6-K 1 d6k.htm FORM 6-K Form 6-K

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 6-K

 

Report of Foreign Private Issuer

Pursuant to Rule 13a-16 or 15d-16 of the

Securities Exchange Act of 1934

 

For the month of April, 2003

 

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    x    Form 40-F    ¨

 

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 by furnishing the information contained in this Form, the registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.    Yes     ¨    No    x

 

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, 2002

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 the 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

 

Beginning January 1, 2002, the Company and its subsidiaries Aserraderos Arauco S.A. and Paneles Arauco S.A. maintain their accounting records and prepare their financial statements in US dollars.

 

For convenience purposes, the Company’s consolidated financial statements as of and for the year ended December 31, 2001, have been translated into US dollars at the December 31, 2001 observed exchange rate of Ch$ 654.79 per US$ 1.00.

 

These translations should not be construed as representations that the Chilean peso amounts actually represent such U.S. dollar amounts, were converted from U.S. dollars at the rate indicated in preparing the Company’s financial statements or could be converted into U.S. dollars at the rate indicated.

 

The principal components of assets and liabilities as of December 31, 2001 and 2002 are as follows:

 

    

2001

  

2002

Assets


  

ThUS$


  

ThUS$


Current assets

  

1,153,149

  

1,144,899

Net fixed assets

  

3,758,665

  

3,838,238

Other assets

  

56,801

  

54,007

    
  

Total assets

  

4,968,615

  

5,037,144

    
  

 

    

2001

  

2002

Liabilities and Shareholders Equity


  

ThUS$


  

ThUS$


Current liabilities

  

179,281

  

315,963

Long-term liabilities

  

1,666,363

  

1,507,598

Minority interest

  

6,254

  

6,127

Shareholders’ equity

  

3,116,717

  

3,207,456

    
  

Total liabilities

  

4,968,615

  

5,037,144

    
  

 

1


 

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statements

December 31, 2002

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

 


 

Total assets increased by 1.4%, or US$ 69 million, from December 31, 2001 to December 31, 2002. The increase is mainly attributable to a US$ 17 million increase in time deposits, a US$ 54 million increase in other current assets and a US$ 80 million increase in property, plant and equipment, partially offset by decreases of US$ 70 million in marketable securities, US$ 16 in recoverable taxes and US$ 23 million in other assets.

 

Total liabilities decreased by US$ 22 million from December 31, 2001 to December 31, 2002. The decrease is mainly attributable to a US$ 2 million net decrease in bank borrowings, a US$48 million net decrease in bonds and a US$ 5 million net decrease in other long-term liabilities.

 

The main financial and operating ratios are as follows:

 

Liquidity ratios


  

31.12.2001


  

31.12.2002


Current ratio

  

6.43

  

3.62

Acid ratio

  

4.15

  

2.33

 

The decrease in the current and acid ratios from 2001 to 2002 is primarily attributable to an increase in moving bank borrowings and bonds in the amount of US$ 117 million.

 

Debt indicators


  

31.12.2001


  

31.12.2002


Debt to equity ratio

  

0.59

  

0.57

Short-term debt to total debt

  

0.10

  

0.17

Long-term debt to total debt

  

0.90

  

0.83

Financial expenses covered

  

2.34

  

3.77

 

The debt ratio decreased 0.02 points from 2001 to 2002 due to the relatively low level of current and long-term bank borrowing and bonds.

 

On December 31, 2002 current liabilities correspond to 17.3% of total liabilities, while at the end of 2001 they represented 9.7%, due to the movement of obligations from being long-term to being short-term obligations.

 

The ratio of financial expenses covered increased 1.43 points. The increase is primarily attributable to a US$ 9 million increase in financial expenses and a US$ 137 million increase in net income from December 31, 2001 to December 31, 2002.

 

Operational ratios


  

31.12.2001


  

31.12.2002


Inventory turnover

  

1.61

  

1.59

Inventory permanence (days)

  

223.70

  

226.37

 

2


 

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statements

December 31, 2002

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

 


 

b)   Analysis of the Income Statement

 

The breakdown of operating income and costs is as follows:

 

    

2001

  

2002

  

2001

  

2002

Operating income


  

ThUS$


  

ThUS$


  

%


  

%


Export sales

                   

Pulp

  

648,967

  

593,998

  

56.97

  

50.00

Sawn timber and cut wood

  

215,634

  

289,471

  

18.93

  

24.37

Plywood and fiber panels

  

90,424

  

132,753

  

7.94

  

11.17

Forestry products

  

5,732

  

10,367

  

0.51

  

0.88

    
  
  
  

Total export sales

  

960,757

  

1,026,589

  

84.35

  

86.42

    
  
  
  

Pulp

  

36,098

  

34,766

  

3.17

  

2.93

Sawn timber and cut wood

  

59,066

  

53,814

  

5.18

  

4.53

Forestry products

  

26,650

  

20,733

  

2.34

  

1.75

Plywood and fiber panels

  

46,352

  

45,644

  

4.07

  

3.84

Other

  

10,179

  

6,472

  

0.89

  

0.53

    
  
  
  

Total domestic sales

  

178,345

  

161,429

  

15.65

  

13.58

    
  
  
  

Total operating income

  

1,139,102

  

1,188,018

  

100.00

  

100.00

    
  
  
  

 

    

2001

  

2002

  

2001

  

2002

Operating costs


  

ThUS$


  

ThUS$


  

%


  

%


Timber

  

121,161

  

105,057

  

19.99

  

18.67

Forestry work

  

119,014

  

122,916

  

19.64

  

21.84

Depreciation

  

120,405

  

96,984

  

19.87

  

17.23

Maintenance costs

  

55,908

  

42,010

  

9.22

  

7.46

Chemical products

  

60,447

  

55,070

  

9.97

  

9.78

Sawing services

  

59,783

  

67,313

  

9.86

  

11.96

Other raw materials and indirect costs

  

46,667

  

54,154

  

7.70

  

9.62

Energy and fuel costs

  

22,686

  

19,298

  

3.75

  

3.44

    
  
  
  

Total operating costs

  

606,071

  

562,802

  

100.00

  

100.00

    
  
  
  

 

3


 

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statements

December 31, 2002

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

 


 

Analysis of Operating Income

 

Operating income includes net income of US$ 390 million compared to US$ 294 million in 2001, an increase of US$ 96 million. The increase is primarily due to a US$ 92 million increase in the gross margin.

 

Analysis of Non-Operating Income (Loss)

 

There was a non-operating loss of US$ 96 million during 2002, compared to a non-operating loss of US$ 199 million in 2001. This year’s loss was primarily caused by the following items:

 

·   The foreign currency exchange rate loss, which changed from a loss of US$ 139 million in 2001 to income of US$ 3 million in 2002, largely due to the impact of the devaluation of the Chilean peso in 2001, which was not applicable in 2002 because the Company started using U.S. dollars instead of Chilean pesos in their accounting records, starting January 1, 2002.

 

·   Financial expenses, which increased by US$ 9 million from US$ 104 million in 2001 to US$ 113 million in 2002, largely due to the increase in bonds payable.

 

·   Other non-operating income, which decreased US$ 14 million from 2001 to 2002, due to the reserve adjustment of conversion in accordance with Technical Bulletin No. 64, “Accounting for Investments Abroad,” issued by the Accountants Association of Chile (“B.T. No 64”) for the investment made in Alto Paraná S.A. in 2001.

 

·   The price-level restatement, which decreased from US$ 19 million in 2001 to US$ 0.4 million in 2002, due to the fact that the Company and subsidiaries Aserraderos Arauco S.A. and Paneles Arauco S.A. prepared their accounting records in US$ dollars in 2002.

 

Profitability ratios


  

31.12.2001


  

30.09.2002


Equity yield

  

4.61

  

8.77

Asset performance ratio

  

2.98

  

5.55

Operating asset ratio

  

6.30

  

7.89

Income per share (US$)

  

1.24

  

2.45

EBITDA (*)

  

226,026

  

436,901

Income after tax ThUS$

  

95,847

  

257,990

 

  (*)   Income before income tax, interest, depreciation, amortization and extraordinary items.

 

4


 

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statements

December 31, 2002

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

 


 
3.   MARKET SITUATION

 

The market for long fiber bleached pulp (BKP) experienced significant price fluctuations during the year 2002, primarily due to weak demand for impression and notary paper in Europe and the United States during the period, as well as high levels of operation of pulp mills in the northern hemisphere.

 

Arauco’s competitors in the production of BKP are primarily found in Canada, Brazil, the United States and the Scandinavian countries. In 2002, Arauco’s competitors were active in the BKP market, and, because production was greater than global demand, there was pressure on price levels. As a result, pulp inventories in these countries increased beginning in June 2002, but began to decrease in December 2002.

 

Arauco’s percentage share of the global BKP market has historically been between 5% and 6%. During 2002 there was no increase in installed capacity.

 

Plywood sales fell in the United States due to an increase in the inventory held by American companies for a possible war. Prices in this market have decreased. Mexico also has been affected by the United States’ slow activity, and Mexican volumes and prices also decreased. At the same time, however, sales in the European market are relatively good, and there has been no change in prices.

 

There was poor activity in the plywood market in South Korea after the soccer World Cup, leading to a decrease in the price of MDF. China has experienced less activity with lower prices than during the first six months of the year.

 

There was greater demand for MDF in the Middle East because of less competition from Europe due to variations in the exchange rate. The demand on hard board mills continues to be high. However, local market demand has been weak, due to the introduction of Argentinean products with lower prices.

 

There was great activity in sawn timber and remanufactured wood products in Europe, especially considering the Euro exchange rates. Sales in Japan, Taiwan, Korea and China were active, with increases in both prices and volume. The war in Iraq could affect the market in 2003.

 

Activity in the North American market (especially the United States and Mexico) decreased at the end of 2002, but it is expected to improve after March 2003, although it will be hampered by the war in Iraq.

 

5


 

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statements

December 31, 2002

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

 


 

4.   ANALYSIS OF CASH FLOW

 

    

31.12.2001

ThCh$


    

31.12.2002

ThUS$


 

Operating cash flow

  

229,901

 

  

433,652

 

Cash flow from financing activities

  

210,801

 

  

(126,418

)

Cash flow from investment activities

  

(126,379

)

  

(379,969

)

    

  

Net cash flow for the year

  

314,323

 

  

(72,735

)

    

  

 

The increase in operating cash flows is largely due to an increase in collections of trade accounts receivable of US$229 million and other income of US$ 49 million, offset by higher payments to suppliers and staff of US$75 million and interest paid of US$ 11 million.

 

The net positive cash flows from financing activities in 2001 was largely due to loans incurred as well as issuances of bonds. The net negative cash flow in 2002 is primarily due to the payment of dividends and loan payments.

 

The variation in cash flows from investment activities is largely due to the impact of decreased sales of financial instruments as well as an increase in purchases of property, plant and equipment in 2002 as compared to 2001, due to the start of Valdivia Mill Project.

 

5.   MARKET RISK ANALYSIS

 

Pursuant to economic risks derived from interest rate variations, the Company has consistently applied policies consistent with the general policies of the industries in which it operates.

 

As explained in Note 2, beginning January 1, 2002, the Company and its subsidiaries Aserraderos Arauco S.A. and Paneles Arauco S.A. maintain their accounting records and prepare their financial statements in US dollars. Both their assets and their liabilities are denominated in US dollars, as are the majority of their revenues. As a result, their exposure to changes in the exchange rate is significantly decreased.

 

6


 

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Consolidated Balance Sheets

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

 


 

    

At December 31,


 

ASSETS


  

2001

ThUS$


    

2002

ThUS$


 

CURRENT ASSETS :

             

Cash

  

6,708

 

  

9,534

 

Time deposits

  

2,687

 

  

19,564

 

Marketable securities (note 3)

  

420,392

 

  

350,283

 

Trade accounts receivable (note 4)

  

203,609

 

  

180,880

 

Notes receivable

  

6,012

 

  

5,435

 

Other receivables

  

19,074

 

  

25,739

 

Notes and accounts receivable from related parties (note 18)

  

710

 

  

—  

 

Inventories (note 5)

  

388,582

 

  

392,787

 

Recoverable taxes

  

43,007

 

  

26,649

 

Prepaid expenses

  

20,162

 

  

16,620

 

Deferred tax assets (note 15)

  

4,815

 

  

25,501

 

Other current assets

  

37,391

 

  

91,907

 

    

  

Total current assets

  

1,153,149

 

  

1,144,899

 

    

  

PROPERTY, PLANT AND EQUIPMENT: (note 6)

             

Land

  

366,275

 

  

355,971

 

Forests

  

1,934,421

 

  

1,848,919

 

Buildings and other infrastructure

  

1,341,735

 

  

1,367,936

 

Machinery and equipment

  

1,371,485

 

  

1,402,483

 

Other

  

220,803

 

  

437,590

 

Technical revaluation

  

68,974

 

  

68,769

 

Less: Accumulated depreciation

  

(1,545,028

)

  

(1,643,430

)

    

  

Net property, plant and equipment

  

3,758,665

 

  

3,838,238

 

    

  

OTHER NON-CURRENT ASSETS:

             

Investments in related companies (note 7)

  

18,078

 

  

20,768

 

Investments in other companies

  

149

 

  

139

 

Goodwill (note 8)

  

4,512

 

  

3,954

 

Negative goodwill (note 8)

  

(33,084

)

  

(12,610

)

Long-term receivables

  

6,213

 

  

4,199

 

Intangibles

  

526

 

  

494

 

Amortization

  

(136

)

  

(152

)

Other (note 9)

  

60,543

 

  

37,215

 

    

  

Total other non-current assets

  

56,801

 

  

54,007

 

    

  

Total assets

  

4,968,615

 

  

5,037,144

 

    

  

 

The accompanying notes 1 to 30 form an integral part of these consolidated financial statements

 

7


 

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Consolidated Balance Sheets

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

 


 

    

At December 31,


 

LIABILITIES AND SHAREHOLDERS’ EQUITY


  

2001
ThUS$


    

2002
ThUS$


 

CURRENT LIABILITIES:

             

Current bank borrowings (note 10)

  

87

 

  

32,139

 

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

  

38,851

 

  

41,952

 

Current portion of bonds (note 12)

  

32,193

 

  

109,396

 

Current portion of other long term liabilities

  

1,056

 

  

278

 

Dividends payable

  

1,678

 

  

1,330

 

Trade account payable

  

68,101

 

  

76,514

 

Notes payable

  

3

 

  

126

 

Sundry accounts payable

  

10,097

 

  

10,220

 

Notes and accounts payable to related companies (note 18)

  

681

 

  

1,935

 

Accrued liabilities (note 13)

  

19,819

 

  

15,396

 

Withholding taxes

  

5,356

 

  

4,930

 

Income tax payable

  

—  

 

  

17,829

 

Deferred income

  

1,302

 

  

1,111

 

Other current liabilities

  

57

 

  

2,807

 

    

  

Total current liabilities

  

179,281

 

  

315,963

 

    

  

LONG-TERM LIABILITIES:

             

Long-term bank borrowings (note 14)

  

289,670

 

  

252,363

 

Bonds (note 12)

  

1,282,963

 

  

1,157,500

 

Notes payable

  

1

 

  

1

 

Sundry accounts payable

  

7,974

 

  

295

 

Accrued liabilities (note 13)

  

7,802

 

  

9,043

 

Deferred tax liabilities (note 15)

  

71,865

 

  

87,732

 

Other long-term liabilities

  

6,088

 

  

664

 

    

  

Total long-term liabilities

  

1,666,363

 

  

1,507,598

 

    

  

Minority interest (note 25)

  

6,254

 

  

6,127

 

    

  

SHAREHOLDERS’ EQUITY: (note 20)

             

Paid-up in capital

  

347,551

 

  

347,551

 

Share premium

  

5,625

 

  

5,625

 

Forestry and other reserves

  

1,470,901

 

  

1,356,030

 

Retained earnings

  

1,158,087

 

  

1,259,743

 

Net income for the period

  

139,910

 

  

277,189

 

Interim dividends

  

(5,357

)

  

(38,682

)

    

  

Total shareholders’ equity

  

3,116,717

 

  

3,207,456

 

    

  

Total liabilities and shareholders’ equity

  

4,968,615

 

  

5,037,144

 

    

  

 

The accompanying notes 1 to 30 form an integral part of these consolidated financial statements.

 

8


 

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Consolidated Statements of Income

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

 


 

    

At December 31,


 
    

2001
ThUS$


    

2002
ThUS$


 

OPERATING INCOME:

             

Sales revenue (note 21)

  

1,139,102

 

  

1,188,018

 

Cost of sales (note 22)

  

(606,071

)

  

(562,802

)

Gross profit

  

533,031

 

  

625,216

 

Administration and selling expenses (note 22)

  

(239,364

)

  

(234,905

)

    

  

Operating income

  

293,667

 

  

390,311

 

    

  

NON-OPERATING INCOME:

             

Interest earned

  

14,959

 

  

21,995

 

Share of net income of related companies (note 7)

  

1,463

 

  

2,558

 

Other non-operating income (note 23)

  

20,364

 

  

6,169

 

Amortization of goodwill (note 8)

  

(1,047

)

  

(4,435

)

Interest expenses

  

(103,680

)

  

(113,035

)

Other non-operating expenses (note 24)

  

(10,883

)

  

(11,533

)

Price-level restatement (note 1)

  

18,690

 

  

(441

)

Foreign currency exchange rate (note 1)

  

(138,607

)

  

2,592

 

    

  

Non-operating loss

  

(198,741

)

  

(96,130

)

    

  

Income before taxes, minority interest and amortization of negative goodwill

  

94,926

 

  

294,181

 

Income taxes (note 15)

  

921

 

  

(36,191

)

Income before minority interest and amortization of negative goodwill

  

95,847

 

  

257,990

 

Minority interest (note 18)

  

(210

)

  

(267

)

Income before amortization of negative goodwill

  

95,637

 

  

257,723

 

Amortization of negative goodwill (note 8)

  

44,273

 

  

19,466

 

    

  

Net income

  

139,910

 

  

277,189

 

    

  

 

The accompanying notes 1 to 30 form an integral part of these consolidated financial statements.

 

9


 

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Statements of Consolidated Cash Flows

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

 


 

    

At December 31,


 
    

2001

    

2002

 

CASH FLOWS FROM OPERATING ACTIVITIES


  

ThCh$


    

ThCh$


 

Net income

  

139,910

 

  

277,189

 

Loss (Profit) on sale of assets

             

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

  

(1,426

)

  

(446

)

Items affecting income not involving the movement of cash:

             

Depreciation

  

126,043

 

  

103,184

 

Amortization of intangibles

  

29

 

  

28

 

Write-offs and provisions

  

2,428

 

  

1,108

 

Profit from investments accounted for under the equity method

  

(1,493

)

  

(2,559

)

Loss from investments accounted for under the equity method

  

30

 

  

1

 

Amortization of goodwill

  

1,047

 

  

4,435

 

Amortization of negative goodwill

  

(44,273

)

  

(19,466

)

Net price level restatement

  

(18,690

)

  

441

 

Foreign currency exchange rate

  

138,607

 

  

(2,592

)

Others

  

34,597

 

  

14,535

 

Decrease (Increase) in current assets:

             

Clients and debtors

  

(122,134

)

  

46,429

 

Inventory

  

5,222

 

  

321

 

Other current assets

  

(8,183

)

  

(18,108

)

Increase (Decrease) in current liabilities:

             

Suppliers and creditors

  

(2,436

)

  

5,253

 

Interest payable

  

13,106

 

  

1,853

 

Provision for income taxes

  

(31,042

)

  

19,714

 

Other current liabilities

  

(1,441

)

  

2,332

 

    

  

Net cash flows from operating activities

  

229,901

 

  

433,652

 

    

  

 

The accompanying notes 1 to 30 form an integral part of these consolidated financial statements.

 

10


 

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Statements of Consolidated Cash Flows, continued

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

 


 

    

At December 31,


 
    

2001

    

2002

 

CASH FLOWS FROM FINANCING ACTIVITIES


  

ThUS$


    

ThUS$


 

Loans from financial institutions

  

319,537

 

  

2,484

 

Bonds

  

410,052

 

  

—  

 

Dividends paid

  

(65,428

)

  

(71,762

)

Loans paid

  

(308,658

)

  

(40,087

)

Repayments of bonds

  

(127,792

)

  

(17,078

)

Other financing activities

  

(16,910

)

  

25

 

    

  

Net cash flow from financing activities

  

210,801

 

  

(126,418

)

    

  

CASH FLOWS FROM INVESTING ACTIVITIES

             

Sales of property, plant and equipment

  

4,862

 

  

2,590

 

Sales of financial instruments

  

83,248

 

  

8,491

 

Purchase of property, plant and equipment

  

(191,846

)

  

(343,322

)

Investments in other companies

  

(3,292

)

  

(9,429

)

Purchases of financial instruments

  

(19,586

)

  

(8,002

)

Other investments

  

235

 

  

(30,297

)

    

  

Net cash flow from investment activities

  

(126,379

)

  

(379,969

)

    

  

Net cash flows from operating, investing and financing activities

  

314,323

 

  

(72,735

)

    

  

Effect of inflation

  

(3,452

)

  

29,924

 

    

  

Net decrease in cash and cash equivalents

  

310,871

 

  

(42,811

)

Initial balance of cash and cash equivalents

  

131,334

 

  

442,205

 

    

  

FINAL BALANCE OF CASH AND CASH EQUIVALENTS

  

442,205

 

  

399,394

 

    

  

 

The accompanying notes 1 to 30 form an integral part of these consolidated financial statements.

 

11


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

December 31, 2002

Notes to the Consolidated Financial Statements

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 and 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 intercompany 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 (US).

 

The consolidated financial statements as of December 31, 2001 and 2002 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

December 31, 2002

Notes to the Consolidated Financial Statements

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, 2002


    

Total

as of December 31, 2001


Subsidiary company


  

Direct


  

Indirect


  

Total


    

Total


    

%

  

%

  

%

    

%

Agenciamiento y Servicios Profesionales S.A. (México)

  

—  

  

99.99

  

99.99

    

—  

Alto Paraná S.A. (Argentina)

  

—  

  

99.97

  

99.97

    

99.97

Arauco Denmark ApS (Denmark)

  

—  

  

99.93

  

99.93

    

99.99

Arauco Do Brasil Ltda. (Brazil)

  

—  

  

99.99

  

99.99

    

—  

Arauco Ecuador S.A. (Ecuador)

  

0.10

  

99.89

  

99.99

    

99.90

Arauco Europe S.A. (Switzerland)

  

0.01

  

58.79

  

58.80

    

—  

Arauco Forest Products B.V.(The Netherlands)

  

—  

  

99.93

  

99.93

    

99.99

Arauco Generación S.A.

  

99.00

  

0.99

  

99.99

    

99.99

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

  

1.00

  

98.99

  

99.99

    

99.99

Arauco Internacional S.A. (previously Inversiones Cholguán S.A.)

  

98.03

  

1.96

  

99,99

    

99.92

Arauco Perú S.A. (ex—Cholguán Lima S.A.) (Perú)

  

—  

  

99.99

  

99.99

    

99.99

Arauco Wood Products, Inc. (USA)

  

0.39

  

99.60

  

99.99

    

99.99

Araucomex S.A. de C.V. (México)

  

—  

  

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

Controladora de Plagas Forestales S.A.

  

—  

  

51.09

  

51.09

    

50.89

Distribuidora Centromaderas S.A.

  

—  

  

99.99

  

99.99

    

99.99

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

  

10.00

  

89.99

  

99.99

    

—  

Forestal Arauco Guatemala S.A. (Guatemala)

  

0.15

  

99.84

  

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.

  

—  

  

97.31

  

97.31

    

97.28

Forestal Conosur S.A. (Uruguay)

  

—  

  

99.99

  

99.99

    

98.07

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)

  

—  

  

99.99

  

99.99

    

99.99

Inversiones Celco S.L. (España)

  

99.93

  

0.06

  

99.99

    

—  

Investigaciones Forestales Bioforest S.A.

  

1.00

  

98.93

  

99.93

    

99.93

Paneles Arauco S.A.

  

99.00

  

0.99

  

99.99

    

99.99

Servicios Logísticos Arauco S.A. (previously Portuaria Arauco S.A.)

  

45.00

  

54.96

  

99.96

    

99.96

Southwoods Arauco-Lumber LLC (USA)

  

0.00

  

99.61

  

99.61

    

—  

Trupán Argentina S.A. (Argentina)

  

—  

  

99.99

  

99.99

    

99.99

 

13


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

December 31, 2002

Notes to the Consolidated Financial Statements

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

 


 

(b)   Currency records

 

Beginning January 1, 2002, the Company and its subsidiaries Aserraderos Arauco S.A. and Paneles Arauco S.A. maintain their accounting records and prepare their financial statements in US 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 period presented in the consolidated financial statements;

 

  (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”); and

 

(ii)   Changes in purchasing power

 

The effect of the changes in the purchasing power of the Chilean peso during each period presented in the consolidated financial statements (including 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 monetary assets and liabilities (other than UF – and foreign currency – denominated assets and liabilities) held by Arauco.

 

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

December 31, 2002

Notes to the Consolidated Financial Statements

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

 


 

 

(ii)   Changes in purchasing power, continued

 

The values of the CPI were as follows:

 

    

Index


    

Change from previous

December 31,


 

December 31, 2001

  

109.76

    

2.6

%

December 31, 2002

  

112.86

    

2.8

%

 

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

 

    

Index


    

Change from previous

November79 30,


 

November 30, 2001

  

110.10

    

3.1

%

November 30, 2002

  

113.36

    

3.0

%

 

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 period the gain or loss in purchasing power arising from the holding of monetary assets and liabilities exposed to the effects of inflation.

 

15


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

December 31, 2002

Notes to the Consolidated Financial Statements

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

 


 

 

(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 year-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 indexations of the UF.

 

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

 

    

Ch$


December 31, 2001

  

16,262.66

December 31, 2002

  

16,744.12

 

(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.

 

(v)   Assets and liabilities denominated in foreign currency

 

Assets and liabilities denominated in foreign currency are detailed in note 17 and have been translated into Chilean pesos at the observed exchange rates, as reported by the Central Bank of Chile. The observed exchange rates for foreign currencies were as follows:

 

    

At December 31,


    

2001

Ch$


  

2002

Ch$


U.S. dollar

  

654.79

  

718.61

Yen

  

4.99

  

6.07

Euro

  

578.18

  

752.55

DM

  

295.74

  

—  

GBP

  

948.01

  

1,152.91

 

The differences arising in the valuations of assets and liabilities denominated in foreign currency 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 forward foreign exchange contracts and currency swaps are accounted for under the account headings “Interest and other financial expenses” and “Interest earned” in the year in which they arise. See note 1 (n).

 

16


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

December 31, 2002

Notes to the Consolidated Financial Statements

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 price-level restatement in each of the reporting years 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,


 
      

2001

ThUS$

Credit (Charge)


      

2002

ThUS$

Credit (Charge)


 

Assets, liabilities and equity restating by CPI

                 

Shareholders’ equity

    

(87,469

)

    

—  

 

Shareholders’ equity of subsidiaries in chilean pesos

    

—  

 

    

(59,848

)

Property, plant and equipment, net

    

85,361

 

    

54,688

 

Inventories

    

7,353

 

    

5,095

 

Other assets and liabilities, net

    

16,745

 

    

2,013

 

      

    

Net effect on income

    

21,990

 

    

1,948

 

      

    

Price-level restatement of income statement accounts

    

(3,300

)

    

(2,389

)

      

    

Credit (charge) to income by CPI

    

18,690

 

    

(441

)

      

    

 

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

 

    

Year ended December 31,


 
    

2001

ThUS$

Credit (Charge)


      

2002

ThUS$

Credit (Charge)


 

Assets restating by foreign currency

               

Trade accounts receivable

  

9,794

 

    

727

 

Inventories

  

(68

)

    

(365

)

Other assets

  

(39,656

)

    

(7,742

)

Liabilities restating by foreign currency

               

Bank borrowings

  

(11,516

)

    

(1

)

Bonds

  

(108,767

)

    

289

 

Other liabilities

  

11,606

 

    

9,684

 

    

    

Net effect on income by foreign currency

  

(138,607

)

    

2,592

 

    

    

 

17


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

December 31, 2002

Notes to the Consolidated Financial Statements

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

 


 

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

 

Time deposits are shown at cost plus price-level restatement and accrued interest.

 

Marketable securities are shown at the lower of cost plus accrued interest and price-level restatement, or market value.

 

Financial instruments purchased under agreements to resell are held at acquisition cost plus accrued interest and price-level restatement.

 

(e)   Inventories

 

Inventories of raw materials, spare parts and supplies have been stated at the latest purchase 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.

 

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.

 

(f)   Property, plant and equipment

 

(i) Property, plant and equipment, excluding forests

 

The property, plant and equipment of the Company, Aserraderos Arauco S.A. and Paneles Arauco S.A. 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 Chilean Securities Commission. See note 6.

 

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

 

18


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

December 31, 2002

Notes to the Consolidated Financial Statements

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

 


 

(f)   Property, plant and equipment, continued

 

(j) Property, plant and equipment, excluding forests, continued

 

The estimated average remaining useful lives of the property, plant and equipment are as follows:

 

    

Years


Buildings and other infrastructure

  

44

Machinery and equipment

  

13

Other

  

2

Technical revaluation

  

11

 

(i) Property, plant and equipment, excluding forests, continued

 

Arauco generally capitalizes the interest costs associated with financing its work in progress. 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.

 

(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. 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 is accounted for as an adjustment to “Forests” and to shareholders’ equity under the account heading “Forestry and other reserves”.

 

Forests which 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.

 

19


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

December 31, 2002

Notes to the Consolidated Financial Statements

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 10% 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.

 

(h)   Income taxes

 

Arauco has made provisions at each year-end for income taxes currently payable in accordance with current tax regulations. A detail of provisions for income taxes is shown in note 15.

 

At December 31, 2002, deferred income taxes have been recognized at the end of each year for all temporary differences between the financial reporting and tax bases of assets and liabilities. Until December 31, 1999, Arauco recognized deferred income taxes in the same manner except for the tax loss carry forwards of certain subsidiaries.

 

(i)   Bonds

 

Bonds are shown at face value plus accrued interest and price-level restatement 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.

 

(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 8%.

 

(k)   Research and development expenses

 

The cost of research, project development and special studies are charged to income in the year 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 US$ 1,454 thousand and US$ 1,579 thousand for the years ended December 31, 2001 and 2002, respectively.

 

 

20


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

December 31, 2002

Notes to the Consolidated Financial Statements

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

 


 

(l)   Negative goodwill on investments

 

Any excess of the book value 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.

 

(m)   Goodwill on investments

 

Any consideration paid to acquire a company in excess of its book value is accounted for as an increase of the consolidated assets in the balance sheet and is amortized over a five year period.

 

(n)   Cash and cash equivalents

 

Arauco considers cash and cash equivalents as representing cash and cash instruments with an original maturity of less than 3 months.

 

(o)   Forward foreign exchange contracts and currency swaps

 

Arauco’s open forward foreign exchange contracts and currency swaps are revalued according to the current spot rate on a monthly basis. Losses are accounted for in the income statement, whereas gains are deferred and accounted for as liabilities. Such gains are realized as income when the underlying contract expires.

 

Initial discounts, premiums or commissions on these contracts are deferred and amortized over the lives of the underlying contracts.

 

(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 of 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 are recorded based on uncollectibility analyses 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.

 

21


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

December 31, 2002

Notes to the Consolidated Financial Statements

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

 


 

(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 at the time of shipment of products to the customer or upon performance of services.

 

(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.”

 

(x)   Translation of foreign subsidiaries

 

Beginning January 1, 2002 the financial statements of the Company’s foreign subsidiaries are translated into US 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 remeasured into US 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 US dollars as follows:

 

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

 

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

 

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

 

  ·   The effects of any exchange rate fluctuations as compared to the US dollar are included in the results of operations for the relevant period.

 

22


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

December 31, 2002

Notes to the Consolidated Financial Statements

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

 


 

(x)   Translation of foreign subsidiaries, continued

 

Until December 31, 2001 under B.T. No.64, the investment in the foreign subsidiary 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 US dollars. For the years ended December 31, 2002 and 2001, as allowed by B.T. No. 64, the Company designated US dollar denominated debt as an economic hedge of its net foreign investment in Argentina.

 

The Company uses an exchange rate of 3.37 Argentine pesos per U.S. dollar in translating its assets and liabilities denominated in Argentine pesos into U.S. dollars, pursuant to Chilean Securities Commission instructions and in accordance with B.T. No. 64. The recognition resulted in a loss of US$ 25.0 million.

 

As of December 31, 2002 the Company’s investments in Argentina represented 13.0% of its consolidated assets, compared to 12.6% at December 31, 2001.

 

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 effect 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 Chilean Securities Commission instructions and Technical Bulletin guidelines.

 

2.   CHANGES IN ACCOUNTING POLICIES

 

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

 

3.   MARKETABLE SECURITIES

 

Marketable securities as of each year-end, the majority of which are denominated in local currency, were as follows:

 

    

As of December 31,


    

2001

ThUS$


  

2002

ThUS$


Bonds

  

489

  

—  

Units in mutual funds

  

419,886

  

350,283

Shares

  

17

  

—  

    
  

Total marketable securities

  

420,392

  

350,283

    
  

 

23


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

December 31, 2002

Notes to the Consolidated Financial Statements

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

 


 

4.   TRADE ACCOUNTS RECEIVABLE

 

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

 

    

As of December 31,


 
    

2001

ThUS$


    

2002

ThUS$


 

Trade accounts receivable

  

207,122

 

  

183,561

 

Allowance for doubtful accounts

  

(3,513

)

  

(2,681

)

    

  

Total trade accounts receivable

  

203,609

 

  

180,880

 

    

  

 

As of December 31, 2001 and 2002, 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 (d). The principal components were as follows:

 

    

As of December 31,


    

2001

ThUS$


  

2002

ThUS$


Finished goods (pulp)

  

30,859

  

25,031

Finished goods (sawn timber)

  

65,893

  

86,049

Finished goods on consignment (pulp)

  

30,242

  

22,607

Work in progress

  

2,406

  

2,609

Sawlogs, pulpwood and chips

  

13,284

  

10,950

Raw material

  

38,204

  

43,917

Forests under exploitation

  

195,976

  

189,698

Other

  

11,718

  

11,926

    
  

Total inventories

  

388,582

  

392,787

    
  

 

24


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

December 31, 2002

Notes to the Consolidated Financial Statements

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 (e).

 

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,


    

2001

ThUS$


  

2002

ThUS$


Buildings and other infrastructure

  

3,741

  

3,350

Machinery and equipment

  

789

  

659

Other

  

3

  

2

    
  

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

  

4,533

  

3,981

    
  

 

25


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

December 31, 2002

Notes to the Consolidated Financial Statements

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

 


 

 

6.   PROPERTY, PLANT AND EQUIPMENT, continued

 

The depreciation charge to income of property, plant and equipment was calculated as described in note 1 (e) and was as follows:

 

    

As of December 31,


    

2001 ThUS$


  

2002 ThUS$


Depreciation of:

         

Property, plant and equipment (excluding land and forests)

  

125,211

  

102,632

Technical revaluation

  

832

  

552

    
  

Total

  

126,043

  

103,184

    
  

 

Accumulated depreciation was as follows:

 

    

As of December 31,


    

2001

ThUS$


  

2002

ThUS$


Accumulated depreciation of:

         

Property, plant and equipment (excluding land and forests)

  

1,481,470

  

1,579,473

Technical revaluation

  

63,558

  

63,957

    
  

Total

  

1,545,028

  

1,643,430

    
  

 

Forests

 

The price-level restated cost and the commercial valuation increment of the forests, determined as described in note 1(e), was as follows:

 

    

As of December 31,


    

2001

ThUS$


  

2002

ThUS$


Price-level restated cost of forests

  

635,901

  

528,641

Commercial valuation increment

  

1,298,520

  

1,320,278

    
  

Total

  

1,934,421

  

1,848,919

    
  

 

26


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

December 31, 2002

Notes to the Consolidated Financial Statements

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

 


 

 

7.   INVESTMENTS IN RELATED COMPANIES

 

During 2002, Arauco made the following investments in related companies:

 

In March 2002, the Company acquired 5,814,617 shares in Paneles Arauco S.A. by making a capital contribution of US$ 20,339 thousand through the capitalization of a loan. Forestal Arauco S.A. acquired 188,769 shares by making a capital contribution of US$ 660 thousand. As a result, the Company now holds a 99% controlling interest and Forestal Arauco S.A. holds a 1% interest in Paneles Arauco S.A.

 

Between January and November, 2002 the Company and its subsidiary Arauco Internacional S.A. made a capital contribution of US$ 1,016 thousand in Forestal Conosur S.A.

 

In February 2002, the Company and its subsidiary Forestal Arauco S.A. made a capital contribution of US$30 thousand to form Forestal Arauco Costa Rica S.A.

 

Between April and May 2002, the Company made a capital contribution of US$ 294 thousand to form Arauco Do Brasil Ltda., a contribution equivalent to 99.99% of Arauco do Brasil’s paid-in capital.

 

In April 2002, the Company and its subsidiary Forestal Arauco S.A. made a capital contribution of US$ 6 thousand to form Agenciamiento y Servicios Profesionales S.A. de C.V.

 

During the first six months of 2002 the Company made a capital contribution of US$ 40 thousand to form Arauco Europe S.A.

 

On August 27, 2002, the Company acquired 7,622,489 shares of Inversiones Cholguán S.A. (the current Arauco Internacional S.A.), corresponding to approximately 98% participation in the former subsidiary of Forestal Cholguán S.A. The Company paid Ch$ 15,168,753 thousand, equivalent to US$ 21,210 thousand for the shares. At the end of 2002, Arauco Internacional S.A. is the parent company of most Arauco foreign subsidiaries.

 

In October 2002, the Company acquired 16.67% of Inversiones Puerto Coronel S.A. for US$4,500 thousand, obtaining US$ 2,599 thousand of goodwill in the process.

 

On November 20, 2002, Arauco’s subsidiary Arauco Wood Products, Inc. purchased 100% of Southwoods-Arauco Lumber LLC for US$ 4,900 thousand. The investment resulted in goodwill of US$ 1,500 thousand.

 

On December 11, 2002, the Company contributed directly and indirectly through Arauco Internacional S.A., the equivalent of 100,000 euros for the formation of Inversiones Celco S.L. in Spain.

 

On December 23, 2002, the Company contributed US$ 647,600 thousand in the form of shares of Industrias Forestales S.A. to participate in a capital increase of Inversiones Celco S.L. The company’s subsidiary Arauco Internacional S.A. contributed US$ 446 thousand in shares of Arauco Denmark ApS.

 

 

27


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

December 31, 2002

Notes to the Consolidated Financial Statements

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

 


 

 

During 2001, Arauco made the following investments in related companies:

 

Between January and December 2001 Arauco’s subsidiary Forestal Arauco S.A. purchased 377,485 shares of Forestal Cholguán S.A. for US$ 159 thousand. The investment resulted in negative goodwill of US$35 thousand for Forestal Arauco S.A.

 

In July 2001 the Company acquired 16.66% of Inversiones Puerto Coronel S.A. for the amount of US$3,060 thousand, resulting in goodwill of US$ 1,376 thousand.

 

On March 01, 2001, the Company made a contribution to Araucomex S.A. de C.V. in the amount of US$115 thousand, equivalent to 99% of its total capital.

 

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.

 

Liabilities that hedge investments in related companies

 

The Company maintains debt with financial institutions (Morgan Guaranty Trust) and with the public (the Company’s Yankee Bonds 2nd Issue) that were specifically designated as hedging instruments for the Company’s investment in Industrias Forestales S.A., in Argentina.

 

Dividends received

 

Arauco received dividends from Puerto de Lirquén S.A. totaling US$ 480 thousand in 2001 and US$687 thousand in 2002. In addition received US$ 115 thousand from Inversiones Puerto Coronel S.A. in 2002.

 

 

28


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

December 31, 2002

Notes to the Consolidated Financial Statements

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

 


 

 

7.   INVESTMENTS IN RELATED COMPANIES, continued

 

Investment in Alto Paraná S.A.

 

During June of 2001, Alto Paraná S.A. repurchased all of its preferred shares held by the Company. As a result of the repurchase the Company realized a portion of its cumulative translation adjustment related to this investment, in accordance with B.T. No. 64, in the amount of US$ 11,670 thousand. See note 23.

 

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

 

    

As of December 31,

 
    

Percentage

Participation


  

Investment

Value


  

Net income of investee


 
    

2001

%


  

2002

%


  

2001

ThUS$


  

2002

ThUS$


  

2001

ThUS$


    

2002

ThUS$


 

Puerto de Lirquén S.A.

  

20.14

  

20.14

  

13,797

  

13,785

  

993

 

  

1,513

 

Inversiones Puerto Coronel S.A.

  

33.33

  

50.00

  

3,950

  

6,618

  

500

 

  

1,016

 

Sociedad CDEC-SIC Ltda.

  

8.00

  

7.69

  

24

  

48

  

(5

)

  

(1

)

Servicios Corporativos Sercor S.A. (1)

  

20.00

  

20.00

  

307

  

317

  

(25

)

  

30

 

              
  
  

  

Total

            

18,078

  

20,768

  

1,463

 

  

2,558

 

              
  
  

  

 

 

29


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

December 31, 2002

Notes to the Consolidated Financial Statements

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

 


 

 

8.   GOODWILL AND NEGATIVE GOODWILL

 

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

 

    

As of December 31,


    

2001


  

2002


    

Amortization for the year

ThUS$


  

Balance of negative goodwill ThUS$


  

Amortization for the year

ThUS$


  

Balance of negative goodwill

ThUS$


Alto Paraná S.A.

  

25,834

  

2,386

  

1,419

  

967

Industrial y Forestal Misiones S.A.

  

12,114

  

12,114

  

12,114

  

—  

Licancel S.A.

  

907

  

2,495

  

907

  

1,587

Forestal Cholguán S.A.

  

4,720

  

15,131

  

4,424

  

9,777

Maderas Prensadas Cholguán S.A.

  

698

  

958

  

602

  

279

    
  
  
  

Total negative goodwill

  

44,273

  

33,084

  

19,466

  

12,610

    
  
  
  

 

b) Goodwill as of each year-end was as follows:

 

      

As of December 31,


      

2001


    

2002


      

Amortization for the year

ThUS$


  

Balance of goodwill

ThUS$


    

Amortization for the year

ThUS$


  

Balance of goodwill

ThUS$


Forestal El Aguaray S.A.

    

120

  

308

    

34

  

51

Paneles Arauco S.A.

    

786

  

2,947

    

786

  

2,162

Inversiones Puerto Coronel S.A.

    

140

  

1,257

    

1,016

  

241

Arauco Internacional S.A.

    

1

  

—  

    

—  

  

—  

Inversiones Puerto Coronel S.A.

    

—  

  

—  

    

2,599

  

—  

Southwoods-Arauco Lumber L.L.C.

    

—  

  

—  

    

—  

  

1,500

      
  
    
  

Total goodwill

    

1,047

  

4,512

    

4,435

  

3,954

      
  
    
  

 

 

30


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

December 31, 2002

Notes to the Consolidated Financial Statements

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

 


 

9.   OTHER NON-CURRENT ASSETS

 

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

 

    

As of December 31,


    

2001 ThUS$


  

2002 ThUS$


Recoverable taxes

  

37,549

  

19,208

Bond issue expenses

  

18,212

  

14,706

Discounts on bond issues

  

2,747

  

2,285

Financial instruments

  

536

  

479

Other

  

1,499

  

537

    
  

Total other non-current assets

  

60,543

  

37,215

    
  

 

10.   CURRENT BANK BORROWINGS

 

Current bank borrowings as of each period-end were as follows:

 

    

As of December 31,


    

2001 ThUS$


  

2002 ThUS$


Total outstanding

  

87

  

32,139

Principal outstanding

  

87

  

32,125

Weighted average annual interest rate

  

—  

  

—  

 

Current bank borrowings were denominated as follows:

 

    

As of December 31,


    

2001 ThUS$


  

2002 ThUS$


Obligations in foreign currency

  

61

  

32,078

Obligations in local currency

  

26

  

61

    
  

Total current bank borrowings

  

87

  

32,139

    
  

 

31


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

December 31, 2002

Notes to the Consolidated Financial Statements

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

 


 

11.   CURRENT LIABILITIES

 

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

 

    

As of December 31,


    

2001 ThUS$


  

2002 ThUS$


Current portion of bonds

  

32,193

  

109,396

Current portion of other long-term liabilities

  

1,056

  

278

Trade accounts payable

  

68,101

  

76,514

Notes payable

  

3

  

126

Accounts and notes payable to related parties

  

681

  

1,935

Current provisions

  

19,819

  

15,396

Sundry accounts payable and other liabilities

  

18,490

  

38,227

    
  

Total

  

140,343

  

241,872

    
  

 

(b)   The percentages of these obligations in foreign and local currency, excluding the effects of forward foreign exchange contracts and currency swaps, were as follows at period-end:
    

As of December 31,


    

2001

%


  

2002

%


Foreign currency

  

43.74

  

40.55

Local currency

  

56.26

  

59.45

    
  

Total

  

100.00

  

100.00

    
  

 

32


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

December 31, 2002

Notes to the Consolidated Financial Statements

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

 


 

 

12.   BONDS

 

Arauco had two series of domestic bonds and five series of Yankee Bonds outstanding as of December 31, 2002.

 

The balances of the bonds were as follows:

 

    

As of December 31,


    

2001

ThUS$


  

2002

ThUS$


Current

         

Series A bonds

  

4,063

  

2,326

Series B bonds

  

314

  

293

Yankee Bonds 1st Issue

  

518

  

80,733

Yankee Bonds 2nd Issue

  

8,381

  

8,381

Yankee Bonds 3rd Issue

  

9,703

  

8,749

Yankee Bonds 4th Issue

  

9,214

  

8,914

    
  

Total current (including accrued interest)

  

32,193

  

109,396

    
  

Long-term

         

Series A bonds

  

2,438

  

—  

Series B bonds

  

310

  

—  

Yankee Bonds 1st Issue

  

180,215

  

100,000

Yankee Bonds 2nd Issue

  

400,000

  

400,000

Yankee Bonds 3rd Issue

  

300,000

  

270,500

Yankee Bonds 4th Issue

  

400,000

  

387,000

    
  

Total long-term

  

1,282,963

  

1,157,500

    
  

Less total accrued interest

  

27,940

  

26,603

    
  

Total principal outstanding

  

1,287,216

  

1,240,293

    
  

 

33


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

December 31, 2002

Notes to the Consolidated Financial Statements

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

 


 

 

12.   BONDS, continued

 

These bonds have the following characteristics:

 

    

Domestic

Issue


  

Domestic

Issue


  

Yankee

Bonds 1st

Issue


  

Yankee

Bonds 2nd Issue


  

Yankee

Bonds 3rd

Issue


  

Yankee

Bonds 4th

Issue


Issue date

  

Jan. 28, 1991

  

Nov. 28, 1991

  

Dec.15, 1995

  

Oct. 3, 1997

  

Aug. 15, 2000

  

Sept. 10, 2001

Authorized Amount (nominal)

  

Series A

ThUF 4,800

  

Series A

ThUF 2,250

Series B

ThUF 250

  

8 years

ThUS$200,000

12 years

ThUS$ 100,000

  

8 years

ThUS$ 175,000

12 years

ThUS$ 100,000

  

10 years

ThUS$ 300,000

  

10 years

ThUS$400,000

                   

20 years

ThUS$ 125,000

         

Issue amount

  

Series A

ThUF 4,800

  

Series A

ThUF 1,650

Series B

ThUF 160

  

8 years

ThUS$200,000

12 years

ThUS$100,000

  

8 years

ThUS$ 175,000

12 years

ThUS$ 100,000

  

10 years

ThUS$300,000

  

10 years

ThUS$400,000

                   

20 years

ThUS$ 125,000

         

Amounts Authorized but not issued

       

Series A

ThUF 600

Series B

ThUF 90

                   

Principal Repayment

  

Semi-annually

Between

Aug.1995

And

Feb.2003

  

Semi-annually

Between

Jun.1994

And

Dec.2003

  

8 years

Dec. 2003

12 years

Dec.2007

  

8 years

September 2005

12 years

September 2009

20 years

September 2017

  

August 2010

  

September 2011

Interest rate (excluding effects of any interest rate swap)

  

Series A 6%

  

Series A and B 6%

  

8 years 6.75%

12 years 7.00%

  

8 years 6.95%

12 years 7.20%

20 years 7.50%

  

8.62 %

  

7.75%

Interest Payment

  

Semi-annually

  

Semi-annually

  

Semi-annually

  

Semi-annually

  

Semi-annually

  

Semi-annually

 

 

34


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

December 31, 2002

Notes to the Consolidated Financial Statements

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

 


 

12.   BONDS, continued

 

As of December 31, 2002, the principal and interest amounts due with respect to these bonds were as follows:

 

Year


  

ThUS$


2003 (*)

  

26,603

2004

  

182,793

2005

  

—  

2006

  

175,000

2007 and thereafter

  

882,500

    

Total

  

1,266,896

    

 

(*) This amount includes US$ 26,603 thousand of accrued interest.

 

The principal financial covenants contained in the instruments or agreements with respect to such bonds are as follows:

 

  ·   Arauco’s debt to equity ratio must not exceed the ratio of 1:2.1

 

  ·   Arauco’s current liabilities must not exceed its current assets.

 

35


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

December 31, 2002

Notes to the Consolidated Financial Statements

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

 


 

13.   ACCRUED LIABILITIES

 

(a)   Accrued liabilities were as follows:

 

    

As of December 31,


    

2001

ThUS$


  

2002

ThUS$


Accrued liabilities

         

Accrual for staff vacations

  

3,712

  

4,140

Plant maintenance accrual

  

5,818

  

3,997

Standby letters of credit

  

710

  

631

Accrual for contingencies

  

1,630

  

—  

Staff severance indemnities

  

470

  

488

Selling and other transportation costs provisions

  

1,453

  

1,116

Electrical expense provision

  

1,326

  

789

Pending monthly provisional payments

  

287

  

290

Salary and benefits of the staff

  

1,460

  

1,385

Forestry activity expenses

  

75

  

565

Other current liabilities

  

2,878

  

1,995

    
  

Total accrued liabilities

  

19,819

  

15,396

    
  

 

(b)   Liability for staff severance indemnities

 

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

 

    

As of December 31,


 
    

2001

ThUS$


    

2002

ThUS$


 

Balance at beginning of year

  

7,679

 

  

8,070

 

Provision during the year

  

1,313

 

  

1,257

 

Provision in asset

  

—  

 

  

161

 

Payments during the year

  

(720

)

  

(815

)

    

  

Balance as of period-end

  

8,272

 

  

8,673

 

    

  

 

    

As of December 31,


    

2001

ThUS$


  

2002

ThUS$


Shown in the balance sheet as:

         

Current

  

470

  

488

Long-term

  

7,802

  

8,185

    
  

Total

  

8,272

  

8,673

    
  

 

36


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

December 31, 2002

Notes to the Consolidated Financial Statements

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 period-end were as follows:

 

           

As of December 31,

2001


  

As of December 31,

2002


Bank or financial institution


    

Denomination


  

Long-term Portion


  

Short-term

Portion


  

Long-term

Portion


  

Short-term

Portion


           

ThUS$

  

ThUS$

  

ThUS$

  

ThUS$

Morgan Guaranty Trust Company (1) (a)

    

US$

  

37,500

  

37,622

  

—  

  

37,534

J.P. Morgan–Chase (1) (b)

    

US$

  

250,000

  

928

  

250,000

  

3,850

Tesoro Argentino (2)

    

US$

  

2,170

  

301

  

2,363

  

568

           
  
  
  

Total long-term bank borrowings

         

289,670

  

38,851

  

252,363

  

41,952

           
  
  
  

The weighted average interest rates for foreign currency-denominated debt for the periods ended December 2001 and 2002 were 3.62% and 2.23%, respectively. Arauco enters into forward foreign exchange contracts and currency swap agreements to swap certain amounts of its non-US dollar denominated payment obligations for US dollar-denominated payment obligations.

 

The UF rate has been expressed as an interest spread in excess of the indexation of the UF. See note 1 (b).

 

Six month LIBOR at December 31, 2001 and 2002 was 6.20% and 1.38%, respectively.

 

37


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

December 31, 2002

Notes to the Consolidated Financial Statements

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

 


 

 

14.   LONG-TERM BANK BORROWINGS, continued

 

(1) Alto Paraná Loans

 

a) The Company obtained a US$ 150 million loan in order to repay outstanding debt. The loan is denominated in US dollars, and has a variable interest rate of LIBOR plus 0.35%. Interest payments are due quarterly, while the loan principal is repayable in four annual payments, which began on March 20, 2000.

 

b)The Argentine subsidiary Alto Paraná S.A. obtained a US$ 250 million loan in order to redeem preferred equity shares. The loan is denominated in US dollars, and has a variable interest rate of LIBOR plus a market spread.

 

(2) Tesoro Argentino

 

Alto Paraná owed an aggregate principal amount of US$ 13 million and additional accrued interest payable to the Argentine government in respect of certain loans originally made by Banco Nacional de Desarrollo to Alto Paraná. These loans were originally covered by guarantees issued by the governments of other countries which sought reimbursement from the Argentine government for payment made under these guarantees. The Argentine government renegotiated its debt with the “Paris Club” countries and, pursuant to Resolution 40/95 issued by the Ministry of Economy and Public Works and Services, has extended these terms to the Argentine companies that originally incurred this debt, including Alto Paraná. According to their terms, those Governmental Obligations have been restructured to mature in installments between 1995 and 2008 and accrue interest at a contractual rate of LIBOR plus a spread of up to 0.625%.

 

38


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

December 31, 2002

Notes to the Consolidated Financial Statements

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

 


 

14.   LONG-TERM BANK BORROWINGS, continued

 

(b)   Debt distribution

As of December 31, 2001 and 2002 long-term bank borrowings, including both the current portion and interest accrued, were denominated almost exclusively in foreign currencies.

 

(c)   Maturity of long-term bank borrowings

As of December 31, 2002, the maturities of long-term bank borrowings payable were as follows:

 

Year


  

ThUS$


2003

  

41,952

2004

  

100,343

2005

  

100,414

2006

  

51,049

2007 and thereafter

  

557

    

Total

  

294,315

    

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.

 

39


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

December 31, 2002

Notes to the Consolidated Financial Statements

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 compute 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 US$ 15,870 thousand and US$40,652 thousand for the periods ended December 31, 2001 and 2002, respectively. Furthermore, Arauco established provisions for US$ 68 thousand as of December 31, 2001 and US$ 90 thousand as of December 31, 2002 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,


 
    

2001 ThUS$


    

2002 ThUS$


 

Income tax

  

(15,870

)

  

(40,652

)

Provisions estimated in accordance with Article N° 21 of the Income Tax Law in Chile

  

(68

)

  

(90

)

Deferred income tax

  

14,085

 

  

14,814

 

Tax benefits for tax losses

  

5,388

 

  

810

 

Amortization of complementary accounts

  

(2,430

)

  

(952

)

Adjustment expense taxes last year

  

(184

)

  

233

 

Changes in valuation provision

  

—  

 

  

(12,258

)

    

  

Total Income Tax

  

921

 

  

(36,191

)

    

  

 

(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, 2002 were as follows:

 

    

Retained Earnings


  

Shareholders’

Tax

Credit

ThUS$


    

With

Credit ThUS$


  

Without

Credit ThUS$


  

Balance as of December 31, 2000

  

4,627

  

54

  

817

Balance as of December 31, 2001

  

27,961

  

1,150

  

4,934

Balance as of December 31, 2002

  

85,355

  

16,065

  

16,243

    
  
  

Total

  

117,943

  

17,269

  

21,994

    
  
  

 

40


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

December 31, 2002

Notes to the Consolidated Financial Statements

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

 


 

 

15.   INCOME TAXES, continued

 

(c)   Deferred taxation

 

As explained in note 1 (g), as of December 31, 2001 and 2002, Arauco recorded accumulated deferred taxes arising from temporary differences, as follows:

 

    

As of December 31, 2001


 
    

Deferred tax assets


    

Deferred tax liabilities


 
    

Current ThUS$


    

Long term ThUS$


    

Current ThUS$


    

Long term ThUS$


 

Allowance for doubtful accounts

  

1,133

 

  

121

 

  

—  

 

  

—  

 

Deferred revenues

  

228

 

  

35

 

  

—  

 

  

—  

 

Accrual for staff vacations

  

826

 

  

—  

 

  

—  

 

  

—  

 

Production costs

  

—  

 

  

—  

 

  

6,310

 

  

43

 

Property, plant and equipment depreciation

  

—  

 

  

—  

 

  

—  

 

  

76,082

 

Capitalized expenses

  

—  

 

  

—  

 

  

761

 

  

2,228

 

Obsolescence reserve

  

573

 

  

—  

 

  

—  

 

  

—  

 

Debt issue and project expenses

  

—  

 

  

—  

 

  

—  

 

  

8,613

 

Staff severance indemnities

  

958

 

  

352

 

  

—  

 

  

—  

 

Leasing assets

  

77

 

  

9

 

  

71

 

  

45

 

Tax loss carry forwards

  

3,678

 

  

3,615

 

  

—  

 

  

—  

 

Property, plant and equipment valuation

  

—  

 

  

92,689

 

  

—  

 

  

33,749

 

Accrual for contingencies

  

1,256

 

  

—  

 

  

—  

 

  

—  

 

Plant maintenance accrual

  

676

 

  

—  

 

  

—  

 

  

—  

 

Argentine peso devaluation

  

2,586

 

  

10,346

 

  

—  

 

  

—  

 

Other

  

797

 

  

774

 

  

249

 

  

853

 

    

  

  

  

Total

  

12,788

 

  

107,941

 

  

7,391

 

  

121,613

 

    

  

  

  

Complementary accounts, net of accumuated amortization (1)

  

(650

)

  

(52,980

)

  

(68

)

  

(37,857

)

Valuation provision

  

—  

 

  

(43,070

)

  

—  

 

  

—  

 

    

  

  

  

Total

  

12,138

 

  

11,891

 

  

7,323

 

  

83,756

 

    

  

  

  

 

41


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

December 31, 2002

Notes to the Consolidated Financial Statements

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

 


 

 

15.   INCOME TAXES, continued

 

(c)   Deferred taxation, continued

 

    

As of December 31, 2002


 
    

Deferred tax assets


    

Deferred tax liabilities


 
    

Current

    

Long term

    

Current

    

Long term

 
    

ThUS$


    

ThUS$


    

ThUS$


    

ThUS$


 

Allowance for doubtful accounts

  

770

 

  

131

 

  

—  

 

  

—  

 

Deferred revenues

  

967

 

  

39

 

  

—  

 

  

—  

 

Accrual for staff vacations

  

588

 

  

—  

 

  

—  

 

  

—  

 

Production costs

  

—  

 

  

—  

 

  

5,517

 

  

—  

 

Capitalized expenses

  

—  

 

  

—  

 

  

1,758

 

  

3,876

 

Property, plant and equipment depreciation

  

—  

 

  

—  

 

  

—  

 

  

74,867

 

Staff severance indemnities

  

997

 

  

396

 

  

—  

 

  

—  

 

Debt issue and project expenses

  

—  

 

  

—  

 

  

—  

 

  

8,457

 

Obsolescence reserve

  

681

 

  

—  

 

  

—  

 

  

—  

 

Accrual for contingencies

  

358

 

  

—  

 

  

—  

 

  

—  

 

Tax loss carryforwards

  

25,563

 

  

5,841

 

  

—  

 

  

—  

 

Property, plant and equipment valuation

  

—  

 

  

28,823

 

  

—  

 

  

16,645

 

Leasing assets

  

70

 

  

—  

 

  

68

 

  

33

 

Plant maintenance accrual

  

650

 

  

—  

 

  

—  

 

  

—  

 

Impact of devaluation of Argentine peso

  

1,477

 

  

5,908

 

  

—  

 

  

—  

 

Other

  

1,851

 

  

303

 

  

74

 

  

812

 

    

  

  

  

Total

  

33,972

 

  

41,441

 

  

7,417

 

  

104,690

 

    

  

  

  

Complementary accounts, net of accumulated amortization (1)

  

(91

)

  

(15,882

)

  

(135

)

  

(15,474

)

Valuation provision

  

(1,098

)

  

(24,075

)

  

—  

 

  

—  

 

    

  

  

  

Total

  

32,783

 

  

1,484

 

  

7,282

 

  

89,216

 

    

  

  

  

 

(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 US$ 289 thousand during the period ending December 31, 2001 and US$ 631 thousand during the period ending December 31, 2002.

 

42


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

December 31, 2002

Notes to the Consolidated Financial Statements

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 local and foreign currency equivalent at each year-end.

 

         

At December 31,


    

Currency


  

2001

ThUS$


  

2002

ThUS$


Assets

              

Current Assets:

              

Cash and banks

  

US$

  

3,791

  

7,209

Cash and banks

  

Ch$

  

1,382

  

1,798

Cash and banks

  

Other currencies

  

1,535

  

527

Time deposits and marketable securities

  

US$

  

162,570

  

171,697

Time deposits and marketable securities

  

Ch$

  

60,902

  

30,989

Time deposits and marketable securities

  

Other currencies

  

199,607

  

167,161

Trade accounts receivable

  

US$

  

176,697

  

155,907

Trade accounts receivable

  

Ch$

  

22,585

  

18,815

Trade accounts receivable

  

Other currencies

  

4,327

  

6,158

Other accounts receivable

  

US$

  

9,530

  

17,571

Other accounts receivable

  

Ch$

  

15,556

  

13,386

Other accounts receivable

  

Other currencies

  

—  

  

217

Inventories

  

US$

  

63,060

  

179,097

Inventories

  

Ch$

  

325,522

  

213,690

Other current assets

  

US$

  

29,133

  

136,253

Other current assets

  

Ch$

  

76,952

  

24,092

Other current assets

  

Other currencies

  

—  

  

332

         
  

Total current assets

       

1,153,149

  

1,144,899

         
  

Property, plant and equipment and other assets:

              

Property, plant and equipment

  

US$

  

1,058,695

  

1,728,193

Property, plant and equipment

  

Ch$

  

2,699,970

  

2,110,045

Other assets

  

US$

  

48,514

  

43,915

Other assets

  

Ch$

  

8,287

  

10,092

         
  

Total property, plant and equipment and other assets

       

3,815,466

  

3,892,245

         
  

Total assets

       

4,968,615

  

5,037,144

         
  

 

43


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

December 31, 2002

Notes to the Consolidated Financial Statements

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


  

2001
ThUS$


  

2002
ThUS$


Liabilities

              

Current liabilities:

              

Current bank borrowings

  

US$

  

62

  

32,034

Current bank borrowings

  

Ch$

  

25

  

61

Current bank borrowings

  

Other currencies

  

—  

  

44

Current portion of long-term bank borrowings

  

US$

  

38,851

  

41,952

Current portion of bonds

  

US$

  

27,816

  

106,777

Current portion of bonds

  

Ch$

  

4,377

  

2,619

Notes and trade accounts payable

  

US$

  

27,627

  

25,881

Notes and trade accounts payable

  

Ch$

  

40,301

  

48,147

Notes and trade accounts payable

  

Other currencies

  

176

  

2,612

Other current liabilities

  

US$

  

14,616

  

17,097

Other current liabilities

  

Ch$

  

25,430

  

38,739

         
  

Total current liabilities

       

179,281

  

315,963

         
  

Long-term liabilities:

              

Long-term bank borrowings

  

US$

  

289,670

  

252,363

Bonds

  

US$

  

1,280,215

  

1,157,500

Bonds

  

Ch$

  

2,748

  

—  

Other long-term liabilities

  

US$

  

13,534

  

1,289

Other long-term liabilities

  

Ch$

  

80,196

  

96,446

         
  

Total long-term liabilities

       

1,666,363

  

1,507, 598

         
  

Total liabilities

       

1,845,644

  

1,823,561

         
  

 

44


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

December 31, 2002

Notes to the Consolidated Financial Statements

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

 


 

18. BALANCES AND TRANSACTIONS WITH RELATED PARTIES

 

    

As of December 31,


Company


  

Relationship


  

2001 ThUS$


  

2002 ThUS$


  

Transaction


(a) Current assets

                   

Cía. de Seguros Generales Cruz del Sur S.A.

  

Affiliate

  

710

  

—  

  

Accounts receivable

         
  
    

Total current assets

       

710

  

—  

    
         
  
    

(b) Current liabilities

                   

Compañía de Petróleos de Chile S.A.

  

Shareholder

  

174

  

472

  

Accounts payable

Puerto de Lirquén S.A.

  

Affiliate

  

235

  

175

  

Accounts payable

Compañía Puerto de Coronel S.A.

  

Affiliate

  

164

  

31

  

Accounts payable

Abastible S.A.

  

Affiliate

  

5

  

39

  

Accounts payable

Sigma Servicios Informáticos S.A.

  

Affiliate

  

5

  

—  

  

Accounts payable

Servicios Corporativos Sercor S.A.

  

Affiliate

  

—  

  

33

  

Accounts payable

Fundación Educacional Arauco

  

Affiliate

  

89

  

149

  

Accounts payable

Compañía de Turismo de Chile Ltda.

  

Affiliate

  

9

  

—  

  

Accounts payable

Cía. de Seguros Generales Cruz del Sur S.A.

  

Affiliate

  

—  

  

1,036

  

Accounts payable

         
  
    

Total current liabilities

  

681

  

1,935

    
         
  
    

 

45


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

December 31, 2002

Notes to the Consolidated Financial Statements

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

 


 

 

18.   BALANCES AND TRANSACTIONS WITH RELATED PARTIES, continued

 

During the year-ended December 31, 2001 and 2002, Arauco had the following related party transactions that affected net income:

 

        

Purchases (sales)

Year ended December 31,


 
        

2001

    

2002

 
        

ThUS$


    

ThUS$


 

(a)

 

Compañía de Petróleos de Chile S.A.:

             
   

Purchases of fuel

  

10,990

 

  

12,128

 

   

Other Sales

  

(1

)

  

(1

)

(b)

 

Puerto de Lirquén S.A.:

             
   

Port services

  

1,563

 

  

2,046

 

(c)

 

ABC Comercial S.A.:

             
   

Other Purchases

  

7

 

  

81

 

(d)

 

Abastible S.A.:

             
   

Purchases of fuel

  

279

 

  

217

 

(e)

 

Frontel S.A.:

             
   

Electric power purchases

  

59

 

  

—  

 

(f)

 

Compañía de Seguros

             
   

Generales Cruz del Sur S.A.:

             
   

Direct insurance premiums

  

7,210

 

  

2,990

 

(g)

 

Compañía de Turismo de Chile Ltda.

             
   

Purchase of tickets

  

114

 

  

—  

 

(h)

 

Cía. Puerto de Coronel S.A:

             
   

Stockpiling services

  

2,159

 

  

695

 

   

Other sales

  

—  

 

  

(1

)

(i)

 

Soc. Austral de Electricidad S.A.

         

—  

 

   

Electric power purchases

  

30

 

  

—  

 

   

Other sales

  

(2

)

  

—  

 

(j)

 

Sigma Servicios Informáticos S.A.

             
   

Processing service

  

31

 

  

—  

 

(k)

 

Portaluppi, Guzmán y Bezanilla Abogados

             
   

Legal advice

  

(695

)

  

(277

)

 

46


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

December 31, 2002

Notes to the Consolidated Financial Statements

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

 


 

 

19.   CONTINGENCIES AND COMMITMENTS

 

(a)   Arauco

 

Arauco is not currently involved in any court proceedings or other legal actions which could significantly affect its financial or operational condition.

 

The liabilities included in current and long-term bank borrowings require Arauco to comply with certain financial restrictions. Non-compliance could result in these debts becoming fully payable upon demand.

 

The minimum financial restrictions are:

 

i) The debt ratio must not be higher than 1.2.

ii) The current ratio must not be less than 1.0.

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

 

47


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

December 31, 2002

Notes to the Consolidated Financial Statements

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, 2001 and 2002 are as follows:

 

December 31, 2001


  

Paid-in capital ThUS$


  

Share premium ThUS$


  

Forestry and other reserves ThUS$


    

Retained earnings from prior years ThUS$


    

Interim dividends ThUS$


    

Net income for the year ThUS$


    

Total

ThUS$


 

Balance as of December 31, 2000

  

337,100

  

5,455

  

1,348,442

 

  

961,709

 

  

(65,386

)

  

283,940

 

  

2,871,260

 

Prior period income allocation

  

—  

  

—  

  

—  

 

  

283,940

 

  

—  

 

  

(283,940

)

  

—  

 

Equity price level restatement

  

10,451

  

170

  

41,638

 

  

35,211

 

  

—  

 

  

—  

 

  

87,470

 

Dividends paid

  

—  

  

—  

  

—  

 

  

(122,773

)

  

65,386

 

  

—  

 

  

(57,387

)

Cumulative translation adjustment

  

—  

  

—  

  

29,030

 

  

—  

 

  

—  

 

  

—  

 

  

29,030

 

Forestry reserve

  

—  

  

—  

  

54,461

 

  

—  

 

  

—  

 

  

—  

 

  

54,461

 

Forestry reserve adjustment related to subsidiaries

  

—  

  

—  

  

(2,670

)

  

—  

 

  

—  

 

  

—  

 

  

(2,670

)

Interim dividends

  

—  

  

—  

  

—  

 

  

—  

 

  

(5,357

)

  

—  

 

  

(5,357

)

Net income for the year

  

—  

  

—  

  

—  

 

  

—  

 

  

—  

 

  

139,910

 

  

139,910

 

    
  
  

  

  

  

  

Balance as of December 31, 2001

  

347,551

  

5,625

  

1,470,901

 

  

1,158,087

 

  

(5,357)

 

  

139,910

 

  

3,116,717

 

    
  
  

  

  

  

  

 

48


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

December 31, 2002

Notes to the Consolidated Financial Statements

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

 


 

 

20.   SHAREHOLDERS’ EQUITY, continued

 

December 31, 2002


  

Paid-in

capital

  

Share

premium

  

Forestry

and other

reserves

    

Earnings

from prior

years

    

Interim

dividends

    

Net

income

for the

year

    

Total

 
    

ThUS$


  

ThUS$


  

ThUS$


    

ThUS$


    

ThUS$


    

ThUS$


    

ThUS$


 

Balance as of December 31, 2001

  

347,551

  

5,625

  

1,470,901

 

  

1,158,087

 

  

(5,357

)

  

139,910

 

  

3,116,717

 

Prior period income allocation

  

—  

  

—  

  

—  

 

  

139,910

 

  

—  

 

  

(139,910

)

  

—  

 

Dividends paid

  

—  

  

—  

  

—  

 

  

(38,254

)

  

5,357

 

  

—  

 

  

(32,897

)

Cumulative translation adjustment

  

—  

  

—  

  

49

 

  

—  

 

  

—  

 

  

—  

 

  

49

 

Forestry reserve

  

—  

  

—  

  

25,578

 

  

—  

 

  

—  

 

  

—  

 

  

25,578

 

Forestry reserve adjustment related to subsidiaries

  

—  

  

—  

  

(3,820

)

  

—  

 

  

—  

 

  

—  

 

  

(3,820

)

Conversion adjustment related to subsidiaries

  

—  

  

—  

  

(136,678

)

  

—  

 

  

—  

 

  

—  

 

  

(136,678

)

Interim dividends

  

—  

  

—  

  

—  

 

  

—  

 

  

(38,682

)

  

—  

 

  

(38,682

)

Net income for the year

  

—  

  

—  

  

—  

 

  

—  

 

  

—  

 

  

277,189

 

  

277,189

 

    
  
  

  

  

  

  

Balance as of December 31, 2002

  

347,551

  

5,625

  

1,356,030

 

  

1,259,743

 

  

(38,682

)

  

277,189

 

  

3,207,456

 

    
  
  

  

  

  

  

 

The number of shares authorized, issued and outstanding as of December 31, 2001 and 2002 was 113,152,446. The Company’s shares are of a single series without a fixed nominal value.

 

49


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

December 31, 2002

Notes to the Consolidated Financial Statements

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

 


 

 

21.   SALES REVENUE

 

Arauco’s sales revenues were derived from export and domestic sales of the following products:

 

    

As of December 31,


    

2001

ThUS$


  

2002

ThUS$


Export sales

         

Bleached pulp

  

504,517

  

465,494

Unbleached pulp

  

144,450

  

128,504

Sawlogs

  

181

  

2,916

Flitches

  

5,324

  

6,027

Sawn timber

  

113,353

  

155,170

Remanufactured wood products

  

96,957

  

128,274

Plywood and fiber panels

  

90,424

  

132,753

Posts

  

5,551

  

7,451

    
  

Total export sales revenue

  

960,757

  

1,026,589

    
  

Domestic sales

         

Bleached pulp

  

35,034

  

32,967

Unbleached pulp

  

1,064

  

1,799

Sawlogs

  

15,865

  

14,041

Pulplogs

  

10,785

  

6,692

Sawn timber

  

46,392

  

44,724

Remanufactured wood products

  

12,658

  

9,090

Chips

  

1,213

  

653

Electric power

  

3,121

  

4,591

Plywood and fiber panels

  

46,352

  

45,644

Other

  

5,861

  

1,228

    
  

Total domestic sales revenue

  

178,345

  

161,429

    
  

Total sales revenue

  

1,139,102

  

1,188,018

    
  

 

50


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

December 31, 2002

Notes to the Consolidated Financial Statements

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

 


 

 

22.   OPERATING COSTS

 

(a)   Cost of sales

 

Arauco’s cost of sales consisted of the following:

 

    

As of December 31,


    

2001 ThUS$


  

2002 ThUS$


Timber

  

121,161

  

105,057

Chemical products

  

60,447

  

55,070

Maintenance costs

  

55,908

  

42,010

Depreciation

  

120,405

  

96,984

Energy and fuel costs

  

22,686

  

19,298

Forestry works

  

119,014

  

122,916