847 1,602,182
Other assets-Net 100,811
Total noncurrent assets 252,847 1,702,993
Total assets $337,037 $2,092,823
Short-term debt and current
portion of long-term debt 30,126 16,148
Trade accounts payable 39,202 121,657
Other accounts payable, taxes 15,348 74,253
and accrued liabilities
Total current liabilities 84,676 212,058
Long-term debt 111,239 104,956
Deferred income taxes 78,297 340,754
Employee retirement obligations 710 20,784
Total long-term liabilities 190,246 466,494
Total liabilities $274,922 $678,552
Net assets of discontinued
operations $62,115 $1,414,271
The statements of operations reflect discontinued operations,
which are comprised as follows:
2003 2002 2001
Net sales $692,722 $847,060 $391,024
Costs of sales 703,153 612,732 261,066
Gross profit (10,431) 234,328 129,958
Operating expenses-Net 41,805 72,227 76,620
Income (loss) from
operations (52,236) 162,101 53,338
Net comprehensive
financing cost (135,282) (159,294) (64,220)
Other income (expenses)
-Net (25,117) 86,799 88,089
Impairment of long-
lived assets (351,291) (100,961)
Income (loss) from
discontinued operations (563,926) (11,355) 77,207
Revenues from sales of
discontinued operations 924,620
Cost of sales of
discontinued operations 1,037,117
Loss on sales of
discontinued operations (112,497)
ISR and PTU 127,188 (91,505) 75,661
Discontinued operations
-Net $(549,235) $(102,860) $152,868
Depreciation and
amortization $37,675 $44,030 $42,165
19.Extraordinary loss
For the year ended December 31, 2001, this item is comprised
as follows:
Employee severances $174,921
Net loss on sale of certain non-
strategic assets 143,026
$317,947
a.Early in 2001, the Company entered into negotiations with its
unions, with the objective of canceling labor contracts still in
effect after approximately 50 years, regarding the operations of
Compania Papelera de Atenquique, S.A. de C.V. and Ponderosa
Industrial de Mexico, S.A. de C.V. After a few months of
negotiations, such contracts were terminated and the number of
workers was reduced.
b.In April and May 2001, certain non-strategic assets of DPC were
sold, generating a loss since the carrying value of the assets
was higher than the price at which they were sold.
20.Commitments
a.Some of the Mexican subsidiaries lease certain equipment under
non-cancelable operating leases. The related rental Company's
expense was approximately $50,544, $59,719 and $77,799 for the
years ended December 31, 2003, 2002 and 2001, respectively. As
of December 31, 2003, estimated future minimum lease payments
under non-cancelable operating leases were as follows:
Year Amount
2004 $21,322
2005 18,671
2006 18,671
2007 18,671
Thereafter 76,764
$154,009
b.Durango McKinley Paper Company leases certain equipment under
non-cancelable operating leases. Rental expense under these
leases was approximately $4,624, $3,885 and $2,218 for the years
ended December 31, 2003, 2002 and 2001, respectively. Future
minimum lease commitments are $2,252 due in 2004.
21.Contingencies
a.After the sale of DPC, Chapter 11 bankruptcy proceedings before
the United States Bankruptcy Court were initiated regarding
Durango Georgia Paper Company ("DGPC"), the main DPC subsidiary.
Additionally, although formal notice has not been served on the
Company, it is known that on April 2, 2004, the DGPC Official
Committee of Unsecured Creditors filed a complaint against the
Company, which seeks, among other things: (i) recovery of alleged
fraudulent and preferential transfers from DGPC to the Company;
(ii) damages for alleged fraudulent representations and breach of
an alleged oral and written guarantee of the DGPC debt; and (iii)
equitable subordination of the Company's claims against DGPC. The
Company's management believes this claim is without merit and
will defend the action.
b.Subsequent to the sale of Productora Nacional de Papel, S.A. de
C.V., as described in Note 18, the Mexican National Water
Commission billed the Company in the amount of $157,140 related
to several differences in the payments of rights for extraction
and use of national water for the years 2001 and 2000. The
Company filed an appeal with the Federal Tax and Administrative
Court and is currently waiting for the court's ruling. The
Company's management believes that the outcome will be favorable
to the Company, since the tax authorities had not properly
supported the differences assessed.
c.On November 8, 2002, the Company initiated an arbitration
proceeding against HG Estate LLC for U.S.$85 million due to
discrepancies in the calculation of the value of the fixed assets
of DPC. Also, on December 19, 2002, HG Estate LLC filed a claim
for U.S.$50.2 million due to the failure of payment of capital
and interest related to the acquisition of DPC. As of the date of
issuance of these financial statements, the claim against the
Company has been stayed while the arbitration proceeds.
d.The Company was sued on February 25, 2003 by Compass Income
Master Fund, Inc. due to the nonpayment of principal and interest
of U.S.$3.5 million on the Euro Commercial Paper, which matured
February 12, 2003. Company's management believes that payment of
this liability will be made under the same terms and conditions
reached as a result of its debt restructuring.
e.The Company has initiated an injunction against the Mexican tax
authorities regarding the methodology used to determine its
employee statutory profit sharing. Management does not believe
that any liabilities relating to this injunction are likely to
have a material adverse effect on the Company's consolidated
financial condition or results of operations.
f.The Company has initiated an injunction against the Mexican tax
authorities regarding the unconstitutionality of the Substitutive
Tax of the Wage Credit. Management believes that the outcome of
this process will be favorable to the Company, which represents a
contingent asset of $12,196.
g.Additional taxes payable could arise in transactions with
nonresident related parties if the tax authority, during a
review, believes that the prices and amounts used by the Company
are not similar to those used with or between independent parties
in comparable transactions.
22.Information by industry segment and geographical area
In April 2003, the Mexican Institute of Public Accountants
("MIPA") issued Bulletin B-5, "Financial Information by
Segment", whose adoption is mandatory as of April 2003. The
information on operating segments is presented based on a
management focus. In addition, general information is
presented by product, geographical area and homogeneous
client groups.
a.Analytical information by operating segment of continuing
operations:
2003
Other Total Total
Paper Packaging Segments Segments Eliminations Consolidated
Sales to $2,806,858 $3,942,603 $81,567 $6,831,028 $ $6,831,028
customers
Intersegment
sales 2,497,232 133,334 16,119 2,646,685 (2,646,685)
Total sales 5,304,090 4,075,937 97,686 9,477,713 (2,646,685) 6,831,028
Depreciation and
amortization 265,850 119,590 11,022 396,462 396,462
Income from
operations (109,553) 430,439 (14,506) 306,380 306,380
Total assets 18,475,951 24,709,451 933,989 44,119,391 (28,498,754) 15,620,637
Capital
expenditures 75,267 30,917 535 106,719 106,719
2002
Other Total Total
Paper Packaging Segments Segments Eliminations Consolidated
Sales to
customers $4,082,248 $3,948,581 $93,668 $8,124,497 $ $8,124,497
Intersegment
sales 2,756,895 93,505 45,565 2,895,965 (2,895,965)
Total sales 6,839,143 4,042,086 139,233 11,020,462 (2,895,965) 8,124,497
Depreciation and
amortization 334,325 113,408 10,095 457,828 457,828
Income from
operations 2,472 495,062 (908) 496,626 496,626
Total assets 17,008,990 20,064,711 1,082,256 38,155,957 (22,175,634) 15,980,323
Capital
expenditures 217,528 147,298 94,729 459,555 459,555
2001
Other Total Total
Paper Packaging Segments Segments Eliminations Consolidated
Sales to $6,041,402 $4,590,438 $143,463 $10,775,303 $ $10,775,303
customers
Intersegment
sales 3,511,238 95,135 46,088 3,652,461 (3,652,461)
Total sales 9,552,640 4,685,573 189,551 14,427,764 (3,652,461) 10,775,303
Depreciation and
amortization 354,871 114,543 17,272 486,686 486,686
Income from
operations 439,138 485,189 93,726 1,018,053 1,018,053
Total assets 22,729,620 22,421,624 1,173,014 46,324,258 (25,695,839) 20,628,419
Capital
expenditures 265,305 428,608 152,736 846,649 846,649
b.General information of continuing operations by product:
Net Revenues 2003 2002 2001
Packaging-
Corrugated container $3,645,682 $3,562,111 $4,058,485
Paper sacks 294,023 379,359 524,007
Tubes 2,898 7,111 7,946
Paper-
Paper for packaging 1,545,344 1,570,035 1,583,424
Newsprint 646,461 730,963 1,721,023
Uncoated free sheet 615,053 671,402 833,990
Kraft paper 328,493 415,070
Coated bleached board 781,355 1,487,895
Other segment 81,567 93,668 143,463
Total consolidated $6,831,028 $8,124,497 $10,775,303
c.General segment information of continuing operations by
geographical area:
2003
Revenues Total Capital
Assets Expenditures
Mexico $7,426,589 $41,005,595 $90,235
United States of 2,051,124 3,113,796 16,484
America
Intersegment
eliminations (2,646,685) (28,498,754)
Consolidated $6,831,028 $15,620,637 $106,719
2002
Revenues Total Capital
Assets Expenditures
Mexico $7,670,024 $34,253,436 $301,513
United States of 3,350,438 3,902,521 158,042
America
Intersegment
eliminations (2,895,965) (22,175,634)
Consolidated $8,124,497 $15,980,323 $459,555
2001
Revenues Total Capital
Assets Expenditures
Mexico $9,879,093 $37,562,168 $678,508
United States of 4,548,671 8,762,090 168,141
America
Intersegment
eliminations (3,652,461) (25,695,839)
Consolidated $10,775,303 $20,628,419 $846,649
d.Homogeneous clients:
Annual revenues from the following client groups to which
the Company sells are:
2003 2002 2001
Food and beverage $2,702,866 $3,418,340 $4,542,012
Agribusiness 495,813 477,323 511,369
Aviculture 244,261 249,348 292,211
Maquila sector 266,135 267,158 284,094
Cement 151,739 237,553 345,316
Lime and plaster 52,345 51,177 64,829
Editorial 1,530,000 1,609,000 1,794,000
Scholastic 228,000 179,000 207,000
Furniture
manufacturers 81,567 93,668 143,463
Other 1,078,302 1,541,930 2,591,009
Total $6,831,028 $8,124,497 $10,775,303
23.New accounting principles
In March 2003, the Mexican Institute of Public Accountants
("MIPA") issued Bulletin C-15, "Impairment of the Value of
Long-Lived Assets and Their Disposal" ("C-15"), whose
adoption is mandatory for fiscal years beginning on or after
January 1, 2004, although early adoption is encouraged. C-15
establishes, among other things, new rules for the
calculation and recognition of impairment losses for long-
lived assets and their reversal. It also provides guidance as
to indicators of potential impairment in the carrying amount
of tangible and intangible long-lived assets in use,
including goodwill. Companies must test for impairment unless
there is conclusive evidence that the indicators of
impairment are temporary. The calculation of such loss
requires the determination of the recoverable value, which is
now defined as the greater of the net selling price of a cash-
generating unit and its value in use, which is the net
present value of discounted future net cash flows. The
accounting principles issued prior to this new Bulletin used
future net cash flows, without requiring the discounting of
such cash flows. During 2003 and 2002 indicators of potential
impairment were identified by the Company, and in conformity
with the accounting principles in effect until December 31,
2003, the Company recorded the effects of this impairment,
reducing the machinery's value by approximately $956,043 and
$1,670,493, respectively, and reducing the deferred income
tax liability by $305,933 and $534,558, respectively, with a
net charge to results of operations for those years of
$650,110 and $1,135,935, respectively. However, since the
present value of estimated future net cash flows from the use
of this machinery is less than its book value as of December
31, 2003, the Company estimates that the adoption of C-15 as
of January 1, 2004, will result in additional impairment of
this machinery, reducing its value by approximately $914,146
and reducing the deferred income tax liability by $292,527,
with a net charge to the statement of operations of $621,619.
In May 2003, the MIPA issued Bulletin C-12, "Financial
Instruments of a Debt or Equity Nature or a Combination of
Both" ("C-12"), whose application is mandatory for financial
statements for periods beginning on or after January 1, 2004,
although early adoption is encouraged. C-12 is the
compilation of the standards issued by the MIPA with respect
to the issue of debt or equity financial instruments, or a
combination of both, and includes additional standards on the
accounting recognition for these instruments. Consequently, C-
12 indicates the basic differences between liabilities and
stockholders' equity and establishes the rules for
classifying and valuing the components of debt and equity of
combined financial instruments in the initial recognition.
Subsequent recognition and valuation of liabilities and
stockholders' equity of the financial instruments is subject
to the standards issued previously in the applicable
bulletins. Since the Company has not issued any financial
instruments with characteristics of both debt and equity,
management believes this new accounting principle will not
have any effects on its financial situation and results of
operations.
24.Guarantor financial information
On June 24, 2002, the Company issued U.S.$175 million in 13 3/4
Senior Notes due 2009. These notes are guaranteed, jointly
and severally, on an unsecured basis by certain wholly owned
and non-wholly owned subsidiaries of the Company.
Additionally, upon the issuance of the notes, the initial
subsidiary guarantors also equally and ratably guaranteed the
2006 and 2008 Notes.
Presented below is condensed consolidating financial
information as of December 31, 2003 and 2002 and for the
three years ended December 31, 2003, 2002 and 2001 for
CODUSA; non-wholly owned combined guarantor subsidiaries;
wholly owned combined guarantor subsidiaries; the combined
non-guarantor subsidiaries; eliminations and; the Company's
consolidated totals.
Where applicable the equity method has been used by CODUSA
and guarantors with respect to their investment in certain
subsidiaries for the respective periods presented. The
Company has not presented separate financial statements for
the wholly owned guarantor subsidiaries since management has
determined that such information is not material to
investors. The Company has presented separate financial
statements of the non-wholly owned subsidiaries. Other
disclosures concerning the guarantor subsidiaries were not
included because management has determined that such
information is not material to investors.
Condensed consolidating balance sheet
As of December 31, 2003
Guarantor
subsidiaries
Non-wholly Wholly Non-guarantor
CODUSA Owned Owned subsidiaries Eliminations Consolidated
Cash and temporary
investments $411 $1,751 $527,527 $120,266 $ $649,955
Due from related
parties 6,569,031 4,270,368 4,854,618 2,477,967 (18,157,701) 14,283
Other current
assets 83,586 365,025 1,746,666 1,125,780 (319,431) 3,001,626
Investment in shares
of subsidiaries and/or
affiliated companies 6,875 ,417 246,028 2,299,829 (9,421,274)
Property, plant and
equipment-Net 401,552 3,422,988 3,282,127 4,234,459 11,341,126
Other assets 889,726 75,027 383,230 203,049 (600,348) 950,684
Total assets $14,819,723 $8,135,159 $11,040,196 $10,461,350 $(28,498,754) $15,957,674
Due to related
parties $3,864,966 $4,820,656 $8,252,532 $1,216,928 $(18,155,082) $
Other current
liabilities 9,379,240 454,694 473,571 1,559,178 (319,011) 11,547,672
Total long-term
liabilities 42,480 933,352 1,158,209 1,275,496 (600,348) 2,809,189
Total liabilities 13,286,686 6,208,702 9,884,312 4,051,602 (19,074,441) 14,356,861
Capital stock 4,742,288 4,812,204 3,811,539 12,519,089 (21,142,832) 4,742,288
Additional paid-
in capital 1,387,056 664 (664) 1,387,056
Other stockholders'
equity accounts (4,596,307) (2,885,793) (2,656,319) (6,109,341) 11,651,453 (4,596,307)
Majority stockholder'
equity 1,533,037 1,926,411 1,155,884 6,409,748 (9,492,043) 1,533,037
Minority stockholders'
equity in consolidated
subsidiaries 46 67,730 67,776
Total stockholders'
equity 1,533,037 1,926,457 1,155,884 6,409,748 (9,424,313) 1,600,813
Total liabilities
and stockholders'
equity $14,819,723 $8,135,159 $11,040,196 $10,461,350 $(28,498,754) $15,957,674
Condensed consolidating statement of operations
For the year ended December 31, 2003
Guarantor
subsidiaries
Non-wholly Wholly Non-guarantor
CODUSA Owned Owned subsidiaries Eliminations Consolidated
Net sales $ $1,821,778 $3,736,352 $3,919,583 $(2,646,685) $6,831,028
Cost of sales and
operating expenses 5,306 1,821,892 3,368,810 4,061,826 (2,733,186) 6,524,648
Income (loss)
from operations (5,306) (114) 367,542 (142,243) 86,501 306,380
Net comprehensive (517,496) (213,407) (650,896) (140,325) (76,055) (1,598,179)
financing cost
Other income (124,079) (486,303) 25,255 (827,564) (98,498) (1,511,189)
(expenses)-Net
Income tax and
employee statutory
profit sharing expense 233,708 90,582 168,736 (494,975) (1,949)
Equity in losses of
subsidiaries and/or
affiliated companies (2,978,520) (2,723) (109,957) (912,723) 4,003,923
Loss from continuing
operations (3,391,693) (611,965) (199,320) (2,517,830) 3,915,871 (2,804,937)
Discontinued
operations-Net 43,357 (188,577) (507,786) 103,771 (549,235)
Consolidated net loss $(3,348,336) $(611,965) $(387,897) $(3,025,616) $4,019,642 $(3,354,172)
Condensed Consolidating Statements of
Changes in Financial Position
For the year ended December 31, 2003
Guarantor
subsidiaries
Non-wholly Wholly Non-guarantor
CODUSA Owned Owned subsidiaries Eliminations Consolidated
Operating activities:
Loss from continuing
operations $(3,391,693) $(611,965) $(199,320) $(2,517,830) $3,915,871 $(2,804,937)
Items that did not
require (generate)
resources 2,567,047 237,563 961,491 2,216,980 (4,423,672) 1,559,409
Changes in operating
assets and liabilities 2,541,695 208,355 (1,284,936) (850,195) 367,443 982,362
Discontinued operations
and extraordinary loss 43,357 (654,498) 328,637 103,772 (178,732)
Net resources used
in (generated by)
operating activities 1,760,406 (166,047) (1,177,263) (822,408) (36,586) (441,898)
Financing activities:
Short-term and
long-term debt-Net 141,333 (1,096) (14,001) (272,806) (146,570)
Other financing 90,737 90,737
activities
Net resources
generated by (used in)
financing activities 141,333 (1,096) (14,001) (182,069) (55,833)
Investing activities:
Acquisition of
machinery and
equipment (42,639) (30,810) (33,270) (106,719)
Sale of (investment (2,026,698) 211,871 1,094,841 719,986
in) subsidiaries
Revenues from sale
of discontinued
operations 612,582 312,038 924,620
Other investing
activities 123,432 (884) (498) (66,465) 36,586 92,171
Net resources
generated by
(used in)
investing activities (1,903,266) 168,348 1,676,115 932,289 36,586 910,072
Increase (decrease) in
cash and temporary
investments: (1,527) 1,205 484,851 (72,188) 412,341
Balance at
beginning of year 1,938 546 42,676 192,454 237,614
Balance at end of $411 $1,751 $527,527 $120,266 $ $649,955
year
Condensed consolidating balance sheet
As of December 31, 2002
Guarantor
subsidiaries
Non-wholly Wholly Non-guarantor
CODUSA Owned Owned subsidiaries Eliminations Consolidated
Cash and temporary
investments $1,938 $546 $9,357 $225,773 $ $237,614
Due from related
parties 6,052,389 473,978 1,075,851 732,268 (8,143,179) 191,307
Other current assets 14,947 353,506 1,577,372 1,444,715 (119,826) 3,270,714
Investment in shares
of subsidiaries
and/or affiliated
companies 6,894,009 140,286 350,484 (140,287) (7,244,492)
Property, plant
and equipment-Net 450,476 3,271,249 3,685,403 4,763,671 (140,287) 12,030,512
Other assets 753,730 40,202 943,836 953,670 (348,439) 2,342,999
Total assets $14,167,489 $4,279,767 $7,642,303 $7,979,810 $(15,996,223) $18,073,146
Due to related
parties $1,640,314 $1,240,546 $4,205,263 $158,879 $(7,239,412) $5,590
Other current
liabilities 7,855,482 292,621 1,224,588 1,514,269 (1,011,757) 9,875,203
Total long term-
liabilities 103,658 856,868 1,405,774 1,535,327 (348,442) 3,553,185
Total liabilities 9,599,454 2,390,035 6,835,625 3,208,475 (8,599,611) 13,433,978
Capital stock 4,857,963 4,289,278 1,717,087 3,336,226 (9,342,591) 4,857,963
Treasury stock (115,675) (115,675)
Additional paid- 1,387,056 1,387,056
in capital
Other stockholders'
equity accounts (1,561,309) (2,399,549) (1,047,323) 1,831,303 1,615,569 (1,561,309)
Majority stockholders'
equity 4,568,035 1,889,729 669,764 5,167,529 (7,727,022) 4,568,035
Minority stockholders'
equity in consolidated
subsidiaries 3 136,914 (396,194) 330,410 71,133
Total stockholders'
equity 4,568,035 1,889,732 806,678 4,771,335 (7,396,612) 4,639,168
Total liabilities
and stockholders'
equity $14,167,489 $4,279,767 $7,642,303 $7,979,810 $(15,996,223) $18,073,146
Condensed consolidating statement of operations
For the year ended December 31, 2002
Guarantor
subsidiaries
Non-wholly Wholly Non-guarantor
CODUSA Owned Owned subsidiaries Eliminations Consolidated
Net sales $1,561,066 $3,610,921 $4,986,348 $(2,033,838) $8,124,497
Cost of sales and
operating expenses 11,853 1,373,006 3,166,344 3,138,069 (61,401) 7,627,871
Income (loss) from
operations (11,853) 188,060 444,577 1,848,279 (1,972,437) 496,626
Net comprehensive
financing cost (199,383) (193,704) (856,476) (343,888) (88,418) (1,681,869)
Other expenses-Net (1,467,376) (378,074) (158,155) (1,080,787) (42,570) (3,126,962)
Income tax and
employee statutory
profit sharing expense 406,905 251,333 258,382 (240,479) 676,141
Equity in income
(losses) of
subsidiaries and/or
affiliated companies (2,470,462) (48,091) (44,964) 2,563,517
Loss from continuing
operations (3,742,169) (180,476) (356,636) 183,125 460,092 (3,636,064)
Discontinued
operations-Net (29,695) (159,970) 86,805 (102,860)
Consolidated net
income (loss) $(3,742,169) $(180,476) $(386,331) $23,155 $546,897 $(3,738,924)
Condensed Consolidating Statements of
Changes in Financial Position
For the year ended December 31, 2002
Guarantor
subsidiaries
Non-wholly Wholly Non-guarantor
CODUSA Owned Owned subsidiaries Eliminations Consolidated
Operating
activities:
Income (loss) from
continuing operations $(3,742,169) $(180,476) $(356,636) $183,125 $460,092 $(3,636,064)
Items that did not
require (generate)
resources 3,585,529 290,751 124,717 1,541,576 (2,431,665) 3,110,908
Changes in operating
assets and liabilities 131,797 (73,574) (755,231) (917,932) 1,852,915 237,975
Discontinued
operations and
extraordinary loss (30,489) (7,228 ) 50,804 116,500 129,587
Net resources
generated by (used in)
operating activities (24,843) 6,212 (994,378) 857,573 (2,158) (157,594)
Financing activities:
Short-term and
long-term debt-Net 1,338,626 (837) 25,324 (478,163) 884,950
Other financing
activities (963) (37,491) 2,158 (36,296)
Net resources
generated by (used in)
financing activities 1,338,626 (837) 24,361 (515,654) 2,158 848,654
Investing activities:
Acquisition of
machinery and
equipment (8,216) 68,333 (519,672) (459,555)
Sale of (investment
in) subsidiaries (1,292,454) 1,065,575 13,980 (212,899)
Other investing
activities (357,244) (167,303) 206,374 (318,173)
Net resources
generated by (used in)
investing activities (1,649,698) (8,216) 966,605 (299,318) (990,627)
Increase (decrease)
in cash and temporary
investments: (335,915) (2,841) (3,412) 42,601 (299,567)
Balance at beginning
of year 337,853 3,387 12,769 183,172 537,181
Balance at end
of year $1,938 $546 $9,357 $225,773 $ $237,614
Condensed consolidating statement of operations
For the year ended December 31, 2001
Guarantor
subsidiaries
Non-wholly Wholly Non-guarantor
CODUSA Owned Owned subsidiaries Eliminations Consolidated
Net sales $1,363,278 $3,735,097 $6,440,346 $(763,418) $10,775,303
Cost of sales and
operating expenses (102,692) 1,139,382 3,237,729 4,847,443 635,388 9,757,250
Income from operations 102,692 223,896 497,368 1,592,903 (1,398,806) 1,018,053
Net comprehensive
financing cost 643,648 35,384 (682,342) (320,636) (86,490) (410,436)
Other expenses-Net 72,812 (26,747) (24,409) 503,079 (48,305) 476,430
Income tax and
employee statutory
profit sharing expense (216,340) 63,831 81,850 17,194 (53,465)
Equity in income
(losses) of
subsidiaries and/or
affiliated companies 258,502 38,213 151,851 (496,300) 47,734
Income from continuing
operations 861,314 334,577 24,318 1,296,240 (1,485,867) 1,030,582
Discontinued
operations-Net 52,738 36,408 63,722 152,868
Extraordinary loss (164,204) (153,743) (317,947)
Consolidated net income $861,314 $170,373 $77,056 $1,178,905 $(1,422,145) $865,503
Condensed Consolidating Statements of
Changes in Financial Position
For the year ended December 31, 2001
Guarantor
subsidiaries
Non-wholly Wholly Non-guarantor
CODUSA Owned Owned subsidiaries Eliminations Consolidated
Operating activities:
Income from
continuing operations $861,314 334,577 24,318 1,296,240 (1,485,867) 1,030,582
Items that did not
require (generate)
resources (80,329) (40,241) (54,779) (196,494) 207,651 (164,192)
Changes in operating
assets and liabilities (458,043) (102,439) 308,519 693,122 (75,345) 365,814
Discontinued operations
and extraordinary loss (164,204) 52,738 (155,349) 63,722 (203,093)
Net resources generated
by operating activities 322,942 27,693 330,796 1,637,519 (1,289,839) 1,029,111
Financing activities:
Short-term and
long-term debt-Net 119,085 (133,583) 88,457 (745,797) (671,838)
Other financing
activities - (1,264) 121,874 1,264 121,874
Net resources generated
by (used in)
financing activities 119,085 (134,847) 88,457 (623,923) 1,264 (549,964)
Investing activities:
Acquisition of
machinery and
equipment (114,204) 108,871 (339,480) (501,836) (846,649)
Sale of (investment
in) subsidiaries 1,136,247 (88,377) (1,047,870)
Other investing
activities (1,175,242) (1,112,111) 2,336,445 49,092
Net resources generated
by (used in)
investing activities (153,199) 108,871 (427,857) (1,613,947) 1,288,575 (797,557)
Increase (decrease) in
cash and temporary
investments: 288,828 1,717 (8,604) (600,351) (318,410)
Balance at beginning
of year 49,025 1,670 21,373 783,523 855,591
Balance at end
of year $337,853 $3,387 $12,769 $183,172 $537,181