EX-99.1 2 dex991.htm UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Unaudited consolidated financial statements
Table of Contents

Exhibit 99.1

ARAUCO AND CONSTITUTION PULP INC

TABLE OF CONTENTS

 

Item

        Page

1.

   Ratio Analysis of the Consolidated Financial Statements    1

2.

   Unaudited Consolidated Classified Financial Statements    8

3.

   Unaudited Consolidated Classified Financial Income Statements    10

4.

   Unaudited Consolidated Statement of Changes in Net Equity    11

5.

   Unaudited Consolidated Statement of Cash Flows    12

6.

   Unaudited Notes to the Consolidated Financial Statements    13

7.

   Annex: Press Release   


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statement

March 31, 2009

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 International Financial Reporting Standards (IFRS). In management’s opinion there is no material difference between the Company’s economic value and the valuation reflected in the Company’s financial statements.

 

2. ANALYSIS OF FINANCIAL POSITION

 

a) Analysis of the Balance Sheet

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

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

The principal components of assets and liabilities as of December 31, 2008 and March 31, 2009 are as follows:

 

Assets

   03/31/2009
ThU.S.$
   12/31/2008
ThU.S.$

Current assets

   2,207,960    1,963,036

Other assets

   8,276,314    8,257,444
         

Total assets

   10,484,274    10,220,480
         

Liabilities and Shareholders’ Equity

   03/31/2009
ThU.S.$
   12/31/2008
ThU.S.$

Current liabilities

   899,001    812,915

Long-term liabilities

   3,588,141    3,418,195

Minority interest

   118,736    120,608

Shareholders’ equity

   5,878,396    5,868,762
         

Total liabilities and shareholders’ equity

   10,484,274    10,220,480
         

Total assets increased by 3%, or U.S.$264 million, from December 31, 2008 to March 31, 2009. This increase is mainly attributable to an increase in property, plant and equipment, financial assets, tax receivables partially offset by a decrease in trade and other receivables.

Total liabilities increased by U.S.$256 million from December 31, 2008 to March 31, 2009. This increase is mainly attributable to a net increase in bank obligations, publicly issued bonds and deferred tax.

 

1


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statement

March 31, 2009

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

 

 

 

2. ANALYSIS OF FINANCIAL POSITION, continued

 

a) Analysis of the Balance Sheet, continued

The main financial and operating ratios are as follows:

 

Liquidity ratios

   03/31/2009    12/31/2008

Current ratio

   2.46    2.41

Acid ratio

   1.37    1.22

The liquidity ratio for the current year represents an increase, due to a higher proportional increase of the current assets with respect to the current liabilities, which in turn is explained by an increase in financial assets and tax receivables, partially offset by a decrease in trade and other receivables and an increase in bank obligations and bonds.

The increase in the current acid ratio from 2008 to 2009 is attributable to an increase in financial assets and tax receivables.

 

Debt indicators

   03/31/2009    12/31/2008

Debt to equity ratio

   0.75    0.71

Short-term debt to total debt

   0.20    0.19

Long-term debt to total debt

   0.80    0.81
     03/31/2009    03/31/2008

Financial expenses covered

   1.51    5.75

Current liabilities increased modestly from 19% of total liabilities as of December 31, 2008 to 20% of total liabilities as of March 31, 2009. The increase is attributable to a higher proportional increase in current liabilities and a decrease in long-term liabilities, due to an increase in bank obligations.

The ratio of financial expenses covered decreased from 5.75 points in March 2008 to 1.51 points in March 31, 2009. The decrease is attributable to a higher decrease in current profits related to financial expenses.

 

Operational ratios

   03/31/2009    12/31/2008

Inventory turnover

   0.50    2.59

Inventory turnover (excluding forests)

   0.69    0.69

Inventory permanence (days)

   181.58    181.58

Inventory permanence (excluding forests)

   129.74    129.74

The ratio of inventory turnover decreased from 2.59% as of December 31, 2008 to 0.50% points as of March 31, 2009. For this reason, the inventory permanence ratio increased during the period ended March 31, 2009, due to a proportionally higher increase in production volume with regard to the increase in sales.

 

2


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statement

March 31, 2009

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

 

 

 

2. ANALYSIS OF FINANCIAL POSITION, continued

 

b) Analysis of the Income Statement

The breakdown of operating income and costs is as follows:

 

Operating income

   03/31/2009
ThU.S.$
   03/31/2008
ThU.S.$

Pulp

   362,239    488,396

Sawn timber and cut wood

   99,807    190,059

Plywood and fiber panels

   175,101    233,517

Forestry products

   19,290    37,024

Other

   3,703    12,250
         

Total operating income

   660,140    961,246
         

 

Operating costs

   03/31/2009
ThU.S.$
   03/31/2008
ThU.S.$

Timber

   155,770    149,880

Forestry work

   68,665    90,859

Depreciation

   42,784    45,795

Other costs

   215,000    257,103
         

Total operating costs

   482,219    543,637
         

Analysis of Gross Profit

Gross Profit includes net income of U.S.$118 million in 2009 compared to U.S.$418 million in 2008, a decrease of U.S.$301 million, caused by a proportional decrease in revenues.

Analysis of Profit before Income Tax

The Profit before Income Tax registers a profit of U.S.$21 million in 2009, compared to U.S.$235 million in 2008. The change was primarily caused as described in the following table:

 

Item

   Million
U.S.$
 

Gross profit

   (240

Other operating income

   27   

Distribution costs

   33   

Foreign currency exchange rate

   (35

Others net

   1   
      

Net change in outcome before income tax

   (214
      

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

 

3


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statement

March 31, 2009

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

 

 

 

2. ANALYSIS OF FINANCIAL POSITION, continued

 

Profitability ratios

   03/31/2009     03/31/2008  

Income per share (U.S.$)

   0.12      1.65   

EBITDA*

   107,303      332,936   

Income after tax (ThU.S.$)

   14,182      189,484   

Gross profit ThU.S.$

   177,921      417,609   

Financial expenses ThU.S.$

   (41,550   (49,488

 

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

 

3. MARKET SITUATION

Pulp

The international economic crisis has continued to impact the world paper market, especially in Europe and North America. After a strong price decline suffered during the last quarter of 2008, the first quarter of 2009 has continued with a decrease in pulp prices but at a lower rate. Towards the end of the first quarter of 2009, some markets have started to show a slight recovery in pulp prices, especially in Asia.

Consumption volume has also dropped due to an important fall in paper production. However, at the price levels experienced during this first quarter, the less competitive pulp producers have restricted supply, contributing to a better balance of demand and supply in some markets. This has helped to decrease stock levels by approximately 12% during the period.

A more challenging scenario is facing the European market, with no obvious signs of recovery in the paper industry. On the contrary, important adjustments in terms of paper plant closings are still expected to occur, with the consequent lower demand for pulp in these markets. A priority objective for this quarter has been to reduce inventory levels in Europe, which demanded a series of logistic changes that began in March. A fall in Arauco’s inventories in Europe should be seen during the second half of 2009.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statement

March 31, 2009

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

 

 

 

3. MARKET SITUATION, continued

During the next few months, we expect some signs of market stability and even recovery in prices and demand, especially in Asia and in particular China and Korea. We expect an increase in prices in Asia during the second quarter along with higher sales volumes in these markets. This higher demand for pulp and a possible reduction in inventory levels in Europe will allow us to reduce our total inventories compared to the beginning of 2009, bringing us to average historic levels. We estimate the North American and European markets will continue with a reduced demand, especially as we get closer to the Northern Hemisphere’s summer, which is commonly a period of lower activity in the paper industry.

Our cost-cutting program initiated the last quarter of 2008, along with our plants operating at full capacity, has been key to mitigate the effects of this difficult first quarter.

Sawn Timber

The US Housing industry continued its downward trend during the first quarter of 2009. Homebuilding is still declining, reaching levels of approximately 500,000 houses per year by March, compared negatively to 2 million houses per year two years ago. Current construction levels are the lowest in the last 50 years. This is negatively affecting sales volumes of moldings and wood products compared to the first quarter of last year. Prices of moldings and wood products in the US continued its downward trend during the first quarter of 2009.

During the first quarter of this year we experienced a lower demand of forestry products in all of the markets we serve. As a consequence, our sales prices for wood products have also declined. Forestry products in general have reached historically low prices, and as a consequence many sawmill and remanufacturing plants have suffered temporary or permanent closures around the world.

 

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Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statement

March 31, 2009

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

 

 

 

3. MARKET SITUATION, continued

Panels

During the first quarter of 2009, sales of panels reached U.S. $175 million, which was a decrease of 25.2% compared to the first quarter of 2008. This decrease in sales is mainly due to lower sales volume of 15.2% and lower prices of 11.8%.

Panel sales decreased by 16.0% in the first quarter of this year as compared to the U.S. $208 million obtained in the fourth quarter of 2008. This decrease is mainly explained by lower sales volume of 3.5% and lower average prices of 12.9%.

Beginning in 2009, our plywood sales have continued their downward trend both in volume and price across all markets, especially in Europe and followed by the US. The international economic crisis along with the currency devaluation of markets we serve have put a downward pressure over our prices in order to be competitive.

Our MDF molding sales experienced a sharp decline in volume mainly due to lower activity in the US and Canadian construction markets, however prices remained stable.

On a brighter note, the Mexican and Latin American markets have remained relatively stable, with enough sales volume of MDF and Hardboard to maintain full operation of our production lines.

So far, the present year has evidenced a deepening of the international economic downturn, which has had a strong negative impact on Arauco’s Panels Division. Although we expect this situation to continue during the next quarter , we expect to see signs of recovery during the second half of 2009.

 

4. ANALYSIS OF CASH FLOW

 

     03/31/2009
ThU.S.$
    03/31/2008
ThU.S.$
 

Operating cash flow

   74,780      143,164   

Cash flow from financing activities

   214,880      37,675   

Cash flow from investment activities

   (95,332   (109,214
            

Net cash flow for the period

   194,328      71,625   
            

We had a positive operating cash flow of U.S.$75 million compared to a U.S.$143 million for the same period in 2008, resulting from a decrease in client recovery, partially offset by payments to suppliers and personnel.

 

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Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statement

March 31, 2009

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

 

 

 

4. ANALYSIS OF CASH FLOW, continued

Cash flow from financing activities at March 31, 2009 was a positive balance of U.S.$215 million compared to a positive balance of U.S.$38 million for the same period in 2008. This change resulted from issuing bonds and obtaining higher bank borrowings obtaining.

The investment flow presented a minor negative balance at the end of the current period, due principally to fewer disbursements for acquiring biological assets.

 

5. MARKET RISK ANALYSIS

In respect of the economic risks resulting from interest rate variations, the Company maintains, as of March 31, 2009, a relation between fixed rate debt and total consolidated debt of approximately 88.6%, which it believes is consistent with the industry in which it operates. The Company does not engage in futures or other hedging transactions to hedge against variations in the selling prices of pulp and forest products because it believes that risks resulting from price variations are limited in large part because the Company maintains one of the lowest cost structures in the industry.

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

The Company and most of its subsidiaries maintain their accounting records and prepare their financial statements in U.S. dollars. Both their assets and their liabilities are denominated in U.S. dollars, as are the majority of their revenues. As a result, their exposure to changes in the exchange rate has decreased significantly.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Classified Financial Statement

March 31, 2009

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

 

 

 

FINANCIAL STATEMENT

 

Classified Financial Statement

   Note    IFRS
Balance
03/31/2009
ThU.S.$
   IFRS
Balance
12/31/2008
ThU.S.$
   IFRS
Balance
01/01/2008
ThU.S.$

Classified Financial Statement

           

Assets

           

Current Assets

           

Operative Current Asset

           

Cash and cash equivalents

   4    181,393    108,032    73,767

Financial assets at fair value through profit or loss

   23    195,045    66,983    204,731

Trade and Other receivables-net

   23    571,529    588,803    686,726

Related party receivables

   13    3,243    5,475    11,379

Inventories

   3    690,897    699,412    539,165

Biological assets

   21    287,238    268,289    304,299

Prepaid expenses

      89,935    74,331    54,194

Tax receivables

      186,609    148,670    122,219

Other current assets

      2,071    3,041    711

Total Operative Current Assets

      2,207,960    1,963,036    1,997,191
                 

Total Current Assets

      2,207,960    1,963,036    1,997,191
                 

Non Current Assets

           

Trade and Other receivables

   23    8,268    7,864    17,099

Investment in associates through equity method

   15    130,515    128,871    140,797

Intangible assets

   20    14,732    14,469    15,640

Property, plant and equipment

   7    4,634,677    4,606,914    4,601,671

Biological assets

   21    3,365,091    3,382,889    3,517,684

Deferred tax assets

   6    89,003    86,405    78,576

Prepaid expenses

      23,003    21,169    16,530

Other non-current assets

      11,025    8,863    24,424

Total non-current assets

      8,276,314    8,257,444    8,412,421
                 

Total Assets

      10,484,274    10,220,480    10,409,612
                 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Classified Financial Statement

March 31, 2009

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

 

 

 

FINANCIAL STATEMENT (continued)

 

Classified Financial Statement

   Note    IFRS
Balance
03/31/2009
ThU.S.$
    IFRS
Balance
12/31/2008
ThU.S.$
    IFRS
Balance
01/01/2008
ThU.S.$

Classified Financial Statement

         

Liabilities

         

Current Liabilities

         

Operative Current Liabilities

         

Loans that accrue interest

   23    446,046      372,622      336,884

Other financial liabilities

   23    17,868      14,051      7,007

Trade and Other payables

   23    305,640      309,488      308,633

Related party payables

   13    11,398      9,318      8,330

Provisions

   19    4,473      3,753      2,320

Current tax payables

      9,250      10,325      40,960

Other liabilities

      100,888      88,542      214,692

Deferred income

      1,444      2,628      4,671

Post employment benefit obligations

   10    1,994      2,188      2,478

Total Operative Current Liabilities

      899,001      812,915      925,975
                   

Total Current Liabilities

      899,001      812,915      925,975
                   

Non Current Liabilities

         

Loans that accrue interest

   23    2,423,171      2,279,321      2,381,329

Provisions

   19    5,567      5,585      6,271

Deferred tax liabilities

   6    1,115,937      1,090,899      1,081,968

Other liabilities

      22,524      24,045      35,446

Deferred income

      256      236      299

Post employment benefit obligations

   10    20,686      18,109      19,445
                   

Total non-current liabilities

      3,588,141      3,418,195      3,524,758
                   

Net Equity

         

Net equity attributable to parent company net equity instruments holders

         

Issued capital

      353,176      353,176      353,176

Other reserves

      (156,707   (158,165   0

Retained profit/loss (accumulated losses)

      5,681,927      5,673,751      5,456,077

Net equity attributable to parent company net equity instruments holders

      6,035,103      6,026,927      5,809,253

Minority interest

      118,736      120,608      149,626

Total net equity

      6,153,839      6,147,535      5,958,879
                   

Total net equity and liabilities

      10,640,981      10,378,645      10,409,612
                   

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Income Statement

March 31, 2009

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

 

 

 

FINANCIAL INCOME STATEMENT BY ACTIVITY

 

Comprehensive Income Financial Statement

Statement of Income

  

Note

   03/31/2009
ThU.S.$
    03/31/2008
ThU.S.$
 

Profit (loss) from operations

       

Revenue

   9    660,140      961,246   

Cost of sales

      482,219      543,637   

Gross profit

      177,921      417,609   

Other operating income

   1    45,841      17,464   

Marketing costs

      8,160      7,751   

Distribution costs

      72,524      97,292   

Research and development

      408      351   

Administrative expenses

      57,415      68,765   

Other operating expenses

      10,667      6,457   

Finance costs

   1    41,550      49,488   

Share of profit/(loss) of associates through equity method

      1,143      927   

Exchange rate differences

   11    (9,832   29,566   

Profit/(loss) due to write off non-current asset accounts not available for sale

   1    (3,012   (616

Other profit (losses)

      1      231   

Profit (loss) before income tax

      21,338      235,077   

Income tax expenses / (income)

   6    7,156      45,593   

Profit (loss) from continuing operations after tax

      14,182      189,484   
               

Profit (loss)

      14,182      189,484   
               

Profit (loss) attributable to equity holders

       

Profit (loss) attributable to equity instrument holders in net equity of the parent company

      13,626      187,069   

Profit (loss) attributable to minority interest

      556      2,415   

Profit (loss)

      14,182      189,484   

Ordinary Shares

       

Basis earnings (losses) per share

      0.0001253      0.0016746   

Earning (losses) per share from discounting operations

      0      0   

Earning (losses) per share from continuing operations

      0.0001253      0.0016746   

Comprehensive Income Statement:

       

Profit (loss)

      14,182      189,484   

Other income and expenses with charge or credit to net equity

       

Cash flow hedges

      (3,969   0   

Currency translation differences

      5,820      19,601   

Other income and expenses charged to or credited to net equity

      1,851      19,601   
               

Comprehensive income statement

      16,033      209,085   
               

Comprehensive Income and Expense Statement Attributable to:

       

Comprehensive income and expenses statement attributable to majority shareholders

      15,084      205,964   

Comprehensive income and expenses statement attributable to minority shareholders

      949      3,121   

Total comprehensive income and expense

      16,033      209,085   

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Statement of Changes in Net Equity

March 31, 2009

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

 

 

 

STATEMENT OF CHANGES IN NET EQUITY

 

     Changes in Paid Capital          Changes in
Retained Earnings
(Accumulated
Losses)

ThU.S.$
    Changes in Equity
Attributable to
Parent Company
Shareholders,
Total

ThU.S.$
    Changes in
Minority Interests
ThU.S.$
    Changes in Net
Equity Total
ThU.S.$
 
      Ordinary Shares    Reserves          

03/31/2009

   Share Capital
ThU.S.$
   Placement of
shares Surcharge
ThU.S.$
   Conversion
Reserves
ThU.S.$
    Hedge Reserves
ThU.S.$
         

Opening balance at 01/01/2009

   347,551    5,625    (158,165   0      5,673,751      5,868,762      120,608      5,989,370   

Opening balance—restated

   347,551    5,625    (158,165   0      5,673,751      5,868,762      120,608      5,989,370   

Changes

                  

Comprehensive income and expenses statement

   0    0    0      0      13,626      13,626      556      14,182   

Dividends

   0    0    0      0      (5,450   (5,450   (2,821   (8271

Other increases (decreases) in net assets

   0    0    5,427      (3,969   0      1,458      393      1,851   
                                              

Closing balance at 03/31/2009

   347,551    5,625    (152,738   (3,969   5,681,927      5,878,396      118,736      5,997,132   
                                              
     Changes in Paid Capital          Changes in
Retained Earnings
(Accumulated
Losses)

ThU.S.$
    Changes in Equity
Attributable to
Parent Company
Shareholders,
Total

ThU.S.$
    Changes in
Minority Interests
ThU.S.$
    Changes in Net
Equity Total
ThU.S.$
 
     Ordinary Shares    Reserves          

03/31/2008

   Share Capital
ThU.S.$
   Placement of
shares Surcharge
ThU.S.$
   Conversion
Reserves
ThU.S.$
    Hedge Reserves
ThU.S.$
         

Opening balance previous period 01/01/2008

   347,551    5,625    0      0      5,456,077      5,809,253      149,626      5,958,879   

Opening balance—restated

   347,551    5,625    0      0      5,456,077      5,809,253      149,626      5,958,879   

Changes

                  

Comprehensive income and expenses statement

   0    0    0      0      187,069      187,069      2,415      189,484   

Dividends

   0    0    0      0      (74,399   (74,399   (4,615   (79,014

Other increases (decreases) in net assets

   0    0    18,895      0      0      18,895      706      19,601   
                                              

Closing balance at 03/31/2008

   347,551    5,625    18,895      0      5,568,747      5,940,818      148,132      6,088,950   
                                              

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Statement of Cash Flow

March 31, 2009

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

 

 

 

STATEMENT OF CASH FLOWS

Cash Flows from (used in) Operating Activities, Direct Method

 

Cash flows from (used in) Operating, Direct Method

       03/31/2009    
ThU.S.$
        03/31/2008    
ThU.S.$
 

Net income

   769,886      981,518   

Research and development disbursements

   408      351   

Payments to suppliers

   636,174      755,585   

Paid salaries

   46,416      48,847   

Other payables (payments)

   50,623      43,854   
            

Cash flows by (used in) Operating, Total

   137,511      220,589   
            

Cash flows by (used in) Other Operating Activities

    

Amounts received from interest received classified as operating

   3,570      3,356   

Interest payments classified as operating

   46,055      52,564   

Income tax payments

   20,246      28,217   

Cash flows by (used in) other Operating Activities, Total

   (62,731   (77,425
            

Cash flows net of (used in) Operating Activities

   74,780      143,164   
            

Cash flows from (used in) Investing Activities

    

Proceeds from sale (disappropriation) of property, plant and equipment

   86      367   

Proceeds from sale (disappropriation) of biological assets

   2,508      0   

Other cash flows from (used in) investing activities

   14      42   

Purchase of property, plant and equipment

   79,011      77,285   

Payments for biological assets purchase

   17,723      29,682   

Payments for acquiring associates

   0      2,353   

Other investing disbursements

   1,206      303   
            

Cash flows from (used in) Investing Activities

   (95,332   (109,214
            

Cash flows from (used in) Financing Activities

    

Loans obtained

   308,793      228,610   

Amount received from other financial liabilities issuance

   142,127      0   

Loan payments

   236,040      190,935   
            

Cash flows from (used in) Financing Activities

   214,880      37,675   
            

Net Increase (decrease) of Cash and Cash Equivalents

   194,328      71,625   

Effect of exchange rate variations on cash and cash equivalents

   1,257      6,027   

Cash and cash equivalents, shown in the cash flow statement, at the beginning of the year

   167,287      267,839   

Cash and cash equivalents, shown in the cash flow statement, at the year end

   362,872      345,491   

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

March 31, 2009

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

 

 

 

NOTE  1.   PRESENTATION OF FINANCIAL STATEMENTS (IAS 1)

Entity Information

Name of Reporting Entity

Celulosa Arauco y Constitución S.A. and Subsidiaries (hereinafter “Arauco”), was registered in the Superintendency of Securities and Insurance Securities Registry as No. 042 on June 14, 1982, therefore being subject to audit by this Superintendency.

Forestal Cholguán Ltd., subsidiary of Arauco, is also registered on the Registry of Securities (Register N° 030).

The Company has an Agency in Panama.

Name of Reporting Entity on Preceding Balance Date

Celulosa Arauco y Constitución S.A. and Subsidiaries (hereinafter “Arauco”)

Tax Identification N° of Reporting Entity

93.458.000-1

Securities Registry Number

Nº 042

Reporting Entity’s Address

Avenida el Golf 150 piso 14, Las Condes

Legal Structure of Reporting Entity

Privately Held Corporation

Country of Incorporation

Chile

Company’s Registered Office or Head office address

Avenida el Golf 150 piso 14, Las Condes

Nature of Operations and Main Activities

Arauco is principally engaged in the production and sale of forestry and wood products. Its main operations are focused on the following business areas: Pulp, Plywood and fiberboard panels, Sawn Timber and Forestry.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

March 31, 2009

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

 

 

 

Name of Parent Company

Empresas Copec S.A.

Name of Group’s Controller

AntarChile S.A.

Ongoing Concern Information

The Arauco Consolidated Financial Statements were prepared on a going concern basis.

Presentation of Financial Statements

Financial Statements presented by Arauco as at March 31,2009:

 

   

Statement of Classified Balance Sheet

 

   

Comprehensive Statement of Income and Loss by Activity

 

   

Statement of Changes in Net Equity

 

   

Statement of Direct Cash Flow

 

   

Disclosure of Explanatory Information (notes)

Dates of Financial Statements

March 31, 2009

Period Covered by the Financial Statements

January 1, 2009 to March 31, 2009.

Financial Statements

Consolidated Financial Statements of Arauco

Functional Currency

Arauco has defined the US Dollar as its main functional currency, as most of the Companies operations are a result of exports, and costs to a great extent are related to or index-linked to the US Dollar.

Presentation Currency

US Dollar

Precision Level on the Financial Statements Figures

Financial Statements are presented in thousand of United States Dollars, without decimals.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

March 31, 2009

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

 

 

 

Basis for Presentation of Financial Statements

Arauco’s consolidated financial statements for the period between January 1, 2009 and March 31, 2009 are the first consolidated financial statements prepared in accordance with International Financial Reporting Standards (IFRS). Arauco applied IFRS 1 in the preparation of its consolidated financial statements.

Transition date of Arauco is January 1, 2008. Arauco prepared its opening balance according to IFRS as of that date. Adoption date of IFRS for Arauco is January 1, 2009.

In order to prepare the aforementioned consolidated financial statements in accordance with IFRS 1, all mandatory exemptions and some optional exemptions of IFRS have been applied retroactively.

Information required by IFRS which was not presented in the financial statements

All information required by the IFRS is presented in these financial statements.

Additional Information Relevant to the Understanding of the Financial Statements

The Company Fondo de Inversión Bío Bío and its subsidiary Forestal Río Grande S.A. are entities which as a whole qualify as Special Purpose Entities, as they maintain exclusive contracts with Arauco for wood provision, forward purchase of land, and a forest administration contract.

Compliance and Adoption of IFRS

The accompanying Financial Statements of Arauco include all significant aspects of the balance sheet, statements of income of its operations and cash flows in accordance with International Financial Reporting Standards.

This presentation is required to express a faithful representation of the effects of transactions, as well as other events and conditions, according to the definitions and criteria established within the conceptual framework of IFRS for the recognition of assets, liabilities, income and expenses.

IFRS Compliance Declaration

The accompanying Financial Statements of Arauco include the balance sheet, the statement of income and cash flows in accordance with International Financial Reporting Standards.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

March 31, 2009

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

 

 

 

Disclosure of Capital Information

Information on Objectives, Policies and Processes applied by the Company regarding Capital Management

Arauco’s policies on capital management aim at:

 

  a) Guaranteeing business continuity and normal operations in the long term.

 

  b) Providing all financing needs for new investments to achieve sustainable growth over time.

 

  c) Maintenance of an adequate capital structure considering all economic cycles that impact the business and the nature of the industry.

 

  d) Maximizing the company’s value, as well as providing an adequate return to shareholders.

Qualitative Information on Objectives, Policies and Processes applied by the Company regarding Capital Management

Arauco determines and manages its capital structure based on its equity at book value plus its financial liabilities (bank borrowings and bonds).

Quantitative Information on Capital Management

Financial guarantees of the Company are as follows:

 

Instrument

   Amount at
03/31/2009
(ThU.S. $)
   Amount at
12-31-2008
(ThU.S. $)
   Equity >=
ThU.S. $

2,500,000
   Equity
Hedging
>= 2,0x
  Debt Level(1)
<= 1,2x
   Debt Level(2)
<= 0,75x

Local Bonds

   364,524    203,668    N/A    N/A   ü    N/A

Syndicated Bank Loans

   80,021    160,378    ü    ü      ü    N/A

Forestal Río Grande S.A. Loan

   164,844    173,627    N/A    ü(3)   N/A    ü(3)

Bilateral Bank Loan

   243,365    241,026    N/A    ü      ü    N/A

Other Loans

   197,147    41,860    No Safeguards Required

Foreign Bonds

   1,818,284    1,829,990    No Safeguards Required

 

N/A: Not applicable for the instrument
(1) Debt Level (financial debt divided by: equity plus minority interest)
(2) Debt Level (financial debt divided by: total assets)
(3) Financial guarantees on credits taken by Forestal Río Grande S.A. only apply to financial statements of that company

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

March 31, 2009

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

 

 

 

Debt instruments ratings are as follows:

 

Instrument

   Standard &
Poor’s
   Fitch Ratings    Moody’s    Feller Rate

Local Bonds

   -    AA    -    AA

Foreign Bonds

   BBB+    BBB+    Baa2    -

Capital requirements are incorporated based on the company’s financial needs and on maintaining an adequate liquidity level and complying with financial guarantees established in current debt contracts. The company manages its capital structure and makes adjustments based on the predominant economic conditions in order to mitigate the risks associated with adverse market conditions, and based on opportunities that may arise to improve the company’s level of liquidity.

Capital (in Thousand of US Dollars) as at March 31, 2009 and December 31, 2008:

 

In ThU.S. $

   03/31/2009    12/31/2008

Equity

   5,878,396    5,868,762

Bank Loans

   685,377    616,891

Finance Leases

   1,032    1,394

Bonds

   2,182,808    2,033,658
         

Capital

   8,747,613    8,520,705
         

External Capital Requirements to which the Company is subject to during the Current Period

The nature of external capital requirements is determined by the obligation to maintain certain financial ratios that ensure the compliance of either bank loans or bond payments, which provide guidelines on the adequate capital ranges for compliance with these requirements.

Non-Compliance Consequences, When the Company does not comply with External Requirements

Arauco fulfilled all its external requirements.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

March 31, 2009

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

 

 

 

Disclosure of Information on Key Assumptions for Estimating Uncertainty

Arauco considers it improbable that future uncertainty risks may result in any significant adjustment to book value of assets and liabilities within the next financial period.

Accounting Policies

The accompanying consolidated financial statements as at March 31, 2009 were prepared in accordance with in force IFRS accounting policies, uniformly applied to all items in these Consolidated Financial Statements.

Summary of Significant Accounting Policies

a) Property, Plant and Equipment

Property, plant and equipment are stated at historical cost less accumulated depreciation and losses due to corresponding accumulated impairment. Historical cost includes expenditure that is directly attributable to the acquisition of the items.

Depreciation of assets is determined using the straight-line method to assign their costs or restated amounts to the residual value over the technical estimated useful life.

Depreciation of property, plant and equipment is calculated based on the defined useful life which refers to the years during which the asset is expected to be used.

b) Biological Assets

Arauco uses the discounted future cash flows model to value their forest plantation.

Forest plantations classified as current assets are those that will be harvested and sold in the short term.

c) Functional currency

The items included in the accompanying financial statements of each of Arauco’s entities are valued using the currency of the primary economic environment in which the entity operates (functional currency). The consolidated financial statements are presented in US Dollars, which is the Parent Company’s functional currency and the Holding’s presentation currency.

d) Negative goodwill

Negative goodwill outstanding balances at transition date were adjusted against retained earnings as a consequence of IFRS 3.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

March 31, 2009

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

 

 

 

e) Employee Benefit costs

The Company has severance payment obligations. These are paid to some workers according to conditions established within collective or individual contracts.

f) Inventories

Inventories are valued at the lower of cost or net realizable value. Cost is determined using the average cost method.

The cost of finished goods and work in progress includes design costs, raw materials, direct labor, other direct costs and related production overhead (based on the Company’s normal operating capacity). Interest costs are not included.

Net realizable value is the estimated selling price during the normal course of business, less all applicable variable cost of sales expenses.

g) Cash and cash equivalents

Cash and cash equivalents include cash on hand, in banks, time deposits in financial institutions and other short-term highly liquid investments with a three month or less initial maturity periods.

h) Deferred income tax

Deferred income taxes are calculated based on the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the annual consolidated statements. However, deferred income tax is not accounted for if it arises from the initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) enacted or to be enacted at the balance sheet date and expected to come into effect when the corresponding deferred income tax asset is realized or the deferred income tax liability is settled.

Deferred income tax assets are recognized to the extent that it is probable that future taxable benefits will be available to compensate temporary differences.

i) Leases

Fixed asset leases in which Arauco holds a significant portion of the risks and rewards of ownership are classified as financial leases. Financial leases are capitalized at commencement of the lease term at the lower of the fair value of the leased property and the present value of the minimum lease payments.

Leases in which the Lessor holds a significant portion of the risks and rewards of ownership are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease.

 

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AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

March 31, 2009

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

 

 

 

j) Revenue recognition

Arauco recognizes revenue when (i) the income amount can be reliably measured, (ii) it is probable that future economic benefits will flow into the Company and (iii) when specific conditions are met in each of the Group activities.

k) Investments in subsidiaries

Subsidiaries are all entities over which Arauco has the authority of directing their financial and operating policies, and in general when more than half of their voting rights are held.

Arauco applies the acquisition method to recognize the acquisition of subsidiaries. Excess of acquisition cost over the Fair Value for the Group’s share of the identifiable net assets acquired is recorded as goodwill. If this is less than the Fair Value of the net assets of the subsidiary acquired, the difference is recognized directly in the statement of income.

l) Investments in associates

Associates are entities over which the Parent Company has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for by using the equity method and are initially recognized at cost, and book value increases or decreases to recognize the proportion of translation adjustments in the income statement and comprehensive income statements of the period resulting from the financial statements’ conversion into other currencies. The Group’s investment in associates includes purchased goodwill (net of any losses for accumulated impairment).

m) Joint Venture Equity

Joint venture equity is recognized using the equity method or proportional equity method.

n) Earnings per share

As a general matter, the Company expects to maintain its policy on dividends for all future tax periods at approximately 40% of net profits, to be distributed for each tax year. The Company will, however, consider the alternative of a provisional dividend at year-end. The minimum dividend is determined and recognized at the end of each financial period.

o) Provisions

Provisions are recognized when, the Company has a present legal or constructive obligation as a result of past events; it is possible that an outflow of resources will be required to settle the obligation and the amount has been reliably estimated.

 

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Unaudited Notes to the Consolidated Financial Statement

March 31, 2009

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

 

 

 

p) Identifiable intangible assets

 

(a) Purchased goodwill,

Purchased goodwill represents the excess in acquisition cost over the fair value of the Group’s share of the identifiable net assets of the acquired subsidiary/associate at acquisition date.

 

(b) Computer Software

Computer software is capitalized based on acquisition costs plus other costs incurred to make it compatible with specific programs. These costs are amortized during the software’s estimated useful life.

 

(c) Water-rights

Water-rights are recognized at historical cost and have unlimited useful life as the expected cash flow generating period is unpredictable.

q) Financial Instruments

 

(i) Financial Assets at fair value through profit or loss

 

     Fair Value Financial Assets with Changes to Income Statement are initially recognized at fair value and transaction costs are recognized within the Income Statements. Subsequently they are recognized at fair value in the income statement.

 

(ii) Held-to-maturity investments

 

     These instruments are valued at amortized cost, which is initial cost less capital payments, plus (less) accumulated amortization using the effective rate method on any difference between initial cost and cost at maturity and less any deduction for impairment or bad debt.

 

(iii) Loans and receivables

 

     These are recognized at amortized cost using the effective interest rate method, deducting bad debt provision. This value is a reasonable estimate of fair value.

 

(iv) Available for sale Financial Assets

 

     Available for sale financial assets are non derivatives that are either designated in the category of financial instruments or not classified in any of the other categories. They are recognized at fair value, and the difference between cost and fair value is directly carried to net equity until the asset is settled.

 

(v) Financial Liabilities at Fair Value through Profit or Loss

 

     Valued at fair value, profit (or loss) is recognized in the income statement.

 

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AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

March 31, 2009

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

 

 

 

(vi) Financial Liabilities valued at amortized cost

 

   Financial instruments classified under this category are valued at amortized cost using the effective interest rate method.

 

(vii) Trade and other payables

 

   These are recognized at amortized cost using the effective interest rate method. This value is a reasonable estimate of fair value.

 

(viii) Hedging Instruments

 

   These financial instruments are valued using the discounted cash flow method at a rate in line with the risk involved in the operation.

Consolidation

Arauco’s consolidated financial statements include assets, liabilities, income statements and statement of cash flows.

Unrealized earnings from subsidiary operations have been eliminated from the consolidated financial statements and the participation of the minority has been recorded under minority interest.

Consolidated financial statements for the period January 1, 2009 to March 31, 2009 include subsidiary balances shown in Note 13, Fondo de Inversión Bío Bío balances, and its subsidiary Forestal Río Grande S.A. both of which qualify as Special Purpose Entities.

Some consolidated subsidiaries report legal financial statements in Brazilian Reales and Chilean Pesos. For consolidation purposes, they have been translated as indicated in Note 11.

Disclosure of Management’s judgments when applying the Company’s accounting policies

The preparation of consolidated financial statements in accordance with IFRS requires the application of certain critical accounting estimates. It also requires Management to apply and use its judgment when applying the Company’s accounting policies.

Arauco’s management made certain judgments in applying certain accounting policies, which are stated in each respective note of Property, Plant and Equipment, Biological Assets, Employee Benefits and in the notes on First Adoption of International Financial Reporting Standards.

Disclosure of Capital Issued Information

Subscribed and paid-in Capital amounts to ThU.S.$353,176

 

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AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

March 31, 2009

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

 

 

 

Ordinary Share Capital Types

100% of capital corresponds to ordinary shares

 

      03-31-2009    12-31-2008

Description of Ordinary Capital Share Types

   100% of Capital corresponds to ordinary shares

Number of Authorized Shares by Type of Capital in Ordinary Shares

   113,152,446

Nominal Value of Shares by Type of Capital in Ordinary Shares

   ThU.S.$ 0.0031211 per share

Amount of Capital in Shares by Type of Ordinary Shares that Constitute Capital

   ThU.S.$ 353,176

Amount of Share Premium by Type of Ordinary Shares that Constitute Capital

   Not Applicable

Amount of Reserves by Type of Ordinary Shares that Constitute Capital

 

   Not Applicable
 

Rights, Privileges and Restrictions by Type of Capital in Ordinary Shares

 

Liabilities presented under Obligations with Banks and Financial Institutions and with the Public have certain financial restrictions the Parent Company must comply with; otherwise, debt under these contracts can become payable.

Financial restrictions are the following:

 

i)       Debt ratio must not exceed 1.2

 

ii)     Net minimum equity must not be less than US$ 2,500 million.

 

iii)    Interest hedging index cannot be less than 2.0

 

At closing date Arauco had complied with the totality of these restrictions.

 

     

03-31-2009

 

  

12-31-2008

 

Number of Shares Issued and Completely Paid by Type of Capital in Ordinary Shares

   113,152,446

Number of Shares Issued and Partially Paid by Type of Capital in Ordinary Shares

   -

Number of Shares Issued by Type of Capital in Ordinary Shares, Total

 

   113,152,446

Movement in Number of Ordinary Shares Issued and Completely Paid,

  

 

03-31-2009

 

  

12-31-2008

 

Number of Issued and Completely Paid, Ordinary Shares, Opening Balance

   113,152,446

Number of Shares Issued, Ordinary Shares

   -

Number of Shares Paid or Reduced, Ordinary Shares

   -

Number of Other Increases (Decreases) in Shares, Ordinary Shares

   -

Changes in the Number of Ordinary Shares Issued and Completely Paid, Total

 

  

-

 

 

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Unaudited Notes to the Consolidated Financial Statement

March 31, 2009

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

 

 

 

Disclosure of Information on Dividends paid to Ordinary Shares

Amounts of recognized dividends as distribution to shareholders during financial year 2008 and its corresponding amount per share.

 

Total Dividends, Ordinary Shares, Gross

   ThU.S.$315,817

Total Tax on Dividends, Ordinary Shares

   -

Total Dividends, Ordinary Shares, Net of Tax

   ThU.S.$315,817

Added Number of Shares Issued as Dividends, Ordinary Shares

   -
  

Detail of Paid Dividend, Ordinary Shares

   Final Dividend – Interim Dividend

Description of Paid Dividend, Ordinary Shares

   Final Dividend

Description of Type of Shares for which there is a Paid Dividend, Ordinary Shares

   Unlisted Ordinary Shares

Date of Paid Dividend, Ordinary Shares

   05-07-08

Amount of Dividend, Ordinary Shares, Gross

   ThU.S.$214,885

Amount of Tax on Dividends, Ordinary Shares

   -

Amount of Dividend, Net of Tax, Ordinary Shares

   ThU.S.$214,885

Number of Shares Issued as Dividends, Ordinary Shares

   -

Number of Shares of which Dividends are Paid, Ordinary Shares

   113,152,446

Dividend per Share, Ordinary Share

   U.S.$ 1.89907

Tax Rate Applicable to Paid Dividend, Ordinary Share

   -
  

Details of Dividends Paid, Ordinary Shares

   Final Dividend – Interim Dividend

Description of Dividends Paid, Ordinary Shares

   Interim Dividend

Description of Type of Shares for which there is a Paid Dividend, Ordinary Shares

   Ordinary Shares unlisted

Date of Paid Dividend, Ordinary Shares

   12-10-08

Amount of Dividend, Ordinary Shares, Gross

   ThU.S.$100,932

Amount of Tax on Dividends, Ordinary Shares

   -

Amount of Dividend, Net of Tax, Ordinary Shares

   ThU.S.$100,932

Number of Shares Issued as Dividends, Ordinary Shares

   -

Number of Shares in which Dividends are Paid, Ordinary Shares

   113,152,446

Dividend per Share, Ordinary Share

   U.S.$ 0.89199

Tax Rate Applicable to Paid Dividend, Ordinary Share

   -

For the period between January 1, 2009 and March 31, 2009 there was no dividend distribution.

 

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Unaudited Notes to the Consolidated Financial Statement

March 31, 2009

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

 

 

 

Disclosure of Information on Reserves

A description of the nature and purpose of each reserve within equity.

Nature and Restrictions on Reserves

The only reserve is given by the conversion adjustment and there are no associated restrictions.

Nature and Restrictions on Conversion Reserves

This corresponds to a difference in foreign currency translation as compared to the Group’s subsidiaries, which do not use the US Dollar as functional currency.

Disclosure of other Information

Below are balances of Other Operating Income, Financing Costs and Profit (loss) from the derecognition of non current assets and Equity Profit (loss) from investments accounted for by the Equity Method, as of March 31, 2009 and March 31, 2008, respectively.

 

         03-31-2009    
ThU.S.$
        12-31-2008    
ThU.S.$
 

Types of Other Operating Income

    

Other Operating Income, Total

   45,841      17,464   

Interest Income

   2,576      4,151   

Other Operational Income

   43,265      13,313   
            

Types of Financing Costs

    

Financing Costs, Total

   41,550      49,488   

Interest Expenses

   41,413      49,223   

Interest Expenses-Bank loan

   41,170      47,947   

Interest Expenses, Others

   243      1,276   

Other Financing Costs

   137      265   
            

Types of Profit (Loss) from derecognition of Non Current Asset Accounts and Not Held for Sale

    

Types of Profit (Loss) from derecognition of Non Current Asset Account and Not Held for Sale, Total

   (3,012   (616

Profit (Loss) from Derecognition of property, plant and equipment accounts

   (17   145   

Profit (Loss) from Derecognition of Biological asset accounts

   (2,845   (761

Profit (Loss) from Derecognition of Accounts in other non-current assets

   (150   —     
            

Types of Equity Profit (Loss) from Investments accounted for by the Equity Method

    

Equity Profit (Loss) from investments accounted for by the Equity Method

   1,143      927   
            

Equity Profit (Loss) from Associates accounted for by the Equity Method

   1,143      927   
            

 

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Unaudited Notes to the Consolidated Financial Statement

March 31, 2009

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

 

 

 

NOTE 2. FIRST TIME ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS 1)

Disclosure of Information on First Time Adoption of IFRS

The present consolidated financial statements are the first statements prepared in accordance with International Financial Reporting Standards.

To prepare the aforementioned consolidated financial statements in accordance with IFRS 1, all mandatory exemptions and some of the optional exemptions from retrospective application of the IFRS have been applied.

Retrospective exemptions selected by Arauco

(a) Business combination

Arauco has applied the IFRS 1 exemption for business combinations, which allows business combinations prior to the transition date not to be restated. Therefore businesses combinations that took place before the transition date, January 1, 2008, have not been restated.

(b) Appointment of Recognized Financial Asset or Liability before IFRS Adoption Date

IAS 39 (revised) allows a financial instrument to be recognized at initial recognition as a financial asset or a financial liability at its fair value through profit or loss or as available for sale. Despite this requirement, the entity can recognize a financial instrument at the IFRS transition date. Arauco has not reclassified investments as available for sale at the transition date in accordance with IAS 39.

(c) Fair Value or revaluation as deemed cost

At the IFRS transition date the Company chose fair value with regards to property, plant and equipment of its pulp plants for both Arauco and Constitución in Chile, Misiones in Argentina and its panel plants and sawmills in Brazil, and used fair value as the initial historical cost, pursuant to IFRS 1. The fair value of Property, plant and equipment was measured by independent, external appraisal experts who determined new initial historical values, useful life and residual values.

 

  (i) Fair Value of Property, Plant and Equipment as Deemed Cost

 

       The total amount of appraised assets corresponding to Property, plant and equipment of pulp plants belonging to both Arauco and Constitución in Chile, Misiones in Argentina and its panel production plants and sawmills in Brazil at the transition date was ThU.S.$1,526,822.

 

  (ii) Book value adjustments in Property, Plant and Equipment according to previous GAAP.

 

       Appraisal adjustments mounted to ThU.S.$800,249

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

March 31, 2009

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

 

 

 

(d) Employee Benefits

Arauco chose to recognize all accumulated actuarial gains and losses as of January 1, 2008.

(e) Cumulative Translation Differences

This exemption allows voiding all accumulated translation differences that arise as a consequence of converting financial statements of foreign entities, at the IFRS transition date. Consequently, foreign company profits and losses resulting from sales or derecognition after this date will not include translation differences before the transition date, they will only include the ones subsequent to this date.

Arauco made use of this exemption and annulled all accumulated conversion differences before January 1, 2008.

(f) Compound financial instruments

Arauco has not issued any compound financial instruments; therefore this exemption is not applicable.

(g) Subsidiaries, associates and joint ventures with different transition dates. This exemption is not applicable.

(h) Designation of previously recognized financial instruments

IAS 39 (revised) allows a financial instrument to be designated as financial asset or financial liability at fair value through profit and loss or as available for sale on initial recognition. Despite this requirement, the entity can recognize the financial instrument at the IFRS transition date. Arauco has not reclassified any investments as available for sale at the transition date in accordance with IAS 39.

(i) Restoration or Decommissioning Liabilities

As of January 1, 2008, Arauco has no assets or operations for which it could incur in decommissioning costs. Therefore this exemption is not applicable.

(j) Fair Value measurements of financial assets or financial liabilities at initial recognition

Arauco has not applied the exemption stipulated in revised IAS 39 regarding initial recognition at fair value with profit and loss changes for financial instruments where there is no active market. Therefore this exemption is not applicable.

Enforcement date of First Adoption of Financial Statements in accordance with IFRS

The IFRS adoption date is January 1, 2009.

Financial Statements Transition date to IFRS

The transition date to IFRS is January 1, 2008.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

March 31, 2009

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

 

 

 

Comparative Information for First Time IFRS Adoption

Arauco has considered the year 2008 for comparative purposes in IFRS adoption.

Interim Financial Statements Covered by First Financial Statements in accordance with IFRS

March 31, 2009.

Explanation of IFRS Transition

Reconciliation below quantifies the impact of IFRS transition on Arauco.

Previous GAAP Equity Reconciliation and IFRS Equity at transition date.

1. – Reconciliation Summary of consolidated net equity as at January 1, 2008

 

     As at
01-01-2008
ThU.S.$
    Note  

Total net equity according to Chilean Accounting Principles

   5,413,797     

Property, plant and equipment adjustment

   857,087      (1.a

Biological Assets adjustment

   267,674      (1.b

Functional Currency adjustment

   37,606      (1.c

Negative Goodwill adjustment

   99,338      (1.d

Employee benefits actuarial value adjustment

   8,439      (1.e

Minimum Dividend adjustment

   (214,936   (1.f

Financial instruments adjustment

   (185,232   (1.g

Investments accounted for applying the equity method adjustment

   (138   (1.h

Cumulative effect of other minor concepts adjustment

   (982   (1.i

Deferred taxes adjustment

   (407,549   (1.j

Minority interests adjustment

   (83,003   (1.k

Intangible assets adjustment

   5,026      (1.l

Unrealized earnings adjustment

   12,126      (1.m
        

Total net equity according to IFRS

   5,809,253     
        

Figures in ThU.S.$

 

(1.a) Property, plant and equipment adjustment

 

(i)     Appraisal effect

   800,249

(ii)    Consolidation of Special Purpose Entity according to IFRS

   56,838
    

Total Adjustment

   857,087
    

(i) The Company applied the fair value as deemed cost exemption to pulp plant land, buildings, equipment and plants owned by both Arauco and Constitución in Chile, Misiones in Argentina, the plant in Curitiba and the sawmill in Brazil.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

March 31, 2009

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

 

 

 

(ii) Land owned by the Special Purpose Entity (SPE) that must be consolidated in accordance with IFRS.

(1.b) Biological Assets Adjustments

 

(i)     Consolidation of Special Purpose Entity according to IFRS

   101,380

(ii)    Fair value adjustment determined by discounted future cash flows

   166,294
    

Biological Asset Total Adjustment

   267,674
    

(i) Forests and plantations owned by the Special Purpose Entity (SPE) that must be consolidated in accordance with IFRS.

(ii) Management established discounted future cash flows as the method to determine the fair value of biological assets, which differs from criteria used under GAAP where biological assets were valued using standard commercial margins for forests with harvesting volume and formation costs for biological assets with no harvesting volume.

(1.c) Functional currency adjustment

 

(i)     Property, plant and equipment historical dollar translation to functional currency

   41,331   

(ii)    Exchange rate adjustment to functional currency of subsidiaries in Brazil

   (3,725
      
   37,606   
      

(i) The Company determined that the functional currency for the majority of the Group’s companies is the US dollar, and proceeded to convert all its non-monetary assets and liabilities, particularly those related to Property, plant and equipment, to US dollars, using historical exchange rates at the time of the construction or acquisition of the assets.

(ii) The Brazilian Real was determined to be the functional currency for subsidiaries in Brazil. Under GAAP, these companies used the US dollar as their functional currency. For this reason, subsidiaries in Brazil adjusted their assets, liabilities and equity from Historical US dollars to Historical Reales, reported in US dollars at the closing exchange rate.

(1.d) Negative Goodwill Adjustment

 

Adjustment against negative goodwill retained earnings

   99,338

The balances of negative goodwill at the time of transition were adjusted against retained earnings, as a result of IFRS 3 adoption.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

March 31, 2009

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

 

 

 

(1.e)    Employee benefits actuarial value adjustment

 

Employee Benefits actuarial value adjustment

   8,439

The Company generates severance payment obligations for termination of service contracts to some workers according to conditions established within collective or individual employee contracts. Such obligation is registered under GAAP using the present value of accrued cost method. Under IAS 19, these severance payments must be registered using the actuarial value method. The difference between these two valuation methods resulted in a lower provision, which was adjusted against retained earnings at the transition date.

(1.f)    Minimum Dividend Adjustment

 

Minimum Dividend

   (214,936

The Company’s dividend policy establishes a yearly distribution of 40% of net profits. This policy is determined each year at the General Shareholders’ Meeting.

(1.g)    Adjustment to Financial instruments

 

(i)     Derivative instrument valuation adjustment (swap) at fair value

   9,750   

(ii)    Consolidation of IFRS Special Purpose Entity (swap)

   (7,007

(iii)   Consolidation of IFRS Special Purpose Entity (loan)

   (200,746

(iv)   Brazil Tax provision Present Value adjustment

   10,099   

(v)    Bond obligations adjustment at effective rate

   2,672   
      

         Financial Instruments Total Adjustments

   (185,232
      

(i) Derivative instruments are registered as hedging instruments under GAAP, but they do not qualify as such under IFRS. Therefore, they are treated as investment derivative instruments. The amount corresponds to the derivative adjustment at fair value.

(ii) A derivative instrument (swap) owned by the Special Purpose Entity (SPE) must be consolidated under IFRS. This derivative instrument is treated as an investment and is valued at fair value.

(iii) Special Purpose Entity (SPE) bank loans must be consolidated under IFRS.

(iv) Adjustment of Current value liability relates to the Circulation of Goods and Services tax of a subsidiary of Placas do Paraná S.A. in Brazil.

(v) Corresponds to the valuation of bonds issued in US dollars and in U.F. at amortized cost using the effective interest rate method.

(1.h)    Investment adjustments accounted for using the equity method

 

Adjustment of investment in Stora Enso de Papel S.A.

   (138

Corresponds to the adjustment of investment in Stora Enso de Papel S.A. in Brazil, determined based on the new IFRS equity value.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

March 31, 2009

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

 

 

 

(1.i)    Cumulative effect of other minor concepts    (982

(1.j)    Deferred Tax Adjustment

 

(i)     Consolidation of IFRS Special Purpose Entity

   333   

(ii)    Deferred taxes arising from IFRS Adjustments

   (341,50

(iii)   Derecognition of complementary accounts accepted under GAAP

   (3,571

(iv)   Unrecognized deferred taxes of Biological Assets before year 2000

   (62,808
      

Deferred taxes Total Adjustments

   (407,549
      

(i) Corresponds to Special Purpose Entity (SPE) deferred taxes that must be consolidated under IFRS.

(ii) Corresponds to deferred taxes arising from assets and liability adjustments to IFRS that constitute a temporary difference between the financial and taxable base. The following are the main components:

 

Deferred tax due to functional currency adjustment of Chilean companies

   (7,026

Deferred taxes due to adjustment to Property, plant and equipment valuation

   (287,437

Deferred taxes due to Biological Assets valuation

   (36,048

Deferred taxes due to derivative instrument (Swap) adjustment to Fair Value

   (1,658

Deferred taxes due to other IFRS adjustments

   (9,334
      

Total Deferred taxes arising from IFRS adjustments

   (341,503
      

(iii) Corresponds to derecognition of deferred tax complementary account balances recognized under GAAP. Under IFRS these complementary accounts are not acceptable. Therefore, an adjustment was made against retained earnings at the transition date.

(iv) Corresponds to biological assets deferred taxes equivalent as at December 31, 1999, which under GAAP were exempt of recognition.

(1.k)    Minority interest adjustment

 

Special Purpose Entity (Fondo de Inversión Bío Bío and affiliate)

   (78,960

Arauco Florestal Arapoti S.A.

   (1,138

Alto Paraná S.A.

   8   

Forestal Los Lagos S.A.

   (2,242

Forestal Cholguán S.A.

   (685

Forestal Arauco S.A.

   14   
      

Minority Interest Total Adjustment

   (83,003
      

(1.1)    Intangible asset adjustment

Corresponds to water rights for ThU.S.$5,026 activated by Arauco affiliates.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

March 31, 2009

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

 

 

 

(1.m)    Unrealized Gains

Corresponds to the initial adjustment of unrealized gains for ThU.S.$12,126, determined pursuant to new commercialization margins of forestry companies, as a result of changes in valuation of agricultural products when applying Biological Asset standards stated in IAS 41.

Reconciliation of equity under previous GAAP, and equity under IFRS at the date of the most recent Company annual financial statements under GAAP.

2. - Reconciliation Summary of consolidated net equity at December 31, 2008.

 

     As at
12-31-2008
ThU.S.$
    Note  

Total net equity according to Chilean Accounting Principles

   5,623,154     

Property, plant and equipment Adjustment

   919,700      (2.a

Biological Assets Adjustment

   33,925      (2.b

Functional Currency Adjustment

   (143,662   (2.c

Negative Goodwill Adjustment

   93,345      (2.d

Purchased Goodwill Amortization adjustment

   193      (2.e

Employee Benefits Actuarial Value Adjustment

   7,330      (2.f

Minimum Dividend Adjustment

   (88,492   (2.g

Financial Instruments Adjustment

   (169,754   (2.h

Adjustment of accounted investments applying the equity method

   (954   (2.i

Cumulative effect of other minor concepts

   (2,229   (2.j

Deferred Tax Adjustment

   (372,527   (2.k

Minority Interest Adjustment

   (52,848   (2.l

Intangible Asset Adjustment

   5,026      (2.m

Unrealized Earnings Adjustment

   10,107      (2.n

Inventory Adjustment

   (11,206   (2.o

SPE receivables

   17,654      (2.p
        

Total net equity according to IFRS

   5,868,762     
        

Figures in ThU.S.$

(2.a)    Property, plant and equipment adjustment

 

(i)     Appraisal effect

   862,942

(ii)    Consolidation of IFRS Special Purpose Entity

   56,758
    

Total Adjustment

   919,700
    

(i) The Company applied fair value as a deemed cost exemption to land, buildings, and plant and equipment of its pulp plants in Arauco and Constitución, Chile, Misiones in Argentina and its panel plants and sawmill in Brazil. Furthermore, changes were made to the useful life of assets, assigning technical useful lives which resulted in lower depreciation for fiscal year 2008 under IFRS standards equivalent of ThU.S.$62.693.

(ii) Corresponds to land owned by the Special Purpose Entity (SPE), which under IFRS must be consolidated.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

March 31, 2009

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

 

 

 

(2.b)    Biological asset adjustments

 

(i)     Consolidation of IFRS Special Purpose Company

   73,759   

(ii)    Fair value adjustment determined by discounted future cash flows

   (39,834
      

         Biological Assets Total Adjustment

   33,925   
      

(i) Corresponds to forests and plantations owned by the Special Purpose Entity (SPE), at December 31, 2008, which must be consolidated under IFRS

(ii) Management established discounted future cash flows as the method to determine the fair value of biological assets, which differs from criteria used under GAAP where biological assets were valued using standard commercial margins for forests with harvesting volume and formation costs for biological assets with no harvesting volume.

(2.c)    Functional currency adjustment

 

(i)     Property, plant and equipment translation to historical dollar functional currency

   41,331   

(ii)    Functional currency exchange rate adjustment for subsidiaries in Brazil

   (184,993
      
   (143,662
      

(i) The Company determined that the functional currency for the majority of the Group’s companies is the US dollar, and proceeded to convert all of its non-financial assets and liabilities, particularly those corresponding to Property, plant and equipment, to US dollars, using historical exchange rates at the time of asset construction or acquisition of the assets.

(ii) The Brazilian Real was determined to be the functional currency for subsidiaries in Brazil. Under Chilean Accounting Principles the functional currency for these companies was the US dollar. For this reason, subsidiaries in Brazil adjusted their assets, liabilities and equity from historical US dollars to historical Brazilian Reales, reported in US dollar at closing exchange rate. The conversion resulted in a lower equity adjustment at opening balance ThU.S.$3,725. The conversion adjustment for the 2008 financial year, was ThU.S.$181,268. This was due to a strong devaluation of the Brazilian Real against the US dollar during that year.

(2.d)    Negative goodwill adjustment

Negative goodwill balances at the transition date, valued at ThU.S.$99,338 were adjusted against retained earnings, as a result of IFRS 3 adoption. At December 31, 2008 this balance was ThU.S.$93,345, since under Chilean accounting principles an amortization of ThU.S.$5,993 was registered for that tax year.

(2.e)    Purchased goodwill amortization adjustment

This corresponds to derecognition of the amortization of purchased goodwill, valued at ThU.S.$193, since under IFRS this concept is treated as an Intangible Asset which is not amortized.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

March 31, 2009

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

 

 

 

(2.f)    Employee benefits actuarial value adjustment

The Company generates severance payment obligations for termination of service contracts to some workers according to conditions established within collective or individual employee contracts. These obligations were registered under Chilean Accounting Principles using the current value of accrued compensation cost method. Under IAS 19 this compensation must be registered using the actuarial value method. The difference between both valuation methods resulted in a lower provision, ThU.S.$8,439, at January 1, 2008, which was adjusted against retained earnings at transition date. During the 2008 tax year a lower provision ThU.S.$309, was registered against that tax year’s earnings. Also, a higher provision was registered due to the initial impact conversion of affiliates using the Chilean Peso as their functional currency of ThU.S.$1,418.

 

(2.g)     Minimum dividend adjustment

The Company’s dividend policy establishes a yearly distribution of 40% of net profits. This policy is established each year at the General Shareholders’ Meeting. This resulted in recognizing a lower minimum equity dividend of ThU.S.$88,492 at December 31, 2008.

(2.h)    Financial instrument adjustment

 

(i)     Derivative instrument valuation adjustment (swap) at fair value

   6,832   

(ii)    Consolidation of IFRS Special Purpose Entity (swap)

   (14,051

(iii)   Consolidation of IFRS Special Purpose Entity (loan)

   (173,627

(iv)   Brazil Tax provision Present Value adjustment

   9,011   

(v)    Bond obligations adjustment at effective rate

   2,081   
      

         Financial Instruments Total Adjustment

   (169,754
      

(i) Derivative instrument used as hedging instrument under Chilean Accounting Principles, but that does not qualify as such under IFRS standards. Therefore it is treated as an investment derivative instrument. The amount corresponds to the derivative adjustment to fair value.

(ii) Derivative instrument (swap) owned by Special Purpose Entity (SPE), which under IFRS must be consolidated. This derivative instrument is treated as an investment and is valued at fair value.

(iii) Corresponds to Special Purpose Entity (SPE) bank loans, which under IFRS must be consolidated.

(iv) Current value liability adjustment corresponding to the Circulation of Goods and Services tax of Placas do Paraná S.A.’s subsidiary in Brazil.

(v) Corresponds to the valuation of bonds issued in US dollars and in U.F. at amortized cost using the effective interest rate method.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

March 31, 2009

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

 

 

 

(2.i)    Investment adjustments accounted for using the equity method

Corresponds to the adjustment of investments in the subsidiary companies Stora Enso Industria de Papel S.A. in Brazil for ThU.S.($1,516) and EKA Chile S.A., in Chile, of ThU.S.$562, calculated based on the new IFRS equity value.

(2.j)    Accumulated effect of other minor concepts

Other immaterial adjustments arising from the application of IFRS standards that affect the Company’s net equity.

(2.k)    Deferred tax adjustment

 

(i)     Consolidation of IFRS qualifying Special Purpose Entity

   2,515  

(ii)    Deferred taxes arising from IFRS Adjustments

   (303,397 )

(iii)   Derecognition of complementary accounts accepted under GAAP

   (3,009 )

(iv)   Unregistered deferred taxes of Biological Assets before year 2000

   (68,636 )
      

         Deferred Taxes Total Adjustment

   (372,527
      

(i) Corresponds to the Special Purpose Entity (SPE) deferred taxes, which according to IFRS must be consolidated.

(ii) Corresponds to deferred taxes arising from assets and liabilities adjustments to IFRS, which constitute a temporary difference between financial basis and taxable basis. The main components are the following:

 

Deferred tax adjustment to functional currency for Chilean companies

   (7,026

Deferred taxes for adjustment to Property, plant and equipment valuation

   (294,135

Deferred taxes for Biological Assets valuation

   2,011   

Deferred taxes for derivative instrument (Swap) adjustment at fair value

   (1,161

Deferred taxes for other IFRS adjustments

   (3,086
      

Total deferred taxes arising from IFRS adjustments

   (303,397
      

(iii) Corresponds to the derecognition of deferred tax complementary account balances recognized under GAAP. Under IFRS these complementary accounts are not acceptable. Therefore, they were adjusted against retained earnings at the transition date.

(iv) Corresponds to deferred taxes equivalent to those of biological assets in effect at December 31, 1999, which under GAAP, were exempt of recognition.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

March 31, 2009

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

 

 

 

(2.l)    Minority interest adjustment

 

Special Purpose Entity (Fondo de Inversión Bío Bío and subsidiary)

   (62,368

Arauco Florestal Arapoti S.A.

   12,231   

Alto Paraná S.A.

   1   

Forestal Los Lagos S.A.

   (2,323

Forestal Cholguán S.A.

   (489

Forestal Arauco S.A.

   100   
      

Minority Interest Total Adjustment

   (52,848
      

(2.m)    Intangible assets adjustment

Corresponds to water rights for ThU.S.$5,026 activated by Arauco subsidiaries.

(2.n)    Unrealized earnings adjustment

Corresponds to the adjustment of unrealized earnings amounting ThU.S.$10,107, determined by the new commercialization margins of forestry companies, as a result of changes in valuation of agricultural products when applying Biological Asset standards established in IAS 41.

(2.o)    Inventory adjustment

Correspond to adjustments to inventory value at December 31, 2008, according to new production costs under IFRS standards. These are a result of changes in depreciation, determined by Property, plant and equipment values, which include valuation changes due to translation to historical dollar, changes in valuations as well as changes in estimated useful life. Also, as a result of changes in the price of wood, where wood inventories are valued at appraisal value (valuation of agriculture products under IAS 41). Under Chilean Accounting Principles cost only included historical cost, known as real incurred cost.

(2.p)    Special Purpose Entity trade receivable adjustment

Special Purpose Entity (SPE) trade receivables, which must be consolidated under IFRS.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

March 31, 2009

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

 

 

 

Reconciliation between last reported financial results under previous GAAP corresponding to the entity’s previous most recent annual financial statement and the financial results under IFRS for the same period.

3.    Summary of reconciliation of Net Income for tax period ended December 31, 2008.

 

     As at
12-31-008
ThU.S.$
    Note  

Total Net Income under Chilean GAAP

   478,746     

Depreciation changes of property, plant and equipment adjustment

   44,781      3.a

Valuation of agricultural products at fair value adjustment

   (167,051   3.b

Valuations of biological assets at fair value adjustment

   83,782      3.c

Affiliate earnings translation to functional currency different to the dollar adjustment

   (24,886   3.d

Amortization of negative goodwill investments adjustment

   (5,993   3.e

Amortization of goodwill investments adjustment

   193      3.f

Derivative instrument valuation (swap) to fair value adjustment

   (2,918   3.g

Employee benefits actuarial value adjustment

   (1,073   3.h

Placement cost adjustment

   (591   3.i

Investment in associates adjustment

   (1,378   3.j

Unrealized earnings adjustment associates

   (2,019   3.k

Earnings from non current asset sales adjustment

   (704   3.l

Consolidated net income of Special Purpose Entity adjustment

   333      3.m

Deferred taxes as a result of IFRS adjustment

   13,398      3.n

Minority interests adjustment

   (5,014   3.o

Effect of other non-material adjustment

   (2,551   3.p
        

Total Net Income under IFRS

   407,055     
        

Figures in ThU.S.$

(3.a)    Depreciation changes to Property, Plant and equipment adjustments under IFRS

Corresponds to adjustments in tax year depreciation, determined by Property, plant and equipment values under IFRS, which include changes in valuation due to translation to historical dollar and appraisals as well as changes in estimated useful life.

(3.b)    Valuation of Agricultural Products at Fair Value Adjustment

Corresponds to the higher cost of wood as a result valuing wood stock at its appraisal value (agriculture product valuation under

IAS 41). For Chilean Accounting Principles purposes this cost only included the historical cost, known as the incurred real cost.

(3.c)    Valuation of Biological Assets at Fair Value adjustment

Corresponds to biological assets fair value adjustment for the tax year, determined by appraisal criteria stated in Note 21.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

March 31, 2009

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

 

 

 

(3.d)    Subsidiary earnings translation to functional currency different to the dollar adjustment

 

(i)     Derecognition of price level restatements for subsidiaries in Chile adjustment

   2,231   

(ii)    Exchange rate differences arising from changes in functional currency of

             subsidiaries in Brazil adjustment

   (27,117
      

Total impact—Exchange rate increase

   (24,886
      

(i) Corresponds to the elimination of price-level-restatements under Chilean GAAP applicable to Chilean subsidiaries whose functional currency is the Chilean peso. Under IFRS price-level-restatement mechanisms apply only to hyperinflationary economies. Not applicable to these companies.

(ii) Corresponds to exchange rate differences arising from Brazilian subsidiaries that changed their functional currency from US dollars to the Brazilian Real, meaning that under IFRS these subsidiaries generate exchange rate differences for holding assets and liabilities in currencies other than the Brazilian Real.

(3.e)    Amortization of investments Negative Goodwill adjustment

Corresponds to the derecognition of the amortization of investment’s Negative Goodwill, as Negative Goodwil investment balance was completely adjusted at initial impact against retained earnings; and therefore under IFRS this amortization does not exist.

(3.f)    Amortization of investments Goodwill adjustment

Corresponds to the derecognition of the amortization investment’s Goodwill, as under IFRS the goodwill or purchased goodwill is not amortized.

(3.g)    Derivative instrument (swap) valuation at fair value adjustment

Corresponds to the adjustment at fair value of derivative instruments treated as hedging under Chilean Accounting Principles, but which do not qualify as such under IFRS. Therefore, they are treated as investment derivative instruments that, under IFRS, must be valued at fair value.

(3.h)    Employee Benefits Actuarial Value adjustment

The Company generates severance payment obligations for termination of service contracts to some workers according to conditions established within collective or individual personnel contracts. These obligations were registered under Chilean Accounting Principles using the current value of accrued compensation cost method. Under IAS 19 this benefit must be registered using the actuarial value method.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

March 31, 2009

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

 

 

 

(3.i)    Placement costs adjustment

 

(i)     Adjustment of amortization of re-purchasing costs of bonds registered as placement costs

   (342

(ii)    Interest adjustment for applying effective rate over a liability at current value

   (249
      

Placement Costs Total adjustment

   (591
      

(i) Corresponds to the reverse amortization of placement costs, which for IFRS purposes were adjusted at the beginning. Therefore, the amortization registered under Chilean GAAP must be reversed.

(ii) Corresponds to accrued interests as a result of applying the effective rate over registered placement costs, adjusting financial liabilities at the beginning under IFRS. Under Chilean GAAP placement costs were amortized on a straight-line basis over the enforcement period of the bonds obligations.

(3.j)    Investment in Associate adjustment Stora Enso Industria de Papel S.A.

Correspond to earnings adjustment of associate company Stora Enso Industria Papel S.A. in Brazil, in terms of the new earnings under IFRS.

(3.k)    Unrealized Earnings adjustment-associates

Corresponds to the adjustment of unrealized earnings for 2008 tax year, amounting ThU.S.$2,019, determined by new commercialization margins of forest companies, as a result of valuation changes of agricultural products from applying the Biological Assets standards established in IAS 41.

(3.l)    Income resulting from the sale of biological Assets and Property, plant and equipment

Corresponds to the adjustment due to the restatement of earnings as a result of the sale or derecognition of non-current assets under IFRS values determined at converging date, which included changes to valuation for translations to historical dollar, appraisals and changes in estimated useful life.

(3.m)    Consolidated net income of Special Purpose Entity

Corresponds to Special Purpose Entity (SPE) net income, which under IFRS must be consolidated, even when the company holds no equity.

(3.n)    Deferred taxes Adjustment

 

(i)     Derecognition of amortization of complementary accounts adjustment

   575

(ii)    Deferred tax arising from IFRS adjustments

   12,823
    

Total impact of deferred tax

   13,398
    

(i) Corresponds to the derecognition of deferred tax complementary accounts amortization, given that the total balance was initially adjusted against retained earnings. This amortization does not exist under IFRS.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

March 31, 2009

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

 

 

 

(ii)  Corresponds to deferred tax adjustments arising from IFRS adjustments registered within the tax year.

(3.o)    Minority Interests Adjustment

 

Special Purpose Entity (Fondo de Inversión Bío Bío)

   (333

Arauco Florestal Arapoti S.A.

   (3,424

Forestal Los Lagos S.A.

   (1,177

Forestal Cholguán S.A.

   (138

Forestal Arauco S.A.

   58   
      

Minority Interests Total Adjustment

   (5,014
      

(3.p)    Effect of other minor adjustments

Corresponds to other minor adjustments that affect the company’s net income, as a result of applying IFRS.

Equity Reconciliation under previous GAAP and Equity under IFRS at reporting period date

4.    Summary of consolidated net equity reconciliation at March 31, 2008.

 

     At
    03-31-2008    
ThU.S.$
        Note    

Total net equity according to Chilean Accounting Principles

   5,574,561     

Property, plant and equipment adjustment

   873,254      (4.a)

Biological Assets adjustment

   263,883      (4.b)

Functional currency adjustment

   43,112      (4.c)

Negative goodwill adjustment

   97,897      (4.d)

Amortization of purchased goodwill adjustment

   46      (4.e)

Employee benefits actuarial value adjustment

   9,565      (4.f)

Minimum Dividend adjustment

   (289,335   (4.g)

Financial instruments adjustment

   (183,445   (4.h)

Accounted investments applying equity method adjustment

   (138   (4.i)

Cumulative effect of other minor concepts

   1,451      (4.j)

Deferred taxes adjustment

   (402,815   (4.k)

Minority interests adjustment

   (80,836   (4.l)

Intangible assets adjustment

   5,026      (4.m)

Unrealized earnings adjustment

   12,126      (4.n)

Inventory adjustment

   (2,733   (4.o)

SPE receivables

   19,199      (4.p)
        

Total net equity under IFRS

   5,940,818     
        

 

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Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

March 31, 2009

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

 

 

 

Figures in ThU.S.$

(4.a)    Property, plant and equipment adjustment

 

(i)     Appraisal effect

   816,531

(ii)    Consolidation of Special Purpose Entity under IFRS

   56,723
    

Total Adjustment

   873,254
    

(i) The Company applied fair value as deemed cost exemption to land, buildings, and plant and equipment of its pulp plants in Arauco and Constitución, Chile, Misiones in Argentina and its panel plants and sawmill in Brazil. Furthermore, changes were made to the useful life of assets, assigning technical useful lives, which resulted in lower depreciation for the fiscal year 2008 under IFRS standards equivalent to ThU.S.$16,282.

(ii) Corresponds to land owned by the Special Purpose Entity (SPE), which under IFRS must be consolidated.

(4.b)    Biological Assets adjustment

 

(i)     Consolidation of Special Purpose Entity under IFRS.

   83,713

(ii)    Fair value adjustment determined in terms of discounted future cash flows

   180,170
    

         Biological Assets Total Adjustment

   263,883
    

(i) Correspond to forests and plantations owned by the Special Purpose Entity (SPE) as of March 31, 2008, which under IFRS must be consolidated.

(ii) Management established discounted future cash flows as the method to determine the fair value of biological assets, which differs from criteria used under GAAP where biological assets were valued using standard commercial margins for forests with harvesting volume and formation costs for biological assets with no harvesting volume.

(4.c)    Functional currency adjustment

 

(i)     Property, plant and equipment translation to historical dollar functional currency

   41,331

(ii)    Functional currency exchange rate adjustment for subsidiaries in Brazil

   1,781
    
   43,112
    

(i) The Company determined that the functional currency for the majority of the Group’s companies is the US dollar, and proceeded to convert all of its non-monetary assets and liabilities, particularly those related to Property, plant and equipment, to US dollars, using historical exchange rates at the time of the construction or acquisition of the assets.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

March 31, 2009

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

 

 

 

(ii) The Brazilian Real was determined to be the functional currency for subsidiaries in Brazil. Under Chilean Accounting Principles the functional currency for these companies was the US dollar. For this reason, subsidiaries in Brazil adjusted their assets, liabilities and equity from historical US dollars to historical Reales, reported in US dollar at closing exchange rate. The conversion resulted in a lower equity adjustment at opening balance ThU.S.$3,725. The conversion adjustment at March 2008 amounted to ThU.S.$5.506 which resulted in an increase in equity. This is due to the revaluation of the Brazilian Real against the US dollar during the period.

(4.d)    Negative Goodwill adjustment

Higher investment value balances (negative goodwill) at the transition date for ThU.S.$99.338 were adjusted against retained earnings as a consequence of IFRS 3 adoption. As at 12/31/2008 this balance was ThU.S.$97,897, since under Chilean accounting principles an amortization of ThU.S.$1,441 was registered for that tax year.

(4.e)    Purchased goodwill amortization adjustment

Corresponds to the derecognition of the amortization of the lower investment value (purchased goodwill) for ThU.S.$46, since under IFRS this concept is treated as an Intangible Asset which is not amortized.

(4.f)    Employee Benefits actuarial value adjustment

The Company generates obligations for termination of service contract compensation to some workers pursuant to the stipulations of the collective or individual personnel contracts. These obligations were registered under GAAP using the current value of accrued cost method. Under IAS 19, these payments must be registered using the actuarial value method. The difference between both valuation methods resulted in a lower provision as of January 1,2008, ThU.S.$8,439, which was adjusted against retained earnings at the transition date. During the period January to March 2008 a higher provision of ThU.S.$198 was registered against that tax year’s earnings, as well as resulting in a lower provision from initial impact conversion for subsidiaries with Chilean pesos as their functional currency for ThU.S.$1,324.

(4.g)    Minimum Dividend adjustment

The Company has a dividend policy to distribute 40% of net profits annually. This policy is determined each year at the General Shareholders’ Meeting. This implied recognition as of December 31, 2008 of a lower minimum equity dividend of ThU.S.$214,936 corresponds to earnings for the tax year 2007 and ThU.S.$74,399 as profit provision in 2008.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

March 31, 2009

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

 

 

 

(4.h)    Financial instruments adjustment

 

(i)     Derivative instrument valuation adjustment (swap) at fair value

   9,604   

(ii)    Consolidation of IFRS qualifying Special Purpose Entity (swap)

   (12,527

(iii)   Consolidation of IFRS qualifying Special Purpose Entity (loan)

   (192,615

(iv)   Brazil Tax provision Current Value adjustment

   9,569   

(v)    Effective rate bond obligations adjustment

   2,524   
      

         Financial Instruments Total Adjustment

   (183,445
      

(i) Derivative instrument used as hedging under Chilean Accounting Principles, but which does not qualify as such under IFRS. It is therefore treated as an investment derivative instrument. The amount corresponds to derivative adjustment at fair value.

(ii) Corresponds to derivative instrument (swap) owned by the Special Purpose Entity (SPE), which under IFRS must be consolidated. This derivative instrument is treated as an investment and it is valued at fair value.

(iii) Corresponds to the Special Purpose Entity bank loan balance as of December 31, 2008, which under IFRS must be consolidated.

(iv) Corresponds to the current value adjustment of liability of Circulation of Goods and Services tax that the subsidiary Placas do Paraná S.A. has in Brazil.

(v) Corresponds to the valuation of bonds issued in US dollars and in U.F. at amortized cost using the effective interest rate method.

(4.i)    Accounted Investment applying the Equity Method adjustment

Corresponds to the adjustment of investment in subsidiary Stora Enso Industria de Papel S.A. in Brazil for ThU.S.$ (138), determined in terms of its new equity under IFRS.

(4.j)    Accumulated Effect of Other Minor Concepts

Correspond to other minor adjustments due to the application of IFRS, affecting the Company’s net equity.

(4.k)    Deferred tax adjustment

 

(i)     Consolidation of IFRS Special Purpose Entity

   1,272   

(ii)    Deferred taxes arising from IFRS Adjustments

   (336,592

(iii)   Derecognition of complementary accounts accepted under GAAP

   (3,229

(iv)   Unregistered Deferred Taxes of Biological assets before year 2000

   (64,266
      

         Deferred Taxes Total Adjustment

   (402,815
      

(i) Corresponds to Special Purpose Entity (SPE) deferred taxes, which under IFRS must be consolidated.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

March 31, 2009

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

 

 

 

(ii) Corresponds to deferred taxes arising from assets and liability adjustments to IFRS, which constitute a temporary difference between the financial and taxable basis. The main concepts are the following:

 

Deferred taxes for Chilean companies functional currency adjustment

   (7,026

Deferred taxes for appraisal adjustment to Property, plant and equipments

   (289,381

Deferred taxes for appraisal adjustment to Biological Assets

   (34,305

Deferred taxes for derivative instrument (Swap) adjustment at fair value

   (1,633

Deferred taxes for other IFRS adjustments

   (4,247
      

Total deferred taxes arising from IFRS adjustments

   (336,592
      

(iii) Corresponds to the derecognition of complementary account balances of deferred taxes recognized under GAAP. Under IFRS these complementary accounts are not acceptable; therefore they were adjusted against retained earnings at transition date.

(iv) Corresponds to deferred taxes equivalent to those of the in effect biological assets as of December 31,1999, which under GAAP, were exempt from registration.

(4.1)    Minority interest adjustment

 

Special Purpose Entity (Fondo de Inversión Bío Bío and subsidiary)

   (75,738

Arauco Florestal Arapoti S.A.

   (1,752

Alto Paraná S.A.

   8   

Forestal Los Lagos S.A.

   (2,590

Forestal Cholguán S.A.

   (754

Forestal Arauco S.A.

   (10
      

Minority Interest Total Adjustment

   (80,836
      

(4.m)    Intangible assets adjustment

Corresponds to water rights of Arauco’s subsidiaries in the amount of ThU.S.$5,026.

(4.n)    Unrealized Earnings adjustment

Corresponds to adjustment of unrealized earnings for ThU.S.$12,126, determined pursuant to new commercialization margins of forest companies, as a result of changes in the valuation of agricultural products as applied to Biological Assets established under IAS 41.

(4.o)    Inventory adjustment

Corresponds to adjustments to the inventory value at March 31, 2008 pursuant to new production costs under IFRS, resulting from changes in tax year depreciation, determined by Property, plant and equipment values, which include changes in the valuation for historical dollar conversion and appraisals, and changes in estimated useful life, and for changes in wood prices as a result of valuation of wood stock at appraisal value (agriculture products valuation under IAS 41). For Chilean Accounting Principles purposes this cost only included the historical cost, known as incurred real cost.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

March 31, 2009

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

 

 

 

(4.p) Special Purpose Entity Receivables Adjustment

Corresponds to Special Purpose Entity receivables, which under IFRS must be consolidated.

Net Income Reconciliation under previous GAAP and Net Income under IFRS at reporting period date

5. Summary of reconciled Net Income for tax period ended December 31, 2008.

 

     As at
03-31-2008
ThU.S.$
    Note  

Total Net Income under Chilean accounting principles

   187,439     

Depreciation of Property, plant and equipment adjustment

   10,276      5.a

Valuation of agricultural products at fair value adjustment

   (26,464   5.b

Valuation of Biological Assets at fair value adjustment

   9,568      5.c

Subsidiary earnings conversion of functional currency different to the dollar adjustment

   3,636      5.d

Amortization of Negative Goodwill Investment Value adjustment

   (1,441   5.e

Amortization Goodwill Investment Value

   46      5.f

Derivative instrument (swap) valuation at fair value adjustment

   (146   5.g

Employee benefits actuarial value adjustment

   1,037      5.h

Placement Cost adjustment

   (148   5.i

Sales of non current assets adjustment

   (336   5.j

Consolidated net income of Special Purpose Entity adjustment

   1,394      5.k

Deferred Tax Adjustment for IFRS conversion

   3,802      5.l

Minority Interests adjustment

   (1,678   5.m

Effect of other minor adjustments

   84      5.n
        

Total Net Income under IFRS

   187,069     
        

Figures in ThU.S.$

 

(5.a) Depreciation changes to Property, Plant and Equipment adjustment

Corresponds to adjustments in tax year depreciation, determined by Property, plant and equipment values under IFRS, which include changes in the valuation due to translation to historical dollar and appraisals as well as changes in estimated useful life.

 

(5.b) Valuation of Agricultural Products at Fair Value adjustment

Corresponds to higher wood prices as a result of valuation of wood inventories at appraisal value (agriculture products valuation under IAS 41). For Chilean Accounting Principles purposes this cost only included the historical cost, known as the incurred real cost.

 

(5.c) Valuation of Biological Assets at Fair Value adjustment

Corresponds to biological assets fair value adjustment for the tax year, determined according to appraisal criteria stated in Note 21.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

March 31, 2009

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

 

 

 

(5.d) Subsidiary earnings conversion of functional currency different to the dollar adjustment

 

(i)     Derecognition of currency correction of subsidiaries in Chile adjustment

   50

(ii)    Exchange rate for functional currency change in subsidiaries in Brazil adjustment

   3,586
    

Total impact—Exchange rate increase

   3,636
    

(i) Corresponds to the derecognition of currency correction determined under Chilean Accounting Principles for Chilean subsidiaries whose functional currency is the Chilean peso. Under IFRS, currency correcting mechanisms only apply to hyperinflationary economies not applicable to these companies.

(ii) Corresponds to the conversion difference of Brazilian subsidiaries that changed their functional currency from US dollars to Brazilian Reals. This implies that under IFRS these subsidiaries generate conversion difference for holding assets and liabilities in currencies different from Brazilian Reals.

 

(5.e) Negative Goodwill Value Amortization adjustment

Corresponds to the elimination of the amortization to the highest investment value, due to the adjusting in initial impact of all the highest investment value balance against accumulated earnings given that this amortization does not exist under IFRS.

 

(5.f) Goodwill Value Amortization adjustment

Corresponds to the derecognition of amortization to the lower investment value, given that under IFRS the lower investment value or purchased goodwill is not amortized.

 

(5.g) Derivative instrument (swap) valuation at Fair Value adjustment

Corresponds to the adjustment at fair value of derivative instruments treated as hedging instruments under Chilean Accounting Principles, but which do not qualify as such under IFRS, and therefore are treated as investment derivative instruments, which, under IFRS, must be valued at fair value.

 

(5.h) Employee Benefits Actuarial Value adjustment

The Company generates obligations for termination of service contract compensation to some workers pursuant to the stipulations of the collective or individual personnel contracts. These obligations were registered under Chilean Accounting Principles using the current value of accrued cost method. Under IAS 19, these payments must be registered using the actuarial value method.

 

(5.i) Placement costs adjustment

 

(i)     Adjustment of repurchase amortization costs of bonds registered as placement costs

   (86

(ii)    Adjustment of interest for applying effective rate over liability at current value

   (62
      

Placement costs Total adjustment

   (148
      

 

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Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

March 31, 2009

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

 

 

 

(i) Corresponds to the reverse of amortization of placement costs, which for IFRS purposes were adjusted at initiation. Therefore, amortization registered under Chilean accounting principles must be reversed

(ii) Corresponds to accrued interests for the application of effective rate over placement costs that were registered adjusting financial liabilities at initiation under IFRS. Under Chilean Accounting principles placement costs were amortized using the straight-line method during the enforcement period of the bond obligations which originated them.

 

(5.j) Adjustment to income resulting from sale of biological Assets and Property, plant and equipment

Corresponds to the adjustment due to the restatement of earnings as a result of the sale or derecognition of non-current assets under IFRS values determined at converging date, which included valuation changes due to translations to historical dollar, appraisals and changes in estimated useful life.

 

(5.k) Consolidation of Special Purpose Entity net income adjustment

Corresponds to Special Purpose Entity (SPE) net income, which under IFRS must be consolidated, even when the company holds no equity.

 

(5.l) Deferred taxes Adjustment

 

(i)     Adjustment for derecognition of amortization of complementary accounts

   290

(ii)    Adjustment for deferred tax arising from IFRS adjustments

   3,512
    

Total impact deferred tax

   3,802
    

(i) Corresponds to the derecognition of deferred tax complementary accounts amortization, given that the total balance was initially adjusted against retained earnings. This amortization does not exist under IFRS.

(ii) Corresponds to deferred tax adjustments arising from IFRS adjustments registered within the tax year.

 

(5.m) Minority Interests Adjustment

 

Special Purpose Entity (Fondo de Inversión Bío Bío)

   (1,394

Arauco Florestal Arapoti S.A.

   61   

Forestal Los Lagos S.A.

   (313

Forestal Cholguán S.A.

   (36

Forestal Arauco S.A.

   4   
      

Minority Interests Total Adjustment

   (1,678
      

 

(5.n) Effect of other minor adjustment

Corresponds to other minor adjustments, which as a result of IFRS application, affect the Company’s net income.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

March 31, 2009

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

 

 

 

Reconciliation of Statement of Cash Flow, effect of the transition to IFRS for the last period of the Company’s most recent annual financial statements and its cash and cash equivalents under IFRS for the same period.

 

     As at
03-31-2008
(ThU.S.$)
 

Total Net Cash Flow Statement according to Chilean accounting principles

   343,838   

Net Cash Flow of (Used in):

  

Operating

   (1,884

Other Operating Activities

   (3,460

Operating Activities

   (5,344 ) 

Investing Activities

   17,488   

Financing Activities

   (11,100

Net Increase (Decrease) in Cash and Cash Equivalents

   1,044   

Cash and Cash Equivalent Initial Balance

   609   
      

Cash and Cash Equivalents, Reported in the Cash Flow Statement, Closing Balance

   345,491   
      

Cash Flow Statements of Special Purpose Entity Fondo de Inversión Bío Bío and its subsidiary Forestal Río Grande S.A., were incorporated. All Forestry sales performed by Forestal Río Grande S.A. to the Group’s forest companies were eliminated in Arauco’s consolidation.

Disclosure of Impairment Value Recognition or Reversal due to Adoption

There are no impairment provisions to report at the transition date.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

March 31, 2009

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

 

 

 

NOTE 3.    INVENTORIES (IAS 2)

Inventory Policy

Inventory Measurement Policy

Inventories are stated at the lower of cost or net realizable value. The cost is determined using the average cost method.

Formula to determine inventory costs

Cost of finished goods and work-in-progress include design costs, raw material, direct labor, other direct costs and general manufacturing expenses (based on normal operating capacity). Interest costs are not included.

The net realizable value is the estimated selling price in the ordinary course of business, less applicable variable sales costs.

 

Principal Components of Inventory

   03/31/2009
ThU.S.$
   03/31/2008
ThU.S.$

Raw Material

   97,122    89,250

Production Supplies

   42,711    45,090

Work in progress

   36,211    38,610

Finished goods

   452,639    448,979

Other Inventories

   62,214    77,483
         

Total Inventories

   690,897    699,412
         

Inventories at Fair Value less Selling Costs

At current Financial Statement date, goods have been valued at cost.

Inventory Discounts

At current Financial Statements date there are no significant write-offs to report.

Reversion of Inventory Discounts

At current Financial Statement date, there are no reversions to report.

Circumstances that lead to Reverses of Inventory Discounts

There are no Inventory Deduction reverses.

Inventory Costs Recognized as Expenditure during the Period

As of March 31, 2009, a provision increase of ThU.S.$150 was recognized as compared to ThU.S.$150 at March 31, 2008.

Explanation of Pledged Inventories as a Debt Fulfillment Guarantee

At current Financial Statements date, there are no Pledged Inventories to report.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

March 31, 2009

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

 

 

 

NOTE 4. CASH FLOW STATEMENT (IAS 7)

Cash and cash equivalents include cash on hand, in banks, fixed term deposits in financial institutions and other short term highly liquid investments with an initial maturity period of three months or less.

 

Components of Cash and Cash Equivalents

   03/31/2009
ThU.S.$
   12/31/2008
ThU.S.$

Cash on Hand

   164    147

Banks

   54,500    18,515

Short term Deposits

   110,210    72,198

Other Cash and Cash Equivalents

   16,519    17,172
         

Total

   181,393    108,032
         

Reconciliation of Cash and Cash Equivalents

     

Bank Overdraft used for Cash Management

   0    0

Other Reconciliation Items, Cash and Cash Equivalents

   181,479    59,255

Reconciliation of Cash and Cash Equivalent Items, Total

   181,479    59,255

Cash and Cash Equivalents

   181,393    108,032
         

Cash and Cash Equivalents, Reported in the Cash Flow Statement

   362,872    167,287
         

As at March 31, 2009, and December 31, 2008, there were no purchases or sales of investment in subsidiaries to report.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

March 31, 2009

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

 

 

 

NOTE 5. ACCOUNTING POLICIES, CHANGES IN ACCOUNTING ESTIMATES (IAS 8)

Changes in Accounting Policies

Accounting policies adopted in the preparation of these consolidated financial statements are as required by IFRS 1. These policies have been designed in accordance with IFRS in effect as at March 31, 2009 and applied uniformly to all items presented in these consolidated financial statements.

Changes in the Treatment of Accounting Policy

The current consolidated financial statements of Arauco at March 31, 2009 are the Group’s first financial statements prepared under International Financial Reporting Standards (IFRS). The Group’s previous financial statements were prepared according to Generally Accepted Accounting Principles in Chile.

Standards adopted by the Group in Advance

IFRS 8, Operative Segments (applied from January 1, 2009).

IAS 23 (Revised), Financial costs – Review of financial interests according to recognition as capitalization or expenditure (applied from January 1, 2009).

IAS 27 (Revised), Consolidated and individual financial statements – Modifications arising from changes in IAS 3 (applied from July 1, 2009).

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

March 31, 2009

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

 

 

 

NOTE 6.  TAXES (IAS 12)

Deferred income taxes are calculated based on the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the annual consolidated financial statements. However, deferred income tax is not accounted for if it arises from the initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction does not affect accounting or taxable profit or loss. Deferred income tax is determined using tax rates (and laws) enacted or to be enacted at the balance sheet date and expected to come into effect when the corresponding deferred income tax asset is realized or the liability deferred income tax is settled.

Deferred Taxes Assets

Deferred income tax assets are recognized to the extent that it is probable that future tax benefits will be available to compensate for timing differences.

The following table details deferred tax assets:

 

Deferred Tax Assets

       03-31-2009    
ThU.S.$
       12-31-2008    
ThU.S.$

Deferred Tax Assets Relative to Provisions

   20,974    14,414

Deferred Tax Assets Relative to Post-Employment obligations

   1,884    3,651

Deferred Tax Assets Relative to Restatement of Property, Plant and equipment

   100    671

Deferred Tax Assets Relative to Financial Instruments Restatements

   3,038    2,389

Deferred Tax Assets Relative to Tax Losses

   40,549    36,913

Deferred Tax Assets Relative to Others

   22,458    28,367
         

Deferred Tax Assets Total

   89,003    86,405
         

Nature and Tax Loss during Previous and Present Period

At present financial statement date some of Arauco’s subsidiaries show tax losses of ThU.S.$ 187,471 as compared to ThU.S.$ 179,981 as at December 31, 2008 originated mainly due to operational and financial losses.

Deferred Tax Liability

Correspond to income tax amounts payable in future periods related to taxable temporary differences.

Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.

 

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Unaudited Notes to the Consolidated Financial Statement

March 31, 2009

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

 

 

 

The following table details deferred tax liabilities:

 

Deferred Tax Liabilities

       03-31-2009    
ThU.S.$
        12-31-2008    
ThU.S.$
 

Deferred Tax Liabilities Relative to Depreciations

   362,015      338,731   

Deferred Tax Liabilities Relative to Provisions

   1,486      1,532   

Deferred Tax Liabilities Relative to Post-Employment benefits

   61      35   

Deferred Tax Liabilities Relative to Restated Property, Plant and equipment

   310,962      299,045   

Deferred Tax Liabilities Relative to Intangible Asset Restatements

   701      855   

Deferred Tax Liabilities Relative to Financial Instrument restatement

   2,328      2,648   

Deferred Tax Liabilities Relative to Others

   438,384      448,053   
            

Deferred Tax Liabilities Total

   1,115,937      1,090,899   
            

Temporary Differences

The following tables summarizes current asset and liability timing differences:

 

     03-31-2009    12-31-2008

Detail of Types of Deferred Tax Temporary Differences

   Deductible
Difference

ThU.S.$
   Taxable
Difference
ThU.S.$
   Deductible
Difference

ThU.S.$
   Taxable
Difference
ThU.S.$

Deferred Tax Assets

   48,454    —      49,492    —  

Tax Loss

   40,549    —      36,913    —  

Deferred Tax Liabilities

   —      1,115,937    —      1,090,899

 

         03-31-2009             03-31-2008      

Detail of Temporary Difference Profit and Loss Amounts

   ThU.S.$     ThU.S.$  

Deferred Tax Assets

   605      (4,753

Tax Loss

   (2,079   (3,213

Deferred Tax Liabilities

   21,139      18,984   
            

Total

        19,665           11,018   
            

 

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Unaudited Notes to the Consolidated Financial Statement

March 31, 2009

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

 

 

 

Income Tax Expenditure (Income)

Income Tax Expenditure consists of the following:

 

Expense due to Current Income Taxes on Earnings

       03-31-2009    
ThU.S.$
        03-31-2008    
ThU.S.$
 

Current Income Tax Expense

   (9,309   37,039   

Tax Benefit Arising from Unrecognized Tax Assets previously used to Reduce Tax Expense

   (3,037   (2,484

Previous Period Current Tax Adjustments

   (231   —     

Other Current Tax Expenses

   68      20   
            

Current Tax Expenses, Net, Total

   (12,509   34,575   
            

 

Deferred Expense (Income) from Taxes Relative to the Creation and Reversion of Temporary Differences

   21,836      13,772   

Tax Benefit Arising from Unrecognized Tax Assets Previously used to reduce Expenses due to Deferred Taxes

   (2,079   (3,213

Other Deferred Tax Expenses

   (92   459   

Deferred Tax Expenses, Net, Total

   19,655      11,018   
            

Expense (Income) due to Income Tax Total

   7,156      45,593   
            

Income Tax Expenditure Reconciliation using the Effective Rate method

Income tax expenditure reconciliation is as follows:

 

Reconciliation of Tax Expenses using the Legal Rate with Tax Expenses using the Effective Rate

       03-31-2009    
ThU.S.$
        03-31-2008    
ThU.S.$
 

Tax Expense Using Legal Rate

   3,628      39,963   

Tax Effect of Rates in Other Jurisdictions

   3,334      7,666   

Tax Effect of Non Taxable Ordinary Income

   —        (549

Tax Effect of Non Tax Deductible Expenses

   210      —     

Tax Effect from Using Previously Unrecognized Tax Losses

   —        (454

Tax Effect of Excess Tax for Previous Periods

   (231   —     

Other Increases (Decreases) Legal Taxes

   215      (1,033

Adjustment to Tax Expense using the Legal Rate, Total

   3,528      5,630   
            

Tax Expenses Using the Effective Rate

   7,156      45,593   
            

 

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AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

March 31, 2009

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

 

 

 

NOTE 7.  PROPERTY, PLANT AND EQUIPMENT (IAS 16)

Property, plant and equipment measuring basis

Fixed assets are stated at historical cost less depreciation and accumulated impairment losses. Historical cost includes all expenditure directly attributable to goods acquisition.

Land measurement basis

Fixed assets are stated at historical cost less corresponding accumulated impairment losses. Historical cost includes expenditure directly attributable to goods acquisition.

Property, plant and equipment measurement basis (except land)

Fixed assets are stated at historical cost less depreciation and accumulated impairment losses. Historical cost includes all expenditure directly attributable to the acquisition of goods.

Property, plant and equipment depreciation method

Depreciation is primarily determined using the straight-line method to assign revalued amounts and costs to their residual values over their estimated technical useful life.

 

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Unaudited Notes to the Consolidated Financial Statement

March 31, 2009

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

 

 

 

Property, plant and equipment estimated useful life or depreciation rates

Depreciation of Property, Plant and equipment is calculated based on the defined useful life in terms of the years the asset is expected to be used.

 

Properties, Plant and Equipment, by type

Net Properties, Plant and Equipment

   03-31-2009
ThU.S.$
    12-31-2008
ThU.S.$
 

Construction in progress

   391,859      344,562   

Land

   693,105      691,810   

Buildings

   1,189,395      1,197,966   

Plant and equipment

   2,232,997      2,258,930   

Information technology equipment

   18,134      18,595   

Fixed facilities and accessories

   4,514      4,773   

Motorized vehicles

   4,200      4,346   

Others

   100,473      85,932   
            

Total

   4,634,677      4,606,914   
            

Gross Properties, plant and equipment,

    

Construction in progress

   391,859      344,562   

Land

   693,105      691,810   

Buildings

   2,140,558      2,152,163   

Plant and equipment

   3,681,423      3,680,586   

Information technology equipment

   41,627      41,668   

Fixed facilities and accessories

   25,905      17,574   

Motorized vehicles

   8,949      8,837   

Others

   130,078      133,421   
            

Total

   7,113,504      7,070,621   
            

Types of accumulated depreciation and impairment, properties, plant and equipment (presentation)

    

Buildings

   (951,163   (954,197

Plant and equipment

   (1,448,426   (1,421,656

Information technology equipment

   (23,493   (23,073

Fixed facilities and accessories

   (21,391   (12,801

Motorized vehicles

   (4,749   (4,491

Others

   (29,605   (47,489
            

Total

   (2,478,827   (2,463,707
            

 

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AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

March 31, 2009

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

 

 

 

Estimated Useful Life or Depreciation Rate for Properties, Plants and Equipment

 

          Minimum    Maximum

Buildings

   Useful Life in Years    20    100

Plant and equipment

   Useful Life in Years    10    80

Information technology equipment

   Useful Life in Years    3    5

Fixed facilities and accessories

   Useful Life in Years    5    20

Motorized vehicles

   Useful Life in Years    5    20

Others properties, plants and equipment

   Useful Life in Years    3    20

Description of Property, Plant and Equipment Pledged as Guarantee

Regarding Forestal Río Grande S.A, an affiliate of Fondo de Inversión Bío Bío, a Special Purpose Entity, we note that in October 2006, first and second degree mortgages were executed in favor of JPMorgan Chase Bank N.A. and Arauco, respectively, with prohibition to sell and encumber any property currently belonging to the aforementioned Special Purpose Entity, in order to ensure fulfillment of payments to Fondo de Inversión Bío Bío.

In September 2007, Forestal Río Grande S.A acquired real estate in Yungay, located in Chile’s Region VIII, for which the company executed a first mortgage with prohibition to sell and encumber in favor of, among others, JPMorgan. Similarly, a second mortgage with prohibition to sell and encumber was executed in favor of Arauco.

 

         03-31-2009    
ThU.S. $
       12-31-2008    
ThU.S. $

Collateral Amount of Property, Plant and Equipment

   56,224    56,758

Committed Amount for the acquisition of property, plant and equipment

   182,660    225,801

 

         03-31-2009    
ThU.S. $
       03-31-2008    
ThU.S. $

Amount paid on property, plant and equipment accounts

   48,471    57,269

during construction process

     

 

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Unaudited Notes to the Consolidated Financial Statement

March 31, 2009

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

 

 

 

Movement on Property, Plant and Equipment

Movement on properties, plant and equipment at March 31, 2009 and at December 31, 2008 is detailed in the following tables:

 

Movement of Fixed Assets

   Construction
in Progress
ThU.S.$
    Land
ThU.S.$
    Buildings
ThU.S.$
    Plant and
equipments
ThU.S.$
    IT
Equipment
ThU.S.$
    Fixed
Facilities and
Accessories
ThU.S.$
    Motorized
Vehicles
ThU.S.$
    Other
Property,
Plant and
Equipment
ThU.S.$
    Total
ThU.S.$
 

Initial balance 01-01-2009 Changes

   344,562      691,810      1,197,966      2,258,930      18,595      4,773      4,346      85,932      4,606,914   

Additions

   48,471      903      5,269      6,203      28      69      67      17,057      78,067   

Disappropriations

   (124   (572   —        —        (22   —        (10   (346   (1,074

Withdrawals

   —        (8   —        (21   —        —        —        (916   (945

Depreciation costs

   —        —        (13,942   (33,618   (473   (422   (205   (1,858   (50,518

Exchange rate increase (decrease) of foreign currency

   7      972      131      1,077      1      44      (1   2      2,233   

Other increase/decrease

   (1,057   —        (29   426      5      50      3      602      —     

Total Changes

   47,297      1,295      (8,571   (25,933   (461   (259   (146   14,541      27,763   
                                                      

Closing balance 31-03-2009

   391,859      693,105      1,189,395      2,232,997      18,134      4,514      4,200      100,473      4,634,677   
                                                      

 

Movement of Fixed Assets

   Construction
in Progress
ThU.S.$
    Land
ThU.S.$
    Buildings
ThU.S.$
    Plant and
equipments
ThU.S.$
    IT
Equipment
ThU.S.$
    Fixed
Facilities and
Accessories
ThU.S.$
    Motorized
Vehicles
ThU.S.$
    Other
Property,
Plant and
Equipment
ThU.S.$
    Total
ThU.S.$
 

Initial balance 01-01-2008 Changes

   163,550      718,778      1,229,125      2,366,978      15,672      5,709      4,398      97,461      4,601,671   

Additions

   212,205      11,169      22,825      36,352      4,386      231      783      3,968      291,919   

Disappropriations

   —        (476   (37   (3,059   (24   (2   (51   (2,935   (6,584

Withdrawals

   (52   —        —        (1,476   —        —        —        —        (1,528

Depreciation costs

   —        —        (60,028   (134,224   (1,691   (1,267   (786   (8,713   (206,709

Exchange rate increase (decrease) of foreign currency

   (90   (37,661   (4,985   (25,245   (11   (9   —        (3,854   (71,855

Other increase/decrease

   (31,051   —        11,066      19,604      263      111      2      5      —     

Total Changes

   181,012      (26,968   (31,159   (108,048   2,923      (936   (52   (11,529   5,243   
                                                      

Closing balance 31-12-2008

   344,562      691,810      1,197,966      2,258,930      18,595      4,773      4,346      85,932      4,606,914   
                                                      

 

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AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

March 31, 2009

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

 

 

 

NOTE 8.  LEASES (IAS 17)

Fixed asset leases are those in which Arauco holds a significant portion of the risks and rewards of ownership and are classified as financial leases. Financial leases are capitalized at commencement of the lease term at the lower of the fair value of the leased property and the present value of the minimum lease payment.

Leases in which the Lessor holds a significant portion of the risks and rewards of ownership are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease.

When assets are leased under a finance lease, the current value of lease payments is treated as a receivable. The difference between the gross payment to be charged and the current value of said payment is shown as capital return.

Disclosure of Finance Leases Classified by Type of Asset, Leases

 

     03-31-2009
ThU.S.$
   12-31-2008
ThU.S.$

Net, Total, Leased Property, Plant & Equipment (Finance Lease)

   12,185    12,208

Net Leased Land (Finance Lease)

   2,915    2,915

Net Leased Buildings (Finance Lease)

   9,270    9,293

Net Leased Plant and Equipment (Finance Lease)

   —      —  

Net Leased IT Equipment (Finance Lease)

   —      —  

Net Leased Fixed Installations and Accessories (Finance Lease)

   —      —  

Net Leased Motorized Vehicles (Finance Lease)

   —      —  

Net Other Leased Property, Plant and Equipment (Finance Lease)

   —      —  

Reconciliation of Finance Lease Minimum Payments, Lessee

Current Value of Minimum Finance Lease Obligations

 

      03-31-2009

Finance Lease

   Gross
ThU.S.$
   Interest
ThU.S.$
   Current
Value
ThU.S.$

Due within one year

   1,048    16    1,032

Due within one and five years

   —      —      —  

Due beyond five years

   —      —      —  
              

Total

   1,048    16    1,032
              

Current Value of Minimum Finance Lease Obligations

 

      12-31-2008

Minimum lease payments, lease payment obligations

   Gross
ThU.S.$
   Interest
ThU.S.$
   Current
Value
ThU.S.$

Due within one year

   1,409    15    1,394

Due within one and five years

   —      —      —  

Due beyond five years

   —      —      —  
              

Total

   1,409    15    1,394
              

 

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Unaudited Notes to the Consolidated Financial Statement

March 31, 2009

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

 

 

 

Reconciliation of Finance Lease Minimum Payments, Lessor

Current Value of Minimum Finance Lease Payments

 

      03-31-2009

Minimum Finance Lease Payments Receivable, Finance Lease

   Gross
ThU.S.$
   Interest
ThU.S.$
   Current
Value
ThU.S.$

Due within one year

   4,168    556    3,612

Due within one and five years

   6,058    474    5,584

Due beyond five years

   —      —      —  
              

Total

   10,226    1,030    9,196
              

Current Value of Minimum Finance Lease Payments

 

      12-31-2008

Minimum Finance Lease Payments Receivable, Finance Lease

   Gross
ThU.S.$
   Interest
ThU.S.$
   Current
Value
ThU.S.$

Due within one year

   3,429    266    3,163

Due within one and five years

   5,021    244    4,777

Due beyond five years

   —      —      —  
              

Total

     8,450       510    7,940
              

Significant Finance Lease Agreements

Arauco holds finance leases as a lessor and lessee detailed within the previous tables, and therefore, there are no contingent payments or restrictions to note.

 

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Unaudited Notes to the Consolidated Financial Statement

March 31, 2009

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

 

 

 

NOTE 9. POLICY ON ORDINARY REVENUE RECOGNITION (IAS 18)

Policy on ordinary revenue recognition

Revenue comprises the fair value of the consideration received or receivable for the sale of goods and services in the ordinary course of the group’s activities. Revenue is shown net of value-added-tax, returns, rebates, and discounts and after eliminating sales within the Group.

Arauco recognizes revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity and when specific criteria have been met for each of the Group`s activities as described below.

 

(a) Policy on Revenue recognition due to the Sale of Goods

Revenue from the sale of goods are recognized when an Arauco entity has transferred to the buyer the significant risks and rewards of ownership, when the amount of revenue can be reliably measured, when Arauco cannot influence in management of the sold goods and when it is probable that the economic benefits associated with the transaction will flow to the entity.

Sales are recognized in terms of the arranged price stated within the sales contract, net of volume discounts and estimated refunds at the date of the sale. Volume discounts are evaluated in terms of estimated annual purchases. It is assumed that there is no significant financing component given that sales are carried out with a low average time period, which is in line with market practices.

 

(b) Policy on Revenue recognition due to Rendering of Services

Revenue derived from fixed price service contracts are generally recognized during the period of the service contract on a straight-line basis throughout the duration of the contract.

 

Types of Ordinary Revenue

   03-31-2009
ThU.S.$
   03-31-2008
ThU.S.$

Sale of goods

   635,912    912,954

Service Contracts

   24,228    48,292
         

Total

   660,140    961,246
         

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

March 31, 2009

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

 

 

 

NOTE 10. EMPLOYEE BENEFITS (IAS 19)

Disclosure of Termination Benefits

Correspond to severance payment obligations for years of service due to termination of service contracts not covered by the provision, and that arise from benefits stated within work contracts and/or as severance payments stated in the Labor Law.

Description of Recognized Termination Benefits

Estimate of years of service severance payments to be recognized as a future termination payment liability, according to in force work contracts held with the workers and pursuant to actuarial valuation criteria for this type of liability.

Types of Benefits and Expenses by Employee

 

Types of Benefits Expenses by Employee

   03-31-2009
ThU.S.$
   03-31-2008
ThU.S.$

Personnel Expenses

   47,446    49,555

Wages and salaries

   46,416    48,847

Short term employee benefits

   286    366

Termination benefits

   744    342

 

Termination Benefits

   03-31-2009
ThU.S.$
   12-31-2008
ThU.S.$

Recognized liability amount for termination contract, current

   1,994    2,188

Recognized liability amount for termination contract, non-current

   20,686    18,109
         

Recognized liability amount for termination contract, Total

   22,680    20,297
         

 

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AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

March 31, 2009

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

 

 

 

NOTE 11. EFFECT OF FOREIGN CURRENCY EXCHANGE RATE VARIATIONS (IAS 21)

The items included in the financial statements of all Arauco Companies are valued using the Company’s primary economic currency in which the company operates (functional currency). Consolidated financial statements are presented in US Dollars, which is the functional currency of the Parent Company and of the Group.

Functional currency of subsidiaries and associate companies in Brazil is the Brazilian Real. Therefore, their individual financial statements have been expressed according to the presentation currency as follows:

 

(i) Assets and liabilities for each balance sheet are translated at the closing exchange rate;

 

(ii) Incomes and expenses for each income statement are translated at the average monthly exchange rate, given that to date this average has been a fair estimate of the cumulative effect of the exchange rates at the time of the transactions;

 

(iii) All the resulting exchange differences are recognized as a separate component of net equity.

In consolidation, the exchange rate differences arising from the translation of a net investment in companies, which use currencies other than the US Dollar, and those from loans and other instruments in foreign currency recognized as hedging of these investments, are assigned to equity.

 

     03-31-2009
ThU.S.$
    03-31-2008
ThU.S.$

Exchange differences recognized in profit and loss, except for financial instruments measured at fair value through profit and loss

   (9,832   29,566
          

Accumulated translation adjustments

   5,427      18,895
          

 

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AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

March 31, 2009

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

 

 

 

NOTE 12. BORROWING COSTS (IAS 23)

Policy on Loans Accruing Interest

Arauco on a monthly basis accrues interest on loans received.

Policy on Capitalization of Interest Cost

Arauco capitalizes interest on current investment projects.

 

     03-31-2009
ThU.S.$
   03-31-2008
ThU.S.$

Property, plant and equipment capitalized cost

     

Property, plant and equipment capitalized interest cost rate

   5,69    6,38
         

Amount of the capitalized interest cost, property, plant and equipment

   2,773    1,864
         

 

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AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

March 31, 2009

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

 

 

 

NOTE 13. RELATED PARTIES (IAS 24)

Related Party Disclosure

Outstanding balances with related parties at closure of each period correspond mainly to regular commercial operations negotiated in Chilean Pesos and USD, where collection or payment deadlines do not often exceed 30 days and in general do not have adjustment or interest clauses.

Relationship between Controller and Entity

Head Office – Subsidiary

Name of Group’s Main Controller

AntarChile S.A.

Name of the Intermediate Controlling Entity that Prepares Financial Statements for Public Use

Empresas Copec S.A.

Salaries Received by Key Management Personnel by Category

Key personnel salaries consist of a fixed monthly rate, where eventually an annual discretionary bonus may exist.

Pricing Strategy Terms and Conditions Corresponding to Transactions with Related Parties

Transactions with related parties are carried out at an arm’s length basis and are in line with transactions performed on a regular basis in the market.

 

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Unaudited Notes to the Consolidated Financial Statement

March 31, 2009

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

 

 

 

Detail of Relationship between Parent Company and Subsidiary

 

ID N°

  

Company Name

   % Share
03-31-2009
   % Share
12-31-2008
          Direct    Indirect    Total    Direct    Indirect    Total

—  

   Agenciamiento y Servicios Profesionales S.A. (Mexico)    0.0020    99.9966    99.9986    0.0020    99.9966    99.9986

—  

   Alto Paraná S.A. (Argentina)    —      99.9762    99.9762    —      99.9762    99.9762

—  

   Arauco Colombia S.A.(Colombia)    1.5000    98.4976    99.9976    1.5000    98.4976    99.9976

—  

   Arauco Denmark Aps (Denmark)    —      99.9991    99.9991    —      99.9991    99.9991

96.765.270-9

   Arauco Distribucion S.A.    —      99.9992    99.9992    —      99.9992    99.9992

—  

   Arauco Ecuador S.A. (Ecuador)    0.1000    99.8986    99.9986    0.1000    99.8986    99.9986

—  

   Arauco Florestal Arapoti S.A. (Brazil)    —      79.9989    79.9989    —      79.9989    79.9989

—  

   Arauco Forest Brasil S.A. (Brazil.)    33.7137    66.2851    99.9988    33.7137    66.2851    99.9988

—  

   Arauco Forest Products B.V. (Holland)    —      99.9991    99.9991    —      99.9991    99.9991

96.547.510-9

   Arauco Generacion S.A.    98.0000    1.9985    99.9985    98.0000    1.9985    99.9985

—  

   Arauco Honduras S. de R. L. de C.V. (Honduras)    0.0616    99.9370    99.9986    0.0616    99.9370    99.9986

96.563.550-5

   Arauco Internacional S.A.    98.0377    1.9609    99.9986    98.0377    1.9609    99.9986

—  

   Arauco Perú S.A. (Peru)    0.0013    99.9973    99.9986    0.0013    99.9973    99.9986

—  

   Arauco Wood Products, Inc. (USA)    0.3953    99.6033    99.9986    0.3953    99.6033    99.9986

—  

   Araucomex S.A. de C.V. (Mexico)    0.0005    99.9981    99.9986    0.0005    99.9981    99.9986

96.565.750-9

   Aserraderos Arauco S.A.    99.0000    0.9992    99.9992    99.0000    0.9992    99.9992

82.152.700-7

   Bosques Arauco S.A.    1.0000    98.9256    99.9256    1.0000    98.9256    99.9256

96.657.900-5

   Controladora de Plagas Forestales S.A.    —      61.1714    61.1714    —      61.1714    61.1714

—  

   Faplac S.A. (Argentina)    —      99.9979    99.9979    —      99.9979    99.9979

—  

   Flooring S.A. (Argentina)    —      99.9984    99.9984    —      99.9984    99.9984

—  

   Forestal Arauco Guatemala S.A. (Guatemala)    0.1223    99.8763    99.9986    0.1223    99.8763    99.9986

96.573.310-8

   Forestal Arauco S.A.    99.9248    —      99.9248    99.9248    —      99.9248

85.805.200-9

   Forestal Celco S.A.    1.0000    98.9256    99.9256    1.0000    98.9256    99.9256

—  

   Forestal Concepción S.A. (Panama)    0.0050    99.9936    99.9986    0.0050    99.9936    99.9986

—  

   Forestal Cono Sur S.A. (Uruguay)    —      99.9986    99.9986    —      99.9986    99.9986

93.838.000-7

   Forestal Cholguán S.A.    —      97.4281    97.4281    —      97.4281    97.4281

78.049.140-K

   Forestal los Lagos S.A.    —      79.9405    79.9405    —      79.9405    79.9405

—  

   Forestal Misiones S.A. (Argentina)    —      99.9885    99.9885    —      99.9885    99.9885

—  

   Forestal Nuestra Señora del Carmen S.A.(Argentina)    10.0000    89.9987    99.9987    10.0000    89.9987    99.9987

96.567.940-5

   Forestal Valdivia S.A.    1.0000    98.9256    99.9256    1.0000    98.9256    99.9256

—  

   Industrias Forestales S.A. (Argentina)    9.9770    90.0217    99.9987    9.9770    90.0217    99.9987

—  

   Inversiones Celco S.L. (Spain)    31.8904    68.1087    99.9991    31.8904    68.1087    99.9991

79.990.550-7

   Investigaciones Forestales Bioforest S.A.    1.0000    98.9256    99.9256    1.0000    98.9256    99.9256

99.550.470-7

   Molduras Trupán S.A.    1.0000    98.9992    99.9992    1.0000    98.9992    99.9992

96.510.970-6

   Paneles Arauco S.A.    99.0000    0.9992    99.9992    99.0000    0.9992    99.9992

—  

   Placas do Paraná S.A. (Brazil)    7.8207    92.1780    99.9987    7.8207    92.1780    99.9987

96.637.330-K

   Servicios Logisticos Arauco S.A.    45.0000    54.9995    99.9995    45.0000    54.9995    99.9995

—  

   Southwoods-Arauco Lumber and Millwork LLC (USA)    —      —      —      —      99.6110    99.6110

—  

   Leasing Forestal S.A. (Argentina)    —      99.9767    99.9767    —      99.9767    99.9767

—  

   Lucchese Empreendimientos e Participacoes Ltda. (Brazil)    —      99.9885    99.9885    —      99.9885    99.9885

Subsidiaries listed in the above table and Special Purpose Entity Fondo de Inversión Bío Bío and its subsidiary Forestal Río Grande S.A. are included in the consolidation process.

Termination Benefits received by Key Management Personnel

 

     03-31-2009
ThU.S.$
   03-31-2008
ThU.S.$

Short term benefits

   11,130    9,449

Termination benefits

   119    3
         

Total

   11,249    9,452
         

 

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AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

March 31, 2009

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

 

 

 

Related Party Receivables

 

                    03-31-2009    12-31-2008

Name of Related Party

   Corresponding
ID No.
  

Nature of Relationship

   Country of
Origin
   Receivables
ThU.S.$
   Receivables
ThU.S.$

Forestal Mininco S.A.

   91.440.000-7    Other Related Party    Chile    278    824

CMPC Maderas S.A.

   95.304.000-K    Other Related Party    Chile    587    32

Savitar

   —      Other Related Party    Argentina    505    0

EKA Chile S.A.

   99.500.140-3    Associates    Chile    1,873    0

Forestal del Sur S.A.

   79.825.060-4    Other Related Party    Chile    0    3,947

Compañía Puerto de Coronel S.A.

   79.895.330-3    Other Related Party    Chile    0    29

Stora Enso Arapoti Industria de Papel S.A.

   —      Associates    Brazil    0    643
                  

TOTAL

            3,243    5,475
                  

Related Party Payables

 

                    03-31-2009    12-31-2008

Name of Related Party

   Corresponding
ID No.
  

Nature of Relationship

  

Country of
Origin

   Payables
ThU.S.$
   Payables
ThU.S.$

Compañía de Petróleos de Chile S.A.

   99.520.000-7    Other Related Party    Chile    3,845    3,233

Abastible S.A.

   91.806.000-6    Other Related Party    Chile    257    132

Depósitos Portuarios Lirquén S.A.

   96.871.870-3    Other Related Party    Chile    4    4

EKA Chile S.A.

   99.500.140-3    Associates    Chile    5,629    3,951

Empresas Copec S.A.

   90.690.000-9    Parent Company    Chile    86    0

Fundación Educacional Arauco

   71.625.000-8    Other Related Party    Chile    151    105

Sigma S.A.

   86.370.800-1    Other Related Party    Chile    3    0

Codelco Chile

   61.704.000-K    Other Related Party    Chile    5    5

Compañía Sudamericana de Vapores S.A.

   90.166-900-7    Other Related Party    Chile    17    216

Empresa Nacional de Telecomunicaciones S.A.

   92.580.000-7    Other Related Party    Chile    8    12

Servicios Corporativos Sercor S.A.

   96.925.430-1    Associates    Chile    19    3

Forestal del Sur S.A.

   79.825.060-4    Other Related Party    Chile    274    0

Puerto de Lirquén S.A.

   82.777.100-7    Associates    Chile    733    1,488

Compañía Puerto de Coronel S.A.

   79.895.330-3    Associates    Chile    308    0

Dynea Brasil S.A.

   —      Associates    Brasil    59    0

Genómica Forestal S.A.

   76.743.130-9    Associates    Chile    0    169
                  

TOTAL

            11,398    9,318
                  

 

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AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

March 31, 2009

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

 

 

 

Related party transactions

Purchases

 

                03-31-2009    03-31-2008

Name of Related Party

   ID No.    Transaction Detail    Transaction
ThU.S. $
   Transaction
ThU.S. $

Abastible S.A.

   91.806.000-6    Fuel    377    965

Compañía de Petróleos de Chile S.A.

   99.520.000-7    Fuel and Lub.    12,020    26,174

Compañía Puerto de Coronel S.A.

   79.895.330-3    Transport and Stowage    512    853

Compañía Sud Americana de Vapores S.A.

   90.166.900-7    Freight    901    2,296

Codelco

   61.704.000-K    Supplies    599    338

Dynea Brasil S.A.

   —      Chemical Products    6,074    10,172

Dynea Brasil S.A.

   —      Melamine Paper    3,674    5,295

EKA Chile S.A.

   99.500.140-3    Sodium Chlorate    17,732    20,488

Forestal del Sur S.A.

   79.825.060-4    Wood and Logs    719    801

Portaluppi, Guzman y Bezanilla Abogados

   78.096.080-9    Legal Services    315    369

Compañía Puerto de Lirquén S.A.

   82.777.100-7    Port Services    1,978    1,629

CMPC Maderas S.A.

   95.304.000-K    Logs    313    0
Sales            
                03-31-2009    03-31-2008

Name of Related Party

   ID No.    Transaction Detail    Transaction
ThU.S. $
   Transaction
ThU.S. $

Colbún S.A.

   96.505.760-9    Electrical Power    3,537    895

EKA Chile S.A.

   99.500.140-3    Electrical Power    5,557    25,943

Sodimac S.A.

   96.792.430-k    Wood    8,300    18,738

Stora Enso Industria de Papel S.A.

   —      Wood    1,318    2,344

Forestal del Sur S.A.

   79.825.060-4    Woodchip    3,022    3,553

 

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AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

March 31, 2009

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

 

 

 

NOTE 14.    CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS (IAS 27)

Investment Policies

Subsidiary Investment Policy

Subsidiaries are all entities over which Arauco has the power to manage finance and operational policies. This generally means holding more than one half of the voting rights. Stock and the effect of the potential voting rights that are currently being exercised or converted are considered when evaluating whether the Group controls another entity. Subsidiaries are consolidated as of the date in which control is transferred to the Group, and are excluded when control is terminated.

Policy on Subsidiary Accounting in the Parent Company’s Separate financial Statements

Arauco applies the acquisition method to recognize the acquisition of subsidiaries. Acquisition cost is the fair value of assets delivered, of equity instruments issued and of the liabilities incurred or committed at the date of exchange, plus all direct costs attributable to the acquisition. Identifiable acquired assets and liabilities as well as the contingencies committed to in business combinations are initially recognized at fair value at the date of acquisition, despite minority interest scope. Excess of acquisition cost over the Fair Value for the Group’s share of the identifiable net assets acquired is recorded as goodwill. If this is less than Fair Value of the net assets of the subsidiary acquired, the difference is recognized directly in the statement of income.

Intercompany transactions, outstanding balances and unrealized profits derived from the Group’s intercompany transactions are derecognized. Unrealized losses are also derecognized, unless the transaction provides evidence of a loss due to impairment of the transferred asset.

When it is necessary to ensure uniformity with policies adopted by the Group, accounting policies of the subsidiaries are modified.

Disclosure of Subsidiary Investments

On December 18, 2008, a capital contribution was made to the company Lucchese Empreendimientos e Participacoes Ltda. through the subsidiary Alto Paraná S.A. With this, the Group achieved a 99.99% share.

 

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Unaudited Notes to the Consolidated Financial Statement

March 31, 2009

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

 

 

 

Detail of Significant Subsidiaries

The following tables show information on Subsidiary Investments at March 31, 2009 and at December 31, 2008:

 

Significant Subsidiary

   Arauco Internacional S.A.

Country of Incorporation

   Chile

Functional Currency

   US Dollar

Ownership Interest

   99.9986

 

Significant Subsidiary

   Aserraderos Arauco S.A.

Country of Incorporation

   Chile

Functional Currency

   US Dollar

Ownership Interest

   99.9992

 

Significant Subsidiary

   Forestal Arauco S.A.

Country of Incorporation

   Chile

Functional Currency

   US Dollar

Ownership Interest

   99.9248

 

Significant Subsidiary

   Industrias Forestales S.A.

Country of Incorporation

   Argentina

Functional Currency

   US Dollar

Ownership Interest

   99.9987

 

Significant Subsidiary

   Paneles Arauco S.A.

Country of Incorporation

   Chile

Functional Currency

   US Dollar

Ownership Interest

   99.9992

 

Significant Subsidiary

   Arauco Forest Brasil S.A.

Country of Incorporation

   Brazil

Functional Currency

   Real

Ownership Interest

   99.9988

 

Significant Subsidiary

   Placas do Paraná S.A.

Country of Incorporation

   Brazil

Functional Currency

   Real

Ownership Interest

   99.9987

 

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Unaudited Notes to the Consolidated Financial Statement

March 31, 2009

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

 

 

 

NOTE 15.    INVESTMENTS IN ASSOCIATES (IAS 28)

Associates are all the entities over which Arauco has significant influence but no control. This generally implies holding a share of between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method and are initially recorded at cost, and the book value is increased or decreased in order to recognize the corresponding share in the income statement for the period and in the comprehensive income statements as a result of the adjustments from the conversion to other currencies in the financial statements. Arauco investments in associates include the purchased goodwill (net of any loss for accumulated impairment).

Realized Investments

On March 28, 2008, the Savitar Group was acquired through the subsidiary Faplac S.A. with a holding of 20%.

Detail of Investments in Associates

The following table shows information on Investments in Associates at March 31, 2009 and December 31, 2008, respectively:

 

Name of Associate

        Puerto de Lirquén S.A.

Country of Incorporation of Associate

      Chile

Functional Currency

      Pesos

Main Activities of Associate

      Dock and warehousing operations for owned assets and to third parties, loading and unloading of all types of goods, as well as warehousing, transportation and mobilization operations

Percentage Share in Associate %

      20.13809
   
          

03-31-2009

  

12-31-2008

     

Cost of Investment in Associate

        ThU.S.$24,919    ThU.S.$24,919     
              

Name of Associate

        Inversiones Puerto Coronel S.A.

Country of Incorporation of Associate

      Chile

Functional Currency

      US Dollar

Main Activities of Associate

      Investments in all kinds of personal and real estate, company acquisitions and all kinds of securities and investment instruments, investment management and development and/or participation in all kinds of businesses and companies related to industrial, port, forest and commercial activities.

Percentage Share in Associate %

      50.00
   
          

03-31-2009

  

12-31-2008

     

Cost of Investment in Associate

        ThU.S.$25,815    ThU.S.$25,741     

 

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Unaudited Notes to the Consolidated Financial Statement

March 31, 2009

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

 

 

 

Name of Associate

        Servicios Corporativos Sercor S.A.

Country of Incorporation of Associate

      Chile

Functional Currency

      Pesos

Main Activities of Associate

      Consulting services to Boards of Directors and Management of all kinds of companies related to Business Management

Percentage Share in Associate

      20.00
   
          

03-31-2009

  

12-31-2008

     

Cost of Investment in Associate

        ThU.S.$1,039    ThU.S.$953     
             

Name of Associate

        Eka Chile S.A.

Country of Incorporation of Associate

      Chile

Functional Currency

      Pesos

Main Activities of Associate

      Production, import, export and in general, the acquisition, disposal and commercialization of chemical products, machinery and equipment for industrial processing. Additionally, the Company can offer maintenance services to the above mentioned equipment

Percentage Share in Associate

      50.00
   
          

03-31-2009

  

12-31-2008

     

Cost of Investment in Associate

        ThU.S.$29,410    ThU.S.$28,932     
             

Name of Associate

        Dynea Brasil S.A.

Country of Incorporation of Associate

      Brazil

Functional Currency

      Real

Main Activities of Associate

     

a) Production and sale of resins;

b) Paper Impregnation for panel coating and commercialization

Percentage Share in Associate

      50.00
   
          

03-31-2009

  

12-31-2008

     

Cost of Investment in Associate

        ThU.S.$12,622    ThU.S.$12,235     
             

Name of Associate

        Stora Enso Arapoti Industria de Papel S.A.

Country of Incorporation of Associate

      Brazil

Functional Currency

      Real

Main Activities of Associate

      Industrialization and commercialization of paper and cellulose, raw materials and by-products

Percentage Share in Associate

      20.00
   
          

03-31-2009

  

12-31-2008

     

Cost of Investment in Associate

        ThU.S.$35,052    ThU.S.$34,442     

 

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Unaudited Notes to the Consolidated Financial Statement

March 31, 2009

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

 

 

 

Name of Associate

        Genómica Forestal S.A.     

Country of Incorporation of Associate

      Chile     

Functional Currency

      Pesos     

Main Activities of Associate

      Developing forestry genomics, through the use of biotechnological, molecular and bioinformatic tools with the sole purpose of strengthening company genetic programs and with this, improve the competitive position of Chilean forestry industries for priority species.     

Percentage Share in Associate

      25.00     
   
          

03-31-2009

  

12-31-2008

     

Cost of Investment in Associate

        ThU.S.$17    ThU.S.$8     
           

Name of Associate

        Savitar     

Country of Incorporation of Associate

      Argentina     

Functional Currency

      US Dollar     

Main Activities of Associate

      Timber Farming     

Percentage Share in Associate

      20.00     
   
          

03-31-2009

  

12-31-2008

     

Cost of Investment in Associate

        ThU.S.$1,641    ThU.S.$1,641     

Summarized financial Information of Associates

 

     03-31-2009
     Sum of Assets
ThU.S. $
   Sum of Liabilities
ThU.S.$

Current assets of associates

   154,659    102,873

Non-current assets of associate

   323,121    374,907
         

Total Associates

   477,780    477,780
         

 

     12-31-2008  
     Sum of Assets
ThU.S. $
    Sum of Liabilities
ThU.S.$
 

Current assets of associates

   149,666      43,189   

Non-current assets of associate

   323,247      429,724   
            

Total Associates

   472,913      472,913   
            
     03-31-2009
ThU.S.$
    03-31-2008
ThU.S.$
 

Ordinary income of associates

   35,353      38,290   

Ordinary expenses of associates

   (32,131   (37,436
            

Net profit (loss) of associates

   3,222      854   
            

Equity has been considered within the Associates Non-current Liabilities.

 

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AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

March 31, 2009

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

 

 

 

Investment in Associates

 

     03-31-2009
ThU.S.$
   12-31-2008
ThU.S.$
 

Investments in associates accounted for using the equity method, opening balance

   128,871    140,797   

Investment Changes in Associate Companies (presentation)

     

Investment in Associates, Additions

   —      10,353   

Equity in Ordinary Profit (Loss) investments in associates

   1,141    7,402   

Dividends Received, Investments in Associates

   —      (5,797

Impairment, Investments in Associates

   —      (511

Increase (Decrease) in foreign exchange translation investment in associates

   503    (23,373

Changes in Associate Company Investments, Total

   1,644    (11,926
           

Investments in Associates accounted for using the equity method, closing balance

   130,515    128,871   
           

 

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Unaudited Notes to the Consolidated Financial Statement

March 31, 2009

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

 

 

 

NOTE 16.    INTERESTS IN JOINT VENTURES (IAS 31)

Policy on Accounting for Joint Venture Businesses in Separate Financial Statements of a Parent Company

Equity in joint ventures is accounted for using the equity method. Pursuant to IAS 31, we have opted for registering the investment by applying the equity method.

Once the investor has reduced the value of the investment to zero, additional losses shall be accounted for through liability recognition, only if incurred in legal or implicit obligations, or if payments have been made on behalf of the associate of the Joint Venture. If the Joint Venture associate receives subsequent earnings, the investor shall continue to recognize its part when the share of said earnings equals the corresponding unrecognized losses.

Disclosure of Joint Venture Interests

Arauco holds a 50% share in jointly held Eka Chile S.A., a company that sells sodium chlorate to cellulose plants in Chile. A contractual agreement exists with the company in which Arauco has initiated joint venture economic activities.

Summarized Joint Venture Financial Information

Summary of total Joint Venture Assets, Liabilities, Expenses and Income

 

     03-31-2009    12-31-2008
     Sum of
Assets

US$
   Sum of
Liabilities

US$
   Sum of
Assets

US$
   Sum of
Liabilities

US$

Joint Venture Current Assets

   36,661    9,551    33,457    8,190

Joint Venture Non-Current Assets

   35,468    62,578    34,986    60,253
                   

Total Joint Venture

   72,129    72,129    68,443    68,443
                   

Eka Chile S.A equity is recognized in Noncurrent Liabilities

 

     03-31-2009    03-31-2008           

Joint Venture Ordinary Incomes

   16,450    22,283        

Joint Venture Expenses

   15,494    26,360        
                

Joint Venture Net Profit (Loss)

   956    (4,077     
                

Detail of Significant Joint Ventures

Name of Joint Venture

Eka Chile S.A.

Principal Joint Venture Activities

Production, import, export and in general, the acquisition, sale and commercialization of chemical products, machinery and equipment for the industrial processing of these products. Additionally, the Company offers maintenance services for the aforementioned machinery and equipment.

 

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Unaudited Notes to the Consolidated Financial Statement

March 31, 2009

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

 

 

 

Country of Incorporation of the Joint Venture

Chile

Cost of Investment of Joint Venture

At March 31, 2009 investment in Eka Chile S.A. amounted ThU.S.$29,410 and as of December 31, 2008 the investment amounted ThU.S.$28,932.

Percentage of participation of Joint Venture

50 %

Joint Venture Summarized Financial Information

Summary of Total Joint Venture Assets, Liabilities, Income and Expenses

 

     03-31-2009
ThU.S. $
   12-31-2008
ThU.S. $
 

Joint Venture total assets

   72,129    68,443   

Joint Venture current assets

   36,661    33,457   

Joint Venture Non-Current Assets

   35,468    34,986   

Joint Venture Total Liabilities

   72,129    68,443   

Joint Venture Current Liabilities

   9,551    8,190   
           

Joint Venture Non-current Liabilities

   62,578    60,253   
           

 

     03-31-2009
ThU.S. $
   03-31-2008
ThU.S. $
 

Joint Venture Ordinary Income

   16,450    22,283   

Joint Venture Expense

   15,494    26,360   
           

Joint Venture Net Profit (Loss) Amount

   956    (4,077
           

 

76


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

March 31, 2009

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

 

 

 

NOTE 17.    EARNINGS PER SHARE (IAS 33)

Disclosure of Earnings Per Share

As a general matter, the Company expects to maintain its policy on dividends, for all future tax periods, around 40% of net profits to be distributed for each tax year; considering the alternative of a provisional dividend at year end.

Disclosure of Loss of Earnings per Share