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

 

          Page

Item

     

1.

   Ratio Analysis of the Consolidated Financial Statements    1

2.

   Unaudited Consolidated Classified Financial Statements    8

3.

   Unaudited Consolidated Classified Financial Income Statements    9

4.

   Unaudited Consolidated Statement of Changes in Net Equity    11

5.

   Unaudited Consolidated Statement of Cash Flows    12

6.

   Unaudited Notes to the Consolidated Financial Statements    13

7.

   Annex: Press Release   


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statement

December 31, 2009

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

 

 

 

1. VALUATION OF ASSETS AND LIABILITIES

The financial statements of Celulosa Arauco y Constitución S.A., a Chilean corporation (the “Company”) and its subsidiaries (the Company, together with its subsidiaries, “Arauco”) have been prepared on the basis of International Financial Reporting Standards (IFRS). In management’s opinion there is no material difference between the Company’s economic value and the valuation reflected in the Company’s financial statements.

2. ANALYSIS OF FINANCIAL POSITION

a) Analysis of the Balance Sheet

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

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

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

 

     12/31/2009    12/31/2008

Assets

   ThU.S.$    ThU.S.$

Current assets

   2,274,258    1,995,990

Other assets

   9,141,514    8,243,850
         

Total assets

   11,415,772    10,239,840
         
     12/31/2009    12/31/2008

Liabilities and Shareholders’ Equity

   ThU.S.$    ThU.S.$

Current liabilities

   953,358    812,915

Long-term liabilities

   4,079,981    3,419,689

Minority interest

   113,840    117,682

Shareholders’ equity

   6,268,593    5,889,554
         

Total liabilities and shareholders’ equity

   11,415,772    10,239,840
         

Total assets increased by 11.48%, or U.S.$1,176 million, from December 31, 2008 to December 31, 2009. This increase is mainly attributable to an increase in cash and cash equivalents (financial instruments), investment in associates, property, plant and equipment and biological assets.

Total liabilities increased by U.S.$800 million from December 31, 2008 to December 31, 2009. This increase is mainly attributable to a net increase in bank borrowings, obligations to the public (for issued bonds) and deferred tax.

 

1


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statement

December 31, 2009

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

 

 

 

2. ANALYSIS OF FINANCIAL POSITION, continued

 

a) Analysis of the Balance Sheet, continued

 

The main financial and operating ratios are as follows:

 

Liquidity ratios

   12/31/2009    12/31/2008

Current ratio

   2.39    2.46

Acid ratio

   1.41    1.23

Debt indicators

   12/31/2009    12/31/2008

Debt to equity ratio

   0.79    0.70

Short-term debt to total debt

   0.19    0.19

Long-term debt to total debt

   0.81    0.81
     12/31/2009    09/30/2008

Financial expenses covered

   2.85    3.87

Operational ratios

   12/31/2009    12/31/2008

Inventory turnover

   2.23    2.55

Inventory turnover (excluding biological assets)

   3.28    3.82

Inventory permanence-days

   161.21    141.32

Inventory permanence (excluding biological assets)

   109.65    94.23

The liquidity ratio for the current year presents a decrease, due to a higher proportional increase of the current liabilities with respect to the current assets, which in turn is explained by an increase in bank borrowings and bonds, partially offset by a proportional increase in cash balance and cash equivalents (mutual funds and fixed term deposits).

At December 31, 2009 and 2008 the short-term debt represented a 19% of total liabilities.

The ratio of financial expenses covered decreased from 3.87 points in December 31, 2008 to 2.85 points in December 31, 2009. The decrease is attributable to a higher proportional decrease in current profits related to an increase in financial expenses.

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

b) Analysis of the Income Statement

Analysis of Gross Margin

Gross Margin presents a profit of U.S.$961 million in 2009 compared to U.S.$1,382 million in 2008, a decrease of U.S.$421 million caused by a proportional decrease in revenues.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statement

December 31, 2009

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

 

 

 

2. ANALYSIS OF FINANCIAL POSITION, continued

 

Analysis of Profit before Income Tax

The Profit before Income Tax registers a profit of U.S.$358 million in 2009, compared to U.S.$503 million in 2008, a decrease of U.S.$145. The change was primarily caused as described in the following table:

 

Item

   Million
U.S.$
 

Gross margin

   (421

Other operating income

   79   

Distribution costs

   67   

Foreign currency exchange rate

   85   

Negative goodwill

   37   

Others net

   8   
      

Net change in outcome before income tax

   (145
      

The increase in the exchange rate difference is principally due to a strong depreciation 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.

The main indicators related to result accounts and the detail of revenues and operation costs are as follows:

 

Revenues

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

Pulp

   1,682,715    1,912,556

Sawn timber

   493,938    722,316

Panels

   832,170    944,534

Forestry

   89,521    108,165

Other

   14,701    26,322
         

Total revenues

   3,113,045    3,713,893
         

Sales costs

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

Wood

   630,215    733,163

Forestry work

   353,183    412,044

Depreciation

   190,945    177,054

Other costs

   978,192    1,009,593
         

Total sales costs

   2,152,535    2,331,854
         

Profitability index

   12/31/2009    12/31/2008

Profitability on equity

   4.92    6.77

Profitability on assets

   2.81    3.92

Return on operating assets

   3.12    6.65

 

3


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statement

December 31, 2009

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

 

 

 

2. ANALYSIS OF FINANCIAL POSITION, continued

 

Profitability ratios

   12/31/2009     12/31/2008  

Income per share (U.S.$) (1)

   2.66      3.53   

EBITDA (2)

   759,416      876,586   

Income after tax (ThU.S.$) (3)

   304,596      405,045   

Gross margin ThU.S.$

   960,510      1,382,039   

Financial expenses ThU.S.$

   (193,872   (175,241

 

(1) Earnings per share refer to the attributable profit to instrument holders of equity participation in the net controller.
(2) Earnings before income tax, interest, depreciation, amortization and extraordinary items.
(3) Includes interest.

3. DIFFERENCE BETWEEN ECONOMIC VALUES AND BOOK ASSETS

Assets and liabilities are presented in the Financial Statements according to the accepted International Financial Reporting Standards and instructions issued by the Chilean Securities Commission. We estimate that there are no substantial differences between the economic value of assets and the value reflected in these Financial Statements.

4. MARKET SITUATION

Pulp

The fourth quarter continued with the pulp market recovery. World pulp prices grew between 75% and 80% in short fiber and 50% to 60% in long fiber, as compared to the lowest prices registered during March and April 2009. Although inventory levels increased slightly at the end of the fourth quarter, on average it was low compared to past year levels. World stock levels at the end of December 2009 were 23 days for long fiber and 30 days for short fiber, whereas at December 2008 they where at 40 and 52 days, respectively.

Except for Japan, Asia was the first region to recover and this trend seems to be very strong. Rumors that China would be recuperating stock levels with low prices have dissipated, the prices are high and the stock levels are relatively low. The imported pulp has been consumed and the inventory levels are lower than the normal levels. During 2009, China pulp imports were 44.4% higher than the past year, reaching 14 million tons. The two main reasons for these additional imports are:

 

   

new production capacities of paper and

 

   

local pulp production closures during the last quarter of 2008 and first of 2009

During the third quarter of 2009 the pulp prices were higher and some of the producers that closed will gradually restart production, but it is estimated that 50% of these closures will be permanent.

Following the trend in China, other Asian markets such as Taiwan, Korea, India and Indonesia also are recovering. Korea has had an especially prosoerous 2009, with lower costs of paper production, higher internal demand and a favorable exchange rate, which has increased exports of paper. Moreover, Korea was in a good position to face the crisis of 2009 because its market was restructured between 2005 and 2008, which allowed it to achieve equilibrium between production, exports and internal demand.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statement

December 31, 2009

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

 

 

 

4. MARKET SITUATION, continued

 

The paper market in Europe is still complex. With over-production continuing in spite of various plant closures, the price of paper has deteriorated in 2009, which has prevented producers from taking advantage of the low cost of pulp and other inputs and recover their margin. Tissue was the only exception, it generally did not suffer major casualties in prices and even these casualties, in markets such as the “away from home” market (which includes consumers at hotels, restaurants and other public places) were offset by a small increase in domestic demand. However, the European pulp market is improving in terms of price because local paper producers must import pulp in order to compete effectively with Asian producers. In terms of volume, however, the demand in 2009 was lower than in 2008, and will probably continue to decrease if paper production capacity adjusts to reach equilibrium with European paper demand, especially in printing and writing papers.

The Middle East and other markets such as India and Turkey had the biggest price drop during the first half of 2009 and now have increased the prices more drastically in order to obtain raw materials for its factories. The effects of these prices increase have been felt most strongly during the last quarter of 2009.

The North American market also has improved significantly in 2009. However, the last quarter of 2009 brought several challenges that may result in certain negative effects during 2010. First, black liquor has been defined as a “renewable alternative fuel”, which has led to the elimination of certain subsidies to producers of softwood kraft pulp. This subsidy ended December 31, 2009 despite the lobbying in the U.S. Senate by pulp producers in the United States. They also failed to implement other similar benefits to similar products (such as the “son of black liquor”), which is potentially even more harmful to competition. Finally, the paper producers in the United States are increasingly facing competition from Asian producers, China, Indonesia and Korea, and for this reason they are pushing to implement “anti-dumping” measures against Chinese and Indonesian producers. This effort has yet to be approved by the appropriate parties, but it is believed that it will eventually result in certain increased tariff rates.

During 2009, there was a concentration of paper production in Asia and especially in China, a trend that is expected to continue in 2010 and exports from these markets to Europe and North America will likely increase. Therefore, a major challenge facing the paper industry in 2010 will be to further diversify the markets and customer-base within Asia, while simultaneously continuing to seek out opportunities in Europe and North America as well.

Sawn Timber

The real estate and construction markets in U.S.A did not show big differences during the last quarter of 2009. Housing starts in December reached 557,000 units per year. The current construction levels are still the lowest in 50 years. Nevertheless, during the last quarter of 2009, there was a small increase of prices and volumes in sawn timber and moldings in comparison to the third quarter and sales were above what was achieved in the fourth quarter of 2008.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statement

December 31, 2009

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

 

 

 

4. MARKET SITUATION, continued

 

In the last quarter of 2009, there was an overall increase in demand of forestry products in every market, especially in Asia and Middle East. Saudi Arabia, in particular has had strong demand for packaging wood. Nonetheless, prices are still lower than pre-financial crisis levels.

Panels

The Panel division, impacted by the financial crisis, ended the year 2009 with sales 11% lower than the year 2008, but with sales volume up by 11%. Despite the crisis, and in large part due to a geographically diversified customer base in over 40 countries and a broad product portfolio, it was possible to continue the sale of panels without suspending or ceasing operations at any panel plants.

For plywood, during the last quarter sales volumes showed a slight increase of 1% over the previous quarter and a recovery in prices over the same period. The decrease in competition, partially offset by lower customer levels, has contributed to improving our sales with sustained price increases that are on pace to offset the price declines suffered in the first half of 2009.

Sales of MDF have also experienced this quarter a sales increase of 2% with respect to the previous quarter, mainly resulting from the active panel board market in Latin America and in particular in Brazil, which has led the demand in the region. Prices are rising moderately in these markets, which is the most profitable for panels, and also are experiencing large increases in marginal rates in certain other markets (Asia and Middle East), where we are lowering our participation in 2010 because they are less profitable markets and have higher logistical costs than our alternatives in Latin America and the United States.

The sales of particle board of Faplac from the Argentina plant showed a significant increase in volume of 20% in the fourth quarter in comparinson with the previous quarter as a result of an improvement in domestic demand and export markets.

Finally, our outlook for the Panels division during 2010 is positive and new price increases are expected to recover pre-financial crisis profitability levels.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statement

December 31, 2009

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

 

 

 

5. ANALYSIS OF CASH FLOW

The main components of net cash flow at December 2009 and 2008, are as follow:

 

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

Operating cash flow (negative)

    

Cash flow from operating activities

   751,025      769,736   

Cash flow from financing activities:

    

Loan payments

   (101,245   (263,433

Bonds payments

   536,677      202,537   

Dividend payments

   (135,175   (317,588

Others

   2,115      0   

Cash flow from investment activities:

    

Purchase and sales of permanent investments

   (303,733   (10,353

Incorporation and sale of property, plan and equipment

   (271,145   (309,108

Incorporation and sale of biological assets

   (89,817   (144,118

Others

   (52,596   (3,152
            

Net cash flow for the period

   336,106      (75,479
            

We had a positive operating cash flow of U.S.$751 million compared to U.S.$770 million for the same period in 2008, resulting from a decrease in client recovery, partially offset by lower payments to supplier.

Cash flow from financing activities as of December 31, 2009 was a positive balance of U.S.$302 million compared to a negative balance of U.S.$378 million for the same period in 2008. This variation resulted from issuing bonds and higher dividend payments in the previous year.

The investment cash flow presented a higher negative balance at the end of the current period, due principally to payments for acquisition of companies in Brazil and Uruguay, partially offset by fewer disbursements for acquiring biological assets and property, plant and equipment.

6. MARKET RISK ANALYSIS

In respect of the economic risks resulting from interest rate variations, the Company maintains, as of December 31, 2009, a ratio of fixed rate debt to total consolidated debt of approximately 91.64%, 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.

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

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Classified Financial Statement

December 31, 2009

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

 

 

 

CLASSIFIED FINANCIAL STATEMENT

 

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

Assets

           

Current Assets

           

Operative Current Assets

           

Cash and cash equivalents

   4    534,199    167,308    267,872

Financial assets at fair value through profit or loss

   23    8,426    13,469    10,626

Trade and Other receivables-net

   23    558,441    588,803    686,726

Related party receivables

   13    18,272    5,475    11,379

Inventories

   3    620,058    691,206    529,478

Biological assets

   21    310,832    305,730    351,227

Prepaid expenses

      61,263    74,331    54,194

Tax receivables

      160,346    148,670    122,219

Other current assets

      2,421    998    1,738

Total Operative Current Assets

      2,274,258    1,995,990    2,035,459

Non-Current Assets and disposal groups held for sale

      0    0    0

Total Current Assets

      2,274,258    1,995,990    2,035,459

Non Current Assets

           

Trade and Other receivables

   23    11,080    7,864    17,099

Investment in associates through equity method

   15    476,101    141,590    153,861

Intangible assets

   20    74,930    14,469    15,640

Property, plant and equipment

   7    4,969,753    4,615,971    4,609,641

Biological assets

   21    3,446,696    3,346,703    3,479,289

Deferred tax assets

   6    109,760    87,221    81,295

Hedge assets

   23    17,998    0    0

Prepaid expenses

      26,322    21,169    16,530

Other non-current assets

      8,874    8,863    24,424

Total non-current assets

      9,141,514    8,243,850    8,397,779

Total Assets

      11,415,772    10,239,840    10,433,238
                 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Income Statement

December 31, 2009

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

 

 

 

CLASSIFIED FINANCIAL STATEMENT (continued)

 

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

Liabilities

          

Current Liabilities

          

Operative Current Liabilities

          

Loans that accrue interest

   23    524,909    372,622      336,363

Other financial liabilities

   23    10,648    14,051      7,007

Trade and Other payables

   23    321,892    309,704      309,127

Related party payables

   13    12,081    9,102      8,116

Provisions

   19    5,169    3,753      2,320

Current tax payables

      15,917    10,325      40,960

Other liabilities

      58,741    88,543      214,933

Deferred income

      1,629    2,628      4,671

Post employment benefit obligations

   10    2,372    2,188      2,478

Total Operative Current Liabilities

      953,358    812,915      925,975

Liabilities included in disposal group held for sale

      0    0      0

Total Current Liabilities

      953,358    812,915      925,975

Non Current Liabilities

          

Loans that accrue interest

   23    2,678,010    2,279,321      2,388,826

Provisions

   19    9,463    5,585      6,271

Deferred tax liabilities

   6    1,256,090    1,092,393      1,093,597

Other liabilities

      110,832    24,045      35,446

Deferred income

      291    236      299

Post employment benefit obligations

   10    25,295    18,109      19,445

Total non-current liabilities

      4,079,981    3,419,689      3,543,884

Net Equity

          

Net equity attributable to parent company net equity instrument holders

          

Issued capital

      353,176    353,176      353,176

Other reserves

      21,618    (139,238   0

Retained profit/loss (accumulated losses)

      5,893,799    5,675,616      5,465,431

Net equity attributable to parent company net equity instrument holders

      6,268,593    5,889,554      5,818,607

Minority interest

      113,840    117,682      144,772

Total net equity

      6,382,433    6,007,236      5,963,379

Total net equity and liabilities

      11,415,772    10,239,840      10,433,238
                  

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Income Statement

December 31, 2009

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

 

 

 

FINANCIAL INCOME STATEMENT BY ACTIVITY

 

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

Profit (loss) from operations

       

Revenue

   9    3,113,045      3,713,893   

Cost of sales

      (2,152,535   (2,331,854

Gross profit

      960,510      1,382,039   

Other operating income

   1    202,586      123,678   

Marketing costs

      (7,155   (12,002

Distribution costs

      (388,535   (455,197

Research and development

      (3,915   (3,827

Administrative expenses

      (242,185   (247,023

Other operating expenses

      (48,294   (37,869

Financial costs

   1    (193,872   (175,241

Participation in profit/(loss) of associates through equity method

   15    4,084      4,241   

Participation in profit/(loss) of joint ventures through equity method

   15    2,537      1,598   

Exchange rate differences

   11    17,632      (67,778

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

   1    (9,362   (9,086

Negative goodwill immediately recognized

      36,871      0   

Other profit (loss)

      27,231      (444

Profit (loss) before income tax

      358,183      503,089   

Income tax expenses/(income)

   6    (53,537   (98,044

Profit (loss) from continuing operations after tax

      304,596      405,045   

Profit (Loss) from Discontinued operations, Net of Tax

      0      0   

Profit (loss)

      304,596      405,045   

Profit (Loss) attributable to equity holders

       

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

      300,898      399,566   

Profit (loss) attributable to minority interest

      3,698      5,479   

Profit (loss)

      304,596      405,045   

Ordinary Shares

       

Basis earnings (losses) per share

      0.0026919      0.0035796   

Earning (losses) per share from discounting operations

      0      0   

Earning (losses) per share from continuing operations

      0.0026919      0.0035796   

Ordinary Diluted Shares

       

Basis earnings (losses) per diluted share

      0      0   

Earning (losses) per diluted share from discounting operations

      0      0   

Earning (losses) per diluted share from continuing operations

      0      0   

Comprehensive Income Statement

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

Profit (loss)

      304,596      405,045   

Other income and expenses with charge or credit to net equity

       

Cash flow hedges

      (5,807   0   

Currency translation differences

   11    177,480      (148,469

Adjustments associated

      1,902      (3,015

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

      987      0   

Other income and expenses charged to or credit to net equity

      174,562      (151,484

Comprehensive income statement

      479,158      253,561   

Comprehensive Income and Expense Statement Attributable to:

       

Comprehensive income and expenses statement attributable to majority shareholders

      461,754      260,328   

Comprehensive income and expenses statement attributable to minority shareholders

      17,404      (6,767

Total comprehensive income and expense

      479,158      253,561   
               

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Statement of Changes in Net Equity

December 31, 2009

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

 

 

 

STATEMENT OF CHANGES IN NET EQUITY

 

     Ordinary
Shares
   Reserves    

Changes in

Retained

Earnings

   

Changes in

Equity

Attributable

to Parent

Company

    Changes in     Changes in  
     Share Capital   

Conversion

Reserves

   

Hedge

Reserves

   

Other

Reserves

   

(Accumulated

Losses)

   

Shareholders,

Total

   

Minority

Interests

   

Net Equity

Total

 

12/31/2009

   ThU.S.$    ThU.S.$     ThU.S.$     ThU.S.$     ThU.S.$     ThU.S.$     ThU.S.$     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    163,774      (4,820   1,902      300,898      461,754      17,404      479,158   

Cash dividends declared

   0    0      0      0      (82,715   (82,715   0      (82,715

Other increases (decreases) in net equity

   0    0      0      0      0      0      (21,246   (21,246

Changes in equity

   0    163,774      (4,820   1,902      218,183      379,039      (3,842   375,197   

Closing balance at 12/31/2009

   353,176    27,551      (4,820   (1,113   5,893,799      6,268,593      113,840      6,382,433   
     Ordinary
Shares
   Reserves    

Changes in

Retained

Earnings

   

Changes in

Equity

Attributable

to Parent

Company

    Changes in     Changes in  
     Share Capital   

Conversion

Reserves

   

Hedge

Reserves

   

Other

Reserves

   

(Accumulated

Losses)

   

Shareholders,

Total

   

Minority

Interests

   

Net Equity

Total

 

12/31/2008

   ThU.S.$    ThU.S.$     ThU.S.$     ThU.S.$     ThU.S.$     ThU.S.$     ThU.S.$     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    (136,223   0      (3,015   399,566      260,328      (6,767   253,561   

Cash dividends declared

   0    0      0      0      (189,381   (189,381   0      (189,381

Other increases (decreases) in net equity

   0    0      0      0      0      0      (20,323   (20,323

Changes in equity

   0    (136,223   0      (3,015   210,185      70,947      (27,090   43,857   

Closing balance at 12/31/2008

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

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Statement of Cash Flows-Direct Method

December 31, 2009

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

 

 

 

STATEMENT OF CASH FLOWS-DIRECT METHOD

 

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

Cash Flows from (used in) Operating, Direct Method

    

Collection of trade accounts receivable

   3,675,727      3,926,137   

Research and development disbursements

   (3,915   (3,827

Payments to suppliers

   (2,785,842   (2,891,042

Paid salaries

   (190,821   (186,925

Payments received and forwarded by the Value Added Tax

   147,533      185,779   

Other collections (payments)

   16,326      (12,143

Cash flows by (used in) Operating, Total

   859,008      1,017,979   

Cash flows by (used in) Other Operating Activities

    

Amounts received from dividends classified as operating

   17,084      5,797   

Amounts received from interest received classified as operating

   18,601      18,729   

Interest payments classified as operating

   (152,343   (162,223

Amounts received by the Income Tax Returned

   62,203      36,949   

Income tax payments

   (53,528   (147,495

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

   (107,983   (248,243

Cash flows net of (used in) Operating Activities

   751,025      769,736   

Cash flows from (used in) Investing Activities

    

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

   4,006      1,152   

Proceeds from sale (disappropriation) of biological assets

   2,185      2,241   

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

   7      0   

Proceeds from sale (disappropriation) of other financial assets

   0      19   

Other cash flows from (used in) investing activities

   0      186   

Purchase of property, plant and equipment

   (275,151   (310,260

Payments for intangible assets purchase

   (1,378   (1,279

Payments for biological assets purchase

   (92,002   (146,359

Payments for acquiring subsidiaries, net of cash acquired

   (174,111   0   

Payments for acquiring associates

   0      (2,353

Payments for acquiring joint ventures, net of cash acquired

   (116,279   0   

Loans to related companies

   (51,225   0   

Other investing disbursements

   (13,343   (10,078

Cash flows from (used in) Investing Activities

   (717,291   (466,731

Cash flows from (used in) Financing Activities

    

Loans obtained

   545,286      623,625   

Bonds issued

   636,677      202,537   

Loan payments

   (746,531   (887,058

Dividend payments to minority interests

   (20,769   (19,638

Dividend payments by the reporting entity

   (114,406   (297,950

Other Cash Flows from (Used in) Financing Activities

   2,115      0   

Cash flows from (used in) Financing Activities

   302,372      (378,484
            

Net increase (decrease) of Cash and Cash Equivalents

   336,106      (75,479

Effect of exchange rate variations on cash and cash equivalents

   30,785      (25,085

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

   534,199      167,308   

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

December 31, 2009

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

 

 

 

NOTE 1. PRESENTATION OF FINANCIAL STATEMENTS (IAS 1)

Entity Information

Name of Reporting Entity

Celulosa Arauco y Constitución S.A. (hereinafter “Arauco”), Tax No. 93,458,000-1, Closed Company, 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).

The Company’s head office address is El Golf Avenue 150, floor 14, Las Condes, Santiago, Chile.

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.

Arauco is controlled by Empresa Copec S.A., Corporation, which owns 99.9779% of Arauco, and is registered in the Superintendency of Securities and Insurance Securities Registry as No. 0028, therefore being subject to audit by this Superintendency.

The ultimate controllers of the Company are Mrs. Maria Noseda Zambra of Angelini, Roberto Angelini Rossi and Mrs. Patricia Angelini Rossi through Inversiones Angelini y Cia. Ltda., which owns 63.4015% of the shares of AntarChile S.A., the controller of our parent company Empresas Copec S.A.

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

Presentation of Financial Statements

Financial Statements presented by Arauco as at December 31, 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)

Period Covered by the Financial Statements

January 1, 2009 to December 31, 2009.

Date of Approval of Financial Statements

The issuance of these consolidated financial statements for the year ended December 31, 2009 was approved by the Board in Extraordinary Session No. 417 on March 23, 2010.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

December 31, 2009

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

 

 

 

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.

For the pulp segment, most of the sales operations are exports, meaning that the costs are related mainly due to plantation costs, which are settled in dollars.

For the sawmill and panel segments, despite their markets corresponding to a mix of national sales and exports, the prices for the products are established in dollars, as is also the case for the cost structure of raw materials.

Despite the cost of labour and services are generally billed and paid in local currency, it does not attain the significance that can be applied to raw materials and depreciation of equipment, whose markets are global and are influenced mostly by the dollar.

Arauco has defined the US Dollar as its main functional currency.

Financial Statements are presented in thousand of United States Dollars, with a level of precision of the figures in thousands of dollars without decimals.

All significant 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, because control exists and they maintain exclusive contracts with Arauco for wood provision, forward purchase of land, and a forest administration contract. Considering this, the companies are consolidated and are part of the consolidated financial statements of Arauco Group.

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-NIFCH Compliance Declaration

These 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

December 31, 2009

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

 

 

 

Disclosure of Capital Information

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

Arauco’s policies on capital management aim at:

 

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

 

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

 

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

 

  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
12/31/2009
(ThU.S. $)
   Amount  at
12/31/2008
(ThU.S. $)
   Equity >=
ThU.S. $
2,500,000
   Equity
Hedging  >=
2,0x
  Debt
Level(1)  <=
1,2x
   Debt
Level(2)  <=
0,75x

Local Bonds

   398,693    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

   138,837    173,627    N/A    ü(3)   N/A    ü(3)

Bilateral Bank Loan

   255,304    241,026    N/A    ü   ü    N/A

Other Loans

   156,639    41,860    No Safeguards Required

Foreign Bonds

   2,252,838    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 December 31, 2009 are as follows:

 

Instrument

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

Local Bonds

      AA       AA

Foreign Bonds

   BBB    BBB+    Baa2   

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

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

December 31, 2009

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

 

 

 

Capital (in Thousand of US Dollars) as at December 31, 2009, December 31, 2008 and January 01, 2008:

 

In ThU.S.$

   12/31/2009    12/31/2008    01/01/2008

Equity

   6,268,593    5,889,554    5,818,607

Bank Loans

   550,780    616,891    881,547

Finance Leases

   608    1,394    3,597

Bonds

   2,651,531    2,033,658    1,840,045
              

Capital

   9,471,512    8,541,497    8,543,796
              

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.

Arauco fulfilled all its external requirements.

Arauco considers it unlikely that future uncertainty risks may result in any significant adjustment to book value of assets and liabilities within the next financial period. In the case of the fair value of biological assets, no risks are foreseen in which the value of forests will change significantly. Notably, the data used to make the foregoing determination contemplates the long-term realization of such risks, and therefore the estimates provided are also relevant for the long term.

Summary of significant accounting policies

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

a) Basis for Presentation of financial information

These 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.

The 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 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 take into account those matters that require the exercise of judgment, but acknowledge that different judgments could result in substantially different results.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

December 31, 2009

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

 

 

 

- Property, Plant and Equipment

For property, plant and equipment in a business 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 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.

- Biological Assets

The recovery of forest plantations is based on discounted cash flow models which mean that the fair value of biological assets is calculated using cash flows from continuing operations, that is to say, 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.

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 forests to establish the volumes of wood available for harvesting and their current growth rates. The principal considerations used to calculate the valuation of forest plantations are presented in Note 21.

- Lawsuits and Contingencies

Arauco and its subsidiaries maintain lawsuits in process, whose future effects need to be estimated by the management of the Company, in collaboration with its legal advisers. Arauco seeks to interpret the reports of its legal advisers and make appropriate contingency estimates in each balance sheet and/or upon each substantial modification to an underlying cause of any such litigation.

c) Consolidation

The consolidated financial statements include all entities over which Arauco has the power to govern the financial and operating policies, usually 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.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

December 31, 2009

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

 

 

 

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

Consolidated financial statements for the year ended December 31, 2009 include subsidiary balances shown in Note 13; Fondo de Inversión Bío Bío balances, and its subsidiary Forestal Río Grande S.A., both of which qualify as Special Purpose Entities.

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

d) Segments

Arauco has defined its operating segments according to its business areas, which are defined by products and services sold to customers. This is consistent with the management, resource allocation and performance assessment made by key personnel responsible for making such relevant decisions related to the Company’s operation. President and Chief Executive Officer and Corporate Managing Directors of each business area (segment) are responsible for these decisions. Detailed financial information by segment is presented in Note 24.

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 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 and Associates

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 net investments in foreign entities are recorded directly in shareholders’ equity in Conversion reserves, as shown in the unaudited consolidated statement of changes in equity. The cumulative translation differences of divestments and liquidations are combined with their gain or loss on disposal.

(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.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

December 31, 2009

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

 

 

 

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-liabilities 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 and the passive position of these instruments is presented under Other financial liabilities within the Financial Statement.

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.

The financial assets-liabilities 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 initially recorded at fair value and subsequently 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, bonds 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 and 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.

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.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

December 31, 2009

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

 

 

 

(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 Other Comprehensive Results. The gain or loss relating to the ineffective portion is recognized immediately in the Income Statement within Other Operating Income or Operating Expenses, respectively.

When a hedging instrument expires or is sold, or when it ceases to meet the criteria to be recognized through the hedge accounting treatment, any cumulative gain or loss in equity at that time remains in equity and is recognized when the transaction affects the Income Statement. When it no longer expects a possible transaction to occur, the cumulative gain or loss in equity is immediately transferred to the Income Statement.

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.

Biological assets are transferred to inventories to the extent that forests are harvested.

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

When 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) 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 the 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. 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 presented in the line Negative goodwill immediately recognized.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

December 31, 2009

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

 

 

 

Arauco measures the fair value of the acquired company in the business combination made by stage, recognizing the effects of variation in the Income Statment in the period in which they occur.

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 (both 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 on annual basis.

(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 as they are perpetual and will not require renewal, but are subject to anual 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 useful life of property, plant and equipment is 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

December 31, 2009

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

 

 

 

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, on an annual basis.

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 fair 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 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, which are 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 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 as of 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

December 31, 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. This amount is quantified with the best possible estimate at the end of each period.

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.

Segment revenues mentioned in Note 24 comply with the conditions indicated above.

Revenues from inter-segment sales (which are made at prices that approximate market prices) are eliminated in the consolidated financial statements.

r) Minimum dividend

Article No. 79 of the Privately Limited Companies of Chile provides that, unless otherwise unanimously agreed or adopted by the shareholders, shares-stock as a dividend must be distributed annually in cash to shareholders in proportion to their shares or in the proportion established by the statutes if any preferred shares, in the amount of at least 30% of net profits for the current year, except where necessary to absorb accumulated losses from prior years.

The General Shareholders’ Meeting of Arauco resulted in an agreement to maintain annual dividends at 40% of net distributable profit, including a provisional dividend share distribution at year-end. Dividends payable are recognized as a liability in the financial statements in the period they are declared and approved by the Company’s shareholders or when configuring the corresponding obligation on the basis of existing legislation or distribution policies established by the Shareholders’ Meeting.

The interim and final dividends are recorded as lower equity upon their approval by the relevant groups, being in the first case usually the Company’s Board, and in the second case the responsibility of the General Shareholders’ Meeting.

The amount of these dividends is presented in this Financial Statement under Other Current Liabilities.

s) Impairment

Non-financial Assets

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.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

December 31, 2009

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

 

 

 

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.

Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units or groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose.

“Cash-generating units” consider the smallest identifiable groups of assets whose use generates continuous funds largely independent of those produced by the use of other assets or groups of assets.

Goodwill is allocated to cash generating units for the purpose of impairment testing. The distribution is made between cash-generating units or groups of cash generating units expected to benefit from the business combination that resulted in the goodwill.

Financial Assets

At the end of each period, an evaluation is performed in order to measure the existence of any objective evidence that assets or a group of financial assets have been adversely affected. Impairment effects will be recognized in the Classified Financial Statement only if there is objective evidence that one or more events will occurr after initial recognition of financial asset impairment and if these events will affect associated future cash flows.

The douftul provision of trade receivables is established when there is evidence that Arauco will not receive payments under the original terms of sale. Provisions are made when the client is a party to a bankruptcy court agreement or cessation of payments, or when Arauco has exhausted all levels of recovery of debt in a reasonable time. In the case of sales of our Chilean’ distribution subsidiary (Arauco Distribución S.A.), provisions are estimated using a percentage of accounts receivable to be determined case by case depending on the internal classification of customer risk and age of the debt (days overdue).

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.

Actuarial gains and losses are recognized in income in the year they are incurred.

These obligations are related to post-employee benefits in accordance with current standards.

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 Classified Financial Statement in the line Trade payables and Other payables, current.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

December 31, 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) Recent accounting pronouncements

At the date of issuance of these consolidated financial statements, the following accounting pronouncements were issued by the IASB, but they were not mandatory:

 

Rules and amendments

  

Content

 

Mandatory

application date

IFRS 1: Revised    First time adoption of International Reporting Standards   July 1, 2009
IFRS 3: Revised (*)    Business Combinations   July 1, 2009
IAS 27: Revised (*)    Consolidated and Separate Financial Statements   July 1, 2009
IFRS 9    Financial instruments   January 1, 2013
Improvements to IFRS      January 1, 2010
Amendment to IAS 39    Recognition and measurement. Eligible hedged items   July 1, 2009
Amendment to IFRS 2    Share based payments   January 1, 2010
Amendment to IFRS 1      January 1, 2010
Amendment to IAS 24    Related parties disclosures   January 1, 2011
Amendment to IFRIC 14    Pre-payments of a Minimum funding requirement   January 1, 2011
Amendment to IAS 32    Classification of rights issues   February 1, 2010
IFRIC Interpretation 17    Distributions of non-cash assets to owners   July 1, 2009
IFRIC Interpretation 18    Transfers of assets from customers   July 1, 2009
IFRIC Interpretation 19    Extinguishing financial liabilities with equity instruments   July 1, 2010

 

(*) Arauco adopted in advance these rules, not having a significant impact on this application.

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

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

December 31, 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

 

     12/31/2009    12/31/2008

Description of Ordinary Capital Share Types

   100% of Capital corresponds to ordinary shares

Number of Authorized Shares by Type of Capital in Ordinary Shares

   113,152,446

Nominal Value of Shares by Type of Capital in Ordinary Shares

   ThU.S.$ 0.0031211 per share

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

   ThU.S.$353,176

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

Liabilities presented under Loans that accrue interest 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.

 

     12/31/2009    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 during 2009 and the corresponding amount per share:

 

Detail of Dividend Paid, Ordinary Shares

  

Dividend Paid, Ordinary Shares

   Interim Dividend

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

   Unlisted Ordinary Shares

Date of Dividend Paid, Ordinary Shares

   12-16-2009

Amount of Dividend, Ordinary Shares, Gross

   ThU.S.$ 25,957

Number of Shares of which Dividends are Paid, Ordinary Shares

   113,152,446

Dividend per Share, Ordinary Share

   U.S.$ 0.22940

Detail of Dividend Paid, Ordinary Shares

  

Dividend Paid, Ordinary Shares

   Final Dividend

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

   Unlisted Ordinary Shares

Date of Dividend Paid, 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.$ 0.78168

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

December 31, 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 Dividend Paid, Ordinary Shares

  

Description of Dividend Paid, Ordinary Shares

   Final Dividend

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

   Unlisted Ordinary Shares

Date of Dividend Paid, 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

   U.S.$ 1.89907

Details of Dividend Paid, Ordinary Shares

   Final Dividend – Interim

Dividend

Description of Dividend Paid, Ordinary Shares

   Interim Dividend

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

   Ordinary Shares unlisted

Date of Dividend Paid, 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

   U.S.$ 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 U.S. Dollar as functional currency.

Hedge Reserves

This corresponds to the portion of profit or swap net loss coverage existing in Arauco at December 31, 2009.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

December 31, 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 de-recognition of non current assets as of December 31, 2009 and 2008, respectively.

 

     January - December  
     2009     2008  
     ThU.S.$     ThU.S.$  

Types of Other Operating Income

    

Other Operating Income, Total

   202,586      123,678   

Interest income

   19,313      19,408   

Gain from changes in fair value of biological assets

   155,532      65,201   

Income from sales of carbon credits

   5,836      6,342   

Revenue from export promotion

   4,568      5,592   

Leases collected

   4,870      2,287   

Payments from Insurance companies

   23      8,648   

Other operating results

   12,444      16,200   

Types of Financing Costs

    

Financing Costs, Total

   (193,872   (175,241

Interest Expenses

   (162,312   (143,067

Interest on bank loan

   (162,312   (143,067

Other financing costs

   (31,560   (32,174

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

    

Total

   (9,362   (9,086

Property, plant and equipment

   (6,056   (6,516

Biological asset

   (3,306   (2,570

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

    

Total

   6,621      5,839   

Investments in associates

   4,084      4,241   

Joint ventures

   2,537      1,598   

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

December 31, 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 are the first annual financial statements that comply with IFRS. The Company has applied IFRS 1 in preparing these 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, business 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 attributed 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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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

December 31, 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 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.

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.

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.$
    01/01/2008
ThU.S.$
    Note

Total net equity according to Chilean Accounting Principles

   5,690,914      5,480,420     

Property, plant and equipment

   862,942      800,249      a)

Consolidation of Special Purpose Entities

   62,368      78,960      b)

Biological Assets

   (141,203   44,776      c)

Functional Currency

   (126,785   37,606      d)

Negative Goodwill

   93,345      99,338      e)

Minimum Dividend

   (88,492   (214,936   f)

Financial instruments

   23,686      22,521      g)

Deferred taxes

   (389,215   (416,792   h)

Cumulative effect of other minor concepts

   19,676      31,237     
              

Total net equity according to IFRS

   6,007,236      5,963,379     
              

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

December 31, 2009

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

 

 

 

2. - Reconciliation Summary of consolidated net result

 

     12/31/2008
ThU.S.$
    Note

Total net effect according to Chilean Accounting Principles

   479,801     

Changes in depreciation in property, plant and equipment

   59,030      a)

Adjustment for agricultural products at fair value

   (165,935   c)

Adjustment for biological assets at fair value

   65,201      c)

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

   (39,674   d)

Adjustment for deferred taxes as a result of IFRS

   19,040      h)

Other non significant adjustments

   (12,418  
        

Total net effect according to IFRS

   405,045     
        

Adjustment for conversion

   (148,469   i)

Associated adjustment

   (3,015   i)
        

Total integral results according to IFRS

   253,561     
        

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 exists even when there is no a percentage of participation in the property of such entities, unlike the requirements of Chilean GAAP. The consolidation of this entity had an impact on equity. The assets and liabilities assumed include the following:

 

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

Property, plant and equipment

   56,758      56,838   

Biological assets

   171,284      229,714   

Other assets

   22,004      7,658   

Financial liabilities

   (187,678   (215,250
            

Total

   62,368      78,960   
            

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

December 31, 2009

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

 

 

 

(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.

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.$
    01/01/2008
ThU.S.$
 

Historical dollar conversion (i)

   41,331      41,331   

Functional currency of subsidiaries in Brazil (ii)

   (168,116   (3,725
            

Total

   (126,785   37,606   
            

 

(i) The Company determined that the functional currency for the majority of the Group’s companies is the US dollar, and proceeded to convert all its non-monetary assets and liabilities, particularly those related to Property, plant and equipment, to US dollars, using historical exchange rates at the time of the construction or acquisition of the assets.
(ii) The Brazilian Real was determined to be the functional currency for subsidiaries in Brazil. Under Chilean GAAP these companies used the US dollar as their functional currency. For this reason, the subsidiaries in Brazil adjusted their assets, liabilities, equity and results from historical US dollars to historical Reales. This change in functional currency has an impact on the accumulated translation differences account within equity and in the determination and conversion of the results of the period.

(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

Article No. 79 of the Private Limited Companies of Chile Act provides that, unless otherwise unanimously agreed or adopted by the shareholders, shares-stock as a dividend must distribute annually in cash to shareholders, in proportion to their shares or in the proportion established by the statutes if any preferred shares, at least 30% of net profits for the current year, except where necessary to absorb accumulated losses from prior years.

The General Shareholders’ Meeting of Arauco has resolved to maintain the dividend at 40% of net distributable profit.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

December 31, 2009

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

 

 

 

(g) Financial instruments adjustment

 

Impact within equity

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

Derivative valuation adjustment (swap) (i)

   12,594    9,750

Present value of liabilities (ii)

   9,011    10,099

Bonds obligation at effective rate (iii)

   2,081    2,672
         

Total

   23,686    22,521
         

 

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

Assets and liabilities at fair value through profit or loss at January 01, 2008 correspond to derivative contracts and mutual funds. The fair value amount of these instruments is detailed in the initial table of Note 23. Chilean GAAP consideres the derivative instruments as hedging instruments of existing items and expected transactions. Derivatives of existing items were recognized in results when they involve a loss and in liability if it was an unrealized profit. Expected derivative transactions were directly recorded in results (realized and unrealized). Investments in mutual funds are valued at the respective value of shares at the closing date of each year, which generates no differences to fair value under IFRS.

 

(ii) Funding acquired with the government of Parana from the subsidiary Placas do Paraná S.A., which payment is deferred in the long term.
(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.$
    01/01/2008
ThU.S.$
 

Deferred taxes from IFRS adjustments (i)

   (323,398   (350,413

Elimination of complementary accounts (ii)

   (3,009   (3,571

Unrecognized deferred taxes for biological assets (iii)

   (62,808   (62,808
            

Total

   (389,215   (416,792
            

 

(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.$
    01/01/2008
ThU.S.$
 

Deferred tax adjustment to functional currency of Chilean companies

   (7,026   (7,026

Deferred taxes for adjustment to property, plant and equipment valuation

   (309,113   (305,298

Deferred taxes for biological assets valuation

   (8,757   (33,444

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

   (1,161   (1,658

Deferred taxes for other IFRS adjustments

   2,659      (2,987
            

Total

   (323,398   (350,413
            

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

December 31, 2009

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

 

 

 

(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, these temporary differences must be recognized.

 

i) In accordance with IFRS, Comprehensive Results include components of Other Comprehensive Results composed by Translation Adjustments caused by subsidiaries and affiliates controlled in a functional currency different to the U.S. dollar and due to adjustments in associates caused by variations in associates equity. Under GAAP these results were only reported as equity variations and were not part of the Income Statement.

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. $)
 

Total Net Cash Flow Statement according to Chilean accounting principles

   167,089   

Net Cash Flow of (Used in):

  

Operating Activities

   (19,266

Investing Activities

   70,054   

Financing Activities

   (51,211

Net Increase (Decrease) in Cash and Cash Equivalents

   (423

Cash and Cash Equivalent Opening Balance

   642   
      

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

   167,308   
      

The total items that make up the Reconciliation of Cash Flow Statements presented in the above table correspond to 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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AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

December 31, 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 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

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

Raw Materials

   85,706    113,614    120,139

Production Supplies

   55,764    46,206    50,394

Work in progress

   26,154    38,610    22,628

Finished goods

   335,234    395,405    260,839

Other Inventories

   117,200    97,371    75,478

Total Inventories

   620,058    691,206    529,478
              

As of December 31, 2009, a cost of sales of inventories of ThU.S.$ 2,064,372 was recognized (ThU.S.$2,221,070 at December 31, 2008).

As of December 31, 2009, a net increased provision for obsolescence and adjustment to net realizable value of ThU.S.$ 543 was recognized (net decrease of ThU.S.$ 84 at December 31, 2008).

The obsolescence provision amounted to ThU.S.$7,524 at December 31, 2009 (ThU.S.$6,981 at December 31, 2008).

At current Financial Statements date, there are no inventories delivered under a guarantee to report.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

December 31, 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 U.S. Dollars or Euros. This instrument is accepted by the Company’s placement policy.

At the date of these financial statements, there are no significant amounts of cash or cash equivalents that are freely available.

 

Components of Cash and Cash Equivalents

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

Cash on hand

   244    147    94

Banks

   28,756    18,515    37,413

Short term deposit

   281,873    72,198    36,260

Mutual funds

   223,326    59,276    194,105

Other cash and cash equivalents

   0    17,172    0

Total

   534,199    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

   534,199    167,308    267,872

Cash and cash equivalents, reported in the Cash Flow Statement

   534,199    167,308    267,872
              

The following tables detail the value of the cost of the investment in Savitar (Forestal Talavera S.A.) dated June 30, 2009 and Arauco do Brasil S.A. (ex-Tafisa Brazil) dated August 26, 2009 (see Note 14), and the net value of assets and liabilities of each acquired entity, discounting 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

   ThU.S.$  

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

  

Tradeoffs sum cash paid for acquisitions and cash equivalents

   166,977   

Sum of Cash and cash equivalents in acquired entities

   (2,891

Tradeoff for Acquisitions paid to acquire entities, net Total

   164,086   
      

 

     ThU.S.$

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

   107,429

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

December 31, 2009

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

 

 

 

Purchase of Investments

   ThU.S.$  

Acquisition: Savitar (Forestal Talavera S.A.)

  

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 Liabilities of different Cash or Cash equivalents in acquired entities

   12,367

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

December 31, 2009

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

 

 

 

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

Changes in Accounting Policies

Accounting policies adopted in the preparation of these consolidated financial statements are applied as required by IFRS 1. These policies have been designed in accordance with IFRS in effect as of December 31, 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

IAS 27 (Revised), Consolidated and individual financial statements - Modifications arising from changes in IAS 3, adopted in the year 2009.

IAS 3 (Revised), Business combinations, adopted in the year 2009.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

December 31, 2009

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

 

 

 

NOTE 6. TAXES (IAS 12)

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

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. Arauco estimates that the projections of future earnings in the subsidiaries, that have generated the above mentioned tax losses allow the recovery of these assets.

The following table details deferred tax assets:

 

Deferred Tax Assets

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

Deferred Tax Assets relative to Provisions

   3,759    2,602    2,029

Deferred Tax Assets relative to accrued liabilities

   6,340    5,226    2,015

Deferred Tax Assets relative to Post-Employment obligations

   4,677    3,498    3,750

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

   3,065    2,820    1,966

Deferred Tax Assets relative to Financial Instruments Restatements

   1,913    2,670    1,192

Deferred Tax Assets relative to tax losses

   53,292    36,613    33,272

Valuation of biological asset

   11,424    16,344    20,911

Valuation of inventory

   1,939    1,850    2,084

Income provision

   2,571    4,365    3,977

Trade debtors and receivables

   4,878    6,562    3,248

Intangible revaluation differences

   10,584    0    0

Deferred Tax Assets relative to Others

   5,318    4,671    6,851
              

Deferred Tax Assets Total

   109,760    87,221    81,295
              

At the present financial statement date some of Arauco’s subsidiaries show tax losses of ThU.S.$241,596 as compared to ThU.S.$165,585 as of 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

December 31, 2009

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

 

 

 

Currently Arauco has not recognized deferred taxes associated with temporary differences arising from investments in subsidiaries, because the Company controls the date on which the temporary differences will be reversed and / or it is not likely that those differences will change in the foreseeable future.

The following table details deferred tax liabilities:

 

Deferred Tax Liabilities

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

Deferred Tax Liabilities relative to Restated Property, Plant and equipment

   682,540    571,804    563,077

Deferred Tax Liabilities relative to Financial Instrument restatement

   7,704    6,226    2,105

Valuation of biological asset

   508,285    464,775    494,587

Valuation of inventory

   10,001    15,188    13,836

Valuation of prepaid expenses

   27,006    25,244    10,518

Deferred Tax Liabilities relative to Others

   20,554    9,156    9,474
              

Deferred Tax Liabilities Total

   1,256,090    1,092,393    1,093,597
              

From the deferred tax assets and deferred tax liabilities listed in the above tables, approximately ThU.S.$20,028 and ThU.S.$83,729 respectively, will be used during the financial year 2010.

Temporary Differences

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

 

     12/31/2009    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

   56,468    0    50,608    0    48,023    0

Tax Loss

   53,292    0    36,613    0    33,272    0

Deferred Tax Liabilities

   0    1,256,090    0    1,092,393    0    1,093,597

Total

   109,760    1,256,090    87,221    1,092,393    81,295    1,093,597
                             

 

Detail of Temporary Difference Profit and Loss Amounts

   2009
ThU.S.$
    2008
ThU.S.$
 

Deferred Tax Assets

   2,037      3,793   

Tax Loss

   9,400      14,081   

Deferred Tax Liabilities

   (41,438   (34,042
            

Total

   (30,001   (16,168
            

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

December 31, 2009

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

 

 

 

Income Tax Expenditure (Income)

Income Tax Expenditure consists of the following:

 

Expense due to Current Income Taxes on Earnings

   2009
ThU.S.$
    2008
ThU.S.$
 

Current income tax expense

   (32,147   (96,747

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

   6,526      12,586   

Previous period current tax adjustments

   2,597      3,113   

Other current tax expenses

   (512   (828
            

Current Tax Expenses, Net, Total

   (23,536   (81,876
            

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

   (39,401   (30,235

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

   9,400      14,081   

Other deferred tax expenses

   0      (14

Deferred Tax Expenses, Net, Total

   (30,001   (16,168
            

Income (expense) due to Income Tax Total

   (53,537   (98,044
            

The following table details the income tax for foreign and national companies as at December 31:

 

     2009
ThU.S.$
    2008
ThU.S.$
 

Foreign current tax

   (20,350   (41,562

National current tax

   (3,186   (40,314

Current tax, Total

   (23,536   (81,876

Foreign deferred tax

   1,033      8,508   

National deferred tax

   (31,034   (24,676

Deferred tax, Total

   (30,001   (16,168
            

Income (expense) due to Income Tax, Total

   (53,537   (98,044
            

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

   2009
ThU.S.$
    2008
ThU.S.$
 

Tax Expense Using Legal Rate

   (60,891   (85,525

Tax effect of rates in other jurisdictions

   (16,669   (16,926

Tax effect of non taxable ordinary income

   27,596      25,688   

Tax effect of non tax deductible expenses

   (14,846   (38,169

Tax Effect of Excess Tax for Previous Periods

   2,597      3,113   

Other Increases (Decreases) Legal Taxes

   8,676      13,775   
            

Adjustment to Tax Expense using the Legal Rate, Total

   7,354      (12,519
            

Tax Expenses Using the Effective Rate

   (53,537   (98,044
            

The deferred tax related to financial hedging instruments, corresponds to ThU.S.$ 987 at December 31, 2009, which presents net in Hedge reserves in Changes in Net Equity. As of December 31, 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

December 31, 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 expenditures 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 linear method, considering any adjustment for impairment.

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, annually.

The depreciation charged to income at December 31, 2009 and December 31, 2008 is as follows:

 

Depreciation for the year

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

Cost of sale

   190,945    177,054

Administration expenses

   13,119    9,842

Other operating expenses

   3,347    2,360

Total

   207,411    189,256
         

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

December 31, 2009

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

 

 

 

Property, Plant and Equipment

 

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

Properties, Plant and Equipment, Net

      

Construction in progress

   433,269      348,417      171,441   

Land

   743,950      689,900      716,863   

Buildings

   1,355,202      1,307,391      1,340,117   

Plant and equipment

   2,331,038      2,172,162      2,279,473   

Information technology equipment

   18,178      18,621      15,699   

Fixed facilities and accessories

   5,208      4,755      5,681   

Motorized vehicles

   9,791      9,569      11,405   

Others

   73,117      65,156      68,962   
                  

Total Net

   4,969,753      4,615,971      4,609,641   
                  

Properties, plant and equipment, Gross

      

Construction in progress

   433,269      348,417      171,441   

Land

   743,950      689,900      716,863   

Buildings

   2,372,036      2,254,927      2,230,408   

Plant and equipment

   4,062,726      3,614,148      3,598,539   

Information technology equipment

   42,992      41,694      39,287   

Fixed facilities and accessories

   18,676      17,521      17,735   

Motorized vehicles

   31,066      20,539      20,937   

Others

   108,306      89,724      91,511   
                  

Total Gross

   7,813,021      7,076,870      6,886,721   
                  

Accumulated depreciation and impairment

      

Buildings

   (1,016,834   (947,536   (890,291

Plant and equipment

   (1,731,688   (1,441,986   (1,319,066

Information technology equipment

   (24,814   (23,073   (23,588

Fixed facilities and accessories

   (13,468   (12,766   (12,054

Motorized vehicles

   (21,275   (10,970   (9,532

Others

   (35,189   (24,568   (22,549
                  

Total

   (2,843,268   (2,460,899   (2,277,080
                  

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 impede 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.

 

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

Collateral amount of property, plant and equipment

   56,799    56,758    56,411

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

December 31, 2009

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

 

 

 

Commitments of projects disbursements or to acquire property, plant and equipment

 

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

Commitments amount for the acquisition of property, plant and equipment

   187,441    212,155    160,600

 

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

Disbursements amount on property, plant and equipment account under construction

   196,271    212,155

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

December 31, 2009

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

 

 

 

Movement on Property, Plant and Equipment

The following tables detail the movement of Property, Plant and Equipment at December 31, 2009 and December 31, 2008:

 

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.$
 

Opening balance 01/01/2009

   348,417      689,900      1,307,391      2,172,162      18,621      4,755      9,569      65,156      4,615,971   

Changes

                  

Additions

   196,271      36,550      8,023      19,792      73      16      1,607      5,161      267,493   

Acquisitions through business combination

   4,951      5,548      44,364      192,216      0      0      458      5,870      253,407   

Disappropriations

   (212   (181   (110   (1,003   (177   (114   (425   (942   (3,164

Discontinuation of consolidation by the formation of joint venture registered under the equity method (note 15-16)

   0      (32,014   0      (27   0      0      0      0      (32,041

Withdrawals

   (1,520   (1,265   (82   (2,805   (3   (55   (23   (1,233   (6,986

Depreciation costs

   0      0      (57,570   (153,400   (1,859   (273   (2,050   (5,941   (221,093

Impairment loss recognized in the Income Statement

   0      0      (1,416   (1,694   0      0      0      0      (3,110

Exchange rate increase (decrease) of foreign currency

   1,528      42,315      11,684      38,296      1      0      454      4,998      99,276   

Other increase/decrease

   (116,166   3,097      42,918      67,501      1,522      879      201      48      0   

Total Changes

   84,852      54,050      47,811      158,876      (443   453      222      7,961      353,782   

Closing balance 12/31/2009

   433,269      743,950      1,355,202      2,331,038      18,178      5,208      9,791      73,117      4,969,753   

 

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.$
 

Opening balance 01/01/2008

   171,441      716,863      1,340,117      2,279,473      15,699      5,681      9,411      70,956      4,609,641   

Changes

                  

Additions

   212,155      11,174      23,333      27,542      4,386      228      988      5,675      285,481   

Disappropriations

   0      (476   (37   (3,053   (24   (2   133      (3,052   (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   158      (5,800   6,330   

Closing balance 12/31/2008

   348,417      689,900      1,307,391      2,172,162      18,621      4,755      9,569      65,156      4,615,971   

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

December 31, 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    Average

Buildings

   Useful Life in Years    17    85    39

Plant and equipment

   Useful Life in Years    8    61    29

Information technology equipment

   Useful Life in Years    4    18    5

Fixed facilities and accessories

   Useful Life in Years    10    22    10

Motorized vehicles

   Useful Life in Years    7    18    9

Others properties, plants and equipment

   Useful Life in Years    5    12    11

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

December 31, 2009

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

 

 

 

NOTE 8. LEASES (IAS 17)

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

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

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

Disclosure of Finance Leases Classified by Type of Asset, Leases

 

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

Property, Plant & Equipment Financial Leasing

   608    12,208    12,303

Net Leased Buildings (Finance Lease)

   0    12,208    12,303

Plant and Equipment under Financial Leasing, Net

   608    0    0

Reconciliation of Finance Lease Minimum Payments, Lessee

 

     12/31/2009

Finance Lease

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

Due within one year

   381    20    361

Due within one and five years

   253    6    247

Due beyond five years

   0    0    0

Total

   634    26    608
              

 

     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
              

 

     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
              

Leasing obligations are presented in this Classified Financial Statement under Current and Non-current Loans that accrue interest according to the maturities stated above.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

December 31, 2009

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

 

 

 

Reconciliation of Finance Lease Minimum Payments, Lessor

 

     12/31/2009

Minimum Finance Lease Payments Receivable, Finance Lease

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

Due within one year

   4,860    545    4,315

Due within one and five years

   7,940    490    7,450

Due beyond five years

   0    0    0

Total

   12,800    1,035    11,765
              

 

     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
              

 

     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
              

Accounts receivable in leasing are presented in the Classified Financial Statement under Trade Receivables and Other current and non-current Accounts Receivables depending on the maturities stated above.

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

December 31, 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

   2009
ThU.S.$
   2008
ThU.S.$

Sale of goods

   3,027,796    3,587,901

Service Contracts

   85,249    125,992

Total

   3,113,045    3,713,893
         

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

December 31, 2009

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

 

 

 

NOTE 10. EMPLOYEE BENEFITS (IAS 19)

Disclosure of Termination Benefits

Correspond to severance payment obligations for years of service due to termination of service contracts, and that arise from benefits stated within work contracts and/or as severance payments stated in the Labor Law. According to IFRS these are considered post-employment benefits.

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.

The main factors considered for calculating the actuarial value of severance payments for years of service are employee turnover, salary increases and life expentancy of the workers considered in this benefit.

Types of Benefits and Expenses by Employee

 

Types of Benefits Expenses by Employee

   2009
ThU.S.$
   2008
ThU.S.$

Personnel Expenses

   196,853    195,294

Wages and salaries

   190,821    186,925

Compensation for years of service

   6,032    8,369

Following tables detail the balances and the movement of Payments for years of service provisioned at December 31, 2009 and 2008.

 

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

Recognized liability amount for termination contract, current

   2,372    2,188    2,478

Recognized liability amount for termination contract, non-current

   25,295    18,109    19,445
              

Total

   27,667    20,297    21,923
              

 

Movement termination benefits

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

Opening balance

   20,297      21,923   

Current service cost

   840      727   

Interest cost

   2,083      1,377   

Gain (losses) actuarial

   (575   2,516   

Benefits payd

   (757   (833

Increase (decrease) for currency exchange

   5,779      (5,413

Closing balance

   27,667      20,297   
            

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

December 31, 2009

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

 

 

 

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

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

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

 

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

 

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

 

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

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

 

     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

   17,632    (67,778

Accumulated translation adjustments

   177,480    (148,469

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

December 31, 2009

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

 

 

 

NOTE 12. BORROWING COSTS (IAS 23)

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

 

Property, plant and equipment capitalized cost

   2009
ThU.S.$
    2008
ThU.S.$
 

Property, plant and equipment capitalized interest cost rate

   5.90   6.12

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

   11,570      9,053   

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

December 31, 2009

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

 

 

 

NOTE 13. RELATED PARTIES (IAS 24)

Related Party Disclosure

Related parties are those companies as defined in IAS 24 and under the standards of the Chilean Securities Commission and Limited Company Law as related parties.

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 or associated with inter-company balances.

Name of Group’s Main Controller

The ultimate controllers of the Company are Mrs. Maria Noseda Zambra of Angelini, Roberto Angelini Rossi and Mrs. Patricia Angelini Rossi through Inversiones Angelini y Cia. Ltda.

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 including directors, managers and sub managers consist of a fixed monthly rate, where eventually an annual discretionary bonus may exist.

Pricing Strategy Terms and Conditions Corresponding to Transactions with Related Parties

Transactions with related parties are performed under market conditions.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

December 31, 2009

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

 

 

 

Detail of Relationship between Parent Company and Subsidiary

 

ID Nº

  

Company Name

   % Share
12/31/2009
   % Share
12/31/2008
      Direct    Indirect    Total    Direct    Indirect    Total
  

Agenciamiento Y Servicios Profesionales S.A. (Mexico)

   0.0020    99.9966    99.9986    0.0020    99.9966    99.9986
  

Alto Parana S.A. (Argentina)

   0    99.9762    99.9762    0    99.9762    99.9762
  

Arauco Australia S.A. (Australia)

   0    99.9986    99.9986    0    0    0
  

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    0    0    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    0    0    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    0    0    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.

   9.1600    90.8387    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
  

Empreendimientos Santa Cruz S.A. (ex - 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 (Forestal Talavera S.A.) (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

 

     2009
ThU.S.$
   2008
ThU.S.$

Salaries and bonus

   31,963    32,869

Diet Directory

   1,333    1,454

Termination benefits

   963    957

Total

   34,259    35,280
         

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

December 31, 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

   12/31/2009
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    169    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    1,896    0    915

Forestal del Sur S.A.

   79,825,060-4    Indirect    Chile    Chilean pesos    30 days    3,247    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    818    643    9,778

Fundación Educacional Arauco

   71,625,000-8    Other related party    Chile    Chilean pesos    30 days    717    0    0

Dynea Brasil S.A.

      Associates    Brazil    Real    30 days    96    0    101

El Esparragal Asoc. Agraria de Resp. Ltda.

      Other related party    Uruguay    Euro    30 days    11,280      
                             

Total

                  18,272    5,475    11,379
                             

Related Party Payables

 

Name of Related Party

   Corresponding
ID No.
  

Nature of
Relationship

  

Country
of Origin

  

Currency
Rate

  

Maximum
Maturity

   12/31/2009
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    7,823    3,233    6,011

Abastible S.A.

   91,806,000-6    Affiliate of shareholder    Chile    Chilean pesos    30 days    326    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    2,743    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    0    0    4

Codelco Chile

   61,704,000-k    Indirect    Chile    Chilean pesos    30 days    0    5    1

Empresa Nacional de Telecomunicaciones S.A.

   92,580,000-7    Indirect    Chile    Chilean pesos    30 days    7    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    595    0    459

Compañía Puerto de Coronel S.A.

   79,895,330-3    Associates    Chile    Chilean pesos    30 days    579    0    0

Genómica Forestal S.A.

   76,743,130-9    Associates    Chile    Chilean pesos    30 days    0    169    0
                             

Total

                  12,081    9,102    8,116
                             

Related party transactions

Purchases

 

Name of Related Party

   Corresponding
ID No.
   Nature of
Relationship
   Country
of Origin
   Transaction Detail    12/31/2009
ThU.S.$
   12/31/2008
ThU.S.$

Abastible S.A.

   91,806,000-6    Affiliate of shareholder    Chile    Fuel    2,500    4,175

Empresas Copec S.A.

   90,690,000-9    Parent Company    Chile    Management service    294    272

Compañia de Petróleos de Chile S.A.

   99,520,000-7    Affiliate of shareholder    Chile    Fuel and lubricant    69,638    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
   4,390    3,156

Codelco Chile

   61,704,000-k    Indirect    Chile    Supplies    2,186    1,742

Dynea Brasil S.A.

      Associates    Brazil    Chemical products    27,596    41,457

Dynea Brasil S.A.

      Associates    Brazil    Melamine paper    18,917    20,961

Eka Chile S.A.

   99,500,140-3    Associates    Chile    Sodium chlorate    57,340    99,465

Eka Chile S.A.

   99,500,140-3    Associates    Chile    Supplies    547    33

Forestal del Sur S.A.

   79,825,060-4    Indirect    Chile    Wood and logs    1,145    1,461

Forestal del Sur S.A.

   79,825,060-4    Indirect    Chile    Cost recovery    10    543

Portaluppi, Guzmán y Bezanilla Abogados

   78,096,080-9    Other related party    Chile    Legal services    1,480    1,443

Compañía Puerto de Lirquén S.A.

   82,777,100-7    Associates    Chile    Port services    8,162    8,855

CMPC Maderas S.A.

   95,304,000-k    Indirect    Chile    Logs and fixed asset    325    327

Sales

 

Name of Related Party

   Corresponding
ID No.
   Nature of
Relationship
   Country
of Origin
   Transaction Detail    12/31/2009
ThU.S.$
   12/31/2008
ThU.S.$

Colbún S.A.

   96,505,760-9    Indirect    Chile    Electrical power    12,342    4,080

Dynea Brasil S.A.

      Associates    Brazil    Management service    529    523

Dynea Brasil S.A.

      Associates    Brazil    Fuel    682    456

Eka Chile S.A.

   99,500,140-3    Associates    Chile    Electrical power    19,580    66,166

Sodimac S.A.

   96,792,430-k    Indirect    Chile    Wood    29,688    54,938

Stora Enso Industria de Papel S.A.

      Associates    Brazil    Wood    7,457    9,315

Forestal del Sur S.A.

   79,825,060-4    Indirect    Chile    Woodchip    16,689    3,533

Forestal Mininco S.A.

   91,440,000-7    Indirect    Chile    Wood    823    2,471

CMPC Maderas S.A.

   95,304,000-k    Indirect    chile    Other sales    192    368

 

55


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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

December 31, 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 held in an entity 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 purchase method to register a business combination. 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.

All transactions, accounts receivable, accounts payable and intercompany unrealized profits are eliminated.

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 Beheer, B.V. and Tafiber-Tableros de Fibras Ibéricos, S.L., subsidiaries of Sonae Indústria, SGPS, S.A. Placas do Paraná S.A. paid ThU.S.$166,977 for Tafisa Brasil S.A.’ shares. This investment is recognized at provisional fair value, which is currently under review. As of December 31, 2009, goodwill was estimated to be ThU.S.$56,657. The acquisition of this partnership will allow Arauco to strengthen its presence in the Brazilian market for fiberboards, where it is already involved through Placas do Parana S.A.

On June 30, 2009, Arauco through its subsidiary Arauco Internacional S.A., acquired 80% of Savitar (Forestal Talavera S.A.) for ThU.S.$10,131. Previously, on March 28, 2008, materialized through the subsidiary Faplac S.A., Arauco Internacional S.A. acquired 20% of the entity. This acquisition generated a profit of ThU.S.$701 presented in the Comprehensive Income Statement under Negative goodwill and was immediately recognized.

 

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AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

December 31, 2009

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

 

 

 

The following tables detail the fair value of the assets and liabilities acquired at the acquisition date, as informed in Note 4:

 

Tafisa

   08/26/2009
ThU.S.$

Cash

   2,891

Trade accounts receivable

   29,141

Inventory

   19,699

Property, plant and equipment

   253,407

Deferred income tax

   26,133

Other assets

   7,949
    

Total Assets

   339,220
    

Bank loans

   26,799

Trade payables

   32,306

Deferred income tax

   54,341

Provisions (*)

   31,250

Other liabilities

   84,204
    

Total Liabilities

   228,900
    

 

(*) corresponds to provisions of trials (see Note 19)

 

Savitar (Forestal Talavera S.A.)

   06/30/2009
ThU.S.$

Cash

   106

Trade accounts receivable

   116

Property, plant and equipment

   15,302

Biological assets

   3,113

Other assets

   278
    

Total Assets

   18,915
    

Trade payables

   505

Deferred income tax

   5,888

Other liabilities

   49
    

Total Liabilities

   6,442
    

Goodwill and negative goodwill for investments presented in the tables above is generated as follows:

 

     Tafisa
ThU.S.$
   Savitar
ThU.S.$
 

Paid value

   166,977    10,131   

20% acquired in 2008

   0    1,641   

Fair value of assets and liabilities acquired

   110,320    12,473   

Goodwill (Negative goodwill)

   56,657    (701

On December 18, 2008, a capital contribution for MU.S.$29,000 was made to the company Lucchese Empreendimientos e Participacoes Ltda. (current Empreendimientos Santa Cruz S.A.) 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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AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

December 31, 2009

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

 

 

 

Summarized financial information of major subsidiaries of Arauco:

 

Significant subsidiary

Country of incorporation

Functional currency

Percentage of participation

   Aserraderos Arauco  S.A.
Chile
U.S.  Dollar
99.9992%
     12/31/2009
     Assets
ThU.S.$
   Liabilities
ThU.S.$

Current subsidiary

   302,576    35,901

Non-current of subsidiary

   234,402    18,368

Total subsidiary

   536,978    54,269
         

 

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

Current subsidiary

   306,929    38,803

Non-current of subsidiary

   221,591    18,798

Total subsidiary

   528,520    57,601
         

 

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

Income of subsidiary

   396,482      606,374   

Expenses of subsidiary

   (386,954   (562,372

Net Gain (loss) of subsidiary

   9,528      44,002   
            

 

Significant subsidiary

Country of incorporation

Functional currency

Percentage of participation

   Paneles Arauco S.A.
Chile

U.S. Dollar
99.9992%
     12/31/2009
     Assets
ThU.S.$
   Liabilities
ThU.S.$

Current subsidiary

   367,666    44,467

Non-current of subsidiary

   308,499    85,605

Total subsidiary

   676,165    130,072
         

 

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

Current subsidiary

   319,740    43,588

Non-current of subsidiary

   247,082    24,484

Total subsidiary

   566,822    68,072
         

 

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

Income of subsidiary

   462,022      582,937   

Expenses of subsidiary

   (416,942   (477,322

Net Gain (loss) of subsidiary

   45,080      105,615   
            

 

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AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

December 31, 2009

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

 

 

 

Significant subsidiary

Country of incorporation

Functional currency

Percentage of participation

   Arauco Internacinal S.A.
Chile
U.S. Dollar
99.9986%
     12/31/2009
     Assets
ThU.S.$
   Liabilities
ThU.S.$

Current subsidiary

   33,259    440,632

Non-current of subsidiary

   1,701,745    2,377

Total subsidiary

   1,735,004    443,009
         

 

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

Current subsidiary

   10,330    126,436

Non-current of subsidiary

   1,151,923    2,571

Total subsidiary

   1,162,253    129,007
         

 

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

Income of subsidiary

   140,074      83,186   

Expenses of subsidiary

   (18,452   (5,615

Net Gain (loss) of subsidiary

   121,622      77,571   
            

 

Significant subsidiary

Country of incorporation

Functional currency

Percentage of participation

   Forestal Arauco S.A.
Chile

U.S. Dollar
99.9248%
     12/31/2009
     Assets
ThU.S.$
   Liabilities
ThU.S.$

Current subsidiary

   8,639    320,487

Non-current of subsidiary

   2,900,808    290

Total subsidiary

   2,909,447    320,777
         

 

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

Current subsidiary

   5,710    214,437

Non-current of subsidiary

   2,777,551    115

Total subsidiary

   2,783,261    214,552
         

 

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

Income of subsidiary

   38,511      2,097   

Expenses of subsidiary

   (21,724   (54,094

Net Gain (loss) of subsidiary

   16,787      (51,997
            

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

December 31, 2009

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

 

 

 

NOTE 15. INVESTMENTS IN ASSOCIATES (IAS 28)

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

Detail of Investments in Associates

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

 

Name of Associate

   Puerto de Lirquén S.A.

Country of Incorporation of Associate

   Chile

Functional Currency

   US Dollar

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%
     12/31/2009    12/31/2008    01/01/2008

Cost of Investment in Associate

   ThU.S.$41,341    ThU.S.$37,589    ThU.S.$41,352

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

Percentage Share in Associate %

   50.00%
     12/31/2009    12/31/2008    01/01/2008

Cost of Investment in Associate

   ThU.S.$ 24,435    ThU.S.$25,741    ThU.S.$16,553

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%
     12/31/2009    12/31/2008    01/01/2008

Cost of Investment in Associate

   ThU.S.$1,263    ThU.S.$953    ThU.S.$1,426

 

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AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

December 31, 2009

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

 

 

 

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%
    12/31/2009    12/31/2008    01/01/2008

Cost of Investment in Associate

  Th U.S.$14,514    Th U.S. $12,234    ThU.S.$18,547

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%
    12/31/2009    12/31/2008    01/01/2008

Cost of Investment in Associate

  ThU.S.$36,851    ThU.S.$34,443    ThU.S.$44,493

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%
    12/31/2009    12/31/2008    01/01/2008

Cost of Investment in Associate

  ThU.S.$29    ThU.S.$8    ThU.S.$2

 

Name of Associate

   Savitar (Forestal Talavera S.A.)

Country of Incorporation of Associate

   Argentina

Functional Currency

   US Dollar

Main Activities of Associate

   Timber Farming

Percentage Share in Associate %

   20.00%
     12/31/2009    12/31/2008    01/01/2008

Cost of Investment in Associate

   It is subsidiary    ThU.S.$ 1,641    0

Summarized financial Information of Associates

 

     12/31/2009
     Assets
ThU.S.$
   Liabilities
ThU.S.$

Current assets

   124,799    46,663

Non-current assets

   377,004    21,324

Equity

   0    433,816

Total Associates (*)

   501,803    501,803
         

 

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

Current assets

   137,749    46,380

Non-current assets

   355,049    27,267

Equity

   0    419,151

Total Associates (*)

   492,798    492,798
         

 

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AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

December 31, 2009

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

 

 

 

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

Ordinary income

   254,620      261,037   

Ordinary expenses

   (236,045   (252