EX-99.1 2 dex991.htm UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2009 Unaudited consolidated financial statements as of June 30, 2009
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


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statement

June 30, 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 June 30, 2009 are as follows:

 

Assets

   06/30/2009
ThU.S.$
   12/31/2008
ThU.S.$

Current assets

   2,078,149    1,961,321

Other assets

   8,500,073    8,277,823
         

Total assets

   10,578,222    10,239,144
         

Liabilities and Shareholders’ Equity

   06/30/2009
ThU.S.$
   12/31/2008
ThU.S.$

Current liabilities

   790,797    812,915

Long-term liabilities

   3,654,618    3,418,993

Minority interest

   119,883    117,682

Shareholders’ equity

   6,012,924    5,889,554
         

Total liabilities and shareholders’ equity

   10,578,222    10,239,144
         

Total assets increased by 3.3%, or U.S.$339 million, from December 31, 2008 to June 30, 2009. This increase is mainly attributable to an increase in property, plant and equipment, financial assets, biological assets, financial assets and tax receivables.

Total liabilities increased by U.S.$214 million from December 31, 2008 to June 30, 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

June 30, 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

   06/30/2009    12/31/2008

Current ratio

   2.63    2.41

Acid ratio

   1.50    1.23

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 inventories and biological assets 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

   06/30/2009    12/31/2008

Debt to equity ratio

   0.72    0.70

Short-term debt to total debt

   0.18    0.19

Long-term debt to total debt

   0.82    0.81
     06/30/2009    06/30/2008

Financial expenses covered

   2.00    5.67

Current liabilities decreased modestly from 19% of total liabilities as of December 31, 2008 to 18% of total liabilities as of June 30, 2009. The decrease is attributable to a lower proportional decrease in current liabilities and an increase in long-term liabilities, due to an increase in bank obligations.

The ratio of financial expenses covered decreased from 5.67 points in June 2008 to 2.00 points in June 30, 2009. The decrease is attributable to a higher decrease in current profits related to financial expenses.

 

Operational ratios

   06/30/2009    12/31/2008

Inventory turnover

   1.09    2.61

Inventory turnover (excluding forests)

   1.50    3.84

Inventory permanence (days)

   165.12    137.72

Inventory permanence (excluding forests)

   120.40    93.75

The ratio of inventory turnover decreased from 2.61% as of December 31, 2008 to 1.09% points as of June 30, 2009. For this reason, the inventory permanence ratio increased during the period ending June 30, 2009, due to a proportionally higher increase in production volume with regard to the increase in sales.

 

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Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statement

June 30, 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

   06/30/2009
ThU.S.$
   06/30/2008
ThU.S.$

Pulp

   764,346    1,050,452

Sawn timber and cut wood

   218,211    383,299

Plywood and fiber panels

   359,065    483,790

Forestry products

   43,907    53,537

Other

   7,411    13,626
         

Total operating income

   1,392,940    1,984,704
         

Operating costs

   06/30/2009
ThU.S.$
   06/30/2008
ThU.S.$

Timber

   273,467    359,782

Forestry work

   157,765    192,659

Depreciation

   89,548    91,002

Other costs

   487,631    503,469
         

Total operating costs

   1,008,411    1,146,912
         

Analysis of Gross Profit

Gross Profit includes net income of U.S.$385 million in 2009 compared to U.S.$838 million in 2008, a decrease of U.S.$453 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.$83 million in 2009, compared to U.S.$425 million in 2008. The change was primarily caused as described in the following table:

 

Item

   Million
U.S.$
 

Gross profit

   (453

Other operating income

   59   

Distribution costs

   50   

Administrative expenses

   22   

Foreign currency exchange rate

   (25

Others net

   5   
      

Net change in outcome before income tax

   (342
      

The decrease in the exchange rate 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.

 

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Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statement

June 30, 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 pulp market bottomed at the beginning of second quarter 2009. During the following months the pulp market has experienced an important increase in prices and volume demand. This recovery has been triggered by different factors in each market, ranging from supply shortage to increase in paper production compared to first quarter 2009. Most of this recovery has been pushed by Asian markets - in particular China - starting in April and May.

Asian paper production has shown strong activity, especially in China, Korea, Taiwan and Indonesia, and therefore a greater pulp demand than expected. At the price levels seen during the first quarter of 2009, many pulp producers decreased production to balance their stock levels, and local Chinese producers stopped their integrated production, shifting consumption to imported pulp. This had a significant impact over pulp demand, pushing price levels upwards in China and Asia in general.

Markets with less activity, such as Europe, show low inventory levels because pulp producers are shifting their shipments towards Asia. As a consequence, Europe has had an important decrease in inventory levels and a resulting impact on price. On the other hand, European paper manufacturers are concerned about being less attractive to their pulp suppliers than their Asian competitors. In addition, the European paper market continues to be depressed. Furthermore, during this second quarter the prices of some types of paper have continued to fall with continuous margin erosion. The financial situation of European paper manufacturers is delicate and there are no signs of turnaround. Currently there is paper supply overcapacity, and, therefore, the pulp and paper market restructuring is expected to continue in Europe. Europe is also facing an important supply of imported paper, specifically coming from China, Indonesia and Korea. With a currently strong Euro (US$144/Eu) it is hard to decrease imports, especially if local consumption, as in China, is still low compared with new investments in additional capacity of paper production.

 

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Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statement

June 30, 2009

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

 

 

 

3. MARKET SITUATION, continued

The Middle East market has recovered, but only as a reaction to low pulp supply. Paper consumption continues with low activity, so its situation is more similar to Europe than to Asia. The only exception is India, which has been showing an active market with new production projects, however, it still remains a relatively small market.

North America has had a small increase in paper demand, which is being supplied mainly with imported paper coming from Korea and Indonesia. Pulp production in the U.S.A. is also higher because the local industry has been able to weather low prices thanks to the tax subsidy pulp producers receive when mixing a small fraction of oil with Black Liquor, fuel oil no longer required to produce the fuel needed for the process.

This subsidy has affected the competitiveness of not only American recycled paper producers, but also of all world pulp producers which do not benefit from the before mentioned subsidy. The American pulp industry received during the first six months of 2009 an estimated amount of U.S.$3 billion, mostly benefitting twenty one firms registered in the U.S. Securities and Exchange Commission. Despite the Obama administration and some U.S. congressmen having expressed an intention not to renew this subsidy, which expires at the end of this year, other congressmen desire to extend it. There is no doubt this subsidy is producing a distortion in the international pulp and paper markets.

Sawn Timber

The US Housing industry has showed a slight tendency to recover during the second quarter of 2009. Homebuilding reached levels of nearly 580.000 houses by June. Current constructions levels remain the lowest in the last 50 years. During the second quarter of the year there was a slight rise in prices and sales volume of moldings and wood products, however, sales are still low compared with the same period of the last year.

During the second quarter there is a trend change in demand for forest products in most markets. We can see a rebound in demand and slight improvement in prices, especially in Asia (excluding Japan) and Latin America; however sales volume and price of sales of the forestry products remain well below the levels reached during the second quarter of 2008.

Panels

At the end of the second quarter of this year, panel sales experienced a decrease of 25% compared to the same period of 2008. At the same time, sales volumes also decreased by in 5.5%. That is, volumetric sales have been maintained at similar levels compared with 2008; however, there has been a strong need to adjust selling prices to achieve these volumes sold in the markets. The above mentioned percentages do not consider the energy sales to the subsidiaries and to the Central Interconnected System.

 

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Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statement

June 30, 2009

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

 

 

 

3. MARKET SITUATION, continued

During the second quarter of 2009, our plywood sales showed a slight recovery in volume, mostly explained by an increase in our North American market share, rather than by an increase in overall demand. However, plywood prices continue depressed in all markets. The European market continues with low activity, but with low stock levels of plywood, which has allowed increasing sales. Similar to our first quarter, the global crisis, along with currency devaluation in markets in which we participate, have forced prices downward in order to maintain competitiveness.

Although our sales of MDF moldings are lower than the same period last year, prices have remained stable and volume has increased during this second quarter.

Despite the impact of the global crisis over Latin America, we were able to maintain and even in some markets increase our sales volumes of MDF and Hardboard (Cholguán).

A production level, all plants are operating within the plans.

The last months of our first semester showed some signs of recovery, and we expect to see during the second semester an increase in both volume and prices among our product portfolio.

 

4. ANALYSIS OF CASH FLOW

 

     06/30/2009
ThU.S.$
    06/30/2008
ThU.S.$
 

Operating cash flow

   249,283      343,065   

Cash flow from financing activities

   73,772      (105,463

Cash flow from investment activities

   (192,767   (212,541
            

Net cash flow for the period

   130,288      25,061   
            

We had a positive operating cash flow of U.S.$249 million compared to a U.S.$343 million for the same period in 2008, resulting from a decrease in client recovery, partially offset by payments to suppliers and personnel.

Cash flow from financing activities as of June 30, 2009 was a positive balance of U.S.$73 million compared to a negative balance of U.S.$105 million for the same period in 2008. This change resulted from issuing bonds partially offset by a decrease in bank loans and in a dividends paid.

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

 

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Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statement

June 30, 2009

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

 

 

 

5. MARKET RISK ANALYSIS

In respect of the economic risks resulting from interest rate variations, the Company maintains, as of June 30, 2009, a ratio of fixed rate debt to 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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Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Classified Financial Statement

June 30, 2009

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

 

 

FINANCIAL STATEMENT

 

     Note    06/30/2009
ThU.S.$
   12/31/2008
ThU.S.$
   01/01/2008
ThU.S.$

Assets

           

Current Assets

           

Operative Current Assets

           

Cash and cash equivalents

   4    316,740    167,308    267,872

Financial assets at fair value through profit or loss

   23    7,183    13,469    10,626

Trade and Other receivables-net

   23    595,248    588,803    686,726

Related party receivables

   13    3,135    5,475    11,379

Inventories

   3    657,833    691,206    529,478

Biological assets

   21    232,805    268,289    304,299

Prepaid expenses

      72,580    74,331    54,194

Tax receivables

      184,333    148,670    122,219

Other current assets

      8,292    3,770    1,738

Total Operative Current Assets

      2,078,149    1,961,321    1,988,531
                 

Total Current Assets

      2,078,149    1,961,321    1,988,531
                 

Non Current Assets

           

Trade and Other receivables

   23    9,710    7,864    17,099

Investment in associates through equity method

   15    141,669    141,590    153,861

Intangible assets

   20    18,085    14,469    15,640

Property, plant and equipment

   7    4,695,817    4,613,199    4,609,641

Biological assets

   21    3,508,077    3,384,144    3,518,720

Deferred tax assets

   6    90,340    86,525    81,295

Hedge assets

   23    2,541    0    0

Prepaid expenses

      23,550    21,169    16,530

Other non-current assets

      10,284    8,863    24,424

Total non-current assets

      8,500,073    8,277,823    8,437,210
                 

Total Assets

      10,578,222    10,239,144    10,425,741
                 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Classified Financial Statement

June 30, 2009

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

 

 

 

FINANCIAL STATEMENT (continued)

 

     Note    06/30/2009
ThU.S.$
    12/31/2008
ThU.S.$
    01/01/2008
ThU.S.$

Liabilities

         

Current Liabilities

         

Operative Current Liabilities

         

Loans that accrue interest

   23    427,338      372,622      336,363

Other financial liabilities

   23    12,030      14,051      7,007

Trade and Other payables

   23    288,758      309,704      309,127

Related party payables

   13    9,003      9,102      8,116

Provisions

   19    4,499      3,753      2,320

Current tax payables

      19,979      10,325      40,960

Other liabilities

      25,378      88,542      214,933

Deferred income

      1,615      2,628      4,671

Post employment benefit obligations

   10    2,197      2,188      2,478

Total Operative Current Liabilities

      790,797      812,915      925,975
                   

Total Current Liabilities

      790,797      812,915      925,975
                   

Non Current Liabilities

         

Loans that accrue interest

   23    2,450,455      2,279,321      2,381,329

Provisions

   19    6,037      5,585      6,271

Deferred tax liabilities

   6    1,149,935      1,091,697      1,093,597

Other liabilities

      24,865      24,045      35,446

Deferred income

      279      236      299

Post employment benefit obligations

   10    23,047      18,109      19,445
                   

Total non-current liabilities

      3,654,618      3,418,993      3,536,387
                   

Net Equity

         

Net equity attributable to parent company net equity instrument holders

         

Issued capital

      353,176      353,176      353,176

Other reserves

      (51,896   (139,238   0

Retained profit/loss (accumulated losses)

      5,711,644      5,675,616      5,465,431

Net equity attributable to parent company net equity instrument holders

      6,012,924      5,889,554      5,818,607

Minority interest

      119,883      117,682      144,772

Total net equity

      6,132,807      6,007,236      5,963,379
                   

Total net equity and liabilities

      10,578,222      10,239,144      10,425,741
                   

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Income Statement

June 30, 2009

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

 

 

FINANCIAL INCOME STATEMENT BY ACTIVITY

 

     Note    January-June     April-June  
        2009
ThU.S.$
    2008
ThU.S.$
    2009
ThU.S.$
    2008
ThU.S.$
 

Profit (loss) from operations

           

Revenue

   9    1,392,940      1,984,704      732,800      1,023,458   

Cost of sales

      (1,008,411   (1,146,912   (526,192   (609,260

Gross profit

      384,529      837,792      206,608      414,198   

Other operating income

   1    100,795      41,451      54,954      23,987   

Marketing costs

      (2,858   (3,481   (1,215   (1,262

Distribution costs

      (182,921   (232,770   (102,237   (127,727

Research and development

      (702   (594   (294   (243

Administrative expenses

      (108,529   (130,432   (52,757   (63,886

Other operating expenses

      (24,979   (22,612   (14,312   (10,170

Financial costs

   1    (83,445   (91,013   (41,895   (41,525

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

      5,947      2,495      4,804      1,568   

Exchange rate differences

   11    395      25,892      10,227      (3,674

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

   1    (4,344   (1,168   (1,332   (552

Other profit (losses)

      (448   (511   (449   (742

Profit (loss) before income tax

      83,440      425,049      62,102      189,972   

Income tax expenses/(income)

   6    (19,773   (83,907   (12,617   (38,314

Profit (loss) from continuing operations after tax

      63,667      341,142      49,485      151,658   

Profit (Loss) from Discontinued operations, Net of Tax

      0      0      0      0   
                           

Profit (loss)

      63,667      341,142      49,485      151,658   
                           

Profit (Loss) attributable to equity holders

           

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

      60,043      332,516      46,417      145,447   

Profit (loss) attributable to minority interest

      3,624      8,626      3,068      6,211   

Profit (loss)

      63,667      341,142      49,485      151,658   

Ordinary Shares

           

Basis earnings (losses) per share

      0.0005627      0.0030149      0.0004373      0.0013403   

Earning (losses) per share from discounting operations

      0      0      0      0   

Earning (losses) per share from continuing operations

      0.0005627      0.0030149      0.0004373      0.0013403   
          January-June     April-June  
          2009
ThU.S.$
    2008
ThU.S.$
    2009
ThU.S.$
    2008
ThU.S.$
 

Comprehensive Income Statement

           

Profit (loss)

      63,667      341,142      49,485      151,658   

Other income and expenses with charge or credit to net equity

           

Cash flow hedges

      (3,829   0      140      0   

Currency translation differences

      98,064      60,279      92,244      40,678   

Adjustments associated

      1,128      (1,568   1,128      (1,568

Other income and expenses charged to or credit to net equity

      95,363      58,711      93,512      39,110   
                           

Comprehensive income statement

      159,030      399,853      142,997      190,768   
                           

Comprehensive Income and Expense Statement Attributable to:

           

Comprehensive income and expenses statement attributable to majority shareholders

      147,385      385,300      132,301      179,336   

Comprehensive income and expenses statement attributable to minority shareholders

      11,645      14,553      10,696      11,432   

Total comprehensive income and expense

      159,030      399,853      142,997      190,768   

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Statement of Changes in Net Equity

June 30, 2009

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

 

 

STATEMENT OF CHANGES IN NET EQUITY

 

     Ordinary
Shares
   Reserves     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.$
 

06/30/2009

   Share Capital
ThU.S.$
   Conversion
Reserves

ThU.S.$
    Hedge
Reserves

ThU.S.$
    Other
Reserves

ThU.S.$
         
                 

Opening balance at 01/01/2009

   353,176    (136,223   0      (3,015   5,675,616      5,889,554      117,682      6,007,236   

Changes

                 

Comprehensive income and expenses statement

   0    90,043      (3,829   1,128      60,043      147,385      11,645      159,030   

Cash dividends declared

   0    0      0      0      (24,015   (24,015   0      (24,015

Other increases (decreases) in net equity

   0    0      0      0      0      0      (9,444   (9,444

Changes in equity

   0    90,043      (3,829   1,128      36,028      123,370      2,201      125,571   
                                               

Closing balance at 06/30/2009

   353,176    (46,180   (3,829   (1,887   5,711,644      6,012,924      119,883      6,132,807   
                                               
      Ordinary
Shares
   Reserves     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.$
 

06/30/2008

   Share Capital
ThU.S.$
   Conversion
Reserves
ThU.S.$
    Hedge
Reserves
ThU.S.$
    Other
Reserves
ThU.S.$
         

Opening balance previous period 01/01/2008

   353,176    0      0      0      5,465,431      5,818,607      144,772      5,963,379   

Changes

                 

Comprehensive income and expenses statement

   0    54,352      0      (1,568   332,516      385,300      14,553      399,853   

Cash dividends declared

   0    0      0      0      (140,582   (140,582   0     (140,582

Other increases (decreases) in net equity

   0    0      0      0      0      0      (8,684   (8,684

Changes in equity

   0    54,352      0      (1,568   191,934      244,718      5,869      250,587   
                                               

Closing balance at 06/30/2008

   353,176    54,352      0      (1,568   5,657,365      6,063,325      150,641      6,213,966   
                                               

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Statement of Cash Flow

June 30, 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

       06/30/2009    
ThU.S.$
        06/30/2008    
ThU.S.$
 

Net income

   1,635,882      1,957,632   

Research and development disbursements

   (702   (594

Payments to suppliers

   (1,323,650   (1,495,298

Paid salaries

   (90,837   (94,963

Payments received and forwarded by the Value Added Tax

   96,755      69,716   

Other collections (payments)

   7,827      7,508   
            

Cash flows by (used in) Operating, Total

   325,275      444,001   
            

Cash flows by (used in) Other Operating Activities

    

Amounts received from interest received classified as operating

   11,994      1,111   

Amounts Received from Interest Received Classified as Operating

   10,516      9,774   

Interest payments classified as operating

   (73,129   (76,014

Amounts received by the Income Tax Returned

   28,311      34,079   

Income tax payments

   (53,684   (69,886

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

   (75,992   (100,936
            

Cash flows net of (used in) Operating Activities

   249,283      343,065   
            

Cash flows from (used in) Investing Activities

    

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

   179      373   

Proceeds from sale (disappropriation) of biological assets

   858      3,993   

Other cash flows from (used in) investing activities

   32      128   

Purchase of property, plant and equipment

   (133,273   (155,819

Payments for biological assets purchase

   (48,883   (56,304

Payments for acquiring subsidiaries

   (10,131   0   

Payments for acquiring associates

   0      (4,353

Other investing disbursements

   (1,549   (559
            

Cash flows from (used in) Investing Activities

   (192,767   (212,541
            

Cash flows from (used in) Financing Activities

    

Loans obtained

   536,078      459,809   

Bonds issued

   142,127      0   

Loan payments

   (506,110   (359,519

Dividend payments to minority interests

   (9,424   (8,656

Dividend payments by the reporting entity

   (88,449   (197,097

Other Cash Flows from (Used in) Financing Activities

   (450   0   
            

Cash flows from (used in) Financing Activities

   73,772      (105,463
            

Net increase (decrease) of Cash and Cash Equivalents

   130,288      25,061   

Effect of exchange rate variations on cash and cash equivalents

   19,144      (1,820

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

   167,308      267,872   

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

   316,740      291,113   

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

June 30, 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 Ltda., subsidiary of Arauco, is also registered on the Registry of Securities (Register No. 030).

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

El Golf Avenue 150, floor 14, Las Condes.

Legal Structure of Reporting Entity

Privately Held Corporation.

Country of Incorporation

Chile.

Company’s Registered Office or Head office address

El Golf Avenue 150, floor 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.

Name of Parent Company

Empresas Copec S.A.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

June 30, 2009

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

 

 

 

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 June 30, 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

June 30, 2009.

Period Covered by the Financial Statements

January 1, 2009 to June 30, 2009.

Financial Statements

Consolidated Financial Statements of Arauco.

Date of Approval of Financial Statements

The issuance of these interim consolidated financial statements for the period of six months finished on June 30, 2009 was approved by the Board in Extraordinary Session No. 407 to September 01, 2009.

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 large 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

June 30, 2009

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

 

 

 

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 that 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.

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).

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

June 30, 2009

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

 

 

 

Quantitative Information on Capital Management

Financial guarantees of the Company are as follows:

 

Instrument

   Amount at
06/30/2009
(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

   377,102    203,668    N/A    N/A   ü    N/A

Syndicated Bank Loans

   80,012    160,378    ü    ü       ü    N/A

Forestal Río Grande S.A. Loan

   156,144    173,627    N/A    ü(3)   N/A    ü(3)

Bilateral Bank Loan

   240,695    241,026    N/A    ü       ü    N/A

Other Loans

   172,029    41,860    No Safeguards Required

Foreign Bonds

   1,850,917    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

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 June 30, 2009 and December 31, 2008:

 

In ThU.S.$

   30/06/2009    31/12/2008

Equity

   6,012,924    5,889,554

Bank Loans

   648,880    616,891

Finance Leases

   894    1,394

Bonds

   2,228,019    2,033,658
         

Capital

   8,890,717    8,541,497
         

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

June 30, 2009

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

 

 

 

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.

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.

Summary of significant accounting policies

Accounting Policies

The accompanying consolidated financial statements as at June 30, 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) Basis for Presentation of interim financial information

These interim condensed consolidated financial statements were prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standard Board (“IASB”). As these financial statements represent the Company’s initial presentation of its results and financial position under IFRS, they were prepared in accordance with IAS 34, Interim Financial Reporting and are covered by IFRS 1, First-time Adoption of IFRS. These interim financial statements have been prepared in accordance with the accounting policies the Company expects to adopt in its December 31, 2009 financial statements. Those accounting policies are based on the IFRS standards and International Financial Reporting Interpretations Committee (“IFRIC”) interpretations that the Company expects to be applicable at that time. The policies set out below were consistently applied to all the periods presented unless otherwise noted below.

These financial statements were prepared under the historic cost convention, as modified by the revaluation of biological assets, financial assets and financial liabilities (including derivative instruments) at fair value through profit and loss.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

June 30, 2009

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

 

 

 

b) Critical accounting estimates and judgments

The preparation of consolidated interim financial statements in accordance with IFRS requires management to make subjective estimates and assumptions that affect the amounts reported. Estimates are based on historical experience and various other assumptions that are believed to be reasonable, though actual results and timing could differ from the estimates. Management believes that the accounting policies below represent those matters requiring the exercise of judgment where a different opinion could result in the greatest changes to reported results.

- Property, Plant and Equipment

For fixed assets in an acquisition, an external advisor is used to perform a fair valuation of the acquired fixed assets and to assist in determining their remaining useful lives. In the case of acquisition of forest, internal specialists are used to fair value such forest. Management believes that the assigned values and useful lives, as well as the underlying assumptions, are reasonable, though different assumptions and assigned lives could have a significant impact on the reported amounts.

The carrying amounts of fixed assets are reviewed at each Balance Sheet date or whenever events or changes in circumstances indicate that the carrying amount of an asset may be impaired. The recoverable amount of an asset is estimated as the higher of fair value less the cost to sell and the value in use, with an impairment charge being recognized whenever the carrying amount exceeds the recoverable amount. The value in use is calculated using a discounted cash flow model, which is most sensitive to the discount rate as well as the expected future cash inflows.

- Fair Value of Financial Instruments

The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. Arauco uses its judgment to select a variety of methods and make assumptions that are mainly based on market conditions existing at each balance sheet date.

- Income Taxes

Tax assets and liabilities are reviewed on a periodic basis and balances are adjusted as appropriate. Management considers that adequate provision has been made for future tax consequences based upon current facts, circumstances and tax law. However, should any tax positions be challenged and not prevail, different outcomes could result and have a significant impact on the amounts reported in the consolidated financial statements.

- Biological Assets

Fair value is determined using discounted cash flows from continuous operations based on sustainable forest management plans taking into account the growth potential of one cycle. These discounted cash flows require estimates in growth, harvest, sales prices and costs. Changes in these premises are included in the Income Statement. It is therefore important that management make appropriate estimates of future levels and trends for sales and costs, as well as administer regular surveys of the forest to establish the volumes of wood available for cutting and their current growth rates.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

June 30, 2009

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

 

 

 

c) Consolidation

The condensed consolidated interim financial statements include all entities over which Arauco has the power to govern the financial and operating policies, generally accompanying a shareholding of more than one half of the voting rights. Subsidiaries are fully consolidated from the date on which control is transferred to the group. They are de-consolidated from the date that control ceases.

Unrealized earnings from subsidiary operations have been eliminated from the condensed consolidated financial statements and minority shareholder equity is recognized in the minority equity balance.

Consolidated financial statements for the period January 1, 2009 to June 30, 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.

d) Segments

Arauco operates principally in four identifiable product segments, which comprise the production and sales of goods for (i) pulp products, (ii) forestry products, (iii) wood products and (iv) plywood and fiberboards panels. Pulp products include bleached and unbleached wood pulp products. Forestry products include sawlogs and pulpwood. Wood products include flitches, sawn timber (lumber) and remanufactured wood products. Plywood and fiberboard panels are consumer products manufactured at production facilities. Other services and products include mainly port services and chemical products sales.

e) Functional currency

 

(i) Functional currency

Arauco’s entities are measured using the currency of the primary economic environment in which the Company operates (the functional currency). The condensed consolidated interim financial statements are presented in United States dollars, which is the Company’s functional currency and Arauco’s presentation currency.

 

(ii) Foreign Currency Translations – Subsidiaries

The Income Statements of subsidiaries, whose functional and presentational currencies are not the US dollar, are translated into the Arauco reporting currency using the average exchange rates for the year, whereas the Balance Sheets of such subsidiaries are translated using the exchange rates at the reporting date. Exchange differences arising from the retranslation of the net investments in foreign entities, being non-US dollar foreign subsidiary, are recorded directly in shareholders’ equity in Conversion reserves, as shown in the unaudited condensed consolidated statement of changes in equity. The cumulative translation differences of divestments and liquidations are combined with their gain or loss on disposal.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

June 30, 2009

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

 

 

 

(iii) Foreign Currency Transactions

Transactions in foreign currencies are recorded at the rate of exchange prevailing at the transaction date. Gains and losses on foreign currency resulting from the settlement of such transactions and from the conversion at the closing exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the income statement, except that which matches the deferral in net equity, such as those derived from cash flow hedges and hedges of net investments.

f) Cash and cash equivalents

Cash and cash equivalents include cash-in-hand, deposits held on call at banks and other liquid investments with an original maturity of less than three months.

g) Financial Instruments

 

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

Financial assets at fair value through profit or loss are financial assets held for trading. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term. Derivatives are also classified as acquired for trading unless they are designated as hedges. Assets in this category are classified as current assets.

Regular purchases and sales of financial assets are recognized on the trade-date, the date on which the Group commits to purchase or sell the asset.

A financial asset carried at fair value through profit or loss is initially recognized at fair value, and transaction costs are expended in the income statement. They are subsequently recorded at fair value with an effect on income also.

 

(ii) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months from the balance sheet date, which are classified as non-current assets. Loans and receivables include trade receivables and other receivables.

Loans and receivables are recorded at amortized cost according to the method of the effective interest rate under the provision of bad debts.

 

(iii) Financial liabilities valued at amortized cost (loans)

Debt is recognized initially at fair value, net of transaction costs incurred. In subsequent periods, it is stated at amortized cost using the effective yield method; any difference between proceeds, net of transaction costs, and redemption value is recognized in the income statement over the period of the borrowings. Interest expenses are accrued for and recorded in the income statement for each period.

Financial obligations are classified as current liabilities unless the Company has an unconditional right to defer settlement for at least 12 months after the balance sheet date.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

June 30, 2009

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

 

 

 

(iv) Creditors and other payables

These instruments are initially recorded at fair value and subsequently at amortized cost using the effective interest rate method. This value is a reasonable estimate of fair value.

 

(v) Hedging instruments

The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognized in equity. The gain or loss relating to the ineffective portion is recognized immediately in the income statement within Other operating income or Financial costs, respectively.

h) Inventories

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

The cost of finished goods and work in progress comprises raw materials, direct labor, other direct costs and general manufacturing expenses (based on normal operating capacity), excluding interest expenses.

Initial costs of harvested wood are determined at fair value less cost of sale at point of harvest.

Net realizable value is the estimated selling price in normal course of business, less costs of completion and sale.

Where market conditions result in the manufacturing costs of a product exceeding its net realizable value, a valuation allowance is made. Valuation provisions are also made for old, slow moving and obsolete finished goods and spare parts.

i) Investments in subsidiaries

The purchase method of accounting is used to account for the acquisition of subsidiaries by the group. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the group’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognized directly in the income statement.

All intercompany transactions, receivables, liabilities and unrealized profits, as well as intragroup profit distributions, are eliminated.

Accounting policies for subsidiaries and all equity accounted investments are adjusted where necessary to ensure consistency with the policies adopted by Arauco. Minority Interests are presented as a separate component of equity.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

June 30, 2009

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

 

 

 

j) Investments in associates

Associates are entities over which the Group exercises significant influence but not control, generally holding between 20 and 50% of the voting rights. Investments in associates are accounted for using the equity method and are initially recognized at cost. Their book net equity is increased or decreased for the related proportion to be recognized in the income statement and comprehensive income statement of the period as a result of adjustments of conversion arising from the financial statement conversion into other currencies. The Group’s investment in associates includes goodwill identified in an acquisition net of any accumulated impairment loss.

k) Intangible assets

 

(i) Computer Software

Computer software programs are capitalized in terms of the costs incurred to make it compatible with specific programs. These costs are amortized over their estimated useful lives.

 

(ii) Goodwill

The excess of the cost of acquisition over the fair value of the group’s share of the identifiable net assets acquired is recorded as goodwill. Goodwill is not amortized but tested for impairment at least annually.

 

(iii) Water-rights

Water-rights are recognized at historical cost and have unlimited useful life as the expected cash flow generating period is unpredictable. These rights are not amortized but are subject to periodic impairment tests.

l) Property, plant and Equipment

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

Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the group and the cost of the item can be measured reliably.

Asset depreciation is calculated using the straight-line method, as adjusted for any impairment and disposed charges, the balance sheet value represents cost less accumulated depreciation and any impairment charges.

The useful lives of property, plant and equipment are determined according to expected use of the assets.

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, periodically.

 

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AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

June 30, 2009

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

 

 

 

m) Leases

Fixed asset leases in which Arauco substantially holds all ownership risks and advantages are classified as finance leases. Finance leases are capitalized at the lease’s commencement at the lower of the fair value of the leased property and the present value of the minimum lease payments.

Leases in which significant risks and rewards are not transferred 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.

n) Biological Assets

IAS 41 requires that biological assets, such as standing trees, are shown on the Balance Sheet at market value. Group forests are thus accounted for at fair value less estimated point-of sale costs at harvest, there being a presumption that fair values can be measured for these assets. Arauco also ensures that the Group’s share of the valuation of forest holdings in Associated Companies is consistent with Group accounting policies.

The valuation of established forest assets is based on discounted cash flow models whereby the fair value of the biological assets is calculated using cash flows from continuous operations, that is, based on sustainable forest management plans taking into account growth potential. This valuation is performed on each identifiable farm block basis and for each type of tree.

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

Biological growth and changes in fair value are recognized in the income statement within Other operating income.

o) Deferred income tax

Deferred income tax is recognized using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the condensed consolidated financial statements. However, the 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) that have been enacted or the balance sheet date that is expected to apply when the related deferred income tax asset or the deferred income tax liability is settled.

The deferred income tax assets are recognized to the extent that it is probable that future taxable benefits profit will be available against which temporary differences can be utilized.

 

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AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

June 30, 2009

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

 

 

 

p) Provisions

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

q) Revenue recognition

Revenues are recognized after Arauco has transferred the risks and rewards of ownership to the buyer and Arauco retains neither a continuing right to dispose of the goods, nor effective control of those goods; this means that revenues are recorded upon delivery of goods to customers in accordance with agreed terms of delivery.

Revenue from inter-segment sales, which are generally made at prices that approximate market prices, is eliminated in the consolidated financial statements.

r) Minimum dividend

As a general policy on dividends, in all future tax periods the Company expects to maintain a share of around 40% of net profits to be distributed for each tax year; considering a provisional dividend share distribution at year end. The minimum dividend is recognized at the end of each financial period.

s) Impairment

The carrying amounts of most fixed assets are reviewed at each Balance Sheet date to determine whether there is any indication of impairment, whereas goodwill is tested annually. The recoverable amount of an asset is estimated as the higher of the net selling price and the value in use with an impairment loss being recognized whenever the carrying amount exceeds the recoverable amount.

A previously recognized impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount, however, not to an extent higher than the carrying amount that would have been determined had no impairment loss been recognized in prior years. For goodwill, however, a recognized impairment loss is not reversed.

t) Employee Benefit costs

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

u) Joint Venture Equity

Joint venture equity is recognized using the equity method.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

June 30, 2009

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

 

 

 

v) Recent accounting pronouncements

The following standards and interpretations have been issued which are not applicable to Arauco as of June 30, 2009:

 

     

    Rules and amendments

 

  

Content

 

 

Mandatory

application date

 

IFRS 1: Revised

   First time adoption of International Reporting Standards   July 1, 2009
     

Amendments to IFRS 3 Revised

   Business Combinations   July 1, 2009
     

Amendments to IAS 39 and IFRS 7

   Reclassification of financial assets and clarification of effective date   July 1, 2009
     

Amendments to IFRIC 9 and IAS 39

   Embedded derivatives   July 1, 2009
     

Amendment to IAS 39

   Eligible hedged items   July 1, 2009
     

Amendment to IAS 27

   Consolidated and Separate Financial Statements   July 1, 2009
     

IFRIC Interpretation 17

   Distributions of non-cash assets to owners   July 1, 2009
     

IFRIC Interpretation 18

 

  

Transfers of assets from customers

 

 

July 1, 2009

 

Arauco believes that the adoption of standards, amendments and interpretations, described above, will have no significant impact in the financial statement of the company in the period of initial application.

Disclosure of Capital Issued Information

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

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

June 30, 2009

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

 

 

 

Ordinary Share Capital Types

100% of capital corresponds to ordinary shares

 

      06/30/2009    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

   Th U.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.

 

     

06/30/2009

 

  

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,

  

 

06/30/2009

 

  

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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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

June 30, 2009

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

 

 

 

Disclosure of Information on Dividends paid to Ordinary Shares

Dividends paid as of June 30, 2009 and the corresponding amount per share:

 

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

   05-07-09

Amount of Dividend, Ordinary Shares, Gross

   MUS$ 88,449

Amount of Tax on Dividends, Ordinary Shares

   -

Amount of Dividend, Net of Tax, Ordinary Shares

   MUS$ 88,449

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.$ 0.781676137

Dividends paid during financial year 2008 and the corresponding amount per share:

 

  

Total Dividends, Ordinary Shares, Gross

   MUS$ 315,817

Total Tax on Dividends, Ordinary Shares

   -

Total Dividends, Ordinary Shares, Net of Tax

   MUS$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

   MUS$ 214,885

Amount of Tax on Dividends, Ordinary Shares

   -

Amount of Dividend, Net of Tax, Ordinary Shares

   MUS$ 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

   US$ 1.89907
  

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

   MUS$ 100,932

Amount of Tax on Dividends, Ordinary Shares

   -

Amount of Dividend, Net of Tax, Ordinary Shares

   MUS$ 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

   US$ 0.89199

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

June 30, 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

Other Reserves consist of Conversion Reserves Hedges and Other Reserves. Arauco does not have restrictions associated with these reserves.

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.

Nature Reserves and Restrictions on Hedge Reserves

Corresponds to part of the gain or actual loss of existing coverage swaps by Arauco at 30 June 2009.

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 June 30, 2009 and 2008, respectively.

 

     January - June     April - June  
     2009
ThU.S.$
    2008
ThU.S.$
    2009
ThU.S.$
    2008
ThU.S.$
 

Types of Other Operating Income

        

Other Operating Income, Total

   100,795      41,451      54,954      23,987   

Interest income

   5,603      12,208      3,027      8,057   

Other operational income

   95,192      29,243      51,927      15,930   

Types of Financing Costs

        

Financing Costs, Total

   (83,445   (91,013   (41,895   (41,525

Interest Expenses

   (83,018   (90,404   (41,605   (41,181

Bank loan

   (82,521   (88,793   (41,351   (40,846

Others

   (497   (1,611   (254   (335

Other financing costs

   (427   (609   (290   (344

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

   (4,344   (1,168   (1,332   (552

Property, plant and equipment

   (1,746   (990   (1,729   (1,135

Biological asset

   (2,298   (178   547      583   

Other non-current assets

   (300   0      (150   0   

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

        

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

   5,947      2,495      4,804      1,568   

Associates accounted for by the Equity Method

   5,947      2,495      4,804      1,568   

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

June 30, 2009

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

 

 

 

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

Arauco’s financial statements for the year ending December 31, 2009 will be the first annual financial statements that comply with IFRS. The Company has applied IFRS 1 in preparing these condensed interim consolidated financial statements.

Arauco’s transition date is January 1, 2008. The Company prepared its opening IFRS balance sheet at that date. Arauco’s adoption date is January 1, 2009.

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 of January 1, 2008 have not been restated.

(b) 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 amounted to Th U.S. $800,249

(c) Designation of financial assets and financial liabilities exemption

The Company reclassified various securities as financial assets at fair value through profit and loss at the transition date.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

June 30, 2009

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

 

 

 

(d) Employee benefits

The Company has elected to recognize all cumulative actuarial gains and losses as of at January 1, 2008.

(e) Cumulative Translation Differences

Arauco has elected to set the previously accumulated cumulative translation differences to zero at January 1, 2008. This exemption has been applied to all subsidiaries in accordance with IFRS 1.

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.

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

The interim consolidated financial reports to June 30, 2009 are the first semi-annual financial statements presented in accordance with IFRS.

Explanation of IFRS Transition

The Reconciliation Summary 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

 

     12/31/2008
ThU.S.$
    06/30/2008
ThU.S.$
    01-01-2008
ThU.S.$
    Note  

Total net equity according to Chilean Accounting Principles

   5,690,914      5,535,208      5,480,420     

Property, plant and equipment

   862,942      835,178      800,249      a

Consolidation of Special Purpose Entities

   62,368      76,181      78,960      b

Biological Assets

   (141,203   60,480      44,776      c

Functional Currency

   (126,785   99,524      37,606      d

Negative Goodwill

   93,345      96,214      99,338      e

Minimum Dividend

   (88,492   (140,607   (214,936   f

Financial instruments

   23,686      17,357      22,521      g

Deferred taxes

   (389,215   (403,291   (416,792   h

Cumulative effect of other minor concepts

   19,676      37,722      31,237     
                    

Total net equity according to IFRS

   6,007,236      6,213,966      5,963,379     
                    

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

June 30, 2009

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

 

 

 

2. - Reconciliation Summary of consolidated net result

 

     12/31/2008
ThU.S.$
    06/30/2008
ThU.S.$
    April-June
2008
    Note  

Total net effect according to Chilean Accounting Principles

   479,801      356,564      168,388     

Changes in depreciation in property, plant and equipment

   59,030      32,288      22,012      a

Valuation of agricultural products at fair value

   (165,935   (67,101   (40,637   c

Valuation of biological assets at fair value

   65,201      13,886      4,318      c

Affiliate earnings conversion to functional currency for currencies different to the dollar

   (39,674   2,118      (1,518   d

Adjustment for deferred taxes as a result of IFRS

   19,040      14,083      10,281      h

Other non significant adjustments

   (12,418   (10,696   (11,186  
                    

Total net effect according to IFRS

   405,045      341,142      151,658     
                    

Description of adjustments

(a) Property, plant and equipment adjustment

The Company has applied the fair value as deemed cost exemption to pulp plants, land, buildings, and equipment owned in both Arauco and Constitución in Chile, Misiones in Argentina, and the panel plant and sawmill in Brazil. This adjustment increased equity. As a result of this change in value, and the modification of their useful life and residual values, depreciation for the period was also impacted. Further, given the fact that depreciation is included within the cost of inventories, the cost of these was also modified.

The fair value of the assets where the fair value as deemed cost method was applied amounted to ThU.S.$ 1,526,822 at January 1, 2008.

(b) Consolidation of special purpose entities

Under IFRS, as determined by IAS 27 Consolidated and separate financial statements and SIC 12 Consolidation – special purpose entities, Arauco consolidated the assets and liabilities of Fondo de Inversión Bío Bío and its subsidiary Forestal Río Grande S.A. because it was determined that control existed. The consolidation of this entity had an impact on equity. The assets and liabilities assumed include the following:

 

     12/31/2008
ThU.S.$
    06/30/2008
ThU.S.$
    01/01/2008
ThU.S.$
 

Property, plant and equipment

   56,758      56,739      56,838   

Biological assets

   171,284      196,181      222,217   

Other assets

   22,004      21,761      7,658   

Financial liabilities

   (187,678   (198,500   (207,753

Minority interest in equity

   62,368      76,181      78,960   

(c) Biological assets adjustment

Management decided that future cash flows shall be the criteria to be used to determine the fair value of biological assets under IFRS. This differs from criteria used under Chilean GAAP where biological assets were valued using standard commercial margins for forests with harvesting volume and plantation costs for biological assets with no harvesting volume.

 

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Unaudited Notes to the Consolidated Financial Statement

June 30, 2009

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

 

 

 

Under IFRS, biological growth is recognized within the income statement, impacting earnings at each period end. Further, given the change in the value of biological assets, the cost of inventories has also been impacted.

(d) Functional currency adjustment

This adjustment is comprised of the following:

 

Impact within equity

   12/31/2008
ThU.S.$
    06/30/2008
ThU.S.$
   01/01/2008
ThU.S.$
 

Historical dollar conversion (i)

   41,331      41,331    41,331   

Functional currency of subsidiaries in Brazil (ii)

   (168,116   58,193    (3,725

 

(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 Chilean GAAP these companies used the US dollar as their functional currency. For this reason, the subsidiaries in Brazil adjusted their assets, liabilities and equity from historical US dollars to historical Reales. This change in functional currency has a future impact on the cumulated translation differences account within equity.

(e) Negative goodwill adjustment

Under Chilean GAAP, negative goodwill was recorded within the balance sheet and amortized to profit and loss. As described by IFRS 3, negative goodwill must be recognized within the income statement at the time it arises. Therefore, negative goodwill was adjusted against retained earnings at the transition date.

(f) Minimum dividend adjustment

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

(g) Financial instruments adjustment

 

Impact within equity

   12/31/2008
ThU.S.$
   06/30/2008
ThU.S.$
   01/01/2008
ThU.S.$

Derivative valuation adjustment (swap) (i)

   12,594    8,734    9,750

Present value of liabilities (ii)

   9,011    6,246    10,099

Bonds obligation at effective rate (iii)

   2,081    2,377    2,672

 

(i) This derivative is recorded as a hedging instrument under Chilean GAAP. However, under IFRS hedge accounting has not been applied and, therefore has been recorded within earnings.

 

(ii) This adjustment relates to the present value calculation of a liability in the Company’s subsidiary Placas do Paraná S.A. in Brazil.

 

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Unaudited Notes to the Consolidated Financial Statement

June 30, 2009

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

 

 

 

(iii) Under Chilean GAAP, interest is accrued using the nominal interest rate. Under IAS 39 Financial instruments: recognition and measurement, financial liabilities not at fair value through profit and loss must be valued using the effective interest method.

(h) Deferred tax adjustment

 

Impact within equity

   12/31/2008
ThU.S.$
    06/30/2008
ThU.S.$
    01/01/2008
ThU.S.$
 

Deferred taxes from IFRS adjustments (i)

   (323,398   (336,751   (350,413

Elimination of complementary accounts (ii)

   (3,009   (3,732   (3,571

Unrecognized deferred taxes for biological assets (iii)

   (62,808   (62,808   (62,808

 

(i) 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 taxes

   12/31/2008
ThU.S.$
    06/30/2008
ThU.S.$
    01/01/2008
ThU.S.$
 

Deferred tax adjustment to functional currency of Chilean companies

   (7,026   (7,026   (7,026

Deferred taxes for adjustment to property, plant and equipment valuation

   (311,639   (303,503   (305,298

Deferred taxes for biological assets valuation

   (4,926   (20,827   (33,444

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

   (2,700   (1,485   (1,658

Deferred taxes for other IFRS adjustments

   2,893      (3,910   (2,987
                  

Total

   (323,398   (336,751   (350,413
                  

 

(ii) Under Chilean GAAP, all temporary differences arising prior to the year 1999 were recorded against “complementary accounts”. These accounts would then reverse when the related temporary difference would reverse. Under IFRS, these “complementary accounts” are not allowed and, therefore must be adjusted against retained earnings.

 

(iii) Certain deferred taxes related to biological assets were exempt from being recognized under Chilean GAAP. Under IFRS, all temporary differences must be recognized.

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
06/30/2008
(ThU.S. $)
 

Total Net Cash Flow Statement according to Chilean accounting principles

   289,441   

Net Cash Flow of (Used in):

  

Operating Activities

   (5,456

Investing Activities

   32,284   

Financing Activities

   (25,798

Net Increase (Decrease) in Cash and Cash Equivalents

   1,030   

Cash and Cash Equivalent Initial Balance

   642   
      

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

   291,113   
      

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

June 30, 2009

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

 

 

 

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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AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

June 30, 2009

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

 

 

 

NOTE 3. INVENTORIES (IAS 2)

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

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 initial costs of harvested wood are determined at fair value less cost of sale at point of harvest.

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

When market conditions cause the manufacturing cost of a product to exceed its net realizable value, a provision for the differential value is registered. This provision also considers amounts related to obsolescence derived from low turnover and technical obsolescence.

 

Components of Inventory

   06/30/2009
ThU.S.$
   12/31/2008
ThU.S.$
   01/01/2008
ThU.S.$

Raw Materials

   125,174    113,614    120,139

Production Supplies

   35,498    46,206    50,394

Work in progress

   29,578    38,610    22,628

Finished goods

   366,789    395,405    260,839

Other Inventories

   100,794    97,371    75,478
              

Total Inventories

   657,833    691,206    529,478
              

At current Financial Statement date, goods have been valued at cost. There are no significant penalties or reversals to report.

As of 30 June 2009, a cost of sales of Inventories of Th U.S.$ 963,599 was recognized (ThU.S.$ 1,079,668 at June 30, 2008).

As of 30 June 2009, an increased provision for obsolescence of Th U.S.$ 300 was recognized (ThU.S.$ 300 at June 30, 2008).

At current Financial Statements date, there are no Inventories delivered in guarantee to report.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

June 30, 2009

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

 

 

 

NOTE 4. CASH FLOW STATEMENT (IAS 7)

Cash and cash equivalents includes both cash flow and bank account balances, fixed term deposits and repurchase agreements. They are short-term investments that are readily convertible into cash, and are subject to an immaterial change in value. At June 2009, these investments had maturity periods of less than seven days.

The objective of the fixed term deposits is to maximize short-term cash flow surpluses. This instrument is authorized by Arauco’s Placement Policy, which establishes a mandate that allows investments in fixed income securities. In general, these instruments have a maturity period of less than ninety days.

Arauco invests in local mutual funds to maximize the profitability of cash flow surpluses in Chilean Pesos, or in international mutual funds in foreign currencies such as US Dollars or Euros. This instrument is accepted by the Company’s placement policy.

 

Components of Cash and Cash Equivalents

   06/30/2009
ThU.S.$
   12/31/2008
ThU.S.$
   01/01/2008
ThU.S.$

Cash on hand

   223    147    94

Banks

   32,231    18,515    37,413

Short term deposit

   97,822    72,198    36,260

Mutual funds

   175,469    59,276    194,105

Other cash and cash equivalents

   10,995    17,172    0
              

Total

   316,740    167,308    267,872
              

Reconciliation of Cash and Cash Equivalents

        

Bank overdraft used for cash management

   0    0    0

Other reconciliations items, cash and cash equivalents

   0    0    0

Reconciliation of Cash and Cash Equivalent items, Total

   0    0    0

Cash and cash equivalents

   316,740    167,308    267,872
              

Cash and cash equivalents, reported in the Cash Flow Statement

   316,740    167,308    267,872
              

The following tables detail the value of the cost of the investment in Savitar dated June 30, 2009 and the net value of assets and liabilities of the entity, disregarding both the amount of cash and cash equivalents acquired with the order to distinguish those cash flows from those that arise from other operating, investing or financing activities.

 

Purchase of Investments

   06/30/2009
ThU.S.$
 

Acquisition: Savitar

  

Tradeoffs sum cash paid for acquisitions and cash equivalents

   10,131   

Sum of Cash and cash equivalents in acquired entities

   (106

Tradeoff for Acquisitions paid to acquire entities, net Total

   10,025   
     ThU.S.$  

Sum of Assets and different Cash Liabilities or Cash equivalents in acquired entities

   11,667   

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

June 30, 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 June 30, 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 June 30, 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

June 30, 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.

The applicable tax rate to the major companies in which Arauco has participation is 17% in Chile, 35% in Argentina and 34% in Brazil.

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

   06/30/2009
ThU.S. $
   12/31/2008
ThU.S. $
   01/01/2008
ThU.S. $

Deferred Tax Assets relative to Provisions

   15,741    19,171    11,132

Deferred Tax Assets relative to Post-Employment obligations

   4,894    4,127    3,750

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

   634    1,613    1,966

Deferred Tax Assets relative to Financial Instruments Restatements

   2,829    2,389    1,192

Deferred tax assets relative to tax losses

   45,764    36,517    33,272

Valuation of biologicall asset

   13,661    16,579    20,911

Valuation of inventory

   773    796    1,076

Anticipated income

   67    0    346

Provision of income

   1,183    823    1,145

Deferred Tax Assets relative to Others

   4,794    4,510    6,505
              

Deferred Tax Assets Total

   90,340    86,525    81,295
              

Nature and Tax Loss during Previous and Present Period

At the present financial statement date some of Arauco’s subsidiaries show tax losses of ThU.S.$181,059 as compared to ThU.S.$179,981 as at December 31, 2008 which are mainly due to operational and financial losses.

Deferred Tax Liability

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

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

June 30, 2009

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

 

 

 

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.

The following table details deferred tax liabilities:

 

Deferred Tax Liabilities

   06/30/2009
ThU.S. $
   12/31/2008
ThU.S. $
   01/01/2008
ThU.S. $

Deferred Tax Liabilities relative to Provisions

   1,440    1,532    3,661

Deferred Tax Liabilities relative to Post-Employment benefits

   80    39    59

Deferred Tax Liabilities relative to Restated Property, Plant and equipment

   621,932    598,129    581,656

Deferred Tax Liabilities relative to Financial Instrument restatement

   2,463    4,188    2,105

Valuation of biologicall asset

   487,817    452,675    485,347

Valuation of inventory

   15,718    16,238    10,539

Deferred Tax Liabilities relative to Others

   20,485    18,896    10,230
              

Deferred Tax Liabilities Total

   1,149,935    1,091,697    1,093,597
              

Temporary Differences

The following tables summarize current asset and liability timing differences at June 30, 2009, December 31, 2008 and January 1, 2008:

 

     06/30/2009    12/31/2008    01/01/2008

Detail of Types of Deferred

Tax Temporary Differences

   Deductible
Difference

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

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

ThU.S.$
   Taxable
Difference
ThU.S.$

Deferred Tax Assets

   44,576    0    50,008    0    48,023    0

Tax Loss

   45,764    0    36,517    0    33,272    0

Deferred Tax Liabilities

   0    1,149,935    0    1,091,697    0    1,093,597
                             

Total

   90,340    1,149,935    86,525    1,091,697    81,295    1,093,597
                             

 

     January-June     April-June  

Detail of Temporary Difference Profit and Loss Amounts

   2009
ThU.S.$
    2008
ThU.S.$
    2009
ThU.S.$
    2008
ThU.S.$
 

Deferred Tax Assets

   (4,511   (793   (3,906   (5,546

Tax Loss

   8,366      2,474      6,287      (739

Deferred Tax Liabilities

   (28,177   (6,828   (7,038   12,156   
                        

Total

   (24,322   (5,147   (4,657   5,871   
                        

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

June 30, 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

   January-June     April-June  
   2009
ThU.S.$
    2008
ThU.S.$
    2009
ThU.S.$
    2008
ThU.S.$
 

Current income tax expense

   (229   (84,102   (9,538   (47,063

Tax benefit arising from unrecognized tax assets previously used to reduce tax expense

   1,106      2,850      (1,931   366   

Previous period current tax adjustments

   3,818      3,112      3,587      3,112   

Other current tax expenses

   (146   (620   (78   (600
                        

Current Tax Expenses, Net, Total

   4,549      (78,760   (7,960   (44,185
                        

Deferred expense (income) from taxes relative to the creation and reversion of temporary differences

   (33,339   (6,892   (11,503   6,880   

Tax benefit arising from unrecognized tax assets previously used to reduce expenses due to deferred taxes

   8,366      2,474      6,287      (739

Other deferred tax expenses

   651      (729   559      (270

Deferred Tax Expenses, Net, Total

   (24,322   (5,147   (4,657   5,871   
                        

Expense (Income) due to Income Tax Total

   (19,773   (83,907   (12,617   (38,314
                        

The following table details the income tax for foreign and national companies as at June 30:

 

     January-June     April-June  
   2009
ThU.S.$
    2008
ThU.S.$
    2009
ThU.S.$
    2008
ThU.S.$
 

Foreign current tax

   (19,740   (44,035   (15,510   (28,881

National current tax

   24,289      (34,725   7,550      (15,304

Current tax, Total

   4,549      (78,760   (7,960   (44,185

Foreign deferred tax

   1,003      11,020      3,179      9,325   

National deferred tax

   (25,325   (16,167   (7,836   (3,454

Deferred tax, Total

   (24,322   (5,147   (4,657   5,871   
                        

Income (expense) to earnings, Total

   (19,773   (83,907   (12,617   (38,314
                        

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

   January-June     April-June  
   2009
ThU.S.$
    2008
ThU.S.$
    2009
ThU.S.$
    2008
ThU.S.$
 

Tax Expense Using Legal Rate

   (14,184   (72,258   (10,556   (32,295

Tax effect of rates in other jurisdictions

   (10,243   (18,774   (6,909   (11,108

Tax effect of non taxable ordinary income

   5,655      4,463      12      (4,106

Tax effect of non tax deductible expenses

   (4,271   (5,400   1,582      2,166   

Tax Effect of Excess Tax for Previous Periods

   3,818      3,112      3,587      3,112   

Other Increases (Decreases) Legal Taxes

   (548   4,950      (333   3,917   
                        

Adjustment to Tax Expense using the Legal Rate, Total

   (5,589   (11,649   (2,061   (6,019
                        

Tax Expenses Using the Effective Rate

   (19,773   (83,907   (12,617   (38,314
                        

The deferred tax related to financial hedging instruments, corresponds to ThU.S.$ 784 at June 30, 2009, which presents net in Hedge reserves in Changes in Net Equity. At June 30, 2008, there were no financial hedging instruments, therefore, no deferred tax concept.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

June 30, 2009

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

 

 

 

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

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

Subsequent costs are included in the initial asset value or are recognized as a separate asset only when it is probable that future economic benefits associated with the elements of property, plant and equipment will flow to the Company and the cost of the item can be measured reliably.

Depreciation is primarily determined using the lineal method, considering any adjustment for impairment. The financial statement presents the cost value less the accumulated depreciation and any impairment charge.

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

The residual value and useful life of assets are reviewed and adjusted, if applicable, periodically.

Property, plant and equipment estimated useful life or depreciation rates

 

Properties, Plant and Equipment, by type

Net Properties, Plant and Equipment

   06/30/2009
ThU.S.$
    12/31/2008
ThU.S.$
 

Construction in progress

   406,938      347,150   

Land

   735,341      689,846   

Buildings

   1,296,840      1,307,871   

Plant and equipment

   2,143,190      2,174,768   

Information technology equipment

   17,726      18,621   

Fixed facilities and accessories

   4,793      4,755   

Motorized vehicles

   4,397      4,678   

Others

   86,592      65,510   
            

Total

   4,695,817      4,613,199   
            

Gross Properties, plant and equipment,

    

Construction in progress

   406,938      347,150   

Land

   735,341      689,846   

Buildings

   2,273,251      2,256,077   

Plant and equipment

   3,653,529      3,613,214   

Information technology equipment

   41,524      41,694   

Fixed facilities and accessories

   17,953      17,521   

Motorized vehicles

   10,605      9,210   

Others

   119,452      99,747   
            

Total

   7,258,593      7,074,459   
            

Types of accumulated depreciation and impairment, properties, plant and equipment

    

Buildings

   (976,411   (948,206

Plant and equipment

   (1,510,339   (1,438,446

Information technology equipment

   (23,798   (23,073

Fixed facilities and accessories

   (13,160   (12,766

Motorized vehicles

   (6,208   (4,532

Others

   (32,860   (34,237
            

Total

   (2,562,776   (2,461,260
            

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

June 30, 2009

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

 

 

 

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.

 

     06/30/2009
ThU.S$
   12/31/2008
ThU.S$
   01/01/2008
ThU.S$

Collateral amount of property, plant and equipment

   56,761    56,758    56,411

Committed amount for the acquisition of property, plant and equipment

   180,066    225,801    160,600

 

     06/30/2009
ThU.S$
   06/30/2008
ThU.S$

Amount paid in property, plant and equipment accounts during construction process

   82,798    96,261

Movement on Property, Plant and Equipment

Movement on properties, plant and equipment at June 30, 2009 and at December 31, 2008 is detailed in the following tables:

 

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AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

June 30, 2009

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

 

 

 

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

   347,150      689,846      1,307,871      2,174,768      18,621      4,755      4,678      65,510      4,613,199   

Additions

   83,054      21,671      7,639      6,625      98      316      70      20,202      139,675   

Disappropriations

   (24   (38   (5   (231   (27   (113   (21   (71   (530

Withdrawals

   (96   (60   (55   (2,164   (41   0      0      (945   (3,361

Depreciation costs

   0      0      (27,589   (68,013   (944   (436   (345   (1,303   (98,630

Exchange rate increase (decrease) of foreign currency

   373      23,922      3,664      14,051      8      234      15      3,197      45,464   

Other increase/decrease

   (23,519   0      5,315      18,154      11      37      0      2      0   

Total Changes

   59,788      45,495      (11,031   (31,578   (895   38      (281   21,082      82,618   
                                                      

Closing balance 06/30/2009

   406,938      735,341      1,296,840      2,143,190      17,726      4,793      4,397      86,592      4,695,817   
                                                      

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

   166,119      716,809      1,339,120      2,282,762      15,699      5,681      4,738      78,713      4,609,641   

Additions

   212,224      11,174      22,825      36,447      4,386      228      783      4,631      292,698   

Disappropriations

   0      (476   (37   (3,059   (24   (2   (51   (2,862   (6,511

Withdrawals

   (52   0      0      (1,476   0      0      0      0      (1,528

Depreciation costs

   0      0      (60,118   (134,273   (1,691   (1,259   (794   (8,778   (206,913

Exchange rate increase (decrease) of foreign currency

   (90   (37,661   (4,985   (25,245   (12   (4   3      (6,194   (74,188

Other increase/decrease

   (31,051   0      11,066      19,612      263      111      (1   0      0   

Total Changes

   181,031      (26,963   (31,249   (107,994   2,922      (926   (60   (13,203   3,558   
                                                      

Closing balance 31/12/2008

   347,150      689,846      1,307,871      2,174,768      18,621      4,755      4,678      65,510      4,613,199   
                                                      

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

June 30, 2009

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

 

 

 

The useful lives of property, plant and equipment according to expected use of the assets are as follows:

 

          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

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

June 30, 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

 

     06/30/2009
ThU.S.$
   12/31/2008
ThU.S.$
   12/31/2008
ThU.S.$

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

   12,161    12,208    12,303

Net Leased Land (Finance Lease)

   2,915    2,915    2,915

Net Leased Buildings (Finance Lease)

   9,246    9,293    9,388

Reconciliation of Finance Lease Minimum Payments, Lessee

 

Current Value of Minimum Finance Lease Obligations

   06/30/2009

Finance Lease

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

Due within one year

   838    10    828

Due within one and five years

   67    1    66

Due beyond five years

   0    0    0
              

Total

   905    11    894
              

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

   0    0    0

Due beyond five years

   0    0    0
              

Total

   1,409    15    1,394
              

Current Value of Minimum Finance Lease Obligations

 

     01/01/2008

Finance Lease

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

Due within one year

   2,110    65    2,045

Due within one and five years

   1,570    18    1,552

Due beyond five years

   0    0    0
              

Total

   3,680    83    3,597
              

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

June 30, 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

 

     06/30/2009

Minimum Finance Lease Payments Receivable, Finance Lease

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

Due within one year

   4,649    537    4,112

Due within one and five years

   7,143    508    6,635

Due beyond five years

   0    0    0
              

Total

   11,792    1,045    10,747
              

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

   0    0    0
              

Total

   8,450    510    7,940
              

Current Value of Minimum Finance Lease Payments

 

     01/01/2008

Minimum Finance Lease Payments Receivable, Finance Lease

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

Due within one year

   4,435    423    4,012

Due within one and five years

   1,775    34    1,741

Due beyond five years

   0    0    0
              

Total

   6,210    457    5,753
              

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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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

June 30, 2009

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

 

 

 

NOTE 9.    ORDINARY REVENUE RECOGNITION (IAS 18)

Revenues are recognized after Arauco has transferred to the buyer the risks and rewards of ownership and Arauco has no right to dispose of assets, or has effective control of these products, which means that revenues are recorded in the upon delivery of goods to the customers according to the terms of the benefit.

Revenues from sales to related companies between segments, which are made at market prices, are eliminated in the consolidated financial statements.

 

(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. 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

Arauco has leases and pest control services whose incomes are derived from fixed price service contracts, generally recognized during the period of the service contract on a straight-line basis throughout the duration of the contract.

 

Types of Ordinary Revenue

   January-June    April-June
   2009
ThU.S.$
   2008
ThU.S.$
   2009
ThU.S.$
   2008
ThU.S.$

Sale of goods

   1,345,519    1,897,652    709,607    984,698

Service Contracts

   47,421    87,052    23,193    38,760
                   

Total

   1,392,940    1,984,704    732,800    1,023,458
                   

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

June 30, 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

   January-June    April-June
   2009
ThU.S.$
   2008
ThU.S.$
   2009
ThU.S.$
   2008
ThU.S.$

Personnel Expenses

   92,862    96,683    45,416    47,128

Wages and salaries

   90,837    94,963    44,421    46,116

Short term employee benefits

   443    502    157    136

Termination benefits

   1,582    1,218    838    876

 

Termination Benefits

   06/30/2009
ThU.S.$
   12/31/2008
ThU.S.$
   01/01/2008
ThU.S.$

Recognized liability amount for termination contract, current

   2,197    2,188    2,478

Recognized liability amount for termination contract, non-current

   23,047    18,109    19,445
              

Total

   25,244    20,297    21,923
              

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

June 30, 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 net equity.

 

     January-June    April-June  
   2009
ThU.S.$
    2008
ThU.S.$
   2009
ThU.S.$
   2008
ThU.S.$
 

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

   395      25,892    10,227    (3,674

Accumulated translation adjustments

   (46,180   54,352    106,558    35,457   

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

June 30, 2009

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

 

 

 

NOTE 12.    BORROWING COSTS (IAS 23)

Arauco capitalized interest on existing investment projects. For the recording of this capitalization Arauco estimated the average rate of loans to finance these investment projects.

 

Property, plant and equipment capitalized cost

   January-June    April-June
   2009
ThU.S.$
   2008
ThU.S.$
   2009
ThU.S.$
   2008
ThU.S.$

Property, plant and equipment capitalized interest cost rate

   5.67    6.13    5.64    5.87

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

   5,783    3,752    3,010    2,025

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

June 30, 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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AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

June 30, 2009

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

 

 

 

Detail of Relationship between Parent Company and Subsidiary

 

ID Nº

  

Company Name

   % Share
06/30/2009
   % Share
12/31/2009
      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 Parana S.A. (Argentina)    —      99.9762    99.9762    —      99.9762    99.9762

—  

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

—  

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

96765270-9

   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)    33.71387    66.2851    99.9988    33.7137    66.2851    99.9988

—  

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

96547510-9

   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

96563550-5

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

—  

   Arauco Peru 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

96565750-9

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

82152700-7

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

96657900-5

   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

96573310-8

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

85805200-9

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

93838000-7

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

—  

   Forestal Concepción S.A. (Panamá)    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

78049140-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.    10.0000    89.9987    99.9987    10.0000    89.9987    99.9987

96567940-5

   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

79990550-7

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

—  

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

—  

   Lucchese Empreendimientos E Participacoes Ltda.    —      99.9885    99.9885    —      99.9885    99.9885

99550470-7

   Molduras Trupan S.A.    1.0000    98.9992    99.9992    1.0000    98.9992    99.9992

96510970-6

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

—  

   Placas Do Parana S.A. (Brazil)    7.8207    92.1780    99.9987    7.8207    92.1780    99.9987

—  

   Savitar    —      99.9985    99.9985    —      —      —  

96637330-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    —      99.6110    99.6110

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

 

     January-June    April-June
   2009
ThU.S.$
   2008
ThU.S.$
   2009
ThU.S.$
   2008
ThU.S.$

Short term benefits

   17,109    16,676    5,979    7,227

Termination benefits

   261    3    261    0
                   

Total

   17,370    16,679    6,240    7,227
                   

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

June 30, 2009

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

 

 

 

Related Party Receivables

 

Name of Related Party

   Corresponding ID
No.
   Nature of Relationship    Country
of Origin
   06/30/2009
ThU.S.$
   12/31/2008
ThU.S.$
   01/01/2008
ThU.S.$

Forestal Mininco S.A.

   91,440,000-7    Indirect    Chile    113    824    0

CMPC Maderas S.A.

   95,304,000-K    Indirect    Chile    0    32    24

Eka Chile S.A.

   99,500,140-3    Associates    Chile    1,620    0    915

Forestal del Sur S.A.

   79,825,060-4    Indirect    Chile    422    3,947    561

Compañía Puerto de Coronel S.A.

   79,895,330-3    Associates    Chile    0    29    0

Stora Enso Arapoti Industria de Papel S.A.

   —      Associates    Brazil    365    643    9,778

Fundación Educacional Arauco

   71,625,000-8    Other related party    Chile    512    0    0

Dynea Brasil S.A.

   —      Associates    Brazil    103    0    101
                       

Total

            3,135    5,475    11,379
                       
Related Party Payables

Name of Related Party

   Corresponding ID
No.
   Nature of Relationship    Country
of Origin
   06/30/2009
ThU.S.$
   12/31/2008
ThU.S.$
   01/01/2008
ThU.S.$

Compañia de Petróleos de Chile S.A.

   99,520,000-7    Affiliate of shareholder    Chile    8,110    3,233    6,011

Abastible S.A.

   91,806,000-6    Affiliate of shareholder    Chile    340    132    244

Depósitos Portuarios Lirquén S.A.

   96,871,870-3    Other related party    Chile    2    4    2

Eka Chile S.A.

   99,500,140-3    Associates    Chile    2    3,951    0

Empresas Copec S.A.

   90,690,000-9    Parent Company    Chile    3    0    0

Fundación Educacional Arauco

   71,625,000-8    Other related party    Chile    0    105    645

Sigma S.A.

   86,370,800-1    Other related party    Chile    2    0    4

Codelco Chile

   61,704,000-k    Indirect    Chile    0    5    1

Empresa Nacional de Telecomunicaciones S.A.

   92,580,000-7    Indirect    Chile    7    12    9

Servicios Corporativos Sercor S.A.

   96,925,430-1    Associates    Chile    9    3    4

Puerto de Lirquén S.A.

   82,777,100-7    Associates    Chile    443    1,488    737

Compañía Puerto de Coronel S.A.

   79,895,330-3    Associates    Chile    85    0    459

Genómica Forestal S.A.

   76,743,130-9    Associates    Chile    0    169    0
                       

Total

            9,003    9,102    8,116
                       

Related party transactions

Purchases

 

Name of Related Party

   Corresponding ID
No.
   Nature of Relationship    Transaction Detail    12/31/2008
ThU.S.$
   01/01/2008
ThU.S.$

Abastible S.A.

   91,806,000-6    Affiliate of shareholder    Fuel    1,046    4,175

Empresas Copec S.A.

   90,690,000-9    Parent Company    Management service    140    272

Compañia de Petróleos de Chile S.A.

   99,520,000-7    Affiliate of shareholder    Fuel and lubricant    26,149    121,436

Copec Mobil S.A.

   85,759,000-7    Affiliate of shareholder    Lubricant    0    1,945

Compañía Puerto de Coronel S.A.

   79,895,330-3    Associates    Transport and stowage    1,035    3,156

Codelco Chile

   61,704,000-k    Indirect    Supplies    1,377    1,742

Dynea Brasil S.A.

   —      Associates    Chemical products    12,467    41,457

Dynea Brasil S.A.

   —      Associates    Melamine paper    8,168    20,961

Eka Chile S.A.

   99,500,140-3    Associates    Sodium chlorate    26,402    99,465

Forestal del Sur S.A.

   79,825,060-4    Indirect    Wood and logs    877    1,461

Forestal del Sur S.A.

   79,825,060-4    Indirect    Cost recovery    7    543

Portaluppi, Guzmán y Bezanilla Abogados

   78,096,080-9    Other related party    Legal services    613    1,443

Compañía Puerto de Lirquén S.A.

   82,777,100-7    Associates    Port services    4,235    8,855

CMPC Maderas S.A.

   95,304,000-k    Indirect    Logs    453    327
Sales

Name of Related Party

   Corresponding ID
No.
   Nature of Relationship    Transaction Detail    12/31/2008
ThU.S.$
   01/01/2008
ThU.S.$

Colbún S.A.

   96,505,760-9    Indirect    Electrical power    10,346    4,080

Dynea Brasil S.A.

   —      Associates    Management service    215    523

Dynea Brasil S.A.

   —      Associates    Fuel    297    456

Eka Chile S.A.

   99,500,140-3    Associates    Electrical power    9,772    66,166

Sodimac S.A.

   96,792,430-k    Indirect    Wood    14,998    54,938

Stora Enso Industria de Papel S.A.

   —      Associates    Wood    3,387    9,315

Forestal del Sur S.A.

   79,825,060-4    Indirect    Woodchip    11,658    3,533

Forestal Mininco S.A.

   91,440,000-7    Indirect    Wood    577    2,471

CMPC Maderas S.A.

   95,304,000-k    Indirect    Other sales    137    368

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

June 30, 2009

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

 

 

 

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

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.

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. Minority interests are presented as as separate component of equity.

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 June 30, 2009, Arauco Internacional S.A. acquired 80% participation of Savitar in ThU.S.$10,131, an operation that generated a goodwill of ThU.S.$3,570. Previously, on March 28, 2008, materialized through the subsidiary Faplac, acquired 20% of the entity. The fair value of this investment is currently under revision.

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.

Detail of Significant Subsidiaries

Details of the subsidiaries are set out in Note 13.

 

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AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

June 30, 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

At 30 June 2009, no new investments in associates to report.

Detail of Investments in Associates

The following table shows information on Investments in Associates at June 30, 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
   
          

06/30/009

  

12/31/2008

     

Cost of Investment in Associate

        ThU.S.$40,091    ThU.S.$37,589     
              

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 state, 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
   
          

06/30/2009

  

12/31/2008

     

Cost of Investment in Associate

        ThU.S.$ 25,609    ThU.S.$25,741     

 

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AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

June 30, 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
   
          

06/30/2009

  

12/31/2008

     

Cost of Investment in Associate

        ThU.S.$1,207    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
   
          

06/30/2009

  

12/31/2008

     

Cost of Investment in Associate

        ThU.S.$28,012    ThU.S.$28,983     
              

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
   
          

06/30/2009

  

12/31/2008

     

Cost of Investment in Associate

        Th U.S. $12,296    Th U.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
   
          

06/30/2009

  

12/31/2008

     

Cost of Investment in Associate

        ThU.S.$34,443    ThU.S.$34,442     

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

June 30, 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
   
          

06/30/2009

  

12/31/2008

     

Cost of Investment in Associate

        ThU.S.$11    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
   
          

06/30/2009

  

12/31/2008

     

Cost of Investment in Associate

        It is subsidiary    ThU.S.$1,641     

Summarized financial Information of Associates

 

     06/30/2009
     Sum of Assets
ThU.S.$
   Sum of Liabilities
ThU.S.$

Current assets of associates

   144,142    39,059

Non-current assets of associate

   316,480    421,563
         

Total Associates

   460,622    460,622
         

 

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

Current assets of associates

   149,215      42,290   

Non-current assets of associate

   324,258      431,183   
            

Total Associates

   473,473      473,473   
            
     06/30/2009
ThU.S. $
    06/30/2008
ThU.S.$
 

Ordinary income of associates

   56.048      79,000   

Ordinary expenses of associates

   (35,108   (73,323
            

Net profit (loss) of associates

   20,940      5,677   
            

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

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

June 30, 2009

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

 

 

 

Movement in Investment in Associates

 

     06/30/2009
ThU.S.$
    12/31/2008
ThU.S.$
 

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

   141,590      153,861   

Investment Changes in Associate Companies (presentation)

    

Investment in Associates, Additions

   0      10,353   

Equity in Ordinary Profit (Loss) investments in associates

   5,947      5,839   

Dividends Received, Investments in Associates

   (15,172   (4,427

Impairment, Investments in Associates

   0      (511

Increase (Decrease) in foreign exchange translation investment in associates

   9,816      (19,523

Other Increase (Decrease) in foreign exchange translation investment in associates

   (512   (4,002
            

Changes in Associate Company Investments, Total

   79      (12,271
            

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

   141,669      141,590   
            

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

June 30, 2009

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

 

 

 

NOTE 16. INTERESTS IN JOINT VENTURES (IAS 31)

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.

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

 

<
     06/30/2009    12/31/2008
     Sum of
Assets

ThU.S.$
   Sum of
Liabilities

ThU.S.$
   Sum of
Assets

ThU.S.$