6-K 1 arauco-6k_0227.htm

FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Report of Foreign Private Issuer

Pursuant to Rule 13a-16 or 15d-16
of the Securities Exchange Act of 1934

For the month of March, 2009

Commission File Number 33-99720

 

ARAUCO AND CONSTITUTION PULP INC.


(Translation of registrant’s name into English)

El Golf 150
Fourteenth Floor
Santiago, Chile
(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.

Form 20-F þ Form 40-F o

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T
Rule 101(b)(1): ____

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T
Rule 101(b)(7): ____

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes o No þ

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82- _________

 


CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Ratio Analysis of the Consolidated Financial Statements
December 31, 2008
Amounts in thousands of U.S. dollars, except as indicated

 

 


If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82- ________


ARAUCO AND CONSTITUTION PULP INC

TABLE OF CONTENTS

 

 

 

 

Item

 

 

Page

 

1.

 

Ratio Analysis of the Consolidated Financial Statements

1

2.

 

Unaudited Consolidated Balance Sheets

7

3.

 

Unaudited Consolidated Statements of Income

9

4.

 

Unaudited Statements of Consolidated Cash Flows

10

5.

 

Unaudited Notes to the Consolidated Financial Statements

12

6.

 

Annex: Press Release

 



CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Ratio Analysis of the Consolidated Financial Statements
December 31, 2008
Amounts in thousands of U.S. dollars, except as indicated

 

 



 

 

1.

VALUATION OF ASSETS AND LIABILITIES

 

 

 

The financial statements of Celulosa Arauco y Constitución S.A., a Chilean corporation (the “Company”) and its subsidiaries (the Company, together with its subsidiaries, “Arauco”) have been prepared on the basis of accounting principles generally accepted in Chile and specific guidelines issued by Superintendencia de Valores y Seguros of Chile (the “Chilean Securities Commission”). In management’s opinion there is no material difference between the Company’s economic value and the valuation reflected in the Company’s financial statements.

 

 

2.

ANALYSIS OF FINANCIAL POSITION

 

 

a)

Analysis of the Balance Sheet

 

 

 

On January 1, 2002, the Company and its subsidiaries Aserraderos Arauco S.A. and Paneles Arauco S.A. began maintaining their accounting records and preparing their financial statements in U.S. dollars.

 

 

 

On January 1, 2003, the Company’s subsidiaries Forestal Arauco S.A., Forestal Celco S.A., Bosques Arauco S.A., Forestal Valdivia S.A., Forestal Cholguán S.A. and Arauco Internacional S.A. also began maintaining their accounting records and preparing their financial statements in U.S. dollars.

 

 

 

The principal components of assets and liabilities as of December 31, 2007 and 2008 are as follows:


 

 

 

 

 

 

 

 

Assets

 

2007
ThU.S.$

 

 

2008
ThU.S.$

 

 








 

Current assets

 

1,935,765

 

 

1,952,170

 

 

Property, plant and equipment

 

6,577,787

 

 

6,789,583

 

 

Other assets

 

120,835

 

 

112,009

 

 








 

Total assets

 

8,634,387

 

 

8,853,762

 

 








 

 

 

 

 

 

 

 

 

Liabilities and Shareholders’ Equity

 

2007
ThU.S.$

 

 

2008
ThU.S.$

 

 








 

Current liabilities

 

630,706

 

 

682,783

 

 

Long-term liabilities

 

2,523,261

 

 

2,480,065

 

 

Minority interest

 

66,623

 

 

67,760

 

 

Shareholders’ equity

 

5,413,797

 

 

5,623,154

 

 








 

Total liabilities and shareholders’ equity

 

8,634,387

 

 

8,853,762

 

 








 


 

 

 

Total assets increased by 2.5%, or U.S.$219 million, from December 31, 2007 to December 31, 2008. This increase is mainly attributable to an increase in property, plant and equipment, inventories, and prepaid taxes partially offset by a decrease in marketable securities and accounts receivable.

 

 

 

Total liabilities increased by U.S.$9 million from December 31, 2007 to December 31, 2008. This increase is mainly attributable to a net increase in publicly issued bonds and deferred tax partially offset by a decrease in bank obligations.

1


CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Ratio Analysis of the Consolidated Financial Statements
December 31, 2008
Amounts in thousands of U.S. dollars, except as indicated

 

 



 

 

2.

ANALYSIS OF FINANCIAL POSITION, continued

 

 

a)

Analysis of the Balance Sheet, continued

 

 

 

The main financial and operating ratios are as follows:


 

 

 

 

 

 

 

 

Liquidity ratios

 

 

12/31/2007

 

 

12/31/2008

 








 

Current ratio

 

 

3.07

 

 

2.86

 

Acid ratio

 

 

1.77

 

 

1.45

 

The liquidity ratio for the current year represents a decrease, due to a higher proportional increase of the current liabilities with respect to the current assets, which in turn is explained by an increase in public obligations and accounts payable and by a decrease in marketable securities and trade accounts receivable, partially offset by an increase in inventories and a decrease in bank obligations.

The decrease in the current acid ratio from 2007 to 2008 is attributable to a proportional increase in liabilities with respect to the current assets, which in turn is explained by higher balances in public obligations and accounts payable, and lower balances of financial investments and trade accounts receivable, offset by a decrease in bank obligations.

 

 

 

 

 

 

 

 

Debt indicators

 

 

12/31/2007

 

 

12/31/2008

 








 

Debt to equity ratio

 

 

0.58

 

 

0.56

 

Short-term debt to total debt

 

 

0.20

 

 

0.22

 

Long-term debt to total debt

 

 

0.80

 

 

0.78

 

Financial expenses covered

 

 

5.83

 

 

4.63

 

The debt ratio was 0.58 and 0.56 as of December 31, 2007 and December 31, 2008, respectively.

Current liabilities increased modestly from 20% of total liabilities as of December 31, 2007 to 22% of total liabilities as of December 31, 2008. The increase is attributable to a higher proportional increase in current liabilities and a decrease in long-term liabilities, due to an increase in public obligations and current accounts payable, offset by a decrease in bank obligations and other long-term liabilities.

The ratio of financial expenses covered decreased from 5.83 points in 2007 to 4.63 points in 2008. The decrease is attributable to a higher decrease in current profits related to financial expenses.

 

 

 

 

 

 

 

 

Operational ratios

 

 

12/31/2007

 

 

12/31/2008

 








 

Inventory turnover

 

 

2.79

 

 

2.70

 

Inventory turnover (excluding forests)

 

 

4.51

 

 

4.17

 

Inventory permanence (days)

 

 

129.01

 

 

133.25

 

Inventory permanence (excluding forests)

 

 

79.87

 

 

86.37

 

The ratio of inventory turnover decreased from 2.79% as of December 31, 2007 to 2.70% points as of December 31, 2008. For this reason, the inventory permanence ratio increased during the period ended December 31, 2008, due to a proportionally higher increase in production volume with regard to the increase in sales.

2


CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Ratio Analysis of the Consolidated Financial Statements
December 31, 2008
Amounts in thousands of U.S. dollars, except as indicated

 

 



 

 

2.

ANALYSIS OF FINANCIAL POSITION, continued

 

 

b)

Analysis of the Income Statement

 

 

 

The breakdown of operating income and costs is as follows:


 

 

 

 

 

 

 

 

Operating income

 

12/31/2007
ThU.S.$

 

12/31/2008
ThU.S.$

 









Pulp

 

1,729,860

 

 

1,792,966

 

 

Sawn timber, cut wood, plywood and fiber panels

 

1,647,846

 

 

1,665,552

 

 

Forestry products

 

81,778

 

 

102,084

 

 

Other

 

116,248

 

 

128,462

 

 









Total operating income

 

3,575,732

 

 

3,689,064

 

 









 

 

 

 

 

 

 

 

Operating costs

 

12/31/2007
ThU.S.$

 

12//31/2008
ThU.S.$

 







Timber

 

529,324

 

 

542,666

 

 

Forestry work

 

311,896

 

 

406,304

 

 

Depreciation

 

238,851

 

 

220,993

 

 

Other costs

 

857,969

 

 

1,026,329

 

 









Total operating costs

 

1,938,040

 

 

2,196,292

 

 









Analysis of Operating Income

Operating income includes net income of U.S.$782 million in 2008 compared to U.S.$1,009 million in 2007, a decrease of U.S.$227 million, caused by higher proportional increase in cost of sales and by higher sales and administration expenses, in relation to an increase in operating income.

Analysis of Non-Operating Loss

There was a non-operating loss of U.S.$188 million in 2008, compared to U.S.$139 million in 2007. The change was primarily caused by an increase in non-operating losses as described in the following table:

 

 

Item

Million U.S.$



Other non-operating income

12  

Financial expenses

4  

Other non-operating expenses

(11)

Foreign currency exchange rate

(61)

Others net

7  



Decrease non-operating loss

(49)



The increase in the exchange difference is principally due to a strong appreciation of the dollar against the Chilean peso, the Euro and the Real, currencies in which the Company owns financial investments, prepaid expenses and other accounts receivable.

3


CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Ratio Analysis of the Consolidated Financial Statements
December 31, 2008
Amounts in thousands of U.S. dollars, except as indicated

 

 



 

 

2.

ANALYSIS OF FINANCIAL POSITION, continued


 

 

 

 

 

 

 

 

Profitability ratios

 

 

12/31/2007

 

 

12/31/2008

 








 

Equity yield

 

 

13.58

 

 

8.68

 

Asset performance ratio

 

 

8.46

 

 

5.48

 

Operating asset ratio

 

 

12.42

 

 

9.06

 

Income per share (U.S.$)

 

 

6.15

 

 

4.23

 

EBITDA *

 

 

1,303,310

 

 

990,818

 

Income after tax (ThU.S.$)

 

 

692,691

 

 

474,506

 

* Earnings before income tax, interest, depreciation, amortization and extraordinary items.

 

 

 

 

 

Operational income ThU.S.$

1,008,562

 

782,023

 

Financial expenses ThU.S.$

(180,771

)

(177,006

)

Non-operating expenses ThU.S.$

(139,134

)

(188,252

)


 

 

3.

MARKET SITUATION

Pulp

Although during the first half of the year both prices and sales volume of pulp were relatively satisfactory, beginning in the second half of the year prices of this product were affected by the deterioration of the global economy. Especially noteworthy was the fall in prices during the last quarter of 2008, a period in which the CIF price of the Company’s exports of pulp fell approximately 30% relative to the level experienced during the period from January to September.

The internacional crisis has significantly impacted our clients in the paper industry; an industry for which pulp constitutes the primary ingredient. For most of 2008, and especially during the final months of the year, our clients in various markets have faced financial constraints during a period in which the demand for paper, whose consumption is directly related to the level of economic activity, has fallen sharply.

The outlook for pulp, similar to other commodities, depends on the recovery of the global economic environment and is not likely to improve during the majority of 2009 so long as recessionary conditions persist. However, we expect that the substantial comparative advantage in the production of pulp that Arauco possesses with respect to other producers will permit the Company to successfully endure this negative economic cycle.

For the early months of 2009, the Company envisions a relatively complex environment for short-fiber pulp due to the elevated levels of this product in the current global markets. However, it is likely that the market for long-fiber pulp will be more balanced, which should prevent a drop in the price of the product.

4


CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Ratio Analysis of the Consolidated Financial Statements
December 31, 2008
Amounts in thousands of U.S. dollars, except as indicated

 

 



 

 

3.

MARKET SITUATION, continued

 

 

 

Wood

The housing and construction market in the United States continued to slump during the final quarter of 2008. The construction of houses continues to fall, reaching a low level of approximately 550,000 houses for the year of 2008, an amount in sharp contrast to the 2 million houses that began construction in 2007. The current levels of construction are the lowest in the last 50 years. Furthermore, there is a significant number of houses that have been built but not sold, a fact that will prevent the sector from recovering until the second half of 2009.

This situation has negatively affected the volume of sales for moldings and wood compared to the previous year. Furthermore, the prices of moldings and wood in the United States have fallen during the final quarter of 2008.

During the final quarter of 2008, there was a significant drop in the demand for forestry products in all markets. This has caused a disminution in the sale prices of all wood products. On the other hand, the fall in the price of oil and lower levels of global production generally have reduced the price of sea freight, yielding a benefit for exports.

Panels

At the close of the fourth quarter of the year, sales for the Panels Division show a decrease of 14.0% in dollars compared to the same period of the previous year. However, the volume of sales has fallen during this quarter by 16.5%. As a result, the receivables for 2008 show an increase of 9.9% compared to 2007. These percentages do not consider the sale of energy nor do they consider other business of the company such as the Central Interconnected System.

During the final quarter of 2008, the sales of plywood (AraucoPly) began to fall as a result of a decrease in both in volume and price. Although this fall has occurred in practically every market, it has been particularly sharp in the United States and Europe. The devaluation of various currencies throughout the world have has forced prices down in order to remain competitive. Furthermore, the devaluation of the Chilean Peso has caused a sharp decrease in the revenue, measured in dollars, for domestic sales.

Sales of moldings in MDF (Truchoice), a product with the lowest demand in North America, showed rather flat growth with a downward trend towards the end of the year. The crisis in the United States housing sector continues to become more acute, negatively affecting the sales of our moldings.

This situation is beginning to significantly affect the demand for panels designed for use by furniture manufacturers such as MDF, Chipboard and Hardboard (which are sold under the Trupan, Faplac and Cholguan brands). The sharp fall in the sales of moldings has forced us to seek alternative markets, such as Asia. The sales of panels in Latin America have maintained their previous levels.

At the production level, the previously discussed factories are operating within the projections.

In the last quarter of 2008, an increasing number of markets were characterized by generally low levels of demand and decreasing price levels. Therefore, the projections for 2009 continue to be adjusted downward.

5


CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Ratio Analysis of the Consolidated Financial Statements
December 31, 2008
Amounts in thousands of U.S. dollars, except as indicated

 

 



 

 

4.

ANALYSIS OF CASH FLOW


 

 

 

 

 

 

 

 

 

 

 

ThU.S.$
12/31/2007

 

 

ThU.S.$
12/31/2008

 









Operating cash flow

 

 

1,003,542

 

 

783,408

 

Cash flow from financing activities

 

 

(188,764

)

 

(327,273

)

Cash flow from investment activities

 

 

(742,694

)

 

(531,191

)









Net cash flow for the period

 

 

72,084

 

 

(75,056

)









We had a positive operating cash flow of U.S.$783 million compared to a U.S.$1,004 million for the same period in 2007, resulting from an increase in payments to suppliers and personnel, partially offset by higher revenue for sales.

Cash flow from financing activities at December 31, 2008 was a net expense of U.S.$327 million compared to a net expense of U.S.$189 million for the same period in 2007. This change resulted from a higher debt payment compared with the same period in 2007, partially offset by an increase in public obligations.

Cash flow from investment activities for this period was a lower net expense than for the same period in 2007, due principally to fewer disbursements for permanent purchases in property, plant and equipment.

 

 

5.

MARKET RISK ANALYSIS

In respect of the economic risks resulting from interest rate variations, the Company maintains, as of December 31, 2008, a relation between fixed rate debts and total consolidated debt of approximately 82,4%, which it believes is consistent with the industry in which it operates. The Company does not engage in futures or other hedging transactions to hedge against variations in the selling prices of pulp and forest products because it believes that risks resulting from price variations are limited in large part because the Company maintains one of the lowest cost structures in the industry.

In response to economic risks resulting from interest rate variations, the Company has applied policies consistent with the general policies of the industries in which it operates.

As explained in note 2, the Company and most of its subsidiaries maintain their accounting records and prepare their financial statements in U.S. dollars. Both their assets and their liabilities are denominated in U.S. dollars, as are the majority of their revenues. As a result, their exposure to changes in the exchange rate has decreased significantly since January 1, 2002, when they began maintaining their accounting records and preparing their financial statements in U.S. dollars.

6


CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Consolidated Balance Sheet
December 31, 2008
Amounts in thousands of U.S. dollars, except as indicated

 

 



 

 

 

 

 

 

 

 

 

 

At December 31,

 

 

 

 

2007
ThU.S.$

 

 

2008
ThU.S.$

 









ASSETS

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

Cash

 

 

37,461

 

 

18,631

 

Time deposits

 

 

36,260

 

 

72,195

 

Marketable securities (note 3)

 

 

193,509

 

 

59,091

 

Trade accounts receivable (note 4)

 

 

587,877

 

 

528,254

 

Notes receivable

 

 

4,197

 

 

6,688

 

Other receivables

 

 

93,124

 

 

57,540

 

Notes and accounts receivable from related parties (note 18)

 

 

11,379

 

 

5,475

 

Inventories (note 5)

 

 

754,472

 

 

871,433

 

Recoverable taxes

 

 

80,957

 

 

133,948

 

Prepaid expenses

 

 

65,600

 

 

92,141

 

Other current assets

 

 

70,929

 

 

106,774

 









Total current assets

 

 

1,935,765

 

 

1,952,170

 









PROPERTY, PLANT AND EQUIPMENT: (note 6)

 

 

 

 

 

 

 

Land

 

 

640,135

 

 

650,802

 

Forests

 

 

2,867,253

 

 

3,046,371

 

Buildings and other infrastructure

 

 

2,090,434

 

 

2,118,311

 

Machinery and equipment

 

 

2,963,445

 

 

2,988,215

 

Other

 

 

421,055

 

 

631,734

 

Technical revaluation

 

 

68,769

 

 

68,769

 

Less: Accumulated depreciation

 

 

(2,473,304

)

 

(2,714,619

)









Net property, plant and equipment

 

 

6,577,787

 

 

6,789,583

 









 

OTHER NON-CURRENT ASSETS:

 

 

 

 

 

 

 

Investments in related companies (note 7)

 

 

136,996

 

 

132,565

 

Investments in other companies

 

 

299

 

 

249

 

Goodwill (note 8)

 

 

3,135

 

 

3,454

 

Negative goodwill (note 8)

 

 

(92,301

)

 

(87,016

)

Long-term receivables

 

 

17,099

 

 

7,864

 

Intangibles

 

 

840

 

 

421

 

Amortization

 

 

(467

)

 

 

Other (note 9)

 

 

55,234

 

 

54,472

 









Total other non-current assets

 

 

120,835

 

 

112,009

 









Total assets

 

 

8,634,387

 

 

8,853,762

 









The accompanying notes 1 to 29 form an integral part of these consolidated financial statements.

7


CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Consolidated Balance Sheet, Continued
December 31, 2008
Amounts in thousands of U.S. dollars, except as indicated

 

 



 

 

 

 

 

 

 

 

 

 

At December 31,

 

 

 

 

2007
ThU.S.$

 

 

2008
ThU.S.$

 









LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

Current bank borrowings (note 10)

 

 

168,352

 

 

26,984

 

Current portion of long-term bank borrowings (note 14)

 

 

94,300

 

 

171,481

 

Current portion of bonds (note 12)

 

 

34,852

 

 

136,279

 

Current portion of other long term liabilities

 

 

521

 

 

400

 

Dividends payable

 

 

241

 

 

191

 

Trade accounts payable

 

 

220,666

 

 

241,122

 

Notes payable

 

 

6,056

 

 

5,414

 

Sundry accounts payable

 

 

6,907

 

 

3,657

 

Notes and accounts payable to related companies (note 18)

 

 

8,330

 

 

9,318

 

Accrued liabilities (note 13)

 

 

52,079

 

 

46,038

 

Withholding taxes

 

 

31,268

 

 

33,905

 

Deferred income

 

 

4,671

 

 

2,628

 

Deferred taxes

 

 

1,844

 

 

4,712

 

Other current liabilities

 

 

619

 

 

654

 









Total current liabilities

 

 

630,706

 

 

682,783

 









LONG-TERM LIABILITIES:

 

 

 

 

 

 

 

Long-term bank borrowings (note 14)

 

 

410,634

 

 

244,800

 

Bonds (note 12)

 

 

1,822,500

 

 

1,924,740

 

Sundry accounts payable

 

 

1,851

 

 

236

 

Accrued liabilities

 

 

34,155

 

 

31,024

 

Deferred tax liabilities (note 15)

 

 

205,935

 

 

246,599

 

Other long-term liabilities

 

 

48,186

 

 

32,666

 









Total long-term liabilities

 

 

2,523,261

 

 

2,480,065

 









Minority interest (note 23)

 

 

66,623

 

 

67,760

 









SHAREHOLDERS’ EQUITY: (note 20)

 

 

 

 

 

 

 

Paid-up in capital

 

 

347,551

 

 

347,551

 

Share premium

 

 

5,625

 

 

5,625

 

Forestry and other reserves

 

 

1,820,426

 

 

1,866,854

 

Provisory Dividends

 

 

(108,896

)

 

(100,932

)

Retained earnings

 

 

2,653,426

 

 

3,025,310

 

Net income for the year

 

 

695,665

 

 

478,746

 









Total shareholders’ equity

 

 

5,413,797

 

 

5,623,154

 









Total liabilities and shareholders’ equity

 

 

8,634,387

 

 

8,853,762

 









The accompanying notes 1 to 29 form an integral part of these consolidated financial statements.

8


CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Consolidated Statements of Income
December 31, 2008
Amounts in thousands of U.S. dollars, except as indicated

 

 



 

 

 

 

 

 

 

 

 

 

At December 31,

 

 

 

2007
ThU.S.$

 

 

2008
ThU.S.$

 









OPERATING INCOME:

 

 

 

 

 

 

 

Sales revenue

 

 

3,575,732

 

 

3,689,064

 

Cost of sales

 

 

(1,938,040

)

 

(2,196,292

)

Gross profit

 

 

1,637,692

 

 

1,492,772

 

Administration and selling expenses

 

 

(629,130

)

 

(710,749

)









Operating income

 

 

1,008,562

 

 

782,023

 









NON-OPERATING INCOME:

 

 

 

 

 

 

 

Interest earned

 

 

21,273

 

 

21,167

 

Share of net income of related companies (note 7)

 

 

11,889

 

 

12,551

 

Other non-operating income (note 21)

 

 

28,380

 

 

31,690

 

Investment loss of related companies

 

 

(24

)

 

(460

)

Amortization of goodwill (note 8)

 

 

(2,911

)

 

(193

)

Interest expenses

 

 

(180,771

)

 

(164,752

)

Other non-operating expenses (note 22)

 

 

(28,570

)

 

(39,172

)

Price-level restatement (note 1)

 

 

(875

)

 

(501

)

Foreign currency exchange rate (note 1)

 

 

12,475

 

 

(48,582

)









Non-operating loss

 

 

(139,134

)

 

(188,252

)









Income before taxes, minority interest and amortization of negative goodwill

 

 

869,428

 

 

593,771

 

Income taxes (note 15)

 

 

(176,737

)

 

(119,265

)

Income before minority interest and amortization of negative goodwill

 

 

692,691

 

 

474,506

 

Minority interest (note 23)

 

 

(1,078

)

 

(1,055

)

Income before amortization of negative goodwill

 

 

691,613

 

 

473,451

 

Amortization of negative goodwill (note 8)

 

 

4,052

 

 

5,295

 









Net income

 

 

695,665

 

 

478,746

 









The accompanying notes 1 to 29 form an integral part of these consolidated financial statements.

9


CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Statements of Consolidated Cash Flows
December 31, 2008
Amounts in thousands of U.S. dollars, except as indicated

 

 



 

 

 

 

 

 

 

 

 

 

At December 31,

 

 

 

 

2007
ThU.S.$

 

 

2008
ThU.S.$

 









CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

 

Net income

 

 

695,665

 

 

478,746

 

Loss (Profit) on sale of assets

 

 

 

 

 

 

 

Loss (profit) on sale of property, plant and equipment

 

 

145

 

 

745

 

Items affecting income not involving the movement of cash:

 

 

 

 

 

 

 

Depreciation

 

 

251,278

 

 

233,157

 

Amortization of intangibles

 

 

46

 

 

116

 

Write-offs and provisions

 

 

3,919

 

 

4,792

 

Profit from investments accounted for under the equity method

 

 

(11,889

)

 

(12,551

)

Interest loss of related companies

 

 

24

 

 

460

 

Amortization of goodwill

 

 

2,911

 

 

193

 

Amortization of negative goodwill

 

 

(4,052

)

 

(5,295

)

Net price level restatement

 

 

875

 

 

501

 

Foreign currency exchange rate

 

 

(12,475

)

 

48,582

 

Others

 

 

86,465

 

 

140,001

 

Decrease (Increase) in current assets:

 

 

 

 

 

 

 

Clients and debtors

 

 

(160,933

)

 

(101,635

)

Inventory

 

 

(10,283

)

 

(124,834

)

Other current assets

 

 

(49,550

)

 

(59,874

)

Increase (Decrease) in current liabilities:

 

 

 

 

 

 

 

Suppliers and creditors

 

 

98,474

 

 

179,473

 

Interest payable

 

 

51,621

 

 

44,910

 

Provision for income taxes

 

 

39,599

 

 

(55,325

)

Other current liabilities

 

 

21,702

 

 

11,246

 









Net cash flows from operating activities

 

 

1,003,542

 

 

783,408

 









The accompanying notes 1 to 29 form an integral part of these consolidated financial statements.

10


CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Statements of Consolidated Cash Flows, Continued
December 31, 2008
Amounts in thousands of U.S. dollars, except as indicated

 

 



 

 

 

 

 

 

 

 

 

 

At December 31,

 

 

 

2007
ThU.S.$

 

2008
ThU.S.$

 


CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

 

Loans from financial institutions

 

 

1,177,030

 

 

623,625

 

Loans paid

 

 

(1,216,252

)

 

(852,772

)

Public liabilities

 

 

268,110

 

 

202,537

 

Bonds issue

 

 

(130,000

)

 

 

Dividends paid

 

 

(284,343

)

 

(300,663

)

Other

 

 

(3,309

)

 

 


Net cash flow from financing activities

 

 

(188,764

)

 

(327,273

)


CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

 

Sales of property, plant and equipment

 

 

5,511

 

 

1,152

 

Purchase of property, plant and equipment

 

 

(540,791

)

 

(514,858

)

Permanent investments

 

 

(212,052

)

 

(10,353

)

Capitalized interest paid

 

 

(704

)

 

(5,259

)

Other investments

 

 

5,342

 

 

(1,873

)


Net cash flow from investment activities

 

 

(742,694

)

 

(531,191

)


Net cash flows from operating, investing and financing activities

 

 

72,084

 

 

(75,056

)


Effect of inflation

 

 

10,844

 

 

(25,085

)


Net decrease in cash and cash equivalents

 

 

82,928

 

 

(100,141

)

Initial balance of cash and cash equivalents

 

 

184,302

 

 

267,230

 


FINAL BALANCE OF CASH AND CASH EQUIVALENTS

 

 

267,230

 

 

167,089

 


The accompanying notes 1 to 29 form an integral part of these consolidated financial statements.

11


CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statements
December 31, 2008
Amounts in thousands of U.S. dollars, except as indicated

 

 



 

 

1.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

 

(a)

Organization and basis of presentation

Celulosa Arauco y Constitución S.A., a Chilean corporation (the “Company”), and its subsidiaries are engaged principally in the production of pulp, forestry and wood products and the management of its subsidiaries’ forestry assets.

The financial statements of the Company and its subsidiaries (collectively known as “Arauco”) are presented on a consolidated basis and have been prepared on the basis of accounting principles generally accepted in Chile and specific guidelines issued by the Superintendencia de Valores y Seguros (the “Chilean Securities Commission”). The Company consolidates the financial statements of the companies in which it controls a majority of voting shares. All significant inter-company transactions have been eliminated. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Certain minor reclassifications among account headings have been made to these consolidated financial statements in order to present them on a basis more familiar to readers of financial statements in the United States (the “U.S.”).

The consolidated financial statements as of December 31, 2007 and 2008 include the following direct and indirect subsidiaries of the Company, all of which are incorporated in Chile (except as otherwise noted).

12



 

CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statements
December 31, 2008
Amounts in thousands of U.S. dollars, except as indicated


(a)          Organization and basis of presentation, continued

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest of the Company
as of December 31, 2008

 

Total
December 31,
2007

 







Subsidiary company

 

Direct
%

 

Indirect
%

 

Total
%

 

Total
%

 











Agenciamiento y Servicios Profesionales S.A. (Mexico)

 

 

 

 

99.99

 

 

99.99

 

 

99.99

 

Alto Paraná S.A. (Argentina)

 

 

 

 

99.98

 

 

99.98

 

 

99.98

 

Arauco Colombia S.A. (Colombia)

 

 

1.50

 

 

98.49

 

 

99.99

 

 

 

Arauco Denmark ApS (Denmark)

 

 

 

 

99.99

 

 

99.99

 

 

99.99

 

Arauco Distribución S.A.

 

 

 

 

99.99

 

 

99.99

 

 

99.99

 

Arauco Ecuador S.A. (Ecuador)

 

 

0.10

 

 

99.89

 

 

99.99

 

 

99.99

 

Arauco Florestal Arapoti S.A. (Brazil)

 

 

 

 

79.99

 

 

79.99

 

 

79.99

 

Arauco Forest Brazil S.A. (Ex-L.D. Forest Products S.A.) (Brazil)

 

 

33.71

 

 

66.29

 

 

99.99

 

 

99.99

 

Arauco Forest Products B.V.(The Netherlands)

 

 

 

 

99.99

 

 

99.99

 

 

99.99

 

Arauco Generación S.A.

 

 

98.00

 

 

1.99

 

 

99.99

 

 

99.99

 

Arauco Honduras S. de R.L. de C.V. (Honduras)

 

 

0.06

 

 

99.93

 

 

99.99

 

 

99.99

 

Arauco Internacional S.A.

 

 

98.03

 

 

1.96

 

 

99.99

 

 

99.99

 

Arauco Perú S.A. (Peru)

 

 

 

 

99.99

 

 

99.99

 

 

99.99

 

Arauco Wood Products, Inc. (U.S.A.)

 

 

0.39

 

 

99.60

 

 

99.99

 

 

99.99

 

Araucomex S.A. de C.V. (Mexico)

 

 

 

 

99.99

 

 

99.99

 

 

99.99

 

Aserraderos Arauco S.A.

 

 

99.00

 

 

0.99

 

 

99.99

 

 

99.99

 

Bosques Arauco S.A.

 

 

1.00

 

 

98.93

 

 

99.93

 

 

99.93

 

Caif S.A. (Argentina)

 

 

 

 

 

 

 

 

99.99

 

Controladora de Plagas Forestales S.A.

 

 

 

 

61.17

 

 

61.17

 

 

61.17

 

Ecoboard S.A. (Argentina)

 

 

 

 

 

 

 

 

99.99

 

Ecoresin S.A. (Argentina)

 

 

 

 

 

 

 

 

99.99

 

Faplac S.A. (Argentina)

 

 

 

 

99.99

 

 

99.99

 

 

99.99

 

Flooring S.A. (Argentina)

 

 

 

 

99.99

 

 

99.99

 

 

99.99

 

Forestal Arauco Costa Rica S.A. (Costa Rica)

 

 

 

 

 

 

 

 

99.99

 

Forestal Arauco Guatemala S.A. (Guatemala)

 

 

0. 12

 

 

99.87

 

 

99.99

 

 

99.99

 

Forestal Arauco S.A.

 

 

99.92

 

 

 

 

99.92

 

 

99.92

 

Forestal Celco S.A.

 

 

1.00

 

 

98.93

 

 

99.93

 

 

99.93

 

Forestal Cholguán S.A.

 

 

 

 

97.43

 

 

97.43

 

 

97.43

 

Forestal Concepción S.A. (Panamá)

 

 

 

 

99.99

 

 

99.99

 

 

99.99

 

Forestal Cono Sur S.A. (Uruguay)

 

 

 

 

99.99

 

 

99.99

 

 

99.99

 

Forestal Los Lagos S.A.

 

 

 

 

79.94

 

 

79.94

 

 

79.94

 

Forestal Misiones S.A. (Argentina)

 

 

 

 

99.99

 

 

99.99

 

 

99.99

 

Forestal Valdivia S.A.

 

 

1.00

 

 

98.93

 

 

99.93

 

 

99.93

 

Industrias Forestales S.A. (Argentina)

 

 

9.97

 

 

90.02

 

 

99.99

 

 

99.99

 

Inversiones Celco S.L. (Spain)

 

 

31.89

 

 

68.10

 

 

99.99

 

 

99.99

 

Investigaciones Forestales Bioforest S.A.

 

 

1.00

 

 

98.93

 

 

99.93

 

 

99.93

 

Forestal Nuestra Señora del Carmen S.A. (Ex - La Señora del Milagro S.R.L.) (Argentina)

 

 

10.00

 

 

89.99

 

 

99.99

 

 

99.99

 

Molduras Trupán S.A.

 

 

1.00

 

 

98.99

 

 

99.99

 

 

99.99

 

Paneles Arauco S.A.

 

 

99.00

 

 

0.99

 

 

99.99

 

 

99.99

 

Placas Do Paraná S.A. (Brazil)

 

 

7.82

 

 

92.17

 

 

99.99

 

 

99.99

 

Servicios Logísticos Arauco S.A.

 

 

45.00

 

 

54.99

 

 

99.99

 

 

99.99

 

Southwoods Arauco-Lumber and Millwork LLC (U.S.A.)

 

 

 

 

99.61

 

 

99.61

 

 

99.61

 

Lucchese Empreendimientos e Participacoes Ltda.

 

 

 

 

99.99

 

 

99.99

 

 

 

Leasing Forestal S.A. (Ex -Trupán Argentina S.A.)(Argentina)

 

 

 

 

99.99

 

 

99.99

 

 

99.99

 

13


 

CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statements
December 31, 2008
Amounts in thousands of U.S. dollars, except as indicated



 

 

(b)

Currency records

 

 

 

On January 1, 2002, the Company and its subsidiaries Aserraderos Arauco S.A. and Paneles Arauco S.A. began maintaining their accounting records and preparing their financial statements in U.S. dollars.

 

 

 

On January 1, 2003, the subsidiaries Forestal Arauco S.A., Forestal Celco S.A., Bosques Arauco S.A., Forestal Valdivia S.A., Forestal Cholguán S.A. and Arauco Internacional S.A. also began maintaining their accounting records and preparing their financial statements in U.S. dollars.

 

 

 

The Company’s other Chilean subsidiaries maintain their accounting records and prepare their financial statements in Chilean pesos.

 

 

(c)

Price-level restatement and foreign currency exchange rate

          (i)         Price-level restatement

 

 

 

 

The charge or credit for price-level restatement of the subsidiaries that record and prepare their financial statements in Chilean pesos in the consolidated financial statements is comprised of the following two factors:

 

 

 

(A)

the effect of changes in the purchasing power of the Chilean peso during each year presented in the consolidated financial statements; and

 

 

 

 

(B)

the change in the value of assets and liabilities which are denominated in inflation index-linked units of account called Unidades de Fomento (“UF”).

          (ii)          Changes in purchasing power

 

 

 

The effect of the changes in the purchasing power of the Chilean peso during each year presented in the consolidated financial statements, relating to the effect of the changes on the assets, liabilities and net income of the subsidiaries that record and prepare their financial statements in Chilean pesos, is calculated by restating non-monetary assets, liabilities, shareholders’ equity and income statement accounts to reflect changes in the Chilean consumer price index from the date they were acquired or incurred to the end of the year. The net purchasing power gain or loss calculated as described above, and included in net income, reflects the effect of Chilean inflation on the value of non-monetary assets and liabilities (other than UF- and foreign currency-denominated assets and liabilities) held by these subsidiaries.

 

 

 

The restatements were calculated using the official consumer price index of the Chilean National Institute of Statistics and are based on the “prior month rule,” according to which inflation adjustments are based on the CPI at the close of the month preceding the close of the relevant period or transaction. This index is considered by the business community, the accounting profession and the Chilean government to be the index which most closely complies with the technical requirement to reflect the variation in the general level of prices in Chile and, consequently, is widely used for financial reporting purposes in Chile.

14


 

CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statements
December 31, 2008
Amounts in thousands of U.S. dollars, except as indicated



 

 

 

c)

Price-level restatement and foreign currency exchange rate, continued

 

 

 

(ii)

Changes in purchasing power, continued

 

 

 

 

The values of the CPI were as follows:


 

 

 

 

 

 

 

 

 

 

Index

Change from
previous
December 31,







December 31, 2007

 

 

133.95

 

 

7.8

%

December 31, 2008

 

 

143.45

 

 

7.10

%









 

 

 

 

 

 

 

 

The values of the CPI used for the price-level restatement for the two most recent fiscal periods were as follows:


 

 

Index

 

Change from
previous
November 30,






 

 

 

 

 

 

 

November 30, 2007

 

133.34

 

 

7.4

%

November 30, 2008

 

145.19

 

 

8.9

%








 

 

 

 

 

 

 


 

 

 

 

The above-mentioned price-level restatements do not purport to represent appraisal or replacement values and are intended only to restate all non-monetary financial statement components in terms of local currency of a single purchasing power and to include in the net result for each year the gain or loss in purchasing power arising from the holding of monetary assets and liabilities exposed to the effects of inflation.

 

 

 

(iii)

Inflation Index-linked units of account (UF)

 

 

 

 

Assets and liabilities that are denominated in inflation index-linked units of account are stated at the period-end values of the respective units of account. The principal inflation index-linked unit used in Chile is the UF, which changes daily to reflect the changes in Chile’s CPI.

 

 

 

Interest-bearing assets and liabilities that are denominated in UFs have their interest rates expressed in terms of an interest rate spread in excess of the indexation of the UF.

           Values for the UF were as follows (historical pesos per UF):

 

 

 

 

 

 

 

   Ch$

 





December 31, 2007

 

 

19,622.66

 

December 31, 2008

 

 

21,452.57

 







 

 

 

 

(iv)

Foreign currency exchange rate

 

 

 

 

The charge or credit for foreign currency exchange rate is comprised of the change in the value of assets and liabilities denominated in foreign currencies.

15


 

CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statements
December 31, 2008
Amounts in thousands of U.S. dollars, except as indicated



 

 

 

c)

Price-level restatement and foreign currency exchange rate, continued

 

 

 

(v)

Assets and liabilities denominated in foreign currencies

 

 

 

 

Assets and liabilities denominated in foreign currencies other than U.S. dollars are detailed in note 17 and have been translated into U.S. dollars at the relevant observed exchange rate reported by the Central Bank of Chile. The observed exchange rates for foreign currencies reported by the Central Bank on the specified dates were as follows:


 

 

 

 

 

 

 

 

 

 

At December 31,

 

 

 

2007
U.S.$ 1

 

2008
U.S.$ 1

 







Chilean peso (Ch$)

 

496.89

 

 

636.45

 

 

Euro

 

0.68

 

 

0.70

 

 

Argentine peso (Ar$)

 

3.15

 

 

3.44

 

 

Brazilian real (R$)

 

1.77

 

 

2.34

 

 

Unidad de Fomento (UF)

 

0.03

 

 

0.03

 

 










 

 

 

The differences arising in the valuation of assets and liabilities denominated in foreign currencies as a result of variations in the exchange rates are accounted for in the income statement as an item of foreign currency exchange rate in the year in which they arise. Realized and unrealized losses and realized gains on interest rate swaps are accounted for under the account headings “Interest and other financial expenses” and “Interest earned” in the period in which they arise. See note 1(o).

 

 

 

Credit (charge) to income for price-level restatement in each of the reporting periods was comprised of the restatements of non-monetary assets, UF and foreign currency-denominated monetary assets and liabilities, shareholders’ equity and income statement accounts as follows:

 

 

 

Credit (charge) to income for price-level restatement:


 

 

 

 

 

 

 

 

 

Year ended December 31,

 

 

2007
ThU.S.$
Credit (Charge)

 

2008
ThU.S.$
Credit (Charge)






Assets, liabilities and equity restated by CPI

 

 

 

 

 

 

Shareholders’ equity of subsidiaries in Chilean pesos

 

(2,499

)

 

(1,868

)

Property, plant and equipment, net

 

1,226

 

 

409

 

Inventories

 

103

 

 

649

 

Other assets and liabilities, net

 

883

 

 

557

 








Net effect on income

 

(287

)

 

(253

)








Price-level restatement of income statement accounts

 

(588

)

 

(248

)








Credit (charge) to income by CPI

 

875

 

 

(501

)








16


 

CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statements
December 31, 2008
Amounts in thousands of U.S. dollars, except as indicated



 

 

c)

Price-level restatement and foreign currency exchange rate, continued

 

 

Credit (charge) to income for foreign currency exchange rate:


 

 

 

 

 

 

 

 

 

Year ended December 31,

 

 

2007
ThU.S.$
Credit (Charge)

 

2008
ThU.S.$
Credit (Charge)






Assets restated by foreign currency

 

 

 

 

 

 

Trade accounts receivable

 

6,927

 

 

(15,914

)

Other assets

 

41,720

 

 

(123,352

)

Liabilities restated by foreign currency

 

 

 

 

 

 

Bank borrowings

 

(3,242

)

 

6,332

 

Trade accounts payable

 

(5,625

)

 

25,303

 

Dividends payable

 

(4,910

)

 

17,867

 

Other liabilities

 

(22,395

)

 

41,182

 








Net effect on income from foreign currency

 

12,475

 

 

(48,582

)









 

 

(d)

Time deposits, marketable securities and investments purchased under agreements to resell

 

 

 

Time deposits are shown at cost plus accrued interest. Marketable securities are shown at the lower of cost plus accrued interest or market value.

 

 

 

Financial instruments purchased under agreements to resell are held at acquisition cost plus accrued interest.

 

 

 

Investments in money market funds are stated at market value based on period-end quoted values.

 

 

(e)

Inventories

 

 

 

Inventories of raw materials, spare parts and supplies have been stated at the average price or restated cost as determined by price-level restatement principles for those subsidiaries that maintain their accounting records and prepare their financial statements in Chilean pesos. Imports in transit are held at accumulated cost at the balance sheet date plus price-level restatement for subsidiaries that maintain their accounting records and prepare their financial statements in Chilean pesos.

 

 

 

For those subsidiaries that maintain their accounting records and prepare their financial statements in Chilean pesos, finished goods are stated at an average unit production cost for the year, including production overhead and depreciation of fixed assets, plus price-level restatement.

 

 

 

Inventory of forests in exploitation is stated at the commercially appraised value at which these forests were transferred from fixed assets.

 

 

 

Finished goods are valued at the lower of average cost of production or market value. For those subsidiaries that maintain their accounting records and prepare their financial statements in Chilean pesos, inventory is valued at the lower of price-level restated cost (or transferred value in the case of forest inventory) and market value.

17


 

CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statements
December 31, 2008
Amounts in thousands of U.S. dollars, except as indicated



 

 

 

(f)

Property, plant and equipment

 

 

 

(i)

Property, plant and equipment, excluding forests

 

 

 

 

The property, plant and equipment of the Company and those of its subsidiaries that maintain their accounting records and prepare their financial statements in U.S. dollars are valued at cost. The property, plant and equipment of the other Chilean subsidiaries, excluding forests, are valued at cost plus price-level restatement. The carrying value of property, plant and equipment was adjusted in 1979 in accordance with the regulations of the Superintendencia de Valores y Seguros. See note 6.

 

 

 

Property, plant and equipment, excluding forests and land, are depreciated on a straight-line basis over the estimated remaining useful lives of the underlying assets.

 

 

 

Financing costs of projects requiring major investments in long-term construction and those costs incurred from financing specific projects are capitalized and amortized over the estimated useful lives of the related assets. Profits and losses on the sale of property, plant and equipment, excluding forests, are accounted for as the difference between the book value and the consideration received.

 

 

 

The Company has conducted an impairment analysis of its significant assets and concluded that no impairment charge is necessary.

 

 

 

(ii)

Forests

 

 

 

 

Radiata pine that is less than 16 years old is valued at the cost of development, maintenance and protection plus price-level restatement (until December 31, 2002). Finance costs related to the development of the forests are not capitalized but are expensed in the income statement.

 

 

 

Radiata pine that is 16 or more years old is valued in accordance with a commercial valuation performed by Arauco based on sample measurements of forest growth carried out by independent third parties. The difference between the commercial valuation at year-end and the prior year’s valuations plus price-level restatement (until December 31, 2002) is accounted for as an adjustment to “Forests” and to shareholders’ equity under the account heading “Forestry and other reserves”.

 

 

 

Forests that are due to be exploited within one year are reallocated to inventory under current assets.

 

 

 

On the sale of a related finished good, the shareholders’ equity account “Forestry and other reserves” is reduced by the amount of the commercial valuation allocable to such finished good. Such commercial valuation is excluded from cost of sales.

 

 

 

Commercial valuations are not performed on native forests.

18


 

CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statements
December 31, 2008
Amounts in thousands of U.S. dollars, except as indicated



 

 

 

(g)

Investments in related companies

 

 

 

Investments in companies over which Arauco exercises significant, but not controlling, influence are shown under other non-current assets and are accounted for using the equity method. Arauco is presumed to exercise significant influence where its participation in a company is between 20% and 50%.

 

 

 

Arauco’s proportionate share in the net income and losses of related companies is recognized in non-operating income in the statement of income on an accrual basis, after eliminating any unrealized profits from transactions between related companies.

 

 

 

Investment in related companies acquired through December 31, 2003 are accounted for using the equity method, in accordance with Circular Letter No. 368 of the Chilean Securities Commission.

 

 

 

Investment in related companies acquired after December 31, 2003 are accounted for using the proportional net worth method, in accordance with Circular Letter No. 1697 of the Chilean Securities Commission.

 

 

 

Investments in foreign companies are accounted for in accordance with Technical Bulletin No. 64 of the Accountants Association of Chile.

 

 

(h)

Income taxes

 

 

 

Effective January 1, 2000, the effects of deferred income taxes arising from temporary differences between the basis of assets and liabilities for tax and financial statement purposes are recorded in accordance with Technical Bulletins Nos. 60, 68 and 69 of the Accountants Association of Chile and Circular 1466 of the Chilean Securities Commission. The effects of deferred income taxes up to January 1, 2000 that were not previously recorded were recognized in accordance with the transitional period provided by Technical Bulletin No. 60, against asset or liability account (“complementary accounts”) and were recorded. Complementary accounts are amortized to income over the estimated average reversal periods corresponding to underlying temporary differences to which the deferred tax asset or liability related. Deferred income taxes by January 1, 2000 are recognized in income as the temporary differences are reversed.

 

 

 

Deferred income tax assets are reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred income tax assets will not be realized. The valuation allowance should be sufficient to reduce the deferred income tax assets to an amount that is more likely than not to be realized.

 

 

(i)

Bonds

 

 

 

 

 

Bonds are shown at face value plus accrued interest as of each year-end. The discount on, and expenses incurred in, the issue of the bonds are shown under other non-current assets and are amortized over the term of the instruments.

19


 

CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statements
December 31, 2008
Amounts in thousands of U.S. dollars, except as indicated



 

 

(j)

Staff severance indemnities

 

 

 

Arauco has recorded a liability for long-term severance indemnities in accordance with the collective agreements entered into with its employees. Generally, upon leaving Arauco, employees who have completed five years of service are entitled to one month’s salary for each year of service, up to the retirement age of 60 and 65 years for women and men, respectively. The provision for severance compensation is calculated on the basis of the present value of the total accrued cost of this benefit, discounted at a real annual interest rate of 5%.

 

 

 

(k)

Research and development expenses

 

 

 

 

The cost of research, project development and special studies are charged to income in the period in which they are incurred, except for the cost of fixed assets once development has been approved. The cost of research and development charged to income was U.S.$3,231 thousand and U.S.$4,442 thousand for the period ended December 31, 2007 and 2008, respectively.

 

 

(l)

Negative goodwill on investments

 

 

 

 

Any excess of the fair value of net assets (book value until December 31, 2003) of a company acquired over the purchase consideration paid is accounted for as a reduction of the consolidated assets in the balance sheet and is amortized to the income statement over a five-year period or the life time of acquired assets.

 

 

 

Since January 2004, the lower and higher value of investments represent the difference between the acquisition value of the investment of the related business and the fair value of said investment as of the acquisition date, which is depreciated according to the expected return period of said investment.

 

 

 

The modifications to the fair value, higher and/or lower values are completed in a timeframe no longer than a year since the acquisition date.

 

 

(m)

Goodwill on investments

 

 

 

Any consideration paid to acquire a company in excess of fair value of net assets (book value until December 31, 2003) is accounted for as an increase of the consolidated assets in the balance sheet and is amortized over a five-year period or the life time of acquired assets.

 

 

 

Since January 2004, the lower and higher value of investments represent the difference between the acquisition value of the investment of the related business and the fair value of said investment as of the acquisition date, which is depreciated according to the expected return period of said investment.

 

 

 

The modifications to the fair value, higher and/or lower values are completed in a timeframe no longer than a year since the acquisition date.

 

 

 

(n)

Cash and cash equivalents

 

 

 

Arauco considers cash and cash equivalents as representing cash and cash instruments with an original maturity of less than three months. Cash flows from operating activities include all business-related cash flows as well as interest paid, financial income and in general, all cash flows not defined as resulting from financing or investing activities. The operating concept used in this statement is broader than that in the consolidated statements of income.

20


 

CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statements
December 31, 2008
Amounts in thousands of U.S. dollars, except as indicated



 

 

 

(o)

Interest rate swaps

 

 

 

 

Interest rate swap agreements are considered hedges of existing items and accounted for in accordance with Technical Bulletin No. 57 of the Accountants Association of Chile.

 

 

(p)

Government grants awarded for forestry activities

 

 

 

 

Grants that are received from the Chilean government for forestry activities are accounted for as a credit to shareholders’ equity or as a reduction in the cost of the forests. These amounts are realized as income on sale of the related finished goods.

 

 

(q)

Provision for vacation pay

 

 

 

 

Vacation pay earned by employees but not paid is accounted for on an accrual basis.

 

 

(r)

Allowance for doubtful accounts

 

 

 

Allowance for doubtful accounts is recorded based on analyses of collectability on an individual account basis.

 

 

 

(s)

Leasing assets

 

 

 

 

Financing leases are recorded at the present value of the minimum lease payments, discounted by the purchase option interest rate indicated in the contract. The obligations are recorded as current and long-term liabilities net of deferred interest.

 

 

(t)

Intangibles

 

 

 

Intangible assets are recorded at cost, adjusted for price-level restatement, and are amortized over 20 years.

 

 

(u)

Revenue recognition policy

 

 

 

Revenues are recorded in accordance with Technical Bulletin No. 70 of the Accountants Association of Chile.

(v)

 

 

Interest rate swap contracts

 

 

 

 

Interest expense on swap contract-related debt is adjusted for the net amount receivable or payable under the swap contract. The initial premium payable upon entry into the swap contract is amortized over the period of the underlying contract.

 

 

(w)

Software

 

 

 

Internal development software costs are expensed when incurred. Purchased software is capitalized and amortized over the estimated useful life up to a maximum of four years. Capitalized software assets are classified in “Property, plant and equipment” as “other assets.”

21


 

CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statements
December 31, 2008
Amounts in thousands of U.S. dollars, except as indicated



 

 

 

(x)

Translation of foreign subsidiaries, continued

 

 

 

 

Beginning January 1, 2002, the financial statements of the Company’s foreign subsidiaries are translated into U.S. dollars in accordance with B.T. No. 64. In accordance with B.T. No. 64, the financial statements of foreign subsidiaries whose activities do not constitute an extension of the Chilean parent company’s operations and operate in countries that are exposed to significant risks, restrictions or inflation/exchange fluctuations, are re-measured into U.S. dollars before translation into the accounting records of the parent company. The Company has remeasured the operations of its Argentinean subsidiaries and the Panamanian agency that are not considered an extension of Arauco’s operations into U.S. dollars as follows:

 

 

 

Monetary assets and liabilities are translated at year-end rates of exchange between the U.S. dollar and the local currency.

 

 

 

 

All non-monetary assets and liabilities and shareholders’ equity are translated at historical rates of exchange between the U.S. dollar and the local currency.

 

 

 

 

Income and expense accounts are translated at average rates of exchange between the U.S. dollar and the local currency.

 

 

 

 

The effects of any exchange rate fluctuations as compared to the U.S. dollar are included in the results of operations for the relevant year.

 

 

 

 

Until December 31, 2001, under B.T. No. 64, each investment in foreign subsidiaries was price-level restated, in order to separate the effect of price-level restating the foreign investment, which was reflected in income, from the effect of the foreign currency translation gain or loss, which was reflected in equity in the account “Cumulative Translation Adjustment,” as the foreign investment itself was measured in U.S. dollars. For the periods ended December 31, 2008 and 2007, as allowed by B.T. No. 64, the Company designated U.S. dollar denominated debt as an economic hedge of its net foreign investment in Argentina.

 

 

 

As of December 31, 2008, the Company’s investments in Argentina represented 7.6% of its consolidated assets, compared to 8.1% as of December 31, 2007.

 

 

 

It is not possible to predict what developments will occur in the Argentine economy, what effects the Argentine economic crisis and the devaluation of the Argentine peso may have on the economic and financial condition of the Company’s Argentine subsidiaries or whether the Argentine economic crisis may affect developments in other emerging markets including Chile. The Company’s financial statements include the financial effects of recent current Argentine developments in accordance with both Superintendencia de Valores y Seguros instructions and Technical Bulletin guidelines.

 

 

2.

CHANGES IN ACCOUNTING POLICIES

 

 

 

 

There are no significant changes in accounting principles or presentation for the years covered in these consolidated financial statements.

22


 

CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statements
December 31, 2008
Amounts in thousands of U.S. dollars, except as indicated



 

 

3.

MARKETABLE SECURITIES

 

 

 

 

Marketable securities as of each year-end, were as follows:


 

 

 

 

 

 

 

 

 

As of December 31,

 

 

2007
ThU.S.$

 

2008
ThU.S.$






Mutual fund units

 

193,509

 

 

59,091

 








Total marketable securities

 

193,509

 

 

59,091

 









 

 

4.

TRADE ACCOUNTS RECEIVABLE

 

 

 

Trade accounts receivable as of each year-end were as follows:


 

 

 

 

 

 

 

 

 

As of December 31,

 

 

 

2007
ThU.S.$

 

2008
ThU.S.$






Trade accounts receivable

 

599,000

 

 

543,239

 

Allowance for doubtful accounts

 

(11,123

)

 

(14,985

)








Total trade accounts receivable

 

587,877

 

 

528,254

 









 

 

 

As of December 31, 2007 and 2008, no single customer accounted for more than 10% of the outstanding balance of accounts receivable. Arauco takes steps to reduce the risk of non-payment for goods sold, including the use of letters of credit, receipt of advance payments and the use of insurance policies. If such measures were to fail, Arauco would be exposed to a maximum credit loss equivalent to the accounting balance. Arauco has not experienced any significant losses as a result of non-payment of accounts receivable.

 

 

5.

INVENTORIES

 

 

 

Inventories have been valued in accordance with the policy described in note 1(e). The principal components were as follows:


 

 

 

 

 

 

 

 

 

As of December 31,

 

 

2007
ThU.S.$

 

2008
ThU.S.$






Finished goods (pulp)

 

61,700

 

 

149,151

 

Finished goods (timber and panels)

 

172,350

 

 

227,022

 

Work in progress

 

22,628

 

 

42,789

 

Saw logs, pulpwood and chips

 

72,705

 

 

46,294

 

Raw material

 

80,941

 

 

96,710

 

Forests under exploitation

 

304,299

 

 

267,746

 

Pending imports

 

1,441

 

 

1,031

 

Other

 

38,408

 

 

40,690

 








Total inventories

 

754,472

 

 

871,433

 








23


 

CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statements
December 31, 2008
Amounts in thousands of U.S. dollars, except as indicated



 

 

6.

PROPERTY, PLANT AND EQUIPMENT

 

 

 

Property, plant and equipment, including forests, have been valued as described in note 1(f).

 

 

 

Technical revaluation and adjustment of book value

 

 

 

The balances of buildings and other infrastructure, machinery and equipment and other include amounts arising from the technical revaluation of certain assets performed during 1979, in accordance with regulations of the Chilean Securities Commission.

 

 

 

The accumulated net book value of these revaluations as of each year-end is detailed below by class of asset:


 

 

 

 

 

 

 

 

 

As of December 31,

 

 

 

2007
ThU.S.$

 

2008
ThU.S.$








Buildings and other infrastructure

 

2,275

 

 

2,159

 

Machinery and equipment

 

169

 

 

139

 








Total increase in value due to technical revaluation of property, plant and equipment

 

2,444

 

 

2,298

 









 

 

 

Depreciation of property, plant and equipment was calculated as described in note 1(f) and was as follows:


 

 

 

 

 

 

 

 

 

As of December 31,

 

 

2007
ThU.S.$

 

2008
ThU.S.$






Depreciation of:

 

 

 

 

 

 

Property, plant and equipment (excluding land and forests)

 

251,132

 

 

233,011

 

Technical revaluation

 

146

 

 

146

 








Total

 

251,278

 

 

233,157

 








          Accumulated depreciation was as follows:

 

 

 

 

 

 

 

 

 

 

As of December 31,

 

 

 

2007
ThU.S.$

 

2008
ThU.S.$

 









Accumulated depreciation of:

 

 

 

 

 

 

 

Property, plant and equipment (excluding land and forests)

 

 

2,407,907

 

 

2,649,076

 

Technical revaluation

 

 

65,397

 

 

65,543

 









Total

 

 

2,473,304

 

 

2,714,619

 









24


 

CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statements
December 31, 2008
Amounts in thousands of U.S. dollars, except as indicated



 

 

6.

PROPERTY, PLANT AND EQUIPMENT, continued

 

 

 

Forests

 

 

 

The cost and the commercial valuation increment of the forests, determined as described in note 1(f), was as follows:


 

 

 

 

 

 

 

 

 

 

As of December 31,

 

 

 

2007
ThU.S.$

 

2008
ThU.S.$

 







Cost of forests

 

 

1,117,769

 

 

1,225,963

 

Commercial valuation increment

 

 

1,749,484

 

 

1,820,408

 









Total

 

 

2,867,253

 

 

3,046,371

 










 

 

7.

INVESTMENTS IN RELATED COMPANIES

 

 

a)

Effected Investments

 

 

 

During the period ending on December 31, 2008, the following investments were made:

 

 

 

On December 18, 2008, our subsidiary Alto Paraná S.A. made a contribution of capital to the company Lucchese Empreendimientos e Participacoes Ltda. in the amount of $29 million. As a result, Alto Parana S.A. has a 99.99% interest in the company.

 

 

 

On April 24, 2008, July 18, 2008 and November 14, 2008 Celulosa Arauco y Constitución S.A. made contributions of a capital in Inversiones Puerto Coronel S.A. in the amounts of US$2 million, US$3 million and US$3 million, respectively.

 

 

 

As of March 28, 2008, our subsidiary, Faplac S.A., completed the purchase of 20% participation in Grupo Savitar S.A. for US$2.3 million. This investment generated a lower investment value of US$511,000 and an initial adjustment to the value of the assets of US$1.34 million. In accordance with Circular No. 1.697 of the Chilean Securities Commission, the determination of the fair value of the purchase can eventually change through an analysis of the value of the acquired assets.

 

 

 

During the term ending on December 31, 2007, the following investments were made:

 

 

 

Between October and December of 2007, contributions were made to the subsidiaries Arauco Forest Brasil S.A., Placas do Paraná S.A. and Arauco Florestal S.A. for a total of US$235,804 thousand, primarily to finance the purchase of the Stora Enso group of businesses, producing a US$10,479 thousand increase in the value of operations (note 11).

 

 

 

The acquired corporations indicated in item f) were as follows:

 

 

 

i) The subsidiary Arauco Internacional S.A. has an 80% controlling interest in Stora Enso Arapoti Empreendimientos Agrícolas S.A. (now Arauco Florestal Arapoti S.A.).

 

 

 

ii) The subsidiary Placas do Paraná S.A. acquired 20% of the capital stock of Stora Enso Arapoti Industria de Papel S.A.

 

 

25


 

CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statements
December 31, 2008
Amounts in thousands of U.S. dollars, except as indicated



 

 

7.

INVESTMENTS IN RELATED COMPANIES, continued

 

 

 

iii) The subsidiary Placas do Paraná S.A. incorporated 100% of the company Stora Enso Arapoti Serraria Ltda.

 

 

b)

Received dividends

 

 

 

At the end of each financial year we received the following dividends:


 

 

 

 

 

 

 

 

 

 

As of December 31,

 

 

 

2007
ThU.S.$

 

2008
ThU.S.$

 







Puerto de Lirquén S.A.

 

 

1,943

 

 

2,099

 

Dynea Brasil S.A.

 

 

4,436

 

 

3,698

 









Total

 

 

6,379

 

 

5,797

 










 

 

c)

Taxes on unremitted earnings

 

 

 

Deferred taxes have not been recorded, nor has the investment been adjusted, for taxes that may arise on the distribution or remittance of earnings from investments in related companies as these earnings will either be indefinitely reinvested or will not result in the imposition of additional taxes.

 

 

d)

Investments in Brazil

 

 

 

On September 27, 2007, our negotiations with Stora Enso Oyj, of Switzerland and Finland, concluded successfully, incorporating into our acquisitions the assets that Stora Enso Oyj had acquired from International Paper in Brazil.

 

 

 

A summary of the agreements reached and subscribed are as follows:

 

 

a)

Our Brazilian subsidiary Arauco Florestal S.A. acquired 80% of the shares of Stora Enso Arapoti Empreendimentos Agrícolas S.A., which owns 50,000 hectares of land, including plantations of 25,000 hectares of pine and 5,000 hectares of eucalyptus in the town of Arapoti, Paraná, Brazil;

 

 

b)

Our Brazilian subsidiary Placas do Paraná S.A. acquired 20% of the shares in Stora Enso Arapoti Industria de Papel S.A., which owns a paper producing plant with a production capacity of 205,000 tons of paper per year, also located in the town of Arapoti, Paraná in Brazil;

 

 

c)

Our Brazilian subsidiary Placas do Paraná S.A. acquired 100% of the shares or rights in Stora Enso Arapoti Serraria Ltda., which owns a sawmill with a production capacity of 150,000 m3/year, also in Arapoti, Paraná, Brazil.

 

 

 

The structure of the purchase and sale involved the payout on behalf of the purchasing companies of US$208,000,000, which was financed through the subsidiary’s own resources and bank credits contracted by Arauco.

26


 

CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statements
December 31, 2008
Amounts in thousands of U.S. dollars, except as indicated



 

 

7.

INVESTMENTS IN RELATED COMPANIES, continued

 

 

e)

Others

 

 

 

On January 1st, 2007 Norwood S.A. was merged into the subsidiary Aserraderos Arauco S.A.

 

 

f)

The investments in related companies at each year-end were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Percentage
Participation

 

As of December 31,
Investment
Value

 

Net income of investee

 

 

 

2007
%

 

2008
%

 

2007
ThU.S.$

 

2008
ThU.S.$

 

2007
ThU.S.$

 

2008
ThU.S.$

 















Puerto de Lirquén S.A.

 

 

20.14

 

 

20.14

 

 

28,288

 

 

24,919

 

 

3,541

 

 

2,531

 

Inversiones Puerto Coronel S.A.

 

 

50.00

 

 

50.00

 

 

16,553

 

 

25,741

 

 

1,808

 

 

1,188

 

Servicios Corporativos Sercor S.A.

 

 

20.00

 

 

20.00

 

 

1,426

 

 

953

 

 

(24

)

 

(259

)

Eka Chile S.A.

 

 

50.00

 

 

50.00

 

 

31,488

 

 

28,369

 

 

2,168

 

 

1,598

 

Dynea Brasil S.A.

 

 

50.00

 

 

50.00

 

 

18,547

 

 

17,170

 

 

3,991

 

 

2,538

 

Genómica Forestal S.A.

 

 

25.00

 

 

25.00

 

 

2

 

 

8

 

 

 

 

6

 

Stora Enso Arapoti Industria de Papel S.A.

 

 

20.00

 

 

20.00

 

 

40,692

 

 

33,764

 

 

381

 

 

4,690

 

Savitar

 

 

0.00

 

 

20.00

 

 

 

 

1,641

 

 

 

 

(201

)





















Total

 

 

 

 

 

 

 

 

136,996

 

 

132,565

 

 

11,865

 

 

12,091

 






















 

 

8.

GOODWILL AND NEGATIVE GOODWILL

 

 

a)

Goodwill as of each year-end was as follows:


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31,

 

 

 



 

 

2007

 

2008

 

 

 









 

 

Amortization for the year
ThU.S.$

 

Balance of
goodwill
ThU.S.$

 

Amortization for
the year
ThU.S.$

 

Balance of
goodwill
ThU.S.$

 











Eka Chile S.A.

 

 

2,421

 

 

 

 

 

 

 

Southwoods-Arauco Lumber L.L.C.

 

 

300

 

 

 

 

 

 

 

Forestal Los Lagos S.A.

 

 

70

 

 

685

 

 

62

 

 

623

 

Norwood S.A.

 

 

15

 

 

278

 

 

15

 

 

263

 

Forestal Nuestra Señora del Carmen S.A. (ex - La Señora del Milagro S.R.L.)

 

 

105

 

 

2,172

 

 

116

 

 

2,057

 

Savitar

 

 

 

 

 

 

 

 

511

 















Total goodwill

 

 

2,911

 

 

3,135

 

 

193

 

 

3,454

 















27



 

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

December 31, 2008

Amounts in thousands of U.S. dollars, except as indicated



 

 

8.

GOODWILL AND NEGATIVE GOODWILL, continued

 

 

b)

Negative goodwill as of each year-end was as follows:


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31,

 

 

 



 

 

2007

 

2008

 

 

 





 

 

Amortization
for the year ThU.S.$

 

Balance of negative goodwill ThU.S.$

 

Amortization for the year ThU.S.$

 

Balance of negative goodwill ThU.S.$

 











Arauco Forest Brasil S.A. (ex -L.D. Forest Products S.A.)

 

 

4,021

 

 

55,417

 

 

4,169

 

 

51,258

 

Ecoresin S.A.

 

 

20

 

 

301

 

 

21

 

 

280

 

Ecoboard S.A.

 

 

11

 

 

104

 

 

11

 

 

93

 

Arauco Florestal Arapoti S.A. (*)

 

 

 

 

36,479

 

 

1,094

 

 

35,385

 















Total negative goodwill

 

 

4,052

 

 

92,301

 

 

5,295

 

 

87,016

 
















 

 

 

(*) Pursuant to the Chilean Securities Commission’s Circular Letter No. 1697, the Company is conducting additional analyses of some assets that eventually will be added to the currently reported values.


 

 

9.

OTHER NON-CURRENT ASSETS

 

 

 

Other non-current assets as of each year-end were as follows:


 

 

 

 

 

 

 

 

 

 

As of December 31,

 

 

 

2007

 

2008

 

 

 

ThU.S.$

 

ThU.S.$

 







Recoverable taxes

 

 

20,756

 

 

4,433

 

Bond issue expenses

 

 

10,121

 

 

10,030

 

Discounts on bond issues

 

 

4,307

 

 

13,839

 

Forestry roads

 

 

16,530

 

 

21,169

 

Other

 

 

3,520

 

 

5,001

 









Total other non-current assets

 

 

55,234

 

 

54,472

 









28


 

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

December 31, 2008

Amounts in thousands of U.S. dollars, except as indicated



 

 

10.

CURRENT BANK BORROWINGS

 

 

 

Current bank borrowings as of year-end were as follows:


 

 

 

 

 

 

 

 

 

 

As of December 31,

 

 

 

2007
ThU.S.$

 

2008
ThU.S.$

 







Total outstanding

 

 

168,352

 

 

26,984

 

Principal outstanding

 

 

167,324

 

 

26,519

 

Weighted average annual interest rate

 

 

5.41

 

 

7.24

 









          Current bank borrowings were denominated as follows:

 

 

 

 

 

 

 

 

 

 

As of December 31,

 

 

 

2007
ThU.S.$

 

2008
ThU.S.$

 







Obligations in foreign currency

 

 

168,028

 

 

26,980

 

Obligations in local currency

 

 

324

 

 

4

 









Total current bank borrowings

 

 

168,352

 

 

26,984

 










 

 

11.

CURRENT LIABILITIES

 

 

(a)

The following liabilities, excluding bank borrowings, fall due within one year:


 

 

 

 

 

 

 

 

 

 

As of December 31,

 

 

 

2007
ThU.S.$

 

2008
ThU.S.$

 







Current portion of bonds

 

 

34,852

 

 

136,279

 

Current portion of other long-term liabilities

 

 

521

 

 

400

 

Trade accounts payable

 

 

220,666

 

 

241,122

 

Accounts and notes payable to related parties

 

 

8,330

 

 

9,318

 

Current provisions

 

 

52,079

 

 

46,038

 

Sundry accounts payable and other liabilities

 

 

51,606

 

 

51,161

 









Total

 

 

368,054

 

 

484,318

 









 

 

 

(b)

The percentages of these obligations in foreign and local currency, were as follows at year-end:


 

 

 

 

 

 

 

 

 

 

As of December 31,

 

 

 

2007
%

 

2008
%

 







Foreign currency

 

 

60.96

 

 

66.54

 

Local currency

 

 

39.04

 

 

33.46

 









Total

 

 

100.00

 

 

100.00

 









29


 

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

December 31, 2008

Amounts in thousands of U.S. dollars, except as indicated



 

 

12.

BONDS

 

 

 

Arauco had five series of Yankee Bonds and one series of bonds sold pursuant to Rule 144A (the “Rule 144A Bonds”) outstanding as of December 31, 2008.

 

 

 

The balances of the bonds were as follows:


 

 

 

 

 

 

 

 

 

 

As of December 31,

 

 

 

2007
ThU.S.$

 

2008
ThU.S.$

 







Current

 

 

 

 

 

 

 

Yankee Bonds 2nd Issue

 

 

4,834

 

 

104,834

 

Yankee Bonds 3rd Issue

 

 

8,749

 

 

8,749

 

Yankee Bonds 4th Issue

 

 

8,915

 

 

8,915

 

Yankee Bonds 5th Issue

 

 

7,303

 

 

7,303

 

Yankee Bonds 6th Issue

 

 

4,047

 

 

4,047

 

Rule 144 A Bonds

 

 

1,004

 

 

1,004

 

Barau E

 

 

 

 

226

 

Barau F

 

 

 

 

1,201

 









Total current (including accrued interest)

 

 

34,852

 

 

136,279

 









Long-term

 

 

 

 

 

 

 

Yankee Bonds 2nd Issue

 

 

225,000

 

 

125,000

 

Yankee Bonds 3rd Issue

 

 

270,500

 

 

270,500

 

Yankee Bonds 4th Issue

 

 

387,000

 

 

387,000

 

Yankee Bonds 5th Issue

 

 

300,000

 

 

300,000

 

Yankee Bonds 6th Issue

 

 

370,000

 

 

370,000

 

Rule 144A Bonds

 

 

270,000

 

 

270,000

 

Barau E

 

 

 

 

33,707

 

Barau F

 

 

 

 

168,533

 









Total long-term

 

 

1,822,500

 

 

1,924,740

 









Less total accrued interest

 

 

34,852

 

 

136,279

 









Total principal outstanding

 

 

1,822,500

 

 

2,024,740

 









30


 

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

December 31, 2008

Amounts in thousands of U.S. dollars, except as indicated



 

 

12.

BONDS, continued

These bonds have the following characteristics:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Yankee
Bonds 2nd
Issue

 

Yankee
Bonds 3rd
Issue

 

Yankee
Bonds 4th
Issue

 

Yankee
Bonds 5th
Issue

 

Yankee
Bonds 6th
Issue

 

Rule 144A
Bonds
Issue

 

Barau – E
Barau - F
















Issue date

 

Oct. 3, 1997

 

Aug. 15, 2000

 

Sept. 10, 2001

 

Jul. 9, 2003

 

April 20, 2005

 

June 9, 2007

 

Nov. 6,2008
















Authorized Amount (nominal)

 

12 years
ThU.S.$100,000 20 years ThU.S.$125,000

 

10 years
ThU.S.$300,000

 

10 years
ThU.S.$400,000

 

10 years
ThU.S.$300,000

 

10 years
ThU.S.$400,000

 

10 years
ThU.S.$270,000

 

6 years
U.F. 10.000.000
21 years U.F. 10.000.000
















Authorized Amount

 

12 years ThU.S.$ 100,000

 

10 years ThU.S.$ 270,500

 

10 years
ThU.S.$ 387,000

 

10 yearsThU.S.$ 300,000

 

10 years
ThU.S.$ 370,000

 

10 years
ThU.S.$ 270,000

 

6 years
U.F. 1.000.000

(outstanding)

 

20 years ThU.S.$ 125,000

 

 

 

 

 

 

 

 

 

 

 

21 years U.F. 5.000.000
















Issue amount

 

12 yearsThU.S.$ 100,000

 

10 yearsThU.S.$ 300,000

 

10 yearsThU.S.$ 400,000

 

10 yearsThU.S.$ 300,000

 

10 yearsThU.S.$ 400,000

 

10 yearsThU.S.$ 270,000

 

6 yearsU.F. 1.000.000

 

 

20 years ThU.S.$ 125,000

 

 

 

 

 

 

 

 

 

 

 

21 years U.F. 5.000.000
















Amounts Authorized but not issued

 

 

 

 

 

 

 

U.F. 4.000.000
















Principal Repayment

 

12 years September 2009 20 years September 2017

 

August 2010

 

September 2011

 

July 2013

 

April 2015

 

June 2017

 

Barau-E October 2014 Barau-F October 2029
















Interest rate (excluding effects of any interest rate swap)

 

12 years 7.20% 20 years 7.50%

 

8.625%

 

7.75%

 

5.125%

 

5.625%

 

6.375%

 

Barau-E 3.961% Barau-F 4.206%
















Interest Payment

 

Semi-annually

 

Semi-annually

 

Semi-annually

 

Semi-annually

 

Semi-annually

 

Semi-annually

 

Semi-annually
















          As of December 2008, the principal and interest amounts due with respect to these bonds were as follows:

 

 

 

Year

 

ThU.S.$    




2009

 

136,279

2010

 

270,500

2011

 

387,000

2012

 

11,236

2013

 

311,236

2014

 

11,236

2015

 

370,000

2017

 

395,000

2019

 

15,321

2020

 

15,321

2021 and thereafter

 

137,890




 

 

2,061,019




31


 

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

December 31, 2008

Amounts in thousands of U.S. dollars, except as indicated



 

 

13.

ACCRUED LIABILITIES

 

 

(a)

Accrued liabilities were as follows:


 

 

 

 

 

 

 

 

 

 

As of December 31,

 

 

 

2007
ThU.S.$

 

2008
ThU.S.$

 







Accrual for staff vacations

 

 

14,141

 

 

12,446

 

Standby letters of credit

 

 

516

 

 

319

 

Staff severance indemnities

 

 

2,478

 

 

2,172

 

Selling and other transportation costs provisions

 

 

4,956

 

 

1,878

 

Electrical expense provision

 

 

3,388

 

 

1,533

 

Staff salary and benefits

 

 

4,768

 

 

5,026

 

Forestry activity expenses

 

 

2,205

 

 

3,661

 

Pending monthly provisional payments

 

 

10,150

 

 

6,367

 

Services and fees provision

 

 

 

 

1,625

 

Provision for trials

 

 

2,320

 

 

3,753

 

Other current liabilities

 

 

7,157

 

 

7,258

 









Total accrued liabilities

 

 

52,079

 

 

46,038

 










 

 

(b)

Liability for staff severance indemnities

 

 

 

The liability for staff severance indemnity payments is shown at its present value as described in note 1(j). The movement in this account was as follows:


 

 

 

 

 

 

 

 

 

 

As of December 31,

 

 

 

2007
ThU.S.$

 

2008
ThU.S.$

 







Balance at beginning of year

 

 

24,080

 

 

30,362

 

Provision during the year

 

 

7,057

 

 

(863

)

Payments during the yaer

 

 

(775

)

 

(1,888

)









Balance as of year-end

 

 

30,362

 

 

27,611

 










 

 

 

 

 

 

 

 

 

 

As of December 31,

 

 

 

2007
ThU.S.$

 

2008
ThU.S.$

 







Shown in the balance sheet as:

 

 

 

 

 

 

 

Current

 

 

2,478

 

 

2,172

 

Long-term

 

 

27,884

 

 

25,439

 









Total

 

 

30,362

 

 

27,611

 









32


 

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

December 31, 2008

Amounts in thousands of U.S. dollars, except as indicated



 

 

14.

LONG-TERM BANK BORROWINGS

 

 

(a)

Long-term bank borrowings including accrued interest outstanding at each year-end were as follows:


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2007

 

As of December 31, 2008

 

 

 

 

 

Long-term

 

Short-term

 

Long-term

 

Short-term

 

 

 

 

 

Portion

 

Portion

 

Portion

 

Portion

 

Bank or financial institution

 

Denomination

 

ThU.S.$

 

ThU.S.$

 

ThU.S.$

 

ThU.S.$

 













Tesoro Argentino (1)

 

U.S.$

 

 

847

 

 

 

Citigroup (Revolving
Facility) (2)

 

U.S.$

 

160,000

 

81,458

 

 

160,378

 

Santander Overseas Bank
Inc. (3)

 

U.S.$

 

7,200

 

2,685

 

4,800

 

2,531

 

BBVA New York (4)

 

U.S.$

 

240,000

 

2,051

 

1,026

 

 

 

Banco Alfa

 

R$

 

107

 

118

 

240,000

 

82

 

Banco Safra

 

R$

 

54

 

137

 

 

41

 

Banco Sampo

 

U.S.$

 

3,273

 

3,287

 

 

3,278

 

Banco ABN

 

U.S.$

 

 

980

 

 

 

Banco Do Brasil

 

R$

 

 

2,737

 

 

4,145

 













Total long-term bank borrowings

 

 

 

410,634

 

94,300

 

244,800

 

171,481

 














 

 

 

The weighted average interest rates for long-term foreign currency-denominated debt for the years ended December 31, 2007 and 2008 were 5.80% and 2.25%, respectively. Arauco enters into interest rate swap agreements to swap certain amounts of its non-U.S. dollar denominated payment obligations for U.S. dollar-denominated payment obligations.

 

 

 

Six-month LIBOR on December 31, 2007 and 2008 was 4.65% and 1.81%, respectively.

 

 

(1)

Arauco has a note payable to the Argentine Tesoro Nacional. The loan was initially obtained by Alto Paraná, a subsidiary of the Company acquired in 1997. The principal amount of the initial loan was U.S.$13 million, payable to Banco Nacional de Desarrollo, and was guaranteed by the Argentine government. The loan was refinanced when Banco Nacional de Desarrollo was taken over by the Argentine government. The note is due in annual installments with final payment due in 2008. Interest is payable semi-annually in arrears.

 

 

(2)

On August 3, 2004, the Company obtained a syndicated loan of U.S.$240 million with a group of banks led by Citigroup, BBVA, Calyon and Dresdner Kleinwort Wasserstein. The syndicated loan is structured as a revolving facility, allowing the Company to borrow, prepay and borrow the committed amount again during the life of the credit facility. Funds will be used for debt refinancing and other corporate purposes. The term of the syndicated loan is five years and the interest rate is LIBOR plus 0.275% if the outstanding amount is less than 50% of the facility, and LIBOR plus 0.30% if the outstanding amount is more than 50% of the facility.

33


 

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

December 31, 2008

Amounts in thousands of U.S. dollars, except as indicated



 

 

14.

LONG-TERM BANK BORROWINGS, continued

 

 

(3)

The subsidiary Forestal Los Lagos S.A. obtained a U.S.$12 million loan in order to repay outstanding debt. The loan was denominated in U.S. dollars and had a variable interest rate of LIBOR plus 0.50%. Interest payments are due semi-annually while the loan principal is repayable in seven semi-annually payments, which begin on January 2, 2007.

 

 

(5)

On September 27, 2007, the Company entered into two syndicated loan agreements with Banco Bilbao Viscaya Argentaria S.A. for a principal amount of U.S.$150 million and U.S.$90 million, respectively. Each of the loans mature on March 27, 2016 and bear interest at a rate of LIBOR plus 0.2%. Interest is payable semi-annually.

 

 

(b)

Debt distribution

 

 

 

As of December 31, 2007 and 2008, long-term bank borrowings, including both the current portion and interest accrued, were denominated in U.S. dollars and Brazilian reals.

 

 

(c)

Maturity of long-term bank borrowings

 

 

 

As of December 31, 2008, the maturities of long-term bank borrowings payable were as follows:


 

 

 

 

 

Year

 

ThU.S.$

 





2010

 

 

4,800

 

2011

 

 

24,000

 

2012

 

 

48,000

 

2013

 

 

48,000

 

2014 and thereafter

 

 

120,000

 






Total

 

 

244,800

 







 

 

 

 

The principal financial covenant contained in the instruments or agreements with respect to such long-term bank borrowings was as follows:

 

 

 

 

The interest coverage ratio must not be less than 2.0.

 

 

 

 

The ratio of debt to consolidated tangible net worth must not be higher than 1.2.

 

 

 

 

Consolidated net worth must not be less than U.S.$2,500 million.

34


 

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

December 31, 2008

Amounts in thousands of U.S. dollars, except as indicated



 

 

15.

INCOME TAXES

 

 

(a)

Taxable income

 

 

 

In accordance with Chilean law, the Company and each of its subsidiaries determine and pay tax on a separate basis and not on a consolidated basis.

 

 

 

On a consolidated basis, Arauco recorded charges for income taxes amounting to U.S.$133,885 thousand and U.S.$92,733 thousand for the years ended December 31, 2007 and 2008, respectively. Furthermore, Arauco established provisions for U.S.$279 thousand as of December 31, 2007 and U.S.$72 thousand as of December 31, 2008, in accordance with Article 21 of the Income Tax Law. These amounts are shown in “Income tax payable,” net of monthly prepayments and training expenses.

 

 

 

The detail of income tax expense is as follows:


 

 

 

 

 

 

 

 

 

 

As of December 31,

 

 

 

2007
ThU.S.$

 

2008
ThU.S.$

 







Income tax

 

 

(133,885

)

 

(92,733

)

Adjustment to prior year’s tax expense

 

 

6,292

 

 

3,114

 

Provisions estimated in accordance with Article No. 21 of the Income Tax Law in Chile

 

 

(279

)

 

(72

)

Deferred income tax

 

 

(51,623

)

 

(42,591

)

Tributary benefit for tributary losses

 

 

1,648

 

 

7,226

 

Amortization of complementary accounts

 

 

(469

)

 

(575

)

Other charges and credits to the account

 

 

1,579

 

 

6,366

 









Total Income Tax

 

 

(176,737

)

 

(119,265

)










 

 

(b)

Retained taxable earnings

 

 

 

Shareholders of Chilean corporations are entitled to a tax credit against tax due on dividend distributions to the extent of their allocable share of tax paid by the corporation on such earnings prior to distribution. The retained taxable earnings generated by the Company, along with the related tax credit, if any, that would be available to shareholders on distribution of such amounts, are presented below. Under Chilean tax law, dividend distributions must be made from earnings in years with available credits on a first-in, first-out basis. Remaining tax credits on undistributed earnings as of December 31, 2008 were as follows:


 

 

 

 

 

 

 

 

 

 

 

 

 

Retained Earnings

 

Shareholders’

 

 

 

With
Credit
ThU.S.$

 

Without
Credit
ThU.S.$

 

Tax
Credit
ThU.S.$

 









Balance as of December 31, 2007

 

 

13,756

 

 

 

 

2,817

 

Balance as of December 31, 2008

 

 

391,284

 

 

16,786

 

 

79,377

 












Total

 

 

405,040

 

 

16,786

 

 

82,194

 












35


 

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

December 31, 2008

Amounts in thousands of U.S. dollars, except as indicated



 

 

15.

INCOME TAXES, continued

 

 

(c)

Deferred taxation

 

 

 

 

 

As explained in note 1(h), as of December 31, 2007 and 2008 Arauco recorded accumulated deferred taxes arising from temporary differences as follows:


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2007

 

 

 



 

 

Deferred tax assets

 

Deferred tax liabilities

 

 

 





 

 

Current

 

Long term

 

Current

 

Long term

 

 

 

ThU.S.$

 

ThU.S.$

 

ThU.S.$

 

ThU.S.$

 











Allowance for doubtful accounts

 

 

2,913

 

 

335

 

 

 

 

 

Deferred revenues

 

 

287

 

 

59

 

 

 

 

 

Accrual for staff vacations

 

 

2,015

 

 

 

 

 

 

 

Production costs

 

 

 

 

 

 

10,539

 

 

 

Capitalized expenses

 

 

 

 

 

 

10,144

 

 

21,418

 

Value difference and property, plant and equipment depreciation

 

 

 

 

 

 

477

 

 

203,542

 

Staff severance indemnities

 

 

3,582

 

 

1,498

 

 

 

 

 

Debt issue and project expenses

 

 

 

 

 

 

 

 

4,476

 

Obsolescence reserve

 

 

1,008

 

 

 

 

 

 

 

Accrual for contingencies

 

 

658

 

 

1,371

 

 

 

 

 

Tax loss carry-forwards

 

 

2,719

 

 

29,733

 

 

 

 

 

Property, plant and equipment valuation

 

 

 

 

560

 

 

 

 

14,950

 

Other

 

 

7,099

 

 

574

 

 

928

 

 

2,194

 

Leasing assets

 

 

611

 

 

790

 

 

1,619

 

 

648

 

Sales provision

 

 

2,832

 

 

 

 

135

 

 

 

Inventories value

 

 

993

 

 

83

 

 

 

 

 















Total

 

 

24,717

 

 

35,003

 

 

23,842

 

 

247,228

 

Complementary accounts, net of accumulated amortization (1)

 

 

(2,719

)

 

(49

)

 

 

 

(6,339

)















Total

 

 

21,998

 

 

34,954

 

 

23,842

 

 

240,889

 















36


 

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

December 31, 2008

Amounts in thousands of U.S. dollars, except as indicated



 

 

15.

INCOME TAXES, continued

 

 

(c)

Deferred taxation, continued


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2008

 

 

 



 

 

Deferred tax assets

 

Deferred tax liabilities

 

 

 





 

 

Current

 

Long term

 

Current

 

Long term

 

 

 

ThU.S.$

 

ThU.S.$

 

ThU.S.$

 

ThU.S.$

 











Allowance for doubtful accounts

 

 

3,785

 

 

335

 

 

 

 

 

Deferred revenues

 

 

1,004

 

 

49

 

 

 

 

 

Accrual for staff vacations

 

 

1,862

 

 

 

 

 

 

 

Production costs

 

 

 

 

 

 

16,565

 

 

 

Capitalized expenses

 

 

 

 

 

 

11,328

 

 

23,819

 

Value difference and property, plant and equipment depreciation

 

 

 

 

 

 

453

 

 

224,706

 

Staff severance indemnities

 

 

3,388

 

 

1,543

 

 

 

 

 

Debt issue and project expenses

 

 

 

 

 

 

 

 

3,922

 

Obsolescence reserve

 

 

2,419

 

 

83

 

 

 

 

 

Accrual for contingencies

 

 

1,314

 

 

1,275

 

 

 

 

 

Tax loss carry-forwards

 

 

2,799

 

 

31,649

 

 

 

 

 

Property, plant and equipment valuation

 

 

 

 

 

 

 

 

33,427

 

Other

 

 

8,893

 

 

491

 

 

795

 

 

2,169

 

Leasing assets

 

 

237

 

 

723

 

 

1,258

 

 

432

 

Sales provision

 

 

2,705

 

 

 

 

 

 

 















Total

 

 

28,406

 

 

36,148

 

 

30,399

 

 

288,475

 















Complementary accounts, net of accumulated amortization (1)

 

 

(2,719

)

 

(11

)

 

 

 

(5,739

)















Total

 

 

25,687

 

 

36,137

 

 

30,399

 

 

282,736

 
















 

 

 

(1) These accounts reverse over the same period as the timing differences that gave rise to them with an average of approximately 15 years.

 

 

16.

FORESTRY GRANTS

 

 

 

Forestry grants are included in shareholders’ equity under the account heading “Forestry and other reserves.” These grants are transferred to income at the time of sale of the related finished goods. The Company’s forestry subsidiaries received forestry grants of U.S.$100 thousand during the period ending December 31, 2007 and received forestry grants of U.S.$145 thousand during the period ending December 31, 2008.

37


 

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

December 31, 2008

Amounts in thousands of U.S. dollars, except as indicated



 

 

17.

ASSETS AND LIABILITIES DENOMINATED IN LOCAL AND FOREIGN CURRENCY

 

 

 

As of each year-end, Arauco had assets and liabilities denominated in local and foreign currencies. These assets and liabilities are shown at their U.S. dollar equivalent at each year-end.


 

 

 

 

 

 

 

 

 

 

 

 

 

At December 31,

 

 

 

Currency

 

2007
ThU.S.$

 

 

2008
ThU.S.$

 










Assets

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

Cash and banks

 

U.S.$

 

7,370

 

 

5,718

 

Cash and banks

 

Ch$

 

3,109

 

 

937

 

Cash and banks

 

Ar$

 

14,058

 

 

3,284

 

Cash and banks

 

R$

 

2,752

 

 

1,363

 

Cash and banks

 

Euro

 

6,095

 

 

3,929

 

Cash and banks

 

Mx$

 

1,647

 

 

1,758

 

Cash and banks

 

Other currencies

 

2,430

 

 

1,642

 

Time deposits and marketable securities

 

U.S.$

 

134,731

 

 

46,650

 

Time deposits and marketable securities

 

Ch$

 

1,076

 

 

60

 

Time deposits and marketable securities

 

R$

 

26,913

 

 

67,316

 

Time deposits and marketable securities

 

Euro

 

67,043

 

 

17,237

 

Time deposits and marketable securities

 

Ar$

 

6

 

 

23

 

Trade accounts receivable

 

U.S.$

 

468,916

 

 

413,522

 

Trade accounts receivable

 

Ch$

 

56,693

 

 

49,602

 

Trade accounts receivable

 

Ar$

 

10,397

 

 

7,758

 

Trade accounts receivable

 

R$

 

27,449

 

 

16,900

 

Trade accounts receivable

 

Euro

 

11,313

 

 

30,257

 

Trade accounts receivable

 

Mx$

 

8,209

 

 

3,360

 

Trade accounts receivable

 

Other currencies

 

4,900

 

 

6,855

 

Other accounts receivable

 

U.S.$

 

32,391

 

 

27,882

 

Other accounts receivable

 

Ch$

 

41,221

 

 

27,393

 

Other accounts receivable

 

Ar$

 

18,902

 

 

8,724

 

Other accounts receivable

 

R$

 

11,231

 

 

3,513

 

Other accounts receivable

 

Euro

 

4,007

 

 

247

 

Other accounts receivable

 

Mx$

 

630

 

 

1,758

 

Other accounts receivable

 

Other currencies

 

318

 

 

186

 

Inventories

 

U.S.$

 

693,740

 

 

853,297

 

Inventories

 

Ch$

 

60,732

 

 

18,136

 

Other current assets

 

U.S.$

 

67,400

 

 

159,717

 

Other current assets

 

Ch$

 

106,162

 

 

138,466

 

Other current assets

 

Ar$

 

36,199

 

 

15,072

 

Other current assets

 

R$

 

6,280

 

 

10,843

 

Other current assets

 

Mx$

 

1,321

 

 

4,702

 

Other current assets

 

Euro

 

85

 

 

137

 

Other current assets

 

Other currencies

 

39

 

 

3,926

 










Total current assets

 

 

 

1,935,765

 

 

1,952,170

 










38


 

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

December 31, 2008

Amounts in thousands of U.S. dollars, except as indicated



 

 

17.

ASSETS AND LIABILITIES DENOMINATED IN LOCAL AND FOREIGN CURRENCY, continued


 

 

 

 

 

 

 

 

 

 

 

 

 

 

At December 31,

 

 

 

Currency

 

2007
ThU.S.$

 

2008
ThU.S.$

 









Property, plant and equipment and other assets:

 

 

 

 

 

 

 

 

 

Property, plant and equipment

 

U.S.$

 

 

6,560,873

 

 

6,784,600

 

Property, plant and equipment

 

Ch$

 

 

16,914

 

 

4,983

 

Other assets

 

U.S.$

 

 

83,132

 

 

88,327

 

Other assets

 

Ch$

 

 

15,852

 

 

17,256

 

Other assets

 

Ar$

 

 

20,676

 

 

4,251

 

Other assets

 

R$

 

 

1,130

 

 

2,122

 

Other assets

 

Mx$

 

 

45

 

 

53

 









Total property, plant and equipment and other assets

 

 

 

 

6,698,622

 

 

6,901,592

 









Total assets

 

 

 

 

8,634,387

 

 

8,853,762

 










 

 

 

 

 

 

 

 

 

 

 

 

 

 

At December 31,

 

 

 

Currency

 

2007
ThU.S.$

 

2008
ThU.S.$

 









Liabilities

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

Current bank borrowings

 

U.S.$

 

 

168,028

 

 

26,890

 

Current bank borrowings

 

Ch$

 

 

324

 

 

94

 

Current portion of long-term bank borrowings

 

U.S.$

 

 

91,308

 

 

167,213

 

Current portion of long-term bank borrowings

 

R$

 

 

2,992

 

 

4,268

 

Current portion of bonds

 

U.S.$

 

 

34,852

 

 

134,852

 

Current portion of bonds

 

Ch$

 

 

 

 

1,427

 

Notes and trade accounts payable

 

U.S.$

 

 

113,633

 

 

103,482

 

Notes and trade accounts payable

 

Ch$

 

 

97,493

 

 

124,482

 

Notes and trade accounts payable

 

Euro

 

 

7,731

 

 

9,405

 

Notes and trade accounts payable

 

Mx$

 

 

1,069

 

 

1,851

 

Notes and trade accounts payable

 

Other currencies

 

 

911

 

 

1,287

 

Notes and trade accounts payable

 

R$

 

 

6,429

 

 

5,892

 

Notes and trade accounts payable

 

Ar$

 

 

7,786

 

 

9,455

 

Other current liabilities

 

U.S.$

 

 

16,399

 

 

15,583

 

Other current liabilities

 

Ch$

 

 

46,205

 

 

36,131

 

Other current liabilities

 

Euro

 

 

108

 

 

98

 

Other current liabilities

 

Other currencies

 

 

67

 

 

197

 

Other current liabilities

 

R$

 

 

22,965

 

 

19,438

 

Other current liabilities

 

Ar$

 

 

11,228

 

 

17,458

 

Other current liabilities

 

Mx$

 

 

1,178

 

 

3,280

 











Total current liabilities

 

 

 

 

630,706

 

 

682,783

 











39


 

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

December 31, 2008

Amounts in thousands of U.S. dollars, except as indicated



 

17.

ASSETS AND LIABILITIES DENOMINATED IN LOCAL AND FOREIGN CURRENCY, continued


 

 

 

 

 

 

 

 

 

 

 

 

 

 

At December 31,

 

 

 

Currency

 

2007
ThU.S.$

 

2008
ThU.S.$

 









Long-term liabilities:

 

 

 

 

 

 

 

 

 

Long-term bank borrowings

 

U.S.$

 

 

410,473

 

 

244,800

 

Long-term bank borrowings

 

R$

 

 

161

 

 

 

Bonds

 

U.S.$

 

 

1,822,500

 

 

1,722,500

 

Bonds

 

Ch$

 

 

 

 

202,240

 

Other long-term liabilities

 

U.S.$

 

 

45,107

 

 

30,548

 

Other long-term liabilities

 

Ch$

 

 

150,210

 

 

205,828

 

Other long-term liabilities

 

Other currencies

 

 

2

 

 

14

 

Other long-term liabilities

 

R$

 

 

66,682

 

 

39,370

 

Other long-term liabilities

 

Ar$

 

 

28,126

 

 

34,765

 











Total long-term liabilities

 

 

 

 

2,523,261

 

 

2,480,065

 











Total liabilities

 

 

 

 

3,153,967

 

 

3,162,848

 












 

 

18.

BALANCES AND TRANSACTIONS WITH RELATED PARTIES


 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31,

 

 

 

 

 

 

 

2007

 

2008

 

 

 

Company

 

Relationship

 

ThU.S.$

 

ThU.S.$

 

Transaction

 











(a) Current assets

 

 

 

 

 

 

 

 

 

Eka Chile S.A.

 

Affiliate

 

915

 

 

Accounts receivable

 

CMPC Maderas S.A.

 

Indirect

 

24

 

32

 

Accounts receivable

 

Dynea S.A.

 

Indirect

 

101

 

 

Accounts receivable

 

Stora Enso Arapoti Industria de Papel S.A.

 

Affiliate

 

9,778

 

643

 

Accounts receivable

 

Forestal del Sur S.A.

 

Indirect

 

561

 

3,947

 

Accounts receivable

 

Forestal Mininco S.A.

 

Indirect

 

 

824

 

Accounts receivable

 

Cía. Puerto de Coronel S.A.

 

Affiliate

 

 

29

 

Accounts receivable

 











Total current assets

 

 

 

11,379

 

5,475

 

 

 











(b) Current liabilities

 

 

 

 

 

 

 

 

 

Compañía de Petróleos de Chile Copec S.A.

 

Affiliate of Shareholder

 

6,011

 

3,233

 

Accounts payable

 

Puerto de Lirquén S.A.

 

Affiliate

 

737

 

1,488

 

Accounts payable

 

Abastible S.A.

 

Indirect

 

244

 

132

 

Accounts payable

 

Servicios Corporativos Sercor S.A.

 

Indirect

 

4

 

3

 

Accounts payable

 

Sigma S.A.

 

Indirect

 

4

 

 

Accounts payable

 

Cía. Puerto de Coronel S.A.

 

Affiliate

 

459

 

 

Accounts payable

 

Fundación Educacional Arauco

 

Affiliate

 

645

 

105

 

Accounts payable

 

Codelco Chile

 

Indirect

 

1

 

5

 

Accounts payable

 

Cía. Sudamericana de Vapores S.A.

 

Indirect

 

214

 

216

 

Accounts payable

 

Entel S.A.

 

Indirect

 

9

 

12

 

Accounts payable

 

Depósitos Portuarios Lirquén S.A.

 

Indirect

 

2

 

4

 

Accounts payable

 

Eka Chile S.A.

 

Affiliate

 

 

3,951

 

Accounts payable

 

Genómica Forestal S.A.

 

Affiliate

 

 

169

 

Accounts payable

 











Total current liabilities

 

 

 

8,330

 

9,318

 

 

 











40


 

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

December 31, 2008

Amounts in thousands of U.S. dollars, except as indicated



 

18.

BALANCES AND TRANSACTIONS WITH RELATED PARTIES, continued

 

 

 

During the years ended December 31, 2007 and 2008, Arauco had the following related party transactions, higher than U.S.$200 thousand, that affected net income:


 

 

 

 

 

 

 

 

 

 

 

 

Purchases (sales)
Year ended December 31,

 

 

 

 

2007

 

2008

 

 

 

 

ThU.S.$

 

ThU.S.$

 








(a)

Compañía de Petróleos de Chile Copec S.A.:

 

 

 

 

 

 

 

 

Purchases of fuel

 

 

83,044

 

 

121,436

 

(b)

Puerto de Lirquén S.A.:

 

 

 

 

 

 

 

 

Port services

 

 

8,942

 

 

8,855

 

(c)

Abastible S.A.:

 

 

 

 

 

 

 

 

Purchases of fuel

 

 

3,701

 

 

4,175

 

(d)

Cía. Puerto de Coronel S.A:

 

 

 

 

 

 

 

 

Stockpiling services

 

 

5,554

 

 

3,156

 

(e)

Portaluppi, Guzmán y Bezanilla Abogados:

 

 

 

 

 

 

 

 

Legal advice

 

 

1,384

 

 

1,443

 

(f)

Eka Chile S.A.:

 

 

 

 

 

 

 

 

Purchase of sodium chlorate

 

 

52,205

 

 

99,465

 

 

Electricity sale

 

 

(34,104

)

 

(66,166

)

(g)

Forestal del Sur S.A.:

 

 

 

 

 

 

 

 

Purchase of wood and timber

 

 

1,723

 

 

1,461

 

 

Sales of chips

 

 

(8,500

)

 

(3,553

)

 

Other purchases

 

 

206

 

 

543

 

(h)

CMPC Celulosa S.A.:

 

 

 

 

 

 

 

 

Sales timber

 

 

(784

)

 

(368

)

i)

Cía. Sud Americana de Vapores S.A.:

 

 

 

 

 

 

 

 

Freight services

 

 

10,580

 

 

7,778

 

(j)

CMPC Maderas S.A.:

 

 

 

 

 

 

 

 

Purchase timber

 

 

714

 

 

327

 

(k)

Dynea Brasil S.A.:

 

 

 

 

 

 

 

 

Purchase of chemical products

 

 

29,602

 

 

41,457

 

 

Purchase of melamine paper

 

 

15,695

 

 

20,961

 

 

Services

 

 

(425

)

 

(456

)

 

Other sales

 

 

(493

)

 

(523

)

(l)

Sodimac S.A.:

 

 

 

 

 

 

 

 

Sales timber

 

 

(57,578

)

 

(54,938

)

(m)

Codelco Chile S.A.:

 

 

 

 

 

 

 

 

Purchase of materials

 

 

384

 

 

1,742

 

(n)

Colbún S.A.:

 

 

 

 

 

 

 

 

Electricity sale

 

 

(13,055

)

 

(4,080

)

(o)

Stora Enso Arapoti Industria de Papel:

 

 

 

 

 

 

 

 

Sales timber

 

 

(802

)

 

(9,315

)

(p)

Empresas Copec S.A.:

 

 

 

 

 

 

 

 

Managing services

 

 

235

 

 

272

 

(q)

Cenelca S.A.:

 

 

 

 

 

 

 

 

Purchase of electricity

 

 

411

 

 

 

(r)

Copec Móbil Ltda.:

 

 

 

 

 

 

 

 

Oil purchase

 

 

283

 

 

1,945

 










41


 

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

December 31, 2008

Amounts in thousands of U.S. dollars, except as indicated



 

18.

BALANCES AND TRANSACTIONS WITH RELATED PARTIES, continued


 

 

 

 

 

 

 

 

 

 

 

 

Purchases (sales)
Year ended December 31,

 

 

 

 

2007

 

2008

 

 

 

 

ThU.S.$

 

ThU.S.$

 








(s)

Forestal Mininco S.A.:

 

 

 

 

 

 

 

 

Sales timber

 

 

(91

)

 

(2,471

)











 

 

19.

CONTINGENCIES AND COMMITMENTS

 

 

 

Warranties

 

 

 

Full, unconditional and irrevocable warranty of the Company on behalf of its subsidiary Alto Paraná S.A., in relation to the issuance of Rule 144A Bonds dated as of June 9, 2007 for the amount of US$270,000,000 due in June 2017.

 

 

 

Binding bail of the Company on behalf of its subsidiary Arauco Generación S.A. in relation to the construction of a sodium chloride plant of Eka Chile S.A.

 

 

 

Trials or other legal proceedings

 

 

A)

The Company is involved in the following proceedings and legal actions regarding the operation of the Valdivia Plant:

 

 

1)

Through Exempt Resolution No. 0250 dated April 1, 2004, the Environmental Regional Commission (“COREMA”) opened an investigation in connection with some alleged violations of environmental regulations pursuant to Resolution of Environmental Description No. 279-1998 by the Valdivia Project.

 

 

 

The Company answered the charges before the Commission. Nevertheless, through Resolution No. 387 dated May 24, 2004, the Commission resolved, among other things, to (a) fine the Company 900 Monthly Tax Units (“UTM,” a Monthly Tax Unit that is a Chilean inflation-indexed, peso-denominated monetary unit which is set monthly in advance based on the previous month’s inflation rate) (U.S.$59,718 at December 31, 2008) for failure to comply with the terms and conditions set forth in Sections 2, 11, 12 and 13 of the Resolution of Environmental Description; (b) accept the measures proposed by the Company to mitigate the odor problem, establishing a schedule for the execution of such measures and (c) point out that the industrial waste fluids discharge system of the emergency system must comply with the Evaluating System of Environmental Impact (Law 19,300). The aforementioned Resolution No. 387 was judicially appealed in the Civil Court of Puerto Montt on June 4, 2004, in connection with part of the fine mentioned in clause (a) above, and the Company paid 10% of the total claimed. The case is currently in progress.

42



 

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

December 31, 2008

Amounts in thousands of U.S. dollars, except as indicated



 

 

19.

CONTINGENCIES AND COMMITMENTS, continued

 

 

2)

Due to the emission of odors in the Valdivia Plant during July 2004, through Resolution 1775 of December 17, 2004 the Department of Health Service of Valdivia fined Arauco 1,000 Monthly Tax Paying Units (U.S.$59 thousand as of December 31, 2008), and established certain obligations to be fulfilled by the Company.

 

 

 

On December 27, 2004, Arauco judicially appealed the aforementioned Resolution, before the First Civil Court of Valdivia, who by the Sentence dated September 2, 2006 rejected the claim. The Company subsequently appealed before the Appeals Court of Valdivia, which on June 4, 2007 resolved to partly accept the appeal, lowering the fine imposed to 200 Monthly Tax Paying Units.

 

 

 

However, the Health Service of Valdivia, (currently the Sanitary Authority), commenced a proceeding challenging the ruling, which was decided by the Supreme Court, on January 8, 2009. The Supreme Court rejected the appeal, ruling that the reduced fine imposed by the Appeals Court of Valdivia was duly enforceable.

 

 

3)

Through Resolution No. 860 dated December 21, 2004, COREMA began sanction proceedings against the Company due to the discharge of refrigeration water at the Valdivia Plant, the disposal of solid waste, the accumulation of spills and the spilling of non-authorized effluents.

 

 

 

On January 11, 2005, Arauco filed its response, and through Resolution No. 182 dated March 15, 2005, COREMA resolved to sanction the Company with 800 UTM (U.S.$53 thousand as of December 31, 2008), Arauco appealed that sanction on March 31, 2005 and paid 10% of the total claimed. The case is currently in progress.

 

 

4)

Through a resolution dated April 22, 2005, the Regional Ministerial Secretary of Health (the “Health SEREMI”) fined Arauco 1,000 UTM (U.S.$59 thousand as of December 31, 2008), due to a fatal accident involving an employee in January 2005. The Company appealed the fine in the Second Civil Court of Valdivia, through case No. 785-2005, which is currently in progress.

 

 

5)

Through Resolution No. 17 dated January 18, 2005, COREMA began sanction proceedings against the Company due to an alleged increase in the capacity of the plant, an increase of additional discharge waters into the Cruces River, a lack of compliance with the quality and emission guidelines for fluid waste, a lack of compliance with the required measurement of TRS gas and a lack of compliance with other measurement parameters. The Company filed its appeal last January 31, 2005.

 

 

 

Through Resolution No. 197 dated March 18, 2005, COREMA fined Arauco 1,400 UTM (U.S.$83 thousand as of December 31, 2008). Arauco appealed that sanction and paid the required percentage of the total claimed. The case is currently in progress, through case No. 777-05.

 

 

6)

Through Resolutions 3300 and 3301 dated December 20, 2004, the Superintendent of Sanitary Services began sanction proceedings against the Company due to the Company exceeding the guidelines of the Resolution on Environmental Description, approved by the Study of Environmental Impact regarding the total emission of phosphate and temperature.

43


 

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

December 31, 2008

Amounts in thousands of U.S. dollars, except as indicated



 

 

19.

CONTINGENCIES AND COMMITMENTS, continued

 

 

 

Through Resolution 290 dated January 26, 2005, the Superintendent of Sanitary Services fined Arauco 200 Annual Tax Units (“UTA”, an Annual Tax Unit that is a Chilean inflation-indexed, peso-denominated monetary unit which is set monthly in advance based on the previous month’s inflation rate) (U.S.$142 thousand at December 31, 2008). This Resolution was judicially appealed on February 9, 2005 in the appropriate Civil Court of Santiago, which rejected the complaint. The resolution was appealed in the Appeal Court, and the matter is currently in progress.

 

 

7)

Several complaints have been filed with the Warranty Court of Valdivia, due to alleged violations in connection with the operations of the Valdivia Plant. All the complaints are being addressed through a single investigation. The complaints charge alleged violations set forth in Article 291 of the Penal Code, Article 136 of the Fishing Law and Article 38 of the National Monuments Law. The investigation is currently in progress in the appropriate District Attorney’s office. In the opinion of the management, based on the reports of its legal counsel, the evidence in the investigation does not credit responsibility neither to the Company nor its employees for these events.

 

 

8)

On April 27, 2005, the State of Chile Defense Committee filed an indemnity demand against the Company in the First Civil Court of Valdivia (Rol 746-2005). The Company filed its response that it is not responsible for the environmental damages and therefore the indemnification payments, as well as the claimed repairs, are inadmissible. The lawsuit is pending resolution.

 

 

9)

Through Resolution 1755 dated June 24, 2005, the Superintendent of Sanitary Services began a sanction proceeding against the Company for exceeding emissions standards regarding temperature, suspended solid waste, arsenic, total phosphorus, hexavalente chrome, molybdenum and nickel. On July 11, 2005, the Company filed its response to the Superintendent. Nevertheless, on December 26, 2005, the Superintendent resolved to sanction the Company with a fine of 400 UTA (U.S.$284 thousand at December 31, 2008). The Company appealed to the 26th Civil Court of Santiago. The claim was denied according to a notification dated September 6, 2007. In virtue of that, the Company filed an appeal, which is currently pending resolution.

 

 

10)

On January 25, 2006, the Health SEREMI commenced a sanitary proceeding with regard to a fatal accident in January 2006 involving an employee of a contractor working in the Valdivia project, but no charges have been presented against Arauco.

 

 

11)

As a result of a complaint regarding odors perceived by some citizens of the city of Valdivia on May 19, 2007, the Sanitary Authority initiated a sanitary investigation against the Valdivia Plant. Arauco presented their responses dated May 28, 2007 and the matter is pending final resolution.

 

 

B)

Arauco is subject to the following legal actions and proceedings affecting its Arauco Plant:

 

 

1)

On August 23, 2004, Arauco’s Department of Health Services began a sanitation investigation based on the nuisance caused by a turpentine spill at the Arauco Plant. Through a Resolution dated November 8, 2004, Arauco’s Department of Health Services resolved to fine the Company 1,000 UTM (U.S.$59 thousand at December 31, 2008).

 

 

 

This Resolution was judicially appealed on November 17, 2004 before the Court of Lebu, and is currently pending resolution.

44


 

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

December 31, 2008

Amounts in thousands of U.S. dollars, except as indicated



 

 

19.

CONTINGENCIES AND COMMITMENTS, continued

 

 

C)

Arauco is subject to the following legal actions and proceedings affecting its Nueva Aldea Forestry Industrial Complex:

 

 

1)

On April 8, 2005, several appeal claims were filed against the Resolution on Environmental Qualification of the Project of New Works and Updates of the Nueva Aldea Forestry Industrial Complex, which had been approved on March 10, 2005. The aforementioned appeals were filed by individuals who participated in the development of the Study on Environmental Impact, with the participation of citizens. On May 4 and May 31, 2005, respectively, the Company and the Regional Environmental Commission of the Eighth Region informed the public about the appeals.

 

 

 

Finally, on October 17, 2008, the National Environmental Commission resolved to partially accept the appeal, striking a balance between certain observations of the citizenry and the rights of Arauco.

 

 

2)

On December 15, 2005, the Health SEREMI commenced a sanitary proceeding with regard to an accident involving the exposure of three employees of Echeverría Izquierdo Montajes Industriales, S.A., while handling the equipment owned by a subcontractor of Echeverría Izquierdo Montajes Industriales, S.A. The Company was required to appear in the proceeding and submitted all required paperwork. Through Resolution 2810, dated June 29, 2006, the SEREMI resolved to sanction various companies, including Arauco, which the SEREMI fined 300 UTM. Arauco subsequently presented an appeal to the sanction before the court of Concepción that was heard on September 5, 2008. Nevertheless, the Health SEREMI filed an appeal against the ruling of first instance, but this was declared void because of the plantiffs’ failure to appear. By virtue of this, the ruling in favor of the Company remained in force.

 

 

 

Notwithstanding the foregoing, on January 22, 2009, the State Defense Council requested that the court order a consultation proceeding, and as a result, the original complaints were elevated the Court of Appeals of Concepción for further review.

 

 

3)

At the end of March 2006, several appeal claims were presented against the Resolution on Environmental Qualification of the Project of New Works and Updates of the Nueva Aldea Forestry Industrial Complex, which were approved on February 20, 2006. The appeals were filed by individuals who participated in the development of the Environmental Impact Study, with the participation of other Chilean citizens. On May 31, 2006, the company informed the Executive Committee of the CONAMA about the appeals.

 

 

 

Finally, on October 17, 2008, the National Environmental Comission resolved to partially accept the appeal, striking a balance between certain observations of the citizenry and the rights of Arauco.

45


 

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

December 31, 2008

Amounts in thousands of U.S. dollars, except as indicated



 

 

19.

CONTINGENCIES AND COMMITMENTS, continued

 

 

4)

On December 27, 2006, a dispute was presented by relatives of Mr. Pablo Reyes Cerda, a former employee of a contracting company of the Nueva Aldea Forestry Industrial Complex, who died on November 24, 2006, relating to his alleged homicide. The State Prosecutor of Quirihue is carrying out the investigation. In the opinion of the management, based on the reports of its legal counsel, the evidence in the investigation does not credit responsibility neither to the Company nor its employees for these matters.

 

 

5)

According to the Inspection Records dated June 11, 2007, the Sanitary Authority requested that a Company representative present the files previously mentioned referring to an alleged event of odors occurring on the same date. The proceeding is currently ongoing.

 

 

6)

On March 9, 2007, Mr. Andrés Cáceres Lorca, in representation of don Eduardo Alberto Schwencke Balde and of the Hydro Power Company, submitted a claim for an alleged usurpation of the right to explore underground waters. The investigation was carried out by the Prosecutor’s Office of Quirihue, which, on September 12, 2008 requested the dismissal of the case, which was awarded by the Court of Guarantees of Quirihue on October 20, 2008. That ruling has been executed.

 

 

7)

As of December 20, 2007, the Company has been notified of nine similar complaints. Eight complaints are directed against Echeverría Izquierdo Montajes Industriales S.A., as employer and against Celulosa Arauco and Constitución S.A., as the responsible subsidiary, and also directly against Arauco. The other complaint is directed against Mr. Leonel Enrique Espinoza Canales as employer and against Celulosa Arauco and Constitución S.A., as responsible subsidiary, and directly against Arauco.

 

 

 

The complaints request that all the plaintiffs (72 plaintiffs in total) be indemnified for the damages that they allegedly suffered as a result of the event which took place in December of 2005, referenced in item 2) above.

 

 

 

Notified of said complaints, the Company opposed on the basis of lack of jurisdiction, and answered the principal complaints, claiming that they are invalid for failure to state a claim. Also, the Company responded to the secondary complaints directly against the Company, requesting that they be rejected for lack of merit. The matter is currently proceeding.

 

 

 

We are not in a position to predict the obligations that would accrue for the Company in the event that the court grants relief as requested in the above mentioned lawsuits.

 

 

8)

On January 29, 2008, the Company received notice of another complaint by a former employee, Fernando Vargas Llanos, requesting indemnification for damages for alleged damages suffered in virtue of the event that took place in December 2005, referred in item 2) above. The complaint is directed against his former employer Inspección Técnica y Control de Calidad Limitada (ITC), the construction company Echeverría Izquierdo Montajes Industriales S.A. and Celulosa Arauco y Constitución S.A.

 

 

 

The complaint requests that Mr. Vargas be indemnified for the damages that he allegedly suffered as a result of the events that took place on December 2005, referenced in item 2) above.

 

 

 

Notified of said complaint, the Company opposed on the basis of lack of jurisdiction, and answered the complaint claiming that they are invalid for failure to state a claim. The matter is currently proceeding.

46


 

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

December 31, 2008

Amounts in thousands of U.S. dollars, except as indicated



 

 

19.

CONTINGENCIES AND COMMITMENTS, continued

 

 

 

We are not in a position to predict the obligations that would accrue for the Company in the event that the court grants relief as requested in the abovementioned lawsuits.

 

 

9)

On June 9, 2008, the Company was notified of a complaint brought by Mr. Ramon Patricio Valverde Prats, in representation of Mr. Juan Carlos Rozas Alvarado, against Echeverría Izquierdo Montajes Industriales S.A., Mr. Rozas’s former employer, and the Company.

 

 

 

The complaint requests that Mr. Rozas be indemnified for the damages that he allegedly suffered as a result of the events that took place on December 2005, referenced in item 2) above.

 

 

 

Once the Company was notified, it challenged the complaint on the basis of a lack of jurisdiction and answered the complaint by requesting its dismissal for failure to state a claim. The matter is currently proceeding.

 

 

10)

On October 16, 2008 the Regional Secretary of the Ministry of Health, Office of Ñuble, initiated a sanitary proceeding relating to a Company worker who was stripping a truck that belonged to a subcontractor of the Company. The representative of Celulosa Arauco y Constitución S.A. was summoned to appear before the relevant authorities on October 20, 2008, the date on which they presented the corresponding charges.

 

 

11)

On December 23, 2008, the Company was notified about the initiation of an investigation of a fatal labor-related accident that occurred on that date in Coelemu. The investigation was of a collapse which occurred while work was being done on the pipe that carries the excess industrial liquids from the Nueva Aldea Plant to the ocean. This accident resulted in the death of don Gerardo Roa Herrera (RIP), who was employed as a laborer for the contractor Ingelec Limitada.

 

 

12)

On January 21, 2009, the Company was notified about the initiation of an investigation of a serious accident that occurred on that date at the facilities of the Nueva Aldea Plant, located in Ránquil, Eight Region. The investigation involved an accident that occurred while personnel of the contractor Simaco Ltda. were providing services to the Company under the “work sold” model, which included the assembly of the housing of the chipping machine in Line 2 of the plant. As a result of the failure of the support of the structure, the laborer Mr. Jaime Arrepol Cisterna, an employee of the abovementioned contractor, was struck in the face, resulting in a fractured jaw.

 

 

 

On January 29, 2009, the Company presented the information required by the investigation being conducted as of the day of the accident by SEREMI, Oficina Provincial Ñuble.

47


 

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

December 31, 2008

Amounts in thousands of U.S. dollars, except as indicated



 

 

19.

CONTINGENCIES AND COMMITMENTS, continued

 

 

D)

Arauco is subject to the following legal actions and proceedings affecting its Constitución Plant:

 

 

1)

On January 24, 2006, the Company was notified of a claim for an injunction brought by Alvaro Santa María Prieto and Alejandro Lagos Letelier in the Court of Constitucion, seeking to modify the Company’s activities in the area with respect to air quality control guidelines. In the opinion of the management, based on the reports of its legal counsel and the factual information available to us, this complaint lacks merit.

 

 

2)

Through Inspection Act No. 1118, dated June 6, 2008, a representative of the Company was requested to make an appearance before the Sanitary Authority regarding a sanitary proceeding involving the delivery by the Company of reports related to TRS gases.

 

 

 

On June 17, 2008, the Company presented its responses and the matter is pending resolution.

 

 

E)

Celulosa Arauco y Constitución S.A. has the following legal actions and proceedings affecting its Pulp Plant of Licancel:

 

 

1)

The Sanitary Indictment (Rit 489-2007) initiated by the Sanitary Authority, according to the Inspection Act number 1150 of June 18, 2007 was initiated regarding leaking of industrial liquid on the ground and the draining to the Louders Channel and the Mataquito River, the creation of chip movement in the collection area and movement of these to such patio since it would result in an infraction to the current operational prohibitions.

 

 

 

Responses were presented on June 22, 2007, date of the citation, and date on which investigations were also conducted resulting in the need for new factual declarations.

 

 

 

Through a resolution dated August 20, 2007, the company was fined 2,000 UTM. The Company presented an appeal to the same authority, which was rejected on October 11, 2007. The resolution to the Sanitary Authority was the subject of a claim presented to the 4th Civil Court of Talca, dated October 31, 2007, which is still pending.

 

 

2)

Sanitary Indictment (Rit Nº 535-2007) initiated by the Sanitary Authority, according to the Inspection Act No 1153 dated June 21, 2007, regarding the functioning of a Black Liquor (Licor Negro) pool that would infringe the current operational prohibitions, disposing the immediate detention of the process and if necessary, the withdrawal and moving of the product, preventing any effect on the community, environment or workers health. The Company presented its responses but on July 13 the Health SEREMI imposed a fine for 1000 UTM (US$66 thousand at December 31, 2008) and kept the functioning prohibition for a total of 60 business days until they obtain a favorable report from the Sanitary Authority. On July 20, 2007 Arauco presented a reposition recourse to the Health SEREMI of the Maule Region with the purpose of leaving the July 13 resolution without effect, which was denied on September 28, 2007. A judicial claim was filed on October 1, 2007, and matter is currently pending resolution. In any case, the Health SEREMI of the Maule Region lifted the functioning ban (Resolution Nº 6860 dated October 22, 2007).

48


 

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

December 31, 2008

Amounts in thousands of U.S. dollars, except as indicated



 

 

19.

CONTINGENCIES AND COMMITMENTS, continued

 

 

3)

Pursuant to Resolution N° 1828 dated June 13, 2007, the Sanitary Services Superintendent initiated an administrative sanctioning process against the Company regarding the surpassing of the maximum levels allowed for the pH parameters and suspended solids. The Company presented its responses within the time established in the resolution, which was June 25, 2007.

 

 

 

Pursuant to a resolution dated June 26, 2007 the Sanitary Services Superintendent resolved to amplify the charges included in resolution 1828.

 

 

 

Arauco presented its respective responses dated as of July 17, 2007. However, by Resolution N° 2589 of August 28, 2007, the Sanitary Services Superintendent sanctioned the Company with a fine of 100 UTA (US$71 thousand as of December 31, 2008) for not following the applicable emission norms and with a fine of 1,000 UTA (US$710 thousand as of December 31, 2008) for risking the health of the population. This last sanctioned was appealed before the Court of Santiago and the matter is currently still pending resolution.

 

 

4)

The Public Ministry initiated an investigation related to the death of fish above-mentioned, to which complaints presented by both public and private entities were accumulated. The investigation is being led by part of the prosecutor’s office of Licanten (Ruc 0700427552-1). The investigation is still pending.

 

 

5)

According to the Inspection Act Nº 1155, dated July 10, 2007, the black liquor pool had been functioning; however, the movement of trucks with pieces of pine during the loading and unloading process would have been observed, and the presence of loaded trucks in the sector west of the aviation field would have also been observed. Pursuant to this, the Company was requested to present their responses regarding the sanitary indictment, which was done on July 20, 2007. The matter is still pending.

 

 

6)

On September 7, 2007, the State Defense Council presented a complaint against the Company for reparations of environmental damages and indemnifications of damages to the Fourth Civil Tribunal of Talca (Rol 322-2007). After the Company was notified, the parties agreed to suspend the proceeding for ninety business days, which was approved by the tribunal on December 21, 2007. On May 16, 2008, the suspension was lifted and the matter is currently pending resolution.

 

 

7)

On April 8, 2008 through Resolution Nº 1340, the Superintendence of Sanitary Services initiated an administrative proceeding against the Company regarding lack of compliance with the conditions imposed by the Environmental Qualification Resolution Nº308 of 2006, specifically items 4.1 and 10, allowing the Company ten days to refute the charges in the resolution.

 

 

 

On April 23, 2008, the Company formulated the evidence to refute the charges and requested the establishment of a probation period. On October 13, 2008, the Superintendence of Sanitary Services resolved to void the sanction proceeding and closed the related administrative file.

 

 

8)

Through Inspection Act No. 1160, dated August 3, 2007, a representative of the Company was requested to make an appearance before the Sanitary Authority regarding a sanitary proceeding involving the Company’s procedure for transporting dangerous waste.

 

 

 

On August 16, 2007, the Company presented its responses and the matter is pending resolution.

49


 

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

December 31, 2008

Amounts in thousands of U.S. dollars, except as indicated



 

 

19.

CONTINGENCIES AND COMMITMENTS, continued

 

 

9)

On February 5, 2009, the Company was notified about the initiation of an investigation of a fatal labor-related accident that occurred on that date in Licantén. The investigation was of an accident that occurred while workers were cleaning the area adjacent to the pipe at the mouth of the Mataquito River. This accident resulted in the death of Mr. Ramón Luis Arriagada Riquelme (RIP), who was employed as a laborer for the contractor Mr. Mario Francisco Segura Caballero.

 

 

 

The Company must present the required information for the above mentioned accident at a hearing to be held on February 10, 2009.

 

 

10)

In relation to the accident referred to in letter E.9 above, on February 6, 2009, pursuant to the Requirement of Documentation and Citation Act, and by virtue of that which is provided in Article 31 of the DFL No. 2 of 1967 (Ley Orgánica de la Dirección del Trabajo), the Labor Inspection requires that the Company provide the information required by the above mentioned act to the panel that will preside at the abovementioned hearing.

 

 

 

The Company is not currently involved in any other court proceedings or any other legal actions that could significantly affect its financial, economic or operational conditions.

 

 

 

Other contingencies

 

 

a)

The Electricity and Fuel Superintendent imposed sanctions on Arauco’s subsidiary Arauco Generación S.A. for alleged deficiencies in the Central Interconnected System. Arauco Generación S.A. is appealing these sanctions in the Court of Justice and with the Superintendent, and the matter is currently pending resolution. The amounts of the fines in question reach Ch$63,255 thousand (U.S.$99 thousand) and have been recorded in the consolidated financial statements.

 

 

b)

On October 8, 2007 the Administracion Federal de Ingresos Públicos (“AFIP”) notified the subsidiary Alto Paraná S.A. of the commencement of an administrative process (“court-initiated proceedings”), where the deductibility to the Income Tax, certain expenses, interests and exchange gains or losses generated by Private Negotiable Obligations that were issued by the Company in 2001 and pre-canceled in 2007 for a sum of US$250 million are being questioned.

 

 

 

On December 14, 2007, the AFIP notified Alto Paraná S.A. (APSA) that it rejected the subsidiary’s position and proceeded to demand the income, within fifteen business days, of the calculated differences in the Income Taxes for the financial years 2002, 2003 and 2004 for the sum of US$48,381 thousand in principal and the rest as back interest and penalty fines.

 

 

 

Based on the opinion of the legal counsel and according to the analysis and evaluation of the applicable norm and the existing judicial precedents, the Company believes that there is strong basis for its position and that it is justified in pursuing a favorable determination of this claim. For such reasons we have not included a provision for this concept.

50


 

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

December 31, 2008

Amounts in thousands of U.S. dollars, except as indicated



 

 

19.

CONTINGENCIES AND COMMITMENTS, continued

 

 

 

On July 18, 2008, within the course of this action and in reference to the payments of taxes at issue before the Tax Court, relief was sought from the National Tax Court by requesting that APSA submit payment of MUS$3,026 to cover the Income Tax debt. On August 14, 2008, in dispute of the court’s Resolution, APSA filed an appeal seeking a ruling that the imposition of this tax was unreasonable. In the same motion, APSA argued that the payment of MUS$473, which was counted as Other Current Credits, was the amount that should have been accounted for as Income Tax. On September 1, 2008, the Court rejected this appeal.

 

 

 

On September 10, 2008, APSA filed a request to be heard by the National Court of Appeals in the Contencioso Administrativo Federal, which has been granted. Once this court hears the case, it will eventually be elevated to the National Supreme Court. In the opinion of the Company’s lawyers, the outlook of the case is favorable.

 

 

c)

On November 28, 2008, APSA and its directors were notified of Resolution 212, made by the Central Bank of the Republic of Argentina (CBRA) on November 19, 2008. Pursuant to said resolution, the CBRA provided instruction Sumario No. 3991, which questions the timely settlement of foreign currency exchange for payment of exports.

 

 

 

On December 10, 2008, APSA requested that the CBRA approve an extension of 20 business days for responding to the notice.

 

 

 

On December 30, 2008, el CBRA granted an extension of 15 business days, which means that APSA must respond to the notice prior to February 5, 2009.

 

 

 

At the date of issuance of the current financial statements and attentive to the state of these preliminary proceedings, the legal advisors of the Company cannot predict the result of the above summary. For this reason, there is no provision for contingencies regarding this issue.

 

 

As of December 31, 2008, the Company was not involved in any other court proceedings or any other legal actions that could significantly affect its financial, economic or operational conditions.

51


 

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

December 31, 2008

Amounts in thousands of U.S. dollars, except as indicated



 

 

19.

CONTINGENCIES AND COMMITMENTS, continued

 

 

 

Restrictions

 

 

a)

Due to the liabilities presented in the categories of banks borrowings and bonds, there are certain financial restrictions with which Arauco must comply. Non-compliance could result in these debts becoming fully payable upon demand.

 

 

 

The minimum financial restrictions are:

 

 

 

(i) the ratio of debt to consolidated tangible net worth must not be greater than 1.2;

 

 

 

(ii) consolidated net worth must not be less than U.S.$2,500 million; and

 

 

 

(iii) the interest coverage ratio must not be less than 2.0.

 

 

 

Arauco’s Argentine subsidiary Alto Paraná S.A., due to its obligations with Rule 144A, must comply with the following ratios:

 

 

 

(i) the total financial liabilities (excluding Rule 144A debt) must not be greater than 65% of its shareholders’ equity plus the debt with JPMorgan Chase; and

 

 

 

ii) the ratio between EBITDA and excluded interests generated by the debt with Rule 144A cannot be less than 1.75.

 

 

 

Both Arauco and its subsidiary Alto Paraná S.A. have complied with these restrictions as of December 31, 2008.

 

 

b)

An agreement of Wood Supply and Future Land Purchases entered into by Celulosa Arauco y Constitución S.A. and a contract of Forestry Administration entered into by certain of Arauco’s forestry subsidiaries, both with the Fondo de Inversión Bío Bío, pursuant to which Arauco is subject to the following minimum financial restrictions. Failure to meet these restrictions could result in the purchase in advance of future obligations.

 

 

 

(i) the ratio of debt to consolidated tangible net worth must not be greater than 1.2;

 

 

 

(ii) consolidated net worth must not be less than U.S.$2,500 million; and

 

 

 

(iii) the interest coverage ratio must not be less than 2.0.

 

 

 

Pursuant to the agreement of Wood Supply between Arauco and the Fondo de Inversiones Bio Bio, Arauco would be required to advance the future purchases of wood (in part or entirely, depending on the situation) if the Fondo Bío Bío, in the event of “Significant Adverse Event”, as defined by the agreement, cannot meet its financial obligations with its own resources.

52


 

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

December 31, 2008

Amounts in thousands of U.S. dollars, except as indicated



 

 

20.

SHAREHOLDERS’ EQUITY

 

 

 

The movements in the capital and reserve accounts for each of the years ended December 31, 2007 and 2008 are as follows:


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2007

 

Paid-in
capital
ThU.S.$

 

Share
premium
ThU.S.$

 

Forestry
and other
reserves
ThU.S.$

 

Retained
earnings
from prior
years
ThU.S.$

 

Interim
dividends
ThU.S.$

 

Net
Income
for the
Year
ThU.S.$

 

Total
ThU.S.$

 

















Balance as of December 31, 2006

 

 

347,551

 

 

5,625

 

 

1,631,736

 

 

2,317,030

 

 

(89,758

)

 

619,421

 

 

4,831,605

 

Prior year income allocation

 

 

 

 

 

 

 

 

619,421

 

 

 

 

(619,421

)

 

 

Dividend paid

 

 

 

 

 

 

 

 

(260,231

)

 

89,758

 

 

 

 

(170,473

)

Forestry reserve

 

 

 

 

 

 

178,399

 

 

 

 

 

 

 

 

178,399

 

Forestry reserve of consolidated subsidiaries to subsidiaries

 

 

 

 

 

 

(1,645

)

 

 

 

 

 

 

 

(1,645

)

Conversion adjustment related to subsidiaries

 

 

 

 

 

 

11,936

 

 

 

 

 

 

 

 

11,936

 

Adjustment of previous year related to affiliate

 

 

 

 

 

 

 

 

(553

)

 

 

 

 

 

(553

)

Adjustment of previous year related to subsidiaries

 

 

 

 

 

 

 

 

(22,241

)

 

 

 

 

 

(22,241

)

Provisory dividends

 

 

 

 

 

 

 

 

 

 

(108,896

)

 

 

 

(108,896

)

Net income for the year

 

 

 

 

 

 

 

 

 

 

 

 

695,665

 

 

695,665

 
























Balance As of December 31, 2007

 

 

347,551

 

 

5,625

 

 

1,820,426

 

 

2,653,426

 

 

(108,896

)

 

695,665

 

 

5,413,797

 
























 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2008

 

Paid-in
capital
ThU.S.$

 

Share
premium
ThU.S.$

 

Forestry
and other
reserves
ThU.S.$

 

Earnings
from prior
years
ThU.S.$

 

Interim
dividends
ThU.S.$

 

Net
Income
for the
Year
ThU.S.$

 

Total
ThU.S.$

 

















Balance as of December 31, 2007

 

 

347,551

 

 

5,625

 

 

1,820,426

 

 

2,653,426

 

 

(108,896

)

 

695,665

 

 

5,413,797

 

Prior year income allocation

 

 

 

 

 

 

 

 

695,665

 

 

 

 

(695,665

)

 

 

Dividend paid

 

 

 

 

 

 

 

 

(323,781

)

 

108,896

 

 

 

 

(214,885

)

Forestry reserve

 

 

 

 

 

 

72,981

 

 

 

 

 

 

 

 

72,981

 

Forestry reserve of consolidated subsidiaries

 

 

 

 

 

 

(2,057

)

 

 

 

 

 

 

 

(2,057

)

Conversion adjustment related to subsidiaries

 

 

 

 

 

 

(24,496

)

 

 

 

 

 

 

 

(24,496

)

Interim dividends

 

 

 

 

 

 

 

 

 

 

(100,932

)

 

 

 

(100,932

)

Net income for the year

 

 

 

 

 

 

 

 

 

 

 

 

478,746

 

 

478,746

 
























Balance as of December 31, 2008

 

 

347,551

 

 

5,625

 

 

1,866,854

 

 

3,025,310

 

 

(100,932

)

 

478,746

 

 

5,623,154

 

























 

 

 

The number of shares authorized, issued and outstanding as of December 31, 2007 and 2008 was 113,152,446. The Company’s shares are of a single series without a fixed nominal value.

53


 

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

December 31, 2008

Amounts in thousands of U.S. dollars, except as indicated



 

 

21.

OTHER NON-OPERATING INCOME

 

 

 

Other non-operating income was as follows:


 

 

 

 

 

 

 

 

 

 

As of December 31,

 

 

 

2007
ThU.S.$

 

2008
ThU.S.$

 







Income for sale of Carbon Bond

 

 

8,652

 

 

6,342

 

Indemnity for forests acquired

 

 

2,556

 

 

 

Reimbursement of customs duties

 

 

5,378

 

 

5,592

 

Rental income

 

 

776

 

 

2,287

 

Insurance recoveries

 

 

1,500

 

 

8,648

 

Sale of materials and others

 

 

344

 

 

 

Utility other sales

 

 

869

 

 

958

 

Provision excess previous year

 

 

2,155

 

 

835

 

Other income

 

 

6,150

 

 

7,028

 









Total other non-operating income

 

 

28,380

 

 

31,690

 










 

 

22.

OTHER NON-OPERATING EXPENSES

 

 

 

Other non-operating expenses were as follows:


 

 

 

 

 

 

 

 

 

 

As of December 31,

 

 

 

2007
ThU.S.$

 

2008
ThU.S.$

 







Other depreciation and amortization

 

 

737

 

 

905

 

Write-off of damaged forest

 

 

2,515

 

 

2,219

 

Project expenses

 

 

3,046

 

 

2,195

 

Provision for uncollectible accounts receivable

 

 

246

 

 

5,239

 

Legal expenses

 

 

1,252

 

 

2,827

 

Taxes

 

 

6,747

 

 

3,773

 

Write-off of inventory

 

 

3,004

 

 

 

Fine, readjustment and interests

 

 

1,030

 

 

110

 

Indemnities

 

 

1,548

 

 

4,721

 

Plant set up expenses

 

 

1,643

 

 

 

Sawmills closing expenses

 

 

 

 

11,067

 

Loss in fix assets sales

 

 

145

 

 

745

 

Other expenses

 

 

6,657

 

 

5,371

 









Total other non-operating expenses

 

 

28,570

 

 

39,172

 









54


 

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

December 31, 2008

Amounts in thousands of U.S. dollars, except as indicated



 

 

23.

MINORITY INTEREST

 

 

 

The equity value corresponding to the minority shareholders’ interest in the Company’s subsidiaries was as follows:


 

 

 

 

 

 

 

 

 

 

As of December 31,

 

 

 

2007
ThU.S.$

 

2008
ThU.S.$

 







Alto Paraná S.A.

 

 

143

 

 

137

 

Forestal Arauco S.A.

 

 

1,996

 

 

2,038

 

Forestal Cholguán S.A.

 

 

5,468

 

 

5,861

 

Controladora de Plagas Forestales S.A.

 

 

200

 

 

169

 

Forestal Los Lagos S.A.

 

 

5,753

 

 

6,781

 

Arauco Florestal Arapoti S.A.

 

 

53,063

 

 

52,774

 









Total

 

 

66,623

 

 

67,760

 










 

 

 

Income corresponding to the minority shareholders’ interest in the Company’s subsidiaries was as follows:


 

 

 

 

 

 

 

 

 

 

As of December 31,

 

 

 

2007
ThU.S.$

 

2008
ThU.S.$

 







Alto Paraná S.A.

 

 

(12

)

 

4

 

Forestal Arauco S.A.

 

 

(39

)

 

(18

)

Forestal Cholguán S.A.

 

 

(128

)

 

(106

)

Controladora de Plagas Forestales S.A.

 

 

14

 

 

4

 

Forestal Los Lagos S.A.

 

 

71

 

 

67

 

Flooring S.A.

 

 

273

 

 

 

Arauco Florestal Arapoti S.A.

 

 

(1,257

)

 

(1,006

)









Total

 

 

(1,078

)

 

(1,055

)









55


 

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

December 31, 2008

Amounts in thousands of U.S. dollars, except as indicated



 

 

24.

SANCTIONS

 

 

 

From the Chilean Securities Commission

 

 

 

During the years ended December 31, 2007 and 2008, neither the Company nor any of its Directors or Executives has received sanctions from the Chilean Securities Commission.

 

 

 

From other administrative authorities

 

 

1)

As a result of a complaint regarding odors perceived by a group of citizens in the city of Valdivia on May 19, 2007, the Sanitary Authority initiated a sanitary investigation against Plant Valdivia. Arauco presented their responses dated May 28, 2007 and the matter is pending final resolution.

 

 

2)

According to the Inspection Act of June 11 2007, the Sanitary Authority requested a representative of the Nueva Aldea Plant of the Company with the purpose of presenting the files referring to an alleged event of odors that occurred on the same date. The matter is pending final resolution.

 

 

3)

By the Inspection Act Nº 3851 dated as of June 5, 2007 the Sanitary Authority of the Maule Region initiated a sanitary Indictment regarding the death of fish in the Mataquito River detected on June 5, 2007 that was attributed to spilling of industrial liquids from the Licancel Plant. The Company presented its responses at the Licantén Office of the Health SEREMI of the Maule Region dated June 12, 2007. The matter is currently pending.

 

 

4)

The Sanitary Indictment (Rit 489-2007) initiated by the Sanitary Authority, according to the Inspection Act number 1150 of June 18, 2007 was initiated regarding leaking of industrial liquid on the ground and the draining to the Lourdes Channel and the Mataquito River, the creation of chip movement in the wood yard and movement of these to such wood yard which would result in an infraction to the current operational prohibitions.