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

Exhibit 99.1

ARAUCO AND CONSTITUTION PULP INC

TABLE OF CONTENTS

 

Item         Page  

1.

   Ratio Analysis of the Consolidated Financial Statement      1   

2.

   Unaudited Consolidated Financial Statement      7   

3.

   Unaudited Consolidated Financial Income Statement      9   

4.

   Unaudited Consolidated Statement of Changes in Net Equity      11   

5.

   Unaudited Consolidated Statement of Cash Flow      12   

6.

   Unaudited Notes to the Consolidated Financial Statement      13   

7.

   Annex: Press Release   


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statement

March 31, 2011

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 Financial Statement

The principal components of assets and liabilities as of March 31, 2011 and December 31, 2010 are as follows:

 

Assets

   03/31/2011
ThU.S.$
     12/31/2010
ThU.S.$
 

Current assets

     3,246,562         3,152,116   

Non-current assets

     9,459,961         9,354,216   

Total assets

     12,706,523         12,506,332   

Liabilities and Shareholders’ Equity

   03/31/2011
ThU.S.$
     12/31/2010
ThU.S.$
 

Current liabilities

     1,311,810         1,209,061   

Non-current liabilities

     4,426,944         4,456,696   

Non –parent participation

     110,882         108,381   

Net equity attributable to parent company Shareholders’ equity

     6,856,887         6,732,194   

Total net equity and liabilities

     12,706,523         12,506,332   

As of March 31, 2011, total assets increased by 1.6% or U.S. $200 million compared to December 31, 2010. This increase is mainly attributable to an increase in Trade and Account receivables and Property, Plant and Equipment.

Total liabilities increased by U.S. $73 million. This increase is mainly attributable to an increase in Non-Financial Liabilities due to an increase in minimum dividend provisions for the first quarter of 2011.

The main financial and operating ratios are as follows:

 

Liquidity ratios

   03/31/2011      12/31/2010  

Current ratio

     2.47         2.61   

Acid ratio

     1.63         1.72   

Debt indicators

   03/31/2011      12/31/2010  

Debt to equity ratio

     0.82         0.83   

Short-term debt to total debt

     0.23         0.21   

Long-term debt to total debt

     0.77         0.79   
     03/31/2011      12/31/2010  

Financial expenses covered

     5.34         2.51   

 

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Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statement

March 31, 2011

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

 

 

2. ANALYSIS OF FINANCIAL POSITION, continued

 

a) Analysis of the Balance Sheet, continued

 

Operational ratios

   03/31/2011      12/31/2010  

Inventory turnover

     0.79         2.30   

Inventory turnover (excluding biological assets)

     1.14         3.41   

Inventory permanence-days

     152,70         156,84   

Inventory permanence (excluding biological assets)

     105,20         105,55   

The liquidity ratio and the acid test for the current period has decreased compared to the period 2010. This is due to an increase in current liabilities compared to the proportional increase in the variation of current assets, which in turn is explained by a decrease of Cash and cash equivalents and an increase of Other Non-Financial liabilities.

As of March 31, 2011, the short-term debt represented 23% of total liabilities compared to 21% as of December 31, 2010.

The ratio of financial expenses covered increased from 2.51 to 5.34. This increase is attributable to higher profits in the current period.

The ratio of inventory turnover does not present significant changes by 2011 as compared to 2010.

 

b) Analysis of the Income Statement

Profit before Income Tax

Profit before Income Tax registers a profit of U.S.$224 million in 2011 compared to U.S.$75 million in 2010, an increase of U.S.$149 million. The change was attributable to the factors described in the following table:

 

Item

   Million
U.S.$
 

Gross margin

     110   

Other operating income

     29   

Administration cost

     (42

Financial costs

     25   

Foreign currency exchange rate

     31   

Others net

     (4

Net change in income before income tax

     149   

Gross Margin presents a profit of U.S. $403 million in 2011 compared to U.S. $110 million in 2010, caused by a proportional increase in revenues due to an increase in sales price and volume.

The profit in the exchange rate difference is principally due to an appreciation of the dollar against the Chilean peso and depreciation against the Euro, currencies in which the Company owns financial investments, tax receivables and other accounts receivables.

 

2


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statement

March 31, 2011

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

 

 

2. ANALYSIS OF FINANCIAL POSITION, continued

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

 

Revenues

   03/31/2011
ThU.S$
    03/31/2010
ThU.S$
 

Pulp

     530,191        386,252   

Sawn timber

     177,572        113,022   

Panels

     299,011        252,982   

Forestry

     34,577        27,474   

Other

     5,698        5,150   

Total revenues

     1,047,049        784,880   

Sales costs

   03/31/2011
ThU.S$
    03/31/2010
ThU.S$
 

Wood

     187,864        137,838   

Forestry work

     126,944        93,586   

Depreciation

     51,933        41587   

Other costs

     276,828        218,810   

Total sales costs

     643,629        491,821   

Profitability index

   03/31/2011     12/31/2010  

Profitability on equity

     10.23        10.60   

Profitability on assets

     5.60        5.86   

Return on operating assets

     7.04        7.04   

Profitability ratios

   03/31/2011     03/31/2010  

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

     1.52        0.55   

EBITDA( MThU.S.$)

     335.90        218.90   

Income after tax (ThU.S.$) (2)

     176,503        62,528   

Gross margin (ThU.S. $)

     403,420        293,059   

Financial costs (ThU.S. $)

     (51,575     (49,935

 

(1) Earnings per share refer to the profit to net equity to parent company.
(2) Includes interest.

 

3. DIFFERENCE BETWEEN ECONOMIC VALUES AND BOOK ASSETS

Assets and liabilities are presented in the Financial Statements according to International Financial Reporting Standards and instructions issued by the Chilean Securities Commission.

We believe that there are no substantial differences between the economic value of our assets and the value reflected in these Financial Statements.

 

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Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statement

March 31, 2011

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

 

 

4. MARKET SITUATION

Pulp

The first quarter of 2011 was very active, with strong demand in almost all markets. As a consequence of this higher activity, paper prices have increased moderately. This can be explained by higher pulp prices and certain difficulties for paper producers to transfer the higher costs of raw materials in general to final products. Global inventory levels for long and short fibers have remained stable. There were increases during January and February, but this trend changed again in March reaching the levels of fourth quarter 2010. In late December 2010, global inventory levels were 25 and 39 days for long and short fiber respectively, while inventory levels for March were 24 and 40 days.

China remains to be the motor of activity and growth. New projects, low levels of inventories and demand in new niches for pulp have led to levels of imports that, in general at these higher levels of prices, have not been seen for several years. Prices have remained stable and have increased depending on the degree of pulp, reaching and remaining at relatively high levels. Bleached long fiber (BSKP) increased approximately 7% during the quarter, unbleached long fiber (UKP) increased around 2%-3% and bleached short fiber (BEKP) remained unchanged.

This price trend was reflected in all Asian markets. However, it should be noted that major markets in that area are experiencing difficult situations in the paper market, which has meant a decrease in its operating margins. One of the most significant cases is Korea, which is one of the main importers of pulp. The situation in Korea is primarily the result of an excess of installed capacity, due to the opening of a major new commodity paper plant. Other Asian markets, such as India, remain active and with growth potential in the future. In Japan, the earthquake and tsunami that hit the island in March of 2011 has not had a significant effect on the pulp market. However, the damage caused by the recent earthquake is expected to have a negative effect on Japan´s production of recycled paper, which Japan supplies to China. Japan is also expected to rely on higher imports of paper from China, Korea and Indonesia, in order to compensate for the diminished domestic production capacity resulting from the damage caused to certain plants as a result of the earthquake and tsunami.

Europe has a similar situation to the Korean: a quite active market, with an overcapacity that makes it impossible for paper producers to pass the high costs of raw materials to finished products. This affects particularly the non-integrated producers in central and southern Europe. Despite this, European buyers have had to follow pulp prices trends, although there is a significant spread between prices in Asia and Europe in favor to Asia, especially in long fiber. It will be difficult to reduce this gap by more increases in the prices in Europe, during the summer months, which is the offseason in European paper consumption.

North America continues with a rather low domestic demand for paper and pulp. As a result, many Canadian producers sent their pulp production to Asia, and producers in the southern United States have sent their products to Europe, specifically to the Mediterranean markets.

Latin America has not changed its trend and, in general, continues with good levels of activity. Specific problems are affecting markets like Colombia, which has difficulties in exporting its products to Venezuela, an important paper market for Colombia. Peru and Brazil are very active and with good sales levels, both from our mills in Chile and Argentina.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statement

March 31, 2011

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

 

 

Production at Line II of Arauco mill, which started in late January 2011 after being suspended for 11 months due to the earthquake in Chile on February 27, 2010, has not presented any problems and markets have absorbed its production without affecting prices. The other plants had normal operations except for our Valdivia mill, which suffered an unscheduled 12-day stop during March.

Sawn Timber

The real estate and construction market in the United States did not show signs of recovery during the first quarter of 2011. The housing start index reached 594,000 units in March of this year. The current levels of construction remain low when compared to the average of the last 10 years.

During the first quarter of this year, there was a recovery in sale prices of moldings and lumber when compared to the last quarter. This was the result of lower supply seen in the market.

Also, during this quarter the demand for wood products improved in most of the markets, especially Asia. This caused sale prices to increase, especially in China, Korea, Japan and Taiwan.

During the first quarter of 2011, sales in the local market have been higher than the same quarter of 2010, mainly driven by the reconstruction requirements after the earthquake.

Panels

At the end of the first quarter of this year, consolidated sales of the panel division show an increase of 18.2% as compared with the same quarter of 2010. Sales volumes decreased in the same period by 1.5%. Thus, we have seen a significant recovery in market prices, which has led to an increase in revenues despite the decrease in sales volume.

Plywood sales volume increased 20%, contributing to a recovery in sales prices.

There are good prospects for Plywood for the second half in terms of volume and price increases, driven mainly by increased demand from Asia following the earthquake in Japan. Demand from the United States remains fairly flat, but prices are already showing signs of recovery. Europe is showing a recovery in demand and the strengthening of the euro is helping to improve our returns in dollars.

Sales volume of MDF boards fell 13% mainly due to a decline in Brazil. We have had problems to increase product prices in general due to the aggressive actions in prices of our Latin-American competitors.

With regard to sales of MDF moldings the United States, the market remains quite slow and affected by price pressures from the local producers. Although this has resulted in temporary reductions in our sales volumes, we have increased our prices in the United States in May 2011 due to the availability of better sales prospects for MDF moldings for the upcoming months.

The sale of HB Cholguán caused a drop in volume of 8%. However, it had price increases in Latin American markets over the previous year. Due to the increase in costs and the constant additional demand for this product, price increases will continue to occur on an ongoing basis

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statement

March 31, 2011

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

 

 

during the year.

 

5. ANALYSIS OF CASH FLOW

The main components of net cash flow as of March 31, 2011 and 2010 are as follows:

 

     03/31/2011
MUS$
    03/31/2010
MUS$
 

Positive (negative) Cash flow

    

Cash flow from operating activities

     118,880        118,270   

Cash flow from financing activities:

    

Loan and bond payments

     (43,029     (129,099

Dividend payments

     (2,646     (3,632

Others

     266        0   

Cash flow from investment activities:

    

Purchase and sales of permanent investments

     (19,000     (16,000

Incorporation and sale of property, plant and equipment

     (110,142     (94,766

Incorporation and sale of biological assets

     (27,345     (29,764

Loan to related companies

     (43,717     0   

Other

     1,306        802   

Net cash flow for the period

     (125,427     (154,189

We had a positive operating cash flow of U.S.$119 million in the current period compared to a positive balance of U.S.$118 million in 2010, without significant variations between these periods.

Cash flow from financing activities as of March 31, 2011 had a negative balance of U.S.$45 million compared to a negative balance of U.S.$133 million for the same period in 2010. This change resulted from lower received loans in the year 2011.

The investment cash flow decreased of U.S.$199 million (U.S.$140 million in period 2010) at the end of the current period, due principally to payments for acquisition of property, plant and equipment and capital contribution from associated parties.

 

6. MARKET RISK ANALYSIS

In respect of the economic risks resulting from interest rate variations, the Company maintains, as of March 31, 2011, a ratio of fixed rate debt to total consolidated debt of approximately 92.7%, which it believes is consistent with industry standards. 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 receivable and most financial liabilities are denominated in U.S. dollars or are covered by an exchange rate swap, 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 Financial Statement

March 31, 2011

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

 

 

CONSOLIDATED BALANCE SHEETS

 

     Note      03/31/2010
ThU.S.$
     12/31/2010
ThU.S.$
 

Assets

        

Current Assets

        

Cash and cash equivalents

     4         912,250         1,043,834   

Other financial current assets

     23         2,980         2,909   

Other current non-financial assets

        208,239         177,140   

Trade and Other receivables-net

     23         879,772         774,289   

Related party receivables

     13         63,387         18,074   

Inventories

     3         777,107         727,535   

Biological assets, current

     20         335,321         344,096   

Tax receivables

        53,398         50,131   

Total Current Assets other than assets or disposal groups classified as held for sale or as held for distribution to owners

        3,232,454         3,138,008   

Non-Current Assets or disposal groups classified as held for sale

     22         14,108         14,108   

Non-Current Assets or disposal groups classified as held for sale or as held for distribution to owners

        14,108         14,108   

Total Current Assets

        3,246,562         3,152,116   

Other non-current financial assets

     23         50,652         65,372   

Other non-current and non-financial assets

        56,955         52,352   

Investment in associates accounted for using equity method

     15         513,334         498,204   

Intangible assets

     19         10,866         11,127   

Goodwill

        67,691         66,231   

Property, plant and equipment

     7         5,160,674         5,088,745   

Biological assets, non-current

     20         3,472,559         3,446,862   

Deferred tax assets

     6         127,230         125,323   

Total non-current assets

        9,459,961         9,354,216   

Total Assets

        12,706,523         12,506,332   

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statement

March 31, 2011

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

 

 

CONSOLIDATED BALANCE SHEET (continued)

 

     Note      03/31/2010
ThU.S.$
     12/31/2010
ThU.S.$
 

Liabilities

        

Current Liabilities

        

Other financial liabilities, current

     23         527,803         554,673   

Trade and Other payables

     23         391,252         362,182   

Related party payables

     13         12,031         9,209   

Other provisions, current

     18         6,429         5,842   

Tax liabilities

        85,919         62,887   

Current provision for employee benefits

     10         3,259         3,312   

Other current financial liabilities

     25         285,117         210,956   

Total current liabilities other than liabilities included in disposal groups classified as held for sale

        1,311,810         1,209,061   

Total Current Liabilities

        1,311,810         1,209,061   

Non-Current Liabilities

        

Other non-current financial liabilities

        2,859,891         2,909,429   

Other non-current provisions

     18         7,794         7,609   

Deferred tax liabilities

     6         1,380,022         1,369,489   

Non-current provision for employee benefits

     10         35,341         35,964   

Other non-current financial liabilities

        143,896         134,205   

Total non-current liabilities

        4,426,944         4,456,696   

Total liabilities

        5,738,754         5,665,757   

Net Equity

        

Issued capital stock

        353,176         353,176   

Accumulated earnings

        6,426,313         6,320,264   

Other reserves

        77,398         58,754   

Net equity attributable to parent company

        6,856,887         6,732,194   

Non-controlling interest

        110,882         108,381   

Total net equity

        6,967,769         6,840,575   

Total net equity and liabilities

        12,706,523         12,506,332   

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Income Statement

March 31, 2011

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

 

 

CONSOLIDATED STATEMENTS OF INCOME

 

     Note      January-March  
      2011
ThU.S.$
    2010
ThU.S.$
 

Income Statement

       

Revenue

     9         1,047,049        784,880   

Cost of sales

        (643,629     (491,821

Gross Income

        403,420        293,059   

Other operating income

     2         64,575        35,311   

Distribution costs

     2         (111,232     (77,867

Administrative expenses

     2         (85,037     (76,275

Other operating expenses

     2         (12,795     (38,459

Other income (loss)

        (69     (92

Financial income

        7,286        8,584   

Financial costs

     2         (51,575     (49,935

Participation in (loss) income in associates and joint ventures accounted through equity method

     15         (3,896     (1,504

Exchange rate differences

        13,166        (17,583

Income before income tax

        223,663        75,239   

Income tax

     6         (47,160     (12,711

Income from continuing operations

        176,503        62,528   

Net Income

        176,503        62,528   

Income attributable to equity holders

       

Income attributable to parent company

        172,487        62,456   

Income attributable to non-parent company

        4,016        72   

Net Income

        176,503        62,528   

Basic earnings per share

       

Earnings per share from continuing operations

        0.0015244        0.0005520   

Basis earnings per share

        0.0015244        0.0005520   

Earnings per diluted shares

       

Earnings per diluted share from continuing operations

        0.0015244        0.0005520   

Basic earnings per diluted share

        0.0015244        0.0005520   

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Income Statement

March 31, 2011

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

 

 

COMPREHENSIVE INCOME STATEMENTS

 

     Note      January-March  
      2011
ThU.S.$
    2010
ThU.S.$
 

Net Income

        176,503        62,528   

Other comprehensive income, net of tax

       

Exchange difference on conversion

       

Gain (loss) for exchange differences, before tax

     11         24,335        (19,468

Cash flow hedges

       

Gain (loss) for cash flow hedges, before tax

        (4,293     6,509   

Participation in Other comprehensive income in associates and joint ventures accounted for using equity method

        (714     (96

Other comprehensive income, net of tax

        19,328        (13,055

Comprehensive income statement

       

Income tax related to Other comprehensive income

       

Income tax related to Cash flow hedges on Other comprehensive income

        455        (1,106

Other comprehensive income

        19,783        (14,161

Total comprehensive income

        196,286        48,367   

Comprehensive Income Statement attributable to:

 

Comprehensive income statement attributable to parent company

        191,131         49,441   

Comprehensive income statement attributable to controlling interest

        5,155         (1,074

Total comprehensive income

        196,286         48,367   

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Statement of Changes in Net Equity

March 31, 2011

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

 

 

CONSOLIDATED STATEMENTS OF CHANGES IN NET EQUITY

 

    

03/31/2011

   Share
Capital

ThU.S.$
     Conversion
Reserves

ThU.S.$
     Hedge
Reserves

ThU.S.$
    Other
Reserves
ThU.S.$
    Other
Reserves

Total
ThU.S.$
     Accumulated
Earnings

ThU.S.$
    Equity
attributable
to Parent
Company

ThU.S.$
    Non-
controlling
interest

ThU.S.$
    Equity
Total

ThU.S.$
 
                       
                       
 

Opening balance at 01/01/2011

     353,176         72,699         (14,079     134        58,754         6,320,264        6,732,194        108,381        6,840,575   
 

Changes in equity

                     
 

Comprehensive income statement

                     
 

Net income

     0         0         0        0        0         172,487        172,487        4,016        176,503   
 

Other comprehensive income, net of tax

     0         23,196         (3,838     (714     18,644         0        18,644        1,139        19,783   
 

Comprehensive income

     0         23,196         (3,838     (714     18,644         172,487        191,131        5,155        196,286   
 

Dividends

     0         0         0        0        0         (66,438     (66,438     0        (66,438
 

Increase (decrease) for transfer and other changes

     0         0         0        0        0         0        0        (2,654     (2,654
 

Total Changes in equity

     0         23,196         (3,838     (714     18,644         106,049        124,693        2,501        127,194   

Closing balance at 03/31/2011

     353,176         95,895         (17,917     (580     77,398         6,426,313        6,856,887        110,882        6,967,769   

 

    

03/31/2010

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

Total
ThU.S.$
    Accumulated
Earnings
ThU.S.$
    Equity
attributable
to Parent
Company
ThU.S.$
    Non-
controlling
interest
ThU.S.$
    Equity
Total

ThU.S.$
 
                     
 

Opening balance at 01/01/2010

     353,176         27,551        (4,820     (1,113     21,618        5,893,799        6,268,593        113,840        6,382,433   
 

Changes in equity

                   
 

Comprehensive income statement

                   
 

Net income

     0         0        0        0        0        62,456        62,456        72        62,528   
 

Other comprehensive income, net of tax

     0         (18,322     5,403        (96     (13,015     0        (13,015     (1,146     (14,161
 

Comprehensive income

     0         (18,322     5,403        (96     (13,015     62,456        49,441        (1,074     48,367   
 

Dividends

     0         0        0        0        0        (24,064     (24,064     0        (24,064
 

Increase (decrease) for transfer and other changes

     0         0        0        0        0        0        0        (3,088     (3,088
 

Total Changes in equity

     0         (18,322     5,403        (96     (13,015     38,392        25,377        (4,162     21,215   

Closing balance at 03/31/2010

     353,176         9,229        583        (1,209     8,603        5,932,191        6,293,970        109,678        6,403,648   

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Statement of Cash Flows-Direct Method

March 31, 2011

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

 

 

CONSOLIDATED STATEMENTS OF CASH FLOWS-DIRECT METHOD

 

     03/31/2011
ThU.S.$
    03/31/2010
ThU.S.$
 

Cash Flows from (used in) Operating Activities

    

Classes of cash receipts from operating activities

    

Receipts from sales of goods and rendering of services

     1,023,890        998,789   

Other cash receipts from operating activities

     60,958        65,524   

Classes of cash payments

    

Payments to suppliers for goods and services

     (819,690     (802,836

Payments to and behalf of employees

     (75,821     (53,002

Other cash payments from operating activities

     (489     (16,246

Interest paid

     (61,002     (63,376

Interest received

     5,251        1,262   

Income taxes refund (paid)

     (14,187     (8,986

Other (outflows) inflows of cash, net

     (30     (2,859

Net Cash flows from Operating Activities

     118,880        118,270   

Cash flows from (used in) Investing Activities

    

Cash flows used to obtain control of subsidiaries or other businesses

     0        (4,000

Other cash payments to acquire interests in joint ventures

     (19,000     (12,000

Capital contributions to joint ventures

     (54,276     0   

Proceeds from sale of property, plant and equipment

     6,720        877   

Purchase of property, plant and equipment

     (116,862     (95,643

Purchase of intangible assets

     (71     0   

Proceeds from other long-term assets

     2,061        230   

Purchase of other long-term assets

     (29,406     (29,994

Cash receipts from repayment of advances and loans made to other parties

     10,559        0   

Other outflows of cash, net

     1,377        802   

Cash flows used in Investing Activities

     (198,898     (139,728

Cash flows from (used in) Financing Activities

    

Proceeds from short-term borrowings

     8,199        16,272   

Repayments of borrowings

     (51,228     (145,371

Dividends paid

     (2,646     (3,632

Other inflows of cash, net

     266        0   

Cash flows from (used in) Financing Activities

     (45,409     (132,731

Net increase (decrease) in Cash and Cash Equivalents before effect of exchange rate changes

     (125,427     (154,189

Effect of exchange rate changes on cash and cash equivalents

     (6,157     (6,651

Net increase (decrease) of Cash and Cash equivalents

     (131,584     (160,840

Cash and cash equivalents, at the beginning of the period

     1,043,834        534,199   

Cash and cash equivalents, at the end of the period

     912,250        373,359   

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

March 31, 2011

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. (Arauco), Tax No. 93,458,000-1, Closed Company, was registered in the Securities Registry (the “Registry”) of the Superintendency of Securities and Insurance (the “Superintendency”) as No. 042 on June 14, 1982. Forestal Cholguán S.A., a subsidiary of Arauco, is also registered on the Registry as No. 030. Arauco is controlled by Empresas Copec S.A., which owns 99.9779% of Arauco, and is registered in the Registry as No. 0028. Each of the above companies is subject to audit by the Superintendency.

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

Celulosa Arauco y Constitución S.A. and subsidiaries (hereinafter “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.

The current controllers of the Company are Mrs. Maria Noseda Zambra of Angelini, Mr. 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.

Arauco’s Interim Consolidated Financial Statements were prepared on a going concern basis.

Presentation of Financial Statements

The Financial Statements presented by Arauco cover the following periods:

 

   

Consolidated Balance Sheet as of March 31, 2011.

 

   

Consolidated Statement of Income for the period ended March 31, 2011.

 

   

Comprehensive Income Statement for the period ended March 31, 2011.

 

   

Consolidated Statement of Changes in Net Equity for the period ended March 31, 2011.

 

   

Consolidated Statement of Cash Flows – Direct Method for the period ended March 31, 2011.

 

   

Disclosure of Explanatory Information (notes).

Date of Approval of Financial Statements

The issuance of these interim consolidated financial statements for the period between January 1, 2011 and March 31, 2011 was approved by the Board of Directors of the Company (the “Board”) in Extraordinary Session No. 445 of May 24, 2011.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

March 31, 2011

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

 

 

Functional and Reporting Currency

Arauco has defined the U.S. Dollar as its functional currency, as most of the Company’s operations are a result of exports, and its costs to a large extent are related to or index-linked to the U.S. Dollar.

For the pulp segment, most of the sales operations are exports, and the costs are related mainly to plantation costs, which are settled in U.S. Dollars.

For the sawmill and panel segments, although total sales include a mix of domestic sales and exports, the prices for the products are established in U.S. Dollars, as is also the case for the cost structure of the related raw materials.

Although the costs of labor and services are generally billed and paid in local currency, these costs are not as significant as the costs of raw materials and depreciation of equipment, which are driven mainly by global conditions and therefore, influenced mostly by the U.S. Dollar.

The financial information included herein is presented in thousands of U.S. Dollars without decimals.

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. qualify as Special Purpose Entities. These entities are considered to be controlled by Arauco, which is determined, by the fact that they maintain exclusive contracts with Arauco for wood provision, forward purchase of land and forest administration. Consequently, the financial information of these companies is consolidated with the financial information of the Company and is included in these consolidated financial statements of Arauco.

Compliance and Adoption of IFRS

The accompanying consolidated financial statements of Arauco include the balance sheet, statements of income from operations and cash flows in accordance with IFRS.

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

IFRS Compliance Declaration

These interim 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 the title “Financial Reporting Standards in Chile” (NIFCH) and represent the wholesale adoption, explicitly and without reservation, of IFRS.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

March 31, 2011

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

 

 

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

Arauco’s policies on capital management have the objective of:

 

  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
03/31/2011
(ThU.S. $)
     Amount at
12/31/2010
(ThU.S. $)
     Interest
Coverage
>= 2.0x
  Debt
Level(1)  <=
1.2x
   Debt Level(2)  <=
0.75x

Local Bonds

     666,456         677,362       N/A   ü    N/A

Forestal Río Grande S.A. Loan

     90,578         104,144       ü(3)   N/A    ü(3)

Bilateral Bank Loan

     240,650         240,260       ü   ü    N/A

Other Loans

     23,969         53,152       No Financial Covenants Required

Foreign Bonds

     2,360,353         2,374,258       No Financial Covenants 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

As of March 31, 2011, Arauco has complied with all financial covenants.

Debt instruments ratings as of March 31, 2011 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 established 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 prevailing economic conditions in order to mitigate the risks associated with adverse market conditions, and based on opportunities that may arise to improve the Company’s level of liquidity.

Capital (in Thousands of U.S. Dollars) as of March 31, 2011, and December 31, 2010, are as follow:

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

March 31, 2011

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

 

 

In ThU.S.$

   03/31/2011      12/31/2010  

Equity

     6,967,769         6,840,575   

Bank Loans

     355,197         397,556   

Financial Leases

     317         393   

Bonds

     3,026,809         3,051,620   

Capital

     10,350,092         10,290,144   

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

Arauco considers it unlikely that future uncertainty risks will result in any significant adjustment to the book value of assets and liabilities within the current 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 interim consolidated financial statements as of March 31, 2011 were prepared in accordance with current IFRS accounting policies, uniformly applied to all items in these interim consolidated financial statements.

a) Basis for Presentation of financial statements

These interim consolidated financial statements were prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standard Board (“IASB”), and represent the wholesale adoption, explicitly and without reservation of the mentioned international standards.

The interim consolidated financial statements have been prepared under the historic cost convention, as modified for the revaluation of biological assets, financial assets and financial liabilities (including derivative instruments) at fair value.

There have been some minor reclassifications to prior period financial statements, for presentation purposes.

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

March 31, 2011

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

 

 

   

Property, Plant and Equipment

Management prepared the corresponding valuations based on a report issued by a third party expert.

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 on a discounted basis, on our sustainable forest management plans and the estimated 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 conduct regular surveys of the forests to establish the volumes of wood available for harvesting and their current growth rates. The main considerations used to calculate the valuation of forest plantations are presented in Note 20.

 

   

Lawsuits and Contingencies

Arauco and its subsidiaries are subject to certain ongoing lawsuits. Future effects on Arauco´s financial condition resulting from these lawsuits are estimated by the management of the Company, in collaboration with its legal advisors. Arauco reserves appropriate contingency estimates on each balance sheet and/or upon each substantial modification to an underlying cause of any such litigation, which decisions are based on the reports of its legal advisors. Detailed lawsuits information is presented in Note 18.

c) Consolidation

The interim consolidated financial statements include all entities over which Arauco has the power to govern the financial and operating policies, which usually requires holding shares with 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

March 31, 2011

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

 

 

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

Interim consolidated financial statements for the period ended March 31, 2011 include subsidiary balances shown in Note 13 and balances of the Fondo de Inversión Bío Bío, and its subsidiary Forestal Río Grande S.A., both of which qualify as Special Purpose Entities.

Certain consolidated subsidiaries report statutory financial statements in Brazilian Reales and Chilean Pesos, their main functional currencies. For consolidation purposes, they have been translated as indicated in Note 1(e)(ii).

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 relevant decisions related to the Company’s operation. The Chief Executive Officer and Corporate Managing Directors of each 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 interim consolidated financial statements are presented in U.S. Dollars, which is Arauco’s functional and presentation currency.

(ii) Foreign Currency Translations other than the Arauco’s functional currency – Subsidiaries and Associates

The income statements of subsidiaries, whose functional and presentational currencies are not the U.S. Dollar, are translated into the Arauco reporting currency (U.S. Dollars) using the average monthly exchange rates, whereas the balance sheets of such subsidiaries are translated using the exchange rates at the reporting date. Exchange differences arising from the translation of net investments in foreign entities are recorded directly in shareholders’ equity as Conversion reserves, as shown in the 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 on 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 those that match with the deferral in net equity, such as gains and losses derived from cash flow hedges.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

March 31, 2011

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 if it was 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 obligation for 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, which is the date on which the Company commits to purchase or sell the asset.

The financial assets and liabilities carried at fair value through profit or loss are initially recognized at fair value and transaction costs are expensed in the income statement. They are subsequently recorded at fair value with the effect of the change in value recorded in income.

(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 effective interest rate method. A provision of bad debts is recorded to reflect uncollectable amounts.

(iii) Financial liabilities valued at amortized cost

Loans, bond obligations and liabilities of a 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 effective interest rate method.

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

March 31, 2011

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 the Comprehensive Income Statement. The gain or loss relating to the ineffective portion is recognized immediately in the Income Statement within Other Operating Income by activity or Operating Expenses by activity, 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 recognized in the Income Statement. When a possible transaction is no longer expected 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 includes the cost of 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 when forests are harvested.

Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the 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 obsolescence amounts resulting from slow moving inventories and technical obsolescence.

i) Assets held for sale

Non-current assets held for sale are measured at the lower of book and fair value, less costs for sale. Assets are classified in this line when the book value may be recovered through a sale transaction that is highly likely to be carried out. Management must be committed to a plan to sell the asset and should have initiated an active program to find a buyer and complete the plan. Management must also expect that the sale will sale be qualified for full recognition within one year following the date of its classification.

Non-current assets classified as held for sale are not depreciated.

j) 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.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

March 31, 2011

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

 

 

The goodwill acquired in a business combination is initially measured at the cost of the business combination less the interest of the company in the net fair value of identifiable 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 as of the acquisition date to the cash generating unit of the group or groups of cash generating units expected to benefit from the synergies of the combination without prejudice to whether other assets or liabilities of Arauco 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 as Other income (loss).

Arauco measures the fair value of the acquired company in the business combination on a step by step basis, recognizing the effects of variation in the income statement or comprehensive income statement in the period in which they occur, depending where the investment was classified.

Accounting policies for subsidiaries will be adjusted if necessary to ensure consistency with the policies adopted by Arauco. Non-controlling interest is presented as a separate component of equity.

k) Investments in associates

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

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 as Other income (loss).

l) Intangible assets

(i) Computer Software

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

(ii) Rights

This item includes water-rights; right of way and other acquired rights recognized at historical cost and have an 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 annual impairment tests.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

March 31, 2011

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

 

 

m) 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 is tested for impairment on annual basis.

n) Property, Plant and Equipment

Property, plant and equipment are stated at historical cost less depreciation and accumulated impairment losses. Historical cost includes expenditures that are 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 by components 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.

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

o) Leases

Fixed asset leases in which Arauco substantially holds all ownership risks and advantages are classified as Financial Leases. Financial 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 to the lessee are classified as operating leases. Payments 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.

p) Biological Assets

IAS 41 requires that biological assets, such as standing trees, are presented in the Balance Sheet at fair value. The forests are thus accounted for at fair value less estimated point-of sale costs at harvest, assuming that the fair value of these assets can be measured reliably.

The valuation of forest plantation 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 discounted, based on our sustainable forest management plans and the estimated growth of the forests. This valuation is performed on the basis of 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.

 

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AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

March 31, 2011

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

 

 

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

q) 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 recognized 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 income. Deferred income tax is determined using tax rates (and laws) that have been enacted as of the balance sheet date that are 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 will be available.

r) 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 and recognized with the best possible estimate at the end of each period.

s) 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 generally 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.

t) Minimum dividend

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

The General Shareholders’ Meeting of Arauco resolved to maintain annual dividends at 40% of net distributable income, 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.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

March 31, 2011

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

 

 

The interim and final dividends are recorded in equity upon their approval by the relevant groups, which include the Company’s Board and the shareholders.

The amount of these dividends is presented in this interim consolidated financial statement under Other non-current Financial Liabilities.

u) Impairment

Non-financial Assets

The carrying amounts of tangible and intangible assets are subject to impairment tests whenever some event or change in business circumstances indicates that the book value of assets may not be recoverable, whereas goodwill is tested annually. The recoverable amount of an asset is estimated as the higher of net selling price and value in use. An impairment loss is recognized whenever the carrying amount exceeds the recoverable amount.

A previously recognized impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount, however, not to an extent higher than the carrying amount that would have been determined and recognized in prior years. For goodwill, however, a recognized impairment loss is not reversed.

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” are 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 Consolidated Income Statement only if there is objective evidence that one or more events will occur after initial recognition of financial asset impairment and if these events will affect associated future cash flows.

The provision for doubtful trade receivables is established when there is objective 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, and are written-off when Arauco has exhausted all levels of recovery of debt in a reasonable time.

The impairment loss is measured as the difference between the book value of assets and the current value of estimated future cash flows. The asset value will be presented net of the loss recognized directly in income. If the impairment loss decreases in later periods, it is reversed either directly or by adjusting the provision for doubtful accounts, with effect in income.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

March 31, 2011

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

 

 

v) Employee Benefit Costs

The Company has severance payment obligations for voluntary cessation services. These are paid to certain workers that have more than 5 years seniority within the Company in accordance with conditions established within collective or individual contracts.

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

These obligations are treated as post-employment benefits in accordance with current standards.

w) Employee Vacations

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

This obligation is presented in the Consolidated Balance Sheet in the line Trade and Other payables.

x) Joint Venture Equity

Joint venture equity is recognized using the equity method.

y) Recent accounting pronouncements

At the date of issuance of these interim consolidated financial statements, the following accounting pronouncements were issued by the IASB related to new rules, interpretation and amendments. No adoption has been made with respect to such rules, interpretations and amendments since their implementation is not mandatory as of the date hereof.

 

Rules and amendments

  

Content

   Mandatory application
date

IFRS 9

   Financial instruments    January 1, 2013

Amendment to IAS 24

   Related parties disclosures    January 1, 2011

IFRIC Interpretation 19

   Extinguishing financial liabilities with equity instruments    July 1, 2010

Amendment to IAS 32

   Classification for issuance rights    February 1, 2010

Amendment to IFRIC 14

   Pre-payments of minimum requirement    January 1, 2011

IFRS 7

   Disclosure of financial instruments    July 1, 2011

IAS 12

   Income tax    January 1, 2012

Arauco believes that the adoption of standards, amendments and interpretations described above will have no significant impact on 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

March 31, 2011

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

 

 

NOTE 2. DISCLOSURE OF OTHER INFORMATION

 

a) Disclosure of Information on Capital Issued

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

100% of capital corresponds to ordinary shares.

 

     03/31/2011    12/31/2010
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 Other Financial Liabilities current and non-current, 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) Interest hedging index cannot be less than 2.0

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

 

     03/31/2011    12/31/2010
Number of Shares Issued and Completely Paid by Type of Capital in Ordinary Shares    113,152,446

 

b) Disclosure of information on Dividends paid to Ordinary Shares

The interim dividend paid each year is equivalent to 20% of the distributable net income calculated as of the end of September of each year and presented in the Consolidated Statement of Changes in Net Equity.

Dividend paid each year corresponds to the spread between the 40% of net income distributable at the end of last year and the amount of interim dividend paid at the end of last fiscal year.

As of March 31, 2011 and 2010 there have been no dividend payments. The ThUS$66,438 (ThUS$24,064 as of March 31, 2010) presented in Consolidated Statement of Changes in Net Equity corresponds to the provision of minimum dividend registered (see Note 25).

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

March 31, 2011

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

 

 

Dividends paid during 2010:

 

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

     12-15-2010   

Amount of Dividend, Ordinary Shares, Gross

     ThU.S.$ 85,515   

Number of Shares for which Dividends are Paid, Ordinary Shares

     113,152,446   

Dividend per Share, Ordinary Share

     U.S.$ 0.7557   

 

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

   05-10-2010

Amount of Dividend, Ordinary Shares, Gross

   ThU.S.$ 56,758

Number of Shares for which Dividends are Paid, Ordinary Shares

   113,152,446

Dividend per Share, Ordinary Share

   U.S.$ 0.50161

 

c) Disclosure of Information on Reserves

Other 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 foreign currency translation of those Arauco’s subsidiaries that do not use the U.S. Dollar as their functional currency.

Hedge Reserves

This corresponds to Arauco´s portion of gains or swap net losses resulting from hedging as of the end of each fiscal year.

Other Reserves

This mainly corresponds to the value in Other comprehensive income of investment in associates.

 

d) Disclosures of other Information

Below are balances of Other Income by activity, Other Expenses by activity, Financing Costs and Participation in income (loss) of associates and joint venture as of March 31, 2011 and 2010, respectively.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

March 31, 2011

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

 

 

     January-March  
     2011
ThU.S.$
    2010
ThU.S.$
 
    

Classes of Other Income by activity

    

Other Operating Income, Total

     64,575        35,311   

Gain from changes in fair value of biological assets

     57,184        31,281   

Revenue from export promotion

     1,581        1,356   

Earthquake insurance net effect

     408        0   

Leases received

     811        671   

Gain on sales of fixed assets

     0        515   

Other operating results

     4,591        1,488   

Classes of Other Expenses by activity

    

Total of other expenses by activity

     (12,975     (38,459

Depreciations

     (151     (744

Contingent provision

     (840     (33

Assets provision

     (634     (116

Expenses due to downtime of processing plants

     (955     (34

Loss of forest

     (3,556     0   

Other taxes

     (1,096     (1,239

Services and fees

     (129     (117

Earthquake expenses

     0        (27,328

Research and development expenses

     (664     (651

Other expenses

     (4,950     (8.198

Classes of Financing Costs

    

Financing Costs, Total

     (51,575     (49,935

Interest costs

     (44,421     (46,386

Bank loans and interest bearing bonds issued

     (44,421     (46,386

Other financing costs

     (7,154     (3,549

Classes of Participation in Income (Loss) of associates and joint venture accounted through Equity Method

    

Total

     (3,896     (1,504

Investments in associates

     169        165   

Joint ventures

     (4,065     (1,669

Balance of Expenses by nature:

 

Distribution expenses

   January-March  
   2011
ThU.S.$
     2010
ThU.S.$
 
     

Sale costs

     15,634         11,026   

Commissions

     3,459         2,836   

Insurances

     629         553   

Other sales expenses

     11,546         7,637   

Shipping and freight costs

     95,598         66,841   

Port services

     453         1,043   

Freights

     89,735         62,316   

Other shipping and freight costs

     5,410         3,482   

Total

     111,232         77,867   

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

March 31, 2011

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

 

 

      January-March  

Administration expenses

   2011
ThU.S.$
     2010
ThU.S.$
 
     

Wage and salaries

     35,942         30,346   

Marketing, advertising, promotion and publications expenses

     1,502         2,010   

Insurances

     2,197         2,195   

Depreciations and amortization not paid

     2,332         2,388   

Computer services

     3,642         1,625   

Office, warehouse and machinery leases

     2,535         2,369   

External audits

     785         1,252   

Donations, contributions, grants

     1,823         6,121   

Fees (advices technical, legal…)

     10,137         8,502   

Property taxes, patents and municipal rights

     3,332         2,187   

Other administration expenses

     20,810         17,280   

Total

     85,037         76,275   

 

Expenses for

   Note      2011
ThU.S.$
     2010
ThU.S.$
 
        

Depreciations

     7         56,713         44,297   

Employee benefits

     10         77,963         54,626   

Amortization

     19         336         422   

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

March 31, 2011

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

 

 

NOTE 3. INVENTORIES (IAS 2)

 

Components of Inventory

   03/31/2011
ThU.S.$
     12/31/2010
ThU.S.$
 

Raw Materials

     102,290         86,617   

Production Supplies

     70,403         65,154   

Work in progress

     51,940         62,612   

Finished goods

     459,609         426,447   

Parts

     92,629         86,532   

Other Inventories

     236         173   

Total Inventories

     777,107         727,535   

As of March 31, 2011, a cost of sales of inventories amounted to ThU.S.$ 633,466 (ThU.S.$481,741 as of March 31, 2010).

As of March 31, 2011, a net decrease in the provision for obsolescence effects of ThU.S.$405 was recognized (ThU.S.$324 as of December 31, 2010); therefore, so the provision balance as of March 31, 2011 amounted to ThU.S.$6,795 (ThU.S.$7,200 as of December 31, 2010).

The inventories write-off amounted to ThU.S.$328 as of March 31, 2011.

As of the date of the issuance of these financial statements, no inventories have been pledged as collateral or guarantees.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

March 31, 2011

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

 

 

NOTE 4. CASH FLOW STATEMENT (IAS 7)

Cash and cash equivalents includes cash flow, 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 fixed term deposits is to maximize earnings on short-term cash flow surpluses. This instrument is authorized by Arauco’s Investment 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. These instruments are acceptable under Arauco’s Investment Policy.

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

 

Components of Cash and Cash Equivalents

   03/31/2011
ThU.S.$
     12/31/2010
ThU.S.$
 
     

Cash on hand

     331         263   

Banks

     79,384         69,692   

Short term deposit

     477,359         705,694   

Mutual funds

     355,176         267,811   

Other cash and cash equivalents

     0         374   

Total

     912,250         1,043,834   

The following tables detail the value of the cost of the investment in Dynea Brasil S.A. dated March 15, 2010, Savitar (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 in order to distinguish those cash flows from those that arise from other operating, investing or financing activities.

 

2010

Purchase of Investments

   ThU.S.$  

Acquisition: Dynea Brasil S.A.

  

Cash paid for acquisitions and cash equivalents

     15,000   

Cash and cash equivalents held by acquired entities

     (8,023

Net cash paid to acquire entities

     6,977   

 

     ThU.S.$  

Net Assets less Cash and Cash equivalents of acquired entity (see Note 14)

     22,613   

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

March 31, 2011

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

 

 

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

Changes in Accounting Policies

These policies have been designed in accordance with IFRS in effect as of March 31, 2011 and applied uniformly to all items presented in these interim consolidated financial statements.

Changes in the Treatment of Accounting Policy

The financial statements as of March 31, 2011 do not show changes in accounting policies compared to the same period last year.

The consolidated financial statements of Arauco as of December 31, 2009 are the Group’s first annual 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.

 

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AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

March 31, 2011

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

 

 

NOTE 6. TAXES (IAS 12)

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

Deferred Tax Assets

The following table details deferred tax assets:

 

Deferred Tax Assets

   03/31/2011
ThU.S. $
     12/31/2010
ThU.S. $
 

Deferred Tax Assets related to Provisions

     4,902         4,658   

Deferred Tax Assets related to accrued liabilities

     4,019         4,601   

Deferred Tax Assets related to Post-Employment obligations

     6,475         6,616   

Deferred Tax Assets related to Revaluation of Property, Plant and Equipment

     1,114         2,339   

Deferred Tax Assets related to Financial Instruments Restatements

     976         1,370   

Deferred Tax Assets related to tax losses

     66,849         56,724   

Valuation of biological assets

     7,805         8,805   

Valuation of inventory

     8,135         9,034   

Income provision

     2,804         2,765   

Trade debtors and receivables

     4,065         3,940   

Intangible revaluation differences

     19,938         24,370   

Deferred Tax Assets related to Others

     148         101   

Deferred Tax Assets Total

     127,230         125,323   

As of the date of the present financial statement some of Arauco’s subsidiaries present tax losses of ThU.S.$243,973 (ThU.S.$260,701 as of March 31, 2010) which are mainly due to operational and financial losses.

Arauco believes that the projections of future earnings in subsidiaries that have generated tax losses will allow the recovery of these assets.

Deferred Tax Liability

Deferred tax liability corresponds to income tax amounts payable in future periods related to taxable temporary differences.

The following table details deferred tax liabilities:

 

Deferred Tax Liabilities

   03/31/2011
ThU.S. $
     12/31/2010
ThU.S. $
 

Deferred Tax Liabilities related to Revaluated Property, Plant and equipment

     685,378         686,408   

Deferred Tax Liabilities related to Financial Instrument restatement

     11,191         13,751   

Valuation of biological asset

     515,197         511,401   

Valuation of inventory

     13,967         12,450   

Valuation of prepaid expenses

Differences in valuation of deferred expenditures

    

 

78,631

40,805

  

  

    

 

76,539

35,130

  

  

Deferred Tax Liabilities related to Others

     34,853         33,810   

Deferred Tax Liabilities Total

     1,380,022         1,369,489   

From the deferred tax assets and deferred tax liabilities listed in the above tables, approximately ThU.S.$19,010 and ThU.S.$178,517 respectively, will be used in a period of 12 months.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

March 31, 2011

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

 

 

Arauco does not offset deferred tax assets and deferred tax liabilities, since there is no legal right to offset amounts recognized in these items that correspond to different fiscal jurisdictions.

Temporary Differences

The following tables summarize current asset and liability timing differences:

 

     03/31/2011      12/31/2010  

Detail of Classes of Deferred Tax Temporary Differences

   Deductible
Difference

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

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

Deferred Tax Assets

     60,381         0         68,599         0   

Tax Loss

     66,849         0         56,724         0   

Deferred Tax Liabilities

     0         1,380,022         0         1,369,489   

Total

     127,230         1,380,022         125,323         1,369,489   

 

Detail of Temporary Difference Income and Loss Amounts

   January-March  
   2011
ThU.S.$
    2010
ThU.S.$
 

Deferred Tax Assets

     (9,341     (560

Tax Loss

     11,731        5,082   

Deferred Tax Liabilities

     (11,261     (28,547

Total

     (8,871     (24,025

Income Tax Expense (Income)

Income Tax consists of the following:

 

Income tax composition

   January-March  
   2011
ThU.S.$
    2010
ThU.S.$
 

Current income tax expense

     (39,159     7,306   

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

     0        4,209   

Previous period current tax adjustments

     949        (183

Other current tax expenses

     (79     (18

Current Tax Expense, Net

     (38,289     11,314   

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

     (22,607     (29,107

Deferred income from taxes relative to tax rate changes or new fees

     2,005        0   

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

     11,731        5,082   

Total Deferred Tax Expense, Net

     (8,871     (24,025

Income Tax Expense, Total

     (47,160     (12,711

The following table details the income tax for foreign and national companies as of March 31, 2011 and 2010 respectively:

 

     January-March  
   2011
ThU.S.$
    2010
ThU.S.$
 

Foreign current tax

     (12,979     (7,285

National current tax

     (25,310     18,599   

Current tax, Total

     (38,289     11,314   

Foreign deferred tax

     2,575        4,676   

National deferred tax

     (11,446     (28,701

Deferred tax, Total

     (8,871     (24,025

Income (expense) due to Income Tax, Total

     (47,160     (12,711

 

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AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

March 31, 2011

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

 

 

Income Tax Expense Reconciliation using the Effective Rate method

Income tax expenditure reconciliation is as follows:

 

Reconciliation of Income tax from Statutory Rate to Effective Tax Rate

   January-March  
   2011
ThU.S.$
    2010
ThU.S.$
 

Tax Expense Using Statutory Rate

     (44,733     (12,940

Tax effect of rates in other jurisdictions

     (5,477     (3,805

Tax effect of non taxable ordinary income

     4,382        589   

Tax effect of non tax deductible expenses

     (8,174     (742

Tax effect of tax loses unrecognized for previous periods

     734        0   

Tax effect of tax rates changes

     2,511        0   

Tax effect of excess tax for previous periods

     949        (183

Other Increases (Decreases) Legal Taxes

     2,648        4,370   

Adjustment to Tax Expense using the Statutory Rate, Total

     (2,427     229   

Tax Expenses Using the Effective Rate

     (47,160     (12,711

The effect of deferred taxes related to financial hedging instruments, corresponds to a credit (subscription) of ThU.S.$ 455 as of March 31, 2011 (ThU.S.$1,106 as of March 31, 2010), which presents net in Hedge reserves in the Statement of Changes in Net Equity.

On July 30, 2010 Law N. 20.455 for national reconstruction financing was published in the Chilean Official Gazette (Diario Oficial de Chile). One of the most important changes such law introduced was the increase in the First Category Taxes for revenues received and /or accrued during commercial years 2011 and 2012, with rates of 20% and 18.5%, respectively.

The effect on the change in tax rates caused an adjustment to the assets and liabilities accounts for deferred taxes, according to the profile projected for temporary reverse differences, in tax losses benefits and in other events that create differences between book and tax basis of assets and liabilities.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

March 31, 2011

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

 

 

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

 

Properties, Plant and Equipment, Net

   03/31/2011
ThU.S.$
    12/31/2010
ThU.S.$
 

Construction in progress

     657,643        562,309   

Land

     828,621        821,288   

Buildings

     1,406,881        1,417,684   

Plant and equipment

     2,168,456        2,188,323   

Information technology equipment

     16,482        16,963   

Fixed facilities and accessories

     3,554        3,657   

Motorized vehicles

     9,686        10,057   

Others

     69,351        68,464   

Total Net

     5,160,674        5,088,745   

Properties, Plant and Equipment, Gross

    

Constructions in progress

     657,643        562,309   

Land

     828,621        821,288   

Buildings

     2,531,568        2,523,397   

Plant and equipment

     4,202,094        4,180,142   

Information technology equipment

     43,147        43,614   

Fixed facilities and accessories

     17,309        17,339   

Motorized vehicles

     32,529        32,328   

Others

     111,756        110,076   

Total Gross

     8,424,667        8,290,493   

Accumulated depreciation and impairment

    

Buildings

     (1,124,687     (1,105,713

Plant and equipment

     (2,033,638     (1,991,819

Information technology equipment

     (26,665     (26,651

Fixed facilities and accessories

     (13,755     (13,682

Motorized vehicles

     (22,843     (22,271

Others

     (42,405     (41,612

Total

     (3,263,993     (3,201,748

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, which prohibited the sale of any property currently belonging to the aforementioned special purpose entity, in order to ensure fulfillment of payments to Fondo de Inversión Bío Bío.

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

 

     03/31/2011
ThU.S$
     12/31/2010
ThU.S$
 

Collateral amount of property, plant and equipment

     56,808         56,272   

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

March 31, 2011

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

 

 

Commitments for project disbursements or for the acquisition of property, plant and equipment

 

     03/31/2011
ThU.S$
     12/31/2010
ThU.S$
 

Amount committed for the acquisition of property, plant and equipment

     293,755         268,391   

 

     03/31/2011
ThU.S$
     12/31/2009
ThU.S$
 

Disbursements for property, plant and equipment under construction

     111,981         361,598   

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

March 31, 2011

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 as of March 31, 2011 and December 31, 2010:

 

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 01/01/2011

     562,309        821,288        1,417,684        2,188,323        16,963        3,657        10,057        68,464        5,088,745   

Changes

                  

Additions

     111,981        1,049        1,117        736        0        80        43        2,627        117,633   

Dispositions

     0        (98     (202     (48     0        (11     (24     (966     (1,349

Withdrawals

     (194     (8     (157     (948     (10     (2     (2     (310     (1,631

Depreciation costs

     0        0        (17,447     (40,335     (474     (181     (641     (550     (59,628

Impairment loss reversal recognized in the Income Statement (note 17)

     0        0        3        145        0        0        0        0        148   

Exchange rate increase (decrease) of foreign currency

     (629     5,717        1,803        9,708        3        (1     69        86        16,756   

Other increase/decrease

     (15,824     673        4,080        10,875        0        12        184        0        0   

Total Changes

     95,334        7,333        (10,803     (19,867     (481     (103     (371     887        71,929   

Closing balance 03/31/2011

     657,643        828,621        1,406,881        2,168,456        16,482        3,554        9,686        69,351        5,160,674   

 

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 01/01/2010

     433,269        743,950        1,353,461        2,328,457        18,178        5,207        9,791        77,440        4,969,753   

Changes

                  

Additions

     361,598        81,610        18,463        14,086        186        234        2,265        4,758        483,200   

Acquisitions of business

     216        660        4,244        21,420        0        0        14        1,137        27,691   

Dispositions

     (142     (14,107     (3,499     (3,132     (3     (1     (215     (4,375     (25,474

Withdrawals

     (1,024     (6     (1,020     (4,315     (11     (39     (2     (408     (6,825

Depreciation costs

     0        0        (68,237     (160,894     (1,966     (810     (1,892     (1,708     (235,507

Impairment loss recognized in the Income Statement (note 17)

     0        0        (24,198     (110,408     (63     0        (102     (9,341     (144,112

Exchange rate increase (decrease) of foreign currency

     1,394        9,350        3,902        19,986        2        (1,395     64        824        34,127   

Reclassification of assets held for sale (1)

     0        (5,003     (5,877     (3,228     0        0        0        0        (14,108

Other increase/decrease

     (233,002     4,834        140,445        86,351        640        461        134        137        0   

Total Changes

     129,040        77,338        64,223        (140,134     (1,215     (1,550     266        (8,976     118,992   

Closing balance 12/31/2010

     562,309        821,288        1,417,684        2,188,323        16,963        3,657        10,057        68,464        5,088,745   

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

March 31, 2011

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

 

 

The depreciation charged to income as of March 31, 2011 and 2010 is as follows:

 

Depreciation for the period

   03/31/2011
ThU.S.$
     03/31/2010
ThU.S.$
 

Cost of sale

     51,993         41,587   

Administration expenses

     1,996         1,966   

Other operating expenses(*)

     2,724         744   

Total

     56,713         44,297   

 

(*) The balance, it refers to the cost of depreciation of plants detained product of the earthquake.

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      16         89         39   

Plant and equipment

   Useful Life in Years      8         67         29   

Information technology equipment

   Useful Life in Years      6         18         5   

Fixed facilities and accessories

   Useful Life in Years      6         12         10   

Motorized vehicles

   Useful Life in Years      6         26         13   

Others properties, plants and equipment

   Useful Life in Years      5         27         16   

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

March 31, 2011

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

 

 

NOTE 8. LEASES (IAS 17)

When assets are leased under a financial 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 Financial Leases Classified by Type of Asset, Leases

 

     03/31/2011
ThU.S.$
     12/31/2010
ThU.S.$
 

Property, Plant & Equipment Financial Leasing

     196         440   

Plant and Equipment

     196         440   

Reconciliation of Financial Lease Minimum Payments, Lessee

 

     03/31/2011  

Minimum lease payments, lease payment obligations

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

Due within one year

     295         8         287   

Due within one and five years

     31         1         30   

Due beyond five years

     0         0         0   

Total

     326         9         317   

 

     12/31/2010  

Financial Lease

   Gross
ThU.S.$
     Gross
ThU.S.$
     Gross
ThU.S.$
 

Due within one year

     354         10         344   

Due within one and five years

     50         1         49   

Due beyond five years

     0         0         0   

Total

     404         11         393   

Leasing obligations that accrue interest are presented in the Consolidated Balance Sheet under Other Financial Liabilities Current and Non-current depending on the maturities stated above.

Reconciliation of Financial Lease Minimum Payments, Lessor

 

     03/31/2011  

Minimum Financial Lease Payments Receivable, Financial Lease

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

Due within one year

     4,445         408         4,037   

Due within one and five years

     5,185         332         4,853   

Due beyond five years

     0         0         0   

Total

     9,630         740         8,890   

 

     12/31/2010  

Minimum Financial Lease Payments Receivable, Financial Lease

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

Due within one year

     4,767         450         4,317   

Due within one and five years

     5,957         358         5,599   

Due beyond five years

     0         0         0   

Total

     10,724         808         9,916   

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

March 31, 2011

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

 

 

Accounts receivable in leasing are presented in the Consolidated Balance Sheet under Trade and Other Receivables current and non-current depending on the maturities stated above.

Significant Financial Lease Agreements

Arauco holds financial 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

March 31, 2011

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

 

 

NOTE 9. ORDINARY REVENUE (IAS 18)

 

(a) Policy on Revenue recognition from the Sale of Goods

Revenue from the sale of goods is 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 the 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 in 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 receivables for sales are collected within a low average time period, which is in line with market practices.

 

(b) Policy on Revenue recognition from Rendering of Services

Arauco mainly has electric power, port 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.

 

Classes of Ordinary Revenue

   January-March  
   2011
ThU.S.$
     2010
ThU.S.$
 

Sale of goods

     1,017,226         771,219   

Service Contracts

     29,823         13,661   

Total

     1,047,049         784,880   

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

March 31, 2011

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

 

 

NOTE 10. EMPLOYEE BENEFITS (IAS 19)

This refers to severance payment obligations for years of service due to termination of service contracts that arise from benefits stated in work contracts and/or as severance payments stated in the Labor Law.

This is an estimate of the years of service-based severance payments to be recognized as a future termination payment liability, in accordance with in force work contracts held with 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 expectancy of the workers included in this benefit.

Classes of Benefits and Expenses by Employee

 

Classes of Benefits Expenses by Employee

   January-March  
   2011
ThU.S.$
     2010
ThU.S.$
 

Personnel Expenses

     77,963         54,626   

Wages and salaries

     75,821         53,002   

Compensation for years of service

     2,142         1,624   

The following tables detail the balances and the movement of payments for years of service provisioned as of March 31, 2011 and December 31, 2010:

 

     03/31/2011
ThU.S.$
     12/31/2010
ThU.S.$
 

Current

     3,259         3,312   

Non-current

     35,341         35,964   

Total

     38,600         39,276   

 

Roll-forward

   03/31/2011
ThU.S.$
    12/31/2010
ThU.S.$
 

Opening balance

     39,276        27,667   

Current service cost

     353        1,851   

Interest cost

     623        1,798   

Actuarial gains

     699        11,256   

Benefits paid

     (1,219     (5,537

Increase for currency exchange

     (1,132     2,241   

Closing balance

     38,600        39,276   

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

March 31, 2011

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

 

 

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

Local and foreign currency

Currency assets and liabilities as of March 31, 2011 and December 31, 2010 are as follows:

 

     03-31-2011
ThU.S.$
     12-31-2010
ThU.S.$
 

Liquid Assets

     915,230         1,046,743   

US Dollar

     189,707         516,201   

Euro

     15,489         73,573   

Other currencies

     72,106         48,511   

$ not adjustable

     532,528         408,458   

U.F.

     105,400         0   

Cash and Cash Equivalents

     912,250         1,043,834   

US Dollar

     187,754         513,292   

Euro

     15,318         73,573   

Other currencies

     72,106         48,511   

$ not adjustable

     532,528         408,458   

U.F.

     104,544         0   

Other Financial Assets

     2,980         2,909   

US Dollar

     1,953         2,909   

Euro

     171         0   

U.F.

     856         0   

Accounts Receivable in short and long term

     

Accounts Receivable in short and long term

     953,850         804,328   

US Dollar

     681,807         545,703   

Euro

     28,799         31,651   

Other currencies

     111,221         94,134   

$ not adjustable

     123,093         124,490   

U.F.

     8,930         8,350   

Trades and Current Accounts Receivable

     879,772         774,289   

US Dollar

     622,766         528,657   

Euro

     28,799         31,651   

Other currencies

     110,268         93,075   

$ not adjustable

     114,440         115,338   

U.F.

     3,499         5,568   

Trades and Non-Current Accounts Receivable

     10,691         11,965   

US Dollar

     1,261         4,389   

Other currencies

     116         205   

$ not adjustable

     3,883         4,589   

U.F.

     5,431         2,782   

Accounts Receivable from related parties, current

     63,387         18,074   

US Dollar

     57,780         12,657   

Euro

     837         854   

Other currencies

     4,770         4,563   

$ not adjustable

     0         0   

Other Assets

     10,837,443         10,655,261   

US Dollar

     9,004,482         10,276,275   

Euro

     23,074         458   

Other currencies

     1,677,603         142,569   

$ not adjustable

     97,229         214,370   

U.F.

     35,055         21,589   

Total Assets

     12,706,523         12,506,332   

US Dollar

     9,875,996         11,338,179   

Euro

     67,362         105,682   

Other currencies

     1,860,930         285,214   

$ not adjustable

     752,850         747,318   

U.F.

     149,385         29,939   

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

March 31, 2011

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

 

 

Local and foreign currency, continued

 

     03-31-2011      12-31-2010  
   Up to 90 days
ThU.S.$
     From 91 days
to 1 year

ThU.S.$
     Up to 90 days
ThU.S.$
     From 91 days
to 1 year

ThU.S.$
 

Total Liabilities, current

     827,381         484,429         763,439         445,622   

US Dollar

     292,712         478,764         654,148         440,318   

Euro

     3,699         0         5,105         0   

Other currencies

     224,127         4,892         48,019         2,501   

$ not adjustable

     297,325         0         49,809         0   

U.F.

     9,518         773         6,358         2,803   

Other Financial Liabilities, current

     43,374         484,429         109,051         445,622   

US Dollar

     30,336         478,764         95,871         440,318   

Other currencies

     6,488         4,892         9,980         2,501   

U.F.

     6,550         773         3,200         2,803   

Bank loans

     16,896         81,613         50,602         52,214   

US Dollar

     10,408         76,721         40,622         49,713   

Other currencies

     6,488         4,892         9,980         2,501   

Financial leases

     287         0         94         250   

U.F.

     287         0         94         250   

Other loans

     26,191         402,816         58,355         393,158   

US Dollar

     19,928         402,043         55,249         390,605   

U.F.

     6,263         773         3,106         2,553   

Other Financial Liabilities, current

     784,007         0         654,388         0   

US Dollar

     262,376         0         558,277         0   

Euro

     3,699         0         5,105         0   

Other currencies

     217,639         0         38,039         0   

$ not adjustable

     297,325         0         49,809         0   

U.F.

     2,968         0         3,158         0   
     03-31-2011      12-31-2010  
   From 13 months
to 5 years

ThU.S.$
     More than  5
years

ThU.S.$
     From 13 months
to 5 years

ThU.S.$
     More than  5
years

ThU.S.$
 

Total Liabilities, non-current

     2,619,920         1,807,024         2,640,189         1,816,507   

US Dollars

     1,790,932         1,277,564         1,518,182         1,277,116   

Other currencies

     5,600         0         —           0   

$ not adjustable

     656,964         3,522         301,667         3,578   

U.F.

     32,882         0         684,401         0   
     133,542         525,937         135,939         535,813   

Other Financial Liabilities, non-current

     1,052,868         1,807,023         1,092,922         1,816,507   

US Dollars

     913,703         1,277,564         950,795         1,277,116   

Other currencies

     5,650         3,522         6,188         3,578   

U.F.

     133,515         525,937         135,939         535,813   

Bank loans

     252,819         3,869         290,815         3,925   

US Dollars

     247,169         347         284,627         347   

Other currencies

     5,650         3,522         6,188         3,578   

Financial leases

     30         0         49         0   

U.F.

     30         0         49         0   

Other loans

     800,019         1,803,154         802,058         1,812,582   

US Dollars

     666,534         1,277,217         666,168         1,276,769   

U.F.

     133,485         525,934         135,890         535,813   

Other Financial Liabilities, non-current

     1,567,052         0         1,547,267         0   

US Dollars

     877,229         0         567,387         0   

Euro

     5,600         0         0         0   

Other currencies

     651,314         0         295,479         0   

$ not adjustable

     32,882         0         684,401         0   

U.F.

     27         0         0         0   

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

March 31, 2011

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

 

 

Effect of exchange rate variations

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

 

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

 

(ii) Income 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 that use currencies other than the U.S. Dollar, and those from loans and other instruments in foreign currencies recognized as hedging these investments are assigned to net equity.

Subsidiaries that use functional currency other than the U.S. Dollar are as follow:

 

Subsidiary

   Country    Functional
currency

Arauco do Brasil S.A.

   Brazil    Real

Arauco Forest Brasil S.A.

   Brazil    Real

Arauco Florestal Arapoti S.A.

   Brazil    Real

Empreendimentos Forestais Santa Cruz Ltda.

   Brazil    Real

Catan Empreendimentos e Participacoes S.A.

   Brazil    Real

Mahal Empreendimentos e Participacoes S.A.

   Brazil    Real

Arauco Distribución S.A.

   Chile    Chilean peso

Investigaciones Forestales Bioforest S.A.

   Chile    Chilean peso

Controladora de Plagas Forestales S.A.

   Chile    Chilean peso

 

     January-March  
   2011
ThU.S.$
     2010
ThU.S.$
 

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

     14,789         (7,861

Conversion reverse

     24,335         (19,468

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 borrowing to finance these investment projects.

 

     January-March  
   2011
ThU.S.$
    2010
ThU.S.$
 

Property, plant and equipment capitalized cost

    

Property, plant and equipment capitalized interest cost rate

     5.68     5.97

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

     1,318        2,159   

 

46


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

March 31, 2011

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 the Chilean Limited Company Law.

Receivable and payable amounts among related parties at the end of each period correspond to commercial operations and financings negotiated in Chilean Pesos, American dollars and Euros, where collection or payment deadlines are outlined in the attached tables and in general do not have adjustment or interest clauses, except for financing transactions.

At the date of these consolidated 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 de Angelini, Mr. 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, with a possible annual discretionary bonus.

Pricing Strategy Terms and Conditions Corresponding to Transactions with Related Parties

Transactions with related parties are performed under market conditions.

 

47


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statement

March 31, 2011

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

 

 

Detail of Relationship between Parent Company and Subsidiary

 

ID Nº

  

Company Name

   Origin
Country
   Functional
Currency
   % Share
03/31/2011
     % Share
12/31/2010
 
            Direct      Indirect      Total      Direct      Indirect      Total  

-

   Agenciamiento y Servicios Profesionales S.A.    Mexico    U.S. Dollar      0.0020         99.9970         99.9990         0.0020         99.9970         99.9990   

-

   Alto Paraná S.A.    Argentina    U.S. Dollar      0         99.9766         99.9766         0         99.9766         99.9766   

-

   Arauco Australia Pty Ltd.    Australia    U.S. Dollar      0         99.9990         99.9990         0         99.9990         99.9990   

96547510-9

   Arauco Bioenergía S.A.    Chile    U.S. Dollar      98.0000         1.9985         99.9985         98.0000         1.9985         99.9985   

-

   Arauco Colombia S.A.    Colombia    U.S. Dollar      1.5000         98.4980         99.9980         1.5000         98.4980         99.9980   

-

   Arauco Denmark Aps    Denmark    U.S. Dollar      0         99.9990         99.9990         0         99.9990         99.9990   

96765270-9

   Arauco Distribución S.A.    Chile    Chilean pesos      0         99.9992         99.9992         0         99.9992         99.9992   

-

   Arauco Do Brasil S.A.    Brazil    Real      2.4990         97.5000         99.9990         2.4990         97.5000         99.9990   

-

   Arauco Ecuador S.A.    Ecuador    U.S. Dollar      0.1000         99.8990         99.9990         0.1000         99.8990         99.9990   

-

   Arauco Florestal Arapoti S.A.    Brazil    Real      0         79.9992         79.9992         0         79.9992         79.9992   

-

   Arauco Forest Brasil S.A.    Brazil    Real      23.1991         76.8000         99.9991         23.1991         76.8000         99.9991   

-

   Arauco Forest Products B.V.    Holland    U.S. Dollar      0         99.9990         99.9990         0         99.9990         99.9990   

-

   Arauco Holanda Cooperatief U.A.    Holland    U.S. Dollar      0         99.9990         99.9990         0         99,9990         99,9990   

-

   Arauco Perú S.A.    Peru    U.S. Dollar      0.0013         99.9977         99.9990         0.0013         99.9977         99.9990   

-

   Arauco Wood Products, Inc.    USA    U.S. Dollar      0.3953         99.6037         99.9990         0.3953         99.6037         99.9990   

-

   Araucomex S.A. De C.V.    Mexico    U.S. Dollar      0.0005         99.9985         99.9990         0.0005         99.9985         99.9990   

96565750-9

   Aserraderos Arauco S.A.    Chile    U.S. Dollar      99.0000         0.9992         99.9992         99.0000         0.9992         99.9992   

82152700-7

   Bosques Arauco S.A.    Chile    U.S. Dollar      1.000         98.9256         99.9256         1.0000         98.9256         99.9256   

-

   Catan Empreendimentos e Participacoes S.A.    Brazil    Real      0         99.9925         99.9925         0         99.9934         99.9934   

96657900-5

   Controladora De Plagas Forestales S.A.    Chile    Chilean pesos      0         59.6326         59.6326         0         59.6326         59.6326   

-

   Empreendimentos Florestais Santa Cruz Ltda.    Brazil    Real      0         99.9754         99.9754         0         99.9766         99.9766   

96573310-8

   Forestal Arauco S.A.    Chile    U.S. Dollar      99.9248         0         99.9248         99.9248         0         99.9248   

85805200-9

   Forestal Celco S.A.    Chile    U.S. Dollar      1.0000         98.9256         99.9256         1.0000         98.9256         99.9256   

93838000-7

   Forestal Cholguán S.A.    Chile    U.S. Dollar      0         97.4281         97.4281         0         97.4281         97.4281   

78049140-K

   Forestal Los Lagos S.A.    Chile    U.S. Dollar      0         79.9405         79.9405         0         79.9405         79.9405   

-

   Forestal Nuestra Señora Del Carmen S.A.    Argentina    U.S. Dollar      9.1600         90.8372         99.9972         9.1600         90.8372         99.9972   

-

   Forestal Talavera S.A.    Argentina    U.S.Dollar      0         99.9945         99.9945         0         99.9945         99.9945   

96567940-5

   Forestal Valdivia S.A.    Chile    U.S. Dollar      1.0000         98.9256         99.9256         1.0000         98.9256         99.9256   

-

   Industrias Forestales S.A.    Argentina    U.S. Dollar      9.9770         90.0221         99.9991         9.9770         90.0221         99.9991   

-

   Inversiones Arauco Internacional Ltda.    Chile    U.S. Dollar      98.6058         1.3932         99.9990         98.6058         1.3932         99.9990   

-

   Inversiones Celco S.L.    Spain    U.S. Dollar      0         99.9990         99.9990         0         99.9990         99.9990   

79990550-7

   Investigaciones Forestales Bioforest S.A.    Chile    Chilean pesos      1.0000         98.9256         99.9256         1.0000         98.9256         99.9256   

-

   Leasing Forestal S.A.    Argentina    U.S. Dollar      0         99.9771         99.9971         0         99.9771         99.9771   

-

   Mahal Empreendimentos e Participacoes S.A.    Brazil    Real      0         99.9923         99.9923         0         99.9934         99.9934   

96510970-6

   Paneles Arauco S.A.    Chile    U.S. Dollar      90.0000         0.9992         99.9992         99.0000         0.9992         99.9992   

-

   Savitar S.A.    Argentina    U.S. Dollar      0         99.9930         99.9930         0         99.9930