Table of Contents
Exhibit 99.1
ARAUCO AND CONSTITUTION PULP INC
TABLE OF CONTENTS
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Ratio Analysis of the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
1. | VALUATION OF ASSETS AND LIABILITIES |
The financial statements of Celulosa Arauco y Constitución S.A., a Chilean corporation (the “Company”) and its subsidiaries (the Company, together with its subsidiaries, “Arauco”) have been prepared on the basis of International Financial Reporting Standards (IFRS). In management’s opinion there is no material difference between the Company’s economic value and the valuation reflected in the Company’s financial statements.
2. | ANALYSIS OF FINANCIAL POSITION |
a) | Analysis of the Balance Sheet |
On January 1, 2002, the Company and its subsidiaries Aserraderos Arauco S.A. and Paneles Arauco S.A. began maintaining their accounting records and preparing their financial statements in U.S. dollars.
On January 1, 2003, the Company’s subsidiaries Forestal Arauco S.A., Forestal Celco S.A., Bosques Arauco S.A., Forestal Valdivia S.A., Forestal Cholguán S.A. and Arauco Internacional S.A. also began maintaining their accounting records and preparing their financial statements in U.S. dollars.
The principal components of assets and liabilities as of December 31, 2008 and September 30, 2009 are as follows:
Assets | 09/30/2009 ThU.S.$ | 12/31/2008 ThU.S.$ | ||
Current assets | 2,340,539 | 1,961,321 | ||
Other assets | 8,924,159 | 8,277,823 | ||
Total assets | 11,264,698 | 10,239,144 | ||
Liabilities and Shareholders’ Equity | 09/30/2009 ThU.S.$ | 12/31/2008 ThU.S.$ | ||
Current liabilities | 939,392 | 812,915 | ||
Long-term liabilities | 4,067,717 | 3,418,993 | ||
Minority interest | 122,954 | 117,682 | ||
Shareholders’ equity | 6,134,635 | 5,889,554 | ||
Total liabilities and shareholders’ equity | 11,264,698 | 10,239,144 | ||
Total assets increased by 9.10%, or U.S.$1,026 million, from December 31, 2008 to September 30, 2009. This increase is mainly attributable to an increase in cash and cash equivalents (financial assets), property, plant and equipment and biological assets.
Total liabilities increased by U.S.$775 million from December 31, 2008 to September 30, 2009. This increase is mainly attributable to a net increase in bank obligations, publicly issued bonds and deferred tax.
1
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Ratio Analysis of the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
2. | ANALYSIS OF FINANCIAL POSITION,continued |
a) | Analysis of the Balance Sheet, continued |
The main financial and operating ratios are as follows:
Liquidity ratios | 09/30/2009 | 12/31/2008 | ||
Current ratio | 2.49 | 2.41 | ||
Acid ratio | 1.57 | 1.23 |
The liquidity ratio for the current year represents an increase, due to a higher proportional increase of the current assets with respect to the current liabilities, which in turn is explained by an increase in financial assets and accounts receivables, partially offset by a decrease in inventories and biological assets and an increase in bank obligations and bonds.
The increase in the current acid ratio from 2008 to 2009 is attributable to an increase in financial assets and accounts receivables.
Debt indicators | 09/30/2009 | 12/31/2008 | ||
Debt to equity ratio | 0.80 | 0.70 | ||
Short-term debt to total debt | 0.19 | 0.19 | ||
Long-term debt to total debt | 0.81 | 0.81 | ||
09/30/2009 | 09/30/2008 | |||
Financial expenses covered | 2.57 | 5.45 |
Current liabilities decreased modestly from 19% of total liabilities as of December 31, 2008 to 18% of total liabilities as of September 30, 2009. The decrease is attributable to a lower proportional decrease in current liabilities and an increase in long-term liabilities, due to an increase in bank obligations.
The ratio of financial expenses covered decreased from 5.45 points in September 30, 2008 to 2.57 points in September 30, 2009. The decrease is attributable to a higher decrease in current profits related to financial expenses.
Operational ratios | 09/30/2009 | 12/31/2008 | ||
Inventory turnover | 1.72 | 2.61 | ||
Inventory turnover (excluding forests) | 2.38 | 3.84 | ||
Inventory permanence (days) | 157.19 | 137.72 | ||
Inventory permanence (excluding forests) | 113.33 | 93.75 |
The ratio of inventory turnover decreased from 2.61% as of December 31, 2008 to 1.72% points as of September 30, 2009. For this reason, the inventory permanence ratio increased during the period ending September 30, 2009, due to a proportionally higher increase in production volume with regard to the increase in sales.
2
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Ratio Analysis of the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
2. | ANALYSIS OF FINANCIAL POSITION,continued |
b) | Analysis of the Income Statement |
The breakdown of operating income and costs is as follows:
Operating income | 09/30/2009 ThU.S.$ | 09/30/2008 ThU.S.$ | ||
Pulp | 1,213,294 | 1,547,971 | ||
Sawn timber and cut wood | 357,368 | 571,625 | ||
Plywood and fiber panels | 585,863 | 733,107 | ||
Forestry products | 60,322 | 79,920 | ||
Other | 10,757 | 20,278 | ||
Total operating income | 2,227,604 | 2,952,901 | ||
Operating costs | 09/30/2009 ThU.S.$ | 09/30/2008 ThU.S.$ | ||
Timber | 414,200 | 562,082 | ||
Forestry work | 249,538 | 305,575 | ||
Depreciation | 140,898 | 129,899 | ||
Other costs | 763,106 | 769,553 | ||
Total operating costs | 1,567,742 | 1,767,109 | ||
Analysis of Gross Profit
Gross Profit includes net income of U.S.$660 million in 2009 compared to U.S.$1,186 million in 2008, a decrease of U.S.$526 million caused by a proportional decrease in revenues.
Analysis of Profit before Income Tax
The Profit before Income Tax registers a profit of U.S.$202 million in 2009, compared to U.S.$553 million in 2008. The change was primarily caused as described in the following table:
Item | Million U.S.$ | ||
Gross profit | (526 | ) | |
Other operating income | 77 | ||
Distribution costs | 66 | ||
Foreign currency exchange rate | 27 | ||
Others net | 5 | ||
Net change in outcome before income tax | (351 | ) | |
The increase in the exchange rate difference is principally due to a strong appreciation of the dollar against the Chilean peso, the Euro and the Real, currencies in which the Company owns financial investments, tax receivables and other accounts receivables.
3
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Ratio Analysis of the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
2. | ANALYSIS OF FINANCIAL POSITION,continued |
Profitability ratios | 09/30/2009 | 09/30/2008 | ||||
Income per share (U.S.$) | 1.36 | 3.95 | ||||
EBITDA * | 488,413 | 817,368 | ||||
Income after tax (ThU.S.$) | 159,158 | 453,682 | ||||
Gross profit ThU.S.$ | 659,862 | 1,185,792 | ||||
Financial expenses ThU.S.$ | (128,971 | ) | (124,297 | ) |
* | Earnings before income tax, interest, depreciation, amortization and extraordinary items. |
3. | MARKET SITUATION |
Pulp
The recovery that began during the second quarter has been confirmed during the third quarter of this year. The main driver of this recovery has been the Chinese and Asian markets. In addition, the low levels of inventories in markets such as Europe and Middle East have helped prices to recover. With this situation, the pulp producers, which had decreased their production or even stopped during the last twelve months, are starting to increase production. Despite the improvement in the pulp market there are some mills that have closed permanently throughout this year.
In Asia, the activity is driven by an increase in paper production and a higher demand for pulp. Some producer countries such as Korea and Indonesia have increased their exports to the U.S. and Europe helped by lower costs and a favorable exchange rate. In other paper producer countries such as China, the domestic consumption has increased and export levels are also rising. However, the export volume is marginal compared to domestic consumption. In China projects in paper manufacturing that were stopped by the financial uncertainty have been re-activated and is expected that several new ones will be implemented by the end of this year.
The European situation is different. Although pulp prices have risen significantly and pulp demand has also risen, the activity is below previous years and the increased pulp demand is mainly explained by the replenishment of stocks rather than the increased demand for paper. The substantial fall in pulp inventories and the pressure to divert volumes from Europe to Asia have explained price increases. In general the paper market in Europe remains weak, prices have continued to decline, and only in some cases paper producers have been successful in raising paper prices. The main reason is a decline in demand and an overcapacity in paper production. During the third quarter, a new machine for paper production was implemented in Portugal with a capacity of 0.5 million tons. With this, an over capacity of 1.5 million tons is estimated. Due to this situation, European paper producers have not been able to transfer the increases of pulp prices to their final products, eroding their margins. They have only been favored by a strong Euro, which means a moderate rise of pulp in their local currency.
Middle East, Turkey and India have experienced price rises in markets normal spots in market trends and the current product obtained only by paying premiums. But while these markets are able to cross these additional prices to the final product easily.
4
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Ratio Analysis of the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
3. | MARKET SITUATION,continued |
North America has not had a significant rebound in demand, but the prices have risen due to the effect of demand in Asia. In the U.S., the main objective of pulp producers is to produce as much as possible in order to maximize the subsidies for burning the black liquor with a small proportion of fossil fuel. This grant, which is not a tax credit but a cash payment to business, has become in some cases over 50% of the operating margin or up to U.S.$ 250 per ton of pulp. Producers are taking advantage of this subsidy that should end in December 31 of this year. However, there are doubts if this subsidy will be replaced by another, which may be equal or even more distorting than the current one which will provide close to U.S.$ 8 billion to pulp and paper producers burning the black liquor, a proven technology and in force since 1930.
Sawn Timber
The real-estate market and construction from the U.S. has remained stable during the third quarter of 2009. The construction of houses reached an annualized rate of 590.000 units in September, which is slightly higher than that achieved in the second quarter of this year. The current construction levels remain the lowest in the last 50 years. During the third quarter of this year, there was a slight rise in prices and sales volumes of moldings and sawn timber when compared with the second quarter. However, sales levels are still well below those of the third quarter of last year.
During the last quarter of this year, we are seeing a growth in demand for forest products in all markets, translated into higher prices especially in Asia and the Middle East. However, both, sales volumes and prices of forest products remain well below levels reached in the third quarter of last year.
PANELS
During the year, Panels division sales showed a decline of 19% in U.S. dollars compared to the same period last year. Meanwhile, sales volumes for the same period have increased by 3.5%. Although sales volumes have increased slightly when compared to the previous year, it has been necessary to adjust sales prices downward in order to sell those volumes in the market. The percentage mentioned above includes the acquisition of Tafisa (Brazil) in September, 2009, but excludes the energy sales both, to related companies and to the Chilean SIC energy grid.
5
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Ratio Analysis of the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
3. | MARKET SITUATION, continued |
During this third quarter, we have seen a strong recovery in sales volumes of plywood, compared with the first half of this year (about 10% per month) translated in lower inventorty levels. Thus, slowly we have seen a higher demand and market confidence translated into stable sales to North America and increasing recovery in sales volume to Europe. Prices remain depressed but we see real signs of recovery for the end of this year, mainly in Europe due to the Euro re-valuation.
Moreover, MDF moldings sales and MDF boards sales in both the US and Latin-America, experienced an increase in volume over the first half of this year, which helped to reduce our inventory levels in Chile.
We have also seen a recovery in sales of Hardboard due to an increase in volume in of 30% compared to the first half of the year, partially offset by about 10% by lower prices, which are due to the entry into marginal markets.
In summary, we can say that a greater optimism and dynamism are perceived in the markets as compared to the first half of this year, which have helped to increase sales volume and to reduce inventory levels. Prices are beginning to rise slowly, predicting better results throughout the end of the year.
4. | ANALYSIS OF CASH FLOW |
09/30/2009 ThU.S.$ | 09/30/2008 ThU.S.$ | |||||
Operating cash flow | 551,870 | 605,408 | ||||
Cash flow from financing activities | 343,448 | (244,805 | ) | |||
Cash flow from investment activities | (430,448 | ) | (326,997 | ) | ||
Net cash flow for the period | 464,870 | 33,606 | ||||
We had a positive operating cash flow of U.S.$552 million compared to a U.S.$605 million for the same period in 2008, resulting from a decrease in client recovery, partially offset by payments to suppliers and personnel.
Cash flow from financing activities as of September 30, 2009 was a positive balance of U.S.$343 million compared to a negative balance of U.S.$245 million for the same period in 2008. This change resulted from issuing bonds, which was partially offset by a decrease in bank loans and in a dividends paid.
The investment flow presented a high negative balance at the end of the current period, due principally to fewer disbursements for acquiring biological assets and plant and equipment partially offset by an increase in investments in associates.
6
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Ratio Analysis of the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
5. | MARKET RISK ANALYSIS |
In respect of the economic risks resulting from interest rate variations, the Company maintains, as of September 30, 2009, a ratio of fixed rate debt to total consolidated debt of approximately 91.30%, which it believes is consistent with the industry in which it operates. The Company does not engage in futures or other hedging transactions to hedge against variations in the selling prices of pulp and forest products because it believes that risks resulting from price variations are limited in large part because the Company maintains one of the lowest cost structures in the industry.
In response to economic risks resulting from interest rate variations, the Company has applied policies consistent with the general policies of the industries in which it operates.
The Company and most of its subsidiaries maintain their accounting records and prepare their financial statements in U.S. dollars. Both their assets and their liabilities are denominated in U.S. dollars, as are the majority of their revenues. As a result, their exposure to changes in the exchange rate has decreased significantly.
7
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Consolidated Classified Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
CLASSIFIED FINANCIAL STATEMENT
Note | 09/30/2009 ThU.S.$ | 12/31/2008 ThU.S.$ | 01/01/2008 ThU.S.$ | |||||
Assets | ||||||||
Current Assets | ||||||||
Operative Current Assets | ||||||||
Cash and cash equivalents | 4 | 657,434 | 167,308 | 267,872 | ||||
Financial assets at fair value through profit or loss | 23 | 5,762 | 13,469 | 10,626 | ||||
Trade and Other receivables-net | 23 | 600,545 | 588,803 | 686,726 | ||||
Related party receivables | 13 | 3,594 | 5,475 | 11,379 | ||||
Inventories | 3 | 624,846 | 691,206 | 529,478 | ||||
Biological assets | 21 | 241,093 | 268,289 | 304,299 | ||||
Prepaid expenses | 63,243 | 74,331 | 54,194 | |||||
Tax receivables | 142,060 | 148,670 | 122,219 | |||||
Other current assets | 1,962 | 3,770 | 1,738 | |||||
Total Operative Current Assets | 2,340,539 | 1,961,321 | 1,988,531 | |||||
Total Current Assets | 2,340,539 | 1,961,321 | 1,988,531 | |||||
Non Current Assets | ||||||||
Trade and Other receivables | 23 | 8,859 | 7,864 | 17,099 | ||||
Investment in associates through equity method | 15 | 143,097 | 141,590 | 153,861 | ||||
Intangible assets | 20 | 77,625 | 14,469 | 15,640 | ||||
Property, plant and equipment | 7 | 4,991,340 | 4,613,199 | 4,609,641 | ||||
Biological assets | 21 | 3,551,305 | 3,384,144 | 3,518,720 | ||||
Deferred tax assets | 6 | 119,445 | 86,525 | 81,295 | ||||
Hedge assets | 23 | 438 | 0 | 0 | ||||
Prepaid expenses | 23,550 | 21,169 | 16,530 | |||||
Other non-current assets | 8,500 | 8,863 | 24,424 | |||||
Total non-current assets | 8,924,159 | 8,277,823 | 8,437,210 | |||||
Total Assets | 11,264,698 | 10,239,144 | 10,425,741 |
8
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Consolidated Classified Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
CLASSIFIED FINANCIAL STATEMENT (continued)
Note | 09/30/2009 ThU.S.$ | 12/31/2008 ThU.S.$ | 01/01/2008 ThU.S.$ | ||||||
Liabilities | |||||||||
Current Liabilities | |||||||||
Operative Current Liabilities | |||||||||
Loans that accrue interest | 23 | 508,102 | 372,622 | 336,363 | |||||
Other financial liabilities | 23 | 12,689 | 14,051 | 7,007 | |||||
Trade and Other payables | 23 | 332,753 | 309,704 | 309,127 | |||||
Related party payables | 13 | 10,264 | 9,102 | 8,116 | |||||
Provisions | 19 | 4,582 | 3,753 | 2,320 | |||||
Current tax payables | 12,992 | 10,325 | 40,960 | ||||||
Other liabilities | 54,408 | 88,542 | 214,933 | ||||||
Deferred income | 1,458 | 2,628 | 4,671 | ||||||
Post employment benefit obligations | 10 | 2,144 | 2,188 | 2,478 | |||||
Total Operative Current Liabilities | 939,392 | 812,915 | 925,975 | ||||||
Total Current Liabilities | 939,392 | 812,915 | 925,975 | ||||||
Non Current Liabilities | |||||||||
Loans that accrue interest | 23 | 2,650,863 | 2,279,321 | 2,381,329 | |||||
Provisions | 19 | 37,558 | 5,585 | 6,271 | |||||
Deferred tax liabilities | 6 | 1,239,823 | 1,091,697 | 1,093,597 | |||||
Other liabilities | 116,256 | 24,045 | 35,446 | ||||||
Deferred income | 269 | 236 | 299 | ||||||
Post employment benefit obligations | 10 | 22,948 | 18,109 | 19,445 | |||||
Total non-current liabilities | 4,067,717 | 3,418,993 | 3,536,387 | ||||||
Net Equity | |||||||||
Net equity attributable to parent company net equity instrument holders | |||||||||
Issued capital | 353,176 | 353,176 | 353,176 | ||||||
Other reserves | 4,383 | (139,238 | ) | 0 | |||||
Retained profit/loss (accumulated losses) | 5,777,076 | 5,675,616 | 5,465,431 | ||||||
Net equity attributable to parent company net equity instrument holders | 6,134,635 | 5,889,554 | 5,818,607 | ||||||
Minority interest | 122,954 | 117,682 | 144,772 | ||||||
Total net equity | 6,257,589 | 6,007,236 | 5,963,379 | ||||||
Total net equity and liabilities | 11,264,698 | 10,239,144 | 10,425,741 |
9
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Consolidated Financial Income Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
FINANCIAL INCOME STATEMENT BY ACTIVITY
Note | January-September | July-September | ||||||||||||
2009 ThU.S.$ | 2008 ThU.S.$ | 2009 ThU.S.$ | 2008 ThU.S.$ | |||||||||||
Profit (loss) from operations | ||||||||||||||
Revenue | 9 | 2,227,604 | 2,952,901 | 834,664 | 968,197 | |||||||||
Cost of sales | (1,567,742 | ) | (1,767,109 | ) | (559,331 | ) | (620,197 | ) | ||||||
Gross profit | 659,862 | 1,185,792 | 275,333 | 348,000 | ||||||||||
Other operating income | 1 | 157,644 | 81,024 | 56,849 | 39,573 | |||||||||
Marketing costs | (5,019 | ) | (7,130 | ) | (2,161 | ) | (3,649 | ) | ||||||
Distribution costs | (289,932 | ) | (356,324 | ) | (107,011 | ) | (123,554 | ) | ||||||
Research and development | (868 | ) | (765 | ) | (166 | ) | (171 | ) | ||||||
Administrative expenses | (169,604 | ) | (189,209 | ) | (61,075 | ) | (58,777 | ) | ||||||
Other operating expenses | (43,312 | ) | (33,157 | ) | (18,333 | ) | (10,545 | ) | ||||||
Financial costs | 1 | (128,971 | ) | (124,297 | ) | (45,526 | ) | (33,284 | ) | |||||
Share of profit/(loss) of associates through equity method | 5,682 | 5,057 | (265 | ) | 2,562 | |||||||||
Exchange rate differences | 11 | 21,161 | (6,249 | ) | 20,766 | (32,141 | ) | |||||||
Profit/(loss) due to write off non-current asset accounts not available for sale | 1 | (3,877 | ) | (1,250 | ) | 467 | (82 | ) | ||||||
Other profit (losses) | (419 | ) | (511 | ) | 29 | 0 | ||||||||
Profit (loss) before income tax | 202,347 | 552,981 | 118,907 | 127,932 | ||||||||||
Income tax expenses/(income) | 6 | (43,149 | ) | (99,299 | ) | (23,376 | ) | (15,392 | ) | |||||
Profit (loss) from continuing operations after tax | 159,198 | 453,682 | 95,531 | 112,540 | ||||||||||
Profit (Loss) from Discontinued operations, Net of Tax | 0 | 0 | 0 | 0 | ||||||||||
Profit (loss) | 159,198 | 453,682 | 95,531 | 112,540 | ||||||||||
Profit (Loss) attributable to equity holders | ||||||||||||||
Profit (loss) attributable to equity instrument holders in net equity of the parent company | 153,373 | 447,035 | 93,330 | 114,519 | ||||||||||
Profit (loss) attributable to minority interest | 5,825 | 6,647 | 2,201 | (1,979 | ) | |||||||||
Profit (loss) | 159,198 | 453,682 | 95,531 | 112,540 | ||||||||||
Ordinary Shares | ||||||||||||||
Basis earnings (losses) per share | 0.0014069 | 0.0040095 | 0.0008443 | 0.0009946 | ||||||||||
Earning (losses) per share from discounting operations | 0 | 0 | 0 | 0 | ||||||||||
Earning (losses) per share from continuing operations | 0.0014069 | 0.0040095 | 0.0008443 | 0.000946 | ||||||||||
Comprehensive Income Statement | January-September | July-September | ||||||||||||
2009 ThU.S.$ | 2008 ThU.S.$ | 2009 ThU.S.$ | 2008 ThU.S.$ | |||||||||||
Profit (loss) | 159,198 | 453,682 | 95,531 | 112,540 | ||||||||||
Other income and expenses with charge or credit to net equity | ||||||||||||||
Cash flow hedges | (4,300 | ) | 0 | 313 | 0 | |||||||||
Currency translation differences | 159,170 | (52,034 | ) | 61,106 | (112,313 | ) | ||||||||
Adjustments associated | 760 | (1,985 | ) | (368 | ) | (417 | ) | |||||||
Income tax related to components of other income and expenses or payment in equity | 731 | 0 | (53 | ) | 0 | |||||||||
Other income and expenses charged to or credit to net equity | 156,361 | (54,019 | ) | 60,998 | (112,730 | ) | ||||||||
Comprehensive income statement | 315,559 | 399,663 | 156,529 | (190 | ) | |||||||||
Comprehensive Income and Expense Statement Attributable to: | ||||||||||||||
Comprehensive income and expenses statement attributable to majority shareholders | 296,994 | 396,776 | 149,609 | 11,476 | ||||||||||
Comprehensive income and expenses statement attributable to minority shareholders | 18,565 | 2,887 | 6,920 | (11,666 | ) | |||||||||
Total comprehensive income and expense | 315,559 | 399,663 | 156,529 | (190 | ) |
10
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Consolidated Statementof Changes in Net Equity
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
STATEMENT OF CHANGES IN NET EQUITY
09/30/2009 | Ordinary Shares | Reserves | Changes in Retained Earnings (Accumulated Losses) ThU.S.$ | Changes in Equity Attributable to Parent Company Shareholders, Total ThU.S.$ | Changes in Minority Interests ThU.S.$ | Changes in Net Equity Total ThU.S.$ | |||||||||||||||||
Share Capital ThU.S.$ | Conversion Reserves ThU.S.$ | Hedge Reserves ThU.S.$ | Other Reserves ThU.S.$ | ||||||||||||||||||||
Opening balance at 01/01/2009 | 353,176 | (136,223 | ) | 0 | (3,015 | ) | 5,675,616 | 5,889,554 | 117,682 | 6,007,236 | |||||||||||||
Changes | |||||||||||||||||||||||
Comprehensive income and expenses statement | 0 | 146,430 | (3,569 | ) | 760 | 153,373 | 296,994 | 18,565 | 315,559 | ||||||||||||||
Cash dividends declared | 0 | 0 | 0 | 0 | (51,913 | ) | (51,913 | ) | 0 | (51,913 | ) | ||||||||||||
Other increases (decreases) in net equity | 0 | 0 | 0 | 0 | 0 | 0 | (13,293 | ) | (13,293 | ) | |||||||||||||
Changes in equity | 0 | 146,430 | (3,569 | ) | 760 | 101,460 | 245,081 | 5,272 | 250,353 | ||||||||||||||
Closing balance at 09/30/2009 | 353,176 | 10,207 | (3,569 | ) | (2,255 | ) | 5,777,076 | 6,134,635 | 122,954 | 6,257,589 | |||||||||||||
09/30/2008 | Ordinary Shares | Reserves | Changes in Retained Earnings (Accumulated Losses) ThU.S.$ | Changes in Equity Attributable to Parent Company Shareholders, Total ThU.S.$ | Changes in Minority Interests ThU.S.$ | Changes in Net Equity Total ThU.S.$ | |||||||||||||||||
Share Capital ThU.S.$ | Conversion Reserves ThU.S.$ | Hedge Reserves ThU.S.$ | Other Reserves ThU.S.$ | ||||||||||||||||||||
Opening balance previous period 01/01/2008 | 353,176 | 0 | 0 | 0 | 5,465,431 | 5,818,607 | 144,772 | 5,963,379 | |||||||||||||||
Changes | |||||||||||||||||||||||
Comprehensive income and expenses statement | 0 | (48,274 | ) | 0 | (1,985 | ) | 447,035 | 396,776 | 2,887 | 399,663 | |||||||||||||
Cash dividends declared | 0 | 0 | 0 | 0 | (192,261 | ) | (192,261 | ) | 0 | (192,261 | ) | ||||||||||||
Other increases (decreases) in net equity | 0 | 0 | 0 | 0 | 0 | 0 | (15,259 | ) | (15,259 | ) | |||||||||||||
Changes in equity | 0 | (48,274 | ) | 0 | (1,985 | ) | 254,774 | 204,515 | (12,372 | ) | 192,143 | ||||||||||||
Closing balance at 09/30/2008 | 353,176 | (48,274 | ) | 0 | (1,985 | ) | 5,720,205 | 6,023,122 | 132,400 | 6,155,522 |
11
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Consolidated Statement of Cash Flow
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
STATEMENT OF CASH FLOWS-DIRECT METHOD
Cash Flows from (used in) Operating, Direct Method | 09/30/2009 ThU.S.$ | 09/30/2008 ThU.S.$ | ||||
Collection of trade accounts receivable | 2,504,731 | 3,052,286 | ||||
Research and development disbursements | (868 | ) | (765 | ) | ||
Payments to suppliers | (1,879,819 | ) | (2,264,171 | ) | ||
Paid salaries | (137,311 | ) | (143,448 | ) | ||
Payments received and forwarded by the Value Added Tax | 124,805 | 119,487 | ||||
Other collections (payments) | 11,905 | 2,895 | ||||
Cash flows by (used in) Operating, Total | 623,443 | 766,284 | ||||
Cash flows by (used in) Other Operating Activities | ||||||
Amounts received from interest received classified as operating | 17,028 | 5,797 | ||||
Amounts received from interest received classified as operating | 14,928 | 14,846 | ||||
Interest payments classified as operating | (120,884 | ) | (123,989 | ) | ||
Amounts received by the Income Tax Returned | 61,973 | 36,949 | ||||
Income tax payments | (44,618 | ) | (94,479 | ) | ||
Cash flows by (used in) other Operating Activities, Total | (71,573 | ) | (160,876 | ) | ||
Cash flows net of (used in) Operating Activities | 551,870 | 605,408 | ||||
Cash flows from (used in) Investing Activities | ||||||
Proceeds from sale (disappropriation) of property, plant and equipment | 1,307 | 1,014 | ||||
Proceeds from sale (disappropriation) of biological assets | 1,793 | 4,804 | ||||
Proceeds from sale (disappropriation) of subsidiaries, net of cash expropriated | 7 | 0 | ||||
Other cash flows from (used in) investing activities | 38 | 167 | ||||
Purchase of property, plant and equipment | (188,135 | ) | (239,215 | ) | ||
Payments for goodwill purchase | (966 | ) | 0 | |||
Payments for biological assets purchase | (78,714 | ) | (85,282 | ) | ||
Payments for acquiring subsidiaries | (165,617 | ) | 0 | |||
Payments for acquiring associates | 0 | (7,353 | ) | |||
Other investing disbursements | (161 | ) | (1,132 | ) | ||
Cash flows from (used in) Investing Activities | (430,448 | ) | (326,997 | ) | ||
Cash flows from (used in) Financing Activities | ||||||
Loans obtained | 687,104 | 613,455 | ||||
Bonds issued | 636,457 | 0 | ||||
Loan payments | (879,286 | ) | (648,331 | ) | ||
Dividend payments to minority interests | (13,323 | ) | (12,832 | ) | ||
Dividend payments by the reporting entity | (88,449 | ) | (197,097 | ) | ||
Other Cash Flows from (Used in) Financing Activities | 945 | 0 | ||||
Cash flows from (used in) Financing Activities | 343,448 | (244,805 | ) | |||
Net increase (decrease) of Cash and Cash Equivalents | 464,870 | 33,606 | ||||
Effect of exchange rate variations on cash and cash equivalents | 25,256 | (21,797 | ) | |||
Cash and cash equivalents, shown in the cash flow statement, at the beginning of the year | 167,308 | 267,872 | ||||
Cash and cash equivalents, shown in the cash flow statement, at the year end | 657,434 | 279,681 |
12
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
NOTE 1. PRESENTATION OF FINANCIAL STATEMENTS (IAS 1)
Entity Information
Name of Reporting Entity
Celulosa Arauco y Constitución S.A. and Subsidiaries (hereinafter “Arauco”), was registered in the Superintendency of Securities and Insurance Securities Registry as No. 042 on June 14, 1982, therefore being subject to audit by this Superintendency.
Forestal Cholguán S.A., subsidiary of Arauco, is also registered on the Registry of Securities (Register No. 030).
Name of Reporting Entity on Preceding Balance Date
Celulosa Arauco y Constitución S.A. and Subsidiaries (hereinafter “Arauco”).
Company’s Registered Office or Head office address
El Golf Avenue 150, floor 14, Las Condes.
Legal Structure of Reporting Entity
Privately Held Corporation.
Nature of Operations and Main Activities
Arauco is principally engaged in the production and sale of forestry and wood products. Its main operations are focused on the following business areas: Pulp, Plywood and fiberboard panels, Sawn Timber and Forestry.
Name of Parent Company
Empresas Copec S.A.
Name of Group’s Controller
AntarChile S.A.
Ongoing Concern Information
The Arauco Consolidated Financial Statements were prepared on a going concern basis.
Presentation of Financial Statements
Financial Statements presented by Arauco as at September 30, 2009:
• | Statement of Classified Balance Sheet |
• | Financial Income Statement by Activity |
• | Statement of Changes in Net Equity |
• | Statement of Cash Flows – Direct Method |
• | Disclosure of Explanatory Information (notes) |
13
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
Period Covered by the Financial Statements
January 1, 2009 to September 30, 2009.
Date of Approval of Financial Statements
The issuance of these interim consolidated financial statements for the period of nine months finished on September 30, 2009 was approved by the Board in Extraordinary Session No. 411 on November 24, 2009.
Functional Currency
Arauco has defined the US Dollar as its main functional currency, as most of the Companies operations are a result of exports, and costs to a large extent are related to or index-linked to the US Dollar.
Presentation Currency
US Dollar.
Precision Level on the Financial Statements Figures
Financial Statements are presented in thousand of United States Dollars, without decimals.
Information required by IFRS which was not presented in the financial statements
All information required by the IFRS is presented in these financial statements.
Additional Information Relevant to the Understanding of the Financial Statements
The Company Fondo de Inversión Bío Bío and its subsidiary Forestal Río Grande S.A. are entities that as a whole qualify as Special Purpose Entities, as they maintain exclusive contracts with Arauco for wood provision, forward purchase of land, and a forest administration contract.
Compliance and Adoption of IFRS
The accompanying Financial Statements of Arauco include all significant aspects of the balance sheet, statements of income of its operations and cash flows in accordance with International Financial Reporting Standards.
This presentation is required to express a faithful representation of the effects of transactions, as well as other events and conditions, according to the definitions and criteria established within the conceptual framework of IFRS for the recognition of assets, liabilities, income and expenses.
IFRS Compliance Declaration
The accompanying Financial Statements of Arauco include the balance sheet, the statement of income and cash flows in accordance with International Financial Reporting Standards.
14
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
Disclosure of Capital Information
Information on Objectives, Policies and Processes applied by the Company
regarding Capital Management
Arauco’s policies on capital management aim at:
a) | Guaranteeing business continuity and normal operations in the long term. |
b) | Providing all financing needs for new investments to achieve sustainable growth over time. |
c) | Maintenance of an adequate capital structure considering all economic cycles that impact the business and the nature of the industry. |
d) | Maximizing the company’s value, as well as providing an adequate return to shareholders. |
Qualitative Information on Objectives, Policies and Processes applied by the Company regarding Capital Management
Arauco determines and manages its capital structure based on its equity at book value plus its financial liabilities (bank borrowings and bonds).
Quantitative Information on Capital Management
Financial guarantees of the Company are as follows:
Instrument | Amount at 09/30/2009 (ThU.S. $) | Amount at 12/31/2008 (ThU.S. $) | Equity >= ThU.S. $ 2,500,000 | Equity Hedging >= 2,0x | Debt Level(1) <= 1,2x | Debt Level(2) <= 0,75x | ||||||
Local Bonds | 366,981 | 203,668 | N/A | N/A | ü | N/A | ||||||
Syndicated Bank Loans | 0 | 160,378 | ü | ü | ü | N/A | ||||||
Forestal Río Grande S.A. Loan | 147,491 | 173,627 | N/A | ü(3) | N/A | ü(3) | ||||||
Bilateral Bank Loan | 241,773 | 241,026 | N/A | ü | ü | N/A | ||||||
Other Loans | 169,789 | 41,860 | No Safeguards Required | |||||||||
Foreign Bonds | 2,232,251 | 1,829,990 | No Safeguards Required |
N/A: | Not applicable for the instrument |
(1) | Debt Level (financial debt divided by: equity plus minority interest) |
(2) | Debt Level (financial debt divided by: total assets) |
(3) | Financial guarantees on credits taken by Forestal Río Grande S.A. only apply to financial statements of that company |
Debt instruments ratings at September 30, 2009 are as follows:
Instrument | Standard & Poor’s | Fitch Ratings | Moody’s | Feller Rate | ||||
Local Bonds | — | AA | — | AA | ||||
Foreign Bonds | BBB+ | BBB+ | Baa2 | — |
15
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
Capital requirements are incorporated based on the company’s financial needs and on maintaining an adequate liquidity level and complying with financial guarantees established in current debt contracts. The company manages its capital structure and makes adjustments based on the predominant economic conditions in order to mitigate the risks associated with adverse market conditions, and based on opportunities that may arise to improve the company’s level of liquidity.
Capital (in Thousand of US Dollars) as at September 30, 2009 and December 31, 2008:
In ThU.S.$ | 09/30/2009 | 12/31/2008 | 01/01/2008 | |||
Equity | 6,134,635 | 5,889,554 | 5,818,607 | |||
Bank Loans | 559,053 | 616,891 | 874,032 | |||
Finance Leases | 680 | 1,394 | 3,597 | |||
Bonds | 2,599,232 | 2,033,658 | 1,840,063 | |||
Capital | 9,293,600 | 8,541,497 | 8,536,299 | |||
External Capital Requirements to which the Company is subject to during the Current Period
The nature of external capital requirements is determined by the obligation to maintain certain financial ratios that ensure the compliance of either bank loans or bond payments, which provide guidelines on the adequate capital ranges for compliance with these requirements.
Non-Compliance Consequences, When the Company does not comply with External Requirements
Arauco fulfilled all its external requirements.
Disclosure of Information on Key Assumptions for Estimating Uncertainty
Arauco considers it improbable that future uncertainty risks may result in any significant adjustment to book value of assets and liabilities within the next financial period.
Summary of significant accounting policies
The accompanying consolidated financial statements as of September 30, 2009 were prepared in accordance with in force IFRS accounting policies, uniformly applied to all items in these Consolidated Financial Statements.
Summary of Significant Accounting Policies
a) Basis for Presentation of interim financial information
These interim condensed consolidated financial statements were prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standard Board (“IASB”), which have been adopted in Chile under title: Financial Reporting Standards in Chile (NIFCH) and represent the wholesale adoption, explicitly and without reservation of the mentioned international standards.
16
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
The interim consolidated financial statements have been prepared under the historic cost convention, as modified by the revaluation of biological assets, financial assets and financial liabilities (including derivative instruments) at fair value through profit and loss.
b) Critical accounting estimates and judgments
The preparation of consolidated interim financial statements in accordance with IFRS requires management to make subjective estimates and assumptions that affect the amounts reported. Estimates are based on historical experience and various other assumptions that are believed to be reasonable, though actual results and timing could differ from the estimates. Management believes that the accounting policies below represent those matters requiring the exercise of judgment where a different opinion could result in the greatest changes to reported results.
• | Property, Plant and Equipment |
For property, plant and equipment in an acquisition, an external advisor is used to perform a fair valuation of the acquired fixed assets and to assist in determining their remaining useful lives.
The carrying amounts of fixed assets are reviewed at each Balance Sheet date or whenever events or changes in circumstances indicate that the carrying amount of an asset may be impaired. The recoverable amount of an asset is estimated as the higher of fair value less the cost to sell and the value in use, with an impairment charge being recognized whenever the carrying amount exceeds the recoverable amount. The value in use is calculated using a discounted cash flow model, which is most sensitive to the discount rate as well as the expected future cash inflows.
• | Fair Value of Financial Instruments |
The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. Arauco uses its judgment to select a variety of methods and make assumptions that are mainly based on market conditions existing at each balance sheet date.
• | Income Taxes |
Tax assets and liabilities are reviewed on a periodic basis and balances are adjusted as appropriate. Management considers that adequate provision has been made for future tax consequences based upon current facts, circumstances and tax law. However, should any tax positions be challenged and not prevail, different outcomes could result and have a significant impact on the amounts reported in the consolidated financial statements.
• | Biological Assets |
The recovery of forest plantations is based on discounted cash flow models which means that the fair value of biological assets is calculated using cash flows from continuing operations, that is on the basis of sustainable forest management plans considering the potential growth of forests. This recovery is performed on the basis of each stand identified and for each type of tree species
17
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
These discounted cash flows require estimates in growth, harvest, sales prices and costs. It is therefore important that management make appropriate estimates of future levels and trends for sales and costs, as well as administer regular surveys of the forest to establish the volumes of wood available for harvesting and their current growth rates.
c) Consolidation
The condensed consolidated interim financial statements include all entities over which Arauco has the power to govern the financial and operating policies, generally accompanying a shareholding of more than one half of the voting rights. Subsidiaries are fully consolidated from the date on which control is transferred to the group. They are de-consolidated from the date that control ceases.
Unrealized earnings from subsidiary operations have been eliminated from the condensed consolidated financial statements and minority shareholder equity is recognized in the equity balance.
Consolidated financial statements for the period January 1, 2009 to September 30, 2009 include subsidiary balances shown in Note 13, Fondo de Inversión Bío Bío balances, and its subsidiary Forestal Río Grande S.A., both of which qualify as Special Purpose Entities.
Some consolidated subsidiaries report legal financial statements in Brazilian Reales and Chilean Pesos. For consolidation purposes, they have been translated as indicated in Note 11.
d) Segments
Arauco operates principally in four identifiable product segments, which comprise the production and sales of goods for (i) pulp products, (ii) forestry products, (iii) wood products and (iv) plywood and fiberboards panels. Pulp products include bleached and unbleached wood pulp products. Forestry products include sawlogs and pulpwood. Wood products include flitches, sawn timber (lumber) and remanufactured wood products. Plywood and fiberboard panels are consumer products manufactured at production facilities. Other services and products include mainly port services and chemical products sales.
e) Functional currency
(i) Functional currency
Arauco’s entities are measured using the currency of the primary economic environment in which the Company operates (the functional currency). The condensed consolidated interim financial statements are presented in United States dollars, which is the Company’s functional currency and Arauco’s presentation currency.
(ii) Foreign Currency Translations – Subsidiaries
The Income Statements of subsidiaries, whose functional and presentational currencies are not the US dollar, are translated into the Arauco reporting currency using the average exchange rates monthly, whereas the Balance Sheets of such subsidiaries are translated using the exchange rates at the reporting date. Exchange differences arising from the retranslation of the net investments in foreign entities, being non-US dollar foreign subsidiary, are recorded directly in shareholders’ equity in Conversion reserves, as shown in the unaudited condensed consolidated statement of changes in equity. The cumulative translation differences of divestments and liquidations are combined with their gain or loss on disposal.
18
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
(iii) Foreign Currency Transactions
Transactions in foreign currencies are recorded at the rate of exchange prevailing at the transaction date. Gains and losses on foreign currency resulting from the settlement of such transactions and from the conversion at the closing exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the income statement, except that which matches the deferral in net equity, such as those derived from cash flow hedges and hedges of net investments.
f) Cash and cash equivalents
Cash and cash equivalents include cash-in-hand, deposits held on call at banks and other liquid investments with an original maturity of less than three months.
g) Financial Instruments
(i) Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss are financial assets held for trading. A financial asset is classified in this category is acquired principally for the purpose of selling in the short term. Derivatives are also classified as acquired for trading unless they are designated as hedges. Assets in this category are classified as current assets.
Regular purchases and sales of financial assets are recognized on the trade-date, the date on which the Group commits to purchase or sell the asset.
A financial asset carried at fair value through profit or loss is initially recognized at fair value, and transaction costs are expended in the income statement. They are subsequently recorded at fair value with an effect on income also.
(ii) Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months from the balance sheet date, which are classified as non-current assets. Loans and receivables include trade receivables and other receivables.
Loans and receivables are recorded at amortized cost according to the method of the effective interest rate under the provision of bad debts.
(iii) Financial liabilities valued at amortized cost (loans)
Loans, public obligations and liabilities of similar nature are recognized initially at fair value, net of transaction costs incurred. In subsequent periods, they are stated at amortized cost; any difference between proceeds (net of transaction costs), and redemption value is recognized in the income statement over the life of the debt according to the method of the effective interest rate.
19
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
Financial obligations are classified as current liabilities unless the Company has an unconditional right to defer settlement for at least 12 months after the balance sheet date.
(iv) Creditors and other payables
These instruments are initially recorded at fair value and subsequently at amortized cost using the effective interest rate method.
(v) Hedging instruments
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognized in equity. The gain or loss relating to the ineffective portion is recognized immediately in the Income Statement within Other Operating Income or Financial Costs, respectively.
h) Inventories
Inventories are reported at the lower of cost or net realizable value. Cost is determined using the weighted average cost method.
The cost of finished goods and work in progress comprises raw materials, direct labor, other direct costs and general manufacturing expenses, excluding interest expenses.
Initial costs of harvested wood are determined at fair value less cost of sale at the point of harvest.
Net realizable value is the estimated selling price in the normal course of business, less cost of sale.
Where market conditions result in the manufacturing costs of a product exceeding its net realizable value, a valuation allowance is made. This provision also includes amounts relative to obsolescence resulting from slow moving and technical obsolescence.
i) Investments in subsidiaries
The purchase method of accounting is used to account for the acquisition of subsidiaries by the group. The cost of an acquisition is measured as the fair value of the assets given and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the group’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognized directly in the income statement.
All intercompany transactions, receivables, liabilities and unrealized profits, are eliminated.
20
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
Accounting policies for subsidiaries will be adjusted if necessary to ensure consistency with the policies adopted by Arauco. Minority Interests are presented as a separate component of equity.
j) Investments in associates
Associates are entities over which the Group exercises significant influence but not control, generally holding between 20 and 50% of the voting rights. Investments in associates are accounted for using the equity method and are initially recognized at cost and their book net equity is increased or decreased for the related proportion to be recognized in the income statement and comprehensive income statement of the period as a result of adjustments of conversion arising from the financial statement conversion into other currencies. The Group’s investment in associates includes goodwill (net of any accumulated impairment loss).
k) Intangible assets
(i) Computer Software
Computer software programs are capitalized in terms of the costs incurred to make it compatible with specific programs. These costs are amortized over their estimated useful lives.
(ii) Goodwill
The excess of the cost of acquisition over the fair value of the group’s share of the identifiable net assets acquired is recorded as goodwill. Goodwill is not amortized but tested for impairment at least annually.
(iii) Water-rights
Water-rights are recognized at historical cost and have unlimited useful life as the expected cash flow generating period is unpredictable. These rights are not amortized but are subject to periodic impairment tests.
l) Property, plant and Equipment
Property, plant and equipment are stated at historical cost less depreciation and the correspondent accumulated impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition.
Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the group and the cost of the item can be measured reliably.
Asset depreciation is calculated using the straight-line method, considering any adjustments for impairment. The balance sheet value represents cost less accumulated depreciation and any impairment charges.
The useful lives of property, plant and equipment are determined according to expected use of the assets.
21
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, periodically.
m) Leases
Fixed asset leases in which Arauco substantially holds all ownership risks and advantages are classified as finance leases. Finance leases are capitalized at the lease’s commencement at the lower of the fair value of the leased property and the present value of the minimum lease payments.
Leases in which significant risks and rewards are not transferred are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease.
n) Biological Assets
IAS 41 requires that biological assets, such as standing trees, are shown on the Balance Sheet at market value. Group forests are thus accounted for at fair value less estimated point-of sale costs at harvest, considering that the fair value of these assets can be measured reliably. The valuation of forest is consistent with Group accounting policies.
The valuation of forest plantations assets is based on discounted cash flow models whereby the fair value of the biological assets is calculated using cash flows from continuous operations, that is, based on sustainable forest management plans taking into account growth potential. This valuation is performed on each identifiable farm block basis and for each type of tree.
Forest plantations shown as current assets are those that will be harvested and sold in the short term.
Biological growth and changes in fair value are recognized in the income statement within Other operating income.
o) Deferred income tax
Deferred income tax is recognized using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the condensed consolidated financial statements. However, the deferred income tax is not accounted for if it arises from the initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or the balance sheet date that is expected to apply when the related deferred income tax asset or the deferred income tax liability is settled.
The deferred income tax assets are recognized to the extent that it is probable that future taxable benefits profit will be available against which temporary differences can be utilized.
22
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
p) Provisions
Provisions are recognized when the Company has a current legal or constructive obligation as a result of past events; it is probable that an outflow will be required to settle the obligation; and the amount has been reliably estimated.
q) Revenue recognition
Revenues are recognized after Arauco has transferred the risks and rewards of ownership to the buyer and Arauco retains neither a continuing right to dispose of the goods, nor effective control of those goods; this means that revenues are recorded upon delivery of goods to customers in accordance with agreed terms of delivery.
Revenues from inter-segment sales (which are made at prices that approximate market prices), are eliminated in the consolidated financial statements.
r) Minimum dividend
As a general policy on dividends, in all future tax periods the Company expects to maintain a share of around 40% of net profits to be distributed for each tax year; considering a provisional dividend share distribution at year end. The minimum dividend is recognized at the end of each financial period.
s) Impairment
The carrying amounts of property, plant and equipment are subject to impairment tests whenever some event or change in business circumstances indicates that the book value of assets may not be recoverable, whereas goodwill is tested annually. The recoverable amount of an asset is estimated as the higher of net selling price and value in use. An impairment loss is recognized whenever the carrying amount exceeds the recoverable amount.
A previously recognized impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount, however, not to an extent higher than the carrying amount that would have been determined and recognized in prior years. For goodwill, however, a recognized impairment loss is not reversed.
t) Employee Benefit costs
The Company has severance payment obligations. These are paid to some workers according to conditions established within collective or individual contracts.
u) Employee vacations
Arauco recognizes the expense for employee vacation on an accrual basis and recorded at nominal value.
This concept is presented in the State of Financial Position in the line trade payables and other payables, current.
23
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
v) Joint Venture Equity
Joint venture equity is recognized using the equity method.
w) Business Combinations
Business combinations are recognized using the purchase method. This involves recognizing identifiable assets (including previously unrecognized intangible assets) and liabilities (including contingent liabilities and excluding future restructuring) of the acquired business at fair value.
The goodwill acquired in a business combination is initially measured at cost being the excess of cost of business combination over the interest of the company in the net fair value of assets, liabilities and contingent liabilities of the acquisition. After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For purposes of impairment testing, goodwill acquired in a business combination is allocated from the acquisition date to cash generating unit of the group or groups of cash generating units expected will benefit from the synergies of the combination without prejudice to whether other assets or liabilities of the Group are assigned to those units or groups of units.
x) Recent accounting pronouncements
The following standards and interpretations have been issued which are not applicable to Arauco as of September 30, 2009:
Rules and amendments | Content | Mandatory application date | ||
IFRS 1: Revised | First time adoption of International Reporting Standards | Periods beginning on or after 1 July 2009 | ||
Amendments to IFRS 3 Revised | Business Combinations | Periods beginning on or after 1 July 2009 | ||
Amendments to IAS 39 and IFRS 7 | Reclassification of financial assets and clarification of effective date | Periods beginning on or after 1 July 2009 | ||
Amendments to IFRIC 9 and IAS 39 | Embedded derivatives | Periods beginning on or after 1 July 2009 | ||
Amendment to IAS 39 | Eligible hedged items | Periods beginning on or after 1 July 2009 | ||
Amendment to IAS 27 | Consolidated and Separate Financial Statements | Periods beginning on or after 1 July 2009 | ||
IFRIC Interpretation 17 | Distributions of non-cash assets to owners | Periods beginning on or after 1 July 2009 | ||
IFRIC Interpretation 18 | Transfers of assets from customers | Periods beginning on or after 1 July 2009 |
Arauco believes that the adoption of standards, amendments and interpretations, described above, will have no significant impact in the financial statement of the company in the period of initial application.
24
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
Disclosure of Information on Capital Issued
Subscribed and paid-in Capital amounts to ThU.S. $353,176.
100% of capital corresponds to ordinary shares
09/30/2009 | 12/31/2008 | |||
Description of Ordinary Capital Share Types | 100% of Capital corresponds to ordinary shares | |||
Number of Authorized Shares by Type of Capital in Ordinary Shares | 113,152,446 | |||
Nominal Value of Shares by Type of Capital in Ordinary Shares | ThU.S.$ 0.0031211 per share | |||
Amount of Capital in Shares by Type of Ordinary Shares that Constitute Capital | ThU.S.$353,176 |
Rights, Privileges and Restrictions by Type of Capital in Ordinary Shares
Liabilities presented under Obligations with Banks and Financial Institutions and with the Public have certain financial restrictions the Parent Company must comply with; otherwise, debt under these contracts can become payable.
Financial restrictions are the following:
i) | Debt ratio must not exceed 1.2 |
ii) | Net minimum equity must not be less than US$ 2,500 million |
iii) | Interest hedging index cannot be less than 2.0 |
At closing date Arauco had complied with the totality of these restrictions.
09/30/2009 | 12/31/2008 | |||
Number of Shares Issued and Completely Paid by Type of Capital in Ordinary Shares | 113,152,446 |
Disclosure of information on Dividends paid to Ordinary Shares
Dividends paid as of September 30, 2009 and the corresponding amount per share:
Detail of Paid Dividend, Ordinary Shares | Final Dividend – Interim Dividend | |
Description of Paid Dividend, Ordinary Shares | Final Dividend | |
Description of Type of Shares for which there is a Paid Dividend, Ordinary Shares | Unlisted Ordinary Shares | |
Date of Paid Dividend, Ordinary Shares | 05-07-09 | |
Amount of Dividend, Ordinary Shares, Gross | ThU.S.$ 88,449 | |
Number of Shares of which Dividends are Paid, Ordinary Shares | 113,152,446 | |
Dividend per Share, Ordinary Share | U.S.$ 0.781676137 |
25
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
Dividends paid during financial year 2008 and the corresponding amount per share:
Detail of Paid Dividend, Ordinary Shares | Final Dividend – Interim Dividend | |
Description of Paid Dividend, Ordinary Shares | Final Dividend | |
Description of Type of Shares for which there is a Paid Dividend, Ordinary Shares | Unlisted Ordinary Shares | |
Date of Paid Dividend, Ordinary Shares | 05-07-08 | |
Amount of Dividend, Ordinary Shares, Gross | ThU.S.$ 214,885 | |
Amount of Tax on Dividends, Ordinary Shares | — | |
Amount of Dividend, Net of Tax, Ordinary Shares | ThU.S. $ 214,885 | |
Number of Shares of which Dividends are Paid, Ordinary Shares | 113,152,446 | |
Dividend per Share, Ordinary Share | US$ 1.89907 | |
Details of Dividends Paid, Ordinary Shares | Final Dividend – Interim Dividend | |
Description of Dividends Paid, Ordinary Shares | Interim Dividend | |
Description of Type of Shares for which there is a Paid Dividend, Ordinary Shares | Ordinary Shares unlisted | |
Date of Paid Dividend, Ordinary Shares | 12-10-08 | |
Amount of Dividend, Ordinary Shares, Gross | ThU.S. $ 100,932 | |
Number of Shares in which Dividends are Paid, Ordinary Shares | 113,152,446 | |
Dividend per Share, Ordinary Share | US$ 0.89199 |
Disclosure of Information on Reserves
Other Reserves consist of Conversion Reserves, Hedge Reserves and Other Reserves. Arauco does not have restrictions associated with these reserves.
Conversion Reserves
This corresponds to a difference in foreign currency translation as compared to the Group’s subsidiaries, which do not use the US Dollar as functional currency.
Hedge Reserves
Corresponds to part of the gain or actual loss of existing coverage swaps by Arauco at September 30, 2009.
26
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
Disclosure of other Information
Below are balances of Other Operating Income, Financing Costs and Profit (loss) from the derecognition of non current assets as of September 30, 2009 and 2008, respectively.
January - September | July-September | |||||||||||
2009 ThU.S.$ | 2008 ThU.S.$ | 2009 ThU.S.$ | 2008 ThU.S.$ | |||||||||
Types of Other Operating Income | ||||||||||||
Other Operating Income, Total | 157,644 | 81,024 | 56,849 | 39,573 | ||||||||
Interest income | 10,861 | 18,529 | 5,258 | 6,321 | ||||||||
Gain from changes in fair value of biological assets | 115,017 | 39,435 | 39,097 | 25,549 | ||||||||
Other operational income | 31,766 | 23,060 | 12,494 | 7,703 | ||||||||
Types of Financing Costs | ||||||||||||
Financing Costs, Total | (128,971 | ) | (124,297 | ) | (45,526 | ) | (33,284 | ) | ||||
Interest Expenses | (118,076 | ) | (108,497 | ) | (41,338 | ) | (30,049 | ) | ||||
Interest on bank loan | (118,076 | ) | (108,497 | ) | (41,338 | ) | (30,049 | ) | ||||
Other financing costs | (10,895 | ) | (15,800 | ) | (4,188 | ) | (3,235 | ) | ||||
Types of Profit (Loss) from derecognition of Non current Asset Accounts and Not Held for Sale | ||||||||||||
Total | (3,877 | ) | (1,250 | ) | 467 | (82 | ) | |||||
Property, plant and equipment | (1,616 | ) | (779 | ) | 130 | 211 | ||||||
Biological asset | (2,103 | ) | (471 | ) | 195 | (293 | ) | |||||
Other non-current assets | (158 | ) | 0 | 142 | 0 | |||||||
Types of Equity Profit (Loss) from Investments accounted for by the Equity Method | ||||||||||||
Equity Profit (Loss) from investments accounted for by the Equity Method | 5,682 | 5,057 | (265 | ) | 2,562 | |||||||
Associates accounted for by the Equity Method | 5,682 | 5,057 | (265 | ) | 2,562 |
27
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
NOTE 2. FIRST TIME ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS 1)
Arauco’s financial statements for the year ending December 31, 2009 will be the first annual financial statements that comply with IFRS. The Company has applied IFRS 1 in preparing these condensed interim consolidated financial statements.
Arauco’s transition date is January 1, 2008. The Company prepared its opening IFRS balance sheet at that date. Arauco’s adoption date is January 1, 2009.
To prepare the aforementioned consolidated financial statements in accordance with IFRS 1, all mandatory exemptions and some of the optional exemptions from retrospective application of the IFRS have been applied.
Retrospective exemptions selected by Arauco
(a) Business combination
Arauco has applied the IFRS 1 exemption for business combinations, which allows business combinations prior to the transition date not to be restated. Therefore, businesses combinations that took place before the transition date of January 1, 2008 have not been restated.
(b) Fair Value or revaluation as deemed cost
At the IFRS transition date the Company chose fair value with regards to property, plant and equipment of its pulp plants for both Arauco and Constitución in Chile, Misiones in Argentina and its panel plants and sawmills in Brazil, and used fair value as the initial historical cost, pursuant to IFRS 1. The fair value of Property, plant and equipment was measured by independent, external appraisal experts who determined new initial historical values, useful life and residual values.
(i) | Fair Value of Property, Plant and Equipment as Deemed Cost |
The total amount of appraised assets corresponding to Property, plant and equipment of pulp plants belonging to both Arauco and Constitución in Chile, Misiones in Argentina and its panel production plants and sawmills in Brazil at the transition date was ThU.S.$1,526,822.
(ii) | Book value adjustments in Property, Plant and Equipment according to previous GAAP. |
Appraisal adjustments amounted to ThU.S.$ 800,249
(c) Designation of financial assets and financial liabilities exemption
The Company reclassified various securities as financial assets at fair value through profit and loss.
28
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
(d) Employee benefits
The Company has elected to recognize all cumulative actuarial gains and losses as of at January 1, 2008.
(e) Cumulative Translation Differences
Arauco has elected to set the previously accumulated cumulative translation differences to zero at January 1, 2008. This exemption has been applied to all subsidiaries in accordance with IFRS 1.
Enforcement date of First Adoption of Financial Statements in accordance with IFRS
The IFRS adoption date is January 1, 2009.
Financial Statements Transition date to IFRS
The transition date to IFRS is January 1, 2008.
Comparative Information for First Time IFRS Adoption
Arauco has considered the year 2008 for comparative purposes in IFRS adoption.
Interim Financial Statements Covered by First Financial Statements in accordance with IFRS
The interim consolidated financial reports to March 31, 2009 are the first financial statements presented in accordance with IFRS.
Explanation of IFRS Transition
The Reconciliation Summary below quantifies the impact of IFRS transition on Arauco.
Previous GAAP Equity Reconciliation and IFRS Equity at transition date
1. - Reconciliation Summary of consolidated net equity
12/31/2008 ThU.S.$ | 09/30/2008 ThU.S.$ | 01-01-2008 ThU.S.$ | Note | |||||||||
Total net equity according to Chilean Accounting Principles | 5,690,914 | 5,608,881 | 5,480,420 | |||||||||
Property, plant and equipment | 862,942 | 849,356 | 800,249 | a | ) | |||||||
Consolidation of Special Purpose Entities | 62,368 | 70,134 | 78,960 | b | ) | |||||||
Biological Assets | (141,203 | ) | 91,280 | 44,776 | c | ) | ||||||
Functional Currency | (126,785 | ) | (20,025 | ) | 37,606 | d | ) | |||||
Negative Goodwill | 93,345 | 94,787 | 99,338 | e | ) | |||||||
Minimum Dividend | (88,492 | ) | (192,294 | ) | (214,936 | ) | f | ) | ||||
Financial instruments | 23,686 | 17,850 | 22,521 | g | ) | |||||||
Deferred taxes | (389,215 | ) | (404,441 | ) | (416,792 | ) | h | ) | ||||
Cumulative effect of other minor concepts | 19,676 | 39,994 | 31,237 | |||||||||
Total net equity according to IFRS | 6,007,236 | 6,155,522 | 5,963,379 | |||||||||
29
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
2.- Reconciliation Summary of consolidated net result
12/31/2008 ThU.S.$ | 09/30/2008 ThU.S.$ | July-September ThU.S.$ | Note | |||||||||
Total net effect according to Chilean Accounting Principles | 479,801 | 486,231 | 129,667 | |||||||||
Changes in depreciation in property, plant and equipment | 59,030 | 48,538 | 16,250 | a | ) | |||||||
Valuation of agricultural products at fair value | (165,935 | ) | (121,778 | ) | (54,677 | ) | c | ) | ||||
Valuation of biological assets at fair value | 65,201 | 39,393 | 25,507 | c | ) | |||||||
Affiliate earnings conversion to functional currency for currencies different to the dollar | (39,674 | ) | (17,436 | ) | (19,554 | ) | d | ) | ||||
Adjustment for deferred taxes as a result of IFRS | 19,040 | 21,561 | 7,478 | h | ) | |||||||
Other non significant adjustments | (12,418 | ) | (2,827 | ) | 7,869 | |||||||
Total net effect according to IFRS | 405,045 | 453,682 | 112,540 | |||||||||
Description of adjustments
(a) Property, plant and equipment adjustment
The Company has applied the fair value as deemed cost exemption to pulp plants, land, buildings, and equipment owned in both Arauco and Constitución in Chile, Misiones in Argentina, and the panel plant and sawmill in Brazil. This adjustment increased equity. As a result of this change in value, and the modification of their useful life and residual values, depreciation for the period was also impacted. Further, given the fact that depreciation is included within the cost of inventories, the cost of these was also modified.
The fair value of the assets where the fair value as deemed cost method was applied amounted to ThU.S.$ 1,526,822 at January 1, 2008.
(b) Consolidation of special purpose entities
Under IFRS, as determined by IAS 27 Consolidated and separate financial statements and SIC 12 Consolidation – special purpose entities, Arauco consolidated the assets and liabilities of Fondo de Inversión Bío Bío and its subsidiary Forestal Río Grande S.A. because it was determined that control existed. The consolidation of this entity had an impact on equity. The assets and liabilities assumed include the following:
12/31/2008 ThU.S.$ | 09/30/2008 ThU.S.$ | 01/01/2008 ThU.S.$ | |||||||
Property, plant and equipment | 56,758 | 56,744 | 56,838 | ||||||
Biological assets | 171,284 | 181,931 | 222,217 | ||||||
Other assets | 22,004 | 20,467 | 7,658 | ||||||
Financial liabilities | (187,678 | ) | (189,008 | ) | (207,753 | ) | |||
Minority interest in equity | 62,368 | 70,134 | 78,960 |
(c) Biological assets adjustment
Management decided that future cash flows shall be the criteria to be used to determine the fair value of biological assets under IFRS. This differs from criteria used under Chilean GAAP where biological assets were valued using standard commercial margins for forests with harvesting volume and plantation costs for biological assets with no harvesting volume.
30
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
Under IFRS, biological growth is recognized within the income statement, impacting earnings at each ending period. Further, given the change in the value of biological assets, the cost of inventories has also been impacted.
(d) Functional currency adjustment
This adjustment is comprised of the following:
Impact within equity | 12/31/2008 ThU.S.$ | 09/30/2008 ThU.S.$ | 01/01/2008 ThU.S.$ | ||||||
Historical dollar conversion (i) | 41,331 | 41,331 | 41,331 | ||||||
Functional currency of subsidiaries in Brazil (ii) | (168,116 | ) | (61,356 | ) | (3,725 | ) |
(i) | The Company determined that the functional currency for the majority of the Group’s companies is the US dollar, and proceeded to convert all its non-monetary assets and liabilities, particularly those related to Property, plant and equipment, to US dollars, using historical exchange rates at the time of the construction or acquisition of the assets. |
(ii) | The Brazilian Real was determined to be the functional currency for subsidiaries in Brazil. Under Chilean GAAP these companies used the US dollar as their functional currency. For this reason, the subsidiaries in Brazil adjusted their assets, liabilities and equity from historical US dollars to historical Reales. This change in functional currency has a future impact on the cumulated translation differences account within equity. |
(e) Negative goodwill adjustment
Under Chilean GAAP, negative goodwill was recorded within the balance sheet and amortized to profit and loss. As described by IFRS 3, the higher balances of investment securities (negative goodwill) at the transition date were adjusted against the accumulated results.
(f) Minimum dividend adjustment
The Company’s dividend policy established a yearly distribution of 40% of net profits. This policy is established each year at the General Shareholders’s Meeting.
(g) Financial instruments adjustment
Impact within equity | 12/31/2008 ThU.S.$ | 09/30/2008 ThU.S.$ | 01/01/2008 ThU.S.$ | |||
Derivative valuation adjustment (swap) (i) | 12,594 | 8,078 | 9,750 | |||
Present value of liabilities (ii) | 9,011 | 7,543 | 10,099 | |||
Bonds obligation at effective rate (iii) | 2,081 | 2,229 | 2,672 |
(i) | This derivative is recorded as a hedging instrument under Chilean GAAP. However, under IFRS hedge accounting has not been applied and, therefore has been recorded within earnings. |
(ii) | This adjustment relates to the present value calculation of a liability in the Company’s subsidiary Placas do Paraná S.A. in Brazil. |
31
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
(iii) | Under Chilean GAAP, interest is accrued using the nominal interest rate. Under IAS 39 Financial instruments: recognition and measurement, financial liabilities not at fair value through profit and loss must be valued using the effective interest method. |
(h) Deferred tax adjustment
Impact within equity | 12/31/2008 ThU.S.$ | 09/30/2008 ThU.S.$ | 01/01/2008 ThU.S.$ | ||||||
Deferred taxes from IFRS adjustments (i) | (323,398 | ) | (338,262 | ) | (350,413 | ) | |||
Elimination of complementary accounts (ii) | (3,009 | ) | (3,371 | ) | (3,571 | ) | |||
Unrecognized deferred taxes for biological assets (iii) | (62,808 | ) | (62,808 | ) | (62,808 | ) |
(i) | Corresponds to deferred taxes arising from assets and liabilities adjustments to IFRS, which constitute a temporary difference between financial basis and taxable basis. The main components are the following: |
Deferred taxes | 12/31/2008 ThU.S.$ | 09/30/2008 ThU.S.$ | 01/01/2008 ThU.S.$ | ||||||
Deferred tax adjustment to functional currency of Chilean companies | (7,026 | ) | (7,026 | ) | (7,026 | ) | |||
Deferred taxes for adjustment to property, plant and equipment valuation | (309,113 | ) | (305,148 | ) | (305,298 | ) | |||
Deferred taxes for biological assets valuation | (8,757 | ) | (20,219 | ) | (33,444 | ) | |||
Deferred taxes for derivative instrument (Swap) adjustment at fair value | (1,161 | ) | (1,373 | ) | (1,658 | ) | |||
Deferred taxes for other IFRS adjustments | 2,659 | (4,496 | ) | (2,987 | ) | ||||
Total | (323,398 | ) | (338,262 | ) | (350,413 | ) | |||
(ii) | Under Chilean GAAP, all temporary differences arising prior to the year 1999 were recorded against “complementary accounts”. These accounts would then reverse when the related temporary difference would reverse. Under IFRS, these “complementary accounts” are not allowed and, therefore must be adjusted against retained earnings. |
(iii) | Certain deferred taxes related to biological assets were exempt from being recognized under Chilean GAAP. Under IFRS, all temporary differences must be recognized. |
Reconciliation of Statement of Cash Flow, effect of the transition to IFRS for the last period of the Company’s most recent annual financial statements and its cash and cash equivalents under IFRS for the same period.
As at 12/31/2008 (ThU.S. $) | As at 09/30/2008 (ThU.S. $) | |||||
Total Net Cash Flow Statement according to Chilean accounting principles | 167,089 | 279,421 | ||||
Net Cash Flow of (Used in): | ||||||
Operating Activities | (34,588 | ) | (32,763 | ) | ||
Investing Activities | 68,792 | 62,355 | ||||
Financing Activities | (34,615 | ) | (29,974 | ) | ||
Net Increase (Decrease) in Cash and Cash Equivalents | (411 | ) | (382 | ) | ||
Cash and Cash Equivalent Initial Balance | 609 | 642 | ||||
Cash and Cash Equivalents, Reported in the Cash Flow Statement, Closing Balance | 167,287 | 279,681 | ||||
32
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
Cash Flow Statements of Special Purpose Entity Fondo de Inversión Bío Bío and its subsidiary Forestal Río Grande S.A., were incorporated. All Forestry sales performed by Forestal Río Grande S.A. to the Group’s forest companies were eliminated in Arauco’s consolidation.
33
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
NOTE 3. INVENTORIES (IAS 2)
Inventories are stated at the lower of cost or net realizable value. The cost is determined using the average cost method.
Cost of finished goods and work-in-progress include design costs, raw material, direct labor, other direct costs and general manufacturing expenses (based on normal operating capacity). Interest costs are not included.
The initial costs of harvested wood are determined at fair value less cost of sale at point of harvest.
The net realizable value is the estimated selling price in the ordinary course of business, less applicable variable sales costs.
When market conditions cause the manufacturing cost of a product to exceed its net realizable value, a provision for the differential value is registered. This provision also considers amounts related to obsolescence derived from low turnover and technical obsolescence.
Components of Inventory | 09/30/2009 ThU.S.$ | 12/31/2008 ThU.S.$ | 01/01/2008 ThU.S.$ | |||
Raw Materials | 109,645 | 113,614 | 120,139 | |||
Production Supplies | 46,072 | 46,206 | 50,394 | |||
Work in progress | 26,424 | 38,610 | 22,628 | |||
Finished goods | 338,959 | 395,405 | 260,839 | |||
Other Inventories | 103,746 | 97,371 | 75,478 | |||
Total Inventories | 624,846 | 691,206 | 529,478 |
At current Financial Statement date, goods have been valued at cost. There are no significant penalties or reversals to report.
As of September 30, 2009, a cost of sales of Inventories of ThU.S.$ 1,506,628 was recognized (ThU.S.$ 1,669,307 at September 30, 2008).
As of September 30, 2009, an increased provision for obsolescence of ThU.S.$ 300 was recognized (ThU.S.$ 450 at September 30, 2008).
At current Financial Statements date, there are no Inventories delivered in guarantee to report.
34
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
NOTE 4. CASH FLOW STATEMENT (IAS 7)
Cash and cash equivalents includes both cash flow and bank account balances, fixed term deposits, repurchase agreements and mutual funds. They are short-term investments that are readily convertible into cash, and are subject to an immaterial change in value.
The objective of the fixed term deposits is to maximize short-term cash flow surpluses. This instrument is authorized by Arauco’s Placement Policy, which establishes a mandate that allows investments in fixed income securities. In general, these instruments have a maturity period of less than ninety days.
Arauco invests in local mutual funds to maximize the profitability of cash flow surpluses in Chilean Pesos, or in international mutual funds in foreign currencies such as US Dollars or Euros. This instrument is accepted by the Company’s placement policy.
At the date of these financial statements, there are no significant items to report use restriction.
Components of Cash and Cash Equivalents | 09/30/2009 ThU.S.$ | 12/31/2008 ThU.S.$ | 01/01/2008 ThU.S.$ | |||
Cash on hand | 305 | 147 | 94 | |||
Banks | 26,263 | 18,515 | 37,413 | |||
Short term deposit | 83,579 | 72,198 | 36,260 | |||
Mutual funds | 547,287 | 59,276 | 194,105 | |||
Other cash and cash equivalents | 0 | 17,172 | 0 | |||
Total | 657,434 | 167,308 | 267,872 | |||
Reconciliation of Cash and Cash Equivalents | ||||||
Bank overdraft used for cash management | 0 | 0 | 0 | |||
Other reconciliations items, cash and cash equivalents | 0 | 0 | 0 | |||
Reconciliation of Cash and Cash Equivalent items, Total | 0 | 0 | 0 | |||
Cash and cash equivalents | 657,434 | 167,308 | 267,872 | |||
Cash and cash equivalents, reported in the Cash Flow Statement | 657,434 | 167,308 | 267,872 |
The following tables detail the value of the cost of the investment in Savitar dated June 30, 2009 and Tafisa Brazil dated August 26, 2009 (see Note 14), and the net value of assets and liabilities of each acquired entity, disregarding both the amount of cash and cash equivalents acquired with the order to distinguish those cash flows from those that arise from other operating, investing or financing activities.
Purchase of Investments | 09/30/2009 ThU.S.$ | ||
Acquisition: Tafisa Brasil S.A. (current Arauco do Brasil S.A.) | |||
Tradeoffs sum cash paid for acquisitions and cash equivalents | 158,377 | ||
Sum of Cash and cash equivalents in acquired entities | (2,891 | ) | |
Tradeoff for Acquisitions paid to acquire entities, net Total | 155,486 | ||
ThU.S.$ | |||
Sum of Assets and different Cash Liabilities or Cash equivalents in acquired entities | 134,846 |
35
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
Purchase of Investments | 09/30/2009 ThU.S.$ | ||
Acquisition: Savitar | |||
Tradeoffs sum cash paid for acquisitions and cash equivalents | 10,131 | ||
Sum of Cash and cash equivalents in acquired entities | (106 | ) | |
Tradeoff for Acquisitions paid to acquire entities, net Total | 10,025 | ||
ThU.S.$ | |||
Sum of Assets and different Cash Liabilities or Cash equivalents in acquired entities | 11,667 |
36
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
NOTE 5. ACCOUNTING POLICIES, CHANGES IN ACCOUNTING ESTIMATES (IAS 8)
Changes in Accounting Policies
Accounting policies adopted in the preparation of these consolidated financial statements are as required by IFRS 1. These policies have been designed in accordance with IFRS in effect as at September 30, 2009 and applied uniformly to all items presented in these consolidated financial statements.
Changes in the Treatment of Accounting Policy
The consolidated financial statements of Arauco at March 31, 2009 are the Group’s first financial statements prepared under International Financial Reporting Standards (IFRS). The Group’s previous financial statements were prepared according to Generally Accepted Accounting Principles in Chile.
Standards adopted by the Group in Advance
IFRS 8, Operative Segments (applied from January 1, 2009).
IAS 23 (Revised), Financial costs - Review of financial interests according to recognition as capitalization or expenditure (applied from January 1, 2009).
IAS 27 (Revised), Consolidated and individual financial statements - Modifications arising from changes in IAS 3 (applied from July 1, 2009).
37
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
NOTE 6. TAXES (IAS 12)
Deferred income taxes are calculated based on the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the annual consolidated financial statements. However, deferred income tax is not accounted for if it arises from the initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction does not affect accounting or taxable profit or loss. Deferred income tax is determined using tax rates (and laws) enacted or to be enacted at the balance sheet date and expected to come into effect when the corresponding deferred income tax asset is realized or the liability deferred income tax is settled.
The applicable tax rate to the major companies in which Arauco has participation is 17% in Chile, 35% in Argentina and 34% in Brazil.
Deferred Taxes Assets
Deferred income tax assets are recognized to the extent that it is probable that future tax benefits will be available to compensate for timing differences.
The following table details deferred tax assets:
Deferred Tax Assets | 09/30/2009 ThU.S. $ | 12/31/2008 ThU.S. $ | 01/01/2008 ThU.S. $ | |||
Deferred Tax Assets relative to Provisions | 8,557 | 2,602 | 2,029 | |||
Deferred Tax Assets relative to accrued liabilities | 2,754 | 2,649 | 2,015 | |||
Deferred Tax Assets relative to Post-Employment obligations | 4,238 | 3,498 | 3,750 | |||
Deferred Tax Assets relative to Restatement of Property, Plant and equipment | 1,448 | 1,090 | 1,966 | |||
Deferred Tax Assets relative to Financial Instruments Restatements | 2,259 | 2,788 | 1,192 | |||
Deferred tax assets relative to tax losses | 69,168 | 36,613 | 33,272 | |||
Valuation of biological asset | 13,617 | 16,579 | 20,911 | |||
Valuation of inventory | 2,837 | 2,766 | 2,084 | |||
Income provision | 2,620 | 4,365 | 3,977 | |||
Trade debtors and receivables | 5,516 | 6,562 | 3,248 | |||
Deferred Tax Assets relative to Others | 6,431 | 7,013 | 6,851 | |||
Deferred Tax Assets Total | 119,445 | 86,525 | 81,295 | |||
At the present financial statement date some of Arauco’s subsidiaries show tax losses of ThU.S.$293,127 as compared to ThU.S.$187,487 as at December 31, 2008 which are mainly due to operational and financial losses.
Deferred Tax Liability
Deferred tax liability corresponds to income tax amounts payable in future periods related to taxable temporary differences.
38
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates, except where the timing of the reversal of the temporary difference is controlled by the Group, and it is probable that the temporary difference will not reverse in the foreseeable future.
The following table details deferred tax liabilities:
Deferred Tax Liabilities | 09/30/2009 ThU.S. $ | 12/31/2008 ThU.S. $ | 01/01/2008 ThU.S. $ | |||
Deferred Tax Liabilities relative to Restated Property, Plant and equipment | 680,990 | 585,214 | 563,077 | |||
Deferred Tax Liabilities relative to Financial Instrument restatement | 4,123 | 5,740 | 2,105 | |||
Valuation of biological asset | 513,952 | 470,256 | 494,587 | |||
Valuation of inventory | 11,942 | 15,188 | 13,836 | |||
Valuation of anticipate expenses | 13,871 | 13,190 | 10,518 | |||
Deferred Tax Liabilities relative to Others | 14,945 | 2,109 | 9,474 | |||
Deferred Tax Liabilities Total | 1,239,823 | 1,091,697 | 1,093,597 | |||
Temporary Differences
The following tables summarize current asset and liability timing differences at September 30, 2009, and December 31, 2008:
09/30/2009 | 12/31/2008 | 01/01/2008 | ||||||||||
Detail of Types of Deferred Tax Temporary Differences | Deductible Difference ThU.S.$ | Taxable Difference ThU.S.$ | Deductible Difference ThU.S.$ | Taxable Difference ThU.S.$ | Deductible Difference ThU.S.$ | Taxable Difference ThU.S.$ | ||||||
Deferred Tax Assets | 50,277 | 0 | 49,912 | 0 | 48,023 | 0 | ||||||
Tax Loss | 69,168 | 0 | 36,613 | 0 | 33,272 | 0 | ||||||
Deferred Tax Liabilities | 0 | 1,239,823 | 0 | 1,091,697 | 0 | 1,093,597 | ||||||
Total | 119,445 | 1,239,823 | 86,525 | 1,091,697 | 81,295 | 1,093,597 |
January-September | July-September | |||||||||||
Detail of Temporary Difference Profit and Loss Amounts | 2009 ThU.S.$ | 2008 ThU.S.$ | 2009 ThU.S.$ | 2008 ThU.S.$ | ||||||||
Deferred Tax Assets | (2,691 | ) | (2,341 | ) | 1,820 | (1,548 | ) | |||||
Tax Loss | 7,341 | 4,147 | (1,025 | ) | 1,673 | |||||||
Deferred Tax Liabilities | (34,898 | ) | (5,227 | ) | (6,721 | ) | 1,601 | |||||
Total | (30,248 | ) | (3,421 | ) | (5,926 | ) | 1,726 | |||||
39
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
Income Tax Expenditure (Income)
Income Tax Expenditure consists of the following:
Expense due to Current Income Taxes on Earnings | January-September | July-September | ||||||||||
2009 ThU.S.$ | 2008 ThU.S.$ | 2009 ThU.S.$ | 2008 ThU.S.$ | |||||||||
Current income tax expense | (18,538 | ) | (103,758 | ) | (18,309 | ) | (19,656 | ) | ||||
Tax benefit arising from unrecognized tax assets previously used to reduce tax expense | 1,879 | 5,517 | 773 | 2,667 | ||||||||
Previous period current tax adjustments | 3,821 | 3,129 | 3 | 17 | ||||||||
Other current tax expenses | (63 | ) | (766 | ) | 83 | (146 | ) | |||||
Current Tax Expenses, Net, Total | (12,901 | ) | (95,878 | ) | (17,450 | ) | (17,118 | ) | ||||
Deferred expense (income) from taxes relative to the creation and reversion of temporary differences | (37,589 | ) | (7,568 | ) | (4,250 | ) | (676 | ) | ||||
Tax benefit arising from unrecognized tax assets previously used to reduce expenses due to deferred taxes | 7,341 | 4,147 | (1,025 | ) | 1,673 | |||||||
Other deferred tax expenses | 0 | 0 | (651 | ) | 729 | |||||||
Deferred Tax Expenses, Net, Total | (30,248 | ) | (3,421 | ) | (5,926 | ) | 1,726 | |||||
Expense (Income) due to Income Tax Total | (43,149 | ) | (99,299 | ) | (23,376 | ) | (15,392 | ) | ||||
The following table details the income tax for foreign and national companies as at September 30:
January-September | July-September | ||||||||||
2009 ThU.S.$ | 2008 ThU.S.$ | 2009 ThU.S.$ | 2008 ThU.S.$ | ||||||||
Foreign current tax | (22,223 | ) | (46,702) | (2,483 | ) | (2,667 | ) | ||||
National current tax | 9,322 | (49,176) | (14,967 | ) | (14,451 | ) | |||||
Current tax, Total | (12,901 | ) | (95,878) | (17,450 | ) | (17,118 | ) | ||||
Foreign deferred tax | (793 | ) | 17,372 | (1,796 | ) | 6,352 | |||||
National deferred tax | (29,455 | ) | (20,793) | (4,130 | ) | (4,626 | ) | ||||
Deferred tax, Total | (30,248 | ) | (3,421) | (5,926 | ) | 1,726 | |||||
Income (expense) to earnings, Total | (43,149 | ) | (99,299) | (23,376 | ) | (15,392 | ) | ||||
Income Tax Expenditure Reconciliation using the Effective Rate method
Income tax expenditure reconciliation is as follows:
Reconciliation of Tax Expenses using the Legal Rate with Tax Expenses using the Effective Rate | January-September | July-September | |||||||||
2009 ThU.S.$ | 2008 ThU.S.$ | 2009 ThU.S.$ | 2008 ThU.S.$ | ||||||||
Tax Expense Using Legal Rate | (34,399 | ) | (94,007) | (20,215 | ) | (21,749 | ) | ||||
Tax effect of rates in other jurisdictions | (14,642 | ) | (17,346) | (4,399 | ) | 1,428 | |||||
Tax effect of non taxable ordinary income | 12,501 | 14,964 | 6,846 | 10,501 | |||||||
Tax effect of non tax deductible expenses | (12,704 | ) | (10,660) | (8,433 | ) | (5,260 | ) | ||||
Tax effect of the utilization of previously unrecognized tax losses | 0 | (1,704) | 0 | (1,704 | ) | ||||||
Tax Effect of Excess Tax for Previous Periods | 3,821 | 3,129 | 3 | 17 | |||||||
Other Increases (Decreases) Legal Taxes | 2,274 | 6,325 | 2,822 | 1,375 | |||||||
Adjustment to Tax Expense using the Legal Rate, Total | (8,750 | ) | (5,292) | (3,161 | ) | 6,357 | |||||
Tax Expenses Using the Effective Rate | (43,149 | ) | (99,299) | (23,376 | ) | (15,392 | ) | ||||
The deferred tax related to financial hedging instruments, corresponds to ThU.S.$ 731 at September 30, 2009, which presents net in Hedge reserves in Changes in Net Equity. At September 30, 2008, there were no financial hedging instruments, therefore, no deferred tax concept.
40
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
NOTE 7. PROPERTY, PLANT AND EQUIPMENT (IAS 16)
Property, plant and equipment are stated at historical cost less depreciation and accumulated impairment losses. Historical cost includes all expenditure directly attributable to goods acquisition.
Subsequent costs are included in the initial asset value or are recognized as a separate asset only when it is probable that future economic benefits associated with the elements of property, plant and equipment will flow to the Company and the cost of the item can be measured reliably.
Depreciation is primarily determined using the lineal method, considering any adjustment for impairment. The financial statement presents the cost value less the accumulated depreciation and any impairment charge.
The determination of useful life in Property, plant and equipment, is calculated based on the defined useful life in terms of the years the asset is expected to be used.
The residual value and useful life of assets are reviewed and adjusted, if applicable, periodically.
Property, Plant and Equipment estimated useful life or depreciation rates
Properties, Plant and Equipment, by type Net Properties, Plant and Equipment | 09/30/2009 ThU.S.$ | 12/31/2008 ThU.S.$ | ||||
Construction in progress | 409,100 | 348,417 | ||||
Land | 758,805 | 689,900 | ||||
Buildings | 1,345,128 | 1,307,391 | ||||
Plant and equipment | 2,363,486 | 2,172,162 | ||||
Information technology equipment | 18,501 | 18,621 | ||||
Fixed facilities and accessories | 4,627 | 4,755 | ||||
Motorized vehicles | 8,227 | 7,901 | ||||
Others | 83,466 | 64,052 | ||||
Total | 4,991,340 | 4,613,199 | ||||
Gross Properties, plant and equipment, | ||||||
Construction in progress | 409,100 | 348,417 | ||||
Land | 758,805 | 689,900 | ||||
Buildings | 2,330,674 | 2,254,927 | ||||
Plant and equipment | 3,895,067 | 3,614,148 | ||||
Information technology equipment | 42,808 | 41,694 | ||||
Fixed facilities and accessories | 17,979 | 17,521 | ||||
Motorized vehicles | 23,172 | 12,921 | ||||
Others | 120,068 | 94,570 | ||||
Total | 7,597,673 | 7,074,098 | ||||
Types of accumulated depreciation and impairment, properties, plant and equipment | ||||||
Buildings | (985,546 | ) | (947,536 | ) | ||
Plant and equipment | (1,531,581 | ) | (1,441,986 | ) | ||
Information technology equipment | (24,307 | ) | (23,073 | ) | ||
Fixed facilities and accessories | (13,352 | ) | (12,766 | ) | ||
Motorized vehicles | (14,945 | ) | (5,020 | ) | ||
Others | (36,602 | ) | (30,518 | ) | ||
Total | (2,606,333 | ) | (2,460,899 | ) | ||
41
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
Description of Property, Plant and Equipment Pledged as Guarantee
Regarding Forestal Río Grande S.A, an affiliate of Fondo de Inversión Bío Bío, a Special Purpose Entity, we note that in October 2006, first and second degree mortgages were executed in favor of JPMorgan Chase Bank N.A. and Arauco, respectively, with prohibition to sell and encumber any property currently belonging to the aforementioned Special Purpose Entity, in order to ensure fulfillment of payments to Fondo de Inversión Bío Bío.
In September 2007, Forestal Río Grande S.A acquired real estate in Yungay, located in Chile’s Region VIII, for which the company executed a first mortgage with prohibition to sell and encumber in favor of, among others, JPMorgan. Similarly, a second mortgage with prohibition to sell and encumber was executed in favor of Arauco.
09/30/2009 ThU.S$ | 12/31/2008 ThU.S$ | 01/01/2008 ThU.S$ | ||||
Collateral amount of property, plant and equipment | 57,120 | 56,758 | 56,411 | |||
Commitments of projects disbursements or to acquire property, plant and equipment | ||||||
09/30/2009 ThU.S$ | 12/31/2008 ThU.S$ | 01/01/2008 ThU.S$ | ||||
Commitments amount for the acquisition of property, plant and equipment | 270,921 | 212,155 | 160,600 | |||
09/30/2009 ThU.S$ | 12/31/2008 ThU.S$ | |||||
Disbursements amount on property, plant and equipment account under construction | 136,308 | 152,547 |
42
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
Movement on Property, Plant and Equipment
Movement of Fixed Assets | Construction in Progress ThU.S.$ | Land ThU.S.$ | Buildings ThU.S.$ | Plant and equipments ThU.S.$ | IT Equipment ThU.S.$ | Fixed Facilities and Accessories ThU.S.$ | Motorized Vehicles ThU.S.$ | Other Property, Plant and Equipment ThU.S.$ | Total ThU.S.$ | ||||||||||||||||||
Initial balance 01/01/2009 | 348,417 | 689,900 | 1,307,391 | 2,172,162 | 18,621 | 4,755 | 7,901 | 64,052 | 4,613,199 | ||||||||||||||||||
Changes | |||||||||||||||||||||||||||
Additions | 136,308 | 22,255 | 2,842 | 7,347 | 35 | 59 | 670 | 15,623 | 185,139 | ||||||||||||||||||
Acquisitions through business combination | 5,199 | 5,825 | 46,582 | 214,112 | 0 | 0 | 481 | 6,163 | 278,362 | ||||||||||||||||||
Disappropriations | (147 | ) | (131 | ) | (168 | ) | (3,279 | ) | (47 | ) | (315 | ) | (307 | ) | (185 | ) | (4,579 | ) | |||||||||
Withdrawals | (209 | ) | (79 | ) | (41 | ) | (597 | ) | (129 | ) | 0 | 0 | (1,037 | ) | (2,092 | ) | |||||||||||
Depreciation costs | 0 | 0 | (41,516 | ) | (102,798 | ) | (1,367 | ) | (433 | ) | (1,027 | ) | (5,068 | ) | (152,209 | ) | |||||||||||
Exchange rate increase (decrease) of foreign currency | 1,138 | 37,939 | 6,722 | 23,311 | 3 | 189 | 300 | 3,918 | 73,520 | ||||||||||||||||||
Other increase/decrease | (81,606 | ) | 3,096 | 23,316 | 53,228 | 1,385 | 372 | 209 | 0 | 0 | |||||||||||||||||
Total Changes | 60,683 | 68,905 | 37,737 | 191,324 | (120 | ) | (128 | ) | 326 | 19,414 | 378,141 | ||||||||||||||||
Closing balance 09/30/2009 | 409,100 | 758,805 | 1,345,128 | 2,363,486 | 18,501 | 4,627 | 8,227 | 83,466 | 4,991,340 | ||||||||||||||||||
Movement of Fixed Assets | Construction in Progress ThU.S.$ | Land ThU.S.$ | Buildings ThU.S.$ | Plant and equipments ThU.S.$ | IT Equipment ThU.S.$ | Fixed Facilities and Accessories ThU.S.$ | Motorized Vehicles ThU.S.$ | Other Property, Plant and Equipment ThU.S.$ | Total ThU.S.$ | ||||||||||||||||||
Initial balance 01/01/2008 | 171,441 | 716,863 | 1,340,117 | 2,279,473 | 15,699 | 5,681 | 7,933 | 72,434 | 4,609,641 | ||||||||||||||||||
Changes | |||||||||||||||||||||||||||
Additions | 212,155 | 11,174 | 23,333 | 27,542 | 4,386 | 228 | 988 | 2,903 | 282,709 | ||||||||||||||||||
Disappropriations | 0 | (476 | ) | (37 | ) | (3,053 | ) | (24 | ) | (2 | ) | (57 | ) | (2,862 | ) | (6,511 | ) | ||||||||||
Withdrawals | (52 | ) | 0 | 0 | (1,476 | ) | 0 | 0 | 0 | 0 | (1,528 | ) | |||||||||||||||
Depreciation costs | 0 | 0 | (60,043 | ) | (131,907 | ) | (1,691 | ) | (1,259 | ) | (872 | ) | (4,274 | ) | (200,046 | ) | |||||||||||
Exchange rate increase (decrease) of foreign currency | (4,076 | ) | (37,661 | ) | (7,045 | ) | (18,029 | ) | (12 | ) | (4 | ) | (90 | ) | (4,149 | ) | (71,066 | ) | |||||||||
Other increase/decrease | (31,051 | ) | 0 | 11,066 | 19,612 | 263 | 111 | (1 | ) | 0 | 0 | ||||||||||||||||
Total Changes | 176,976 | (26,963 | ) | (32,726 | ) | (107,311 | ) | 2,922 | (926 | ) | (32 | ) | (8,382 | ) | 3,558 | ||||||||||||
Closing balance 12/31/2008 | 348,417 | 689,900 | 1,307,391 | 2,172,162 | 18,621 | 4,755 | 7,901 | 64,052 | 4,613,199 |
43
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
The useful lives of property, plant and equipment according to expected use of the assets are as follows:
Minimum | Maximum | |||||
Buildings | Useful Life in Years | 20 | 100 | |||
Plant and equipment | Useful Life in Years | 10 | 80 | |||
Information technology equipment | Useful Life in Years | 3 | 5 | |||
Fixed facilities and accessories | Useful Life in Years | 5 | 20 | |||
Motorized vehicles | Useful Life in Years | 5 | 20 | |||
Others properties, plants and equipment | Useful Life in Years | 3 | 20 |
44
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
NOTE 8. LEASES (IAS 17)
Fixed asset leases are those in which Arauco holds a significant portion of the risks and rewards of ownership and are classified as financial leases. Financial leases are capitalized at commencement of the lease term at the lower of the fair value of the leased property and the present value of the minimum lease payment.
Leases in which the Lessor holds a significant portion of the risks and rewards of ownership are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease.
When assets are leased under a finance lease, the current value of lease payments is treated as a receivable. The difference between the gross payment to be charged and the current value of said payment is shown as capital return.
Disclosure of Finance Leases Classified by Type of Asset, Leases
09/30/2009 ThU.S.$ | 12/31/2008 ThU.S.$ | 01/01/2008 ThU.S.$ | ||||
Property, Plant & Equipment Financial Leasing | 741 | 12,208 | 12,303 | |||
Net Leased Land (Finance Lease) | 0 | 2,915 | 2,915 | |||
Net Leased Buildings (Finance Lease) | 0 | 9,293 | 9,388 | |||
Plant and Equipment under Financial Leasing, Net | 741 | 0 | 0 |
Reconciliation of Finance Lease Minimum Payments, Lessee
Present Value of Minimum Finance Lease Obligations
09/30/2009 | ||||||
Finance Lease | Gross ThU.S.$ | Interest ThU.S.$ | Present Value ThU.S.$ | |||
Due within one year | 391 | 21 | 370 | |||
Due within one and five years | 319 | 9 | 310 | |||
Due beyond five years | 0 | 0 | 0 | |||
Total | 710 | 30 | 680 |
Present Value of Minimum Finance Lease Obligations
12/31/2008 | ||||||
Minimum lease payments, lease payment obligations | Gross ThU.S.$ | Interest ThU.S.$ | Present Value ThU.S.$ | |||
Due within one year | 1,409 | 15 | 1,394 | |||
Due within one and five years | 0 | 0 | 0 | |||
Due beyond five years | 0 | 0 | 0 | |||
Total | 1,409 | 15 | 1,394 |
Present Value of Minimum Finance Lease Obligations
01/01/2008 | ||||||
Finance Lease | Gross ThU.S.$ | Interest ThU.S.$ | Present Value ThU.S.$ | |||
Due within one year | 2,110 | 65 | 2,045 | |||
Due within one and five years | 1,570 | 18 | 1,552 | |||
Due beyond five years | 0 | 0 | 0 | |||
Total | 3,680 | 83 | 3,597 |
45
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
Reconciliation of Finance Lease Minimum Payments, Lessor
Present Value of Minimum Finance Lease Payments
09/30/2009 | ||||||
Minimum Finance Lease Payments Receivable, Finance Lease | Gross ThU.S.$ | Interest ThU.S.$ | Present Value ThU.S.$ | |||
Due within one year | 1,762 | 277 | 1,485 | |||
Due within one and five years | 6,269 | 428 | 5,840 | |||
Due beyond five years | 0 | 0 | 0 | |||
Total | 8,031 | 706 | 7,325 |
Present Value of Minimum Finance Lease Payments
12/31/2008 | ||||||
Minimum Finance Lease Payments Receivable, Finance Lease | Gross ThU.S.$ | Interest ThU.S.$ | Present Value ThU.S.$ | |||
Due within one year | 3,429 | 266 | 3,163 | |||
Due within one and five years | 5,021 | 244 | 4,777 | |||
Due beyond five years | 0 | 0 | 0 | |||
Total | 8,450 | 510 | 7,940 |
Present Value of Minimum Finance Lease Payments
01/01/2008 | ||||||
Minimum Finance Lease Payments Receivable, Finance Lease | Gross Th U.S.$ | Interest Th U.S.$ | Present Value Th U.S.$ | |||
Due within one year | 4,435 | 423 | 4,012 | |||
Due within one and five years | 1,775 | 34 | 1,741 | |||
Due beyond five years | 0 | 0 | 0 | |||
Total | 6,210 | 457 | 5,753 |
Significant Finance Lease Agreements
Arauco holds finance leases as a lessor and lessee detailed within the previous tables, and therefore, there are no contingent payments or restrictions to note.
46
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
NOTE 9. ORDINARY REVENUE RECOGNITION (IAS 18)
Revenues are recognized after Arauco has transferred to the buyer the risks and rewards of ownership and Arauco has no right to dispose of assets, or has effective control of these products, which means that revenues are recorded upon the delivery of goods to the customers according to the terms of the benefit.
Revenues from sales to related companies between segments, which are made at market prices, are eliminated in the consolidated financial statements.
(a) Policy on Revenue recognition due to the Sale of Goods
Revenue from the sale of goods are recognized when an Arauco entity has transferred to the buyer the significant risks and rewards of ownership, when the amount of revenue can be reliably measured, when Arauco cannot influence in management of the sold goods and when it is probable that the economic benefits associated with the transaction will flow to the entity.
Sales are recognized in terms of the arranged price stated within the sales contract, net of volume discounts and estimated refunds at the date of the sale. Volume discounts are evaluated in terms of estimated annual purchases. There is no significant financing component given that sales are carried out with a low average time period, which is in line with market practices.
(b) Policy on Revenue recognition due to Rendering of Services
Arauco has leases and pest control services whose incomes are derived from fixed price service contracts, generally recognized during the period of the service contract on a straight-line basis throughout the duration of the contract.
Types of Ordinary Revenue | January-September | July-September | ||||||
2009 ThU.S.$ | 2008 ThU.S.$ | 2009 ThU.S.$ | 2008 ThU.S.$ | |||||
Sale of goods | 2,162,054 | 2,850,178 | 816,535 | 952,526 | ||||
Service Contracts | 65,550 | 102,723 | 18,129 | 15,671 | ||||
Total | 2,227,604 | 2,952,901 | 834,664 | 968,197 |
47
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
NOTE 10. EMPLOYEE BENEFITS (IAS 19)
Disclosure of Termination Benefits
Correspond to severance payment obligations for years of service due to termination of service contracts, and that arise from benefits stated within work contracts and/or as severance payments stated in the Labor Law.
Description of Recognized Termination Benefits
Estimate of years of service severance payments to be recognized as a future termination payment liability, according to in force work contracts held with the workers and pursuant to actuarial valuation criteria for this type of liability.
Types of Benefits and Expenses by Employee
January-September | July-September | |||||||||
Types of Benefits Expenses by Employee | 2009 ThU.S.$ | 2008 ThU.S.$ | 2009 ThU.S.$ | 2008 ThU.S.$ | ||||||
Personnel Expenses | 139,920 | 145,232 | 47,058 | 48,549 | ||||||
Wages and salaries | 137,311 | 143,448 | 46,031 | 47,983 | ||||||
Termination benefits | 2,609 | 1,784 | 1,027 | 566 | ||||||
Termination Benefits | 09/30/2009 ThU.S.$ | 12/31/2008 ThU.S.$ | 01/01/2008 ThU.S.$ | |||||||
Recognized liability amount for termination contract, current | 2,144 | 2,188 | 2,478 | |||||||
Recognized liability amount for termination contract, non-current | 22,948 | 18,109 | 19,445 | |||||||
Total | 25,092 | 20,297 | 21,923 | |||||||
Movement termination benefits | 30/09/2009 ThU.S.$ | 31/12/2008 ThU.S.$ | ||||||||
Initial balance | 20,297 | 21,923 | ||||||||
Increase (decrease) in provision for the period | 1,992 | 5,454 | ||||||||
Payment period under provision | (756 | ) | (1,002 | ) | ||||||
Increase (decrease) for currency exchange | 3,559 | (6,078 | ) | |||||||
Total balance | 25,092 | 20,297 |
48
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
NOTE 11. EFFECT OF FOREIGN CURRENCY EXCHANGE RATE VARIATIONS (IAS 21)
The items included in the financial statements of all Arauco Companies are valued using the Company’s primary economic currency in which the company operates (functional currency). Consolidated financial statements are presented in US Dollars, which is the functional currency of the Parent Company and of the Group.
Functional currency of subsidiaries and associate companies in Brazil is the Brazilian Real. Therefore, their individual financial statements have been expressed according to the presentation currency as follows:
(i) | Assets and liabilities for each balance sheet are translated at the closing exchange rate; |
(ii) | Incomes and expenses for each income statement are translated at the average monthly exchange rate, given that to date this average has been a fair estimate of the cumulative effect of the exchange rates at the time of the transactions; |
(iii) | All the resulting exchange differences are recognized as a separate component of net equity. |
In consolidation, the exchange rate differences arising from the translation of a net investment in companies, which use currencies other than the US Dollar, and those from loans and other instruments in foreign currency recognized as hedging of these investments, are assigned to net equity.
January-September | July-September | |||||||||
2009 ThU.S.$ | 2008 ThU.S.$ | 2009 ThU.S.$ | 2008 ThU.S.$ | |||||||
Exchange differences recognized in profit and loss, except for financial instruments measured at fair value through profit and loss | 21,161 | (6,249 | ) | 20,766 | (32,141 | ) | ||||
Accumulated translation adjustments | 10,207 | (48,274 | ) | 56,387 | (102,626 | ) |
49
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
NOTE 12. BORROWING COSTS (IAS 23)
Arauco capitalized interest on existing investment projects. For the recording of this capitalization Arauco estimated the average rate of loans to finance these investment projects.
January-September | July-September | |||||||
Property, plant and equipment capitalized cost | 2009 ThU.S.$ | 2008 ThU.S.$ | 2009 ThU.S.$ | 2008 ThU.S.$ | ||||
Property, plant and equipment capitalized interest cost rate | 5.53 | 5.99 | 5.61 | 5.99 | ||||
Amount of the capitalized interest cost, property, plant and equipment | 8,868 | 6,135 | 3,085 | 2,383 |
50
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
NOTE 13. RELATED PARTIES (IAS 24)
Related Party Disclosure
Outstanding balances with related parties at closure of each period correspond mainly to regular commercial operations negotiated in Chilean Pesos, where collection or payment deadlines do not often exceed 30 days and in general do not have adjustment or interest clauses.
At the date of these financial statements there are no provisions for doubtful debts and no guarantees provided associated with inter-company balances.
Relationship between Controller and Entity
Head Office – Subsidiary
Name of Group’s Main Controller
AntarChile S.A.
Name of the Intermediate Controlling Entity that Prepares Financial Statements for Public Use
Empresas Copec S.A.
Salaries Received by Key Management Personnel by Category
Key personnel salaries consist of a fixed monthly rate, where eventually an annual discretionary bonus may exist.
Pricing Strategy Terms and Conditions Corresponding to Transactions with Related Parties
Transactions with related parties equity related to other transactions performed on a regular basis in the market.
51
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
Detail of Relationship between Parent Company and Subsidiary
% Share 09/30/2009 | % Share 12/31/2008 | |||||||||||||
ID No | Company Name | Direct | Indirect | Total | Direct | Indirect | Total | |||||||
— | Agenciamiento Y Servicios Profesionales S.A. (Mexico) | 0.0020 | 99.9966 | 99.9986 | 0.0020 | 99.9966 | 99.9986 | |||||||
— | Alto Parana S.A. (Argentina) | 0 | 99.9762 | 99.9762 | 0 | 99.9762 | 99.9762 | |||||||
— | Arauco Colombia S.A. (Colombia) | 1.5000 | 98.4976 | 99.9976 | 1.5000 | 98.4976 | 99.9976 | |||||||
— | Arauco Denmark Aps (Denmark) | 0 | 99.9991 | 99.9991 | 0 | 99.9991 | 99.9991 | |||||||
96765270-9 | Arauco Distribucion S.A. | 0 | 99.9992 | 99.9992 | 0 | 99.9992 | 99.9992 | |||||||
— | Arauco Do Brasil S.A. (Brazil) | 0 | 99.9986 | 99.9986 | 0 | 0 | 0 | |||||||
— | Arauco Ecuador S.A. (Ecuador) | 0.1000 | 99.8986 | 99.9986 | 0.1000 | 99.8986 | 99.9986 | |||||||
— | Arauco Florestal Arapoti S.A. (Brazil) | 0 | 79.9989 | 79.9989 | 0 | 79.9989 | 79.9989 | |||||||
— | Arauco Forest Brasil S.A. (Brazil) | 33.7137 | 66.2851 | 99.9988 | 33.7137 | 66.2851 | 99.9988 | |||||||
— | Arauco Forest Products B.V. (Holland) | 0 | 99.9991 | 99.9991 | 0 | 99.9991 | 99.9991 | |||||||
96547510-9 | Arauco Generacion S.A. | 98.0000 | 1.9985 | 99.9985 | 98.0000 | 1.9985 | 99.9985 | |||||||
— | Arauco Honduras S. De R. L. De C.V. (Honduras) | 0.0616 | 99.9370 | 99.9986 | 0.0616 | 99.9370 | 99.9986 | |||||||
96563550-5 | Arauco Internacional S.A. | 98.0377 | 1.9609 | 99.9986 | 98.0377 | 1.9609 | 99.9986 | |||||||
— | Arauco Peru S.A. (Peru) | 0.0013 | 99.9973 | 99.9986 | 0.0013 | 99.9973 | 99.9986 | |||||||
— | Arauco Wood Products, Inc. (USA) | 0.3953 | 99.6033 | 99.9986 | 0.3953 | 99.6033 | 99.9986 | |||||||
— | Araucomex S.A. De C.V. (Mexico) | 0.0005 | 99.9981 | 99.9986 | 0.0005 | 99.9981 | 99.9986 | |||||||
96565750-9 | Aserraderos Arauco S.A. | 99.0000 | 0.9992 | 99.9992 | 99.0000 | 0.9992 | 99.9992 | |||||||
82152700-7 | Bosques Arauco S.A. | 1.0000 | 98.9256 | 99.9256 | 1.0000 | 98.9256 | 99.9256 | |||||||
96657900-5 | Controladora De Plagas Forestales S.A. | 0 | 59.6326 | 59.6326 | 0 | 61.1714 | 61.1714 | |||||||
— | Faplac S.A. (Argentina) | 0 | 99.9979 | 99.9979 | 0 | 99.9979 | 99.9979 | |||||||
— | Flooring S.A. (Argentina) | 0 | 99.9984 | 99.9984 | 0 | 99.9984 | 99.9984 | |||||||
— | Forestal Arauco Guatemala S.A. (Guatemala) | 0.1223 | 99.8763 | 99.9986 | 0.1223 | 99.8763 | 99.9986 | |||||||
96573310-8 | Forestal Arauco S.A. | 99.9248 | 0 | 99.9248 | 99.9248 | 0 | 99.9248 | |||||||
85805200-9 | Forestal Celco S.A. | 1.0000 | 98.9256 | 99.9256 | 1.0000 | 98.9256 | 99.9256 | |||||||
93838000-7 | Forestal Cholguán S.A. | 0 | 97.4281 | 97.4281 | 0 | 97.4281 | 97.4281 | |||||||
— | Forestal Concepción S.A. (Panamá) | 0.0050 | 99.9936 | 99.9986 | 0.0050 | 99.9936 | 99.9986 | |||||||
— | Forestal Cono Sur S.A. (Uruguay) | 0 | 99.9986 | 99.9986 | 0 | 99.9986 | 99.9986 | |||||||
78049140-K | Forestal Los Lagos S.A. | 0 | 79.9405 | 79.9405 | 0 | 79.9405 | 79.9405 | |||||||
— | Forestal Misiones S.A. (Argentina) | 0 | 99.9885 | 99.9885 | 0 | 99.9885 | 99.9885 | |||||||
— | Forestal Nuestra Señora Del Carmen S.A. | 10.0000 | 89.9987 | 99.9987 | 10.0000 | 89.9987 | 99.9987 | |||||||
96567940-5 | Forestal Valdivia S.A. | 1.0000 | 98.9256 | 99.9256 | 1.0000 | 98.9256 | 99.9256 | |||||||
— | Industrias Forestales S.A. (Argentina) | 9.9770 | 90.0217 | 99.9987 | 9.9770 | 90.0217 | 99.9987 | |||||||
— | Inversiones Celco S.L. (Spain) | 31.8904 | 68.1087 | 99.9991 | 31.8904 | 68.1087 | 99.9991 | |||||||
79990550-7 | Investigaciones Forestales Bioforest S.A. | 1.0000 | 98.9256 | 99.9256 | 1.0000 | 98.9256 | 99.9256 | |||||||
— | Leasing Forestal S.A. (Argentina) | 0 | 99.9767 | 99.9767 | 0 | 99.9767 | 99.9767 | |||||||
— | Lucchese Empreendimientos E Participacoes Ltda. (Brazil) | 0 | 99.9885 | 99.9885 | 0 | 99.9885 | 99.9885 | |||||||
99550470-7 | Molduras Trupan S.A. | 0 | 0 | 0 | 1.0000 | 98.9992 | 99.9992 | |||||||
96510970-6 | Paneles Arauco S.A. | 99.0000 | 0.9992 | 99.9992 | 99.0000 | 0.9992 | 99.9992 | |||||||
— | Placas Do Parana S.A. (Brazil) | 7.8207 | 92.1780 | 99.9987 | 7.8207 | 92.1780 | 99.9987 | |||||||
— | Savitar (Argentina) | 0 | 99.9985 | 99.9985 | 0 | 0 | 0 | |||||||
96637330-K | Servicios Logisticos Arauco S.A. | 45.0000 | 54.9995 | 99.9995 | 45.0000 | 54.9995 | 99.9995 | |||||||
— | Southwoods-Arauco Lumber And Millwork Llc (USA) | 0 | 0 | 0 | 0 | 99.6110 | 99.6110 |
Subsidiaries listed in the above table and Special Purpose Entity Fondo de Inversión Bío Bío and its subsidiary Forestal Río Grande S.A. are included in the consolidation process.
Termination Benefits received by Key Management Personnel
January-September | July-September | |||||||
2009 ThU.S.$ | 2008 ThU.S.$ | 2009 ThU.S.$ | 2008 ThU.S.$ | |||||
Salaries and bonus | 24,264 | 26,022 | 7,155 | 9,346 | ||||
Diet Directory | 943 | 936 | 346 | 292 | ||||
Termination benefits | 603 | 88 | 342 | 85 | ||||
Total | 25,810 | 27,046 | 7,843 | 9,723 |
52
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
Related Party Receivables
Name of Related Party | Corresponding ID No. | Nature of Relationship | Country of Origin | Currency Rate | Maximum Maturity | 09/30/2009 ThU.S.$ | 12/31/2008 ThU.S.$ | 01/01/2008 ThU.S.$ | ||||||||
Forestal Mininco S.A. | 91,440,000-7 | Indirect | Chile | Chilean pesos | 30 days | 9 | 824 | 0 | ||||||||
CMPC Maderas S.A. | 95,304,000-K | Indirect | Chile | Chilean pesos | 30 days | 0 | 32 | 24 | ||||||||
Eka Chile S.A. | 99,500,140-3 | Associates | Chile | Chilean pesos | 30 days | 1,842 | 0 | 915 | ||||||||
Forestal del Sur S.A. | 79,825,060-4 | Indirect | Chile | Chilean pesos | 30 days | 0 | 3,947 | 561 | ||||||||
Compañía Puerto de Coronel S.A. | 79,895,330-3 | Associates | Chile | Chilean pesos | 30 days | 49 | 29 | 0 | ||||||||
Stora Enso Arapoti Industria de Papel S.A. | — | Associates | Brazil | Real | 30 days | 847 | 643 | 9,778 | ||||||||
Fundación Educacional Arauco | 71,625,000-8 | Other related party | Chile | Chilean pesos | 30 days | 723 | 0 | 0 | ||||||||
Dynea Brasil S.A. | — | Associates | Brazil | Real | 30 days | 124 | 0 | 101 | ||||||||
Total | 3,594 | 5,475 | 11,379 | |||||||||||||
Related Party Payables
Name of Related Party | Corresponding ID No. | Nature of Relationship | Country of Origin | Currency Rate | Maximum Maturity | 09/30/2009 ThU.S.$ | 12/31/2008 ThU.S.$ | 01/01/2008 ThU.S.$ | ||||||||
Compañia de Petróleos de Chile S.A. | 99,520,000-7 | Affiliate of shareholder | Chile | Chilean pesos | 30 days | 7,517 | 3,233 | 6,011 | ||||||||
Abastible S.A. | 91,806,000-6 | Affiliate of shareholder | Chile | Chilean pesos | 30 days | 197 | 132 | 244 | ||||||||
Depósitos Portuarios Lirquén S.A. | 96,871,870-3 | Other related party | Chile | Chilean pesos | 30 days | 4 | 4 | 2 | ||||||||
Eka Chile S.A. | 99,500,140-3 | Associates | Chile | Chilean pesos | 30 days | 1,711 | 3,951 | 0 | ||||||||
Fundación Educacional Arauco | 71,625,000-8 | Other related party | Chile | Chilean pesos | 30 days | 0 | 105 | 645 | ||||||||
Sigma S.A. | 86,370,800-1 | Other related party | Chile | Chilean pesos | 30 days | 4 | 0 | 4 | ||||||||
Codelco Chile | 61,704,000-k | Indirect | Chile | Chilean pesos | 30 days | 4 | 5 | 1 | ||||||||
Empresa Nacional de Telecomunicaciones S.A. | 92,580,000-7 | Indirect | Chile | Chilean pesos | 30 days | 16 | 12 | 9 | ||||||||
Servicios Corporativos Sercor S.A. | 96,925,430-1 | Associates | Chile | Chilean pesos | 30 days | 4 | 3 | 4 | ||||||||
Forestal del Sur S.A. | 79,825,060-4 | Other related party | Chile | Chilean pesos | 30 days | 0 | 1,488 | 737 | ||||||||
Puerto de Lirquén S.A. | 82,777,100-7 | Associates | Chile | Chilean pesos | 30 days | 790 | 0 | 459 | ||||||||
Compañía Puerto de Coronel S.A. | 79,895,330-3 | Associates | Chile | Chilean pesos | 30 days | 12 | 0 | 0 | ||||||||
Genómica Forestal S.A. | 76,743,130-9 | Associates | Chile | Chilean pesos | 30 days | 0 | 169 | 0 | ||||||||
Edipac S.A. | 88,566,900-K | Associates | Chile | Chilean pesos | 30 days | 5 | 0 | 0 | ||||||||
Total | 10,264 | 9,102 | 8,116 | |||||||||||||
Related party transactions
Purchases
Name of Related Party | Corresponding ID No. | Nature of Relationship | Country of Origin | Transaction Detail | 09/30/2009 ThU.S.$ | 12/31/2008 ThU.S.$ | ||||||
Abastible S.A. | 91,806,000-6 | Affiliate of shareholder | Chile | Fuel | 1,853 | 4,175 | ||||||
Empresas Copec S.A. | 90,690,000-9 | Parent Company | Chile | Management service | 215 | 272 | ||||||
Compañia de Petróleos de Chile S.A. | 99,520,000-7 | Affiliate of shareholder | Chile | Fuel and lubricant | 50,011 | 121,436 | ||||||
Copec Mobil S.A. | 85,759,000-7 | Affiliate of shareholder | Chile | Lubricant | 0 | 1,945 | ||||||
Compañía Puerto de Coronel S.A. | 79,895,330-3 | Associates | Chile | Transport and stowage | 2,061 | 3,156 | ||||||
Codelco Chile | 61,704,000-k | Indirect | Chile | Supplies | 1,717 | 1,742 | ||||||
Dynea Brasil S.A. | — | Associates | Brazil | Chemical products | 20,836 | 41,457 | ||||||
Dynea Brasil S.A. | — | Associates | Brazil | Melamine paper | 13,444 | 20,961 | ||||||
Eka Chile S.A. | 99,500,140-3 | Associates | Chile | Sodium chlorate | 45,091 | 99,465 | ||||||
Eka Chile S.A. | 99,500,140-3 | Associates | Chile | Supplies | 381 | 33 | ||||||
Forestal del Sur S.A. | 79,825,060-4 | Indirect | Chile | Wood and logs | 882 | 1,461 | ||||||
Forestal del Sur S.A. | 79,825,060-4 | Indirect | Chile | Cost recovery | 15 | 543 | ||||||
Portaluppi, Guzmán y Bezanilla Abogados | 78,096,080-9 | Other related party | Chile | Legal services | 1,076 | 1,443 | ||||||
Compañía Puerto de Lirquén S.A. | 82,777,100-7 | Associates | Chile | Port services | 6,521 | 8,855 | ||||||
CMPC Maderas S.A. | 95,304,000-k | Indirect | Chile | Logs | 326 | 327 |
Sales
Name of Related Party | Corresponding ID No. | Nature of Relationship | Country of Origin | Transaction Detail | 09/30/2009 ThU.S.$ | 12/31/2008 ThU.S.$ | ||||||
Colbún S.A. | 96,505,760-9 | Indirect | Chile | Electrical power | 11,200 | 4,080 | ||||||
Dynea Brasil S.A. | — | Associates | Brazil | Management service | 386 | 523 | ||||||
Dynea Brasil S.A. | — | Associates | Brazil | Fuel | 529 | 456 | ||||||
Eka Chile S.A. | 99,500,140-3 | Associates | Chile | Electrical power | 14,696 | 66,166 | ||||||
Sodimac S.A. | 96,792,430-k | Indirect | Chile | Wood | 22,818 | 54,938 | ||||||
Stora Enso Industria de Papel S.A. | — | Associates | Brazil | Wood | 6,474 | 9,315 | ||||||
Forestal del Sur S.A. | 79,825,060-4 | Indirect | Chile | Woodchip | 11,658 | 3,533 | ||||||
Forestal Mininco S.A. | 91,440,000-7 | Indirect | Chile | Wood | 635 | 2,471 | ||||||
CMPC Maderas S.A. | 95,304,000-k | Indirect | chile | Other sales | 143 | 368 |
53
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
NOTE 14. CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS (IAS 27)
Subsidiaries are all entities over which Arauco has the power to manage finance and operational policies. This generally means holding more than one half of the voting rights. Stock and the effect of the potential voting rights that are currently being exercised or converted are considered when evaluating whether the Group controls another entity. Subsidiaries are consolidated as of the date in which control is transferred to the Group, and are excluded when control is terminated.
Arauco applies the acquisition method to recognize the acquisition of subsidiaries. Acquisition cost is the fair value of assets delivered, of equity instruments issued and of the liabilities incurred or committed at the date of exchange, plus all direct costs attributable to the acquisition. Identifiable acquired assets and liabilities as well as the contingencies committed to in business combinations are initially recognized at fair value at the date of acquisition, despite minority interest scope. Excess of acquisition cost over the Fair Value for the Group’s share of the identifiable net assets acquired is recorded as goodwill. If this is less than Fair Value of the net assets of the subsidiary acquired, the difference is recognized directly in the statement of income.
Intercompany transactions, accounts receivable, accounts payable and unrealized profits derived from the Group’s intercompany transactions are derecognized.
When it is necessary to ensure uniformity with policies adopted by the Group, accounting policies of the subsidiaries are modified. Minority interests are presented as a separate component of equity.
Disclosure of Subsidiary Investments
On 26 August, 2009, Placas do Parana SA, Arauco’s Brazilian subsidiary, acquired 100% shares of the company Tafisa Brasil SA (current Arauco do Brasil S.A.) through a purchase agreement signed with SCS societies Beheer, B.V. and Tafiber-Tableros de Fibras Ibéricos, S.L., subsidiaries of Sonae Indústria, SGPS, S.A. This operation has a budget of U.S.$227 million approximately, distributed in U.S. $165,200,000 to pay for Tafisa Brasil S.A.’ shares, while the remainder corresponds to liabilities of the acquired company. This investment has recognized a provisional fair value, which is currently under review. As at September 30, 2009, goodwill was estimated to ThU.S.$59,704.
On June 30, 2009, Arauco Internacional S.A. acquired 80% participation of Savitar in ThU.S.$10,131, an operation that generated a goodwill of ThU.S.$3,570. Previously, on March 28, 2008, materialized through the subsidiary Faplac, Arauco Internacional S.A. acquired 20% of the entity. The fair value of this investment is currently under revision.
On December 18, 2008, a capital contribution was made to the company Lucchese Empreendimientos e Participacoes Ltda. through the subsidiary Alto Paraná S.A. With this, the Group achieved a 99.99% share.
Details of the subsidiaries are set out in Note 13.
54
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
Summarized financial information of major subsidiaries of Arauco:
Significant subsidiary | Aserraderos Arauco S.A. | |
Country of incorporation | Chile | |
Functional currency | U.S. Dollar | |
Percentage of participation | 99.9992 |
30/09/2009 | ||||||
Assets ThU.S.$ | Liabilities ThU.S.$ | |||||
Current subsidiary | 306,029 | 44,258 | ||||
Non-current of subsidiary | 234,682 | 18,279 | ||||
Total subsidiary | 540,711 | 62,537 | ||||
31/12/2008 | ||||||
Assets ThU.S.$ | Liabilities ThU.S.$ | |||||
Current subsidiary | 306,954 | 38,803 | ||||
Non-current of subsidiary | 219,215 | 16,447 | ||||
Total subsidiary | 526,169 | 55,250 | ||||
30/09/2009 | 30/09/2008 | |||||
ThU.S.$ | ThU.S.$ | |||||
Ordinary income of subsidiary | 288,935 | 478,307 | ||||
Ordinary expenses of subsidiary | (282,953 | ) | (437,800 | ) | ||
Net Gain (loss) of subsidiary | 5,982 | 40,507 |
Significant subsidiary | Paneles Arauco S.A. | |
Country of incorporation | Chile | |
Functional currency | U.S. Dollar | |
Percentage of participation | 99.9992 |
30/09/2009 | ||||||
Assets ThU.S.$ | Liabilities ThU.S.$ | |||||
Current subsidiary | 334,851 | 40,247 | ||||
Non-current of subsidiary | 314,563 | 77,736 | ||||
Total subsidiary | 649,414 | 117,983 | ||||
31/12/2008 | ||||||
Assets ThU.S.$ | Liabilities ThU.S.$ | |||||
Current subsidiary | 320,135 | 43,588 | ||||
Non-current of subsidiary | 244,576 | 22,374 | ||||
Total subsidiary | 564,711 | 65,962 | ||||
30/09/2009 | 30/09/2008 | |||||
ThU.S.$ | ThU.S.$ | |||||
Ordinary income of subsidiary | 334,973 | 434,001 | ||||
Ordinary expenses of subsidiary | (303,605 | ) | (355,626 | ) | ||
Net Gain (loss) of subsidiary | 31,368 | 78,375 |
55
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
Significant subsidiary | Arauco Internacinal S.A. | |
Country of incorporation | Chile | |
Functional currency | U.S. Dollar | |
Percentage of participation | 99.9986 |
30/09/2009 | ||||||
Assets ThU.S.$ | Liabilities ThU.S.$ | |||||
Current subsidiary | 25,430 | 244,120 | ||||
Non-current of subsidiary | 1,430,461 | 5,089 | ||||
Total subsidiary | 1,455,891 | 249,209 | ||||
31/12/2008 | ||||||
Assets ThU.S.$ | Liabilities ThU.S.$ | |||||
Current subsidiary | 10,330 | 126,499 | ||||
Non-current of subsidiary | 1,144,911 | 2,508 | ||||
Total subsidiary | 1,155,241 | 129,007 | ||||
30/09/2009 | 30/09/2008 | |||||
ThU.S.$ | ThU.S.$ | |||||
Ordinary income of subsidiary | 60,014 | 83,186 | ||||
Ordinary expenses of subsidiary | (9,994 | ) | (5,615 | ) | ||
Net Gain (loss) of subsidiary | 50,020 | 77,571 |
Significant subsidiary | Forestal Arauco S.A. | |
Country of incorporation | Chile | |
Functional currency | U.S. Dollar | |
Percentage of participation | 99.9248 |
30/09/2009 | ||||||
Assets ThU.S.$ | Liabilities ThU.S.$ | |||||
Current subsidiary | 4,345 | 221,681 | ||||
Non-current of subsidiary | 2,808,265 | 227 | ||||
Total subsidiary | 2,812,610 | 221,908 | ||||
31/12/2008 | ||||||
Assets ThU.S.$ | Liabilities ThU.S.$ | |||||
Current subsidiary | 5,729 | 214,420 | ||||
Non-current of subsidiary | 2,777,267 | 109 | ||||
Total subsidiary | 2,782,996 | 214,529 | ||||
30/09/2009 | 30/09/2008 | |||||
ThU.S.$ | ThU.S.$ | |||||
Ordinary income of subsidiary | 33,631 | 2,097 | ||||
Ordinary expenses of subsidiary | (14,340 | ) | (54,094 | ) | ||
Net Gain (loss) of subsidiary | 19,291 | (51,997 | ) |
56
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
NOTE 15. INVESTMENTS IN ASSOCIATES (IAS 28)
Associates are all the entities over which Arauco has significant influence but no control. This generally implies holding a share of between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method and are initially recorded at cost, and the book value is increased or decreased in order to recognize the corresponding share in the income statement for the period and in the comprehensive income statements as a result of the adjustments from the conversion to other currencies in the financial statements. Arauco investments in associates include the purchased goodwill (net of any loss for accumulated impairment).
Realized Investments
At September 30, 2009, no new investments in associates to report.
Detail of Investments in Associates
The following table shows information on Investments in Associates at September 30, 2009 and December 31, 2008, respectively:
Name of Associate | Puerto de Lirquén S.A. | |||
Country of Incorporation of Associate | Chile | |||
Functional Currency | Pesos | |||
Main Activities of Associate | Dock and warehousing operations for owned assets and to third parties, loading and unloading of all types of goods, as well as warehousing, transportation and mobilization operations | |||
Percentage Share in Associate % | 20.13809% | |||
09/30/009 | 12/31/2008 | |||
Cost of Investment in Associate | ThU.S.$40,091 | ThU.S.$37,589 | ||
Name of Associate | Inversiones Puerto Coronel S.A. | |||
Country of Incorporation of Associate | Chile | |||
Functional Currency | US Dollar | |||
Main Activities of Associate | Investments in all kinds of personal and real state, company acquisitions and all kinds of securities and investment instruments, investment management and development and/or participation in all kinds of businesses and companies related to industrial, port, forest and commercial activities. | |||
Percentage Share in Associate % | 50.00% | |||
09/30/2009 | 12/31/2008 | |||
Cost of Investment in Associate | ThU.S.$24,883 | ThU.S.$25,741 |
57
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
Name of Associate | Servicios Corporativos Sercor S.A. | |||
Country of Incorporation of Associate | Chile | |||
Functional Currency | Pesos | |||
Main Activities of Associate | Consulting services to Boards of Directors and Management of all kinds of companies related to Business Management | |||
Percentage Share in Associate % | 20.00% | |||
09/30/2009 | 12/31/2008 | |||
Cost of Investment in Associate | ThU.S.$1,202 | ThU.S.$953 | ||
Name of Associate | Eka Chile S.A. | |||
Country of Incorporation of Associate | Chile | |||
Functional Currency | US Dollar | |||
Main Activities of Associate | Production, import, export and in general, the acquisition, disposal and commercialization of chemical products, machinery and equipment for industrial processing. Additionally, the Company can offer maintenance services to the above mentioned equipment | |||
Percentage Share in Associate % | 50.00% | |||
09/30/2009 | 12/31/2008 | |||
Cost of Investment in Associate | ThU.S.$26,224 | ThU.S.$28,981 | ||
Name of Associate | Dynea Brasil S.A. | |||
Country of Incorporation of Associate | Brazil | |||
Functional Currency | Real | |||
Main Activities of Associate | a) Production and sale of resins; b) Paper Impregnation for panel coating and commercialization | |||
Percentage Share in Associate % | 50.00% | |||
09/30/2009 | 12/31/2008 | |||
Cost of Investment in Associate | Th U.S. $13,015 | Th U.S. $12,234 | ||
Name of Associate | Stora Enso Arapoti Industria de Papel S.A. | |||
Country of Incorporation of Associate | Brazil | |||
Functional Currency | Real | |||
Main Activities of Associate | Industrialization and commercialization of paper and cellulose, raw materials and by-products | |||
Percentage Share in Associate % | 20.00% | |||
09/30/2009 | 12/31/2008 | |||
Cost of Investment in Associate | ThU.S.$37,663 | ThU.S.$34,443 |
58
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
Name of Associate | Genómica Forestal S.A. | |||
Country of Incorporation of Associate | Chile | |||
Functional Currency | Pesos | |||
Main Activities of Associate | Developing forestry genomics, through the use of biotechnological, molecular and bioinformatic tools with the sole purpose of strengthening company genetic programs and with this, improve the competitive position of Chilean forestry industries for priority species. | |||
Percentage Share in Associate % | 25.00% | |||
09/30/2009 | 12/31/2008 | |||
Cost of Investment in Associate | ThU.S.$19 | ThU.S.$8 | ||
Name of Associate | Savitar | |||
Country of Incorporation of Associate | Argentina | |||
Functional Currency | US Dollar | |||
Main Activities of Associate | Timber Farming | |||
Percentage Share in Associate % | 20.00% | |||
09/30/2009 | 12/31/2008 | |||
Cost of Investment in Associate | It is subsidiary | ThU.S.$1,641 |
Summarized financial Information of Associates
09/30/2009 | ||||||
Sum of Assets ThU.S.$ | Sum of Liabilities ThU.S.$ | |||||
Current assets of associates | 166,719 | 54,516 | ||||
Non-current assets of associate | 395,129 | 24,660 | ||||
Equity | 0 | 482,672 | ||||
Total Associates | 561,848 | 561,848 | ||||
12/31/2008 | ||||||
Sum of Assets ThU.S.$ | Sum of Liabilities ThU.S.$ | |||||
Current assets of associates | 170,755 | 53,671 | ||||
Non-current assets of associate | 391,046 | 31,017 | ||||
Equity | 0 | 477,113 | ||||
Total Associates | 561,801 | 561,801 | ||||
09/30/2009 ThU.S.$ | 09/30/2008 ThU.S.$ | |||||
Ordinary income of associates | 126,330 | 351,044 | ||||
Ordinary expenses of associates | (104,349 | ) | (333,425 | ) | ||
Net profit (loss) of associates | 21,981 | 17,619 |
59
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
Movement in Investment in Associates
09/30/2009 ThU.S.$ | 12/31/2008 ThU.S.$ | |||||
Investments in associates accounted for using the equity method, opening balance | 141,590 | 153,861 | ||||
Investment Changes in Associate Companies (presentation) | ||||||
Investment in Associates, Additions | 0 | 10,353 | ||||
Equity in Ordinary Profit (Loss) investments in associates | 5,682 | 5,839 | ||||
Dividends Received, Investments in Associates | (19,297 | ) | (4,427 | ) | ||
Impairment, Investments in Associates | 0 | (511 | ) | |||
Increase (Decrease) in foreign exchange translation investment in associates | 15,634 | (19,523 | ) | |||
Other Increase (Decrease) in foreign exchange translation investment in associates | (512 | ) | (4,002 | ) | ||
Changes in Associate Company Investments, Total | 1,507 | (12,271 | ) | |||
Investments in Associates accounted for using the equity method, closing balance | 143,097 | 141,590 | ||||
60
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
NOTE 16. INTERESTS IN JOINT VENTURES (IAS 31)
Pursuant to IAS 31, we have opted for registering the investment by applying the equity method.
Once the investor has reduced the value of the investment to zero, additional losses shall be accounted for through liability recognition, only if incurred in legal or implicit obligations, or if payments have been made on behalf of the associate of the Joint Venture. If the Joint Venture associate receives subsequent earnings, the investor shall continue to recognize its part when the share of said earnings equals the corresponding unrecognized losses.
Arauco holds a 50% share in jointly held Eka Chile S.A., a company that sells sodium chlorate to cellulose plants in Chile. A contractual agreement exists with the company in which Arauco has initiated joint venture economic activities.
Summarized Joint Venture Financial Information
Summary of total Joint Venture Assets, Liabilities, Expenses and Income
09/30/2009 | 12/31/2008 | |||||||
Sum of Assets ThU.S.$ | Sum of Liabilities ThU.S.$ | Sum of Assets ThU.S.$ | Sum of Liabilities ThU.S.$ | |||||
Joint Venture Current Assets | 29,203 | 7,001 | 33,006 | 7,291 | ||||
Joint Venture Non-Current Assets | 34,717 | 4,471 | 35,997 | 3,750 | ||||
Equity | 0 | 52,448 | 0 | 57,962 | ||||
Total Joint Venture | 63,920 | 63,920 | 69,003 | 69,003 |
Below sets out of net results of Eka Chile S.A. grouping separately the income and the expenditure.
09/30/2009 | 09/30/2008 | |||||
Joint Venture Ordinary Incomes | 50,186 | 68,163 | ||||
Joint Venture Expenses | (46,902 | ) | (69,397 | ) | ||
Joint Venture Net Profit (Loss) | 3,284 | (1,234 | ) |
Principal Joint Venture Activities
Production, import, export and in general, the acquisition, sale and commercialization of chemical products, machinery and equipment for the industrial processing of these products. Additionally, the Company offers maintenance services for the aforementioned machinery and equipment.
Cost of Investment of Joint Venture
At September 30, 2009 investment in Eka Chile S.A. amounted to ThU.S.$26,224 and as of December 31, 2008 the investment amounted to ThU.S.$28,981.
61
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
NOTE 17. EARNINGS PER SHARE (IAS 33)
As a general matter, the Company expects to maintain its policy on dividends, for all future tax periods, around 40% of net profits to be distributed for each tax year; considering the alternative of a provisional dividend at year end.
On April 23, 2009, at the Ordinary General Shareholders Meeting No. 30 it was agreed to distribute a definitive dividend of U.S.$0.781676137 per share, which was paid as of May 7, 2009 and charged to the net profits of the period (2008 tax year).
On November 25, 2008, the Board of Directors agreed to distribute a provisional dividend of US$0.8920 per share, which was paid as of December 10, 2008 and charged to the net profits for the period (2008 tax year).
On April 22, 2008, at the Ordinary General Shareholders Meeting No. 29 it was agreed to distribute a definitive dividend of $814 per share, which was paid as of May 7, 2008 and charged to the net profits of the period (2007 tax year).
62
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
NOTE 18. IMPAIRMENT OF ASSETS (IAS 36)
The decrease in demand of sawn timber products due primarily to the credit crisis and the continued downturn in the real state market in the United States resulted in Arauco’s decision to close the following sawmills in Chile: La Araucana, Escuadrón and Lomas Coloradas.
Therefore, the fair value of the assets of the permanently closed facilities was nominal and was determined based on the estimated sale and salvage value. This determination was made on December 31, 2008.
The amount provisioned in asset for impairment is ThU.S.$5,412 at September 30, 2009 (ThU.S.$5,412 at December 31, 2008).
Cash-Generating Unit with Impaired Assets
Information of Impaired Assets as of September 30, 2009 and December 31, 2008 respectively:
Description of Cash-generating Unit | La Araucana | |||
Type of Impaired Asset | Saw mill | |||
Principal Segment to be reported, Cash-generating Unit | Sawn Timber | |||
Terms and Conditions used to Determine Fair Value Less Sales Costs | Third party assessments | |||
Discount rate Used for Current Estimates of Value in Use | — | |||
Key Assumptions Used to Determine Recoverable amounts | Fair value less sales cost | |||
09/30/2009 | 12/31/2008 | |||
Impairment | ThU.S.$541 | ThU.S.$541 | ||
Description of Cash-generating Unit | Escuadrón | |||
Type of Impaired Asset | Saw mill | |||
Principal Segment to be reported, Cash-generating Unit | Sawn Timber | |||
Terms and Conditions used to Determine Fair Value Less sales Costs | Third party assessments | |||
Discount rate Used for Current Estimates of Value in Use | — | |||
Key Assumptions Used to Determine Recoverable amounts | Fair value less sales cost | |||
09/30/2009 | 12/31/2008 | |||
Impairment | ThU.S.$ 1,430 | ThU.S.$ 1,430 | ||
Description of Cash-generating Unit | Lomas Coloradas | |||
Type of Impaired Asset | Saw mill | |||
Principal Segment to be reported, Cash-generating Unit | Sawn Timber | |||
Terms and Conditions used to Determine Fair Value Less sales Costs | Third party assessments | |||
Discount rate Used for Current Estimates of Value in Use | — | |||
Key Assumptions Used to Determine Recoverable amounts | Fair value less sales cost | |||
09/30/2009 | 12/31/2008 | |||
Impairment Amount | ThU.S.$1,753 | ThU.S.$1,753 |
Disclosure of Asset Impairment
Disclosure of Asset Impairment | ||||
Principal types of Assets affected by Impairment and Reversion Losses, for which no individual information is disclosed | Machinery and Equipment | |||
Principal Facts and Circumstances that lead to Recognizing Impairment and Reversions losses, for which no individual information is disclosed | Technical Obsolescence | |||
09/30/2009 | 12/31/2008 | |||
Information relevant to the sum of all impairment | ThU.S. $1,688 | ThU.S.$1,688 |
63
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
NOTE 19. PROVISIONS, CONTINGENT ASSETS AND CONTINGENT LIABILITIES (IAS 37)
Provisions are recognized when there is a current or constructive legal obligation resulting from past events where it is probable that a payment is necessary to settle the obligation and, when a reliable estimate of this obligation is possible.
Lawsuits or other Legal Proceedings
Below, details the lawsuits that have been estimated relevant to report:
1. With regard to Valdivia Mill of Celulosa Arauco y Constitución S.A. (hereinafter also the “Company” or “Arauco”), various criminal proceedings have been filed at the corresponding Warranty Court (Tribunal de Garantía), relating to alleged environmental violations that were allegedly committed as a result of operations at said Mill. All criminal proceedings have been addressed through a single investigation. The complaints relate to stipulations indicated in Article 291 of the Penal Code, Article 136 of the Fishing Law and Article 38 of the National Monuments Law. The investigation is currently in progress in the appropriate District Attorney’s office of San José de la Mariquina, with multiple diligence requests already made.
In our opinion, the evidence submitted in the investigation does not prove the existence of any offense or responsibility for the Company or of any of its employees for the alleged events.
2. With regard to the Valdivia Mill, on April 27, 2005, the National Defense Council (Consejo de Defensa del Estado) filed against the Company a civil lawsuit for reparation of environmental harm and indemnification, before the First Civil Court of Valdivia (Rol 746-2005).
The Company filed its response, indicating with solid arguments that it is not responsible for the environmental damages and therefore the indemnification payments, as well as the alleged reparation, are inadmissible. The lawsuit is currently in progress.
3. With regard to Nueva Aldea Mill, on December 20, 2007, the Company was notified of nine similar complaints. Eight complaints are directed against Echeverría Izquierdo Montajes Industriales S.A., as employer, and against Celulosa Arauco y Constitución S.A., as subsidiarily responsible, and also directly against the Company. The other complaint is directed against Mr. Leonel Enrique Espinoza Canales, as employer, and against Celulosa Arauco y Constitución S.A., as subsidiarily responsible, and also directly against Arauco.
The complaints request that all plaintiffs (72 plaintiffs in total) be indemnified for the damages that they allegedly suffered as a result of an accident in which three workers of the contractor Echeverría Izquierdo Montajes Industriales S.A. were allegedly involved. They were undertaking construction work at the Nueva Aldea Pulp Mill in December 2005. These three workers allegedly suffered irradiation when handling a source that originated from equipment belonging to a subcontractor of the aforementioned.
64
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
Notified of said complaints, the Company opposed on the basis of lack of jurisdiction, and, subsidiarily, answered the principal complaints, claiming that they are invalid for failure to state a claim. Also, the Company responded to the secondary complaints directly against the Company, requesting that they be rejected for lacking any merit. The matter is currently in progress.
For these same events, on January 29, 2008, the Company was notified of an action for damages due to a work accident filed by Mr. Fernando Vargas Llanos, against his former employer Inspección Técnica y Control de Calidad Limitada (ITC), the construction company Echeverría Izquierdo Montajes Industriales S.A. and against the Company. The complaint requests that Mr. Vargas be indemnified for the damages that he allegedly suffered as a result of the events that took place on December 2005.
Notified of said complaint, the Company opposed on the basis of lack of jurisdiction, and, subsidiarily, answered the principal complaint stating that it should be dismissed for lacking any merit. On July 20, 2009 the Court ordered the desertion of the procedure, since the plaintiff has ceased in its procedural activity for more than six months, resolution that is currently contested by the plaintiff, and pending to be resolved its opposition.
4. With regard to the Constitución Mill, on January 24, 2006, the Company was notified of a civil claim (interdicto posesorio) brought by Mrs. Alvaro Santa María Prieto and Alejandro Lagos Letelier before the Court of Constitucion, in order that such tribunal decrees the necessary measures in order that the air surrounding the Constitucion Mill would not be harmful. Such demand, which went more than two years without progressing, has now been filed.
In our opinion and based on information available to us, this complaint lacks merit.
5. With regard to the Lincancel Mill, pursuant to Resolution No. 1828 dated June 13, 2007, the Sanitary Services Superintendency initiated an administrative sanctioning process against the Company regarding the surpassing of the maximum levels allowed for the pH parameters and suspended solids. The Company presented its responses within the time established in the resolution, which was June 25, 2007.
Pursuant to a resolution dated June 26, 2007 the Sanitary Services Superintendency resolved to amplify the charges included in resolution 1828.
The Company submitted its respective responses dated as of July 17, 2007. However, by Resolution No. 2589 of August 28, 2007, the Sanitary Services Superintendency sanctioned the Company with a fine of 100 UTA for not complying with the applicable emission norms (a fine that was already paid by the Company) and with a fine of 1,000 UTA for having put in danger, as is indicated in the resolution, the health of the population. The latter sanction was appealed before the Courts of Santiago and the matter is currently in progress.
6. With respect to the Licancel Mill, the Attorney General Office initiated an investigation related to the mortality of fish that took place in June 2007, for which complaints were compiled and submitted by both public and private entities. The investigation is being led by the Attorney General Office of Licanten (Case No. 0700427552-1).
65
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
On September 29, 2009 the Gurantee Court of Licantén dismissed the proceedings in respect of the death of former employee José Francisco Bello Tanks and conditionally suspended proceedings in respect of employee Don Gustavo Kroll Spichiger.
Subsequently, the same Court on October 6, 2009, resolved to convict former Plant Manager Mr. Eduardo Quezada to pay a fine of 500 UTM. This ruling is final and executory.
7. With respect to the Licancel Mill, on September 7, 2007, the National Defense Council (Consejo de Defensa del Estado) filed against the Company a civil lawsuit for reparation of environmental harm and indemnification, before the Fourth Civil Court of Talca (Case No. 322-2007). Upon notification, the parties agreed to suspend the proceedings for ninety business days, which was approved by the Court on December 21, 2007. On May 16, 2008, proceedings were reinitiated and the matter is currently in progress.
8. On August 14, 2009, the Company was notified with a demand for compensation for damages filed by lawyers representing a Group of 168 fishermen from region VII and workers in related activities, located in the creeks of artisanal fishermen of Putu, La Trinchera, Iloca, Duao and Llico.
This demand seeks an order requiring the Company for alleged damages caused in the Mataquito River, its estuary and the adjacent coastline as a result of the alleged environmental damage in the Mataquito River, requesting that the Company be ordered to pay each plaintiff.
The cause is now pending in the 11 Civil Court in Santiago, autos role 16.009-2009, in the state to answer the demand by the Company.
9. Parents and Brothers of the worker, Mr. Julio Gonzalo Cartes Barrientos, who was electrocuted while trying to repair a luminary, filed on August 3, 2004 a civil suit for compensation for damages in tort against the Company, as contractor, and against José Reinaldo Vargas as a Company principal.
The Company claimed that the statute of limitations had lapsed and argued, in the alternative, that the worker had been careless by disregarding the instructions of his superiors by not assembling scaffolding to repair a lamp post. The decision of first instance was favorable to the Company, accepting the alleged lapse of the statute of limitation. The case was then returned to a mediation hearing in the state of first instance so that the judgment could be rendered.
10. On August 25, 2005, the Chilean Servicio de Impuestos Internos (hereinafter the “Chilean IRS”) issued the tax calculations No. 184 and No. 185 of 2005, objecting the operations of capital devolution effected on April 16, 2001 and October 31, 2001 by Celulosa Arauco y Constitución S.A., and furthermore, requesting reimbursement for amounts returned for tax loss as well as the restatement to the balance of the taxable revenues fund (FUT). On November 7, 2005, the Company requested an administrative review of the tax action called Review of the Supervision Action (Revisión de la Actuación Fiscalizadora, or “RAF”) and, subsidiarily, a claim was filed against those tax calculations No. 184 and 185, 2005. The administrative review (RAF) was resolved on January 9, 2009 by the Chilean IRS which partially sustained the Company’s request.
66
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
The findings were sent to the Tax Court of Santiago Oriente to initiate the tax proceedings with regards to the disputed amount. The Court has not yet initiated the proceeding.
Considering the position of the Company is supported by solid legal arguments, there is a reasonable margin of a favorable outcome for the Company. However, if this result does not occur, it is possible that an obligation will arise for the amount specified, plus any accrued interest as of the payment date.
11. Luis Alberto Ossandón Valdés filed a lawsuit against the Company and Forestal Celco S.A. before the Ninth Civil Court of Santiago declaring a sales contract for real estate purchased at public auction null and void. In the aforementioned auction, the Company was awarded several forestry plots of land located on the El Trapiche country property, located in the provinces of Constitución and Talca. The plaintiff also filed a reivindication action against Forestal Celco S.A., to whom the Company transferred said real estate through a sales agreement.
On June 2, 2008, after pronouncement of the final verdict, the lawsuit was ruled inadmissible in all its stipulations, with court costs awarded to be charged against the plaintiff. The plaintiff filed an appeal against the ruling on July 1, 2008. To date, the appeal hearing and verdict are still pending at the Appellate Court.
12. On April 14, 2009, Forestal Celco S.A. was notified of a civil lawsuit filed by Mario Felipe Rojas Sepúlveda on behalf of Víctor Adrián Gavilán Villarroel against Cooperativa Eléctrica de Chillán Limitada and against Forestal Celco S.A. The lawsuit aims to make both companies jointly and severally liable for compensation of alleged material damages suffered as a result of the propagation of a fire that occurred on January 12, 2007 on the El Tablón county property, which belongs to Forestal Celco S.A.
On July 3, 2009, Forestal Celco S.A. answered the complaint. The case is currently suspended waiting for the decision of the Court of Appeal of a recusal application regarding the Judge of first instance submitted by the applicant.
13. On December 1, 2007, Forestal Celco S.A. was notified of a civil lawsuit filed by Marcela Larraín Novoa on behalf of Nimia del Carmen Alvarez Delgado against Patricia del Carmen Muñoz Zamorano and Forestal Celco S.A. This lawsuit seeks to obtain reivindication for an 88% share of the rights to the “Loma Angosta” property, which has a surface area of 281.89 hectares. This property was purchased by Forestal Celco S.A. from Patricia del Carmen Muñoz Zamorano in 1994. To date, Patricia del Carmen Muñoz Zamorano has not yet been notified.
On May 18, 2008, the Company filed its responses through dilatory pleas. To date, the plaintiff has not answered the request nor rectified the lawsuit.
14. On April 29, 2004, Aserraderos Arauco S.A. was notified of a lawsuit for contract fulfillment and compensatory damages, filed before the Second Civil Court of Concepción by Ingeniería y Construcciones Ralco Ltda, case No. 3.218-2008. The plaintiff maintains that the contracts entered into with sawmill administrators include Aserraderos Arauco S.A. The case has currently been archived, with no actions being taken.
15. On January 29, 2009, Forestal Valdivia S.A. was notified of a civil lawsuit filed by Carlos Nambrard Figueroa by himself and on behalf of the members of the Julia Figueroa Olivero Estate, against Forestal Valdivia S.A and Forestal Tornagaleones S.A., which aims to make
67
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
both companies jointly and severally liable for compensation of alleged material and moral damages suffered as a result of the occupancy, plantation and operation of an agricultural piece of land (Cerros del Lingue) over which the Estate alleges ownership rights. Forestal Validivia S.A. has held ownership rights and material and legal possession for more than ten years with respect to such piece of land.
Forestal Valdivia S.A. responded to the lawsuit arguing that it should be rejected for a lack of legal basis. The case is currently in progress.
16. On October 8, 2007, the Argentine Administración Federal de Ingresos Públicos (AFIP) notified the subsidiary Alto Paraná S.A. (hereinafter “APSA”) of the commencement of an administrative process (“court-initiated proceedings”). In this process, AFIP is investigating the deductibility of the income tax of certain expenses, interests and exchange gains or losses generated by Private Negotiable Obligations that were issued by the Company in 2001.
On December 14, 2007, the AFIP notified APSA that it rejected APSA’s position and proceeded to demand the income, within fifteen administrative business days, of the calculated differences in the income taxes for the financial years 2002, 2003 and 2004 in principal and the rest as back interest and penalty fines.
On February 11, 2008, APSA appealed the aforementioned ruling before the National Tax Court, with absolute certainty that in the legal process APSA is correct and that its actions have always pertained to its rights. Based on the opinion of the legal counsel and according to the analysis and evaluation of the grounds of the claim, of the applicable norm and the existing judicial precedents, APSA considers that there are solid grounds that credit the legitimacy of its acting in the determination of its tributary charge, and expects, though it cannot provide any assurances, that the fiscal claim shall be revoked by the jurisdictional court. For such reasons it has not been made a provision for this concept in any of the fiscal years in which the negotiable obligations were in force.
During the course of this case, and with reference to the payment of the proceeding rate to the fiscal court, on July 18, 2008, the instructor of the case intimated APSA an amount with respect to the proceeding rate before the fiscal court. Against this intimated resolution, on August 14, 2008, APSA sought annulment or appeal on the basis that the intimated rate was unreasonable.
On September 10, 2008, APSA filed a complaint with the National Appeals Chamber in Federal Administrative Contentious matters, which was conceded, so that the question will be resolved by this chamber and eventually by the Argentine Supreme Court. The analysis of the basis of the appeal leads to an optimistic view of the case in the opinion of the APSA’s legal counsel.
17. On November 28, 2008. APSA was notified of Resolution 212 issued by the Argentine Central Bank (BCRA) on November 19, 2008, by which the BCRA ordered Indictment No. 3991 that questioned the timely liquidation of foreign currency with respect to export proceeds.
Alto Paraná S.A. responded to the charges in a timely and correct manner.
68
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
At the date of issuing the present financial statements and considering the preliminary state of proceedings, APSA Legal Advisors are not in a position to estimate the result of the hearing: for such reason and in the understanding that there are no legal grounds for the charges, it has not been made a provision for this concept.
18. On March 2, 2009, the General Department of Revenue of the Province of Misiones notified to Alto Paraná S.A. of a Proceeding Review within the framework of a Tax Audit Procedure.
The pretension of the Provincial Tax Authority is referred to an alleged debt for Gross Income Tax, retentions over the Gross Income Tax and Forestry Services Tax for fiscal period between July 2006 and December 2007. The determination of the Provincial Tax Authority is founded mainly, in the alleged taxability on income for exports vis a vis the Gross Income tax, in the method of allocating such taxable base to the Province of Misiones and the inclusion of certain supplies (wood chips) in the taxable base of the Forestry Services Tax.
On April 17, 2009, APSA answered the aforementioned hearing requesting that the tax determination be declared null and void ex officio and that the proceedings be archived on the understanding of the declared inadmissibility stipulated in the tax request.
On May 29, 2009 the General Department of Revenue of the Province of Misiones ordered through Resolution 1342/2009 the filing of proceedings without any fiscal adjustment determined.
At the closing date there are no other contingencies that might significantly affect the Companies financial, economic or operational conditions.
Provisions at September 30, 2009 and at December 31, 2008 are as follow:
Types of Provisions | 09/30/2009 ThU.S.$ | 12/31/2008 ThU.S.$ | 01/01/2008 ThU.S.$ | ||||||
Provisions, Current | 4,582 | 3,753 | 2,320 | ||||||
Security provision | 49 | 0 | 0 | ||||||
Legal claims provision | 4,533 | 3,753 | 2,320 | ||||||
Other provision | 0 | 0 | 0 | ||||||
Provisions, non-current | 37,558 | 5,585 | 6,271 | ||||||
Legal claims provision | 37,558 | 5,516 | 6,161 | ||||||
Other provision | 0 | 69 | 110 | ||||||
09/30/2009 | |||||||||
Movements in Provisions | Legal Claims ThU.S.$ | Other Provision ThU.S.$ | Total ThU.S.$ | ||||||
Opening balance | 9,269 | 69 | 9,338 | ||||||
Changes in provisions | |||||||||
Additional provisions | 1,461 | 55 | 1,516 | ||||||
Increase (decrease) in existing provisions | 31,250 | 0 | 31,250 | ||||||
Used provisions | (516 | ) | 0 | (516 | ) | ||||
Increase (decrease) in foreign currency exchange | 627 | 0 | 627 | ||||||
Other increases (decreases) | 0 | (75 | ) | (75 | ) | ||||
Changes in provisions, total | 32,822 | (20 | ) | 32,802 | |||||
Total provision, closing balance | 42,091 | 49 | 42,140 |
69
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
12/31/2008 | |||||||||
Movements in Provisions | Legal Claims ThU.S.$ | Other Provision ThU.S.$ | Total ThU.S.$ | ||||||
Opening balance | 8,481 | 110 | 8,591 | ||||||
Changes in provisions | |||||||||
Increase (decrease) in existing provisions | 1,848 | (41 | ) | 1,807 | |||||
Used provisions | (491 | ) | 0 | (491 | ) | ||||
Increase (decrease) in foreign currency exchange | (569 | ) | 0 | (569 | ) | ||||
Other increases (decreases) | 0 | 0 | 0 | ||||||
Total Changes | 788 | (41 | ) | 747 | |||||
Closing balance | 9,269 | 69 | 9,338 |
Provisions for legal claims are for labor and tax judgments whose payment period is indeterminate.
70
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
NOTE 20. TYPES OF INTANGIBLE ASSETS (IAS 38)
Arauco holds the following main intangible assets:
Purchased goodwill
Computer software
Water-rights
Policy on Identifiable Intangible Assets
(i) Computer Software
Purchased licenses of computer software are capitalized based on acquisition costs plus other costs incurred to make them compatible with specific programs. These costs are amortized during estimated useful life.
(ii) Goodwill
Goodwill represents the excess in acquisition cost over the fair value of the Group’s share of the identifiable net assets of the acquired subsidiary/associate at acquisition date. Goodwill is not amortized but is subject to an annual impairment test.
(iii) Water-rights
Water-rights are recognized at historical cost and have unlimited useful life as the expected cash flow generating period is unpredictable. These rights are not amortized but are subject to periodic impairment tests.
Recognition and Measurement criteria of Identifiable Intangible Assets
Cost Model
After initial recognition, intangible assets are carried at cost, including any accumulated amortization and impairment losses.
Amortization Method for Software Programs
Amortization of an intangible asset with a finite useful life shall be carried on a systematic basis over said useful life. Amortization begins when the asset is available for use, that is, when it complies with all the necessary conditions to operate in the manner foreseen by the Company.
Amortization Method for Other Identifiable Intangible Assets
Acquired goodwill is assigned to each of the cash-generating units (CGU) in order to prove impairment losses. Assignment is carried out in the CGU’s that are expected to benefit from the business combination in which the goodwill occurred.
71
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
Disclosure of Identifiable Intangible Assets
Types of Intangible Assets, Net | 09/30/2009 ThU.S.$ | 12/31/2008 ThU.S.$ | ||||
Intangible assets, Total | 77,625 | 14,469 | ||||
Acquired goodwill, | 66,408 | 3,134 | ||||
Identifiable intangible assets, net | 11,217 | 11,335 | ||||
Software programs | 4,461 | 5,738 | ||||
Other identifiable intangible assets | 6,756 | 5,597 | ||||
Types of intangible assets, gross | 90,275 | 25,287 | ||||
Acquired goodwill | 66,408 | 3,134 | ||||
Identifiable intangible assets, gross | 23,867 | 22,153 | ||||
Software programs | 17,093 | 16,529 | ||||
Other identifiable intangible assets | 6,774 | 5,624 | ||||
Types of accumulated amortization and impairment, intangible assets | ||||||
Accumulated amortization and impairment | (12,650 | ) | (10,818 | ) | ||
Software programs | (12,632 | ) | (10,791 | ) | ||
Other identifiable intangible assets | (18 | ) | (27 | ) |
Reconciliation between opening and closing book values
09/30/2009 | |||||||||||
Intangible Movements | Computer Programs ThU.S.$ | Goodwill ThU.S.$ | Others ThU.S.$ | Total ThU.S.$ | |||||||
Opening Balance | |||||||||||
Changes | 5,738 | 3,134 | 5,597 | 14,469 | |||||||
Additions | 466 | 63,274 | 1,100 | 64,840 | |||||||
Disappropriations | (3 | ) | 0 | 0 | (3 | ) | |||||
Amortization | (1,743 | ) | 0 | 0 | (1,743 | ) | |||||
Increase (decrease) in foreign currency conversion | 3 | 0 | 59 | 62 | |||||||
Changes Total | (1,277 | ) | 63,274 | 1,159 | 63,156 | ||||||
Closing Balance | 4,461 | 66,408 | 6,756 | 77,625 | |||||||
12/31/2008 | |||||||||||
Intangible Movements | Computer Programs ThU.S.$ | Goodwill ThU.S.$ | Others ThU.S.$ | Total ThU.S.$ | |||||||
Opening Balance | |||||||||||
Changes | 6,808 | 3,134 | 5,698 | 15,640 | |||||||
Additions | 1,198 | 0 | 0 | 1,198 | |||||||
Disappropriations | 0 | 0 | (22 | ) | (22 | ) | |||||
Amortization | (2,268 | ) | 0 | 0 | ) | (2,268 | ) | ||||
Increase (decrease) in foreign currency conversion | 0 | 0 | (79 | ) | (79 | ) | |||||
Changes Total | (1,070 | ) | 0 | (101 | ) | (1,171 | ) | ||||
Closing Balance | 5,738 | 3,134 | 5,597 | 14,469 |
Minimum life or rate | Maximum life or rate | |||||
Software programs life or rate | Life | 3 | 16 |
The amortization of software programs are presented in the comprehensive income statement in line administration expenses.
72
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
NOTE 21. BIOLOGICAL ASSETS (IAS 41)
Arauco’s biological assets correspond to forestry plantations mainly radiata and taeda pine. The total plantation is distributed in Chile, Argentina, Brazil and Uruguay, reaching 1.5 million hectares, of which 955 thousand hectares are plantations, 317 hectares are native forest, 200 thousand hectares are used for other purposes and 44 thousand hectares are used for planting.
The harvest of forest plantations, aims to supply feedstock for other products, which Arauco produces and sells. By controlling directly the development of forests that will be processed, Arauco is assured of having high quality timber for each of their products.
Arauco uses the discounted future cash flows criteria to value forestry plantations.
Cash flows are determined in terms of harvest and expected sale of forestry products, associated with the demand of the Company’s owned industrial centers and sales to third parties. Margin of Sales are also considered in the valuation of the different products that are harvested in the forest. Any changes in the value of the plantations, in accordance with the criteria previously described, are accounted for in the current financial year’s income statement, pursuant to IAS 41.
Under IFRS, changes in fair value less estimated costs at point of sale of forest plantations is recognized in results, affecting incomes in each period. This is presented in the Statement of Income in the line Other operating income, which at September 30, 2009 is ThU.S.$ 115,017 (ThU.S.$ 39,435 at September 30, 2008).
For purposes of the valuation of biological assets, there is a higher cost of wood that occurs in Cost of sales, which at September 30, 2009 is ThU.S.$ 83,984 (ThU.S.$ 121,778 at September 30, 2008).
The company holds fire insurance policies against forestry plantations, which together with company resources and efficient protection measures for these forestry assets allow fire risks to be minimized.
Forestry plantations classified as current assets correspond to those to be harvested and sold in the short term.
Detail of Biological Assets Pledged as Security
There are no forestry plantations pledged as security, except for the ones belonging to Forestal Río Grande S.A. (affiliate of Fondo de Inversiones Bio Bio, Special Purpose Entity). In October, 2006, pledges without transfer and prohibition to sell and encumber were constituted in favor of JPMorgan and Arauco, for forests located on their own land. At June 30, 2009, the fair value of these forests reached ThU.S.$64,148 as compared to ThU.S.$73,759 at December 31, 2008.
Detail of Biological Assets with Restricted Ownership
At the date of these financial statements, there are no biological assets with restricted ownership.
73
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
Disclosure of Agricultural Products
Agricultural Products relate mainly to forestry products that are intended for sale pertaining to the operation and are valued at fair value at the closing period.
No significant grants have been received.
Biological Assets Movement
09/30/2009 ThU.S.$ | |||
Opening Balance | 3,652,433 | ||
Changes in Biological Assets | |||
Additions | 77,118 | ||
Decreases due to Sales, Biological Assets | (2,348 | ) | |
Decreases due to Harvest, Biological Assets | (145,665 | ) | |
Profit (Loss) of Changes in Fair Value, less estimated Costs at Point of Sale | 115,017 | ||
Increases (decreases) in Foreign Currency Translation, Biological Assets | 100,091 | ||
Other Increases (decreases), Biological Assets | (4,248 | ) | |
Total Changes | 139,965 | ||
Closing Balance | 3,792,398 |
12/31/2008 ThU.S.$ | |||
Opening Balance | 3,823,019 | ||
Changes in Biological Assets | |||
Additions | 154,414 | ||
Decreases due to Sales, Biological Assets | (2,137 | ) | |
Decreases due to Harvest, Biological Assets | (296,321 | ) | |
Profit (Loss) of Changes in Fair Value, less estimated Costs at Point of Sale | 65,201 | ||
Increases (decreases) in Foreign Currency Translation, Biological Assets | (90,642 | ) | |
Other Increases (decreases), Biological Assets | (1,101 | ) | |
Total Changes | (170,586 | ) | |
Closing Balance | 3,652,433 |
At the date of these financial statements committed no disbursements for the acquisition of biological assets.
74
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
NOTE 22. ENVIRONMENT
Environment Management
For Arauco, sustainability means management strategy. This strategy incorporates values, commitments and standards, that together with the adoption of best practices as well as the use of the latest available technologies, seek to continuously improve the Company’s environmental management. It is the environmental department with each of its specialists that ensures these guidelines are met and put in to practice in everyday company operations.
All of Arauco’s production units have certified environmental management systems, which reinforce the Company’s commitment to environmental performance and ensure the traceability of all raw materials used.
Arauco uses in its productive processes several supplies, such as wood, chemical products, and water, etc., which in turn produce liquid and gas emissions. As a way to make the company’s environmental management more efficient, significant progress has been made to reduce consumption and emissions.
Environmental investments have been made related to the control of atmospheric emissions, process improvements, water and waste management, as well as effluent treatment, in order to improve the environmental performance of all of Arauco’s business units.
75
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
Environment Related Disbursement Information
At September 30, 2009 and 2008 respectively, Arauco made the following disbursements related to its main environmental projects:
Company | 09-30-2009 Name of Project | Disbursements undertaken 2009 | Committed Disbursements | |||||||||||
State of Project | Amount ThU.S$ | Asset Expense | Asset/expense destination item | Amount ThU.S$ | Estimated date | |||||||||
Celulosa Arauco y Constitución S.A | Investment projects for the control and management of gas emissions from industrial process | In process | 4,014 | Asset | Property, plant and equipment | 614 | 2009-2010 | |||||||
Celulosa Arauco y Constitución S.A | Investment projects for the control and management of gas emissions from industrial process | In process | 343 | Expense | Operating costs | 64 | 2009 | |||||||
Celulosa Arauco y Constitución S.A | Investment projects for the control and management of harmful liquids and energy optimization from the water of industrial plants | In process | 12,000 | Asset | Property, plant and equipment | 5,493 | 2009-2010 | |||||||
Celulosa Arauco y Constitución S.A | Investment projects for the control and management of harmful liquids and energy optimization from the water of industrial plants | Ended | 1,757 | Asset | Property, plant and equipment | 0 | 0 | |||||||
Celulosa Arauco y Constitución S.A | Investment projects for the control and management of harmful liquids and energy optimization from the water of industrial plants | In process | 589 | Expense | Operating costs | 255 | 2009 | |||||||
Celulosa Arauco y Constitución S.A | Expansion of solid industrial waste dumpsite for management of these in the future | In process | 3,158 | Asset | Property, plant and equipment | 199 | 2009 | |||||||
Celulosa Arauco y Constitución S.A | Environmental improvement studies | In process | 2,382 | Asset | Property, plant and equipment | 2,914 | 2009-2010 | |||||||
Celulosa Arauco y Constitución S.A | Environmental improvement studies | In process | 19,807 | Expense | Operating costs | 5,024 | 2009 | |||||||
Celulosa Arauco y Constitución S.A | Environmental improvement studies | Ended | 860 | Asset | Property, plant and equipment | 0 | 0 | |||||||
Celulosa Arauco y Constitución S.A | Construction of Outlets | In process | 5,014 | Asset | Property, plant and equipment | 500 | 2009 | |||||||
Celulosa Arauco y Constitución S.A | Construction of Outlets | Ended | 746 | Asset | Property, plant and equipment | 0 | 0 | |||||||
Alto Paraná S.A | Investment projects for the control and management of harmful liquids and energy optimization from the water of industrial plants | In process | 1,207 | Asset | Property, plant and equipment | 1,561 | 2009 | |||||||
Alto Paraná S.A | Expansion of solid industrial waste dumpsite for management of these in the future | In process | 1,164 | Asset | Property, plant and equipment | 2,640 | 2009 | |||||||
Alto Paraná S.A | Expansion of solid industrial waste dumpsite for management of these in the future | In process | 274 | Asset | Property, plant and equipment | 1,581 | 2009 | |||||||
Alto Paraná S.A | Environmental improvement studies | Ended | 509 | Asset | Property, plant and equipment | 0 | 0 | |||||||
Paneles Arauco S.A | Investment projects for the control and management of harmful liquids and energy optimization from the water of industrial plants | In process | 1,833 | Asset | Property, plant and equipment | 1,206 | 2009-2010 | |||||||
Paneles Arauco S.A | Investment projects for the control and management of harmful liquids and energy optimization from the water of industrial plants | In process | 737 | Expense | Operating costs | 455 | 2009 | |||||||
Paneles Arauco S.A | Expansion of solid industrial waste dumpsite for management of these in the future | In process | 43 | Expense | Operating costs | 235 | 2009 | |||||||
Paneles Arauco S.A | Environmental improvement studies | In process | 164 | Expense | Operating costs | 625 | 2009 | |||||||
Paneles Arauco S.A | Environmental improvement studies | In process | 454 | Asset | Property, plant and equipment | 543 | 2009 | |||||||
Forestal Celco S.A | Environmental improvement studies | In process | 79 | Asset | Property, plant and equipment | 2,806 | 2009-2010 | |||||||
Aserraderos Arauco S.A | Investment projects for the control and management of harmful liquids and energy optimization from the water of industrial plants | In process | 502 | Asset | Property, plant and equipment | 510 | 2009 | |||||||
Placas do Paraná S.A | Environmental improvement studies | In process | 497 | Asset | Property, plant and equipment | 349 | 2009 | |||||||
58,133 | 27,574 | |||||||||||||
Company | 09-30-2008 Name of Project | Disbursements undertaken 2008 | Committed Disbursements | |||||||||||
State of Project | Amount ThU.S$ | Asset Expense | Asset/expense destination item | Amount ThU.S$ | Estimated date | |||||||||
Celulosa Arauco y Constitución S.A | Investment projects for the control and management of gas emissions from industrial process | In process | 17,525 | Asset | Property, plant and equipment | 6,169 | 2009 | |||||||
Celulosa Arauco y Constitución S.A | Investment projects for the control and management of gas emissions from industrial process | In process | 259 | Expense | Operating cost | 38 | 2009 | |||||||
Celulosa Arauco y Constitución S.A | Investment projects for the control and management of harmful liquids and energy optimization from the water of industrial plants | In process | 5,864 | Asset | Property, plant and equipment | 21,637 | 2009 | |||||||
Celulosa Arauco y Constitución S.A | Investment projects for the control and management of harmful liquids and energy optimization from the water of industrial plants | In process | 953 | Expense | Operating cost | 2,662 | 2009 | |||||||
Celulosa Arauco y Constitución S.A | Expansion of solid industrial waste dumpsite for management of these in the future | In process | 3,793 | Asset | Property, plant and equipment | 5,289 | 2009 | |||||||
Celulosa Arauco y Constitución S.A | Expansion of solid industrial waste dumpsite for management of these in the future | Ended | 8,469 | Expense | Operating costs | 0 | 0 | |||||||
Celulosa Arauco y Constitución S.A | Environmental improvement studies | In process | 1,230 | Asset | Property, plant and equipment | 66 | 2009 | |||||||
Celulosa Arauco y Constitución S.A | Environmental improvement studies | In process | 7,062 | Expense | Operating costs | 649 | 2009 | |||||||
Celulosa Arauco y Constitución S.A | Environmental improvement studies | Ended | 607 | Asset | Property, plant and equipment | 0 | 0 | |||||||
Celulosa Arauco y Constitución S.A | Environmental improvement studies | Ended | 108 | Expense | Administration expenses | 0 | 0 | |||||||
Celulosa Arauco y Constitución S.A | Construction of Outlets | In process | 22,857 | Asset | Property, plant and equipment | 2,333 | 2009 | |||||||
Alto Paraná S.A | Investment projects for the control and management of harmful liquids and energy optimization from the water of industrial plants | In process | 632 | Asset | Property, plant and equipment | 4,202 | 2009 | |||||||
Alto Paraná S.A | Expansion of solid industrial waste dumpsite for management of these in the future | In process | 5,476 | Asset | Property, plant and equipment | 6,907 | 2009 | |||||||
Alto Paraná S.A | Environmental improvement studies | In process | 8,605 | Asset | Property, plant and equipment | 4,014 | 2009-2008 | |||||||
Paneles Arauco S.A | Investment projects for the control and management of harmful liquids and energy optimization from the water of industrial plants | In process | 4,971 | Asset | Property, plant and equipment | 2,042 | 2009-2010 | |||||||
Paneles Arauco S.A | Investment projects for the control and management of harmful liquids and energy optimization from the water of industrial plants | In process | 200 | Expense | Administration expenses | 100 | 2008 | |||||||
Paneles Arauco S.A | Environmental improvement studies | In process | 1,268 | Expense | Administration expenses | 518 | 2008 | |||||||
Paneles Arauco S.A | Environmental improvement studies | In process | 1,332 | Asset | Property, plant and equipment | 1,310 | 2008 | |||||||
Forestal Celco S.A | Environmental improvement studies | In process | 41 | Expense | Administration expenses | 611 | 2009 | |||||||
Forestal Celco S.A. | Investment projects for the control and management of harmful liquids and energy optimization from the water of industrial plants | In process | 216 | Asset | Property, plant and equipment | 5 | 2009 | |||||||
Aserraderos Arauco S.A | Investment projects for the control and management of harmful liquids and energy optimization from the water of industrial plants | In process | 2,705 | Asset | Property, plant and equipment | 19 | 2008 | |||||||
Aserraderos Arauco S.A | Environmental improvement studies | In process | 1,930 | Asset | Property, plant and equipment | 308 | 2008 | |||||||
Placas do Paraná S.A | Environmental improvement studies | In process | 4,407 | Asset | Property, plant and equipment | 168 | 2009 | |||||||
100,510 | 59,047 | |||||||||||||
76
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
NOTE 23. FINANCIAL INSTRUMENTS (IFRS 7)
Classification
The following table shows Arauco’s financial instruments at September 30, 2009, December 31, 2008 and January 1, 2008. An informative estimate of fair value is shown for instruments valued at amortized cost.
Financial Instruments | 09/30/2009 | 12/31/2008 | 01/01/2008 | |||||||
Amortized Cost ThU.S.$ | Fair Value ThU.S.$ | Amortized Cost ThU.S.$ | Fair value ThU.S.$ | Book value ThU.S.$ | ||||||
Assets | ||||||||||
Fair value with change in Profit and Loss (Negotiation) | 0 | 553,049 | 0 | 72,745 | 204,731 | |||||
Interest Rate Swaps | 0 | 5,762 | 0 | 7,707 | 10,626 | |||||
Exchange Rate Forward | 0 | 0 | 0 | 5,762 | 0 | |||||
Mutual funds (*) | 0 | 547,287 | 0 | 59,276 | 194,105 | |||||
Loans and Accounts Receivables | 719,551 | 719,551 | 704,699 | 704,699 | 777,592 | |||||
Cash and cash equivalents | 110,147 | 110,147 | 108,032 | 108,032 | 73,767 | |||||
Cash (*) | 26,568 | 26,568 | 18,662 | 18,662 | 37,507 | |||||
Fixed Term Deposits (*) | 83,579 | 83,579 | 72,198 | 72,198 | 36,260 | |||||
Repurchased Agreements (*) | 0 | 0 | 17,172 | 17,172 | 0 | |||||
Receivables (net) | 604,404 | 604,404 | 596,667 | 596,667 | 703,825 | |||||
Trades and Notes Receivable | 519,486 | 519,486 | 536,730 | 536,730 | 601,571 | |||||
Other Debtors | 89,918 | 89,918 | 59,937 | 59,937 | 102,254 | |||||
Hedging | 438 | 438 | 0 | 0 | 0 | |||||
Hedge Swaps | 438 | 438 | 0 | 0 | 0 | |||||
Liabilities | ||||||||||
Financial Liabilities at amortized cost | 3,491,718 | 3,648,744 | 2,961,647 | 2,850,950 | 3,026,819 | |||||
Bonds issued in Dollars | 2,232,251 | 2,377,238 | 1,829,990 | 1,799,876 | 1,840,063 | |||||
Bonds issued in UF | 366,981 | 386,116 | 203,668 | 187,815 | 0 | |||||
Bank Loans in Dollars | 523,649 | 516,553 | 612,624 | 547,893 | 870,555 | |||||
Bank Loans in other currencies | 35,404 | 35,404 | 4,267 | 4,268 | 3,477 | |||||
Finance Leasing | 680 | 680 | 1,394 | 1,394 | 3,597 | |||||
Trades and other Payables | 332,753 | 332,753 | 309,704 | 309,704 | 309,127 | |||||
Financial liabilities with Change in Profit and Loss | 0 | 12,689 | 0 | 14,051 | 7,007 |
(*) | As of September 30, 2009, December 31, 2008 and January 01, 2008, respectively, the composition of cash and cash equivalents presented in the financial statement position is as follows: |
09/30/2009 | 12/31/2008 | 01/01/2008 | ||||
Cash and cash equivalent | 657,434 | 167,308 | 267,872 | |||
Cash | 26,568 | 18,662 | 37,507 | |||
Fix Term Deposits | 83,579 | 72,198 | 36,260 | |||
Repurchased Agreements | 0 | 17,172 | 0 | |||
Mutual funds (*) | 547,287 | 59,276 | 194,105 |
Mutual funds are considered as cash equivalents since they are highly liquid investments.
77
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
Fair Value Financial Assets with Changes in Profit and Loss (Negotiation)
Fair value financial assets with changes in profit and loss are financial assets held for negotiation. Financial assets classified in this category are mainly acquired for sale in the short term. Derivatives are also classified as for negotiation unless they are defined as hedging instruments. Assets in this category are classified as current assets and are recorded at fair value, recognizing its changes in value in the income statement. These assets are held with the objective of maintaining adequate liquidity levels to meet the Company’s obligations.
The following table details the Arauco’s financial assets at fair value with changes in profit and loss:
September 2009 ThU.S.$ | December 2008 ThU.S.$ | Period Variation | |||||
Fair value with changes in profit and loss (Negotiation) | 553,049 | 72,745 | 660 | % | |||
Interest Rate Swap | 5,762 | 7,707 | -25 | % | |||
Forward Exchange Rate | 0 | 5,762 | -100 | % | |||
Mutual Funds | 547,287 | 59,276 | 823 | % |
Swaps: At the closing balance date, financial assets classified in this category are not considered hedging instruments, as there is no uncertainty over their underlying liability, so these instruments obey the management strategy regarding implicit structural liquidity risk for Arauco operations. The fair value of this item decreased by 25% compared to December 31, 2008 due to lower horizon cash flows from swaps.
Forwards:Arauco acquires this type of instrument to hedge functional currency exchange rate risks. These instruments are generally acquired with short-term maturity periods. At the date of these financial statements, Arauco has no assets in this category.
Mutual Funds: Arauco invests in local mutual funds to maximize the profitability of cash flow surpluses in Chilean Pesos, or in international mutual funds in foreign currencies such as US Dollars or Euros. This instrument is accepted by the Company’s placement policy. At the date of these financial statements the company has increased its position in this type of instrument by 823% as compared with December, 2008.
Held-to-Maturity Investments
These are non-derivative financial instruments with a fixed maturity date such as fixed interest securities and redeemable preference shares, which the company intends to hold until maturity and has the financial resources to do so. If they are sold prematurely (except for exceptional circumstances) the company would be obliged to reclassify the remainder of the investments included in this category asAvailable-for-sale for the current tax year and the following two years. These assets are valued at amortized cost, which is initial recognition less capital payments, plus (less) accumulated amortization using the effective rate method for any differences between initial recognition and the value at maturity, less any impairment or bad debt deductions.
At September 30, 2009 there were no assets held-to-maturity.
78
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
Loans and Receivables
These are non-derivative financial assets with fixed or determinable payments, and are not traded on an active market, that is, they are not available for trading. In the balance sheet they are included in Current Assets, except for assets with a maturity exceeding 12 months. These assets are recorded at amortized cost using the effective interest method and are subject to impairment testing. Financial assets which comply with this definition are: cash and cash-equivalents, fixed term deposits, repurchase agreements, debtors and notes receivable, and other debtors.
09/30/2009 ThU.S.$ | 12/31/2008 ThU.S.$ | |||
Loans and Receivables | 719,551 | 704,699 | ||
Cash and Cash Equivalents | 110,147 | 108,032 | ||
Cash | 26,568 | 18,662 | ||
Fixed Term Deposits | 83,579 | 72,198 | ||
Repurchased Agreements | 0 | 17,172 | ||
Receivables (Net) | 609,404 | 596,667 | ||
Trades and Notes Receivable | 519,486 | 536,730 | ||
Other Debtors | 89,918 | 59,937 |
Cash and Cash Equivalents:Includes both cash flow and bank account balances, fixed term deposits and repurchase agreements. They are short-term investments that are readily convertible into cash, and are subject to an immaterial change in value.
Fix Term Deposits and Repurchased Agreements:The objective of this instrument is to maximize short-term cash flow surpluses. This instrument is authorized by Arauco’s Placement Policy, which establishes a mandate that allows investments in fixed income securities. In general, these instruments have a maturity period of less than ninety days.
Trades and Notes Receivable:These represent enforceable rights for Arauco resulting from the normal course of the business, namely, the operation activity or corporate purposes.
Other Debtors: Correspond to receivables from sales, services or loans that are not considered within the normal course of the business.
Trades are presented at net value, in other words, net of bad debt estimates. This provision is determined when there is evidence that Arauco will not receive the payments agreed to in the original sales terms. These provisions are carried out when a customer files and reaches legal bankruptcy agreement or is in default of payments, or when Arauco has exhausted all the debt collection instances within a reasonable period. These include telephone calls, e-mails and debt collection letters. In the case of sales in Chile corresponding to our distribution affiliate Arauco Distribución S.A., the provisions are estimated using a percentage of receivables which is determined on a case by case basis, considering the client’s internal risk classification and the debts aging (days past due).
79
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
Available-for-sale
Correspond to all financial assets not included in the previously mentioned categories. This also includes capital investment instruments that are not valued at fair value in the income statement. Furthermore, under IFRS, Arauco can consider any loan or receivable as an available-for-sale financial asset.
At the closing balance sheet date Arauco had no Available-for-sale financial assets.
The following table summarizes Arauco’s financial assets at closing balance:
09/30/2009 ThU.S.$ | 12/31/2008 ThU.S.$ | |||
Financial Assets | 1,272,600 | 777,444 | ||
Fair Value with changes in Profit and Loss (Negotiation) | 553,049 | 72,745 | ||
Held-to-Maturity Investments | 0 | 0 | ||
Loans and Receivables | 719,551 | 704,699 | ||
Available-for-sale | 0 | 0 |
Financial Liabilities Valued at Amortized Cost
These financial liabilities correspond to non-derivative instruments with contractual cash flow payments, which can either be fixed or subject to variable interest rate.
Also included in this category are the non-derivative financial assets for services or goods delivered to Arauco at closing of this balance sheet, which are yet to be paid. Generally these amounts are not insured and are generally paid within thirty days of recognition.
At closing balance, Arauco included in this classification obligations with banks and financial institutions, bonds issued in US Dollars and UF, creditors and other payables in this category.
09/30/2009 | 12/31/2008 | 09/30/2009 | 12/31/2008 | |||||
Amortized Cost ThU.S.$ | Fair Value ThU.S.$ | |||||||
Financial Liabilities at Amortized Cost | 3,491,718 | 2,961,647 | 3,648,744 | 2,850,950 | ||||
Bonds Issued in Dollars | 2,232,251 | 1,829,990 | 2,377,238 | 1,799,876 | ||||
Bonds Issued in UF | 366,981 | 203,668 | 386,116 | 187,815 | ||||
Bank Loans in Dollars | 523,649 | 612,624 | 516,553 | 547,893 | ||||
Bank Loans in other Currencies | 35,404 | 4,267 | 35,404 | 4,268 | ||||
Financial Leasing | 680 | 1,394 | 680 | 1,394 | ||||
Trades and Other Payables | 332,753 | 309,704 | 332,753 | 309,704 |
Fair Value Financial Liabilities with Changes in Profit and Loss
Liabilities, assigned as such at initial recognition and liabilities classified as held for negotiation shall be included in this category.
80
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
At closing balance, Arauco held one swap and forward as a financial liability at fair value with changes in Profit and Loss. Both types of liabilities had a net decrease of 10%, due to a rate decreases experienced by the economy comparing December 2008 up to date.
A summary of Arauco’s financial liabilities at closing balance date:
Financial Liabilities | 09/30/2009 ThU.S.$ | 12/31/2008 ThU.S.$ | ||
Total Financial Liabilities | 3,504,407 | 2,975,698 | ||
Financial Liabilities at Fair Value with Changes in Profit and Loss (negotiation) | 12,689 | 14,051 | ||
Financial Liabilities Measured at Amortized Cost | 3,491,718 | 2,961,647 |
Hedging Instruments
Hedging instruments registered at September 30, 2009 correspond to cash flow hedges. Specifically, at the closing balance date, Arauco recorded two cross currency swaps for a total of ThU.S.$438 presented in Equity as Other comprehensive results.
Nature of Risk
Arauco is exposed to the risk of US Dollar exchange rate variations in order to fulfill other currency obligations with the public, such as bonds issued in UF (Chilean unit of account).
Information on Swaps Assigned as Hedging
Hedging Swaps H Series Bond
Hedging Objective
In March 2009, Arauco placed a bond for 2,000,000 UF on the Chilean market (nemo: BARAU-H) with an annual 2.25% coupon and semi-annual interest payments (March and September). This bond is amortized at the end of the period (bullet). Given that the interests begin to accrue at March 1, 2009, the first payment shall be on September 1 of this year. The maturity date is March 1, 2014.
In order to eliminate the risk of exchange rate, Arauco made two cross-currency swap contract listed below:
1.- Cross Currency Swap with Banco de Chile for 1,000,000 UF
With this Swap Arauco receives semi-annual interest payments (March and September) based on a nominal amount of 1,000,000 UF at a 2.25% annual rate, and interest is payable semi-annually (March and September) based on a notional amount of US$35,700,986.39 (equivalent to 1,000,000 UF at the exchange rate at end of contract) at a rate of 4.99%.
Maturity date of this Swap is March 1, 2014.
81
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
2.- Cross Currency Swap with JPMorgan for 1,000,000 UF
With this contract Arauco receives semi-annual interest payments (March and September) based on a notional amount of 1,000,000 UF at an annual rate of 2.25%, and interest rate is payable semi-annually (March and September) based on a notional amount of US$35,281,193.28 (equivalent to 1,000,000 UF at the exchange rate at end of contract) at a rate of 4.94%.
The maturity date of this Swap is March 1, 2014.
Through a test of effectiveness, Arauco is able to validate that the instrument is highly effective within an acceptable range for Arauco to eliminate exchange rate uncertainty in commitments from the object of coverage.
Hedging Swaps F Series Bond
Hedging Objective
Arauco placed a F series bond in November 2008 and, March 2009 for an amount of 7,000,000 UF at an annual rate of 4.25% payable semi-annually. To mitigate the risk of exchange rate, Arauco made four cross currency swap contracts which cover partially the bond amount posted:
Contract 1: With this contract Arauco receives semi-annual interest payments (April and October) based on a notional amount of 1,000,000 UF at an annual rate of 2.25%, and interest rate is payable semi-annually (April and October) based on a notional amount of US$38.38 million (equivalent to 1,000,000 UF at the exchange rate at end of contract) at a rate of 5.86%.This contract expires on October 30, 2014.
Contract 2: With this contract Arauco receives semi-annual interest payments (April and October) based on a notional amount of 1,000,000 UF at an annual rate of 4.25%, and interest rate is payable semi-annually (April and October) based on a notional amount of US$37.98 million (equivalent to 1,000,000 UF at the exchange rate at end of contract) at a rate of 5.79%.This contract expires on April 30, 2014.
Contract 3: With this contract Arauco receives semi-annual interest payments (April and October) based on a notional amount of 1,000,000 UF at an annual rate of 4.25%, and interest rate is payable semi-annually (April and October) based on a notional amount of US$37.98 million (equivalent to 1,000,000 UF at the exchange rate at end of contract) at a rate of 5.8%.This contract expires on October 30, 2014.
Contract 4: With this contract Arauco receives semi-annual interest payments (April and October) based on a notional amount of 1,000,000 UF at an annual rate of 4.25%, and interest rate is payable semi-annually (April and October) based on a notional amount of US$37.62 million (equivalent to 1,000,000 UF at the exchange rate at end of contract) at a rate of 5.79%.This contract expires on October 30, 2014.
By proof of effectiveness, Arauco can validate that the above-detailed hedging instruments are highly effective within an acceptable range for Arauco to eliminate exchange rate uncertainty in commitments from the object of coverage.
82
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
Hedging Strategy
Given that Arauco holds a high percentage of assets in Dollars, the Company needs to reduce the exchange rate risk as it has obligations in readjustable Pesos. The aim of this swap is to eliminate exchange rate uncertainty, exchanging cash flows from readjustable Pesos obligations from the series H bond, with US Dollar cash flows (Arauco’s functional currency) at a fixed exchange rate and determined at the date of the contract execution.
Valuation Method
Fair value financial assets with changes in Profit and Loss (Negotiation)
Fair value financial assets with changes in Profit and Loss are initially recognized at fair value and transaction costs are recognized in the Income Statement. Subsequently, they are registered at fair value.
Swap: They are valued using the discount cash flow method at a discount rate in accordance with operational risk, using specific swap valuation tools provided by the Bloomberg terminal.
Held-to-Maturity Investments
At September 30, 2009 Arauco had noheld-to-maturity investments.
Loans and Receivables
Its value is recorded at amortized cost using the effective interest rate method, discounting the provision for bad debt. For informative purposes, this value is a reasonable approximation of fair value.
Repurchased Agreements: These are valued at initial investment cost of the short-term instrument plus interest accrued at closing date for the period.
Mutual Funds:Given their nature, they are recognized at market value (market quote) at the closing date for the period.
Available-For-Sale
At September 30, 2009, Arauco had no Available-for-sale financial instruments.
Financial Liabilities at Amortized Cost
Financial instruments classified in this category are valued at amortized cost value using the effective interest rate method.
For informative purposes, the fair value of these financial liabilities is shown. Estimates of bank obligations are determined using specific valuation techniques using cash flow discounted at rates in accordance with the risk of the operation, while bonds are valued at market price.
83
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
Financial Liabilities with Changes in Profit and Loss
Swap:These financial instruments are valued using the discount cash flow method at a rate in accordance with the operation risk, using the information given by each bank as a counterpart.
Forwards:These instruments are initially recognized at fair value at the date on which the contract is entered into and are subsequently remeasured at fair value. The forwards are recorded as assets when fair value is positive and as liabilities when fair value is negative.
The fair value of forward currency contracts is calculated by reference to current forward exchange rates for contracts with similar maturity profiles.
When a contract expires or when the company proceeds to close down the position, the Company will recognize the gain or loss generated in results.
Hedging
These financial instruments are valued using the discount cash flow method at a rate in accordance with the operation risk, using the information given by each bank as a counterpart.
Risk Management
Arauco’s financial assets are exposed to several financial risks: credit risk, liquidity risk and market risk (including exchange rate risks, interest rate risks and price risks). Arauco’s global risk management program focuses on financial market uncertainty and tries to minimize potential adverse effects over Arauco’s financial profitability.
Arauco’s financial risk management is overseen by the Finance department. This department identifies, assesses and hedges financial risks in close collaboration with Arauco’s operational units. The Company does not actively participate in the trading of its financial assets for speculative purposes.
Type of risks that arise from financial instruments
Type of Risk: Credit Risk
Description
Credit risk refers to financial uncertainty at different time horizons concerning the fulfillment of obligations subscribed to by counterparts, at the time of exercising contract rights to receive cash or other financial assets on behalf of Arauco.
Explanation of Risk Exposure and How These Risks Arise
Arauco’s exposure to credit risk is directly related to each of its customer’s individual capacities to fulfill their contractual commitments, reflected in commercial debtor accounts.
84
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
As a policy, Arauco holds insurance policies for open account sales. These are to cover export sales from Celulosa Arauco y Constitución S.A., Aserraderos Arauco S.A., Paneles Arauco S.A. and Forestal Arauco S.A., as well as local sales of Arauco Distribución S.A., Arauco Wood, Arauco Colombia S.A. and Alto Paraná S.A. (and affiliates). Arauco works with Continental Credit Insurance Company (AA- Fitch Ratings). Placas do Paraná (Brazil) local sales credits are insured with Euler Hermes Insurance Company and for AraucoMex S.A the Company works with Atradius. These insurance policies cover 90% of the invoice with no deductible.
In order to guarantee a credit line or an advanced payment to a supplier approved by the Credit Committee, Arauco holds several guarantees, such as mortgages, pledges, standby letters of credit, bank guarantee bonds, checks, promissory notes, consumption loans or any other guarantee that may be needed pursuant to each country’s legislation. Debt covered by this type of guarantee amounted to US$ 32 million in September 2009. The guarantee procedure is regulated by Arauco’s Guarantee Policy, which controls accounting and reporting, maturity dates and value.
The Company’s maximum credit risk exposure is limited to the amortized cost value of the registered trade accounts receivable, at the date of this report, less the sales percentage insured by aforementioned credit insurance companies and by the guarantees provided to Arauco.
Accounts exposed to this type of risk are: trade accounts receivable, notes receivable and miscellaneous debtors.
September 2009 ThU.S.$ | December 2008 ThU.S.$ | |||||
Receivables (net) | 600,545 | 588,803 | ||||
Trades and Notes Receivable | 529,922 | 543,553 | ||||
Finance lease debtors | 1,485 | 3,163 | ||||
Other Debtors | 93,153 | 58,393 | ||||
Gross Subtotal | 624,560 | 605,109 | ||||
Estimated Trades and Uncollectable Notes - Bad Debt | (17,499 | ) | (15,275 | ) | ||
Estimated Finance leases | 0 | 0 | ||||
Estimated Miscellaneous - Bad Debt | (6,516 | ) | (1,031 | ) | ||
Subtotal Bad Debt | (24,015 | ) | (16,306 | ) | ||
Non Current Receivables (net) | 8,859 | 7,864 | ||||
Trades and Notes Receivable | 3,442 | 512 | ||||
Finance lease debtors | 2,136 | 4,777 | ||||
Other Debtors | 3,281 | 2,575 | ||||
Gross Subtotal | 8,859 | 7,864 | ||||
Estimated Trades and Uncollectable Notes - Bad Debt | 0 | 0 | ||||
Estimated Finance leases | 0 | 0 | ||||
Estimated Miscellaneous - Bad Debt | 0 | 0 | ||||
Subtotal Bad Debt | 0 | 0 |
85
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
Explanation of Risk Management Objectives, Policies and Processes, and Measurement Methods.
Credit and Collections Department, which reports to the Finance Department, is responsible for minimizing receivables credit risk, supervising past due accounts. It is also responsible in the approval or rejection of credit limit for all sales. The standards and procedures for the correct control and risk management of credit sales are regulated by the Companies Credit Policy.
For customer credit line approval and/or modification, all Arauco Group companies have to follow an established procedure. All Credit requests are entered in to a Credit Evaluation model where all available information is analyzed, including the credit line given by the credit insurance company. Subsequently, credit requests are approved or rejected by the internal committee of each company within the Arauco Group considering the maximum amount authorized by the Credit Policy Department. If the credit line exceeds the maximum established amount it is subsequently analyzed by the Corporate Committee. Credit lines are renewed on a yearly basis.
In 2008, Arauco’s consolidated sales amounted to ThU.S.$3,730,562, of which 60.48% corresponded to credit sales, 25.04% to letters of credit sales and 14.48% to other types of sales, such as Cash Against Documents (CAD) and advance payments.
At December 2008, Arauco’s Sales Debtors reached ThU.S.$528,278 of which 63.18% corresponded to credit sales, 32.32% to letters of credit sales and 4.5% to other types of sales, such as CAD and advance payments, distributed among 1,928 clients. The client with the highest open account debt did not exceed 1.9% of total receivables at that date.
When analyzing the sales terms for the first quarter of 2009, consolidated Arauco sales amounted to ThU.S.$2,227,604 of which 57.24% corresponded to credit sales, 34.43% corresponded to letter of credit sales and 8.34% to other types of sales, such as Cash Against Documents (CAD) and advance payments. Furthermore, Arauco has some assurance from customers amounting to MU.S.$31,689 at the closing date of the balance sheet.
At September 2009, Arauco’s Sales Debtors reached Th U.S. $512,423, of which 60.78% corresponded to credit sales, 29.14% to letter of credit sales and 10.07% to other types of sales, such as CAD and advance payments, distributed among 3,221 clients. The client with the highest open account debt did not exceed 2.19% of total receivables at that date.
Letter of credit sales are mainly from Asia and the Middle East. Credit assessments to the issuing banks are performed periodically, in order to obtain ratings made by the principal risk classification companies on country and world risk ranking, and on their financial position over the last five years. Depending on this evaluation, it is decided whether the issuing bank is approved or confirmation is requested.
All sales are controlled by a credit verification system that has set parameters to block orders from clients who have registered past due amounts of a defined percentage of the debt and/or clients who at the time of product delivery have exceeded their credit limit or whose credit has expired.
Impairment over the last five years including the first quarter of 2009, amounts to US$8.07 million which represents 0.05% of total sales during this period.
86
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
SALES DEBTOR IMPAIRMENT AS A PERCENTAGE OF TOTAL SALES | ||||||||||||||||||
September 2009 | 2008 | 2007 | 2006 | 2005 | 2004 | |||||||||||||
Sales Debtors Impairment | 0.006 | % | 0.155 | % | 0.030 | % | 0.022 | % | 0.017 | % | 0.006 | % |
Explanation of any changes to risk exposure or changes in objectives, processes and policies regarding previous years’ risk management.
In March 2009, Arauco implemented a Guarantee Policy in order to control the accounting, valuation and expiration dates.
Type of Risk: Liquidity Risk
Description
This risk corresponds to Arauco’s ability to fulfill debt obligations at the time of expiration.
Explanation of Risk Exposure and How These Arise
Arauco’s exposure to liquidity risk is found mainly in its obligations to the public, banks and financial institutions, creditors and other payables. These may arise if Arauco is unable to meet net cash flow requirements, which sustain its operations under both normal and exceptional circumstances.
Explanation of Objectives, Policies and Processes for Risk Management, and Measurement Methods
The Finance Management department constantly monitors the company’s cash flow forecasts based on short and long term forecasts and available financing alternatives. In order to control the risk level of available financial assets, Arauco works with an investment policy.
The following table shows the capital commitment of the main financial liabilities subject to liquidity risk, grouped according to their aging:
09/30/2009 Maturity ThU.S.$ | ||||||||||
Loans with banks | 0 to 1 month | 1 to 3 months | 3 to 12 months | 1 to 5 years | More than 5 years | |||||
BBVA New York | 0 | 1,773 | 0 | 216,000 | 24,000 | |||||
Banco del Estado | 0 | 0 | 102,528 | 0 | 0 | |||||
Banco Santander Rio | 0 | 9,151 | 0 | 0 | 0 | |||||
BBVA Banco francés | 0 | 1,515 | 0 | 0 | 0 | |||||
Bank Boston | 2,027 | 12,285 | 0 | 0 | 0 | |||||
J.P.Morgan | 10,350 | 8,571 | 17,142 | 111,428 | 0 | |||||
Sampo Bank | 0 | 1,648 | 0 | 0 | 0 | |||||
Banco do Brasil | 0 | 6,247 | 2,857 | 0 | 0 | |||||
Banco Alfa | 0 | 1 | 19 | 339 | 0 | |||||
Banco ITAU | 0 | 0 | 21,776 | 399 | 0 | |||||
Santander Overseas Bank | 0 | 4,827 | 0 | 0 | 0 | |||||
Banco Votorantim | 0 | 0 | 22 | 0 | 4,148 | |||||
Total | 12,377 | 46,018 | 144,344 | 328,166 | 28,148 | |||||
87
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
09/30/2009 Maturity ThU.S.$ | ||||||||||
Obligations bonds | 0 to 1 month | 1 to 3 months | 3 to 12 months | 1 to 5 years | More than 5 years | |||||
Yankee Bonds 2nd Emission | 0 | 0 | 391 | 0 | 123,900 | |||||
Yankee Bonds 3rd Emission | 0 | 0 | 273,416 | 0 | 0 | |||||
Yankee Bonds 4th Emission | 0 | 0 | 1,416 | 385,561 | 0 | |||||
Yankee Bonds 5th Emission | 0 | 3,459 | 0 | 298,141 | 0 | |||||
Yankee Bonds 6th Emission | 9,250 | 0 | 0 | 366,663 | 0 | |||||
Bonds 144-A | 0 | 5,307 | 0 | 0 | 266,013 | |||||
Barau-E | 625 | 0 | 0 | 36,743 | 0 | |||||
Barau-F | 3,317 | 0 | 0 | 0 | 177,762 | |||||
Barau-F | 1,327 | 0 | 0 | 0 | 72,544 | |||||
Barau-H | 0 | 0 | 141 | 74,522 | 0 | |||||
Yankee – 2019 | 0 | 6,344 | 0 | 0 | 492,390 | |||||
Total | 14,519 | 15,110 | 275,364 | 1,161,630 | 1,132,609 | |||||
09/30/2009 Maturity ThU.S.$ | ||||||||||
Financial Leases | 0 to 1 month | 1 to 3 months | 3 to 12 months | 1 to 5 years | More than 5 years | |||||
Banco Santander Chile | 0 | 120 | 250 | 310 | 0 | |||||
Total | 0 | 120 | 250 | 310 | 0 | |||||
12/31/2008 Maturity ThU.S.$ | ||||||||||
Loans with banks | 0 to 1 month | 1 to 3 months | 3 to 12 months | 1 to 5 years | More than 5 years | |||||
BBVA New York | 0 | 1,026 | 0 | 216,000 | 24,000 | |||||
Citigroup | 0 | 160,378 | 0 | 0 | 0 | |||||
Banco de Chile | 20,410 | 0 | 0 | 0 | 0 | |||||
CITI New York | 1,418 | 0 | 0 | 0 | 0 | |||||
Banco Galicia | 5,055 | 0 | 0 | 0 | 0 | |||||
J.P. Morgan | 10,771 | 8,571 | 17,142 | 137,143 | 0 | |||||
Sampo Bank | 0 | 0 | 3,278 | 0 | 0 | |||||
Banco do Brasil | 4,145 | 0 | 0 | 0 | 0 | |||||
Banco Safra | 0 | 41 | 0 | 0 | 0 | |||||
Banco Alfa | 0 | 0 | 82 | 0 | 0 | |||||
Banco Overseas Bank | 2,531 | 0 | 0 | 4,800 | 0 | |||||
Banco Santander | 100 | 0 | 0 | 0 | 0 | |||||
Total | 44,430 | 170,016 | 20,502 | 357,943 | 24,000 | |||||
12/31/2008 Maturity ThU.S.$ | ||||||||||
Obligations bonds | 0 to 1 month | 1 to 3 months | 3 to 12 months | 1 to 5 years | More than 5 years | |||||
Yankee Bonds 2nd Emission | 0 | 102,100 | 0 | 0 | 0 | |||||
Yankee Bonds 2nd Emission | 0 | 2,734 | 0 | 0 | 124,930 | |||||
Yankee Bonds 3rd Emission | 0 | 8,749 | 0 | 268,846 | 0 | |||||
Yankee Bonds 4th Emission | 0 | 8,915 | 0 | 385,000 | 0 | |||||
Yankee Bonds 5th Emission | 7,303 | 0 | 0 | 297,770 | 0 | |||||
Yankee Bonds 6th Emission | 0 | 4,047 | 0 | 366,215 | 0 | |||||
Bonds 144-A | 1,004 | 0 | 0 | 0 | 265,623 | |||||
Barau-E | 0 | 226 | 0 | 32,425 | 0 | |||||
Barau-F | 0 | 1,201 | 0 | 0 | 156,570 | |||||
Total | 8,307 | 127,972 | 0 | 1,350,256 | 547,123 | |||||
88
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
12/31/2008 Maturity ThU.S.$ | ||||||||||
Financial Leases | 0 to 1 month | 1 to 3 months | 3 to 12 months | 1 to 5 years | More than 5 years | |||||
Banco de Chile | 0 | 643 | 751 | 0 | 0 | |||||
Total | 0 | 643 | 751 | 0 | 0 | |||||
Guarantees given
At the date of these financial statements, Arauco holds ThU.S.$ 2,566 as financial assets passed to third parties (beneficiaries), as a direct guarantee. If Arauco does not meet its obligation, the beneficiary can make this warranty effective.
At September 30, 2009, the assets covered by an indirect guarantee amounted to ThU.S.$286,371. The indirect guarantees are given to protect the obligation assumed by a third party, either a related company (the full guarantee of Celulosa Arauco on Alto Parana bonds amounted to ThU.S.$ 270,000) or an unrelated company (the buy-back operations that guarantee the obligation of forest service enterprises in the amount of ThU.S.$ 16,371, which in the event of default, Arauco can cancel the obligation to obtain the asset exchange contract).
Investment Policy:
Arauco has an Investment Policy, which identifies and limits financial instruments and companies in which Arauco companies are authorized to invest in, specifically, Celulosa Arauco y Constitución S.A. It is important to highlight that the company’s Treasury Department is centralized for its operations in Chile, by which the Head Office acts as an internal bank for Chilean affiliates, providing intercompany loans at a fixed rate determined by central management. Head Office is responsible for carrying out investments, cash flow surplus investments, and short and long term debt subscriptions. Exceptions to this rule are specific investments made through other companies where express authorization is required from the Chief Financial Officer.
With regard to financial instruments, the only permitted investments are fixed income investments and instruments with adequate liquidity. Each instrument has defined classifications and limits, which depend on duration and on the issuer.
With regard to intermediaries, a methodology is used that aims at determining the relative risk level of each bank or entity with regard to their financial position and their debt and asset security, using a point system that gives a relative risk ranking. Arauco uses this system to define investment limits.
The required records for evaluation of the various criteria are obtained from official finance statements provided by the banks in evaluation and from the classification of in-effect short and long term debt securities, as defined by the controlling entity (the Superintendency of Banks and Financial Institutions) and used by Risk Classification companies authorized by said entity, in this case Fitch Ratings Chile, Humphreys and Feller Rate.
Evaluated criterias are: Capital and Reserves, Current Ratio, Equity Share in Total Investments in Financial System, Capital Yield, Operational Income Net Profit Ratio, Debt / Capital Ratio and the Risk Classifications of each entity.
89
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
Any necessary exceptions regarding investment limits in each particular instrument or entity must have express authorization from Arauco’s Chief Financial Officer.
Type of Risk: Market Risk – Exchange Rate
Description
This risk arises from the probability of being affected by exchange rate losses due to the currency in which assets, liabilities and investments are held, but which are not included in the balance sheet of an entity.
Explanation of Risk Exposures and How these Arise
Arauco is exposed to the risk of US Dollar (functional currency) fluctuations for sales, purchases and obligations in other currencies, such as the Chilean Peso, Brazilian Real or others. In the case of significant exchange rate variations, the Chilean Peso is the currency that represents the main risk.
Explanation of Risk Management Objectives, Policies and Processes, and Measurement Methods
Arauco performs sensitivity analyses to measure the effect of this variable on EBITDA and Profit.
Sensitivity analysis considers a variation of + / - 10% of the exchange rate at September 30, 2009 of the Chilean Peso. This fluctuation range is considered possible given current market conditions at closing date. With all other variables at a constant rate, a Dollar exchange rate variation of + / - 10% in relation to the Chilean Peso would mean a EBITDA variation of + / - US$ 25 million and a variation of + / - US$ 21 million for Profit After Tax for the following nine months.
The main financial instruments subject to exchange rate risk are local bonds issued in UF. These are not covered by swaps described in the Hedging chapter.
Amounts expressed in UF | 09/30/2009 | 12/31/2008 | ||
Bonds Issued in UF (E Series) | 1,000,000 | 1,000,000 | ||
Bonds Issued in UF (F Series) | 3,000,000 | 5,000,000 |
Type of Risk: Market Risk – Interest rate
Description
This risk refers to the sensitivity of the value of financial assets and liabilities in terms of interest rate fluctuations. This risk mainly affects fixed income financial instruments.
Explanation of Risk Exposure and How These Arise
Arauco is exposed to risks due to interest rate fluctuations for obligations with the public, banks and financial institutions and financial instruments that accrue interest at a variable rate.
90
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
Explanation of Risk Management Objectives, Policies and Processes, and Measurement Methods
Arauco completes its risk analysis by reviewing the exposure to changes in interest rates. At September 30, 2009, 13.5% of the Company’s bonds and bank loans bear interest at variable rates. A change of + / - 10% interest rate, is considered a possible range of fluctuation. Such market conditions would affect the total value of our financial liabilities at + / - 0.22% and our interests earned in + / - U.S. $ 6.9 million:
09/31/2009 ThU.S.$ | Total | ||||
Fix rate | 2,733,007 | 86.5 | % | ||
Bonds issued | 2,599,232 | ||||
Loans with banks | 133,775 | ||||
Variable rate | 425,278 | 13.5 | % | ||
Bonds issued | 0 | ||||
Loans with banks | 425,278 | ||||
Total | 3,158,285 | 100.0 | % |
Type of Risk: Market Risk – Price of Pulp
Description
Pulp price is determined by world and regional market conditions. Prices fluctuate in terms of demand, production capacity, commercial strategies adopted by large-scale forestry companies, pulp and paper producers and by the availability of substitutes.
Explanation of Risk Exposure and How These Arise
Pulp prices are reflected in operational sales within the income statement and directly affect the net profit for the period.
At September 30, 2009, operational income due to pulp sales accounted for 51% of total sales. Pulp prices are fixed on a monthly basis in accordance with the market. Forward contracts or other financial instruments are not used for pulp sales.
Explanation of Risk Management Objectives, Policies and Processes, and Measurement Methods.
This risk is approached in different ways. Arauco has a team of specialists who perform periodic market and competition analyses, providing tools to analyze and evaluate trends and adjust forecasts. Similarly, Arauco performs price financial sensitivity analysis in order to take the respective safeguards to confront different scenarios in the best possible manner.
Sensitivity analysis considers a variation of + / - 10% of the average pulp price a possible fluctuation range given current market conditions at the date of the closing balance. With all other variables constant, a variation of + / - 10% in the average pulp price would mean a variation of the EBITDA of + / - US$ 180 million and + / - US$ 150 million for Net Profit at December, 2009.
91
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
NOTE 24. OPERATING SEGMENTS (IFRS 8)
Operating segments were defined in accordance with senior management internal reporting structure, in order to support operating decisions and resource allocation. Furthermore, availability of relevant financial information has been considered in order to define operating segments.
In line with the above, the Company established operating segments according to the following business units:
• | Pulp |
• | Panels |
• | Sawn Timber |
• | Forestry |
Description of Products and Services which Provide Ordinary Income for each disclosed Segment
Following below are the main products that provide ordinary income for each operational segment:
• | Pulp: The main products sold by this department are long fiber bleached pulp (BSKP), short fiber bleached pulp (BHKP), long fiber raw pulp (UKP), and pulp fluff. |
• | Panels: The main products sold in this area are plywood panels, MDF panels (medium density fiberboard), Hardboard Panels, PB Panels (agglomerated) and MDF Moldings. |
• | Sawn Timber: The range of products sold by this business unit includes different sizes of sawn wood and remanufactured products such as moldings, precut pieces and finger joints, among others. |
• | Forestry: This area produces and sells sawn logs, pulpable logs, posts and chips made from owned forests of Radiata and Taeda pine, eucalyptus globulus and nitens forests. Additionally, the Company purchases logs and woodchip from third parties which it sells to its other business areas. |
Explanation on the measurements of Earnings, Assets and Liability of Each Segment
Pulp
The Pulp business unit uses wood exclusively from pine and eucalyptus plantations for the production of different types of wood cellulose or pulp. Bleached pulp is mainly used as raw material for producing printing and writing paper, as well as toilet paper and high quality wrapping paper. Unbleached pulp is used to produce packing paper, filters, fiber cement products, dielectric paper and others. On the other hand fluff pulp is mainly used in the elaboration of diapers and female hygienic products.
92
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
Arauco has six plants, five in Chile and one in Argentina, and they have a total production capacity of approximately three million tons per year, placing the company among the world’s main producers. Pulp is sold in more than 40 countries, mainly in Europe and Asia, where it achieved and maintained a solid competitive position due to the excellent quality of its products and to the Company’s capacity to meet customer needs and high standards in logistics, which has resulted in an excellent market positioning of the Company on a worldwide basis.
Panels
The Panels business unit produces a wide range of panels products and several kinds of moldings aimed at the furniture, decoration and construction industries. In its nine industrial plants, 4 in Chile, 2 in Argentina and 3 in Brazil, the company has a total annual production capacity of 3.2 million m3 of plywood, PBO, MDF, Hardboards and moldings, making it one of the leading panel production companies in the world.
Sawn Timber
Sawn timber business unit department produces a wide range of wood and remanufactured products with different kinds of terminations and appearances, which include a wide variety of uses for furniture, packing, construction and refurbishing industries.
With 14 saw mills, 12 in Chile and two in Argentina, the company has a production capacity of 3.4 million m3 of sawn wood, making the company the leading wood producer in the Southern Hemisphere.
Furthermore, the company has six remanufacturing plants, five in Chile and one in Argentina. These plants reprocess sawn wood and produce high quality remanufactured products, such as finger joint and solid moldings as well as precut pieces. These products are sold in more than 28 countries.
Forestry
The Forestry Division is Arauco’s core business. It provides raw material for all products manufactured and sold by the Company. By directly controlling the growth of the forests to be processed, Arauco guarantees itself of having quality wood for each of its products.
Arauco holds a growing forestry asset that is distributed throughout Chile, Argentina, Brazil and Uruguay, reaching 1.5 million hectares at September 2009, of which 955 thousand hectares are used for plantation, 317 thousand hectares for native forests, 200 thousand hectares for other uses and 44 thousand hectares to be planted. Arauco’s principal plantations are Radiata and taeda pine. These are species that have a fast growth rate and short harvest cycles compared with other long fiber commercial woods.
93
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
General Information on Earnings, Assets and Liabilities
Total General Information on Earnings, Assets and Liabilities
Period ending September 30, 2009 | Pulp ThU.S.$ | Sawmill ThU.S.$ | Forestry ThU.S.$ | Panels ThU.S.$ | Others ThU.S.$ | Corporate ThU.S.$ | Sub Total ThU.S.$ | Elimination ThU.S.$ | Total ThU.S.$ | |||||||||||||||
Income due to ordinary activities from external customers | 1,213,294 | 357,368 | 60,322 | 585,863 | 10,757 | 0 | 2,227,604 | 0 | 2,227,604 | |||||||||||||||
Ordinary activity income among segments | 15,739 | 2,276 | 493,956 | 27,343 | 19,179 | 0 | 558,493 | (558,493 | ) | 0 | ||||||||||||||
Interest income | 0 | 0 | 0 | 0 | 0 | 10,861 | 10,861 | 0 | 10,861 | |||||||||||||||
Interest expenses | 0 | 0 | 0 | 0 | 0 | (128,971 | ) | (128,971 | ) | 0 | (128,971 | ) | ||||||||||||
Interest income, net | 0 | 0 | 0 | 0 | 0 | (118,110 | ) | (118,110 | ) | 0 | (118,110 | ) | ||||||||||||
Depreciations and amortizations | 102,596 | 14,841 | 5,511 | 31,412 | 2,735 | 0 | 157,095 | 0 | 157,095 | |||||||||||||||
Sum of significant income accounts | 0 | 0 | 115,017 | 0 | 0 | 0 | 115,017 | 0 | 115,017 | |||||||||||||||
Sum of significant expense accounts | 2,391 | 1,784 | 3,428 | 0 | 0 | 0 | 7,603 | 0 | 7,603 | |||||||||||||||
Profit (loss) of each specific segment | 181,319 | (3,128 | ) | 93,851 | 72,369 | (157 | ) | (190,881 | ) | 153,373 | 0 | 153,373 | ||||||||||||
Company equity in profit and loss of associates and joint ventures | ||||||||||||||||||||||||
Accounted for using the equity method | 0 | 0 | 0 | 0 | 0 | 5,682 | 5,682 | 0 | 5,682 | |||||||||||||||
Income tax expense (income) | 0 | 0 | 0 | 0 | 0 | 43,149 | 43,149 | 0 | 43,149 | |||||||||||||||
Non-monetary asset disbursements of the segment | 118,219 | 23,600 | 93,634 | 22,332 | 3,034 | 172,613 | 433,432 | 0 | 433,432 | |||||||||||||||
Nationality of Ordinary Income | ||||||||||||||||||||||||
Ordinary income (Chilean companies) | 1,061,098 | 323,598 | 33,937 | 370,918 | 830 | 0 | 1,790,381 | 0 | 1,790,381 | |||||||||||||||
Ordinary income - foreign (Foreign companies) | 152,196 | 33,770 | 26,385 | 214,945 | 9,927 | 0 | 437,223 | 0 | 437,223 | |||||||||||||||
Total Ordinary Incomes | 1,213,294 | 357,368 | 60,322 | 585,863 | 10,757 | 0 | 2,227,604 | 0 | 2,227,604 | |||||||||||||||
Period ending September 30, 2009 | Pulp ThU.S.$ | Sawmill ThU.S.$ | Forestry ThU.S.$ | Panels ThU.S.$ | Others ThU.S.$ | Corporate ThU.S.$ | Sub Total ThU.S.$ | Elimination ThU.S.$ | Total ThU.S.$ | |||||||||||||||
Segment assets | 3,709,044 | 446,717 | 4,748,036 | 1,238,600 | 50,709 | 1,081,820 | 11,274,926 | (10,228 | ) | 11,264,698 | ||||||||||||||
Investment in associates through equity method | 0 | 0 | 0 | 0 | 0 | 143,097 | 143,097 | 0 | 143,097 | |||||||||||||||
Segment liabilities | 120,919 | 48,468 | 73,097 | 267,870 | 13,464 | 4,483,291 | 5,007,109 | 0 | 5,007,109 | |||||||||||||||
Nationality of non-current assets | ||||||||||||||||||||||||
Chile | 2,608,673 | 221,818 | 3,429,661 | 300,585 | 1,977 | 262,542 | 6,825,256 | 1,999 | 6,827,255 | |||||||||||||||
Foreign | 512,449 | 34,219 | 927,714 | 585,033 | 37,489 | 0 | 2,096,904 | 0 | 2,096,904 | |||||||||||||||
Non-current assets, Total | 3,121,122 | 256,037 | 4,357,375 | 885,618 | 39,466 | 262,542 | 8,922,160 | 1,999 | 8,924,159 |
94
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
Period ending September 30, 2008 | Pulp ThU.S.$ | Sawmill ThU.S.$ | Forestry ThU.S.$ | Panels ThU.S.$ | Others ThU.S.$ | Corporate ThU.S.$ | Sub Total ThU.S.$ | Elimination ThU.S.$ | Total ThU.S.$ | ||||||||||||||
Income due to ordinary activities from external customers | 1,547,971 | 571,625 | 79,920 | 733,107 | 20,278 | 0 | 2,952,901 | 0 | 2,952,901 | ||||||||||||||
Ordinary activity income among segments | 27,623 | 2,922 | 587,571 | 44,048 | 24,241 | 0 | 686,405 | (686,405 | ) | 0 | |||||||||||||
Interest income | 0 | 0 | 0 | 0 | 0 | 18,529 | 18,529 | 0 | 18,529 | ||||||||||||||
Interest expenses | 0 | 0 | 0 | 0 | 0 | (124,297 | ) | (124,297 | ) | 0 | (124,297 | ) | |||||||||||
Interest income, net | 0 | 0 | 0 | 0 | 0 | (105,768 | ) | (105,768 | ) | 0 | (105,768 | ) | |||||||||||
Depreciations and amortizations | 86,481 | 15,400 | 4,362 | 31,134 | 2,713 | 0 | 140,090 | 0 | 140,090 | ||||||||||||||
Sum of significant income accounts | 0 | 0 | 39,435 | 0 | 0 | 0 | 39,435 | 0 | 39,435 | ||||||||||||||
Sum of significant expense accounts | 847 | 485 | 5,776 | 0 | 0 | 0 | 7,108 | 0 | 7,108 | ||||||||||||||
Profit (loss) of each specific segment | 566,131 | 37,344 | (55,784 | ) | 171,290 | 4,163 | (276,099 | ) | 447,035 | 0 | 447,035 | ||||||||||||
Company equity in profit and loss of associates and joint ventures | |||||||||||||||||||||||
Accounted for using the equity method | 0 | 0 | 0 | 0 | 0 | 5,057 | 5,057 | 0 | 5,057 | ||||||||||||||
Income tax expense (income) | 0 | 0 | 0 | 0 | 0 | 99,299 | 99,299 | 0 | 99,299 | ||||||||||||||
Non-monetary asset disbursements of the segment | 149,912 | 20,964 | 110,727 | 39,054 | 2,316 | 8,877 | 331,850 | 0 | 331,850 | ||||||||||||||
Nationality of Ordinary Income | |||||||||||||||||||||||
Ordinary income (Chilean companies) | 1,353,866 | 516,372 | 51,621 | 438,359 | 712 | 0 | 2,360,930 | 0 | 2,360,930 | ||||||||||||||
Ordinary income - foreign (Foreign companies) | 194,105 | 55,253 | 28,299 | 294,748 | 19,566 | 0 | 591,971 | 0 | 591,971 | ||||||||||||||
Total Ordinary Incomes | 1,547,971 | 571,625 | 79,920 | 733,107 | 20,278 | 0 | 2,952,901 | 0 | 2,952,901 | ||||||||||||||
Period ending December 31, 2008 | Pulp ThU.S.$ | Sawmill ThU.S.$ | Forestry ThU.S.$ | Panels ThU.S.$ | Others ThU.S.$ | Corporate ThU.S.$ | Sub Total ThU.S.$ | Elimination ThU.S.$ | Total ThU.S.$ | ||||||||||||||
Segment assets | 3,897,485 | 459,032 | 4,542,933 | 754,033 | 53,116 | 563,037 | 10,269,636 | (30,492 | ) | 10,239,144 | |||||||||||||
Investment in associates through equity method | 0 | 0 | 0 | 0 | 0 | 141,590 | 141,590 | 0 | 141,590 | ||||||||||||||
Segment liabilities | 120,282 | 42,195 | 86,272 | 107,484 | 10,108 | 3,865,567 | 4,231,908 | 0 | 4,231,908 | ||||||||||||||
Nationality of non-current assets | |||||||||||||||||||||||
Chile | 2,641,882 | 211,757 | 3,338,077 | 253,819 | 2,122 | 228,115 | 6,675,772 | 6,076 | 6,681,848 | ||||||||||||||
Foreign | 534,348 | 31,567 | 781,380 | 210,422 | 38,258 | 0 | 1,595,975 | 0 | 1,595,975 | ||||||||||||||
Non-current assets, Total | 3,176,230 | 243,324 | 4,119,457 | 464,241 | 40,380 | 228,115 | 8,271,747 | 6,076 | 8,277,823 |
95
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
Period from July 01 to September 30, 2009 | Pulp ThU.S.$ | Sawmill ThU.S.$ | Forestry ThU.S.$ | Panels ThU.S.$ | Others ThU.S.$ | Corporate ThU.S.$ | Sub Total ThU.S.$ | Elimination ThU.S.$ | Total ThU.S.$ | ||||||||||||||||
Income due to ordinary activities from external customers | 448,948 | 139,157 | 16,415 | 226,798 | 3,346 | 0 | 834,664 | 0 | 834,664 | ||||||||||||||||
Ordinary activity income among segments | 7,411 | 757 | 173,152 | 7,981 | 7,141 | 0 | 196,442 | (196,442 | ) | 0 | |||||||||||||||
Interest income | 0 | 0 | 0 | 0 | 0 | 5,258 | 5,258 | 0 | 5,258 | ||||||||||||||||
Interest expenses | 0 | 0 | 0 | 0 | 0 | (45,526 | ) | (45,526 | ) | 0 | (45,526 | ) | |||||||||||||
Interest income, net | 0 | 0 | 0 | 0 | 0 | (40,268 | ) | (40,268 | ) | 0 | (40,268 | ) | |||||||||||||
Depreciations and amortizations | 35,888 | 6,632 | 2,494 | 15,938 | 945 | 0 | 61,897 | 0 | 61,897 | ||||||||||||||||
Sum of significant income accounts | 0 | 0 | 39,097 | 0 | 0 | 0 | 39,097 | 0 | 39,097 | ||||||||||||||||
Sum of significant expense accounts | 113 | 369 | (1,306 | ) | 0 | 0 | 0 | (824 | ) | 0 | (824 | ) | |||||||||||||
Profit (loss) of each specific segment | 96,975 | (1,923 | ) | 41,171 | 27,181 | (1,240 | ) | (68,834 | ) | 93,330 | 0 | 93,330 | |||||||||||||
Company equity in profit and loss of associates and joint ventures | |||||||||||||||||||||||||
Accounted for using the equity method | 0 | 0 | 0 | 0 | 0 | (265 | ) | (265 | ) | 0 | (265 | ) | |||||||||||||
Income tax expense (income) | 0 | 0 | 0 | 0 | 0 | 23,376 | 23,376 | 0 | 23,376 | ||||||||||||||||
Nationality of Ordinary Income | |||||||||||||||||||||||||
Ordinary income (Chilean companies) | 396,670 | 126,052 | 6,182 | 141,281 | 277 | 0 | 670,462 | 0 | 670,462 | ||||||||||||||||
Ordinary income - foreign (Foreign companies) | 52,278 | 13,105 | 10,233 | 85,517 | 3,069 | 0 | 164,202 | 0 | 164,202 | ||||||||||||||||
Total Ordinary Incomes | 448,948 | 139,157 | 16,415 | 226,798 | 3,346 | 0 | 834,664 | 0 | 834,664 |
96
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
Period from July 01 to September 30, 2008 | Pulp ThU.S.$ | Sawmill ThU.S.$ | Forestry ThU.S.$ | Panels ThU.S.$ | Others ThU.S.$ | Corporate ThU.S.$ | Sub Total ThU.S.$ | Elimination ThU.S.$ | Total ThU.S.$ | |||||||||||||||||
Income due to ordinary activities from external customers | 497,519 | 188,326 | 26,383 | 249,317 | 6,652 | 0 | 968,197 | 0 | 967,197 | |||||||||||||||||
Ordinary activity income among segments | 3,914 | 1,001 | 208,905 | 9,799 | 8,467 | 0 | 232,086 | (232,086 | ) | 0 | ||||||||||||||||
Interest income | 0 | 0 | 0 | 0 | 0 | 6,321 | 6,321 | 0 | 6,321 | |||||||||||||||||
Interest expenses | 0 | 0 | 0 | 0 | 0 | (33,284 | ) | (33,284 | ) | 0 | (33,284 | ) | ||||||||||||||
Interest income, net | 0 | 0 | 0 | 0 | 0 | (26,963 | ) | (26,963 | ) | 0 | (26,963 | ) | ||||||||||||||
Depreciations and amortizations | 26,391 | 4,688 | 2,283 | 8,507 | 1,715 | 0 | 43,584 | 0 | 41,584 | |||||||||||||||||
Sum of significant income accounts | 0 | 0 | 25,549 | 0 | 0 | 0 | 25,549 | 0 | 25,549 | |||||||||||||||||
Sum of significant expense accounts | 847 | (68 | ) | 1,306 | (33 | ) | 0 | 0 | 2,052 | 0 | 2,052 | |||||||||||||||
Profit (loss) of each specific segment | 163,035 | 11,991 | (22,790 | ) | 50,953 | (2,535 | ) | (86,135 | ) | 114,519 | 0 | 114,519 | ||||||||||||||
Company equity in profit and loss of associates and joint ventures | ||||||||||||||||||||||||||
Accounted for using the equity method | 0 | 0 | 0 | 0 | 0 | 2,562 | 2,562 | 0 | 2,562 | |||||||||||||||||
Income tax expense (income) | 0 | 0 | 0 | 0 | 0 | 15,392 | 15,392 | 0 | 15,392 | |||||||||||||||||
Nationality of Ordinary Income | ||||||||||||||||||||||||||
Ordinary income (Chilean companies) | 440,689 | 169,802 | 15,088 | 150,192 | 0 | 0 | 775,771 | 0 | 775,771 | |||||||||||||||||
Ordinary income - foreign (Foreign companies) | 56,830 | 18,524 | 11,295 | 99,125 | 6,652 | 0 | 192,426 | 0 | 192,426 | |||||||||||||||||
Total Ordinary Incomes | 497,519 | 188,326 | 26,383 | 249,317 | 6,652 | 0 | 968,197 | 0 | 967,197 |
97
Table of Contents
CELULOSA ARAUCO Y CONSTITUCION S.A.
AND SUBSIDIARIES
Unaudited Notes to the Consolidated Financial Statement
September 30, 2009
Amounts in thousands of U.S. dollars, except as indicated
NOTE 25. EVENTS AFTER REPORTING PERIOD (IAS 10)
On October 16, 2009, Arauco through its subsidiary Arauco Internacional S.A., concluded the acquisition, jointly and on a 50/50 basis with the multinational Swedish-Finnish company Stora Enso Oyj (“Stora Enso”), the latter acting through its subsidiary Stora Enso Amsterdam B.V., of the following Uruguayan subsidiaries of the Spanish company Grupo Empresarial ENCE, S.A. (“Ence”): Eufores S.A. (with its subsidiary El Esparragal Asociación Agraria de Responsabilidad Limitada), Celulosa y Energía Punta Pereira S.A. and Zona Franca Punta Pereira S.A.
The stock purchase agreement that preceded this acquisition, had been the subject of a “Material Fact” submitted to the Superintendency on May 18, 2009.
The definitive value of the transaction is US$335 million, and Arauco concurs with 50% of the same value.
The main assets acquired from Ence are: 130,000 hectares of land, of which 73,000 have forestry plantations; 6,000 hectares under agreements with third parties; one industrial site; the necessary environmental permits for the construction of a pulp mill; a river terminal; one chip producing mill, and one nursery.
All the above assets are added to the land and plantations that Arauco and Stora Enso already control through a joint company in Uruguay, in accordance with the agreement that was submitted to the Superintendency in our “Material Fact” dated September 27, 2009. All the above, allows such joint company to form a forestry land ownership in Uruguay of approximately 250,000 hectares of land, with almost fifty percent of such land being planted.
These assets assure a sufficient forestry base that permit Arauco to consider the construction of a future pulp mill in Uruguay, in respect of which a definitive decision will be made in the future.
Arauco estimates that this transaction will have positive effects in the results of the Company, even though as of the date hereof such effects are not quantifiable.
No other events have occurred between September 30, 2009 and the issuance of these financial statements that may affect significantly the financial situation of the Company.
98