6-K 1 d527441d6k.htm FORM 6-K FORM 6-K
Table of Contents

 

 

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 6-K

 

 

Report of Foreign Private Issuer

Pursuant to Rule 13a-16 or 15d-16

of the Securities Exchange Act of 1934

For the month of December, 2012

Commission File Number 33-99720

 

 

ARAUCO AND CONSTITUTION PULP INC.

(Translation of registrant’s name into English)

 

 

El Golf 150

Fourteenth Floor

Santiago, Chile

(Address of principal executive offices)

 

 

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.

Form 20-F  x            Form 40-F  ¨

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):  ¨

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):  ¨

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes  ¨             No  x

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82-            

 

 

 


Table of Contents

ARAUCO AND CONSTITUTION PULP INC

TABLE OF CONTENTS

 

Item        Page  

1.

 

Ratio Analysis of the Consolidated Financial Statement

     1   

2.

 

Unaudited Consolidated Financial Statement

     7   

3.

 

Unaudited Consolidated Financial Income Statement

     9   

4.

 

Unaudited Consolidated Statement of Changes in Net Equity

     11   

5.

 

Unaudited Consolidated Statement of Cash Flow

     12   

6.

 

Unaudited Notes to the Consolidated Financial Statement

     13   

7.

 

Annex: Press Release

  


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statement

December 31, 2012

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

 

1. ANALYSIS OF FINANCIAL POSITION

 

a) Statement of Financial position

The principal components of assets and liabilities are at year end, as follows:

 

Assets

   12-31-2012
ThU.S.$
     12-31-2011
ThU.S.$
 

Current assets

     2,698,968         2,462,660   

Non-current assets

     10,852,218         10,089,518   
  

 

 

    

 

 

 

Total assets

     13,551,186         12,552,178   
  

 

 

    

 

 

 

 

Liabilities

   12-31-2012
ThU.S.$
     12-31-2011
ThU.S.$
 

Current liabilities

     1,425,287         1,031,945   

Non-current liabilities

     5,160,140         4,490,083   

Non-parent participation

     74,437         90,543   

Net equity attributable to parent company

     6,891,322         6,939,607   
  

 

 

    

 

 

 

Total net equity and liabilities

     13,551,186         12,552,178   
  

 

 

    

 

 

 

As of December 31, 2012, total assets increased by 7.96% or US$ 999 million compared to December 31, 2011. This increase is mainly attributable to an increase in the balance of Property, plant and equipment due to purchase investments Flakeborard with 2 plants operating in Canada and 5 plants in United States and a plant of Moncure in United States, in addition to investments in companies by increased contributions in our joint ventures in Uruguay.

Moreover, liabilities increased US$ 1,063 million mainly attributable to an increase in Financial Liabilities as a result of bonds issued in January and April 2012 of US$ 733 million, and the recognition of deferred tax US$ 137 million (net effect in results US$ 129 million) due to change of rate according to Law N° 20,630, which among other changes, increased the rate of first category tax to 20 %, on a permanent basis.

The main financial and operating indicators relating to balance are as follows:

 

Liquidity ratios

   12-31-2012      12-31-2011  

Current ratio

     1.89         2.39   

Acid ratio

     1.14         1.34   

 

Debt indicators

   12-31-2012      12-31-2011  

Debt to equity ratio

     0.95         0.79   

Short-term debt to total debt

     0.22         0.19   

Long-term debt to total debt

     0.78         0.81   

 

     12-31-2012      12-31-2011  

Financial expenses covered

     2.33         4.94   

 

1


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statement

December 31, 2012

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

 

 

Activity ratio

   12-31-2012      12-31-2011  

Inventory turnover

     2.94         2.68   

Inventory turnover (excluding biological assets)

     3.91         3.79   

Inventory permanence-days

     122.63         134.15   

Inventory permanence (excluding biological assets)

     92.09         95.08   

The current liquidity ratio and the acid ratio for the current period has decreased this year compared to the period 2011. This is due to a lower proportional increase in current assets compared to a proportional reduction in the variation of current liabilities, which in turn is explained by an increase in current financial liabilities product of bonds issued and bank loans, partially offset by a decrease in liabilities for income tax and dividend.

As of December 31, 2012, the short-term debt represented 22% of total liabilities (19% as of December 31, 2011).

The ratio of financial expenses covered decreased from 4.94 to 2.33. This drop is mainly attributable to a lower net income in 2012, compared to the same period of 2011.

 

b) Statements of income

Profit before Income Tax

Profit before Income Tax registered a profit of US$ 312 million compared to a profit of US$ 773 million in the same period of the previous year, a decrease of US$ 462 million, The effect is explained by the factors described in the following table:

 

Item

   Million
U.S.$
 

Gross margin

     (360

Other operating income

     (84

Other operating expenses

     10   

Financial costs

     (37

Difference of exchange

     8   
  

 

 

 

Others item

     1   
  

 

 

 

Net change in income before income tax

     (462
  

 

 

 

Gross Margin presents a profit of U.S.$ 1,132 million, a decrease of U.S.$ 360 million compared to the same period (U.S.$ 1,492 million) caused by a proportional increase in Cost of sales and a decrease in sales prices, despite the increase in sales volumes, mainly in the cellulose business.

 

2


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statement

December 31, 2012

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

 

 

ANALYSIS OF FINANCIAL POSITION, continued

 

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

 

Revenues

   12-31-2012
ThU.S.$
     12-31-2011
ThU.S.$
 

Pulp

     1,994,399         2,161,214   

Sawn timber

     765,439         734,889   

Panels

     1,331,981         1,289,737   

Forestry

     156,950         164,079   

Other

     31,533         24,576   
  

 

 

    

 

 

 

Total revenues

     4,280,302         4,374,495   
  

 

 

    

 

 

 

 

Sales costs

   12-31-2012
ThU.S.$
     12-31-2011
ThU.S.$
 

Wood

     719,408         639,574   

Forestry work

     583,038         588,779   

Depreciation

     236,671         216,967   

Other costs

     1,609,401         1,437,135   
  

 

 

    

 

 

 

Total sales costs

     3,148,518         2,882,455   
  

 

 

    

 

 

 

 

Profitability index

   12-31-2012      12-31-2011  

Profitability on equity

     2.01         8.95   

Profitability on assets

     1.08         4.95   

Return on operating assets

     1.76         5.21   

 

Profitability ratios

   12-31-2012     12-31-2011  

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

     1.20        5.41   

EBITDA (MThU.S.$)

     878.6        1,307.7   

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

     140,471        620,786   

Gross margin (ThU.S.$)

     1,131,784        1,492,040   

Financial costs (ThU.S.$)

     (233,703     (196,356

 

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

2. DIFFERENCE BETWEEN ECONOMIC VALUES AND BOOK ASSETS

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

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

 

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Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statement

December 31, 2012

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

 

 

3. MARKET SITUATION

Pulp Division

Pulp sales reached US$ 520.7 million (including energy sales) for the fourth quarter of 2012, an increase of 6.0% compared to the previous quarter. This increase was mainly due to higher sales volume of 3.4% and higher average prices of 0.1%.

The last quarter of 2012 was stable regarding prices and volumes sold. There were not significant changes, only a small price increase in long fiber towards the end of the quarter in Asia; however, prices have not reached early-2012 levels. The economic situation in Europe and the Chinese economic activity adjustment continue to add pressure over the paper market in general.

Considering all pulp grades in long and short fiber, world inventories ended with a slight decline, two days of inventory less than December 2011. This decline is mainly due to long fiber inventories that fell seven days. On the other hand, short fiber increased two days. Compared to the previous quarter, inventories stood stable at 32 days. However, during the quarter long fiber increased three days, while short fiber declined in six days mainly during December.

In Europe, despite the low demand for pulp that goes to printing and writing paper, total pulp consumption in the fourth quarter of 2012 was 2.6% higher than the same quarter in 2011. Such increase in demand is mainly explained by the growth in tissue paper production and especially paper, but it was not strong enough to impact with price increases. Supply grew because of integrated paper mill closures that only stopped its paper production but not its pulp production, offering its pulp surplus to the market. This surplus is mainly in long fiber, however, it impacted the market as a whole.

The Chinese economy continued its adjustment period, which affected pulp and paper’s demand expansion. Again, the most affected was printing and writing paper, and to a less extent, specialty paper. Tissue paper continued with a significant expansion level. The oversupply and overcapacity in Europe also stopped price increases in China and Asia in general. Although towards the end of the quarter there was a price increase in long fiber, this was only by 1.5%. In short fiber, prices stood stable. The rest of Asia followed the same trends as in China.

Other markets such as Middle East and Latin America had a stable demand but were also influenced by the long fiber overcapacity, especially in the Middle East and in Brazil. In the Brazilian market the Scandinavian and North American producers were especially aggressive in long fiber paper grade and long fiber fluff grade, respectively.

Sawn Timber Division

Our Sawn Timber division had total sales of US$ 208.2 million for the fourth quarter of 2012, representing an 8.1% increase compared to the previous quarter. This increase was mainly due to higher average prices and volume sales of 7.8% and 0.3%, respectively.

When compared with the same period of 2011, sawn timber and remanufactured wood products sales increased 15.3%, mainly due to higher average prices of 11.0% and higher sales volume of 3.9%.

 

4


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statement

December 31, 2012

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

 

 

The real estate and construction sectors in the United States had a positive growth in the fourth quarter of 2012. The housing Starts index reached 954,000 units in December, a 36.9% increase if compared to December 2011. Although this was a strong increase, that level is still low when compared to the 10 year historical average. During the fourth quarter of 2012, sales prices of moldings in the United States stood stable if compared to the third quarter of the same year.

During this fourth quarter, sawn timber markets had a small decline. Sales volumes were stable, however, there was pressure for price cuts.

Also, inventories of logs in China decreased, adding a positive pressure for price increases.

Panels Division

Panel’s sales reached US$ 424.1 million in the fourth quarter of this year, an increase of 39.7% when compared to the US$ 303.7 million obtained in the third quarter of the year. This increase is mainly explained by an increase in sales volume of 56.1% due to the consolidation of Flakeboard and partially offset by lower prices of 2.3%.

Compared with the same quarter of 2011, sales were 40.2% higher, mainly explained by an increase in sales volume of 54.2%, partially offset by lower average prices of 3.5%.

Our sales volume of Plywood decreased 38% respect to the year 2011, mainly explained by lower supply capacity due to the fire of our Nueva Aldea plywood mill.

Regarding our MDF boards, sales volume increased 86% when comparing 4Q of 2012 with 4Q of 2011, and a 32% increase when comparing full year 2012 with the precious year. These increases are explained by a larger production capacity after the acquisition of the Moncure mill and Flakeboard in North America.

Sales volume of our Particleboard products had a 130% increase when comparing 4Q of 2012 with 4Q of 2011. This is also explained by the acquisitions of Moncure and Flakeboard during 2012 which came along with higher sales volumes in the United States and Canada, and also because of the new production capacity of our new Teno mill in Chile.

MDF Moldings had a 15% increase in sales volume during full year 2012, mainly explained by higher sales to USA and Europe, especially in Russia and the Netherlands. The increase in sales in North America is due to a recovery in housing starts, which has triggered a higher demand of our moldings used in construction and remodeling.

Our Hardboard volume sales grew 24% respect to the third quarter of 2011, and 6.5% above full year 2011, mainly driven by higher sales in Chile and Mexico.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statement

December 31, 2012

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

 

 

4. ANALYSIS OF CASH FLOW

The main components of net cash flow in each period are as follows:

 

     12-31-2012
ThU.S.$
    12-31-2011
ThU.S.$
 

Positive (negative) Cash flow

    

Cash flow from operating activities

     458,492        982,237   

Cash flow from financing activities:

    

Loan and bond payments

     860,047        (187,686

Dividend payments

     (196,816     (291,512

Others

     (15,147     (1,986

Cash flow from investment activities:

    

Purchase and sales of permanent investments (net)

     (410,625     (426,729

Incorporation and sale of property, plant and equipment

     (473,582     (577,305

Incorporation and sale of biological assets

     (115,345     (134,286

Loan to related companies (net)

     (22,000     (65,500

Others

     (5,487     (5,037
  

 

 

   

 

 

 

Positive Net cash flow (negative)

     79,537        (707,804
  

 

 

   

 

 

 

The operating cash flow has a positive balance of U.S.$ 458 million in the current year, with differences over the previous year (positive balance of U.S. $ 982 million) mainly due to an increase in payments for income taxes and an increase in payments to suppliers and employees, supplemented by a decrease in the flow by collecting insurance payments.

Regarding flow from financing activities, the positive balance of U.S.$ 648 million in the current year compared to a deficit of U.S.$ 481 million in the previous year. This variation is mainly due to bond issues for U.S.$ 733 million in the year 2012.

In relation to the flow of investment, the current financial year decreased U.S.$ 1,027 million (U.S.$ 1,209 million in 2011), mainly due to lower capital investments and lower payments for acquisition of property, plant and equipment in the year 2012.

5. MARKET RISK ANALYSIS

In respect of the economic risks resulting from interest rate variations, the Company maintains, as of December 31, 2012, a ratio of fixed rate debt to total consolidated debt of approximately 87.6%, which it believes is consistent with industry standards. The Company does not engage in futures against variations in the selling prices of pulp and forest products because it believes that risks resulting from price variations are limited, in large part because the Company maintains one of the lowest cost structures in the industry.

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

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2012

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

 

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

 

     Note    12-31-2012
ThU.S.$
     12-31-2011
ThU.S.$
 

Assets

        

Current Assets

        

Cash and cash equivalents

   4      395,716         315,901   

Other current financial assets

   23      1,012         0   

Other current non-financial assets

   25      207,889         207,196   

Trade and other current receivables

   23      825,869         740,416   

Accounts receivable from related companies

   13      130,423         70,179   

Current Inventories

   3      815,782         795,104   

Current biological assets

   20      252,744         281,418   

Current tax assets

        55,923         37,153   

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

        2,685,358         2,447,367   

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

   22      13,610         15,293   

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

        13,610         15,293   

Total Current Assets

        2,698,968         2,462,660   

Non-Current Assets

        

Other non-current financial assets

   23      61,350         25,812   

Other non-current non-financial assets

   25      125,254         99,901   

Trade and other non-current receivables

   23      11,877         7,332   

Investments accounted for using equity method

   15-16      1,048,463         886,706   

Intangible assets other than goodwill

   19      22,311         17,609   

Goodwill

   17      58,645         59,124   

Property, plant and equipment

   7      5,889,137         5,393,978   

Non-current biological assets

   20      3,473,442         3,463,166   

Deferred tax assets

   6      161,739         135,890   

Total non-Current Assets

        10,852,218         10,089,518   

Total Assets

        13,551,186         12,552,178   
     

 

 

    

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2012

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

 

 

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (continued)

 

     Note    12-31-2012
ThU.S.$
    12-31-2011
ThU.S.$
 

Equity and liabilities

       

Liabilities

       

Current Liabilities

       

Other current financial liabilities

   23      808,614        248,992   

Trade and other current payables

   23      490,191        397,073   

Accounts payable to related companies

   13      9,168        9,785   

Other current provisions

   18      8,875        8,607   

Current tax liabilities

        12,264        144,989   

Current provisions for employee benefits

   10      3,945        3,307   

Other current non-financial liabilities

   25      92,230        219,192   

Total Current Liabilities

        1,425,287        1,031,945   

Non-Current Liabilities

       

Other non-current financial liabilities

   23      3,606,310        3,063,471   

Other non-current provisions

   18      13,281        9,688   

Deferred tax liabilities

   6      1,395,654        1,256,233   

Non-current provisions for employee benefits

   10      43,491        36,102   

Other non-current non-financial liabilities

   25      101,404        124,589   

Total non-current liabilities

        5,160,140        4,490,083   

Total liabilities

        6,585,427        5,522,028   

Equity

       

Issued capital

        353,176        353,176   

Retained earnings

        6,754,725        6,683,252   

Other reserves

        (216,579     (96,821

Equity attributable to parent company

        6,891,322        6,939,607   

Non-controlling interests

        74,437        90,543   

Total equity

        6,965,759        7,030,150   

Total equity and liabilities

        13,551,186        12,552,178   
     

 

 

   

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2012

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

 

CONSOLIDATED STATEMENTS OF INCOME

 

     Note    2012
ThU.S.$
    2011
ThU.S.$
 

Income Statement

       

Revenue

   9      4,280,302        4,374,495   

Cost of sales

   2      (3,148,518     (2,882,455

Gross profit

        1,131,784        1,492,040   

Other income

   2      390,506        475,014   

Distribution costs

   2      (451,846     (477,628

Administrative expenses

   2      (474,025     (415,521

Other expense

   2      (80,401     (90,313

Other gains (losses)

   14      16,133        0   

Profit (loss) from operating activities

        532,151        983,592   

Finance income

   2      17,778        24,589   

Finance costs

   2      (233,703     (196,356

Share of profit (loss) of associates and joint ventures accounted for using equity method

   15      14,253        (11,897

Exchange rate differences

        (18,858     (26,643

Income before income tax

        311,621        773,285   

Income Tax

   6      (171,150     (152,499

Profit (loss) from continuing operations

        140,471        620,786   

Profit (loss) from discontinued operations

       

Net Income

        140,471        620,786   
     

 

 

   

 

 

 

Net income attributable to

       

Net income attributable to parent company

        135,813        612,553   

Income attributable to non-controlling interests

        4,658        8,233   

Profit (loss)

        140,471        620,786   
     

 

 

   

 

 

 

Basic earnings per share

       

Earnings per share from continuing operations

        0.0012003        0.0054135   
     

 

 

   

 

 

 
        0.0012003        0.0054135   
     

 

 

   

 

 

 

Earnings per diluted shares

       

Earnings per diluted share from continuing operations

        0.0012003        0.0054135   
     

 

 

   

 

 

 

Basic earnings per diluted share

        0.0012003        0.0054135   
     

 

 

   

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2012

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

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

     Note    2012
ThU.S.$
    2011
ThU.S.$
 

Profit (loss)

        140,471        620,786   

Components of other comprehensive income, before tax:

       

Exchange differences on translation

       

Gains (losses) on exchange differences on translation, before tax

   11      (105,250     (145,775

Cash flow hedges

       

Gains (losses) on cash flow hedges, before tax

   23      (24,019     (12,767

Share of other comprehensive income of associates and joint ventures accounted for using equity

        1,276        (3,502

Other comprehensive income, net of tax

        (127,993     (162,044

Income tax relating to cash flow hedges of other comprehensive income

   6-23      4,823        932   

Other comprehensive income

        (123,170     (161,112

Total comprehensive income

        17,301        459,674   
     

 

 

   

 

 

 

Comprehensive Income attributable to

       

Comprehensive income, attributable to owners of parent

        16,055        456,978   

Comprehensive income, attributable to non-controlling interests

        1,246        2,696   

Total comprehensive income

        17,301        459,674   
     

 

 

   

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2012

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

 

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

 

12-31-2012

  Issue Capital
ThU.S.$
    Reserve of exchange
differences on
translation

ThU.S.$
    Reserve of cash
flow hedges
ThU.S.$
    Participation in
other
Comprehensive
Income in
Associates and
Joint Venture
ThU.S.$
    Other
Reserves
ThU.S.$
    Retained Earnings
ThU.S.$
    Equity attributable to
owners of parent
ThU.S.$
    Non-controlling
interests
ThU.S.$
    Total Equity
ThU.S.$
 

Opening balance at 01/01/2012

    353,176        (67,539     (25,914     (3,368     (96,821     6,683,252        6,939,607        90,543        7,030,150   

Comprehensive income

                 

Net income

              135,813        135,813        4,658        140,471   

Other comprehensive income, net of tax

      (101,838     (19,196     1,276        (119,758       (119,758     (3,412     (123,170

Comprehensive income

      (101,838     (19,196     1,276        (119,758     135,813        16,055        1,246        17,301   

Dividends

              (64,340     (64,340     (17,352     (81,692

Total Changes in equity

    0        (101,838     (19,196     1,276        (119,758     71,473        (48,285     (16,106     (64,391

Closing balance at 12/31/2012

    353,176        (169,377     (45,110     (2,092     (216,579     6,754,725        6,891,322        74,437        6,965,759   

 

12-31-2011

  Issue Capital
ThU.S.$
    Conversion
Reserves
ThU.S.$
    Hedge Reserves
ThU.S.$
    Participation in
other
Comprehensive
Income in
Associates and
Joint Venture
ThU.S.$
    Other
Reserves
ThU.S.$
    Retained Earnings
ThU.S.$
    Equity attributable to
owners of parent
ThU.S.$
    Non-controlling
interests
ThU.S.$
    Total Equity
ThU.S.$
 

Opening balance at 01/01/2011

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

Comprehensive income

                 

Net income

              612,553        612,553        8,233        620,786   

Other comprehensive income, net of tax

      (140,238     (11,835     (3,502     (155,575       (155,575     (5,537     (161,112

Comprehensive income

      (140,238     (11,835     (3,502     (155,575     612,553        456,978        2,696        459,674   

Dividends

            0        (249,565     (249,565     (20,534     (270,099

Total Changes in equity

    0        (140,238     (11,835     (3,502     (155,575     362,988        207,413        (17,838     189,575   

Closing balance at 12/31/2011

    353,176        (67,539     (25,914     (3,368     (96,821     6,683,252        6,939,607        90,543        7,030,150   

The accompanying notes are an integral part of these consolidated financial statements.

 

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

December 31, 2012

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

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

     12-31-2012
ThU.S.$
    12-31-2011
ThU.S.$
 

STATEMENTS OF CASH FLOWS

    

Cash Flows from (used in) Operating Activities

    

Classes of cash receipts from operating activities

    

Receipts from sales of goods and rendering of services

     4,704,743        4,606,542   

Receipts from premiums and claims, annuities and other policy benefits

     132,983        270,663   

Other cash receipts from operating activities

     291,122        276,650   

Classes of cash payments

    

Payments to suppliers for goods and services

     (3,862,438     (3,532,728

Payments to and on behalf of employees

     (420,885     (329,158

Other cash payments from operating activities

     (27,893     (5,151

Dividends received

     3,531        1,720   

Interest paid

     (165,854     (180,046

Interest received

     8,722        14,009   

Income taxes refund (paid)

     (202,881     (138,621

Other (outflows) inflows of cash, net

     (2,658     (1,643

Net Cash flows from Operating Activities

     458,492        982,237   
  

 

 

   

 

 

 

Cash flows (used in) investing activities

    

Cash flow used in obtaining control of subsidiaries or other businesses

     (253,808     (6,972

Cash flow used to contributions in associates

     (13,560     (242,360

Other cash receipts from sales of participations in joint ventures

     6,607        0   

Capital contributions to joint ventures

     (149,864     (177,397

Loans to related parties

     (60,500     (199,666

Proceeds from sale of property, plant and equipment

     7,920        14,023   

Purchase of property, plant and equipment

     (481,502     (591,328

Proceeds from sales of intangible assets

     3,250        0   

Purchase of intangible assets

     (8,623     (7,619

Proceeds from sale of other long-term assets

     3,305        5,074   

Purchase of biological assets

     (118,650     (139,360

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

     38,500        134,166   

Other outflows of cash, net

     (114     2,582   

Cash flows used in Investing Activities

     (1,027,039     (1,208,857
  

 

 

   

 

 

 

Cash flows from (used in) Financing Activities

    

Total loans obtained

     1,836,410        713,624   

Proceeds from short-term borrowings

     942,839        0   

Loans obtained in long term

     893,571        713,624   

Repayments of borrowings

     (976,363     (901,310

Dividends paid by the parent company

     (178,889     (270,767

Dividends paid by subsidiaries or special purpose companies

     (17,927     (20,745

Interest paid

     (13,600     0   

Other inflows of cash, net

     (1,547     (1,986

Cash flows from (used in) Financing Activities

     648,084        (481,184
  

 

 

   

 

 

 

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

     79,537        (707,804

Effect of exchange rate changes on cash and cash equivalents

     278        (20,129
  

 

 

   

 

 

 

Net increase (decrease) of Cash and Cash equivalents

     79,815        (727,933

Cash and cash equivalents, at the beginning of the period

     315,901        1,043,834   

Cash and cash equivalents, at the end of the period

     395,716        315,901   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

December 31, 2012

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

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 

NOTE 1. PRESENTATION OF FINANCIAL STATEMENTS

Entity Information

Name of Reporting Entity

Celulosa Arauco y Constitución S.A. (the “Company” and together with its subsidiaries, “Arauco”), tax identification number 93,458,000-1, is a closely held corporation, that was registered in the Securities Registry (the “Registry”) of the Superintendency of Securities and Insurance (the “Superintendency”) under No. 042 on June 14, 1982. Forestal Cholguán S.A., subsidiary of Arauco, is also registered in the Registry under No. 030. Additionally, the Company is registered as a non-accelerated filer with the Securities and Exchange Commission of the United States.

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

Arauco is principally engaged in the production and sale of forestry and wood products. Its main operations are focused on the following business areas: Pulp, Plywood and Fiberboard Panels, Sawn Timber and Forestry.

Arauco is controlled by Empresas Copec S.A., which owns 99.9779% of Arauco, and is registered in the Registry as No. 0028. Each of the above companies is subject to the oversight of the Superintendency.

The ultimate shareholders of Arauco are Mrs. Maria Noseda Zambra de Angelini, Mr. Roberto Angelini Rossi and Mrs. Patricia Angelini Rossi through the entity Inversiones Angelini y Cia. Ltda., which owns 99.9780% of the shares of AntarChile S.A., the controlling shareholder of our parent company Empresas Copec S.A.

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

Presentation of Financial Statements

The Financial Statements presented by Arauco as of December 31, 2012 are:

 

   

Consolidated Statements of Financial Position as of December 31, 2012 and 2011.

 

   

Consolidated Statements of Income for the two years ended December 31, 2012 and 2011.

 

   

Consolidated Statements of Comprehensive Income for the two years ended December 31, 2012 and 2011.

 

   

Consolidated Statements of Changes in Equity for the two years ended December 31, 2012 and 2011.

 

   

Consolidated Statements of Cash Flows for the two years ended December 31, 2012 and 2011.

 

   

Notes to the consolidated financial statements.

 

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

December 31, 2012

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

 

 

Period covered by the Financial Statements

As of December 31, 2012 and 2011 and for the years ended December 31, 2012 and 2011.

Date of Approval of Financial Statements

These consolidated financial statements were authorized and approved for issue by the Board of Directors of the Company (the “Board”) at the Extraordinary Session N° 482 held on March 8, 2013.

Functional and Presentation Currency

Arauco and most of its subsidiaries has determined the U.S. Dollar as its functional currency since majority of its revenues from sales of its products are from exports, while its costs of sales are to a large extent related or index to the U.S. Dollar.

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

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

In relation to cost of sales, although the costs of labor and services are generally billed and paid in local currency, these costs are not as significant as the costs of raw materials, which are driven mainly by global markets and therefore, influenced mostly by the U.S. Dollar.

The presentation currency of the consolidated financial statements is the U.S. dollar.

Figures on these consolidated financial statements are presented in thousands of U.S. dollar (ThUS$).

Additional Information Relevant to the Understanding of the Financial Statements

The company Fondo de Inversión Bío Bío and its subsidiary Forestal Río Grande S.A. meet the requirements for classification as Special Purpose Entities. These entities are in substance controlled by Arauco, which is indicated, by the existence of exclusive contracts with Arauco for wood supply, future purchases of land and forest administration. Consequently, the financial statements of these companies are included in the consolidated financial statements of Arauco.

Compliance and adoption of IFRS

The accompanying consolidated financial statements of Arauco presents in all material respects its financial position, its results of operations and its cash flows in accordance with IFRS as issued by the IASB.

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

 

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

December 31, 2012

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

 

 

Summary of significant accounting policies

The accompanying consolidated financial statements as of December 31, 2012 were prepared in accordance with Arauco’s accounting policies, which have been consistently applied to all periods presented in these consolidated financial statements.

 

a) Basis for Presentation of financial statements

The accompanying consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) and they represent the integral, explicit and unreserved adoption of IFRS.

The consolidated financial statements have been prepared on the historical cost basis except for biological assets, and certain financial assets and financial liabilities (including derivative instruments) that are measured at fair value.

 

b) Critical accounting estimates and judgments

The preparation of consolidated financial statements in accordance with IFRS requires management to make estimates and assumptions that affect the carrying amounts reported. The estimates are based on historical experience and various other assumptions that are considered to be reasonable. Actual results may differ from these estimates. Management believes that the accounting policies below are the critical judgments that have the most significant effect on the amounts recognized in the consolidated financial statements.

- Property, Plant and Equipment

In a business acquisition, management values the acquired property, plant and equipment and their useful lives in consultation with a third party expert.

The carrying amounts of property, plant and equipment are reviewed whenever events or changes in circumstances indicate that the carrying amount of an asset may be impaired. The recoverable amount of an asset is the higher of fair value less costs to sell and its value in use, with an impairment loss recognized whenever the carrying amount exceeds the recoverable amount. The value in use is calculated using a discounted cash flow model, which is most sensitive to the discount rate as well as the expected future cash inflows.

A sensitivity analysis related to the estimated useful lives is disclosed in Note 7.

- Fair Value of Financial Instruments

The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. Arauco uses its judgment to select a variety of methods and makes assumptions that are mainly based on market conditions existing at each reporting date.

 

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

December 31, 2012

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

 

 

Detailed financial information about the fair value of financial instruments and sensitivity analysis are presented in Note 23.

-Biological Assets

The recovery of forest plantations is based on discounted cash flow models which mean that the fair value of biological assets is calculated using cash flows from continuing operations on a discounted basis, on our sustainable forest management plans and the estimated growth of forests.

These discounted cash flows require estimates in growth, harvest, sales prices and costs. It is therefore important that management make appropriate estimates of future levels and trends for sales and costs, as well as conduct regular surveys of the forests to establish the volumes of wood available for harvesting and their current growth rates. The main considerations used to measure forest plantations are presented in Note 20, including a sensitivity analysis.

-Impairment of goodwill

Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to which goodwill has been allocated. The value in use calculation requires the directors to estimate the future cash flows expected to arise from the cash-generating unit and suitable discount rate in order to calculate present value.

-Employee benefits

The cost of defined employee benefits for termination of employment, as well as the present value of the obligation is determined using actuarial valuations. The actuarial valuations involve making assumptions about discount rates, staff turnover, future salary increases and mortality rates.

- Litigations and Contingencies

Arauco and its subsidiaries are subject to certain litigations. Future effects on Arauco’s financial condition resulting from these litigations are estimated by management, in collaboration with its legal advisors. Arauco recognizes provisions on each statement of financial position date and/or upon each substantial modification to an underlying claim of any such litigations. For description of current litigations see Note 18.

 

c) Consolidation

The consolidated financial statements include all entities over which Arauco has the power to govern the financial and operating policies, which is presumed to exist when Arauco holds more than one half of the voting rights of an entity so as to obtain benefits from its activities. Subsidiaries (including special purpose entities) are consolidated from the date on which control is transferred to the group and up to the date that control ceases.

A special purpose entity (“SPE”), is an organization that is established for a specific purpose or limited duration. Often these SPE, serve as intermediary organizations. In substance, the activities of the SPE are being conducted on behalf of Arauco according to its specific

 

 

 

 

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AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

December 31, 2012

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

 

 

business needs so that it obtains benefits from the SPE’s operation. An SPE shall be consolidated when the substance of the relationship between the consolidated entity and the SPE indicates that it is controlled by that entity.

All intercompany transactions and unrealized gains and losses from subsidiaries and special purpose entities have been fully eliminated from consolidation and non-controlling interests is presented in the consolidated statement of financial position within equity, separately from the equity of the owners of the parent.

The consolidated financial statements as of December 31, 2012 and 2011 include the assets, liabilities, income and expenses of the subsidiaries shown in Note 13 and those of the Fondo de Inversión Bío Bío, and its subsidiary Forestal Río Grande S.A., both of which are Special Purpose Entities.

Certain consolidated subsidiaries have Brazilian Real and Chilean Pesos as, their functional currencies. For consolidation purposes, the financial statements of those subsidiaries have been prepared in accordance with IFRS and translated into the presentation currency as indicated in Note 1 e) (ii).

Accounting policies for subsidiaries are adjusted if necessary to ensure consistency with the accounting policies applied by Arauco.

 

d) Segments

Arauco has defined its operating segments according to its business areas, based on the products and services sold to its customers. This definition is consistent with the management, resource allocation and performance assessment made by key personnel responsible for making relevant decisions related to the Company’s operation. The Chief Operating Decision Maker (CODM) is the Chief Executive Officer who is responsible for making these decisions and it is supported by the Corporate Managing Directors of each segment.

In line with the above, the Company established operating segments according to the following business units:

 

   

Pulp

 

   

Panels

 

   

Sawn Timber

 

   

Forestry

Refer to Note 24 for detailed financial information by operating segment.

 

e) Functional currency

(i) Functional currency

All items in the financial statements of Arauco and each of its subsidiaries, associates and jointly controlled entities are measured using the currency of the primary economic environment in which each entity operates (the functional currency). The consolidated financial statements are presented in U.S. dollars, which is Arauco’s functional and presentation currency.

 

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

December 31, 2012

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

 

 

(ii) Translation to the presentation currency of Arauco

For the purposes of presenting consolidated financial statements, the assets and liabilities of Arauco’s foreign operations are translation into U.S. dollars using exchange rates prevailing at the end of each reporting period. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuate significantly during that period, in which case the exchange rates at the dates of the transactions are used. Exchange differences arising, if any, are recognized in other comprehensive income and accumulated in equity.

On the disposal of a foreign operation, all of the exchange differences accumulated in equity in respect of that operation attributable to the owners of the parent are reclassified to profit or loss. In addition, in relation to a partial disposal of a subsidiary that does not result in Arauco losing control over the subsidiary, the proportionate share of accumulated exchange differences are re-attributed to non-controlling interests and are not recognized in profit or loss. For partial disposals of associates or jointly controlled entities that do not result in Arauco losing significant influence or joint control, the proportionate share of the accumulated exchange differences is reclassified to profit or loss.

Goodwill and fair value adjustments on identifiable assets and liabilities acquired arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated at the exchange rate prevailing at the end of each reporting period. Exchange difference arising are recognized in other comprehensive income and accumulated in equity.

(iii) Foreign Currency Transactions

Transactions in foreign currencies are recognized at the exchange rates prevailing at the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

Exchange differences on monetary items are recognized in profit or loss in the periods in which they arise except for exchange differences on transactions entered into in order to hedge certain foreign currency risks.

 

f) Cash and cash equivalents

Cash and cash equivalents include cash-in-hand, deposits held on demand at banks and other short term highly liquid investments with an original maturity of less than three months and which are subject to an insignificant risk of changes in value.

 

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

December 31, 2012

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

 

 

g) Financial Instruments

(i) Financial assets and liabilities measured at fair value through profit or loss

Financial assets measured at fair value through profit or loss are financial assets held for trading. A financial asset is classified in this category if it is acquired principally for the purpose of selling it in the short term.

Derivatives are also classified as held for trading unless they are designated and effective as hedging instruments. Assets in this category are classified as current assets and the obligation for these instruments is presented under other financial liabilities within the statement of financial position.

Regular purchases and sales of financial assets are recognized on the trade date, which is the date on which Arauco commits itself to purchase or sell the asset.

The financial assets and liabilities measured at fair value through profit or loss are initially recognized at fair value and transaction costs are expensed in the statement of income. They are subsequently measured at fair value with any gains or losses from changes in fair value recognized in profit or loss.

Interest Rate and Currency Swaps: Swaps are measured using the discounted cash flow method at a discount rate consistent with the risk of the operation.

Foreign Exchange Forwards: These instruments are initially recognized at fair value at the date on which the contract is entered into and are subsequently remeasured at fair value. Forwards are recognized as assets when fair value is positive and, as liabilities when fair value is negative.

The fair value of foreign exchange forward contracts is calculated by reference to current forward exchange rates for contracts with similar maturities.

The fair value of interest rate forward contracts is calculated by reference to the difference of the existing interest rates between the interest rate contractually agreed and the market interest rate at the end of each reporting period.

Mutual Funds: They are highly liquid instruments that are sold in the short term and are carried at their net asset value at the end of each period.

(ii) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables are classified as current assets, except for those with maturities more than 12 months after the reporting period, which are classified as non-current assets. Loans and receivables include trade and other receivables.

Loans and receivables are initially recognized at fair value and subsequently are measured at amortized cost using the effective interest rate method, less any impairment.

 

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

December 31, 2012

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

 

 

Repurchase Agreements: These are recognized at their initial investment cost plus accrued interest at the end of each reporting period. These contracts have maturities of less than 30 days.

(iii) Financial liabilities measured at amortized cost

Bank borrowings, debt issued (bonds) and financial liabilities of a similar nature are initially recognized at fair value. Transactions costs are included in the carrying amount of the liabilities and are amortized over the lives of the liabilities using the effective interest rate method).

In subsequent periods, they are measured at amortized cost and any difference between the proceeds (net of transaction costs) received, and the redemption value is recognized in profit or loss statement over the life of the debt using the effective interest rate method.

Financial liabilities are classified as current liabilities unless the Company has an unconditional right to defer settlement for at least twelve months after the reporting period.

The fair value of bank borrowings is determined using discounted cash flow techniques using rates consistent with the risk associated with bank borrowings of similar nature, while bonds are measured at their quoted market price.

(iv) Trade and other payables

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

(v) Hedging instruments

The effective portion of changes in the fair value of derivatives that are designated and qualify as hedging instruments in cash flow hedges is recognized in other comprehensive income. The gain or loss relating to the ineffective portion is recognized immediately in the statement of income within other income or other expenses, respectively.

When a hedging instrument expires or is settled, or when it ceases to qualify for hedge accounting, any cumulative gain or loss recognized in equity remains in equity until the forecasted transaction occurs, when the transaction occurs it is reclassified to profit or loss. When a forecasted transaction is no longer expected to occur, the cumulative gain or loss recognized in equity is immediately reclassified to profit or loss.

The fair value of hedging instruments are measured using internal model including discounted cash flow techniques that use a discount rate consistent with the operational risk using internal valuation methodology and market information from providers of recognized reputation.

 

h) Inventories

Inventories are stated at the lower of cost and net realizable value. Cost is determined using the weighted average cost method.

 

 

 

 

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Unaudited Notes to the Consolidated Financial Statements

December 31, 2012

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

 

 

The cost of finished goods and products in process includes the cost of raw materials, direct labor, other direct costs and general overhead expenses, excluding interest expenses.

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

Biological assets are transferred to inventories when forests are harvested.

Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.

When market conditions result in the production costs of a product exceeding its net realizable value, the inventories are write-down to its net realizable value. This write-down also includes obsolescence amounts resulting from slow moving inventories and technical obsolescence.

Spare parts that will be consumed in a period of less than twelve months, are presented in inventories and recognized as an expense when they are consumed.

 

i) Non-current assets held for sale

Non-current assets held for sale are measured at the lower of their previous carrying value and fair value less costs to sell. Assets are classified as held for sale when their carrying value will be recovered principally through a sale transaction that is highly probable and the non-current asset is available for immediate sale in its present condition. Management must be committed to a plan to sell the asset, and an active program to locate a buyer and complete the plan must have been initiated. In addition, the sale should be expected to qualify for recognition as a completed sale within one year from the date of classification, except for the existence of events or circumstances (beyond the entity’s control) that may extend the period to complete the sale beyond one year.

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

 

j) Business Combinations

Arauco applies the acquisition method to account for a business combination. This method, requires to identify the acquirer, determine the acquisition date, recognize and measure the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquiree; and recognize and measure goodwill or a gain from a bargain purchase. Identifiable assets acquired and liabilities assumed and any contingent liabilities in a business combination are initially measured at fair value at the acquisition date.

Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If the total of consideration transferred, non-controlling interest recognized and previously held interest measured is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognized directly in the income statement.

 

 

 

 

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Unaudited Notes to the Consolidated Financial Statements

December 31, 2012

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

 

 

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For purposes of impairment testing, goodwill in a business combination is allocated as of the acquisition date to the cash generating unit of the group or groups of cash generating units expected to benefit from the synergies of the combination irrespective of whether other assets or liabilities of the acquire are allocated to those units or groups of units.

Acquisition-related costs are accounted for as expenses when they are incurred, except for costs to issue debt or equity securities which are recognized in accordance with IAS 32 and IAS 39.

Non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the entity’s net assets in the event of liquidation may be initially measured either at fair value or at the present ownership instruments’ proportionate share in the recognized amounts of the acquire’s identifiable net assets. The choice is made on a transaction-by-transaction basis.

Arauco measures the fair value of the acquired company in the business combination on a step by step basis, recognizing the effects of variation in the income statement.

If the initial accounting for a business combination is not completed by the end of the reporting period in which the combination occurs, Arauco reports provisional amounts for the items for which the accounting is incomplete. During the measurement period (no more than one year), these provisional amounts are retrospectively adjusted , or additional assets or liabilities are recognized to reflect new information about facts and circumstances that existed at the acquisition date, if known, would have affected the amounts recognized at that date.

 

k) Investments in associates and joint ventures

Associates are entities over which Arauco exercises significant influence, generally when it holds between 20% and 50% of the voting rights, but not control.

Joint venture is defined as an entity over which there is joint control, which exists only when the decisions about strategic of activities, both financial and operational, require the unanimous consent of the parties sharing control.

Investments in associates and joint ventures are accounted for using the equity method and are initially recognized at cost. Their carrying amount is increased or decreased to recognize Arauco’s share of the profit or loss and other comprehensive income (exchange differences on translation to the reporting currency) of the associate or joint venture. Dividends received are recognized by deducting the carrying amount of the investment. Arauco’s investment in associates includes goodwill (net of any accumulated impairment loss).

If the total of consideration transferred, non-controlling interest recognized and previously held interest measured is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognized directly in the income statement.

 

 

 

 

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Unaudited Notes to the Consolidated Financial Statements

December 31, 2012

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

 

 

These investments are presented in the consolidated statement of financial position in the line item “Investments accounted for using equity method”.

If Arauco’s share of losses of an associate or joint venture equals or exceeds its interest in the associate or joint venture, Arauco discontinues recognizing its share of further losses. After Arauco’s carrying value in the investee is reduced to zero, additional losses are provided for, and a liability is recognized, only to the extent that Arauco has incurred legal or constructive obligations or made payments on behalf of the associate or joint venture. If the associate or joint venture subsequently reports profits, Arauco resumes recognizing its share of those profits only after its share of the profits equals the share of losses not recognized.

 

l) Intangible assets

After initial recognition, intangible assets are with finite useful lives carried at cost less any accumulated amortization and impairment losses.

Amortization of an intangible asset with a finite useful life is allocated on a systematic basis over the asset’s useful life. Amortization begins when the asset is available for use, i.e. when it is in the location and condition necessary for it to be capable of operating in the manner intended by management

(i) Computer Software

Computer software licenses are capitalized in terms of the costs incurred to acquire them and make them compatible with existing software. These costs are amortized over the estimated useful lives.

(ii) Water Rights, Easements and Other Rights

This item includes water-rights, easements and other acquired rights recognized at historical cost which have indefinite useful lives as there is no foreseeable limit to the period over which these assets are expected to generate net cash inflows. These rights are not amortized , but are tested for impairment at least annually, or when there is any indication that the assets might be impaired.

m) Goodwill

Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. Goodwill is not amortized but is tested for impairment on annual basis.

Goodwill recognized for the acquisition of the subsidiary Arauco do Brasil S.A. whose functional currency is the Brazilian real, is translated into U.S. dollars at the closing exchange rate. At the date of these financial statements, the only change in the carrying amount of goodwill is related to the net exchange rate differences on translation.

n) Property, Plant and Equipment

Property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. The cost includes expenditures that are directly attributable to the acquisition of the assets.

 

 

 

 

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Unaudited Notes to the Consolidated Financial Statements

December 31, 2012

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

 

 

Subsequent costs, such as improvements and replacement of components, are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to Arauco and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognized from property, plant and equipment. All other repairs and maintenance costs are expensed in the period in which they are incurred.

Arauco capitalizes borrowing costs that are directly attributable to the acquisition, construction or production of qualifying assets as part of the cost of those assets, until the assets are ready for their intended use (see Note 12).

Depreciation is calculated by components using the straight-line method.

The useful lives of the items of property, plant and equipment is estimated according to the expected use of the assets.

The residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.

o) Leases

Leases of assets in which Arauco substantially holds all the risks and rewards of ownership are classified as finance leases. Finance leases are initially recognized at the lower of the fair value at the inception of the lease of the leased property and the present value of the minimum lease payments.

When assets are leased under a finance lease, the present value of lease payments are recognized as financial account receivables. Finance income, which is the difference between the gross receivable and the present value of such amount, is recognized as the interest rate of return.

Leases in which substantially all risks and rewards are not transferred to the lessee are classified as operating leases. Payments under operating leases (net of any incentives received from the lessor) are recognized as an expense on a straight-line basis over the lease term.

p) Biological Assets

IAS 41 requires that biological assets, such as standing trees, are measured at fair value in the statement of financial position. Plantations forestry are accounted for at fair value less costs to sell, based on the presumption that fair values of these assets can be measured reliably.

The measurement of plantations forestry is based on discounted cash flow models whereby the fair value of the biological assets is determined using estimated future cash flows from continuing operations calculated using our sustainable forest management plans and including the estimated growth of the forests. This valuation is performed on the basis of each identifiable farm block and for each type of tree.

 

 

 

 

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Unaudited Notes to the Consolidated Financial Statements

December 31, 2012

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

 

 

The measurement of new plantations forestry made during the current year, is made at cost, which corresponds to the fair value at that date. After twelve months, the valuation methodology used is that explained in the preceding paragraph.

Biological assets shown as current assets correspond to those plantations forestry that will be harvested in the short term.

Biological growth and changes in fair value of plantations forestry are recognized in line item other income included in profit from operating activities in the statement of income.

The Company holds fire insurance policies for its plantations forestry, which together with company resources and efficient protection measures for these plantations assets allow financial and operational risks to be minimized.

q) Income taxes and Deferred taxes

The tax liabilities are recognized in the financial statements based on the determination of taxable income for the year and calculated using the tax rates in force in the countries where Arauco operates.

Deferred income tax is recognized using the balance sheet liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the end of the reporting period and that are expected to apply when the related deferred tax asset is realized or the deferred income tax liability is settled.

The goodwill arising on business combinations not give rise to deferred tax.

The deferred tax assets are generally recognized for all deductible temporary differences to the extent that it is probable that future taxable profit will be available against which those deductible temporary differences can be utilized.

r) Provisions

Provisions are recognized when the Company has a present obligation, legal or constructive, as a result of past events; it is probable that an outflow of resources will be required to settle the obligation; and a reliable estimate can be made of the amount of the obligation. The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period.

s) Revenue recognition

Revenues are recognized when Arauco has transferred the risks and rewards of ownership to the buyer and Arauco retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold. This means that generally revenues are recorded upon delivery of goods to customers in accordance with the agreed terms of delivery.

 

 

 

 

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Unaudited Notes to the Consolidated Financial Statements

December 31, 2012

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

 

 

(i) Revenue recognition from the Sale of Goods

Revenue from the sale of goods is recognized when Arauco has transferred to the buyer the significant risks and rewards of ownership of the goods, when the amount of revenue can be reliably measured, when Arauco does not retain any managerial involvement over the goods sold and when it is probable that the economic benefits associated with the transaction will flow to Arauco and the costs incurred in respect of the transaction can be measured reliably.

Sales are recognized in terms of the price agreed to in the sales contract, less any volume discounts and estimated product returns at the date of the sale. Volume discounts are evaluated in terms of estimated annual purchases. There is no significant financing component given that receivables from sales are collected within a short period, which is in line with market practices.

(ii) Revenue recognition from Rendering of Services

When the outcome of a transaction involving the rendering of services can be estimated reliably revenue associated with the transaction is recognized by reference to the stage of completion of the transaction at the date of the reporting period, and when it is probable that the economic benefits associated with the transaction will flow to the Arauco.

Arauco, mainly provides power supply which are traded in the spot market of the Sistema Interconectado Central (Interconnected Central System). According to current regulations, the prices on that market called “Marginal Costs” are calculated by the Centro de Despacho Económico de Carga del Sistema Interconectado Central (CDEC – SIC) (Load Economical Dispatch Center of the Interconnected Central System) and are generally recognized in the period in which the services are rendered.

Electrical power is generated as a by-product of the pulp process and is a complementary business to it, which is firstly supplied to the group’s subsidiaries and any surplus is sold to the interconnected central system.

Arauco provides other non-core services such as port services and pest control whose revenues are derived from fixed price service contracts, generally recognized during the period of the service contract on a straight-line basis over the term of the contract.

Revenues from operating segments mentioned in Note 24 are measured in accordance with the policies indicated in the preceding paragraphs.

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

t) Minimum dividend

Article No. 79 of the Chilean Corporations Law states that, unless otherwise unanimously agreed by the shareholders, corporations must distributed annually at least 30% of net income for the current year as cash dividend to shareholders determined in proportion to their shares or in the proportion established in the by-laws for preferred shares, if any, except where necessary to absorb accumulated losses from prior years.

 

 

 

 

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Unaudited Notes to the Consolidated Financial Statements

December 31, 2012

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

 

 

The General Shareholders’ Meeting of Arauco agreed to distribute annual dividends at 40% of net distributable income, including an interim dividend to be distributed at year end. Dividends payable are recognized as a liability in the financial statements in the period when they are declared and approved by the Arauco’s shareholders or when arises the corresponding present obligation based on existing legislation or distribution policies established by the Shareholders’ Meeting.

The interim and final dividends are recorded in equity upon their approval by the Company’s Board of Directors and the shareholders.

Dividends payable are presented in the line item “other current non financial liabilities”.

Dividends paid are not deductible for income tax purposes.

u) Impairment

Non-financial Assets

The recoverable amount of property, plant and equipment and other assets with finite useful lives are measured whenever there is any indication that the assets have suffered an impairment loss. Among the indications to consider as evidence of impairment are significant declines in the assets’ market value, significant adverse changes in the technological environment, obsolescence or physical damages of assets and changes in the manner in which the asset is used or expected to be used). Arauco evaluates at the end of each reporting period whether there is any evidence of the indications above mentioned.

For this evaluation, assets are grouped at the lowest level of group of assets that generates cash flows independently.

Goodwill and intangible assets with indefinite useful life are tested annually for impairment or whenever circumstances indicate it. The recoverable amount of an intangible asset is the higher of its fair value less costs of disposal and its value in use. An impairment loss is recognized whenever the carrying amount exceeds the recoverable amount.

A cash-generating unit to which goodwill has been allocated is tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro rata based on the carrying amount of each asset in the unit. Any impairment loss for goodwill is recognized directly in profit or loss. An impairment loss recognized for goodwill is not reversed in subsequent periods.

A previously recognized impairment loss is reversed if, and only if, there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognized. Impairment losses are reversed so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset in prior years. An impairment loss recognized for goodwill is not reversed in subsequent periods.

For the purposes of assessing impairment losses, assets are grouped at the lowest level for which there is identifiable cash flows separately for each cash-generating unit. Non-financial

 

 

 

 

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Unaudited Notes to the Consolidated Financial Statements

December 31, 2012

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

 

 

assets, other than goodwill, which had suffered an impairment loss, are reviewed at the end of each reporting period whether there is any indication that an impairment loss previously recognized may no longer exists or have decreased.

“Cash-generating units” are the smallest identifiable groups of those cash inflows that are largely independent of the cash inflow from other assets or groups of assets.

Goodwill is allocated to cash-generating units for impairment testing purposes. The allocation is made between cash-generating units or groups of cash generating units expected to benefit from the synergies of the combination.

Financial Assets

At the end of each reporting period, an evaluation is performed in order to identify whether there is any objective evidence that a financial asset or a group of financial assets may have been impaired. Financial assets are impaired only when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of a financial asset, the estimated future cash flows of the financial asset have been affected. Impairment losses are recognized in the consolidated statement of income.

The allowance for doubtful accounts is established when there is objective evidence that Arauco will not receive payments under the original sale terms. Allowance is made when the customer is a party to a bankruptcy court agreement or cessation of payments, and are written-off when Arauco has exhausted all levels of recovery of the receivable in a reasonable time.

The allowance for doubtful accounts is measured as the difference between the carrying amount of receivables and the present value of estimated future cash flows. The carrying amount of the receivable is reduced through the use of the allowance. If the impairment loss decreases in later periods, it is reversed either directly or by adjusting the provision for doubtful accounts, with effect in profit or loss.

v) Employee Benefits

Arauco has severance payment obligations arising from voluntary termination of employment. These are paid to certain employees that have been employed by the company for more than five years in accordance with conditions established within collective or individual employment contracts.

This is an estimate of the years of service-based severance payments to be recognized as a future termination payment liability, in accordance with contracts between Arauco and its employees and pursuant to actuarial valuation criteria for this type of liability. These obligations are considered a defined benefit plan.

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

Actuarial gains and losses are recognized in profit or loss in the year they are incurred.

These obligations are treated as post-employment benefits.

 

 

 

 

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Unaudited Notes to the Consolidated Financial Statements

December 31, 2012

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

 

 

w) Employee Vacations

Arauco recognizes the expense for employee vacation according to labor legislation in each country on an accrual basis.

This obligation is presented in the line item “Trade and Other payables” in the consolidated statement of financial position.

x) Recent accounting pronouncements

The following accounting pronouncements were effective as of January 1, 2012:

 

Amendments and

improvements

  

Contents

 

Mandatory application

for annual periods

beginning on or after

IAS 12   

Income taxes

 

This amendment, issued in December 2010, provides an exception to the general principles of IAS 12 for investment property that is measured using the fair value model in accordance with IAS 40 “Investment Property”, the exception also applies to investment property acquired in a business combination if, after the business combination the acquirer applies the fair value model in IAS 40. The amendment incorporates the presumption that investment property measured at fair value will be recovered entirely through sale for the purposes of measuring deferred taxes unless the presumption is rebutted. Early adoption is permitted.

  January 1, 2012
IFRS 7    Disclosures of Financial Instruments Issued in October 2010, increases the disclosure requirements for transactions involving transfers of financial assets.   July 1, 2011
IFRS 1   

First-time Adoption of International Financial Reporting Standards

 

Issued in December 2010, covers the following topics: i) Exemption for severe hyperinflation: allows companies whose transition date is after the normalization of its functional currency, valuing assets and liabilities at fair value as deemed cost, ii) Removal of requirements for fixed dates: adapts the fixed date included in IFRS 1 at the transition date for those operations that involve lower financial assets and liabilities at fair value on initial recognition results.

  July 1, 2011

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

 

New Standards and

interpretations

  

Content

 

Mandatory application

for annual periods

beginning on or after

IAS 19 revised   

Employee Benefits

 

Issued in September 2011, replaces IAS 19 (1998). This revised standard changes the recognition and measurement of the cost of defined benefit plans and termination benefits. Additionally, it includes modifications to the disclosures of all employee benefits.

  January 1, 2013

 

 

 

 

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Unaudited Notes to the Consolidated Financial Statements

December 31, 2012

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

 

 

IAS 27 revised   

Separate Financial Statements

 

Issued in May 2011, replaces IAS 27 (2008). The scope of this standard is restricted from this change only to separate financial statements, as aspects relating to the definition of control and consolidation were removed and included in IFRS 10. Early adoption is permitted in conjunction with IFRS 10, IFRS 11 and IFRS 12 and the amendment to IAS 28.

  January 1, 2013
IFRS 9   

Financial Instruments

 

Issued in December 2009, amending the classification and measurement of financial assets.

 

In November 2010 it was also amended to include treatment and classification of liabilities. Early adoption is permitted.

  January 1, 2015
IFRS 10   

Consolidated Financial Statements

 

Issued in May 2011, replaces SIC 12 “Consolidation of special purpose entities” and parts of IAS 27” Consolidated Financial Statements”. Clarifications and establishing new parameters for the definition of control, and the principles for the preparation of consolidated financial statements. Early adoption is permitted in conjunction with IFRS 11, 12 and IFRS amendments to IAS 27 and 28.

  January 1, 2013
IFRS 11   

Joint Arrangements

 

Issued in May 2011, replaces IAS 31 “Interests in Joint Ventures” and SIC 13 “Jointly controlled entities”. Among its modifications include eliminating the concept of jointly controlled assets and the option of proportional consolidation of joint control entities. Early adoption is permitted in conjunction with IFRS 10, 12 and IFRS amendments to IAS 27 and 28.

  January 1, 2013
IFRS 12   

Disclosure of interests in other entities

 

Issued in May 2011, applies to those entities that have interest in subsidiaries, joint arrangements, associates or unconsolidated structured entities. Early adoption is permitted in conjunction with IFRS 10, 11 and IFRS amendments to IAS 27 and 28.

  January 1, 2013
IFRS 13   

Fair Value Measurement

 

Issued in May 2011, brings together in one standard the requirements to measure the fair value of assets and liabilities and the disclosures necessary on it, and incorporates new concepts and clarifications for measurement.

  January 1, 2013
IFRIC 20    Stripping Costs in the production phase of open pit mines Issued in October 2011, regulates the recognition of costs for the removal of waste overload “Stripping Costs” in the production phase of a mine as an asset, the initial and subsequent measurement of this asset. Additionally, this interpretation requires mining entities presenting IFRS financial statements to write down the existing assets recognized as “Stripping Costs” against retained earnings when they cannot be attributed to an identifiable component of a mine.   January 1, 2013

 

 

 

 

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Unaudited Notes to the Consolidated Financial Statements

December 31, 2012

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

 

 

Amendments and

improvements

  

Contents

 

Mandatory application

for annual periods

beginning on or

IAS 28 revised   

Investments in associates and joint ventures

 

Issued in May 2011, sets out the accounting treatment of these investments by applying the equity method. Early adoption is permitted in conjunction with IFRS 10, IFRS 11 and IFRS 12 and the amendment to IAS 27.

  January 1, 2013
IAS 1   

Presentation of Financial Statements

 

Issued in September 2011. The main modification of this amendment requires that the items of Other Comprehensive Income will be categorized and grouped by evaluating whether they will be potentially reclassified to profit or loss in subsequent periods. Early adoption is permitted.

  July 1, 2012
IAS 32   

Offsetting of financial assets and liabilities

 

The amendments clarify the requirements for offsetting financial assets and financial liabilities in order to eliminate inconsistencies in the implementation of the current offsetting criteria in IAS 32. The Standard is applicable for annual periods beginning on or after January 1, 2014 and early adoption is permitted.

  January 1, 2014
IFRS 7   

Financial Instruments

 

Disclosures and amendments to disclosures about netting of assets and liabilities.

  January 1, 2013

Guidelines for transition

Amendments to IFRS 10, IFRS 11 and IFRS 12

   Consolidated Financial Statements, Joint Arrangements and Disclosure of Interests in Other Entities.   January 1, 2013
Amendments to IFRS 12, IFRS 10, IAS 27    Investment Entities Consolidated Financial Statements, Disclosure of Interests in Other Entities and Separate Financial Statements.   January 1, 2014

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

 

 

 

 

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Unaudited Notes to the Consolidated Financial Statements

December 31, 2012

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

 

 

NOTE 2. DISCLOSURE OF OTHER INFORMATION

 

a) Disclosure of Information on Issued Capital

The issued capital authorized, subscribed and fully paid of Arauco for the years ended December 31, 2012 and 2011 is ThU.S.$353,176 which is composed of 113,152,446 ordinary shares of a single series.

 

Description of Ordinary Capital Share Types    100% of Capital corresponds to ordinary shares
Number of Authorized Shares by Type of Capital in Ordinary Shares    113,152,446
Nominal Value of Shares by Type of Capital in Ordinary Shares    ThU.S.$0.0031211 per share
Amount of Capital in Shares by Type of Ordinary Shares that Constitute Capital    ThU.S.$353,176
Number of Shares Issued and Fully Paid by Type of Capital in Ordinary Shares    113,152,446

 

b) Dividends paid

The interim dividend paid each year is equivalent to 20% of the distributable net income calculated as of the end of September of each year and presented in the consolidated statement of changes in equity.

The final dividend paid each year corresponds to the difference between the 40% of prior year net income distributable and the amount of interim dividend paid at the end of the immediately preceding fiscal year.

The provision of minimum dividend corresponding to the year 2012 of ThU.S.$64,340 (ThU.S.$249,565 as of December 31, 2011) is presented in the consolidated statement of changes in equity.

The line item “Dividends paid” within the net cash flows from financing activities in the statement of cash flows for ThU.S.$196,816 as of December 31, 2012, (ThU.S.$291,512 as of December 31, 2011) of which ThU.S.$178,889 (ThU.S.$270,767 as of December 31, 2011) correspond to dividends paid to the Parent Company.

The following are the dividends paid during 2012 and 2011, and the corresponding amount per share:

 

Detail of Dividend Paid, Ordinary Shares   
Dividend Paid    Interim Dividend
Type of Shares for which there is a Dividend Paid    Ordinary Shares
Date of Dividend Paid    12-12-2012
Amount of Dividend    ThU.S.$ 17,321
Number of Shares for which Dividends are Paid    113,152,446
Dividend per Share    U.S.$0,15308

 

 

 

 

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Unaudited Notes to the Consolidated Financial Statements

December 31, 2012

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

 

 

Detail of Dividend Paid, Ordinary Shares   
Dividend Paid    Final Dividend
Type of Shares for which there is a Dividend Paid    Ordinary Shares
Date of Dividend Paid    05-09-2012
Amount of Dividend    ThU.S.$161,568
Number of Shares for which Dividends are Paid    113,152,446
Dividend per Share    U.S.$ 1.42788
Detail of Dividend Paid, Ordinary Shares   
Dividend Paid    Interim Dividend
Type of Shares for which there is a Dividend Paid    Ordinary Shares
Date of Dividend Paid    12-13-2011
Amount of Dividend    ThU.S.$87,997
Number of Shares for which Dividends are Paid    113,152,446
Dividend per Share    U.S.$0,77768
Detail of Dividend Paid, Ordinary Shares   
Dividend Paid    Final Dividend
Type of Shares for which there is a Dividend Paid    Ordinary Shares
Date of Dividend Paid    05-10-2011
Amount of Dividend    ThU.S.$182,770
Number of Shares for which Dividends are Paid    113,152,446
Dividend per Share    U.S.$ 1.61525

 

c) Disclosure of Information on Reserves

Other Reserves

Other reserves consist of reserves of exchange differences on translation, reserves of cash flow hedges and other reserves.

Arauco does not have any restrictions associated with these reserves.

Reserves of exchange differences on translation

Correspond to exchange differences relating to the translation of the results and net assets of Arauco’s subsidiaries whose functional currency is other than Arauco’s presentation currency.

Reserves of cash flow hedges

Correspond to the cumulative effective portion of gains or losses arising on changes in fair value of hedging instruments entered into for cash flow hedges.

Other reserves

This mainly corresponds to the share of other comprehensive income of investment in associates and joint ventures.

 

 

 

 

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Unaudited Notes to the Consolidated Financial Statements

December 31, 2012

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

 

 

d) Disclosures of other Information

The table below sets forth other income, other expenses, finance income, finance costs and share of profit (loss) of associates and joint venture for the years ended December 31, 2012 and 2011:

 

     2012     2011  
     ThU.S.$     ThU.S.$  

Classes of Other Income by activity

    

Other Operating Income, Total

     390,506        475,014   

Gain from changes in fair value of biological assets (See note 20)

     231,763        229,889   

Net income from insurance compensation

     89,022        —     

Revenue from export promotion

     3,379        5,545   

Insurance compensation, net of earthquake related losses (*)

     —          193,986   

Leases received

     2,339        4,124   

Gain on sales of assets

     29,191        9,046   

Other operating results (sale materials and waste, rent of easements, income tax recovery

     34,812        32,424   

Classes of Other Expenses by activity

    

Total of other expenses by activity

     (80,401     (90,313

Depreciations

     (907     (1,176

Contingent provision

     (2,487     (4,973

Impairment provision properties, plants and equipment and others

     (2,255     (7,631

Plants stopped operating expenses

     (7,007     (14,362

Expenses projects

     (10,667     (16,867

Loss of assets

     (4,253     (2,447

Loss of forest due to fires

     (3,387     (16,503

Other Taxes

     (5,693     (5,209

Research and development expenses

     (2,229     (3,446

Compensation and eviction

     (8,105     (1,238

Other expenses (cost of projects and studies, donations, fines, readjustments, repayments insurance)

     (33,411     (16,461

Classes of financing income

    

Financing income, total

     17,778        24,589   

Financial income from mutual funds - deposits

     7,493        12,262   

Financial income resulting from swap - forward

     4,465        8,219   

Other financial income

     5,820        4,108   

Classes of financing costs

    

Financing costs, Total

     (233,702     (396,812

Interest expense, Loans banks

     (17,471     (8,919

Interest expense, Bonds

     (155,988     (164,790

Interest expense, financial instruments

     (16,546     (6,564

Interest expense, debt refinancing

     (22,119     —     

Other financial costs

     (21,578     (16,083

Classes of Participation in Income (Loss) of associates and joint ventures accounted for using the Equity Method

    

Total

     14,253        (11,897

Investments in associates

     17,947        (1,012

Joint ventures

     (3,694     (10,885

 

(*) Corresponds to the income from indemnity insurance net costs of impairment write offs and operational costs of affected plants.

 

 

 

 

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AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

December 31, 2012

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

 

 

The tables below set forth cost of sales, distribution costs and administrative expenses in the financial statements for the years ended December 31, 2012 and 2011:

 

     2012      2011  

Cost of sales

   ThU.S.$      ThU.S.$  

Timber

     719,408         639,574   

Forestry labor costs

     583,038         588,779   

Depreciation

     236,671         216,967   

Maintenance costs

     220,520         211,652   

Chemical costs

     381,152         334,549   

Sawmill Services

     175,729         170,861   

Others Raw Materials

     249,219         223,749   

Indirect costs

     163,499         96,278   

Energy and fuel

     137,857         159,912   

Cost of electricity

     85,063         60,705   

Wage and salaries

     196,362         179,429   

Total

     3,148,518         2,882,455   
  

 

 

    

 

 

 

 

     2012     2011  

Distribution cost

   ThU.S.$     ThU.S.$  

Selling costs

     29,225        39,321   

Commissions

     14,604        14,752   

Insurance

     5,363        4,406   

Provision for doubtful accounts receivable

     (1,710     7,024   

Other selling costs

     10,968        13,139   

Shipping and freight costs

     422,621        438,307   

Port services (*)

     24,968        28,309   

Freights

     347,735        391,813   

Other shipping and freight costs

     49,918        18,185   

Total

     451,846        477,628   
  

 

 

   

 

 

 

 

(*) At December 31, 2011 includes revise of ThUS $ 27,499 (See Note 5)

 

     2012      2011  

Administrative expenses

   ThU.S.$      ThU.S.$  

Wage and salaries

     191,033         156,961   

Marketing, advertising, promotion and publications expenses

     9,149         7,699   

Insurance

     34,008         20,108   

Depreciation and amortization

     11,788         10,614   

Computer services

     11,463         15,737   

Lease rentals (offices, warehouses and machinery)

     17,845         14,383   

Auditor’s fees

     4,314         4,729   

Donations, contributions, scholarships

     14,786         13,603   

Fees (legal and technical advisories)

     46,924         63,923   

Property taxes, patents and municipality rights

     17,670         18,096   

Other administration expenses (travel within and outside the country, cleaning services, security, basic services)

     115,045         89,668   

Total

     474,025         415,521   
  

 

 

    

 

 

 

 

Expenses for

  

Note

   2012
ThU.S.$
     2011
ThU.S.$
 

Depreciations

   7      249,602         228,839   

Employee benefits

   10      434,205         341,260   

Amortization

   19      2,779         1,897   

 

 

 

 

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AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

December 31, 2012

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

 

 

NOTE 3. INVENTORIES

 

     12-31-2012      12-31-2011  

Components of Inventory

   ThU.S.$      ThU.S.$  

Raw materials

     90,466         90,587   

Production supplies

     82,248         74,658   

Products in progress

     78,981         58,594   

Finished goods

     435,546         446,289   

Spare Parts

     128,541         123,071   

Other inventories

     —           1,905   

Total Inventories

     815,782         795,104   
  

 

 

    

 

 

 

Inventories recognized as cost of sales during the year ended December 31, 2012 were ThU.S.$3,134,897 and ThU.S.$2,894,250 for the year ended December 31, 2011.

In order to recognize inventories at net realizable value, at December 31, 2012, a reversal of an obsolescence allowance was recorded in the amount of ThU.S.$4,749 (the provision increased by ThU.S.$2,957 as of December 31, 2011), and an increased provision was recorded in both years for damaged inventory, ThU.S.$20,834 and ThU.S.$313 as of December 31, 2012 and 2011, respectively as result of the fire occurred in January 2012 affecting a panels plant in Complejo Forestal e Industrial Nueva Aldea.

The allowance of obsolescence is calculated based on the conditions of sale of products and age of inventory (inventory turnover).

No inventories have been pledged as security for liabilities at the end of each reporting period.

Agricultural Products

Agricultural Products are mainly forestry products that are intended for sale in the normal course of our operations and are measured at fair value less costs to sell at the point of harvest at the end of each reporting period Agricultural products are classified as raw materials within the line item inventories.

 

 

 

 

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AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

December 31, 2012

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

 

 

NOTE 4. CASH AND CASH EQUIVALENTS

Cash and cash equivalents include cash on hand, bank checking account balances, time deposits, repurchase agreements and mutual funds. They are short-term highly liquid investments that are readily convertible to known amounts of cash, and are subject to an insignificant risk of changes in value.

The investment objective of time deposits and repurchase agreements is to maximize in the short-term the amounts of cash surpluses. These instruments are permitted under Arauco’s Investment Policy, which allows investing in fixed income securities. These instruments have a maturity of less than three months from the date of acquisition.

Arauco invests in local and international mutual funds in order to maximize the returns of cash surpluses denominated in Chilean Pesos or in foreign currencies such as U.S. Dollars or Euros. These instruments are permitted under Arauco’s Investment Policy.

As of the date of these consolidated financial statements, there are no amounts of cash and cash equivalents with restrictions on use.

 

     12-31-2012      12-31-2011  

Components of Cash and Cash Equivalents

   ThU.S.$      MUS$  

Cash on hand

     543         527   

Bank checking account balances

     62,816         31,097   

Time deposits

     151,799         128,526   

Mutual funds

     180,558         155,751   

Total

     395,716         315,901   
  

 

 

    

 

 

 

NOTE 5. ACCOUNTING POLICIES, CHANGES IN ACCOUNTING ESTIMATES AND ERRORS

Changes in Accounting Policies

The accounting policies have been developed in accordance with the effective IFRS as of December 31, 2012 and have been consistently applied to all periods presented in these consolidated financial statements.

Changes in Estimates and Accounting Policies

The financial statements as of December 31, 2012 do not show changes in accounting policies compared to the last year.

Errors

The financial statements as of December 31 2011 have been revised to reflect the effects of the following error corrections:

 

  a) The recognition of certain lease contracts as finance leases that were previously accounted for as operating, as a result, the line items “property, plant and equipment” and “other non-current liabilities” increase of ThU.S.$69,806 as of December 31, 2011 (ThU.S.$38,874 as of January 1, 2011).

 

 

 

 

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Unaudited Notes to the Consolidated Financial Statements

December 31, 2012

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

 

 

For purposes of Income statements, this item operation was initially classified as rental expense within cost of sales, and is now classified as depreciation expense within cost of sales situation that does not modify the presentation on purpose of increase of Property, plant and equipment. This revision had no impact on the statement of cash flows.

 

  b) The presentation of hedging derivative contracts were recorded net of derivative asset and derivative liability, involved an increase of ThU.S.$24,650 as of December 31, 2011 in the line items Other non-current financial assets and other non-current liabilities. As of January 1, 2011, the Group did not enter into any hedging derivative contracts, thus no reclassification was required.

The effects of the corrections are not material, and over the total assets and liabilities as of December 31, 2011 and January 1, 2011, were as follows:

 

     Previously reported                
     balances      Adjustment      As revised  
     to 12-31-2011      filing      to 12-31-2011  
     ThU.S.$      ThU.S.$      ThU.S.$  

Total assets

     12,457,722         94,456         12,552,178   

Total liabilities

     5,427,572         94,456         5,522,028   
  

 

 

    

 

 

    

 

 

 

 

     Previously  reported
balances

to 01-01-2011
ThU.S.$
     Adjustment
filing
ThU.S.$
     As revised
to  01-01-2011
ThU.S.$
 

Total assets

     12,506,332         38,874         12,545,206   

Total liabilities

     5,665,757         38,874         5,704,631   
  

 

 

    

 

 

    

 

 

 

These error corrections had neither effect in profit or loss nor in equity.

 

  c) A revision was also in the presentation of port services from Cost of sales to Distribution costs in the amount of ThU.S.$ 27,499 at December 31, 2011 (ThU.S.$ 21,745 at January 1, 2011).

The above effects are not significant and do not alter the profit or loss.

NOTE 6. TAXES

The tax rates applicable in the countries in which Arauco operates are 20% in Chile, 35% in Argentina, 34% in Brazil and 34% in United States (federal tax).

On July 30, 2010, Law No. 20,455 for National Reconstruction Financing was published in the Chilean Official Gazette (Diario Oficial de Chile). One of the most important changes under the law was the temporary increase in tax rates to 20% and 18.5% during fiscal years 2011 and 2012, respectively, to ease back to a tax rate of 17% in fiscal year 2013.

On September 27, 2012, Law N° 20,630 was enacted in Chile, and among other changes, it increases the tax rate to a permanent 20%, effective beginning on tax year 2012. The change in the tax rate in 2012 affected the measurement of the tax consequences of temporary differences that are expected to reverse in the corresponding tax years.

 

 

 

 

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Unaudited Notes to the Consolidated Financial Statements

December 31, 2012

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

 

 

The effect on the results of operations for the year ended December 31, 2012 due to the change in tax rate was an expense of ThU.S.$128,981, which was mainly the result of the expected reversal of temporary differences associated with property, plant, equipment and biological assets.

Deferred Tax Assets

The following table sets forth the deferred tax assets as of December 31, 2012 and 2011:

 

Deferred Tax Assets

   12-31-2012
ThU.S.$
     12-31-2011
ThU.S.$
 

Deferred tax Assets relating to Provisions

     4,752         7,878   

Deferred tax Assets relating to accrued liabilities

     6,385         4,766   

Deferred tax Assets relating to Post-Employment benefits

     9,341         6,625   

Deferred tax Assets relating to Property, Plant and equipment

     10,822         11,545   

Deferred tax Assets relating to Financial Instruments

     297         789   

Deferred tax Assets relating to tax losses carryforwards

     90,327         71,870   

Deferred tax assets relating to biological assets

     2,636         5,244   

Deferred tax assets relating to inventories

     9,142         3,543   

Deferred tax assets relating to provisions for income

     4,477         4,064   

Deferred tax assets relating to provision for doubful accounts

     3,602         4,458   

Deferred tax assets relating to other deductible temporary differences

     19,958         15,108   

Total deferred tax assets

     161,739         135,890   
  

 

 

    

 

 

 

As of December 31, 2012, certain of Arauco’s subsidiaries have carryforwards tax losses of ThU.S.$ 342,044 (ThU.S.$ 343,311 as of December 31, 2011) which are mainly generated due to operational and financial losses. Arauco believes that it is probable that future taxable profits will be available in the subsidiaries against which the unused tax losses will be utilized.

Deferred Tax Liabilities

The following table sets for the deferred tax liabilities as of December 31, 2012 and 2011:

 

Deferred Tax Liabilities

   12-31-2012
ThU.S.$
     12-31-2011
ThU.S.$
 

Deferred tax liabilities relating to property, Plant and equipment

     736,530         747,450   

Deferred tax liabilities relating to financial instruments

     14,218         3,723   

Deferred tax liabilities relating to biological assets

     531,801         426,250   

Deferred tax liabilities relating to inventory

     16,517         14,509   

Deferred tax liabilities due to prepaid expenses

     55,294         41,487   

Deferred tax liabilities relating to other taxable temporary differences

     41,294         22,814   

Total deferred tax liabilities

     1,395,654         1,256,233   
  

 

 

    

 

 

 

 

 

 

 

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Unaudited Notes to the Consolidated Financial Statements

December 31, 2012

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

 

 

The effect of changes in deferred tax liabilities related to cash flow hedges corresponds to a credit of ThU.S.$4,823 as of December 31, 2012 (credit of ThU.S.$932 as of December 31, 2011), which is presented deducting the reserve of cash flow hedges in the statement of changes in equity.

The deferred tax assets and liabilities expected to be recovered and settled in less than twelve months amounts to ThU.S.$23,638 and ThU.S.$126,410, respectively.

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

Temporary Differences

The following tables summarize the deductible and taxable temporary differences:

 

     12-31-2012      12-31-2011  

Detail of classes of Deferred Tax Temporary Differences

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

Deferred Tax Assets

     71,412            64,020      

Deferred Tax Assets - Tax losses

     90,327            71,870      

Deferred Tax Liabilities

        1,395,654            1,256,233   

Total

     161,739         1,395,654         135,890         1,256,233   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

Detail of Temporary Difference Income and Loss Amounts

   2012
ThU.S.$
    2011
ThU.S.$
 

Deferred Tax Assets

     3,147        (3,455

Deferred Tax Assets - Tax losses

     26,538        29,389   

Deferred Tax Liabilities

     (135,014     60,050   

Total

     (105,329     85,984   
  

 

 

   

 

 

 

Income tax expense for the years ended December 31, 2012 and 2011 consists of the following:

 

Income Tax composition

   2012
ThU.S.$
    2011
ThU.S.$
 

Current income tax expense

     (65,631     (242,918

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

     1,804        1,635   

Previous period current tax adjustments

     (1,945     2,316   

Other current tax expenses

     (49     484   

Current Tax Expense, Net

     (65,821     (238,483

Deferred tax income (expense) relating to origination and reversal of temporary differences

     680        45,617   

Deferred tax income (expense) relating to changes in tax rates or new tax rates (*)

     (128,981     10,632   

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

     22,972        29,735   

Total deferred Tax Expense, Net

     (105,329     85,984   

Income Tax Expense, Total

     (171,150     (152,499
  

 

 

   

 

 

 

 

(*) The effect of the change in tax rates resulted in recognizing an expense of ThU.S.$128,981, consisting of ThU.S.$124,597 over beginning balances for deferred taxes and ThU.S.$4,384 over deferred tax originated during the year.

 

 

 

 

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Unaudited Notes to the Consolidated Financial Statements

December 31, 2012

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

 

 

The following table sets for the current income tax expense detailed by foreign and domestic companies for the years ended December 31, 2012 and 2011:

 

     2012
ThU.S.$
    2011
ThU.S.$
 

Foreign current income tax expense

     (8,973     (38,103

Domestic current income tax expense

     (56,848     (200,380

Total current income tax expense

     (65,821     (238,483

Foreign deferred tax expense

     33,545        27,085   

Domestic deferred tax expense

     (138,874     58,899   

Total deferred tax expense

     (105,329     85,984   

Total tax income (expense)

     (171,150     (152,499
  

 

 

   

 

 

 

Reconciliation of income tax expense from statutory tax rate to the effective tax rate.

The reconciliation of income tax expense is as follows:

 

Reconciliation of Income tax from Statutory Rate to Effective Tax Rate

   2012
ThU.S.$
    2011
ThU.S.$
 

Tax Expense at applicable tax rate

     (62,324     (154,665

Tax effect of foreign tax rates

     1,247        (7,599

Tax effect of revenues exempt from taxation

     14,414        11,172   

Tax effect of expense mot deductible in determining taxable profit (tax loss)

     (9,745     (19,976

Tax rate effect of tax losses

     612        41   

Tax rate effect from change in tax rate (opening balances)

     (124,597     10,632   

Tax rate effect of adjustments for current tax of prior periods

     (1,945     2,316   

Other tax rate effects

     11,188        5,580   

Total adjustments to tax expense at applicable tax rate

     (108,826     2,166   

Tax expense at effective tax rate

     (171,150     (152,499
  

 

 

   

 

 

 

 

 

 

 

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Unaudited Notes to the Consolidated Financial Statements

December 31, 2012

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

 

 

NOTE 7. PROPERTY, PLANT AND EQUIPMENT

 

Properties, Plant and Equipment, Net

   12-31-2012
ThU.S.$
    12-31-2011
ThU.S.$
 

Construction in progress

     487,406        663,971   

Land

     806,840        805,804   

Buildings

     1,649,582        1,459,759   

Plant and equipment (*)

     2,804,865        2,360,229   

Information technology equipment

     26,294        23,740   

Fixtures and fittings

     5,790        6,010   

Motor vehicles

     8,124        10,152   

Other property, plant and equipment

     100,236        64,313   

Total Net

     5,889,137        5,393,978   
  

 

 

   

 

 

 

Properties, Plant and Equipment, Gross

    

Construction in progress

     487,406        663,971   

Land

     806,840        805,804   

Buildings

     2,923,631        2,616,914   

Plant and equipment

     5,201,709        4,391,652   

Information technology equipment

     61,252        55,772   

Fixtures and fittings

     24,845        23,942   

Motor vehicles

     32,766        34,447   

Other property, plant and equipment

     145,420        87,983   

Total Gross

     9,683,869        8,680,485   
  

 

 

   

 

 

 

Accumulated depreciation and impairment

    

Buildings

     (1,274,049     (1,157,155

Plant and equipment

     (2,396,844     (2,031,423

Information technology equipment

     (34,958     (32,032

Fixtures and fittings

     (19,055     (17,932

Motor vehicles

     (24,642     (24,295

Other property, plant and equipment

     (45,184     (23,670

Total

     (3,794,732     (3,286,507
  

 

 

   

 

 

 

 

(*) At December 31, 2011 includes revise of ThUS $ 69,806 corresponding to lease contracts. (See Note 5)

 

 

 

 

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Unaudited Notes to the Consolidated Financial Statements

December 31, 2012

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

 

 

Description of Property, Plant and Equipment Pledged as Security for Liabilities

In October 2006, Forestal Río Grande S.A, a subsidiary of Fondo de Inversión Bío Bío (Arauco’s special purpose entity), executed in favor of JPMorgan Chase Bank N.A. and Arauco, respectively, first and second degree mortgages, which prohibited the sale of any property owned by Fondo de Inversión Bío Bío in order to secure its obligations.

In September 2007, Forestal Río Grande S.A acquired a real estate in Yungay, located in Chile’s Eighth Region, for which the company executed a first and second degree mortgage in favor of JPMorgan and Arauco, respectively, which prohibited the sale and encumber such property.

 

     12-31-2012
ThU.S.$
     12-31-2011
ThU.S.$
 

Total property, plant and equipment pledged as security

     16,413         56,279   

The amount of contractual commitments for the acquisition of property, plant and equipment as of December 31, 2012 and 2011 were ThUS$281,893 and ThUS$114,212, respectively, and the amount of expenditures recognized in the carrying amount of property, plant and equipment in the course of its construction as of December 31, 2012 and 2011 were ThUS$424,474 and ThUS$537,398, respectively.

 

     12-31-2012
ThU.S.$
     12-31-2011
ThU.S.$
 

Amount committed for the acquisition of property, plant and equipment

     281,893         114,212   

 

     12-31-2012
ThU.S.$
     12-31-2011
ThU.S.$
 

Disbursements for property, plant and equipment under construction

     424,474         537,398   

 

 

 

 

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Unaudited Notes to the Consolidated Financial Statements

December 31, 2012

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

 

 

Movement on Property, Plant and Equipment

The following tables set forth the reconciliation of the carrying amount of property, plant and equipment as of December 31, 2012 and 2011:

 

Movement of Property, Plant and
Equipment

  Construction in
progress
    Land     Buildings     Plant and
equipments
    IT
Equipment
    Fixtures and
fittings
    Motor vehicles     Other
Property, Plant
and Equipment
    TOTAL  
  ThU.S.$     ThU.S.$     ThU.S.$     ThU.S.$     ThU.S.$     ThU.S.$     ThU.S.$     ThU.S.$     ThU.S.$  

Opening Balance 01-01-2012

    663,971        805,804        1,459,759        2,360,229        23,740        6,010        10,152        64,313        5,393,978   

Changes

                 

Additions

    424,474        5,569        3,850        30,723        593        61        1,693        39,005        505,968   

Acquisitions through business combinations

    2,730        14,648        70,996        314,283        1,477        —          —          2,373        406,507   

Disposals

    (516     (668     5,707        (16,196     (8     (113     (435     (3,535     (15,764

Retirements

    (12,062     (189     (19,979     (49,019     (103     (114     (1,175     (851     (83,492

Depreciation

    —          —          (82,069     (200,022     (3,468     (1,749     (3,020     (528     (290,856

Impairment loss recognized in profit or loss

    —          —          16,963        18,060        (4     (13     —          799        35,805   

Increase (decrease) through net exchange differences

    (16,042     (18,420     (8,953     (17,029     (220     (586     220        (1,979     (63,009

Increase (decrease) through transfers from construction in progress

    (575,149     96        203,308        363,836        4,287        2,294        689        639        —     

Total changes

    (176,565     1,036        189,823        444,636        2,554        (220     (2,028     35,923        495,159   

Closing balance 12-31-2012

    487,406        806,840        1,649,582        2,804,865        26,294        5,790        8,124        100,236        5,889,137   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

Movement of Property, Plant and
Equipment

  Construction in
progress
    Land     Buildings     Plant and
equipments
    IT
Equipment
    Fixtures and
fittings
    Motor vehicles     Other
Property, Plant
and Equipment
    TOTAL  
  ThU.S.$     ThU.S.$     ThU.S.$     ThU.S.$     ThU.S.$     ThU.S.$     ThU.S.$     ThU.S.$     ThU.S.$  

Opening Balance 01-01-2011

    562,309        821,288        1,417,684        2,227,197        16,963        3,657        10,057        68,464        5,127,619   

Changes

                 

Additions

    537,398        5,549        5,281        47,679        276        750        1,288        4,184        602,405   

Acquisitions through business combinations

    —          7,293        499        86        —          —          51        1        7,930   

Disposals

    (1,213     (1,113     (203     (632     —          —          (39     (768     (3,968

Retirements

    (10,587     (871     (85     (2,789     (3     (2     (7     (5,352     (19,696

Depreciation

    —          —          (74,478     (171,646     (2,781     (1,463     (2,615     (1,458     (254,441

Net movement of earthquake assets

    (61,209     —          7,232        76,432        63        (2     (242     7,497        29,771   

Impairment loss recognized in profit or loss

    —          —          (34     (4,064     —          —          —          (2,803     (6,901

Increase (decrease) through net exchange differences

    (15,227     (28,022     (10,686     (31,448     (88     (174     (53     (2,045     (87,743

Reclassification of assets held for sale

    —          (8     137        (1,127     —          —          —          —          (998

Increase (decrease) through transfers from construction in progress

    (347,500     1,688        114,412        220,541        9,310        3,244        1,712        (3,407     —     

Total changes

    101,662        (15,484     42,075        133,032        6,777        2,353        95        (4,151     266,359   

Closing balance 12-31-2011

    663,971        805,804        1,459,759        2,360,229        23,740        6,010        10,152        64,313        5,393,978   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

December 31, 2012

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

 

 

The depreciation expense for the years ended December 31, 2012 and 2011 is as follows:

 

     2012      2011  

Depreciation for the year

   ThU.S.$      ThU.S.$  

Cost of sales

     233,951         216,967   

Administrative expenses

     11,729         8,716   

Other expenses

     3,922         3,156   

Total

     249,602         228,839   
  

 

 

    

 

 

 

The useful lives of property, plant and equipment estimated based on the expected use of the assets are as follows:

 

          Minimum      Maximum      Average  

Buildings

   Useful Life in Years      16         89         39   

Plant and equipment

   Useful Life in Years      8         67         29   

Information technology equipment

   Useful Life in Years      6         18         5   

Fixtures and fittings

   Useful Life in Years      6         12         10   

Motor vehicles

   Useful Life in Years      6         26         13   

Other property, plant and equipment

   Useful Life in Years      5         27         16   

A significant portion of items of property, plant and equipment do not have significant differences between the fair value and the cost of these assets.

The following table sets forth a sensitivity analysis for depreciation based on changes of 5% in useful lives:

 

Useful life variance

   %  

+5%

     -5.24

-5%

     4.73

Capitalized borrowing costs are detailed in note 12.

 

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

December 31, 2012

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

 

 

NOTE 8. LEASES

Arauco acting as lessee

 

     12-31-2012      12-31-2011  
     ThU.S.$      ThU.S.$  

Property, Plant and Equipment under finance leases

     55,879         69,864   

Plant and equipment (*)

     55,879         69,864   

 

(*) At December 31, 2011 includes revise of ThUS $ 69,806 corresponding to lease contracts. (See Note 5)

The following tables set for reconciliation between the total of future minimum lease payments as of December 31, 2012 and 2011, and their present value:

 

     12-31-2012  
     Gross      Interest      Present Value  

Periods

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

Not later than one year

     20,489         —           20,489   

Later than one year and not later than five years

     35,563         —           35,563   

Later than five years

     —           —           —     

Total

     56,052         —           56,052   
  

 

 

    

 

 

    

 

 

 

 

     12-31-2011  
     Gross      Interest      Present Value  

Periods

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

Not later than one year

     47         1         46   

Later than one year and not later than five years

     69,806         —           69,806   

Later than five years

     —           —           —     

Total

     69,853         1         69,852   
  

 

 

    

 

 

    

 

 

 

Lease obligations are presented in the consolidated statement of financial position in line items “other current financial liabilities” and “Other non-current financial liabilities” depending on their maturities as stated above.

Arauco acting as lessor

The following tables set forth reconciliation between the gross investment in the lease, and the present value of minimum lease payments receivable as of December 31, 2012 and 2011:

 

     12-31-2012  
     Gross      Interest      Present Value  

Periods

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

Not later than one year

     1,642         115         1,527   

Later than one year and not later than five years

     1,437         93         1,344   

Later than five years

     —           —           —     

Total

     3,079         208         2,871   
  

 

 

    

 

 

    

 

 

 

 

     12-31-2011  
     Gross      Interest      Present Value  

Periods

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

Not later than one year

     3,510         249         3,261   

Later than one year and not later than five years

     2,766         186         2,580   

Later than five years

     —           —           —     

Total

     6,276         435         5,841   
  

 

 

    

 

 

    

 

 

 

Finance lease receivables are presented in the consolidated statement of financial position in line items “Trade and other current receivable” and “Trade and other non-current receivable” depending on their maturities stated above.

 

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

December 31, 2012

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

 

 

Arauco accounts for its lease contracts as finance leases. These lease contracts are for a term of less than five-year at a market interest rates and leased assets are forestry machinery and equipment. They also include an early termination option, under general and special conditions stipulated in each contract.

There are no contingent rents payable or restrictions imposed by lease arrangements.

NOTE 9. REVENUE

 

     2012      2011  

Classes of revenue

   ThU.S.$      ThU.S.$  

Revenue from sales of goods

     4,136,451         4,267,914   

Revenue from rendering of services

     143,851         106,581   

Total

     4,280,302         4,374,495   
  

 

 

    

 

 

 

NOTE 10. EMPLOYEE BENEFITS

Classes of Benefits and Expenses by Employee

 

     2012      2011  
     ThU.S.$      ThU.S.$  

Employee expenses

     434,205         341,260   

Wages and salaries

     420,885         329,158   

Severance indemnities

     13,320         12,102   

The main actuarial assumptions used by Arauco in the calculation of the severance indemnities obligation as of December 31, 2012 and 2011 are:

 

Discount rate

   3.50%

Inflation

   3.00%

Mortality rate

   RV-2009

 

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

December 31, 2012

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

 

 

The following tables set forth the balances and the reconciliation of the present value of severance indemnities obligation as of December 31, 2012 and 2011:

 

                         
     2012      2011  
     ThU.S.$      ThU.S.$  

Current

     3,945         3,307   

Non-current

     43,491         36,102   

Total

     47,436         39,409   
  

 

 

    

 

 

 

 

                         

Reconciliation of the present value of severance indemnities obligation

   2012
ThU.S.$
    2011
ThU.S.$
 

Opening balance

     39,409        39,276   

Current service cost

     3,916        1,668   

Interest cost

     1,401        2,553   

Actuarial gains

     8,235        6,274   

Benefits paid

     (8,726     (6,837

Increase (decrease) for foreign currency exchange rates changes

     3,201        (3,525

Closing balance

     47,436        39,409   
  

 

 

   

 

 

 

 

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

December 31, 2012

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

 

 

NOTE 11. EFFECT OF FOREIGN CURRENCY EXCHANGE RATE VARIATIONS

Local and foreign currency

Assets and liabilities by class of currency as of December 31, 2012 and 2011 are as follows:

 

     12-31-2012      12-31-2011  
     ThU.S.$      ThU.S.$  

Total Current Assets

     2,698,968         2,462,660   

Cash and Cash Equivalents

     395,716         315,901   

U.S Dollar

     325,340         196,546   

Euro

     1,867         58,328   

Brazilian Real

     38,477         35,238   

Argentine pesos

     4,877         4,960   

Other currencies

     2,726         7,212   

Chilean Pesos

     22,429         13,617   

Other current financial assets

     1,012         —     

U.S Dollar

     1,012         —     

Other current non-financial assets

     207,889         207,196   

U.S Dollar

     96,257         138,815   

Euros

     103         14   

Brazilian Real

     15,041         23,319   

Argentine pesos

     13,647         10,553   

Other currencies

     1,846         12,500   

Chilean Pesos

     80,995         21,995   

Trade and other current receivables

     825,869         740,416   

U.S Dollar

     520,803         500,790   

Euro

     26,711         25,800   

Brazilian Real

     53,057         70,564   

Argentine pesos

     38,256         26,827   

Other currencies

     22,543         30,480   

Chilean Pesos

     163,084         82,754   

U.F.

     1,415         3,201   

Accounts receivable from related companies

     130,423         70,179   

U.S Dollar

     122,315         69,356   

Brazilian Real

     1,268         822   

Chilean Pesos

     6,840         1   

Current Inventories

     815,782         795,104   

U.S Dollar

     718,348         677,337   

Brazilian Real

     77,340         99,304   

Chilean Pesos

     20,094         18,463   

Current biological assets

     252,744         281,418   

U.S Dollar

     252,744         238,812   

Brazilian Real

     —           42,606   

Current tax assets

     55,923         37,153   

U.S Dollar

     304         6,358   

Brazilian Real

     6,655         6,745   

Argentine pesos

     6,931         7   

Other currencies

     1,188         11,199   

Chilean Pesos

     40,845         12,844   

Non-current assets or disposal groups classified as held for sale or as held for distribution to owners

     13,610         15,293   

U.S Dollar

     13,610         15,293   

 

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

December 31, 2012

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

 

 

     12-31-2012      12-31-2011  
     ThU.S.$      ThU.S.$  

Total Non Current Assets

     10,852,218         10,089,518   

Other non-current financial assets (*)

     61,350         25,812   

U.S Dollar

     60,333         24,650   

Argentine pesos

     1,017         1,162   

Other non-current non-financial assets

     125,254         99,901   

U.S Dollar

     105,414         78,046   

Brazilian Real

     17,042         19,971   

Argentine pesos

     1,540         525   

Other currencies

     681         383   

Chilean Pesos

     577         976   

Trade and other non-current receivables

     11,877         7,332   

U.S Dollar

     5,204         641   

Chilean Pesos

     3,374         2,538   

U.F.

     3,299         4,153   

Investments accounted for using equity method

     1,048,463         886,706   

U.S Dollar

     790,116         634,440   

Brazilian Real

     258,347         252,266   

Intangible assets other than goodwill

     22,311         17,609   

U.S Dollar

     18,150         12,755   

Brazilian Real

     4,070         4,751   

Chilean Pesos

     91         103   

Goodwill

     58,645         59,124   

U.S Dollar

     6,996         2,857   

Brazilian Real

     51,649         56,267   

Property, plant and equipment (**)

     5,889,137         5,393,978   

U.S Dollar

     5,121,851         4,669,425   

Brazilian Real

     756,507         715,486   

Chilean Pesos

     10,779         9,067   

Non-current biological assets

     3,473,442         3,463,166   

U.S Dollar

     3,093,440         3,060,006   

Brazilian Real

     380,002         403,160   

Deferred tax assets

     161,739         135,890   

U.S Dollar

     114,108         77,179   

Brazilian Real

     46,464         46,478   

Argentine pesos

     —           11,688   

Other currencies

     361         150   

Chilean Pesos

     806         395   

 

(*) At December 31, 2011 includes revise of ThUS $ 24,650 corresponding to presentation of hedging derivative contracts (See Note 5)
(**) At December 31, 2011 includes revise of ThUS $ 69,806 corresponding to lease contracts. (See Note 5)

 

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

December 31, 2012

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

 

 

            12-31-2012                    12-31-2011         
     Up to 90  days
ThU.S.$
     From 91 days to
1 year
ThU.S.$
     Total
ThU.S.$
     Up to 90  days
ThU.S.$
     From 91 days
to 1 year
ThU.S.$
     Total
ThU.S.$
 

Total Liabilities, current

     1,015,183         410,104         1,425,287         763,592         268,353         1,031,945   

Other current financial liabilities

     401,493         407,121         808,614         157,944         91,048         248,992   

U.S Dollar

     360,732         355,651         716,383         143,129         74,523         217,652   

Brazilian Real

     8,494         3,432         11,926         11,849         20         11,869   

Argentine pesos

     25,091         12,200         37,291         —           —           —     

Chilean Pesos

     111         330         441         —           —           —     

U.F.

     7,065         35,508         42,573         2,966         16,505         19,471   

Bank Loans

     347,256         66,015         413,271         120,847         64,971         185,818   

U.S Dollar

     313,671         50,383         364,054         108,998         64,951         173,949   

Brazilian Real

     8,494         3,432         11,926         11,849         20         11,869   

Argentine pesos

     25,091         12,200         37,291         —           —           —     

Financial Leases

     3,909         16,580         20,489         18         28         46   

U.S Dollar

     —           127         127         —           —           —     

Chilean Pesos

     111         330         441         —           —           —     

U.F.

     3,798         16,123         19,921         18         28         46   

Other Loans

     50,328         324,526         374,854         37,079         26,049         63,128   

U.S Dollar

     47,061         305,141         352,202         34,131         9,572         43,703   

U.F.

     3,267         19,385         22,652         2,948         16,477         19,425   

Trade and other current payables

     490,191         —           490,191         389,902         7,171         397,073   

U.S Dollar

     117,458         —           117,458         73,583         412         73,995   

Euros

     9,114         —           9,114         43,392         —           43,392   

Brazilian Real

     30,730         —           30,730         9,117         —           9,117   

Argentine pesos

     37,515         —           37,515         32,235         —           32,235   

Other currencies

     1,622         —           1,622         2,119         —           2,119   

Chilean Pesos

     291,190         —           291,190         229,245         3,648         232,893   

U.F.

     2,562         —           2,562         211         3,111         3,322   

Accounts payable to related companies

     9,168         —           9,168         9,785         —           9,785   

U.S Dollar

     1,474         —           1,474         9,751         —           9,751   

Chilean Pesos

     7,694         —           7,694         34         —           34   

Other current provisions

     8,875         —           8,875         8,607         —           8,607   

U.S Dollar

     —           —           —           244         —           244   

Argentine pesos

     8,875         —           8,875