CMPC's 2005 Annual Report

Annual Report 2005 - Empresas CMPC S.A.

Empresas CMPC S.A. 001

Empresas CMPC S.A. is a listed stock corporation established in 1920 with Chilean private capitals. Its equity is divided into 200 million shares, held by 7,983 shareholders. Its forest assets extend over an area of 717,000 hectares of mainly radiata pine and eucalyptus forests. During 2005 its sales reached to ThUS$ 2,129,326.3. Net income was ThUS$ 239,974.5, equivalent to ThUS$ 1.2 per share. CMPC is an integrated forestry company that conducts five distinct businesses, each of which is organized as a separate company or group of companies and independently managed in accordance with the consolidated corporate strategy. These subsidiaries are: Forestal Mininco S.A.: Forestry and sawmill business. CMPC Celulosa S.A.: Short, long-fiber and fluff pulp business. It operates the following pulp mills: PacĂ­fico (495,000 tons/year), Santa Fe (380,000 tons/year) and Laja (360,000 tons/year). CMPC Papeles S.A.: Folding boxboard, printing and writing papers, corrugating and wrapping materials, newsprint and wood free paper business. Its subsidiaries are: Papeles Cordillera S.A., Cartulinas CMPC S.A., Industrias Forestales S.A., and the distribution company EDIPAC S.A. CMPC Tissue S.A.: Tissue and sanitary products in Chile, Argentina, Uruguay, Peru and Mexico. CMPC Productos de Papel S.A.: Engaged in the packaging business, operating through 4 subsidiaries: Envases Impresos S.A., Envases Roble Alto S.A., PROPA S.A., (with subsidiaries in Chile, Argentina and Peru) and Chimolsa S.A.

Contents

Letter from the Chairman

007

Board of Directors, Committee of Directors and Management

010

Historic Background

013

Corporate Responsibility in CMPC

015

Businesses and Subsidiaries Description

019

Businesses Analysis

033

Financial Analysis

045

Ownership Structure

056

General Information

059

Consolidated Financial Statements

071

Overseas Representatives

136

Bankers

138

General Information

139

004

Board of Directors Empresas CMPC

Arturo Mackenna (Chief Executive Officer), Juan Claro, Bernardo Matte, Gonzalo García (General Secretary), Eliodoro Matte, Jorge Gabriel Larraín, Patricio Grez, Jorge Marín, Martín Costabal.

Letter from the Chairman 007

Dear Shareholders, I am pleased to submit for your consideration our Annual Report and Financial Statements for the recently ended fiscal year. The year 2005 was marked by the celebration of the 85th anniversary of the Company, which gave rise to several activities with the community, workers, customers, suppliers, and authorities. These included the exhibition Lágrimas de Luna –Tesoros de la Platería Mapuche (Moon Tears -Treasures of Mapuche Silverware), sponsored by CMPC and opened to the public at the Museo de Bellas Artes and subsequently at the Jorge Alessandri Educational Park in Concepción. We consider these initiatives an event of great significance and a vivid testimony of our respect for the identity and spiritual legacy of the Mapuche culture. At the opening of this exhibition, and in the presence of the President of Chile, I emphasized the fact that CMPC develops its production activities harmonizing several aspects, which are very important for society. Certainly, companies’ main social responsibility is to keep themselves active and generate wealth by means of satisfying customers’ demands and fairly competing in markets. When this happens, companies not only generate returns for their shareholders, but also very desirable social consequences, such as employment opportunities and provision of high-value goods and services. However, CMPC intends to go further and get involved with the challenges and goals of its neighbors, by making constant and significant social contributions to communities surrounding its forest properties and mills. Fundación CMPC, which supports 93 schools in 36 districts of the country, benefiting over 380 teachers and 15 thousand children, is one of our most important contributions. Equally relevant for the Company is the care for the environment. For this reason all our investments have duly assumed the corresponding environmental dimension. Technical and information requirements regarding the communities involved have been addressed in an atmosphere of much collaboration, with satisfactory results. During the referred ceremony, the President of Chile congratulated CMPC for its contribution and its capability to understand and accommodate the economic, social, cultural and environmental requirements arising from our activity. Throughout its history, the Company has undertaken pioneering and break-through activities in diverse areas, thus contributing not only to consolidate itself in the economic sphere, but also to gain a privileged position in its social insertion. So has been recognized by journals like La Segunda and El Diario Financiero, which –supported by wide-coverage surveys- have honored us as “The Most Admired Company” in Chile for the year 2005. This anniversary finds CMPC very actively progressing. Today we have 20 mills operating in Chile, 6 abroad and nearly 500 thousand planted hectares. As I addressed in my letter last year, the Company is developing very important projects, some of which are already near to completion. During the fiscal year, CMPC implemented an expansion of the Maule Plant adding 80 thousand tons of folding boxboard per year with an investment of 38.5 million dollars. In September a new tissue paper machine started up in the Talagante Plant. Total investment amounted to 31 million dollars, and the machine’s capacity is 34 thousand tons of paper per year. The rebuilt sawmill in Mulchén began to operate in October, with a capacity of

008

420 thousand cubic meters per year with an investment of 26 million dollars. Also, by the end of the year, an agreement was reached to purchase the forests and industrial assets of Forestal Copihue for 110 million dollars, including essentially 16 thousand hectares planted with radiata pine in the 7th Region, a sawmill in Constitución and a remanufacturing plant in Coronel. The main ongoing project is the new pulp production line in the Santa Fe Pulp Mill, with a total investment of 745 million dollars. This project is being executed according to schedule and its start up is programmed for the last quarter of 2006. Special and constant care has been given to environmental and safety factors and we have devoted significant energy and resources to ensure compliance with our obligations in these matters. During 2006, important investments will be completed in other areas of the Company, such as the new plywood plant, a new biomass boiler at the Pacífico Pulp Mill, several environmental improvements at the Laja Pulp Mill, an increase in corrugated paper production capacity in Puente Alto, and the construction of secondary treatment plants in Nacimiento, Maule, Valdivia, Puente Alto and Talagante. With the foregoing, we complete the investment plan of 1,500 million dollars initiated in the year 2004, the most ambitious in the Company’s history. In 2005 our net income amounted to US$ 240 million, 29% lower than that of the previous year. This decrease was the result of several factors that impacted negatively the costs of different activities. These factors include the appreciation of the local currency against foreign currencies, which increased fixed costs measured in dollars, substantial fuel surges and gas shortages, increases in land and ocean freight rates, higher prices of wood purchased from third parties, increases in maintenance and construction costs of forest roads, and the recognition of extraordinary expenses associated to the large number of projects under execution. Export prices of CMPC, measured in dollars, were on average a little lower than those of 2004. Pulp prices started the year with an upward trend. However, from the second quarter prices began to weaken, ending with an annual average US$ 20 per ton below the ones recorded in 2004. In contrast, some paper export prices experienced moderate increases during the year. It should be noted that price levels of our main export products are modest compared to those obtained by other commodities such as copper and oil. The positive performance of the Chilean economy, particularly in consumption, fuelled a growth in sales in the domestic market, although in a highly competitive environment. Subsidiaries abroad improved their performance measured in dollars, but the economic situation in Argentina continues making difficult for us to obtain results consistent with the investment made in that country. In order to pursue our investments and refinance some financial debt, CMPC issued a 10 year bond in the local market for UF 7 million (approximately 200 million dollars). Furthermore, the Company subscribed a 7-year syndicated loan for 100 million dollars with a group of 8 banks. Including these operations, the average cost of debt is 4.5% per annum in dollars, one of the lowest one ever achieved by a Chilean private company. As a result of the disbursement in investments, net debt increased from 501 million dollars by the end of 2004 to 968 million dollars by the end of 2005.

009 Letter from the Chairman

CMPC is a company that is investing, which believes in Chile, in its workers, and in its business. A company that is faithful to its traditions, while innovative and vigorous.

CMPC is a company that is investing, which believes in Chile, in its workers and in its business. It is also a company which is faithful to its traditions, while innovative and vigorous, and is admired by many as an example of a company that tries to do things well. The difficulties and challenges we face encourage us to make daily efforts to fulfill our duties and conduct our businesses to achieve the best possible results, in an efficient and prudent manner. We endeavor to continue to make a positive contribution to our country and its people, aspiring always to excellence, taking advantage of the possibilities that emerge in the different lines of business in which we compete, and providing improved opportunities to our workers and their families. On this 85th anniversary, taking pride in our history, CMPC has solid foundations to plan its future. This imposes on us the responsibility of continuing to work to attain our entrepreneurial objectives in a framework of strict ethical rigor, and respect for fundamental rules, principles and values.

Eliodoro Matte Chairman Empresas CMPC S.A.

010

Board of Directors and Administration

BOARD OF DIRECTORS EMPRESAS CMPC S.A. Chairman Eliodoro Matte Civil Industrial Engineer Rut: 4.436.502-2 Directors Juan Claro Entrepreneur Rut: 5.663.828-8 Martín Costabal Economist Rut: 5.593.528-9 Patricio Grez Civil Engineer Rut: 1.854.776-7 Jorge Gabriel Larraín Economist Rut: 4.102.581-6 Jorge Marín Business Administrator Rut: 7.639.707-4 Bernardo Matte Economist Rut: 6.598.728-7

Committee of Directors Jorge Marín Patricio Grez Martín Costabal

011

MANAGEMENT OF EMPRESAS CMPC S.A. Chief Executive Officer Arturo Mackenna Civil Industrial Engineer Rut: 4.523.287-5 General Secretary Gonzalo García Lawyer Rut: 5.543.123-K Chief Financial Officer Luis Llanos Civil Industrial Engineer Rut: 7.003.064-0

External Auditors PricewaterhouseCoopers

Management From left to right: Luis Llanos, Arturo Mackenna and Gonzalo García.

012

Historic Background 013

Empresas CMPC was established in 1920 under the name Compañía Manufacturera de Papeles y Cartones S.A. through the merger of the paper manufacturing firm Ebbinghaus, Hansel and Company and the Maipú Mill of Comunidad Fábrica de Cartón Maipú. During the early and mid-1900s, when the Chilean economy was characterized by import substitution and high tariffs, CMPC focused on diversifying into paper production to complement its production of boxboard and became, by the 1960s, the leading supplier of converted paper products in Chile. As the paper market grew, CMPC began to produce its own pulp at the Laja mill in 1959. The growing forest reserves established by CMPC, as well as the need to obtain economies of scale, soon resulted in the production of more pulp than the Chilean market required and, in the late 1950s, the Company entered the export market for newsprint and pulp. In 1991, CMPC made its first investment in production facilities outside of Chile, acquiring the Argentine disposable diaper producer Química Estrella San Luis S.A. In 1993, CMPC entered into a 50/50 joint venture with Procter & Gamble, in order to develop the disposable diapers and sanitary towels market in Chile, Argentina, Bolivia, Uruguay and Paraguay. This join venture was terminated in 1998. In 1994, CMPC continued its international expansion with the acquisition of the tissue producer IPUSA in Uruguay. In 1995 it started operations of its greenfield tissue mill in Argentina in 1995, and in 1996, continued to expand its tissue operation through the acquisition of Papelera del Plata S.A. in Argentina and the organization of a tissue company in Peru. In 1998, CMPC finished its second tissue machine in Argentina and started a production facility in Peru, becoming the largest tissue operator in South America. In the mid 1950s, the Company became a holding, decentralizing its operations in different subsidiaries grouped in 5 large business areas: Forestry, Pulp, Paper, Tissue and Paper Products. During 1998, CMPC completed the process of fully incorporating the Santa Fe and Pacífico mills into its pulp business, after acquiring 100% of both companies. In fact, in two separate operations, the Company purchased from Royal Dutch/Shell and Citibank 80% of ownership interest in the Santa Fe Pulp Mill, and, from Simpson Paper and the IFC 53.5% of ownership interest in the Pacífico Pulp Mill. CMPC had previously purchased from Scott Paper 20% of shares in Santa Fe in 1995. In 1998, a new boxboard machine started operating, allowing CMPC to serve new export markets for folding boxboard. In 1999, CMPC entered the Peruvian multiwall sacks market with a new greenfield plant. Finally in 2001, a new liner and medium paper mill started operating to supply the domestic corrugated boxes needs. The Company is currently developing relevant projects in its 5 business areas. Many of them have already been executed and are in operation, such as the expansion of the folding boxboard plant in Maule, the reconstruction of the Mulchén sawmill and the expansion of the tissue paper plant in Talagante, while other projects like Santa Fe 2 are in an advanced state of development.

Corporate Responsibility in CMPC 015

For CMPC, corporate responsibility is a voluntary and proactive commitment to perform its duty within an ethical framework that considers good practices in all its activities in different areas: BUSINESS ACTIVITIES

The Company contributes to Chile’s development by generating both employment and wealth. In order to achieve this: conducts good management practices; produces and sales high quality products; maintains reliable and efficient relations with its customers and suppliers; competes fairly in the marketplace; produces transparent financial reporting; pays all taxes and complies with the legal frameworks. EMPLOYEES

The Company strives to ensure appropriate working conditions, complying with all labor obligations related to remuneration, social security and regulations. Furthermore, it develops policies and benefit programs for employees and their families, with a constant concern for their job security and generating training and career development opportunities. People are a key factor in the success of the Company’s affairs. COMMUNITY

The Company has designed several programs for educational support and community development that benefit the communities surrounding its properties and mills, in order to contribute to improve their living conditions. As a member of many communities, the Company is always keen to collaborate with them in order to participate, where possible, in their goals and challenges. This year CMPC has reinforced its action program towards social insertion, with special emphasis on the generation of direct, indirect and related local employment, as well as cooperating in the development of small-size companies that may offer job possibilities in the region. Fundación CMPC

The Program for Language and Mathematics Learning Support covered 5,924 children. A significant improvement in student performance was achieved with this program, as measured by the SIMCE national test (a test conducted nationally to assess the education quality). Likewise, significant management support was provided to municipal schools involved in the program. Also this year the “School Libraries” project was implemented, with an average of 1,600 books delivered to each of the following schools: Coigüe in the district of Negrete; El Saber, Toqui Lautaro and Canada; the last three located in the district of Nacimiento. The collection comprises literary genres for all tastes and ages, responding to the different interests of readers. Together with the donation of resources, training was provided to librarians and teachers, an experience that took place at the Reading Center of Lo Barnechea in Santiago.

016

Good Neighborhood Plan

During 2005, an average of 1,262 neighbors were hired as labor force, of whom 721 were Mapuche. This made possible to incorporate neighbors to the forest culture, and so to receive the benefits of living in the proximity of cultivated forests. A total of 211 courses were given to neighbors covering over 2,700 people. From its beginning, six years ago, 914 courses have been given, with 12 thousand neighbors trained in several areas of rural development support, with special emphasis on improving their household skills. Scholarships to pursue secondary education were granted to 147 children. This support is relevant due to the large existing distances to secondary education establishments in rural areas. Over 120 workshops have been given to neighbors, transferring knowledge applicable to their daily chores. Furthermore, pasture has been rented to 280 people with 3,280 livestock; firewood has been furnished to 1,460 neighbors; small farmers have been trained at El Vergel Agricultural School in Angol; a project related to mountain ñocha (a variety of sedge) was developed for seven Mapuche communities and, like in previous years, free access has been allowed to the Company’s farms, to remove non-forest products (including mushrooms, dog-rose flowers, blackberries, yellow flowers, among others). The Jorge Alessandri Educational Park

Three important events took place in 2005: • Opening of the Artequín Museum in the Park. This museum houses works of art reproductions, offering an educational-interactive proposal through guided workshops, audiovisual and computer means. This innovative model allows visitors to experience art in an amusing and didactic manner. • Construction of an access square that is part of the first stage of a new landscape proposal, which will modify the present one, changing some plants but preserving native species.

017 Corporate Responsibility in CMPC

• Presentation of the exhibition Lágrimas de Luna -Tesoros de la Platería Mapuche (Moon Tears -Treasures of the Mapuche Silverware), which was opened to the public from November 8 through December 12. This exhibition gathers the most symbolic pieces of the Mapuche people, each object reflecting their spirituality and culture. During the year 2005, the Park received 132,360 visits. From its opening to date, 860 thousand people have visited the Park, and approximately 500 thousand children have participated in the educational and cultural activities offered. Other CMPC Community-Oriented Actions

CMPC has a permanent attitude of collaboration with several social and trade institutions. These include, among others, ICARE, CEP, CORMA, Paz Ciudadana, SOFOFA. The Company actively cooperates in the cultural field in Chile. In this regard, it supports the work developed by the Artequín Museum, the Municipal Theater (Chile’s principal opera and classical music house) and literary contests organized by El Mercurio Newspaper’s Book Magazine. Through its corporate website www.papelnet.cl, CMPC makes an important contribution to the children of Chile and the world by providing a wide range of information relating to forests, pulp and paper. THE ENVIRONMENT

Regarding the environment, the Company plans for the long term, guided by the principle of sustainable development. This is an element of its competitive strategy that is essential for the existence and progress of the business. This approach is reflected in the Company’s environmental policy, which contains the principles that regulate the personnel’s performance.

Businesses and Subsidiaries Description

Servicios Compartidos

020

Forestal

022

Celulosa

024

Papeles

026

Tissue

028

Productos de Papel

030

020

Servicios Compartidos CMPC S.A.

SUBSIDIARY DESCRIPTION

During 2005 CMPC started a project aimed at creating a shared service center operated as an independent subsidiary to support all business units of the Company, namely: Forestry, Pulp, Papers, Tissue, and Paper Products. The purpose of Servicios Compartidos CMPC is to provide the services these business divisions may require, with high quality and competitive costs, in areas such as accounting, information technologies, communications, procurement, and payroll. Benefits expected of this subsidiary include, among others: improvement and standardization of administrative, payroll, procurement and IT processes in CMPC, support and strengthen the different business areas with optimal service levels for its customers. Concentration of all these support services in a single organization facilitates the attainment of high professional and technical specialization of personnel, as well as reaching a significant volume of operations to obtain synergies and economies of scale, optimizing costs, quality and efficiency. The basic functions of Servicios Compartidos CMPC are the following: • To operate the accounting, tax, procurement, accounts payable and payroll processes. • To provide information technology/computer support. • To optimize current processes and develop new options. • To provide professional consultancy in financial, accounting, tax, and computer-related matters. • To maintain and define procedures. • To establish agreements related to services and associated costs for each area. The objective of this subsidiary is to provide services to CMPC and its subsidiaries; it is not intended to provide services to third parties. Likewise, the Company’s subsidiaries shall not exercise the functions described above directly or contract them from third parties. The implementation of these activities is being made gradually and by stages, including a redesign of processes and support technologies. The main challenge CMPC faces now is to make a transition without generating adverse impacts on the current operation of companies, and to achieve an efficient organization able to provide the best service. For that purposes, CMPC relies on its highly qualified and enthusiastic staff and the support of its executive officers.

021 Businesses and Subsidiaries Description

Chief Executive Officer: Jorge Araya / Directors: Antonio Albarrán, Sergio Colvin, Andrés Infante, Luis Llanos, Jorge Morel, Hernán Rodríguez.

022

Forestal Mininco S.A.

Chief Executive Officer: Hernán Rodríguez / Chairman: Eliodoro Matte / Vice-Chairman: Arturo Mackenna / Directors: Ernesto Ayala, Gonzalo García, Jorge Gabriel Larraín, José Ignacio Letamendi, Pedro Schlack.

023 Businesses and Subsidiaries Description

BUSINESS DESCRIPTION

CMPC conducts its forest business in a two-fold manner. Forestal Mininco and Forestal Monteáguila manage the forest assets to support the industrial development of the Company in pulp and solid wood needs. CMPC Maderas operates the area of solid wood products, such as sawn wood, remanufacturing and plywood. The Company owns forest resources for over 420 thousand hectares planted with pine and eucalyptus, located between the 7th and 11th Regions in Chile. In the northeast of Argentina, the subsidiary Bosques del Plata is developing a forest base of 100 thousand hectares, principally of taeda and elliotti pine, with the capacity to support a pulp mill at a competitive scale. CMPC Maderas owns three sawmills in the 8th Region: Bucalemu, Mulchén and Nacimiento, with a production capacity of over 1.1 million m3/year of radiata pine. In addition to its sales in Chile, CMPC exports 77% of its production to more than 20 countries in the five continents. It also owns a remanufacturing plant in Los Angeles that produces 110 thousand m3/year of products made from dry sawn wood (finger joint panels, moldings, and laminated products), which are exported mainly to the United States, Japan and Spain. In January 2006, CMPC Maderas will start to operate the industrial assets acquired from Forestal Copihue, consisting of a sawmill of 120 thousand m3/year; a facility to produce 150 thousand units of poles per year, both located in Constitución; and a remanufacturing plant located in Coronel with an annual production capacity of 90 thousand m3, in addition to 200 thousand doors per year.

024

CMPC Celulosa S.A.

Chief Executive Officer: Sergio Colvin / Chairman: Eliodoro Matte / Vice-Chairman: Arturo Mackenna / Directors: Jorge Araya, Ernesto Ayala, Jorge Gabriel LarraĂ­n, Luis Llanos, Bernardo Matte.

025 Businesses and Subsidiaries Description

BUSINESS DESCRIPTION

CMPC produces over one million tons of kraft pulp per year in its Laja, PacĂ­fico and Santa Fe Pulp Mills. The Company has an integral logistic and marketing network reaching over 200 customers in 30 countries in Europe, Asia, and America. The Laja Pulp Mill produces 345 thousand tons per year of long-fiber kraft pulp, from radiata pine. Most part of this volume is bleached pulp, although unbleached pulp and fluff pulp in rolls are also produced, the latter being used in the manufacture of absorbent products. Laja is an integrated mill, which also produces white printing and writing paper, as well as sack kraft paper. The PacĂ­fico Pulp Mill, located 30 kilometers from the city of Angol, produces 490 thousand tons per year of bleached, long-fiber kraft pulp from radiata pine. The Santa Fe Pulp Mill, in Nacimiento, produces 380 thousand tons per year of bleached, short-fiber kraft pulp, from eucalyptus. This pulp has several characteristics that make it an ideal raw material for the production of high quality fine printing, writing and tissue papers. At this pulp mill, CMPC is developing the largest project in its history, by building a second production line for bleached kraft pulp from eucalyptus, with a design capacity of 780 thousand tons per year. With an investment of US$ 745 million, its start up is scheduled for the last quarter of 2006.

026

CMPC Papeles S.A.

Chief Executive Officer: Antonio Albarrán / Chairman: Eliodoro Matte / Vice-Chairman: Arturo Mackenna / Directors: Jorge Araya, Andrés Echeverría, Luis Llanos, Bernardo Matte, Juan Claro.

027 Businesses and Subsidiaries Description

BUSINESS DESCRIPTION

This business area has a structure with five subsidiaries, through which it is engaged in the production and marketing of folding boxboards, newsprint, corrugating, printing, writing, and wrapping papers. INFORSA sells newsprint paper produced at its Nacimiento plant (8th Region), with a production capacity of 200 thousand tons per year. The main destination of its exports is Latin America. However, sales are also made to North American, the Caribbean, Asia and Europe. Cartulinas CMPC operates the Maule (7th Region) and the Valdivia (10th Region) mills, with a total production capacity of 330 thousand tons of folding boxboard per year, which are sold in more than 30 countries of Latin America, Europe, Asia and the United States. Papeles Cordillera, located in the district of Puente Alto, in Santiago, operates 5 paper machines, including a modern one that produces mainly corrugating papers from recycled fibers. SOREPA is the company responsible for collecting waste papers and corrugated boxes all over the country, which are recycled and transformed into paper again at CMPC’s plants, with a significant environmental benefit. In addition, CMPC Papeles owns EDIPAC, a company that distributes nation wide CMPC’s paper grades and some imported grades, as well as paper products.

028

CMPC Tissue S.A.

Chief Executive Officer: Jorge Morel / Chairman: Eliodoro Matte / Vice-Chairman: Arturo Mackenna / Directors: Gonzalo GarcĂ­a, Jorge Hurtado, Bernardo LarraĂ­n, Luis Llanos, Bernardo Matte.

029 Businesses and Subsidiaries Description

BUSINESS DESCRIPTION

With its plants in Chile, Argentina, Peru and Uruguay, CMPC Tissue manufactures and markets toilet paper, paper towels, napkins and disposable handkerchiefs under the brands Elite, Confort, Higienol, Nova, Noble and Sussex, among others. Additionally, it produces and sells disposable diapers under the Babysec brand, sanitary towels and adult incontinence diapers under the Ladysoft and Cotidian brands respectively. In Chile, CMPC Tissue has production plants in Puente Alto and Talagante, both with modern technology paper machines and conversion equipment. In Uruguay, its subsidiary IPUSA located in Pando, 30 kilometers from Montevideo, produces tissue products and diapers. The subsidiary PROTISA Peru has a plant in Lima that produces tissue products and diapers. The Company has gained an important presence in the market of disposable diapers -specially in the medium and low segments with its brand Babysec. Finally, the Company recently began the production of sanitary towels (Ladysoft) and adult incontinence diapers (Cotidian). Additionally, it offers a specialized line of sanitary products for consumption in institutions and public places.

030

CMPC Productos de Papel S.A.

Chief Executive Officer: AndrĂŠs Infante / Chairman: Eliodoro Matte / Vice-Chairman: Arturo Mackenna / Directors: Juan Carlos Eyzaguirre, Gonzalo GarcĂ­a, Patricio Grez, Eugenio Heiremans, Bernardo Matte.

031 Businesses and Subsidiaries Description

BUSINESS DESCRIPTION

CMPC Productos de Papel operates through the subsidiaries Envases Impresos, Envases Roble Alto, PROPA and Chimolsa in Chile, FABI in Argentina and FORSAC in Peru. The corrugated boxes business is conducted separating the two major segments of the market. Envases Impresos manufactures corrugated boxes for the fruit, and salmon export segment in its two plants located in Buin. Envases Roble Alto produces corrugated boxes for the industrial and wine segment, in its facilities located in Til-Til and Quilicura districts. The multiwall sacks business is operated by PROPA in Chile, FABI in Argentina and FORSAC in Peru, from where the respective local markets -particularly the cement and construction materials industry- are served. These companies also export to several countries in the region. Chimolsa, with an industrial plant located in Puente Alto, manufactures moulded pulp trays for apple and avocado exports, as well as trays and cases for eggs.

Businesses Analysis

Forestal

034

Celulosa

035

Papeles

038

Tissue

039

Productos de Papel

040

034

FORESTAL MININCO S.A.

During 2005, the forest business -like most part of industry- faced the effects of cost increases resulting from exchange rate variations, and oil prices. Nevertheless, its performance was within the historical high range. In relation to investments in fixed assets, the year 2005 was particularly active with a total investment of approximately US$ 270 million. The main investment was the acquisition of the forests and industrial operations of Forestal Copihue, which comprises 16 thousand hectares planted with radiata pine in the 7th Region; a 120 thousand m3/year sawmill; a 150 thousand units per year pole production facility located in Constitución; and a remanufacturing plant located in Coronel with an annual production capacity of 90 thousand m3, in addition to 200 thousand doors per year. Regarding industrial projects, the new sawmill in Mulchén -with an investment of US$ 26 million- started operations with a production capacity of nearly 500 thousand m3/year. Another investment of 11 million dollars was made in this sawmill in order to increase wood drying capacity in 190 thousand m3/year. The same was made in Nacimiento sawmill, by adding to the system a drying capacity of approximately 180 thousand m3/year. The construction of the plywood mill also started with an estimated investment of 57 million dollars. This plant will be located adjacent to the Pacífico Pulp Mill, leading to important synergies between them. On the other hand, divestments were made in non-core assets, including particularly the sale in early 2005 of 4.3 thousand hectares of eucalyptus forests located in Litueche (6th Region). During the year, a total of 20.8 thousand hectares were planted in Chile: 15.8 thousand of pine, and 5 thousand of eucalyptus; and in Argentina 3.3 thousand hectares of pine. Forest management was successfully recertified with ISO 14001, and follow-up audits of the Certfor-PEFC forest sustainability seal and OHSAS labor certification were approved. Likewise, the chain of custody certification of CMPC Maderas products is currently under development.

Plantation as of December 31, 2005 Pine

Eucalyptus

Other Species

To Be Planted

Other Uses

Total

Forestal Mininco

234,355

62,199

17,432

20,791

115,915

450,693

Forestal Crecex

65,247

25,301

303

5,628

35,409

131,888

5,020

24,321

222

1,332

13,893

44,788

304,622

111,821

17,957

27,751

165,217

627,368

63,084

2,570

133

1,336

27,160

94,283

367,706

114,392

18,090

29,087

192,377

721,652

Hectares

Forestal Monteáguila Subtotal Chile Forestal Bosques del Plata Total CMPC Forestal

There are 3,895 additional hectares of plantations belonging to Sociedad Inversora Forestal that are managed by Forestal Mininco.

035 Businesses Analysis

Comparative Advantages of Plantations in Chile

In Chile there are currently 15.6 million hectares covered with forests, located mainly between the 7th and 12th Regions, representing 20.8% of the national territory; however, there are only 2.1 million hectares of forest plantations providing wood to the industry. The main species planted in Chile are radiata pine, eucalyptus globulus and eucalyptus nitens. Radiata pine is native from South California and was introduced in Chile in the late 19th century. Growth rates for radiata pine in Chile are quite higher than those of most conifers in the Northern Hemisphere. This offers some advantages in cost structure for wood-derived products compared to our main competitors at a global level. In fact, radiata pine may be harvested in Chile generally 20 to 24 years after being planted, in contrast with the 50 to 80 years needed for comparable species in the Northern Hemisphere. For this reason, Chilean pine producers require less time and less land area than North American or European producers, which results in lower maintenance and transportation costs. Eucalyptus is native from Australia. In Chile, it takes a period of around 12 years after planted for the tree to be harvested, which is also quite less than the period needed for comparable short-fiber species existing in the Northern Hemisphere. Therefore, Chilean producers also present advantages in production cost structure versus their main competitors.

CMPC CELULOSA S.A.

In 2005, the sales volume of CMPC Celulosa reached 1 million 213 thousand tons, which is 19 thousand tons more than in the preceding year. This allowed CMPC to keep its position as a dependable supplier of both long and short-fiber pulp to a portfolio of approximately 200 customers in 30 countries around the world. Total production amounted to 1 million 233 thousand tons compared to 1 million 230 thousand tons in 2004, both figures corrected for the transfer between mills effect. The Laja Pulp Mill produced 361 thousand tons, mainly of long-fiber bleached pulp, in addition to other products such as crude pulp, fluff pulp in rolls (used as raw material to manufacture absorbent products), extensible sack kraft papers, as well as white printing and writing paper. The PacĂ­fico Pulp Mill produced 495 thousand tons of long-fiber pulp from radiata pine, and Santa Fe, 377 thousand tons of short-fiber pulp from eucalyptus. The last two figures constitute a new production record. Santa Fe - Line 2

The Santa Fe Line 2 Project -with a budget of US$ 745 million- is advancing according to schedule; therefore, its start-up date is estimated for the last quarter of 2006.

036

The state of advance as of December 31, 2005 was 78%. Engineering and acquisitions have advanced over 95%, while civil works have advanced 80% and the mechanical-electrical assembly over 40%. There are over 5 thousand people working in the project. Approximately 50% of them are from the Bío Bío province. This project, which was submitted to the Environmental Impact Evaluation System (SEIA) in accordance with the provisions of Law 19,300 on Environmental Bases contained in the relevant Regulations, has met all the requirements contemplated in the Environmental Qualification Resolution (RCA). These include compliance with the applicable environmental legislation and implementation of a set of mitigation, compensation, and reparation measures considered in the RCA. Both the environmental authority and public inspection organizations have made many inspection visits, no major problems have occurred to date. Another important project being carried out is PROFAL IV in the Laja Pulp Mill, which involves an investment of US$ 46.7 million. Its purpose is to substantially improve the mill’s environmental performance, and it is advancing as anticipated. The following items have been put into service to date: an expansion of the area for controlled disposition of solid residues, a secondary effluent treatment plant, and other improvements in the MP12 machine area and bark press. The mechanical assembly of the new oxygen delignification stage is progressing and its start-up is estimated for May 2006. Finally, the installation of a biomass boiler at the Pacífico Pulp Mill, capable of producing up to 150 tons per hour of high-pressure steam using bark and other wood particles, is advancing as scheduled and will be operating by October 2006. In order to respond to the increasing importance customers are giving to their pulp suppliers’ environmental performance, this business area obtained certification for its chain of custody according to CERTFOR-PEFC standards, which guarantees that its raw materials come exclusively from planted forests, from a controlled origin, free of disputes and perfectly traceable from the forest up to the final destination. Barriers to Entry and Determination of Pulp Prices

The pulp industry is characterized by significant barriers to the entry, generated by high requirements of initial investment in fixed assets, and the need to have an adequate and efficient raw material supply base. Economies of scale are also a typical element of this industry. To take advantage of these aspects, companies must build high capacity mills, requiring sophisticated technologies for their operation. Moreover, in order to be profitable they need to have access to markets of sizes proportionate to their operation scale. Unlike other industries that also have elevated barriers to entry and strong economies of scale, the world pulp industry is highly fragmented. Market price presents cycles generated by the interaction between the economic activity level and supply variations, whether by

037 Businesses Analysis

addition of new capacity or by cost structure variations, due to, among other things, of exchange rate fluctuations. Pulp prices fluctuate according to a series of factors beyond our control, including world demand, production and inventory capacity, large companies’ business strategies and availability of substitutes. As noted in the Figure below, pulp prices show high volatility as a result of cycles in the world economy on the part of demand and of fluctuations of the aggregate cost curve of world industry, on the part of supply. It may be further noted that the radiata pine pulp (BRKP) qualities produced in Chile have been historically traded at a discount to the Northern Bleached Softwood Kraft Pulp (NBSKP), quality that serves as international reference price. Finally, it may be seen that in recent years eucalyptus pulp (BEKP) price has had its own dynamics, reaching even levels above the NBSKP benchmark.

Historical Nominal Pulp Prices (CIF North of Europe)

Source: Hawkins Wright

Contrasting with the performance of other commodities in international markets, pulp prices have shown over the last three years only a slight upward trajectory, fuelled by a recovery in the economy of the United States and the strong growth of China. Due to several factors, the aggregate growth of the world economy in recent years has not been proportional to the demand for paper and, accordingly, the demand for pulp has increased less than one would expect given the acceleration level of the economic activity. Pulp prices, however, have not weakened. The key factor to explain the slight upward trend of prices is the currency appreciation of the main pulp producing countries against the US dollar, which has caused a rise in costs for the global industry expressed in US dollars.

038

CMPC PAPELES S.A. Cartulinas CMPC

Total sales were similar to those of 2004, despite Maule plant stoppage for six weeks due to the expansion project. At the Maule plant, the project to increase production in 80 thousand tons involving an investment of 37.1 million dollars was materialized. The start-up has been successful, which enables to assure that the projected capacity increase will be achieved. Also, a secondary effluent treatment plant is being built with an investment of 5.9 million dollars, and a new cutter is being installed in the converting room, with an investment of 1.6 million dollars. Both projects are expected to start operations during the first quarter of 2006. At the Valdivia plant a new converting room is being installed, with an investment of 2.7 million dollars, and is scheduled to start up in early 2006. A paper machine expansion project is also being carried out, with an investment of 7.7 million dollars, which will increase production in 20 thousand tons per year. At the same time, a secondary effluent treatment plant is being built, with an investment of 1.2 million dollars. The start-up of both projects is expected for the third quarter of 2006. Papeles Cordillera

This business was affected by the cost of using oil due to natural gas restrictions, and to the increases in oil prices. During the year a project was initiated aimed at increasing the production capacity of the corrugated papers machine in order to attain 280 thousand tons per year, with an investment of 35.5 million dollars. This will allow CMPC to cope with the growth of the domestic market of corrugating papers. Furthermore, a secondary effluent treatment plant is being built with a cost of 7.6 million dollars. The start-up of both projects is scheduled for the late first half of 2006. INFORSA

In this subsidiary, several administrative measures began to be implemented in 2005 in order to obtain ISO 9.000 and 14.000 certifications. The main project being developed by INFORSA is mechanical pulp washing, which will improve paper quality and reduce variable cost, with an investment of US$ 8.2 million. Its start-up is expected for the first quarter of 2006. Likewise, a secondary effluent treatment plant is being built, with an investment of 5.9 million dollars. EDIPAC

Starting from March 2005, EDIPAC has successfully undertaken the total marketing of the cut-size paper produced at the Laja Pulp Mill.

039 Businesses Analysis

In June 2005, EDIPAC transferred its head office facilities to Quilicura, incorporating the converting room until then operating in Papeles Cordillera. The foregoing has translated into a cut of capacity of approximately 4 thousand tons per month, which will be reflected in a significant upgrading of service provided to customers. EDIPAC’s sales increased by 12% compared to last year. SOREPA

Purchases of waste paper of this subsidiary increased in 9.6% with respect to the previous year. SOREPA opened a new plant in Puente Alto to supply Papeles Cordillera and Tissue in Puente Alto, which has generated considerable savings in freight and packing costs. CMPC TISSUE S.A.

In 2005, Tissue showed a 19% growth in consolidated sales, as a result of the increase in sales volume and prices of its products, reaching an annual turnover of 430 million dollars. In general, the better economic situation of the countries where Tissue operates derived in greater dynamism during the year. The GDP grew in these countries from 5% to 8% with respect to the previous year. Cost increases due to rises in oil prices, and repeated restrictions of natural gas supply in Argentina and Chile affected this business area. These events impacted energy costs in the production processes, freight rates, as well as prices of oil-derived inputs. In Chile, during 2005, paper machine No.2 started-up in Talagante, which has had an excellent performance to date. The investment made was 31 million dollars with a production capacity of 34 thousand tons of paper per year. Furthermore, projects for 10 million dollars were completed, including two new converting lines for toilet paper, an automatic palletization system in Puente Alto, and new machines for disposable handkerchiefs, napkins, and interleaved products. The subsidiary PROTISA Peru maintained high growth rates both in sales, and sales volume of tissue and diapers, resulting in improved results. This sustained growth in Peru over several years now forced CMPC to reactivate the paper machine No.1, which may add a capacity of 10 thousand tons per year. Moreover, a distribution and conversion center was inaugurated, incorporating a new conversion line, as well as converting lines for napkins and interfolded towels. In Uruguay record market shares were attained in tissue products, and a significant market share in diapers has been maintained. In Argentina, CMPC obtained an important increase in sales and earnings. Such achievements were the result of applying a strategy of improved sales prices and development of higher added value categories.

040

In the sanitary products business, a new line of premium diapers aimed at the mediumhigh segment was introduced to the market. Furthermore, the production and sale of adult diapers started, and a new image for Ladysoft products was launched. Given the growth of sales in the sanitary market, it was necessary to install a third diaper machine in Argentina and a new line for towels in Chile, which will start operating in the second quarter of 2006. In January 2006, CMPC Tissue concluded an agreement to acquire a majority interest in Grupo ABS, a company engaged in the business of diapers and tissue in Mexico. This agreement means an important step in this business, since it gives CMPC the opportunity to start a development in the largest Latin American market of tissue products.

CMPC PRODUCTOS DE PAPEL S.A.

In 2005, corrugated boxes sales volume was 4% lower than in 2004. Two offsetting effects were present: a decrease in sales to the horticultural segment and a market share increase in the industrial segment. The foregoing, along with increased costs and low prices, resulted in a deterioration of the performance of Envases Impresos. Roble Alto, in turn, obtained better results because of an increase in sales volume and prices of its products. In this business, projects for 16 million dollars designed to expand the production capacity have been recently approved. In order to materialize these projects, the relevant permits from the respective authorities are now being processed. Multiwall Sacks

In 2005, the total sales of multiwall sacks reached its historical maximum. In Chile, sacks exports continue to be the primary source of growth, attaining 59% of the total multiwall sacks sold by this subsidiary. In the export markets, Mexico is still the major one. In the domestic market, the main segment continues to be cement sacks. Sales in this line were similar to those of 2004, due to the increase in bulk dispatch of cement. On the other hand, sales to other sectors increased by 10%. The sack production level at Chillรกn plant reached 156 million units, which represents a 9% growth in respect of 2004. In October 2005 a state-of-the-art sack production line was installed in this plant, which will provide an additional capacity of 50 million units per year. The investment amounted to 6.2 million dollars. In Argentina, FABI intensified the development of high added value sacks and focused on the sale of products with higher margin, following a strategy of optimizing the profitability

041 Businesses Analysis

of the installed capacity. The Hinojo plant is working 24 hours a day in continuous rotating shifts, which has facilitated an improvement in operational results. In Peru, FORSAC closed the fiscal year with the highest sales figure ever since it started operations in 1997. In Chile, Chimolsa had a difficult year. Sales of trays for apples, its main product, declined 24% as compared to the preceding year, in line with the market reduction. Moreover, it was affected by shortages in natural gas supply, incurring a significant cost increase. In order to reduce this impact a propane/air mixing plant was set up.

Financial Information

Financial Analysis

045

Ownership Structure

056

General Information

059

Consolidated Financial Statements

071

Financial Analysis Detailed analysis of CMPC’s Individual and Consolidated Financial Statements as of December 31, 2005.

046

1.- VALUATION OF ASSETS AND LIABILITIES

Assets and liabilities in the Individual and Consolidated Financial Statements are valued in accordance with instructions issued in this regard by the Superintendency of Securities and Insurance, and with generally accepted accounting principles and standards. These principles and standards are described in detail in Note No. 2 to the consolidated financial statements. The following criteria are worthy of note: Time deposits and marketable securities are shown at their investment or acquisition cost, plus adjustments and interests accrued. The book value of these investments does not exceed their respective market values. Trade accounts for sales and notes receivable are shown at their estimated realizable value and include deductions for provisions to cover bad and difficult to collect debts. Inventories of manufactured goods are valued at direct production cost plus the cost of some indirect inputs. This cost is below market value, as the sales price includes a profit margin. Property, buildings, machinery and equipment are valued at inflation-adjusted cost, and have been duly depreciated. Forest plantations are shown at their assessed value. This valuation method aims to reflect in the accounts the higher asset and equity values resulting from the natural growth of plantations. Forest plantations due to be harvested within a year are shown in current assets under Inventories. Investments in related companies represent Empresas CMPC S.A.’s and its subsidiaries’ share of the respective companies’ equity. The liabilities of Empresas CMPC S.A. and its subsidiaries are shown according to the amounts committed for disbursement, both in the short and long term (Notes Nos. 14, 15, and 16). Assets and liabilities in foreign currencies are shown in Chilean pesos according to the respective exchange rate thereof at the close of the year. Fixed assets in subsidiaries abroad (Argentina, Uruguay and Peru), are valued at historic cost in US dollars on the acquisition date, net of the appropriate depreciation charges. They amount to ThCh$ 146,597,817, (equivalent to 286 million dollars) as of December 31, 2005 and to ThCh$ 154,902,102, (equivalent to 268 million dollars) as of December 31, 2004. Said valuation is based on the Rules contained in Technical Bulletin No. 64 issued by the Colegio de Contadores de Chile A.G. (Chilean Accountants Association). The Company’s Management has estimated that the book value of its fixed assets does not exceed their replacement or market value in the current circumstances. The above-mentioned standards are intended to present the consolidated financial position of Empresas CMPC S.A. and its subsidiaries in a reasonable manner. Consequently, there should be no significant differences between the financial or market and the book value of the assets as of December 31, 2005.

047 Financial Analysis

2.- ANALYSIS OF INCOME SATATEMENT AND OPERATING ACTIVITIES 2.1.- Analysis of Consolidated Income Statement

The main components of the Consolidated Income Statement, in valores as of December 31, 2005, are as follows:

ThCh$

12/31/2005 ThUS$

ThCh$

12/31/2004 ThUS$

Operating Results Operating Revenue Less: Operating Costs Operating Margin

1,091,279,723 (700,197,067)

2,129,326

1,116,365,412

1,933,213

(1,366,238)

(656,638,717)

(1,137,103)

391,082,656

763,088

459,726,695

796,110

(232,320,133)

(453,308)

(233,799,621)

(404,871)

158,762,523

309,780

225,927,074

391,239

Less: Administration and Sales Expenses Operating Profits Plus (Less): Non-Operating Results

(15,848,690)

(30,924)

Results before Income Tax

142,913,833

278,856

208,710,877

(17,216,197)

(29,813)

(18,554,209)

(36,203)

(33,557,536)

(58,112)

(2,996,489)

(5,847)

(3,037,368)

(5,260)

361,426

Less: Income Tax Minority Interest Amortization of Negative Goodwill of Investments Net income

1,623,772

3,168

2,056,497

3,561

122,986,907

239,974

174,172,470

301,615

The net income for the present fiscal year amounted to Ch$ 122,987 million - US$ 240.0 million (Ch$ 174,172 million - US$ 301.6 million the previous year). Profits (millions of Chilean pesos)

Net income performance was as follows: Consolidated Operating Results

2005 122,987

2004 174,172

2003 132,329

2002 71,441

The sustained decrease in the US dollar and euro exchange rate compensates negatively the positive effects of the better export

2001 67,651

Consolidated sales revenues for this year present similar levels to 2004. During the year 2005 there was a decrease in long-fiber pulp price and lower sales of corrugated products. These lower revenues were offset with higher prices of foreign subsidiaries’ products, greater volumes and better prices in sawn wood and folding boxboard exports, as well as higher volumes in pulp exports.

2000 134,280

Consolidated operating profits for the year 2005 were Ch$ 158,763 million - US$ 309.8 million, below the operating profits in the preceding year, which amounted to Ch$ 225,927 million - US$ 391.2 million.

048

prices of wood, newsprint paper and folding boxboard, and of higher export volumes of pulp, folding boxboard and sawn wood exports. Taken together, consolidated operating, administrative and sales costs represent 85.5% of sales for the current year, experiencing an increase as compared to the year 2004, where they represented 79.8%. This increase reflects the higher cost of wood, the main raw material, and rises in the price of oil and other inputs. In addition, negative effects resulted from the higher cost of replacing natural gas with oil for power and steam generation. Export freight rates and other services, and sales expenses have also experienced increases. Consolidated Non-Operating Results

Empresas CMPC S.A. and its subsidiaries’ consolidated nonoperating result shows a loss of Ch$ 15,849 million - US$ 30.9 million for 2005. Non-operating result for the previous year amounted to Ch$ 17,216 million - US$ 29.8 million. Non-operating results include profits in the sale of forest property (Ch$ 13,442 million - US$ 26.2 million in 2005 and Ch$ 9,122 million - US$ 15.8 million in 2004). These profits compensate for financial expenses, and monetary correction for both years. The foregoing leads to profits after taxes of Ch$ 122,987 million - US$ 240 million for this fiscal year (Ch$ 174,172 million - US$ 301.6 million the previous year). Consolidated Financial Ratios

The main Financial Ratios that relate to the Consolidated Income Statement are as follows: • Assets Turnover: Indicates the relationship between consolidated operating revenue and average total assets. This ratio was 0.34 times in 2005 and 0.36 times in 2004. • Profit on Consolidated Revenue: Represents profit as a proportion of operating revenue. This ratio was 11.3% in 2005 and 15.6% in 2004. • Annual Return on Equity: Indicates the ratio of profit for the period to average equity. Annual return amounted to 5.3% in 2005 and 7.9% in 2004. • Earnings per Share: Amounted to Ch$ 614.93 - US$ 1.2 in 2005 and Ch$ 870.86 US$ 1.5 in 2004. • Return on Dividends: The ratio of dividends paid during the year to the market share price at the end of the fiscal year amounted to 3.4% in 2005 and 2.0% in 2004. • Consolidated Financial Expense Coverage: Profit before tax and interest payments divided by financial. expenses. This ratio was 5.6 times in 2005 and 7.8 times in 2004. • Total Inventory Rotation: Annual sales cost divided by the average stock of goods and raw materials. This ratio was 4.4 times in 2005 and 4.8 times in 2004.

049 Financial Analysis

• Inventory Turnover: Indicates the possible number of days of sales with the inventory on hand, at the end of the period. This ratio was 82.4 days in 2005 and 74.9 days in 2004. • Consolidated Asset Annual Return: Indicates a return on average total assets. It amounted to 3.8% in 2005 and 5.6% in 2004. • Consolidated Annual Operational Asset Yield: Indicates the ratio of operating profit to operational assets. Fixed assets, stocks and accounts, and notes receivable are considered operational assets. This indicator was 5.6% in 2005 and 8.4% in 2004. Income Statement of Business Centers

Subsidiaries engaged in the different business activities had the following results for this fiscal year:

In millions of dollar Operating Revenue Operating Costs

Forestal Mininco S.A. and its subsidiaries

CMPC Celulosa S.A. and its subsidiaries

CMPC Papeles S.A. and its subsidiaries

CMPC Tissue S.A. and its subsidiaries

CMPC Productos de Papel S.A. and its subsidiaries

418.4

700.1

638.1

507.2

232.2

(314.0)

(438.7)

(473.8)

(315.1)

(178.0)

Operating Results

21.2

122.4

108.6

55.8

14.0

Financial Results

(4.1)

(29.5)

(7.3)

(1.7)

(8.4)

Non-operating Results

13.8

(68.3)

(14.3)

(20.1)

(9.1)

E.B.I.T.D.A. (*)

31.5

192.4

143.7

79.2

21.1

Net Income

26.9

45.1

85.4

37.1

5.9

(*) Earnings before interest payments, taxes, depreciation, amortization and other extraordinary and non-operating items.

2.2.- Analysis of CMPC’s Individual Income Statement

Industrial, business and forestry operations are carried out by Empresas CMPC S.A.’s subsidiaries. Therefore, an appropriate analysis of financial statements should be made based on the consolidated financial statements of Empresas CMPC S.A. and its subsidiaries. The results for the year show a profit of Ch$ 122,987 million - US$ 240 million (Ch$ 174,172 million - US$ 301.6 million in 2004), and mainly corresponds to the recognition of related companies’ profits (Ch$ 119,493 million - US$ 233.2 million as of December 31, 2005 and Ch$ 168,592 million - US$ 292 million as of December 31, 2004). 3.- ANALYSIS OF THE GENERAL BALANCE SHEET 3.1.- Analysis of Consolidated Assets and Liabilities.

Broad figures indicate that the main components of assets, in currency as of December 2005, are as follows:

050

ThCh$ Current Assets Fixed Assets Other Assets Total Assets

12/31/2005 ThUS$

ThCh$

12/31/2004 ThUS$

600,147,561

1,171,020

815,195,293

1,411,676

2,533,946,708

4,944,286

2,311,563,165

4,002,939

96,703,590

188,690

71,088,926

123,105

3,230,797,859

6,303,996

3,197,847,384

5,537,720

These assets are financed by: Current Liabilities

187,179,426

365,228

311,152,817

538,824

Long-term Liabilities

655,102,747

1,278,250

543,968,527

941,992

Minority Interest

63,993,911

124,866

64,834,775

112,274

Equity

2,324,521,775

4,535,652

2,277,891,265

3,944,630

Total Liabilities and Equity

3,230,797,859

6,303,996

3,197,847,384

5,537,720

The analysis of the relevant figures Consolidated General Balance Sheet as of December 31, 2005, in respect of 2005, is as follows: Current Assets

Current Assets show a net decrease of Ch$ 215,048 million - US$ 419.6 million, mainly due to a decrease in Time Deposits and Marketable Securities by Ch$ 228,857 million - US$ 446.6 million, resulting from the use of funds for paying debts and strong investments in fixed assets made in the period, as well as a reduction in Trade Accounts for sales amounting to Ch$ 33,457 million - US$ 65.2 million. The foregoing is partly offset by an increase in Inventories of Ch$ 34,989 million - US$ 68.3 million, Refundable Taxes for Ch$ 10,689 million - US$ 20.9 million, and Sundry Receivables for Ch$ 3,929 million - US$ 7.7 million. Fixed Assets

Fixed Assets show a net increase of Ch$ 222,384 million - US$ 433.9 million. The main movements in fixed assets relate to: • Incorporation of new fixed assets for Ch$ 377,657 million - US$ 736.9 million. • Increase due to forestry growth. This revaluation reached Ch$ 57,755 million - US$ 112.7 million in 2005 (Ch$ 95,587 million - US$ 165.5 million the previous year). • Decrease due to depreciation for the fiscal year by Ch$ 85,417 million - US$ 166.7 million (Ch$ 85,029 million - US$ 147.2 million in the previous year).

051 Financial Analysis

• Reduction for sale of forest property, land and buildings, and other equipment, and operating cost of forests by Ch$ 68,142 million - US$ 133 million. Other Assets

Non-current Other Assets recorded a net increase of Ch$ 25,615 million - US$ 50 million, which originates mainly from the increase of investments in related companies for Ch$ 11,544 million - US$ 22.5 million, as a result of the capital increase made in Inversiones El Raulí S.A., and the recognition of the relevant result arising out of these investments; from the increase of Long-term Trade Accounts by Ch$ 11,255 million - US$ 22 million and Others by Ch$ 7,938 million - US$ 15.5 million. The foregoing is offset with a (net) decrease due to Amortization of the item Positive and Negative Goodwill of Investments by Ch$ 5,063 million - US$ 9.9 million. Current Liabilities

Current Liabilities show a net decrease of Ch$ 123,973 million - US$ 241.9 million, which is mainly explained by the reduction in Liabilities to the Public by Ch$ 143,701 million US$ 280.4 million, resulting from payment of the US$ 250 million Bond issued by the Company in 1998, Unpaid Dividends for Ch$ 24,686 million - US$ 48.2 million and Other Current Liabilities by Ch$ 1,853 million - US$ 3.6 million. These reductions are partly offset by an increase in Short-Term Liabilities to banks and financial institutions by Ch$ 19,150 million - US$ 37.4 million, Long-term Liabilities to banks and financial institutions by Ch$ 21,497 million - US$ 41.9 million, and Accounts Payable by Ch$ 9,614 million - US$ 18.8 million. Long-term Liabilities

Long-term Liabilities recorded a net increase of Ch$ 111,134 million - US$ 216.8 million, mainly explained by: • Obtaining of a syndicated loan of US$ 100 million in June 2005. • Placement of a Bond in Chile for UF 7 million, with a term of ten years. • Anticipated payment of Liabilities to banks and financial institutions for US$ 210 million, of which US$ 175 million were Long-term Liabilities. • Prepayment and transfer to short term of notes payable for Ch$ 4,774 million - US$ 9.3 million. • Increase in Deferred Taxes by Ch$ 4,677 million - US$ 9.1 million and Other Long-term Liabilities by Ch$ 6,539 million - US$ 12.8 million. Equity

Equity increased by Ch$ 46,631 million - US$ 91 million, mainly due to profits for the year 2005, in addition to the recognition

052

of revaluations of forest plantations, net of dividends distributed, and the decrease of the reserve relating to operations in a part of forests. The principal financial indicators related to the Consolidated General Balance Sheet are as follows: • Current Liquidity Ratio: Indicates how many times current assets cover current liabilities. This figure was 3.2 times in 2005 and 2.6 times in 2004. • Quick (or Acid Test) Ratio: Indicates how many times liquid assets cover current liabilities. This ratio was 1.7 times in 2005 and 1.8 times in 2004. • Debt to Equity Ratio: Represents debt as a proportion of equity. This ratio was 0.36 times in 2005 and 0.38 in 2004. 3.2.- Analysis of CMPC’s Individual Assets and Liabilities

Broad figures indicate that the main components of assets, in currency as of December 2005, are as follows:

ThCh$

12/31/2005 ThUS$

ThCh$

12/31/2004 ThUS$

Current Assets

17,913,638

34,953

181,721,310

Fixed Assets

13,589,946

26,517

14,114,682

314,687 24,443

Other Assets

2,353,269,142

4,591,745

2,244,173,090

3,886,240

Total Assets

2,384,772,726

4,653,215

2,440,009,082

4,225,370

These assets are financed by: Current Liabilities

7,092,788

13,840

160,870,273

278,580

Long-term Liabilities

53,158,163

103,723

1,247,544

2,160

Equity

2,324,521,775

4,535,652

2,277,891,265

3,944,630

Total Liabilities and Equity

2,384,772,726

4,653,215

2,440,009,082

4,225,370

Any financial analysis should be based on the Consolidated Financial Statements. However, for information purposes, below we present an analysis of the Individual Financial Statement of the Parent Company, Empresas CMPC S.A. Attention is drawn to the item Other Assets, which includes investment in subsidiaries and associated companies. The analysis of the relevant figures of the individual General Balance Sheet as of December 31, 2005, in respect of the previous year, is as follows: Current Assets

Current Assets fell by Ch$ 163,808 million - US$ 319.6 million, mainly due to a reduction of Ch$ 163,211 million - US$ 318.5 million in the balance of Short-Term Notes and Accounts Receivable from related companies. Fixed Assets

Fixed Assets fell by Ch$ 525 million - US$ 1.0 million, mainly as a result of depreciation charges for the year totaling Ch$ 525 million - US$ 1.0 million.

053 Financial Analysis

Other Assets

Non-current Other Assets show a net increase of Ch$ 109,096 million - US$ 212.9 million, generated mainly by the proportional recognition of net profits of subsidiaries and associated companies during the period for Ch$ 119,493 million - US$ 233.2 million and to the capital increase in Inversiones El Raulí S.A. amounting to Ch$ 5.506 - US$ 10.7 million. All this was setoff by a (net) decrease in the forest reserve in related companies by Ch$ 13,685 million - US$ 26.7 million. Current Liabilities

Current Liabilities fell by Ch$ 153,777 million - US$ 300 million, owing to payment of debts to related companies for Ch$ 129,721 million - US$ 253.1 million, and to a decrease in the balance of Unpaid Dividends by Ch$ 24,689 million - US$ 48.2 million. Long-term Liabilities

Long-term Liabilities rose by Ch$ 51,911 million - US$ 101.3 million, as a result of a decrease in indebtedness to related companies. Equity

Equity showed a net increase of Ch$ 46,631 million - US$ 91 million, mainly due to profits for the fiscal year, the recognition of revaluation of forest plantations, net of operations, and after deduction of dividends paid. Financial Indicators

The main financial indicators relating to the Consolidated General Balance Sheet must be determined on the basis of the Consolidated Financial Statements. Below is the book value of CMPC shares: • Book Value per Share: Ch$ 11,622.61 - US$ 22.7 in 2005 and Ch$ 11,389.45 - US$ 19.7 in 2004. Other financial indicators based on the Individual Financial Statements: The main financial indicators relating to the Income Statement must be determined on the basis of the Consolidated Financial Statements. However the chief financial indicators relating to the Individual Income Statement are as follows: • Annual Return on Equity: Indicates the ratio of profit for the period to average equity. It amounted to 5.3% in 2005 and 7.9% in 2004. • Annual Return on Assets: Indicates the ratio of profit for the period to average total assets. It amounted to 5.1% in 2005 and 7.4% in 2004. • Profit per Share: Amounted to Ch$ 614.93 - US$ 1.2 in 2005 and Ch$ 870.86 - US$ 1.5 in 2004. • Return on Dividends: The ratio of dividends paid during the year to the market price of CMPC share at closing is 3.4% in 2005 and 2.0% in 2004.

054

4.- CASH FLOW ANALYSIS 4.1.- Consolidated Cash Flow Analysis

The performance of the main components of the consolidated cash flow, valued as of December 31, 2005 is as follows: Consolidated liquid financial investments and cash amount to Ch$ 102,475 million - US$ 200 million as of December 31, 2005 (Ch$ 330,469 million - US$ 572.3 million as of December 31, 2004). Consolidated operating activities generated positive operational cash flows of Ch$ 202,981 million - US$ 396.1 million in the current year (Ch$ 224,698 million - US$ 389.1 million in the previous year). Negative net consolidated financing flows for this year represent a net use of funds of Ch$ 46,118 million - US$ 90 million, basically arising out of dividend payments (Ch$ 88,320 million - US$ 172.3 million), as the resources obtained from new financings (Ch$ 199,264 million - US$ 388.8 million), were significantly offset by payment of credits and expenses relating to the obtaining thereof (Ch$ 157,062 million - US$ 306.5 million). Positive net consolidated financing flows in 2004 represented a net generation of funds for Ch$ 94,312 million - US$ 163.3 million, mainly due to a syndicated loan obtained for US$ 475 million, which were offset with dividend payments for Ch$ 58,853 million - US$ 101.9 million, and payment of financial credits for Ch$ 158.775 million - US$ 275 million. Consolidated investment activities in 2005 generated negative net flows (use of funds) for Ch$ 365,315 million - US$ 712.8 million (Ch$ 197,778 million - US$ 342.5 million in 2004). These flows are mainly due to net investment in fixed assets (purchase/sale) for Ch$ 359,707 million - US$ 701.9 million (Ch$ 192,635 million - US$ 333.6 million in 2004) and the subscription and payment of shares in Inversiones El RaulĂ­ S.A. (Ch$ 5,506 million - US$ 10.7 million) in the year 2005 and in Bicecorp in the previous year (Ch$ 5,145 million - US$ 8.9 million). 4.2.- Individual Cash Flow Analysis

As mentioned above, forestry, trade, industrial and the chief financial operations of the Company are carried out through subsidiaries; therefore, any analysis should be based on the Consolidated Financial Statements. However, the performance of the main components of the Individual Cash Flow for the parent Company is shown below: In operating activities flows for Ch$ 4,138 million - US$ 8.1 million were obtained as of December 31, 2005 (Ch$ 15,458 million - US$ 26.8 million as of December 31, 2004). Net financing flows represent a use of funds for Ch$ 216,990 million - US$ 423.4 million as of December 31, 2005 (Ch$ 54,870 million - US$ 95 million as of December 31, 2004), resulting mainly from payment of dividends in both fiscal years and from anticipated payment of the debt to Cartulinas CMPC S.A.

055 Financial Analysis

Investment activities recorded net flows amounting to Ch$ 213,019 million - US$ 415.6 million as of December 31, 2005 (Ch$ 39,570 million - US$ 68.5 million as of December 31, 2004). These flows principally generate from the collection of funds from subsidiaries, offset by a capital increase made in Inversiones El Raulí S.A. In the previous year, these flows stemmed from loan repayment from related companies. 5.- RISK ANALYSIS AND EXCHANGE RATE EXPOSURE

Empresas CMPC S.A. and its subsidiaries export approximately 53% of total sales, principally markets in Europe, Latin America, Asia and the United States. Most part of these sales is made in US dollars. Domestic sales - both in Chile and in our subsidiaries in Argentina, Peru and Uruguay - are made in local currency and indexed to the US dollar. In consequence, Empresas CMPC S.A. and its subsidiaries’ revenue flow, which is in, or indexed to, US dollars, amounts to over 70% of total sales. As regards disbursements, both raw materials and investments in fixed assets are principally in, or indexed to, US dollars. In very specific cases only are export sales or payment commitments made in foreign currencies other than the US dollar. In order to avoid exchange rate risk in non-US dollar currencies, derivatives are used to fix the exchange rates in question. As of December 31, 2005 our main positions were forward purchases of 34 million euros to hedge machinery imports denominated in that currency. Approximately 50% of the expected flows from sales of folding boxboard in the next years in Europe, in turn, is covered by forward sales contracts. As of the same date, 6.5% of the Company’s short-term liquid assets were held in euros, so as to pay eurodenominated imports related to the Santa Fe Pulp Mill expansion project. Derivatives are used to structure these investments. Considering that CMPC’s revenue flow structure is highly indexed to the US dollar, liabilities have been incurred in this currency. It has been a Company policy to reduce the accounting mismatch between assets and liabilities expressed in US dollars in order to minimize losses on account of exchange rate fluctuations that affect profit for the year. To this end the currency composition of the financial investment portfolio is carefully managed and Chilean peso-US dollar forwards are occasionally made use of. The greater stability of the Argentinean and Uruguayan pesos, as well as a reduction in working capital over the past few years, have maintained the effects of exchange rate fluctuations under control. The Company actively handles the interest rate structure of its debt through derivatives in order to optimize financial expenses as a function of operating income. A combination of derivatives and interest rate swap contracts allows us to fix the Libor rate and establish the range of interest within which CMPC should make use of floating rates in its liabilities. Considering the Libor rate as of December 31, 2005, consolidated debt of the Company is 86% fixed rate and 14% floating rate. This combination ensures an average debt interest rate for CMPC of 4.5% in US dollars.

056

Ownership Structure

99.99%

In Chile

3

99.9%

99.9%

0.01%

99.9%

CMPC PRODUCTOS DE PAPEL S.A.

0.1%

ENVASES ROBLE ALTO S.A.

0.1%

CMPC TISSUE S.A.

1

2

99.99%

INVERSIONES PROTISA S.A.

2

INVERSIONES CMPC S.A. 99.9%

0.1%

1

0.01%

2

CMPC PAPELES S.A.

99.9%

EDIPAC S.A.

0.1%

0.1%

1

2

99.9%

ENVASES IMPRESOS S.A.

0.1%

2

99.99%

COMERCIAL HIGIENE INTEGRAL S.A.

0.01%

2

81.95%

INFORSA 99.999%

99.9%

99.9%

99.9%

PROPA S.A.

AUSTRAL S.A.

CHIMOLSA

0.1%

0.1%

0.1%

2

50%

SOREPA S.A.

50%

CRECEX S.A.

99.99%

2

99.9%

2

PAPELES CORDILLERA S.A.

CARTULINAS CMPC S.A.

0.001%

0.01%

0.1%

5

2

2

33.34%

16%

16%

16%

93.48%

Abroard

GESTUM INVERSIONES S.L. (ESPAÑA)

6.44%

0.08%

100% 100%

CMPC ASIA LTD. (JAPÓN)

100%

100%

16.49%

FABI BOLSAS INDUSTRIALES S.A. (ARGENTINA)

CMPC EUROPE LTD.

LA PAPELERA DEL PLATA S.A. (ARGENTINA) 83.50%

100%

CMPC INVERSIONES DE ARGENTINA S.A.

100%

NASCHEL S.A. (ARGENTINA)

100%

TISSUE CAYMAN LTD.

PROPA CAYMAN LTD. 99.9%

FORSAC PERÚ S.A. (PERÚ)

COMPAÑÍA PRIMUS DEL URUGUAY S.A.

100%

CELULOSAS DEL URUGUAY S.A.

100%

0.1%

IPUSA (URUGUAY)

PROTISA (PERÚ)

99.61%

100%

2.94%

PAPELERA DEL RIMAC S.A. (PERÚ)

97.06%

4

057 EMPRESAS CMPC S.A.

99.99%

1 5

0.01%

FORESTAL MININCO S.A. FORESTAL Y AGRÍCOLA MONTE ÁGUILA S.A.

7 99.95%

CMPC CELULOSA S.A.

0.05%

13.774%

1

CMPC MADERAS S.A.

86.226%

5

0.001%

FORESTAL COIHUECO S.A.

6

4

6

11.10%

INMOBILIARIA Y FORESTAL MAITENES S.A.

3 0.01%

INMOBILIARIA PINARES S.A.

INVERSIONES EL RAULÍ S.A.

BICECORP S.A.

1 4

33.33%

PORTUARIA CMPC S.A.

99.99%

18.35%

10.66%

4

99.999%

88.90%

7

CONTROLADORA DE PLAGAS FORESTALES S.A.

99.75%

38.77%

8.61%

33.33%

20% 16%

SERVICIOS COMPARTIDOS CMPC S.A.

16%

48%

99.6%

PROTISA DO BRASIL LTDA.

0.4%

2

100%

INVERSIONES CMPC CAYMAN LTD.

99%

100%

CMPC INVESTMENTS LTD. (CHANNEL ISLAND) 100%

CMPC USA INC.

1%

FORESTAL BOSQUES DEL PLATA S.A. (ARGENTINA)

SYMBOLOGY 1

EMPRESAS CMPC S.A.

CMPC Productos de Papel S.A.

2

INVERSIONES CMPC S.A.

3

INMOBILIARIA PINARES S.A.

4

CMPC CELULOSA S.A.

5

FORESTAL MININCO S.A.

6

FORESTAL COIHUECO S.A.

CMPC Celulosa S.A.

7

FORESTAL Y AGRÍCOLA MONTE ÁGUILA S.A.

CMPC Forestal

CMPC Tissue S.A.

CMPC Papeles S.A.

General Information

060

SHARE CAPITAL

The Company’s share capital as of December 31, 2005, after annual restatement as provided by the law, amounts to ThCh$ 102,521,936 - ThUS$ 200,043 divided into 200 million shares. Empresas CMPC S.A’s net worth as of December 31, 2005 amounts to ThCh$ 2,324,521,775 - ThUS$ 4,535,652. SHARE OWNERSHIP

In accordance with General Rule No. 30, issued by the Superintendency of Securities and Insurance, below we list the twelve largest shareholders, indicating the number of shares owned by each as of December 31, 2005. Shareholder

Number of shares

Forestal Cominco S.A.

39,254,440

Forestal Constructora y Comercial del Pacifico Sur S.A.

38,432,339

Forestal O’Higgins S.A.

13,976,744

AFP Provida S.A. para Fondos de Pensiones

12,056,412

Forestal Bureo S.A.

8,068,615

AFP Habitat S.A. para Fondos de Pensiones

7,861,851

AFP Cuprum S.A. para Fondos de Pensiones

5,416,436

Inmobiliaria Ñague S.A.

4,145,628

AFP Santa Maria S.A. para Fondos de Pensiones

3,920,524

AFP Bansander S.A. para Fondos de Pensiones

3,868,151

Coindustria Ltda.

3,577,021

Constructora Santa Marta Ltda.

3,309,907

Additionally, the number and ownership in shares in Empresas CMPC S.A., belonging to companies that directly or through some type of relationship between them control 55.44% of equity with voting rights. Shareholder

Number of shares

Forestal Cominco S.A.

39,254,440

Forestal Constructora y Comercial del Pacifico Sur S.A.

38,432,339

Forestal O’Higgins S.A.

13,976,744

Forestal Bureo S.A.

8,068,615

Inmobiliaria Ñague S.A.

4,145,628

Coindustria Ltda.

3,577,021

Forestal y Minera Ebro Ltda.

795,534

Forestal y Minera Volga Ltda.

712,069

Inmobiliaria y Forestal Chigualoco S.A.

523,112

Forestal Peumo S.A.

414,930

Forestal Calle Las Agustinas S.A.

311,792

Forestal Choapa S.A.

188,222

Others

475,080

061 General Information

All the shareholders listed above belong to a same corporate group, but do not have a formal joint action agreement. Final controllers are the following natural persons: Mr. Eliodoro Matte Larraín, taxpayer identification No. 4,436,502-2, Ms. Patricia Matte Larraín, taxpayer identification No. 4,333,299-6, and Mr. Bernardo Matte Larraín, taxpayer identification No. 6,598,728-7. Control of the above-mentioned companies is shared equally by the final controllers. SHARE TRANSACTIONS

Transactions of CMPC shares in 2005 by related shareholders are as follows: Unit Price

Amount

Number of Shares Purchase/(Sale)

Ch$

US$

ThCh$

ThUS$

(5,000)

13,178.00

25.71

65,890

128.6

Eliodoro Matte Capdevila

5,000

13,178.00

25.71

65,890

128.6

Eliodoro Matte Capdevila

(5,000)

13,801.62

26.93

69,008

134.6

(700)

13,300.00

25.95

9,310

18.2

79

13,001.00

25.37

1,027

2.0

Director Eliodoro Matte Larraín Relative of a Director

María del Pilar Matte Capdevila María Josefina Marín Correa Related to a Director El Mayorazgo S.A.

41,642

13,131.23

25.62

546,811

1,066.9

Inversiones Amolanas Limitada

22,604

13,102.42

25.57

296,167

577.9

Rentas e Inversiones San Antonio Ltda.

3,615

13,000.00

25.37

46,995

91.7

Inversiones La Pinta Limitada

3,000

13,490.00

26.32

40,470

79.0

Inversiones Cruz Grande S.A.

748

12,600.00

24.59

9,425

18.4

1,500

13,710.00

26.75

20,565

40.1

62

12,934.06

25.24

802

1.6

Moira Nicoll Benson

378

13,200.00

25.76

4,990

9.7

Brian Wilson Grothe

367

13,419.00

26.18

4,925

9.6

Alan Wilson Grothe

290

13,575.00

26.49

3,937

7.7

(57,111)

13,895.74

27.11

793,599

1,548.5

Managers Luis Llanos Collado Gonzalo García Balmaceda Relative of a Manager

Common Controller Compañía de Seguros de Vida La Construcción S.A.

062

QUARTERLY STATISTICS OF SHARE TRANSACTIONS Amount Quarter

Units

Ch$

Average Price Ch$ US$

US$

1st quarter 2003

2,983,658

19,216,931,903

37,496,452

6,440.73

12.6

2nd quarter 2003

3,956,835

29,585,049,495

57,726,926

7,476.95

14.6

3rd quarter 2003

3,536,218

34,071,376,073

66,480,734

9,634.98

18.8

4th quarter 2003

4,678,243

51,803,839,115

101,080,662

11,073.35

21.6

1st quarter 2004

1,955,632

22,964,024,972

44,807,854

11,742.51

22.9

2nd quarter 2004

2,399,865

27,581,460,649

53,817,484

11,492.92

22.4

3rd quarter 2004

3,198,157

40,246,451,542

78,529,662

12,584.26

24.6

4th quarter 2004

3,051,588

39,496,701,281

77,066,734

12,943.00

25.3

1st quarter 2005

1,681,911

22,007,785,179

42,942,020

13,084.99

25.5

2nd quarter 2005

2,818,749

36,889,578,987

71,979,666

13,087.22

25,5

3rd quarter 2005

3,355,043

46,163,217,894

90,074,572

13,759.35

26,8

4th quarter 2005

3,857,764

52,992,411,162

103,399,827

13,736.56

26,8

Note: Statistics include information from the Santiago Stock Exchange, the Electronic Stock Exchange of Chile, and the Brokers’ Exchange. Conversion into US dollars has been made at the exchange rate effective as of December 31, 2005.

REMUNERATION AND EXPENSES OF THE BOARD OF DIRECTORS AND COMMITTEE OF DIRECTOS, AND MANAGEMENT REMUNERATION

Pursuant to the provisions of Law 18,046, the Annual General Meeting of Shareholders of Empresas CMPC S.A., held on April 29, 2005, established, as in the previous year, that the remuneration of the Board of Directors would be 1% of regular dividends paid during the year 2005, duly restated, shared out in equal parts among Directors, with the Chairman entitled to a double share. As of December 31, 2005 a provision of ThCh$ 875,808 - ThUS$ 1,708.9 was set up for this purpose, corresponding to 1% of dividends distributed during the period. This remuneration shall be paid in the first half of 2006. The Board of Directors’ remuneration paid during the years 2005 and 2004 (at discounted values) amounted to:

Director Eliodoro Matte Larrain

ThCh$

12/31/2005 ThUS$

ThCh$

12/31/2004 ThUS$

137,744

268.7

93,841

162.5

Ernesto Ayala Oliva

68,872

134.4

46,920

81.3

Patricio Grez Matte

68,872

134.4

46,920

81.3

Jorge Marín Correa

68,872

134.4

46,920

81.3

Jorge Gabriel Larraín Bunster

68,872

134.4

46,920

81.3

Manuel Mardones Restat

68,872

134.4

46,920

81.3

Bernardo Matte Larraín

68,872

134.4

46,920

81.3

550,976

1,075.1

375,364

650.3

Total

This remuneration corresponds to 1% of dividends paid during the years 2005 and 2004. The amounts were agreed upon and ratified by the respective Annual Meetings of Shareholders of the Company.

063 General Information

Additionally, Mr. Eliodoro Matte L. received ThCh$ 65,957 - ThUS$ 128.7 (ThCh$ 65,413 - ThUS$ 113.3 in 2004), on account of financial advice on business strategies; study of development projects, and comparative analysis of the national and international industry. Remuneration paid by subsidiaries to Directors (at discounted values) who are also Directors of Empresas CMPC S.A amounted to: 12/31/2005 ThUS$

ThCh$

Eliodoro Matte Larrain

75,649

147.6

70,555

122.2

Ernesto Ayala Oliva

30,434

59.4

28,470

49.3

Patricio Grez Matte

15,071

29.4

14,844

25.7

Juan Claro Gonzalez

10,030

19.6

-

-

Jorge Gabriel Larraín Bunster

45,506

88.8

32,229

55.8

Bernardo Matte Larraín

60,575

118.2

55,706

96.5

237,265

463.0

201,804

349.5

Total

ThCh$

12/31/2004 ThUS$

Director

The above remuneration refers to financial/economic advice in respect of domestic and export market development; business strategies; study of development projects; business development support technologies; comparative analysis of the competitiveness of this and other industries; and analysis of both the national and international business environment. Committee of Directors

The Committee of Directors established pursuant to Law 18,046 exercises the powers and duties contemplated under Article 50 Bis of said Law. Fees paid (at discounted values) and relationship with the controlling group are detailed below: 12/31/2005 ThCh$ ThUS$

12/31/2004 ThCh$ ThUS$

Director

Relationship

Ernesto Ayala Oliva

Independent

897

1.8

2,116

3.7

Patricio Grez Matte

Controller

2,149

4.2

2,116

3.7

Jorge Marín Correa

Independent

2,149

4.2

2,116

3.7

Martín Costabal Llona

Independent

Total

1,251

2.4

-

-

6,446

12.6

6,347

11.1

On April 29, 2005, Mr. Ernesto Ayala Oliva ceased to be a member of the Committee of Directors, being replaced by Mr. Martín Costabal Llona. The principal activities conducted by the Committee of Directors during the period include, among others: Monthly analysis of transactions regulated by the provisions of articles 44, 89 and 93 of Law 18,046 on Stock Corporations. The Committee found that these transactions were performed in accordance with equity conditions similar to those prevailing in the market, and that the same were conducted in the Company’s ordinary course of business (See the

064

detail of transactions in Notes No. 4 of the Individual Financial Statements and No. 6 of the Consolidated Financial Statements of Empresas CMPC and subsidiaries). The financial statements of Empresas CMPC S.A. and its subsidiaries for the period ended on December 31, 2004 were reviewed and examined at the meeting held in the month of March, with no remarks being made. The meeting also analyzed the background information relating to Empresas CMPC S.A.’s agreement to a capital increase in the investment company El Raulí S.A., and recommended to the Board of Directors to agree to such increase. Additionally and in the fulfillment of its duties, the Committee examined the remuneration systems for managers and chief executive officers, making no in this respect. The Committee’s meeting of the month of April approved the offer made by Empresa INDURA, the successful bidder of a bidding process called by CMPC Celulosa S.A., for the supply of oxygen gas to the Pacifico Pulp Mill. The same meeting approved the sale of the interest of Empresas CMPC S.A. in Sociedad Hidroeléctrica El Melocotón Limitada to Colbún S.A. Likewise, it recommended to the Board of Directors to approve the hiring of financial advisors, proposed by the Finance Management to support CMPC in the placement of a bond for 7 million Unidades de Fomento. The meeting further proposed to the Board of Directors a list of external auditors to be suggested to the Meeting of Shareholders, as well as the appointment of risk classification agencies to the same effects. At a meeting held in the month of July, CMPC Celulosa S.A. was authorized to purchase 100 thousand cubic meters of wood from Forestal Valdivia. At the meeting of December, it was resolved to recommend to the Board of Directors of CMPC the approval of a merger of the companies Bicecorp and Renta Urbana S.A. In respect of the financial operations conducted with subsidiaries of Bicecorp S.A. (Common Controller) and with subsidiaries of Banco Security (Common Director) margins and limits according to types of operation were set forth, which were complied with by the management of Empresas CMPC S.A. and its subsidiaries. These operations were carried out under strict market conditions. The expenses of the Board of Directors for 2005 only include travel expenses and amount to ThCh$ 385 - ThUS$ 0.8 (ThCh$ 4,449 - ThUS$ 7.7 in 2004). Total gross remuneration received by the Companies’ executives amounts to ThCh$ 1,362,608 - ThUS$ 2,658.7 in 2005 (ThCh$ 1,522,579 - ThUS$ 2,636.7 in 2004). The executive staff has an incentive plan consisting of a variable annual bonus, depending on profits and on meeting of the Company’s operational budget targets. The amount of this component of remuneration is included in the above figure. During the year 2005 no staff severance indemnities for years of service were paid to managers or chief executive officers.

065 General Information

FINANCIAL STATEMENTS

Empresas CMPC S.A.’s Financial Statements for the fiscal year ended on December 31, 2005, which are submitted for consideration of the shareholders, have been prepared in accordance with the Rules issued by the Superintendency of Securities and Insurance. These require the inclusion of the proportion corresponding to Empresas CMPC S.A. of the assets and profit/loss of related companies at close of the current period in the assets and profit/loss statement of Empresas CMPC S.A. These Financial Statements show a net profit of ThCh$ 122,986.907 - ThUS$ 239,974, which may be entirely distributed as dividends, and includes amortization of negative goodwill of investments in related companies totaling ThCh$ 1,623,772 - ThUS$ 3,168, as detailed in Note No. 13 to the Consolidated Financial Statements. DISTRIBUTION OF PROFITS

In accordance with General Rule No. 30, issued by the Superintendency of Securities and Insurance, a statistic of dividends paid per share in the last five years is shown below. Year

Ch$

US$

2001

196,00

0.4

per share

2002

111,00

0.2

per share

2003

181,00

0.4

per share

2004

260,00

0.5

per share

2005

427,00

0.8

per share

At its meeting held on December 9, 2004, the Board of Directors resolved to distribute provisional dividend No. 232 of Ch$ 120 - US$ 0.23 per share, out of the profits of the fiscal year ended on December 31, 2004. This dividend was paid in January 2005. As resolved by the Annual Meeting of Shareholders of April 29, 2005, the Company distributed in May 2005 final dividend No. 233 of Ch$ 127 - US$ 0.25 per share, out of the profits of the year 2004. The dividend policy agreed by the above-mentioned Annual Meeting of Shareholders consisted of the payment of two provisional dividends, in September and December or January, and a final dividend that the Meeting of Shareholders resolved to pay in May, such that total dividends paid amount 40% of the profits for the fiscal year. According to said policy, the Board of Directors resolved to distribute provisional dividends No. 234 of Ch$ 90 - US$ 0.18 per share and No. 235 of Ch$ 90 - US$ 0.18 per share, out of the profits of 2005, in the months of September and December 2005, respectively. Note No. 20 of the Consolidated Financial Statements specifies the dividends paid during the period. Pursuant to the legal provisions in force, it is the duty of the Meeting of Shareholders to determine how profits for the period are to be distributed and dividends allocated.

066

PERSONNEL

As of December 31, 2005 the Company’s personnel amounted to 8,842 workers, distributed as follows:

Companies Forestal Mininco S.A.

Managers and Chief Executive Officers

Professionals and Technicians

Workers

Total

665

1,120

33

422

CMPC Celulosa S.A.

61

348

822

1,231

CMPC Papeles S.A.

43

576

1,169

1,788

CMPC Tissue S.A.

40

726

2,085

2,851

CMPC Productos de Papel S.A.

34

270

1,345

1,649

Empresas CMPC S.A.

11

113

79

203

222

2,455

6,165

8,842

Totals

INSURANCE

Empresas CMPC S.A. and its subsidiaries maintain insurance contracts to cover the main risks their physical industrial and forest properties are exposed to, the revenue flows and financial risks. Note No. 11 of the Consolidated Financial Statements describes such coverage, the property covered and amounts insured, which, in brief, comprise the following:

Main Facilities:

Physical Damage and Business Interruption Millions of US$

Pulp Mills Sawmills Paper Mills Tissue Products Mills Converters and Others

1,730 245 1,033 728 357

Forest Plantations

1,657

Total

5,750

RELEVANT FACTS

a. On January 4, 2006, the subsidiary CMPC Tissue S.A. entered into a share purchase and sale agreement for the acquisition of 66.7% of ABS Internacional S.A. de C.V., the parent company of Absormex group of Mexico. To be valid, this agreement is subject to the release by the Company’s creditor banks of the restrictions imposed on shares and to approval or the operation by the Federal Competition Commission of Mexico. This should take place before the date of conclusion, which is scheduled for the next month of February 2006. The total amount of the transaction will be 15 million dollars.

067 General Information

b. On October 14, 2005, Forestal Mininco S.A., a subsidiary of Empresas CMPC S.A., signed a Memorandum of Agreement for the purchase of the industrial and forest assets belonging to Forestal Copihue S.A. and to Empresa Bosques de Chile S.A. This agreement is subject to the favorable outcome of a review process of the relevant accounting, financial, legal, labor, environmental and corporate background information, which will take from 30 to 60 days following the date hereof. The transaction includes the industrial assets of Forestal Copihue S.A., consisting of a sawmill and a pole impregnating facility located in Constitucion, a remanufacturing plant, as well as a door manufacturing plant located in Coronel. It further includes the purchase of Empresa Bosques de Chile S.A., which owns forest assets consisting of approximately 17,000 hectares planted with radiata pine, located in the 7th Region. The industrial assets of the furniture manufacturing business are not included in the operation, and will remain the property of Forestal Copihue S.A. The total amount of the transaction will be US$ 110 million for the aforesaid industrial and forest assets. c. On June 15, 2005, Empresas CMPC S.A. became guarantor, co-debtor and surety of its subsidiary Inversiones CMPC S.A., in respect of the Bond for 7 million Unidades de Fomento placed in the local market with a term of 10 years, which contemplates a single amortization of principal at maturity. A 3,22% rate was achieved in the placement. This Bond is registered with the Register of Securities of the Superintendency of Securities and Insurance under No. 413 of May 12, 2005. More than 20 investors, including pension fund administrators (AFP´s), insurance companies and banks, participated in the placement of these Bonds. The placing agents were BICE Corredores de Bolsa S.A. and JP Morgan Chase Bank N.A. The resources obtained from this placement will be allocated to the financing of capital investments. d. Empresas CMPC S.A. became guarantor, co-debtor and surety of its subsidiary Inversiones CMPC S.A., acting though its agency in Cayman Islands, in respect of the bank loan signed by the latter on June 3, 2005 with a group of integrated financial institutions, the administrative agent being JP Morgan Chase Bank N.A. The loan subscribed amounts to 100 million US dollars, and is payable in 5 equal semiannual amortizations of 20 million dollars over 7 years, starting from the fifth year, at interest rate of Libor, plus a spread or margin over Libor of 0.225% annually for the first 2 years of the loan, of 0.25% for years 3 to 5, and of 0.275% annually for years 6 and 7. The purpose of the above-mentioned loan is refinancing liabilities and financing capital investments. e. The Annual Meeting of Shareholders held on April 29, 2005 elected a new Board of Directors of the Company for the 3-year period commencing on April 30. The following persons were elected: Juan Claro González, Martín Costabal Llona, Patricio Grez Matte, Jorge Gabriel Larraín Bunster, Jorge Eduardo Marín Correa, Bernardo Matte Larraín and Eliodoro Matte Larraín.

068

f. At a special meeting of the Board of Directors held on April 29, 2005, Mr. Eliodoro Matte Larraín was appointed Chairman of the Board of Directors of the Company. The meeting also appointed the members of the Committee of Directors, which will be composed of the following persons: Martín Costabal Llona (independent), Jorge Eduardo Marín Correa (independent) and Patricio Grez Matte (elected with the votes of the controller). g. The Board of Directors, at its meeting of held on March 29, 2005, convened the General Meeting of Shareholders for April 29, 2005. The matters addressed include, among others: approval of the Annual Report and Balance Sheet for the year 2004, determination of the final dividend, and dividend policy for the year 2005, election of the Board of Directors, and approval of auditors and risk classification agencies. h. At the same meeting it was proposed to issue a bond through the subsidiary Inversiones CMPC S.A. amounting to UF 7,000,000, for a term of 10 years and with coupons payable semi-annually.

069 General Information

ENDORSEMENT OF THE ANNUAL REPORT

The Directors and the Chief Executive Officer of Empresas CMPC S.A., identified below, being duly sworn, declare themselves liable in respect of the truth of all the information contained in this Annual Report, and sign hereafter.

ELIODORO MATTE LARRAIN Chairman Rut: 4.436.502-2

PATRICIO GREZ MATTE Director Rut: 1.854.776-7

JORGE GABRIEL LARRAIN BUNSTER Director Rut: 4.102.581-6

JORGE EDUARDO MARIN CORREA Director Rut: 7.639.707-4

BERNARDO MATTE LARRAIN Director Rut: 6.598.728-7

MARTIN COSTABAL LLONA Director Rut: 5.593.528-9

JUAN CLARO GONZALEZ Director Rut: 5.663.828-8

ARTURO MACKENNA Iﾃ選GUEZ Chief Executive Officer Rut: 4.523.287-5

Consolidated Financial Statements December 31, 2005 (Translation of the original in Spanish)

Ch$ - Chilean pesos ThCh$ - Thousands of Chilean pesos US$ - United States dollars ThUS$ - Thousands of United States dollars A$ - Argentinean pesos

Consolidated balance sheet

072

S$ - New Peruvian soles

Consolidated statement of income

074

UF - The Unidad de Fomento is a Chilean inflation index-linked, peso-denominated unit, set daily in advance on the basis of the previous month’s inflation rate

Consolidated statement of cash flows

075

Notes to the consolidated financial statements

077

Report of independent accountants

135

Ur$ - Uruguayan pesos

â‚Ź - Euros

072

Consolidated Balance Sheet (Translation of the original in Spanish)

At december 31, Assets

2005 ThCh$

2004 ThUS$

ThCh$

ThUS$

Current assets Cash and banks

5,756,440

11,232

4,892,588

8,473

Time deposits

44,963,687

87,734

145,475,317

251,920

Marketable securities

15,994,302

31,208

130,293,385

225,629

Trade accounts receivable (net)

118,421,007

231,065

151,878,319

263,008

Notes receivable (net)

36,780,987

71,768

40,948,044

70,910

Sundry debtors

22,835,816

44,558

18,906,322

32,740

387,110

670

268,628,155

524,153

233,639,132

404,593

39,042,538

76,181

28,353,609

49,100

Prepaid expenses

6,215,773

12,128

6,988,321

12,102

Deferred taxes

5,747,922

11,216

3,486,284

6,037

Other current assets

35,760,934

69,777

49,946,862

86,493

Total current assets

600,147,561

1,171,020

815,195,293

1,411,675

1,196,755,412

2,335,132

1,199,405,477

2,077,013

461,268,221

900,036

452,676,811

783,902

1,592,626,442

3,107,564

1,583,882,282

2,742,813

434,627,129

848,053

165,692,243

286,930

48,081,974

93,818

49,250,898

Notes and accounts receivables to related companies Inventories (net) Recoverable taxes

Fixed assets Land and plantations Buildings and constructions Machinery and equipment Other fixed assets Increased value from technical appraisal of fixed assets

85,288

Depreciation

(1,199,412,470)

(2,340,317)

(1,139,344,546)

(1,973,006)

Total net fixed assets

2,533,946,708

4,944,286

2,311,563,165

4,002,940

39,488,111

77,050

27,943,821

48,390

Other assets Investment in related companies Investment in other companies Goodwill (net) Negative goodwill (net) Long-term debtors

134,238

262

134,238

232

54,506,973

106,355

61,182,342

105,950

(24,323,985)

(47,461)

(25,936,415)

(44,914)

15,660,920

30,558

4,405,463

7,629

Intangibles (net)

1,800,960

3,514

1,861,499

3,224

Others

9,436,373

18,412

1,497,978

2,594

Total other assets Total assets

96,703,590

188,690

71,088,926

123,105

3,230,797,859

6,303,996

3,197,847,384

5,537,720

The accompanying Notes 1 to 35 are an integral part of these consolidated financial statements.

073

At december 31, Liabilities and shareholders’ equity

2005

2004

ThCh$

ThUS$

ThCh$

ThUS$

Liabilities with banks and financial institutions – short term

20,720,190

40,430

1,569,910

2,719

Short-term portion of long-term liabilities with banks and financial institutions

24,776,617

48,345

3,279,129

5,678

Bonds issued

1,374,720

2,682

145,075,380

251,227

Current portion of other long-term liabilities

3,419,677

6,673

5,722,072

9,909

Dividends payable

1,240,706

2,421

25,926,305

44,897

107,014,763

208,809

97,400,884

168,669

2,987,302

5,829

3,211,026

5,561

718,184

1,401

1,405,581

2,434

Current liabilities

Accounts payable Notes payable Sundry creditors Notes and accounts payable to related companies

436,776

852

71,765

124

15,306,551

29,866

16,880,861

29,233

Withholdings

7,841,756

15,301

7,160,608

12,400

Unearned income

Provisions

1,114,490

2,175

1,369,040

2,371

Other current liabilities

227,694

444

2,080,256

3,602

Total current liabilities

187,179,426

365,228

311,152,817

538,824

Liabilities with banks and financial institutions

273,335,469

533,338

274,296,540

475,000

Bonds issued

279,573,670

545,510

173,239,920

300,000

7,423,316

14,485

12,197,170

21,122

Long-term liabilities

Notes payable Provisions

28,498,296

55,606

29,178,690

50,529

Deferred taxes

59,733,151

116,552

55,056,207

95,341

Other liabilities

6,538,845

12,759

-

-

655,102,747

1,278,250

543,968,527

941,992

63,993,911

124,866

64,834,775

112,274

Total long-term liabilities Minority interest Shareholders’ equity Paid-in capital

102,521,936

200,043

102,521,936

177,537

Other reserves

802,507,433

1,565,868

816,192,631

1,413,403

Retained earnings: Reserve for future dividends Accumulated earnings Net income for the year Interim dividends

15,364,363

29,979

15,364,363

26,607

1,317,447,136

2,570,629

1,213,338,345

2,101,141

122,986,907

239,974

174,172,470

301,615

(36,306,000)

(70,841)

(43,698,480)

(75,673)

Total shareholders’ equity

2,324,521,775

4,535,652

2,277,891,265

3,944,630

Total liabilities and shareholders’ equity

3,230,797,859

6,303,996

3,197,847,384

5,537,720

The accompanying Notes 1 to 35 are an integral part of these consolidated financial statements.

074

Consolidated Statement of Income (Translation of the original in Spanish)

For the years ended december 31, 2005 ThCh$

2004 ThUS$

ThCh$

ThUS$

Operating results Sales

1,091,279,723

2,129,326

1,116,365,412

1,933,213

(1,366,238)

(656,638,717)

(1,137,103)

763,088

459,726,695

796,110

(232,320,133)

(453,308)

(233,799,621)

(404,871)

158,762,523

309,780

225,927,074

391,239

Financial income

7,757,412

15,136

7,189,529

12,450

Gain on investment in related companies

3,329,416

6,496

2,619,597

4,536

17,857,490

34,844

12,914,112

22,364

Cost of sales

(700,197,067)

Gross margin

391,082,656

Administrative and selling expenses Operating income Non operating results

Other non-operating income Loss on investment in related companies

(4,256)

(8)

(8,548)

(15)

(4,739,189)

(9,247)

(4,785,302)

(8,287)

(31,179,725)

(60,838)

(30,690,487)

(53,147)

Other non-operating expenses

(5,891,640)

(11,496)

(6,150,862)

(10,650)

Price-level restatements

(5,880,125)

(11,473)

(2,462,796)

(4,265)

2,901,927

5,662

4,158,560

7,201

Amortization of goodwill Financial expenses

Foreign exchange gains (losses) Non-operating loss

(15,848,690)

(30,924)

Income before income taxes

142,913,833

278,856

208,710,877

Income taxes

(18,554,209)

(36,203)

(33,557,536)

Consolidated income

124,359,624

242,653

175,153,341

Minority interest Net income Amortization of negative goodwill Net income for the year

(2,996,489)

(5,847)

(17,216,197)

(3,037,368)

(29,813) 361,426 (58,112) 303,314 (5,260)

121,363,135

236,806

172,115,973

298,054

1,623,772

3,168

2,056,497

3,561

122,986,907

239,974

174,172,470

301,615

The accompanying Notes 1 to 35 are an integral part of these consolidated financial statements.

Consolidated Statement of Cash Flows 075 (Translation of the original in Spanish)

For the years ended december 31, 2005

2004

ThCh$

ThUS$

ThCh$

ThUS$

Net income for the year

122,986,907

239,974

174,172,470

301,615

Profit on sale of fixed assets

(13,784,997)

(26,898)

Cash flows from operating activities

Loss in investment sales

(9,121,605)

(15,796)

343,162

670

-

-

85,416,563

166,666

85,029,233

147,245

8,578

17

30,167

52

Add (deduct) charges (credits) not representing movement of funds: Depreciation Amortization of intangible assets Write-offs and provisions Net income on investment in related companies Net loss on investment in related companies

4,218,567

8,231

4,355,615

7,543

(3,329,416)

(6,496)

(2,619,597)

(4,536)

4,256

Goodwill amortization Negative goodwill amortization Price-level restatements Foreign exchange differences Other credits not representing cash flows Other credits not representing movement of funds

8

8,548

15

4,739,189

9,247

4,785,302

8,287

(1,623,772)

(3,168)

(2,056,497)

(3,561)

5,880,125

11,473

2,462,796

4,265

(2,901,927)

(5,662)

(4,158,560)

(7,201)

(655,919)

(1,280)

(1,154,275)

11,473,952

22,388

(1,999)

12,999,380

22,511

Changes in assets which affect cash flows: Increase in trade accounts receivable

10,411,612

20,315

(31,747,524)

(54,977)

(28,285,911)

(55,192)

(23,435,464)

(40,583)

9,804,894

19,132

3,759,444

6,510

(Decrease) increase in accounts payable related to operating results

(3,096,104)

(6,041)

(4,884,054)

(8,458)

Decrease in interest payable

2,307,097

4,502

3,905,611

6,763

(4,744,764)

(9,258)

8,394,167

14,536

1,903,536

3,714

2,152,252

3,727

(1,090,659)

(2,128)

(1,217,083)

(2,108)

Increase in inventories (Increase) decrease in other assets Changes in liabilities which affect cash flows:

Increase in taxes payable Increase (decrease) in other accounts payable related to non-operating results (Decrease) increase in Value Added Tax and other similar taxes payable Minority interest Net positive cash flows from operating activities

2,996,489

5,847

3,037,368

5,260

202,981,458

396,061

224,697,694

389,110

The accompanying Notes 1 to 35 are an integral part of these consolidated financial statements.

076

Consolidated Statement of Cash Flows (Translation of the original in Spanish)

For the years ended december 31, 2005 ThCh$

2004 ThUS$

ThCh$

ThUS$

Cash flows from financing activities Loans received

78,464,979

153,102

311,941,154

540,189

Liabilities with public

120,799,103

235,706

-

-

Payment of dividends

(88,320,068)

(172,332)

(58,853,399)

(101,916)

(3,709,417)

(7,238)

(158,775,381)

(274,952)

(151,175,970)

(294,977)

-

-

(2,176,743)

(4,247)

-

-

(46,118,116)

(89,986)

94,312,374

163,321

17,950,420

35,025

38,357,818

66,424

(377,657,051)

(736,892)

Payment of loans Payment of bond issuance cost Payments for the placement of Public Bonds Net negative cash flows from financing activities Cash flows from investment activities Proceeds from sale of fixed assets Additions on fixed assets Other investment income Permanent investments

139,479 (5,747,945)

272

(230,992,654) 319,574

(400,010) 553

(11,215)

(5,462,805)

(9,460)

Net negative cash flows from investment activities

(365,315,097)

(712,811)

(197,778,067)

(342,493)

Net positive (negative) cash flows for the year

(208,451,755)

(406,735)

121,232,001

209,938

(19,541,539)

(38,130)

(27,095,371)

(46,922)

PRICE-LEVEL RESTATEMENT OF CASH AND CASH EQUIVALENTS NET CHANGE IN CASH AND CASH EQUIVALENT

(227,993,294)

(444,865)

94,136,630

163,016

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR

330,468,657

644,817

236,332,027

409,257

CASH AND CASH EQUIVALENT AT END OF YEAR

102,475,363

199,952

330,468,657

572,273

The accompanying Notes 1 to 35 are an integral part of these consolidated financial statements.

Notes to the Consolidated Financial Statements 077 At december 31, 2005 and 2004 (Translation of the original in Spanish)

NOTE 1 - COMPANY’S REGISTRATION Empresas CMPC S.A. is registered as N° 0115 in the Official Company Register and is under the supervision of the Chilean Superintendency of Securities and Insurance (the “Superintendency”). The subsidiaries Industrias Forestales S.A., and Inversiones CMPC S.A. are registered under N° 0066, and N° 0672, respectively. During September 2004, the subsidiaries Forestal Mininco S.A. and Forestal Crecex S.A., cancelled their registration in the Securities Registry of the Superintendency of Securities and Insurance, pursuant to exempt resolutions N° 437 and N° 444, respectively. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a) Accounting period The consolidated financial statements cover the period January 1 to December 31, 2005 and are compared to the same period in 2004. b) Basis of preparation The consolidated financial statements have been prepared in accordance with Superintendency of Securities and Insurance regulations, which are consistent with accounting principles generally accepted in Chile issued by the Chilean Institute of Accountants. In the event of discrepancy, the Superintendency of Securities and Insurance regulations shall prevail. c) Basis of presentation For an adequate comparison, the balances in the consolidated financial statements as of December 31, 2004 have been restated out-of-book by the variation in the Consumer Price Index (CPI) for the period December 1, 2004 to December 31, 2005, amounting to 3.6%. In addition, minor reclassifications were made for consistency with the 2005 period. d) Basis of consolidation The consolidated financial statements include the assets, liabilities, income statement accounts and cash flows of the Parent Company Empresas CMPC S.A. and its subsidiaries. Significant amounts and results of transactions between the consolidated companies have been eliminated and the participation of the minority shareholders has been recognized in the financial statements under Minority interest. e) Price-level restatements The consolidated financial statements have been restated in order to reflect the effect of price-level changes on the Chilean peso in each year (Note 22). Restatements have been calculated on the basis of the Consumer Price Index published by the Chilean Institute of Statistics, which shows a variation of 3.6% for the period December 1, 2004 to November 30, 2005 (2.5% for the same period in the preceding year). Income and expense accounts have also been restated to present them in year-end constant pesos. The values in indexed unit have been translated into Chilean pesos at 1 UF: Ch$ 17,974.81 at December 31, 2005 (Ch$ 17,317.05 to UF 1 at December 31, 2004). f) Currency translation Assets and liabilities in foreign currency have been translated into Chilean pesos at the year-end exchange rate (Ch$ 512.5 US$ 1 at December 31, 2005 and Ch$ 557.40 to US$ 1 at December 31, 2004). The adjustment effect of assets and liabilities in foreign currency is shown in the Statement of Income under Foreign exchange differences, net of local inflation effects. To incorporate to the consolidated financial statements the financial statements of the productive foreign subsidiaries its assets and liabilities were translated to US dollars at the exchange rate of A$ 3.00 Argentine pesos to 1 US$ (A$ 2.98/US$ in 2004) Uruguayan pesos at 24.13 UR$ to 1 US$ (UR$ 26.38/US$ in 2004), and New Peruvian soles at the rate of 3.43 S$ to 1 US$ (S$ 3.28 in 2004).

078

g) Time deposits and marketable securities Time deposits in banks and financial institutions are valued at cost plus adjustments and interest accrued at each year end. Fixed-income securities are shown at restated investment cost plus interest accrued at each year end at the real interest rate determined on the purchase date. Mutual fund units and foreign investment founds are presented at the year-end unit value. Promissory notes and other bonds are shown at their restated purchase cost plus interest accrued at year end. The resulting amounts do not exceed their market values, and adjustments have been made when the market value is lower. The Company has invested resources in time deposits and marketable securities in Chilean pesos, which have been complemented with derivatives in dollars and euro, whereby the operation is redenominated to such currencies. h) Inventories Inventories of finished products and work in progress have been valued at the most recent direct production cost, including certain indirect inputs. Forest plantations which are deemed to be exploited within one year are included under inventories. Raw materials, supplies and other operating supplies are valued at restated cost at each year end. The resulting amounts do not exceed their related net realizable and replacement values, respectively. A provision has been set up to cover obsolescence of supplies, raw materials and other inputs based on the turnover and historical movements of these inventories. i) Allowance for unrecoverable accounts The Company and subsidiaries have set up a provision for the likelihood of unrecoverable notes and/or accounts receivable, which is determined on the basis of historical movements in the client portfolio and an analysis of accounts due from clients exceeding the normal period of collection. j) Fixed assets Fixed assets are shown at restated cost (Note 11). In addition, this caption includes the effect of technical reappraisals registered by Empresas CMPC S.A. and subsidiaries in prior years. Forest plantations have been appraised considering the market values in conformity with effective accounting standards and technical principles generally accepted for the appraisal of these assets. The higher value so determined above the restated balance in books, increases the plantation assets and is credited to Forest Reserve, an Equity account included under Other reserves. The corresponding deferred tax is deducted from these amounts. The portion of the Forest Reserve corresponding to the plantations exploited is annually netted of against the Forest Reserve account and credited to income in the corresponding sales’ year. k) Fixed asset depreciation Fixed assets depreciation is calculated on the restated cost of assets using the straight-line method over the estimated remaining useful lives of the assets. l) Leased assets Fixed assets acquired under leasing contracts are recorded at the current value of the contract and shown under Other fixed assets. These assets are not legally owned by the Company until they use purchase option.

079 Notes to the Consolidated Financial Statements

m) Intangibles Intangible assets are valued at restated purchase cost and are amortized over the estimated years of investment return. n) Investment in related companies (associates) Investments in related companies are valued using the equity method of accounting. This valuation includes recognizing participation in their results on an accrual basis after eliminating unrealized gains and losses on transactions with related companies. In the cases of buying companies, the differential between the Company’s equity value and the purchase price is shown as Goodwill/Negative goodwill under Other assets (Circular N° 368 dated December 12, 1983, issued by the Superintendency of Securities and Insurance). Pursuant to the new instructions issued by the Superintendency of Securities and Insurance through Circular N° 1,697 dated December 30, 2003, the new investments made as from January 1, 2004, are valued through the equity method, which considers the valuation of the investment upon buying at “fair value” of the equity of the acquired Company (market value of assets and liabilities). Investments in foreign companies are valued in accordance with Technical Bulletin N° 64 of the Chilean Institute of Accountants and Official Circular N° 5,294 dated October 20, 1998 issued by Superintendency of Securities and Insurance. In conformity with these regulations, the subsidiaries abroad, CMPC Investments Ltd., Inversiones CMPC Cayman Ltd., Gestum Inversiones S.L., Tissue Cayman Ltd., CMPC Europe Ltd., CMPC Asia Ltd. and Propa Cayman Ltd. are considered an extension of the Parent Company and are therefore controlled in Chilean pesos, restated in line with local inflation (CPI). Investments in subsidiaries in Argentina: CMPC Inversiones de Argentina S.A., La Papelera del Plata S.A., Naschel S.A., Forestal Bosques del Plata S.A. y Fabi S.A., the Subsidiary in Uruguay: Ipusa and the subsidiaries in Perú: Forsac Perú S.A., Protisa Perú S.A. and Papelera del Rimac S.A. are considered productive companies with own activities, therefore are controlled in US dollars. o) Goodwill and negative goodwill The difference generated between the purchase of interest in companies and their net book value, calculated on the respective purchase date is presented in Other Assets (as negative goodwill/goodwill). These differences are amortized over the estimated period of investment return, which is estimated at least in 20 years in the forest industry. p) Financial investments Securities purchased under resale agreements are valued at restated cost plus interest accrued at year end in accordance with their respective agreements’ clauses. These values are shown under Other current assets. Instruments sold under repurchase agreements are valued at restated purchase cost plus accrued interest at year end and are shown in Other current assets. The related obligation is shown at its original value plus interest and restatements accrued at financial statements under Other current liabilities. The Company has invested resources in resale agreements in Chilean pesos, complemented with derivatives in dollars and euros, where by the operation is redenominated to such currencies. q) Bonds payable This caption includes the obligation from two bond issued by Inversiones CMPC S.A., one placed abroad and the other registered under the Securities Registry of the Superintendency of Securities and Insurance, both are recorded at the restated nominal value and interest accrued at year end. The difference from commissions and other bond placement expenses was charged to income on the respective date, except discount in local placement which will be amortized over the bond period.

080

r) Income taxes and deferred taxes The Parent Company and subsidiaries set up income tax provisions, which were charged to income for the year, in conformity with current tax legislation in Chile and/or countries in which the respective income is generated or the tax liability should be payed. In accordance with instructions issued by the Superintendency under Circular N° 1466, as stipulated under Technical Bulletins N° 60, 68, 69 and 71 issued by the Chilean Institute of Accountants and timing differences arising from all timing differences between tax and financial balances are required to be recorded based on the current tax rate on the estimated date of reverse. s) Staff severance indemnities The provision set up to cover the liability for severance indemnities agreed with the Company’s staff is presented at the accrued value at each year end. That portion estimated to be paid within one year is shown in the short term. Vacation staff costs are recorded on an accrued basis. t) Operating income Operating income is originated from sales of products delivered and recorded at the value of billing. Operating income from exports is valued at the billing price. u) Derivative contracts Derivative contracts have been subscribed in order to cover global exchange rate risks of the Company and subsidiaries. Such contracts are valued according to the fair value they present at year end, and the difference against the face value is recorded in the respective income or deferred accounts based on the nature of the contracts, in accordance to Technical Bulletin N° 57 issued by the Chilean Institute of Accountants. v) Computer software Computer software used for administrative purposes by the Company and subsidiaries were developed internally in prior years with Company funds, and the related expenses for development are charged to income as incurred in the respective periods. The cost of computer software purchased from third parties is considered as part of the expenses during the course of its implementation. The cost of software associated to machines and other production assets is charged to income on the start-up date. w) Research and development costs The Parent Company and subsidiaries have recorded research and development costs incurred in the production process under expenses during the year. x) Cash flows The Company and subsidiaries have defined short-term investments considered as part of the general administration of cash surpluses as cash and cash equivalents in conformity with Technical Bulletin N° 50 issued by the Chilean Institute of Accountants. Cash equivalents include time deposits and marketable securities such as short-term investments under resale and repurchase agreements, Chilean Central Bank Promissory Notes, units in investment Funds, investments in mutual fund units and other investments. Cash flows from operating activities include all business-related cash flows as well as interest paid, financial income, dividends and other distributions received and, in general, all cash flows not defined as from investment or financing activities. The concept of operations used in this statement is more comprehensive than that used in the consolidated statement of income.

081 Notes to the Consolidated Financial Statements

The following subsidiaries have been included in consolidation:

Company Forestal Mininco S.A. Inversiones CMPC S.A. Forestal Coihueco S.A. Inmobiliaria Pinares S.A. Forestal y Agrícola Monteaguila S.A. CMPC Papeles S.A. CMPC Tissue S.A. CMPC Productos de Papel S.A. CMPC Celulosa S.A. Inmobiliaria y Forestal Maitenes S.A. Envases Roble Alto S.A. Propa S.A. Portuaria CMPC S.A. Sociedad Recuperadora de Papel S.A. Empresa Distribuidora de Papeles y Cartones S.A. Envases Impresos S.A. Productos Austral S.A. Cartulinas CMPC S.A. Servicios Compartidos CMPC S.A. Inversiones Protisa S.A. Papeles Cordillera S.A. Comercial Higiene Integral S.A. Chilena de Moldeados S.A. Servicios Forestales Escuadrón Ltda. CMPC Maderas S.A. Industrias Forestales S.A. Forestal Crecex S.A. Inversiones CMPC Cayman Ltd.-Cayman Island CMPC Investments Ltd. - Channel Island Gestum Inversiones S.L. - Spain CMPC Inversiones de Argentina S.A. CMPC Asia Ltd. - Japan Forestal Bosques de Plata S.A. - Argentina Naschel S.A. - Argentina Fabi Bolsas Industriales S.A. - Argentina Tissue Cayman Ltd.-Cayman Island Protisa S.A. - Peru Papelera del Rimac S.A. - Peru Compañía Primus del Uruguay S.A. Celulosas del Uruguay S.A. CMPC Europe Ltd. - United Kingdom Protisa do Brasil Ltda. Propa Cayman Ltd.-Cayman Island Forsac Perú S.A. La Papelera del Plata S.A. - Argentina Ipusa - Uruguay CMPC USA INC. - United States

Direct % 99.9999 99.9988 99.9999 99.9900 99.7480 0.1000 0.1000 0.1000 0.0480 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 20.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000

Ownership interest (%) 2005 Indirect Total % % 0.0001 100.0000 0.0012 100.0000 0.0001 100.0000 0.0100 100.0000 0.0000 99.7480 99.9000 100.0000 99.9000 100.0000 99.9000 100.0000 99.9520 100.0000 100.0000 100.0000 100.0000 100.0000 100.0000 100.0000 100.0000 100.0000 100.0000 100.0000 100.0000 100.0000 100.0000 100.0000 100.0000 100.0000 100.0000 100.0000 80.0000 100.0000 100.0000 100.0000 100.0000 100.0000 100.0000 100.0000 100.0000 100.0000 0.0000 0.0000 97.5138 97.5138 81.9500 81.9500 81.9500 81.9500 100.0000 100.0000 100.0000 100.0000 100.0000 100.0000 100.0000 100.0000 100.0000 100.0000 100.0000 100.0000 100.0000 100.0000 100.0000 100.0000 100.0000 100.0000 100.0000 100.0000 100.0000 100.0000 100.0000 100.0000 100.0000 100.0000 100.0000 100.0000 100.0000 100.0000 100.0000 100.0000 100.0000 100.0000 100.0000 100.0000 99.6100 99.6100 97.5386 97.5386

2004 Total % 100.0000 100.0000 100.0000 100.0000 99.7480 100.0000 100.0000 100.0000 100.0000 100.0000 100.0000 100.0000 100.0000 100.0000 100.0000 100.0000 100.0000 100.0000 100.0000 100.0000 100.0000 100.0000 100.0000 99.9379 97.5138 81.9500 81.9500 100.0000 100.0000 100.0000 100.0000 100.0000 100.0000 100.0000 100.0000 100.0000 100.0000 100.0000 100.0000 100.0000 100.0000 100.0000 100.0000 100.0000 99.9999 99.6100 97.5386

082

NOTE 3 - ACCOUNTING CHANGES There are no changes in the application of generally accepted accounting principles in Chile in relation to the previous year which could significantly affect the interpretation of these financial statements. NOTE 4 - MARKETABLE SECURITIES Marketable securities correspond to funds (cash surpluses) invested in securities, which are used in normal operations of the Company and subsidiaries according to requirements. The Company expects total instruments to be settled in the short term. The book value of these investments does not exceed their market value, adjustments being recorded in case the former were higher than the latter. At December 31, 2005 and 2004 this caption includes the following instruments: a) Detail of marketable securities • Investments in mutual fund units: ThCh$

Financial Institution

2005 100,013 18,005 118,018 230

BCI Administradora General de Fondos S.A. Bancoestado S.A. Administradora General de Fondos Total ThUS$

2004 38,338 780,249 818,587 1,417

• Investments in foreing funds units: Financial Institution

Investment currency

BBH & Co Money Market Fund JP Morgan Money Market Fund JP Morgan Money Market Fund Total ThUS$

Dollars Euros Dollars

ThCh$ 2005 759 26,226 63,123 90,108 176

2004 6,580,213 5,961,995 34,883 12,577,091 21,780

• Central Bank bonds: (1) Financial Institution Central Bank bonds payable in dollars (BCX) Central Bank bonds in dollars (BCD) Central Bank bonds in Chilean pesos (BCP) Total ThUS$

ThCh$ 2005 15,644,769 15,644,769 30,526

2004 24,576,244 6,199,928 5,477,505 36,253,677 62,781

• Foreign Companies’ bonds Financial Institution Foreign enterprises bonds Foreign corporate bonds United States of America Treasure bonds Federal Government of United States of America bonds Total ThUS$

ThCh$ 2005 -

2004 37,399,898 14,493,422 14,391,444 14,330,068 80,614,832 139,601

083 Notes to the Consolidated Financial Statements

• Others ThCh$ 2005

2004

141,407

29,198

276

50

Total Marketable securities at December 31, 2005 ThCh$

15,994,302

130,293,385

Total Marketable securities at December 31, 2005 ThUS$

31,208

225,629

Total others ThUS$

(1) At December 31, 2005 the difference in marketable securities price amount to ThCh$ 37,928 - ThUS$ 74 (ThCh$ 620,566 - ThUS$ 1,075 in 2004) and the amortized value at year end was ThCh$ 461,376 - ThUS$ 900 (ThCh$ 1,289,669 - ThUS$ 2,233 in 2004).

b) Marketable securities recorded under Other current assets As outlined in Note 9, Other current assets include the following marketable securities: ThCh$ 2005 Marketable securities under resale agreement re- denominated to dollar

2004

30,786,354

14,756,940

4,974,580

26,396,346

Marketable securities under resale agreement re- denominated to euro

-

6,144,737

Marketable securities under resale agreement in Dollars

-

431,962

Marketable securities under repurchase agreement in Dollars

-

2,077,382

35,760,934

49,807,367

69,777

86,252

Marketable securities under resale agreement in Chilean Pesos

Total ThUS$

The detail of marketable securities is as follows: a) Account composition Book value ThCh$

Instruments 2005

2004

Mutual fund units

118,018

818,587

Investment fund units

90,108

12,577,091

15,644,769

36,253,677

-

80,614,832

Public offering promissory notes Foreign companies’ bonds Others Total marketable securities ThUS$

141,407

29,198

15,994,302

130,293,385

31,208

225,629

b) Fixed-income securities Instruments Central Bank bonds payable in dollars (BCX) Total ThUS$

Date of Purchase

Maturity

03-10-05

01-09-06

Par value ThCh$

ThCh$

Book value Market value Interest rate ThCh$

Provision ThCh$

15,629,131

15,644,769

4.54

15,644,769

22,290

15,629,131

15,644,769

-

-

-

30,496

30,526

-

-

-

084

NOTE 5 - SHORT-AND LONG-TERM RECEIVABLES These balances at December 31, 2005 and 2004 are presented net of provisions as follows: 2005 ThCh$

2004 %

ThCh$

%

a) Trade accounts receivable, net: Domestic customers

60,737,478

51.3

68,154,225

44.9

Foreign customers

43,854,382

37.0

71,164,123

46.9

Clients from foreign subsidiaries

13,829,147

11.7

12,559,971

8.2

118,421,007

100

151,878,319

100

Total ThUS$

231,065

263,008

b) Notes receivable, net: Domestic customers

14,976,714

40.7

15,527,796

37.9

Foreign customers

19,315,599

52.5

22,223,463

54.3

Clients from foreign subsidiaries

2,488,674

6.8

3,196,785

7.8

36,780,987

100

40,948,044

100

Total ThUS$

71,768

70,910

c) Sundry debtors: Advances to suppliers

9,473,758

41.5

4,343,446

23.0

Current accounts with third parties

5,868,505

25.7

3,173,144

16.8

Loans to personnel

3,010,194

13.2

2,847,063

15.1

Insurance claims

2,768,649

12.1

6,950,676

36.8

951,964

4.2

887,354

4.7

Drawbacks

108,694

0.4

70,624

0.3

Others

654,052

2.9

634,015

3.3

22,835,816

100

18,906,322

100

Debtors on fixed assets sales

Total ThUS$

44,558

32,740

The provision net of short-term receivables amounts to ThCh$ 4,958,852 - ThU$ 9,676 in 2005 (ThCh$ 5,305,864 - ThUS$ 9,188 in 2004). d) Long-term debtors Cross Currency Swap (Note 16)

12,039,162

76.9

-

-

Recoverable taxes in Argentina and PerĂş (1)

2,396,117

15.3

2,220,620

50.4

Debtors on fixed assets sales

1,068,936

6.8

1,900,290

43.1

156,705

1.0

284,553

6.5

15,660,920

100

4,405,463

100

Others Total ThUS$

30,558

(1) Amount included under the caption Other receivables - long term (see next table).

• Receivable Insurance This kind of insurance cover the risk for unrecoverable accounts, mainly foreing customers.

7,629

085 Notes to the Consolidated Financial Statements

Receivable Insurance: This kind of insurance cover the risk for unrecoverable accounts, mainly foreign customers. Maturities Maturity up to 90 days Maturity 90 days up to one year Subtotal ThCh$ ThCh$ ThCh$ 2005 2004 2005 2004 2005 Trade accounts receivable

113,377,959 137,376,424

Notes receivable

118,421,007

151,878,319

-

-

-

-

4,471,450

-

-

-

27,509,068

31,645,417

9,746,732

9,302,627

37,255,800

36,780,987

40,948,044

-

-

-

-

-

474,813

-

-

-

-

16,292,147

14,379,351

6,556,258

4,526,971

22,848,405

22,835,816

18,906,322

15,660,920

4,405,463

-

-

-

-

12,589

-

-

Allowance for doubtful accounts Sundry debtors Allowance for doubtful accounts

14,501,895 122,892,457

Total long-term (net) ThCh$ 2005 2004

-

Allowance for doubtful accounts

9,514,498

Total short-term (net) ThCh$ 2005 2004

Total

-

-

-

15,660,920

4,405,463

30,558

7,629

ThUS$

NOTE 6 - BALANCES AND TRANSACTIONS WITH RELATED COMPANIES Balances and transactions with related companies are originated by commercial operations related to the Company’s business carried at market value. Transactions with companies in which the Company has Directors and/or a controller in common (transaction analysis) correspond to business operations which are also carried at market values. Transactions with Copec S.A. (fuel) based in indexed prices, according ENAP prices. Transactions with Colbún S.A. and Nehuenco S.A. (electric power) are under contracts denominated in US dollars. The remaining transactions are carried in non-indexed Chilean pesos. Buying and selling transactions of timber between the Company’s subsidiaries and the companies Bosques Arauco S.A. and Forestal Celco S.A. are, in general, offset buying and selling operations. During 2004 were performed operations of purchase, selling and barter of forest properties with subsidiaries of Celulosa Arauco y Constitución S.A. Financial transactions: Financial transactions with intercompanies for the best presentation are shown at average basis. All of this kind of operations is performed at fair value market price and conditions. The composition of related-company accounts receivable and payable is as follows: a) Notes and accounts receivable Tax number

Company

96.565.750-9

Aserraderos Arauco S.A. Totales ThUS$

Short-term ThCh$ 2005 -

2004 387,110 387,110 670

b) Notes and accounts payable Tax number

Company

96.565.750-9 96.657.900-5

Aserraderos Arauco S.A. Controladora de Plagas Forestales S.A. Totales ThUS$

Short-term ThCh$ 2005 435,327 1.449 436.776 852

2004 71.765 71.765 124

96.573.780-4 96.505.760-9

99.520.000-7

Cerámicas Cordillera S.A.

Colbún S.A.

Compañía de Petróleos de Chile COPEC S.A.

Farm selling Farm selling- barter Timber selling Services buying

Director in common Director in common Director in common Director in common

Controladora de Plagas Forestales S.A. 96.657.900-5

Affiliate

Director in common

Service buying

Product selling

Electric power buying

Fuel buying

Sociedad Hidroeléctrica El Melocotón Ltda. Sale

Common Director in Holding

Electric power buying

Director in common in related

Products selling

Director in common in related

Common Director in Holding

Material buying

Services selling

Director in common

Common Director in Holding

Timber buying

Director in common

90.209.000-2

93.458.000-1

Celulosa Arauco y Constitución S.A.

Farm buying - barter

Director in common

Dollar selling

Compañía Industrial El Volcán S.A.

82.152.700-7

Bosques Arauco S.A.

Investment in mutual funds

Director in common Director in common

Dollar selling

Common Director in Holding

Product selling

96.514.410-2

BICE Administradora General de Fondos S.A.

Operations under resale agreements

Dollar selling

Common Director in Holding

Director in common

Dollar selling

Controller in common

Director in common

79.532.990-0

BICE Corredores de Bolsa S.A.

Investment in DPF

Controller in common Time Deposits

Forward operations

Controller in common

Director in common

Operations under resale agreements

Controller in common

Electric power buying

97.053.000-2

Banco Security

Operations under repurchase agreement

Controller in common

Product selling

Investment in mutual funds

Director in common

97.080.000-K

Banco BICE

Director in common

Collection operations

99.513.400-4

78.893.350-9

Alimentos Chacabuco Ltda.

Common Director in Holding

Director in common

CGE Distribución S.A.

96.639.280-0

Administradora de Fondos Mutuos Security S.A.

Description

Director in common

96.565.750-9

Aserraderos Arauco S.A.

Relation

Compañía Eléctrica del Río Maipo S.A. 96.557.330-5

Tax number

Company

c) Transactions:

147,317

1,864,627

4,066

1,579,276

697,065

19,079,604

52,298,102

7,161,724

179,794

88,844

21,452

-

-

-

38,481

-

-

-

7,221,492

1,207,029

15,856,915

531,834

-

90,505,500

2,379,247

8,920,909

669,846

5,591,158

22,528

2,724,602

18,679,818

287

3,638

8

3,082

1,360

37,228

(343,162)

13,974

351

173

42

-

-

-

75

-

-

-

14,091

2,355

30,940

1,038

-

176,596

4,642

17,407

1,307

10,910

44

5,316

36,448

Transaction amount ThCh$ ThUS$

2005

(147,317)

851,555

3,217

-

-

-

(669,6)

-

35,609

-

(21,452)

-

-

-

38,481

-

-

-

28,004

10,750

219,083

160

-

(9,692)

300,152

96,606

864

(19,725)

7,978

12,593

-

765,314

-

-

3,328,368

1,840,007

3,444,435

-

3,997,181

36,207

178,498

3,063,143

611,671

(287)

1,662

6

-

-

-

-

-

69

-

(42)

-

-

197,925

2,416,643

-

-

1,520,759

9,427,979

-

7,250,237

121,068

11,119

-

176,374

3,178,143

- 27,493,601

75

-

-

-

55 109,248,938

21 40,190,925

427

0,3

-

(19) 34,117,275

586

188 19,420,556

2

(38)

16

25

2004

343

4,185

-

-

2,634

16,326

-

12,555

209

19

-

305

5,504

47,611

63

309

5,304

1,659

189,187

69,599

5,965

-

6,922

59,081

3,186

33,631

1,325

-

-

5,764

27,383

Transaction amount ThCh$ ThUS$

- 15,812,730

Effect on results (expense) income ThCh$ ThUS$

(197,925)

1,240,683

-

-

-

-

-

-

31,327

-

-

1,196

-

7,026,571

36,207

-

-

(124)

295,348

123,415

76,499

-

50,886

50,262

100,099

(163,272)

16,531

-

-

15,847

-

343

2,148

-

-

-

-

-

-

54

-

-

2

-

12,168

63

-

-

-

511

214

132

-

88

87

173

(283)

29

-

-

27

-

Effect on results (expense) income ThCh$ ThUS$

086

Tax number

96.877.200-7 85.741.000-9 93.390.000-2 96.563.570-K 92.580.000-7 96.806.980-2 96.697.410-9 85.805.200-9

93.838.000-7 96.567.940-5 91.335.000-6 96.895.660-4 96.722.460-K 96.510.970-6 78.997.880-8 96.537.880-4 96.560.720-K 82.777.100-7

96.884.930-1 96.569.760-8 86.113.000-2 78.023.030-4

Company

Empresa Eléctrica Nehuenco S.A.

Bicecorp S.A.

Empresas Melon S.A.

Empresas Call Center S.A.

Entel Chile S.A.

Entel PCS Telecomunicaciones S.A.

Entel Telefonía Local S.A.

Forestal Celco S.A.

Forestal Cholguan S.A.

Forestal Valdivia S.A.

Industria y Comercio S.A.

Inversiones El Rauli S.A.

METROGAS S.A.

Paneles Arauco S.A.

Pesquera Frio Sur S.A.

Pesquera Grimar S.A.

Portuaria Lirquen S.A.

Puerto Lirquen S.A.

Renta Urbana S.A.

Sociedad Industrial Pizarreño S.A.

Sociedad Industrial Romeral S.A.

Sofruco Alimentos S.A.

c) Transacciones:

Farm selling- barter

Director in common

Director in common in related

Common Director in Holding

Common Director in Holding

Product selling

Product selling

Product selling

Services received

Product selling

Director in common

Service buying

Common Director in Holding

Product buying

Product selling

Product selling

Sub-Product selling

Natural gas buying

Common Director in Holding

Common Director in Holding

Director in common

Director in common

Director in common

Common Director in Holding

Capital payments

Product selling

Affiliate

Product and Service buying

Director in common

Farm selling

Director in common

Director in common

Farm selling - barter

Farm selling

Director in common

Director in common

Services buying

Director in common

Farm buying - barter

Services selling

Director in common

Director in common

Farm buying - barter

Service buying

Service buying

Service buying

Service buying

Product selling

Capital payments

Electric power buying

Description

Director in common

Common Director in Holding

Common Director in Holding

Common Director in Holding

Common Director in Holding

Common Director in Holding

Director in common

Director in common in related

Relation

233,496

1,747,589

1,391,839

30,426

48,157

2,370,682

14,878

32,482

260,786

282,075

3,624,902

5,747,945

-

66,161

-

-

-

-

-

1,541

15,753

-

282,031

226,377

378,296

6,478

435,203

-

6,712,375

(14,878)

13,192

87,639

46,672

-

-

-

(66,161)

-

-

-

-

-

(1,541)

15,753

-

(282,031)

(226,377)

(378,296)

(6,478)

152,385

-

-

456

3,410

2,716

59

94

9,515

94,733

825,097

775,631

(30,426)

19

185

1,610

1,513

(59)

2004

-

-

-

136,296

6,204,758

-

182,659

915,285

7,343,954

981,545

1,059,093

1,368,272

1,832,880

34,090

23,336

1,407,528

-

-

-

-

-

5,462,805

7,259,540

251,530

1,538,582

1,265,779

35,947

59,097

-

-

-

50,415

-

-

112,342

-

906,365

-

-

-

118,409

(34,090)

23,336

-

-

-

-

-

-

-

-

436

2,664

2,192

62

102

10,581

86,461

772,685

813,670

(35,947)

150

1,338

1,409

(62)

18

(4,098)

-

-

-

87

-

-

195

-

1,570

-

-

-

205

(59)

40

-

-

-

-

-

-

-

-

Effect on results (expense) income ThCh$ ThUS$

4,098 (2,366,684)

-

-

-

236

10,745

-

316

1,585

12,718

1,700

1,834

2,369

3,174

59

40

2,437

-

-

-

-

-

9,460

12,571

Transaction amount ThCh$ ThUS$

(4,626) 2,366,684

(29)

26

171

91

-

-

-

(129)

-

-

-

-

-

(3)

31

-

(550)

(442)

(738)

13

297

-

-

Effect on results (expense) income ThCh$ ThUS$

4,626 (2,370,682)

29

63

509

550

7,073

11,216

-

129

-

-

-

-

-

3

31

-

550

442

738

13

849

-

13,097

Transaction amount ThCh$ ThUS$

2005

Notes to the Consolidated Financial Statements

087

088

NOTE 7 - INVENTORIES Inventories include the following balances: ThCh$ Finished products Products in process

2005

2004

65,012,150

53,552,492

8,161,263

6,156,633

Raw materials and others

55,386,346

50,855,703

Supplies

54,077,437

55,814,172

Timber

2,893,350

1,534,416

Forestry plantations

79,881,179

62,458,978

Agricultural and other products Total ThUS$

3,216,430

3,266,738

268,628,155

233,639,132

524,153

404,593

The Company estimates that these inventories will be sold and/or consumed in the normal course of operations. The item Forestry plantations includes estimated plantations that will be exploited during the next twelve monthts. A provision has been set up to cover the likelihood of obsolescence of raw materials, supplies and spare parts amounting to ThCh$ 3,310,841 - ThUS$ 6,460 at December 31, 2005 (ThCh$ 4,255,191 - ThUS$ 7,369 at December 31, 2004), which is shown net of the respective Inventory accounts.

089 Notes to the Consolidated Financial Statements

NOTE 8 - INCOME TAXES AND DEFERRED TAXES a) Income tax provisions At December 31, 2005, the consolidated income tax provision amounts to ThCh$ 14,457,299 - ThUS$ 28,209 (ThCh$ 23,113,209 - ThUS$ 40,025 at December 31, 2004), which is shown within recoverable taxes on current assets, once the prepaid income taxes, credit on training expenses and others credits in total amount of ThCh$ 25,220,732 - ThUS$ 49,211 (ThCh$ 25,206,565 - ThUS$ 43,650 at December 31, 2004, have been deducted. The excedents for prepaid income taxes and others tax credits in favor of Company, and subsidiaries amount to ThCh$ 39,042,538 - ThUS$ 76,181 (ThCh$ 28,353,609 - ThUS$ 49,100 at December 31, 2004, it’s showing under recoverable taxes on currents assets. Recoverable taxes under Current assets includes the remainder of Value Added Tax (VAT) fiscal credit in favor of the Company in Chile and Argentina, amounting to ThCh$ 19,804,299 - ThUS$ 38,643 (ThCh$ 12,451,078 - ThUS$ 21,562 at December 31, 2004), as well as the balance of recoverable tax corresponding to profits whit income tax paid and absorbed by tax losses of ThCh$ 4,029,549 - ThUS$ 7,863 (ThCh$ 10,048,091 - ThUS$ 17,400 at December 31, 2004), and other taxes in recover process of ThCh$ 4,445,257 - ThUS$ 8,674 (ThCh$ 3,761,084 - ThUS$ 6,513 at December 31, 2004). Tax losses presented by some of the companies total ThCh$ 50,238,026 - ThUS$ 98,025 at December 31, 2005 (ThCh$ 42,994,845 - ThUS$ 74,454 at December 31, 2004). b) Tax profits The balance of undistributed profits in Empresas CMPC S.A. with Corporate income tax paid and subject to distribution with credit for the shareholders is composed of: 2005 ThCh$ Profits with 17% credit Profits with 16,5% credit

3,483,643

2004 ThUS$ 6,797

ThCh$ 2,394,906

ThUS$ 4,147

108,800

212

108,800

188

Profits with 16% credit

1,131,981

2,209

1,131,981

1,960

Profits with 15% credit

177,993,150

347,304

257,904,320

446,614 17,905

Profits with 10% credit Profits without credit Total

4,662,286

9,097

10,339,368

29,978,671

58,495

32,439,225

56,175

217,358,531

424,114

304,318,600

526,989

In addition, accumulated non-taxable income amounting to ThCh$ 194,069,954 - ThUS$ 378,673 (ThCh$ 194,069,954 - ThUS$ 336,071 in 2004) are distributed upon depletion of the accumulated taxable income mentioned earlier and shareholders are not taxed. c) Deferred taxes Restatement of Forest Plantations and its credit to the Forest Reserve equity account is recorded net of Deferred Tax effect in accordance with the Income tax rate applicable when the respective reserve is done (Note 2j).

090

Deferred taxes: 2005 ThCh$ Assets

2004 ThCh$ Liabilities

Short-term

Long-term

Short-term

Assets

Long-term

Short-term

Liabilities

Long-term

Short-term

Long-term

Timing differences Bad debt provision

1,139,968

188,233

-

-

1,202,805

-

-

Unearned income

57,127

-

-

-

76,900

-

-

Provision for staff vacations

-

1,272,908

-

-

-

1,177,146

-

-

-

Leased assets

-

-

-

323,245

-

-

-

389,357

Fixed asset depreciation

-

-

-

67,519,710

-

-

-

64,638,371

Other events

768,350

-

435,134

-

406,931

860,722

449,955

Obsolescence provision

629,322

-

-

-

778,987

-

-

-

18,568

127,156

-

-

293,560

-

-

-

2,296,813

6,274,447

-

-

-

7,494,346

-

-

Supplementary accounts net ofaccumulated amortization

-

23,093

-

1,543,061

-

25,919

-

1,960,127

Valuation provision

-

-

-

-

-

317,755

-

-

6,183,056

6,566,743

435,134

66,299,894

3,936,329

8,011,394

449,955

63,067,601

12,065

12,813

849

129,365

6,816

13,873

779

109,214

Provision for labor matters Tax loss Others (less)

Total ThUS$

Income tax: ThCh$ 2005 Income tax provision Prior-year expense adjustment Deferred tax assets or liabilities for year Tax refund (due to accumulated tax losses) Amortization of supplementary accounts from assets and liabilities accumulated at the beginning of the year Effect on deferred tax assets and liabilities by evaluation Provisions Other charges Total ThUS$

(14,457,299) 135,195 (4,593,878)

2004 (23,113,209) (369,516) (21,175,574)

852,100

4,242,307

(347,028)

1,887,487

306,713

4,970,969

(450,012)

-

(18,554,209)

(33,557,536)

(36,203)

(58,112)

091 Notes to the Consolidated Financial Statements

NOTE 9 - OTHER CURRENT ASSETS This item includes the following investments in marketable securities: a) Marketable securities under resale agreement: Institution

ThCh$ 2005

2004

Bice Corredores de Bolsa S.A.

12,822,370

-

BBVA Corredores de Bolsa S.A.

7,699,444

-

In Chilean pesos re-denominated to dollar:

LarraĂ­n Vial S.A. Corredores de Bolsa

5,132,441

-

Bancoestado S.A. Corredores de Bolsa

5,132,099

8,967,755

-

5,789,185

30,786,354

14,756,940

60,071

25,554

Bice Corredores de Bolsa S.A.

-

6,144,737

ThUS$

-

10,641

Total re-denominated marketable securities ThCh$

(1) 30,786,354

20,901,677

Total re-denominated marketable securities ThUS$

60,071

36,195

BBVA Corredores de Bolsa S.A.

-

431,962

ThUS$

-

748

4,401,320

-

573,260

14,273,751

Banchile Corredores de Bolsa S.A. Total ThUS$ In Chilean pesos re-denominated to euro:

In US dollars:

In Chilean Pesos: Santander S.A. Agente de Valores Bancoestado S.A. Corredores de Bolsa S.A. Bice Corredores de Bolsa S.A

-

9,011,901

LarraĂ­n Vial S.A. Corredores de Bolsa

-

3,110,694

4,974,580

26,396,346

Total ThUS$

9,706

45,711

Total Marketable securities under repurchase agreement ThCh$

35,760,934

47,729,985

Total Marketable securities under repurchase agreement ThUS$

69,777

82,654

b) Marketable securities under repurchase agreement: ThCh$ 2005

2004

Bancoestado S.A.

-

2,077,382

Total Marketable securities under resale agreement ThCh$

-

2,077,382

Total Marketable securities under resale agreement ThUS$

-

3,597

69,777

ThCh$ 2004

86,493

49,946,862

242

139,495

Placement date

20/12/2005

20/12/2005

23/12/2005

21/12/2005

21/12/2005

27/12/2005

22/11/2005

Code

CRV

CRV

CRV

CRV

CRV

CRV

CRV

20/01/2006

05/01/2006

03/01/2006

03/01/2006

03/01/2006

03/01/2006

02/01/2006

Date of maturity

Bancoestado S.A. Corredores de Bolsa

BICE Corredores de Bolsa S.A.

Larrain Vial S.A. Corredores de Bolsa

Bancoestado S.A. Corredores de Bolsa

BICE Corredores de Bolsa S.A.

BBVA Corredores de Bolsa S.A.

BBVA Corredores de Bolsa S.A.

Institution

Ch$

US$

US$

US$

US$

US$

Ch$

Currency

Sales under repurchase agreements and purchases under resale agreements:

570,000

7,717,500

5,110,000

5,110,000

5,145,000

7,740,000

4,400,000

Initial amount ThCh$

0.44

0.47

0.47

0.45

0.45

0.46

0.45

Interest rate %

574,932

7,698,150

5,134,842

5,134,399

5,132,582

7,703,004

4,402,640

Final amount ThCh$

Pagaré NR

Pagaré NR - Pagaré R - Cero

BCP - Pagaré R

Pagaré R

Pagaré R

Pagaré NR - Pagaré R

Pagaré NR - Pagaré R

Instrument

573.260

7.692.103

5.132.441

5.132.099

5.130.267

7.699.444

4,401,320

Market value ThCh$

Both concepts are shown in Other current assets and the obligation of the securities under repurchase agreement is presented in Other current liabilities, as set forth in Circular N° 768 issued by the Chilean Superintendency of Securities and Insurance.

At December 31, 2004 there are sales operations under repurchase agreements in the amount of ThCh$ 2,077,382 - ThUS$ 3,597.

At December 31, 2005 transactions under resale agreements amount to ThCh$ 35,760,934 - ThUS$ 69,777 (ThCh$ 47,729,985 - ThUS$ 82,654 in 2004). Some of these investments were re-denominated to dollar through the subscription of forward contracts.

NOTE 10 - FINANCIAL INVESTMENTS

(1) Marketable securities re-denominated to other currencies refer to operations with forward contracts (Synthetical). On the one hand, they consider the value of the marketable securities under resale agreements in Chilean pesos, valued as of the closing date, based on the value of principal plus the accrued interest of ThCh$ 30,862,236 - ThUS$ 60,219 (ThCh$ 21,707,056 - ThUS$ 37,590 as of December 31, 2004) of these securities. Furthermore, they consider the spread of the value of the signed forward contracts to re-denominate these operations to dollar or euro for ThCh$ (75,882) - ThUS$ (148) as of December 31, 2005 and ThCh$ (805,379) - ThUS$ (1,395) as of December 31, 2004. They are recorded at the “fair value” of each year end.

Total Other current assets US$

35,760,934

-

ThUS$

Total Other current assets

-

2005

Forward Contract Rights

c) Other

092

093 Notes to the Consolidated Financial Statements

NOTE 11 - FIXED ASSETS The balances of fixed assets are as follows: ThCh$ Land Forestry plantations Land and plantations Buildings

2005

2004

250,432,650

245,664,984

946,322,762

953,740,493

1,196,755,412

1,199,405,477

323,944,803

323,371,955

Constructions and others

137,323,418

129,304,856

Accumulated depreciation

(203,645,728)

(158,512,925)

Buildings and constructions net Machinery Vehicles Spare part and others

257,622,493

294,163,886

1,573,128,030

1,562,769,522

4,991,747

6,321,036

14,506,665

14,791,724

Accumulated depreciation

(924,140,912)

(911,840,324)

Machinery and equipments net

668,485,530

672,041,958

37,475,048

42,324,485

374,502,613

97,226,386

Other fixed assets Constructions in progress Furniture and office equipment

22,649,468

26,141,372

Accumulated depreciation

(41,374,701)

(42,931,904)

Other fixed assets net

393,252,428

122,760,339

Increased value from technical appraisal of: Land Buildings and constructions

8,264,175

8,689,364

20,862,438

20,867,161

Machinery and equipments

18,955,361

19,694,373

Accumulated depreciation

(30,251,129)

(26,059,393)

Increase in value from technical appraisal

17,830,845

23,191,505

2,533,946,708

2,311,563,165

4,944,286

4,002,940

Total net fixed assets ThUS$

Fixed asset depreciation, calculated as outlined in Note 2k), amounts to ThCh$ 85,416,563 - ThUS$ 166,666 in 2005 (ThCh$ 85,029,233 - ThUS$ 147,245 in 2004) and is shown in Operating Costs in the statement of income, amounting to ThCh$ 81,777,049 - ThUS$ 159,565 (ThCh$ 80,545,852 - ThUS$ 139,481 in 2004) and in Administrative expenses, amounting to ThCh$ 3,639,514 - ThUS$ 7,101 (ThCh$ 4,483,381 - ThUS$ 7,764 in 2004). The balance under Other fixed assets includes leased assets in foreign subsidiaries amounting to ThCh$ 36,634,525 ThUS$ 71,482 in 2005 (ThCh$ 41,278,453 - ThUS$ 71,482 in 2004). The main characteristics of the lease contract on assets in Argentina, which maturity was extended pursuant to a rescheduling agreement dated April 6, 2005 are: Description

Initial amount ThUS$

Interest rate %

Initial date

Final maturity date

Paper machinery

MUS$ 71,482

3.29

October 1999

April 2009

The Company determines the forest appraisal for its forest using a model that basically properly considers that the estimated volumes of lumber available will be progressively realized once the respective plantations have reached optimal exploitation age and conditions. The model uses different variables, such as the overage exchange rate in the last 36 month of United States dollar.

094

Fixed assets abroad: Fixed assets of subsidiaries in Argentina, Uruguay and Perú are valued at the equivalent of their historical value in US dollars of acquisition date, net of depreciation and adjustment for devaluation of assets and others. They amount to ThCh$ 146,597,817, at December 31,2005 (equivalent to ThUS$ 286,045), and to ThCh$ 154,902,102 at December 31, 2004 (equivalent to ThUS$ 268,244). Such valuation is based on accounting standards of Technical Bulletin N° 64 issued by the Chilean Institute of Accountants. The amounts presented under this standard could differ in certain cases from the market value or current replacement value of fixed assets, derived from the respective currencies of such countries with regard to the dollar. Notwithstanding the above, the Company’s Management estimates that the book value of its fixed assets does not exceed its replacement or market value in the current circumstances and that future income will be enough to cover all the costs and expenses, taken as a whole. Therefore, in its opinion, no adjustments to these values are necessary at this date. The main insurance policies of Empresas CMPC and subsidiaries are: a) All Industrial and equipment damage risks: • Assets covered: Physical fixed assets, inventories, and damage due to stoppages Physical fixed assets are mainly comprised of three cellulose plants, two cardboard plants, two paper plants, five tissue products plants, two liner plants, one newspaper plant and several other paper production and conversion plants and other buildings. • Risks covered: Any risks of loss and/or damage and/or partial or total destruction of all items insured against fire, explosion, earthquakes, malicious acts, sabotage and other risks, equipment breakdown, and damages resulting from operation stoppages (terrorist acts excluded). All assets are insured at their replacement value or replacement for a new asset (buildings, machinery, equipment and plants). • Insured amounts: ThUS$ 3,369,382 on Physical assets and ThUS$ 722,927 on damages from stoppages, annually. b) All Forest Risks • Assets covered: Forest plantations of radiata pine, eucalyptus, and other species, including timber inventories. • Risks covered: Fire, explosions, and earthquakes; damages caused by wind, snow or ice; malicious acts and other. • Insured amount: Plantations amounting to ThUS$ 1,657,897. c) Transport risk • Coverage for physical assets such as machinery, equipment, products, raw materials, etc, during transport from and to the warehouses of the Company and subsidiaries. Also, the transfer from Supplier warehouses and to Client warehouses.

095 Notes to the Consolidated Financial Statements

NOTE 12 - INVESTMENTS IN RELATED COMPANIES Significant information on the subsidiaries: a) Incorporation, purchases, sales, capital increases and dividends of the subsidiaries and associates: • Servicios Forestales Escuadrón Ltda. On November 2005, the holding company Forestal Minico S.A. merged the related company Servicios Forestales Escuadrón Ltda. • Servicios Compartidos CMPC S.A. On September 1, 2005, Empresas CMPC S.A., acquired a 20% of the shares of Abastecimientos CMPC S.A. to its subsidiaries Forestal Mininco S.A. (4%), CMPC Celulosa S.A. (4%), CMPC Papeles S.A. (4%), CMPC Productos de Papel S.A. (4%) and CMPC Tissue S.A. (4%). Later, according the Official Company Register of September 5, 2005, the Company change the name to Servicios Compartidos CMPC S.A. and increase the main activities. • Sociedad Hidroeléctrica El Melocotón Ltda. On June 29, 2005, Empresas CMPC S.A., sold its participation in Sociedad Hidroeléctrica El Melocotón Ltda. to Colbun S.A. No significant effects were generated from this operation. • Inversiones El Rauli S.A. On March 8, 2005, Empresas CMPC S.A., subscribed and paid 7,754,498 shares regarding a capital increase for Inversiones El Rauli S.A. Based in this transaction the Company maintain the same participation in this investment. This operation amounted ThCh$ 5,505,694 - ThUS$ 10,743. • Inmobiliaria y Forestal Maitenes S.A. On December 6, 2004, the companies Forestal Mininco S.A. and Forestal Coihueco S.A. purchased the total shares of Inmobiliaria y Forestal Maitenes S.A. The equity ownership in such company is 88.9% and 11.1%, respectively. • Bicecorp S.A. On August 3, 2004, CMPC underwrote and paid for 1,714,888 shares corresponding to a capital increase of Bicecorp S.A., whereby the percentage of equity ownership was maintained. The cost paid for such shares amounted to ThCh$ 5,144,664 - ThUS$ 9,230 historical value. On August 20, 2004, a number of 24,161 shares not underwritten by the preferred shareholders were underwrote and paid in the amount of ThCh$ 72,483 - ThUS$ 130 historical value, whereby the equity ownership was increased by 0.0316%. This underwriting and payment of shares was recorded at the “Fair Value” of the investment, pursuant to the new regulations described in Note 2n).

096

• Dividend Payment During 2005 and 2004 (at historic values) the following companies paid dividends. 2005 CMPC Papeles S.A.

2004

ThCh$

ThUS$

ThCh$

ThUS$ 50,440

21,908,579

42,748

28,115,314

CMPC Tissue S.A.

7,400,000

14,439

4,200,000

7,535

CMPC Productos de Papel S.A.

5,648,346

11,021

11,400,000

20,452

Bicecorp S.A

632,829

1,235

421,537

756

Inversiones El Raulí S.A.

170,208

332

396,398

711

CMPC Celulosa S.A.

-

-

70,316,370

126,151

Inversiones CMPC S.A.

-

-

16,400,000

29,422

b Foreign subsidiaries • Argentina Investment in the Company through subsidiaries in Argentine amount to ThCh$ 136,752,135 - ThUS$ 266,833 in accordance with its equity value at December 31, 2005, and to ThCh$ 144,704,643 - ThUS$ 250,585 at December 31, 2004. Sales by the aforementioned companies amount to ThCh$ 74,022,425 - ThUS$ 144,434 in 2005 and ThCh$ 69,071,911 ThUS$ 119,612 in 2004. • Uruguay Investment of the Company in Uruguay amount to ThCh$ 5,733,754 - ThUS$ 11,188 at December 31, 2005 and to ThCh$ 5,855,475 - ThUS$ 10,140 at December 31, 2004. Sales amount to ThCh$ 14,172,675 - ThUS$ 27,654 in 2005 and to ThCh$ 12,185,118 - ThUS$ 21,101 in 2004. • Potential income from remittance It is not expected that the main Company will receive income from the productive foreign subsidiaries in the short-term. Potential income from remittance by foreign subsidiaries is as follows: ThCh$

ThUS$

Tissue Cayman Ltd.

10,058,863

19,627

Protisa S.A. - Perú

2,421,265

4,724

Papelera del Rimac S.A. - Perú

1,716,583

3,349

Forsac Perú S.A.

1,197,841

2,337

Industria Papelera Uruguaya S.A.

768,295

1,499

Propa Cayman Ltd.

658,567

1,285

CMPC Europe Ltd.

487,623

951

La Papelera del Plata S.A.

622,786

1,215

097 Notes to the Consolidated Financial Statements

c) Liabilities held and accounted for as hedge instruments Inversiones CMPC S.A. has established hedge instruments for investments in foreign companies, These instruments include long-term liabilities in US dollars, represented by the Bond issued abroad in 1998 for US$ 250 million, as required under the United States Securities Act (Note 16) Rule 144a, and a portion of the long-term syndicate loans from BBVA S.A. for US$ 85 million, for US$ 475 million used as pre-payment for the syndicate loan form Dresdner Bank Luxembourg S.A. As agreed, on date term on June 2005, Inversiones CMPC payed the ThUS$ 250,000 bond is sued in 1998. The company uses own resources (ThUS$ 150,000) and ThUS$ 100,000 from a syndicate loan. According to this, since June 2005 the hedge established for investments in foreign companies amount ThUS$ 185,000. d) Equity value demonstration Bicecorp S.A. Book Value 31/12/2004 Equity

Adjustment

ThCh$

ThUS$

241,696,696

433,614

ThCh$

Market Value ThUS$

4,420,864 (*)

ThCh$

ThUS$

7,931

246,117,560

441,546

Number of shares held

76,500,948

-

76,500,948

-

76,500,948

-

Market value by share

3,159

6

58

-

3,217

6

Ownership in Shareholders’ Equity “fair value” (0.0315826%)

77,724

139

Investment at restated equity value at December 31, 2005

80,522

139

ThCh$

ThUS$

8,513

17

13,540

26

Accrued result as of December 31, 2005: ThCh$ Profit as per balance sheet of issuer Accrued result Reserves over issuer

42,871,708 (***)

VP over reserves Distributed dividends

(7,353,271)

VP over distributed dividend Investment at equity value as of December 31, 2005 (*)

ThUS$

26,956,063 (**)

-

52,597 83,652 (14,348) -

(2,322) 100,253

(4.5) 177.5

With regard to the adjustment to market value, it has been assigned to the investment Bicecorp S.A. holds in Banco Bice, which will be reversed accordingly, as required by such valuation. That value has been modified in accordance to profit recognitions and additional reserves presented by the company during the possession of those shares.

(**) Profit corresponding to period ended - December 2005. (***) Changes in reserves corresponding to the period ended - December 2005.

098

Investments:

Holding %

Equity ThCh$

Country

Control currency

Number of shares held

2005

2004

2005

2004

Bicecorp S.A.

Chile

Pesos

6,559,580

8.57451

8.57451

312,854,430

250,397,777

96.895.660-4

Inversiones El Raulí S.A.

Chile

Pesos

13,919,324

38.77249

38.77249

32,234,320

15,292,351

86.856.100-9

Sociedad Hidroeléctrica El Melocotón Ltda.

Chile

Pesos

-

-

25

-

1,581,441

96.657.900-5

Controladora de Plagas Forestales S.A

Chile

Pesos

2,901

29.01

29.01

220,872

235,542

85.741.000-9

Bicecorp S.A.

Chile

Pesos

24,161

0.03158

0.03158

312,854,430

250,397,777

Tax number

Company

85.741.000-9

Total ThUS$

NOTE 13 - GOODWILL AND NEGATIVE GOODWILL Goodwill and negative goodwill are amortized in a period of 20 years considering the useful life of industrial plants and periods of growth and re-plantation involved in these industrial activities. The remaining months are: Negative goodwill

Month

CMPC Tissue S.A.

115

Forestal y Agrícola Monte Aguila S.A.

207

Forestal Coihueco S.A.

215

Chilena de Moldeados S.A.

209

Goodwill

Month

CMPC Celulosa S.A.

144

La Papelera del Plata S.A.

124

CMPC Tissue S.A.

144

Propa S.A.

144

Sociedad Anónima Agropecuaria 4M

179

Forestadora Caabi Pora S.A.

155

Baserri S.A.

155

Chilena de Moldeados S.A.

169

Envases Roble Alto S.A.

187

099 Notes to the Consolidated Financial Statements

Equity of Companies at fair value ThCh$

Net income ThCh$

Income at fair value ThCh$

Share of income (loss) ThCh$

Book value of investments ThCh$

Net book value of investments ThCh$

2005

2004

2005

2004

2005

2004

2005

2004

2005

2004

2005

2004

26,956,063

25,392,399

-

-

-

-

2,311,350

2,177,274

26,825,734

21,470,382

26,825,734

21,470,382

2,603,783

1,131,675

438,778

-

-

-

-

1,009,552

(2)

-

-

-

-

1

(29,463)

-

-

-

-

317,456,106 254,977,792

26,956,063

25,392,399

(14,671) 26,956,063

25,392,399

12,498,049

5,929,226

12,498,049

5,929,226

(1)

-

395,360

-

395,360

(4,256)

(8,547)

64,075

68,331

64,075

68,331

8,513

3,545

100,253

80,522

100,253

80,522

39,488,111

27,943,821

39,488,111

27,943,821

77,050

48,390

77,050

48,390

a) Goodwill Balance at December 31, 2005 ThCh$ Amortized amount during the year Net amount

Balance at December 31, 2004 ThCh$ Amortized amount during the year Net amount

CMPC Celulosa S.A.

2,313,391

27,775,631

2,312,447

30,076,322

La Papelera del Plata S.A.

1,275,187

11,870,854

1,294,418

14,635,411

CMPC Tissue S.A.

404,059

4,851,319

403,895

5,253,165

Propa S.A.

265,145

3,183,443

265,036

3,447,136

Sociedad An贸nima Agropecuaria 4m

117,942

1,533,240

132,999

1,860,492

Chilena de Moldeados S.A.

127,043

1,790,199

125,039

1,916,426

Envases Roble Alto S.A.

103,890

1,619,827

102,248

1,722,976

Forestadora Caabi Pora S.A.

85,296

1,272,311

96,126

1,529,701

Baserri S.A.

47,236

610,149

53,094

740,713

4,739,189

54,506,973

4,785,302

61,182,342

9,247

106,355

8,287

105,950

Total ThUS$

b) Negative goodwill Balance at December 31, 2005 ThCh$ Amortized amount during the year Net amount Forestal y Agr铆cola Monte Aguila S.A.

786,411

Forestal Coihueco S.A. CMPC Tissue S.A. Chilena Moldeados S.A. Bicecorp S.A. Total ThUS$

Balance at December 31, 2004 ThCh$ Amortized amount during the year Net amount

13,567,987

977,312

14,348,026

297,818

5,411,353

301,527

5,706,636

517,687

4,963,790

517,471

5,479,216

21,856

380,855

21,510

402,537

-

-

238,677

-

1,623,772

24,323,985

2,056,497

25,936,415

3,168

47,461

3,561

44,914

Institution

-

JP Morgan Chase Bank

Foreign

-

195,441

Banco Santander

Banco Frances - Argentina

Banco ABN - Argentina

Citibank N.A. - Uruguay

Other

Total

97.015.000-5

Foreign

Foreign

Foreign

J.P. Morgan Chase Bank

J.Aron & Co

Foreign

Foreign

63,2783 36,7217

Total in local currency (%)

2.35%

Average annual interest rate

Total in foreign currency (%)

41,662

21,352,031

48,345

24,776,617

90,066

153,857

24,532,694

-

227

116,184

381

-

ThUS$

Principal outstanding

ThUS$

Total

BBVA

Foreign

Short term portion of long-term liabilities to banks

Average annual interest rate

ThUS$

Principal outstanding

ThUS$

-

97.004.000-5 Banco Chile -

-

97.006.000-6 Banco Credito Inversiones

195,441

-

Banco Crédito de Perú

Foreign

-

-

-

287

165,730

-

-

-

-

-

-

-

165,730

-

-

2004

-

-

5,678

3,279,129

1,255,811

-

2,023,318

Dollars 2005

97.080.000-K Banco Bice

Corto plazo (código 5.21.10.10)

Tax number

Liabilities to banks and financial institutions - short-term

NOTE 14 - SHORT -TERM BANK LIABILITIES

-

-

-

-

-

-

-

6.18%

7,048

3,612,062

7,449

3,817,531

273,018

281,668

569,536

643,112

-

-

-

-

2,050,197

-

-

-

-

-

-

-

-

4.20%

908

524,402

908

524,402

-

-

-

-

-

-

-

-

524,402

-

-

-

-

-

-

-

-

5.436%

32,513

16,663,035

32,600

16,707,218

-

-

-

-

91,212

15,444,183

-

-

-

1,171,823

-

-

-

-

-

-

-

-

1,524

879,778

1,524

879,778

-

-

-

-

-

-

930

-

-

878,848

Denominated in ThCh$ Other foreign currencies Non-indexed Chilean pesos 2005 2004 2005 2004

41,662

21,352,031

48,345

24,776,617

90,066

153,857

24,532,694

-

39,788

20,391,281

40,430

20,720,190

273,018

281,668

569,536

643,112

91,212

15,444,183

-

195,441

2,050,197

1,171,823

2005

Total

-

-

5,678

3,279,129

1,255,811

-

2,023,318

-

2,432

1,404,180

2,719

1,569,910

-

-

-

-

-

-

930

165,730

524,402

878,848

2004

100

Banco Bilbao Vizcaya Argentaria S.A.

J.P. Morgan Chase Bank

Foreign

Foreign

(%) (%)

Total in local currency

US$

US$

Currency

Total in foreign currency

ThUS$

Total

Institution

Tax number

-

100,00

83,338

42,710,468

-

42,710,468

Over one year, up to two years

116,667

59,791,838

-

59,791,838

over two years, up to three years

273,333

140,083,163

20,500,000

119,583,163

Over three years, up to five years

Maturities ThCh$

60,000

30,750,000

30,750,000

-

Over five years, up to ten years

533,338

273,335,469

51,250,000

222,085,469

Total long-term

-

-

4.9125

4.1625

Average annual interest rate %

At December 31, 2005 ThCh$

475,000

274,296,540

-

274,296,540

Total long term

At December 31, 2004 ThCh$

The combination of swap contracts allow to fix the Libor rate, as well as establish ranges for which, Inversiones CMPC S.A. again has a scheme of variable rate for the said syndicated loan.

Similarly, in September 2004 the derivatives contracts subscribed with a number of banks during August 2004 came into force, to cover the remaining US$ 350 million of the syndicated loan of US$ 475 million.

In September 2004, Inversiones CMPC rescheduled the contracts entered into in December 2002, swing to the syndicated loan of US$ 125 million to adjust them to the schedule of payment of the first three amortization of the syndicated loan of US$ 475 million, amortization totaling US$ 125 million.

Interest rate Swaps

These loans involve compliance of certain financial indicators (covenants) for Empresas CMPC S.A., which are easily complied with at each year end, and which refer to maintaining a minimum equity, a maximum leverage and a minimum coverage of financial expenses.

In September 2004, subsidiary company Inversiones CMPC S.A., through its Cayman Islands agency, obtained a syndicated loan amounting to US$ 475 million at a Libor rate plus a 0.225% margin. Such margin increases to 0.25% since the third year. It is amortized in payments starting in December 2006 until September 2009. Banco Bilbao Vizcaya Argentaria S.A. acts as Managing Agent.

In June 2005, Inversiones CMPC S.A., through its agency in the Cayman Islands, obtained a syndicated loan amounting to US$ 100 million at a Libor rate plus a margin of 0.225%. Such margin increases to 0.25% from the second semester in 2007 and to 0.275% from the second semester in 2010. It is amortized in four payments starting in June 2010 until June 2012, and the JP Morgan Chase Bank acts as the Managing Agent. Resources from that credit were used to pay off the debt for the foreign bond issued totalizing US$ 250 million which expired on the same date and it was used a derivative financial instrument for hedging external investments. As per as it continue to classified as hedging instrument (Notes N째12 and 16).

Liabilities are as follows:

NOTE 15 - LONG-TERM BANK LIABILITIES

Notes to the Consolidated Financial Statements

101

ThUS$

Total long-term

Bond N°413

Bond Rule 144 A

Long-term bonds

ThUS$

Total short-term

A

single

single

Bond Rule 144 A

A single

Bond Rule 144 A

Bond N°413

Long-term bonds - short-term portion

Series

7,000,000

300,000,000

300,000,000

250,000,000

7,000,000

Nominal value

UF

US$

US$

US$

UF

Restatement index

All Swap contracts accrued interest since March 1, 2005.

3.22%

4.875%

4.875%

7.375%

3.22%

Interest rate

01/03/2015

18/06/2013

18/06/2013

15/06/2005

01/03/2015

Expiration date

The Cross Currency Swap effects are shown in Long- term debtors (Note 5).

Bi-annual

Bi-annual

Bi-annual

Bi-annual

Bi-annual

Interest

At the maturity

At the maturity

At the maturity

At the maturity

At the maturity

Principal

Payments dates

545,510

279,573,670

125,823,670

153,750,000

2,682

1,374,720

249,844

-

2004 ThCh$

-

300,000

173,239,920

-

173,239,920

251,227

145,075,380

281,515

144,793,865

Par value

1,124,876

2005 ThCh$

Chile

Abroad

Abroad

Abroad

Chile

Bond placement

Additionally, the Company subscribed an interest rate Swap contract to fix the Libor rate. Consequently the effective cost of the dollar portion (US$ 100 million) is 5.2%.

Through this contract, the Company recovered 50% of the discount produced in the placement of the Bond. This gain will be amortized during the term of the contract, net of the effects of the original discount.

On June 15, 2005, Inversiones CMPC S.A. subscribed a Swap contract to re-denominate 50% of the Bond issued in UF to a liability for US$ 100 million at a Libor variable rate plus spread.

Interest rate Swaps:

These obligations involve compliance with certain financial covenants for Empresas CMPC S.A., which are amply complied with at each year end (Notes 15 and 27).

On June 5, 1998, Inversiones CMPC S.A., through its agency in the Cayman Islands, issued a bond abroad in the amount of US$ 250 million, in accordance with Rule 144a of the United States Securities Act. This obligation involves the payment of semiannual interest, at an annual 7.375% interest rate, being the total principal paid in June 2005, which is shown in the short tem.

On June 11, 2003, Inversiones CMPC S.A., through its agency in the Cayman Islands, issued a bond abroad in the amount of US$ 300 million, in accordance with Rule 144a of the United States Securities Act. This obligation involves semiannually interest, at an annual 4.875% interest rate, being the total principal paid in June 2013.

This bond was submitted to discount with an effective rate of 3.2% in UF. The Company will amortize this discount during the term of the Bond. This discount is presented below the item: “Other Non-Current Assets”.

On June 15th, 2005 Inversiones CMPC S.A. issued a serie “A” Bonds registered under number 413 in the “Chilean Superintendency of Securities and Insurance Companies”for UF 7 million. This debt includes interest paying half-annually, with a 2.0% annual rate, semester basis. Capital will be paid off in March 2015.

Bonds payable:

NOTE 16 - BONDS PAYABLE - SHORT-AND LONG-TERM

102

103 Notes to the Consolidated Financial Statements

NOTE 17 - PROVISIONS AND WRITE-OFFS The provisions shown under Current liabilities are as follows: ThCh$ 2005

2004

6,892,641 3,281,411 649,980 2,594,100 875,808 109,225 903,386

6,736,005 4,519,634 2,073,935 1,649,981 549,385 141,312 1,210,609

15,306,551

16,880,861

29,866

29,233

Long-term provisions Staff severance indemnity Other provisions

28,134,993 363,303

28,427,895 750,795

Total

28,498,296

29,178,690

55,606

50,529

Short-term provisions Vacation provisions Staff bonuses and other benefits Provision for investments projects Staff severance indemnity short term Provision for directories remuneration Provision for labor suits Other provisions Total ThUS$

ThUS$

There were no significant write-offs in 2005 and 2004. NOTE 18 - STAFF SEVERANCE INDEMNITIES Movement in and the balance of this provision, calculated as described in Note 2 s), are as follows: ThCh$ Balance from prior year (historic) Increase for the year Payments made during the year Balance at December 31, 2005

2005

2004

29,032,699

28,916,039

4,031,625

4,190,987

(2,335,231)

(3,029,150)

30,729,093

30,077,876

59,959

52,086

2,594,100

1,649,981

Long-term provisions

28,134,993

28,427,895

Total

30,729,093

30,077,876

59,959

52,086

ThUS$ Presentation in Balance sheet Short-term provisions

ThUS$

104

NOTE 19 - MINORITY INTEREST a) The portion of minority interest in equity of subsidiaries owned by third parties is as follows: Subsidiary

ThCh$ 2005

2004

63,867,584

64,722,920

Forestal y Agrícola Monte Aguila S.A.

95,637

80,302

Ipusa - Uruguay

22,449

22,926

8,241

8,614

Industrias Forestales S.A.

La Papelera del Plata S.A. Others Total ThUS$

-

13

63,993,911

64,834,775

124,866

112,274

b) Minority interest in the portion of income of subsidiaries owned by third parties is as follows: Subsidiary Industrias Forestales S.A.

ThCh$ 2005 (2,994,367)

2004 (3,026,529)

Forestal y Agrícola Monte Aguila S.A.

4,092

(7,018)

IPUSA - Uruguay

(6,214)

(4,250)

La Papelera del Plata S.A. Total ThUS$

-

429

(2,996,489)

(3,037,368)

(5,847)

(5,260)

NOTE 20 - SHAREHOLDERS’ EQUITY • Capital Paid-in capital of the Parent Company amounts to ThCh$ 102,521,936 - ThUS$ 200,043, which is divided into 200,000,000 shares. • Dividends There is no restriction on distributing retained earnings as dividends. The Board of Directors, in its session dated October 27, 2005, agreed to distribute interim dividend N° 235 of Ch$ 90, recording a charge to net income for the year ended December 31, 2005. Such dividend was paid starting on December 15, 2005. The Board of Directors, in its session dated August 4, 2005, agreed to distribute interim dividend N° 234 of Ch$ 90, recording a charge to net income for the year ended December 31, 2005. Such dividend was paid starting on September 7, 2005. The Shareholders’ annual meeting held on April 29, 2005 agreed to distribute final dividend N° 233 of Ch$ 127 per share, recording a charge to net income for the year ended December 31, 2004. Such dividend was paid starting on May 9, 2005 and the balance of the undistributed earnings was transferred to the reserve of retained earnings. Further, such meeting agreed the dividend policy for 2005, consisting of the distribution of two interim dividends, payable in September, December 2005 or January 2006, as well as a final dividend, to be agreed by the next Meeting, payable in May 2006, until completing 40% of the net income for 2005. The Board of Directors, in its session held on December 9, 2004 agreed to distribute interim dividend N° 232 of Ch$ 120 per share, recording a charge to net income for year 2004, which was paid on January 6, 2005. The Board of Directors, in its session held on August 5, 2004 agreed to distribute interim dividend N° 231 of Ch$ 90 per share, recording a charge to net income for year 2004, which was paid on September 2, 2004. The Shareholders’ annual meeting held on April 30, 2004 agreed to distribute final dividend N° 230 of Ch$ 90 per share, recording a charge to net income for the year ended December 31, 2003. Such dividend was paid starting on May 12, 2004 and the balance of the undistributed earnings was transferred to the reserve of retained earnings.

105 Notes to the Consolidated Financial Statements

• Other reserves: The following is a breakdown of this balance: ThCh$ Forestry appraisals and other adjustments to net worth recorded by subsidiaries

2005

2004

764,985,313

778,670,511

Increased value on appraisal of fixed assets

16,541,620

16,541,620

Reserve for future capital increases

20,980,500

20,980,500

802,507,433

816,192,631

1,565,868

1,413,403

Total ThUS$

The reserve for future capital increases originates from prior-year revaluation and reappraisal of fixed assets, which can only be capitalized in conformity with the Superintendency of Securities and Insurance. The balance of the related-company negative goodwill arises from the book value adjustment of investments as follows: ThCh$ 2005

2004

Forestal Mininco S.A.

549,861,399

560,041,482

Industrias Forestales S.A.

137,480,671

150,596,724

Forestal y Agrícola Monte Aguila S.A.

7,991,390

8,232,605

Forestal Bosques del Plata S.A.

4,600,403

1,555,311

La Papelera del Plata S.A.

9,988,387

5,225,658

Forestal Coihueco S.A.

3,249,988

560,079

Other investments

51,813,075

52,458,652

764,985,313

778,670,511

1,492,654

1,348,426

Total ThUS$

Significant changes in the Negative goodwill reserve correspond to the revaluation of forest plantations which reflect natural growth of forests amounting to ThCh$ 56,382,265 - ThUS$ 110,014 in 2005 (ThCh$ 91,807,672 - ThUS$ 158,984 in 2004); reduced in the value of the forest reserve corresponding to the exploited portion amounting to ThCh$ 70,067,463 - ThUS$ 136,717 in 2005 (ThCh$ 58,943,942 - ThUS$ 102,073 in 2004). Details of foreign exchange: Movements in foreign exchange adjustments shown in Other reserves, item Related-company negative goodwill, is as follows: ThCh$ Balance at the prior year

2005

2004

1,604,317

1,604,317

Movement during the year

(13,647,546)

-

Balance at December 31, 2005

(12,043,229)

1,604,317

(23,499)

2,778

ThUS$ The movement during the year is as follows: Increase from CPI and dollar variations applied to foreign investments (LPP and others in Argentina, IPUSA in Uruguay and Protisa in Perú) Less: Effect of adjustment between CPI and dollar variations in the liabilities associated to these investments as hedges Total ThUS$

(21,557,719)

(18,130,467)

7,910,173

18,130,467

(13,647,546)

-

(26,629)

-

106

Shareholders’ distribution at December 31, 2005 is as follows: Total participation %

Type of shareholder

Number of shareholder

Holding of 10% or more

38,85

2

Holding of less than 10%, with an investment of UF 200 or more

60,99

3,529

Holding of less than 10% with an investment of under UF 200 Total Controlling interest

0,16

4,452

100,00

7,983

55,44

23

Changes in shareholders’ equity: 2005 ThCh$

Balances at January 1, 2005

Paid-up capital

Other reserves

Reserve for future dividends

Accumulated profits

Dividends

98,959,398

787,830,726

14,830,466

1,171,176,009

(42,180,000)

Distribution of previous year income

-

-

-

125,940,145

42,180,000

Final dividend payment

-

-

-

(25,400,000)

Adjustments to net worth recorded by subsidiaries

-

-

3,562,538

26,902,351

533,897

45,730,982

Net income for the year

-

-

-

-

Interim dividends

-

-

-

-

(36,000,000)

102,521,936

802,507,433

15,364,363

1,317,447,136

(36,306,000)

Restatement of invested capital

Balances at December 31, 2005 Balances at December 31, 2005 restated for comparison ThUS$

-

(12,225,644)

-

-

-

-

-

200,043

1,565,868

29,979

2,570,629

(306,000) -

(70,841)

107 Notes to the Consolidated Financial Statements

Number of shares: Series

Number of subscribed shares

Number of paid in shares

Number of shares with voting rights

Single

200,000,000

200,000,000

200,000,000

Equity: ThCh$

Series

Subscribed capital

Paid-in capital

Single

102,521,936

102,521,936

ThUS$

200,043

200,043

2004 ThCh$ Net income for the year

Paid-up capital

Other reserves

Reserve for future dividends

Accumulated profits

Dividends

168,120,145

96,545,754

737,273,646

14,468,747

1,068,008,455

(31,984,000)

124,603,846

-

-

-

92,619,846

31,984,000

(124,603,846)

-

-

-

(18,000,000)

-

-

33,264,786

-

-

-

2,413,644

17,292,294

361,719

28,547,708

122,986,907

-

-

-

-

-

-

-

-

-

(42,000,000)

-

122,986,907

98,959,398

787,830,726

14,830,466

1,171,176,009

(42,180,000)

168,120,145

-

102,521,936

816,192,631

15,364,363

1,213,338,345

(43,698,480)

174,172,470

239,974

177,537

1,413,403

26,607

2,101,141

(75,673)

301,615

(168,120,145) -

Net income for the year

-

-

-

-

(180,000) -

168,120,145

108

NOTE 21 - OTHER NON-OPERATING INCOME AND EXPENSES The balance of Other non-operating income is as follows: ThCh$ Income on sale of forest property and other fixed assets (net income)

2005

2004

13,441,835

9,121,605

Forestry Insurance claims

2,240,517

301,972

Fixed asset rental

1,245,947

2,123,998

Others Total ThUS$

929,191

1,366,537

17,857,490

12,914,112

34,844

22,364

Other non-operating expenses This balance includes the following: ThCh$ Commissions, taxes and others expenses Write-offs, provision and net result on sale of other assets Project expenses Provision for labor lawsuits

2005

2004

2,538,978

1,892,850

1,127,126

2,954,436

532,284

-

21,062

484,722

Other

1,672,190

818,854

Total

5,891,640

6,150,862

11,496

10,650

ThUS$

109 Notes to the Consolidated Financial Statements

NOTE 22 - PRICE-LEVEL RESTATEMENT Restatement index

ThCh$ 2005

2004

Assets (charges) credits Inventories

CPI

5,880,096

4,897,170

Fixed assets

CPI

78,802,774

54,429,412

Investments in related companies

CPI

1,153,868

535,678

Foreign exchange cash and banks

CPI/US$

Time deposits and marketable securities

Indexed unit

Goodwill

CPI

Negative goodwill

CPI

Accounts receivable with third parties

CPI/ Indexed unit

Time deposits and marketable securities

CPI/US$

Other non-monetary assets

CPI

Cost and expense accounts

CPI

Total credits

(80,877)

30,023

-

258,624

1,827,238

1,390,226

(877,307)

(678,626)

320,017

803,315

10,550,303

6,529,137

(27,052)

665,232

25,022,977

18,664,745

122,572,037

87,524,936

(50,179,037)

Liabilities (charges) / credits Equity

CPI

(76,423,768)

Minority interest

CPI

(2,111,983)

(1,514,096)

Liabilities to banks

CPI/US$

(11,847,813)

(4,459,596)

Bonds

CPI/US$

(8,665,786)

(8,460,832)

Current and long-term liabilities

CPI

(242,468)

Accounts payable to third parties

CPI

475,695

(3,031,230)

Other non-monetary liabilities

CPI/ Indexed unit

590,406

(368,493)

Income accounts

CPI

Total (charges) Balance of the price-level restatement account ThUS$

(54,168)

(30,226,445)

(21,920,280)

(128,452,162)

(89,987,732)

(5,880,125)

(2,462,796)

(11,473)

(4,265)

110

NOTE 23 - FOREIGN EXCHANGE GAINS (LOSSES) The foreign exchange gains (losses) adjustment is detailed as follows: Currency

ThCh$ 2005

2004

Assets (charges) credits Cash and banks

US$

(969,715)

(624,288)

Time deposits and marketable securities

US$

(13,185,167)

(21,946,550)

Time deposits and marketable securities

EURO

(8,496,321)

1,463,273

Fixed assets

US$

(11,144,726)

(1,469,124)

Inventories

US$

(5,837,633)

(3,243,453)

Accounts receivable with third parties

US$

(10,564,795)

(11,815,081)

Other non-monetary assets

EURO

(10,458,425)

(1,097,906)

Other non-monetary assets

Other currencies

Total (charges)

85,610 (60,571,172)

(38,733,129)

Liabilities (charges) credits Short and long term liabilities

US$

Accounts payable with third parties

US$

735,582

1,408,292

Due to banks and financial institutions - short term

US$

34,083,240

25,728,669

Bonds

US$

19,312,780

15,938,672

Other non monetary liabilities

US$

9,446,724

245,246

Translation adjustment on Asset / Liabilities of subsidiaries abroad

US$

Total credits Total net loss on foreign exchange ThUS$

326,063

(431,290)

317,183

(746,373)

63,473,099

42,891,689

2,901,927

4,158,560

5,662

7,201

111 Notes to the Consolidated Financial Statements

NOTE 24 - BOND ISSUED COSTS, On June 15, 2005 Inversiones CMPC S.A. issued a Bond in Chile. The amount of the issuance was UF 7,000,000. In this financial operation, the company incurred expenses, as follows: ThCh$ Stamp Tax Inscription and issuance expenses Legal advisories Total ThUS$

1,965,644 117,464 21,256 2,104,364 4,106

Additionally, the placement of the Bond has generated a discount amounting to ThCh$ 5,113,526, - ThUS$ 9,978 which will be deferred in the same term of the Bond (10 years) and is shown in Other Non Current assets, net of the deferred gain which was generated by the Swap contract, subscribed to hedge this operation, amounting to ThCh$ 2,553,915 - ThUS 4,983 at December 31, 2005. NOTE 25 - STATEMENT OF CASH FLOWS As part of the strategic investment plan, the Company has approved and started projects amounting to more than 1,289 million dollars which will generate negative cash flows on investment, regarding the payments of the outstanding investments. These flows amount to 449 million dollars and are described as follows: Million US$ Line 2 Project - Santa Fe Plant

266.4

Plywood board plant

54.3

Biomass Boiler - Pacifico plant

30.4

Capacity expansion MP-20- Cordillera

18.8

Expansion of Remanufacturing plant

12.3

Buin plant capacity expansion

11.4

MulchĂŠn new Boiler

10.1

Profal IV Project- Phase I

7.0

Changes in Paper Machine 2- Protisa Argentina

6.5

Secondary treatment plant - Maule, Valdivia, Maule, Nacimiento, Talagante and Puente Alto plants

4.0

Paper Machine N°2 Tissue, Talagante

3.8

Modernization of pulp circuits and water circuits closures - Puente Alto

2.4

Drying Project, Nacimiento Sawmill

2.2

SAP project- CMPC Celulosa

1.4

Other minor projects

18.2

112

NOTE 26 - DERIVATIVE CONTRACTS Type of Type of derivative contract

Contract amount ThCh$ ThUS$

Maturity

Risk hedged

Position purchase Name sale

Protected item or transaction Amount ThCh$ ThUS$

FR

CCPE

7,756,615

15,135

1st 2006

US$/$

C

Financial Investment

7,756,615

15,135

FR

CCPE

7,728,382

15,080

1st 2006

US$/$

C

Financial Investment

7,728,382

15,080

FR

CCPE

5,153,489

10,056

1st 2006

US$/$

C

Financial Investment

5,153,489

10,056

FR

CCPE

10,240,372

19,981

1st 2006

US$/$

C

Financial Investment

10,240,372

19,981

FR

CCPE

3,566,500

6,959

1st 2006

US$/$

C

Financial Investment

3,566,500

6,959

FR

CCPE

4,128,000

8,055

1st 2006

US$/$

C

Financial Investment

4,128,000

8,055

FR

CCPE

2,596,500

5,066

1st 2006

US$/$

C

Financial Investment

2,596,500

5,066

FR

CCPE

12,348,000

24,094

1st 2006

US$/$

C

Financial Investment

12,348,000

24,094

FR

CCPE

451,540

881

1st 2006

Br.Reales/US$

C

Sales to Brazil

451,540

881

FR

CCPE

453,680

885

1st 2006

Br.Reales/US$

C

Sales to Brazil

453,680

885

FR

CI

11,079,848

21,619

2nd 2006

EURO/US$

C

Fixed assets project

11,079,848

21,619

FR

CI

1,263,136

2,465

2nd 2006

EURO/US$

C

Fixed assets project

1,263,136

2,465

FR

CCPE

6,606,963

12,892

1st 2006

EURO/US$

C

Fixed assets project

6,606,963

12,892

FR

CCPE

3,097,336

6,044

1st 2006

EURO/US$

C

Fixed assets project

3,097,336

6,044

FR

CCPE

5,168,000

10,084

1st 2006

US$/$

C

Fixed assets project

5,168,000

10,084

FR

CCPE

5,169,500

10,087

1st 2006

US$/$

C

Fixed assets project

5,169,500

10,087

FR

CCPE

5,168,500

10,085

1st 2006

US$/$

C

Fixed assets project

5,168,500

10,085

FR

CCPE

5,169,000

10,086

1st 2006

US$/$

C

Fixed assets project

5,169,000

10,086

FR

CCPE

5,169,000

10,086

1st 2006

US$/$

C

Fixed assets project

5,169,000

10,086

FR

CCPE

5,168,000

10,084

1st 2006

US$/$

C

Fixed assets project

5,168,000

10,084

FR

CCPE

494,438

965

1st 2006

Pound/US$

C

Sales to Europe

494,438

965

FR

CCPE

434,388

848

1st 2006

US$/Br. Reales

V

Sales to Brazil

434,388

848

FR

CI

496,748

969

1st 2006

EURO/US$

C

Fixed assets project

496,748

969

FR

CCTE

1,401,489

2,735

4th 2006

US$/Pound

V

Sales to Europe

1,401,489

2,735

FR

CCTE

1,293,683

2,524

1st 2006

US$/Pound

V

Sales to Europe

1,293,683

2,524

FR

CCTE

1,293,683

2,524

2nd 2006

US$/Pound

V

Sales to Europe

1,293,683

2,524

FR

CCTE

1,401,489

2,735

3rd 2006

US$/Pound

V

Sales to Europe

1,401,489

2,735

FR

CCTE

148,806

290

3rd 2006

US$/EURO

V

Sales to Europe

148,806

290

FR

CCTE

446,417

871

4th 2006

US$/EURO

V

Sales to Europe

446,417

871

FR

CCTE

146,475

286

3rd 2006

US$/EURO

V

Sales to Europe

146,475

286

FR

CCTE

439,424

857

4th 2006

US$/EURO

V

Sales to Europe

439,424

857

FR

CCTE

144,173

281

3rd 2006

US$/EURO

V

Sales to Europe

144,173

281

FR

CCTE

432,518

844

4th 2006

US$/EURO

V

Sales to Europe

432,518

844

S

CCPE

24,812,800

48,415

3rd 2009

Libor

C

Syndicate Loan ThUS $475,000

24,812,800

48,415

S

CCPE

24,812,800

48,415

3rd 2009

Libor

C

Syndicate Loan ThUS $475,000

24,812,800

48,415

S

CCPE

27,914,400

54,467

3rd 2009

Libor

C

Syndicate Loan ThUS $475,000

27,914,400

54,467

S

CCPE

23,262,000

45,389

3rd 2009

Libor

C

Syndicate Loan ThUS $475,000

23,262,000

45,389

S

CCPE

31,016,000

60,519

3rd 2009

Libor

C

Syndicate Loan ThUS $475,000

31,016,000

60,519

S

CCPE

31,016,000

60,519

3rd 2009

Libor

C

Syndicate Loan ThUS $475,000

31,016,000

60,519

113 Notes to the Consolidated Financial Statements

Amount off protected item ThCh$ ThUS$

Account item related Name

Amount ThCh$

ThUS$

Effect in income Realized Not realized ThCh$ ThUS$ ThCh$ ThUS$

7,703,004

15,030

Other current assets

53,611

105

(53,611)

(105)

-

-

7,698,149

15,021

Other current assets

30,232

59

(30,232)

(59)

-

-

5,132,582

10,015

Other current assets

20,907

41

(20,907)

(41)

-

-

10,269,241

20,038

Other current assets

28,868

56

28,868

56

-

-

3,580,481

6,986

Time Deposit

20,834

41

20,834

41

-

-

4,140,811

8,080

Time Deposit

28,670

56

(28,670)

(56)

-

-

2,601,901

5,077

Time Deposit

34,135

67

(34,135)

(67)

-

-

12,356,232

24,110

Time Deposit

47,762

93

(47,762)

(93)

-

-

440,268

859

Other current liabilities

7,718

15

7,718

15

-

439,560

858

Other current liabilities

4,960

10

4,960

10

-

-

10,213,923

19,930

Other current liabilities

344,494

672

(344,494)

(672)

-

-

1,164,588

2,272

Other current liabilities

39,104

76

(39,104)

(76)

-

-

6,081,397

11,866

Other current liabilities

143,223

279

(143,223)

(279)

-

-

3,039,242

5,930

Other current liabilities

32,148

63

32,148

63

-

-

5,132,441

10,015

Other current liabilities

35,559

69

(35,559)

(69)

-

-

5,132,459

10,015

Other current liabilities

37,041

72

(37,041)

(72)

-

-

5,132,447

10,015

Other current liabilities

36,053

70

(36,053)

(70)

-

-

5,132,453

10,015

Other current liabilities

36,547

71

(36,547)

(71)

-

-

5,132,453

10,015

Other current liabilities

36,547

71

(36,547)

(71)

-

-

5,132,441

10,015

Other current liabilities

35,559

69

(35,559)

(69)

-

-

485,668

948

Other current liabilities

5,787

11

(5,787)

(11)

-

432,489

844

Other current liabilities

3,758

7

(3,758)

(7)

-

426,410

832

Other current liabilities

12,072

24

(12,072)

(24)

-

-

1,242,756

2,425

Other current liabilities

86,980

170

-

-

86,980

170

1,147,160

2,238

Other current liabilities

86,802

169

-

-

86,802

169

1,147,160

2,238

Other current liabilities

84,848

166

-

-

84,848

166

1,242,756

2,425

Other current liabilities

89,429

174

-

-

89,429

174

-

136,325

266

Other current liabilities

12,699

25

-

-

12,699

25

408,975

798

Other current liabilities

35,952

70

-

-

35,952

70

135,556

264

Other current liabilities

11,955

23

-

-

11,955

23

406,669

794

Other current liabilities

33,748

66

-

-

33,748

66

136,889

267

Other current liabilities

13,244

26

-

-

13,244

26

Other current liabilities

-

410,666

801

37,567

73

37,567

73

20,500,000

40,000

Due to banks and financial institutions

9,531

19

(9,531)

-

(19)

-

-

20,500,000

40,000

Due to banks and financial institutions

8,888

17

(8,888)

(17)

-

-

23,062,500

45,000

Due to banks and financial institutions

12,894

25

(12,894)

(25)

-

-

19,218,750

37,500

Due to banks and financial institutions

29,673

58

29,673

58

-

-

25,625,000

50,000

Due to banks and financial institutions

36,749

72

36,749

72

-

-

25,625,000

50,000

Due to banks and

40,368

79

40,368

79

-

-

114

NOTE 26 - DERIVATIVE CONTRACTS Type of Type of derivative contract

Contract amount ThCh$ ThUS$

Maturity

Risk hedged

Position purchase Name sale

Protected item or transaction Amount ThCh$ ThUS$

S

CCPE

31,016,000

60,519

3rd 2009

Libor

C

Syndicate Loan ThUS $475,000

31,016,000

60,519

S

CCPE

31,016,000

60,519

3rd 2009

Libor

C

Syndicate Loan ThUS $475,000

31,016,000

60,519

S

CCPE

23,262,000

45,389

3rd 2009

Libor

C

Syndicate Loan ThUS $475,000

23,262,000

45,389

S

CCPE

46,524,000

90,779

3rd 2009

Libor

C

Syndicate Loan ThUS $475,000

46,524,000

90,779

S

CCPE

28,677,500

55,956

1st 2015

Interest rate

C

National Market Bond

28,677,500

55,956

S

CCPE

28,677,500

55,956

1st 2015

Interest rate

C

National Market Bond

28,677,500

55,956

S

CCPE

57,355,000

111,912

1st 2015

Currency

C

National Market Bond

57,355,000

111,912

60,651,834

118,345

S

CCPE

60,651,834

118,345

1st 2015

Currency

C

National Market Bond

FR

CCTE

966,465

1,886

4th 2007

US$/EURO

V

Sales to Europe

966,465

1,886

FR

CCTE

1,449,697

2,829

1st 2008

US$/EURO

V

Sales to Europe

1,449,697

2,829

FR

CCTE

1,449,697

2,829

2nd 2008

US$/EURO

V

Sales to Europe

1,449,697

2,829

FR

CCTE

1,610,775

3,143

3rd 2008

US$/EURO

V

Sales to Europe

1,610,775

3,143

FR

CCTE

1,691,313

3,300

4th 2008

US$/EURO

V

Sales to Europe

1,691,313

3,300

FR

CCTE

1,771,852

3,457

1st 2009

US$/EURO

V

Sales to Europe

1,771,852

3,457

FR

CCTE

1,771,852

3,457

2nd 2009

US$/EURO

V

Sales to Europe

1,771,852

3,457

FR

CCTE

1,852,391

3,614

3rd 2009

US$/EURO

V

Sales to Europe

1,852,391

3,614

FR

CCTE

1,932,929

3,772

4th 2009

US$/EURO

V

Sales to Europe

1,932,929

3,772

FR

CCTE

1,932,929

3,772

1st 2010

US$/EURO

V

Sales to Europe

1,932,929

3,772

FR

CCTE

2,013,468

3,929

2nd 2010

US$/EURO

V

Sales to Europe

2,013,468

3,929

FR

CCTE

2,094,007

4,086

3rd 2010

US$/EURO

V

Sales to Europe

2,094,007

4,086

FR

CCTE

2,174,546

4,243

4th 2010

US$/EURO

V

Sales to Europe

2,174,546

4,243

FR

CCTE

2,094,007

4,086

1st 2011

US$/EURO

V

Sales to Europe

2,094,007

4,086

FR

CCTE

2,094,007

4,086

2nd 2011

US$/EURO

V

Sales to Europe

2,094,007

4,086

FR

CCTE

1,852,390

3,614

3rd 2011

US$/EURO

V

Sales to Europe

1,852,390

3,614

FR

CCTE

1,932,929

3,772

4th 2011

US$/EURO

V

Sales to Europe

1,932,929

3,772

FR

CCTE

2,094,007

4,086

1st 2012

US$/EURO

V

Sales to Europe

2,094,007

4,086

FR

CCTE

2,094,007

4,086

2nd 2012

US$/EURO

V

Sales to Europe

2,094,007

4,086

FR

CCTE

1,401,489

2,735

1st 2007

US$/Pound

V

Sales to Europe

1,401,489

2,735

FR

CCTE

1,617,103

3,155

2nd 2007

US$/Pound

V

Sales to Europe

1,617,103

3,155

FR

CCTE

1,617,103

3,155

3rd 2007

US$/Pound

V

Sales to Europe

1,617,103

3,155

FR

CCTE

1,940,524

3,786

4th 2007

US$/Pound

V

Sales to Europe

1,940,524

3,786

FR

CCTE

1,940,524

3,786

1st 2008

US$/Pound

V

Sales to Europe

1,940,524

3,786

FR

CCTE

1,940,524

3,786

2nd 2008

US$/Pound

V

Sales to Europe

1,940,524

3,786

FR

CCTE

1,940,524

3,786

3rd 2008

US$/Pound

V

Sales to Europe

1,940,524

3,786

FR

CCTE

2,156,138

4,207

4th 2008

US$/Pound

V

Sales to Europe

2,156,138

4,207

FR

CCTE

2,156,138

4,207

1st 2009

US$/Pound

V

Sales to Europe

2,156,138

4,207

FR

CCTE

2,156,138

4,207

2nd 2009

US$/Pound

V

Sales to Europe

2,156,138

4,207

FR

CCTE

2,156,138

4,207

3rd 2009

US$/Pound

V

Sales to Europe

2,156,138

4,207

FR

CCTE

2,263,944

4,417

4th 2009

US$/Pound

V

Sales to Europe

2,263,944

4,417

115 Notes to the Consolidated Financial Statements

Amount off protected item ThCh$ ThUS$

Account item related Name

Amount ThCh$

ThUS$

Effect in income Realized Not realized ThCh$ ThUS$ ThCh$ ThUS$

25,625,000

50,000

Due to banks and financial institutions

41,761

81

41,761

81

-

-

25,625,000

50,000

Due to banks and financial institutions

34,738

68

34,738

68

-

-

19,218,750

37,500

Due to banks and financial institutions

34,006

66

34,006

66

-

-

38,437,500

75,000

Due to banks and financial institutions

61,156

119

61,156

119

-

-

25,625,000

50,000

Bonds

54,848

107

(54,848)

(107)

-

-

25,625,000

50,000

Bonds

42,289

83

(42,289)

(83)

-

-

51,250,000

100,000

Bonds

805,878

1,572

(805,878)

(1,572)

-

-

63,289,162

123,491

Bonds

565,811

1,104

565,811

1,104

-

-

857,003

1,672

Other long-term liabilities

92,713

181

-

-

92,713

181

1,285,504

2,508

Other long-term liabilities

133,465

260

-

-

133,465

260

1,285,504

2,508

Other long-term liabilities

127,985

250

-

-

127,985

250

1,428,338

2,787

Other long-term liabilities

136,241

266

-

-

136,241

266

1,499,754

2,926

Other long-term liabilities

136,920

267

-

-

136,920

267

1,571,171

3,066

Other long-term liabilities

136,928

267

-

-

136,928

267

1,571,171

3,066

Other long-term liabilities

130,549

255

-

-

130,549

255

1,642,588

3,205

Other long-term liabilities

129,454

253

-

-

129,454

253

1,714,005

3,344

Other long-term liabilities

128,855

251

-

-

128,855

251

1,714,005

3,344

Other long-term liabilities

122,413

239

-

-

122,413

239

1,785,422

3,484

Other long-term liabilities

120,797

236

-

-

120,797

236

1,856,839

3,623

Other long-term liabilities

118,793

232

-

-

118,793

232

1,928,256

3,762

Other long-term liabilities

116,652

228

-

-

116,652

228

1,856,839

3,623

Other long-term liabilities

107,316

209

-

-

107,316

209

1,856,839

3,623

Other long-term liabilities

102,296

200

-

-

102,296

200

1,642,588

3,205

Other long-term liabilities

86,145

168

-

-

86,145

168

1,714,005

3,344

Other long-term liabilities

85,381

167

-

-

85,381

167

1,856,839

3,623

Other long-term liabilities

87,084

170

-

-

87,084

170

1,856,839

3,623

Other long-term liabilities

81,732

159

-

-

81,732

159

1,242,756

2,425

Other long-term liabilities

85,074

166

-

-

85,074

166

1,433,949

2,798

Other long-term liabilities

96,031

187

-

-

96,031

187

1,433,949

2,798

Other long-term liabilities

93,889

183

-

-

93,889

183

1,720,739

3,358

Other long-term liabilities

110,221

215

-

-

110,221

215

1,720,739

3,358

Other long-term liabilities

108,050

211

-

-

108,050

211

1,720,739

3,358

Other long-term liabilities

105,927

207

-

-

105,927

207

1,720,739

3,358

Other long-term liabilities

103,840

203

-

-

103,840

203

1,911,933

3,731

Other long-term liabilities

113,099

221

-

-

113,099

221

1,911,933

3,731

Other long-term liabilities

111,497

218

-

-

111,497

218

1,911,933

3,731

Other long-term liabilities

109,914

214

-

-

109,914

214

1,911,933

3,731

Other long-term liabilities

108,232

211

-

-

108,232

211

2,007,529

3,917

Other long-term liabilities

112,000

219

-

-

112,000

219

116

NOTE 26 - DERIVATIVE CONTRACTS Type of Type of derivative contract

Contract amount ThCh$ ThUS$

Maturity

Risk hedged

Position purchase Name sale

Protected item or transaction Amount ThCh$ ThUS$

FR

CCTE

892,834

1,742

1st 2007

US$/EURO

V

Sales to Europe

892,834

1,742

FR

CCTE

892,834

1,742

2nd 2007

US$/EURO

V

Sales to Europe

892,834

1,742

FR

CCTE

1,041,640

2,032

3rd 2007

US$/EURO

V

Sales to Europe

1,041,640

2,032

FR

CCTE

1,116,043

2,178

4th 2007

US$/EURO

V

Sales to Europe

1,116,043

2,178

FR

CCTE

1,041,640

2,032

1st 2008

US$/EURO

V

Sales to Europe

1,041,640

2,032

FR

CCTE

1,190,446

2,323

2nd 2008

US$/EURO

V

Sales to Europe

1,190,446

2,323

FR

CCTE

1,116,043

2,178

3rd 2008

US$/EURO

V

Sales to Europe

1,116,043

2,178

FR

CCTE

1,116,043

2,178

4th 2008

US$/EURO

V

Sales to Europe

1,116,043

2,178

FR

CCTE

1,116,043

2,178

1st 2009

US$/EURO

V

Sales to Europe

1,116,043

2,178

FR

CCTE

1,116,043

2,178

2nd 2009

US$/EURO

V

Sales to Europe

1,116,043

2,178

FR

CCTE

1,041,640

2,032

3rd 2009

US$/EURO

V

Sales to Europe

1,041,640

2,032

FR

CCTE

1,041,640

2,032

4th 2009

US$/EURO

V

Sales to Europe

1,041,640

2,032

FR

CCTE

1,041,640

2,032

1st 2010

US$/EURO

V

Sales to Europe

1,041,640

2,032

FR

CCTE

1,041,640

2,032

2nd 2010

US$/EURO

V

Sales to Europe

1,041,640

2,032

FR

CCTE

967,237

1,887

3rd 2010

US$/EURO

V

Sales to Europe

967,237

1,887

FR

CCTE

967,237

1,887

4th 2010

US$/EURO

V

Sales to Europe

967,237

1,887

FR

CCTE

967,237

1,887

1st 2011

US$/EURO

V

Sales to Europe

967,237

1,887

FR

CCTE

967,237

1,887

2nd 2011

US$/EURO

V

Sales to Europe

967,237

1,887

FR

CCTE

1,041,640

2,032

3rd 2011

US$/EURO

V

Sales to Europe

1,041,640

2,032

FR

CCTE

1,041,640

2,032

4th 2011

US$/EURO

V

Sales to Europe

1,041,640

2,032

FR

CCTE

967,237

1,887

1st 2012

US$/EURO

V

Sales to Europe

967,237

1,887

FR

CCTE

967,237

1,887

2nd 2012

US$/EURO

V

Sales to Europe

967,237

1,887

FR

CCTE

1,636,863

3,194

3rd 2012

US$/EURO

V

Sales to Europe

1,636,863

3,194

FR

CCTE

1,636,863

3,194

4th 2012

US$/EURO

V

Sales to Europe

1,636,863

3,194

FR

CCTE

878,849

1,715

1st 2007

US$/EURO

V

Sales to Europe

878,849

1,715

FR

CCTE

878,849

1,715

2nd 2007

US$/EURO

V

Sales to Europe

878,849

1,715

FR

CCTE

1,025,324

2,001

3rd 2007

US$/EURO

V

Sales to Europe

1,025,324

2,001

FR

CCTE

1,098,561

2,144

4th 2007

US$/EURO

V

Sales to Europe

1,098,561

2,144

FR

CCTE

1,025,324

2,001

1st 2008

US$/EURO

V

Sales to Europe

1,025,324

2,001

FR

CCTE

1,171,798

2,286

2nd 2008

US$/EURO

V

Sales to Europe

1,171,798

2,286

FR

CCTE

1,098,561

2,144

3rd 2008

US$/EURO

V

Sales to Europe

1,098,561

2,144

FR

CCTE

1,098,561

2,144

4th 2008

US$/EURO

V

Sales to Europe

1,098,561

2,144

FR

CCTE

1,098,561

2,144

1st 2009

US$/EURO

V

Sales to Europe

1,098,561

2,144

FR

CCTE

1,098,561

2,144

2nd 2009

US$/EURO

V

Sales to Europe

1,098,561

2,144

FR

CCTE

1,025,324

2,001

3rd 2009

US$/EURO

V

Sales to Europe

1,025,324

2,001

FR

CCTE

1,025,324

2,001

4th 2009

US$/EURO

V

Sales to Europe

1,025,324

2,001

FR

CCTE

1,025,324

2,001

1st 2010

US$/EURO

V

Sales to Europe

1,025,324

2,001

FR

CCTE

1,025,324

2,001

2nd 2010

US$/EURO

V

Sales to Europe

1,025,324

2,001

FR

CCTE

952,086

1,858

3rd 2010

US$/EURO

V

Sales to Europe

952,086

1,858

117 Notes to the Consolidated Financial Statements

Amount off protected item ThCh$ ThUS$

Name

Account item related ThCh$

ThUS$

817,950

1,596

Other long-term liabilities

68,133

133

-

-

68,133

133

817,950

1,596

Other long-term liabilities

64,414

126

-

-

64,414

126

Amount

Effect in income Realized Not realized ThCh$ ThUS$ ThCh$ ThUS$

954,275

1,862

Other long-term liabilities

70,811

138

-

-

70,811

138

1,022,438

1,995

Other long-term liabilities

71,466

139

-

-

71,466

139

954,275

1,862

Other long-term liabilities

62,833

123

-

-

62,833

123

1,090,600

2,128

Other long-term liabilities

67,492

132

-

-

67,492

132

1,022,438

1,995

Other long-term liabilities

59,313

116

-

-

59,313

116

1,022,438

1,995

Other long-term liabilities

55,438

108

-

-

55,438

108

1,022,438

1,995

Other long-term liabilities

51,506

100

-

-

51,506

100

1,022,438

1,995

Other long-term liabilities

47,661

93

-

-

47,661

93

954,275

1,862

Other long-term liabilities

40,706

79

-

-

40,706

79

954,275

1,862

Other long-term liabilities

37,502

73

-

-

37,502

73

954,275

1,862

Other long-term liabilities

34,196

67

-

-

34,196

67

954,275

1,862

Other long-term liabilities

30,892

60

-

-

30,892

60

886,113

1,729

Other long-term liabilities

25,687

50

-

-

25,687

50

886,113

1,729

Other long-term liabilities

22,867

45

-

-

22,867

45

886,113

1,729

Other long-term liabilities

20,755

40

-

-

20,755

40

886,113

1,729

Other long-term liabilities

18,645

36

-

-

18,645

36

954,275

1,862

Other long-term liabilities

17,859

35

-

-

17,859

35

954,275

1,862

Other long-term liabilities

15,645

31

-

-

15,645

31

886,113

1,729

Other long-term liabilities

12,206

24

-

-

12,206

24

886,113

1,729

Other long-term liabilities

9,914

19

-

-

9,914

19

1,499,575

2,926

Other long-term liabilities

12,910

25

-

-

12,910

25

1,499,575

2,926

Other long-term liabilities

9,331

18

-

-

9,331

18

813,338

1,587

Other long-term liabilities

63,779

124

-

-

63,779

124

813,338

1,587

Other long-term liabilities

60,112

117

-

-

60,112

117

948,894

1,852

Other long-term liabilities

65,855

128

-

-

65,855

128

1,016,672

1,984

Other long-term liabilities

66,219

129

-

-

66,219

129

948,894

1,852

Other long-term liabilities

57,994

113

-

57,994

113

1,084,450

2,116

Other long-term liabilities

62,097

121

-

-

62,097

121

1,016,672

1,984

Other long-term liabilities

54,250

106

-

-

54,250

106

1,016,672

1,984

Other long-term liabilities

50,434

98

-

-

50,434

98

1,016,672

1,984

Other long-term liabilities

46,563

91

-

-

46,563

91

1,016,672

1,984

Other long-term liabilities

42,777

83

-

-

42,777

83

948,894

1,852

Other long-term liabilities

36,206

71

-

-

36,206

71

948,894

1,852

Other long-term liabilities

33,054

64

-

33,054

64

948,894

1,852

Other long-term liabilities

29,801

58

-

-

29,801

58

948,894

1,852

Other long-term liabilities

26,551

52

-

-

26,551

52

881,116

1,719

Other long-term liabilities

21,705

42

-

-

21,705

42

118

NOTE 26 - DERIVATIVE CONTRACTS Type of Type of derivative contract

Contract amount ThCh$ ThUS$

Maturity

Risk hedged

Position purchase Name sale

Protected item or transaction Amount ThCh$ ThUS$

FR

CCTE

952,086

1,858

4th 2010

US$/EURO

V

Sales to Europe

952,086

1,858

FR

CCTE

952,086

1,858

1st 2011

US$/EURO

V

Sales to Europe

952,086

1,858

FR

CCTE

952,086

1,858

2nd 2011

US$/EURO

V

Sales to Europe

952,086

1,858

FR

CCTE

1,025,324

2,001

3rd 2011

US$/EURO

V

Sales to Europe

1,025,324

2,001

FR

CCTE

1,025,324

2,001

4th 2011

US$/EURO

V

Sales to Europe

1,025,324

2,001

FR

CCTE

952,086

1,858

1st 2012

US$/EURO

V

Sales to Europe

952,086

1,858

FR

CCTE

952,086

1,858

2nd 2012

US$/EURO

V

Sales to Europe

952,086

1,858

FR

CCTE

1,611,223

3,144

3rd 2012

US$/EURO

V

Sales to Europe

1,611,223

3,144

FR

CCTE

1,611,223

3,144

4th 2012

US$/EURO

V

Sales to Europe

1,611,223

3,144

FR

CCTE

865,035

1,688

1st 2007

US$/EURO

V

Sales to Europe

865,035

1,688

FR

CCTE

865,035

1,688

2nd 2007

US$/EURO

V

Sales to Europe

865,035

1,688

FR

CCTE

1,009,208

1,969

3rd 2007

US$/EURO

V

Sales to Europe

1,009,208

1,969

FR

CCTE

1,081,294

2,110

4th 2007

US$/EURO

V

Sales to Europe

1,081,294

2,110

FR

CCTE

1,009,208

1,969

1st 2008

US$/EURO

V

Sales to Europe

1,009,208

1,969

FR

CCTE

1,153,381

2,250

2nd 2008

US$/EURO

V

Sales to Europe

1,153,381

2,250

FR

CCTE

1,081,294

2,110

3rd 2008

US$/EURO

V

Sales to Europe

1,081,294

2,110

FR

CCTE

1,081,294

2,110

4th 2008

US$/EURO

V

Sales to Europe

1,081,294

2,110

FR

CCTE

1,081,294

2,110

1st 2009

US$/EURO

V

Sales to Europe

1,081,294

2,110

FR

CCTE

1,081,294

2,110

2nd 2009

US$/EURO

V

Sales to Europe

1,081,294

2,110

FR

CCTE

1,009,208

1,969

3rd 2009

US$/EURO

V

Sales to Europe

1,009,208

1,969

FR

CCTE

1,009,208

1,969

4th 2009

US$/EURO

V

Sales to Europe

1,009,208

1,969

FR

CCTE

1,009,208

1,969

1st 2010

US$/EURO

V

Sales to Europe

1,009,208

1,969

FR

CCTE

1,009,208

1,969

2nd 2010

US$/EURO

V

Sales to Europe

1,009,208

1,969

FR

CCTE

937,122

1,829

3rd 2010

US$/EURO

V

Sales to Europe

937,122

1,829

FR

CCTE

937,122

1,829

4th 2010

US$/EURO

V

Sales to Europe

937,122

1,829

FR

CCTE

937,122

1,829

1st 2011

US$/EURO

V

Sales to Europe

937,122

1,829

FR

CCTE

937,122

1,829

2nd 2011

US$/EURO

V

Sales to Europe

937,122

1,829

FR

CCTE

1,009,208

1,969

3rd 2011

US$/EURO

V

Sales to Europe

1,009,208

1,969

FR

CCTE

1,009,208

1,969

4th 2011

US$/EURO

V

Sales to Europe

1,009,208

1,969

FR

CCTE

937,122

1,829

1st 2012

US$/EURO

V

Sales to Europe

937,122

1,829

FR

CCTE

937,122

1,829

2nd 2012

US$/EURO

V

Sales to Europe

937,122

1,829

FR

CCTE

1,585,898

3,094

3rd 2012

US$/EURO

V

Sales to Europe

1,585,898

3,094

FR

CCTE

1,585,898

3,094

4th 2012

US$/EURO

V

Sales to Europe

1,585,898

3,094

119 Notes to the Consolidated Financial Statements

Amount off protected item ThCh$ ThUS$

Account item related Name

Amount

Effect in income Realized Not realized ThCh$ ThUS$ ThCh$ ThUS$

ThCh$

ThUS$

881,116

1,719

Other long-term liabilities

18,934

37

-

-

18,934

37

881,116

1,719

Other long-term liabilities

16,869

33

-

-

16,869

33

881,116

1,719

Other long-term liabilities

14,806

29

-

-

14,806

29

948,894

1,852

Other long-term liabilities

13,775

27

-

-

13,775

27

948,894

1,852

Other long-term liabilities

11,611

23

-

-

11,611

23

881,116

1,719

Other long-term liabilities

8,505

17

-

-

8,505

17

881,116

1,719

Other long-term liabilities

6,259

12

-

-

6,259

12

1,491,119

2,910

Other long-term liabilities

6,801

13

-

-

6,801

13

1,491,119

2,910

Other long-term liabilities

3,297

6

-

3,297

6

821,333

1,603

Other long-term liabilities

71,326

139

-

-

71,326

139

821,333

1,603

Other long-term liabilities

67,568

132

-

-

67,568

132

958,221

1,870

Other long-term liabilities

74,446

145

-

-

74,446

145

1,026,666

2,003

Other long-term liabilities

75,314

147

-

-

75,314

147

958,221

1,870

Other long-term liabilities

66,382

130

-

-

66,382

130

1,095,110

2,137

Other long-term liabilities

71,500

140

-

-

71,500

140

1,026,666

2,003

Other long-term liabilities

63,026

123

-

-

63,026

123

1,026,666

2,003

Other long-term liabilities

59,107

115

-

-

59,107

115

1,026,666

2,003

Other long-term liabilities

55,132

108

-

-

55,132

108

1,026,666

2,003

Other long-term liabilities

51,242

100

-

-

51,242

100

958,221

1,870

Other long-term liabilities

44,236

86

-

-

44,236

86

958,221

1,870

Other long-term liabilities

40,765

80

-

-

40,765

80

958,221

1,870

Other long-term liabilities

37,419

73

-

-

37,419

73

958,221

1,870

Other long-term liabilities

34,075

66

-

-

34,075

66

889,777

1,736

Other long-term liabilities

28,607

56

-

-

28,607

56

889,777

1,736

Other long-term liabilities

25,751

50

-

-

25,751

50

889,777

1,736

Other long-term liabilities

23,605

46

-

-

23,605

46

889,777

1,736

Other long-term liabilities

21,460

42

-

-

21,460

42

958,221

1,870

Other long-term liabilities

20,854

41

-

-

20,854

41

958,221

1,870

Other long-term liabilities

18,604

36

-

-

18,604

36

889,777

1,736

Other long-term liabilities

14,921

29

-

-

14,921

29

889,777

1,736

Other long-term liabilities

12,595

25

-

-

12,595

25

1,505,776

2,938

Other long-term liabilities

17,390

34

-

-

17,390

34

1,505,776

2,938

Other long-term liabilities

13,749

27

-

-

13,749

27

120

NOTE 27 - CONTINGENCIES AND RESTRICTIONS • Direct guarantees: To guarantee Banco Bice full compliance with any and all current and future obligations incurred by Empresas CMPC S.A. and subsidiaries, the Company set up a first mortgage of ThCh$ 4,652,240 - ThUS$ 9,078 on the mezzanine and 2nd, 3rd, 4th and 5th floors of the building located at Agustinas 1343, per public deed dated March 16, 2001, before the Notary Enrique Morgan under digest number 1290. • Indirect guarantees The loans and bond issuances of the subsidiary Inversiones CMPC S.A., through its Agency in the Cayman Islands, were guaranteed by Empresas CMPC S.A. The UF bond issuance made by the subsidiary Inversiones CMPC S.A. in Chile, was guaranteed by Empresas CMPC S.A. In the case of indirect guarantees, the creditor of the guarantee backed by Empresas CMPC S.A., is the holder of the document, since such documents are transferable. Empresas CMPC S.A. guaranteed the compliance by La Papelera del Plata S.A. (subsidiary in Argentina), of a lease contract on the machinery this company subscribed with Citibank N.A. • Restrictions: Empresas CMPC S.A., as a result of certain debt contracts entered into by its subsidiary Inversiones CMPC S.A., and guaranteed by them, has to comply with certain financial indicators (“covenants”). These are to maintain a minimum equity, a maximum indebtness level and a minimum level of financial expenses coverage. At December 31, 2005, such indicators are amply complied with. • Lawsuits a) At December 31, 2005, the subsidiaries Forestal Mininco S.A. and Forestal Crecex S.A. have participated in a number of proceedings involving growers and landholders regarding boundaries and other disputes. At December 31, 2005, Forestal Mininco S.A. has a provision of ThCh$ 150,000 - ThUS$ 293. b) In August 2001, the Supreme Court unanimously confirmed the rule that accepted the claim presented by the subsidiary CMPC Celulosa S.A. declaring that the Central Bank had to pay the promissory notes issued by that public body, pursuant to the calculation rules contained in them upon issuance and not under a new calculation formula subsequently established by the debtor. The Central Bank did not accept the rule, invoking a technical impossibility to arrive at the determination of the proper amount. In view of that refusal, CMPC has had to begin new legal procedures in which the Central Bank has continued presenting any kind of dilatory motions. • Other lawsuits a) Tax Lawsuit filed against CMPC Celulosa S.A. for a claim over tax settlement made by the S.I.I. on April 30, 2003, and related to the appraisal of the value of shares internally transferred. The company lawyer’s have a favorable opinion, therefore, no allowances have been made. b) As of December 31, 2005, the subsidiary Papelera del Plata S.A. in Argentine, has several lawsuits in a number of Argentine labor courts, which involve committed amounts of ThCh$ 798,116 - ThUS$ 1,557. c) At December 31, 2005, the subsidiary Fabi Bolsas Industriales S.A. faces a labor lawsuit. The amount involved is ThCh$ 83,001 - ThUS$ 162 (ThCh$ 74,667 - ThUS$ 129 at December 31, 2004). There is a provision for this concept ascending to ThCh$ 61,337 - ThUS$ 120. This provision considers a contingency of maximum probability, but usually the sentences are less than the claimed amount.

121 Notes to the Consolidated Financial Statements

d) At December 31, 2005, the subsidiary CMPC Celulosa S.A. follows a labor lawsuit before the Court of Laja. The amount involved is ThCh$ 104,599 - ThUS$ 204 (ThCh$ 108,365 - ThUS$ 188 at December 31, 2004). A provision has been set up for this concept. e) Subsidiaries of the Company have presented an appeal to the Argentine Nation’s Court for it to suspend and annul proceedings issued by the Federal Administration of Public Revenue relating to taxes and interests on financial transactions occurring during the years 1995 and 1998 amounting to 3,220,843 Argentine pesos plus fines and interests. According to the Company and its legal advisors, these proceedings should not prosper because all transactions have been legally and administratively done following current legislation, therefore, no provisions have been established. f ) At December 31, 2005, the subsidiary Forestal y Agrícola Monte Aguila S.A. faces five labor lawsuits amounting to ThCh$ 3,500,000 - ThUS$ 6,829. During January, 2006, two of the five lawsuits representing fifty percent of the total were finished with a favorable sentence for the Company. The other lawsuits are still in process. There are associated insurance policies for these contingencies. • Other contingencies a) Responsibility in return of exports under consignment amounting to ThCh$ 16,081,370 - ThUS$ 31,378 at December 31, 2005 and ThCh$ 33,228,139- ThUS$ 57,541 in 2004. This amount represents the marketable price set up at the delivery date. b) As of December 31, 2005, the Company has a liability for the collection upon maturity of the portfolio of assigned loans of ThCh$ 34,072,797 - ThUS$ 66,484. As of December 31, 2004 there was no obligation for this concept. c) Empresas CMPC S.A. guarantees compliance of SWAP contracts entered into by Inversiones CMPC S.A. mainly with J.P. Morgan Chase N.A. and others, related to interest rates on a total notional amount of US$ 705,000,000. • Foreign investments The Company’s Financial Statements include the effect of the current economic context of Argentine, Uruguay and Peru over the economic and financial position of related companies in such countries, according to the administrations evaluations, as at the date of preparation. The real future results will depend on the evolution of said economies.

122

Direct guarantees: Deudor

Assets involved Book value ThCh$

Guarantee creditor

Entity

Relation

Type of guarantee

Type

BICE Bank

Empresas CMPC S.A.

Informant Agustinas 13

Mortgage

Floor 2,3,4 and 5

Nacional Fundo of Technology Development

Forestal Mininco S.A.

Subsidiary

Guarantee bill

Cash

General Treasury of the Republic

Inforsa S.A.

Indirect subsidiary

Promissory notes

Machinery

-

Customs

Inforsa S.A.

Indirect subsidiary

Bill of exchange

Machinery

17,166

Foreign supplier

Inforsa S.A.

Indirect subsidiary

Bill of exchange

Machinery

2,251,882

General Treasury of the Republic

CMPC Celulosa S.A.

Indirect subsidiary

Bill of exchange

Fixed Assets

1,176,088

General Treasury of the Republic

CMPC Celulosa S.A.

Indirect subsidiary

Promissory notes

Machinery

General Treasury of the Republic

CMPC Celulosa S.A.

Indirect subsidiary

Promissory notes

Machinery

-

Railroad State Company

CMPC Celulosa S.A.

Indirect subsidiary

Bill of exchange

Machinery

5,392

Telecommunications Company of Chile

CMPC Tissue S.A

Indirect subsidiary

Letters

Cash

3,595

Natural Gas

Protisa Perú S.A.

Indirect subsidiary

Guarantee letter

Cash

National Customs Superintendency

Protisa Perú S.A.

Indirect subsidiary

Guarantee letter

Machinery

Chilean Security Association

CMPC Tissue S.A

Indirect subsidiary

Letters

Cash

Roberto del Río Hospital

CMPC Tissue S.A

Indirect subsidiary

Letters

Cash

5,711

Roberto Arriarán Clinic Hospital

CMPC Tissue S.A

Indirect subsidiary

Letters

Cash

8,249

Sotero del Río Hospital

CMPC Tissue S.A

Indirect subsidiary

Letters

Cash

4,140

Assalud - National Hospital ED

Protisa Perú S.A.

Indirect subsidiary

Guarantee letter

Cash

4,296

4,652,240 18,707

-

71,750 109,569 4,021

123 Notes to the Consolidated Financial Statements

Balances pending at year end 2005 2004 ThCh$ ThCh$

2006 ThCh$

Assets

-

-

-

18,707

19,380

18,707

Guarantees released 2007 Assets ThCh$

2008 ThCh$

Assets

Fixed assets

-

-

-

-

Cash

-

-

-

-

-

620,644

-

-

-

-

-

-

17,166

180,398

17,166

Fixed Assets

-

-

-

-

2,251,882

3,894,808

2,251,882

Fixed Assets

-

-

-

-

1,176,088

1,325,263

1,176,088

Fixed Assets

-

-

-

-

-

1,574,941

-

-

-

-

-

-

-

-

-

-

-

Fixed Assets

-

-

-

-

Cash

-

-

-

6,493

-

5,392

10,047

5,392

3,595

3,480

-

71,750

-

71,750

109,569

69,296

109,569

4,021

-

-

-

3,395

Cash

-

-

-

-

Fixed Assets

-

-

-

-

Cash

-

-

-

4,021

5,711

-

5,711

Cash

-

-

-

-

8,249

-

8,249

Cash

-

-

-

-

4,140

-

4,140

Cash

-

-

-

-

4,296

-

4,296

Cash

-

-

-

-

Inversiones CMPC S.A. Cayman Island Agency Inversiones CMPC S.A. Cayman Island Agency Inversiones CMPC S.A. Inversiones CMPC S.A. Cayman Island Agency Papelera del Plata S.A. Industrias Forestales S.A. CMPC Celulosa S.A. Inversiones CMPC S.A. Cayman Island Agency

Bonds

UF Bonds

J.P. Morgan Chase Bank and others

Citibank N.A. - Argentina

Voith Paper Maq. y Equipam. Ltda.

Valmet Fibertech AB, Kvaerner Pulping AB y otros

Bonds

Entity

Deudor

BBVA S.A.

Guarantee creditor

Indirect guarantees:

Relation

Subsidiary

Indirect subsidiary

Indirect subsidiary

Indirect subsidiary

Subsidiary

Subsidiary

Subsidiary

Subsidiary

Guarantor

Guarantor

Guarantor

Guarantor

Guarantor

Joint debtor

Guarantor

Guarantor

Type of guarantee

No

No

No

No

No

No

No

No

Assets involved Type

-

-

3,968,650

6,901,336

51,250,000

125,823,670

153,750,000

243,437,500

2005

144,366,600

973,303

6,497,075

9,693,588

-

-

173,239,920

274,296,540

2004

Balances pending at year end ThCh$ 2006

-

445,976

1,707,719

1,701,699

-

-

-

21,352,031

-

-

1,744,355

1,701,699

-

-

-

42,710,469

2007

2008

-

-

516,576

1,701,699

-

-

-

59,791,838

Guarantees released ThCh$

124

125 Notes to the Consolidated Financial Statements

NOTE 28 - GUARANTEES FROM THIRD PARTIES Guarantees from third parties are as follows: Transaction

Amount ThCh$ ThUS$

Issuer

Relation

Investment Project

5,171,012

10,090

Andritz A.G.

Supplier

Investment Project

2,963,943

5,783

Kvarner Power

Supplier

Investment Project

4,192,031

8,180

Metso Paper Pori y Service

Supplier

Services

5,208,748

10,163

Constructora Tecsa

Supplier

Services

2,669,662

5,209

Andritz OY

Supplier

Services

1,144,177

2,233

Metso Paper Pori y Service

Supplier

Services

1,681,907

3,282

Owner Securing

Supplier

Investment Project

862,861

1,684

Siemens Demag

Supplier

Investment Project

431,131