EX-99.1 2 d645388dex991.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

     4   

2.

  

Unaudited Consolidated Financial Statement

     7   

3.

  

Unaudited Consolidated Financial Income Statement

     9   

4.

  

Unaudited Consolidated Statement of Changes in Net Equity

     10   

5.

  

Unaudited Consolidated Statement of Cash Flow

     11   

6.

  

Unaudited Notes to the Consolidated Financial Statement

     12   

7.

  

Annex: Press Release

  


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statement

September 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:

 

     09-30-2013      12-31-2012  

Assets

   ThU.S.$      ThU.S.$  

Current assets

     2,788,228         2,699,996   

Non-current assets

     10,793,498         10,857,844   
  

 

 

    

 

 

 

Total assets

     13,581,726         13,557,840   
  

 

 

    

 

 

 
     09-30-2013      12-31-2012  

Liabilities

   ThU.S.$      ThU.S.$  

Current liabilities

     1,170,718         1,425,287   

Non-current liabilities

     5,313,300         5,166,794   

Non –parent participation

     71,015         74,437   

Net equity attributable to parent company

     7,026,693         6,891,322   
  

 

 

    

 

 

 

Total net equity and liabilities

     13,581,726         13,557,840   
  

 

 

    

 

 

 

As of September 30, 2013, total assets increased US$24 million compared to December 31, 2012, equivalent to 0.18% of variation. This deviation is mainly attributable to an increase in the balance of cash and cash equivalents and inventories, partially offset by a decrease in non-financial Assets (in 2012, compensation was received for fire insurance in Nueva Aldea).

Moreover, liabilities decreased US$108 million mainly attributable to a net decrease in financial Liabilities due to payment of bond obligations offset by an increase in 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

   09-30-2013      12-31-2012  

Current Liquidity (current assets / current liabilities)

     2.38         1.89   

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

     1.43         1.14   

Debt indicators

   09-30-2013      12-31-2012  

Debt to equity ratio (total liabilities / equity)

     0.91         0.95   

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

     0.18         0.22   

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

     0.82         0.78   
     09-30-2013      09-30-2012  

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

     3.64         2.49   

 

4


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statement

September 30, 2013

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

 

 

Activity ratio

   09-30-2013      12-31-2012  

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

     3.27         2.94   

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

     4.27         3.91   

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

     110.02         122.63   

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

     84.26         92.09   

The ratio current liquidity and the acid-test ratio present an increase in the period 2013 compared with exercise 2012, because of a net increase in current assets and a net decrease in current liabilities, due to bonds issued payments.

As of September 30, 2013, the short-term debt represented 18% of total liabilities (22% as of December 31, 2012).

The ratio of financial expenses covered represents an increase of 2.49 to 3.64. 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$457 million compared to a profit of US$221 million in the same period of the previous year, positive variation of US$236 million. The effect is explained by the factors described in the following table:

 

Item

   Million
U.S.$
 

Gross margin

     358   

Other operating income

     17   

Distribution and administrative expenses

     (123

Other operating expenses

     5   

Result in related companies

     10   

Income (financial expenses)

     (22
  

 

 

 

Others item

     (9
  

 

 

 

Net change in income before income tax

     236   
  

 

 

 

Gross Margin represents a profit of U.S.$1.199 million, U.S.$358 million higher compared to the previous period (U.S.$841 million) caused by a proportional increase in sales volumes and an increase in sales prices.

 

5


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statement

September 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:

 

     09-30-2013      09-30-2012  

Revenues

   ThU.S$      ThU.S$  

Pulp

     1,664,341         982,283   

Sawn timber

     614,075         364,626   

Panels

     1,466,828         604,222   

Forestry

     106,162         79,690   

Other

     24,476         16,341   
  

 

 

    

 

 

 

Total revenues

     3,875,882         2,047,162   
  

 

 

    

 

 

 

 

     09-30-2013      09-30-2012  

Sales costs

   ThU.S$      ThU.S$  

Wood

     673,840         628,942   

Forestry work

     473,745         439,371   

Depreciation

     200,511         164,661   

Other costs

     1,328,990         1,004,784   
  

 

 

    

 

 

 

Total sales costs

     2,677,086         2,237,758   
  

 

 

    

 

 

 

 

Profitability index

   09-30-2013     12-31-2012  

Profitability on equity

     7.07        2.01   

Profitability on assets

     3.67        1.08   

Return on operating assets

     4.56        1.77   

Profitability ratios

   09-30-2013     09-30-2012  

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

     3,02        0,49   

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

     373,046        58,789   

Gross margin (ThU.S.$)

     1,198,796        840,621   

Financial costs (ThU.S.$)

     (173,156     (148,451

 

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

 

     09-30-2013     09-30-2012  

EBITDA

   ThU.S$     ThU.S$  

Gain (loss)

     373.0        58.8   

Finance cost

     173.2        148.5   

Financial Income

     (16.3     (12.9

Expenses for income tax

     83.9        162.1   

EBIT

     613.8        356.5   

Depreciation and amortization

     238.5        176.3   

EBITDA

     852.3        532.8   

Cost at fair value of the harvest

     242.3        232.2   

Gain from changes in fair value of biological assets

     (202.6     (171.5

Exchange difference

     9.2        15.8   

Adjusted EBITDA

     901.2        609.3   

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

 

6


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statement

September 30, 2013

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

 

 

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.

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$ 572.9 million (including energy sales) for the third quarter of 2013, a decrease of 3.0% compared to the previous quarter. This decrease was mainly due to lower average prices of 1.3% and lower energy sales, and partially offset by higher volumes sales of 1.3%.

When compared with the same period of 2012, pulp sales increased 16.6%, mainly due to higher average prices of 5.4%, higher sales volume of 8.7% and higher energy sales.

During the third quarter of the year, price trends behaved differently depending on the pulp grade. For unbleached pulp, mainly used for packaging paper, the tendency changed and it obtained significant increases (approx. 5%) during this quarter. Softwood prices in general remained stable and in September alone it increased 1.5%, but we estimate this trend will continue for the fourth quarter. For hardwood, the situation is different, prices dropped during this quarter in most of the markets.

Price trends reflected global inventory changes. During the third quarter, inventories for long fiber remained stable and showed a decline of 2 days with respect to the same period of 2012. Short fiber inventories rose about 3-5 days when compared to the same period of 2012.

Asia in general showed good demand; however, the growth did not increase at the same pace as installed capacity. For printing & writing paper there was oversupply, hindering the transfer of costs to prices, even stock levels in this type of paper has rose pushing prices downward. This effect was especially reflected in China, Korea and Taiwan, these three countries are important producers of printing & writing paper for domestic and export markets. Supply in Asia increased and kept prices under pressure, especially in short fiber. For long fiber the supply was more limited and showed a positive trend in prices. The new capacity that entered a few months ago did not operate very well and these new volumes have been limited. Seasonal effects began at the end of the quarter and therefore there is optimism in prices for both fibers. Another important market is Tissue; this industry continues growing in Asia and particularly in China, replacing part of the pulp demand that has been lost in printing & writing paper.

Europe apparently did not bottom out during this quarter, but consumption began to stabilize in some paper industries, and there were even some increases in some types of graphic papers, such as magazine papers. In other types of paper, the oversupply continued as a

 

7


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statement

September 30, 2013

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

 

 

consequence of the economic adjustments and the replacement for electronic media and we expect more capacity closures, companies, consolidations, etc. For example in Germany, printing & writing paper production dropped 5.6% in September 2013 when compared to the same period in 2012, but other papers, such as Tissue and specialty papers have rose 5.1% and 2.4%, respectively.

Latin America began very actively with good prices, and this last quarter also showed demand increases in North America for Tissue, unbleached pulp and for the fibrocement industry that is directly related to the construction activity.

The fluff market for the diaper industry also could be improved by the increase in demand in North America and a lower pressure to ship fluff to different countries, such as Brazil, an important market for our fluff; and North America, one of the biggest and most competitive producers.

For the last quarter of 2013, we expect better demand and prices, confirming the trend that began at the end of the third quarter. During the third quarter, production levels were good and in line with our plans. We met production and sale targets. There were no special events that may affect the production and sales.

Sawn Timber Division

Our Sawn Timber division had total sales of US$ 219.2 million for the third quarter of 2013, representing a 5.4% increase compared to the previous quarter. This increase was mainly due to higher average prices of 7.2% and higher sales volume of 0.5%.

When compared with the same period of 2012, sawn timber and remanufactured wood products sales increased 13.8%, mainly due to higher sales volume and average prices of 8.0% and 6.0%, respectively.

The real estate and construction markets in the United States have remained around 900,000 units in housing starts during the third quarter of the year and continues to advance over the previous year. The Housing Starts Index reached 891,000 units per year in August, 19.0% higher than the same month last year. Current construction levels continue low compared to the historical 10 years average. During the third quarter, the sale price of moldings in the United States showed a slight increase when compared to the previous quarter. During the third quarter of this year, timber markets continued a positive trend in volumes and prices. Sales orders have increased and prices have been slightly higher in most of the markets we sell.

Panels Division

Panel’s sales reached US$ 502.0 million in the third quarter of this year, a decrease of 2.5% when compared to the US$ 514.9 million obtained in the second quarter of the year. This is mainly explained by a decrease in average prices of 1.4%, partially offset by a 1.2% increase in volume sales.

The panels division (MDF, PBO, Plywood and HB) closed the third quarter of the year with an increase of 65% in sales compared to the same quarter of 2012 and a 62% in accumulated sales respect to the same period of 2012. On the other hand, volume sales increased 1.2% when compared to the previous quarter of the year and 73% compared to the third quarter of 2012, accumulating a 66% of growth in relation to the period from January to September 2012. This strong growth over the previous year reflects the consolidation of Flakeboard in

 

8


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statement

September 30, 2013

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

 

 

North America. During the third quarter of the year, plywood sales volume had a 10% drop compared to the second quarter of this year. This is mainly explained by a lower production level principally associated to the startup process of new equipment.

In the case of MDF, sales volume increased 3% with respect to the second quarter of 2013. This increase is explained by higher sales in Latin American markets such as Brazil, Argentina and Mexico. Compared to the same quarter of 2012, MDF volume sales showed a rise 69% which is explained by an increase of supply from Flakeboard in North America and also because of the start of the new MDF line in Jaguariaiva, Brazil.

Sales volume of PBO grew 2% when compared to the second quarter of this year, which highlights the increase in sales of melamine to Mexico. Compared to the same quarter of 2012, particleboard sales volume increased 164%. This increase is mainly explained by the contribution of sales coming from our operations in North America and by a higher volume of our Teno Plant in Chile. Sales of MDF moldings showed a higher demand in the North American market, which goes in line with the recovery of the Housing Starts Index.

5. ANALYSIS OF CASH FLOW

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

 

     09-30-2013
ThU.S.$
    09-30-2012
ThU.S.$
 

Positive (negative) Cash flow

    

Cash flow from operating activities

     774,271        310,072   

Cash flow from financing activities:

    

Loan and bond payments

     (159,708     807,488   

Dividend payments

     (76,077     (176,672

Others

    

Cash flow from investment activities:

     (2,514     (21

Purchase and sales of permanent investments (net)

     (33,172     (327,137

Incorporation and sale of property, plant and equipment

     (218,966     (423,904

Incorporation and sale of biological assets

     (149,392     (89,924

Loan to related companies (net)

     200        (51,000

Dividends received

     17,490        3,980   
  

 

 

   

 

 

 

Others

     11,581        1,199   
  

 

 

   

 

 

 

Positive Net cash flow (negative)

     163,713        51,593   
  

 

 

   

 

 

 

The operating cash flow has a positive balance of U.S.$164 million in the current year, with differences with respect to the previous year (positive balance of U.S. $52 million). This is mainly due to a higher ratio of receipt of customer payments versus payments to suppliers and lower tax payments in the period 2013.

In relation to the flow of investment, the current financial year decreased U.S.$372 million (U.S.$889 million in 2012), mainly due to lower capital investments and lower payments for acquisition of property, plant and equipment.

6. MARKET RISK ANALYSIS

In respect of the economic risks resulting from interest rate variations, the Company maintains, as of September 30, 2013, a ratio of fixed rate debt to total consolidated debt of approximately 81.1%, 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.

 

9


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statement

September 30, 2013

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

 

 

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 September 30, 2013, Note 23, a detailed analysis of the risks associated with the business of Arauco is available.

 

10


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

September 30, 2013

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

 

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

 

          09-30-2013      12-31-2012  
     Note    ThU.S.$      ThU.S.$  

Assets

        

Current Assets

        

Cash and cash equivalents

   4      543,694         395,716   

Other current financial assets

   23      1,035         1,012   

Other current non-financial assets

   25      184,909         207,889   

Trade and other current receivables

   23      731,447         825,869   

Accounts receivable from related companies

   13      150,816         130,423   

Current Inventories

   3      855,078         815,782   

Current biological assets

   20      258,074         252,744   

Current tax assets

        48,381         56,951   

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

        2,773,434         2,686,386   

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

   22      14,794         13,610   

Total Current Assets

        2,788,228         2,699,996   

Non-Current Assets

        

Other non-current financial assets

   23      61,387         61,350   

Other non-current non-financial assets

   25      122,370         125,254   

Trade and other non-current receivables

   23      5,370         11,877   

Investments accounted for using equity method

   15-16      1,048,458         1,048,463   

Intangible assets other than goodwill

   19      98,522         103,158   

Goodwill

   17      79,647         84,106   

Property, plant and equipment

   7      5,774,455         5,789,483   

Non-current biological assets

   20      3,478,650         3,473,442   

Deferred tax assets

   6      124,639         160,711   

Total non-Current Assets

        10,793,498         10,857,844   

Total Assets

        13,581,726         13,557,840   
     

 

 

    

 

 

 

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

 

 

 

7


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

September 30, 2013

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

 

 

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (continued)

 

          09-30-2013     12-31-2012  
     Note    ThU.S.$     ThU.S.$  

Equity and liabilities

       

Liabilities

       

Current Liabilities

       

Other current financial liabilities

   23      439,931        808,614   

Trade and other current payables

   23      517,173        490,191   

Accounts payable to related companies

   13      11,372        9,168   

Other current provisions

   18      8,969        8,875   

Current tax liabilities

        5,049        12,264   

Current provisions for employee benefits

   10      3,902        3,945   

Other current non-financial liabilities

   25      184,322        92,230   

Total Current Liabilities

        1,170,718        1,425,287   

Non-Current Liabilities

       

Other non-current financial liabilities

   23      3,772,558        3,606,310   

Other non-current provisions

   18      22,261        13,281   

Deferred tax liabilities

   6      1,390,350        1,402,308   

Non-current provisions for employee benefits

   10      43,075        43,491   

Other non-current non-financial liabilities

   25      85,056        101,404   

Total non - current liabilities

        5,313,300        5,166,794   

Total liabilities

        6,484,018        6,592,081   

Equity

       

Issued capital

        353,176        353,176   

Retained earnings

        6,969,740        6,754,725   

Other reserves

        (296,223     -216,579   

Equity attributable to parent company

        7,026,693        6,891,322   

Non-controlling interests

        71,015        74,437   

Total equity

        7,097,708        6,965,759   

Total equity and liabilities

        13,581,726        13,557,840   
     

 

 

   

 

 

 

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

 

 

 

8


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

September 30, 2013

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

 

 

CONSOLIDATED STATEMENTS OF INCOME

 

          January-September     July-September  
          2013     2012     2013     2012  
     Note    ThU.S.$     ThU.S.$     ThU.S.$     ThU.S.$  

Income Statement

           

Revenue

   9      3,875,882        3,078,379        1,334,913        1,031,217   

Cost of sales

   2      (2,677,086     (2,237,758     (926,471     (775,801

Gross profit

        1,198,796        840,621        408,442        255,416   

Other income

   2      265,546        248,708        89,577        129,276   

Distribution costs

   2      (390,672     (329,758     (131,835     (115,833

Administrative expenses

   2      (398,534     (336,280     (134,151     (114,764

Other expense

   2      (57,272     (62,657     (23,769     (15,358

Other gains (losses)

   14      0        16,248        0        (15

Profit (loss) from operating activities

        617,864        376,882        208,264        138,722   

Finance income

   2      16,264        12,862        4,172        3,962   

Finance costs

   2      (173,156     (148,451     (59,663     (45,063

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

   15      5,180        (4,666     (5,123     3,911   

Exchange rate differences

        (9,202     (15,759     (1,359     (9,589

Income before income tax

        456,950        220,868        146,291        91,943   

Income Tax

   6      (83,904     (162,079     (29,273     (148,668

Net Income

        373,046        58,789        117,018        (56,725
     

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to

           

Net income attributable to parent company

        341,790        55,318        102,553        (58,248

Income attributable to non-controlling interests

        31,256        3,471        14,465        1,523   

Profit (loss)

        373,046        58,789        117,018        (56,725
     

 

 

   

 

 

   

 

 

   

 

 

 

Basic earnings per share

           

Earnings per share from continuing operations

        0.0030206        0.0004889        0.0009063        (0.0005148
     

 

 

   

 

 

   

 

 

   

 

 

 

Basic earnings per share

        0.0030206        0.0004889        0.0009063        (0.0005148
     

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per diluted shares

           

Earnings per diluted share from continuing operations

        0.0030206        0.0004889        0.0009063        (0.0005148
     

 

 

   

 

 

   

 

 

   

 

 

 

Basic earnings per diluted share

        0.0030206        0.0004889        0.0009063        (0.0005148
     

 

 

   

 

 

   

 

 

   

 

 

 

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

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

          January-September     July-September  
          2013     2012     2013     2012  
     Note    ThU.S.$     ThU.S.$     ThU.S.$     ThU.S.$  

Profit (loss)

        373,046        58,789        117,018        (56,725

Components of other comprehensive income, before tax:

           

Exchange differences on translation

           

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

   11      (113,787     (96,268     (6,665     (4,631

Cash flow hedges

           

Gains (losses) on cash flow hedges, before tax

   23      33,850        (19,870     3,775        (13,568

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

        3,735        120        1,834        (80

Other comprehensive income, net of tax

        (76,202     (116,018     (1,056     (18,279

Income tax relating to cash flow hedges of other comprehensive income

   6-23      (6,862     3,838        (5,486     2,316   

Other comprehensive income

        (83,064     (112,180     (6,542     (15,963

Total comprehensive income

        289,982        (53,391     110,476        (72,688
     

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive Income attributable to

           

Comprehensive income, attributable to owners of parent company

        262,146        (53,698     97,210        (74,064

Comprehensive income, attributable to non-controlling interests

        27,836        307        13,266        1,376   

Total comprehensive income

        289,982        (53,391     110,476        (72,688
     

 

 

   

 

 

   

 

 

   

 

 

 

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 Statement

September 30, 2013

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

 

 

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

 

09-30-2013

  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
ThU.S.$
    Non - controlling
interests
T.hU.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   

Changes in equity

                 

Comprehensive income

                 

Net income

              341,790        341,790        31,256        373,046   

Other comprehensive income, net of tax

      (110,367     26,988        3,735        (79,644       (79,644     (3,420     (83,064

Comprehensive income

      (110,367     26,988        3,735        (79,644     341,790        262,146        27,836        289,982   

Dividens

              -126775            (126,775

Increase (decrease) for transfer and other changes

                0        (29,037     (29,037

Increase (decrease) for changes in share od subsidiaries with not involve loss control

            0          0        (2,221     (2,221

Total Changes in equity

    0        (110,367     26,988        3,735        (79,644     215,015        135,371        (3,422     131,949   

Closing balance at 09/30/2013

    353,176        (279,744     (18,122     1,643        (296,223     6,969,740        7,026,693        71,015        7,097,708   

 

09-30-2012

  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   

Changes in equity

                 

Comprehensive income

                0          0   

Net income

            0        55,318        55,318        3,471        58,789   

Other comprehensive income, net of tax

      (93,104     (16,032     120        (109,016       (109,016     (3,164     (112,180

Comprehensive income

    0        (93,104     (16,032     120        (109,016     55,318        (53,698     307        (53,391

Dividends

              (34,643     (34,643     0        (34,643

Increase (decrease) for transfer and other changes

                0        (14,484     (14,484

Total Changes in equity

    0        (93,104     (16,032     120        (109,016     20,675        (88,341     (14,177     (102,518

Closing balance at 09/30/2012

    353,176        (160,643     (41,946     (3,248     (205,837     6,703,927        6,851,266        76,366        6,927,632   

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

 

 

 

10


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

September 30, 2013

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

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

     09-30-2013
ThU.S.$
    09-30-2012
ThU.S.$
 

STATEMENTS OF CASH FLOWS

    

Cash Flows from (used in) Operating Activities

    

Classes of cash receipts from operating activities

    

Receipts from sales of goods and rendering of services

     4,168,241        3,418,195   

Receipts from premiums and claims, annuities and other policy benefits

     29,819        122,182   

Other cash receipts from operating activities

     415,497        217,800   

Classes of cash payments

    

Payments to suppliers for goods and services

     (3,088,029     (2,839,665

Payments to and on behalf of employees

     (368,068     (271,175

Other cash payments from operating activities

     (178,612     (18,928

Interest paid

     (167,837     (133,754

Interest received

     9,000        10,252   

Income taxes refund (paid)

     (45,815     (194,843

Other (outflows) inflows of cash, net

     75        8   

Net Cash flows from Operating Activities

     774,271        310,072   
  

 

 

   

 

 

 

Cash flows (used in) investing activities

    

Cash flow used in obtaining control of subsidiaries or other businesses

     —          (190,897

Cash flow used to contributions in associates

     —          (13,560

Other cash receipts from sales of participations in joint ventures

     43,500        6,607   

Capital contributions to joint ventures

     (76,672     (129,287

Loans to related parties

     (33,000     (60,500

Proceeds from sale of property, plant and equipment

     19,005        7,119   

Purchase of property, plant and equipment

     (237,971     (431,023

Proceeds from sales of intangible assets

     —          3,250   

Purchase of intangible assets

     (2,985     (4,464

Proceeds from sale of other long-term assets

     3,657        1,750   

Purchase of biological assets

     (153,049     (91,674

Proceeds from repayment of advances and loans to others

     5,000        —     

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

     33,200        9,500   

Dividends received

     17,490        3,980   

Other outflows of cash, net

     9,566        15   

Cash flows used in Investing Activities

     (372,259     (889,184
  

 

 

   

 

 

 

Cash flows from (used in) Financing Activities

    

Total loans obtained

     891,512        1,398,457   

Proceeds from short-term borrowings

     313,156        763,059   

Loans obtained in long term

     578,356        635,398   

Repayments of borrowings

     (1,051,220     (590,969

Dividends paid by subsidiaries or special purpose companies

     (76,077     (176,762

Other inflows of cash, net

     (2,514     (21

Cash flows from (used in) Financing Activities

     (238,299     630,705   
  

 

 

   

 

 

 

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

     163,713        51,593   

Effect of exchange rate changes on cash and cash equivalents

     (15,735     2,784   
  

 

 

   

 

 

 

Net increase (decrease) of Cash and Cash equivalents

     147,978        54,377   

Cash and cash equivalents, at the beginning of the period

     395,716        315,901   

Cash and cash equivalents, at the end of the period

     543,694        370,278   
  

 

 

   

 

 

 

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

 

 

 

11


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

September 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 September 30, 2013 are:

 

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

 

    Consolidated Statements of Income for the periods of 9 and 3 months ended September 30, 2013 and 2012.

 

    Consolidated Comprehensive Income Statements for the periods of 9 and 3 months ended September 30, 2013 and 2012.

 

    Consolidated Statements of Changes in Net Equity for the periods of 9 months ended September 30, 2013 and 2012.

 

    Consolidated Statements of Cash Flows – Direct Method for the periods of 9 months ended September 30, 2013 and 2012.

 

    Notes to the consolidated financial statements.

 

 

 

12


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

September 30, 2013

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

 

 

Period covered by the Financial Statements

Period ended at September 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° 498 held on November 21 , 2013, for the period from 1 January to 30 September 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 present in all material respects its financial position, its results of operations and its cash flows in accordance with IFRS as issued by the IASB.

 

 

 

13


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

September 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 September 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.

 

 

 

14


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

September 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 litigation. 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.

 

 

 

15


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

September 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 non-controlling 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.

 

 

 

16


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

September 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 September 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.

 

 

 

17


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

September 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.

 

 

 

18


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

September 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.

 

 

 

19


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

September 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) Embedded derivatives

The Company evaluates the existence of embedded derivatives in financial instrument contracts to determine if their characteristics and risks are closely related to the main contract provided that the set is not recorded at fair value. If they are not closely related, they are recorded separately and the accounting changes are in the value of the consolidated results.

 

i) 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.

 

 

 

20


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

September 30, 2013

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

 

 

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.

 

j) Non-current assets held for sale

The Group classifies as non-current assets held for sale property, plant and equipment, intangible assets, investments in associates and groups subject to expropriation (groups of assets to be sold together with their directly associated liabilities) which as of the closing date of the statement of financial position, are the subject of active sale efforts the completion of which is estimated to be highly probable.

These assets or groups subject to expropriation are valued at the lower of the carrying amount or the estimated retail value less the costs to carry it out, and are no longer amortized from the time they are classified as non-current assets held for sale.

 

k) 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

 

 

 

21


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

September 30, 2013

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

 

 

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.

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.

 

l) 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

 

 

 

22


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

September 30, 2013

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

 

 

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.

 

m) 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.

 

 

 

23


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

September 30, 2013

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

 

 

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

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

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

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

 

o) Leases

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.

 

 

 

24


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

September 30, 2013

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

 

 

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.

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

 

 

 

25


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

September 30, 2013

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

 

 

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.

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.

 

 

 

26


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

September 30, 2013

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

 

 

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.

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.

 

 

 

27


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

September 30, 2013

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

 

 

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.

“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.

 

 

 

28


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

September 30, 2013

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

 

 

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.

 

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

 

 

 

29


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

September 30, 2013

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

 

 

IFRS 10   

Consolidated Financial Statements

 

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

   January 1, 2013
IFRS 11   

Joint Arrangements

 

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

   January 1, 2013
IFRS 12   

Disclosure of interests in other entities

 

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

   January 1, 2013
IFRS 13   

Fair Value Measurement

 

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

   January 1, 2013
IFRIC 20   

Stripping Costs in the production phase of open pit mines

 

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

   January 1, 2013

 

Amendments and

improvements

  

Contents

  

Mandatory application
for annual periods
beginning on or

IAS 28    Investments in associates and joint ventures    January 1, 2013
   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.   
IAS 1    Presentation of Financial Statements    July 1, 2012
   Issued in September 2011. The main modification of this   

 

 

 

30


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

September 30, 2013

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

 

 

   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

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

 

Guides about when to recognize a liability for a government imposed lien whether for those recorded in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets and for those liens whose existence and amount is certain.

   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, Disclosures of the recoverable amount for nonfinancial assets    January 1, 2014
IAS 39    Financial Instruments: Recognition and Measurement-Novation of 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.

 

 

 

31


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

September 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.

 

   09-30-2013    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
   09-30-2013    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.$126,775 (ThU.S.$34,643 as of September 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.$76,077 as of September 30, 2013, (ThU.S.$176,762 as of September 30, 2012), which ThS.U.$47,017 (ThUS$161,568 as of September 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

 

 

 

32


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

September 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.

 

 

 

33


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

September 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 September 30, 2013 and 2012:

 

     January - September     July - September  
     2013     2012     2013     2012  
     ThU.S.$     ThU.S.$     ThU.S.$     ThU.S.$  

Classes of Other Income by activity

        

Other Operating Income, Total

     265,546        248,708        89,577        129,276   

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

     202,604        171,498        65,961        94,068   

Net income from insurance compensation (*)

     1,271        42,219        74        25,097   

Revenue from export promotion

     3,122        2,319        949        910   

Leases received

     1,540        1,712        891        55   

Gain on sales of assets

     6,190        9,925        4,446        1,909   

Gain on sales of assets of special purpose entities (**)

     29,624        —          14,360        —     

Revenue from compensation of judgment

     8,500        —          —          —     

Revenue from administrative services

     1,349        —          62        —     

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

     11,346        21,035        2,834        7,237   

Classes of Other Expenses by activity

        

Total of other expenses by activity

     (57,272     (62,657     (23,769     (15,358

Depreciations

     (429     (452     (142     (142

Contingent provision

     (17,433     (2,520     (14,397     (300

Impairment provision properties, plants and equipment and others

     (3,956     (69     (352     —     

Plants stopped operating expenses

     (3,403     (13,151     2,403        (476

Expenses projects

     —          (10,367     —          (1,539

Loss of assets

     (6,733     (487     (4,779     (87

Loss of forest due to fires

     (635     (2,907     (514     (165

Other Taxes

     (3,190     (4,228     (961     (1,754

Research and development expenses

     (1,954     (1,563     (701     (519

Compensation and eviction

     (1,113     (5,504     (283     (1,924

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

     (18,426     (21,409     (4,043     (8,452

Classes of financing income

        

Financing income, total

     16,264        12,862        4,172        3,962   

Financial income from mutual funds - deposits

     7,411        6,276        3,303        1,555   

Financial income resulting from swap - forward

     2,487        2,979        (813     527   

Other financial income

     6,366        3,607        1,682        1,880   

Classes of financing costs

        

Financing costs, Total

     (173,156     (148,451     (59,663     (45,063

Interest expense, Loans banks

     (18,288     (10,104     (6,695     (4,068

Interest expense, Bonds

     (130,985     (115,851     (40,561     (36,157

Interest expense, financial instruments

     (5,189     (10,660     (2,860     (2,838

Other financial costs

     (18,694     (11,836     (9,547     (2,000

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

        

Total

     5,180        (4,666     (5,123     3,911   

Investments in associates

     3,697        16,194        4,425        6,472   

Joint ventures

     1,483        (20,860     (9,548     (2,561

 

(*) The amount corresponding to the period 2012 net income indemnity insurance (fire and other disasters)
(**) Corresponding to the total income from sale of land and biological assets of SPE Arauco

 

 

 

34


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

September 30, 2013

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

 

 

Below is the Balance of Expenses by nature:

 

     January - September      July - September  
     2013      2012      2013      2012  

Cost of sales

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

Timber

     673,840         628,942         246,306         215,509   

Forestry labor costs

     473,745         439,371         167,677         152,359   

Depreciation

     200,511         164,661         65,670         57,061   

Maintenance costs

     159,296         143,099         51,086         46,185   

Chemical costs

     371,272         263,563         121,568         95,123   

Sawmill Services

     137,517         135,575         45,954         40,565   

Others Raw Materials

     153,160         102,422         56,818         35,745   

Indirect costs

     117,832         93,041         42,324         26,002   

Energy and fuel

     147,897         105,064         50,301         37,774   

Cost of electricity

     67,367         54,071         21,653         24,446   

Wage and salaries

     174,649         107,949         57,114         45,032   

Total

     2,677,086         2,237,758         926,471         775,801   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     January - September     July - September  
     2013     2012     2012      2012  

Distribution cost

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

Salling costs

     24,599        20,529        7,429         7,023   

Commissions

     11,836        10,680        3,955         3,513   

Insurance

     4,519        3,538        1,308         1,536   

Provision for doubtful accounts receivable

     (393     (1,711     63         (1,157

Other selling costs

     8,637        8,022        2,103         3,131   

Shipping and freight costs

     366,073        309,229        124,406         108,810   

Port services

     20,451        18,187        7,351         4,282   

Freights

     306,639        254,911        104,081         75,206   

Other shipping and freight costs

     38,983        36,131        12,974         29,322   

Total

     390,672        329,758        131,835         115,833   
  

 

 

   

 

 

   

 

 

    

 

 

 

 

     January - September      July - September  
     2013      2012      2012      2012  

Administrative expenses

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

Wage and salaries

     165,955         138,890         50,672         48,759   

Marketing, advertising, promotion and publications expenses

     6,634         7,059         2,412         3,970   

Insurance

     30,132         23,896         9,215         9,948   

Depreciation and amortization

     16,715         8,523         9,742         3,128   

Computer services

     13,814         8,569         3,739         3,827   

Lease rentals (offices, warehouses and machinery)

     10,027         12,624         3,316         5,159   

Auditor’s fees

     2,722         2,770         900         -168   

Donations, contributions, scholarships

     8,453         7,938         3,179         1,737   

Fees (legal and technical advisories)

     36,690         30,990         11,101         5,024   

Property taxes, patents and municipality rights

     19,021         12,527         9,401         4,910   

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

     88,371         82,494         30,474         28,470   

Total

     398,534         336,280         134,151         114,764   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     Note    January - September      July - September  
          2013      2012      2013      2012  

Expenses for

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

Depreciations

   7      212.667         174.297         70.840         59.591   

Employee benefits

   10      361.147         298.257         135.756         120.482   

Amortization

   19      6.864         2.018         5.157         1.023   

 

 

 

35


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

September 30, 2013

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

 

 

e) Auditor and Staffing Salaries

At the end of this period the Auditor and Staffing’s remuneration expenses are the following:

 

Auditor’s Salaries

   MUS$  

Financial Audit Services

     1,745   

Other services

  

Tax

     978   

Others

     330   

TOTAL

     3,053   
  

 

 

 
Staffing     
     13,227   

NOTE 3. INVENTORIES

 

Components of Inventory

   09-30-2013
ThU.S.$
     12-31-2012
ThU.S.$
 

Raw materials

     90,798         90,466   

Production supplies

     88,149         82,248   

Products in progress

     87,782         78,981   

Finished goods

     445,290         435,546   

Spare Parts

     143,059         128,541   

Total Inventories

     855,078         815,782   
  

 

 

    

 

 

 

Inventories recognized as cost of sales at September 30, 2013 were ThU.S.$2,670,204 (ThU.S.$2,225,788 at September 30, 2012).

In order to recognize inventories at net realizable value, at September 30, 2013, a net increase of inventories associated with lower provision for obsolesce of ThU.S.$ 2,566 is recognized (lower provision of ThU.S.$2,403 as of September 30, 2012).

As of September 30, 2013 there are inventory penalties of ThU.S$1,724, at September 30, 2012 there were inventory penalties of ThU.S.$19,838, which were mainly caused 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.

 

 

 

36


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

September 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.

 

Components of Cash and Cash Equivalents

   09-30-2013
ThU.S.$
     12-31-2012
MUS$
 

Cash on hand

     423         543   

Bank checking account balances

     124,897         62,816   

Time deposits

     276,882         151,799   

Mutual funds

     132,351         180,558   

Other cash and cash equivalents (*)

     9,141         —     

Total

     543,694         395,716   
  

 

 

    

 

 

 

 

(*) Applies to contracts for the purchase under resale

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 September 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 September 30, 2013 do not show changes in accounting policies compared to the last year.

 

 

 

37


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

September 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 September 30, 2013 and at December 31, 2012:

 

Deferred Tax Assets

   09-30-2013
ThU.S.$
     12-31-2012
ThU.S.$
 

Deferred tax Assets relating to Provisions

     8,481         4,752   

Deferred tax Assets relating to accrued liabilities

     6,239         6,385   

Deferred tax Assets relating to Post-Employment benefits

     9,231         9,341   

Deferred tax Assets relating to Property, Plant and equipment

     1,005         10,822   

Deferred tax Assets relating to Financial Instruments

     198         297   

Deferred tax Assets relating to tax losses carryforwards

     44,960         90,327   

Deferred tax assets relating to biological assets

     63         2,636   

Deferred tax assets relating to inventories

     5,493         9,142   

Deferred tax assets relating to provisions for income

     4,061         4,477   

Deferred tax assets relating to provision for doubtful accounts

     3,159         3,602   

Deferred tax assets relating to other deductible temporary differences (*)

     41,749         18,930   

Total deferred tax assets

     124,639         160,711   
  

 

 

    

 

 

 

 

(*) In the period 2013 there MUS $ 19,945 deferred tax relating to tax goodwill produced by fusion of Chilean forestry companies

As of December 31, 2012, certain of Arauco’s subsidiaries have carryforwards tax losses of ThU.S.$211,624 (ThU.S.$ 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.

 

 

 

38


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

September 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 September 30, 2013 and at December 31, 2012:

 

Deferred Tax Liabilities

   09-30-2013
ThU.S.$
     12-31-2012
ThU.S.$
 

Deferred tax liabilities relating to property, Plant and equipment

     739,718         743,184   

Deferred tax liabilities relating to financial instruments

     13,795         14,218   

Deferred tax liabilities relating to biological assets

     525,316         531,801   

Deferred tax liabilities relating to inventory

     14,985         16,517   

Deferred tax liabilities due to prepaid expenses

     57,592         55,614   

Deferred tax liabilities relating to other taxable temporary differences

     38,944         40,974   

Total deferred tax liabilities

     1,390,350         1,402,308   
  

 

 

    

 

 

 

The effect of changes in deferred tax liabilities related to cash flow hedges corresponds to a charge of ThU.S.$6,862 as of September 30, 2013 (credit of ThU.S.$3,838 as of September 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.$19,322 and ThU.S.$124,347 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
09-30-2013
ThU.S.$
 

Deferred tax Assets relating to Provisions

    4,752        3,863        —          (134     8,481   

Deferred tax Assets relating to accrued liabilities

    6,385        (146     —          0        6,239   

Deferred tax Assets relating to Post-Employment benefits

    9,341        (99     —          (11     9,231   

Deferred tax Assets relating to Property, Plant and equipment

    10,822        (8,117     —          (1,700     1,005   

Deferred tax Assets relating to Financial Instruments

    297        (233     —          134        198   

Deferred tax Assets relating to tax losses carryforwards

    90,327        (42,691     —          (2,676     44,960   

Deferred tax assets relating to biological assets

    2,636        (2,573     —          0        63   

Deferred tax assets relating to provisions for income

    9,142        (3,525     —          (124     5,493   

Deferred tax assets relating to provisions for income

    4,477        (412     —          (4     4,061   

Deferred tax assets relating to provision for doubtful accounts

    3,602        (432     —          (11     3,159   

Defferred tax assets relating to other deductible temporary differences

    18,930        22,051        —          768        41,749   

Total deferred tax assets

    160,711        (32,314     —          (3,758     124,639   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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
09-30-2013
ThU.S.$
 

Deferred tax liabilities relating to property, Plant and equipment

    743,183        1,934        —          (5,399     739,718   

Deferred tax liabilities relating to financial instruments

    14,218        (111     (462     150        13,795   

Deferred tax liabilities relating to biological assets

    531,801        133        —          (6,618     525,316   

Deferred tax liabilities relating to inventory

    16,517        (1,698     —          166        14,985   

Deferred tax liabilities due to prepaid expenses

    55,614        1,981        —          (3     57,592   

Deferred tax liabilities relating to other taxable temporary differences

    40,975        (273     —          (1,758     38,944   

Total deferred tax liabilities

    1,402,308        1,966        (462     (13,462     1,390,350   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

 

 

39


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

September 30, 2013

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

 

 

Temporary Differences

The following tables summarize the deductible and taxable temporary differences:

 

     09-30-2013      12-31-2012  
     Deductible      Taxable      Deductible      Taxable  
     Difference      Difference      Difference      Difference  

Detail of classes of Deferred Tax Temporary Differences

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

Deferred Tax Assets

     79,679            70,384      

Deferred Tax Assets - Tax losses

     44,960            90,327      

Deferred Tax Liabilities

        1,390,350            1,402,308   

Total

     124,639         1,390,350         160,711         1,402,308   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     January - September     July - September  
     2013     2012     2013     2012  

Detail of Temporary Difference Income and Loss Amounts

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

Deferred Tax Assets

     10,788        4,903        21,095        8,127   

Deferred Tax Assets - Tax losses

     (36,508     13,992        (25,404     4,519   

Deferred Tax Liabilities

     (8,558     (155,012     (9,637     (148,141

Total

     (34,278     (136,117     (13,946     (135,495
  

 

 

   

 

 

   

 

 

   

 

 

 

Income Tax consists of the following:

 

     January - September     July - September  
     2013     2012     2013     2012  

Income Tax composition

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

Current income tax expense

     (74,197     (27,952     (36,714     (13,664

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

     16,429        1,266        15,304        354   

Previous period current tax adjustments

     3,977        610        2,241        (11

Other current tax expenses

     4,165        114        3,842        148   

Current Tax Expense, Net

     (49,626     (25,962     (15,327     (13,173

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

     2,230        (17,476     11,458        731   

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

     —          (128,981     —          (129,822

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

     (36,508     10,340        (25,404     700   

Other current tax expenses

     —          —          —          (7,104

Total deferred Tax Expense, Net

     (34,278     (136,117     (13,946     (135,495

Income Tax Expense, Total

     (83,904     (162,079     (29,273     (148,668
  

 

 

   

 

 

   

 

 

   

 

 

 

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

 

     January - September     July - September  
     2013     2012     2013     2012  
     ThU.S.$     ThU.S.$     ThU.S.$     ThU.S.$  

Foreign current income tax expense

     (11,675     (5,020     (3,177     (3,169

Domestic current income tax expense

     (37,951     (20,942     (12,150     (10,004

Total current income tax expense

     (49,626     (25,962     (15,327     (13,173

Foreign deferred tax expense

     (17,890     18,719        (12,463     6,530   

Domestic deferred tax expense

     (16,388     (154,836     (1,483     (142,025

Total deferred tax expense

     (34,278     (136,117     (13,946     (135,495

Total tax income (expense)

     (83,904     (162,079     (29,273     (148,668
  

 

 

   

 

 

   

 

 

   

 

 

 

 

 

 

40


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

September 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 - September     January - September  
     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

     (91,390     (44,174     (29,258     (20,323

Tax effect of foreign tax rates

     (18,669     1,177        (11,397     1,129   

Tax effect of revenues exempt from taxation

     (1,233     13,005        (2,509     3,331   

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

     (2,404     (5,450     (1,807     2,358   

Tax rate effect of tax losses

     9,795        758        (625     79   

Tax effect of profit previously unrecognized on the Income Statement

     15,830        —          15,830        —     

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

     —          (124,597     —          (125,438

Tax rate effect of adjustments for current tax of prior periods

     792        610        (940     (11

Other tax rate effects

     3,375        (3,408     1,433        (9,793

Total adjustments to tax expense at applicable tax rate

     7,486        (117,905     (15     (128,345

Tax expense at effective tax rate

     (83,904     (162,079     (29,273     (148,668
  

 

 

   

 

 

   

 

 

   

 

 

 

 

 

 

41


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

September 30, 2013

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

 

 

NOTE 7. PROPERTY, PLANT AND EQUIPMENT

 

Properties, Plant and Equipment, Net

   09-30-2013
ThU.S.$
    12-31-2012
ThU.S.$
 

Construction in progress

     408,148        487,380   

Land

     798,390        801,601   

Buildings

     1,653,558        1,628,854   

Plant and equipment

     2,774,607        2,727,345   

Information technology equipment

     24,035        25,454   

Fixtures and fittings

     7,511        8,691   

Motor vehicles

     9,527        9,734   

Other property, plant and equipment

     98,679        100,424   

Total Net

     5,774,455        5,789,483   
  

 

 

   

 

 

 

Properties, Plant and Equipment, Gross

    

Construction in progress

     408,148        487,380   

Land

     798,390        801,601   

Buildings

     2,946,233        2,872,553   

Plant and equipment

     4,909,860        4,799,185   

Information technology equipment

     60,729        59,836   

Fixtures and fittings

     30,935        27,960   

Motor vehicles

     35,030        34,558   

Other property, plant and equipment

     132,145        138,790   

Total Gross

     9,321,470        9,221,863   
  

 

 

   

 

 

 

Accumulated depreciation and impairment

    

Buildings

     (1,292,675     (1,243,699

Plant and equipment

     (2,135,253     (2,071,840

Information technology equipment

     (36,694     (34,382

Fixtures and fittings

     (23,424     (19,269

Motor vehicles

     (25,503     (24,824

Other property, plant and equipment

     (33,466     (38,366

Total

     (3,547,015     (3,432,380
  

 

 

   

 

 

 

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.

As of September 2013, there are no current contracts of between Arauco and Fondo de Inversión Bío Bío. Forest land and biological assets committed as collateral were sold to Arauco, so that there are no collateral assets in these consolidated financial statements to date.

 

 

 

42


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

September 30, 2013

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

 

 

     09-30-2013
ThU.S.$
     12-31-2012
ThU.S.$
 

Total property, plant and equipment pledged as security

     —           16,413   

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

 

     09-30-2013
ThU.S.$
     12-31-2012
ThU.S.$
 

Amount committed for the acquisition of property, plant and equipment

     204,488         281,893   
     09-30-2013
ThU.S.$
     12-31-2012
ThU.S.$
 

Disbursements for property, plant and equipment under construction

     244,248         424,474   

 

 

 

43


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

September 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 September 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

    487,380        801,601        1,628,854        2,727,345        25,454        8,691        9,734        100,424        5,789,483   

Changes

                 

Additions

    242,529        12,650        7,842        32,485        282        340        1,882        2,770        300,780   

Disposals

    —          (837     (1,284     (249     —          (2     (85     (273     (2,730

Retirements

    (1,567     (145     (274     (4,160     —          (4     59        (270     (6,361

Depreciation

    —          —          (66,501     (162,528     (2,611     (1,780     (2,199     (2,099     (237,718

Impairment loss recognized in profit or loss

    —          —          20        (470     —          —          —          —          (450

Increase (decrease) through net exchange differences

    (8,480     (17,013     (11,916     (29,512     39        138        68        (1,873     (68,549

Increase (decrease) through transfers from construction in progress

    (311,714     2,134        96,817        211,696        871        128        68        —          —     

Total changes

    (79,232     (3,211     24,704        47,262        (1,419     (1,180     (207     (1,745     (15,028

Closing balance 09-30-2013

    408,148        798,390        1,653,558        2,774,607        24,035        7,511        9,527        98,679        5,774,455   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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

    427,614        5,569        3,850        31,094        1,780        61        1,693        39,005        510,666   

Acquisitions through business combinations

    2,703        9,268        50,100        235,462        235        3,140        1,803        2,460        305,171   

Disposals

    (3,824     (668     5,767        (16,196     (1,176     (113     (435     (3,535     (20,180

Retirements

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

Depreciation

    —          —          (82,063     (198,720     (3,080     (1,963     (3,202     (410     (289,438

Impairment loss recognized in profit or loss

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

Increase (decrease) through net exchange differences

    (16,033     (18,279     (8,851     (17,241     (225     (611     209        (1,996     (63,027

Increase (decrease) through transfers from construction in progress

    (574,989     96        203,308        363,676        4,287        2,294        689        639        —     

Total changes

    (176,591     (4,203     169,095        367,116        1,714        2,681        (418     36,111        395,505   

Closing balance 12-31-2012

    487,380        801,601        1,628,854        2,727,345        25,454        8,691        9,734        100,424        5,789,483   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

 

 

44


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

September 30, 2013

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

 

 

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

 

     January-September      July—September  

Depreciation for the year

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

Cost of sales

     198,099         162,691         64,964         55,091   

Administrative expenses

     12,263         8,475         5,290         4,075   

Other expenses

     2,305         3,131         586         425   

Total

     212,667         174,297         70,840         59,591   
  

 

 

    

 

 

    

 

 

    

 

 

 

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.

 

 

 

45


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

September 30, 2013

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

 

 

NOTE 8. LEASES

Arauco acting as lessee

 

     09-30-2013      12-31-2012  
     ThU.S.$      ThU.S.$  

Property, Plant and Equipment under finance leases

     92,117         55,879   

Plant and equipment

     92,117         55,879   

Reconciliation of Financial Lease Minimum Payments:

 

     09-30-2013  
     Gross      Interest      Present Value  

Periods

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

Not later than one year

     27,099         —           27,099   

Later than one year and not later than five years

     61,998         —           61,998   

Later than five years

     —           —           —     

Total

     89,097         —           89,097   
  

 

 

    

 

 

    

 

 

 

 

     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:

 

     09-30-2013  
     Gross      Interest      Present Value  

Periods

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

Not later than one year

     1,132         64         1,068   

Later than one year and not later than five years

     331         26         305   

Later than five years

     —           —           —     

Total

     1,463         90         1,373   
  

 

 

    

 

 

    

 

 

 

 

     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.

 

 

 

46


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

September 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 - September      July - September  
     2013      2012      2013      2012  

Classes of revenue

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

Revenue from sales of goods

     3,741,843         2,972,622         1,296,370         996,469   

Revenue from rendering of services

     134,039         105,757         38,543         34,748   

Total

     3,875,882         3,078,379         1,334,913         1,031,217   
  

 

 

    

 

 

    

 

 

    

 

 

 

NOTE 10. EMPLOYEE BENEFITS

Classes of Benefits and Expenses by Employee

 

     January - September      July - September  
     2013      2012      2013      2012  
     ThU.S.$      ThU.S.$      ThU.S.$      ThU.S.$  

Employee expenses

     361,147         298,257         105,756         120,482   

Wages and salaries

     353,116         288,369         103,305         117,943   

Severance indemnities

     8,031         9,888         2,451         2,539   

The main actuarial assumptions used by Arauco in the calculation of the severance indemnities obligation as of September 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 September 30, 2013 and at December 31, 2012:

 

     09/30/2013      12/31/2012  
     ThU.S.$      ThU.S.$  

Current

     3,902         3,945   

Non-current

     43,075         43,491   

Total

     46,977         47,436   
  

 

 

    

 

 

 

 

     09/30/2013     12/31/2012  

Reconciliation of the present value of severance indemnities obligation

   ThU.S.$     ThU.S.$  

Opening balance

     47,436        39,409   

Current service cost

     2,187        4,137   

Interest cost

     1,510        1,261   

Actuarial gains

     3,575        3,838   

Benefits paid

     (5,585     (4,390

Increase (decrease) for foreign currency exchange rates changes

     (2,146     3,181   

Closing balance

     46,977        47,436   

 

 

 

47


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

September 30, 2013

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

 

 

NOTE 11. EFFECT OF FOREIGN CURRENCY EXCHANGE RATE VARIATIONS

Local and foreign currency

Assets and liabilities by class of currency as of September 30, 2013 and at December 31, 2012 are as follows:

 

     09-30-2013      12-31-2012  
     ThU.S.$      ThU.S.$  

Total Current Assets

     2,788,228         2,699,996   

Cash and Cash Equivalents

     543,694         395,716   

U.S Dollar

     432,643         325,340   

Euro

     1,081         1,867   

Brazilian Real

     75,774         38,477   

Argentine pesos

     14,769         4,877   

Other currencies

     2,114         2,726   

Chilean Pesos

     17,313         22,429   

Other current financial assets

     1,035         1,012   

U.S Dollar

     1,035         1,012   

Other current non-financial assets

     184,909         207,889   

U.S Dollar

     74,738         96,257   

Euros

     155         103   

Brazilian Real

     13,563         15,041   

Argentine pesos

     12,510         13,647   

Other currencies

     6,889         1,846   

Chilean Pesos

     77,054         80,995   

Trade and other current receivables

     731,447         825,869   

U.S Dollar

     478,256         520,803   

Euro

     27,899         26,711   

Brazilian Real

     62,776         53,057   

Argentine pesos

     41,510         38,256   

Other currencies

     23,058         22,543   

Chilean Pesos

     96,816         163,084   

U.F.

     1,132         1,415   

Accounts receivable from related companies

     150,816         130,423   

U.S Dollar

     135,782         122,315   

Brazilian Real

     3,688         1,268   

Chilean Pesos

     11,346         6,840   

Current Inventories

     855,078         815,782   

U.S Dollar

     744,295         718,348   

Brazilian Real

     89,579         77,340   

Chilean Pesos

     21,204         20,094   

Current biological assets

     258,074         252,744   

U.S Dollar

     247,418         252,744   

Brazilian Real

     10,656         —     

Current tax assets

     48,381         56,951   

U.S Dollar

     2,093         1,332   

Brazilian Real

     1,120         6,655   

Argentine pesos

     2,292         6,931   

Other currencies

     2,829         1,188   

Chilean Pesos

     40,047         40,845   

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

     14,794         13,610   

U.S Dollar

     14,794         13,610   

 

 

 

48


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

September 30, 2013

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

 

 

     09-30-2013      12-31-2012  
     ThU.S.$      ThU.S.$  

Total Non Current Assets

     10,793,498         10,857,844   

Other non-current financial assets

     61,387         61,350   

U.S Dollar

     60,524         60,333   

Argentine pesos

     863         1,017   

Other non-current non-financial assets

     122,370         125,254   

U.S Dollar

     106,292         105,414   

Brazilian Real

     9,695         17,042   

Argentine pesos

     853         1,540   

Other currencies

     631         681   

Chilean Pesos

     4,899         577   

Trade and other non-current receivables

     5,370         11,877   

U.S Dollar

     173         5,204   

Chilean Pesos

     3,199         3,374   

U.F.

     1,998         3,299   

Investments accounted for using equity method

     1,048,458         1,048,463   

U.S Dollar

     817,526         790,116   

Brazilian Real

     230,932         258,347   

Intangible assets other than goodwill

     98,522         103,158   

U.S Dollar

     93,919         98,997   

Brazilian Real

     4,523         4,070   

Chilean Pesos

     80         91   

Goodwill

     79,647         84,106   

U.S Dollar

     32,317         32,457   

Brazilian Real

     47,330         51,649   

Property, plant and equipment

     5,774,455         5,789,483   

U.S Dollar

     5,059,410         5,022,197   

Brazilian Real

     707,259         756,507   

Chilean Pesos

     7,786         10,779   

Non-current biological assets

     3,478,650         3,473,442   

U.S Dollar

     3,121,820         3,093,440   

Brazilian Real

     356,830         380,002   

Deferred tax assets

     124,639         160,711   

U.S Dollar

     93,327         113,080   

Brazilian Real

     30,396         46,464   

Other currencies

     166         361   

Chilean Pesos

     750         806   

 

 

 

49


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

September 30, 2013

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

 

 

     09-30-2013      12-31-2012  
     Up to 90 days      From 91 days to
1 year
     Total      Up to 90 days      From 91 days to
1 year
     Total  
     ThU.S.$      ThU.S.$      ThU.S.$      ThU.S.$      ThU.S.$      ThU.S.$  

Total Liabilities, current

     872,025         298,693         1,170,718         1,015,183         410,104         1,425,287   

Other current financial liabilities

     142,414         297,517         439,931         401,493         407,121         808,614   

U.S Dollar

     75,623         165,282         240,905         360,732         355,651         716,383   

Brazilian Real

     14,019         6,187         20,206         8,494         3,432         11,926   

Argentine pesos

     28,273         6,905         35,178         25,091         12,200         37,291   

Chilean Pesos

     212         578         790         111         330         441   

U.F.

     24,287         118,565         142,852         7,065         35,508         42,573   

Bank Loans

     103,016         162,242         265,258         347,256         66,015         413,271   

U.S Dollar

     60,724         149,150         209,874         313,671         50,383         364,054   

Brazilian Real

     14,019         6,187         20,206         8,494         3,432         11,926   

Argentine pesos

     28,273         6,905         35,178         25,091         12,200         37,291   

Financial Leases

     7,574         19,524         27,098         3,909         16,580         20,489   

U.S Dollar

     —           87         87         —           127         127   

Chilean Pesos

     212         578         790         111         330         441   

U.F.

     7,362         18,859         26,221         3,798         16,123         19,921   

Other Loans

     31,824         115,751         147,575         50,328         324,526         374,854   

U.S Dollar

     14,899         16,045         30,944         47,061         305,141         352,202   

U.F.

     16,925         99,706         116,631         3,267         19,385         22,652   

Trade and other current payables

     517,173         —           517,173         490,191         —           490,191   

U.S Dollar

     136,852         —           136,852         117,458         —           117,458   

Euros

     7,460         —           7,460         9,114         —           9,114   

Brazilian Real

     37,065         —           37,065         30,730         —           30,730   

Argentine pesos

     34,296         —           34,296         37,515         —           37,515   

Other currencies

     794         —           794         1,622         —           1,622   

Chilean Pesos

     298,117         —           298,117         291,190         —           291,190   

U.F.

     2,589         —           2,589         2,562         —           2,562   

Accounts payable to related companies

     11,372         —           11,372         9,168         —           9,168   

U.S Dollar

     1,799         —           1,799         1,474         —           1,474   

Chilean Pesos

     9,573         —           9,573         7,694         —           7,694   

Other current provisions

     8,969         —           8,969         8,875         —           8,875   

Argentine pesos

     8,969         —           8,969         8,875         —           8,875   

Current tax liabilities

     4,267         782         5,049         12,264         —           12,264   

Euros

     158         —           158         132         —           132   

Brazilian Real

     3,183         —           3,183         —           —           —     

Argentine pesos

     27         —           27         —           —           —     

Other currencies

     55         —           55         711         —           711   

Chilean Pesos

     844         782         1,626         11,421         —           11,421   

Current provisions for employee benefits

     3,508         394         3,902         962         2,983         3,945   

Brazilian Real

     1         —           1         —           —           —     

Chilean Pesos

     3,507         394         3,901         962         2,983         3,945   

Other current non-financial liabilities

     184,322         —           184,322         92,230         —           92,230   

U.S Dollar

     122,728         —           122,728         49,453         —           49,453   

Brazilian Real

     31,179         —           31,179         23,767         —           23,767   

Argentine pesos

     6,054         —           6,054         4,067         —           4,067   

Other currencies

     4,199         —           4,199         2,221         —           2,221   

Chilean Pesos

     18,315         —           18,315         10,620         —           10,620   

U.F.

     1,847         —           1,847         2,102         —           2,102   

 

 

 

50


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

September 30, 2013

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

 

 

     09-30-2013      12-31-2012  
     From 13
months to 5
years
     More than 5
years
     Total      From 13
months to 5
years
     More than 5
years
     Total  
     ThU.S.$      ThU.S.$      ThU.S.$      ThU.S.$      ThU.S.$      ThU.S.$  

Total non-current liabilities

     3,129,604         2,183,696         5,313,300         2,953,670         2,213,124         5,166,794   

Other non-current financial liabilities

     1,597,981         2,174,577         3,772,558         1,401,793         2,204,517         3,606,310   

U.S Dollar

     1,490,381         1,383,050         2,873,431         1,244,963         1,380,868         2,625,831   

Brazilian Real

     37,983         24,023         62,006         2,679         26,216         28,895   

Argentine pesos

     —           —           —           8,134         —           8,134   

Chilean Pesos

     1,234         —           1,234         781         —           781   

U.F.

     68,383         767,504         835,887         145,236         797,433         942,669   

Bank Loans

     754,374         28,788         783,162         477,457         30,981         508,438   

U.S Dollar

     716,391         4,765         721,156         466,644         4,765         471,409   

Brazilian Real

     37,983         24,023         62,006         2,679         26,216         28,895   

Argentine pesos

     —           —           —           8,134         —           8,134   

Financial Leases

     61,997         —           61,997         35,563         —           35,563   

U.S Dollar

     12         —           12         67         —           67   

Chilean Pesos

     1,234         —           1,234         781         —           781   

U.F.

     60,751         —           60,751         34,715         —           34,715   

Other Loans

     781,610         2,145,789         2,927,399         888,773         2,173,536         3,062,309   

U.S Dollar

     773,978         1,378,285         2,152,263         778,252         1,376,103         2,154,355   

U.F.

     7,632         767,504         775,136         110,521         797,433         907,954   

Other non-current provisions

     22,261         —           22,261         13,281         —           13,281   

Brazilian Real

     22,261         —           22,261         13,281         —           13,281   

Deferred tax liabilities

     1,390,350         —           1,390,350         1,402,308         —           1,402,308   

U.S Dollar

     1,238,296         —           1,238,296         1,229,196         —           1,229,196   

Brazilian Real

     146,563         —           146,563         166,553         —           166,553   

Argentine pesos

     5,049         —           5,049         5,503         —           5,503   

Other currencies

     121         —           121         596         —           596   

Chilean Pesos

     321         —           321         460         —           460   

Non-current provisions for employee benefits

     34,471         8,604         43,075         35,157         8,334         43,491   

Other currencies

     161         —           161         140         —           140   

Chilean Pesos

     34,310         8,604         42,914         35,017         8,334         43,351   

Other non-current non-financial liabilities

     84,541         515         85,056         101,131         273         101,404   

U.S Dollar

     —           —           —           500         —           500   

Brazilian Real

     82,568         —           82,568         97,695         —           97,695   

Argentine pesos

     1,680         515         2,195         2,917         —           2,917   

Chilean Pesos

     278         —           278         —           273         273   

U.F.

     15         —           15         19         —           19   

The table below sets forth the subsidiaries that have determined a functional currency other than the U.S. Dollar as follows:

 

Subsidiary

   Country    Functional Currency

Arauco do Brasil S.A

   Brazil    Brazilian Real

Arauco Forest Brasil S.A

   Brazil    Brazilian Real

Arauco Florestal Arapoti S.A

   Brazil    Brazilian Real

Empreendimentos Florestais Santa Cruz Ltda

   Brazil    Brazilian Real

Catan Empreendimentos e Participacoes S.A

   Brazil    Brazilian Real

Mahal Empreendimentos e Participacoes S.A

   Brazil    Brazilian Real

Arauco Distribucion S.A

   Chile    Chilean Pesos

Investigaciones Forestales Bioforest S.A

   Chile    Chilean Pesos

Controladora de Plagas Forestales S.A

   Chile    Chilean Pesos

 

 

 

51


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

September 30, 2013

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

 

 

The table below shows a detail per company of the effect in the period of the Reserve for Exchange Differences resulting from conversion of currencies:

 

     09/30/2013     09/30/2012  
     ThU.S.$     ThU.S.$  

Arauco Do Brasil S.A.

     (48,610     (38,989

Arauco Forest Brasil S.A.

     (37,650     (38,783

Arauco Florestal Arapoti S.A.

     (13,845     (12,826

Arauco Distribución S.A.

     (1,021     1,825   

Alto Paraná S.A.

     (4,664     (4,530

Flakeboard Company Limited

     (4,360     —    

Others

     (217     199   
  

 

 

   

 

 

 

Translation Adjustment Total

     (110,367     (93,104
  

 

 

   

 

 

 

Effect of foreign exchange rates changes

 

     January - September     July - September  
     2013     2012     2013     2012  
     ThU.S.$     ThU.S.$     ThU.S.$     ThU.S.$  

Exchange differences recognized in profit or loss, except for those arising on financial instruments measured at fair value through profit or loss

     (8,187     (15,759     (898     (9,561

Reserve of exchange differences on translation

     (113,787     (96,268     (6,665     (4,631

NOTE 12. BORROWING COSTS

Arauco estimates the average rate of borrowings to finance its investment projects (new plants, improvements and expansions) in Chile and Brazil in order to determine the amount of borrowing costs to be capitalized as part of property, plant and equipment.

 

     January - September     July - September  
     2013     2012     2013     2012  
     ThU.S.$     ThU.S.$     ThU.S.$     ThU.S.$  

Property, plant and equipment capitalized cost

        

Property, plant and equipment capitalized interest cost rate

     4.91     5.06     4.78     5.03

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

     1,685        14,249        405        6,536   

 

 

 

52


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

September 30, 2013

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

 

 

NOTE 13. RELATED PARTIES

Related Party Disclosures

Related parties are those entities defined in IAS 24 and under the rules of the Chilean Superintendency of Securities and Insurance and the Chilean Corporations Law.

The receivable and payable amounts among related parties at the end of each period correspond to commercial and financing transactions denominated in Chilean Pesos, U.S. dollars and Euros, where collection or payment deadlines are shown in the following tables and in general do not bear interest, except for financing transactions.

At the close of these financial statements the main transactions recorded with related parties are loans to companies in Uruguay (joint agreements) and fuel purchases to Compañía de Petróleos de Chile S.A.

There is neither a provision for doubtful debts nor any guarantees granted or received related to the balances with related parties.

Name of Group’s Main Shareholders

The ultimate shareholders of Arauco are Mrs. Maria Noseda Zambra de Angelini, Mr. Roberto Angelini Rossi and Mrs. Patricia Angelini Rossi through Inversiones Angelini y Cia. Ltda.

Name of the Intermediate Controlling Entity that Prepares Financial Statements for Public Use

Empresas Copec S.A.

Remunerations to Key Management Personnel

Remunerations to key management personnel, including directors, managers and deputy managers, consist of a fixed monthly salary, with a possible annual discretionary bonus.

Pricing Strategy Terms and Conditions Corresponding to Transactions with Related Parties

Related party transactions were made on terms of those prevailing under market conditions.

 

 

 

53


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

September 30, 2013

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

 

 

The table below sets forth information about the Relationship between Parent Company and its Subsidiaries

 

                    % Ownership interest      % Ownership interest  
               Functional    09/30/2013      12/31/2012  

ID Nº

  

Company Name

   Country    Currency    Direct      Indirect      Total      Direct      Indirect      Total  
—     

Agenciamiento y Servicios Profesionales S.A.

   México    U.S Dollar      0.0020         99.9970         99.9990         0.0020         99.9970         99.9990   
—     

Alto Paraná S.A.

   Argentina    U.S Dollar      9.9753         90.0048         99.9801         9.9753         90.0048         99.9801   
—     

Arauco Australia Pty Ltd.

   Australia    U.S Dollar      —           99.9990         99.9990         —           99.9990         99.9990   
96547510-9   

Arauco Bioenergía S.A.

   Chile    U.S Dollar      98.0000         1.9985         99.9985         98.0000         1.9985         99.9985   
—     

Arauco Colombia S.A.

   Colombia    U.S Dollar      1.5000         98.4980         99.9980         1.5000         98.4980         99.9980   
96765270-9   

Arauco Distribución S.A.

   Chile    Chilean pesos      —           99.9994         99.9994         —           99.9992         99.9992   
—     

Arauco do Brasil S.A.

   Brazil    Real      1.4319         98.5666         99.9985         1.4573         98.5412         99.9985   
—     

Arauco Florestal Arapoti S.A.

   Brazil    Real      —           79.9992         79.9992         —           79.9992         79.9992   
—     

Arauco Forest Brasil S.A.

   Brazil    Real      13.3524         86.6466         99.9990         13.3524         86.6466         99.9990   
—     

Arauco Forest Products B.V.

   Holland    U.S Dollar      —           99.9990         99.9990         —           99.9990         99.9990   
—     

Arauco Holanda Cooperatief U.A.

   Holland    U.S Dollar      —           99.9990         99.9990         —           99.9990         99.9990   
—     

Arauco Panels Canada ULC

   Canada    U.S Dollar      —           —           —           —           99.9990         99.9990   
—     

Arauco Panels USA, LLC

   USA    U.S Dollar      —           99.9990         99.9990         —           99.9990         99.9990   
—     

Arauco Perú S.A.

   Perú    U.S Dollar      0.0013         99.9977         99.9990         0.0013         99.9977         99.9990   
—     

Arauco Wood Products, Inc.

   USA    U.S Dollar      0.0004         99.9981         99.9985         0.0004         99.9981         99.9985   
—     

Araucomex S.A. de C.V.

   México    U.S Dollar      0.0005         99.9985         99.9990         0.0005         99.9985         99.9990   
96565750-9   

Aserraderos Arauco S.A.

   Chile    U.S Dollar      99.0000         0.9993         99.9993         99.0000         0.9992         99.9992   
82152700-7   

Bosques Arauco S.A.

   Chile    U.S Dollar      —           —           —           1.0000         98.9256         99.9256   
—     

Catan Empreendimentos e Participacoes S.A.

   Brazil    Real      —           —           —           —           99.9934         99.9934   
96657900-5   

Controladora de Plagas Forestales S.A.

   Chile    Chilean pesos      —           59.7654         59.7654         —           59.6326         59.6326   
—     

Empreendimentos Florestais Santa Cruz Ltda.

   Brazil    Real      —           99.9789         99.9789         —           99.9789         99.9789   
—     

Flakeboard America Limited

   USA    U.S Dollar      —           99.9990         99.9990         —           99.9990         99.9990   
—     

Flakeboard Company Ltd.(exArauco Panels Canada ULC)

   USA    U.S Dollar      —           99.9990         99.9990         —           99.9990         99.9990   
96573310-8   

Forestal Arauco S.A.

   Chile    U.S Dollar      99.9254         —           99.9254         99.9248         —           99.9248   
85805200-9   

Forestal Celco S.A.

   Chile    U.S Dollar      1.0000         98.9256         99.9256         1.0000         98.9256         99.9256   
93838000-7   

Forestal Cholguán S.A.

   Chile    U.S Dollar      —           98.1437         98.1437         —           97.4281         97.4281   
—     

Forestal Concepcion S.A

   Panama    U.S Dollar      0.0050         99.9936         99.9986         0.0050         99.9936         99.9986   
78049140-K   

Forestal Los Lagos S.A.

   Chile    U.S Dollar      —           79.9403         79.9403         —           79.9405         79.9405   
—     

Forestal Nuestra Señora del Carmen S.A.

   Argentina    U.S Dollar      —           99.9805         99.9805         —           99.9805         99.9805   
—     

Forestal Talavera S.A.

   Argentina    U.S Dollar      —           99.9942         99.9942         —           99.9942         99.9942   
96567940-5   

Forestal Valdivia S.A.

   Chile    U.S Dollar      —           —           —           1.0000         98.9256         99.9256   
76320036-1   

Forestal Viñales S.A.

   Chile    U.S Dollar      99.9248         —           99.9248         —           —           —     
—     

Greenagro S.A.

   Argentina    U.S Dollar      —           97.9805         97.9805         —           97.9805         97.9805   
96563550-5   

Inversiones Arauco Internacional Ltda.

   Chile    U.S Dollar      98.0186         1.9799         99.9985         98.0186         1.9799         99.9985   
79990550-7   

Investigaciones Forestales Bioforest S.A.

   Chile    Chilean pesos      1.0000         98.9261         99.9261         1.0000         98.9256         99.9256   
—     

Leasing Forestal S.A.

   Argentina    U.S Dollar      —           99.9801         99.9801         —           99.9801         99.9801   
—     

Mahal Empreendimentos e Participacoes S.A.

   Brazil    Real      —           99.9932         99.9932         —           99.9932         99.9932   
96510970-6   

Paneles Arauco S.A.

   Chile    U.S Dollar      99.0000         0.9993         99.9993         99.0000         0.9992         99.9992   
—     

Savitar S.A.

   Argentina    U.S Dollar      —           99.9931         99.9931         —           99.9931         99.9931   
96637330-K   

Servicios Logísticos Arauco S.A.

   Chile    U.S Dollar      45.0000         54.9997         99.9997         45.0000         54.9995         99.9995   

All subsidiaries listed in the table above and the special purpose entities Fondo de Inversión Bío Bío and its subsidiary Forestal Río Grande S.A. are included in the consolidation process.

There are no significant restrictions on the ability of subsidiaries to transfer funds to Arauco, in the form of cash dividends or repay loans or advances.

 

 

 

54


CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Notes to the Consolidated Financial Statements

September 30, 2013

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

 

 

Employee Benefits for Key Management Personnel

 

     January - September      July - September  
     2013      2012      2013      2012  
     ThU.S.$      ThU.S.$      ThU.S.$      ThU.S.$  

Salaries and bonuses

     47,258         43,337         12,584         12,286   

Per diem compensation to members of the Board of Directors

     1,280         1,215         399         413   

Termination benefits

     3,622         1,825         571         179   

Total

     52,160         46,377         13,554         12,878   
  

 

 

    

 

 

    

 

 

    

 

 

 

Accounts Receivable from Related Parties

 

Name of Related Party

   Tax ID No.    Nature of
Relationship
   Country    Currency    Maturity    09-30-2013
ThU.S.$
     12-31-2012
ThU.S.$
 

Forestal Mininco S.A

   91.440.000-7    Common director    Chile    Chilean pesos    30 days      58         7   

Eka Chile S.A

   99.500.140-3    Joint Venture    Chile    Chilean pesos    30 days      2,087         2,346   

Forestal del Sur S.A

   79.825.060-4    Common director    Chile    Chilean pesos    —        —           4,485   

Stora Enso Arapoti Industria del Papel S.A

   —      Associates    Brazil    Real    30 days      722         593   

Empresa Electrica Guacolda S.A.

   96.635.700-2    Controlling Parent’s
Associate
   Chile    Chilean pesos    30 days      187         735   

Unilin Arauco Pisos Ltda.

   —      Joint Venture    Brazil    Real    30 days      2,966         675   

Unilin Flooring Ltda.

   —      Common director    EEUU    U.S. Dollar    30 days      184         —     

Eufores S.A

   —      Joint Venture    Uruguay    U.S. Dollar    Dec-13      63,853         73,095   

Forestal Cono Sur S.A

   —      Joint Venture    Uruguay    U.S. Dollar    Dec-13      11,500         19,201   

Colbún S.A.

   96.505.760-9    Common director    Chile    Chilean pesos    30 days      7,659         2   

Ongar S.A

   —      Joint Venture    Uruguay    U.S. Dollar    Dec-13      29,662         26,056   

Celulosa y Energía Punta Pereira S.A

   —      Joint Venture    Uruguay    U.S. Dollar    30 days      63         3,228   

Zona Franca Punta Pereira S.A.

   —      Joint Venture    Uruguay    U.S. Dollar    Dec-13      30,333         —     

Fundación Educacional Arauco

   71.625.000-8    Common director    Chile    Chilean pesos    30 days      1,542         —     

TOTAL

                    150,816         130,423   
                 

 

 

    

 

 

 

Accounts Payable to Related Parties

 

Name of Related party

   Tax ID No.    Nature of
Relationship
   Country    Currency    Maturity    09-30-2013
ThU.S.$
     12-31-2012
ThU.S.$
 

Compañía de Petróleos de Chile S.A.

   99.520.000-7    Controlling Parent’s
Subsidiary
   Chile    Chilean pesos    30 days      8,660         6,588   

Abastible S.A.

   91.806.000-6    Controlling Parent’s
Subsidiary
   Chile    Chilean pesos    30 days      715         677   

Empresas Copec S.A.

   90.690.000-9    Controlling Parent    Chile    Chilean pesos    —        —           31   

Fundación Educacional Arauco

   71.625.000-8    Common director    Chile    Chilean pesos    —        —           380   

Sigma S.A.

   86.370.800-1    Common director    Chile    Chilean pesos    —        6         4   

Forestal del Sur S.A

   79.825.060-4    Common director    Chile    Chilean pesos    30 days      29         —     

Portaluppi, Guzman y Bezanilla Abogados

   78.096.080-9    Common director    Chile    Chilean pesos    30 days      153         —     

Empresa Nacional de Telecomunicaciones S.A.

   92.580.000-7    Common director    Chile    Chilean pesos    30 days      8         10   

Servicios Corporativos Sercor S.A.

   96.925.430-1    Associate    Chile    Chilean pesos    —        —