6-K 1 d830783d6k.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 September, 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: December 2, 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

September 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

   09-30-2014
ThU.S.$
     12-31-2013
ThU.S.$
 

Current assets

     3,342,839         2,808,321   

Non-current assets

     11,619,850         11,685,074   
  

 

 

    

 

 

 

Total assets

     14,962,689         14,493,395   
  

 

 

    

 

 

 

Liabilities

   09-30-2014
ThU.S.$
     12-31-2013
ThU.S.$
 

Current liabilities

     1,693,100         1,682,016   

Non-current liabilities

     6,395,956         5,766,839   

Non–parent participation

     50,860         52,242   

Net equity attributable to parent company

     6,822,773         6,992,298   
  

 

 

    

 

 

 

Total net equity and liabilities

     14,962,689         14,493,395   
  

 

 

    

 

 

 

As of September 30, 2014, total assets increased US$469 million compared to December 31, 2013, equivalent to 3.24% of variation. This deviation is mainly attributable to an increase in the balance of cash and cash equivalents, trade receivables and accounts receivable from related parties.

Moreover, current liabilities increased US$640 million mainly attributable to an increase in financial liabilities and deferred tax liabilities.

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

 

Liquidity ratios

   09-30-2014      12-31-2013  

Current Liquidity (current assets / current liabilities )

     1.97         1.67   

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

     1.25         0.98   

Debt indicators

   09-30-2014      12-31-2013  

Debt to equity ratio (total liabilities / equity)

     1.18         1.06   

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

     0.21         0.23   

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

     0.79         0.77   
     09-30-2014      09-30-2013  

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

     3.47         3.61   

 

1


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statement

September 30, 2014

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

 

 

Activity ratio

   09-30-2014      12-31-2013  

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

     2.98         3.17   

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

     3.88         4.13   

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

     120.95         113.47   

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

     92.71         87.18   

As of September 30, 2014, the short-term debt represented 21% of total liabilities (23% as of December 31, 2013).

The ratio of financial expenses covered represents a decrease of 3.61 to 3.47. This decrease is mainly attributable to a lower proportional result and higher 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$439 million compared to a profit of US$461 million in the same period of the previous year, equivalent to a negative variation of US$22 million. The effect is explained by the factors described in the following table:

 

Item

   Million
U.S.$
 

Gross margin

     80   

Distribution and Administrative Expenses

     (20

Other income/ expenses by function

     (91

Exchange differences

     6   

Other item

     3   
  

 

 

 

Net change in income before income tax

     (22
  

 

 

 

Gross Margin represents a profit of U.S.$1,281 million, U.S.$80 million higher compared to the previous period (U.S.$1,201 million as of September 30, 2013) caused by an increase in net sales prices offset by a decline in sales volumes pulp.

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

 

Revenues

   09-30-2014
ThU.S$
     09-30-2013
ThU.S$
 

Pulp

     1,713,358         1,666,060   

Sawn timber

     709,818         614,075   

Panels

     1,391,933         1,466,828   

Forestry

     108,161         113,722   

Other

     24,617         24,476   
  

 

 

    

 

 

 

Total revenues

     3,947,887         3,885,161   
  

 

 

    

 

 

 

 

2


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statement

September 30, 2014

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

 

 

Sales costs

   09-30-2014
ThU.S$
    09-30-2013
ThU.S$
 

Wood

     626,617        673,840   

Forestry work

     483,003        473,745   

Depreciation and amortization

     220,365        200,511   

Other costs

     1,336,742        1,335,730   
  

 

 

   

 

 

 

Total sales costs

     2,666,727        2,683,826   
  

 

 

   

 

 

 

Profitability index

   09-30-2014     12-31-2013  

Profitability on equity

     6.19        5.98   

Profitability on assets

     2.93        2.91   

Return on operating assets

     4.51        3.90   

Profitability ratios

   09-30-2014     09-30-2013  

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

     2.82        3.05   

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

     323,097        375,906   

Gross margin (ThU.S.$)

     1,281,160        1,201,335   

Financial costs (ThU.S.$)

     (177,484     (176,730

 

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

 

EBITDA

   09-30-2014
MU.S.$
    09-30-2013
MU.S.$
 

Gain (loss)

     323.1        375.9   

Finance cost

     177.5        177.7   

Financial Income

     (16.1     (15.8

Expenses for income tax

     115.5        85.0   

EBIT

     600.0        622.8   

Depreciation and amortization, others*

     275.7        239.9   

EBITDA

     875.6        862.7   

Cost at fair value of the harvest

     238.1        242.3   

Gain from changes in fair value of biological assets

     (200.5     (202.6

Exchange difference

     3.0        8.8   

Adjusted EBITDA

     916.2        911.3   

 

* 2014: Forest loss provision MU.S.$ 33.3;2013: Forest roads amortization MU.S.$ 19.0

2. MAIN SOURCES OF FINANCING

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

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.

 

3


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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statement

September 30, 2014

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

 

 

4. MARKET SITUATION

Pulp Division

The third quarter of 2014 was a stable period in terms of pulp prices in spite of the oversupply that began at the end of the second quarter due to the start-up of Montes del Plata and the low demand during the summer months in the Northern Hemisphere. Short fiber prices were in general stable, with changes only in some markets. Long fiber had a positive variation, but the price of unbleached long fiber had a strong fall. However, world inventory levels had important growth in these months, compared with the previous quarter. World inventories of long fiber reached 29 days (4 days higher than the second quarter of the year) and this quarter finished at 27 days. The increase in short fiber was larger than in long fiber, reaching a maximum of 46 days during the quarter. This quarter finished with an average of 40 days of inventory, the same level as in the second quarter.

In Asia short fiber prices remained without changes despite the increase in supply, even with chances of an increase at the end of the quarter. In long fiber, prices had a small increase, around 0.5 to 1.5% and a higher supply mainly due to new volume production. The price spread between long fiber and short fiber prices, remains approximately at US$ 140 per ton (higher in long fiber).

In Europe there was more volatility in prices. Long fiber increased 1.5% and short fiber decreased 2.5%. The decrease is mainly due to oversupply in a weakened market with high capacity in paper production, low consumption in printing and writing paper, and the effect of the summer season in Europe, higher than in other markets. Due to a significant increase in consumption during September, there are expectations of a positive trend in the last quarter.

In the North American market, the demand stabilized at good levels. The low demand of the industry of printing and writing paper was offset by the high demand in tissue, absorption and packaging industries. The fibercement (which demands unbleached long fiber pulp) market was still active and expansion programs remained as programmed. The rest of America stood at good levels of activity and demand too. The Alto Paraná mill in Argentina, which has sales mainly in Brazil and Argentina, continued to decrease its levels of inventories. Other Asian markets, like India, Indonesia and Japan, followed the trend of China with good levels of activity.

During this third quarter, production was at normal levels, the only exception was at the Nueva Aldea and Licancel mills due to their annual maintenance programs. Montes del Plata is still in its ramp-up process. During the third quarter, production reached more than 80% of capacity.

Sawn Timber Division

The real estate and construction sectors in the United States are still showing improvements. At the third quarter of 2014 the Housing Starts Index closed at 1,017,000 units per year, which represents an increase when compared with 893,000 units in the previous quarter. The expectation for the North American market toward the next months are moderate. The sales of wood product and finger joint moldings were in line with capacity and we continue to sell with stable prices. Current construction levels remain low when compared to the 10 year historical average.

 

4


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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statement

September 30, 2014

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

 

 

Markets where Arauco sells continued with positive behavior during the third quarter. In general, there was higher demand and better prices compared with the two previous quarters.

In spite of the demand in China, the market has been affected by overstock of pine logs from New Zealand. Sales of the Company remained stable at very good levels. Korea, Taiwan, Japan, Australia, and Middle East showed good levels of activity, even achieving hikes in prices compared with the previous quarter.

Sales volume in the Chilean market has recovered during the third quarter after the adjustment of inventories from the main distributors in the country.

Panels Division

The most important issue during the third quarter in the panels division was the increase in sales volume of plywood, mainly due to an increase in production volume at the Nueva Aldea mill. Despite the new capacity coming from Nueva Aldea and the other new mills, we were able to maintain the same price levels in all export markets. In the Chilean market there has been more competition in low grades of plywood.

Sales volume of MDF in the third quarter began to increase compared with previous quarters after the expected increase in demand in Brazil and improvements in some states of the United States. Exports to Mexico remained at high levels. Despite this, total supply in North America, Brazil, Argentina and Chile was higher compared to domestic sales, therefore it has been necessary to export to markets with lower margins. MDF molding kept at expected levels, in spite of the increase in supply from imports and domestic production.

Particleboard was at good levels in sales volume of value-added products reached by our Teno mill, producing at its capacity design. Inventories from the supply chain reached historical average levels, especially from main distributors. This has helped to reach better margins for this category.

5. ANALYSIS OF CASH FLOW

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

 

     09-30-2014
ThU.S.$
    09-30-2013
ThU.S.$
 

Positive (negative) Cash flow

    

Cash flow from operating activities

     750,896        717,842   

Cash flow from financing activities:

    

Loan and bond payments

     237,397        (25,073

Dividend payments

     (78,172     (76,077

Others

     (1,693     (2,514

Cash flow from investment activities:

    

Loans to related companies

     (141,309     —     

Incorporation and sale of property, plant and equipment

     (356,526     (399,156

Incorporation and sale of biological assets

     (99,927     (145,258

Dividends received

     11,150        17,490   

Others

     (8,108     11,335   
  

 

 

   

 

 

 

Positive Net cash flow (negative)

     (313,708     98,589   
  

 

 

   

 

 

 

The financing cash flow has a positive balance of U.S.$157 million as of September 30, 2014, with differences with respect to the previous year (negative balance U.S. $104 million) mainly due to lower loan payments in the nine-month period ended September 30, 2014.

 

5


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statement

September 30, 2014

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

 

 

In relation to the flow of investment at the end of the current period, there was a greater negative balance of U.S.$595 million (U.S.$516 million in 2013), mainly due to lower income from sales of property, plant, equipment and intangible assets and lower dividend income, offset by lower outlays for purchases of property, plant and equipment and biological assets.

6. MARKET RISK ANALYSIS

In respect of the economic risks resulting from interest rate variations, the Company maintains, as of September 30, 2014, a ratio of fixed rate debt to total consolidated debt of approximately 83.8%, 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 what it believes is 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 September 30, 2014, Note 23, a detailed analysis of the risks associated with the business of Arauco is available.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

September 30, 2014

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

 

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

 

     Note    09-30-2014
(Unaudited)
ThU.S.$
     12-31-2013
ThU.S.$
 

Assets

        

Current Assets

        

Cash and cash equivalents

   5      972,208         667,212   

Other current financial assets

   23      2,154         3,089   

Other current non-financial assets

   25      187,003         188,964   

Trade and other current receivables

   23      746,259         711,678   

Accounts receivable from related companies

   13      148,776         8,243   

Current Inventories

   4      930,760         900,590   

Current biological assets

   20      300,820         256,957   

Current tax assets

        45,027         61,174   

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

        3,333,007         2,797,907   

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

   22      9,832         10,414   

Total Current Assets

        3,342,839         2,808,321   

Non-Current Assets

   23      

Other non-current financial assets

   25      13,592         48,778   

Other non-current non-financial assets

   23      135,384         125,052   

Trade and other non-current receivables

        33,968         40,729   

Investments accounted for using equity method

   15-16      340,634         349,412   

Intangible assets other than goodwill

   19      96,476         99,651   

Goodwill

   17      85,985         88,141   

Property, plant and equipment

   7      7,180,019         7,137,467   

Non-current biological assets

   20      3,576,232         3,635,246   

Deferred tax assets

        157,560         160,598   

Total non-Current Assets

        11,619,850         11,685,074   

Total Assets

        14,962,689         14,493,395   

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

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

September 30, 2014

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

 

 

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (continued)

 

 

     Note    09-30-2014
(Unaudited)
ThU.S.$
    12-31-2013
ThU.S.$
 

Equity and liabilities

       

Liabilities

       

Current Liabilities

       

Other current financial liabilities

   23      797,445        893,605   

Trade and other current payables

   23      666,281        630,980   

Accounts payable to related companies

   13      13,854        14,406   

Other current provisions

   18      7,245        9,696   

Current tax liabilities

        33,524        4,472   

Current provisions for employee benefits

   10      3,521        3,814   

Other current non-financial liabilities

   25      171,230        125,043   

Total Current Liabilities

        1,693,100        1,682,016   

Non-Current Liabilities

       

Other non-current financial liabilities

   23      4,454,112        4,156,992   

Other non-current provisions

   18      61,976        24,167   

Deferred tax liabilities

   6      1,767,819        1,462,295   

Non-current provisions for employee benefits

   10      39,028        42,170   

Other non-current non-financial liabilities

   25      73,021        80,854   

Total non - current liabilities

        6,395,956        5,766,839   

Total liabilities

        8,089,056        7,448,855   

Equity

       

Issued capital

        353,618        353,618   

Retained earnings

        6,909,118        7,004,640   

Other reserves

        (439,963     (365,960

Equity attributable to parent company

        6,822,773        6,992,298   

Non-controlling interests

        50,860        52,242   

Total equity

        6,873,633        7,044,540   

Total equity and liabilities

        14,962,689        14,493,395   

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

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

September 30, 2014

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

 

CONSOLIDATED STATEMENTS OF INCOME

 

     Note    January-September
(Unaudited)
    July-September
(Unaudited)
 
        2014
ThU.S.$
    2013
ThU.S.$
    2014
ThU.S.$
    2013
ThU.S.$
 

Income Statement

           

Revenue

   9      3,947,887        3,885,161        1,348,628        1,333,226   

Cost of sales

   3      (2,666,727     (2,683,826     (940,473     (923,605

Gross profit

        1,281,160        1,201,335        408,155        409,621   

Other income

   3      231,834        292,542        77,710        90,069   

Distribution costs

   3      (397,940     (390,678     (141,825     (131,841

Administrative expenses

   3      (415,261     (402,656     (136,517     (135,373

Other expense

   3      (103,459     (73,044     (20,411     (29,861

Profit (loss) from operating activities

        596,334        627,499        187,112        202,615   

Finance income

   3      16,059        14,829        8,553        3,317   

Finance costs

   3      (177,484     (176,730     (67,426     (61,699

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

   15      6,593        4,140        6,692        5,064   

Exchange rate differences

        (2,954     (8,818     (13,074     (1,209

Income before income tax

        438,548        460,920        121,857        148,088   

Income Tax

   6      (115,451     (85,014     (31,436     (29,844

Net Income

        323,097        375,906        90,421        118,244   
     

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to

           

Net income attributable to parent company

        319,455        344,650        89,320        103,779   

Income attributable to non-controlling interests

        3,642        31,256        1,101        14,465   

Profit (loss)

        323,097        375,906        90,421        118,244   
     

 

 

   

 

 

   

 

 

   

 

 

 

Basic earnings per share

           

Earnings per share from continuing operations

        0.0028230        0.0030459        0.0007893        0.0009172   
     

 

 

   

 

 

   

 

 

   

 

 

 

Basic earnings per share

        0.0028230        0.0030459        0.0007893        0.0009172   
     

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per diluted shares

           

Earnings per diluted share from continuing operations

        0.0028230        0.0030459        0.0007893        0.0009172   
     

 

 

   

 

 

   

 

 

   

 

 

 

Basic earnings per diluted share

        0.0028230        0.0030459        0.0007893        0.0009172   
     

 

 

   

 

 

   

 

 

   

 

 

 

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

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

September 30, 2014

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

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

          January-September     July-September  
          2014     2013     2014     2013  
          (Unaudited)     (Unaudited)  
     Note    ThU.S.$     ThU.S.$     ThU.S.$     ThU.S.$  

Profit (loss)

        323,097        375,906        90,421        118,244   

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      (2,831     (3,575     (305     (1,533

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

        (4,257     1,357        (2,421     1,747   

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

        (7,088     (2,218     (2,726     214   

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      (67,908     (113,787     (138,134     (6,665

Other Comprehensive Income before tax exchange differences on translation

        (67,908     (113,787     (138,134     (6,665

Cash flow hedges

           

Gains (losses) on cash flow hedges, before tax

   23      (3,429     36,113        (12,459     (2,052

Other Comprehensive Income before tax Cash flow hedges

        (3,429     36,113        (12,459     (2,052

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

        (71,337     (77,674     (150,593     (8,717

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

           

Income tax relating to defined benefit plans of other comprehensive income

        719        715        214        307   

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      2,015        (6,747     4,079        428   

Other comprehensive income

        (75,691     (85,924     (149,026     (7,768

Comprehensive income

        247,406        289,982        (58,605     110,476   

Comprehensive Income attributable to

           

Comprehensive income, attributable to owners of parent company

        245,452        262,146        (55,669     97,210   

Comprehensive income, attributable to non-controlling interests

        1,954        27,836        (2,936     13,266   

Total comprehensive income

        247,406        289,982        (58,605     110,476   

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

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

September 30, 2014

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

 

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

 

09-30-2014

   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
ThU.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

                  319,455        319,455        3,642        323,097   

Other comprehensive income, net of tax

        (66,220     (1,414     (2,112     (4,257     (74,003       (74,003     (1,688     (75,691

Comprehensive income

     —           (66,220     (1,414     (2,112     (4,257     (74,003     319,455        245,452        1,954        247,406   

Dividends

                  (123,614     (123,614     (2,735     (126,349

Increase (decrease) for transfer and other changes

                  (291,363     (291,363     (601     (291,964

Changes in equity

     —           (66,220     (1,414     (2,112     (4,257     (74,003     (95,522     (169,525     (1,382     (170,907

Closing balance at 09/30/2014

     353,618         (405,325     (22,921     (8,496     (3,221     (439,963     6,909,118        6,822,773        50,860        6,873,633   

09-30-2013

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

                     

Net income

                  344,650        344,650        31,256        375,906   

Other comprehensive income, net of tax

        (110,367     29,366        (2,860     1,357        (82,504       (82,504     (3,420     (85,924

Comprehensive income

     —           (110,367     29,366        (2,860     1,357        (82,504     344,650        262,146        27,836        289,982   

Dividends

                —          (126,775     (126,775     —          (126,775

Increase (decrease) for transfer and other changes

                —            —          (29,037     (29,037

Increase (Decrease) for Changes in Subsidiaries Involvement Involing No Loss of Control

                —            —          (2,221     (2,221

Changes in equity

     —           (110,367     29,366        (2,860     1,357        (82,504     217,875        135,371        (3,422     131,949   

Closing balance at 09/30/2013

     353,176         (279,744     (16,650     (5,930     171        (302,153     6,975,670        7,026,693        71,015        7,097,708   

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

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

September 30, 2014

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

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

     09-30-2014     09-30-2013  
     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

     4,105,916        4,187,114   

Receipts from premiums and claims, annuities and other policy benefits

     —          29,819   

Other cash receipts from operating activities

     265,406        415,916   

Classes of cash payments

    

Payments to suppliers for goods and services

     (3,000,535     (3,152,488

Payments to and on behalf of employees

     (374,138     (370,693

Other cash payments from operating activities

     (79,363     (178,574

Interest paid

     (161,086     (180,365

Interest received

     14,114        13,255   

Income taxes refund (paid)

     (20,655     (46,217

Other (outflows) inflows of cash, net

     1,237        75   

Net Cash flows from Operating Activities

     750,896        717,842   

Cash flows (used in) Investing Activities

    

Loans to related parties

     (141,309     —     

Proceeds from sale of property, plant and equipment

     12,180        86,497   

Purchase of property, plant and equipment

     (368,706     (485,653

Purchase of intangible assets

     (9,253     (3,231

Proceeds from sale of other long-term assets

     188        20,838   

Purchase of biological assets

     (100,115     (166,096

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

     —          5,000   

Dividends received

     11,150        17,490   

Other outflows of cash, net

     1,145        9,566   

Cash flows used in Investing Activities

     (594,720     (515,589

Cash flows from (used in) Financing Activities

    

Total loans obtained

     978,821        1,026,147   

Loans obtained in long term

     818,327        360,774   

Proceeds from short-term borrowings

     160,494        665,373   

Repayments of borrowings

     (741,424     (1,051,220

Dividends paid by the parent company

     (78,172     (76,077

Other inflows of cash, net

     (1,693     (2,514

Cash flows from (used in) Financing Activities

     157,532        (103,664
  

 

 

   

 

 

 

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

     313,708        98,589   

Effect of exchange rate changes on cash and cash equivalents

     (8,712     (15,733
  

 

 

   

 

 

 

Net increase (decrease) of Cash and Cash equivalents

     304,996        82,856   

Cash and cash equivalents, at the beginning of the period

     667,212        488,498   

Cash and cash equivalents, at the end of the period

     972,208        571,354   

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

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

September 30, 2014

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

 

CONSOLIDATED FINANCIAL STATEMENTS AT SEPTEMBER 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 14 th, Las Condes, Santiago, Chile.

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

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

The ultimate shareholders of Arauco are Mrs. Maria Noseda Zambra de Angelini, Mr. Roberto Angelini Rossi and Mrs. Patricia Angelini Rossi through the entity Inversiones Angelini y Cia. Ltda., which owns 63.4015% of the shares of AntarChile S.A., the controlling shareholder of our parent company Empresas Copec S.A.

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

Presentation of Financial Statements

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

 

    Consolidated Statements of Financial Position as of September 30, 2014 and for the period ended December 31, 2013.

 

    Consolidated Statements of Income for the nine-month periods between January 1 and September 30, 2014 and 2013.

 

    Consolidated Statements of Comprehensive Income for the nine-month periods between January 1 and September 30, 2014 and 2013.

 

    Consolidated Statements of Changes in Equity for the nine-month periods between January 1 and September 30, 2014 and 2013.

 

    Consolidated Statements of Cash Flows for the nine-month periods between January 1 and September 30, 2014 and 2013.

 

    Notes to the consolidated financial statements.

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

September 30, 2014

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

 

 

Period covered by the Financial Statements

Period between January 1 and September 30, 2014.

Date of Approval of Financial Statements

These interim consolidated financial statements for the period between January 1 and September 30, 2014 were authorized and approved for issuance by the Board of Directors of the Company (the “Board”) at the Extraordinary Session N° 516 held on November 14, 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

MU.S.$ - Millions of U.S. dollars

ThU.S.$ - Thousands of U.S. dollars

U.F. – 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 (ThU.S.$).

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

September 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, except as instructed in the Official Circular Letter No 856 of the superintendency of securities and insurance which provides in an exceptional form of accounting of changes in assets and liabilities for deferred tax caused by Law No. 20,780, published in the Official Journal on September 29, 2014.

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 September 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, except as indicated in section “compliance and adoption of IFRS”.

 

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, except as indicated in section “compliance and 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

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

September 30, 2014

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

 

 

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.

-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.

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

September 30, 2014

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

 

 

-Employee benefits

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

-Litigation and Contingencies

Arauco and its subsidiaries are subject to certain litigation 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.

 

 

 

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Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

September 30, 2014

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

 

 

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

 

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.

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

September 30, 2014

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

 

 

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.

(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 Others 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.

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

 

f) Cash and cash equivalents

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

 

g) Financial Instruments

Financial assets

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

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

September 30, 2014

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

 

 

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

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

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.

 

 

 

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Unaudited Consolidated Financial Statements

September 30, 2014

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

 

 

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

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

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

 

(ii) Held-to-maturity investments

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

 

(iii) Loans and receivables

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

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

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

Financial liabilities

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

(i) Financial liabilities at FVTPL

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

A financial liability is classified as held for trading if:

 

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

 

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

 

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

 

 

 

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Unaudited Consolidated Financial Statements

September 30, 2014

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

 

 

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

 

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

 

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

 

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

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

(ii) Other financial liabilities

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

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

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.

 

 

 

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Unaudited Consolidated Financial Statements

September 30, 2014

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

 

 

(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.

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.

 

 

 

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Unaudited Consolidated Financial Statements

September 30, 2014

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

 

 

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

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

Biological assets are transferred to inventories when forests are harvested.

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.

 

 

 

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Unaudited Consolidated Financial Statements

September 30, 2014

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

 

 

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

 

 

 

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Unaudited Consolidated Financial Statements

September 30, 2014

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

 

 

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

 

 

 

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Unaudited Consolidated Financial Statements

September 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.

 

 

 

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Unaudited Consolidated Financial Statements

September 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.

 

 

 

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Unaudited Consolidated Financial Statements

September 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.

 

 

 

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Unaudited Consolidated Financial Statements

September 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

 

 

 

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Unaudited Consolidated Financial Statements

September 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.

 

 

 

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September 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.

 

 

 

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Unaudited Consolidated Financial Statements

September 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.

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

September 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, it may affect the accounting for future transactions or arrangements.

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

September 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 after

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: Manufacturing 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.

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

September 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 September 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 ThU.S.$ 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 ThU.S.$442 was realized (Note 14).

 

     09-30-2014    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
     09-30-2014    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.$123,614 (ThU.S.$126,775 as of September 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.$78,172 as of September 30, 2014 (ThU.S.$76,077 as of September 30, 2013) which ThU.S.$75,424 (ThU.S.$47,017 as of September 30, 2013) correspond to the payment of dividends of the parent company.

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

September 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

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

September 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.

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

September 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 September 30, 2014 and 2013:

 

     January - September     July - September  
     2014
ThU.S.$
    2013
ThU.S.$
    2014
ThU.S.$
    2013
ThU.S.$
 

Classes of Other Income

        

Other Income, Total

     231,834        292,542        77,710        90,069   

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

     200,478        202,604        66,834        65,961   

Net income from insurance compensation

     2,264        1,271        1,554        74   

Revenue from export promotion

     3,004        3,122        1,083        949   

Leases received

     1,886        1,540        790        891   

Gain on sales of assets

     9,654        6,190        2,393        4,446   

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

     —          29,624        —          14,360   

Gain on sales of assets classified as held for sale

     —          26,153        —          171   

Revenue from compensation of judgment

     —          8,500        —       

Access easement

     4,833        1,349        2        1,349   

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

     9,715        12,189        5,054        1,868   

Classes of Other Expenses by activity

        

Total of other expenses by activity

     (103,459     (73,044     (20,411     (29,861

Depreciation

     (1,924     (1,298     (1,183     (448

Expenses judgment

     (4,028     (17,433     (2,268     (14,397

Impairment provision properties, plants and equipment and others

     (5,922     (3,956     (833     (352

Plants stoppage operating expenses

     (1,823     (4,303     (166     1,886   

Expenses projects

     (7,343     (9,704     (87     (3,997

Expenses start-up

     (8,795     —          (1,570     —     

Loss of assets

     (50     (6,733     (35     (4,779

Loss of forest due to fires

     (33,328     (635     (1,299     (514

Other Taxes

     (4,485     (3,382     (1,732     (979

Research and development expenses

     (2,344     (1,954     (835     (701

Compensation and eviction

     (7,838     (1,532     (398     (259

Fines, readjustments and interest

     (530     (671     (319     —     

Other expenses (donations, repayments insurance)

     (25,049     (21,443     (9,686     (5,321

Classes of financing income

        

Financing income, total

     16,059        14,829        8,553        3,317   

Financial income from mutual funds - deposits

     8,683        7,665        3,527        3,524   

Financial income resulting from swap - forward

     2,844        3,708        2,618        (960

Other financial income

     4,532        3,456        2,408        753   

Classes of financing costs

        

Financing costs, Total

     (177,484     (176,730     (67,426     (61,699

Interest expense, Loans banks

     (17,700     (22,430     (5,859     (7,998

Interest expense, Bonds

     (133,843     (130,985     (48,809     (40,561

Interest expense, financial instruments

     (13,112     (5,189     (6,787     (2,860

Other financial costs

     (12,829     (18,126     (5,971     (10,280

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

        

Total

     6,593        4,140        6,692        5,064   

Investments in associates

     5,669        3,697        6,410        4,425   

Joint ventures

     924        443        282        639   

 

(**) Corresponding to the total income from sale of land and biological assets of SPE Arauco.

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

September 30, 2014

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

 

 

Below is the Balance of Expenses by nature:

 

     January - September     July - September  

Cost of sales

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

Timber

     626,617         673,840        206,175         241,269   

Forestry labor costs

     483,003         473,745        189,603         167,677   

Depreciation and amortization

     220,365         200,511        78,672         65,670   

Maintenance costs

     201,478         159,296        68,412         51,086   

Chemical costs

     397,507         371,272        133,095         121,568   

Sawmill Services

     94,348         137,517        34,569         45,954   

Others Raw Materials

     68,512         161,718        24,188         65,804   

Indirect costs

     125,672         117,832        43,305         36,296   

Energy and fuel

     165,805         147,897        56,507         50,301   

Cost of electricity

     66,952         67,367        23,968         21,653   

Wage and salaries

     216,468         172,831        81,979         56,327   

Total

     2,666,727         2,683,826        940,473         923,605   
     January - September     July - September  

Distribution cost

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

Selling costs

     25,333         24,599        8,874         7,429   

Commissions

     11,992         11,836        3,844         3,955   

Insurance

     3,888         4,519        1,340         1,308   

Provision for doubtful accounts receivable

     1,247         (393     354         63   

Other selling costs

     8,206         8,637        3,336         2,103   

Shipping and freight costs

     372,607         366,079        132,951         124,412   

Port services

     21,805         20,451        7,619         7,351   

Freights

     298,505         306,639        105,810         104,081   

Other shipping and freight costs

     52,297         38,989        19,522         12,980   

Total

     397,940         390,678        141,825         131,841   
     January - September     July - September  

Administrative expenses

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

Wage and salaries

     162,639         167,071        50,844         50,820   

Marketing, advertising, promotion and publications expenses

     9,066         6,674        3,891         2,381   

Insurance

     23,862         30,171        7,509         9,231   

Depreciation and amortization

     19,282         16,715        6,500         9,742   

Computer services

     19,167         14,066        5,426         3,854   

Lease rentals (offices, warehouses and machinery)

     8,463         10,300        3,079         3,418   

Donations, contributions, scholarships

     5,623         8,453        956         3,179   

Fees (legal and technical advisories)

     40,556         39,412        14,280         13,820   

Property taxes, patents and municipality rights

     17,046         19,021        6,487         9,395   

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

     109,557         90,773        37,545         29,533   

Total

     415,261         402,656        136,517         135,373   

 

          January-September      July-September  

Expenses for

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

Depreciations

   7      233,099         214,029         82,978         71,334   

Employee benefits

   10      383,427         364,020         128,997         106,552   

Amortization

   19      9,239         6,864         3,457         5,157   

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

September 30, 2014

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

 

 

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

   09-30-2014
ThU.S.$
 

Audit services

     2,059   

Other services

  

Tax services

     543   

Others

     788   

TOTAL

     3,390   
Number of employees    No.  
     14,161   

NOTE 4. INVENTORIES

 

Components of Inventory

   09-30-2014
ThU.S.$
     12-31-2013
ThU.S.$
 

Raw materials

     105,326         93,895   

Production supplies

     106,208         103,698   

Products in progress

     81,490         107,180   

Finished goods

     485,912         453,762   

Spare Parts

     151,824         142,055   

Total Inventories

     930,760         900,590   

Inventories recognized as cost of sales at September 30, 2014 were ThU.S.$2,661,390 (ThU.S.$2,670,204 at September 30, 2013).

In order to have the inventories recorded at net realizable value at September 30, 2014, there has been a net decrease of inventories associated with a higher provision of obsolescence ThU.S.$848 (lower provision ThU.S.$2,566 at September 30, 2013).

At September 30, 2014 there are write-offs inventory ThU.S.$1,359 (ThU.S.$1,724 at September 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.

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

September 30, 2014

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

 

 

NOTE 5. CASH AND CASH EQUIVALENTS

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

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

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

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

 

Components of Cash and Cash Equivalents

   09-30-2014
ThU.S.$
     12-31-2013
ThU.S.$
 

Cash on hand

     409         330   

Bank checking account balances

     234,107         155,208   

Time deposits

     685,578         391,588   

Mutual funds

     52,114         111,435   

Other cash and cash equivalents (*)

     —           8,651   

Total

     972,208         667,212   

 

(*) Applies to contracts investments under resale agreements

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

September 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 21% in Chile, 35% in Argentina, 34% in Brazil, 25% in Uruguay and 34% in the United States (federal tax).

On September 29, 2014, Law No. 20,780 was published in the Official Gazette, introducing various amendments to the current regime of income tax and other taxes. Among the main amendments is the progressive increase of the First Category Income Tax for the 2014, 2015, 2016, 2017, 2018 and following fiscal years, increasing to 21%, 22.5%, 24%, 25.5% and 27% respectively, in the event that the partially integrated system applies. Alternatively, for the 2014, 2015, 2016 and 2017 and following fiscal years, an increase of 21%, 22.5%, 24%, and 25% respectively will apply, in the event that the Company chooses to apply the attributed income system.

On October 17, 2014, the Superintendency of Securities and Insurance issued the Official Circular Letter No. 856, which established that the difference in assets and liabilities for deferred taxes resulting from the increase of the aforementioned tax rate, should be accounted for by charging it against equity. Therefore, as of the close these interim consolidated financial statements, Arauco has recognized a charge to equity of ThU.S.$291,363 resulting from a deferred effect of the new tax rate.

Deferred Tax Assets

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

 

Deferred Tax Assets

   09-30-2014
ThU.S.$
     12-31-2013
ThU.S.$
 

Deferred Tax Assets relating to Provisions

     14,746         12,016   

Deferred Tax Assets relating to Accrued Liabilities

     6,959         7,367   

Deferred Tax Assets relating to Post-Employment benefits

     11,215         9,012   

Deferred Tax Assets relating to Property, Plant and equipment

     14,947         8,842   

Deferred Tax Assets relating to Financial Instruments

     8,619         343   

Deferred Tax Assets relating to Tax Losses Carryforwards

     50,238         56,333   

Deferred Tax Assets relating to Biological Assets

     9         73   

Deferred Tax Assets relating to Inventories

     6,199         4,910   

Deferred Tax Assets relating to Provisions for Income

     5,162         3,678   

Deferred Tax Assets relating to Allowance for Doubful Accounts

     3,844         3,104   

Intangible revaluation differences

     1,042         —     

Deferred Tax Assets relating to Other Deductible Temporary Differences(*)

     34,580         54,920   

Total Deferred Tax Assets

     157,560         160,598   

 

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

Certain subsidiaries of Arauco, as of the date of these financial statements, show tax losses for which we estimate that, given the projection of future profits, will allow for the recovery of these assets. The total amount of these tax losses is ThU.S.$150,967 (ThU.S.$165,393 at December 31, 2013), which are mainly originated by operational and financial losses.

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

September 30, 2014

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

 

 

In addition, as of the closing of these financial statements there are ThU.S.$104,196 of unused tax losses from companies in Uruguay based on the participation of Arauco, which have not been recognized as deferred tax assets.

Deferred Tax Liabilities

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

 

Deferred Tax Liabilities

   09-30-2014
ThU.S.$
     12-31-2013
ThU.S.$
 

Deferred Tax Liabilities relating to Property, plant and equipment

     937,627         781,777   

Deferred Tax Liabilities relating to Financial Instruments

     5,915         10,060   

Deferred Tax Liabilities relating to Biological Assets

     689,391         534,161   

Deferred Tax Liabilities relating to Inventory

     32,647         15,422   

Deferred Tax Liabilities due to Prepaid Expenses

     40,494         56,558   

Deferred Tax Liabilities due to Intangible

     33,516         34,188   

Deferred Tax Liabilities relating to Other Taxable Temporary Differences

     28,229         30,129   

Total Deferred Tax Liabilities

     1,767,819         1,462,295   

The effect of changes in current and deferred tax liabilities related to cash flow hedges corresponds to a charge of ThU.S.$2,015 as of September 30, 2014 (charge of ThU.S.$6,747 as of September 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.$23,326 and ThU.S.$116,977, respectively.

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

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

September 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

09-30-2014
ThU.S.$
 

Deferred Tax Assets relating to provisions

     12,016         656        2,187        (113     14,746   

Deferred Tax Assets relating to accrued liabilities

     7,367         (1,383     900        75        6,959   

Deferred Tax Assets relating to post-employment benefits

     9,012         (1,247     3,466        (16     11,215   

Deferred Tax Assets relating to property, plant and equipment

     8,842         4,069        2,035        1        14,947   

Deferred Tax Assets relating to financial instruments

     343         (343     8,619        —          8,619   

Deferred Tax Assets relating to tax losses carryforwards

     56,333         (5,398     423        (1,120     50,238   

Deferred Tax assets relating to biological assets

     73         (64     —          —          9   

Deferred Tax Assets relating to provisions for income

     4,910         1,160        180        (51     6,199   

Deferred Tax Assets relating to provisions for income

     3,678         959        525        —          5,162   

Deferred Tax Assets relating to provision for doubtful accounts

     3,104         543        218        (21     3,844   

Intangible revaluation differences

     —           834        208        —          1,042   

Deferred Tax Assets relating to other deductible temporary differences

     54,920         (22,794     2,733        (279     34,580   

Total Deferred Tax Assets

     160,598         (23,008     21,494        (1,524     157,560   

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

09-30-2014
ThU.S.$
 

Deferred Tax Liabilities relating to property, plant and equipment

     781,777         3,110        155,257        (2,517     937,627   

Deferred Tax Liabilities relating to financial instruments

     10,060         893        (5,038     —          5,915   

Deferred Tax Liabilities relating to biological assets

     534,161         22,984        135,553        (3,307     689,391   

Deferred Tax Liabilities relating to inventory

     15,422         15,291        1,934        —          32,647   

Deferred Tax Liabilities due to prepaid expenses

     56,558         (21,714     5,653        (3     40,494   

Deferred Tax Liabilities due to intangible

     34,188         (1,006     335        867        34,384   

Deferred Tax Liabilities relating to other taxable temporary differences

     30,129         (5,790     4,637        (1,615     27,361   

Total Deferred Tax Liabilities

     1,462,295         13,768        298,331        (6,575     1,767,819   

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

September 30, 2014

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

 

 

Deferred Tax Assets

   Opening
Balance
01-01-2013
ThU.S.$
     Expenses
(Income)
for deferred
tax
recognized
as a result
ThU.S.$
    Deferred
tax of
items
directly
credited
to equity
ThU.S.$
     Increase
(decrease)
Net
exchange
differences
ThU.S.$
    Closing
balance
12-31-2013
ThU.S.$
 

Deferred Tax Assets relating to provisions

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

Deferred Tax Assets relating to accrued liabilities

     7,188         44        —           135        7,367   

Deferred Tax Assets relating to post-employment benefits

     9,341         (982     829         (176     9,012   

Deferred Tax Assets relating to property, plant and equipment

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

Deferred Tax Assets relating to financial instruments

     1,900         (1,493     —           (64     343   

Deferred Tax Assets relating to tax losses carryforwards

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

Deferred Tax Assets relating to biological assets

     2,636         (2,563     —             73   

Deferred Tax Assets relating to provisions for income

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

Deferred Tax Assets relating to provisions for income

     4,477         (792     —           (7     3,678   

Deferred Tax Assets relating to provision for doubtful accounts

     3,602         (481     —           (17     3,104   

Deferred Tax Assets relating to other deductible temporary differences

     26,193         28,226        —           501        54,920   

Total Deferred Tax Assets

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

 

Deferred Tax Liabilities

   Opening
Balance
01-01-2013
ThU.S.$
     Expenses
(Income)
for deferred
tax
recognized
as a result
ThU.S.$
    Deferred
tax of
items
directly
credited
to equity
ThU.S.$
    Increase
(decrease)
Net
exchange
differences
ThU.S.$
    Closing
balance
12-31-2013
ThU.S.$
 

Deferred Tax Liabilities relating to property, Plant and equipment

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

Deferred Tax Liabilities relating to financial instruments

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

Deferred Tax Liabilities relating to biological assets

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

Deferred Tax Liabilities relating to inventory

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

Deferred Tax Liabilities due to prepaid expenses

     55,294         944        —          320        56,558   

Deferred Tax Liabilities due to intangible

     35,978         (1,789     —          (1     24,188   

Deferred Tax Liabilities relating to other taxable temporary differences

     31,673         846        —          (2,390     30,129   

Total Deferred Tax Liabilities

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

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

September 30, 2014

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

 

 

Temporary Differences

The following tables summarize the deductible and taxable temporary differences:

 

     09-30-2014     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

     107,322          104,265     

Deferred Tax Assets - Tax losses

     50,238          56,333     

Deferred Tax Liabilities

       1,767,819          1,462,295   

Total

     157,560        1,767,819        160,598        1,462,295   
     January - September     July- September  

Detail of Temporary Difference Income and Loss Amounts

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

Deferred Tax Assets

     (27,068     10,682        (4,576     21,096   

Deferred Tax Assets - Tax losses

     4,060        (36,508     3,639        (25,404

Deferred Tax Liabilities

     (13,768     (8,837     1,912        (9,900

Total

     (36,776     (34,663     975        (14,208

Income Tax Expense

Income tax expense consists of the following:

 

     January - September     July- September  

Income Tax composition

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

Current income tax expense

     (85,442     (74,922     (29,911     (37,432

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

     —          16,429        —          15,304   

Previous period current tax adjustments

     4,028        3,977        (609     2,241   

Other current tax expenses

     2,739        4,165        (1,891     4,251   

Current Tax Expense, Net

     (78,675     (50,351     (32,411     (15,636

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

     (40,836     1,845        (2,664     11,196   

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

     4,060        (36,508     3,639        (25,404

Total deferred Tax Expense, Net

     (36,776     (34,663     975        (14,208

Income Tax Expense, Total

     (115,451     (85,014     (31,436     (29,844

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

September 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 September 30, 2014 and 2013:

 

     January - September     July- September  
     2014     2013     2014     2013  
     ThU.S.$     ThU.S.$     ThU.S.$     ThU.S.$  

Foreign current income tax expense

     (20,562     (11,685     (10,747     (3,180

Domestic current income tax expense

     (58,113     (38,666     (21,664     (12,456

Total current income tax expense

     (78,675     (50,351     (32,411     (15,636

Foreign deferred tax expense

     (19,060     (18,275     (2,560     (12,725

Domestic deferred tax expense

     (17,716     (16,388     3,535        (1,483

Total deferred tax expense

     (36,776     (34,663     975        (14,208

Total tax income (expense)

     (115,451     (85,014     (31,436     (29,844

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

The reconciliation of income tax expense is as follows:

 

     January - September     July- September  
     2014     2013     2014     2013  

Reconciliation of Income tax from Statutory Rate to Effective Tax Rate

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

Tax Expense at applicable tax rate

     (92,095     (95,771     (28,757     (33,119

Tax effect of foreign tax rates

     (13,675     (18,652     (5,127     (11,380

Tax effect of revenues exempt from taxation

     7,143        (1,796     (1,629     (3,441

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

     (18,325     (1,231     3,609        1,240   

Tax rate effect of tax losses

     669        9,795        1,767        (625

Effect of tax rate of tax losses not recognized in statements of income

     (1,867     15,830        (1,867     15,830   

Tax rate effect of adjustments for current tax of prior periods

     4,028        792        (599     (940

Other tax rate effects

     (1,329     6,019        1,167        2,591   

Total adjustments to tax expense at applicable tax rate

     (23,356     10,757        (2,679     3,275   

Tax expense at effective tax rate

     (115,451     (85,014     (31,436     (29,844

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

September 30, 2014

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

 

 

NOTE 7. PROPERTY, PLANT AND EQUIPMENT

 

     09-30-2014     12-31-2013  

Property, Plant and Equipment, Net

   ThU.S.$     ThU.S.$  

Construction in progress

     324,759        1,542,739   

Land

     968,072        975,617   

Buildings

     2,145,239        1,694,924   

Plant and equipment

     3,571,725        2,774,551   

Information technology equipment

     28,933        25,575   

Fixtures and fittings

     10,318        7,627   

Motor vehicles

     18,708        13,597   

Other property, plant and equipment

     112,265        102,837   

Total Net

     7,180,019        7,137,467   

Property, Plant and Equipment, Gross

    

Construction in progress

     324,759        1,542,739   

Land

     968,072        975,617   

Buildings

     3,544,176        3,010,996   

Plant and equipment

     5,897,420        4,954,621   

Information technology equipment

     71,239        64,352   

Fixtures and fittings

     37,140        33,015   

Motor vehicles

     47,460        40,789   

Other property, plant and equipment

     129,878        119,601   

Total Gross

     11,020,144        10,741,730   

Accumulated depreciation and impairment

    

Buildings

     (1,398,937     (1,316,072

Plant and equipment

     (2,325,695     (2,180,070

Information technology equipment

     (42,306     (38,777

Fixtures and fittings

     (26,822     (25,388

Motor vehicles

     (28,752     (27,192

Other property, plant and equipment

     (17,613     (16,764

Total

     (3,840,125     (3,604,263

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.

 

 

 

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AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

September 30, 2014

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

 

 

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

 

     09-30-2014      12-31-2013  
     ThU.S.$      ThU.S.$  

Amount committed for the acquisition of property, plant and equipment

     145,023         310,087   
     09-30-2014      12-31-2013  
     ThU.S.$      ThU.S.$  

Disbursements for property, plant and equipment under construction

     310,907         671,128   

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

September 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 September 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        975,617        1,694,924        2,774,551        25,575        7,627        13,597        102,837        7,137,467   

Changes

                  

Additions

     310,907        1,184        2,440        39,441        2,376        832        3,874        12,780        373,834   

Disposals

     (2,695     (500     (48     (600     (6     (34     103          (3,780

Retirements

     (5,020     (33     (17,866     (17,880     (112     —          (426     (352     (41,689

Depreciation

     —          —          (74,814     (168,675     (3,674     (1,905     (3,220     (3,026     (255,314

Increase (decrease) through net exchange differences

     1,651        (8,196     (20,302     (2,152     (105     (71     (231     (1,093     (30,499

Increase (decrease) through transfers from construction in progress

     (1,522,823     —          560,905        947,040        4,879        3,869        5,011        1,119        —     

Total changes

     (1,217,980     (7,545     450,315        797,174        3,358        2,691        5,111        9,428        42,552   

Closing balance 09-30-2014

     324,759        968,072        2,145,239        3,571,725        28,933        10,318        18,708        112,265        7,180,019   

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        987,242        1,654,955        2,731,233        26,094        13,396        11,094        101,470        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        975,617        1,694,924        2,774,551        25,575        7,627        13,597        102,837        7,137,467   

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

 

     January-September      July-September  
     2014      2013      2014      2013  

Depreciation for the year

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

Cost of sales

     215,473         198,099         76,667         64,964   

Administrative expenses

     14,935         12,263         5,048         5,290   

Other expenses

     2,691         3,667         1,263         1,080   

Total

     233,099         214,029         82,978         71,334   

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   

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

September 30, 2014

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

 

 

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

See Note 12 for details of capitalized borrowing costs.

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

September 30, 2014

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

 

 

NOTE 8. LEASES

Arauco acting as lessee

 

     09-30-2014
ThU.S.$
     12-31-2013
ThU.S.$
 

Property, Plant and Equipment under finance leases

     89,377         90,467   

Plant and equipment

     89,377         90,467   

Reconciliation of Financial Lease Minimum Payments:

 

     09-30-2014  
     Present Value  

Periods

   ThU.S.$  

Less than one year

     29,436   

Between one and five years

     58,886   

More than five years

     —     

Total

     88,322   
     12-31-2013  
     Present Value  

Periods

   ThU.S.$  

Less than one year

     26,949   

Between one and five years

     62,491   

More than five years

     —     

Total

     89,440   

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:

 

     09-30-2014  
     Gross      Interest      Present Value  

Periods

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

Less than one year

     317         24         293   

Between one and five years

     21         1         20   

More than five years

     —           —           —     

Total

     338         25         313   
     12-31-2013  
     Gross      Interest      Present Value  

Periods

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

Less than one year

     980         11         969   

Between one and five years

     131         1         130   

More than five years

     —           —           —     

Total

     1,111         12         1,099   

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

September 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 - September      July - September  

Classes of revenue

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

Revenue from sales of goods

     3,815,634         3,741,843         1,318,145         1,292,589   

Revenue from rendering of services

     132,253         143,318         30,483         40,637   

Total

     3,947,887         3,885,161         1,348,628         1,333,226   

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

September 30, 2014

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

 

 

NOTE 10. EMPLOYEE BENEFITS

Classes of Benefits and Expenses by Employee

 

     January - September      July- September  
     2014
ThU.S.$
     2013
ThU.S.$
     2014
ThU.S.$
     2013  

Employee expenses

     383,427         364,020         128,997         106,552   

Wages and salaries

     375,868         355,949         127,147         104,061   

Severance indemnities

     7,559         8,071         1,850         2,491   

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

 

Discount rate

     3.50

Inflation

     3.00

Mortality rate

     RV-2009   

The following tables set forth the balances and the reconciliation of the present value of severance indemnities obligation as of September 30, 2014 and December 31, 2013:

 

     09-30-2014     12-31-2013  
     ThU.S.$     ThU.S.$  

Current

     3,521        3,814   

Non-current

     39,028        42,170   

Total

     42,549        45,984   

Reconciliation of the present value of severance indemnities obligation

   09-30-2014
ThU.S.$
    12-31-2013
ThU.S.$
 

Opening balance

     45,984        47,436   

Current service cost

     1,430        3,241   

Interest cost

     2,215        1,510   

Actuarial gains

     2,831        4,143   

Benefits paid

     (4,226     (6,628

Increase (decrease) for foreign currency exchange rates changes

     (5,685     (3,718

Closing balance

     42,549        45,984   

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

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

 

     09-30-2014
ThU.S.$
     12-31-2013
ThU.S.$
 

Total Current Assets

     3,342,839         2,808,321   

Cash and Cash Equivalents

     972,208         667,212   

U.S. Dollar

     856,706         534,575   

Euro

     7,809         4,681   

Brazilian Real

     59,007         68,658   

Argentine Pesos

     19,415         13,942   

Other currencies

     3,861         3,473   

Chilean Pesos

     25,410         41,883   

Other current financial assets

     2,154         3,089   

U.S. Dollar

     2,154         3,089   

Other current non-financial assets

     187,003         188,964   

U.S. Dollar

     101,649         82,175   

Euros

     1,507         126   

Brazilian Real

     12,448         13,395   

Argentine Pesos

     11,351         10,079   

Other currencies

     6,248         7,746   

Chilean Pesos

     53,800         75,443   

Trade and other current receivables

     746,259         711,678   

U.S. Dollar

     502,453         446,386   

Euro

     38,572         33,072   

Brazilian Real

     63,663         55,756   

Argentine Pesos

     34,723         33,130   

Other currencies

     21,797         24,513   

Chilean Pesos

     84,641         117,827   

U.F.

     410         994   

Accounts receivable from related companies

     148,776         8,243   

U.S. Dollar

     —           135   

Brazilian Real

     144,086         3,654   

Chilean Pesos

     4,690         4,454   

Current Inventories

     930,760         900,590   

U.S. Dollar

     842,318         791,271   

Brazilian Real

     69,569         87,638   

Chilean Pesos

     18,873         21,681   

Current biological assets

     300,820         256,957   

U.S. Dollar

     287,513         256,957   

Brazilian Real

     13,307         —     

Current tax assets

     45,027         61,174   

U.S. Dollar

     3,631         2,861   

Euros

     64         14   

Brazilian Real

     2,812         2,475   

Argentine Pesos

     1,477         5,888   

Other currencies

     4,150         1,337   

Chilean Pesos

     32,893         48,599   

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

     9,832         10,414   

U.S. Dollar

     9,832         10,414   

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

September 30, 2014

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

 

 

     09-30-2014
ThU.S.$
     12-31-2013
ThU.S.$
 

Total Non Current Assets

     11,619,850         11,685,074   

Other non-current financial assets (*)

     13,592         48,778   

U.S. Dollar

     12,999         48,011   

Argentine Pesos

     593         767   

Other non-current non-financial assets

     135,384         125,052   

U.S. Dollar

     125,776         113,224   

Brazilian Real

     6,294         8,707   

Argentine Pesos

     796         748   

Other currencies

     918         643   

Chilean Pesos

     1,600         1,730   

Trade and other non-current receivables

     33,968         40,729   

U.S. Dollar

     30,260         35,743   

Chilean Pesos

     3,690         3,226   

U.F.

     18         1,760   

Investments accounted for using equity method

     340,634         349,412   

U.S. Dollar

     122,141         126,564   

Brazilian Real

     218,493         222,848   

Intangible assets other than goodwill

     96,476         99,651   

U.S. Dollar

     94,352         95,338   

Brazilian Real

     2,072         4,241   

Chilean Pesos

     52         72   

Goodwill

     85,985         88,141   

U.S. Dollar

     42,923         43,086   

Brazilian Real

     43,062         45,055   

Property, plant and equipment (**)

     7,180,019         7,137,467   

U.S. Dollar

     6,533,140         6,457,882   

Brazilian Real

     640,629         670,269   

Chilean Pesos

     6,250         9,316   

Non-current biological assets

     3,576,232         3,635,246   

U.S. Dollar

     3,231,919         3,277,093   

Brazilian Real

     344,313         358,153   

Deferred tax assets

     157,560         160,598   

U.S. Dollar

     125,715         138,486   

Brazilian Real

     31,085         21,321   

Other currencies

     218         223   

Chilean Pesos

     542         568   

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

September 30, 2014

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

 

 

     09-30-2014      12-31-2013  
     Up to 90 days      From 91 days
to 1 year
     Total      Up to 90 days      From 91 days
to 1 year
     Total  
     ThU.S.$      ThU.S.$      ThU.S.$      ThU.S.$      ThU.S.$      ThU.S.$  

Total Liabilities, current

     1,088,657         604,443         1,693,100         1,105,432         576,584         1,682,016   

Other current financial liabilities

     199,964         597,481         797,445         399,036         494,569         893,605   

U.S. Dollar

     166,930         546,585         713,515         260,159         446,893         707,052   

Brazilian Real

     8,980         24,918         33,898         11,750         9,332         21,082   

Argentine Pesos

     500         —           500         28,252         504         28,756   

Chilean Pesos

     288         830         1,118         168         886         1,054   

U.F.

     23,266         25,148         48,414         98,707         36,954         135,661   

Bank Loans

     169,773         168,579         338,352         262,010         451,282         713,292   

U.S. Dollar

     160,293         143,661         303,954         222,008         441,446         663,454   

Brazilian Real

     8,980         24,918         33,898         11,750         9,332         21,082   

Argentine Pesos

     500         —           500         28,252         504         28,756   

Financial Leases

     7,579         21,857         29,436         7,108         19,841         26,949   

U.S. Dollar

     —           19         19         —           62         62   

Chilean Pesos

     288         830         1,118         168         886         1,054   

U.F.

     7,291         21,008         28,299         6,940         18,893         25,833   

Other Loans

     22,612         407,045         429,657         129,918         23,446         153,364   

U.S. Dollar

     6,637         402,905         409,542         38,151         5,385         43,536   

U.F.

     15,975         4,140         20,115         91,767         18,061         109,828   

Trade and other current payables

     666,270         11         666,281         628,662         2,318         630,980   

U.S. Dollar

     229,229         —           229,229         229,260         —           229,260   

Euros

     49,757         —           49,757         7,434         —           7,434   

Brazilian Real

     32,842         —           32,842         30,963         —           30,963   

Argentine Pesos

     33,198         —           33,198         29,102         —           29,102   

Other currencies

     4,607         —           4,607         3,435         —           3,435   

Chilean Pesos

     314,130         11         314,141         328,358         12         328,370   

U.F.

     2,507         —           2,507         110         2,306         2,416   

Accounts payable to related companies

     13,854         —           13,854         14,406         —           14,406   

U.S. Dollar

     1,889         —           1,889         2,893         —           2,893   

Chilean Pesos

     11,965         —           11,965         11,513         —           11,513   

Other current provisions

     7,245         —           7,245         9,696         —           9,696   

U.S. Dollar

     7,245         —           7,245         830         —           830   

Argentine Pesos

     —           —           —           8,866         —           8,866   

Current tax liabilities

     33,524         —           33,524         3,929         543         4,472   

U.S. Dollar

     728         —           728         424         355         779   

Euros

     —           —           —           63         —           63   

Brazilian Real

     2,345         —           2,345         2,581         —           2,581   

Argentine Pesos

     4,975         —           4,975         42         —           42   

Other currencies

     20         —           20         231         —           231   

Chilean Pesos

     25,456         —           25,456         588         188         776   

Current provisions for employee benefits

     1,114         2,407         3,521         806         3,008         3,814   

Chilean Pesos

     1,114         2,407         3,521         806         3,008         3,814   

Other current non-financial liabilities

     166,686         4,544         171,230         48,897         76,146         125,043   

U.S. Dollar

     124,360         4,541         128,901         8,800         74,325         83,125   

Brazilian Real

     26,285         —           26,285         24,007         —           24,007   

Argentine Pesos

     5,223         —           5,223         5,507         205         5,712   

Other currencies

     3,912         —           3,912         4,460         —           4,460   

Chilean Pesos

     6,798         3         6,801         6,002         2         6,004   

U.F.

     108         —           108         121         1,614         1,735   

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

September 30, 2014

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

 

 

     09-30-2014      12-31-2013  
     From 13
months to 5
years
     More than 5
years
     Total      From 13
months to 5
years
     More than 5
years
     Total  
     ThU.S.$      ThU.S.$      ThU.S.$      ThU.S.$      ThU.S.$      ThU.S.$  

Total non-current liabilities

     3,708,841         2,687,115         6,395,956         3,089,250         2,677,589         5,766,839   

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

     1,911,665         2,542,447         4,454,112         1,675,194         2,481,798         4,156,992   

U.S. Dollar

     1,761,158         1,618,211         3,379,369         1,575,701         1,714,459         3,290,160   

Brazilian Real

     37,778         19,978         57,756         35,901         22,870         58,771   

Argentine Pesos

     694         —           694         1,106         —           1,106   

Chilean Pesos

     2,654         —           2,654         3,300         —           3,300   

U.F.

     109,381         904,258         1,013,639         59,186         744,469         803,655   

Bank Loans

     814,363         264,519         1,078,882         822,461         358,301         1,180,762   

U.S. Dollar

     775,891         244,541         1,020,432         785,454         335,431         1,120,885   

Brazilian Real

     37,778         19,978         57,756         35,901         22,870         58,771   

Argentine Pesos

     694         —           694         1,106         —           1,106   

Financial Leases

     58,886         —           58,886         62,491         —           62,491   

U.S. Dollar

     —           —           —           5         —           5   

Chilean Pesos

     2,654         —           2,654         3,300         —           3,300   

U.F.

     56,232         —           56,232         59,186         —           59,186   

Other Loans

     1,038,416         2,277,928         3,316,344         790,242         2,123,497         2,913,739   

U.S. Dollar

     985,267         1,373,670         2,358,937         790,242         1,379,028         2,169,270   

U.F.

     53,149         904,258         957,407         —           744,469         744,469   

Other non current payables

     —           —           —           361         —           361   

U.S. Dollar

     —           —           —           361         —           361   

Other non-current provisions

     61,976         —           61,976         24,167         —           24,167   

U.S. Dollar

     3         —           3         4         —           4   

Brazilian Real

     31,598         —           31,598         24,163         —           24,163   

Argentine Pesos

     29,665         —           29,665         —           —           —     

Chileans $

     710         —           710         —           —           —     

Deferred tax liabilities

     1,628,188         139,631         1,767,819         1,272,326         189,969         1,462,295   

U.S. Dollar

     1,488,961         139,631         1,628,592         1,272,037         170,265         1,442,302   

Brazilian Real

     138,941         —           138,941         —           19,704         19,704   

Other currencies

     1         —           1         1         —           1   

Chilean Pesos

     285         —           285         288         —           288   

Non-current provisions for employee benefits

     33,991         5,037         39,028         36,685         5,485         42,170   

Other currencies

     194         —           194         177         —           177   

Chilean Pesos

     33,797         5,037         38,834         36,508         5,485         41,993   

Other non-current non-financial liabilities

     73,021         —           73,021         80,517         337         80,854   

U.S. Dollar

     923         —           923         5         —           5   

Brazilian Real

     70,567         —           70,567         78,672         —           78,672   

Argentine Pesos

     1,288         —           1,288         1,561         337         1,898   

Chilean Pesos

     238         —           238         274         —           274   

U.F.

     5         —           5         5         —           5   

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

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

September 30, 2014

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

 

 

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

 

     09/30/2014     09/30/2013  
     ThU.S.$     ThU.S.$  

Arauco Do Brasil S.A.

     (24,457     (48,610

Arauco Forest Brasil S.A.

     (23,075     (37,650

Arauco Florestal Arapoti S.A.

     (6,589     (13,845

Arauco Distribución S.A.

     (3,451     (1,021

Alto Paraná S.A.

     (2,761     (4,664

Flakeboard Company Limited

     (4,604     (4,360

Others

     (283     (217
  

 

 

   

 

 

 

Total reserve of exhange differences on translation

     (66,220     (110,367
  

 

 

   

 

 

 

Effect of foreign exchange rates changes

 

     January-September     July-September  
     2014     2013     2014     2013  
     ThU.S.$     ThU.S.$     ThU.S.$     ThU.S.$  

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

     126        (8,187     (11,052     (898

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

     (67,908     (113,787     (138,134     (6,665

NOTE 12. BORROWING COSTS

Arauco estimates the average rate of borrowings to finance its current investment projects. As of September 30, 2014, the balance corresponds principally to the accumulated amount that was capitalized until the end of construction of pulp production plant in Uruguay. The average rate loans to finance these investment projects were calculated to record the capitalization.

 

     January - September     July - September  
     2014     2013     2014     2013  
     ThU.S.$     ThU.S.$     ThU.S.$     ThU.S.$  

Property, plant and equipment capitalized cost

        

Property, plant and equipment capitalized interest cost rate

     4,82     4,91     4,80     4,78

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

     16,772        19,705        987        6,504   

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

September 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.

 

 

 

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Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

September 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
09-30-2014
    % Ownership interest
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     1,3418        98,6572        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     11,1520        88,8470        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     —          57,8202        57,8202        —          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   U.S. Dollar     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.

 

 

 

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Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

September 30, 2014

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

 

 

Employee Benefits for Key Management Personnel

 

     January - September      July - September  
     2014
ThU.S.$
     2013
ThU.S.$
     2014
ThU.S.$
     2013
ThU.S.$
 

Salaries and bonuses

     56,410         52,033         12,985         13,925   

Per diem compensation to members of the Board of Directors

     1,019         1,280         337         399   

Termination benefits

     3,681         3,622         698         571   

Total

     61,110         56,935         14,020         14,895   

Accounts Receivable from Related Parties

 

Name of Related Party

   Tax ID No.    Nature of
Relationship
   Country    Currency    Maturity    09-30-2014
ThU.S.$
     12-31-2013
ThU.S.$
 

Forestal Mininco S,A

   91,440,000-7    Common director    Chile    Chilean pesos    30 days