6-K 1 d365749d6k.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 December, 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  ☒            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  ☒

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 Statement of Financial Position

     7  

3.

 

Unaudited Consolidated Income Statement

     9  

4.

 

Unaudited Consolidated Statement of Changes in Equity

     11  

5.

 

Unaudited Consolidated Statement of Cash Flow

     12  

6.

 

Unaudited Notes to the Consolidated Financial Statement

     13  
 

Annex: Press Release

  


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statements

December 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

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

Current assets

     2,722,360        2,651,920  

Non-current assets

     11,283,821        11,018,471  
  

 

 

    

 

 

 

Total assets

     14,006,181        13,670,391  
  

 

 

    

 

 

 

Liabilities

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

Current liabilities

     1,346,064        1,034,251  

Non-current liabilities

     5,660,834        5,989,695  

Non–parent participation

     44,032        37,735  

Net equity attributable to parent company

     6,955,251        6,608,710  
  

 

 

    

 

 

 

Total net equity and liabilities

     14,006,181        13,670,391  
  

 

 

    

 

 

 

As of December 31, 2016, total assets increased U.S.$336 million compared to December 31, 2015, equivalent to a 2.46% variation. This deviation was driven mainly by increases in the balance of investments in connection with the purchase of a 50% interest in the joint venture SONAE ARAUCO, properties, plant and equipment and biological assets, partially offset by a decrease in trade and other accounts receivable and inventories.

In turn, total liabilities decreased by U.S.$17 million mainly due to a decrease in financial liabilities and non-financial liabilities for a lower register of provision for minimum dividend compared to December 31, 2015.

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

 

Liquidity ratios

   12-31-2016      12-31-2015  

Current Liquidity (current assets / current liabilities)

     2.02        2.56  

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

     1.16        1.42  

Debt indicators

   12-31-2016      12-31-2015  

Debt to equity ratio (total liabilities / equity)

     1.00        1.06  

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

     0.19        0.15  

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

     0.81        0.85  
     12-31-2016      12-31-2015  

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

     2.02        2.89  

Activity ratio

   12-31-2016      12-31-2015  

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

     2.99        2.95  

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

     3.97        3.89  

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

     120.42        122.16  

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

     90.68        92.45  

 

1


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statements

December 31, 2016

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

 

 

As of December 31, 2016, the short-term debt represented 19% of total liabilities (15% as of December 31, 2015).

Our financial expenses coverage ratio decreased from 2.89 to 2.02, mainly due to the lower earnings before taxes for the period ended December 31, 2016, compared to the same period of 2015.

 

  b) Statements of income

Income before income tax

Income before income tax registered a profit of approximately U.S.$263 million compared to a profit of approximately U.S.$497 million in the same period of 2015. The negative variation of U.S.$234 million is explained by the factors described in the following table:

 

Item

   MU.S.$  

Gross margin

     (373

Distribution and Administrative Expenses

     109  

Other income/ expenses per function

     (9

Exchange differences

     37  

Others

     2  
  

 

 

 

Net change in income before income tax

     (234
  

 

 

 

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

 

Revenues

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

Pulp

     2,146,079        2,363,973  

Timber

     2,494,750        2,633,211  

Forestry

     96,488        116,368  

Other

     24,068        33,188  
  

 

 

    

 

 

 

Total revenues

     4,761,385        5,146,740  
  

 

 

    

 

 

 

Sales costs

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

Wood

     736,399        641,821  

Forestry work

     600,320        636,100  

Depreciation and amortization

     377,983        371,851  

Other costs

     1,784,203        1,861,653  
  

 

 

    

 

 

 

Total sales costs

     3,498,905        3,511,425  
  

 

 

    

 

 

 

Profitability index

   12-31-2016      12-31-2015  

Profitability on equity

     3,19        5.46  

Profitability on assets

     1.57        2.59  

Return on operating assets

     2.21        4.13  

Profitability ratios

   12-31-2016      12-31-2015  

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

     1.89        3.21  

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

     217,577        367,711  

Gross margin (ThU.S.$)

     1,262,480        1,635,315  

Financial costs (ThU.S.$)

     (258,467      (262,962

 

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

 

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Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statements

December 31, 2016

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

 

 

EBITDA

   12-31-2016
MU.S.$
     12-31-2015
MU.S.$
 

Gain (loss)

     217.6        367.7  

Finance costs

     258.5        263.0  

Financial income

     (29.7      (50.3

Expenses for income tax

     45.6        129.7  

EBIT

     492.0        710.1  

Depreciation and amortization

     409.4        400.1  

EBITDA

     901.4        1,110.2  

Cost at fair value of the harvest

     340.2        306.7  

Gain from changes in fair value of biological assets

     (208.6      (210.5

Exchange difference

     3.9        41.2  

Others*

     15.2        34.9  

Adjusted EBITDA

     1,052.3        1,282.4  

 

* 2016: Forest loss provision MU.S.$15.2
* 2015: Forest loss provision MU.S.$34.9

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

Uncertainty marked the fourth quarter of 2016, with speculation as to when and how supply coming in from new mills would affect prices. Asia Pulp and Paper addressed the market’s concerns about how much production of their 2.8 million ton short fiber pulp mill would impact 2017, which positively affected prices during the latter part of the quarter. The first line of this mill already started producing during November, while the second line is set to start up during April 2017. Estimations of new market pulp supply are between 1.1 and 1.3 million tons for 2017, an amount that the market should be able to absorb without any major setbacks. The Puma Project in Brazil, which started up during the first half of 2016, has aggressively entered the European and Asian market in softwood and fluff pulp markets. Short fiber supply is overall absorbed by the market at a higher rate than long fiber supply.

Pressures in Asian pulp prices subsided, with long fiber prices stabilizing while short fiber prices positively gaining traction and reaching a 7.5% gain during the quarter. With these price movements the price gap moved from U.S.$ 95 per ton to U.S.$ 50 per ton. China was the main driver of recovering prices, with demand increasing to such a point that many paper

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statements

December 31, 2016

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

 

 

producers had their productions sold off until February. Particularly in China, local prices rose by 10% in long fiber and 25% in short fiber, with the price gap decreasing from U.S.$ 90 to less than U.S.$ 10. Price surges have also been successfully passed to the final client, finally reflecting the depreciation the Chinese currency had suffered during the year. Older paper mills that do not use quality paper grade pulp have ceased production, while more modern paper mills have upped their production levels. Overall, paper supply is estimated to increase 700 thousand tons between the fourth quarter of 2016 and the coming year.

European markets have had a different dynamic, with demand restrained yet slightly above market supply, and exchange rates making imports more expensive. Short fiber prices remained stable while long fiber prices fell 3% during the quarter. Downward adjustments in long fiber prices were mainly due to Scandinavian producers who generally preferred to sell their supply in Europe rather than pay the increasing shipping tariffs, even with the decrease in long fiber prices. Principal European ports are packed with short fiber imports, primarily coming from Brazil that have also not helped matters. Price differentials between Europe and China may divert supply to the Chinese market in the future, which could increase prices in Europe in detriment of possible oversupply in China.

Latin America has been chiefly active except in Brazil. Supply coming in from the new Klabin pulp mill has placed pressure in long fiber and fluff pulp prices, while demand has also deteriorated along with the Brazilian economy.

Ultimately, the fourth quarter ended with the highest production and sales volume of the year in the market as a whole, while inventory levels at their lowest. Our production levels were normal, with maintenance stoppages at our Nueva Aldea Mill during October, our Alto Paraná Mill in Argentina during November, and our Valdivia Mill during the end of November.

Timber Division

Sawn timber markets predominantly increased sales volume and prices during this quarter. Demand in Asia and Oceania was strong despite more supply in the markets from Europe and Brazil. Product mix was crucial to remain ahead of our competitors, and Arauco was even able to increase prices in a few key products. In the Middle East, the construction market remained solid, but prices did decrease due to higher competition. For plywood in Europe, fourth quarter prices consolidated the price increases that occurred during the third quarter in plywood.

In North America, plywood markets remained stable, with sales volume augmenting slightly. Increasing prices in remanufactured products attracted volumes from China and Latin America, but was not enough to counteract the positive trend in pricing. Latin American sales were also healthy, and Chilean sales remained stable despite a strike in one of the bigger retailers.

Panels markets had a drop in sales volume, but results were optimistic at quarter end. North America had lower seasonal sales due to the winter season that brings harsher weather as well as the holidays. MDF panels started with uncertainty as to how the production of West Frazier would impact future prices. Rumors that Mexican producers would increase capacity pressured prices during the quarter. The MDF moldings market had an overall stable demand. In Mexico, the devaluating currency and the incoming capacity decreased sales compared to last quarter, but did not have as big an impact as expected. Clients were cautious in taking stock positions at the beginning of the quarter, and sales increased in November only to decrease in December due to seasonal effects. Particleboard had a positive quarter all around, especially in value-added products.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statements

December 31, 2016

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

 

 

The Brazilian market was complex and there was little clarity as to when the market would finally stabilize. Due to this situation exports increased during the quarter, boosted by the exchange rates that favored sales to international markets. Argentina’s market also shrunk, and had limited opportunities to export due to higher costs compared to Chile or Brazil. Sales in the rest of Latin America were as expected.

5. ANALYSIS OF CASH FLOW

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

 

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

Positive (negative) Cash flow

     

Cash flow from operating activities

     773,584        853,650  

Cash flow from (used in) financing activities:

     

Loan and bond obtention and payments

     92,442        (668,320

Dividend payments

     (130,624      (143,003

Others

     (302      (853

Cash flow from (used in) investment activities:

     

Loans to related companies

     —          (23,628

Incorporation and sale of property, plant and equipment

     (338,468      (315,525

Incorporation and sale of biological assets

     (139,063      (125,626

Incorporation and sale of intangible assets

     (14,858      (10,296

Purchase of participation in joint ventures

     (153,135      —    

Purchase of participation in associates

     —          (10,904

Sale of participation in associates

     6,781        —    

Dividends received

     4,772        6,350  

Others

     (6,241      1,849  
  

 

 

    

 

 

 

Positive Net cash flow (negative)

     94,888        (436,306
  

 

 

    

 

 

 

The financing cash flow had a negative balance of U.S.$38 million in the current period compared to a negative balance of U.S.$812 million in the same period of 2015. Such decrease was mainly due to an increase in bank loans received and a decrease in loan payments.

In relation to the flow of investment at the end of the current period, there was a negative balance of U.S.$640 million compared to a negative balance of U.S.$478 million in the same period of 2015. Such increase was mainly due to greater disbursements for the purchase of the interest in the joint venture SONAE ARAUCO.

6. MARKET RISK ANALYSIS

In respect of the economic risks resulting from interest rate variations, the Company maintains, as of December 31, 2016, a ratio of fixed rate debt to total consolidated debt of approximately 87.1%, 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.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statements

December 31, 2016

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

 

 

In the report to the Consolidated Financial Statements as of December 31, 2016, a detailed analysis of the risks associated with the business of Arauco is available (See Note 23).

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2016

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

 

 

CLASSIFIED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

 

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

Assets

        

Current Assets

        

Cash and cash equivalents

     5        592,253        500,025  

Other current financial assets

     23        5,201        32,195  

Other current non-financial assets

     25        144,915        133,956  

Trade and other current receivables

     23        701,610        733,322  

Accounts receivable from related companies

     13        12,505        3,124  

Current Inventories

     4        852,612        909,988  

Current biological assets

     20        306,117        306,529  

Current tax assets

        104,088        64,079  

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

        2,719,301        2,683,218  

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

     22        3,059        3,194  

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

        3,059        3,194  

Total Current Assets

        2,722,360        2,686,412  

Non-Current Assets

        

Other non-current financial assets

     25        8,868        595  

Other non-current non-financial assets

     23        130,319        125,516  

Trade and other non-current receivables

        14,273        15,270  

Related party receivables, non-current

     13        957        —    

Investments accounted for using equity method

     15-16        446,548        264,812  

Intangible assets other than goodwill

     19        89,497        88,112  

Goodwill

     17        74,893        69,475  

Property, plant and equipment

     7        6,919,495        6,896,396  

Non-current biological assets

     20        3,592,874        3,520,068  

Deferred tax assets

        6,097        3,735  

Total non-Current Assets

        11,283,821        10,983,979  

Total Assets

        14,006,181        13,670,391  
     

 

 

    

 

 

 

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

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2016

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

 

 

CLASSIFIED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (continued)

 

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

Equity and liabilities

       

Liabilities

       

Current Liabilities

       

Other current financial liabilities

   23      697,452       296,038  

Trade and other current payables

   23      537,891       583,018  

Accounts payable to related companies

   13      3,831       7,141  

Other current provisions

   18      842       858  

Current tax liabilities

        1,641       10,976  

Current provisions for employee benefits

   10      5,244       4,497  

Other current non-financial liabilities

   25      99,163       131,723  

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

        1,346,064       1,034,251  

Total Current Liabilities

        1,346,064       1,034,251  

Non-Current Liabilities

       

Other non-current financial liabilities

   23      3,870,914       4,236,965  

Other non-current provisions

   18      38,138       34,541  

Deferred tax liabilities

   6      1,631,065       1,619,012  

Non-current provisions for employee benefits

   10      60,084       51,936  

Other non-current non-financial liabilities

   25      60,633       47,241  

Total non - current liabilities

        5,660,834       5,989,695  

Total liabilities

        7,006,898       7,023,946  

Equity

       

Issued capital

        353,618       353,618  

Retained earnings

        7,329,675       7,204,452  

Other reserves

        (728,042     (949,360

Equity attributable to parent company

        6,955,251       6,608,710  

Non-controlling interests

        44,032       37,735  

Total equity

        6,999,283       6,646,445  

Total equity and liabilities

        14,006,181       13,670,391  
     

 

 

   

 

 

 

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

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2016

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

 

 

CONSOLIDATED INCOME STATEMENTS BY FUNCTION

 

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

Income Statements

       

Revenue

   9      4,761,385       5,146,740  

Cost of sales

   3      (3,498,905     (3,511,425

Gross profit

        1,262,480       1,635,315  

Other income

   3      257,863       273,026  

Distribution costs

   3      (496,473     (528,470

Administrative expenses

   3      (474,469     (551,977

Other expense

   3      (77,415     (83,388

Profit (loss) from operating activities

        471,986       744,506  

Finance income

   3      29,701       50,284  

Finance costs

   3      (258,467     (262,962

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

   15      23,939       6,748  

Exchange rate differences

        (3,935     (41,171

Income before income tax

        263,224       497,405  

Income Tax

   6      (45,647     (129,694

Net Income

        217,577       367,711  
     

 

 

   

 

 

 

Net income attributable to

       

Net income attributable to parent company

        213,801       362,689  

Income attributable to non-controlling interests

        3,776       5,022  

Profit (loss)

        217,577       367,711  
     

 

 

   

 

 

 

Basic earnings per share

       

Basic earnings per share from continuing operations

        0.0018894       0.0032051  
     

 

 

   

 

 

 

Basic earnings per share

        0.0018894       0.0032051  
     

 

 

   

 

 

 

Earnings per diluted shares

       

Earnings per diluted share from continuing operations

        0.0018894       0.0032051  
     

 

 

   

 

 

 

Earnings per diluted share

        0.0018894       0.0032051  
     

 

 

   

 

 

 

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

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2016

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

 

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

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

Net profit (loss)

        217,577       367,711  

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

       

Other comprehensive income before tax actuarial gain (losses) on defined benefit plans

        (5,593     (1,530

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

        132       (1,008

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

        (5,461     (2,538

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        173,754       (385,109

Other Comprehensive Income before tax exchange differences on translation

        173,754       (385,109

Cash flow hedges

       

Gains (losses) on cash flow hedges, before tax

        84,045       11,859  

Recycle of cash flow hedges to profit or loss before tax

        (10,198     (16,122

Other Comprehensive Income before tax Cash flow hedges

        73,847       (4,263

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

        247,601       (389,372

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

        1,509       649  

Income tax relating to share of other comprehensive income of associates and joint ventures accounted for using equity method that will not be reclassified to profit or loss.

        (106     227  

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        (17,355     1,889  

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

        (17,355     1,889  

Other comprehensive (loss) income

        226,188       (389,145

Comprehensive (loss) income

        443,765       (21,434
     

 

 

   

 

 

 

Comprehensive Income attributable to

       

Comprehensive (loss) income, attributable to owners of parent company

        435,119       (15,619

Comprehensive (loss) income, attributable to non-controlling interests

        8,646       (5,815

Total comprehensive (loss) income

        443,765       (21,434
     

 

 

   

 

 

 

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

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2016

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

 

 

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

 

12-31-2016

   Issued
Capital
ThU.S.$
     Reserve of
exchange
differences
on
translation
ThU.S.$
    Reserve of
cash flow
hedges
ThU.S.$
    Reserve of
actuarial
losses on
defined
benefit
plans
ThU.S.$
    Several
Other
Reserves
ThU.S.$
    Total
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 profit

                  213,801       213,801       3.776       217.577  

Other comprehensive income, net of tax

        168,884       56,492       (4,084     26       221,318         221,318       4.870       226.188  

Comprehensive income

     0        168,884       56,492       (4,084     26       221,318       213,801       435,119       8.646       443.765  

Dividends

                  (88,578     (88,578     (2,250     (90.828

Total increase (decrease) from transfers and other changes

                  0       0       (99     (99

Changes in equity

     0        168,884       56,492       (4,084     26       221,318       125,223       346,541       6,297       352.838  

Closing balance at 12-31-2016

     353,618        (703,886     1,096       (20,752     (4,500     (728,042     7,329,675       6,955,251       44,032       6,999,283  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

12-31-2015

   Issued
Capital
ThU.S.$
     Reserve of
exchange
differences
on
translation
ThU.S.$
    Reserve of
cash flow
hedges
ThU.S.$
    Reserve of
actuarial
losses on
defined
benefit
plans
ThU.S.$
    Several
Other
Reserves
ThU.S.$
    Total
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 profit

                  362,689       362,689       5,022       367,711  

Other comprehensive income, net of tax

        (374,275     (2,374     (878     (781     (378,308       (378,308     (10,837     (389,145

Comprehensive income

     0        (374,275     (2,374     (878     (781     (378,308     362,689       (15,619     (5,815     (21,434

Dividends

                  (142,801     (142,801     (3,228     (146,029

Total increase (decrease) from transfers and other changes

                  0       0       (828     (828

Changes in equity

     0        (374,275     (2,374     (878     (781     (378,308     219,888       (158,420     (9,871     (168,291

Closing balance at 12-31-2015

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

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2016

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

 

 

CONSOLIDATED STATEMENTS OF CASH FLOWS - DIRECT METHOD

 

     12-31-2016     12-31-2015  
     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

     5,020,551       5,733,693  

Other cash receipts from operating activities

     470,765       337,696  

Classes of cash payments

    

Payments to suppliers for goods and services

     (3,914,976     (4,260,587

Payments to and on behalf of employees

     (320,738     (490,723

Other cash payments from operating activities

     (212,230     (169,237

Interest paid

     (211,614     (229,894

Interest received

     29,380       17,720  

Income taxes paid

     (83,903     (87,784

Other inflows (outflows) of cash, net

     (3,651     2,766  

Net Cash flows from Operating Activities

     773,584       853,650  
  

 

 

   

 

 

 

Cash flows (used in) investing activities

    

Cash flow used in obtaining control of subsidiaries or other businesses

     —         (10,090

Cash flow used in the purchase of non-controlling interest

     —         (814

Other cash receipts from sales of equity or debt instruments in other entities

     6,781       —    

Other cash payments to acquire interests in joint ventures

     (153,135     —    

Loans to related parties

     0       (23,628

Proceeds from sale of property, plant and equipment

     17,685       5,860  

Purchase of property, plant and equipment

     (356,153     (321,385

Proceeds from sales of intangible assets

     —         99  

Purchase of intangible assets

     (14,858     (10,395

Proceeds from sales of other long-term assets

     1,644       506  

Purchase of other non-current assets

     (140,707     (126,132

Dividends received

     4,772       6,350  

Other inflows (outflows) of cash, net

     (6,241     1,849  

Cash flows used in Investing Activities

     (640,212     (477,780
  

 

 

   

 

 

 

Cash flows from (used in) Financing Activities

    

Total proceeds from borrowings

     737,653       280,863  

Proceeds from long-term borrowing

     187,845       890  

Proceeds from short-term borrowing

     549,808       279,973  

Repayments of borrowings

     (645,211     (949,183

Dividends paid by subsidiaries

     (130,624     (143,003

Other outflows of cash, net

     (302     (853

Cash flows from (used in) Financing Activities

     (38,484     (812,176
  

 

 

   

 

 

 

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

     94,888       (436,306

Effect of exchange rate changes on cash and cash equivalents

     (2,660     (34,821
  

 

 

   

 

 

 

Net increase (decrease) of Cash and Cash equivalents

     92,228       (471,127

Cash and cash equivalents, at the beginning of the period

     500,025       971,152  

Cash and cash equivalents, at the end of the period

     592,253       500,025  
  

 

 

   

 

 

 

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

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2016

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

 

 

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

NOTE 1. PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS

Entity Information

Celulosa Arauco y Constitución S.A. and subsidiaries, tax identification number 93,458,000-1, is a closely held corporation, that was registered in the Securities Registry (the “Registry”) of the Superintendence 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., a subsidiary of Celulosa Arauco y Constitución S.A., is also registered in the Securities Registry as No. 030.

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

The main business activity of Celulosa Arauco y Constitución S.A. and its subsidiaries (henceforth “Arauco” or the “Company”) is the production and sale of products related to the forestry and wood industries. Its main operations are focused on business areas of pulp, 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 Consolidated Financial Statements were prepared on a going concern basis.

Presentation of Consolidated Financial Statements

The Financial Statements presented by Arauco are comprised by the following:

 

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

 

    Consolidated Income Statements by function for the years ended December 31, 2016 and 2015.

 

    Consolidated Statements of Comprehensive Income for the years ended December 31, 2016 and 2015.

 

    Consolidated Statements of Changes in Equity for the years ended December 31, 2016 and 2015.

 

    Consolidated Statements of Cash Flows – Direct Method for the years ended December 31, 2016 and 2015.

 

    Explanatory disclosures (notes).

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2016

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

 

 

Period Covered by the Consolidated Financial Statements

Years ended December 31, 2016 and 2015.

Date of Approval of Consolidated Financial Statements

These consolidated financial statements were approved by the Board of Directors of the Company (the “Board”) at the Extraordinary Session N° 564 held on March 9, 2017

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

UTA – Annual Tax Unit

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.

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.

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.

The presentation currency of the consolidated financial statements is the U.S. Dollar. Figures on these consolidated financial statements are presented in thousands of U.S. Dollar (ThU.S.$).

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 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

These consolidated financial statements were prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”) and represent the full adoption, explicitly and unreserved of the mentioned international standards.

Retroactive application of IFRS

On October 17, 2014, the SVS issued Circular Letter No. 856, instructing audited companies to register in fiscal year 2014 against equity the differences in assets and liabilities as a result of deferred taxes arising from the direct effect of the increase in the first category tax rates introduced by Law No. 20,780. Such accounting treatment differs from IAS 12 and therefore, represented a change to the framework for the preparation and presentation of financial information adopted up to that date.

Considering what was explained in the preceding paragraph represented a specific and temporary deviation from IFRS, as from 2016 and according to paragraph 4A of IFRS 1, Arauco has decided to apply retroactively such rules (in accordance with IAS 8 “Accounting Policies, Changes in Accounting Estimates and Errors”), as if it had never stopped applying them.

Given that what was indicated in the preceding paragraph does not alter any of the accounts shown in the financial statements as of December 31, 2016 and 2015, nor the financial statements as of December 31, 2015 and 2014, in accordance with paragraph 40A of IAS 1 “Presentation of Financial Statements”, it is not necessary to present financial statements as of January 1, 2015 (third column).

The 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.

Reclassifications made in the compared period

As of December 31, 2015, Arauco presented its Consolidated Statement of Financial Position without offsetting assets from deferred tax against liabilities from deferred tax, as applicable to entities legally entitled with the right to offset current assets from tax against current liabilities from tax and to entities whose assets and liabilities from deferred tax are derived from the income taxes corresponding to the same fiscal authority and levied on the same entity.

Arauco assessed the impact of such situation for the previous year and concluded that it did not have any material impact on the consolidated annual financial statements, and that pursuant to paragraph 40A of IAS 1 “Presentation of financial statements”, it is not necessary to include the financial situation statement as of January 1, 2015 (third column).

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2016

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

 

 

As of December 31, 2015, Arauco’s subsidiaries in Brazil did not classified as current assets the applicable portion of their biological assets, therefore all of its biological assets were presented as non-current assets.

The above mentioned differences in the classification have been reviewed in the Consolidated Statement of Financial Position for the years ended 2016 and 2015, and in their respective notes.

The following table reconciles the effects of the reclassifications made to the Consolidated Statement of Financial Position reported as of December 31, 2015:

 

     2015
Th.U.S$
(previously reported)
     Reclassification
Th.U.S$
     2015
Th.U.S$

(Reviewed)
 

Current Biological Assets

     272,037        34,492        306,529  

Total Current Assets

     2,651,920        34,492        2,686,412  

Non-Current Biological Assets

     3,554,560        (34,492      3,520,068  

Deferred Tax Assets

     140,251        (136,516      3,735  

Total Non-Current Assets

     11,154,987        (171,008      10,983,979  
  

 

 

    

 

 

    

 

 

 

Total Assets

     13,806,907        (136,516      13,670,391  
  

 

 

    

 

 

    

 

 

 

Deferred Tax Liabilities

     1,755,528        (136,516      1,619,012  

Total Non-Current Liabilities

     6,126,211        (136,516      5,989,695  
  

 

 

    

 

 

    

 

 

 

Total Liabilities

     7,160,462        (136,516      7,023,946  
  

 

 

    

 

 

    

 

 

 

There was no impact to the Consolidated Financial Statements, Consolidated Income Statements, Consolidated Statements of Cash Flow nor to the Consolidated Statements of Changes in Equity. In addition, the corrections did not affect the Company’s service of its debt obligations.

 

b) Critical accounting estimates and judgments

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

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2016

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

 

 

-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.

-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 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

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2016

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

 

 

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 consolidated financial statements from the date it gains control until the date when the entity ceases to control the subsidiary.

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

If a subsidiary uses accounting policies other than those adopted in the consolidated financial statements for transactions and other events in similar circumstances, appropriate adjustments are made to the consolidated 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 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 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.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2016

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

 

 

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.

 

e) Functional currency

 

(i) Functional currency

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

 

(ii) Translation to the presentation currency of Arauco

For the purposes of presenting consolidated financial statements, 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.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2016

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

 

 

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.

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.

 

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AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2016

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

 

 

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, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship.

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

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

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

-Fair value hedging instruments - 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.

-Cash flow hedges - 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.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2016

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

 

 

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.

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;

 

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Unaudited Consolidated Financial Statements

December 31, 2016

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

 

 

-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.

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 acquirer’s identifiable net assets. The choice is made on a transaction-by-transaction basis.

For the phase-based business combinations, the reasonable value of the acquired company is measured at each opportunity, recognizing the effects of the changes in equity in the income statement corresponding to the period in which they are produced.

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.

 

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Unaudited Consolidated Financial Statements

December 31, 2016

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

 

 

l) Investments in associates and joint arrangements

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

Joint arrangement is defined as an entity over which there is joint control, which exists only when the decisions about strategic of activities, both financial and operational, require the unanimous consent of the parties sharing control.

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

Investments in associates and joint ventures are accounted for using the equity method and are initially recognized at cost. Their carrying amount is increased or decreased to recognize the portion corresponding to the income statement or to the statement of comprehensive income. Dividends received are recognized by deducting the amount received from the carrying amount of the investment. Arauco’s investment in associates includes goodwill (both net of any accumulated impairment loss).

The investments in joint operations are recognized through consolidation of assets, liabilities and results of operations in relation to Arauco’s ownership percentage.

If the cost of acquisition is lower than the fair value of the net assets of the associate acquired, the difference is recognized directly in the income statement and presented in the line Other Income (Loss).

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”.

Only if the investor has incurred legal or constructive obligations or made payments on behalf of the associate or joint venture, it must recognize a liability, showing a zero investment until such time as it generates profits that reverse the generated negative equity previously generated as a result of accrued losses. Otherwise, a liability is not recognized but a zero investment is indicated regardless.

 

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.

 

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Unaudited Consolidated Financial Statements

December 31, 2016

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

 

 

(i) Computer Software

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

 

(ii) Water Rights, Easements and Other Rights

This item includes water rights, easements and other acquired rights recognized at historical cost which have indefinite useful lives as there is no foreseeable limit to the period over which these assets are expected to generate future cash flows. These rights are not amortized, but are tested for impairment at least annually, or when there is any indication that the assets might be impaired.

 

(iii) Customers and trade relations with customers

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

 

n) Goodwill

Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interest in the acquired company, and the fair value of the acquirer’s previously held equity interest in the acquired company (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 acquired company 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 consolidated financial statements, the change in the carrying amount of goodwill in Brazil is only related to the net exchange rate differences on translation.

 

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Unaudited Consolidated Financial Statements

December 31, 2016

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

 

 

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. 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.

 

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Unaudited Consolidated Financial Statements

December 31, 2016

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

 

 

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.

Forest plantations 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.

 

r) Income taxes and deferred taxes.

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 IAS 12 “Income Taxes”.

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.

 

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Unaudited Consolidated Financial Statements

December 31, 2016

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

 

 

s) Provisions

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

 

t) Revenue recognition

Revenues are recognized when Arauco has transferred the risks and rewards of ownership to the buyer and Arauco has no right to dispose of the assets, nor effective control of such good.

 

(i) Revenue recognition from the Sale of Goods

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

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

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.

 

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Unaudited Consolidated Financial Statements

December 31, 2016

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

 

 

Arauco mainly provides power supply services which are transacted principally in the spot market of the Sistema Interconectado Central (“Central Interconnected System”). According to current regulations, the prices on that market called “Marginal Costs” are calculated by the Centro de Despacho Económico de Carga del Sistema Interconectado Central (CDEC–SIC) (“Economic Load Dispatch Center of the Central Interconnected System”) and are generally recognized in the period in which the services are rendered.

Electrical power is generated as a by-product of the pulp and wood process and is a complementary business to it, which is initially supplied to the group’s subsidiaries and any surplus is sold to the CDEC-SIC.

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

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

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

 

u) Minimum dividend

Article No. 79 of the Chilean Corporations Law states that, unless otherwise unanimously agreed by the shareholders, corporations must distribute annually at least 30% of net income for the current year as cash dividend to shareholders determined in proportion to their shares or in the proportion established in the by-laws for preferred shares, if any, except where necessary to absorb accumulated losses from prior years.

The General Shareholders’ Meeting of Arauco agreed to distribute annual dividends at 40% of net distributable income, including an interim dividend to be distributed at year end. Dividends payable are recognized as a liability in the financial statements in the period when they are declared and approved by the Arauco’s shareholders or when arises the corresponding present obligation based on existing legislation or distribution policies established by the Shareholders’ Meeting.

The 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.

 

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Unaudited Consolidated Financial Statements

December 31, 2016

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

 

 

w) Impairment

Non-financial Assets

The recoverable amount of property, plant and equipment and other long-term 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.

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.

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.

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

Financial Assets

At the end of each reporting period, an 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.

 

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Unaudited Consolidated Financial Statements

December 31, 2016

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

 

 

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.

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.

These obligations are related to post-employee benefits in accordance with current standards.

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.

 

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Unaudited Consolidated Financial Statements

December 31, 2016

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

 

 

z) Recent accounting pronouncements

 

  a) Standards, interpretations and amendments that are mandatory for the first time for annual periods beginning on January 1, 2016:

 

Standards and

interpretations

  

Content

  

Mandatory application

for annual periods

beginning on or after

IFRS 14   

Deferred regulatory accounts.

Temporary rule regarding the accounting of certain outstanding balances arising from regulated-tariff activities (“deferred regulatory accounts”). This rule is only applicable to entities applying IFRS 1 as first time adopters of IFRS.

   January 1, 2016

 

Amendments and

improvements

  

Content

  

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 appropriate. It also clarifies that revenue is generally presumed to be an inappropriate 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 than 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
IAS 1-Amendments    The amendments aim at clarifying IAS 1 to address perceived impediments to preparers exercising their judgment 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
Annual Improvements 2012-2014 Cycle    IFRS 5, IFRS 7, IAS 19, IAS 34.    January 1, 2016

The adoption of the standards, amendments and interpretations described above will not have a significant impact on the Consolidated Financial Statements of Arauco.

 

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December 31, 2016

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

 

 

  b) Standards, interpretations and amendments, the application of which is not yet mandatory, which have not been adopted in advance:

 

Standards and

interpretations

  

Content

  

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 recognize, measure, present and disclose leases. The standard provides a single lessee accounting model, requiring lessees to recognize 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
IFRS 22   

Transactions in Foreign Currency and Anticipated Considerations

Applies to a transaction in foreign currency (or partially in foreign currency) when an entity recognizes a non-financial asset or a non-financial liability arising from the payment or collection of an anticipated consideration, before recognizing the related asset, expense, or income.

   January 1, 2018

Amendments and

improvements

  

Content

  

Mandatory application
for annual periods
beginning on or after

IAS 7   

Statement of Cash Flows

Introduces additional disclosure that enable users of financial statements to evaluate changes in liabilities arising from financial activities.

   January 1, 2017
IAS 12   

Income taxes

Clarifies the accounting for deferred tax assets relating to debt instruments measured at fair value.

   January 1, 2017
IFRS 2   

Share-based payment

Clarifies the measurement of cash settled share-based payment transactions and the accounting for amendments that change such payments to equity instruments.

   January 1, 2018
IFRS 15   

Revenue from contracts with customers.

Introduces clarifications to the guidelines and examples related to the transition towards the new rule.

   January 1, 2018
IFRS 4   

Insurance contracts

Introduces two approaches: overlap and temporary exemption of IFRS 9.

   January 1, 2018
IAS 40   

Investment properties

Clarifies the requirements needed to transfer to, or from, investment properties.

   January 1, 2018
IFRS 1   

First-Time adoption of the IFRS

Suspension of short-term exceptions.

   January 1, 2018
IFRS 12   

Disclosure of Interests in Other Entities.

Clarifies the scope of this rule.

   January 1, 2018
IAS 28    Investments in Associates and Joint Ventures.    January 1, 2018

IFRS 10 y IAS 28-

Amendments

   Sale or Contribution of assets among an Investor and its Associates or Joint Ventures.    Undetermined.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2016

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

 

 

IFRS - 9 Financial Instruments.

IFRS 9 addresses the classification, measurement and discarding of financial assets and financial liabilities. The provision includes new rules applicable to coverage accounting and a new impairment model for financial assets. The financial assets held by the Group mainly include: Mutual Fund Holdings, (coverage) Derivatives, and highly-liquid financial instruments.

Consequently, Arauco does not expect the new standard to have a significant impact in the classification and measurement of its financial assets. There will be no impact over the accounting of the group’s financial liabilities, because the new requirements only affect the accounting of financial liabilities identified at a reasonable value per results, and the group does not have such liabilities. Arauco does not intend to adopt IFRS 9 prior to its date of mandatory applicability.

IFRS 15 – Ordinary Activities’ Income from Contracts with Clients.

The new provision specifies how and when income will be recognized and increases the disclosures. The provision provides a single five-step model based on principles applicable to all contracts with clients. The provision will be in full force and effect as of January 1, 2018.

Arauco is a pulp and wood supplier in the global markets. Arauco’s contracts with clients can be clearly identified on the basis of purchase orders placed by such clients. Performance obligations are regularly explicitly defined as the products are delivered in accordance with the client’s contracts.

The main contracts with clients do not include additional separate performance obligations that would substantially change the moment of income recognition in accordance to IFRS 15, compared to current income recognition practices.

IFRS 16 - Leases

IFRS 16 was issued in January, 2016. The new provision will result in recognizing practically all leases in the balance sheet, because the distinction between operational and financial leases was eliminated. Under the new provision an asset (the right to use the leased property) as well as a financial liability is recognized for lease payments. Short-term and low-value leases are an exception to this rule. This provision will be in full force and effect as of January 1, 2019.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2016

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

 

 

According to the carried out evaluations, the adoption of the other standards, amendments and interpretations described above will not have a significant impact on Arauco’s Consolidated Financial Statements during its initial application period.

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) Issued Capital

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

100% of Capital corresponds to ordinary shares

 

     12-31-2016    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
     12-31-2016    12-31-2015

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

   113,159,655

 

b) Dividends paid to ordinary shares

The interim dividend paid in December 2016 was equivalent to 20% of the distributable net income calculated as of the end of September 2016 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.$88,578 (ThU.S.$142,801 as of December 31, 2015) presented in the statement of changes in equity correspond to the minimum dividend provision recorded for the period 2016.

On the Cash Flow Statement on Dividends Paid an amount of Th.U.S.$ 130,624 at December 31, 2016 (ThU.S.$143,003 at December 31, 2015) of which ThU.S.$128,793 (ThU.S.$141,652 at December 31, 2015) correspond to the payment of dividends of parental company.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2016

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

 

 

The following are the dividends paid and per share amounts during the periods 2016 and 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

     12-14-2016  

Amount of Dividend    

     ThU.S.$29,572  

Number of Shares for which Dividends are Paid

     113,159,655  

Dividend per Share, Ordinary Shares

     U.S.$0.26133  

 

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

     05-11-2016  

Amount of Dividend    

     ThU.S.$99,221  

Number of Shares for which Dividends are Paid

     113,159,655  

Dividend per Share, Ordinary Shares

     U.S.$0.87683  

 

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

 

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.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2016

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

 

 

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.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2016

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

 

 

Other items in the Statement of Income by Function

The table below sets forth other income, other expenses, finance income, finance costs and share of profit (loss) of associates and joint ventures as of December 31, 2016 and 2015:

 

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

Classes of Other Income

     

Other Income, Total

     257,863        273,026  

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

     208,562        210,479  

Net income from insurance compensation

     3,222        1,522  

Revenue from export promotion

     2,350        2,692  

Leases received

     4,687        2,654  

Gain on sales of assets

     17,485        11,849  

Gain on business combination achieved in stages

     —          8,744  

Access easement

     3,756        8,160  

Recovery of tax credits

     2,033        8,081  

Other operating results

     15,768        18,845  

Classes of Other Expenses by activity

     

Total of other expenses by activity

     (77,415      (83,388

Depreciation

     (562      (1,407

Legal payments

     (879      (3,334

Impairment provision properties, plants and equipment and others

     (14,979      (12,321

Plants stoppage operating expenses

     (3,926      (3,917

Expenses projects

     (1,620      (532

Loss of asset sales

     (2,283      (2,475

Loss and repair of assets

     (1,307      (316

Loss of forest due to fires

     (15,193      (34,850

Other Taxes

     (8,261      (8,981

Research and development expenses

     (2,684      (2,604

Compensation and eviction

     (4,208      (1,748

Fines, readjustments and interest

     (1,004      (1,139

Loss on disposal of associates

     (10,369      —    

Other expenses

     (10,140      (9,764

Classes of financing income

     

Financing income, total

     29,701        50,284  

Financial income from mutual funds - deposits

     11,439        15,128  

Financial income resulting from swap - forward

     7,226        4,439  

Financial income resulting from loans with related companies

     —          17,629  

Other financial income

     11,036        13,088  

Classes of financing costs

     

Financing costs, Total

     (258,467      (262,962

Interest expense, Banks loans

     (33,224      (40,690

Interest expense, Bonds

     (183,203      (189,526

Interest expense, financial instruments

     (17,221      (7,260

Other financial costs

     (24,819      (25,486

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

     

Total

     23,939        6,748  

Investments in associates

     16,348        5,573  

Joint ventures

     7,591        1,175  

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2016

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

 

 

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

 

     January - December  

Cost of sales

   2016
ThU.S.$
     2015
ThU.S.$
 

Timber

     736,399        641,821  

Forestry labor costs

     600,320        636,100  

Depreciation and amortization

     377,983        371,851  

Maintenance costs

     313,500        305,701  

Chemical costs

     479,335        539,856  

Sawmill Services

     117,340        128,801  

Other Raw Materials

     221,950        226,342  

Other Indirect costs

     143,074        138,900  

Energy and fuel

     139,527        172,077  

Cost of electricity

     39,960        41,674  

Wage and salaries

     329,517        308,302  

Total

     3,498,905        3,511,425  
  

 

 

    

 

 

 
     January - December  

Distribution cost

   2016
ThU.S.$
     2015
ThU.S.$
 

Selling costs

     33,557        48,160  

Commissions

     13,880        15,801  

Insurance

     3,216        4,601  

Provision for doubtful accounts

     910        3,137  

Other selling costs

     15,551        24,621  

Shipping and freight costs

     462,916        480,310  

Port services

     28,028        26,216  

Freights

     357,442        387,081  

Other shipping and freight costs

     77,446        67,013  

Total

     496,473        528,470  
  

 

 

    

 

 

 
     January - December  

Administrative expenses

   2016
ThU.S.$
     2015
ThU.S.$
 

Wage and salaries

     198,129        227,407  

Marketing, advertising, promotion and publications expenses

     9,937        10,422  

Insurance

     21,526        28,216  

Depreciation and amortization

     29,285        24,587  

Computer services

     36,285        31,897  

Lease rentals (offices, other property and vehicles)

     14,209        13,527  

Donations, contributions, scholarships

     10,396        11,172  

Fees (legal and technical advisors)

     43,899        49,556  

Property taxes, patents and municipality rights

     16,275        19,196  

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

     94,528        135,997  

Total

     474,469        551,977  
  

 

 

    

 

 

 

 

          January-December  

Expenses for

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

Depreciations

   7      394,835        388,192  

Employee benefits

   10      532,957        537,629  

Amortization

   19      14,552        11,953  

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2016

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

 

 

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

 

Auditors fees

   12-31-2016
ThU.S.$
 

Audit services

     2,083  

Other services

  

Tax services

     769  

Others

     469  

TOTAL

     3,321  
  

 

 

 

Number of employees

     No.  
     15,737  
  

 

 

 

NOTE 4. INVENTORIES

 

     12-31-2016      12-31-2015  

Components of Inventory

   ThU.S.$      ThU.S.$  

Raw materials

     61,252        85,999  

Production supplies

     102,760        97,755  

Products in progress

     59,332        62,475  

Finished goods

     468,544        503,059  

Spare Parts

     160,724        160,700  

Total Inventories

     852,612        909,988  
  

 

 

    

 

 

 

Inventories recognized as cost of sales at December 31, 2016 were ThU.S.$3,423,439 (ThU.S.$3,416,235 at December 31, 2015).

In order to have the inventories recorded at net realizable value at December 31, 2016, a net decrease of inventories was recognized associated with a higher provision of obsolescence of ThU.S.$8,397 (ThU.S.$6,909 at December 31, 2015). As of December 31, 2016, the amount of obsolescence provision is ThU.S.$28,499 (ThU.S.$20,102 at December 31, 2015).

At December 31, 2016 there were inventory write-offs of ThU.S.$1,332 (ThU.S.$4,215 at December 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 consolidated financial statements, there are no inventories pledged as security to report.

Agricultural Products

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

 

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Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2016

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

 

 

NOTE 5. CASH AND CASH EQUIVALENTS

Cash and cash equivalents include cash on hand, bank checking account balances, time deposits, repurchase agreements and mutual funds. 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 consolidated financial statements, there are no amounts of cash and cash equivalents with restrictions on use.

 

     12-31-2016      12-31-2015  

Components of Cash and Cash Equivalents

   ThU.S.$      ThU.S.$  

Cash on hand

     3,156        201  

Bank checking account balances

     146,290        143,123  

Time deposits

     247,391        159,912  

Mutual funds

     195,416        196,789  

Total

     592,253        500,025  
  

 

 

    

 

 

 

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

 

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

AAAfm

     192,895        196,749  

AAfm

     2,521        40  

Total Mutual Funds

     195,416        196,789  
  

 

 

    

 

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 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 in Chile. 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, 2017 and thereafter, 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.

Deferred Tax Assets

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

 

     12-31-2016      12-31-2015  

Deferred Tax Assets

   ThU.S.$      ThU.S.$  

Deferred tax Assets relating to Provisions

     5,771        13,498  

Deferred tax Assets relating to Accrued Liabilities

     11,716        8,535  

Deferred tax Assets relating to Post-Employment benefits

     17,618        15,480  

Deferred tax Assets relating to Property, Plant and equipment

     9,806        7,730  

Deferred tax Assets relating to Financial Instruments

     12,699        21,805  

Deferred tax Assets relating to Tax Loss Carry forwards

     50,917        35,751  

Deferred tax Assets relating to Inventories

     7,158        4,240  

Deferred tax Assets relating to Provisions for Income

     7,069        3,997  

Deferred tax Assets relating to Allowance for Doubtful Accounts

     4,886        4,572  

Intangible revaluation differences

     10        56  

Deferred tax Assets relating to Other Deductible Temporary Differences

     30,216        24,587  

Total Deferred Tax Assets

     157,866        140,251  
  

 

 

    

 

 

 

Netting presentation

     (151,769      (136.516
  

 

 

    

 

 

 

Net Effect

     6,097        3,735  
  

 

 

    

 

 

 

Certain subsidiaries of Arauco, as of the date of these 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.$157,403 (ThU.S.$112,383 at December 31, 2015), which are mainly originated by operational and financial losses.

In addition, as of the closing of these consolidated financial statements there are ThU.S.$ 76,280 (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.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2016

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

 

 

Deferred Tax Liabilities

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

 

     12-31-2016      12-31-2015  

Deferred Tax Liabilities

   ThU.S.$      ThU.S.$  

Deferred tax Liabilities relating to Property, plant and equipment

     934,892        930,608  

Deferred tax Liabilities relating to Financial Instruments

     7,186        6,376  

Deferred tax Liabilities relating to Biological Assets

     719,577        693,103  

Deferred tax Liabilities relating to Inventory

     31,072        31,912  

Deferred tax Liabilities due to Prepaid Expenses

     42,881        40,907  

Deferred tax Liabilities due to Intangible

     27,222        26,419  

Deferred tax Liabilities relating to Other Taxable Temporary Differences

     20,004        26,203  

Total Deferred Tax Liabilities

     1,782,834        1,755,528  
  

 

 

    

 

 

 

Netting presentation

     (151,769      (136,516
  

 

 

    

 

 

 

Net Effect

     1,631,065        1,619,012  
  

 

 

    

 

 

 

The effect of the current and deferred tax exercise related to financial hedging instruments corresponds to a credit of ThU.S.$17,355 as of December 31, 2016 (credit of ThU.S.$1,889 as of December 31, 2015), which is presented net in Reserves of hedges in the statement of changes in equity.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2016

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

 

 

Reconciliation of deferred tax assets and liabilities

 

     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
12-31-2016
 

Deferred Tax Assets

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

Deferred tax Assets relating to Provisions

     13,498        (8,019     —         292       5,771  

Deferred tax Assets relating to accrued liabilities

     8,535        3,181       —         —         11,716  

Deferred tax Assets relating to Post-Employment benefits

     15,480        579       1,509       50       17,618  

Deferred tax Assets relating to Property, Plant and equipment

     7,730        2,076       —         —         9,806  

Deferred tax Assets relating to Financial Instruments

     21,805        1,500       (10,606     —         12,699  

Deferred tax Assets relating to tax losses carry forwards

     35,751        11,498       —         3,668       50,917  

Deferred tax Assets relating to Inventories

     4,240        2,918       —         —         7,158  

Deferred tax Assets relating to Provisions for Income

     3,997        3,050       —         22       7,069  

Deferred tax Assets relating to Allowance for Doubtful Accounts

     4,572        261       —         53       4,886  

Intangible revaluation differences

     56        (46     —         —         10  

Deferred tax assets relating to other deductible temporary differences

     24,587        3,593       —         2,036       30,216  

Total deferred tax assets

     140,251        20,591       (9,097     6,121       157,866  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 
     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
12-31-2016
 

Deferred Tax Liabilities

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

Deferred tax liabilities relating to property, Plant and equipment

     930,608        (1,065     —         5,349       934,892  

Deferred tax liabilities relating to financial instruments

     6,376        810       —         —         7,186  

Deferred tax liabilities relating to biological assets

     693,103        12,642       —         13,832       719,577  

Deferred tax liabilities relating to inventory

     31,912        (840     —         —         31,072  

Deferred tax liabilities due to prepaid expenses

     40,907        2,078       —         (104     42,881  

Deferred tax liabilities due to intangible

     26,419        (528     —         1,331       27,222  

Deferred tax liabilities relating to other taxable temporary differences

     26,203        (9,229     —         3,030       20,004  

Total deferred tax liabilities

     1,755,528        3,868       —         23,438       1,782,834  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 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 loss carryforwards

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

Deferred tax Assets relating to tax losses carry forwards

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

Deferred tax Assets relating to Inventories

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

Deferred tax Assets relating to Provisions for Income

     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
combination
     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       —          —          —         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 relating to prepaid expenses

     40,888        (184     —          —          203       40,907  

Deferred tax liabilities relating 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  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2016

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

 

 

Temporary Differences

The following tables summarize the deductible and taxable temporary differences:

 

     12-31-2016      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

     106,949           104,500     

Deferred Tax Assets - Tax loss carry forwards

     50,917           35,751     

Deferred Tax Liabilities

        1,782,834           1,755,528  

Total

     157,866        1,782,834        140,251        1,755,528  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     January - December  

Detail of Temporary Difference Income and Loss Amounts

   2016
ThU.S.$
     2015
ThU.S.$
 

Deferred Tax Assets

     9,093        (15,306

Deferred Tax Assets - Tax losses

     11,498        (959

Deferred Tax Liabilities

     (3,868      (26,259

Total

     16,723        (42,524
  

 

 

    

 

 

 

Income Tax Expense

Income tax expense consists of the following:

 

     January - December  

Income Tax composition

   2016
ThU.S.$
     2015
ThU.S.$
 

Current income tax expense

     (58,831      (87,908

Prior period current income tax adjustments

     (6,899      4,033  

Other current tax benefit (expenses)

     3,360        (3,295

Current Tax Expense, Net

     (62.370      (87,170

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

     5,225        (41,565

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

     11,498        (959

Total deferred Tax Expense, Net

     16,723        (42,524

Income Tax Expense, Total

     (45,647      (129,694
  

 

 

    

 

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2016

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

 

 

The following table sets forth the current income tax expense detailed by foreign and domestic (Chile) companies at December 31, 2016 and 2015:

 

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

Foreign current income tax expense

     (27,931      (33,129

Domestic current income tax expense

     (34,439      (54,041

Total current income tax expense

     (62,370      (87,170

Foreign deferred tax expense

     7,794        (17,240

Domestic deferred tax expense

     8,929        (25,284

Total deferred tax expense

     16,723        (42,524

Total tax expense

     (45,647      (129,694
  

 

 

    

 

 

 

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

The reconciliation of income tax expense is as follows:

 

     January - December  
     2016     2015  

Reconciliation of Income tax from Statutory Rate to Effective Tax Rate

   ThU.S.$     ThU.S.$  

Statutory domestic (Chile) income tax rate

     24     22.5

Tax Expense at statutory tax rate

     (64,174     (111,916

Tax effect of foreign tax rates

     (13,368     (16,099

Tax effect of revenues exempt from taxation

     33,834       41,268  

Tax effect of non-tax-deductible expenses

     (10,987     (40,866

Tax rate effect of tax loss carry forwards

     —         14  

Tax effect of Previously Unrecognized Tax Benefit in the Income Statement

     —         (857

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

     17,157       307  

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

     (3,681     (3,445

Tax rate effect of adjustments for current tax of prior periods

     (6,899     4,033  

Other tax rate effects

     1,471       (2,128

Total adjustments to tax expense at applicable tax rate

     17,527       (17,778

Tax expense at effective tax rate

     (45,647     (129,694
  

 

 

   

 

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2016

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

 

 

NOTE 7. PROPERTY, PLANT AND EQUIPMENT

 

     12-31-2016      12-31-2015  

Property, Plant and Equipment, Net

   ThU.S.$      ThU.S.$  

Construction in progress

     321,031        251,519  

Land

     991,450        951,638  

Buildings

     2,169,731        2,182,643  

Plant and equipment

     3,256,348        3,346,675  

Information technology equipment

     24,154        26,210  

Fixtures and fittings

     9,880        11,860  

Motor vehicles

     16,858        16,721  

Other property, plant and equipment

     130,043        109,130  

Total Net

     6,919,495        6,896,396  
  

 

 

    

 

 

 

Property, Plant and Equipment, Gross

     

Construction in progress

     321,031        251,519  

Land

     991,450        951,638  

Buildings

     3,825,259        3,698,351  

Plant and equipment

     6,128,494        5,927,789  

Information technology equipment

     76,421        73,573  

Fixtures and fittings

     33,613        35,283  

Motor vehicles

     48,534        45,503  

Other property, plant and equipment

     153,838        131,894  

Total Gross

     11,578,640        11,115,550  
  

 

 

    

 

 

 

Accumulated depreciation and impairment

     

Buildings

     (1,655,528      (1,515,708

Plant and equipment

     (2,872,146      (2,581,114

Information technology equipment

     (52,267      (47,363

Fixtures and fittings

     (23,733      (23,423

Motor vehicles

     (31,676      (28,782

Other property, plant and equipment

     (23,795      (22,764

Total

     (4,659,145      (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 consolidated financial statements.

 

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AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2016

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

 

 

Disbursements commitments for the acquisition of property, plant and equipment and disbursements for property, plant and equipment under construction.

 

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

Amount committed for the acquisition of property, plant and equipment

     122,757        109,713  
     12-31-2016
ThU.S.$
     12-31-2015
ThU.S.$
 

Disbursements for property, plant and equipment under construction

     317,159        215,035  

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 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 December 31, 2016 and December 31, 2015:

 

Movement of Property, Plant and Equipment

  Construction
in progress
ThU.S.$
    Land
ThU.S.$
    Buildings
ThU.S.$
    Plant and
equipment
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

    317,159       6,350       7,966       59,997       554       269       1,281       25,618       419,194  

Disposals

    (44     (1,107     (443     (2,382     (105     —         (199     (1,607     (5,887

Retirements

    (1,754     (295     (926     (2,209     (24     (8     (30     (2,811     (8,057

Depreciation

    —         —         (122,257     (330,876     (5,352     (1,970     (3,969     (4,729     (469,153

Impairment loss recognized in profit or loss

    —         —         9       (1,254     (7     (1     —         (1,553     (2,806

Increase (decrease) through net exchange differences

    6,610       30,514       (2,388     51,224       134       116       112       3,145       89,467  

Reclassification of assets held for sale

    —         —         —         341       —         —         —         —         341  

Increase (decrease) through transfers from construction in progress

    (252,459     4,350       105,127       134,832       2,744       (386     2,942       2,850       —    

Total changes

    69,512       39,812       (12,912     (90,327     (2,056     (1,980     137       20,913       23,099  

Closing balance 12-31-2016

    321,031       991,450       2,169,731       3,256,348       24,154       9,880       16,858       130,043       6,919,495  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Movement of Property, Plant and Equipment

  Construction
in progress
ThU.S.$
    Land
ThU.S.$
    Buildings
ThU.S.$
    Plant and
equipment
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

    —         —         1,474       7       —         15       —         —         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     —         —         0       —         (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  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2016

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

 

 

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

 

     January-December  

Depreciation for the year

   2016
ThU.S.$
     2015
ThU.S.$
 

Cost of sales

     371,170        365,401  

Administrative expenses

     21,546        19,084  

Other expenses

     2,119        3,707  

Total

     394,835        388,192  
  

 

 

    

 

 

 

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 follow:

 

     Useful
Life
(Average)
 

Buildings

     58  

Plant and equipment

     30  

Information technology equipment

     8  

Fixtures and fittings

     28  

Motor vehicles

     7  

Other property, plant and equipment

     14  

See Note 12 for details of capitalized borrowing costs.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2016

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

 

 

NOTE 8. LEASES

Lessee

 

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

Property, Plant and Equipment under finance leases

     117,206        132,836  

Plant and equipment

     117,206        132,836  

Reconciliation of Financial Lease Minimum Payments:

 

     12-31-2016  

Periods

   Present Value
ThU.S.$
 

Less than one year

     40,400  

Between one and five years

     73,586  

More than five years

     —    

Total

     113,986  
  

 

 

 
     12-31-2015  
     Present Value  

Periods

   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.

 

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AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2016

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

 

 

Lessor

Reconciliation of Financial Lease Minimum Payments:

 

     12-31-2016  

Periods

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

Less than one year

     512        —          512  

Between one and five years

     353        —          353  

More than five years

     —          —          —    

Total

     865        —          865  
  

 

 

    

 

 

    

 

 

 
     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        —          6  

More than five years

     —          —          —    

Total

     16        1        15  
  

 

 

    

 

 

    

 

 

 

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 – December  

Classes of revenue

   2016
ThU.S.$
     2015
ThU.S.$
 

Revenue from sales of goods

     4,649,581        5,018,138  

Revenue from rendering of services

     111,804        128,602  

Total

     4,761,385        5,146,740  
  

 

 

    

 

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2016

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

 

 

NOTE 10. EMPLOYEE BENEFITS

Classes of Benefits and Expenses by Employee

 

     2016
ThU.S.$
     2015
ThU.S.$
 

Employee expenses

     532,957        537,629  

Wages and salaries

     506,993        519,066  

Severance indemnities

     25,964        18,563  
     

 

     2016   2015

Discount rate

   4.52%   4.91%

Inflation

   2.79%   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

     (9,052

Decrease in 100 bps

     10,572  

Wage growth rates

  

Increase in 100 bps

     5,596  

Decrease in 100 bps

     (4,875

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

 

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

Current

     5,244        4,497  

Non-current

     60,084        51,936  

Total

     65,328        56,433  
  

 

 

    

 

 

 

Reconciliation of the present value of severance indemnities obligations

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

Opening balance

     56,433        52,172  

Current service cost

     5,334        13,032  

Interest cost

     2,957        2,257  

(Gains) losses from changes in actuarial assumptions

     2,083        (5,723

Actuarial gains and losses arising from experience

     3,503        6,980  

Benefits paid

     (7,871      (3,482

Increase (decrease) for foreign currency exchange rates changes

     2,889        (8,803

Closing balance

     65,328        56,433  
  

 

 

    

 

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2016

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

 

 

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

 

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

Total Current Assets

     2,722,360        2,686,412  

Cash and Cash Equivalents

     592,253        500,025  

U.S Dollar

     524,426        388,818  

Euro

     2,357        2,501  

Brazilian Real

     47,696        21,676  

Argentine Pesos

     4,046        40,573  

Other currencies

     3,327        2,979  

Chilean Pesos

     10,401        43,478  

Other current financial assets

     5,201        32,195  

U.S Dollar

     4,879        29,367  

Argentine Pesos

     315        2,828  

Other currencies

     7        —    

Other current non-financial assets

     144,915        133,956  

U.S Dollar

     62,246        55,365  

Euros

     71        82  

Brazilian Real

     22,537        16,505  

Argentine Pesos

     12,261        3,705  

Other currencies

     3,500        4,801  

Chilean Pesos

     44,300        53,280  

U.F.

     —          218  

Trade and other current receivables

     701,610        733,322  

U.S Dollar

     489,056        507,032  

Euro

     26,544        27,595  

Brazilian Real

     46,150        37,975  

Argentine Pesos

     15,137        23,016  

Other currencies

     16,620        14,091  

Chilean Pesos

     106,681        123,056  

U.F.

     1,422        557  

Accounts receivable from related companies

     12,505        3,124  

U.S Dollar

     274        21  

Brazilian Real

     726        995  

Chilean Pesos

     10,548        2,108  

U.F.

     957        —    

Current Inventories

     852,612        909,988  

U.S Dollar

     812,748        871,629  

Brazilian Real

     39,864        38,359  

Current biological assets

     306,117        306,529  

U.S Dollar

     271,551        272,037  

Brazilian Real

     34,566        34,492  

Current tax assets

     104,088        64,079  

U.S Dollar

     6,199        5,464  

Brazilian Real

     5,798        5,243  

Argentine Pesos

     39        2,000  

Other currencies

     2,696        850  

Chilean Pesos

     89,356        50,522  

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

     3,059        3,194  

U.S Dollar

     3,059        3,194  

 

55


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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2016

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

 

 

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

Total Non-Current Assets

     11,283,821        10,983,979  

Other non-current financial assets

     8,868        595  

U.S Dollar

     8,868        212  

Argentine Pesos

     —          383  

Other non-current non-financial assets

     130,319        125,516  

U.S Dollar

     95,658        114,164  

Brazilian Real

     4,042        2,987  

Argentine Pesos

     9,900        7,138  

Other currencies

     636        706  

Chilean Pesos

     20,083        521  

Trade and other non-current receivables

     14,273        15,270  

U.S Dollar

     6,895        9,976  

Other currencies

     527        729  

Chilean Pesos

     5,753        3,145  

U.F.

     1,098        1,420  

Related party receivables, non-current

     957        —    

U.F.

     957        —    

Investments accounted for using equity method

     446.548        264.812  

U.S Dollar

     124.324        122.416  

Euro

     156.990        —    

Brazilian Real

     165.203        142.329  

Chilean Pesos

     31        67  

Intangible assets other than goodwill

     89,497        88,112  

U.S Dollar

     88,394        87,154  

Brazilian Real

     1,026        876  

Chilean Pesos

     77        82  

Goodwill

     74,893        69,475  

U.S Dollar

     42,508        42,445  

Brazilian Real

     32,385        27,030  

Property, plant and equipment

     6,919,495        6,896,396  

U.S Dollar

     6,394,105        6,448,616  

Brazilian Real

     520,448        442,959  

Chilean Pesos

     4,942        4,821  

Non-current biological assets

     3,592,874        3,520,068  

U.S Dollar

     3,185,872        3,297,710  

Brazilian Real

     407,002        222,358  

Deferred tax assets

     6,097        3,735  

U.S Dollar

     4,134        3,735  

Brazilian Real

     1,697        —    

Other currencies

     52        —    

Chilean Pesos

     214        —    

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2016

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

 

 

     Up to 90
days
ThU.S.$
     12-31-2016
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

     806,280        539,784        1,346,064        910,436        123,815        1,034,251  

Other current financial liabilities

     196,001        501,451        697,452        189,693        106,345        296,038  

U.S Dollar

     178,442        455,908        634,350        153,361        71,330        224,691  

Brazilian Real

     3,558        1,282        4,840        25,092        2,266        27,358  

Argentine Pesos

     11        29        40        —          356        356  

Chilean Pesos

     1,132        3,387        4,519        902        2,622        3,524  

U.F.

     12,858        40,845        53,703        10,338        29,771        40,109  

Bank Loans

     134,140        61,483        195,623        126,795        72,948        199,743  

U.S Dollar

     130,571        60,172        190,743        101,703        70,326        172,029  

Brazilian Real

     3,558        1,282        4,840        25,092        2,266        27,358  

Argentine Pesos

     11        29        40        —          356        356  

Financial Leases

     9,534        30,866        40,400        9,301        27,561        36,862  

Chilean Pesos

     1,132        3,387        4,519        902        2,622        3,524  

U.F.

     8,402        27,479        35,881        8,399        24,939        33,338  

Other Loans

     52,327        409,102        461,429        53,597        5,836        59,433  

U.S Dollar

     47,871        395,736        443,607        51,658        1,004        52,662  

U.F.

     4,456        13,366        17,822        1,939        4,832        6,771  

Trade and other current payables

     511,371        26,520        537,891        583,018        —          583,018  

U.S Dollar

     146,652        3,510        150,162        174,469        —          174,469  

Euros

     12,006        1,028        13,034        8,808        —          8,808  

Brazilian Real

     4,849        21,982        26,831        25,616        —          25,616  

Argentine Pesos

     31,661        —          31,661        27,068        —          27,068  

Other currencies

     12,244        —          12,244        17,619        —          17,619  

Chilean Pesos

     285,359        —          285,359        324,361        —          324,361  

U.F.

     18,600        —          18,600        5,077        —          5,077  

Accounts payable to related companies

     3,831        —          3,831        7,141        —          7,141  

U.S Dollar

     1,969        —          1,969        962        —          962  

Chilean Pesos

     1,862        —          1,862        6,179        —          6,179  

Other current provisions

     842        —          842        858        —          858  

U.S Dollar

     842        —          842        858        —          858  

Current tax liabilities

     1,641        —          1,641        10,030        946        10,976  

U.S Dollar

     448        —          448        6,380        —          6,380  

Euros

     7        —          7        1,093        —          1,093  

Brazilian Real

     —          —          —          530        —          530  

Argentine Pesos

     133        —          133        24        —          24  

Other currencies

     574        —          574        1,716        —          1,716  

Chilean Pesos

     479        —          479        287        946        1,233  

Current provisions for employee benefits

     5,214        30        5,244        1,751        2,746        4,497  

Chilean Pesos

     5,214        30        5,244        1,751        2,746        4,497  

Other current non-financial liabilities

     87,380        11,783        99,163        117,945        13,778        131,723  

U.S Dollar

     62,974        163        63,137        79,673        13,633        93,306  

Euros

     53        —          53        44        —          44  

Brazilian Real

     9,426        11,616        21,042        22,251        —          22,251  

Argentine Pesos

     3,474        —          3,474        4,428        139        4,567  

Other currencies

     3,202        —          3,202        3,704        —          3,704  

Chilean Pesos

     8,183        4        8,187        7,823        6        7,829  

U.F.

     68        —          68        22        —          22  

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2016

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

 

 

     From 13
months to 5
years
ThU.S.$
     12-31-2016
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

     3,599,291        2,061,543        5,660,834        3,732,206        2,257,489        5,989,695  

Other non-current financial liabilities

     2,020,484        1,850,430        3,870,914        2,141,600        2,095,365        4,236,965  

U.S Dollar

     1,591,127        1,075,204        2,666,331        1,748,723        1,525,269        3,273,992  

Brazilian Real

     17,098        1,042        18,140        13,953        1,929        15,882  

Argentine Pesos

     —          —          —          48        —          48  

Chilean Pesos

     11,151        —          11,151        10,455        —          10,455  

U.F.

     401,108        774,184        1,175,292        368,421        568,167        936,588  

Bank Loans

     626,384        92,351        718,735        648,017        149,782        797,799  

U.S Dollar

     609,286        91,309        700,595        634,016        147,853        781,869  

Brazilian Real

     17,098        1,042        18,140        13,953        1,929        15,882  

Argentine Pesos

     —          —          —          48        —          48  

Financial Leases

     73,586        —          73,586        90,697        —          90,697  

Chilean Pesos

     11,151        —          11,151        10,455        —          10,455  

U.F.

     62,435        —          62,435        80,242        —          80,242  

Other Loans

     1,320,514        1,758,079        3,078,593        1,402,886        1,945,583        3,348,469  

U.S Dollar

     981,841        983,895        1,965,736        1,114,707        1,377,416        2,492,123  

U.F.

     338,673        774,184        1,112,857        288,179        568,167        856,346  

Other non-current provisions

     38,138        —          38,138        34,541        —          34,541  

U.S Dollar

     1        —          1        4        —          4  

Brazilian Real

     5,425        —          5,425        4,410        —          4,410  

Argentine Pesos

     32,712        —          32,712        30,127        —          30,127  

Deferred tax liabilities

     1,479,596        151,469        1,631,065        1,456,888        162,124        1,619,012  

U.S Dollar

     1,412,506        131,406        1,543,912        1,373,597        162,124        1,535,721  

Brazilian Real

     67,090        20,063        87,153        83,291        —          83,291  

Non-current provisions for employee benefits

     60,084        —          60,084        51,936        —          51,936  

Other currencies

     144        —          144        149        —          149  

Chilean Pesos

     59,940        —          59,940        51,787        —          51,787  

Other non-current non-financial liabilities

     989        59,644        60,633        47,241        —          47,241  

U.S Dollar

     430        —          430        392        —          392  

Brazilian Real

     —          59,644        59,644        46,043        —          46,043  

Argentine Pesos

     349        —          349        608        —          608  

Chilean Pesos

     206        —          206        195        —          195  

U.F.

     4        —          4        3        —          3  

 

58


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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 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.

   Chile    Chilean Pesos

Forestal Nuestra Señora del Carmen S.A.

   Argentina    Argentine Pesos

Forestal Talavera S.A.

   Argentina    Argentine Pesos

Greeneagro S.A.

   Argentina    Argentine Pesos

Leasing Forestal S.A.

   Argentina    Argentine Pesos

Savitar S.A.

   Argentina    Argentine Pesos

Flakeboard Company Limited

   Canada    Canadian Dollar

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

 

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

Arauco Do Brasil S.A.

     73,087        (155,390

Arauco Forest Brasil S.A.

     68,314        (140,992

Arauco Florestal Arapoti S.A.

     19,523        (43,189

Arauco Distribución S.A.

     —          (4,180

Arauco Argentina S.A.

     4,989        (13,308

Flakeboard Company Limited

     2,984        (16,915

Others

     (13      (301
  

 

 

    

 

 

 

Total reserve of exchange differences on translation

     168,884        (374,275
  

 

 

    

 

 

 

Effect of changes in foreign exchange rates

 

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

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

     (3,935      (40,827

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

     173,754        (385,109

 

59


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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 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 – December  
     2016     2015  
     ThU.S.$     ThU.S.$  

Property, plant and equipment capitalized cost

    

Property, plant and equipment capitalized interest cost rate

     5.11     4.87

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

     2,177       1,893  

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 consolidated financial statements, the main transactions with related parties are related to fuel purchases with Compañía de Petróleos de Chile S.A. and sodium chlorate purchases at EKA Chile S.A.

As of the date of these 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 Consolidated Financial Statements for Public Use

Empresas Copec S.A.

 

60


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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 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 are equitable in relation to other transactions regularly performed at market conditions, with mutual independence of the parties.

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

 

ID N°

  

Company Name

   Country    Functional
Currency
   % Ownership interest
12-31-2016
     % 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  

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Arauco Australia Pty Ltd.

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

96547510-9

  

Arauco Bioenergía S.A.

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

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Arauco Colombia S.A.

   Colombia    U.S. Dollar      1.4778        98.5204        99.9982        1.4778        98.5204        99.9982  

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Arauco do Brasil S.A.

   Brazil    Brazilian Real      1.1624        98.8366        99.9990        1.2485        98.7505        99.9990  

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Arauco Europe Cooperatief U.A.

   Netherland    U.S. Dollar      0.4614        99.5376        99.9990        0.4843        99.5147        99.9990  

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Arauco Florestal Arapoti S.A.

   Brazil    Brazilian Real      —          79.9992        79.9992        —          79.9992        79.9992  

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Arauco Forest Brasil S.A.

   Brazil    Brazilian Real      10.1297        89.8694        99.9991        10.1297        89.8694        99.9991  

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Arauco Middle East DMCC

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

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Arauco Panels USA, LLC

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

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   Arauco Perú S.A.    Peru    U.S. Dollar      0.0013        99.9977        99.9990        0.0013        99.9977        99.9990  

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Arauco Wood Products, Inc.

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

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Araucomex S.A. de C.V.

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

96657900-5

  

Consorcio Protección Fitosanitaria Forestal S.A.

   Chile    Chilean Pesos      —          57.5404        57.5404        —          57.5404        57.5404  

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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  

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Flakeboard Company Ltd.

   Canada    Canadian Dollar      —          99.9990        99.9990        —          99.9990