##### 



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The following items were the subject of
a Form 12b-25 and are included herein:
Item 8Item 18

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


FORM 20-F/A

|  |  |                                                                                               
|- |  | ----------------------------------------------------------------------------------------------
|o |  | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR
(g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

|  |  |                                                                                     
|- |  | ------------------------------------------------------------------------------------
|x |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002

OR

|  |  |                                                                                         
|- |  | ----------------------------------------------------------------------------------------
|o |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 1-13148

Corporación Durango, S.A. de C.V.

(Exact name of Registrant as specified in its charter)


Durango Corporation

(Translation of Registrants name into English)


United Mexican States

(Jurisdiction of incorporation or organization)


Torre Corporativa Durango
Potasio 150
Ciudad Industrial
Durango, Durango, Mexico 34220
+52 (618) 814-1658
and
+52 (618) 814-2799

(Address and telephone number of principal executive offices)



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Securities registered or to be registered pursuant to Section 12(b) of the Act:

|                                                                                   |  |                                           
|---------------------------------------------------------------------------------- |  | ------------------------------------------
|Title of each class:                                                               |  | Name of each exchange on which registered:
|                                                                                   |  |                                           
|Series A Common Stock, without par value (Series A Shares)                       |  | New York Stock Exchange*                  
|Ordinary Participation Certificates (CPOs), each
representing one Series A Share |  | New York Stock Exchange*                  
|American Depositary Shares (ADSs), each representing two CPOs                    |  | New York Stock Exchange                   
|13 1/8% Senior Notes due 2006 (2006 notes)                                       |  | New York Stock Exchange                   
|13 1/2% Senior Notes due 2008 (2008 notes)                                       |  | New York Stock Exchange                   



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|* |  | Not for trading, but only in connection with the registration of
American Depositary Shares, pursuant to the requirements of the United
States Securities and Exchange Commission.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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: None

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: 91,832,122 Series A Shares, without par value

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   x   No   o |  | 

Indicate by check mark which financial statement item the registrant has elected to follow.    Item 17   o   Item 18   x



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##### 






PART I




Item 3. Key Information.

Selected Combined and Consolidated Financial Data

The following table sets forth our selected combined and consolidated
financial data for each of the periods presented. The data does not represent
all of our financial information. You should read this information together
with the audited annual consolidated financial statements as of December 31,
2001 and 2002 and for the three years ended December 31, 2000, 2001 and 2002
appearing elsewhere in this annual report and the information under
Presentation of Financial Information and Item 5. Operating and Financial
Review and Prospects.

The selected consolidated income statement information for the fiscal
years ended December 31, 2000, 2001 and 2002, and the selected consolidated
balance sheet information as of December 31, 2001 and 2002, have been derived
from the consolidated financial statements that were audited by
PricewaterhouseCoopers, our independent public accountants, as indicated in
their report included elsewhere herein. The selected combined income statement
information for the fiscal years ended December 31, 1998 and 1999, and the
selected combined and consolidated balance sheet information as of December 31,
1998, 1999 and 2000, have been derived from the combined and consolidated
financial statements which are not included in this annual report.

Our audited consolidated financial statements were prepared in accordance
with Mexican GAAP, which differs in significant respects from U.S. GAAP. Note
21 to our audited consolidated financial statements provides a description of
the principal differences between Mexican GAAP and U.S. GAAP as they relate to
such financial statements. In addition, Note 21 to our audited consolidated
financial statements contains a reconciliation to U.S. GAAP of our consolidated
net income and total shareholders equity as of December 31, 2001 and 2002 and
for the years ended December 31, 2000, 2001 and 2002.

Except as otherwise noted, all information presented herein is presented
in constant Pesos as of December 31, 2002. The Peso/U.S. Dollar exchange rate
at December 31, 2002 was Ps 10.4393 = US$1.00.

|                                             |                                      |    |                                                               |          |      |    |         |         |      |    |          |          |   |    |          |          |   |    |          |          |  
|-------------------------------------------- | ------------------------------------ | -- | ------------------------------------------------------------- | -------- | ---- | -- | ------- | ------- | ---- | -- | -------- | -------- | - | -- | -------- | -------- | - | -- | -------- | -------- | -
|                                             |                                      |    | As of and for the Year Ended December 31,                    
|                                             |                                      |    |                                                              
|                                             |                                      |    | 1998                                                          |          | 1999 |    | 2000    |         | 2001 |    | 2002    
|                                             |                                      |    |                                                               |          |      |    |         |         |      |    |         
|                                             |                                      |    | (millions of constant Pesos restated as of December 31, 2002,
|                                             |                                      |    | except per share amounts and ratios)                         
|Combined and Consolidated                    |                                      |    |                                                               |          |      |    |         |         |      |    |          |          |   |    |          |          |   |    |          |         
|Statement of Income Data:                    |                                      |    |                                                               |          |      |    |         |         |      |    |          |          |   |    |          |          |   |    |          |         
|Mexican GAAP:                                |                                      |    |                                                               |          |      |    |         |         |      |    |          |          |   |    |          |          |   |    |          |         
|Net sales                                    |                                      | Ps | 6,686.3                                                       |          |      | Ps | 8,963.1 |         |      | Ps | 12,921.9 |          |   | Ps | 10,532.4 |          |   | Ps | 8,498.2  |         
|Cost of sales                                |                                      |    | 4,974.4                                                       |          |      |    | 6,775.8 |         |      |    | 10,652.1 |          |   |    | 8,770.7  |          |   |    | 7,243.0  |         
|                                             |                                      |    |                                                               |          |      |    |         |         |      |    |          |          |   |    |          |          |   |    |          |         
|                                             | Gross profit                         |    |                                                               | 1,711.9  |      |    |         | 2,187.3 |      |    |          | 2,269.7  |   |    |          | 1,761.7  |   |    |          | 1,255.2  |  
|Selling, general and
administrative expenses |                                      |    | 467.2                                                         |          |      |    | 700.2   |         |      |    | 803.3    |          |   |    | 728.1    |          |   |    | 611.3    |         
|                                             |                                      |    |                                                               |          |      |    |         |         |      |    |          |          |   |    |          |          |   |    |          |         
|Operating income                             |                                      |    | 1,244.8                                                       |          |      |    | 1,487.1 |         |      |    | 1,466.5  |          |   |    | 1,033.6  |          |   |    | 644.0    |         
|Other expense                                |                                      |    | (231.1                                                        | )        |      |    | (90.0   | )       |      |    | (16.4    | )        |   |    | (40.3    | )        |   |    | (46.5    | )       
|Financing cost (result):                     |                                      |    |                                                               |          |      |    |         |         |      |    |          |          |   |    |          |          |   |    |          |         
|                                             | Interest expense                     |    |                                                               | (937.9   | )    |    |         | (989.9  | )    |    |          | (1,091.7 | ) |    |          | (1,077.7 | ) |    |          | (1,088.7 | )
|                                             | Interest income                      |    |                                                               | 125.5    |      |    |         | 117.1   |      |    |          | 123.6    |   |    |          | 66.9     |   |    |          | 39.2     |  
|                                             | Foreign exchange (gain) loss, net    |    |                                                               | (1,253.1 | )    |    |         | 332.4   |      |    |          | (101.6   | ) |    |          | 313.4    |   |    |          | (1,049.8 | )
|                                             | Gain from monetary position          |    |                                                               | 906.4    |      |    |         | 802.1   |      |    |          | 600.6    |   |    |          | 310.0    |   |    |          | 415.2    |  
|                                             |                                      |    |                                                               |          |      |    |         |         |      |    |          |          |   |    |          |          |   |    |          |         
|Total financing cost (result)                |                                      |    | (1,159.2                                                      | )        |      |    | 261.7   |         |      |    | (469.1   | )        |   |    | (387.4   | )        |   |    | (1,684.2 | )       
|                                             | Special Items                        |    |                                                               |        |      |    |         |       |      |    |          |        |   |    |          |        |   |    |          | (1,451.4 | )
|                                             | Amortization of negative
goodwill(1) |    |                                                               | 3,737.0  |      |    |         | 99.1    |      |    |          | 1,513.9  |   |    |          | 495.3    |   |    |          |        |  
|                                             |                                      |    |                                                               |          |      |    |         |         |      |    |          |          |   |    |          |          |   |    |          |         

-1-



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##### 



|                                                                                                                                                                     |                         |    |                                                               |       |      |    |            |        |      |    |            |        |   |    |            |        |   |    |            |          |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------- | -- | ------------------------------------------------------------- | ----- | ---- | -- | ---------- | ------ | ---- | -- | ---------- | ------ | - | -- | ---------- | ------ | - | -- | ---------- | -------- | -
|                                                                                                                                                                     |                         |    | As of and for the Year Ended December 31,                    
|                                                                                                                                                                     |                         |    |                                                              
|                                                                                                                                                                     |                         |    | 1998                                                          |       | 1999 |    | 2000       |        | 2001 |    | 2002      
|                                                                                                                                                                     |                         |    |                                                               |       |      |    |            |        |      |    |           
|                                                                                                                                                                     |                         |    | (millions of constant Pesos restated as of December 31, 2002,
|                                                                                                                                                                     |                         |    | except per share amounts and ratios)                         
|Income
(loss) before provisions
for income and asset taxes,
employee profit sharing, deferred
income tax, extraordinary items,
impairment loss and minority
interest |                         |    | 3,591.5                                                       |       |      |    | 1,757.9    |        |      |    | 2,494.9    |        |   |    | 1,101.2    |        |   |    | (2,538.2   | )       
|Provisions for:                                                                                                                                                      |                         |    |                                                               |       |      |    |            |        |      |    |            |        |   |    |            |        |   |    |            |         
|                                                                                                                                                                     | Income and asset taxes  |    |                                                               | (17.1 | )    |    |            | (177.2 | )    |    |            | (289.9 | ) |    |            | (235.8 | ) |    |            | (114.4   | )
|                                                                                                                                                                     | Employee profit sharing |    |                                                               | (12.8 | )    |    |            | (6.4   | )    |    |            | (7.6   | ) |    |            | (4.7   | ) |    |            | (1.0     | )
|                                                                                                                                                                     | Tax loss carry-forwards |    |                                                               | 7.6   |      |    |            | 7.6    |      |    |            |      |   |    |            |      |   |    |            |        |  
|                                                                                                                                                                     | Deferred income tax     |    |                                                               |     |      |    |            |      |      |    |            | (387.5 | ) |    |            | 267.3  |   |    |            | 667.3    |  
|                                                                                                                                                                     | Impairment loss         |    |                                                               |     |      |    |            |      |      |    |            |      |   |    |            |      |   |    |            | (1,556.5 | )
|                                                                                                                                                                     | Extraordinary items     |    |                                                               |     |      |    |            |      |      |    |            |      |   |    |            | (298.6 | ) |    |            |        |  
|                                                                                                                                                                     |                         |    |                                                               |       |      |    |            |        |      |    |            |        |   |    |            |        |   |    |            |         
|Net income (loss) before minority
interest                                                                                                                           |                         |    | 3,569.2                                                       |       |      |    | 1,574.3    |        |      |    | 1,809.9    |        |   |    | 829.3      |        |   |    | (3,542.8   | )       
|Minority interest                                                                                                                                                    |                         |    | (12.1                                                         | )     |      |    | 500.7      |        |      |    | 175.3      |        |   |    | 4.0        |        |   |    | 3.1        |         
|                                                                                                                                                                     |                         |    |                                                               |       |      |    |            |        |      |    |            |        |   |    |            |        |   |    |            |         
|Net income (loss)                                                                                                                                                    |                         | Ps | 3,581.3                                                       |       |      | Ps | 1,073.7    |        |      | Ps | 1,634.6    |        |   | Ps | 825.3      |        |   | Ps | (3,545.9   | )       
|                                                                                                                                                                     |                         |    |                                                               |       |      |    |            |        |      |    |            |        |   |    |            |        |   |    |            |         
|Basic and diluted earnings
per share                                                                                                                                 |                         | Ps | 38.07                                                         |       |      | Ps | 11.41      |        |      | Ps | 17.38      |        |   | Ps | 8.77       |        |   | Ps | (38.20     | )       
|Weighted-average number of shares
outstanding                                                                                                                        |                         |    | 94,072,122                                                    |       |      |    | 94,072,122 |        |      |    | 94,072,122 |        |   |    | 94,072,122 |        |   |    | 92,828,029 |         
|U.S.
GAAP:(2)(3)                                                                                                                                                     |                         |    |                                                               |       |      |    |            |        |      |    |            |        |   |    |            |        |   |    |            |         
|Net sales                                                                                                                                                            |                         | Ps | 6,877.3                                                       |       |      | Ps | 8,991.0    |        |      | Ps | 9,141.9    |        |   | Ps | 7,828.7    |        |   |    | 7,075.7    |         
|Operating income                                                                                                                                                     |                         |    | 1,229.5                                                       |       |      |    | 1,836.2    |        |      |    | 1,443.2    |        |   |    | 1,114.1    |        |   |    | 56.9       |         
|Income (loss) before, provisions for income and
asset taxes, minority interest,
special items and discontinued operations                                            |                         |    | (246.7                                                        | )     |      |    | 2,084.7    |        |      |    | 973.1      |        |   |    | 848.0      |        |   |    | (1,487.8   | )       
|Net income (loss)                                                                                                                                                    |                         |    | (91.5                                                         | )     |      |    | 1,430.9    |        |      |    | 10.1       |        |   |    | 239.4      |        |   |    | (2,122.8   | )       
|Basic and diluted earnings
per share (4)                                                                                                                             |                         |    | (0.97                                                         | )     |      |    | 15.21      |        |      |    | 0.11       |        |   |    | 2.54       |        |   |    | (22.86     | )       
|Combined and Consolidated Balance
Sheet Data                                                                                                                         |                         |    |                                                               |       |      |    |            |        |      |    |            |        |   |    |            |        |   |    |            |         
|Mexican GAAP:                                                                                                                                                        |                         |    |                                                               |       |      |    |            |        |      |    |            |        |   |    |            |        |   |    |            |         
|Cash and temporary investments                                                                                                                                       |                         | Ps | 1,274.4                                                       |       |      | Ps | 937.6      |        |      | Ps | 811.2      |        |   | Ps | 508.9      |        |   | Ps | 255.7      |         
|Total current assets                                                                                                                                                 |                         |    | 4,243.7                                                       |       |      |    | 5,793.8    |        |      |    | 5,563.3    |        |   |    | 4,255.6    |        |   |    | 3,537.5    |         
|Property, plant & equipment, net                                                                                                                                     |                         |    | 17,065.6                                                      |       |      |    | 17,359.8   |        |      |    | 17,556.3   |        |   |    | 16,489.0   |        |   |    | 13,063.7   |         
|Total assets                                                                                                                                                         |                         |    | 21,734.4                                                      |       |      |    | 23,607.8   |        |      |    | 23,675.5   |        |   |    | 21,277.5   |        |   |    | 17,312.7   |         
|Short-term debt, including current
portion of long-term debt                                                                                                         |                         |    | 673.0                                                         |       |      |    | 1,156.2    |        |      |    | 868.6      |        |   |    | 617.4      |        |   |    | 7,576.3    |         
|Long-term debt                                                                                                                                                       |                         |    | 8,437.1                                                       |       |      |    | 7,438.0    |        |      |    | 7,588.2    |        |   |    | 7,243.7    |        |   |    | 1,083.4    |         
|Capital stock                                                                                                                                                        |                         |    | 4,163.3                                                       |       |      |    | 4,233.3    |        |      |    | 2,321.7    |        |   |    | 4,672.5    |        |   |    | 4,672.5    |         
|Total minority shareholders equity                                                                                                                                  |                         |    | 140.2                                                         |       |      |    | 2,614.9    |        |      |    | 1,504.5    |        |   |    | 41.9       |        |   |    | 68.4       |         
|Total majority shareholders equity                                                                                                                                  |                         |    | 10,238.1                                                      |       |      |    | 7,639.9    |        |      |    | 6,632.0    |        |   |    | 7,834.8    |        |   |    | 4,361.9    |         
|Total shareholders equity
(net assets)                                                                                                                              |                         |    | 10,378.3                                                      |       |      |    | 10,254.9   |        |      |    | 8,083.2    |        |   |    | 7,876.7    |        |   |    | 4,430.3    |         
|U.S. GAAP:(2)(3)                                                                                                                                                     |                         |    |                                                               |       |      |    |            |        |      |    |            |        |   |    |            |        |   |    |            |         
|Total assets                                                                                                                                                         |                         |    | 18,164.4                                                      |       |      |    | 19,668.1   |        |      |    | 20,159.1   |        |   |    | 18,784.2   |        |   |    | 16,865.3   |         
|Total shareholders equity
(net assets)                                                                                                                              |                         |    | 1,879.3                                                       |       |      |    | 2,860.3    |        |      |    | 2,774.4    |        |   |    | 4,056.7    |        |   |    | 1,048.7    |         
|Other Financial Data:                                                                                                                                                |                         |    |                                                               |       |      |    |            |        |      |    |            |        |   |    |            |        |   |    |            |         
|Mexican GAAP:                                                                                                                                                        |                         |    |                                                               |       |      |    |            |        |      |    |            |        |   |    |            |        |   |    |            |         
|Adjusted EBITDA (5)                                                                                                                                                  |                         |    | 1,614.7                                                       |       |      |    | 2,002.4    |        |      |    | 2,031.2    |        |   |    | 1,525.9    |        |   |    | 1,119.4    |         

-2-



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##### 






|                                                      |  |  |                                                               |   |      |  |          |   |      |  |          |   |  |  |         |   |  |  |         |   | 
|----------------------------------------------------- |  |  | ------------------------------------------------------------- | - | ---- |  | -------- | - | ---- |  | -------- | - |  |  | ------- | - |  |  | ------- | - | 
|                                                      |  |  | As of and for the Year Ended December 31,                    
|                                                      |  |  |                                                              
|                                                      |  |  | 1998                                                          |   | 1999 |  | 2000     |   | 2001 |  | 2002    
|                                                      |  |  |                                                               |   |      |  |          |   |      |  |         
|                                                      |  |  | (millions of constant Pesos restated as of December 31, 2002,
|                                                      |  |  | except per share amounts and ratios)                         
|Resources generated by operating
activities           |  |  | 1,558.2                                                       |   |      |  | 1,654.3  |   |      |  | 1,356.8  |   |  |  | 906.2   |   |  |  | (137.6  | )
|Resources generated by (used in)
financing activities |  |  | 1,267.5                                                       |   |      |  | (407.1   | ) |      |  | 1,875.0  |   |  |  | (650.5  | ) |  |  | 735.7   |  
|Resources used in investing
activities                |  |  | (2,311.7                                                      | ) |      |  | (1,584.0 | ) |      |  | (3,358.3 | ) |  |  | (558.0  | ) |  |  | (851.3  | )
|Capital expenditures                                  |  |  | (1,064.7                                                      | ) |      |  | (177.4   | ) |      |  | (1,092.1 | ) |  |  | (345.6  | ) |  |  | (305.3  | )
|Adjusted EBITDA to interest expense                   |  |  | 1.7x                                                          |   |      |  | 2.0x     |   |      |  | 1.9x     |   |  |  | 1.4x    |   |  |  | 1.0x    |  
|Total Debt to Adjusted EBITDA                         |  |  | 5.6x                                                          |   |      |  | 4.3x     |   |      |  | 4.2x     |   |  |  | 5.2x    |   |  |  | 7.7x    |  
|Ratio of earnings loss to fixed
charges (6)           |  |  | 4.8x                                                          |   |      |  | 2.7x     |   |      |  | 2.0x     |   |  |  | 1.7x    |   |  |  | (0.4)x  |  
|U.S. GAAP:(2)(3)                                      |  |  |                                                               |   |      |  |          |   |      |  |          |   |  |  |         |   |  |  |        
|Cash flow provided by operating
activities            |  |  | 743.0                                                         |   |      |  | 812.7    |   |      |  | 689.3    |   |  |  | 1,197.4 |   |  |  | 374.6   |  
|Cash flow provided by (used in)
financing activities  |  |  | 2,174.2                                                       |   |      |  | (314.7   | ) |      |  | 325.5    |   |  |  | (988.0  | ) |  |  | 1,320.0 |  
|Cash flow used in investing
activities                |  |  | (2,544.4                                                      | ) |      |  | (1,640.8 | ) |      |  | (1,264.5 | ) |  |  | 505.8   |   |  |  | 1,393.0 |  
|Ratio of earnings (loss) to fixed
charges (6)         |  |  | 0.7x                                                          |   |      |  | 3.1x     |   |      |  | 1.8x     |   |  |  | 1.5x    |   |  |  | (1.0)x  |  






---

|(1) |  | In 1999, the Company recorded negative goodwill in the acquisition of the
Durango Paper Company. Such negative goodwill was fully amortized by
year-end 2001. In 2000, the Company recorded negative goodwill in the
acquisition of 59% of GIDUSA by CODUSA. Such negative goodwill was fully
amortized by year-end 2000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Amounts of sales and long-term debt under U.S. GAAP do not differ
materially from these amounts under Mexican GAAP. See Note 21 to our
audited consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|(3) |  | The difference between net income under U.S. GAAP and Mexican GAAP
primarily reflects differing accounting treatment for reversal of loss on
fixed assets, capitalized financing costs, debt issuance costs, negative
goodwill, deferred income tax, employees statutory profit sharing and the
effects of inflation on fixed assets. See Item 5. Operating and
Financial Review and Prospects  Differences Between Mexican GAAP and U.S.
GAAP and Note 21 to our audited consolidated financial statements. As of
January 1, 2000, Bulletin D-4 is effective in Mexico. This Bulletin
governs the treatment of deferred taxes, similar to that of Statement of
Financial Accounting Standards Board No. 109, Accounting for Income
Taxes. See Note 3(p) to our audited consolidated financial statements.                                                                                                                                                                                                  
|   
|(4) |  | See Note 21 to our audited consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   
|(5) |  | As used herein, we define Adjusted EBITDA as operating income plus
depreciation and amortization. The Company believes that Adjusted EBITDA
is an additional measure of operating performance, although it should be
noted that Adjusted EBITDA is not a measure of financial condition or
performance under U.S. GAAP or Mexican GAAP and should not be considered
as a substitute for those measures under U.S. GAAP or Mexican GAAP.
Adjusted EBITDA is not a direct measure of the groups liquidity, which is
shown by the groups cash flow statement and needs to be considered in the
context of the groups financial commitments. Companies do not calculate
Adjusted EBITDA in a uniform manner. Our Adjusted EBITDA calculations may
not be comparable to those of other companies. Presented below is a
reconciliation of Adjusted EBITDA to operating income under Mexican GAAP,
which is the most directly comparable financial measure calculated and
presented in accordance with Mexican GAAP.

-3-



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##### 



|                              |  |                         |         |      |  |      |         |      |  |      |         |  |  |    |         |  |  |    |         | 
|----------------------------- |  | ----------------------- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- |  |  | -- | ------- |  |  | -- | ------- | 
|                              |  | Year Ended December 31,
|                              |  |                        
|                              |  | 1998                    |         | 1999 |  | 2000 |         | 2001 |  | 2002
|                              |  |                         |         |      |  |      |         |      |  |     
|Operating income              |  | Ps                      | 1,244.8 |      |  | Ps   | 1,487.1 |      |  | Ps   | 1,466.5 |  |  | Ps | 1,033.6 |  |  | Ps | 644.0   | 
|Depreciation and amortization |  |                         | 369.9   |      |  |      | 515.3   |      |  |      | 564.7   |  |  |    | 492.3   |  |  |    | 475.4   | 
|Adjusted EBITDA               |  | Ps                      | 1,614.7 |      |  | Ps   | 2,002.4 |      |  | Ps   | 2,031.2 |  |  | Ps | 1,525.9 |  |  | Ps | 1,119.4 | 
|                              |  |                         |         |      |  |      |         |      |  |      |         |  |  |    |         |  |  |    |         | 



---

|(6) |  | Ratio of earnings to fixed charges is calculated as earnings from
continuing operations before income taxes divided by fixed charges.
Earnings for this purpose consist of earnings before provision for income
tax and asset tax plus fixed charges. Fixed charges for this purpose
consist of interest expenses plus the portion of rental expenses deemed to
represent interest expense under operating lease agreements and the
capitalization of deferred costs related to the issuance of bonds during
the period.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Dividends

Please see Dividend Policy in Item 8. Financial Information.

Exchange Rate Information

The following table sets forth, for the periods indicated, the high, low,
average and period-end noon buying rate as reported by the Federal Reserve Bank
of New York, for the purchase of U.S. Dollars, expressed in nominal Pesos per
U.S. Dollar.

|                        |  |                     |        |     |  |            |       |     |  |    |       |  |  |        |        | 
|----------------------- |  | ------------------- | ------ | --- |  | ---------- | ----- | --- |  | -- | ----- |  |  | ------ | ------ | 
|                        |  | Noon Buying Rate(1)
|                        |  |                    
|                        |  |                     |        |     |  |            |       |     |  |    |       |  |  | Period
|                        |  | High                |        | Low |  | Average(2) |       | End
|                        |  |                     |        |     |  |            |       |    
|Year ended December 31, |  |                     |        |     |  |            |       |     |  |    |       |  |  |        |        | 
|1998                    |  | Ps                  | 10.630 |     |  | Ps         | 8.040 |     |  | Ps | 9.152 |  |  | Ps     | 9.901  | 
|1999                    |  |                     | 10.600 |     |  |            | 9.243 |     |  |    | 9.563 |  |  |        | 9.480  | 
|2000                    |  |                     | 10.087 |     |  |            | 9.188 |     |  |    | 9.475 |  |  |        | 9.618  | 
|2001                    |  |                     | 9.972  |     |  |            | 9.027 |     |  |    | 9.341 |  |  |        | 9.156  | 
|2002                    |  |                     | 10.423 |     |  |            | 9.000 |     |  |    | 9.668 |  |  |        | 10.425 | 

|                  |  |                     |        |     |  |            |        |     |  |    |        |  |  |        |        | 
|----------------- |  | ------------------- | ------ | --- |  | ---------- | ------ | --- |  | -- | ------ |  |  | ------ | ------ | 
|                  |  | Noon Buying Rate(1)
|                  |  |                    
|                  |  |                     |        |     |  |            |        |     |  |    |        |  |  | Period
|                  |  | High                |        | Low |  | Average(3) |        | End
|                  |  |                     |        |     |  |            |        |    
|Month Ended       |  |                     |        |     |  |            |        |     |  |    |        |  |  |        |        | 
|December 31, 2002 |  | Ps                  | 10.423 |     |  | Ps         | 10.103 |     |  | Ps | 10.225 |  |  | Ps     | 10.425 | 
|January 31, 2003  |  |                     | 10.978 |     |  |            | 10.321 |     |  |    | 10.622 |  |  |        | 10.902 | 
|February 28, 2003 |  |                     | 11.064 |     |  |            | 10.774 |     |  |    | 10.946 |  |  |        | 11.029 | 
|March 31, 2003    |  |                     | 11.235 |     |  |            | 10.661 |     |  |    | 10.909 |  |  |        | 10.782 | 
|April 30, 2003    |  |                     | 10.770 |     |  |            | 10.308 |     |  |    | 10.589 |  |  |        | 10.308 | 
|May 31, 2003      |  |                     | 10.424 |     |  |            | 10.113 |     |  |    | 10.253 |  |  |        | 10.340 | 



---

|(1) |  | Source: Federal Reserve Bank of New York.
|--- |  | -----------------------------------------
|   
|(2) |  | Average of month-end rates.              
|   
|(3) |  | Average of daily rates.                  

On June 27, 2003, the noon buying rate was Ps 10.430 per U.S. Dollar.

-4-



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##### 



Risk Factors

We are subject to various risks resulting from changing economic,
political, industry and business and financial conditions that may affect our
results of operations or financial condition. These risks are described below.

Risks Relating to our Business and the Paper and Packaging Industry in General

We have insufficient liquidity to repay our debt obligations. If the debt
restructuring negotiations with our creditors are not successful, we may not be
able to pay all or a portion of the principal or interest on our unsecured debt
and our operations may be adversely affected.

In recent years, we have incurred substantial indebtedness to finance our
Companys growth and operations. As of December 31, 2002, we had consolidated
indebtedness of approximately Ps 8,659.7 million (US$829.5 million) and
shareholders equity, including a minority interest in our consolidated
subsidiaries, of Ps 4,430.3 million (US$424.4 million). Since November 2002,
we have been in default on payments of principal and interest under our
unsecured indebtedness. See Item 13. Defaults, Dividend Arrearages and
Delinquencies.

In December 2002, we retained financial advisors to advise us in
evaluating debt-restructuring alternatives to implement a long-term solution to
our capital structure and debt service requirements. We also began discussions
with our bank creditors and the holders of our notes. In April 2003, we
presented our unsecured creditors with debt restructuring and forbearance
proposals. Holders of approximately 97% of the total outstanding principal
amount of our notes due 2003, 2006, 2008 and 2009 and certain bank creditors
agreed to forbear exercising their rights and remedies in connection with our
existing defaults. Such forbearance terminates on June 30, 2002, and we have
not received any indication that such creditors will extend the period of
forbearance. Our debt restructuring proposal is currently the focus of our
ongoing negotiations with these and our other unsecured creditors. See Item
4. Information on the Company-Significant Developments During 2002 and Recent
Developments.

During this time, Standard & Poors Investment Advisory Services,
(Standard & Poors) has lowered our foreign and local currency corporate
ratings to their lowest rating of D, and Moodys Investors Service
(Moodys) lowered all ratings on our existing notes to their second lowest
rating of Ca. These negative credit ratings and downgrades have further
restricted our sources for short-term financing, thereby impeding our ability
to finance our operations. Furthermore, the negative publicity surrounding
these recent downgrades has adversely affected the terms of our trade payables.
For additional information regarding our credit ratings, see Item 5.
Operating and Financial Review and ProspectsLiquidity and Capital Resources.

If our current liquidity crisis continues, our ability to undertake
important activities may be impaired, including:



| |  |  | our ability to adjust to rapidly changing market conditions, thus
making us more vulnerable in the event the downturn in general economic
conditions or our business continues;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | our ability to attract and retain key employees;                                                                                                                               
|
| |  |  | our ability to maintain relationships with key suppliers;                                                                                                                      
|
| |  |  | our ability to enter into long-term contracts with customers;                                                                                                                  
|
| |  |  | our ability to undertake capital expenditures;                                                                                                                                 
|
| |  |  | our ability to maintain a positive image to regulators, investors, lenders or credit rating agencies; or                                                                       
|
| |  |  | our ability to maintain and improve our enterprise value.                                                                                                                      

We believe that we are not likely to find outside sources of financing to
fund the payments due on our unsecured debt. Therefore, we will probably not
be able to cure the existing defaults under the agreements governing our debt
obligations unless the negotiations with our creditors are successful. Since we
do not have sufficient liquidity to repay our obligations on our debt
instruments, and given the depressed value of paper production facility assets
generally, it is likely that our unsecured creditors and our shareholders would
incur a

-5-



---



##### 



significant loss if our restructuring negotiations are unsuccessful. Even
if we successfully consummate a debt restructuring, we will continue to be
highly leveraged and will need to increase our cash flow to meet our payment
obligations under any additional indebtedness.

Our insufficient liquidity could severely impact our ability to continue
as a going concern.

Our consolidated financial statements have been prepared under the
assumption that we will continue as a going concern. However, our independent
auditors have stated in their most recent report that, due to our liquidity
crisis, there is uncertainty about our ability to continue as a going concern.
Our consolidated financial statements do not include any adjustments that might
result from the outcome of that uncertainty. If we are not successful in
consummating a debt restructuring, in generating sufficient cash from operating
activities to meet our financial obligations and to make essential capital
expenditures, or in obtaining outside sources of funding, we may be forced to
sell assets in addition to the planned divestitures described in this annual
report. Furthermore, our inability to successfully restructure our debt would
materially and adversely affect our financial condition and continuing
operations and would likely cause us to seek bankruptcy court protection. If
we are required to liquidate our operations, the holders of our debt and our
shareholders will likely incur a significant loss.

If the debt restructuring negotiations with our creditors are not
successful, we face a substantial risk of Mexican reorganization-related
proceedings.

If we remain in default on our obligations, including our notes, some or
all of our creditors will have the option of taking legal action against us,
including instituting an involuntary reorganization proceeding in Mexico.
Further, we may choose to institute a voluntary reorganization proceeding under
Mexican law. We cannot predict the duration of any such restructuring under
the new Mexican Law of Commercial Reorganizations (Ley de Concursos
Mercantiles), as the statutory provisions governing such proceedings remain
largely untested. A reorganization proceeding would likely result in
significant changes to our existing obligations that could include the
cancellation or rescheduling of all or part of those obligations. During the
pendency of any such proceeding, our ability to operate or manage our business,
to retain employees, to maintain existing or create new customer relationships,
to continue to collect payments for our products and services or to obtain any
type of funding or financing would likely be materially adversely affected. We
believe that any such adverse effects would be exacerbated if the
reorganization proceeding were protracted.

If we were declared bankrupt, our creditors would find it difficult to
collect payment on our unsecured debt instruments.

If we were declared bankrupt by a Mexican court, or if we were subject to
a reorganization proceeding in a Mexican court, our obligations under our debt
securities:



| |  |  | would be converted into Pesos at the exchange rate prevailing at
the time of a declaration of bankruptcy or reorganization and from
Pesos into inflation indexed units (UDIs) at the conversion rate
prevailing at that time;                 
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | would be dependent upon the outcome of the bankruptcy or
reorganization proceedings and payment, if any, would occur at the same
time as claims of all of our unsecured creditors are satisfied if and
to the extent funds are sufficient; and
|
| |  |  | would cease to accrue interest.                                                                                                                                                                                                               

There can be no assurance that our unsecured creditors would receive any
meaningful recovery from a bankruptcy or reorganization proceeding.

We have been notified by the New York Stock Exchange that the average
trading price of our ADSs and their distribution do not meet the New York Stock
Exchanges continued listing requirements.

On February 13, 2003, we were notified by the New York Stock Exchange that
the average trading price of our ADSs and their distribution did not meet the
New York Stock Exchanges continued listing requirements. We have notified the
New York Stock Exchange of our intention to achieve compliance in a timely
manner and are currently

-6-



---



##### 



evaluating appropriate alternatives. In order to maintain compliance, the
average trading price of our ADSs must equal or exceed U.S.$1.00 for a minimum
of 30 trading days on or before August 13, 2003. Although we are focused on
maintaining our New York Stock Exchange listing, we cannot assure you that we
will be able to achieve compliance by the dates set by the New York Stock
Exchange to avoid delisting. Delisting from the New York Stock Exchange would
have an adverse effect on the liquidity of our ADSs and on our ability to raise
capital through the issuance of ADSs or securities convertible into ADSs.

We may be unable to realize the value of our planned divestitures in time
to repay our creditors.

We are currently in the initial stages of negotiations to divest our
Company of certain assets with the goal of increasing our production
efficiency, improving our liquidity condition and repaying overdue amounts on
our outstanding indebtedness. If we are unable to attract purchasers for these
non-strategic assets, we may be forced to delay the sale of all or a portion of
these assets. We cannot assure you that we will be able to realize the value
of these assets before our creditors exercise their rights to accelerate our
debt obligations.

We are currently involved in litigation that, if decided adversely to us,
could materially adversely affect our financial condition, cash flows and
results of operations.

We are currently involved in a lawsuit relating to our nonpayment of
amounts alleged due under promissory notes issued to HG Estate, LLC in
connection with the acquisition of our former subsidiary, Durango Paper
Company. We have filed a statement of claims in arbitration, among other
things, challenging the validity of these promissory notes. In addition, we
are involved in a lawsuit relating to our failure to pay outstanding
obligations under our Euro Commercial Paper Program. We intend to vigorously
defend against these lawsuits, but the results of these proceedings cannot be
predicted. Adverse outcomes for our Company in either of these matters could
require significant expenditures and could have a material adverse effect on
our financial condition, cash flows and results of operations. See Item 8.
Financial Information-Legal Proceedings.

We are vulnerable to cyclicality and fluctuations in pricing.

Our business is affected by trends in international prices and demand for
paper. Prices for containerboard and industrial paper and, to a lesser extent,
converted products such as corrugated containers and multi-wall sacks and bags
have historically been subject to cyclical fluctuations. Pricing is affected
not only by demand for packaging and paper products, which correlates with real
economic growth, but also by current inventory levels of customers. In
addition, the packaging and paper industries are highly capital intensive and
the impact of new production facilities may result in supply/demand imbalances.

We are vulnerable to increases in inflation.

Our profitability may be adversely affected by increases in inflation.
Our Peso-based labor costs and raw material costs increase as a result of
inflation in Mexico. If, as in the past four years, we are unable to pass on
the increased costs of our inputs to our customers, the real prices of our
products will not keep pace with inflation. As a result, our operating income
will continue to decline unless we have a comparable increase in our sales
volume to offset the decline in real prices of our products.

Our operations may be adversely affected by increases in the price of raw
materials.

The cost of our supply of recycled fiber and pulp is directly affected by
trends in international and domestic prices of old corrugated container, or
OCC, and old newsprint, or ONP, material and virgin pulp, which stem from
market fluctuations caused by factors beyond our control. Generally, demand
and prices for these raw materials vary directly with demand and prices for
finished paper. In addition, the cost of OCC in Mexico is affected both by
inflation and exchange rates. We might not be able to recoup any future
increases in the costs of raw materials through increases in sales prices for
our products, which would adversely affect our operating income.

We are vulnerable to competition from international paper producers with
substantial resources.

We currently face increasing competition from non-Mexican producers due in
part to significantly enhanced market access for imported products. Many of
our competitors are large international paper producers with substan-

-7-



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##### 



tial resources at their disposal. We try to maintain our prices below
U.S. prices and in the past, this price differential, combined with protective
tariffs, has discouraged imports from the United States. With the gradual
elimination of tariffs and generally low prices for paper and packaging
products in the United States over the last four years, competition from
imports has increased and may increase further. Increased competition from
imports may have a material adverse effect on our Company by driving down our
prices and decreasing our revenues.

Our operations may be restricted by covenants in our debt agreements.

We are, or in connection with our debt restructuring may become, party to
debt agreements which have negative covenants and other restrictions that will
limit our ability and the ability of our subsidiaries to:



| |  |  | incur additional debt;                                                                         
| | - |  | -----------------------------------------------------------------------------------------------
|
| |  |  | pay dividends, acquire shares of stock, make payments on subordinated debt or make investments;
|
| |  |  | make distributions from subsidiaries;                                                          
|
| |  |  | issue or sell capital stock of subsidiaries;                                                   
|
| |  |  | issue guarantees;                                                                              
|
| |  |  | sell or exchange assets;                                                                       
|
| |  |  | enter into sale and lease-back transactions;                                                   
|
| |  |  | enter into transactions with shareholders and affiliates;                                      
|
| |  |  | create liens; and                                                                              
|
| |  |  | effect mergers.                                                                                

We may be adversely affected by the imposition and enforcement of more
stringent environmental and safety requirements.

We are subject to strict environmental regulations in Mexico and in the
United States. Changes in environmental regulations, or changes in the policy
of enforcement of existing environmental regulations, could adversely affect
us. Our Mexican operations are supervised by the Mexican Ministry of the
Environment, Natural Resources and Fisheries (Secretaría del Medio Ambiente,
Recursos Naturales y Pesca)and our U.S. operations are supervised by the U.S.
Environmental Protection Agency and other federal, state and local regulatory
agencies. These agencies are responsible for the implementation of pollution
control laws and regulations and could take action against us by shutting down
plants, revoking licenses, imposing fines or obligating us to clean up waste
that we produced, if we fail to comply with their environmental regulations.
It is also possible that the relevant governmental agencies could issue
additional regulations, could seek a more stringent interpretation of existing
regulations or could exercise stricter enforcement actions that would require
us to spend additional funds on environmental matters. In addition, the
enactment of new environmental laws or regulations in Mexico or the United
States may cause us to spend additional funds, which may be material, in order
to comply with the new laws or regulations.

Our principal shareholders own 95.1% of our shares and may take actions
not in the interest of other holders of our shares or debt securities.

We are controlled by the Rincón family, which directly and indirectly owns
95.1% of our outstanding voting stock. As a result, the Rincón family has the
power to elect all of our directors and determine the outcome of any action
requiring shareholder approval, including transactions with related parties,
corporate reorganizations and the timing and payment of any future dividends.
The interests of the Rincón family as shareholders may differ from the
interests of other holders of our shares or debt securities. See Item 7.
Major Shareholders and Related Party Transactions.

-8-



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##### 



If we lose key members of our management team and are unable to attract
other qualified personnel, our business could be adversely affected.

Our success largely depends on the continuing contributions of our
management team. Our managers have been with our Company for an average of 18
years and have implemented our past strategic acquisitions. In particular, our
chief executive officer, chief operations officer, and chief financial officer
have been with our Company since the founding of GIDUSA. The loss of key
personnel or our potential inability to attract and retain other qualified
managers could adversely affect us.

Risks Relating to Mexico

Economic and political developments in Mexico may adversely affect our
business.

We are a Mexican company with a substantial part of our operations and
assets in Mexico. As a result, our business may be affected by the general
condition of the Mexican economy, the devaluation of the Peso as compared to
the U.S. Dollar, Mexican inflation, interest rates and political developments
in Mexico.

The Mexican government has exercised, and continues to exercise,
significant influence over the Mexican economy. Mexican governmental actions
concerning the economy and state-owned enterprises could have a significant
impact on Mexican private sector entities, in general, and on us, in
particular, and on market conditions, prices, and returns on Mexican
securities, including our securities.

Mexico has experienced adverse economic conditions.

Mexicos gross domestic product, or GDP decreased by 0.3% in 2001. In
2002, GDP increased by an estimated 0.9%. During 2002, GDP growth fell short
of Mexican government estimates due primarily to a decrease in exports to the
U.S. resulting from the recession in the U.S. economy and a 13.8% depreciation
of the Peso against the U.S. Dollar. Inflation in 2000, 2001 and 2002 was
8.9%, 4.4% and 5.7%, respectively.

If the Mexican recession continues or if inflation and interest rates
increase significantly, our business, financial condition and results of
operations may be adversely affected for the following reasons:



| |  |  | our customers may reduce their consumption of our products; and                                          
| | - |  | ---------------------------------------------------------------------------------------------------------
|
| |  |  | our costs may increase because approximately 85% of our cost of
production in Mexico is payable in Pesos.

Our profitability may be adversely affected by currency fluctuations.

The Peso has devalued substantially against the U.S. Dollar in the past
and may devalue significantly in the future. The value of the Peso, based on
the exchange rate, which is calculated and published by the Mexican Central
Bank (Banco de México), declined by 61% against the U.S. Dollar during 1994, by
an additional 54% during 1995 and continued to weaken between 1995 and 1998.
Despite stabilization of the Peso/U.S. Dollar exchange rate between 1999 and
2001, the Peso devalued a further 13.8% during 2002. Any devaluation of the
Peso negatively affects our results of operations by increasing our U.S.
Dollar-based costs, including our cost of borrowing, since the Peso cost of
interest payments on our U.S. Dollar indebtedness would increase.

We may not be able to make payments in U.S. Dollars.

The Mexican government does not currently restrict the ability of Mexican
or foreign persons or entities to convert Pesos into U.S. Dollars or other
currencies, and vice versa. However, in the past, the Mexican economy has
experienced balance of payment deficits and shortages in foreign exchange
reserves, and the Mexican government has responded by restricting the ability
of Mexican or foreign persons or entities to convert Pesos to foreign
currencies generally, and U.S. Dollars in particular. The Mexican government
may institute a restrictive currency exchange control policy in the future.
Any restrictive currency exchange control policy could prevent or restrict our
access to U.S. Dollars to meet our U.S. Dollar obligations, and could also have
a material adverse effect on our

-9-



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##### 



business, financial condition and results of operations. We cannot
predict the impact of any such measures on the Mexican economy.

The price of our shares and ADSs may be affected by economic developments
in other emerging market countries.

The market value of securities of Mexican companies is, to varying
degrees, affected by economic and market conditions in other emerging market
countries. Investors reactions to developments in any of these other
countries may have an adverse effect on the market value of securities of
Mexican issuers. In the past, economic crises in Asia, Russia, Brazil and
other emerging markets adversely affected the Mexican economy, and thus, future
economic developments in Mexico and other emerging markets, such as Argentina,
as well as low growth in the United States, could adversely affect the Mexican
economy in future periods.

In 1998, prices of both Mexican debt securities and Mexican equity
securities dropped substantially as a result of a sharp drop in Asian
securities markets and the economic crises in Russia and Brazil. In 2001,
Argentina defaulted on its public debt, and prices of Argentine debt securities
and the level of the Merval Stock Exchange Index declined significantly. As a
result of these economic crises there were political demonstrations and civil
unrest in Argentina. In 2002, the devaluation of the Argentine peso created
pressures on the price system that prompted inflation to rebound, after several
years of price stability and price deflation, giving rise to hyperinflationary
episodes over the course of the year.

Although the events in Argentina have not had a material effect on the
Mexican economy, to the extent that the Argentine government is unsuccessful in
preventing future economic decline, this crisis may adversely affect the price
of our securities. The market value of our shares and ADSs could be adversely
affected by events elsewhere, especially in emerging market countries.

Because our accounting standards are different from those in other
countries, investors may find it difficult to accurately assess our business
and financial operations.

We prepare our financial statements in accordance with Mexican GAAP.
These principles differ in significant respects from U.S. GAAP as further
discussed in Note 21 to our audited consolidated financial statements. In
particular, all Mexican companies must incorporate the effects of inflation
directly in their accounting records and published financial statements. The
effects of inflation accounting under Mexican GAAP are not eliminated in the
reconciliation to U.S. GAAP. For this and other reasons, the presentation of
our financial statements and reported earnings may differ from that of
companies in other countries. In addition, as a foreign registrant, the
preparation of U.S. GAAP information is only performed on an annual basis.

Judgments of Mexican courts enforcing our obligation under our debt
securities would be payable only in Pesos.

If proceedings were brought in Mexico seeking to enforce our obligations
under our debt securities, we would not be required to discharge our
obligations in a currency other than Pesos. Under the Mexican Monetary Law
(Ley Monetaria de los Estados Unidos Mexicanos), an obligation to pay amounts
denominated in a currency other than Mexican currency, which is payable in
Mexico, may be satisfied in Mexican currency at the rate of exchange in effect
on the date of payment. This rate is currently determined daily by the Mexican
Central Bank and published in the Mexican Official Gazette of the Federation
(Diario Oficial de la Federación).







-10-



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##### 









Item 8. Financial Information.

See Item 18. Financial Statements.





---



##### 



Legal Proceedings

We are party to various legal proceedings in the ordinary course of our
business. We do not expect any of these proceedings, if determined adversely
to us, individually or in the aggregate, to have a material adverse effect on
the results of our operations or on our financial condition.

In addition, we are party to the following recent and significant
lawsuits:



| |                                                                                                   
| | --------------------------------------------------------------------------------------------------
| | HG Estate, LLC v. Corporación Durango, Case No. 02 Civ. 10059 (CSH),
Southern District of New York

On December 19, 2002, HG Estate, LLC filed a complaint against our Company
seeking to enforce payment on certain promissory notes issued by our Company on
May 28, 2002. Such promissory notes replaced certain promissory notes issued
by our former subsidiary, Durango Paper Company, (and guaranteed by our
Company) in connection with the Stock Purchase Agreement dated December 9,
1999, by and among Durango Paper Company, W.O. Corporation, HG Estate, LLC and
St. Marys Railroad Corporation. As part of the complaint, HG Estate, LLC
asserted a claim for indemnification in respect of certain lease payments under
an indemnification agreement entered into by our Company and HG Estate, LLC in
connection with the Stock Purchase Agreement. The complaint seeks damages of
approximately US$53 million. We have submitted a statement of claims in
arbitration against HG Estate, LLC challenging the validity of the promissory
notes. In January 2003, we filed a motion to stay the litigation pending
resolution of the arbitration. This motion is pending before the court.



| |                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Compass Income Master Fund, Inc. et al. v. Corporación Durango, S.A. de
C.V., Index No.: 600621/03, Supreme Court of the State of New York, County
of New York.

On February 25, 2003, Compass Income Master Fund, Inc., Compass Renta Fija
America Latina F.I.I. and Interbank Overseas, Ltd. filed a complaint against
our Company seeking to enforce payment on certain promissory notes issued under
the Companys Euro Commercial Paper Program, in an aggregate principal amount
of US$3.5 million plus statutory interest at a rate of 9% from February 13, 2003. If the motion to stay
is denied, our Company will vigorously defend these claims.

Dividend Policy

We do not intend to pay dividends on our capital stock, including the
Series A Shares. We have not paid any dividends in the past five years. The
declaration, amount and payment of dividends are determined by a majority vote
of the shareholders, including holders of the Series A Shares, at our annual
ordinary shareholders meeting, generally on the recommendation of the board of
directors, and will depend on our results of operations, financial condition,
cash requirements, the ability of our subsidiaries to pay cash dividends to us,
future prospects and other factors deemed relevant by our shareholders. Our
ability to declare and pay dividends is presently restricted under the terms of
our 2006, 2008 and 2009 notes.

Significant Changes

Except as disclosed elsewhere in this annual report, no significant change
has occurred since the date of the audited consolidated financial statements
included in the annual report.



---



##### 



PART III

Item 18. Financial Statements.




See
pages F-1 to F-177, incorporated herein by reference.








---



##### 



SIGNATURES

The registrant hereby certifies that it meets all of the requirements for
filing on Form 20-F/A and that it has duly caused and authorized the undersigned
to sign this annual report on its behalf.

| |                                   |                          | 
| | --------------------------------- | ------------------------ | 
| | CORPORACIÓN DURANGO, S.A. DE C.V.
| |                                   |                          | 
| | By:                               | /s/ Gabriel Villegas     | 
| |                                   |                          | 
| |                                   | Name:   Gabriel Villegas | 
| |                                   | Title:     Secretary     | 

Date: July 15, 2003





---



##### 



Certification of the Principal Executive Officer
Pursuant to 15 U.S.C. 78m(a) or 78o(d)
(Section 302 of the Sarbanes-Oxley Act of 2002)

I, Miguel Rincón, the Chairman and Chief Executive Officer of Corporación
Durango, S.A. de C.V. (the Company), certify that:



| | (1) |  | I have reviewed this annual report
on Form 20-F/A of the
Company;                                                                                                                                                                                                                                                       
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (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 Company as of, and for, the periods
presented in this annual report;                      
|
| | (4) |  | The Company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 Company
and we have:                                                                                                     
|

| | (a) |  | designed such disclosure controls and procedures
to ensure that material information relating to the Company,
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 Company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 Companys other certifying officers and I have disclosed,
based on our most recent evaluation, to the Companys auditors and
the audit committee of Company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 Companys ability to record, process, summarize and report
financial data and have identified for the Company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 Companys internal controls; and                                                                                                                                     
|

| | (6) |  | The Company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.
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

/s/ Miguel Rincón
Miguel Rincón
Corporación Durango, S.A. de C.V.
Chairman and Chief Executive Officer
July 15, 2003



---



##### 



Certification of the Principal Financial Officer
Pursuant to 15 U.S.C. 78m(a) or 78o(d)
(Section 302 of the Sarbanes-Oxley Act of 2002)

I, Mayela Rincón de Velasco, the Vice President and Chief Financial Officer of
Corporación Durango, S.A. de C.V. (the Company), certify that:



| | (1) |  | I have reviewed this annual report
on Form 20-F/A of the
Company;                                                                                                                                                                                                                                                       
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (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 Company as of, and for, the periods
presented in this annual report;                      
|
| | (4) |  | The Company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 Company
and we have:                                                                                                     
|

| | (a) |  | designed such disclosure controls and procedures
to ensure that material information relating to the Company,
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 Company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 Companys other certifying officers and I have disclosed,
based on our most recent evaluation, to the Companys auditors and
the audit committee of Company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 Companys ability to record, process, summarize and report
financial data and have identified for the Company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 Companys internal controls; and                                                                                                                                     
|

| | (6) |  | The Company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.
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

/s/ Mayela Rincón de Velasco
Mayela Rincón de Velasco
Corporación Durango, S.A. de C.V.
Vice President and Chief Financial Officer
July 15, 2003



---



##### 



Certification of the Principal Executive Officer
Pursuant to 18 U.S.C. 1350
(Section 906 of the Sarbanes-Oxley Act of 2002)

I, Miguel Rincón, the Chairman and Chief Executive Officer of Corporación
Durango, S.A. de C.V. (the Company) certify that to the best of my knowledge,
based upon a review of the annual report on Form 20-F/A for the period ended
December 31, 2002 of the Company (the Report):



| | (1) |  | The Report fully complies with the requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934, as amended;
and                   
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (2) |  | The information contained in the Report fairly presents, in
all material respects, the financial condition and results of
operations of the Company.

/s/ Miguel Rincón
Miguel Rincón
Corporación Durango, S.A. de C.V.
Chairman and Chief Executive Officer
July 15, 2003



---



##### 



Certification of the Principal Financial Officer
Pursuant to 18 U.S.C. 1350
(Section 906 of the Sarbanes-Oxley Act of 2002)

I, Mayela Rincón de Velasco, the Vice President and Chief Financial Officer of
Corporación Durango, S.A. de C.V. (the Company) certify that to the best of
my knowledge, based upon a review of the annual report on
Form 20-F/A for the
period ended December 31, 2002 of the Company (the Report):



| | (1) |  | The Report fully complies with the requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934, as amended;
and                   
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (2) |  | The information contained in the Report fairly presents, in
all material respects, the financial condition and results of
operations of the Company.

/s/ Mayela Rincón de Velasco
Mayela Rincón de Velasco
Corporación Durango, S.A. de C.V.
Vice President and Chief Financial Officer
July 15, 2003



---



##### 



INDEX TO FINANCIAL STATEMENTS
CORPORACIÓN DURANGO, S.A. DE C.V. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2001 and 2002 and for the years ended December 31, 2000,
2001 and 2002




|                                                                                                                |  |            
|--------------------------------------------------------------------------------------------------------------- |  | -----------
|                                                                                                                |  | Page       
|                                                                                                                |  |            
|Report of independent accountants                                                                               |  | F-2 to F-4 
|Consolidated balance sheets as of December 31, 2001 and 2002                                                    |  | F-5        
|Consolidated statements of income for the years ended December 31, 2000,
2001 and 2002                          |  | F-6        
|Consolidated statements of changes in shareholders equity for the years ended
December 31, 2000, 2001 and 2002 |  | F-7        
|Consolidated statements of changes in financial position for the years ended
December 31, 2000, 2001 and 2002   |  | F-8        
|Notes to consolidated financial statements                                                                      |  | F-9 to F-88




COMPAÑIA PAPELERA DE ATENQUIQUE, S.A. DE C.V. AND SUBSIDIARY

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2001 and 2002 and for the years ended December 31, 2000,
2001 and 2002




|                                                                                                                |  |              
|--------------------------------------------------------------------------------------------------------------- |  | -------------
|Report of independent accountants                                                                               |  | F-89 to F-90 
|Consolidated balance sheets as of December 31, 2001 and 2002                                                    |  | F-91         
|Consolidated statements of income for the years ended December 31, 2000,
2001 and 2002                          |  | F-92         
|Consolidated statements of changes in shareholders equity for the years ended
December 31, 2000, 2001 and 2002 |  | F-93         
|Consolidated statements of changes in financial position for the years ended
December 31, 2000, 2001 and 2002   |  | F-94         
|Notes to consolidated financial statements                                                                      |  | F-95 to F-129




INDUSTRIAS CENTAURO, S.A. DE C.V.

INDEX TO FINANCIAL STATEMENTS

As of December 31, 2001 and 2002 and
for the years ended December 31, 2000, 2001 and 2002




|                                                                                                  |  |               
|------------------------------------------------------------------------------------------------- |  | --------------
|Report of independent accountants                                                                 |  | F-131 to F-132
|Balance sheets as of December 31, 2001 and 2002                                                   |  | F-133         
|Statement of income for the years ended December 31, 2000,
2001 and 2002                          |  | F-134         
|Statement of changes in shareholders equity for the years ended
December 31, 2000, 2001 and 2002 |  | F-135         
|Statement of changes in financial position for the years ended
December 31, 2000, 2001 and 2002   |  | F-136         
|Notes to financial statements                                                                     |  | F-137 to F-177




F-1



---



##### 



REPORT OF INDEPENDENT ACCOUNTANTS

Mexico, D. F., April 25, 2003

To the Board of Directors and Shareholders of
Corporación Durango, S.A. de C.V.:

We have audited the accompanying consolidated balance sheets of Corporación
Durango, S.A. de C.V. and subsidiaries (formerly Grupo Industrial Durango, S.
A. de C. V. and subsidiaries), as of December 31, 2001 and 2002 and the related
consolidated statements of income, of changes in shareholders equity and of
changes in financial position for each of the three years in the period ended
December 31, 2002, which, as described in Note 2, have been prepared on the
basis of accounting principles generally accepted in Mexico. These financial
statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards in Mexico and 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, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Corporación Durango, S. A. de C. V. and subsidiaries (formerly Grupo Industrial
Durango, S. A. de C. V. and subsidiaries), as of December 31, 2001 and 2002 and
the consolidated results of their operations, the changes in their
shareholders equity and the changes in their financial position for each of
the three years in the period ended December 31, 2002, in conformity with
accounting principles generally accepted in Mexico.

F-2



---



##### 





|1. |  | The accompanying financial statements have been prepared considering the
Company as a going concern, which assumes that assets will be realized and
liabilities will be settled with in the normal course of business
operations. As mentioned in Note 10, the Company has significant bank
loans and bondholder debt, which requires, aside from compliance with a
number of financial ratios, compliance with prompt payment upon maturity
of principal and interest. As a result of both internal and external
market and economic factors, in the last quarter of fiscal year 2002, the
Company experienced a significant reduction in cash flow, which resulted
in the inability to pay principal and interest in the case of certain
obligations that matured in November and December 2002. As a result of
these factors, the Company reclassified several bank loans as short-term
debt as the Company was in default with its bank creditors and
bondholders. The Companys current financial situation raises substantial
doubt about its ability to continue as a going concern.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | As a consequence, the Company shows negative working capital at December 31,
2002, amounting to $5,932,855 thousand, and a net loss of $3,545,923
thousand in the period ended December 31, 2002. Due to the above-mentioned
financial and operating deterioration, the Companys ability to continue
operating as a going concern will depend on managements ability to generate
profits, obtain waivers from its creditors and/or renegotiate the bank and
bond debts or obtain new financing. The accompanying financial statements
include no adjustment pertaining to the recoverability and classification of
the amounts recorded as assets and the amounts and classification of the
liabilities that may become necessary in the event that the Company is
unable to continue in operation as a going concern.                                                                                                                                                                                                                                                                   
|  
|2. |  | As mentioned in Note 1 iii, the Companys Management sold the shares of
Durango Paper Co. to Operadora Omega, S.A de C.V. (related party) in
October 2002, with the effects mentioned in that Note.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|  
|3. |  | As mentioned in Note 1 to the financial statements, at the General
Extraordinary Shareholders Meeting held on October 8, 2001, the
shareholders approved the merger of Corporación Durango, S.A. de C.V.
(CODUSA) into its subsidiary Grupo Industrial Durango, S.A. de C.V.
(GIDUSA). The merger was effective for financial purposes on October 8,
2001. In connection with the merger, the Company changed its name to
Corporación Durango, S.A de C.V. on February 7, 2002, when its bylaws were
amended. The merger was effected through the exchange of all of the
outstanding shares in CODUSA for shares in GIDUSA, whose name was changed
on the same date to Corporación Durango, S.A. de C.V.                                                                                                                                                                                                                                                                                                                                                                              

F-3



---



##### 



Accounting principles generally accepted in Mexico vary in certain significant
respects from accounting principles generally accepted in the United States of
America. The application of accounting principles generally accepted in the
United Sates of America would have affected the determination of consolidated
net income for each of the three years in the period ended December 31, 2002
and the determination of consolidated shareholders equity as of December 31,
2001 and 2002, to the extent summarized in Note 21 to the consolidated
financial statement.

PricewaterhouseCoopers





Rafael Maya Urosa
Public Accountant

F-4



---



##### 



CORPORACIÓN DURANGO, S.A. DE C.V. AND SUBSIDIARIES
(formerly Grupo Industrial Durango, S. A. de C. V. and subsidiaries)

CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2001 AND 2002
(Notes 1, 2, 3 and 4)
(Thousands of constant Mexican Pesos restated as of December 31, 2002)

|                                                                          |  |              |            |      |  |   |            |  
|------------------------------------------------------------------------- |  | ------------ | ---------- | ---- |  | - | ---------- | -
|                                                                          |  | December 31,
|                                                                          |  |             
|                                                                          |  | 2001         |            | 2002
|                                                                          |  |              |            |     
|ASSETS                                                                    |  |              |            |      |  |   |            |  
|CURRENT ASSETS:                                                           |  |              |            |      |  |   |            |  
|Cash and temporary investments                                            |  | $            | 508,894    |      |  | $ | 255,711    |  
|Accounts receivable, net (Note 6)                                         |  |              | 2,230,610  |      |  |   | 1,937,042  |  
|Taxes recoverable                                                         |  |              | 29,688     |      |  |   | 38,797     |  
|Inventories, net (Note 7)                                                 |  |              | 1,459,597  |      |  |   | 1,277,433  |  
|Prepaids                                                                  |  |              | 26,850     |      |  |   | 28,551     |  
|                                                                          |  |              |            |      |  |   |            |  
|Total current assets                                                      |  |              | 4,255,639  |      |  |   | 3,537,534  |  
|PROPERTY, PLANT AND EQUIPMENT, net (Note 8)                               |  |              | 16,488,984 |      |  |   | 13,063,711 |  
|OTHER ASSETS (Note 9)                                                     |  |              | 532,908    |      |  |   | 711,429    |  
|                                                                          |  |              |            |      |  |   |            |  
|Total assets                                                              |  | $            | 21,277,531 |      |  | $ | 17,312,674 |  
|                                                                          |  |              |            |      |  |   |            |  
|LIABILITIES                                                               |  |              |            |      |  |   |            |  
|CURRENT LIABILITIES:                                                      |  |              |            |      |  |   |            |  
|Bank loans (Note 10)                                                      |  | $            | 317,775    |      |  | $ | 7,292,875  |  
|Interest payable                                                          |  |              | 302,083    |      |  |   | 453,057    |  
|Current portion of long-term debt (Note 10)                               |  |              | 299,621    |      |  |   | 283,471    |  
|Trade accounts payable                                                    |  |              | 1,218,333  |      |  |   | 899,471    |  
|Notes payable                                                             |  |              | 36,739     |      |  |   | 49,624     |  
|Accrued liabilities and other payables                                    |  |              | 468,876    |      |  |   | 489,551    |  
|Employee profit sharing                                                   |  |              | 9,020      |      |  |   | 2,340      |  
|                                                                          |  |              |            |      |  |   |            |  
|Total current liabilities                                                 |  |              | 2,652,447  |      |  |   | 9,470,389  |  
|                                                                          |  |              |            |      |  |   |            |  
|LONG TERM LIABILITIES:                                                    |  |              |            |      |  |   |            |  
|Long-term debt (Note 10)                                                  |  |              | 7,243,673  |      |  |   | 1,083,372  |  
|Notes payable                                                             |  |              | 86,363     |      |  |   | 136,932    |  
|Derivative instruments (Note 11b)                                         |  |              | 72,157     |      |  |   |           |  
|Deferred tax (Note 15)                                                    |  |              | 3,090,368  |      |  |   | 2,009,274  |  
|Other liabilities                                                         |  |              | 16,199     |      |  |   |           |  
|Pension plans and seniority premiums (Note 12)                            |  |              | 239,654    |      |  |   | 182,409    |  
|                                                                          |  |              |            |      |  |   |            |  
|Total long-term liabilities                                               |  |              | 10,748,414 |      |  |   | 3,411,987  |  
|                                                                          |  |              |            |      |  |   |            |  
|Total liabilities                                                         |  |              | 13,400,861 |      |  |   | 12,882,376 |  
|                                                                          |  |              |            |      |  |   |            |  
|Contingencies and commitments (Note 13)                                   |  |              |           |      |  |   |           |  
|                                                                          |  |              |            |      |  |   |            |  
|SHAREHOLDERS EQUITY                                                      |  |              |            |      |  |   |            |  
|CONTRIBUTED CAPITAL                                                       |  |              |            |      |  |   |            |  
|Capital stock (Note 14)                                                   |  |              |            |      |  |   |            |  
|Nominal                                                                   |  |              | 1,412,214  |      |  |   | 1,412,214  |  
|Restatement                                                               |  |              | 3,260,252  |      |  |   | 3,260,252  |  
|                                                                          |  |              |            |      |  |   |            |  
|                                                                          |  |              | 4,672,466  |      |  |   | 4,672,466  |  
|                                                                          |  |              |            |      |  |   |            |  
|Additional paid-in capital                                                |  |              | 1,271,766  |      |  |   | 1,222,835  |  
|                                                                          |  |              |            |      |  |   |            |  
|Retained earnings (Note 14)                                               |  |              | 9,494,771  |      |  |   | 5,948,848  |  
|                                                                          |  |              |            |      |  |   |            |  
|Deficit from restatement                                                  |  |              | (4,485,883 | )    |  |   | (4,384,180 | )
|                                                                          |  |              |            |      |  |   |            |  
|Adjustment for additional pension liability related
to seniority premiums |  |              | (140,858   | )    |  |   | (140,858   | )
|                                                                          |  |              |            |      |  |   |            |  
|Deferred income tax (Note 3n)                                             |  |              | (2,963,255 | )    |  |   | (2,963,255 | )
|                                                                          |  |              |            |      |  |   |            |  
|Cumulative translation adjustment of foreign subsidiaries                 |  |              | (14,191    | )    |  |   | 6,024      |  
|                                                                          |  |              |            |      |  |   |            |  
|Total majority interest                                                   |  |              | 7,834,816  |      |  |   | 4,361,880  |  
|Total minority interest                                                   |  |              | 41,854     |      |  |   | 68,418     |  
|                                                                          |  |              |            |      |  |   |            |  
|Total shareholders equity                                                |  |              | 7,876,670  |      |  |   | 4,430,298  |  
|                                                                          |  |              |            |      |  |   |            |  
|Total liabilities and shareholders equity                                |  | $            | 21,277,531 |      |  | $ | 17,312,674 |  
|                                                                          |  |              |            |      |  |   |            |  

The accompanying notes are an integral part of these consolidated financial statements.

F-5



---



##### 



CORPORACIÓN DURANGO, S.A. DE C.V. AND SUBSIDIARIES
(formerly Grupo Industrial Durango, S. A. de C. V. and subsidiaries)

CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2000, 2001 AND 2002
(Notes 1, 2, 3 and 4)

(Thousands of constant Mexican Pesos restated as of December 31, 2002)

|                                                                                                                                                                      |  |      |            |      |  |      |            |   |  |   |            |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ---------- | ---- |  | ---- | ---------- | - |  | - | ---------- | -
|                                                                                                                                                                      |  | 2000 |            | 2001 |  | 2002
|                                                                                                                                                                      |  |      |            |      |  |     
|NET SALES                                                                                                                                                             |  | $    | 12,921,871 |      |  | $    | 10,532,395 |   |  | $ | 8,498,205  |  
|COSTS OF SALES                                                                                                                                                        |  |      | 10,652,130 |      |  |      | 8,770,658  |   |  |   | 7,242,966  |  
|                                                                                                                                                                      |  |      |            |      |  |      |            |   |  |   |            |  
|Gross profit                                                                                                                                                          |  |      | 2,269,741  |      |  |      | 1,761,737  |   |  |   | 1,255,239  |  
|Selling, general and administrative expenses                                                                                                                          |  |      | 803,267    |      |  |      | 728,132    |   |  |   | 611,262    |  
|                                                                                                                                                                      |  |      |            |      |  |      |            |   |  |   |            |  
|OPERATING INCOME                                                                                                                                                      |  |      | 1,466,474  |      |  |      | 1,033,605  |   |  |   | 643,977    |  
|                                                                                                                                                                      |  |      |            |      |  |      |            |   |  |   |            |  
|Other expense, net                                                                                                                                                    |  |      | (16,386    | )    |  |      | (40,309    | ) |  |   | (46,506    | )
|                                                                                                                                                                      |  |      |            |      |  |      |            |   |  |   |            |  
|FINANCING COST (INCOME):                                                                                                                                              |  |      |            |      |  |      |            |   |  |   |            |  
|Interest expense                                                                                                                                                      |  |      | 1,091,732  |      |  |      | 1,077,654  |   |  |   | 1,088,703  |  
|Interest income                                                                                                                                                       |  |      | (123,629   | )    |  |      | (66,897    | ) |  |   | (39,165    | )
|Foreign exchange loss (gain), net                                                                                                                                     |  |      | 101,628    |      |  |      | (313,372   | ) |  |   | 1,049,835  |  
|Gain from monetary position                                                                                                                                           |  |      | (600,596   | )    |  |      | (310,005   | ) |  |   | (415,172   | )
|                                                                                                                                                                      |  |      |            |      |  |      |            |   |  |   |            |  
|                                                                                                                                                                      |  |      | 469,135    |      |  |      | 387,380    |   |  |   | 1,684,201  |  
|                                                                                                                                                                      |  |      |            |      |  |      |            |   |  |   |            |  
|Amortization of negative goodwill (Note 4)                                                                                                                            |  |      | 1,513,928  |      |  |      | 495,297    |   |  |   |           |  
|                                                                                                                                                                      |  |      |            |      |  |      |            |   |  |   |            |  
|Special items (Note 17)                                                                                                                                               |  |      |           |      |  |      |           |   |  |   | (1,451,431 | )
|                                                                                                                                                                      |  |      |            |      |  |      |            |   |  |   |            |  
|Income (loss) before provisions for income and asset taxes,
Employee Profit sharing, deferred income tax, extraordinary
items, impairment loss and minority interests |  |      | 2,494,881  |      |  |      | 1,101,213  |   |  |   | (2,538,161 | )
|                                                                                                                                                                      |  |      |            |      |  |      |            |   |  |   |            |  
|Current income and asset taxes (Note 15)                                                                                                                              |  |      | (289,875   | )    |  |      | (235,819   | ) |  |   | (114,382   | )
|Employee profit sharing                                                                                                                                               |  |      | (7,596     | )    |  |      | (4,720     | ) |  |   | (1,041     | )
|Deferred income tax (loss) benefit (Note 15)                                                                                                                          |  |      | (387,519   | )    |  |      | 267,291    |   |  |   | 667,294    |  
|                                                                                                                                                                      |  |      |            |      |  |      |            |   |  |   |            |  
|                                                                                                                                                                      |  |      | (684,990   | )    |  |      | 26,752     |   |  |   | 551,871    |  
|Income (loss) before extraordinary items, impairment
loss and minority interest                                                                                       |  |      | 1,809,891  |      |  |      | 1,127,965  |   |  |   | (1,986,290 | )
|Impairment loss (Note 8)                                                                                                                                              |  |      |           |      |  |      |           |   |  |   | (1,556,511 | )
|Extraordinary items (Note 18)                                                                                                                                         |  |      |           |      |  |      | (298,638   | ) |  |   |           |  
|                                                                                                                                                                      |  |      |            |      |  |      |            |   |  |   |            |  
|Net income (loss) before minority interest                                                                                                                            |  |      | 1,809,891  |      |  |      | 829,327    |   |  |   | (3,542,801 | )
|Minority interest                                                                                                                                                     |  |      | 175,318    |      |  |      | 4,029      |   |  |   | 3,122      |  
|                                                                                                                                                                      |  |      |            |      |  |      |            |   |  |   |            |  
|Net income (loss)                                                                                                                                                     |  | $    | 1,634,573  |      |  | $    | 825,298    |   |  | $ | (3,545,923 | )
|                                                                                                                                                                      |  |      |            |      |  |      |            |   |  |   |            |  
|Basic and diluted income (loss) per share                                                                                                                             |  | $    | 17.38      |      |  | $    | 8.77       |   |  | $ | (38.20     | )
|                                                                                                                                                                      |  |      |            |      |  |      |            |   |  |   |            |  
|Weighted average shares outstanding (000s)                                                                                                                           |  |      | 94,072     |      |  |      | 94,072     |   |  |   | 92,828     |  
|                                                                                                                                                                      |  |      |            |      |  |      |            |   |  |   |            |  

The accompanying notes are an integral part of these consolidated financial statements.

F-6



---



##### 



CORPORACIÓN DURANGO, S.A. DE C.V. AND SUBSIDIARIES
(formerly Grupo Industrial Durango, S. A. de C. V. and subsidiaries)

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2000, 2001 AND 2002
(Notes 1, 2, 3 and 4)

(Thousands of constant Mexican Pesos restated as of December 31, 2002)



|                                              |  |               |           |             |  |         |            |         |  |         |           |       |  |                              |          |         |  |              |            |   |  |   |             |   |  |  |             |  
|--------------------------------------------- |  | ------------- | --------- | ----------- |  | ------- | ---------- | ------- |  | ------- | --------- | ----- |  | ---------------------------- | -------- | ------- |  | ------------ | ---------- | - |  | - | ----------- | - |  |  | ----------- | -
|                                              |  |               |           |             |  |         |            |         |  |         |           |       |  | Retained earnings (Note 15): |          |         |  |             
|                                              |  | Capital stock |           |             |  |         |            |         |  |         |           |      
|                                              |  |               |           | Additional  |  |         |            |         |  |         |           |       |  |                              |          |         |  |              |            |  
|                                              |  |               |           |             |  |         |            |         |  | Paid in |           | Legal |  | Prior                        |          | Current |  | Deficit from
|                                              |  | Nominal       |           | Restatement |  | capital |            | reserve |  | year    |           | year  |  | restatement                 
|                                              |  |               |           |             |  |         |            |         |  |         |           |       |  |                             
|Combined balances as of January 1, 2000       |  | $             | 527,040   |             |  | $       | 2,048,881  |         |  | $       | 803,093   |       |  | $                            | 113,972  |         |  | $            | 5,183,455  |   |  | $ | 1,073,662   |   |  |  | ($2,113,279 | )
|Paid in capital                               |  |               | 1,844,847 |             |  |         | 312,504    |         |  |         |           |       |  |                              |          |         |  |              |            |   |  |   |             |   |  |  |             |  
|Appropriation of 1999 net income              |  |               |           |             |  |         |            |         |  |         |           |       |  |                              |          |         |  |              | 372,925    |   |  |   | (372,925    | ) |  |  |             |  
|Loss on operations on own shares              |  |               |           |             |  |         |            |         |  |         | (49,087   | )     |  |                              |          |         |  |              |            |   |  |   |             |   |  |  |             |  
|Comprehensive income                          |  |               |           |             |  |         |            |         |  |         |           |       |  |                              |          |         |  |              |            |   |  |   | 1,634,573   |   |  |  | (524,999    | )
|Cancellation of GIDUSA shareholders equity   |  |               | (470,071  | )           |  |         | (1,941,498 | )       |  |         | (803,092  | )     |  |                              | (103,896 | )       |  |              | (2,383,420 | ) |  |   | (700,737    | ) |  |  | 2,668,444   |  
|                                              |  |               |           |             |  |         |            |         |  |         |           |       |  |                              |          |         |  |              |            |   |  |   |             |   |  |  |             |  
|Consolidated balances as of December 31, 2000 |  |               | 1,901,816 |             |  |         | 419,887    |         |  |         | (49,086   | )     |  |                              | 10,076   |         |  |              | 3,172,960  |   |  |   | 1,634,573   |   |  |  | 30,166      |  
|Appropriation of 2000 net income              |  |               |           |             |  |         |            |         |  |         |           |       |  |                              |          |         |  |              | 420,791    |   |  |   | (420,791    | ) |  |  |             |  
|Effects of merger                             |  |               | (489,602  | )           |  |         | 2,840,365  |         |  |         | 1,320,852 |       |  |                              | 179,249  |         |  |              | 4,886,397  |   |  |   | (1,213,782  | ) |  |  | (3,545,359  | )
|Comprehensive loss                            |  |               |           |             |  |         |            |         |  |         |           |       |  |                              |          |         |  |              |            |   |  |   | 825,298     |   |  |  | (970,690    | )
|                                              |  |               |           |             |  |         |            |         |  |         |           |       |  |                              |          |         |  |              |            |   |  |   |             |   |  |  |             |  
|Consolidated balances as of December 31, 2001 |  |               | 1,412,214 |             |  |         | 3,260,252  |         |  |         | 1,271,766 |       |  |                              | 189,325  |         |  |              | 8,480,148  |   |  |   | 825,298     |   |  |  | (4,485,883  | )
|Appropriation of 2001 net income              |  |               |           |             |  |         |            |         |  |         |           |       |  |                              | 40,424   |         |  |              | 784,874    |   |  |   | (825,298    | ) |  |  |             |  
|Swaps cancellation                            |  |               |           |             |  |         |            |         |  |         | (48,931   | )     |  |                              |          |         |  |              |            |   |  |   |             |   |  |  |             |  
|Comprehensive loss                            |  |               |           |             |  |         |            |         |  |         |           |       |  |                              |          |         |  |              |            |   |  |   | (3,545,923  | ) |  |  | 101,703     |  
|                                              |  |               |           |             |  |         |            |         |  |         |           |       |  |                              |          |         |  |              |            |   |  |   |             |   |  |  |             |  
|Consolidated balances as of December 31, 2002 |  | $             | 1,412,214 |             |  | $       | 3,260,252  |         |  | $       | 1,222,835 |       |  | $                            | 229,749  |         |  | $            | 9,265,022  |   |  |   | ($3,545,923 | ) |  |  | ($4,384,180 | )
|                                              |  |               |           |             |  |         |            |         |  |         |           |       |  |                              |          |         |  |              |            |   |  |   |             |   |  |  |             |  

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                                              |  |                   |           |            |  |              |             |             |  |          |         |               |  |   |            |       |  |   |            |   |  |   |            |  
|--------------------------------------------- |  | ----------------- | --------- | ---------- |  | ------------ | ----------- | ----------- |  | -------- | ------- | ------------- |  | - | ---------- | ----- |  | - | ---------- | - |  | - | ---------- | -
|                                              |  | Adjustment        |           |            |  |              |             | Cumulative  |  |          |         |               |  |   |            |       |  |   |            |  
|                                              |  | for additional    |           |            |  |              |             | translation |  |          |         |               |  |   |            |       |  |   |            |  
|                                              |  | pension liability |           |            |  |              |             | adjustment  |  | Total    |         |               |  |   |            | Total
|                                              |  | related to senio- |           | Deferred   |  | of foreign   |             | Majority    |  | Minority |         | shareholders'
|                                              |  | irity premiums    |           | income tax |  | subsidiaries |             | interest    |  | interest |         | equity       
|                                              |  |                   |           |            |  |              |             |             |  |          |         |              
|Combined balances as of January 1, 2000       |  | $                 |          |            |  | $            |            |             |  | $        | 3,118   |               |  | $ | 7,639,942  |       |  | $ | 2,614,927  |   |  | $ | 10,254,869 |  
|Paid in capital                               |  |                   |           |            |  |              |             |             |  |          |         |               |  |   | 2,157,351  |       |  |   |            |   |  |   | 2,157,351  |  
|Appropriation of 1999 net income              |  |                   |           |            |  |              |             |             |  |          |         |               |  |   |           |       |  |   |            |   |  |   |           |  
|Loss on operations on own shares              |  |                   |           |            |  |              |             |             |  |          |         |               |  |   | (49,087    | )     |  |   | (34,095    | ) |  |   | (83,182    | )
|Comprehensive income                          |  |                   | (12,658   | )          |  |              | (492,463    | )           |  |          | 11,179  |               |  |   | 615,632    |       |  |   | 1,535,768  |   |  |   | 2,151,400  |  
|Cancellation of GIDUSA shareholders equity   |  |                   |           |            |  |              |             |             |  |          | 2,491   |               |  |   | (3,731,779 | )     |  |   | (2,552,770 | ) |  |   | (6,284,549 | )
|                                              |  |                   |           |            |  |              |             |             |  |          |         |               |  |   |            |       |  |   |            |   |  |   |            |  
|Consolidated balances as of December 31, 2000 |  |                   | (12,658   | )          |  |              | (492,463    | )           |  |          | 16,788  |               |  |   | 6,632,059  |       |  |   | 1,563,830  |   |  |   | 8,195,889  |  
|Appropriation of 2000 net income              |  |                   |           |            |  |              |             |             |  |          |         |               |  |   |            |       |  |   |            |   |  |   |            |  
|Effects of merger                             |  |                   |           |            |  |              | (2,470,792  | )           |  |          | (11,118 | )             |  |   | 1,496,210  |       |  |   | (1,526,004 | ) |  |   | (29,794    | )
|Comprehensive loss                            |  |                   | (128,200  | )          |  |              |             |             |  |          | (19,861 | )             |  |   | (293,453   | )     |  |   | 4,028      |   |  |   | (289,425   | )
|                                              |  |                   |           |            |  |              |             |             |  |          |         |               |  |   |            |       |  |   |            |   |  |   |            |  
|Consolidated balances as of December 31, 2001 |  |                   | (140,858  | )          |  |              | (2,963,255  | )           |  |          | (14,191 | )             |  |   | 7,834,816  |       |  |   | 41,854     |   |  |   | 7,876,670  |  
|Appropriation of 2001 net income              |  |                   |           |            |  |              |             |             |  |          |         |               |  |   |           |       |  |   |            |   |  |   |           |  
|Swaps cancellation                            |  |                   |           |            |  |              |             |             |  |          |         |               |  |   | (48,931    | )     |  |   |            |   |  |   | (48,931    | )
|Comprehensive loss                            |  |                   |           |            |  |              |             |             |  |          | 20,215  |               |  |   | (3,424,005 | )     |  |   | 26,564     |   |  |   | (3,397,441 | )
|                                              |  |                   |           |            |  |              |             |             |  |          |         |               |  |   |            |       |  |   |            |   |  |   |            |  
|Consolidated balances as of December 31, 2002 |  |                   | ($140,858 | )          |  |              | ($2,963,255 | )           |  | $        | 6,024   |               |  | $ | 4,361,880  |       |  | $ | 68,418     |   |  | $ | 4,430,298  |  
|                                              |  |                   |           |            |  |              |             |             |  |          |         |               |  |   |            |       |  |   |            |   |  |   |            |  

The accompanying notes are an integral part of these consolidated financial statements.

F-7



---



##### 



CORPORACIÓN DURANGO, S.A. DE C.V. AND SUBSIDIARIES
(formerly Grupo Industrial Durango, S. A. de C. V. and subsidiaries)

CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
FOR THE YEARS ENDED DECEMBER 31, 2000, 2001 AND 2002
(Notes 1, 2, 3 and 4)

(Thousands of constant Mexican Pesos restated as of December 31, 2002)

|                                                                                |  |      |            |      |  |      |            |   |  |   |            |  
|------------------------------------------------------------------------------- |  | ---- | ---------- | ---- |  | ---- | ---------- | - |  | - | ---------- | -
|                                                                                |  | 2000 |            | 2001 |  | 2002
|                                                                                |  |      |            |      |  |     
|OPERATING ACTIVITIES:                                                           |  |      |            |      |  |      |            |   |  |   |            |  
|Net income (loss) before minority interest                                      |  | $    | 1,809,891  |      |  | $    | 829,327    |   |  | $ | (3,542,801 | )
|Items recognized in net income not (generating)
requiring the use of resources: |  |      |            |      |  |      |            |   |  |   |            |  
|Depreciation and amortization                                                   |  |      | 564,683    |      |  |      | 492,288    |   |  |   | 475,429    |  
|Amortization of negative goodwill                                               |  |      | (1,513,928 | )    |  |      | (495,297   | ) |  |   |           |  
|Deferred income tax                                                             |  |      | 387,519    |      |  |      | (267,291   | ) |  |   | (667,294   | )
|Special items (Note 17)                                                         |  |      |           |      |  |      |           |   |  |   | 1,451,431  |  
|Impairment loss (Note 8)                                                        |  |      |           |      |  |      |           |   |  |   | 1,556,511  |  
|Other                                                                           |  |      | 97,548     |      |  |      | 78,376     |   |  |   | 137,869    |  
|                                                                                |  |      |            |      |  |      |            |   |  |   |            |  
|                                                                                |  |      | 1,345,713  |      |  |      | 637,403    |   |  |   | (588,855   | )
|Changes in operating assets and liabilities:                                    |  |      |            |      |  |      |            |   |  |   |            |  
|(Increase) decrease in accounts receivable, net                                 |  |      | 173,854    |      |  |      | 62,253     |   |  |   | (40,220    | )
|(Increase) decrease in inventories                                              |  |      | (67,274    | )    |  |      | 965,540    |   |  |   | (372,889   | )
|Increase in other assets                                                        |  |      | (13,116    | )    |  |      | (62,858    | ) |  |   | (5,890     | )
|Increase (decrease) in other accounts payable and
accrued expenses              |  |      | (82,369    | )    |  |      | (696,186   | ) |  |   | 870,233    |  
|                                                                                |  |      |            |      |  |      |            |   |  |   |            |  
|Resources generated by (used in) operating activities                           |  |      | 1,356,808  |      |  |      | 906,152    |   |  |   | (137,621   | )
|                                                                                |  |      |            |      |  |      |            |   |  |   |            |  
|FINANCING ACTIVITIES:                                                           |  |      |            |      |  |      |            |   |  |   |            |  
|Bank loans                                                                      |  |      | (130,094   | )    |  |      | 2,571,709  |   |  |   | 3,157,591  |  
|Payment of bank loans                                                           |  |      | (145,029   | )    |  |      | (3,107,122 | ) |  |   | (2,358,942 | )
|Long-term debt, net                                                             |  |      | (10,841    | )    |  |      | (115,067   | ) |  |   | (62,912    | )
|Paid in capital                                                                 |  |      | 2,160,999  |      |  |      |           |   |  |   |           |  
|                                                                                |  |      |            |      |  |      |            |   |  |   |            |  
|Resources generated by (used in) financing activities                           |  |      | 1,875,035  |      |  |      | (650,480   | ) |  |   | 735,737    |  
|                                                                                |  |      |            |      |  |      |            |   |  |   |            |  
|INVESTING ACTIVITIES:                                                           |  |      |            |      |  |      |            |   |  |   |            |  
|Additions to property, plant and equipment, net                                 |  |      | (1,092,054 | )    |  |      | (345,591   | ) |  |   | (305,255   | )
|Increase (decrease) in minority interest                                        |  |      |           |      |  |      | (6,656     | ) |  |   | 23,430     |  
|Investment in subsidiaries                                                      |  |      | (2,160,999 | )    |  |      |           |   |  |   | (204,770   | )
|Other assets                                                                    |  |      | (105,248   | )    |  |      | (205,717   | ) |  |   | (364,704   | )
|                                                                                |  |      |            |      |  |      |            |   |  |   |            |  
|Resources used in investing activities                                          |  |      | (3,358,301 | )    |  |      | (557,964   | ) |  |   | (851,299   | )
|                                                                                |  |      |            |      |  |      |            |   |  |   |            |  
|Decrease in cash and temporary investments                                      |  |      | (126,458   | )    |  |      | (302,292   | ) |  |   | (253,183   | )
|CASH AND TEMPORARY INVESTMENTS AT THE
BEGINNING OF THE YEAR                     |  |      | 937,644    |      |  |      | 811,186    |   |  |   | 508,894    |  
|                                                                                |  |      |            |      |  |      |            |   |  |   |            |  
|CASH AND TEMPORARY INVESTMENTS AT THE
END OF THE YEAR                           |  | $    | 811,186    |      |  | $    | 508,894    |   |  | $ | 255,711    |  
|                                                                                |  |      |            |      |  |      |            |   |  |   |            |  

The accompanying notes are an integral part of these consolidated financial statements.

F-8



---



##### 



CORPORACIÓN DURANGO, S.A. DE C.V. AND SUBSIDIARIES
(formerly Grupo Industrial Durango, S. A. de C. V. and subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 2001 AND 2002
(Thousands of constant Mexican Pesos restated as of December 31, 2002)

NOTE 1  ENTITY AND NATURE OF BUSINESS:



|i. |  | Entity
|-- |  | ------

The consolidated financial statements as of December 31, 2002 referred to
herein reflect the accounts of Corporación Durango, S.A. de C.V. (CODUSA) and
its subsidiaries, which arose from the merger of Grupo Industrial Durango, S.A.
de C.V. (GIDUSA) and its subsidiaries and Corporación Durango, S.A. de C.V.
and its subsidiaries (collectively, the Company). The Company is primarily
engaged in the manufacturing and selling of packaging (corrugated container,
molded pulp, and multi-wall sacks and bags), paper (kraft and semikraft paper
and paper to be used in the manufacturing of newspaper, books and magazines)
and other business products (plywood, particleboard and lumber) in Mexico and
in the United States of America (U.S.).

The following transactions have occurred over the last three years:



|a. |  | In March 2000, CODUSA acquired 46,892,700 Series A shares of GIDUSA in
different transactions over the Bolsa Mexicana de Valores (Mexican Stock
Exchange), at prices ranging between $63.83 and $66.21 Mexican Pesos per
share.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|b. |  | As a result of the acquisition of Series A shares mentioned above,
CODUSA and its affiliated companies held approximately 87% of Series A
shares of GIDUSA, with the remaining shares available in the public
market. As of December 31, 2000, the Rincón family held 59% and 100% of
the outstanding shares of GIDUSA and CODUSA, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|  
|c. |  | At the General Extraordinary Shareholders Meeting held on October 8,
2001, the shareholders of CODUSA approved the merger of CODUSA into its
subsidiary, GIDUSA. The merger was effective for financial purposes on
October 8, 2001. In connection with the merger, the Company changed its
name to Corporación Durango, S.A. de C.V. on February 7, 2002, when its
bylaws were amended. The merger was effected through the exchange of
shares in CODUSA for shares in GIDUSA. As a result of the merger, the
Company recorded a net decrease in shareholders equity of $49,089 and
issued 72,257,378 common nominative shares without par value. As of
December 31, 2001 the total number of shares outstanding was 94,072,122.
In May 2002, the Company repurchased 2,240,000 shares as treasury shares.

F-9



---



##### 



CORPORACIÓN DURANGO, S.A. DE C.V. AND SUBSIDIARIES
(formerly Grupo Industrial Durango, S. A. de C. V. and subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
DECEMBER 31, 2000, 2001 AND 2002
(Thousands of constant Mexican Pesos restated as of December 31, 2002)



|d. |  | As a result of this merger, the financial statements for the years ended
December 31, 2000, 2001 and 2002 are presented on a consolidated basis.
The minority interest in CODUSAs consolidated financial statements prior
to the merger reflected the shareholding in GIDUSA not owned by CODUSA.
This minority interest was eliminated upon the merger.
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ii. |  | Current status of the Company                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | In order to expand its production plant and continue to consolidate as a
leader in the paper industry throughout Mexico and Latin America, the
company and its subsidiaries have contracted significant financing from
banks in Mexico and abroad, mainly in the U.S. Additionally, on
different dates it placed certain debt bonds on the New York securities
market. Both types of financing were realized in U.S. dollars.
However, in 2002, the Company and its subsidiaries were severely
affected by a combination of economic factors, such as the slowdown of
the U.S. and the international economies, a significant drop in the
world price of paper, a drastic reduction in the demand for
manufactured products requiring the goods supplied by the Company, an
increase in the cost of raw materials, electric power, gas and labor,
and the entry of imported products into the Mexican market.
|
| |     |  | The above-mentioned negative economic events led to a significant
reduction in the generation of cash flow for the Company and its
subsidiaries during the last quarter of fiscal year 2002, and the
Company was unable to cover the payment of interest and capital on
certain debts maturing in November and December 2002, which meant that
it was unable to comply with certain obligations imposed by the banks
and bondholders in order to maintain the maturity terms of the capital.
Said loans and debt bonds have been classified as short term (see Note
10 e), resulting in negative working capital and serious doubts as to
the ability of the Company to continue in operation as a going concern.                                                                                                                                                                                            
|
| |     |  | As a result of the foregoing, the Company began a financial
restructuring process in November 2002, by holding discussions with the
banks and bondholders in an effort to agree on a debt refinancing plan
and the sale of non-strategic assets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |     |  | In April 2003, the Company signed a Forbearance Agreement; most of the
creditors have agreed to continue productive financial discussions
regarding the terms of the recapitalization of the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |     |  | The Companys expectation is that its financial structure will be
enforced after the restructuring plan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

F-10



---



##### 



CORPORACIÓN DURANGO, S.A. DE C.V. AND SUBSIDIARIES
(formerly Grupo Industrial Durango, S. A. de C. V. and subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
DECEMBER 31, 2000, 2001 AND 2002
(Thousands of constant Mexican Pesos restated as of December 31, 2002)



| | iii. |  | Sale of Durango Paper Company                                                                                                                                                                                                                                                                                                                                                           
| | ---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |      |  | In August 2002, Durango Paper Company (DPC) had a boiler explosion at one
of its plants located in Georgia, which made it necessary to suspend
operations and gave rise to significant losses. Additionally, at the date of
the accident, the Company did not have insurance
coverage for such an event. As such, the Company was exposed to the entire
loss relating to the incident.
|
| |      |  | In October 2002, the Company sold its investment in Durango Paper Co. to
Operadora Omega Internacional, S.A. de C.V. (related company).                                                                                                                                                                                                                                                 
|
| |      |  | The sale was made for an aggregate amount of $1,016 (US$100,000), allocated
US$50,000 for the purchase of the capital stock and US$50,000 for the
purchase of certain promissory notes due to the Company. This sale gave rise
to an aggregate loss of $1,451,431, which was considered as a special item in
the statement of income (see Note 17).                                     

NOTE 2  BASIS OF PRESENTATION:



|a. |  | Monetary unit
|-- |  | -------------

Amounts in the consolidated financial statements and footnotes thereto are
stated in thousands of Mexican Pesos (except for shares and per share amounts),
as are the records of the Company, in conformity with corresponding laws. In
these financial statements, references to $ are to Mexican Pesos and
references to US$ are to U.S. Dollars.



|b. |  | Basis of presentation
|-- |  | ---------------------

The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles in Mexico (Mexican GAAP) as
promulgated by the Mexican Institute of Public Accountants (MIPA).
Additionally, Bulletin A-8, Supplementary Application of International
Accounting Standards states that where Mexican GAAP does not provide guidance,
International Accounting Standards must be applied. A reconciliation from
Mexican GAAP to Generally Accepted Accounting Principles in the United States
of America. (U.S. GAAP) is included in Note 21.



|c. |  | Basis of consolidation
|-- |  | ----------------------

All significant inter-company accounts and transactions have been eliminated in
consolidation.

F-11



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##### 



CORPORACIÓN DURANGO, S.A. DE C.V. AND SUBSIDIARIES
(formerly Grupo Industrial Durango, S. A. de C. V. and subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
DECEMBER 31, 2000, 2001 AND 2002
(Thousands of constant Mexican Pesos restated as of December 31, 2002)

The consolidation was based on the audited individual financial statements of
the individual subsidiaries. The consolidated financial statements include the
assets, liabilities and results of the subsidiaries in which the Company holds
over 50% of common stock and exercises control over operating and financial
activities.

The reportable segments and principal subsidiaries within those segments, along
with their main activities are the following:

Packaging

Manufacturing and selling of corrugated containers, molded pulp and multi-wall
sacks and bags.

Empaques de Cartón Titán, S.A. de C.V. and subsidiaries (see Note 20)
Durango McKinley Paper Company

Paper

Manufacturing and selling of kraft and semikraft paper made with virgin pulp
and/or recycled paper.

Compañía Papelera de Atenquique, S.A. de C.V. and subsidiaries (formerly Compañía Industrial de Atenquique, S.A. de C.V. and subsidiaries)
Industrias Centauro, S.A. de C.V.
Grupo Pipsamex, S.A. de C.V. and subsidiaries
Durango McKinley Paper Company
Durango International, Inc.

Other businesses

Manufacturing and selling of plywood and particleboard.

Ponderosa Industrial de México, S.A. de C.V.

NOTE 3  ACCOUNTING POLICIES:

A summary of the Companys significant accounting polices is as follows:

F-12



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##### 



CORPORACIÓN DURANGO, S.A. DE C.V. AND SUBSIDIARIES
(formerly Grupo Industrial Durango, S. A. de C. V. and subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
DECEMBER 31, 2000, 2001 AND 2002
(Thousands of constant Mexican Pesos restated as of December 31, 2002)



|a. |  | Use of estimates                                                                                                                                                                                                                                                                                                                                                                                                                  
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The preparation of the financial statements in conformity with Mexican
GAAP requires management to make certain estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities as of the date of the financial
statements, and the reported amount of revenues and expenses during the
reporting years. Actual results may differ from these estimates.
|  
|b. |  | Recognition of the effects of inflation                                                                                                                                                                                                                                                                                                                                                                                           
|  
|   |  | The Companys consolidated financial statements have been prepared in
accordance with Bulletin B-10, Effects of Inflation on Financial
Information, and its amendments. Bulletin B-10 requires restatement of
all financial statement items to Mexican Pesos of the most current
purchasing power.                                                                                                                              
|  
|   |  | For comparative purposes, the consolidated financial statements presented
herein have been restated to Mexican Pesos as of December 31, 2002, as
follows:                                                                                                                                                                                                                                                                         



| | 1. |  | The financial statements as of December 31, 2001 and for the years
ended December 31, 2000 and 2001 of Mexican holding companies and
subsidiaries have been restated to Mexican Pesos as of December 31, 2002
by applying to the year-end balances of constant Mexican Pesos as of
December 31, 2001 an inflation factor of 1.057. The inflation factor is
derived from the National Consumer Price Index (NCPI), published by
Banco de México (the Central Bank of México).                                                                                                                                                     
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 2. |  | The financial statements as of December 31, 2001 and for the years
ended December 31, 2000 and 2001 of foreign subsidiaries have been
restated to Mexican Pesos as of December 31, 2002, by applying to the
year-end foreign currency balances the General Consumer Price Index
(GCPI) of the foreign country in which the subsidiary operates and
then applying the exchange rate as of December 31, 2002.                                                                                                                                                                                                                      
|
| |    |  | Statement of changes in financial position:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |    |  | Bulletin B-12, Statement of
Changes in Financial Position (Bulletin B-12), addresses the appropriate presentation of the statement of changes
in financial position where financial statements have been restated to
constant Mexican Pesos as of the latest balance sheet date. Bulletin B-12
identifies the generation and application of resources representing
differences between beginning and ending balances of the balance sheets in
constant Mexican Pesos, excluding the effect from holding non-monetary
assets. Bulletin B-12 also requires that monetary position and foreign
exchange gains (losses) be excluded

F-13



---



##### 



CORPORACIÓN DURANGO, S.A. DE C.V. AND SUBSIDIARIES
(formerly Grupo Industrial Durango, S. A. de C. V. and subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
DECEMBER 31, 2000, 2001 AND 2002
(Thousands of constant Mexican Pesos restated as of December 31, 2002)



| |  |  | from non-cash items in the determination of resources provided by (used
in) operating activities.
| |  |  | -------------------------------------------------------------------------------------------------



|c. |  | Translation of foreign subsidiaries                                                                                                                                                                                                                                                                                                                                 
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The translation of foreign subsidiaries is in accordance with Bulletin B-15,
Foreign Currency Transactions and Translation of Financial Statements of
Foreign Operations (Bulletin B-15). In accordance with Bulletin
B-15, the Company translates the financial statements of subsidiaries under
the foreign entity method applying the following procedures:



| |  |  | Foreign subsidiaries apply the restatement provisions of Bulletin
B-10 and its amendments using the GCPI, which reflects the changes in
the purchasing power of the monetary unit of the country in which the
subsidiary operates.                                                                                                                    
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | After the financial statements of the foreign subsidiary are restated
to constant purchasing power, all assets and liabilities are translated
to Mexican Pesos by applying the exchange rate in effect as of the
balance sheet date. Income and expenses are translated using the
exchange rate as of the balance sheet date for the reporting period.
|
| |  |  | The translation effects are recorded as part of shareholders equity
in the cumulative translation adjustment of foreign subsidiaries.                                                                                                                                                                                                                



|d. |  | Temporary investments                                                                                                                                                                         
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Short-term investments consist of marketable securities with maturities of
less than 3 months and are carried at market value. Unrealized gains
(losses) are included in the income statement.
|  
|e. |  | Inventories                                                                                                                                                                                   
|  
|   |  | Inventories are valued at average cost, which does not exceed market value.
The average cost approximates the last purchase price or production
cost.                                         
|  
|f. |  | Cost of sales                                                                                                                                                                                 
|  
|   |  | Cost of sales is determined on the estimated replacement value of the
inventory as of the date on which sales were made.                                                                      

F-14



---



##### 



CORPORACIÓN DURANGO, S.A. DE C.V. AND SUBSIDIARIES
(formerly Grupo Industrial Durango, S. A. de C. V. and subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
DECEMBER 31, 2000, 2001 AND 2002
(Thousands of constant Mexican Pesos restated as of December 31, 2002)



|g. |  | Investment in affiliated companies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Investments in shares of affiliated companies in which the percentage of
ownership is less than 10% are recorded at cost and restated in constant
Mexican Pesos with December 31, 2002 purchasing power by applying factor
derived from the NCPI.                                                                                                                                                                                                                                                                  
|  
|h. |  | Property, plant and equipment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|  
|   |  | Property, plant and equipment are recorded at their acquisition cost, and are
restated by applying factors derived from the NCPI to the historical cost,
except for machinery and equipment of foreign origin which are restated by
applying factors derived from the GCPI of the country of origin to the
corresponding foreign currency amounts and translating those amounts to
Mexican Pesos at the prevailing exchange rate at the balance sheet date.                                                        
|  
|   |  | Recurring maintenance and repair expenditures are charged to operating
expense as incurred. Major overhauls to fixed assets are capitalized and
amortized over the period in which benefits are expected to be received.                                                                                                                                                                                                                                                                                           
|  
|   |  | The integral cost of financing attributable to assets under construction is
capitalized. Capitalized integral financing costs include interest costs,
gain from monetary position and foreign exchange gains or losses and are
determined by reference to the Companys interest cost of outstanding
borrowings directly attributable to the construction of assets. The integral
cost capitalized in 2001 was $32,841; during 2002, the Company did not record
any amount in relation to integral financing costs.
|  
|i. |  | Depreciation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|  
|   |  | Depreciation of property, plant and equipment is based upon the restated
carrying value of the assets and calculated by the method of units produced,
based on their useful lives and the estimated production capacity as shown
below:                                                                                                                                                                                                                                                                            

|                         |  |       |       | 
|------------------------ |  | ----- | ----- | 
|                         |  | Years
|                         |  |      
|Buildings                |  |       | 25-50 | 
|Machinery and equipment  |  |       | 23-40 | 
|Office equipment         |  |       | 5-10  | 
|Transportation equipment |  |       | 1-5   | 
|Computer equipment       |  |       | 1-3   | 

F-15



---



##### 



CORPORACIÓN DURANGO, S.A. DE C.V. AND SUBSIDIARIES
(formerly Grupo Industrial Durango, S. A. de C. V. and subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
DECEMBER 31, 2000, 2001 AND 2002
(Thousands of constant Mexican Pesos restated as of December 31, 2002)



|j. |  | Debt issuance cost                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | During 2002, the Company capitalized debt issuance cost amounting to $215,888
($251,503 during 2001). Debt issuance cost is amortized over the outstanding
term of the debt on a straight-line basis, which does not materially differ
from the interest method. In 2002, the Company amortized $121,293 ($58,111 in
2001) in relation to debt issuance costs.                                                                                                                                                                                                                                                                                                                                                                                       
|  
|   |  | For the year ended December 31, 2001, the Company wrote off debt issuance
costs related to the Yankee Bond issuance with maturities in 2001 and 2003 of
$13,861 and $20,830, respectively. The outstanding amount of the 2001 Yankee
Bonds and $1,235,747 (US$128.3 million) of the 2003 Yankee Bonds, were
extinguished in 2001.                                                                                                                                                                                                                                                                                                                                                                                                                    
|  
|k. |  | Goodwill and negative goodwill                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|  
|   |  | Acquired companies are recorded at their restated value; goodwill is the
difference between the fair value of the net assets of the acquired company
and the purchase price paid. If the purchase price paid exceeds the fair
value of the net assets acquired, the excess is recorded as goodwill. If the
fair value of the net assets acquired exceeds the purchase price paid, the
excess is recorded as negative goodwill. Both goodwill and negative goodwill
are restated by applying factors derived from the NCPI and amortized under
the straight-line method over a period not to exceed two years, which, in
managements opinion approximates the period in which the acquired
subsidiaries are integrated into the Company (see Note 4).
|  
|l. |  | Pension plans, seniority premiums and indemnities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|  
|   |  | In accordance with Mexican Federal Labor Law, the Companys Mexican employees
are entitled to seniority premiums after 15 years of service or upon
dismissal, disability or death. Under Bulletin D-3, Labor Obligations, the
actuarially determined projected benefit obligation is computed using
estimates of salaries that would be in effect at the time of payment.
Employees not yet eligible for seniority premiums are also included in the
determination of the obligation with necessary adjustments made in accordance
with the probability that these employees will reach the required seniority.
The cost of past service is amortized over the average period required for
workers to reach their retirement age.                  
|  
|   |  | The cost of the employee retirement plans (pensions and seniority premiums),
both formal and informal, is recognized as expense in the years in which the
services are rendered, in
accordance with studies performed by independent actuaries using the
projected unit credit method.                                                                                                                                                                                                                                                                                                                                                                                                                                                               

F-16



---



##### 



CORPORACIÓN DURANGO, S.A. DE C.V. AND SUBSIDIARIES
(formerly Grupo Industrial Durango, S. A. de C. V. and subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
DECEMBER 31, 2000, 2001 AND 2002
(Thousands of constant Mexican Pesos restated as of December 31, 2002)



|   |  | In accordance with Mexican Federal Labor Law, other compensation, based on
length of service, to which employees may be entitled in the event of
dismissal or death, are charged to income in the year in which they become
payable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | A defined contribution pension plan has been established for the U.S.
subsidiaries covering all employees who meet certain eligibility
requirements. The benefits of this plan are based mainly on the employees
years of service and compensation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  
|m. |  | Payments for retirements and terminations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|  
|   |  | Payments for retirements and terminations are charged to income in the period
in which they occur.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|  
|n. |  | Derivative financial instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|  
|   |  | Effective on January 1, 2001, the Company adopted the guidelines of amended
Bulletin C-2, Financial Instruments (Bulletin C-2), which gives new
guidelines for the recognition and disclosure of derivative financial
instruments. Bulletin C-2 requires, for instruments not designated as a
hedge, the recognition of asset or liability derived from the difference
between acquisition cost and fair value of these instruments. Subsequent
fair value adjustments are reflected in the statement of income. Upon
adoption, the most significant effect of this new accounting bulletin was for
the accounting of equity swap share (Equity Swap) transactions, which the
Company undertakes with respect to its own American Depositary Receipts as
further discussed below.
|  
|   |  | Derivative financial instruments are used by the Company primarily to manage
its (i) interest rate risk and (ii) foreign exchange rate risk. Interest
rate swaps are employed to achieve the Companys interest rate objectives.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|  
|   |  | The interest differential to be paid or received under the related interest
rate swap agreements is recognized over the life of the related contract and
is included in interest expense or income. At December 2001 and 2002, the
Company had no open contracts.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|  
|   |  | Additionally, the Company entered into several Equity Swap transactions with
respect to its own American Depositary Receipts. The difference between the
fair value and the acquisition cost of those shares (including purchase
expenses and premiums or discounts) as well as financing cost was recorded
directly to shareholders equity through December 31, 2000. As
a result of the adoption of Bulletin C-2, during 2001, the Company recorded
$21,305 in the statement of income.                                                                                                                                                                                                                                                                                             

F-17



---



##### 



CORPORACIÓN DURANGO, S.A. DE C.V. AND SUBSIDIARIES
(formerly Grupo Industrial Durango, S. A. de C. V. and subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
DECEMBER 31, 2000, 2001 AND 2002
(Thousands of constant Mexican Pesos restated as of December 31, 2002)



|   |  | The contract for these financial instruments matured in May 2002. As a
result, The Company recognized a charge to income and equity for $8,204 and
$78,758, respectively and a liability for $70,554 for the year ended December
31, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|o. |  | Revenue recognition                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|  
|   |  | Sales are recognized upon delivery of products and customer acceptance.
Revenues are recognized only when the Company has transferred to the buyer
the significant risks and rewards of ownership of the goods, and when the
amount of revenue and the cost incurred or to be incurred in the transaction
can be measured reliably.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|  
|p. |  | Income tax and employee statutory profit sharing                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|  
|   |  | The Company recognized deferred income tax through the comprehensive asset
and liability method, which consists in determining said tax by applying the
corresponding income tax rate to the temporary differences between the book
and tax values of assets and liabilities at the date of the financial
statements. Beginning on January 1, 2000, the Company adopted the guidelines
of amended Bulletin D-4, Accounting Treatment of Income Tax, Tax on Assets
and Employee Statutory Profit Sharing. The accrued effect of this
accounting change, effective January 1, 2000, originated a net increase in
the deferred tax liability in the amount of $492,463 and a reduction of
shareholders equity of the same amount. Employees statutory profit sharing
is determined at a 10% rate on the taxable income of the companies, adjusted
according to the previous of the Mexican income tax law.
|  
|q. |  | Foreign currency transactions                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|  
|   |  | Transactions denominated in foreign currency are recorded in Mexican Pesos at
the exchange rate in effect at the date they are consummated. Assets and
liabilities in foreign currency are translated into Mexican Pesos at the
exchange rate in effect as of the balance sheet date. Exchange differences
resulting from such translations are recognized in income for the year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|  
|r. |  | Earnings per share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|  
|   |  | Earnings per share computations are based on the net income attributable to
the majority interest divided by the weighted average number of shares
outstanding. Due to the merger mentioned in Note 1, the computation for the
two years ended December 31, 2001 was based
on the number of shares outstanding after the merger. The number of shares
outstanding as of December 31, 2000 and 2001 was 94,072,122.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

F-18



---



##### 



CORPORACIÓN DURANGO, S.A. DE C.V. AND SUBSIDIARIES
(formerly Grupo Industrial Durango, S. A. de C. V. and subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
DECEMBER 31, 2000, 2001 AND 2002
(Thousands of constant Mexican Pesos restated as of December 31, 2002)



|   |  | Due to the repurchase of shares as treasury shares mentioned in Note 1,
the computation for the year ended December 31, 2002 was based on the
weighted average number of shares outstanding during fiscal year 2002.
The number of shares outstanding as of December 31, 2002 was 92,828,029.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|s. |  | Long-lived assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|  
|   |  | The Company evaluates potential impairment losses to long-lived assets by
assessing whether the unamortized carrying amount can be recovered over the
remaining life of the assets through undiscounted future expected cash flows
generated by the assets and without interest charges. If the sum of the
expected future undiscounted cash flow is less than the carrying amount of
the assets, a loss is recognized for the difference between the fair value
and carrying value of the assets. Long-lived assets are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. Long-
lived assets for which management has committed to a plan of disposal are
recorded at the lower of the unamortized carrying amount or fair value less
disposal cost.
|  
|   |  | During 2002, the Company evaluated the value of its long-lived assets, which
was determined with cash flow generated during the useful lives of the
assets evaluated, which extends from 10 to 15 years after 2003. As a
result, the Company recorded $1,556,511 as an impairment loss for fixed
assets (see Note 8).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|  
|t. |  | Shareholders equity:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|  
|   |  | The capital stock, retained earnings, additional paid-in-capital and
comprehensive income accounts include the effect from restatement, determined
by applying the NCPI factor from the date when capital was contributed and
from the year in which the results were determined. The restatements
represent the amounts required to maintain the contributions and accumulated
results in constant Mexican Pesos as of December 31, 2002.                                                                                                                                                                                                                                                                                                                                                                                       
|  
|u. |  | Segment reporting                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|  
|   |  | In August 1997, the International Accounting Standards Committee issued
revised IAS No. 14, Segment Reporting (IAS 14), which is applicable to
Mexican companies under Bulletin A-8. IAS 14, is effective for years
beginning after June 30, 1998. This standard requires companies to identify
within the internal organizational structure and internal reporting system
qualifying segments to be reported separately (see Note 16).                                                                                                                                                                                                                                                                                                                                                                                      

F-19



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##### 



CORPORACIÓN DURANGO, S.A. DE C.V. AND SUBSIDIARIES
(formerly Grupo Industrial Durango, S. A. de C. V. and subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
DECEMBER 31, 2000, 2001 AND 2002
(Thousands of constant Mexican Pesos restated as of December 31, 2002)



|v. |  | Comprehensive income                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | As of January 1, 2001, Bulletin B-4, Comprehensive Income, entered into
effect. This bulletin requires that the various components of shareholders
equity resulting from non-owner transactions be shown in the statement of
changes in shareholders equity under the item of comprehensive income.
Therefore, in order for the various items within the statement of changes in
shareholders equity to be comparable, said statement was adjusted for prior
years.

NOTE 4  ACQUISITIONS:



|a. |  | In December 1999, the Company acquired Gilman Paper Company and
affiliated companies, its converting plants and the assets of St. Marys
Railroad LLC (now known as Durango Paper Company). The acquisition
totaled $1,219.9 million (US$119.9 million) and the negative goodwill
amounted to $1,617,130 (US$158.9 million). This acquisition was financed
with bank loans for an amount of $864.8 million (US$85.0 million) and a
note payable to the seller for $249.2 million (US$24.5 million) and $105.9
million (US$10.4 million) was paid in cash. The amortization of negative
goodwill for the years ended December 31, 2000, 2001 and 2002 was
$1,078,085, $449,203 and $nil, respectively.
On August 1, 2000, the Company reached a favorable purchase price adjustment
settlement with the seller for US$6 million ($59.5 million). The Company
received US$3 million ($29.8million) in cash and a reduction to its note to
the seller of US$3 million ($29.8 million).
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|b. |  | In March 2000, the Company acquired from the Rincón family its 59%
ownership interest in GIDUSA resulting in negative goodwill in the amount
of $325,189, which was amortized fully in 2000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

NOTE 5  FOREIGN CURRENCY POSITION:

As of December 31, the Mexican Peso to the U.S. Dollar exchange rate was as
follows:

|     |  |   |         | 
|---- |  | - | ------- | 
|2001 |  | $ | 9.1695  | 
|2002 |  | $ | 10.4393 | 

As of December 31, 2001 and 2002 the Company had the following foreign currency
monetary assets and liabilities:

F-20



---



##### 



CORPORACIÓN DURANGO, S.A. DE C.V. AND SUBSIDIARIES
(formerly Grupo Industrial Durango, S. A. de C. V. and subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
DECEMBER 31, 2000, 2001 AND 2002
(Thousands of constant Mexican Pesos restated as of December 31, 2002)

|                      |  |                           |          |      |  |     |          |  
|--------------------- |  | ------------------------- | -------- | ---- |  | --- | -------- | -
|                      |  | Thousands of U.S. Dollars
|                      |  |                          
|                      |  | 2001                      |          | 2002
|                      |  |                           |          |     
|Assets                |  | US$                       | 90,007   |      |  | US$ | 52,851   |  
|                      |  |                           |          |      |  |     |          |  
|Current liabilities   |  |                           | 168,683  |      |  |     | 796,841  |  
|Long-term liabilities |  |                           | 737,960  |      |  |     | 128,908  |  
|                      |  |                           |          |      |  |     |          |  
|Liabilities           |  |                           | 906,643  |      |  |     | 925,749  |  
|                      |  |                           |          |      |  |     |          |  
|Net monetary position |  | US$                       | (816,636 | )    |  | US$ | (872,898 | )
|                      |  |                           |          |      |  |     |          |  

The Companys foreign currency transactions were as follows:

|                                         |  |                           |          |      |  |      |          |   |  |     |          |  
|---------------------------------------- |  | ------------------------- | -------- | ---- |  | ---- | -------- | - |  | --- | -------- | -
|                                         |  | Year ended December 31   
|                                         |  |                          
|                                         |  | 2000                      |          | 2001 |  | 2002
|                                         |  |                           |          |      |  |     
|                                         |  | Thousands of U.S. Dollars
|                                         |  |                          
|Sales                                    |  | US$                       | 558,867  |      |  | US$  | 433,802  |   |  | US$ | 302,174  |  
|Interest income                          |  |                           | 3,145    |      |  |      | 2,558    |   |  |     | 613      |  
|Purchase of fixed assets
and inventories |  |                           | (581,333 | )    |  |      | (456,771 | ) |  |     | (337,821 | )
|Interest expense                         |  |                           | (95,333  | )    |  |      | (111,876 | ) |  |     | (81,441  | )
|Other                                    |  |                           | (11,753  | )    |  |      | (17,831  | ) |  |     | (20,978  | )
|                                         |  |                           |          |      |  |      |          |   |  |     |          |  
|                                         |  | US$                       | (126,407 | )    |  | US$  | (150,118 | ) |  | US$ | (137,453 | )
|                                         |  |                           |          |      |  |      |          |   |  |     |          |  

Additionally, as of December 31, 2001 and 2002, the Company had non-monetary
assets of foreign origin, amounting to US$1,072 million and US$800 million,
respectively.

F-21



---



##### 



CORPORACIÓN DURANGO, S.A. DE C.V. AND SUBSIDIARIES
(formerly Grupo Industrial Durango, S. A. de C. V. and subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
DECEMBER 31, 2000, 2001 AND 2002
(Thousands of constant Mexican Pesos restated as of December 31, 2002)

NOTE 6  ACCOUNTS RECEIVABLE:

Accounts receivable consist of the following:

|                                       |  |              |           |      |  |   |           | 
|-------------------------------------- |  | ------------ | --------- | ---- |  | - | --------- | 
|                                       |  | December 31,
|                                       |  |             
|                                       |  | 2001         |           | 2002
|                                       |  |              |           |     
|Trade                                  |  | $            | 2,207,881 |      |  | $ | 1,831,084 | 
|Other                                  |  |              | 166,445   |      |  |   | 238,016   | 
|                                       |  |              |           |      |  |   |           | 
|                                       |  |              | 2,374,326 |      |  |   | 2,069,100 | 
|Less  Allowance for doubtful accounts |  |              | 143,716   |      |  |   | 132,058   | 
|                                       |  |              |           |      |  |   |           | 
|                                       |  | $            | 2,230,610 |      |  | $ | 1,937,042 | 
|                                       |  |              |           |      |  |   |           | 

NOTE 7  INVENTORIES:

Inventories consist of the following:

|                                  |  |              |           |      |  |   |           | 
|--------------------------------- |  | ------------ | --------- | ---- |  | - | --------- | 
|                                  |  | December 31,
|                                  |  |             
|                                  |  | 2001         |           | 2002
|                                  |  |              |           |     
|Finished products                 |  | $            | 249,370   |      |  | $ | 320,574   | 
|Work-in-process                   |  |              | 34,881    |      |  |   | 29,487    | 
|Raw materials                     |  |              | 448,891   |      |  |   | 327,809   | 
|Direct material and spare parts   |  |              | 438,178   |      |  |   | 348,976   | 
|Molds and dies, net               |  |              | 69,135    |      |  |   | 70,866    | 
|Merchandise in transit            |  |              | 183,456   |      |  |   | 147,652   | 
|Advanced payment to suppliers     |  |              | 75,287    |      |  |   | 56,314    | 
|Other                             |  |              | 7,576     |      |  |   | 16,648    | 
|                                  |  |              |           |      |  |   |           | 
|                                  |  |              | 1,506,774 |      |  |   | 1,318,326 | 
|Less  Allowance for obsolescence |  |              | 47,177    |      |  |   | 40,893    | 
|                                  |  |              |           |      |  |   |           | 
|                                  |  | $            | 1,459,597 |      |  | $ | 1,277,433 | 
|                                  |  |              |           |      |  |   |           | 

F-22



---



##### 



CORPORACIÓN DURANGO, S.A. DE C.V. AND SUBSIDIARIES
(formerly Grupo Industrial Durango, S. A. de C. V. and subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
DECEMBER 31, 2000, 2001 AND 2002
(Thousands of constant Mexican Pesos restated as of December 31, 2002)

NOTE 8  PROPERTY, PLANT AND EQUIPMENT:

Property, plant and equipment consist of the following:

|                                                                         |  |              |            |      |  |   |            | 
|------------------------------------------------------------------------ |  | ------------ | ---------- | ---- |  | - | ---------- | 
|                                                                         |  | December 31,
|                                                                         |  |             
|                                                                         |  | 2001         |            | 2002
|                                                                         |  |              |            |     
|Land                                                                     |  | $            | 1,134,604  |      |  | $ | 1,095,484  | 
|Buildings                                                                |  |              | 4,264,728  |      |  |   | 3,828,640  | 
|Machinery and equipment                                                  |  |              | 24,102,080 |      |  |   | 19,588,078 | 
|Transportation equipment, data-processing equipment,
furniture and other |  |              | 1,906,989  |      |  |   | 1,790,855  | 
|Construction-in-progress                                                 |  |              | 369,375    |      |  |   | 227,175    | 
|                                                                         |  |              |            |      |  |   |            | 
|                                                                         |  |              | 31,777,776 |      |  |   | 26,530,232 | 
|Less  Accumulated depreciation                                          |  |              | 15,288,792 |      |  |   | 11,910,010 | 
|                                                                         |  |              |            |      |  |   |            | 
|                                                                         |  |              | 16,488,984 |      |  |   | 14,620,222 | 
|Less  Impairment loss                                                   |  |              |           |      |  |   | 1,556,511  | 
|                                                                         |  |              |            |      |  |   |            | 
|                                                                         |  | $            | 16,488,984 |      |  | $ | 13,063,711 | 
|                                                                         |  |              |            |      |  |   |            | 

Depreciation expense for the years ended December 31, 2000, 2001 and 2002 was
$536,337, $459,374 and $460,862, respectively.

The Company tested certain long-lived assets for recoverability in 2002 in
response to significant adverse changes in business climate occurring during
the year (see Notes 1 ii and 3 s).

As of December 31, 2002, the Company recorded a $1,556,511 impairment loss for
the fixed assets of a number of subsidiaries. The deferred income tax effect
for this reserve resulted in a benefit of $498,084.

F-23



---



##### 



CORPORACIÓN DURANGO, S.A. DE C.V. AND SUBSIDIARIES
(formerly Grupo Industrial Durango, S. A. de C. V. and subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
DECEMBER 31, 2000, 2001 AND 2002
(Thousands of constant Mexican Pesos restated as of December 31, 2002)

NOTE 9  OTHER ASSETS:

Other assets consist of the following:

|                                                                  |  |              |         |      |  |   |         | 
|----------------------------------------------------------------- |  | ------------ | ------- | ---- |  | - | ------- | 
|                                                                  |  | December 31,
|                                                                  |  |             
|                                                                  |  | 2001         |         | 2002
|                                                                  |  |              |         |     
|Investment in shares of affiliated companies                      |  | $            | 40,672  |      |  | $ | 43,235  | 
|Intangible pension assets  labor obligation Mexican
subsidiaries |  |              | 83,467  |      |  |   | 74,286  | 
|Debt issuance costs                                               |  |              | 286,136 |      |  |   | 383,445 | 
|Prepaid pension cost  foreign subsidiaries                       |  |              | 34,005  |      |  |   |        | 
|Other                                                             |  |              | 88,628  |      |  |   | 210,463 | 
|                                                                  |  |              |         |      |  |   |         | 
|                                                                  |  | $            | 532,908 |      |  | $ | 711,429 | 
|                                                                  |  |              |         |      |  |   |         | 

Total amortization expense was $40,413, $91,025 and $135,860 for 2000, 2001 and
2002, respectively. Total amortization expense includes amortization of debt
issuance cost totaling $26,214, $58,111 and $121,293 for 2000, 2001 and 2002,
respectively.

NOTE 10  DEBT:



|a. |  | Short-term debt as of December 31, were comprised of:
|-- |  | -----------------------------------------------------

| |                                                                                                                                                                                                                                                                                   |  |              |   |      |  |   |         | 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | - | ---- |  | - | ------- | 
| |                                                                                                                                                                                                                                                                                   |  | December 31,
| |                                                                                                                                                                                                                                                                                   |  |             
| |                                                                                                                                                                                                                                                                                   |  | 2001         |   | 2002
| |                                                                                                                                                                                                                                                                                   |  |              |   |     
| | Euro Commercial Paper for US$5 million,
maturing on February 12, 2003, bearing
interest at 9.75% per annum.                                                                                                                                                                       |  |              |  |      |  | $ | 52,197  | 
| | Senior Notes for US$250 million, with The
Bank of New York acting as trustee, payable
in a lump sum and maturing on August 1, 2003,
bearing interest at a fixed rate 12.625% per
annum, payable semiannually. As of December
31, 2002 the outstanding amount was US$18.2
million. |  |              |  |      |  |   | 190,308 | 

F-24



---



##### 



CORPORACIÓN DURANGO, S.A. DE C.V. AND SUBSIDIARIES
(formerly Grupo Industrial Durango, S. A. de C. V. and subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
DECEMBER 31, 2000, 2001 AND 2002
(Thousands of constant Mexican Pesos restated as of December 31, 2002)

| |                                                                                                                                                                                                                                                                          |  |              |        |      |  |  |           | 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------ | ------ | ---- |  |  | --------- | 
| |                                                                                                                                                                                                                                                                          |  | December 31,
| |                                                                                                                                                                                                                                                                          |  |             
| |                                                                                                                                                                                                                                                                          |  | 2001         |        | 2002
| |                                                                                                                                                                                                                                                                          |  |              |        |     
| | Senior Notes for US$301.7 million, with Wells
Fargo Bank Minnesota, N.A. acting as trustee,
payable in a lump sum and maturing on August
1, 2006, bearing interest at a fixed rate of
13.125% per annum, payable semiannually (see
point e). (1)                         |  |              |       |      |  |  | 3,149,986 | 
| | Euro Commercial Paper for US$5 million,
maturing in May 2002, bearing interest at
8.9% per annum.                                                                                                                                                                        |  |              | 48,461 |      |  |  |          | 
| | Senior Notes for US$10.4 million, with Wells
Fargo Bank Minnesota, N.A. acting as trustee,
payable in a lump sum and maturing on August
1, 2008, bearing interest at fixed rate of
13.5% per annum, payable semiannually (see
point e) (1).                              |  |              |       |      |  |  | 108,182   | 
| | Senior Notes for US$175 million, with Wells
Fargo Bank Minnesota acting as trustee,
payable in a lump sum and maturing on July
15, 2009, bearing interest at a fixed rate of
13.75% per annum, payable semiannually (see
point e) (1).                                   |  |              |       |      |  |  | 1,826,878 | 
| | Bank loan for US$50 million with The Chase
Manhattan Bank payable in five semiannual
installments beginning on December 5, 2000,
bearing interest at LIBOR plus 1.50% per annum,
payable semiannually. Outstanding amount as of
December 31, 2002 was US$10 million (1). |  |              |       |      |  |  | 104,393   | 
| | Bank loan for US$3.1 million with Mifel,
payable in a lump sum and maturing on May 30,
2002, bearing interest at LIBOR plus 4.8926%
per annum. Outstanding amount as of December
31, 2001 was US$0.8 million.                                                            |  |              | 7,707  |      |  |  |          | 

F-25



---



##### 



CORPORACIÓN DURANGO, S.A. DE C.V. AND SUBSIDIARIES
(formerly Grupo Industrial Durango, S. A. de C. V. and subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
DECEMBER 31, 2000, 2001 AND 2002
(Thousands of constant Mexican Pesos restated as of December 31, 2002)

| |                                                                                                                                                                                                                                                                                           |  |              |         |      |  |  |         | 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ------- | ---- |  |  | ------- | 
| |                                                                                                                                                                                                                                                                                           |  | December 31,
| |                                                                                                                                                                                                                                                                                           |  |             
| |                                                                                                                                                                                                                                                                                           |  | 2001         |         | 2002
| |                                                                                                                                                                                                                                                                                           |  |              |         |     
| | Bank loan for US$94 million with Banamex
payable in quarterly installments from March
2003 through June 2005, bearing interest at
LIBOR plus 2.80% per annum
Outstanding amount as of December 31, 2002 was
US$75.3 million (see point e).                                                |  |              |        |      |  |  | 786,451 | 
| | Bank loan for US$35 million with Bank of
America payable in a lump sum and maturing on
January 2004, bearing interest at LIBOR plus
3.0% per annum. Outstanding amount as of
December 31, 2001 was US$17.4 million.                                                                       |  |              | 186,223 |      |  |  |        | 
| | Bank loan for US$15 million with Bank of
America payable in a lump sum and maturing in
January 2004, bearing interest at LIBOR plus
3.5% per annum. Outstanding amount as of
December 31, 2001 was US$6.2 million.                                                                        |  |              | 66,788  |      |  |  |        | 
| | Subordinated promissory note for US$24.5
million to HG Estate maturing on December 17,
2004, bearing interest at 10% per annum,
payable semiannually. Outstanding amount as of
December 31, 2002 was US$30.2 million, which
includes capitalized interest (see point e and
Note 13 I.e.). |  |              |        |      |  |  | 313,159 | 
| | Notes payable for US$18.1 million to HG Estate
maturing in April 2003 and December 2002,
US$12.1 million bearing interest at 10.0% per
annum and US$6.0 million bearing interest at
13% per annum (see Note 13 I.e.).                                                                     |  |              |        |      |  |  | 188,952 | 
| | Bank loan for US$11.7 million with California
Commerce Bank payable in a lump sum and
maturing in January 2003 bearing interest at
LIBOR plus 2.75% per annum.                                                                                                                            |  |              |        |      |  |  | 121,931 | 

F-26



---



##### 



CORPORACIÓN DURANGO, S.A. DE C.V. AND SUBSIDIARIES
(formerly Grupo Industrial Durango, S. A. de C. V. and subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
DECEMBER 31, 2000, 2001 AND 2002
(Thousands of constant Mexican Pesos restated as of December 31, 2002)

|   |                                                                                                                                                                                                                                                                                                                                            |   |              |           |      |   |           |         | 
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | - | ------------ | --------- | ---- | - | --------- | ------- | 
|   |                                                                                                                                                                                                                                                                                                                                            |   | December 31,
|   |                                                                                                                                                                                                                                                                                                                                            |   |             
|   |                                                                                                                                                                                                                                                                                                                                            |   | 2001         |           | 2002
|   |                                                                                                                                                                                                                                                                                                                                            |   |              |           |     
|   | Bank loan for US$7.3 million with Banamex
payable in a lump sum and maturing in June
2005, bearing interest at a fixed rate of 4.86%
per annum. Outstanding amount as of December
31, 2002 was US$5.1 million (see point e).                                                                                                               |   |              |          |      |   |           | 53,240  | 
|   | Bank loan for US$15 million with California
Commerce Bank payable in a lump sum and
maturing in May 2004, bearing interest at LIBOR
plus 3.25% per annum. Outstanding amount as of
December 31, 2002 was US$12.5 million (see
point e).                                                                                                    |   |              |          |      |   |           | 130,492 | 
|   | Bank loan for US$24 million with Bank of
Albuquerque payable quarterly maturing on May
15, 2008, bearing interest at LIBOR plus 2.75%
Outstanding amount as of December 31, 2002 was
US$22 million (see point e).                                                                                                                          |   |              |          |      |   |           | 229,664 | 
|   | Bank loan for US$3 million with Bancomext
S.N.C. payable in a lump sum and maturing in
October 2003, bearing interest at LIBOR plus
3.53%.                                                                                                                                                                                                 |   |              |          |      |   |           | 31,318  | 
|   | Other short-term debt                                                                                                                                                                                                                                                                                                                      |   |              | 8,596     |      |   |           | 5,724   | 
|   |                                                                                                                                                                                                                                                                                                                                            |   |              |           |      |   |           |        
|   |                                                                                                                                                                                                                                                                                                                                            | $ | 317,775      |           |      | $ | 7,292,875 |        
|   |                                                                                                                                                                                                                                                                                                                                            |   |              |           |      |   |           |        
|   |                                                                                                                                                                                                                                                                                                                                            |   |              |           |      |   |           |        
|b. | Long-term debt as of December 31, was comprised of:                                                                                                                                                                                                                                                                                        |   |              |           |      |   |           |         | 
|   |                                                                                                                                                                                                                                                                                                                                            |   |              |           |      |   |           |        
|   | Senior Notes for US$250 million with JP Morgan
Chase Bank acting as trustee, payable in a lump
sum and maturing on August 1, 2003, bearing
interest at a fixed rate of 12.625% per annum,
payable semiannually. As of December 31, 2001
the outstanding amount was US$121.7 million
During 2002, US$103.5 million was paid on these
notes. |   | $            | 1,179,633 |      |   | $         |        | 

F-27



---



##### 



CORPORACIÓN DURANGO, S.A. DE C.V. AND SUBSIDIARIES
(formerly Grupo Industrial Durango, S. A. de C. V. and subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
DECEMBER 31, 2000, 2001 AND 2002
(Thousands of constant Mexican Pesos restated as of December 31, 2002)

| |                                                                                                                                                                                                                                                                                                                                     |  |              |           |      |  |  |         | 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | --------- | ---- |  |  | ------- | 
| |                                                                                                                                                                                                                                                                                                                                     |  | December 31,
| |                                                                                                                                                                                                                                                                                                                                     |  |             
| |                                                                                                                                                                                                                                                                                                                                     |  | 2001         |           | 2002
| |                                                                                                                                                                                                                                                                                                                                     |  |              |           |     
| | Senior Notes for US$301.7 million, with JP
Morgan Chase Bank acting as trustee, payable in
a lump sum and maturing on August 1, 2006,
bearing interest at a fixed rate of 13.125% per
annum, payable semiannually (see point e).                                                                                                    |  |              | 2,924,541 |      |  |  |        | 
| | Senior Notes for US$10.4 million, with JP
Morgan Chase Bank acting as trustee, payable in
a lump sum and maturing on August 1, 2008,
bearing interest at fixed rate of 13.5% per
annum, payable semiannually (see point e).                                                                                                         |  |              | 100,441   |      |  |  |        | 
| | Bank loan for US$50 million with the Chase
Manhattan Bank payable in five semiannual
installments beginning on December 5, 2000,
bearing interest at LIBOR plus 1.50% per annum,
payable semiannually. Outstanding amount as of
December 31, 2001 was US$20 million
During 2002, US$10 million was paid on this
loan (see point e). |  |              | 193,843   |      |  |  |        | 
| | Bank loan for US$11.7 million with California
Commerce Bank payable in a lump sum and
maturing in January 2003, bearing interest at
LIBOR plus 2.75% per annum.                                                                                                                                                                     |  |              | 113,205   |      |  |  |        | 
| | Financial lease agreement for the acquisition
of machinery for US$3.1 million with Bank of
America maturing on February 2005, bearing
interest at LIBOR plus 3.5% per annum
Outstanding amount as of December 31, 2002 was
US$0.9 million. (2)                                                                                      |  |              | 11,937    |      |  |  | 9,583   | 
| | Financial lease agreement for the acquisition
of machinery for US$29.3 million with
BankAmerica maturing on February 2005 and
August 2005, bearing interest at LIBOR plus
3.5% per annum. Outstanding amount as of
December 31, 2002 was US$19.5 million. (2)                                                                       |  |              | 222,189   |      |  |  | 203,856 | 

F-28



---



##### 



CORPORACIÓN DURANGO, S.A. DE C.V. AND SUBSIDIARIES
(formerly Grupo Industrial Durango, S. A. de C. V. and subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
DECEMBER 31, 2000, 2001 AND 2002
(Thousands of constant Mexican Pesos restated as of December 31, 2002)

| |                                                                                                                                                                                                                                                                                        |  |              |         |      |  |  |         | 
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ------- | ---- |  |  | ------- | 
| |                                                                                                                                                                                                                                                                                        |  | December 31,
| |                                                                                                                                                                                                                                                                                        |  |             
| |                                                                                                                                                                                                                                                                                        |  | 2001         |         | 2002
| |                                                                                                                                                                                                                                                                                        |  |              |         |     
| | Financial lease agreement for the acquisition
of machinery for US$10.0 million with GE
Capital Leasing maturing in October 2008 and
April 2009, bearing interest at LIBOR plus
3.25% per annum. Outstanding amount as of
December 31, 2002 was US$9.3 million (2).                     |  |              | 67,048  |      |  |  | 97,184  | 
| | Bank loan for $9.5 million Euros with
Commerze
Bank, maturing from January 2003 to January
2010, bearing interest at Eurolibor plus 1.15%
per annum. Outstanding amount as of December
31, 2002 was US$11.2 million (2).                                                               |  |              | 87,649  |      |  |  | 116,479 | 
| | Bank loan for US$94 million with Banamex
payable in quarterly installments from March
2003 through June 2005, bearing interest at
LIBOR plus 2.80% per annum. Outstanding amount
as of December 31, 2001 was US$94.0 million
During 2002, US$18.7 was paid on this loan (see
point e). |  |              | 911,064 |      |  |  |        | 
| | Bank loan for US$80 million with Bancomext,
S.N.C. payable in 14 semiannual installments
beginning July 2002, bearing interest at LIBOR
plus 7.0% per annum, collaterized with
machinery and equipment. Outstanding amount as
of December 31, 2002 was US$74.3 million.                |  |              | 775,372 |      |  |  | 775,491 | 
| | Bank loan for US$15 million with California
Commerce Bank payable in a lump sum and
maturing in May 2004, bearing interest LIBOR
plus 3.25% per annum. Outstanding amount as of
December 31, 2001 was US$15.0 million. During
2002, US$2.5 million was paid on the loan (see
point e). |  |              | 145,383 |      |  |  |        | 

F-29



---



##### 



CORPORACIÓN DURANGO, S.A. DE C.V. AND SUBSIDIARIES
(formerly Grupo Industrial Durango, S. A. de C. V. and subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
DECEMBER 31, 2000, 2001 AND 2002
(Thousands of constant Mexican Pesos restated as of December 31, 2002)

| |                                                                                                                                                                                                                                                      |   |              |         |      |   |           |         | 
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ------------ | ------- | ---- | - | --------- | ------- | 
| |                                                                                                                                                                                                                                                      |   | December 31,
| |                                                                                                                                                                                                                                                      |   |             
| |                                                                                                                                                                                                                                                      |   | 2001         |         | 2002
| |                                                                                                                                                                                                                                                      |   |              |         |     
| | Subordinated promissory note for US$24.5
million to HG Estate maturing on December 17,
2004, bearing interest at 10% per annum,
payable semiannually. Outstanding amount as of
December 31, 2001 was US$30.2 million (see
point e and Note 13 I.e.). |   |              | 322,551 |      |   |           |        | 
| | Notes payable for US$18.1 million to HG Estate
maturing in April 2003 and December 2002,
US$12.1 million bearing interest at 10.0% per
annum and US$6.0 million bearing interest at
12.5% per annum.                                                 |   |              | 193,429 |      |   |           |        | 
| | Bank loan for US$15.4 million, with Bancomext,
S.N.C. payable in 14 semiannually installments
maturating on September 2009, bearing interest
at LIBOR plus 6.5% per annum. Outstanding
amount as of December 31, 2002 was US$15.4
million            |   |              | 149,260 |      |   |           | 160,765 | 
| | Other long-term debt                                                                                                                                                                                                                                 |   |              | 145,749 |      |   |           | 3,485   | 
| |                                                                                                                                                                                                                                                      |   |              |         |      |   |           |        
| |                                                                                                                                                                                                                                                      |   | 7,543,294    |         |      |   | 1,366,843 |        
| | Current portion of long-term debt                                                                                                                                                                                                                    |   |              | 299,621 |      |   |           | 283,471 | 
| |                                                                                                                                                                                                                                                      |   |              |         |      |   |           |        
| |                                                                                                                                                                                                                                                      | $ | 7,243,673    |         |      | $ | 1,083,372 |        
| |                                                                                                                                                                                                                                                      |   |              |         |      |   |           |        



|(1) |  | Payments on the notes are guaranteed, jointly and severally on an
unsecured basis by our subsidiaries, Empaques de Cartón Titán, S.A. de
C.V., Compañia Papelera de Atenquique, S.A. de C.V., Ponderosa
Industrial de Mexico, S.A. de C.V. and Industrias Centauro, S.A. de
C.V.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | The leased machinery has been pledged
as collateral.                                                                                                                                                                                                                            

F-30



---



##### 



CORPORACIÓN DURANGO, S.A. DE C.V. AND SUBSIDIARIES
(formerly Grupo Industrial Durango, S. A. de C. V. and subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
DECEMBER 31, 2000, 2001 AND 2002
(Thousands of constant Mexican Pesos restated as of December 31, 2002)



|c. |  | As of December 31, 2002, the maturities of the long-term debt were as follows:
|-- |  | ------------------------------------------------------------------------------

|                    |  |        |           | 
|------------------- |  | ------ | --------- | 
|Year ended          |  |        |           | 
|December 31         |  | Amount
|                    |  |       
|2004                |  | $      | 232,118   | 
|2005                |  |        | 216,247   | 
|2006                |  |        | 174,968   | 
|2007                |  |        | 174,364   | 
|2008 and thereafter |  |        | 285,675   | 
|                    |  |        |           | 
|                    |  | $      | 1,083,372 | 
|                    |  |        |           | 



|   |  | The Company had Euro Commercial Paper Program of US$100 million, of which,
as of December 31, 2001, US$5 million had been utilized. As of December
31, 2002 this amount had been fully paid.
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|d. |  | The following is an analysis of the capital leases:                                                                                                                                         

|                               |  |                    |         |      |  |   |         |  
|------------------------------ |  | ------------------ | ------- | ---- |  | - | ------- | -
|                               |  | As of December 31,
|                               |  |                   
|                               |  | 2001               |         | 2002
|                               |  |                    |         |     
|Machinery and equipment        |  | $                  | 404,503 |      |  | $ | 406,279 |  
|Less: Accumulated depreciation |  |                    | (24,522 | )    |  |   | (34,936 | )
|                               |  |                    |         |      |  |   |         |  
|                               |  | $                  | 379,981 |      |  | $ | 371,343 |  
|                               |  |                    |         |      |  |   |         |  

As of December 31, 2002, the future minimum lease payments and the present
value of the future minimum lease payments were as follows:

F-31



---



##### 



CORPORACIÓN DURANGO, S.A. DE C.V. AND SUBSIDIARIES
(formerly Grupo Industrial Durango, S. A. de C. V. and subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
DECEMBER 31, 2000, 2001 AND 2002
(Thousands of constant Mexican Pesos restated as of December 31, 2002)

|                                        |  |        |         | 
|--------------------------------------- |  | ------ | ------- | 
|Year ended                              |  |        |         | 
|December 31                             |  | Amount
|                                        |  |       
|2003                                    |  | $      | 130,467 | 
|2004                                    |  |        | 76,221  | 
|2005                                    |  |        | 60,004  | 
|2006                                    |  |        | 16,561  | 
|20027                                   |  |        | 16,561  | 
|2008 and thereafter                     |  |        | 21,954  | 
|                                        |  |        |         | 
|                                        |  |        | 321,768 | 
|Less  interest                         |  |        | 11,145  | 
|                                        |  |        |         | 
|Present value of minimum lease payments |  | $      | 310,623 | 
|                                        |  |        |         | 



|e. |  | Short-term debt reclassification                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The Senior Notes and bank loans contain covenants, obligations and
restrictions with which the Company and/or its subsidiaries must comply,
mainly in respect of contracting other credit lines, payment of dividends and
decrease in capital stock, restrictions in transactions with related parties
and the maintenance of certain financial ratios, as well as compliance with
prompt payment of interest and principal upon each maturity. During November
and December 2002, the Company failed to comply with the payment of interest
and principal maturing on certain bank loans. As a result, the Company was
in default with respect to such obligations. According to the terms of
certain of the Companys debt instruments, the banks and bondholders may
demand in advance, the immediate payment of principal and interest
outstanding on the loans and bonds in default. Therefore, according to
Bulletin C-9, the principal amount of these loans and bonds have been
classified as short-term debt.

NOTE 11  FINANCIAL INSTRUMENTS AND DERIVATIVE FINANCIAL TRANSACTIONS:



|a. |  | The following methods and assumptions were used by the Company in
estimating fair value disclosures for financial instruments:                                                                                                                                                                                                                                      
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | As of December 31, 2001 and 2002, the carrying amount of cash and temporary
investments, accounts receivable, trade accounts payable and accrued
liabilities and other accounts payable approximate their fair value because
of their short maturity. The net carrying value of accounts receivable
represents the cash flow expected to be received by the Company.

F-32



---



##### 



CORPORACIÓN DURANGO, S.A. DE C.V. AND SUBSIDIARIES
(formerly Grupo Industrial Durango, S. A. de C. V. and subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
DECEMBER 31, 2000, 2001 AND 2002
(Thousands of constant Mexican Pesos restated as of December 31, 2002)



| |  | As of December 31, 2001 and 2002, the carrying amount of short-term debt
approximates its fair value due to the variable rate used in such instruments
and its short-term maturity.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | As of December 31, the estimated fair values of the Companys long-term debt,
including senior notes, are as follows:                                                              

|                                                                         |  |          |           |            |  |        |           |            |  |   |           |  |  |   |           | 
|------------------------------------------------------------------------ |  | -------- | --------- | ---------- |  | ------ | --------- | ---------- |  | - | --------- |  |  | - | --------- | 
|                                                                         |  | 2001     |           | 2002      
|                                                                         |  |          |           |           
|                                                                         |  | Carrying |           |            |  |        |           | Carrying   |  |   |           | 
|                                                                         |  | amount   |           | Fair value |  | amount |           | Fair value
|                                                                         |  |          |           |            |  |        |           |           
|Notes classified as a short-term (1)                                     |  | $        | 4,204,615 |            |  | $      | 3,923,957 |            |  | $ | 5,275,354 |  |  | $ | 1,604,606 | 
|                                                                         |  |          |           |            |  |        |           |            |  |   |           |  |  |   |           | 
|Variable debt:                                                           |  |          |           |            |  |        |           |            |  |   |           |  |  |   |           | 
|Libor plus 1.5%                                                          |  |          | 193,843   |            |  |        | 193,843   |            |  |   |          |  |  |   |          | 
|Libor plus 7.0% notes (2)                                                |  |          | 775,372   |            |  |        | 887,724   |            |  |   | 775,491   |  |  |   |          | 
|Financial lease agreements bearing
interest LIBOR plus 2.5% and 3.5% (2) |  |          | 301,174   |            |  |        | 301,174   |            |  |   | 310,623   |  |  |   |          | 
|Libor plus 6.0% notes (2)                                                |  |          | 149,260   |            |  |        | 149,260   |            |  |   | 160,765   |  |  |   |          | 
|Libor plus 3.0% and 3.5%                                                 |  |          | 145,383   |            |  |        | 145,383   |            |  |   |          |  |  |   |          | 
|Libor plus 2.8% notes                                                    |  |          | 911,064   |            |  |        | 911,064   |            |  |   |          |  |  |   |          | 
|Libor plus 2.75% notes                                                   |  |          | 113,205   |            |  |        | 113,205   |            |  |   |          |  |  |   |          | 
|Eurolibor plus 1.15% notes                                               |  |          | 87,649    |            |  |        | 87,649    |            |  |   |          |  |  |   |          | 
|Notes payable (2)                                                        |  |          |          |            |  |        |          |            |  |   | 116,479   |  |  |   |          | 
|Subordinated promissory note bearing
interest at 10%                     |  |          | 322,551   |            |  |        | 322,551   |            |  |   |          |  |  |   |          | 
|Other notes bearing interest at 10% to 12%                               |  |          | 193,429   |            |  |        | 193,429   |            |  |   |          |  |  |   |          | 
|Other debt (2)                                                           |  |          | 145,749   |            |  |        | 145,749   |            |  |   | 3,485     |  |  |   |          | 
|                                                                         |  |          |           |            |  |        |           |            |  |   |           |  |  |   |           | 
|                                                                         |  | $        | 7,543,294 |            |  | $      | 7,374,988 |            |  | $ | 1,366,843 |  |  | $ |          | 
|                                                                         |  |          |           |            |  |        |           |            |  |   |           |  |  |   |           | 



| | (1) |  | The fair value of the Notes is estimated based on quoted market
prices.                                                                                                                                                                                                                                                               
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (2) |  | As of December 2002, due to the financial situation of the Company,
the comparable market information required to determine the estimated
fair value of long-tem debt was not attainable. As such, the Company
was not able to calculate a reasonable estimate of the fair value of the
Companys long-term debt at December 31, 2002.



|b. |  | As of December 31, 2001, the estimated fair value of the Companys
financial derivatives was as follows:
|-- |  | --------------------------------------------------------------------------------------------------------

F-33



---



##### 



CORPORACIÓN DURANGO, S.A. DE C.V. AND SUBSIDIARIES
(formerly Grupo Industrial Durango, S. A. de C. V. and subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
DECEMBER 31, 2000, 2001 AND 2002
(Thousands of constant Mexican Pesos restated as of December 31, 2002)

|                |  |          |        |       |  |   |        | 
|--------------- |  | -------- | ------ | ----- |  | - | ------ | 
|                |  | Carrying |        | Fair 
|                |  | amount   |        | value
|                |  |          |        |      
|Equity Swap (1) |  | $        | 72,157 |       |  | $ | 72,157 | 
|                |  |          |        |       |  |   |        | 



| | (1) |  | The Company entered into several equity swaps with respect to its
American Depositary Receipts (ADRs). The carrying value of these
contracts at December 31, 2001 is as follows:
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                             |  |   |          |  
|-------------------------------------------- |  | - | -------- | -
|Loss from valuation of financial instruments |  |   | ($71,214 | )
|- Financial cost for period                  |  |   | (11,179  | )
|- Financial cost from prior periods          |  |   | (39,636  | )
|- Accumulated financial cost paid            |  |   | 49,872   |  
|                                             |  |   |          |  
|                                             |  | $ | (72,157  | )
|                                             |  |   |          |  

The balance of ($72,157) as of December 31, 2001 was recorded in long-term
liabilities as derivative instruments, with a corresponding charge to
shareholders equity and the income statement (see Note 3 n).

The equity swap matured in May 2002, therefore the Company had no outstanding
swaps at December 31, 2002.

The fair value of the equity swaps is estimated based on their quoted market
price.

Concentration of credit risk

The financial instruments which potentially are subject to a concentration of
credit risk are principally cash and temporary investments and trade accounts
receivable. The Company deposits and invests its excess cash in recognized
financial institutions. The concentration of the credit risk with respect to
accounts receivable is limited due to the large number of customers comprising
the Companys customer base and their dispersion across different locations in
Mexico and the U.S. There were no customers exceeding 10% of net sales for any
of the periods presented.

F-34



---



##### 



CORPORACIÓN DURANGO, S.A. DE C.V. AND SUBSIDIARIES
(formerly Grupo Industrial Durango, S. A. de C. V. and subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
DECEMBER 31, 2000, 2001 AND 2002
(Thousands of constant Mexican Pesos restated as of December 31, 2002)

NOTE 12  PENSION PLANS AND SENIORITY PREMIUMS:



|a. |  | The valuation of labor obligations for retirement pensions and seniority
premiums covers all Mexican employees. The principal financial data
related to these obligations is as follows:
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                 |  |              |         |      |  |   |         |  
|---------------------------------------------------------------- |  | ------------ | ------- | ---- |  | - | ------- | -
|                                                                 |  | December 31,
|                                                                 |  |             
|                                                                 |  | 2001         |         | 2002
|                                                                 |  |              |         |     
|Current benefit obligation                                       |  | $            | 177,202 |      |  | $ | 179,760 |  
|Plan assets                                                      |  |              |        |      |  |   |        |  
|                                                                 |  |              |         |      |  |   |         |  
|Net current liability                                            |  | $            | 177,202 |      |  | $ | 179,760 |  
|                                                                 |  |              |         |      |  |   |         |  
|Projected benefit obligation                                     |  | $            | 211,951 |      |  | $ | 217,098 |  
|Unamortized transition asset                                     |  |              | (97,807 | )    |  |   | (89,472 | )
|Unamortized differences in assumptions and
experience adjustment |  |              | (22,416 | )    |  |   | (24,090 | )
|Plan assets                                                      |  |              |        |      |  |   |        |  
|                                                                 |  |              |         |      |  |   |         |  
|Projected net liability                                          |  |              | 91,728  |      |  |   | 103,536 |  
|Additional minimum liability                                     |  |              | 85,474  |      |  |   | 76,224  |  
|                                                                 |  |              |         |      |  |   |         |  
|Labor obligations                                                |  | $            | 177,202 |      |  | $ | 179,760 |  
|                                                                 |  |              |         |      |  |   |         |  
|Intangible pension asset-labor obligation                        |  | $            | 83,467  |      |  | $ | 74,286  |  
|                                                                 |  |              |         |      |  |   |         |  
|Amortization period (years):                                     |  |              |         |      |  |   |         |  
|Transition asset                                                 |  |              | 18.5    |      |  |   | 18.5    |  
|Experience adjustment                                            |  |              | 24      |      |  |   | 24      |  



| |  | The net cost for the year consisted of the following:
| |  | -----------------------------------------------------

|                                   |  |              |        |      |  |      |        |  |  |   |        | 
|---------------------------------- |  | ------------ | ------ | ---- |  | ---- | ------ |  |  | - | ------ | 
|                                   |  | December 31,
|                                   |  |             
|                                   |  | 2000         |        | 2001 |  | 2002
|                                   |  |              |        |      |  |     
|Service cost                       |  | $            | 15,594 |      |  | $    | 9,471  |  |  | $ | 9,174  | 
|Amortization of prior service cost |  |              | 18,642 |      |  |      | 8,820  |  |  |   | 10,344 | 
|Financial cost for the year        |  |              | 14,724 |      |  |      | 10,010 |  |  |   | 9,040  | 
|                                   |  |              |        |      |  |      |        |  |  |   |        | 
|                                   |  | $            | 48,960 |      |  | $    | 28,301 |  |  | $ | 28,558 | 
|                                   |  |              |        |      |  |      |        |  |  |   |        | 



| |  | Prior service costs (transition liability), plan amendment costs and
actuarial losses are recorded through charges to income using the
straight-line method over the average remaining service life over which
employees are expected to receive the benefits.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-35



---



##### 



CORPORACIÓN DURANGO, S.A. DE C.V. AND SUBSIDIARIES
(formerly Grupo Industrial Durango, S. A. de C. V. and subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
DECEMBER 31, 2000, 2001 AND 2002
(Thousands of constant Mexican Pesos restated as of December 31, 2002)



| |  | During 2001, due to labor contract terminations of the subsidiaries Compañía
Papelera de Atenquique, S.A. de C.V. and Ponderosa Insustrial de Mexico, S.A.
de C.V., cash severance payments were made amounting to $171,969.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | During 2002, due to labor contract terminations, cash severance payments were
made amounting to $11,936.                                                                                                                    
|
| |  | The following actuarial assumptions were used to determine the present value
of accumulated plan benefits for pension plans and seniority premiums
(excluding inflation effects):                                           

|                     |  |              |   |      |  |      |   |   |  |  |   |  
|-------------------- |  | ------------ | - | ---- |  | ---- | - | - |  |  | - | -
|                     |  | December 31,
|                     |  |             
|                     |  | 2000         |   | 2001 |  | 2002
|                     |  |              |   |      |  |     
|Discount rate        |  |              | 5 | %    |  |      | 5 | % |  |  | 5 | %
|Salary increase rate |  |              | 2 | %    |  |      | 2 | % |  |  | 2 | %



|b. |  | The subsidiaries in the U.S. have established the following employee
benefits: a 401 (k) retirement savings plan, money purchase and defined
benefit plans, health insurance plan, disability plan, and life insurance
plan. For the years ended December 31, 2000, 2001 and 2002, total
expenses related to these plans were $95,360 (US$9,839), $115,972
(US$10,852) and $45,818 (US$4,389), respectively.
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The principal financial data and significant assumptions related to the defined
benefit obligation plans related to foreign subsidiaries are as follows:

|                                |  |              |          |      |  |   |   | 
|------------------------------- |  | ------------ | -------- | ---- |  | - | - | 
|                                |  | December 31,
|                                |  |             
|                                |  | 2001         |          | 2002
|                                |  |              |          |     
|Projected benefit obligation    |  | $            | 520,586  |      |  | $ |  | 
|Plan assets                     |  |              | (458,134 | )    |  |   |  | 
|Unrecognized net loss           |  |              | (141,355 | )    |  |   |  | 
|Unrecognized prior service cost |  |              | (34,005  | )    |  |   |  | 
|Additional minimum liability    |  |              | 175,360  |      |  |   |  | 
|                                |  |              |          |      |  |   |   | 
|Net pension (asset) liability   |  | $            | 62,452   |      |  | $ |  | 
|                                |  |              |          |      |  |   |   | 

F-36



---



##### 



CORPORACIÓN DURANGO,
S.A. DE C.V. AND SUBSIDIARIES
(formerly Grupo Industrial Durango, S. A. de C. V. and subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
DECEMBER 31, 2000, 2001 AND 2002
(Thousands of constant Mexican Pesos restated as of December 31, 2002)

The additional minimum liability has been offset by an intangible asset
amounting to $34,005 to the extent of previously unrecognized prior service
cost. The remaining amount of $141,358 was recorded as a component of
shareholders equity.

The net cost for the year consisted of the following:

|                                                |  |      |        |      |  |              |        |  |  |   |   | 
|----------------------------------------------- |  | ---- | ------ | ---- |  | ------------ | ------ |  |  | - | - | 
|                                                |  |      |        |      |  | December 31, |        |  |  |  
|                                                |  |      |        |      |  |              |        |  |  |  
|                                                |  | 2000 |        | 2001 |  | 2002        
|                                                |  |      |        |      |  |             
|Service cost                                    |  | $    | 9,060  |      |  | $            | 8,564  |  |  | $ |  | 
|Interest cost                                   |  |      | 35,809 |      |  |              | 36,114 |  |  |   |  | 
|Amortization of unrecognized prior
service cost |  |      | 2,765  |      |  |              | 2,866  |  |  |   |  | 
|                                                |  |      |        |      |  |              |        |  |  |   |   | 
|                                                |  | $    | 47,634 |      |  | $            | 47,544 |  |  | $ |  | 
|                                                |  |      |        |      |  |              |        |  |  |   |   | 

The expected return on plan assets was $52,652 and $45,727 for the years
ended December 31, 2000 and 2001, respectively.

The actuarial assumptions were used to determine the present value of
accumulated plan benefits for pension plans of foreign subsidiaries as
follows:

|                                                                                |  |              |      |      |  |  |      |  
|------------------------------------------------------------------------------- |  | ------------ | ---- | ---- |  |  | ---- | -
|                                                                                |  | December 31,
|                                                                                |  |             
|                                                                                |  | 2001         |      | 2002
|                                                                                |  |              |      |     
|Expected long-term rate of return on plan assets                                |  |              | 9.00 | %    |  |  | 9.00 | %
|Weighted average discount rate for year-end funded
status of all benefits costs |  |              | 7.25 | %    |  |  | 7.25 | %

NOTE 13  CONTINGENCIES AND COMMITMENTS:

The Company has the following contingencies and commitments:



|I. |  | Contingencies:
|-- |  | --------------



| | a. |  | The Company is contingently liable for indemnities payable to employees
in case of dismissal under certain circumstances as provided by the
Mexican Federal Labor Law. As of December 31, 2002, no obligations were
recognized in the financial statements.
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-37



---



##### 



CORPORACIÓN DURANGO, S.A. DE C.V. AND SUBSIDIARIES
(formerly Grupo Industrial Durango, S. A. de C. V. and subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
DECEMBER 31, 2000, 2001 AND 2002
(Thousands of constant Mexican Pesos restated as of December 31, 2002)



| | b. |  | The Company may be subject to a contingent liability for additional taxes
resulting from reviews of the tax returns filed by the Company, if its
interpretation criteria differs from that of the Mexican tax authorities.                                                                                                                                         
| | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | c. |  | The Company has initiated an injunction against the Mexican tax
authorities regarding the methodology used to determine its employee
statutory profit sharing. Management does not believe that any liabilities
relating to this injunction are likely to have a material adverse effect
on the Companys consolidated financial condition or result of operations.
|
| | d. |  | As of the date of issuance of these financial statements, the Company has
a lawsuit initiated by Compass Income Master Fund, Inc. due to the failure
of payment of principal and interest on the Euro Commercial Paper, which
matured February 12, 2003. The amount of the suit is
US$3.5 million.                                                                 
|
| | e. |  | The Company has a lawsuit against it initiated by HG Estate for
approximately US$48.0 million due to the failure of payment of principal and
interest, which matured in December 2002.                                                                                                                                                                             

The Company considers that the final resolution for these situations will not
have any material impact on its financial conditions or results of operations.



|II.  |  | Going Concern:                                                                                                                                                                                                                                                                                                
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|     |  | As mentioned in Note 1.ii, there is an uncertainty about the ability of the
Company to continue in operation as a going concern.                                                                                                                                                                              
|    
|III. |  | Gain Contingency:                                                                                                                                                                                                                                                                                             
|    
|     |  | Corporación Durango filed a counterclaim against HG Estate for US$85 million
due to discrepancies in the calculation of the value of the fixed assets of
Durango Paper Company. This claim is pending resolution. As part of the DPC
sale agreement, the benefit of this claim remains in Corporación Durango.
|    
|IV.  |  | Commitments:                                                                                                                                                                                                                                                                                                  



| | a. |  | As of December 31, 2002, the Mexican subsidiaries leased certain
equipment under non-cancelable operating leases. Rental expense under
these leases was approximately $61,479, $74,828 and $57,439 for the years
ended December 2000, 2001 and 2002, respectively.
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-38



---



##### 



CORPORACIÓN DURANGO, S.A. DE C.V. AND SUBSIDIARIES
(formerly Grupo Industrial Durango, S. A. de C. V. and subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
DECEMBER 31, 2000, 2001 AND 2002
(Thousands of constant Mexican Pesos restated as of December 31, 2002)

As of December 31, 2002 estimated future minimum lease payments under
non-cancelable operating leases were as follows:

|                    |  |   |         | 
|------------------- |  | - | ------- | 
|2003                |  | $ | 36,371  | 
|2004                |  |   | 15,115  | 
|2005                |  |   | 11,852  | 
|2006                |  |   | 8,675   | 
|2007                |  |   | 8,675   | 
|2008 and thereafter |  |   | 26,694  | 
|                    |  |   |         | 
|Total               |  | $ | 107,382 | 
|                    |  |   |         | 

b.     As of December 31, 2002, McKinley Paper Co. (a U.S. subsidiary) leased
certain equipment under non-cancelable operating leases. Rental expense under
these leases was approximately $27,469, $27,202 and $21,990 for the years ended
December 2000, 2001 and 2002, respectively.

As of December 31, 2002 estimated future minimum lease payments under
non-cancelable operating leases were as follows:

|                    |  |        |       | 
|------------------- |  | ------ | ----- | 
|                    |  | Amount
|2003                |  | $      | 4,625 | 
|2004                |  |        | 2,234 | 
|2005                |  |        | 1,785 | 
|2006                |  |        | 971   | 
|2007                |  |        | 355   | 
|2008 and thereafter |  |        |      | 
|                    |  |        |       | 
|Total               |  | $      | 9,970 | 
|                    |  |        |       | 



|V. |  | Guarantees
|-- |  | ----------

The Company is the guarantor for a bank loan and capital lease agreements held
by a related party amounting to US$22.7 million.

NOTE 14  CAPITAL STOCK AND RETAINED EARNINGS:

As of December 31, 2002, the nominal capital stock amounted to $1,412,214, and
the fixed minimum portion without a right to withdrawal was $699,714,
represented by 46,610,100 common nominative Series A shares without par
value. The variable portion of capital stock

F-39



---



##### 



CORPORACIÓN DURANGO, S.A. DE C.V. AND SUBSIDIARIES
(formerly Grupo Industrial Durango, S. A. de C. V. and subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
DECEMBER 31, 2000, 2001 AND 2002
(Thousands of constant Mexican Pesos restated as of December 31, 2002)

amounted to $712,500, represented by 47,462,022 common nominative Series A
shares without par value.



|a. |  | In Mexico, income for the year is subject to legal requirements, which
provide that 5% of income for each year be allocated to increasing the
legal reserve, until this reserve reaches the equivalent of one-fifth of
the amount of paid-in capital stock.                                                                                                                                                                                                                    
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|b. |  | Dividend tax regime:                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|  
|   |  | Dividends paid will be free of income tax if paid out of the Net Taxable
Income Account (CUFIN). A 34% rate will be paid in 2003 on the amount
exceeding the balance of the CUFIN by multiplying the dividend paid by a
factor of 1.5152 in 2003. The applicable tax will be payable by the Company,
and it may be credited against income tax that the Company is subject to in
the following three fiscal years. Dividends paid will not be subject to any
tax withholding.
|  
|c. |  | Under Mexican corporate law, the Company is not permitted to declare or
pay dividends if the dividends from its subsidiaries are not received
first. Additionally, neither the Company nor its subsidiaries is
permitted to declare or pay dividends as a result of the negative
covenants established in the debt instruments placed in the Mexican and
international markets.                                                                                                

NOTE 15  PROVISION FOR INCOME AND ASSET TAXES:

The income tax (ISR) provision at December 31, is comprised as follows.

|             |  |      |          |      |  |      |          |   |  |   |          |  
|------------ |  | ---- | -------- | ---- |  | ---- | -------- | - |  | - | -------- | -
|             |  | 2000 |          | 2001 |  | 2002
|             |  |      |          |      |  |     
|Current ISR  |  | $    | (261,551 | )    |  | $    | (210,522 | ) |  | $ | (5,751   | )
|Asset tax    |  |      | (28,324  | )    |  |      | (25,297  | ) |  |   | (108,631 | )
|Deferred ISR |  |      | (387,519 | )    |  |      | 267,291  |   |  |   | 667,294  |  
|             |  |      |          |      |  |      |          |   |  |   |          |  
|             |  | $    | (677,394 | )    |  | $    | 31,472   |   |  | $ | 552,912  |  
|             |  |      |          |      |  |      |          |   |  |   |          |  

As of December 31, 2002 and 2001, the main components of deferred income tax
are as follows:
F-40

CORPORACIÓN DURANGO, S.A. DE C.V. AND SUBSIDIARIES
(formerly Grupo Industrial Durango, S. A. de C. V. and subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
DECEMBER 31, 2000, 2001 AND 2002
(Thousands of constant Mexican Pesos restated as of December 31, 2002)

|                                   |  |      |            |      |  |   |            |  
|---------------------------------- |  | ---- | ---------- | ---- |  | - | ---------- | -
|                                   |  | 2001 |            | 2002
|                                   |  |      |            |     
|Inventories                        |  |      | ($54,456   | )    |  | $ | 98,388     |  
|Property, plant and equipment, net |  |      | 12,277,843 |      |  |   | 9,706,261  |  
|Liability provisions               |  |      | (469,651   | )    |  |   | (517,007   | )
|Tax loss carryforwards             |  |      | (2,184,152 | )    |  |   | (3,228,147 | )
|Deferred assets                    |  |      | 379,332    |      |  |   | 433,268    |  
|                                   |  |      |            |      |  |   |            |  
|                                   |  |      | 9,948,916  |      |  |   | 6,492,763  |  
|Income tax rate                    |  |      | 35         | %    |  |   | 32         | %
|                                   |  |      |            |      |  |   |            |  
|Deferred income tax                |  |      | 3,482,121  |      |  |   | 2,077,684  |  
|Recoverable tax on assets          |  |      | (391,753   | )    |  |   | (68,410    | )
|                                   |  |      |            |      |  |   |            |  
|Income tax payable                 |  | $    | 3,090,368  |      |  | $ | 2,009,274  |  
|                                   |  |      |            |      |  |   |            |  

Company management made a fully reserve of certain amounts pertaining to asset
tax recoverable and unamortized tax losses in the calculation for deferred
taxes, in light of the fact that there is no certainty as to whether said
amounts can be compensated or offset within the terms established by law.

Of the deferred income tax recorded as of December 31, 2001, and 2002, $22,108
and $145,398, was recorded directly to the restatement of non-monetary assets
within shareholders equity as it resulted from temporary differences generated
by non-monetary items, principally inventories and property, plant and
equipment.

As of December 31, 2002, the Company had tax loss carryforwards in the
approximate amount of $4,999,436, which are subject to an additional NCPI
restatement and may reduce future years taxable income for income tax purposes
as shown below:

|                    |  |        |           | 
|------------------- |  | ------ | --------- | 
|Year of             |  |        |           | 
|expiration          |  | Amount
|                    |  |       
|2004                |  | $      | 235,792   | 
|2005                |  |        | 604,751   | 
|2006                |  |        | 221,374   | 
|2007                |  |        | 158,237   | 
|2008                |  |        | 129,576   | 
|2009 and thereafter |  |        | 3,649,706 | 
|                    |  |        |           | 
|                    |  | $      | 4,999,436 | 
|                    |  |        |           | 

F-41



---



##### 



CORPORACIÓN DURANGO, S.A. DE C.V. AND SUBSIDIARIES
(formerly Grupo Industrial Durango, S. A. de C. V. and subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
DECEMBER 31, 2000, 2001 AND 2002
(Thousands of constant Mexican Pesos restated as of December 31, 2002)

As of December 31, 2002, the foreign subsidiaries tax loss carryforwards
amounted to $47,391.

Asset tax is calculated at a rate of 1.8% on the net value of certain assets
and liabilities and is due only when the asset tax exceeds the income tax
payable. The asset tax paid can be recovered over the following 10 years, if
and when income taxes exceed asset tax during such years. As of December 31,
2002, the asset tax carryforwards totaled $377,374.

The reconciliation between the real and effective income tax rate is shown
below:

|                                                  |  |      |       |      |  |              |       |   |  |  |       |  
|------------------------------------------------- |  | ---- | ----- | ---- |  | ------------ | ----- | - |  |  | ----- | -
|                                                  |  |      |       |      |  | December 31, |       |   |  | 
|                                                  |  |      |       |      |  |              |       |   |  | 
|                                                  |  | 2000 |       | 2001 |  | 2002        
|                                                  |  |      |       |      |  |             
|                                                  |  | %   
|                                                  |  |     
|ISR at the statutory rate                         |  |      | 35.0  |      |  |              | 35.0  |   |  |  | (35.0 | )
|Increase (decrease) in effective ISR rate due to: |  |      |       |      |  |              |       |   |  |  |       |  
|Purchases                                         |  |      | (4.2  | )    |  |              | 23.0  |   |  |  | 8.3   |  
|Depreciation                                      |  |      | 0.4   |      |  |              |      |   |  |  | 2.2   |  
|Net effect of the comprehensive financing cost    |  |      | 0.9   |      |  |              | (1.4  | ) |  |  | 9.0   |  
|Reserves                                          |  |      | 0.7   |      |  |              | (0.4  | ) |  |  |      |  
|Non deductible expenses                           |  |      | 0.8   |      |  |              | 1.3   |   |  |  | (0.3  | )
|Goodwill                                          |  |      | (21.9 | )    |  |              | (19.9 | ) |  |  |      |  
|Tax loss carryforwards                            |  |      | (2.8  | )    |  |              | (26.0 | ) |  |  |      |  
|Loss in fixed assets sold                         |  |      | 2.8   |      |  |              | 11.8  |   |  |  |      |  
|Change of statutory income tax rate               |  |      |      |      |  |              |      |   |  |  | (1.5  | )
|Other                                             |  |      |      |      |  |              | 6.0   |   |  |  | 3.8   |  
|                                                  |  |      |       |      |  |              |       |   |  |  |       |  
|Effective income tax rate                         |  |      | 11.7  |      |  |              | 29.4  |   |  |  | (13.5 | )
|                                                  |  |      |       |      |  |              |       |   |  |  |       |  

As a result of the amendments to the Income Tax Law approved on January 1,
2002, beginning in 2003, the income tax rate (35%) will be reduced annually to
a nominal rate of 32% in 2005. Consequently, the effect of this gradual
decrease in the income tax rate is estimated to reduce the deferred income tax
liabilities by approximately $194,783 in 2002.

The Company is authorized by the Ministry of Finance and Public Credit to file
income tax returns on a consolidated basis with some of its Mexican
subsidiaries. Effective January 1, 1999, as a result of a change in the income
tax law, consolidated taxable income or loss methodology has changed; the most
significant modifications are the following:



| |  | Recognizing the proportional taxable income or loss of subsidiaries to
the extent of taking the ownership percentage of the holding company in
the subsidiaries and multiplying the amount
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-42



---



##### 



CORPORACIÓN DURANGO, S.A. DE C.V. AND SUBSIDIARIES
(formerly Grupo Industrial Durango, S. A. de C. V. and subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
DECEMBER 31, 2000, 2001 AND 2002
(Thousands of constant Mexican Pesos restated as of December 31, 2002)



|  |  | by a factor of 0.60. Controlled companies with prior year tax loss
carryforwards shall be considered at the total percentage of direct or
indirect equity participation share.                                                                         
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Eliminating the concept of effective control of subsidiaries.
Companies in which a direct or indirect equity interest of less than
50% is held should not be included in the consolidated tax return.                                                  
| 
| |  | The tax losses of the Company and its subsidiaries, which originated
individually, and which cannot be offset under the tax terms in
effect, must be added to income or deducted from the consolidated tax
loss in the year in which the rights expire.

The Employee Profit Sharing is calculated by applying the rate 10% over the
ISR (IT) base, in accordance with the special rules set-forth in the income tax
law.

NOTE 16  FINANCIAL INFORMATION BY BUSINESS SEGMENTS:

Reportable segments are those that are based on the Companys method of
internal reporting.

The Company is managed on a product basis and its reportable segments are as
follows:

Packaging -

Manufacturing and selling of corrugated containers, molded pulp and multi-wall
sacks and bags.

Paper -

Manufacturing and selling of kraft and semikraft paper made of virgin pulp or
recycled paper.

Other business -

Manufacturing and selling of plywood and particleboard.

Prices between segments are based on market prices. Management evaluates each
business segment according to its operating results.

The accounting policies of the segments are the same as those described in Note
3.

For the years ended December 31, 2000, 2001 and 2002, the financial information
by business segments is as follows:

F-43



---



##### 



CORPORACIÓN DURANGO, S.A. DE C.V. AND SUBSIDIARIES
(formerly Grupo Industrial Durango, S. A. de C. V. and subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
DECEMBER 31, 2000, 2001 AND 2002

(Thousands of constant Mexican Pesos restated as of December 31, 2002)

|             |  |               |            |               |  |             |            |                  |  |                  |            |              |  |           |           |           |  |   |         |  |  |   |           |              |  |   |           | 
|------------ |  | ------------- | ---------- | ------------- |  | ----------- | ---------- | ---------------- |  | ---------------- | ---------- | ------------ |  | --------- | --------- | --------- |  | - | ------- |  |  | - | --------- | ------------ |  | - | --------- | 
|             |  |               |            |               |  |             |            |                  |  |                  |            |              |  | Operating |           |           |  |   |         |  |  |   |           |              |  |  
|             |  |               |            |               |  |             |            |                  |  |                  |            |              |  | Income    |           |           |  |   |         |  |  |   |           | Additions   
|             |  |               |            |               |  |             |            |                  |  |                  |            |              |  | before    |           |           |  |   |         |  |  |   |           | to property,
|             |  | Sales to      |            | Inter-        |  |             |            |                  |  | depreciation and |            | Depreciation |  | Operating |           | plant and
|2000         |  | third parties |            | segment sales |  | Total Sales |            | amortization and |  | amortization     |            | income       |  | equipment
|             |  |               |            |               |  |             |            |                  |  |                  |            |              |  |          
|Packaging    |  | $             | 5,957,907  |               |  | $           | 93,821     |                  |  | $                | 6,051,728  |              |  | $         | 870,556   |           |  | $ | 120,601 |  |  | $ | 749,955   |              |  | $ | 210,933   | 
|Paper        |  |               | 6,408,131  |               |  |             | 4,950,502  |                  |  |                  | 11,358,633 |              |  |           | 1,077,350 |           |  |   | 410,101 |  |  |   | 667,249   |              |  |   | 960,903   | 
|Other        |  |               | 555,833    |               |  |             | 57,793     |                  |  |                  | 613,626    |              |  |           | 83,251    |           |  |   | 33,981  |  |  |   | 49,270    |              |  |   | 9,670     | 
|Eliminations |  |               |           |               |  |             | (5,102,116 | )                |  |                  | (5,102,116 | )            |  |           |          |           |  |   |        |  |  |   |          |              |  |   |          | 
|             |  |               |            |               |  |             |            |                  |  |                  |            |              |  |           |           |           |  |   |         |  |  |   |           |              |  |   |           | 
|             |  | $             | 12,921,871 |               |  | $           |           |                  |  | $                | 12,921,871 |              |  | $         | 2,031,157 |           |  | $ | 564,683 |  |  | $ | 1,466,474 |              |  | $ | 1,181,506 | 
|             |  |               |            |               |  |             |            |                  |  |                  |            |              |  |           |           |           |  |   |         |  |  |   |           |              |  |   |           | 
|2001         |  |               |            |               |  |             |            |                  |  |                  |            |              |  |           |           |           |  |   |         |  |  |   |           |              |  |   |           | 
|Packaging    |  | $             | 4,646,363  |               |  | $           | 90,645     |                  |  | $                | 4,737,008  |              |  | $         | 674,132   |           |  | $ | 109,691 |  |  | $ | 564,441   |              |  | $ | 412,067   | 
|Paper        |  |               | 5,652,544  |               |  |             | 3,892,285  |                  |  |                  | 9,544,829  |              |  |           | 794,524   |           |  |   | 365,985 |  |  |   | 428,539   |              |  |   | 326,717   | 
|Other        |  |               | 233,488    |               |  |             | 44,335     |                  |  |                  | 277,823    |              |  |           | 57,237    |           |  |   | 16,612  |  |  |   | 40,625    |              |  |   | 146,899   | 
|Eliminations |  |               |           |               |  |             | (4,027,265 | )                |  |                  | (4,027,265 | )            |  |           |          |           |  |   |        |  |  |   |          |              |  |   |          | 
|             |  |               |            |               |  |             |            |                  |  |                  |            |              |  |           |           |           |  |   |         |  |  |   |           |              |  |   |           | 
|             |  | $             | 10,532,395 |               |  | $           |           |                  |  | $                | 10,532,395 |              |  | $         | 1,525,893 |           |  | $ | 492,288 |  |  | $ | 1,033,605 |              |  | $ | 885,683   | 
|             |  |               |            |               |  |             |            |                  |  |                  |            |              |  |           |           |           |  |   |         |  |  |   |           |              |  |   |           | 
|2002         |  |               |            |               |  |             |            |                  |  |                  |            |              |  |           |           |           |  |   |         |  |  |   |           |              |  |   |           | 
|Packaging    |  | $             | 4,054,088  |               |  | $           | 89,934     |                  |  | $                | 4,144,022  |              |  | $         | 699,030   |           |  | $ | 114,533 |  |  | $ | 584,497   |              |  | $ | 141,673   | 
|Paper        |  |               | 4,178,108  |               |  |             | 2,680,473  |                  |  |                  | 6,858,581  |              |  |           | 366,164   |           |  |   | 342,907 |  |  |   | 23,257    |              |  |   | 208,581   | 
|Other        |  |               | 266,009    |               |  |             | 43,825     |                  |  |                  | 309,834    |              |  |           | 54,212    |           |  |   | 17,989  |  |  |   | 36,223    |              |  |   | 91,112    | 
|Eliminations |  |               |           |               |  |             | (2,814,232 | )                |  |                  | (2,814,232 | )            |  |           |          |           |  |   |        |  |  |   |          |              |  |   |          | 
|             |  |               |            |               |  |             |            |                  |  |                  |            |              |  |           |           |           |  |   |         |  |  |   |           |              |  |   |           | 
|             |  | $             | 8,498,205  |               |  | $           |           |                  |  | $                | 8,498,205  |              |  | $         | 1,119,406 |           |  | $ | 475,429 |  |  | $ | 643,977   |              |  | $ | 441,366   | 
|             |  |               |            |               |  |             |            |                  |  |                  |            |              |  |           |           |           |  |   |         |  |  |   |           |              |  |   |           | 

As of December 31, segment information related to assets and liabilities is as follows:

|             |  |         |             |             |  |   |             |  
|------------ |  | ------- | ----------- | ----------- |  | - | ----------- | -
|             |  | Segment |             | Segment    
|2000         |  | assets  |             | liabilities
|             |  |         |             |            
|Packaging    |  | $       | 18,407,451  |             |  | $ | 12,471,284  |  
|Paper        |  |         | 33,661,532  |             |  |   | 12,802,381  |  
|Other        |  |         | 1,716,652   |             |  |   | 1,093,893   |  
|Eliminations |  |         | (30,110,163 | )           |  |   | (10,838,185 | )
|             |  |         |             |             |  |   |             |  
|             |  | $       | 23,675,472  |             |  | $ | 15,529,373  |  
|             |  |         |             |             |  |   |             |  

F-44



---



##### 



CORPORACIÓN DURANGO, S.A. DE C.V. AND SUBSIDIARIES
(formerly Grupo Industrial Durango, S. A. de C. V. and subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
DECEMBER 31, 2000, 2001 AND 2002
(Thousands of constant Mexican Pesos restated as of December 31, 2002)

|             |  |         |             |             |  |   |            |  
|------------ |  | ------- | ----------- | ----------- |  | - | ---------- | -
|             |  | Segment |             | Segment    
|2001         |  | assets  |             | liabilities
|             |  |         |             |            
|Packaging    |  | $       | 21,749,083  |             |  | $ | 12,546,430 |  
|Paper        |  |         | 22,452,085  |             |  |   | 8,585,588  |  
|Other        |  |         | 1,640,754   |             |  |   | 1,032,000  |  
|Eliminations |  |         | (24,564,391 | )           |  |   | (8,763,157 | )
|             |  |         |             |             |  |   |            |  
|             |  | $       | 21,277,531  |             |  | $ | 13,400,861 |  
|             |  |         |             |             |  |   |            |  

|             |  |   |             |   |  |   |            |  
|------------ |  | - | ----------- | - |  | - | ---------- | -
|2002         |  |   |             |   |  |   |            |  
|             |  |   |             |   |  |   |            |  
|Packaging    |  | $ | 19,508,582  |   |  | $ | 14,713,514 |  
|Paper        |  |   | 17,299,822  |   |  |   | 6,568,550  |  
|Other        |  |   | 1,743,006   |   |  |   | 1,290,250  |  
|Eliminations |  |   | (21,238,736 | ) |  |   | (9,689,938 | )
|             |  |   |             |   |  |   |            |  
|             |  | $ | 17,312,674  |   |  | $ | 12,882,376 |  
|             |  |   |             |   |  |   |            |  

Geographical segment information is as follows:

|              |  |         |            |        |  |   |            | 
|------------- |  | ------- | ---------- | ------ |  | - | ---------- | 
|              |  | Segment
|              |  |        
|              |  | Net     |            | fixed 
|2000          |  | sales   |            | assets
|              |  |         |            |       
|Mexico        |  | $       | 12,161,342 |        |  | $ | 13,369,846 | 
|United States |  |         | 5,862,645  |        |  |   | 4,186,460  | 
|Eliminations  |  |         | (5,102,116 | )      |  |   |            | 
|              |  |         |            |        |  |   |            | 
|              |  | $       | 12,921,871 |        |  | $ | 17,556,306 | 
|              |  |         |            |        |  |   |            | 

|              |  |   |            |   |  |   |            | 
|------------- |  | - | ---------- | - |  | - | ---------- | 
|2001          |  |   |            |   |  |   |            | 
|              |  |   |            |   |  |   |            | 
|Mexico        |  | $ | 10,411,858 |   |  | $ | 12,492,604 | 
|United States |  |   | 4,147,802  |   |  |   | 3,996,380  | 
|Eliminations  |  |   | (4,027,265 | ) |  |   |            | 
|              |  |   |            |   |  |   |            | 
|              |  | $ | 10,532,395 |   |  | $ | 16,488,984 | 
|              |  |   |            |   |  |   |            | 

F-45



---



##### 



CORPORACIÓN DURANGO, S.A. DE C.V. AND SUBSIDIARIES
(formerly Grupo Industrial Durango, S. A. de C. V. and subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
DECEMBER 31, 2000, 2001 AND 2002
(Thousands of constant Mexican Pesos restated as of December 31, 2002)

|     |  |               |  |   |            |         |           |        |            |   |            | 
|---- |  | ------------- |  | - | ---------- | ------- | --------- | ------ | ---------- | - | ---------- | 
|     |  |               |  |   |            | Segment
|     |  |               |  |   |            |        
|     |  |               |  |   |            | Net     |           | fixed 
|2002 |  |               |  |   |            | sales   |           | assets
|     |  |               |  |   |            |         |           |       
|     |  | Mexico        |  | $ | 8,257,034  |         |           | $      | 12,178,153 |  
|     |  | United States |  |   | 3,055,403  |         |           |        | 885,558    |  
|     |  | Eliminations  |  |   | (2,814,232 | )       |           |        |            |  
|     |  |               |  |   |            |         |           |        |            |   |            | 
|     |  |               |  |   |            | $       | 8,498,205 |        |            | $ | 13,063,711 | 
|     |  |               |  |   |            |         |           |        |            |   |            | 

The last financial information shown is useful in the making of decisions by
the Companys management.

NOTE 17  SPECIAL ITEMS:

As of December 31, 2002, special items are as follows.

|                                                               |  |   |           | 
|-------------------------------------------------------------- |  | - | --------- | 
|Loss on sale of subsidiary Durango Paper Company (Note 1 iii.) |  | $ | 1,451,431 | 
|                                                               |  |   |           | 
|Total special items                                            |  | $ | 1,451,431 | 
|                                                               |  |   |           | 

NOTE 18  EXTRAORDINARY ITEMS:

As of December 31, 2001, extraordinary items are as follows:

|                                                                           |  |   |         | 
|-------------------------------------------------------------------------- |  | - | ------- | 
|Severance Compañía Papelera de Atenquique, S.A. de C.V. (1)                |  | $ | 157,104 | 
|Severance Ponderosa Industrial de México, S.A. de C.V. (Plywood plant) (1) |  |   | 11,137  | 
|Net loss on sale of certain non-strategic assets (Sky and Eastman) (2)     |  |   | 130,397 | 
|                                                                           |  |   |         | 
|Total extraordinary items                                                  |  | $ | 298,638 | 
|                                                                           |  |   |         | 



---

|(1) |  | Early in 2001, the Company entered into negotiations with its unions,
with the objective of canceling labor contracts still in effect after
approximately 50 years regarding the operations of Compañía Papelera de
Atenquique, S.A. de C.V. and Ponderosa Industrial de México, S.A. de C.V.
After a few months of negotiations, such contracts were terminated and the
number of workers was reduced.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-46



---



##### 



CORPORACIÓN DURANGO, S.A. DE C.V. AND SUBSIDIARIES
(formerly Grupo Industrial Durango, S. A. de C. V. and subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
DECEMBER 31, 2000, 2001 AND 2002
(Thousands of constant Mexican Pesos restated as of December 31, 2002)



|(2) |  | In April and May 2001, certain non-strategic assets (the Sky and Eastman
divisions) of Durango Georgia Paper Company (a subsidiary of DPC) were
sold, generating a loss as the book value under Mexican GAAP was higher
than the price for which they were sold.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

NOTE 19  NEW ACCOUNTING STANDARDS:

In November 2001, the MIPA issued revised Bulletin C-9, Liabilities,
Provisions, Contingent Assets and Liabilities and Commitments (Bulletin
C-9), which supersedes existing Bulletin C-9, Liabilities and Bulletin C-12,
Contingencies and Commitments. Bulletin C-9 establishes a methodology for
valuation, presentation and disclosure of liabilities and provisions, as well
as for valuation and disclosure of contingent assets and liabilities, and for
disclosure of commitments.

Among other things, Bulletin C-9 establishes guidelines for the recognition of
liabilities and non-recognition of liabilities in the event of extinguishments,
restructurings or conversion to equity. In addition, in the case of
provisions, it introduces the concept of discounting long-term provisions.
With respect to contingent liabilities, Bulletin C-9 states that all contingent
liabilities that have a probable realization must be accounted for and
disclosed in the financial statements, contingent liabilities that have a
possible realization cannot be accounted for in the financial statements, but
must be disclosed, and contingent liabilities that have a remote realization
cannot be accounted for in the financial statements and are not required to be
disclosed. Bulletin C-9 requires disclosure of committed amounts when they
represent significant fixed asset additions, contracted services and goods that
exceed the Companys immediate needs or if the commitment is considered a
contracted obligation. The provisions of Bulletin C-9 are required to be
applied beginning on January 1, 2003, although early adoption is recommended.
Management is currently evaluating the impact that the adoption of Bulletin C-9
will have on its consolidated financial statements.

In addition, in December 2001, the MIPA issued Bulletin C-8, Intangible
Assets (Bulletin C-8), which defines intangible assets as costs incurred
and rights or privileges acquired that will generate a future economic benefit,
Bulletin C-8 provides a clear definition of research and development costs,
requiring that only development costs may be deferred to a future period.
Furthermore, Bulletin C-8 states that preoperating costs should be expensed as
a period cost, unless they could be classified as development costs. Bulletin
C-8 requires that intangible assets with indefinite useful lives should not be
amortized, but should be evaluated for impairment annually. Goodwill and
intangible assets with finite useful lives should be amortized over their
useful lives. The provisions of Bulletin C-8 are required to be applied
beginning on January 1,

F-47



---



##### 



CORPORACIÓN DURANGO,
S.A. DE C.V. AND SUBSIDIARIES
(formerly Grupo Industrial Durango, S. A. de C. V. and subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
DECEMBER 31, 2000, 2001 AND 2002
(Thousands of constant Mexican Pesos restated as of December 31, 2002)

2003, although early adoption is recommended. Management is currently
evaluating the impact that the adoption of Bulletin C-8 will have on its
consolidated financial statements.

NOTE 20  SUBSEQUENT EVENTS:

On February 27, 2003 Empaques de Carton Titan, S. A. de C. V., a Company
subsidiary, sold the assets of its molded pulp division for approximately
US$53,657 ($589,140 Mexican pesos). As a result, the Company recognized a gain
on sale in 2003 of $316,057.

Additionally, according to the purchase agreement, Empaques de Carton Titan,
S.A. de C.V. transferred to the buyer some accounts receivable and trade
accounts payable, in order to continue with the production and selling of
molded products.

NOTE 21  RECONCILIATION BETWEEN MEXICAN AND U.S. GAAP:

The Companys consolidated financial statements are prepared in accordance with
Mexican GAAP, which differs in certain significant respects from U.S. GAAP.
The Mexican GAAP consolidated financial statements include the effects of
inflation as provided for under Bulletin B-10. The application of Bulletin B-10
represents a comprehensive measure of the effects of price level changes in the
Mexican economy, and is considered to result in a more meaningful presentation
than historical cost-based financial reporting for both Mexican and U.S.
accounting purposes. Therefore, the following reconciliation to U.S. GAAP does
not include the reversal of such inflationary effects.

The principal differences between Mexican GAAP and U.S. GAAP, other than
inflation accounting, are presented in the following pages with an explanation,
where appropriate, of the effects on consolidated net income and shareholders
equity. Reconciling items are presented net of any gain or loss from monetary
position.

F-48



---



##### 



CORPORACIÓN DURANGO, S.A. DE C.V. AND SUBSIDIARIES
(formerly Grupo Industrial Durango, S. A. de C. V. and subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
DECEMBER 31, 2000, 2001 AND 2002
(Thousands of constant Mexican Pesos restated as of December 31, 2002)

Reconciliation of consolidated net income:

|                                                            |  |      |  |  |         |                          |            |      |         |          |          |   |           |          |            |  
|----------------------------------------------------------- |  | ---- |  |  | ------- | ------------------------ | ---------- | ---- | ------- | -------- | -------- | - | --------- | -------- | ---------- | -
|                                                            |  |      |  |  |         | Years ended December 31,
|                                                            |  |      |  |  |         |                         
|                                                            |  |      |  |  |         | 2000                     |            | 2001 |         | 2002    
|                                                            |  |      |  |  |         |                          |            |      |         |         
|Net income (loss) under Mexican GAAP                        |  |      |  |  |         | $                        | 1,634,573  |      |         | $        | 825,298  |   |           | $        | (3,545,923 | )
|Deferred income taxes                                       |  | i    |  |  |         | (284,561                 | )          |      |         | (305,125 | )        |   |           | (608,994 | )         
|Deferred employee profit sharing                            |  | i    |  |  |         | (49,755                  | )          |      |         | 14,801   |          |   |           | (46,426  | )         
|Purchase accounting adjustments:                            |  | iii  |  |  |         |                          |            |      |         |          |          |   |           |         
|· Amortization of negative goodwill                         |  |      |  |  |         |                          | (1,486,746 | )    |         |          | (449,203 | ) |           |          |           |  
|· Depreciation                                              |  |      |  |  |         |                          | 204,015    |      |         |          | 166,730  |   |           |          | 150,934    |  
|Reversal of loss on sale of fixed assets                    |  | iv   |  |  |        |                          |            |      | 123,216 |          |          |   |          |         
|Effect of fifth amendment to Bulletin B-10                  |  | v    |  |  |         | (68,914                  | )          |      |         | (62,060  | )        |   |           | (61,604  | )         
|Loss on extinguishment of Yankee Bonds                      |  | vi   |  |  |        |                          |            |      | 15,080  |          |          |   | 14,155    |         
|Debt issuance costs                                         |  | vii  |  |  |        |                          |            |      | (78,774 | )        |          |   | (2,630    | )       
|Capitalized financing costs                                 |  | viii |  |  |        |                          |            |      | 25,910  |          |          |   | 31,200    |         
|Effect of Bulletin B-15 on prior years                      |  | ix   |  |  | (24,651 | )                        |            |      | (5,264  | )        |          |   |          |         
|Adjustment to fixed asset impairment                        |  | x    |  |  |         |                         |            |      |         |         |          |   |           | 747,085  |           
|Adjustment to loss on sale of subsidiary                    |  | xi   |  |  |        |                          |            |      |        |          |          |   | 1,357,562 |         
|Equity swaps                                                |  | xii  |  |  | (83,339 | )                        |            |      |        |          |          |   | (48,931   | )       
|Deferred start up and research and development costs        |  | xiii |  |  |        |                          |            |      |        |          |          |   | (100,654  | )       
|Effect of U.S. GAAP adjustments on minority interest        |  | xiv  |  |  | 169,465 |                          |            |      | (1,231  | )        |          |   | (8,586    | )       
|                                                            |  |      |  |  |         |                          |            |      |         |          |          |   |           |          |            |  
|U.S. GAAP net income (loss) before extraordinary items      |  |      |  |  |         | $                        | 10,087     |      |         | $        | 269,378  |   |           | $        | (2,122,812 | )
|Extraordinary loss  Extinguishment of debt, net of taxes   |  |      |  |  |         |                          |           |      |         |          | (29,963  | ) |           |          |           |  
|                                                            |  |      |  |  |         |                          |            |      |         |          |          |   |           |          |            |  
|U.S. GAAP net income (loss)                                 |  |      |  |  |         | $                        | 10,087     |      |         | $        | 239,415  |   |           | $        | (2,122,812 | )
|                                                            |  |      |  |  |         |                          |            |      |         |          |          |   |           |          |            |  
|U.S. GAAP income (loss) per share before extraordinary loss |  |      |  |  |         | $                        | 0.11       |      |         | $        | 2.86     |   |           | $        | (22.87     | )
|                                                            |  |      |  |  |         |                          |            |      |         |          |          |   |           |          |            |  
|Extraordinary loss  Extinguishment at debt, net of taxes   |  |      |  |  |         | $                        |           |      |         | $        | (0.32    | ) |           | $        |           |  
|                                                            |  |      |  |  |         |                          |            |      |         |          |          |   |           |          |            |  
|U.S. GAAP basic and diluted income (loss)
per share         |  |      |  |  |         | $                        | 0.11       |      |         | $        | 2.54     |   |           | $        | (22.87     | )
|                                                            |  |      |  |  |         |                          |            |      |         |          |          |   |           |          |            |  
|Weighted average shares outstanding (000s)                 |  |      |  |  |         |                          | 94,072     |      |         |          | 94,072   |   |           |          | 92,828     |  
|                                                            |  |      |  |  |         |                          |            |      |         |          |          |   |           |          |            |  

F-49



---



##### 



CORPORACIÓN DURANGO, S.A. DE C.V. AND SUBSIDIARIES
(formerly Grupo Industrial Durango, S. A. de C. V. and subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
DECEMBER 31, 2000, 2001 AND 2002
(Thousands of constant Mexican Pesos restated as of December 31, 2002)

Reconciliation of consolidated shareholders equity:

|                                                                                 |                |      |  |  |         |          |                          |           |          |          |            |           |          |            |            |           | 
|-------------------------------------------------------------------------------- | -------------- | ---- |  |  | ------- | -------- | ------------------------ | --------- | -------- | -------- | ---------- | --------- | -------- | ---------- | ---------- | --------- | 
|                                                                                 |                |      |  |  |         |          | Years ended December 31,
|                                                                                 |                |      |  |  |         |          |                         
|                                                                                 |                |      |  |  |         |          | 2000                     |           | 2001     |          | 2002      
|                                                                                 |                |      |  |  |         |          |                          |           |          |          |           
|Total shareholders equity corresponding to
majority interest under Mexican GAAP |                |      |  |  |         | $        | 6,632,059                |           |          | $        | 7,834,816  |           |          | $          | 4,361,880  |          
|Deferred income taxes                                                            |                | i    |  |  |         | 428,069  |                          |           |          | 56,013   |            |           |          | (927,526   | )         
|Deferred employee profit sharing                                                 |                | i    |  |  |         | (995,214 | )                        |           |          | (980,413 | )          |           |          | (1,026,839 | )         
|Purchase accounting adjustments:                                                 |                | iii  |  |  |         |          |                          |           |          |          |            |           |          |           
|· Accumulated negative goodwill                                                  |                |      |  |  |         |          | (5,966,143               | )         |          |          | (6,415,346 | )         |          |            | (4,625,752 | )        
|· Accumulated depreciation                                                       |                |      |  |  |         |          | 477,427                  |           |          |          | 644,157    |           |          |            | 723,247    |          
|Reversal of loss on sale of fixed assets                                         |                | iv   |  |  |        |          |                          |           | 123,216  |          |            |           |         |           
|Effect of fifth amendment to Bulletin B-10:                                      |                | v    |  |  |         |          |                          |           |          |          |            |           |          |            |           
|                                                                                 | · Fixed assets |      |  |  |         |          |                          | 2,588,962 |          |          |            | 4,310,020 |          |            |            | 3,546,353 | 
|· Fixed assets accumulated depreciation                                          |                |      |  |  |         |          | (552,914                 | )         |          |          | (1,214,702 | )         |          |            | (1,382,818 | )        
|Repurchase of Yankee Bonds:                                                      |                | vi   |  |  |         |          |                          |           |          |          |            |           |          |           
|· Loss on extinguishment of Yankee Bonds                                         |                |      |  |  |         |          |                         |           |          |          | (32,236    | )         |          |            | (32,236    | )        
|· Accumulated amortization                                                       |                |      |  |  |         |          |                         |           |          |          | 1,219      |           |          |            | 15,374     |          
|Debt issuance cost:                                                              |                | vii  |  |  |         |          |                          |           |          |          |            |           |          |           
|· Reversal of capitalized debt issuance cost                                     |                |      |  |  |         |          |                         |           |          |          | (84,578    | )         |          |            | (110,324   | )        
|· Accumulated amortization                                                       |                |      |  |  |         |          |                         |           |          |          | 5,804      |           |          |            | 28,920     |          
|Capitalized financing costs:                                                     |                | viii |  |  |         |          |                          |           |          |          |            |           |          |           
|· Capitalized financing cost                                                     |                |      |  |  |         |          |                         |           |          |          | 26,463     |           |          |            | 58,245     |          
|· Accumulated depreciation                                                       |                |      |  |  |         |          |                         |           |          |          | (553       | )         |          |            | (1,135     | )        
|Effect of restatement of prior year amounts per Bulletin B-15                    |                | ix   |  |  | (52,346 | )        |                          |           | (237,599 | )        |            |           |         |           
|Adjustment to fixed asset impairment                                             |                | x    |  |  |         |         |                          |           |          |         |            |           |          | 747,085    |           
|Adjustment to loss on sale of subsidiary                                         |                | xi   |  |  |        |          |                          |           |         |          |            |           | (236,973 | )         
|Deferred start up and research and development costs                             |                | xiii |  |  |        |          |                          |           |         |          |            |           | (100,654 | )         
|Effect of U.S. GAAP adjustments on minority interest                             |                | xiv  |  |  | 169,714 |          |                          |           | 20,443   |          |            |           | 11,856   |           
|                                                                                 |                |      |  |  |         |          |                          |           |          |          |            |           |          |            |            |          
|Total U.S. GAAP shareholders equity                                             |                |      |  |  |         | $        | 2,729,614                |           |          | $        | 4,056,724  |           |          | $          | 1,048,703  |          
|                                                                                 |                |      |  |  |         |          |                          |           |          |          |            |           |          |            |            |          

F-50



---



##### 



CORPORACIÓN DURANGO, S.A. DE C.V. AND SUBSIDIARIES
(formerly Grupo Industrial Durango, S. A. de C. V. and subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
DECEMBER 31, 2000, 2001 AND 2002
(Thousands of constant Mexican Pesos restated as of December 31, 2002)

Provided below is an analysis of the changes in shareholders equity under
U.S. GAAP:

|                                                                          |  |                          |           |      |  |   |            |  
|------------------------------------------------------------------------- |  | ------------------------ | --------- | ---- |  | - | ---------- | -
|                                                                          |  | Years ended December 31,
|                                                                          |  |                         
|                                                                          |  | 2001                     |           | 2002
|                                                                          |  |                          |           |     
|Balance at beginning of the year                                          |  | $                        | 2,729,614 |      |  | $ | 4,056,724  |  
|Net income (loss) under U.S. GAAP                                         |  |                          | 239,415   |      |  |   | (2,122,812 | )
|(Deficit) from restatement                                                |  |                          | (991,548  | )    |  |   | (358,487   | )
|Adjustment for additional pension liability related to seniority premiums |  |                          | (128,200  | )    |  |   |           |  
|Cumulative translation adjustment                                         |  |                          | (19,861   | )    |  |   | 20,215     |  
|Effect of Bulletin B-15 on prior years                                    |  |                          | (242,196  | )    |  |   | 323,242    |  
|Effects of reorganization as a result of the merger with CODUSA           |  |                          | 1,496,210 |      |  |   |           |  
|Minority interest                                                         |  |                          | (148,040  | )    |  |   |           |  
|Effect of Fifth Amendment of Bulletin B-10                                |  |                          | 1,121,330 |      |  |   | (870,179   | )
|                                                                          |  |                          |           |      |  |   |            |  
|Balance at end of the year                                                |  | $                        | 4,056,724 |      |  | $ | 1,048,703  |  
|                                                                          |  |                          |           |      |  |   |            |  

Comprehensive income

Comprehensive income under Mexican GAAP is as follows:

|                                                                |  |                          |            |      |  |      |            |   |  |   |            |  
|--------------------------------------------------------------- |  | ------------------------ | ---------- | ---- |  | ---- | ---------- | - |  | - | ---------- | -
|                                                                |  | Years ended December 31,
|                                                                |  |                         
|                                                                |  | 2000                     |            | 2001 |  | 2002
|                                                                |  |                          |            |      |  |     
|Mexican GAAP net income                                         |  | $                        | 1,634,573  |      |  | $    | 825,298    |   |  | $ | (3,545,923 | )
|                                                                |  |                          |            |      |  |      |            |   |  |   |            |  
|Other comprehensive income (loss), net:                         |  |                          |            |      |  |      |            |   |  |   |            |  
|Other comprehensive loss                                        |  |                          | (1,018,941 | )    |  |      | (1,118,751 | ) |  |   | 121,918    |  
|Cancellation of GIDUSA of shareholders equity upon acquisition |  |                          | 2,670,935  |      |  |      |           |   |  |   |           |  
|Cancellation of CODUSA shareholders
equity upon merger         |  |                          |           |      |  |      | (6,027,269 | ) |  |   |           |  
|                                                                |  |                          |            |      |  |      |            |   |  |   |            |  
|                                                                |  |                          | 1,651,994  |      |  |      | (7,146,020 | ) |  |   | 121,918    |  
|                                                                |  |                          |            |      |  |      |            |   |  |   |            |  
|Comprehensive income (loss)                                     |  | $                        | 3,286,567  |      |  | $    | (6,320,722 | ) |  | $ | (3,424,005 | )
|                                                                |  |                          |            |      |  |      |            |   |  |   |            |  
|Accumulated comprehensive loss                                  |  | $                        | (458,167   | )    |  | $    | (7,604,187 | ) |  | $ | (7,482,269 | )
|                                                                |  |                          |            |      |  |      |            |   |  |   |            |  

F-51



---



##### 



CORPORACIÓN DURANGO, S.A. DE C.V. AND SUBSIDIARIES
(formerly Grupo Industrial Durango, S. A. de C. V. and subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
DECEMBER 31, 2000, 2001 AND 2002
(Thousands of constant Mexican Pesos restated as of December 31, 2002)

The components of other accumulated comprehensive loss is as follows as of
December 31, 2000, 2001 and 2002:

|                                                              |  |              |             |                      |  |                |           |              |  |               |         |             |  |       |             |   |  |  |             |  
|------------------------------------------------------------- |  | ------------ | ----------- | -------------------- |  | -------------- | --------- | ------------ |  | ------------- | ------- | ----------- |  | ----- | ----------- | - |  |  | ----------- | -
|                                                              |  |              |             |                      |  | Adjustment for |           |              |  |               |         | (Loss) from |  | Other
|                                                              |  | Effect of    |             | additional pension   |  | Cumulative     |           | holding      |  | accumulated  
|                                                              |  | adoption of  |             | liability related to |  | translation    |           | non monetary |  | comprehensive
|                                                              |  | Bulletin D-4 |             | seniority premiums   |  | adjustment     |           | assets (1)   |  | loss         
|                                                              |  |              |             |                      |  |                |           |              |  |              
|Balance at January 1, 2000                                    |  |              |             |                      |  |                |           |              |  | $             | 3,118   |             |  |       | ($2,113,279 | ) |  |  | ($2,110,161 | )
|Current period changes                                        |  |              | ($492,463   | )                    |  |                | ($12,658  | )            |  |               | 11,179  |             |  |       | (524,999    | ) |  |  | (1,018,941  | )
|Cancellation of GIDUSA shareholders  ́ equity upon acquisition |  |              |            |                      |  |                |          |              |  |               | 2,491   |             |  |       | 2,668,444   |   |  |  | 2,670,935   |  
|                                                              |  |              |             |                      |  |                |           |              |  |               |         |             |  |       |             |   |  |  |             |  
|Balances at December 31, 2000                                 |  |              | (492,463    | )                    |  |                | (12,658   | )            |  |               | 16,788  |             |  |       | 30,166      |   |  |  | (458,167    | )
|Current period changes                                        |  |              |            |                      |  |                | (128,200  | )            |  |               | (19,861 | )           |  |       | (970,690    | ) |  |  | (1,118,751  | )
|Cancellation of CODUSA shareholders  ́ equity upon merger      |  |              | (2,470,792  | )                    |  |                |          |              |  |               | (11,118 | )           |  |       | (3,545,359  | ) |  |  | (6,027,269  | )
|                                                              |  |              |             |                      |  |                |           |              |  |               |         |             |  |       |             |   |  |  |             |  
|Balances at December 31,2001                                  |  |              | (2,963,255  | )                    |  |                | (140,858  | )            |  |               | (14,191 | )           |  |       | (4,485,883  | ) |  |  | (7,604,187  | )
|Current period charges                                        |  |              |            |                      |  |                |          |              |  |               | 20,215  |             |  |       | 101,703     |   |  |  | 121,918     |  
|                                                              |  |              |             |                      |  |                |           |              |  |               |         |             |  |       |             |   |  |  |             |  
|Balances at December 31,2002                                  |  |              | ($2,963,255 | )                    |  |                | ($140,858 | )            |  | $             | 6,024   |             |  |       | ($4,384,180 | ) |  |  | ($7,482,269 | )
|                                                              |  |              |             |                      |  |                |           |              |  |               |         |             |  |       |             |   |  |  |             |  



|(1) |  | For 2000, 2001 and 2002, the loss from holding non-monetary assets
includes deferred tax effect of $6,979, $22,108 and ($145,398),
respectively, as a result of the adoption of Bulletin D-4.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

i.     Deferred income tax and employee profit sharing

Statement of Financial Accounting Standards No. 109 Accounting For Income
Taxes (SFAS No. 109) requires an asset and liability approach for financial
accounting and reporting for income tax under the following basic principles:
(a) a current tax liability or asset is recognized for the estimated taxes
payable or refundable on tax returns for the current year, (b) a deferred tax
liability or asset is recognized for the estimated future tax effects
attributable to temporary
differences and tax loss and tax credit carryforwards, (c) the measurement of
current and deferred tax assets and liabilities is based on provisions of the
enacted tax law; the effects of future changes in tax laws or rates are not
anticipated, and (d) the measurement of deferred tax assets is reduced, if
necessary, by the amount of any tax benefits for which available evidence
indicates that it is more likely than not that the tax benefit will not be
realized.

F-52



---



##### 



CORPORACIÓN DURANGO, S.A. DE C.V. AND SUBSIDIARIES
(formerly Grupo Industrial Durango, S. A. de C. V. and subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
DECEMBER 31, 2000, 2001 AND 2002
(Thousands of constant Mexican Pesos restated as of December 31, 2002)

Under this method, deferred tax and employee profit sharing are recognized with
respect to all temporary differences, and the benefit from utilizing tax loss
carryforwards and asset tax credits is recognized in the year in which the
losses or credits arise (subject to a valuation allowance with respect to any
tax benefits which in managements opinion, are more likely than not that they
are not expected to be realized). The subsequent realization of this benefit
does not affect the income tax provision.

Temporary differences under FAS No. 109 are determined based on the difference
between the indexed tax-basis amount of the asset or liability and the related
restated amount reported in the financial statements. The deferred income tax
expense or benefit is calculated as the difference between (a) the deferred tax
assets and liabilities at the end of the current period, and (b) the deferred
tax assets and liabilities reported at the end of the prior period remeasured
to units of current general purchasing power at the end of the current period,
whereas, under Mexican GAAP Bulletin D-4, the change in the deferred tax asset
or liability is first measured on a historical cost basis and the components of
the change including monetary gains or losses are allocated between tax
provision, deficit from restatement and monetary gain or loss.

The significant components of income and asset tax expense under U.S. GAAP were
as follows:

|                                        |          |      |                          |          |   |      |         |         |  |   |         |         |  
|--------------------------------------- | -------- | ---- | ------------------------ | -------- | - | ---- | ------- | ------- |  | - | ------- | ------- | -
|                                        |          |      | Years ended December 31,
|                                        |          |      |                         
|                                        |          | 2000 |                          | 2001     |   | 2002
|                                        |          |      |                          |          |   |     
|Income and asset tax expense (benefit): |          |      |                          |          |   |      |         |         |  |   |         |        
|Current                                 |          |      |                          |          |   |      |         |         |  |   |         |        
|                                        | Domestic |      | $                        | 285,037  |   |      | $       | 224,956 |  |   | $       | 114,382 |  
|                                        |          |      |                          |          |   |      |         |         |  |   |         |         |  
|Deferred                                |          |      |                          |          |   |      |         |         |  |   |         |        
|                                        | Domestic |      |                          | 594,152  |   |      |         | 64,989  |  |   |         | (78,941 | )
|                                        | Foreign  |      |                          | (114,539 | ) |      |         | 23,961  |  |   |         | 68,186  |  
|                                        |          |      |                          |          |   |      |         |         |  |   |         |         |  
|                                        |          |      | 479,613                  |          |   |      | 88,950  |         |  |   | (10,755 | )      
|                                        |          |      |                          |          |   |      |         |         |  |   |         |         |  
|Income and asset tax provision          |          | $    | 764,650                  |          |   | $    | 313,906 |         |  | $ | 103,627 |        
|                                        |          |      |                          |          |   |      |         |         |  |   |         |         |  

F-53



---



##### 



CORPORACIÓN DURANGO, S.A. DE C.V. AND SUBSIDIARIES
(formerly Grupo Industrial Durango, S. A. de C. V. and subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
DECEMBER 31, 2000, 2001 AND 2002
(Thousands of constant Mexican Pesos restated as of December 31, 2002)

The income tax and profit sharing effects of significant items comprising the
Companys net deferred income tax and profit sharing assets and liabilities
under U.S. GAAP are as follows:

|                                          |  |       |           |              |  |              |            |              |  |   |         |   |  |   |            |  
|----------------------------------------- |  | ----- | --------- | ------------ |  | ------------ | ---------- | ------------ |  | - | ------- | - |  | - | ---------- | -
|                                          |  |       |           |              |  | 2002        
|                                          |  |       |           |              |  |             
|                                          |  |       |           |              |  | SFAS No. 109 |            | SFAS No. 109 |  |   |         |  
|                                          |  |       |           |              |  | applied to   |            | applied to   |  |   |         |  
|                                          |  | Total |           | Mexican      |  | Foreign      |            |              |  |  
|                                          |  | 2001  |           | Subsidiaries |  | Subsidiaries |            | Total       
|                                          |  |       |           |              |  |              |            |             
|Deferred income tax liabilities (assets): |  |       |           |              |  |              |            |              |  |   |         |   |  |   |            |  
|Inventories                               |  | $     | 389,424   |              |  | $            | 421,381    |              |  | $ |        |   |  | $ | 421,381    |  
|Inventory Rule 106                        |  |       | (428,756  | )            |  |              | (365,840   | )            |  |   |        |   |  |   | (365,840   | )
|Property, plant and equipment             |  |       | 3,410,846 |              |  |              | 2,991,696  |              |  |   | 4,220   |   |  |   | 2,995,916  |  
|Other assets                              |  |       | 47,777    |              |  |              | 50,288     |              |  |   | 438     |   |  |   | 50,726     |  
|Reserves                                  |  |       | (79,219   | )            |  |              | (138,184   | )            |  |   | (113    | ) |  |   | (138,297   | )
|Equity swaps                              |  |       | (25,255   | )            |  |              |           |              |  |   |        |   |  |   |           |  
|Other                                     |  |       | (9,157    | )            |  |              | (7,717     | )            |  |   | (19,368 | ) |  |   | (27,085    | )
|Asset tax credits                         |  |       | (401,509  | )            |  |              | (388,669   | )            |  |   |        |   |  |   | (388,669   | )
|Tax loss carryforwards                    |  |       | (900,759  | )            |  |              | (1,640,852 | )            |  |   |        |   |  |   | (1,640,852 | )
|                                          |  |       |           |              |  |              |            |              |  |   |         |   |  |   |            |  
|                                          |  |       | 2,003,392 |              |  |              | 922,103    |              |  |   | (14,823 | ) |  |   | 907,280    |  
|Valuation Allowance                       |  |       | 945,319   |              |  |              | 2,029,521  |              |  |   |        |   |  |   | 2,029,521  |  
|                                          |  |       |           |              |  |              |            |              |  |   |         |   |  |   |            |  
|Total net deferred income tax liabilities |  | $     | 2,948,711 |              |  | $            | 2,951,624  |              |  | $ | (14,823 | ) |  | $ | 2,936,801  |  
|                                          |  |       |           |              |  |              |            |              |  |   |         |   |  |   |            |  

|                                                       |  |              |           |      |  |   |           |  
|------------------------------------------------------ |  | ------------ | --------- | ---- |  | - | --------- | -
|                                                       |  | December 31,
|                                                       |  |             
|                                                       |  | 2001         |           | 2002
|                                                       |  |              |           |     
|Deferred employee profit sharing liabilities (assets): |  |              |           |      |  |   |           |  
|Inventory                                              |  | $            | 101,436   |      |  | $ | 127,691   |  
|Inventory Rule 106                                     |  |              | (122,502  | )    |  |   | (110,861  | )
|Property, plant and equipment                          |  |              | 1,071,657 |      |  |   | 1,008,277 |  
|Other assets                                           |  |              | 2,417     |      |  |   | (5,129    | )
|Allowance for doubtful accounts                        |  |              | (27,797   | )    |  |   | (44,212   | )
|Exchange rate fluctuations                             |  |              | (43,368   | )    |  |   | 51,073    |  
|Equity swaps                                           |  |              | (1,430    | )    |  |   |          |  
|                                                       |  |              |           |      |  |   |           |  
|Total net deferred employee profit sharing liability   |  | $            | 980,413   |      |  | $ | 1,026,839 |  
|                                                       |  |              |           |      |  |   |           |  

F-54



---



##### 



CORPORACIÓN DURANGO, S.A. DE C.V. AND SUBSIDIARIES
(formerly Grupo Industrial Durango, S. A. de C. V. and subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
DECEMBER 31, 2000, 2001 AND 2002
(Thousands of constant Mexican Pesos restated as of December 31, 2002)

The deferred income tax and profit sharing classification in the condensed
balance sheet as of December 31, 2001 and 2002 is as follows:

|                              |  |                   |           |                |  |       |           |   |  |   |           |  
|----------------------------- |  | ----------------- | --------- | -------------- |  | ----- | --------- | - |  | - | --------- | -
|                              |  | December 31, 2001
|                              |  |                  
|                              |  | Deferred          |           | Deferred       |  |       |           |  
|                              |  | Income Tax        |           | Profit Sharing |  | Total
|                              |  |                   |           |                |  |      
|Deferred income tax (assets)  |  |                   |           |                |  |       |           |   |  |   |           |  
|Current                       |  |                   | ($152,963 | )              |  |       | ($48,863  | ) |  |   | ($201,826 | )
|Long term                     |  |                   | (356,948  | )              |  |       | (44,799   | ) |  |   | (401,747  | )
|                              |  |                   |           |                |  |       |           |   |  |   |           |  
|                              |  |                   | (509,911  | )              |  |       | (93,662   | ) |  |   | (603,573  | )
|Deferred income tax liability |  |                   |           |                |  |       |           |   |  |   |           |  
|Current                       |  |                   |          |                |  |       |          |   |  |   |          |  
|Long term                     |  |                   | 3,458,622 |                |  |       | 1,074,075 |   |  |   | 4,532,697 |  
|                              |  |                   |           |                |  |       |           |   |  |   |           |  
|                              |  |                   | 3,458,622 |                |  |       | 1,074,075 |   |  |   | 4,532,697 |  
|                              |  |                   |           |                |  |       |           |   |  |   |           |  
|Deferred income tax, net      |  | $                 | 2,948,711 |                |  | $     | 980,413   |   |  | $ | 3,929,124 |  
|                              |  |                   |           |                |  |       |           |   |  |   |           |  

|                              |  |                   |           |                |  |       |           |   |  |   |           |  
|----------------------------- |  | ----------------- | --------- | -------------- |  | ----- | --------- | - |  | - | --------- | -
|                              |  | December 31, 2002
|                              |  |                  
|                              |  | Deferred          |           | Deferred       |  |       |           |  
|                              |  | Income Tax        |           | Profit Sharing |  | Total
|                              |  |                   |           |                |  |      
|Deferred
income tax (assets)  |  |                   |           |                |  |       |           |   |  |   |           |  
|Current                       |  | $                 | (531,222  | )              |  | $     | (155,073  | ) |  | $ | (686,295  | )
|Long term                     |  |                   |          |                |  |       |          |   |  |   |          |  
|                              |  |                   |           |                |  |       |           |   |  |   |           |  
|                              |  |                   | (531,222  | )              |  |       | (155,073  | ) |  |   | (686,295  | )
|Deferred income tax liability |  |                   |           |                |  |       |           |   |  |   |           |  
|Current                       |  | $                 | 421,381   |                |  | $     | 127,691   |   |  | $ | 549,072   |  
|Long term                     |  |                   | 3,046,642 |                |  |       | 1,054,221 |   |  |   | 4,100,863 |  
|                              |  |                   |           |                |  |       |           |   |  |   |           |  
|                              |  |                   | 3,468,023 |                |  |       | 1,181,912 |   |  |   | 4,649,935 |  
|                              |  |                   |           |                |  |       |           |   |  |   |           |  
|Deferred income tax, net      |  | $                 | 2,936,801 |                |  | $     | 1,026,839 |   |  | $ | 3,963,640 |  
|                              |  |                   |           |                |  |       |           |   |  |   |           |  

Under U.S. GAAP, employee profit sharing is recorded as an operating expense.

F-55



---



##### 



CORPORACIÓN DURANGO, S.A. DE C.V. AND SUBSIDIARIES
(formerly Grupo Industrial Durango, S. A. de C. V. and subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
DECEMBER 31, 2000, 2001 AND 2002
(Thousands of constant Mexican Pesos restated as of December 31, 2002)

For the year ended December 31, 2001 and 2002, the difference in net deferred
tax liabilities between Mexican and U.S. GAAP was as follows:

|                        |                                             |                                        |            |           |        |      |           |            |   |   |            |          |        | 
|----------------------- | ------------------------------------------- | -------------------------------------- | ---------- | --------- | ------ | ---- | --------- | ---------- | - | - | ---------- | -------- | ------ | 
|                        |                                             |                                        |            | Mexican   |        | U.S. |           |            |   |  
|                        |                                             |                                        |            | GAAP      |        | GAAP |           | Difference
|                        |                                             |                                        |            |           |        |      |           |           
|Deferred tax liability: |                                             |                                        |            |           |        |      |           |            |   |   |            |         
|At December 31, 2000    |                                             | $                                      | 3,267,656  |           |        | $    | 2,900,543 |            |   | $ | 367,113    |         
|                        |                                             |                                        |            |           |        |      |           |            |   |   |            |         
|At December 31, 2001:   |                                             |                                        |            |           |        |      |           |            |   |   |            |         
|                        | Reported under Bulletin B-15                |                                        | $          | 3,090,368 |        |      | $         | 2,948,711  |   |   | $          | 141,657  |       
|                        | Effect of Bulletin B-15                     |                                        |            | (85,644   | )      |      |           |           |   |   |            | (85,644  | )     
|                        |                                             |                                        |            |           |        |      |           |            |   |   |            |         
|                        | Index for effects of inflation in Mexico    |                                        |            | 3,004,724 |        |      |           | 2,948,711  |   |   |            | 56,013   |       
|                        |                                             |                                        |            |           |        |      |           |            |   |   |            |         
|                        | Net change                                  |                                        |            | (262,932  | )      |      |           | 48,168     |   |   |            | (311,100 | )     
|                        | Reclassification made to extraordinary item |                                        |            |          |        |      |           | 16,134     |   |   |            | (16,134  | )     
|                        |                                             |                                        |            |           |        |      |           |            |   |   |            |         
|                        |                                             | $                                      | (262,932   | )         |        | $    | 64,302    |            |   | $ | (327,234   | )       
|                        |                                             |                                        |            |           |        |      |           |            |   |   |            |         
|At December 31, 2001:   |                                             |                                        |            |           |        |      |           |            |   |   |            |         
|                        | Index for effects of inflation in Mexico    |                                        | $          | 3,004,724 |        |      | $         | 2,948,711  |   |   | $          | 56,013   |       
|                        |                                             | Effect of Bulletin B-15 on prior years |            |           | 85,644 |      |           |            |  |   |            |          | 85,644 | 
|                        |                                             |                                        |            |           |        |      |           |            |   |   |            |         
|                        | Reported under Bulletin B-15                |                                        |            | 3,090,368 |        |      |           | 2,948,711  |   |   |            | (141,657 | )     
|At December 31, 2002    |                                             |                                        | 2,009,274  |           |        |      | 2,936,801 |            |   |   | (927,527   | )       
|                        |                                             |                                        |            |           |        |      |           |            |   |   |            |         
|Net change              |                                             |                                        | (1,081,094 | )         |        |      | (11,910   | )          |   |   | (1,069,184 | )       
|                        | DPC Deferred income tax liability (1)       |                                        |            | 605,588   |        |      |           |           |   |   |            | 605,588  |       
|                        |                                             |                                        |            |           |        |      |           |            |   |   |            |         
|                        |                                             | $                                      | (475,506   | )         |        | $    | (11,910   | )          |   | $ | (463,596   | )       
|                        |                                             |                                        |            |           |        |      |           |            |   |   |            |         



---

|(1) |  | Deferred tax effect on the sale of DPC included in discontinued operations
|--- |  | --------------------------------------------------------------------------

The net change in the deferred tax liabilities during 2001 and 2002 was
allocated to the following components:
F-56CORPORACIÓN DURANGO, S.A. DE C.V. AND SUBSIDIARIES
(formerly Grupo Industrial Durango, S. A. de C. V. and subsidiaries)NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
DECEMBER 31, 2000, 2001 AND 2002
(Thousands of constant Mexican Pesos restated as of December 31, 2002)

|                                            |  |         |          |      |  |            |        |  |  |   |          |  
|------------------------------------------- |  | ------- | -------- | ---- |  | ---------- | ------ |  |  | - | -------- | -
|                                            |  | Mexican |          | U.S. |  |            |        | 
|                                            |  | GAAP    |          | GAAP |  | Difference
|                                            |  |         |          |      |  |           
|Deferred tax liability in 2001:             |  |         |          |      |  |            |        |  |  |   |          |  
|Deferred tax expense                        |  | $       | (267,291 | )    |  | $          | 48,168 |  |  | $ | (315,459 | )
|Effect of Bulletin B-15 on prior years      |  |         | (4,801   | )    |  |            |       |  |  |   | (4,801   | )
|Monetary gain on initial balance            |  |         | (79,257  | )    |  |            |       |  |  |   | (79,257  | )
|Monetary loss on current period change      |  |         | 110,525  |      |  |            |       |  |  |   | 110,525  |  
|Reclassification made to extraordinary item |  |         |         |      |  |            | 16,134 |  |  |   | (16,134  | )
|                                            |  |         |          |      |  |            |        |  |  |   |          |  
|                                            |  | $       | (240,824 | )    |  | $          | 64,302 |  |  | $ | (305,126 | )
|Gain from holding non-monetary assets       |  |         | (22,108  | )    |  |            |       |  |  |   | (22,108  | )
|                                            |  |         |          |      |  |            |        |  |  |   |          |  
|                                            |  | $       | (262,932 | )    |  | $          | 64,302 |  |  | $ | (327,234 | )
|                                            |  |         |          |      |  |            |        |  |  |   |          |  

|                                       |  |         |          |      |  |            |         |   |  |   |          |  
|-------------------------------------- |  | ------- | -------- | ---- |  | ---------- | ------- | - |  | - | -------- | -
|                                       |  | Mexican |          | U.S. |  |            |         |  
|                                       |  | GAAP    |          | GAAP |  | Difference
|                                       |  |         |          |      |  |           
|Deferred tax liability in 2002:        |  |         |          |      |  |            |         |   |  |   |          |  
|Deferred tax expense                   |  | $       | (667,294 | )    |  | $          | (11,910 | ) |  | $ | (655,384 | )
|Monetary gain on initial balance       |  |         | (93,997  | )    |  |            |        |   |  |   | (93,997  | )
|Monetary loss on current period change |  |         | 140,387  |      |  |            |        |   |  |   | 140,387  |  
|                                       |  |         |          |      |  |            |         |   |  |   |          |  
|                                       |  | $       | (620,904 | )    |  | $          | (11,910 | ) |  | $ | (608,994 | )
|Loss from holding non-monetary assets  |  |         | 145,398  |      |  |            |        |   |  |   | 145,398  |  
|                                       |  |         |          |      |  |            |         |   |  |   |          |  
|                                       |  | $       | (475,506 | )    |  | $          | (11,910 | ) |  | $ | (463,596 | )
|                                       |  |         |          |      |  |            |         |   |  |   |          |  

ii Employee benefits




Liabilities and costs related to pension plans and seniority premiums are
recorded under Mexican GAAP according to Bulletin D-3 (Revised), Labor
Liabilities, as described in Note 3.l. Under
U.S. GAAP, the requirements of SFAS No. 87, Employers Accounting for
Pensions, as amended by SFAS, No. 132 Employees Disclosures about Pensions
and Other Postretirement Benefits, for recording liabilities and costs
relating to pension plans and seniority premiums using actuarial computations
are similar to those of Bulletin D-3.

F-57



---



##### 



CORPORACIÓN DURANGO, S.A. DE C.V. AND SUBSIDIARIES
(formerly Grupo Industrial Durango, S. A. de C. V. and subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
DECEMBER 31, 2000, 2001 AND 2002
(Thousands of constant Mexican Pesos restated as of December 31, 2002)

The following sets forth the changes in benefit obligations, and the funded
status of such plans for 2001 and 2002 reconciled with the amounts reported in
the consolidated balance sheets under U.S. GAAP.



|a) |  | Mexican subsidiaries December 31
|-- |  | --------------------------------

|                                                |  |      |          |      |  |   |          |  
|----------------------------------------------- |  | ---- | -------- | ---- |  | - | -------- | -
|                                                |  | 2001 |          | 2002
|                                                |  |      |          |     
|Accumulated benefit obligation                  |  | $    | 177,202  |      |  | $ | 179,760  |  
|Change in benefit obligation:                   |  |      |          |      |  |   |          |  
|Projected benefit obligation, beginning of year |  |      | 366,445  |      |  |   | 213,958  |  
|Service cost                                    |  |      | 9,471    |      |  |   | 9,174    |  
|Interest cost                                   |  |      | 10,010   |      |  |   | 10,344   |  
|Actuarial loss                                  |  |      | 8,820    |      |  |   | (2,042   | )
|Benefits paid                                   |  |      | (180,787 | )    |  |   | (14,336  | )
|                                                |  |      |          |      |  |   |          |  
|Projected benefit obligations, end of year      |  | $    | 213,958  |      |  | $ | 217,098  |  
|                                                |  |      |          |      |  |   |          |  
|Unfunded liability                              |  | $    | 213,958  |      |  | $ | 217,098  |  
|                                                |  |      |          |      |  |   |          |  
|Plan assets                                     |  | $    |         |      |  | $ |          |  
|Unrecognized transition obligation and other    |  |      | (120,223 | )    |  |   | (113,562 | )
|                                                |  |      |          |      |  |   |          |  
|Net pension liability                           |  | $    | 97,735   |      |  | $ | 103,536  |  
|                                                |  |      |          |      |  |   |          |  

|                                                  |  |             |         |      |  |   |         | 
|------------------------------------------------- |  | ----------- | ------- | ---- |  | - | ------- | 
|                                                  |  | December 31
|                                                  |  |            
|                                                  |  | 2001        |         | 2002
|                                                  |  |             |         |     
|Amounts recognized in balance sheets:             |  |             |         |      |  |   |         | 
|Accrued benefit liability                         |  | $           | 177,202 |      |  | $ | 179,760 | 
|Intangible pension asset  labor obligations      |  |             | 83,467  |      |  |   | 76,224  | 
|                                                  |  |             |         |      |  |   |         | 
|Net amount recognized under U.S. and Mexican GAAP |  | $           | 93,735  |      |  | $ | 103,536 | 
|                                                  |  |             |         |      |  |   |         | 

F-58



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##### 



CORPORACIÓN DURANGO, S.A. DE C.V. AND SUBSIDIARIES
(formerly Grupo Industrial Durango, S. A. de C. V. and subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
DECEMBER 31, 2000, 2001 AND 2002
(Thousands of constant Mexican Pesos restated as of December 31, 2002)

There were no plan assets during 2001.

|   |  |                      |  |                                                   |  |             |          |      |  |   |   | 
|-- |  | -------------------- |  | ------------------------------------------------- |  | ----------- | -------- | ---- |  | - | - | 
|   |  |                      |  |                                                   |  | December 31
|   |  |                      |  |                                                   |  |            
|   |  |                      |  |                                                   |  | 2001        |          | 2002
|   |  |                      |  |                                                   |  |             |          |     
|b) |  | Foreign subsidiaries |  |                                                   |  |             |          |      |  |  
|   |  |                      |  | Change in projected benefit obligation:           |  |             |          |      |  |   |   | 
|   |  |                      |  | Obligation at beginning of year                   |  | $           | 433,403  |      |  | $ |  | 
|   |  |                      |  | Service cost                                      |  |             | 7,767    |      |  |   |  | 
|   |  |                      |  | Interest cost                                     |  |             | 32,754   |      |  |   |  | 
|   |  |                      |  | Benefit payments                                  |  |             | (30,654  | )    |  |   |  | 
|   |  |                      |  | Plan amendment                                    |  |             |         |      |  |   |  | 
|   |  |                      |  | Actuarial (gain) loss                             |  |             | (346     | )    |  |   |  | 
|   |  |                      |  | Assumption change                                 |  |             | 4,511    |      |  |   |  | 
|   |  |                      |  |                                                   |  |             |          |      |  |   |   | 
|   |  |                      |  | Obligation at end of year                         |  | $           | 447,435  |      |  | $ |  | 
|   |  |                      |  |                                                   |  |             |          |      |  |   |   | 
|   |  |                      |  | Change in plan assets:                            |  |             |          |      |  |   |   | 
|   |  |                      |  | Market value of assets at beginning of year       |  |             | 482,215  |      |  |   |  | 
|   |  |                      |  | Actual return on plan assets                      |  |             | (36,063  | )    |  |   |  | 
|   |  |                      |  | Benefit payments                                  |  |             | (30,654  | )    |  |   |  | 
|   |  |                      |  |                                                   |  |             |          |      |  |   |   | 
|   |  |                      |  | Market value of assets at end of year             |  |             | 415,498  |      |  |   |  | 
|   |  |                      |  |                                                   |  |             |          |      |  |   |   | 
|   |  |                      |  | Funded status
Funded status at end of the year    |  |             | (56,640  | )    |  |   |  | 
|   |  |                      |  | Unrecognized net loss (gain)                      |  |             | 128,200  |      |  |   |  | 
|   |  |                      |  | Unrecognized prior service cost                   |  |             | 30,840   |      |  |   |  | 
|   |  |                      |  |                                                   |  |             |          |      |  |   |   | 
|   |  |                      |  | Prepaid pension cost asset at end of the year     |  |             | 102,400  |      |  |   |  | 
|   |  |                      |  | Additional minimum liability                      |  |             | (159,040 | )    |  |   |  | 
|   |  |                      |  |                                                   |  |             |          |      |  |   |   | 
|   |  |                      |  | Net amount recognized under U.S. and Mexican GAAP |  | $           | (56,640  | )    |  | $ |  | 
|   |  |                      |  |                                                   |  |             |          |      |  |   |   | 

The defined benefit plans for the foreign subsidiaries were included within
DPC, which was sold in October 2002 (see Note 1 iii).

The Company has no post-retirement health care insurance or other
cost-employment benefit plans, other than the pensions plans mentioned above.

F-59



---



##### 



CORPORACIÓN DURANGO, S.A. DE C.V. AND SUBSIDIARIES
(formerly Grupo Industrial Durango, S. A. de C. V. and subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
DECEMBER 31, 2000, 2001 AND 2002
(Thousands of constant Mexican Pesos restated as of December 31, 2002)

iii.     Acquisitions

As discussed in Note 3.k, for various acquisitions realized in 1998 and 1999,
under Mexican GAAP, the Company has recorded negative goodwill, representing
the excess of the book value of the net assets acquired over the purchase
price. Such negative goodwill is being amortized into income, over the period
in which the Company expects to integrate these operations into the Company.

Under U.S. GAAP, these acquisitions have been accounted for under the purchase
method and consequently, the purchase price has been allocated to assets
acquired and liabilities assumed based on the relative fair values. As a
result under U.S. GAAP, negative goodwill was recorded as a reduction in the
carrying value of the long-term assets (primarily fixed assets). The results of
operations of the acquired companies have been included in the combined results
for periods subsequent to the acquisitions.

Additionally, U.S. GAAP allows the recognition of termination costs and the
effect of conforming the accounting policies of the acquired companies as
liabilities assumed at the acquisition date. Such costs are considered
components of the net investments.

Under Mexican GAAP, post acquisition adjustments should be recognized directly
to income as incurred.

Acquisition of GIDUSA by CODUSA

As disclosed in Note 1, in 2000, the Rincon family contributed $2,157,351 to
CODUSA, which was used by CODUSA for the acquisition of the 59% interest in
GIDUSA previously held directly by the Rincon family. Under Mexican GAAP, these
transactions were accounted for as a capital contribution and subsequent
acquisition, resulting in negative goodwill of $325,189 which was fully
amortized in 2000. Accordingly, in the statement of shareholders equity under
Mexican GAAP, the capital contribution, and acquisition of GIDUSA are presented
separately. Under U.S. GAAP, this has been accounted for as a transaction of
two entities under common control and consequently, purchase accounting would
not apply. Under U.S. GAAP, the difference between the purchase price paid for
the 59% interest and the historical book value of the Rincon familys interest
in GIDUSA on a U.S. GAAP basis would be reflected as a capital contribution of
$43,518 and presented as one line item in the statement of shareholders
equity.

F-60



---



##### 



CORPORACIÓN DURANGO, S.A. DE C.V. AND SUBSIDIARIES
(formerly Grupo Industrial Durango, S. A. de C. V. and subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
DECEMBER 31, 2000, 2001 AND 2002
(Thousands of constant Mexican Pesos restated as of December 31, 2002)

iv.     Reversal of loss on sale of fixed assets

As disclosed in Note 18, Extraordinary Items, during 2001 the Company sold,
certain non-strategic assets (the Sky and Eastman divisions). The U.S. GAAP
carrying value of the fixed assets sold in such divisions were different to the
carrying value recorded under Mexican GAAP due to differences in the
application of purchase accounting. As a result, the Company reversed the
additional loss recognized under Mexican GAAP. Additionally, under Mexican
GAAP, extraordinary items are presented as a separate line item in the income
statement before minority interest, whereas, for U.S. GAAP purposes these
expenses are presented as a part of operating income. Therefore, for U.S. GAAP
purposes, the Company reclassified extraordinary items to operating income
after given effect to the reversal of the loss on sale of fixed assets.

v.     Effect of fifth amendment to Bulletin B-10 (Modified)

As mentioned in Note 2, the Company elected, as a result of the adoption of the
Fifth Amendment to Bulletin B-10 (Modified), to restate its non-monetary assets
of foreign origin based on the change of the Mexican peso against the foreign
currencies and by applying inflation rates of the countries from which the
non-monetary assets originate.

This methodology is not consistent with Rule 3-20 of Regulation S-X
regarding the use of the same reporting currency for all periods. Under U.S.
GAAP, these assets, which are used in Mexico, are adjusted by the Mexican NCPI
and depreciation is calculated using the adjusted basis.

F-61



---



##### 



CORPORACIÓN DURANGO, S.A. DE C.V. AND SUBSIDIARIES
(formerly Grupo Industrial Durango, S. A. de C. V. and subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
DECEMBER 31, 2000, 2001 AND 2002
(Thousands of constant Mexican Pesos restated as of December 31, 2002)

vi.     Loss on extinguishment of Yankee Bonds

In February 2001, the Company extinguished early its US$150 million Yankee
Bonds maturing in 2001 (2001 Yankee Bonds). Under Mexican GAAP, the Company
capitalized the consent fee totaling $32,236 paid to the bondholders of the
2001 Yankee Bonds, and is amortizing such amount over the term of the new
US$180 million Yankee Bonds maturing in 2006 (2006 Yankee Bond), which were
issued simultaneously. Under Mexican GAAP, for the years ended December 31,
2001 and 2002 amortization of the debt issuance cost of the 2006 Yankee Bond
totaled $15,410 and $29,701. In addition, the Company wrote-off $15,080 of
unamortized debt issuance cost related to the 2001Yankee Bonds. Under U.S.
GAAP, this consent fee and the write-off of unamortized debt issuance cost
would be recognized in earnings immediately and considered as part of the cost
of extinguishing the 2001 Yankee Bonds. Under U.S. GAAP, the loss on
extinguishment of the 2001 Yankee Bonds (which includes the consent fee) would
have totaled $29,963, net of related tax benefit of $16,134 and would have been
reflected as an extraordinary item in the consolidated income statement. Under
U.S. GAAP, for the years ended December 31, 2001 and 2002 amortization of the
debt issuance cost 2006 Yankee Bond totaled $14,190 and $15,481.

vii.     Debt issuance cost

In August 2001, the Company exchanged US$138.7 million of its US$250 million
Yankee Bonds maturing in 2003 (2003 Yankee Bonds) for an additional US$128.3
million 2006 Yankee Bonds and US$10.4 million Yankee Bonds maturing in 2008
(2008 Yankee Bonds). Under Mexican GAAP, the Company capitalized $105,408 of
fees and expenses, excluding consent fees, incurred in connection with the
exchange offering as debt issuance cost. During 2001 and 2002, the company
amortized $7,170 and $25,327 in relation to these costs. In addition, the
Company wrote-off $20,830 representing the unamortized debt issuance cost of
the 2003 Yankee Bonds.

F-62



---



##### 



CORPORACIÓN DURANGO, S.A. DE C.V. AND SUBSIDIARIES
(formerly Grupo Industrial Durango, S. A. de C. V. and subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
DECEMBER 31, 2000, 2001 AND 2002
(Thousands of constant Mexican Pesos restated as of December 31, 2002)

Under U.S. GAAP, debt issuance cost, excluding consent fees, relating to the
exchange offering would be expensed since the terms of the 2006 and 2008 Yankee
Bonds are not considered substantially different from the 2003 Yankee Bonds.
Furthermore, the unamortized portion of original 2003 Yankee bonds, which
totaled $1,366 and $4,098 for the years ended December 31, 2001 and 2002, would
be amortized over the new term of the 2006 and 2008 Yankee Bonds.

In September 2002, the Company initiated the process to register the 2009
Senior Notes. Under Mexican GAAP, the Company capitalized $25,746 of
fees and expenses.

Under U.S.GAAP those expenses were charged to operations in the condensed
statements of income, as the Company could not complete the registration
process.

viii.     Capitalized financing costs

Mexican GAAP allows, but does not require, capitalization of financing costs as
part of the cost of assets under construction. Capitalized financing costs
include interest costs, gains or losses from monetary position and foreign
exchange losses.

U.S. GAAP requires the capitalization of interest during construction on
qualifying assets. In an inflationary economy, such as Mexico, it is
acceptable practice to capitalize interest net of the monetary gain on the
related Mexican Peso debt, but not on U.S. dollar or other stable currency
debt. U.S. GAAP does not allow the capitalization of foreign exchange losses.

ix.     Effect of Bulletin B-15 on restatement to constant currency

As disclosed in Note 3, the Company adopted Bulletin B-15, during 1997.
Bulletin B-15 requires that the restatement of prior year amounts of foreign
subsidiaries be determined by first restating prior year foreign currency
amounts by the inflation of the foreign country and then retranslating such
amounts at the exchange rate as of the date of the latest balance sheet
(December 31, 2002). Under U.S. GAAP, the primary financial statements should
be presented in the same reporting constant currency for all periods. Prior to
the adoption of Bulletin B-15, prior year consolidated amounts were adjusted
for the effects of inflation in Mexico and such adjustments were considered to
be an integral part of preparing price level adjusted financial statements. The
methodology established by Bulletin B-15 separates the adjustment process for
the effects of inflation on prior year amounts for foreign and domestic
subsidiaries, which results in the presentation of amounts, which are not in a
constant unit of measure. The difference in the methodologies used to restate
balances to December 31, 2002 purchasing power is included as a one-line
adjustment in the reconciliation to U.S. GAAP of net income and shareholders
equity.

F-63



---



##### 



CORPORACIÓN DURANGO, S.A. DE C.V. AND SUBSIDIARIES
(formerly Grupo Industrial Durango, S. A. de C. V. and subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
DECEMBER 31, 2000, 2001 AND 2002
(Thousands of constant Mexican Pesos restated as of December 31, 2002)

|                                                                  |  |             |            |      |  |   |            |  
|----------------------------------------------------------------- |  | ----------- | ---------- | ---- |  | - | ---------- | -
|                                                                  |  | December 31
|                                                                  |  |            
|                                                                  |  | 2000        |            | 2001
|                                                                  |  |             |            |     
|Consolidated net income:                                          |  |             |            |      |  |   |            |  
|As previously reported indexed for effects of inflation in Mexico |  | $           | 1,609,922  |      |  | $ | 820,034    |  
|As reported under Bulletin B-15                                   |  |             | (1,634,573 | )    |  |   | (825,298   | )
|                                                                  |  |             |            |      |  |   |            |  
|                                                                  |  | $           | (24,651    | )    |  | $ | (5,264     | )
|                                                                  |  |             |            |      |  |   |            |  
|Consolidated shareholders equity:                                |  |             |            |      |  |   |            |  
|As previously reported indexed for effects of inflation in Mexico |  | $           | 8,143,543  |      |  | $ | 7,639,071  |  
|As reported under Bulletin B-15                                   |  |             | (8,195,889 | )    |  |   | (7,876,670 | )
|                                                                  |  |             |            |      |  |   |            |  
|                                                                  |  | $           | (52,346    | )    |  | $ | (237,599   | )
|                                                                  |  |             |            |      |  |   |            |  

The following tables present the Companys condensed balance sheets as of
December 31, 2001 and 2002 and statements of income for the three years ended
December 31, 2000, 2001 and 2002, reflecting U.S. GAAP adjustments. All amounts
have been indexed to December 31, 2002 constant pesos, using the Mexican NCPI
factor:

F-64



---



##### 



CORPORACIÓN DURANGO, S.A. DE C.V. AND SUBSIDIARIES
(formerly Grupo Industrial Durango, S. A. de C. V. and subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
DECEMBER 31, 2000, 2001 AND 2002
(Thousands of constant Mexican Pesos restated as of December 31, 2002)

CONDENSED BALANCE SHEETS:

|                                                                     |  |                 |            |      |  |   |            | 
|-------------------------------------------------------------------- |  | --------------- | ---------- | ---- |  | - | ---------- | 
|                                                                     |  | At December 31,
|                                                                     |  |                
|                                                                     |  | 2001            |            | 2002
|                                                                     |  |                 |            |     
|ASSETS                                                               |  |                 |            |      |  |   |            | 
|Current assets:                                                      |  |                 |            |      |  |   |            | 
|Cash and cash equivalents                                            |  | $               | 496,202    |      |  | $ | 255,711    | 
|Accounts receivable, net                                             |  |                 | 2,193,078  |      |  |   | 1,937,042  | 
|Inventories, net                                                     |  |                 | 1,427,307  |      |  |   | 1,277,433  | 
|Deferred income tax and employee profit sharing                      |  |                 | 201,826    |      |  |   | 686,295    | 
|Other                                                                |  |                 | 55,667     |      |  |   | 67,348     | 
|                                                                     |  |                 |            |      |  |   |            | 
|Total current assets                                                 |  |                 | 4,374,080  |      |  |   | 4,223,829  | 
|Property, plant and equipment                                        |  |                 | 13,590,320 |      |  |   | 12,128,938 | 
|Deferred income tax and employee profit sharing                      |  |                 | 401,747    |      |  |   |           | 
|Other assets                                                         |  |                 | 418,024    |      |  |   | 512,508    | 
|                                                                     |  |                 |            |      |  |   |            | 
|Total assets                                                         |  | $               | 18,784,171 |      |  | $ | 16,865,275 | 
|                                                                     |  |                 |            |      |  |   |            | 
|LIABILITIES AND SHAREHOLDERS EQUITY                                 |  |                 |            |      |  |   |            | 
|Current liabilities:                                                 |  |                 |            |      |  |   |            | 
|Short-term debt, notes payable and current portion of long-term debt |  | $               | 593,850    |      |  | $ | 7,576,346  | 
|Accrued liabilities and other payable                                |  |                 | 1,977,942  |      |  |   | 2,131,015  | 
|Deferred income tax and employee profit sharing                      |  |                 |           |      |  |   | 549,072    | 
|                                                                     |  |                 |            |      |  |   |            | 
|Total current liabilities                                            |  |                 | 2,571,792  |      |  |   | 10,256,433 | 
|                                                                     |  |                 |            |      |  |   |            | 
|Long-term debt                                                       |  |                 | 7,195,653  |      |  |   | 1,220,304  | 
|Seniority premiums                                                   |  |                 | 233,842    |      |  |   | 182,409    | 
|Deferred income tax and employee profit sharing                      |  |                 | 4,532,697  |      |  |   | 4,100,863  | 
|Other                                                                |  |                 | 172,051    |      |  |   |           | 
|                                                                     |  |                 |            |      |  |   |            | 
|Total long-term liabilities                                          |  |                 | 12,134,243 |      |  |   | 5,503,576  | 
|                                                                     |  |                 |            |      |  |   |            | 
|Total liabilities                                                    |  |                 | 14,706,035 |      |  |   | 15,760,009 | 
|                                                                     |  |                 |            |      |  |   |            | 
|Minority interest                                                    |  |                 | 21,412     |      |  |   | 56,563     | 
|                                                                     |  |                 |            |      |  |   |            | 
|Shareholders equity                                                 |  |                 | 4,056,724  |      |  |   | 1,048,703  | 
|                                                                     |  |                 |            |      |  |   |            | 
|Total liabilities and shareholders equity                           |  | $               | 18,784,171 |      |  | $ | 16,865,275 | 
|                                                                     |  |                 |            |      |  |   |            | 

F-65



---



##### 



CORPORACIÓN DURANGO, S.A. DE C.V. AND SUBSIDIARIES
(formerly Grupo Industrial Durango, S. A. de C. V. and subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
DECEMBER 31, 2000, 2001 AND 2002
(Thousands of constant Mexican Pesos restated as of December 31, 2002)

CONDENSED STATEMENTS OF INCOME:

|                                                                                                                         |  |                          |           |      |  |      |           |   |  |   |            |  
|------------------------------------------------------------------------------------------------------------------------ |  | ------------------------ | --------- | ---- |  | ---- | --------- | - |  | - | ---------- | -
|                                                                                                                         |  | Years ended December 31,
|                                                                                                                         |  |                         
|                                                                                                                         |  | 2000                     |           | 2001 |  | 2002
|                                                                                                                         |  |                          |           |      |  |     
|Net sales                                                                                                                |  | $                        | 9,141,912 |      |  | $    | 7,828,715 |   |  | $ | 7,075,707  |  
|Cost of sales                                                                                                            |  |                          | 7,133,399 |      |  |      | 6,087,210 |   |  |   | 5,607,243  |  
|                                                                                                                         |  |                          |           |      |  |      |           |   |  |   |            |  
|Gross profit                                                                                                             |  |                          | 2,008,513 |      |  |      | 1,741,505 |   |  |   | 1,468,464  |  
|Selling, general and administrative expenses                                                                             |  |                          | 565,342   |      |  |      | 459,823   |   |  |   | 1,317,713  |  
|Severances and loss on sale of non-
strategic assets                                                                     |  |                          |          |      |  |      | 167,561   |   |  |   | 93,869     |  
|                                                                                                                         |  |                          |           |      |  |      |           |   |  |   |            |  
|Operating income                                                                                                         |  |                          | 1,443,171 |      |  |      | 1,114,121 |   |  |   | 56,882     |  
|                                                                                                                         |  |                          |           |      |  |      |           |   |  |   |            |  
|Financing cost:                                                                                                          |  |                          |           |      |  |      |           |   |  |   |            |  
|Interest expense                                                                                                         |  |                          | 1,021,177 |      |  |      | 953,176   |   |  |   | 968,447    |  
|Interest income                                                                                                          |  |                          | (109,897  | )    |  |      | (65,503   | ) |  |   | (38,909    | )
|Foreign loss (gain), net                                                                                                 |  |                          | 101,628   |      |  |      | (313,372  | ) |  |   | 1,049,835  |  
|Gain from monetary position                                                                                              |  |                          | (562,070  | )    |  |      | (319,485  | ) |  |   | (426,797   | )
|                                                                                                                         |  |                          |           |      |  |      |           |   |  |   |            |  
|                                                                                                                         |  |                          | 450,838   |      |  |      | 254,816   |   |  |   | 1,552,576  |  
|                                                                                                                         |  |                          |           |      |  |      |           |   |  |   |            |  
|Other (expense) income, net                                                                                              |  |                          | (19,260   | )    |  |      | (11,325   | ) |  |   | 8,443      |  
|                                                                                                                         |  |                          |           |      |  |      |           |   |  |   |            |  
|Income (loss) before provisions for income and
asset taxes, minority interest, special items and discontinued
operations |  |                          | 973,073   |      |  |      | 847,980   |   |  |   | (1,487,251 | )
|Provision for:                                                                                                           |  |                          |           |      |  |      |           |   |  |   |            |  
|Income and asset tax expense                                                                                             |  |                          | 764,650   |      |  |      | 313,906   |   |  |   | 103,627    |  
|Minority interest                                                                                                        |  |                          | (4,634    | )    |  |      | (5,260    | ) |  |   | (11,708    | )
|                                                                                                                         |  |                          |           |      |  |      |           |   |  |   |            |  
|Net income (loss) before special items
and discontinued operations                                                       |  | $                        | 203,789   |      |  |      | 528,814   |   |  |   | (1,602,586 | )
|Special items:                                                                                                           |  |                          |           |      |  |      |           |   |  |   |            |  
|Extinguishment of debt, net                                                                                              |  |                          |          |      |  |      | (29,964   | ) |  |   |           |  
|Discontinued operations                                                                                                  |  |                          | (193,702  | )    |  |      | (259,435  | ) |  |   | (520,226   | )
|                                                                                                                         |  |                          |           |      |  |      |           |   |  |   |            |  
|Net income (loss)                                                                                                        |  | $                        | 10,087    |      |  | $    | 239,415   |   |  | $ | (2,122,802 | )
|                                                                                                                         |  |                          |           |      |  |      |           |   |  |   |            |  

F-66



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##### 



CORPORACIÓN DURANGO, S.A. DE C.V. AND SUBSIDIARIES
(formerly Grupo Industrial Durango, S. A. de C. V. and subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
DECEMBER 31, 2000, 2001 AND 2002
(Thousands of constant Mexican Pesos restated as of December 31, 2002)

x.     Adjustment to fixed asset impairment

For U.S. GAAP purposes, beginning on January 1, 2002, the Company follows SFAS
No.144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS
144).

For the year ended December 31, 2001, the Company followed SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of (SFAS 121). SFAS 144 and 121 provide criteria for when and
in what circumstances an impairment loss (write-down) should be recorded and
the manner in which the write-down should be measured. An evaluation of
impairment is undertaken whenever events or circumstances indicate that the
carrying amount of an asset may not be recoverable. Under SFAS 144 and 121,
the impairment criteria is met when the carrying value of assets exceeds the
sum of expected future cash flows (undiscounted and without interest charges)
of the related assets. If it is determined that an asset is impaired, it is
written down to its fair value, if available or the present value (discounted)
of expected future cash flows.

The Company tested certain long-lived assets for recoverability in 2002 in
response to significant adverse changes in business climate occurring during
the year (see Note 1 ii). Under U.S. GAAP, certain assets being evaluated for
recoverability had lower book values than under Mexican GAAP and negative
goodwill from acquisition has been reduced the US GAAP carrying value of the
assets. As such, in 2002, the impairment charge recorded under Mexican GAAP was
greater than the impairment charge calculated under U.S. GAAP. As a result,
the Company recognized an adjustment of $747,085 to U.S. GAAP net income. In
2002, the expense relates primarily to machinery and equipment.

xi.     Adjustment to loss on sale of subsidiary

In October 2002, the Company sold the shares of Durango Paper Co. (DPC) to
Operadora Omega, S.A. de C.V. (affiliated company). Historically, under US
GAAP the carrying value of such subsidiary was different to the carrying value
recorded under Mexican GAAP due to deferred income taxes, negative goodwill and
the reversal of loss on sale of fixed assets. As such, the Company reversed the
amount of the U.S. GAAP accumulative prior period adjustments relating to DPC.
In accordance with SFAS No. 144, Accounting for the Impairment or disposal of
Long-Lived Assets, the sale of this component of the Company has been
presented as discontinued operations in the condensed statement of income.

F-67



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##### 



CORPORACIÓN DURANGO, S.A. DE C.V. AND SUBSIDIARIES
(formerly Grupo Industrial Durango, S. A. de C. V. and subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
DECEMBER 31, 2000, 2001 AND 2002
(Thousands of constant Mexican Pesos restated as of December 31, 2002)

xii.     Equity Swap agreements

As described in Note 11.b, the Company has entered into Equity Share Swap
Transactions (collectively, Equity Swaps) with financial institutions, with
respect to its American Depository Receipts (ADRs) at prices ranging from
US$10.4489 to US$14.2813. The Equity Swaps have notional amounts of US$11.88,
US$6.06 and US$5.15 at December 31, 2000, 2001 and 2002, respectively, bearing
interest at LIBOR plus 2.95% payable semiannually and was due in 2002. Under
Mexican GAAP, the Company has recorded the fair value of the Equity Swaps on
the balance sheet, with a corresponding adjustment to shareholders equity
through December 31, 2000.

Upon adoption of Bulletin C-2, under Mexican GAAP, effective January 1, 2001,
the Company recorded the fair value of the Equity Swap with a corresponding
adjustment to the income for the period. Under U.S. GAAP, the fair value of the
Equity Swaps is recorded in income for the period. The Equity Swaps matured in
May 2002, therefore the Company had no outstanding swaps at December 31, 2002.

xiii.     Deferred start up and research and development costs

In 2002, under Mexican GAAP the Company deferred certain costs in relation to
the reconstruction of a manufacturing plant (Ponderosa Industrial de México,
S.A. de C.V.) and the development of a new paper manufacturing process. Under
U.S. GAAP, SFAS No. 2, Accounting for Research and Development Costs and SOP
98-5, Reporting on the Costs of Start-up Activities require that the Company
expense the start up and research and development costs as incurred. As such,
at December 31, 2002 the start up and research and development costs have been
included in the calculation of net income under U.S. GAAP.

xiv.     Minority Interest

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

F-68



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##### 



CORPORACIÓN DURANGO, S.A. DE C.V. AND SUBSIDIARIES
(formerly Grupo Industrial Durango, S. A. de C. V. and subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
DECEMBER 31, 2000, 2001 AND 2002
(Thousands of constant Mexican Pesos restated as of December 31, 2002)

SUPPLEMENTAL U.S. GAAP DISCLOSURES

Cash flow information

Under U.S. GAAP, pursuant to SFAS 95, Statement of Cash Flows, a statement of
cash flow is a required component of a complete set of financial statements in
lieu of a statement of changes in financial position. SFAS 95 establishes
specific presentation requirements and additional disclosures, but does not
provide guidance with respect to inflation adjusted financial statements.
Based on requirements of the Securities and Exchange Commission (the SEC),
the effect of inflation restatements and foreign exchange gains and losses on
cash flow has been included in a separate line after cash flows from financing
activities.

F-69



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##### 



CORPORACIÓN DURANGO, S.A. DE C.V. AND SUBSIDIARIES
(formerly Grupo Industrial Durango, S. A. de C. V. and subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
DECEMBER 31, 2000, 2001 AND 2002
(Thousands of constant Mexican Pesos restated as of December 31, 2002)

The U.S. GAAP statements of cash flow for the year ended December 31, 2000,
2001 and 2002 are as follows:

|                                                                                      |                          |   |                          |           |      |   |            |          |   |   |            |           |  
|------------------------------------------------------------------------------------- | ------------------------ | - | ------------------------ | --------- | ---- | - | ---------- | -------- | - | - | ---------- | --------- | -
|                                                                                      |                          |   | Years ended December 31,
|                                                                                      |                          |   |                         
|                                                                                      |                          |   | 2000                     |           | 2001 |   | 2002      
|                                                                                      |                          |   |                          |           |      |   |           
|Operating activities:                                                                 |                          |   |                          |           |      |   |            |          |   |   |            |          
|U.S. GAAP Net income before extraordinary item                                        |                          | $ | 10,087                   |           |      | $ | 269,378    |          |   | $ | (2,122,812 | )        
|Adjustment to reconcile net income to net cash
flow provided by operating activities: |                          |   |                          |           |      |   |            |          |   |   |            |          
|Depreciation and amortization                                                         |                          |   | 357,193                  |           |      |   | 312,838    |          |   |   | 324,495    |          
|Minority interest                                                                     |                          |   | 4,636                    |           |      |   | 5,260      |          |   |   | 11,708     |          
|Deferred income taxes                                                                 |                          |   | 657,323                  |           |      |   | 64,303     |          |   |   | (11,910    | )        
|Deferred employee profit sharing                                                      |                          |   | 49,755                   |           |      |   | (14,801    | )        |   |   | 46,426     |          
|Allowance for doubtful accounts                                                       |                          |   | 42,553                   |           |      |   | 37,350     |          |   |   | 12,360     |          
|Inventory obsolescence allowance                                                      |                          |   | 1,080                    |           |      |   | 9,412      |          |   |   | 3,446      |          
|Fixed asset impairment                                                                |                          |   |                         |           |      |   |           |          |   |   | 809,426    |          
|Gain on monetary position                                                             |                          |   | (589,348                 | )         |      |   | (339,542   | )        |   |   | (461,565   | )        
|Equity Swap                                                                           |                          |   | 83,339                   |           |      |   |           |          |   |   | 48,931     |          
|Loss (gain) on sale of non-strategic assets                                           |                          |   | 5,490                    |           |      |   | (82,802    | )        |   |   | 50,219     |          
|Unrealized foreign exchange loss, net                                                 |                          |   | 110,734                  |           |      |   | 226,851    |          |   |   | 1,062,089  |          
|Other                                                                                 |                          |   | 26,477                   |           |      |   | 78,552     |          |   |   | 137,869    |          
|                                                                                      |                          |   |                          |           |      |   |            |          |   |   |            |          
|                                                                                      |                          |   | 759,319                  |           |      |   | 566,799    |          |   |   | (89,316    | )        
|Changes in operating assets and liabilities:                                          |                          |   |                          |           |      |   |            |          |   |   |            |          
|                                                                                      | Accounts receivable, net |   |                          | (986,795  | )    |   |            | (352,246 | ) |   |            | (813,369  | )
|                                                                                      | Inventories, net         |   |                          | (278,870  | )    |   |            | 956,128  |   |   |            | (449,241  | )
|                                                                                      | Prepaid expenses         |   |                          | (53,356   | )    |   |            | (73,193  | ) |   |            | (23,422   | )
|                                                                                      | Other liabilities        |   |                          | 1,249,017 |      |   |            | 129,869  |   |   |            | 1,749,954 |  
|                                                                                      |                          |   |                          |           |      |   |            |          |   |   |            |          
|Cash flow provided by operating activities before
extraordinary items:                |                          |   | 689,315                  |           |      |   | 1,227,357  |          |   |   | 374,606    |          
|                                                                                      |                          |   |                          |           |      |   |            |          |   |   |            |          
|Extraordinary Item                                                                    |                          |   |                         |           |      |   | (29,964    | )        |   |   |           |          
|Cash flow provided by operating activities:                                           |                          |   | 689,315                  |           |      |   | 1,197,393  |          |   |   | 374,606    |          
|                                                                                      |                          |   |                          |           |      |   |            |          |   |   |            |          
|Financing activities:                                                                 |                          |   |                          |           |      |   |            |          |   |   |            |          
|Bank loans                                                                            |                          |   | 483,075                  |           |      |   | 2,344,858  |          |   |   | 3,727,042  |          
|Payments of long-term debt                                                            |                          |   | (132,668                 | )         |      |   | (3,107,122 | )        |   |   | (2,358,942 | )        
|Payment for debt issuance cost                                                        |                          |   | (24,859                  | )         |      |   | (225,690   | )        |   |   | (48,116    | )        
|                                                                                      |                          |   |                          |           |      |   |            |          |   |   |            |          
|Cash flow provided by (used in) financing activities                                  |                          |   | 325,548                  |           |      |   | (987,954   | )        |   |   | 1,319,984  |          
|                                                                                      |                          |   |                          |           |      |   |            |          |   |   |            |          
|Investing activities:                                                                 |                          |   |                          |           |      |   |            |          |   |   |            |          
|Acquisitions of fixed assets                                                          |                          |   | (1,171,250               | )         |      |   | (897,325   | )        |   |   | (450,865   | )        
|Proceeds from sale of non-strategic assets                                            |                          |   | 6,556                    |           |      |   | 283,230    |          |   |   | 96,986     |          
|Investments in subsidiaries                                                           |                          |   |                         |           |      |   | (6,656     | )        |   |   | (718,368   | )        
|Acquisitions of minority interest                                                     |                          |   |                          |           |      |   |            |          |   |   | 23,430     |          
|Other assets                                                                          |                          |   | (99,845                  | )         |      |   | 114,955    |          |   |   | (344,188   | )        
|                                                                                      |                          |   |                          |           |      |   |            |          |   |   |            |          
|Cash flow used in investing activities                                                |                          |   | (1,264,539               | )         |      |   | (505,796   | )        |   |   | (1,393,005 | )        
|                                                                                      |                          |   |                          |           |      |   |            |          |   |   |            |          
|Effect of inflation and exchange rate changes on
cash and cash equivalents            |                          |   | 106,210                  |           |      |   | (13,091    | )        |   |   | (542,076   | )        
|Net decrease in cash and cash equivalents                                             |                          |   | (143,466                 | )         |      |   | (309,448   | )        |   |   | (240,491   | )        
|Cash and cash equivalents at beginning of year                                        |                          |   | 949,116                  |           |      |   | 805,650    |          |   |   | 496,202    |          
|                                                                                      |                          |   |                          |           |      |   |            |          |   |   |            |          
|Cash and cash equivalents at end of year                                              |                          | $ | 805,650                  |           |      | $ | 496,202    |          |   | $ | 255,711    |          
|                                                                                      |                          |   |                          |           |      |   |            |          |   |   |            |          

F-70



---



##### 



CORPORACIÓN DURANGO, S.A. DE C.V. AND SUBSIDIARIES
(formerly Grupo Industrial Durango, S. A. de C. V. and subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
DECEMBER 31, 2000, 2001 AND 2002
(Thousands of constant Mexican Pesos restated as of December 31, 2002)

Supplemental cash flow disclosures:

|                                      |  |                          |         |      |  |      |         |  |  |   |         | 
|------------------------------------- |  | ------------------------ | ------- | ---- |  | ---- | ------- |  |  | - | ------- | 
|                                      |  | Years ended December 31,
|                                      |  |                         
|                                      |  | 2000                     |         | 2001 |  | 2002
|                                      |  |                          |         |      |  |     
|Cash paid during the year for:        |  |                          |         |      |  |      |         |  |  |   |         | 
|Interest, net of capitalized interest |  | $                        | 932,277 |      |  | $    | 932,995 |  |  | $ | 773,064 | 
|Income and asset tax                  |  | $                        | 139,790 |      |  | $    | 241,998 |  |  | $ | 188,332 | 
|                                      |  |                          |         |      |  |      |         |  |  |   |         | 

Supplemental balance sheet information



| |  | Accrued liabilities and other current payables:
|- |  | -----------------------------------------------

Included within accrued liabilities and other current payables as of December
31, 2001 and 2002 are customers advances ($135 and $2,434, respectively) and
accrued freight costs ($39,483 and $23,487, respectively).



| |  | Segment disclosures:
|- |  | --------------------

The Company adopted SFAS 131, Disclosures about Segments of an Enterprise and
Related Information (SFAS 131). SFAS 131 establishes guidelines for the way
that public enterprises report information about operating segments in the
financial statements. This statement also established guidelines for related
disclosures about products and services, geographic areas, and major customers.
See Note 16 for the Companys segment disclosures in accordance with IAS 14
and SFAS 131.



| |  | Valuation and qualifying accounts:
|- |  | ----------------------------------

The following table presents the rollforward of the allowance for doubtful
accounts for the years ended December 31, 2000, 2001 and 2002:

F-71



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##### 



CORPORACIÓN DURANGO, S.A. DE C.V. AND SUBSIDIARIES
(formerly Grupo Industrial Durango, S. A. de C. V. and subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
DECEMBER 31, 2000, 2001 AND 2002
(Thousands of constant Mexican Pesos restated as of December 31, 2002)

|                                       |  |                          |          |      |  |      |          |   |  |   |           |  
|-------------------------------------- |  | ------------------------ | -------- | ---- |  | ---- | -------- | - |  | - | --------- | -
|                                       |  | Years ended December 31,
|                                       |  |                         
|                                       |  | 2000                     |          | 2001 |  | 2002
|                                       |  |                          |          |      |  |     
|Balance at the beginning of the period |  | $                        | (133,787 | )    |  | $    | (135,194 | ) |  |   | ($143,716 | )
|Effects of inflation                   |  |                          | 12,308   |      |  |      | 3,481    |   |  |   | 8,915     |  
|Increase in the allowance              |  |                          | (42,553  | )    |  |      | (37,350  | ) |  |   | (12,360   | )
|Write-offs                             |  |                          | 28,838   |      |  |      | 25,347   |   |  |   | 15,103    |  
|                                       |  |                          |          |      |  |      |          |   |  |   |           |  
|Balance at the end of the period       |  | $                        | (135,194 | )    |  | $    | (143,716 | ) |  | $ | (132,058  | )
|                                       |  |                          |          |      |  |      |          |   |  |   |           |  

The following table presents the rollforward of the inventory obsolescence
allowance for the years ended December 31, 2000, 2001 and 2002:

|                                       |  |                          |         |      |  |      |         |   |  |   |          |  
|-------------------------------------- |  | ------------------------ | ------- | ---- |  | ---- | ------- | - |  | - | -------- | -
|                                       |  | Years ended December 31,
|                                       |  |                         
|                                       |  | 2000                     |         | 2001 |  | 2002
|                                       |  |                          |         |      |  |     
|Balance at the beginning of the period |  | $                        | (52,167 | )    |  | $    | (43,390 | ) |  |   | ($47,177 | )
|Effects of inflation                   |  |                          | 4,108   |      |  |      | 1,828   |   |  |   | 2,543    |  
|Increase in the allowance              |  |                          | (1,080  | )    |  |      | (9,412  | ) |  |   | (3,446   | )
|Write-offs                             |  |                          | 5,749   |      |  |      | 3,797   |   |  |   | 7,187    |  
|                                       |  |                          |         |      |  |      |         |   |  |   |          |  
|Balance at the end of the period       |  | $                        | (43,390 | )    |  | $    | (47,177 | ) |  | $ | (40,893  | )
|                                       |  |                          |         |      |  |      |         |   |  |   |          |  

Risks and uncertainties



| |  | Environmental matters
|- |  | ---------------------



|a) |  | Mexican subsidiaries                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The Companys Mexican operations are subject to the Mexican General Law of
Ecological Stabilization and Environment Protection (Ley General del
Equilibrio Ecológico y la Protección al Ambiente) and the rules published
there under (the Ecological Law). In accordance with the Ecological Law,
companies engaged in industrial activities are subject to the regulatory
jurisdiction of the Ministry of Natural Resources, Environment and Fishing
(Secretaría del Medio Ambiente, Recursos Naturales y Pesca), which has broad
discretion in carrying out its statutory mandate.

F-72



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##### 



CORPORACIÓN DURANGO, S.A. DE C.V. AND SUBSIDIARIES
(formerly Grupo Industrial Durango, S. A. de C. V. and subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
DECEMBER 31, 2000, 2001 AND 2002
(Thousands of constant Mexican Pesos restated as of December 31, 2002)



| |  | In 1998, the Company agreed with Mexican environmental regulatory authorities
to bring its paper plants into compliance with wastewater discharge
regulations. The Company has since instituted new procedures, and management
believes the Company is currently in compliance with both the general standard
established under the Ecological Law and with specific standards promulgated
by the regulatory authorities. However, there can be no assurance that
relevant authorities will continue finding the Company environmental
procedures adequate, or that more stringent environmental laws will not be
enacted in the future.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

New accounting pronouncements

U.S. GAAP  New Accounting pronouncements

In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations (SFAS 143). SFAS 143 requires the recognition of a liability
for the legal obligations associated with the retirement of a tangible
long-lived asset that results from the acquisition, construction and (or)
normal operation of the asset. The liability is recognized at fair value in
the period in which it is incurred if a reasonable estimate of fair value can
be made. A corresponding asset retirement cost is added to the carrying value
of the long-lived asset and is depreciated to expense using a systematic and
rational method over its useful life. SFAS 143 is effective for fiscal year
beginning after June 15, 2002. Upon initial adoption, a liability is
recognized for existing asset retirement obligations and the associated asset
retirement cost is capitalized as an increase to the carrying value of the
asset. The recognized liability and asset are adjusted for cumulative
accretion and accumulated depreciation, respectively, from the time period when
the asset retirement obligation would have originally been recognized had this
statement been in effect to the date of initial adoption. The cumulative
effect of initial adoption of SFAS 143 is recorded as a change in accounting
principle. Management is currently evaluating the impact that the adoption of
SFAS 143 will have on the consolidated financial statements.

In June 2002, the FASB issued SFAS 146, Accounting for Costs Associated with
Exit or Disposal Activities (SFAS 146). The issuance of SFAS 146 nullifies
the former guidance provided by the Emerging Issues Task Force (EITF) Issue
94-3, Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring (EITF 94-3). SFAS 146 requires the recognition of a liability
for costs associated with exit or disposal activity when the liability is
incurred, rather than on the date of commitment to an exit or disposal plan.
SFAS 146 is effective for liabilities, related to exit or disposal activities,
which are incurred after December 31, 2002, while earlier application is
encouraged. Management is currently evaluating the impact that the adoption of
SFAS 146 will have on the consolidated financial statement.

F-73



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##### 



CORPORACIÓN DURANGO, S.A. DE C.V. AND SUBSIDIARIES
(formerly Grupo Industrial Durango, S. A. de C. V. and subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
DECEMBER 31, 2000, 2001 AND 2002
(Thousands of constant Mexican Pesos restated as of December 31, 2002)

In July 2002, the FASB issued SFAS No. 147, Acquisitions of Certain Financial
Institutions (SFAS 147). This Statement amends SFAS No. 72, Accounting for
Certain Acquisitions of Banking or Thrift Institutions, and FASB
Interpretation No. 9, Applying APB Opinions No. 16 and 17 When a Savings and
Loan Association or a Similar Institution Is Acquired in a Business Combination
Accounted for by the Purchase Method by removing acquisitions of financial
institutions from the scope of both Statement 72 and Interpretation 9. SFAS
147 requires that such transactions be accounted for in accordance with FASB
Statements No. 141, Business Combinations, and No. 142, Goodwill and Other
Intangible Assets. As such, acquisitions within the scope of this statement
are no longer required to recognize any excess of the fair value of liabilities
assumed over the fair value of intangible and identifiable intangible assets
acquired as an unidentifiable intangible asset.

This statement also amends FASB Statement No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, to include in its scope long-term
customer-relationship intangible assets of financial institutions.
Accordingly, such intangible assets are subject to the same recoverability test
and impairment loss recognition required for other long-lived assets that are
held and used. This statement is effective for transactions entered into on or
after October 1, 2002. Management is currently evaluating the impact that the
adoption of SFAS 147 will have on the consolidated financial statements.

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation-Transaction and Disclosure- an amendment of FAS 123 (SFAS 148).
SFAS 148 continues to permit entities to apply the intrinsic method of APB 25,
Accounting for Stock Issued to Employees, however, SFAS 148 is intended to
encourage companies to adopt the accounting provisions of SFAS 123, Accounting
for Stock-Based Compensation SFAS 148 provides three transition methods for
companies who chose to adopt the provisions of SFAS 123, the prospective
method, the modified prospective method and the retroactive restatement method.
In addition, SFAS 148 mandates certain new disclosures. SFAS 148 is effective
for fiscal years ending after December 15, 2002, with early adoption permitted.
Management is currently evaluating the impact that the adoption of SFAS 148
will have on the consolidated financial statement.

In May 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. SFAS 149 amends and clarifies
financial accounting and reporting for derivative instruments, including
certain derivative instruments embedded in other contracts (collectively
referred to as derivatives) and for hedging activities under FASB Statements
No. 133, Accounting for Derivative Instruments and Hedging Activities. The
provisions of SFAS 149 that relate to Statement 133 implementation issued that
have been effective for fiscal quarters that began prior to June 15, 2003,
should continue to be applied in accordance with their respective effective
dates. In addition, paragraphs that relate to forward

F-74



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##### 



CORPORACIÓN DURANGO, S.A. DE C.V. AND SUBSIDIARIES
(formerly Grupo Industrial Durango, S. A. de C. V. and subsidiaries)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
DECEMBER 31, 2000, 2001 AND 2002
(Thousands of constant Mexican Pesos restated as of December 31, 2002)

purchases or sales of when-issued securities or other securities that do not
yet exist, should be applied to both existing contracts and new contracts
entered into after June 30, 2003. The Company is presently evaluating the
impact, if any, that these new standards will have on its consolidated
financial statements.

In November 2002, the FASB issued Interpretation No. 45 (FIN 45),
Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others (an interpretation of FASB
Statements No. 5, 57, and 107 and rescission of Interpretation No. 34). FIN 45
clarifies the requirements of SFAS No. 5, Accounting for Contingencies,
relating to a guarantors accounting for, and disclosure of, the issuance of
certain types of guarantees. FIN 45 requires that upon issuance of a
guarantee, the guarantor must recognize a liability for the fair value of the
obligation it assumes under that guarantee. FIN 45s provisions for initial
recognition and measurement should be applied on a prospective basis to
guarantees issued or modified after December 31, 2002, irrespective of the
guarantors fiscal year-end. The guarantors previous accounting for guarantees
that were issued before the date of FIN 45s initial application may not be
revised or restated to reflect the effect of the recognition and measurement
provisions of the Interpretation. The disclosure requirements are effective for
financial statements of both interim and annual periods that end after December
15, 2002. Management is currently evaluating the impact that the adoption of
FIN 45 will have on the consolidated financial statements.

In January 2003, the FASB issued Interpretation No. 46 (FIN 46),
Consolidation of Variable Interest Entities, an interpretation of ARB 51.
The primary objectives of FIN 46 are to provide guidance on the identification
of entities for which control is achieved through means other than through
voting rights (variable interest entities or VIEs) and how to determine
when and which business enterprise should consolidate the VIE (the primary
beneficiary). This new model for consolidation applies to an entity which
either (1) the equity investors (if any) do not have a controlling financial
interest or (2) the equity investment at risk is insufficient to finance that
entitys activities without receiving additional subordinated financial support
from other parties. In addition, FIN 46 requires that both the primary
beneficiary and all other enterprises with a significant variable interest in a
VIE make additional disclosures. FIN 46 applies immediately to variable
interest entities created after January 31, 2003, and to variable interest
entities in which an enterprise obtains an interest after that date. It applies
in the first fiscal year or interim period beginning after June 15, 2003, to
variable interest entities in which an enterprise holds a variable interest
that it acquired before February 1, 2003. FIN 46 applies to public enterprises
as of the beginning of the applicable interim or annual period, and it applies
to nonpublic enterprises as of the end of the applicable annual period.
Management is currently evaluating the impact that the adoption of FIN 46 will
have on the consolidated financial statements.




NOTE 22  GUARANTOR
FINANCIAL INFORMATION

On June 24, 2002, the Company
issued US$175 million in 13 3/4% Senior Notes due 2009.
These notes are guaranteed, jointly and severally, on an unsecured
basis by certain wholly owned and non-wholly owned subsidiaries of
the Company. Additionally, upon the issuance of the Notes, the initial
subsidiary Guarantors will also equally and ratably guarantee the
2006 and 2008 Notes (see Note 10).

Presented below is condensed
consolidating financial
information as of December 31, 2000 and 2001 and for the three
years ended December 31, 2001 for (i) the parent Company,
(ii) non-wholly owned combined guarantor subsidiaries,
(iii) wholly owned guarantor subsidiaries, (iv) the
combined non-guarantor subsidiaries, (v) eliminations and,
(vi) the Companys consolidated totals.

Where applicable the equity method has
been used by the parent Company and guarantors with respect to their
investments in certain subsidiaries for the respective periods
presented. The Company has not presented separate financial
statements for the wholly owned guarantor subsidiaries since
management has determined that such information is not material to
investors. The Company has presented separate financial statements
the non-wholly owned subsidiaries. Other disclosures concerning the
guarantor subsidiaries were not included because the management has determined
that such information is not material to investors.




F-75



---



##### 






CONDENSED CONSOLIDATING BALANCE SHEET







As of December 31, 2002
(Thousands of constant Mexican Pesos restated as of December 31, 2002)







|                                                     |                                         |              |                                      |                                            |            |           |            |                  |           |                        |           |               |           |              |            |              |           |           |            |            |             |            |             |            |            |            |            | 
|---------------------------------------------------- | --------------------------------------- | ------------ | ------------------------------------ | ------------------------------------------ | ---------- | --------- | ---------- | ---------------- | --------- | ---------------------- | --------- | ------------- | --------- | ------------ | ---------- | ------------ | --------- | --------- | ---------- | ---------- | ----------- | ---------- | ----------- | ---------- | ---------- | ---------- | ---------- | 
|                                                     |                                         |              |                                      |                                            |            |           |            |                  |           | Guarantor subsidiaries |           |               |           |              |            |              |           |           |            |            |             |           
|                                                     |                                         |              |                                      |                                            |            |           |            |                  |           |                        |           | Non-Guarantor |           |              |            |              |           |           |            |           
|                                                     |                                         |              |                                      |                                            |            | Parent    |            | Non-Wholly owned |           | Wholly owned           |           | Subsidiaries  |           | Eliminations |            | Consolidated
|                                                     |                                         |              |                                      |                                            |            |           |            |                  |           |                        |           |               |           |              |            |             
|                                                     | Cash and temporary investments          |              | $                                    | 1,864                                      |            |           | $          | 525              |           |                        | $         | 41,048        |           |              | $          | 212,274      |           |           | $          |           |             |            | $           | 255,711    |           
|                                                     | Due from related parties                |              |                                      | 5,821,284                                  |            |           |            | 436,321          |           |                        |           | 949,357       |           |              |            | 625,292      |           |           |            | (7,832,254 | )           |            |             |           |           
|                                                     | Other current assets                    |              |                                      | 14,376                                     |            |           |            | 359,566          |           |                        |           | 1,570,507     |           |              |            | 1,452,609    |           |           |            | (115,235   | )           |            |             | 3,281,823  |           
|                                                     | Investment in subsidiaries              |              |                                      | 6,599,039                                  |            |           |            |                 |           |                        |           | 337,101       |           |              |            |             |           |           |            | (6,936,140 | )           |            |             |           |           
|                                                     | Investment in affiliate                 |              |                                      |                                           |            |           |            | 134,929          |           |                        |           |              |           |              |            |             |           |           |            | (134,929   | )           |            |             |           |           
|                                                     | Property, plant and equipment, net      |              |                                      | 433,275                                    |            |           |            | 3,146,339        |           |                        |           | 4,227,694     |           |              |            | 5,256,403    |           |           |            |           |             |            |             | 13,063,711 |           
|                                                     | Other assets                            |              |                                      | 724,950                                    |            |           |            | 38,667           |           |                        |           | 224,781       |           |              |            | 58,166       |           |           |            | (335,135   | )           |            |             | 711,429    |           
|                                                     |                                         |              |                                      |                                            |            |           |            |                  |           |                        |           |               |           |              |            |              |           |           |            |            |             |            |             |           
|                                                     |                                         | Total assets |                                      |                                            | 13,594,788 |           |            |                  | 4,116,347 |                        |           |               | 7,350,488 |              |            |              | 7,604,744 |           |            |            | (15,353,693 | )          |             |            | 17,312,674 |           
|                                                     | Due to related parties                  |              |                                      | 1,577,680                                  |            |           |            | 1,193,177        |           |                        |           | 4,799,768     |           |              |            | 262,337      |           |           |            | (7,832,962 | )           |            |             |           |           
|                                                     | Total other short-term liabilities      |              |                                      | 7,555,528                                  |            |           |            | 281,448          |           |                        |           | 422,749       |           |              |            | 1,313,809    |           |           |            | (103,145   | )           |            |             | 9,470,389  |           
|                                                     | Total long-term liabilities             |              |                                      | 99,700                                     |            |           |            | 824,147          |           |                        |           | 1,352,095     |           |              |            | 1,471,180    |           |           |            | (335,135   | )           |            |             | 3,411,987  |           
|                                                     |                                         |              |                                      |                                            |            |           |            |                  |           |                        |           |               |           |              |            |              |           |           |            |            |             |            |             |           
|                                                     |                                         |              | Total liabilities                    |                                            |            | 9,232,908 |            |                  |           | 2,298,772              |           |               |           | 6,574,612    |            |              |           | 3,047,326 |            |            |             | (8,271,242 | )           |            |            | 12,882,376 |           
|                                                     | Capital stock                           |              |                                      | 4,672,466                                  |            |           |            | 4,125,496        |           |                        |           | 1,651,522     |           |              |            | 3,208,835    |           |           |            | (8,985,853 | )           |            |             | 4,672,466  |           
|                                                     | Additional paid-in capital              |              |                                      | 1,222,835                                  |            |           |            |                 |           |                        |           |              |           |              |            |             |           |           |            |           |             |            |             | 1,222,835  |           
|                                                     | Accumulated (deficit) retained earnings |              |                                      | (1,533,421                                 | )          |           |            | (2,307,924       | )         |                        |           | (1,007,332    | )         |              |            | 1,729,649    |           |           |            | 1,585,607  |             |            |             | (1,533,421 | )         
|                                                     |                                         |              |                                      |                                            |            |           |            |                  |           |                        |           |               |           |              |            |              |           |           |            |            |             |            |             |           
|                                                     | Total majority interest                 |              |                                      | 4,361,880                                  |            |           |            | 1,817,572        |           |                        |           | 644,190       |           |              |            | 4,938,484    |           |           |            | (7,400,246 | )           |            |             | 4,361,880  |           
|                                                     | Total minority interest                 |              |                                      |                                           |            |           |            | 3                |           |                        |           | 131,686       |           |              |            | (381,066     | )         |           |            | 317,795    |             |            |             | 68,418     |           
|                                                     |                                         |              |                                      |                                            |            |           |            |                  |           |                        |           |               |           |              |            |              |           |           |            |            |             |            |             |           
|                                                     |                                         |              | Total shareholders equity           |                                            | $          | 4,361,880 |            |                  | $         | 1,817,575              |           |               | $         | 775,876      |            |              | $         | 4,557,418 |            |            | $           | (7,082,451 | )           |            | $          | 4,430,298  |           
|                                                     |                                         |              |                                      |                                            |            |           |            |                  |           |                        |           |               |           |              |            |              |           |           |            |            |             |            |             |           
|                                                     |                                         |              |                                      | Total liabilities and shareholders equity |            | $         | 13,594,788 |                  |           | $                      | 4,116,347 |               |           | $            | 7,350,488  |              |           | $         | 7,604,744  |            |             | $          | (15,353,693 | )          |            | $          | 17,312,674 | 
|                                                     |                                         |              |                                      |                                            |            |           |            |                  |           |                        |           |               |           |              |            |              |           |           |            |            |             |            |             |           
|                                                     |                                         |              |                                      |                                            |            |           |            |                  |           |                        |           |               |           |              |            |              |           |           |            |            |             |            |            |            |           
|Total majority interest                              |                                         |              | 4,361,880                            |                                            |            |           | 1,817,572  |                  |           |                        | 644,190   |               |           |              | 4,938,484  |              |           |           | (7,400,246 | )          |             |            | 4,361,880   |           
|                                                     |                                         |              |                                      | U.S. GAAP ADJUSTMENTS                      |            |           |            |                  |           |                        |           |               |           |              |            |              |           |           |            |            |             |            |             |            |            |            |           | 
|Deferred income taxes                                |                                         |              | (484,107                             | )                                          |            |           | (264,408   | )                |           |                        | (526,310  | )             |           |              | 347,299    |              |           |           |           |            |             |            | (927,526    | )         
|Deferred employee profit sharing                     |                                         |              |                                     |                                            |            |           | (381,859   | )                |           |                        | (520,401  | )             |           |              | (124,579   | )            |           |           |           |            |             |            | (1,026,839  | )         
|Purchase accounting adjustments:                     |                                         |              |                                      |                                            |            |           |           |                  |           |                        |          |               |           |              |           |              |           |           |           |            |             |            |             |            |           
|* Accumulated negative goodwill                      |                                         |              | (1,719,166                           | )                                          |            |           |           |                  |           |                        | 395,730   |               |           |              | (2,906,586 | )            |           |           | (395,730   | )          |             |            | (4,625,752  | )         
|* Accumulated depreciation                           |                                         |              | 297,725                              |                                            |            |           |           |                  |           |                        | (867      | )             |           |              | 425,522    |              |           |           | 867        |            |             |            | 723,247     |           
|Effect of fifth Amendment of Bulletin B-10:          |                                         |              |                                      |                                            |            |           |           |                  |           |                        |          |               |           |              |           |              |           |           |           |            |             |            |             |            |           
|* Fixed assets                                       |                                         |              | 56,564                               |                                            |            |           | 530,838    |                  |           |                        | 648,088   |               |           |              | 2,310,863  |              |           |           |           |            |             |            | 3,546,353   |           
|* Fixed assets accumulated depreciation              |                                         |              | (4,822                               | )                                          |            |           | 96,465     |                  |           |                        | 185,327   |               |           |              | (1,659,788 | )            |           |           |           |            |             |            | (1,382,818  | )         
|Repurchase of Yankee Bonds:                          |                                         |              |                                      |                                            |            |           |           |                  |           |                        |          |               |           |              |           |              |           |           |           |            |             |            |             |            |           
|* Loss on extinguishment of Yankee Bonds             |                                         |              | (32,236                              | )                                          |            |           |           |                  |           |                        |          |               |           |              |           |              |           |           |           |            |             |            | (32,236     | )         
|* Accumulated amortization                           |                                         |              | 15,374                               |                                            |            |           |           |                  |           |                        |          |               |           |              |           |              |           |           |           |            |             |            | 15,374      |           
|Debt issuance cost:                                  |                                         |              |                                      |                                            |            |           |           |                  |           |                        |          |               |           |              |           |              |           |           |           |            |             |            |             |            |           
|* Reserval of capitalized debt issuance cost         |                                         |              | (110,324                             | )                                          |            |           |           |                  |           |                        |          |               |           |              |           |              |           |           |           |            |             |            | (110,324    | )         
|* Accumulated amortization                           |                                         |              | 5,491                                |                                            |            |           |           |                  |           |                        |          |               |           |              |           |              |           |           |           |            |             |            | 5,491       |           
|Capitalization of financing cost:                    |                                         |              |                                      |                                            |            |           |           |                  |           |                        |          |               |           |              |           |              |           |           |            |            |             |            |             |           
|* Capitalization of financing cost                   |                                         |              |                                     |                                            |            |           |           |                  |           |                        |          |               |           |              | 58,245     |              |           |           |           |            |             |            | 58,245      |           
|* Accumulated amortization                           |                                         |              |                                     |                                            |            |           |           |                  |           |                        |          |               |           |              | (1,135     | )            |           |           |           |            |             |            | (1,135      | )         
|Adjustment to fixed asset impairment                 |                                         |              |                                     |                                            |            |           |           |                  |           |                        |          |               |           |              | 747,085    |              |           |           |           |            |             |            | 747,085     |           
|Adjustment to loss on sale of subsidiary             |                                         |              | (236,973                             | )                                          |            |           |           |                  |           |                        |          |               |           |              |           |              |           |           |           |            |             |            | (236,973    | )         
|Deferred start up and research and development costs |                                         |              |                                     |                                            |            |           | (14,267    | )                |           |                        | (65,998   | )             |           |              | (20,389    | )            |           |           |           |            |             |            | (100,654    | )         
|                                                     | Investment in subsidiaries              |              |                                      | (1,100,703                                 | )          |           |            |                 |           |                        |           | (89,347       | )         |              |            |             |           |           |            | 1,213,479  |             |            |             | 23,429     |           
|Effect of U.S. GAAP adjustments on minority interest |                                         |              |                                     |                                            |            |           |           |                  |           |                        | 6         |               |           |              | 11,850     |              |           |           |           |            |             |            | 11,856      |           
|                                                     |                                         |              |                                      |                                            |            |           |            |                  |           |                        |           |               |           |              |            |              |           |           |            |            |             |            |             |           
|Total U.S. GAAP adjustment                           |                                         |              | (3,313,177                           | )                                          |            |           | (33,231    | )                |           |                        | 26,228    |               |           |              | (811,613   | )            |           |           | 818,616    |            |             |            | (3,313,177  | )         
|                                                     |                                         |              |                                      |                                            |            |           |            |                  |           |                        |           |               |           |              |            |              |           |           |            |            |             |            |             |           
|                                                     |                                         |              | Total U.S. GAAP stockholders equity |                                            | $          | 1,048,703 |            |                  | $         | 1,784,341              |           |               | $         | 670,418      |            |              | $         | 4,126,871 |            |            | $           | (6,581,630 | )           |            | $          | 1,048,703  |           
|                                                     |                                         |              |                                      |                                            |            |           |            |                  |           |                        |           |               |           |              |            |              |           |           |            |            |             |            |             |           




F-76



---



##### 






CONDENSED CONSOLIDATING BALANCE SHEET







As of December 31, 2002
(Thousands of constant Mexican Pesos restated as of December 31, 2002)







|                                                     |                                                   |                       |           |            |   |                  |          |                        |   |               |         |              |   |              |          |            |   |  |          |            |   |  |           |            |   | 
|---------------------------------------------------- | ------------------------------------------------- | --------------------- | --------- | ---------- | - | ---------------- | -------- | ---------------------- | - | ------------- | ------- | ------------ | - | ------------ | -------- | ---------- | - |  | -------- | ---------- | - |  | --------- | ---------- | - | 
|                                                     |                                                   |                       |           |            |   |                  |          | Guarantor subsidiaries |   |               |         |              |   |              |          |            |   |  |          |           
|                                                     |                                                   |                       |           |            |   |                  |          |                        |   | Non-Guarantor |         |              |   |              |          |            |   | 
|                                                     |                                                   |                       |           | Parent     |   | Non-Wholly owned |          | Wholly owned           |   | Subsidiaries  |         | Eliminations |   | Consolidated
|                                                     |                                                   |                       |           |            |   |                  |          |                        |   |               |         |              |   |             
|                                                     | Net sales                                         |                       | $         |           |   |                  | $        | 1,501,458              |   |               | $       | 3,916,167    |   |              | $        | 5,038,133  |   |  | $        | (1,957,553 | ) |  | $         | 8,498,205  |  
|                                                     | Total cost and operating expenses                 |                       |           | 11,400     |   |                  |          | 1,320,579              |   |               |         | 3,345,827    |   |              |          | 3,237,037  |   |  |          | (60,615    | ) |  |           | 7,854,228  |  
|                                                     | Operating income                                  |                       |           | (11,400    | ) |                  |          | 180,879                |   |               |         | 570,340      |   |              |          | 1,801,096  |   |  |          | (1,896,938 | ) |  |           | 643,977    |  
|                                                     | Other expense, net                                |                       |           | 40,085     |   |                  |          | (25,628                | ) |               |         | (15,929      | ) |              |          | (4,093     | ) |  |          | (40,941    | ) |  |           | (46,506    | )
|                                                     | Financing cost (income)                           |                       |           | 191,770    |   |                  |          | 186,308                |   |               |         | 972,665      |   |              |          | 329,719    |   |  |          | 3,739      |   |  |           | 1,684,201  |  
|                                                     | Special Items                                     |                       |           | (1,451,431 | ) |                  |          |                       |   |               |         |             |   |              |          |           |   |  |          |           |   |  |           | (1,451,431 | )
|                                                     | Benefit (provision) for taxes                     |                       |           | 391,368    |   |                  |          | 241,736                |   |               |         | 248,516      |   |              |          | (329,749   | ) |  |          |           |   |  |           | 551,871    |  
|                                                     | Income before special items and minority interest |                       |           | (1,223,148 | ) |                  |          | 210,679                |   |               |         | (169,738     | ) |              |          | 1,137,535  |   |  |          | (1,941,618 | ) |  |           | (1,986,290 | )
|                                                     | Investment in subsidiaries                        |                       |           | (2,322,775 | ) |                  |          | (46,255                | ) |               |         | (43,247      | ) |              |          |           |   |  |          | 2,412,277  |   |  |           |           |  
|                                                     | Extraordinary items                               |                       |           |           |   |                  |          | (338,010               | ) |               |         | (158,595     | ) |              |          | (1,071,073 | ) |  |          | 11,167     |   |  |           | (1,556,511 | )
|                                                     | Net income before minority interest               |                       |           | (3,545,923 | ) |                  |          | (173,586               | ) |               |         | (371,580     | ) |              |          | 66,462     |   |  |          | 481,826    |   |  |           | (3,542,801 | )
|                                                     | Minority interest                                 |                       |           |           |   |                  |          | (1                     | ) |               |         | 57,570       |   |              |          | (62,714    | ) |  |          | 2,023      |   |  |           | (3,122     | )
|                                                     |                                                   |                       |           |            |   |                  |          |                        |   |               |         |              |   |              |          |            |   |  |          |            |   |  |           |           
|                                                     | Net income                                        |                       | $         | (3,545,923 | ) |                  | $        | (173,587               | ) |               | $       | (314,010     | ) |              | $        | 3,748      |   |  | $        | 483,849    |   |  | $         | (3,545,923 | )
|                                                     |                                                   |                       |           |            |   |                  |          |                        |   |               |         |              |   |              |          |            |   |  |          |            |   |  |           |           
|                                                     |                                                   | U.S. GAAP ADJUSTMENTS |           |            |   |                  |          |                        |   |               |         |              |   |              |          |            |   |  |          |            |   |  |           |            |   | 
|Deferred income taxes                                |                                                   |                       | (501,041  | )          |   |                  | (145,619 | )                      |   |               | 512,303 |              |   |              | (608,710 | )          |   |  | 134,073  |            |   |  | (608,994  | )         
|Deferred employee profit sharing                     |                                                   |                       |          |            |   |                  | (15,979  | )                      |   |               | 216,458 |              |   |              | (257,510 | )          |   |  | 10,605   |            |   |  | (46,426   | )         
|Purchase accounting adjustments:                     |                                                   |                       |          |            |   |                  |         |                        |   |               |        |              |   |              |         |            |   |  |         |            |   |  |          |           
|* Depreciation                                       |                                                   |                       | 44,600    |            |   |                  |         |                        |   |               |        |              |   |              | 106,334  |            |   |  |         |            |   |  | 150,934   |           
|Effect of fifth Amendment of Bulletin B-10           |                                                   |                       | (1,329    | )          |   |                  | 25,645   |                        |   |               | (4,349  | )            |   |              | (39,798  | )          |   |  | (41,773  | )          |   |  | (61,604   | )         
|Loss on repurchase of Yankee Bonds                   |                                                   |                       | 14,155    |            |   |                  |         |                        |   |               |        |              |   |              |         |            |   |  |         |            |   |  | 14,155    |           
|Debt issuance cost                                   |                                                   |                       | (2,630    | )          |   |                  |         |                        |   |               |        |              |   |              |         |            |   |  |         |            |   |  | (2,630    | )         
|Capitalization of financing cost                     |                                                   |                       |          |            |   |                  |         |                        |   |               |        |              |   |              | 31,200   |            |   |  |         |            |   |  | 31,200    |           
|Equity swaps                                         |                                                   |                       |          |            |   |                  |         |                        |   |               |        |              |   |              | (48,931  | )          |   |  |         |            |   |  | (48,931   | )         
|Adjustment to fixed asset impairment                 |                                                   |                       |          |            |   |                  |         |                        |   |               |        |              |   |              | 747,085  |            |   |  |         |            |   |  | 747,085   |           
|Adjustment to loss on sale of subsidiary             |                                                   |                       | 1,357,562 |            |   |                  |          |                        |   |               |        |              |   |              |         |            |   |  |          |            |   |  | 1,357,562 |           
|Adjustment to loss on sale of an affiliate company   |                                                   |                       |           |            |   |                  | 84,666   |                        |   |               |         |              |   |              |          |            |   |  | (84,666  | )          |   |  |          |           
|Deferred start up and research and development costs |                                                   |                       |          |            |   |                  | (14,267  | )                      |   |               | (65,998 | )            |   |              | (20,389  | )          |   |  |         |            |   |  | (100,654  | )         
|Equity swaps                                         |                                                   |                       | (48,931   | )          |   |                  |         |                        |   |               |        |              |   |              | 48,931   |            |   |  |         |            |   |  |          |           
|Investment in subsidiaries                           |                                                   |                       | 560,725   |            |   |                  |         |                        |   |               |        |              |   |              |         |            |   |  | (560,725 | )          |   |  |          |           
|Equity in earnings of affiliate                      |                                                   |                       |          |            |   |                  |         |                        |   |               | (32,152 | )            |   |              |         |            |   |  | 32,152   |            |   |  |          |           
|Effect of U.S.GAAP adjustments on minority interest  |                                                   |                       |          |            |   |                  |         |                        |   |               | (10,256 | )            |   |              | 1,670    |            |   |  |         |            |   |  | (8,586    | )         
|                                                     |                                                   |                       |           |            |   |                  |          |                        |   |               |         |              |   |              |          |            |   |  |          |            |   |  |           |           
|Total U.S. GAAP adjustment                           |                                                   |                       | 1,423,111 |            |   |                  | (65,554  | )                      |   |               | 616,006 |              |   |              | (40,118  | )          |   |  | (510,334 | )          |   |  | 1,423,111 |           
|                                                     |                                                   |                       |           |            |   |                  |          |                        |   |               |         |              |   |              |          |            |   |  |          |            |   |  |           |           
|                                                     | Net income (loss) for the year under U.S. GAAP    |                       | $         | (2,122,812 | ) |                  | $        | (239,141               | ) |               | $       | 301,996      |   |              | $        | (36,370    | ) |  | $        | (26,485    | ) |  | $         | (2,122,812 | )
|                                                     |                                                   |                       |           |            |   |                  |          |                        |   |               |         |              |   |              |          |            |   |  |          |            |   |  |           |           




F-77



---



##### 






CONDENSED CONSOLIDATING STATEMENT OF CHANGES IN FINANCIAL POSITION

For the year ended December 31, 2002 (Thousands of
constant Mexican Pesos restated as of December 31, 2002)

|                                                                                                                 |                                                       |   |            |            |                  |   |                        |        |               |   |              |           |              |   |           |          |   |   |            |       |  |   |            |          |  
|---------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------- | - | ---------- | ---------- | ---------------- | - | ---------------------- | ------ | ------------- | - | ------------ | --------- | ------------ | - | --------- | -------- | - | - | ---------- | ----- |  | - | ---------- | -------- | -
|                                                                                                                 |                                                       |   |            |            |                  |   | Guarantor subsidiaries |        |               |   |              |           |              |   |           |          |   |   |           
|                                                                                                                 |                                                       |   |            |            |                  |   |                        |        | Non-Guarantor |   |              |           |              |   |           |          |  
|                                                                                                                 |                                                       |   | Parent     |            | Non-wholly owned |   | Wholly-owned           |        | Subsidiaries  |   | Eliminations |           | Consolidated
|                                                                                                                 |                                                       |   |            |            |                  |   |                        |        |               |   |              |           |             
|Operating activities:                                                                                            |                                                       |   |            |            |                  |   |                        |        |               |   |              |           |              |   |           |          |   |   |            |       |  |   |            |         
|Net income before minority interest                                                                              |                                                       | $ | (3,545,923 | )          |                  | $ | (173,586               | )      |               | $ | (371,580     | )         |              | $ | 66,462    |          |   | $ | 481,826    |       |  | $ | (3,542,801 | )       
|Adjustments to reconciliate net income before
minority interest to the net cash provided by
operating activities |                                                       |   | 3,448,619  |            |                  |   | 250,324                |        |               |   | 119,956      |           |              |   | 1,439,770 |          |   |   | (2,304,723 | )     |  |   | 2,953,946  |         
|Net changes in operating assets and liabilities                                                                  |                                                       |   | 72,508     |            |                  |   | (70,765                | )      |               |   | (672,737     | )         |              |   | (698,593  | )        |   |   | 1,820,821  |       |  |   | 451,234    |         
|Resources generated by (using in) operating activities                                                           |                                                       |   | (24,796    | )          |                  |   | 5,973                  |        |               |   | (924,361     | )         |              |   | 807,639   |          |   |   | (2,076     | )     |  |   | (137,621   | )       
|Financing activities:                                                                                            |                                                       |   |            |            |                  |   |                        |        |               |   |              |           |              |   |           |          |   |   |            |       |  |   |            |         
|                                                                                                                 | Bank loans and Long-term debt, net                    |   |            | 1,287,512  |                  |   |                        | (805   | )             |   |              | 24,357    |              |   |           | (512,415 | ) |   |            |      |  |   |            | 798,649  |  
|                                                                                                                 | Other financing activities                            |   |            |           |                  |   |                        |       |               |   |              | (926      | )            |   |           | (64,062  | ) |   |            | 2,076 |  |   |            | (62,912  | )
|                                                                                                                 |                                                       |   |            |            |                  |   |                        |        |               |   |              |           |              |   |           |          |   |   |            |       |  |   |            |         
|                                                                                                                 | Resources (used in) generated by financing activities |   |            | 1,287,512  |                  |   |                        | (805   | )             |   |              | 23,431    |              |   |           | (576,477 | ) |   |            | 2,076 |  |   |            | 735,737  |  
|Investing activities:                                                                                            |                                                       |   |            |            |                  |   |                        |        |               |   |              |           |              |   |           |          |   |   |            |       |  |   |            |         
|                                                                                                                 | Additions to property, plant and equipment, net       |   |            |           |                  |   |                        | (7,902 | )             |   |              | 65,724    |              |   |           | (363,076 | ) |   |            |      |  |   |            | (305,254 | )
|                                                                                                                 | Investment in subsidiaries                            |   |            | (1,243,103 | )                |   |                        |       |               |   |              | 1,024,887 |              |   |           | 13,446   |   |   |            |      |  |   |            | (204,770 | )
|                                                                                                                 | Other financing activities                            |   |            | (343,603   | )                |   |                        |       |               |   |              | (160,915  | )            |   |           | 163,243  |   |   |            |      |  |   |            | (341,275 | )
|                                                                                                                 |                                                       |   |            |            |                  |   |                        |        |               |   |              |           |              |   |           |          |   |   |            |       |  |   |            |         
|Resources (used in) generated by investing activities                                                            |                                                       |   | (1,586,706 | )          |                  |   | (7,902                 | )      |               |   | 929,696      |           |              |   | (186,387  | )        |   |   |           |       |  |   | (851,299   | )       
|Decrease in cash and temporary investments                                                                       |                                                       |   | (323,990   | )          |                  |   | (2,734                 | )      |               |   | 28,766       |           |              |   | 44,775    |          |   |   |           |       |  |   | (253,183   | )       
|Cash and temporary investments at the beginning
of the year                                                      |                                                       |   | 325,854    |            |                  |   | 3,259                  |        |               |   | 12,282       |           |              |   | 167,499   |          |   |   |           |       |  |   | 508,894    |         
|                                                                                                                 |                                                       |   |            |            |                  |   |                        |        |               |   |              |           |              |   |           |          |   |   |            |       |  |   |            |         
|Cash and temporary investments at the end
of the year                                                            |                                                       | $ | 1,864      |            |                  | $ | 525                    |        |               | $ | 41,048       |           |              | $ | 212,274   |          |   | $ |           |       |  | $ | 255,711    |         
|                                                                                                                 |                                                       |   |            |            |                  |   |                        |        |               |   |              |           |              |   |           |          |   |   |            |       |  |   |            |         




F-78





---



##### 






CORPORACION DURANGO, S.A. DE C.V.







CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW
Year ended December 31, 2002
(Thousands of constant Mexican Pesos restated as of December 31, 2002)







|                                                                      |                                                                                        |                                                  |            |           |            |                  |          |                        |        |               |            |              |            |              |            |            |           |   |           |            |        |   |            |           |            |  
|--------------------------------------------------------------------- | -------------------------------------------------------------------------------------- | ------------------------------------------------ | ---------- | --------- | ---------- | ---------------- | -------- | ---------------------- | ------ | ------------- | ---------- | ------------ | ---------- | ------------ | ---------- | ---------- | --------- | - | --------- | ---------- | ------ | - | ---------- | --------- | ---------- | -
|                                                                      |                                                                                        |                                                  |            |           |            |                  |          |                        |        |               |            |              |            |              |            |            |           |   |           |           
|                                                                      |                                                                                        |                                                  |            |           |            |                  |          | Guarantor subsidiaries |        |               |            |              |            |              |            |            |           |  
|                                                                      |                                                                                        |                                                  |            |           |            |                  |          |                        |        | Non-Guarantor |            |              |            |              |            |            |           |  
|                                                                      |                                                                                        |                                                  |            | Parent    |            | Non-wholly owned |          | Wholly owned           |        | Subsidiaries  |            | Eliminations |            | Consolidated
|                                                                      |                                                                                        |                                                  |            |           |            |                  |          |                        |        |               |            |              |            |             
|                                                                      | Operating activities:                                                                  |                                                  |            |           |            |                  |          |                        |        |               |            |              |            |              |            |            |           |   |           |            |        |   |            |           |           
|U.S. GAAP net (loss) income                                           |                                                                                        | $                                                | (2,122,812 | )         |            | $                | (239,141 | )                      |        | $             | 301,996    |              |            | $            | (36,370    | )          |           | $ | (26,485   | )          |        | $ | (2,122,812 | )        
|                                                                      | Adjustments to reconcile net income to net cash flow
provided by operating activities: |                                                  |            |           |            |                  |          |                        |        |               |            |              |            |              |            |            |           |   |           |            |        |   |            |           |           
|Depreciation and amortization                                         |                                                                                        |                                                  | 86,152     |           |            |                  | 108,234  |                        |        |               | 108,425    |              |            |              | 21,684     |            |           |   |          |            |        |   | 324,495    |          
|Deferred income taxes                                                 |                                                                                        |                                                  | 36,498     |           |            |                  | (96,101  | )                      |        |               | (761,083   | )            |            |              | 808,776    |            |           |   |          |            |        |   | (11,910    | )        
|Deferred employee profit sharing                                      |                                                                                        |                                                  |           |           |            |                  | 15,978   |                        |        |               | (216,458   | )            |            |              | 246,906    |            |           |   |          |            |        |   | 46,426     |          
|Others                                                                |                                                                                        |                                                  | 4,489,099  |           |            |                  | 370,708  |                        |        |               | 173,728    |              |            |              | (5,190,193 | )          |           |   | 1,831,143 |            |        |   | 1,674,485  |          
|                                                                      | Adjustments to reconcile net income to net cash
provided by operating activities       |                                                  |            | 4,611,749 |            |                  |          | 398,820                |        |               |            | (695,388     | )          |              |            | (4,112,828 | )         |   |           | 1,831,143  |        |   |            | 2,033,496 |           
|                                                                      | Net change in operating assets and liabilities                                         |                                                  |            | (916,809  | )          |                  |          | (31,350                | )      |               |            | 1,435,007    |            |              |            | 1,779,656  |           |   |           | (1,802,582 | )      |   |            | 463,922   |           
|                                                                      |                                                                                        |                                                  |            |           |            |                  |          |                        |        |               |            |              |            |              |            |            |           |   |           |            |        |   |            |          
|                                                                      | Cash flow (using in) provided by operating activities                                  |                                                  |            | 1,572,128 |            |                  |          | 128,329                |        |               |            | 1,041,615    |            |              |            | (2,369,542 | )         |   |           | 2,076      |        |   |            | 374,606   |           
|                                                                      | Financing activities:                                                                  |                                                  |            |           |            |                  |          |                        |        |               |            |              |            |              |            |            |           |   |           |            |        |   |            |           |           
|                                                                      |                                                                                        | Short-term bank borrowings  net                 |            |           | 2,117,784  |                  |          |                        |       |               |            |              | 57,211     |              |            |            | 1,552,047 |   |           |            |       |   |            |           | 3,727,042  |  
|                                                                      |                                                                                        | Payments of long-term debt                       |            |           | (1,781,903 | )                |          |                        | (1,170 | )             |            |              | (31,182    | )            |            |            | (544,687  | ) |           |            |       |   |            |           | (2,358,942 | )
|                                                                      |                                                                                        | Payment for debt issuance cost                   |            |           |           |                  |          |                        |       |               |            |              |           |              |            |            | (48,116   | ) |           |            |       |   |            |           | (48,116    | )
|                                                                      |                                                                                        | Other provided by (used in) financing activities |            |           |           |                  |          |                        |       |               |            |              | (1,456,872 | )            |            |            | 1,458,948 |   |           |            | (2,076 | ) |            |           |           |  
|                                                                      |                                                                                        |                                                  |            |           |            |                  |          |                        |        |               |            |              |            |              |            |            |           |   |           |            |        |   |            |          
|Cash flow provided by (used in) financing activities                  |                                                                                        |                                                  | 335,881    |           |            |                  | (1,170   | )                      |        |               | (1,430,843 | )            |            |              | 2,418,192  |            |           |   | (2,076    | )          |        |   | 1,319,984  |          
|                                                                      |                                                                                        |                                                  |            |           |            |                  |          |                        |        |               |            |              |            |              |            |            |           |   |           |            |        |   |            |          
|                                                                      | Investing activities:                                                                  |                                                  |            |           |            |                  |          |                        |        |               |            |              |            |              |            |            |           |   |           |            |        |   |            |           |           
|                                                                      |                                                                                        | Proceeds from sales of non-strategic assets      |            |           |           |                  |          |                        | 121    |               |            |              | 30,269     |              |            |            | 66,596    |   |           |            |       |   |            |           | 96,986     |  
|                                                                      |                                                                                        | Acquisitions of fixed assets                     |            |           |           |                  |          |                        | (7,808 | )             |            |              | (238,365   | )            |            |            | (204,691  | ) |           |            |       |   |            |           | (450,864   | )
|                                                                      |                                                                                        | Other investing activities  net                 |            |           | (2,158,955 | )                |          |                        | 14,267 |               |            |              | 617,906    |              |            |            | 487,656   |   |           |            |       |   |            |           | (1,039,126 | )
|                                                                      |                                                                                        |                                                  |            |           |            |                  |          |                        |        |               |            |              |            |              |            |            |           |   |           |            |        |   |            |          
|Cash flow (used in) provided by investing activities                  |                                                                                        |                                                  | (2,158,955 | )         |            |                  | 6,580    |                        |        |               | 409,810    |              |            |              | 349,561    |            |           |   |          |            |        |   | (1,393,004 | )        
|                                                                      |                                                                                        |                                                  |            |           |            |                  |          |                        |        |               |            |              |            |              |            |            |           |   |           |            |        |   |            |          
|Effect of inflation and exchange rate changes
on cash and equivalents |                                                                                        |                                                  | (73,044    | )         |            |                  | (136,473 | )                      |        |               | 8,184      |              |            |              | (340,744   | )          |           |   |          |            |        |   | (542,077   | )        
|Net (decrease) increase in cash and cash equivalents                  |                                                                                        |                                                  | (323,990   | )         |            |                  | (2,734   | )                      |        |               | 28,766     |              |            |              | 57,467     |            |           |   |          |            |        |   | (240,491   | )        
|Cash and cash equivalents at the beginning of the year                |                                                                                        |                                                  | 325,854    |           |            |                  | 3,260    |                        |        |               | 12,282     |              |            |              | 154,806    |            |           |   |          |            |        |   | 496,202    |          
|                                                                      |                                                                                        |                                                  |            |           |            |                  |          |                        |        |               |            |              |            |              |            |            |           |   |           |            |        |   |            |          
|Cash and cash equivalents at the end of the year                      |                                                                                        | $                                                | 1,864      |           |            | $                | 526      |                        |        |               | 41,048     |              |            |              | 212,273    |            |           | $ |          |            |        | $ | 255,711    |          
|                                                                      |                                                                                        |                                                  |            |           |            |                  |          |                        |        |               |            |              |            |              |            |            |           |   |           |            |        |   |            |          




F-79



---



##### 






CONDENSED CONSOLIDATING BALANCE SHEET







As of December 31, 2001
(Thousands of constant Mexican Pesos restated as of December 31, 2002)







|                                                              |                                         |                            |                                      |                                            |            |           |            |                  |           |                        |           |               |           |              |            |              |            |           |            |            |             |            |             |            |            |            |            | 
|------------------------------------------------------------- | --------------------------------------- | -------------------------- | ------------------------------------ | ------------------------------------------ | ---------- | --------- | ---------- | ---------------- | --------- | ---------------------- | --------- | ------------- | --------- | ------------ | ---------- | ------------ | ---------- | --------- | ---------- | ---------- | ----------- | ---------- | ----------- | ---------- | ---------- | ---------- | ---------- | 
|                                                              |                                         |                            |                                      |                                            |            |           |            |                  |           | Guarantor subsidiaries |           |               |           |              |            |              |            |           |            |            |             |           
|                                                              |                                         |                            |                                      |                                            |            |           |            |                  |           |                        |           | Non-Guarantor |           |              |            |              |            |           |            |           
|                                                              |                                         |                            |                                      |                                            |            | Parent    |            | Non-Wholly owned |           | Wholly owned           |           | Subsidiaries  |           | Eliminations |            | Consolidated
|                                                              |                                         |                            |                                      |                                            |            |           |            |                  |           |                        |           |               |           |              |            |             
|                                                              | Cash and temporary investments          |                            | $                                    | 325,854                                    |            |           | $          | 3,259            |           |                        | $         | 12,282        |           |              | $          | 167,499      |            |           | $          |           |             |            | $           | 508,894    |           
|                                                              | Due from related parties                |                            |                                      | 5,457,127                                  |            |           |            | 305,256          |           |                        |           | 28,386        |           |              |            | 188,653      |            |           |            | (5,979,422 | )           |            |             |           |           
|                                                              | Other current assets                    |                            |                                      | 161,324                                    |            |           |            | 380,164          |           |                        |           | 1,700,736     |           |              |            | 1,929,662    |            |           |            | (425,141   | )           |            |             | 3,746,745  |           
|                                                              | Investment in subsidiaries              |                            |                                      | 7,948,394                                  |            |           |            |                 |           |                        |           | 1,326,857     |           |              |            |             |            |           |            | (9,275,251 | )           |            |             |           |           
|                                                              | Investment in affiliate                 |                            |                                      |                                           |            |           |            | 535,319          |           |                        |           |              |           |              |            |             |            |           |            | (535,319   | )           |            |             |           |           
|                                                              | Property, plant and equipment, net      |                            |                                      | 401,795                                    |            |           |            | 3,624,806        |           |                        |           | 4,055,991     |           |              |            | 8,406,392    |            |           |            |           |             |            |             | 16,488,984 |           
|                                                              | Other assets                            |                            |                                      | 294,419                                    |            |           |            | 28,160           |           |                        |           | 119,830       |           |              |            | 105,541      |            |           |            | (15,042    | )           |            |             | 532,908    |           
|                                                              |                                         |                            |                                      |                                            |            |           |            |                  |           |                        |           |               |           |              |            |              |            |           |            |            |             |            |             |           
|                                                              |                                         | Total assets               |                                      | $                                          | 14,588,913 |           |            | $                | 4,876,964 |                        |           | $             | 7,244,082 |              |            | $            | 10,797,747 |           |            | $          | (16,230,175 | )          |             | $          | 21,277,531 |           
|                                                              |                                         |                            |                                      |                                            |            |           |            |                  |           |                        |           |               |           |              |            |              |            |           |            |            |             |            |             |           
|                                                              | Due to related parties                  |                            |                                      | 298,280                                    |            |           |            | 1,111,989        |           |                        |           | 4,365,734     |           |              |            | 271,503      |            |           |            | (6,047,506 | )           |            |             |           |           
|                                                              | Total other short-term liabilities      |                            |                                      | 607,348                                    |            |           |            | 279,697          |           |                        |           | 392,720       |           |              |            | 1,561,305    |            |           |            | (188,623   | )           |            |             | 2,652,447  |           
|                                                              | Total long-term liabilities             |                            |                                      | 5,848,469                                  |            |           |            | 1,083,226        |           |                        |           | 1,489,110     |           |              |            | 2,511,086    |            |           |            | (183,477   | )           |            |             | 10,748,414 |           
|                                                              |                                         |                            |                                      |                                            |            |           |            |                  |           |                        |           |               |           |              |            |              |            |           |            |            |             |            |             |           
|                                                              |                                         |                            | Total liabilities                    |                                            |            | 6,754,097 |            |                  |           | 2,474,912              |           |               |           | 6,247,564    |            |              |            | 4,343,894 |            |            |             | (6,419,606 | )           |            |            | 13,400,861 |           
|                                                              | Capital stock                           |                            |                                      | 4,672,466                                  |            |           |            | 4,125,496        |           |                        |           | 1,652,448     |           |              |            | 3,288,943    |            |           |            | (9,066,887 | )           |            |             | 4,672,466  |           
|                                                              | Additional paid-in capital              |                            |                                      | 1,271,767                                  |            |           |            |                 |           |                        |           |              |           |              |            |             |            |           |            |           |             |            |             | 1,271,767  |           
|                                                              | Accumulated (deficit) retained earnings |                            |                                      | 1,890,583                                  |            |           |            | (1,723,448       | )         |                        |           | (804,066      | )         |              |            | 3,288,216    |            |           |            | (760,702   | )           |            |             | 1,890,583  |           
|                                                              |                                         |                            |                                      |                                            |            |           |            |                  |           |                        |           |               |           |              |            |              |            |           |            |            |             |            |             |           
|                                                              | Total majority interest                 |                            |                                      | 7,834,816                                  |            |           |            | 2,402,048        |           |                        |           | 848,382       |           |              |            | 6,577,159    |            |           |            | (9,827,589 | )           |            |             | 7,834,816  |           
|                                                              | Total minority interest                 |                            |                                      |                                           |            |           |            | 4                |           |                        |           | 148,136       |           |              |            | (123,306     | )          |           |            | 17,020     |             |            |             | 41,854     |           
|                                                              |                                         |                            |                                      |                                            |            |           |            |                  |           |                        |           |               |           |              |            |              |            |           |            |            |             |            |             |           
|                                                              |                                         |                            | Total shareholders equity           |                                            |            | 7,834,816 |            |                  |           | 2,402,052              |           |               |           | 996,518      |            |              |            | 6,453,853 |            |            |             | (9,810,569 | )           |            |            | 7,876,670  |           
|                                                              |                                         |                            |                                      |                                            |            |           |            |                  |           |                        |           |               |           |              |            |              |            |           |            |            |             |            |             |           
|                                                              |                                         |                            |                                      | Total liabilities and shareholders equity |            | $         | 14,588,913 |                  |           | $                      | 4,876,964 |               |           | $            | 7,244,082  |              |            | $         | 10,797,747 |            |             | $          | (16,230,175 | )          |            | $          | 21,277,531 | 
|                                                              |                                         |                            |                                      |                                            |            |           |            |                  |           |                        |           |               |           |              |            |              |            |           |            |            |             |            |             |           
|                                                              | Total majority interest                 |                            | $                                    | 7,834,816                                  |            |           | $          | 2,402,048        |           |                        | $         | 848,382       |           |              | $          | 6,577,159    |            |           | $          | (9,827,589 | )           |            | $           | 7,834,816  |           
|                                                              |                                         |                            |                                      | U.S. GAAP ADJUSTMENTS                      |            |           |            |                  |           |                        |           |               |           |              |            |              |            |           |            |            |             |            |             |            |            |            |            | 
|Deferred income taxes                                         |                                         |                            | 2,692                                |                                            |            |           | (102,164   | )                |           |                        | (357,403  | )             |           |              | 512,888    |              |            |           |           |            |             |            | 56,013      |           
|Deferred employee profit sharing                              |                                         |                            |                                     |                                            |            |           | (365,881   | )                |           |                        | (736,859  | )             |           |              | 122,327    |              |            |           |           |            |             |            | (980,413    | )         
|Purchase accounting adjustments:                              |                                         |                            |                                      |                                            |            |           |            |                  |           |                        |           |               |           |              |            |              |            |           |            |            |             |            |             |           
|* Accumulated negative goodwill                               |                                         |                            | (1,719,166                           | )                                          |            |           |           |                  |           |                        | 395,730   |               |           |              | (4,696,180 | )            |            |           | (395,730   | )          |             |            | (6,415,346  | )         
|* Accumulated depreciation                                    |                                         |                            | 253,125                              |                                            |            |           |           |                  |           |                        |          |               |           |              | 391,032    |              |            |           |           |            |             |            | 644,157     |           
|* Reversal of loss on fixed assets                            |                                         |                            |                                     |                                            |            |           |           |                  |           |                        |          |               |           |              | 123,216    |              |            |           |           |            |             |            | 123,216     |           
|Effect of fifth Amendment of Bulletin B-10:                   |                                         |                            |                                      |                                            |            |           |            |                  |           |                        |           |               |           |              |            |              |            |           |            |            |             |            |             |           
|* Fixed assets                                                |                                         |                            | 113,400                              |                                            |            |           | 583,845    |                  |           |                        | 1,263,790 |               |           |              | 2,348,985  |              |            |           |           |            |             |            | 4,310,020   |           
|* Fixed assets accumulated depreciation                       |                                         |                            | (5,363                               | )                                          |            |           | (58,279    | )                |           |                        | (149,625  | )             |           |              | (1,001,435 | )            |            |           |           |            |             |            | (1,214,702  | )         
|Repurchase of Yankee Bonds:                                   |                                         |                            |                                      |                                            |            |           |            |                  |           |                        |           |               |           |              |            |              |            |           |            |            |             |            |             |           
|* Loss on extinguishment of Yankee Bonds                      |                                         |                            | (32,236                              | )                                          |            |           |           |                  |           |                        |          |               |           |              |           |              |            |           |           |            |             |            | (32,236     | )         
|* Accumulated amortization                                    |                                         |                            | 1,219                                |                                            |            |           |           |                  |           |                        |          |               |           |              |           |              |            |           |           |            |             |            | 1,219       |           
|Debt issuance cost:                                           |                                         |                            |                                      |                                            |            |           |            |                  |           |                        |           |               |           |              |            |              |            |           |            |            |             |            |             |           
|* Reserval of capitalized debt issuance cost                  |                                         |                            | (84,578                              | )                                          |            |           |           |                  |           |                        |          |               |           |              |           |              |            |           |           |            |             |            | (84,578     | )         
|* Accumulated amortization                                    |                                         |                            | 5,804                                |                                            |            |           |           |                  |           |                        |          |               |           |              |           |              |            |           |           |            |             |            | 5,804       |           
|Capitalization of financing cost:                             |                                         |                            |                                      |                                            |            |           |            |                  |           |                        |           |               |           |              |            |              |            |           |            |            |             |            |             |           
|* Capitalization of financing cost                            |                                         |                            |                                     |                                            |            |           |           |                  |           |                        |          |               |           |              | 26,463     |              |            |           |           |            |             |            | 26,463      |           
|* Accumulated amortization                                    |                                         |                            |                                     |                                            |            |           |           |                  |           |                        |          |               |           |              | (553       | )            |            |           |           |            |             |            | (553        | )         
|Effect of restatement of prior year amounts per Bulletin B-15 |                                         |                            |                                     |                                            |            |           |           |                  |           |                        |          |               |           |              | (237,599   | )            |            |           |           |            |             |            | (237,599    | )         
|Investment in subsidiaries                                    |                                         |                            | (2,312,989                           | )                                          |            |           |           |                  |           |                        |          |               |           |              |           |              |            |           | 2,312,989  |            |             |            |            |           
|Equity in earnings of affiliate                               |                                         |                            |                                     |                                            |            |           | (84,666    | )                |           |                        |          |               |           |              |           |              |            |           | 84,666     |            |             |            |            |           
|Effect of U.S. GAAP adjustments on minority interest          |                                         |                            |                                     |                                            |            |           |           |                  |           |                        | 10,262    |               |           |              | 10,181     |              |            |           |           |            |             |            | 20,443      |           
|                                                              |                                         |                            |                                      |                                            |            |           |            |                  |           |                        |           |               |           |              |            |              |            |           |            |            |             |            |             |           
|                                                              |                                         | Total U.S. GAAP adjustment |                                      |                                            | (3,778,092 | )         |            |                  | (27,145   | )                      |           |               | 425,895   |              |            |              | (2,400,675 | )         |            |            | 2,001,925   |            |             |            | (3,778,092 | )         
|                                                              |                                         |                            |                                      |                                            |            |           |            |                  |           |                        |           |               |           |              |            |              |            |           |            |            |             |            |             |           
|                                                              |                                         |                            | Total U.S. GAAP shareholders equity |                                            | $          | 4,056,724 |            |                  | $         | 2,374,903              |           |               | $         | 1,274,277    |            |              | $          | 4,176,484 |            |            | $           | (7,825,664 | )           |            | $          | 4,056,724  |           
|                                                              |                                         |                            |                                      |                                            |            |           |            |                  |           |                        |           |               |           |              |            |              |            |           |            |            |             |            |             |           




F-80



---



##### 






CONDENSED CONSOLIDATING INCOME STATEMENT

As of December 31, 2001
(Thousands of constant Mexican Pesos restated as of December 31, 2002)

|                                                              |                                     |   |          |          |                  |   |                        |           |               |   |              |           |              |   |          |           |   |   |          |            |   |   |          |            |  
|------------------------------------------------------------- | ----------------------------------- | - | -------- | -------- | ---------------- | - | ---------------------- | --------- | ------------- | - | ------------ | --------- | ------------ | - | -------- | --------- | - | - | -------- | ---------- | - | - | -------- | ---------- | -
|                                                              |                                     |   |          |          |                  |   | Guarantor subsidiaries |           |               |   |              |           |              |   |          |           |   |   |         
|                                                              |                                     |   |          |          |                  |   |                        |           | Non-Guarantor |   |              |           |              |   |          |           |  
|                                                              |                                     |   | Parent   |          | Non-Wholly owned |   | Wholly owned           |           | Subsidiaries  |   | Eliminations |           | Consolidated
|                                                              |                                     |   |          |          |                  |   |                        |           |               |   |              |           |             
|                                                              | Net sales                           |   | $        |         |                  |   | $                      | 1,311,222 |               |   | $            | 3,968,557 |              |   | $        | 5,981,378 |   |   | $        | (728,762   | ) |   | $        | 10,532,395 |  
|                                                              | Total cost and operating expenses   |   |          | (98,771  | )                |   |                        | 1,095,876 |               |   |              | 3,441,549 |              |   |          | 4,443,565 |   |   |          | 616,571    |   |   |          | 9,498,790  |  
|                                                              | Operating income                    |   |          | 98,771   |                  |   |                        | 215,346   |               |   |              | 527,008   |              |   |          | 1,537,813 |   |   |          | (1,345,333 | ) |   |          | 1,033,605  |  
|                                                              | Other expense, net                  |   |          | 70,032   |                  |   |                        | (25,726   | )             |   |              | 7,273     |              |   |          | (45,520   | ) |   |          | (46,368    | ) |   |          | (40,309    | )
|                                                              | Financing cost (income)             |   |          | (619,071 | )                |   |                        | (34,033   | )             |   |              | 723,322   |              |   |          | 295,859   |   |   |          | 21,303     |   |   |          | 387,380    |  
|                                                              | Amortization of negative goodwill   |   |          |         |                  |   |                        |          |               |   |              |          |              |   |          | 495,297   |   |   |          |           |   |   |          | 495,297    |  
|                                                              | Benefit (provision) for taxes       |   |          | (208,079 | )                |   |                        | 61,394    |               |   |              | 117,103   |              |   |          | 56,334    |   |   |          |           |   |   |          | 26,752     |  
|                                                              | Investment in subsidiaries          |   |          | 249,532  |                  |   |                        |          |               |   |              | 146,053   |              |   |          | (476,601  | ) |   |          | 81,016     |   |   |          |           |  
|                                                              | Equity income of affiliated company |   |          |         |                  |   |                        | 36,754    |               |   |              |          |              |   |          |          |   |   |          | (36,754    | ) |   |          |           |  
|                                                              | Special items                       |   |          |         |                  |   |                        | (157,934  | )             |   |              |          |              |   |          | (140,704  | ) |   |          |           |   |   |          | (298,638   | )
|                                                              | Net income before minority interest |   |          | 829,327  |                  |   |                        | 163,867   |               |   |              | 74,115    |              |   |          | 1,130,760 |   |   |          | (1,368,742 | ) |   |          | 829,327    |  
|                                                              | Minority interest                   |   |          |         |                  |   |                        |          |               |   |              | 18,528    |              |   |          | (24,695   | ) |   |          | 2,138      |   |   |          | (4,029     | )
|                                                              |                                     |   |          |          |                  |   |                        |           |               |   |              |           |              |   |          |           |   |   |          |            |   |   |          |           
|                                                              | Net income                          |   | $        | 829,327  |                  |   | $                      | 163,867   |               |   | $            | 92,643    |              |   | $        | 1,106,065 |   |   | $        | (1,366,604 | ) |   | $        | 825,298    |  
|                                                              |                                     |   |          |          |                  |   |                        |           |               |   |              |           |              |   |          |           |   |   |          |            |   |   |          |           
|U.S. GAAP ADJUSTMENTS                                         |                                     |   |          |          |                  |   |                        |           |               |   |              |           |              |   |          |           |   |   |          |            |   |   |          |           
|Deferred income taxes                                         |                                     |   | (34,491  | )        |                  |   | 19,357                 |           |               |   | (50,251      | )         |              |   | (211,092 | )         |   |   | (28,648  | )          |   |   | (305,125 | )         
|Deferred employee profit sharing                              |                                     |   |         |          |                  |   | 48,854                 |           |               |   | 45,259       |           |              |   | (53,423  | )         |   |   | (25,889  | )          |   |   | 14,801   |           
|Purchase accounting adjustments:                              |                                     |   |          |          |                  |   |                        |           |               |   |              |           |              |   |          |           |   |   |          |            |   |   |          |           
|* Amortization of negative goodwill                           |                                     |   |         |          |                  |   |                       |           |               |   |             |           |              |   | (449,203 | )         |   |   |         |            |   |   | (449,203 | )         
|* Depreciation                                                |                                     |   | 44,601   |          |                  |   |                       |           |               |   |             |           |              |   | 122,129  |           |   |   |         |            |   |   | 166,730  |           
|Reversal of loss on fixed assets                              |                                     |   |         |          |                  |   |                       |           |               |   |             |           |              |   | 123,216  |           |   |   |         |            |   |   | 123,216  |           
|Effect of fifth Amendment of Bulletin B-10                    |                                     |   | (1,792   | )        |                  |   | 2,694                  |           |               |   | 2,421        |           |              |   | (52,572  | )         |   |   | (12,811  | )          |   |   | (62,060  | )         
|Loss on repurchase of Yankee Bonds                            |                                     |   | 15,080   |          |                  |   |                       |           |               |   |             |           |              |   |         |           |   |   |         |            |   |   | 15,080   |           
|Debt issuance cost                                            |                                     |   | (78,774  | )        |                  |   |                       |           |               |   |             |           |              |   |         |           |   |   |         |            |   |   | (78,774  | )         
|Capitalization of financing cost                              |                                     |   |         |          |                  |   |                       |           |               |   |             |           |              |   | 25,910   |           |   |   |         |            |   |   | 25,910   |           
|Effect of restatement of prior year
amounts per Bulletin B-15 |                                     |   |          |          |                  |   |                        |           |               |   |              |           |              |   | (5,264   | )         |   |   |          |            |   |   | (5,264   | )         
|Investment in subsidiaries                                    |                                     |   | (504,573 | )        |                  |   |                       |           |               |   |             |           |              |   |         |           |   |   | 504,573  |            |   |   |         |           
|Equity income of affiliated company                           |                                     |   |         |          |                  |   | 20,878                 |           |               |   |             |           |              |   |         |           |   |   | (20,878  | )          |   |   |         |           
|Effect of U.S.GAAP adjustments on minority interest           |                                     |   |         |          |                  |   |                       |           |               |   | (1,091       | )         |              |   | (140     | )         |   |   |         |            |   |   | (1,231   | )         
|                                                              |                                     |   |          |          |                  |   |                        |           |               |   |              |           |              |   |          |           |   |   |          |            |   |   |          |           
|Total U.S. GAAP adjustment                                    |                                     |   | (559,949 | )        |                  |   | 91,783                 |           |               |   | (3,662       | )         |              |   | (500,439 | )         |   |   | 416,347  |            |   |   | (555,920 | )         
|                                                              |                                     |   |          |          |                  |   |                        |           |               |   |              |           |              |   |          |           |   |   |          |            |   |   |          |           
|U.S. GAAP net (loss) income before extraordinary items        |                                     |   | 269,378  |          |                  |   | 255,650                |           |               |   | 88,981       |           |              |   | 605,626  |           |   |   | (950,257 | )          |   |   | 269,378  |           
|Extraordinary loss  Extinguishment of debt, net of taxes     |                                     |   | (29,963  | )        |                  |   |                       |           |               |   |             |           |              |   |         |           |   |   |         |            |   |   | (29,963  | )         
|                                                              |                                     |   |          |          |                  |   |                        |           |               |   |              |           |              |   |          |           |   |   |          |            |   |   |          |           
|U.S. GAAP net (loss) income                                   |                                     | $ | 239,415  |          |                  | $ | 255,650                |           |               | $ | 88,981       |           |              | $ | 605,626  |           |   | $ | (950,257 | )          |   | $ | 239,415  |           
|                                                              |                                     |   |          |          |                  |   |                        |           |               |   |              |           |              |   |          |           |   |   |          |            |   |   |          |           




F-81





---



##### 






CONDENSED CONSOLIDATING STATEMENT OF CHANGES IN FINANCIAL POSITION







For the year ended December 31, 2001
(Thousands of constant Mexican Pesos restated as of December 31, 2002)







|                                                                                                                 |                                                 |   |          |            |                  |   |                        |          |               |   |              |          |              |   |            |            |   |   |            |            |   |   |          |          |  
|---------------------------------------------------------------------------------------------------------------- | ----------------------------------------------- | - | -------- | ---------- | ---------------- | - | ---------------------- | -------- | ------------- | - | ------------ | -------- | ------------ | - | ---------- | ---------- | - | - | ---------- | ---------- | - | - | -------- | -------- | -
|                                                                                                                 |                                                 |   |          |            |                  |   | Guarantor Subsidiaries |          |               |   |              |          |              |   |            |            |   |   |           
|                                                                                                                 |                                                 |   |          |            |                  |   |                        |          | Non-Guarantor |   |              |          |              |   |            |           
|                                                                                                                 |                                                 |   | Parent   |            | Non-wholly Owned |   | Wholly-owned           |          | Subsidiaries  |   | Eliminations |          | Consolidated
|                                                                                                                 |                                                 |   |          |            |                  |   |                        |          |               |   |              |          |             
|Operating activities:                                                                                            |                                                 |   |          |            |                  |   |                        |          |               |   |              |          |              |   |            |            |   |   |            |            |   |   |          |         
|Net income before minority interest                                                                              |                                                 | $ | 829,327  |            |                  | $ | 163,867                |          |               | $ | 74,115       |          |              | $ | 1,130,760  |            |   | $ | (1,368,742 | )          |   | $ | 829,327  |         
|Adjustments to reconciliate net income before
minority interest to the net cash provided by
operating activities |                                                 |   | (77,262  | )          |                  |   | (38,703                | )        |               |   | (18,457      | )        |              |   | (278,881   | )          |   |   | 221,379    |            |   |   | (191,924 | )       
|Net changes in operating assets and liabilities:                                                                 |                                                 |   | (440,553 | )          |                  |   | (98,527                | )        |               |   | 262,507      |          |              |   | 630,855    |            |   |   | (85,533    | )          |   |   | 268,749  |         
|                                                                                                                 |                                                 |   |          |            |                  |   |                        |          |               |   |              |          |              |   |            |            |   |   |            |            |   |   |          |         
|Resources generated by operating activities                                                                      |                                                 |   | 311,512  |            |                  |   | 26,637                 |          |               |   | 318,165      |          |              |   | 1,482,734  |            |   |   | (1,232,896 | )          |   |   | 906,152  |         
|Financing activities:                                                                                            |                                                 |   |          |            |                  |   |                        |          |               |   |              |          |              |   |            |            |   |   |            |            |   |   |          |         
|                                                                                                                 | Bank loans and Long-term debt, net              |   |          | 114,538    |                  |   |                        | (128,482 | )             |   |              | 85,079   |              |   |            | (721,615   | ) |   |            |           |   |   |          | (650,480 | )
|                                                                                                                 | Other financing activities                      |   |          |           |                  |   |                        | (1,216   | )             |   |              |         |              |   |            |           |   |   |            | 1,216      |   |   |          |         |  
|                                                                                                                 |                                                 |   |          |            |                  |   |                        |          |               |   |              |          |              |   |            |            |   |   |            |            |   |   |          |         
|Resources generated by (using in) financing
activities                                                           |                                                 |   | 114,538  |            |                  |   | (129,698               | )        |               |   | 85,079       |          |              |   | (721,615   | )          |   |   | 1,216      |            |   |   | (650,480 | )       
|Investing activities:                                                                                            |                                                 |   |          |            |                  |   |                        |          |               |   |              |          |              |   |            |            |   |   |            |            |   |   |          |         
|                                                                                                                 | Additions to property, plant and equipment, net |   |          | (109,843   | )                |   |                        | 104,714  |               |   |              | (326,517 | )            |   |            | (13,945    | ) |   |            |           |   |   |          | (345,591 | )
|                                                                                                                 | Investment in subsidiaries                      |   |          | 1,092,860  |                  |   |                        |         |               |   |              | (85,002  | )            |   |            |           |   |   |            | (1,007,858 | ) |   |          |         |  
|                                                                                                                 | Other investment activities                     |   |          | (1,130,366 | )                |   |                        |         |               |   |              |         |              |   |            | (1,321,545 | ) |   |            | 2,239,538  |   |   |          | (212,373 | )
|                                                                                                                 |                                                 |   |          |            |                  |   |                        |          |               |   |              |          |              |   |            |            |   |   |            |            |   |   |          |         
|Resources generated by (using in) investing
activities                                                           |                                                 |   | (147,349 | )          |                  |   | 104,714                |          |               |   | (411,519     | )        |              |   | (1,335,490 | )          |   |   | 1,231,680  |            |   |   | (557,964 | )       
|Increase (decrease) in cash and temporary investments                                                            |                                                 |   | 278,701  |            |                  |   | 1,653                  |          |               |   | (8,275       | )        |              |   | (574,371   | )          |   |   |           |            |   |   | (302,292 | )       
|Cash and temporary investments at the beginning
of the year                                                      |                                                 |   | 47,153   |            |                  |   | 1,606                  |          |               |   | 20,557       |          |              |   | 741,870    |            |   |   |           |            |   |   | 811,186  |         
|                                                                                                                 |                                                 |   |          |            |                  |   |                        |          |               |   |              |          |              |   |            |            |   |   |            |            |   |   |          |         
|Cash and temporary investments at the end
of the year                                                            |                                                 | $ | 325,854  |            |                  | $ | 3,259                  |          |               | $ | 12,282       |          |              | $ | 167,499    |            |   | $ |           |            |   | $ | 508,894  |         
|                                                                                                                 |                                                 |   |          |            |                  |   |                        |          |               |   |              |          |              |   |            |            |   |   |            |            |   |   |          |         




F-82



---



##### 






CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW







Year ended December 31, 2001
(Thousands of constant Mexican Pesos restated as of December 31, 2002)







|                                                                                      |                                                                                  |                                        |                                                      |                                             |         |          |          |                  |   |                        |          |               |         |              |           |              |           |            |            |            |   |       |           |           |           |            |          |  
|------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------- | -------------------------------------- | ---------------------------------------------------- | ------------------------------------------- | ------- | -------- | -------- | ---------------- | - | ---------------------- | -------- | ------------- | ------- | ------------ | --------- | ------------ | --------- | ---------- | ---------- | ---------- | - | ----- | --------- | --------- | --------- | ---------- | -------- | -
|                                                                                      |                                                                                  |                                        |                                                      |                                             |         |          |          |                  |   | Guarantor subsidiaries |          |               |         |              |           |              |           |            |            |            |   |      
|                                                                                      |                                                                                  |                                        |                                                      |                                             |         |          |          |                  |   |                        |          | Non-Guarantor |         |              |           |              |           |            |            |           
|                                                                                      |                                                                                  |                                        |                                                      |                                             |         | Parent   |          | Non-Wholly owned |   | Wholly owned           |          | Subsidiaries  |         | Eliminations |           | Consolidated
|                                                                                      |                                                                                  |                                        |                                                      |                                             |         |          |          |                  |   |                        |          |               |         |              |           |             
|Operating activities:                                                                 |                                                                                  |                                        |                                                      |                                             |         |          |          |                  |   |                        |          |               |         |              |           |              |           |            |            |            |   |       |           |          
|U.S. GAAP Net income before extraordinary item                                        |                                                                                  | $                                      | 269,378                                              |                                             |         | $        | 255,650  |                  |   | $                      | 88,981   |               |         | $            | 605,626   |              |           | $          | (950,257   | )          |   | $     | 269,378   |          
|Adjustment to reconcile net income to net cash flow
provided by operating activities: |                                                                                  |                                        |                                                      |                                             |         |          |          |                  |   |                        |          |               |         |              |           |              |           |            |            |            |   |       |           |          
|Depreciation and amortization                                                         |                                                                                  |                                        | (35,744                                              | )                                           |         |          | 88,527   |                  |   |                        | 116,721  |               |         |              | 143,334   |              |           |            |           |            |   |       | 312,838   |          
|Deferred income taxes                                                                 |                                                                                  |                                        | 125,311                                              |                                             |         |          | (86,670  | )                |   |                        | (106,365 | )             |         |              | 132,028   |              |           |            |           |            |   |       | 64,304    |          
|Deferred employee profit sharing                                                      |                                                                                  |                                        |                                                     |                                             |         |          | (48,854  | )                |   |                        | (45,259  | )             |         |              | 79,312    |              |           |            |           |            |   |       | (14,801   | )        
|Others                                                                                |                                                                                  |                                        | 94,646                                               |                                             |         |          | (110,511 | )                |   |                        | (139,034 | )             |         |              | 356,510   |              |           |            | (266,531   | )          |   |       | (64,920   | )        
|                                                                                      | Adjustments to reconcile net income to net cash
provided by operating activities |                                        |                                                      | 184,213                                     |         |          |          | (157,508         | ) |                        |          | (173,937      | )       |              |           | 711,184      |           |            |            | (266,531   | ) |       |           | 297,421   |          
|Cash flow provided by operating activities before                                     |                                                                                  |                                        | (469,645                                             | )                                           |         |          | (733     | )                |   |                        | 647,676  |               |         |              | 1,006,683 |              |           |            | (523,423   | )          |   |       | 660,558   |          
|                                                                                      |                                                                                  | extraordinary items
Extraordinary item |                                                      |                                             | (29,964 | )        |          |                  |  |                        |          |               |        |              |           |              |          |            |            |            |  |       |           |           | (29,964   | )         
|                                                                                      | Net change in operating assets and liabilities                                   |                                        |                                                      | (499,609                                    | )       |          |          | (733             | ) |                        |          | 647,676       |         |              |           | 1,006,683    |           |            |            | (523,423   | ) |       |           | 630,594   |          
|                                                                                      |                                                                                  |                                        |                                                      |                                             |         |          |          |                  |   |                        |          |               |         |              |           |              |           |            |            |            |   |       |           |          
|                                                                                      | Cash flow provided by (using in) operating activities                            |                                        |                                                      | (46,018                                     | )       |          |          | 97,409           |   |                        |          | 562,720       |         |              |           | 2,323,493    |           |            |            | (1,740,211 | ) |       |           | 1,197,393 |          
|Financing activities:                                                                 |                                                                                  |                                        |                                                      |                                             |         |          |          |                  |   |                        |          |               |         |              |           |              |           |            |            |            |   |       |           |          
|                                                                                      |                                                                                  | Short-term bank borrowings  Net       |                                                      |                                             | 661,054 |          |          |                  |  |                        |          |               | 136,796 |              |           |              | 1,547,008 |            |            |            |  |       |           |           | 2,344,858 |           
|                                                                                      |                                                                                  |                                        | Payments of long term debt                           |                                             |         | (692,523 | )        |                  |   | (124,060               | )        |               |         | (4,284       | )         |              |           | (2,286,255 | )          |            |   |      |           |           |           | (3,107,122 | )       
|                                                                                      |                                                                                  |                                        | Payment for debt issuance cost                       |                                             |         |         |          |                  |   |                       |          |               |         |             |           |              |           | (225,690   | )          |            |   |      |           |           |           | (225,690   | )       
|                                                                                      |                                                                                  |                                        | Other provided by (used in) financing activities     |                                             |         |         |          |                  |   | (1,216                 | )        |               |         |             |           |              |           |           |            |            |   | 1,216 |           |           |           |           |         
|                                                                                      |                                                                                  |                                        |                                                      |                                             |         |          |          |                  |   |                        |          |               |         |              |           |              |           |            |            |            |   |       |           |          
|                                                                                      |                                                                                  |                                        | Cash flow provided by (used in) financing activities |                                             |         | (31,469  | )        |                  |   | (125,276               | )        |               |         | 132,512      |           |              |           | (964,937   | )          |            |   | 1,216 |           |           |           | (987,954   | )       
|                                                                                      |                                                                                  |                                        |                                                      |                                             |         |          |          |                  |   |                        |          |               |         |              |           |              |           |            |            |            |   |       |           |          
|                                                                                      | Investing activities:                                                            |                                        |                                                      |                                             |         |          |          |                  |   |                        |          |               |         |              |           |              |           |            |            |            |   |       |           |           |          
|                                                                                      |                                                                                  |                                        |                                                      | Proceeds from sales of non-strategic assets |         |          |         |                  |   |                        | 181,744  |               |         |              | 70,950    |              |           |            | 30,536     |            |   |       |          |           |           |            | 283,230  |  
|                                                                                      |                                                                                  |                                        |                                                      | Acquisitions of fixed assets                |         |          | (109,843 | )                |   |                        | (57,361  | )             |         |              | (374,729  | )            |           |            | (355,392   | )          |   |       |          |           |           |            | (897,325 | )
|                                                                                      |                                                                                  |                                        |                                                      | Other investing activities  Net            |         |          | 65,444   |                  |   |                        |         |               |         |              | (85,000   | )            |           |            | (1,611,140 | )          |   |       | 1,738,995 |           |           |            | 108,299  |  
|                                                                                      |                                                                                  |                                        |                                                      |                                             |         |          |          |                  |   |                        |          |               |         |              |           |              |           |            |            |            |   |       |           |          
|                                                                                      | Cash flow (used in) provided by investing activities                             |                                        |                                                      | (44,399                                     | )       |          |          | 124,383          |   |                        |          | (388,779      | )       |              |           | (1,935,996   | )         |            |            | 1,738,995  |   |       |           | (505,796  | )        
|Effect of inflation and exchange rate changes on cash
and cash equivalents            |                                                                                  |                                        | 400,587                                              |                                             |         |          | (94,863  | )                |   |                        | (314,728 | )             |         |              | (4,087    | )            |           |            |           |            |   |       | (13,091   | )        
|Net increase (decrease) in cash and cash equivalents                                  |                                                                                  |                                        | 278,701                                              |                                             |         |          | 1,653    |                  |   |                        | (8,275   | )             |         |              | (581,527  | )            |           |            |           |            |   |       | (309,448  | )        
|Cash and cash equivalents at beginning of year                                        |                                                                                  |                                        | 47,153                                               |                                             |         |          | 1,606    |                  |   |                        | 20,557   |               |         |              | 736,334   |              |           |            |           |            |   |       | 805,650   |          
|                                                                                      |                                                                                  |                                        |                                                      |                                             |         |          |          |                  |   |                        |          |               |         |              |           |              |           |            |            |            |   |       |           |          
|Cash and cash equivalents at end of year                                              |                                                                                  | $                                      | 325,854                                              |                                             |         | $        | 3,259    |                  |   | $                      | 12,282   |               |         | $            | 154,807   |              |           | $          |           |            |   | $     | 496,202   |          
|                                                                                      |                                                                                  |                                        |                                                      |                                             |         |          |          |                  |   |                        |          |               |         |              |           |              |           |            |            |            |   |       |           |          




F-83



---



##### 



CONDENSED CONSOLIDATING INCOME STATEMENT

As of December 31, 2000
(Thousands of constant Mexican Pesos restated as of December 31, 2002)

|                                                    |                       |   |            |   |                  |   |                        |   |                 |   |              |   |              |   |            |   |  |   |            |   |  |   |            |   | 
|--------------------------------------------------- | --------------------- | - | ---------- | - | ---------------- | - | ---------------------- | - | --------------- | - | ------------ | - | ------------ | - | ---------- | - |  | - | ---------- | - |  | - | ---------- | - | 
|                                                    |                       |   |            |   |                  |   | Guarantor subsidiaries |   |                 |   |              |   |              |   |            |   |  |   |           
|                                                    |                       |   |            |   |                  |   |                        |   | Non - Guarantor |   |              |   |              |   |            |   | 
|                                                    |                       |   | Parent     |   | Non-Wholly owned |   | Wholly owned           |   | Subsidiaries    |   | Eliminations |   | Consolidated
|                                                    |                       |   |            |   |                  |   |                        |   |                 |   |              |   |             
|Net sales                                           |                       | $ |           |   |                  | $ | 1,768,702              |   |                 | $ | 4,954,495    |   |              | $ | 7,559,677  |   |  | $ | (1,361,003 | ) |  | $ | 12,921,871 |  
|Total cost and operating expenses                   |                       |   | 6          |   |                  |   | 1,619,020              |   |                 |   | 4,070,301    |   |              |   | 4,396,172  |   |  |   | 1,369,898  |   |  |   | 11,455,397 |  
|Operating income                                    |                       |   | (6         | ) |                  |   | 149,682                |   |                 |   | 884,194      |   |              |   | 3,163,505  |   |  |   | (2,730,901 | ) |  |   | 1,466,474  |  
|Other income (expense), net                         |                       |   | 306,323    |   |                  |   | (70,551                | ) |                 |   | (400,034     | ) |              |   | 145,486    |   |  |   | 2,390      |   |  |   | (16,386    | )
|Financing cost (income)                             |                       |   | 28,048     |   |                  |   | 2,630                  |   |                 |   | 562,612      |   |              |   | (146,392   | ) |  |   | 22,237     |   |  |   | 469,135    |  
|Amortization of negative goodwill                   |                       |   |           |   |                  |   |                       |   |                 |   |             |   |              |   | 1,513,928  |   |  |   |           |   |  |   | 1,513,928  |  
|Benefit (provision) for taxes                       |                       |   | 4,390      |   |                  |   | (130,120               | ) |                 |   | (171,595     | ) |              |   | (387,665   | ) |  |   |           |   |  |   | (684,990   | )
|Investment in subsidiaries                          |                       |   | 1,527,232  |   |                  |   |                       |   |                 |   | 51,233       |   |              |   | (2,606,758 | ) |  |   | 1,028,293  |   |  |   |           |  
|Equity income of affiliated company                 |                       |   |           |   |                  |   | (120,564               | ) |                 |   |             |   |              |   |           |   |  |   | 120,564    |   |  |   |           |  
|Net income before minority interest                 |                       |   | 1,809,891  |   |                  |   | (174,183               | ) |                 |   | (198,814     | ) |              |   | 1,974,888  |   |  |   | (1,601,891 | ) |  |   | 1,809,891  |  
|Minority interest                                   |                       |   |           |   |                  |   |                       |   |                 |   | (104,075     | ) |              |   | 431,296    |   |  |   | (151,903   | ) |  |   | 175,318    |   | 
|                                                    |                       |   |            |   |                  |   |                        |   |                 |   |              |   |              |   |            |   |  |   |            |   |  |   |            |  
|Net income                                          |                       | $ | 1,809,891  |   |                  | $ | (174,183               | ) |                 | $ | (94,739      | ) |              | $ | 1,543,592  |   |  | $ | (1,449,988 | ) |  | $ | 1,634,573  |  
|                                                    |                       |   |            |   |                  |   |                        |   |                 |   |              |   |              |   |            |   |  |   |            |   |  |   |            |  
|                                                    | U.S. GAAP ADJUSTMENTS |   |            |   |                  |   |                        |   |                 |   |              |   |              |   |            |   |  |   |            |   |  |   |            |   | 
|Deferred income taxes                               |                       |   | 4,390      |   |                  |   | (85,677                | ) |                 |   | (631,510     | ) |              |   | 428,236    |   |  |   |           |   |  |   | (284,561   | )
|Deferred employee profit sharing                    |                       |   |           |   |                  |   | (22,448                | ) |                 |   | (228,169     | ) |              |   | 200,862    |   |  |   |           |   |  |   | (49,755    | )
|Purchase accounting adjustments:                    |                       |   |           |   |                  |   |                       |   |                 |   |             |   |              |   |           |   |  |   |           |   |  |   |           |  
|* Amortization of negative goodwill                 |                       |   | (325,267   | ) |                  |   |                       |   |                 |   | 395,730      |   |              |   | (1,161,479 | ) |  |   | (395,730   | ) |  |   | (1,486,746 | )
|* Depreciation                                      |                       |   |           |   |                  |   |                       |   |                 |   |             |   |              |   | 204,015    |   |  |   |           |   |  |   | 204,015    |  
|Effect of fifth Amendment of Bulletin B-10          |                       |   |           |   |                  |   | (1,785                 | ) |                 |   | (8,554       | ) |              |   | (58,575    | ) |  |   |           |   |  |   | (68,914    | )
|Effect of Bulletin B-15 on prior years              |                       |   |           |   |                  |   |                       |   |                 |   |             |   |              |   | (24,651    | ) |  |   |           |   |  |   | (24,651    | )
|Equity swaps                                        |                       |   |           |   |                  |   |                       |   |                 |   |             |   |              |   | (83,339    | ) |  |   |           |   |  |   | (83,339    | )
|Investment in subsidiaries                          |                       |   | (1,478,927 | ) |                  |   |                       |   |                 |   |             |   |              |   | (12,944    | ) |  |   | 1,491,871  |   |  |   |           |  
|Equity income of affiliated company                 |                       |   |           |   |                  |   | (13,095                | ) |                 |   |             |   |              |   |           |   |  |   | 13,095     |   |  |   |           |  
|Effect of U.S.GAAP adjustments on minority interest |                       |   |           |   |                  |   |                       |   |                 |   | 9,981        |   |              |   | 159,484    |   |  |   |           |   |  |   | 169,465    |  
|                                                    |                       |   |            |   |                  |   |                        |   |                 |   |              |   |              |   |            |   |  |   |            |   |  |   |            |  
|Total U.S. GAAP adjustment                          |                       |   | (1,799,804 | ) |                  |   | (123,005               | ) |                 |   | (462,522     | ) |              |   | (348,391   | ) |  |   | 1,109,236  |   |  |   | (1,624,486 | )
|                                                    |                       |   |            |   |                  |   |                        |   |                 |   |              |   |              |   |            |   |  |   |            |   |  |   |            |  
|Net income (loss) for the year under U.S. GAAP      |                       | $ | 10,087     |   |                  | $ | (297,188               | ) |                 | $ | (557,261     | ) |              | $ | 1,195,201  |   |  | $ | (340,752   | ) |  | $ | 10,087     |  
|                                                    |                       |   |            |   |                  |   |                        |   |                 |   |              |   |              |   |            |   |  |   |            |   |  |   |            |  

F-84



---



##### 



CONDENSED CONSOLIDATING STATEMENT OF CHANGES IN FINANCIAL POSITION

For the year ended
December 31, 2000
(Thousands of constant Mexican Pesos restated as of December 31, 2002)

|                                                                                                                 |  |        |            |                  |  |                        |          |               |  |              |          |              |  |   |            |   |  |   |            |   |  |   |            |  
|---------------------------------------------------------------------------------------------------------------- |  | ------ | ---------- | ---------------- |  | ---------------------- | -------- | ------------- |  | ------------ | -------- | ------------ |  | - | ---------- | - |  | - | ---------- | - |  | - | ---------- | -
|                                                                                                                 |  |        |            |                  |  | Guarantor subsidiaries |          |               |  |              |          |              |  |   |            |   |  |  
|                                                                                                                 |  |        |            |                  |  |                        |          | Non-Guarantor |  |              |          |              |  |   |            |  
|                                                                                                                 |  | Parent |            | Non-wholly owned |  | Wholly-owned           |          | Subsidiaries  |  | Eliminations |          | Consolidated
|                                                                                                                 |  |        |            |                  |  |                        |          |               |  |              |          |             
|Operating activities:                                                                                            |  |        |            |                  |  |                        |          |               |  |              |          |              |  |   |            |   |  |   |            |   |  |   |            |  
|Net income before minority interest                                                                              |  | $      | 1,809,891  |                  |  | $                      | (174,183 | )             |  | $            | (198,814 | )            |  | $ | 1,974,888  |   |  | $ | (1,601,891 | ) |  | $ | 1,809,891  |  
|Adjustments to reconciliate net income before
minority interest to the net cash provided by
operating activities |  |        | (1,674,219 | )                |  |                        | 371,502  |               |  |              | 47,424   |              |  |   | (322,062   | ) |  |   | 1,113,177  |   |  |   | (464,178   | )
|Net changes in operating assets and liabilities                                                                  |  |        | 111,302    |                  |  |                        | (4,889   | )             |  |              | 910,700  |              |  |   | (128,507   | ) |  |   | (877,511   | ) |  |   | 11,095     |  
|                                                                                                                 |  |        |            |                  |  |                        |          |               |  |              |          |              |  |   |            |   |  |   |            |   |  |   |            |  
|Resources generated by operating activities                                                                      |  |        | 246,974    |                  |  |                        | 192,430  |               |  |              | 759,310  |              |  |   | 1,524,319  |   |  |   | (1,366,225 | ) |  |   | 1,356,808  |  
|Financing activities:                                                                                            |  |        |            |                  |  |                        |          |               |  |              |          |              |  |   |            |   |  |   |            |   |  |   |            |  
|Bank loans and Long-term debt, net                                                                               |  |        |           |                  |  |                        | (10,807  | )             |  |              | (64,262  | )            |  |   | (210,895   | ) |  |   |           |   |  |   | (285,964   | )
|Other financing activities                                                                                       |  |        | 1,415,837  |                  |  |                        | (2,929   | )             |  |              |         |              |  |   | 2,160,999  |   |  |   | (1,412,908 | ) |  |   | 2,160,999  |  
|                                                                                                                 |  |        |            |                  |  |                        |          |               |  |              |          |              |  |   |            |   |  |   |            |   |  |   |            |  
|Resources generated by (using in) financing                                                                      |  |        | 1,415,837  |                  |  |                        | (13,736  | )             |  |              | (64,262  | )            |  |   | 1,950,104  |   |  |   | (1,412,908 | ) |  |   | 1,875,035  |  
|Investing activities:                                                                                            |  |        |            |                  |  |                        |          |               |  |              |          |              |  |   |            |   |  |   |            |   |  |   |            |  
|Additions to property, plant and equipment, net                                                                  |  |        |           |                  |  |                        | (177,290 | )             |  |              | 36,860   |              |  |   | (951,624   | ) |  |   |           |   |  |   | (1,092,054 | )
|Investment in subsidiaries                                                                                       |  |        | (1,615,795 | )                |  |                        |         |               |  |              | (728,040 | )            |  |   | (2,596,297 | ) |  |   | 2,779,133  |   |  |   | (2,160,999 | )
|Other investment activities                                                                                      |  |        | (14,052    | )                |  |                        |         |               |  |              |         |              |  |   | (91,196    | ) |  |   |           |   |  |   | (105,248   | )
|                                                                                                                 |  |        |            |                  |  |                        |          |               |  |              |          |              |  |   |            |   |  |   |            |   |  |   |            |  
|Resources generated by (using in) investing
activities                                                           |  |        | (1,629,847 | )                |  |                        | (177,290 | )             |  |              | (691,180 | )            |  |   | (3,639,117 | ) |  |   | 2,779,133  |   |  |   | (3,358,301 | )
|Increase (decrease) in cash and temporary investments                                                            |  |        | 32,964     |                  |  |                        | 1,404    |               |  |              | 3,868    |              |  |   | (164,694   | ) |  |   |           |   |  |   | (126,458   | )
|Cash and temporary investments at the beginning
of the year                                                      |  |        | 14,189     |                  |  |                        | 202      |               |  |              | 16,689   |              |  |   | 906,564    |   |  |   |           |   |  |   | 937,644    |  
|                                                                                                                 |  |        |            |                  |  |                        |          |               |  |              |          |              |  |   |            |   |  |   |            |   |  |   |            |  
|Cash and temporary investments at the end
of the year                                                            |  | $      | 47,153     |                  |  | $                      | 1,606    |               |  | $            | 20,557   |              |  | $ | 741,870    |   |  | $ |           |   |  | $ | 811,186    |  
|                                                                                                                 |  |        |            |                  |  |                        |          |               |  |              |          |              |  |   |            |   |  |   |            |   |  |   |            |  

F-85



---



##### 






CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW







Year ended December 31, 2000
(Thousands of constant Mexican Pesos restated as of December 31, 2002)







|                                                                                      |                                                                                  |                                             |                                  |         |            |         |                  |          |                        |       |                 |           |              |         |              |            |         |         |            |           |            |   |            |         |            |          |  
|------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------- | ------------------------------------------- | -------------------------------- | ------- | ---------- | ------- | ---------------- | -------- | ---------------------- | ----- | --------------- | --------- | ------------ | ------- | ------------ | ---------- | ------- | ------- | ---------- | --------- | ---------- | - | ---------- | ------- | ---------- | -------- | -
|                                                                                      |                                                                                  |                                             |                                  |         |            |         |                  |          | Guarantor subsidiaries |       |                 |           |              |         |              |            |         |         |            |           |           
|                                                                                      |                                                                                  |                                             |                                  |         |            |         |                  |          |                        |       | Non - Guarantor |           |              |         |              |            |         |         |           
|                                                                                      |                                                                                  |                                             |                                  |         | Parent     |         | Non-Wholly owned |          | Wholly owned           |       | Subsidiaries    |           | Eliminations |         | Consolidated
|                                                                                      |                                                                                  |                                             |                                  |         |            |         |                  |          |                        |       |                 |           |              |         |             
|Operating activities:                                                                 |                                                                                  |                                             |                                  |         |            |         |                  |          |                        |       |                 |           |              |         |              |            |         |         |            |           |            |   |            |        
|                                                                                      | U.S. GAAP Net income                                                             |                                             | $                                | 10,087  |            |         | $                | (297,188 | )                      |       | $               | (557,261  | )            |         | $            | 1,195,201  |         |         | $          | (340,752  | )          |   | $          | 10,087  |           
|Adjustment to reconcile net income to net cash flow
provided by operating activities: |                                                                                  |                                             |                                  |         |            |         |                  |          |                        |       |                 |           |              |         |              |            |         |         |            |           |            |   |            |        
|Depreciation and amortization                                                         |                                                                                  |                                             | (46,059                          | )       |            |         | 116,618          |          |                        |       | 72,864          |           |              |         | 213,770      |            |         |         |           |           |            |   | 357,193    |        
|Deferred income taxes                                                                 |                                                                                  |                                             | 19,014                           |         |            |         | 208,147          |          |                        |       | 509,999         |           |              |         | (79,837      | )          |         |         |           |           |            |   | 657,323    |        
|Deferred employee profit sharing                                                      |                                                                                  |                                             | (44,598                          | )       |            |         | 22,445           |          |                        |       | 228,169         |           |              |         | (156,261     | )          |         |         |           |           |            |   | 49,755     |        
|Other                                                                                 |                                                                                  |                                             | 87,574                           |         |            |         | 94,058           |          |                        |       | (686,564        | )         |              |         | (1,458,810   | )          |         |         | 1,648,703  |           |            |   | (315,039   | )      
|                                                                                      | Adjustments to reconcile net income to net cash
provided by operating activities |                                             |                                  | 15,931  |            |         |                  | 441,268  |                        |       |                 | 124,468   |              |         |              | (1,481,138 | )       |         |            | 1,648,703 |            |   |            | 749,232 |           
|                                                                                      | Net change in operating assets and liabilities                                   |                                             |                                  | 159,152 |            |         |                  | 136,295  |                        |       |                 | 1,528,334 |              |         |              | (1,016,274 | )       |         |            | (877,511  | )          |   |            | (70,004 | )         
|                                                                                      |                                                                                  |                                             |                                  |         |            |         |                  |          |                        |       |                 |           |              |         |              |            |         |         |            |           |            |   |            |        
|                                                                                      | Cash flow provided by (using in) operating activities                            |                                             |                                  | 185,170 |            |         |                  | 280,375  |                        |       |                 | 1,095,541 |              |         |              | (1,302,211 | )       |         |            | 430,440   |            |   |            | 689,315 |           
|Financing activities:                                                                 |                                                                                  |                                             |                                  |         |            |         |                 |          |                        |       |                 |           |              |         |              |            |         |         |            |           |            |   |            |        
|                                                                                      |                                                                                  |                                             | Short-term bank borrowings  Net |         |            |        |                  |          |                        | 5,880 |                 |           |              | (3,962  | )            |            |         | 481,157 |            |           |            |  |            |         |            | 483,075  |  
|                                                                                      |                                                                                  |                                             | Payments of long term debt       |         |            | (11,301 | )                |          |                        | (548  | )               |           |              | (33,959 | )            |            |         | (86,860 | )          |           |            |  |            |         |            | (132,668 | )
|                                                                                      |                                                                                  |                                             | Payment for debt issuance cost   |         |            |        |                  |          |                        |      |                 |           |              |        |              |            |         | (24,859 | )          |           |            |  |            |         |            | (24,859  | )
|Other provided by (used in) financing activities                                      |                                                                                  |                                             | 1,415,837                        |         |            |         | (2,929           | )        |                        |       |                |           |              |         |             |            |         |         | (1,412,908 | )         |            |   |           |        
|                                                                                      |                                                                                  |                                             |                                  |         |            |         |                  |          |                        |       |                 |           |              |         |              |            |         |         |            |           |            |   |            |        
|                                                                                      |                                                                                  |                                             |                                  |         |            |         |                 |          |                        |       |                |           |              |         |             |            |         |         |            |           |            |   |           |        
|Cash flow provided by (used in) financing activities                                  |                                                                                  |                                             | 1,404,536                        |         |            |         | 2,403            |          |                        |       | (37,921         | )         |              |         | 369,438      |            |         |         | (1,412,908 | )         |            |   | 325,548    |        
|Investing activities:                                                                 |                                                                                  |                                             |                                  |         |            |         |                  |          |                        |       |                 |           |              |         |              |            |         |         |            |           |            |   |            |        
|                                                                                      |                                                                                  | Proceeds from sales of non-strategic assets |                                  |         |           |         |                  |          | 45,932                 |       |                 |           | 228          |         |              |            | 38,680  |         |            |           | (1,256,090 | ) |            |         | (1,171,250 | )       
|                                                                                      |                                                                                  | Acquisitions of fixed assets                |                                  |         |           |         |                  |          | (231,660               | )     |                 |           | (7,419       | )       |              |            | 245,635 |         |            |           |           |   |            |         | 6,556      |         
|                                                                                      |                                                                                  | Other investing activities  Net            |                                  |         | (1,524,570 | )       |                  |          |                       |       |                 |           | (728,040     | )       |              |            | (85,793 | )       |            |           | 2,238,558  |   |            |         | (99,845    | )       
|                                                                                      |                                                                                  |                                             |                                  |         |            |         |                  |          |                        |       |                 |           |              |         |              |            |         |         |            |           |            |   |            |        
|Cash flow (used in) provided by investing activities                                  |                                                                                  |                                             | (1,524,570                       | )       |            |         | (185,728         | )        |                        |       | (735,231        | )         |              |         | 198,522      |            |         |         | 982,468    |           |            |   | (1,264,539 | )      
|Effect of inflation and exchange rate changes on cash                                 |                                                                                  |                                             | (32,172                          | )       |            |         | (95,649          | )        |                        |       | (318,521        | )         |              |         | 552,552      |            |         |         |           |           |            |   | 106,210    |        
|Net increase (decrease) in cash and cash equivalents                                  |                                                                                  |                                             | 32,964                           |         |            |         | 1,401            |          |                        |       | 3,868           |           |              |         | (181,699     | )          |         |         |           |           |            |   | (143,466   | )      
|Cash and cash equivalents at beginning of year                                        |                                                                                  |                                             | 14,189                           |         |            |         | 205              |          |                        |       | 16,689          |           |              |         | 918,033      |            |         |         |           |           |            |   | 949,116    |        
|                                                                                      |                                                                                  |                                             |                                  |         |            |         |                  |          |                        |       |                 |           |              |         |              |            |         |         |            |           |            |   |            |        
|Cash and cash equivalents at end of year                                              |                                                                                  | $                                           | 47,153                           |         |            | $       | 1,606            |          |                        | $     | 20,557          |           |              | $       | 736,334      |            |         | $       |           |           |            | $ | 805,650    |        
|                                                                                      |                                                                                  |                                             |                                  |         |            |         |                  |          |                        |       |                 |           |              |         |              |            |         |         |            |           |            |   |            |        




F-86





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##### 



COMPAÑIA PAPELERA DE ATENQUIQUE,
S. A. DE C. V. AND SUBSIDIARY
(subsidiary of Corporación Durango, S. A. de C. V.)

CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2000, 2001 AND 2002

F-87



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##### 



COMPAÑIA PAPELERA DE ATENQUIQUE, S. A. DE C. V. AND SUBSIDARY
(subsidiary of Corporación Durango, S. A. de C. V.)

CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2000, 2001 AND 2002

INDEX




|                                                                                                                |  |         |   | 
|--------------------------------------------------------------------------------------------------------------- |  | ------- | - | 
|Table of Contents                                                                                               |  | Page   
|                                                                                                                |  |        
|Report of independent accountants                                                                               |  | 1 and 2
|Financial statements:                                                                                           |  |         |   | 
|Consolidated balance sheets as of December 31, 2001 and 2002                                                    |  |         | 3 | 
|Consolidated statements of income for the years ended December 31,
2000, 2001 and 2002                          |  |         | 4 | 
|Consolidated statements of changes in shareholders equity for the
years ended December 31, 2000, 2001 and 2002 |  |         | 5 | 
|Consolidated statements of changes in financial position for the
years ended December 31, 2000, 2001 and 2002   |  |         | 6 | 
|Notes to the consolidated financial statements                                                                  |  | 7 to 36




F-88



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##### 



REPORT OF INDEPENDENT ACCOUNTANTS

Guadalajara, Jal., March 8, 2003

To the Board of Directors and Shareholders of
Compañía Papelera de Atenquique, S. A. de C. V.
(formerly Compañía Industrial de Atenquique, S. A. de C. V.)

We have audited the accompanying consolidated balance sheets of Compañía
Papelera de Atenquique, S. A. de C. V. and subsidiary (formerly Compañía
Industrial de Atenquique, S. A. de C. V. and subsidiaries), as of December 31,
2001 and 2002 and the related consolidated statements of income, of changes in
shareholders equity and of changes in financial position for each of the three
years in the period ended December 31, 2002, which, as described in Note 2,
have been prepared on the basis of accounting principles generally accepted in
Mexico. These financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards in Mexico and 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 statements presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Compañía Papelera de Atenquique, S. A. de C. V. and subsidiary
(formerly Compañía Industrial de Atenquique, S. A. de C. V. and subsidiary), as
of December 31, 2001 and 2002 and the consolidated results of their operations,
the changes in their shareholders equity and the changes in their financial
position for each of the three years in the period ended December 31, 2002, in
conformity with accounting principles generally accepted in Mexico.

F-89



---



##### 



As mentioned in Note 1 to the financial statements, from April to September
2001, the Company suspended its operations due to a labor conflict. All the
expenses related to the severance payments paid to employees, suspension and
restarting of the operations are presented as a special item in the income
statements. Due to this all personnel was liquidated, and during September,
2001 the Company hired part of this personnel, restarting operations in that
date. Severance amounted $103,648 net of $31,549 regarding to seniority
premiums cancellation, and suspending cost and operation restarting amounted
$54,286. These amounts are shown in the statements of income as a special
item. Derived from mentioned, during 2001, the Company operated just seven
months.

As mentioned in Note 11 the Company guarantees an issuance of debt of
Corporación Durango, S. A. de C. V. CODUSA (holding company). Nevertheless,
as mentioned in Note 1 b. CODUSA is in default with some covenants.

Accounting principles generally accepted in Mexico vary in certain significant
respects from accounting principles generally accepted in the Unites States of
America. The application of accounting principles generally accepted in the
United States of America would have affected the determination of the
consolidated net income for each of the three years in the period ended
December 31, 2002 and the determination of the consolidated shareholders
equity as of December 31, 2002 and 2001, to the extent summarized in Note 16 to
the consolidated financial statements.

PricewaterhouseCoopers

C.P.C. José Luis Franco Murayama
Public Accountant

(2)

F-90



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##### 



COMPAÑIA PAPELERA DE ATENQUIQUE, S. A. DE C. V. AND SUBSIDIARY
(subsidiary of Corporación Durango, S. A. de C. V.)




BALANCE SHEET AS OF
DECEMBER 31, 2001 AND 2002
(Notes 1, 2 and 3)




(Thousands of constant Mexican Pesos restated as of December 31, 2002)

|                                    |  |              |           |      |  |   |           | 
|----------------------------------- |  | ------------ | --------- | ---- |  | - | --------- | 
|                                    |  | December 31,
|                                    |  |             
|ASSETS                              |  | 2001         |           | 2002
|                                    |  |              |           |     
|CURRENT ASSETS:                     |  |              |           |      |  |   |           | 
|Cash                                |  | $            | 481       |      |  | $ | 1         | 
|Accounts receivable, net (Note 5)   |  |              | 9,124     |      |  |   | 43,006    | 
|Related parties (Note 14)           |  |              | 77,854    |      |  |   | 83,780    | 
|Inventories, net (Note 6)           |  |              | 49,806    |      |  |   | 41,029    | 
|Taxes recoverable                   |  |              | 165       |      |  |   | 646       | 
|Prepaid                             |  |              | 709       |      |  |   | 578       | 
|                                    |  |              |           |      |  |   |           | 
|Total current assets                |  |              | 138,139   |      |  |   | 169,040   | 
|INVESTMENT IN AFFIILIATED COMPANY   |  |              |           |      |  |   |           | 
|(Note 7)                            |  |              | 535,319   |      |  |   | 134,929   | 
|PROPERTY, PLANT AND EQUIPMENT  Net |  |              |           |      |  |   |           | 
|(Note 8)                            |  |              | 1,132,426 |      |  |   | 1,136,462 | 
|OTHER ASSETS                        |  |              | 18,356    |      |  |   | 24,375    | 
|                                    |  |              |           |      |  |   |           | 
|Total assets                        |  | $            | 1,824,240 |      |  | $ | 1,464,806 | 
|                                    |  |              |           |      |  |   |           | 

|                                              |  |              |           |      |  |   |           |  
|--------------------------------------------- |  | ------------ | --------- | ---- |  | - | --------- | -
|                                              |  | December 31,
|                                              |  |             
|LIABILITIES                                   |  | 2001         |           | 2002
|                                              |  |              |           |     
|CURRENT LIABILITIES AND SHAREHOLDERS EQUITY: |  |              |           |      |  |   |           |  
|Current portion of long-term debt (Note 9)    |  | $            | 1,056     |      |  | $ | 1,137     |  
|Bank overdraft                                |  |              | 2,362     |      |  |   |          |  
|Trade accounts payable                        |  |              | 42,625    |      |  |   | 78,412    |  
|Related parties (Note 14)                     |  |              | 332,418   |      |  |   | 215,252   |  
|Value added tax                               |  |              |          |      |  |   | 14,884    |  
|Accrued liabilities and other payables        |  |              | 20,292    |      |  |   | 112,377   |  
|                                              |  |              |           |      |  |   |           |  
|Total current liabilities                     |  |              | 398,753   |      |  |   | 422,062   |  
|                                              |  |              |           |      |  |   |           |  
|LONG-TERM LIABILITIES                         |  |              |           |      |  |   |           |  
|Long-term debt (Note 9)                       |  |              | 3,235     |      |  |   | 2,348     |  
|Deferred income tax (Notes 3 and 13)          |  |              | 308,916   |      |  |   | 273,080   |  
|Pension plan and seniority premium (Note 10)  |  |              | 177       |      |  |   | 366       |  
|                                              |  |              |           |      |  |   |           |  
|Total long-term liabilities                   |  |              | 312,328   |      |  |   | 275,794   |  
|                                              |  |              |           |      |  |   |           |  
|Total liabilities                             |  |              | 711,081   |      |  |   | 697,856   |  
|                                              |  |              |           |      |  |   |           |  
|Contingencies and commitments (Note 11)       |  |              |          |      |  |   |          |  
|                                              |  |              |           |      |  |   |           |  
|CONTRIBUTED CAPITAL:                          |  |              |           |      |  |   |           |  
|Capital stock (Note 12)                       |  |              | 2,018,224 |      |  |   | 2,018,224 |  
|                                              |  |              |           |      |  |   |           |  
|Retained earnings (Note 12)                   |  |              | (20,659   | )    |  |   | (31,066   | )
|                                              |  |              |           |      |  |   |           |  
|Deficit from restatement                      |  |              | (510,270  | )    |  |   | (846,071  | )
|                                              |  |              |           |      |  |   |           |  
|Deferred income tax                           |  |              | (374,140  | )    |  |   | (374,140  | )
|                                              |  |              |           |      |  |   |           |  
|Total majority interest                       |  |              | 1,113,155 |      |  |   | 766,947   |  
|                                              |  |              |           |      |  |   |           |  
|Total minority interest                       |  |              | 4         |      |  |   | 3         |  
|                                              |  |              |           |      |  |   |           |  
|Total shareholders equity                    |  |              | 1,113,159 |      |  |   | 766,950   |  
|                                              |  |              |           |      |  |   |           |  
|Total liabilities and shareholders equity    |  | $            | 1,824,240 |      |  | $ | 1,464,806 |  
|                                              |  |              |           |      |  |   |           |  

The accompanying notes are an integral part of these consolidated financial statements.

(3)

F-91



---



##### 



COMPAÑIA PAPELERA DE ATENQUIQUE, S. A. DE C. V. AND SUBSIDIARY
(subsidiary of Corporación Durango, S. A. de C. V.)




STATEMENTS OF INCOME FOR THE
YEARS ENDED DECEMBER 31, 2000, 2001 AND 2002
(Notes 1, 2 and 3)




(Thousands of constant Mexican Pesos restated as of December 31, 2002)

|                                                                                  |  |      |           |      |  |      |          |   |  |   |          |  
|--------------------------------------------------------------------------------- |  | ---- | --------- | ---- |  | ---- | -------- | - |  | - | -------- | -
|                                                                                  |  | 2000 |           | 2001 |  | 2002
|                                                                                  |  |      |           |      |  |     
|NET SALES                                                                         |  | $    | 631,530   |      |  | $    | 245,384  |   |  | $ | 527,827  |  
|COST OF SALES                                                                     |  |      | (568,022  | )    |  |      | (221,580 | ) |  |   | (432,130 | )
|                                                                                  |  |      |           |      |  |      |          |   |  |   |          |  
|Gross profit                                                                      |  |      | 63,508    |      |  |      | 23,804   |   |  |   | 95,697   |  
|SELLING,GENERAL AND ADMINISTRATIVE EXPENSES                                       |  |      | (47,344   | )    |  |      | (13,666  | ) |  |   | (26,157  | )
|                                                                                  |  |      |           |      |  |      |          |   |  |   |          |  
|OPERATING INCOME                                                                  |  |      | 16,164    |      |  |      | 10,138   |   |  |   | 69,540   |  
|                                                                                  |  |      |           |      |  |      |          |   |  |   |          |  
|Other expenses  Net                                                              |  |      | (23,632   | )    |  |      | (5,032   | ) |  |   | (7,127   | )
|                                                                                  |  |      |           |      |  |      |          |   |  |   |          |  
|FINANCING COST (INCOME):                                                          |  |      |           |      |  |      |          |   |  |   |          |  
|Interest expense  Net                                                            |  |      | (46,097   | )    |  |      | (28,552  | ) |  |   | (51,011  | )
|Foreign exchange loss (gain)  Net                                                |  |      | 516       |      |  |      | 1,308    |   |  |   | (40,584  | )
|Gain from monetary position                                                       |  |      | 14,901    |      |  |      | 9,577    |   |  |   | 16,546   |  
|                                                                                  |  |      |           |      |  |      |          |   |  |   |          |  
|                                                                                  |  |      | (30,680   | )    |  |      | (17,667  | ) |  |   | (75,049  | )
|                                                                                  |  |      |           |      |  |      |          |   |  |   |          |  
|Loss before provisions for deferred income and asset tax,
employee profit sharing |  |      | (38,148   | )    |  |      | (12,561  | ) |  |   | (12,636  | )
|                                                                                  |  |      |           |      |  |      |          |   |  |   |          |  
|Provisions for:                                                                   |  |      |           |      |  |      |          |   |  |   |          |  
|Asset tax (Note 13)                                                               |  |      |          |      |  |      | (721     | ) |  |   | (26      | )
|Employee profit sharing (Note 13)                                                 |  |      | (40       | )    |  |      |         |   |  |   |         |  
|Deferred income tax (Note 13)                                                     |  |      | (16,179   | )    |  |      | 88,673   |   |  |   | 48,511   |  
|                                                                                  |  |      |           |      |  |      |          |   |  |   |          |  
|                                                                                  |  |      | (16,219   | )    |  |      | 87,952   |   |  |   | 48,485   |  
|                                                                                  |  |      |           |      |  |      |          |   |  |   |          |  
|(Loss) income before equity method and special item                               |  |      | (54,367   | )    |  |      | 75,391   |   |  |   | 35,849   |  
|                                                                                  |  |      |           |      |  |      |          |   |  |   |          |  
|Equity method (Note 7)                                                            |  |      | (120,563  | )    |  |      | 36,754   |   |  |   | (46,255  | )
|                                                                                  |  |      |           |      |  |      |          |   |  |   |          |  
|(Loss) income before special items                                                |  |      | (174,930  | )    |  |      | 112,145  |   |  |   | (10,406  | )
|                                                                                  |  |      |           |      |  |      |          |   |  |   |          |  
|Special item for suspending plants operations and
personnel lay-offs             |  |      |          |      |  |      | (157,934 | ) |  |   |         |  
|                                                                                  |  |      |           |      |  |      |          |   |  |   |          |  
|Loss before minority interest                                                     |  |      | (174,930  | )    |  |      | (45,789  | ) |  |   | (10,406  | )
|                                                                                  |  |      |           |      |  |      |          |   |  |   |          |  
|Minority interest                                                                 |  |      |          |      |  |      |         |   |  |   | (1       | )
|                                                                                  |  |      |           |      |  |      |          |   |  |   |          |  
|Net loss                                                                          |  |      | ($174,930 | )    |  |      | ($45,789 | ) |  |   | ($10,407 | )
|                                                                                  |  |      |           |      |  |      |          |   |  |   |          |  

The accompanying notes are an integral part of these consolidated financial tatements.

(4)

F-92



---



##### 



COMPAÑIA PAPELERA DE ATENQUIQUE, S. A. DE C. V. AND SUBSIDIARY
(subsidiary of Corporación Durango, S. A. de C. V.)




STATEMENTS OF CHANGES IN
SHAREHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2000, 2001 AND 2002
(Notes 1, 2 and 3)




(Thousands of constant Mexican Pesos restated as of December 31, 2002)






|                                 |  |           |           |         |  |                              |        |         |  |              |          |   |  |   |          |   |  |  |           |  
|-------------------------------- |  | --------- | --------- | ------- |  | ---------------------------- | ------ | ------- |  | ------------ | -------- | - |  | - | -------- | - |  |  | --------- | -
|                                 |  |           |           |         |  | Retained earnings (Notes 12) |        |         |  |             
|                                 |  |           |           |         |  |                              |        |         |  |             
|                                 |  | Capital   |           |         |  |                              |        |         |  |              |          |   |  |   |          |   |  | 
|                                 |  | stock     |           | Legal   |  | Prior                        |        | Current |  | Deficit from
|                                 |  | (Note 12) |           | reserve |  | years                        |        | year    |  | restatement 
|                                 |  |           |           |         |  |                              |        |         |  |             
|Balances as of January 1, 2000   |  | $         | 2,023,841 |         |  | $                            | 27,234 |         |  | $            | 121,294  |   |  | $ | 51,957   |   |  |  | ($307,091 | )
|Appropriation of 1999 net loss   |  |           |           |         |  |                              |        |         |  |              | 51,957   |   |  |   | (51,957  | ) |  |  |           |  
|Paid in capital                  |  |           | (2,151    | )       |  |                              |        |         |  |              | (160     | ) |  |   |          |   |  |  | 664       |  
|Minority interest                |  |           |           |         |  |                              |        |         |  |              |          |   |  |   |          |   |  |  |           |  
|Comprehensive loss (Note 16)     |  |           |           |         |  |                              |        |         |  |              |          |   |  |   | (174,931 | ) |  |  | (41,062   | )
|                                 |  |           |           |         |  |                              |        |         |  |              |          |   |  |   |          |   |  |  |           |  
|Balance as of December 31, 2000  |  |           | 2,021,690 |         |  |                              | 27,234 |         |  |              | 173,091  |   |  |   | (174,931 | ) |  |  | (347,489  | )
|Appropriation of 2000 net income |  |           |           |         |  |                              |        |         |  |              | (174,931 | ) |  |   | 174,931  |   |  |  |           |  
|Paid in capital                  |  |           | (3,466    | )       |  |                              | (14    | )       |  |              | (250     | ) |  |   |          |   |  |  | 1,925     |  
|Comprehensive loss (Note 16)     |  |           |           |         |  |                              |        |         |  |              |          |   |  |   | (45,789  | ) |  |  | (164,706  | )
|                                 |  |           |           |         |  |                              |        |         |  |              |          |   |  |   |          |   |  |  |           |  
|Balances as of December 31, 2001 |  |           | 2,018,224 |         |  |                              | 27,220 |         |  |              | (2,090   | ) |  |   | (45,789  | ) |  |  | (510,270  | )
|Appropriation of 2001 net loss   |  |           |           |         |  |                              |        |         |  |              | (45,789  | ) |  |   | 45,789   |   |  |  |           |  
|Comprehensive loss (Note 16)     |  |           |           |         |  |                              |        |         |  |              |          |   |  |   | (10,407  | ) |  |  | (335,801  | )
|                                 |  |           |           |         |  |                              |        |         |  |              |          |   |  |   |          |   |  |  |           |  
|Balances as of December 31, 2002 |  | $         | 2,018,224 |         |  | $                            | 27,220 |         |  |              | ($47,879 | ) |  |   | ($10,407 | ) |  |  | ($846,071 | )
|                                 |  |           |           |         |  |                              |        |         |  |              |          |   |  |   |          |   |  |  |           |  




[Additional columns below]

[Continued from above table, first column(s) repeated]

|                                 |  |            |           |          |  |          |           |               |  |   |    |       |  |   |           |  
|-------------------------------- |  | ---------- | --------- | -------- |  | -------- | --------- | ------------- |  | - | -- | ----- |  | - | --------- | -
|                                 |  | Total      |           |          |  |          |           |               |  |   |    | Total
|                                 |  | Deferred   |           | Majority |  | Minority |           | stockholder's
|                                 |  | income tax |           | interest |  | interest |           | equity       
|                                 |  |            |           |          |  |          |           |              
|Balances as of January 1, 2000   |  | $          |           |          |  | $        | 1,917,235 |               |  | $ | 7  |       |  | $ | 1,917,242 |  
|Appropriation of 1999 net loss   |  |            |           |          |  |          |           |               |  |   |    |       |  |   |           |  
|Paid in capital                  |  |            |           |          |  |          | (1,647    | )             |  |   |    |       |  |   | (1,647    | )
|Minority interest                |  |            |           |          |  |          |           |               |  |   | (3 | )     |  |   | (3        | )
|Comprehensive loss (Note 16)     |  |            | (374,729  | )        |  |          | (590,722  | )             |  |   |    |       |  |   | (590,722  | )
|                                 |  |            |           |          |  |          |           |               |  |   |    |       |  |   |           |  
|Balance as of December 31, 2000  |  |            | (374,729  | )        |  |          | 1,324,866 |               |  |   | 4  |       |  |   | 1,324,870 |  
|Appropriation of 2000 net income |  |            |           |          |  |          |           |               |  |   |    |       |  |   |           |  
|Paid in capital                  |  |            | 589       |          |  |          | (1,216    | )             |  |   |    |       |  |   | (1,216    | )
|Comprehensive loss (Note 16)     |  |            |           |          |  |          | (210,495  | )             |  |   |    |       |  |   | (210,495  | )
|                                 |  |            |           |          |  |          |           |               |  |   |    |       |  |   |           |  
|Balances as of December 31, 2001 |  |            | (374,140  | )        |  |          | 1,113,155 |               |  |   | 4  |       |  |   | 1,113,159 |  
|Appropriation of 2001 net loss   |  |            |           |          |  |          |           |               |  |   |    |       |  |   |           |  
|Comprehensive loss (Note 16)     |  |            |           |          |  |          | (346,208  | )             |  |   | (1 | )     |  |   | (346,209  | )
|                                 |  |            |           |          |  |          |           |               |  |   |    |       |  |   |           |  
|Balances as of December 31, 2002 |  |            | ($374,140 | )        |  | $        | 766,947   |               |  | $ | 3  |       |  | $ | 766,950   |  
|                                 |  |            |           |          |  |          |           |               |  |   |    |       |  |   |           |  

The accompanying notes are an integral part of these consolidated financial statements.

(5)

F-93



---



##### 



COMPAÑIA PAPELERA DE ATENQUIQUE, S. A. DE C. V. AND SUBSIDIARY
(subsidiary of Corporación Durango, S. A. de C. V.)




STATEMENTS OF CHANGES IN
FINANCIAL POSITION FOR THE YEARS ENDED DECEMBER 31, 2000, 2001 AND
2002
(Notes 1, 2 and 3)




(Thousands of constant Mexican Pesos restated as of December 31, 2002)

|                                                                                       |  |      |           |      |  |      |          |   |  |   |          |  
|-------------------------------------------------------------------------------------- |  | ---- | --------- | ---- |  | ---- | -------- | - |  | - | -------- | -
|OPERATING ACTIVITIES:                                                                  |  | 2000 |           | 2001 |  | 2002
|                                                                                       |  |      |           |      |  |     
|Net (loss) income before special items                                                 |  |      | ($174,930 | )    |  | $    | 112,145  |   |  |   | ($10,407 | )
|Items recognized in net income (loss) not requiring
(generating) the use of resources: |  |      |           |      |  |      |          |   |  |   |          |  
|Depreciation and amortization                                                          |  |      | 51,024    |      |  |      | 31,310   |   |  |   | 41,052   |  
|Provision for seniority premiums and pensions, net                                     |  |      | 5,685     |      |  |      | (28,857  | ) |  |   | 189      |  
|Equity method                                                                          |  |      | 120,563   |      |  |      | (36,754  | ) |  |   | 46,255   |  
|Deferred income tax                                                                    |  |      | 16,179    |      |  |      | (88,673  | ) |  |   | (48,511  | )
|                                                                                       |  |      |           |      |  |      |          |   |  |   |          |  
|                                                                                       |  |      | 18,521    |      |  |      | (10,829  | ) |  |   | 28,578   |  
|Changes in operating assets and liabilities:                                           |  |      |           |      |  |      |          |   |  |   |          |  
|Accounts receivable and prepaid expenses, net                                          |  |      | 7,677     |      |  |      | 59,521   |   |  |   | (34,232  | )
|Inventories                                                                            |  |      | 3,188     |      |  |      | 35,342   |   |  |   | 8,638    |  
|Other accounts payable and accrued expenses                                            |  |      | 21,678    |      |  |      | 52,610   |   |  |   | 35,642   |  
|Related parties  net                                                                  |  |      | (2,951    | )    |  |      | 2,092    |   |  |   | (18,340  | )
|Other assets                                                                           |  |      |          |      |  |      | (4,305   | ) |  |   | (13,871  | )
|                                                                                       |  |      |           |      |  |      |          |   |  |   |          |  
|Resources generated by operating activities                                            |  |      | 48,113    |      |  |      | 134,431  |   |  |   | 6,415    |  
|                                                                                       |  |      |           |      |  |      |          |   |  |   |          |  
|Special item:                                                                          |  |      |           |      |  |      |          |   |  |   |          |  
|Suspension of plants operations an personnel lay-offs                                 |  |      |          |      |  |      | (157,934 | ) |  |   |         |  
|                                                                                       |  |      |           |      |  |      |          |   |  |   |          |  
|                                                                                       |  |      | 48,113    |      |  |      | (23,503  | ) |  |   | 6,415    |  
|                                                                                       |  |      |           |      |  |      |          |   |  |   |          |  
|FINANCING ACTIVITIES:                                                                  |  |      |           |      |  |      |          |   |  |   |          |  
|Bank loans                                                                             |  |      | (1,023    | )    |  |      | (1,227   | ) |  |   | (805     | )
|Paid in capital                                                                        |  |      | (1,647    | )    |  |      | (1,216   | ) |  |   |         |  
|Minority interest                                                                      |  |      | (3        | )    |  |      |         |   |  |   |         |  
|                                                                                       |  |      |           |      |  |      |          |   |  |   |          |  
|Resources used in financing activities                                                 |  |      | (2,673    | )    |  |      | (2,443   | ) |  |   | (805     | )
|                                                                                       |  |      |           |      |  |      |          |   |  |   |          |  
|INVESTING ACTIVITIES:                                                                  |  |      |           |      |  |      |          |   |  |   |          |  
|(Disposal) acquisition of property and equipment, net                                  |  |      | (45,083   | )    |  |      | 26,003   |   |  |   | (6,090   | )
|                                                                                       |  |      |           |      |  |      |          |   |  |   |          |  
|Resources (used in) generated by investing activities                                  |  |      | (45,083   | )    |  |      | 26,003   |   |  |   | (6,090   | )
|                                                                                       |  |      |           |      |  |      |          |   |  |   |          |  
|Increase (decrease) in cash                                                            |  |      | 357       |      |  |      | 57       |   |  |   | (480     | )
|Cash at the beginning of the year                                                      |  |      | 67        |      |  |      | 424      |   |  |   | 481      |  
|                                                                                       |  |      |           |      |  |      |          |   |  |   |          |  
|Cash at the end of the year                                                            |  | $    | 424       |      |  | $    | 481      |   |  | $ | 1        |  
|                                                                                       |  |      |           |      |  |      |          |   |  |   |          |  

The accompanying notes are an integral part of these financial statements.

(6)

F-94



---



##### 



COMPAÑIA PAPELERA DE ATENQUIQUE, S. A. DE C. V. AND SUBSIDIARY
(subsidiary of Corporación Durango, S. A. de C. V.)




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 2001 AND 2002




(Thousands of constant Mexican Pesos restated as of December 31, 2002)

NOTE 1  ENTITY AND NATURE OF BUSINESS:



|a. |  | Entity                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Compañía Papelera de
Atenquique, S.A. de C.V.(COPASA), is a subsidiary of
Corporación Durango, S.A. de C.V., and owns 99.446% of stock of Forestal de
Jalisco, S.A. de C.V. The main activity of COPASA and its subsidiary
(collectively, the Company )is the exploitation and transformation of forest
products and manufacture and selling of Kraft and semikraft paper.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  
|   |  | Early in 2001,the Company entered into negotiations with the union
representing its employees, with the objective of terminating labor
contracts still in effect after approximately 50 years. After a few months of
negotiations, such contracts were terminated and the number of workers was
reduced. As a result, the Company suspended operations from April 2001 to
September 2001 and had severance payments and fixed cost amounting to
$157,933. Such cost are shown in the income statements under the caption
special item.                                                                                                                                                                                                                                                                                                                                                                                           
|  
|   |  | At the General Extraordinary Shareholders Meeting held on September 28,
2001, the shareholders of the Company approved the change of legal name from
Compañía Industrial de Atenquique, S.A. de C.V. to Compañia Papelera de
Atenquique, S.A. de C.V.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|  
|b. |  | Current status of the Holding Company (CODUSA)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  
|   |  | In order to expand its production plant and continue to consolidate as a
leader in the paper industry throughout Mexico and Latin America, Corporación
Durango, S. A. de C. V., (CODUSA) and its subsidiaries have contracted
significant financing from banks in Mexico and abroad, mainly in the U.S.
Additionally, in different dates it placed certain debt bonds on the New York
securities market. Both types of financing were realized in U.S. dollars.
However, in 2002, CODUSA was severely affected by a combination of economic
factors, such as the slowdown of the U.S. and the international economy, a
significant drop in the world price of paper, a drastic reduction in the
demand for manufactured products requiring the goods supplied by the
companies of the Group, an increase in the cost of raw materials, electric
power, gas and labor, and the entry of imported products into the Mexican
market.

(7)

F-95



---



##### 



COMPAÑIA PAPELERA DE ATENQUIQUE, S. A. DE C. V. AND SUBSIDIARY
(subsidiary of Corporación Durango, S. A. de C. V.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 2001 AND 2002  (Continued)

(Thousands of constant Mexican Pesos restated as of December 31, 2002)

The above-mentioned negative economic events lead to a significant reduction in
the generation of cash flow for CODUSA during the last quarter of fiscal year
2002, and CODUSA was unable to cover the payment of interest and capital on
certain debts maturing in November and December 2002, which meant that it was
unable to comply with certain obligations imposed by the banks and bondholders
in order to maintain the maturity terms of the capital. Said loans and debt
bonds have been classified as short term. Resulting in negative working
capital and serious doubts as to the ability of CODUSA to continue in operation
as a going concern.

As a result of the foregoing, CODUSA began a financial restructuring process in
November 2002, by holding discussions with the banks and bondholders in an
effort to agree on a debt refinancing plan and the sale of non-strategic
assets.

In April 2003, CODUSA signed a Forbearance Agreement, most of the creditors
have agreed to continue productive financial discussions regarding the terms of
the recapitalization of the Companys financial structure.

CODUSAS expectation is that its financial structure will be enforced after the
restructuring plan.

NOTE 2  BASIS OF PRESENTATION AND CONSOLIDATION:



|a. |  | Monetary Unit                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Amounts in the consolidated financial statements and footnotes thereto are
stated in thousands of Mexican Pesos (except for shares and per share
amounts), as are the records of the Company, in conformity with
corresponding laws. In these financial statements, references to $ are to
Mexican Pesos and references to US$ are to U.S. Dollars.                                                                                                                                                                                                                                 
|  
|b. |  | Basis of presentation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  
|   |  | The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles in Mexico (Mexican GAAP) as
promulgated by the Mexican Institute of Public Accountants (MIPA).
Additionally, Bulletin A-8, Supplementary Application of International
Accounting Standards states that where Mexican GAAP does not provide
guidance, International Accounting Standards must be applied. A
reconciliation from Mexican GAAP to Generally Accepted Accounting Principles
in the United States of America (U.S. GAAP) is included in Note 16.

(8)

F-96



---



##### 



COMPAÑIA PAPELERA DE ATENQUIQUE, S. A. DE C. V. AND SUBSIDIARY
(subsidiary of Corporación Durango, S. A. de C. V.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 2001 AND 2002  (Continued)

(Thousands of constant Mexican Pesos restated as of December 31, 2002)



|c. |  | Basis of consolidation                                                                                                                                                                                                                                                                                               
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | All significant inter-company accounts and transactions have been eliminated
in the consolidation.                                                                                                                                                                                                                   
|  
|   |  | The consolidation was based on the audited financial statements of the
individual subsidiary. The consolidated financial statements include the
assets, liabilities and results of the subsidiary, in which the Company holds
over 50% of common stock and exercises control over operating and financial
activities.

NOTE 3  ACCOUNTING POLICIES:

A summary of the Companys significant accounting polices are as follows:



|a. |  | Use of estimates                                                                                                                                                                                                                                                                                                                                                                                                                  
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The preparation of the financial statements in conformity with Mexican GAAP
requires management to make certain estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures of contingent
assets and liabilities as of the date of the financial statements, and the
reported amount of revenues and expenses during the reporting years. Actual
results may differ from these estimates.
|  
|b. |  | Recognition of the effects of inflation                                                                                                                                                                                                                                                                                                                                                                                           
|  
|   |  | The Companys consolidated financial statements have been prepared in
accordance with integrated Bulletin B-10, Effects of Inflation on Financial
Information and its amendments. Bulletin B-10 requires restatement of all
financial statement items to Mexican Pesos of the most current purchasing
power.                                                                                                                    
|  
|   |  | For comparative purposes, the consolidated financial statements presented
herein have been restated to Mexican Pesos as of December 31, 2002 as
follows:                                                                                                                                                                                                                                                                          



| | 1. |  | The financial statements as of December 31, 2001 have been restated
to Mexican Pesos as of December 31, 2002 by applying to the year-end
balances of constant Mexican Pesos as each period and inflation factor
of 1.057, which is derived from the National Consumer Price Index
(NCPI), published by Banco de México (the Central Bank of México).
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

(9)

F-97



---



##### 



COMPAÑIA PAPELERA DE ATENQUIQUE, S. A. DE C. V. AND SUBSIDIARY
(subsidiary of Corporación Durango, S. A. de C. V.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 2001 AND 2002  (Continued)

(Thousands of constant Mexican Pesos restated as of December 31, 2002)






|   |  | Statement of changes in financial position                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Bulletin B-12, Statement of Changes in Financial Position (Bulletin B-12),
addresses the appropriate presentation of the statement of changes in
financial position where financial statements have been restated to constant
Mexican Pesos as of the latest balance sheet date. Bulletin B-12 identifies
the generation and application of resources representing differences between
beginning and ending balances of the balance sheets in constant Mexican
Pesos, excluding the effect from holding non-monetary assets. Bulletin B-12
also requires that monetary position and foreign exchange gains (losses) be
excluded from non-cash items in the determination of resources provided by
(used in) operating activities.
|  
|c. |  | Inventories                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|  
|   |  | Inventories are valued at average cost, which does not exceed market value.
The average cost approximates the last purchase price or production cost.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|  
|d. |  | Cost of sales                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|  
|   |  | Cost of sales is determined on the estimated replacement value of the
inventory as of the date on which sales were made.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|  
|e. |  | Investment in affiliated company                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  
|   |  | Investments in shares of affiliated company in which the percentage of
ownership is less than 50% are valued using the equity method. According to
this method, acquisition cost is modified proportionally to the changes after
the date of acquisition in shareholders equity accounts of the issuing
companies. (Note 7)                                                                                                                                                                                                                                                                                                                                                                                                       
|  
|f. |  | Property, plant and equipment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|  
|   |  | Property, plant and equipment are recorded at their acquisition cost, and are
restated by applying factors derived from the NCPI to the historical
cost, except machinery and equipment of foreign origin (GCPI) which are
restated by applying factors derived from the general index of the
country of origin to the corresponding foreign currency amounts and
translating those amounts to Mexican Pesos at the prevailing exchange
rate at the balance sheet date.                                                                                                                                                                                                                                                            




F-98



---



##### 



COMPAÑIA PAPELERA DE ATENQUIQUE, S. A. DE C. V. AND SUBSIDIARY
(subsidiary of Corporación Durango, S. A. de C. V.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 2001 AND 2002  (Continued)

(Thousands of constant Mexican Pesos restated as of December 31, 2002)



|   |  | Recurring maintenance and repairs expenditures are charged to operating
expenses as incurred. Major overhauls to fixed assets are capitalized
and amortized over the period in which benefits are expected to be
received.                                                                                                                                                                                                                    
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The integral cost of financing attributable to assets under construction
is capitalized. Capitalized integral financing cost include interest
cost, gain from monetary position and foreign exchange gains or losses
and are determined by the reference to the Companys interest cost of
outstanding borrowings directly attributable to the construction of
assets. During 2000, 2001 and 2002 the Company did not capitalize any
interest.
|  
|g. |  | Depreciation                                                                                                                                                                                                                                                                                                                                                                                                                                  
|  
|   |  | Depreciation of property, plant and equipment is based upon the restated
carrying value of the assets and calculated by the method of unit
produced, based in their useful lives and the estimated production
capacity as shown below:                                                                                                                                                                                                        

|                         |  |       |       | 
|------------------------ |  | ----- | ----- | 
|                         |  | Years
|                         |  |      
|Buildings                |  |       | 25-50 | 
|Machinery and equipment  |  |       | 23-40 | 
|Office equipment         |  |       | 5-10  | 
|Transportation equipment |  |       | 1-5   | 
|Computer equipment       |  |       | 1-3   | 



|h. |  | Pension plans, seniority premiums and indemnities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | In accordance with Mexican Federal Labor Law, the Companys employees are
entitled to seniority premiums after 15 years of service or upon dismissal,
disability or death. Under Bulletin D-3 Labor Obligations, the actuarially
determined projected benefit obligation is computed using estimates of
salaries that would be in effect at the time of payment. Employees not yet
eligible for seniority premiums are also included in the determination of the
obligation with the necessary adjustments made in accordance with the
probability that these employees will reach the required seniority. The cost
of past service is amortized over the average period required for workers to
reach their retirement age.
|  
|   |  | The cost of the employee retirement plans (seniority premiums), both formal
and informal, is recognized as expense in the years in which the services are
rendered, in accordance with studies performed by independent actuaries using
the projected unit credit method.                                                                                                                                                                                                                                                                                                                                                                                                                                                     

(11)

F-99



---



##### 



COMPAÑIA PAPELERA DE ATENQUIQUE, S. A. DE C. V. AND SUBSIDIARY
(subsidiary of Corporación Durango, S. A. de C. V.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 2001 AND 2002  (Continued)

(Thousands of constant Mexican Pesos restated as of December 31, 2002)



|   |  | In accordance with Mexican
Federal Labor Law, other compensations, based on length of service, to which
employees may be entitled in the event of dismissal or death, are charged to
income in year in which become payable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|i. |  | Payments for retirements and terminations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|  
|   |  | Payments for retirements and terminations are charged to income in the period
in which they occur.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|  
|j. |  | Revenue recognition                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|  
|   |  | Sales are recognized upon delivery of products and customer acceptance.
Revenues are recognized only when the Company has transferred to the buyer
the risks and rewards of ownership of the goods, and when the amount of
revenue and the cost incurred or to be incurred in the transaction can be
measured reliably.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|  
|k. |  | Income tax and employee statutory profit sharing                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  
|   |  | The Company recognized deferred income tax through the comprehensive asset
and liability method, which consists in determining said tax by applying the
corresponding income tax rate to the temporary differences between the book
and tax values of assets and liabilities at the date of the financial
statements. Beginning on January 1, 2000, the Company adopted the guidelines
of amended Bulletin D-4, Accounting Treatment of Income Tax, Tax on Assets
and Employee Statutory Profit Sharing. The accrued effect of this
accounting change, effective January 1, 2000, originated a net increase in
the deferred tax liability in the amount of $374,729 and a reduction of
shareholders equity of the same amount. Employees statutory profit sharing
is determined at a 10% rate on the taxable income of the companies, adjusted
accordingly to the previous of the Mexican income tax law.
|  
|l. |  | Foreign currency transactions                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|  
|   |  | Transactions denominated in foreign currency are recorded in Mexican Pesos at
the exchange rate in effect at the date they are consummated. Assets and
liabilities in foreign currency are translated into Mexican Pesos at the
exchange rate in effect as of the balance sheet date. Exchange differences
resulting from such translations are recognized in income for the year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

(12)

F-100



---



##### 



COMPAÑIA PAPELERA DE ATENQUIQUE, S. A. DE C. V. AND SUBSIDIARY
(subsidiary of Corporación Durango, S. A. de C. V.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 2001 AND 2002  (Continued)

(Thousands of constant Mexican Pesos restated as of December 31, 2002)



|m. |  | Shareholders equity                                                                                                                                                                                                                                                                                                                                                                                                                      
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The capital stock, retained earnings, additional paid-in-capital and
comprehensive income accounts include the effect from restatement, determined
by applying the NCPI factor from the date when capital was contributed and
from the year in which the results were determined. The restatements
represent the amounts required to maintain the contributions and accumulated
results in constant Mexican Pesos as of December 31, 2002.
|  
|n. |  | Comprehensive income                                                                                                                                                                                                                                                                                                                                                                                                                      
|  
|   |  | As of January 1, 2001, Bulletin B-4 Comprehensive Income, entered into
effect. This bulletin requires that the various components of shareholders
equity resulting from non-owner transactions be shown in the statement of
changes in shareholders equity under the item of comprehensive income
(loss).                                                                                                                             

NOTE 4  FOREIGN CURRENCY POSITION:

As of December 31, the Mexican Pesos to the U.S. Dollar exchange rate was as
follows:

|     |  |   |         | 
|---- |  | - | ------- | 
|2001 |  | $ | 9.1695  | 
|2002 |  | $ | 10.4393 | 

As of December 31, 2001 and 2002 the Company had the following foreign
currency monetary assets and liabilities:

|                       |  |                           |       |      |  |      |         |  
|---------------------- |  | ------------------------- | ----- | ---- |  | ---- | ------- | -
|                       |  | Thousands of U.S. Dollars
|                       |  |                          
|                       |  | 2001                      |       | 2002
|                       |  |                           |       |     
|Assets                 |  | US$                       | 1,747 |      |  | US$  | 2,915   |  
|                       |  |                           |       |      |  |      |         |  
|Short-term liabilities |  |                           | (649  | )    |  |      | (33,447 | )
|Long-term liabilities  |  |                           | (334  | )    |  |      | (334    | )
|                       |  |                           |       |      |  |      |         |  
|                       |  |                           | (983  | )    |  |      | (33,781 | )
|                       |  |                           |       |      |  |      |         |  
|Net monetary position  |  | US$                       | 764   |      |  | (US$ | 30,866  | )
|                       |  |                           |       |      |  |      |         |  

(13)

F-101



---



##### 



COMPAÑIA PAPELERA DE ATENQUIQUE, S. A. DE C. V. AND SUBSIDIARY
(subsidiary of Corporación Durango, S. A. de C. V.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 2001 AND 2002  (Continued)

(Thousands of constant Mexican Pesos restated as of December 31, 2002)

The Companys foreign currency transactions were as follows:

|                          |  |                           |        |      |  |      |       |   |  |      |         |  
|------------------------- |  | ------------------------- | ------ | ---- |  | ---- | ----- | - |  | ---- | ------- | -
|                          |  | Year ended December 31   
|                          |  |                          
|                          |  | 2000                      |        | 2001 |  | 2002
|                          |  |                           |        |      |  |     
|                          |  | Thousands of U.S. Dollars
|                          |  |                          
|Sales                     |  | US$                       | 438    |      |  | US$  | 206   |   |  | US$  | 2,867   |  
|Purchases                 |  |                           | (1,886 | )    |  |      | (321  | ) |  |      | (12,256 | )
|Purchases of fixed assets |  |                           | (1,410 | )    |  |      | (691  | ) |  |      |        |  
|Interest expense          |  |                           | (144   | )    |  |      | (36   | ) |  |      | (4,163  | )
|Loans payments            |  |                           | (26    | )    |  |      | (78   | ) |  |      | (109    | )
|Other                     |  |                           | (117   | )    |  |      | (131  | ) |  |      | (5      | )
|                          |  |                           |        |      |  |      |       |   |  |      |         |  
|                          |  | (US$                      | 3,145  | )    |  | (US$ | 1,051 | ) |  | (US$ | 13,666  | )
|                          |  |                           |        |      |  |      |       |   |  |      |         |  

NOTE 5  ACCOUNTS RECEIVABLE:

Accounts receivable consist of the following:

|                                       |  |      |        |      |  |   |        | 
|-------------------------------------- |  | ---- | ------ | ---- |  | - | ------ | 
|                                       |  | 2001 |        | 2002
|                                       |  |      |        |     
|Trade                                  |  | $    | 5,750  |      |  | $ | 40,907 | 
|Other                                  |  |      | 4,361  |      |  |   | 3,033  | 
|                                       |  |      |        |      |  |   |        | 
|                                       |  |      | 10,111 |      |  |   | 43,940 | 
|Less  Allowance for doubtful accounts |  |      | 987    |      |  |   | 934    | 
|                                       |  |      |        |      |  |   |        | 
|                                       |  | $    | 9,124  |      |  | $ | 43,006 | 
|                                       |  |      |        |      |  |   |        | 

NOTE 6  INVENTORIES:

Inventories consist of the following:

|                                  |  |      |        |      |  |   |        | 
|--------------------------------- |  | ---- | ------ | ---- |  | - | ------ | 
|                                  |  | 2001 |        | 2002
|                                  |  |      |        |     
|Finished products                 |  | $    | 7,489  |      |  | $ | 5,564  | 
|Raw materials                     |  |      | 18,488 |      |  |   | 9,234  | 
|Direct material and spare parts   |  |      | 16,357 |      |  |   | 16,322 | 
|Merchandise in transit            |  |      | 2,135  |      |  |   | 5,216  | 
|Advances to suppliers             |  |      | 5,446  |      |  |   | 4,797  | 
|                                  |  |      |        |      |  |   |        | 
|                                  |  |      | 49,915 |      |  |   | 41,133 | 
|Less  Allowance for obsolescence |  |      | 109    |      |  |   | 104    | 
|                                  |  |      |        |      |  |   |        | 
|                                  |  | $    | 49,806 |      |  | $ | 41,029 | 
|                                  |  |      |        |      |  |   |        | 

(14)

F-102



---



##### 



COMPAÑIA PAPELERA DE ATENQUIQUE, S. A. DE C. V. AND SUBSIDIARY
(subsidiary of Corporación Durango, S. A. de C. V.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 2001 AND 2002  (Continued)

(Thousands of constant Mexican Pesos restated as of December 31, 2002)

NOTE 7  INVESTMENT IN AFFILIATED COMPANY:

The Company holds a 41.97% in Envases
y Empaques de México, S.A. de C.V.; summarized financial
information for the Companys equity-basis investment was as
follows:

|                                |  |      |           |      |  |      |           |  |  |   |           |  
|------------------------------- |  | ---- | --------- | ---- |  | ---- | --------- |  |  | - | --------- | -
|                                |  | 2000 |           | 2001 |  | 2002
|                                |  |      |           |      |  |     
|Income
statement information:  
|Revenues                        |  | $    | 1,825,796 |      |  | $    | 1,591,010 |  |  | $ | 1,586,107 |  
|Operating
income (loss)         |  |      | 312,843   |      |  |      | 213,794   |  |  |   | 397,272   |  
|Net
income (loss)               |  |      | (288,127  | )    |  |      | 87,917    |  |  |   | (137,082  | )
|Financial
position information:
|Current
assets                  |  | $    | 1,182,910 |      |  | $    | 892,658   |  |  | $ | 789,709   |  
|Long-term
assets                |  |      | 3,086,042 |      |  |      | 2,893,198 |  |  |   | 1,157,498 |  
|Current
liabilities             |  |      | 626,919   |      |  |      | 588,489   |  |  |   | 1,306,069 |  
|Long-term
liabilities           |  |      | 2,147,767 |      |  |      | 1,922,007 |  |  |   | 327,572   |  
|Equity                          |  |      | 1,494,266 |      |  |      | 1,275,360 |  |  |   | 313,566   |  

NOTE 8  PROPERTY, PLANT AND EQUIPMENT:

Property, plant and equipment consist of the following:

|                                                        |  |             |            |      |  |   |            |  
|------------------------------------------------------- |  | ----------- | ---------- | ---- |  | - | ---------- | -
|                                                        |  | December 31
|                                                        |  |            
|                                                        |  | 2001        |            | 2002
|                                                        |  |             |            |     
|Land                                                    |  | $           | 228,072    |      |  | $ | 228,072    |  
|Buildings                                               |  |             | 587,153    |      |  |   | 587,153    |  
|Machinery and equipment                                 |  |             | 1,518,331  |      |  |   | 1,572,840  |  
|Transportation equipment, computer, furniture and other |  |             | 394,198    |      |  |   | 455,209    |  
|Construction in process                                 |  |             | 951        |      |  |   | 4,146      |  
|                                                        |  |             |            |      |  |   |            |  
|                                                        |  |             | 2,728,705  |      |  |   | 2,847,420  |  
|Less  Accumulated depreciation                         |  |             | (1,596,279 | )    |  |   | (1,710,958 | )
|                                                        |  |             |            |      |  |   |            |  
|                                                        |  | $           | 1,132,426  |      |  | $ | 1,136,462  |  
|                                                        |  |             |            |      |  |   |            |  

Depreciation for the years ended December 31, 2000, 2001 and 2002 was $38,946,
$19,181 and $37,983, respectively.

In 2001, the Company sold its secondary fiber treatment plan to Arrendadora Bank
of America, S.A. for the amount of $35,629:revenue and cost of this sale are
recognized in income for the year. The net loss generated in such transaction
amounted to $1,217 and is included in other expenses. This plant was reacquired
through a financial lease agreement by Corporation Durango, S.A. de C.V., who
in turn sublease it to COPASA.

F-103

(15)



---



##### 



COMPAÑIA PAPELERA DE ATENQUIQUE, S. A. DE C. V. AND SUBSIDIARY
(subsidiary of Corporación Durango, S. A. de C. V.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 2001 AND 2002  (Continued)

(Thousands of constant Mexican Pesos restated as of December 31, 2002)

NOTE 9  DEBT:

|                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |   |              |  |      |   |       |  | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | - | ------------ |  | ---- | - | ----- |  | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |   | December 31,
|                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |   |             
|                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |   | 2001         |  | 2002
|                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |   |              |  |     
|Bank loan for US$786 with Nacional Financiera, S.A.
(NAFINSA). Variable interest rate at LIBOR plus
0.8125% up to 1.25%. The loan will be repaid in 52
quarterly installments from January 1995, thorough
2006. Balance as of December 31, is US$443 and
US$334 in 2001 and 2002, respectively. This loan is
collateralized with the machinery and equipment
acquired with this credit, collateral provided by
Corporación Durango, S. A. de C. V |  | $ | 4,291        |  |      | $ | 3,485 | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |   |              |  |      |   |       | 
|Short-term debt as of December 31,                                                                                                                                                                                                                                                                                                                                                                                                                |  |   | 1,056        |  |      |   | 1,137 | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |   |              |  |      |   |       | 
|Long-term debt as of December 31,                                                                                                                                                                                                                                                                                                                                                                                                                 |  | $ | 3,235        |  |      | $ | 2,348 | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |   |              |  |      |   |       | 

NOTE 10  PENSION PLANS AND SENIORITY PREMIUM:

The valuation of labor obligations for seniority premiums covers all employees
and is generally based on length of service, age of the employee and
remuneration at the date of dismissal.

In early 2001,the Company entered into negotiations with the union
representing its employees, with the objective of terminating labor contracts
still in effect after approximately 50 years regarding its operations. After a
few months of negotiations, such contracts were terminated.

In connection with the negotiation mentioned above, all the employees were
legally terminated. As a consequence of this settlement, all the employees,
accumulated benefits under the previous plan were extinguished. As of December
31, 2000, the portion of the projected benefit obligation based on the expected future compensation levels of the terminated employees
was $99,853. The Company also had an unrecognized net obligation of $68,304
that was treated as unrecognized prior service cost. The remaining expected
future years of service associated with those employees present at the date of
transition was completely eliminated due to the legal termination of employees.
Accordingly, the total amount of the previous unrecognized net obligation was
amortized and the pension liability extinguished.

The Company paid termination benefits to its employees, and recognized a net
loss of $103,648, which includes a gain related to the contractual pension
obligation extinguishment amounting to $31,549.

(16)

F-104



---



##### 



COMPAÑIA PAPELERA DE ATENQUIQUE, S. A. DE C. V. AND SUBSIDIARY
(subsidiary of Corporación Durango, S. A. de C. V.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 2001 AND 2002  (Continued)

(Thousands of constant Mexican Pesos restated as of December 31, 2002)

After this settlement, the Company rehired some of the previous terminated
personnel and established a new pension plan for all the eligible employees.

The valuation of labor obligations for retirement pensions and seniority
premiums covers all employees. The principal financial data related to these
obligations is as follows:

|                                                                |  |              |     |      |  |   |     |  
|--------------------------------------------------------------- |  | ------------ | --- | ---- |  | - | --- | -
|                                                                |  | December 31,
|                                                                |  |             
|                                                                |  | 2001         |     | 2002
|                                                                |  |              |     |     
|Current benefit obligation                                      |  | $            | 30  |      |  | $ | 45  |  
|                                                                |  |              |     |      |  |   |     |  
|Net current liability                                           |  | $            | 30  |      |  | $ | 45  |  
|                                                                |  |              |     |      |  |   |     |  
|Projected benefit obligation                                    |  | $            | 222 |      |  | $ | 248 |  
|Unamortized transition asset                                    |  |              | (45 | )    |  |   | (43 | )
|Unamortized differences in assumption and experience
adjustment |  |              |    |      |  |   | 161 |  
|                                                                |  |              |     |      |  |   |     |  
|Projected net liability                                         |  | $            | 177 |      |  | $ | 366 |  
|                                                                |  |              |     |      |  |   |     |  

|                             |  |              |    |      |  |  |    |  
|---------------------------- |  | ------------ | -- | ---- |  |  | -- | -
|                             |  | December 31,
|                             |  |             
|                             |  | 2001         |    | 2002
|                             |  |              |    |     
|Amortization period (years): |  |              |    |      |  |  |    |  
|Transition asset             |  |              | 19 |      |  |  | 19 |  
|Rate pondered of discount    |  |              | 5  | %    |  |  | 5  | %

The net cost for the year consisted of the following:

|                                   |  |              |     |      |  |      |     |  |  |   |     |  
|---------------------------------- |  | ------------ | --- | ---- |  | ---- | --- |  |  | - | --- | -
|                                   |  | December 31,
|                                   |  |             
|                                   |  | 2000         |     | 2001 |  | 2002
|                                   |  |              |     |      |  |     
|Service cost                       |  | $            | 174 |      |  | $    | 173 |  |  | $ | 192 |  
|Amortization of prior service cost |  |              |    |      |  |      | 2   |  |  |   | 3   |  
|Financial cost for the year        |  |              | 2   |      |  |      | 2   |  |  |   | 3   |  
|Amortization per annual            |  |              |    |      |  |      |    |  |  |   | (9  | )
|                                   |  |              |     |      |  |      |     |  |  |   |     |  
|                                   |  | $            | 176 |      |  | $    | 177 |  |  | $ | 189 |  
|                                   |  |              |     |      |  |      |     |  |  |   |     |  

Prior service cost (transition liability) and actuarial losses are recorded
through charges to income using straight-line method over the average
remaining service life over which employees are expected to receive the
benefits.

(17)

F-105



---



##### 



COMPAÑIA PAPELERA DE ATENQUIQUE, S. A. DE C. V. AND SUBSIDIARY
(subsidiary of Corporación Durango, S. A. de C. V.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 2001 AND 2002  (Continued)

(Thousands of constant Mexican Pesos restated as of December 31, 2002)

The following actuarial assumption were used to determine the present value
of accumulated plan benefits for pension plans and seniority premiums
(excluding inflation effects):

|                     |  |              |   |      |  |      |   |   |  |  |   |  
|-------------------- |  | ------------ | - | ---- |  | ---- | - | - |  |  | - | -
|                     |  | December 31,
|                     |  |             
|                     |  | 2000         |   | 2001 |  | 2002
|                     |  |              |   |      |  |     
|Discount rate        |  |              | 5 | %    |  |      | 5 | % |  |  | 5 | %
|Salary increase rate |  |              | 5 | %    |  |      | 5 | % |  |  | 5 | %

NOTE 11  CONTINGENCIES AND COMMITMENTS:

The company has the following contingencies and commitments:



|I.  |  | Contingencies:                                                                                                                                                                                                                                                 
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|a.  |  | The Company is contingently liable for indemnities payable to employees
in case of dismissal under certain circumstances as provided by the
Mexican Federal Labor Law. As of December 31, 2002, no obligations were
recognized in the financial statements.    
|   
|b.  |  | The Company may be subject to a contingent liability for additional taxes
resulting from reviews of the tax returns filed by the Company, if its
interpretation criteria differs from that of the Mexican tax authorities.                                     
|   
|    |  | The Company considers that the final resolution for these situation will not
have any material impact on its financial condition or results of operations.                                                                                                     
|   
|c.  |  | As of December 31, 2002 labor suits existed, derived from personnel
liquidation on September, 2001. These suits are in process and the
contingency is estimated for $7,000 approximately. As considered this
amount not material, this amount was not recorded.
|   
|II. |  | Commitments:                                                                                                                                                                                                                                                   
|   
|a.  |  | The Company guarantee the Corporación Durango, S. A. de C. V.
(Holding Company) financing obtained with Banamex, S. A. for
U.S.$75,336.                                                                                                                        
|   
|b.  |  | The Company guarantees the payment of principal and interest and other
amounts if any, of certain loans of its parent CODUSA.                                                                                                                                

(18)

F-106



---



##### 



COMPAÑIA PAPELERA DE ATENQUIQUE, S. A. DE C. V. AND SUBSIDIARY
(subsidiary of Corporación Durango, S. A. de C. V.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 2001 AND 2002  (Continued)

(Thousands of constant Mexican Pesos restated as of December 31, 2002)






| |  | At December 31, 2002 such loans were in default and in the process to be
restructured by CODUSA.
| |  | ------------------------------------------------------------------------------------------------
|
|
| |  | As of December 31, 2002, the aggregate outstanding amount of these loans was
US$487.1 million.  

NOTE 12  CAPITAL STOCK AND RETAINED EARNINGS:

As of December 31, 2002, the nominal capital stock amounted to $398,107, and
the fixed minimum portion without a right to withdrawal was $100, represented
by 100,000 common nominative shares without par value. The variable portion of
capital stock amounted to $398,007 represented by 1,710,711 nominative shares
without par value.



|a. |  | In Mexico, income for the year is subject to legal requirements, which
provide that 5% of income for each year be allocated to increasing the
legal reserve, until this reserve reaches the equivalent of one-fifth of
the amount of paid-in capital stock.                                                                                                                                                                                                                    
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|b. |  | Dividend tax regime:                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|  
|   |  | Dividends paid will be free of income tax if paid out of the Net Taxable
Income Account (CUFIN). A 34% rate will be paid in 2003 on the amount
exceeding the balance of the CUFIN by multiplying the dividend paid by a
factor of 1.5152 in 2003. The applicable tax will be payable by the Company,
and it may be credited against income tax that the Company is subject to in
the following three fiscal years. Dividends paid will not be subject to any
tax withholding.
|  
|c. |  | Under Mexican corporate law, the Company is not permitted to declare or
pay dividends if the dividends from its subsidiaries are not received
first. Additionally, neither the Company nor its subsidiaries is
permitted to declare or pay dividends as a result of the negative
covenants established in the debt instruments placed in the Mexican and
international markets.                                                                                                
|  
|d. |  | On August 2001, the Company reimbursed shares originated a decrease in
capital for $1,216.                                                                                                                                                                                                                                                                                                                                                                                     




NOTE 13  PROVISION FOR INCOME AND ASSET TAXES:




The income tax (ISR) provision at December 31, is comprised as follows:

|                        |  |      |          |      |  |      |        |   |  |   |        |  
|----------------------- |  | ---- | -------- | ---- |  | ---- | ------ | - |  | - | ------ | -
|                        |  | 2000 |          | 2001 |  | 2002
|                        |  |      |          |      |  |     
|Asset taxes             |  | $    |         |      |  |      | ($721  | ) |  |   | ($26   | )
|Employee profit sharing |  |      | (40      | )    |  |      |       |   |  |   |       |  
|Deferred income tax     |  |      | (16,179  | )    |  |      | 88,673 |   |  |   | 48,511 |  
|                        |  |      |          |      |  |      |        |   |  |   |        |  
|                        |  |      | ($16,219 | )    |  | $    | 87,952 |   |  | $ | 48,485 |  
|                        |  |      |          |      |  |      |        |   |  |   |        |  

(19)

F-107



---



##### 



COMPAÑIA PAPELERA DE ATENQUIQUE, S. A. DE C. V. AND SUBSIDIARY
(subsidiary of Corporación Durango, S. A. de C. V.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 2001 AND 2002  (Continued)

(Thousands of constant Mexican Pesos restated as of December 31, 2002)

As of December 31, 2002 and 2001, the main components of deferred income tax are as follow:

|                                    |  |      |           |      |  |   |          |  
|----------------------------------- |  | ---- | --------- | ---- |  | - | -------- | -
|                                    |  | 2001 |           | 2002
|                                    |  |      |           |     
|Inventories                         |  | $    | 21,772    |      |  | $ | 14,950   |  
|Property, plant and equipment  net |  |      | 1,007,920 |      |  |   | 958,800  |  
|Deferred asset                      |  |      | 18,356    |      |  |   | 24,375   |  
|Advances from customers             |  |      | (154,646  | )    |  |   | (103,501 | )
|Tax loss carry-forwards             |  |      | (4,123    | )    |  |   | (32,516  | )
|Estimate for asset valuation        |  |      | (987      | )    |  |   | (934     | )
|Other                               |  |      | (5,048    | )    |  |   | (6,371   | )
|                                    |  |      |           |      |  |   |          |  
|                                    |  |      | 883,244   |      |  |   | 854,803  |  
|Income tax rate                     |  |      | 35        | %    |  |   | 32       | %
|                                    |  |      |           |      |  |   |          |  
|Deferred income tax                 |  |      | 309,135   |      |  |   | 273,537  |  
|Recoverable asset tax               |  |      | (219      | )    |  |   | (457     | )
|                                    |  |      |           |      |  |   |          |  
|Income tax payable                  |  | $    | 308,916   |      |  | $ | 273,080  |  
|                                    |  |      |           |      |  |   |          |  

Of the deferred income tax recorded as of December 31, 2001 and 2002 $1,016 and
$1,822, was recorded directly to the restatement of non-monetary assets within
shareholders equity as it resulted from temporary differences generated by
non-monetary items, principally inventories and property, plant and equipment.

As of December 31, 2002, the Company had tax loss carryforwards in the
approximate amount of $31,914, which are subject to an additional NCPI
restatement and may reduce future years taxable income for income tax purposes
as shown below:

|                   |  |        |        | 
|------------------ |  | ------ | ------ | 
|Year of expiration |  | Amount
|                   |  |       
|2005               |  | $      | 2,557  | 
|2009               |  |        | 987    | 
|2011               |  |        | 93     | 
|2012               |  |        | 28,277 | 
|                   |  |        |        | 
|                   |  | $      | 31,914 | 
|                   |  |        |        | 

(20)

F-108



---



##### 



COMPAÑIA PAPELERA DE ATENQUIQUE, S. A. DE C. V. AND SUBSIDIARY
(subsidiary of Corporación Durango, S. A. de C. V.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 2001 AND 2002  (Continued)

(Thousands of constant Mexican Pesos restated as of December 31, 2002)

Asset tax is calculated at a rate of 1.8% on the net value of certain assets
and liabilities and is due only when the asset tax exceeds the income tax
payable. The asset tax paid can be recovered over the following 10 years, if
and when income taxes exceed asset tax during such years. As of December 31,
2002, the asset tax carryforwards totaled $457.

The reconciliation between the statutory and effective income tax is shown
below:

|                                                  |  |              |         |      |  |      |       |   |  |  |        |  
|------------------------------------------------- |  | ------------ | ------- | ---- |  | ---- | ----- | - |  |  | ------ | -
|                                                  |  | December 31,
|                                                  |  |             
|                                                  |  | 2000         |         | 2001 |  | 2002
|                                                  |  |              |         |      |  |     
|                                                  |  | %            |         | %    |  | %   
|ISR at the statutory rate                         |  |              | 35.00   |      |  |      | 35.00 |   |  |  | (35.00 | )
|Increase (decrease) in effective ISR rate due to: |  |              |         |      |  |      |       |   |  |  |        |  
|Net effect of the comprehensive financing cost    |  |              | (10.50  | )    |  |      | (1.90 | ) |  |  | 48.28  |  
|Non-deductible expenses                           |  |              | (  2.88 | )    |  |      | (0.19 | ) |  |  | (27.76 | )
|Inflation effects                                 |  |              | 13.76   |      |  |      | 1.37  |   |  |  | 7.24   |  
|Other                                             |  |              | (25.16  | )    |  |      | 31.48 |   |  |  | 80.86  |  
|Change of statutory tax rate                      |  |              |        |      |  |      |      |   |  |  | (7.76  | )
|                                                  |  |              |         |      |  |      |       |   |  |  |        |  
|Effective income tax rate                         |  |              | 10.22   |      |  |      | 65.76 |   |  |  | 65.86  |  
|                                                  |  |              |         |      |  |      |       |   |  |  |        |  

As a result of the amendments to the Income Tax Law approved on January 1,
2002, beginning in 2003, the income tax rate (35%) will be reduced annually to
a nominal rate of 32% in 2005. Consequently, the effect of this gradual
decrease in the income tax rate is estimated to reduce the deferred income tax
liability by approximately $25,644 in 2002.

The holding of the Company is authorized by the Ministry of Finance and Public
Credit to file Income Tax returns on a consolidated basis with some of its
Mexican subsidiaries.

The employees profit sharing is calculated by applying the rate 10% over the
ISR bases in accordance with the special rules set-forth in the income tax law.

NOTE 14  BALANCES AND TRANSACTIONS WITH RELATED PARTIES:

a.     Balances as of December 31, 2001 and 2002 are as follows:

(21)

F-109



---



##### 



COMPAÑIA PAPELERA DE ATENQUIQUE, S. A. DE C. V. AND SUBSIDIARY
(subsidiary of Corporación Durango, S. A. de C. V.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 2001 AND 2002  (Continued)

(Thousands of constant Mexican Pesos restated as of December 31, 2002)

|                                                  |  |      |         |      |  |   |         | 
|------------------------------------------------- |  | ---- | ------- | ---- |  | - | ------- | 
|                                                  |  | 2001 |         | 2002
|                                                  |  |      |         |     
|Recoverable:                                      |  |      |         |      |  |   |         | 
|Envases y Empaques de México, S. A. de C. V       |  | $    | 47,087  |      |  | $ | 28,002  | 
|Empaques de Cartón Titán, S. A. de C. V           |  |      | 14,357  |      |  |   | 21,513  | 
|Cartonpack, S. A. de C. V                         |  |      | 8,938   |      |  |   | 17,144  | 
|Ponderosa Industrial de México, S. A. de C. V     |  |      | 438     |      |  |   | 686     | 
|Productora Nacional de Papel, S. A. de C. V       |  |      |        |      |  |   | 4,013   | 
|Empaques de Cartón Titán Monterrey, S. A. de C. V |  |      |        |      |  |   | 933     | 
|Cajas y Corrugados de Chihuahua, S. A. de C. V    |  |      |        |      |  |   | 2,803   | 
|Fabrica Mexicana de Papel, S. A. de C. V          |  |      |        |      |  |   | 8,210   | 
|Others                                            |  |      | 7,034   |      |  |   | 476     | 
|                                                  |  |      |         |      |  |   |         | 
|                                                  |  | $    | 77,854  |      |  | $ | 83,780  | 
|                                                  |  |      |         |      |  |   |         | 
|Payable:                                          |  |      |         |      |  |   |         | 
|Corporación Durango, S. A. de C. V                |  | $    | 164,800 |      |  | $ | 182,811 | 
|Industrias Centauro, S. A. de C. V                |  |      | 165,805 |      |  |   | 25,654  | 
|Durango Mc Kinley Paper, Co.                      |  |      |        |      |  |   | 6,382   | 
|Porteadores de Durango, S. A. de C. V             |  |      |        |      |  |   | 405     | 
|Others                                            |  |      | 1,813   |      |  |   |        | 
|                                                  |  |      |         |      |  |   |         | 
|                                                  |  | $    | 332,418 |      |  | $ | 215,252 | 
|                                                  |  |      |         |      |  |   |         | 



|b. |  | Figures include the following transactions with related parties:
|-- |  | ----------------------------------------------------------------

|                             |  |      |         |      |  |      |         |  |  |   |         | 
|---------------------------- |  | ---- | ------- | ---- |  | ---- | ------- |  |  | - | ------- | 
|                             |  | 2000 |         | 2001 |  | 2002
|                             |  |      |         |      |  |     
|Revenues:                    |  |      |         |      |  |      |         |  |  |   |         | 
|Sales                        |  | $    | 533,668 |      |  | $    | 219,117 |  |  | $ | 429,892 | 
|Rents                        |  |      | 12,888  |      |  |      | 13,372  |  |  |   | 12,869  | 
|Interest                     |  |      | 1,253   |      |  |      | 1,303   |  |  |   | 1,265   | 
|Others                       |  |      |        |      |  |      |        |  |  |   | 23,546  | 
|                             |  |      |         |      |  |      |         |  |  |   |         | 
|                             |  | $    | 547,809 |      |  | $    | 233,792 |  |  | $ | 467,572 | 
|                             |  |      |         |      |  |      |         |  |  |   |         | 
|Expenses:                    |  |      |         |      |  |      |         |  |  |   |         | 
|Interest                     |  | $    | 56,020  |      |  | $    | 40,739  |  |  | $ | 61,999  | 
|Rent                         |  |      |        |      |  |      | 1,979   |  |  |   | 4,277   | 
|Purchases                    |  |      | 89,138  |      |  |      | 20,954  |  |  |   | 139,808 | 
|Administrative services paid |  |      | 13,912  |      |  |      | 16,121  |  |  |   | 7,833   | 
|Others                       |  |      | 7,549   |      |  |      | 6,659   |  |  |   | 2,055   | 
|                             |  |      |         |      |  |      |         |  |  |   |         | 
|                             |  | $    | 166,619 |      |  | $    | 86,452  |  |  | $ | 215,972 | 
|                             |  |      |         |      |  |      |         |  |  |   |         | 

NOTE 15  NEW ACCOUNTING STANDARDS:

In November 2001, the MIPA issued revised Bulletin C-9, Liabilities,
Provisions, Contingent Assets and Liabilities and Commitments (Bulletin
C-9), which supersedes existing Bulletin C-9,

(22)

F-110



---



##### 



COMPAÑIA PAPELERA DE ATENQUIQUE, S. A. DE C. V. AND SUBSIDIARY
(subsidiary of Corporación Durango, S. A. de C. V.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 2001 AND 2002  (Continued)

(Thousands of constant Mexican Pesos restated as of December 31, 2002)

Liabilities and Bulletin C-12, Contingencies and Commitments. Bulletin C-9
establishes a methodology for valuation, presentation and disclosure of
liabilities and provisions, as well as for valuation and disclosure of
contingent assets and liabilities, and for disclosure of commitments.

Among other things, Bulletin C-9 establishes guidelines for the recognition of
liabilities and non-recognition of liabilities in the event of extinguishments,
restructurings or conversion to equity. In addition, in the case of
provisions, it introduces the concept of discounting long-term provisions. With
respect to contingent liabilities, Bulletin C-9 states that all contingent
liabilities that have a probable realization must be accounted for and
disclosed in the financial statements, contingent liabilities that have a
possible realization cannot be accounted for in the financial statements, but
must be disclosed, and contingent liabilities that have a remote realization
cannot be accounted for in the financial statements and are not required to be
disclosed. Bulletin C-9 requires disclosure of committed amounts when they
represent significant fixed asset additions, contracted services and goods that
exceed the Companys immediate needs or if the commitment
is considered a contracted obligation. The provisions of Bulletin C-9 are
required to be applied beginning on January 1, 2003, although early adoption is
recommended. Management is currently evaluating the impact that the adoption
of Bulletin C-9 will have on its consolidated financial statements.

In addition, in December 2001, the MIPA issued Bulletin C-8, Intangible
Assets (Bulletin C-8), which defines intangible assets as costs incurred
and rights or privileges acquired that will generate a future economic benefit,
Bulletin C-8 provides a clear definition of research and development costs,
requiring that only development costs may be deferred to a future period.
Furthermore, Bulletin C-8 states that preoperating costs should be expensed as
a period cost, unless they could be classified as development costs. Bulletin
C-8 requires that intangible assets with indefinite useful lives should not be
amortized, but should be evaluated for impairment annually. Goodwill and
intangible assets with finite useful lives should be amortized over their
useful lives. The provisions of Bulletin C-8 are required to be applied
beginning on January 1, 2003, although early adoption is recommended.
Management is currently evaluating the impact that the adoption of Bulletin C-8
will have on its consolidated financial statements.

NOTE 16  RECONCILIATION BETWEEN MEXICAN AND U.S. GAAP:

The Companys consolidated financial statements are prepared in accordance with
Mexican GAAP, which differs in certain significant respects from U.S. GAAP.
The Mexican GAAP Consolidated financial statements include the effects of
inflation as provided for under Bulletin B-10. The application of Bulletin B-10
represents a comprehensive measure of the effects of price level changes in the
Mexican economy, and is considered to result in a more meaningful presentation
than historical cost-based financial reporting for both Mexican and U.S.
accounting purposes. Therefore, the following reconciliation to U.S. GAAP does
not include the reversal of such inflationary effects.

(23)

F-111



---



##### 



COMPAÑIA PAPELERA DE ATENQUIQUE, S. A. DE C. V. AND SUBSIDIARY
(subsidiary of Corporación Durango, S. A. de C. V.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 2001 AND 2002  (Continued)

(Thousands of constant Mexican Pesos restated as of December 31, 2002)

The principal differences between Mexican GAAP and U.S. GAAP, other than
inflation accounting, are presented in the following pages with an explanation,
where appropriate, of the effects on consolidated net income and shareholders
equity. Reconciling items are presented net of any gain or loss from monetary
position.

Reconciliation of consolidated net loss:

|                                               |  |     |   |  |         |                          |           |      |         |      |          |   |         |   |          |  
|---------------------------------------------- |  | --- | - |  | ------- | ------------------------ | --------- | ---- | ------- | ---- | -------- | - | ------- | - | -------- | -
|                                               |  |     |   |  |         | Years ended December 31,
|                                               |  |     |   |  |         |                         
|                                               |  |     |   |  |         | 2000                     |           | 2001 |         | 2002
|                                               |  |     |   |  |         |                          |           |      |         |     
|Net loss under Mexican GAAP                    |  |     |   |  |         |                          | ($174,930 | )    |         |      | ($45,789 | ) |         |   | ($10,407 | )
|Deferred income taxes                          |  |     | i |  |         |                          | (36,915   | )    |         |      | (9,290   | ) |         |   | (11,546  | )
|Deferred employee profit sharing               |  |     | i |  |         |                          | (12,624   | )    |         |      | 22,965   |   |         |   | (5,374   | )
|Effect of fifth amendment to Bulletin B-10     |  | ii  |   |  | (18,130 | )                        |           |      | (10,118 | )    |          |   | (16,128 | )
|Deferred start-up and research and
development |  | iii |   |  |        |                          |           |      |        |      |          |   | (14,267 | )
|Equity income of affiliated company            |  | iv  |   |  | (13,097 | )                        |           |      | 20,878  |      |          |   | 84,666  |  
|                                               |  |     |   |  |         |                          |           |      |         |      |          |   |         |   |          |  
|U.S. GAAP net income (loss)                    |  |     |   |  |         |                          | ($255,696 | )    |         |      | ($21,354 | ) |         | $ | 26,944   |  
|                                               |  |     |   |  |         |                          |           |      |         |      |          |   |         |   |          |  

Reconciliation of consolidated stockholders equity:

|                                                                                 |  |     |   |  |          |                          |           |      |         |      |           |   |         |   |           |  
|-------------------------------------------------------------------------------- |  | --- | - |  | -------- | ------------------------ | --------- | ---- | ------- | ---- | --------- | - | ------- | - | --------- | -
|                                                                                 |  |     |   |  |          | Years ended December 31,
|                                                                                 |  |     |   |  |          |                         
|                                                                                 |  |     |   |  |          | 2000                     |           | 2001 |         | 2002
|                                                                                 |  |     |   |  |          |                          |           |      |         |     
|Total shereholders equity corresponding to
majority interest under Mexican GAAP |  |     |   |  |          | $                        | 1,324,866 |      |         | $    | 1,113,155 |   |         | $ | 766,947   |  
|Deferred income taxes                                                            |  |     | i |  |          |                          | (256,243  | )    |         |      | (264,518  | ) |         |   | (264,146  | )
|Deferred employee profit sharing                                                 |  |     | i |  |          |                          | (192,735  | )    |         |      | (169,770  | ) |         |   | (175,144  | )
|Effect of fifth amendment of Bulletin B-10:                                      |  | ii  |   |  |          |                          |           |      |         |      |           |   |         |  
| Fixed assets                                                                   |  |     |   |  |          |                          | 1,289,070 |      |         |      | 1,405,148 |   |         |   | 1,292,032 |  
| Fixed assets accumulated depreciation                                          |  |     |   |  |          |                          | (572,487  | )    |         |      | (640,221  | ) |         |   | (561,345  | )
|Deferred start-up and research and
Development cost                              |  | iii |   |  |         |                          |           |      |        |      |           |   | (14,267 | )
|Investment in affiliate company                                                  |  | iv  |   |  | (155,652 | )                        |           |      | (84,666 | )    |           |   |        |  
|                                                                                 |  |     |   |  |          |                          |           |      |         |      |           |   |         |   |           |  
|Total U.S. GAAP shareholders equity                                             |  |     |   |  |          | $                        | 1,436,819 |      |         | $    | 1,359,128 |   |         | $ | 1,044,077 |  
|                                                                                 |  |     |   |  |          |                          |           |      |         |      |           |   |         |   |           |  

(24)

F-112



---



##### 



COMPAÑIA PAPELERA DE ATENQUIQUE, S. A. DE C. V. AND SUBSIDIARY
(subsidiary of Corporación Durango, S. A. de C. V.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 2001 AND 2002  (Continued)

(Thousands of constant Mexican Pesos restated as of December 31, 2002)

Provided below is an analysis of the changes in shareholders equity under U.S.
GAAP:

|                                           |  |                        |           |      |  |   |           |  
|------------------------------------------ |  | ---------------------- | --------- | ---- |  | - | --------- | -
|                                           |  | Year ended December 31
|                                           |  |                       
|                                           |  | 2001                   |           | 2002
|                                           |  |                        |           |     
|Balance at beginning of the year           |  | $                      | 1,436,819 |      |  | $ | 1,359,128 |  
|Paid in capital                            |  |                        | (1,216    | )    |  |   |          |  
|Net income (loss) under U.S. GAAP          |  |                        | (21,354   | )    |  |   | 26,944    |  
|Deficit from restatement                   |  |                        | (113,583  | )    |  |   | (323,883  | )
|Effect of Fifth Amendment of Bulletin B-10 |  |                        | 58,462    |      |  |   | (18,112   | )
|                                           |  |                        |           |      |  |   |           |  
|Balance at end of the year                 |  | $                      | 1,359,128 |      |  | $ | 1,044,077 |  
|                                           |  |                        |           |      |  |   |           |  
|Comprehensive loss                         |  |                        |           |      |  |   |           |  

Comprehensive loss under Mexican GAAP is as follows:

|                               |  |                         |           |      |  |      |           |   |  |  |             |  
|------------------------------ |  | ----------------------- | --------- | ---- |  | ---- | --------- | - |  |  | ----------- | -
|                               |  | Years ended December 31
|                               |  |                        
|                               |  | 2000                    |           | 2001 |  | 2002
|                               |  |                         |           |      |  |     
|Mexican GAAP net loss          |  |                         | ($174,930 | )    |  |      | ($45,789  | ) |  |  | ($10,407    | )
|                               |  |                         |           |      |  |      |           |   |  |  |             |  
|Other comprehensive loss       |  |                         | (415,791  | )    |  |      | (164,706  | ) |  |  | (335,801    | )
|Paid in capital                |  |                         | 664       |      |  |      | 2,514     |   |  |  |            |  
|                               |  |                         |           |      |  |      |           |   |  |  |             |  
|                               |  |                         | (415,127  | )    |  |      | (162,192  | ) |  |  | (335,801    | )
|                               |  |                         |           |      |  |      |           |   |  |  |             |  
|Comprehensive loss             |  |                         | ($590,057 | )    |  |      | ($207,981 | ) |  |  | ($346,208   | )
|                               |  |                         |           |      |  |      |           |   |  |  |             |  
|Accumulated comprehensive loss |  |                         | ($722,221 | )    |  |      | ($884,413 | ) |  |  | ($1,220,211 | )
|                               |  |                         |           |      |  |      |           |   |  |  |             |  

(25)

F-113



---



##### 



COMPAÑIA PAPELERA DE ATENQUIQUE, S. A. DE C. V. AND SUBSIDIARY
(subsidiary of Corporación Durango, S. A. de C. V.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 2001 AND 2002  (Continued)

(Thousands of constant Mexican Pesos restated as of December 31, 2002)

The components of other accumulated comprehensive loss is as follows as of
December 31, 2000, 2001 and 2002:

|                              |  |              |           |              |  |               |           |       |  |  |             |  
|----------------------------- |  | ------------ | --------- | ------------ |  | ------------- | --------- | ----- |  |  | ----------- | -
|                              |  |              |           |              |  | (Loss)        |           | Other
|                              |  | Effect of    |           | from holding |  | accumulated  
|                              |  | adoption of  |           | non monetary |  | comprehensive
|                              |  | Bulletin D-4 |           | assets (1)   |  | loss         
|                              |  |              |           |              |  |              
|Balance at January 1, 2000    |  | $            |          |              |  |               | ($307,091 | )     |  |  | ($307,091   | )
|Paid in capital               |  |              |          |              |  |               | 664       |       |  |  | 664         |  
|Current period changes        |  |              | (374,729  | )            |  |               | (41,062   | )     |  |  | (415,791    | )
|                              |  |              |           |              |  |               |           |       |  |  |             |  
|Balances at December 31, 2000 |  |              | (374,729  | )            |  |               | (347,489  | )     |  |  | (722,218    | )
|Paid in capital               |  |              | 589       |              |  |               | 1,925     |       |  |  | 2,514       |  
|Current period changes        |  |              |          |              |  |               | (164,706  | )     |  |  | (164,706    | )
|                              |  |              |           |              |  |               |           |       |  |  |             |  
|Balances at December 31, 2001 |  |              | (374,140  | )            |  |               | (510,270  | )     |  |  | (884,410    | )
|Current period changes        |  |              |          |              |  |               | (335,801  | )     |  |  | (335,801    | )
|                              |  |              |           |              |  |               |           |       |  |  |             |  
|Balances at December 31,2002  |  |              | ($374,140 | )            |  |               | ($846,071 | )     |  |  | ($1,220,211 | )
|                              |  |              |           |              |  |               |           |       |  |  |             |  



|(1) |  | For 2000, 2001 and 2002 the loss from holding non-monetary assets
includes deferred tax effect of Bulletin D-4 of $11,384, $1,014 and
$11,920, respectively, as a result of the adoption.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

i.     Deferred income tax and employee profit sharing

Statement of Financial Accounting Standards No. 109 Accounting For Income
Taxes (SFAS No.109) requires an asset and liability approach for financial
accounting and reporting for income tax under the following basic principles:
(a) a current tax liability or asset is recognized for the estimated taxes
payable or refundable on tax returns for the current year, (b) a deferred tax
liability or asset is recognized for the estimated future tax effects
attributable to temporary differences and tax loss and tax credit
carryforwards, (c) the measurement of current and deferred tax assets and
liabilities is based on provisions of the enacted tax law; the effects of
future changes in tax laws or rates are not anticipated, and (d) the
measurement of deferred tax assets is reduced, if necessary, by the amount of
any tax benefits for which available evidence indicates that it is more likely
than not that the tax benefit will not be realized. Under this method,
deferred tax and employee profit sharing are recognized with respect to all
temporary differences, and the benefit from utilizing tax loss carryforwards
and asset tax credits is recognized in the year in which the losses or credits
arise (subject to a valuation allowance with respect to any tax benefits which
in managements opinion, are more likely than not that they are not expected to
be realized). The subsequent realization of this benefit does not affect the
income tax provision.

(26)

F-114



---



##### 



COMPAÑIA PAPELERA DE ATENQUIQUE, S. A. DE C. V. AND SUBSIDIARY
(subsidiary of Corporación Durango, S. A. de C. V.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 2001 AND 2002  (Continued)

(Thousands of constant Mexican Pesos restated as of December 31, 2002)

Temporary differences under FAS No. 109 are determined based on the difference
between the indexed tax-basis amount of the asset or liability and the related
restated amount reported in the financial statements. The deferred income tax
expense or benefit is calculated as the difference between (a) the deferred tax
assets and liabilities at the end of the current period, and (b) the
deferred tax assets and liabilities reported at the end of the prior period
remeasured to units of current general purchasing power at the end of the
current period, whereas, under Mexican GAAP Bulletin D-4, the change in the
deferred tax asset or liability is first measured on a historical cost basis
and the components of the change including monetary gains or losses are
allocated between tax provision, deficit from restatement monetary gain or
loss.

The significant components of income and asset tax expense under U.S. GAAP were
as follows:

|                                        |  |                         |        |      |  |      |          |   |  |   |          |  
|--------------------------------------- |  | ----------------------- | ------ | ---- |  | ---- | -------- | - |  | - | -------- | -
|                                        |  | Year ended December 31,
|                                        |  |                        
|Income and asset tax expense (benefit): |  | 2000                    |        | 2001 |  | 2002
|                                        |  |                         |        |      |  |     
|Current                                 |  | $                       |       |      |  | $    | 721      |   |  | $ | 26       |  
|                                        |  |                         |        |      |  |      |          |   |  |   |          |  
|Deferred                                |  |                         | 48,314 |      |  |      | (80,320  | ) |  |   | (36,210  | )
|                                        |  |                         |        |      |  |      |          |   |  |   |          |  
|Income and asset tax provision          |  | $                       | 48,314 |      |  |      | ($79,599 | ) |  |   | ($36,184 | )
|                                        |  |                         |        |      |  |      |          |   |  |   |          |  

The income tax and profit sharing effects of significant items comprising the
Companys net deferred income tax and profit sharing assets and liabilities
under U.S. GAAP are as follows:

|                                          |  |              |         |      |  |   |         |  
|----------------------------------------- |  | ------------ | ------- | ---- |  | - | ------- | -
|                                          |  | December 31,
|                                          |  |             
|                                          |  | 2001         |         | 2002
|                                          |  |              |         |     
|Deferred income tax liabilities (assets): |  |              |         |      |  |   |         |  
|Inventories                               |  | $            | 17,432  |      |  | $ | 14,577  |  
|Inventory Rule 106                        |  |              | (8,613  | )    |  |   | (7,416  | )
|Property, plant and equipment             |  |              | 620,747 |      |  |   | 559,273 |  
|Other assets                              |  |              | 6,424   |      |  |   | 8,044   |  
|Allowance for doubtful accountant         |  |              | (346    | )    |  |   |        |  
|Provisions                                |  |              | (60,320 | )    |  |   | (37,253 | )
|Asset tax credits                         |  |              | (479    | )    |  |   |        |  
|Tax loss carryforwards                    |  |              | (1,411  | )    |  |   |        |  
|                                          |  |              |         |      |  |   |         |  
|Total net deferred income tax liabilities |  | $            | 573,434 |      |  | $ | 537,225 |  
|                                          |  |              |         |      |  |   |         |  

(27)

F-115



---



##### 



COMPAÑIA PAPELERA DE ATENQUIQUE, S. A. DE C. V. AND SUBSIDIARY
(subsidiary of Corporación Durango, S. A. de C. V.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 2001 AND 2002  (Continued)

(Thousands of constant Mexican Pesos restated as of December 31, 2002)

|                                                         |  |              |         |      |  |   |         |  
|-------------------------------------------------------- |  | ------------ | ------- | ---- |  | - | ------- | -
|                                                         |  | December 31,
|                                                         |  |             
|Deferred employee's profit sharing liabilities (assets): |  | 2001         |         | 2002
|                                                         |  |              |         |     
|Inventory                                                |  | $            | 4,981   |      |  | $ | 4,487   |  
|Inventory Rule 106                                       |  |              | (2,461  | )    |  |   | (2,317  | )
|Property, plant and equipment                            |  |              | 186,032 |      |  |   | 181,271 |  
|Other assets                                             |  |              | 1,836   |      |  |   | 2,437   |  
|Allowance for doubtful account                           |  |              | (98     | )    |  |   |        |  
|Provisions                                               |  |              | (20,390 | )    |  |   | (14,706 | )
|Exchange rate fluctuations                               |  |              | (130    | )    |  |   | 3,971   |  
|                                                         |  |              |         |      |  |   |         |  
|Total net deferred employee profit sharing liability     |  | $            | 169,770 |      |  | $ | 175,143 |  
|                                                         |  |              |         |      |  |   |         |  

The deferred income tax and profit sharing classification in the condensed
balance sheet as of December 31, 2001 and 2002 is as follow:

|                                      |  |            |          |                |  |                   |          |   |  |   |          |  
|------------------------------------- |  | ---------- | -------- | -------------- |  | ----------------- | -------- | - |  | - | -------- | -
|                                      |  |            |          |                |  | December 31, 2001 |          |   |  |  
|                                      | 
|                                      |  | Deferred   |          | Deferred       |  |                   |          |  
|                                      |  | income tax |          | profit sharing |  | Total            
|                                      |  |            |          |                |  |                  
|Deferred income tax (assets)
Current  |  |            | ($68,933 | )              |  |                   | ($22,949 | ) |  |   | ($91,882 | )
|Long term                             |  |            | (1,890   | )              |  |                   |         |   |  |   | (1,890   | )
|                                      |  |            |          |                |  |                   |          |   |  |   |          |  
|                                      |  |            | (70,823  | )              |  |                   | (22,949  | ) |  |   | (93,772  | )
|Deferred income tax liability
Current |  |            | 17,087   |                |  |                   | 4,981    |   |  |   | 22,068   |  
|Long term                             |  |            | 627,171  |                |  |                   | 187,738  |   |  |   | 814,909  |  
|                                      |  |            |          |                |  |                   |          |   |  |   |          |  
|                                      |  |            | 644,258  |                |  |                   | 192,719  |   |  |   | 836,977  |  
|                                      |  |            |          |                |  |                   |          |   |  |   |          |  
|Deferred income tax, Net              |  | $          | 573,435  |                |  | $                 | 169,770  |   |  | $ | 743,205  |  
|                                      |  |            |          |                |  |                   |          |   |  |   |          |  

(28)

F-116



---



##### 



COMPAÑIA PAPELERA DE ATENQUIQUE, S. A. DE C. V. AND SUBSIDIARY
(subsidiary of Corporación Durango, S. A. de C. V.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 2001 AND 2002  (Continued)

(Thousands of constant Mexican Pesos restated as of December 31, 2002)

|                              |  |            |          |                |  |                   |          |   |  |   |          |  
|----------------------------- |  | ---------- | -------- | -------------- |  | ----------------- | -------- | - |  | - | -------- | -
|                              |  |            |          |                |  | December 31, 2002 |          |   |  |  
|                              |  |           
|                              |  | Deferred   |          | Deferred       |  |                   |          |  
|                              |  | income tax |          | profit sharing |  | Total            
|                              |  |            |          |                |  |                  
|Deferred income tax (assets)  |  |            |          |                |  |                   |          |   |  |   |          |  
|Current                       |  |            | ($37,253 | )              |  |                   | ($14,706 | ) |  |   | ($51,959 | )
|Long term                     |  |            |         |                |  |                   |         |   |  |   |         |  
|                              |  |            |          |                |  |                   |          |   |  |   |          |  
|                              |  |            | (37,253  | )              |  |                   | (14,706  | ) |  |   | (51,959  | )
|Deferred income tax liability |  |            |          |                |  |                   |          |   |  |   |          |  
|Current                       |  |            | 7,161    |                |  |                   | 2,170    |   |  |   | 9,331    |  
|Long term                     |  |            | 567,317  |                |  |                   | 187,679  |   |  |   | 754,996  |  
|                              |  |            |          |                |  |                   |          |   |  |   |          |  
|                              |  |            | 574,478  |                |  |                   | 189,849  |   |  |   | 764,327  |  
|                              |  |            |          |                |  |                   |          |   |  |   |          |  
|Deferred income tax, net      |  | $          | 537,225  |                |  | $                 | 175,143  |   |  | $ | 712,368  |  
|                              |  |            |          |                |  |                   |          |   |  |   |          |  

Under U.S. GAAP, employee profit sharing is recorded as an operating expense.

For the year ended December 31, 2001 and 2002, the difference in net deferred
tax liabilities between Mexican and U.S. GAAP was as follows:

|                        |  |         |          |      |  |            |          |   |  |  |           |  
|----------------------- |  | ------- | -------- | ---- |  | ---------- | -------- | - |  |  | --------- | -
|                        |  | Mexican |          | U.S. |  |            |          |  
|                        |  | GAAP    |          | GAAP |  | Difference
|                        |  |         |          |      |  |           
|Deferred tax liability: |  |         |          |      |  |            |          |   |  |  |           |  
|At December 31, 2000    |  | $       | 397,512  |      |  | $          | 653,755  |   |  |  | ($256,243 | )
|At December 31, 2001    |  | $       | 308,916  |      |  | $          | 573,435  |   |  |  | ($264,519 | )
|                        |  |         |          |      |  |            |          |   |  |  |           |  
|Net change              |  |         | ($88,596 | )    |  |            | ($80,320 | ) |  |  | ($8,276   | )
|                        |  |         |          |      |  |            |          |   |  |  |           |  

|                        |  |         |          |      |  |            |          |   |  |   |           |  
|----------------------- |  | ------- | -------- | ---- |  | ---------- | -------- | - |  | - | --------- | -
|                        |  | Mexican |          | U.S. |  |            |          |  
|                        |  | GAAP    |          | GAAP |  | Difference
|                        |  |         |          |      |  |           
|Deferred tax liability: |  |         |          |      |  |            |          |   |  |   |           |  
|At December 31, 2001    |  | $       | 308,916  |      |  | $          | 573,435  |   |  | $ | ( 264,519 | )
|At December 31, 2002    |  |         | 273,080  |      |  |            | 537,225  |   |  |   | (264,145  | )
|                        |  |         |          |      |  |            |          |   |  |   |           |  
|Net change              |  |         | ($35,836 | )    |  |            | ($36,210 | ) |  |   | ($374     | )
|                        |  |         |          |      |  |            |          |   |  |   |           |  

(29)

F-117



---



##### 



COMPAÑIA PAPELERA DE ATENQUIQUE, S. A. DE C. V. AND SUBSIDIARY
(subsidiary of Corporación Durango, S. A. de C. V.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 2001 AND 2002  (Continued)

(Thousands of constant Mexican Pesos restated as of December 31, 2002)

The net change in the deferred tax liabilities during 2001 and 2002 was
allocated to the following components:

|                                       |  |         |          |      |  |            |          |   |  |  |         |  
|-------------------------------------- |  | ------- | -------- | ---- |  | ---------- | -------- | - |  |  | ------- | -
|                                       |  | Mexican |          | U.S. |  |            |          |  
|                                       |  | GAAP    |          | GAAP |  | Difference
|                                       |  |         |          |      |  |           
|Deferred tax liability in 2001:        |  |         |          |      |  |            |          |   |  |  |         |  
|Deferred tax expense                   |  |         | ($88,672 | )    |  |            | ($80,320 | ) |  |  | ($8,352 | )
|Monetary gain on initial balance       |  |         | (16,690  | )    |  |            |         |   |  |  | (16,690 | )
|Monetary loss on current period change |  |         | 15,752   |      |  |            |         |   |  |  | 15,752  |  
|                                       |  |         |          |      |  |            |          |   |  |  |         |  
|                                       |  |         | (89,610  | )    |  |            | (80,320  | ) |  |  | (9,290  | )
|Loss from holding non-monetary assets  |  |         | 1,014    |      |  |            |         |   |  |  | 1,014   |  
|                                       |  |         |          |      |  |            |          |   |  |  |         |  
|                                       |  |         | ($88,596 | )    |  |            | ($80,320 | ) |  |  | ($8,276 | )
|                                       |  |         |          |      |  |            |          |   |  |  |         |  

|                                       |  |         |          |      |  |            |          |   |  |  |          |  
|-------------------------------------- |  | ------- | -------- | ---- |  | ---------- | -------- | - |  |  | -------- | -
|                                       |  | Mexican |          | U.S. |  |            |          |  
|                                       |  | GAAP    |          | GAAP |  | Difference
|                                       |  |         |          |      |  |           
|Deferred tax liability in 2002:        |  |         |          |      |  |            |          |   |  |  |          |  
|Deferred tax expense                   |  |         | ($48,511 | )    |  |            | ($36,210 | ) |  |  | ($12,301 | )
|Monetary gain on initial balance       |  |         | (14,506  | )    |  |            |         |   |  |  | (14,506  | )
|Monetary loss on current period change |  |         | 15,261   |      |  |            |         |   |  |  | 15,261   |  
|                                       |  |         |          |      |  |            |          |   |  |  |          |  
|                                       |  |         | (47,756  | )    |  |            | (36,210  | ) |  |  | (11,546  | )
|Loss from holding non-monetary assets  |  |         | (11,920  | )    |  |            |         |   |  |  | (11,920  | )
|                                       |  |         |          |      |  |            |          |   |  |  |          |  
|                                       |  | $       | (35,836  | )    |  |            | ($36,210 | ) |  |  | ($374    | )
|                                       |  |         |          |      |  |            |          |   |  |  |          |  

ii.     Effect of fifth amendment to Bulletin B-10 (Modified)

As mentioned in Note 2, the Company elected, as a result of the adoption of the
Fifth Amendment to Bulletin B-10 (Modified), to restate its non-monetary assets
of foreign origin based on the change of the Mexican peso against the foreign
currencies and by applying inflation rates of the countries from which the
non-monetary assets originate.

This methodology is not consistent with Rule 3-20 of Regulation S-X regarding
the use of the same reporting currency for all periods. Under U.S. GAAP, these
assets, which are used in Mexico, are adjusted by the Mexican NCPI and
depreciation is calculated using the adjusted basis.
iii. Deferred star up and research and development costs.

(30)

F-118



---



##### 



COMPAÑIA PAPELERA DE ATENQUIQUE, S. A. DE C. V. AND SUBSIDIARY
(subsidiary of Corporación Durango, S. A. de C. V.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 2001 AND 2002  (Continued)

(Thousands of constant Mexican Pesos restated as of December 31, 2002)

In 2002, under Mexican GAAP the Company deferred certain costs in relation to
the reconstruction of a manufacturing plant (Ponderosa Industrial de México, S.
A. de C. V.) and the development of a new paper manufacturing process. Under
U.S. GAAP SFAS No. 2, Accounting for Research and Development Costs and SOP
98-5, Reporting on the Costs of Start-up Activities require that the Company
expense the start up and research and development costs as incurred. As such,
at December 31, 2002 the start up and reserve and development costs have been
included in the calculation of net income under U.S. GAAP.

The following tables present the Companys condensed balance sheets as of
December 31, 2001 and 2002 and statements of income for the three years ended
December 31, 2000, 2001 and 2002, reflecting U.S. GAAP adjustments. All amounts
have been indexed to December 31, 2002 constant pesos, using the Mexican NCPI
factor:

iv.     Equity in Earnings of Affiliates

The Companys net investment in Envases y Empaques de Mexico under U.S. GAAP
differs from that recorded under Mexican GAAP due to the method of accounting
of the fifth amendment of Bulletin B-10 and the deferred income taxes of its
interest in Centauro.

During the year Envases y Empaques de Mexico sold its interest in Centauro. The
U.S. GAAP carrying value of such interest was different to the carrying value
recorded under Mexican GAAP due to the difference mentioned in the preceding
paragraph. As a result the Company recognized a gain due to the reversal of the
U.S. GAAP adjustments.

|                                            |  |              |         |      |  |   |          |  
|------------------------------------------- |  | ------------ | ------- | ---- |  | - | -------- | -
|                                            |  | December 31,
|                                            |  |             
|                                            |  | 2001         |         | 2002
|                                            |  |              |         |     
|Investment in Envases y Empaques de Mexico: |  |              |         |      |  |   |          |  
|Mexican GAAP                                |  | $            | 535,319 |      |  | $ | 134,929  |  
|U.S. GAAP                                   |  |              | 450,653 |      |  |   | 219,595  |  
|                                            |  |              |         |      |  |   |          |  
|Adjustment                                  |  | $            | 84,666  |      |  |   | ($84,666 | )
|                                            |  |              |         |      |  |   |          |  

|                                     |  |                         |           |      |  |      |        |  |  |   |          |  
|------------------------------------ |  | ----------------------- | --------- | ---- |  | ---- | ------ |  |  | - | -------- | -
|                                     |  | Year ended December 31,
|                                     |  |                        
|                                     |  | 2000                    |           | 2001 |  | 2002
|                                     |  |                         |           |      |  |     
|Net income (loss) under Mexican GAAP |  |                         | ($120,563 | )    |  | $    | 36,754 |  |  |   | ($46,255 | )
|Net income under US GAAP             |  |                         | (133,660  | )    |  |      | 57,632 |  |  |   | 38,411   |  
|                                     |  |                         |           |      |  |      |        |  |  |   |          |  
|Adjustment                           |  |                         | ($13,097  | )    |  | $    | 20,878 |  |  | $ | 84,666   |  
|                                     |  |                         |           |      |  |      |        |  |  |   |          |  

(31)

F-119



---



##### 



COMPAÑIA PAPELERA DE ATENQUIQUE, S. A. DE C. V. AND SUBSIDIARY
(subsidiary of Corporación Durango, S. A. de C. V.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 2001 AND 2002  (Continued)

(Thousands of constant Mexican Pesos restated as of December 31, 2002)

|                                                                     |  |                 |           |      |  |   |           | 
|-------------------------------------------------------------------- |  | --------------- | --------- | ---- |  | - | --------- | 
|CONDENSED BALANCE SHEETS:                                            |  | At December 31,
|                                                                     |  |                
|ASSETS                                                               |  | 2001            |           | 2002
|                                                                     |  |                 |           |     
|Current assets:                                                      |  |                 |           |      |  |   |           | 
|Cash and cash equivalents                                            |  | $               | 481       |      |  | $ | 1         | 
|Accounts receivable, net                                             |  |                 | 9,289     |      |  |   | 43,006    | 
|Related Parties                                                      |  |                 | 77,854    |      |  |   | 83,780    | 
|Inventories, net                                                     |  |                 | 49,806    |      |  |   | 41,029    | 
|Deferred income tax and employee profit sharing                      |  |                 | 91,882    |      |  |   | 51,959    | 
|Other                                                                |  |                 | 709       |      |  |   | 1,224     | 
|                                                                     |  |                 |           |      |  |   |           | 
|Total current assets                                                 |  |                 | 230,021   |      |  |   | 220,999   | 
|Property, plant and equipment                                        |  |                 | 1,897,354 |      |  |   | 1,867,149 | 
|Investments in associates                                            |  |                 | 450,652   |      |  |   | 134,929   | 
|Deferred income tax and employee profit sharing                      |  |                 | 1,890     |      |  |   |          | 
|Other assets                                                         |  |                 | 18,355    |      |  |   | 10,108    | 
|                                                                     |  |                 |           |      |  |   |           | 
|Total assets                                                         |  | $               | 2,598,272 |      |  | $ | 2,233,185 | 
|                                                                     |  |                 |           |      |  |   |           | 
|LIABILITIES AND SHAREHOLDERS EQUITY:                                |  |                 |           |      |  |   |           | 
|Current liabilities:                                                 |  |                 |           |      |  |   |           | 
|Short-term debt, notes payable and current portion
of long-term debt |  | $               | 1,056     |      |  | $ | 1,137     | 
|Bank overdraft                                                       |  |                 | 2,362     |      |  |   |          | 
|Related Parties                                                      |  |                 | 332,418   |      |  |   | 215,252   | 
|Accrued liabilities and other payable                                |  |                 | 62,915    |      |  |   | 205,673   | 
|Deferred income tax and employee profit sharing                      |  |                 | 22,068    |      |  |   | 9,331     | 
|                                                                     |  |                 |           |      |  |   |           | 
|Total current liabilities                                            |  |                 | 420,819   |      |  |   | 431,393   | 
|                                                                     |  |                 |           |      |  |   |           | 
|Long-term debt                                                       |  |                 | 3,235     |      |  |   | 2,348     | 
|Seniority premiums                                                   |  |                 | 177       |      |  |   | 368       | 
|Deferred income tax and employee profit sharing                      |  |                 | 814,909   |      |  |   | 754,996   | 
|                                                                     |  |                 |           |      |  |   |           | 
|Total long-term liabilities                                          |  |                 | 818,321   |      |  |   | 757,712   | 
|                                                                     |  |                 |           |      |  |   |           | 
|Total liabilities                                                    |  |                 | 1,239,140 |      |  |   | 1,189,105 | 
|                                                                     |  |                 |           |      |  |   |           | 
|Minority interest                                                    |  |                 | 4         |      |  |   |          | 
|                                                                     |  |                 |           |      |  |   |           | 
|Shareholders equity                                                 |  |                 | 1,359,128 |      |  |   | 1,044,080 | 
|                                                                     |  |                 |           |      |  |   |           | 
|Total liabilities and shareholders equity                           |  | $               | 2,598,272 |      |  | $ | 2,233,185 | 
|                                                                     |  |                 |           |      |  |   |           | 

(32)

F-120



---



##### 



COMPAÑIA PAPELERA DE ATENQUIQUE, S. A. DE C. V. AND SUBSIDIARY
(subsidiary of Corporación Durango, S. A. de C. V.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 2001 AND 2002  (Continued)

(Thousands of constant Mexican Pesos restated as of December 31, 2002)

|                                                                                                                        |  |                          |           |      |  |      |          |   |  |   |         |  
|----------------------------------------------------------------------------------------------------------------------- |  | ------------------------ | --------- | ---- |  | ---- | -------- | - |  | - | ------- | -
|                                                                                                                        |  | Years ended December 31,
|                                                                                                                        |  |                         
|CONDENSED STATEMENTS OF INCOME:                                                                                         |  | 2000                     |           | 2001 |  | 2002
|                                                                                                                        |  |                          |           |      |  |     
|Net sales                                                                                                               |  | $                        | 631,530   |      |  | $    | 253,616  |   |  | $ | 527,827 |  
|Cost of sales                                                                                                           |  |                          | 568,022   |      |  |      | 221,580  |   |  |   | 432,130 |  
|                                                                                                                        |  |                          |           |      |  |      |          |   |  |   |         |  
|Gross profit                                                                                                            |  |                          | 63,508    |      |  |      | 32,036   |   |  |   | 95,697  |  
|Selling, general and administrative expenses                                                                            |  |                          | 78,137    |      |  |      | 166,983  |   |  |   | 61,928  |  
|                                                                                                                        |  |                          |           |      |  |      |          |   |  |   |         |  
|Operating income                                                                                                        |  |                          | (14,629   | )    |  |      | (134,947 | ) |  |   | 33,769  |  
|                                                                                                                        |  |                          |           |      |  |      |          |   |  |   |         |  
|Financing cost:                                                                                                         |  |                          |           |      |  |      |          |   |  |   |         |  
|Interest expense                                                                                                        |  |                          | 46,099    |      |  |      | 28,553   |   |  |   | 51,011  |  
|Foreign loss (gain)  net                                                                                               |  |                          | (516      | )    |  |      | (1,307   | ) |  |   | 40,582  |  
|Gain from monetary position                                                                                             |  |                          | (10,122   | )    |  |      | (8,639   | ) |  |   | (17,300 | )
|                                                                                                                        |  |                          |           |      |  |      |          |   |  |   |         |  
|                                                                                                                        |  |                          | 35,461    |      |  |      | 18,607   |   |  |   | 74,293  |  
|                                                                                                                        |  |                          |           |      |  |      |          |   |  |   |         |  
|Other (expense) income, net                                                                                             |  |                          | (23,632   | )    |  |      | (5,031   | ) |  |   | (7,127  | )
|Equity income of affiliated Company                                                                                     |  |                          | (133,660  | )    |  |      | 57,632   |   |  |   | 38,411  |  
|                                                                                                                        |  |                          |           |      |  |      |          |   |  |   |         |  
|                                                                                                                        |  |                          | (157,292  | )    |  |      | 52,601   |   |  |   | 31,284  |  
|                                                                                                                        |  |                          |           |      |  |      |          |   |  |   |         |  
|Income (loss) before provision for income and
asset taxes, minority interest, special items and
discontinued operations |  |                          | (207,382  | )    |  |      | (100,953 | ) |  |   | (9,240  | )
|                                                                                                                        |  |                          |           |      |  |      |          |   |  |   |         |  
|Provision for:                                                                                                          |  |                          |           |      |  |      |          |   |  |   |         |  
|Income and asset tax expense                                                                                            |  |                          | 48,314    |      |  |      | (79,599  | ) |  |   | (36,184 | )
|                                                                                                                        |  |                          |           |      |  |      |          |   |  |   |         |  
|Net income (loss)                                                                                                       |  |                          | ($255,696 | )    |  |      | ($21,354 | ) |  | $ | 26,944  |  
|                                                                                                                        |  |                          |           |      |  |      |          |   |  |   |         |  

(33)

F-121



---



##### 



COMPAÑIA PAPELERA DE ATENQUIQUE, S. A. DE C. V. AND SUBSIDIARY
(subsidiary of Corporación Durango, S. A. de C. V.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 2001 AND 2002  (Continued)

(Thousands of constant Mexican Pesos restated as of December 31, 2002)

SUPPLEMENTAL U.S.  GAAP DISCLOSURES

Cash flow information

Under U.S. GAAP, pursuant to SFAS 95, Statement of Cash Flows, a statement of
cash flow is a required component of a complete set of financial statements in
lieu of a statement of changes in financial position. SFAS 95 establishes
specific presentation requirements and additional disclosures, but does not
provide guidance with respect to inflation adjusted financial statements.
Based on requirements of the Securities and Exchange Commission (the SEC),
the effect of inflation restatements and foreign exchange gains and losses on
cash flow has been included in separate line after cash flows from financing
activities.

The U.S. GAAP statements of cash flow for the year ended December 31, 2000,
2001 and 2002 are as follows:

(34)

F-122



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##### 



COMPAÑIA PAPELERA DE ATENQUIQUE, S. A. DE C. V. AND SUBSIDIARY
(subsidiary of Corporación Durango, S. A. de C. V.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 2001 AND 2002  (Continued)

(Thousands of constant Mexican Pesos restated as of December 31, 2002)

|                                                                                      |                          |   |                           |         |      |   |          |        |   |   |         |         |  
|------------------------------------------------------------------------------------- | ------------------------ | - | ------------------------- | ------- | ---- | - | -------- | ------ | - | - | ------- | ------- | -
|                                                                                      |                          |   | Years ended December, 31,
|                                                                                      |                          |   |                          
|                                                                                      |                          |   | 2000                      |         | 2001 |   | 2002    
|                                                                                      |                          |   |                           |         |      |   |         
|Operating activities:                                                                 |                          |   |                           |         |      |   |          |        |   |   |         |        
|U.S. GAAP Net loss                                                                    |                          |   | ($255,696                 | )       |      |   | ($21,354 | )      |   | $ | 26,944  |        
|Adjustment to reconcile net income to net
cash flow provided by operating activities: |                          |   |                           |         |      |   |          |        |   |   |         |        
|Depreciation and amortization                                                         |                          |   | 69,152                    |         |      |   | 41,427   |        |   |   | 41,052  |        
|Deferred income taxes                                                                 |                          |   | 48,314                    |         |      |   | (80,321  | )      |   |   | (36,210 | )      
|Deferred employee profit sharing                                                      |                          |   | 12,624                    |         |      |   | (22,965  | )      |   |   | 5,374   |        
|Allowance for doubtful accounts                                                       |                          |   | 1                         |         |      |   |         |        |   |   | 44      |        
|Inventory obsolescence allowance                                                      |                          |   | 56                        |         |      |   | 1,310    |        |   |   |        |        
|Gain on monetary position                                                             |                          |   | (10,122                   | )       |      |   | (8,639   | )      |   |   | (17,300 | )      
|Gain on sale of fixed assets                                                          |                          |   | 294                       |         |      |   | 1,141    |        |   |   | (47     | )      
|Equity income of affiliated Company                                                   |                          |   | 133,659                   |         |      |   | (57,632  | )      |   |   | (38,411 | )      
|Unrealized foreign exchange loss, net                                                 |                          |   | 3,576                     |         |      |   | 2,637    |        |   |   | 9,030   |        
|                                                                                      |                          |   |                           |         |      |   |          |        |   |   |         |        
|                                                                                      |                          |   | 1,858                     |         |      |   | (144,396 | )      |   |   | (9,524  | )      
|Changes in operating assets and liabilities:                                          |                          |   |                           |         |      |   |          |        |   |   |         |        
|                                                                                      | Accounts receivable, net |   |                           | (45,564 | )    |   |          | 41,540 |   |   |         | (42,468 | )
|                                                                                      | Inventories, net         |   |                           | 3,270   |      |   |          | 34,031 |   |   |         | 8,638   |  
|                                                                                      | Prepaid expenses         |   |                           |        |      |   |          | (4,305 | ) |   |         | (13,833 | )
|                                                                                      | Other liabilities        |   |                           | 55,002  |      |   |          | 74,664 |   |   |         | 66,298  |  
|                                                                                      |                          |   |                           |         |      |   |          |        |   |   |         |        
|Cash flow provided by (used in) operating activities:                                 |                          |   | 14,566                    |         |      |   | 1,534    |        |   |   | (9,111  | )      
|                                                                                      |                          |   |                           |         |      |   |          |        |   |   |         |        
|Financing activities:                                                                 |                          |   |                           |         |      |   |          |        |   |   |         |        
|Payments of long-term debt                                                            |                          |   | (549                      | )       |      |   | (764     | )      |   |   | (1,170  | )      
|Minority interest                                                                     |                          |   | (3                        | )       |      |   |         |        |   |   | (1      | )      
|Paid in capital                                                                       |                          |   | (1,647                    | )       |      |   | (1,216   | )      |   |   |        |        
|                                                                                      |                          |   |                           |         |      |   |          |        |   |   |         |        
|Cash flow used in financing activities                                                |                          |   | (2,199                    | )       |      |   | (1,980   | )      |   |   | (1,171  | )      
|                                                                                      |                          |   |                           |         |      |   |          |        |   |   |         |        
|Investing activities:                                                                 |                          |   |                           |         |      |   |          |        |   |   |         |        
|Acquisitions of fixed assets                                                          |                          |   | (56,124                   | )       |      |   | (11,810  | )      |   |   | (5,652  | )      
|Proceeds from sale of non-strategic assets                                            |                          |   | 722                       |         |      |   | 36,069   |        |   |   | 72      |        
|Other assets                                                                          |                          |   |                          |         |      |   |         |        |   |   | 14,267  |        
|                                                                                      |                          |   |                           |         |      |   |          |        |   |   |         |        
|Cash flow used in investing activities                                                |                          |   | (55,402                   | )       |      |   | 24,259   |        |   |   | 8,687   |        
|                                                                                      |                          |   |                           |         |      |   |          |        |   |   |         |        
|Effect of inflation and exchange rate changes on
cash and cash equivalents            |                          |   | 43,393                    |         |      |   | (23,756  | )      |   |   | 17,107  |        
|Net increase (decrease) in cash and cash equivalents                                  |                          |   | 358                       |         |      |   | 57       |        |   |   | (480    | )      
|Cash and cash equivalents at beginning of year                                        |                          |   | 64                        |         |      |   | 424      |        |   |   | 481     |        
|                                                                                      |                          |   |                           |         |      |   |          |        |   |   |         |        
|Cash and cash equivalents at end of year                                              |                          | $ | 422                       |         |      | $ | 481      |        |   | $ | 1       |        
|                                                                                      |                          |   |                           |         |      |   |          |        |   |   |         |        

(35)

F-123



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##### 



COMPAÑIA PAPELERA DE ATENQUIQUE, S. A. DE C. V. AND SUBSIDIARY
(subsidiary of Corporación Durango, S. A. de C. V.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 2001 AND 2002  (Continued)

(Thousands of constant Mexican Pesos restated as of December 31, 2002)




|                                      |  |                           |     |      |  |      |     |  |  |   |     | 
|------------------------------------- |  | ------------------------- | --- | ---- |  | ---- | --- |  |  | - | --- | 
|                                      |  | Years ended December, 31,
|                                      |  |                          
|Supplemental cash flow disclosures:   |  |                           |     |      |  |      |     |  |  |   |     | 
|                                      |  | 2000                      |     | 2001 |  | 2002
|                                      |  |                           |     |      |  |     
|Cash paid during the year for:        |  |                           |     |      |  |      |     |  |  |   |     | 
|Interest, net of capitalized interest |  | $                         | 411 |      |  | $    | 355 |  |  | $ | 172 | 
|Income and asset tax                  |  |                           | 318 |      |  |      | 589 |  |  |   | 878 | 
|                                      |  |                           |     |      |  |      |     |  |  |   |     | 




Supplemental balance sheet information:



| |  | Inventories
|- |  | -----------

Included in inventories are $5,447 and $4,757 of advances to suppliers that
were reclassified for US GAAP purposes to other accounts receivable.



| |  | Accrued liabilities and other current payables:
|- |  | -----------------------------------------------

Included within accrued liabilities and other current payables as of December
31, 2001 and 2002 are customers advances ($74 and $86, respectively) and
accrued freight costs ($472 and $832, respectively).

The following table presents the rollforward of the allowance for doubtful
accounts for the years ended December 31, 2000, 2001 and 2002:

|                                       |  |                          |        |      |  |      |        |   |  |   |      |  
|-------------------------------------- |  | ------------------------ | ------ | ---- |  | ---- | ------ | - |  | - | ---- | -
|                                       |  | Years ended December, 31
|                                       |  |                         
|                                       |  | 2000                     |        | 2001 |  | 2002
|                                       |  |                          |        |      |  |     
|Balance at the beginning of the period |  | (                        | $1,318 | )    |  | (    | $1,031 | ) |  | ( | $988 | )
|Effects of inflation                   |  |                          | 116    |      |  |      | 43     |   |  |   | 54   |  
|Increase in the allowance              |  |                          | (1     | )    |  |      |       |   |  |   |     |  
|Write-offs                             |  |                          | 172    |      |  |      |       |   |  |   |     |  
|                                       |  |                          |        |      |  |      |        |   |  |   |      |  
|Balance at the end of the period       |  | (                        | $1,031 | )    |  |      | ($988  | ) |  | ( | $934 | )
|                                       |  |                          |        |      |  |      |        |   |  |   |      |  

(36)

F-124



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##### 



COMPAÑIA PAPELERA DE ATENQUIQUE, S. A. DE C. V. AND SUBSIDIARY
(subsidiary of Corporación Durango, S. A. de C. V.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 2001 AND 2002  (Continued)

(Thousands of constant Mexican Pesos restated as of December 31, 2002)

The following table presents the rollforward of the inventory obsolescence
allowance for the years ended December 31, 2000, 2001 and 2002:

|                                       |  |                          |       |      |  |      |        |   |  |  |       |  
|-------------------------------------- |  | ------------------------ | ----- | ---- |  | ---- | ------ | - |  |  | ----- | -
|                                       |  | Years ended December, 31
|                                       |  |                         
|                                       |  | 2000                     |       | 2001 |  | 2002
|                                       |  |                          |       |      |  |     
|Balance at the beginning of the period |  |                          | ($113 | )    |  |      | ($117  | ) |  |  | ($110 | )
|Effects of inflation                   |  |                          | 8     |      |  |      | 5      |   |  |  | 50    |  
|Increase in the allowance              |  |                          | (56   | )    |  |      | (1,310 | ) |  |  | (44   | )
|Write-offs                             |  |                          | 44    |      |  |      | 1,312  |   |  |  |      |  
|                                       |  |                          |       |      |  |      |        |   |  |  |       |  
|Balance at the end of the period       |  |                          | ($117 | )    |  |      | ($110  | ) |  |  | ($104 | )
|                                       |  |                          |       |      |  |      |        |   |  |  |       |  

Risks and uncertainties



| |  | Environmental matters
|- |  | ---------------------

The Companys Mexican operations are subject to the Mexican General Law of
Ecological Stabilization and Environment Protection (Ley General del Equilibrio
Ecológico y la Protección al Ambiente) and the rules published there under (the
Ecological Law). In accordance with the Ecological Law, Companies engaged in
industrial activities are subject to the regulatory jurisdiction of the
Ministry of Natural Resources, Environment and Fishing (Secretaría del Medio
Ambiente, Recursos Naturales y Pesca), which has broad discretion in carrying
out its statutory mandate.

In 1998, the Company agreed with Mexican environmental regulatory authorities
to bring its paper plants into compliance with wastewater discharge
regulations. The Company has since instituted new procedures, and management
believes the Company is currently in compliance
with both the general standard established under the Ecological Law and with
specific standards promulgated by the regulatory authorities. However, there
can be no assurance that relevant authorities will continue finding the
Company environmental procedures adequate, or that more stringent
environmental laws will not be enacted in the future.

(37)

F-125



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##### 



COMPAÑIA PAPELERA DE ATENQUIQUE, S. A. DE C. V. AND SUBSIDIARY
(subsidiary of Corporación Durango, S. A. de C. V.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 2001 AND 2002  (Continued)

(Thousands of constant Mexican Pesos restated as of December 31, 2002)

New accounting pronouncements

U.S. GAAP  New Accounting pronouncements

In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations (SFAS 143). SFAS 143 requires the recognition of a liability for
the legal obligations associated with the retirement of a tangible long-lived
asset that results from the acquisition, construction and (or) normal operation
of the asset. The liability is recognized at fair value in the period in which
it is incurred if a reasonable estimate of fair value can be made. A
corresponding asset retirement cost is added to the carrying value of the
long-lived asset and is depreciated to expense using a systematic and rational
method over its useful life. SFAS 143 is effective for fiscal year beginning
after June 15, 2002. Upon initial adoption, a liability is recognized for
existing asset retirement obligations and the associated asset retirement cost
is capitalized as an increase to the carrying value of the asset. The
recognized liability and asset are adjusted for cumulative accretion and
accumulated depreciation, respectively, from the time period when the asset
retirement obligation would have originally been recognized had this statement
been in effect to the date of initial adoption. The cumulative effect of
initial adoption of SFAS 143 is recorded as a change in accounting principle.
Management is currently evaluating the impact that the adoption of SFAS 143
will have on the consolidated financial statements.

In June 2002, the FASB issued SFAS 146, Accounting for Costs Associated with
Exit or Disposal Activities (SFAS 146). The issuance of SFAS 146 nullifies
the former guidance provided by the Emerging Issues Task Force (EITF)
Issue 94-3,Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring (EITF 94-3). SFAS 146 requires the recognition of a liability
for costs associated with exit or disposal activity when the liability is
incurred, rather than on the date of commitment to an exit or disposal plan.
SFAS 146 is effective for liabilities, related to exit or disposal activities,
which are incurred after December 31, 2002, while earlier application is
encouraged. Management is currently evaluating the impact that the adoption of
SFAS 146 will have on the consolidated financial statement.

(38)

F-126



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##### 



COMPAÑIA PAPELERA DE ATENQUIQUE, S. A. DE C. V. AND SUBSIDIARY
(subsidiary of Corporación Durango, S. A. de C. V.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 2001 AND 2002  (Continued)

(Thousands of constant Mexican Pesos restated as of December 31, 2002)

In July 2002, the FASB issued SFAS No. 147, Acquisitions of Certain Financial
Institutions (SFAS 147). This Statement amends SFAS No. 72, Accounting for
Certain Acquisitions of Banking or Thrift Institutions, and FASB
Interpretation No. 9, Applying APB Opinions No. 16 and 17 When a Savings and
Loan Association or a Similar Institution Is Acquired in a Business Combination
Accounted for by the Purchase Method by removing acquisitions of financial
institutions from the scope of both Statement 72 and Interpretation 9. SFAS 147
requires that such transactions be accounted for in accordance with FASB
Statements No. 141, Business Combinations, and No. 142, Goodwill and Other
Intangible Assets. As such, acquisitions within the scope of this statement
are no longer required to recognize any excess of the fair value of liabilities
assumed over the fair value of intangible and identifiable intangible assets
acquired as an unidentifiable intangible asset.

This statement also amends FASB Statement No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, to include in its scope long-term
customer-relationship intangible assets of financial institutions. Accordingly,
such intangible assets are subject to the same recoverability test and
impairment loss recognition required for other long-lived assets that are held
and used. This statement is effective for transactions entered into on or after
October 1, 2002. Management is currently evaluating the impact that the
adoption of SFAS 147 will have on the consolidated financial statements.

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation-Transaction and Disclosure- an amendment of FAS 123 (SFAS 148).
SFAS 148 continues to permit entities to apply the intrinsic method of APB 25,
Accounting for Stock Issued to Employees, however, SFAS 148 is intended to
encourage companies to adopt the accounting provisions of SFAS 123, Accounting
for Stock-Based Compensation SFAS 148 provides three transition methods for
companies who chose to adopt the provisions of SFAS 123, the prospective
method, the modified prospective method and the retroactive restatement method.
In addition, SFAS 148 mandates certain new disclosures. SFAS 148 is effective
for fiscal years ending after December 15, 2002, with early adoption permitted.
Management is currently evaluating the impact that the adoption of SFAS 148
will have on the consolidated financial statement.

(39)

F-127



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##### 



COMPAÑIA PAPELERA DE ATENQUIQUE, S. A. DE C. V. AND SUBSIDIARY
(subsidiary of Corporación Durango, S. A. de C. V.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 2001 AND 2002  (Continued)

(Thousands of constant Mexican Pesos restated as of December 31, 2002)

In May 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. SFAS 149 amends and clarifies
financial accounting and
reporting for derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as derivatives) and for
hedging activities under FASB Statements No. 133, Accounting for Derivative
Instruments and Hedging Activities. The provisions of SFAS 149 that relate to
Statement 133 implementation issued that have been effective for fiscal
quarters that began prior to June 15, 2003, should continue to be applied in
accordance with their respective effective dates. In addition, paragraphs that
relate to forward purchases or sales of when-issued securities or other
securities that do not yet exist, should be applied to both existing contracts
and new contracts entered into after June 30, 2003. The Company is presently
evaluating the impact, if any, that these new standards will have on its
consolidated financial statements.

In November 2002, the FASB issued Interpretation No. 45 (FIN 45),
Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others (an interpretation of FASB
Statements No. 5, 57, and 107 and rescission of Interpretation No. 34). FIN 45
clarifies the requirements of SFAS No. 5, Accounting for Contingencies,
relating to a guarantors accounting for, and disclosure of, the issuance of
certain types of guarantees. FIN 45 requires that upon issuance of a guarantee,
the guarantor must recognize a liability for the fair value of the obligation
it assumes under that guarantee. FIN 45s provisions for initial recognition
and measurement should be applied on a prospective basis to guarantees issued
or modified after December 31, 2002, irrespective of the guarantors fiscal
year-end. The guarantors previous accounting for guarantees that were issued
before the date of FIN 45s initial application may not be revised or restated
to reflect the effect of the recognition and measurement provisions of the
Interpretation. The disclosure requirements are effective for financial
statements of both interim and annual periods that end after December 15, 2002.
Management is currently evaluating the impact that the adoption of FIN 45 will
have on the consolidated financial statements.

In January 2003, the FASB issued Interpretation No. 46 (FIN 46),
Consolidation of Variable Interest Entities, an interpretation of ARB 51. The
primary objectives of FIN 46 are to provide guidance on the identification of
entities for which control is achieved through means other than through voting
rights (variable interest entities or VIEs) and how to determine when and
which business enterprise should consolidate the VIE (the primary
beneficiary). This new model for consolidation applies to an entity which
either (1) the equity investors (if any) do not
have a controlling financial interest or (2) the equity investment at risk is
insufficient to finance that entitys activities without receiving additional
subordinated financial support from other parties. In addition, FIN 46 requires
that both the primary beneficiary and all other enterprises with a significant
variable interest in a VIE make additional disclosures. FIN 46 applies
immediately to variable interest entities created after January 31, 2003, and
to variable interest entities in which an enterprise obtains an interest after
that date. It applies in the first fiscal year or interim period beginning
after June 15, 2003, to variable interest entities in which an enterprise holds
a variable interest that it acquired before February 1, 2003. FIN 46 applies to
public enterprises as of the

(40)

F-128



---



##### 



COMPAÑIA PAPELERA DE ATENQUIQUE, S. A. DE C. V. AND SUBSIDIARY
(subsidiary of Corporación Durango, S. A. de C. V.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 2001 AND 2002  (Continued)

(Thousands of constant Mexican Pesos restated as of December 31, 2002)

beginning of the applicable interim or annual
period, and it applies to nonpublic enterprises as of the end of the applicable
annual period. Management is currently evaluating the impact that the adoption
of FIN 46 will have on the consolidated financial statements.

_ _ _ _ _ _ _ _ _ _

(41)

F-129



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##### 



INDUSTRIAS CENTAURO, S. A. DE C. V.
(subsidiary of Corporación Durango, S. A. de C. V.)

FINANCIAL STATEMENTS

DECEMBER 31, 2000, 2001 AND 2002

F-130



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##### 



REPORT OF INDEPENDENT ACCOUNTANTS

Mexico City, April 8, 2003

To the Board of Directors and Shareholders of
Industrias Centauro, S. A. de C. V.:

We have audited the accompanying balance sheets of Industrias Centauro, S. A.
de C. V., as of December 31, 2001 and 2002 and the related statements of
income, of changes in shareholders equity and of changes in financial position
for each of the three years in the period ended December 31, 2002, which, as
described in Note 2, have been prepared on the basis of accounting principles
generally accepted in Mexico. These financial statements are the
responsibility of the Companys management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards in Mexico and 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, the financial statements referred to above present fairly, in
all material respects, the financial position of Industrias Centauro, S. A. de
C. V., as of December 31, 2001 and 2002 and the results of their operations,
the changes in their shareholders equity and the changes in their financial
position for each of the three years in the period ended December 31, 2002, in
conformity with accounting principles generally accepted in Mexico.

(F-1)

F-131



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##### 



As mentioned in Note 11 the Company guarantees an issuance of debt of its
holding Company Corporación Durango, S.A. de C.V. (CODUSA). Nevertheless, as
mentioned in (Note 1 b) CODUSA is in default with some covenants.

Accounting principles generally accepted in Mexico vary in certain significant
respects from accounting principles generally accepted in the Unites States of
America. The application of accounting principles generally accepted in the
United States of America would have affected the determination of the net
income for each of the three years in the period ended December 31, 2002 and
the determination of the shareholders equity as of December 31, 2001 and 2002,
to the extent summarized in Note 16. to the financial statements.

PricewaterhouseCoopers

Alberto Gutiérrez Hinojosa
Public Accountant

(F-2)

F-132



---



##### 



INDUSTRIAS CENTAURO, S. A. DE C. V.
(subsidiary of Corporación Durango, S.A. de C.V.)

BALANCE SHEETS
AS OF DECEMBER 31, 2001 AND 2002
(Notes 1, 2 and 3)

(Thousands of constant Mexican Pesos restated as of December 31, 2002)

|                                               |  |              |           |      |  |   |           |  
|---------------------------------------------- |  | ------------ | --------- | ---- |  | - | --------- | -
|                                               |  | December 31,
|                                               |  |             
|                                               |  | 2001         |           | 2002
|                                               |  |              |           |     
|ASSETS                                         |  |              |           |      |  |   |           |  
|CURRENT ASSETS:                                |  |              |           |      |  |   |           |  
|Cash and temporary investments                 |  | $            | 2,779     |      |  | $ | 524       |  
|Accounts receivable, net (Note 5)              |  |              | 75,072    |      |  |   | 56,561    |  
|Related parties (Note 14)                      |  |              | 227,402   |      |  |   | 352,541   |  
|Taxes recoverable                              |  |              | 14,493    |      |  |   | 11,235    |  
|Inventories, net (Note 6)                      |  |              | 230,796   |      |  |   | 206,511   |  
|                                               |  |              |           |      |  |   |           |  
|Total current assets                           |  |              | 550,542   |      |  |   | 627,372   |  
|PROPERTY, PLANT AND EQUIPMENT,
net (Note 7)    |  |              | 2,492,380 |      |  |   | 2,009,877 |  
|OTHER ASSETS (Note 8)                          |  |              | 9,803     |      |  |   | 14,292    |  
|                                               |  |              |           |      |  |   |           |  
|Total assets                                   |  | $            | 3,052,725 |      |  | $ | 2,651,541 |  
|                                               |  |              |           |      |  |   |           |  
|LIABILITIES                                    |  |              |           |      |  |   |           |  
|CURRENT LIABILITIES:                           |  |              |           |      |  |   |           |  
|Trade accounts payable                         |  | $            | 79,271    |      |  | $ | 55,448    |  
|Related parties (Note 14)                      |  |              | 884,323   |      |  |   | 977,925   |  
|Accrued liabilities and other payables         |  |              | 26,828    |      |  |   | 17,332    |  
|Employee profit sharing                        |  |              | 898       |      |  |   | 904       |  
|Income tax payable                             |  |              | 1,613     |      |  |   | 954       |  
|                                               |  |              |           |      |  |   |           |  
|Total current liabilities                      |  |              | 992,933   |      |  |   | 1,052,563 |  
|                                               |  |              |           |      |  |   |           |  
|LONG TERM LIABILITIES:                         |  |              |           |      |  |   |           |  
|Deferred tax (Notes 3; and 13)                 |  |              | 769,369   |      |  |   | 546,862   |  
|Pension plans and seniority premiums (Note 10) |  |              | 1,530     |      |  |   | 1,491     |  
|Total liabilities                              |  |              | 1,763,832 |      |  |   | 1,600,916 |  
|                                               |  |              |           |      |  |   |           |  
|Contingencies and btments (Note 11)            |  |              |          |      |  |   |          |  
|                                               |  |              |           |      |  |   |           |  
|SHAREHOLDERS EQUITY                           |  |              |           |      |  |   |           |  
|CONTRIBUTED CAPITAL                            |  |              |           |      |  |   |           |  
|Capital stock (Note 12)                        |  |              |           |      |  |   |           |  
|Nominal                                        |  |              | 868,435   |      |  |   | 868,435   |  
|Restatement                                    |  |              | 1,238,837 |      |  |   | 1,238,837 |  
|                                               |  |              |           |      |  |   |           |  
|                                               |  |              | 2,107,272 |      |  |   | 2,107,272 |  
|                                               |  |              |           |      |  |   |           |  
|Retained earnings (Note 12)                    |  |              | 331,736   |      |  |   | 168,556   |  
|Deficit from restatement                       |  |              | (524,439  | )    |  |   | (599,527  | )
|Deferred income tax                            |  |              | (625,676  | )    |  |   | (625,676  | )
|                                               |  |              |           |      |  |   |           |  
|Total shareholders equity                     |  |              | 1,288,893 |      |  |   | 1,050,625 |  
|                                               |  |              |           |      |  |   |           |  
|Total liabilities and shareholders equity     |  | $            | 3,052,725 |      |  | $ | 2,651,541 |  
|                                               |  |              |           |      |  |   |           |  

The accompanying notes are an integral part of these financial statements.

(F-3)

F-133



---



##### 



INDUSTRIAS CENTAURO, S. A. DE C. V.
(subsidiary of Corporación Durango, S.A. de C.V.)

STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2000, 2001 AND 2002
(Notes 1, 2 and 3)

(Thousands of constant Mexican Pesos restated as of December 31, 2002)

|                                                                             |  |      |           |      |  |      |           |   |  |   |           |  
|---------------------------------------------------------------------------- |  | ---- | --------- | ---- |  | ---- | --------- | - |  | - | --------- | -
|                                                                             |  | 2000 |           | 2001 |  | 2002
|                                                                             |  |      |           |      |  |     
|NET SALES                                                                    |  | $    | 1,137,172 |      |  | $    | 1,057,607 |   |  | $ | 973,631   |  
|COST OF SALES                                                                |  |      | 896,659   |      |  |      | 745,124   |   |  |   | 757,369   |  
|                                                                             |  |      |           |      |  |      |           |   |  |   |           |  
|Gross profit                                                                 |  |      | 240,513   |      |  |      | 312,483   |   |  |   | 216,262   |  
|SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES                                 |  |      | 106,993   |      |  |      | 107,275   |   |  |   | 104,923   |  
|                                                                             |  |      |           |      |  |      |           |   |  |   |           |  
|OPERATING INCOME                                                             |  |      | 133,520   |      |  |      | 205,208   |   |  |   | 111,339   |  
|                                                                             |  |      |           |      |  |      |           |   |  |   |           |  
|Other expense, net                                                           |  |      | 46,918    |      |  |      | 20,694    |   |  |   | 18,501    |  
|                                                                             |  |      |           |      |  |      |           |   |  |   |           |  
|Financing cost (income):                                                     |  |      |           |      |  |      |           |   |  |   |           |  
|Interest expense                                                             |  |      | 50,047    |      |  |      | 53,196    |   |  |   | 67,887    |  
|Interest income                                                              |  |      | (9,949    | )    |  |      | (20,402   | ) |  |   | (34,622   | )
|Foreign exchange loss (gain), net                                            |  |      | 14,613    |      |  |      | (48,885   | ) |  |   | 112,216   |  
|Gain from monetary position                                                  |  |      | (82,759   | )    |  |      | (35,609   | ) |  |   | (34,222   | )
|                                                                             |  |      |           |      |  |      |           |   |  |   |           |  
|                                                                             |  |      | (28,048   | )    |  |      | (51,700   | ) |  |   | 111,259   |  
|                                                                             |  |      |           |      |  |      |           |   |  |   |           |  
|Income (loss) before provisions for income taxes
and employee profit sharing |  |      | 114,650   |      |  |      | 236,214   |   |  |   | (18,421   | )
|                                                                             |  |      |           |      |  |      |           |   |  |   |           |  
|Provision for income tax, employee profit sharing
and impairments:           |  |      |           |      |  |      |           |   |  |   |           |  
|Current Income tax (Note 13)                                                 |  |      |          |      |  |      | (1,647    | ) |  |   |          |  
|Employee profit sharing (Note 13)                                            |  |      |          |      |  |      | (916      | ) |  |   | (956      | )
|Deferred income tax (loss) benefit (Note 13)                                 |  |      | (113,900  | )    |  |      | (23,995   | ) |  |   | 194,207   |  
|                                                                             |  |      |           |      |  |      |           |   |  |   |           |  
|                                                                             |  |      | (113,900  | )    |  |      | (26,558   | ) |  |   | 193,251   |  
|                                                                             |  |      |           |      |  |      |           |   |  |   |           |  
|Impairment loss (Note 3)                                                     |  |      |          |      |  |      |          |   |  |   | (338,010  | )
|                                                                             |  |      |           |      |  |      |           |   |  |   |           |  
|Net income (loss)                                                            |  | $    | 750       |      |  | $    | 209,656   |   |  |   | ($163,180 | )
|                                                                             |  |      |           |      |  |      |           |   |  |   |           |  

The accompanying notes are integral part of these financial statements.

(F-4)

F-134



---



##### 



INDUSTRIAS CENTAURO, S. A. DE C. V.
(subsidiary of Corporación Durango, S.A. de C.V.)

STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2000, 2001 AND 2002
(Notes 1, 2 and 3)

(Thousands of constant Mexican Pesos restated as of December 31, 2002)

|                                 |  |                         |         |             |  |         |           |         |  |                              |        |             |  |               |           |        |  |   |           |   |  |  |           |   |  |  |           |   |  |   |           |  
|-------------------------------- |  | ----------------------- | ------- | ----------- |  | ------- | --------- | ------- |  | ---------------------------- | ------ | ----------- |  | ------------- | --------- | ------ |  | - | --------- | - |  |  | --------- | - |  |  | --------- | - |  | - | --------- | -
|                                 |  |                         |         |             |  |         |           |         |  | Retained earnings (Note 12): |        |             |  |               |           |        |  |   |           |   |  | 
|                                 |  | Capital stock (Note 12) |         |             |  |         |           |         |  |                              |        |             |  | Total        
|                                 |  |                         |         | Legal       |  | Prior   |           | Current |  | Deficit from                 |        | Deferred    |  | shareholders'
|                                 |  | Nominal                 |         | Restatement |  | reserve |           | year    |  | year                         |        | restatement |  | income tax    |           | equity
|                                 |  |                         |         |             |  |         |           |         |  |                              |        |             |  |               |           |       
|Balances as of January 1, 2000   |  | $                       | 869,594 |             |  | $       | 1,239,969 |         |  | $                            | 10,827 |             |  |               | ($120,648 | )      |  | $ | 231,151   |   |  |  | ($228,477 | ) |  |  |           |   |  | $ | 2,002,416 |  
|Paid in capital                  |  |                         | (1,159  | )           |  |         | (1,132    | )       |  |                              |        |             |  |               |           |        |  |   |           |   |  |  |           |   |  |  |           |   |  |   | (2,291    | )
|Appropriation of 1999 net income |  |                         |         |             |  |         |           |         |  |                              |        |             |  |               | 231,151   |        |  |   | (231,151  | ) |  |  |           |   |  |  |           |   |  |   |          |  
|Comprehensive loss (Note 16)     |  |                         |         |             |  |         |           |         |  |                              |        |             |  |               |           |        |  |   | 750       |   |  |  | (85,357   | ) |  |  | ($625,676 | ) |  |   | (710,283  | )
|                                 |  |                         |         |             |  |         |           |         |  |                              |        |             |  |               |           |        |  |   |           |   |  |  |           |   |  |  |           |   |  |   |           |  
|Balances as of December 31, 2000 |  |                         | 868,435 |             |  |         | 1,238,837 |         |  |                              | 10,827 |             |  |               | 110,503   |        |  |   | 750       |   |  |  | (313,834  | ) |  |  | (625,676  | ) |  |   | 1,289,842 |  
|Appropriation of 2000 net income |  |                         |         |             |  |         |           |         |  |                              |        |             |  |               | 750       |        |  |   | (750      | ) |  |  |           |   |  |  |           |   |  |   |          |  
|Comprehensive loss (Note 16)     |  |                         |         |             |  |         |           |         |  |                              |        |             |  |               |           |        |  |   | 209,656   |   |  |  | (210,605  | ) |  |  |           |   |  |   | (949      | )
|                                 |  |                         |         |             |  |         |           |         |  |                              |        |             |  |               |           |        |  |   |           |   |  |  |           |   |  |  |           |   |  |   |           |  
|Balances as of December 31, 2001 |  |                         | 868,435 |             |  |         | 1,238,837 |         |  |                              | 10,827 |             |  |               | 111,253   |        |  |   | 209,656   |   |  |  | (524,439  | ) |  |  | (625,676  | ) |  |   | 1,288,893 |  
|Appropriation of 2001 net income |  |                         |         |             |  |         |           |         |  |                              |        |             |  |               | 209,656   |        |  |   | (209,656  | ) |  |  |           |   |  |  |           |   |  |   |          |  
|Comprehensive loss (Note 16)     |  |                         |         |             |  |         |           |         |  |                              |        |             |  |               |           |        |  |   | (163,180  | ) |  |  | (75,088   | ) |  |  |           |   |  |   | (238,268  | )
|                                 |  |                         |         |             |  |         |           |         |  |                              |        |             |  |               |           |        |  |   |           |   |  |  |           |   |  |  |           |   |  |   |           |  
|Balances as of December 31, 2002 |  | $                       | 868,435 |             |  | $       | 1,238,837 |         |  | $                            | 10,827 |             |  | $             | 320,909   |        |  |   | ($163,180 | ) |  |  | ($599,527 | ) |  |  | ($625,676 | ) |  | $ | 1,050,625 |  
|                                 |  |                         |         |             |  |         |           |         |  |                              |        |             |  |               |           |        |  |   |           |   |  |  |           |   |  |  |           |   |  |   |           |  

The accompanying notes are integral part of these financial statements.

(F-5)

F-135



---



##### 



INDUSTRIAS CENTAURO, S. A. DE C. V.
(subsidiary of Corporación Durango, S.A. de C.V.)

STATEMENTS OF CHANGES IN FINANCIAL POSITION
FOR THE YEARS ENDED DECEMBER 31, 2000, 2001 AND 2002
(Notes 1, 2 and 4)

(Thousands of constant Mexican Pesos restated as of December 31, 2002)

|                                                                                |  |      |          |      |  |      |          |   |  |   |           |  
|------------------------------------------------------------------------------- |  | ---- | -------- | ---- |  | ---- | -------- | - |  | - | --------- | -
|                                                                                |  | 2000 |          | 2001 |  | 2002
|                                                                                |  |      |          |      |  |     
|OPERATING ACTIVITIES:                                                           |  |      |          |      |  |      |          |   |  |   |           |  
|Net income (loss)                                                               |  | $    | 750      |      |  | $    | 209,656  |   |  |   | ($163,180 | )
|Items recognized in net income not (generating)
requiring the use of resources: |  |      |          |      |  |      |          |   |  |   |           |  
|Depreciation and amortization                                                   |  |      | 63,809   |      |  |      | 59,912   |   |  |   | 67,182    |  
|Impairment loss                                                                 |  |      |          |      |  |      |          |   |  |   | 338,010   |  
|Others                                                                          |  |      | 337      |      |  |      | 363      |   |  |   | 355       |  
|Deferred income tax                                                             |  |      | 113,900  |      |  |      | 23,995   |   |  |   | (194,207  | )
|                                                                                |  |      |          |      |  |      |          |   |  |   |           |  
|                                                                                |  |      | 178,796  |      |  |      | 293,926  |   |  |   | 48,160    |  
|Changes in operating assets and liabilities:                                    |  |      |          |      |  |      |          |   |  |   |           |  
|Decrease in accounts receivable, net                                            |  |      | 54,792   |      |  |      | 14,871   |   |  |   | 18,511    |  
|(Increase) decrease in inventories                                              |  |      | 23,316   |      |  |      | (2,112   | ) |  |   | 24,285    |  
|(Increase) in other assets                                                      |  |      | (6,386   | )    |  |      | (10,702  | ) |  |   | (4,489    | )
|Increase (decrease) in other accounts payable and
accrued expenses              |  |      | 31,818   |      |  |      | (82,720  | ) |  |   | (55,372   | )
|Decrease in related parties, net                                                |  |      | (138,020 | )    |  |      | (163,123 | ) |  |   | (31,537   | )
|                                                                                |  |      |          |      |  |      |          |   |  |   |           |  
|Resources generated by (used in) operating activities                           |  |      | 144,316  |      |  |      | 50,140   |   |  |   | (442      | )
|                                                                                |  |      |          |      |  |      |          |   |  |   |           |  
|FINANCING ACTIVITIES:                                                           |  |      |          |      |  |      |          |   |  |   |           |  
|Bank loans                                                                      |  |      | (9,784   | )    |  |      | (127,254 | ) |  |   |          |  
|Decrease in capital                                                             |  |      | (1,278   | )    |  |      |          |   |  |   |          |  
|                                                                                |  |      |          |      |  |      |          |   |  |   |           |  
|Resources used in financing activities                                          |  |      | (11,062  | )    |  |      | (127,254 | ) |  |   |          |  
|                                                                                |  |      |          |      |  |      |          |   |  |   |           |  
|INVESTING ACTIVITIES:                                                           |  |      |          |      |  |      |          |   |  |   |           |  
|Net decrease (additions) to property, plant and equipment, net                  |  |      | (132,210 | )    |  |      | 78,711   |   |  |   | (1,813    | )
|                                                                                |  |      |          |      |  |      |          |   |  |   |           |  
|Resources (used in) generated by investing activities                           |  |      | (132,210 | )    |  |      | 78,711   |   |  |   | (1,813    | )
|                                                                                |  |      |          |      |  |      |          |   |  |   |           |  
|Increase (decrease) in cash and temporary investments                           |  |      | 1,044    |      |  |      | 1,597    |   |  |   | (2,255    | )
|CASH AND TEMPORARY INVESTMENTS AT THE
BEGINNING OF THE YEAR                     |  |      | 138      |      |  |      | 1,182    |   |  |   | 2,779     |  
|                                                                                |  |      |          |      |  |      |          |   |  |   |           |  
|CASH AND TEMPORARY INVESTMENTS AT THE
END OF THE YEAR                           |  | $    | 1,182    |      |  | $    | 2,779    |   |  | $ | 524       |  
|                                                                                |  |      |          |      |  |      |          |   |  |   |           |  

The accompanying notes are an integral part of these financial statements.

(F-6)

F-136



---



##### 



INDUSTRIAS CENTAURO, S. A. DE C. V.




NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2000, 2001 AND 2002




(Thousands of constant Mexican Pesos restated as of December 31, 2002)

NOTE 1  ENTITY AND NATURE OF BUSINESS:

a. Entity

Industrias Centauro, S. A. de C. V. (The Company) is a subsidiary of Empaques
de Cartón Titan, S. A. de C. V. and its main activity is the manufacturing
and selling of Kraft paper and semi Kraft paper.

During 2002, Empaques de Cartón Titán, S. A. de C. V. sold to Corporación
Durango, S.A. de C.V. (CODUSA), 71.494 shares of Industrias Centrauro, S. A. de
C. V., represented by 8,378,308 Series A shares, and 373,399,784 Series B shares, which were ordinary, nominative without par value. Since the date of this operation, the Company is a subsidiary of CODUSA.

At the General Extraordinary Shareholders Meeting held on June 13, 2000, the
shareholders of the Company approved the change in legal name from Celulosa y
Papel de Mexico, S.A. de C.V. to Industrias Centauro, S.A. de C.V.

b. Current status of the Holding Company (CODUSA)

In order to expand its production plant and continue to consolidate as a leader
in the paper industry throughout Mexico and Latin America, CODUSA and its
subsidiaries have contracted significant financing from banks in Mexico and
abroad, mainly in the U.S. Additionally, in different dates it placed certain
debt bonds on the New York securities market. Both types of financing were
realized in U.S. dollars. However, in 2002, CODUSA was severely affected by a
combination of economic factors, such as the slowdown of the U.S. and the
international economy, a significant drop in the world price of paper, a
drastic reduction in the demand for manufactured products requiring the goods
supplied by the Companies of the Group, an increase in the cost of raw
materials, electric power, gas and labor, and the entry of imported products
into the Mexican market.

The above-mentioned negative economic events lead to a significant reduction in
the generation of cash flow for CODUSA during the last quarter of fiscal year
2002, and CODUSA was unable to cover the payment of interest and capital on
certain debts maturing in November and December 2002, which meant that it was
unable to comply with certain obligations imposed by the banks and bondholders
in order to maintain the maturity terms of the capital.

(F-7)

F-137



---



##### 



INDUSTRIAS CENTAURO, S. A. DE C. V.

NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2000, 2001 AND 2002  (Continued)

(Thousands of constant Mexican Pesos restated as of December 31, 2002)

Said loans and debt bonds have been classified as short term, resulting in
negative working capital and serious doubts as to the ability of CODUSA to
continue in operation as a going concern.

As a result of the foregoing, CODUSA began a financial restructuring process in
November 2002, by holding discussions with the banks and bondholders in an
effort to agree on a debt refinancing plan and the sale of non-strategic
assets.

In April 2003, CODUSA signed a Forbearance Agreement; most of the creditors
have agreed to continue productive financial discussions regarding the terms of
the recapitalization of CODUSA.

CODUSAS expectation is that its financial structure will be enforced after the
restructuring plan.

NOTE 2  BASIS OF PRESENTATION:

a. Monetary unit

Amounts in the financial statements and footnotes thereto are stated in
thousands of Mexican Pesos (except for shares and per share amounts), as are
the records of the Company, in conformity with corresponding laws. In these
financial statements, references to $ are to Mexican Pesos and references to
US$ are to U.S. Dollars.

b. Basis of presentation

The financial statements have been prepared in accordance with generally
accepted accounting principles in Mexico (Mexican GAAP) as promulgated by
the Mexican Institute of Public Accountants (MIPA). Additionally, Bulletin
A-8, Supplementary Application of International Accounting Standards states
that where Mexican GAAP does not provide guidance, International Accounting
Standards must be applied. A reconciliation from Mexican GAAP to Generally
Accepted Accounting Principles in the United States of America. (US GAAP) is
included in Note 16.

(F-8)

F-138



---



##### 



INDUSTRIAS CENTAURO, S. A. DE C. V.

NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2000, 2001 AND 2002  (Continued)

(Thousands of constant Mexican Pesos restated as of December 31, 2002)

NOTE 3  ACCOUNTING POLICIES:

A summary of the Companys significant accounting polices are as follows:



|a. |  | Use of estimates                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The preparation of the financial statements in conformity with Mexican GAAP
requires management to make certain estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures of contingent
assets and liabilities as of the date of the financial statements, and the
reported amount of revenues and expenses during the reporting years. Actual
results may differ from these estimates.                                                                                                                                                                                                                                                                                                                                           
|  
|b. |  | Recognition of the effects of inflation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|  
|   |  | The Companys financial statements have been prepared in accordance with
Bulletin B-10, Effects of Inflation on Financial Information and its
amendments. Bulletin B-10 requires restatement of all financial statement
items to Mexican Pesos of the most current purchasing power.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|  
|   |  | For comparative purposes, the financial statements presented herein have been
restated to Mexican Pesos as of December 31, 2002, by applying to the
year-end balances of constant Mexican Pesos of each period an inflation
(5.7%) derived from the National Consumer Price Index (NCPI), published by
Banco de México (the Central Bank of Mexico).                                                                                                                                                                                                                                                                                                                                                                                                                       
|  
|   |  | Statement of changes in financial position. Bulletin B-12, Statement of
Changes in Financial Position Bulletin B-12, addresses the appropriate
presentation of the statement of changes in financial position where financial
statements have been restated to constant Mexican Pesos as of the latest
balance sheet date. Bulletin B-12 identifies the generation and application
of resources representing differences between beginning and ending balances of
the balance sheets in constant Mexican Pesos, excluding the effect from
holding non-monetary assets. Bulletin B-12 also requires that monetary
position and foreign exchange gains (losses) be excluded from non-cash items
in the determination of resources provided by (used in) operating activities.
|  
|c. |  | Inventories                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|  
|   |  | Inventories are valued at average cost, which does not exceed market value.
The average cost approximates the last purchase price or production cost.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

(F-9)

F-139



---



##### 



INDUSTRIAS CENTAURO, S. A. DE C. V.

NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2000, 2001 AND 2002  (Continued)

(Thousands of constant Mexican Pesos restated as of December 31, 2002)



|   |  | Cost of sales is determined on the estimated replacement value of the
inventory as of the date on which sales were made.                                                                                                                                                                                                                                                                                                                                                   
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|d. |  | Property, plant and equipment                                                                                                                                                                                                                                                                                                                                                                                                                                              
|  
|   |  | Property, plant and equipment are recorded at their acquisition cost, and are
restated by applying factors derived from the NCPI to the historical cost,
except for machinery and equipment of foreign origin (GCPI) which are
restated by applying factors derived from the general index of the country of
origin to the corresponding foreign currency amounts and translating those
amounts to Mexican Pesos at the prevailing exchange rate at the balance sheet
date.
|  
|   |  | Recurring maintenance and repairs expenditures are charged to operating
expenses as incurred. Major overhauls to fixed assets are capitalized and
amortized over the period in which benefits are expected to be received.                                                                                                                                                                                                                                                 
|  
|   |  | The integral cost of financing attributable to assets under construction is
capitalized. Capitalized integral financing cost include interest cost, gain
from monetary position and foreign exchange gains or losses and are determined
by the reference to the Companys interest cost of outstanding borrowings
directly attributable to the construction of assets. During 2000, 2001 and 2002
the Company did not capitalize any interest.                             
|  
|e. |  | Depreciation                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|  
|   |  | Depreciation of property, plant and equipment is based upon the restated
carrying value of the assets and calculated by the method of units produced,
based on their useful lives and the estimated production capacity as shown
below:                                                                                                                                                                                                                                    

|                         |  |       |       | 
|------------------------ |  | ----- | ----- | 
|                         |  | Years
|                         |  |      
|Buildings                |  |       | 25-50 | 
|Machinery and equipment  |  |       | 23-40 | 
|Office equipment         |  |       | 5-10  | 
|Transportation equipment |  |       | 1-5   | 
|Computer equipment       |  |       | 1-3   | 

(F-10)

F-140



---



##### 



INDUSTRIAS CENTAURO, S. A. DE C. V.

NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2000, 2001 AND 2002  (Continued)

(Thousands of constant Mexican Pesos restated as of December 31, 2002)



|f. |  | Pension plans, seniority premiums and indemnities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | In accordance with Mexican Federal Labor Law, the Companys employees are
entitled to seniority premiums after 15 years of service or upon dismissal,
disability or death. Under Bulletin D-3, Labor Obligations, the
actuarially determined projected benefit obligation is computed using
estimates of salaries that would be in effect at the time of payment.
Employees not yet eligible for seniority premiums are also included in the
determination of the obligation with necessary adjustments made in accordance
with the probability that these employees will reach the required seniority.
The cost of past service is amortized over the average period required for
workers to reach their retirement age.
|  
|   |  | The cost of the employee retirement plans (pensions and seniority premiums),
both formal and informal, is recognized as expense in the years in which the
services are rendered, in accordance with studies performed by independent
actuaries using the projected unit credit method.                                                                                                                                                                                                                                                                                                                                                                                                                                     
|  
|   |  | In accordance with Mexican Federal Labor Law, other compensation, based on
length of service, to which employees may be entitled in the event of
dismissal or death, are charged to income in the year in which they become
payable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|  
|g. |  | Payments for retirements and terminations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|  
|   |  | Payments for retirements and terminations are charged to income in the period
in which they occur.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|  
|h. |  | Revenue recognition                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|  
|   |  | Sales are recognized upon delivery of products and customer acceptance.
Revenues are recognized only when the Company has transferred to the buyer
the risks and rewards of ownership of the goods, and when the amount of
revenue and the cost incurred or to be incurred in the transaction can be
measured reliably.                                                                                                                                                                                                                                                                                                                                                                                                    
|  
|i. |  | Deferred income tax and employee statutory profit sharing                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|  
|   |  | The Company recognized deferred income tax through the comprehensive asset and
liability method, which consists in determining said tax by applying the
corresponding income tax rate to the temporary differences between the book and
tax values of assets and liabilities at                                                                                                                                                                                                                                                                                                                                                                                                                                            

(F-11)

F-141



---



##### 



INDUSTRIAS CENTAURO, S. A. DE C. V.

NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2000, 2001 AND 2002  (Continued)

(Thousands of constant Mexican Pesos restated as of December 31, 2002)



|   |  | the date of the financial statements.
Beginning on January 1, 2000, the Company adopted the guidelines of amended
Bulletin D-4, Accounting Treatment of Income Tax, Tax on Assets and Employee
Statutory Profit Sharing. The accrued effect of this accounting change,
effective January 1, 2000, originated a net increase in the deferred tax
liability in the amount OF $625,676 and a reduction of shareholders equity of
the same amount Employees statutory profit sharing is determined at a 10% rate
on the taxable income of the companies, adjusted accordingly to the previous of
the Mexican income tax law.                                                                                                                                                                                                    
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|j. |  | Foreign currency transactions                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  
|   |  | Transactions denominated in foreign currency are recorded in Mexican Pesos at
the exchange rate in effect at the date they are consummated. Assets and
liabilities in foreign currency are translated into Mexican Pesos at the
exchange rate in effect as of the balance sheet date. Exchange differences
resulting from such translations are recognized in income for the year.                                                                                                                                                                                                                                                                                                                                                                                                                                              
|  
|k. |  | Long-lived assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|  
|   |  | The Company evaluates potential impairment losses to long-lived assets by
assessing whether the unamortized carrying amount can be recovered over the
remaining life of the assets through undiscounted future expected cash flows
generated by the assets and without interest charges. If the sum of the
expected future undiscounted cash flow is less than the carrying amount of
the assets, a loss is recognized for the difference between the fair value
and carrying value of the assets. Long-lived assets are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable.
Long-lived assets for which management has committed to a plan of disposal
are recorded at the lower of the unamortized carrying amount or fair value
less disposal cost.
|  
|   |  | During 2002, the Company evaluated the value of its long-lived assets, which
was determined with expected future cash flow generated during the useful
lives of the assets evaluated, which extends from 10 to 15 years after 2003.
As a result, the Company recorded $329,220 as an impairment loss for fixed
assets (see Note 7).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  
|l. |  | Shareholders equity and retained earnings                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|  
|   |  | The capital stock, retained earnings, additional paid-in-capital and
comprehensive income accounts include the effect from restatement, determined
by applying the NCPI factor from the date when capital was contribute and
from the year in which the results were determined. The restatements
represent the amounts required to maintain the contributions and accumulated
results in constant Mexican Pesos as of December 31, 2002.                                                                                                                                                                                                                                                                                                                                                                                       

(F-12)

F-142



---



##### 



INDUSTRIAS CENTAURO, S. A. DE C. V.

NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2000, 2001 AND 2002  (Continued)

(Thousands of constant Mexican Pesos restated as of December 31, 2002)



|m. |  | Comprehensive income                                                                                                                                                                                                                                                                                         
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | As of January 1, 2001, Bulletin B-4 Comprehensive Income, entered into
effect. This bulletin requires that the various components of shareholders
equity resulting from non-owner transactions be shown in the statement of
changes in shareholders equity under the item of comprehensive income
(loss).

NOTE 4  FOREIGN CURRENCY POSITION:

As of December 31, the Mexican Peso to the U.S. Dollar, exchange rate was as
follows:

|     |  |   |         | 
|---- |  | - | ------- | 
|2001 |  | $ | 9.1695  | 
|2002 |  | $ | 10.4393 | 

As of April 8, 2003, the date of issuance of these financial statements, the
exchange rate was of $10.6896 Mexican Pesos per U.S. Dollar.

As of December 31, 2001 and 2002 the Company had the following foreign currency
monetary assets and liabilities:

|                      |  |                           |        |      |  |     |        |  
|--------------------- |  | ------------------------- | ------ | ---- |  | --- | ------ | -
|                      |  | Thousands of U.S. Dollars
|                      |  |                          
|                      |  | 2001                      |        | 2001
|                      |  |                           |        |     
|Assets                |  | US$                       | 2,186  |      |  | US$ | 1,087  |  
|Liabilities           |  |                           | (1,340 | )    |  |     | (1,234 | )
|                      |  |                           |        |      |  |     |        |  
|Net monetary position |  | US$                       | 846    |      |  | US$ | (147)  |  
|                      |  |                           |        |      |  |     |        |  

(F-13)

F-143



---



##### 



INDUSTRIAS CENTAURO, S. A. DE C. V.

NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2000, 2001 AND 2002  (Continued)

(Thousands of constant Mexican Pesos restated as of December 31, 2002)

The Companys foreign currency transactions were as follows:

|                                         |  |                           |         |      |  |      |         |   |  |     |        |  
|---------------------------------------- |  | ------------------------- | ------- | ---- |  | ---- | ------- | - |  | --- | ------ | -
|                                         |  | Year ended December 31   
|                                         |  |                          
|                                         |  | 2000                      |         | 2001 |  | 2002
|                                         |  |                           |         |      |  |     
|                                         |  | Thousands of U.S. Dollars
|Sales                                    |  | US$                       | 5,005   |      |  | US$  | 2,838   |   |  | US$ | 1,387  |  
|Purchase of fixed assets and inventories |  |                           | (9,789  | )    |  |      | (3,353  | ) |  |     | (2,354 | )
|Interest expense                         |  |                           | (1,037  | )    |  |      | (566    | ) |  |     |       |  
|                                         |  |                           |         |      |  |      |         |   |  |     |        |  
|                                         |  | US$                       | (5,821) |      |  | US$  | (1,081) |   |  | US$ | (967)  |  
|                                         |  |                           |         |      |  |      |         |   |  |     |        |  

NOTE 5  ACCOUNTS RECEIVABLE:

Accounts receivable consist of the following:

|                                       |  |              |        |      |  |   |        | 
|-------------------------------------- |  | ------------ | ------ | ---- |  | - | ------ | 
|                                       |  | December 31,
|                                       |  |             
|                                       |  | 2001         |        | 2002
|                                       |  |              |        |     
|Trade                                  |  | $            | 75,680 |      |  | $ | 57,982 | 
|Other                                  |  |              | 2,498  |      |  |   | 371    | 
|                                       |  |              |        |      |  |   |        | 
|                                       |  |              | 78,178 |      |  |   | 58,353 | 
|Less  Allowance for doubtful accounts |  |              | 3,106  |      |  |   | 1,792  | 
|                                       |  |              |        |      |  |   |        | 
|                                       |  | $            | 75,072 |      |  | $ | 56,561 | 
|                                       |  |              |        |      |  |   |        | 

NOTE 6  INVENTORIES:

Inventories consist of the following:

(F-14)

F-144



---



##### 



INDUSTRIAS CENTAURO, S. A. DE C. V.

NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2000, 2001 AND 2002  (Continued)

(Thousands of constant Mexican Pesos restated as of December 31, 2002)

|                                  |  |              |         |      |  |   |         | 
|--------------------------------- |  | ------------ | ------- | ---- |  | - | ------- | 
|                                  |  | December 31,
|                                  |  |             
|                                  |  | 2001         |         | 2002
|                                  |  |              |         |     
|Finished products                 |  | $            | 3,978   |      |  | $ | 3,962   | 
|Raw materials                     |  |              | 39,296  |      |  |   | 24,103  | 
|Direct material and spare parts   |  |              | 52,928  |      |  |   | 52,685  | 
|Merchandise in transit            |  |              | 126,763 |      |  |   | 118,979 | 
|Advanced payment to suppliers     |  |              | 12,519  |      |  |   | 11,218  | 
|                                  |  |              |         |      |  |   |         | 
|                                  |  |              | 235,484 |      |  |   | 210,947 | 
|Less  Allowance for obsolescence |  |              | 4,688   |      |  |   | 4,436   | 
|                                  |  |              |         |      |  |   |         | 
|                                  |  | $            | 230,796 |      |  | $ | 206,511 | 
|                                  |  |              |         |      |  |   |         | 

NOTE 7  PROPERTY, PLANT AND EQUIPMENT:

Property, plant and equipment consist of the following:

|                                                                         |  |              |           |      |  |   |           | 
|------------------------------------------------------------------------ |  | ------------ | --------- | ---- |  | - | --------- | 
|                                                                         |  | December 31,
|                                                                         |  |             
|                                                                         |  | 2001         |           | 2002
|                                                                         |  |              |           |     
|Land                                                                     |  | $            | 104,651   |      |  | $ | 104,590   | 
|Buildings                                                                |  |              | 612,389   |      |  |   | 612,030   | 
|Machinery and equipment                                                  |  |              | 2,823,218 |      |  |   | 2,760,199 | 
|Transportation equipment, data-processing equipment,
furniture and other |  |              | 297,645   |      |  |   | 300,976   | 
|Construction-in-progress                                                 |  |              | 2,941     |      |  |   | 4,751     | 
|                                                                         |  |              |           |      |  |   |           | 
|                                                                         |  |              | 3,840,844 |      |  |   | 3,782,546 | 
|Less  Accumulated depreciation                                          |  |              | 1,348,464 |      |  |   | 1,443,449 | 
|Less  Impairment loss                                                   |  |              |          |      |  |   | 329,220   | 
|                                                                         |  |              |           |      |  |   |           | 
|                                                                         |  | $            | 2,492,380 |      |  | $ | 2,009,877 | 
|                                                                         |  |              |           |      |  |   |           | 

(1)  As of December 31, 2002, the company recorded a $338,010 impairment reserve
for the fixed assets of a number of subsidiaries which, according to company
calculations, are not recoverable

(F-15)

F-145



---



##### 



INDUSTRIAS CENTAURO, S. A. DE C. V.

NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2000, 2001 AND 2002  (Continued)

(Thousands of constant Mexican Pesos restated as of December 31, 2002)

with the cash generated during the useful lives of the assets evaluated, which
extends from 10 to 15 years after 2003. The deferred income tax effect for this
reserve was $108,163.

The procedure for determining the effect of impairment of a fixed asset was as
follows:

The projected cash flow was determined for the remaining useful lives of the
fixed assets, which was compared to the value of the assets at December 31,
2002. A discount rate was applied to the projected cash flow, determined
considering company risk factors and debt level, among others, and was compared
to the book value at the balance sheet date.

If the value of the cash flow exceeded the value of the assets, no additional
calculations were made. Otherwise, in the case of the companies at which the
cash flow was less than the value of the fixed assets, an impairment effect was
determined.

Depreciation expense for the years ended December 31, 2000, 2001 and 2002 was
$63,809, $59,912 and $50,695, respectively.

CODUSA tested certain long-lived assets for recoverability in 2002 in response
to significant adverse changes in business climate occurring during the year
(see Note 1 b and 3 k).

As of December 31, 2002, the Company recorded $338,010 impairment loss for the
fixed assets. The deferred income tax effect for this reserve resulted in a
benefit of $108,163.

NOTE 8  OTHER ASSETS:

Other assets consist of the following:

|                                            |  |              |       |      |  |   |        | 
|------------------------------------------- |  | ------------ | ----- | ---- |  | - | ------ | 
|                                            |  | December 31,
|                                            |  |             
|                                            |  | 2001         |       | 2002
|                                            |  |              |       |     
|Other investments                           |  | $            | 2,636 |      |  | $ | 2,494  | 
|Prepaid expenses                            |  |              | 6,756 |      |  |   | 11,614 | 
|Intangible pension asset  labor obligation |  |              | 411   |      |  |   | 184    | 
|                                            |  |              |       |      |  |   |        | 
|                                            |  | $            | 9,803 |      |  | $ | 14,292 | 
|                                            |  |              |       |      |  |   |        | 

(F-16)

F-146



---



##### 



INDUSTRIAS CENTAURO, S. A. DE C. V.

NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2000, 2001 AND 2002  (Continued)

(Thousands of constant Mexican Pesos restated as of December 31, 2002)

NOTE 9  FINANCIAL INSTRUMENTS:



|a. |  | As of December 31, 2001 and 2002, the carrying amount of cash and
temporary investments, accounts receivable, trade accounts payable and
accrued liabilities and other accounts payable approximate their fair
value because of their short maturity. The net carrying value of accounts
receivables represent the cash flow expected to be received by the
Company.
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|b. |  | The financial instruments which potentially are subject to a
concentration of credit risk are principally cash and temporary
investments and trade account receivable. The Company deposits and invests
its excess cash in recognized financial institutions. There were no
customers exceeding 10% of the net sales for any of the period presented.               

(F-17)

F-147



---



##### 



INDUSTRIAS CENTAURO, S. A. DE C. V.

NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2000, 2001 AND 2002  (Continued)

(Thousands of constant Mexican Pesos restated as of December 31, 2002)

NOTE 10  PENSION PLANS AND SENIORITY PREMIUMS:



|a. |  | The valuation of labor obligations for retirement pensions and seniority
premiums covers all employees. The principal financial data related to
these obligations is as follows:
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                 |  |              |        |      |  |   |        |  
|---------------------------------------------------------------- |  | ------------ | ------ | ---- |  | - | ------ | -
|                                                                 |  | December 31,
|                                                                 |  |             
|                                                                 |  | 2001         |        | 2002
|                                                                 |  |              |        |     
|Current benefit obligation                                       |  | $            | 1,530  |      |  | $ | 1,491  |  
|                                                                 |  |              |        |      |  |   |        |  
|Net current liability                                            |  | $            | 1,530  |      |  | $ | 1,491  |  
|                                                                 |  |              |        |      |  |   |        |  
|Projected benefit obligation                                     |  | $            | 1,974  |      |  | $ | 1,890  |  
|Unamortized transition asset                                     |  |              | (1,155 | )    |  |   | (1,023 | )
|Unamortized differences in assumptions and
experience adjustment |  |              | 253    |      |  |   | 440    |  
|                                                                 |  |              |        |      |  |   |        |  
|Projected net liability                                          |  |              | 1,072  |      |  |   | 1,307  |  
|Additional minimum liability                                     |  |              | 458    |      |  |   | 184    |  
|                                                                 |  |              |        |      |  |   |        |  
|Intangible pension asset  labor obligation                      |  | $            | 1,530  |      |  | $ | 1,491  |  
|                                                                 |  |              |        |      |  |   |        |  

|                             |  |              |    |      |  |  |    | 
|---------------------------- |  | ------------ | -- | ---- |  |  | -- | 
|                             |  | December 31,
|                             |  |             
|                             |  | 2001         |    | 2002
|                             |  |              |    |     
|Amortization period (years): |  |              |    |      |  |  |    | 
|Transition asset             |  |              | 22 |      |  |  | 21 | 
|Experience adjustment        |  |              | 26 |      |  |  | 25 | 

(F-18)

F-148



---



##### 



INDUSTRIAS CENTAURO, S. A. DE C. V.

NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2000, 2001 AND 2002  (Continued)

(Thousands of constant Mexican Pesos restated as of December 31, 2002)

The net cost for the year consisted of the following:

|                                   |  |              |     |      |  |      |     |  |  |   |     | 
|---------------------------------- |  | ------------ | --- | ---- |  | ---- | --- |  |  | - | --- | 
|                                   |  | December 31,
|                                   |  |             
|                                   |  | 2000         |     | 2001 |  | 2002
|                                   |  |              |     |      |  |     
|Service cost                       |  | $            | 205 |      |  | $    | 237 |  |  | $ | 238 | 
|Amortization of prior service cost |  |              | 60  |      |  |      | 40  |  |  |   | 29  | 
|Financial cost for the year        |  |              | 72  |      |  |      | 86  |  |  |   | 88  | 
|                                   |  |              |     |      |  |      |     |  |  |   |     | 
|                                   |  | $            | 337 |      |  | $    | 363 |  |  | $ | 355 | 
|                                   |  |              |     |      |  |      |     |  |  |   |     | 

Prior service cost (transition liability) and actuarial losses are recorded
through charges to income using straight-line method over the average
remaining service life over which employees are expected to receive the
benefits.

The following actuarial assumptions were used to determine the present value
of accumulated plan benefits for pension plans and seniority premiums
(excluding inflation effects):

|                     |  |              |   |      |  |      |   |   |  |  |   |  
|-------------------- |  | ------------ | - | ---- |  | ---- | - | - |  |  | - | -
|                     |  | December 31,
|                     |  |             
|                     |  | 2000         |   | 2001 |  | 2002
|                     |  |              |   |      |  |     
|Discount rate        |  |              | 5 | %    |  |      | 5 | % |  |  | 5 | %
|Salary increase rate |  |              | 5 | %    |  |      | 5 | % |  |  | 5 | %

NOTE 11  CONTINGENCIES AND COMMITMENTS:

The company has the following contingencies and commitments:



|I. |  | Contingencies:                                                                                                                                                                                                                                                      
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|a. |  | The Company is contingently liable for indemnities payable to employees
in case of dismissal under certain circumstances as provided by the
Mexican Federal Labor Law. As of December 31, 2001 and 2002, no
obligations were recognized in the financial statements.

(F-19)

F-149



---



##### 



INDUSTRIAS CENTAURO, S. A. DE C. V.

NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2000, 2001 AND 2002  (Continued)

(Thousands of constant Mexican Pesos restated as of December 31, 2002)



|b.  |  | The Company may be subject to a contingent liability for additional taxes
resulting from reviews of the tax returns filed by the Company, if its
interpretation criteria differs from that of the Mexican tax authorities.   
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|c.  |  | The Company guarantees the Senior Notes issued by its holding company for
US$175 million, which have a maturity on July 15, 2009, payable
semiannually, bearing interest at 13.75% per annum.                                
|   
|    |  | The Company considers that the final resolution for these situations will not
have any material impact on its financial conditions or results of
operations.                                                                 
|   
|II. |  | Commitments:                                                                                                                                                                                                                 
|   
|a.  |  | As of December 31, 2001, the Company leases certain equipment under
non-cancelable operating leases with its parent. CODUSA Rental expense
under these leases was approximately US$912 for the years ended December
31, 2001.
|   
|    |  | As of December 31, 2001, estimated future minimum lease payments under
non-cancelable operating leases were as follows:                                                                                                      

|     |  |     |        | 
|---- |  | --- | ------ | 
|2002 |  | US$ | 2,449  | 
|2003 |  |     | 2,449  | 
|2004 |  |     | 2,449  | 
|2005 |  |     | 2,449  | 
|2006 |  |     | 2,449  | 
|2007 |  |     | 1,943  | 
|     |  |     |        | 
|     |  | US$ | 14,188 | 
|     |  |     |        | 



|b. |  | The Company guarantees the payment of principal and interest and other
amounts if any, of certain loans of its parent CODUSA.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | At December 31,2002 such loans were in default and in the process to be
restructured by CODUSA.                                

(F-20)

F-150



---



##### 



INDUSTRIAS CENTAURO, S. A. DE C. V.

NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2000, 2001 AND 2002  (Continued)

(Thousands of constant Mexican Pesos restated as of December 31, 2002)



| |  | As of December 31, 2002, the aggregate outstanding amount of these loans
was US$487.1 million.
| |  | ----------------------------------------------------------------------------------------------

NOTE 12  CAPITAL STOCK AND RETAINED EARNINGS:

As of December 31, 2002 the nominal capital stock amounted to $78,455 and
represents the fixed minimum portion without a right to withdrawal consisting
of 8,623,800 Series A common shares, entitled, with no par value, totally
subscribed and paid. The variable portion of capital stock amounted to $789,980
represented by 540,800,195 Series B common and entitled shares.



|a. |  | In Mexico, income for the year is subject to legal requirements, which
provide that 5% of income for each year be allocated to increasing the
legal reserve, until this reserve reaches the equivalent of one-fifth of
the amount of paid-in capital stock.                                                                                                                                                                                                                    
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|b. |  | Dividend tax regime:                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|  
|   |  | Dividends paid will be free of income tax if paid out of the Net Taxable
Income Account (CUFIN). A 34% rate will be paid in 2003 on the amount
exceeding the balance of the CUFIN by multiplying the dividend paid by a
factor of 1.5152 in 2003. The applicable tax will be payable by the Company,
and it may be credited against income tax that the Company is subject to in
the following three fiscal years. Dividends paid will not be subject to any
tax withholding.
|  
|c. |  | Under Mexican corporate law, the Company is not permitted to declare or
pay dividends if the dividends from its subsidiaries are not received
first. Additionally, neither the Company nor its subsidiaries are
permitted to declare or pay dividends as a result of the negative
covenants established in the debt instruments placed in the Mexican and
international markets.                                                                                               
|  
|d. |  | On July 4, 2000 and August, 2000, the Board of Directors approved the
reduction of the variable portion of the Companys capital stock by $402,636
and $390,962 Series B common shares, respectively.                                                                                                                                                                                                                                                                        

(F-21)

F-151



---



##### 



INDUSTRIAS CENTAURO, S. A. DE C. V.

NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2000, 2001 AND 2002  (Continued)

(Thousands of constant Mexican Pesos restated as of December 31, 2002)

NOTE 13  INCOME TAX, EMPLOYEES STATUTORY PROFIT SHARING AND ASSET TAXES:

The income tax (ISR) provision at December 31, 2000, 2001 and 2002 is
comprised as follows:




|                                    |  |      |          |      |  |      |         |   |  |   |         |  
|----------------------------------- |  | ---- | -------- | ---- |  | ---- | ------- | - |  | - | ------- | -
|                                    |  | 2000 |          | 2001 |  | 2002
|                                    |  |      |          |      |  |     
|ISR current                         |  | $    | (40,153  | )    |  | $    | (43,557 | ) |  | $ |        |  
|ISR deferred                        |  |      | (113,900 | )    |  |      | (23,995 | ) |  |   | 194,207 |  
|Employees statutory profit sharing |  |      |         |      |  |      | (916    | ) |  |   | (956    | )
|Loss carryforwards                  |  |      | 40,153   |      |  |      | 41,910  |   |  |   |        |  
|                                    |  |      |          |      |  |      |         |   |  |   |         |  
|                                    |  | $    | (113,900 | )    |  | $    | (26,558 | ) |  | $ | 193,251 |  
|                                    |  |      |          |      |  |      |         |   |  |   |         |  




As of December 31, 2001 and 2002, the main components of the deferred income
tax are as follows:

|                                   |  |      |           |      |  |   |           |  
|---------------------------------- |  | ---- | --------- | ---- |  | - | --------- | -
|                                   |  | 2001 |           | 2002
|                                   |  |      |           |     
|Inventories                        |  | $    | 230,796   |      |  | $ | 206,883   |  
|Property, plant and equipment, net |  |      | 1,968,603 |      |  |   | 1,533,459 |  
|Other assets                       |  |      | 7,012     |      |  |   | 11,798    |  
|Liability provisions               |  |      | (4,635    | )    |  |   | (39,281   | )
|                                   |  |      |           |      |  |   |           |  
|                                   |  |      | 2,201,776 |      |  |   | 1,712,859 |  
|Income tax rate                    |  |      | 35        | %    |  |   | 32        | %
|                                   |  |      |           |      |  |   |           |  
|Deferred income tax                |  |      | 770,622   |      |  |   | 548,115   |  
|Recoverable tax on assets          |  |      | 1,253     |      |  |   | 1,253     |  
|                                   |  |      |           |      |  |   |           |  
|Income tax payable                 |  | $    | 769,369   |      |  | $ | 546,862   |  
|                                   |  |      |           |      |  |   |           |  

Of the deferred income tax recorded as of December 31, 2001 and 2002, $2,246
and $2,365, respectively, were recorded directly to the restatement of
non-monetary assets within shareholders equity as it resulted from temporary
differences generated by non-monetary items, principally inventories and
property, plant and equipment.

(F-22)

F-152



---



##### 



INDUSTRIAS CENTAURO, S. A. DE C. V.

NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2000, 2001 AND 2002  (Continued)

(Thousands of constant Mexican Pesos restated as of December 31, 2002)

During the years ended December 31, 2000, and 2001, the Company amortized tax
loss carryforwards amounting to $114,723 and $119,743, respectively and
obtained a benefit it of $40,153 and $41,910, respectively.

As of December 31, 2002 the Company had tax loss carryforwards in the
approximate amount of $35,998, which are subject to an additional NCPI
restatement and may reduce future years taxable income for income tax
purposes. This tax loss was generated in 2002 and expires in 2012.

Asset tax is calculated at a rate of 1.8% on the net value of certain assets
and liabilities and is due only when the asset tax exceeds the income tax
payable. The asset tax paid can be recovered over the following 10 years, if
and when income taxes exceed asset tax during such years. As of December 31,
2002, this item amounts $1,253.

The reconciliation between the statutory and effective income tax rate is shown
below.

|                                                  |  |              |        |      |  |      |        |   |  |  |        |  
|------------------------------------------------- |  | ------------ | ------ | ---- |  | ---- | ------ | - |  |  | ------ | -
|                                                  |  | December 31,
|                                                  |  |             
|                                                  |  | 2000         |        | 2001 |  | 2002
|                                                  |  |              |        |      |  |     
|                                                  |  | %            |        | %    |  | %   
|ISR at the statutory rate                         |  |              | 35.00  |      |  |      | 35.00  |   |  |  | (35.00 | )
|Increase (decrease) in effective ISR rate due to: |  |              |        |      |  |      |        |   |  |  |        |  
|Net effect of the comprehensive financing cost    |  |              | (35.46 | )    |  |      | (0.88  | ) |  |  | 2.36   |  
|Non-deductible expenses                           |  |              | 2.51   |      |  |      | 0.97   |   |  |  | 72.58  |  
|Change of statutory tax rate                      |  |              |       |      |  |      |       |   |  |  | (31.53 | )
|Other                                             |  |              | 97.48  |      |  |      | (24.19 | ) |  |  | 56.41  |  
|                                                  |  |              |        |      |  |      |        |   |  |  |        |  
|Effective income tax rate                         |  |              | 99.53  |      |  |      | 10.90  |   |  |  | 64.82  |  
|                                                  |  |              |        |      |  |      |        |   |  |  |        |  

As a result of the amendments to the Income Tax Law approved on January
1,2002,beginning in 2003,the Income Tax rate (35%)will be reduced annually to a
nominal rate of 32% in 2005. Consequently, the effect of this gradual decrease
in the income tax rate is estimated to reduce the deferred income tax liability
by approximately $51,386 in 2002.

(F-23)

F-153



---



##### 



INDUSTRIAS CENTAURO, S. A. DE C. V.

NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2000, 2001 AND 2002  (Continued)

(Thousands of constant Mexican Pesos restated as of December 31, 2002)

The holding of the Company is authorized by the Ministry of Finance and Public
Credit to file income tax returns on a consolidated basis with some of its
Mexican subsidiaries.

The Employees Profit Sharing is calculated by applying the rate 10% over the
ISR (IR) bases in accordance with the special rules set-forth in the income tax
law.

NOTE 14  BALANCES AND TRANSACTIONS WITH RELATED PARTIES:



|a. |  | Balances as of December 31, 2001 and 2002 are as follows:
|-- |  | ---------------------------------------------------------

|                                               |  |              |         |      |  |   |         | 
|---------------------------------------------- |  | ------------ | ------- | ---- |  | - | ------- | 
|                                               |  | December 31,
|                                               |  |             
|                                               |  | 2001         |         | 2002
|                                               |  |              |         |     
|Accounts receivable:                           |  |              |         |      |  |   |         | 
|Envases y Empaques de México, S. A. de C. V    |  | $            | 54,805  |      |  | $ | 91,426  | 
|Papelera Heda, S. A. de C. V                   |  |              | 42,617  |      |  |   | 74,588  | 
|Empaques de Cartón Titán, S. A. de C. V        |  |              |         |      |  |   | 95,380  | 
|Compañía Pepelera de Atenquique, S. A. de C. V |  |              | 61,013  |      |  |   | 26,043  | 
|Others                                         |  |              | 68,967  |      |  |   | 65,104  | 
|                                               |  |              |         |      |  |   |         | 
|                                               |  | $            | 227,402 |      |  | $ | 352,541 | 
|                                               |  |              |         |      |  |   |         | 

|                                   |  |              |         |      |  |   |         | 
|---------------------------------- |  | ------------ | ------- | ---- |  | - | ------- | 
|                                   |  | December 31,
|                                   |  |             
|                                   |  | 2001         |         | 2002
|                                   |  |              |         |     
|Accounts payable:                  |  |              |         |      |  |   |         | 
|Corporación Durango, S. A. de C. V |  | $            | 843,127 |      |  | $ | 889,391 | 
|Mckinley Paper Company, Co.        |  |              | 35,776  |      |  |   | 27,502  | 
|Others                             |  |              | 5,420   |      |  |   | 61,032  | 
|                                   |  |              |         |      |  |   |         | 
|                                   |  | $            | 884,323 |      |  | $ | 977,925 | 
|                                   |  |              |         |      |  |   |         | 

(1)  The Company frequently engages in transactions including sales of raw
materials and
purchases of energy with affiliated companies.

(F-24)

F-154



---



##### 



INDUSTRIAS CENTAURO, S. A. DE C. V.

NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2000, 2001 AND 2002  (Continued)

(Thousands of constant Mexican Pesos restated as of December 31, 2002)

(2)  Intercompany financing arrangements are being organized centrally by the
Companys
parent, Corporacion Durango, S.A. de C.V. These arrangements comprise cash
pooling arrangements and, the lending and borrowing of funds.

(3)  The companies listed above are direct and/or indirect subsidiaries of the
Companys parent,
Corporación Durango, S.A de C.V.



|b. |  | Figures include the following transactions with related parties:
|-- |  | ----------------------------------------------------------------

|                  |  |              |         |      |  |      |         |  |  |   |         | 
|----------------- |  | ------------ | ------- | ---- |  | ---- | ------- |  |  | - | ------- | 
|                  |  | Year ended  
|                  |  | December 31,
|                  |  |             
|                  |  | 2000         |         | 2001 |  | 2002
|                  |  |              |         |      |  |     
|Revenues:         |  |              |         |      |  |      |         |  |  |   |         | 
|Sales             |  | $            | 664,892 |      |  | $    | 881,164 |  |  | $ | 821,345 | 
|Services          |  |              | 5,840   |      |  |      | 9,795   |  |  |   | 9,016   | 
|Sales of material |  |              | 12,029  |      |  |      |        |  |  |   |        | 
|Lending           |  |              | 1,102   |      |  |      | 5,561   |  |  |   | 1,907   | 
|Interest          |  |              | 1,391   |      |  |      | 14,966  |  |  |   | 32,291  | 
|Others            |  |              |        |      |  |      | 88,103  |  |  |   | 28,027  | 
|                  |  |              |         |      |  |      |         |  |  |   |         | 
|                  |  | $            | 685,254 |      |  | $    | 999,589 |  |  | $ | 892,586 | 
|                  |  |              |         |      |  |      |         |  |  |   |         | 

|                              |  |              |         |      |  |      |         |  |  |   |         | 
|----------------------------- |  | ------------ | ------- | ---- |  | ---- | ------- |  |  | - | ------- | 
|                              |  | Year ended  
|                              |  | December 31,
|                              |  |             
|                              |  | 2000         |         | 2001 |  | 2002
|                              |  |              |         |      |  |     
|Expenses:                     |  |              |         |      |  |      |         |  |  |   |         | 
|Purchases                     |  | $            | 105,726 |      |  | $    | 381,988 |  |  | $ | 270,072 | 
|Interest                      |  |              | 61,059  |      |  |      | 50,820  |  |  |   | 65,514  | 
|Property, plant and equipment |  |              |        |      |  |      | 48,858  |  |  |   |        | 
|Services                      |  |              | 5,694   |      |  |      | 6,825   |  |  |   | 6,498   | 
|Others                        |  |              | 43,266  |      |  |      | 105,817 |  |  |   | 58,726  | 
|                              |  |              |         |      |  |      |         |  |  |   |         | 
|                              |  | $            | 215,745 |      |  | $    | 594,308 |  |  | $ | 400,810 | 
|                              |  |              |         |      |  |      |         |  |  |   |         | 

(F-25)

F-155



---



##### 



INDUSTRIAS CENTAURO, S. A. DE C. V.

NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2000, 2001 AND 2002  (Continued)

(Thousands of constant Mexican Pesos restated as of December 31, 2002)

NOTE 15  NEW ACCOUNTING STANDARDS:

In November 2001, the MIPA issued revised Bulletin C-9, Liabilities,
Provisions, Contingent Assets and Liabilities and Commitments (Bulletin
C-9), which supersedes existing Bulletin C-9, Liabilities and Bulletin C-12,
Contingencies and Commitments. Bulletin C-9 establishes a methodology for
valuation, presentation and disclosure of liabilities and provisions, as well
as for valuation and disclosure of contingent assets and liabilities, and for
disclosure of commitments.

Bulletin C-9 establishes guidelines for the recognition of liabilities and
non-recognition of liabilities in the event of extinguishments, restructurings
or conversion to equity. In addition, in the case of provisions, it
introduces the concept of discounting long-term provisions. With respect to
contingent liabilities, Bulletin C-9 states that all contingent liabilities
that have a probable realization must be accounted for and disclosed in the
financial statements, contingent liabilities that have a possible realization
cannot be accounted for in the financial statements, but must be disclosed, and
contingent liabilities that have a remote realization cannot be accounted for
in the financial statements and are not required to be disclosed. Bulletin
C-9 requires disclosure of committed amounts when they represent significant
fixed asset additions, contracted services and goods that exceed the Companys
immediate needs or if the commitment is considered a contracted obligation.
The provisions of Bulletin C-9 are required to be applied beginning on January
1, 2003, although early adoption is recommended. Management is currently
evaluating the impact that the adoption of Bulletin C-9 will have on its
financial statements.

(F-26)

F-156



---



##### 



INDUSTRIAS CENTAURO, S. A. DE C. V.

NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2000, 2001 AND 2002  (Continued)

(Thousands of constant Mexican Pesos restated as of December 31, 2002)

In addition, in December 2001, the MIPA issued Bulletin C-8, Intangible
Assets (Bulletin C-8), which defines intangible assets as costs incurred
and rights or privileges acquired that will generate a future economic benefit,
Bulletin C-8 provides a clear definition of research and development costs,
requiring that only development costs may be deferred to a future period.
Furthermore, Bulletin C-8 states that preoperating costs should be expensed as
a period cost, unless they could be classified as development costs. Bulletin
C-8 requires that intangible assets with indefinite useful lives should not be
amortized, but should be evaluated for impairment annually. Goodwill and
intangible assets with finite useful lives should be amortized over their
useful lives. The provisions of Bulletin C-8 are required to be applied
beginning on January 1, 2003, although early adoption is recommended.
Management is currently evaluating the impact that the adoption of Bulletin C-8
will have on its financial statements.

NOTE 16  RECONCILIATION BETWEEN MEXICAN AND U.S. GAAP:

The Companys financial statements are prepared in accordance with Mexican
GAAP, which differs in certain significant respects from U.S. GAAP. The
Mexican GAAP financial statements include the effects of inflation as provided
for under Bulletin B-10. The application of Bulletin B-10 represents a
comprehensive measure of the effects of price level changes in the Mexican
economy, and is considered to result in a more meaningful presentation than
historical cost-based financial reporting for both Mexican and U.S. accounting
purposes. Therefore, the following reconciliation to U.S. GAAP does not include
the reversal of such inflationary effects.

The principal differences between Mexican GAAP and U.S. GAAP, other than
inflation accounting, are presented in the following pages with an explanation,
where appropriate, of the effects on net income and shareholders equity.
Reconciling items are presented net of any gain or loss from monetary position.

Reconciliation of net income (loss):

|                                           |  |    |   |  |        |                          |          |      |        |      |         |  |        |  |           |  
|------------------------------------------ |  | -- | - |  | ------ | ------------------------ | -------- | ---- | ------ | ---- | ------- |  | ------ |  | --------- | -
|                                           |  |    |   |  |        | Years ended December 31,
|                                           |  |    |   |  |        |                         
|                                           |  |    |   |  |        | 2000                     |          | 2001 |        | 2002
|                                           |  |    |   |  |        |                          |          |      |        |     
|Net income (loss) under Mexican GAAP       |  |    |   |  |        | $                        | 750      |      |        | $    | 209,656 |  |        |  | ($163,180 | )
|Deferred income taxes                      |  |    | i |  |        |                          | (48,766  | )    |        |      | 28,649  |  |        |  | (134,073  | )
|Deferred employee profit sharing           |  |    | i |  |        |                          | (9,821   | )    |        |      | 25,888  |  |        |  | (10,605   | )
|Effect of fifth amendment to Bulletin B-10 |  | ii |   |  | 16,344 |                          |          |      | 12,810 |      |         |  | 41,773 | 
|                                           |  |    |   |  |        |                          |          |      |        |      |         |  |        |  |           |  
|Net income (loss) under U.S. GAAP          |  |    |   |  |        |                          | ($41,493 | )    |        | $    | 277,003 |  |        |  | ($266,085 | )
|                                           |  |    |   |  |        |                          |          |      |        |      |         |  |        |  |           |  

(F-27)

F-157



---



##### 



INDUSTRIAS CENTAURO, S. A. DE C. V.

NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2000, 2001 AND 2002  (Continued)

(Thousands of constant Mexican Pesos restated as of December 31, 2002)

Reconciliation shareholders equity:

|                                              |                                        |    |   |  |  |   |                          |            |      |   |           |          |   |   |           |          |  
|--------------------------------------------- | -------------------------------------- | -- | - |  |  | - | ------------------------ | ---------- | ---- | - | --------- | -------- | - | - | --------- | -------- | -
|                                              |                                        |    |   |  |  |   | Years ended December 31,
|                                              |                                        |    |   |  |  |   |                         
|                                              |                                        |    |   |  |  |   | 2000                     |            | 2001 |   | 2002     
|                                              |                                        |    |   |  |  |   |                          |            |      |   |          
|Total shareholders equity under Mexican GAAP |                                        |    |   |  |  | $ | 1,289,842                |            |      | $ | 1,288,893 |          |   | $ | 1,050,625 |         
|Deferred income taxes                         |                                        |    | i |  |  |   | 131,459                  |            |      |   | 162,353   |          |   |   | (262      | )       
|Deferred employee profit sharing              |                                        |    | i |  |  |   | (221,999                 | )          |      |   | (196,110  | )        |   |   | (206,715  | )       
|Effect of fifth amendment of Bulletin B-10:   |                                        | ii |   |  |  |   |                          |            |      |   |           |          |   |  
|                                              | Fixed assets                          |    |   |  |  |   |                          | (1,024,289 | )    |   |           | (821,304 | ) |   |           | (761,194 | )
|                                              | Fixed assets accumulated depreciation |    |   |  |  |   |                          | 612,726    |      |   |           | 581,943  |   |   |           | 657,810  |  
|                                              |                                        |    |   |  |  |   |                          |            |      |   |           |          |   |   |           |         
|Total shareholders equity under U.S. GAAP    |                                        |    |   |  |  | $ | 787,739                  |            |      | $ | 1,015,775 |          |   | $ | 740,264   |         
|                                              |                                        |    |   |  |  |   |                          |            |      |   |           |          |   |   |           |         

Provided below is an analysis of the changes in shareholders equity under U.S. GAAP:

|                                           |  |                         |           |      |  |   |           |  
|------------------------------------------ |  | ----------------------- | --------- | ---- |  | - | --------- | -
|                                           |  | Year ended December 31,
|                                           |  |                        
|                                           |  | 2001                    |           | 2002
|                                           |  |                         |           |     
|Balance at beginning of the year           |  | $                       | 787,739   |      |  | $ | 1,015,775 |  
|Net income (loss) under U.S. GAAP          |  |                         | 277,003   |      |  |   | (252,509  | )
|Deficit from restatement                   |  |                         | (208,359  | )    |  |   | (103,629  | )
|Effect of Fifth Amendment of Bulletin B-10 |  |                         | 159,392   |      |  |   | 94,203    |  
|                                           |  |                         |           |      |  |   |           |  
|Balance at end of the year                 |  | $                       | 1,015,775 |      |  | $ | 753,840   |  
|                                           |  |                         |           |      |  |   |           |  

(F-28)

F-158



---



##### 



INDUSTRIAS CENTAURO, S. A. DE C. V.

NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2000, 2001 AND 2002  (Continued)

(Thousands of constant Mexican Pesos restated as of December 31, 2002)

Comprehensive loss

Comprehensive loss under Mexican GAAP is as follows:

|                                     |  |                         |           |      |  |      |             |   |  |  |             |  
|------------------------------------ |  | ----------------------- | --------- | ---- |  | ---- | ----------- | - |  |  | ----------- | -
|                                     |  | Years ended December 31
|                                     |  |                        
|                                     |  | 2000                    |           | 2001 |  | 2002
|                                     |  |                         |           |      |  |     
|Net income (loss) under Mexican GAAP |  | $                       | 750       |      |  | $    | 209,656     |   |  |  | ($163,180   | )
|                                     |  |                         |           |      |  |      |             |   |  |  |             |  
|Other comprehensive loss, net:       |  |                         |           |      |  |      |             |   |  |  |             |  
|Other Comprehensive loss             |  |                         | (711,033  | )    |  |      | (210,605    | ) |  |  | (75,088     | )
|                                     |  |                         |           |      |  |      |             |   |  |  |             |  
|Comprehensive loss                   |  |                         | ($710,283 | )    |  |      | ($949       | ) |  |  | ($238,268   | )
|                                     |  |                         |           |      |  |      |             |   |  |  |             |  
|Other accumulated comprehensive loss |  |                         | ($939,510 | )    |  |      | ($1,150,115 | ) |  |  | ($1,225,203 | )
|                                     |  |                         |           |      |  |      |             |   |  |  |             |  

The components of other accumulated comprehensive loss as of December 31, 2000, 2001 and 2002 is as follows:

|                              |  |              |           |             |  |               |           |       |  |  |             |  
|----------------------------- |  | ------------ | --------- | ----------- |  | ------------- | --------- | ----- |  |  | ----------- | -
|                              |  |              |           |             |  | (Loss) from   |           | Other
|                              |  | Effect of    |           | holding non |  | accumulated  
|                              |  | adoptions of |           | monetary    |  | comprehensive
|                              |  | Bulletin D-4 |           | assets (1)  |  | loss         
|                              |  |              |           |             |  |              
|Balance at January 1, 2000    |  | $            |          |             |  |               | ($228,477 | )     |  |  | ($228,477   | )
|Current period changes        |  |              | (625,676  | )           |  |               | (85,357   | )     |  |  | (711,033    | )
|                              |  |              |           |             |  |               |           |       |  |  |             |  
|Balances at December 31, 2000 |  |              | (625,676  | )           |  |               | (313,834  | )     |  |  | (939,510    | )
|Current period changes        |  |              |          |             |  |               | (210,605  | )     |  |  | (210,605    | )
|                              |  |              |           |             |  |               |           |       |  |  |             |  
|Balances at December 31, 2001 |  |              | (625,676  | )           |  |               | (524,439  | )     |  |  | (1,150,115  | )
|Current period changes        |  |              |          |             |  |               | (75,088   | )     |  |  | (75,088     | )
|                              |  |              |           |             |  |               |           |       |  |  |             |  
|Balances at December 31, 2002 |  |              | ($625,676 | )           |  |               | ($599,527 | )     |  |  | ($1,225,203 | )
|                              |  |              |           |             |  |               |           |       |  |  |             |  

(F-29)

F-159



---



##### 



INDUSTRIAS CENTAURO, S. A. DE C. V.

NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2000, 2001 AND 2002  (Continued)

(Thousands of constant Mexican Pesos restated as of December 31, 2002)



|(1) |  | For 2000, 2001 and 2002, the loss from holding non-monetary assets
includes deferred tax effect of $8,081, $2,245 and ($28,543),
respectively, as a result of the adoption of Bulletin D-4.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

i.     Deferred income tax and employee profit sharing

Statement of Financial Accounting Standards No. 109 Accounting For Income
Taxes (SFAS No. 109) requires an asset and liability approach for financial
accounting and reporting for income tax under the following basic principles:
(a) a current tax liability or asset is recognized for the estimated taxes
payable or refundable on tax returns for the current year, (b) a deferred tax
liability or asset is recognized for the estimated future tax effects
attributable to temporary differences and tax loss and tax credit carry
forwards, (c) the measurement of current and deferred tax assets and
liabilities is based on provisions of the enacted tax law; the effects of
future changes in tax laws or rates are not anticipated, and (d) the
measurement of deferred tax assets is reduced, if necessary, by the amount of
any tax benefits for which available evidence indicates that it is more likely
than not that the tax benefit will not be realized. Under this method,
deferred tax and employee profit sharing are recognized with respect to all
temporary differences, and the benefit from utilizing tax loss carry forwards
and asset tax credits is recognized in the year in which the losses or credits
arise (subject to a valuation allowance with respect to any tax benefits which
in managements opinion, are more likely than not that they are not expected to
be realized). The subsequent realization of this benefit does not affect the
income tax provision.

Temporary differences under FAS No. 109 are determined based on the difference
between the indexed tax-basis amount of the asset or liability and the related
restated amount reported in the financial statements. The deferred income tax
expense or benefit is calculated as the difference between (a) the deferred tax
assets and liabilities at the end of the current period, and (b) the deferred
tax assets and liabilities reported at the end of the prior period remeasured
to units of
current general purchasing power at the end of the current period, whereas,
under Mexican GAAP Bulletin D-4, the change in the deferred tax asset or
liability is first measured on a historical cost basis and the components of
the change including monetary gains or losses are allocated between tax
provision, deficit from restatement and monetary gain or loss.

(F-30)

F-160



---



##### 



INDUSTRIAS CENTAURO, S. A. DE C. V.

NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2000, 2001 AND 2002  (Continued)

(Thousands of constant Mexican Pesos restated as of December 31, 2002)

The significant components of income and asset tax expense benefit under U.S.
GAAP were as follows:

|                                        |  |                         |         |      |  |      |         |   |  |   |        | 
|--------------------------------------- |  | ----------------------- | ------- | ---- |  | ---- | ------- | - |  | - | ------ | 
|                                        |  | Year ended December 31,
|                                        |  |                        
|                                        |  | 2000                    |         | 2001 |  | 2002
|                                        |  |                         |         |      |  |     
|Income and asset tax expense (benefit): |  |                         |         |      |  |      |         |   |  |   |        | 
|Current                                 |  | $                       |        |      |  | $    | 1,645   |   |  | $ |       | 
|Deferred                                |  |                         | 159,833 |      |  |      | (6,349  | ) |  |   | 59,891 | 
|                                        |  |                         |         |      |  |      |         |   |  |   |        | 
|Income and asset tax provision          |  | $                       | 159,833 |      |  |      | ($4,704 | ) |  | $ | 59,891 | 
|                                        |  |                         |         |      |  |      |         |   |  |   |        | 

The income tax and profit sharing effects of significant items comprising the
Companys net deferred income tax and profit sharing assets and liabilities
under U.S. GAAP are as follows:

|                                          |  |       |         |       |  |   |         |  
|----------------------------------------- |  | ----- | ------- | ----- |  | - | ------- | -
|                                          |  | Total |         | Total
|                                          |  | 2001  |         | 2002 
|                                          |  |       |         |      
|Deferred income tax liabilities (assets): |  |       |         |       |  |   |         |  
|Inventories                               |  | $     | 80,778  |       |  | $ | 68,271  |  
|Property, plant and equipment             |  |       | 592,253 |       |  |   | 476,043 |  
|Other assets                              |  |       | 2,214   |       |  |   | 3,833   |  
|Allowance for Doubtful Accounts           |  |       | (1,087  | )     |  |   | (1,023  | )
|Provisions                                |  |       | (63,915 | )     |  |   |        |  
|Asset tax credits                         |  |       | (3,228  | )     |  |   |        |  
|                                          |  |       |         |       |  |   |         |  
|Total net deferred income tax liabilities |  | $     | 607,015 |       |  | $ | 547,124 |  
|                                          |  |       |         |       |  |   |         |  

(F-31)

F-161



---



##### 



INDUSTRIAS CENTAURO, S. A. DE C. V.

NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2000, 2001 AND 2002  (Continued)

(Thousands of constant Mexican Pesos restated as of December 31, 2002)

|                                                       |  |             |         |      |  |   |         |  
|------------------------------------------------------ |  | ----------- | ------- | ---- |  | - | ------- | -
|                                                       |  | December 31
|                                                       |  |            
|                                                       |  | 2001        |         | 2002
|                                                       |  |             |         |     
|Deferred employee profit sharing liabilities (assets): |  |             |         |      |  |   |         |  
|Inventory                                              |  | $           | 23,080  |      |  | $ | 20,688  |  
|Property, plant and equipment                          |  |             | 212,572 |      |  |   | 180,544 |  
|Other assets                                           |  |             | 633     |      |  |   | 1,161   |  
|Allowance for doubtful accounts                        |  |             | (311    | )    |  |   |        |  
|Provisions                                             |  |             | (18,262 | )    |  |   | (310    | )
|Exchange rate fluctuations                             |  |             | (21,602 | )    |  |   | 4,632   |  
|                                                       |  |             |         |      |  |   |         |  
|Total net deferred employee profit sharing liability   |  | $           | 196,110 |      |  | $ | 206,715 |  
|                                                       |  |             |         |      |  |   |         |  

The deferred income tax and profit sharing classification in the condensed
balance sheet as of December 31, 2001 and 2002 is as follow:

|                              |  |                   |          |                |  |       |          |   |  |   |          |  
|----------------------------- |  | ----------------- | -------- | -------------- |  | ----- | -------- | - |  | - | -------- | -
|                              |  | December 31, 2001
|                              |  |                  
|                              |  | Deferred          |          | Deferred       |  |       |          |  
|                              |  | income tax        |          | profit sharing |  | Total
|                              |  |                   |          |                |  |      
|Deferred income tax (assets)  |  |                   |          |                |  |       |          |   |  |   |          |  
|Current                       |  |                   | ($65,001 | )              |  |       | ($18,573 | ) |  |   | ($83,574 | )
|Long term                     |  |                   | (3,229   | )              |  |       |          |   |  |   | (3,229   | )
|                              |  |                   |          |                |  |       |          |   |  |   |          |  
|                              |  |                   | (68,230  | )              |  |       | (18,573  | ) |  |   | (86,803  | )
|Deferred income tax liability |  |                   |          |                |  |       |          |   |  |   |          |  
|Current                       |  |                   | 80,778   |                |  |       | 23,080   |   |  |   | 103,858  |  
|Long term                     |  |                   | 594,467  |                |  |       | 191,603  |   |  |   | 786,070  |  
|                              |  |                   |          |                |  |       |          |   |  |   |          |  
|                              |  |                   | 675,245  |                |  |       | 214,683  |   |  |   | 889,928  |  
|                              |  |                   |          |                |  |       |          |   |  |   |          |  
|Deferred income tax, Net      |  | $                 | 607,015  |                |  | $     | 196,110  |   |  | $ | 803,125  |  
|                              |  |                   |          |                |  |       |          |   |  |   |          |  

(F-32)

F-162



---



##### 



INDUSTRIAS CENTAURO, S. A. DE C. V.

NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2000, 2001 AND 2002  (Continued)

(Thousands of constant Mexican Pesos restated as of December 31, 2002)

|                              |  |                   |         |                |  |       |         |   |  |   |         |  
|----------------------------- |  | ----------------- | ------- | -------------- |  | ----- | ------- | - |  | - | ------- | -
|                              |  | December 31, 2002
|                              |  |                  
|                              |  | Deferred          |         | Deferred       |  |       |         |  
|                              |  | income tax        |         | profit sharing |  | Total
|                              |  |                   |         |                |  |      
|Deferred income tax (assets)  |  |                   |         |                |  |       |         |   |  |   |         |  
|Current                       |  |                   | ($1,023 | )              |  |       | ($310   | ) |  |   | ($1,333 | )
|Long term                     |  |                   |        |                |  |       |        |   |  |   |        |  
|                              |  |                   |         |                |  |       |         |   |  |   |         |  
|                              |  |                   | (1,023  | )              |  |       | (310    | ) |  |   | (1,333  | )
|Deferred income tax liability |  |                   |         |                |  |       |         |   |  |   |         |  
|Current                       |  |                   | 68,271  |                |  |       | 20,688  |   |  |   | 88,959  |  
|Long term                     |  |                   | 479,876 |                |  |       | 186,336 |   |  |   | 666,212 |  
|                              |  |                   |         |                |  |       |         |   |  |   |         |  
|                              |  |                   | 548,147 |                |  |       | 207,024 |   |  |   | 755,171 |  
|                              |  |                   |         |                |  |       |         |   |  |   |         |  
|Deferred income tax, Net      |  | $                 | 547,124 |                |  | $     | 206,714 |   |  | $ | 753,838 |  
|                              |  |                   |         |                |  |       |         |   |  |   |         |  

Under U.S. GAAP, employee profit sharing is recorded as an operating expense.

For the year ended December 31, 2001 and 2002, the difference in net deferred
tax liabilities between Mexican and U.S. GAAP was as follows:

(F-33)

F-163



---



##### 



INDUSTRIAS CENTAURO, S. A. DE C. V.

NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2000, 2001 AND 2002  (Continued)

(Thousands of constant Mexican Pesos restated as of December 31, 2002)

|                        |  |         |         |      |  |            |         |   |  |   |         | 
|----------------------- |  | ------- | ------- | ---- |  | ---------- | ------- | - |  | - | ------- | 
|                        |  | Mexican |         | U.S. |  |            |         |  
|                        |  | GAAP    |         | GAAP |  | Difference
|                        |  |         |         |      |  |           
|Deferred tax liability: |  |         |         |      |  |            |         |   |  |   |         | 
|At December 31, 2000    |  | $       | 744,824 |      |  | $          | 613,364 |   |  | $ | 131,460 | 
|At December 31, 2001:   |  |         | 769,369 |      |  |            | 607,015 |   |  |   | 162,354 | 
|                        |  |         |         |      |  |            |         |   |  |   |         | 
|Net change              |  | $       | 24,545  |      |  |            | ($6,349 | ) |  | $ | 30,894  | 
|                        |  |         |         |      |  |            |         |   |  |   |         | 

|                        |  |         |           |      |  |            |          |   |  |   |           |  
|----------------------- |  | ------- | --------- | ---- |  | ---------- | -------- | - |  | - | --------- | -
|                        |  | Mexican |           | U.S. |  |            |          |  
|                        |  | GAAP    |           | GAAP |  | Difference
|                        |  |         |           |      |  |           
|Deferred tax liability: |  |         |           |      |  |            |          |   |  |   |           |  
|At December 31, 2001    |  | $       | 769,369   |      |  | $          | 607,015  |   |  | $ | 162,354   |  
|At December 31, 2002    |  |         | 546,862   |      |  |            | 547,124  |   |  |   | (262      | )
|                        |  |         |           |      |  |            |          |   |  |   |           |  
|Net change              |  |         | ($222,507 | )    |  |            | ($59,891 | ) |  |   | ($162,616 | )
|                        |  |         |           |      |  |            |          |   |  |   |           |  

The net change in the deferred tax liabilities during 2001 and 2002 was
allocated to the following components:

|                                       |  |         |         |      |  |            |         |   |  |   |         |  
|-------------------------------------- |  | ------- | ------- | ---- |  | ---------- | ------- | - |  | - | ------- | -
|                                       |  | Mexican |         | U.S. |  |            |         |  
|                                       |  | GAAP    |         | GAAP |  | Difference
|                                       |  |         |         |      |  |           
|Deferred tax liability in 2001:        |  |         |         |      |  |            |         |   |  |   |         |  
|Deferred tax expense                   |  | $       | 23,996  |      |  |            | ($6,349 | ) |  | $ | 30,345  |  
|Monetary gain on initial balance       |  |         | (31,866 | )    |  |            |        |   |  |   | (31,866 | )
|Monetary loss on current period change |  |         | 30,170  |      |  |            |        |   |  |   | 30,170  |  
|                                       |  |         |         |      |  |            |         |   |  |   |         |  
|                                       |  |         | 22,300  |      |  |            | (6,349  | ) |  |   | 28,649  |  
|Loss from holding non-monetary assets  |  |         | 2,245   |      |  |            |        |   |  |   | 2,245   |  
|                                       |  |         |         |      |  |            |         |   |  |   |         |  
|                                       |  | $       | 24,545  |      |  |            | ($6,349 | ) |  | $ | 30,894  |  
|                                       |  |         |         |      |  |            |         |   |  |   |         |  

(F-34)

F-164



---



##### 



INDUSTRIAS CENTAURO, S. A. DE C. V.

NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2000, 2001 AND 2002  (Continued)

(Thousands of constant Mexican Pesos restated as of December 31, 2002)

|                                       |  |         |           |      |  |            |        |  |  |  |           |  
|-------------------------------------- |  | ------- | --------- | ---- |  | ---------- | ------ |  |  |  | --------- | -
|Deferred tax liability in 2002:        |  | Mexican |           | U.S. |  |            |        | 
|                                       |  | GAAP    |           | GAAP |  | Difference
|                                       |  |         |           |      |  |           
|Deferred tax expense                   |  |         | ($194,207 | )    |  | $          | 59,891 |  |  |  | ($134,316 | )
|Monetary gain on initial balance       |  |         | (38,940   | )    |  |            |       |  |  |  | (38,940   | )
|Monetary loss on current period change |  |         | 39,183    |      |  |            |       |  |  |  | 39,183    |  
|                                       |  |         |           |      |  |            |        |  |  |  |           |  
|                                       |  |         | (193,964  | )    |  |            | 59,891 |  |  |  | (134,073  | )
|Gain from holding non-monetary assets  |  |         | (28,543   | )    |  |            |       |  |  |  | (28,543   | )
|                                       |  |         |           |      |  |            |        |  |  |  |           |  
|                                       |  |         | ($222,507 | )    |  | $          | 59,891 |  |  |  | ($162,616 | )
|                                       |  |         |           |      |  |            |        |  |  |  |           |  

ii.     Effect of fifth amendment to Bulletin B-10 (Modified)

As mentioned in Note 2, the Company elected, as a result of the adoption of the
Fifth Amendment to Bulletin B-10 (Modified), to restate its non-monetary assets
of foreign origin based on the change of the Mexican peso against the foreign
currencies and by applying inflation rates of the countries from which the
non-monetary assets originate.

This methodology is not consistent with Rule 3-20 of Regulation S-X regarding
the use of the same reporting currency for all periods. Under U.S. GAAP, these
assets, which are used in Mexico, are adjusted by the Mexican NCPI and
depreciation is calculated using the adjusted basis.




Additionally, as described in Note 3k, during the year the Company recognized
an impairment of certain long-lived assets. The U.S. GAAP carrying
value of the
fixed assets impaired was different to the carrying value recorded under Mexican GAAP
due to the effect of the Fifth Amendment to Bulletin B-10. As a result the
Company reversed the additional loss recognized under Mexican GAAP.




The following tables present the Companys condensed balance sheets as of
December 31, 2001 and 2002 and statements of income for the three years ended
December 31, 2000, 2001 and 2002, reflecting U.S. GAAP adjustments. All
amounts have been indexed to December 31, 2002 constant pesos, using the
Mexican NCPI factor:

(F-35)

F-165



---



##### 



INDUSTRIAS CENTAURO, S. A. DE C. V.

NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2000, 2001 AND 2002  (Continued)

(Thousands of constant Mexican Pesos restated as of December 31, 2002)

CONDENSED BALANCE SHEETS:

|                                                |  |                 |           |      |  |   |           | 
|----------------------------------------------- |  | --------------- | --------- | ---- |  | - | --------- | 
|                                                |  | At December 31,
|                                                |  |                
|Assets                                          |  | 2001            |           | 2002
|                                                |  |                 |           |     
|Current assets:                                 |  |                 |           |      |  |   |           | 
|Cash and cash equivalents                       |  | $               | 2,779     |      |  | $ | 524       | 
|Accounts receivable                             |  |                 | 75,072    |      |  |   | 56,561    | 
|Related Parties                                 |  |                 | 227,402   |      |  |   | 352,541   | 
|Inventories                                     |  |                 | 218,277   |      |  |   | 206,511   | 
|Deferred income tax and employee profit sharing |  |                 | 83,574    |      |  |   | 1,333     | 
|Other                                           |  |                 | 27,012    |      |  |   | 11,235    | 
|                                                |  |                 |           |      |  |   |           | 
|Total current assets                            |  |                 | 634,116   |      |  |   | 628,705   | 
|Property, plant and equipment                   |  |                 | 2,253,019 |      |  |   | 1,906,493 | 
|Deferred income tax and employee profit sharing |  |                 | 3,229     |      |  |   |          | 
|Other assets                                    |  |                 | 9,804     |      |  |   | 14,292    | 
|                                                |  |                 |           |      |  |   |           | 
|Total assets                                    |  | $               | 2,900,168 |      |  | $ | 2,549,490 | 
|                                                |  |                 |           |      |  |   |           | 

(F-36)

F-166



---



##### 



INDUSTRIAS CENTAURO, S. A. DE C. V.

NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2000, 2001 AND 2002  (Continued)

(Thousands of constant Mexican Pesos restated as of December 31, 2002)

|                                                |  |                 |           |      |  |   |           | 
|----------------------------------------------- |  | --------------- | --------- | ---- |  | - | --------- | 
|                                                |  | At December 31,
|                                                |  |                
|                                                |  | 2001            |           | 2002
|                                                |  |                 |           |     
|Liabilities and stockholders equity            |  |                 |           |      |  |   |           | 
|Current liabilities:                            |  |                 |           |      |  |   |           | 
|Related Parties                                 |  | $               | 884,323   |      |  | $ | 977,925   | 
|Accrued liabilities and other payable           |  |                 | 108,610   |      |  |   | 74,638    | 
|Deferred income tax and employee profit sharing |  |                 | 103,858   |      |  |   | 88,959    | 
|                                                |  |                 |           |      |  |   |           | 
|Total current liabilities                       |  |                 | 1,096,791 |      |  |   | 1,141,522 | 
|                                                |  |                 |           |      |  |   |           | 
|Long-term debt                                  |  |                 |           |      |  |   |           | 
|Seniority premiums                              |  |                 | 1,531     |      |  |   | 1,491     | 
|Deferred income tax and employee profit sharing |  |                 | 786,071   |      |  |   | 666,213   | 
|                                                |  |                 |           |      |  |   |           | 
|Total long-term liabilities                     |  |                 | 787,602   |      |  |   | 667,704   | 
|                                                |  |                 |           |      |  |   |           | 
|Total liabilities                               |  |                 | 1,884,393 |      |  |   | 1,809,226 | 
|                                                |  |                 |           |      |  |   |           | 
|Stockholders equity                            |  |                 | 1,015,775 |      |  |   | 740,264   | 
|                                                |  |                 |           |      |  |   |           | 
|Total liabilities and stockholders equity      |  | $               | 2,900,168 |      |  | $ | 2,549,490 | 
|                                                |  |                 |           |      |  |   |           | 

(F-37)

F-167



---



##### 



INDUSTRIAS CENTAURO, S. A. DE C. V.

NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2000, 2001 AND 2002  (Continued)

(Thousands of constant Mexican Pesos restated as of December 31, 2002)

CONDENSED STATEMENTS OF INCOME:

|                                                     |  |                          |           |      |  |      |           |   |  |   |          |  
|---------------------------------------------------- |  | ------------------------ | --------- | ---- |  | ---- | --------- | - |  | - | -------- | -
|                                                     |  | Years ended December 31,
|                                                     |  |                         
|                                                     |  | 2000                     |           | 2001 |  | 2002
|                                                     |  |                          |           |      |  |     
|Net sales                                            |  | $                        | 1,137,172 |      |  | $    | 1,057,607 |   |  | $ | 973,631  |  
|Cost of sales                                        |  |                          | 896,659   |      |  |      | 745,124   |   |  |   | 757,369  |  
|                                                     |  |                          |           |      |  |      |           |   |  |   |          |  
|Gross profit                                         |  |                          | 240,513   |      |  |      | 312,483   |   |  |   | 216,262  |  
|Selling, general and administrative expenses         |  |                          | 100,471   |      |  |      | 69,491    |   |  |   | 412,721  |  
|                                                     |  |                          |           |      |  |      |           |   |  |   |          |  
|Operating income (loss)                              |  |                          | 140,042   |      |  |      | 242,992   |   |  |   | (196,459 | )
|                                                     |  |                          |           |      |  |      |           |   |  |   |          |  
|Financing cost:                                      |  |                          |           |      |  |      |           |   |  |   |          |  
|Interest expense                                     |  |                          | 50,048    |      |  |      | 53,197    |   |  |   | 67,887   |  
|Interest income                                      |  |                          | (9,950    | )    |  |      | (20,402   | ) |  |   | (34,622  | )
|Foreign loss (gain), net                             |  |                          | 14,612    |      |  |      | (48,885   | ) |  |   | 112,216  |  
|Gain from monetary position                          |  |                          | (79,927   | )    |  |      | (33,913   | ) |  |   | (34,465  | )
|                                                     |  |                          |           |      |  |      |           |   |  |   |          |  
|                                                     |  |                          | (25,217   | )    |  |      | (50,003   | ) |  |   | 111,016  |  
|                                                     |  |                          |           |      |  |      |           |   |  |   |          |  
|Other expense, net                                   |  |                          | (46,917   | )    |  |      | (20,696   | ) |  |   | (18,501  | )
|                                                     |  |                          |           |      |  |      |           |   |  |   |          |  
|Income (loss) before provision and minority interest |  |                          | 118,342   |      |  |      | 272,299   |   |  |   | (325,976 | )
|Provision for:                                       |  |                          |           |      |  |      |           |   |  |   |          |  
|Income and asset tax (benefit) expense               |  |                          | 159,833   |      |  |      | (4,704    | ) |  |   | 59,891   |  
|                                                     |  |                          |           |      |  |      |           |   |  |   |          |  
|Net income (loss)                                    |  | $                        | (41,491   | )    |  | $    | 277,003   |   |  | $ | (266,085 | )
|                                                     |  |                          |           |      |  |      |           |   |  |   |          |  

(F-38)

F-168



---



##### 



INDUSTRIAS CENTAURO, S. A. DE C. V.

NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2000, 2001 AND 2002  (Continued)

(Thousands of constant Mexican Pesos restated as of December 31, 2002)

SUPPLEMENTAL U.S.-GAAP DISCLOSURES

Cash flow information

Under U.S. GAAP, pursuant to SFAS 95, Statement of Cash Flows, a statement of
cash flow is a required component of a complete set of financial statements in
lieu of a statement of changes in financial position. SFAS 95 establishes
specific presentation requirements and additional disclosures but does not
provide guidance with respect to inflation adjusted financial statements.

Based on requirements of the Securities and Exchange Commission (the SEC),
the effect of inflation restatements and foreign exchange gains and losses on
cash flow has been included in separate line item, cash flows from financing
activities.

The U.S. GAAP statements of cash flow for the year ended December 31, 2000,
2001 and 2002 are as follows:

(F-39)

F-169



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##### 



INDUSTRIAS CENTAURO, S. A. DE C. V.

NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2000, 2001 AND 2002  (Continued)

(Thousands of constant Mexican Pesos restated as of December 31, 2002)

|                                                                                             |                          |      |                          |         |   |      |          |          |   |   |          |          |  
|-------------------------------------------------------------------------------------------- | ------------------------ | ---- | ------------------------ | ------- | - | ---- | -------- | -------- | - | - | -------- | -------- | -
|                                                                                             |                          |      | Years ended December, 31
|                                                                                             |                          |      |                         
|Operating activities:                                                                        |                          | 2000 |                          | 2001    |   | 2002
|                                                                                             |                          |      |                          |         |   |     
|U.S. GAAP Net (loss) income                                                                  |                          | $    | (41,491                  | )       |   | $    | 277,003  |          |   | $ | (266,085 | )       
|Adjustment to reconcile net (loss) income to net
cash flow provided by operating activities: |                          |      |                          |         |   |      |          |          |   |   |          |         
|Depreciation and amortization                                                                |                          |      | 47,466                   |         |   |      | 47,101   |          |   |   | 67,182   |         
|Deferred income taxes                                                                        |                          |      | 159,833                  |         |   |      | (6,349   | )        |   |   | (59,891  | )       
|Deferred employee profit sharing                                                             |                          |      | 9,821                    |         |   |      | (25,889  | )        |   |   | 10,605   |         
|Inventory obsolescence allowance                                                             |                          |      |                          |         |   |      | 4,069    |          |   |   |         |         
|Gain on monetary position                                                                    |                          |      | (79,927                  | )       |   |      | (33,913  | )        |   |   | (34,465  | )       
|Gain on sale of fixed assets                                                                 |                          |      | 30,167                   |         |   |      | 7,389    |          |   |   | 40       |         
|Unrealized foreign exchange loss, net                                                        |                          |      | 10,333                   |         |   |      | 1,619    |          |   |   | 113,454  |         
|Impairment loss                                                                              |                          |      |                         |         |   |      |         |          |   |   | 338,010  |         
|Seniority premiums                                                                           |                          |      | 336                      |         |   |      | 364      |          |   |   | 355      |         
|                                                                                             |                          |      |                          |         |   |      |          |          |   |   |          |         
|                                                                                             |                          |      | 136,538                  |         |   |      | 271,394  |          |   |   | 169,205  |         
|Changes in operating assets and liabilities:                                                 |                          |      |                          |         |   |      |          |          |   |   |          |         
|                                                                                             | Accounts receivable, net |      |                          | (28,417 | ) |      |          | (34,492  | ) |   |          | (4,181   | )
|                                                                                             | Inventories, net         |      |                          | 23,316  |   |      |          | (6,182   | ) |   |          | 24,285   |  
|                                                                                             | Affiliates, net          |      |                          |        |   |      |          |         |   |   |          | 42,966   |  
|                                                                                             | Prepaid expenses         |      |                          |        |   |      |          |         |   |   |          | (4,489   | )
|                                                                                             | Other liabilities        |      |                          | 134,377 |   |      |          | (134,846 | ) |   |          | (108,567 | )
|                                                                                             |                          |      |                          |         |   |      |          |          |   |   |          |         
|Cash flow provided by operating activities:                                                  |                          |      | 265,814                  |         |   |      | 95,874   |          |   |   | 119,219  |         
|                                                                                             |                          |      |                          |         |   |      |          |          |   |   |          |         
|Financing activities:                                                                        |                          |      |                          |         |   |      |          |          |   |   |          |         
|Bank loans                                                                                   |                          |      | 5,880                    |         |   |      |         |          |   |   |         |         
|Payments of long-term debt                                                                   |                          |      |                         |         |   |      | (123,296 | )        |   |   |         |         
|Paid in Capital                                                                              |                          |      | (1,279                   | )       |   |      |         |          |   |   |         |         
|                                                                                             |                          |      |                          |         |   |      |          |          |   |   |          |         
|Cash flow (used in) provided by financing
activities                                         |                          |      | 4,601                    |         |   |      | (123,296 | )        |   |   |         |         
|                                                                                             |                          |      |                          |         |   |      |          |          |   |   |          |         
|Investing activities:                                                                        |                          |      |                          |         |   |      |          |          |   |   |          |         
|Acquisitions of fixed assets                                                                 |                          |      | (130,457                 | )       |   |      | (45,551  | )        |   |   | (2,157   | )       
|Proceeds from sale of fixed assets                                                           |                          |      | 128                      |         |   |      | 145,676  |          |   |   | 49       |         
|                                                                                             |                          |      |                          |         |   |      |          |          |   |   |          |         
|Cash flow provided by (used in) investing activities                                         |                          |      | (130,329                 | )       |   |      | 100,125  |          |   |   | (2,108   | )       
|                                                                                             |                          |      |                          |         |   |      |          |          |   |   |          |         

(F-40)

F-170



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##### 



INDUSTRIAS CENTAURO, S. A. DE C. V.

NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2000, 2001 AND 2002  (Continued)

(Thousands of constant Mexican Pesos restated as of December 31, 2002)

|                                                                           |  |   |          |   |  |   |         |   |  |   |          |  
|-------------------------------------------------------------------------- |  | - | -------- | - |  | - | ------- | - |  | - | -------- | -
|Effect of inflation and exchange rate changes on
cash and cash equivalents |  |   | (139,042 | ) |  |   | (71,105 | ) |  |   | (119,366 | )
|Net increase (decrease) in cash and cash equivalents                       |  |   | 1,044    |   |  |   | 1,598   |   |  |   | (2,255   | )
|Cash and cash equivalents at beginning of year                             |  |   | 138      |   |  |   | 1,182   |   |  |   | 2,779    |  
|                                                                           |  |   |          |   |  |   |         |   |  |   |          |  
|Cash and cash equivalents at end of year                                   |  | $ | 1,182    |   |  | $ | 2,780   |   |  | $ | 524      |  
|                                                                           |  |   |          |   |  |   |         |   |  |   |          |  

(F-41)

F-171



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##### 



INDUSTRIAS CENTAURO, S. A. DE C. V.

NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2000, 2001 AND 2002  (Continued)

(Thousands of constant Mexican Pesos restated as of December 31, 2002)

Supplemental cash flow disclosures:

|                               |  |                         |       |      |  |      |     |  |  |   |        | 
|------------------------------ |  | ----------------------- | ----- | ---- |  | ---- | --- |  |  | - | ------ | 
|                               |  | Years ended December 31
|                               |  |                        
|                               |  | 2000                    |       | 2001 |  | 2002
|                               |  |                         |       |      |  |     
|Cash paid during the year for: |  |                         |       |      |  |      |     |  |  |   |        | 
|Income and asset tax           |  | $                       | 1,359 |      |  | $    | 948 |  |  | $ | 20,204 | 
|                               |  |                         |       |      |  |      |     |  |  |   |        | 

Supplemental balance sheet information



| |  | Inventories
|- |  | -----------

Included in inventories are $12,519 and $11,219 of advances to suppliers that
were reclassified for US GAAP purposes to other accounts receivable.



| |  | Accrued liabilities and other current payables:
|- |  | -----------------------------------------------

Included within accrued liabilities and other payables as of December 31, 2001
and 2002 are accrued freight costs ($1,541 and $0., respectively).



| |  | Valuation and qualifying accounts:
|- |  | ----------------------------------

The following table presents the rollforward of the allowance for doubtful
accounts for the years ended December 31, 2000, 2001 and 2002:

|                                       |  |                         |        |      |  |      |        |   |  |   |        |  
|-------------------------------------- |  | ----------------------- | ------ | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                       |  | Years ended December 31
|                                       |  |                        
|                                       |  | 2000                    |        | 2001 |  | 2002
|                                       |  |                         |        |      |  |     
|Balance at the beginning of the period |  | $                       | (3,532 | )    |  | $    | (3,242 | ) |  | $ | (3,106 | )
|Effects of inflation                   |  |                         | 290    |      |  |      | 136    |   |  |   | 168    |  
|Increase in the allowance              |  |                         |       |      |  |      |       |   |  |   |       |  
|Write-offs                             |  |                         |       |      |  |      |       |   |  |   | 1,146  |  
|                                       |  |                         |        |      |  |      |        |   |  |   |        |  
|Balance at the end of the period       |  | $                       | (3,242 | )    |  | $    | (3,106 | ) |  | $ | (1,792 | )
|                                       |  |                         |        |      |  |      |        |   |  |   |        |  

(F-42)

F-172



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##### 



INDUSTRIAS CENTAURO, S. A. DE C. V.

NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2000, 2001 AND 2002  (Continued)

(Thousands of constant Mexican Pesos restated as of December 31, 2002)

The following table presents the rollforward of the inventory obsolescence
allowance for the years ended December 31, 2000, 2001 and 2002:

|                                       |  |                         |      |      |  |      |        |   |  |   |        |  
|-------------------------------------- |  | ----------------------- | ---- | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                       |  | Years ended December 31
|                                       |  |                        
|                                       |  | 2000                    |      | 2001 |  | 2002
|                                       |  |                         |      |      |  |     
|Balance at the beginning of the period |  | $                       | (703 | )    |  | $    | (646   | ) |  | $ | (4,688 | )
|Effects of inflation                   |  |                         | 57   |      |  |      | 27     |   |  |   | 252    |  
|Increase in the allowance              |  |                         |      |      |  |      | (4,069 | ) |  |   |       |  
|Write-offs                             |  |                         |     |      |  |      |       |   |  |   |       |  
|                                       |  |                         |      |      |  |      |        |   |  |   |        |  
|Balance at the end of the period       |  | $                       | (646 | )    |  | $    | (4,688 | ) |  | $ | (4,436 | )
|                                       |  |                         |      |      |  |      |        |   |  |   |        |  

Risks and uncertainties



| |  | Environmental matters
|- |  | ---------------------

The Companys Mexican operations are subject to the Mexican General Law of
Ecological Stabilization and Environment Protection (Ley General el Equilibrio
Ecológico y la Protección al Ambiente) and the rules published hereunder (the
Ecological Law). In accordance with the Ecological Law, Companies engaged in
industrial activities are subject to the regulatory jurisdiction of the
Ministry of Natural Resources, Environment and Fishing (Secretaría del Medio
Ambiente, Recursos Naturales y Pesca), which has broad discretion in carrying
out its statutory mandate.

In 1998, the Company agreed with Mexican environmental regulatory authorities
to bring its paper plants into compliance with wastewater discharge
regulations. The Company has since instituted new procedures, and management
believes the Company is currently in compliance with both the general standard
established under the Ecological Law and with specific standards promulgated by
the regulatory authorities. However, there can be no assurance that relevant
authorities will continue finding the Company  ́s environmental procedures
adequate, or that more stringent environmental laws will not be enacted in the
future.

(F-43)

F-173



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##### 



INDUSTRIAS CENTAURO, S. A. DE C. V.

NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2000, 2001 AND 2002  (Continued)

(Thousands of constant Mexican Pesos restated as of December 31, 2002)

New accounting pronouncements

US GAAP  New Accounting pronouncements

U.S. GAAP  New Accounting pronouncements

In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations (SFAS 143). SFAS 143 requires the recognition of a liability for
the legal obligations associated with the retirement of a tangible long-lived
asset that results from the acquisition, construction and (or) normal operation
of the asset. The liability is recognized at fair value in the period in which
it is incurred if a reasonable estimate of fair value can be made. A
corresponding asset retirement cost is added to the carrying value of the
long-lived asset and is depreciated to expense using a systematic and rational
method over its useful life. SFAS 143 is effective for fiscal year beginning
after June 15, 2002. Upon initial adoption, a liability is recognized for
existing asset retirement obligations and the associated asset retirement cost
is capitalized as an increase to the carrying value of the asset. The
recognized liability and asset are adjusted for cumulative accretion and
accumulated depreciation, respectively, from the time period when the asset
retirement obligation would have originally been recognized had this statement
been in effect to the date of initial adoption. The cumulative effect of
initial adoption of SFAS 143 is recorded as a change in accounting principle.
Management is currently evaluating the impact that the adoption of SFAS 143
will have on the consolidated financial statements.

In June 2002, the FASB issued SFAS 146, Accounting for Costs Associated with
Exit or Disposal Activities (SFAS 146). The issuance of SFAS 146 nullifies
the former guidance provided by the Emerging Issues Task Force (EITF)
Issue94-3,Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring (EITF 94-3). SFAS 146 requires the recognition of a liability
for costs associated with exit or disposal activity when the liability is
incurred, rather than on the date of commitment to an exit or disposal plan.
SFAS 146 is effective for liabilities, related to exit or disposal activities,
which are incurred after December 31, 2002, while earlier application is
encouraged. Management is currently evaluating the impact that the adoption of
SFAS 146 will have on the consolidated financial statement.

(F-44)

F-174



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##### 



INDUSTRIAS CENTAURO, S. A. DE C. V.

NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2000, 2001 AND 2002  (Continued)

(Thousands of constant Mexican Pesos restated as of December 31, 2002)

In July 2002, the FASB issued SFAS No. 147, Acquisitions of Certain Financial
Institutions (SFAS 147). This Statement amends SFAS No. 72, Accounting for
Certain Acquisitions of Banking or Thrift Institutions, and FASB
Interpretation No. 9, Applying APB Opinions No. 16 and 17 When a Savings and
Loan Association or a Similar Institution Is Acquired in a Business Combination
Accounted for by the Purchase Method by removing acquisitions of financial
institutions from the scope of both Statement 72 and Interpretation 9. SFAS 147
requires that such transactions be accounted for in accordance with FASB
Statements No. 141, Business Combinations, and No.
142, Goodwill and Other Intangible Assets. As such, acquisitions within the
scope of this statement are no longer required to recognize any excess of the
fair value of liabilities assumed over the fair value of intangible and
identifiable intangible assets acquired as an unidentifiable intangible asset.

This statement also amends FASB Statement No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, to include in its scope long-term
customer-relationship intangible assets of financial institutions. Accordingly,
such intangible assets are subject to the same recoverability test and
impairment loss recognition required for other long-lived assets that are held
and used. This statement is effective for transactions entered into on or after
October 1, 2002. Management is currently evaluating the impact that the
adoption of SFAS 147 will have on the consolidated financial statements.

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation-Transaction and Disclosure- an amendment of FAS 123 (SFAS 148).
SFAS 148 continues to permit entities to apply the intrinsic method of APB 25,
Accounting for Stock Issued to Employees, however, SFAS 148 is intended to
encourage companies to adopt the accounting provisions of SFAS 123, Accounting
for Stock-Based Compensation SFAS 148 provides three transition methods for
companies who chose to adopt the provisions of SFAS 123, the prospective
method, the modified prospective method and the retroactive restatement method.
In addition, SFAS 148 mandates certain new disclosures. SFAS 148 is effective
for fiscal years ending after December 15, 2002, with early adoption permitted.
Management is currently evaluating the impact that the adoption of SFAS 148
will have on the consolidated financial statement.

(F-45)

F-175



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##### 



INDUSTRIAS CENTAURO, S. A. DE C. V.

NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2000, 2001 AND 2002  (Continued)

(Thousands of constant Mexican Pesos restated as of December 31, 2002)

In May 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. SFAS 149 amends and clarifies
financial accounting and reporting for derivative instruments, including
certain derivative instruments embedded in other contracts (collectively
referred to as derivatives) and for hedging activities under FASB Statements
No. 133, Accounting for Derivative Instruments and Hedging Activities. The
provisions of SFAS 149 that relate to Statement 133 implementation issued that
have been effective for fiscal quarters that began prior to June 15, 2003,
should continue to be applied in accordance with their respective effective
dates. In addition, paragraphs that relate to forward purchases or sales of
when-issued securities or other securities that do not yet exist, should be
applied to both existing contracts and new contracts entered into after June
30, 2003. The Company is presently evaluating the impact, if any, that these
new standards will have on its consolidated financial statements.

In November 2002, the FASB issued Interpretation No. 45 (FIN 45),
Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others (an interpretation of FASB
Statements No. 5, 57, and 107 and rescission of Interpretation No. 34). FIN 45
clarifies the requirements of SFAS No. 5, Accounting for Contingencies,
relating to a guarantors accounting for, and disclosure of, the issuance of
certain types of guarantees. FIN 45 requires that upon issuance of a guarantee,
the guarantor must recognize a liability for the fair value of the obligation
it assumes under that guarantee. FIN 45s provisions for initial recognition
and measurement should be applied on a prospective basis to guarantees issued
or modified after December 31, 2002, irrespective of the guarantors fiscal
year-end. The guarantors previous accounting for guarantees that were issued
before the date of FIN 45s initial application may not be revised or restated
to reflect the effect of the recognition and measurement provisions of the
Interpretation. The disclosure requirements are effective for financial
statements of both interim and annual periods that end after December 15, 2002.
Management is currently evaluating the impact that the adoption of FIN 45 will
have on the consolidated financial statements.

In January 2003, the FASB issued Interpretation No. 46 (FIN 46),
Consolidation of Variable Interest Entities, an interpretation of ARB 51. The
primary objectives of FIN 46 are to provide guidance on the identification of
entities for which control is achieved through means other than through voting
rights (variable interest entities or VIEs) and how to determine when and
which business enterprise should consolidate the VIE (the primary
beneficiary). This new model for consolidation applies to an entity which
either (1) the equity investors (if any) do not
have a controlling financial interest or (2) the equity investment at risk is
insufficient to finance that entitys activities without receiving additional
subordinated financial support from other parties. In addition, FIN 46 requires
that both the primary beneficiary and all other enterprises with a significant
variable interest in a VIE make additional disclosures. FIN 46 applies

(F-46)

F-176



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##### 



INDUSTRIAS CENTAURO, S. A. DE C. V.

NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2000, 2001 AND 2002  (Continued)

(Thousands of constant Mexican Pesos restated as of December 31, 2002)

immediately to variable interest entities created after January 31, 2003, and
to variable interest entities in which an enterprise obtains an interest after
that date. It applies in the first fiscal year or interim period beginning
after June 15, 2003, to variable interest entities in which an enterprise holds
a variable interest that it acquired before February 1, 2003. FIN 46 applies to
public enterprises as of the beginning of the applicable interim or annual
period, and it applies to nonpublic enterprises as of the end of the applicable
annual period. Management is currently evaluating the impact that the adoption
of FIN 46 will have on the consolidated financial statements.

(F-47)

F-177