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

Exhibit 99.1

ARAUCO AND CONSTITUTION PULP INC

TABLE OF CONTENTS

 

Item

        Page

1.

   Ratio Analysis of the Consolidated Financial Statements    1

2.

   Unaudited Consolidated Classified Financial Statements    8

3.

   Unaudited Consolidated Classified Financial Income Statements    10

4.

   Unaudited Consolidated Statement of Changes in Net Equity    11

5.

   Unaudited Consolidated Statement of Cash Flows    12

6.

   Unaudited Notes to the Consolidated Financial Statements    13

 


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statement

September 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 September 30, 2009 are as follows:

 

Assets

   09/30/2009
ThU.S.$
   12/31/2008
ThU.S.$

Current assets

   2,340,539    1,961,321

Other assets

   8,924,159    8,277,823
         

Total assets

   11,264,698    10,239,144
         

Liabilities and Shareholders’ Equity

   09/30/2009
ThU.S.$
   12/31/2008
ThU.S.$

Current liabilities

   939,392    812,915

Long-term liabilities

   4,067,717    3,418,993

Minority interest

   122,954    117,682

Shareholders’ equity

   6,134,635    5,889,554
         

Total liabilities and shareholders’ equity

   11,264,698    10,239,144
         

Total assets increased by 9.10%, or U.S.$1,026 million, from December 31, 2008 to September 30, 2009. This increase is mainly attributable to an increase in cash and cash equivalents (financial assets), property, plant and equipment and biological assets.

Total liabilities increased by U.S.$775 million from December 31, 2008 to September 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

September 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

   09/30/2009    12/31/2008

Current ratio

   2.49    2.41

Acid ratio

   1.57    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 accounts 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 accounts receivables.

 

Debt indicators

   09/30/2009    12/31/2008

Debt to equity ratio

   0.80    0.70

Short-term debt to total debt

   0.19    0.19

Long-term debt to total debt

   0.81    0.81
      09/30/2009    09/30/2008

Financial expenses covered

   2.57    5.45

Current liabilities decreased modestly from 19% of total liabilities as of December 31, 2008 to 18% of total liabilities as of September 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 5.45 points in September 30, 2008 to 2.57 points in September 30, 2009. The decrease is attributable to a higher decrease in current profits related to financial expenses.

 

Operational ratios

   09/30/2009    12/31/2008

Inventory turnover

   1.72    2.61

Inventory turnover (excluding forests)

   2.38    3.84

Inventory permanence (days)

   157.19    137.72

Inventory permanence (excluding forests)

   113.33    93.75

The ratio of inventory turnover decreased from 2.61% as of December 31, 2008 to 1.72% points as of September 30, 2009. For this reason, the inventory permanence ratio increased during the period ending September 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

September 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

   09/30/2009
ThU.S.$
   09/30/2008
ThU.S.$

Pulp

   1,213,294    1,547,971

Sawn timber and cut wood

   357,368    571,625

Plywood and fiber panels

   585,863    733,107

Forestry products

   60,322    79,920

Other

   10,757    20,278
         

Total operating income

   2,227,604    2,952,901
         

 

Operating costs

   09/30/2009
ThU.S.$
   09/30/2008
ThU.S.$

Timber

   414,200    562,082

Forestry work

   249,538    305,575

Depreciation

   140,898    129,899

Other costs

   763,106    769,553
         

Total operating costs

   1,567,742    1,767,109
         

Analysis of Gross Profit

Gross Profit includes net income of U.S.$660 million in 2009 compared to U.S.$1,186 million in 2008, a decrease of U.S.$526 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.$202 million in 2009, compared to U.S.$553 million in 2008. The change was primarily caused as described in the following table:

 

Item

   Million
U.S.$
 

Gross profit

   (526

Other operating income

   77   

Distribution costs

   66   

Foreign currency exchange rate

   27   

Others net

   5   
      

Net change in outcome before income tax

   (351
      

The increase 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 receivables.

 

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Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statement

September 30, 2009

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

 

 

 

2. ANALYSIS OF FINANCIAL POSITION, continued

 

Profitability ratios

   09/30/2009     09/30/2008  

Income per share (U.S.$)

   1.36      3.95   

EBITDA *

   488,413      817,368   

Income after tax (ThU.S.$)

   159,158      453,682   

Gross profit ThU.S.$

   659,862      1,185,792   

Financial expenses ThU.S.$

   (128,971   (124,297
* Earnings before income tax, interest, depreciation, amortization and extraordinary items.

 

3. MARKET SITUATION

Pulp

The recovery that began during the second quarter has been confirmed during the third quarter of this year. The main driver of this recovery has been the Chinese and Asian markets. In addition, the low levels of inventories in markets such as Europe and Middle East have helped prices to recover. With this situation, the pulp producers, which had decreased their production or even stopped during the last twelve months, are starting to increase production. Despite the improvement in the pulp market there are some mills that have closed permanently throughout this year.

In Asia, the activity is driven by an increase in paper production and a higher demand for pulp. Some producer countries such as Korea and Indonesia have increased their exports to the U.S. and Europe helped by lower costs and a favorable exchange rate. In other paper producer countries such as China, the domestic consumption has increased and export levels are also rising. However, the export volume is marginal compared to domestic consumption. In China projects in paper manufacturing that were stopped by the financial uncertainty have been re-activated and is expected that several new ones will be implemented by the end of this year.

The European situation is different. Although pulp prices have risen significantly and pulp demand has also risen, the activity is below previous years and the increased pulp demand is mainly explained by the replenishment of stocks rather than the increased demand for paper. The substantial fall in pulp inventories and the pressure to divert volumes from Europe to Asia have explained price increases. In general the paper market in Europe remains weak, prices have continued to decline, and only in some cases paper producers have been successful in raising paper prices. The main reason is a decline in demand and an overcapacity in paper production. During the third quarter, a new machine for paper production was implemented in Portugal with a capacity of 0.5 million tons. With this, an over capacity of 1.5 million tons is estimated. Due to this situation, European paper producers have not been able to transfer the increases of pulp prices to their final products, eroding their margins. They have only been favored by a strong Euro, which means a moderate rise of pulp in their local currency.

Middle East, Turkey and India have experienced price rises in markets normal spots in market trends and the current product obtained only by paying premiums. But while these markets are able to cross these additional prices to the final product easily.

 

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Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statement

September 30, 2009

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

 

 

 

3. MARKET SITUATION, continued

North America has not had a significant rebound in demand, but the prices have risen due to the effect of demand in Asia. In the U.S., the main objective of pulp producers is to produce as much as possible in order to maximize the subsidies for burning the black liquor with a small proportion of fossil fuel. This grant, which is not a tax credit but a cash payment to business, has become in some cases over 50% of the operating margin or up to U.S.$ 250 per ton of pulp. Producers are taking advantage of this subsidy that should end in December 31 of this year. However, there are doubts if this subsidy will be replaced by another, which may be equal or even more distorting than the current one which will provide close to U.S.$ 8 billion to pulp and paper producers burning the black liquor, a proven technology and in force since 1930.

Sawn Timber

The real-estate market and construction from the U.S. has remained stable during the third quarter of 2009. The construction of houses reached an annualized rate of 590.000 units in September, which is slightly higher than that achieved in the second quarter of this year. The current construction levels remain the lowest in the last 50 years. During the third quarter of this year, there was a slight rise in prices and sales volumes of moldings and sawn timber when compared with the second quarter. However, sales levels are still well below those of the third quarter of last year.

During the last quarter of this year, we are seeing a growth in demand for forest products in all markets, translated into higher prices especially in Asia and the Middle East. However, both, sales volumes and prices of forest products remain well below levels reached in the third quarter of last year.

PANELS

During the year, Panels division sales showed a decline of 19% in U.S. dollars compared to the same period last year. Meanwhile, sales volumes for the same period have increased by 3.5%. Although sales volumes have increased slightly when compared to the previous year, it has been necessary to adjust sales prices downward in order to sell those volumes in the market. The percentage mentioned above includes the acquisition of Tafisa (Brazil) in September, 2009, but excludes the energy sales both, to related companies and to the Chilean SIC energy grid.

 

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Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statement

September 30, 2009

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

 

 

 

3. MARKET SITUATION, continued

During this third quarter, we have seen a strong recovery in sales volumes of plywood, compared with the first half of this year (about 10% per month) translated in lower inventorty levels. Thus, slowly we have seen a higher demand and market confidence translated into stable sales to North America and increasing recovery in sales volume to Europe. Prices remain depressed but we see real signs of recovery for the end of this year, mainly in Europe due to the Euro re-valuation.

Moreover, MDF moldings sales and MDF boards sales in both the US and Latin-America, experienced an increase in volume over the first half of this year, which helped to reduce our inventory levels in Chile.

We have also seen a recovery in sales of Hardboard due to an increase in volume in of 30% compared to the first half of the year, partially offset by about 10% by lower prices, which are due to the entry into marginal markets.

In summary, we can say that a greater optimism and dynamism are perceived in the markets as compared to the first half of this year, which have helped to increase sales volume and to reduce inventory levels. Prices are beginning to rise slowly, predicting better results throughout the end of the year.

 

4. ANALYSIS OF CASH FLOW

 

     09/30/2009
ThU.S.$
    09/30/2008
ThU.S.$
 

Operating cash flow

   551,870      605,408   

Cash flow from financing activities

   343,448      (244,805

Cash flow from investment activities

   (430,448   (326,997
            

Net cash flow for the period

   464,870      33,606   
            

We had a positive operating cash flow of U.S.$552 million compared to a U.S.$605 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 September 30, 2009 was a positive balance of U.S.$343 million compared to a negative balance of U.S.$245 million for the same period in 2008. This change resulted from issuing bonds, which was partially offset by a decrease in bank loans and in a dividends paid.

The investment flow presented a high negative balance at the end of the current period, due principally to fewer disbursements for acquiring biological assets and plant and equipment partially offset by an increase in investments in associates.

 

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Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statement

September 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 September 30, 2009, a ratio of fixed rate debt to total consolidated debt of approximately 91.30%, 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

September 30, 2009

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

 

 

 

CLASSIFIED FINANCIAL STATEMENT

 

     Note    09/30/2009
ThU.S.$
   12/31/2008
ThU.S.$
   01/01/2008
ThU.S.$

Assets

           

Current Assets

           

Operative Current Assets

           

Cash and cash equivalents

   4    657,434    167,308    267,872

Financial assets at fair value through profit or loss

   23    5,762    13,469    10,626

Trade and Other receivables-net

   23    600,545    588,803    686,726

Related party receivables

   13    3,594    5,475    11,379

Inventories

   3    624,846    691,206    529,478

Biological assets

   21    241,093    268,289    304,299

Prepaid expenses

      63,243    74,331    54,194

Tax receivables

      142,060    148,670    122,219

Other current assets

      1,962    3,770    1,738

Total Operative Current Assets

      2,340,539    1,961,321    1,988,531

Total Current Assets

      2,340,539    1,961,321    1,988,531

Non Current Assets

           

Trade and Other receivables

   23    8,859    7,864    17,099

Investment in associates through equity method

   15    143,097    141,590    153,861

Intangible assets

   20    77,625    14,469    15,640

Property, plant and equipment

   7    4,991,340    4,613,199    4,609,641

Biological assets

   21    3,551,305    3,384,144    3,518,720

Deferred tax assets

   6    119,445    86,525    81,295

Hedge assets

   23    438    0    0

Prepaid expenses

      23,550    21,169    16,530

Other non-current assets

      8,500    8,863    24,424

Total non-current assets

      8,924,159    8,277,823    8,437,210

Total Assets

      11,264,698    10,239,144    10,425,741

 

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Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Classified Financial Statement

September 30, 2009

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

 

 

 

CLASSIFIED FINANCIAL STATEMENT (continued)

 

     Note    09/30/2009
ThU.S.$
   12/31/2008
ThU.S.$
    01/01/2008
ThU.S.$

Liabilities

          

Current Liabilities

          

Operative Current Liabilities

          

Loans that accrue interest

   23    508,102    372,622      336,363

Other financial liabilities

   23    12,689    14,051      7,007

Trade and Other payables

   23    332,753    309,704      309,127

Related party payables

   13    10,264    9,102      8,116

Provisions

   19    4,582    3,753      2,320

Current tax payables

      12,992    10,325      40,960

Other liabilities

      54,408    88,542      214,933

Deferred income

      1,458    2,628      4,671

Post employment benefit obligations

   10    2,144    2,188      2,478

Total Operative Current Liabilities

      939,392    812,915      925,975

Total Current Liabilities

      939,392    812,915      925,975

Non Current Liabilities

          

Loans that accrue interest

   23    2,650,863    2,279,321      2,381,329

Provisions

   19    37,558    5,585      6,271

Deferred tax liabilities

   6    1,239,823    1,091,697      1,093,597

Other liabilities

      116,256    24,045      35,446

Deferred income

      269    236      299

Post employment benefit obligations

   10    22,948    18,109      19,445

Total non-current liabilities

      4,067,717    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

      4,383    (139,238   0

Retained profit/loss (accumulated losses)

      5,777,076    5,675,616      5,465,431

Net equity attributable to parent company net equity instrument holders

      6,134,635    5,889,554      5,818,607

Minority interest

      122,954    117,682      144,772

Total net equity

      6,257,589    6,007,236      5,963,379

Total net equity and liabilities

      11,264,698    10,239,144      10,425,741

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Income Statement

September 30, 2009

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

 

 

 

FINANCIAL INCOME STATEMENT BY ACTIVITY

 

     Note    January-September     July-September  
        2009
ThU.S.$
    2008
ThU.S.$
    2009
ThU.S.$
    2008
ThU.S.$
 

Profit (loss) from operations

           

Revenue

   9    2,227,604      2,952,901      834,664      968,197   

Cost of sales

      (1,567,742   (1,767,109   (559,331   (620,197

Gross profit

      659,862      1,185,792      275,333      348,000   

Other operating income

   1    157,644      81,024      56,849      39,573   

Marketing costs

      (5,019   (7,130   (2,161   (3,649

Distribution costs

      (289,932   (356,324   (107,011   (123,554

Research and development

      (868   (765   (166   (171

Administrative expenses

      (169,604   (189,209   (61,075   (58,777

Other operating expenses

      (43,312   (33,157   (18,333   (10,545

Financial costs

   1    (128,971   (124,297   (45,526   (33,284

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

      5,682      5,057      (265   2,562   

Exchange rate differences

   11    21,161      (6,249   20,766      (32,141

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

   1    (3,877   (1,250   467      (82

Other profit (losses)

      (419   (511   29      0   

Profit (loss) before income tax

      202,347      552,981      118,907      127,932   

Income tax expenses/(income)

   6    (43,149   (99,299   (23,376   (15,392

Profit (loss) from continuing operations after tax

      159,198      453,682      95,531      112,540   

Profit (Loss) from Discontinued operations, Net of Tax

      0      0      0      0   

Profit (loss)

      159,198      453,682      95,531      112,540   

Profit (Loss) attributable to equity holders

           

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

      153,373      447,035      93,330      114,519   

Profit (loss) attributable to minority interest

      5,825      6,647      2,201      (1,979

Profit (loss)

      159,198      453,682      95,531      112,540   

Ordinary Shares

           

Basis earnings (losses) per share

      0.0014069      0.0040095      0.0008443      0.0009946   

Earning (losses) per share from discounting operations

      0      0      0      0   

Earning (losses) per share from continuing operations

      0.0014069      0.0040095      0.0008443      0.000946   

Comprehensive Income Statement

        January-September     July-September  
      2009
ThU.S.$
    2008
ThU.S.$
    2009
ThU.S.$
    2008
ThU.S.$
 

Profit (loss)

      159,198      453,682      95,531      112,540   

Other income and expenses with charge or credit to net equity

           

Cash flow hedges

      (4,300   0      313      0   

Currency translation differences

      159,170      (52,034   61,106      (112,313

Adjustments associated

      760      (1,985   (368   (417

Income tax related to components of other income and expenses or payment in equity

      731      0      (53   0   

Other income and expenses charged to or credit to net equity

      156,361      (54,019   60,998      (112,730

Comprehensive income statement

      315,559      399,663      156,529      (190

Comprehensive Income and Expense Statement Attributable to:

           

Comprehensive income and expenses statement attributable to majority shareholders

      296,994      396,776      149,609      11,476   

Comprehensive income and expenses statement attributable to minority shareholders

      18,565      2,887      6,920      (11,666

Total comprehensive income and expense

      315,559      399,663      156,529      (190

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Statementof Changes in Net Equity

September 30, 2009

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

 

 

 

STATEMENT OF CHANGES IN NET EQUITY

 

09/30/2009

   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.$
 
   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    146,430      (3,569   760      153,373      296,994      18,565      315,559   

Cash dividends declared

   0    0      0      0      (51,913   (51,913   0      (51,913

Other increases (decreases) in net equity

   0    0      0      0      0      0      (13,293   (13,293

Changes in equity

   0    146,430      (3,569   760      101,460      245,081      5,272      250,353   

Closing balance at 09/30/2009

   353,176    10,207      (3,569   (2,255   5,777,076      6,134,635      122,954      6,257,589   

09/30/2008

   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.$
 
   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    (48,274   0      (1,985   447,035      396,776      2,887      399,663   

Cash dividends declared

   0    0      0      0      (192,261   (192,261   0     (192,261

Other increases (decreases) in net equity

   0    0      0      0      0      0      (15,259   (15,259

Changes in equity

   0    (48,274   0      (1,985   254,774      204,515      (12,372   192,143   

Closing balance at 09/30/2008

   353,176    (48,274   0      (1,985   5,720,205      6,023,122      132,400      6,155,522   

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Statement of Cash Flow

September 30, 2009

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

 

 

 

STATEMENT OF CASH FLOWS-DIRECT METHOD

 

Cash Flows from (used in) Operating, Direct Method

   09/30/2009
ThU.S.$
    09/30/2008
ThU.S.$
 

Collection of trade accounts receivable

   2,504,731      3,052,286   

Research and development disbursements

   (868   (765

Payments to suppliers

   (1,879,819   (2,264,171

Paid salaries

   (137,311   (143,448

Payments received and forwarded by the Value Added Tax

   124,805      119,487   

Other collections (payments)

   11,905      2,895   

Cash flows by (used in) Operating, Total

   623,443      766,284   

Cash flows by (used in) Other Operating Activities

    

Amounts received from interest received classified as operating

   17,028      5,797   

Amounts received from interest received classified as operating

   14,928      14,846   

Interest payments classified as operating

   (120,884   (123,989

Amounts received by the Income Tax Returned

   61,973      36,949   

Income tax payments

   (44,618   (94,479

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

   (71,573   (160,876

Cash flows net of (used in) Operating Activities

   551,870      605,408   

Cash flows from (used in) Investing Activities

    

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

   1,307      1,014   

Proceeds from sale (disappropriation) of biological assets

   1,793      4,804   

Proceeds from sale (disappropriation) of subsidiaries, net of cash expropriated

   7      0   

Other cash flows from (used in) investing activities

   38      167   

Purchase of property, plant and equipment

   (188,135   (239,215

Payments for goodwill purchase

   (966   0   

Payments for biological assets purchase

   (78,714   (85,282

Payments for acquiring subsidiaries

   (165,617   0   

Payments for acquiring associates

   0      (7,353

Other investing disbursements

   (161   (1,132

Cash flows from (used in) Investing Activities

   (430,448   (326,997

Cash flows from (used in) Financing Activities

    

Loans obtained

   687,104      613,455   

Bonds issued

   636,457      0   

Loan payments

   (879,286   (648,331

Dividend payments to minority interests

   (13,323   (12,832

Dividend payments by the reporting entity

   (88,449   (197,097

Other Cash Flows from (Used in) Financing Activities

   945      0   

Cash flows from (used in) Financing Activities

   343,448      (244,805

Net increase (decrease) of Cash and Cash Equivalents

   464,870      33,606   

Effect of exchange rate variations on cash and cash equivalents

   25,256      (21,797

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

   657,434      279,681   

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

September 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 S.A., 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”).

Company’s Registered Office or Head office address

El Golf Avenue 150, floor 14, Las Condes.

Legal Structure of Reporting Entity

Privately Held Corporation.

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.

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 September 30, 2009:

 

   

Statement of Classified Balance Sheet

 

   

Financial Income Statement by Activity

 

   

Statement of Changes in Net Equity

 

   

Statement of Cash Flows – Direct Method

 

   

Disclosure of Explanatory Information (notes)

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

September 30, 2009

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

 

 

 

Period Covered by the Financial Statements

January 1, 2009 to September 30, 2009.

Date of Approval of Financial Statements

The issuance of these interim consolidated financial statements for the period of nine months finished on September 30, 2009 was approved by the Board in Extraordinary Session No. 411 on November 24, 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.

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.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

September 30, 2009

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

 

Disclosure of Capital Information

Information on Objectives, Policies and Processes applied by the Company

regarding Capital Management

Arauco’s policies on capital management aim at:

 

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

 

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

 

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

 

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

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

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

Quantitative Information on Capital Management

Financial guarantees of the Company are as follows:

 

Instrument

   Amount at
09/30/2009
(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

   366,981    203,668    N/A    N/A   ü    N/A

Syndicated Bank Loans

   0    160,378    ü    ü   ü    N/A

Forestal Río Grande S.A. Loan

   147,491    173,627    N/A    ü(3)   N/A    ü(3)

Bilateral Bank Loan

   241,773    241,026    N/A    ü   ü    N/A

Other Loans

   169,789    41,860    No Safeguards Required

Foreign Bonds

   2,232,251    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 at September 30, 2009 are as follows:

 

Instrument

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

Local Bonds

   —      AA    —      AA

Foreign Bonds

   BBB+    BBB+    Baa2    —  

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

September 30, 2009

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

 

 

 

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 September 30, 2009 and December 31, 2008:

 

In ThU.S.$

   09/30/2009    12/31/2008    01/01/2008

Equity

   6,134,635    5,889,554    5,818,607

Bank Loans

   559,053    616,891    874,032

Finance Leases

   680    1,394    3,597

Bonds

   2,599,232    2,033,658    1,840,063
              

Capital

   9,293,600    8,541,497    8,536,299
              

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

The accompanying consolidated financial statements as of September 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”), which have been adopted in Chile under title: Financial Reporting Standards in Chile (NIFCH) and represent the wholesale adoption, explicitly and without reservation of the mentioned international standards.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

September 30, 2009

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

 

 

 

The interim consolidated financial statements have been 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.

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 property, plant and equipment 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.

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

The recovery of forest plantations is based on discounted cash flow models which means that the fair value of biological assets is calculated using cash flows from continuing operations, that is on the basis of sustainable forest management plans considering the potential growth of forests. This recovery is performed on the basis of each stand identified and for each type of tree species

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

September 30, 2009

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

 

 

 

These discounted cash flows require estimates in growth, harvest, sales prices and costs. 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 harvesting and their current growth rates.

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 equity balance.

Consolidated financial statements for the period January 1, 2009 to September 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 monthly, 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

September 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 is 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)

Loans, public obligations and liabilities of similar nature are recognized initially at fair value, net of transaction costs incurred. In subsequent periods, they are stated at amortized cost; any difference between proceeds (net of transaction costs), and redemption value is recognized in the income statement over the life of the debt according to the method of the effective interest rate.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

September 30, 2009

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

 

 

 

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.

(iv) Creditors and other payables

These instruments are initially recorded at fair value and subsequently at amortized cost using the effective interest rate method.

(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, excluding interest expenses.

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

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

Where market conditions result in the manufacturing costs of a product exceeding its net realizable value, a valuation allowance is made. This provision also includes amounts relative to obsolescence resulting from slow moving and technical obsolescence.

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 and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired 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, are eliminated.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

September 30, 2009

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

 

 

 

Accounting policies for subsidiaries will be adjusted if necessary to ensure consistency with the policies adopted by Arauco. Minority Interests are presented as a separate component of equity.

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 and 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 (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, considering any adjustments for impairment. 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.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

September 30, 2009

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

 

 

 

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

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, considering that the fair value of these assets can be measured reliably. The valuation of forest is consistent with Group accounting policies.

The valuation of forest plantations 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

September 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.

Revenues from inter-segment sales (which are made at prices that approximate market prices), are 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 property, plant and equipment are subject to impairment tests whenever some event or change in business circumstances indicates that the book value of assets may not be recoverable, whereas goodwill is tested annually. The recoverable amount of an asset is estimated as the higher of net selling price and value in use. An impairment loss is 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 and 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) Employee vacations

Arauco recognizes the expense for employee vacation on an accrual basis and recorded at nominal value.

This concept is presented in the State of Financial Position in the line trade payables and other payables, current.

 

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AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

September 30, 2009

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

 

 

 

v) Joint Venture Equity

Joint venture equity is recognized using the equity method.

w) Business Combinations

Business combinations are recognized using the purchase method. This involves recognizing identifiable assets (including previously unrecognized intangible assets) and liabilities (including contingent liabilities and excluding future restructuring) of the acquired business at fair value.

The goodwill acquired in a business combination is initially measured at cost being the excess of cost of business combination over the interest of the company in the net fair value of assets, liabilities and contingent liabilities of the acquisition. After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For purposes of impairment testing, goodwill acquired in a business combination is allocated from the acquisition date to cash generating unit of the group or groups of cash generating units expected will benefit from the synergies of the combination without prejudice to whether other assets or liabilities of the Group are assigned to those units or groups of units.

x) Recent accounting pronouncements

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

 

Rules and amendments

  

Content

  

Mandatory

application date

IFRS 1: Revised    First time adoption of International Reporting Standards    Periods beginning on or after 1 July 2009
Amendments to IFRS 3 Revised    Business Combinations    Periods beginning on or after 1 July 2009
Amendments to IAS 39 and IFRS 7    Reclassification of financial assets and clarification of effective date    Periods beginning on or after 1 July 2009
Amendments to IFRIC 9 and IAS 39    Embedded derivatives    Periods beginning on or after 1 July 2009
Amendment to IAS 39    Eligible hedged items    Periods beginning on or after 1 July 2009
Amendment to IAS 27    Consolidated and Separate Financial Statements    Periods beginning on or after 1 July 2009
IFRIC Interpretation 17    Distributions of non-cash assets to owners    Periods beginning on or after 1 July 2009
IFRIC Interpretation 18    Transfers of assets from customers    Periods beginning on or after 1 July 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.

 

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AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

September 30, 2009

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

 

 

 

Disclosure of Information on Capital Issued

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

100% of capital corresponds to ordinary shares

 

     09/30/2009    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

   ThU.S.$353,176

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.

 

     09/30/2009    12/31/2008

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

   113,152,446

Disclosure of information on Dividends paid to Ordinary Shares

Dividends paid as of September 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

   ThU.S.$ 88,449

Number of Shares of which Dividends are Paid, Ordinary Shares

   113,152,446

Dividend per Share, Ordinary Share

   U.S.$ 0.781676137

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

September 30, 2009

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

 

 

 

Dividends paid during financial year 2008 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

   05-07-08

Amount of Dividend, Ordinary Shares, Gross

   ThU.S.$ 214,885

Amount of Tax on Dividends, Ordinary Shares

   —  

Amount of Dividend, Net of Tax, Ordinary Shares

   ThU.S. $ 214,885

Number of Shares 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

   ThU.S. $ 100,932

Number of Shares in which Dividends are Paid, Ordinary Shares

   113,152,446

Dividend per Share, Ordinary Share

   US$ 0.89199

Disclosure of Information on Reserves

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

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.

Hedge Reserves

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

 

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AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

September 30, 2009

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

 

 

 

Disclosure of other Information

Below are balances of Other Operating Income, Financing Costs and Profit (loss) from the derecognition of non current assets as of September 30, 2009 and 2008, respectively.

 

     January - September     July-September  
     2009
ThU.S.$
    2008
ThU.S.$
    2009
ThU.S.$
    2008
ThU.S.$
 

Types of Other Operating Income

        

Other Operating Income, Total

   157,644      81,024      56,849      39,573   

Interest income

   10,861      18,529      5,258      6,321   

Gain from changes in fair value of biological assets

   115,017      39,435      39,097      25,549   

Other operational income

   31,766      23,060      12,494      7,703   

Types of Financing Costs

        

Financing Costs, Total

   (128,971   (124,297   (45,526   (33,284

Interest Expenses

   (118,076   (108,497   (41,338   (30,049

Interest on bank loan

   (118,076   (108,497   (41,338   (30,049

Other financing costs

   (10,895   (15,800   (4,188   (3,235

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

        

Total

   (3,877   (1,250   467      (82

Property, plant and equipment

   (1,616   (779   130      211   

Biological asset

   (2,103   (471   195      (293

Other non-current assets

   (158   0      142      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

   5,682      5,057      (265   2,562   

Associates accounted for by the Equity Method

   5,682      5,057      (265   2,562   

 

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AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

September 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 ThU.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.

 

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AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

September 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 March 31, 2009 are the first 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.$
    09/30/2008
ThU.S.$
    01-01-2008
ThU.S.$
    Note  

Total net equity according to Chilean Accounting Principles

   5,690,914      5,608,881      5,480,420     

Property, plant and equipment

   862,942      849,356      800,249      a

Consolidation of Special Purpose Entities

   62,368      70,134      78,960      b

Biological Assets

   (141,203   91,280      44,776      c

Functional Currency

   (126,785   (20,025   37,606      d

Negative Goodwill

   93,345      94,787      99,338      e

Minimum Dividend

   (88,492   (192,294   (214,936   f

Financial instruments

   23,686      17,850      22,521      g

Deferred taxes

   (389,215   (404,441   (416,792   h

Cumulative effect of other minor concepts

   19,676      39,994      31,237     
                    

Total net equity according to IFRS

   6,007,236      6,155,522      5,963,379     
                    

 

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AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

September 30, 2009

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

 

 

 

2.- Reconciliation Summary of consolidated net result

 

     12/31/2008
ThU.S.$
    09/30/2008
ThU.S.$
    July-September
ThU.S.$
    Note  

Total net effect according to Chilean Accounting Principles

   479,801      486,231      129,667     

Changes in depreciation in property, plant and equipment

   59,030      48,538      16,250      a

Valuation of agricultural products at fair value

   (165,935   (121,778   (54,677   c

Valuation of biological assets at fair value

   65,201      39,393      25,507      c

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

   (39,674   (17,436   (19,554   d

Adjustment for deferred taxes as a result of IFRS

   19,040      21,561      7,478      h

Other non significant adjustments

   (12,418   (2,827   7,869     
                    

Total net effect according to IFRS

   405,045      453,682      112,540     
                    

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.$
    09/30/2008
ThU.S.$
    01/01/2008
ThU.S.$
 

Property, plant and equipment

   56,758      56,744      56,838   

Biological assets

   171,284      181,931      222,217   

Other assets

   22,004      20,467      7,658   

Financial liabilities

   (187,678   (189,008   (207,753

Minority interest in equity

   62,368      70,134      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

September 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 ending period. 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.$
    09/30/2008
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   (61,356   (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, the higher balances of investment securities (negative goodwill) at the transition date were adjusted against the accumulated results.

(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.$
   09/30/2008
ThU.S.$
   01/01/2008
ThU.S.$

Derivative valuation adjustment (swap) (i)

   12,594    8,078    9,750

Present value of liabilities (ii)

   9,011    7,543    10,099

Bonds obligation at effective rate (iii)

   2,081    2,229    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

September 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.$
    09/30/2008
ThU.S.$
    01/01/2008
ThU.S.$
 

Deferred taxes from IFRS adjustments (i)

   (323,398   (338,262   (350,413

Elimination of complementary accounts (ii)

   (3,009   (3,371   (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.$
    09/30/2008
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

   (309,113   (305,148   (305,298

Deferred taxes for biological assets valuation

   (8,757   (20,219   (33,444

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

   (1,161   (1,373   (1,658

Deferred taxes for other IFRS adjustments

   2,659      (4,496   (2,987
                  

Total

   (323,398   (338,262   (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
12/31/2008
(ThU.S. $)
    As at
09/30/2008
(ThU.S. $)
 

Total Net Cash Flow Statement according to Chilean accounting principles

   167,089      279,421   

Net Cash Flow of (Used in):

    

Operating Activities

   (34,588   (32,763

Investing Activities

   68,792      62,355   

Financing Activities

   (34,615   (29,974

Net Increase (Decrease) in Cash and Cash Equivalents

   (411   (382

Cash and Cash Equivalent Initial Balance

   609      642   
            

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

   167,287      279,681   
            

 

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Unaudited Notes to the Consolidated Financial Statement

September 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.

 

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Unaudited Notes to the Consolidated Financial Statement

September 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

   09/30/2009
ThU.S.$
   12/31/2008
ThU.S.$
   01/01/2008
ThU.S.$

Raw Materials

   109,645    113,614    120,139

Production Supplies

   46,072    46,206    50,394

Work in progress

   26,424    38,610    22,628

Finished goods

   338,959    395,405    260,839

Other Inventories

   103,746    97,371    75,478

Total Inventories

   624,846    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 September 30, 2009, a cost of sales of Inventories of ThU.S.$ 1,506,628 was recognized (ThU.S.$ 1,669,307 at September 30, 2008).

As of September 30, 2009, an increased provision for obsolescence of ThU.S.$ 300 was recognized (ThU.S.$ 450 at September 30, 2008).

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

 

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Unaudited Notes to the Consolidated Financial Statement

September 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, repurchase agreements and mutual funds. They are short-term investments that are readily convertible into cash, and are subject to an immaterial change in value.

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.

At the date of these financial statements, there are no significant items to report use restriction.

 

Components of Cash and Cash Equivalents

   09/30/2009
ThU.S.$
   12/31/2008
ThU.S.$
   01/01/2008
ThU.S.$

Cash on hand

   305    147    94

Banks

   26,263    18,515    37,413

Short term deposit

   83,579    72,198    36,260

Mutual funds

   547,287    59,276    194,105

Other cash and cash equivalents

   0    17,172    0

Total

   657,434    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

   657,434    167,308    267,872

Cash and cash equivalents, reported in the Cash Flow Statement

   657,434    167,308    267,872

The following tables detail the value of the cost of the investment in Savitar dated June 30, 2009 and Tafisa Brazil dated August 26, 2009 (see Note 14), and the net value of assets and liabilities of each acquired 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

   09/30/2009
ThU.S.$
 

Acquisition: Tafisa Brasil S.A. (current Arauco do Brasil S.A.)

  

Tradeoffs sum cash paid for acquisitions and cash equivalents

   158,377   

Sum of Cash and cash equivalents in acquired entities

   (2,891

Tradeoff for Acquisitions paid to acquire entities, net Total

   155,486   
      ThU.S.$  

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

   134,846   

 

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Unaudited Notes to the Consolidated Financial Statement

September 30, 2009

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

 

 

 

Purchase of Investments

   09/30/2009
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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Unaudited Notes to the Consolidated Financial Statement

September 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 September 30, 2009 and applied uniformly to all items presented in these consolidated financial statements.

Changes in the Treatment of Accounting Policy

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

Standards adopted by the Group in Advance

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

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

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

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

September 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

   09/30/2009
ThU.S. $
   12/31/2008
ThU.S. $
   01/01/2008
ThU.S. $

Deferred Tax Assets relative to Provisions

   8,557    2,602    2,029

Deferred Tax Assets relative to accrued liabilities

   2,754    2,649    2,015

Deferred Tax Assets relative to Post-Employment obligations

   4,238    3,498    3,750

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

   1,448    1,090    1,966

Deferred Tax Assets relative to Financial Instruments Restatements

   2,259    2,788    1,192

Deferred tax assets relative to tax losses

   69,168    36,613    33,272

Valuation of biological asset

   13,617    16,579    20,911

Valuation of inventory

   2,837    2,766    2,084

Income provision

   2,620    4,365    3,977

Trade debtors and receivables

   5,516    6,562    3,248

Deferred Tax Assets relative to Others

   6,431    7,013    6,851
              

Deferred Tax Assets Total

   119,445    86,525    81,295
              

At the present financial statement date some of Arauco’s subsidiaries show tax losses of ThU.S.$293,127 as compared to ThU.S.$187,487 as at December 31, 2008 which are mainly due to operational and financial losses.

Deferred Tax Liability

Deferred tax liability corresponds 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

September 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

   09/30/2009
ThU.S. $
   12/31/2008
ThU.S. $
   01/01/2008
ThU.S. $

Deferred Tax Liabilities relative to Restated Property, Plant and equipment

   680,990    585,214    563,077

Deferred Tax Liabilities relative to Financial Instrument restatement

   4,123    5,740    2,105

Valuation of biological asset

   513,952    470,256    494,587

Valuation of inventory

   11,942    15,188    13,836

Valuation of anticipate expenses

   13,871    13,190    10,518

Deferred Tax Liabilities relative to Others

   14,945    2,109    9,474
              

Deferred Tax Liabilities Total

   1,239,823    1,091,697    1,093,597
              

Temporary Differences

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

 

     09/30/2009    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

   50,277    0    49,912    0    48,023    0

Tax Loss

   69,168    0    36,613    0    33,272    0

Deferred Tax Liabilities

   0    1,239,823    0    1,091,697    0    1,093,597

Total

   119,445    1,239,823    86,525    1,091,697    81,295    1,093,597

 

     January-September     July-September  

Detail of Temporary Difference Profit and Loss Amounts

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

Deferred Tax Assets

   (2,691   (2,341   1,820      (1,548

Tax Loss

   7,341      4,147      (1,025   1,673   

Deferred Tax Liabilities

   (34,898   (5,227   (6,721   1,601   
                        

Total

   (30,248   (3,421   (5,926   1,726   
                        

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

September 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-September     July-September  
   2009
ThU.S.$
    2008
ThU.S.$
    2009
ThU.S.$
    2008
ThU.S.$
 

Current income tax expense

   (18,538   (103,758   (18,309   (19,656

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

   1,879      5,517      773      2,667   

Previous period current tax adjustments

   3,821      3,129      3      17   

Other current tax expenses

   (63   (766   83      (146
                        

Current Tax Expenses, Net, Total

   (12,901   (95,878   (17,450   (17,118
                        

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

   (37,589   (7,568   (4,250   (676

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

   7,341      4,147      (1,025   1,673   

Other deferred tax expenses

   0      0      (651   729   

Deferred Tax Expenses, Net, Total

   (30,248   (3,421   (5,926   1,726   
                        

Expense (Income) due to Income Tax Total

   (43,149   (99,299   (23,376   (15,392
                        

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

 

     January-September    July-September  
     2009
ThU.S.$
   

2008

ThU.S.$

   2009
ThU.S.$
    2008
ThU.S.$
 

Foreign current tax

   (22,223   (46,702)    (2,483   (2,667

National current tax

   9,322      (49,176)    (14,967   (14,451

Current tax, Total

   (12,901   (95,878)    (17,450   (17,118

Foreign deferred tax

   (793   17,372    (1,796   6,352   

National deferred tax

   (29,455   (20,793)    (4,130   (4,626

Deferred tax, Total

   (30,248   (3,421)    (5,926   1,726   
                       

Income (expense) to earnings, Total

   (43,149   (99,299)    (23,376   (15,392
                       

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-September    July-September  
   2009
ThU.S.$
   

2008

ThU.S.$

   2009
ThU.S.$
    2008
ThU.S.$
 

Tax Expense Using Legal Rate

   (34,399   (94,007)    (20,215   (21,749

Tax effect of rates in other jurisdictions

   (14,642   (17,346)    (4,399   1,428   

Tax effect of non taxable ordinary income

   12,501      14,964    6,846      10,501   

Tax effect of non tax deductible expenses

   (12,704   (10,660)    (8,433   (5,260

Tax effect of the utilization of previously unrecognized tax losses

   0      (1,704)    0      (1,704

Tax Effect of Excess Tax for Previous Periods

   3,821      3,129    3      17   

Other Increases (Decreases) Legal Taxes

   2,274      6,325    2,822      1,375   
                       

Adjustment to Tax Expense using the Legal Rate, Total

   (8,750   (5,292)    (3,161   6,357   
                       

Tax Expenses Using the Effective Rate

   (43,149   (99,299)    (23,376   (15,392
                       

The deferred tax related to financial hedging instruments, corresponds to ThU.S.$ 731 at September 30, 2009, which presents net in Hedge reserves in Changes in Net Equity. At September 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

September 30, 2009

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

 

 

 

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

Property, plant and equipment 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

   09/30/2009
ThU.S.$
    12/31/2008
ThU.S.$
 

Construction in progress

   409,100      348,417   

Land

   758,805      689,900   

Buildings

   1,345,128      1,307,391   

Plant and equipment

   2,363,486      2,172,162   

Information technology equipment

   18,501      18,621   

Fixed facilities and accessories

   4,627      4,755   

Motorized vehicles

   8,227      7,901   

Others

   83,466      64,052   
            

Total

   4,991,340      4,613,199   
            

Gross Properties, plant and equipment,

    

Construction in progress

   409,100      348,417   

Land

   758,805      689,900   

Buildings

   2,330,674      2,254,927   

Plant and equipment

   3,895,067      3,614,148   

Information technology equipment

   42,808      41,694   

Fixed facilities and accessories

   17,979      17,521   

Motorized vehicles

   23,172      12,921   

Others

   120,068      94,570   
            

Total

   7,597,673      7,074,098   
            

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

    

Buildings

   (985,546   (947,536

Plant and equipment

   (1,531,581   (1,441,986

Information technology equipment

   (24,307   (23,073

Fixed facilities and accessories

   (13,352   (12,766

Motorized vehicles

   (14,945   (5,020

Others

   (36,602   (30,518
            

Total

   (2,606,333   (2,460,899
            

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

September 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.

 

     09/30/2009
ThU.S$
   12/31/2008
ThU.S$
   01/01/2008
ThU.S$

Collateral amount of property, plant and equipment

   57,120    56,758    56,411
Commitments of projects disbursements or to acquire property, plant and equipment   
     09/30/2009
ThU.S$
   12/31/2008
ThU.S$
   01/01/2008
ThU.S$

Commitments amount for the acquisition of property, plant and equipment

   270,921    212,155    160,600
     09/30/2009
ThU.S$
   12/31/2008
ThU.S$
    

Disbursements amount on property, plant and equipment account under construction

   136,308    152,547   

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

September 30, 2009

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

 

 

 

Movement on Property, Plant and Equipment

 

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

   348,417      689,900      1,307,391      2,172,162      18,621      4,755      7,901      64,052      4,613,199   

Changes

                  

Additions

   136,308      22,255      2,842      7,347      35      59      670      15,623      185,139   

Acquisitions through business combination

   5,199      5,825      46,582      214,112      0      0      481      6,163      278,362   

Disappropriations

   (147   (131   (168   (3,279   (47   (315   (307   (185   (4,579

Withdrawals

   (209   (79   (41   (597   (129   0      0      (1,037   (2,092

Depreciation costs

   0      0      (41,516   (102,798   (1,367   (433   (1,027   (5,068   (152,209

Exchange rate increase (decrease) of foreign currency

   1,138      37,939      6,722      23,311      3      189      300      3,918      73,520   

Other increase/decrease

   (81,606   3,096      23,316      53,228      1,385      372      209      0      0   

Total Changes

   60,683      68,905      37,737      191,324      (120   (128   326      19,414      378,141   

Closing balance 09/30/2009

   409,100      758,805      1,345,128      2,363,486      18,501      4,627      8,227      83,466      4,991,340   

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

   171,441      716,863      1,340,117      2,279,473      15,699      5,681      7,933      72,434      4,609,641   

Changes

                  

Additions

   212,155      11,174      23,333      27,542      4,386      228      988      2,903      282,709   

Disappropriations

   0      (476   (37   (3,053   (24   (2   (57   (2,862   (6,511

Withdrawals

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

Depreciation costs

   0      0      (60,043   (131,907   (1,691   (1,259   (872   (4,274   (200,046

Exchange rate increase (decrease) of foreign currency

   (4,076   (37,661   (7,045   (18,029   (12   (4   (90   (4,149   (71,066

Other increase/decrease

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

Total Changes

   176,976      (26,963   (32,726   (107,311   2,922      (926   (32   (8,382   3,558   

Closing balance 12/31/2008

   348,417      689,900      1,307,391      2,172,162      18,621      4,755      7,901      64,052      4,613,199   

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

September 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

September 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

 

      09/30/2009
ThU.S.$
   12/31/2008
ThU.S.$
   01/01/2008
ThU.S.$

Property, Plant & Equipment Financial Leasing

   741    12,208    12,303

Net Leased Land (Finance Lease)

   0    2,915    2,915

Net Leased Buildings (Finance Lease)

   0    9,293    9,388

Plant and Equipment under Financial Leasing, Net

   741    0    0

Reconciliation of Finance Lease Minimum Payments, Lessee

Present Value of Minimum Finance Lease Obligations

 

     09/30/2009

Finance Lease

   Gross
ThU.S.$
   Interest
ThU.S.$
   Present
Value
ThU.S.$

Due within one year

   391    21    370

Due within one and five years

   319    9    310

Due beyond five years

   0    0    0

Total

   710    30    680

Present Value of Minimum Finance Lease Obligations

 

     12/31/2008

Minimum lease payments, lease payment obligations

   Gross
ThU.S.$
   Interest
ThU.S.$
   Present
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

Present Value of Minimum Finance Lease Obligations

 

     01/01/2008

Finance Lease

   Gross
ThU.S.$
   Interest
ThU.S.$
   Present
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

September 30, 2009

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

 

 

 

Reconciliation of Finance Lease Minimum Payments, Lessor

Present Value of Minimum Finance Lease Payments

 

     09/30/2009

Minimum Finance Lease Payments

Receivable, Finance Lease

   Gross
ThU.S.$
   Interest
ThU.S.$
   Present
Value
ThU.S.$

Due within one year

   1,762    277    1,485

Due within one and five years

   6,269    428    5,840

Due beyond five years

   0    0    0

Total

   8,031    706    7,325

Present Value of Minimum Finance Lease Payments

 

      12/31/2008

Minimum Finance Lease Payments

Receivable, Finance Lease

   Gross
ThU.S.$
   Interest
ThU.S.$
   Present
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

Present Value of Minimum Finance Lease Payments

 

      01/01/2008

Minimum Finance Lease Payments

Receivable, Finance Lease

   Gross
Th U.S.$
   Interest
Th U.S.$
   Present
Value
Th U.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

September 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 upon the 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-September    July-September
   2009
ThU.S.$
   2008
ThU.S.$
   2009
ThU.S.$
   2008
ThU.S.$

Sale of goods

   2,162,054    2,850,178    816,535    952,526

Service Contracts

   65,550    102,723    18,129    15,671

Total

   2,227,604    2,952,901    834,664    968,197

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

September 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, 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

 

     January-September     July-September

Types of Benefits Expenses by Employee

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

Personnel Expenses

   139,920      145,232      47,058    48,549

Wages and salaries

   137,311      143,448      46,031    47,983

Termination benefits

   2,609      1,784      1,027    566

Termination Benefits

   09/30/2009
ThU.S.$
    12/31/2008
ThU.S.$
    01/01/2008
ThU.S.$
    

Recognized liability amount for termination contract, current

   2,144      2,188      2,478   

Recognized liability amount for termination contract, non-current

   22,948      18,109      19,445   
                   

Total

   25,092      20,297      21,923   
                   

Movement termination benefits

   30/09/2009
ThU.S.$
    31/12/2008
ThU.S.$
          

Initial balance

   20,297      21,923        

Increase (decrease) in provision for the period

   1,992      5,454        

Payment period under provision

   (756   (1,002     

Increase (decrease) for currency exchange

   3,559      (6,078     

Total balance

   25,092      20,297        

 

48


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

September 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-September     July-September  
     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

   21,161    (6,249   20,766    (32,141

Accumulated translation adjustments

   10,207    (48,274   56,387    (102,626

 

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Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

September 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.

 

      January-September    July-September

Property, plant and equipment capitalized cost

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

Property, plant and equipment capitalized interest cost rate

   5.53    5.99    5.61    5.99

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

   8,868    6,135    3,085    2,383

 

50


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

September 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, where collection or payment deadlines do not often exceed 30 days and in general do not have adjustment or interest clauses.

At the date of these financial statements there are no provisions for doubtful debts and no guarantees provided associated with inter-company balances.

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 equity related to other transactions performed on a regular basis in the market.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

September 30, 2009

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

 

 

 

Detail of Relationship between Parent Company and Subsidiary

 

          % Share
09/30/2009
   % Share
12/31/2008

ID No

  

Company Name

   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)

   0    99.9762    99.9762    0    99.9762    99.9762

—  

  

Arauco Colombia S.A. (Colombia)

   1.5000    98.4976    99.9976    1.5000    98.4976    99.9976

—  

  

Arauco Denmark Aps (Denmark)

   0    99.9991    99.9991    0    99.9991    99.9991

96765270-9

  

Arauco Distribucion S.A.

   0    99.9992    99.9992    0    99.9992    99.9992

—  

  

Arauco Do Brasil S.A. (Brazil)

   0    99.9986    99.9986    0    0    0

—  

  

Arauco Ecuador S.A. (Ecuador)

   0.1000    99.8986    99.9986    0.1000    99.8986    99.9986

—  

  

Arauco Florestal Arapoti S.A. (Brazil)

   0    79.9989    79.9989    0    79.9989    79.9989

—  

  

Arauco Forest Brasil S.A. (Brazil)

   33.7137    66.2851    99.9988    33.7137    66.2851    99.9988

—  

  

Arauco Forest Products B.V. (Holland)

   0    99.9991    99.9991    0    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.

   0    59.6326    59.6326    0    61.1714    61.1714

—  

  

Faplac S.A. (Argentina)

   0    99.9979    99.9979    0    99.9979    99.9979

—  

  

Flooring S.A. (Argentina)

   0    99.9984    99.9984    0    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    0    99.9248    99.9248    0    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.

   0    97.4281    97.4281    0    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)

   0    99.9986    99.9986    0    99.9986    99.9986

78049140-K

  

Forestal Los Lagos S.A.

   0    79.9405    79.9405    0    79.9405    79.9405

—  

  

Forestal Misiones S.A. (Argentina)

   0    99.9885    99.9885    0    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)

   0    99.9767    99.9767    0    99.9767    99.9767

—  

  

Lucchese Empreendimientos E Participacoes Ltda. (Brazil)

   0    99.9885    99.9885    0    99.9885    99.9885

99550470-7

  

Molduras Trupan S.A.

   0    0    0    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 (Argentina)

   0    99.9985    99.9985    0    0    0

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)

   0    0    0    0    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-September    July-September
   2009
ThU.S.$
   2008
ThU.S.$
   2009
ThU.S.$
   2008
ThU.S.$

Salaries and bonus

   24,264    26,022    7,155    9,346

Diet Directory

   943    936    346    292

Termination benefits

   603    88    342    85

Total

   25,810    27,046    7,843    9,723

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

September 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
  Currency Rate   Maximum
Maturity
  09/30/2009
ThU.S.$
  12/31/2008
ThU.S.$
  01/01/2008
ThU.S.$

Forestal Mininco S.A.

  91,440,000-7  

Indirect

  Chile   Chilean pesos   30 days   9   824   0

CMPC Maderas S.A.

  95,304,000-K  

Indirect

  Chile   Chilean pesos   30 days   0   32   24

Eka Chile S.A.

  99,500,140-3  

Associates

  Chile   Chilean pesos   30 days   1,842   0   915

Forestal del Sur S.A.

  79,825,060-4  

Indirect

  Chile   Chilean pesos   30 days   0   3,947   561

Compañía Puerto de Coronel S.A.

  79,895,330-3  

Associates

  Chile   Chilean pesos   30 days   49   29   0

Stora Enso Arapoti Industria de Papel S.A.

  —    

Associates

  Brazil   Real   30 days   847   643   9,778

Fundación Educacional Arauco

  71,625,000-8  

Other related party

  Chile   Chilean pesos   30 days   723   0   0

Dynea Brasil S.A.

  —    

Associates

  Brazil   Real   30 days   124   0   101
                     

Total

            3,594   5,475   11,379
                     

Related Party Payables

 

Name of Related Party

  Corresponding
ID No.
 

Nature of Relationship

  Country
of Origin
  Currency
Rate
  Maximum
Maturity
  09/30/2009
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   Chilean pesos   30 days   7,517   3,233   6,011

Abastible S.A.

  91,806,000-6  

Affiliate of shareholder

  Chile   Chilean pesos   30 days   197   132   244

Depósitos Portuarios Lirquén S.A.

  96,871,870-3  

Other related party

  Chile   Chilean pesos   30 days   4   4   2

Eka Chile S.A.

  99,500,140-3  

Associates

  Chile   Chilean pesos   30 days   1,711   3,951   0

Fundación Educacional Arauco

  71,625,000-8  

Other related party

  Chile   Chilean pesos   30 days   0   105   645

Sigma S.A.

  86,370,800-1  

Other related party

  Chile   Chilean pesos   30 days   4   0   4

Codelco Chile

  61,704,000-k  

Indirect

  Chile   Chilean pesos   30 days   4   5   1

Empresa Nacional de Telecomunicaciones S.A.

  92,580,000-7  

Indirect

  Chile   Chilean pesos   30 days   16   12   9

Servicios Corporativos Sercor S.A.

  96,925,430-1  

Associates

  Chile   Chilean pesos   30 days   4   3   4

Forestal del Sur S.A.

  79,825,060-4  

Other related party

  Chile   Chilean pesos   30 days   0   1,488   737

Puerto de Lirquén S.A.

  82,777,100-7  

Associates

  Chile   Chilean pesos   30 days   790   0   459

Compañía Puerto de Coronel S.A.

  79,895,330-3  

Associates

  Chile   Chilean pesos   30 days   12   0   0

Genómica Forestal S.A.

  76,743,130-9  

Associates

  Chile   Chilean pesos   30 days   0   169   0

Edipac S.A.

  88,566,900-K  

Associates

  Chile   Chilean pesos   30 days   5   0   0
                     

Total

            10,264   9,102   8,116
                     

Related party transactions

Purchases

 

Name of Related Party

   Corresponding
ID No.
  

Nature of Relationship

   Country
of Origin
  

Transaction Detail

   09/30/2009
ThU.S.$
   12/31/2008
ThU.S.$

Abastible S.A.

   91,806,000-6   

Affiliate of shareholder

   Chile   

Fuel

   1,853    4,175

Empresas Copec S.A.

   90,690,000-9   

Parent Company

   Chile   

Management service

   215    272

Compañia de Petróleos de Chile S.A.

   99,520,000-7   

Affiliate of shareholder

   Chile   

Fuel and lubricant

   50,011    121,436

Copec Mobil S.A.

   85,759,000-7   

Affiliate of shareholder

   Chile   

Lubricant

   0    1,945

Compañía Puerto de Coronel S.A.

   79,895,330-3   

Associates

   Chile   

Transport and stowage

   2,061    3,156

Codelco Chile

   61,704,000-k   

Indirect

   Chile   

Supplies

   1,717    1,742

Dynea Brasil S.A.

   —     

Associates

   Brazil   

Chemical products

   20,836    41,457

Dynea Brasil S.A.

   —     

Associates

   Brazil   

Melamine paper

   13,444    20,961

Eka Chile S.A.

   99,500,140-3   

Associates

   Chile   

Sodium chlorate

   45,091    99,465

Eka Chile S.A.

   99,500,140-3   

Associates

   Chile   

Supplies

   381    33

Forestal del Sur S.A.

   79,825,060-4   

Indirect

   Chile   

Wood and logs

   882    1,461

Forestal del Sur S.A.

   79,825,060-4   

Indirect

   Chile   

Cost recovery

   15    543

Portaluppi, Guzmán y Bezanilla Abogados

   78,096,080-9   

Other related party

   Chile   

Legal services

   1,076    1,443

Compañía Puerto de Lirquén S.A.

   82,777,100-7   

Associates

   Chile   

Port services

   6,521    8,855

CMPC Maderas S.A.

   95,304,000-k   

Indirect

   Chile   

Logs

   326    327

Sales

 

Name of Related Party

   Corresponding
ID No.
  

Nature of Relationship

   Country
of Origin
  

Transaction Detail

   09/30/2009
ThU.S.$
   12/31/2008
ThU.S.$

Colbún S.A.

   96,505,760-9   

Indirect

   Chile   

Electrical power

   11,200    4,080

Dynea Brasil S.A.

   —     

Associates

   Brazil   

Management service

   386    523

Dynea Brasil S.A.

   —     

Associates

   Brazil   

Fuel

   529    456

Eka Chile S.A.

   99,500,140-3   

Associates

   Chile   

Electrical power

   14,696    66,166

Sodimac S.A.

   96,792,430-k   

Indirect

   Chile   

Wood

   22,818    54,938

Stora Enso Industria de Papel S.A.

   —     

Associates

   Brazil   

Wood

   6,474    9,315

Forestal del Sur S.A.

   79,825,060-4   

Indirect

   Chile   

Woodchip

   11,658    3,533

Forestal Mininco S.A.

   91,440,000-7   

Indirect

   Chile   

Wood

   635    2,471

CMPC Maderas S.A.

   95,304,000-k   

Indirect

   chile   

Other sales

   143    368

 

53


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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

September 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, accounts receivable, accounts payable and unrealized profits derived from the Group’s intercompany transactions are derecognized.

When it is necessary to ensure uniformity with policies adopted by the Group, accounting policies of the subsidiaries are modified. Minority interests are presented as a separate component of equity.

Disclosure of Subsidiary Investments

On 26 August, 2009, Placas do Parana SA, Arauco’s Brazilian subsidiary, acquired 100% shares of the company Tafisa Brasil SA (current Arauco do Brasil S.A.) through a purchase agreement signed with SCS societies Beheer, B.V. and Tafiber-Tableros de Fibras Ibéricos, S.L., subsidiaries of Sonae Indústria, SGPS, S.A. This operation has a budget of U.S.$227 million approximately, distributed in U.S. $165,200,000 to pay for Tafisa Brasil S.A.’ shares, while the remainder corresponds to liabilities of the acquired company. This investment has recognized a provisional fair value, which is currently under review. As at September 30, 2009, goodwill was estimated to ThU.S.$59,704.

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, Arauco Internacional S.A. 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.

Details of the subsidiaries are set out in Note 13.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

September 30, 2009

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

 

 

 

Summarized financial information of major subsidiaries of Arauco:

 

Significant subsidiary    Aserraderos Arauco S.A.
Country of incorporation    Chile
Functional currency    U.S. Dollar
Percentage of participation    99.9992

 

     30/09/2009  
     Assets
ThU.S.$
    Liabilities
ThU.S.$
 

Current subsidiary

   306,029      44,258   

Non-current of subsidiary

   234,682      18,279   

Total subsidiary

   540,711      62,537   
     31/12/2008  
     Assets
ThU.S.$
    Liabilities
ThU.S.$
 

Current subsidiary

   306,954      38,803   

Non-current of subsidiary

   219,215      16,447   

Total subsidiary

   526,169      55,250   
     30/09/2009     30/09/2008  
     ThU.S.$     ThU.S.$  

Ordinary income of subsidiary

   288,935      478,307   

Ordinary expenses of subsidiary

   (282,953   (437,800

Net Gain (loss) of subsidiary

   5,982      40,507   

 

Significant subsidiary

   Paneles Arauco S.A.

Country of incorporation

   Chile

Functional currency

   U.S. Dollar

Percentage of participation

   99.9992

 

     30/09/2009  
     Assets
ThU.S.$
    Liabilities
ThU.S.$
 

Current subsidiary

   334,851      40,247   

Non-current of subsidiary

   314,563      77,736   

Total subsidiary

   649,414      117,983   
     31/12/2008  
     Assets
ThU.S.$
    Liabilities
ThU.S.$
 

Current subsidiary

   320,135      43,588   

Non-current of subsidiary

   244,576      22,374   

Total subsidiary

   564,711      65,962   
     30/09/2009     30/09/2008  
     ThU.S.$     ThU.S.$  

Ordinary income of subsidiary

   334,973      434,001   

Ordinary expenses of subsidiary

   (303,605   (355,626

Net Gain (loss) of subsidiary

   31,368      78,375   

 

55


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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

September 30, 2009

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

 

 

 

Significant subsidiary

   Arauco Internacinal S.A.

Country of incorporation

   Chile

Functional currency

   U.S. Dollar

Percentage of participation

   99.9986

 

     30/09/2009  
     Assets
ThU.S.$
    Liabilities
ThU.S.$
 

Current subsidiary

   25,430      244,120   

Non-current of subsidiary

   1,430,461      5,089   

Total subsidiary

   1,455,891      249,209   
     31/12/2008  
     Assets
ThU.S.$
    Liabilities
ThU.S.$
 

Current subsidiary

   10,330      126,499   

Non-current of subsidiary

   1,144,911      2,508   

Total subsidiary

   1,155,241      129,007   
     30/09/2009     30/09/2008  
     ThU.S.$     ThU.S.$  

Ordinary income of subsidiary

   60,014      83,186   

Ordinary expenses of subsidiary

   (9,994   (5,615

Net Gain (loss) of subsidiary

   50,020      77,571   

 

Significant subsidiary

   Forestal Arauco S.A.

Country of incorporation

   Chile

Functional currency

   U.S. Dollar

Percentage of participation

   99.9248

 

     30/09/2009  
     Assets
ThU.S.$
    Liabilities
ThU.S.$
 

Current subsidiary

   4,345      221,681   

Non-current of subsidiary

   2,808,265      227   

Total subsidiary

   2,812,610      221,908   
     31/12/2008  
     Assets
ThU.S.$
    Liabilities
ThU.S.$
 

Current subsidiary

   5,729      214,420   

Non-current of subsidiary

   2,777,267      109   

Total subsidiary

   2,782,996      214,529   
     30/09/2009     30/09/2008  
     ThU.S.$     ThU.S.$  

Ordinary income of subsidiary

   33,631      2,097   

Ordinary expenses of subsidiary

   (14,340   (54,094

Net Gain (loss) of subsidiary

   19,291      (51,997

 

56


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

September 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 September 30, 2009, no new investments in associates to report.

Detail of Investments in Associates

The following table shows information on Investments in Associates at September 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%
    

09/30/009

  

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%
    

09/30/2009

  

12/31/2008

Cost of Investment in Associate

   ThU.S.$24,883    ThU.S.$25,741

 

57


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

September 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%
    

09/30/2009

  

12/31/2008

Cost of Investment in Associate

   ThU.S.$1,202    ThU.S.$953

Name of Associate

   Eka Chile S.A.

Country of Incorporation of Associate

   Chile

Functional Currency

   US Dollar

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%
    

09/30/2009

  

12/31/2008

Cost of Investment in Associate

   ThU.S.$26,224    ThU.S.$28,981

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%
    

09/30/2009

  

12/31/2008

Cost of Investment in Associate

   Th U.S. $13,015    Th U.S. $12,234

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%
    

09/30/2009

  

12/31/2008

Cost of Investment in Associate

   ThU.S.$37,663    ThU.S.$34,443

 

58


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

September 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%
    

09/30/2009

  

12/31/2008

Cost of Investment in Associate

   ThU.S.$19    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%
    

09/30/2009

  

12/31/2008

Cost of Investment in Associate

   It is subsidiary    ThU.S.$1,641

Summarized financial Information of Associates

 

     09/30/2009  
     Sum of Assets
ThU.S.$
    Sum of Liabilities
ThU.S.$
 

Current assets of associates

   166,719      54,516   

Non-current assets of associate

   395,129      24,660   

Equity

   0      482,672   

Total Associates

   561,848      561,848   
     12/31/2008  
     Sum of Assets
ThU.S.$
    Sum of Liabilities
ThU.S.$
 

Current assets of associates

   170,755      53,671   

Non-current assets of associate

   391,046      31,017   

Equity

   0      477,113   

Total Associates

   561,801      561,801   
     09/30/2009
ThU.S.$