COMPLEMENTARY NOTES TO THE FINANCIAL INFORMATION
SUMMARY OF SIGNIFICANT ACCOUNTING AND FINANCIAL POLICIES:
FOLLOWING IS A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FOLLOWED BY THE
COMPANY IN THE PREPARATION OF THE PARTIALLY - CONSOLIDATED FINANCIAL
STATEMENTS.
1.1 CONSOLIDATION BASIS:
THE PARTIALLY - CONSOLIDATED FINANCIAL STATEMENTS INCLUDE THE FINANCIAL
STATEMENTS OF CORPORACION DURANGO, S.A.B. DE C.V. AND THE FOLLOWING
SUBSIDIARIES:
ADMINISTRACION CORPORATIVA DE DURANGO, S.A. DE C.V.
CARTONPACK, S.A. DE C.V.
COMPANIA PAPELERA DE ATENQUIQUE, S.A. DE C.V.
EMPAQUES DE CARTON TITAN, S.A. DE C.V.
INDUSTRIAS CENTAURO, S.A. DE C.V.
PAPEL Y EMPAQUES TIZAYUCA, S.A. DE C.V.
PONDEROSA INDUSTRIAL DE MEXICO, S.A. DE C.V.
ALL SIGNIFICANT INTERCOMPANY BALANCES AND TRANSACTIONS HAVE BEEN ELIMINATED FOR
CONSOLIDATION PURPOSES. THE PARTIALLY - CONSOLIDATED FINANCIAL STATEMENTS
INCLUDE THE ASSETS, LIABILITIES AND INCOME OR LOSS OF THE PARENT COMPANY AND
THE SUBSIDIARIES WITH MORE THAN 50% OF OWNERSHIP.
AS OF JUNE 1, 2004, THE MEXICAN BOARD FOR RESEARCH AND DEVELOPMENT OF FINANCIAL
REPORTING STANDARDS, OR CINIF, ASSUMED THE RESPONSIBILITY OF ESTABLISHING
MEXICAN ACCOUNTING AND REPORTING STANDARDS. AS PART OF ITS RESPONSIBILITY, AND
AFTER DUE EXPOSURE IN 2004 AND 2005, THE CINIF ISSUED SEVERAL FINANCIAL
REPORTING STANDARDS (NORMAS DE INFORMACION FINANCIERA, OR NIFS) THAT BECAME
EFFECTIVE ON JANUARY 1, 2006.
THE PRINCIPAL OBJECTIVE OF THE CINIF IN ISSUING THE NIFS IS TO ACHIEVE GREATER
CONCURRENCE BETWEEN MEXICAN GAAP AND INTERNATIONAL FINANCIAL REPORTING
STANDARDS (IFRSS).
THE STRUCTURE OF THE NIFS IS AS FOLLOWS:
- NEW BULLETINS AND INTERPRETATIONS TO THE BULLETINS ISSUED BY CINIF.
- EXISTING BULLETINS ISSUED BY THE ACCOUNTING PRINCIPLES BOARD OF THE MEXICAN
INSTITUTE OF PUBLIC ACCOUNTANTS THAT HAVE NOT BEEN AMENDED, REPLACED OR
REPEALED BY THE NEW NIFS.
- IFRSS THAT ARE SUPPLEMENTARY GUIDANCE TO BE USED WHEN MEXICAN GAAP DOES NOT
PROVIDE PRIMARY GUIDANCE.
THE CIRCULARS ISSUED BY THE ACCOUNTING PRINCIPLES BOARD WILL CONTINUE TO HAVE
THE STATUS OF RECOMMENDATIONS AND WILL BE PART OF THE NIFS UNTIL SUCH TIME AS
THEY ARE REPLACED OR REPEALED BY NIFS.
THE NIFS ISSUED TO DATE ARE NOT EXPECTED TO HAVE A SIGNIFICANT EFFECT ON
FINANCIAL INFORMATION REPORTING. THEY ARE THE FOLLOWING:
NIF A-1 "FINANCIAL INFORMATION STANDARDS STRUCTURE".
NIF A-2 "BASIC PRINCIPLES".
NIF A-3 "USERS REQUIREMENTS AND FINANCIAL STATEMENTS OBJECTIVES".
NIF A-4 "FINANCIAL STATEMENTS QUALITATIVE CHARACTERISTICS".
NIF A-5 "FINANCIAL STATEMENTS BASIC ELEMENTS".
NIF A-6 "RECOGNITION AND VALUATION".
NIF A-7 "PRESENTATION AND DISCLOSURE".
NIF A-8 "SUPPLEMENTARY STANDARDS TO MEXICAN GAAP".
NIF B-1 "ACCOUNTING CHANGES AND ERROR CORRECTIONS".
1.2 BASIS FOR COMPARISSON EFFECTS IN THE FINANCIAL STATEMENTS:
A) THE PARTIALLY CONSOLIDATED FINANCIAL STATEMENTS HAVE BEEN PREPARED IN
ACCORDANCE WITH THE NIFS AND REFLECT THE PURCHASING POWER OF THE MEXICAN
PESO AS OF THE MOST RECENT REPORTIND DATE. FOR COMPARISON PURPOSES,
PARTIALLY CONSOLIDATED FINANCIAL STATEMENTS OR PRIOR YEAR HAVE ALSO BEEN
RESTATED TO REFLECT IDENTICAL PURCHASING POWER, USING FACTORS DERIVED
FROM CHANGES IN THE NATIONAL CONSUMER PRODUCTS INDEX (NCPI) ISSUED BY
BANCO DE MEXICO.
B) CONVERSION FIGURES OF FOREIGN SUBSIDIARIES IS DONE IN ACCORDANCE WITH
BULLETIN B-15 "FOREIGN CURRENCY TRANSACTIONS AND TRANSLATION OF FINANCIAL
STATEMENTS OF FOREIGN OPERATIONS" ACCORDINGLY , THE TRANSLATION IS DONE
UNDER THE "FOREIGN ENTITIES"
1.3 VALUATION OF TEMPORARY INVESTMENTS:
THESE INVESTMENTS ARE REALIZABLE WITHIN THREE MONTHS AND ARE VALUED AT MARKET
PRICE.
THE INCOME OR LOSS GENERATED IS INCLUDED IN THE STATEMENTS OF OPERATIONS.
1.4 RIGHTS AND LIABILITIES VALUATION IN FOREIGN CURRENCY:
ASSETS AND LIABILITIES IN FOREIGN CURRENCY, MAINLY IN AMERICAN DOLLARS, ARE
EXPRESSED IN MEXICAN PESOS AT THE CLOSING OF THE YEAR EXCHANGE RATE.
THE EXCHANGE RATE ON DECEMBER 31st, 2006 WAS $10.8116.
1.5 INVENTORY VALUATION:
INVENTORIES ARE STATED AT AVERAGE COST, AND DO NOT EXCEED MARKET VALUE.
THE AVERAGE COST APROXIMATES THE LAST PURCHASE OR PRODUCTION COST.
PROPERTY, PLANT AND EQUIPMENT:
PROPERTY, PLANT AND EQUIPMENT OF MEXICAN ORIGIN ARE RECORDED AT ACQUISITION
COST AND ARE RESTATED TO REFLECT MEXICAN PESOS OF CONSTANT PURCHASING POWER
USING FACTORS DERIVED FROM CHANGES IN THE NATIONAL CONSUMER PRICE INDEX
(NCPI).
PLANT AND EQUIPMENT OF NON-MEXICAN ORIGIN ARE RECORDED AT ACQUISITION COST AND
THE ACQUISITION COST IS RESTATED TO CONSTANT CURRENCY USING THE INFLATION OF
THE COUNTRY OF ORIGIN, THEN CONVERTED INTO MEXICAN PESOS AT THE EXCHANGE
RATE IN EFFECT AT THE BALANCE SHEET DATE.
DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT, IS CALCULATED BASED ON UNITS
PRODUCED IN THE PERIOD IN RELATION TO THE TOTAL ESTIMATED PRODUCTION OF THE
ASSETS OVER THEIR SERVICE LIVES. ASSETS ARE DEPRECIATED AS FOLLOWS:
YEARS
BUILDINGS 25-50
MACHINERY & EQUIPMENT 23-40
OFFICE EQUIPMENTS 5-10
TRANSPORTATION VEHICLES 1-5
COMPUTER EQUIPMENT 1-3
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THESE ASSETS ARE EVALUATED ANNUALLY FOR POTENTIAL IMPAIRMENT.
RECURRING MAINTENANCE AND REPAIR EXPENDITURES ARE CHERGED 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.
NET COMPREHENSIVE FINANCING COST INCURRED DURING THE PERIOD OF CONSTRUCTION AND
INSTALLATION OF PROPERTY, PLANT AND EQUIPMENT IS CAPITALIZED AND RESTATED
APPLIYING FACTORS DERIVED FROM CHANGES IN THE NCPI.
CONTINGENCY LIABILITIES:
LABOR OBLIGATIONS:
THE COMPANY ADOPTED THE NORMATIVE DISPOSITIONS RELATED TO BULLETIN D-3 "LABOR
OBLIGATIONS" ISSUED BY THE MEXICAN INSTITUTE OF PUBLIC ACCOUNTANTS, THIS
NORMATIVITY MODIFIES THE BASIS FOR CUANTIFICATION, RECOGNITION AND DISCLOSURE
OF EXPENSES AND LIABILITIES RELATED TO RETIREMENT AND SENIORITY PREMIUMS,
INCLUDING FORMAL AND INFORMAL, REQUIRING ITS VALUATION USING THE ACTUARIAL
METHOD OF "PROJECTED UNITARY CREDIT" WICH STATES THE OBLIGATION TO RECOGNIZE
A LIABILITY (ASSET) OF TRANSITION AT THE MOMENT OF THE APPLICATION OF THIS
BULLETIN, WHICH IS AMORTIZED IN DIRECT LINE OVER THE REMAINIG AVERAGE LABOR
LIFE OF THE EMPLOYEES EXPECTED TO RECEIVE SUCH BENEFITS FROM THE RETIREMENT
PLANS, REQUIRES AN ADDITIONAL LIABILITY IN CASE THE ACTUAL LIABILITY IS LARGER
THAN THE PROJECTED NET LIABILITY (ASSET).
THE COST OF THE EMPLOYEE RETIREMENT PLANS (PENSIONS AND SENIORITY PREMIUMS),
ARE RECOGNIZED AS COST IN THE YEARS IN WHICH THE SERVICES ARE PAID IN
ACCORDANCE WITH CALCULATION PERFORMED BY INDEPENDENT ACTUARIES.
IN THE COMPANIES ESTABLISHED IN THE UNITED STATES OF AMERICA, THERE IS A
BENEFIT AND RETIREMENT PLAN (THE PLAN), WHICH COVERS ALL THE EMPLOYEES THAT
MEET CERTAIN ELEGIBILITY REQUIREMENTS. THE BENEFITS OF THE PLAN ARE MAINLY
BASED IN THE YEARS OF SERVICE AND THE COMPENSATION OF SUCH EMPLOYEES.
CORPORACION DURANGO, S.A. DE C.V. AND SUBSIDIARIES (THREE SUBSIDIARY
COMPANIES) RECOGNIZES "MODIFICATIONS TO THE BULLETIN D-3 ON 2004" A NEW
2004 PLAN "ADDITIONAL BENEFITS AT RETIREMENT" IN ACCORDANCE TO
MODIFICATIONS TO BULLETIN D-3.
STOCKHOLDERS' EQUITY:
CAPITAL STOCK, STOCK SALE PREMIUM, STATUTORY LEGAL RESERVE AND RETAINED
EARNINGS, INCLUDE THE RESTATED EFFECT, ACCORDING WITH THE NATIONAL
CONSUMER PRICE INDEX (NCPI) FROM THE DATE THE CAPITAL WAS CONTRIBUTED
AND FROM THE YEAR THE RESULTS AND PREMIUMS WERE DETERMINED RESPECTIVELY.
THE RESTATED AMOUNT REPRESENTS THE REQUIRED AMOUNT TO MAINTAIN THE
CONTRIBUTIONS AND ACCUMULATED RESULTS IN CONSTANT PESOS AS OF DECEMBER
31st, 2006.
FIXED AND VARIABLE EQUITY COMPONENTS
AMOUNT NUMBER OF SHARES
FIXED PORTION 982,074 65,419,089
VARIABLE PORTION 678,873 45,222,022
1,660,947 110,641,111
DEFERRED TAXES:
AS OF JANUARY 1st.,2000, WITH THE ISSUANCE OF BULLETIN D-4 ("DEFERRED TAXES"
THE COMPANY RECOGNIZED TO THAT DATE (JANUARY 1st.,2000) THE INITIAL EFFECT
OF DEFERRED TAXES DERIVED FROM TEMPORARY DIFFERENCES AS A GAIN OR A LOSS,
IN SUBSECUENT PERIODS THE COMPANY IS IN COMPLIANCE WITH THE BULLETIN.
IN ORDER TO RECOGNIZE THE DEFERRED INCOME TAX, THE HOLDING COMPANY AND ITS
SUBSIDIARIES USE THE INTEGRAL ASSETS AND LIABILITIES METHOD, WHICH CALCULATES
SUCH TAX, USING THE APPLICABLE STATUTORY TAX RATE TO THE TEMPORARY DIFFERENCES
BETWEEN BOOK AND TAX VALUES OF THE ASSETS AND LIABILITIES AS OF THE END OF THE
PERIOD.
DISCONTINUED OPERATIONS:
THE COMPANY REPORTS ON DISCONTINUED OPERATIONS THE RESULT OF THE PARTICLEBOARD
PLANT FROM PONDEROSA INDUSTRIAL DE MEXICO, S.A. DE C.V., FOR 2005.
BUSINESS SEGMENTS INFORMATION:
SEGMENT REPORTING INFORMATION IS PREPARED IN ACCORDANCE WITH BULLETIN B-5
"FINANCIAL INFORMATION BY SEGMENT". THE SEGMENTS REPORT BASED ON THE INTERNAL
REPORT METHOD USED BY THE COMPANY.
THE COMPANY PRESENTS THE FOLLOWING BUSINESS SEGMENTS:
1. PACKAGING. THIS SEGMENT INCLUDES THE PRODUCTION AND SALES OF CORRUGATED
CONTAINER, MULTI-WALL SACKS AND PAPER TUBES.
2. PAPER. THIS SEGMENT INCLUDES THE PRODUCTION AND SALES OF KRAFT AND
SEMI-KRAFT PAPER PRODUCED FROM VIRGIN FIBERS OR RECYCLED FIBERS.
3. OTHERS. THIS SEGMENT INCLUDES THE PRODUCTION AND SALE OF PLYWOOD.
AS OF DECEMBER 31st., 2006 AND 2005, THE SEGMENT INFORMATION IS PRESENTED AS
FOLLOWS:
PROPERTY
PLANT AND
TOTAL EQUIPMENT SEGMENT
2006 INCOME ACQUISITION, NET ASSETS
PACKAGING 4,814,823 116,066 28,239,771
PAPER 3,402,162 102,597 9,235,650
OTHERS 125,310 (21) 447,288
ELIMINATONS (2,918,508) (23,971,627)
TOTAL 5,423,787 218,642 13,951,082
PROPERTY
PLANT AND
TOTAL EQUIPMENT SEGMENT
2005 INCOME ACQUISITION, NET ASSETS
PACKAGING 4,571,840 (26,872) 28,419,124
PAPER 2,926,352 14,481 8,809,371
OTHERS 106,603 6,912 1,090,638
ELIMINATIONS (2,853,312) (24,148,173)
TOTAL 4,751,483 (5,479) 14,170,960
THE FINANCIAL INFORMATION PRESENTED ABOVE IS USED IN THE DECISITION MAKING
PROCESS BY THE COMPANY.
INTERNAL CONTROL:
THE COMPANY HAS STARTED IMPLEMENTATION ON THE SARBANES OXLEY ACT WITH THE
ADVISE OF EXPERT ADVISORS.
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