As filed with the Securities
  and Exchange Commission on July 11, 2003

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SECURITIES AND EXCHANGE
  COMMISSION

Washington, D.C. 20549


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FORM 20-F





|Annual Report Pursuant to Section 13 or    15(d) of the Securities Exchange Act of 1934
|---------------------------------------------------------------------------------------
|                                                                                       
|For the Fiscal Year Ended December 31, 2002                                            
|                                                                                       
|Commission File Number 000-32953                                                       




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|COPAMEX, S.A. de C.V.                                                                                                              
|-----------------------------------------------------------------------------------------------------------------------------------
|(Exact name of Registrant as specified in its charter)                                                                             
|                                                                                                                                   
|COPAMEX, INC.                                                                                                                      
|(Translation of Registrants name into English)                                                                                    
|                                                                                                                                   
|The United Mexican States                                                                                                          
|(Jurisdiction of incorporation or organization)                                                                                    
|                                                                                                                                   
|Montes Apalaches 101                                                                                                               
|Residencial San Agustín                                                                                                            
|San Pedro Garza García, Nuevo León                                                                                                 
|66260 México                                                                                                                       
|(Address of principal executive offices)                                                                                           
|                                                                                                                                   
|Securities registered or to be registered pursuant to Section 12(b)    of the Act:None                                             
|                                                                                                                                   
|Securities registered or to be registered pursuant to Section 12(g)    of the Act:None                                             
|                                                                                                                                   
|Securities for which there is a reporting obligation pursuant to    Section 15(d) of the Act:11.375% Series B Senior Notes due 2004







Indicate the number of outstanding shares of  each of the Issuers classes of capital or common stock as of the close of the  period covered by the annual report:





| |  | Series A    Shares, par value Ps.100 per share | 6,000      | 
| |  | ---------------------------------------------- | ---------- | 
| |  | Series B    Shares, par value Ps.100 per share | 385,248    | 
| |  | Series C    Shares, par value Ps.100 per share | 133,152    | 
| |  | Series D    Shares, par value Ps.100 per share | 625,341    | 
| |  | Series E    Shares, par value Ps.100 per share | 19,322,610 | 
| |  | Series F    Shares, par value Ps.100 per share | 7,935,118  | 
| |  | Series G    Shares, par value Ps.100 per share | 65,457     | 
| |  | Series H    Shares, par value Ps.100 per share | 49,825     | 




Indicate by check mark whether the registrant  (1) has filed all reports required to be filed by Section 13 or 15(d) of the  Securities Exchange Act of 1934 during the preceding 12 months (or for such  shorter period that the registrant was required to file such reports), and (2)  has been subject to such filing requirements for the past 90 days.





Yes     No





Indicate by check mark which financial  statement item the registrant has elected to follow.





Item 17Item  18


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TABLE OF CONTENTS





|PRESENTATION
        OF FINANCIAL AND OTHER INFORMATION | II              
|------------------------------------------------------- | ----------------
|                                                        |                 
|FORWARD-LOOKING
        STATEMENTS                      | II              
|                                                        |                 
|MARKET
        DATA                                     | III             
|                                                        |                 
|ENFORCEABILITY
        OF CIVIL LIABILITIES             | III             
|                                                        |                 
|PART
        I                                          | 1               
|                                                        | ITEM
        3. 
|                                                        | ITEM
        4. 
|                                                        | ITEM
        5. 
|                                                        | ITEM
        6. 
|                                                        | ITEM
        7. 
|                                                        | ITEM
        8. 
|                                                        | ITEM
        9. 
|                                                        | ITEM
        10.
|                                                        | ITEM
        11.
|                                                        |                 
|PART
        II                                         | 59              
|                                                        | ITEM
        13.
|                                                        | ITEM
        14.
|                                                        | ITEM
        15.
|                                                        |                 
|PART
        III                                        | 60              
|                                                        | ITEM
        18.
|                                                        | ITEM
        19.
|                                                        |                 

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PRESENTATION OF  FINANCIAL AND OTHER INFORMATION


In this annual report, references to US$, dollars, Dollars  or  U.S. Dollars, are to United States  dollars, references to Ps., pesos or Pesos are to Mexican pesos.


Our financial statements have been prepared in accordance with Mexican  generally accepted accounting principles, referred to as Mexican GAAP.  Mexican GAAP differs in significant respects  from United States generally accepted accounting principles, referred to as  U.S. GAAP.  See Note 17 to  the audited consolidated financial statements for a reconciliation to U.S. GAAP  of our stockholders equity as of December 31, 2001 and 2002 and net income for  the years ended December 31, 2000, 2001, and 2002.  See Item 5: Operating and  Financial Review and ProspectsReconciliation to U.S. GAAP for a discussion of  certain differences between U.S. GAAP and Mexican GAAP.


U.S. dollar amounts included in our financial statements were converted  from pesos to dollars using the exchange rate reported by Banco de México at  December 31, 2002, which was Ps. 10.4393 per U.S. dollar, except where  otherwise indicated.You should not construe such conversions as representations that the peso  amounts actually represent such U.S. dollar amounts or could be converted into  U.S. dollars at the rate indicated, or at all.


Pursuant to Mexican GAAP, our financial statements have been prepared  in accordance with Bulletins B-10 and B-12 of the Mexican Institute of Public  Accountants, which provides for the recognition of certain effects of inflation.  Bulletin B-10 requires us to restate the  value of inventories to their replacement cost, without exceeding their net  realizable value, and to restate the value of fixed assets using the National  Consumer Price Index, or Indice Nacional de Precios al Consumidor,  also referred to as the NCPI.  Bulletin  B-12 requires us to provide a comparison of balance sheet items in constant  pesos as of December 31 of the last year in which audited financial statements  are available in the Statement of Changes in Financial Position.


Bulletin B-10 also requires us to restate non-monetary liabilities and  the components of shareholders equity using the NCPI and to record gains or  losses in purchasing power from holding monetary liabilities or assets.  In addition, Bulletin B-10 requires  restatement of all financial statements to constant pesos as of the date of the  most recent balance sheet presented.   Accordingly, all data in the financial statements and in the summary and  selected financial data set forth herein have been restated in constant pesos  as of December 31, 2002.  The effect of  these inflation accounting principles has not been reversed in the  reconciliation to U.S. GAAP of our net income for 2000, 2001, 2002, and stockholders  equity as of December 31, 2001 and 2002.


Beginning fiscal year 2000, we were required to comply with Bulletin  D-4, which regulates the accounting treatment of income taxes, asset taxes and  employees profit sharing, and modifies the rules for determining deferred  income taxes.  These accounting rules  require that deferred income taxes be determined with respect to all temporary  differences between the book value and the taxable value of the assets and  liabilities included in the balance sheet.   Such determination must be made by applying the income tax rates in  effect on the date of the financial statements.


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FORWARD-LOOKING STATEMENTS


Certain of the matters discussed in this annual report or in the  information incorporated by reference herein may constitute forward-looking  statements.  Certain of these  forward-looking statements can be identified by the use of forward-looking  terminology such as believes, expects, may, will, should, seeks,  approximately, intends, plans, estimates, or anticipates or the negative  thereof or other comparable terminology, or by discussions of strategy, plans  or intentions.  Statements contained in  this annual report which are not historical facts are forward-looking  statements.  Without limiting the  generality of the preceding statement, all statements in this annual report  concerning or relating to estimated and projected earnings, margins, costs,  expenditures, cash flows, growth
rates and financial results are  forward-looking statements.  In  addition, we, through our senior management, from time to time make  forward-looking public statements concerning our expected future operations and performance and other developments.  Such  forward-looking statements are necessarily estimates reflecting our best judgment based upon current information and involve a number of risks and  uncertainties.  There can be no  assurance that other factors will not affect the accuracy of these  forward-looking statements or that our actual results will not differ  materially from the results anticipated in such forward-looking  statements.  While it is impossible to  identify all such factors, factors which could cause actual results to differ  materially from those estimated by us include, but are not limited to, those  factors or conditions described under Item 3: Key InformationRisk Factors.


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Accordingly, we caution you not to place undue
  reliance on these forward-looking statements. In any event, these statements
  speak only as of their dates; we undertake no obligation to publicity update
  or revise any forward-looking statements, whether as a result of new information,
  future events or otherwise.


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MARKET DATA

The Mexican government does not publish
    definitive data regarding the pulp and paper industry on a regular basis.
    Accordingly, information contained in this annual report regarding national
    production, imports, exports, apparent demand, market share and market position
    has been computed by us and is based on our estimates which are derived from
    statistics accumulated by us and our analysis of certain data obtained from
    the Cámara Nacional de las Industrias de la Celulosa y del Papel,
    the Mexican National Chamber of the Pulp and Paper Industries, A.C. Nielsen,
    the Instituto Nacional de Estadística, Geografía e Informática,
    INEGI, the National Institute of Statistics, Geography and Information Systems,
    and the Secretaría de Hacienda y Crédito Público,
    which we refer to as the Ministry of Finance and Public Credit,
    and certain assumptions made by us. In particular, market share information
    regarding away-from-home products and cut-size paper is derived from our internal
    sources and certain assumptions made by us based on our knowledge of the market
    and experience in the Mexican paper industry.


Although we believe that the data
    taken from third parties and used in this annual report is reliable, we have
    not independently verified such data and take no responsibility for the accuracy
    of such data. Similarly, while we believe our internal research and estimates
    to be reliable, they have not been verified by any independent source and
    we cannot assure you as to their accuracy.


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ENFORCEABILITY
  OF CIVIL LIABILITIES

We are a corporation (sociedad
  anónima de capital variable) incorporated under the laws of Mexico
  and substantially all of our assets are located in Mexico. In addition, all
  of our directors and officers reside outside the United States (principally
  in Mexico) and all or a significant portion of our assets and the assets of
  those persons are located outside the United States (principally in Mexico).
  As a result, it may not be possible for investors to effect service of process
  upon such persons within the United States or to enforce against such persons
  or us judgments obtained in the courts of the United States, including without
  limitation, judgments predicated upon the civil liability provisions of the
  federal securities laws of the United States.


We have been advised by Carlos Luis
  Díaz Sáenz, our General Counsel, that there is doubt as to the
  enforceability in original actions in Mexican courts of liabilities predicated
  solely upon U.S. federal securities laws and as to the enforceability in Mexican
  courts of judgments of U.S. courts obtained in actions predicated upon the civil
  liability provisions of the U.S. federal securities laws. Because substantially
  all of our assets are located in Mexico, holders of our securities may effectively
  be required to pursue in Mexico, under Mexican law, any claims they may have
  against us without the benefit of the U.S. federal securities laws. iii


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PART I

ITEM 3.   KEY
  INFORMATION

SELECTED CONSOLIDATED FINANCIAL
  AND OPERATING INFORMATION

The following tables present
  our selected consolidated financial information and our consolidated subsidiaries.
  This information (other than the production data) has been derived from and
  should be read in conjunction with our audited consolidated financial statements
  as of December 31, 2002 and 2001 and for the years ended December 31, 2002,
  2001, and 2000 as well as the information under Item 5: Operating and
  Financial Review and Prospects. The audited consolidated financial statements,
  which appear at the back of this annual report, have been audited, with respect
  to our consumer products group and printing and writing products group, by Mancera,
  S.C., a member practice of Ernst & Young Global, independent public accountants,
  and, with respect to our packaging products group, by Galaz, Yamazaki, Ruiz
  Urquiza, S.C., a member practice of Deloitte & Touche.


Peso
  amounts included in the tables below were converted to U.S. dollars at the exchange
  rate of Ps.10.425 per US$1.00, which was the noon buying rate at December 31,
  2002 as published by the Federal Reserve Bank of New York. Such conversions
  should not be construed as representations that the peso amounts actually represent
  such U.S. dollar amounts or could be converted into U.S. dollars at the rate
  indicated, or at all.


As
  used in this annual report EBITDA is operating income (loss) before interest
  expense, depreciation and amortization. Amortization is not deducted from operating
  income, but instead is recorded in other expenses (net). EBITDA is not (a) a
  measure determined under Mexican or U.S. GAAP, (b) an alternative to Mexican
  or U.S. GAAP operating income (loss) or net income (loss) or (c) a measure of
  liquidity or cash flows as determined under U.S. or Mexican GAAP. EBITDA does
  not represent discretionary funds. EBITDA, as calculated by us, may not be comparable
  to similarly titled measures reported by other companies. EBITDA is presented
  because we believe that EBITDA provides useful information regarding our debt
  service ability. EBITDA should not be considered in isolation or as a substitute
  for the consolidated income statements or the consolidated statements of changes
  in financial position prepared in accordance with Mexican GAAP or as a measure
  of profitability or liquidity.


Until December 31, 1999, deferred
    income taxes were determined only with respect to temporary differences in
    book and taxable values that were deemed to be non-recurring and whose reversion
    could be foreseen in a specific period of time. Beginning fiscal year 2000,
    the cumulative effect of adopting Bulletin D-4 was reflected in a new stockholders
    equity account. Bulletin D-4 did not require the restatement of financial
    statements for any fiscal year prior to its implementation. 1


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|                                                                                        |  |     | As of and
          for the Year Ended December 31,                                                                 |  
|--------------------------------------------------------------------------------------- |  | --- | ------------------------------------------------------------------------------------------------------------------- | -
|                                                                                        |  |     |                                                                                                                    
|                                                                                        |  |     | 1998                                                                                                                |  
|                                                                                        |  |     |                                                                                                                     |  
|                                                                                        |  |     | Millions
          of constant December 31, 2002
          Pesos and U.S. dollars except ratios and production data |  
|Income Statement Data                                                                   |  |     |                                                                                                                     |  
|Mexican GAAP:                                                                           |  |     |                                                                                                                     |  
|Net sales                                                                               |  | Ps. | 7,227                                                                                                               |  
|Cost of
          sales                                                                 |  |     | (4,849                                                                                                              | )
|                                                                                        |  |     |                                                                                                                     |  
|Gross profit                                                                            |  |     | 2,378                                                                                                               |  
|Selling
          and administrative expenses                                           |  |     | (1,396                                                                                                              | )
|                                                                                        |  |     |                                                                                                                     |  
|Operating
          income                                                              |  |     | 982                                                                                                                 |  
|Comprehensive
          cost of financing:                                              |  |     |                                                                                                                     |  
|Interest
          income                                                               |  |     | 54                                                                                                                  |  
|Interest
          expense                                                              |  |     | (695                                                                                                                | )
|Exchange
          gain (loss), net                                                     |  |     | (1,360                                                                                                              | )
|Monetary
          gain(1)                                                              |  |     | 952                                                                                                                 |  
|Other financing
          cost(2)                                                       |  |     |                                                                                                                    |  
|                                                                                        |  |     |                                                                                                                     |  
|Total comprehensive
          income (cost) of  financing                               |  |     | (1,049                                                                                                              | )
|Other expenses,
          net                                                           |  |     | 19                                                                                                                  |  
|Equity
          in income of associated companies                                      |  |     |                                                                                                                    |  
|Asset write
          down                                                              |  |     |                                                                                                                    |  
|Income
          (loss) before income and asset taxes and
      employee profit sharing |  |     | (48                                                                                                                 | )
|Income
          tax and asset taxes and employee profit
      sharing(3)               |  |     | (37                                                                                                                 | )
|                                                                                        |  |     |                                                                                                                     |  
|Net Income
          (loss) before minority interest                                    |  |     | (84                                                                                                                 | )
|Minority
          interest                                                             |  |     | (34                                                                                                                 | )
|                                                                                        |  |     |                                                                                                                     |  
|Net income
          (loss)                                                             |  | Ps. | (118)                                                                                                               |  
|U.S. GAAP:                                                                              |  |     |                                                                                                                     |  
|Operating
          income                                                              |  | Ps. | 900                                                                                                                 |  
|Interest
          expense, net(4)                                                      |  |     | (621                                                                                                                | )
|Net income
          (loss)                                                             |  |     | 274                                                                                                                 |  
|Balance Sheet Data                                                                      |  |     |                                                                                                                     |  
|Mexican GAAP:                                                                           |  |     |                                                                                                                     |  
|Property,
          plant and equipment, net(5)                                         |  | Ps. | 10,069                                                                                                              |  
|Total assets                                                                            |  |     | 13,821                                                                                                              |  
|Short-term debt,
          including the current portion of long-
      term debt       |  |     | 1,559                                                                                                               |  
|Long-term
          debt                                                                |  |     | 5,178                                                                                                               |  
|Total debt                                                                              |  |     | 6,737                                                                                                               |  
|Stockholders
          equity                                                          |  |     | 5,942                                                                                                               |  
|U.S. GAAP:                                                                              |  |     |                                                                                                                     |  
|Stockholders
          equity                                                          |  | Ps. | 3,862                                                                                                               |  
|Other Data                                                                              |  |     |                                                                                                                     |  
|Mexican GAAP:                                                                           |  |     |                                                                                                                     |  
|EBITDA                                                                                  |  | Ps. | 1,401                                                                                                               |  
|Depreciation                                                                            |  |     | 419                                                                                                                 |  
|Amortization                                                                            |  |     | 45                                                                                                                  |  
|Capital
          expenditures                                                          |  |     | (432                                                                                                                | )
|EBITDA
          to interest expense, net(4)                                            |  |     | 2.2x                                                                                                                |  
|Total debt
          to EBITDA                                                          |  |     | 4.8x                                                                                                                |  
|Net resources
          provided by operating activities(8)                             |  |     | 195                                                                                                                 |  
|U.S. GAAP:                                                                              |  |     |                                                                                                                     |  
|EBITDA                                                                                  |  | Ps. | 1,363                                                                                                               |  
|EBITDA
          to interest expense, net(4)                                            |  |     | 2.2.x                                                                                                               |  
|Total debt
          to EBITDA                                                          |  |     | 4.9.x                                                                                                               |  
|Net cash
          provided by operating activities(8)                                  |  | Ps. | 524                                                                                                                 |  
|Ratio of
          earnings to fixed charges(9)                                         |  |     | 0.9.x                                                                                                               |  

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Notes to Selected Consolidated
  Financial and Operating Information

|(1) | Result from monetary position
      reflects the impact of inflation on our net monetary assets (which includes
      cash, cash equivalents and accounts receivable) and liabilities (which includes
      all debt, accounts payable and deferred taxes). For example, a gain on monetary
      position results from holding net monetary liabilities in pesos during periods
      of inflation due to the decline in the purchasing power of the peso over
      time.                                                   
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Other financing cost consists of an increase
      in the discount on the sale of certain receivables given in exchange for
      amounts distributed to us prior to such sale through non-recourse factoring
      facilities.                                                                                                                                                                                                                                                                                               
|(3) | Under Mexican law, if the income tax payable
      in a fiscal year amounts to less than 1.8% of the average value of most
      of a companys assets, net of certain liabilities, then the company
      pays a minimum alternate asset tax in an amount equal to such percentage
      of those net assets. Mexican companies are also required by law to provide
      their workers with 10% of their taxable profit, calculated before adjustments
      for inflation or utilization of tax losses from previous years.
|(4) | Interest expense, net of interest income.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|(5) | Property, plant, and equipment is net of depreciation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|(6) | Net of fixed asset sales in the amount of
      Ps. 75 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|(7) | Includes fixed assets acquired with the operations
      of Corrugado y Fibra, S.A. de C.V. in the amount of Ps. 91 million.                                                                                                                                                                                                                                                                                                                                                                                                  
|(8) | Under Mexican GAAP, the cash flow data has
      been adjusted for inflation and includes certain non-cash items, such as
      monetary gains and losses and foreign exchange gains and losses and, as
      a result, are not comparable with the respective U.S. GAAP cash flow data.                                                                                                                                                                                                                                      
|(9) | Ratio of earnings to fixed charges is calculated
      as earnings from continuing operations before income taxes and fixed charges
      divided by fixed charges. Fixed charges consist of interest expense and
      amortization of deferred costs related to the issuance of bonds during the
      period and does not include gain or loss from monetary position or exchange
      gain or loss attributable to our indebtedness.                                                                                     

DIVIDENDS

Dividend Policy

Our ability to pay dividends is limited by Mexican law, our estatutos sociales, which we refer to as our bylaws, and by financial covenants contained in our credit agreements. Pursuant to Mexican law and our bylaws the payment of dividends is determined by a majority vote of the holders of the outstanding shares at an ordinary general shareholders meeting, generally based on, but not necessarily, the recommendation of the Board of Directors.  The payment of dividends can only be paid from retained earnings after losses from prior fiscal years have been paid.  The amount of any dividend would depend on, among other things, operating results, financial condition, cash requirements, losses for prior fiscal years, future prospects, the extent to which debt obligations impose restrictions on dividends and other factors deemed relevant by the Board of Directors and the shareholders.


Pursuant to a 1997 indenture entered into in connection with our 11.375% Senior Notes due 2004 (which together with our 11.375% Series B Notes due 2004 are referred to in this annual report as the Notes), we are limited in our ability to pay dividends or redeem or retire capital stock unless (i) we would be permitted, at that time, to incur at least US$1 of debt under the Notes, and (ii) the amount of such payment, plus all similar payments, does not exceed 50% of our consolidated cumulative net income since April 1997, plus the net proceeds of our issuances of capital stock since April 1997, plus cash returns on investments permitted under the Notes, plus US$15 million.  See Item 10: Additional Information—Material Contracts—Major Indebtedness.


Because we are a holding company with no significant operations of our own, we have distributable profits and cash to pay dividends only to the extent that we receive dividends from our subsidiaries.  The ability of our subsidiaries to make distributions to us is limited by Mexican law and by their bylaws.  The payment of dividends must be approved by shareholders and can only be paid from retained earnings after losses from prior fiscal years have been paid.


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Dividend History

We did not pay any dividends in 2000, 2001 or 2002.


EXCHANGE RATE INFORMATION

In 2002 the peso depreciated against the U.S. dollar.  There can be no assurance that the peso will not depreciate further.


The
    following table sets forth, for the periods indicated, the high, low, average
    and period-end noon buying rate in New York City for cable transfers in pesos
    published by the Federal Reserve Bank of New York, expressed in pesos per
    U.S. dollar. The rates have not been restated in constant currency units.


|Year          |  | High(1) |  | Low(1) |  | Average(2) |  | Period
        End | 
|------------- |  | ------- |  | ------ |  | ---------- |  | ------------------ | 
|              |  |         |  |        |  |            |  |                    | 
|1998          |  | 10.630  |  | 8.040  |  | 9.243      |  | 9.901              | 
|1999          |  | 10.600  |  | 9.243  |  | 9.563      |  | 9.480              | 
|2000          |  | 10.087  |  | 9.183  |  | 9.459      |  | 9.618              | 
|2001          |  | 9.970   |  | 8.946  |  | 9.326      |  | 9.156              | 
|2002          |  | 10.430  |  | 9.000  |  | 9.99       |  | 10.425             | 
|              |  |         |  |        |  |            |  |                    | 
|Month         |  |         |  |        |  |            |  |                    | 
|              |  |         |  |        |  |            |  |                    | 
|December 2002 |  | 10.43   |  | 10.10  |  |            |  |                    | 
|January 2003  |  | 10.98   |  | 10.32  |  |            |  |                    | 
|February 2003 |  | 11.06   |  | 10.77  |  |            |  |                    | 
|March 2003    |  | 11.24   |  | 10.66  |  |            |  |                    | 
|April 2003    |  | 10.77   |  | 10.31  |  |            |  |                    | 
|May 2003      |  | 10.42   |  | 10.11  |  |            |  |                    | 
|              |  |         |  |        |  |            |  |                    | 

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|(1) | Rates shown are
      the actual low and high, on a day-by-day basis for each period.
|--- | -------------------------------------------------------------------------------------
|(2) | Average of month-end rates.                                                          

On June 30, 2003, the noon buying
        rate was Ps.10.455 to US$1.00.


RISK FACTORS

You should carefully consider the following risks and other information presented in this annual report before making an investment decision.  To the extent information relates to the Mexican government or Mexican macroeconomic data, we have extracted such information from official publications of the Mexican government and have not independently verified it.


Any of the following risks, if they actually occur, could materially and adversely affect our business, financial condition or results of operations.


Risk Factors Relating to Our Business

We face increasing competition, which could result in lower operating margins and decreased profitability.

The consumer products and industrial paper products industries in Mexico are highly competitive.  Our competitors in Mexico and our competitors in the United States that import products into Mexico include large, vertically-integrated consumer products and industrial paper products manufacturers and numerous smaller companies.  Some of our competitors have substantially greater financial and other resources than we and may be better able than we are to withstand adverse economic or market conditions.  In recent years, there has been a trend toward consolidation within the primary and converted paper products sectors, and we believe that this trend will continue.  In addition, with the elimination of tariffs on most paper products and generally low prices for paper and packaging products in the United States over the past years, competition from imports has increased and may increase further.  Increased competition from imports of bond pa

per and other industrial paper products may have a material adverse effect on us by driving down our prices and decreasing our revenues.  Loss of existing or future market share to competitors may adversely affect our performance and, to the extent that one or more of our competitors becomes more successful with respect to any key competitive factor, our operating margins could be adversely affected.


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We may not always be able to recoup future increases in the cost of our raw materials.

Raw materials account for approximately three-quarters of our total cost of sales.  The principal raw materials used in our production process are pulp, energy, chemicals, recyclable paper and water.  The prices of some of these raw materials have historically fluctuated due to market and industry conditions.  Because of this volatility, we may not always be able to pass along our increased costs to our customers in the form of price increases, which could impair our gross margins, cash flow and profitability.


We are subject to price fluctuations in the pulp and fiber market.

Since we ceased operations at our Pondercel pulp mill in 2001, we began to purchase our full requirements for virgin pulp from third parties.  As a result of our closing of the Pondercel pulp mill, we are subject to price fluctuations in the pulp market, and we cannot assure you that we will be able to reflect any cost increases in our sales prices.


During 2002, secondary fiber and deinked pulp imported from the United States suffered significant price increases.  Because we import some of our secondary fiber and deinked pulp from the United States, price fluctuations might have an adverse effect on our business.  We cannot assure you that the price for secondary fiber and deinked pulp will not further increase or fluctuate, or that any such increase or fluctuation will not have an adverse effect on our business.


Fluctuations in energy costs may adversely affect our costs of operations and our revenues.

The price and supply of energy is unpredictable and fluctuates based on events beyond our control, including, among others, geopolitical developments, supply and demand for oil and gas, actions by OPEC and other oil and gas producers, war and unrest in oil producing counties and regional production patterns.  Because our plants and facilities use significant amounts of electricity, natural gas and other forms of energy, increases in the cost of energy will increase our operating expenses and may have a material adverse effect upon our busi­ness, financial condition and results of operations.


Lack of water availability may adversely affect us.

Water is an essential raw material in the paper production process.  Some of our plants satisfy their water requirements through water wells licensed by the Mexican National Water Commission (Comisión Nacional del Agua), whereas others purchase water from municipalities or from third parties.  The Mexican government has the power to limit our water consumption and the volume of water that we may use according to our licenses, and it also has the power to revoke such licenses, in the event of our breach of the licenses terms.


Although we believe that we are in compliance with our obligations under the licenses, we cannot assure you that the licenses will not be revoked.  We also cannot be certain that the terms of any renewal of these licenses will be favorable, or that the volume of water that is currently available for use in manufacturing our products will be sufficient to satisfy our production requirements in the future.  If our licenses are revoked, or the water that we may consume under our licenses is not sufficient to satisfy our production requirements, it may have an adverse effect on our cash flow, financial condition and operations.


Our prices, cash flow and our profitability for our printing and writing products may decrease because of down cycles in the paper industry.

Sales prices for printing and writing products have historically been subject to cyclical fluctuations.  Pricing is affected not only by demand for these products, which correlates with real economic growth, but also by current inventory levels of customers.  In addition, because each new machine produces large volumes of paper, the impact of new production facilities may result in supply/demand imbalances.  To the extent that we are not able to maintain our prices at current levels, our gross margin, which is a measure of our gross profit as a percentage of net sales, our cash flow and our profitability, could be negatively affected.


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Our environmental compliance costs could increase in the future.

In each jurisdiction in which we operate, our business operations and facilities are subject to stringent and complex laws and regulations relating to pollution, protection of public health and the environment, and employee safety and health.  In Mexico, our operations are subject to the Mexican General Law of Ecological Balance and Environmental Protection (Ley General de Equilibrio Ecológico y Protección del Ambiente), and its related rules and various state and municipal laws.  In accordance with this ecological law, we are subject to the regulatory jurisdiction of various government entities, each of which has significant enforcement powers to impose economic sanctions and to temporarily or permanently close non-complying facilities.  Under this ecological law, the Mexican government has implemented an aggressive program to protect the environment by promulgating rules concerning water, land, air and noise pollution,

 hazardous substances and wastes.


Existing environmental laws and regulations could be enforced more strictly and more stringent laws could be imposed.  Future events such as changes in existing environmental laws or their interpretation, more vigorous enforcement policies of regulatory agencies and new information may give rise to additional expenditures or liabilities that could be material.


Risk Factors Relating to Our Existing Debt

Our substantial level of indebtedness could adversely affect our financial condition and prevent us from fulfilling our existing credit obligations.

As of December 31, 2002, we had approximately US$509 million of outstanding indebtedness.  In addition, subject to restrictions contained in the indenture and the instruments governing the terms of our other outstanding indebtedness, we may incur additional indebtedness.


Our level of indebtedness could have important consequences to you.  For example, it could:


| |  | make it more difficult for us to satisfy our
      obligations with respect to our credit obligations;                                                                                                                                                                   
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                          
| |  | increase our vulnerability to general adverse
      economic and industry conditions;                                                                                                                                                                                    
| |   |                                                                                                                                                                                                                                                                          
| |  | limit our ability to fund future capital expenditures,
      operating losses, working capital and other general corporate requirements;                                                                                                                                 
| |   |                                                                                                                                                                                                                                                                          
| |  | require us to dedicate a substantial portion
      of our cash flow from operations to interest and principal payments on our
      indebtedness, reducing the availability of our cash flow for other purposes,
      such as capital expenditures and operating losses;
| |   |                                                                                                                                                                                                                                                                          
| |  | limit our flexibility in planning for, or
      reacting to, changes in our business and the industry in which we operate;                                                                                                                                               
| |   |                                                                                                                                                                                                                                                                          
| |  | place us at a disadvantage compared to our
      competitors that have less debt; and                                                                                                                                                                                    
| |   |                                                                                                                                                                                                                                                                          
| |  | limit our ability to borrow additional funds.                                                                                                                                                                                                                            

Our ability to meet our expenses thus depends on our future performance, which will be affected by financial, business, economic and other factors.  We will not be able to control many of these factors, such as economic conditions in the markets where we operate and pressure from competitors.  We cannot be certain that our operating cash flow will be sufficient to allow us to pay principal and interest on our debt and meet our other obligations.  If we do not generate sufficient cash flow, we may be required to refinance all or part of our existing debt, sell assets, borrow additional funds or issue additional equity.  We cannot guarantee that we will be able to do so at all or on terms acceptable to us.  In addition, the terms of existing or future debt agreements, including our bank credit agreements and our indentures, may restrict us from adopting any or all of these alternatives.  The failure to generate sufficient cash flow or to a

chieve such alternatives could significantly adversely affect our ability to pay principal of and interest on our debt.


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The indenture for our outstanding Notes and the terms of our other indebtedness impose significant operating and financial restrictions, which may prevent us from capitalizing on business opportunities and taking some actions.

The indenture for the outstanding Notes and our bank credit agreements impose significant operating and financial restrictions on us.  These restrictions will limit our ability, among other things, to:


| |  | incur additional indebtedness;                                                     
| | - | -----------------------------------------------------------------------------------
| |   |                                                                                    
| |  | make restricted payments, including dividends
      or other distributions;        
| |   |                                                                                    
| |  | make investments;                                                                  
| |   |                                                                                    
| |  | sell assets;                                                                       
| |   |                                                                                    
| |  | incur liens;                                                                       
| |   |                                                                                    
| |  | enter into agreements restricting our subsidiaries
      ability to pay dividends;
| |   |                                                                                    
| |  | enter into transactions with affiliates; and                                       
| |   |                                                                                    
| |  | consolidate, merge or sell all or substantially
      all of our assets.           

In addition, our bank credit agreements require us to maintain specified financial ratios.  We cannot assure you that these covenants will not adversely affect our ability to finance our future operations or capital needs or to pursue available business opportunities.  A breach of any of these covenants or our inability to maintain the required financial ratios could result in a default in respect of the related indebtedness.  If a default occurs, the relevant lenders could elect to declare the indebtedness, together with accrued interest and other fees, to be immediately due and payable and to proceed against any collateral securing that indebtedness.  A default under any such indebtedness might also give rise to a default under the Notes.


We have required waivers of certain financial covenants contained in our bank credit agreements.

Over the past four years, we have, during each such year, obtained several waivers from banks under different credit agreements in connection with failures to comply with certain covenants of such credit agreements.


Future failures to comply with financial covenants in our bank credit agreements would require us to request additional waivers.  If the banks do not agree to grant such waivers, it could result in us defaulting under such agreements, which may cause us to be in default under the Notes or our other indebtedness.  In the event of such a default, our lenders may have the right to declare the relevant indebtedness, together with accrued interest and other fees, to be immediately due and payable and/or to impose a higher rate of interest.  In the event of a default our lenders may also have the right to proceed against any collateral securing such indebtedness.


We may not be able to satisfy our obligations to our creditors upon a change of control.

Upon the occurrence of a change of control, as defined in the indenture, each holder of the Notes will have the right to require us to purchase the Notes at a price equal to 101% of the principal amount, together with any accrued and unpaid interest to the date of purchase.  Our failure to purchase, or give notice of purchase of, the Notes would be a default under the applicable indenture, which would in turn be a default under our bank credit agreements.


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In addition, a change of control may constitute an event of default under our bank credit agreements.  A default under our bank credit agreements would result in an event of default under the indenture if the lenders accelerate the debt under our bank credit agreements.


If a change of control occurs, we may not have enough cash or assets to satisfy all of our obligations under our bank credit agreements and the indenture related to the Notes.  Upon the occurrence of a change of control we could seek to refinance the indebtedness under our bank credit agreements and the Notes or obtain a waiver from the lenders or you as a holder of the Notes.  We cannot assure you, however, that we would be able to obtain a waiver or refinance our indebtedness on terms acceptable to us, or at all.


We are controlled by our principal stockholders.

Approximately 98.9% of our issued and outstanding capital stock is beneficially owned, directly or indirectly, by the Maldonado Quiroga and Maldonado González families.  As a result, the Maldonado Quiroga and Maldonado González families effectively control the outcome of all matters requiring a stockholder vote, including the election of directors.


The interests of the Maldonado Quiroga and Maldonado González families could conflict with the interests of our creditors.  For example, if we encounter financial difficulties or are unable to pay our debts as they mature, the interests of the Maldonado Quiroga and Maldonado González families might conflict with the interests of our creditors.  The Maldonado Quiroga and Maldonado González families may also have an interest in pursuing acquisitions, divestitures, financings or other transactions that, in their judgment, could enhance their equity investments, even though such transactions might involve risks to our creditors.


Various provisions of Mexican law may make it difficult for you to convert payments you receive into U.S. dollars or may make it difficult for you to recognize the full value of your payment.

We are required to make payments of amounts owed on our debt in U.S. dollars.  Under the Mexican Monetary Law (Ley Monetaria de los Estados Unidos Mexicanos), however, obligations to make payments in Mexico in foreign currency, whether by agreement or upon enforcement of a judgment, may be discharged in Pesos at the rate of exchange for Pesos prevailing at the time and place of payment or judgment.  Accordingly we will be legally entitled to make payment of amounts due on the Notes in Pesos if payment of the Notes is sought in Mexico through the enforcement of a non-Mexican judgment or otherwise.  If we elect to make payments due on the Notes in Pesos in accordance with the Mexican Monetary Law, we cannot assure you that the amounts paid would be convertible by the payee into U.S. dollars or that, if convertible, such amounts would be sufficient to purchase U.S. dollars equal to the amount of principal, interest or addition

al amounts due on the Notes.


In the event of bankruptcy, you may find it difficult to collect under the Notes.

Under Mexican law, if we are ever declared bankrupt or in judicial reorganization (concurso mercantil) our obligations under the Notes (i) would be converted into pesos and then converted from pesos into UDIs (defined below), (ii) would be satisfied only at the time claims of all creditors are satisfied, (iii) would be subject to the outcome of, and amounts recognized as due in respect of, the relevant bankruptcy proceedings, (iv) would cease to accrue interest and (v) would not be adjusted to take into account any depreciation of the peso against the dollar occurring after the declaration of bankruptcy or reorganization.  UDIs are Unidades de Inversión (investment units), which are units of account whose value in Mexican pesos is indexed to inflation on a daily basis, as measured by the change in the Mexican National Consumer Price Index.


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Risk Factors Relating to Doing
  Business in Mexico

If the peso devalues, it will
  be more difficult for us to repay our debt.

Substantially
  all of our debt obligations are denominated in U.S. dollars while we generate
  revenues in pesos. Therefore, we are exposed to currency exchange rate risks
  that could significantly affect our ability to meet our obligations. Except
  for the Bancomer Swap (See Item 5. Operating and Financial Review and
  ProjectsLiquidity and Capital ResourcesOther Contractual Obligations),
  we are currently not party to any hedging transactions with respect to these
  foreign currency risks, but we continue to consider the appropriateness of this
  option. Mexico maintains a floating exchange rate regime. Any significant decrease
  in the value of the peso relative to the U.S. dollar in the near term may have
  a material adverse effect on our liquidity and on our ability to meet our debt
  obligations.As of December 31, 2002, a hypothetical 10% devaluation
  of the peso relative to the U.S. dollar would give us a Ps.399.9 million (US$38.3
  million) exchange loss on our debt. The peso has depreciated substantially against
  the U.S. dollar in the past and may depreciate significantly in the future.
  Future declines in the value of the peso relative to the U.S. dollar could adversely
  affect our ability to meet U.S. dollar-denominated obligations because of the
  increase in cost in pesos of our interest and principal payments.


While
  the Mexican government does not currently restrict, and for many years has not
  restricted, the right or ability of Mexican or foreign persons or entities to
  convert pesos into U.S. Dollars or to transfer other currencies out of Mexico,
  the government could institute restrictive exchange rate policies in the future.
  To the extent that there are currency fluctuations, they are likely to continue
  to have an effect on our financial condition, results of operations and cash
  flows in future periods. See Item 5: Operating and Financial Review and
  Prospects  Effect of Devaluation and Inflation and Item
  11: Quantitative and Qualitative Disclosures about Market Risk  Foreign
  Exchange Rate Risk.


High levels of inflation and
  high interest rates in Mexico could adversely affect our financial condition
  and results of operations.

Mexico
  has experienced high levels of inflation in recent years. The annual rate of
  inflation, as measured by changes in the National Consumer Price Index, was
  9.0% for 2000, 4.4% for 2001, and 5.7% for 2002. In the past, high rates of
  inflation have resulted in high interest rates; high interest rates in Mexico
  may adversely affect our costs and thus our financial condition and results
  of operations including our interest expense.


Economic and political conditions
  and government policies could negatively affect our profitability and operations.

We
  are a Mexican company, with substantially all of our operations situated in
  Mexico. Approximately 93.6% of our revenues in 2002 and 94.7% of our revenues
  in 2001 resulted from sales generated within Mexico. Mexico has periodically
  experienced economic downturns characterized by periods of slow or negative
  growth, high inflation, exchange rate volatility, declines in direct and portfolio
  investment, high interest rates, reduced consumer purchasing power and spending,
  and high unemployment. After years of sustained economic growth, Mexicos
  economy contracted 0.3% during 2001 and grew only 0.9% in 2002, due primarily
  to slow economic growth in the United States.


The
  Mexican government has exercised, and continues to exercise, significant influence
  over the Mexican economy. Economic plans of the Mexican government in the past
  have not, in certain respects, fully achieved their objectives. We cannot assure
  you that current and future economic plans of the Mexican government will achieve
  their stated goals. Similarly, we cannot determine what effect these plans or
  their implementation will have on the Mexican economy or on our business. Future
  Mexican governmental actions may result in future political instability, currency
  instability or economic deterioration, which could have a significant adverse
  effect on Mexican companies (including ours), market conditions and prices and
  returns on Mexican securities.


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Mexico is directly affected
  by the economic slowdown affecting the United States.

Approximately
  89.1% of Mexicos exports are destined to the United States market, and
  approximately 63.4% of Mexicos imports come from the United States. Therefore,
  Mexicos production and economy have been negatively affected by the economic
  slowdown affecting the United States since early 2001. In the event that the
  recessive environment were to continue, we cannot assure you that such slowdown
  will not continue to adversely affect our country. We also cannot assure that
  such slowdown will not have an adverse effect on our business.


Our financial statements may
  not result in the same information as financial statements prepared under U.S.
  accounting rules.

Mexican
  companies, including us, must prepare their financial statements in accordance
  with Mexican GAAP. Mexican GAAP differs in significant respects from U.S. GAAP,
  including, but not limited to, the treatment of capitalized interest, deferred
  income taxes, minority interest, amortization of negative goodwill and inventory
  valuations. In particular, all Mexican companies must incorporate the effects
  of inflation directly in their accounting records and in published financial
  statements. The effects of inflation accounting under Mexican GAAP are not eliminated
  in a reconciliation to U.S. GAAP. For this and other reasons, the presentation
  of Mexican financial statements and reported earnings may differ from that of
  U.S. companies. See Item 5: Operating and Financial Review and Prospects—Reconciliation
  to U.S. GAAP and Note 17 to the audited consolidated financial statements.


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ITEM 4.   INFORMATION
      ON THE COMPANY

Our Company

We are one of the leading producers of paper-based consumer products and value-added industrial paper products, such as packaging and printing and writing products, in terms of sales in Mexico.  We have transformed ourselves from being primarily a producer of industrial paper products into one of the premier producers of paper-based consumer products and value-added industrial paper products.  We have a leading portfolio of consumer brands.  Our strategy is to focus on consumer products and value-added packaging products and to grow our business through effective marketing and the development of new innovative products, which we believe will continue to diversify and increase our cashflows.  We will also continue to look for cost reduction opportunities, particularly in raw materials and through manufacturing efficiencies.  We will continue to maintain our competitive advantage in outstanding customer service that has been achieved as a result of our

 strategically located manufacturing and distribution facilities.


We were founded in 1928, when the Maldonado Quiroga family of Monterrey, our controlling shareholders, started a paper business in Monterrey.  Since 1996, our business has grown through the combination of an aggressive capital investment program and strategic acquisitions.  We have focused most of our acquisitions and investments on the consumer products segment of our business.  The consumer products category will continue to be the most important segment of our business because it enhances the stability in our cash flows and it contributes significantly to our sales and EBITDA.  We expect that, in the future, the portion of our overall sales and EBITDA represented by our packaging products division will also increase meaningfully.


The demand for the types of products that we manufacture, distribute, and sell has grown rapidly in the last few years, and well in excess of the growth rate of the Mexican economy.  For example, demand for tissue paper has grown at an average annual rate of 5.6% per year from 1998 to 2002, or 1.7 times as fast as the Mexican gross domestic product.  During the same period, demand for packaging paper has grown at an average annual rate of 6.3% per year, or 2.0 times as fast as the Mexican gross domestic product.  Demand for tissue paper grew 4.9% during 2002, whereas demand for packaging paper grew 7.2% during that same period.  We believe that the principal reasons for this growth have been the historically low level of consumption of paper-based consumer products in Mexico relative to the United States and increases in gross national product and consumer buying power as well as the natural growth of the Mexican population.  For example, in 2002, pe

r capita consumption of tissue products in Mexico was 29.2% of such per capita consumption in the United States.  We believe that these factors should continue to support relatively large demand growth rates in the future and represent an attractive growth opportunity for us.


We have also improved our cost structure through
    a strategy of secondary fiber self-sufficiency. We have created the largest
    network of recyclable paper collection centers in Mexico, with six collection
    centers, and have established four collection centers in the southwestern
    United States. We supply most of our secondary fiber and deinked pulp requirements.


| |  | Our consumer products include bathroom and
      facial tissue, paper towels, paper napkins, feminine-care products, away-from-home
      products, adult incontinence products and notebooks. We also sell and distribute
      baby diapers manufactured by our affiliate, Copamex Higiene Infantil, S.A.
      de C.V., which we refer to as COHINSA. Consumer products accounted for approximately
      48.2% of our net sales for the year ended December 31, 2002.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  | Our packaging products include multi-wall
      bags, kraft paper and corrugated boxes and specialty paper. Packaging products
      accounted for approximately 27.6% of our net sales for the year ended December
      31, 2002.                                                                                                                                                                                                                                      
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  | Our printing and writing products include
      cut-sized, bond and carbonless paper. For the year ended December 31, 2002,
      printing and writing paper (and other printing and writing products) accounted
      for approximately 24.2% of our net sales.                                                                                                                                                                                                         



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Selected Operating Highlights

Since 1996, our business has grown rapidly through
    the combination of an aggressive capital investment program and targeted strategic
    acquisitions, and we have transformed ourselves from being primarily a producer
    of industrial paper products to one of the premier producers of paper-based
    consumer products and value-added industrial paper products in terms of sales
    in Mexico. The following are some of the highlights of our operating development:


| |  | InOctober 1996, we entered
          the feminine-care market with our acquisition of a 51% interest in Sancela,
          S.A. de C.V., which we refer to as Sancela, a company 49% of which is
          owned by SCA Hygiene Products, AB, a leading European producer of tissue
          and feminine care products. Since the acquisition, Sancela has nearly
          doubled its production and is now able to produce over one billion units
          per year.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  | In June 1997, we consolidated our position
      as a major tissue company when we acquired a tissue manufacturing facility,
      the popular tissue brand name Regioand a renewable 25-year license
      for the popular facial tissue brand name Scottis.                                                                                                                                                                                                             
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  | From 1996 through 1998, we strengthened
      our notebook market share by acquiring the well-known brand name Shockand installing a production plant. We also continued our strategy of
      diversifying across consumer product lines by introducing away-from-home
      products and importing and selling adult incontinence products.                                                                                                                             
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  | In January 1998, we began to expand
      our presence in the Central American market by starting operation of a tissue
      converting machine and a multi-wall bag machine in Costa Rica. We continued
      this strategy in the first quarter of 2000 by acquiring a 70% interest in
      Industrias Unidas de Centroamérica, S.A., the only tissue paper producer
      in Nicaragua.                                                                              
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  | In July 2000, we commenced operation
      of a corrugated box plant in Monterrey, Mexico.                                                                                                                                                                                                                                                                                                                                                                                
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  | In September 2000, we started to sell
      and distribute baby diapers manufactured by an affiliated company, COHINSA,
      complementing our consumer products portfolio.                                                                                                                                                                                                                                                                                              
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  | In October 2001, through a corporate
      restructuring, we acquired the operations and operating assets of Corrugado
      y Fibra, S.A. de C.V., an affiliate of ours that we refer to as COFISA,
      which increased our consolidated operating capacity of corrugated boxes.                                                                                                                                                                                       
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  | In November 2001, we installed a production
      line for the manufacture of adult incontinence products.                                                                                                                                                                                                                                                                                                                                                                
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  | In January 2002, we entered into a
      joint venture with Productos El Cid, S.A., a Colombian manufacturer of notebooks
      that we refer to as El Cid, through which our notebook brands and the brands
      of El Cid are owned and operated.                                                                                                                                                                                                                      
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  | In February 2002, we launched an improved
      baby diaper line under our trademark DryKids.                                                                                                                                                                                                                                                                                                                                                                           
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  | In July 2002, we commenced
          operation of a new tissue paper machine.                                                                                                                                                                                                                                                                                                                                                                                             
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  | In August 2002, we commenced
          operation of a new state of the art universal machine for the manufacture
          of multi-wall bags.                                                                                                                                                                                                                                                                                                                            
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  | In November 2002, as part of our strategy
      to identify and execute cost reduction opportunities, we ceased multi-wall
      bags operations at our Tlanepantla plant. This plant closing was also a
      result of the modernization and increase in capacity in our other multi-wall
      bags plants. We believe that this measure should contribute significantly
      to saving costs in our packaging division.                                              

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The Mexican Consumer and Industrial Paper Products
  Market

General

Mexicos paper products market is the second
  largest in Latin America after that of Brazil. According to estimates of the
  Mexican National Chamber of the Pulp and Paper Industries, the total size of
  Mexicos paper products market (including newsprint) in 2002, based on
  apparent demand, was approximately 5.5 million metric tons. Apparent demand
  is calculated on the basis of domestic production reported by Mexican manufacturers,
  plus imports and minus exports. Apparent demand is a concept similar to consumption,
  except that it does not reflect increases or decreases in inventories. Apparent
  demand will not replicate consumption in any given year; however, over a period
  of years, the two measures should tend to approximate one another. The total
  apparent demand in 2001 and 2002 for the Mexican pulp and paper industry was
  broken down as follows:


| |  | tissue paper accounted for 12.8% in 2001 and
      12.7% in 2002,                                        
| | - | ---------------------------------------------------------------------------------------------------------
| |   |                                                                                                          
| |  | packaging paper accounted for 54.8% in 2001
      and 55.6% in 2002,                                     
| |   |                                                                                                          
| |  | printing and writing paper (including newsprint)
      accounted for 26.9% in 2001 and 26.0% in 2002, and
| |   |                                                                                                          
| |  | specialty paper accounted for 5.5% in 2001
      and 5.7% in 2002.                                       

In 2002, Mexico had a production capacity of approximately
    5.1 million metric tons of paper. In the same year, approximately 4.0 million
    metric tons of paper were produced, for a capacity utilization efficiency
    of 78.7%. During 2002, the Mexican production of paper minus exports represented
    approximately 69.4% of apparent demand, with imports accounting for the remaining
    30.6%. In 2002, paper production increased by 4.2% while apparent demand increased
    by 5.7%. Approximately 5.1% of the Mexican production of paper was exported.


Each of the tables below show historical Mexican
    apparent demand for the paper products indicated in metric tons, calculated
    on the basis of domestic production of tissue paper reported by Mexican manufacturers,
    plus imports and minus exports. Import data does not include products temporarily
    imported into Mexico for consumption abroad. This data was derived from industry
    studies prepared by the Mexican National Chamber of the Pulp and Paper Industries.


Tissue Paper

Mexican Apparent Demand for Tissue
  Paper
  (all figures in metric tons(1))

|Year |  | Production |  | Imports |  | Exports |  | Apparent
      Demand |  | Period
      to Period Growth Rate |   |  | %
      Growth in Mexican GDP |   
|---- |  | ---------- |  | ------- |  | ------- |  | --------------------- |  | ---------------------------------- | - |  | ----------------------------- | --
|     |  |            |  |         |  |         |  |                       |  |                                    |   |  |                               |   
|1998 |  | 621,566    |  | 36,735  |  | 79,602  |  | 578,699               |  | 7.3                                | % |  | 4.9                           | % 
|1999 |  | 661,522    |  | 47,019  |  | 90,232  |  | 618,309               |  | 6.8                                | % |  | 3.7                           | % 
|2000 |  | 691,213    |  | 65,733  |  | 98,790  |  | 658,156               |  | 6.4                                | % |  | 6.6                           | % 
|2001 |  | 688,694    |  | 86,546  |  | 104,470 |  | 670,770               |  | 1.9                                | % |  | (0.3                          | %)
|2002 |  | 725,827    |  | 93,472  |  | 115,744 |  | 703,555               |  | 4.9                                | % |  | 0.9                           | % 

|   
|---
|(1)

Tissue paper includes, among other
  things, bathroom tissue, facial tissue, paper towels and paper napkins. Apparent
  demand has increased at an average annual rate of 5.5% per year from 1998 to
  2002. Apparent demand has grown because of increases in gross domestic product,
  retail sales, consumer buying power as a result of higher salaries in the maquila
  and manufacturing industries and the natural growth of the Mexican population.


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Packaging Paper and Specialty Paper

Packaging Paper.


Mexican Apparent Demand for
    Packaging Paper
    (all figures in metric tons(1))

|Year |  | Production |  | Imports |  | Exports |  | Apparent
      Demand |  | Period
      to Period Growth Rate |   |  | %
      Growth in Mexican GDP |   
|---- |  | ---------- |  | ------- |  | ------- |  | --------------------- |  | ---------------------------------- | - |  | ----------------------------- | --
|     |  |            |  |         |  |         |  |                       |  |                                    |   |  |                               |   
|1998 |  | 2,093,492  |  | 391,272 |  | 58,959  |  | 2,425,805             |  | 7.4                                | % |  | 4.9                           | % 
|1999 |  | 2,167,651  |  | 521,892 |  | 82,822  |  | 2,606,721             |  | 7.5                                | % |  | 3.7                           | % 
|2000 |  | 2,235,317  |  | 628,119 |  | 61,032  |  | 2,802,404             |  | 7.5                                | % |  | 6.6                           | % 
|2001 |  | 2,247,755  |  | 681,793 |  | 66,057  |  | 2,863,491             |  | 2.2                                | % |  | (0.3                          | %)
|2002 |  | 2,378,841  |  | 752,101 |  | 61,969  |  | 3,068,973             |  | 7.2                                | % |  | 0.9                           | % 

|   
|---
|(1)

Packaging paper includes paper for
  multi-wall bags, wrapping, linerboard, corrugated medium, folding boxboard,
  canes and tubes. Apparent demand for packaging paper grew at an average annual
  rate of 6.3% during the period from 1998 to 2002. The increase in apparent demand
  for packaging paper is the result of increased use of containers, principally
  corrugated board boxes, as well as an increase in the demand for multi-wall
  bags caused by economic growth. In particular, cement companies, the primary
  consumers of multi-wall bags, increased the demand for multi-wall bags as a
  result of a 1.7% increase in construction activity in 2002.


Specialty Paper. Specialty
  paper includes paper that has undergone special additional processes and all
  other paper products that do not clearly fall under the other paper classifications.
  This sector is dominated by imports, which have represented at least 90% of
  apparent demand in the last five years. Production has remained relatively stagnant
  in the last five years because there has not been further investment in capacity
  for specialty paper products. Exports are insignificant.


Printing and Writing Paper

Mexican Apparent Demand for Printing and Writing Paper (not including Newsprint)(all figures in metric tons(1))

|Year |  | Production |  | Imports |  | Exports |  | Apparent
      Demand |  | Period
      to Period Growth Rate |    |  | %
      Growth in Mexican GDP |   
|---- |  | ---------- |  | ------- |  | ------- |  | --------------------- |  | ---------------------------------- | -- |  | ----------------------------- | --
|     |  |            |  |         |  |         |  |                       |  |                                    |    |  |                               |   
|1998 |  | 619,761    |  | 233,870 |  | 24,771  |  | 828,860               |  | (3.7                               | %) |  | 4.9                           | % 
|1999 |  | 698,276    |  | 283,812 |  | 24,722  |  | 957,366               |  | 15.5                               | %  |  | 3.7                           | % 
|2000 |  | 688,282    |  | 331,175 |  | 17,614  |  | 1,001,843             |  | 4.6                                | %  |  | 6.6                           | % 
|2001 |  | 658,430    |  | 349,482 |  | 13,436  |  | 994,476               |  | (0.7                               | %) |  | (0.3                          | %)
|2002 |  | 698,083    |  | 366,634 |  | 20,321  |  | 1,044,396             |  | 5.0                                | %  |  | 0.9                           | % 

|   
|---
|(1)

Printing and writing paper includes
  cut-sized paper, bond paper and carbonless paper. Apparent demand for printing
  and writing paper grew at an average annual rate of 4.1% during the period from
  1998 to 2002. The increase in apparent demand for printing and writing paper
  is partly the result of overall economic growth since 1998. During 2002, apparent
  demand for printing and writing products increased as a result of increases
  in notebook production, cut-size market growth and growth in printing of books
  and magazines.


Pricing

For similar-quality products, Mexican
  consumer and industrial paper product prices tend to roughly approximate United
  States prices plus freight cost and tariffs. Competition within Mexico also
  has an effect on prices, and this effect is most significant on consumer products.
  The international price of pulp and paper also affects prices, and this effect
  is most significant on printing and writing products. In addition, because the
  paper industry is highly capital intensive, prices may also be affected by industry
  capacity-utilization rates and by significant additions of new capacity. See
  Item 5: Operating and Financial Review and Prospects—Mexican Economic
  Factors and —The International Pulp and Paper Products Market.


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We believe that, because we convert the paper we
  produce into value-added products such as bathroom and facial tissue, away-from-home
  products, notebooks, multi-wall bags, cardboard corrugated boxes and copying
  paper, our exposure to industry pricing cycles is mitigated because, historically,
  fluctuations in prices for converted products have been less than fluctuations
  in prices for unconverted paper.


The prices of our products in Mexico are also affected
  by a number of other factors, including:


| |  | brand image,                                        
| | - | ----------------------------------------------------
| |   |                                                     
| |  | customer service,                                   
| |   |                                                     
| |  | quality control,                                    
| |   |                                                     
| |  | proximity to customers and industrial
      centers,
| |   |                                                     
| |  | specifications,                                     
| |   |                                                     
| |  | volume of production runs, and                      
| |   |                                                     
| |  | transportation costs.                               

The tariff imposed on the type of consumer paper
    products we manufacture is 20% for all countries not having any trade agreement
    with Mexico and on the industrial paper products that we manufacture is 13%.
    With the exception of cut-sized bond paper from the United States, Mexico
    does not impose a tariff on paper products originating from the United States
    and Canada. Mexico had a protective tariff on kraft paper for bags, multi-wall
    bags, tissue paper and glassine paper of 1% for Canadian and U.S. firms in
    2002, but this tariff was reduced to zero in 2003.


In October 1998, following antidumping investigations
    on cut-sized bond paper imports from the United States, Mexico imposed countervailing
    duties ranging from 5.3% to 17.7% on imports from U.S. producers. In October
    2003, the Ministry of Economy (Secretaría de Economía)
    will review this tariff, which may be increased, reduced, extended or canceled.


We do not believe that the elimination of Mexican
    tariffs on paper products from the United States and Canada has affected or
    will affect our competitive position in any meaningful way. We believe that
    tariffs on paper products before NAFTA were not significant enough to deter
    competition from American and Canadian companies. In addition, we believe
    that Mexican companies in our industry already had developed international
    efficiency and quality standards to compete effectively against foreign products
    before such tariffs were reduced.


Mexico entered into a trade agreement with the
    European Union in 2000, which reduced tariffs on paper products imported from
    the European Union. We do not believe that we face significantly increased
    competition from the European Union, because shipping costs represent a significant
    barrier to entry into the Mexican market.


Our Products

Our production can be divided into three main
    product groups:


| |  | the consumer products group,
        which sells or distributes adult incontinence products and baby diapers
        and produces bathroom and facial tissue, paper towels, paper napkins,
        feminine-care products, away-from-home products and notebooks,
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  | the packaging products group,
      which produces kraft paper, multi-wall bags, corrugated boxes, and specialty
      paper, and
| | - | ---------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                  
| |  | the printing and writing products
      group, which produces cut-sized paper, bond paper and carbonless paper.                  

The table below presents our sales by division
  for the years ended December 31, 2000, 2001, and 2002.


|                              | Year
      Ended December 31,                            |      
|----------------------------- | -------------------------------------------------------- | -----
|                              |                                                          |      
|                              | 2000                                                     |      
|                              |                                                          |      
|                              | Millions
      of constant
      December 31, 2002 pesos |      
|                              |                                                          |      
|Consumer Products             | Ps.                                                      | 3,738
|Packaging Products            |                                                          | 2,199
|Printing and Writing Products |                                                          | 2,378
|                              |                                                          |      
|Total                         | Ps.                                                      | 8,315
|                              |                                                          |      

Consumer Products

Tissue Products. We are the second largest
    producer in Mexico of tissue products such as bathroom and facial tissue,
    paper towels and paper napkins. We sell these products primarily under our
    own or licensed brand names through retail stores and wholesalers. Our leading
    brands include Regio,one of the most-widely recognized consumer
    brand names in the Mexican tissue market,Lovly,Tessy and Flenfor bathroom tissue, paper napkins and paper towels, Scottis,the
    number two brand overall for facial tissue, and Borealfor paper towels
    and napkins. We also manufacture private or generic consumer products for
    sale by large retail stores under their own brand names, and we are the largest
    producer in Mexico of such products.


Feminine-Care Products. We are the second
    largest manufacturer of feminine-care products in Mexico. Through our subsidiary,
    Sancela, we sell our extensive line of products to the public under the brand
    name Saba, which is the number one brand in Mexico in terms of sales,
    through retail stores in Mexico. Our feminine-care products are made using
    some of the latest technology available for the manufacture of such products.


Adult-Incontinence Products. We are the
    number one producer in Mexico in terms of sales of heavy adult
    incontinence products, which are designed for persons with serious incontinence
    problems and the number two producer in Mexico in terms of sales of light
    adult incontinence products, which are designed for persons whose incontinence
    problems are less serious. Through our subsidiary, Sancela, we sell our adult-incontinence
    products to the public under the brand name Tena, which is the number
    one brand in Mexico in terms of sales, through retail stores and drugstores
    in Mexico.


Baby Diapers. We offer baby diapers under
    the brand name DryKids(launched in February 2002) and under private
    brands. Our baby diaper products are currently manufactured by our affiliate,
    COHINSA. See Item 7: Major Shareholders and Related Party Transactions—Related
    Party Transactions. We sell these products to the public through retail
    stores and drugstores in Mexico with respect to the DryKidsbrand and
    to wholesalers with respect to private brands. We believe that baby diapers
    will become a more significant product line for us in the future.


Away-From-Home-Products. Based on our estimates,
    we are the third largest manufacturer of away-from-home products in Mexico.
    We have a complete portfolio of products and address all of the economic segments,
    including bathroom tissue, rolled towels and folded towels that are typically
    used in restaurants, hotels, office buildings and factories. We also sell
    soap and paper dispensers. We use the Benefitand Florestabrands
    in this segment.


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Notebooks. We believe that we are the third
    largest manufacturer of notebooks in Mexico. We produce our notebooks using
    internally-produced bond paper. The notebooks are then sold to the public
    through retail stores under our brand names, including Shock, which
    is one of the most widely-recognized brands in the Mexican notebook market.
    With our joint venture with El Cid, a Colombian manufacturer of notebooks,
    their brands, El Cid, Leather Concept, Eco Planet, Basket, Pits, Monuments,
    Stone Graphixamong others were contributed to our portfolio. This, together
    with the expertise provided by El Cid, has allowed us to enter the premium
    and super premium notebook markets.


Packaging Products and Specialty
  Paper

Kraft Paper.We are the largest producer
    in Mexico of kraft paper in terms of production volume for multi-wall bags,
    and the third largest producer of kraft paper overall. Kraft paper is made
    from secondary fiber. We use kraft paper in the production of:


| |  | multi-wall bags for packaging cement, lime,
      corn flour, gypsum, pet food and chemical products,
| | - | -----------------------------------------------------------------------------------------------------
| |   |                                                                                                      
| |  | natural color bags for use in consumer goods
      stores and white color bags to pack flour, and    
| |   |                                                                                                      
| |  | corrugated boxes for multiple packaging applications.                                                

We are able to produce a wide variety of kraft
    paper, in terms of weight, consistency and resistance to achieve the characteristics
    required by customers. Kraft paper is sold in rolls of varying widths, depending
    on the capacity of the converting machinery on which it will be used. Our
    production of kraft paper, which is manufactured at two of our paper mills
    satisfied our entire requirements for the manufacture of multi-wall bags in
    2002. Approximately 56.4% of our kraft paper was used to make finished products
    for internal use and the remainder was sold to third parties.


Multi-Wall Bags. We are the leading manufacturer
    in Mexico in terms of units produced of multi-wall bags. We produce a wide
    variety of bags, including pasted valve, sewn open mouth, pinch bottom and
    laminated bags. Our multi-wall bags are high-resistance containers that are
    designed to be reliable in adverse filling, handling, transportation, warehousing
    and distribution conditions. The multi-wall bags are made from kraft paper
    also produced by us. Our production of multi-wall bags is manufactured at
    four packaging plants located in Mexico and one packaging plant located in
    Costa Rica.


Corrugated Boxes. We began production of
    corrugated boxes in July 2000. We make our corrugated boxes using internally-produced
    kraft paper. We produce corrugated boxes of various grades and sizes, with
    high quality graphics and design features and both natural kraft and bleached
    liners. We use a portion of our production internally and sell the remainder
    to Mexican industrial products companies.


Specialty Paper.  We are the largest
    manufacturer in Mexico in terms of production volume of specialty paper products
    for both industrial and consumer products companies. Our production of specialty
    paper is manufactured at two of our paper mills. The table below presents
    these products and their application. These are niche-market products.


|Product                  |  | Application                                                          
|------------------------ |  | ---------------------------------------------------------------------
|                         |  |                                                                      
|Cookie liner             |  | Resists humidity and grease;
      used for packing cookies.         
|Humidity-resistant paper |  | For milk containers, milk and
      cheese packaging and paper cones.
|Candy cup stock          |  | For chocolate, candy and biscuit
      packing.                      
|Release paper            |  | For the back of self-adhering
      labels.                          
|Wax base paper           |  | For the bags in cereal boxes
      and for packing popsicles.        
|Opaque glassine          |  | Grease-resistant, for printing
      and lamination.                 
|Full liner               |  | Aluminum-laminated paper for
      packing food products.            
|Anti-mold paper          |  | Treated with anti-fungal agents
      for wrapping soap.             
|Surgical wrap            |  | For packaging syringes.                                              
|Liner                    |  | For lining carton cylinders.                                         

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Printing and Writing Products

Printing and Writing Paper. We are the second
  largest producer in Mexico in terms of production volume of bond paper, the
  paper commonly used for printing, writing and photocopying. Bond paper is made
  from bleached pulp using short and long fibers and, for certain types of bond
  paper, deinked pulp and has a smooth, fine appearance. We produce bond paper,
  which includes notebook paper, white cardboard paper and copy paper, mainly
  for the commercial sector for use in typing and printing by publishing houses
  and lithographers in the preparation of books, continuous forms and lottery
  tickets, for copying by high-speed copying machines and for stencil machines.
  We are the largest manufacturer of cut-size bond paper in Mexico in terms of
  production volume. We are the only producer of carbonless paper in Mexico.


We have the production capability and technical
  expertise to produce a wide variety of bond paper, including high-quality cut-sized
  bond paper, in order to meet the demands of our customers. We are qualified
  to sell our cut-sized bond paper to Xerox for resale under the Xeroxbrand.
  We also sell bond paper under our brands Facia, Visionand Fastway.


Sales, Marketing & Distribution

We currently use multiple marketing strategies
  for each of our product categories, which vary and depend on the particular
  product line. The focus of our strategy is to increase our geographic coverage
  and market share.


For the consumer products segment of our business
  especially, we continuously seek to introduce new designs for our products that
  are complementary to our existing products. This strategy allows us to leverage
  our loyal customer base and to increase sales. Additionally, through this strategy
  we are able to maintain and enhance the image and name of our products in the
  marketplace. We are also developing line extensions for our existing products
  to allow us to offer products in different price points. This allows our customers
  to move up or down the quality spectrum depending on their economic status.


Our advertising strategy includes:


| |  | television and radio advertising campaigns,
| | - | -------------------------------------------

| |   |                                           
| | - | ------------------------------------------
| |  | advertising campaigns in news print media,

| |   |                                       
| | - | --------------------------------------
| |  | internet campaigns to young consumers,

| |   |                                        
| | - | ---------------------------------------
| |  | direct mail campaigns to consumers, and

| |   |                                                                   
| | - | ------------------------------------------------------------------
| |  | telephone marketing campaigns via our
          toll-free numbers.

We also periodically run
  special promotions for trial and awareness of certain products, which include
  bonus packs, back-to-school promotions and samples. Some of our television advertisements
  have been awarded prizes or have been otherwise acknowledged by advertising
  agency associations in the United States, Mexico, Argentina and Panama.


For our industrial paper products, our focus is
        to increase market share through improvements in quality, service and
        customer orientation. Our emphasis on quality is exemplified by requirements
        we have met and surpassed to receive certain certifications, such as ISO
        9002 in five of our plants. We also have the capability to customize our
        products to meet specific customer requirements and have a technical support
        staff in place to assist our customers after the point of sale.


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The marketing and promotion
  of our industrial paper products is focused on attending and sponsoring various
  conventions, fairs and expositions and advertising in trade magazines. We regularly
  have booths and provide technical presentations at such events.


In addition to our marketing staff, we maintain
  a large specialized sales force. Our sales force serves the dual purpose of
  maintaining good customer relations through constant and direct contact with
  consumers and continuing the development of our relationships with key distributors.


Our sales offices in Monterrey, Mexico City
  and Guadalajara handle the promotion and sale of our products. We sell on the
  basis of a single price list, though discounts may be given for clients who
  meet certain standards, including volume. We generally make our sales on the
  basis of periodic purchase orders at current prices referenced to international
  market prices. We do not have long-term supply contracts with our customers.


We have a distribution system comprised of distribution
  centers covering every principal geographic area of Mexico, including the cities
  of Mexico City, Guadalajara, Monterrey, Culiacán, Torreón, Tijuana
  and Villahermosa. Our distribution system includes eight distribution centers
  for our consumer products and three distribution centers for both our printing
  and writing products and packaging products divisions, allowing reliable and
  prompt delivery.


All of our consumer products and printing and writing
  products are processed through our distribution centers. Most of our packaging
  products are sent directly to our major customers, while a smaller portion is
  processed through our distribution centers. We also use wholesalers to reach
  our small retail and industrial customers and in regions that are far from our
  distribution centers.


Most of our shipments are handled by external freight
  transportation service providers, while a smaller portion are handled by our
  own fleet. Our fleet includes both owned and leased trucks and trailers. We
  are currently increasing our fleet selectively on our principal routes to reduce
  logistical costs.


In Central America, we use distributors and sales
  agents to distribute our products, except tissue jumbo rolls, in Nicaragua,
  Guatemala, El Salvador, Honduras, and Panama. In Costa Rica, we distribute our
  products through a subsidiary, except for away-from-home products, which we
  distribute through a third party distributor. Except for certain countries in
  Central America, we do not have exclusivity arrangements with any of our distributors.


Customers

In the year ended December 31, 2002, our ten largest
  customers accounted for approximately 29% of our net sales. No customer accounted
  for more than 7% of our net sales in such period. We do not believe that the
  loss of any single customer would have a material adverse effect on our business.


Our customer base by product category is as follows:


|Product Category             | Customer Base                                                                                                                                                                                   
|---------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                             |                                                                                                                                                                                                 
|Consumer
          Products: |                                                                                                                                                                                                 
|Tissue products              | For our brands, wholesalers,
          large Mexican retail stores, convenience stores, pharmacies and government
          stores and, for private label products, large Mexican retail stores.
|                             |                                                                                                                                                                                                 
|Feminine-care products       | Wholesalers, large Mexican
          retail stores, convenience stores, pharmacies and government stores.                                                                                       
|                             |                                                                                                                                                                                                 
|Adult incontinence products  | Wholesalers, large Mexican
          retail stores, convenience stores, government stores and pharmacies.                                                                                       
|                             |                                                                                                                                                                                                 
|Baby diapers                 | Large Mexican retail stores,
          convenience stores, government stores and pharmacies, and, for private
          label products, wholesalers.                                            
|                             |                                                                                                                                                                                                 
|Away-from-home products      | Restaurants, hotels, office
          buildings, and factories.                                                                                                                                 
|                             |                                                                                                                                                                                                 
|Notebooks                    | Wholesalers, large Mexican
          retail stores, convenience stores and government stores.                                                                                                   



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|Product Category                                  | Customer Base                                                                                                                                 
|------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------
|                                                  |                                                                                                                                               
|Packaging
          Products:                     |                                                                                                                                               
|Kraft paper                                       | Industrial sector companies
          in Mexico that manufacture bags for the packaging of industrial products.                               
|                                                  |                                                                                                                                               
|Multi-wall bags                                   | Companies in Mexico and abroad
          that manufacture and pack cement, corn flour, gypsum, lime, pet food
          and chemical products.
|                                                  |                                                                                                                                               
|Specialty paper                                   | Industrial and commercial
          sector companies in Mexico depending on the specific use of the product.                                  
|                                                  |                                                                                                                                               
|Corrugated boxes                                  | Mexican industrial products
          companies.                                                                                              
|                                                  |                                                                                                                                               
|Printing and Writing
          Products:          |                                                                                                                                               
|                                                  |                                                                                                                                               
|Printing and writing paper
          (bond paper) | Commercial sector companies
          in Mexico, consisting of printers, editors and lithographers, and governmental
          agencies.      

Competition

The following is a description of
      competition factors for our most significant products.


Consumer Products

Tissue Products.We are the
      second largest producer of tissue paper in Mexico in terms of sales volume.
      We are the largest producer in Mexico of generic brands of tissue products.
      Our principal competitors in Mexico are Kimberly Clark de México,
      S.A. de C.V., which we refer to as KCM, and Procter & Gamble, which
      we refer to as P&G.


Feminine-Care Products and Adult
      Incontinence Products.We are the number one producer in Mexico of heavy
      adult incontinence products and the number two producer of light adult incontinence
      products. Our principal competitors in Mexico are KCM and P&G.


Baby Diapers.Our principal
      competitors in Mexico are KCM and P&G.


Away-From-Home Products.Based
      on our estimates, we are the third largest producer of away-from-home products
      three position in Mexico. Our principal competitors in Mexico are KCM and
      Georgia-Pacific.


Notebooks.We believe that
      we are the third largest manufacturer of notebooks in Mexico in terms of
      production capacity. Our principal competitor in Mexico is KCM.


Packaging Products

Kraft Paper.We are the largest
      Mexican producer in terms of units produced of kraft paper for multi-wall
      bags, and the third largest producer of kraft paper overall. The principal
      competitors in Mexico include Corporativo Durango, S.A. de C.V. and Smurfit
      Cartón y Papel de México, S.A. de C.V., both producers with
      substantial operations in containerboard and industrial paper. Imports accounted
      for a significant portion of the remainder of Mexican sales.


Multi-Wall Bags.We believe
      we are the largest producer of multi-wall bags in Mexico in terms of units
      produced, and estimate that we produce approximately two times as many multi-wall
      bags as the next largest producer, a subsidiary of Grupo Cemex, the leading
      Mexican cement maker, which supplies all of its production to its affiliates.
      We also sell multi-wall bags to Grupo Cemex, which is our largest customer
      for that product. Imports have not been a significant factor in this market.


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Specialty Paper.We are the
        largest producer of specialty paper in Mexico in terms of production volume.
        The large presence of imports is primarily due to the current limited
        production capacity available in Mexico. Imports account for the
        majority of apparent demand for specialty paper in Mexico.


Printing and Writing Products

Printing and Writing Paper.We
    are the largest manufacturer of cut-size bond paper in Mexico in terms of
    production and the second largest overall manufacturer of bond paper in Mexico
    after KCM. Imports represented a significant portion of the remainder of Mexican
    sales. In 2002, we ranked second in terms of Mexican sales of bond paper and
    printing and writing paper.


Manufacturing Operations

Raw Materials

Raw
  materials constituted most of our total cost of sales in 2002. The principal
  raw materials used in our paper production processes are virgin pulp, recyclable
  paper, chemicals, energy and water.


Virgin
    Pulp.Virgin pulp, which is made from wood, is a principal raw material
    used in manufacturing printing and writing products and we import our full
    virgin pulp requirements. We obtain our virgin fiber from U.S., Canadian,
    Brazilian and Asian producers. We believe that it is unlikely that we will
    have any problems obtaining virgin pulp in the future because of our long-standing
    reciprocal relationship with our suppliers and the general availability of
    virgin pulp at prevailing international market prices. See Item 5:
    Operating and Financial Review and Prospects—The International Pulp and
    Paper Products Market.


Recyclable
  Paper.Secondary fiber, which is made from recyclable paper, is the preferred
  raw material for the production of kraft paper used in packaging and, if the
  recyclable paper is of deinking grade quality, for the production of tissue
  paper and printing and writing paper. We collect recyclable paper and cardboard
  in Mexico and in the United States. The recyclable paper we collect represented
  most of our secondary fiber needs in 2002. We purchased the remaining recyclable
  paper from a wide number of suppliers located in Mexico and the United States.
  We also occasionally sell recyclable paper that does not meet our specifications
  for the production of paper products to third parties. We believe that it is
  unlikely that we will encounter significant difficulties in obtaining recyclable
  paper at reasonable prices because of the large supply currently available in
  the United States and Mexico.


We believe that we have the largest
    recyclable paper collection system in Mexico in terms of tonnage. We collect
    recyclable paper and cardboard from large industrial customers and from our
    large retail customers. We generally enter into one or two-year collection
    contracts whereby we pick up the recyclable paper and cardboard at our customers
    stores and plants and pay a negotiated price per metric ton. We have established
    ten collection centers in Mexico and the United States for receipt of both
    collected and unsolicited recyclable paper and cardboard. See —Property,
    Plants and Equipment.


We
  believe that recyclable paper should become more available as the Mexican population
  is made more aware of the impact of recycling on the environment.


Energy
  and Chemicals.We purchase the power requirements for our production facilities,
  except the Pondercel plant, from the Federal Electricity Commission or the Comisión
  Federal de Electricidad, the Mexican state-owned electric company. The Pondercel
  plant generates its own power from an adjacent energy plant which is normally
  powered by fuel oil, but which has the capacity to be powered by natural gas
  when it is necessary or cost effective to do so. We are currently negotiating
  certain arrangements with regard to our energy requirements, including possible
  cogeneration agreements with third parties in some of our plants.


We
  use chemicals such as colorants, plastifiers, fungicides and fillers in the
  production of paper, particularly specialty paper. These chemicals are purchased
  from Mexican suppliers.


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Water.The
  paper production process requires the use of significant volumes of water. As
  some of our mills are located in areas where water is scarce and therefore expensive,
  we seek to use it efficiently. We have installed water recycling facilities
  in all of our mills. We believe that our water supplies are sufficient for all
  existing and contemplated activities. At some of our plants we have constructed
  wells to supply our water needs. Our other plants, except our Ecatepec plant,
  use municipal water supplies.


We
  have obtained all necessary permits and concessions for these wells from the
  National Water Commission. In 2002, we took advantage of a 20% discount on the
  rights payable for water intakes from water wells, pursuant to an amendment
  to the Mexican Law of Federal Rights or Ley Federal de Derechos. This
  Law also provides the discount for 2003, although the transitory section provides
  for certain conditions for the applicability of such discount.


In
  Ecatepec, we receive all of the water we use at our tissue production plant
  from KCM, one of our competitors, pursuant to an agreement that expires in 2009.
  We believe that eventually KCM will renew that contract because it allows KCM
  to share its water costs with us. If KCM terminates the contract, we will be
  required to procure water directly from the municipality of Ecatepec. In the
  event of such termination, we cannot assure you that the municipality of Ecatepec
  will have sufficient water to supply our needs, or, if so, whether payments
  for such water would be at market rates.


Insurance

The
  following are the most important insurance policies we maintain:


| |  | all risk insurancefor our plants
      and machinery for up to US$180 million per event which includes coverage
      for physical damages and interruption of operations and is subject to various
      sub-limits. Our all risk insurance covers lost profits after the first seven
      days of inoperability.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                    
| |  | civil liability insurancewith a US$6
      million combined limit per event. The policy covers civil liability in respect
      of fixed assets and activities, products sold in Mexico and abroad, including
      in the United States and Canada, and leases.                                                   
| |   |                                                                                                                                                                                                                                                                                                                    
| |  | all risk freight insurancefor up to
      Ps.30 million per shipment. This insurance covers shipments originating
      from any point in the world with destinations to any other point in the
      world.                                                                                                       

We
  do not have any outstanding or uncollected insurance claims.


Intellectual Property

We own and have duly registered
    in Mexico all of our brands. We have also registered our principal brands
    in Central America. See —Market Share and Competition.


We
  use the Scottis brand for our facial tissue pursuant to a 25-year license
  from KCM that is royalty free and renewable at our discretion. We can use the
  Scottisand Regiobrands only in Mexico. For our feminine-care
  and adult-incontinence products, we use production technology developed by SCA
  Hygiene Products, AB, our joint venture partner in Sancela, pursuant to a license
  agreement.


Environmental Matters

In
  each jurisdiction in which we operate, our business operations and facilities
  are subject to stringent and complex laws and regulations relating to pollution,
  protection of public health and the environment, and employee safety and health.
  In Mexico, our operations are subject to the Mexican General Law of Ecological
  Balance and Environmental Protection (Ley General de Equilibrio Ecológico
  y Protección del Ambiente), and its related rules and various state
  and municipal laws. In accordance with this ecological law, we are subject to
  the regulatory jurisdiction of various government entities, each of which has
  significant enforcement powers to impose economic sanctions and to temporarily
  or permanently close non-complying facilities. Under this ecological law, the
  Mexican government has implemented an aggressive program to protect the environment
  by promulgating rules concerning water, land, air and noise pollution, hazardous
  substances and wastes.


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The Ministry of the Environment
    and Natural Resources adopted standards governing the quality of discharged
    water with respect to our Pondercel plant in Anáhuac, Chihuahua and
    our Industrial Papelera Mexicana plant in Uruapan, Michoacán. We have
    invested approximately US$6.4 million on the water treatment plants at such
    facilities since 2000. We believe that we are in compliance with applicable
    water discharge standards. We estimate that we will spend approximately US$6
    million within the next five years on upgrades resulting from increased production
    and water treatment for use in the production process.See Item
    3: Key Information—Risk Factors—Risk Factors Relating to Our Operations—Our
    environmental compliance costs could increase in the future.


We believe that our operations and properties are in substantial compliance with applicable environmental laws and regulations.  However, the nature of our operations expose us to the risk of claims with respect to environmental matters and there can be no assurance that material costs or liabilities will not be incurred in connection with such claims.  Based on our experience to date, we believe that the future costs of compliance with existing environmental claims pursuant to such laws will not have a material adverse effect on our business, financial position or results of operations.  However, future events such as changes in existing environmental laws or their interpretation, more vigorous enforcement policies of regulatory agencies and new information may give rise to additional expenditures or liabilities that could be material.


Information Systems

Because we have grown in part through acquisitions, our operating system platforms and applications have included a variety of hardware and software owned by the companies that we have acquired.  During 2001 and 2002 we upgraded our hardware and software, implemented an integrated, uniform and more reliable information system (CopamexPro) and trained our employees on the use of this system.  This system, which is already in use in our consumer products division, may be phased into our other operations in the future and should optimize inventory levels and reduce the aging of receivables.  We also believe that this system will increase our profitability, improve customer service and increase employee efficiency.


Corporate Information and Organizational Structure

Our full legal name is Copamex, S.A.
    de C.V. and we were registered as a corporation (sociedad anónima
    de capital variable) in Monterrey Mexico under the Mexican Companies Law
    (Ley General de Sociedades Mercantiles) on December 30, 1975
    with a corporate life of 99 years. The address of our principal executive
    office is Montes Apalaches 101, Residencial San Agustín, San Pedro
    Garza García, Nuevo León, 66260 México and our telephone
    number is +52 (81) 8152-6000.


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The table and diagram below set forth our most important subsidiaries as
    of June 1, 2003.


|Name
          of Company                                          |                                                       | Jurisdiction
          of |            | Percentage | 
|------------------------------------------------------------------ | ----------------------------------------------------- | ------------------------- | ---------- | ---------- | 
|Establishment                                                      | Owned(1)                                             
|                                                                   |                                                       |                           |            |            | 
|Copamex Productos
          al Consumidor, S.A. de C.V.            |                                                       |                           | Mexico     |            | 
|                                                                   | Sancela, S.A.
          de C.V.                       |                           |            | Mexico     | 
|                                                                   | Comercializadora Sancela,
          S.A. de C.V.      |                           |            | Mexico     | 
|                                                                   | Industrial Papelera Mexicana,
          S.A. de C.V.  |                           |            | Mexico     | 
|                                                                   | Papeles Higiénicos
          de México, S.A. de C.V.  |                           |            | Mexico     | 
|                                                                   | Papeles Higiénicos
          del Centro, S.A. de C.V. |                           |            | Mexico     | 
|                                                                   | Copamex Comercial, S.A. de
          C.V.             |                           |            | Mexico     | 
|                                                                   | Productos El Cid, S.A. de
          C.V.              |                           |            | Mexico     | 
|                                                                   |                                                       |                           |            |            | 
|Copamex Empaque,
          S.A. de C.V.                            |                                                       |                           | Mexico     |            | 
|                                                                   | Sacos y Envases Industriales,
          S.A. de C.V.  |                           |            | Mexico     | 
|                                                                   | Copamex Corrugados, S.A.
          de C.V.            |                           |            | Mexico     | 
|                                                                   | Papelera de Chihuahua, S.A.
          de C.V.         |                           |            | Mexico     | 
|                                                                   | Maquinaria y Equipo Pachisa,
          S.A. de C.V.   |                           |            | Mexico     | 
|                                                                   | Maquinaria y Equipo Papelera,
          S.A. de C.V.  |                           |            | Mexico     | 
|                                                                   | Maquinaria y Equipo Seisa,
          S.A. de C.V.     |                           |            | Mexico     | 
|                                                                   | Cía. Papelera Maldonado,
          S.A. de C.V.       |                           |            | Mexico     | 
|                                                                   | Inpamex Planta Huehuetoca,
          S.A. de C.V.     |                           |            | Mexico     | 
|                                                                   |                                                       |                           |            |            | 
|Copamex Papeles
          para Escritura e Impresión, S.A. de C.V. |                                                       |                           | Mexico     |            | 
|                                                                   | Pondercel, S.A. de C.V.                               |                           |            | Mexico     | 
|                                                                   | Comercializadora Copamex,
          S.A. de C.V.      |                           |            | Mexico     | 
|                                                                   |                                                       |                           |            |            | 
|Others                                                             |                                                       |                           |            |            | 
|Corporativo Copamex,
          S.A. de C.V.                        |                                                       |                           | Mexico     |            | 
|Grupo Copamex
          de Centroamérica, S.A..                    |                                                       |                           | Costa Rica |            | 
|Industrias Unidas
          de Centroamérica, S.A.                 |                                                       |                           | Nicaragua  |            | 

|   
|---
|   
|(1)

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Property, Plants and Equipment

Our various production facilities are located in the Mexican states of Nuevo León, Chihuahua, Jalisco, Puebla, México, Michoacán, Querétaro and in Mexico City.  Our production and conversion facilities outside of Mexico are located in Nicaragua and Costa Rica.  We own all of our facilities.  The table below sets forth the corporate ownership of, location of, and products manufactured at our significant facilities.


|Plant
        (Location)                                                                              |  | Activity                                                                            
|----------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------
|                                                                                                      |  |                                                                                     
|1.     Consumer
        Products Group                                                                |  |                                                                                     
|Papeles
          Higiénicos del Centro, S.A. de C.V. (Ecatepec, Estado de México)                    |  | Tissue
          paper production; Production of away-from-home products            
|Papeles
          Higiénicos de México, S.A. de C.V. (San Nicolás de los
          Garza, Nuevo León) |  | Tissue
          paper production; De-inking of recyclable paper                    
|Industrial Papelera
        Mexicana, S.A. de C.V. (Uruapan, Michoacán)                               |  | Tissue
          paper production; De-inking of recyclable paper                    
|Sancela, S.A.
        de C.V. (Ecatepec, Estado de México)                                            |  | Production
          of feminine-care products                                      
|Industrias Unidas
        de Centroamérica, S.A. (Granada, Nicaragua)                                 |  | Tissue
          paper production                                                   
|Grupo Copamex
        de Centroamérica, S.A. (San José, Costa Rica)                                   |  | Conversion
          of tissue paper into napkins and bathroom tissue               
|Copamex Higiene
        Infantil, S.A. de C.V.(1).                                                    |  | Production
        of Baby Diapers                                                  
|Productos El
        Cid, S.A. de C.V. (Azcapozalco, México, D.F.)                                    |  | Notebook
        Production                                                         
|                                                                                                      |  |                                                                                     
|2.     Packaging
        Products Group                                                               |  |                                                                                     
|Papelera de
        Chihuahua, S.A. de C.V. (Chihuahua, Chihuahua)                                    |  | Kraft
        paper production                                                      
|Cía. Papelera
        Maldonado, S.A. de C.V. (San Nicolás de los Garza, Nuevo León)                  |  | Kraft
        paper production                                                      
|                                                                                                      |  | Specialty
        paper production                                                  
|Sacos y Envases
        Industriales, S.A. de C.V. (San Nicolás de los Garza, Nuevo León)             |  | Glued
        bags production                                                       
|Sacos y Envases
        Industriales, S.A. de C.V. (Guadalajara, Jalisco)                             |  | Sewn
        bags production                                                        
|Sacos y Envases
        Industriales, S.A. de C.V. (Tehuacán, Puebla)                                 |  | Sewn
        and glued bags production                                              
|Sacos y Envases
        Industriales, S.A. de C.V. (Chihuahua, Chihuahua)                             |  | Glued
        bags production                                                       
|Copamex Corrugados,
        S.A. de C.V. (Azcapozalco, México, D.F.)                                  |  | Corrugated
        boxes                                                            
|Copamex Corrugados,
        S.A. de C.V. (San Nicolás de los Garza, Nuevo León)                       |  | Corrugated
        boxes                                                            
|Inpamex Planta
        Huehuetoca, S.A. de C.V. (Huehuetoca, Estado de México)                        |  | Polyethylene-laminated
          paper production for the further production of bags
|Grupo Copamex
        de Centroamérica, S.A. (San José, Costa Rica)                                   |  | Conversion
        of kraft paper into multi-wall bags                              
|                                                                                                      |  |                                                                                     
|3.     Printing
        and Writing Products Group                                                    |  |                                                                                     
|Pondercel,
        S.A. de C.V. (Anáhuac, Chihuahua)                                                  |  | Bond
        paper production                                                       
|Papelera de
        Chihuahua, S.A. de C.V. (Chihuahua, Chihuahua)                                    |  | Bond
        paper production                                                       
|Industrial
        Papelera Mexicana, S.A. de C.V. (Uruapan, Michoacán)                               |  | Bond
        paper production                                                       
|Cía. Papelera
        Maldonado, S.A. de C.V. (San Nicolás de los Garza, Nuevo León)                  |  | Bond
        paper production                                                       

|   
|---
|   
|(1)

We follow a scheduled maintenance
  program for all plant machinery involving regular maintenance shutdowns and
  we believe that our plants and equipment are currently in a good state of repair.
  We have not experienced any significant production stoppages due to equipment
  failure.


In
    addition to the aforementioned plants and facilities, we own or lease ten
    recyclable paper collection and storage sites. These sites are located in
    Chihuahua, Ciudad Juárez, Guadalajara, San Nicolás de los Garza,
    Gómez Palacio/Torreón and Saltillo in Mexico and El Paso, Albuquerque,
    McAllen and Arlington in the United States. We also have sales offices in
    Monterrey, Mexico City and Guadalajara.


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Capital Expenditures

The following table sets forth our
    historical capital expenditures for expansion of production.


|                              | Year Ended December 31,               | 
|----------------------------- | ------------------------------------- | 
|                              |                                       | 
|                              | 2000                                  | 
|                              |                                       | 
|                              | In millions
          of U.S. dollars | 
|Consumer products             | 7.9                                   | 
|Packaging products            | 9.2                                   | 
|Printing and writing products | 20.0                                  | 
|                              |                                       | 
|Total                         | 37.1                                  | 
|                              |                                       | 

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ITEM 5.   OPERATING AND
      FINANCIAL REVIEW AND PROSPECTS

The
  following discussion should be read in conjunction with, and is qualified in
  its entirety by reference to our consolidated financial statements and the notes
  thereto included under Item 18: Financial Statements. The consolidated
  financial statements have been prepared according to Mexican GAAP, and on a
  consolidated basis to reflect the financial condition and results of operations
  of us and our consolidated subsidiaries. See Note 17 to the audited consolidated
  financial statements for a discussion of certain differences between U.S. GAAP
  and Mexican GAAP.


General

Our financial condition and results of operations
    are significantly influenced by the following factors:


| |  | the state of the Mexican economy, particularly
      its effect on the demand for our products, and
| | - | ---------------------------------------------------------------------------------------------------
| |   |                                                                                                    
| |  | the value of the peso against
      the U.S. dollar and inflation rates,                           
| |   |                                                                                                    
| |  | the cost of our raw materials,
      and                                                           
| |   |                                                                                                    
| |  | our strategic acquisitions.                                                                        

Mexican Economic Factors

Substantially
  all of our operations are situated in Mexico. Approximately 93.6% of our revenues
  in 2002 and 94.7% of our revenues in 2001 resulted from sales generated within
  Mexico. Accordingly, Mexican economic conditions and government policies have
  a significant impact on our operations and revenues.


Demand for Paper Products

The
  demand for tissue products is not that sensitive to fluctuations in gross domestic
  product. For example, in 2002 Mexicos gross domestic product increased
  0.9%, while the demand for tissue products increased 7.2%. This demand is generally
  associated with retail sales. Other factors that affect the consumption of tissue
  products are increases in consumer buying power as well as the natural growth
  of the Mexican population. Our tissue products represent approximately 29% of
  our total sales.


Overall,
  apparent demand for packaging paper increased 7.2% in 2002. Cement companies,
  the primary consumers of multi-wall bags, increased the demand for multi-wall
  bags as a result of a 1.7% increase in construction activity in 2002. Our packaging
  products represent approximately 28% of our total sales.


Changes
  in Mexicos gross domestic product generally affect the demand for printing
  and writing and packaging products. As a result, our printing and writing and
  packaging product prices and gross margins, which are a measure of our gross
  profit as a percentage of net sales, are affected. For example, during 2002,
  Mexicos gross domestic product increased 0.9%, and apparent demand for
  printing and writing paper increased 5.0%. Our printing and writing products
  represent approximately 24% of our total sales.


Effect of Devaluation and Inflation

Fluctuations
  in the value of the peso and high rates of inflation have the following impact
  on our results of operations and financial condition:


| |  | The peso price of our printing and writing
      products is generally based on international prices, which are quoted in
      U.S. dollars. We import 100% of our virgin pulp requirements. The peso price
      of our printing and writing products tend to increase at a rate similar
      to the rate of peso devaluation, although during periods of poor economic
      growth, prices often increase at a rate less to the rate of peso devaluation
      or may decrease. Assuming international pulp and paper prices remain constant,
      our costs and operating expenses, which are largely in pesos, tend to increase
      at the rate of inflation. The inverse effect occurs when the rate of peso
      devaluation exceeds the inflation rate. Although the inflation rate was
      5.7%, and the peso depreciated by 13.8% in 2002, prices did not increase
      in response to the depreciation of the peso. The peso price of our packaging
      and consumer products is less sensitive to the fluctuations in the peso-dollar
      exchange rate as a lesser percentage of the raw materials for such products
      are purchased abroad.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  | Our net foreign exchange gains or losses reflect
      the impact of changes in foreign exchange rates on our assets and liabilities
      denominated in currencies other than pesos. A foreign exchange loss arises
      in our results of operations if a liability is denominated in a foreign
      currency, such as U.S. dollars, that appreciates relative to the peso between
      the time the liability is incurred and the date it is repaid. This is because
      the appreciation of the foreign currency increases the amount of pesos that
      we need to purchase the foreign currency necessary to repay the liability.
      In 2001 we recorded a foreign exchange gain of Ps.276 million, reflecting
      the impact of a peso appreciation of 4.6% on our U.S. dollar-denominated
      indebtedness of US$488 million, whereas in 2002 we recorded a foreign exchange
      loss of Ps. 675 million, reflecting the impact of a peso depreciation
      of 13.8% on our U.S. dollar-denominated indebtedness of US$383 million.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  | Our result from monetary position
      reflects the impact of inflation on our net monetary assets and liabilities.
      For example, a gain on monetary position results from holding net monetary
      liabilities in pesos during periods of inflation due to the decline in the
      purchasing power of the peso over time. In 2001, we recorded a gain of Ps.190
      million on our result from monetary position, reflecting the impact of a
      4.4% rate of inflation on our net monetary liability position, whereas in
      2002 we recorded a gain reflecting the impact of a 5.7% rate of inflation.                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  | A substantial part of our indebtedness
      outstanding on the date of this annual report is U.S. dollar-denominated.
      In periods of devaluation, the peso-carrying value of our U.S. dollar-denominated
      debt increases on our balance sheet to reflect the additional pesos required
      to meet our foreign currency liabilities and causes a reduction in our stockholders
      equity.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

Raw Material Costs

Raw
  materials account for approximately three-quarters of our total cost of sales.
  Accordingly, fluctuations in the price of raw materials have a significant impact
  on our operations and revenues.


Recyclable Paper

Secondary
  fiber, which is made from recyclable paper, is the preferred raw material for
  the production of kraft paper and, if the recyclable paper is of deinking grade
  quality, for the production of tissue paper and printing and writing paper.
  We collect recyclable paper and cardboard in Mexico and in the United States.
  The recyclable paper we collect represented most of our secondary fiber needs
  in 2002, while we purchase the remainder from a wide number of suppliers located
  in Mexico and the United States. Given the amount of recyclable imported from
  the United States, periods of depreciation of the peso, generally tend to increase
  the cost of secondary fibers.


Virgin Pulp

The
  costs of production of our printing and writing products are affected by the
  international prices of pulp. Since February 2001, we have imported 100% of
  our virgin pulp requirements, which is used for printing and writing products.
  Changes in the international prices of pulp do not significantly affect the
  prices of our consumer and packaging products, because we use a minimal amount
  of virgin pulp to make these products. See Item 3: Key Information―Risk
  Factors―Risk Factors Relating to Our Operations―Our prices, cash flow
  and our profitability for our printing and writing products may decrease because
  of down cycles in the paper industry.


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In
      2001 the average price of virgin pulp, based on the Bleached Soft-Wood Kraft
      U.S. Southern benchmark for paper prices, had fallen from US$695 per metric
      ton over the course of the year to US$445. This decrease was due to a slight
      increase in industry-wide pulp inventory levels because of a 2.5% decline
      in worldwide apparent demand for paper, a downward trend in the pulp price
      cycle, and the worldwide economic slowdown. In 2002 the average price of
      virgin pulp had increased from US$445 per metric ton over the course of
      the year to US$460. This increase was due to an increase in world-wide apparent
      demand and industry-wide pulp inventory levels.


Strategic Acquisitions

In October 2001, we acquired the operations and operating assets of COFISA, which increased our consolidated operating capacity of corrugated boxes.  In January 2002, we entered into a joint venture with El Cid, through which our notebook brands and the brands of El Cid are owned and operated.


Net Sales By Division

The table below presents our net sales to third parties by division for the years ended December 31, 2000, 2001, and 2002.


|                              |     | Year
          ended December 31,                        | 
|----------------------------- | --- | -------------------------------------------------------- | 
|                              |     |                                                          | 
|                              |     | 2000                                                     | 
|                              |     |                                                          | 
|                              |     | Pesos                                                    | 
|                              |     |                                                          | 
|                              |     | Millions
            of constant December 31, 2002 Pesos | 
|Consumer products             | Ps. | 3,738                                                    | 
|Packaging products            |     | 2,199                                                    | 
|Printing and writing products |     | 2,378                                                    | 
|                              |     |                                                          | 
|Total                         | Ps. | 8,315                                                    | 
|                              |     |                                                          | 

Fiscal Year 2002 Compared with Fiscal Year 2001

Net Sales

Net sales decreased 2.3% from Ps. 8,053 million in 2001 to Ps. 7,867 million in 2002. This decrease was due to a 6.3% decrease in net sales of printing and writing products and a 4.1% decrease in net sales of packaging products. The decrease was partially offset by a 1.0% increase in net sales of consumer products.


Consumer Products.    Consumer products sales increased 1.0% from Ps. 3,759 million in 2001 to Ps. 3,794 million in 2002. This reflects an increase in sales volume due to:


| |  | an increase in sales volume
          of tissue and feminine-care products due to efficient advertising campaigns,                                                                                                                                                                                                                                                                              
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                 
| |  | an increase in unit sales
          of baby diapers, resulting from the launching of our brand DryKids
          in February 2002, supported by an aggressive marketing campaign, and                                                                                                                                                                                                         
| |   |                                                                                                                                                                                                                                                                                                                                                                                                 
| |  | an increase in unit sales
          of adult incontinence products, based on increased demand for such products
          due to increased acceptance of such products by the Mexican market following
          an effective advertising campaign. This increase in unit sales allowed
          our brand Tena to rise from the number-two to the number-one position
          in the market.



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The increase in the sales volume of consumer products was partially offset by a decrease in sales prices in real terms due to our inability to raise prices at a rate equal to the rate of inflation because of the weak economic environment in 2002.


Packaging Products.    Packaging products sales decreased 4.1% from Ps. 2,266 million in 2001 to Ps. 2,172 million in 2002. This decrease was caused by a decrease in sales price in real terms due to poor economic growth during 2002, although partially offset by an increase of 3.8% in sales volume in 2002.


Printing and Writing Products.    Sales of printing and writing products decreased 6.3% from Ps. 2,028 million in 2001 to Ps. 1,901 million in 2002.  Sales volume has maintained relatively constant in 2002 but real prices decreased due to poor economic growth during 2002.


Cost of Sales

Cost of sales decreased 1.3% from Ps. 5,177 million in 2001 to Ps. 5,109 million in 2002.  The decrease in cost of sales was mainly due to a decline in pulp prices, offset by an increase in the price of secondary fibers, caused in part by a depreciation of the peso in 2002, an increased international demand for secondary fibers and higher operating costs associated with a new tissue machine.


| |  | (Consumer Products) a slight increase
      of 1.0% in the cost of sales of consumer products from Ps.2,046 in 2001
      to Ps.2,067 million in 2002, due to start-up costs associated with a new
      tissue machine.                                           
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                    
| |  | (Packaging Products) a 2.9% increase
      in the cost of sales of packaging products from Ps. 1,475 million in 2001
      to Ps. 1,517 million in 2002, caused by an increase in the price of secondary
      fibers during the second and third quarters of 2002.
| |   |                                                                                                                                                                                                                                                                    
| |  | (Printing and Writing Products) a
      7.9% decrease in the cost of sales of printing and writing products from
      Ps. 1,656 million in 2001 to Ps. 1,525 million in 2002, which resulted mostly
      from lower pulp costs.                                  

Gross margin decreased slightly from 35.7% in 2001 to 35.1% in 2002.


Selling and Administrative Expenses

Selling and administrative expenses increased Ps. 59 million, or 3.1%, from Ps. 1,902 million in 2001 (23.6% of sales) to Ps. 1,961 million in 2002 (24.9% of sales). This increase was due to:


| |  | an increase in advertising and promotion expenses
      of our feminine-care products, adult incontinence products, tissue products
      and baby diapers,
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                            
| |  | a new distribution center in Central America,
      and                                                                                                    
| |   |                                                                                                                                                            
| |  | an increase in transportation costs associated
      with higher sales volume.                                                                             

Operating Income

Operating income decreased 18.1% from Ps. 974 million in 2001 to Ps. 798 million in 2002. Operating margin, which is operating income as a percentage of net sales, decreased from 12.1% in 2001 to 10.1% in 2002. Operating income and operating margin decreased as a result of the decrease in net sales. EBITDA decreased Ps. 169 million or 12.4%, from Ps. 1,357 million in 2001 to Ps. 1,188 million in 2002.


Comprehensive Cost of Financing

Comprehensive cost of financing increased Ps. 842 million, from Ps. 108 million in 2001 to Ps. 950 million in 2002 for the reasons noted below.


Net Interest Expense:  Interest income decreased 4.9% from Ps. 41 million in 2001 to Ps. 39 million in 2002.  Interest expense decreased 14.8% from Ps. 603 million in 2001 to Ps. 514 million in 2002. On a net basis, interest expense decreased by Ps. 87 million, or 15.5%, in 2002 as compared to 2001. This decrease was mostly due to lower average interest rates.


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Other Financing Costs:  Other financing costs increased Ps. 24 million, from Ps. 12 million in 2001 to Ps. 36 million in 2002.  This was due to an increase in the discount on the sale of certain receivables given in exchange for amounts distributed to us prior to such sale through non-recourse factoring facilities.


Exchange Gain (Loss):  We experienced an exchange loss of Ps. 951 million in 2002, the difference between an exchange gain of Ps. 276 million in 2001 and an exchange loss of Ps. 675 million in 2002. The difference was due to the effect on our net dollar-denominated indebtedness of the 4.6% appreciation of the peso in 2001, compared to the effect of a 13.8% depreciation of the peso in 2002.


Result from Monetary Position:  Gain in monetary position increased 24.7% from Ps. 190 million in 2001 to Ps. 237 million in 2002. This increase was due to the effect of a higher inflation rate during 2002 as compared with 2001 on our net monetary position.


Other Loss

Other loss increased from Ps. 110 million in 2001 to Ps. 118 million in 2002. Other loss reflects a loss from the sale of certain assets and other items in 2002.


Asset Write Down

Our extraordinary loss reflects an adjustment of Ps. million 120 in our original estimate of the value of our pulp mill in Pondercel that closed in 2001,and a loss of approximately Ps. 75 million from the replacement of obsolete fixed assets in some of our plants and the closing of our Tlalnepanta plant.


Income and Asset Taxes and Employee Profit Sharing

Income and asset taxes and employee profit sharing changed from a loss of Ps. 99 million in 2001 to a gain of Ps. 195 million in 2002. This change resulted from a benefit of Ps. 294 million of deferred income taxes due to the decrease in the income tax rate.


Net Loss

Net loss increased from Ps. 61 million in 2001 to Ps. 357 million in 2002. This increase was due to an exchange loss, the asset write down described above and to a decrease in operating income as a result of a decrease in net sales.


Fiscal Year 2001 Compared with Fiscal Year 2000

Net Sales

Net sales decreased 3.2% from Ps. 8,315 million in 2000 to Ps. 8,053 million in 2001.  This decrease was due to a 14.7% decrease in net sales of printing and writing products.  The decrease was partially offset by a 0.6% increase in net sales of consumer products and a 3.0% increase in net sales of packaging products.


Consumer Products.  Consumer products sales increased 0.6% from Ps. 3,738 million in 2000 to Ps. 3,759 million in 2001.  This reflects an increase in sales volume due to:


| |  | an increase in sales volume of feminine-care
      products due to an efficient advertising campaign,                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                        
| |  | an increase in unit sales of baby diapers,
      which reflects the fact that we began to sell baby diapers in September
      2000, while in 2001 we sold such diapers throughout the entire year, and                                
| |   |                                                                                                                                                                                                                                        
| |  | an increase in unit sales of adult incontinence
      products, based on increased demand for such products due to increased acceptance
      of such products by the Mexican market following an effective advertising
      campaign.

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The increase in the sales volume of consumer products was partially offset by a decrease in sales prices in real terms due to our inability to raise prices at a rate equal to the rate of inflation because of the weak economic environment in 2001.


Packaging Products.  Packaging products sales increased 3.0% from Ps. 2,199 million in 2000 to Ps. 2,266 million in 2001.  This reflects an increase in sales volume resulting from new production capacity for corrugated boxes, offset in part by declining real prices for packing products overall.


Printing and Writing Products.  Printing and writing products sales decreased 14.7% from Ps. 2,378 million in 2000 to Ps. 2,028 million in 2001.  This decrease was caused by:


| |  | lower sales volume of pulp to third parties,
      associated with the closure of the Pondercel pulp mill in February 2001,
      and                                                                                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                               
| |  | a decrease in the sales prices of printing
      and writing products in real terms caused by (i) the appreciation of the
      peso against the U.S. dollar (nominal bond paper prices are generally tied
      to international pulp prices, which are quoted in U.S. dollars) and (ii)
      the rate of inflation in 2001.

Cost of Sales

Cost of sales decreased 8.6% from Ps. 5,664 million in 2000 to Ps. 5,177 million in 2001.  The decrease in cost of sales was caused by improvements in productivity and the strength of the peso against the U.S. dollar, which caused a decrease in the cost of our raw materials.


Consumer Products.  Cost of sales of consumer products decreased 3.0% from Ps. 2,109 million in 2000 to Ps. 2,046 million in 2001, caused by a decrease in raw materials prices resulting from the appreciation of the peso.


Packaging Products.  Cost of sales of packaging products decreased 2.6% from Ps. 1,515 million in 2000 to Ps. 1,475 million in 2001, caused by a decrease in the cost of raw materials resulting from the appreciation of the peso.


Printing and Writing Products.  Cost of sales of printing and writing products decreased 18.8% from Ps. 2,040 million in 2000 to Ps. 1,656 million in 2001, which resulted mostly from lower pulp costs and to a lesser extent improved productivity.


Gross margin increased from 31.9% in 2000 to 35.7% in 2001.


Selling and Administrative Expenses

Selling and administrative expenses increased Ps. 82 million, or 4.5%, from Ps. 1,820 million in 2000 (21.9% of sales) to Ps. 1,902 million in 2001 (23.6% of sales).  The increase in selling and administrative expenses was due to:


| |  | the introduction of new products such as baby
      diapers and corrugated boxes,                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                
| |  | increased advertising expenses stemming primarily
      from launching new product lines in our baby diaper market segment, and
| |   |                                                                                                                                
| |  | an increase in operating costs mainly associated
      with the growth in sales of consumer products and packaging products.   

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Operating Income

Operating income increased 17.2% from
  Ps. 831 million in 2000 to Ps. 974 million in 2001. Operating margin,
  which is operating income as a percentage of net sales, increased from 10.0%
  in 2000 to 12.1% in 2001. Operating income and operating margin increased as
  a result of the decrease in the cost of our raw materials and production costs.
  EBITDA increased Ps. 72 million, or 5.6%, from Ps. 1,285 million in
  2000 to Ps. 1,357 million in 2001.


Comprehensive Cost of Financing

Comprehensive
  cost of financing decreased Ps. 234 million, or 68.4%, from Ps. 342 million
  in 2000 to Ps. 108 million in 2001 for the reasons noted below.


Net
  Interest Expense:  Interest income increased 41.4% from Ps. 29
  million in 2000 to Ps. 41 million in 2001 because of an increase in our
  cash position, which was invested in loans to related parties at favorable terms.
  Interest expense decreased 10.0% from Ps. 670 million in 2000 to Ps. 603
  million in 2001. On a net basis, interest expense decreased by Ps. 79 million,
  or 12.3%, in 2001 as compared to 2000. This decrease was due to lower average
  interest rates and the appreciation of the peso.


Other
  Financing Costs:Other financing cost increased Ps. 8 million,
  from Ps. 4 million in 2000 to Ps. 12 million in 2001. This was due to an
  increase in the discount on the sale of certain receivables given in exchange
  for amounts distributed to us prior to such sale through non-recourse factoring
  facilities.


Exchange
  Gain (Loss): We experienced an exchange gain of Ps. 375 million in 2001,
  the difference between an exchange loss of Ps. 99 million in 2000 and an
  exchange gain of Ps. 276 million in 2001. The difference was due to the
  effect on our net dollar-denominated indebtedness of the 1.2% depreciation of
  the peso in 2000 as compared with the 4.6% appreciation of the peso in 2001.


Result
  from Monetary Position:  Gain in monetary position decreased 52.7%
  from Ps. 402 million in 2000 to Ps. 190 million in 2001. This decrease
  was due to the effect on our net peso-denominated indebtedness of a higher inflation
  rate during 2000 as compared with 2001.


Other Loss

Other
  loss increased from Ps. 74 million in 2000 to Ps. 110 million in 2001
  based on the loss from the sale of certain fixed assets.


Asset Write Down

On
  October 26, 2001, we decided to permanently close the pulp mill located at Pondercel.
  This closure resulted in an extraordinary loss on our financial statements of
  Ps. 635 million.


Income and Asset Taxes and Employee
  Profit Sharing

Income
  and asset taxes and employee profit sharing decreased from Ps. 251 million
  in 2000 to Ps. 99 million in 2001. This decrease resulted from a decrease
  in deferred income tax expense, from Ps. 220 million in 2000 to Ps. 60
  million in 2001, due to the effect of the application of Bulletin D-4. See Presentation
  of Financial and Other Information.


Net Income (Loss)

Net
  income decreased from a gain of Ps. 124 million in 2000 to a loss of Ps. 61
  million in 2001. This decrease was due to the asset write down of the Pondercel
  pulp mill described above.


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Liquidity and Capital Resources

Liquidity

General.
  We fund our cash requirements from cash flow from our subsidiaries operations
  and short-term and long-term borrowings. While we maintain lines of credit with
  various financial institutions, these lines of credit are uncommitted and may
  be terminated by such financial institutions at any time. Subject to restrictions
  on the incurrence of additional indebtedness contained in our credit agreements,
  as of March 31, 2003, we had approximately US$29.6 million of additional borrowing
  capacity under our uncommitted bank credit agreements. We estimate that our
  working capital, along with our uncommitted bank credit agreements and other
  forms of available financing, like our factoring facilities, are sufficient
  to meet our present working capital requirements.


Our
  general practice regarding short-term debt is to enter into or renew short-term
  debt on a yearly basis and to allocate it among different banks, as well as
  issuing debt securities under our Euro Commercial Paper Program, which we refer
  to as our ECP Program, and under our Mexican short-term Certificados Bursátiles
  and Commercial Paper Program described further on. We believe that this practice
  is an efficient method of securing short-term debt at beneficial interest rates
  while retaining the flexibility to refinance such debt when appropriate. We
  have focused on reducing our short-term debt, in some cases by refinancing such
  debt with long-term debt and we intend to continue such activities in the future.
  In addition, we also intend to implement debt reduction transactions in the
  future, which may include certain asset sale transactions.


Total
  debt at December 31, 2002 was Ps.5,305.7 million, an increase of Ps.233.1, as
  compared to Ps. 5,072.6 million as of December 31, 2001, or 4.6% compared to
  the debt level at December 31, 2001. This increase is due to the depreciation
  of the peso against the U.S. dollar during 2002, however total debt denominated
  in U.S. dollars decreased from US$523.4 million at December 31, 2001 to US$508.2
  at December 31, 2002. All of our debt outstanding at December 31, 2002 was U.S.
  dollar-denominated except Ps. 1,306 million. Of our total debt at December 31,
  2002, Ps. 771.0 million (not including the current portion of long-term debt)
  was short-term debt and Ps. 4,534.7 million was long-term debt.


Potential International Finance
        Corporation Loan. On June 12, 2003, the Board of Directors of the
        private sector entity of the World Bank Group, the International Finance
        Corporation, commonly referred to as the IFC, approved financial package
        aimed at refinancing a substantial part of our debt, including the Notes.
        Such package is comprised of (i) a loan of up to US$50 million (for the
        account of IFC), (ii) a loan of up to US$60 million to be syndicated among
        credit institutions, (iii) a convertible loan of up to US$25 million (for
        the account of IFC) and (iv) arranging support in order to syndicate a
        loan of up to US $81 million from local lenders. As of the date of this
        annual report, we have concluded negotiating the documentation relating
        to first three loans mentioned above. No assurances can be made, however,
        that we will obtain funding under any of these loans.


The
  11.375% Senior Notes due 2004. In April 1997, we issued US$200 million of
  Notes pursuant to an indenture dated as of April 25, 1997 among us, IBJ Schroder
  Bank and Trust Company, as Trustee and Citibank, N.A., as Administrative Agent.
  We used the net proceeds of this issuance to refinance short-and long-term debt
  owed by us and by our subsidiaries. We have since repurchased some of the Notes
  in the secondary market, and approximately US$173.3 million of these Notes remain
  outstanding as of December 31, 2002.


In
  September 2002, we requested that the holders of the Notes consent to certain
  amendments to the indenture pertaining to such Notes, because of an omission
  in the indenture, pertaining to our ability to redeem the Notes at our option,
  in whole or in part, at any time on or after April 30, 2002 at specified redemption
  prices. The requested consent was approved by the noteholders.


Syndicated
  Credit Facilities. In March 2000, we entered into a US$130 million credit
  facility with certain banks and Citibank, N.A., as administrative agent, which
  we refer to as the Syndicated Credit Facility I. We borrowed US$130 million
  under this facility and used the proceeds to refinance existing debt. In March
  2002, we entered into a US$72 million credit facility with certain banks and
  Citibank, N.A., as administrative agent, which we refer to as the Syndicated
  Credit Facility II. Syndicated Credit Facilities I and II are collectively referred
  to herein as the Syndicated Credit Facilities. We borrowed the full amount under
  this facility and used the proceeds to refinance existing debt, including amounts
  borrowed under the Syndicated Credit Facility I. The Syndicated Credit Facility
  I bears interest at 3 month LIBOR plus a rate between 3.0% and 5.0%, based on
  our debt to EBITDA ratio. The Syndicated Credit Facility II mirrors the interest
  rate obligation contained in the Syndicated Credit Facility I. As of December
  31, 2002, the Syndicated Credit Facility I, which matures in March 2004, and
  the Syndicated Credit Facility II, which matures in March 2006, have a balance
  of US$50 million and US$72 million outstanding, respectively.


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Banorte Credit Facility. In August 2002,
  we entered into a US$6 million credit facility with Banco Mercantil de Norte,
  S.A., as lender, which we refer to as the Banorte Credit Facility. We borrowed
  US$6 million under this facility and used the proceeds to refinance existing
  short-term debt. This credit facility bears interest at six-month LIBOR plus
  4.5%, and the principal amount is due on August 11, 2006.


ECP
  Program. In April 2001, we entered into a US$150 million ECP Program, whereby
  we may issue notes to non-U.S. investors pursuant to Regulation S of the Securities
  Act. As of December 31, 2002, the outstanding amount of short-term notes issued
  under the ECP Program was US$27.0 million. The proceeds were used to refinance
  our short-term debt. These notes bear a weighted average interest rate of 8.19%,
  and the principal amounts are due before December 2003.


Short-term
  Certificados Bursátiles Program.  In February 2003, we
  entered into a Ps. 200 million (US$19.6 million) short-term certificados
  bursátilesprogram, which we refer to as the Short-term Certificados
  Bursátiles Program, whereby we may issue short-term notes listed
  on the Mexican Stock Exchange, on a revolving basis. By May 31, 2003, we
  had issued notes for Ps. 120 million (US$11.6 million). The proceeds were used
  to refinance our short-term debt.


Certificados Bursátiles
        Programs. In December 2001, we launched a Ps. 1 billion (US$95.8 million)
        certificados bursátiles program, which we refer to
        as the Certificados Bursátiles Program, similar to a medium-term
        note program. In December 2001, we issued Ps. 300 million (US$28.7 million)
        in 3 year notes listed on the Mexican Stock Exchange. These notes bear
        interest at 4 week Mexican Interbanking Balanced Rate, which we refer
        to as TIIE, plus 1.75 percentage points. In April 2002, we issued an additional
        Ps. 300 million (US$28.7 million) in 4 year notes, which we refer to as
        the Certificado BursátilII, bearing interest at 2.75 percentage
        points over the yield of six month Cetes. In August 2002, we issued the
        remaining Ps. 400 million (US$38.3 million) in 5 year notes, which
        we refer to as the Certificado BursátilIII, bearing interest
        at 3.25 percentage points over the yield of six month Cetes. The proceeds
        from these issuances have been used to repay existing indebtedness. All
        Certificado BursátilI, Certificado BursátilII
        and Certificado BursátilIII remain outstanding. In February
        2003 we launched a Ps. 1 billion (US$95.8 million) certificados
        bursátiles program. There are no amounts currently outstanding
        under the program.


Mexican
  Commercial Paper Program. In March 2002, we entered into a Ps. 500 million
  (US$47.9 million) one-year commercial paper program, which we refer to as the
  Mexican Commercial Paper Program, whereby we may issue short-term Notes listed
  on the Mexican Stock Exchange. By December 31, 2002, we had issued notes for
  Ps. 278 million (US$26.6 million), but there are no amounts currently outstanding
  under the program. The Mexican Commercial Paper Program expired in March 2003.


The
  following table presents our amortization requirements with respect to our total
  indebtedness as of December 31, 2002.


|Year |  | In
      millions of U.S. dollars |      
|---- |  | --------------------------------- | -----
|     |  |                                   |      
|2003 |  | US$                               | 122.7
|2004 |  |                                   | 269.8
|2005 |  |                                   | 27.6 
|2006 |  |                                   | 49.0 
|2007 |  | US$                               | 39.1 

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The indenture governing the Notes, the terms of
    the Syndicated Credit Facilities, the terms of the Certificado Bursátil
    I, and the ECP Program, and the terms of our other indebtedness impose
    restrictions on us, including among other things, the maintenance of certain
    operating and financial ratios, and affect, and in many respects limit or
    prohibit, among other things, our ability to pay dividends, incur indebtedness,
    create liens, enter into transactions with affiliates and consummate certain
    asset sales.


Other Contractual Obligations

GE Factoring Facility. In December 2001,
    we signed a master agreement with GE Capital Bank S.A., which we refer to
    as GE Capital Bank, creating a revolving factoring facility without recourse
    whereby we may transfer accounts receivable to GE Capital Bank, up to Ps.260
    million (US$24.9 million). The account receivables that are eligible for assignment
    to GE Capital Bank correspond to certain premium clients. As of December 31,
    2002, the amount outstanding under this facility was Ps.182 (US$17.5 million).


Banorte Factoring Facilities. In March 2002,
    we signed a master agreement with Factor Banorte, S.A., which we refer to
    as Factor Banorte, creating a revolving factoring facility without recourse
    whereby we may transfer accounts receivable to Factor Banorte. Pursuant to
    an amendment in December 2002, the authorization was increased Ps. 100 million
    to Ps. 150 million (US$14.37 million). The account receivables that are eligible
    for assignment to Factor Banorte correspond to certain premium clients. As
    of December 31, 2002, the amount outstanding under this facility was Ps. 150
    million (US$14.4 million). In March 2003, we signed a second master agreement
    with Factor Banorte for an amount of up to Ps. 400 million (US$38.32 million).


Heller Factoring Facilities. In May 2002,
    we signed a framework agreement with Heller Financial (México), S.A.
    de C.V., which we refer to as Heller Financial, which created a revolving
    factoring facility without recourse whereby we may transfer accounts receivable
    to Heller Financial, up to Ps. 60 million (U.S.$5.75 million). In September
    2002, we signed an additional framework agreement with Heller Financial, which
    created a revolving factoring facility without recourse whereby we may transfer
    accounts receivable to Heller Financial, up to Ps. 48.5 million (U.S.$4.65
    million). The accounts receivable that are eligible for assignment to Heller
    Financial under the foregoing facilities are held by certain premium clients.
    As of December 31, 2002, the amount outstanding under this facility was Ps. 80.4
    million (US$7.7 million).


GE Machinery Operating Leases. In October
    1999, we signed a six-year true lease for packaging equipment with GE Capital
    CEF México, S.A. de C.V. which we refer to as GE Capital Mexico, whereby
    we pay annual rents to GE Capital Mexico in the amount of US$1.4 million.
    In December 2000, we signed a seven-year true lease for tissue production
    machinery with GE Capital Mexico, whereby we pay annual rents to GE Capital
    Bank in the amount of US$2.6 million.


Bancomer Swap. In January 2002, we entered
    into a Ps. 150 million interest and currency swap with BBVA Bancomer, S.A.,
    which we refer to as Bancomer, with maturity on December 2004 whereby we receive
    interest at a rate equivalent to (4 week) TIIE plus 4.15 percentage points
    accrued over Ps.150 million and we are obligated to pay interest at a fixed
    rate of 8.70% on US$16.4 million, equivalent to such peso amount.


The following table sets forth our known contractual
    obligations as of December 31, 2002, aggregated by type of contractual obligation.


|Contractual
      Obligations   |  | Payments
      due by Period(in millions of U.S. dollars) | 
|------------------------------- |  | --------------------------------------------------------- | 
|                                |  |                                                           | 
|                                |  | Total                                                     | 
|                                |  |                                                           | 
|Long-Term Debt                  |  | 434.4                                                     | 
|Capital Lease
      Obligations |  | ―                                                         | 
|Operating Leases                |  | 22.9                                                      | 
|Total Obligations               |  | 457.3                                                     | 

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Off-Balance Sheet Arrangements

Our factoring facilities are off-balance sheet
    arrangements. Please see Other
    Contractual Obligations.


Capital Expenditures

We expect to make certain capital expenditures
    over the next few years to expand existing operations, particularly in the
    area of consumer products. The degree and timing of capital expenditures will
    remain strongly dependent on economic developments in Mexico, including inflation
    and exchange rates, and the availability of suitable financing. We currently
    anticipate that we will spend approximately US$13 million for capital expenditures
    from January 1, 2003 through December 31, 2003.


For the three-year period from January 1, 2003
    through December 31, 2005, our anticipated capital expenditures, by division
    are as follows:


|Division                            |  | Capital
      Expenditures        |     
|----------------------------------- |  | --------------------------------- | ----
|                                    |  |                                   |     
|                                    |  | In millions
      of U.S. dollars |     
|Consumer products                   |  | US$                               | 49.3
|Packaging products                  |  | US$                               | 35.1
|Printing and writing
      products |  | US$                               | 6.6 
|Total                               |  | US$                               | 91.0

Approximately two thirds of the total capital expenditures
    amount provided above is to be applied during 2005, given that capital expenditures
    applied through 2002 will allow us to lower our capital expenditures substantially
    during 2003 and 2004.


We expect to be able to fund our future capital
    expenditures and to meet our other obligations with funds from operations,
    bank lines of credit and other financing facilities and capital infusions.
    We believe that funds from operations and our current bank lines of credit
    will be sufficient to meet our anticipated capital expenditures through 2003.
    We cannot assure you that additional financing will be available to meet our
    capital requirements or obtainable on terms favorable to us if it is available.


Covenant Waivers under Bank Agreements

On December 27, 2000, we requested waivers for
  2000 regarding the interest coverage maintenance test and the leverage incurrence
  test under Syndicated Credit Facility I. At the same time, we requested an amendment
  of the levels of the interest coverage maintenance test and the leverage maintenance
  and incurrence tests under the same credit facility. These waivers and amendments
  were obtained on February 26, 2001.


On July 15, 2002, we requested waivers for the
  quarter ended June 30, 2002 regarding the Debt to EBITDA Ratio Covenant under
  the Syndicated Credit Facility I. At the same time, we requested an amendment
  to the levels of the interest coverage maintenance test, the leverage maintenance
  test and the leverage incurrence test, under the same credit facility. These
  waivers and amendments were obtained on August 30, 2002.


On July 15, 2002, we requested waivers for the
  quarter ended June 30, 2002 regarding the Debt to EBITDA Ratio Covenant under
  Syndicated Credit Facility II. At the same time, we requested an amendment to
  the levels of the interest coverage maintenance test and the leverage maintenance
  test, under the same credit facility. These waivers and amendments were obtained
  on August 30, 2002.


Use of Estimates in Certain Accounting Policies

In preparing our financial statements, we make
  estimates concerning a variety of matters. Some of these matters are highly
  uncertain, and our estimates involve judgments we make based on the information
  available to us. In the discussion below, we have identified several of these
  matters for which our financial presentation would be materially affected if
  either (a) we used different estimates that we could reasonably have used or
  (b) in the future we change our estimates in response to changes that are reasonably
  likely to occur.


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The discussion addresses only those estimates that
  we consider most important based on the degree of uncertainty and the likelihood
  of a material impact if we used a different estimate. There are many other areas
  in which we use estimates about uncertain matters, but the reasonably likely
  effect of changed or different estimates is not material to our financial presentation.


Allowance for doubtful accounts

We maintain an allowance for doubtful accounts
  based on our estimates of losses that we have experienced in the past with similar
  accounts receivables. As of December 31, 2002, the amount of the allowance was
  Ps. 54 million. The amount of the allowance is based on our statistical
  analysis and economic and financial conditions of customers that evidence the
  most significant aging balances, however, our allowance could prove insufficient
  if our statistical analysis of our accounts receivables is inadequate.


Estimated useful life of property, plants
  and equipment

We estimate the useful life of particular classes
  of property, plants and equipment in order to determine the amount of depreciation
  expense to be recorded in each period. Depreciation expense is a significant
  element of our costs, amounting to Ps.390 million in 2002. The useful life of
  fixed assets is determined each year by independent appraisals, based on historical
  experience with similar assets in Mexico, technological changes and other factors.
  Changes in technology or other factors may result in a re-adjustment of their
  estimated useful life and may increase depreciation expenses.


Deferred taxes

Each year, we estimate the amount of deferred taxes
  assets in accordance with the procedures set forth in Note 13c to our financial
  statements. Each year, we project that we may use a certain amount in deferred
  taxes assets to reduce our future tax liability, based on the taxes paid in
  prior years and on our estimated tax liability for future years. If our estimates
  of our future tax liability were to be revised downwards, we would have to recognize
  a charge-off and write-down those tax credits that were not recoverable.


Reconciliation to U.S. GAAP

The following table sets forth a comparison of
  our net income, stockholders equity and working capital, measured as
  current assets minus current liabilities, under Mexican GAAP and U.S. GAAP.


|                                                                     | At
      or for the Year Ended
      December 31, |                                                         
|-------------------------------------------------------------------- | ------------------------------------------------- | --------------------------------------------------------
|                                                                     |                                                   |                                                         
|                                                                     | 2000                                              |                                                         
|                                                                     |                                                   |                                                         
|                                                                     |                                                   | Millions
      of constant
      December 31, 2002 pesos
|                                                                     |                                                   |                                                         
|Net income (loss)
      before minority interest in accordance with: |                                                   |                                                         
|Mexican
      GAAP                                                   | Ps.                                               | 164                                                     
|U.S.
      GAAP                                                      |                                                   | 288                                                     
|Stockholders
      equity in accordance with:                       |                                                   |                                                         
|Mexican
      GAAP                                                   | Ps.                                               | 4,666                                                   
|U.S.
      GAAP                                                      |                                                   | 4,139                                                   
|Working capital
      in accordance with:                            |                                                   |                                                         
|Mexican
      GAAP                                                   | Ps.                                               | (349                                                    
|U.S.
      GAAP                                                      |                                                   | (845                                                    

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The principal differences between Mexican GAAP
        and U.S. GAAP as they relate to us are the treatment of capitalized interest,
        deferred income taxes, minority interest, amortization of negative goodwill,
        inflation, and inventory valuations. See below and Note 17 to the audited
        consolidated financial statements for a description of these differences.


Inflation Adjustments

The
  reconciliation to U.S. GAAP does not include the reversal of the adjustments
  to the financial statements for the effects of inflation required under Mexican
  GAAP Bulletin B-10, because the application of Bulletin B-10 represents a comprehensive
  measure of the effects of price level changes in the Mexican economy. As such,
  Bulletin B-10 is considered a more meaningful presentation than historical cost-based
  financial reporting for both Mexican and U.S. accounting purposes.


Capitalized Interest

Under
  Mexican GAAP, we have the option of capitalizing the cost of financing on assets
  in construction. Under U.S. GAAP, interest must be considered an additional
  cost of constructed assets to be capitalized in property, plant and equipment
  and depreciated over the lives of the related assets.


Deferred Income Taxes

Mexican
  labor law requires us to pay employee profit sharing. In accordance with Bulletin
  D-4, deferred employee profit sharing is recognized only on temporary differences
  determined in the current year reconciliation between the net income for financial
  and for employee profit sharing purposes, provided that there is no indication
  that the related liabilities or assets will not be realized in the future. Deferred
  employee profit sharing for U.S. GAAP purposes has been determined following
  the guidelines established by the Statement of Financial Accounting Standards
  No. 109 Accounting for Income Taxes. The Statement requires deferred
  income tax to be determined using the liability method for all temporary differences
  between financial reporting and tax bases of assets and liabilities.


Minority Interest

Under
  Mexican GAAP, minority interest in consolidated subsidiaries is presented as
  a separate component within the stockholders equity section in the consolidated
  balance sheet. For U.S. GAAP purposes, minority interest is not included in
  stockholders equity.


Amortization of Negative Goodwill

Under
  Mexican GAAP, when the fair value of acquired assets exceeds the cost of the
  acquired entity and results in the recognition of negative goodwill, it is applied
  immediately to income. For US GAAP purposes, the excess would have been allocated
  as a pro rata reduction of the fair value of the net assets acquired and would
  have reduced the associated depreciation expense over the remaining useful life
  of these assets.


Inventory Valuations

Under
  Mexican GAAP, a direct costing system, which considers only the variable costs
  of production to value inventory, is utilized. Under U.S. GAAP, inventory valuation
  must include all production costs, whether fixed or variable.


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ITEM 6.   DIRECTORS,
  SENIOR MANAGEMENT AND EMPLOYEES

Directors

The
  following table sets forth the name, date of birth, position and term of service
  of each director of our company as of June 24, 2003. The members of the board
  of directors are not appointed for a specific term. Directors serve at the discretion
  of our shareholders holding a majority of our equity.


|Name                                      |  | Date of Birth |  | Position              |  | Current Position
      Held Since
|----------------------------------------- |  | ------------- |  | --------------------- |  | ---------------------------------
|                                          |  |               |  |                       |  |                                  
|Juan Bosco Maldonado Quiroga              |  | 12/27/1956    |  | Chairman of the Board |  | 1994                             
|Alejandro Martín Ferrigno
      Maldonado |  | 10/20/1964    |  | Director              |  | 1991                             
|Gonzalo Luis Lozano García                |  | 08/25/1935    |  | Director              |  | 1978                             
|Sergio F. de la Garza y de Silva          |  | 02/04/1956    |  | Director              |  | 2000                             
|Ricardo Maldonado González                |  | 04/11/1953    |  | Director              |  | 1992                             
|Carlos Luis Díaz Sáenz                    |  | 01/18/1960    |  | Director              |  | 1999                             

Senior Management

The
  following table sets forth the name, date of birth, position and term of service
  of each executive officer of our company as of June 24, 2003. Executive officers
  are not appointed for a specific term. Executive officers serve at the discretion
  of the board of directors.


|Name                                      |  | Date of Birth |  | Position                                                                |  | Current Position
      Held Since
|----------------------------------------- |  | ------------- |  | ----------------------------------------------------------------------- |  | ---------------------------------
|                                          |  |               |  |                                                                         |  |                                  
|Juan Bosco Maldonado Quiroga              |  | 12/27/1956    |  | Executive President                                                     |  | 1992                             
|Alejandro Martín Ferrigno
      Maldonado |  | 10/20/1964    |  | Chief Executive Officer                                                 |  | 1996                             
|Gonzalo Luis Lozano García                |  | 08/25/1935    |  | Senior Vice President                                                   |  | 1997                             
|Sergio F. de la Garza y de Silva          |  | 02/04/1956    |  | Chief Corporate Officer                                                 |  | 1992                             
|Armando Fernández Murguía                 |  | 10/07/1945    |  | Chief Governmental Relationships
      Officer                          |  | 1996                             
|Oscar Vázquez Rojas                       |  | 10/18/1939    |  | Managing Director of Packaging
      Division                           |  | 1999                             
|Oscar Castillo Hinojosa                   |  | 01/07/1946    |  | Sales Managing Director of Printing
      and Writing Products Division |  | 1999                             
|Juan Rangel Aguilar                       |  | 04/26/1957    |  | Managing Director for Multi-wall
      Bags                             |  | 1999                             
|Alfredo Garrido Blanco                    |  | 12/30/1965    |  | Managing Director for Central
      America Division                    |  | 2003                             
|Vicente Cortina Bussutil                  |  | 10/04/1949    |  | Managing Director of Consumer
      Products Division                   |  | 2002                             
|Carlos Luis Díaz Sáenz                    |  | 01/18/1960    |  | General Counsel                                                         |  | 1999                             
|Francisco Javier Fuentes García           |  | 04/06/1951    |  | Chief Officer of Human Resources                                        |  | 1997                             
|Rogelio Martínez Cardona                  |  | 06/30/1950    |  | Chief Assistant Officer of Internal
      Control and Audit             |  | 1995                             
|Rodolfo Gutiérrez Peña                    |  | 04/09/1958    |  | Corporate Comptroller                                                   |  | 1991                             
|Armando Vázquez Castillo                  |  | 12/01/1950    |  | Managing Director of Corrugated
      Products                          |  | 1999                             
|Carlos Grave Moosbrugger                  |  | 02/21/1951    |  | Managing Director of Purchasing
      and Logistics                     |  | 1999                             
|Pedro Gallardo Arellano                   |  | 06/29/1952    |  | Chief Officer of Information                                            |  | 1997                             
|Jesús González
      Juárez               |  | 10/02/1956    |  | Chief Officer of Treasury                                               |  | 1996                             
|José Peregrina Gómez                      |  | 04/22/1956    |  | Managing Director of Research
      and Development                     |  | 2000                             
|Manuel Gamiño Méndez                      |  | 07/22/1951    |  | Managing Director of Consumer
      Products Operation                  |  | 2000                             

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Family Relationships

Juan
  Bosco Maldonado Quiroga is the uncle of Alejandro Martín Ferrigno Maldonado.
  Ricardo Maldonado González and Juan Bosco Maldonado Quiroga are cousins.


Statutory Auditor

Under
  our corporate charter and in accordance with Mexican law, each year our shareholders
  must elect at least one statutory auditor (comisario) and may elect a
  corresponding alternate statutory auditor. The primary role of a statutory auditor
  is to supervise all of our activities and report to our shareholders at the
  annual ordinary general meeting of shareholders regarding the accuracy, sufficiency
  and completeness of the financial information presented to the shareholders
  by the Board of Directors. Currently, the statutory auditor is Héctor
  Isao Hongo Tsuji, a partner at the firm of Mancera, S.C., an independent auditor.


Biographies

Juan
  Bosco Maldonado Quirogahas been a member of the Board of Directors since
  April 1982, Chairman of the Board of Directors since March 1994 and Executive
  President since March 1992. Mr. Maldonado also served as Executive Vice
  President from February 1980 through March 1992. From March 1978 to January
  1980, Mr. Maldonado served as production manager of SEISA. Since January
  1976, Mr. Maldonado has also served in a variety of capacities with our affiliates.
  Mr. Maldonado holds a degree in business administration from the Universidad
  Nacional Autónoma de México, which we refer to as UNAM.


Alejandro
  Martín Ferrigno Maldonadohas been a member of the Board of Directors
  since March 1991 and Chief Executive Officer since June 1996. Mr. Ferrigno has
  also served as Chief Operating Officer from June 1994 through June 1996. From
  November 1990 through May 1994, he served as General Manager of Cajas y Empaques
  Monterrey, S.A. de C.V. and, from January 1986 through October 1990, as Commercial
  Manager of Copamex. Mr. Ferrigno holds a degree in industrial and systems
  engineering from the Instituto Tecnológico y de Estudios Superiores de
  Monterrey, which we refer to as ITESM.


Gonzalo
  Luis Lozano Garcíahas been a member of the Board of Directors since
  April 1978 and Executive Vice President since August 1997. Mr. Lozano has also
  served in a variety of capacities with our affiliates since November 1953. From
  January 1950 through October 1952, he served as Audit Supervisor for the Ministry
  of Finance and Public Credit. Mr. Lozano holds a degree in accounting from ITESM.


Ricardo
  Maldonado Gonzálezhas been a member of the Board of Directors since
  April 1992. Mr. Maldonado has also served as Vice-minister of the Agricultural
  Development of Monterrey, or Subsecretario de Fomento y Desarrollo Agropecuario,and is a member of the Mexican Association of Ministries of Agricultural
  Development of Monterrey, or Asociación Mexicana de Secretarios de Desarrollo
  Agropecuario de Monterrey. He is a member of the board of directors of Recubrimientos
  y Laminaciones de Papel S.A. de C.V. and serves as General Manager of Inmobiliaria
  Ricardo Maldonado G., S.A. de C.V. Mr. Maldonado holds a degree in agronomic
  engineering from Texas A&M University.


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Sergio Francisco de la Garza
        y de Silvahas been Chief Corporate Officer since February 1992. As
        Chief Corporate Officer, he continues to perform his duties as Chief Financial
        Officer, a position that he held from September 1987 through February
        1992. For more than eight years prior to holding such positions, Mr. de
        la Garza worked in various capacities in the banking industry: from December
        1984 through September 1987, he served as Branch Manager for Banamex;
        and from January 1978 through June 1978, Mr. de la Garza served as Credit
        Analyst for Banco Mercantil de Monterrey, S.N.C. Mr. de la Garza holds
        a degree in accounting from ITESM and a doctorate in business administration
        from the University of Paris I- Sorbonne. Mr. de la Garza also holds an
        A.D.-2 degree from the Instituto Panamericano de Alta Dirección de
        Empresas, or IPADE.


Armando Fernández Murguíahas been Chief Governmental Relationships Officer since July 1996.  From January 1992 through July 1996, Mr. Fernández served as General Coordinator of Copamex Comercial, S.A. de C.V. and from April 1978 through December 1991, he served as General Manager in Mexico for Corporativo Copamex, S.A. de C.V.  Mr. Fernandez holds a degree in economics from ITESM.


Oscar Vázquez Rojashas been Managing Director of the Packaging Division since February 2001.  Mr. Vázquez has also served as Director for Consumer Products Operations from August 1997 through April 1999, and from October 1995 through July 1997 as Director for Monterrey Operations.  Since October 1985, Mr. Vázquez has served in a variety of capacities with us and with our affiliates.  Mr. Vázquez holds a degree in chemical engineering from UNAM.  He also holds a masters degree in industrial engineering from Stanford University. Oscar Castillo Hinojosahas been Managing Director for Industrial Products Division since April 1999.  Mr. Castillo has also served as Director for Industrial Products Operations from August 1998 through April 1999.  From February 1997 through July 1998 Mr. Castillo served as Director for Kraft Production Operations.  Mr. Castillo has served in a variety of capacities with our affiliates since March 1978.  Mr. Castillo holds a degree in electrical mechanical engineering and a masters degree in control from the Universidad Autónoma de Nuevo León, which we refer to as UANL.


Juan Rangel Aguilarhas been Managing Director for the Multi-wall Bags Division since April 1999.  From April 1997 through April 1999, Mr. Rangel served as Manager Logistics of Corporativo Copamex.  Mr. Rangel holds a degree in electronics and communications engineering from ITESM and a masters degree in industrial engineering from the Georgia Institute of Technology. Alfredo Garrido Blancohas
        been Managing Director for our Central America Division since May 2003.
        From December 1997 through April 2003, Mr. Garrido served as Consumer
        Commercial Manager of Grupo Copamex de Centroamérica. From January
        1995 through November 1997, Mr. Garrido served as Commercial Manager of
        Coaper, S.A. Mr. Garrido holds a degree in industrial engineering from
        Universidad Autónoma de Centroamérica (Costa Rica).


Vicente Cortina Bussutil has been Managing Director for Consumer Products since September 2002.  From August 2000 to August 2002, he owned and operated a self-owned dairy products company.  From 1999 to July 2000 he was General Section Director of Grupo Desc, S.A. de C.V.  From 1995 to 1998, he was Regional Vice President at Tricon Internacional, S.A. de C.V.  From 1980 to 1994 he held various positions in different countries while working for the Danone Group.  From 1973 to 1979 he held various positions in the sales department of Sabritas, a subsidiary of Pepsico, Inc.  Mr. Cortina holds business and masters in business administration degrees from Instituto Tecnológico Autónomo de México. Carlos Luis Díaz Sáenzhas been a member of the Board of Directors and General Counsel since April 1999.  From June 1987 through September 1994, Mr. Díaz served as International Legal Manager of Fomento Económico Mexicano, S.A. de C.V. and, from September 1994 through March 1999, he served as International Legal Manager of FEMSA Cerveza, S.A. de C.V.  Mr. Díaz holds a law degree from the Universidad de Monterrey, which we refer to as UDEM.


Francisco Javier Fuentes Garcíahas been Chief Officer of Human Resources since November 1997.  From December 1994 through November 1997, Mr. Fuentes served as manager of human resources with Galvak, S.A. de C.V.  From February 1978 through December 1994, Mr. Fuentes also served in a variety of capacities with HYLSA, S.A. de C.V.  Mr. Fuentes holds a degree in mechanical engineering from ITESM.  He also holds a masters degree in economics from the University of Utah and an A.D.-1 degree from IPADE.


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Rogelio Martínez Cardonahas been Chief Officer of Internal Control and Audit since December 1995.  From September 1992 through December 1995, Mr. Martínez served as Audit Manager.  Since November 1979, Mr. Martínez has served in a variety of capacities with us.  Mr. Martínez holds a degree in public accounting from the Universidad Regiomontana, which we refer to as UR.


Rodolfo Gutiérrez
        Peñahas been Corporate Comptroller (i.e. chief accounting
        officer) since June 1991. From November 1985 through June 1991, Mr. Gutierrez
        served as accounting and tax supervisor for Grupo Cemex and from January
        1984 through October 1985, he served as financing planning supervisor
        of our company. Mr. Gutiérrez holds a degree in public accounting
        from ITESM.


Armando Vázquez Castillohas been Managing Director of Corrugated Products since April 1999.  Mr. Vázquez served as Director of Packaging from January 1993 through April 1999.  Mr. Vázquez also served in a variety of capacities with our affiliates since 1972.  Mr. Vázquez holds a degree in industrial administrative engineering from UR.


Carlos Grave Moosbruggerhas been Managing Director of Purchasing and Logistics since April 1999.  From January 1994 through April 1999, Mr. Grave served as Director of Purchasing and from January 1989 through December 1993, he served as Director of Logistics.  Since June 1979, Mr. Grave has served also in a variety of capacities with us.  Mr. Grave holds a degree in business administration from ITESM.


Pedro Gallardo Arellanohas been Chief Officer of Information since August 1997.  From June 1980 through August 1997, Mr. Gallardo served in a variety of capacities with Cydsa, S.A. de C.V.  Mr. Gallardo holds a degree in computer systems engineering from ITESM.


Jesús González Juárezhas been Chief Officer of Treasury since December 1996.  From January 1990 through December 1996, Mr. Gonzalez served as Finance Manager.  Since January 1979, Mr. González has served in a variety of capacities with us.  Mr. González holds a degree in public accounting from UDEM.


José Peregrina Gómezhas been Managing Director of Research and Development since March 2000.  From January 1995 through March 2000 Mr. Peregrina served as General Manager of Pondercel, and from January 1991 through December 1994, he served as Manager of Research and Development.  Previously, from March 1982 through January 1991, Mr. Peregrina served as Project Manager with Compañía Industrial de Atenquique, S.A. de C.V. and from January 1975 through February 1982, he served in different capacities with Loreto & Peña Pobre.  Mr. Peregrina holds a degree in chemical engineering from the Universidad de Guadalajara and a masters degree in wood, cellulose and paper from the Wood, Cellulose and Paper Institute.


Manuel Gamiño Méndezhas been Managing Director of the Consumer Products Division since July 2000.  From August 1997 through June 2000, Mr. Gamiño served as General Manager of Inpamex Planta Huehuetoca, S.A. de C.V.  Previously, from January 1997 through August 1997, Mr. Gamiño served as Plant Manager with Simec, S.A. de C.V. and from July 1972 through November 1996, he served in different capacities with Crisoba, S.A. de C.V.  Mr. Gamiño holds a degree in mechanical engineering from the Universidad Michoana de San Nicolás de Hidalgo.


Compensation of Directors and Senior Management

In 2002, the aggregate amount
of compensation that we paid to all directors and executive officers as a
group was Ps. 63.5 million.  None of our directors are entitled to benefits
upon termination of their employment.


Employees

As of December 31, 2002, we employed approximately 6,800 people.  Approximately 57% of the workforce is unionized.  We negotiate biannual agreements with each of the seventeen unions that represent our workers, except that, as required by Mexican law, we renegotiate wages yearly.  We have not experienced a strike in over thirteen years.  We believe that our relations with our employees and their unions are good.


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Share Ownership by Directors and Senior Management

The following tables show the beneficial
    ownership of our capital stock at March 31, 2003 of each director and
    senior manager. Our share capital is currently divided into A, B, C, D, E,
    F, G, and H shares. The directors and senior managers do not have different
    or preferential voting rights with respect to those shares they own.


|                                          | Number
      of Shares Owned |  | Percentage
      of
      Total Capital
      Stock Owned | 
|----------------------------------------- | ---------------------------- |  | --------------------------------------------------------- | 
|                                          |                              | 
|                                          | Series
      A               |  | Series
      B                                            | 
|                                          |                              |  |                                                           | 
|Juan Bosco Maldonado Quiroga              | 3,000                        |  | 192,624                                                   | 
|Alejandro Martín Ferrigno
      Maldonado | 0                            |  | 0                                                         | 
|Ricardo Maldonado González                | 0                            |  | 0                                                         | 

ITEM 7.   MAJOR
      SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

Major Shareholders

We are not directly or indirectly controlled by another corporation or by any foreign government.


Our share capital is currently divided into A, B, C, D, E, F, G, and H shares.  These different series of shares have the same par value, voting rights and are generally identical to each other in all material respects, with the exception of their date of issuance.  The following table shows the beneficial ownership of our capital stock at March 31, 2003, based on an aggregate of 6,000 series A shares, 385,248 series B shares, 133,152 series C shares, 625,341 series D shares, 19,322,610 series E shares, 7,935,118 series F shares, 65,457 series G shares, and 49,825 series H shares outstanding on that date, and each person or group of affiliated persons known by us to own more than 10% or more of any class of our capital stock.


|                                                            | Number
      of Shares Owned                  |          |         |         
|----------------------------------------------------------- | --------------------------------------------- | -------- | ------- | --------
|                                                            | Percentage
      of Total Capital Stock Owned
|Series A                                                    |                                               | Series B |         | Series C
|                                                            |                                               |          |         |         
|Maldonando Quiroga Family members                           | 6,000                                         |          | 385,248 |         
|Dinámica Industrial Empresarial,
      S.A. de C.V.(1)      |                                              |          |        |         
|Capital Inmobiliario del Norte,
      S.A. de C.V.(1)       |                                              |          |        |         
|Maldonado González family
      members                     |                                              |          |        |         
|Milenium Inversiones de Capital,
      S.A. de C.V.(1)      |                                              |          |        |         
|Consorcio Inmobiliario Regiomontario,
      S.A. de C.V.(1) |                                              |          |        |         
|Consorcio de Bienes Raíces
      del Norte, S.A. de C.V.(1) |                                              |          |        |         
|Others                                                      |                                              |          |        |         

---

|(1) | Wholly owned by members of the Maldonado Quiroga
      family.
|--- | --------------------------------------------------------------

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Related Party Transactions

General.
  Due to the loans made to our affiliates referred to below, we had interest income
  of Ps. 23.9 million in 2002 and Ps. 10.0 million for the first five months of
  2003. Due to our borrowings from our affiliates referred to below, we had interest
  expense of Ps. 2.3 in 2002 and Ps. 0.3 million for the first five months of
  2003.


We
  rent certain property from our affiliates, such as warehouses, and our affiliates
  rent certain property from us, such as offices. Due to these transactions, we
  had rental income of Ps. 605,000 in 2002 and Ps. 218,000 for the first five
  months of 2003 and rental expense of Ps. 1.7 million in 2002 and Ps. 1.0
  million for the first five months of 2003.


Corporativo
  Copamex. Through our subsidiary Corporativo Copamex, S.A. de C.V., we
  provide corporate and administrative services (including legal services, systems
  and tax-related services) to our affiliates. We believe that these services
  are provided on a fair market value basis. Corporativo Copamex, S.A. de C.V.,
  generated revenues for these services of Ps. 17.2 million in 2001 and Ps. 22.2
  million in 2002.


Dinámica
  and Grupo Empresarial Obispado. Pursuant to a revolving credit agreement,
  we make loans on a revolving basis to Dinámica Industrial Empresarial,
  S.A. de C.V., which we refer to as Dinámica, a company that owns shares
  representing 40.73% of our capital stock, and which itself is wholly owned by
  the Maldonado Quiroga family, our principal shareholders, and to Grupo Empresarial
  Obispado, S.A. de C.V., a company that owns shares representing 100% of COHINSA,
  which itself is wholly owned by the Maldonado Quiroga family. These loans bear
  interest at a rate equal to our cost of financing plus a spread in percentage
  points with accrued interest paid monthly. As of December 31, 2002, the outstanding
  balance on the loan to Dinámica was Ps. 47 million at a rate of 11.8%
  and the outstanding balance on the loan to Grupo Empresarial Obispado, S.A.
  de C.V. for Ps. 165.2 million at a rate of 11.8%.


COHINSA.
  In August 31, 2000, COHINSA acquired all the assets related to the manufacture
  and sale of baby diapers of Drypers Corporation in Mexico. Since this date,
  we have provided administrative and operational services to COHINSA. During
  2001, we acquired 45% of the capital stock of COHINSA. In January 2003, we sold
  our participation in COHINSA to Grupo Empresarial Obispado, S.A. de C.V., a
  related party, for a total amount of Ps. 66 million.


We
  grant short-term financing to COHINSA for working capital needs, on a revolving
  basis. As of December 31, 2002, the accounts receivable with COHINSA was of
  Ps. 154.4 million. This loan accrues interest at a variable rate equivalent
  to TIIE plus 3.55 percentage points. The spread may vary according to market
  conditions; the accrued interests are paid monthly.


Starting
  in September 2000, through Copamex Comercial, S.A. de C.V., one of our subsidiaries,
  we commenced sale and distribution of all of COHINSAs baby diapers production.
  As of December 31, 2002, the outstanding balance of the accounts payable to
  COHINSA was of Ps.15.4 million. The terms of sale are of 60 days credit after
  invoicing. Therefore, we have net accounts receivable with COHINSA of Ps. 139
  million for 2002. Our purchases of baby diapers from COHINSA totaled Ps. 181
  million in 2002 and Ps. 72.9 million for the first five months of 2003.


COFISA
  and Copamex Corrugados. In April 2000, Dinámica acquired 100%
  of the shares of COFISA. Simultaneously with this acquisition, Dinámica
  acquired from the shareholders of COFISA a 31,000 ton-per-year corrugated container
  plant. During 2001, we acquired 45% of the capital stock of COFISA. On October
  1, 2001, we performed a corporate restructuring and as a result of such reorganization,
  (i) the operations of COFISA and of Cajas y Empaques Industriales, S.A. de C.V.
  (formerly a subsidiary of ours) were merged into Copamex Corrugados, S.A. de
  C.V.; and (ii) our participation in Copamex Corrugados, S.A. de C.V. decreased
  from 99.9% to approximately 90% (Dinámica held approximately the remaining
  10%). In July 2002, through stock purchases, we increased our participation
  to 99.9% in both COFISA and Copamex Corrugados. The total amount paid to increase
  our participation was Ps. 68 million.


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ITEM 8.   FINANCIAL INFORMATION

See Item 18: Financial Statements.
    For information on our dividend policy, see Item 3: Key Information—Dividends.
    For information on legal proceedings related to us, see Item 10: Additional
    Information—Legal Proceedings.


The officers responsible
for the financial information of the Company are the Chief Corporate Officer and the
Corporate Comptroller, and thus they execute the certifications provided by
Rule 302 of the Sarbanes-Oxley Act, which are enclosed to this 20-F Report.


ITEM 9.   THE
      OFFER AND THE LISTING

On
  April 25, 1997, we issued US$200 million in aggregate principal amount of our
  11.375% Senior Notes Due 2004 under an exception to the registration requirement
  of Securities Act of 1933, as amended, which we refer to as the Securities Act.
  These 11.375% Senior Notes due 2004 were subsequently exchanged for the 11.375%
  Series B Senior Notes due 2004 registered with the U.S. Securities and Exchange
  Commission under the Securities Act, which we refer to as the 11.375% Series
  B Senior Notes due 2004. As of June 24, 2003, US$145.5 million of our 11.375%
  Series B Senior Notes due 2004 and US$1.57 million of our 11.375% Senior Notes
  Due 2004 were outstanding. The 11.375% Senior Notes trade on the Luxembourg
  Stock Exchange.


Our
  stock is not traded on any stock exchange and is sold rather infrequently and
  at varying prices. Thus, the market for our stock is illiquid.


ITEM 10.   ADDITIONAL
      INFORMATION

MEMORANDUM AND ARTICLES OF ASSOCIATION

Set
  forth below is a description of the significant provisions of our bylaws and
  applicable Mexican law. This description is only a summary and is qualified
  by reference to our bylaws, a copy of which is filed as an exhibit to this annual
  report, and applicable Mexican law.


General

We
  are a corporation (sociedad anónima de capital variable) organized
  in Mexico under the Mexican Companies Law (Ley General de Sociedades Mercantiles).
  We were registered in Vol. 215, Page 3, Number 156 of the Public Registry of
  Commerce in Monterrey, Mexico (Registro Público de Comercio de Monterrey)
  on April 6, 1976. We have a corporate life of 99 years. Our corporate purpose,
  as fully described in Clause Fourth of our bylaws, is to act as a holding company.
  As such, our bylaws grant us the power to engage in various activities, which
  allow us to function as a holding company. These powers include, but are not
  limited to, the ability to (1) create, administer and hold shares in various
  corporations and other business organizations; (2) enter into contracts; (3)
  issue securities and take all actions with respect to securities of any kind;
  (4) enter into loans and other credit obligations and provide guarantees; (5)
  acquire, sell and maintain real property; (6) perform or receive professional,
  technical or consulting services; (7) acquire, license or use intellectual property;
  (8) act as an agent or representative; and (9) perform any acts necessary to
  accomplish the foregoing and our other powers contained in the bylaws but not
  listed herein.


Directors

Our
  bylaws provide that the management of the corporation shall be vested in the
  Board of Directors. Each director is elected by a simple majority of the shares,
  and there are no provisions for cumulative voting. The size of the Board
  of Directors is determined by the shareholders at the annual ordinary general
  shareholders meeting. The directors serve for an indefinite term until
  they resign or are removed by the shareholders. A majority of directors is needed
  to constitute a quorum, and board resolutions must be passed by a majority of
  the votes present at any validly constituted meeting or by unanimous consent
  if no meeting is convened.


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Under Mexican law, any member of the Board of Directors who has a conflict of interest with the corporation in any transaction must disclose such fact to the other directors and abstain from voting. Any member of the Board of Directors voting on a business transaction in which its interest conflicts with ours may be liable for damages caused to the corporation if such transaction would not have been approved without such members vote.


Under Mexican law, an action for civil liabilities against members of the Board of Directors may be initiated by resolution passed by a majority of the shareholdersat an ordinary shareholders meeting. As directors have the general duty to oversee for the good conduct of business, the breach of this duty is actionable. In the event the majority ofthe shareholders decide to bring such action, the person against whom such action is brought will immediately cease to be a member of the Board of Directors.  Additionally, shareholders representing not less than 33% of our outstanding shares may directly take such action against the members of the Board of Directors, provided that (i) such shareholders have not voted against taking such action at the relevant shareholders meeting, and (ii) the claim in question covers damage alleged to have been caused to the corporation and not merely to the individual plaintiff. Any

 recovery of damages with respect to such action will be for the benefit of us and not for the shareholders bringing the action.


No member of the Board of Directors is empowered to act alone but only as part of the Board of Directors, unless expressly vested with a power of attorney, in which case such member will act as an authorized representative and not in his capacity as a member of the Board of Directors.


Share Rights and Preferences and
  Restrictions

Our share capital is currently divided into A, B, C, D, E, F, G, and H shares.  These different series of shares have the same par value, voting rights and are generally identical to each other in all material respects, with the exception of their date of issuance.


Voting Rights and Shareholders Meetings

Each share, regardless of the series held, entitles the holder thereof to one vote at any general meeting of our shareholders.  Holders of any series are entitled to elect all members of the Board of Directors.


Under Mexican law, the holders of
  shares of any series are also entitled to vote at a special shareholders
  meeting on any action that would prejudice the rights of holders of such series
  but not the rights of holders of all other shares. Such a holder would be entitled
  to judicial relief against any such action affecting a particular series taken
  without the approval of holders of that series at such a meeting. A shareholder
  who believes an action requires a special meeting may demand that the Board
  of Directors or the statutory auditor call such meeting. Any determination that
  an action does not require a vote at a special meeting would be subject to judicial
  challenge by an affected shareholder, and the necessity for a vote at a special
  meeting would ultimately be determined by a Mexican court of competent jurisdiction.
  Mexican law does not provide guidance on the criteria to be applied in making
  such a determination.


General shareholders meetings may be ordinary or extraordinary meetings.  Extraordinary general meetings are meetings called to consider the matters specified in Article 182 of the Mexican Companies Law and our bylaws including, principally, changes in the fixed portion of the capital stock and other amendments to the bylaws, anticipated dissolution and liquidation, merger, transformation from one type of corporate form to another, change in nationality and change in corporate purpose.  Ordinary general shareholders meetings must be held at least annually during the four months following the end of each fiscal year, to consider the matters specified in Article 181 of the Mexican Companies Law including, principally, the election of directors and the statutory auditor, the approval of the report of the Board of Directors regarding our performance and our financial statements for the preceding fiscal year, the allocation of o

ur profits and losses for the preceding year and payments of dividends.


Under our bylaws, the quorum for an ordinary general meeting is at least 50% of the shares, provided that it is the first attempt to convene a meeting, and action may be taken by a majority of the shares present.  If a quorum is not available on the first attempt to convene a meeting, a second meeting may be called, at which action may be taken by a majority of shares present, regardless of the number of shares present.  The quorum for the first attempt to convene a general extraordinary meeting or a special meeting is 75% of the outstanding shares.  If a quorum is not available on the first attempt, a second meeting may be called, provided that at least 50% of the outstanding shares is represented.  Whether on the first or subsequent attempts, for a resolution of a general extraordinary meeting to be validly adopted, the favorable vote of the holders of at least 50% of the outstanding shares is required.


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Shareholders meetings may be called by the Board of Directors, the statutory auditor or any Mexican court of competent jurisdiction.  The Board of Directors or the statutory auditor may be required to call a meeting of shareholders by the holders of 33% of our outstanding capital stock.


In addition, the Board of Directors or the statutory auditor must call a shareholders meeting at the written request of any shareholder if no ordinary general shareholders meeting has been held for two consecutive years or if the shareholders meetings held during such a period have not considered the items mentioned in Article 181 of the Mexican Companies Law, discussed above.  In the event that a meeting is not called within 15 days following the date of such a request, a Mexican court may require such meeting to be called.


Notice of meetings must be published in the official gazette in our domicile or in a newspaper of general circulation in Mexico City at least 15 days prior to the meeting.  Shareholders meetings may be held without such publication provided that 100% of the outstanding shares with voting rights on the matters to be addressed by such meeting are represented.  In order to attend a shareholders meeting, a shareholder must request and obtain an admission card by furnishing, at least one business day before the time set for holding the shareholders meeting, appropriate evidence of its ownership of shares and depositing such shares with our corporate secretary or with an institution authorized to accept such deposit.  If so entitled to attend the meeting, a shareholder may be represented by proxy signed before two witnesses. See Registration and Transfer.


Under Mexican law, holders of 33% of our outstanding capital stock may request that any shareholder action be suspended by filing a complaint with a Mexican court of competent jurisdiction within 15 days after the close of the meeting at which such action was taken, by showing that the challenged action violates Mexican law or our bylaws.  Relief under these provisions is only available to holders who were entitled to vote on the challenged shareholder action and whose shares were not represented when the action was taken or, if represented, were voted against it.


Dividends and Distributions

At the annual ordinary general shareholders meeting, the Board of Directors submits our financial statements for the previous fiscal year, together with a report thereon by the Board of Directors, to the holders of any series for their consideration.  The shareholders, once they have approved the financial statements, determine the allocation of our net profits, if any, for the preceding year.  They are required by law to allocate 5% of such net profits to a legal reserve, which is not thereafter available for distribution until the amount of the legal reserve equals 20% of our historical capital stock (before adjusting for inflation).  Amounts in excess of those allocated to the legal reserve fund may be allocated to other reserve funds as the shareholders determine, including a reserve for the repurchase of our shares.  The remaining balance of net profits, if any, is available for distribution as dividends.  No dividends may be

 paid, however, unless losses for prior fiscal years have been paid up or absorbed.  See Item 3: Key InformationDividends.


Holders of any series have equal rights, on a per share basis, to dividends and other distributions, including any distributions upon our liquidation.  Partially paid shares may participate in any distribution to the extent that such shares have been paid at the time of the distribution or, if not paid, only with respect to the proportion paid.


Statute of limitations regarding claims of dividends or other distributions is five years, after which time the relevant company is released from such payment obligations.


Liquidation

Upon our dissolution, one or more liquidators must be appointed by an extraordinary shareholders general meeting to wind up our affairs. All fully paid and outstanding shares of capital stock will be entitled to participate equally in any distribution upon liquidation.  Partially paid shares participate in a liquidation distribution in the same manner as they would in a dividend distribution.


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Changes in Capital Stock

An increase of capital stock may generally be effected through the issuance of new shares for payment in cash or in kind, by capitalization of indebtedness or by capitalization of certain items of shareholders' equity.  An increase of capital stock generally may not be effected until all previously issued and subscribed shares of capital stock have been fully paid.  Generally, a reduction of capital stock may be effected to absorb losses, to redeem shares, or to release shareholders from payments not made.  A reduction of capital stock to redeem shares is effected by reimbursing holders of shares pro rata or by lot.  Shareholders may also approve the redemption of fully paid shares with retained earnings.


The fixed portion of our capital stock may only be increased or decreased by resolution of a general extraordinary meeting and an amendment to the bylaws, whereas the variable portion of our capital stock may be increased or decreased by resolution of a general ordinary meeting.  See Other ProvisionsFixed and Variable Capital.


No resolution by the shareholders is required for decreases in capital stock resulting from exercise of the right to withdraw variable shares or from our purchase of shares or for increases in capital stock resulting from our sale of shares that we previously purchased.  See Other ProvisionsOur Purchase of Shares and Other ProvisionsAppraisal Rights.


Preemptive Rights

Except in certain limited circumstances, in the event of a capital increase through the issuance of new shares for payment in cash or in kind, a holder of existing shares of a given series at the time of the capital increase has a preferential right to subscribe for a sufficient number of new shares of the same series to maintain the holder's existing proportionate holdings of shares of that series.  Preemptive rights must be exercised within 15 days following the publication of notice of the capital increase in the Diario Oficial de la Federación or following the date of the shareholders meeting at which the capital increase was approved if all shareholders were represented at such meeting; otherwise such rights will lapse.  Under Mexican law, preemptive rights cannot be waived in advance by a shareholder, except under limited circumstances, and cannot be represented by an instrument that is negotiable separately from

 the corresponding share.


Foreign Investment Restrictions

Under our bylaws, foreign investors may purchase shares and, as a result, vote at shareholder meetings.


Registration and Transfer

Our shares are evidenced by certificates in registered form, which may have dividend coupons attached.  We maintain a stock registry, and in accordance with Mexican law, we recognize as our shareholders only those holders listed in the stock registry.  Shareholders may hold their shares in the form of physical certificates which, together with notations made in our stock registry, evidence ownership of those shares.


Other Provisions

Fixed and Variable Capital


As a corporation with variable capital, we are permitted to issue shares constituting variable capital.  The issuance of variable capital shares, unlike the issuance of fixed capital shares, does not require an amendment of the bylaws, although it does require approval at a general ordinary shareholders meeting.


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Under our bylaws, variable capital is unlimited and thus may be increased up to any amount.  Outstanding variable capital shares, if any, may be fully withdrawn by the holders thereof.  The minimum fixed portion of our capital stock cannot be withdrawn.  A holder of variable capital stock that wishes to effect a total or partial withdrawal of such stock is required to notify us in an authenticated written notice to that effect.  If notice of withdrawal is received prior to the last quarter of the fiscal year, the withdrawal becomes effective at the end of the following fiscal year.


Redemption of our variable capital stock is made at the book value per variable capital share as calculated from our financial statements for the fiscal year at the end of which the withdrawal is to become effective.


Forfeiture of Shares


As required by Mexican law, our bylaws provide that our current or future foreign shareholders are required to consider themselves as Mexican nationals with respect to our shares that they may acquire or of which they may be owners, and with respect in the property, rights, concessions, participations or interests that we may own or rights and obligations that are based on contracts to which we are a party with the Mexican authorities.  Such shareholders cannot invoke the protection of their government under penalty of forfeiting to the Mexican State the corporate ownership interest that they may have acquired.  Under this provision, a non-Mexican shareholder is deemed to have agreed not to invoke the protection of his own government with respect to his rights as a shareholder, but is not deemed to have waived any other rights it may have with respect to its investment in us, including any rights under U.S. securities laws.  If the share

holder should invoke such governmental protection in violation of this agreement, its shares could be forfeited to the Mexican State.  Mexican law requires that such a provision be included in the bylaws of all Mexican corporations unless such bylaws prohibit ownership of capital stock by non-Mexican investors.


Shareholder Conflicts of Interest


Under Mexican law, any shareholder that has a conflict of interest with respect to any transaction must abstain from voting thereon at the relevant shareholders meeting.  A shareholder that votes on a business transaction in which its interest conflicts with ours may be liable for damages if the transaction would not have been approved without such shareholder's vote.


Appraisal Rights


Whenever the shareholders approve a change of corporate purpose, change of our nationality or transformation from one type of corporate form to another, any shareholder entitled to vote on such change or transformation who has voted against it has the right to withdraw from us and receive the amount calculated as specified under Mexican law attributable to its shares, provided such shareholder exercises its right to withdraw within 15 days following the adjournment of the meeting at which the change or transformation was approved.  Under Mexican law, the amount which a withdrawing shareholder is entitled to receive is equal to its proportionate interest in our capital stock according to our most recent balance sheet approved by an ordinary general meeting of shareholders.


Rights of Shareholders

The protections afforded to minority shareholders under Mexican law are different from those in the United States and many other jurisdictions.  The substantive law concerning fiduciary duties of directors and controlling shareholdershas not been the subject of extensive judicial interpretation in Mexico, unlike many states in the United States where duties of care and loyalty elaborated by judicial decisions help to shape the rights of minority shareholders. Mexican civil procedure does not contemplate class actions or shareholder derivative actions, which permit shareholders in U.S. courts to bring actions on behalf of other shareholders or to enforce rights of the corporation itself.  However, an action for civil liabilities against members of the Board of Directors may be initiated by resolution passed by a majority of the shareholders at an ordinary shareholders meeting. Additionally, shareholders representing not less

 than 33% of our outstanding shares may directly take such action against the members of the Board of Directors, provided that (i) such shareholders have not voted against taking such action at the relevant shareholders meeting, and (ii) the claim in question covers damage alleged to have been caused to the corporation and not merely to the individual plaintiff, as described above under Directors.


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As a result of these factors, in practice it may
  be more difficult for our minority shareholders to enforce rights against us
  or our directors or controlling shareholders than it would be for shareholders
  of a U.S. company.


We have been advised by Carlos Luis Díaz
  Sáenz, our General Counsel, that there is doubt as to the enforceability
  in original actions in Mexican courts of liabilities predicated solely upon
  U.S. federal securities laws and as to the enforceability in Mexican courts
  of judgments of U.S. courts obtained in actions predicated upon the civil liability
  provisions of the U.S. Federal securities laws. Because substantially all of
  our assets are located in Mexico, holders of our securities may effectively
  be required to pursue in Mexico, under Mexican law, any claims they may have
  against us without the benefit of the U.S. federal securities laws.


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MATERIAL CONTRACTS

Related Party Transactions

Our agreements with related parties are described
    in Item 7: Major Shareholders and Related Party Transactions—Related
    Party Transactions.


Major Indebtedness

A description of our significant debt obligations
    is contained in Item 5: Operating and Financial Review and Prospects—Liquidity
    and Capital Resources—Liquidity.


LEGAL PROCEEDINGS

Distribution Contract Claim

In September 2001, one of our distributors
  in Costa Rica brought suit against Sancela claiming that Sancela breached its
  obligations under its distribution agreement. This case is currently pending.
  We do not expect such proceeding, if determined adversely to Sancela, to have
  a material adverse effect on our results of operations or financial condition.
  As a result, we have not set aside any material reserves for this contingent
  liability.


New Tax Law

On January 1, 2002, a law imposing a salary
  credit substitutive tax went into effect. The law was amended for 2003.
  This law currently provides that employers are required to pay a tax of up to
  4% of employee salaries (which includes fringe benefits and other forms of employee
  compensation). Alternatively, employers may avoid such tax payment by choosing
  not to credit against their own income tax the amounts corresponding to subsidies
  granted by the government to workers in connection with their income tax (which
  subsidies the employer pays to its workers as part of their salaries). We have
  filed a petition to enjoin the application of this provision because we consider
  it unconstitutional. We do not expect such proceedings, if determined adversely
  to us, to have a material adverse effect on our results of operations or financial
  condition. As a result, we have not set aside any reserves for any contingent
  liabilities that may derive from an adverse determination in this matter.


Other

We are a party to various other legal proceedings
  in the ordinary course of our business. We do not expect such proceedings, if
  determined adversely to us, individually or in the aggregate, to have a material
  adverse effect on our results of operations or financial condition. As a result,
  we have not set aside any reserves for these litigation contingencies.


EXCHANGE CONTROLS

Mexico has had a free market for foreign exchange
    since 1991, and the government has allowed the peso to float freely against
    the U.S. dollar since December 1994. There can be no assurance that the government
    will maintain its current foreign exchange policies. See Item 3: Key
    Information — Exchange Rate Information.


TAXATION

The following is a summary of certain Mexican federal
  tax consequences and U.S. federal income tax consequences under present law
  with respect to the purchase, ownership and disposition of the Notes. For U.S.
  federal income tax purposes, it addresses only investors that purchased the
  Notes in the original offering at the original offering price who hold the Notes
  as capital assets and whose functional currency is the U.S. dollar. The discussion
  does not address all Mexican federal tax consequences or U.S. federal income
  tax considerations that may be relevant to particular investors, nor does it
  address the special tax rules applicable to certain categories of investors
  such as banks, dealers, traders who elect to mark to market, tax-exempt entities,
  persons that will hold Notes through a partnership or other pass-through entity,
  insurance companies and investors who hold the Notes as part of a hedge, straddle,
  conversion or integrated transaction. In addition, aspects of Mexican tax law
  that may be applicable to the holders of the Notes or owners of beneficial interests
  in the Notes, including foreign corporations, that are owned or controlled by
  Mexican entities are not discussed. The discussion also does not address any
  tax consequences under the tax laws of any state or locality of Mexico or the
  United States.


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This summary is based on the federal tax laws of Mexico and the United States as in effect on the date of this annual report.  Such tax laws are subject to change, possibly with retroactive effect, which change could affect the continued validity of this summary.  This summary does not constitute tax advice; prospective purchasers and holders of the Notes are advised to consult their own tax advisors in respect of the consequences that the purchase, ownership or disposition of the Notes may have under the laws of Mexico, the United States or any other jurisdiction.


United States/Mexico Tax Treaty

A Convention for the Avoidance of
  Double Taxation, together with a related Protocol thereto, which we refer to
  as collectively, the Tax Treaty, between Mexico and the United States took effect
  on January 1, 1994. The United States and Mexico have also entered into an agreement
  that covers the exchange of information with respect to tax matters.


Mexican Taxation

General

The following is a
      general summary of the principal consequences, under Mexicos income
      tax law (Ley del Impuesto sobre la Renta), which we refer
      to as the Law, and regulations thereunder as currently in effect, of the
      purchase, ownership and disposition of the Notes by a holder that is not
      a resident of Mexico for tax purposes and that will not hold Notes or a
      beneficial interest therein in connection with the conduct of a trade or
      business through a permanent establishment in Mexico, which we refer to
      as a Foreign Holder. For purposes of Mexican taxation, an individual is
      a resident of Mexico if such person has established his or her domicile
      in Mexico, unless such person has resided in another country for more than
      183 days, whether consecutive or not, during a calendar year and can demonstrate
      that such person has become a resident of that country for tax purposes.
      A legal entity is a resident of Mexico if it is established under Mexican
      law or if it maintains the principal administration of its business or the
      effective location of its management in Mexico. A Mexican citizen is presumed
      to be a resident of Mexico unless such person can demonstrate the contrary.
      A permanent establishment in Mexico of a foreign person will be regarded
      as a resident of Mexico, and such permanent establishment will be required
      to pay taxes in Mexico in accordance with applicable law, for income attributable
      to such permanent establishment.


Taxation of Payments of Interest

Under the Law, payments of interest (including original issue discount which is deemed interest under the Law) made by us in respect of the Notes to a Foreign Holder will generally be subject to a Mexican withholding tax assessed at a rate of 4.9% if, as expected:


| |  | the Notes are placed by banks or investment banks in a country with which Mexico has entered into a treaty for the avoidance of double taxation, and such treaty is in effect;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |   |                                                                            
| | - | ---------------------------------------------------------------------------
| |  | the Notes are registered with the Special
          Section of the RNV; and

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| | • | we comply with the information
      requirements specified from time to time by the Ministry of Finance and
      Public Credit under its general rules.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------

If
  all the conditions specified above are not satisfied, the Mexican withholding
  tax rate applicable to payments of interests under the Notes may be significantly
  higher.


If
  the effective beneficiaries, whether acting directly or indirectly, individually
  or jointly with related parties, receive more than 5% of the interest paid under
  the Notes and (i) are persons who own directly or indirectly, individually or
  with related parties 10% or more of our voting stock or (ii) are entities, of
  which 20% or more of its voting stock is owned directly or indirectly, jointly
  or severally by persons related to us, the Mexican withholding tax rate applicable
  to payments of interest under the Notes may be significantly higher.


We
  have agreed, subject to exceptions, to pay additional amounts in respect of
  Mexican withholding taxes applicable to interest payments on the Notes.


Payments
  of interest made by us in respect of the Notes to non-Mexican pension or retirement
  funds will be exempt from Mexican withholding taxes if (i) such fund is organized
  pursuant to the laws of its country of residence and is the effective beneficiary
  of the interest payment, (ii) the income from such interest payment is exempt
  from income tax in that country and (iii) such fund is registered with the Ministry
  of Finance and Public Credit for that purpose.


Under
  Mexican law, payments of principal made by us in respect of the Notes to a Foreign
  Holder will not be subject to Mexican withholding taxes.


Dispositions

Capital
  gains from the sale or other disposition of the Notes by a Foreign Holder will
  not be subject to Mexican income or withholding taxes.


Other Mexican Tax Considerations

Under
  the Law, any discount received by a non-resident upon purchase of the Notes
  is deemed interest income and, therefore, subject to taxes in Mexico. Such interest
  income is calculated as the difference between the face value (plus accrued
  interest not subject to withholding) and the purchase price of the Notes. If
  Notes are sold by a Mexican resident or a non-resident with a permanent establishment
  in Mexico, such taxes must be paid by the seller, on behalf of the non-resident
  purchaser, within 15 days after the sale. However, when the sale is made by
  a Foreign Holder, the Law is unclear as to how such taxes, if any, would be
  paid by or on behalf of the purchaser.


Estate or Similar Tax

A
  Foreign Holder will not be liable for Mexican estate, gift, inheritance or similar
  taxes with respect to its holding of the Notes, nor will it be liable for Mexican
  stamp, registration or similar taxes in respect of such holding.


U.S. Federal Income Taxation

The
  following summary contains a description of the principal U.S. federal income
  tax consequences pertaining to the purchase, ownership, and disposition of the
  Notes, but it does not purport to be a comprehensive description of all of the
  tax considerations that may be relevant to a decision to own or dispose of the
  Notes. This summary is based on the Internal Revenue Code of 1986, as amended,
  which we refer to as the Code, Treasury regulations promulgated thereunder,
  administrative and judicial interpretations thereof, as in effect on the date
  of this annual report, all of which are subject to change, possibly with retroactive
  effect.


For
  purposes of this discussion, a U.S. Holder is any beneficial owner of the Notes
  that is (i) a citizen or resident of the United States, (ii) a corporation organized
  under the laws of the United States or any political subdivision thereof, or
  (iii) a person or entity that otherwise will be subject to U.S. federal income
  tax on a net income basis in respect of the Notes. A Non-U.S. Holder is any
  beneficial owner of the Notes that is not a U.S. Holder for U.S. federal income
  tax purposes.


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U.S. Holders

Interest
  and Additional Amounts.A U.S. Holder will treat the gross amount of
  interest (including Additional Amounts, if any) paid in respect of the Notes
  as ordinary interest income at the time that it is paid or accrued, in accordance
  with the U.S. Holders method of accounting for U.S. federal income tax
  purposes. Mexican withholding taxes paid at the appropriate rate applicable
  to the U.S. Holder will be treated as foreign income taxes eligible for credit
  against such U.S. Holders U.S. federal income tax liability, subject
  to generally applicable limitations and conditions, or, at the election of such
  U.S. Holder, for deduction in computing such U.S. Holders taxable income.
  For foreign tax credit purposes, during any period in which the rate of withholding
  is less than 5%, such income generally will constitute passive income
  or, in the case of certain holders, financial services income.
  If the Mexican withholding tax rate applicable to the U.S. Holder is 5% or more,
  such income generally will constitute high withholding tax interest.


The
  calculation of foreign tax credits and, in the case of a U.S. Holder that elects
  to deduct foreign taxes, the availability of deductions, involves the application
  of rules that depend on a U.S. Holders particular circumstances. U.S.
  Holders should consult their own tax advisers concerning the implications of
  these rules in light of their particular circumstances.


Disposition of the Notes.In
        general, a U.S. Holder of the Notes will recognize gain or loss upon the
        sale, exchange, redemption, retirement or other disposition of the Notes
        equal to the difference between the amount realized on the disposition
        (to the extent such amount does not represent accrued but unpaid interest
        which will be taxable as ordinary income to the extent not previously
        included in income) and the U.S. Holders adjusted basis in the
        Notes, which will generally equal the holders acquisition price
        for the Notes. Such gain or loss generally will be capital gain or loss
        and will be long-term capital gain or loss if the U.S. Holder holds the
        Notes for more than one year prior to disposition. Prior to January 1,
        2004, long-term capital gain realized by a U.S. Holder that is an individual
        generally is subject to a maximum rate of 15%.


Non-U.S.
  Holders


Subject
  to the discussion of backup withholding below, a Non-U.S. Holder of Notes generally
  will not be subject to U.S. federal income tax, including withholding taxes,
  on any payments of interest and Additional Amounts paid in respect of the Notes,
  unless such income is effectively connected with the conduct by the Non-U.S.
  Holder of a trade or business in the United States.


Subject
  to the discussion of backup withholding below, a Non-U.S. Holder will not be
  subject to U.S. federal income tax on any capital gain realized on the sale
  or exchange of the Notes, unless (i) such gain is effectively connected with
  the conduct by the holder of a trade or business in the United States or (ii)
  in the case of gain realized by an individual Non-U.S. Holder, the Non-U.S.
  Holder is present in the United States for 183 days or more in the taxable year
  of the sale and certain other conditions are met.


Any
  interest, additional amounts or gain that is effectively connected with a Non-U.S.
  Holders trade or business in the United States generally will be taxed
  on a net income basis at the graduated rates applicable to U.S. Holders, unless
  an applicable income tax treaty provides otherwise. In the case of a Non-U.S.
  Holder that is a corporation, such income may also be subject to a branch profits
  tax at a rate of 30% or a lower rate under an applicable income tax treaty.


Backup Withholding and Information
  Reporting

Our paying agent may be required to file information
    returns with the U.S. Internal Revenue Service with respect to payments made
    to certain U.S. Holders of the Notes. In addition, certain U.S. Holders may
    be subject to a backup withholding tax in respect of such payments, unless
    they (i) provide their taxpayer identification numbers to the Paying Agent
    and certify that they are not subject to backup withholding or (ii) otherwise
    establish an exemption from backup withholding tax. Non-U.S. Holders of the
    Notes may be required to comply with applicable certification procedures to
    establish that they are not U.S. Holders in order to avoid the application
    of such information reporting requirements and backup withholding tax.


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Any amounts withheld under the backup withholding rules are not an additional tax and may be refunded or credited against the holders U.S. federal income tax liability, if any, provided the required information is furnished to the U.S. Internal Revenue Service.


THE U.S. AND MEXICAN FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A HOLDERS PARTICULAR SITUATION.  HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE NOTES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN, AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN THE U.S. FEDERAL, MEXICAN OR OTHER TAX LAWS.


DOCUMENTS ON DISPLAY

You may obtain copies of this annual report
        and the exhibits thereto at the Securities and Exchange Commissions
        public reference rooms in Washington, D.C., New York, NY, and Chicago,
        IL. Reports and other information can be inspected and copied at the public
        reference facilities maintained by the Commission at 450 Fifth Street,
        N.W., Room 1024, Washington, D.C. 20549. Copies of such material may also
        be obtained by mail from the Public Reference Section of the Commission
        at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
        Please call the Securities and Exchange Commission at 1-800-SEC-0330 for
        further information on the public reference rooms. As a foreign private
        issuer, we are not required to make filings with the Commission by electronic
        means, although we may do so. Any filings we make electronically will
        be available to the public over the Internet at the Securities and Exchange
        Commissions web site at http://www.sec.gov.


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ITEM 11.   QUANTITATIVE AND
  QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Interest Rate Risk

Our earnings
  are affected by changes in interest rates, because we are exposed to interest
  rate risk on our existing floating rate debt and any new floating rate debt
  that we incur. Our principal indebtedness at December 31, 2002 and the interest
  payable thereon included the following:


| | our short-term debt, primarily
      in the form of lines of credit, amounting to US$73.9 million and bearing
      interest at a weighted-average variable rate of 8.68%;
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                           
| | our U.S. dollar denominated long-term
      debt amounting to US$338.6 million and bearing interest at the following
      rates:                                         
|  |                                                                                                                                                                           
|  |                                                                                                                                                                          
|  |                                                                                                                                                                           
|  |                                                                                                                                                                          
|  |                                                                                                                                                                           
|  |                                                                                                                                                                          
|  |                                                                                                                                                                           
|  |                                                                                                                                                                          
|  |                                                                                                                                                                           
|  |                                                                                                                                                                          
|  |                                                                                                                                                                           
| | our Mexican Peso denominated long-term
      debt amounting to US$95.8 million and bearing interest at the following
      rates:                                         
|  |                                                                                                                                                                           
|  |                                                                                                                                                                          
|  |                                                                                                                                                                           
|  |                                                                                                                                                                          
|  |                                                                                                                                                                           
|  |                                                                                                                                                                           
|  |                                                                                                                                                                           
|  |                                                                                                                                                                           
|  |                                                                                                                                                                           
|  |                                                                                                                                                                           

A hypothetical, instantaneous and unfavorable
  change of 100 basis points in the interest rate applicable to floating-rate
  financial assets and liabilities held at December 31, 2002 would have resulted
  in additional interest expense of approximately Ps. 53.0 million per year,
  assuming no change in the principal amount of such indebtedness.


Foreign Exchange Rate Risk

Most of our debt obligations are denominated in
  U.S. dollars while we generate revenues in pesos. Therefore, we are exposed
  to currency exchange rate risks that could significantly affect our ability
  to meet our obligations. We currently do not plan to enter into hedging transactions
  with respect to these foreign currency risks, but we continue to consider the
  appropriateness of this option. Mexico maintains a floating exchange rate regime
  and the peso has experienced significant devaluations in recent years. Any significant
  decrease in the value of the peso relative to the U.S. dollar in the near term
  may have a material adverse effect on our liquidity and on our ability to meet
  our debt obligations. Exchange rate risk exists principally with respect to
  our indebtedness denominated in currencies other than Mexican pesos. As of December
  31, 2002, indebtedness denominated in foreign currencies was Ps. 3,999 million,
  all of which was denominated in U.S. dollars. At December 31, 2002, a hypothetical
  10% devaluation of the peso relative to the U.S. dollar would give us a Ps.
  399.9 million (US$38.3 million) exchange loss on our debt over a one-year period.


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Hedging Arrangements

Aside from the Bancomer swap
    described in Liquidity and Capital ResourcesOther Contractual
    Obligations, we are not currently party to any other interest rate
    hedging arrangements related to our dollar denominated obligations. We may
    enter into any such agreements at any time.


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PART II

ITEM 13.   DEFAULTS,
      DIVIDEND ARREAGES AND DELINQUENCIES

None.


In September 2002, we requested
        that the holders of the Notes consent to certain amendments to the indenture
        pertaining to such Notes, because of an omission in the indenture, pertaining
        to our ability to redeem the Notes at our option, in whole or in part,
        at any time on or after April 30, 2002 at specified redemption prices.
        The requested consent was approved by the noteholders.


ITEM 15.   CONTROLS
      AND PROCEDURES

Evaluation of Disclosure Controls
        and Procedures. Within the 90 days prior to the date of this annual
        report, we carried out an evaluation under the supervision and with the
        participation of our management, including the Chief Executive Officer,
        Chief Corporate Officer and Corporate Comptroller, of the effectiveness
        of the design and operation of our disclosure controls and procedures.
        There are inherent limitations to the effectiveness of any system of disclosure
        controls and procedures, including the possibility of human error and
        the circumvention or overriding of the controls and procedures. Accordingly,
        even effective disclosure controls and procedures can only provide reasonable
        assurance of achieving their control objectives. Based upon and as of
        the date of our evaluation, referred to in this annual report as the Evaluation
        Date, the Chief Executive Officer, Chief Corporate Officer and Corporate
        Comptroller concluded that the disclosure controls and procedures are
        effective to provide reasonable assurance that information required to
        be disclosed in the reports that we file and submit under the under the
        Securities Exchange Act of 1934, as amended, is recorded, processed, summarized
        and reported as and when required.


Changes in Internal Controls. Since the Evaluation Date, there have not been any significant changes in our internal controls or in other factors that could significantly affect such controls.


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PART III

ITEM 18.   FINANCIAL
      STATEMENTS

Our financial statements are
    included in this Form 20-F beginning at page F-1.


ITEM 19.   EXHIBITS

LIST OF EXHIBITS

|NUMBER  |  | DESCRIPTION                                                                                                                                                                                                                          
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        |  |                                                                                                                                                                                                                                      
|1       |  | Our bylaws (estatutos), together with
      an English translation.***                                                                                                                                                               
|        |  |                                                                                                                                                                                                                                      
|2(b)(1) |  | Indenture, dated April 25, 1997, among us,
      IBJ Schroder Bank & Trust Company, as Trustee, and Citibank, N.A. as
      Principal Paying Agent and Security Registrar.*                                                          
|        |  |                                                                                                                                                                                                                                      
|2(b)(2) |  | First Supplemental Indenture, dated March
      19, 1998, among us, IBJ Schroder Bank & Trust Company, as Trustee, and
      Citibank, N.A. as Principal Paying Agent and Security Registrar.**                                      
|        |  |                                                                                                                                                                                                                                      
|2(b)(3) |  | Second Supplemental Indenture, dated March
      19, 2001, between us and The Bank of New York, as Trustee.                                                                                                                          
|        |  |                                                                                                                                                                                                                                      
|2(b)(4) |  | Third Supplemental Indenture, dated September
      25, 2002, among us and The Bank of New York, as Trustee.                                                                                                                         
|        |  |                                                                                                                                                                                                                                      
|2(b)(5) |  | Registration Rights Agreement, dated April
      30, 1997, among Citibank, N.A., the other initial purchasers named therein
      and us.*                                                                                           
|        |  |                                                                                                                                                                                                                                      
|4(a)(1) |  | Contract among us, Papeles Industriales Crisoba,
      S.A. de C.V., Fincas Industriales, S.A. de C.V. and SCA Mölnlycke AB
      for the acquisition of 51% of the shares of Sancela, S.A. de C.V., dated
      September 19, 1996.*
|        |  |                                                                                                                                                                                                                                      
|4(a)(2) |  | Contract among us, Papeles Higiénicos
      del Centro, S.A. de C.V. and Kimberly-Clark de México, S.A. de C.V.
      for the acquisition of a tissue manufacturing facility in Ecatepec, Mexico,
      dated April 24, 1997.*       
|        |  |                                                                                                                                                                                                                                      
|4(a)(3) |  | Summary of Restructuring Agreement dated July
      26, 1996.*                                                                                                                                                                       
|        |  |                                                                                                                                                                                                                                      
|7       |  | Calculation of ratio of earnings to fixed
      charges.                                                                                                                                                                             
|        |  |                                                                                                                                                                                                                                      
|8       |  | List of most important subsidiaries as of
          June 1, 2003.                                                                                                                                                                    
|        |  |                                                                                                                                                                                                                                      
|12.1    |  | Certification Pursuant to Section 906 of the
          Sarbanes-Oxley Act of 2002.                                                                                                                                                   
|        |  |                                                                                                                                                                                                                                      

|   
|---
|*  
|   
|** 
|   
|***

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SIGNATURE

Pursuant to the requirements of Section
  12 of the Securities Exchange Act of 1934, the registrant, Copamex, S.A. de
  C.V., certifies that it has reasonable grounds to believe that it meets all
  of the requirements for filing on Form 20-F and has duly caused this annual
  report to be signed on its behalf by the undersigned, thereunto duly authorized.


| | COPAMEX, S.A. DE C.V.
| | ---------------------
| |                      
| | By:                  
| |                      
| |                      
| |                      
| | Date: July 11, 2003  

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CERTIFICATION

I, Alejandro Martín Ferrigno
  Maldonado, certify that:


1.   I have reviewed this annual report on Form 20-F of Copamex, S.A. de C.V.;


2.   Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;


3.   Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;


4.   The registrants
    other certifying officers and I are responsible for establishing and maintaining
    disclosure controls and procedures (as defined in Exchange Act Rules 13a-14
    and 15d-14) for the registrant and have:


| |  | a. | designed such disclosure controls and procedures
      to ensure that material information relating to the registrant, including
      its consolidated subsidiaries, is made known to us by others within those
      entities, particularly during the period in which this annual report is
      being prepared;
| |  | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |    |                                                                                                                                                                                                                                                                                                                     
| |  | b. | evaluated the effectiveness of the registrants
      disclosure controls and procedures as of a date within 90 days prior to
      the filing date of this annual report (the Evaluation Date);
      and                                                                                                        
| |  |    |                                                                                                                                                                                                                                                                                                                     
| |  | c. | presented in this annual report our conclusions
      about the effectiveness of the disclosure controls and procedures based
      on our evaluation as of the Evaluation Date;                                                                                                                                    

5.   The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent function):


| |  | a. | all significant deficiencies in the design
      or operation of internal controls which could adversely affect the registrants
      ability to record, process, summarize and report financial data and have
      identified for the registrants auditors any material weaknesses in
      internal controls; and
| |  | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |    |                                                                                                                                                                                                                                                                                                                       
| |  | b. | any fraud, whether or not material, that involves
      management or other employees who have a significant role in the registrants
      internal controls; and                                                                                                                                                    

6.   The
  registrants other certifying officers and I have indicated in this annual
  report whether or not there were significant changes in internal controls or
  in other factors that could significantly affect internal controls subsequent
  to the date of our most recent evaluation, including any corrective actions
  with regard to significant deficiencies and material weaknesses.


Date: July 11, 2003.

| | /s/ Alejandro Martín
          Ferrigno Maldonado                
| | -----------------------------------------------------------------
| | Alejandro Martín Ferrigno Maldonado
      Chief Executive Officer

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CERTIFICATION

I, Sergio Francisco de la Garza y de Silva, certify that:


1.   I have reviewed this annual report on Form 20-F of Copamex, S.A. de C.V.; 2.   Based on my
    knowledge, this annual report does not contain any untrue statement of a material
    fact or omit to state a material fact necessary to make the statements made,
    in light of the circumstances under which such statements were made, not misleading
    with respect to the period covered by this annual report;


3.   Based on my
    knowledge, the financial statements, and other financial information included
    in this annual report, fairly present in all material respects the financial
    condition, results of operations and cash flows of the registrant as of, and
    for, the periods presented in this annual report; 4.   The registrants
    other certifying officers and I are responsible for establishing and maintaining
    disclosure controls and procedures (as defined in Exchange Act Rules 13a-14
    and 15d-14) for the registrant and have:


| |  | a. | designed such disclosure controls
      and procedures to ensure that material information relating to the registrant,
      including its consolidated subsidiaries, is made known to us by others within
      those entities, particularly during the period in which this annual report
      is being prepared;
| |  | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |    |                                                                                                                                                                                                                                                                                                                     
| |  | b. | evaluated the effectiveness
      of the registrants disclosure controls and procedures as of a date
      within 90 days prior to the filing date of this annual report (the Evaluation
      Date); and                                                                                                        
| |  |    |                                                                                                                                                                                                                                                                                                                     
| |  | c. | presented in this annual report
      our conclusions about the effectiveness of the disclosure controls and procedures
      based on our evaluation as of the Evaluation Date;                                                                                                                                    

5.   The registrants
    other certifying officers and I have disclosed, based on our most recent evaluation,
    to the registrants auditors and the audit committee of registrants
    board of directors (or persons performing the equivalent function):


| |  | a. | all significant deficiencies in the design
      or operation of internal controls which could adversely affect the registrants
      ability to record, process, summarize and report financial data and have
      identified for the registrants auditors any material weaknesses in
      internal controls; and
| |  | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |    |                                                                                                                                                                                                                                                                                                                       
| |  | b. | any fraud, whether or not material, that involves
      management or other employees who have a significant role in the registrants
      internal controls; and                                                                                                                                                    

6.   The registrants
    other certifying officers and I have indicated in this annual report whether
    or not there were significant changes in internal controls or in other factors
    that could significantly affect internal controls subsequent to the date of
    our most recent evaluation, including any corrective actions with regard to
    significant deficiencies and material weaknesses.


Date: July 11, 2003.

| | /s/ Sergio Francisco de
          la Garza y de Silva                      
| | ---------------------------------------------------------------------------
| | Sergio Francisco
      de la Garza y de Silva
      Chief Corporate Officer

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CERTIFICATION

I,
  Rodolfo Gutiérrez Peña, certify that:


1.   I have reviewed
    this annual report on Form 20-F of Copamex, S.A. de C.V.;


2.   Based on my
    knowledge, this annual report does not contain any untrue statement of a material
    fact or omit to state a material fact necessary to make the statements made,
    in light of the circumstances under which such statements were made, not misleading
    with respect to the period covered by this annual report;


3.   Based on my
    knowledge, the financial statements, and other financial information included
    in this annual report, fairly present in all material respects the financial
    condition, results of operations and cash flows of the registrant as of, and
    for, the periods presented in this annual report;


4.   The registrants
    other certifying officers and I are responsible for establishing and maintaining
    disclosure controls and procedures (as defined in Exchange Act Rules 13a-14
    and 15d-14) for the registrant and have:


| |  | a. | designed such disclosure controls
      and procedures to ensure that material information relating to the registrant,
      including its consolidated subsidiaries, is made known to us by others within
      those entities, particularly during the period in which this annual report
      is being prepared;
| |  | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |    |                                                                                                                                                                                                                                                                                                                     
| |  | b. | evaluated the effectiveness
      of the registrants disclosure controls and procedures as of a date
      within 90 days prior to the filing date of this annual report (the Evaluation
      Date); and                                                                                                        
| |  |    |                                                                                                                                                                                                                                                                                                                     
| |  | c. | presented in this annual report
      our conclusions about the effectiveness of the disclosure controls and procedures
      based on our evaluation as of the Evaluation Date;                                                                                                                                    

5.   The registrants
    other certifying officers and I have disclosed, based on our most recent evaluation,
    to the registrants auditors and the audit committee of registrants
    board of directors (or persons performing the equivalent function):


| |  | a. | all significant deficiencies
      in the design or operation of internal controls which could adversely affect
      the registrants ability to record, process, summarize and report
      financial data and have identified for the registrants auditors any
      material weaknesses in internal controls; and
| |  | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |    |                                                                                                                                                                                                                                                                                                                       
| |  | b. | any fraud, whether or not material,
      that involves management or other employees who have a significant role
      in the registrants internal controls; and                                                                                                                                                    

6.   The registrants
  other certifying officers and I have indicated in this annual report whether
  or not there were significant changes in internal controls or in other factors
  that could significantly affect internal controls subsequent to the date of
  our most recent evaluation, including any corrective actions with regard to
  significant deficiencies and material weaknesses. Date: July 11, 2003.


| | /s/ Rodolfo Gutiérrez
          Peña                    
| | --------------------------------------------------------
| | Rodolfo Gutiérrez
      Peña
      Corporate Comptroller

64

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Index
  to Financial Statements

Consolidated Financial
  Statements of Copamex, S.A. de C.V. and Subsidiaries

|Annual
        Financial Information                                                                                            | Page
|------------------------------------------------------------------------------------------------------------------------------- | ----
|                                                                                                                                |     
|                                                                                                                                |     
|Report
        of Independent Auditors                                                                                          | F-2 
|Report
        of Independent Auditors                                                                                          | F-3 
|Consolidated
        Balance Sheets as of December 31, 2002 and 2001                                                            | F-4 
|Consolidated
        Statements of Income for the years ended December 31, 2002, 2001 and 2000                                  | F-5 
|Consolidated
        Statements of Changes in Financial Position for the years ended December
        31, 2002, 2001 and 2000   | F-6 
|Consolidated
        Statements of Changes in Stockholders Equity for the years ended
        December 31, 2002, 2001 and 2000 | F-7 
|Notes
        to Consolidated Financial Statements as of December 31, 2002, 2001 and
        2000                               | F-8 

F-1

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REPORT OF INDEPENDENT AUDITORS

The
  Board of Directors and Stockholders of
  Copamex, S.A. de C.V.

We have audited the accompanying consolidated balance sheets of Copamex, S.A. de C.V. and Subsidiaries, as of December 31, 2002 and 2001 and the related consolidated statements of income, changes in stockholders' equity and changes in financial position for each of the three years in the period ended December 31, 2002. These consolidated financial statements are the responsibility of Company's management.  Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the 2002 and 2001 financial statements of certain subsidiaries, which statements reflect 24.2% and 21.5% of total consolidated assets as of December 31, 2002 and 2001, respectively, and 23% and 24% of total revenues for the years then ended.  Those statements were audited by other independent auditors whose reports have been furnished to us, and our opinion, insofar as it relates to data included for those subsidiaries, is based sole

ly on the reports of the other independent auditors.

We conducted our audits in accordance with auditing standards generally accepted in Mexico and in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. 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 audits and the reports of other auditors provide a reasonable basis for our opinion.

In our opinion, based on our audits and the reports of other auditors, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Copamex, S.A. de C.V. and Subsidiariesas of December 31, 2002 and 2001, and the consolidated results of their operations and changes in their consolidated financial position for each of the three years in the period ended December 31, 2002 in conformity with accounting principles generally accepted in Mexico, which differ in certain respects from those followed in the United States (see Note 17).

As mentioned in Note 1 to the accompanying financial statements, effective January 1, 2000 the Company adopted the requirements of Mexican Accounting Bulletin D-4 Accounting for Income Tax, Asset Tax and Employee Profit Sharing, issued by the Mexican Institute of Public Accountants

| | MANCERA,
        S.C.             
| | ----------------------------------
| | A
        Member Practice of      
| | Ernst
        & Young Global      
| |                                   
| | /s/
            HÉCTOR HONGO TSUJI
| | C.P.
        HÉCTOR HONGO TSUJI   

Garza García,
  N.L.
  February 28, 2003.

F-2

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|To the
      Board of Directors and Stockholders of
      Copamex Empaque, S. A. de C. V.:
|------------------------------------------------------------------------------------------

We have audited
  the accompanying consolidated balance sheets of Copamex Empaque, S. A. de C.
  V. (a Mexican corporation) and Subsidiaries (collectively referred to as the
  Company), as of December 31, 2002, and the related consolidated
  statements of income, changes in stockholders equity and changes in financial
  position for the year then ended. These financial statements are the responsibility
  of the Company ́s management. Our responsibility is to express an opinion
  on these financial statements based on our audit. We did not audit the financial
  statements of certain consolidated subsidiaries, which statements reflect total
  assets of approximately 30% of the consolidated totals as of December 31, 2002
  and total revenues of approximately 36% of the total consolidated revenues for
  the year ended December 31, 2002. Those statements were audited by other auditors
  whose reports have been furnished to us, and our opinion, insofar as it relates
  to the amounts included for those entities, is based solely on the reports of
  such other auditors. The consolidated financial statements of the Company as
  of December 31, 2001 and for the year then ended were audited by other auditors
  who expressed an unqualified opinion in their report dated February 8, 2002.

We conducted
  our audit in accordance with auditing standards generally accepted in Mexico
  and in the United States of America. Those standards require that we plan and
  perform the audit to obtain reasonable assurance about whether the financial
  statements are free of material misstatement. 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 audits provide a reasonable
  basis for our opinion.

In our opinion,
  based on our audit and the reports from other auditors, such consolidated financial
  statements referred to above present fairly, in all material respects, the financial
  position of Copamex Empaque, S. A. de C. V. and Subsidiaries, as of December
  31, 2002, the results of their operations, the changes in their stockholders
  equity, and changes in their financial position for the year then ended, in
  conformity with the accounting principles generally accepted in Mexico.

Accounting practices
  used by the Company in preparing the accompanying consolidated financial statements
  conform with accounting principles generally accepted in Mexico but do not conform
  with accounting principles generally accepted in the United States of America
  (U.S. GAAP). A description of these differences and a reconciliation of consolidated
  net income and stockholders equity to U.S. GAAP as permitted by the regulations
  of the U.S. Securities and Exchange Commission, which allow omission of the
  requirement to quantify, in the U.S. GAAP reconciliation, the differences attributable
  to the effects of comprehensive inflation adjustments recorded locally, are
  set forth in Notes 18 and 19.





San Pedro Garza
  García, N.L; Mexico
  February 21, 2003

F-3

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COPAMEX, S.A. DE C.V. AND SUBSIDIARIES

Consolidated
  Balance SheetsAs
  of December 31, 2002 and 2001

(Thousands
  of constant Mexican pesos as of December 31, 2002)

|Assets                                           | 2002 |            | 2001 |     | Liabilities
          and stockholders equity | 2002 |                                                               | 2001 |           
|------------------------------------------------ | ---- | ---------- | ---- | --- | ---------------------------------------------- | ---- | ------------------------------------------------------------- | ---- | ----------
|                                                 |      |            |      |     |                                                |      |                                                               |      |           
|                                                 |      |            |      |     |                                                |      |                                                               |      |           
|Current
          assets:                        |      |            |      |     |                                                |      | Current
          liabilities:                                |      |           
|Cash
          and cash equivalents              | Ps.  | 88,274     |      | Ps. | 229,895                                        |      | Short-term
          debt  Note 7                            | Ps.  | 771,048   
|Trade
          receivables, net of an allowance |      |            |      |     |                                                |      | Current
          portion of long-term debt  Note 7          |      | 509,665   
|for
          doubtful accounts of $53,781       |      |            |      |     |                                                |      | Suppliers                                                     |      | 1,164,551 
|in 2002
          and $47,354 in 2001  Note 2   |      | 1,462,112  |      |     | 1,540,167                                      |      | Related
          parties  Note 9                            |      |          
|Related
          parties  Note 9               |      | 362,963    |      |     | 183,346                                        |      | Other
          accounts payable  Note 12                    |      | 894,682   
|Other
          accounts receivable  Note 12    |      | 173,482    |      |     | 192,194                                        |      | Income
          tax, asset tax and employees profit sharing |      | 30,896    
|Inventories,
          net  Note 3              |      | 1,026,429  |      |     | 945,649                                        |      |                                                               |      |           
|Prepaid
          expenses                       |      | 269,391    |      |     | 250,781                                        |      | Total
          current liabilities                           |      | 3,370,842 
|                                                 |      |            |      |     |                                                |      |                                                               |      |           
|                                                 |      |            |      |     |                                                |      |                                                               |      |           
|Total
          current assets                   |      | 3,382,651  |      |     | 3,342,032                                      |      |                                                               |      |           
|                                                 |      |            |      |     |                                                |      | Long-term
          liabilities:                              |      |           
|                                                 |      |            |      |     |                                                |      | Long-term
          debt  Note 7                             |      | 4,025,000 
|Investments
          in associated              |      |            |      |     |                                                |      | Labor
          obligations  Note 10                         |      | 109,728   
|companies
           Note 4                     |      | 45,976     |      |     | 82,027                                         |      | Deferred
          taxes  Note 13                            |      | 1,670,139 
|                                                 |      |            |      |     |                                                |      |                                                               |      |           
|                                                 |      |            |      |     |                                                |      | Total
          long-term liabilities                         |      | 5,804,867 
|                                                 |      |            |      |     |                                                |      |                                                               |      |           
|Property,
          plant and equipment,         |      |            |      |     |                                                |      | Total
          liabilities                                   |      | 9,175,709 
|net
           Note 5                           |      | 8,979,412  |      |     | 9,012,294                                      |      |                                                               |      |           
|                                                 |      |            |      |     |                                                |      |                                                               |      |           
|                                                 |      |            |      |     |                                                |      | Stockholders
          equity  Note 11:                     |      |           
|                                                 |      |            |      |     |                                                |      | Capital
          stock                                       |      | 5,099,719 
|                                                 |      |            |      |     |                                                |      | Additional
          paid-in capital                          |      | 6,697     
|                                                 |      |            |      |     |                                                |      | Retained
          earnings                                   |      | 1,223,725 
|                                                 |      |            |      |     |                                                |      | Deficit
          from restatement of stockholders equity    |      | (654,735  
|                                                 |      |            |      |     |                                                |      | Cumulative
          effect of deferred income tax            |      | (1,869,391
|                                                 |      |            |      |     |                                                |      |                                                               |      |           
|                                                 |      |            |      |     |                                                |      | Total
          majority stockholders equity                 |      | 3,806,015 
|Goodwill
           Note 4                      |      | 133,204    |      |     | 122,463                                        |      | Minority
          interest  Note 11 b                       |      | 209,816   
|                                                 |      |            |      |     |                                                |      |                                                               |      |           
|Intangible
          assets, net  Note 6        |      | 650,297    |      |     | 659,716                                        |      | Total
          stockholders equity                          |      | 4,015,831 
|                                                 |      |            |      |     |                                                |      |                                                               |      |           
|Total
          assets                           | Ps.  | 13,191,540 |      | Ps. | 13,218,532                                     |      | Total
          liabilities and stockholders equity          | Ps.  | 13,191,540
|                                                 |      |            |      |     |                                                |      |                                                               |      |           

See
  accompanying notes

F-4

---



Back to Contents

COPAMEX,
  S.A. DE C.V. AND SUBSIDIARIES

Consolidated
  Statements of Income
  Years ended December 31, 2002, 2001 and 2000

(Thousands
  of constant Mexican pesos as of December 31, 2002)

|                                                       |     | 2002       |   |     | 2001       |   |     | 2000       |  
|------------------------------------------------------ | --- | ---------- | - | --- | ---------- | - | --- | ---------- | -
|                                                       |     |            |   |     |            |   |     |            |  
|Net sales                                              | Ps. | 7,867,393  |   | Ps. | 8,052,571  |   | Ps. | 8,315,352  |  
|Cost of sales                                          |     | (5,108,650 | ) |     | (5,176,530 | ) |     | (5,664,204 | )
|                                                       |     |            |   |     |            |   |     |            |  
|Gross margin                                           |     | 2,758,743  |   |     | 2,876,041  |   |     | 2,651,148  |  
|Selling and administrative
      expenses              |     | (1,960,753 | ) |     | (1,902,192 | ) |     | (1,819,895 | )
|                                                       |     |            |   |     |            |   |     |            |  
|Operating income                                       |     | 797,990    |   |     | 973,849    |   |     | 831,253    |  
|                                                       |     |            |   |     |            |   |     |            |  
|Comprehensive financing
      cost:                    |     |            |   |     |            |   |     |            |  
|Interest
      income                                  |     | 39,094     |   |     | 40,859     |   |     | 28,840     |  
|Interest
      expense                                 |     | (514,278   | ) |     | (603,062   | ) |     | (669,528   | )
|Exchange
      (loss) gain, net                        |     | (675,187   | ) |     | 275,936    |   |     | (98,822    | )
|Monetary
      gain                                    |     | 236,844    |   |     | 189,939    |   |     | 402,053    |  
|Other
      financing cost  Note 2                    |     | (36,433    | ) |     | (11,955    | ) |     | (4,022     | )
|                                                       |     |            |   |     |            |   |     |            |  
|                                                       |     | (949,960   | ) |     | (108,283   | ) |     | (341,479   | )
|                                                       |     |            |   |     |            |   |     |            |  
|Other expenses, net
       Note 12                    |     | (117,515   | ) |     | (110,080   | ) |     | (74,418    | )
|Equity in income of
      associated companies         |     | (40,350    | ) |     | (27,307    | ) |     |           |  
|                                                       |     |            |   |     |            |   |     |            |  
|Asset write down 
      Note 5                        |     | (194,534   | ) |     | (635,151   | ) |     |           |  
|                                                       |     |            |   |     |            |   |     |            |  
|(Loss) income before
      income tax and asset taxes, |     |            |   |     |            |   |     |            |  
|and
      employee profit sharing                      |     | (504,369   | ) |     | 93,028     |   |     | 415,356    |  
|Income tax benefit
      (expense)  Note 13           |     | 204,550    |   |     | (87,809    | ) |     | (243,992   | )
|Employee profit sharing                                |     | (8,666     | ) |     | (10,573    | ) |     | (7,053     | )
|                                                       |     |            |   |     |            |   |     |            |  
|Net (loss) income
      before minority interest       |     | (308,485   | ) |     | (5,354     | ) |     | 164,311    |  
|Minority interest                                      |     | (48,695    | ) |     | (55,359    | ) |     | (39,882    | )
|                                                       |     |            |   |     |            |   |     |            |  
|Net (loss) income
      of majority stockholders       | Ps. | (357,180   | ) | Ps. | (60,713    | ) | Ps. | 124,429    |  
|                                                       |     |            |   |     |            |   |     |            |  
|Weighted average common
      shares outstanding       |     | 28,499,955 |   |     | 28,507,926 |   |     | 28,482,921 |  
|Net (loss) income
      per common share (in pesos)    | Ps. | (12.53     | ) | Ps. | (2.12      | ) | Ps. | 4.36       |  
|                                                       |     |            |   |     |            |   |     |            |  

See
  accompanying notes.

F-5

---



Back to Contents

COPAMEX,
  S.A. DE C.V. AND SUBSIDIARIES

Consolidated
  Statements of Changes in Financial Position
  Years ended December 31, 2002, 2001 and 2000

(Thousands
  of constant Mexican pesos as of December 31, 2001)

|                                                                  |     | 2002       |   |     | 2001       |   |     | 2000      |  
|----------------------------------------------------------------- | --- | ---------- | - | --- | ---------- | - | --- | --------- | -
|                                                                  |     |            |   |     |            |   |     |           |  
|Operating
      activities:                                       |     |            |   |     |            |   |     |           |  
|Net (loss)
      income                                           | Ps. | (308,485   | ) | Ps. | (5,354     | ) | Ps. | 164,311   |  
|Items not
      requiring the use of resources:                   |     |            |   |     |            |   |     |           |  
|Allowance
      for doubtful accounts                             |     | 8,981      |   |     | 5,651      |   |     | 5,503     |  
|Depreciation                                                      |     | 390,366    |   |     | 383,384    |   |     | 453,285   |  
|Amortization                                                      |     | 71,387     |   |     | 47,752     |   |     | 49,008    |  
|Asset
      write down                                            |     | 194,534    |   |     | 535,899    |   |     |          |  
|Equity
      in income of associated companies                    |     | 40,350     |   |     | 27,307     |   |     |          |  
|Provision
      for labor obligations                             |     | 14,571     |   |     | 14,937     |   |     | 13,411    |  
|Deferred
      income tax                                         |     | (251,318   | ) |     | 60,171     |   |     | 220,312   |  
|                                                                  |     |            |   |     |            |   |     |           |  
|                                                                  |     | 160,386    |   |     | 1,069,747  |   |     | 905,830   |  
|Trade
      receivables                                           |     | 69,074     |   |     | 306,907    |   |     | (200,888  | )
|Inventories                                                       |     | (133,514   | ) |     | (144,428   | ) |     | (87,972   | )
|Related
      parties                                             |     |           |   |     | (61,153    | ) |     | (1,795    | )
|Prepaid
      expenses                                            |     | (18,611    | ) |     | (121,262   | ) |     | (65,946   | )
|Suppliers                                                         |     | 170,073    |   |     | 96,818     |   |     | 76,114    |  
|Other
      accounts receivable and payable, net                  |     | 285,869    |   |     | 99,833     |   |     | 92,083    |  
|Income
      tax, asset tax and employee profit sharing           |     | (8,520     | ) |     | 21,934     |   |     | (57,148   | )
|                                                                  |     |            |   |     |            |   |     |           |  
|Resources
      provided by operating activities                  |     | 524,757    |   |     | 1,268,396  |   |     | 600,278   |  
|                                                                  |     |            |   |     |            |   |     |           |  
|Financing
      activities:                                       |     |            |   |     |            |   |     |           |  
|Short-term
      bank loans                                       |     | (550,766   | ) |     | (67,741    | ) |     | (495,586  | )
|Bonds                                                             |     | (744,513   | ) |     | (164,467   | ) |     | (147,184  | )
|Proceeds
      from bank borrowings and issuanceof long-term debt |     | 1,567,725  |   |     | 605,661    |   |     | 1,378,584 |  
|Payments
      of long-term debt                                  |     | (1,528,357 | ) |     | (1,022,339 | ) |     | (761,743  | )
|Related
      parties                                             |     | (187,077   | ) |     | 95,983     |   |     | (209,991  | )
|Effect
      of spin-off                                          |     |           |   |     | (7,417     | ) |     |          |  
|Effect
      of merger                                            |     | 5,117      |   |     |           |   |     |          |  
|Minority
      interest                                           |     | (88,507    | ) |     | 935        |   |     | (13,743   | )
|                                                                  |     |            |   |     |            |   |     |           |  
|Resources
      provided (used in) by financing activities        |     | (37,352    | ) |     | (559,385   | ) |     | (249,663  | )
|                                                                  |     |            |   |     |            |   |     |           |  
|Investing
      activities:                                       |     |            |   |     |            |   |     |           |  
|Property,
      plant and equipment, net                          |     | (484,168   | ) |     | (310,975   | ) |     | (317,993  | )
|Acquisition
      of subsidiary  Note 4                          |     | (67,850    | ) |     |           |   |     |          |  
|Intangible
      assets                                           |     | (51,003    | ) |     | (45,029    | ) |     | (90,691   | )
|Investment
      in associated companies                          |     | (26,005    | ) |     | (161,626   | ) |     | (10,006   | )
|                                                                  |     |            |   |     |            |   |     |           |  
|Resources
      used in investing activities                      |     | (629,026   | ) |     | (517,630   | ) |     | (418,690  | )
|                                                                  |     |            |   |     |            |   |     |           |  
|Increase
      (decrease) in cash and cash equivalents            |     | (141,621   | ) |     | 191,381    |   |     | (8,075    | )
|Cash and
      cash equivalents at the beginning of year          |     | 229,895    |   |     | 38,514     |   |     | 46,589    |  
|                                                                  |     |            |   |     |            |   |     |           |  
|Cash and
      cash equivalents at the end of year                | Ps. | 88,274     |   | Ps. | 229,895    |   | Ps. | 38,514    |  
|                                                                  |     |            |   |     |            |   |     |           |  

See
  accompanying notes.

F-6

---



Back to Contents

COPAMEX,
  S.A. DE C.V. AND SUBSIDIARIES

Consolidated Statements of Changes in Stockholders EquityFor the
  years ended December 31, 2002, 2001 and 2000

(Thousands of constant Mexican pesos as of December 31, 2002)

|                                                                       |  | Capital
      stock |           | Additional
      paid-in
        capital |     | Retained
      earnings |  | Deficit
        from
      restatement
        of
      stockholders
      equity |           | Cumulative
      effect
        of
      deferred
      income
        taxes |     | Total
      majority
      stockholders
      equity |   | Minority
      interest |            |   | Total |           
|---------------------------------------------------------------------- |  | ------------------- | --------- | ---------------------------------------- | --- | ----------------------- |  | ---------------------------------------------------------------------------------- | --------- | ---------------------------------------------------------------------------- | --- | ----------------------------------------------------- | - | ----------------------- | ---------- | - | ----- | ----------
|                                                                       |  |                     |           |                                          |     |                         |  |                                                                                    |           |                                                                              |     |                                                       |   |                         |            |   |      
|Balances at December 31, 1999                                          |  | Ps.                 | 5,094,474 |                                          | Ps. | —                       |  | Ps.                                                                                | 1,517,189 |                                                                              | Ps. | (154,530                                              | ) | Ps.                     | —          |   | Ps.   | 6,457,133 
|Cumulative
      effect of deferred taxes                              |  |                     |           |                                          |     |                         |  |                                                                                    |           |                                                                              |     |                                                       |   | Ps.                     | (1,869,391 | ) |       | (1,869,391
|Increase
      in capital stock                                        |  |                     | 7,545     |                                          | Ps. | 6,697                   |  |                                                                                    |           |                                                                              |     |                                                       |   |                         |            |   |       | 14,242    
|Minority
      interest                                                |  |                     |           |                                          |     |                         |  |                                                                                    |           |                                                                              |     |                                                       |   |                         |            |   |       | —         
|Net income
      for the year                                          |  |                     |           |                                          |     |                         |  |                                                                                    | 124,429   |                                                                              |     |                                                       |   |                         |            |   |       | 124,429   
|Deficit
      from holding non-monetary assets (net of deferred taxes) |  |                     |           |                                          |     |                         |  |                                                                                    |           |                                                                              |     | (253,355                                              | ) |                         |            |   |       | (253,355  
|                                                                       |  |                     |           |                                          |     |                         |  |                                                                                    |           |                                                                              |     |                                                       |   |                         |            |   |       |           
|Comprehensive
      income (loss)                                      |  |                     |           |                                          |     |                         |  |                                                                                    | 124,429   |                                                                              |     | (253,355                                              | ) |                         |            |   |       | (128,926  
|                                                                       |  |                     |           |                                          |     |                         |  |                                                                                    |           |                                                                              |     |                                                       |   |                         |            |   |       |           
|Balances at December 31, 2000                                          |  |                     | 5,102,019 |                                          |     | 6,697                   |  |                                                                                    | 1,641,618 |                                                                              |     | (407,885                                              | ) |                         | (1,869,391 | ) |       | 4,473,058 
|Effect of
      spin-off                                               |  |                     | (7,417    | )                                        |     |                         |  |                                                                                    |           |                                                                              |     |                                                       |   |                         |            |   |       | (7,417    
|Minority
      interest                                                |  |                     |           |                                          |     |                         |  |                                                                                    |           |                                                                              |     |                                                       |   |                         |            |   |       | —         
|Net loss
      for the year                                            |  |                     |           |                                          |     |                         |  |                                                                                    | (60,713   | )                                                                            |     |                                                       |   |                         |            |   |       | (60,713   
|Deficit
      from holding non-monetary assets (net of deferred taxes) |  |                     |           |                                          |     |                         |  |                                                                                    |           |                                                                              |     | (212,593                                              | ) |                         |            |   |       | (212,593  
|                                                                       |  |                     |           |                                          |     |                         |  |                                                                                    |           |                                                                              |     |                                                       |   |                         |            |   |       |           
|Comprehensive
      income (loss)                                      |  |                     |           |                                          |     |                         |  |                                                                                    | (60,713   | )                                                                            |     | (212,593                                              | ) |                         |            |   |       | (273,306  
|                                                                       |  |                     |           |                                          |     |                         |  |                                                                                    |           |                                                                              |     |                                                       |   |                         |            |   |       |           
|Balances at December 31, 2001                                          |  |                     | 5,094,602 |                                          |     | 6,697                   |  |                                                                                    | 1,580,905 |                                                                              |     | (620,478                                              | ) |                         | (1,869,391 | ) |       | 4,192,335 
|Effect of
      merger                                                 |  |                     | 5,117     |                                          |     |                         |  |                                                                                    |           |                                                                              |     |                                                       |   |                         |            |   |       | 5,117     
|Minority
      interest                                                |  |                     |           |                                          |     |                         |  |                                                                                    |           |                                                                              |     |                                                       |   |                         |            |   |       | —         
|Net loss
      for the year                                            |  |                     |           |                                          |     |                         |  |                                                                                    | (357,180  | )                                                                            |     |                                                       |   |                         |            |   |       | (357,180  
|Deficit
      from holding non-monetary assets (net of deferred taxes) |  |                     |           |                                          |     |                         |  |                                                                                    |           |                                                                              |     | (34,257                                               | ) |                         |            |   |       | (34,257   
|                                                                       |  |                     |           |                                          |     |                         |  |                                                                                    |           |                                                                              |     |                                                       |   |                         |            |   |       |           
|Comprehensive
      income (loss)                                      |  |                     |           |                                          |     |                         |  |                                                                                    | (357,180  | )                                                                            |     | (34,257                                               | ) |                         |            |   |       | (391,437  
|                                                                       |  |                     |           |                                          |     |                         |  |                                                                                    |           |                                                                              |     |                                                       |   |                         |            |   |       |           
|Balances
      at December 31, 2002                                    |  | Ps.                 | 5,099,719 |                                          | Ps. | 6,697                   |  | Ps.                                                                                | 1,223,725 |                                                                              | Ps. | (654,735                                              | ) | Ps.                     | (1,869,391 | ) | Ps.   | 3,806,015 
|                                                                       |  |                     |           |                                          |     |                         |  |                                                                                    |           |                                                                              |     |                                                       |   |                         |            |   |       |           

See
  accompanying notes

F-7

---



Back to Contents

COPAMEX,
  S.A. DE C.V. AND SUBSIDIARIES

Notes
  to Consolidated Financial StatementsYears ended
  December 31, 2002, 2001 and 2000

(Thousands
  of constant Mexican pesos as of December 31, 2002)

|1. | Description
        of the business and significant accounting policies
|-- | -----------------------------------------------------------------------
|   |                                                                        
|I. | Description
        of business                                        

Copamex, S.A.
  de C.V. (the Company) is a Mexican holding company that holds the shares of
  the companies listed below.

The main activities
  of these companies are concentrated in three product groups: 1) the consumer
  products group, which includes bathroom and facial tissue, paper towels, paper
  napkins, adult incontinence products, feminine care products, away-from-home
  products, notebooks and baby diapers, 2) the packaging products group which
  includes kraft paper, multi-wall paper bags, corrugated containers and specialty
  papers 3) the printing and writing products group which includes cut-sized paper,
  bond paper and carbonless papers.

|II. | Significant
        accounting policies
|--- | ---------------------------------------

Use
  of estimates

In
  preparing financial statements in conformity with generally accepted accounting
  principles, management is required to make estimates and assumptions that affect
  the amounts reported in the financial statements. Actual results could differ
  from those estimates.

The consolidated
    financial statements include those of Copamex, S.A. de C.V. and the subsidiaries
    in which they hold the majority of the capital stock, as follows:

F-8

---

Back to Contents %
      ownership2002
    
    2001Copamex
      Productos al Consumidor, S.A. de C.V.
    100.00
    %
    100.00
    %Copamex
      Comercial, S.A. de C.V.
    100.00
    %
    100.00
    %Industrial
      Papelera Mexicana, S.A. de C.V.
    100.00
    %
    100.00
    %Papeles
      Higiénicos del Centro, S.A. de C.V.
    100.00
    %
    100.00
    %Papeles
      Higiénicos de México, S.A. de C.V.
    100.00
    %
    100.00
    %Inpamex
      Planta Huehuetoca, S.A. de C.V.
    100.00
    %
    100.00
    %Servicios
      Comerciales Cocosa, S.A. de C.V.
    99.96
    %
    99.96
    %Sancela,
      S.A. de C.V.
    51.00
    %
    51.00
    %Comercializadora
      Sancela, S.A. de C.V.
    51.00
    %
    51.00
    %Sancela
      de Costa Rica, S.A.
    51.00
    %
    51.00
    %Sanco
          Interacción Comercial, S.A.(1)
    —
    
    51.00
    %Copamex
      Empaque, S.A. de C.V.
    100.00
    %
    100.00
    %Papelera
      de Chihuahua, S.A. de C.V.
    100.00
    %
    100.00
    %Maquinaria
      y Equipo Pachisa, S.A. de C.V.
    100.00
    %
    100.00
    %Cía.
      Papelera Maldonado, S.A. de C.V.
    100.00
    %
    100.00
    %Maquinaria
      y Equipo Papelera, S.A. de C.V.
    99.81
    %
    99.81
    %Inmobiliaria
      Hemisferio, S.A. de C.V.
    100.00
    %
    100.00
    %Copamex
      Corrugados, S.A. de C.V.
    100.00
    %
    90.00
    %Corrugado
          y Fibra, S.A. de C.V.(2)
    100.00
    %
    —Sacos
      y Envases Industriales, S.A. de C.V.
    100.00
    %
    100.00
    %Inmobiliaria
      Nueva España 2000, S.A. de C.V.
    100.00
    %
    100.00
    %Maquinaria
      y Equipo Seisa, S.A. de C.V.
    100.00
    %
    100.00
    %Master
      Fibers Inc.
    100.00
    %
    100.00
    %Comercial
      Recicladora, S.A. de C.V.
    100.00
    %
    100.00
    %Specialty
          Paper Packaging, Co.(2)
    100.00
    %
    —Inmobiliaria
          Meriadiano Cero, S.A. de C.V.(3)
    100.00
    %
    —Copamex
      Papeles para Escritura e Impresión, S.A. de C.V.
    100.00
    %
    100.00
    %Comercializadora
      Copamex, S.A. de C.V.
    100.00
    %
    100.00
    %Pondercel,
      S.A. de C.V.
    100.00
    %
    100.00
    %Plantaciones
      Industriales Mexicanas, S.A. de C.V.
    100.00
    %
    100.00
    %Taloquimia,
      S.A. de C.V.
    100.00
    %
    51.00
    %Recicladora
      de Papel y Derivados, S.A. de C.V.
    100.00
    %
    100.00
    %Industrias
      Unidas de Centroamérica, S.A.
    70.00
    %
    70.00
    %Grupo
      Copamex de Centroamérica, S.A.
    100.00
    %
    100.00
    %Corporativo
      Copamex, S.A. de C.V.
    100.00
    %
    100.00
    %Desarrollo
      Inmobiliario del Poniente, S.A. de C.V.
    100.00
    %
    100.00
    %Bolsas
      Maldonado, S.A. de C.V.
    99.60
    %
    99.60
    %Desarrollo
      Inmobiliario COINSA, S.A. de C.V.
    100.00
    %
    100.00
    %Inmobiliaria
          Industrial Carrera, S.A. de C.V.(2)
    100.00
    %
    —Productos
      El Cid, S.A. de C.V.
    50.00
    %
    —  (1)
    Company
      merged in Sancela, S.A. de C.V. during 2002.(2)
    Company
      incorporated in 2002.(3)
    Company
      incorporated through the spin-off of Copamex Corrugados, S.A. de C.V., effective
      2002. All intercompany
  balances and transactions have been eliminated for consolidation purposes. F-9  Back to Contents Recognition
        of the effects of inflation The Company
  and its subsidiaries recognize the effects of inflation on financial information
  as required by Mexican Accounting Bulletin B-10 ("Recognition of the Effects
  of Inflation on Financial Information"), as amended. Consequently, the amounts
  presented in the accompanying financial statements and in these notes are expressed
  in thousands of Mexican pesos with purchasing power as of December 31, 2002. Deficit
        from restatement of stockholders' equity Surplus (deficit)
  from restatement of stockholders equity includes: i) the accumulated monetary
  position gain determined at the time the provisions of Bulletin B-10 were first
  applied; and ii) the result from holding non-monetary assets, which represents
  the net difference between restatement by the specific-cost method, compared
  to restatement based on the Mexican National Consumer Price Index (NCPI). Comprehensive
        financing cost The comprehensive
  financing cost consists of net interest expense, foreign exchange gains and
  losses, the monetary gain and other financing cost. Monetary
        gain This represents
  the result of holding monetary assets and liabilities, the real value of which
  declines in inflationary periods. The monetary
  position result is calculated on the net monthly monetary positions, using factors
  derived from the NCPI. F-10   Back to Contents
Recognition of revenues


Revenue is recognized
  as earned, when all of the following criteria are met:
–
      Persuasive evidence
        of an arrangement exists.–
      Shipment has occurred
        or products have been delivered in accordance with the terms specified
        in the contracts.–
      The sellers
        price to the buyer is fixed or determinable, and–
      Collectibility is
        reasonably assured.
  Cash and cash equivalents
All highly liquid investments
    purchased with a maturity of three months or less when acquired are considered
    as cash equivalents and are carried at fair market value. Cash consists primarily
    of bank deposits.

Inventories and cost
  of sales
Inventories and cost
    of sales are presented at replacement cost, which is not in excess of realizable
    value, using the direct costing method.
Investments in associated companies
Investments in associated companies are those in which the Company owns more than 10% and less than 50% of the common outstanding shares. These investments are valued using the equity method, whereby the Company recognizes its equity interest in the results of operation of the associated companies.
Goodwill
This represents the difference between the acquisition cost and the fair value of the acquired net assets at the time of acquisition. Such excess is amortized using the straight-line method over a period of twenty years from the date of acquisition.
Property, plant and equipment
Property, plant and
    equipment are initially recorded at acquisition cost. The value of fixed assets
    is restated using factors derived from the NCPI.

    F11

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All the costs incurred
    during the period of installation and testing of new machinery are capitalized,
    including the related comprehensive financing cost incurred during the mentioned
    period.
Depreciation is calculated
    using the straight-line method based on the restated value of the assets and
    applying rates in accordance with the estimated useful lives of the assets.
Intangible assets
Intangible assets are
    initially recorded at cost and then restated using factors derived from the
    NCPI.
These items are amortized
    using the straight-line method based on the restated value of the assets over
    a period of 3 to 20 years.
Long-lived assets
The company periodically
    evaluates potential impairment loss relating to intangible and 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. If the sum of the expected future undiscounted
    cash flows is less than the carrying value of the assets, a loss is recognized
    for the difference between the carrying value of the assets and the expected
    future undiscounted cash flows. Intangible and long-lived assets are reviewed
    for impairment whenever events of changes in circumstances indicate that the
    carrying amount may not be recoverable.
Effective January 1,
    2004 the Company will be required to adopt Bulletin C-15 which modifies the
    method in which companies must measure potential impairment losses relating
    to long-lived assets and intangible assets with indefinite lives. Under the
    provisions of the bulletin an impairment loss of long-lived assets will be
    required to be recognized when the carrying value of assets, measured at the
    cash-generating unit level, exceeds the recoverable value. A cash-generating
    unit (joint venture, subsidiary, production line, division or segment) is
    in the minimum identifiable grouping of assets that generate cash flows that
    are independent of other groups of assets. The recoverable value is defined
    as the greater of the value in use (present value of the estimated future
    net cash flows using an appropriate discount rate) or an estimated net selling
    price between interested parties, which is reasonable and verifiable. An impairment
    loss for intangible assets with indefinite lives is determined in two stages;
    in the first, the determination of the excess value in use of the cash generating
    units other than the intangible assets with indefinite lives and goodwill
    and in the second, the determination of the recoverability of the intangible
    assets with indefinite lives and goodwill based on their perpetual value,
    determined based on the average excess value in use of the cash generating
    units previously mentioned. Impairment losses may be reversed in future periods
    when the recoverable value exceeds the carrying value of the related assets
    and it can clearly justified and demonstrated that the change is permanent
    and verifiable. The Company is currently in the process of determining the
    impact of that new bulletin will have on its financial position and results
    of operations.
    F-12

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Transactions in foreign
  currencies
Transactions in foreign
    currencies are recorded at the prevailing exchange rate at the time of the
    related transactions. Foreign currency denominated assets and liabilities
    are translated to pesos at the prevailing exchange rate at the balance sheet
    date. Exchange gains and losses are taken to income as part of comprehensive
    financing income (cost) (See Note 8).
Labor obligations
Mexican Federal Labor
    Law establishes the obligation to make certain payments to personnel who leave
    the Companys under certain circumstances. The Company follows the policy
    of recording severance payments in the results of the year in which they are
    made. Pension expenses and seniority premiums are recognized periodically
    on the basis of the calculations prepared by independent actuaries using the
    projected unit credit method and financial hypotheses net of inflation, as
    required by Mexican Accounting Principles Bulletin D-3.
Comprehensive (loss)
  income
On January 1, 2001,
    Bulletin B-4 Comprehensive Income became effective. The application
    of Bulletin B-4 has no effect on the net (loss) income for the year or on
    stockholders equity. Comprehensive income is the net loss or income
    for the period, plus, if applicable, those items whose effect is reflected
    directly in stockholders equity and that do not constitute contributions,
    reductions or distributions of capital.
Earnings per share
Earnings per share are
    computed by dividing net income for the year by the weighted average number
    of common shares outstanding during the year.
Advertising
The Company expenses
    advertising costs as they are incurred. Total advertising expenses charged
    to operations were approximately Ps. 356,478, Ps. 409,415 and Ps. 328,372
    for the years ended December 31, 2002, 2001 and 2000, respectively.
Financial instruments
During February 2000,
    the Mexican Institute of Public Accountants issued Bulletin C-2, financial
    Instruments, which became effective as of January 1, 2001. Bulletin
    C-2 provides guidance for recognizing, measuring and disclosing information
    about financial assets and financial liabilities, including accounting for
    derivative financial transactions. Bulletin C-2 requires that all financial
    instruments, with the exception of derivative financial instruments designated
    as hedges and held to maturity investments, be recorded on the balance sheet
    at their fair values and changes in their fair value are recognized in earnings
    of each period. With respect to derivative financial instruments, Bulletin
    C-2 requires that they be accounted for in the same manner as the items being
    hedged; held to maturity investments are recorded at amortized cost, subject
    to impairment evaluation.

    F-13


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In January 2002, the Company
  entered into a cross currency interest rate swap that has been designated as
  a hedge of the interest rate risk associated with its peso denominated variable
  rate debt. (see note 7e).
Income tax, asset tax
  and employees profit sharing

  Effective January 1,
    2000, the Company adopted the requirements of Bulletin D-4 Accounting
    Treatment for Income Tax, Asset Tax and Employees Profit Sharing
    issued by the Mexican Institute of Public Accountants. This Bulletin requires
    the recognition of deferred taxes on all the temporary differences in balance
    sheet accounts for financial and tax reporting purposes, using the enacted
    income tax rate at the date of issuance of the financial statements. Through
    December 31, 1999, deferred taxes were recognized only for temporary differences
    that were considered to be non-recurring and that had a known turnaround time.

  In accordance with this
    Bulletin, the cumulative effect of deferred tax assets and liabilities at
    the beginning of 2000 (Ps. 1,869,391) was applied to stockholders equity
    without restructuring the financial statements of prior years.

  Income tax incurred for
    the year is charged to results of operations and represents a liability due
    and payable within a maximum term of one year.

  The Company evaluates
    periodically the recoverability of its deferred tax assets, and if necessary,
    establishes and adjusts the corresponding allowance.

  In conformity with the
    Bulletin, deferred employee profit sharing is recognized only on temporary
    differences determined in the current year reconciliation between the net
    income for financial reporting and for employee profit sharing purposes, provided
    there is no indication that the related liabilities or assets will not be
    realized in the future.

  Current year employee
    profit sharing is charged to results and represents the liability due and
    payable within a maximum term of one year.

Reclassifications

  Certain amounts shown
    in the 2001 and 2000 consolidated financial statements have been reclassified
    for uniformity of presentation with 2002.
    F-14

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2.
    Trade receivablesTrade accounts correspond
  to accounts receivable from sales to third parties.
  During the years ended
    December 31, 2002, 2001 and 2000, the Company sold certain receivables through
    non-recourse factoring agreements. The discount on the sale of receivables
    was Ps. 36,433, Ps.
    11,955 and Ps. 4,022 in 2002, 2001 and 2000, respectively, and was included
    in comprehensive financing cost of those years.

3.
    InventoriesAt December 31, 2002 and
  2001, inventories are comprised of the following:
    2002
    
    
    2001Raw materials
    Ps.
    411,067
    
    Ps.
    371,100Finished goods
    
    289,737
    
    
    245,330Work in process
    
    60,231
    
    
    47,591Materials and spare
      parts
    
    163,133
    
    
    179,027Inventory in transit
    
    95,227
    
    
    90,722Advances to suppliers
    
    7,034
    
    
    11,879Ps.
    1,026,429
    
    Ps.
    945,6494.
    Investments in
      associated companiesa)
    At December 31, 2002
      and 2001 the investments in associated companies are comprised of the following:%2002
    
    2001
    
    ownershipCorrugado y Fibra,
      S.A. de C.V.
    Ps.
    
    
    Ps.
    6,497
    
    (1
    )Copamex Higiene Infantil,
      S.A. de C.V. (2)
    
    45,976
    
    
    75,530
    
    45
    %Ps.
    45,976
    
    Ps.
    82,027(1)
        In July 2002,
          Copamex Empaque, S.A. de C.V. acquired from related parties the remaining
          55% of the investment in Corrugado y Fibra, S.A. de C.V. and the remaining
          10% of Copamex Corrugados, S.A. de C.V. The total amount paid to acquire
          these interests was Ps.67,850. The excess of the cost over the book
          value of these investments was Ps. 21,706.
    F-15




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(2) In January 2003, the
  Company sold its interest to Grupo Empresarial Obispado, S.A. de C.V. (a related
  party) for Ps.66,000. The Company will continue purchasing products manufactured
  by COHINSA.


|b) | The excess of the
      cost of shares of subsidiaries and associated companies over their book
      value is comprised as follows:
|-- | ------------------------------------------------------------------------------------------------------------------------------------

|                         | 2002 |         | 2001 |    
|------------------------ | ---- | ------- | ---- | ---
|                         |      |         |      |    
|                         |      |         |      |    
|Goodwill                 | Ps.  | 156,712 |      | Ps.
|Accumulated amortization |      | (23,508 | )    |    
|                         |      |         |      |    
|Goodwill net             | Ps.  | 133,204 |      | Ps.
|                         |      |         |      |    

|5. | Property, plant
      and equipment                                                         
|-- | --------------------------------------------------------------------------------------------
|   |                                                                                             
|a) | At December 31, 2002
      and 2001, property, plant and equipment consist of the following:

|                         | 2002 |            | 2001 |    
|------------------------ | ---- | ---------- | ---- | ---
|                         |      |            |      |    
|                         |      |            |      |    
|Land                     | Ps.  | 540,087    |      | Ps.
|Buildings                |      | 1,684,057  |      |    
|Machinery and equipment  |      | 13,766,435 |      |    
|Other equipment          |      | 445,897    |      |    
|Advances to suppliers    |      | 19,660     |      |    
|Construction in progress |      | 78,934     |      |    
|                         |      |            |      |    
|                         |      | 16,535,070 |      |    
|Accumulated depreciation |      | (7,726,907 | )    |    
|                         |      |            |      |    
|                         |      | 8,808,163  |      |    
|Idle machinery           |      | 171,249    |      |    
|                         |      |            |      |    
|                         | Ps.  | 8,979,412  |      | Ps.
|                         |      |            |      |    
|                         |      |            |      |    

For the year ended December
    31, 2002 the comprehensive financing cost capitalized was Ps.11,098. Depreciation expense
    for the years ended December 31, 2002, 2001 and 2000 was Ps.390,366 Ps.383,384 and Ps.453,285, respectively.


F-16

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|b) | At
        December 31, 2002 and 2001, the remaining useful lives of assets were:
|-- | ---------------------------------------------------------------------------------
|   |                                                                                  

|                                |  | 2002                 |  | 2001                 | 
|------------------------------- |  | -------------------- |  | -------------------- | 
|                                |  |                      |  |                      | 
|Buildings                       |  | 14.1
        to 42.7 |  | 17.1
        to 43.5 | 
|Machinery
        and equipment |  | 14.8
        to 29.9 |  | 13.5
        to 31.6 | 
|Other
        equipment         |  | 5.8
        to 7.8   |  | 3.6
        to 7.9   | 

In October
  2001, the Company decided to close the operations of the cellulose plant owned
  by Pondercel, S.A. de C.V. As a result of this decision machinery and equipment,
  including the spare-parts warehouse was stated at net realizable value as determined
  by an appraisal prepared by an independent expert registered with the National
  Banking and Securities Commission. Accordingly, the book value of Ps.783,237
  was written down to Ps.247,338, representing a write-off of Ps.535,899. Expenses
  related to the shut down of the plant were Ps.99,252. The adjustments of Ps.635,151
  included in the statement of income represents the costs associated with this
  asset write-down.

In 2002 the
  Company adjusted the estimated realizable value of the cellulose plant with
  an additional write-down of Ps. 120,240. Additionally, certain equipment currently
  held for sale by two other subsidiaries was written down to its estimated realizable
  value and represented a write-down of Ps.74,294. Total asset write-down in 2002
  was Ps.194,534.

|6. | Intangible
      assets
|-- | -----------------------

At December 31, 2002 and 2001, intangible assets consist of the following:

|                                             | 2002 |          | 2001 |    
|-------------------------------------------- | ---- | -------- | ---- | ---
|                                             |      |          |      |    
|Brand
        names, technology and software | Ps.  | 624,550  |      | Ps.
|Debt
        issuance costs                  |      | 142,959  |      |    
|Capitalized
        software                 |      | 94,725   |      |    
|Start-up
        expenses                    |      | 17,883   |      |    
|Other                                        |      | 34,065   |      |    
|                                             |      |          |      |    
|                                             |      | 914,182  |      |    
|Accumulated
        amortization             |      | (263,885 | )    |    
|                                             |      |          |      |    
|                                             | Ps.  | 650,297  |      | Ps.
|                                             |      |          |      |    

Amortization expense for the years ended  December 31, 2002, 2001 and 2000 was Ps.60,422, Ps.44,304, and Ps.45,398,  respectively.

F-17

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|7. | Short-term
      and long-term debt
|-- | -----------------------------------
|   |                                    
|a) | Short
      term debt              

|                                                                     |      |                  |      |    
|-------------------------------------------------------------------- | ---- | ---------------- | ---- | ---
|                                                                     | 2002 |                  | 2001 |    
|                                                                     |      |                  |      |    
|Unsecured
        bank loans in Mexican Pesos                        | Ps.  | 306,029          |      | Ps.
|Unsecured
        bank loans in U.S. dollars                         |      | 183,158          |      |    
|Euro Commercial
        Paper in U.S. dollars                        |      | 281,861          |      |    
|                                                                     |      |                  |      |    
|Total                                                                | Ps.  | 771,048          |      | Ps.
|                                                                     |      |                  |      |    
|Interest
        rates                                               |      | 4.62             | %    |    
|                                                                     |      | to
        12.00 | %    |    
|Weighted
        average of applicable interest rates at December 31 |      | 8.68             | %    |    

The Company maintains short-term lines of credit totaling US$76.4 million, at December 31, 2002 with several banks.  At December 31, 2002 amounts available under these lines of credit totaled US$29.6 million.

In addition, the Company has a line of credit for the issuance of Euro Commercial Paper in the amount of US$150 million, with short-term maturities.  At December 31, 2002, the available balance under this line of credit was US$123 million. The Company has a line of credit for the issuance of Domestic Commercial Paper in the amount of Ps.500 million of which the available balance was Ps.500 millions at December 31, 2002.

|b) | An analysis
      of long-term debt as of December 31, 2002 and 2001 is as follows:
|-- | -----------------------------------------------------------------------------------

|                                                 |  |                          |  |                     |          
|------------------------------------------------ |  | ------------------------ |  | ------------------- | ---------
|                                                 |  |                          |  | December
        31 |          
|                                                 |  |                          |  |                     |          
|Type
        of loan                             |  | Interest
        rate    |  | 2002                |          
|                                                 |  |                          |  |                     |          
|Bonds(1)                                         |  | 11.375%                  |  | Ps.                 | 1,808,817
|Exchange
        certificate I(4)                |  | TIIE plus
        1.75   |  |                     | 300,000  
|Exchange
        certificate II(2)               |  | Cetes
        plus 2.75  |  |                     | 300,000  
|Exchange
        certificate III(4)              |  | Cetes
        plus 3.25  |  |                     | 400,000  
|Syndicated
        bank loan  I(3)               |  | Libor
        plus 4%    |  |                     | 521,965  
|Syndicated
        bank loan  II(5)              |  | Libor
        plus 4%    |  |                     | 751,630  
|Unsecured
        bank loans                     |  | 9.00%                    |  |                     |         
|Unsecured
        bank loans                     |  | Libor
        plus 1.81% |  |                     | 312,135  
|Various
        secured and unsecured bank loans |  | 5.95%                    |  |                     | 140,118  
|                                                 |  |                          |  |                     |          
|                                                 |  |                          |  |                     | 4,534,665
|Current
        portion of long-term debt        |  |                          |  |                     | (509,665 
|                                                 |  |                          |  |                     |          
|                                                 |  |                          |  | Ps.                 | 4,025,000
|                                                 |  |                          |  |                     |          



F-18

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|(1) | In
      April 1997, Copamex, S.A. de C.V. made a private placement of notes totaling
      US$200 million, which mature in 2004. These bonds were converted into Yankee
      Bonds in September 1997.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | During
      1998, Copamex, S.A. de C.V. repurchased US$19.7 million of these in the
      secondary market, resulting in a gain of US$1.4 million. During 2002, Copamex,
      S.A. de C.V. repurchased US$7.0 million of the bonds in the secondary market,
      resulting in a gain of US$155,000. At December 31, 2002, the outstanding
      balance of the bonds amounted to US$173.3 million.                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|(2) | In
      December 2001, exchange certificates were issued in the amount of Ps.300
      million, for a term of three years, maturing in December 2004. The proceeds
      were used to acquire US$28 million, which were deposited in an irrevocable
      trust fund established with Banco Nacional de México, S.A. (No. 111133-5),
      to be further applied to the payment of the issuance of Euro Commercial
      Paper due in January 2002.                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|(3) | In
      March 13, 2000 the Company obtained a Syndicated loan by various banks,
      with Citibank, N.A. as the agent. The total amount of the loan was US$130
      million with principal payments to be made quarterly with final payment
      due in March 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|(4) | In
      April and August 2002, exchange certificates were issued in the amount of
      Ps.300 million and Ps.400 million, which mature in March 2006 and July 2007
      respectively. The total proceeds from these issues were used to repay short
      term debt and current portion of long term debt.                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|(5) | In
      March 2002, Copamex, S.A. de C.V. obtained a Syndicated loan from various
      banks with Citibank as the agent. The total amount of the loan was US$72
      million with principal payments to be made quarterly with the final payment
      due in April 2006. The proceeds were used to repay short-term debt and current
      portion of long term debt.                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|c)  | The
      loan agreements of the long-term loans contain certain covenants requiring
      the borrower to maintain specific financial ratios. At December 31, 2001,
      Copamex and some of its subsidiaries failed to comply with some covenants;
      the financial ratios breached with one of the banks, which maturity was
      September 30, 2002, were the liquidity and debt service ratios; the Company
      obtained the waiver for the said deficiencies through March 31, 2002, but
      cured these violations by repayment of such loans on March 22, 2002. At
      December 31, 2002 the Company has complied with all obligations and restriction
      established by these agreements.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|d)  | Future
      maturities of long-term debt as of December 31, 2002 is as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                



|2004 | Ps. | 2,816,368 | 
|---- | --- | --------- | 
|2005 |     | 288,345   | 
|2006 |     | 512,213   | 
|2007 |     | 408,074   | 
|     |     |           | 
|     | Ps. | 4,025,000 | 
|     |     |           | 

F-19

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|e) | Interest rate Swap                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | In January, 2002,
      the Company entered into cross currency interest rate swap agreement with
      BBVA Bancomer, S.A.; accordingly, the Company shall pay interest at a fixed
      rate of 8.70%, in U.S. dollars, based on the reference amount of US$ 16.4
      million, and receive interest, in Mexican pesos based on the TIIE rate plus
      4.15 points and the reference amount of Ps. 150 million. During the year
      ended December 31, 2002 the Company received Ps.4,218 from the financial
      institution to settle its obligations under the terms of this agreement.
      The amounts received have been included in comprehensive financing cost.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|8. | Foreign currency
      position                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|a) | At December 31, 2002
      and 2001, foreign currency denominated assets and liabilities were as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

|                                                                      | Thousands
      of US Dollars |         
|--------------------------------------------------------------------- | ----------------------------- | --------
|                                                                      |                               |         
|                                                                      | 2002                          |         
|                                                                      |                               |         
|Current assets                                                        | US$                           | 10,232  
|Short-term liabilities                                                |                               | (162,333
|Long-term liability                                                   |                               | (289,770
|                                                                      |                               |         
|Short position, net                                                   | US$                           | (441,871
|                                                                      |                               |         
|Inventories and property,
      plant and equipment of foreign origin | US$                           | 536,421 
|                                                                      |                               |         

At December 31, 2002 and
  2001 the exchange rates were Ps. 10.4393 and Ps. 9.1695 to the U.S. dollar,
  respectively. At February 28, 2003 the exchange rate was Ps. 11.0324 to the
  U.S. dollar.


|b) | An analysis of transactions
      in foreign currencies during 2002, 2001 and 2000 is as follows:
|-- | -------------------------------------------------------------------------------------------------
|   |                                                                                                  

|                         | Thousands
        of US dollars |        
|------------------------ | ------------------------------- | -------
|                         |                                 |        
|                         | 2002                            |        
|                         |                                 |        
|Sales                    | US$                             | 20,907 
|Purchases                |                                 | 204,551
|Lease
        agreements |                                 | 3,562  
|Interest                 |                                 | 41,543 
|                         |                                 |        

F-20

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|                 | Thousands
        of
        Mexican pesos |          
|---------------- | ------------------------------------------ | ---------
|                 |                                            |          
|                 | 2002                                       |          
|                 |                                            |          
|Sales            | Ps.                                        | 204,227  
|Purchases        |                                            | 1,985,435
|Lease agreements |                                            | 35,386   
|Interest         |                                            | 415,661  
|                 |                                            |          

|9. | Related parties                                                                                    
|-- | ---------------------------------------------------------------------------------------------------
|   |                                                                                                    
|a) | An analysis of balances
      with related parties as of December 31, 2002 and 2001 is shown below:
|   |                                                                                                    

|                                                       |     | 2002    |  |     | 2001    | 
|------------------------------------------------------ | --- | ------- |  | --- | ------- | 
|                                                       |     |         |  |     |         | 
|Accounts receivable:                                   |     |         |  |     |         | 
|Current:                                               |     |         |  |     |         | 
|Dinámica
      Industrial Empresarial, S.A. de C.V.(1) | Ps. | 47,063  |  | Ps. | 114,899 | 
|Grupo
      Empresarial Obispado, S.A. de C.V.(1)      |     | 165,264 |  |     | —       | 
|Copamex
      Higiene Infantil, S.A. de C.V.(2)        |     | 139,008 |  |     | 54,655  | 
|Otros                                                  |     | 11,628  |  |     | 13,792  | 
|                                                       |     |         |  |     |         | 
|                                                       | Ps. | 362,963 |  | Ps. | 183,346 | 
|                                                       |     |         |  |     |         | 
|                                                       |     |         |  |     |         | 
|Accounts payable:                                      |     |         |  |     |         | 
|Grupo
      Empresarial Sierra Madre, S.A. de C.V.     | Ps. | —       |  | Ps. | 7,460   | 
|                                                       |     |         |  |     |         | 
|                                                       |     |         |  |     |         | 
|                                                       | Ps. | —       |  | Ps. | 7,460   | 
|                                                       |     |         |  |     |         | 

All of the Companies above
  are considered affiliates because the Companys principal owners are directly
  or indirectly shareholders of these related parties. Dinámica Industrial
  Empresarial holds a 40% interest in the equity of the Company. In addition,
  the Company holds 45% of the shares of Copamex Higiene Infantil, S.A. de C.V.
  (COHINSA) (through January 2003) and Grupo Empresarial Obispado, S.A. de C.V.
  holds the remaining 55%.


|(1) | The Company
      periodically makes loans to Dinámica Industrial Empresarial, S.A.
      de C.V. (Dinámica) and Grupo Empresarial Obispado, S.A. de C.V. on
      a revolving basis. These loans bear interest at the Mexican Interbank balance
      rate plus 3.55 points (11.80% at December 31, 2002), which spread may be
      changed according to market conditions; the interest is payable monthly.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|(2) | The Company sell and
      distribute baby diapers manufactured by COHINSA, a company controlled by
      Grupo Empresarial Obispado, S.A. de C.V. The Company finances COHINSAs
      working capital needs, on a revolving basis. These loans bear interest at
      the Mexican Interbank balance rate plus 3.55 points (11.80% at December
      21, 2002)
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                
|b)  | A summary of the related
      party transactions for the years ended December 31, 2002, 2001 and 2000,
      is provided below:                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                

|                                          |     | 2002    |  |     | 2001    |  |     | 2000   | 
|----------------------------------------- | --- | ------- |  | --- | ------- |  | --- | ------ | 
|                                          |     |         |  |     |         |  |     |        | 
|                                          |     |         |  |     |         |  |     |        | 
|Income from administrative
      services | Ps. | 22,218  |  | Ps. | 17,225  |  | Ps. | 19,302 | 
|Interest income                           |     | 23,903  |  |     | 26,303  |  |     | 22,289 | 
|Rental income                             |     | 605     |  |     | 592     |  |     | 672    | 
|Interest expense                          |     | 2,305   |  |     | 389     |  |     | 1,350  | 
|Rent expense                              |     | 1,687   |  |     | 1,964   |  |     | 1,907  | 
|Purchase                                  |     | 181,021 |  |     | 157,763 |  |     | 40,245 | 

Administrative services,
    which includes legal services, systems and tax related services, are rendered
    to Dinámica Industrial Empresarial, S.A. de C.V., Corrugado y Fibra,
    S.A. de C.V. and Copamex Higiene Infantil, S.A. de C.V.


|10. | Labor obligations
|--- | -----------------

The Companys unfunded
  pensions plan provides a pension that is complementary to the Social Security
  pension and consists of a monthly payment that is guaranteed for 120 months.
  Payments are based on the monthly average ordinary salary received by the participant
  during the last 12 months prior to retirement. The participant must be at least
  65 years old with at least 10 years of service with the Company in order to
  receive pension payments. The net consolidated expense
  and the assumptions with respect to retirement pension and seniority premium
  plans as of and for the years ended December 31, 2002, 2001 and 2000 are as
  follows:


|                                          | 2002 |                  
|----------------------------------------- | ---- | -----------------
|                                          |      |                  
|                                          |      | Seniority        
|                                          |      | premiums         
|                                          |      |                  
|                                          |      |                  
|Net periodic cost:                        |      |                  
|Labor
      cost                          | Ps.  | 2,547            
|Interest
      cost                       |      | 1,028            
|Amortization
      of prior service cost  |      | 1,041            
|                                          |      |                  
|                                          |      | 4,616            
|                                          |      |                  
|                                          |      |                  
|Accumulated benefit
      obligation      |      | 25,895           
|Projected benefit
      obligation        |      | 27,982           
|Adjustments for deviations
      between  |      |                  
|experience
      and actuarial assumption |      | 3,959            
|Transition liability                      |      | 4,290            
|Net projected liability                   |      | 19,651           
|Additional liability                      |      | 3,386            
|Discount rate                             |      | 4.00             
|Amortization period                       |      | 10.2
      a 12.6

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|                                            |  | 2001      |            
|------------------------------------------- |  | --------- | -----------
|                                            |  |           |            
|                                            |  | Seniority |            
|                                            |  | premiums  |            
|                                            |  |           |            
|Net
        periodic cost:                  |  |           |            
|Labor
        cost                          |  | Ps.       | 2,414      
|Interest
        cost                       |  |           | 1,190      
|Amortization
        of prior service cost  |  |           | 847        
|                                            |  |           |            
|                                            |  |           | 4,451      
|                                            |  |           |            
|Accumulated
        benefit obligation      |  |           | 30,231     
|Projected
        benefit obligation        |  |           | 31,221     
|Adjustments
        for deviations between  |  |           |            
|experience
        and actuarial assumption |  |           | 2,024      
|Transition
        liability                |  |           | 5,355      
|Net
        projected liability             |  |           | 23,621     
|Additional
        liability                |  |           | 7,076      
|Discount
        rate                       |  |           | 4.5        
|Amortization
        period                 |  |           | 10 years   
|                                            |  |           | to 12 years
|                                            |  |           |            
|                                            |  | 2000      |            
|                                            |  |           |            
|                                            |  | Seniority |            
|                                            |  | premiums  |            
|                                            |  |           |            
|Net
        periodic cost:                  |  |           |            
|Labor
        cost                          |  | Ps.       | 2,061      
|Interest
        cost                       |  |           | 1,067      
|Amortization                                |  |           | 794        
|                                            |  |           |            
|                                            |  |           | 3,922      
|                                            |  |           |            
|Accumulated
        benefit obligation      |  |           | 25,066     
|Projected
        benefit obligation        |  |           | 27,710     
|Adjustments
        for deviations between  |  |           |            
|experience
        and actuarial assumption |  |           | 1,965      
|Transition
        liability                |  |           | 5,615      
|Net
        projected liability             |  |           | 19,926     
|Additional
        liability                |  |           | 6,433      
|Discount
        rate                       |  |           | 4.5        
|Amortization
        period                 |  |           | 10 years   
|                                            |  |           | to 13 years

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|11. | Stockholders' equity                                                                                                     
|--- | -------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                          
|a)  | The capital stock is variable, with a fixed minimum of
      Ps.600. There is no limit on the amount of variable capital.

At an extraordinary General Shareholders meeting held
  on June 17, 2002, the shareholders approved a merger of certain assets and capital
  stock from Corporación Industrial Corporativa, S.A. de C.V. (related
  party) with Copamex, S.A. de C.V., effective June 30, 2002. Due to the above, Copamex, S.A. de C.V. increased its net assets
  and capital stock by Ps.4,983 (Ps.5,117 as of December 31, 2002). The capital
  increase is represented by the issuance of 49,825 ordinary nominative Class
  I, Series H shares, with a par value of Ps. 100 each. At an extraordinary General Shareholders meeting held
  on September 17, 2001, the shareholders approved a spin-off of certain assets
  and capital stock from Copamex, S.A. de C.V. to Corporación Industrial
  Corporativa, S.A. de C.V., effective October 1, 2001. Copamex, S.A. de C.V. on October 1, 2001 contributed to Corporación
  Industrial Corporativa, S.A. de C.V., spin-off company, assets amounting to
  Ps. 7,292 (Ps.7,416 at December 31, 2002). The decrease in capital was affected
  by the cancellation of 46,794 ordinary nominative Series D, F,
  and G, with a par value of Ps. 100 each. At an extraordinary General Shareholders meeting held
  on July 25, 2000, the shareholders agreed to increase the Companys variable
  capital by Ps.6,552 (Ps.7,470 in constant Mexican pesos at December 31, 2002),
  through the issuance of 65,515 ordinary, nominative shares with a par value
  of Ps.100 each.


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At December 31, 2002, 2001 and 2000, the capital stock presented
  in the consolidated balance sheet is as follows:


|                                                                               |  |     | 2002       |  |     | 2001       |  |     | 2000       | 
|------------------------------------------------------------------------------ |  | --- | ---------- |  | --- | ---------- |  | --- | ---------- | 
|                                                                               |  |     |            |  |     |            |  |     |           
|Fixed
        capital stock                                                    |  | Ps. | 600        |  | Ps. | 600        |  | Ps. | 600        | 
|Variable
        capital stock                                                 |  |     | 2,851,676  |  |     | 2,846,693  |  |     | 2,851,372  | 
|                                                                               |  |     |            |  |     |            |  |     |            | 
|                                                                               |  |     | 2,852,276  |  |     | 2,847,293  |  |     | 2,851,972  | 
|                                                                               |  |     |            |  |     |            |  |     |            | 
|Restatement                                                                    |  |     | 2,247,443  |  |     | 2,247,309  |  |     | 2,250,046  | 
|                                                                               |  |     |            |  |     |            |  |     |            | 
|                                                                               |  |     |            |  |     |            |  |     |            | 
|Total
        capital stock                                                    |  | Ps. | 5,099,719  |  | Ps. | 5,094,602  |  | Ps. | 5,102,018  | 
|                                                                               |  |     |            |  |     |            |  |     |            | 
|Outstanding
        ordinary nominative shares with a par value of Ps.100 each |  |     | 28,522,751 |  |     | 28,472,926 |  |     | 28,519,720 | 
|                                                                               |  |     |            |  |     |            |  |     |            | 

|   |                                                                                           
|-- | ------------------------------------------------------------------------------------------
|b) | The investment of minority stockholders
      at December 31, 2002 and 2001 is as follows:
|   |                                                                                           



|                                                     |  | 2002 |          | 2001 |    
|---------------------------------------------------- |  | ---- | -------- | ---- | ---
|                                                     |  |      |          |      |    
|Capital stock                                        |  | Ps.  | 136,760  |      | Ps.
|Retained earnings                                    |  |      | 366,200  |      |    
|Deficit on restatement of stockholders
      equity |  |      | (318,149 | )    |    
|Minority income                                      |  |      | 48,695   |      |    
|Cumulative effect of deferred taxes                  |  |      | (23,690  | )    |    
|                                                     |  |      |          |      |    
|                                                     |  | Ps.  | 209,816  |      | Ps.
|                                                     |  |      |          |      |    

The change in minority interest during
  the years ended December 31, 2002 and 2001 consisted of the following:

|                                                                            |  | 2002 |         | 2001 |    
|--------------------------------------------------------------------------- |  | ---- | ------- | ---- | ---
|                                                                            |  |      |         |      |    
|Minority interest at beginning of
      the year                            |  | Ps.  | 249,627 |      | Ps.
|Net income for the year                                                     |  |      | 48,695  |      |    
|Deficit on restatement of stockholders
      equity(net of deferred taxes) |  |      | 30,730  |      |    
|Effect restructuring ownership                                              |  |      | (36,761 | )    |    
|Dividends paid                                                              |  |      | (82,475 | )    |    
|                                                                            |  |      |         |      |    
|Minority interest at end of the
      year                                  |  | Ps.  | 209,816 |      | Ps.
|                                                                            |  |      |         |      |    

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|c)  | Earnings distributed
      in excess of the balances of the Net Tax Profit Account (CUFIN) will be
      subject to income tax payable by the companies at the rate in force.                             
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                           
|    | Earnings distributed
      to individuals will be accumulated to other revenues, with the option to
      credit the equivalent to 35% on the dividend multiplied by a factor of 1.5385.                  
|    |                                                                                                                                                                                                           
|12. | Other
      information                                                                                                                                                                                   
|   
|    | An
      analysis of certain accounts presented in the consolidated financial statements
      at December 31, 2002 and 2001 and for the years ended December 31, 2002,
      2001 and 2000 is as follows:
|   

|                                   |  |  |  | 2002 |         | 2001 |    
|---------------------------------- |  |  |  | ---- | ------- | ---- | ---
|                                   |  |  |  |      |         |      |    
|Other
        accounts receivable: |  |  |  |      |         |      |    
|Sundry
        debtors             |  |  |  | Ps.  | 70,001  |      | Ps.
|Tax
        recoverable            |  |  |  |      | 70,495  |      |    
|Other                              |  |  |  |      | 32,986  |      |    
|                                   |  |  |  |      |         |      |    
|                                   |  |  |  |      |         |      |    
|                                   |  |  |  | Ps.  | 173,482 |      | Ps.
|                                   |  |  |  |      |         |      |    
|                                   |  |  |  |      |         |      |    
|Other accounts payable:            |  |  |  |      |         |      |    
|Interest
        payable           |  |  |  | Ps.  | 63,703  |      | Ps.
|Advertising                        |  |  |  |      | 274,250 |      |    
|Services                           |  |  |  |      | 68,265  |      |    
|Sundry
        creditors           |  |  |  |      | 289,518 |      |    
|Value
        added tax            |  |  |  |      | 157,204 |      |    
|Advances
        from customers    |  |  |  |      | 41,742  |      |    
|                                   |  |  |  |      |         |      |    
|                                   |  |  |  |      |         |      |    
|                                   |  |  |  | Ps.  | 894,682 |      | Ps.
|                                   |  |  |  |      |         |      |    

|                                                              |     |          |   |     |          |   |     |         |  
|------------------------------------------------------------- | --- | -------- | - | --- | -------- | - | --- | ------- | -
|Other expenses, net:                                          |     |          |   |     |          |   |     |         |  
|(Loss) gain on sale
      of fixed assets and other materials | Ps. | (16,359  | ) | Ps. | (15,224  | ) | Ps. | 12,683  |  
|Amortization of goodwill                                      |     | (10,965  | ) |     | (3,448   | ) |     | (3,610  | )
|Amortization
      of intangible assets                       |     | (60,422  | ) |     | (44,304  | ) |     | (45,398 | )
|Other                                                         |     | (29,769  | ) |     | (47,104  | ) |     | (38,093 | )
|                                                              |     |          |   |     |          |   |     |         |  
|                                                              | Ps. | (117,515 | ) | Ps. | (110,080 | ) | Ps. | (74,418 | )
|                                                              |     |          |   |     |          |   |     |         |  
|                                                              |     |          |   |     |          |   |     |         |  

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|13. | Taxes                     
|--- | --------------------------
|    |                           
|a)  | Income
      and asset tax

Copamex, S.A. de C.V.
  and each of its subsidiaries are required to pay income tax or asset tax; whichever
  is greater during the year. Asset tax is levied at a rate of 1.8% of the net
  average value of most assets (at restated values), net of certain liabilities. Effective January 1, 2002, a gradual decrease of one percentile point in the income tax rate was approved from 2003 onwards, so as to reach a rate of 32% in 2005. The income tax of Copamex, S.A. de C.V. and Subsidiaries is determined on a consolidated basis. In accordance with the Mexican Income Tax Law, the tax consolidation involves netting the adjusted tax results of the subsidiaries of the Group.  The netting is carried out based on the holding companys equity interest in the subsidiaries taxable income or loss multiplied by 60% and 100% with respect to the holding Companys taxable income or loss.


|b) | Net operating losses
      carried forward and recoverable asset tax
|-- | --------------------------------------------------------------------

At December 31, 2002, the
  tax loss carryforwards available to Copamex, S.A. de C.V. and its subsidiaries
  that may be applied against future earnings, restated using the NCPI through
  the years of utilization, are as follows:


|Year
        of loss |  | Tax
      losscarryforward |         | Year
        of expiration |     
|-------------------- |  | -------------------------- | ------- | -------------------------- | ----
|                     |  |                            |         |                           
|                     |  |                            |         |                            |     
|1998                 |  | Ps.                        | 317,698 |                            | 2008
|1999                 |  |                            | 135,426 |                            | 2009
|2000                 |  |                            | 93,710  |                            | 2010
|2001                 |  |                            | 82,226  |                            | 2011
|2002                 |  |                            | 309,218 |                            | 2012
|                     |  |                            |         |                            |     
|                     |  | Ps.                        | 938,278 | (1)                        |     
|                     |  |                            |         |                            |     



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At December 31, 2002 the
  recoverable asset tax is as follows:


|Year
      of tax |  | Year
      of |  | Restated |       
|----------------- |  | ------------- |  | -------- | ------
|payment           |  | expiration    |  | amounts  |       
|                  |  |               |  |          |       
|1999              |  | 2009          |  | Ps.      | 8,789 
|2000              |  | 2010          |  |          | 17,614
|2001              |  | 2011          |  |          | 20,087
|2002              |  | 2012          |  |          | 21,073
|                  |  |               |  |          |       
|                  |  |               |  | Ps.      | 67,563
|                  |  |               |  |          |       

|c) | Deferred income
      tax
|-- | -------------------------
|   |                          

An
  analysis of income tax charged to net income for the years ended December 31,
  2002, 2001 and 2000 is as follows:


|                                              |  | 2002 |          | 2001 |     | 2000   | 
|--------------------------------------------- |  | ---- | -------- | ---- | --- | ------ | 
|                                              |  |      |          |      |     |        | 
|Current
        income tax expense            |  | Ps.  | 46,768   |      | Ps. | 27,638 | 
|Deferred
        income tax (benefit) expense |  |      | (251,318 | )    |     | 60,171 | 
|                                              |  |      |          |      |     |        | 
|                                              |  | Ps.  | (204,550 | )    | Ps. | 87,809 | 
|                                              |  |      |          |      |     |        | 

Since current tax legislation
  partially recognized the effects of inflation on certain items that give rise
  to deferred income taxes, the current year net monetary effect on such items
  has been reclassified in the income statement from the monetary position result
  to current year deferred income taxes. An analysis of deferred
  tax assets and liabilities as of December 31, 2002 and 2001 is as follows:


|                                         | Balances
      as of |          
|---------------------------------------- | -------------------- | ---------
|                                         |                      |          
|                                         | December
      31,   |          
|                                         | 2002                 |          
|                                         |                      |          
|Deferred tax assets                      |                      |          
|Tax losses carry forwards                | Ps.                  | (300,249 
|Asset tax carry forwards                 |                      | (67,563  
|Accrued liabilities                      |                      | (79,512  
|                                         |                      |          
|                                         |                      | (447,324 
|                                         |                      |          
|Deferred tax liabilities                 |                      |          
|Property, plant and
      equipment      |                      | 1,662,704
|Inventories                              |                      | 308,104  
|Intangible assets
      and other assets |                      | 146,655  
|                                         |                      |          
|                                         |                      | 2,117,463
|                                         |                      |          
|Deferred income tax
      liabilities    | Ps.                  | 1,670,139
|                                         |                      |          
|                                         |                      |          

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The change
  in net of deferred income tax assets and liabilities during the years ended
  December 31, 2002, 2001 and
  2000 is as follows:

|                                                                       |     | 2002     |   |     | 2001     |   |     | 2000    |  
|---------------------------------------------------------------------- | --- | -------- | - | --- | -------- | - | --- | ------- | -
|                                                                       |     |          |   |     |          |   |     |         |  
|Deferred
      tax (benefit) expense                                   | Ps. | (251,318 | ) | Ps. | 60,171   |   | Ps. | 220,312 |  
|Applied
      to deficit from restatementof
      stockholders equity |     | (18,480  | ) |     | (114,475 | ) |     | (95,462 | )
|                                                                       |     |          |   |     |          |   |     |         |  
|                                                                       | Ps. | (269,798 | ) | Ps. | (54,304  | ) | Ps. | 124,850 |  
|                                                                       |     |          |   |     |          |   |     |         |  

The differences between actual income tax expense and the amount computed by applying the statutory income tax rate to the income before income taxes for the years ended December 31, 2002, 2001 and 2000 were as follows:

|                       |                                    |          | 2002     |     |        | 2001     |     |         | 2000     |  
|---------------------- | ---------------------------------- | -------- | -------- | --- | ------ | -------- | --- | ------- | -------- | -
|                       |                                    |          |          |     |       
|Pretax
      income    | Ps.                                | (504,369 | )        | Ps. | 93,028 |          | Ps. | 415,357 |         
|Permanent
      items: |                                    |          |          |     |        |          |     |         |         
|                       | Inflationary
      effects         |          | 264,605  |     |        | 186,768  |     |         | 377,426  |  
|                       | Non-deductible                     |          | (5,423   | )   |        | (35,428  | )   |         | 120,090  |  
|                       | Monetary
      positions           |          | (236,844 | )   |        | (189,939 | )   |         | (402,053 | )
|                       | Reduction
      of rate            |          | (475,431 | )   |        |         |     |         |         |  
|                       | Other
      items                  |          | 373,033  |     |        | 196,455  |     |         | 186,298  |  
|                       |                                    |          |          |     |        |          |     |         |          |  
|                       | Income
      after permanent items |          | (584,429 | )   |        | 250,884  |     |         | 697,118  |  
|                       | Income
      tax rate              |          | 35       | %   |        | 35       | %   |         | 35       | %
|                       |                                    |          |          |     |        |          |     |         |          |  
|Income
      tax       | Ps.                                | (204,550 | )        | Ps. | 87,809 |          | Ps. | 243,992 |         
|                       |                                    |          |          |     |        |          |     |         |          |  

|   |                   
|-- | ------------------
|d) | Tax
      balances

At December 31, 2002 and 2001, the Company had the following account balances for tax purposes:

Balance of restated contributed capital account (CUCA), Ps. 758,618 as of December 31, 2002 and Ps. 759,190 as of December 31, 2001.

Balance of net tax profit account (CUFIN), Ps.1,704,273 as of December 31, 2002 and Ps.1,653,397 as of December 31, 2001.

|e) | Employees
      profit sharing
|-- | -------------------------------

The Company and its subsidiaries are required to pay employee profit sharing, in addition to the employees contractual compensations and benefits. The statutory employee profit sharing rate is 10% and it is computed based on taxable income after eliminating certain effects of inflation and the restatement of depreciation expense.

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|14. | Contingency
|--- | -----------

The Company
  has been subject to different claims in connection with the termination of a
  commercial agreement to distribute its goods in Costa Rica. Under Costa Rica
  legislation, distributors are generally protected against foreign corporations;
  consequently, it is likely that proceedings will be filed against the Company.
  The related liability has not been quantified, however, the Companys legal
  advisors have advised the Company that this situation should not have an adverse
  effect on its results of operations or financial position.

|15. | Commitments
|--- | -----------

The Company
  has entered into two operating lease agreements through its subsidiaries (the
  lessees), Inpamex Planta Huehuetoca, S.A. de C.V. (Operating Lease Agreement
  I) and Papeles Higiénicos de México, S.A. de C.V. (Operating Lease
  Agreement II) and GE Capital CEF Mexico, S.A. de C.V. (the lessor).

Through Operating
  Lease Agreement I, the lessor agrees to acquire and lease specialized machinery for packaging finished products with a value of US $ 6.8 million. This agreement stipulates a mandatory term of 24 quarters (6 years) effective January 1, 2000. The quarterly rental bases are payable by adding or subtracting a quarterly adjustment rental, as applicable.

Through Operating
  Lease Agreement II, the lessor agrees to acquire and lease specialized machinery
  for tissue paper production with a value of US$17.7 million. This agreement
  stipulates a mandatory term of 28 quarters (7 years) effective January 1, 2002.
  The quarterly rental bases are payable by adding or subtracting a quarterly
  adjustment rental, as applicable. The Company made advance payments of US$820,731
  through December 31, 2001. On July 17, 2002 the company entered into an agreement
  to amend its master lease agreement. Under the terms of the amendment the lessor
  agreed to reduce the future minimum lease payments that were scheduled to commence
  on January 1, 2002 from US$13.9 million to U$13.25 million and deferred the commencement of lease payments
  until July 1, 2002.

At December
  31, 2002, the future minimum mandatory payments due under the Companys
  non-cancelable operating lease agreements, excluding the quarterly adjustment
  rental, are shown below:

|                   |      |     | Thousands
      of | 
|------------------ | ---- | --- | ------------------ | 
|U.S.
      dollars
|2002              
|                   |      |     |                    | 
|                   | 2003 | US$ | 4,007              | 
|                   | 2004 |     | 4,597              | 
|                   | 2005 |     | 4,597              | 
|                   | 2006 |     | 3,218              | 
|                   | 2007 |     | 3,218              | 
|                   | 2008 |     | 3,251              | 
|                   |      |     |                    | 
|                   |      | US$ | 22,888             | 
|                   |      |     |                    | 

F-30

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In January
  2001 the Company negotiated supply agreements to obtain a portion of its natural
  gas supply from PEMEX at a fixed price. The supply agreements are for the period
  from January 1, 2001 through December 31, 2003. In the event that, the Company
  purchases in a specific month less than 90% of the mandatory amount and the
  market price of gas is under US$4 per MMBTU, the Company shall pay PEMEX a penalty
  determined by multiplying the difference between the 90% of the monthly mandatory
  amount and the amount actually purchased, by the difference between the price
  of US$4 per MMBTU and the market price in effect during such month. Under the
  terms of the agreements the Company is required to purchase 291,732 MMBTU per
  month through December 31, 2003. During the years ended December 31, 2002 and
  2001 the Company purchased 3,506,392 MMBTU and 3,061,415 MMBTU of natural gas
  under the terms of these agreements.



|16. | Segment
      information
|--- | -------------------------









|                                    | 2002      |          
|----------------------------------- | --------- | ---------
|                                   
|                                    |           |          
|Consumer                            | Packaging | writing  
|products                            | products  | products 
|group                               | group     | group    
|                                    |           |          
|Revenues:                           |           |          
|External
      revenues             | Ps.       | 3,794,248
|Intersegment
      revenues         |           |         
|                                    |           |          
|                                    | Ps.       | 3,794,248
|Operating
      income              |           | 493,768  
|Total assets                        |           | 5,287,116
|Depreciation
      and amortization |           | 182,456  
|Capital
      expenditures          |           | 250,970  
|                                    |           |          
|                                    |           |          
|                                    |           |          
|                                    | 2001      |          
|                                    |          
|                                    |           |          
|Consumer                            | Packaging | writing  
|products                            | products  | products 
|group                               | group     | group    
|                                    |           |          
|Revenues:                           |           |          
|External
      revenues             | Ps.       | 3,758,643
|Intersegment
      revenues         |           |         
|                                    |           |          
|                                    | Ps.       | 3,758,643
|Operating
      income              |           | 512,861  
|Total assets                        |           | 4,951,928
|Depreciation
      and amortization |           | 174,315  
|Capital
      expenditures          |           | 113,453  

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|                              | 2000     |          
|----------------------------- | -------- | ---------
|                              |          |          
|                              |          |          
|                              | Consumer |          
|                              | products |          
|                              | group    |          
|                              |          |          
|                              |          |          
|Revenues:                     |          |          
|External
      revenues       | Ps.      | 3,737,944
|Intersegment revenues         |          | —        
|                              |          |          
|                              | Ps.      | 3,737,944
|                              |          |          
|Operating income              |          | 561,884  
|Total assets                  |          | 5,059,965
|Depreciation and amortization |          | 172,475  
|Capital expenditures          |          | 80,436   

Revenues by
  customer location for the years ended December 31, 2002, 2001 and 2002 was as
  follows:

|                | 2002 |           | 2001 |     | 2000      | 
|--------------- | ---- | --------- | ---- | --- | --------- | 
|                |      |           |      |     |           | 
|Mexico          | Ps.  | 7,363,845 |      | Ps. | 7,629,233 | 
|United States   |      | 133,415   |      |     | 112,394   | 
|Central America |      | 370,133   |      |     | 310,944   | 
|                |      |           |      |     |           | 
|                | Ps.  | 7,867,393 |      | Ps. | 8,052,571 | 
|                |      |           |      |     |           | 
|                |      |           |      |     |           | 

|17. | Differences between
      Mexican and United States generally accepted accounting principles ("GAAP").
|--- | ------------------------------------------------------------------------------------------------------

The Company's consolidated
  financial statements are prepared in accordance with Mexican GAAP, which differ
  in certain significant respects from generally accepted accounting principles
  in the United States ("U.S. GAAP"). The reconciliations to
  U.S. GAAP do not include the reversal of the adjustments to the financial statements
  for the effects of inflation required (under Bulletin B-10), Recognition
  of the effects of inflation on financial information), as its application
  represents a comprehensive measure of the effects of price level changes in
  the Mexican economy and, as such, is considered a more meaningful presentation
  than historical cost-based financial reporting for both Mexican and U.S. accounting
  purposes. F-32


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The principal differences
    between Mexican GAAP and U.S. GAAP as they relate to the Company are discussed
    below and include a presentation of the effect on the Company's consolidated
    stockholders' equity and consolidated net income, in thousands of constant
    Mexican pesos with purchasing power at December 31, 2002. Explanation of the
    adjustments, which are presented net of any price level gain (loss), is provided
    below. Consolidated stockholders'
    equity and consolidated net income, adjusted for the effect of certain material
    differences between Mexican GAAP and U.S. GAAP, are as follows:


|                                                       | December
      31, |          
|------------------------------------------------------ | ------------------ | ---------
|                                                       | 2002               |          
|                                                       |                    |          
|Majority stockholders'
      equity under Mexican GAAP | Ps.                | 3,806,015
|                                                       |                    |          
|U.S. GAAP adjustments:                                 |                    |          
|Capitalized
      interest                             |                    | 618,479  
|Accumulated
      depreciation of capitalized interest |                    | (125,149 
|Deferred
      income tax                              |                    | (177,950 
|Deferred
      employee profit sharing                 |                    | (610,113 
|Negative
      goodwill                                |                    | (47,639  
|Goodwill                                               |                    | (80,795  
|Intangible
      assets                                |                    | 27,082   
|Inventory
      valuations                             |                    | 75,214   
|Start-up
      costs                                   |                    | (24,240  
|Deferred
      software costs                          |                    | (60,732  
|Capital
      lease                                    |                    | (21,861  
|Derivative
      financial instruments                 |                    | (30,600  
|Minority
      interest of U.S. GAAP adjustments       |                    | 83,238   
|                                                       |                    |          
|Stockholders' equity
      under U.S. GAAP             | Ps.                | 3,430,949
|                                                       |                    |          
|                                                       |                    |          

---

|(*) | Stockholders ́
      equity under US GAAP as of December 31, 2001 has been restated from amounts
      previously reported by Ps. 77,644 due to an error in the method of accounting
      for acquisitions between companies under common control in 2001.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                  | Year
      ended December 31, |           
|------------------------------------------------- | ----------------------------- | ----------
|                                                  | 2002                          |           
|                                                  |                               |           
|Net (loss) income for
      majority stockholders |                               |           
|as
      reported under Mexican GAAP              | Ps                            | (357,180  
|U.S. GAAP adjustments:                            |                               |           
|Capitalized
      of interest                     |                               | 3,241     
|Depreciation
      of capitalized interest        |                               | (14,278   
|Deferred
      income tax                         |                               | (2,983    
|Deferred
      employee profit sharing            |                               | 62,713    
|Amortization
      of negative goodwill           |                               | 5,295     
|Amortization
      of goodwill                    |                               | 10,965    
|Intangible
      assets                           |                               | 27,082    
|Inventory
      valuation                         |                               | 22,395    
|Deferred
      software costs                     |                               | (8,259    
|Start-up
      costs                              |                               | (7,565    
|Capital
      lease                               |                               | (21,861   
|Derivative
      financial instruments            |                               | (30,600   
|Minority
      interest of U.S. GAAP adjustments  |                               | 9,143     
|                                                  |                               |           
|Consolidated net (loss)
      income under        |                               |           
|U.S.
      GAAP                                   | Ps.                           | (301,892  
|                                                  |                               |           
|Weighted average number
      of common shares    |                               |           
|outstanding                                       |                               | 28,499,955
|                                                  |                               |           
|Basic and diluted (loss)
      income per share   |                               |           
|(in
      Mexican pesos)                          | Ps.                           | (10.59    
|                                                  |                               |           

F-33

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An analysis of changes
  in stockholders equity under US GAAP is as follows:


|                                                    | 2002 |           | 2001 |     | 2000      |  
|--------------------------------------------------- | ---- | --------- | ---- | --- | --------- | -
|                                                    |      |           |      |     |           |  
|Balance at the beginning
      of the year          | Ps.  | 3,783,687 |      | Ps. | 4,139,074 |  
|Increase in capital
      stock                     |      | —         |      |     | —         |  
|Effect of the merger                                |      | 5,117     |      |     | —         |  
|Effect of spin-off                                  |      | —         |      |     | (7,417    | )
|Net income (loss)
      for the year                |      | (301,892  | )    |     | (57,732   | )
|Amounts paid in excess
      of net assets acquired |      |           |      |     |           |  
|from
      entities under common control            |      | (21,706   | )    |     | (77,644   | )
|Deficit from holding
      non-monetary assets      |      |           |      |     |           |  
|(net
      of deferred income taxes)                |      | (34,257   | )    |     | (212,594  | )
|                                                    |      |           |      |     |           |  
|Balance at the end
      of the year                | Ps.  | 3,430,949 |      | Ps  | 3,783,687 |  
|                                                    |      |           |      |     |           |  
|                                                    |      |           |      |     |           |  

|a. | Capitalized interest
|-- | --------------------

Under Mexican GAAP the
  capitalization of comprehensive financing income (cost) on assets under construction
  is optional. Under U.S. GAAP, only interest on borrowings may be considered
  an additional cost of constructed assets to be capitalized in property, plant
  and equipment and depreciated over the lives of the related assets. The amount
  of interest capitalized for U.S. GAAP purposes was determined by reference to
  the Company's average interest cost of outstanding borrowings and qualifying
  assets under construction. During the year ended December 31, 2002, the Company
  would have capitalized interest amounting to Ps. 14,339, under US GAAP, compared
  to Ps. 11,098 under Mexican GAAP.


F-34

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|b. | Deferred income
      taxes and employee profit sharing
|-- | -------------------------------------------------------

Income tax, asset tax and
  employee profit sharing are recorded under Mexican GAAP in accordance with the
  Mexican accounting Bulletin D-4, explained in Notes 1 and 13. As explained in Note 1
  and 13, the method of accounting for deferred income tax was changed in 2000
  with the issuance of Bulletin D-4. Accounting treatment for Income tax,
  Asset tax and Employees Profit Sharing. Bulletin D-4 requires that
  deferred income tax be determined on virtually all temporary differences in
  balance sheets accounts for financing and tax reporting purposes and that such
  difference be measured at the enacted income tax rates for the years in which
  such taxes will be payable or refundable. Statement of Financial
  Accounting Standards No. 109 (SFAS No. 109) Accounting for
  Income Taxes, requires deferred income tax be determined using the liability
  method for all temporary differences between financial reporting and tax bases
  of assets and liabilities and that such difference be measured at the enacted
  income tax rates for the years in which such taxes will be payable or refundable. As a result of the adoption
  of new Bulletin D-4, there are no substantive differences between Mexican accounting
  principles and SFAS No. 109 in accounting for income taxes. The Company is required
  to pay employee profit sharing in accordance with Mexican labor law; in accordance
  with Bulletin D-4 deferred employee profit sharing is recognized only on temporary
  differences determined in the current year reconciliation between the net income
  for financial and for employee profit sharing purposes, provided there is no
  indication that the related liabilities or assets will not be realized in the
  future. Deferred employee profit sharing for U.S. GAAP purposes has been determined
  following the guidelines established by SFAS No. 109. The income tax effects
  of significant items comprising the Companys net deferred tax assets and
  liabilities under US GAAP are as follows:


|                                         | December
      31 |          
|---------------------------------------- | ----------------- | ---------
|                                         |                   |          
|                                         | 2002              |          
|                                         |                   |          
|Deferred income
      tax assets:        |                   |          
|Tax loss carryforwards                   | Ps.               | (300,251 
|Asset tax carryforwards                  |                   | (67,563  
|Derivative financial
      instrument    |                   | (10,404  
|Accrued liabilities                      |                   | (79,512  
|                                         |                   |          
|                                         |                   | (457,730 
|                                         |                   |          
|Deferred income
      tax liabilities:   |                   |          
|Property, plant and
      equipment      |                   | 1,820,449
|Inventories                              |                   | 333,677  
|Intangible assets
      and other assets |                   | 151,693  
|                                         |                   |          
|                                         |                   | 2,305,819
|                                         |                   |          

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|Net deferred income
      tax liabilities under: |     |           |  |     |           | 
|------------------------------------------------ | --- | --------- |  | --- | --------- | 
|U.S.
      GAAP                                  |     | 1,848,089 |  | .   | 2,114,905 | 
|Mexican
      GAAP                               |     | 1,670,139 |  |     | 1,939,938 | 
|                                                 |     |           |  |     |           | 
|                                                 | Ps. | 177,950   |  | Ps. | 174,967   | 
|                                                 |     |           |  |     |           | 

At December 31, 2002 and
  2001, the current and non-current deferred income tax liabilities under US GAAP
  consisted of the following:


|                                                      | 2002 |           | 2001 |    
|----------------------------------------------------- | ---- | --------- | ---- | ---
|                                                      |      |           |      |    
|Current net deferred
      income tax liabilities     | Ps.  | 254,165   |      | Ps.
|Non-current net deferred
      income tax liabilities |      | 1,593,924 |      |    
|                                                      |      |           |      |    
|                                                      | Ps.  | 1,848,089 |      | Ps.
|                                                      |      |           |      |    

The significant items comprising
  the Companys net deferred employee profit sharing liabilities under U.S.
  GAAP are as follows:


|                                                                     | December
      31, |        
|-------------------------------------------------------------------- | ------------------ | -------
|                                                                     |                    |        
|                                                                     | 2002               |        
|                                                                     |                    |        
|Deferred employee
      profit sharing assets:                       |                    |        
|Derivative
      financial instrument                                | Ps                 | 3,060  
|Accrued
      liabilities                                            |                    | 19,650 
|                                                                     |                    |        
|                                                                     | Ps.                | 22,710 
|                                                                     |                    |        
|Deferred employee
      profit sharing liabilities:                  |                    |        
|Inventories                                                          |                    | 84,537 
|Property,
      plant and equipment                                  |                    | 513,581
|Intangible
      assets and other assets                             |                    | 34,705 
|                                                                     |                    |        
|                                                                     |                    | 632,823
|                                                                     |                    |        
|Net
      deferred employee profit sharing liability under U.S. GAAP | Ps.                | 610,113
|                                                                     |                    |        

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At December 31, 2002
    and 2001, the current and non-current deferred employee profit sharing liabilities
    under US GAAP consisted of the following:


|                                                                   | December
      31, |        
|------------------------------------------------------------------ | ------------------ | -------
|                                                                   |                    |        
|                                                                   | 2002               |        
|                                                                   |                    |        
|Current net deferred
      employee profit sharing liabilities     | Ps.                | 64,887 
|Non-current net deferred
      employee profit sharing liabilities |                    | 545,226
|                                                                   |                    |        
|                                                                   | Ps.                | 610,113
|                                                                   |                    |        



|c. | Negative goodwill
|-- | -----------------

In 1992, the Company acquired
  all of the shares of CIP, S.A. de C.V. The fair value of acquired assets exceeded
  the cost of the acquired entity and resulted in the recognition of negative
  goodwill in the amount of Ps. 100,588, which was taken immediately into income
  for Mexican GAAP purposes in 1992. For U.S. GAAP purposes, the excess would
  have been allocated as a pro rata reduction of the fair value of the net assets
  acquired and would have reduced the associated depreciation expense over the
  remaining useful life of these assets.


|d. | Goodwill and intangible
      assets
|-- | ------------------------------------

In 1996, the Company acquired
  all of the shares of its subsidiary Sancela de Costa Rica, S.A.. This acquisition
  generated goodwill in the amount of Ps. 26,785, which for Mexican GAAP purposes
  is being amortized over a period of ten years. For US GAAP purposes the goodwill
  would have been amortized over a period of twenty years. In 2001 and 2002, the
  Company acquired interests in companies controlled by its principal shareholders.
  The excess of cost over the fair value of the net assets acquired or goodwill
  recorded under Mexican GAAP in connection with these acquisitions amounted to
  Ps. 77,644 and Ps. 21,706 during the years ended December 31, 2001 and 2002,
  respectively. For US GAAP purposes these acquisitions would have been accounted
  for as a combination of entities under common control and recorded at the historical
  cost of the net assets acquired. Any amount paid in excess of the historical
  cost would be reflected as an in substance dividend to the stockholders. In June 2001, the Financial
  Accounting Standards Board issued Statements of Financial Accounting Standards
  No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets,
  effective for fiscal years beginning after December 15, 2001. Under the new
  rules, goodwill and intangible assets deemed to have indefinite lives will no
  longer be amortized but will be subject to annual impairment tests in accordance
  with the Statements. Other intangible assets will continue to be amortized over
  their useful lives. The Company adopted Statement 142 as of January 1, 2002
  and the adoption of this Statement did not have an impact on the Company ́s
  financial position and results of operations.


F-37

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The following table analyzes
  the changes in goodwill under Mexican and US GAAP for the years ended December
  31, 2002.


|                                   | Mexican |         | U.S. |    
|---------------------------------- | ------- | ------- | ---- | ---
|                                   | GAAP    |         | GAAP |    
|                                   |         |         |      |    
|Balance at beginning
      of year | Ps.     | 122,463 |      | Ps.
|Acquisition                        |         | 21,706  |      |    
|Amortization                       |         | (10,965 | )    |    
|                                   |         |         |      |    
|Balance at end of
      year       | Ps.     | 133,204 |      | Ps.
|                                   |         |         |      |    

The following summarizes the Company's acquired intangible assets
  at December 31, 2002:


|                                     |     | Gross carrying
      amount |  |     | Accumulated
      amortization | 
|------------------------------------ | --- | --------------------------- |  | --- | ------------------------------ | 
|                                     |     |                             |  |     |                                | 
|Amortized intangible
      assets:   |     |                             |  |     |                                | 
|Debt issuance
      costs            | Ps. | 142,959                     |  | Ps. | 94,066                         | 
|License
      agreement              |     | 25,310                      |  |     | 6,490                          | 
|                                     |     |                             |  |     |                                | 
|Unamortized
      intangible assets: |     |                             |  |     |                                | 
|Brand
      names                    |     | 473,904                     |  |     | —                              | 
|                                     |     |                             |  |     |                                | 
|.                                    | Ps. | 642,173                     |  | Ps. | 100,556                        | 
|                                     |     |                             |  |     |                                | 

For the year
  ended December 31, 2002, aggregate amortization expense related to acquired
  intangibles under US GAAP and Mexican GAAP was Ps. 23,694 and Ps. 50,776, respectively. Estimated
  future amortization expense related to acquired intangibles for the years ended
  December 31, 2003, 2004 and 2005, are estimated Ps. 30,649, Ps. 12,673 and Ps.
  5,570 respectively. The Regio
  brand name was purchased on 1997, was deemed to have an indefinite useful life
  because it is expected to generate cash flows indefinitely. The Company ceased
  amortization of the cost of the Regio brand name on January 1, 2002. In accordance
  with SFAS No. 142. In 1997, the Company also paid Ps. 25,310 to acquire a license
  agreement to use the Scottis brand in Mexico for a period of 25
  years. The Company is amortizing the cost of the license over the life of the
  agreement. The debt issuance costs are being amortized over the period of the
  respective loan agreements.


F-38

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The following
  illustrates the effect of adopting SFAS No. 142 on previously reported net income
  and earnings per share for the years ended December 31, 2002, 2001 and 2000.


|                                                   |     | 2002     |   |     | 2001    |   |     | 2000    | 
|-------------------------------------------------- | --- | -------- | - | --- | ------- | - | --- | ------- | 
|                                                   |     |          |   |     |         |   |     |         | 
|Previously
      reported US GAAP net income       | Ps. | (301,892 | ) | Ps. | (57,732 | ) | Ps. | 288,207 | 
|Add back:
      Goodwill amortization              |     | —        |   |     | 3,302   |   |     | 3,610   | 
|Add back:
      Brand name amortization            |     | —        |   |     | 27,082  |   |     | 27,082  | 
|                                                   |     |          |   |     |         |   |     |         | 
|Adjusted
      net income (loss)                   | Ps. | (301,892 | ) | Ps. | (27,348 | ) | Ps. | 318,899 | 
|                                                   |     |          |   |     |         |   |     |         | 
|Basic
      and diluted earnings (loss) per share: |     |          |   |     |         |   |     |         | 
|Previously
      reported earning per share        | Ps. | (10.59   | ) | Ps. | (2.02   | ) | Ps. | 10.12   | 
|Goodwill
      amortization                        |     | —        |   |     | 0.11    |   |     | 0.13    | 
|Brand
      name amortization                      |     | —        |   |     | 0.95    |   |     | 0.95    | 
|                                                   |     |          |   |     |         |   |     |         | 
|Adjusted
      earnings (loss) per share           | Ps. | (10.59   | ) | Ps. | (0.96   | ) | Ps. | 11.20   | 
|                                                   |     |          |   |     |         |   |     |         | 
|                                                   |     |          |   |     |         |   |     |         | 



|e. | Inventory
      valuation
|-- | -------------------------

For the Mexican
  GAAP purposes the use of direct costing method of value inventory is accepted.
  The direct costing method, considers only the variable production, costs in
  the determination of the inventory valuation. Under U.S.
  GAAP the valuation of inventory must include all fixed and variable production
  costs. The following table summarized the difference in the valuation of inventory
  under Mexican and US GAAP as of December 31, 2002, 2001 and 2000.


|                     |     | December
      31, | 
|-------------------- | --- | ------------------ | 
|                     |     | 2002               | 
|                     |     |                    | 
|Inventory,
      net |     |                    | 
|Mexican
      GAAP   | Ps. | 1,026,429          | 
|US
      GAAP        |     | 1,101,643          | 



|f. | Deferred
      software costs
|-- | -----------------------------

Statement of
  Position 98-1 Accounting for the Cost of Computer Software Developed or
  Obtained for Internal Use issued by the American Institute of Certified
  Public Accountants, requires that qualifying internal and external costs incurred
  during the application development stage be capitalized, while costs incurred
  during the preliminary project stage and post implementation stage/operation
  stage are to be expensed as incurred.


F-39

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Under Mexican
  GAAP, the Company has deferred costs associated with the preliminary project
  stage of a new ERP system. During the years ended December 31, 2002, 2001 and
  2000 the Company deferred costs totaling Ps. 12,467, Ps. 21,924 and Ps. 30,548,
  respectively. For US GAAP purposes these deferred costs would have been expensed
  as incurred. Net deferred
  software costs under Mexican and US GAAP at December 31, 2002 and 2001, consisted
  of the following:


|                                  |     | 2002   |  |     | 2001   | 
|--------------------------------- | --- | ------ |  | --- | ------ | 
|                                  |     |        |  |     |        | 
|Deferred
      software costs-net |     |        |  |     |        | 
|Mexican
      GAAP                | Ps. | 90,103 |  | Ps. | 82,258 | 
|US
      GAAP                     |     | 29,371 |  |     | 29,785 | 



|g. | Costs
      of start-up activities
|-- | ----------------------------------

During 2000,
  the Company opened a new facility for the production of corrugated boxes For
  Mexican GAAP purposes start-up expenses associated with this facility in the
  amount of Ps. 18,510 were capitalized. The Company
  deferred certain start-up expenses associated with the installation of specialized
  machinery for tissue paper production in 2002 amounting to Ps.9,355. During the
  years ended December 31, 2002 and 2001, the Company amortized Ps. 1,790 and
  Ps.1,835, respectively, relating to these deferred start-up expenses for Mexican
  GAAP purposes. Under U.S.
  GAAP, start-up costs must be expensed as incurred.


|h. | Derivative
      financial instruments
|-- | --------------------------------------

As disclosed
  in note 7 (e) the Company entered into a cross currency interest rate swap agreement
  in January 2002 through December 2004. At December 31, 2002 the fair value of
  this financial instrument was a future obligation of approximately Ps. 30,600.
  SFAS No. 133 Accounting for Derivative Instruments and Hedging Activities
  requires the Company to recognize all derivatives as either assets or liabilities
  at their fair value. If certain conditions are met a derivative may be specifically
  designated as a) a hedge of the exposure to changes in the fair value of a recognized
  asset or liability or an unrecognized future firm commitment, b) a hedge of
  the exposure to variable cash flows of a forecasted transaction, or c) a hedge
  of the foreign currency exposure of a net investment in a foreign operation,
  an unrecognized firm commitment, an available for sale security, or a foreign
  currency denominated forecasted transaction. If derivates are not designated
  as hedging instruments gains or losses resulting from changes in the fair value
  of the derivatives are recorded in the results of operations. For US GAAP
  purposes the Company did not meet the conditions specified in SFAS No. 133 to
  designate the cross currency interest rate swap agreement as a hedge and therefore
  would record the fair value of the derivate as a liability at December 31, 2002
  with a corresponding charge against results of operations for the year ended
  December 31, 2002 for the change in the fair value of the derivative.


|i. | Capital
      leases
|-- | --------------------

As mentioned
  in Note 15 the Company entered into agreements with GE Capital CEF México,
  S.A. de C.V. to lease specialized machinery for tissue paper production. Under
  Mexican GAAP the lease, which commenced in July 2002 was accounted for as an
  operating lease and lease payments are being recognized over the term of the
  lease on a unit production basis. For US GAAP purposes, these lease agreements
  would be considered capital leases which require that the Company initially
  record an asset and liability equivalent to the present value of the future
  minimum lease payments and amortize the asset over the term of the lease. The
  present value of the minimum future lease payments amounted to US $17.2 million
  at the beginning of the lease term. The following
  table summarizes the significant differences in the balance sheet and income
  statement components affected by the different method of accounting for the
  lease agreement under Mexican and US GAAP.


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|                                           | US
      GAAP |         |   | Mexican
      GAAP |       
|------------------------------------------ | ------------- | ------- | - | ------------------ | ------
|                                           |               |         |  
|At
      December 31, 2002                 |               |         |   |                    |       
|Property,
      plant and equipment, net   | Ps.           | 158,630 |   |                    |      
|Deferred
      lease costs                 |               |        |   | Ps.                | 24,401
|Capital
      lease obligations            |               | 156,090 |   |                    |      
|                                           |               |        |   |                    |      
|                                           |               |         |   |                    |       
|                                           | Ps.           | 2,540   |   | Ps.                | 24,401
|                                           |               |         |   |                    |       
|For
      the year ended December 31, 2002 |               |         |   |                    |       
|Depreciation
      expense                 | Ps.           | 12,202  |   |                    |      
|Lease
      expense                        |               |        |   | Ps.                | 7,629 
|Monetary
      gain                        |               | (3,610  | ) |                    |      
|Interest
      expense                     |               | 8,803   |   |                    |      
|Exchange
      loss                        |               | 12,095  |   |                    |      
|                                           |               |         |   |                    |       
|                                           | Ps.           | 29,490  |   | Ps.                | 7,629 
|                                           |               |         |   |                    |       
|                                           |               |         |   |                    |       

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|j. | Operating
      income
|-- | ----------------------

Certain items that are recorded under Mexican GAAP in other expenses, net such as asset write downs, amortization of intangible assets and assets and gains on sales of fixed assets and other materials as well as equity in income of associated companies would be included as part of operating income under US GAAP.  Additionally, employee profit sharing expense would be included as part of operating income under US GAAP. The following table summarizes operating income of the Company under US GAAP after giving effect to the previously mentioned reclassifications and the differences between Mexican and US GAAP for the years ended December 31, 2002, 2001 and 2000.


|                        |      | Year
        ended December 31, | 
|----------------------- | ---- | ------------------------------- | 
|                        |     
|                        | 2002 |                                 | 
|                        |      |                                 | 
|Operating
      income: |      |                                 | 
|Mexican
      GAAP      | Ps.  | 797,990                         | 
|US
      GAAP           |      | 557,003                         | 
|                        |      |                                 | 

|k. | Minority
      interest
|-- | -----------------------

Under Mexican GAAP, the minority interest in consolidated subsidiaries is presented as a separate component of stockholders equity.  For U.S. GAAP purposes, the minority interest is generally presented out of stockholders equity.


|l. | Additional
      disclosures about Pensions and other Post-retirement Benefits
|-- | ------------------------------------------------------------------------------

The Company
  has adopted the provisions of SFAS No. 132, Employers Disclosures
  about Pensions and Other Post-retirement Benefits. The change
  in the seniority premiums and pension benefit obligations for the period was
  as follows:


|                                                          | 2002 |         |   | 2001 |        
|--------------------------------------------------------- | ---- | ------- | - | ---- | -------
|                                                          |     
|Projected
      benefits obligations at beginning of year | Ps.  | 107,107 |   | Ps.  | 91,967 
|Change
      in benefit obligations:                      |      |         |   |      |        
|Labor
      cost                                          |      | 8,601   |   |      | 7,848  
|Interest
      cost                                       |      | 4,335   |   |      | 5,228  
|Amortization                                              |      | 1,635   |   |      | 1,861  
|Additional
      liability                                |      | (5,774  | ) |      | 6,899  
|Benefit
      payments                                    |      | (3,718  | ) |      | (7,197 
|Other                                                     |      | (2,458  | ) |      | 500    
|                                                          |      |         |   |      |        
|Net increase
      in benefit obligations                 |      | 2,621   |   |      | 15,139 
|                                                          |      |         |   |      |        
|Projected
      benefit obligations at end of year        | Ps.  | 109,728 |   | Ps.  | 107,107
|                                                          |      |         |   |      |        

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|m. | Fair
      value of financial instruments
|-- | -----------------------------------------

In accordance
  with Statement of Financial Accounting Standards No. 107 (SFAS No. 107) Disclosures
  about Fair Value of Financial Instruments, information is provided about
  the fair value of all financial instruments, The estimated fair value of financial
  instrument is the amount at which the instrument could be exchanged in a current
  transaction between willing parties. The following
  methods and assumptions are used to estimate the fair value of financial instruments. Cash and cash
  equivalents - The carrying amounts approximate fair value because of the short
  maturity of such instruments. Bank loans
  and long-term debt - The carrying value of the Companys bank loans short-term
  debt is deemed to equal fair value. The interest rate on the Companys
  short-term debt is in accordance with market rates - The fair value of long-term
  debt is estimated using discounted cash flow analyses based on current borrowing
  rates offered to the Company for debt of the same remaining maturities and the
  market value for the bonds at December 31, 2002 and 2001. The carrying and fair
  value of long-term debt is provided below:


|                                                   | December
        31, |          
|-------------------------------------------------- | -------------------- | ---------
|                                                   |                     
|                                                   | 2002                 |          
|                                                   |                      |          
|Long-term
      debt, (including current portion): |                      |          
|Carrying
      value                               | Ps.                  | 4,534,665
|Fair value                                         |                      | 4,440,786
|                                                   |                      |          

|n. | Additional
      short-term debt and restricted cash
|-- | ----------------------------------------------------

During 2001,
  the Company extinguished Ps. 271,380 of debt by creating an irrevocable trust
  fund and transferring restricted cash to this trust to defease its obligations
  under a borrowing facility. Under Mexican GAAP the Company removed both the
  cash and the debt from the balance sheet. SFAS No. 140 Accounting for
  Transfers and Servicing of Financial Assets and Extinguishments of Liabilities
  states that a liability is considered to have been extinguished only if the
  debtor pays the creditor and is relieved of its obligations for the liability
  or if the debtor is legally released from being the primary obligor under the
  liability, either judicially or by the creditor. Neither of these preconditions
  had taken place and as such the balance sheet under US GAAP as of December 31,
  2001 would reflect an increase to short-term debt of Ps. 271,380 and an increase
  in restricted cash of Ps. 271,380. The short-term debt had an annual interest
  rate of 5.76% and matured in due January 2002.


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|o. | Impact
      of recently issued accounting standards
|-- | ----------------------------------------------------

Asset Retirement
  Obligations:

In June
    2001, the Financial Accounting Standards Board issued Statements of Financial
    Accounting Standards No. 143, Accounting for Asset Retirement Obligations,
    which is effective for fiscal years beginning after June 15, 2002. The Statement
    requires legal obligations associated with the retirement of long-lived assets
    to be recognized at their fair value at the time that the obligations are
    incurred. Upon initial recognition of a liability, that cost should be capitalized
    as part of the related long-lived asset and allocated to expense over the
    useful life of the asset. The Company adopted Statement 143 on January 1,
    2003, and the adoption of this Statement on the Company's financial
    position or result of operations, is not expected to have a significant impact
    on the financial position or results of operations.

|p. | Cash
      flow information
|-- | ---------------------------

Under Mexican GAAP,
    the Company presents consolidated statements of changes in financial position,
    as specifies in Bulletin B-12, Changes in Financial Position which
    establishes the rules when the financial statements have been restated in
    constant pesos in accordance with Bulletin B-10. The changes in the consolidated
    financial statement balances include in this statement constitute resources
    provided by and used in operating, financing and investing activities stated
    in constant pesos (including monetary and foreign exchange gains and losses).

SFAS No. 95
  (SFAS No. 95 ),  Statement of Cash Flow , establishes U.S. standards for providing
  a statement of cash flows in general-purpose financial statements. SFAS No.
  95 does not provide guidance with respect to inflation adjusted financial statements.
  In accordance with Mexican GAAP, the changes in current and long-term debt due
  to restatement in constant pesos, including the effect of exchange differences,
  are presented in the statement of changes in financial position in the financing
  activities section. The Company has adopted the guidance issued by the AICPA
  SEC Regulations Committees International Practices Task Force in its meeting
  held on November 24, 1998, encouraging foreign registrants that file price level
  adjusted financial statements to provide cash flow statements that show separately
  the effects of inflation on cash flow. A consolidated statements of cash flow
  derived from information prepared in accordance with U.S. GAAP would be as follows:

|                                                               |     | Year
        ended December 31, |  
|-------------------------------------------------------------- | --- | ------------------------------- | -
|                                                               |     |                                
|                                                               |     | 2002                            |  
|                                                               |     |                                 |  
|Operating
      activities:                                    |     |                                 |  
|Net (loss)
      income under U.S. GAAP                        | Ps. | (301,892                        | )
|Items not
      requiring (providing) the use of resources:    |     |                                 |  
|Allowance
      for doubtful accounts                          |     | 8,981                           |  
|Depreciation
      and amortization                            |     | 483,500                         |  
|Equity
      in income of associated companies                 |     | 40,350                          |  
|Asset
      write-down                                         |     | 194,534                         |  
|Provision
      for labor obligations                          |     | 14,571                          |  
|Amortization
        of excess of cost of shares of            |     |                                 |  
|subsidiaries
        over book value                           |     | —                               |  
|Deferred
      income tax                                      |     | (248,335                        | )
|Deferred
      employee profit sharing                         |     | (62,713                         | )
|Goodwill                                                       |     | —                               |  
|Derivative
      financial instruments                         |     | 30,600                          |  
|Result
      from monetary position                            |     | (236,844                        | )
|Unrealized
      foreign exchange (gain) loss                  |     | 477,440                         |  
|                                                               |     |                                 |  
|                                                               |     | 400,192                         |  
|                                                               |     |                                 |  
|Trade
      receivables                                        |     | (13,981                         | )
|Inventories                                                    |     | (157,018                        | )
|Related
      parties                                          |     | (87,301                         | )
|Prepaid
      expenses                                         |     | 32,135                          |  
|Suppliers                                                      |     | 197,052                         |  
|Other
      accounts receivable and payable, net               |     | 334,556                         |  
|Income
      tax, asset tax and employee profit sharing        |     | (6,394                          | )
|                                                               |     |                                 |  
|Net cash
      provided by operating activities                |     | 699,241                         |  
|                                                               |     |                                 |  
|Financing
      activities:                                    |     |                                 |  
|Short-term
      bank loans                                    |     | (522,320                        | )
|Repurchase
      of bonds                                      |     | (70,598                         | )
|Proceeds
      from borrowings from bank loans and             |     |                                 |  
|issuance of long-term debt                                     |     | 1,755,182                       |  
|Restricted
      cash                                          |     | —                               |  
|Capital
      lease obligations                                |     | 163,068                         |  
|Payments
      of capital lease obligations                    |     | (22,860                         | )
|Payments
      of long-term debt                               |     | (1,182,287                      | )
|Minority
      interest                                        |     | (82,829                         | )
|Related
      parties                                          |     | (109,261                        | )
|Effect
      of spin-off                                       |     | —                               |  
|Effect
      of merger                                         |     | 4,983                           |  
|                                                               |     |                                 |  
|                                                               |     |                                 |  
|Net cash
      provided by (used) in financing activities      |     | (66,922                         | )
|                                                               |     |                                 |  
|Investing
      activities:                                    |     |                                 |  
|Property,
      plant and equipment, net                       |     | (473,131                        | )
|Assets
      acquired under capital leases                     |     | (170,832                        | )
|Pay
      in excess of the historical cost in a combination of |     |                                 |  
|entities
      under common control                            |     | (21,706                         | )
|Other
      investments                                        |     | (43,465                         | )
|                                                               |     |                                 |  
|Net cash
      used in investing activities                    |     | (709,134                        | )
|                                                               |     |                                 |  
|Effect of
      inflation accounting                           |     | (64,806                         | )
|Decrease
      in cash and cash equivalents                    |     | (141,621                        | )
|                                                               |     |                                 |  
|Cash and
      cash equivalents at the beginning of year       |     | 229,895                         |  
|                                                               |     |                                 |  
|Cash and
      cash equivalents at the end of year             | Ps. | 88,274                          |  
|                                                               |     |                                 |  
|Supplemental
      cash flow disclosures:                      |     |                                 |  
|Interest
      paid                                            | Ps. | 502,846                         |  
|                                                               |     |                                 |  
|Income
      taxes paid                                        | Ps. | 48,268                          |  
|                                                               |     |                                 |  

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