6-K 1 d720608d6k.htm 6-K 6-K
Table of Contents

 

 

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 6-K

 

 

Report of Foreign Private Issuer

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

of the Securities Exchange Act of 1934

For the month of December, 2013

Commission File Number 33-99720

 

 

ARAUCO AND CONSTITUTION PULP INC.

(Translation of registrant’s name into English)

 

 

El Golf 150

Fourteenth Floor

Santiago, Chile

(Address of principal executive offices)

 

 

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

Form 20-F  x            Form 40-F  ¨

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

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

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

Yes  ¨            No   x

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

 

 

 


Table of Contents

Signature

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

        Celulosa Arauco y Constitución, S.A.

                                 (Registrant)

 

   
Date: April 30, 2014     By:   /s/ Matías Domeyko Cassel
      Name: Matías Domeyko Cassel
      Title:   Chief Executive Officer


Table of Contents

ARAUCO AND CONSTITUTION PULP INC

TABLE OF CONTENTS

 

Item

   Page  

1.

 

Ratio Analysis of the Consolidated Financial Statement

     1   

2.

 

Unaudited Consolidated Financial Statement

     7   

3.

 

Unaudited Consolidated Financial Income Statement

     9   

4.

 

Unaudited Consolidated Statement of Changes in Net Equity

     11   

5.

 

Unaudited Consolidated Statement of Cash Flow

     14   

6.

 

Unaudited Notes to the Consolidated Financial Statement

     15   

7.

 

Annex: Press Release

  


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statement

December 31, 2013

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

 

1. ANALYSIS OF FINANCIAL POSITION

 

a) Statement of Financial Position

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

 

Assets

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

Current assets

     2,808,321         2,785,517   

Non-current assets

     11,685,074         11,474,097   
  

 

 

    

 

 

 

Total assets

     14,493,395         14,259,614   
  

 

 

    

 

 

 

Liabilities

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

Current liabilities

     1,682,016         1,546,728   

Non-current liabilities

     5,766,839         5,747,127   

Non –parent participation

     52,242         74,437   

Net equity attributable to parent company

     6,992,298         6,891,322   
  

 

 

    

 

 

 

Total net equity and liabilities

     14,493,395         14,259,614   
  

 

 

    

 

 

 

As of December 31, 2013, total assets increased US$234 million compared to December 31, 2012, equivalent to 1.64% of variation. This deviation is mainly attributable to an increase in the balance of cash and cash equivalents of inventories and properties, plant and equipment, partially offset by a decrease in trade debtors and other accounts receivables and assets held for sale.

Moreover, liabilities increased US$155 million mainly attributable to an increase in nonfinancial liabilities, which itself was a result of an increase in the provision of minimum dividends and an increase in financial liabilities by higher loan balances with financial institutions.

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

 

Liquidity ratios

   12-31-2013      12-31-2012  

Current Liquidity (current assets / current liabilities )

     1.67         1.80   

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

     0.98         1.10   

Debt indicators

   12-31-2013      12-31-2012  

Debt to equity ratio (total liabilities / equity)

     1.06         1.05   

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

     0.23         0.21   

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

     0.77         0.79   
     12-31-2013      12-31-2012  

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

     3.36         2.31   

 

1


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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statement

December 31, 2013

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

 

 

Activity ratio

   12-31-2013      12-31-2012  

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

     3.17         2.91   

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

     4.13         3.89   

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

     113.47         123.57   

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

     87.18         92.47   

The current liquidity ratio and the acid-test ratio decreased in 2013 as compared with 2012, because of a net increase in current liabilities and a net decrease in current assets, mainly on sale of assets held for sale and a decrease in balance of trade and other receivables.

As of December 31, 2013, the short-term debt represented 23% of total liabilities (21% as of December 31, 2012).

The ratio of financial expenses covered represents an increase of 2.31 to 3.36. 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$549 million compared to a profit of US$310 million in the same period of the previous year, positive variation of US$239 million. The effect is explained by the factors described in the following table:

 

Item

   Million
U.S.$
 

Gross margin

     453   

Other income by function

     (23

Distribution and administrative expenses

     (136

Other expenses by function

     (31

Result in related companies

     (12

Other item

     (12
  

 

 

 

Net change in income before income tax

     239   
  

 

 

 

Gross Margin represents a profit of U.S.$1,588 million, U.S.$453 million higher compared to the previous period (U.S.$1,135 million) caused by a proportional increase in sales volumes and a net increase in sales prices.

 

2


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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statement

December 31, 2013

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

 

 

ANALYSIS OF FINANCIAL POSITION, continued

 

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

 

Revenues

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

Pulp

     2,180,756        1,996,739   

Sawn timber

     829,924        765,439   

Panels

     1,940,860        1,331,981   

Forestry

     160,490        172,972   

Other

     33,470        31,532   
  

 

 

   

 

 

 

Total revenues

     5,145,500        4,298,663   
  

 

 

   

 

 

 

Sales costs

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

Wood

     869,036        861,401   

Forestry work

     631,749        589,023   

Depreciation

     271,708        236,671   

Other costs

     1,784,717        1,476,337   
  

 

 

   

 

 

 

Total sales costs

     3,557,210        3,163,432   
  

 

 

   

 

 

 

Profitability index

   12-31-2013     12-31-2012  

Profitability on equity

     5.98        2.01   

Profitability on assets

     2.91        1.05   

Return on operating assets

     3.90        1.69   

Profitability ratios

   12-31-2013     12-31-2012  

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

     3,41        1,23   

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

     418,577        143,541   

Gross margin (ThU.S.$)

     1,588,290        1,135,231   

Financial costs (ThU.S.$)

     (232,843     (236,741

 

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

 

EBITDA

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

Gain (loss)

     418.6        143.5   

Finance cost

     232.8        236.7   

Financial Income

     (19.1     (23.5

Expenses for income tax

     130.4        166.8   

EBIT

     762.7        523.6   

Depreciation and amortization

     317.6        252.4   

EBITDA

     1,080.4        776.0   

Cost at fair value of the harvest

     320.9        311.8   

Gain from changes in fair value of biological assets

     (269.7     (243.3

Exchange difference

     11.8        17.2   

Adjusted EBITDA

     1,143.4        861.7   

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

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statement

December 31, 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

The fourth quarter of 2013 showed a steady global demand. Some markets had a lower activity but the demand was compensated with higher demand in other zones. For example Europe still is in a difficult situation but in North America we had a better scenario, and Asia is steady. Prices of long fiber in Asia, the biggest market of this type of fiber, rose in the fourth quarter; the prices for short fiber were steady with some small increases.

Regarding the world inventories in the fourth quarter, long fiber inventories stood stable compared to the prior quarter, 27 days, but there was a decrease in October that helped with the rise of prices. Short fiber inventories decreased in 3 days, from 42 to 39 during the period, but the prices were not affected because the inventories remained at relatively high levels, 12 more days than long fiber and a market size slightly bigger.

Asia showed a stable demand and the main factor influencing prices was supply. The supply in long fiber was lower than expected partly due to startup problems in a new Russian mill. Prices rose more than 7% in the period. Supply of unbleached long fiber, during the first half of the year was already restricted due to the closure of production lines, and the consumption of the inventories resulted in a more than 10% price increase. Even in China the local prices of this product exceeded the price of Northern bleached softwood kraft pulp (NBSK).

However, short fiber prices only had a small increase, between 1.5% and 2%, mainly explained by an oversupply and new capacity start-up expectations: Montes del Plata and the new mill of Suzano in Brazil. The Asian paper market remains under heavy pressure and even when the inventories decreased, it was not enough to raise prices; therefore producers in general remained having low margins, except the case of Tissue margins, which have decreased but remain attractive.

In Europe the situation in general is more complex due to the decrease in economic activity reflected in lower demand for graphic paper and the closure of paper production lines, releasing even more pulp to the market. The above mentioned restricted the price increase even for the long fiber that only rose 4%, resulting in a price approximately 4% lower than the price in Asia, this gap was only 1.5% at the end of the third quarter. The short fiber situation is similar. Prices stood stable therefore the price gap with Asia increased, but in a lower grade than long fiber, reaching approximately the range of 2% and 3.5%.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statement

December 31, 2013

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

 

 

Latin America followed world trends, with more attractive prices, but it is a relatively small market with low opportunities to increase sales volume. However, it is a relatively important market for unbleached long fiber.

The Fluff pulp market is very competitive, especially the Brazilian market which can be reached, with quite competitive conditions, by the capacity expansions of producers in the south of EEUU. In fact, it is more expensive to reach the north of Brazil with the mill of Alto Parana, north of Argentina, than with the mills in the south of EEUU.

During the fourth quarter, the production levels of Arauco were affected by the startup of the Nueva Aldea mill after the annual scheduled maintenance stop. This influenced the productions levels in October and partly November. The other mills of our Company kept normal production levels.

Sawn Timber Division

The real estate market and the construction market in the United States had an upturn during the year 2013, closing the year with 999,000 Housing Starts, which represent a growth of 17.5% when compared with the previous year. The actual levels of construction are still below the last 10 year average.

During the fourth quarter in the United States the price of moldings was steady without variations when compared with the third quarter, on the other hand the sales of molding in the United States showed a decrease, which is normal for this time of the year.

The markets showed a steady behavior during the fourth quarter. Prices did not show an important difference when compared with the previous quarter. Production volumes was in line with sales volume.

Panels Division

The sales of our panel division (MDF, PBO, Plywood and HB) during 2013 closed with a 46% increase respect to the prior year, while the sales in the fourth quarter of 2013 increased an 11% compared to the same quarter of 2012.

On the other hand, volume sales during 2013 increased 45% compared to 2012, and a 6% increase in the 4th quarter respect to the same quarter of 2012. This strong growth in volume is explained by supply of MDF and PBO from Flakeboard in North America and also because of the new MDF line in Jaguariaiva, Brazil.

During the fourth quarter of the year, plywood sales volume had a 4% drop compared to the third quarter of this year, and a 25% decrease in 2013 respect to 2012. This is mainly explained by higher sales from inventories that the Nueva Aldea mill had before the 2012 wildfire, and a lower production at the last months of 2013 due to the installment of new equipment in Arauco’s mill.

In the case of MDF, sales volume during the last quarter of 2013 decreased 6% respect to the prior quarter of the year due to lower shipments because of seasonal effects, and respect to the fourth quarter of 2012 the sales volume increased 11%. The accumulative volume sales during 2013 was nearly 50% higher than 2012. It is worth mentioning the recovery that has shown the MDF moldings, which is directly related with the recovery of the North American housing market, this recovery resulted in a 20% sales increase compared to 2012.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statement

December 31, 2013

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

 

 

Sales volume of PBO experienced a decline of 4% compared to the third quarter of this year, explained by lower sales in the Argentinian and North American domestic market mainly in December. On the other hand when compared to the fourth quarter of 2012, volume sales increased 7% and the cumulative sales during 2013 grew 85% respect to the prior year. This increase was driven by our supply growth from the North American operations.

5.ANALYSIS OF CASH FLOW

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

 

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

Positive (negative) Cash flow

    

Cash flow from operating activities

     897,720        442,394   

Cash flow from financing activities:

    

Loan and bond payments

     134,765        1,253,842   

Dividend payments

     (140,054     (196,816

Others

     (2,487     (1,544

Cash flow from investment activities:

    

Purchase and sales of permanent investments (net)

     —          (264,474

Incorporation and sale of property, plant and equipment

     (528,749     (946,708

Incorporation and sale of biological assets

     (184,252     (136,649

Dividends received

     18,562        3,531   

Others

     6,819        (1,549
  

 

 

   

 

 

 

Positive Net cash flow (negative)

     202,324        152,027   
  

 

 

   

 

 

 

The operating cash flow has a negative balance of U.S.$8 million in the current year, with differences with respect to the previous year (positive balance of U.S. $1,055 million). Mainly due to higher borrowings in 2012.

In relation to the flow of investment at the end of current period has a lower decrease of U.S.$ 688 million (U.S.$ 1,346 million in 2012), mainly due to higher investment (purchase of panels plant in the United States and Canada) and higher payments for acquisition of property, plant and equipment in 2012.

6. MARKET RISK ANALYSIS

In respect of the economic risks resulting from interest rate variations, the Company maintains, as of December 31, 2013, a ratio of fixed rate debt to total consolidated debt of approximately 78.3%, which it believes is consistent with industry standards. The Company does not engage in futures against variations in the selling prices of pulp and forest products because it believes that risks resulting from price variations are limited, in large part because the Company maintains one of the lowest cost structures in the industry.

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

In the report to the Interim Consolidated Financial Statements December 31, 2013, Note 23, a detailed analysis of the risks associated with the business of Arauco is available.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2013

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

 

 

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

 

     Note    12-31-2013
ThU.S.$
     12-31-2012
Restated
ThU.S.$
     01-01-2012
Restated
ThU.S.$
 

Assets

           

Current Assets

           

Cash and cash equivalents

   5      667,212         488,498         336,367   

Other current financial assets

   23      3,089         6,105         1,388   

Other current non-financial assets

   25      188,964         221,214         219,416   

Trade and other current receivables

   23      711,678         835,932         747,319   

Accounts receivable from related companies

   13      8,243         8,851         4,184   

Current Inventories

   4      900,590         822,376         799,536   

Current biological assets

   20      256,957         262,498         286,149   

Current tax assets

        61,174         56,959         37,153   

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

        2,797,907         2,702,433         2,431,512   

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

   22      10,414         83,084         15,293   

Total Current Assets

        2,808,321         2,785,517         2,446,805   

Non-Current Assets

           

Other non-current financial assets

   23      48,778         69,643         52,358   

Other non-current non-financial assets

   25      125,052         125,254         105,942   

Trade and other non-current receivables

   23      40,729         62,477         78,596   

Investments accounted for using equity method

   15-16      349,412         382,427         362,798   

Intangible assets other than goodwill

   19      99,651         105,234         18,164   

Goodwill

   17      88,141         94,978         59,124   

Property, plant and equipment

   7      7,137,467         6,816,742         5,952,497   

Non-current biological assets

   20      3,635,246         3,610,572         3,591,985   

Deferred tax assets

   6      160,598         206,770         135,890   

Total non-Current Assets

        11,685,074         11,474,097         10,357,354   

Total Assets

        14,493,395         14,259,614         12,804,159   
     

 

 

    

 

 

    

 

 

 

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

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2013

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

 

 

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (continued)

 

     Note    12-31-2013
ThU.S.$
    12-31-2012
Restated
ThU.S.$
    01-01-2012
Restated
ThU.S.$
 

Equity and liabilities

         

Liabilities

         

Current Liabilities

         

Other current financial liabilities

   23      893,605        844,182        259,305   

Trade and other current payables

   23      630,980        572,646        459,198   

Accounts payable to related companies

   13      14,406        9,168        9,785   

Other current provisions

   18      9,696        9,176        8,900   

Current tax liabilities

        4,472        12,264        144,989   

Current provisions for employee benefits

   10      3,814        3,945        3,307   

Other current non-financial liabilities

   25      125,043        95,347        224,160   

Total Current Liabilities

        1,682,016        1,546,728        1,109,644   

Non-Current Liabilities

         

Other non-current financial liabilities

   23      4,156,992        4,133,895        3,232,041   

Non-current Payables

        361        —          —     

Other non-current provisions

   18      24,167        13,285        9,688   

Deferred tax liabilities

   6      1,462,295        1,455,052        1,261,945   

Non-current provisions for employee benefits

   10      42,170        43,491        36,102   

Other non-current non-financial liabilities

   25      80,854        101,404        124,589   

Total non - current liabilities

        5,766,839        5,747,127        4,664,365   

Total liabilities

        7,448,855        7,293,855        5,774,009   

Equity

         

Issued capital

        353,618        353,176        353,176   

Retained earnings

        7,004,640        6,757,795        6,683,252   

Other reserves

        (365,960     (219,649     (96,821

Equity attributable to parent company

        6,992,298        6,891,322        6,939,607   

Non-controlling interests

        52,242        74,437        90,543   

Total equity

        7,044,540        6,965,759        7,030,150   

Total equity and liabilities

        14,493,395        14,259,614        12,804,159   
     

 

 

   

 

 

   

 

 

 

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

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2013

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

 

 

CONSOLIDATED STATEMENTS OF INCOME

 

     Note    January-December  
        2013
ThU.S.$
    2012
Restated
ThU.S.$
    2011
ThU.S.$
 

Income Statement

         

Revenue

   9      5,145,500        4,298,663        4,374,495   

Cost of sales

   3      (3,557,210     (3,163,432     (2,882,455

Gross profit

        1,588,290        1,135,231        1,492,040   

Other income

   3      385,055        408,251        475,014   

Distribution costs

   3      (523,587     (452,760     (477,628

Administrative expenses

   3      (544,694     (479,625     (415,521

Other expense

   3      (136,812     (105,325     (90,313

Other gains (losses)

        —          16,133        —     

Profit (loss) from operating activities

        768,252        521,905        983,592   

Finance income

   3      19,062        23,476        24,589   

Finance costs

   3      (232,843     (236,741     (196,356

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

   15      6,260        18,933        (11,897

Exchange rate differences

        (11,797     (17,245     (26,643

Income before income tax

        548,934        310,328        773,285   

Income Tax

   6      (130,357     (166,787     (152,499

Income from continuing operations

        418,577        143,541        620,786   

Profit (loss) from discontinued operations

         

Net Income

        418,577        143,541        620,786   
     

 

 

   

 

 

   

 

 

 

Net income attributable to

         

Net income attributable to parent company

        385,657        138,883        612,553   

Income attributable to non-controlling interests

        32,920        4,658        8,233   

Profit (loss)

        418,577        143,541        620,786   
     

 

 

   

 

 

   

 

 

 

Basic earnings per share

         

Earnings per share from continuing operations

        0.0034081        0.0012274        0.0054135   
     

 

 

   

 

 

   

 

 

 

Basic earnings per share

        0.0034081        0.0012274        0.0054135   
     

 

 

   

 

 

   

 

 

 

Earnings per diluted shares

         

Earnings per diluted share from continuing operations

        0.0034081        0.0012274        0.0054135   
     

 

 

   

 

 

   

 

 

 

Basic earnings per diluted share

        0.0034081        0.0012274        0.0054135   
     

 

 

   

 

 

   

 

 

 

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

 

 

 

9


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2013

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

 

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

     Note    January-December  
        2013
ThU.S.$
    2012
Restated
ThU.S.$
    2011
ThU.S.$
 

Profit (loss)

        418,577        143,541        620,786   

Components of other comprehensive income that will not be reclassified to profit or loss before tax:

         

Other comprehensive income before tax actuarial gains losses on defined Benefit plans

   10      (4,143     (3,838     —     

Share of other comprehensive income of associates and joint ventures accounted for using equity method that will not be reclassified to profit or loss before tax

        2,222        445        (3,502

Other Comprehensive Income that will not be reclassified to profit or loss before tax

        (1,921     (3,393     (3,502

Components of other comprehensive income that may be reclassified to profit or loss before tax:

         

Exchange differences on translation

         

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

   11      (174,985     (105,250     (145,775

Other Comprehensive Income before tax exchange differences on translation

        (174,985     (105,250     (145,775

Cash flow hedges

         

Gains (losses) on cash flow hedges, before tax

   23      29,359        (23,188     (12,767

Other Comprehensive Income before tax Cash flow hedges

        29,359        (23,188     (12,767

Other Comprehensive income that may be reclassified to profit or loss before tax

        (145,626     (128,438     (158,542

Income tax relating to components of other comprehensive Income that will not be reclassified to profit or loss before tax

         

Income tax relating to defined benefit plans of other comprehensive income

        829        768        —     

Income tax relating to components of other comprehensive Income that may be reclassified to profit or loss before tax

         

Income tax relating to cash flow hedges of other comprehensive income

   6-23      (4,850     4,823        932   

Other comprehensive income

        (151,568     (126,240     (161,112

Comprehensive income

        267,009        17,301        459,674   

Comprehensive Income attributable to

         

Comprehensive income, attributable to owners of parent company

        239,346        16,055        456,978   

Comprehensive income, attributable to non-controlling interests

        27,663        1,246        2,696   

Total comprehensive income

        267,009        17,301        459,674   
     

 

 

   

 

 

   

 

 

 

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

 

 

 

10


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2013

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

 

 

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

 

12-31-2013

  Issue
Capital
ThU.S.$
    Reserve of
exchange
differences
on
translation
ThU.S.$
    Reserve
of cash
flow
hedges
ThU.S.$
    Reserve
of
actuarial
gains or
losses
on
defined
benefit
plans
ThU.S.$
    Several
Other
Reserves
ThU.S.$
    Other
Reserves
ThU.S.$
    Retained
Earnings
ThU.S.$
    Equity
attributable
to owners

of parent
T.hU.S.$
    Non -
controlling
interests
ThU.S.$
    Total
Equity
ThU.S.$
 

Opening balance at 01/01/2013 as previously reported

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

Increase (decrease) through Changes in Accounting policies

        (906     (3,070     906        (3,070     3,070        —            —     

Opening balance restated

    353,176        (169,377     (46,016     (3,070     (1,186     (219,649     6,757,795        6,891,322        74,437        6,965,759   

Changes in Equity:

                   

Comprehensive income

                   

Net income

                385,657        385,657        32,920        418,577   

Other comprehensive income, net of tax

      (169,728     24,509        (3,314     2,222        (146,311       (146,311     (5,257     (151,568

Comprehensive income

    —          (169,728     24,509        (3,314     2,222        (146,311     385,657        239,346        27,663        267,009   

Issue of Equity

    442                    442        (442     —     

Dividends

                (138,812     (138,812     (29,760     (168,572

Increase (decrease) through for transfers and other changes equity

                  —          (17,392     (17,392

Increase (decrease) through changes in ownership interests in subsidiaries that do not result in loss of control

              —            —          (2,264     (2,264

Changes in equity

    442        (169,728     24,509        (3,314     2,222        (146,311     246,845        100,976        (22,195     78,781   

Closing balance at 12/31/2013

    353,618        (339,105     (21,507     (6,384     1,036        (365,960     7,004,640        6,992,298        52,242        7,044,540   

 

 

 

11


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2013

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

 

 

12-31-2012

  Issue
Capital
ThU.S.$
    Reserve of
exchange
differences
on
translation
ThU.S.$
    Reserve of
cash flow
hedges
ThU.S.$
    Reserve
of
actuarial
gains or
losses
on
defined
benefit
plans
ThU.S.$
    Several
Other
Reserves
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   

Increase (decrease) through Changes in Accounting policies

        (1,737       1,737        0          0          0   

Opening balance restated

    353,176        (67,539     (27,651     0        (1,631     (96,821     6,683,252        6,939,607        90,543        7,030,150   

Changes in Equity:

                   

Comprehensive income

                   

Net income

                138,883        138,883        4,658        143,541   

Other comprehensive income, net of tax

      (101,838     (18,365     (3,070     445        (122,828       (122,828     (3,412     (126,240

Comprehensive income

    —          (101,838     (18,365     (3,070     445        (122,828     138,883        16,055        1,246        17,301   

Dividends

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

Changes in equity

    —          (101,838     (18,365     (3,070     445        (122,828     74,543        (48,285     (16,106     (64,391

Closing balance at 12/31/2012 (restated)

    353,176        (169,377     (46,016     (3,070     (1,186     (219,649     6,757,795        6,891,322        74,437        6,965,759   

 

 

 

12


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2013

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

 

 

12-31-2011

  Issue
Capital
ThU.S.$
    Reserve of
exchange
differences
on
translation
ThU.S.$
    Reserve of
cash flow
hedges
ThU.S.$
    Reserve
of
actuarial
gains or
losses
on
defined
benefit
plans
ThU.S.$
    Several
Other
Reserves
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 01/01/2011

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

Changes in equity:

                   

Comprehensive income:

                   

Net income

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

Other comprehensive income, net of tax

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

Comprehensive income

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

Dividends

                (249,565     (249,565       (249,565

Increase (decrease) for transfer and other changes

                    (20,534     (20,534

Changes in equity

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

Closing balance at 12/31/2011

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

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

 

 

 

13


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2013

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

 

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

     12-31-2013
ThU.S.$
    12-31-2012
Restated
ThU.S.$
    12-31-2011
ThU.S.$
 

STATEMENTS OF CASH FLOWS

      

Cash Flows from (used in) Operating Activities

      

Classes of cash receipts from operating activities

      

Receipts from sales of goods and rendering of services

     5,609,104        4,735,391        4,606,542   

Receipts from premiums and claims, annuities and other policy benefits

     29,840        132,983        270,663   

Other cash receipts from operating activities

     408,257        292,281        276,650   

Classes of cash payments

      

Payments to suppliers for goods and services

     (4,117,942     (3,869,977     (3,532,728

Payments to and on behalf of employees

     (573,538     (434,205     (329,158

Other cash payments from operating activities

     (196,775     (33,001     (5,151

Interest paid

     (223,571     (184,029     (180,046

Interest received

     18,451        8,916        14,009   

Income taxes refund (paid)

     (55,272     (203,178     (138,621

Other (outflows) inflows of cash, net

     (834     (2,787     (1,643

Net Cash flows from Operating Activities

     897,720        442,394        980,517   
  

 

 

   

 

 

   

 

 

 

Cash flows (used in) investing activities

      

Cash flow used in obtaining control of subsidiaries or other businesses

     —          (253,808     (6,972

Cash flow used to contributions in associates

     —          (13,560     (242,360

Other cash receipts from sales of participations in joint ventures

     —          6,607        —     

Capital contributions to joint ventures

     —          (3,713     (177,397

Loans to related parties

     —          —          (199,666

Proceeds from sale of property, plant and equipment

     116,639        12,329        14,023   

Purchase of property, plant and equipment

     (645,388     (959,037     (591,328

Proceeds from sales of intangible assets

     —          3,250        —     

Purchase of intangible assets

     (5,889     (8,623     (7,619

Proceeds from sale of other long-term assets

     28,992        3,305        5,074   

Purchase of biological assets

     (213,244     (139,954     (139,360

Cash receipts from repayment of advances and loans made to other parties classified as investing activities

     5,000        —          —     

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

     —          —          134,166   

Dividends received

     18,562        3,531        1,720   

Other outflows of cash, net

     7,708        3,824        2,582   

Cash flows used in Investing Activities

     (687,620     (1,345,849     (1,207,137
  

 

 

   

 

 

   

 

 

 

Cash flows from (used in) Financing Activities

      

Total loans obtained

     1,351,682        2,230,205        713,624   

Proceeds from short-term borrowings

     394,464        1,328,634        —     

Loans obtained in long term

     957,218        901,571        713,624   

Repayments of borrowings

     (1,216,917     (976,363     (901,310

Dividends paid by the parent company

     (140,054     (196,816     (270,767

Dividends paid by subsidiaries or special purpose companies

     —          —          (20,745

Other inflows of cash, net

     (2,487     (1,544     (1,986

Cash flows from (used in) Financing Activities

     (7,776     1,055,482        (481,184
  

 

 

   

 

 

   

 

 

 

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

     202,324        152,027        (707,804

Effect of exchange rate changes on cash and cash equivalents

     (23,610     104        (20,129
  

 

 

   

 

 

   

 

 

 

Net increase (decrease) of Cash and Cash equivalents

     178,714        152,131        (727,933

Cash and cash equivalents, at the beginning of the period (*)

     488,498        336,367        1,043,834   

Cash and cash equivalents, at the end of the period

     667,212        488,498        315,901   
  

 

 

   

 

 

   

 

 

 

 

(*) See Note 2

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

 

 

 

14


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 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. and subsidiaries, (here after “Arauco” or the “Company”), 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”) as No. 042 on June 14, 1982. Forestal Cholguán S.A., subsidiary of Arauco, is also registered in the Registry as No. 030. Additionally, the Company is registered as a non-accelerated filer with the Securities and Exchange Commission of the United States of America.

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 timber 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 63.4015% of the shares of AntarChile S.A., the controlling shareholder of our parent company Empresas Copec S.A.

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

Presentation of Financial Statements

The Financial Statements presented by Arauco as of December 31, 2013 are:

 

    Consolidated Balance Sheets as of December 31, 2013 and 2012 and as of January 1, 2012.

 

    Consolidated Statements of Income for the periods ended December 31, 2013, 2012 and 2011.

 

    Consolidated Statements of Comprehensive Income for the periods ended December 31, 2013, 2012 and 2011.

 

    Consolidated Statements of Changes in Equity for the periods ended December 31, 2013, 2012 and 2011.

 

    Consolidated Statements of Cash Flows for the periods ended December 31, 2013, 2012 and 2011.

 

    Notes to the consolidated financial statements.

 

 

 

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Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2013

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

 

 

Date of Approval of Financial Statements

These consolidated financial statements were authorized and approved for issuance by the Board of Directors of the Company (the “Board”) at the Extraordinary Session N° 502 held on March 7, 2014, for the period ended at December 31, 2013.

Initials used in this report:

IFRS - International Financial Reporting Standards

IASB - International Accounting Standards Board

IAS - International Accounting Standards

IFRIC - International Financial Reporting Standards Interpretations Committee

ThUS$ - Thousands of U.S. dollars

UF - Inflation index-linked units of account

EBITDA - Earnings Before Interest, Taxes, Depreciation, and Amortization

ICMS - Tax movement of inventories and services (Brazil)

Functional and Presentation Currency

Arauco and most of its subsidiaries has determined the United States (“U.S.”) Dollar as its functional currency since majority of its revenues from sales of its products are from exports denominated in U.S. Dollars, while its costs of sales are to a large extent related or indexed to the U.S. Dollar.

For the pulp operating segment, most of the sales are exports denominated in U.S. Dollars, 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$).

In these consolidated financial statements all relevant information required by IFRS has been presented.

 

 

 

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Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2013

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

 

 

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. were consolidated into the financial statements of Arauco up to September 2013 which was the date where Arauco lost control of these investments. This transaction has not had significant effects in the consolidated financial statements.

All financial statements at December 31, 2012 and the Statement of Financial Position at January 1, 2012, have been adjusted to express the final determination of fair values to the investment in Flakeboard (Note 14) in accordance with IFRS3 and express the recognition of assets, liabilities and results according to their participation of investment in Uruguay, which qualifies as joint operations according to IFRS11 (Note 16)

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.

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 consolidated financial statements were prepared in accordance with Arauco’s accounting policies, which have been consistently applied to all periods presented in these consolidated financial statements.

 

a) Basis for presentation of financial statements

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

The consolidated financial statements have been prepared on the historical cost basis, except for biological assets and certain financial instruments which are measured at revalued amounts or fair value at the end of each period as explained in the following significant accounting policies. Generally, historical cost is based on the fair value of the consideration given in exchange for goods and services.

 

b) Critical accounting estimates and judgments

The preparation of these consolidated financial statements in accordance with IFRS requires management to make estimates and assumptions that affect the carrying amounts reported. These 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.

 

 

 

17


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2013

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

 

 

  Property, Plant and Equipment

In an asset acquisition, management values the acquired property, plant and equipment and their useful lives in consultation with third party experts.

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 internal 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.

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, based 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. Arauco estimates the value either based on appraisals and/or 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.

 

 

 

18


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2013

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

 

 

  Litigation and Contingencies

Arauco and its subsidiaries are subject to certain litigation proceedings. 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 consolidated financial statements include all entities over which Arauco has the power to direct the relevant financial and operating activities, 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 obtained and up to the date that control ceases.

Specifically, a company controls an investee if, and only if, they have all of the following:

(a) power over the investee, i.e. the investor has existing rights which give it the ability to direct the relevant activities (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.

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.

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 attributable to owners of the parent company.

 

 

 

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Unaudited Consolidated Financial Statements

December 31, 2013

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

 

 

The profit or loss of each component of other comprehensive income is attributed to owners of the parent company and the non-controlling interest, as appropriate. Total comprehensive income is attributed to the owners of the parent company and non-controlling interests even if the results 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 Arauco’s accounting policies.

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

The consolidated financial statements corresponding to the periods ended December 31, 2013, 2012 and 2011 include the assets, liabilities, income and expenses of the subsidiaries shown in Note 13.

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.

Based on the aforementioned process, the Company has established operating segments according to the following business units:

 

    Pulp

 

    Panels

 

    Sawn Timber

 

    Forestry

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

 

e) Functional currency

(i) Functional currency

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

 

 

 

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Unaudited Consolidated Financial Statements

December 31, 2013

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

 

 

(ii) Translation to the presentation currency of Arauco

For the purposes of presenting consolidated financial statements, the assets and liabilities of Arauco’s operations in functional currency different from Arauco´s 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 rate differences are recognized in other comprehensive income and accumulated in Other reserves within -equity.

(iii) Foreign Currency Transactions

Transactions in currencies other than the functional currency 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 translated at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are translated 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 translated.

Profit or loss on transactions in currencies other than the functional currency resulting from the settlement of such transactions and from the translation at year end exchange rates of monetary assets and liabilities denominated in foreign currencies, are recognized in the statement of income, except those which are recorded in other comprehensive income and accumulated in equity such as cash flows hedging derivatives.

 

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 three months or less and which are subject to an insignificant risk of changes in value.

 

g) Financial Instruments

Financial assets

Financial assets are classified into the following specified categories: financial assets ‘at fair value through profit or loss’ (FVTPL), ‘held-to-maturity’ investments and ‘loans and receivables’. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. All regular way purchases or sales of financial assets are recognized and derecognized on a trade date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace.

 

 

 

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Unaudited Consolidated Financial Statements

December 31, 2013

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

 

 

(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, or those designated as FVTPL. A financial asset is classified in this category if it is acquired principally for the purpose of selling it in the short term.

A financial asset is classified as held for trading if:

 

    it has been acquired principally for the purpose of selling it in the near term; or

 

    on initial recognition it is part of a portfolio of identified financial instruments that the Group manages together and has a recent actual pattern of short-term profit-taking; or

 

    it is a derivative that is not designated and effective as a hedging instrument

 

    A financial asset other than a financial asset held for trading may be designated as at FVTPL upon initial recognition if:

 

    such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or

 

    the financial asset forms part of a group of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Group’s documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or

 

    it forms part of a contract containing one or more embedded derivatives, and IAS 39 permits the entire combined contract to be designated as at FVTPL.

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 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 and Interest Rate 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 at each reporting date. 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.

 

 

 

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Unaudited Consolidated Financial Statements

December 31, 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) Held-to-maturity investments

Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturity dates that the Group has the intent and ability to hold to maturity. They are initially recorded at fair value and after initial recognition, held-to- maturity investments are measured at amortized cost using the effective interest method less any impairment

(iii) 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.

Financial liabilities

Financial liabilities are classified as either financial liabilities ‘at FVTPL’ or ‘other financial liabilities’ and are initially recorded at fair value.

(i) Financial liabilities at FVTPL

Financial liabilities are classified as at FVTPL when the financial liability is either held for trading or it is designated as at FVTPL.

A financial liability is classified as held for trading if:

 

    it has been incurred principally for the purpose of repurchasing it in the near term; or

 

    on initial recognition it is part of a portfolio of identified financial instruments that the Group manages together and has a recent actual pattern of short-term profit-taking; or

 

    it is a derivative that is not designated and effective as a hedging instrument.

 

 

 

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Unaudited Consolidated Financial Statements

December 31, 2013

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

 

 

A financial liability other than a financial liability held for trading may be designated as at FVTPL upon initial recognition if:

 

    such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or

 

    the financial liability forms part of a group of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Group’s documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or

 

    it forms part of a contract containing one or more embedded derivatives, and IAS 39 permits the entire combined contract to be designated as at FVTPL.

Financial liabilities at FVTPL are stated at fair value, with any gains or losses arising on remeasurement recognized in profit or loss. The net gain or loss recognized in profit or loss incorporates any interest paid on the financial liability and is included in the Finance income or Finance costs line item in the consolidated statements of income.

(ii) Other financial liabilities

Other financial liabilities (including borrowings and trade and other payables) are subsequently measured at amortized cost using the effective interest method.

The effective interest method is a method of calculating the amortized cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that discounts estimated future cash payments (including all fees and amounts paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial liability, or (where appropriate) a shorter period, to the net carrying amount on initial recognition.

 

h) Derivative financial instruments

(i) Financial Derivatives - The Group enters into a variety of derivative financial instruments to manage its exposure to interest rate and foreign exchange rate risks, including foreign exchange forward contracts, interest rate swaps and cross currency swaps. The group’s policy is that all derivative contracts are hedging contracts.

Derivatives are initially recognized at fair value at the date the derivative contracts are entered into and are subsequently re measured at fair value at the end of each reporting period. The resulting gain or loss is recognized in profit or loss unless the derivative is designated and effective as a hedging instrument under IAS 39, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship.

(ii) Embedded derivatives - The Company assesses the existence of embedded derivatives in financial instrument contracts. Derivatives embedded in non-derivative host contracts are treated as separate derivatives when they meet the definition of a derivative, their risks and characteristics are not closely related to those of the host contracts and the contracts are not measured at FVTPL. Arauco has determined that no embedded derivatives currently exist.

 

 

 

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December 31, 2013

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

 

 

(iii) Hedge accounting - The Group designates certain hedging instruments as either fair value hedges or cash flow hedges.

At the inception of the hedge relationship, the entity documents the relationship between the hedging instrument and the hedged item, along with its risk management objectives and its strategy for undertaking various hedge transactions. Furthermore, at the inception of the hedge and on an ongoing basis, the Group documents whether the hedging instrument is highly effective in offsetting changes in fair values or cash flows of the hedged item attributable to the hedged risk, under IAS 39.

-Fair Value Hedges under IAS 39- Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recognized in profit or loss immediately, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. The change in the fair value of the hedging instrument and the change in the hedged Item attributable to the hedged risk are recognized in profit or loss in the line item relating to the hedged item.

-Cash flow hedges under IAS 39 - The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognized in other comprehensive income and accumulated under the heading of cash flow hedging reserve. The gain or loss relating to the ineffective portion is recognized immediately in profit or loss, and is included in the Finance costs line item in the consolidated statement of income. Amounts previously recognized in other comprehensive income and accumulated in equity are reclassified to profit or loss in the periods when the hedged item affects profit or loss, in the same line as the recognized hedged item. However, when the hedged forecast transaction results in the recognition of a non-financial asset or a non-financial liability, the gains and losses previously recognized in other comprehensive income and accumulated In equity are transferred from equity and included in the initial measurement of the cost of the non-financial asset or non-financial liability.

Hedge accounting is discontinued when the Group revokes the hedging relationship, when the hedging instrument expires or is sold, terminated, or exercised, or when it no longer qualifies for hedge accounting. Any gain or loss recognized in other comprehensive income and accumulated in equity at that time remains in equity and is recognized when the forecasted transaction is ultimately recognized in profit or loss. When a forecasted transaction is no longer expected to occur, the gain or loss accumulated in equity is recognized immediately in profit or loss.

 

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 works 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.

 

 

 

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Unaudited Consolidated Financial Statements

December 31, 2013

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

 

 

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 written-down to their net realizable value. This write-down also includes obsolescence amounts resulting from slow moving inventories and technical obsolescence.

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

 

j) Non-current assets held for sale

The Group classifies 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) as non-current assets held for sale which as of the closing date of the statement of financial position are the subject of active sale efforts and for which the completion 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 out the sale, 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 the identification of the acquirer, determination of the acquisition date, recognition and measurement of the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquiree; and recognition and measurement of 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, except:

 

  deferred tax assets or liabilities, and assets or liabilities related to employee benefit arrangements are recognized and measured in accordance with IAS 12 Income Taxes and IAS 19 respectively;

 

  liabilities or equity instruments related to share-based payment arrangements of the acquire or share-based payment arrangements of the Group entered into to replace share-based payment arrangements of the acquire are measured in accordance with IFRS 2 at the acquisition date (see note 3.16.2); and

 

  assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations are measured in accordance with such standard.

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

 

 

 

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December 31, 2013

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

 

 

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 statement of income.

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 company.

Changes in the ownership interest of a parent in its subsidiary that do not result in a loss of control are treated as equity transactions. Any difference between the amount which non-controlling 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 company. No adjustment is made to the carrying amount of goodwill, neither gains or losses are 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 initially be measured either at fair value or at the present ownership instruments’ proportionate share in the recognized amounts of the acquiree’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 change in participation of the profit or loss in the statement of income.

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 preliminary amounts for the items for which the accounting is incomplete. During the measurement period (no more than one year), these preliminary 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.

Business combinations that are common control transactions are accounted using as reference the pooling of interest. Under this method, assets and liabilities related to the transaction carries over the previous carrying values. Any difference between assets and liabilities included in the consolidation and the consideration transferred, is accounted in equity.

 

 

 

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December 31, 2013

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

 

 

l) Investments in associates and joint arrangements

Associates are entities over which Arauco exercises significant influence, but not control. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies.

Joint arrangement 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 joint arrangements are classified as a joint venture or as a joint operation. A joint operation is a joint arrangement in which the parties that have joint control of the arrangement (i.e. joint operators) have rights to the assets and obligations for the liabilities, relating to the arrangement. A joint venture is a joint arrangement in which the parties that have joint control of the arrangement (i.e., participants in a joint venture) have rights to the net assets of the arrangement.

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 rate differences on translation to the presentation currency) of the associate or joint venture. Dividends received are recognized by deducting the amount received from the carrying amount of the investment. Arauco’s investment in associates includes goodwill.

The investments in joint operations recognize the assets, liabilities and results of operations in relation to Arauco’s ownership percentage.

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.

Investments in associates and joint ventures are presented in the consolidated statement of financial position in the line item “Investments accounted for using equity method”.

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

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 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.

 

 

 

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Unaudited Consolidated Financial Statements

December 31, 2013

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

 

 

(i) Computer Software

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

(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 future cash flows. 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.

(iii) Customers and trade relations with customers

Correspond to the valuation over the time of the established relationship with customers, from the sale of products and services through its sales team. These relations will materialize in sales orders, which generate revenue and cost of sales. The useful life has been determined to be 15 years.

 

n) Goodwill

Goodwill generated in the acquisition of an entity is measured as the excess of the sum of the consideration paid, 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.

The goodwill generated on acquisitions of foreign companies, is controlled in the functional currency of such foreign company.

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 in Brazil is related to the net exchange rate differences on translation.

 

o) 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.

 

 

 

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December 31, 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 of assets are reviewed and adjusted, if appropriate, annually.

p) Leases

Arauco applies IFRIC 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.

q) Biological Assets

IAS 41 requires that biological assets, such as standing trees, are measured at fair value in the statement of financial position. Forestry plantations 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 forestry plantations 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 forestry plantations 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 forestry plantations that will be harvested in the short term.

 

 

 

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December 31, 2013

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

 

 

Biological growth and changes in fair value of forestry plantations are recognized in the line item Other income in the consolidated statement of income.

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

r) Income tax expense and deferred income tax assets and liabilities.

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 and tax credits 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.

s) Provisions

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

t) 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.

 

 

 

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AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2013

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

 

 

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

(ii) Revenue recognition from Rendering of Services

When the outcome of a transaction involving the rendering of services can be reliably estimated, revenue 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 services which are transacted principally in the spot market of the Sistema Interconectado Central (Central Interconnected 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) (Economic Load Dispatch Center of the Central Interconnected 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 and wood process and is a complementary business to it, which is initially supplied to the group’s subsidiaries and any surplus is sold to the CDEC-SIC.

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

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

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

u) 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.

 

 

 

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Unaudited Consolidated Financial Statements

December 31, 2013

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

 

 

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

Dividends payable are presented in the line item “Other current non financial liabilities” in the consolidated statement of financial position.

Dividends paid are not deductible for income tax purposes.

v) Earning per share

Basic earnings per share are calculated by dividing the net income for the period attributable to the parent company by the weighted average number of ordinary shares outstanding during the period, excluding the average number of shares in the Company held by a subsidiary, if such circumstance exists.

Arauco has not performed any type of transaction with a potential dilutive effect that would cause diluted earnings per share to be different from basic earnings per share.

w) Impairment

Non-financial Assets

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

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

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

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

Except for goodwill, 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

 

 

 

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Unaudited Consolidated Financial Statements

December 31, 2013

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

 

 

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 has 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. An allowance is made when the customer is a party to a bankruptcy court agreement or cessation of payments, and is 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.

x) 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.

 

 

 

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Unaudited Consolidated Financial Statements

December 31, 2013

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

 

 

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.

y) 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.

z) Recent accounting pronouncements

a) 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

IAS 28

  

Investments in associates and joint ventures

 

Issued in May 2011, regulates the accounting treatment of equity method investments in associates and joint ventures. Early adoption is permitted in conjunction with IFRS 10, IFRS 11 and IFRS 12 and the amendment to IAS 27.

   January 1, 2013

IFRS 10

  

Consolidated Financial Statements

 

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

   January 1, 2013

 

 

 

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Unaudited Consolidated Financial Statements

December 31, 2013

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

 

 

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 necessary disclosures as well as, incorporates new concepts and clarifications for fair value 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 1

  

Presentation of Financial Statements

 

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

  

July 1, 2012

IFRS 7

  

Financial Instruments

 

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

  

January 1, 2013

Guidelines for transition Amendments to IFRS 10, IFRS 11 and IFRS 12

  

Consolidated Financial Statements, Joint Arrangements and Disclosure of Interests in Other Entities.

  

January 1, 2013

Annual-Cycle Improvement Amendments 2009-2011

  

IFRS 1, IAS 23, IAS 1, IAS 16, IAS 32, IAS 34

  

January 1, 2013

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2013

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

 

 

IAS19 (revised) Employee benefits

The revised version of the referenced accounting standard establishes the recognition of actuarial gains and losses as part of the other comprehensive income and permanently excludes them from the profits and losses for the fiscal year.

The application of the revised IAS19-R required retrospective application of the associated effects, which resulted in changes to the financial statements for the 2012 fiscal year. IAS 19-R was not applied to the year ended December 31, 2011 as the impact was not material.

IAS1 Presentation of components of other comprehensive income

The amendments of the accounting standard require a distinction between the items of other comprehensive income that may be reclassified into profit and loss in the future (for example the effects of changes in fair value of derivatives designated as cash flow hedges or the effects of foreign exchange translations), separating them from those that will not to be reclassified to profit and loss (for example, the actuarial gains and losses from benefit plans).

The amendment only affects the presentation of the consolidated statement of comprehensive income and does not impact the Company’s consolidated statement of financial position.

IFRS11 Joint Arrangements

IFRS 11 classifies the joint arrangements into two types of agreements, based on the rights and obligations of the parties to the agreement and considering the structure, legal form of the agreement, the contractual terms and (if relevant) other events and circumstances: 1) joint venture (the parties have control over the agreement and the rights over the net assets of the jointly controlled entity) that are accounted pursuant with the equity method and 2) joint operations (the parties have control of the participations, rights over assets and obligations for liabilities that are related to the agreement), in which the joint operator must acknowledge its assets, liabilities and transactions, including its stake in those in which it jointly participates.

As a result of the application of these standard, in the year 2013 the investments in Uruguay that are being jointly controlled by Arauco qualifies as a joint operations, therefore these consolidated financial statements are being presented in accordance with this standard.

Considering that the application of IFRS 11 is to be applied retrospectively, these consolidated financial statements include the retrospective application to the consolidated statements of financial position as of December 31 and January 1 of 2012, and the consolidated statements of income, other comprehensive income changes in equity and cash flows for the fiscal years ending on December 31, 2012 along with their corresponding explanatory notes. These changes do not affect the determination of equity nor the profits attributable to the owners of the parent company.

The summaries of the main amendments that were performed, measured in consideration to their variation regarding Arauco’s originally issued consolidated financial, are detailed under Note 2.

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2013

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

 

 

Arauco considers that the adoption of standards, amendments and interpretations described in point a), other than those already mentioned, had no significant impact on the financial statements of the Company in the period of initial application.

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

 

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, 2018
IFRIC 21   

Levies

 

Guides about when to recognize a liability for a government imposed levy 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 19   

Employee Benefits

 

Clarifies the requirements related to the way in which contributions from employees or others which are linked to the service must be attributed to periods of service.

   July 1, 2014
IAS 32   

Offsetting of financial assets and liabilities

 

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

   January 1, 2014
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
Annual improvements 2010-2012-Amendments to IFRS 7    IFRS 2, IFRS 3, IFRS 8, IFRS 13, IAS 16, IAS 38, IAS 24    July 1, 2014
Annual Improvement 2011-2013 –Amendments to IFRS 4    IFRS 1, IFRS 3, IFRS 13, IAS 40    July 1, 2014

Arauco believes that the adoption of the standards, amendments and interpretations described in point b), will have no significant impact on its consolidated financial statements of the 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.

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2013

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

 

 

NOTE 2. ACCOUNTING POLICIES AND CHANGES IN ACCOUNTING ESTIMATES

 

1) Changes in Accounting Policies

The accounting policies have been developed in accordance with the effective IFRS as of December 31, 2013 and have been consistently applied to all periods presented in these consolidated financial statements.

i) As of December 31 of 2013, Arauco has applied IFRS11 Joint Agreements, with regards to the definition of joint operations which results in recognizing the assets, liabilities, income and expenses in connection with their participation. The investments held by Arauco in Uruguay qualify as such and have implied changes ranging from the method of participation up to the application of the referenced methodology.

In consideration to the foregoing, pursuant with IFRS11, Arauco has adjusted all financial statements as of December 31, 2012 and, furthermore, the consolidated statement of financial position as of January 1 of 2012. Consolidated financial statements as of December 31, 2011 have not been restated according to the transition guidance of IFRS11. Additionally, according to IAS1 (40A), a third Consolidated Statement of Financial Position as of the beginning of the preceding period, which is January 1, 2012, has been presented applying the new accounting standard. According to IAS1 (40C), it has not been necessary to present the notes relating to the consolidated statement of position as of January 1, 2012.

ii) As of December 31, 2013, and with the retrospective application to December 31, 2012, pursuant with the amendments to IAS19, Arauco has recognized the actuarial gains and losses for defined benefit obligations as a component of other comprehensive income. There are not significant effect as of December 31, 2011.

 

2) Changes in the Estimates

These consolidated financial statements contain changes in accounting estimates that resulted from the final determination of the allocation of fair value to the relative assets and liabilities from the purchase of the “Flakeboard” (Note 14) which were previously recorded using provisional amounts in accordance with IFRS 3.

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2013

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

 

 

See below for the effects of points 1) and/or 2) on the consolidated financial statements dated as of December 31, 2012 and January 1, 2012.

 

     12-31-2012
as previously
reported

ThU.S.$
    

 

Adjustment

     Total
Adjustments
ThU.S.$
     12-31-2012
as adjusted
ThU.S.$
 
      IFRS3      IFRS11        
      ThU.S.$      ThU.S.$        

Current Assets

     2,698,968         0         86,549         86,549         2,785,517   

Non Current Assets

     10,852,218         63,435         558,444         621,879         11,474,097   

Total Assets

     13,551,186         63,435         644,993         708,428         14,259,614   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Current Liabilities

     1,425,287         4,471         116,970         121,441         1,546,728   

Non Current Liabilities

     5,160,140         58,964         528,023         586,987         5,747,127   

Total Liabilities

     6,585,427         63,435         644,993         708,428         7,293,855   

Total Equity

     6,965,759         0         0         0         6,965,759   

Total equity and Liabilities

     13,551,186         63,435         644,993         708,428         14,259,614   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

     January - December
as previously
reported

2012
ThU.S.$
   

 

Adjustments

    January - December
as adjusted
2012
ThU.S.$
 
     IAS19
ThU.S.$
    IFRS11
ThU.S.$
   

Income Statement

        

Profit (loss)

        

Gross profit

     1,131,784        1,929        1,518        1,135,231   

Profit (loss) from operating activities

     532,151        3,838        (14,084     521,905   

Income before income tax

     311,621        3,838        (5,131     310,328   

Income Tax

     (171,150     (768     5,131        (166,787

Profit (loss)

     140,471        3,070        0        143,541   

 

     12-31-2012
as
previously
reported

ThU.S.$
    Adjustment
IFRS11
ThU.S.$
    12-31-2012
as adjusted
ThU.S.$
 

Cash Flows from (used in) Operating Activities

     458,492        (16,098     442,394   

Cash flows (used in) investing activities

     (1,027,039     (318,810     (1,345,849

Cash flows from (used in) Financing Activities

     648,084        407,398        1,055,482   

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

     79,537        72,490        152,027   

Net increase (decrease) of cash and cash equivalents

     79,815        72,316        152,131   

Cash and cash equivalents. at the beginning of the period

     315,901        20,466        336,367   

Cash and cash equivalents, at the end of the period

     395,716        92,782        488,498   

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2013

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

 

 

     01-01-2012
as previously
report
ThU.S.$
     Adjustment
IFRS11
ThU.S.$
    01-01-2012
as adjusted
ThU.S.$
 

Current Assets

     2,462,660         (15,855     2,446,805   

Non Current Assets

     10,089,518         267,836        10,357,354   

Total Assets

     12,552,178         251,981        12,804,159   
  

 

 

    

 

 

   

 

 

 

Current Liabilities

     1,031,945         77,699        1,109,644   

Non Current Liabilities

     4,490,083         174,282        4,664,365   

Total Liabilities

     5,522,028         251,981        5,774,009   

Total Equity

     7,030,150           7,030,150   

Total equity and Liabilities

     12,552,178         251,981        12,804,159   
  

 

 

    

 

 

   

 

 

 

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2013

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

 

 

NOTE 3. DISCLOSURE OF OTHER INFORMATION

 

a) Disclosure of Information on Issued Capital

At the date of these financial statements the share capital of Arauco is ThUS $353,618. This amount contains ThUS$5,625 corresponding to share premium on sale of shares.

In 2013, as a result of the merger of Celulosa Arauco y Constitución S.A. and Forestal Viñales S.A as part of the reorganization of the forestry companies in Chile, a capital increase of ThUS$442 was realized (Note 14).

 

    

12-31-2013

  

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

   113,159,655    113,152,446

Nominal Value of Shares by Type of Capital in Ordinary Shares

  

ThU.S.$0.0031210

per share

  

ThU.S.$3.0031211

per share

Amount of Capital in Shares by Type of Ordinary Shares that Constitute Capital

   ThU.S.$353,618    ThU.S.$353,176
    

12-31-2013

  

12-31-2012

Number of Shares Issued and Fully Paid by Type of Capital in Ordinary Shares

   113,159,655    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 is 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 distributable net income and the amount of the interim dividend paid at the end of the immediately preceding fiscal year.

The minimum dividend provision corresponding to the year 2013 in an amount of ThU.S.$138,812 (ThU.S.$64,340 as of December 31, 2012) is presented in the consolidated statement of changes in equity.

The line item “Dividends paid” in the consolidated statement of cash flows includes an amount of ThU.S.$140,054 as of December 31, 2013, (ThU.S.$196,816 as of December 31, 2012), of which ThS.U.$110,405 (ThUS$178,889 as of December 31, 2012) corresponds to payments of dividends of the parent company.

The following are the dividends paid and per share amounts during the years 2013 and 2012:

 

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    12-10-2013
Amount of Dividend    ThU.S.$ 63,388
Number of Shares for which Dividends are Paid    113,159,655
Dividend per Share    U.S.$0.56016

 

 

 

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Unaudited Consolidated Financial Statements

December 31, 2013

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

 

 

Detail of Dividend Paid, Ordinary Shares

  

Dividend Paid

   Final Dividend

Type of Shares for which there is a Dividend Paid

   Ordinary Shares

Date of Dividend Paid

   05-08-2013

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

 

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

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

Reserves of cash flow hedges

Reserves of cash flow hedges correspond to the portion of mark to market adjustments of outstanding cash flow hedges at the end of each reporting period.

Reserve of Actuarial Profits or Losses in Defined Benefit Plans

This corresponds to changes in the present value of the obligation for defined benefits resulting from experience adjustments (the effect of the differences between the previous actuarial assumptions and the events that occurred within the context of the plan) and the effects of the changes in the actuarial assumptions.

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2013

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

 

 

Other reserves

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

 

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 ventures as of December 31, 2013, 2012 and 2011:

 

     January - December  
     2013
ThU.S.$
    2012
ThU.S.$
    2011
ThU.S.$
 

Classes of Other Income

      

Other Income, Total

     385,055        408,251        475,014   

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

     269,671        243,295        229,889   

Net income from insurance compensation(*)

     1,297        89,022        —     

Revenue from export promotion

     4,115        3,379        5,545   

Insurance compensation, net of earthquake related losses (*)

     —          —          193,986   

Leases received

     2,315        2,339        4,124   

Gain on sales of assets

     46,473        31,240        9,046   

Gain on sales of assets classified as held for sale

     29,137        —          —     

Revenue from compensation of judgment

     8,500        —          —     

Access easement

     1,771        6,537        839   

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

     21,776        32,439        31,585   

Classes of Other Expenses by activity

      

Total of other expenses by activity

     (136,812     (105,325     (90,313

Depreciation

     (568     (907     (1,176

Expenses judgment

     (17,065     (2,487     (4,973

Impairment provision properties, plants and equipment and others

     (12,347     (2,304     (7,631

Plants stoppage operating expenses

     (9,676     (7,007     (14,362

Expenses projects

     (17,707     (18,199     (16,867

Loss of assets

     (1,992     (4,253     (2,447

Loss of forest due to fires

     (8,546     (5,537     (16,503

Other Taxes

     (4,458     (8,155     (5,209

Research and development expenses

     (2,641     (2,229     (3,446

Compensation and eviction

     (1,974     (8,137     (1,238

Fines, readjustments and interest

     (2,530     (2,373     (813

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

     (57,308     (43,737     (15,648

Classes of financing income

      

Financing income, total

     19,062        23,476        24,589   

Financial income from mutual funds - deposits

     10,539        7,607        12,262   

Financial income resulting from swap - forward

     4,287        13,324        8,219   

Other financial income

     4,236        2,545        4,108   

Classes of financing costs

      

Financing costs, Total

     (232,843     (236,741     (196,356

Interest expense, Loans banks

     (29,349     (18,264     (8,919

Interest expense, Bonds

     (169,806     (152,631     (164,790

Interest expense, financial instruments

     (6,139     (16,546     (6,564

Interest expense, debt refinancing

     —          (22,119     —     

Other financial costs

     (27,549     (27,181     (16,083

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

      

Total

     6,260        18,933        (11,897

Investments in associates

     5,657        17,947        (1,012

Joint ventures

     603        986        (10,885

 

(*) The amount corresponding to the period 2012 net income indemnity insurance (fire and other disasters)
(**) This amount contains ThU.S.$ 9,912 corresponding provision of judicial ruling

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2013

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

 

 

Below is the Balance of Expenses by nature:

 

     January - December  

Cost of sales

   2013
ThU.S.$
    2012
ThU.S.$
    2011
ThU.S.$
 

Timber

     869,036        861,401        639,574   

Forestry labor costs

     631,749        589,023        588,779   

Depreciation

     271,708        236,671        216,967   

Maintenance costs

     209,977        220,520        211,652   

Chemical costs

     485,799        381,152        334,549   

Sawmill Services

     124,501        175,729        170,861   

Others Raw Materials

     203,667        131,976        223,749   

Indirect costs

     171,704        149,607        96,278   

Energy and fuel

     200,161        137,857        159,912   

Cost of electricity

     89,818        85,063        60,705   

Wage and salaries

     299,090        194,433        179,429   

Total

     3,557,210        3,163,432        2,882,455   
  

 

 

   

 

 

   

 

 

 
     January - December  

Distribution cost

   2013
ThU.S.$
    2012
ThU.S.$
    2011
ThU.S.$
 

Selling costs

     33,242        29,225        39,321   

Commissions

     15,781        14,604        14,752   

Insurance

     5,913        5,363        4,406   

Provision for doubtful accounts receivable

     (372     (1,710     7,024   

Other selling costs

     11,920        10,968        13,139   

Shipping and freight costs

     490,345        423,535        438,307   

Port services

     27,185        24,968        28,309   

Freights

     405,136        347,735        391,813   

Other shipping and freight costs

     58,024        50,832        18,185   

Total

     523,587        452,760        477,628   
  

 

 

   

 

 

   

 

 

 
     January - December  

Administrative expenses

   2013
ThU.S.$
    2012
ThU.S.$
    2011
ThU.S.$
 

Wage and salaries

     212,346        192,447        156,961   

Marketing, advertising, promotion and publications expenses

     9,721        9,342        7,699   

Insurance

     39,044        34,023        20,108   

Depreciation and amortization

     24,070        12,897        10,614   

Computer services

     19,760        11,529        15,737   

Lease rentals (offices, warehouses and machinery)

     14,650        18,134        14,383   

Auditor’s fees

     3,740        4,314        4,729   

Donations, contributions, scholarships

     15,638        14,786        13,603   

Fees (legal and technical advisories)

     45,587        46,924        63,923   

Property taxes, patents and municipality rights

     27,812        17,683        18,096   

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

     132,326        117,546        89,668   

Total

     544,694        479,625        415,521   
  

 

 

   

 

 

   

 

 

 

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2013

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

 

 

          January - December  

Expenses for

   Note    2013
ThU.S.$
     2012
ThU.S.$
     2011
ThU.S.$
 

Depreciation

   7      288,812         248,915         228,839   

Employee benefits

   10      523,094         434,205         341,260   

Amortization

   19      9,836         4,575         1,897   

 

e) Auditor Fees and Number of Employees (Not audited)

At the end of this period, the auditor fees and number of employees are follows:

 

Auditors fees

   12-31-2013
ThU.S.$
 

Financial auditing services

     2,339   

Other services

  

Tax

     1,121   

Others

     429   

TOTAL

     3,889   
  

 

 

 
Number of employees    No.  
     13,660   

 

NOTE 4. INVENTORIES

 

     12-31-2013      12-31-2012  

Components of Inventory

   ThU.S.$      ThU.S.$  

Raw materials

     93,895         90,466   

Production supplies

     103,698         83,931   

Works in progress

     107,180         80,154   

Finished goods

     453,762         439,234   

Spare Parts

     142,055         128,592   

Total Inventories

     900,590         822,376   
  

 

 

    

 

 

 

Inventories recognized as cost of sales at December 31, 2013 were ThU.S.$3,549,278 (ThU.S.$3,134,897 and ThU.S.$2,869,242 at December 31, 2012 and December 31, 2011 respectively).

During 2013, there were inventory write-offs of ThU.S$2,457. During, 2012 there were inventory write-offs of ThU.S.$19,838, which were mainly caused by the fire that occurred in January 2012 at 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.

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2013

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

 

 

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.

 

NOTE 5. CASH AND CASH EQUIVALENTS

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

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

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

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

 

     12-31-2013      12-31-2012  

Components of Cash and Cash Equivalents

   ThU.S.$      ThU.S.$  

Cash on hand

     330         553   

Bank checking account balances

     155,208         80,676   

Time deposits

     391,588         154,705   

Mutual funds

     111,435         252,564   

Other cash and cash equivalents (*)

     8,651         —     

Total

     667,212         488,498   
  

 

 

    

 

 

 

 

(*) Applies to contracts investments under resale agreements

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2013

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

 

 

NOTE 6. INCOME TAXES

The tax rates applicable in the countries in which Arauco operates are 20% in Chile, 35% in Argentina, 34% in Brazil, 25% in Uruguay 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 permanently increased the tax rate to 20%, effective beginning on taxes incurred in 2012. The change in the tax rate in 2012 affected the measurement of the tax impacts 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 from the result of the expected reversal of temporary differences associated with property, plant, equipment and biological assets.

Deferred Tax Assets

The following table sets forth the deferred tax assets as of December 31, 2013 and 2012:

 

     12-31-2013      12-31-2012  

Deferred Tax Assets

   ThU.S.$      ThU.S.$  

Deferred tax Assets relating to Provisions

     12,016         4,752   

Deferred tax Assets relating to accrued liabilities

     7,367         7,188   

Deferred tax Assets relating to Post-Employment benefits

     9,012         9,341   

Deferred tax Assets relating to Property, Plant and equipment

     8,842         10,971   

Deferred tax Assets relating to Financial Instruments

     343         1,900   

Deferred tax Assets relating to tax losses carryforwards

     56,333         126,171   

Deferred tax assets relating to biological assets

     73         2,636   

Deferred tax assets relating to inventories

     4,910         9,539   

Deferred tax assets relating to provisions for income

     3,678         4,477   

Deferred tax assets relating to provision for doubful accounts

     3,104         3,602   

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

     54,920         26,193   

Total deferred tax assets

     160,598         206,770   
  

 

 

    

 

 

 

 

(*) In the period 2013 there MUS $ 19,887 deferred tax relating to tax goodwill produced by fusion of Chilean forestry companies

Certain subsidiaries of Arauco, to the date of these financial statements, present tax losses for which it is considered that given the projection of future profits, allowing the recovery of these assets. The total amount of these tax losses is ThUS$165,393 (ThUS$ 342,044 at December 31, 2012), which are mainly generated by operational and financial losses.

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2013

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

 

 

In addition, as of the closing of these financial statements there are ThUS$81,690 of unused tax losses from companies in Uruguay based on to the participation of Arauco which have not been recognized as deferred tax assets.

Deferred Tax Liabilities

The following table sets forth the deferred tax liabilities as of December 31, 2013 and 2012:

 

     12-31-2013      12-31-2012  

Deferred Tax Liabilities

   ThU.S.$      ThU.S.$  

Deferred tax liabilities relating to property, Plant and equipment

     781,777         769,626   

Deferred tax liabilities relating to financial instruments

     10,060         14,218   

Deferred tax liabilities relating to biological assets

     534,161         531,746   

Deferred tax liabilities relating to inventory

     15,422         16,517   

Deferred tax liabilities due to prepaid expenses

     56,558         55,294   

Deferred tax liabilities due to Intangible

     25,597         27,387   

Deferred tax liabilities relating to other taxable temporary differences

     38,720         40,264   

Total deferred tax liabilities

     1,462,295         1,455,052   
  

 

 

    

 

 

 

The effect of changes in deferred tax liabilities related to cash flow hedges corresponds to a charge of ThU.S.$ 4,850 as of December 31, 2013 (credit of ThU.S.$ 4,823 as of December 31, 2012), which is presented in Reserves for cash flow hedges in the consolidated 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.$18,982 and ThU.S.$130,659, respectively.

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

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2013

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

 

 

Reconciliation of the asset and deferred tax liability

 

Deferred Tax Assets

   Opening
Balance
01-01-2013
ThU.S.$
     Expenses
(Income)
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
12-31-2013
ThU.S.$
 

Deferred tax Assets relating to Provisions

     4,752         7,465        —           (201     12,016   

Deferred tax Assets relating to accrued liabilities

     7,188         44        —           135        7,367   

Deferred tax Assets relating to Post-Employment benefits

     9,341         (982     829         (176     9,012   

Deferred tax Assets relating to Property, Plant and equipment

     10,971         (22     —           (2,107     8,842   

Deferred tax Assets relating to Financial Instruments

     1,900         (1,493     —           (64     343   

Deferred tax Assets relating to tax losses carryforwards

     126,171         (65,777     —           (4,061     56,333   

Deferred tax assets relating to biological assets

     2,636         (2,563     —           —          73   

Deferred tax assets relating to provisions for income

     9,539         (4,421     —           (208     4,910   

Deferred tax assets relating to provisions for income

     4,477         (792     —           (7     3,678   

Deferred tax assets relating to provision for doubful accounts

     3,602         (481     —           (17     3,104   

Deferred tax assets relating to other deductible temporary differences

     26,193         28,226        —           501        54,920   

Total deferred tax assets

     206,770         (40,796     829         (6,205     160,598   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

 

Deferred Tax Liabilities

   Opening
Balance
01-01-2013
ThU.S.$
     Expenses
(Income)
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
12-31-2013
ThU.S.$
 

Deferred tax liabilities relating to property, Plant and equipment

     769,626         21,530        —          (9,379     781,777   

Deferred tax liabilities relating to financial instruments

     14,218         (508     (3,801     151        10,060   

Deferred tax liabilities relating to biological assets

     531,746         12,552        —          (10,137     534,161   

Deferred tax liabilities relating to inventory

     16,517         (1,262     —          167        15,422   

Deferred tax liabilities due to prepaid expenses

     55,294         944        —          320        56,558   

Deferred tax liabilities due to intangible

     27,387         (1,789     —          (1     25,597   

Deferred tax liabilities relating to other taxable temporary differences

     40,264         846        —          (2,390     38,720   

Total deferred tax liabilities

     1,455,052         32,313        (3,801     (21,269     1,462,295   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2013

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

 

 

Temporary Differences

The following tables summarize the deductible and taxable temporary differences:

 

     12-31-2013      12-31-2012  

Detail of classes of Deferred Tax Temporary Differences

   Deductible
Difference

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

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

Deferred Tax Assets

     104,265            80,599      

Deferred Tax Assets - Tax losses

     56,333            126,171      

Deferred Tax Liabilities

        1,462,295            1,455,052   

Total

     160,598         1,462,295         206,770         1,455,052   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     January - December  

Detail of Temporary Difference Income and Loss Amounts

   2013
ThU.S.$
    2012
ThU.S.$
    2011
ThU.S.$
 

Deferred Tax Assets

     18,136        (3,791     (3,455

Deferred Tax Assets - Tax losses

     (53,148     22,973        29,389   

Deferred Tax Liabilities

     (38,097     (119,849     60,050   

Total

     (73,109     (100,668     85,984   
  

 

 

   

 

 

   

 

 

 

Income Tax Expense

Income tax expense consists of the following:

 

     January - December  

Income Tax composition

   2013
ThU.S.$
    2012
ThU.S.$
    2011
ThU.S.$
 

Current income tax expense

     (89,378     (65,928     (242,918

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

     25,687        1,804        1,635   

Previous period current tax adjustments

     1,826        (1,945     2,316   

Other current tax expenses

     4,617        (49     484   

Current Tax Expense, Net

     (57,248     (66,119     (238,483

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

     (19,961     822        45,617   

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

     —          (124,463     10,632   

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

     (53,148     22,973        29,735   

Total deferred Tax Expense, Net

     (73,109     (100,668     85,984   

Income Tax Expense, Total

     (130,357     (166,787     (152,499
  

 

 

   

 

 

   

 

 

 

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2013

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

 

 

The following table sets for the current income tax expense detailed by foreign and domestic companies:

 

     January - December  
     2013     2012     2011  
     ThU.S.$     ThU.S.$     ThU.S.$  

Foreign current income tax expense

     (4,145     (9,270     (38,103

Domestic current income tax expense

     (53,103     (56,849     (200,380

Total current income tax expense

     (57,248     (66,119     (238,483

Foreign deferred tax expense

     (66,558     38,974        27,085   

Domestic deferred tax expense

     (6,551     (139,642     58,899   

Total deferred tax expense

     (73,109     (100,668     85,984   

Total tax income (expense)

     (130,357     (166,787     (152,499
  

 

 

   

 

 

   

 

 

 

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

The reconciliation of income tax expense is as follows:

 

     January - December  
     2013     2012     2011  

Reconciliation of Income tax from Statutory Rate to Effective Tax Rate

   ThU.S.$     ThU.S.$     ThU.S.$  

Tax Expense at applicable tax rate

     (109,787     (61,147     (154,665

Tax effect of foreign tax rates

     (24,688     1,247        (7,599

Tax effect of revenues exempt from taxation

     (4,589     16,716        11,172   

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

     (9,792     (12,609     (19,976

Tax rate effect of tax losses

     (4,330     612        41   

Tax effect of Previously Unrecognized Tax Benefit in the Income Statement

     15,769        —          —     

Tax effect of a new evaluation of assets for deferred not recognized taxes

     (3,182     —          —     

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

     —          (124,463     10,632   

Tax rate effect of adjustments for current tax of prior periods

     1,822        (1,945     2,316   

Other tax rate effects

     8,420        14,802        5,580   

Total adjustments to tax expense at applicable tax rate

     (20,570     (105,640     2,166   

Tax expense at effective tax rate

     (130,357     (166,787     (152,499

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2013

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

 

 

NOTE 7. PROPERTY, PLANT AND EQUIPMENT

 

     12-31-2013     12-31-2012  

Property, Plant and Equipment, Net

   ThU.S.$     ThU.S.$  

Construction in progress

     1,542,739        1,291,259   

Land

     974,408        986,033   

Buildings

     1,694,924        1,654,955   

Plant and equipment

     2,774,551        2,731,233   

Information technology equipment

     25,575        26,094   

Fixtures and fittings

     7,627        13,396   

Motor vehicles

     13,597        11,094   

Other property, plant and equipment

     104,046        102,679   

Total Net

     7,137,467        6,816,742   
  

 

 

   

 

 

 

Property, Plant and Equipment, Gross

    

Construction in progress

     1,542,739        1,291,259   

Land

     974,408        986,033   

Buildings

     3,010,996        2,904,127   

Plant and equipment

     4,954,621        4,804,495   

Information technology equipment

     64,352        61,236   

Fixtures and fittings

     33,015        34,157   

Motor vehicles

     40,789        36,717   

Other property, plant and equipment

     120,810        141,198   

Total Gross

     10,741,730        10,259,220   
  

 

 

   

 

 

 

Accumulated depreciation and impairment

    

Buildings

     (1,316,072     (1,249,172

Plant and equipment

     (2,180,070     (2,073,263

Information technology equipment

     (38,777     (35,142

Fixtures and fittings

     (25,388     (20,761

Motor vehicles

     (27,192     (25,623

Other property, plant and equipment

     (16,764     (38,519

Total

     (3,604,263     (3,442,478
  

 

 

   

 

 

 

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 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 December 2013, there are no current contracts between Arauco and Fondo de Inversión Bío Bío. Forest land and biological assets committed as collateral were sold to Arauco. As of December 31, 2013, there are no mortgaged assets in these consolidated financial statements.

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2013

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

 

 

     12-31-2013
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

 

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

Amount committed for the acquisition of property, plant and equipment

     310,087         834,893   
     12-31-2013      12-31-2012  
     ThU.S.$      ThU.S.$  

Disbursements for property, plant and equipment under construction

     671,128         945,997   

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 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 December 31, 2013 and 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

     1,291,259        986,033        1,654,955        2,731,233        26,094        13,396        11,094        102,679        6,816,742   

Changes

                  

Additions

     671,128        13,385        20,359        64,952        1,297        912        2,987        6,160        781,179   

Disposals

     —          (801     (1,747     (606     (11     (3,934     (74     (344     (7,516

Retirements

     (4,297     (317     (2,901     (15,299     (32     (179     (8     (361     (23,394

Depreciation

     —          —          (87,728     (220,452     (3,528     (2,734     (3,223     (1,187     (318,852

Impairment loss recognized in profit or loss

     —          —          (314     (874     (2     —          —          —          (1,190

Increase (decrease) through net exchange differences

     (12,053     (28,100     (19,597     (46,907     28        288        (259     (2,902     (109,502

Increase (decrease) through transfers from construction in progress

     (403,298     4,208        131,897        262,505        1,728        (122     3,081        1        —     

Total changes

     251,480        (11,625     39,970        43,319        (519     (5,769     2,504        1,367        320,726   

Closing balance 12-31-2013

     1,542,739        974,408        1,694,924        2,774,551        25,575        7,627        13,597        104,046        7,137,467   

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2013

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

 

 

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

     978,680        1,042,073        1,464,803        2,361,147        24,294        6,230        10,297        64,976        5,952,497   

Changes

                  

Additions

     945,997        8,548        4,033        33,457        1,960        734        3,661        39,957        1,038,346   

Acquisitions through business combinations

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

Disposals

     (3,824     (3,252     5,701        (16,433     (1,091     (501     (435     (4,114     (23,948

Retirements

     (12,062     (189     (19,979     (49,081     (103     (114     (1,175     (851     (83,554

Depreciation

     —          —          (83,164     (199,123     (3,259     (2,069     (3,957     (746     (292,317

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

Reclassification of assets held for sale

     —          (52,232     —          —          —          —          —          —          (52,232

Increase (decrease) through transfers from construction in progress

     (604,202     96        225,349        364,985        4,287        6,601        690        2,195        —     

Total changes

     312,580        (56,040     190,152        370,086        1,801        7,167        797        37,704        864,245   

Closing balance 12-31-2012

     1,291,259        986,033        1,654,955        2,731,233        26,094        13,396        11,094        102,679        6,816,742   

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2013

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

 

 

The depreciation expense for the period ending December 31, 2013, 2012 and 2011 is as follows:

 

     2013      2012      2011  

Depreciation for the year

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

Cost of sales

     267,793         233,951         216,967   

Administrative expenses

     18,149         11,042         8,716   

Other expenses

     2,870         3,922         3,156   

Total

     288,812         248,915         228,839   
  

 

 

    

 

 

    

 

 

 

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

 

          Minimum      Maximum      Average  

Buildings

   Useful Life in Years      16         89         39   

Plant and equipment

   Useful Life in Years      8         67         29   

Information technology equipment

   Useful Life in Years      6         18         5   

Fixtures and fittings

   Useful Life in Years      6         12         10   

Motor vehicles

   Useful Life in Years      6         26         13   

Other property, plant and equipment

   Useful Life in Years      5         27         16   

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

See Note 12 for details of capitalized borrowing costs.

 

 

 

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AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2013

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

 

 

NOTE 8. LEASES

Arauco acting as lessee

 

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

Property, Plant and Equipment under finance leases

     90,467         55,879   

Plant and equipment

     90,467         55,879   

Reconciliation of Financial Lease Minimum Payments:

 

     12-31-2013  
     Present Value  

Periods

   ThU.S.$  

Less than one year

     26,949   

Between one and five years

     62,491   

More than five years

     —     

Total

     89,440   
  

 

 

 
     12-31-2012  
     Present Value  

Periods

   ThU.S.$  

Less than one year

     20,489   

Between one and five years

     35,563   

More than five years

     —     

Total

     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 respective maturities as stated above.

Arauco acting as lessor

Reconciliation of Financial Lease Minimum Payments:

 

     12-31-2013  
     Gross      Interest      Present Value  

Periods

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

Less than one year

     980         11         969   

Between one and five years

     131         1         130   

More than five years

     —           —           —     

Total

     1,111         12         1,099   
  

 

 

    

 

 

    

 

 

 
     12-31-2012  
     Gross      Interest      Present Value  

Periods

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

Less than one year

     1,642         115         1,527   

Between one and five years

     1,437         93         1,344   

More than five years

     —           —           —     

Total

     3,079         208         2,871   
  

 

 

    

 

 

    

 

 

 

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2013

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

 

 

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.

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

 

NOTE 9. REVENUE

 

     January - December  

Classes of revenue

   2013
ThU.S.$
     2012
ThU.S.$
     2011
ThU.S.$
 

Revenue from sales of goods

     4,981,423         4,146,060         4,267,914   

Revenue from rendering of services

     164,077         152,603         106,581   

Total

     5,145,500         4,298,663         4,374,495   
  

 

 

    

 

 

    

 

 

 

 

NOTE 10. EMPLOYEE BENEFITS

Classes of Benefits and Expenses by Employee

 

     January - December  
     2013      2012      2011  
     ThU.S.$      ThU.S.$      ThU.S.$  

Employee expenses

     573,538         434,205         341,260   

Wages and salaries

     563,836         420,885         329,158   

Severance indemnities

     9,702         13,320         12,102   

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

 

Discount rate

     3.50

Inflation

     3.00

Mortality rate

     RV-2009   

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2013

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

 

 

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

 

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

Current

     3,814        3,945   

Non-current

     42,170        43,491   

Total

     45,984        47,436   
  

 

 

   

 

 

 

Reconciliation of the present value of severance indemnities obligation

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

Opening balance

     47,436        39,409   

Current service cost

     3,241        4,137   

Interest cost

     1,510        1,261   

Actuarial gains

     4,143        3,838   

Benefits paid

     (6,628     (4,390

Increase (decrease) for foreign currency exchange rates changes

     (3,718     3,181   

Closing balance

     45,984        47,436   

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 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 December 31, 2013 and 2012 are as follows:

 

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

Total Current Assets

     2,808,321         2,785,517   

Cash and Cash Equivalents

     667,212         488,498   

U.S Dollar

     534,575         397,346   

Euro

     4,681         1,867   

Brazilian Real

     68,658         38,477   

Argentine pesos

     13,942         4,877   

Other currencies

     3,473         23,502   

Chilean Pesos

     41,883         22,429   

Other current financial assets

     3,089         6,105   

U.S Dollar

     3,089         6,105   

Other current non-financial assets

     188,964         221,214   

U.S Dollar

     82,175         109,582   

Euros

     126         103   

Brazilian Real

     13,395         15,041   

Argentine pesos

     10,079         13,647   

Other currencies

     7,746         1,846   

Chilean Pesos

     75,443         80,995   

Trade and other current receivables

     711,678         835,932   

U.S Dollar

     446,386         520,803   

Euro

     33,072         26,711   

Brazilian Real

     55,756         53,057   

Argentine pesos

     33,130         38,256   

Other currencies

     24,513         32,606   

Chilean Pesos

     117,827         163,084   

U.F.

     994         1,415   

Accounts receivable from related companies

     8,243         8,851   

U.S Dollar

     135         743   

Brazilian Real

     3,654         1,268   

Chilean Pesos

     4,454         6,840   

Current Inventories

     900,590         822,376   

U.S Dollar

     791,271         724,942   

Brazilian Real

     87,638         77,340   

Chilean Pesos

     21,681         20,094   

Current biological assets

     256,957         262,498   

U.S Dollar

     256,957         262,498   

Current tax assets

     61,174         56,959   

U.S Dollar

     2,861         304   

Euros

     14         —     

Brazilian Real

     2,475         6,655   

Argentine pesos

     5,888         6,931   

Other currencies

     1,337         2,216   

Chilean Pesos

     48,599         40,853   

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

     10,414         83,084   

U.S Dollar

     10,414         83,084   

 

 

 

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AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2013

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

 

 

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

Total Non Current Assets

     11,685,074         11,474,097   

Other non-current financial assets

     48,778         69,643   

U.S Dollar

     48,011         68,626   

Argentine pesos

     767         1,017   

Other non-current non-financial assets

     125,052         125,254   

U.S Dollar

     113,224         105,414   

Brazilian Real

     8,707         17,042   

Argentine pesos

     748         1,540   

Other currencies

     643         681   

Chilean Pesos

     1,730         577   

Trade and other non-current receivables

     40,729         62,477   

U.S Dollar

     35,743         55,804   

Chilean Pesos

     3,226         3,374   

U.F.

     1,760         3,299   

Investments accounted for using equity method

     349,412         382,427   

U.S Dollar

     126,564         124,080   

Brazilian Real

     222,848         258,347   

Intangible assets other than goodwill

     99,651         105,234   

U.S Dollar

     95,338         101,073   

Brazilian Real

     4,241         4,070   

Chilean Pesos

     72         91   

Goodwill

     88,141         94,978   

U.S Dollar

     43,086         43,329   

Brazilian Real

     45,055         51,649   

Property, plant and equipment

     7,137,467         6,816,742   

U.S Dollar

     6,457,882         6,049,456   

Brazilian Real

     670,269         756,507   

Chilean Pesos

     9,316         10,779   

Non-current biological assets

     3,635,246         3,610,572   

U.S Dollar

     3,277,093         3,230,570   

Brazilian Real

     358,153         380,002   

Deferred tax assets

     160,598         206,770   

U.S Dollar

     138,486         159,139   

Brazilian Real

     21,321         46,464   

Other currencies

     223         361   

Chilean Pesos

     568         806   

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2013

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

 

 

     12-31-2013      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

     1,105,432         576,584         1,682,016         1,110,994         435,734         1,546,728   

Other current financial liabilities

     399,036         494,569         893,605         411,431         432,751         844,182   

U.S Dollar

     260,159         446,893         707,052         370,670         381,281         751,951   

Brazilian Real

     11,750         9,332         21,082         8,494         3,432         11,926   

Argentine pesos

     28,252         504         28,756         25,091         12,200         37,291   

Chilean Pesos

     168         886         1,054         111         330         441   

U.F.

     98,707         36,954         135,661         7,065         35,508         42,573   

Bank Loans

     262,010         451,282         713,292         357,116         91,645         448,761   

U.S Dollar

     222,008         441,446         663,454         323,531         76,013         399,544   

Brazilian Real

     11,750         9,332         21,082         8,494         3,432         11,926   

Argentine pesos

     28,252         504         28,756         25,091         12,200         37,291   

Financial Leases

     7,108         19,841         26,949         3,909         16,580         20,489   

U.S Dollar

     —           62         62         —           127         127   

Chilean Pesos

     168         886         1,054         111         330         441   

U.F.

     6,940         18,893         25,833         3,798         16,123         19,921   

Other Loans

     129,918         23,446         153,364         50,406         324,526         374,932   

U.S Dollar

     38,151         5,385         43,536         47,139         305,141         352,280   

U.F.

     91,767         18,061         109,828         3,267         19,385         22,652   

Trade and other current payables

     628,662         2,318         630,980         572,646         —           572,646   

U.S Dollar

     229,260         —           229,260         117,458         —           117,458   

Euros

     7,434         —           7,434         9,114         —           9,114   

Brazilian Real

     30,963         —           30,963         30,730         —           30,730   

Argentine pesos

     29,102         —           29,102         37,515         —           37,515   

Other currencies

     3,435         —           3,435         84,077         —           84,077   

Chilean Pesos

     328,358         12         328,370         291,190         —           291,190   

U.F.

     110         2,306         2,416         2,562         —           2,562   

Accounts payable to related companies

     14,406         —           14,406         9,168         —           9,168   

U.S Dollar

     2,889         —           2,889         1,474         —           1,474   

Chilean Pesos

     11,517         —           11,517         7,694         —           7,694   

Other current provisions

     9,696         —           9,696         9,176         —           9,176   

U.S Dollar

     830         —           830         301         —           301   

Argentine pesos

     8,866         —           8,866         8,875         —           8,875   

Current tax liabilities

     3,929         543         4,472         12,264         —           12,264   

U.S Dollar

     424         355         779         —           —           —     

Euros

     63         —           63         132         —           132   

Brazilian Real

     2,581         —           2,581         —           —           —     

Argentine pesos

     42         —           42         —           —           —     

Other currencies

     231         —           231         711         —           711   

Chilean Pesos

     588         188         776         11,421         —           11,421   

Current provisions for employee benefits

     806         3,008         3,814         962         2,983         3,945   

Chilean Pesos

     806         3,008         3,814         962         2,983         3,945   

Other current non-financial liabilities

     48,897         76,146         125,043         95,347         —           95,347   

U.S Dollar

     8,800         74,325         83,125         49,453         —           49,453   

Brazilian Real

     24,007         —           24,007         23,767         —           23,767   

Argentine pesos

     5,507         205         5,712         4,067         —           4,067   

Other currencies

     4,460         —           4,460         5,338         —           5,338   

Chilean Pesos

     6,002         2         6,004         10,620         —           10,620   

U.F.

     121         1,614         1,735         2,102         —           2,102   

 

 

 

63


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2013

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

 

 

     12-31-2013      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

     3,089,250         2,677,589         5,766,839         3,007,891         2,739,236         5,747,127   

Other non-current financial liabilities

     1,675,194         2,481,798         4,156,992         1,403,266         2,730,629         4,133,895   

U.S Dollar

     1,575,701         1,714,459         3,290,160         1,246,435         1,906,980         3,153,415   

Brazilian Real

     35,901         22,870         58,771         2,679         26,216         28,895   

Argentine pesos

     1,106         —           1,106         8,134         —           8,134   

Chilean Pesos

     3,300         —           3,300         781         —           781   

U.F.

     59,186         744,469         803,655         145,237         797,433         942,670   

Bank Loans

     822,461         358,301         1,180,762         477,457         557,093         1,034,550   

U.S Dollar

     785,454         335,431         1,120,885         466,644         530,877         997,521   

Brazilian Real

     35,901         22,870         58,771         2,679         26,216         28,895   

Argentine pesos

     1,106         —           1,106         8,134         —           8,134   

Financial Leases

     62,491         —           62,491         35,563         —           35,563   

U.S Dollar

     5         —           5         67         —           67   

Chilean Pesos

     3,300         —           3,300         781         —           781   

U.F.

     59,186         —           59,186         34,715         —           34,715   

Other Loans

     790,242         2,123,497         2,913,739         890,246         2,173,536         3,063,782   

U.S Dollar

     790,242         1,379,028         2,169,270         779,724         1,376,103         2,155,827   

U.F.

     —           744,469         744,469         110,522         797,433         907,955   

Other non current payables

     361         —           361         —           —           —     

U.S Dollar

     361         —           361         —           —           —     

Other non-current provisions

     24,167         —           24,167         13,285         —           13,285   

U.S Dollar

     4         —           4         4         —           4   

Brazilian Real

     24,163         —           24,163         13,281         —           13,281   

Deferred tax liabilities

     1,272,326         189,969         1,462,295         1,455,052         —           1,455,052   

U.S Dollar

     1,272,037         170,265         1,442,302         1,281,940         —           1,281,940   

Brazilian Real

     —           19,704         19,704         166,553         —           166,553   

Argentine pesos

     —           —           —           5,503         —           5,503   

Other currencies

     1         —           1         596         —           596   

Chilean Pesos

     288         —           288         460         —           460   

Non-current provisions for employee benefits

     36,685         5,485         42,170         35,157         8,334         43,491   

Other currencies

     177         —           177         140         —           140   

Chilean Pesos

     36,508         5,485         41,993         35,017         8,334         43,351   

Other non-current non-financial liabilities

     80,517         337         80,854         101,131         273         101,404   

U.S Dollar

     5         —           5         500         —           500   

Brazilian Real

     78,672         —           78,672         97,695         —           97,695   

Argentine pesos

     1,561         337         1,898         2,917         —           2,917   

Chilean Pesos

     274         —           274         —           273         273   

U.F.

     5         —           5         19         —           19   

 

 

 

64


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2013

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

 

 

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