EX-99.1 2 d597460dex991.htm EX-99.1 EX-99.1

Exhibit 99.1

ARAUCO AND CONSTITUTION PULP INC

TABLE OF CONTENTS

 

Item        Page  
1.  

Ratio Analysis of the Consolidated Financial Statement

     2   
2.  

Unaudited Consolidated Financial Statement

     9   
3.  

Unaudited Consolidated Financial Income Statement

     11   
4.  

Unaudited Consolidated Statement of Changes in Net Equity

     12   
5.  

Unaudited Consolidated Statement of Cash Flow

     13   
6.  

Unaudited Notes to the Consolidated Financial Statement

     14   
7.  

Annex: Press Release

  


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statement

June 30, 2013

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

   06-30-2013
ThU.S.$
     12-31-2012
ThU.S.$
 

Current assets

     3,081,590         2,699,996   

Non-current assets

     10,788,380         10,851,190   
  

 

 

    

 

 

 

Total assets

     13,869,970         13,551,186   
  

 

 

    

 

 

 

Liabilities

   06-30-2013
ThU.S.$
     12-31-2012
ThU.S.$
 

Current liabilities

     1,515,526         1,425,287   

Non-current liabilities

     5,317,274         5,160,140   

Non-parent participation

     67,185         74,437   

Net equity attributable to parent company

     6,969,985         6,891,322   
  

 

 

    

 

 

 

Total net equity and liabilities

     13,869,970         13,551,186   
  

 

 

    

 

 

 

As of June 30, 2013, total assets increased US$319 million compared to December 31, 2012, equivalent to 2.35% of variation. This deviation is mainly attributable to an increase in the balance of cash and cash equivalents and inventories, offset by a decrease in non-financial assets (in 2012, compensation was received for fire insurance in Nueva Aldea) and tax assets.

Moreover, liabilities increased US$247 million mainly attributable to an increase in financial Liabilities and Non-Financial Liabilities brought about by increasing the provision of minimum dividends (interim dividend recognition for the period 2013).

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

 

Liquidity ratios

   06-30-2013      12-31-2012  

Current Liquidity (current assets / current liabilities )

     2.03         1.89   

Acid ratio (( current assets-inventories, biological assets) / Current liabilities )

     1.28         1.14   

Debt indicators

   06-30-2013      12-31-2012  

Debt to equity ratio (total liabilities / equity)

     0.97         0.95   

Short-term debt to total debt (current liabilities / total liabilities)

     0.22         0.22   

Long-term debt to total debt (non-current liabilities / total liabilities)

     0.78         0.78   
      06-30-2013      06-30-2012  

Financial expenses coverage ratio (earnings before Taxes + interest expense / interest expense)

     3.74         2.25   

 

2


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statement

June 30, 2013

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

 

 

Activity ratio

   06-30-2013      12-31-2012  

Inventory turnover-times (cost of sales / inventories + current biological assets))

     3.16         2.94   

Inventory turnover-time (excluding biological assets) (Cost of sales /inventory)

     4.19         3.91   

Inventory permanence-days (Inventories + biological assets)) /cost of sales)

     113.93         122.63   

Inventory permanence (excluding biological assets) (inventory / cost of sales)

     85.87         92.09   

The ratio current liquidity and the acid-test ratio are presented similarly in the period 2013 compared with exercise 2012.

As of June 30, 2013, the short-term debt represented 22% of total liabilities (22% as of December 31, 2012).

The ratio of financial expenses covered represents an increase of 2.25 to 3.74. This increase is mainly attributable to a greater proportional result for the 2013 period, compared to the same period of 2012.

 

b) Statements of income

Profit before Income Tax

Profit before Income Tax registered a profit of US$311 million compared to a profit of US$129 million in the same period of the previous year, positive variation of US$182 million. The effect is explained by the factors described in the following table:

 

Item

   Million
U.S.$
 

Gross margin

     205   

Other operating income

     56   

Distribution and administrative expenses

     (88

Other operating expenses

     14   

Result in related companies

     19   

Income (financial expenses)

     (7
  

 

 

 

Others item

     (17
  

 

 

 

Net change in income before income tax

     182   
  

 

 

 

Gross Margin represents a profit of U.S.$790 million, U.S.$205 million higher compared to the previous period (U.S.$585 million) caused by a proportional increase in sales volumes and an increase in sales prices.

 

3


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statement

June 30, 2013

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

   06-30-2013
ThU.S$
     06-30-2012
ThU.S$
 

Pulp

     1,091,476         982,283   

Sawn timber

     394,862         364,626   

Panels

     964,784         604,222   

Forestry

     73,392         79,690   

Other

     16,455         16,341   
  

 

 

    

 

 

 

Total revenues

     2,540,969         2,047,162   
  

 

 

    

 

 

 

 

Sales costs

   06-30-2013
ThU.S$
     06-30-2012
ThU.S$
 

Wood

     427,534         413,433   

Forestry work

     306,068         287,012   

Depreciation

     134,841         107,600   

Other costs

     882,172         653,912   
  

 

 

    

 

 

 

Total sales costs

     1,750,615         1,461,957   
  

 

 

    

 

 

 

 

Profitability index

   06-30-2013      12-31-2012  

Profitability on equity

     7.31         2.01   

Profitability on assets

     3.73         1.08   

Return on operating assets

     4.37         1.76   

 

Profitability ratios

   06-30-2013     06-30-2012  

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

     2,11        1,00   

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

     256,028        115,514   

Gross margin (ThU.S.$)

     790,354        585,205   

Financial costs (ThU.S.$)

     (113,493     (103,388

 

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

 

EBITDA

   06-30-2013
ThU.S$
    06-30-2012
ThU.S$
 

Gain (loss)

     256.0        115.5   

Finance cost

     113.5        103.41   

Financial Income

     (12.1     (8.9

Expenses for income tax

     54.6        13.4   

EBIT

     412.0        223.4   

Depreciation and amortization

     143.5        115.7   

EBITDA

     555.5        339.1   

Cost at fair value of the harvest

     155.3        152.4   

Gain from changes in fair value of biological assets

     (136.6     (77.4

Exchange difference

     7.8        6.2   

Adjusted EBITDA

     582.0        420.3   

2. MAIN SOURCES OF FINANCING

Arauco’s financing needs are mainly covered through the capital markets, with bond issuances and credits with banks and financial institutions serving as the main sources of financing. For short-term borrowing, Arauco is regulated by its liquidity policy which indicates the amounts and institutions from which it can borrow according to several conditions defined in the policy. In the case of long-term debt, corporate bond issuances in the local market and also in international markets are used as sources of new resources. Another source of long-term financing to credit corresponds mainly with banks and financial institutions around the world.

 

4


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statement

June 30, 2013

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

 

 

3. DIFFERENCE BETWEEN ECONOMIC VALUES AND BOOK ASSETS

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

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

4. MARKET SITUATION

Pulp Division

Pulp sales reached US$ 590.7 million (including energy sales) for the second quarter of 2013, an increase of 17.9% compared to the previous quarter. This increase was mainly due to higher sales volume of 10.6% and higher average prices of 3.9%.

When compared with the same period of 2012, pulp sales increased 16.4%, mainly due to higher average prices of 1.2%, higher sales volume of 10.3% and higher energy sales.

Pulp prices remained stable during the second quarter. There were small increases at the beginning of the quarter following the momentum of the first quarter, and afterwards some small adjustments as usual in the market during this season. Two months before the summer in the Northen Hemisphere and part of the summer are usually months with low consumption and it is normal to see prices under pressure, however, the average price during the quarter had little variation. By region, prices have also been stable with the normal range of price differentials among markets. Latin America has had prices higher than the world average and Europe with lower prices but similar to those of Asia.

Inventories have also remained stable without large variations. During the first two months of the quarter global inventory levels dropped in 1 day with respect to the end of the first quarter and increased in 1 day with respect to the same period of 2012. In the last case there was a 4 day increase in short fiber and a 3 day drop in long fiber, mainly caused by new capacity entering the market, operating at high rates according to its learning curve.

Paper consumption in Europe continues falling at important rates, which affects demand for pulp. Few production lines of paper operate at 100% of capacity and it is common to see lines that stop for a few days or even weeks each month. Towards the beginning of the European summer this trend increased. In printing and writing paper there was a drop in consumption of about 10% but prices have remained stable. Between March and June there was 1.5% increase in long fiber and without variation in short fiber. The supply in short fiber is increasing from Brazil and may start to have pressure in short fiber.

The Chinese government is adopting actions to increase internal consumption but this is mainly focused to less developed regions, small businesses and to the interior of the country, West of China. For example, VAT was eliminated for small firms with revenues less than 2 million yuans (approximately US$ 32,000). Only this year 5,200 kilometers of rapid train lines were created and other similar kinds of measures were taken, but at the same time being careful with inflation levels which is a very important matter to the government.

 

5


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statement

June 30, 2013

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

 

 

However, the Chinese demand was not very active, which is consequent with the adjustment in the economic growth that the country is facing and credit constraints imposed by the government on local banks, that have been slightly eased in the past weeks. Pulp imports were higher than those of the first quarter, especially in short fiber, recovering to normal levels. In long fiber pulp imports were 5.93% lower than the same period of 2012 (first quarter was 13.22% lower), and in short fiber there was a 17.59% increase (the first quarter suffered a 13.53% drop). In terms of prices, these did not suffer any variation between the end of the first and end of the second quarters.

Latin America continued with an active and stable demand. Prices maintained at high levels and with increases of 1.3% and 2.9% in long fiber and short fiber, respectively. The Middle East was active but with a lot of spot supply towards the end of the second quarter, putting pressure for prices to fall.

The fluff market has been tougher globally because of new capacity added to the market without significant increases in demand. Price increases have not been successful in all markets, especially in Asia.

Production levels during the second quarter were good and according to planned levels. Sales and production targets were met, and during May and June we were able to recover the invoicing levels lost during March and April as a result of port strikes in Chile.

Sawn Timber Division

Our Sawn Timber division had total sales of US$ 208.0 million for the second quarter of 2013, representing an 11.4% increase compared to the previous quarter. This increase was mainly due to higher sales volume of 6.5% and higher average prices of 3.8%.

When compared with the same period of 2012, sawn timber and remanufactured wood products sales increased 18.4%, mainly due to higher sales volume of 12.6% and by new energy sales (Viñales Co-generation Plant) that started at the end of the second quarter of 2012. This was partially offset by a lower average price of 0.4%.

The real estate and construction markets in the United States has experienced a slight decline in the second quarter compared to the first quarter of this year, however it continues to advance over the previous year. The Housing Starts Index reached 836,000 units in June, 10.4% higher than last year in June. Current constructions levels remain lower compared to the last 10 years average. In the United States, during the second quarter of 2013, the retail price of moldings increased compared to the first quarter.

During the second quarter of this year, the solid wood markets continue with a positive trend in terms of volumes and prices. Sales orders have been increased and, as well as we see, prices have increased in most of the markets.

Panels Division

Panel’s sales reached US$ 514.9 million in the second quarter of this year, an increase of 14.4% when compared to the US$ 449.9 million obtained in the first quarter of the year. This increase is mainly explained by an increase in sales volume of 11.7% and by higher average prices of 3.3%.

 

6


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statement

June 30, 2013

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

 

 

The panels business closed its second quarter of the year with an increase in its year to date sales of 59.7% respect to the same period of 2012. This increase corresponds to sales of Flakeboard in North America, from its operating units in The USA and Canada.

During the second quarter of the year, sales volume had an increase of 12% compared to the previous quarter of 2013. However, year to date sales had a 64.2% increase with respect to the same period of 2012.

During the second quarter, Plywood sales had a 3% rise with respect to the first quarter of the year and a 12% drop with respect to the same period of 2012. This drop is mainly explained by the port strikes that occurred in the end of April and beginning of May.

In the case of MDF, sales volume had an 11% increase compared to the previous quarter and a 74% increase with respect to the second quarter of 2012. This increase in sales is influenced by the increase in our supply coming from the North American operating units and due to the new MDF line at the Jaguariaiva mill, located in Brazil.

Particleboard sales volume increased 8.2% compared to the first quarter of 2013, mainly due to the new volume produced by our new Teno mill. Compared to the same quarter of 2012, particleboard sales volume increased 161%. This increase is mainly explained by the new volume coming from our operations in USA and Canada.

During the second quarter of 2013, sales volume of HB showed a 21.5% increase compared to the previous quarter of the year, mainly due to a plant stoppage during the first quarter of the year. When compared to the second quarter of 2012, HB volume sales increased 10%, mainly explained by higher stock sales shipped to Peru and non-traditional markets of HB such as Asia and U.K.

4. ANALYSIS OF CASH FLOW

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

 

     06-30-2013
ThU.S.$
    06-30-2012
ThU.S.$
 

Positive (negative) Cash flow

    

Cash flow from operating activities

     385,987        191,866   

Cash flow from financing activities:

    

Loan and bond payments

     256,018        638.215   

Dividend payments

     (65,293     (172,023

Others

     (2,513     109   

Cash flow from investment activities:

    

Purchase and sales of permanent investments (net)

     (22,563     (153,719

Incorporation and sale of property, plant and equipment

     (164,870     (272,379

Incorporation and sale of biological assets

     (57,582     (47,623

Loan to related companies (net)

     11,200        (34,000

Dividends received

     15,319        2,128   
  

 

 

   

 

 

 

Others

     8,062        2,084   
  

 

 

   

 

 

 

Positive Net cash flow (negative)

     363,765        154,658   
  

 

 

   

 

 

 

The operating cash flow has a positive balance of U.S.$188 million in the current year, with differences with respect to the previous year (positive balance of U.S. $466 million) mainly due to bond issues in the year 2012.

 

7


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statement

June 30, 2013

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

 

 

In relation to the flow of investment, the current financial year decreased U.S.$210 million (U.S.$503 million in 2012), mainly due to lower capital investments and lower payments for acquisition of property, plant and equipment.

5. MARKET RISK ANALYSIS

In respect of the economic risks resulting from interest rate variations, the Company maintains, as of June 30, 2013, a ratio of fixed rate debt to total consolidated debt of approximately 82.3%, 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.

In the report to the Interim Consolidated Financial Statements June 30, 2013, Note 23, a detailed analysis of the risks associated with the business of Arauco is available.

 

8


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2013

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

 

 

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

 

     Note    06-30-2013
ThU.S.$
     12-31-2012
ThU.S.$
 

Assets

        

Current Assets

        

Cash and cash equivalents

   4      746,390         395,716   

Other current financial assets

   23      1,375         1,012   

Other current non-financial assets

   25      193,652         207,889   

Trade and other current receivables

   23      809,220         825,869   

Accounts receivable from related companies

   13      124,879         130,423   

Current Inventories

   3      854,437         815,782   

Current biological assets

   20      293,207         252,744   

Current tax assets

        45,339         56,951   

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

        3,068,499         2,686,386   

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

   22      13,091         13,610   

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

        13,091         13,610   

Total Current Assets

        3,081,590         2,699,996   

Non-Current Assets

        

Other non-current financial assets

   23      54,862         61,350   

Other non-current non-financial assets

   25      125,190         125,254   

Trade and other non-current receivables

   23      5,382         11,877   

Investments accounted for using equity method

   15-16      1,054,011         1,048,463   

Intangible assets other than goodwill

   19      21,647         22,311   

Goodwill

   17      54,406         58,645   

Property, plant and equipment

   7      5,898,697         5,889,137   

Non-current biological assets

   20      3,431,219         3,473,442   

Deferred tax assets

   6      142,966         160,711   

Total non-Current Assets

        10,788,380         10,851,190   

Total Assets

        13,869,970         13,551,186   
     

 

 

    

 

 

 

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

 

 

 

 

9


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2013

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

 

 

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (continued)

 

 

     Note    06-30-2013
ThU.S.$
    12-31-2012
ThU.S.$
 

Equity and liabilities

       

Liabilities

       

Current Liabilities

       

Other current financial liabilities

   23      853,471        808,614   

Trade and other current payables

   23      495,939        490,191   

Accounts payable to related companies

   13      9,436        9,168   

Other current provisions

   18      8,790        8,875   

Current tax liabilities

        2,746        12,264   

Current provisions for employee benefits

   10      3,739        3,945   

Other current non-financial liabilities

   25      141,405        92,230   

Total Current Liabilities

        1,515,526        1,425,287   

Non-Current Liabilities

       

Other non-current financial liabilities

   23      3,785,419        3,606,310   

Other non-current provisions

   18      19,389        13,281   

Deferred tax liabilities

   6      1,387,884        1,395,654   

Non-current provisions for employee benefits

   10      41,065        43,491   

Other non-current non-financial liabilities

   25      83,517        101,404   

Total non - current liabilities

        5,317,274        5,160,140   

Total liabilities

        6,832,800        6,585,427   

Equity

       

Issued capital

        353,176        353,176   

Retained earnings

        6,907,689        6,754,725   

Other reserves

        (290,880     -216,579   

Equity attributable to parent company

        6,969,985        6,891,322   

Non-controlling interests

        67,185        74,437   

Total equity

        7,037,170        6,965,759   

Total equity and liabilities

        13,869,970        13,551,186   
     

 

 

   

 

 

 

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

 

 

 

 

10


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2013

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

 

 

CONSOLIDATED STATEMENTS OF INCOME

 

          January-June     April-June  
          2013     2012     2013     2012  
     Note    ThU.S.$     ThU.S.$     ThU.S.$     ThU.S.$  

Income Statement

           

Revenue

   9      2,540,969        2,047,162        1,358,665        1,036,733   

Cost of sales

   2      (1,750,615     (1,461,957     (904,254     (737,371

Gross profit

        790,354        585,205        454,411        299,362   

Other income

   2      175,969        119,432        101,333        58,444   

Distribution costs

   2      (258,837     (213,925     (151,366     (108,628

Administrative expenses

   2      (264,383     (221,516     (134,806     (118,693

Other expense

   2      (33,503     (47,299     (17,286     (13,162

Other gains (losses)

   14      0        16,263        0        16,263   

Profit (loss) from operating activities

        409,600        238,160        252,286        133,586   

Finance income

   2      12,092        8,900        6,566        4,366   

Finance costs

   2      (113,493     (103,388     (57,536     (45,306

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

   15      10,303        (8,577     6,018        (8,148

Exchange rate differences

        (7,843     (6,170     (5,814     (16,963

Income before income tax

        310,659        128,925        201,520        67,535   

Income Tax

   6      (54,631     (13,411     (39,007     (4,083

Profit (loss) from continuing operations

        256,028        115,514        162,513        63,452   

Profit (loss) from discontinued operations

           

Net Income

        256,028        115,514        162,513        63,452   
     

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to

           

Net income attributable to parent company

        239,237        113,566        150,015        62,141   

Income attributable to non-controlling interests

        16,791        1,948        12,498        1,311   

Profit (loss)

        256,028        115,514        162,513        63,452   
     

 

 

   

 

 

   

 

 

   

 

 

 

Basic earnings per share

           

Earnings per share from continuing operations

        0.0021143        0.0010037        0.0013258        0.0005492   
     

 

 

   

 

 

   

 

 

   

 

 

 

Basic earnings per share

        0.0021143        0.0010037        0.0013258        0.0005492   
     

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per diluted shares

           

Earnings per diluted share from continuing operations

        0.0021143        0.0010037        0.0013258        0.0005492   
     

 

 

   

 

 

   

 

 

   

 

 

 

Basic earnings per diluted share

        0.0021143        0.0010037        0.0013258        0.0005492   
     

 

 

   

 

 

   

 

 

   

 

 

 

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

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

          January-June     April-June  
          2013     2012     2013     2012  
     Note    ThU.S.$     ThU.S.$     ThU.S.$     ThU.S.$  

Profit (loss)

        256,028        115,514        162,513        63,452   

Components of other comprehensive income, before tax:

           

Exchange differences on translation

           

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

   11      (107,122     (91,637     (123,611     (130,111

Cash flow hedges

           

Gains (losses) on cash flow hedges, before tax

   23      30,075        (6,302     27,214        (4,215

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

        1,901        200        2,436        (2,861

Other comprehensive income, net of tax

        (75,146     (97,739     (93,961     (137,187

Income tax relating to cash flow hedges of other comprehensive income

   6-23      (1,376     1,522        (804     424   

Other comprehensive income

        (76,522     (96,217     (94,765     (136,763

Total comprehensive income

        179,506        19,297        67,748        (73,311
     

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive Income attributable to

           

Comprehensive income, attributable to owners of parent company

        164,936        20,366        58,034        (70,331

Comprehensive income, attributable to non-controlling interests

        14,570        (1,069     9,714        (2,980

Total comprehensive income

        179,506        19,297        67,748        (73,311
     

 

 

   

 

 

   

 

 

   

 

 

 

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

 

 

 

 

11


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2013

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

 

 

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

 

06-30-2013

  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
T.hU.S.$
    Non -  controlling
interests

ThU.S.$
    Total Equity
ThU.S.$
 

Opening balance at 01-01-2013

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

Restated Opening Balance

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

Comprehensive income

                 

Net income

              239,237        239,237        16,791        256,028   

Other comprehensive income, net of tax

      (104,901     28,699        1,901        (74,301       (74,301     (2,221     (76,522

Comprehensive income

      (104,901     28,699        1,901        (74,301     239,237        164,936        14,570        179,506   

Dividends

              (86,273     (86,273       (86,273

Increase (decrease) for transfer and other changes

                  (21,822     (21,822

Total Changes in equity

    0        (104,901     28,699        1,901        (74,301     152,964        78,663        (7,252     71,411   

Closing balance at 06-30-2013

    353,176        (274,278     (16,411     (191     (290,880     6,907,689        6,969,985        67,185        7,037,170   

06-30-2012

  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
T.hU.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   

Restated Opening Balance

    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

              113,566        113,566        1,948        115,514   

Other comprehensive income, net of tax

      (88,620     (4,780     200        (93,200       (93,200     (3,017     (96,217

Comprehensive income

      (88,620     (4,780     200        (93,200     113,566        20,366        (1,069     19,297   

Dividends

              (40,554     (40,554       (40,554

Increase (decrease) for transfer and other changes

                  (10,015     (10,015

Total Changes in equity

    0        (88,620     (4,780     200        (93,200     73,012        (20,188     (11,084     (31,272

Closing balance at 06-30-2012

    353,176        (156,159     (30,694     (3,168     (190,021     6,756,264        6,919,419        79,459        6,998,878   

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

 

 

 

 

12


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

June 30, 2013

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

 

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

     06-30-2013     06-30-2012  
     ThU.S.$     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

     2,758,647        2,353,193   

Receipts from premiums and claims, annuities and other policy benefits

     29,819        52,182   

Other cash receipts from operating activities

     286,161        147,415   

Classes of cash payments

    

Payments to suppliers for goods and services

     (2,193,542     (1,931,041

Payments to and on behalf of employees

     (253,345     (170,426

Other cash payments from operating activities

     (109,903     (9,489

Interest paid

     (101,779     (78,302

Interest received

     5,330        5,045   

Income taxes refund (paid)

     (35,566     (176,435

Other (outflows) inflows of cash, net

     165        (276

Net Cash flows from Operating Activities

     385,987        191,866   
  

 

 

   

 

 

 

Cash flows (used in) investing activities

    

Cash flow used in obtaining control of subsidiaries or other businesses

     0        (63,733

Cash flow used to contributions in associates

     0        (13,490

Other cash receipts from sales of participations in joint ventures

     0        6,607   

Capital contributions to joint ventures

     (22,563     (83,103

Loans to related parties

     (27,000     (43,500

Proceeds from sale of property, plant and equipment

     13,740        5,566   

Purchase of property, plant and equipment

     (178,610     (277,945

Proceeds from sales of intangible assets

     0        3,250   

Purchase of intangible assets

     (966     (1,176

Proceeds from sale of other long-term assets

     691        1,450   

Purchase of biological assets

     (58,273     (49,073

Cobros procedentes del reembolso de anticipos y préstamos concedidos a terceros

     5,000        0   

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

     33,200        9,500   

Dividendos Recibidos

     15,319        2,128   

Other outflows of cash, net

     9,028        10   

Cash flows used in Investing Activities

     (210,434     (503,509
  

 

 

   

 

 

 

Cash flows from (used in) Financing Activities

    

Total loans obtained

     814,113        1,029,567   

Proceeds from short-term borrowings

     303,921        725,920   

Loans obtained in long term

     510,192        303,647   

Repayments of borrowings

     (558,095     (391,352

Dividends paid by subsidiaries or special purpose companies

     (65,293     (172,023

Other inflows of cash, net

     (2,513     109   

Cash flows from (used in) Financing Activities

     188,212        466,301   
  

 

 

   

 

 

 

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

     363,765        154,658   

Effect of exchange rate changes on cash and cash equivalents

     (13,091     276   
  

 

 

   

 

 

 

Net increase (decrease) of Cash and Cash equivalents

     350,674        154,934   

Cash and cash equivalents, at the beginning of the period

     395,716        315,901   

Cash and cash equivalents, at the end of the period

     746,390        470,835   
  

 

 

   

 

 

 

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

 

 

 

 

13


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

June 30, 2013

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 14 th, 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 Interim Consolidated Financial Statements were prepared on a going concern basis.

Presentation of Financial Statements

The Financial Statements presented by Arauco as of June 30, 2013 are:

 

   

Consolidated Balance Sheet for the periods ended June 30, 2013 and December 31, 2012.

 

   

Consolidated Statements of Income for the periods of 6 and 3 months ended June 30, 2013 and 2012.

 

   

Consolidated Comprehensive Income Statements for the periods of 6 and 3 months ended June 30, 2013 and 2012.

 

   

Consolidated Statements of Changes in Net Equity for the periods of 6 months ended June 30, 2013 and 2012.

 

   

Consolidated Statements of Cash Flows – Direct Method for the periods of 6 months ended June 30, 2013 and 2012.

 

   

Notes to the consolidated financial statements.

 

 

 

 

14


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

June 30, 2013

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

 

 

Period covered by the Financial Statements

Period ended at June 30, 2013.

Date of Approval of Financial Statements

These Interim consolidated financial statements were authorized and approved for issuance by the Board of Directors of the Company (the “Board”) at the Extraordinary Session N° 491 held on August 13, 2013, for the period from 1 January to 30 June 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. are consolidated, 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.

 

 

 

 

15


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

June 30, 2013

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

 

 

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.

Summary of significant accounting policies

The accompanying Interim consolidated financial statements as of June 30, 2013 were prepared in accordance with Arauco’s accounting policies, which have been consistently applied to all periods presented in these Interim consolidated financial statements.

 

a) Basis for presentation of financial statements

The accompanying Interim 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 Interim 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.

- 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.

 

 

 

 

16


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

June 30, 2013

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.

-Litigation and Contingencies

Arauco and its subsidiaries are subject to certain litigation. Future effects on Arauco’s financial condition resulting from such litigation 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 a description of current litigations see Note 18.

 

c) Consolidation

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

 

 

 

 

17


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

June 30, 2013

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

 

 

An investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Thus, the principle of control sets out the following three elements of control:

(a) power over the investee (that is, existing rights which give the ability to direct the relevant activities of the investee, that means, the activities that significantly affect the investee’s returns);

(b) exposure, or rights, to variable returns from involvement with the investee; and

(c) the ability to use power over the investee to affect the amount of the investor’s returns.

The IFRS sets out requirements on how to apply the control principle:

(a) in circumstances when voting rights or similar rights give an investor power, including situations where the investor holds less than a majority of voting rights and in circumstances involving potential voting rights.

(b) in circumstances when an investee is designed so that voting rights are not the dominant factor in deciding who controls the investee, such as when any voting rights relate to administrative tasks only and the relevant activities are directed by means of contractual arrangements.

(c) in circumstances involving agency relationships.

(d) in circumstances when the investor has control over specified assets of an investee.

The IFRS requires an investor to reassess whether it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control.

When preparing consolidated financial statements, an entity must use uniform accounting policies for reporting like transactions and other events in similar circumstances. Intragroup balances and transactions must be eliminated. Non-controlling interests in subsidiaries must be presented in the consolidated statement of financial position within equity, separately from the equity of the owners of the parent.

The profit or loss of each component of other comprehensive income are attributed to owners of the Company and the noncontrolling interest, as appropriate. Total comprehensive income is attributed to the owners of the Company and non-controlling interests even if the result of the non-controlling interest have a deficit balance.

If a subsidiary uses accounting policies different than those adopted in the consolidated financial statements for transactions and other events in similar circumstances, appropriate adjustments are made in the financial statements of subsidiaries to prepare consolidated financial statements to ensure compliance with Group’s accounting policies.

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

 

 

 

 

18


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

June 30, 2013

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

 

 

The interim consolidated financial statements corresponding to the periods between January 1 and June 30, 2013 and 2012 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.

Certain consolidated subsidiaries have Brazilian Reales 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).

 

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 Interim consolidated financial statements are presented in U.S. dollars, which is Arauco’s functional and presentation currency.

(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 translated 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.

 

 

 

 

19


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

June 30, 2013

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

 

 

(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.

 

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.

 

 

 

 

20


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

June 30, 2013

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

 

 

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.

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.

 

 

 

 

21


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

June 30, 2013

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

 

 

(v) Hedging instruments

The effective portion of changes in the fair value of derivatives that are designated and qualify as 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 is 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 reputable suppliers.

 

h) Inventories

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

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

 

 

 

 

22


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

June 30, 2013

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

 

 

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.

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.

A parent will present non-controlling interests in the consolidated statement of financial position within equity, separately from the equity of the owners of the parent.

Changes in the ownership interest of a parent in a subsidiary that do not result in a loss of control are equity transactions. Any difference between the amount which minority interests are adjusted and the fair value of the consideration paid or received is recognized directly in equity and attributed to owners of the parent. in carrying amount of goodwill was not made any adjustments. Neither gains or losses were recognized in the income statement.

 

 

 

 

23


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

June 30, 2013

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

 

 

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, retrospectively.

 

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.

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.

 

 

 

 

24


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

June 30, 2013

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

 

 

l) Intangible assets

After initial recognition, intangible assets with finite useful lives are 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.

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).

 

 

 

 

25


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

June 30, 2013

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

 

 

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

Arauco applies CINIIF 4 to assess whether an arrangement is, or contains, a lease. Leases of assets in which Arauco substantially holds all the risks and rewards of ownership are classified as finance leases. All other leases are classified as operating 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.

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.

 

 

 

 

26


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

June 30, 2013

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

 

 

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 does 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.

(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.

 

 

 

 

27


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

June 30, 2013

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

 

 

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 interim 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 distribute 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.

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.

 

 

 

 

28


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

June 30, 2013

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

 

 

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 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.

 

 

 

 

29


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

June 30, 2013

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

 

 

“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 employee turnover, salary increases and life expectancy of the workers included in this benefit.

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

These obligations are treated as post-employment benefits.

 

 

 

 

30


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

June 30, 2013

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, 2013:

 

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
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 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

 

 

 

 

31


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

June 30, 2013

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

 

 

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

 

Amendments and

improvements

  

Contents

  

Mandatory application

for annual periods

beginning on or

IAS 28   

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    July 1, 2012
   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.   
IFRS 7    Financial Instruments    January 1, 2013
   Disclosures and amendments to disclosures about netting of assets and liabilities.   

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

 

 

 

 

32


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

June 30, 2013

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

 

 

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

 

Amendments and

improvements

  

Contents

  

Mandatory application

for annual periods

beginning on or

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
CINIIF 21    Liens.    January 1, 2014
IAS 32    Offsetting of financial assets and liabilities    January 1, 2014
   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.   
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
IAS 36    Impairment of Assets-revelations, the recoverable amount Disclosures for nonfinancial assets.    January 1, 2014
IAS 39    Financial Instruments: Recognition and Measurement-Novation derivatives and continuation hedge accounting.    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. We are in the process of assessing the impact on the valuation and disclosures associated with these modifications.

 

 

 

 

33


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

June 30, 2013

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 period ended March 31, 2013 and December 31, 2012 is ThU.S.$353,176 which is composed of 113,152,446 ordinary shares of a single series.

 

     06-30-2013    12-31-2012
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
     06-30-2013    12-31-2012

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 2013 of ThU.S.$86,273 (ThU.S.$40,554 as of June 30, 2012) is presented in the consolidated statement of changes in equity.

The line item “Dividends paid” in the statement of cash flows for ThU.S.$65,293 as of June 30, 2013, (ThU.S.$172,023 as of June 30, 2012), which ThS.U.$47,017 (ThUS$161,568 as of June 30, 2012) correspond to payments of dividend of the holding company.

The following are the dividends paid during 2013 and the year 2012 and the corresponding amount per share:

 

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

   05-08-2013

Amount of Dividend

   ThU.S.$ 47,017

Number of Shares for which Dividends are Paid

   113,152,446

Dividend per Share

   U.S.$0.41552

 

 

 

 

34


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

June 30, 2013

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

 

 

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

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

 

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

Corresponds 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

Corresponds to the portion of gains or net losses of outstanding hedging swaps in Arauco at each period.

Other reserves

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

 

 

 

 

35


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

June 30, 2013

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 as of June 30, 2013 and 2012:

 

     January - June     April-June  
     2013     2012     2013     2012  
     ThU.S.$     ThU.S.$     ThU.S.$     ThU.S.$  

Classes of Other Income by activity

        

Other Operating Income, Total

     175,969        119,432        101,333        58,444   

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

     136,643        77,430        69,034        33,540   

Net income from insurance compensation(*)

     1,197        17,122        —          17,122   

Revenue from export promotion

     2,173        1,409        1,063        663   

Leases received

     649        1,657        238        900   

Gain on sales of assets

     17,008        8,016        16,230        2,142   

Revenue from compensation of judgment

     8,500        —          8,500        —     

Revenue from administrative services

     1,287        —          1,287        —     

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

     8,512        13,798        4,981        4,077   

Classes of Other Expenses by activity

        

Total of other expenses by activity

     (33,503     (47,299     (17,286     (13,162

Depreciations

     (287     (310     (134     (154

Contingent provision

     (3,036     (2,220     (1,873     (1,275

Impairment provision properties, plants and equipment and others

     (3,604     (69     (1,392     (69

Plants stopped operating expenses

     (5,806     (12,675     (2,750     (1,620

Expenses projects

     —          (8,828     —          (4,642

Loss of assets

     (1,954     (400     21        5,306   

Loss of forest due to fires

     (121     (2,742     (49     (524

Other Taxes

     (2,229     (2,474     (1,096     (1,208

Research and development expenses

     (1,253     (1,044     (688     (502

Compensation and eviction

     (830     (3,580     (312     (2,510

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

     (14,383     (12,957     (9,013     (5,964

Classes of financing income

        

Financing income, total

     12,092        8,900        6,566        4,366   

Financial income from mutual funds - deposits

     4,108        4,721        2,404        2,026   

Financial income resulting from swap - forward

     3,300        2,452        2,102        2,452   

Other financial income

     4,684        1,727        2,060        (112

Classes of financing costs

        

Financing costs, Total

     (113,493     (103,388     (57,536     (45,306

Interest expense, Loans banks

     (11,593     (6,036     (6,436     (3,250

Interest expense, Bonds

     (90,424     (79,694     (46,390     (38,573

Interest expense, financial instruments

     (2,329     (7,822     273        2,932   

Other financial costs

     (9,147     (9,836     (4,983     (6,415

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

        

Total

     10,303        (8,577     6,018        (8,148

Investments in associates

     (728     9,722        (2,122     8,629   

Joint ventures

     11,031        (18,299     8,140        (16,777
  

 

 

   

 

 

   

 

 

   

 

 

 

 

  (*) In 2012 corresponds to net income compensation insurance (fire and other disasters)

 

 

 

 

36


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

June 30, 2013

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

 

 

Below is the Balance of Expenses by nature:

 

     January - June      April - June  

Cost of sales

   2013
ThU.S.$
     2012
ThU.S.$
     2013
ThU.S.$
     2012
ThU.S.$
 

Timber

     427,534         413,433         216,682         205,342   

Forestry labor costs

     306,068         287,012         157,310         150,948   

Depreciation

     134,841         107,600         69,977         54,169   

Maintenance costs

     108,210         96,914         55,657         48,345   

Chemical costs

     249,704         168,440         128,588         86,794   

Sawmill Services

     91,563         95,010         47,326         49,085   

Others Raw Materials

     96,342         66,677         71,513         58,620   

Indirect costs

     75,508         67,039         21,767         8,020   

Energy and fuel

     97,596         67,290         52,035         37,484   

Cost of electricity

     45,714         29,625         24,117         13,566   

Wage and salaries

     117,535         62,917         59,282         24,998   

Total

     1,750,615         1,461,957         904,254         737,371   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     January - June     April - June  

Distribution cost

   2013
ThU.S.$
    2012
ThU.S.$
    2013
ThU.S.$
    2012
ThU.S.$
 

Selling costs

     17,170        13,506        8,401        5,695   

Commissions

     7,881        7,167        4,016        3,521   

Insurance

     3,211        2,002        1,684        979   

Provision for doubtful accounts receivable

     (456     (554     (438     (559

Other selling costs

     6,534        4,891        3,139        1,754   

Shipping and freight costs

     241,667        200,419        142,965        102,933   

Port services

     13,100        13,905        7,072        6,930   

Freights

     202,558        179,705        120,722        93,595   

Other shipping and freight costs

     26,009        6,809        15,171        2,408   

Total

     258,837        213,925        151,366        108,628   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

     January - June      April - June  

Administrative expenses

   2013
ThU.S.$
     2012
ThU.S.$
     2013
ThU.S.$
     2012
ThU.S.$
 

Wage and salaries

     115,283         90,131         56,878         48,507   

Marketing, advertising, promotion and publications expenses

     4,222         3,089         2,196         1,349   

Insurance

     20,917         13,948         10,472         7,706   

Depreciation and amortization

     6,973         5,395         3,415         2,711   

Computer services

     10,075         4,742         6,420         1,662   

Lease rentals (offices, warehouses and machinery)

     6,711         7,465         2,623         4,760   

Auditor’s fees

     1,822         2,938         632         1,879   

Donations, contributions, scholarships

     5,274         6,201         3,128         4,137   

Fees (legal and technical advisories)

     25,589         25,966         14,095         11,708   

Property taxes, patents and municipality rights

     9,620         7,617         5,769         4,987   

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

     57,897         54,024         29,178         29,287   

Total

     264,383         221,516         134,806         118,693   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

          January-June      April - June  

Expenses for

   Note    2013
ThU.S.$
     2012
ThU.S.$
     2013
MUS$
     2012
MUS$
 

Depreciations

   7      141,827         114,706         73,193         57,511   

Employee benefits

   10      255,391         177,775         130,349         84,329   

Amortization

   19      1,707         995         875         624   

 

 

 

 

37


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

June 30, 2013

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

 

 

NOTE 3. INVENTORIES

 

     06-30-2013      12-31-2012  

Components of Inventory

   ThU.S.$      ThU.S.$  

Raw materials

     91,625         90,466   

Production supplies

     88,276         82,248   

Products in progress

     81,486         78,981   

Finished goods

     454,688         435,546   

Spare Parts

     138,362         128,541   

Total Inventories

     854,437         815,782   
  

 

 

    

 

 

 

Inventories recognized as cost of sales at June 30, 2013 were ThU.S.$1,746,747 (ThU.S.$1,465,208 at June 30, 2012).

In order to recognize inventories at net realizable value, at June 30, 2013, a net increase of inventories associated with lower provision for obsolence of ThU.S.$ 2,444 is recognized (greater provision of ThU.S.$ 611 as of June 30, 2012).

As of June 30, 2013 there are inventory penalties of ThU.S$1,724, at June 30, 2012 there were inventory penalties of ThU.S.$20,244, respectively as result of the fire that 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.

 

 

 

 

38


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

June 30, 2013

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.

 

     06-30-2013      12-31-2012  

Components of Cash and Cash Equivalents

   ThU.S.$      MUS$  

Cash on hand

     430         543   

Bank checking account balances

     84,649         62,816   

Time deposits

     616,021         151,799   

Mutual funds

     43,317         180,558   

Other cash and cash equivalents (*)

     1,973         —     

Total

     746,390         395,716   
  

 

 

    

 

 

 

NOTE 5. ACCOUNTING POLICIES AND CHANGES IN ACCOUNTING ESTIMATES

Changes in Accounting Policies

The accounting policies have been developed in accordance with the effective IFRS as of June 30, 2013 and have been consistently applied to all periods presented in these interim consolidated financial statements.

Changes in Estimates and Accounting Policies

The financial statements as of June 30, 2013 do not show changes in accounting policies compared to the last year.

 

 

 

 

39


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

June 30, 2013

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

 

 

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 the United States (federal tax).

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 taxes incurred in 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.

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 generated 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 June 30, 2013 and at December 31, 2012:

 

     06-30-2013      12-31-2012  

Deferred Tax Assets

   ThU.S.$      ThU.S.$  

Deferred tax Assets relating to Provisions

     5,830         4,752   

Deferred tax Assets relating to accrued liabilities

     6,092         6,385   

Deferred tax Assets relating to Post-Employment benefits

     8,834         9,341   

Deferred tax Assets relating to Property, Plant and equipment

     9,894         10,822   

Deferred tax Assets relating to Financial Instruments

     175         297   

Deferred tax Assets relating to tax losses carryforwards

     75,682         90,327   

Deferred tax assets relating to biological assets

     3,693         2,636   

Deferred tax assets relating to inventories

     8,314         9,142   

Deferred tax assets relating to provisions for income

     3,628         4,477   

Deferred tax assets relating to provision for doubful accounts

     2,916         3,602   

Defferred tax assets relating to other deductible temporary differences

     17,908         18,930   

Total deferred tax assets

     142,966         160,711   
  

 

 

    

 

 

 

As of December 31, 2012, certain of Arauco’s subsidiaries have carryforwards tax losses of ThU.S.$ 373,380 (ThU.S.$ 342,044 as of December 31, 2012) 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.

 

 

 

 

40


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

June 30, 2013

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

 

 

Deferred Tax Liabilities

The following table sets for the deferred tax liabilities as of June 30, 2013 and at December 31, 2012:

 

     06-30-2013      12-31-2012  

Deferred Tax Liabilities

   ThU.S.$      ThU.S.$  

Deferred tax liabilities relating to property, Plant and equipment

     736,559         736,530   

Deferred tax liabilities relating to financial instruments

     13,320         14,218   

Deferred tax liabilities relating to biological assets

     521,663         531,801   

Deferred tax liabilities relating to inventory

     15,780         16,517   

Deferred tax liabilities due to prepaid expenses

     59,220         55,614   

Deferred tax liabilities relating to other taxable temporary differences

     41,342         40,974   

Total deferred tax liabilities

     1,387,884         1,395,654   
  

 

 

    

 

 

 

The effect of changes in deferred tax liabilities related to cash flow hedges corresponds to a charge of ThU.S.$1,376 as of June 30, 2013 (credit of ThU.S.$1,522 as of June 30, 2012), 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.$21,175 and ThU.S.$127,310 respectively, will be reversed in the next 12 months. (used over a period of 12 months).

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.

Reconciliation of the asset and deferred tax liability

 

Deferred Tax Assets

  Opening  Balance
01-01-2013
ThU.S.$
    Income (Expenses)
for deferred tax
recognized as a result
ThU.S.$
    Deferred tax of
items directly credited
to equity

ThU.S.$
    Increase (decrease)
Net exchange differences
ThU.S.$
    Closing balance
06-30-2013
ThU.S.$
 

Deferred tax assets relating to provisions

    4,752        1,187        —          (109     5,830   

Deferred tax Assets relating to accrued liabilities

    6,385        (280     —          (13     6,092   

Deferred tax assets relating to post - Employment benefits

    9,341        (494     —          (13     8,834   

Deferred tax assets relating to property, plant and equipment

    10,822        (227     —          (701     9,894   

Deferred tax assets relating to financial instruments

    297        (106     —          (16     175   

Deferred tax assets relating to tax losses carryforwards

    90,327        (12,171     —          (2,474     75,682   

Deferred tax assets relating to biological assets

    2,636        1,057        —          —          3,693   

Deferred tax assets relating to inventories

    9,142        (678     —          (150     8,314   

Deferred tax assets relating to provisions for income

    4,477        (844     —          (5     3,628   

Deferred tax assets relating to provisions for doubful accounts

    3,602        (677     —          (9     2,916   

Deferred tax assets relating to other deductible temporary differences

    18,930        (760     —          (262     17,908   

Total deferred tax assets

    160,711        (13,993     —          (3,752     142,966   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Deferred Tax Liabilities

  Opening  Balance
01-01-2013
ThU.S.$
    Income (Expenses)
for deferred tax
recognized as a result
ThU.S.$
    Deferred tax of
items directly credited
to equity
ThU.S.$
    Increase (decrease)
Net exchange differences
ThU.S.$
    Closing balance
06-30-2013
ThU.S.$
 

Deferred tax liabilities relating to property, plant and equipment

    736,530        5,260        —          (5,231     736,559   

Deferred tax liabilities relating to financial instruments

    14,218        273        (1,171     —          13,320   

Deferred tax liabilities relating to biological assets

    531,801        (4,023     —          (6,115     521,663   

Deferred tax liabilities relating to inventories

    16,517        (737     —          —          15,780   

Deferred tax liabilities due to prepaid expenses

    55,614        3,607        —          (1     59,220   

Deferred tax liabilities relating to other taxable temporary differences

    40,974        1,959        —          (1,591     41,342   

Total deferred tax liabilities

    1,395,654        6,339        (1,171     (12,938     1,387,884   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

 

 

 

41


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

June 30, 2013

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

 

 

Temporary Differences

The following tables summarize the deductible and taxable temporary differences:

 

     06-30-2013     12-31-2012  

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

     67,284          70,384     

Deferred Tax Assets - Tax losses

     75,682          90,327     

Deferred Tax Liabilities

       1,387,884          1,395,654   

Total

     142,966        1,387,884        160,711        1,395,654   
  

 

 

   

 

 

   

 

 

   

 

 

 
     January - June     April - June  

Detail of Temporary Difference Income and Loss Amounts

   2013
ThU.S.$
    2012
ThU.S.$
    2013
ThU.S.$
    2012
ThU.S.$
 

Deferred Tax Assets

     (10,307     (3,224     (7,919     (1,259

Deferred Tax Assets - Tax losses

     (11,104     9,473        (12,853     1,704   

Deferred Tax Liabilities

     1,079        (6,871     8,047        4,590   

Total

     (20,332     (622     (12,725     5,035   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income Tax consists of the following:

 

     January - June     April - June  

Income Tax composition

   2013
ThU.S.$
    2012
ThU.S.$
    2013
ThU.S.$
    2012
ThU.S.$
 

Current income tax expense

     (37,483     (14,288     (28,347     (4,200

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

     1,125        912        201        (5,328

Previous period current tax adjustments

     1,736        621        1,814        409   

Other current tax expenses

     323        (34     50        1   

Current Tax Expense, Net

     (34,299     (12,789     (26,282     (9,118

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

     (9,228     (18,207     128        (3,617

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

     —          841        —          755   

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

     (11,104     9,640        (12,853     1,697   

Other current tax expenses

     —          7,104        —          6,200   

Total deferred Tax Expense, Net

     (20,332     (622     (12,725     5,035   

Income Tax Expense, Total

     (54,631     (13,411     (39,007     (4,083
  

 

 

   

 

 

   

 

 

   

 

 

 

The following table sets for the current income tax expense detailed by foreign and domestic companies as of June 30, 2013 and 2012:

 

     January - June     April - June  
     2013
ThU.S.$
    2012
ThU.S.$
    2013
ThU.S.$
    2012  

Foreign current income tax expense

     (8,498     (1,851     (3,861     (295

Domestic current income tax expense

     (25,801     (10,938     (22,421     (8,823

Total current income tax expense

     (34,299     (12,789     (26,282     (9,118

Foreign deferred tax expense

     (5,427     12,189        (4,425     5,590   

Domestic deferred tax expense

     (14,905     (12,811     (8,300     (555

Total deferred tax expense

     (20,332     (622     (12,725     5,035   

Total tax income (expense)

     (54,631     (13,411     (39,007     (4,083
  

 

 

   

 

 

   

 

 

   

 

 

 

 

 

 

 

42


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

June 30, 2013

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

 

 

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

The reconciliation of income tax expense is as follows:

 

     January - June     April - June  
     2013     2012     2013     2012  

Reconciliation of Income tax from Statutory Rate to Effective Tax Rate

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

Tax Expense at applicable tax rate

     (62,132     (23,851     (40,304     (12,411

Tax effect of foreign tax rates

     (7,272     48        (3,027     (558

Tax effect of revenues exempt from taxation

     1,276        9,674        (6,137     6,985   

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

     (597     (7,808     (2,609     391   

Tax rate effect of tax losses

     10,420        679        10,439        (1,075

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

     —          841        —          755   

Tax rate effect of adjustments for current tax of prior periods

     1,732        621        1,810        409   

Other tax rate effects

     1,942        6,385        821        1,421   

Total adjustments to tax excpense at applicable tax rate

     7,501        10,440        1,297        8,328   

Tax expense at effective tax rate

     (54,631     (13,411     (39,007     (4,083
  

 

 

   

 

 

   

 

 

   

 

 

 

 

 

 

 

43


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

June 30, 2013

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

 

 

NOTE 7. PROPERTY, PLANT AND EQUIPMENT

 

     06-30-2013     12-31-2012  

Properties, Plant and Equipment, Net

   ThU.S.$     ThU.S.$  

Construction in progress

     423,624        487,406   

Land

     801,698        806,840   

Buildings

     1,662,961        1,649,582   

Plant and equipment (*)

     2,872,311        2,804,865   

Information technology equipment

     24,971        26,294   

Fixtures and fittings

     5,457        5,790   

Motor vehicles

     7,866        8,124   

Other property, plant and equipment

     99,809        100,236   

Total Net

     5,898,697        5,889,137   
  

 

 

   

 

 

 

Properties, Plant and Equipment, Gross

    

Construction in progress

     423,624        487,406   

Land

     801,698        806,840   

Buildings

     2,972,484        2,923,631   

Plant and equipment

     5,332,467        5,201,709   

Information technology equipment

     61,637        61,252   

Fixtures and fittings

     27,905        24,845   

Motor vehicles

     32,875        32,766   

Other property, plant and equipment

     145,972        145,420   

Total Gross

     9,798,662        9,683,869   
  

 

 

   

 

 

 

Accumulated depreciation and impairment

    

Buildings

     (1,309,523     (1,274,049

Plant and equipment

     (2,460,156     (2,396,844

Information technology equipment

     (36,666     (34,958

Fixtures and fittings

     (22,448     (19,055

Motor vehicles

     (25,009     (24,642

Other property, plant and equipment

     (46,163     (45,184

Total

     (3,899,965     (3,794,732
  

 

 

   

 

 

 

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 encumbrance of such property.

 

 

 

 

44


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

June 30, 2013

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

 

 

     06-30-2013      12-31-2012  
     ThU.S.$      ThU.S.$  

Total property, plant and equipment pledged as security

     7,719         16,413   

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

 

     06-30-2013      12-31-2012  
     ThU.S.$      ThU.S.$  

Amount committed for the acquisition of property, plant and equipment

     204,573         281,893   
     06-30-2013      12-31-2012  
     ThU.S.$      ThU.S.$  

Disbursements for property, plant and equipment under construction

     176,938         424,474   

 

 

 

 

45


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

June 30, 2013

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 June 30, 2013 and at December 31, 2012:

 

Movement of Property, Plant and Equipment

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

Opening Balance 01-01-2013

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

Changes

                  

Additions

     176,938        11,383        13,204        32,389        221        356        817        2,865        238,173   

Disposals

     —          —          (111     (1,141     —          (5     (44     (284     (1,585

Retirements

     (4,727     (234     82        (2,772     —          3        38        (177     (7,787

Depreciation

     —          —          (43,079     (105,668     (1,982     (840     (1,119     (1,852     (154,540

Impairment loss recognized in profit or loss

     —          —          20        (300     —          —          —          —          (280

Increase (decrease) through net exchange differences

     (5,950     (16,291     (13,015     (28,305     98        (16     37        (979     (64,421

Increase (decrease) through transfers from construction in progress

     (230,043     —          56,278        173,243        340        169        13        —          —     

Total changes

     (63,782     (5,142     13,379        67,446        (1,323     (333     (258     (427     9,560   

Closing balance 06-30-2013

     423,624        801,698        1,662,961        2,872,311        24,971        5,457        7,866        99,809        5,898,697   

Movement of Property, Plant and Equipment

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

 

 

 

 

46


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

June 30, 2013

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

 

 

The depreciation expense as of June 30, 2013 and 2012 is as follows:

 

     January - June      April - June  
     2013      2012      2013      2012  

Depreciation for the year

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

Cost of sales

     133,135         107,600         69,137         54,169   

Administrative expenses

     6,973         4,400         3,416         2,089   

Other expenses

     1,719         2,706         640         1,253   

Total

     141,827         114,706         73,193         57,511   
  

 

 

    

 

 

    

 

 

    

 

 

 

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.

Borrowing costs capitalized are detailed in Note No. 12.

 

 

 

 

47


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

June 30, 2013

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

 

 

NOTE 8. LEASES

Arauco acting as lessee

 

     06-30-2013      12-31-2012  
     ThU.S.$      ThU.S.$  

Property, Plant and Equipment under finance leases

     90,477         55,879   

Plant and equipment

     90,477         55,879   

Reconciliation of Financial Lease Minimum Payments:

 

     06-30-2013  
     Gross      Interest      Present Value  

Periods

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

Not later than one year

     26,962         —           26,962   

Later than one year and not later than five years

     60,540         —           60,540   

Later than five years

     —           —           —     

Total

     87,502         —           87,502   
  

 

 

    

 

 

    

 

 

 
     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   
  

 

 

    

 

 

    

 

 

 

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

Reconciliation of Financial Lease Minimum Payments:

 

     06-30-2013  
     Gross      Interest      Present Value  

Periods

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

Not later than one year

     1,138         65         1,073   

Later than one year and not later than five years

     585         47         538   

Later than five years

     —           —           —     

Total

     1,723         112         1,611   
  

 

 

    

 

 

    

 

 

 
     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   
  

 

 

    

 

 

    

 

 

 

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.

Arauco accounts for its lease contracts as finance leases. These lease contracts are for a term of less than five-years at 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.

 

 

 

 

48


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

June 30, 2013

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

 

 

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

NOTE 9. REVENUE

 

     January - June      April - June  

Classes of revenue

   2013
ThU.S.$
     2012
ThU.S.$
     2013
ThU.S.$
     2012
ThU.S.$
 

Revenue from sales of goods

     2,445,473         1,976,153         1,300,320         996,736   

Revenue from rendering of services

     95,496         71,009         58,345         39,997   

Total

     2,540,969         2,047,162         1,358,665         1,036,733   
  

 

 

    

 

 

    

 

 

    

 

 

 

NOTE 10. EMPLOYEE BENEFITS

Classes of Benefits and Expenses by Employee

 

     January - June      April - June  
     2013      2012      2013      2012  
     ThU.S.$      ThU.S.$      ThU.S.$      ThU.S.$  

Employee expenses

     255,391         177,775         130,349         84,329   

Wages and salaries

     249,811         170,426         127,161         80,570   

Severance indemnities

     5,580         7,349         3,188         3,759   

The main actuarial assumptions used by Arauco in the calculation of the severance indemnities obligation as of June 30, 2013 and 2012 are:

 

Discount rate

     3.50

Inflation

     3.00

Mortality rate

     RV-2009   

The following tables set forth the balances and the reconciliation of the present value of severance indemnities obligation as of June 30, 2013 and at December 31, 2012:

 

     06/30/2013     12/31/2012  
     ThU.S.$     ThU.S.$  

Current

     3,739        3,945   

Non-current

     41,065        43,491   

Total

     44,804        47,436   
  

 

 

   

 

 

 

Reconciliation of the present value of severance indemnities obligation

   06/30/2013
ThU.S.$
    12/31/2012
ThU.S.$
 

Opening balance

     47,436        39,409   

Current service cost

     952        4,137   

Interest cost

     1,510        1,261   

Actuarial gains

     2,042        3,838   

Benefits paid

     (4,741     (4,390

Increase (decrease) for foreign currency exchange rates changes

     (2,395     3,181   

Closing balance

     44,804        47,436