6-K 1 d208623d6k.htm FORM 6-K Form 6-K
Table of Contents

 

 

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 6-K

 

 

Report of Foreign Private Issuer

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

of the Securities Exchange Act of 1934

For the month of June, 2016

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

ARAUCO AND CONSTITUTION PULP INC

TABLE OF CONTENTS

 

Item        Page  

1.

 

Ratio Analysis of the Consolidated Financial Statement

     1   

2.

 

Unaudited Consolidated Financial Statement

     6   

3.

 

Unaudited Consolidated Financial Income Statement

     8   

4.

 

Unaudited Consolidated Statement of Changes in Net Equity

     10   

5.

 

Unaudited Consolidated Statement of Cash Flow

     11   

6.

 

Unaudited Notes to the Consolidated Financial Statement

     12   
 

Annex: Press Release

  


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statements

March 31, 2016

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

   03-31-2016
ThU.S.$
     12-31-2015
ThU.S.$
 

Current assets

     2,811,828         2,651,920   

Non-current assets

     11,050,867         11,018,471   
  

 

 

    

 

 

 

Total assets

     13,862,695         13,670,391   
  

 

 

    

 

 

 

Liabilities

   03-31-2016
ThU.S.$
     12-31-2015
ThU.S.$
 

Current liabilities

     1,116,932         1,034,251   

Non-current liabilities

     5,975,674         5,989,695   

Non–parent participation

     40,683         37,735   

Net equity attributable to parent company

     6,729,406         6,608,710   
  

 

 

    

 

 

 

Total net equity and liabilities

     13,862,695         13,670,391   
  

 

 

    

 

 

 

As of March 31, 2016, total assets increased U.S.$192 million compared to December 31, 2015, equivalent to a 1.41% of variations. This deviation was driven mainly by increases in the balance of cash and cash equivalents, properties, plant and equipment and biological assets, partially offset by a decrease in trade and other accounts receivable.

Total liabilities, in turn, increased by U.S.$69 million mainly attributable to an increase in non-financial liabilities as a result of the registration of provision for minimum dividends.

The main financial and operating indicators as of the dates and periods indicated below are as follows:

 

Liquidity ratios

   03-31-2016      12-31-2015  

Current Liquidity (current assets / current liabilities)

     2.52         2.56   

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

     1.42         1.42   

Debt indicators

   03-31-2016      12-31-2015  

Debt to equity ratio (total liabilities / equity)

     1.05         1.06   

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

     0.16         0.15   

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

     0.84         0.85   
     03-31-2016      12-31-2015  

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

     2.14         2.86   

Activity ratio

   03-31-2016      12-31-2015  

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

     2.75         2.95   

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

     3.63         3.89   

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

     130.93         122.16   

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

     99.30         95.45   

 

1


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statements

March 31, 2016

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

 

 

As of March 31, 2016 the short-term debt represented 16% of total liabilities (15% as of December 31, 2015).

Our financial expenses coverage ratio decreased from 2.86 to 2.14, mainly due to the higher earnings before taxes for the period ended March 31, 2015, compared to the same period of 2016.

 

  b) Statements of income

Income before income tax

Income before income tax registered a profit of U.S.$80 million compared to a profit of U.S.$127 million in the same period of 2015. The negative variation of U.S.$46 million is explained by the factors described in the following table:

 

Item

   MU.S.$  

Gross margin

     (97

Distribution and Administrative Expenses

     32   

Other income/ expenses by function

     7   

Exchange differences

     9   

Others

     3   
  

 

 

 

Net change in income before income tax

     (46
  

 

 

 

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

 

Revenues

   03-31-2016
ThU.S.$
     03-31-2015
ThU.S.$
 

Pulp

     525,831         573,394   

Timber

     591,740         666,381   

Forestry

     22,250         28,678   

Other

     6,204         8,662   
  

 

 

    

 

 

 

Total revenues

     1,146,025         1,277,115   
  

 

 

    

 

 

 

Sales costs

   03-31-2016
ThU.S.$
     03-31-2015
ThU.S.$
 

Wood

     188,850         184,429   

Forestry work

     131,728         149,638   

Depreciation and amortization

     87,429         87,824   

Other costs

     418,517         438,640   
  

 

 

    

 

 

 

Total sales costs

     826,524         860,531   
  

 

 

    

 

 

 

Profitability index

   03-31-2016      12-31-2015  

Profitability on equity

     3.16         5.46   

Profitability on assets

     1.54         2.59   

Return on operating assets

     2.93         4.13   

Profitability ratios

   03-31-2016      12-31-2015  

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

     0.45         0.75   

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

     52,919         85,691   

Gross margin (ThU.S.$)

     319,501         416,584   

Financial costs (ThU.S.$)

     (70,285      (68,196

 

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

 

2


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statements

March 31, 2016

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

 

 

EBITDA

   03-31-2016
MU.S.$
     03-31-2015
MU.S.$
 

Gain (loss)

     52.9         85.7   

Finance costs

     70.3         68.2   

Financial income

     (11.3      (10.5

Expenses for income tax

     27.4         40.9   

EBIT

     139.3         184.3   

Depreciation and amortization

     94.6         94.7   

EBITDA

     233.8         279.0   

Cost at fair value of the harvest

     69.5         73.9   

Gain from changes in fair value of biological assets

     (50.5      (46.8

Exchange difference

     (1.1      7.9   

Others*

     0.0         11.4   

Adjusted EBITDA

     251.8         325.4   

 

* 2015: Forest loss provision MU.S.$11.4

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 follows a 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. 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 material differences between the economic value of our assets and the value reflected in these Financial Statements.

4. MARKET SITUATION

Pulp Division

During the first quarter of 2016, short fiber prices continued a downward trend that had started during the fourth quarter. On the other hand, long fiber prices remained moderately stable after the decline during the fourth quarter of 2015. Short fiber prices continue to be pressured downward due to additional supply in markets as well as high inventories of some producers. In particular, Brazilian producers decided during this quarter to decrease their inventory, due to less demand for paper in their local market and a still favorable exchange rate for exports between Brazilian reals and U.S. dollars. Overall, inventories have remained fairly stable, decreasing one day in both fibers compared to the fourth quarter, although there was a surge in inventories from December to January of six days.

In Asia, the price of bleached long fiber was stable and ended the quarter with a U.S.$ 10 or 2% gain. Alternatively, unbleached long fiber suffered a price slump between January and February of approximately 10%, subsequently regaining price and ending the quarter at similar levels to bleached long fiber. In the case of short fibers, prices showed a deterioration in of U.S.$ 50 or 8.5% during the first quarter of 2016. Nevertheless, signs of improvement

 

3


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statements

March 31, 2016

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

 

 

are starting to show, indicating that minimum levels are being promptly reached. The Chinese New Year, a seven-day holiday, also decreased demand during February. The rest of Asia follows Chinese prices trends, although some markets such as Korea have started to face more competition from non-traditional markets, adding further pressure to prices.

In European markets, high inventory levels in short fiber caused price discounts of U.S.$ 60 or 8%. Brazilian producers looking to lower their inventories at favorable exchange rates, focused their exports to European markets, where they have better logistics. Conversely, long fiber prices remained stable, with no significant variances during the quarter.

The Middle East also saw a decline in short fiber prices due to an oversupply from producers who sold surplus volumes in these markets in order to try to release price pressures from Europe and China.

In Latin America, Brazil was the most negatively affected, with a decline in demand for pulp for the production of paper and fluff for the production of absorbent products.

Unitary costs for bleached softwood pulp decreased 6.4%, while unbleached softwood pulp decreased 4.7% during this quarter. There were no scheduled maintenance stoppages during this quarter. Our Arauco Mill had a two-week stoppage due to a failure in the effluent system. Hardwood pulp costs remained stable, increasing 0.02% in comparison to last quarter.

Pulp production remained fairly stable, with a 1.5% increase from the fourth quarter of 2015. Arauco aims to maintain its production at optimum levels in order to remain competitive in costs. On the other hand, sales volume varies with market conditions, which this quarter caused a decrease of 4.0%.

Timber Division

Our wood products business overall decreased in production due to less demand. However, markets are already showing signs of a trend turnover from a negative to a positive trend.

For sawn timber, less demand and some work stoppages decreased sawn timber production by 4.7% compared to last quarter. Despite these setbacks, the market tendency has shown sign of reverting, which will probably be evidenced more fully during the second quarter of this year. Market demand has also shown an increase in momentum. In Asia, there was an increase in demand for wood for packaging, and we have been able to increase prices for our products, especially in Korea and Japan. Demand for wood packaging also increased in the Middle East, but prices increases have come at a slower pace. The moldings market continues to remain dynamic in North America, although prices have decreased due to the effect of Brazilian producers in this market.

In the panels market, there has been in general a greater supply of MDF, leading to production adjustments in our mills in Chile, Argentina, and Brazil. In North America, MDF prices have also declined due to more competition from Brazil and Canada. Due to seasonality in the Northern Hemisphere, however, demand has increased. In Mexico, despite the startup of a new panel mill, Arauco has been able to maintain sales levels in MDF and melamine.

Due to less competitiveness in Argentina´s exports, everything produced locally was sold within the country, in turn forcing lower production. This, added with the fact that more

 

4


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statements

March 31, 2016

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

 

 

imports from Brazil are also reaching the market, has led to less production in this country. The rest of Latin America has shown signs of recovery compared to last quarter, which has enabled an overall increase our volume sales in this region.

5. ANALYSIS OF CASH FLOW

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

 

     03-31-2016
ThU.S.$
     03-31-2015
ThU.S.$
 

Positive (negative) Cash flow

     

Cash flow from operating activities

     227,163         211,067   

Cash flow from (used in) financing activities:

     

Loan and bond payments

     35,887         (41,400

Others

     (380      (395

Cash flow from (used in) investment activities:

     

Loans to related companies

     0         (2,610

Incorporation and sale of property, plant and equipment

     (77,325      (63,007

Incorporation and sale of biological assets

     (36,772      (30,719

Others

     704         889   
  

 

 

    

 

 

 

Positive Net cash flow (negative)

     149,277         73,825   
  

 

 

    

 

 

 

The financing cash flow has a positive balance of U.S.$35 million in the current period with variations on the previous period (negative balance of U.S.$42 million) mainly due to an increase in bank loans received.

In relation to the flow of investment at the end of the current period, there was a negative balance of U.S.$113 million (U.S.$95 million in the same period of 2015), mainly due to greater disbursements for the acquisition of properties, plant and equipment and biological assets

6. MARKET RISK ANALYSIS

In respect of the economic risks resulting from interest rate variations, the Company maintains, as of March 31, 2016, a ratio of fixed rate debt to total consolidated debt of approximately 85.9%, 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 March 31, 2016, a detailed analysis of the risks associated with the business of Arauco is available (See Note 23).

 

5


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

March 31, 2016

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

 

 

INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

 

     Note    03-31-2016
(Unaudited)
ThU.S.$
     12-31-2015
ThU.S.$
 

Assets

        

Current Assets

        

Cash and cash equivalents

   5      642,711         500,025   

Other current financial assets

   23      21,763         32,195   

Other current non-financial assets

   25      152,841         133,956   

Trade and other current receivables

   23      684,448         733,322   

Accounts receivable from related companies

   13      8,686         3,124   

Current Inventories

   4      913,950         909,988   

Current biological assets

   20      308,916         306,529   

Current tax assets

        75,150         64,079   

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

        2,808,465         2,683,218   

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

   22      3,363         3,194   

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

        3,363         3,194   

Total Current Assets

        2,811,828         2,686,412   

Non-Current Assets

        

Other non-current financial assets

   25      758         595   

Other non-current non-financial assets

   23      126,786         125,516   

Trade and other non-current receivables

        14,518         15,270   

Investments accounted for using equity method

   15      264,356         264,812   

Intangible assets other than goodwill

   19      86,820         88,112   

Goodwill

   17      72,235         69,475   

Property, plant and equipment

   7      6,911,968         6,896,396   

Non-current biological assets

   20      3,569,514         3,520,068   

Deferred tax assets

        3,912         3,735   

Total non-Current Assets

        11,050,867         10,983,979   

Total Assets

        13,862,695         13,670,391   
     

 

 

    

 

 

 

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

 

6


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

March 31, 2016

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

 

 

INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (continued)

 

     Note    03-31-2016
(Unaudited)
ThU.S.$
    12-31-2015
ThU.S.$
 

Equity and liabilities

       

Liabilities

       

Current Liabilities

       

Other current financial liabilities

   23      365,488        296,038   

Trade and other current payables

   23      572,606        583,018   

Accounts payable to related companies

   13      5,870        7,141   

Other current provisions

   18      805        858   

Current tax liabilities

        6,363        10,976   

Current provisions for employee benefits

   10      5,007        4,497   

Other current non-financial liabilities

   25      160,793        131,723   

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

        1,116,932        1,034,251   

Total Current Liabilities

        1,116,932        1,034,251   

Non-Current Liabilities

       

Other non-current financial liabilities

   23      4,190,139        4,236,965   

Other non-current provisions

   18      35,338        34,541   

Deferred tax liabilities

   6      1,637,652        1,619,012   

Non-current provisions for employee benefits

   10      57,727        51,936   

Other non-current non-financial liabilities

   25      54,818        47,241   

Total non - current liabilities

        5,975,674        5,989,695   

Total liabilities

        7,092,606        7,023,946   

Equity

       

Issued capital

        353,618        353,618   

Retained earnings

        7,238,725        7,204,452   

Other reserves

        (862,937     (949,360

Equity attributable to parent company

        6,729,406        6,608,710   

Non-controlling interests

        40,683        37,735   

Total equity

        6,770,089        6,646,445   

Total equity and liabilities

        13,862,695        13,670,391   
     

 

 

   

 

 

 

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

 

7


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

March 31, 2016

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

 

 

INTERIM CONSOLIDATED STATEMENTS OF PROFIT OR LOSS

 

     Note    January-March  
        (Unaudited)  
        2016     2015  
        ThU.S.$     ThU.S.$  

Income Statement

       

Revenue

   9      1,146,025        1,277,115   

Cost of sales

   3      (826,524     (860,531

Gross profit

        319,501        416,584   

Other income

   3      58,017        55,520   

Distribution costs

   3      (110,189     (126,602

Administrative expenses

   3      (112,708     (128,468

Other expense

   3      (20,509     (25,512

Profit (loss) from operating activities

        134,112        191,522   

Finance income

   3      11,312        10,483   

Finance costs

   3      (70,285     (68,196

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

   15      4,038        615   

Exchange rate differences

        1,109        (7,859

Income before income tax

        80,286        126,565   

Income Tax

   6      (27,367     (40,874

Net Income

        52,919        85,691   
     

 

 

   

 

 

 

Net income attributable to

       

Net income attributable to parent company

        52,174        84,887   

Income attributable to non-controlling interests

        745        804   

Profit (loss)

        52,919        85,691   
     

 

 

   

 

 

 

Basic earnings per share

       

Basic earnings per share from continuing operations

        0.0004611        0.0007502   
     

 

 

   

 

 

 

Basic earnings per share

        0.0004611        0.0007502   
     

 

 

   

 

 

 

Earnings per diluted shares

       

Earnings per diluted share from continuing operations

        0.0004611        0.0007502   
     

 

 

   

 

 

 

Earnings per diluted share

        0.0004611        0.0007502   
     

 

 

   

 

 

 

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

 

8


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

March 31, 2016

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

 

 

INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

     Note    January-March  
        2016     2015  
        ThU.S.$     ThU.S.$  

Profit (loss)

        52,919        85,691   

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

        (2,041     (1,217

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

        (700     (448

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

        (2,741     (1,665

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      88,907        (196,726

Other Comprehensive Income before tax exchange differences on translation

        88,907        (196,726

Cash flow hedges

       

Gains (losses) on cash flow hedges, before tax

        5,986        5,806   

Reclassification adjustments on cash flow hedges before tax

        (2,616     (2,384

Other Comprehensive Income before tax Cash flow hedges

        3,370        3,422   

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

        92,277        (193,304

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

        562        274   

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      (1,378     (773

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

        (1,378     (773

Other comprehensive income

        88,720        (195,468

Comprehensive income

        141,639        (109,777
     

 

 

   

 

 

 

Comprehensive Income attributable to

       

Comprehensive income, attributable to owners of parent company

        138,597        (104,922

Comprehensive income, attributable to non-controlling interests

        3,042        (4,855

Total comprehensive income

        141,639        (109,777
     

 

 

   

 

 

 

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

 

9


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

March 31, 2016

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

 

 

INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

 

Unaudited

03-31-2016

   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 01/01/2016

     353,618         (872,770     (55,396     (16,668     (4,526     (949,360     7,204,452        6,608,710        37,735        6,646,445   

Changes in Equity:

                     

Comprehensive income

                     

Net income

                  52,174        52,174        745        52,919   

Other comprehensive income, net of tax

        86,610        1,992        (1,479     (700     86,423          86,423        2,297        88,720   

Comprehensive income

     0         86,610        1,992        (1,479     (700     86,423        52,174        138,597        3,042        141,639   

Dividends

                  (17,901     (17,901     (32     (17,933

Increase (decrease) through for transfers and other changes equity

                  0        0        (62     (62

Changes in equity

     0         86,610        1,992        (1,479     (700     86,423        34,273        120,696        2,948        123,644   

Closing balance at 03/31/2016

     353,618         (786,160     (53,404     (18,147     (5,226     (862,937     7,238,725        6,729,406        40,683        6,770,089   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Unaudited

03-31-2015

   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

                  84,887        84,887        804        85,691   

Other comprehensive income, net of tax

        (191,069     2,649        (941     (448     (189,809       (189,809     (5,659     (195,468

Comprehensive income

     0         (191,069     2,649        (941     (448     (189,809     84,887        (104,922     (4,855     (109,777

Dividends

                  (34,528     (34,528     (41     (34,569

Increase (decrease) for transfer and other changes

                  0        0        (708     (708

Changes in equity

     0         (191,069     2,649        (941     (448     (189,809     50,359        (139,450     (5,604     (145,054

Closing balance at 03/31/2015

     353,618         (689,564     (50,373     (16,731     (4,193     (760,861     7,034,923        6,627,680        42,002        6,669,682   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

 

10


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

March 31, 2016

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

 

 

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

 

     03-31-2016     03-31-2015  
     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

     1,308,350        1,398,027   

Other cash receipts from operating activities

     129,125        116,281   

Classes of cash payments

    

Payments to suppliers for goods and services

     (935,629     (1,031,804

Payments to and on behalf of employees

     (125,310     (133,611

Other cash payments from operating activities

     (64,770     (56,274

Interest paid

     (72,296     (75,647

Interest received

     3,918        3,135   

Income taxes refund (paid)

     (13,280     (13,624

Other (outflows) inflows of cash, net

     (2,945     4,584   

Net Cash flows from Operating Activities

     227,163        211,067   
  

 

 

   

 

 

 

Cash flows (used in) investing activities

    

Loans to related parties

     0        (2,610

Proceeds from sale of property, plant and equipment

     2,338        170   

Purchase of property, plant and equipment

     (79,663     (63,177

Purchase of intangible assets

     (521     (907

Proceeds from other long-term assets

     4        0   

Purchase of other non-current assets

     (36,776     (30,719

Other outflows of cash, net

     1,225        1,796   

Cash flows used in Investing Activities

     (113,393     (95,447
  

 

 

   

 

 

 

Cash flows from (used in) Financing Activities

    

Total loans obtained

     208,487        26,348   

Loans obtained in long term

     297        0   

Proceeds from short-term borrowings

     208,190        26,348   

Repayments of borrowings

     (172,600     (67,748

Other inflows of cash, net

     (380     (395

Cash flows from (used in) Financing Activities

     35,507        (41,795
  

 

 

   

 

 

 

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

     149,277        73,825   

Effect of exchange rate changes on cash and cash equivalents

     (6,591     (4,119
  

 

 

   

 

 

 

Net increase (decrease) of Cash and Cash equivalents

     142,686        69,706   

Cash and cash equivalents, at the beginning of the period

     500,025        971,152   

Cash and cash equivalents, at the end of the period

     642,711        1,040,858   
  

 

 

   

 

 

 

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

 

11


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

March 31, 2016

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

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH 31, 2016 AND 2015 AND DECEMBER 31, 2015

NOTE 1. PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS

Entity Information

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. Additionally, the Company is registered as a non-accelerated filer with the Securities and Exchange Commission (SEC) of the United States of America.

Forestal Cholguán S.A., subsidiary of Arauco, is also registered in the Securities Registry as No. 030.

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 99.9780% of Arauco, and is registered in the Securities Registry as No. 0028. Each of the above mentioned 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 March 31, 2016 are:

 

    Interim Consolidated Statements of Financial Position as of March 31, 2016 and December 31, 2015.

 

    Interim Consolidated Statements of Comprehensive Income by function for the periods between January 1 and March 31, 2016 and 2015

 

    Interim Statements of Other Consolidated Comprehensive Income for the periods between January 1 and March 31, 2016 and 2015

 

    Interim Consolidated Statements of Changes in Equity for the periods between January 1 and March 31, 2016 and 2015.

 

    Interim Consolidated Statements of Cash Flows – Direct Method for the periods between January 1 and March 31, 2016 and 2015.

 

    Explanatory disclosures (notes)

 

12


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

March 31, 2016

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

 

 

Period Covered by the Interim Consolidated Financial Statements

Period between January 1 and March 31, 2016.

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° 548 held on May 16, 2016 for the period between January 1 and March 31, 2016.

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

In relation to the cost of sales, although labor and services costs 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 costs are mainly related 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, prices of the products are established in U.S. Dollars, which 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 interim consolidated financial statements are presented in thousands of U.S. Dollar (ThU.S.$).

 

13


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

March 31, 2016

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

 

 

Summary of significant accounting policies

 

a) Basis for preparation of consolidated financial statements

The interim Consolidated Financial Statements of Arauco for the three-month period ended March 31, 2016, and for the year ended December 31, 2015, 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 derivative 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.

 

b) Critical accounting estimates and judgments

The preparation of these interim consolidated financial statements, in accordance with Superintendency of Securities and Insurance (SVS), 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.

-Biological Assets

The recovery of forest plantations is based on discounted cash flow models which means 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; therefore it is 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

Goodwill represents the excess of the acquisition cost over the fair value of the Group’s holding in the identifiable net assets of the acquired subsidiary at the date of acquisition. Said fair 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. See Note 17.

 

14


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

March 31, 2016

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

 

 

-Litigation and Contingencies

Arauco and its subsidiaries are subject to certain litigation proceedings. Future impact on Arauco’s financial condition derived from such litigations is 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 or subsidiary if, and only if, they have all of the following:

(a) power over the investee, i.e. the investor has existing rights which give it the ability to direct the relevant activities (the activities that significantly affect the investee’s returns)

(b) exposure or rights to variable returns from involvement with the investee; and

(c) the ability to use power over the investee to affect the amount of the investor’s returns.

When Arauco holds less than the majority of voting rights in a company in which it participates, it nonetheless has the power over said company - when these voting rights are enough - to grant it in practice the ability to unilaterally direct said company’s relevant activities. Arauco 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.

 

15


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

March 31, 2016

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

 

 

The profit or loss of each component of other comprehensive income is attributed to owners of the parent company and the non-controlling interest, as appropriate. Total comprehensive income is attributed to the owners of the parent company and non-controlling interests even if the results of the non-controlling interest have a deficit balance.

If a subsidiary uses accounting policies other than those adopted in the interim consolidated financial statements for transactions and other events in similar circumstances, appropriate adjustments are made to the financial statements of subsidiaries in order 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 interest is presented in the consolidated statement of financial position within equity, separately from the equity of the owners of the parent company.

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

Certain consolidated subsidiaries have Brazilian 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

 

    Timber

 

    Forestry

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

 

16


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

March 31, 2016

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

 

 

e) Functional currency

 

(i) Functional currency

All items in the financial statements of Arauco and each of its subsidiaries, associates and jointly controlled entities are measured using the currency of the primary economic environment in which each entity operates (the functional currency). The 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, assets and liabilities of Arauco’s operations in a functional currency different from Arauco´s are translated into U.S. dollars using exchange rates prevailing at the end of each reporting period. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuate significantly during that period, in which case the exchange rates at the dates of the transactions are used. Exchange rate differences are recognized in other comprehensive income and accumulated in “Other reserves” within–equity.

 

(iii) Foreign Currency Transactions

Transactions in currencies other than the functional currency are recognized at the exchange rates prevailing at the dates of the transactions. 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: ‘loans and receivables’ and “derivative financial instruments”. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. All purchases and sales of financial assets are recognized and derecognized on the trade date, which require delivery of assets within the same time frame established by regulation or convention in the marketplace.

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

 

17


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

March 31, 2016

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

 

 

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.

Derivative financial instruments are explained in Note 1 h)

Financial liabilities

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

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

Financial obligations are classified as current liabilities, unless Arauco holds an unconditional right to defer their 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) Derivative Financial Instruments - 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, currency swaps and zero cost collar contracts. The company’s policy is that derivative contracts are entered into for economic hedging purposes and that there be no instruments for speculation purposes.

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 as a hedging instrument and complies with hedge accounting requirements of 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.

 

18


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

March 31, 2016

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

 

 

(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 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 profit or loss. Amounts previously recognized in other comprehensive income 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.

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 and in process products includes the cost of raw materials, direct labor, other direct costs and manufacturing overhead 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.

 

19


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

March 31, 2016

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

 

 

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 disposal groups (groups of assets to be sold together with their directly associated liabilities) as non-current assets held for sale which as of the date of the statement of financial position are the subject of active sale efforts which are estimated to be highly probable. Non-current assets held for sale are presented separately from the other assets in the balance sheet.

These assets or disposal groups are measured at the lower of the carrying amount or the fair value less the costs to sell, and are no longer depreciated or 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 3 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.

Acquisition-related costs are accounted for as expenses when they are incurred, except for costs to issue debt or equity securities which are recognized in accordance with IAS 32 and IAS 39.

A parent will present non-controlling interests in the consolidated statement of financial position within equity, separately from the equity of the owners of the parent company.

 

20


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

March 31, 2016

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

 

 

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 nor losses are recognized in the statement of profit or loss.

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 of non-controlling interests, 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.

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).

 

21


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

March 31, 2016

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

 

 

The investments in joint operations are recognized through consolidation of 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.

 

22


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

March 31, 2016

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

 

 

n) Goodwill

Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interest 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.

Goodwill is not amortized but tested for impairment on annual basis.

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.

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 change in the carrying amount of goodwill in Brazil is only 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.

 

23


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

March 31, 2016

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

 

 

The residual values and useful lives of assets are reviewed and adjusted, if appropriate, annually.

 

p) Leases

Arauco applies IFRIC 4 to assess whether an arrangement is, or contains, a lease. Leases of assets in which Arauco substantially holds all the risks and rewards of ownership are classified as finance leases. All other leases are classified as operating leases.

Finance leases are initially recognized at the lower of the fair value at the inception of the lease of the leased property and the present value of the minimum lease payments.

When assets are leased under a finance lease, the present value of lease payments are recognized as financial account receivables. Finance income, which is the difference between the gross receivable and the present value of such amount, is recognized as the interest rate of return.

Leases in which substantially all risks and rewards are not transferred to the lessee are classified as operating leases. Payments under operating leases (net of any incentives received from the lessor) are recognized as an expense on a straight-line basis over the lease term.

Arauco evaluates the economic nature 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 profit or loss.

 

24


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

March 31, 2016

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

 

 

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

The tax liabilities are recognized in the 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.

Deferred income tax is recognized using liability method, on the temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated annual accounts. Deferred income tax is determined using tax rates contained in laws adopted as of the date of the financial statements and that are expected to be applicable when the related deferred tax asset is realized or the deferred income tax liability is settled.

Deferred income taxes are registered according to rules established in IAS12 “Income Taxes”, except for the application in 2014 of the Official Circular Letter No. 856 issued on October 17, 2014 by the SVS, which instructed auditees to register in the respective fiscal year against equity on a one-time basis, differences in assets and liabilities for deferred taxes occurred as a direct effect of the increase in the first category tax rate 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 interim 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.

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.

 

25


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

March 31, 2016

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

 

 

(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.

The structure for recognizing revenue from export sales is based on the 2010 Incoterms, which are the official rules for the interpretation of commercial terms issued by the International Chamber of Commerce.

The main Incoterms used by Arauco are the following:

“CFR (Cost and freight)”, where the company bears all costs including main transportation, until the products arrives at its port of destination. The risk is transferred to the purchaser once the products have been loaded onto the vessel, in the country of origin.

“CIF (Cost Insurance & Freight)”, where the Company organizes and pays for external freight services and some other expenses. Arauco is no longer responsible for the products once they have been delivered to the ocean carrier company. The point of sale is the delivery of the products to the carrier chartered by the seller.

 

(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.

 

26


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

March 31, 2016

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

 

 

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

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

 

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 dividends payable provision is registered for 40% of the liquid distributable profit and against a lower equity, based on the yearly resolution of the Shareholders’ Meeting.

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

 

v) Earning per share

Basic earnings per share are calculated by dividing the net profit 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 are any circumstances indicating that the assets have to recognize an impairment loss. Among the circumstances 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.

A previously recognized impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount, however the reversal is limited to the amount recognized in previous years.

 

27


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

March 31, 2016

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

 

 

For the purposes of assessing impairment losses, assets are grouped at the lowest level for which there is identifiable cash flows separately for each cash-generating unit. Non-financial assets, other than goodwill, which had recognized an impairment loss, are reviewed at the end of each reporting period whether there are any circumstances indicating that an impairment loss previously recognized may no longer exists or has decreased.

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

Goodwill

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.

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.

A cash-generating unit, for which goodwill has been allocated, is tested for impairment annually or more frequently when there are circumstances indicating 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 other assets pro rata based on the carrying amount of each asset in the unit. Any impairment loss of goodwill is recognized directly in profit or loss. An impairment loss recognized for goodwill is not reversed in subsequent periods.

Financial Assets

At the end of each reporting period, an assessment 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 loss 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 profit or loss.

An allowance for doubtful accounts is established based on an analysis of the maturity of the portfolio and considering the insurance coverage on accounts receivable. Other conditions are assessed, for example, when there is objective evidence of default or delinquency in payments under the original sale terms and when the customer enters into bankruptcy or financial reorganization, 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.

 

28


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

March 31, 2016

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

 

 

x) Employee Benefits

Arauco constitutes labor obligations for severance payable in all circumstances for certain of its employees with at least 5 years of work in the Company, based on the terms of the staff’s collective and individual bargaining agreements.

The related provision is an estimate of the years of service to be recognized as a future labor obligation liability, in accordance with contracts between Arauco and its employees and pursuant to actuarial valuation criteria for this type of liability. This post-employment benefit is considered a defined benefit plan.

The main factors considered for calculating the actuarial value of severance 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.

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

As of the date of issue of these interim consolidated financial statements, the following accounting statements have been issued by the IAS, which have not been subject to early adoption.

 

Standards and
interpretations

  

Contents

  

Mandatory application
for annual periods
beginning on or after

IFRS 9   

Financial Instruments

The complete version of IFRS 9 replaces most of the guidance in IAS 39. IFRS 9 retains but simplifies the mixed measurement model and establishes three primary measurement categories for financial assets. There is now a new expected credit losses model that replaces the incurred loss impairment model used in IAS 39.

   January 1, 2018
IFRS 15    This standard defines a new model to recognized revenue from contracts with costumers.    January 1, 2018
IFRS 16    Leases   
   Specifies guidelines to recognise, measure, present and disclose leases. The standard provides a single lessee accounting model, requiring lessees to recognise assets and liabilities for all leases unless the lease term is 12 months or less or the underlying asset has a low value.    January 1, 2019

 

29


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

March 31, 2016

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    Establishes how to account for the acquisition of an interest in a joint venture operation that qualifies as a business.    January 1, 2016
IAS 16 and IAS 38 – Amendments    This amendment clarifies that the use of revenue-based methods to calculate the depreciation of an asset is not appropiate. It also clarifies that revenue is generally presumed to be an inappropiate basis for measuring the consumption of the economic benefits embodied in an intangible asset.    January 1, 2016
IAS 16 and IAS 41 – Amendments    These amendments change the reporting for bearer plants, which should be accounted for in the same way as property, plant and equipment. The amendments include them in the scope of IAS 16 rather tan IAS 41.    January 1, 2016
IAS 27-Amendments    Allows entities to use the equity method to account for investments in subsidiaries, join ventures and associates in their separate financial statements.    January 1, 2016
IFRS 10 and IAS 28- Amendments   

These amendmets address an inconsistency between IFRS 10 and IAS 28 regarding the contribution of assets between an investor and its associate or join venture.

The amendments aim at clarifying IAS 1 to address perceived impediments to preparers exercising their judgement in presenting their financial reports

   January 1, 2016
IFRS 10, and IAS 28-Amendments    Amendments address issues that have arisen in the context of applying the consolidation exception for investment entities.    January 1, 2016
IAS 1-Amendments    The amendments aim at clarifying IAS 1 to address perceived impediments to preparers exercising their judgement in presenting their financial reports.    January 1, 2016
Annual Improvements 2012-2014 Cycle       January 1, 2016

Amendment to IFRS 5

“ Non-current Assets Held for Sale and Discontinued Operations”

   Adds specific guidance in IFRS 5 for cases in which an entity reclassifies an asset from held for sale to held for distribution or vice versa and cases in which held-for-distribution accounting is discontinued.    January 1, 2016
Improvements to IFRS 7 “ Financial Instruments: Disclosures”    Adds additional guidance to clarify whether a servicing contract is continuing involvement in a transferred asset for the purpose of determining the disclosures required. Clarifies the applicability of the amendments to IFRS 7 on offsetting disclosures to condensed interim financial statements.    January 1, 2016
Improvements to IAS 19, “Employee Benefits”    Clarifies that the high quality corporate bonds used in estimating the discount rate for post-employment benefits should be denominated in the same currency as the benefits to be paid.    January 1, 2016
Improvements to IAS 34, “ Interim Financial Reporting”    Clarifies the meaning of ‘elsewhere in the interim report’ and requires a cross-reference    January 1, 2016

Arauco is in the process of evaluating the impacts on the financial statements as a result of the adoption of IFRS 9, IFRS 15 and IFRS 16. Arauco estimates that the adoption of the other amendments and interpretations will not have a substantial impact on the Company’s Consolidated Financial Statements during their period of their initial application.

 

30


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

March 31, 2016

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

 

 

NOTE 2. CHANGES IN POLICIES AND ACCOUNTING ESTIMATES

There have been no changes in the treatment of estimates, amendments and accounting policies with respect to same period of last year.

NOTE 3. DISCLOSURE OF OTHER INFORMATION

 

a) Disclosure of Information on Issued Capital

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

100% of Capital corresponds to ordinary shares

 

    03-31-2016   12-31-2015

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
    03-31-2016   12-31-2015

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

  113,159,655

 

31


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

March 31, 2016

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

 

 

b) Dividends paid

At March 31, 2016 there was no payment of dividends.

The interim dividend paid in December 2015 was equivalent to 15% of the distributable net income calculated as of the end of September 2015 and was considered as a decrease in the statement of changes in equity.

The final dividend paid each year corresponds to the difference between the 40% of the prior year distributable net profit and the amount of the interim dividend paid.

The ThU.S.$17,901 (ThU.S.$34,528 as of March 31, 2015) presented in the statement of changes in equity correspond to the minimum dividend provision recorded for the period 2016.

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

 

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

   12-16-2015

Amount of Dividend

   ThU.S.$43,580

Number of Shares for which Dividends are Paid

   113,159,655

Dividend per Share, Ordinary Shares

   U.S.$0.38512

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

   113,159,655

Dividend per Share

   U.S.$0.86667

 

32


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

March 31, 2016

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

 

 

c) Disclosure of Information on Reserves

Other reserves comprise 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 net gain or loss of derivative financial instruments that complies with the requirements of hedge accounting at the end of each period.

Reserve of Actuarial 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.

 

33


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

March 31, 2016

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

 

 

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 March 31, 2016 and 2015:

 

     January - March  
     Unaudited  
     2016      2015  
     ThU.S.$      ThU.S.$  

Classes of Other Income

     

Other Income, Total

     58,017         55,520   

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

     50,475         46,782   

Net income from insurance compensation

     1,456         1,403   

Revenue from export promotion

     619         845   

Leases received

     819         570   

Gain on sales of assets

     2,878         934   

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

     1,770         4,986   

Classes of Other Expenses by activity

     

Total of other expenses by activity

     (20,509      (25,512

Depreciation

     (318      (386

Legal payments

     (1,261      (794

Impairment provision properties, plants and equipment and others

     (927      (755

Plants stoppage operating expenses

     (1,539      (260

Expenses projects

     0         (270

Loss of assets

     (231      (108

Loss of forest due to fires

     0         (11,392

Other Taxes

     (1,862      (2,663

Research and development expenses

     (563      (590

Compensation and eviction

     (200      (88

Fines, readjustments and interest

     (152      (315

Loss on disposal of associates

     (10,369      0   

Other expenses (donations, repayments insurance)

     (3,087      (7,891

Classes of financing income

     

Financing income, total

     11,312         10,483   

Financial income from mutual funds - deposits

     3,241         4,609   

Financial income resulting from swap - forward

     6,545         1,205   

Other financial income

     1,526         4,669   

Classes of financing costs

     

Financing costs, Total

     (70,285      (68,196

Interest expense, Banks loans

     (8,695      (9,046

Interest expense, Bonds

     (45,684      (50,665

Interest expense, financial instruments

     (10,115      (2,840

Other financial costs

     (5,791      (5,645

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

     

Total

     4,038         615   

Investments in associates

     3,275         301   

Joint ventures

     763         314   

 

34


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

March 31, 2016

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

 

 

The analysis of expenses by nature contained in these interim consolidated financial statements is presented below:

 

     January - March  
     Unaudited  

Cost of sales

   2016
ThU.S.$
     2015
ThU.S.$
 

Timber

     188,850         184,429   

Forestry labor costs

     131,728         149,638   

Depreciation and amortization

     87,429         87,824   

Maintenance costs

     71,806         70,430   

Chemical costs

     117,951         127,675   

Sawmill Services

     27,832         28,277   

Others Raw Materials

     56,052         28,271   

Others Indirect costs

     26,953         44,191   

Energy and fuel

     32,419         46,852   

Cost of electricity

     11,401         14,550   

Wage and salaries

     74,103         78,394   

Total

     826,524         860,531   
  

 

 

    

 

 

 
     January - March  
     Unaudited  

Distribution cost

   2016
ThU.S.$
     2015
ThU.S.$
 

Selling costs

     7,582         12,985   

Commissions

     3,517         3,641   

Insurance

     920         1,281   

Provision for doubtful accounts receivable

     43         1,442   

Other selling costs

     3,102         6,621   

Shipping and freight costs

     102,607         113,617   

Port services

     6,382         6,164   

Freights

     80,697         88,740   

Other shipping and freight costs

     15,528         18,713   

Total

     110,189         126,602   
  

 

 

    

 

 

 
     January - March  
     Unaudited  

Administrative expenses

   2016
ThU.S.$
     2015
ThU.S.$
 

Wage and salaries

     46,288         52,514   

Marketing, advertising, promotion and publications expenses

     2,322         2,295   

Insurance

     5,920         7,921   

Depreciation and amortization

     6,104         6,355   

Computer services

     5,650         6,415   

Lease rentals (offices, warehouses and machinery)

     3,272         3,472   

Donations, contributions, scholarships

     2,828         1,712   

Fees (legal and technical advisories)

     9,889         10,986   

Property taxes, patents and municipality rights

     3,752         4,716   

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

     26,683         32,082   

Total

     112,708         128,468   
  

 

 

    

 

 

 

 

35


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

March 31, 2016

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

 

 

     Note    January-March
Unaudited
 
        2016      2015  

Expenses for

      ThU.S.$      ThU.S.$  

Depreciations

   7      91,532         91,810   

Employee benefits

   10      122,097         128,431   

Amortization

   19      3,020         2,908   

 

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

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

 

     03-31-2016  

Auditors fees

   ThU.S.$  

Audit services

     500   

Other services

  

Tax services

     77   

Others

     92   

TOTAL

     669   
  

 

 

 

Number of employees

     No.   
     14,748   
  

 

 

 

NOTE 4. INVENTORIES

 

     03-31-2016
Unaudited
     12-31-2015  

Components of Inventory

   ThU.S.$      ThU.S.$  

Raw materials

     92,305         85,999   

Production supplies

     98,558         97,755   

Products in progress

     65,077         62,475   

Finished goods

     492,568         503,059   

Spare Parts

     165,442         160,700   

Total Inventories

     913,950         909,988   
  

 

 

    

 

 

 

Inventories recognized as cost of sales at March 31, 2016 were ThU.S.$808,244 (ThU.S.$856,726 at March 31, 2015).

In order to have the inventories recorded at net realizable value at March 31, 2016, a net increase of inventories was recognized associated with a lower provision of obsolescence of ThU.S.$534 (greater provision of ThU.S.$1,115 at March 31, 2015). As of March 31, 2016, the amount of obsolescence provision is ThU.S.$18,043 (ThU.S.$18,577 at December 31, 2015).

At March 31, 2016 there were inventory write-offs of ThU.S.$424 (ThU.S.$2,593 at March 31, 2015)

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

As of the date of these interim consolidated financial statements, there are no inventories pledged as security to report.

 

36


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

March 31, 2016

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

 

 

Agricultural Products

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

NOTE 5. CASH AND CASH EQUIVALENTS

Cash and cash equivalents include cash on hand, bank checking account balances, time deposits, repurchase agreements and mutual funds. These 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 the amounts of cash surpluses in the short-term. 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.

 

     31-03-2016
Unaudited
     31-12-2015  

Components of Cash and Cash Equivalents

   ThU.S.$      MUS$  

Cash on hand

     217         201   

Bank checking account balances

     195,829         143,123   

Time deposits

     194,250         159,912   

Mutual funds

     252,415         196,789   

Total

     642,711         500,025   
  

 

 

    

 

 

 

The risk classification of the mutual funds in effect as of March 31, 2016 and December 31, 2015 is shown below.

 

     March
2016
ThU.S.$
Unaudited
     December
2015
ThU.S.$
 

AAAfm

     225,788         196,749   

AAfm

     26,627         40   

Total Mutual Funds

     252,415         196,789   
  

 

 

    

 

 

 

 

37


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

March 31, 2016

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 24% in Chile, 35% in Argentina, 34% in Brazil, 25% in Uruguay and 34% in the United States (federal tax).

On September 29, 2014, the Official Gazette published Law No. 20,780, which introduced various amendments to the current income tax system, as well as to other taxes. The main amendment was the establishment of an option between two tax regimes: attributed income system and the partially integrated system. One of the effects of the regime selection is that it attaches a progressive increase in the First Category Tax for the fiscal years of 2014, 2015, 2016 and 2017 onwards, increasing to 21%, 22,5%, 24% y 25%, respectively, if the Company chooses the application of an attributed income system, or an increase to 21%, 22.5%, 24%, 25.5% y 27% for the fiscal years 2014, 2015, 2016 and 2017, if the Company chooses the application of the partially integrated system.

Subsequently, on February 29, 2016, the Official Gazette publishes Law No. 20,899, which introduced amendments to Law No. 20,780. Among the main amendments is the incorporation of certain limitations for applying to the attributed income system, and therefore Arauco’s Chilean companies must apply the general rule, that is, the partially integrated 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, 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 as of the dates indicated:

 

Deferred Tax Assets

   03-31-2016
Unaudited
ThU.S.$
     12-31-2015
ThU.S.$
 

Deferred tax Assets relating to Provisions

     13,702         13,498   

Deferred tax Assets relating to Accrued Liabilities

     8,523         8,535   

Deferred tax Assets relating to Post-Employment benefits

     16,809         15,480   

Deferred tax Assets relating to Property, Plant and equipment

     9,322         7,730   

Deferred tax Assets relating to Financial Instruments

     16,689         21,805   

Deferred tax Assets relating to Tax Losses Carryforwards

     40,102         35,751   

Deferred tax Assets relating to Inventories

     4,092         4,240   

Deferred tax Assets relating to Provisions for Income

     4,983         3,997   

Deferred tax Assets relating to Allowance for Doubful Accounts

     5,065         4,572   

Intangible revaluation differences

     54         56   

Deferred tax Assets relating to Other Deductible Temporary Differences

     20,666         24,587   

Total Deferred Tax Assets

     140,007         140,251   
  

 

 

    

 

 

 

Netting presentation

     (136,095      (136,516

Net Effect

     3,912         3,735   
  

 

 

    

 

 

 

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.$122,930 (ThU.S.$112,383 at December 31, 2015), which are mainly originated by operational and financial losses.

 

38


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

March 31, 2016

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

 

 

In addition, as of the closing of these interim consolidated financial statements there are ThU.S.$ 91,253 (ThU.S.$ 114,507 at December 31, 2015) of non-recoverable tax losses from companies in Uruguay as joint operations based on the participation of Arauco, for which deferred tax assets have not been recognized. The estimated recovery period exceeds the expiry date of such tax losses.

Deferred Tax Liabilities

The following table sets forth the deferred tax liabilities as of the dates indicated:

 

     03-31-2016
Unaudited
     12-31-2015  

Deferred Tax Liabilities

   ThU.S.$      ThU.S.$  

Deferred tax Liabilities relating to Property, plant and equipment

     932,196         930,608   

Deferred tax Liabilities relating to Financial Instruments

     6,015         6,376   

Deferred tax Liabilities relating to Biological Assets

     708,241         693,103   

Deferred tax Liabilities relating to Inventory

     33,943         31,912   

Deferred tax Liabilities due to Prepaid Expenses

     40,201         40,907   

Deferred tax Liabilities due to Intangible

     27,126         26,419   

Deferred tax Liabilities relating to Other Taxable Temporary Differences

     26,025         26,203   

Total Deferred Tax Liabilities

     1,773,747         1,755,528   
  

 

 

    

 

 

 

Netting presentation

     (136,095      (136,516

Net Effect

     1,637,652         1,619,012   
  

 

 

    

 

 

 

The effect of changes in current and deferred tax liabilities related to cash flow hedges corresponds to a credit of ThU.S.$1,378 as of March 31, 2016 (compared to a credit of ThU.S.$773 as of March 31, 2015), which is presented in consolidated statements of other comprehensive income and accumulated in Reserves for cash flow hedges in the consolidated statement of changes in equity.

 

39


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

March 31, 2016

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

 

 

Reconciliation of deferred tax assets and liabilities

 

Unaudited    Opening
Balance
01-01-2016
     Deferred tax
Expenses
(Income)
    Deferred tax of
items charged
to other
comprehensive
income
    Increase
(decrease)
Net
exchange
differences
    Closing
balance
03/31/2016
 

Deferred Tax Assets

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

Deferred tax Assets relating to Provisions

     13,498         68        —          136        13,702   

Deferred tax Assets relating to accrued liabilities

     8,535         (17     —          5        8,523   

Deferred tax Assets relating to Post-Employment benefits

     15,480         715        556        58        16,809   

Deferred tax Assets relating to Property, Plant and equipment

     7,730         1,592        —          0        9,322   

Deferred tax Assets relating to Financial Instruments

     21,805         1        -5,115        (2     16,689   

Deferred tax Assets relating to tax losses carryforwards

     35,751         2,696        —          1,655        40,102   

Deferred tax assets relating to biological assets

     0         0        —          0        0   

Deferred tax assets relating to provisions for income

     4,240         (148     —          0        4,092   

Deferred tax assets relating to provisions for income

     3,997         986        —          0        4,983   

Deferred tax assets relating to provision for doubful accounts

     4,572         468        —          25        5,065   

Intangible revaluation differences

     56         (2     —          0        54   

Deferred tax assets relating to other deductible temporary differences

     24,587         (4,173     —          252        20,666   

Total deferred tax assets

     140,251         2,186        (4,559     2,129        140,007   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 
Unaudited   

Opening
Balance

01-01-2016

     Deferred tax
Expenses
(Income)
    Deferred tax of
items charged
to other
comprehensive
income
    Increase
(decrease)
Net
exchange
differences
    Closing
balance
03/31/2016
 

Deferred Tax Liabilities

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

Deferred tax liabilities relating to property, Plant and equipment

     930,608         (531     —          2,119        932,196   

Deferred tax liabilities relating to financial instruments

     6,376         (362     —          1        6,015   

Deferred tax liabilities relating to biological assets

     693,103         8,496        —          6,642        708,241   

Deferred tax liabilities relating to inventory

     31,912         2,031        —          —          33,943   

Deferred tax liabilities due to prepaid expenses

     40,907         (706     —          —          40,201   

Deferred tax liabilities due to intangible

     26,419         154        —          553        27,126   

Deferred tax liabilities relating to other taxable temporary differences

     26,203         (654     -7        483        26,025   

Total deferred tax liabilities

     1,755,528         8,428        -7        9,798        1,773,747   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

40


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

March 31, 2016

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

 

 

   

Opening
Balance

01-01-2015

    Deferred tax
Expenses
(Income)
    Deferred tax of
items charged
to other
comprehensive
income
    Increase
(decrease)
from
business
combinations
    Increase
(decrease)
Net
exchange
differences
    Closing
balance
12/31/2015
 

Deferred Tax Assets

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

Deferred tax Assets relating to Provisions

    14,923        (813     —          —          (612     13,498   

Deferred tax Assets relating to accrued liabilities

    11,120        (2,561     —          —          (24     8,535   

Deferred tax Assets relating to Post-Employment benefits

    13,859        971        692        —          (42     15,480   

Deferred tax Assets relating to Property, Plant and equipment

    11,199        (3,469     —          —          —          7,730   

Deferred tax Assets relating to Financial Instruments

    14,129        23        7,653        —          —          21,805   

Deferred tax Assets relating to tax losses carryforwards

    44,832        (959     —          —          (8,122     35,751   

Deferred tax assets relating to provisions for income

    3,157        1,487        —          —          (404     4,240   

Deferred tax assets relating to provisions for income

    5,827        (1,825     —          —          (5     3,997   

Deferred tax assets relating to provision for doubful accounts

    3,855        797        —          —          (80     4,572   

Intangible revaluation differences

    1,080        (1,024     —          —          —          56   

Deferred tax assets relating to other deductible temporary differences

    34,302        (8,892     —          —          (823     24,587   

Total deferred tax assets

    158,283        (16,265     8,345        —          (10,112     140,251   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   

Opening
Balance

01-01-2015

    Deferred tax
Expenses
(Income)
    Deferred tax of
items charged
to other
comprehensive
income
    Increase
(decrease)
from
business
combinations
    Increase
(decrease)
Net
exchange
differences
    Closing
balance
12/31/2015
 

Deferred Tax Liabilities

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

Deferred tax liabilities relating to property, plant and equipment

    941,666        5,221        —          —          (16,279     930,608   

Deferred tax liabilities relating to financial instruments

    4,906        1,470        —          —          0        6,376   

Deferred tax liabilities relating to biological assets

    681,505        18,823        —          16,051        (23,276     693,103   

Deferred tax liabilities relating to inventory

    25,688        6,224        —          —          —          31,912   

Deferred tax liabilities due to prepaid expenses

    40,888        (184     —          —          203        40,907   

Deferred tax liabilities due to intangible

    32,990        2,666        —          —          (9,237     26,419   

Deferred tax liabilities relating to other taxable temporary differences

    29,506        (7,961     —          —          4,658        26,203   

Total deferred tax liabilities

    1,757,149        26,259        —          16,051        (43,931     1,755,528   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

41


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

March 31, 2016

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

 

 

Temporary Differences

The following tables summarize the deductible and taxable temporary differences:

 

    

03-31-2016

Unaudited

     12-31-2015  

Detail of classes of Deferred Tax Temporary Differences

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

Deferred Tax Assets

     99,905            104,500      

Deferred Tax Assets - Tax losses

     40,102            35,751      

Deferred Tax Liabilities

        1,773,747            1,755,528   

Total

     140,007         1,773,747         140,251         1,755,528   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     January - March  
     Unaudited  

Detail of Temporary Difference Income and Loss Amounts

   2016
ThU.S.$
     2015
ThU.S.$
 

Deferred Tax Assets

     (511      (5,705

Deferred Tax Assets - Tax losses

     2,697         4,380   

Deferred Tax Liabilities

     (8,428      (16,386

Total

     (6,242      (17,711
  

 

 

    

 

 

 

Income Tax Expense

Income tax expense consists of the following:

 

     January - March  
     Unaudited  

Income Tax composition

   2016
ThU.S.$
     2015
ThU.S.$
 

Current income tax expense

     (23,967      (28,552

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

     0         761   

Previous period current tax adjustments

     587         4,993   

Other current tax expenses

     2,255         (365

Current Tax Expense, Net

     (21,125      (23,163

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

     (8,939      (22,091

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

     2,697         4,380   

Total deferred Tax Expense, Net

     (6,242      (17,711

Income Tax Expense, Total

     (27,367      (40,874
  

 

 

    

 

 

 

 

42


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

March 31, 2016

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 March 2016 and 2015:

 

     January - March  
     Unaudited  
     2016      2015  
     ThU.S.$      ThU.S.$  

Foreign current income tax expense

     (4,925      (12,982

Domestic current income tax expense

     (16,200      (10,181

Total current income tax expense

     (21,125      (23,163

Foreign deferred tax expense

     (5,161      (1,704

Domestic deferred tax expense

     (1,081      (16,007

Total deferred tax expense

     (6,242      (17,711

Total tax income (expense)

     (27,367      (40,874
  

 

 

    

 

 

 

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

The reconciliation of income tax expense is as follows:

 

     January - March  
     Unaudited  
     2016      2015  

Reconciliation of Income tax from Statutory Rate to Effective Tax Rate

   ThU.S.$      ThU.S.$  

Tax Expense at applicable tax rate

     (19,269      (28,477

Tax effect of foreign tax rates

     (2,419      (1,665

Tax effect of revenues exempt from taxation

     792         13,638   

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

     (8,105      (18,349

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

     (586      (827

Tax rate effect of adjustments for current tax of prior periods

     587         4,993   

Other tax rate effects

     1,633         (10,187

Total adjustments to tax expense at applicable tax rate

     (8,098      (12,397

Tax expense at effective tax rate

     (27,367      (40,874
  

 

 

    

 

 

 

 

43


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

March 31, 2016

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

 

 

NOTE 7. PROPERTY, PLANT AND EQUIPMENT

 

     03-31-2016
Unaudited
     12-31-2015  

Property, Plant and Equipment, Net

   ThU.S.$      ThU.S.$  

Construction in progress

     270,015         251,519   

Land

     969,323         951,638   

Buildings

     2,187,891         2,182,643   

Plant and equipment

     3,313,023         3,346,675   

Information technology equipment

     25,523         26,210   

Fixtures and fittings

     11,710         11,860   

Motor vehicles

     16,614         16,721   

Other property, plant and equipment

     117,869         109,130   

Total Net

     6,911,968         6,896,396   
  

 

 

    

 

 

 

Property, Plant and Equipment, Gross

     

Construction in progress

     270,015         251,519   

Land

     969,323         951,638   

Buildings

     3,739,085         3,698,351   

Plant and equipment

     5,990,359         5,927,789   

Information technology equipment

     74,360         73,573   

Fixtures and fittings

     35,862         35,283   

Motor vehicles

     46,283         45,503   

Other property, plant and equipment

     141,377         131,894   

Total Gross

     11,266,664         11,115,550   
  

 

 

    

 

 

 

Accumulated depreciation and impairment

     

Buildings

     (1,551,194      (1,515,708

Plant and equipment

     (2,677,336      (2,581,114

Information technology equipment

     (48,837      (47,363

Fixtures and fittings

     (24,152      (23,423

Motor vehicles

     (29,669      (28,782

Other property, plant and equipment

     (23,508      (22,764

Total

     (4,354,696      (4,219,154
  

 

 

    

 

 

 

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.

 

     03-31-2016
Unaudited
     12-31-2015  
     ThU.S.$      ThU.S.$  

Amount committed for the acquisition of property, plant and equipment

     116,578         109,713   
     03-31-2016
Unaudited
     12-31-2015  
     ThU.S.$      ThU.S.$  

Disbursements for property, plant and equipment under construction

     53,884         215,035   

 

44


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

March 31, 2016

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 March 31, 2016 and December 31, 2015:

 

Movement of Property, Plant and Equipment

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 01-01-2016

    251,519        951,638        2,182,643        3,346,675        26,210        11,860        16,721        109,130        6,896,396   

Changes

                 

Additions

    53,884        2,472        2,525        16,043        373        289        742        8,273        84,601   

Disposals

    —          (116     —          (89     —          —          (66     —          (271

Retirements

    —          (8     (64     (185     —          —          (4     (91     (352

Depreciation

    —          —          (29,661     (81,100     (1,241     (538     (894     (1,343     (114,777

Increase (decrease) through net exchange differences

    1,513        15,000        9,524        17,689        96        71        85        1,900        45,878   

Reclassification of assets held for sale

    —          —          490        —          —          3        —          —          493   

Increase (decrease) through transfers from construction in progress

    (36,901     337        22,434        13,990        85        25        30        —          —     

Total changes

    18,496        17,685        5,248        (33,652     (687     (150     (107     8,739        15,572   

Closing balance 03-31-2016

    270,015        969,323        2,187,891        3,313,023        25,523        11,710        16,614        117,869        6,911,968   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Movement of Property, Plant and Equipment

  Construction
in progress
ThU.S.$
    Land
ThU.S.$
    Buildings
ThU.S.$
    Plant and
equipments
ThU.S.$
    IT
Equipment
ThU.S.$
    Fixtures and
fittings
ThU.S.$
    Motor vehicles
ThU.S.$
    Other
Property,
Plant and
Equipment
ThU.S.$
    TOTAL
ThU.S.$
 

Opening Balance 01-01-2015

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

Changes

                 

Additions

    215,035        50,504        17,360        139,749        2,178        2,234        1,829        9,774        438,663   

Acquisitions through business combinations

    0        0        1,474        7        0        15        0        0        1,496   

Disposals

    (20     (591     (456     (583     (78     (5     (432     (10     (2,175

Retirements

    (4,596     (44     (1,389     (1,942     (5     (7     (101     (481     (8,565

Depreciation

    —          —          (117,337     (320,135     (5,302     (2,980     (4,110     (5,915     (455,779

Impairment loss recognized in profit or loss

    —          —          —          (4,065     —          —          —          —          (4,065

Increase (decrease) through net exchange differences

    (4,432     (52,284     (30,258     (103,972     (290     (519     (300     (6,025     (198,080

Reclassification of assets held for sale

    —          2,759        2,676        (117     —          —          —          —          5,318   

Increase (decrease) through transfers from construction in progress

    (219,908     1,763        138,396        72,231        1,186        1,468        2,489        2,375        —     

Total changes

    (13,921     2,107        10,466        (218,827     (2,311     206        (625     (282     (223,187

Closing balance 12-31-2015

    251,519        951,638        2,182,643        3,346,675        26,210        11,860        16,721        109,130        6,896,396   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

45


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

March 31, 2016

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

 

 

The depreciation expense for the period ending March 31, 2016 and 2015 is as follows:

 

     January-March
Unaudited
 

Depreciation for the year

   2016
ThU.S.$
     2015
ThU.S.$
 

Cost of sales

     85,755         86,305   

Administrative expenses

     4,758         4,966   

Other expenses

     1,019         539   

Total

     91,532         91,810   
  

 

 

    

 

 

 

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

 

     Useful
Life
(Average)
 

Buildings

     58   

Plant and equipment

     30   

Information technology equipment

     18   

Fixtures and fittings

     28   

Motor vehicles

     11   

Other property, plant and equipment

     14   

See Note 12 for details of capitalized borrowing costs.

 

46


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

March 31, 2016

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

 

 

NOTE 8. LEASES

Arauco acting as lessee

 

    

03-31-2016

Unaudited

     12-31-2015  
     ThU.S.$      ThU.S.$  

Property, Plant and Equipment under finance leases

     133,841         132,836   

Plant and equipment

     133,841         132,836   

Reconciliation of Financial Lease Minimum Payments:

 

     03-31-2016
Unaudited
 

Periods

   Present Value
ThU.S.$
 

Less than one year

     44,954   

Between one and five years

     84,428   

More than five years

     —     

Total

     129,382   
  

 

 

 
     12-31-2015  

Periods

   Present Value
ThU.S.$
 

Less than one year

     36,862   

Between one and five years

     90,697   

More than five years

     —     

Total

     127,559   
  

 

 

 

Lease obligations are presented in the consolidated statement of financial position in line items “Other current financial liabilities” and “Other non-current financial liabilities” depending on their respective maturities as stated above.

Arauco acting as lessor

Reconciliation of Financial Lease Minimum Payments:

 

     03-31-2016
Unaudited
 

Periods

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

Less than one year

     113         —           113   

Between one and five years

     4         1         3   

More than five years

     —           —           —     

Total

     117         1         116   
  

 

 

    

 

 

    

 

 

 
     12-31-2015  

Periods

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

Less than one year

     10         1         9   

Between one and five years

     6         0         6   

More than five years

     —           —           —     

Total

     16         1         15   
  

 

 

    

 

 

    

 

 

 

 

47


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

March 31, 2016

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

 

 

Finance lease receivables are presented in the consolidated statement of financial position in line items “Trade and other current receivable” and “Trade and other non-current receivable” depending on their maturities stated above.

Arauco accounts for its lease contracts as finance leases. These lease contracts are for a term of less than five-years at market interest rates and leased assets are forestry machinery and equipment. They also include an early termination option, under general and special conditions stipulated in each contract.

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 – March

Unaudited

 

Classes of revenue

   2016
ThU.S.$
     2015
ThU.S.$
 

Revenue from sales of goods

     1,120,246         1,234,158   

Revenue from rendering of services

     25,779         42,957   

Total

     1,146,025         1,277,115   
  

 

 

    

 

 

 

NOTE 10. EMPLOYEE BENEFITS

Classes of Benefits and Expenses by Employee

 

    

January - March

Unaudited

 
     2016
ThU.S.$
     2015
ThU.S.$
 

Employee expenses

     122,097         128,431   

Wages and salaries

     118,702         126,308   

Severance indemnities

     3,395         2,123   

 

     03-31-2016   12-31-2015

Discount rate

   4.91%   4.91%

Inflation

   2.95%   2.95%

Annual rate of wage growth

   5.22%   5.22%

Mortality rate

   RV-2009   RV-2009

 

sensitivities to assumptions

   Th.U.S.$  

Discount rate

  

Increase in 100 bps

     (3,943

Decrease in 100 bps

     4,608   

Wage growth rates

  

Increase in 100 bps

     4,546   

Decrease in 100 bps

     (3,967

 

48


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

March 31, 2016

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

 

 

The following tables set forth the balances and the reconciliation of the present value of severance indemnities obligations as of March 31, 2016 and December 31, 2015:

 

     03-31-2016
Unaudited
     12-31-2015  
     ThU.S.$      ThU.S.$  

Current

     5,007         4,497   

Non-current

     57,727         51,936   

Total

     62,734         56,433   
  

 

 

    

 

 

 

Reconciliation of the present value of severance indemnities obligation

   03-31-2016
Unaudited
ThU.S.$
     12-31-2015
ThU.S.$
 

Opening balance

     56,433         52,172   

Current service cost

     1,278         13,032   

Interest cost

     681         2,257   

Gains or losses from changes in actuarial assumptions

     1,748         -5,723   

Actuarial gains and losses arising from experience

     286         6,980   

Benefits paid

     (1,019      (3,482

Past service cost

     0         —     

Increase (decrease) for foreign currency exchange rates changes

     3,327         (8,803

Closing balance

     62,734         56,433   
  

 

 

    

 

 

 

 

49


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

March 31, 2016

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

 

 

NOTE 11. BALANCES IN FOREIGN CURRENCY AND EFFECT OF FOREIGN EXCHANGE DIFFERENCES.

 

     03-31-2016
Unaudited
     12-31-2015  
     ThU.S.$      ThU.S.$  

Total Current Assets

     2,811,828         2,686,412   

Cash and Cash Equivalents

     642,711         500,025   

U.S Dollar

     518,455         388,818   

Euro

     2,358         2,501   

Brazilian Real

     33,897         21,676   

Argentine Pesos

     27,937         40,573   

Other currencies

     3,098         2,979   

Chilean Pesos

     56,966         43,478   

Other current financial assets

     21,763         32,195   

U.S Dollar

     19,053         29,367   

Brazilian Real

     155         —     

Argentine Pesos

     2,555         2,828   

Other current non-financial assets

     152,841         133,956   

U.S Dollar

     64,786         55,365   

Euros

     97         82   

Brazilian Real

     21,635         16,505   

Argentine Pesos

     3,350         3,705   

Other currencies

     4,120         4,801   

Chilean Pesos

     58,635         53,280   

U.F.

     218         218   

Trade and other current receivables

     684,448         733,322   

U.S Dollar

     446,073         507,032   

Euro

     27,664         27,595   

Brazilian Real

     53,405         37,975   

Argentine Pesos

     24,483         23,016   

Other currencies

     19,104         14,091   

Chilean Pesos

     112,832         123,056   

U.F.

     887         557   

Accounts receivable from related companies

     8,686         3,124   

U.S Dollar

     79         21   

Brazilian Real

     382         995   

Chilean Pesos

     8,225         2,108   

Current Inventories

     913,950         909,988   

U.S Dollar

     875,550         871,629   

Brazilian Real

     38,400         38,359   

Current biological assets

     308,916         306,529   

U.S Dollar

     286,807         272,037   

Brazilian Real

     22,109         34,492   

Current tax assets

     75,150         64,079   

U.S Dollar

     2,911         5,464   

Brazilian Real

     4,914         5,243   

Argentine Pesos

     1,650         2,000   

Other currencies

     980         850   

Chilean Pesos

     64,695         50,522   

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

     3,363         3,194   

U.S Dollar

     3,363         3,194   

 

50


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

March 31, 2016

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

 

 

     03-31-2016      12-31-2015  
     ThU.S.$      ThU.S.$  

Total Non Current Assets

     11,050,867         10,983,979   

Other non-current financial assets

     758         595   

U.S Dollar

     418         212   

Argentine Pesos

     340         383   

Other non-current non-financial assets

     126,786         125,516   

U.S Dollar

     94,691         114,164   

Brazilian Real

     3,444         2,987   

Argentine Pesos

     7,954         7,138   

Other currencies

     727         706   

Chilean Pesos

     19,970         521   

Trade and other non-current receivables

     14,518         15,270   

U.S Dollar

     9,625         9,976   

Other currencies

     688         729   

Chilean Pesos

     3,774         3,145   

U.F.

     431         1,420   

Investments accounted for using equity method

     264,356         264,812   

U.S Dollar

     124,532         122,483   

Brazilian Real

     139,824         142,329   

Intangible assets other than goodwill

     86,820         88,112   

U.S Dollar

     85,744         87,154   

Brazilian Real

     993         876   

Chilean Pesos

     83         82   

Goodwill

     72,235         69,475   

U.S Dollar

     42,578         42,445   

Brazilian Real

     29,657         27,030   

Property, plant and equipment

     6,911,968         6,896,396   

U.S Dollar

     6,420,146         6,448,616   

Brazilian Real

     486,794         442,959   

Chilean Pesos

     5,028         4,821   

Non-current biological assets

     3,569,514         3,520,068   

U.S Dollar

     3,207,757         3,297,710   

Brazilian Real

     361,757         222,358   

Deferred tax assets

     3,912         3,735   

U.S Dollar

     3,685         3,735   

Brazilian Real

     —           —     

Other currencies

     56         —     

Chilean Pesos

     171         —     

 

51


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

March 31, 2016

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

 

 

     Up to 90
days
ThU.S.$
     03-31-2016
Unaudited
From 91
days to 1
year
ThU.S.$
     Total
ThU.S.$
     Up to 90
days
ThU.S.$
     12-31-2015
From 91
days to 1
year
ThU.S.$
     Total
ThU.S.$
 

Total Liabilities, current

     761,454         355,478         1,116,932         910,436         123,815         1,034,251   

Other current financial liabilities

     61,506         303,982         365,488         189,693         106,345         296,038   

U.S Dollar

     40,041         261,325         301,366         153,361         71,330         224,691   

Brazilian Real

     3,945         2,261         6,206         25,092         2,266         27,358   

Argentine Pesos

     —           248         248         —           356         356   

Chilean Pesos

     1,048         2,959         4,007         902         2,622         3,524   

U.F.

     16,472         37,189         53,661         10,338         29,771         40,109   

Bank Loans

     34,094         244,384         278,478         126,795         72,948         199,743   

U.S Dollar

     30,149         241,875         272,024         101,703         70,326         172,029   

Brazilian Real

     3,945         2,261         6,206         25,092         2,266         27,358   

Argentine Pesos

     —           248         248         —           356         356   

Financial Leases

     9,910         35,045         44,955         9,301         27,561         36,862   

Chilean Pesos

     1,048         2,959         4,007         902         2,622         3,524   

U.F.

     8,862         32,086         40,948         8,399         24,939         33,338   

Other Loans

     17,502         24,553         42,055         53,597         5,836         59,433   

U.S Dollar

     9,892         19,450         29,342         51,658         1,004         52,662   

U.F.

     7,610         5,103         12,713         1,939         4,832         6,771   

Trade and other current payables

     545,724         26,882         572,606         583,018         —           583,018   

U.S Dollar

     164,462         2,351         166,813         174,469         —           174,469   

Euros

     5,383         651         6,034         8,808         —           8,808   

Brazilian Real

     4,480         23,880         28,360         25,616         —           25,616   

Argentine Pesos

     28,903         —           28,903         27,068         —           27,068   

Other currencies

     16,954         —           16,954         17,619         —           17,619   

Chilean Pesos

     318,775         —           318,775         324,361         —           324,361   

U.F.

     6,767         —           6,767         5,077         —           5,077   

Accounts payable to related companies

     5,870         —           5,870         7,141         —           7,141   

U.S Dollar

     2,213         —           2,213         962         —           962   

Chilean Pesos

     3,657         —           3,657         6,179         —           6,179   

Other current provisions

     805         —           805         858         —           858   

U.S Dollar

     805         —           805         858         —           858   

Current tax liabilities

     4,442         1,921         6,363         10,030         946         10,976   

U.S Dollar

     1,961         774         2,735         6,380         —           6,380   

Euros

     1,302         —           1,302         1,093         —           1,093   

Brazilian Real

     —           —           —           530         —           530   

Argentine Pesos

     26         —           26         24         —           24   

Other currencies

     897         —           897         1,716         —           1,716   

Chilean Pesos

     256         1,147         1,403         287         946         1,233   

Current provisions for employee benefits

     4,873         134         5,007         1,751         2,746         4,497   

Brazilian Real

     2         —           2         —           —           —     

Chilean Pesos

     4,871         134         5,005         1,751         2,746         4,497   

Other current non-financial liabilities

     138,234         22,559         160,793         117,945         13,778         131,723   

U.S Dollar

     101,363         16,027         117,390         79,673         13,633         93,306   

Euros

     65         —           65         44         —           44   

Brazilian Real

     16,728         6,359         23,087         22,251         —           22,251   

Argentine Pesos

     3,530         128         3,658         4,428         139         4,567   

Other currencies

     5,673         —           5,673         3,704         —           3,704   

Chilean Pesos

     10,858         45         10,903         7,823         6         7,829   

U.F.

     17         —           17         22         —           22   

 

52


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

March 31, 2016

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

 

 

     From 13
months to 5
years
ThU.S.$
     03-31-2016
Unaudited
More than 5
years
ThU.S.$
     Total
ThU.S.$
     From 13
months to 5
years
ThU.S.$
     12-31-2015
More than 5
years
ThU.S.$
     Total
ThU.S.$
 

Total non-current liabilities

     3,650,789         2,324,885         5,965,674         3,732,206         2,257,489         5,989,695   

Other non-current financial liabilities

     2,083,210         2,106,929         4,190,139         2,141,600         2,095,365         4,236,965   

U.S Dollar

     1,675,656         1,497,605         3,173,261         1,748,723         1,525,269         3,273,992   

Brazilian Real

     15,268         1,902         17,170         13,953         1,929         15,882   

Argentine Pesos

     32         —           32         48         —           48   

Chilean Pesos

     10,778         —           10,778         10,455         —           10,455   

U.F.

     381,476         607,422         988,898         368,421         568,167         936,588   

Bank Loans

     636,109         121,240         757,349         648,017         149,782         797,799   

U.S Dollar

     620,809         119,338         740,147         634,016         147,853         781,869   

Brazilian Real

     15,268         1,902         17,170         13,953         1,929         15,882   

Argentine Pesos

     32         —           32         48         —           48   

Financial Leases

     84,428         —           84,428         90,697         —           90,697   

Chilean Pesos

     10,778         —           10,778         10,455         —           10,455   

U.F.

     73,650         —           73,650         80,242         —           80,242   

Other Loans

     1,362,673         1,985,689         3,348,362         1,402,886         1,945,583         3,348,469   

U.S Dollar

     1,054,847         1,378,267         2,433,114         1,114,707         1,377,416         2,492,123   

U.F.

     307,826         607,422         915,248         288,179         568,167         856,346   

Other non-current provisions

     35,338         —           35,338         34,541         —           34,541   

U.S Dollar

     4         —           4         4         —           4   

Brazilian Real

     4,992         —           4,992         4,410         —           4,410   

Argentine Pesos

     30,342         —           30,342         30,127         —           30,127   

Deferred tax liabilities

     1,473,492         164,160         1,637,652         1,456,888         162,124         1,619,012   

U.S Dollar

     1,421,147         128,745         1,549,892         1,373,597         162,124         1,535,721   

Brazilian Real

     52,345         35,415         87,760         83,291         —           83,291   

Chilean Pesos

     —           —           —           —           —           —     

Non-current provisions for employee benefits

     57,727         —           57,727         51,936         —           51,936   

Other currencies

     155         —           155         149         —           149   

Chilean Pesos

     57,572         —           57,572         51,787         —           51,787   

Other non-current non-financial liabilities

     1,022         53,796         54,818         47,241         —           47,241   

U.S Dollar

     347         —           347         392         —           392   

Brazilian Real

     4         53,796         53,800         46,043         —           46,043   

Argentine Pesos

     461         —           461         608         —           608   

Chilean Pesos

     207         —           207         195         —           195   

U.F.

     3         —           3         3         —           3   

 

53


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

March 31, 2016

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

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 on translation:

 

     January - March  
     2016      2015  
     ThU.S.$      ThU.S.$  

Arauco Do Brasil S.A.

     36,074         (80,839

Arauco Forest Brasil S.A.

     32,369         (72,237

Arauco Florestal Arapoti S.A.

     9,133         (22,577

Arauco Distribución S.A.

     0         (851

Arauco Argentina S.A.

     2,344         (6,727

Flakeboard Company Limited

     6,626         (7,869

Others

     64         31   
  

 

 

    

 

 

 

Total reserve of exchange differences on translation

     86,610         (191,069
  

 

 

    

 

 

 

Effect of foreign exchange rates changes

 

    

January-March

Unaudited

 
     2016
ThU.S.$
     2015
ThU.S.$
 

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

     1,109         (7,514

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

     88,907         (196,726

 

54


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

March 31, 2016

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

 

 

NOTE 12. BORROWING COSTS

Arauco capitalizes the cost of borrowing on current investment projects at effective interest rate.

 

    

January – March

Unaudited

 
     2016
ThU.S.$
    2015
ThU.S.$
 

Property, plant and equipment capitalized cost

    

Property, plant and equipment capitalized interest cost rate

     4.94     4.90

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

     428        631   

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.

As of the date of these interim consolidated financial statements, there are neither provisions for doubtful accounts nor any guarantees granted or received related to the balances with related parties.

Name of Group’s Main Shareholders

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

Name of the Intermediate Controlling Entity that Produces interim Consolidated Financial Statements for Public Use

Empresas Copec S.A.

 

55


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

March 31, 2016

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

 

 

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.

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

 

Company Name

   Country    Functional
Currency
   % Ownership interest
03-31-2016
     % Ownership interest
12-31-2015
 
         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.

   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   

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      1.4778         98.5204         99.9982         1.4778         98.5204         99.9982   

Arauco Distribución S.A.

   Chile    Chilean Pesos      —           —           —           —           99.9996         99.9996   

Arauco do Brasil S.A.

   Brazil    Brazilian Real      1.1624         98.8366         99.9990         1.2485         98.7505         99.9990   

Arauco Europe Cooperatief U.A.

   Holland    U.S. Dollar      0.4735         99.5255         99.9990         0.4843         99.5147         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      10.1297         89.8694         99.9991         10.1297         89.8694         99.9991   

Arauco Middle East DMCC

   Dubai    U.S. Dollar      —           99.9990         99.9990         —           99.9990         99.9990   

Arauco Panels USA, LLC

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

Arauco Perú S.A.

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

Arauco Wood Products, Inc.

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

Araucomex S.A. de C.V.

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

Consorcio Protección Fitosanitaria Forestal S.A.

   Chile    Chilean Pesos      —           57.5404         57.5404         —           57.5404         57.5404   

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   

Forestal Arauco S.A.

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

Forestal Cholguán S.A.

   Chile    U.S. Dollar      —           98.4479         98.4479         —           98.4478         98.4478   

Forestal Concepción S.A.

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

Forestal Los Lagos S.A.

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

Forestal Nuestra Señora del Carmen S.A.

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

Forestal Talavera S.A.

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

Greenagro S.A.

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

Inversiones Arauco Internacional Ltda.

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

Investigaciones Forestales Bioforest S.A.

   Chile    Chilean Pesos      1.0000         98.9489         99.9489         1.0000         98.9489         99.9489   

Leasing Forestal S.A.

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

Mahal Empreendimentos e Participacoes S.A.

   Brazil    Brazilian Real      —           99.9934         99.9934         —           99.9934         99.9934   

Novo Oeste Gestao de Ativos Florestais S.A.

   Brazil    Brazilian Real      —           99.9990         99.9990         —           99.9990         99.9990   

Paneles Arauco S.A.

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

Savitar S.A.

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

Servicios Aéreos Forestales Ltda.

   Chile    U.S. Dollar      0.0100         99.9890         99.9990         0.0100         99.9890         99.9990   

Servicios Logisticos S.A.

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

 

56


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

March 31, 2016

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

 

 

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

 

ID N°

  

Company Name

  

Country

  

Functional Currency

-

   Euforest S.A.    Uruguay    U.S. Dollar

-

   Celulosa y Energía Punta Pereira S.A.    Uruguay    U.S. Dollar

-

   Zona Franca Punta Pereira S.A.    Uruguay    U.S. Dollar

-

   Forestal Cono Sur S.A.    Uruguay    U.S. Dollar

-

   Stora Enso Uruguay S.A.    Uruguay    U.S. Dollar

-

   El Esparragal Asociación Agraria de R.L.    Uruguay    U.S. Dollar

-

   Ongar S.A.    Uruguay    U.S. Dollar

-

   Terminal Logística e Industrial M’Bopicua S.A.    Uruguay    U.S. Dollar

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

Employee Benefits for Key Management Personnel

 

     January – March
Unaudited
 
     2016
ThU.S.$
     2015
ThU.S.$
 

Salaries and bonuses

     14,060         15,746   

Per diem compensation to members of the Board of Directors

     218         277   

Termination benefits

     301         652   

Total

     14,579         16,675   
  

 

 

    

 

 

 

Related Party Receivables, Current

 

Name of Related Party

   Tax ID No.    Nature of
Relationship
   Country    Currency    Maturity    03-31-2016
Unaudited
ThU.S.$
     12-31-2015
ThU.S.$
 

Forestal Mininco S.A

   91.440.000-7    Common director    Chile    Chilean pesos    30 days      16         44   

Eka Chile S.A

   99.500.140-3    Joint Venture    Chile    Chilean pesos    30 days      2,266         1,646   

Forestal del Sur S.A

   79.825.060-4    Common director    Chile    Chilean pesos    30 days      4,918         0   

Stora Enso Arapoti Industria del Papel S.A

   —      Associate    Brazil    Brazilian Real    30 days      368         472   

Unilin Arauco Pisos Ltda.

   —      Joint Venture    Brazil    Brazilian Real    30 days      14         523   

Abastible S.A.

   91.806.000-6    Common director    Chile    Chilean pesos         0         142   

Fundación Educacional Arauco

   71.625.000-8    Common director    Chile    Chilean pesos    30 days      1,025         276   

Fundación Acerca Redes

   65.097.218-K    Common director    Chile    Chilean pesos    30 days      79         21   

TOTAL

                    8,686         3,124   
                 

 

 

    

 

 

 

 

57


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

March 31, 2016

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

 

 

Related Party Payables, Current

 

Name of Related party

   Tax ID No.     

Nature of

Relationship

   Country    Currency    Maturity    03-31-2016
Unaudited
ThU.S.$
     12-31-2015
ThU.S.$
 

Compañía de Petróleos de Chile S.A.

     99.520.000-7       Controlling Parent’s Subsidiary    Chile    Chilean pesos    30 days      3,625         6,057   

Abastible S.A.

     91.806.000-6       Controlling Parent’s Subsidiary    Chile    Chilean pesos         28         —     

Portaluppi, Guzman y Bezanilla Abogados

     78.096.080-9       Common director    Chile    Chilean pesos    30 days      —           98   

Servicios Corporativos Sercor S.A.

     96.925.430-1       Associate    Chile    Chilean pesos    30 days      2         —     

Puerto Lirquén S.A.

     96.959.030-1       Associate    Chile    U.S. Dollar    30 days      881         851   

Compañía Puerto de Coronel S.A.

     79.895.330-3       Associate    Chile    U.S. Dollar    30 days      1,332         111   

Colbún Transmisión S.A.

     76.218.856-2       Common director    Chile    Chilean pesos         2         —     

Empresas Copec S.A.

     90.690.000-9       Common director    Chile    Chilean pesos    30 days      —           24   

TOTAL

                    5,870         7,141   
                 

 

 

    

 

 

 

Related Party Transactions

Purchases

 

Name of Related Party

  Tax ID No.   Nature of
Relationship
  Country   Currency   Transaction
Descriptions
  03-31-2016
Unaudited
ThU.S.$
    12-31-2015
ThU.S.$
 

Abastible S.A.

  91.806.000-6   Controlling
Parent’s
Subsidiary
  Chile   Chilean pesos   Fuel     455        2,503   

Empresas Copec S.A

  90.690.000-9   Controlling
Parent
  Chile   Chilean pesos   Management
service
    82        233   

Compañía de Petróleos de Chile S.A.

  99.520.000-7   Controlling
Parent’s
Subsidiary
  Chile   Chilean pesos   Fuel and other     7,854        61,245   

Compañía Puerto de Coronel S.A.

  79.895.330-3   Associate   Chile   U.S. Dollar   Transport and
stowage
    2,277        10,917   

Puerto Lirquén S.A.

  96.959.030-1   Associate   Chile   U.S. Dollar   Port services     1,194        7,694   

EKA Chile S.A.

  99.500.140-3   Joint Venture   Chile   Chilean pesos   Sodium chlorate     9,839        39,362   

Forestal del Sur S.A.

  79.825.060-4   Common director   Chile   Chilean pesos   Wood and ships     726        2,018   

Portaluppi, Guzman y Bezanilla Abogados

  78.096.080-9   Common director   Chile   Chilean pesos   Legal services     298        1,312   

Empresa Nacional de Telecomunicaciones S.A.

  92.580.000-7   Common director   Chile   Chilean pesos   Telephone services     74        552   

CMPC Maderas S.A.

  95.304.000-K   Common director   Chile   Chilean pesos   Wood and logs     114        267   

Forestal Mininco S.A.

  91.440.000-7   Common director   Chile   Chilean pesos   Wood and logs     —          204   

Empresa de Residuos Resiter Ltda

  89.696.400-3   Common director   Chile   Chilean pesos   Industrial Cleaning
Services
    —          -285   

Empresas de Residuos Industriales Resiter Ltda

  76.329.072-7   Common director   Chile   Chilean pesos   Industrial Cleaning
Services
    —          5,027   

Resiter Uruguay S.A

  —     Common director   Uruguay   U.S. Dollar   Service to collect
solid waste
    —          774   

Colbún Transmisión S.A.

  76.218.856-2   Common director   Chile   Chilean pesos   Electrical Power     86        447   

CMPC Celulosa S.A.

  96.532.330-9   Common director   Chile   Chilean pesos   Others purchases     —          2,217   

 

58


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

March 31, 2016

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

 

 

Sales

 

Name of Related Party

   Tax ID No.    Nature of
Relationship
   Country    Currency    Transaction
Descriptions
   03-31-2016
Unaudited
ThU.S.$
     12-31-2015
ThU.S.$
 

Colbún S.A.

   96.505.760-9    Common director    Chile    Chilean pesos    Electrical Power      365         1,083   

EKA Chile S.A.

   99.500.140-3    Joint venture    Chile    Chilean pesos    Electrical Power      4,403         17,543   

Stora Enso Arapoti Industria de Papel S.A.

   —      Associate    Brasil    Brazilian Real    Wood      1,149         5,617