6-K 1 d787800d6k.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 June, 2014

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: September 12, 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

     12   
6.  

Unaudited Notes to the Consolidated Financial Statement

     13   
7.  

Annex: Press Release

  


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statement

June 30, 2014

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

 

1. ANALYSIS OF FINANCIAL POSITION

 

a) Statement of Financial Position

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

 

Assets

   06-30-2014
ThU.S.$
     12-31-2013
ThU.S.$
 

Current assets

     3,000,427         2,808,321   

Non-current assets

     11,795,184         11,685,074   
  

 

 

    

 

 

 

Total assets

     14,795,611         14,493,395   
  

 

 

    

 

 

 

 

Liabilities

   06-30-2014
ThU.S.$
     12-31-2013
ThU.S.$
 

Current liabilities

     1,822,057         1,682,016   

Non-current liabilities

     5,713,630         5,766,839   

Non –parent participation

     55,342         52,242   

Net equity attributable to parent company

     7,204,582         6,992,298   
  

 

 

    

 

 

 

Total net equity and liabilities

     14,795,611         14,493,395   
  

 

 

    

 

 

 

As of June 30, 2014, total assets increased US$302 million compared to December 31, 2013, equivalent to 2.09% of variation. This deviation is mainly attributable to an increase in the balance of trade receivables, inventories and property, plant and equipment, partially offset by a decrease in cash and cash equivalents.

Moreover, current liabilities increased US$87 million mainly attributable to an increase in provisions and deferred tax liability.

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

 

Liquidity ratios

   06-30-2014      12-31-2013  

Current Liquidity (current assets / current liabilities)

     1.65         1.67   

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

     0.96         0.98   

 

Debt indicators

   06-30-2014      12-31-2013  

Debt to equity ratio (total liabilities / equity)

     1.04         1.06   

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

     0.24         0.23   

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

     0.76         0.77   

 

     06-30-2014      06-30-2013  

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

     3.88         3.72   

 

1


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statement

June 30, 2014

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

 

 

Activity ratio

   06-30-2014      12-31-2013  

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

     2.86         3.17   

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

     3.75         4.13   

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

     125.82         113.47   

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

     95.98         87.18   

As of June 30, 2014, the short-term debt represented 23% of total liabilities (23% as of December 31, 2013).

The ratio of financial expenses covered represents an increase of 3.72 to 3.88. This increase is mainly attributable to a greater proportional result and less financial expense for the 2014 period, compared to the same period of 2013.

 

b) Statements of income

Profit before Income Tax

Profit before Income Tax registered a profit of US$317 million compared to a profit of US$313 million in the same period of the previous year, positive variation of US$4 million. The effect is explained by the factors described in the following table:

 

Item

   Million
U.S.$
 

Gross margin

     81   

Other income / expenses by function

     (88

Exchange differences

     18   

Tax Expenses

     (29

Other item

     22   
  

 

 

 

Net change in income before income tax

     4   
  

 

 

 

Gross Margin represents a profit of U.S.$873 million, U.S.$81 million higher compared to the previous period (U.S.$792 million) caused by a slight proportional increase in sales volumes and a net increase in sales prices.

 

2


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statement

June 30, 2014

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

 

 

ANALYSIS OF FINANCIAL POSITION, continued

 

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

 

Revenues

   06-30-2014
ThU.S$
    06-30-2013
ThU.S$
 

Pulp

     1,148,084        1,092,576   

Sawn timber

     454,760        394,862   

Panels

     903,108        964,784   

Forestry

     76,540        83,258   

Other

     16,767        16,455   
  

 

 

   

 

 

 

Total revenues

     2,599,259        2,551,935   
  

 

 

   

 

 

 

Sales costs

   06-30-2014
ThU.S$
    06-30-2013
ThU.S$
 

Wood

     420,442        432,571   

Forestry work

     293,400        306,068   

Depreciation and amortization

     141,693        134,841   

Other costs

     870,719        886,741   
  

 

 

   

 

 

 

Total sales costs

     1,726,254        1,760,221   
  

 

 

   

 

 

 

Profitability index

   06-30-2014     03-31-2013  

Profitability on equity

     6.51        5.98   

Profitability on assets

     3.18        2.91   

Return on operating assets

     4.93        3.90   

Profitability ratios

   06-30-2014     06-30-2013  

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

     2.03        2.13   

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

     232,676        257,662   

Gross margin (ThU.S.$)

     873,005        791,714   

Financial costs (ThU.S.$)

     (110,058     (115,031

 

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

 

EBITDA

   06-30-2014
MThU.S.$
    06-30-2013
MThU.S.$
 

Gain (loss)

     232.7        257.7   

Finance cost

     110.1        115.0   

Financial Income

     (7.5     (11.5

Expenses for income tax

     84.0        55.2   

EBIT

     419.3        416.4   

Depreciation and amortization, others*

     187.8        144.3   

EBITDA

     607.1        560.7   

Cost at fair value of the harvest

     147.5        155.1   

Gain from changes in fair value of biological assets

     (133.6     (136.6

Exchange difference

     (10.1     7.6   

Adjusted EBITDA

     610.9        586.8   

 

* 2014: Forest loss provision MThU.S.$ 32

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

 

3


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statement

June 30, 2014

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

 

 

the local market and also in international markets are used as sources of new resources. Another source of long-term financing to credit corresponds mainly with banks and financial institutions around the world.

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

In the second quarter of 2014 the market began to experience a temporary oversupply in short fiber with the start up of another important pulp mill in Brazil. Short fiber prices decreased in all markets, while long fiber prices remained firm with minor price cuts dragged along by the short fiber market. Despite the entrance of new capacity, world inventory levels fell during the quarter, especially in short fiber, falling six days between March and June 2014. This drop was mainly in June. In long fiber there was a three-day drop in inventories, which is significant considering it is at already low levels of 25 days. This trend we saw towards the end of the second quarter is positive if we consider it is a low season in the Northern Hemisphere, beginning summer.

In Asia the oversupply coming from new capacity and the start up of Montes del Plata in Uruguay added pressure in short fiber prices, which also impacted long fiber prices. Short fiber prices fell approximately 9% and long fiber 6%, with long fiber selling higher at a $130–$150 range per ton. These price cuts occurred in a short period of time, from March to May, stabilizing in June. Prices did not continue falling, even with a change in trend in long fiber. Normally demand for pulp declines during this quarter due to lower demand of paper in the summer months in the Northern Hemisphere.

In Europe the market in general was similar to Asia, but prices had smaller adjustments. This is mainly because prices did not reach the same levels as in Asia, with a difference between US$20 to US$30 in long fiber higher than in Asia and US$40 in short fiber, lower than in Asia. With this situation in the second quarter price cuts were minor and remained at similar levels as in Asia, even higher in long fiber. The paper market continued depressed, negatively impacting demand for pulp. During the second quarter, pulp consumption was 2.2% less than the second quarter of 2013.

Demand in North America continued growing in almost all paper sectors except printing and writing. There was strong growth in tissue and producers with mills operating at full capacity and reactivating expansion plans. Overall demand has been strong enough to trigger pulp producers to switch operations from dissolving pulp for the textile sector during the past years to now produce pulp for the paper industry. A similar situation is occurring in the fibercement market, which consumes unbleached long fiber pulp. Strong demand supporting high prices and reactivating expansion projects on hold during the last years. Another very active sector is fluff pulp that is used in the industry of absorbent products, for example, diapers, which also has had an increase in prices.

 

4


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statement

June 30, 2014

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

 

 

During this second quarter, production was at normal levels, the only exception was at the Arauco mill due to its annual maintenance program. The Alto Paraná mill in Argentina, which had some technical issues during the first quarter, produced at normal levels this second quarter. In June the Montes del Plata mill began its start up process.

Sawn Timber Division

The real estate and construction sectors in the United States showed a small improvement during the first half of 2014, closing the second quarter with the Housing Starts Index at 893,000 units per year, which represents a 7.5% increase when compared to the same period the previous year. Current construction levels continue low when compared to the 10 year historical average. During the second quarter of the year the price for moldings in the United States was stable compared to the first quarter.

Markets continued with a positive behavior during the second quarter. In general, markets showed higher demand and better prices when compared to the previous quarter.

Demand in the Chinese market was affected by overstock of logs and wood.

Sales volume from Chile during the second quarter recovered after being affected by the port strike held in January 2014.

Panels Division

Sales for the second half of 2014 ended with a 12% drop with respect to the same period of 2013.

Volume sales during the second quarter of 2014 had a 4% decrease compared to the same period in 2013, mainly explained by lower sales of MDF and Plywood. Compared to the first quarter of 2014, volume sales increased 2.7%.

Plywood sales volume fell 10% with respect to the same quarter of 2013, but increased 12% when compared to the first quarter of 2014, which reflects an increase in the production of Nueva Aldea’s plywood mill.

Volume sales of MDF dropped 4% with respect to the same quarter of 2013. This drop is explained by lower demand in the Brazilian domestic market and the effect of the World Cup in June, and a decrease in demand in the United States, especially in the East Coast.

Particleboard sales volume stood stable compared to the previous quarter. The economic crisis in Argentina has impacted the domestic market.

Overall, the second quarter was favorable for our panels business in North America. Good demand for PBO allowed price increases. This positive scenario is in line with a general recovery in the housing and construction sectors. Also, during this second quarter we had stable demand in Chile, Mexico and Peru.

In Brazil the economy has been cooling and, along with new capacity from Arauco and other local players, the sales in this market have not performed as well as in other markets such as North America or Chile. During this quarter there was also a World Cup effect that impacted our sales in June. We expect the upcoming months to recover in panels sales. Despite a good first quarter, the panels business in Argentina started to decline in the second quarter.

 

5


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statement

June 30, 2014

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

 

 

5. ANALYSIS OF CASH FLOW

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

 

     06-30-2014
ThU.S.$
    06-30-2013
ThU.S.$
 

Positive (negative) Cash flow

    

Cash flow from operating activities

     414,611        356,839   

Cash flow from financing activities:

    

Loan and bond payments

     (14,879     357,518   

Dividend payments

     (77,759     (65,293

Others

     (49     (2,469

Cash flow from investment activities:

    

Incorporation and sale of property, plant and equipment

     (275,707     (276,812

Incorporation and sale of biological assets

     (74,114     (49,051

Dividends received

     6,801        15,319   

Others

     (8,268     12,834   
  

 

 

   

 

 

 

Positive Net cash flow (negative)

     (29,364     348,885   
  

 

 

   

 

 

 

The operating cash flow has a negative balance of U.S.$93 million in the current year, with differences with respect to the previous year (positive balance U.S. $290 million). Mainly due to a bond issuance and higher borrowings in 2013 supplemented by lower payments in the same period 2013.

In relation to the flow of investment at the end of the current period, there was a greater negative balance of U.S.$351 million (U.S.$298 million in 2013), mainly due to lower income from sales of property, plant and equipment, higher outlays for purchases of forests and plantations in the period of 2014 supplemented with higher dividend income in the period 2013, offset by lower disbursements for purchases of property, plant and equipment in 2014.

6. MARKET RISK ANALYSIS

In respect of the economic risks resulting from interest rate variations, the Company maintains, as of June 30, 2014, a ratio of fixed rate debt to total consolidated debt of approximately 78.4%, which it believes is consistent with industry standards. The Company does not engage in futures against variations in the selling prices of pulp and forest products because it believes that risks resulting from price variations are limited, in large part because the Company maintains one of the lowest cost structures in the industry.

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

In the report to the Interim Consolidated Financial Statements June 30, 2014, Note 23, a detailed analysis of the risks associated with the business of Arauco is available.

 

6


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2014

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

 

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

 

     Note    06-30-2014
ThU.S.$
     12-31-2013
ThU.S.$
 

Assets

        

Current Assets

        

Cash and cash equivalents

   5      640,724         667,212   

Other current financial assets

   23      1,385         3,089   

Other current non-financial assets

   25      199,951         188,964   

Trade and other current receivables

   23      826,323         711,678   

Accounts receivable from related companies

   13      23,773         8,243   

Current Inventories

   4      940,347         900,590   

Current biological assets

   20      315,448         256,957   

Current tax assets

        45,070         61,174   

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

        2,993,021         2,797,907   

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

   22      7,406         10,414   

Total Current Assets

        3,000,427         2,808,321   

Non-Current Assets

        

Other non-current financial assets

   23      34,959         48,778   

Other non-current non-financial assets

   25      133,056         125,052   

Trade and other non-current receivables

   23      40,259         40,729   

Investments accounted for using equity method

   15-16      361,387         349,412   

Intangible assets other than goodwill

   19      100,557         99,651   

Goodwill

   17      90,969         88,141   

Property, plant and equipment

   7      7,290,920         7,137,467   

Non-current biological assets

   20      3,602,238         3,635,246   

Deferred tax assets

   6      140,839         160,598   

Total non-Current Assets

        11,795,184         11,685,074   

Total Assets

        14,795,611         14,493,395   
     

 

 

    

 

 

 

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

 

 

 

7


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2014

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

 

 

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (continued)

 

     Note    06-30-2014
ThU.S.$
    12-31-2013
ThU.S.$
 

Equity and liabilities

       

Liabilities

       

Current Liabilities

       

Other current financial liabilities

   23      994,398        893,605   

Trade and other current payables

   23      648,953        630,980   

Accounts payable to related companies

   13      11,654        14,406   

Other current provisions

   18      721        9,696   

Current tax liabilities

        22,168        4,472   

Current provisions for employee benefits

   10      3,772        3,814   

Other current non-financial liabilities

   25      140,391        125,043   

Total Current Liabilities

        1,822,057        1,682,016   

Non-Current Liabilities

       

Other non-current financial liabilities

   23      4,045,898        4,156,992   

Non-current Payables

        0        361   

Other non-current provisions

   18      60,967        24,167   

Deferred tax liabilities

   6      1,481,635        1,462,295   

Non-current provisions for employee benefits

   10      41,794        42,170   

Other non-current non-financial liabilities

   25      83,336        80,854   

Total non - current liabilities

        5,713,630        5,766,839   

Total liabilities

        7,535,687        7,448,855   

Equity

       

Issued capital

        353,618        353,618   

Retained earnings

        7,145,938        7,004,640   

Other reserves

        (294,974     (365,960

Equity attributable to parent company

        7,204,582        6,992,298   

Non-controlling interests

        55,342        52,242   

Total equity

        7,259,924        7,044,540   

Total equity and liabilities

        14,795,611        14,493,395   
     

 

 

   

 

 

 

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

 

 

 

8


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2014

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

 

 

CONSOLIDATED STATEMENTS OF INCOME

 

          January - June     April - June  
          (Unaudited)     (Unaudited)  
     Note    2014
ThU.S.$
    2013
ThU.S.$
    2014
ThU.S.$
    2013
ThU.S.$
 

Income Statement

           

Revenue

   9      2,599,259        2,551,935        1,374,642        1,365,019   

Cost of sales

   3      (1,726,254     (1,760,221     (928,376     (909,232

Gross profit

        873,005        791,714        446,266        455,787   

Other income

   3      154,124        202,473        76,427        117,696   

Distribution costs

   3      (256,115     (258,837     (139,430     (151,366

Administrative expenses

   3      (278,744     (267,283     (147,691     (135,648

Other expense

   3      (83,048     (43,183     (25,048     (21,810

Profit (loss) from operating activities

        409,222        424,884        210,524        264,659   

Finance income

   3      7,506        11,512        3,936        5,359   

Finance costs

   3      (110,058     (115,031     (56,835     (58,626

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

   15      (99     (924     780        (2,418

Exchange rate differences

        10,120        (7,609     5,187        (5,546

Income before income tax

        316,691        312,832        163,592        203,428   

Income Tax

   6      (84,015     (55,170     (36,416     (39,281

Income from continuing operations

        232,676        257,662        127,176        164,147   

Profit (loss) from operations

           

Net Income

        232,676        257,662        127,176        164,147   
     

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to

           

Net income attributable to parent company

        230,135        240,871        125,893        151,649   

Income attributable to non-controlling interests

        2,541        16,791        1,283        12,498   

Profit (loss)

        232,676        257,662        127,176        164,147   
     

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per share

           

Basic earnings per share

           

Earnings per share from operations

        0.0020337        0.0021287        0.0011125        0.0013402   
     

 

 

   

 

 

   

 

 

   

 

 

 

Basic earnings per share

        0.0020337        0.0021287        0.0011125        0.0013402   
     

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per diluted shares

           

Earnings per diluted share from continuing operations

        0.0020337        0.0021287        0.0011125        0.0013402   
     

 

 

   

 

 

   

 

 

   

 

 

 

Basic earnings per diluted share

        0.0020337        0.0021287        0.0011125        0.0013402   
     

 

 

   

 

 

   

 

 

   

 

 

 

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

June 30, 2014

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

 

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

          January - June     April - June  
          (Unaudited)     (Unaudited)  
     Note    2014
ThU.S.$
    2013
ThU.S.$
    2014
ThU.S.$
    2013
ThU.S.$
 

Profit (loss)

        232,676        257,662        127,176        164,147   

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      (2,526     (2,042     (2,526     (2,042

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

        (1,836     (390     (1,752     (514

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

        (4,362     (2,432     (4,278     (2,556

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

           

Exchange differences on translation

           

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

   11      70,226        (107,122     35,613        (123,611

Other Comprehensive Income before tax exchange differences on translation

        70,226        (107,122     35,613        (123,611

Gains (losses) on cash flow hedges, before tax

   23      9,030        38,165        (13,567     35,963   

Other Comprehensive Income before tax Cash flow hedges

        9,030        38,165        (13,567     35,963   

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

        79,256        (68,957     22,046        (87,648

Income tax relating to cash flow hedges of other comprehensive income

           

Income tax relating to defined benefit plans of the other comprehensive income

        505        408        505        408   

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

           

Income tax relating to cash flow hedges of other comprehensive income

   6-23      (2,064     (7,175     2,552        (6,603

Other comprehensive income

        73,335        (78,156     20,825        (96,399

Comprehensive income

        306,011        179,506        148,001        67,748   
     

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive Income attributable to

           

Comprehensive income, attributable to owners of parent company

        301,121        164,936        145,662        58,034   

Comprehensive income, attributable to non-controlling interests

        4,890        14,570        2,339        9,714   

Total comprehensive income

        306,011        179,506        148,001        67,748   
     

 

 

   

 

 

   

 

 

   

 

 

 

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

June 30, 2014

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

 

 

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

 

06-30-2014

   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 01/01/2014

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

Changes in Equity:

                     

Comprehensive income

                     

Net income

                  230,135        230,135        2,541        232,676   

Other comprehensive income, net of tax

        67,877        6,966        (2,021     (1,836     70,986        0        70,986        2,349        73,335   

Comprehensive income

     —           67,877        6,966        (2,021     (1,836     70,986        230,135        301,121        4,890        306,011   

Dividends

                  (88,837     (88,837     (1,790     (90,627

Changes in equity

     —           67,877        6,966        (2,021     (1,836     70,986        141,298        212,284        3,100        215,384   

Closing balance at 06/30/2014

     353,618         (271,228     (14,541     (8,405     (800     (294,974     7,145,938        7,204,582        55,342        7,259,924   

 

06-30-2013

   Issue
Capital
ThU.S.$
     Conversion
Reserves
ThU.S.$
    Hedge
Reserves
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

     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

                  240,871        240,871        16,791        257,662   

Other comprehensive income, net of tax

        (104,901     30,990        (1,634     (390     (75,935       (75,935     (2,221     (78,156

Comprehensive income

     —           (104,901     30,990        (1,634     (390     (75,935     240,871        164,936        14,570        179,506   

Dividends

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

Increase (decrease) for transfer and other changes

                —            —          (21,822     (21,822

Changes in equity

     —           (104,901     30,990        (1,634     (390     (75,935     154,598        78,663        (7,252     71,411   

Closing balance at 06/30/2013

     353,176         (274,278     (15,026     (4,704     (1,576     (295,584     6,912,393        6,969,985        67,185        7,037,170   

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

 

 

 

11


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2014

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

 

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

     06-30-2014     06-30-2013  
     Unaudited  
     ThU.S.$     ThU.S.$  

STATEMENTS OF CASH FLOWS

    

Cash Flows from (used in) Operating Activities

    

Classes of cash receipts from operating activities

    

Receipts from sales of goods and rendering of services

     2,525,286        2,769,676   

Receipts from premiums and claims, annuities and other policy benefits

     —          29,819   

Other cash receipts from operating activities

     183,351        286,624   

Classes of cash payments

    

Payments to suppliers for goods and services

     (1,895,952     (2,231,615

Payments to and on behalf of employees

     (258,654     (254,648

Other cash payments from operating activities

     (46,079     (109,574

Interest paid

     (96,296     (108,250

Interest received

     9,129        10,455   

Income taxes refund (paid)

     (4,901     (35,814

Other (outflows) inflows of cash, net

     (1,273     166   

Net Cash flows from Operating Activities

     414,611        356,839   
  

 

 

   

 

 

 

Cash flows (used in) investing activities

    

Proceeds from sale of property, plant and equipment

     11,634        79,736   

Purchase of property, plant and equipment

     (287,341     (356,548

Purchase of intangible assets

     (9,001     (1,194

Proceeds from sale of other long-term assets

     —          17,872   

Purchase of biological assets

     (74,114     (66,923

Dividends received

     6,801        15,319   

Other outflows of cash, net

     733        14,028   

Cash flows used in Investing Activities

     (351,288     (297,710
  

 

 

   

 

 

 

Cash flows from (used in) Financing Activities

    

Total loans obtained

     463,614        915,613   

Loans obtained in long term

     322,636        374,921   

Proceeds from short-term borrowings

     140,978        540,692   

Repayments of borrowings

     (478,493     (558,095

Dividends paid

     (77,759     (65,293

Other inflows of cash, net

     (49     (2,469

Cash flows from (used in) Financing Activities

     (92,687     289,756   
  

 

 

   

 

 

 

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

     (29,364     348,885   

Effect of exchange rate changes on cash and cash equivalents

     2,876        (13,090
  

 

 

   

 

 

 

Net increase (decrease) of Cash and Cash equivalents

     (26,488     335,795   

Cash and cash equivalents, at the beginning of the period

     667,212        488,498   

Cash and cash equivalents, at the end of the period

     640,724        824,293   
  

 

 

   

 

 

 

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

 

 

 

12


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2014

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

 

 

CONSOLIDATED FINANCIAL STATEMENTS AT JUNE 30 (NOT AUDITED) AND DECEMBER 31, 2013

 

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

Presentation of Financial Statements

The Financial Statements presented by Arauco as of June 30, 2014 are:

 

    Consolidated Balance Sheets for the period between January 1 and June 30, 2014 and for the period ended December 31, 2013.

 

    Consolidated Statements of Income for the periods between January 1 and June 30, 2014 and 2013.

 

    Consolidated Statements of Comprehensive Income for the periods between January 1 and June 30, 2014 and 2013.

 

    Consolidated Statements of Changes in Equity for the periods between January 1 and June 30, 2014 and 2013.

 

    Consolidated Statements of Cash Flows for the periods between January 1 and June 30, 2014 and 2013.

 

    Notes to the consolidated financial statements.

 

 

 

13


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2014

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

 

 

Period covered by the Financial Statements

Period between January 1 and June 30, 2014.

Date of Approval of Financial Statements

These interim consolidated financial statements for the period between January 1 and June 30, 2014 were authorized and approved for issuance by the Board of Directors of the Company (the “Board”) at the Extraordinary Session N° 512 held on August 26, 2014.

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$).

 

 

 

14


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2014

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

 

 

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

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, due to the fact that up until that date these entities were in essence controlled by Arauco and they kept exclusive contracts with Arauco for timber supply, forward purchases of land and forest management.

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 interim consolidated financial statements to June 30, 2014 were prepared in accordance with Arauco’s accounting policies, which have been consistently applied to all periods presented in these interim consolidated financial statements.

 

a) Basis for presentation of financial statements

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

The interim consolidated financial statements have been prepared on the historical cost basis, except for biological assets and certain financial 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.

 

 

 

15


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2014

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.

 

 

 

16


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2014

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 interim 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.

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

 

 

 

17


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2014

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

 

 

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 interim consolidated financial statements at the end of this period 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.

 

 

 

18


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2014

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.

 

(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.

 

 

 

19


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2014

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

 

 

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.

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.

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.

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.

 

 

 

20


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2014

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

 

 

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.

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

 

 

 

21


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2014

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

 

 

    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.

Financial obligations are classified as current liabilities, unless Arauco holds an unconditional right to defer their liquidation during at least 12 months after the balance sheet’s date.

The estimation of the reasonable value of the obligations with banks is determined by valuation techniques, using cash flows discounted applying rates in accordance to the risk of bank loans of a similar nature, while bonds are appraised at their market value.

 

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.

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

 

 

 

22


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2014

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

 

 

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, Arauco 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.

-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.

 

 

 

23


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2014

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

 

 

Biological assets are transferred to inventories when forests are harvested.

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

When market conditions result in the production costs of a product exceeding its net realizable value, the inventories are 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 certain 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

 

 

 

24


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2014

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

 

 

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 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.

 

 

 

25


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2014

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.

 

 

 

26


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2014

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.

 

 

 

27


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2014

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.

 

 

 

28


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2014

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 has no right to dispose of the assets, nor effective control of those good.

 

(i) Revenue recognition from the Sale of Goods

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

Sales are recognized in terms of the price agreed to in the sales contract, less any volume discounts and estimated product returns at the date of the sale. Volume

 

 

 

29


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2014

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

 

 

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.

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

 

 

 

30


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2014

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

 

 

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 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.

 

 

 

31


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2014

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

 

 

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.

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.

 

 

 

32


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2014

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

 

 

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

The following new standards and interpretations have been adopted in these financial statements:

 

Amendments and

improvements

  

Contents

  

Mandatory application
for annual periods
beginning on or after

IAS 32   

Financial Instruments

Presentation - Clarification of requirements for netting of financial assets and liabilities.

   January 1, 2014
IFRS 10, IFRS 12, IAS 27    Investment Entities provides an exemption for the consolidation of subsidiaries under IFRS 10 under the definition of “investment companies”.    January 1, 2014
IAS 36    Impairment of Assets, Modification disclosures requirements    January 1, 2014
IAS 39    Financial Instruments: Recognition and Measurement-Novation of derivatives and continuation hedge accounting    January 1, 2014

New interpretations

  

Contents

  

Mandatory application
for annual periods
beginning on or after

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

The application of these standards has not had a significant impact on the amounts reported in these financial statements, however, may affect the accounting for future transactions or arrangements.

 

 

 

33


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2014

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

 

 

At the date of issuance of these consolidated interim financial statements, the following accounting pronouncements have been issued by the IASB:

 

Standards and
interpretations

  

Contents

  

Mandatory application
for annual periods
beginning on or after

IFRS 9   

Financial Instruments

Amendment to 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
IFRS 14    Deferral of Regulatory accounts. Applies to entities adopting IFRS for the first time which are involved in activities with regulated rates.    January 1, 2016
IFRS 15    Income from contracts with customers. provide unique model based on principles that apply in all contracts with customers.    January 1, 2017

Amendments and

improvements

  

Contents

  

Mandatory application

for annual periods

beginning on or

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
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
IFRS 11-Amendments   

Accounting of acquisitions for shares in joint ventures

Require to the acquirer the application of business combinations and related disclosures.

   January 1, 2016
IAS 16 and IAS 38 – Amendments   

Clarification of acceptable methods of depreciation and amortization.

Additional guidance on how to calculate the depreciation and amortization of property, plant and equipment and intangible assets.

   January 1, 2016
IAS 16 and IAS 41 – Amendments   

Agriculture: Manufactoring plants

Amendments provide the concept of manufacturing plants, which are used exclusively to grow products in the scope of IAS 16.

   January 1, 2016

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

 

 

 

34


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2014

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

 

 

NOTE 2. CHANGES IN POLICIES AND ACCOUNTING ESTIMATES

1) Changes in Accounting Policies

The accounting policies have been developed in accordance with the effective IFRS as of June 30, 2014 and have been consistently applied to all periods presented in these interim consolidated financial statements.

2) Changes in the Estimates and processing of accounting policies

There have been no changes in the treatment of accounting policies for the same period last year.

 

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.

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).

 

     06-30-2014    12-31-2013

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

Nominal Value of Shares by Type of Capital in Ordinary Shares

   ThU.S.$0.0031210 per share

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

   ThU.S.$353,618
     06-30-2014    12-31-2013

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

   113,159,655

 

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 2014 in an amount of ThU.S.$88,837 (ThU.S.$86,273 as of June 30, 2013) is presented in the consolidated statement of changes in equity.

In the Cash Flow Statement, in line “dividends paid” is presented an amount of ThU.S.$77,759 as of June 30, 2014 (ThU.S.$65,293 as of June 30, 2013) which ThU.S.$75,424 (ThU.S.$47,017 as of June 30, 2013) correspond to the payment of dividens of the parent company.

 

 

 

35


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2014

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

 

 

The following are the dividends paid and per share amounts during the period 2014 and the years 2013:

 

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

   05-09-2014

Amount of Dividend

   ThU.S.$ 75,424

Number of Shares for which Dividends are Paid

   113,159,655

Dividend per Share

   U.S.$0.66653

 

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

 

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

 

 

 

36


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2014

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

 

 

  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.

Other reserves

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

 

 

 

37


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2014

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

 

 

d) Disclosures of other information

The table below sets forth other income, other expenses, finance income, finance costs and share of profit (loss) of associates and joint ventures as of June 30, 2014 and 2013:

 

     January - June     April - June  
     2014     2013     2014     2013  
     ThU.S.$     ThU.S.$     ThU.S.$     ThU.S.$  

Classes of Other Income

        

Other Income, Total

     154,124        202,473        76,427        117,696   

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

     133,644        136,643        67,031        69,034   

Net income from insurance compensation

     710        1,197        710        —     

Revenue from export promotion

     1,921        2,173        942        1,063   

Leases received

     1,096        649        673        238   

Gain on sales of assets

     7,261        17,008        1,198        16,230   

Gain on sales of assets classified as held for sale

     —          25,982        —          17,015   

Revenue from compensation of judgment

     —          8,500        —          8,500   

Access easement

     4,831        —          4,831        —     

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

     4,661        10,321        1,042        5,616   

Classes of Other Expenses by activity

        

Total of other expenses by activity

     (83,048     (43,183     (25,048     (21,810

Depreciation

     (741     (850     (372     (697

Expenses judgment

     (1,760     (3,036     (725     (1,873

Impairment provision properties, plants and equipment and others

     (5,089     (3,604     (1,339     (1,392

Plants stoppage operating expenses

     (1,657     (6,189     (1,122     (2,798

Expenses projects

     (7,256     (5,707     (2,960     (3,126

Expenses start-up

     (7,225     —          (3,187     —     

Loss of assets

     (15     (1,954     —          21   

Loss of forest due to fires

     (32,029     (121     (1,851     (49

Other Taxes

     (2,753     (2,403     (1,237     (560

Research and development expenses

     (1,509     (1,253     (698     (688

Compensation and eviction

     (7,440     (1,273     (5,323     (755

Fines, readjustments and interest

     (211     (671     (111     (571

Other expenses (donations, repayments insurance)

     (15,363     (16,122     (6,123     (9,322

Classes of financing income

        

Financing income, total

     7,506        11,512        3,936        5,359   

Financial income from mutual funds - deposits

     5,156        4,141        2,902        2,416   

Financial income resulting from swap - forward

     226        4,668        36        1,876   

Other financial income

     2,124        2,703        998        1,067   

Classes of financing costs

        

Financing costs, Total

     (110,058     (115,031     (56,835     (58,626

Interest expense, Loans banks

     (11,841     (14,432     (5,841     (7,877

Interest expense, Bonds

     (85,034     (90,424     (45,715     (46,390

Interest expense, financial instruments

     (6,325     (2,329     (2,610     273   

Other financial costs

     (6,858     (7,846     (2,669     (4,632

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

        

Total

     (99     (924     780        (2,418

Investments in associates

     (741     (728     663        (2,121

Joint ventures

     642        (196     117        (297

 

 

 

38


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2014

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

 

 

Below is the Balance of Expenses by nature:

 

     January - June     April - June  

Cost of sales

   2014
ThU.S.$
     2013
ThU.S.$
    2014
ThU.S.$
     2013
ThU.S.$
 

Timber

     420,442         432,571        227,230         221,519   

Forestry labor costs

     293,400         306,068        152,381         153,275   

Depreciation and amortization

     141,693         134,841        75,436         69,977   

Maintenance costs

     133,066         108,210        71,110         55,657   

Chemical costs

     264,412         249,704        142,679         128,588   

Sawmill Services

     59,779         91,563        31,269         47,326   

Others Raw Materials

     44,324         95,914        25,092         71,085   

Indirect costs

     82,367         81,536        46,841         27,402   

Energy and fuel

     109,298         97,596        66,328         52,035   

Cost of electricity

     42,984         45,714        17,100         24,117   

Wage and salaries

     134,489         116,504        72,910         58,251   

Total

     1,726,254         1,760,221        928,376         909,232   
  

 

 

    

 

 

   

 

 

    

 

 

 
     January - June     April - June  

Distribution cost

   2014
ThU.S.$
     2013
ThU.S.$
    2014
ThU.S.$
     2013
ThU.S.$
 

Selling costs

     16,459         17,170        8,281         8,401   

Commissions

     8,148         7,881        4,357         4,016   

Insurance

     2,548         3,211        1,414         1,684   

Provision for doubtful accounts receivable

     893         (456     828         (438

Other selling costs

     4,870         6,534        1,682         3,139   

Shipping and freight costs

     239,656         241,667        131,149         142,965   

Port services

     14,186         13,100        8,021         7,072   

Freights

     192,695         202,558        104,135         120,722   

Other shipping and freight costs

     32,775         26,009        18,993         15,171   

Total

     256,115         258,837        139,430         151,366   
  

 

 

    

 

 

   

 

 

    

 

 

 

 

 

 

39


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2014

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

 

 

     January - June      April - June  

Administrative expenses

   2014
ThU.S.$
     2013
ThU.S.$
     2014
ThU.S.$
     2013
ThU.S.$
 

Wage and salaries

     111,795         116,251         59,279         56,998   

Marketing, advertising, promotion and publications expenses

     5,175         4,293         2,740         2,216   

Insurance

     16,353         20,940         8,150         10,489   

Depreciation and amortization

     12,782         6,973         7,282         3,415   

Computer services

     13,741         10,212         7,038         6,532   

Lease rentals (offices, warehouses and machinery)

     5,384         6,882         3,276         2,707   

Donations, contributions, scholarships

     4,667         5,274         2,727         3,128   

Fees (legal and technical advisories)

     26,276         25,592         14,828         14,098   

Property taxes, patents and municipality rights

     10,559         9,626         4,829         5,770   

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

     72,012         61,240         37,542         30,295   

Total

     278,744         267,283         147,691         135,648   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

          January-June      April-June  
          2014      2013      2014      2013  

Expenses for

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

Depreciations

   7      150,121         142,695         81,098         73,727   

Employee benefits

   10      254,430         257,468         111,300         132,426   

Amortization

   19      5,782         1,707         2,239         840   

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

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

 

Auditors fees

   06-30-2014
ThU.S.$
 

Audit services

     1,210   

Other services

  

Tax services

     339   

Others

     198   

TOTAL

     1,747   
  

 

 

 
Number of employees    No.  
     14,161   

 

 

 

40


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2014

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

 

 

NOTE 4. INVENTORIES

 

Components of Inventory

   06-30-2014
ThU.S.$
     12-31-2013
ThU.S.$
 

Raw materials

     101,313         93,895   

Production supplies

     97,828         103,698   

Products in progress

     92,318         107,180   

Finished goods

     502,052         453,762   

Spare Parts

     146,836         142,055   

Total Inventories

     940,347         900,590   
  

 

 

    

 

 

 

Inventories recognized as cost of sales at June 30, 2014 were ThU.S.$1,722,611 (ThU.S.$1,755,579 at June 30, 2013).

In order to have the inventories recorded at net realizable value at June 30, 2014, there has been a net decrease of inventories associated with a higher provision of obsolescence ThU.S.$67 (lower provision ThU.S.$2,444 at June 30, 2013).

At June 30, 2014 there are penalties of inventory ThU.S.$279 (ThU.S.$1,724 at June 30, 2013)

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

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

Agricultural Products

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

 

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.

 

 

 

41


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2014

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

 

 

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

 

Components of Cash and Cash Equivalents

   06/30/2014
ThU.S.$
     12-31-2013
MUS$
 

Cash on hand

     435         330   

Bank checking account balances

     184,075         155,208   

Time deposits

     325,088         391,588   

Mutual funds

     122,850         111,435   

Other cash and cash equivalents (*)

     8,276         8,651   

Total

     640,724         667,212   
  

 

 

    

 

 

 

 

(*) Applies to contracts investments under resale agreements

 

 

 

42


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2014

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).

Deferred Tax Assets

The following table sets forth the deferred tax assets as of June 30, 2014 and December 31, 2013:

 

Deferred Tax Assets

   06-30-2014
ThU.S.$
     12-31-2013
ThU.S.$
 

Deferred tax Assets relating to Provisions

     12,245         12,016   

Deferred tax Assets relating to Accrued Liabilities

     6,717         7,367   

Deferred tax Assets relating to Post-Employment benefits

     8,944         9,012   

Deferred tax Assets relating to Property, Plant and equipment

     13,502         8,842   

Deferred tax Assets relating to Financial Instruments

     —           343   

Deferred tax Assets relating to Tax Losses Carryforwards

     54,659         56,333   

Deferred tax Assets relating to Biological Assets

     5,710         73   

Deferred tax Assets relating to Inventories

     5,833         4,910   

Deferred tax Assets relating to Provisions for Income

     3,832         3,678   

Deferred tax Assets relating to Allowance for Doubful Accounts

     3,258         3,104   

Intangible revaluation differences

     619         —     

Defferred tax Assets relating to Other Deductible Temporary
Differences(*)

     25,520         54,920   

Total Deferred Tax Assets

     140,839         160,598   
  

 

 

    

 

 

 

 

(*) 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 ThU.S.$164,183 (ThU.S.$ 165,393 at December 31, 2013), which are mainly originated by operational and financial losses.

In addition, as of the closing of these financial statements there are ThU.S.$109,506 of unused tax losses from companies in Uruguay based on to the participation of Arauco which have not been recognized as deferred tax assets.

 

 

 

43


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2014

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

 

 

Deferred Tax Liabilities

The following table sets forth the deferred tax liabilities as of June 30, 2014 and December 31, 2013:

 

Deferred Tax Liabilities

   06-30-2014
ThU.S.$
     12-31-2013
ThU.S.$
 

Deferred tax Liabilities relating to Property, plant and equipment

     785,462         781,777   

Deferred tax Liabilities relating to Financial Instruments

     4,655         10,060   

Deferred tax Liabilities relating to Biological Assets

     564,550         534,161   

Deferred tax Liabilities relating to Inventory

     30,204         15,422   

Deferred tax Liabilities due to Prepaid Expenses

     37,398         56,558   

Deferred tax Liabilities due to Intangible

     35,089         25,597   

Deferred tax Liabilities relating to Other Taxable Temporary Differences

     24,277         38,720   

Total Deferred Tax Liabilities

     1,481,635         1,462,295   
  

 

 

    

 

 

 

The effect of changes in deferred tax liabilities related to cash flow hedges corresponds to a charge of ThU.S.$2,064 as of June 30, 2014 (credit of ThU.S.$7,175 as of June 30, 2013), 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.$19,497 and ThU.S.$106,252, 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.

 

 

 

44


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2014

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

 

 

Reconciliation of the asset and deferred tax liability

 

Deferred Tax Assets

   Opening
Balance
01-01-2014
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
06/30/2014
ThU.S.$
 

Deferred tax Assets relating to Provisions

     12,016         58        —          171        12,245   

Deferred tax Assets relating to accrued liabilities

     7,367         (761     28        83        6,717   

Deferred tax Assets relating to Post-Employment benefits

     9,012         (535     481        (14     8,944   

Deferred tax Assets relating to Property, Plant and equipment

     8,842         4,642        —          18        13,502   

Deferred tax Assets relating to Financial Instruments

     343         (343     —          —          —     

Deferred tax Assets relating to tax losses carryforwards

     56,333         (2,950     —          1,276        54,659   

Deferred tax assets relating to biological assets

     73         5,637        —          0        5,710   

Deferred tax assets relating to provisions for income

     4,910         869        —          54        5,833   

Deferred tax assets relating to provisions for income

     3,678         157        —          (3     3,832   

Deferred tax assets relating to provision for doubful accounts

     3,104         142        —          12        3,258   

Intangible revaluation differences

     —           619        —          —          619   

Defferred tax assets relating to other deductible temporary differences

     54,920         (29,606     —          206        25,520   

Total deferred tax assets

     160,598         (22,071     509        1,803        140,839   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Deferred Tax Liabilities

   Opening
Balance

01-01-2014
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
06/30/2014
ThU.S.$
 

Deferred tax liabilities relating to property, Plant and equipment

     781,777         185        —          3,500        785,462   

Deferred tax liabilities relating to financial instruments

     10,060         46        (5,451     —          4,655   

Deferred tax liabilities relating to biological assets

     534,161         25,818        —          4,571        564,550   

Deferred tax liabilities relating to inventory

     15,422         14,782        —          —          30,204   

Deferred tax liabilities due to prepaid expenses

     56,558         (19,161     —          1        37,398   

Deferred tax liabilities due to intangible

     25,597         9,492        —          —          35,089   

Deferred tax liabilities relating to other taxable temporary differences

     38,720         (15,482     —          1,039        24,277   

Total deferred tax liabilities

     1,462,295         15,680        (5,451     9,111        1,481,635   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

 

 

45


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2014

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

 

 

Temporary Differences

The following tables summarize the deductible and taxable temporary differences:

 

     06-30-2014     12-31-2013  

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

     86,180          104,265     

Deferred Tax Assets - Tax losses

     54,659          56,333     

Deferred Tax Liabilities

       1,481,635          1,462,295   

Total

     140,839        1,481,635        160,598        1,462,295   
  

 

 

   

 

 

   

 

 

   

 

 

 
     January - June     April - June  

Detail of Temporary Difference Income and Loss Amounts

   2014
ThU.S.$
    2013
ThU.S.$
    2014
ThU.S.$
    2013
ThU.S.$
 

Deferred Tax Assets

     (22,492     (10,414     (14,552     (7,895

Deferred Tax Assets - Tax losses

     421        (11,104     (1,557     (12,853

Deferred Tax Liabilities

     (15,680     1,063        8,786        8,142   

Total

     (37,751     (20,455     (7,323     (12,606
  

 

 

   

 

 

   

 

 

   

 

 

 

Income Tax Expense

Income tax expense consists of the following:

 

     January - June     April - June  

Income Tax composition

   2014
ThU.S.$
    2013
ThU.S.$
    2014
ThU.S.$
    2013
ThU.S.$
 

Current income tax expense

     (55,531     (37,490     (33,980     (28,331

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

     —          1,125        (58     201   

Previous period current tax adjustments

     4,637        1,736        2,324        1,814   

Other current tax expenses

     4,630        (86     2,621        (359

Current Tax Expense, Net

     (46,264     (34,715     (29,093     (26,675

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

     (38,172     (9,351     (5,766     247   

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

     421        (11,104     (1,557     (12,853

Total deferred Tax Expense, Net

     (37,751     (20,455     (7,323     (12,606

Income Tax Expense, Total

     (84,015     (55,170     (36,416     (39,281
  

 

 

   

 

 

   

 

 

   

 

 

 

 

 

 

46


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2014

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 at June 30, 2014 and 2013:

 

     January - June     April - June  
     2014
ThU.S.$
    2013
ThU.S.$
    2014
ThU.S.$
    2013
ThU.S.$
 

Foreign current income tax expense

     (9,815     (8,505     (7,322     (3,845

Domestic current income tax expense

     (36,449     (26,210     (21,771     (22,830

Total current income tax expense

     (46,264     (34,715     (29,093     (26,675

Foreign deferred tax expense

     (16,500     (5,550     (2,207     (4,306

Domestic deferred tax expense

     (21,251     (14,905     (5,116     (8,300

Total deferred tax expense

     (37,751     (20,455     (7,323     (12,606

Total tax income (expense)

     (84,015     (55,170     (36,416     (39,281
  

 

 

   

 

 

   

 

 

   

 

 

 

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

The reconciliation of income tax expense is as follows:

 

     January - June     April - June  

Reconciliation of Income tax from Statutory Rate to Effective Tax Rate

   2014
ThU.S.$
    2013
ThU.S.$
    2014
ThU.S.$
    2013
ThU.S.$
 

Tax Expense at applicable tax rate

     (63,338     (62,652     (27,257     (39,604

Tax effect of foreign tax rates

     (8,548     (7,272     (7,510     (3,027

Tax effect of revenues exempt from taxation

     8,772        1,645        10,995        (5,960

Tax effect of expense not deductible in determining taxable profit (tax loss)

     (21,934     (2,471     (14,661     (4,010

Tax rate effect of tax losses

     (1,098     10,420        (1,098     10,439   

Tax rate effect of adjustments for current tax of prior periods

     4,627        1,732        3,512        1,810   

Other tax rate effects

     (2,496     3,428        (397     1,071   

Total adjustments to tax expense at applicable tax rate

     (20,677     7,482        (9,159     323   

Tax expense at effective tax rate

     (84,015     (55,170     (36,416     (39,281

 

 

 

47


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2014

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

 

 

NOTE 7. PROPERTY, PLANT AND EQUIPMENT

 

Property, Plant and Equipment, Net

   06-30-2014
ThU.S.$
    12-31-2013
ThU.S.$
 

Construction in progress

     1,636,555        1,542,739   

Land

     985,890        974,408   

Buildings

     1,716,409        1,694,924   

Plant and equipment

     2,783,030        2,774,551   

Information technology equipment

     29,525        25,575   

Fixtures and fittings

     7,526        7,627   

Motor vehicles

     18,905        13,597   

Other property, plant and equipment

     113,080        104,046   

Total Net

     7,290,920        7,137,467   
  

 

 

   

 

 

 

Property, Plant and Equipment, Gross

    

Construction in progress

     1,636,555        1,542,739   

Land

     985,890        974,408   

Buildings

     3,097,613        3,010,996   

Plant and equipment

     5,066,491        4,954,621   

Information technology equipment

     70,956        64,352   

Fixtures and fittings

     34,490        33,015   

Motor vehicles

     47,297        40,789   

Other property, plant and equipment

     130,799        120,810   

Total Gross

     11,070,091        10,741,730   
  

 

 

   

 

 

 

Accumulated depreciation and impairment

    

Buildings

     (1,381,204     (1,316,072

Plant and equipment

     (2,283,461     (2,180,070

Information technology equipment

     (41,431     (38,777

Fixtures and fittings

     (26,964     (25,388

Motor vehicles

     (28,392     (27,192

Other property, plant and equipment

     (17,719     (16,764

Total

     (3,779,171     (3,604,263
  

 

 

   

 

 

 

 

 

 

48


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2014

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

 

 

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

To date there are no assets pledged as collateral in these interim consolidated financial statements.

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

 

     06-30-2014
ThU.S.$
     12-31-2013
ThU.S.$
 

Amount committed for the acquisition of property, plant and equipment

     170,459         310,087   
     06-30-2014
ThU.S.$
     12-31-2013
ThU.S.$
 

Disbursements for property, plant and equipment under construction

     242,693         671,128   

 

 

 

49


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2014

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

 

 

Movement on Property, Plant and Equipment

The following tables set forth the reconciliation of the carrying amount of property, plant and equipment as of June 30, 2014 and December 31, 2013:

 

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 01-01-2014

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

Changes

                 

Additions

    242,693        572        365        45,350        783        595        3,077        8,536        301,971   

Disposals

    (2,692     (317     (169     (3,157     1        1        107        —          (6,226

Retirements

    (508     (17     (17,844     (12,371     (112     —          (354     (235     (31,441

Depreciation

    —          —          (48,495     (104,174     (2,404     (1,301     (2,170     (2,089     (160,633

Increase (decrease) through net exchange differences

    4,496        11,244        (5,556     33,821        (7     62        (87     3,884        47,857   

Reclassification of assets held for sale

    —          —          163        1,762        —          —          —          —          1,925   

Increase (decrease) through transfers from construction in progress

    (150,173     —          93,021        47,248        5,689        542        4,735        (1,062     —     

Total changes

    93,816        11,482        21,485        8,479        3,950        (101     5,308        9,034        153,453   

Closing balance 06-30-2014

    1,636,555        985,890        1,716,409        2,783,030        29,525        7,526        18,905        113,080        7,290,920   

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   

 

 

 

50


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2014

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

 

 

The depreciation expense for the period ending June 30, 2014 and 2013 is as follows:

 

     January-June      April-June  

Depreciation for the year

   2014
ThU.S.$
     2013
ThU.S.$
     2014
ThU.S.$
     2013
ThU.S.$
 

Cost of sales

     138,806         133,135         74,641         69,137   

Administrative expenses

     9,887         6,973         5,831         3,416   

Other expenses

     1,428         2,587         626         1,174   

Total

     150,121         142,695         81,098         73,727   
  

 

 

    

 

 

    

 

 

    

 

 

 

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.

 

 

 

51


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2014

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

 

 

NOTE 8. LEASES

Arauco acting as lessee

 

     06-30-2014
ThU.S.$
     12-31-2013
ThU.S.$
 

Property, Plant and Equipment under finance leases

     105,257         90,467   

Plant and equipment

     105,257         90,467   

Reconciliation of Financial Lease Minimum Payments:

 

     06-30-2014  

Periods

   Present Value
ThU.S.$
 

Less than one year

     31,835   

Between one and five years

     72,366   

More than five years

     —     

Total

     104,201   
  

 

 

 
     12-31-2013  

Periods

   Present Value
ThU.S.$
 

Less than one year

     26,949   

Between one and five years

     62,491   

More than five years

     —     

Total

     89,440   
  

 

 

 

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:

 

     06-30-2014  

Periods

   Gross
ThU.S.$
     Interest
ThU.S.$
     Present Value
ThU.S.$
 

Less than one year

     588         43         545   

Between one and five years

     34         1         33   

More than five years

     —           —           —     

Total

     622         44         578   
  

 

 

    

 

 

    

 

 

 
     12-31-2013  

Periods

   Gross
ThU.S.$
     Interest
ThU.S.$
     Present Value
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   
  

 

 

    

 

 

    

 

 

 

 

 

 

52


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2014

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 - June      April - June  

Classes of revenue

   2014
ThU.S.$
     2013
ThU.S.$
     2014
ThU.S.$
     2013
ThU.S.$
 

Revenue from sales of goods

     2,497,489         2,449,254         1,321,237         1,302,715   

Revenue from rendering of services

     101,770         102,681         53,405         62,304   

Total

     2,599,259         2,551,935         1,374,642         1,365,019   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

NOTE 10. EMPLOYEE BENEFITS

Classes of Benefits and Expenses by Employee

 

     January - June      April - June  
     2014
ThU.S.$
     2013
ThU.S.$
     2014
ThU.S.$
     2013
ThU.S.$
 

Employee expenses

     254,430         257,468         111,300         132,426   

Wages and salaries

     248,721         251,888         108,923         129,238   

Severance indemnities

     5,709         5,580         2,377         3,188   

The main actuarial assumptions used by Arauco in the calculation of the severance indemnities obligation as of June 30, 2014 and 2013 are as follows:

 

Discount rate

     3.50

Inflation

     3.00

Mortality rate

     RV-2009   

 

 

 

53


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2014

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 June 30, 2014 and December 31, 2013:

 

     06-30-2014
ThU.S.$
    12-31-2013
ThU.S.$
 

Current

     3,772        3,814   

Non-current

     41,794        42,170   

Total

     45,566        45,984   
  

 

 

   

 

 

 

Reconciliation of the present value of severance indemnities obligation

   06-30-2014
ThU.S.$
    12-31-2013
ThU.S.$
 

Opening balance

     45,984        47,436   

Current service cost

     1,056        3,241   

Interest cost

     1,465        1,510   

Actuarial gains

     2,526        4,143   

Benefits paid

     (3,090     (6,628

Increase (decrease) for foreign currency exchange rates changes

     (2,375     (3,718

Closing balance

     45,566        45,984   

 

 

 

54


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2014

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 30, 2014 and December 31, 2013 are as follows:

 

     06-30-2014
ThU.S.$
     12-31-2013
ThU.S.$
 

Total Current Assets

     3,000,427         2,808,321   

Cash and Cash Equivalents

     640,724         667,212   

U.S Dollar

     486,755         534,575   

Euro

     2,480         4,681   

Brazilian Real

     67,043         68,658   

Argentine pesos

     8,355         13,942   

Other currencies

     2,357         3,473   

Chilean Pesos

     73,734         41,883   

Other current financial assets

     1,385         3,089   

U.S Dollar

     1,385         3,089   

Other current non-financial assets

     199,212         188,964   

U.S Dollar

     95,687         82,175   

Euros

     241         126   

Brazilian Real

     15,952         13,395   

Argentine pesos

     12,913         10,079   

Other currencies

     9,258         7,746   

Chilean Pesos

     65,161         75,443   

Trade and other current receivables

     826,323         711,678   

U.S Dollar

     570,077         446,386   

Euro

     18,571         33,072   

Brazilian Real

     71,835         55,756   

Argentine pesos

     23,851         33,130   

Other currencies

     25,071         24,513   

Chilean Pesos

     116,303         117,827   

U.F.

     615         994   

Accounts receivable from related companies

     24,512         8,243   

U.S Dollar

     —           135   

Brazilian Real

     19,681         3,654   

Chilean Pesos

     4,831         4,454   

Current Inventories

     940,347         900,590   

U.S Dollar

     835,882         791,271   

Brazilian Real

     83,812         87,638   

Chilean Pesos

     20,653         21,681   

Current biological assets

     315,448         256,957   

U.S Dollar

     291,033         256,957   

Brazilian Real

     24,415         —     

Current tax assets

     45,070         61,174   

U.S Dollar

     4,022         2,861   

Euros

     67         14   

Brazilian Real

     2,727         2,475   

Argentine pesos

     3,215         5,888   

Other currencies

     1,522         1,337   

Chilean Pesos

     33,517         48,599   

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

     7,406         10,414   

U.S Dollar

     7,406         10,414   

 

 

 

55


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2014

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

 

 

     06-30-2014
ThU.S.$
     12-31-2013
ThU.S.$
 

Total Non Current Assets

     11,795,184         11,685,074   

Other non-current financial assets (*)

     34,959         48,778   

U.S Dollar

     34,344         48,011   

Argentine pesos

     615         767   

Other non-current non-financial assets

     133,056         125,052   

U.S Dollar

     121,283         113,224   

Brazilian Real

     8,153         8,707   

Argentine pesos

     1,047         748   

Other currencies

     928         643   

Chilean Pesos

     1,645         1,730   

Trade and other non-current receivables

     40,259         40,729   

U.S Dollar

     36,528         35,743   

Chilean Pesos

     3,698         3,226   

U.F.

     33         1,760   

Investments accounted for using equity method

     361,387         349,412   

U.S Dollar

     123,784         126,564   

Brazilian Real

     237,603         222,848   

Intangible assets other than goodwill

     100,557         99,651   

U.S Dollar

     98,027         95,338   

Brazilian Real

     2,470         4,241   

Chilean Pesos

     60         72   

Goodwill

     90,969         88,141   

U.S Dollar

     43,048         43,086   

Brazilian Real

     47,921         45,055   

Property, plant and equipment (**)

     7,290,920         7,137,467   

U.S Dollar

     6,569,687         6,457,882   

Brazilian Real

     714,360         670,269   

Chilean Pesos

     6,873         9,316   

Non-current biological assets

     3,602,238         3,635,246   

U.S Dollar

     3,233,649         3,277,093   

Brazilian Real

     368,589         358,153   

Deferred tax assets

     140,839         160,598   

U.S Dollar

     108,566         138,486   

Brazilian Real

     31,576         21,321   

Other currencies

     226         223   

Chilean Pesos

     471         568   

 

 

 

56


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2014

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

 

 

     06-30-2014      12-31-2013  
     Up to 90 days
ThU.S.$
     From 91 days
to 1 year
ThU.S.$
     Total
ThU.S.$
     Up to 90 days
ThU.S.$
     From 91 days
to 1 year
ThU.S.$
     Total
ThU.S.$
 

Total Liabilities, current

     981,246         840,811         1,822,057         1,105,432         576,584         1,682,016   

Other current financial liabilities

     158,784         835,614         994,398         399,036         494,569         893,605   

U.S Dollar

     141,429         769,656         911,085         260,159         446,893         707,052   

Brazilian Real

     6,959         28,782         35,741         11,750         9,332         21,082   

Argentine pesos

     —           408         408         28,252         504         28,756   

Chilean Pesos

     305         887         1,192         168         886         1,054   

U.F.

     10,091         35,881         45,972         98,707         36,954         135,661   

Bank Loans

     109,986         424,143         534,129         262,010         451,282         713,292   

U.S Dollar

     103,027         394,953         497,980         222,008         441,446         663,454   

Brazilian Real

     6,959         28,782         35,741         11,750         9,332         21,082   

Argentine pesos

     —           408         408         28,252         504         28,756   

Financial Leases

     8,061         23,774         31,835         7,108         19,841         26,949   

U.S Dollar

     —           18         18         —           62         62   

Chilean Pesos

     305         887         1,192         168         886         1,054   

U.F.

     7,756         22,869         30,625         6,940         18,893         25,833   

Other Loans

     40,737         387,697         428,434         129,918         23,446         153,364   

U.S Dollar

     38,402         374,685         413,087         38,151         5,385         43,536   

U.F.

     2,335         13,012         15,347         91,767         18,061         109,828   

Trade and other current payables

     648,941         12         648,953         628,662         2,318         630,980   

U.S Dollar

     239,128         —           239,128         229,260         —           229,260   

Euros

     7,130         —           7,130         7,434         —           7,434   

Brazilian Real

     34,465         —           34,465         30,963         —           30,963   

Argentine pesos

     30,467         —           30,467         29,102         —           29,102   

Other currencies

     4,562         —           4,562         3,435         —           3,435   

Chilean Pesos

     330,776         12         330,788         328,358         12         328,370   

U.F.

     2,413         —           2,413         110         2,306         2,416   

Accounts payable to related companies

     11,654         —           11,654         14,406         —           14,406   

U.S Dollar

     1,448         —           1,448         2,893         —           2,893   

Chilean Pesos

     10,206         —           10,206         11,513         —           11,513   

Other current provisions

     721         —           721         9,696         —           9,696   

U.S Dollar

     721         —           721         830         —           830   

Argentine pesos

     —           —           —           8,866         —           8,866   

Current tax liabilities

     22,168         —           22,168         3,929         543         4,472   

U.S Dollar

     722         —           722         424         355         779   

Euros

     —           —           —           63         —           63   

Brazilian Real

     2,170         —           2,170         2,581         —           2,581   

Argentine pesos

     50         —           50         42         —           42   

Other currencies

     16         —           16         231         —           231   

Chilean Pesos

     19,210         —           19,210         588         188         776   

Current provisions for employee benefits

     1,203         2,569         3,772         806         3,008         3,814   

Chilean Pesos

     1,203         2,569         3,772         806         3,008         3,814   

Other current non-financial liabilities

     137,775         2,616         140,391         48,897         76,146         125,043   

U.S Dollar

     91,459         2,613         94,072         8,800         74,325         83,125   

Brazilian Real

     28,377         —           28,377         24,007         —           24,007   

Argentine pesos

     4,663         —           4,663         5,507         205         5,712   

Other currencies

     5,023         —           5,023         4,460         —           4,460   

Chilean Pesos

     8,141         3         8,144         6,002         2         6,004   

U.F.

     112         —           112         121         1,614         1,735   

 

 

 

57


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2014

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

 

 

     06-30-2014      12-31-2013  
     From 13 months
to 5 years
ThU.S.$
     More than 5
years
ThU.S.$
     Total
ThU.S.$
     From 13 months
to 5 years
ThU.S.$
     More than 5
years
ThU.S.$
     Total
ThU.S.$
 

Total non-current liabilities

     2,859,691         2,853,939         5,713,630         3,089,250         2,677,589         5,766,839   

Other non-current financial liabilities (*)(**)

     1,378,201         2,667,697         4,045,898         1,675,194         2,481,798         4,156,992   

U.S Dollar

     1,208,416         1,668,168         2,876,584         1,575,701         1,714,459         3,290,160   

Brazilian Real

     39,315         24,325         63,640         35,901         22,870         58,771   

Argentine pesos

     848         —           848         1,106         —           1,106   

Chilean Pesos

     3,214         —           3,214         3,300         —           3,300   

U.F.

     126,408         975,204         1,101,612         59,186         744,469         803,655   

Bank Loans

     824,103         311,985         1,136,088         822,461         358,301         1,180,762   

U.S Dollar

     783,940         287,660         1,071,600         785,454         335,431         1,120,885   

Brazilian Real

     39,315         24,325         63,640         35,901         22,870         58,771   

Argentine pesos

     848         —           848         1,106         —           1,106   

Financial Leases

     72,366         —           72,366         62,491         —           62,491   

U.S Dollar

     —           —           —           5         —           5   

Chilean Pesos

     3,214         —           3,214         3,300         —           3,300   

U.F.

     69,152         —           69,152         59,186         —           59,186   

Other Loans

     481,732         2,355,712         2,837,444         790,242         2,123,497         2,913,739   

U.S Dollar

     424,476         1,380,508         1,804,984         790,242         1,379,028         2,169,270   

U.F.

     57,256         975,204         1,032,460         —           744,469         744,469   

Other non current payables

     —           —           —           361         —           361   

U.S Dollar

     —           —           —           361         —           361   

Other non-current provisions

     60,967         —           60,967         24,167         —           24,167   

U.S Dollar

     97         —           97         4         —           4   

Brazilian Real

     31,647         —           31,647         24,163         —           24,163   

Argentine pesos

     28,709         —           28,709         —           —           —     

Chileans $

     514         —           514         —           —           —     

Deferred tax liabilities

     1,300,723         180,912         1,481,635         1,272,326         189,969         1,462,295   

U.S Dollar

     1,222,896         104,470         1,327,366         1,272,037         170,265         1,442,302   

Brazilian Real

     77,586         76,442         154,028         —           19,704         19,704   

Other currencies

     1         —           1         1         —           1   

Chilean Pesos

     240         —           240         288         —           288   

Non-current provisions for employee benefits

     36,464         5,330         41,794         36,685         5,485         42,170   

Other currencies

     193         —           193         177         —           177   

Chilean Pesos

     36,271         5,330         41,601         36,508         5,485         41,993   

Other non-current non-financial liabilities

     83,336         —           83,336         80,517         337         80,854   

U.S Dollar

     839         —           839         5         —           5   

Brazilian Real

     80,837         —           80,837         78,672         —           78,672   

Argentine pesos

     1,400         —           1,400         1,561         337         1,898   

Chilean Pesos

     255         —           255         274         —           274   

U.F.

     5         —           5         5         —           5   

 

 

 

58


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2014

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

Mahal Empreendimentos e Participacoes S.A.

   Brazil    Brazilian Real

Arauco Distribución S.A.

   Chile    Chilean Pesos

Investigaciones Forestales Bioforest S.A.

   Chile    Chilean Pesos

Controladora de Plagas Forestales S.A.

   Chile    Chilean Pesos

Flakeboard Company Limited

   Canada    Canadian Dollar

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

 

     06/30/2014
ThU.S.$
    06/30/2013
ThU.S.$
 

Arauco Do Brasil S.A.

     32,973        (45,470

Arauco Forest Brasil S.A.

     25,221        (35,027

Arauco Florestal Arapoti S.A.

     9,458        (14,554

Arauco Distribución S.A.

     (1,273     (1,164

Alto Paraná S.A.

     1.637        (4.032

Flakeboard Company Limited

     34        (4,821

Others

     (173     167
  

 

 

   

 

 

 

Total reserve of exchange differences on translation

     67,877        (104,901
  

 

 

   

 

 

 

Effect of foreign exchange rates changes

 

     January-June     April-June  
     2014
ThU.S.$
     2013
ThU.S.$
    2014
ThU.S.$
     2013
ThU.S.$
 

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

     11,178         (7,289     5,552         (3,206

Reserve of exchange differences on translation (with Non-controlling interests)

     70,226         (107,122     35,613         (123,611

 

 

 

59


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2014

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

 

 

NOTE 12. BORROWING COSTS

Arauco estimates the average rate of borrowings to finance its investment projects, which to the closing date corresponds to the construction of pulp production plant of latest generation in Uruguay, improvements and expansions mainly in Chile, Brazil and Uruguay, in order to determine the amount of borrowing costs to be capitalized as part of property, plant and equipment.

 

     January - June     April - June  
     2014
ThU.S.$
    2013
ThU.S.$
    2014
ThU.S.$
    2013
ThU.S.$
 

Property, plant and equipment capitalized cost

        

Property, plant and equipment capitalized interest cost rate

     4.78     5.03     4.78     5.04

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

     15,785        13,201        8,113        6,960   

 

 

 

60


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2014

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

 

 

NOTE 13. RELATED PARTIES

Related Party Disclosures

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

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

As of the date of these consolidated financial statements, the main transactions with related parties are related to fuel purchases with Compañía de Petróleos de Chile S.A.

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

Name of Group’s Main Shareholders

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

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

Empresas Copec S.A.

Compensation to Key Management Personnel

Compensation to key management personnel, including directors, managers and deputy managers, consist of a fixed monthly salary and an annual bonus subject to the results of the Company and the fulfillment of goals of the business as well as individual performance.

Pricing Strategy Terms and Conditions Corresponding to Transactions with Related Parties

Related party transactions were made on terms of those prevailing under market conditions, with mutual independence of the parties.

 

 

 

61


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2014

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

 

 

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

 

ID N°

 

Company Name

  Country   Functional
Currency
  % Ownership interest     % Ownership interest  
        03-31-2014     12-31-2013  
        Direct     Indirect     Total     Direct     Indirect     Total  

 

Agenciamiento y Servicios Profesionales S.A.

  Mexico   U.S. Dollar     0.0020        99.9970        99.9990        0.0020        99.9970        99.9990   

 

Alto Paraná S.A.

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

 

Arauco Australia Pty Ltd.

  Australia   U.S. Dollar     —          99.9990        99.9990        —          99.9990        99.9990   

96547510-9

 

Arauco Bioenergía S.A.

  Chile   U.S. Dollar     98.0000        1.9999        99.9999        98.0000        1.9999        99.9999   

 

Arauco Colombia S.A.

  Colombia   U.S. Dollar     1.5000        98.4983        99.9983        1.5000        98.4983        99.9983   

96765270-9

 

Arauco Distribución S.A.

  Chile   Chilean Pesos     —          99.9996        99.9996        —          99.9996        99.9996   

 

Arauco do Brasil S.A.

  Brazil   Brazilian Real     1.4319        98.5671        99.9990        1.4319        98.5671        99.9990   

 

Arauco Florestal Arapoti S.A.

  Brazil   Brazilian Real     —          79.9992        79.9992        —          79.9992        79.9992   

 

Arauco Forest Brasil S.A.

  Brazil   Brazilian Real     12.8141        87.1849        99.9990        12.8141        87.1849        99.9990   

 

Arauco Forest Products B.V.

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

 

Arauco Holanda Cooperatief U.A.

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

 

Arauco Panels USA, LLC

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

 

Arauco Perú S.A.

  Peru   U.S. Dollar     0.0013        99.9977        99.9990        0.0013        99.9977        99.9990   

 

Arauco Wood Products, Inc.

  USA   U.S. Dollar     0.0004        99.9986        99.9990        0.0004        99.9986        99.9990   

 

Araucomex S.A. de C.V.

  Mexico   U.S. Dollar     0.0005        99.9985        99.9990        0.0005        99.9985        99.9990   

96565750-9

 

Aserraderos Arauco S.A.

  Chile   U.S. Dollar     99.0000        0.9995        99.9995        99.0000        0.9995        99.9995   

96657900-5

 

Controladora de Plagas Forestales S.A.

  Chile   Chilean Pesos     —          57.8802        57.8802        —          57.9502        57.9502   

 

Empreendimentos Florestais Santa Cruz Ltda.

  Brazil   Brazilian Real     —          99.9789        99.9789        —          99.9789        99.9789   

 

Flakeboard America Limited

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

 

Flakeboard Company Ltd.

  Canada   Canadian Dollar     —          99.9990        99.9990        —          99.9990        99.9990   

85805200-9

 

Forestal Arauco S.A. (Ex – Forestal Celco S.A.)

  Chile   U.S. Dollar     99.9484        —          99.9484        99.9484        —          99.9484   

93838000-7

 

Forestal Cholguán S.A.

  Chile   U.S. Dollar     —          98.1796        98.1796        —          98.1796        98.1796   

 

Forestal Concepción S.A.

  Panama   U.S. Dollar     0.0050        99.9940        99.9990        0.0050        99.9940        99.9990   

78049140-K

 

Forestal Los Lagos S.A.

  Chile   U.S. Dollar     —          79.9587        79.9587        —          79.9587        79.9587   

 

Forestal Nuestra Señora del Carmen S.A.

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

 

Forestal Talavera S.A.

  Argentina   U.S. Dollar     —          99.9942        99.9942        —          99.9942        99.9942   

 

Greenagro S.A.

  Argentina   U.S. Dollar     —          97.9805        97.9805        —          97.9805        97.9805   

96563550-5

 

Inversiones Arauco Internacional Ltda.

  Chile   U.S. Dollar     98.0186        1.9804        99.9990        98.0186        1.9804        99.9990   

79990550-7

 

Investigaciones Forestales Bioforest S.A.

  Chile   Chilean Pesos     1.0000        98.9489        99.9489        1.0000        98.9489        99.9489   

 

Leasing Forestal S.A.

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

 

Mahal Empreendimentos e Participacoes S.A.

  Brazil   Brazilian Real     —          99.9934        99.9934        —          99.9934        99.9934   

96510970-6

 

Paneles Arauco S.A.

  Chile   U.S. Dollar     99.0000        0.9995        99.9995        99.0000        0.9995        99.9995   

 

Savitar S.A.

  Argentina   U.S. Dollar     —          99.9841        99.9841        —          99.9841        99.9841   

76375371-9

 

Servicios Aéreos Forestales Ltda.

  Chile   Chilean Pesos     0.0100        99.9890        99.9990        —          —          —     

96637330-K

 

Servicios Logísticos Arauco S.A.

  Chile   U.S. Dollar     45.0000        54.9997        99.9997        45.0000        54.9997        99.9997   

The companies in the table below are classified as joint operations in accordance with IFRS 11. The assets, liabilities, income and expenses are recorded in relation to the Company’s ownership percentage in accordance with accounting standards applicable in each case.

 

ID N°

  

Company Name

  

Country

    

Functional
Currency

  

Euforest S.A.

   Uruguay      U.S. Dollar

  

Celulosa y Energía Punta Pereira S.A.

   Uruguay      U.S. Dollar

  

Zona Franca Punta Pereira S.A.

   Uruguay      U.S. Dollar

  

Forestal Cono Sur S.A.

   Uruguay      U.S. Dollar

  

Stora Enso Uruguay S.A.

   Uruguay      U.S. Dollar

  

El Esparragal Asociación Agraria de R.L.

   Uruguay      U.S. Dollar

  

Ongar S.A.

   Uruguay      U.S. Dollar

  

Terminal Logística e Industrial M’Bopicua S.A.

   Uruguay      U.S. Dollar

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

 

 

 

62


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2014

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

 

 

Employee Benefits for Key Management Personnel

 

     January - June      April - June  
     2014
ThU.S.$
     2013
ThU.S.$
     2014
ThU.S.$
     2013
ThU.S.$
 

Salaries and bonuses

     43,425         38,108         16,070         15,206   

Per diem compensation to members of the Board of Directors

     682         881         344         407   

Termination benefits

     2,983         3,051         1,553         2,034   

Total

     47,090         42,040         17,967         17,647   
  

 

 

    

 

 

    

 

 

    

 

 

 

Accounts Receivable from Related Parties

 

Name of Related Party

   Tax ID No.   

Nature of

Relationship

   Country    Currency    Maturity    06-30-2014
ThU.S.$
     12-31-2013
ThU.S.$
 

Forestal Mininco S.A

   91.440.000-7   

Common director

   Chile    Chilean pesos    30 days      67         —     

Eka Chile S.A

   99.500.140-3   

Joint Venture

   Chile    Chilean pesos    30 days      3,009         3,008   

Stora Enso Arapoti Industria del Papel S.A

     

Associates

   Brazil    Brazilian Real    30 days      961         629   

Empresa Electrica Guacolda S.A.

   96.635.700-2   

Controlling Parent’s Associate

   Chile    Chilean pesos    30 days      —           240   

Unilin Arauco Pisos Ltda.

     

Joint Venture

   Brazil    Brazilian Real    30 days      3,727         3,006   

Unilin Flooring Ltda.

     

Common director

   EEUU    U.S. Dollar         —           135   

Colbún S.A.

   96.505.760-9   

Common director

   Chile    Chilean pesos    30 days      69         1,201   

CMPC Maderas S.A.

   95.304.000-K   

Common director

   Chile    Chilean pesos         —           5   

Vale Do Corisco S.A.

     

Associates

   Brazil    Brazilian Real         —           16   

Novo Oeste Gestao de Ativo Florestais S.A.

     

Associ