6-K 1 d49185d6k.htm FORM 6-K FORM 6-K
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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 6-K

Report of Foreign Private Issuer

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

of the Securities Exchange Act of 1934

For the month of June, 2015

Commission File Number 33-99720

ARAUCO AND CONSTITUTION PULP INC.

(Translation of registrant’s name into English)

El Golf 150

Fourteenth Floor

Santiago, Chile

(Address of principal executive offices)

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

Form 20-F  x            Form 40-F  ¨

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

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

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

Yes  ¨            No   x

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


Table of Contents

Signature

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

 

    Celulosa Arauco y Constitución, S.A.
                    (Registrant)
Date: September 25, 2015     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 Statements

June 30, 2015

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 at each period, as follows:

 

Assets

   06-30-2015
ThU.S.$
     12-31-2014
ThU.S.$
 

Current assets

     2,689,074         3,140,715   

Non-current assets

     11,437,050         11,607,182   
  

 

 

    

 

 

 

Total assets

     14,126,124         14,747,897   
  

 

 

    

 

 

 

Liabilities

   06-30-2015
ThU.S.$
     12-31-2014
ThU.S.$
 

Current liabilities

     1,451,262         1,547,086   

Non-current liabilities

     5,902,528         6,386,075   

Non–parent participation

     43,563         47,606   

Net equity attributable to parent company

     6,772,334         6,814,736   
  

 

 

    

 

 

 

Total net equity and liabilities

     14,126,124         14,747,897   
  

 

 

    

 

 

 

As of June 30, 2015, total assets decreased MU.S.$622 compared to December 31, 2014, equivalent to 4.22% of variation. This deviation is mainly attributable to a decrease in the balance of cash and cash equivalents, properties, plant and equipment and biological assets.

Moreover, current liabilities decreased MU.S.$96 mainly attributable to a decrease in financial liabilities.

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

 

Liquidity ratios

  06-30-2015      12-31-2014  

Current Liquidity (current assets / current liabilities)

    1.85         2.03   

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

    1.05         1.25   

 

Debt indicators

  06-30-2015      12-31-2014  

Debt to equity ratio (total liabilities / equity)

    1.09         1.16   

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

    0.20         0.19   

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

    0.80         0.81   
    06-30-2015      06-30-2014  

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

    3.05         3.88   

 

1


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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statements

June 30, 2015

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

 

 

Activity ratio

   06-30-2015      12-31-2014  

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

     3.00         3.10   

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

     3.94         4.07   

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

     119.92         116.19   

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

     91.39         88.38   

As of June 30, 2015 the short-term debt represented 20% of total liabilities (20% as of December 31, 2014).

The ratio of financial expenses covered represents a decrease of 3.88 to 3.05. This decrease is mainly attributable to a higher proportional result before tax for the 2014 period, compared to the same period of 2015.

b) Statements of income

Profit before Income Tax

Profit before Income Tax registered a profit of MU.S.$269 compared to a profit of MU.S.$317 in the same period of the previous year, equivalent to a negative variation of MU.S.$48. The effect is explained by the factors described in the following table:

 

Item

   MU.S.$  

Gross margin

     (4

Distribution and Administrative Expenses

     (3

Other income/ expenses by function

     (15

Financial income/expenses

     (9

Exchange differences

     (15

Others items

     (2
  

 

 

 

Net change in income before income tax

     (48
  

 

 

 

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

 

Revenues

   06-30-2015
ThU.S.$
     06-30-2014
ThU.S.$
 

Pulp

     1,201,468         1,148,084   

Sawn timber

     438,746         454,760   

Panels

     924,016         903,108   

Forestry

     64,050         76,540   

Other

     17,727         16,767   
  

 

 

    

 

 

 

Total revenues

     2,646,007         2,599,259   
  

 

 

    

 

 

 

 

2


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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statements

June 30, 2015

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

 

 

Sales costs

   06-30-2015
ThU.S.$
     06-30-2014
ThU.S.$
 

Wood

     366,475         420,442   

Forestry work

     314,094         293,400   

Depreciation and amortization

     182,401         141,693   

Other costs

     914,277         870,719   
  

 

 

    

 

 

 

Total sales costs

     1,777,247         1,726,254   
  

 

 

    

 

 

 

Profitability index

   06-30-2015      12-31-2014  

Profitability on equity

     5.64         6.30   

Profitability on assets

     2.65         2.99   

Return on operating assets

     4.91         4.24   

Profitability ratios

   06-30-2015      30-06-2014  

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

     1.68         2.03   

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

     191,606         232,676   

Gross margin (ThU.S.$)

     868,760         873,005   

Financial costs (ThU.S.$)

     (131,152      (110,058

 

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

 

EBITDA

   06-30-2015
MU.S.$
     06-30-2014
MU.S.$
 

Gain (loss)

     191.6         232.7   

Finance cost

     131.2         110.1   

Financial Income

     (19.3      (7.5

Expenses for income tax

     77.2         84.0   

EBIT

     380.7         419.2   

Depreciation and amortization

     196.8         155.9   

EBITDA

     577.5         575.1   

Cost at fair value of the harvest

     149.9         162.3   

Gain from changes in fair value of biological assets

     (94.1      (133.6

Exchange difference

     5.3         (10.1

Others*

     29.9         32.0   

Adjusted EBITDA

     668.4         625.7   

 

* 2015: Forest loss provision MU.S.$29.9; 2014: Forest roads amortization MU.S.$32

2. MAIN SOURCES OF FINANCING

Arauco’s financing needs are mainly covered through the capital markets, with bond issuances and credits obtained from 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 corresponds to borrowings from banks and financial institutions around the world.

 

3


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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statements

June 30, 2015

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

 

 

3. DIFFERENCE BETWEEN ECONOMIC VALUES AND BOOK ASSETS

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

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

4. MARKET SITUATION

Pulp Division

During the second quarter of 2015, paper production and pulp demand diminished due to season effects in the northern hemisphere. Signs of pulp oversupply were evidenced during the second half of the quarter, although prices in long fiber and short fiber started to show an upward trend in all markets. Short fiber prices rose despite the opening of a new mill in Brazil during May 2015. The initial operation of new mills usually has an effect in markets, even though mills take months to be fully operational.

In Asia, short and long fiber prices increased by U.S.$40 and U.S.$50 per ton, respectively, which translates into a 6% and 8% price increase respectively during the second quarter of 2015. The price gap between these two fibers was reduced to U.S.$10 per ton, and can be associated with the substitution of short fiber for long fiber. Nevertheless, such substitution has a limited effect and usually occurs if the price trend is stable for some months. Chinese paper mills are fairly flexible and are therefore likely to adopt this change. The Chinese market kept growing and pulp imports overall increased by 10.5% up to June 2015 compared to 2014 (9.4% in bleached long fiber and 12.6% in bleached short fiber). The paper market in China is still experiencing a supply surplus, with large inventories and small margins. However, this situation has improved in comparison to the previous quarter.

In the European markets, due to the weakening of the euro, prices remained stable or had minor increases throughout the second quarter of 2015. In the long fiber market, where there is competition with Eurozone producers, prices have remained stable or have experienced decreases ranging from 0.7% to 1.0%. In contrast, the short fiber market, where imports play a bigger role and therefore follow the U.S. dollar trend, prices rose U.S.$ 20 to U.S.$ 30 (4%-5%). Despite the closing of production mills and consequently less production, paper companies in Europe are still under pressure and have not improved their margins. In general, paper producers have their mills working at a capacity of 90%. Although this operational rate is fairly high, producers have still not been able to transfer their higher costs to consumers. Higher costs are mainly due to the euro depreciation that directly affects imports, shutdown of mills, and a reduction of the European market in general.

The Middle East market has shown a promising level of activity and pulp demand has increased because of new paper mills, especially in tissue paper. Specifically, Turkey has increased tissue paper production considerably and has turned into one of the important producers in the region, exporting to North Africa and Middle East countries in general.

Our production remained stable throughout the second quarter of 2015. There was a programmed maintenance in the Constitución Mill during April and the Valdivia Mill changed its production from long fiber to short fiber to meet market demands. It is important to note that the latter is designed to be able to produce both types of fibers interchangeably.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statements

June 30, 2015

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

 

 

Sawn Timber Division

The sawn timber market showed a slight improvement in total sales compared to the first quarter of 2015, although they were inferior when compared to the same period in 2014. This difference is mainly due to the general decrease of price levels within the first six months of this year. This trend is a consequence of a supply surplus from countries with weakening currencies, which makes to export a much more attractive scenario.

Our sales have strengthened in Asia in terms of volume throughout the second quarter, although the Middle East market had less activity due to competition, principally from Europe. Both markets have experienced a decrease in exported volumes compared to the first half of the year of 2014.

The North American market maintains its dynamism in new constructions and renovations, which translates into a stable market demand for our moldings.

In Chile and the rest of Latin America, demand remained stable, which has enabled a higher market share this year and a desired level of product mix.

Panels Division

The tendency observed during the first quarter of the year is maintained, showing a growth in sales compared to the first half of 2014.

It is worth stressing that there has been an increase in the manufacturing of plywood increased as a result of the operations of our new mill in Nueva Aldea. There have also been favorable levels of sales in particle board manufactured in the Teno Mill, both in volume and product mix. Demand for particle board has remained stable during the first six months of this year, and our efforts to sell products with added value, such as melamine boards, has continued with promising results.

With respect to MDF, there is more competition throughout all the markets due to a generalized boost in supply. The depreciation of the Brazilian real and the supply surplus have increased export volumes. The capacity to export MDF from Argentina is still diminished, forcing to sell primarily in the domestic market and to operate at lower production rates.

 

5


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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statements

June 30, 2015

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

 

 

5. ANALYSIS OF CASH FLOW

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

 

     06-30-2015
ThU.S.$
     06-30-2014
ThU.S.$
 

Positive (negative) Cash flow

     

Cash flow from operating activities

     448,591         414,611   

Cash flow from financing activities:

     

Loan and bond payments

     (507,417      (14,879

Dividend payments

     (98,638      (77,759

Others

     (821      (49

Cash flow from investment activities:

     

Loans to related companies

     (23,428      —     

Incorporation and sale of property, plant and equipment

     (193,750      (275,707

Incorporation and sale of biological assets

     (83,577      (74,114

Dividend received

     1,865         6,801   

Others

     (1,867      (8,268
  

 

 

    

 

 

 

Positive Net cash flow (negative)

     (459,042      (29,364
  

 

 

    

 

 

 

The financing cash flow had a negative balance of MU.S.$607 as of June 30, 2015 compared to a negative balance of U.S.$93 in the same period of 2014, mainly due to increased financial liabilities.

In relation to the flow of investment at the end of the current period, there was a lower negative balance of MU.S.$301 (compared to MU.S.$351 in the same period of 2014), mainly due to lower disbursements for the acquisition of properties, plant and equipment in 2015.

6. MARKET RISK ANALYSIS

In respect of the economic risks resulting from interest rate variations, the Company maintains, as of June 30, 2015, a ratio of fixed rate debt to total consolidated debt of approximately 85,5%, which it believes is consistent with industry standards. The Company does not participate in futures trading as to maintain one of the lowest cost structures in the industry, the risks for price fluctuations are bounded.

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 Consolidated Financial Statements as of June 30, 2015, a detailed analysis of the risks associated with the business of Arauco is available (See Note 23).

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2015

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

 

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

 

     Note      06-30-2015
ThU.S.$
     12-31-2014
ThU.S.$
 

Assets

        

Current Assets

        

Cash and cash equivalents

     5         511,908         971,152   

Other current financial assets

     23         11,764         7,633   

Other current non-financial assets

     25         164,793         177,728   

Trade and other current receivables

     23         777,985         731,908   

Accounts receivable from related companies

     13         4,354         4,705   

Current Inventories

     4         911,067         893,573   

Current biological assets

     20         255,824         307,551   

Current tax assets

        43,379         38,477   

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

        2,681,074         3,132,727   

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

     22         8,000         7,988   

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

        8,000         7,988   

Total Current Assets

        2,689,074         3,140,715   

Non-Current Assets

     23         

Other non-current financial assets

     25         1,980         5,024   

Other non-current non-financial assets

     23         101,818         101,094   

Trade and other non-current receivables

        25,755         31,001   

Related party receivables, non current

     13         162,948         151,519   

Investments accounted for using equity method

     15         303,776         326,045   

Intangible assets other than goodwill

     19         87,409         93,258   

Goodwill

     17         76,683         82,573   

Property, plant and equipment

     7         7,003,442         7,119,583   

Non-current biological assets

     20         3,523,545         3,538,802   

Deferred tax assets

     6        149,694         158,283   

Total non-Current Assets

        11,437,050         11,607,182   

Total Assets

        14,126,124         14,747,897   
     

 

 

    

 

 

 

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

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2015

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

 

 

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (continued)

 

     Note      06-30-2015
ThU.S.$
    12-31-2014
ThU.S.$
 

Equity and liabilities

       

Liabilities

       

Current Liabilities

       

Other current financial liabilities

     23         691,352        742,343   

Trade and other current payables

     23         605,079        630,406   

Accounts payable to related companies

     13         9,514        6,036   

Other current provisions

     18         654        2,535   

Current tax liabilities

        21,496        25,860   

Current provisions for employee benefits

     10         4,341        3,590   

Other current non-financial liabilities

     25         118,826        136,316   

Total current liabilities other than assets included in disposal groups classified as held for sale

        1,451,262        1,547,086   

Total Current Liabilities

        1,451,262        1,547,086   

Non-Current Liabilities

       

Other non-current financial liabilities

     23         3,988,328        4,453,819   

Other non-current provisions

     18         63,831        64,529   

Deferred tax liabilities

     6         1,745,681        1,757,149   

Non-current provisions for employee benefits

     10         51,209        48,582   

Other non-current non-financial liabilities

     25         53,479        61,996   

Total non - current liabilities

        5,902,528        6,386,075   

Total liabilities

        7,353,790        7,933,161   

Equity

       

Issued capital

        353,618        353,618   

Retained earnings

        7,094,858        6,984,564   

Other reserves

        (719,705     (571,052

Equity attributable to parent company

        6,728,771        6,767,130   

Non-controlling interests

        43,563        47,606   

Total equity

        6,772,334        6,814,736   

Total equity and liabilities

        14,126,124        14,747,897   
     

 

 

   

 

 

 

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

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2015

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

 

 

CONSOLIDATED STATEMENTS OF INCOME

 

            January-June     April-June  
            (Unaudited)  
     Note      2015
ThU.S.$
    2014
ThU.S.$
    2015
ThU.S.$
    2014
ThU.S.$
 

Income Statement

           

Revenue

     9         2,646,007        2,599,259        1,372,692        1,374,642   

Cost of sales

     3         (1,777,247     (1,726,254     (918,739     (928,376

Gross profit

        868,760        873,005        453,953        446,266   

Other income

     3         110,156        154,124        54,636        76,427   

Distribution costs

     3         (255,273     (256,115     (132,471     (139,430

Administrative expenses

     3         (282,366     (278,744     (151,875     (147,691

Other expense

     3         (54,311     (83,048     (28,799     (25,048

Profit (loss) from operating activities

        386,966        409,222        195,444        210,524   

Finance income

     3         19,277        7,506        8,794        3,936   

Finance costs

     3         (131,152     (110,058     (62,956     (56,835

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

     15         (986     (99     (1,601     780   

Exchange rate differences

        (5,260     10,120        2,599        5,187   

Income before income tax

        268,845        316,691        142,280        163,592   

Income Tax

     6         (77,239     (84,015     (36,365     (36,416

Net Income

        191,606        232,676        105,915        127,176   
     

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to

           

Net income attributable to parent company

        189,903        230,135        105,016        125,893   

Income attributable to non-controlling interests

        1,703        2,541        899        1,283   

Profit (loss)

        191,606        232,676        105,915        127,176   
     

 

 

   

 

 

   

 

 

   

 

 

 

Basic earnings per share

           

Basic earnings per share from continuing operations

        0.0016782        0.0020337        0.0009280        0.0011125   
     

 

 

   

 

 

   

 

 

   

 

 

 

Basic earnings per share

        0.0016782        0.0020337        0.0009280        0.0011125   
     

 

 

   

 

 

   

 

 

   

 

 

 

Diluted earnings per share

           

Diluted earnings per share from continuing operations

        0.0016782        0.0020337        0.0009280        0.0011125   
     

 

 

   

 

 

   

 

 

   

 

 

 

Diluted earnings per share

        0.0016782        0.0020337        0.0009280        0.0011125   
     

 

 

   

 

 

   

 

 

   

 

 

 

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

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2015

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

 

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

            January-June     April-June  
            2015     2014     2015     2014  
            (Unaudited)  
     Note      ThU.S.$     ThU.S.$     ThU.S.$     ThU.S.$  

Profit (loss)

        191,606        232,676        105,915        127,176   

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

        1,405        (2,526     2,622        (2,526

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

        2,867        (1,836     3,315        (1,752

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

        4,272        (4,362     5,937        (4,278

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         (166,212     70,226        30,514        35,613   

Other Comprehensive Income before tax exchange differences on translation

        (166,212     70,226        30,514        35,613   

Cash flow hedges

           

Gains (losses) on cash flow hedges, before tax

        18,160        590        12,354        (12,264

Reclassification adjustments on cash flow hedges before tax

        (7,104     8,440        (4,720     (1,303

Other Comprehensive Income before tax Cash flow hedges

        11,056        9,030        7,634        (13,567

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

        (155,156     79,256        38,148        22,046   

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

        (403     505        (677     505   

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         (2,092     (2,064     (1,319     2,552   

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

        (2,092     (2,064     (1,319     2,552   

Other comprehensive income

        (153,379     73,335        42,089        20,825   

Comprehensive income

        38,227        306,011        148,004        148,001   
     

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive Income attributable to

           

Comprehensive income, attributable to owners of parent company

        41,250        301,121        146,172        145,662   

Comprehensive income, attributable to non-controlling interests

        (3,023     4,890        1,832        2,339   

Total comprehensive income

        38,227        306,011        148,004        148,001   
     

 

 

   

 

 

   

 

 

   

 

 

 

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

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2015

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

 

 

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

 

Unaudited

06-30-2015

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

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

Opening balance at 01/01/2015

     353,618         (498,495     (53,022     (15,790     (3,745     (571,052     6,984,564        6,767,130        47,606        6,814,736   

Changes in Equity:

                     

Comprehensive income

                     

Net income

                  189,903        189,903        1,703        191,606   

Other comprehensive income, net of tax

        (161,486     8,964        1,002        2,867        (148,653       (148,653     (4,726     (153,379

Comprehensive income

     0         (161,486     8,964        1,002        2,867        (148,653     189,903        41,250        (3,023     38,227   

Dividends

                  (79,609     (79,609     (215     (79,824

Increase (decrease) through for transfers and other changes equity

                  0        0        (805     (805

Changes in equity

     0         (161,486     8,964        1,002        2,867        (148,653     110,294        (38,359     (4,043     (42,402

Closing balance at 06/30/2015

     353,618         (659,981     (44,058     (14,788     (878     (719,705     7,094,858        6,728,771        43,563        6,772,334   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Unaudited

06-30-2014

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

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

Opening balance at 01/01/2014

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

Changes in Equity:

                     

Comprehensive income

                     

Net income

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

Other comprehensive income, net of tax

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

Comprehensive income

     0         67,877        6,966        (2,021     (1,836     70,986        230,135        301,121        4,890        306,011   

Issue of equity

     0                     0        0        0   

Dividends

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

Increase (decrease) for transfer and other changes

                    0        0        0   

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

                    0        0        0   

Changes in equity

     0         67,877        6,966        (2,021     (1,836     70,986        141,298        212,284        3,100        215,384   

Closing balance at 06/30/2014

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

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2015

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

 

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

     06-30-2015     12-31-2014  
     Unaudited  
     ThU.S.$     ThU.S.$  

STATEMENTS OF CASH FLOWS

    

Cash Flows from (used in) Operating Activities

    

Classes of cash receipts from operating activities

    

Receipts from sales of goods and rendering of services

     2,878,668        2,525,286   

Receipts from premiums and claims, annuities and other policy benefits

     2,998        0   

Other cash receipts from operating activities

     214,307        183,351   

Classes of cash payments

    

Payments to suppliers for goods and services

     (2,099,691     (1,895,952

Payments to and on behalf of employees

     (259,719     (258,654

Other cash payments from operating activities

     (126,270     (46,079

Interest paid

     (121,031     (96,296

Interest received

     7,070        9,129   

Income taxes refund (paid)

     (48,874     (4,901

Other (outflows) inflows of cash, net

     1,133        (1,273

Net Cash flows from Operating Activities

     448,591        414,611   
  

 

 

   

 

 

 

Cash flows (used in) investing activities

    

Loans to related parties

     (23,428     0   

Proceeds from sale of property, plant and equipment

     2,515        11,634   

Purchase of property, plant and equipment

     (196,265     (287,341

Proceeds from sales of intangible assets

     99        0   

Purchase of intangible assets

     (1,947     (9,001

Purchase of biological assets

     (83,577     (74,114

Dividends received

     1,865        6,801   

Other outflows of cash, net

     (19     733   

Cash flows used in Investing Activities

     (300,757     (351,288
  

 

 

   

 

 

 

Cash flows from (used in) Financing Activities

    

Total loans obtained

     201,110        463,614   

Loans obtained in long term

     515        322,636   

Proceeds from short-term borrowings

     200,595        140,978   

Repayments of borrowings

     (708,527     (478,493

Dividends paid by subsidiaries or special purpose companies

     (98,638     (77,759

Other inflows of cash, net

     (821     (49

Cash flows from (used in) Financing Activities

     (606,876     (92,687
  

 

 

   

 

 

 

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

     (459,042     (29,364

Effect of exchange rate changes on cash and cash equivalents

     (202     2,876   

Net increase (decrease) of Cash and Cash equivalents

     (459,244     (26,488

Cash and cash equivalents, at the beginning of the period

     971,152        667,212   

Cash and cash equivalents, at the end of the period

     511,908        640,724   
  

 

 

   

 

 

 

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

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2015

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

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2015 (UNAUDITED) AND DECEMBER 31, 2014

NOTE 1. PRESENTATION OF INTERIM CONSOLIDATED FINANCIAL STATEMENTS

Entity Information

Name of Reporting Entity

Celulosa Arauco y Constitución S.A. and subsidiaries, (hereafter “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 “SVS”) as No. 042 on June 14, 1982. Forestal Cholguán S.A., subsidiary of Arauco, is also registered in the Securities Registry as No. 030. Additionally, the Company is registered as a non-accelerated filer with the Securities and Exchange Commission (SEC) of the United States of America.

The Company’s head office address is El Golf Avenue 150, floor 14th, Las Condes, Santiago, Chile.

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

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

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 Interim Consolidated Financial Statements

The Financial Statements presented by Arauco as of June 30, 2015 are:

 

    Consolidated Statements of Financial Position Classified as of June 30, 2015 and December 31, 2014.

 

    Consolidated Statements of Comprehensive Income by function for the periods between January 1 and June 30, 2015 and 2014 and between April 1 and June 30 2015 and 2014.

 

    Statements of Other Consolidated Comprehensive Income for the periods between January 1 and June 30, 2015 and 2014 and between April 1 and June 30 2015 and 2014.

 

    Consolidated Statements of Changes in Equity for the periods between January 1 and June 30, 2015 and 2014.

 

    Consolidated Statements of Cash Flows – Direct Method for the periods between January 1 and June 30, 2015 and 2014.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2015

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

 

 

    Explanatory disclosures (notes)

Period Covered by the Interim Consolidated Financial Statements

Period between January 1 and June 30, 2015.

Date of Approval of Interim Consolidated Financial Statements

These interim consolidated financial statements were approved by the Board of Directors of the Company (the “Board”) at the Extraordinary Session N° 532 held on August 20, 2015 for the period between January 1 and June 30, 2015.

Abbreviations 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.

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.

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 sawn timber, 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.

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

June 30, 2015

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

 

 

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

Summary of significant accounting policies

a) Basis for preparation of interim consolidated financial statements

The interim Financial Statements of Arauco for the six-month period ended June 30, 2015, and for the year ended December 31, 2014, present in all material respects its financial position, its results of operations and its cash flows in accordance with the standards of the Superintendency of Securities and Insurance ( SVS ) that consider the IFRS, 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 (See Note 6).

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

b) Critical accounting estimates and judgments

The preparation of these consolidated financial statements, in accordance with IFRS, requires management to make estimates and assumptions that affect the carrying amounts reported. These estimates are based on historical experience and various other assumptions that are considered to be reasonable. Actual results may differ from these estimates. Management believes that the accounting policies below are the critical judgments that have the most significant effect on the amounts recognized in the consolidated financial statements.

- 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.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2015

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

 

 

Detailed financial information about the fair value of financial instruments and sensitivity analysis are presented in Note 23.

-Biological Assets

The recovery of forest plantations is based on discounted cash flow models which mean that the fair value of biological assets is calculated using cash flows from continuing operations on a discounted basis, 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.

-Goodwill

The assessment of the added value represents the excess of the acquisition cost over the reasonable value of the Group’s holding in the identifiable net assets of the acquired subsidiary on the date of acquisition. Said reasonable value is determined whether based on assessments and/or the discounted future flow method using hypotheses in their determination, such as sales prices and industry indexes, among others.

-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 applies judgment when interpreting the reports of its legal advisors who provide updated estimates of the legal contingencies at each reporting period and/or at each time a modification is determined to be necessary. 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. 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:

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2015

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

 

 

(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.

When the Company holds less than the majority of voting rights in a company in which it participates, it nonetheless has the authority over said company - when these voting rights are enough - to grant it in practice the ability to unilaterally direct said company’s relevant activities. The Company takes into account all facts and circumstances in order to assess if the voting rights in a company in which it participates are enough for granting it the power, including:

a) the size of the investor’s holding of voting rights relative to the size and dispersion of holdings of the other vote holders;

b) potential voting rights held by the investor, other vote holders or other parties;

c) rights arising from other contractual arrangements; and

d) any additional facts and circumstances that indicate the investor has, or does not have, the current ability to direct the relevant activities at the time that decisions need to be made, including voting patterns at previous shareholders’ meetings.

The Company will reevaluate whether or not it holds control of a company in which participates if the facts and circumstances indicate that changes have occurred in one or more of the three elements of control mentioned above.

Consolidation of an investee shall begin from the date the investor obtains control of the investee and cease when the investor loses control of the investee. An entity includes the income and expenses of an acquired or sold subsidiary in the interim consolidated financial statements from the date it gains control until the date when the entity ceases to control the subsidiary.

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 interim consolidated financial statements for transactions and other events in similar circumstances, appropriate adjustments are made in the financial statements of subsidiaries to prepare interim 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 interim consolidated financial statements and non-controlling interests is presented in the consolidated statement of financial position within equity, separately from the equity of the owners of the parent company.

The consolidated financial statements at the end of this period include the assets, liabilities, income and expenses of the subsidiaries shown in Note 13.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2015

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

 

 

Certain consolidated subsidiaries have 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).

A parent company 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.

d) Segments

Arauco has defined its operating segments according to its business areas, based on the products and services sold to its customers. This definition is consistent with the management, resource allocation and performance assessment made by key personnel responsible for making relevant decisions related to the Company’s operation. The Chief Operating Decision Maker (CODM) is the Chief Executive Officer who is responsible for making these decisions and it is supported by the Corporate Managing Directors of each segment.

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

 

    Pulp

 

    Panels

 

    Sawn Timber

 

    Forestry

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

e) Functional currency

(i) Functional currency

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

(ii) Translation to the presentation currency of Arauco

For the purposes of presenting interim consolidated financial statements, the assets and liabilities of Arauco’s operations in functional currency different from Arauco´s are translated into U.S. dollars using exchange rates prevailing at the end of each reporting period. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuate significantly during that period, in which case the exchange rates at the dates of the transactions are used. Exchange rate differences are recognized in other comprehensive income and accumulated in “Other reserves” within–equity.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2015

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

 

 

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

f) Cash and cash equivalents

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

g) Financial Instruments

Financial assets

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

 

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

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

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

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2015

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

 

 

    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 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, using internal methodology based on market information from our Bloomberg terminal.

Foreign Exchange and Interest Rate Forwards: These instruments are initially recognized at fair value at the date on which the contract is entered into and are subsequently remeasured at fair value at each reporting date. Forwards are recognized as assets when fair value is positive and, as liabilities when fair value is negative.

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

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

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 maturities that the Group has the intent and ability to hold to maturity. They are initially recognized at fair value plus transaction costs that are directly attributable to the acquisition and are subsequently 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

 

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Unaudited Consolidated Financial Statements

June 30, 2015

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

 

 

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 plus transaction costs that are directly attributable to the acquisition and are subsequently measured at amortized cost using the effective interest rate method, less any impairment.

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

Financial liabilities

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

(i) Financial liabilities at FVTPL

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

A financial liability is classified as held for trading if:

 

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

 

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

 

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

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

 

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

 

    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 recorded 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.

 

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Unaudited Consolidated Financial Statements

June 30, 2015

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

 

 

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 settlement during at least 12 months after the balance sheet’s date.

The estimate of the fair value of obligations with banks is determined using valuation techniques that include discounted cash flow analyses applying rates of similar loans. Bonds are appraised at market value.

h) Derivative financial instruments

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

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

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

(iii) Hedge accounting - The Company 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

 

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Unaudited Consolidated Financial Statements

June 30, 2015

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

 

 

and the change in the hedged item attributable to the hedged risk are recognized in profit or loss in the line item relating to the hedged item.

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

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

i) Inventories

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

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

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

Biological assets are transferred to inventories when forests are harvested.

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

 

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Unaudited Consolidated Financial Statements

June 30, 2015

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

 

 

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 fair value less the costs to sell, 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; and

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

Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If the total of consideration transferred, non-controlling interest recognized and previously 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 or a group of cash generating units expected to benefit from the synergies of the combination irrespective of whether other assets or liabilities of the acquiree are allocated to those units or group 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.

 

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Unaudited Consolidated Financial Statements

June 30, 2015

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

 

 

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 achieved in stage (“step acquisition”), recognizing the effects of remeasurement of previously held equity interest in the acquiree in the statements of income.

If the initial accounting for a business combination is not completed by the end of the reporting period in which the combination occurs, Arauco reports preliminary amounts for the items for which the accounting is incomplete. During the measurement period (no more than one year), these preliminary amounts are retrospectively adjusted, or additional assets or liabilities are recognized to reflect new information about facts and circumstances that existed at the acquisition date, if known, would have affected the amounts recognized at that date.

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

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.

 

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Unaudited Consolidated Financial Statements

June 30, 2015

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

 

 

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. Dividends received are recognized by deducting the amount received from the carrying amount of the investment. Arauco’s investment in associates includes goodwill (both net of any accumulated impairment loss).

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

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 other than goodwill

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.

 

(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.

 

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Unaudited Consolidated Financial Statements

June 30, 2015

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

 

 

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 expressed 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 interim consolidated 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. The cost includes expenditures that are directly attributable to the acquisition of the assets.

Subsequent costs, such as improvements and replacement of components, are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to Arauco and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognized from property, plant and equipment. All other repairs and maintenance costs are expensed in the period in which they are incurred.

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

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.

When the asset value exceeds its recoverable amount, it is immediately adjusted to its recoverable amount.

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.

 

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Unaudited Consolidated Financial Statements

June 30, 2015

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

 

 

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.

Arauco evaluates the economic foundation of the contracts that grant the right to use certain assets, for the purposes of determining the existence of implied leases. In these cases, the Company separates - at the beginning of the contract, and based on relative reasonable values - payments and considerations associated with the lease, from the rest of the elements incorporated to the contract.

q) Biological Assets

IAS 41 requires that biological assets, such as standing trees, are measured at fair value less cost to sell 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.

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 interim consolidated 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.

 

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Unaudited Consolidated Financial Statements

June 30, 2015

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

 

 

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.

Deferred taxes are registered according to rules established in IAS12 “Income Taxes”, except for the application in the Official Circular Letter No. 856 issued on October 17, 2014 by the SVS, which established that the differences in liabilities and assets for deferred taxes occurring as a direct effect of the increase in the first category tax introduced by Law No. 20,780, should be accounted for in the respective year against equity. (See Note 2).

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 such 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 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.

 

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Unaudited Consolidated Financial Statements

June 30, 2015

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

 

 

(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 interim 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.

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.

 

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June 30, 2015

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

 

 

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 to sell 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.

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.

 

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Unaudited Consolidated Financial Statements

June 30, 2015

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

 

 

“Cash-generating units” are the smallest identifiable groups of those cash inflows that are largely independent of the cash inflow from other assets or groups of assets.

Goodwill is allocated to cash-generating units for impairment testing purposes. The allocation is made between cash-generating units or groups of cash generating units expected to benefit from the synergies of the combination.

Financial Assets

At the end of each reporting period, an evaluation is performed in order to identify whether there is any objective evidence that a financial asset or a group of financial assets may have been impaired. Financial assets are impaired only when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of a financial asset, the estimated future cash flows of the financial asset have been affected. Impairment losses are recognized in the consolidated statement of income.

The allowance for doubtful accounts is established based on an analysis of the age of the portfolio and considering the insurance coverage on accounts receivable. Other conditions are assessed, for example, when there is objective evidence that Arauco will not receive payments under the original sale terms and 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.

These obligations are treated as post-employment benefits.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2015

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

 

 

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 current payables” and “Trade and Other non-current payables” depending on their respective maturities in the consolidated statement of financial position.

z) Recent accounting pronouncements

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

 

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.

   January 1, 2014
Annual improvements 2010-2012-Amendments to IFRS 6   IFRS 2, IFRS 3, IFRS 8, IFRS 13, IAS 16, IAS 24    January 1, 2014
Annual Improvement 2011-2013 –Amendments to IFRS 4   IFRS 1, IFRS 3, IFRS 13, IAS 40    January 1, 2014

The application of these standards did not have a significant impact on the amounts reported in these interim consolidated financial statements, however, it may affect the accounting for future transactions or arrangements.

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

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2015

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

 

 

Amendments and

improvements

 

Contents

  

Mandatory application
for annual periods
beginning on or after

IFRS 11-Amendments  

Accounting for Acquisitions of Interests in Joint Operations

Requires the acquirer to apply the principles in IFRS 3 Business Combinations and Related Disclosures on initial recognition of the interest.

   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

IAS 27-Amendments  

Equity Method in Separate Financial Statements

  

January 1, 2016

IFRS 10 and IAS 28- Amendments   Sale or Contribution of Assets between an Investor and its Associate or Joint Venture   

January 1, 2016

IAS 1-Amendments   Disclosure initiative   

January 1, 2016

IFRS 10, and IAS 28-Amendments

  Investment Entities: Applying the Consolidation Exception    January 1, 2016

Annual Improvements

2012-2014 Cycle

  IFRS 5, IFRS 7, IAS 19 and IAS 34    January 1, 2016

Arauco believes that the adoption of these standards, amendments and interpretations will have no significant impact on its 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

June 30, 2015

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

 

 

NOTE 2. CHANGES IN POLICIES AND ACCOUNTING ESTIMATES

1) Changes in Accounting Policies

The accounting policies have been developed in accordance with the effective IFRS as of June 30, 2015 and have been consistently applied to all periods presented in these interim consolidated financial statements.

The SVS under its authority, issued the Official Circular Letter No. 856 dated October 17, 2014 instructing auditees to register in the respective year against equity, differences in assets and liabilities for deferred taxes occurred as a direct effect of the increase in the first category tax introduced by Law No. 20,780.

This statement differs from that established by the IFRS, which requires that the effect be recorded against income.

This instruction issued by the SVS meant in the consolidated financial statements as of December 31, 2014, a change in the framework of preparation and presentation of financial information adopted by that date, since the previous frame (IFRS) requires to be adopted in a comprehensive, explicit and unreserved manner.

The effect of this change in accounting bases meant in year 2014 a charge to retained earnings amounting to ThU.S.$292,155, which according to IFRS should have been presented under results of the year ended December 31, 2014.

For all other matters related to the presentation of its consolidated financial statements, the Company uses the International Financial Reporting Standards issued by the IASB.

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 consolidated financial statements the share capital of Arauco is ThU.S.$353,618.

100% of Capital corresponds to ordinary shares

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2015

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

 

 

     06-30-2015    12-31-2014

Description of Ordinary Capital Share Types

   100% of Capital corresponds to
ordinary shares

Number of Authorized Shares by Type of Capital in Ordinary Shares

   113,159,655

Nominal Value of Shares by Type of Capital in Ordinary Shares

   ThU.S.$0.0031210 per share

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

   ThU.S.$353,618
   06-30-2015    12-31-2014

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 the prior year distributable net income and the amount of the interim dividend paid at the end of the immediately preceding fiscal year.

The ThU.S.$79,609 (ThU.S.$88,837 as of June 30, 2014) presented in the statement of changes in equity correspond to the minimum dividend provision recorded for the period 2015 (period 2014).

In the Cash Flow Statement, in the line item “Dividends paid” is presented an amount of ThU.S.$98,638 as of June 30, 2015 (ThU.S.$77,759 as of June 30, 2014) which ThU.S.$98,072 (ThU.S.$75,424 as of June 30, 2014) correspond to the payment of dividends of the parent company.

The following are the dividends paid and per share amounts during the period 2015 and 2014:

 

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

   05-12-2015

Amount of Dividend

   ThU.S.$98,072

Number of Shares for which Dividends are Paid

   113,119,655

Dividend per Share

   U.S.$0.8667

 

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

   12-09-2014

Amount of Dividend

   ThU.S.$61,808

Number of Shares for which Dividends are Paid

   113,159,655

Dividend per Share

   U.S.$0.54620

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2015

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

 

 

Detail of Dividend Paid, Ordinary Shares

  

Dividend Paid

   Final Dividend

Type of Shares for which there is a Dividend Paid

   Ordinary Shares

Date of Dividend Paid

   05-09-2014

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

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.

d) Other items in the Statement of Income

The table below sets forth other income, other expenses, finance income, finance costs and share of profit (loss) of associates and joint ventures as of June 30, 2015 and 2014:

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2015

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

 

 

     January - June      April - June  
     Unaudited  
     2015      2014      2015      2014  
     ThU.S.$      ThU.S.$      ThU.S.$      ThU.S.$  

Classes of Other Income

           

Other Income, Total

     110,156         154,124         54,636         76,427   

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

     94,062         133,644         47,280         67,031   

Net income from insurance compensation

     1,443         710         40         710   

Revenue from export promotion

     1,524         1,921         679         942   

Leases received

     1,277         1,096         707         673   

Gain on sales of assets

     3,954         7,261         3,020         1,198   

Access easement

     0         4,831         0         4,831   

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

     7,896         4,661         2,910         1,042   

Classes of Other Expenses by activity

           

Total of other expenses by activity

     (54,311      (83,048      (28,799      (25,048

Depreciation

     (613      (741      (227      (372

Expenses judgment

     (1,536      (1,760      (742      (725

Impairment provision properties, plants and equipment and others

     (1,257      (5,089      (502      (1,339

Plants stoppage operating expenses

     (2,617      (1,657      (2,357      (1,122

Expenses projects

     (373      (7,225      (103      (2,929

Expenses start-up

     0         (7,256      0         (3,218

Loss of assets

     (165      (15      (57      0   

Loss of forest due to fires

     (29,855      (32,029      (18,463      (1,851

Other Taxes

     (5,652      (2,753      (2,989      (1,237

Research and development expenses

     (1,161      (1,509      (571      (698

Compensation and eviction

     (1,044      (7,440      (956      (5,323

Fines, readjustments and interest

     (841      (211      (526      (111

Other expenses (donations, repayments insurance)

     (9,197      (15,363      (1,306      (6,123

Classes of financing income

           

Financing income, total

     19,277         7,506         8,794         3,936   

Financial income from mutual funds—deposits

     5,527         5,156         3,254         2,902   

Financial income resulting from swap—forward

     610         226         (595      36   

Financial income resulting from loans with related companies

     9,176         0         5,347         0   

Other financial income

     3,964         2,124         788         998   

Classes of financing costs

           

Financing costs, Total

     (131,152      (110,058      (62,956      (56,835

Interest expense, Banks loans

     (21,984      (11,841      (12,938      (5,841

Interest expense, Bonds

     (97,779      (85,034      (47,114      (45,715

Interest expense, financial instruments

     (2,064      (6,325      776         (2,610

Other financial costs

     (9,325      (6,858      (3,680      (2,669

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

           

Total

     (986      (99      (1,601      780   

Investments in associates

     (1,285      (741      (1,586      663   

Joint ventures

     299         642         (15      117   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2015

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

 

 

The opening of expenses by nature contained in these financial statements is presented below:

 

     January - June      Abril - June  
     Unaudited  
Cost of sales    2015      2014      2014      2014  
     ThU.S.$      ThU.S.$      ThU.S.$      ThU.S.$  

Timber

     366,475         420,442         182,046         227,230   

Forestry labor costs

     314,094         293,400         164,456         152,381   

Depreciation and amortization

     182,401         141,693         94,577         75,436   

Maintenance costs

     154,544         133,066         84,114         71,110   

Chemical costs

     270,843         264,412         143,168         142,679   

Sawmill Services

     61,564         59,779         33,287         31,269   

Others Raw Materials

     64,802         44,324         36,531         25,092   

Others Indirect costs

     89,721         82,367         47,553         46,841   

Energy and fuel

     87,381         109,298         40,529         66,328   

Cost of electricity

     26,772         42,984         12,222         17,100   

Wage and salaries

     158,650         134,489         80,256         72,910   

Total

     1,777,247         1,726,254         918,739         928,376   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     January - June      Abril - June  
     Unaudited  
Distribution cost    2015      2014      2015      2014  
     ThU.S.$      ThU.S.$      ThU.S.$      ThU.S.$  

Selling costs

     50,538         16,459         25,942         8,281   

Commissions

     8,010         8,148         4,369         4,357   

Insurance

     36,155         2,548         19,463         1,414   

Provision for doubtful accounts receivable

     1,849         893         407         828   

Other selling costs

     4,524         4,870         1,703         1,682   

Shipping and freight costs

     204,735         239,656         106.529         131,149   

Port services

     12,655         14,186         6,491         8,021   

Freights

     149,280         192,695         75,951         104,135   

Other shipping and freight costs

     42,800         32,775         24,087         18,993   

Total

     255,273         256,115         132,471         139,430   
  

 

 

    

 

 

    

 

 

    

 

 

 
     January - June      Abril - June  
     Unaudited  
Administrative expenses    2015      2014      2015      2014  
     ThU.S.$      ThU.S.$      ThU.S.$      ThU.S.$  

Wage and salaries

     117,680         111,795         65,166         59,279   

Marketing, advertising, promotion and publications expenses

     4,857         5,175         2,562         2,740   

Insurance

     15,659         16,353         7,738         8,150   

Depreciation and amortization

     12,687         12,782         6,332         7,282   

Computer services

     16,764         13,741         10,349         7,038   

Lease rentals (offices, warehouses and machinery)

     7,099         5,384         3,627         3,276   

Donations, contributions, scholarships

     4,594         4,667         2,882         2,727   

Fees (legal and technical advisories)

     22,544         26,276         11,558         14,828   

Property taxes, patents and municipality rights

     10,560         10,559         5,844         4,829   

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

     69,922         72,012         35,817         37,542   

Total

     282,366         278,744         151,875         147,691   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

            January-June      April-June  
            Unaudited  
            2015      2014      2015      2014  

Expenses for

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

Depreciations

     7         190,757         150,121         98,947         81,098   

Employee benefits

     10         266,155         254,430         137,724         111,300   

Amortization

     19         6,026         5,782         3,118         2,239   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2015

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

 

 

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

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

 

          06-30-2015  

Auditors fees

        ThU.S.$  

Audit services

        1,066   

Other services

     
   Tax services      288   
   Others      280   

TOTAL

        1,634   
     

 

 

 

Number of employees

        No.   
        13,576   
     

 

 

 

NOTE 4. INVENTORIES

 

     06-30-2015      12-31-2014  

Components of Inventory

   ThU.S.$      ThU.S.$  

Raw materials

     100,097         98,242   

Production supplies

     97,182         107,067   

Products in progress

     67,216         66,635   

Finished goods

     488,014         469,561   

Spare Parts

     158,557         152,068   

Total Inventories

     911,066         893,573   
  

 

 

    

 

 

 

Inventories recognized as cost of sales at June 30, 2015 were ThU.S.$1,773,733 (ThU.S.$1,722,611 at June 30, 2014).

In order to have the inventories recorded at net realizable value at June 30, 2015, there has been a net increase of inventories associated with a lower provision of obsolescence of ThU.S.$1,833 (higher provision of ThU.S.$133 at June 30, 2014). At of June 30, 2015, the amount of obsolescence provision is ThU.S.$9,835 (ThU.S.$11,668 at December 31, 2014).

At June 30, 2015 there were inventory write-offs of ThU.S.$2,484 (ThU.S.$279 at June 30, 2014)

The inventory obsolescence provision is calculated based on the sales conditions 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

June 30, 2015

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 interim consolidated financial statements, there are no amounts of cash and cash equivalents with restrictions on use.

 

     06-30-2015         
     Unaudited      12-31-2014  

Components of Cash and Cash Equivalents

   ThU.S.$      ThU.S.$  

Cash on hand

     246         391   

Bank checking account balances

     136,197         157,611   

Time deposits

     156,343         669,545   

Mutual funds

     219,122         128,985   

Other cash and cash equivalents (*)

     0         14,620   

Total

     511,908         971,152   
  

 

 

    

 

 

 

 

(*) Applies to purchase contracts subject to resale covenants

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2015

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 22.5% 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, amending the current system 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 to 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 SVS 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.$292,155 resulting from a deferred effect of the new tax rate as of December 31, 2014.

Deferred Tax Assets

The following table sets forth the deferred tax assets for the dates indicated:

 

     06-30-2015         
     Unaudited      12-31-2014  

Deferred Tax Assets

   ThU.S.$      ThU.S.$  

Deferred tax Assets relating to Provisions

     14,811         14,923   

Deferred tax Assets relating to Accrued Liabilities

     9,376         11,120   

Deferred tax Assets relating to Post-Employment benefits

     15,325         13,859   

Deferred tax Assets relating to Property, Plant and equipment

     8,759         11,199   

Deferred tax Assets relating to Financial Instruments

     16,224         14,129   

Deferred tax Assets relating to Tax Losses Carryforwards

     38,687         44,832   

Deferred tax Assets relating to Inventories

     3,499         3,157   

Deferred tax Assets relating to Provisions for Income

     7,349         5,827   

Deferred tax Assets relating to Allowance for Doubtful Accounts

     3,889         3,855   

Intangible revaluation differences

     62         1,080   

Deferred tax Assets relating to Other Deductible Temporary Differences

     31,713         34,302   

Total Deferred Tax Assets

     149,694         158,283   
  

 

 

    

 

 

 

Certain subsidiaries of Arauco, as of the date of these interim consolidated financial statements, present tax losses for which we estimate that, given the projection of future profits, will allow the recovery of these assets. The total amount of these tax losses is ThU.S.$120,486 (ThU.S.$132,292 at December 31, 2014), which are mainly originated by operational and financial losses.

In addition, as of the closing of these interim consolidated financial statements there are ThU.S.$111,892 (ThU.S.$92,809 at December 31, 2014) of non-recoverable tax losses from Inversiones Arauco Internacional and companies in Uruguay based on the participation of Arauco, for which deferred tax assets have not been recognized. The payback period exceeds the term of such tax losses.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2015

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

 

 

Deferred Tax Liabilities

The following table sets forth the deferred tax assets related to the dates indicated:

 

     06-30-2015         
     Unaudited      12-31-2014  

Deferred Tax Liabilities

   ThU.S.$      ThU.S.$  

Deferred tax Liabilities relating to Property, plant and equipment

     934,909         941,666   

Deferred tax Liabilities relating to Financial Instruments

     4,286         4,906   

Deferred tax Liabilities relating to Biological Assets

     672,258         681,505   

Deferred tax Liabilities relating to Inventory

     30,804         25,688   

Deferred tax Liabilities due to Prepaid Expenses

     44,716         40,888   

Deferred tax Liabilities due to Intangible

     28,694         32,990   

Deferred tax Liabilities relating to Other Taxable Temporary Differences

     30,014         29,506   

Total Deferred Tax Liabilities

     1,745,681         1,757,149   
  

 

 

    

 

 

 

The effect of changes in current and deferred tax liabilities related to cash flow hedges corresponds to a charge of ThU.S.$2,092 as of June 30, 2015 (ThU.S.$2,064 as of June 30, 2014), which is presented in consolidated statements of comprehensive income and accumulated in Reserves for cash flow hedges in the consolidated statement of changes in equity.

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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Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2015

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

 

 

Reconciliation of deferred tax assets and liabilities

 

Unaudited

 

Deferred Tax Assets

   Opening
Balance
01-01-2015
ThU.S.$
     Deferred tax
Expenses
(Income)
ThU.S.$
    Deferred tax
of items
charged to
other
comprehensive
income
ThU.S.$
    Increase
(decrease)
Net
exchange
differences
ThU.S.$
    Closing
balance
06-30-2015
ThU.S.$
 

Deferred tax Assets relating to Provisions

     14,923         168        —          (280     14,811   

Deferred tax Assets relating to accrued liabilities

     11,120         (1,697     —          (47     9,376   

Deferred tax Assets relating to Post-Employment benefits

     13,859         1,856        (355     (35     15,325   

Deferred tax Assets relating to Property, Plant and equipment

     11,199         (2,440     —          0        8,759   

Deferred tax Assets relating to Financial Instruments

     14,129         369        1,726        0        16,224   

Deferred tax Assets relating to tax losses carryforwards

     44,832         (1,722     —          (4,423     38,687   

Deferred tax assets relating to biological assets

     0         0        —          0        0   

Deferred tax assets relating to provisions for income

     3,157         483        —          (141     3,499   

Deferred tax assets relating to provisions for income

     5,827         1,522        —          0        7,349   

Deferred tax assets relating to provision for doubtful accounts

     3,855         30        —          4        3,889   

Intangible revaluation differences

     1,080         (1,018     —          0        62   

Deferred tax assets relating to other deductible temporary differences

     34,302         (2,233     —          (356     31,713   

Total deferred tax assets

     158,283         (4,682     1,371        (5,278     149,694   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Unaudited

 

Deferred Tax Liabilities

   Opening
Balance

01-01-2015
ThU.S.$
     Deferred tax
Expenses
(Income)

ThU.S.$
    Deferred tax
of items
charged to
other

comprehensive
income

ThU.S.$
    Increase
(decrease)

Net
exchange
differences

ThU.S.$
    Closing
balance

06-30-2015
ThU.S.$
 

Deferred tax liabilities relating to property, Plant and equipment

     941,666         583        —          (7,340     934,909   

Deferred tax liabilities relating to financial instruments

     4,906         (620     —          0        4,286   

Deferred tax liabilities relating to biological assets

     681,505         1,868        —          (11,115     672,258   

Deferred tax liabilities relating to inventory

     25,688         5,116        —          —          30,804   

Deferred tax liabilities due to prepaid expenses

     40,888         3,787        —          41        44,716   

Deferred tax liabilities due to intangible

     32,990         1,722        —          (6,018     28,694   

Deferred tax liabilities relating to other taxable temporary differences

     29,506         (3,272     —          3,780        30,014   

Total deferred tax liabilities

     1,757,149         9,184        —          (20,652     1,745,681   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2015

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

 

 

Deferred Tax Assets

   Opening
Balance
01-01-2014
ThU.S.$
     Deferred tax
Expenses
(Income)
ThU.S.$
     Deferred tax
of items
charged to
other
comprehensive
income
ThU.S.$
     Increase
(decrease)
Net
exchange
differences
ThU.S.$
     Closing
balance
12-31-2014
ThU.S.$
 

Deferred tax Assets relating to Provisions

     12,016         843         2,367         (303)         14,923   

Deferred tax Assets relating to accrued liabilities

     10,118         (242)         1,265         (21)         11,120   

Deferred tax Assets relating to Post-Employment benefits

     9,012         (1,095)         6,036         (94)         13,859   

Deferred tax Assets relating to Property, Plant and equipment

     8,842         1,617         787         (47)         11,199   

Deferred tax Assets relating to Financial Instruments

     343         355         13,431         —           14,129   

Deferred tax Assets relating to tax losses carryforwards

     56,333         (9,427)         419         (2,493)         44,832   

Deferred tax assets relating to biological assets

     73         (73)         —           —           0   

Deferred tax assets relating to provisions for income

     4,910         (1,706)         82         (129)         3,157   

Deferred tax assets relating to provisions for income

     3,678         1,624         525         —           5,827   

Deferred tax assets relating to provision for doubtful accounts

     3,104         574         218         (41)         3,855   

Intangible revaluation differences

     —           1,080         0         —           1,080   

Deferred tax assets relating to other deductible temporary differences

     52,169         (20,064)         2,427         (230)         34,302   

Total deferred tax assets

     160,598         (26,514)         27,557         (3,358)         158,283   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Deferred Tax Liabilities

   Opening
Balance
01-01-2014
ThU.S.$
     Deferred tax
Expenses
(Income)
ThU.S.$
     Deferred tax
of items
charged to
other
comprehensive
income
ThU.S.$
     Increase
(decrease)
Net
exchange
differences
ThU.S.$
     Closing
balance
12-31-2014
ThU.S.$
 

Deferred tax liabilities relating to property, Plant and equipment

     781,777         8,393         158,106         (6,610)         941,666   

Deferred tax liabilities relating to financial instruments

     10,060         677         (5,831)         —           4,906   

Deferred tax liabilities relating to biological assets

     534,161         21,626         134,467         (8,749)         681,505   

Deferred tax liabilities relating to inventory

     15,422         8,618         1,648         —           25,688   

Deferred tax liabilities due to prepaid expenses

     56,558         (21,363)         5,693         —           40,888   

Deferred tax liabilities due to intangible

     34,188         (1,533)         335         —           32,990   

Deferred tax liabilities relating to other taxable temporary differences

     30,129         (2,752)         3,648         (1,519)         29,506   

Total deferred tax liabilities

     1,462,295         13,666         298,066         (16,878)         1,757,149   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2015

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

 

 

Temporary Differences

The following tables summarize the deductible and taxable temporary differences:

 

     06-30-2015         
     Unaudited      12-31-2014  
     Deductible      Taxable      Deductible      Taxable  

Detail of classes of Deferred Tax Temporary Differences

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

Deferred Tax Assets

     111,007            113,451      

Deferred Tax Assets—Tax losses

     38,687            44,832      

Deferred Tax Liabilities

        1,745,681            1,757,149   

Total

     149,694         1,745,681         158,283         1,757,149   
  

 

 

    

 

 

    

 

 

    

 

 

 
     January - June      April - June  
     Unaudited  

Detail of Temporary Difference Income and Loss Amounts

   2015
ThU.S.$
     2014
ThU.S.$
     2015
ThU.S.$
     2014
ThU.S.$
 

Deferred Tax Assets

     (2,960      (22,492      2,745         (14,552

Deferred Tax Assets—Tax losses

     (1,722      421         (6,102      (1,557

Deferred Tax Liabilities

     (9,184      (15,680      7,202         8,786   

Total

     (13,866      (37,751      3,845         (7,323
  

 

 

    

 

 

    

 

 

    

 

 

 

Income Tax Expense

Income tax expense consists of the following:

 

     January - June      April - June  
     Unaudited  

Income Tax composition

   2015
ThU.S.$
     2014
ThU.S.$
     2015
ThU.S.$
     2014
ThU.S.$
 

Current income tax expense

     (66,758      (55,531      (38,206      (33,980

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

     1,166         0         405         (58

Previous period current tax adjustments

     2,836         4,637         (2,157      2,324   

Other current tax expenses

     (617      4,630         (252      2,621   

Current Tax Expense, Net

     (63,373      (46,264      (40,210      (29,093

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

     (12,144      (38,172      9,947         (5,766

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

     (1,722      421         (6,102      (1,557

Total deferred Tax Expense, Net

     (13,866      (37,751      3,845         (7,323

Income Tax Expense, Total

     (77,239      (84,015      (36,365      (36,416
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2015

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

 

 

The following table sets for the current income tax expense detailed by foreign and domestic companies at June 30, 2015 and 2014:

 

     January - June      April - June  
     Unaudited  
     2015      2014      2015      2014  
     ThU.S.$      ThU.S.$      ThU.S.$      ThU.S.$  

Foreign current income tax expense

     (27,091      (9,815      (14,109      (7,322

Domestic current income tax expense

     (36,282      (36,449      (26,101      (21,771

Total current income tax expense

     (63,373      (46,264      (40,210      (29,093

Foreign deferred tax expense

     (3,807      (16,500      (2,103      (2,207

Domestic deferred tax expense

     (10,059      (21,251      5,948         (5,116

Total deferred tax expense

     (13,866      (37,751      3,845         (7,323

Total tax income (expense)

     (77,239      (84,015      (36,365      (36,416
  

 

 

    

 

 

    

 

 

    

 

 

 

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

The reconciliation of income tax expense is as follows:

 

     January - June      April - June  
     Unaudited  
     2015      2014      2015      2014  

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

     (60,490      (63,338      (32,013      (27,257

Tax effect of foreign tax rates

     (6,997      (8,548      (5,332      (7,510

Tax effect of revenues exempt from taxation

     21,863         8,772         8,225         10,995   

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

     (26,123      (21,934      (7,774      (14,661

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

     (1,216      (1,098      (389      (1,098

Tax rate effect of adjustments for current tax of prior periods

     2,836         4,637         (2,157      2,324   

Other tax rate effects

     (7,112      (2,506      3,075         791   

Total adjustments to tax expense at applicable tax rate

     (16,749      (20,677      (4,352      (9,159

Tax expense at effective tax rate

     (77,239      (84,015      (36,365      (36,416
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2015

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

 

 

NOTE 7. PROPERTY, PLANT AND EQUIPMENT

 

     06-30-2015         
     Unaudited      12-31-2014  

Property, Plant and Equipment, Net

   ThU.S.$      ThU.S.$  

Construction in progress

     270,567         265,440   

Land

     927,670         949,531   

Buildings

     2,177,273         2,172,177   

Plant and equipment

     3,461,161         3,565,502   

Information technology equipment

     27,415         28,521   

Fixtures and fittings

     11,866         11,654   

Motor vehicles

     16,696         17,346   

Other property, plant and equipment

     110,794         109,412   

Total Net

     7,003,442         7,119,583   
  

 

 

    

 

 

 

Property, Plant and Equipment, Gross

     

Construction in progress

     270,567         265,440   

Land

     927,670         949,531   

Buildings

     3,646,698         3,593,306   

Plant and equipment

     5,942,458         5,944,394   

Information technology equipment

     72,891         71,838   

Fixtures and fittings

     37,907         37,382   

Motor vehicles

     47,797         46,293   

Other property, plant and equipment

     131,102         128,012   

Total Gross

     11,077,090         11,036,196   
  

 

 

    

 

 

 

Accumulated depreciation and impairment

     

Buildings

     (1,469,425      (1,421,129

Plant and equipment

     (2,481,297      (2,378,892

Information technology equipment

     (45,476      (43,317

Fixtures and fittings

     (26,041      (25,728

Motor vehicles

     (31,101      (28,947

Other property, plant and equipment

     (20,308      (18,600

Total

     (4,073,648      (3,916,613
  

 

 

    

 

 

 

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

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

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

 

     06-30-2015
Unaudited
ThU.S.$
     12-31-2014
ThU.S.$
 

Amount committed for the acquisition of property, plant and equipment

     433,620         139,927   
     06-30-2015         
     Unaudited
ThU.S.$
     12-31-2014
ThU.S.$
 

Disbursements for property, plant and equipment under construction

     103,489         371,286   

 

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Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2015

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

 

 

Movement on Property, Plant and Equipment

The following tables set forth the reconciliation of the carrying amount of property, plant and equipment as of June 30, 2015 and December 31, 2014:

 

Unaudited

   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 01-01-2015

     265,440         949,531         2,172,177         3,565,502         28,521         11,654         17,346         109,412         7,119,583   

Changes

                          

Additions

     103,489         1,721         6,540         51,436         1,067         1,552         475         7,112         173,392   

Disposals

     (20)         (197)         (443)         (135)         (77)         (5)         (13)         —           (890)   

Retirements

     (2,223)         (1,159)         (67)         (563)         (4)         (1)         (12)         (179)         (4,208)   

Depreciation

     —           —           (56,534)         (130,552)         (2,590)         (1,231)         (2,004)         (3,266)         (196,177)   

Increase (decrease) through net exchange differences

     (1,538)         (23,974)         (17,449)         (43,232)         (112)         (244)         (158)         (1,551)         (88,258)   

Increase (decrease) through transfers from construction in progress

     (94,581)         1,748         73,049         18,705         610         141         1,062         (734)         —     

Total changes

     5,127         (21,861)         5,096         (104,341)         (1,106)         212         (650)         1,382         (116,141)   

Closing balance 06-30-2015

     270,567         927,670         2,177,273         3,461,161         27,415         11,866         16,696         110,794         7,003,442   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     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

     371,286         1,215         17,438         54,011         2,605         1,195         4,608         18,828         471,186   

Disposals

     (2,969)         (5,596)         (513)         (1,715)         (59)         (515)         (458)         (776)         (12,601)   

Retirements

     (6,278)         (41)         (17,369)         (23,026)         (12)         (6)         (247)         (5,670)         (52,649)   

Depreciation

     —           —           (102,068)         (222,232)         (4,944)         (2,084)         (4,241)         (4,018)         (339,587)   

Impairment loss recognized in profit or loss

     —           —           —           —           —           —           (636)         —           (636)   

Increase (decrease) through net exchange differences

     310         (21,664)         (30,620)         (26,928)         (269)         (175)         (123)         (2,198)         (81,667)   

Reclassification of assets held for sale

     (1,930)         —           —           —           —           —           —           —           (1,930)   

Increase (decrease) through transfers from construction in progress

     (1,637,718)         —           610,385         1,010,841         5,625         5,612         4,846         409         —     

Total changes

     (1,277,299)         (26,086)         477,253         790,951         2,946         4,027         3,749         6,575         (17,884)   

Closing balance 12-31-2014

     265,440         949,531         2,172,177         3,565,502         28,521         11,654         17,346         109,412         7,119,583   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

49


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2015

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

 

 

The depreciation expense for the period ending June 30, 2015 and 2014 is as follows:

 

     January-June      April-June  
     Unaudited  
     2015      2014      2015      2014  

Depreciation for the period

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

Cost of sales

     179,157         138,806         92,852         74,641   

Administrative expenses

     9,905         9,887         4,939         5,831   

Other expenses

     1,695         1,428         1,156         626   

Total

     190,757         150,121         98,947         81,098   
  

 

 

    

 

 

    

 

 

    

 

 

 

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   

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

June 30, 2015

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

 

 

NOTE 8. LEASES

Arauco acting as lessee

 

     06-30-2015         
     Unaudited      12-31-2014  
     ThU.S.$      ThU.S.$  

Property, Plant and Equipment under finance leases

     117,365         94,996   

Plant and equipment

     117,365         94,996   

Reconciliation of Financial Lease Minimum Payments:

 

     06-30-2015
Unaudited
 
    

Present Value

 

Periods

   ThU.S.$  

Less than one year

     34,921   

Between one and five years

     78,984   

More than five years

     —     

Total

     113,905   
  

 

 

 
     12-31-2014  
     Present Value  

Periods

   ThU.S.$  

Less than one year

     31,706   

Between one and five years

     65,289   

More than five years

     —     

Total

     96,995   
  

 

 

 

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.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2015

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

 

 

Arauco acting as lessor

Reconciliation of Financial Lease Minimum Payments:

 

     06-30-2015
Unaudited
 
     Gross      Interest      Present Value  

Periods

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

Less than one year

     115         1         114   

Between one and five years

     12         0         12   

More than five years

     —           —           —     

Total

     127         1         126   
  

 

 

    

 

 

    

 

 

 
     12-31-2014  
     Gross      Interest      Present Value  

Periods

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

Less than one year

     141         5         136   

Between one and five years

     20         3         17   

More than five years

     —           —           —     

Total

     161         8         153   
  

 

 

    

 

 

    

 

 

 

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.

Arauco holds leases as lessee and lessor, described in the previous tables, for which there are no impairment contingent payments or restrictions to report.

NOTE 9. REVENUE

 

     January - June      April - June  

Classes of revenue

   2015
ThU.S.$
     2014
ThU.S.$
     2015
ThU.S.$
     2014
ThU.S.$
 

Revenue from sales of goods

     2,559,882         2,497,489         1,329,523         1,321,237   

Revenue from rendering of services

     86,125         101,770         43,169         53,405   

Total

     2,646,007         2,599,259         1,372,692         1,374,642   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2015

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

 

 

NOTE 10. EMPLOYEE BENEFITS

Classes of Benefits and Expenses by Employee

 

     January - June      April -June  
     Unaudited  
     2015      2014      2015      2014  
     ThU.S.$      ThU.S.$      ThU.S.$      ThU.S.$  

Employee expenses

     270,626         254,549         142,195         114,809   

Wages and salaries

     258,956         248,840         132,648         112,432   

Severance indemnities

     11,670         5,709         9,547         2,377   

The main actuarial assumptions used by Arauco in the calculation of the severance indemnities obligation as of June 30, 2015 and December 31, 2014 are as follows:

 

     2015   2014

Discount rate

   1.61%   3.50%

Inflation

   3.00%   3.00%

Mortality rate

   RV-2009   RV-2009

The following tables set forth the balances and the reconciliation of the present value of severance indemnities obligation as of June 30, 2015 and December 31, 2014:

 

     06-30-2015         
     Unaudited      12-31-2014  
     ThU.S.$      ThU.S.$  

Current

     4,341         3,590   

Non-current

     51,209         48,582   

Total

     55,550         52,172   
  

 

 

    

 

 

 
     06-30-2015         
     Unaudited      12-31-2014  

Reconciliation of the present value of severance indemnities obligation

   ThU.S.$      ThU.S.$  

Opening balance

     52,172         45,984   

Current service cost

     1,642         1,938   

Interest cost

     717         2,977   

Gains or losses from changes in actuarial assumptions

     (2,593      8,640   

Actuarial gains and losses arising from experience

     1,188         4,189   

Benefits paid

     (2,132      (5,388

Past service cost

     6,941         —     

Increase (decrease) for foreign currency exchange rates changes

     (2,385      (6,168

Closing balance

     55,550         52,172   
  

 

 

    

 

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2015

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

 

 

NOTE 11. EFFECT OF FOREIGN CURRENCY EXCHANGE RATE VARIATIONS

 

     06-30-2015         
     Unaudited      12-31-2014  
     ThU.S.$      ThU.S.$  

Total Current Assets

     2,689,074         3,140,715   

Cash and Cash Equivalents

     511,908         971,152   

U.S Dollar

     394,215         877,418   

Euro

     4,963         8,114   

Brazilian Real

     32,223         43,604   

Argentine Pesos

     37,570         15,794   

Other currencies

     3,782         2,983   

Chilean Pesos

     39,155         23,239   

Other current financial assets

     11,764         7,633   

U.S Dollar

     11,764         7,632   

Chilean Pesos

     —           1   

Other current non-financial assets

     164,793         177,728   

U.S Dollar

     113,848         103,689   

Euros

     —           45   

Brazilian Real

     10,018         11,489   

Argentine Pesos

     4,542         13,711   

Other currencies

     5,419         6,335   

Chilean Pesos

     30,966         42,459   

Trade and other current receivables

     777,985         731,908   

U.S Dollar

     543,764         464,219   

Euro

     15,947         72,353   

Brazilian Real

     55,334         47,043   

Argentine Pesos

     31,841         31,354   

Other currencies

     18,175         19,733   

Chilean Pesos

     111,991         96,241   

U.F.

     933         965   

Accounts receivable from related companies

     4,354         4,705   

Brazilian Real

     999         1,998   

Chilean Pesos

     3,355         2,707   

Current Inventories

     911,067         893,573   

U.S Dollar

     849,227         829,830   

Brazilian Real

     44,713         48,046   

Chilean Pesos

     17,127         15,697   

Current biological assets

     255,824         307,551   

U.S Dollar

     255,824         307,551   

Current tax assets

     43,379         38,477   

U.S Dollar

     2,577         2,358   

Euros

     —           81   

Brazilian Real

     1,700         2,691   

Argentine Pesos

     14         1,464   

Other currencies

     2,109         3,653   

Chilean Pesos

     36,979         28,230   

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

     8,000         7,988   

U.S Dollar

     8,000         7,988   

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2015

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

 

 

     06-30-2015
Unaudited
ThU.S.$
     12-31-2014
ThU.S.$
 

Total Non Current Assets

     11,437,050         11,607,182   

Other non-current financial assets

     1,980         5,024   

U.S Dollar

     1,430         4,439   

Argentine Pesos

     550         585   

Other non-current non-financial assets

     101,818         101,094   

U.S Dollar

     94,823         92,437   

Brazilian Real

     4,661         5,705   

Argentine Pesos

     489         563   

Other currencies

     966         885   

Chilean Pesos

     879         1,504   

Trade and other non-current receivables

     25,755         31,001   

U.S Dollar

     20,322         26,773   

Other currencies

     887         —     

Chilean Pesos

     3,246         3,591   

U.F.

     1,300         637   

Related party receivables, non current

     162,948         151,519   

Brazilian Reales

     162,948         151,519   

Investments accounted for using equity method

     303,776         326,045   

U.S Dollar

     122,583         119,405   

Brazilian Real

     181,193         206,640   

Intangible assets other than goodwill

     87,409         93,258   

U.S Dollar

     86,001         91,408   

Brazilian Real

     1,275         1,771   

Chilean Pesos

     133         79   

Goodwill

     76,683         82,573   

U.S Dollar

     42,665         42,838   

Brazilian Real

     34,018         39,735   

Property, plant and equipment

     7,003,442         7,119,583   

U.S Dollar

     6,496,398         6,527,093   

Brazilian Real

     501,436         586,398   

Chilean Pesos

     5,608         6,092   

Non-current biological assets

     3,523,545         3,538,802   

U.S Dollar

     3,220,196         3,188,043   

Brazilian Real

     303,349         350,759   

Deferred tax assets

     149,694         158,283   

U.S Dollar

     124,343         129,119   

Brazilian Real

     24,654         28,345   

Other currencies

     69         67   

Chilean Pesos

     628         752   

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2015

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

 

 

     06-30-2015         
     Unaudited             12-31-2014         
     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

     904,158         547,104         1,451,262         1,002,859         544,227         1,547,086   

Other current financial liabilities

     153,307         538,045         691,352         203,170         539,173         742,343   

U.S Dollar

     136,061         457,205         593,266         173,579         484,254         657,833   

Brazilian Real

     3,993         51,348         55,341         17,145         27,507         44,652   

Argentine Pesos

     127         384         511         —           544         544   

Chilean Pesos

     332         954         1,286         288         809         1,097   

U.F.

     12,794         28,154         40,948         12,158         26,059         38,217   

Bank Loans

     89,603         508,937         598,540         139,916         133,554         273,470   

U.S Dollar

     85,483         457,205         542,688         122,771         105,503         228,274   

Brazilian Real

     3,993         51,348         55,341         17,145         27,507         44,652   

Argentine Pesos

     127         384         511         —           544         544   

Financial Leases

     8,699         26,222         34,921         7,851         23,855         31,706   

U.S Dollar

     —           —           —           —           6         6   

Chilean Pesos

     332         954         1,286         288         809         1,097   

U.F.

     8,367         25,268         33,635         7,563         23,040         30,603   

Other Loans

     55,005         2,886         57,891         55,403         381,764         437,167   

U.S Dollar

     50,578         —           50,578         50,808         378,745         429,553   

U.F.

     4,427         2,886         7,313         4,595         3,019         7,614   

Trade and other current payables

     605,079         —           605,079         627,972         2,434         630,406   

U.S Dollar

     164,049         —           164,049         180,164         —           180,164   

Euros

     5,176         —           5,176         44,887         —           44,887   

Brazilian Real

     30,136         —           30,136         22,662         2,434         25,096   

Argentine Pesos

     41,423         —           41,423         34,879         —           34,879   

Other currencies

     18,899         —           18,899         2,187         —           2,187   

Chilean Pesos

     342,637         —           342,637         340,858         —           340,858   

U.F.

     2,759         —           2,759         2,335         —           2,335   

Accounts payable to related companies

     9,514         —           9,514         6,036         —           6,036   

U.S Dollar

     2,355         —           2,355         1,612         —           1,612   

Chilean Pesos

     7,159         —           7,159         4,424         —           4,424   

Other current provisions

     654         —           654         2,535         —           2,535   

U.S Dollar

     654         —           654         2,535         —           2,535   

Current tax liabilities

     21,496         —           21,496         25,860         —           25,860   

U.S Dollar

     10,318         —           10,318         782         —           782   

Euros

     565         —           565         —           —           —     

Brazilian Real

     1,643         —           1,643         1,921         —           1,921   

Argentine Pesos

     4,012         —           4,012         6,063         —           6,063   

Other currencies

     —           —           —           —           —           —     

Chilean Pesos

     4,958         —           4,958         17,094         —           17,094   

Current provisions for employee benefits

     1,080         3,261         4,341         1,211         2,379         3,590   

Chilean Pesos

     1,080         3,261         4,341         1,211         2,379         3,590   

Other current non-financial liabilities

     113,028         5,798         118,826         136,075         241         136,316   

U.S Dollar

     78,219         5,610         83,829         100,904         —           100,904   

Euros

     78         —           78         —           —           —     

Brazilian Real

     14,516         —           14,516         19,041         —           19,041   

Argentine Pesos

     6,040         187         6,227         6,143         184         6,327   

Other currencies

     4,334         —           4,334         4,307         —           4,307   

Chilean Pesos

     9,736         1         9,737         5,575         57         5,632   

U.F.

     105         —           105         105         —           105   

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2015

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

 

 

     From 13
months to 5
years
    

06-30-2015
Unaudited

More than 5
years

     Total      From 13
months to 5
years
    

12-31-2014

More than 5
years

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

Total non-current liabilities

     2,894,984         3,007,544         5,902,528         3,412,073         2,974,002         6,386,075   

Other non-current financial liabilities

     1,585,095         2,403,233         3,988,328         1,943,952         2,509,867         4,453,819   

U.S Dollar

     1,394,844         1,566,368         2,961,212         1,767,326         1,603,825         3,371,151   

Brazilian Real

     15,833         3,802         19,635         34,612         18,434         53,046   

Argentine Pesos

     323         —           323         614         —           614   

Chilean Pesos

     2,897         —           2,897         2,352         —           2,352   

U.F.

     171,198         833,063         1,004,261         139,048         887,608         1,026,656   

Bank Loans

     381,551         194,390         575,941         797,628         248,117         1,045,745   

U.S Dollar

     365,395         190,588         555,983         762,402         229,683         992,085   

Brazilian Real

     15,833         3,802         19,635         34,612         18,434         53,046   

Argentine Pesos

     323         —           323         614         —           614   

Financial Leases

     78,985         —           78,985         65,289         —           65,289   

Chilean Pesos

     2,897         —           2,897         2,352         —           2,352   

U.F.

     76,088         —           76,088         62,937         —           62,937   

Other Loans

     1,124,559         2,208,843         3,333,402         1,081,035         2,261,750         3,342,785   

U.S Dollar

     1,029,449         1,375,780         2,405,229         1,004,924         1,374,142         2,379,066   

U.F.

     95,110         833,063         928,173         76,111         887,608         963,719   

Other non-current provisions

     63,831         —           63,831         64,529         —           64,529   

U.S Dollar

     4         —           4         4         —           4   

Brazilian Real

     32,163         —           32,163         31,374         —           31,374   

Argentine Pesos

     31,664         —           31,664         30,301         —           30,301   

Chileans $

     —           —           —           2,850         —           2,850   

Deferred tax liabilities

     1,141,370         604,311         1,745,681         1,299,714         457,435         1,757,149   

U.S Dollar

     1,024,768         604,311         1,629,079         1,159,805         457,435         1,617,240   

Euros

     —           —           —           4,044         —           4,044   

Brazilian Real

     116,350         —           116,350         135,600         —           135,600   

Chilean Pesos

     252         —           252         265         —           265   

Non-current provisions for employee benefits

     51,209         —           51,209         41,882         6,700         48,582   

Other currencies

     176         —           176         172         —           172   

Chilean Pesos

     51,033         —           51,033         41,710         6,700         48,410   

Other non-current non-financial liabilities

     53,479         —           53,479         61,996         —           61,996   

U.S Dollar

     1,095         —           1,095         1,043         —           1,043   

Brazilian Real

     51,142         —           51,142         59,497         —           59,497   

Argentine Pesos

     1,008         —           1,008         1,206         —           1,206   

Chilean Pesos

     234         —           234         246         —           246   

U.F.

     —           —           —           4         —           4   

 

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Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2015

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

 

 

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

 

Subsidiary

  

Country

  

Functional Currency

Arauco do Brasil S.A.

   Brazil    Brazilian Real

Arauco Forest Brasil S.A.

   Brazil    Brazilian Real

Arauco Florestal Arapoti S.A.

   Brazil    Brazilian Real

Empreendimentos Florestais Santa Cruz Ltda.

   Brazil    Brazilian Real

Mahal Empreendimentos e Participacoes S.A.

   Brazil    Brazilian Real

Arauco Distribución S.A.

   Chile    Chilean Pesos

Investigaciones Forestales Bioforest S.A.

   Chile    Chilean Pesos

Consorcio Protección Fitosanitaria Forestal S.A.
(Ex-Controladora de Plagas Forestales S.A.)

   Chile    Chilean Pesos

Flakeboard Company Limited

   Canada    Canadian Dollar

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

 

     January - June      April - June  
     Unaudited  
     2015      2014      2015      2014  
     ThU.S.$      ThU.S.$      ThU.S.$      ThU.S.$  

Arauco Do Brasil S.A.

     (67,944      32,973         12,895         14,722   

Arauco Forest Brasil S.A.

     (60,633      25,221         11,604         11,286   

Arauco Florestal Arapoti S.A.

     (18,862      9,458         3,715         4,236   

Arauco Distribución S.A.

     (1,438      (1,273      (587      (74

Arauco Argentina S.A.

     (5,729      1,637         998         1,077   

Flakeboard Company Limited

     (6,890      34         979         3,329   

Others

     10         (173      (21      (19
  

 

 

    

 

 

    

 

 

    

 

 

 

Total reserve of exchange differences on translation

     (161,486      67,877         29,583         34,557   
  

 

 

    

 

 

    

 

 

    

 

 

 

Effect of foreign exchange rates changes

 

     January-June      April - June  
     Unaudited  
     2015      2014      2015      2014  
     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

     (4,915      11,178         2,599         5,512   

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

     (166,212      70,226         30,514         35,613   

 

58


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2015

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

 

 

NOTE 12. BORROWING COSTS

Arauco estimates the average rate of borrowings to finance its current investment projects. At the end of the previous period, the balance corresponded 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 - June     April - June  
     2015     2014     2015     2014  
     ThU.S.$     ThU.S.$     ThU.S.$     ThU.S.$  

Property, plant and equipment capitalized cost

        

Property, plant and equipment capitalized interest cost rate

     4.92     4.78     4.91     4.78

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

     1,110        15,785        479        8,113   

NOTE 13. RELATED PARTIES

Related Party Disclosures

Related parties are those entities defined in IAS 24 and under the rules of the Chilean SVS 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 Brazilian Real, 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 interim consolidated financial statements, the main transactions with related parties are related to fuel purchases with Compañía de Petróleos de Chile S.A., sodium chlorate purchases at EKA Chile S.A., chips sales to Forestal del Sur S.A. and loans to related companies.

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.

 

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Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2015

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

 

 

Name of the Intermediate Controlling Entity that Produces Consolidated 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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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

June 30, 2015

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
06-30-2015
     % Ownership interest
12-31-2014
 
           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   

   Arauco Argentina S.A.
(Ex 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         1.2818         98.7172         99.9990         1.3418         98.6572         99.9990   

   Arauco Europe
Cooperatief U.A. (Ex-
Arauco Holanda
Cooperatief U.A.)
    Holland         U.S. Dollar         0.4843         99.5147         99.9990         0.5389         99.4601         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         10.5510         89.4480         99.9990         11.1520         88.8470         99.9990   

   Arauco Forest Products
B.V.
    Holland         U.S. Dollar         —           —           —           —           99.9990         99.9990   

   Arauco Panels USA, LLC     USA         U.S. Dollar         —           99.9990         99.9990         —           99.9990         99.9990   

   Arauco Perú S.A.     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

   Consorcio Protección
Fitosanitaria Forestal S.A.
    Chile         Chilean Pesos         —           57.7503         57.7503         —           57.7503         57.7503   

   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.     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