6-K 1 cd3q2001.txt CORPORACION DURANGO THIRD QUARTER RESULTS CORPORACION DURANGO 2001 Third Quarter Results Durango, Mexico, Oct. 31 2001. Corporacion Durango, S.A. de C.V., (DGO) the largest integrated paper producer in Latin America, today announced its results for the third quarter ended September 30, 2001 and accumulated nine months of 2001. Figures were prepared in accordance with generally accepted accounting principles in Mexico, restated in constant Mexican Pesos and converted into U.S. Dollars using the exchange rate of each respective period. BUSINESS ENVIRONMENT Weak global economic conditions throughout the quarter, in addition to the uncertainly created by the events of September 11, as well as a strong peso and higher energy costs, negatively affected our third quarter results. Each of our businesses was hurt by a drop in demand and pricing. Positives Sequential EBITDA of 3Q01 equal to 2Q01, and slightly better than 1Q01 Strong EBITDA of US$ 46.5 million Strong EBITDA Margin of 19% Cost of Sales decreased 22% Personnel reduction of 1840 people, or 16% of total payroll Unit production cost decreased 8% SG&A expense decreased 13% Successful exchange offer (Sep. 5) Positive intercompany merger Higher financial flexibility Access to significant NOL's Efficient use of WC and financial discipline Negatives Expensive market-related downtime Shipments declined 15% Mix Price declined 8% Net sales declined 22% EBITDA declined 17% NOTE - Shipments and sales comparison were negatively impacted by 5% from divestures Outlook Expected EBITDA for 4Q01 similar to 3Q01 Expected EBITDA for 2002 better than 2001 Improved cost structure and asset base 2002 Third Quarter 2001 Shipments Volume was the key largest single factor affecting our performance during this quarter. Mexico's GDP dramatically dropped to 0.0% in the third quarter of 2001 from a GDP growth of 7.0% of the third quarter 2000. The company's largest market, the Mexican export sector, including maquiladoras, decreased its activity by around 35% year over year, and its domestic customers' activity declined by approximately 10%, which resulted in an expensive market-related downtime to match demand. As a result, the company's overall operating rate fell to a very modest 73% in the third quarter of 2001 from 85% in the third quarter 2000. The Company's total shipments decreased 15% quarter over quarter and 11% when discount the volume corresponding to assets was divested. Shipments (000 S/T) 3Q01 3Q00 Change % Paper Shipments 230 231 -1 Flat Packaging Shipments 155 197 -42 -21% Wood Products 11 40 -29 -73%* Total Shipments 396 468 -72 -15% (-) Asset Divestures - 21 -21 - Proforma Shipments 396 447 -51 -11% * The largest wood product plant has been idle since January 2001, and it will start up in January 2002 following a modernization program in line with our status as the industry's lowest cost. Pricing In a dramatic business environment, industry prices suffered and dropped an average of 10.5%, and in Durango they fell 8% quarter over quarter. Mix Price ($US/Ton) 3Q01 3Q00 % GID 574 573 Flat Pipsamex 623 697 -11% DPC 694 794 -13% Total 605 658 -8% Net Sales Total net sales decreased 22% to US$239.4 million for the third quarter of 2001 from US$308.0 million for the third quarter of 2000, and 15% in the same period when discounting sales of divested assets. Sales were affected by 15% lower shipments and 8% lower prices. Net Sales ($US million) 3Q01 3Q00 % GID 131.5 159.2 -17% Pipsamex 62.3 83.0 -25% DPC 50.0 81.0 -38% Eliminations (4.4) (15.2) - Total Sales 239.4 308.0 -22% (-) Sales of Divestures - 25.8 - Proforma Sales 239.4 282.2 -15% Net sales from the paper segment decreased 12% to US$132.5 million for the third quarter of 2001 from US$151.0 million for the third quarter of 2000. The paper shipments remained flat to 230 thousand short tons for the third quarter of 2001 from 231 thousand short tons for the third quarter of 2000. The average paper unitary price decreased 12%. Net sales from the packaging segment decreased 13% on a proforma basis when discounting sales by US$25.8 million from the divested assets. Also, due to this effect, our net sales decreased 29% to US$101.4 million for the third quarter of 2001 from US$142.2 million for the third quarter of 2000. This decrease was due to a 21% decrease in shipments to 155 thousand short tons for the third quarter of 2001 from 197 thousand short tons for the third quarter of 2000. The packaging average unitary price decreased 9%, affected mainly by the reduction in sales from the converting assets, where the proforma prices practically remain flat. Cost of Sales The unitary cost of sales decreased 8% to US$493 for the third quarter of 2001 from US$ 535 for the third quarter of 2000. Cost of sales decreased 22% to US$195.3 million for the third quarter of 2001 from US$250.4 million for the third quarter of 2000. This decrease was primarily due to a 15% decrease in shipments and 8% decrease of the mentioned unitary cost of sales. Recycled fiber (OCC and ONP) decreased 28% in real terms to US$99 per short tons from US$138 per short tons, which accounts for 28% of our total raw material cost. Energy and labor costs increased by 7%, which accounts for approximately 30% of the cost of goods sold. Selling, General and Administrative Expenses Selling, general and administrative expenses decreased 13% to US$16.2 million for the third quarter of 2001 from US$18.6 million for the third quarter of 2000, essentially due to a cost reduction policy. EBITDA In order to be consistent with our Senior Notes Indenture as of this quarter, the term EBITDA is defined as Consolidated Net Income plus consolidated interest expense, income and assets taxes, depreciation and amortization expenses and all other non-cash items reducing Consolidated Net Income, less all non-cash items increasing Consolidated Net Income; or alternatively, EBITDA is equal to: operating income plus depreciation and amortization plus interest income plus other cash income less other cash expenses. All previous or subsequent references must be calculated according to either definition. EBITDA decreased 17% to US$46.5 million for the third quarter of 2001 from US$55.8 million for the third quarter of 2000. The most significant effect was due to a decrease of 15% of shipments during the period. Such effect was mitigated by our low cost production. EBITDA as a percentage of net sales was 19% for the third quarter of 2001 compared to 18% for the same period in 2000. EBITDA ($US million) 3Q01 Margin 3Q00 Margin GID 36.0 27% 40.7 26% Pipsamex 7.0 11% 8.2 10% DPC 3.8 8% 7.0 9% Eliminations (0.3) - (0.1) - Total 46.5 19% 55.8 18% Financing Cost Financing cost was an expense of US$49.7million for the third quarter of 2001 compared to an income of US$24.4 million for the same period in 2000. This expense can be broken down as follows: (1) Interest expense increased 1% to US$25.8 million for the third quarter of 2001 from US$25.5 million for the third quarter of 2000. (2) Interest income decreased 53% to US$1.3 million for the third quarter of 2001 from US$2.9 million for the third quarter of 2000. (3) Foreign exchange results were reported as a loss of US$33.4 million for the third quarter 2001 as compared to a gain of US$27.8 million for the third quarter 2000. This foreign exchange difference resulted from a higher depreciation of the Peso (to 9.51 from 9.07) in the third quarter of 2001 when compared to an appreciation of the Peso (to 9.45 from 9.82) in the third quarter of 2000. (4) Gain from monetary position decreased by 58% to US$8.1 million for the third quarter of 2001 from US$19.3 million for the third quarter of 2000. This decrease reflected a lower inflation rate. Provisions for Employee Profit Sharing and Income and Asset Taxes Net of Tax Loss Carry Forwards Provisions for employee profit sharing and income and asset taxes net of tax loss carry forwards decreased 61% to US$4.8 million for the third quarter of 2001 from US$12.3million for the third quarter of 2000. This was primarily due to a decrease in the Company's taxable income. Net Income Net loss was US45.5 million for the third quarter of 2001 compared with a net income of US$81.9 million for the third quarter of 2000. Such loss was derived from a lower EBIT and a higher depreciation of the Peso in the period, which generated a higher exchange rate loss. In addition an extraordinary expense related to severance costs for the Atenquique mill and the Chihuahua plywood plant impacted results by US$18.6 million. In addition a US$14.7 million loss in the Durango-Georgia asset sale affected the results, accounted for under non-cash items. Liquidity and Capital Resources Sources and Uses of Cash: As of September 30, 2001, the Company had cash and cash equivalents of US$37.9 million. Net resources generated from income were US$40.7 million in 2001. Accounts receivable decreased US$23.0 million, a decrease in inventory of US$64.7 million and a decrease in accounts payable of US$82.6 million. Accounting resources generated by operating activities were US$43.6 million after paying taxes, financial costs and accounting for changes in net working capital. CAPEX The amount of CAPEX for the first nine months of 2001 was US$36.9 million, from which our suppliers provided financing of US$5 million. In this period we registered a write down of US$14.7 million due to the converting asset sale. Cash CAPEX ($US million) 9M 2001 FY 2001e GID 16.0 21.0 Pipsamex 8.1 9.0 DPC 7.8 8.0 Total 31.9 38.0 Debt Maturity Profile As of September 30, 2001 our debt was US$790.7 million as follows:

* US$46 million of bank loans have a roll-over clause. Of the total Company's indebtedness, 60% is subject at a fixed interest rate and the remaining 40% is subject to a variable interest rate. As of today debt-weighted average cost is 10.7%. Merger GIDUSA CODUSA Summary On October 8, 2001 the GIDUSA Shareholders meeting approved the merger of Corporacion Durango with and into Grupo Industrial Durango, the surviving entity. Pipsa-Mex and DPC become fully-owned subsidiaries of GIDUSA. For all financial, tax and accounting effects since October 8 the merger is considered completed. Moreover Grupo Industrial Durango will be renamed "Corporacion Durango". Transaction Rationale GIDUSA concentrates majority of debt at holding company level, with 21% at the Subsidiary level. Pipsa-Mex's NOLs would be incorporated into GID's tax consolidation. Provides higher financial flexibility to the Company. Financial, operational, and administrative simplification. GIDUSA becomes a larger NAFTA company. As a larger public entity, the company gains greater critical mass. Merger Terms The valuation of the two entities was based in a 5.1x estimated EBITDA of each company, which represented for GIDUSA 57% and for CODUSA 43% of the merger. After such transaction the majority shareholders owns 93% of the company. The outstanding number of shares after the merger is 94,072,122. First Nine Months Summary Paper shipments decreased 11% to 667 thousand short tons for the first nine months of 2001 from 752 thousand short tons for the first nine months of 2000. Packaging shipments decreased 12% to 505 thousand short tons for the first nine months of 2001 from 577 thousand short tons for the first nine months of 2000. Total shipments decreased 16% to 1'212 thousand short tons for the first nine months of 2001 from 1'449 thousand short tons for the first nine months of 2000. Net sales decreased 14% to US$ 773.7 million for the first nine months of 2001 from US$899.2 million for the first nine months of 2000. Operating income decreased 18% to US$87.4 million for the first nine months of 2001 from US$106.0 million for the first nine months of 2000. EBITDA decreased 12% to US$138.0 million for the first nine months of 2001 from US$157.4 million for the first nine months of 2000. Net income decreased to US$ 38.4 million for the first nine months of 2001 from US$146.0 million for the first nine months of 2000. CEO's Statement "During the first nine months of the year, the economies of Mexico and the U.S. experienced negative growth. Despite this, CODUSA's EBITDA only declined by 17%. However our effective plan to maintain our low costs allows us to increase our EBITDA margin to 19%. During the next months the industry will continue experiencing weak demand and price pressure. We are one of the few Mexican companies that refinanced its debt before the tragic events of September 11, successfully concluding Corporacion Durango's exchange offer. We are confident about full year 2001, due to our successfully concluded refinancing program, our investment program in our plants, and thus, our cash flow should improve going forward" said Miguel Rincon CEO. Corporacion Durango Highlights Concept 3Q/01 3Q/00 2Q/01 9M/01 9M/00 Total Shipments ('000 S/T) 396 468 389 1'212 1'449 Net Sales ($Million) 239.4 308.0 261.8 773.7 899.2 Operating Income ($Million) 27.8 39.4 30.4 87.4 106.0 EBITDA ($Million) 46.5 55.8 46.4 138.0 157.4 EBITDA Margin 19% 18% 18% 18% 18% Net Income ($Million) (45.5) 81.9 44.1 38.4 146.0 Interest Coverage Ratio(1) 2.0x 2.2x 1.8x 1.8x 2.2x (1) Interest Coverage Ratio means the ration of Consolidated EBITDA to Consolidated Interest Expense. (1a) Consolidated EBITDA means Consolidated Net Income plus consolidated interest expense, income and assets taxes, depreciation and amortization expenses and all other non-cash items reducing Consolidated Net Income, less all non-cash items increasing Consolidated Net Income; or EBITDA is equal to: operating income plus depreciation and amortization plus interest income plus other income less other expenses. All previous or subsequentreferences must be calculated according either definition. (1b) Consolidated Interest Expense is the amount of interest respect of indebtedness excluding any premium, fees and expenses and any amortization thereof in connection with the indebtedness. Contacts Corporacion Durango, S.A. de C.V. Mayela R. Velasco +52 (1) 829 1008 mrinconv@corpdgo.com.mx Arturo Diaz Medina +52 (1) 829 1015 adiaz@corpdgo.com.mx Thomson Financial / Carson Alex Cancio (212) 701 1973 alex.cancio@tfn.com Richard Huber (212) 701-1830 richard.huber@tfn.com

DURANGO CORP 6-K